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 13 
 
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62d Congress, ) SENATE. j Report 
 
 3d Session. j ) No. 1326. 
 
 A 
 
 CONTROL OF CORPORATIONS, PERSONS, AND FIRMS 
 ENGAGED IN INTERSTATE COMMERCE. 
 
 February 26, 1913.— Ordered to be printed. 
 
 Mr. Cummins, from the Committee on Interstate Commerce, submitted 
 
 the following 
 
 EEPORT. 
 
 [Pursuant to S. Res. 98.] 
 
 The Committee on Interstate Commerce, to which was referred the 
 following resolution — 
 
 Resolved, That the Committee on Interstate Commerce is hereby authorized and 
 directed, by subcommittee or otherwise, to inquire into and report to the Senate at 
 the earliest date practicable what changes are necessary or desirable in the laws of 
 the United States relating to the creation and control of corporations engaged in 
 interstate commerce, and what changes are necessary or desirable in the laws of the 
 United States relating to persons or firms engaged in interstate commerce, and for 
 this purpose they are authorized to sit during the sessions or recesses of Congress, at 
 such times and places as they may deem desirable or practicable; to send for persons 
 and papers, to administer oaths, to summon and compel the attendance of witnesses, 
 to conduct hearings and have reports of same printed for use, and to employ such 
 clerks, stenographers, and other assistants as shall be necessary, and any expense in 
 connection with such inquiry shall be paid out of the contingent fund of the Senate 
 upon vouchers to be approved by the chairman of the committee. 
 
 begs leave to make the following report: 
 
 On the 26th day of July, 1911, the Senate adopted the foregoing 
 resolution, and acting under the authority and in pursuance thereof 
 the Committee on Interstate Commerce provided for open hearings 
 upon the subject matter of the resolution. The hearings began on 
 the 15th day of November, 1911, and were continued from day to 
 day for more than three months, during which time 103 men appeared 
 before the committee, and their statements, together with the ex- 
 hibits and documents submitted by them, fill 2,799 printed pages. 
 A printed copy of these statements, exhibits, and documents, includ- 
 ing an index, laws and reference concerning industrial combinations 
 in foreign countries, and a collection of judicial decisions touching the 
 power of Congress in the regulation of commerce among the States, in 
 all, five volumes, is herewith presented to the Senate. 
 
 While the committee is conscious that some of the matter adduced 
 at the hearings and submitted as a part of this report is not relevant 
 to the questions under consideration and of little worth, it believes 
 that, upon the whole, the hearings have furnished one of the most 
 valuable contributions that can be found in the literature of the 
 
2 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 subject. It is not yet ready to report any of the bills which are 
 now before it, and which propose specific modifications of or additions 
 to the existing statute; nor is it prepared at this time to report a, 
 substitute for them. It hopes that it may be able before the close of 
 the present session to act finally upon these bills and recommend 
 in definite form the legislation which it may think necessary or wise 
 to meet modern business conditions. It is, however, prepared to 
 answer the general inquiries propounded in the resolution, and in 
 view of the overwhelming importance of the subject it ventures to 
 add to the direct response some observations upon the origin, pur- 
 pose, and effect of the enactment commonly known as the anti-trust 
 law, to indicate wherein it is inadequate, and to suggest the general 
 scope of further regulation. 
 
 The committee is of the opinion: 
 
 First. That the statute should stand as the fundamental law upon 
 the subject, and that any supplemental legislation for more effectual 
 control and regulation of interstate and foreign commerce should be 
 in harmony with the purpose of the existing statute. 
 
 Second. That, whatever may be our views respecting the power of 
 Congress to enact a general Federal incorporation law, it is neither 
 necessary nor desirable at this time to provide for the organization 
 under act of Congress of industrial corporations which propose to 
 engage in commerce among the States and with foreign nations. 
 
 Third. That it is desirable to impose upon corporations now or 
 hereafter organized under State law, and engaged or proposing to 
 engage in such commerce, further conditions or regulations affecting 
 both their organization and the conduct of their business, and also 
 to impose further conditions or regulations upon persons, copart- 
 nerships, and other associations now engaged, or hereafter engaging, 
 in such commerce, the general character of such regulation to be 
 the same as those laid upon corporations, except such conditions or 
 regulations as are in their very nature peculiar to the corporate form 
 of commercial activity. 
 
 It is plain that the first question to be answered in considering 
 what additional legislation upon the subject is necessary or desira- 
 ble is a vital one, it is this : Should Congress attempt to maintain 
 competitive conditions in the general interstate commerce of the 
 country, where they still exist, and to restore such conditions where 
 they have been destroyed, or should it accept the complete or partial 
 overthrow of competition and resort to some other method of pro- 
 tecting the people against the power of combination and monopoly? 
 
 Without doubt the chief if not the only object in mind, when the 
 anti-trust law was passed, was to maintain competition as an effective 
 regulating force in business by making it unlawful to enter into any 
 contract or combination in restraint of trade or commerce among the 
 States or with foreign nations, or to monopolize, or attempt to 
 monopolize, such trade or commerce. The bill introduced by Senator 
 Sherman, out of which the present statute grew, was in terms directed 
 against the suppression of competition. After a long debate and much 
 reflection the Judiciary Committee of the Senate reported a substitute 
 in whieh "restraint of trade" was the thing forbidden instead of 
 interference with competition. This was accepted not because there 
 was any abandonment of the desire to preserve competition but 
 because there was a common law on the subject well established and 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 3 
 
 carefully elucidated in the English decisions. The common law was 
 that both contracts and acts in restraint of trade were injurious to 
 the public welfare and therefore opposed to public policy. The Con- 
 gress of 1890 very wisely borrowed the language of the common 
 law and with it came the learning of the judges, who had from time 
 to time declared and expounded it. It is not the purpose of the 
 committee to recite the development of the English doctrine. It 
 was not always stated with exact accuracy and there is some 
 inharmony of expression, but it may be said with confidence that a 
 restraint of trade consisted of such unreasonable restriction of compe- 
 tition as impaired substantially, and to the public injury, the freedom 
 of trade or the freedom to trade. Interference with free competition 
 was generally but not necessarily a restraint of trade, for there were 
 some restrictions that could be put upon competition and upon com- 
 petitors that left the competitive force as an adequate protection to 
 the people. Hence the common law was that unreasonable, unfair, 
 undue restraint upon or interference with competition or competitive 
 conditions constituted a restraint of trade. 
 
 The committee has made this comment upon the common law, 
 and pointed out the distinction between "restraint of competition" 
 and restraint of trade" in order that it may be fully understood in 
 its analysis of the conflict between the earlier and later opinions of 
 the Supreme Court of the United States relating to the construction 
 and application of the anti-trust statute. 
 
 The committee will not at this time enter upon an extended argu- 
 ment respecting the policy of maintaining competition or competi- 
 tive conditions in the business of the country. It is well understood 
 that there are many distinguished students and highly trained 
 thinkers who believe that the age of competition is past, and that 
 for the struggle which competition involves there should be substi- 
 tuted combination and cooperation, under such regulation and super- 
 vision as will protect the people from the oppression of monopolistic 
 power, and added to the students and thinkers who have reached 
 this conclusion through mere observation and investigation there are 
 many men engaged in commerce, and who therefore speak from a 
 practical standpoint, who have also concluded that some form of 
 regulated monopoly or concentration should be adopted. AU these 
 men, whether theorists or otherwise, admit that if we abandon the 
 effort to maintain competition the Government must undertake, 
 directly or indirectly, to fix prices for the combinations or monopolies. 
 The committee feels that the time has not yet come for so radical a 
 departure from the long-established policy of the country, and it 
 hopes that the time may never come when it will be necessary for 
 the Government to assume the task of establishing prices for general 
 commodities. It behaves that the progress of the world depends in 
 a large measure upon that fair, reasonable rivalry among men which 
 has hitherto characterized the advances of civilization. 
 
 It is frequently declared that the law can not compel men employed 
 in like business to compete with each other. There is a sense in 
 which this is true, but it is only technically true. What is meant 
 when we use the phrase "maintaining competition" is maintaining 
 competitive conditions. We can both create and maintain com- 
 petitive conditions, and, until human nature is revolutionized, when 
 competitive conditions exist there will be actual competition; but 
 
4 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMEKCE. 
 
 if for some extraordinary reason that should fail there will be, at least, 
 a potential competition tending to prevent undue prices and unfair 
 practices. Without going further into the issue between regulated 
 competition and regulated monopoly, the committee reiterates its 
 finding that the anti-trust statute should stand and that every pos- 
 sible effort to create and preserve competitive conditions should be 
 made. 
 
 Assuming, therefore, that Congress should maintain the policy 
 established by the anti-trust law and should make it more effective 
 by additional legislation, if it be within our power to do so, the com- 
 mittee calls attention to the interpretation which the Supreme Court 
 has given to the statute and to the application of its provisions which 
 that tribunal has made in cases which have come before it for decision. 
 It is not the intent of the committee in this report, to review the opin- 
 ions of the Supreme Court one by one, but rather to select certain 
 types which will either demonstrate the wisdom of additional legis- 
 lation or show that the law is adequate as it is. 
 
 The committee selects for the purpose indicated the following 
 cases, all of which arose under the statute now being considered: 
 
 United States v. E. G. Knight Co. (156 U. S., 1). 
 United States v. Trans-Missouri Freight Association (166 U. S., 290). 
 United States v. Joint Traffic Association (171 U. S., 505). 
 Hopkins v. United States (171 U. S., 578). 
 
 Northern Securities Company v. United States (193 U. S., 197). 
 Standard Oil Co. v. United States (221 U. S., 1). 
 United States v. American Tobacco Company (221 U. S., 106). 
 United States v. Union Pacific Railtoad Co. (not yet reported, opinion delivered 
 Dec. 2, 1912). 
 
 The committee does not give a statement of the facts in each of 
 these cases, for to do so would greatly prolong the report, and it will 
 be taken for granted that those who are interested in the subject are 
 already familiar with the facts as they appear in the Supreme Court 
 reports. 
 
 The rule of law announced in United States v. Knight Co. and in 
 Hopkins v. United States is that a restraint of trade however un- 
 reasonable is not prohibited by the anti-trust statute, no matter how 
 general or disastrous the interference or restraint may be upon com- 
 merce among the States unless it directly affects such commerce. 
 There is a general understanding among the judges and lawyers of the 
 country that the Knight case has been overruled or modified in sub- 
 sequent decisions. Undoubtedly it can be fairly inferred from the 
 recent opinions of the court in like cases that, if the facts of the case 
 were now presented, it would be held that the restraint was direct; 
 but the rule of law established has never been questioned by the court 
 and has been emphatically reasserted in every prominent opinion 
 hitherto rendered. The committee does not bring these cases for- 
 ward for the purpose of disputing the soundness of the rule under 
 existing legislation. Its object is to disclose, as clearly as possible, 
 the scope of judicial discretion, and therefore of business uncertainty 
 which it creates. In every prosecution under the act wherein there is 
 proven or admitted a contract or combination which restrains trade 
 among the States, the first thing that the court must ascertain and 
 declare is whether the restraint is direct or indirect. In the Knight 
 and Hopkins cases, and others of that type, it was held to be indirect. 
 In the Northern Securities Co., Standard Oil Co., and American 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 5 
 
 Tobacco Co. cases it was held to be direct. It is obvious that the 
 opinion of any given man in any given case upon this question, 
 whether he be judge or not, must depend largely, not upon hislearning 
 in the law but upon Ms training and bent in the economy of com- 
 merce. The result has been, and necessarily will be, that the law 
 officer of the Government before he institutes a prosecution must 
 determine whether the restraint is direct and immediate, and the 
 court in order to decide the issue must employ the functions of the 
 legislator rather than the lawyer. 
 
 The consequence is twofold : First, the Department of Justice will 
 ignore a great many unlawful transactions because there will be doubt 
 as to whether the interference with interstate or international trade 
 is direct or indirect; second, the business community has found itself, 
 and will find itself in a state of uncertainty as to whether a particular 
 transaction is to be judged by the law of the State or the law of the 
 Nation. It is not claimed that this undefined and undefinable field 
 of judicial discretion can be wholly occupied by legislation, but it is 
 manifest that it is the duty of the legislative branch of the Govern- 
 ment to circumscribe it within the closest practicable bounds. The 
 committee will recur to this subject in connection with another aspect 
 of the judicial power, and contents itself now with a statement of its 
 conclusion that there should be further legislation specifically prohibit- 
 ing certain forms of association, combination, or monopoly which ad- 
 mittedly restrain trade and commerce among the States and with 
 foreign nations, but which may be held by the courts to be indirect 
 or remote interferences. 
 
 The committee has first referred to the point just mentioned, not 
 because it is first in importance, but because it first arose. It now 
 passes to another and more serious weakness in the law as now 
 mterpreted. 
 
 In the Trans-Missouri Freight Association case there developed 
 a controversy among the members of the Supreme Court that was 
 carried on with unabated vigor through the 15 years intervening 
 between the opinion in the Freight Association case and the opinion 
 in the Standard Oil Co. case. In this period the vicissitudes of life 
 and the changes upon the bench which necessarily ensued converted 
 the opinion of the court in the Freight Association case into a single 
 dissenting opinion in the Standard Oil Co. case, and the dissenting 
 opinion in the former case into the opinion of the court in the latter 
 case. In the Freight Association case Mr. Justice Peckham, in deliver- 
 ing the opinion of the court, said: 
 
 Second. The next question to be discussed is as to what is the true construction 
 of the statute, assuming that it applies to common carriers by railroad. What is 
 the meaning of the language as used in the statute that "every contract, combina- 
 tion in the form of trust or otherwise, or conspiracy in restraint of trade or commerce 
 among the several States or with foreign nations, is hereby declared to be illegal"? 
 Is it confined to a contract or combination which is only in unreasonable restraint 
 of trade or commerce, or does it include what the language of the act plainly and in 
 terms covers, all contracts of that nature (p. 327)? 
 
 The learned justice answered the question thus propounded many 
 times and in great variety of phrase in the course of the opinion, and 
 the committee quotes some of these answers. 
 
 When, therefore, the body of an act pronounces as illegal every contract or com- 
 bination in restraint of trade or commerce among the several States, etc., the plain 
 and ordinary meaning of such language is not limited to that kind of contract alone 
 which is in unreasonable restraint of trade, but all contracts are included in such Ian- 
 
6 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE; 
 
 guage, and no exception or limitation can be added without placing in the act that 
 which has been omitted by Congress (p. 328). 
 
 But we can not see how the statute can be limited, as it has been by the courts 
 below, without reading into its text an exception which alters the natural meaning 
 of the language used, and that, too, upon a most material point, and where no suffi- 
 cient reason is shown for believing that such alteration would make the statute more 
 in accord with the intent of the lawmaking body that enacted it (p. 329). 
 
 ' ' The arguments which have been addressed to us against the inclusion of all contracts 
 in restraint of trade, as provided for by the language of the act, have been based upon 
 the alleged presumption that Congress, notwithstanding the language of the act, 
 could not have intended to embrace all contracts, but only such contracts as were in 
 unreasonable restraint of trade. Under these circumstances we are, therefore, asked 
 to hold that the act of Congress excepts contracts which are not in unreasonable re- 
 straint of trade, and which only keep rates up to a reasonable price, notwithstanding 
 the language of the act makes no such exception. In other words, we are asked to 
 read into the act by way of judicial legislation an exception that is not placed there 
 by the law-making branch of the Government, and this is to be done upon the theory 
 that the impolicy of such legislation is so clear that it can not be supposed that Con- 
 gress intended the natural import of the language used. This we can not and ought 
 not to do (p. 340). 
 
 "The conclusion which we have drawn from the examination above made into the 
 question before us is that the antitrust act applies to railroads, and that it renders ille- 
 gal all agreements which are in restraint of trade or commerce as we have above denned 
 that expression, and the question then arises whether the agreement before us is of 
 that nature" (p. 341). 
 
 The issue was clearly joined by Mr. Justice White (now Chief Jus- 
 tice), who in his dissenting opinion, in which Justices Field, Gray, 
 and Shiras concurred, thus stated the question: 
 
 ' ' To state the proposition in the form in which it was earnestly pressed in the argumen 
 at bar, it is as follows: Congress has said every contract in restraint of trade is illegal. 
 When the law says every, there is no power in the courts, if they correctly interpret 
 and apply the statute, to substitute the word 'some' for the word 'every.' If Con- 
 gress had meant to forbid only restraints of trade which were unreasonable it would 
 have said so; instead of doing this it has said 'every,' and this word of universality 
 embraces both, contracts which are reasonable and unreasonable" (p. 345). 
 
 The distinguished justice begins his answer to the proposition just 
 quoted as follows: 
 
 I commence, then, with these two conceded propositions, one of law and the other 
 of fact, first that only such contracts as unreasonably restrain trade are violative of the 
 general law, and, second, that the particular contract here under consideration is 
 reasonable, and therefore not unlawful if the general principles of law are to be applied 
 to it (p. 344). ri ^ 
 
 Again: 
 
 Its title is "An act to protect trade and commerce against unlawful restraints and 
 monopolies. The word "unlawful" clearly distinguishes between contracts in 
 restraint of trade which are lawful and those which are not. In other words between 
 those which are unreasonably in restraint of trade, and consequently invalid and thosp 
 which are reasonable and hence lawful (p. 352). 
 
 Again : 
 
 _ If these obvious rules of interpretation be applied, it seems to me thev render it 
 impossible to construe the words "every restraint of trade" used in the act in anv 
 other sense than as excluding^ reasonable contracts, as the fact that such contracts 
 were not considered to be within the rule of contracts in restraint of trade was 
 ad^ed ( 354) n Engknd and in tMs countr y at the time the act was 
 
 Again : 
 
 Indeed, it seems to me there can be no doubt that reasonable contracts can not be 
 embraced within the provisions of the statute if it be interpreted bv the lirfit of thl 
 supreme command that the intention of the law must be carried out and it rn,,«t Ka 
 
 SiXSttp-lw).* 80 " 1 the remedy Md frU8trat<3 the Wr ° ng cont ^plateef by itl 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 7 
 
 It will be noted that but once in the dissenting opinion is the word 
 "unreasonable" used to qualify the phrase "in restraint of trade." 
 It is generally employed to qualify the word "contract." There 
 is some difference between saying that there may be a reasonable 
 interference with competition or freedom in trade or freedom to trade 
 which did not, at the common law, constitute a restraint of trade, and 
 saying that there can be, under our statute, a reasonable restraint of 
 trade. But this was only the beginning. 
 
 Two years later the suit of the United States v. Joint Traffic 
 Association came on for decision. Again Mr. Justice Peckham 
 delivered the opinion of the court, and upon the point we are con- 
 sidering there seems to have been no change in the attitude of the 
 members of the court toward it. It is instructive to observe, how- 
 ever, that in referring to Hopkins v. The United States, in which the 
 opinion was handed down at the same term, the learned justice said: 
 
 In Hopkins v. The United States, decided at this term, post, 578, we say that the 
 statute applies only to those contracts whose direct and immediate effect is a restraint 
 upon interstate commerce * * * the effect upon interstate commerce must not 
 be indirect or incidental only (p. 568). 
 
 Five years thereafter the well-known Northern Securities case was 
 decided, and the struggle was renewed with intense earnestness. 
 Mr. Justice Harlan rendered the opinion of the court, and this is the 
 way he stated the question: 
 
 Is the act to be construed as forbidding every combination or conspiracy in restraint 
 of trade or commerce among the States or with foreign nations? Or does it embrace 
 only such restraints as are unreasonable in their nature? Is the motive with which 
 a forbidden combination or conspiracy is formed at all material when it appears that 
 the necessary tendency of that particular combination or conspiracy in question is 
 to restrict or suppress free competition between competing railroads engaged in com- 
 merce among the States? Does the act of Congress prescribe, as a rule for interstate 
 or international commerce, that the operation of the natural laws of competition 
 between those engaged in such commerce shall not be restricted or interfered with 
 by any contract, combination, or conspiracy (p. 328)? 
 
 In answering the question he probably goes a little further than 
 Justice Peckham. He states as the conclusion to be drawn from 
 former opinions of the courts : 
 
 That the act is not limited to restraints of interstate and international trade or 
 commerce that are unreasonable in their nature, but embraces all direct restraints 
 imposed by any combination, conspiracy, or monopoly upon such trade or commerce; 
 * * * . That every combination or conspiracy which would extinguish competi- 
 tion between otherwise competing railroads engaged in interstate trade or commerce, 
 and which would in that way restrain such trade or commerce, is made illegal by the 
 act; * * *. That to vitiate the combination, such as the act of Congress con- 
 demns, it need not be shown that the combination in fact results or will result in a 
 total suppression of trade or in a complete monopoly, but it is only essential to show 
 that by its necessary operation it tends to restrain interstate or international trade 
 or commerce or tends to create a monopoly in such trade or commerce and to deprive 
 the public of the advantages that flow from free competition (p. 331). 
 
 Whether the free operation of the normal laws of competion is a wise and whole- 
 some rule for trade and commerce is an economic question which this court need not 
 consider or determine. Undoubtedly there arp those who think that the general busi- 
 ness interest and prosperity of the country will be best promoted if the rule of com- 
 petition is not applied. But there are others who believe that such a rule is more 
 necessary in these days of enormous wealth than it ever was in any former period 
 of our history. Be all this as it may, Congress has in effect recognized the rule of 
 free competition by declaring illegal every combination or conspiracy in restraint 
 of interstate and international commerce (p. 337). 
 
 Mr. Justice Brewer was with the majority of the court in the 
 Trans-Missouri Association case, and he concurred in the decision 
 
8 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 in the Northern Securities Co. case; but upon the question we are 
 discussing he rejected the reasoning of Justice Harlan and adopted 
 the views expressed by Justice White in the former case. He said: 
 
 Instead of holding that the antitrust act includes all contracts, reasonable or unrea- 
 sonable, in restraint of interstate trade, the ruling should have been that the con- 
 tracts there presented were unreasonable restraints of interstate trade, and as such 
 within the scope of the act. That act, as it appears from its title, was leveled at 
 only "unlawful restraints and monopolies." Congress did not intend to reach and 
 destroy those minor contracts in partial restraint of trade which the long course of 
 decision at common law had affirmed were reasonable and ought to be upheld. The 
 purpose rather was to place a statutory prohibition with prescribed penalties and reme- 
 dies upon those contracts which were in direct restraint of trade, unreasonable, and 
 against public policy. Whenever a departure from common-law rules and defini- 
 tions is claimed, the purpose to make the departure should be clearly shown. Such 
 a purpose does not appear and such a departure was not intended (p. 361). 
 
 The Chief Justice and Justices White, Peckham, and Holmes dis- 
 sented. Justice White, while discussing many phases of the relation 
 between the General and the State Governments, finally rested his opin- 
 ion upon the Knight case, holding that there was no direct restraint 
 of interstate commerce. Justice Holmes, while concurring with 
 Justice White, took occasion to say, in substance, that the method 
 adopted by the defendants for the suppression of competition did not 
 constitute a restraint of trade in the sense of the anti-trust law. 
 
 With the Northern Securities case there terminated one distinct, 
 striking period in the interpretation and application of the anti-trust 
 statute. It is needless to inquire at length whether or not the views of 
 the court, as expressed in the opinions of Justices Peckham and 
 Harlan, were in exact harmony with the common law as to the mean- 
 ing or definition of the phrase "restraint of trade." Even if these 
 learned judges were not quite successful in distinguishing the differ- 
 ence, at the common law, between a restraint of competition and a 
 restraint of trade, it still remains true that for more than 13 years 
 repeated decisions of the highest tribunal of the country had declared 
 that every contract or combination which prevented free competition 
 was a restraint of trade, and that, if the restraint directly affected 
 commerce among the States, then the contract or combination was 
 unlawful, under the first section of the act. 
 
 Inasmuch as the committee is of opinion that legislation should be 
 so clear in its terms as not to admit of unlimited judicial discretion, 
 it pauses here a moment to point out just what the range of discre- 
 tion was under the decisions ending with the Northern Securities 
 case. It is manifest that the inquiry that the court was then re- 
 quired to make in each case was this : Has the evidence established 
 a restraint of trade; that is to say, has the evidence established a 
 contract or combination which interfered with free competition « 
 
 There was some, but not great latitude for difference of opinion 
 upon such an inquiry, ;md the uncertainty in the application of the 
 law was reduced to a minimum; nor would the uncertainty have 
 been much increased if the inquiry had been as to an unreasonable 
 interference with free competition, which would have been the 
 i quiry had the common-law understanding been strictly adopted 
 by the Supreme Court. 1 
 
 "If the more recent construction of the statute were in harmony 
 with the earlier decisions, further legislation might nevertheless be 
 required; but it is unnecessary to make the inquiry. That question 
 is purely academic, for the later rulings have completely reversed 
 
CORPOBATIONS, ETC., ENGAGED IN 1NTEESTATE COMMERCE. 9 
 
 the former ones, in so far as the phase of the subject now being 
 discussed is concerned. 
 
 On the 15th day of May, 1911, the case of the Standard Oil Co. v. 
 The United States was passed upon .by the Supreme Court. Chief 
 Justice White (formerly Justice White) delivered the opinion and 
 reiterated, as the conclusion of the court, the views that he had so 
 forcibly urged as a dissenter 15 years before. It was not necessary 
 for the court to deal with the question at all, inasmuch as it found 
 the defendants guilty of a restraint of trade under any and every 
 meaning of the term, hut for the very purpose, the committee assumes, 
 of advising the country that a new rule had been adopted so that busi- 
 ness might be guided by it, it was stated in the most emphatic way 
 imaginable that the statute which declares that "Every contract, 
 combination in the form of trust or otherwise, or conspiracy in 
 restraint of trade or commerce among the several States or with 
 foreign nations is hereby declared to be illegal" means that a contract 
 or combination in order to be illegal must cause an undue restraint of 
 trade. The following quotations from the opinion will need no 
 comment: 
 
 That in view of the many new forms of contracts and combinations which were 
 being evolved from existing economic conditions, it was deemed essential by an all- 
 embracing enumeration to make sure that no form of contract or combination by which 
 an undue restraint of interstate or foreign commerce was brought about could save 
 such restraint from condemnation. The statute under this view evidenced the intent 
 not to restrain the right to make and enforce contracts, whether resulting from com- 
 bination or otherwise, which did not unduly restrain interstate or foreign commerce, 
 but to protect that commerce from being restrained by methods, whether old or new, 
 which would constitute an interference that is an undue restraint (pp. 59, 60). 
 
 Again: 
 
 In other words, having by the first section forbidden all means of monopolizing 
 trade — that is, unduly restraining it by means of every contract, combination, etc. — 
 the second section seeks, if possible, to make the prohibitions of the act all the more 
 complete and perfect by embracing all attempts to reach the end prohibited by the 
 first section (p. 61). 
 
 That the Chief Justice intended to announce a rule at variance with 
 the declarations of Justice Peckham and Justice Harlan in the Trans- 
 Missouri Freight Association and Northern Securities cases is made 
 clear in the following extracts : 
 
 The question is pertinent and must be fully and frankly met, for if it be now deemed 
 that the Freight Association case was mistakenly decided or too broadly stated, the 
 doctrine which it announced should be either expressly overruled or limited. * * * 
 And in order not in the slightest degree to be wanting in frankness, we say that in so 
 far, however, as by separating the general language used in the opinion in the Freight 
 Association and Joint Traffic cases from the context and the subject and parties with 
 which the cases were concerned, it may be conceived that the referred to conflicts 
 with the construction which we give the statute, they are necessarily now limited and 
 qualified (pp. 68, 69). 
 
 The learned Chief Justice contends that this rule of construction, 
 which he repeatedly calls the "rule of reason," must be applied in 
 order to prevent the entire overthrow of the statute. 
 
 It is one of the interesting things in our judicial history that so 
 great had been the change in the personnel of the court that when the 
 dissenting opinion of Justice White in 1896 became the opinion of the 
 court in 1911 Justice Harlan was the only member remaining to pro- 
 test against the reversal. He recorded his dissent in one of the most 
 vigorous opinions that can be found in the reports, but for the pur- 
 
10 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 poses which the committee has in view it is not necessary to do more 
 than to mention it. 
 
 Justice Harlan has passed away, and it may be assumed that the 
 Supreme Court is now unanimously in favor of the doctrine so often 
 and so ably promulgated by Chief Justice White. The rule was 
 reasserted in the American Tobacco Co. case and has not since been 
 questioned by any m amber of the court. 
 
 It is true that in the important opinion rendered in the suit of the 
 United States v. The Union Pacific Railroad Co., Justice Day says: 
 
 The act is intended to reach combinations and conspiracies which restrain freedom 
 of action in interstate trade and commerce and unduJy suppress or restrict the play 
 of competition in the conduct thereof — 
 
 Citing as authority the Joint Traffic Association case. 
 
 It is true also that the court quotes, with apparent approval, the 
 following extract from Mr. Justice Harlan in the Northern Securities 
 case: 
 
 In all the prior cases in this court the antitrust act has been considered as forbidding 
 any combination which by its necessary operation destroys or restrains free compe- 
 tition among those engaged in interstate commerce; in other words, that to destroy 
 or restrict free competition in interstate commerce was to restrain such commerce. 
 
 But thereafter the court says: 
 
 In the recent discussion of the history of the meaning of the act in the Standard Oil 
 Co. and Tobacco Co. cases this court declared that the statute should be given a reason- 
 able construction with a view to reaching those undue restraints of interstate trade 
 which are intended to be prohibited and punished. 
 
 The fair conclusion is that it is now the settled doctrine of the 
 Supreme Court that only undue or unreasonable restraints of trade 
 are made unlawful by the anti-trust act, and that in each instance it is 
 for the court to determine whether the established restraint of trade 
 is a due restraint or an undue restraint. 
 
 Whatever may be the opinion of the several members of the com- 
 mittee with respect to the soundness of the rule as now established, 
 the co mmi ttee as a whole accepts it as the present law of the land. It 
 is profoundly convinced that, in view of the rule and its necessary 
 effect upon the business of the country, the inherent rights of the 
 people, and upon the execution of the statute it has become imperative 
 to enact additional legislation. 
 
 The committee has full confidence in the integrity, intelligence, and 
 patriotism of the Supreme Court of the United States, but it is unwill- 
 ing to repose in that court, or anv olaer court, the vast and undefined 
 power which it must exercise in me administration of the statute under 
 the rule which it has promulgated. It substitutes the court in the 
 place of Congress, for whenever the rule is invoked the court does not 
 administer the law, but makes the law. If it continues in force, the 
 Federal courts will, so far as restraint of trade is concerned, make a 
 common law for the United States just as the English courts have 
 made a common law for England. 
 
 The people of this country will not permit the courts to declare a 
 pohcy for them with respect to this subject. If we do not promptly 
 exercise our legislative power, the courts will suffer immeasurable 
 injury in the loss of that respect and confidence so essential to their 
 usefulness. It is inconceivable that in a country governed bv a 
 written Constitution and statute law the courts can be permitted 
 to test each restraint of trade by the economic standard which the 
 individual members of the court may happen to approve. If we do 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 11 
 
 not speedily prescribe in so far as we can a legislative rule by which 
 to measure the forms - of contract and combination in restraint of trade 
 with which we are familiar or which we can anticipate, we cease to be 
 a Government of law and become a Government of men, and, more- 
 over, of a very few men, and they appointed by the President. 
 
 It may be that the Supreme Court will be so enlightened and so 
 alert that its opinion respecting what is due and what is undue 
 restraint of trade will be in harmony with an awakened public 
 conscience and a disinterested public judgment, but to fashion our 
 conduct upon that hypothesis is to repudiate the fundamental 
 principles of representative government. 
 
 When the commercial development of the country is considered, 
 when the forms of industrial activity are taken into account, it must- 
 be admitted by every student of affairs that the policy of the Gov- 
 ernment with respect to restraints of trade and commerce should 
 remain a judicial question in those cases only in which Congress 
 can not prescribe a definite rule. 
 
 In order to look at the subject in the light of illustration, it is 
 suggested that there will presently come before the courts the com- 
 bination centered in the United States Steel Corporation. In the end 
 nine justices of the Supreme Court will be asked to say whether the 
 restraint of trade brought about through this combination is a due 
 or an undue restraint, and the answer which each justice makes to 
 that question will depend upon his individual opinion as an econo- 
 mist or sociologist, the conclusion of the court being in substance 
 an act of legislation passed by the judical branch of the Government 
 to fit a particular case. 
 
 Further, it is believed by many thoughtful people that a sub- 
 stantial identity in the managing boards of competing corporations 
 constitutes a restraint of trade and is harmful to the public interest . 
 If such a case were brought before the court, what would be the 
 "rule of reason ? " What guide would the court have in determining 
 whether such community of directors or managers was a due or an 
 undue restraint of trade ? 
 
 Again, suppose there were a dozen establishments in a given field 
 of production competing with each other and six of them were to 
 consolidate, employing half of all the capital and advancing the 
 consolidated enterprise to a dominating position in the trade, where 
 would the judge go for light in determining whether the restraint 
 of trade was due or undue? These illustrations might be indefi- 
 nitely extended, but it would serve no useful purpose to multiply 
 them. 
 
 The committee does not intend in this report to indicate the terms 
 of the act or acts that should be passed to supply the court with such 
 legislative tests and standards as will limit the scope of judicial dis- 
 cretion. To do so would be to report upon the bills now before it, 
 and that the committee is not prepared to do. It is prepared, how- 
 ever, to say that Congress should, in as far as is possible, specifically 
 prescribe certain conditions upon which persons and corporations shall 
 be permitted to engage in commerce among the States and with foreign 
 nations. These conditions should be of a character that will tend to 
 preserve reasonable competition, or substantially competitive condi- 
 tions, and to compel independence in both organization and conduct. 
 They should be so clear that the business world can understand them 
 and go confidently forward, guided by them. 
 
12 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 Not only should such conditions be imposed upon those who are 
 engaged or propose to engage in commerce among the States, but our 
 legislation should further recite certain known forms of combination 
 and declare them to be unlawful because in restraint of trade. With 
 respect to other forms, we should declare that if restraint is estab- 
 lished the burden of proof is upon the persons or corporations involved 
 to show that the restraint is reasonable. 
 
 These suggestions are not made solely for the better protection of 
 that general body of our citizens, commonly called the people, who 
 must deal with, buy from, and sell to the combinations sought to be 
 regulated, but are made also in the interest of safety and certainty for 
 the men who compose what is ordinarily known as the business com- 
 munity. 
 
 There are many forms of combination, and many practices in busi- 
 ness which have been so unequivocally condemned by the Supreme 
 Court that as to them and their like the statute is so clear that no 
 person can be in any doubt respecting what is lawful and what is 
 unlawful; but as the statute is now construed there are many forms 
 of organization, and many other practices that seriously interfere with 
 competition, and are plainly, opposed to the public welfare, concerning 
 which it is impossible to predict with any certainty whether they will 
 be held to be due or undue restraints of trade. 
 
 The committee does not conceal the difficulty of reaching an agree- 
 ment concerning the details of the legislation just outlined, but it has 
 no hesitation in reporting that legislation of the general character 
 pointed out is both wise and necessary. 
 
 The committee further reports that if the additional legislation, the 
 general scope of which has been pointed out, is enacted it will be 
 very desirable to accompany such legislation with a measure estab- 
 lishing a commission for the better administration of the law and 
 to aid in its enforcement. It may be fairly said that there is need 
 of such a commission, even though the present statute is not sup- 
 plemented in any manner; but it is apparent that if the new legis- 
 lation is enacted the need of a commission will become more imperative. 
 
 There are three general fields in which the commission could work 
 to the great advantage both of the people for whose protection the 
 law exists and the people against whom it is directed. 
 
 First. If the Bureau of Corporations were converted into an inde- 
 pendent commission composed of trained, skillful men, and clothed 
 with adequate authority, there could be gathered more complete and 
 accurate knowledge of the organization, management, and practices of 
 the corporations and associations engaged in national and interna- 
 tional commerce than we now have. In saying this the committee 
 does not mean to disparage the work of the Bureau of Corporations 
 as hitherto carried on, but, valuable as the work has been, it is believed 
 that a greater service could be rendered by a commission with a dis- 
 tinct organization with adequate appropriations and added authority. 
 Moreover, it is clear that the constant inquiry into and investigation 
 of interstate commerce in order to ascertain whether the law is being 
 violated should be more closely connected with prosecutions for 
 violations, when found to exist, than at the present time. 
 
 Second. When the conditions upon the fulfillment of which per- 
 sons and corporations may engage in commerce among the States and 
 with foreign nations are imposed, as the committee has heretofore 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 13 
 
 recommended, there will be some of them upon which the Govern- 
 ment must act with administrative promptness rather than with 
 judicial deliberation and delay. For instance, suppose Congress Were 
 to declare, as the committee thinks it ought to declare, that no corpo- 
 ration should be permitted to engage in interstate or international 
 commerce unless it be honestly capitalized, and that when anything 
 but money is accepted for its stock that the value at which the prop- 
 erty is so taken must be its fair, reasonable value. It seems clear that 
 a corporation proposing to enter business should have an opportunity 
 to come to some governmental tribunal and say, here is the property 
 purposed to be taken for stock, and here is the price at which it is to 
 be taken, and thereupon ask for approval or disapproval of the propo- 
 sition. It would be most unjust in such a case to allow the corpora- 
 tion to go on for years and then be told that it must cease to do busi- 
 ness because the value of the property was less than the par value 
 of the stock issued for it. 
 
 And, again, suppose that 10 out of 20 manufacturing establish- 
 ments heretofore in competition with each other desire to consoli- 
 date into one enterprise. There ought to be a way in which the men 
 in such a venture could submit their plan to the Government and an 
 inquiry made as to the legality of such a transaction, and if the 
 Government was of the opinion that competitive conditions would 
 not be substantially impaired there should be an approval, and in so 
 far as the lawfulness of the exact thing proposed is concerned there 
 should be a decision, and if favorable to the proposal there 
 should be an end of that particular controversy for all time. Such 
 results as these can be attained in no other way than through a com- 
 mission which, though administrative in its character, would, in some 
 instances, exercise quasi judicial functions. It is believed that 
 through the intervention of such a body of men the legislative policy 
 with respect to combinations and monopolies could be vastly more 
 effectual than through the courts alone, which in most cases wdl take 
 no cognizance of violations of the law for months or years after the 
 violations occurred and when the difficulty of awarding reparation 
 for the wrong is almost insurmountable. 
 
 The committee has not attempted to be comprehensive as to the 
 usefulness of the commission in this field, and has made these sug- 
 gestions only to indicate in the most general way the assistance 
 that could be rendered in the enforcement of the law. 
 
 Third. One of the most serious problems in connection with suits 
 brought under the antitrust act is to find the proper method of dis- 
 integrating combinations that have been adjudged unlawful. The 
 dissolution of a corporation or a series of associated corporations 
 must often involve the consideration of plans for reorganization in 
 order that the property which has been unlawfully employed may 
 thereafter be lawfully used in commerce. The courts are not fitted 
 for the work of reconstruction, and whatever jurisdiction they now 
 have, or that may hereafter be conferred upon them with respect to 
 such matters, it can not be gainsa : d that a commission, the members 
 of which are in close touch with business affairs, and who are inti- 
 mately acquainted with the commercial situation, might be extremely 
 helpful in the required readjustment. 
 
 Respectfully submitted. 
 
ADDITIONAL VIEWS OF MR. POMERENE. 
 
 With the report in general I am in accord. But there is one 
 feature of it about which I desire to be more explicit, and that is the 
 paragraph discussing the certainty of the provisions of the Sherman 
 law as applicable to certain cases and its uncertainty as applicable to 
 others. 
 
 I approve the view that — 
 
 There are many forms of combination and many practices in business which have 
 been so unequivocally condemned by the Supreme Court that as to them and their like 
 the statute is so clear that no person can be in any doubt respecting what is lawful and 
 what is unlawful. 
 
 There are other forms of organization and acts which seriously 
 interfere with competition, such as interlocking directories, watering 
 of stock, selling of merchandise in one locality at a less price than in 
 another, and other practices which are so contrary to sound business 
 principles and good morals that they can and should be specifically 
 controlled or prohibited by statute. As to these, in the interest of 
 certainty, there should be other and further legislation. But, what- 
 ever may be the additional legislation, there will be many other con- 
 tracts, combinations, and practices in "undue and unreasonable 
 restraint of trade," which it is impossible for Congress to define by 
 statute, because any attempt to so define them will, in practice, be 
 found to exclude many other contracts, combinations, and practices 
 which are equally inimical to the public good. As to these, we must 
 always depend upon the sound wisdom and discretion of courts and 
 juries for relief, just as in the past we have been obliged to trust to 
 their judicial administration. 
 
 To illustrate: We know that legislatures and courts have con- 
 stantly refused to define fraud because the multiplicity of acts and 
 circumstances involved in human affairs make it impossible of 
 definition. 
 
 The same may be said with equal truth as to what constitutes 
 "undue or unreasonable restraint of trade." 
 
 It is said with a great deal of force that men are not always able 
 to tell in advance whether certain acts are in "undue or unreasonable 
 restraint of trade." But however difficult this may be, it is no 
 reason why they should be left for decision to the selfishness of 
 interested parties uncontrolled by judicial decision under the prin- 
 ciples of the common law or under the broad provisions of the 
 Sherman law. 
 
 In criminal cases it is often difficult to say in advance whether a 
 given state of facts constitutes a reasonable doubt. But is that a 
 reason why courts and juries should not attempt to say in a specific 
 case whether there was, m fact, a reasonable doubt or not « 
 
 In negligence cases it is equally difficult to say whether a given 
 state of tacts constitutes contributory negligence on the part of the 
 14 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 15 
 
 plaintiff or reasonable care on the part of the defendant. But can 
 this be urged as a reason for not leaving special cases to the judgment 
 of the court and jury 1 
 
 In my judgment, what is "undue or unreasonable restraint of 
 trade" must, in many cases if not in most cases, be left largely 
 for judicial determination and sound judgment and good morals will 
 be a sufficient guide for those who are actuated by a proper public 
 spirit rather than by selfish motives. 
 
 While I believe there can be some additional legislation along the 
 lines indicated, I am firmly-of the opinion that the Sherman law is a 
 clear and certain guide for reasonable men who desire to comply 
 with the law and do not exert themselves to evade its provisions. 
 
 Atlee Pomerene. 
 
ADDITIONAL VIEWS OF MR. TILLMAN. 
 
 The undersigned, after carefully considering the antitrust statute 
 or Sherman law, agrees to the first proposition laid down by the com- 
 mittee contained on the second page of this report, and to that por- 
 tion of the second proposition beginning with the words, "it is neither 
 necessary nor desirable at this time to provide for the organization 
 under act of Congress of industrial corporations which propose to 
 engage in commerce among the States and with foreign nations." 
 It would be unwise for Congress to interfere by Federal corporation 
 acts, and he believes it wiser to leave such things where they now 
 are, to the States. 
 
 With the third proposition the undersigned is not now prepared 
 to express concurrence, preferring to wait until the specific condi- 
 tions and regulations contemplated are presented for decision. 
 
 He assents to the lucid and masterly exposition in the report of 
 the vacillation of the Supreme Court of the United States, which has 
 made the minority opinions of 15 years ago become the majority 
 opinions now. That powerful tribunal has thus reversed the law on 
 a most important question relative to crimes in connection with 
 trusts and monopolies, and instead of a congressional statute we have 
 judge-made law. These opinions were rendered in lawsuits of all 
 sorts; and thus made by piecemeal, instead of properly explaining 
 and denning the scope of the antitrust law, have made it a judicial 
 question to be decided by the judges trying the case, whether a proven 
 destruction of competition operating as a restraint of trade is to be 
 prohibited and punished because contrary to law, or is to be allowed 
 to go unwhipped of justice because the judges think it is not an 
 "unreasonable" crime, but one which may be permitted. 
 
 The undersigned agrees that Congress should legislate so as to 
 destroy any such preposterous and dangerous judicial discretion, 
 because such discretion was never contemplated by the Constitution. 
 
 The undersigned is not now prepared to say that a new national 
 commission should be established for the better administration of the 
 antitrust law. He is inclined to believe that we have too many com- 
 missions now, composed largely of so-called "lame ducks," both 
 Democrats and Republicans, who have been defeated at the polls 
 and are given these places mainly as a compensation and means of 
 support. He thinks Congress ought to perform its own functions 
 rather than surrender them to commissions thus created by Executive 
 appointment. 
 
 He does not assent to the particular language used on any point 
 in the report of the committee, except where he has specificallv so 
 stated. l J 
 
 As the committee is not now ready to propose specific measures of 
 legislation, he prefers to wait and to listen to the recommendations of 
 the incoming President of the United States. 
 
 16 B. R. Tillman. 
 
ADDITIONAL VIEWS OF MH. GORE. 
 
 I concur in the main body of the report and in the conclusions 
 arrived at, except as to the specific recommendation looking to the 
 establishment of a commission. Upon that recommendation I re- 
 serve my judgment for the present. I could not yield my assent to 
 this proposition without first considering both the principles and 
 details of any measure proposing such a commission. My ultimate 
 assent would depend upon the constitution and character of the com- 
 mission and upon the extent and limitation of its powers and pur- 
 Eoses. It may be possible that a commission could with propriety 
 e vested with power to pass upon the form of a proposed organi- 
 zation, but no commission should have authority to grant indulgences 
 as to the methods, conduct, and operations of any such organization. 
 
 T. P. Gore. 
 
 S. Rept. 1326, 62-3- 2 17 
 
ADDITIONAL VIEWS OF MR. NEWLANDS. 
 
 Whilst I agree with the general conclusion reached by Mr. Cum- 
 mins in his report, I have not been able to study with sufficient care 
 the decisions of the Supreme Court relating to the trusts to enable 
 me to form an independent opinion as to his analysis of them. For 
 years I have contended that if at the time the Sherman Act was 
 passed (the date of its passage being almost contemporaneous with 
 that of the interstate-commerce act regarding the railroads) we had 
 organized an interstate trade commission similar to the Interstate 
 Commerce Commission, and with somewhat similar powers of in- 
 vestigation and correction, we would have prevented or remedied 
 many of the abuses which have since grown up, and that we would 
 have gradually evolved a system of commercial law, through admin- 
 , istrative process, as complete as that which has been built up regard- 
 ing our system of transportation. 
 
 I presented my views relating to this matter at the first hearing 
 of this committee regarding the control of corporations on the 4th 
 day of August, 1911, and on the lGth of November, 1911 (hearings, 
 pp. 1 to 26, inclusive). I then discussed a bill for the organization 
 of an interstate trade commission (Senate bill No. 2941), which 
 was introduced by me on the 5th of July, 1911, and a substitute bill 
 of the same number, introduced by me August 21, 1911. 
 . As a result of the additional light shed upon this subject by the 
 hearings, I introduced in the Senate, on February 26, .1912, a bill 
 (Senate bill 5485, 62d Cong., 2d sess.) entitled "A bill to create 
 an Interstate Trade Commission," etc. 
 
 Later on, as a result of subsequent consideration, this bill has been 
 amended, and I present it with the alterations as a tentative proposal 
 for criticism and suggestion. The bill as amended is annexed hereto. 
 
 Whilst I believe that the Sherman Antitrust Act should not be 
 altered, I believe that it should be supplemented by such legislation 
 as is shown to be necessary by the experience of the time. Such 
 variety of view exists as to what this supplementary legislation shall 
 be that I do not believe early legislation on this line is practicable. 
 But I do believe that all can agree upon an Interstate Trade Commis- 
 sion with powers of investigation and correction, and with the power 
 to aid the courts in the administration of the Sherman Act and other 
 supplementary legislation; and I believe that such a commission 
 should be organized immediately, so that Congress can soon have 
 the benefit of the recommendations which it will make as the result 
 of its experience. 
 
 I shall not enter into any labored argument upon this question I 
 shall simply content myself with quoting from previous utterances 
 in the Senate. 
 
 In the Senate, January 11, 1911: 
 
 Mr. Newlands. * * * The railroad commission bill furnishes a model for 
 the action of Congress upon matters involving minute and scientific investiga- 
 18 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 19 
 
 tion. Had we followed the same method regarding trusts that we followed 
 regarding railroads, we would have made much better progress in trust regu-: 
 lation. The antitrust act was passed 21 years ago, about the same time that 
 the railroad commission was organized. The railroad question is practically- 
 settled ; the settlement of the trust question has hardly been commenced. Had 
 we submitted the administration of the antitrust act to an impartial quasi 
 judicial tribunal similar to the Interstate Commerce Commission instead of to 
 the Attorney General's office, with its shifting officials, its varying policies,, its- 
 lack of tradition, record, and precedent, we would by this time have :made, 
 gratifying progress in the regulation and control of trusts, through the quasi; 
 judicial investigations of a competent commission and through legislation based 
 upon its recommendations. As it is. with the evasive and shifting incumbency , 
 and administration of the Attorney General's office, oftentimes purely political'. 
 in character, we find that the trusts are more powerful to-day than when the 
 antitrust act was passed, and that evils have grown up so interwoven with the 
 general business of the country as to make men tremble at the consequence of 
 their disruption. 
 
 In the Senate, May 16, 1911 : 
 
 Mr. Newlands. Mr. President, whilst I was addressing the Senate yesterday 
 upon the importance of taking up immediately certain questions upon which 
 public opinion has been formed, and crystallizing them into legislation, I re- 
 ferred, among others, to the great questions of the combinations of capital 
 called trusts which have assumed of late years so powerful and menacing an ,- 
 aspect. * * * ' .,, 
 
 The Supreme Court yesterday acted upon this matter with reference to one: 
 of the great trusts in a decision which applies to them all, and, as the result 
 probably of the inertia and the inaction of Congress, has taken upon itself what 
 the dissenting member of that court, Mr. Justice Harlan, declared to be judicial 
 legislation, and has written into the statute words which Congress never put, 
 there ; and so to-day we have a decision upholding the antitrust act so far as it ■■ 
 applies to unreasonable restraint of trade. 
 
 The question, therefore, presents itself to us whether we are to permit in 
 the future the administration regarding these great combinations to drift prac- 
 tically into the hands of the courts and subject the question as to the reason- 
 ableness or unreasonableness of any restraint upon trade imposed by these 
 corporations now existing and to be brought into existence in the future to the 
 varying judgments of different courts upon the facts and the law, or whether 
 we will organize, as the servant of Congress, an administrative tribunal similar 
 to the Interstate Commerce Commission, with powers of recommendation, with 
 powers of condemnation, with powers of correction similar to those enjoyed by 
 the Interstate Commerce Commission over interstate transportation. 
 
 * * * * * * * i 
 
 * * * What has been our experience regarding that branch of interstate 
 commerce which covers transportation? Our experience has been that 20 years 
 ago, just about the time the antitrust act was passed, Congress passed the inter- 
 state-commerce act, creating a commission as its servant to attend to its duties 
 under rules prescribed by Congress. The regulation of interstate commerce; 
 belonged to Congress. Congress wisely saw that it could not undertake that 
 regulation in all its details; that it could not pass rate bills which would be ; 
 satisfactory to every section of the country ; that it could not reduce rates that 
 were claimed to be excessive and increase rates that were claimed to be too low ; 
 that it could not correct the varying abuses which creep into the administration' 
 of every great enterprise. Therefore it created this commission as its servant, 
 to carry out its will under rules established by it. 
 
 The history of the last 23 years proves the wisdom of our action. By a 
 gradual process of evolution this commission, as the result of gradual improve- 
 ments in legislation and as the result of constantly increasing powers recpm-, 
 mended by it and affirmed by Congress, has become a tribunal second in.impor-. 
 tance only to the Supreme Court of the land. It has made transportation a 
 science. It has studied all the intricate questions relating to it, and in a recent 
 illuminating decision has formulated a great state paper that has impressed the 
 country and the world with its wisdom. 
 
 Now, contrast that action with other action taken by Congress regarding 
 the trusts. It would have been possible 23 years ago, when the interstate-, 
 commerce act was passed, with reference to interstate trade, to have established, 
 
20 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 an industrial or trade commission or board similar to the Interstate Commerce 
 Commission with reference to transportation. If we had done so and had put 
 upon that commission the same class of men who have been appointed upon 
 the Interstate Commerce Commission, we would have had the constant cor- 
 rective power of that commission applied both to the existing trade corporations 
 and to the trade corporation afterwards created. Many abuses would have 
 been prevented. Many abuses would have been corrected. As a result of the 
 constant study and inquiry of a competent board engaged in this work as a 
 specialization recommendations would have been made to Congress which would 
 have been accepted, as were those recommendations made with reference to 
 interstate transportation, and a great body of administrative law would have 
 been built up and combinations of capital would have been effected without the 
 abuses which have existed during the past 23 years. * * * 
 
 In the Senate, June 22, 1911 : 
 
 Mr. ^Jewlands. What is the second one which I suggested? I suggested legis- 
 lation providing, in connection with the Bureau of Corporations, for a board of 
 interstate trade, with powers of examination, correction, and recommendation 
 with regard to interstate trade similar to those conferred upon the Interstate 
 Commerce Commission regarding interstate transportation. This resolution 
 was offered before the recent decision of the Supreme Court regarding the 
 trusts, and I then declared that, whatever might be the decision of that court, 
 the creation of such a commission was essential. Interstate trade is just as 
 much a part of interstate commerce as interstate transportation. The abuses 
 of interstate trade have become just as great as the abuses of interstate trans- 
 portation in the past have been. Obviously the teachings of experience lead us 
 to the organization of a commission or board similar to the Interstate Com- 
 merce Commission, with a view of taking hold of the great combinations of 
 capital and making them obedient to the law, giving such a commission powers 
 of examination, recommendation, and condemnation similar to those enjoyed 
 by the Interstate Commerce Commission. 
 
 Since that decision the trust managers themselves have seen a great light, 
 and in public examinations have stated that in their judgment the time has come 
 for as complete regulation of corporations engaged in interstate trade as of 
 corporations engaged in interstate transportation. Whether that regulation 
 will ever extend so far as the regulation of the price itself is a matter to be 
 determined in the future, for Congress will be called upon to decide how great 
 these corporations shall be, what the extent of their capital shall be, what 
 number of plants they shall own, and what shall be the extent of their opera- 
 tions. If Jthey conclude to maintain the principle of competition, even though it 
 leads to destruction, there will then, of course, be no necessity of regulating 
 prices. But if they recognize the principle of helpful cooperation instead of 
 destructive competition, then it will be necessary for them in extreme cases to 
 face the question of the regulation of prices just as the prices of any public 
 utility are regulated. 
 
 I do not venture to express an opinion now as to what course should be 
 pursued with reference to this great question, but it is time that the Interstate 
 Commerce Committee of the Senate were entering upon an inquiry of the most 
 important question in economics that has engaged the attention of the country 
 since the railroad question was first presented to it. 
 
 Quotation from Mr. Newlands's statement before the committee 
 on the 15th day of November, 1911 (hearings, p. 25) : 
 
 I may later on have something further to lay before this committee regarding 
 this bill ; but I wish to state at present that since the bill was introduced there 
 has been a wide discussion throughout the country upon two divergent lines of 
 thought, one insisting upon absolutely free and unrestricted competition as the 
 regulator of corporate business, and the other inclining toward allowing large 
 combinations of capital and applying thereto Government supervision and direc- 
 tion as the prime regulator It is difficult to say now which of these opposing 
 tendencies should or will ultimately prevail. The bill which I have introduced 
 is, in my judgment, adapted to this undeveloped situation. It will helo ns to de- 
 termine which of these theories is the correct one; it will furnish to Congress 
 and to the public the accurate and broad information on corporate conditions 
 that is necessary to determine the line of further advance. It does not affect the 
 operation or the enforcement of the Sherman law; its work of publicity and 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 21 
 
 supervision will tend to promote fair competition and keep equally open to all 
 the highways of commerce. On the other hand, it takes the situation as it is, 
 
 ™£ff ?ho^ at „£ ere iS 1,'T. degree of combination already existing, and 
 makes that condition a subject for supervision, study, and report to Congress. 
 Its frankly tentative character and its moderation recommend it as a step upon 
 whicH all can unite in doing what is imperatively needed for the present, with- 
 out prejudicing the future. 
 
 I trust that the committee will see the wisdom, without waiting for the end 
 of this investigation, of recommending this tentative measure, which will aid in 
 the final solution of all the pressing questions relating to trade corporations. 
 
 Appendix. 
 
 The following is the Interstate Trade Commission bill as tenta- 
 tively amended by the Senate Committee on Interstate Commerce: 
 
 [S. 5485, Sixty-second Congress, second session.] 
 
 A BIL.L To create an Interstate Trade Commission, to define its powers and duties, 
 
 and for otlier purposes. 
 
 Be it enacted by the Senate and House of Representatives of the United States 
 of America in Congress assembled, That this act shall be referred to and cited as 
 the Interstate Trade Commission act. Corporations a majority of whose voting 
 securities is held or owned by any corporation subject to the terms of this act 
 are referred to herein as subsidiaries of such holding or owning corporation. 
 
 Sec. 2. That there is hereby created a body to be known as the Interstate 
 Trade Commission, which shall consist of three members, of whom no more 
 than one two shall belong to the same political party. The commission shall 
 be appointed by the President, by and with the advice and consent of the Senate, 
 and the terms of such commissioners so first appointed shall be three, six, and 
 nine years, respectively, and shall be so designated by the President in making 
 such appointments; and thereafter all the commissioners shall hold office for 
 the term of nine years, and shall be appointed by the President, by and with 
 the advice and consent of the Senate. Vacancies shall be filled by like appoint- 
 ment and confirmation for the unexpired term. Each member of said commis- 
 sion shall receive a salary of $10,000 a year. The office of the commission 
 shall be at Washington, in the District of Columbia, but the commission may 
 hold meetings elsewhere when necessary and convenient. 
 
 Sec. 3. That the Bureau of Corporations is hereby transferred to and merged 
 in said commission, and all of the powers, duties, records, papers, and funds be- 
 longing or pertaining to the Bureau of Corporations shall hereafter belong and 
 pertain to the Interstate Trade Commission, and all the officers and employees 
 of said bureau shall thereupon be officers and employees of the Interstate Trade 
 Commission. The said commission shall also have a secretary, a chief clerk, 
 and such clerks, inspectors, examiners, experts, messengers, and other assistants 
 as from time to time may be necessary and as may be appropriated for by 
 Congress. 
 
 Sec. 4. That all corporations engaged in commerce among the several States 
 or with foreign nations, excepting common carriers, shall from time to time 
 furnish to the commission such information, statement, and records of their 
 organization, business, financial condition, conduct, and management and the 
 organization, business, financial condition, conduct, and management of their 
 subsidiaries at such time, to such degree and extent, and in such form as may 
 be prescribed by the commission: and the commission at all reasonable times, 
 or its duly authorized agent or agents, shall have complete access to all records, 
 accounts, minutes, books, and papers of such corporations and their subsidiaries, 
 including the records of any of their executive or other committees. Failure 
 or neglect on the part of any corporation subject to this act, or of any of its 
 subsidiaries, to comply with the terms of this section within such time after 
 written demand shall have been made upon such corporation by the commission 
 requiring such compliance, as shall be fixed by the commission, shall constitute 
 a misdemeanor, and upon conviction such corporation shall be subject to a fine 
 of not more than $1,000 for every day of such failure or neglect. 
 
22 CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 
 
 Sec. 5. The information so obtained shall be public records, and the commis- 
 sion shall from time to time make public such information in such form and to 
 such extent as it may deem necessary. 
 
 Sec. 6. That the district courts of the United States, upon the application of 
 the commission alleging a failure to comply with any order of the commission 
 or alleging a failure to comply with or a violation of any of the provisions' of 
 this act by any corporation subject thereto, shall have jurisdiction to issue a 
 writ or writs of mandamus or injunction or other order enforcing such order 
 of the commission or commanding such corporation, its officers and employees', 
 to comply with the provisions of this act. 
 
 Sec 7. That for the purposes of this act the commission shall have the power 
 to require by subpoena the attendance and testimony of witnesses and the pro- 
 duction of all books, papers, contracts, agreements, documents, or other things 
 of every kind and nature whatsoever relating to any matter under investiga- 
 tion by the commission. Such attendance of witnesses and the production of 
 such documentary evidence may be required from any place in the United 
 States at any designated place of hearing, and in case of disobedience to a 
 subpoena the commission, or any party to a proceeding before the commission, 
 may invoke the aid of any court of the United States in requiring the attend- 
 ance and testimony of witnesses and the production of books, papers, and 
 documents under the provisions of this section. 
 
 And any of the circuit courts of the United States within the jurisdiction of 
 which such inquiry is carried on may, in case of contumacy or refusal to obey 
 a subpoena issued to any corporation subject to the provisions of this act, or 
 other person, issue an order requiring such corporation, or other person, to 
 appear before said commission (and produce books, documents, and papers, if 
 so ordered) and give evidence touching the matter in question, and any failure 
 to obey such order of the court may be punished by such court as a contempt 
 thereof. The claim that any such testimony or evidence may tend to criminate 
 the person giving such evidence shall not excuse such witness from testifying. 
 
 The testimony of any witness may be taken at the instance of a party in any 
 proceeding or investigation pending before the commission by deposition at 
 any time after the inquiry is instituted. The commission may also order testi- 
 mony to be taken by deposition in any proceeding or investigation pending 
 before it at any stage of such proceeding or investigation. Such deposition 
 may be taken before any person authorized so to do by the commission and who 
 has power to administer oaths. 
 
 Any person may be compelled to appear and depose, and to produce docu- 
 mentary evidence, in the same manner as witnesses may be compelled to appear 
 and testify and produce documentary evidence before the commission as here- 
 inbefore provided. Such testimony shall be reduced to writing. 
 
 Witnesses whose testimony is taken under the provisions of this act shall 
 severally be entitled to the same fees as are paid for like service in the courts 
 of the United States. 
 
 No person shall be excused from attending and testifying, or from producing 
 books, papers, documents, or other things before this commission or in obedience 
 to the subpoena of the commission whether such subpoena be signed or issued by 
 one or more of the commissioners on the ground or for the reason that the 
 testimony or evidence, documentary or otherwise, required of him may tend 
 to criminate him or subject him to a penalty or forfeiture. But no natural 
 person shall be prosecuted or subjected to any penalty or forfeiture for or on 
 account of any transaction, matter, or thing concerning which he may testify 
 under oath or produce evidence, documentary or otherwise, before said com- 
 mission in obedience to a subpoena issued by it in a proceeding instituted upon 
 its own initiative : Provided, That no person so testifying shall be exempt from 
 proscution and punishment for perjury committed in so testifying. The pur- 
 pose of this provision is to give immunity only to natural persons who under 
 oath testify in response to a subpoena of the commission in an inquiry instituted 
 by the commission. 
 
 Sec. 8. That the said commission shall, on or before the first day of January 
 in each year, make a report, which shall be transmitted to Congress This 
 report shall contain such information and data collected by the commission as 
 it may deem of value in the determination of questions connected with the 
 regulation of commerce, together with such recommendations as to additional 
 legislation relating thereto as the commission may deem necessary 
 
 Sec. 9. That any person willfully making or furnishing to said' commission 
 any statement, return, or record required by this act, when knowing such state- 
 
CORPORATIONS, ETC., ENGAGED IN INTERSTATE COMMERCE. 23 
 
 merit, return, or record to be false in any material particular, shall be guilty of 
 a misdemeanor, and upon conviction shall be fined not more than $1,000 or 
 imprisoned not more than one year, or both. 
 
 Sec. 10. That in case a final decree shall be issued against any corporation 
 under the act entitled "An act to protect trade and commerce against unlawful 
 restraints and monopolies," approved July second, eighteen hundred and ninety, 
 or under sections seventy-three to seventy-seven, inclusive, of "An act to reduce 
 taxation, to provide revenue for the Government, and for other purposes," 
 which became a law August twenty-seventh, eighteen hundred and ninety-four, 
 the court entering such decree may, in its discretion, refer to the commission 
 its decree, with instructions to take evidence, consider such facts, and report 
 to the court the findings as to method of dissolution or reorganization as the 
 commission shall consider best fitted to carry out such decree ; if a reorganiza- 
 tion takes place under a decree, the commission shall inform itself respecting 
 the reorganization, and if it is of the opinion that it is not in harmony with 
 the decree it shall, through counsel, inform the court for such action as the 
 court may take. 
 
 Sec. 11. That the said commission may at any time, upon complaint of any 
 person or corporation, or upon its own initiative, or upon the request of the 
 Attorney General, or of the corporation affected, investigate any corporation 
 subject to the provisions of this act for the purpose of determining whether such 
 corporation has been guilty of a violation of the act entitled "An act to protect 
 trade and commerce against unlawful restraints and monopolies," approved 
 July second, eighteen hundred and ninety, or under sections seventy-three to 
 seventy-seven, inclusive, of an "Act to reduce taxation," and so forth, which 
 became a law August twenty-seventh, eighteen hundred and ninety-four, or of 
 any of the provisions of this act, and may hold such hearings and take such 
 evidence as it may deem necessary ; and in case the commission shall find that 
 such corporation has been guilty of a violation of the provisions of said acts or 
 of this act it shall make a finding, stating the facts, and prescribing the acts, 
 transactions, and readjustments necessary in order that said corporation may 
 thereafter comply with the terms of said acts and of this act, and shall transmit 
 a copy of the said finding in full to such corporation. If within sixty days 
 after transmitting said finding, or such extension thereof as shall be given by 
 The commission, the corporation shall not have complied with the terms of the 
 finding, and shall not have performed the acts prescribed as necessary to make 
 it comply with the said acts or with this act, the commission shall report the 
 fact of noncompliance to the Attorney General, together with a copy of such 
 finding, for his action under the said acts or of this act. But the commission 
 may, if it deems it proper, report the facts to the Attorney General without 
 calling upon such corporation for compliance with said acts or with this act. 
 
 Nothing contained in this act shall be construed to prevent or interfere with 
 the Attorney General in enforcing the provisions of the act to protect commerce, 
 and so forth, approved July second, eighteen hundred and ninety. 
 
MINORITY VIEWS. 
 
 The undersigned members of the Senate Committee on Interstate 
 Commerce are unable to agree to the report of the majority of the 
 committee on Senate resolution 98, as to "what changes are 
 necessary or desirable in the laws of the United States relating to 
 the creation and control of corporations engaged in interstate com- 
 merce and what changes are necessary or desirable in the laws of the 
 United States relating to persons or firms engaged in interstate 
 commerce." 
 
 While certain features of the report are commendable, there are 
 several conclusions therein which do not accord with our views, and 
 therefore we are prevented from approving the report as a whole. 
 
 W. M. Crane. 
 
 Frank B. Brandegee. 
 
 George T. Oliver. 
 
 Henry F. LrpprrT. 
 
 24 
 
 o 
 
HEARING 
 
 BEFORE THE 
 
 COMMITTEE ON INTERSTATE COMMERCE 
 UNITED STATES SENATE 
 
 SIXTY-SECOND CONGRESS 
 
 PURSUANT TO 
 
 S. RES. 98 
 
 A RESOLUTION DIRECTING THE COMMITTEE ON INTERSTATE 
 COMMERCE TO INVESTIGATE AND REPORT DESIRABLE 
 CHANGES IN THE LAWS REGULATING AND CON- 
 TROLLING CORPORATIONS, PERSONS, AND 
 FIRMS ENGAGED IN INTERSTATE 
 COMMERCE 
 
 yoii. 1 
 
 PARTS I-XVH 
 
 Printed for the use of the Committee on Interstate Commerce 
 
 WASHINGTON 
 
 GOVERNMENT PRINTING OFFICE 
 
 1912 
 
HEARING 
 
 BEFOEE THE 
 
 COMMITTEE ON INTERSTATE COMMERCE 
 
 UNITED STATES SENATE 
 
 SIXTY-SECOND CONGRESS 
 
 PURSUANT TO 
 
 S. RES. 98 
 
 • A RESOLUTION DIRECTING THE COMMITTEE ON INTERSTATE 
 COMMERCE TO INVESTIGATE AND REPORT DESIRABLE 
 CHANGES IN THE LAWS REGULATING AND CON- 
 TROLLING CORPORATIONS, PERSONS, AND 
 FIRMS ENGAGED IN INTERSTATE 
 COMMERCE 
 
 VOL. 1 
 
 PARTS I-XVII 
 
 Printed for the use of the Committee on Interstate Commerce 
 
 WASHINGTON 
 
 GOVERNMENT PRINTING OITIOE 
 
 1912 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 SHELBY M. CULLOM, of Illinois. 
 W. MURRAY CRANE, of Massachusetts. 
 GEORGE S. NIXON, of Nevada. 
 ALBERT B. CUMMINS, of Iowa. 
 FRANK B. BRANDEGEE, of Connecticut. 
 GEORGE T. OLIVER, of Pennsylvania. 
 HENRY F. LIPPITT, of Rhode Island. 
 CHARLES E. TOWNSEND, of Michigan. 
 
 MOSES E. CLAPP, of Minnesota, Chairman. 
 
 TILLMAN, of South Caro- 
 
 BENJAMIN R. 
 
 Una. 
 MURPHY J. FOSTER, of Louisiana. 
 FRANCIS G. NEWLANDS, of Nevada. 
 JAMES P. CLARKE, of Arkansas. 
 THOMAS P. GORE, of Oklahoma. 
 CLARENCE W. WATSON, of West Virginia. 
 ATLEE POMERENE, of Ohio. 
 
 Lee F. Warner, Clerk. 
 
FRIDAY, AUGUST 4, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. 0. 
 The committee met at 10 o'clock a. m. for the purpose of considering 
 Senate bill No. 2941, Sixty-second Congress, second session, intro- 
 duced by Mr. Newlands on the 5th day of July, 1911, entitled 
 "A bill to create an interstate trade commission, to define its powers 
 and duties, and for other purposes." 
 
 Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, 
 Oliver, Lippitt, Townsend, Newlands, Clarke, Watson, and Pomerene. 
 The Chairman. The secretary will read the authority under which 
 the committee acts. 
 
 (The secretary reads as follows:) 
 
 [In the Senate of the United States, July 26, 1911.] 
 
 July 26, 1911. 
 
 Resolved, That the Committee on Interstate Commerce is hereby authorized 
 and directed, by subcommittee or otherwise, to inquire into and report to the 
 Senate at the earliest date practicable what changes are necessary or desirable 
 in the laws of the United States relating to the creation and control of corpora- 
 tions engaged in interstate commerce, and what changes are necessary or desir- 
 able in the laws of the United States relating to persons or firms engaged in 
 Interstate commerce, and for this purpose they are authorized to sit during the 
 sessions or recesses of Congress, at such times and places as they may deem 
 desirable or practicable; to send for persons and papers, to administer oaths, to 
 summon and compel the attendance of witnesses, to conduct hearings and have 
 reports of same printed for use, and to employ such clerks, stenographers, and 
 other assistants as shall be necessary, and any expense in connection with such 
 inquiry shall be paid out of the contingent fund of the Senate upon vouchers 
 to be approved by the chairman of the committee. 
 
 Attest: Chaklbs G. Bennett, 
 
 Secretary. 
 
 The Chairman. You may proceed, Senator Newlands. What is the 
 number of your original bill ? 
 Mr. Newlands. No. 2941, introduced July 5, 1911. 
 
 Note. — Since the date of this hearing Mr. Newlands withdrew the bill in its 
 original form, and on August 21, 1911, introduced a substitute therefor, bearing 
 the same number (S. 2941), with the same title and purpose. The said substi- 
 tute bill is as follows : 
 
 [S. 12941, Sixty-second Congress, First Session.] 
 
 A BILL To create an interstate trade commission, to define its powers and duties, and for 
 
 other purposes. 
 
 Be it enacted by the Senate and House of Representatives of the United 
 States of America in Congress assemoled, That this act shall be referred to and 
 cited as the interstate trade commission act. Corporations a majority of whose 
 voting securities is held or owned by any corporation subject to the terms of 
 sections four or sixteen of this act are referred to herein as subsidiaries of such 
 holding or owning corporation. 
 
 Sec 2 That on and after the day of , nineteen hundred and twelve, 
 
 the Bureau of Corporations shall be separated from the Department of Com- 
 merce and Labor, and shall be thereafter known as the Interstate Trade Com- 
 mission ; and all of the powers, duties, and funds belonging or pertaining to the 
 
 1 
 
2 HEARINGS BEFORE 
 
 Bureau of Corporations shall thereafter belong and pertain to the Interstate 
 Trade Commission. And all the officials and employees of said bureau shall 
 be thereupon transferred to the Interstate Trade Commission. The said com- 
 mission shall also have a secretary, a chief clerk, and such other and additional 
 employees as shall be provided by law. 
 
 Sec. 3. That the Interstate Trade Commission shall consist of five members, of 
 whom no more than three shall belong to the same political party. The Com- 
 missioner of Corporations holding the office on the said day of , 
 nineteen hundred and twelve, shall be ex officio a member of the commission for 
 the first two years of its existence, and shall also be chairman of the commis- 
 sion for the first year of its existence, and thereafter the chairman shall be 
 selected annually by the commission from its membership ; and the then Deputy 
 Commissioner of Corporations shall be the secretary of the commission for the 
 first year of its existence, and thereafter the secretary shall be selected by the 
 commission ; and after the organization of the commission the titles and offices 
 of Commissioner of Corporations and Deputy Commissioner of Corporations, 
 respectively, shall cease to exist. The remaining four members of the com- 
 mission shall be appointed by the President, by and with the advice and consent 
 of the Senate, and the terms of such commissioners so first appointed shall be 
 four, six, eight, and ten years, respectively, and shall be so designated by the 
 President in making such appointments; and thereafter all the commissioners 
 shall hold office for the term of ten years, and shall be appointed by the Presi- 
 dent, by and with the advice and consent of the Senate. Each member of said 
 commission shall receive a salary of ten thousand dollars a year. The secre- 
 tary shall receive a salary of thousand dollars a year. 
 
 Sec. 4. That every corporation heretofore or hereafter organized within the 
 United States or doing business therein whose annual gross receipts, inclusive 
 of the annual gross receipts of its subsidiaries, if any, exceed five million 
 dollars, and engaged in commerce among the several States or with foreign 
 nations, excepting corporations subject to the act to regulate commerce, ap- 
 proved February fourth, eighteen hundred and eighty-seven, as amended, 
 but including pipe-line companies, shall within four months after this act 
 takes effect, or, if organized or otherwise becoming subject to this act sub- 
 sequent to such taking effect hereof, then within two months after so becom- 
 ing subject to this act furnish to the commission in writing statements show- 
 ing such facts as to its organization, financial condition, and operations as 
 may be prescribed by regulations to be made in pursuance of this act. Similar 
 statements shall be made by its subsidiaries. Such statements shall be made 
 as of such date as may be prescribed by such regulations and shall be verified 
 under oath by such officers of such corporation as may be prescribed by the 
 said regulations. Failure or neglect on the part of any corporation subject to 
 this section to comply with the terms hereof within sixty days after written 
 demand shall have been made upon such corporation by the commission, requir- 
 ing such compliance, shall constitute a misdemeanor, and upon conviction such 
 corporation shall be subject to a fine of not more than one thousand dollars for 
 every day of such failure or neglect. 
 
 Sec. 5. That the said commission, upon finding that said statements comply 
 with such regulations so far as applicable to such statements, shall enter such 
 corporation for United States registration upon books to be kept by it for that 
 purpose, and shall also record the statements so filed. 
 
 Sec. 6. That all corporations so admitted to registration shall be known as 
 " United States registered " companies, and shall have the sole and exclusive 
 right to use, in connection with their corporate title, their securities, their opera- 
 tions, and by way of advertisement of their business, the title "United States 
 registered," or any convenient abbreviation thereof, so long as such registration 
 shall remain in force. 
 
 Sec. 7. That any person, corporation, or company willfully using or publishing 
 such title of " United States registered," or any title or form of words or letters 
 reasonably indicative thereof, in connection with the business or securities or 
 name of any corporation, with intent to represent thereby that such corporation 
 is at that time registered as provided in this act, shall, unless such corporation 
 be at that time duly registered under the terms of this act, be guilty of a 
 misdemeanor, and upon the conviction thereof shall be subject to a fine of not 
 more than one thousand dollars, and each day of such use or publication shall 
 constitute a separate offense. 
 
 Sec. 8. That all corporations subject to this act and their respective sub- 
 sidiaries shall from time to time furnish to the commission such information 
 
COMMITTEE ON INTERSTATE COMMERCE. 3 
 
 statements, and records of their organization, business, financial condition, con- 
 duct, and management, at such times, to such degree and extent, and in such 
 form as may be prescribed by the said regulations to be made under this act, 
 and shall at all reasonable times grant to the commission, or its duly authorized 
 agent or agents, complete access to all their records, accounts, minutes, books, 
 and papers, including the records of auy of their executive or other committees. 
 Sec. 9. That the commission shall from time to time make public the informa- 
 tion received under this act, in such form and to such extent as shall be pre- 
 scribed by the said regulations: Provided, however, That said regulations shall, 
 so far as possible, distinguish between information which is purely private, 
 and the publication of which can serve no public interest, and such information 
 as is not so private and is of importance to the public. 
 
 Sec. 10. The said commission may at any time, upon complaint of any person, 
 corporation, or body, or upon its own initiative, revoke and cancel the regis- 
 tration of any corporation registered under this act upon the ground of either 
 violation of any operative judicial decree rendered under an act to protect 
 trade and commerce against unlawful restraints and monopolies, approved July 
 second, eighteen hundred and ninety, or under sections seventy-three to seventy- 
 seven, inclusive, of an act to reduce taxation, to provide revenue for the 
 Government, and for other purposes, which became a law August twenty- 
 seventh, eighteen hundred and ninety-four, or of the use of materially unfair 
 or oppressive methods of competition, or of the acceptance of discriminations, 
 rebates, and concessions from the lawful tariff rates of common carriers, or 
 on the ground of refusal or neglect to allow the commission access to its records 
 or papers as provided in section eight hereof. The commission shall also care- 
 fully investigate the capitalization and assets of the corporations registered 
 under this act, and after due consideration of the information so obtained and 
 otherwise secured, and after allowing reasonable time for the readjustment of 
 corporate organization and security issues in any given case or class of cases, 
 may revoke the registration of any such corporation upon the ground of over- 
 capitalization ; that is to say, upon the ground that the par value of the total 
 securities, including shares of stock and all obligations running for a term of 
 years or more, of such corporation, issued and outstanding at any time 
 clearly exceeds the true value of the property of the corporation at that time. 
 In determining such true value the said commission shall consider the original 
 cost of such property, its present replacement cost, its present market value, 
 including the good will of the corporation's business and the market value of 
 the said securities issued by the corporation, and the fair value of the services 
 rendered in the organization of such corporation, but the said commission shall 
 also, as far as possible, segregate and disallow from such determination all 
 value attaching to such property or business due solely to monopolistic power 
 (other than patent rights or other legal franchises, the true value of which shall 
 be considered by the commission). The said commission in considering revoca- 
 tion of registration under this section shall give such notice and have power to 
 take such evidence and hold such hearings as may be prescribed by the regula- 
 tions issued under this act : Provided, That if any subsidiary of a corporation 
 so registered shall be guilty of conduct hereinbefore specified in this section as 
 ground for cancellation of registration, such conduct on the part of such sub- 
 sidiary shall be ground for canceling the registration of the corporation to 
 which it is so subsidiary. 
 
 Sec. 11. That in case of revocation of the registration of any corporation the 
 commission may also order that such corporation thereafter shall not engage in 
 interstate commerce. For every day's continuance in such commerce contrary 
 to such order such corporation shall be subject to a >fine of not more than one 
 thousand dollars. The district courts of the United States, upon the application 
 of said commission, alleging a failure to comply with such order of the commis- 
 sion, or alleging a failure to comply with or a violation of any of the provisions 
 of this act, by any corporation subject thereto, shall have jurisdiction to issue a 
 writ or writs of mandamus or injunction, or other order enforcing such order 
 of the commission or commanding such corporation to comply with the provi- 
 sions of this act. 
 
 Sec. 12. That the said commission may at any time, upon application by a 
 corporation whose registration has been previously canceled, reinstate said 
 corporation for registration and grant it registration anew : Provided, That the 
 said commission is satisfied that the causeor causes for which registration was 
 revoked no longer exist and that the commission shall find that all the require- 
 
4 HEARINGS BEFORE 
 
 ments for registration as set forth in section four shall have been complied with 
 anew as of the date of the new application for registration. 
 
 Sec. 13. That the said commission may at any time, if in the opinion of the 
 commission public necessity requires such action, order and require any cor- 
 poration engaged in commerce among the several States or with foreign nations, 
 except corporations subject to the act to regulate commerce, approved February 
 fourth, eighteen hundred and eighty-seven, as amended, but including pipe-line 
 companies, to make such statements and give such information as is prescribed 
 in sections four and eight of this act, which information shall be published in 
 accordance with the provisions of section nine hereof. The commission may also 
 obtain from any such corporation, through the powers granted in section fourteen 
 hereof, such information as shall enable said commission to determine whether 
 such corporation is subject to the terms of this act. The decisions of the said 
 commission made under the powers conferred upon it in this act shall be final 
 except as to matters involving the taking of private property without due process 
 of law and involving the extent and character of the said powers so conferred 
 herein : Provided, however, That an appeal may be taken in equity to any district 
 court of the United States from any order or decision of the said commission 
 made under section eleven of this act. 
 
 Sec. 14. That in order to accomplish the purposes declared in sections eight 
 and thirteen of this act the said commission shall have and exercise the same 
 power and authority in respect to corporations subject to this act as is conferred 
 on the Interstate Commerce Commission in said act to regulate commerce and the 
 amendments thereto in respect to common carriers, so far as the same may be 
 applicable, including the right to subpoena and compel the attendance and testi- 
 mony of witnesses and the production of documentary evidence and to adminis- 
 ter oaths. All the requirements, obligations, liabilities, and immunities imposed 
 or conferred by said act to regulate commerce and by an act in relation to testi- 
 mony before the Interstate Commerce Commission, and so forth, approved Feb- 
 ruary eleventh, eighteen hundred and ninety-three, supplementary to said act to 
 regulate commerce, and the act defining immunity, approved June thirtieth, 
 nineteen hundred and six, shall also apply to all persons who may be subpoenaed 
 to testify as witnesses or to produce documentary evidence in pursuance of the 
 authority conferred by sections eight and thirteen hereof. 
 
 Sec. 15. That the said commission shall, on or before the day of 
 
 in each year, make a report, which shall be transmitted to Congress. This 
 report shall contain such information and data collected by the commission as 
 it may deem of value in the determination of questions connected with the 
 regulation of commerce, together with such recommendations as to additional 
 legislation relating thereto as the commission may deem necessary. 
 
 Sec. 16. That any corporation engaged in commerce among the several States 
 or with foreign nations the amount of whose gross annual receipts, inclusive 
 of those of its subsidiaries, shall be less than five million dollars and more 
 than one million dollars may also, by complying and continuing to comply 
 with the terms of sections four, eight, and nine hereof, acquire and maintain 
 United States registration as provided in sections five and six, Subject to the 
 provision for cancellation thereof prescribed in section ten ; and the information 
 furnished by such corporation shall be subject to the provisions of section nine. 
 
 SeC. 17. That the said commission shall have power to make any and ali 
 regulations necessary and proper to carry out the purposes of this act, and at 
 any time to alter, amend, or repeal the same or any part thereof. 
 
 Sec. 18. That any person willfully making or furnishing to said commission 
 any statement, return, or record required by this act, when knowing such state- 
 ment, return, or record to be false in any material particular, shall be guilty 
 of a misdemeanor, and upon conviction shall be fined not more than one 
 thousand dollars or imprisoned not more than one year, or both. 
 
 Mr. Newlands. Gentlemen of the committee, for some years I have 
 been giving consideration to this particular question and have fre- 
 quently expressed the conviction that it was imperatively necessary to 
 create an administrative tribunal vested with the powers of investi- 
 gation, publicity, correction, and recommendation in the case of large 
 industrial corporations similar to those exercised by the Interstate 
 Commerce Commission over railroads. On several occasions I have 
 spoken upon this subject on the floor of the Senate; particularly 
 
COMMITTEE ON INTERSTATE COMMERCE. 5 
 
 just before the decision in the Standard Oil case was rendered. (The 
 decisions in the Standard Oil and American Tobacco Co. cases were 
 handed down May 15 and May 29, 1911, respectively.) 
 
 In a speech in the Senate on January 11, 1911, upon the Tariff 
 Commission I outlined my views as to an Interstate Trade Commis- 
 sion. With the permission of the committee, I will insert these 
 remarks in the printed hearing: 
 
 Mr. Newlands. * * * The railroad-commission bill furnishes a model for 
 the action ,of Congress upon matters involving minute and scientific investiga- 
 tion. Had' we followed the same method regarding trusts that we followed 
 regarding railroads, we would have made much better progress in trust regu- 
 lation. The antitrust act was passed 21 years ago, about the same time that 
 the railroad commission was organized. The railroad question is practically 
 settled ; the settlement of the trust question has hardly been commenced. Had 
 we submitted the administration of the antitrust act to an impartial quasi-judi- 
 cial tribunal similar to the Interstate Commerce Commission instead of to the 
 Attorney General's office, with its shifting officials, its varying policies, its 
 lack of tradition, record, and precedent, we would by this time have made 
 gratifying progress in the regulation and control of trusts, through the quasi- 
 judicial investigations of a competent commission and through legislation based 
 upon its recommendations. As it is, with the evasive and shifting incumbency 
 and administration of the Attorney General's office, oftentimes purely political 
 in character, we find that the trusts are more powerful to-day than when the 
 antitrust act was passed, and that evils have grown up so interwoven with 
 the general business of the country as to make men tremble at the consequence 
 of their disruption. 
 
 After the call of the extra session, but before its convening, I wrote 
 to the Hon. Champ Clark, who was destined to be the Speaker of 
 the House of Representatives at the extra session, a letter, which 
 appears in the Senate proceedings (Congressional Record) of May 
 15, 1911, and in which I outlined a legislative program for the 
 extra session. 
 
 The purpose of the program and the necessity for thorough legisla- 
 tion upon the question of interstate transportation, or the railroads ; 
 interstate trade, or the trusts; and interstate exchange, or banking — 
 all of them interrelated as parts of interstate commerce— were re- 
 ferred to in this letter; but I will insert in the record simply that part 
 which is relevant to this present discussion and to interstate trade : 
 
 United States Senate, « 
 
 Washington, D. C, March 15, 1911. 
 Hon. Champ Clark, 
 
 Souse of Representatives, Washington, D. G. 
 
 My Dear Mb. Clark: The extra session is now approaching; the House is 
 Democratic, the Senate and the Executive department are Republican. Under 
 this condition of divided responsibility the question arises as to what policy the 
 Democratic Party shall pursue. It has already been practically determined that 
 the House will take up, in addition to the reciprocity treaty, the tariff; and the 
 question is whether it will take up other matters of reform and constructive 
 legislation and, with a view thereto, select the committees necessary to the con- 
 sideration of such measures. The Senate will probably follow the lead of the 
 House in this particular. 
 
 I hope, therefore, that it will not be regarded as intrusive if I, in common with 
 other Democrats, venture a few suggestions on this score, as the question is of 
 the highest importance to Democracy generally. * * * 
 
 interstate trade, or the trusts. 
 
 The interstate-commerce act for the regulation of railroads and the antitrust 
 act for the prohibition of trusts were passed about the same time. The admin- 
 istration of the former was given to a quasi-judicial board; the administration 
 of the latter was given to the Attorney General's office. After about 23 years 
 
O HEARINGS BEFORE 
 
 of operation, through a gradual process of evolution, the regulation of railroads 
 engaged in interstate commerce has practically been accomplished. * * * 
 
 The administration of the antitrust act, on the contrary, has been lame and 
 halting, changing with the shifting incumbents of the Attorney General's office, 
 and according to the requirements of political exigencies. As a result, prac- 
 tically no progress has been made in the control of the trusts, and whilst a few 
 suits have been prosecuted to a successful result and others are now in process 
 of prosecution, there exist to-d;vy over 800 trust organizations of enormous capi- 
 talization practically without regulation or control. Experience should teach 
 us that with reference to interstate trade a commission or board should be 
 organized similar to the Interstate Commerce Commission, with powers of inves- 
 tigation, of condemnation, and of recommendation, and with a view, whilst pre- 
 serving the good arising from commercial combination, to curing the pernicious 
 practices connected therewith. Such legislation should include among the 
 powers of the commission the power, upon complaint or its own initiative, to 
 inquire into the organization of all corporations engaged in interstate trade, and 
 upon finding that any such organization is unlawful under the terms of the anti- 
 trust act, to call upon the Attorney General to prosecute the same. 
 
 The interstate trade commission should have a power similar to that of the 
 Interstate Commerce Commission of appearing in litigation by its own coun- 
 sel. * * * 
 
 Such legislation will be necessary whatever may be the action of the Supreme 
 Court upon the pending cases. If such combinations are held to be legal, the 
 regulation of their prices and practices becomes a public necessity ; if they are 
 held to be illegal, then there should be some law which, while permitting large 
 capitalization and the ownership of many plants by a single corporation en- 
 gaged in interstate trade, will protect the public from the abuses attendant 
 upon such large capitalization and the oppression exercised by it. * * * 
 Sincerely, yours. 
 
 Francis G. Newlands. 
 
 During the extra session, on May 11, 1911, I presented in the 
 Senate a program of legislation to be enacted or considered during 
 the extra session. This program provided for nine questions upon 
 which legislative action should be taken before adjournment and for 
 seven questions upon which the action of committees was desirable, 
 with a view to early action during the next regular session. 
 
 Under this latter heading, namely, committee consideration, in 
 the second subdivision, I suggested the consideration of legislation 
 as follows: 
 
 (2) Providing, in connection with the Bureau of Corporations, for a board 
 of interstate trade, with powers of examination, condemnation, and recom- 
 mendation regarding interstate trade similar to those conferred upon the 
 Interstate Commerce Commission regarding interstate transportation. 
 
 Later, on May 15, 1911, on the very day that the Standard Oil 
 decision was being delivered in the Supreme Court, I spoke in the 
 Senate upon the question of a legislative program for the extra 
 session, and shall insert in the printed hearings an extract from this 
 speech. The matter referred to is as follows: 
 
 INTERSTATE TRADE. 
 
 Mr. Newlands. * * * Why have we not long before, with reference to 
 this branch of interstate commerce, namely, interstate trade, organized a tride 
 or industrial commission similar to the Interstate Commerce Commission with 
 powers of recommendation, with powers of condemnation, with powers of cor 
 rection similar to those enjoyed by the Interstate Commerce Commission regard- 
 ing interstate transportation? Under the process of evolution that body has 
 worked out a, system of law regarding these great railroads that has cured 
 great abuses, that has steadied the finances of the railroads, that has created 
 the confidence of the country, and created the confidence of the railroad man 
 agers themselves, so that to-day there is not a railway manager of prominence 
 in the country who would wipe off of the statute books the legislation which we 
 
COMMITTEE ON" INTERSTATE COMMEECE. 7 
 
 * 
 
 have enacted, but, on the contrary, these managers, who attacked these meas- 
 ures prior to their enactment, now acquiesce in them and declare that they have 
 been beneficial in their operation. 
 
 This great evolution has been crowned by a recent illuminating decision of 
 the Interstate Commerce Commission, through Commissioner Lane, a decision 
 which ranks with the great State papers, and a decision which has settled vital 
 questions connected with this subject so satisfactorily that whilst the public 
 interest has been sustained, it has been accomplished without a ripple in the 
 market, without disturbing a single value; but, on the contrary, assurance to 
 investors throughout the world has been given that whilst this commission is 
 regardful of private right and public right, it is also regardful of the property 
 rights of the railroads themselves. Is there not similar legislation upon the 
 subject of interstate trade, involving the great trusts, upon which we can enter 
 with propriety and with safety? 
 
 On May 16, after the Supreme Court had rendered its decision in 
 the Standard Oil case, I continued my remarks of the day previous. 
 Addressing myself to the decision of the court, I urged still further 
 the necessity for organizing an administrative tribunal for the regu- 
 lation of corporations engaged in interstate trade. I shall quote quite 
 freely from this speech, as it contains quotations from the President, 
 and his -opinion that to leave the courts to say what is a reasonable 
 restraint of trade, what is a reasonable suppression of competition, 
 what is a reasonable monopoly, would be " to thrust upon the courts a 
 burden that they have no precedents to enable them to carry, and to 
 give them a power approaching the arbitrary, the abuse of which 
 might involve our judicial system in disaster/' 
 
 I concur emphatically in this view that the courts are not the proper 
 medium for exercising such a function. Because, therefore, we have 
 clearly reached a point where some branch of the Government must 
 do this sort of work, and because, as the President correctly states, the 
 courts are not the proper place for it, I am advocating the establish- 
 ment, as in this interstate trade commission bill, of an administrative 
 agency that can perform this duty. 
 
 The excerpts referred to are as follows: 
 
 May 16. 1911. 
 business of the session — legislative program. 
 
 Mr. Newlands. Mr. President, whilst I was addressing the Senate yesterday 
 upon the importance of taking up immediately certain questions upon which 
 public opinion has been formed, and crystallizing them into legislation, I re- 
 ferred, among others, to the great questions of the combinations of capital 
 called trusts which have assumed of late years so powerful and menacing an 
 aspect. * * * 
 
 The Supreme Court yesterday acted upon this matter with reference to one 
 of the great trusts in a decision which applies to them all, and, as the result 
 probably of the inertia and the inaction of Congress, has taken upon itself what 
 the dissenting member of that court, Mr. Justice Harlan, declared to be judicial 
 legislation, and has written into the statute words which Congress never put 
 there; and so to-day we have a decision upholding the antitrust act so far as it 
 applies to unreasonable restraint of trade. 
 
 The question therefore presents itself to us whether we are to permit in 
 the future the administration regarding these great combinations to drift prac- 
 tically into the hands of the courts and subject the question as to the reason- 
 ableness or unreasonableness of any restraint upon trade imposed by these 
 corporations now existing and to be brought into existence in the future to the 
 varying judgments of different courts upon the facts and the law, or whether 
 we will organize, as the servant of Congress, an administrative tribunal similar 
 to the Interstate Commerce Commission, with powers of recommendation, with 
 powers of condemnation, with powers of correction similar to those enjoyed by 
 the Interstate Commerce Commission over interstate transportation. 
 
HEARINGS BEFORE 
 
 X ATI OX AT. IXrORTOII.U'IOX. 
 
 We are told thaf the President is nnw about to urge upon Congress the 
 passage of a national incorporation act with a view to meeting this question, 
 and doubtless determining the extent to which these combinations may capi- 
 talize themselves, the number of plants which they may own, the extent of 
 their operations, placing them all under national jurisdiction as national 
 creations. 
 
 So far as I am concerned. Air. President, for years I have advocated the 
 full exercise of the power of Congress over interstate commerce, even though 
 it led to the organization of the artificial beings that are to enter into inter- 
 state commerce. But I have confined my advocacy of the latter proposition 
 entirely to corporations organized for transportation — to the railways of the 
 country. * * * 
 
 * * * But even with reference to this question — the incorporation of 
 interstate railroads — I gradually modified my views, for I realized that many 
 of the States were unwilling to give up their jurisdiction over the State cor- 
 porations within their boundaries, engaged as they were in State transporta- 
 tion as welt as interstate transportation; and so my mind gradually drifted to 
 a method of procedure by which the National Congress would organize not 
 corporations that would own interstate railroads, but would organize corpora- 
 tions that would simply own the stock of State railroads, thus substituting 
 national holding companies for the holding companies now created under the 
 laws of such a State as New Jersey. * * * 
 
 SENTIMENT OF PARTIES. 
 
 Now, Mr. President, I must admit that so far as my own party in the Senate 
 is concerned the views which I entertain upon this subject have not made the 
 headway I could wish. * * * 
 
 * * * There was a time when a national incorporation act could pass 
 Congress, and that was under the recommendation of a Eepublican President 
 and by the action of a Republican House and a Republican Senate. But that 
 condition of things exists no longer. The House is now Democratic. It will 
 probably remain Democratic for years. The Republican ascendency in this 
 body has been constantly diminishing and is now in- danger. So I can not see 
 any possibility within a reasonable time of the enactment of a national incorpo- 
 ration law, even regarding railroads, much less regarding the commercial 
 business of the country. 
 
 Now, the President contemplates this as his remedy for existing abuses, and 
 we are told by the press that that recommendation is to be renewed, and the 
 bill which has been sleeping for so long a time in the Committee on the Judiciary 
 will again be pressed. We all realize how futile such an endeavor will be; and 
 it is therefore all the more incumbent upon us to determine at this session of 
 Congress what is practicable, what will secure the assent of a Democratic 
 House, what will secure the assent of a Senate under the control of a divided 
 Republican Party. 
 
 ******* 
 
 * * * What has been our experience regarding that branch of interstate 
 commerce which covers transportation'.' Our experience has been that 20 years 
 ago, just about the time the antitrust act was passed, Congress passed the inter- 
 state-commerce act, creating a commission as its servant to attend to its duties 
 under rules prescribed by Congress. The regulation of interstate commerce 
 belonged to Congress. Congress wisely saw that it could not undertake that 
 regulation in all its details; that it could not pass rate bills which would be 
 satisfactory to every section of the country ; that it could not reduce rates that 
 were claimed to be excessive and increase rates that were claimed to be too low ; 
 that it could not correct the varying abuses which creep into the administration 
 of every great enterprise. Therefore it created this commission as its servant, 
 to carry out its will under rules established by it. 
 
 The history of the last 23 years proves the wisdom of our action. By a 
 gradual process of evolution this commission, as the result of gradual improve- 
 ments in legislation and as the result of constantly increasing powers recom- 
 mended by it and affirmed by Congress, has become a tribunal second in impor- 
 tance only to the Supreme Court of the land. It has made transportation a 
 science. It has studied all the intricate questions relating to it, and in a recent 
 illuminating decision has formulated a great state paper that has impressed the 
 country and the world with its wisdom. 
 
COMMITTEE ON INTERSTATE COMMERCE. 9 
 
 Now, contrast that action with other action taken by Congress regarding 
 the trusts. It would have been possible 23 years ago, when the interstate- 
 commerce act was passed, with reference to interstate trade, to have established 
 an industrial or trade commission or board similar to the Interstate Commerce 
 Commission with reference to transportation. If we had done so and had put 
 upon that commission the same class of men who have been appointed upon 
 the Interstate Commerce Commission, we would have had the constant cor- 
 rective power of that commission applied both to the existing trade corporations 
 and to the trade corporations afterwards created. Many abuses would have 
 been prevented. Many abuses would hava been corrected. As a result of the 
 constant study and inquiry of a competent board engaged in this work as a 
 specialization recommendations would have been made to Congress which would 
 have been accepted, as were those recommendations made with reference to 
 interstate transportation, and a great body of administrative law would have 
 been built up and combinations of capital would have been effected without the 
 abuses which have existed during the past 23 years. * * * 
 
 ******* 
 
 Mr. La Follette. I was unable to hear that portion of the Senator's discus- 
 sion of the recent decision of the Supreme Court in the Standard Oil ease, but 
 in so far as I did listen to his remarks, I understood him to express some dis- 
 agreement with the opinion of the court on one or two points. * * * 
 
 * * * I will beg his indulgence while I read one paragraph from the special 
 message of the President of the United States to Congress, transmitted to the 
 Senate January 7, 1910 : 
 
 " Many people conducting great businesses have cherished n hope and a' belief 
 that in some way or other a line may be drawn between ' good trusts ' and 
 ' bad trusts,' and that it is possible by amendment to the antitrust law to 
 make a distinction under which good combinations may be permitted to organ- 
 ize, suppress competition, control prices, and do it all legally if only they do 
 not abuse the power by taking too great profit out of the business. They point 
 with force to certain notorious trusts as having grown into power through 
 criminal methods by the use of illegal rebates and plain cheating and by various 
 acts utterly violative of business honesty or morality and urge the establish- 
 ment of some legal line of separation by which ' criminal trusts ' of this kind 
 can be punished, and they, on the other hand, be permitted under the law to 
 carry on their business. Now, the public, and especially the business public, 
 ought to rid themselves of the idea that such a distinction is practicable or 
 can be introduced into the statute. Certainly under the present antitrust law 
 no such distinction exists. It has been proposed, however, that the word 
 ' reasonable ' should be made a part of the statute, and then that it should be 
 left to the court to say what is a reasonable restraint of trade, what is a 
 reasonable suppression of competition, what is a reasonable monopoly. I 
 venture to think that this is to put into the hands of the court a power impos- 
 sible to exercise on any consistent principle which will insure the uniformity 
 of decision essential to just judgment. It is to thrust upon the courts a burden 
 that they have no precedents to enable them to carry and to give them a power 
 approaching the arbitrary, the abuse of which might involve our whole judicial 
 system in disaster." * * * 
 
 Mr. Newlands. * * * I called attention to the fact — and it seems that I 
 am sustained by the President in that view — that if the various courts of the 
 country, according to varying conditions, were hereafter to be called upon to 
 determine as to whether a restraint of trade thus imposed by these corpora- 
 tions was reasonable or unreasonable, we could not expect any very satisfactory 
 administration of the law, particularly in view of the fact that it has taken 23 
 years for us to ascertain what the law means, and in order to ascertain that it 
 has been necessary, according to the views of Mr. Justice Harlan, to read into the 
 statute certain words that are not there. 
 
 Mr. President, I am not commenting upon this for the purpose of criticizing 
 the Attorney General's office or the President of the United States or the court, 
 nor have I made reference to President Roosevelt with a view of criticizing him 
 for his action. 1 I have no doubt he acted patriotically under the then existing 
 conditions, that he felt the great peril of the hour, and that he yielded, under 
 compulsion, to action which he thought necessary in order to prevent a greater 
 disaster than was consummated by the action which he approved. I am attack- 
 
 1 The action of President Koosevelt regarding the acquisition of the property of the 
 Tennessee Coal & Iron Co. by the Steel Trust is here referred to. 
 
10 HEADINGS BEFOEE 
 
 ing this system of turning over the administration of our legislation regarding 
 interstate trade to the Attorney General's office or to courts, when we should 
 create n great administrative tribunal like the Interstate Commerce Commission, 
 charged with powers over interstate trade similar to those possessed by that 
 tribunal regarding transportation. I have claimed that if such a commission 
 had been organized 23 years ago, when the antitrust law was passed, these vast 
 accumulations of menacing capital would have been prevented ; that all the 
 advantages of combination of capital would have been secured without the at- 
 tendant abuses ; and that we would have been saved the economic wrench that is 
 now to take place through the dissolution of these giant combinations and the 
 restoration of their constituent elements. I insist upon it that at this extraordi- 
 nary session of Congress, with six months before us unembarrassed by general 
 legislation, by appropriation bills, and by other matters that usually distract our 
 attention, we have the opportunity to take up this great question in connection 
 with the reciprocity bill and tariff! matters and to press it to a wise solution. 
 ******* 
 
 Again, in a speech upon the subject of a self-governing Senate, 
 delivered in the Senate on June 22, 1911, in alluding to the pro- 
 gram of legislation which I had been urging, I spoke regarding a 
 board of interstate trade, and shall insert an excerpt in the record. 
 
 PROPOSED BOARD OF INTERSTATE TRADE. 
 
 Mr. Newlands. What is the second one which I suggested? I suggested leg- 
 islation providing, in connection with the Bureau of Corporations, for a board 
 of interstate trade, with powers of examination, correction, and recommendation 
 with regard to interstate trade similar to those conferred upon the Interstate 
 Commerce Commission regarding interstate transportation. This resolution 
 was offered before the recent decision of the Supreme Court regarding the 
 trusts, and I then declared that whatever might be the decision of that court 
 the creation of such a commission was essential. Interstate trade is just as 
 much a part of interstate commerce as interstate transportation. The abuses 
 of interstate trade have become just as great as the abuses of interstate trans- 
 portation in the past have been. Obviously the teachings of experience lead us 
 to the organization of a commission or board similar to the Interstate Com- 
 merce Commission, with a view of taking hold of the great combinations of 
 capital and making them obedient to the law, giving such a commission powers 
 of examination, recommendation, and condemnation similar to those enjoyed 
 by the Interstate Commerce Commission. 
 
 Since that decision the trust managers themselves have seen a great light, 
 and in public examinations have stated that in their judgment the time has come 
 for as complete regulation of corporations engaged in interstate trade as of 
 corporations engaged in interstate transportation. Whether that regulation 
 will ever extend so far as the regulation of the price itself is a matter to be 
 determined in the future, for Congress will be called upon to decide how great 
 these corporations shall be, what the extent of their capital shall be, what 
 number of plants they shall own, and what shall be the extent of their opera- 
 tions. If they conclude to maintain the principle of competition, even though it 
 leads to destruction, there will then, of course, be no necessity of regulating 
 prices. But if they recognize the principle of helpful cooperation instead of 
 destructive competition, then it will be necessary for them in extreme cases to 
 face the question of the regulation of prices just as the prices of any public 
 utility are regulated. 
 
 I do not venture to express an opinion now as to what course should be 
 pursued with reference to this great question, but it is time that the Interstate 
 Commerce Committee of the Senate were entering upon an inquiry of the most 
 important question in economics that has engaged the attention of the country 
 since the railroad question was first presented to it. 
 
 Later I drew up this bill and introduced the original on the 5th 
 day of July, 1911. During the time I had this bill under considera- 
 tion I discussed the matter with various persons whom I regarded as 
 experts, particularly with members of the Interstate Commerce Com- 
 mission, the Attorney General, the Commissioner of Corporations, 
 the Solicitor General, and lawyers who were engaged in the trust 
 
COMMITTEE ON INTERSTATE COMMERCE. 1 1 
 
 prosecutions. I have also talked with men connected with these 
 industrial corporations and with eminent economists, and I have 
 found everywhere a general acquiescence in the view that something 
 in the way of supplemental legislation was required. 
 
 It will be impossible to administer this great and necessary system 
 of regulation through the courts. We all know that just as soon as 
 these corporations are reorganized under these decisions they will, 
 for a time at least, take the form of a large number of corporations, 
 limited either in the character of the commodity with which they deal 
 or in the area over which they operate. The management of these 
 corporations is generally satisfactory to the stockholders; they have 
 confidence in the existing management, and in the great financial 
 interests and institutions that usually control that management. 
 These stockholders will, by their proxies, practically give to those 
 controlling interests their votes on anything they desire. So that we 
 will eventually have, in these industrial corporations, just as we have 
 with railroads, the practical control of all these subdivided corpora- 
 tions in the hands of a few great financial institutions or groups in 
 New York, and they will dictate the membership of the boards and 
 the general policy of all these corporations. There will be an effective 
 unity of policy, and it will take such a form as to defeat the law 
 officers in reaching it as a combination in restraint of trade. A mere 
 nod, a mere suggestion, will accomplish what is desired. 
 
 The question is, Shall we wait until the courts shall go through 
 their slow processes in the existing caTses and re-create and reorganize 
 these corporations and others against which undecided suits are now 
 pending, and also in the numerous suits that will be brought? Or 
 shall we organize an administrative tribunal which, vested with the 
 powers, of investigation, publicity, and correction, will, by continu- 
 ous supervision, prevent the growth of these abuses which the courts 
 are now called upon sporadically and intermittently to correct by 
 their slow processes? 
 
 Certain fundamental considerations are thus raised, which I will 
 present seriatim. 
 
 (1) The first question is: Shall an interstate trade commission of 
 some kind be organized? I imagine that there can hardly be any 
 difference of opinion on the point that there should be an adminis- 
 trative tribunal of high character, nonpartisan, or, rather, bipartisan, 
 and independent of any department of the Government. I assume 
 also that there should be a commission rather than one executive 
 official, because there are powers of judgment and powers of discretion 
 to be exercised. The organization should be quasi judicial in char- 
 acter. We want traditions ; we want a fixed policy ; we want trained 
 experts; we want precedents; we want a body of administrative law 
 built up. This can not be well done by the single occupant _ of an 
 office, subject to constant changes in its incumbency and subject to 
 higher executive authority. Such work must be done by a board 
 or commission of dignity, permanence, and ability, independent of 
 executive authority, except in its selection, and independent in char- 
 acter. 
 
 Of course, in performing any purely executive work one man is 
 preferable to a commission. If only powers of investigation and pub- 
 licity are given, a single-headed organization, like the Bureau of 
 Corporations, might be the best for the work; but. if judgment and 
 
12 HEARINGS BEFORE 
 
 discretion are to be exercised, or if we have in contemplation the 
 exercise of any corrective power hereafter, or if the broad ends above 
 outlined are to be attained, it seems to me that a commission is 
 required. 
 
 (2) The next question is, What shall be done with the Bureau of 
 Corporations, with its 120 experts who are full of interest in their 
 duties, who have had long training in just this sort of work, and who 
 have shown their capacity to do good work? Shall that bureau be 
 entirely done away with, or shall it be merged in this new organiza- 
 tion ? And then what shall become of the chief of that bureau and 
 his deputy, both of whom have acquired a large experience and both 
 of whom have the confidence of the country ? The Bureau of Corpo- 
 rations would hardly be necessary, as a separate organization, if such 
 a commission should be created. But shall we lose the momentum, the 
 long experience, and trained personnel that this bureau has acquired? 
 
 To avoid this loss it is obviously desirable that we merge the 
 Bureau of Corporations — as this bill does — with all its officials, funds, 
 and powers, in this commission, and that we make, for the first two 
 years, the Commissioner of Corporations one of the new commission- 
 ers, and make him, for the first year, the chairman of the commission, 
 afterwards giving the power to the commission to select its own chair- 
 man. Thus the executive work as at present organized would go on 
 without a break, and the difficulties usual to the period of early 
 organization would be largely obviated. My idea, also, is to utilize 
 the Deputy Commissioner of , Corporations as the secretary of the 
 commission. 
 
 (3) The term of office of the commissioners is to be 10 years. The 
 salary is to be $10,000. I should favor a much larger salary than that. 
 but I do not know whether Congress would look with favor upon it. 
 
 (4) The next question is, What shall be the test of the appli- 
 cability of the act to corporations engaged in interstate trade ? Shall 
 it be size, as indicated, say, by its capital or its gross annual receipts, 
 or shall it be the character of the business in which the corporations 
 are engaged, namely, the production of certain great staple articles? 
 
 I have inquired with great particularity of the Commissioner of 
 Corporations and of the Solicitor General regarding this,-and they 
 say that they think the best test would be, for the present, the gross 
 receipts of the corporations. If this test, provided in the bill, were 
 applied, the jurisdiction of the commission would be probably con- 
 fined to between 300 and 500 corporations. 
 
 Senator Pomerene. You mentioned, I believe, that the cross re- 
 ceipts should be $5,000,000 or more? 
 
 Senator Newlands. Yes. This would cover between 325 and 500 
 corporations, I am informed by the Commissioner of Corporations. 
 This is his best estimate, but he states that it is a very rough one 
 based on very incomplete data. 
 
 Both the Solicitor General and the Commissioner of Corporations 
 have very carefully considered this question of a test based on the 
 character of the production of the corporation, or of the commerce or 
 commodity in which it deals, and they came to the conclusion that it 
 would be very difficult to do that; that it would necessitate refine- 
 ments and subrefinements with reference to the different articles 
 
 One suggestion was made which I think would improve the bill 
 that all corporations whose gross receipts exceed $1,000,000 should 
 
COMMITTER 05T INTERSTATE COMMERCE. 18 
 
 make certain reports to be called for by the commission, which re- 
 ports can be classified by the commission for the purpose of statistical 
 information, and that these reports shall be given with a view largely 
 to determining what are the corporations that have $5,000,000 of 
 gross receipts; but that only the corporations that have $5,000,000 
 of gross receipts or above that shall be subject to the general pro- 
 visions of the bill. 
 
 Senator Beandegee. Will you pardon an interruption at this 
 point? I won't do it again. In estimating these 300 to 500 corpo- 
 rations, showing gross receipts of at least $5,000,000, did the com- 
 missioner of corporations consider banks? 
 
 Senator Newlands. No ; he did not consider banks. 
 
 (5) The next question is: What shall be the powers of the com- 
 mission? Shall they be confined to investigation, requirement of 
 statements, publicity, and recommendation to the President and to 
 Congress, or shall they go further? 
 
 I would deem it very beneficial even if we could get a bill that 
 would go no further than that, because we would then have five men 
 of high ability and character who would immediately start upon 
 this as their life work — not the kind of work that we do, broken up 
 by thousands of other considerations and by other duties, but whose 
 specialty it would be to ascertain the facts and the abuses requiring 
 correction, and to give publicity regarding them and then to make 
 their recommendation to Congress. 
 
 (6) The next question is: Shall we provide the additional require- 
 ment of registration, granting to the commission the accompanying 
 power of denying or cancelling registration for certain prescribed 
 offenses, or for violation of the regulations of the commission ? And 
 shall the punishment of a recalcitrant corporation be confined simply 
 to a cancellation of registration? 
 
 I had a provision in the bill which I originally drew, that for 
 disobeying the law or the regulations made in pursuance thereof a 
 recalcitrant corporation could be prevented from engaging in inter- 
 state commerce. I am inclined to think that this is a rather extreme 
 power and had better be left out for the present. 
 
 We must also consider as to the preciseness with which the grounds 
 for denial or cancellation should be stated in the law and whether 
 the commission shall have the power to make regulations, lack of 
 compliance with which will result either in a denial of registration 
 or a cancellation. Eegistration being compulsory, the denial of regis- 
 tration or the cancellation of registration would have simply a moral 
 effect. The Solicitor General and the Commissioner of Corporations 
 insist that that moral effect would be very great, though it involves 
 no substantial right of property, but that all these corporations will 
 be able to secure public confidence by securing the confidence of the 
 commission itself. 
 
 Senator Pomerene. May I ask this question : What particular 
 rights or privileges would you give to a registered corporation over 
 one that was not registered ? 
 
 Senator Newlands. None. 
 
 Senator Pomeeene. Then what would be accomplished by the fact 
 of registration ? 
 
 Senator Newlands. Only those corporations having such registra- 
 ' tion would be allowed to claim and advertise that fact. The conten- 
 
14 HEARINGS BBFOEE 
 
 tion is — and it is a very practical one— that it would be of immense 
 advantage to these corporations in all their financial undertakings to 
 have the vise of the United States Government; to be able to say, 
 " We have complied with all the requirements of law and of the com- 
 mission regarding our financial organization, the issue of our securi- 
 ties, etc., and therefore we are entitled to the confidence of the public." 
 Such Federal registration, or the lack of it, would inevitably have 
 a substantial effect on the market value and standing of the cor- 
 poration's securities at home and abroad. It would probably make a 
 difference of one-half a per cent or perhaps 1 per cent in the rate of 
 interest at which they could place their bonded securities, etc. Both 
 the Solicitor General and the commissioner tell me that corporations 
 are becoming exceedingly sensitive to public opinion. You will ob- 
 serve the careful manner in which Mr. Gary is feeling his way con- 
 tinually in public opinion. The Sugar Trust, for instance, has utterly 
 abandoned its defiant attitude. 
 
 Senator Brandegee. I think they are both genuine reforms. 
 
 Senator Cummins. In order that it shall have any influence upon 
 public opinion, and in order that people may know that this corpora- 
 tion has been organized and is conducting itself properly in order to 
 inspire confidence, you must have certain rules which cover the or- 
 ganization of the corporation, the issuance of its securities, etc. 
 
 Senator Newlands. Yes. 
 
 Senator Cummins. You do not propose any rules.. The thing 
 would have simply a moral effect if the board or commission did not 
 have the power to determine how the corporation should be organized 
 and how it should carry on its business. 
 
 Senator Newlands. That raises the next question. If you desire 
 to provide for registration of corporations, how far will you wish 
 to define the powers? 
 
 As the power to regulate interstate commerce is a legislative power, 
 the fundamental law requires that an act turning over the adminis- 
 tration of such power to a commission or board shall prescribe the 
 rules or standards under which the power is to be exercised. Would 
 this apply to a mere registration in which no substantial property 
 right is involved? For instance, would it be necessary for the law 
 to define what are " unfair or oppressive methods of competition," 
 what constitutes " overcapitalization " or " improper financial or- 
 ganization " ; or could these matters be left to the judgment and dis- 
 cretion of the commissioners without precise legal definition? 
 
 Senator Cummins. What do you say about that? 
 
 Senator Newlands. I am inciined to think that any general phrase 
 intended to give them such powers as will prevent excessive capitali- 
 zation or unfair or oppressive methods of competition would be 
 upheld by the courts, particularly with reference to the denial or 
 cancellation of the mere privilege of registration, which affects no 
 substantial property right. 
 
 Senator Cummins. Without taking up the question of the constitu- 
 tional power of Congress to do the thing that is suggested here, vou 
 know that there is the widest difference among Members of the Senate 
 with regard to what constitutes proper capitalization. We debated 
 that at some length in the railroad bill, and we could not agree even 
 upon the subject as limited to the railways. 
 
COMMITTEE ON INTERSTATE COMMERCE. 15 
 
 Senator Brandec.ee. He proposes to leave all that to the com- 
 mission. 
 
 Senator Cummins. The Senate would not be willing to do that. I 
 do not believe that any Senator would be willing to leave to the 
 commission an unqualified and unrestrained right to determine what 
 was proper capitalization. 
 
 Senator Newlands. Then we would have to have a simple vote of 
 the Senate as to what constitutes overcapitalization, and it would 
 determine whether capitalization covers simply the value of the 
 property or the actual money invested, or whether it includes such 
 things as promotion, good will, patent rights, etc. 
 
 Senator Cummins. That brings up the very question I suggest. 
 Here we are in the closing days of the session, and it is a very great 
 subject, the matter of capitalization of our corporations. It is utterly 
 impossible, it seems to me, to pass a law which will be expressive of 
 the views of the Congress upon that subject within the time that we 
 have, and it will be hard at any time. 
 
 Senator Newlands. For that very reason, it seems to me, the sug- 
 gestion of our chairman, Senator Clapp, is a very reasonable one, 
 that we should confine our present exercise of legislation at this extra 
 session to the appointment of an interstate trade commission and the 
 merger in such commission of the Bureau of Corporations, such com- 
 mission to have simply powers of publicity, inquest, and recommenda- 
 tion; particularly in view of the fact that the Bureau of Corporations 
 is not a bureau of complete publicity at present. On the contrary, it is 
 instructed by the law to withhold from the public facts ascertained by 
 public officers, unless the President gives his assent to publication. 
 
 Senator Cummins. I agree with you regarding the weakness in the 
 organization of the Bureau of Corporations. But publicity is of no 
 value unless the facts that are discovered can be compared with some 
 rule of conduct which the law has laid down for the government of 
 the corporations. It is bringing the force of public opinion to bear 
 upon corporations to induce them or compel them to obey the law, 
 and if you have no law, publicity is of minor importance. The facts 
 which must underlie all this legislation are perfectly well known — 
 well known to every student of the subject or observer of the subject; 
 that is. the facts that are necessary to declare the law or rule of 
 conduct. A great many facts can be collected, as we have seen here 
 all around, that are very curious and interesting, but they are not 
 fundamental, they are not material, really, to the organization of the 
 law. And it occurs to me — that is my view only — that your plan, 
 while it leads in the right direction and we must have eventually, 
 I think, some such tribunal, it would seem to me before we organize 
 a commission we should be able to determine what kind of law it 
 shall administer. You know the facts just as well now as you will 
 then. You want to know just how every company is capitalized, 
 how it is organized, and just how its business is done or has been done. 
 These things are merely interesting as history ; they are not essential 
 to the conclusion that you want to reach as to how corporations 
 should be organized and how they should conduct themselves. 
 
 Senator Newlands. I agree with you aa to that, that it is unneces- 
 sary in order to shape the law to have further investigation. We 
 know to-day all the abuses that exist in corporate management. 
 
 22877— vol i—12 2 
 
16 HEARINGS BEFOBE 
 
 There is no difficulty in our shaping the law to meet them. We could, 
 if we had a continuous session of this committee for six hours, cover 
 the entire ground and bring out, in my judgment, a complete act. 
 I am sure that I am prepared to go ahead, but my associates on the 
 committee do not seem to be of that view. Therefore I favor at 
 ' present the compromise suggested by the chairman, which I think 
 would vastly advance our work in November next. 
 
 Senator Bkandegee. As we go along, if there is any line of de- 
 marcation, the time to take it up is now. I take just the view that 
 Senator Cummins takes, if I understand his view — that this com- 
 mission that you suggest, if organized now with only the powers 
 that you propose to give it, would be absolutely useless to me in the 
 framing of a law to correct these evils. I know what the evils are; 
 everybody on this committee and in the Senate knows what the evils 
 are. The departments are filled with reports and criticisms. That 
 does not help me to determine the question of principle or to enact 
 a statute to remedy them. You might pile this room full of the 
 reports of this commission, but unless it was a commission of great 
 lawyers prepared to consider like a court the constitutional and 
 legal points involved in the creation of such a bill as you propose I 
 would not care to read one word of it. 
 
 Senator Newlands. Would you not expect President Taft to ap- 
 point such men on this commission? 
 
 Senator Brakdegee. I would expect that. Ycu say if we would 
 sit down here for six hours we could make up a proper bill on this 
 subject. I can not conceive of my coming to any conclusion that I 
 would be willing to bank upon or vote upon recommending that in 
 six hours. If we are going to consider this bill properly, it seems 
 to me that we should have the biggest men in this country to advise 
 us about the wisdom of forming our remedial statutes upon this line 
 or that line, and let us cross-examine them and get information 
 where we are in doubt and frame a constructive bill upon principle 
 and not upon the stuff that the Bureau of Corporations or any com- 
 mission may give in the way of statistics. It is not a question of 
 statistics or of capitalization. We know all about those. The ques- 
 tion is, What can we constitutionally and wisely do? 
 
 Now, I do make myself clear? 
 
 Senator Neweands. Yes: but I will not pursue the question of 
 immediate action further. I want to get through. I shall complete 
 my statement in a very few minutes, and then I shall be very glad 
 to take up this discussion with you, but I would like to get my state- 
 ment in the record in a compact form as the basis for further hear- 
 ings at the next session. 
 
 (7) In considering the powers which should be covered by this bill 
 we shall have to take up the question as to whether the pow"er to con- 
 demn unreasonable and extortionate prices should be included and 
 if so, what should be the form of the rule or standard fixed. Shallot 
 be analogous to that applied to the railroad companies, namely "th-vt 
 prices shall be reasonable and the same to all? And shall thc'now<>r 
 be given, as originally in the railroad act, to condemn only an unfair 
 or unreasonable price, or, as was later done with the railroad act shall 
 the power now also include that of fixing a reasonable price ? ' Per- 
 sonally, I am opposed to any attempt at present to fix prices. 
 
COMMITTEE ON INTERSTATE COMMERCE. 17 
 
 (8) Next, shall. the provisions regarding registration be simply 
 persuasive or compulsory, and if compulsory as to the large corpo- 
 rations, shall permissive registration be granted to the smaller corpo- 
 rations? I incline to the view that it is better to make them compul- 
 sory, at least for the large corporations, in order to insure the effect- 
 ive operation of the system. 
 
 (9) Shall the commission, in case of revocation of registration, have 
 power to order that the offending corporation shall not engage in in- 
 terstate commerce? My own view is that such poAver should not at 
 present be granted. Therefore I would not urge the retention of sec- 
 tion 11, which gives the commission power, in case of revocation of 
 registration, to forbid the offending corporation to engage in inter- 
 state commerce. 
 
 I do not think it advisable to overload the commission at this time, 
 and yet we must bear in mind that our experience with the interstate- 
 commerce act shows the great difficulty of adding needed amendments 
 later on. We all know what obstructions needed amendments of the 
 interstate-commerce act met with, and it took nearly 20 years to get 
 that act into really workable shape. 
 
 In my first communication with the Chief of the Bureau of Cor- 
 porations he was very much opposed to the organization of a com- 
 mission. His view was that the power of public opinion was so 
 great and these corporations were so desirous of placating public 
 opinion that if you would have a single executive official, like the 
 Commissioner of Corporations, vested with the full power to make 
 investigations and to publish what he found, as he is not allowed to 
 do without the permission of the President 
 
 Senator Cummins. Yes; but the President always gives his per- 
 mission. He publishes his bulletins every time immediately after 
 finishing an important investigation ; as he said the other night, 
 attempting to reduce these reports to a few pages so that the public 
 would read them. Is not that the fact? 
 
 Senator Newlands. Oh, yes ; I have no doubt that that permission 
 is generally given, but it may be delayed or altogether withheld. I 
 observed the other day, when an investigating committee of the House 
 called upon the Commissioner of Corporations for certain informa- 
 tion, his reply was he could not give it without the instructions of 
 the President. 
 
 Senator Cummins. But when he has gone forward with an inves- 
 tigation, such, for instance, as that of the United States Steel Cor- 
 poration, he at once, under the order of the President, makes that 
 public in such a way that it is readable. 
 
 Senator Newlands. Yes. 
 
 Senator Cummins. I do not think any complaint can be made of 
 the work of the Bureau of Corporations in that respect. While he 
 felt unwilling to become the subject of cross-examination or examina- 
 tion at the hands of the committee without an order of the President, 
 the real facts have been disclosed just as fast as he collected them. 
 
 Senator Newlands. Yes ; I have no doubt that is so, but I think 
 that such functions should be vested in an independent tribunal or 
 commission, entirely free from executive control or influence. 
 
 The Commissioner of Corporations attaches great importance to 
 registration, to the moral effect of refusing or canceling registration. 
 
18 HEARINGS BEFOEE 
 
 He has since modified also his views somewhat as to the desirability 
 of a commission, an idea which he at first opposed, and I think that 
 he is now substantially in accord with this bill. The Solicitor Gen- 
 eral has expressed himself very emphatically in favor of legislation 
 on these lines. 
 
 I shall append to my remarks quotations from a letter from Mr. 
 Herbert Knox Smith, in response to a series of questions which I put 
 to him and after he had consulted with the Solicitor General. 
 
 The Chairman. Senator Newlands, it seems to me there are no two 
 sides to Senator Brandegee's suggestion. The thing to do is to print 
 in as a part of the bill those things as you have finally given them, so 
 that they will be there in clean, clear, concrete form. 
 
 Senator Newlands. All right, I will do so. 
 
 Senator Bra>dege±;. I should like to ask one question. Have you 
 finished for the present? 
 
 Senator Newlands. Yes. I shall be very glad to answer your ques- 
 tion. 
 
 Senator Braxdegee. I was going to ask this: You have conferred 
 with the Chief of the Bureau of Corporations and with the Solicitor 
 General ? 
 
 Senator Newlands. Yes. 
 
 Senator Brandegee. I do not know that I care to concede too much 
 to the theories of the departments in a matter of this kind. Perhaps 
 +>>pir experience is not any better than ours. But after consulting 
 those, have you also consulted the Secretary of Commerce and Labor 
 and the President? 
 
 Senator Newlands. I have consulted the Secretary of Commerce 
 and Labor. I have also consulted the Attorney General. Both the 
 Secretary of Commerce and Labor and the Attorney General were 
 strong advocates of a national incorporation act, believing that na- 
 tional incorporation should cover interstate commerce, and that the 
 act itself should contain all the necessary restrictions upon these 
 corporations as to capitalization, the area of their operations, etc. 
 
 Senator Brandegee. I want to understand clearly whether in favor- 
 ing a national incorporation act they meant to favor that and to pass 
 what you propose. 
 
 Senator Newlands. No. In my discussions with them I stated 
 that, so far as I was individually concerned, I had tested the senti- 
 ment of Congress regarding a national incorporation act, and par- 
 ticularly the sentiment of my own party ; that whilst I had advocated 
 national incorporation with reference to great transportation com- 
 panies whose functions are largely national, and with a view to tak- 
 ing away from such States as New Jersey the jurisdiction which they 
 had usurped over interstate commerce in the organization of corpora- 
 tions national in scope, I was never able to make much headway 
 with my own party, clinging, as it does, to the exercise of State 
 functions and guarding against Federal encroachment. Therefore 
 my argument was addressed to them, not in opposition to their view 
 as to national incorporation, but as to the possibility of passing a 
 national incorporation bill, and particularly in view of the present 
 political status, the administration having drifted from one of pow- 
 erful Eepublican control, a control entirely in sympathy with the 
 broad exercise of national powers, to one of divided control. I think 
 ooth of them, whilst they adhere to the view that a national incorpora- 
 
COMMITTEE ON INTEBSTATE COMMEECE. 19 
 
 tion act would be the best method, acquiesce in the view that at pres- 
 ent it is difficult if not impossible to secure the passage of such a bill. 
 I have heard no expression from Secretary Nagel as to whether, that 
 being the situation, he would be willing to favor a bill for an admin- 
 istrative commission such as this is, but the Attorney General has 
 expressed himself regarding it, and he has indicated a disposition even 
 to go further. I will append quotations to this effect from his recent 
 speech at Duluth. 
 
 Senator Cummins. I would yield great deference to their views as 
 lawyers upon the power of Congress to do certain things, but I think 
 we have altogether too much interference on the part of the Execu- 
 tive Department with regard to the character of legislation. It 
 prejudices me against them. 
 
 Senator Newlands. I was simply stating this in reply to a question 
 asked by Senator Brandegee. He asked me what the views of these 
 officials were. 
 
 Senator Cummins. I want to put myself on the record. 
 
 Senator Newlands. I want to say this, that I do think the views of 
 men who have been connected with all this trust litigation are entitled 
 to weight. 
 
 Finally, I wish to point out one broad consideration. In the 
 present status of our public policy as to the great corporate problem 
 we have at least two leading and divergent schools of thought, two 
 tendencies, each toward a different method of procedure. The one 
 desires to maintain, by governmental action if need be, the full com- 
 petitive system and to rely chiefly on competition as the regulator of 
 corporate business. The Sherman antitrust law strongly presents 
 this principle. 
 
 The other school inclines rather — to state the extremes — toward 
 freely allowing combination, both present and future, applying 
 thereto governmental supervision and direction as the prime regulator. 
 
 In my opinion it is too early to say which of these opposing tenden- 
 cies should, or will, ultimately prevail. 
 
 Holding such a view, I am urging this bill, because the system it 
 embodies is exactly adapted to the undeveloped situation I have just 
 described. It is available for either tendency: it can be made to 
 serve either principle ; it will help to show which is the correct one ; 
 and it does not commit us permanently to either of these two main 
 lines of action. 
 
 Its primary result will be to furnish both to Congress and to the 
 public the accurate and broad information on corporate conditions 
 that is necessary to determine the line of further advance. It neither 
 legalizes nor forbids combination ; it in no way affects the operation 
 of the Sherman law ; its work of publicity and supervision will tend 
 strongly to promote fair competition and keep equally open to all the 
 highways of commerce. 
 
 On the other hand, it takes the situation as it is ; it recognizes that 
 there is a large degree of combination already existing, and it makes 
 that condition a subject for supervision, study, and report to 
 Congress. 
 
 In short, it is a step upon which all can unite, as eminently fitted 
 by its moderation and, indeed, by its own frankly tentative character 
 to do what is imperatively needed for the present without preju- 
 dicing the future. 
 
20 HEARINGS BEFORE 
 
 (The quotations from the address of Attorney General Wicker- 
 sham, delivered at Duluth, Minn., July 19, 1911, above referred to, 
 are as follows:) 
 
 The gradual interpretation of the act of July 2, 1890, resulting in the decisions 
 and decrees rendered by the Supreme Court at its last term, has at last clearly 
 demonstrated the effectiveness of that law to destroy existing combinations in 
 restraint of interstate or international commerce and attempts to monopolize any 
 part of it and to prevent renewed combination or monopolistic effort. * * * 
 
 But the question remains, can the great end and object of the Sherman law — 
 namely, that the normal course of trade and commerce among the States shall 
 not be impeded by undue restraints and monopolies — be realized through the 
 operation of that law alone? 
 
 In dealing with transportation, Congress was not content to rely simply on 
 the process of injunction to restrain and indictment to punish violations of the 
 antitrust law. It also established an administrative commission clothed with 
 powers — greatly enlarged from time to time — over those engaged in the trans- 
 portation business. * * * 
 
 AYithin what limits is legislation to regulate corporations engaged in 
 interstate commerce other than transportation expedient and practicable? 
 Should the analogy of the interstate commerce law and commission be 
 followed? * * * 
 
 That some further regulation over corporations carrying on commerce among 
 the States may be necessary is a matter of current comment. * * * 
 
 The Federal Department of Justice is not organized or equipped to maintain 
 constant supervision and control over business organizations. It deals only with 
 cases of violation of law. The activities of an administrative board or commis- 
 sion would be directed to preventing such violations and in aiding business men 
 to maintain a continued status of harmony with the requirements of law. 
 
 Moreover, unless Congress shall provide for the establishment of corporations 
 drawing their life and powers only from the National Government and subject 
 only to its control, or shall confer specific powers on State corporations which 
 will enable them to carry on commerce away from the State of their creation 
 without the interference of States into which they go, the present unsatisfactory 
 condition of carrying on business in the different States by means of many 
 different corporations owned or controlled through stock ownership by a parent 
 company created by some one State will continue, and in the natural, normal, 
 healthy, and legitimate growth of such business questions of the application of 
 the Sherman law must arise which can not be properly settled with the district 
 attorney or the Department of Justice, but which should be dealt with by an 
 administrative body having appropriate jurisdiction. 
 
 (The quotations from a letter from the Commissioner of Corpora- 
 tions, Mr. Herbert Knox Smith, above referred to, are as follows :) 
 
 Hon. Francis, G. Newlands, 
 
 United Stales Senate, Washington. 
 
 Dear Senator: Your letter of the 2rl instant was received, raising certain 
 questions on (he bill for an interstate trade commission (S. 2941) introduced 
 by you. * * * 
 
 Taking up your questions in order : 
 
 (1) " Shall an interstate trade commission be organized?" 
 
 If the work is to be simply that of investigation find publicity my experience 
 would indicate that an organization under a single head would be decidedly 
 more efficient. For purely executive or administrative action such form of 
 organization is preferable. If, however, judicial or seinijndicial powers are 
 to be exercised the commission form has important advantages; it is better 
 adapted for judicial decision, its judicial rulings would probably carry more 
 weight, and, in any event, it tends to secure stability, continuity of policy arid 
 greater independence of action. 
 
 (2) " Shall the Bureau of Corporations be merireil in the commission? " 
 
 If the interstate trade commission is to exercise substantially the powers 
 now used by the Bureau of Corporations it seems almost necessary that the 
 bureau should be merged in that commission, as the bureau would have little 
 reason for further separate existence. There is also, however, the very im- 
 portant consideration that the bureau is very necessary to the commission- 
 the bureau is the one unit in the Government service which can immediately 
 
COMMITTEE ON INTERSTATE COMMERCE. 21 
 
 » 
 
 supply the experience, trained fence, knowledge, and traditions which the 
 commission must have for its work. 
 
 (3) " Shall the test of the applicability of the acts to corporations engaged in 
 interstate trade be the annual gross receipts, or the character of the business in 
 which the corporations are engaged — namely, the production of great staple 
 articles?" 
 
 The question here is a debatable one, but experience with corporate business 
 leads me to doubt the feasibility of a classification based on kinds of business or 
 staple commodities. Such lines of demarcation are too vague. For example, 
 certain companies deal wholly in the manufacture of lumber, others in its sale, 
 others in the manufacture of goods primarily made out of other materials but 
 having a certain proportion of lumber. Similarly with the steel industry and 
 many others. It would be almost impossible to draw the line in many cases so 
 as to say whether a corporation was engaged in a given industry or not. Many 
 • great wholesale houses sell a large amount of hardware. Would they be 
 included, for example, as engaged in the steel industry? 
 
 (4) " Shall the power of the commission be confined to investigation and in- 
 quest, requirement of statements and publicity, and recommendation to the 
 President and to Congress '! " 
 
 " If not, shall the additional requirement of registration be made with the ac- 
 companying power of denying or canceling registration for certain prescribed 
 offenses or for violation of the regulations of the commission ; and shall the 
 punishment of a recalcitrant corporation be confined simply to a cancellation of 
 registration?" 
 
 Investigation, publicity, and recommendation should be in any event parts of 
 the system. Personally, I favor strongly registration of corporations with power 
 of cancellation. This gives a very practical means of control, which at the same 
 time has the great advantage that it does not actually attempt the positive 
 regulation of business. It allows credit for proper business conduct and imposes 
 discredit for the reverse, but assumes no power of direction and simply leaves 
 the public to apply corrective pressure through public opinion and the invest- 
 ment of the public's money. 
 
 Answering also the last part of the question, it is probably better for the pres- 
 ent to provide cancellation of registration as the only penalty for improper 
 business conduct. I feel entirely satisfied that such United States registration 
 would shortly become a valuable business and financial privilege for any large 
 corporation. The standing of the company with that public opinion that under- 
 lies legislative action and the financial status of its securities with the invest- 
 ing public would be affected in a very practical way by the possession or can- 
 cellation of such registry. ' The approval now granted to corporate transactions 
 through existing State public-service commissions has already a very definite 
 market effect on the price of securities and on the attitude of public opinion. 
 
 (5) "The preciseness with which the grounds for denial or cancellation 
 should be stated in the law, and whether the commission shall have the power 
 to make regulations, lack of compliance with which will result either in a denial 
 or cancellation?" 
 
 The grounds of cancellation should be broadly stated, leaving the commis- 
 sion to apply in specific cases the general rules prescribed by Congress. If 
 power of making regulations be conferred on the commission, it should be simply 
 for such regulations as will carry out the terms of the act and make effective 
 the rules laid down therein. 
 
 (6) "As the power to regulate interstate commerce is a legislative power, it 
 has been held that the law turning over the administration of such power to a 
 commission or board shall prescribe the rules or standards under which the 
 power is to be exercised. Would this apply to a mere registration in which no 
 substantial property right is involved?" 
 
 The question of whether the delegation of a power is constitutional depends 
 wholly on the nature of the power. Legislative power, strictly speaking, can 
 not be delegated, but executive power can, of course, be conferred by legislation, 
 and there can also be given quite broad power of 'executive administration in 
 ascertaining facts and applying to them the rule established by legislation. It 
 seems probable that the powers granted In this bill come tinder the latter lie;d 
 and are constitutional. 
 
 An excellent case on the subject is Union Bridge Co. v United States (204 
 U. S., 364), where the earlier cases are reviewed in detail. The case itself 
 involved the question of whether an act of Congress granting to the Secretary 
 of War power to order the removal of the bridge over a navigable stream " when- 
 ever the Secretary of War shall have reason to believe that any * * * 
 
22 HEARINGS BEFORE 
 
 bridge * * * over any of the navigable waters * * * is an unreason- 
 able obstruction to the free navigation of such waters on account of insufficient 
 height, width of span, or otherwise," was a delegation of legislative power. 
 
 The court held that this was not an objectionable delegation of power, and 
 quoted, with approval from Lock's appeal (72 Pa. St., 491), as follows: 
 
 " The legislature can not delegate its power to make a law, but it can make a 
 law to delegate a power to determine some fact or state of things upon which 
 the law makes, or intends to make, its own action depend." 
 
 See also other cases cited in this decision. 
 
 An excellent legislative precedent is in the steamboat-inspection law, where, 
 by section 4405, Revised Statutes, a board is given power to " establish all nec- 
 essary regulations required to carry out in the most effective manner the pro- 
 visions of this title." These regulations now cover over 100 pages. 
 
 In the same law, also, the inspectors are given broad power over the licenses 
 of steamboat officers, as follows: "But such license shall be suspended or 
 revoked upon satisfactory proof of bad conduct * * *," a power obviously 
 closely analogous to the power of cancellation provided in your bill. 
 
 It should be noted also that the only power delegated is the mere revocation 
 of registration. Registration is not a property right. It is simply a privilege 
 granted through the commission and revocable by it. 
 
 Thus, as stated iu paragraph 5 above, rules of action and grounds for can- 
 cellation of registration should be set forth in the bill itself, with sufficient 
 definition to make clear the intention of Congress as to the class of acts to be 
 covered thereby. For example, the word " overcapitalization " is perhaps suffi- 
 ciently definite in itself, while " unfair or oppressive methods of competition " 
 would perhaps be too indefinite. 
 
 (7) " In case the power to fix prices should be included," etc. 
 
 I would prefer not to discuss the form of such power, as I personally believe 
 it unwise to confer any such power on the commission, and do "not consider 
 myself competent to treat the subject properly. 
 
 In considering any such treatment of our commercial problem as is attempted 
 in this bill, it seems to me, at least, that the Government should not, at present, 
 commit itself, by way of general policy, either to the theory of " unlimited 
 competition" or of "unlimited combination." We are not, I feel, sufficiently 
 advanced to justify us in taking a definite position in favor of either oue of 
 these opposing ideas. Any system we adopt now should be so framed as to be 
 alike available for either development. To give the power to fix prices would 
 tend to commit us to a policy of industrial combination. 
 
 (8) " Sh«ll the provision regarding registration be simply persuasive, or 
 compulsory; and if compulsory as to the large corporations, shall permissive 
 registration be granted to the smaller corporations?" 
 
 I believe that the system would be entirely workable, if the publicity, etc., 
 were simply permissive, and that some complications would thus be avoided. 
 But a compulsory system for large corporations should also bring much the same 
 results, especially if coupled with permissive registration for smaller concerns. 
 The permissive feature for smaller companies seems decidedly desirable. 
 
 (9) " Shall the commission, in case of revocation of registration, have power 
 to order that the offending corporation shall not engage in interstate commerce?" 
 
 This power is a peculiarly drastic one, and would require rather elaborate 
 machinery for its enforcement. I doubt both the wisdom and the necessity 
 here. 
 
 I take the liberty of adding some general considerations, which may be 
 relevant to the discussion of such a system as is proposed by your bill. These 
 views are based on an experience of eight years in the Bureau of Corporations. 
 
 (10) The one imperative change now required in our policy toward the 
 " corporate problem," is a change from our present system of treating that 
 problem through occasional prosecution, to a system which will treat it with 
 continuous administrative action. We should advance from a negative policy 
 to a positive constructive policy; from. mere occasional prohibition to permanent 
 regulation and prevention. " 
 
 (11) One of the primary objects of the commission is the providing of proper 
 publicity. This should not be combined with the administration of the Sher- 
 man law. It is probably true that efficient publicity is inconsistent with prose- 
 cution, at least as administered by the same office. The Bureau of Corporations, 
 the present agent of corporate publicity, secures now at least nine-tenths of 
 its information by voluntary cooperation. The interstate trade commission 
 would continue this work, but should the function of prosecution under the 
 Sherman law be combined with publicity, it is obvious that the present vol- 
 
COMMITTEE OS INTERSTATE COMMERCE. 23 
 
 untary cooperation of corporations, the main source of information, will very 
 largely be destroyed. 
 
 There are of course exceptions to this general principle. At times it would 
 be necessary for the information obtained by the commission and indicating 
 a clear and flagrant violation of law to be turned over to the Department of 
 Justice. The Bureau of Corporations has in this manner given much assist- 
 ance to the Department of Justice. The numerous prosecutions of the Stand- 
 ard Oil Co. since 1906 for railway rate discriminations were all based on the 
 report of that bureau, and the agents of the bureau furnished much of the 
 evidence and assisted largely in the preparation of the cases. 
 
 Similarly, in the recent prosecution of that company under the Sherman law, 
 the case was instituted as a result of the investigations of the bureau, was 
 largely prepared by its agents, and, I venture to say, would not have been 
 successfully presented without their aid. Some of the ablest men in the bureau 
 gave over a year of their time to this case. 
 
 But in general such connection with prosecution should be wholly incidental 
 and secondary, qnd the publicity work of the commission should be directed 
 primarily at furnishing reliable economic and financial information for the 
 general public and not at securing evidence for prosecution. 
 
 (12) One of the most important features of such an administrative system 
 of corporate regulation is its provision, as above referred to. for broad cor- 
 porate publicity. The effects of such publicity have been well shown by the 
 past work of the Bureau of Corporations, as set forth in the annual report 
 of the Commissioner of Corporations for 1910. 
 
 The report of the bureau on the transportation of petroleum, published in 
 May, 1906. effected a sweeping decrease in the granting of railway rebates 
 throughout the country. Practically every railroad involved in the railway 
 discriminations described in this report canceled the objectionable rates within 
 six months after the issuance of the report. 
 
 The report of the bureau on cotton exchanges resulted within a few months 
 in a marked improvement in the regulations of the New Orleans Cotton Ex- 
 change, and while the New York Cotton Exchange has not yet made any 
 changes in its system, that exchange, on March 23, 1911, voted " that it is the 
 sense of this meeting that since * * * th\j Department of Commerce and 
 Labor has made an exhaustive investigation of the business methods of the 
 cotton exchanges and has criticised the methods and by-laws of the New York 
 Cotton Exchange * * * it will be good judgment on the part of this 
 exchange to, * * * so far as possible, adopt the suggestions made by the 
 Government." 
 
 In the tobacco industry the independent manufacturers have in many in- 
 stances stated that the work of the bureau has caused the cessation of various 
 objectionable methods of competition. 
 
 In the problem of waterways, the reports of the bureau, three in number,' 
 have very widely influenced public opinion by showing the real questions to be 
 solved and the real advantages to be attained in waterway transportation. 
 
 A Federal administrative system of publicity and registration should develop 
 both strength and elasticity. The administration of such a system should result 
 in a definite and broadening policy, based on exact information, establishing 
 definite standards of business action, of public economics, and of Government 
 regulation, in themselves highly effective, and valuable also as the raw material 
 for further statutory enactment. 
 
 We may fairly hope to get from it a gradual rise in the standard of business 
 conduct, closer relationship between large business and public authorities, 
 marked improvement in corporate accounting and in the standing of our indus- 
 trial securities, and the elimination of unfair practice and business privilege. 
 All of this without any disturbance of properly conducted business. 
 
 The time seems ripe for such action. It has been obvious since the Supreme 
 Court decisions on the Standard Oil and Tobacco Co. cases that the public is 
 ready and anxious for an advance to some such administrative system of 
 regulation hy the Federal Government. It seems to be true that corporate 
 managers concede more and more the necessity for such regulation and pub- 
 licity, recognizing both its public necessity and its advantage to fair business. 
 Very sincerely, yours, 
 
 Herbert Knox Smith, Commissioner. 
 
24 HEAKINGS BEFOBE 
 
 WEDNESDAY, NOVEMBER 15, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, 
 Oliver, Townsend, Newlands, Watson, and Pomerene. 
 
 Senator Cummins introduced the following resolution, which was 
 seconded by Senator Brandegee, and after discussion' agreed to, as 
 follows : 
 
 Resolved. That throughout the hearings nbout to begin any person who ap- 
 pears before the committee to make a statement or argument upon the subject 
 under consideration shall be permitted to submit his statement or argument 
 without interruption; but at the close of any such statement or argument he may 
 be interrogated by any member of the committee ; any such interrogation shall 
 take place in the follow'ng order : First, the chairman of the committee, second, 
 the ranking Republican member ; third, the ranking Democratic member, and 
 thereafter alternately according to rank ; and there shall be no interruption of 
 the examination by any other member of the committee : Provided, however, 
 That this order shall not preclude "further interrogation after each member of 
 the committee has had his opportunity. 
 
 Resolved also, That, unless otherwise ordered by the committee, the right of 
 interrogation shall be confined to members of the committee. 
 
 STATEMENT OF HON. FRANCIS G. NEWLANDS, UNITED STATES 
 
 SENATOR. 
 
 The Chairman. Senator Newlands, you may proceed. 
 
 Senator Newlands. Mr. Chairman, during the late extra session 
 I introduced Senate bill 2941, for the creation of an interstate trade 
 commission with powers over corporations engaged in interstate 
 trade similar in many respects to those possessed by the Interstate 
 Commerce Commission over interstate transportation. On the 4th 
 of August, toward the close of the extra session, this committee, of 
 which I am a member, gave me a hearing on the bill and I made a 
 preliminary statement, explaining its terms and the conditions it 
 was intended to meet. That statement, together with quotations 
 from the President, the Attorney General, and the Commissioner of 
 Corporations, has been printed as the first part of the hearings under 
 the resolution introduced by the chairman. 
 
 The bill provides that all interstate corporations (except rail- 
 roads) whose gross annual receipts exceed $5,000,000 shall make 
 regular reports to the commission as to their business transactions, 
 shall be subject at will to the examination of the commission, and 
 shall, upon complying with such requirements, have the exclusive 
 right to use the title " United States registered." The bill also pro- 
 vides that for violation of the Sherman law, improper capitaliza- 
 tion, unfair methods of competition, acceptance of railway rebates, 
 or other improper business transactions, the commission may at will 
 cancel such registration. It is recognized that the right of a cor- 
 
COMMITTEE ON INTEKSTATE COMMERCE. 25 
 
 poration to publish the fact of such registration will shortly become 
 a valuable financial privilege, and that the fear of cancellation of 
 such right will be a strong restraining influence against improper 
 transactions. 
 
 The bill provides a permanent administrative body of trained 
 experts, who shall have as their sole specialty the supervision and 
 registration of large corporations and supply accurate information 
 thereon to the public, and shall make recommendations to Congress 
 for any further legislation that may seem necessary. 
 
 I may later on have something further to say before this com- 
 mittee regarding this bill; but I wish to state at present that since 
 the bill was introduced there has been a wide discussion throughout 
 the country upon two divergent lines of thought: One insisting on 
 absolutely free and unrestricted competition as the regulator of cor- 
 porate business, and the other inclining toward allowing large com- 
 binations of capital and applying thereto Government supervision 
 and direction as the prime regulator. It is difficult to say now 
 which of these opposing tendencies should or will ultimately prevail. 
 The bill which I have introduced is, in my judgment, adapted to this 
 undeveloped situation. It will help us to determine which of these 
 theories is the correct one; it will furnish to Congress and to the 
 public the accurate and broad information on corporate conditions 
 that is necessary to determine the line of further advance. It does 
 not affect the operation or the enforcement of the Sherman law; 
 its work of publicity and supervision will tend to promote fair com- 
 petition and keep equally open to all the highways of commerce. 
 On the other hand, it takes the situation as it is; recognizes that 
 there is a large degree of combination already existing, and makes 
 that condition a subject for supervision, study, and report to Con- 
 gress. Its frankly tentative character and its moderation recom- 
 mend it as a step upon which all can unite in doing w,hat is impera- 
 tively needed for the present, without prejudicing the future. 
 
 I trust that the committee will see the wisdom, without waiting 
 for the end of this investigation, of recommending this tentative 
 measure, which will be an aid in the final solution of all the pressing 
 questions relating to trade corporations. 
 
 The hearing has been printed and is now on file with the com- 
 mittee. 
 
 The Chairman. Is that all you desire to say? 
 
 Senator Newlands. That is all I care to say at this time, Mr. 
 Chairman. 
 
 Senator Cummins. I understand that yon have requested that 
 there shall be no interrogation at this time ? 
 
 Senator Nkwlands. Yes; at this time. I prefer, later on, when 
 other views have been presented, to have the opportunity of appear- 
 ing before the committee and will then, possibly, present some modi- 
 fication of this measure as already drawn. 
 
 Senator Townsend. Then you do not seriously insist upon action 
 being taken at the beginning "of Congress on your bill? 
 
 Senator Newlands. I do not know what course the committee will 
 determine upon with reference to that. My own view is that a bill 
 of this character should be passed as quickly as possible, for the 
 reasons given bv me in my statement at the hearing last session. 
 
26 HEAEIKGS BEFORE 
 
 Senator Townsend. You desire to wait, and will not object later 
 to a chance to be interrogated ? 
 
 Senator Newlands. Certainly not. I wish to state that interro- 
 gation took place at the hearing last session, and that I have 
 already submitted my views freely in reply to questions of members 
 of the committee. 
 
 The Chairman. If there is nothing further before the committee, 
 the committee will stand adjourned until to-morrow morning at 11 
 o'clock. 
 
 (Whereupon the committee adjourned until to-morrow, Thurs- 
 day November 16, 1911, at 11 o'clock a. m.) 
 
 thursday, november 16, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce. 
 The committee met at 11 o'clock a. m: 
 
 Present : Senators Clapp (chairman) , Cummins, Brandegee, Oliver, 
 Townsend, Newlands, Watson, and Pomerene. 
 
 The Chairman. The committee will come to order. Mr. Vinson, 
 you may proceed. 
 
 STATEMENT OF TAYLOR VINSON, ATTORNEY AT LAW, AND ALSO 
 ENGAGED IN THE COAL BUSINESS, HUNTINGTON, W. VA. 
 
 •'Mr. Vinson. Mr. Chairman and gentlemen of the committee, I 
 have prepared a bill for your consideration in your committee work, 
 and this bill applies with particular, and I might say exclusive, ref- 
 erence to the bituminous-coal industry. 
 
 After quite an experience in the coal business, both as attorney and 
 as a party in interest, I have come to the conclusion that the legisla- 
 tion that is needed in that industry is a constructive legislation that 
 will enable the industry to live and prosper if it may. I have come 
 to the further conclusion that the most efficient method or way by 
 which that legislation may be brought about is the creation of a 
 commission — a mining commission, if you please — having full au- 
 thority to regulate the mining industry; I mean the coal-mining 
 industry; a commission organized along the lines of the Interstate 
 Commerce Commission, with certain powers vested in it. Those 
 powers may be enumerated in three or four classes : First, the power 
 to prescribe all the necessary rules and regulations by which all of 
 the coal may be mined 'out, and in that respect it would be a step 
 toward the conservation of the natural resources. From the best 
 statistics that we can get, the present mining conditions leave in the 
 mine fully 25 per cent of the coal unrecovered, and when the mine is 
 abandoned that quantity of coal becomes a total loss. It is simply 
 deducting from our fuel supply 25 per cent of it that ought to go 
 into the industry. Of course, this coal is left in the mine from 
 various causes. There are squeezes and breakdowns that are expen- 
 sive to mine through and get to the coal beyond from the other 
 side. Then there are faults that come in most mines. Then the 
 washing and various causes operate to make a part of the coal much 
 more expensive to produce than other parts of it, and consequently 
 
COMMITTEE ON INTERSTATE COMMERCE. 27 
 
 under very sharp competition in the market, and the particularly 
 low margin of profit, it is not profitable to mine this coal and it is 
 left in the ground. A commission would require that coal to be 
 brought out and go into the commerce of the country. 
 
 Another feature of the bill which I have prepared is to give the 
 commission the power to prescribe the necessary rules and regula- 
 tions for the proper mining of the coal so that the safety of the 
 miner may be secured as far as it is possible to do so, and particularly 
 the cause of explosion and accidents may be minimized as far as 
 possible. 
 
 Now, it may be thought that the State administration of the mining 
 system in each State would be more effective than a national commis- 
 sion. The trouble with the State administration of that feature of 
 coal mining is that each State passes a law applicable to the whole 
 subject. They can not specify that a certain mine or a certain dis- 
 trict will have to be regulated by mandatory provisions, but the law 
 is general, and necessarily has to be under most of the constitutions 
 in many of the States. 
 
 To illustrate: In West Virginia we have mines in Fairmont dis- 
 trict, which is in the northern part of the State, and we have mines in 
 the extreme lower end of the State, which are known as the Poca- 
 hontas and Norfolk & Western districts. We have a general mining 
 law passed by the legislature. Now, the conditions that prevail in 
 the Fairmont mine might be met by the local State law, whereas the 
 conditions that prevail in the mines in the southern part of the State 
 would not be met if the local law were in force. The fact is, that in 
 some instances a strict enforcement of the State law would operate 
 well to prevent explosions, when as applied to other parts of the 
 State it would enhance the chance or increase the chance of explo- 
 sions. So the only way to minimize the chance of explosion in mines 
 is to have each mine studied and known so that when the conditions 
 that pertain to that particular mine — and they are all different; 
 there are no two exactly alike — so when those conditions are known 
 the proper remedies may be applied. In one mine you may want so 
 much air put in, whereas in the mines in the neighboring district, or 
 maybe in the same territory, the same quantity of air applied would 
 hasten an explosion; so much moisture should go in one mine and in 
 another much less moisture. 
 
 All the preventive conditions that are now known to the mining 
 business are not applicable to each mine in the same ratio, and to get 
 the best results each mine must be studied and it must be known and 
 its own conditions must be provided for. That can be done by a 
 commission having full power and authority to apply rules and regu- 
 lations applicable to each one of those mines. Of course, the loss of 
 life in most explosions and mining accidents is appalling. For 
 every thousand men employed last year we had four and one-half 
 deaths. For every million tons of coal mined we had five and a 
 half deaths — thirteen serious injuries occurred — and that is the price 
 in human life and human energy that is exacted from the operation 
 of those mines when the local authorities are doing the best they can 
 to minimize those accidents and explosions. 
 
 Now that can be administered so much better and so much more 
 effectively if some tribunal, some commission, if you please, who 
 
28 HEARINGS BEFORE 
 
 knew those things could send their men into each mine and inspect 
 it and apply the remedy to that particular mine, which, I think, all 
 mining men will fully agree upon. 
 
 Another feature of the bill that I want to present to your com- 
 mittee is a provision for a workingman's compensation. Almost in 
 every State in the United States there is an agitation looking to the 
 best laws that will give workingmen compensation for injuries re- 
 ceived while in the course of their employment. A great many of 
 those bills have been passed, and I take it that in most of the States 
 they will be passed, if not all of them. Those bills run along two 
 lines: One is forcing the employer to be responsible for all the in- 
 juries, and forcing the employer to make compensation to the injured 
 employee out of his own resources. Bills have been passed and are 
 being passed, and investigations are being made along that line. An- 
 other line is along the compulsory-insurance law, so that when a 
 man is injured the employer pays for an insurance for him. The 
 plan that I propose and which is embodied into this bill, it seems to 
 me, is much more efficient and a good deal simpler and much more 
 easily administered. It is this: Have each mining operation pay a 
 cent a ton on the coal mined into the treasurj' of the commission and 
 have the operatives, the employees, pay 1 per cent of the pay roll, 
 which would ordinarily amount to 40 cents or 50 cents a month on 
 the part of the employees. That fund, based upon last year's pro- 
 duction, would amount in round numbers to $8,000,000. Now, the 
 practical administration or application of that fund would be that 
 when a man is injured in a mine he is at once taken into the hands of 
 competent physicians. Each mine, of course, has its local physician, 
 and the commission would have its district physician take care of 
 him and treat him and give him whatever medical attention was 
 necessary. In the meantime his wages would go on, and he would 
 get the benefit of that. After he has recovered, if he has a permanent 
 disability, if the injury results in bringing disability of any kind, 
 or a modified disability, then the commission, out of that fund so 
 created, would make him a fair, reasonable, and just compensation to 
 the extent of his injuries. Of course, if he is killed, the compensation 
 would go to his wife or children, as the case may be, or those depend- 
 ent upon him. 
 
 Now, the advantage that this system has over any of the others, 
 is that there is no lawsuit; there is no jury trial; there is no delay. 
 The very minute the man is injured lie begins to get a compensa- 
 tion then and there, in the way of medical attendance. As soon 
 as_ he has recovered, if he is injured at all, he is provided with 
 this sum of money without even a demand. He does n<:t have to 
 employ lawyers and divide up practically half of what he may get 
 
 after a long litigation — and maybe get nothing at all with his 
 
 counsel. There is no economic waste, either to the company em- 
 ploying him, or to the man; the fund is there ready and provided for 
 and is immediate, and it is to be administered by men who are 
 thoroughly impartial, and who have no other reason in the world 
 in _ his case but to do full and complete justice and give him all his 
 injuries entitle him to. 
 
 Now, unless something like that is done, gentleman of the com- 
 mittee, what is going to be the result? You take the employers' 
 liability law — and that seems to be the most popular in some of the 
 
COMMITTEE ON INTERSTATE COMMERCE. 29 
 
 Stales; what does that mean? You take a small coal company with 
 a capital of $75,000 or $100,000, and that represents the capital, 
 generally speaking, of the smaller concerns, and that money that is 
 invested in that coal plant is practically all the money that the 
 men who own that plant can raise and put into it. They' have their 
 all in it. Now, then, if our legislation will put upon that coal com- 
 pany an employer's liability for the injuries and take away the 
 defenses, which they all clo, then a very small explosion that would 
 cause five or six deaths, or serious injuries, to that extent it would 
 take the whole of that plant to pay it absolutely; consequently the 
 whole of that investment would be wiped and exhausted in pay- 
 ing the damages, and as a consequence the small man in the busi- 
 ness, now, as well as those who contemplate going in, would simply 
 have to retire; the risk would be so great that their business would 
 be destroyed in that way. 
 
 Now, if you have a general fund that is created and embodied by 
 the whole industry all over the country, then, if the explosion does 
 come to the small man, and he does have death and injuries in his 
 mine, it costs him nothing in the world except his contribution to 
 that fund; the industry pays the penalty for the explosion and gives 
 a compensation to those who are injured. 
 
 Now, if that is applied to all alike in all the States, that com- 
 pensation does not ultimately come from either the employer or the 
 employee, but it comes from the consumer; but if it is applicable 
 only in one State, then it must come from the employer, and the 
 individual employer who is least able to bear it, and, of course, that 
 involves some litigation and loss, both to the employer and the em- 
 ployee. 
 
 Now, as to the insurance plan. It is shown by the statistics, both 
 of this country and Germany, from which country we get our idea 
 of the insurance plan, that for every dollar that is contributed and 
 paid into the insurance company for the benefit of the injured em- 
 ployee it takes in this country 60 cents of that dollar to distribute the 
 other 4G. As a consequence, out of every $100 paid into the insurance 
 fund out of the industry the man who is entitled to it and for whose 
 benefit the payment is made only gets 46 cents. In Germany it is a 
 little over 55 cents. So that the insurance plan is too expensive and 
 too little— too small in amount when money that is paid into that 
 fund finally reaches the object for which it was intended. So that 
 under 'this plan the man who is hurt does not feel that he is a pen- 
 sioner; he does not feel that he is an object of charity, as he does in 
 many instances where there is compulsory insurance and pensions; 
 but he is contributing a small mite of his wages — 40 or 50 cents a 
 month, if you please — something that he does not feel and does not 
 notice, and then when he is injured he feels that he is simply get- 
 ting only what he is justly and honestly entitled to. 
 
 One more advantage in this would be doing away with the law- 
 suits; doing away with that animosity that always springs up be- 
 tween an injured employee and the employer when an action for 
 damages is contemplated. Now, that is a feature that ought to com- 
 mend itself to every man in the country, whether he be employer or 
 employee, or whether he be legislator or judge, because it does pro- 
 vide a fund that does make compensation, and an actual compensa- 
 tion, and a real compensation, immediately paid the man entitled to 
 
30 HEARINGS BEFORE 
 
 it. That is the advantage that this suggestion has over either the 
 employers' liability or the insurance feature. 
 
 Another provision of the bill is the power that would be vested 
 in this commission to regulate and approve trade agreements. Let 
 me illustrate in respect to the coal -mining industry in West Vir- 
 ginia, and I am speaking now more particularly with reference to 
 West Virginia, and I think the conditions apply to all the other 
 States: Under the operation of existing law the small coal operator, 
 and we have 335 of them in West Virginia producing 18,000,000 
 tons of coal, while we have 9 operators m that State that produce 
 an equal amount, so the capacity to produce coal upon the part of 
 the combined effort of 335 operators is practically the same to pro- 
 duce the same amount of coal during the year as 5 of the larger 
 companies produce. 
 
 Now, all of these companies are in not only direct and immediate 
 competition, but the competition, gentlemen of the committee, is of 
 the fiercest kind. 
 
 Now, let me illustrate by a concrete case. I represent a large coal 
 company. That company bought its land. It bought 30,000 acres 
 of land and built its plant upon it. It had what you might call un- 
 limited capital, so far as it was required to build a most modern and 
 up-to-date mill. In order to economize — it was their purpose to 
 economize and indulge in a legitimate economy — they took their own 
 sawmills and cut up trees on the land and built their houses and 
 their tipples and mining plants, so they paid no profits to the mid- 
 dleman or retail dealer. They made their machinery of the most 
 approved kind and a most effective kind and installed it in that 
 plant. They have 10 or 12 mines that they operate on this one piece 
 of property. They have one central power plant that rims all of 
 these mines and furnishes all the power that is necessary to operate 
 them. They have one organization of their clerical force; they have 
 one manager and one superintendent; in other words, they have 
 simply one organization to produce 2,500,000 tons of coal a year. In 
 addition to that, they have their own selling agent. They are pro- 
 viding for now and have secured their docks and their boats and 
 all of the facilities that are necessary to take their coal directly from 
 the mine and give it immediately to the consumer. 
 
 Now. the tremendous advantage that that company has over its 
 neighbors and its friends — because I have personal interest. in coal 
 mines within a mile or two of this mining operation, the same coal 
 and the same seam — the advantage that that concern has over the 
 smaller one is such that gradually and surely the smaller concerns 
 are being driven into bankruptcy, and there are 335 of them in West 
 Virginia. The same condition prevails. I am told, in Illinois. 
 
 Why is that so? Simply because of this concentrated power and 
 the economies that the big company now exercises and uses in its 
 business. It can produce its coal, actually mined, for from 6 to 8 
 cents a ton cheaper than the little one possibly can do, and particu- 
 larly has it an advantage when it comes to selling that coal. It costs 
 the small producer 10 cents per ton to sell his coal and get it deliv- 
 ered to the consumer — I mean that is what he pays as a compen- 
 sation to the selling agent. The larger concerns can sell and deliver 
 their coal — and they do do it — at from 3 to 5 cents a ton, so that by 
 
COMMITTEE ON INTERSTATE COMMERCE. 31 
 
 the time the coal is mined and goes to the consumer the large pro- 
 ducer gets his coal to his consumer at from 12£ to 15 cents a ton 
 cheaper than the small consumer can possibly do it, and that has 
 been going on for the last three or four years. In addition to that 
 the large company has a tremendous advantage in the markets, 
 because they can go to the large power plants, like those in Chicago 
 and the larger cities and the large fuel consumers — the extensive 
 railroad systems which consume from 800,000 to 1,000,000 tons of 
 coal — and they can take those contracts and deliver the coal because 
 they have the ability to produce it. The poor man can not. He has 
 to peddle his coal wherever he can get a customer, or rather his 
 selling agents have. The small man has been trying to live, and he 
 has lived in a way, but he has been losing money constantly. Dur- 
 ing the last year the coal of West Virginia brought only 95 cents a 
 ton — that is, it sold for that on the average 
 
 Senator Newlands. Do you mean at the mine ? 
 
 Mr. Vinson. Yes, sir. Now little producers can not and do not 
 produce that coal for 95 cents a ton. They have got to pay 10 cents a 
 ton royalty. They are operating under leases. They have certain 
 interest charges to pay, and their organization to pay, and they have 
 10 cents a ton sales commission to pay. Now, they do not and can 
 not produce their coal for that sum, and have not been doing it. 
 They are simply put in a position where ruin and bankruptcy is 
 simply in front of them. They have gone to their counsel and "said, 
 '' Here, we can arrange with this larger company that has its own 
 selling agency selling the same coal ; we can arrange with those peo- 
 ple to take our coal and sell it that now costs us 10 cents a ton. We 
 can get them to sell it for 4 or 5 cents a ton, and thereby we can save 
 that much out of the cost, which is a waste to us." Their attorney 
 says, " No ; you can not do that, because if you do that it is a combi- 
 nation in restraint of trade, or, rather, it is a suppression of compe- 
 tition in the market, and therefore you are under the ban of the 
 Sherman antitrust law." Then they get among themselves — eight or 
 ten of them who have perhaps a joint production of four or five or 
 six thousand tons a year — and they say, " Let us employ a single 
 selling agent; let us get one man or one concern to sell the coal for 
 our district " — which is composed of eight or ten small mines. Well, 
 they know the man that can do it; they know of one that they can 
 employ; they would pay him a wage and they would save 4 or 5 
 or 6 cents a ton on their coal from that source, and when they go to 
 their lawyer and consult him, he says, "No; if you do that your 
 arrangement will get you into trouble ; you will be indicted under the 
 Sherman antitrust law." Then they say, " Can we sell our property 
 out to anybody ? " " Well, you have only one customer for it, because 
 if some other purchaser will come in and undertake to buy a district 
 composed of eight or ten mines he, too, would be subject to the ban 
 of the Sherman antitrust law, and the large company — that is, your 
 neighbor and your friend and your competitor — is the only purchaser 
 you have got for your property. But you can not sell to him, because 
 if you do you will not only get into trouble yourself, but your neigh- 
 bor, the big company, will get into trouble likewise."' 
 
 Now, gentlemen of the committee, that is the condition of the coal 
 trade in West Virginia. These small concerns can not live. They 
 
 22877— vol 1—12 3 
 
32 HEARINGS BEFORE 
 
 are simply being driven into bankruptcy by the operation of that 
 law which prescribes and enforces competition between the little 
 man and the big one. It is a fight between a giant and a pygmy. 
 The little coal operator in West Virginia has just as much chance 
 to operate and do business as a mouse has in a combat for its life 
 with a cat. 
 
 Now, that is no fault of the big companies. They are simply 
 using the ordinary and the usual economies in business, because we 
 must all recognize that increased capital, if you please — combina- 
 tions if you please — that have a concentrated power, must, if it is 
 ably administered, continue to operate along the continual lines of 
 increasing efficiency, both in the production of the coal as well as in 
 its sales. 
 
 Now what must the small men do? They must either go out of 
 business, or there must be some means — some remedy, if you please- 
 by which they can get together, and in a reasonable way have a 
 joint selling agent so that they can save themselves this expense and 
 have a joint power plant, if you please, so that they may live. I 
 take it that none of us would be willing to see the operation of a law 
 on our statute books that would drive the middleman — and par- 
 ticularly I mean the small man who is engaged in any industry — 
 into bankruptcy. Now, that is a concrete case of the Sherman anti- 
 trust law as applied to the coal industry in West Virginia, under 
 my own observation. 
 
 Now the interest that I have in these small companies is that we 
 are simply holding on and losing as little money as we can, and- try- 
 ing to do the best we can, and we look to this Congress to give us 
 some relief in order that we may live. It is a necessity. Of course 
 you may ask, "Why don't you shut down your mines? Why don't 
 you shut down until conditions get better — until you can go into the 
 market and make something on your coal " ? Under the leases that are 
 prescribed — I take it in all the States, and it is particularly so in 
 West Virginia — the man who is operating a coal mine must pay his 
 royalty whether he mines a pound of coal or not, and that royalty 
 will amount to from $5 to $8 an acre minimum each year, payable 
 quarterly. So that if I have a lease on a thousand acres of coal prop- 
 erty I have to pay, whether I mine any coal or not, from $5 to $8 an 
 acre, from $5,000 to $8,000 each year, although that mine is shut 
 down. If I happen to be unfortunate enough to owe some money 
 on this property — and most of them do — the interest is to be paid, 
 the taxes have to be paid, and there is no property known in the 
 industry of this country that will disintegrate so rapidly as an 
 unused coal plant. If you shut down your mine, your houses become 
 vacant, and they soon disintegrate and depreciate in value until you 
 have practically to rebuild again. The same is true of your tip- 
 ples and your mining cars. You have got to keep your mine, if it 
 is too wet, and there is water in it — and this is the case with a great 
 many of them — you have got to keep men busy pumping the water 
 out of that mine, whether you are operating your mine or not. So 
 that it is less expensive, as a matter of fact, to keep on running at 
 a loss, and at a net loss, than it is to shut down the mine, because 
 when your organization is disintegrated it takes a long time to 
 lmild it up. 
 
COMMITTEE ON INTERSTATE COMMEECE. 33 
 
 Now, gentlemen of the committee, that is the condition that actu- 
 ally exists. We know, and we appreciate the difficulty that Con- 
 gress must necessarily have in passing a law that will undertake 
 directly and immediately to either repeal the Sherman antitrust law, 
 or largely modify it. We appreciate that fully. In the bill that I 
 have prepared, we ask neither of these things. We do not mention — 
 we do not even refer to the Sherman antitrust law as such, and it 
 seems to us that whether that law ought to be repealed or ought to 
 be modified or ought to be strengthened, here is one industry that 
 must be protected, and we feel that the best way to do it is to have 
 a commission to pass upon the legality of these contracts, and 1 want 
 to say franldy that they are contracts in restraint or rather eating 
 up the competition that now exists between neighbors and friends, 
 and it is a necessity. Now, whenever that contract or agreement for 
 the selection and the hiring of one selling agent to represent eight or 
 ten, if you please, or four or five, or three or four of these small 
 mining operations — whenever that contract has been entered into, 
 before it would become legal under the operation of this bill, if it 
 becomes a law, that contract is taken to your commission that is 
 appointed, and that commission inspects it and investigates it, and 
 if it is a reasonable contract the commission puts its approval upon 
 it, and the men can go on and do business without the fear of going 
 to the penitentiary for violation of this law. If that contract creates 
 a monopoly, or if the commission believes that it is in unreasonable 
 restraint of trade in the coal business, then it would refuse neces- 
 sarily to approve it. So that the commission at all times would 
 stand in the position of an arbitor between the small men engaged 
 in an industry — they would stand as an arbitor between the combi- 
 nation that would be entered into of the kind that I have been speak- 
 ing about between those men and the public interests. They would 
 see after an investigation that instead of this contract being opposed 
 to general commerce it is the preservation of it ; it is the protection 
 of it ; it is the continuation of the life of this business which, if it 
 is not done, must go out of existence. 
 
 Now, I take it that the old doctrine that competition is the life 
 of trade no longer can be applied universally in this country. _ It is 
 an economic doctrine that will not bear the test of modern conditions. 
 I have maintained that up to a certain point, or I might say down 
 to a certain point, the principle of competition should and ought to 
 be maintained, but when that competition goes further, and by the 
 economic laws which it invokes, it is going to drive men out of the 
 business and ruin and destroy their property, that its operation 
 should not go to that extent, because instead of preserving and pro- 
 tecting the industries of the country it would be destroying them to 
 that extent. 
 
 Now, it seems to me that a commission of the kind that I have been 
 speaking to you about would stand ready and willing, with full 
 knowledge, to say to all of the coal companies, " you may employ a 
 joint selling agent; you may lease your property under the terms of 
 this contract." If this contract, however, should develop, or give to 
 that company, or the new concern, if you please, or the old concern, 
 such power, and if it would exercise that power in an oppre.-*ive 
 wav. then of course the contract would not be approved, and the 
 
34 HEAKINGS BEEOKE 
 
 result would be that they would have to get a contract of the kind 
 that would be approved. 
 
 Now, just suppose that you had a commission of that character 
 to have passed upon the organization of the United States Steel Co. 
 at the time it was organized, and if that organization had been 
 formerly declared by the commission, who knew about those things 
 before it was organized and before it had acquired any interests at 
 all, to be an illegal combination, and the commission had said, " If 
 you do so-and-so, then the combination would be legal, and it would 
 be accepted as legal by all the courts of the country," it would have 
 saved, gentlemen of the committee, a tremendous amount of uncer- 
 tainty in the business world which is depressing it from one end of 
 the country to the other. The trouble with the business man to-day 
 is that he doesn't know, and his lawyers can not tell him, whether he 
 is violating the law or whether he is doing a legitimate and sane 
 thing. 
 
 Now, that is the difficulty with the business man. A man does not 
 know how to do it. They do not want to violate the law, and they 
 will not if they can help it, but there is the condition. Now, I know 
 it is claimed that the atmosphere has been cleared very largely by 
 the recent decisions of the Supreme Court in the oil and the tobacco 
 cases. The construction that the court put upon that statute by 
 putting the word " reasonable " in there, it seems to me, was the 
 only construction that the court could have given it, because we 
 can not assume that this Congress would propose a law that would 
 require men to do an insane thing or do an unreasonable thing, and 
 to keep from being destroyed, or rather the business being put into 
 bankruptcy, it would be the sane thing or the reasonable thing for 
 any business man to go to his neighbor and say, " I can not live, 
 this business is" ruining me, and I want you to take it over at a fair 
 price," and the law would say this whether you are a trust and 
 using oppressive powers or not. 
 
 In my judgment the court is wholly inadequate to do those things. 
 They can not administer economic laws. Their laws are constitu- 
 tional laws, and laws, of course, that are passed by Congress. Take, 
 for instance, those two cases which the court has just decided. If we 
 look at the result in those cases we see the complication that must 
 necessarily arise in any and every case that the court passes upon. 
 For instance, the court in those cases has said that the combination — 
 take the Standard Oil case as an illustration, composed of 34 small 
 companies — must be disintegrated, and each one of those small com- 
 panies must go on and compete with each other. The stock held by 
 the Standard was returned to the treasury of the small companies 
 and reissued to the stockholders of the Standard. The same con- 
 trolling stockholders in the Standard have a controlling interest in 
 each one of the small companies. So that the 34 companies have 
 control exactly — have stock ownership with the small interests that 
 formerly controlled the Standard. Now, then, the decree is, and the 
 injunction is, thateach one of those 34 companies must go into real 
 and actual competition one with the other. Gentlemen, in my judg- 
 ment that is humanly impossible — that two or three gentlemen may 
 get together and own two or three companies engaged in the same 
 business, and they can force and compel, and will force and compel 
 those companies all to engage in real and actual competition one with 
 
COMMITTEE ON INTERSTATE COMMERCE. 35 
 
 the other in the market it seems to me is asking a little bit too much 
 of human nature. 
 
 Now, if that is not done — and I do not see how it is possible that 
 it may be done or could be done — what is going to be the result? 
 The result is that every stockholder, that everyone who has any 
 interest in these companies, will be cited a hundred times a month 
 on contempt proceedings, and in my judgment litigation in those 
 cases has only really begun after the court has approved the reorgani- 
 zation plans. I hope I may be mistaken about that, but I do not see 
 any other way out of it. 
 
 Now, take the coal industry. It can not live two years if we form 
 a combination. We do not want to form combinations of any char- 
 acter and then go to the district attorney and tell him to indict us 
 for a criminal offense in order to find out whether we are doing a 
 legitimate business or an illegitimate business. 
 
 Now, that is the condition we are in. If the Government proceeds 
 against us by a suit of dissolution, then it would take two or three 
 years, at the very best that can be done, to finally come to a con- 
 clusion as to whether or not we are legitimate or whether or not we 
 are violating the law. Now, it would be so much easier, so much sim- 
 pler, and so much better, gentlemen of this committee, if in the first 
 instance you had four or five men who are skilled in the mining busi- 
 ness, from the digging of the coal out of the ground to selling it in 
 the market, to pass upon the legality of these contracts, so that if 
 your contract or your combination which you propose is an illegal 
 one you must not establish it, you must modify it; or, where it is 
 legal, then we put our business upon a legal basis, and we can go on 
 and not only do business but our small men themselves will be in 
 a position where they can protect their property and their invest- 
 ment and keep on doing business. Otherwise we must go out of busi- 
 ness ; we must stop. 
 
 Now, we ask this Congress to give us that relief. We feel that if 
 this commission is created it will accomplish great purposes, in 
 helping us out of the difficulty we have gotten into. .By obeying the 
 law we are running into ruin, and we want the law changed so as to 
 prevent that ruin. Now, the commission can do it. It can do it 
 justly ; it can act quickly with all the facts before it, and instantly ; 
 not only in these trade agreements which are so necessary under 
 existing economic conditions, but they can administer this miner's 
 relief fund and give those men the relief to which they are entitled 
 and make the charge upon the industry, and they are entitled to it ; 
 otherwise we will have to stop the operation of the employers' lia- 
 bility laws over the country ; that would be just as disastrous, if not 
 more so— it certainly will be more so so far as explosions and accidents 
 are concerned to the smaller men — than even the operation of the 
 Sherman antitrust law. 
 
 Now, we think and feel that if a bill was passed along the lines in- 
 dicated, you could give us the relief that we think we are entitled to, 
 and which will preserve our business. 
 
 I would like to have the privilege that is exercised at the other end 
 of the Capitol for extending my suggestions in the record. I would 
 like to file a copy of the bill with some reasons, and to also refer to 
 some questions as to the legality of the act. 
 
36 HEARINGS BEFORE 
 
 The Chairman. That privilege will be accorded. I wish you 
 would read that section of your bill which perhaps gives authority 
 to regulate these agreements. 
 
 Mr. Vinson. Yes, sir. But I want to state that the bill as pre- 
 pared gives to this commission very broad and very general authority 
 in all of these matters, and specific authority to do everything that is 
 necessary to carry these provisions into execution. The section re- 
 ferred to is as follows : 
 
 Sec. 6. The commission is hereby authorized and directed to sanction trade 
 agreements between competitors engaged in interstate trade or commerce, pro- 
 viding for a joint selling or purchasing agency, or to supply each other with 
 any of the means or methods of carrying on their business, or for the purchase 
 or sale of their plants, or parts thereof, or property used in conducting their 
 business, whenever in the judgment of such commission such trade agreements 
 will not unreasonably restrict or limit competition, nor raise prices beyond 
 what may be justified by the supply and demand, nor authorize competitors 
 making such trade agreements to engage in unfair methods of competition 
 against other competitors not parties thereto. A joint application shall be pre- 
 sented to the commission filing therewith a copy of the proposed agreement 
 signed by all the parties thereto. The form and requirements of such applica- 
 tion shall be prescribed by the commission. Upon such application the commis- 
 sion shall make such investigation and hear such evidence as they may deem 
 pertinent and shall approve said agreement unless it shall appear to them from 
 the facts submitted that said agreement will result in an unreasonable restraint 
 of interstate trade and commerce or otherwise violate the provisions of this act. 
 
 The Chairman. Senator Cummins, you may interrogate. 
 
 Senator Cummins. Do you think it is necessary to have a com- 
 mission to deal with the coal business alone? 
 
 Mr. Vinson. I do. 
 
 Senator Cummins. Would you then suggest a similar commission 
 for each kind of business? 
 
 Mr. Vinson. I think that must necessarily follow. I would sug- 
 gest this, Senator, that the experiment of a commission of this kind 
 to deal with the coal business would in all probability be a precedent 
 for commissions of other kinds to deal with other businesses. One 
 commission can not possibly deal intelligently with all the different 
 branches of the* business. 
 
 Senator Cummins. You recognize, I assume — it is claimed at least — 
 a necessity for this trade agreement is quite as imperative in other 
 kinds of business as in the coal business ? 
 
 Mr. Vinson. I understand that that is true. 
 
 Senator Cummins. Then your suggestion is that we should have 
 a series of commissions, each one dealing with a particular kind of 
 business ? 
 
 Mr. Vinsos. That is _ my suggestion along the line of the Inter- 
 state Commerce Commission in dealing with transportation ques- 
 tions. 
 
 Senator Cummins. Taking up your paper — and a very valuable 
 one it is — in the order in which you have referred to the subjects, 
 have you any doubt with regard to the power of the General Govern- 
 ment to require an owner of land to take all the coal from under it 
 in the course of his mining operations? 
 
 Mr. Vinson. If that property is devoted to interstate commerce 
 I have no doubt about it at all. 
 
 Senator Cummins. I am assuming now that a coal company owns 
 a thousand acres of land. 
 
COMMITTEE ~OTTTNTERSTATE COMMERCE. 37 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. Underlaid with coal. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. Have you any doubt about the rights of the 
 General Government to say that the coal company must take out 
 all the coal under that land, or take it out in such way that all the 
 coal can become available for the use of the world ? 
 
 Mr. Vinson. I think, Senator, my idea is that the dividing line 
 would be that if the coal that was taken out of the mine was all 
 devoted exclusively to intrastate business, and no part of the coal 
 mined was interstate business, then I do not think the Government 
 would have the power to do it, but if the coal was so intermingled— 
 part went into interstate and part into intrastate business— then the 
 power of Congress, I think, over it, under the interstate-commerce 
 clause, would be supreme. 
 
 Senator Cummins. But could a provision that looks simply to the 
 conservation of our natural resources be called a regulation of 
 commerce ? 
 
 Mr. Vinson. I understand, and I think the court has interpreted 
 that the power to regulate commerce, as expressed in the Constitu- 
 tion, means the power to absolutely prohibit; that it is supreme. 
 
 Senator Cummins. Prohibit what? 
 
 Mr. Vinson. Prohibit all interstate-commerce business. 
 
 Senator Cummins. Precisely. 
 
 Mr. Vinson. They so decided in the Lottery case, I remember. 
 
 Senator Cummins. Do you think that Congress could say to the 
 coal companies, " You can not engage in interstate commerce unless 
 you take out your coal in a particular manner " ? 
 
 Mr. Vinson. I think so, according to the decision. 
 
 Senator Cummins. I assume that was on the basis of your sug- 
 gestion. And I assume also that you find a foundation for your 
 plan with respect to compensation for injuries in the same clause of 
 the Constitution. 
 
 Mr. Vinson. In the same clause. 
 
 Senator Cummins. Under your plan the employer bears no part of 
 the burden, I take it. 
 
 Mr. Vinson. He bears about three-fourths of it. 
 
 Senator Cummins. No; because you very justly said that 
 
 Mr. Vinson. I mean in the first instance. 
 
 Senator Cummins. That so far as his contribution is concerned, he 
 passed it on to the consumer. 
 
 Mr. Vinson. Yes, sir ; that is true. 
 
 Senator Cummins. But the employee bears a part of the burden. 
 
 Mr. Vinson. Temporarily only; just the same as the employer. 
 The two are put exactly on the same basis. 
 
 Senator Cummins. Unless the burden put upon the employer re- 
 sulted in an increase of his wages. 
 
 Mr. Vinson. Yes. 
 
 Senator Cummins. He would be the final ultimate bearer of that 
 burden. 
 
 Mr. Vinson. Yes, sir; that would necessarily follow. 
 
 Senator Cummins. Do you think it would follow as certainly as 
 that the price of coal would be increased by the contribution of 1 
 cent a ton for the fund which is to be created ? 
 
38 HEARINGS BBFOEB 
 
 Mr. Vinson. I think it would. 
 
 Senator Cummins. Would it not be fairer, Mr. Vincent, to make 
 the business bear the burden ? 
 
 Mr. Vinson. That was the idea. 
 
 Senator Cummins. Therefore, if your plan were adopted to create 
 the fund entirely by a contribution from the business itself, then it 
 would certainly bear the entire burden ? 
 
 Mr. Vinson. Well, I naturally assume, Senator Cummins, that it 
 would do it anyway, but the real reason why I suggested in the bill 
 for the employee to pay 40 or 50 cents a month was that it would be 
 to the advantage of the employee. I have talked with a great many 
 of them and they would prefer to do it. 
 
 Senator Cummins. What is their reason ? 
 
 Mr. Vinson. They say it would make them more independent; 
 they would feel less like pensioners and less like objects of charity 
 to do it, because the sum provided for is so small it is unappreciable. 
 
 Senator Cummins. Under your plan it takes something by way 
 of charity, it seems to me, and they ought not to be very sensitive 
 about the amount. 
 
 Mr. Vinson. Well, they take what, in my judgment, represents 
 only a small part of the loss which the miners as a whole suffer, 
 as well as the loss which the operators as a whole suffer in these 
 accidents. 
 
 Senator Cummins. But if there is to be any fund created, par- 
 tially by contribution from the business, I see no good reason why it 
 should not all be taken from the business and be considered a part 
 of the charges of the business itself. 
 
 Mr. Vinson. So far as I am advised, I should think the coal com- 
 panies — I know those I am familiar with and in touch with would 
 be very glad indeed to pay this fund, and not put any part of it on 
 the miner. 
 
 Senator Cummins. Does your brief cover the legal aspects of that 
 phase of the case ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. That is, the power of Congress to pass a bill 
 for compensation for injuries in all the vocations of businesses of the 
 country? 
 
 Mr. Vinson. Interstate; yes, sir. 
 
 Senator Cummins. That is to say, it is your view that any man or 
 corporation that is engaged in business, part of which may, or does, 
 pass into interstate channels of trade, may be regulated in the manner 
 suggested by Congress? 
 
 Mr. Vinson. I think so. 
 
 Senator Cummins. That is, you mean compensated for all the in- 
 juries that may occur in that business? 
 
 Mr. Vinson. In that business ;_ Congress has assumed to exercise 
 that power, and it has been sustained. 
 
 Senator Cummins. I assume you have examined the decisions, or 
 rather the decision, of the Supreme Court of the United States upon 
 the old employers' liability act? 
 
 Mr. Vinson. Yes, sir; I discussed it in the brief I have filed. In 
 that case, if you will recall, it was a divided court of five to four. 
 
 Senator Cummins. I remember. 
 
COMMITTEE ON INTERSTATE COMMERCE. 39 
 
 Mr. Vinson. On the constitutionality of it, and five held that it 
 •was unconstitutional, not so much because of its substance as its 
 form. The form of the bill covered all employers, whether engaged 
 in interstatebusiness or not ; simply employees of a carrier that was 
 engaged in interstate business. The man might not have had any 
 connection, as a matter of fact, with interstate, and that is the ground 
 upon which the five held the bill unconstitutional. Of course, the 
 form of the bill was changed, but the substance remains in the new 
 act. 
 
 Senator Cummins. Take the instance which comes to my mind of a 
 brickyard situated in West Virginia. Substantially all its product is 
 sold in "West Virginia, but in the course of a year two or three car- 
 loads, or a dozen carloads, or a hundred carloads, are sent beyond 
 the State into some other State. Do you believe that the business of 
 that company, to its full extent, can be regulated by Congress under 
 this power that we have cited ? 
 
 Mr. Vinson. Under the recent decision I think they can, for this 
 reason: The courts have taken the position very firmly — now this 
 comes from a number of cases and no one particular case — they have 
 taken the position very firmly that in all matters, all the instrumen- 
 talities that go into or enter into interstate commerce must neces- 
 sarily be exclusively regulated by Congress whenever Congress as- 
 sumes to speak on that subject, but whatever inference there may be — 
 that they nave considered an inference — of any attempt on the part 
 of the State to regulate any part of that interstate commerce must 
 fail because the State must surrender that power to Congress when 
 each one of them went into the Union. 
 
 Senator Cummins. Are you familiar with the work that is being 
 done now by the legislative commission on that subject — the joint 
 commission of the House and Senate and two men upon the outside ? 
 
 Mr. Vinson. I can not say that I am familiar with the details of it. 
 
 Senator Cummins. The commission of which Senator Sutherland, 
 I think, is the chairman. You have never appeared before that 
 commission ? 
 
 Mr. Vinson. No, sir ; I have never appeared before them. 
 
 Senator Cummins. Well, it has in course of preparation, I think, 
 a bill upon this very subject, as I understand it, however, limited 
 only probably to the common carriers. 
 
 Mr. Vinson. Yes, sir. You mean a compensation bill ? 
 
 Senator Cummins. A compensation bill. 
 
 Mr. Vinson. I have seen a statement of that. I did not understand 
 you before. 
 
 Senator Cummins. Would it not be better, if your view is correct, 
 to have the legislation upon the subject all in one bill, if there is to 
 be any distinction between carriers and the ordinary producing 
 business ? 
 
 Mr. Vinson. I think, Senator, that in order to get the best results 
 and to give the men who are injured immediate relief, and give 
 them full compensation for the injury, there should be some central 
 body with power vested in them, with the right or authority and 
 the duty to take hold of that injured man immediately, and I do not 
 believe that any one commission or any one tribunal could possibly 
 
40 HEARINGS BEFORE 
 
 do that, as it affects all of the carriers and every other character of 
 business that enters into interstate. 
 
 Senator Cummins. I take it that any plan will involve the creation 
 in each State of some tribunal to ascertain the facts of the injury 
 at least. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. That fact must be ascertained. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. In any system I have ever seen the question of 
 injury must be ascertained also. 
 
 Mr. Vinson. That would have to be done before you would get a 
 full compensation. 
 
 Senator Cummins. And therefore it would seem to me that if it is 
 wise for Congress to legislate at all upon the subject, it ought to be 
 in a single measure, and I for one hope that you will put your views 
 before the commission of which I have spoken, for I believe that the 
 whole tendency of the time is toward compensation rather than 
 toward liability — rather than toward the liability which is worked 
 out through legal proceedings. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. Passing that, therefore, I come to the proposi- 
 tion to legalize in some form or other agreements which in a measure 
 suppress or restrain competition. I understand you are in favor of 
 legalizing such agreements, provided their character is approved 
 before operations begin under them. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. That is your view? 
 
 Mr. Vinson. That is my view. 
 
 Senator Cummins. Do you think that this agreement should ex- 
 tend to the protection of a small producer and enable him to make 
 a profit if his cost is greater than that of his competitor ? 
 
 Mr. Vinson. Not necessarily. I think that the agreement ought 
 to be such as to enable the small producer to get the best economic 
 results he can out of his property. Now, of course, no two operators 
 have the same cost sheet. Take a group as a whole — eight or ten 
 small mines. One of those mines will cost 5 or 6 cents a ton more to 
 produce its coal than the others, but they would have to be averaged 
 in a general way if they have a joint selling agency, and they would 
 all save 5 or 6 cents a ton on the quantity produced by even that 
 method alone. 
 
 Senator Cummins. Not considering the details now, I want your 
 view on the general principle involved. Suppose in the case you 
 put a large company can produce and put upon the market its coal 
 for 10 cents a bushel less — was it 10 cents a bushel or 10 cents a ton? 
 
 Mr. Vinson. A ton. 
 
 Senator Cummins. Ten cents a ton less than its adjoining or neigh- 
 boring producer employing a capital of $100,000. Now do you be- 
 lieve that the Government ought to legalize any agreement that 
 would enable the big company to sell at 10 cents a ton more than a 
 fair profit in order to allow the little producer to live ? 
 
 Mr. Vinson. No, sir ; that was not my proposition, Senator. 
 
 Senator Cummins. Do you think that the little producer k can live 
 at all unless something of that land is done, assuming now that his 
 cost is greater than that of his large competitor ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 41 
 
 Mr. Vinson. Most of them can; some of them can not live at all 
 under any circumstances. They have got to go out of the business. 
 They are simply the world's unfortunates as you find in every busi- 
 ness. The majority of them, if they can, save a lot of their power 
 and a lot of their sales ; and various ways, if they cooperate together, 
 maybe for one clerical force, then they can get along; they will not 
 earn as much money as the big concerns could; they can not install 
 the same economics, but they can live and make a little money. 
 
 Senator Cummins. You do not advocate, do you, any arrange- 
 ment by which the prices shall be held up in order to allow the pro- 
 ducer whose cost is greater to sell his output at a profit ? 
 
 Mr. Vinson. Certainly not. 
 
 Senator Cummins. You recognize, do you not, that the price ought 
 to be fixed as a general proposition by the producer who can put his 
 product on the market at the lowest cost? 
 
 Mr. Vinson. I think not ; I think it ought to be averaged. 
 
 Senator Cummins. Who ought to average it? 
 
 Mr. Vinson. Well, the general trade or somebody in the nature of 
 the commission that I have just spoken about. If you follow this 
 suggestion, and I had a large coal company, and could produce coal 
 at 8 or 10 cents a ton cheaper than any of my competitors, I could 
 drive every one of them out of the business legitimately. That would 
 not be right. 
 
 Senator Cummins. Then the real end of your suggestion, or the 
 results from it, is that the Government in some form or other ought 
 to fix the price of coal? 
 
 Mr. Vinson. No ; I do not think that. 
 
 Senator Cummins. Well, if such an arrangement is to made as to- 
 allow the producer, whose cost is greater than that of his competitor, 
 to get his product in the market at a fair profit, how do you escape 
 the conclusion? 
 
 Mr. Vinson. The price, as a matter of fact, ought to be fixed by 
 competitive conditions from the very States. Take the large com- 
 panies that are producing coal, say, in Pennsylvania, some in Ohio r 
 a-nd some in Illinois, and they compete with each other and the West 
 \irginia companies to such an extent that the price will always be 
 put down to a minimum of what it would be in the market. Let me 
 illustrate. The authorities of West Virginia undertook to raise the 
 rate of our lake coal shipments 9^ cents a ton. The evidence that was 
 taken before the Interstate Commerce Commission — and it is quite 
 voluminous — showed that if that rate went into effect, based on the 
 actual cost sheets and the price received at the lake, the West Vir- 
 ginia coal fields must go out of the lake business. In other words, 
 that margin of 9 cents was sufficient to take that whole lake market 
 and northwestern market away from the West Virginia coal fields. 
 
 Senator Cummins. The commission, under your proposition, would 
 have jurisdiction of all the coal mines and the coal business of the 
 United States. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. And your proposition, as I understand it, is 
 that in some way the Government should arrange that the small pro- 
 ducer whose cost is greater than that of his competitor shall be pro- 
 tected in order to enable him to put his product on the market and 
 make a orofit. 
 
42 HEARINGS BEFORE 
 
 Mr. Vinson. The right to put himself in a position to get the 
 benefit of some of the economies that are used by those larger com- 
 petitors. 
 
 Senator Cummins. Then you would not have the commission, under 
 any circumstances, fix the price of the product? 
 
 Mr. Vinson. No; I would not.- I would have the commission — 
 pardon me if I make a suggestion there — that in order to give the 
 small man the benefit of the economics to which I think he is entitled, 
 if that should be attempted to be exercised, to raise that price, which 
 the bill itself provides, beyond what the ordinary supply and demand 
 would require, then the agreement would not be legal and would be 
 declared to be illegal. 
 
 Senator Cummins. You do not suggest any agreement between the 
 small producer and the big producer, do you? 
 
 Mr. Vinson. I do not limit it. 
 
 Senator Cummins. Do you see any occasion for an agreement be- 
 tween the small man and the big man? 
 
 Mr. Vinson. There may be. 
 
 Senator Cummins. What would be the occasion? 
 
 Mr. Vinson. I have a mine, or rather I, am interested in it, that 
 is producing about 60,000 tons a year, and it is within a mile and a 
 half of another concern that is producing nearly two and a half mil- 
 lions tons a year. That big concern has its selling agency all organ- 
 ized and it is enabled to sell its coal at 4 or 5 cents at the outside. 
 Now, the other mine has to pay 10. If I were in a position to say to 
 the big concern, "I want you to take my coal and handle it and I 
 will pay you a cent a ton over and above the cost of handling it, as 
 you handle it without any additional cost scarcely, I will give you a 
 little profit on it and save me 4 or 5 cents a ton." I see no reason 
 why the operation of it should be limited to a real combination as 
 between the small operators when it might be of some advantage to 
 the small operator to have the big concern handle his coal for him. 
 
 Senator Cummins. But your last suggestion is the equivalent of a 
 sale by the small concern to the large concern. That is the substance 
 of it. 
 
 Mr. Vinson. It may be. 
 
 Senator Cummins. There is nothing in the law now that prevents 
 that, is there? 
 
 Mr. Vinson. I think there is. 
 
 Senator Cummins. That prevents the sale of your output and your 
 coal to another dealer? 
 
 Mr. Vinson. I think there is a certain section in the Sherman 
 antitrust law that is very stringent against anybody, a person or an 
 individual, who would attempt to create a monopoly. 
 
 Senator Cummins. But you do not think there is' anything in the 
 law that would prevent a small company from going to the large 
 company and saying, " We want to sell you so much coal at so much 
 per ton," and that is the real equivalent to what you have suggested — 
 that is, the selling arrangement. 
 
 Mr. Vinson. I shall give you an isolated instance — it might not 
 be so. Take a seam of coal in a given area. That particular coal is 
 not found outside of a certain district and all that seam of coal is 
 being operated. Now, to sell all of the product to one of the oper- 
 ators, or to an individual, or to a joint selling agent covering that 
 whole district we fear would be condemned. 
 
COMMITTEE ON INTERSTATE COMMERCE. 43 
 
 Senator Cummins. The last proposition probably would not be 
 disputed. 
 
 Mr. Vinson. I mean in a small district. 
 
 Senator Cummins. You are suggesting an arrangement between a 
 small concern and a large concern by which the latter would agree to 
 sell the product of the small concern at a certain price. Now, that 
 is in substance a sale of the product itself by the small producer to 
 the large producer, is it not? 
 
 Mr. Vinson. It has that effect, while it would not be. He simply 
 takes the market price. The small producer would take the market 
 price less the commission of the larger concern deducted. His coal 
 would go on the market at a certain price. 
 
 Senator Cummins. In how many instances do you think your busi- 
 ness in West Virginia would be benefited by an arrangement of that 
 sort? 
 
 Mr. Vinson. You mean to sell it to the large concerns ? 
 
 Senator Cummins. Yes ; I mean arranging with the large concerns 
 to sell the product of the small concerns. 
 
 Mr. Vinson. I can not give you a definite idea. I know of several. 
 
 Senator Cummins. What motive would the large concern have to 
 become the sale agent of the small concern? 
 
 Mr. Vinson. It would have the motive of keeping the small man 
 from going and selling his coal at a loss, and therefore bringing the 
 coal of the big producer down also practically to a loss. 
 
 Senator Cummins. Now, that comes to the real heart of it. The 
 real object that is sought to be accomplished is to prevent the small 
 producer from selling out at a lower price than the large producer 
 wants to get for his product? 
 
 Mr. Vinson. No, sir ; not just that way. It is to protect the small 
 producer from being compelled to sell his coal for a much less sum 
 than it cost him to produce it. 
 
 Senator Cummins. But the effect is just the same. If the small 
 producer goes on and sells at a lower price than is current the big 
 producer can meet the price. 
 
 Mr. Vinson. Yes ; he must meet it. 
 
 Senator Cummins. And therefore the real object to be accom- 
 plished is to eliminate competition as between the big producer and 
 the small producer? 
 
 Mr. Vinson. To a certain extent that is true. 
 
 Senator Cummins. Now we pass over to the other phase of it. 
 Your other suggestion is that there ought to be the right of agree- 
 ment between the small producers to reduce the cost of production 
 as well as the cost of sale? 
 
 Mr. Vinson. Yes. 
 
 Senator Cummins. Do you think that an agreement between the 
 small producers establishing a common power plant would be a vio- 
 lation of the antitrust law? 
 
 Mr. Vinson. That of itself and alone I think it would not. 
 
 Senator Cummins. Do you think that an agreement by which cer- 
 tain clerical work was performed for a series of companies by one 
 man, or one company of men, would be a violation of the law ? 
 
 Mr. Vinson. No ; I do not. 
 
 Senator Cummins. I feel sure that it would not. Therefore, there 
 is nothing in the present law that would prevent the small producers 
 
44 HEABINGS BEFORE 
 
 i, 
 
 from entering into an agreement with each other to reduce the cost of 
 production ? 
 
 Mr. Vinson. No ; not where they are located in the same district ; 
 there is nothing in the law to prevent that. 
 
 Senator Cummins. Even when they are located in the same district 
 or elsewhere? 
 
 Mr. Vinson. Or elseAvhere. 
 
 Senator Cummins. Now we come to the sale. You observed, and 
 I think you were quite right in it, that an agreement between the 
 small producers employing a common sales agent might be objection- 
 able to the law? 
 
 Mr. Vinson. I think so. 
 
 Senator Cummins. That is because such an agreement immediately 
 underlies all competition between the small producers? 
 
 Mr. Vinson. It does; yes, sir. 
 
 Senator Cummins. You see no way in which the small producers 
 can economize upon their sales without such an agreement as that ? 
 
 Mr. Vinson. I do not; some such arrangement by which they can 
 reduce the price — I mean the cost of making the sales. 
 
 Senator Cummins. Do you not see that the very moment you make 
 an agreement of that kind that all competition would cease between 
 the small producers — you have just said that that is true. 
 
 Mr. Vinson. Yes; that is true. 
 
 Senator Cummins. Do you believe that the competition between 
 the small producers ought to cease? 
 
 Mr. Vinson. Not necessarily. 
 
 Senator Cummins. If your law — the proposed law — were adopted 
 and the commission was organized and such an agreement as that 
 was proposed to the commission, how would you preserve the com- 
 petition, in view of an agreement of that sort? 
 
 Mr. Vinson. You would only preserve it in the size of the com- 
 bination that was made to restrict the competition. 
 
 Senator Cummins. That is, all competition between those who 
 entered into the agreement would at once cease? 
 
 Mr. Vinson. I think so. 
 
 Senator Cummins. But your idea is that there would then arise 
 competition between that combination and some larger producer ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. How much do you think would be saved per ton 
 by such an agreement ? 
 
 Mr. Vinson. In selling? 
 
 Senator Cummins. In selling. 
 
 Mr. Vinson. Of course that would depend to some extent upon 
 the size of the quantity sold. Now, there ought to be, from the 
 present prices that are paid to the sales agent, ought to be 5 or 6 
 cents a ton saved, where you have got 800,000 or 1,000,000 tons to be 
 handled by one sales agent. 
 
 Senator Cummins. When any such arrangement as that were made 
 it would be the fusion of the companies, with one exception, I think, 
 namely, that if one of the small companies were producing at a less 
 cost than another, it would still get the benefit of that lessened cost 
 of production? 
 
 Mr. Vinson. Certainly. 
 
COMMITTEE ON INTERSTATE COMMEECE. 45 
 
 Senator Cummins. But that would only be the difference between 
 such a fusion or combination of single ownership ? 
 
 Mr. Vinson. Yes, sir; that is right. 
 
 Senator Cummins. Do you believe that there is any middle ground 
 between competition that fixes prices and the Government fixing 
 prices ? 
 
 Mr. Vinson. I do not know that I understand the question. 
 
 Senator Cummins. Well, what fixes the price in business of any 
 kind? J 
 
 Mr. Vinson. Ordinarily it is the supply and the demand. If the 
 economic forces have free play then conditions fix the prices. Of 
 course, prices may be jerked up or jerked clown, according to the 
 power that some particular person may have over the commodity in 
 question. 
 
 Senator Cummins. But in most instances the supply can be in- 
 creased indefinitely? 
 
 Mr. Vinson. Well, it can in a given length of time ; yes. 
 
 Senator Cummins. And therefore speaking for the" past at least, 
 the effective factor in fixing prices has been competition has it not? 
 
 Mr. Vinson. To a large extent. 
 
 Senator Cummins. That is, the willingness of the man to produce 
 something and sell it at a fair profit ? 
 
 Mr. Vinson. Well, that is true in general business. In the coal 
 business, Senator, it has been a necessity. Men had to sell for what- 
 ever price was offered. 
 
 Senator Cummins. After they had gone into the business ? 
 
 Mr. Vinson. After they had gone into the business, of course. 
 
 Senator Cummins. After they had invested their capital? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. But you do not believe, do you, in adopting 
 any system that will drive competition out of the industrial life of 
 the country as a factor in fixing prices? 
 
 Mr. Vinson. I do not. 
 
 Senator Cummins. So that any authority you would give the pro- 
 posed commission must be given and exercised so that competition 
 will be preserved? 
 
 Mr. Vinson. Will be preserved absolutely — I mean preserved to 
 a certain point. 
 
 Senator Cummins. Well, let us see. Just to what point ? 
 
 Mr. Vinson. Competition ought to be preserved to the point where 
 it will produce the greatest quantity of commerce to the best interests 
 of the public. Now, if it goes beyond that, instead of increasing the 
 commerce of the country it will diminish it. 
 
 Senator Cummins. There has been my difficulty, to understand 
 just who is to determine when it reaches that point. 
 
 Mr. Vinson. Only a commission that knows the business, in my 
 judgment. 
 
 Senator Cummins. And it has seemed to me, when I first began to 
 examine the subject, that that power necessarily involved the power 
 of determining prices on the part of the Government. 
 
 Mr. Vinson. Well, the Government, with this commission, will 
 always have the power — any well regulated body — to say that a cer- 
 tain price is reasonable. In other words, if a combination is using 
 
46 HEARINGS BEFORE 
 
 its power to unduly raise prices or to oppress the people there should 
 be some tribunal other than the courts, because it is more effective 
 to say to that combination, " This that you are now doing is wrong 
 and illegal and must be stopped at once." 
 
 Senator Cummins. I inferred that that was what you meant when 
 I made the suggestion a few moments ago. You really do believe, 
 then, that we should give this commission, or some commission, the 
 same power over coal that we have given the Interstate Commerce 
 Commission over railroad rates? 
 
 Mr. Vinson. I do not believe, Senator Cummins, that it would be 
 necessary at ail to give this commission the power to say to the public, 
 " You must pay a dollar and ten cents a ton for your coal for the next 
 12 months." Every coal man in the country would be delighted if 
 that sort of a power were vested in the commission, but to a certain 
 extent you would do away with the competitive factor in trade, 
 which I think ought to be preserved up to a certain point. 
 
 Senator Cummins. Do not let us shrink now from the difficulties. 
 Somewhere along in that power you would give this commission 
 power to reduce a price if it was thought to be too high, would you 
 not? 
 
 Mr. Vinson. Yes, sir; stop it. 
 
 Senator Cummins. Precisely. You would give it the right to say 
 or the power to say, if it could, that $1.25 a ton for coal is too high, 
 and you must cut down your price. 
 
 Mr. Vinson. In other words, you are using a combination in viola- 
 tion of law. You are unnaturally raising the price to a point where it 
 ought not to be. 
 
 Senator Cummins. We have a law which says that railroad rates 
 should be fair and reasonable, and I think that was the common law 
 before our statutes. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. We have no law, either statutory law or com- 
 mon law, which declares that the price of coal shall be fair and 
 reasonable, and your proposition would involve a statute which would 
 declare that the price of coal shall be fair and reasonable, and this 
 commission would necessarily be given the authority to determine 
 what is fair and reasonable. That is the end, is it not ? 
 
 Mr. Vinson. That is the final conclusion. 
 
 Senator Cummins. And that means that the whole business of the 
 country shall be put in the hands of the Government, in substantially 
 the same way that the railroads or the common carriers are now in 
 the hands of the Government? 
 
 Mr. Vinson. It is either that, Senator, or let the economic laws 
 have their full force and power, and that means a complete destruc- 
 tion of the small business man. The Government, in my judgment, 
 in some form or other, either by a commission or otherwise, must 
 take care of the poor man ; I mean keep him from being oppressed. 
 
 Senator Cummins. The Government must take care, according to 
 your plan, of the big man, too? 
 
 Mr. Vinson. Yes; I think the big man, as long as he does his busi- 
 ness in a legitimate way, should receive the same measure of protection 
 under the law as the little one. 
 
 Senator Cummins. Precisely. But your plan — if you have defi- 
 nitely suggested it — that if the big men acquire enough power to 
 
COMMITTEE OK INTERSTATE COMMERCE. 47 
 
 raise the price of coal above a fair and reasonable point, that he 
 should be regulated and his prices brought down to a fair and rea- 
 sonable point? 
 
 Mr. Vinson. That necessarily follows. 
 
 Senator Cummins. So that in approaching this question we have 
 to assume, I think, that we must either let competition do its work 
 or the Government must undertake to fix the price of all the com- 
 modities sold in the United States? 
 
 Mr. Vincent. Indirectly that is what the Government is doing 
 now in the interstate commerce law, as well as it attempts to enforce 
 the Sherman antitrust law. 
 
 Senator Cummins. I know it ; and your idea is to put the remaining 
 business of the United States in substantially the same relation to 
 the Government that the business of the common carrier has been 
 put? 
 
 Mr. Vinson. Yes, sir; there is only one of two things to be done 
 about it ; first, to take the bridle off and let competition destroy what 
 it will, or do what it will, or else regulate that competition, to rather 
 regulate the power that large aggregations of capital and industry 
 can use to the detriment of the public at large. ' 
 
 Senator Cummins. You have thought a great deal upon the sub- 
 ject. Let me suggest a restriction which it is possible to put upon 
 competition that might meet your fear of its destructive force. Sup- 
 pose you declare that any seller of coal, any producer of coal should 
 sell it at the same price to every purchaser at the mines, so that if 
 he lowered his price to one he must lower his price to all ; that is, to 
 put upon that business the same rule that has been put upon trans- 
 portation, that there must be no discrimination; do you not think 
 that would prevent the ruinous competition of which we have heard 
 so much? 
 
 Mr. Vinson. Well, if you had a commission to say what that price 
 should be. 
 
 Senator Cummins. No 
 
 Mr. Vinson. Just let the operator fix the price himself. 
 
 Senator Cummins. Precisely. 
 
 Mr. Vinson. I think the operation of that would be that the man 
 who is selling, or rather producing, from two to three million tons of 
 coal a year, he would understand and know that if he fixed his price 
 this year at 6 or 8 or 10 cents a ton of its cost to him, or rather limit, 
 his profit to that amount, that he would get all of the trade from the 
 small man; he would run his mine full, and the little ones would 
 have to run at more loss or have to go out of business. They would 
 have to go out of business. Next year he would raise the price when 
 he got rid of the little ones. I believe that would be the operation 
 of it. 
 
 , Senator Cummins. That is assuming that the big concern has no 
 competition except the little concern. There are a good many big 
 concerns, are there not, that compete with each other ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. On somewhat even terms? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. And unless they do something to enable the 
 little concerns to reduce their cost of production or sale or do some- 
 thing that will enable them to make an agreement by which the price 
 
 22877— vol i—12 i 
 
48 HEARINGS BEFORE 
 
 shall be held up so that they can sell at a profit, they will have to go 
 out of the business. 
 
 Mr. Vinson. There is no doubt about that at all. 
 
 Senator Cummins. But in their place or places there would arise 
 large concerns that would compete with the existing concerns on 
 even terms, would there not? 
 
 Mr. Vinson. Yes, sir; that is true. 
 
 Senator Cummins. And do you not think that it is economically 
 required that he shall allow the business to grow large enough so 
 that the unit of economy in each case can be employed? 
 
 Mr. Vinson. I think so. 
 
 Senator Cummins. And so in a business that is adapted to being 
 carried on in a large way, there does not seem to be much place for 
 the small man anyhow. 
 
 Mr. Vinson. No; not as at present organized, but the small man 
 ought to be given the power to go to work and combine with other 
 small men in the same situation that he is in, and make himself a 
 big man, so that he can really compete with the other man. That is 
 what I claim the small man is entitled to. 
 
 Senator Cummins. I think so too, so long as competition is pre- 
 served. 
 
 Mr. Vinson. Yes. 
 
 Senator Cummins. Pardon me for having taken so much time. I 
 have asked all the questions that I desire to ask. 
 
 The Chairman. Senator Newlands, you may interrogate. 
 
 Senator Newlands. Mr. Vincent, I understand that your bill ap- 
 plies to coal mining only? 
 
 Mr. Vinson. To coal mining only. 
 
 Senator Newlands. And you propose that a commission be or- 
 ganized to supervise both the operation of mining and the selling of 
 coal? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Newlands. For how many other classes of business do you 
 think a similar claim could be made with propriety? 
 
 Mr. Vinson. I never took occasion to run them over in my mind. 
 J should think the steel and iron business; possibly the oil business, 
 another ; the lumber business, perhaps. I am not familiar with the 
 extent of the other commercial enterprises except in a general way. 
 I know they do a large business. I had this idea, that the men who 
 are skilled in a particular line of business could give a much better 
 administration of that business than anyone who was not acquainted 
 with it. 
 
 Senator Newlands. Obviously. But I wish to call your attention 
 to the number of commissions required in order to cover adequately 
 the other businesses and vocations of the country that would require 
 the same regulations as that. 
 
 Mr. Vinson. I have no doubt, Senator, that it would require a 
 great many. 
 
 Senator Newlands. But you have not thought of how many ? 
 
 Mr. Vinson. No, sir ; I have not gone over it. I do not know. 
 
 Senator Newlands. You would have the same principle control 
 with reference to each one of them, that experts in each particular 
 business should be put upon the commission, "with a view to super- 
 vision and regulation? 
 
COMMITTEE ON INTERSTATE COMMERCE. 49 
 
 Mr. Vinson. I think you would get better results. 
 Senator Newlands. Now, your next proposition, as I understand 
 it, is that if both State and interstate commerce were engaged in by 
 the same instrumentality, and the National Government enacts and 
 passes a law providing for the regulation of the interstate part of 
 that commerce, that thereupon the power over the State part of that 
 commerce is extinguished. 
 
 Mr. Vinson. Yes ; that is if either of them interfere with the other ; 
 I mean if the State part of it is so intermingled with the inter- 
 state part of it that they can not be segregated and separated, they 
 may be distinguished from each other. 
 
 Senator Newlands. Then the full exercise of the national power 
 in the regulation of interstate commerce relating to these businesses 
 and occupations, and covering their operation and sale, would neces- 
 sarily oust the jurisdiction or the States over the State part of that 
 commerce wherever their regulations conflicted with those of the 
 United States. 
 
 Mr. Vinson. I think that would follow necessarily. 
 Senator Newlands. How do you reconcile that fact that the State 
 sovereignty over State commerce under our system of government is 
 just as complete as that of the National Government over interstate 
 commerce ? 
 
 Mr. Vinson. I believe, Senator, that the distinction you make there 
 has been adverted to in the various opinions by .the Supreme Court, 
 and the court has held that the national sovereignty must be supreme 
 wherever there is any conflict at all. 
 
 Senator Newlands. Do you understand that that has been held by 
 the Supreme Court or by some of the lower courts ? 
 
 Mr. Vinson. Well, it has been particularly held by the lower courts, 
 and I think you will find, by referring to my brief, that it has been 
 held by the Supreme Court. 
 
 Senator Newlands. Something of that kind was held by Judge 
 Sanborn, I believe, in the Kansas City Railroad case. 
 Mr. Vinson. Yes, sir ; he held that in those rate cases. 
 Senator Newlands. But that decision has aroused a protest in the 
 various States. 
 
 Mr. Vinson. Very serious protests. 
 
 Senator Newlands. And I believe they propose to appear in the 
 case in the Supreme Court and contest that view. 
 
 Mr. Vinson. From the facts in that case it would look like the 
 State regulation did interfere. Particularly I was interested in the 
 coal part. It interfered with the shipment of coal from Superior, 
 Wis., over into the State of Minnesota. 
 
 Senator Newlands. Do you not think that the better theory would 
 be, as long as that has not been determined by the Supreme Court 
 and is still a matter of discussion, instead of endeavoring to assert 
 the superiority of one sovereign over the other, to the extent of abso- 
 lutely ousting the jurisdiction of the so-called lesser sovereign over 
 a matter clearly intrusted to it under our system of government, that 
 it would be better to organize commerce in each one of the States 
 that will take into consideration the State part of the commerce and 
 organize under the authority of the National Government a national 
 commission or commissions to regulate interstate commerce and then 
 
50 HEARINGS BEFORE 
 
 endeavor to bring those commissions into close harmony and co- 
 operation by some system of exchange of theories, such as the Inter- 
 state Commerce Commission is now carrying on by annual conven- 
 tions held at Washington, at which the commissioners of the various 
 States — railroad commissioners — meet with the national commis- 
 sioners in convention? 
 
 Mr. Vinson. I have no doubt in the world that a policy of that 
 kind would change a great many opinions that now exist, both with 
 reference to the State power as well as the national power. I think 
 a discussion of the kind you suggest, or conferences rather, would 
 lead to good results. It seems to me that in the complex form of our 
 industry, that so far as the economic proposition is concerned the 
 State lines, as such, must in the nature of things be restricted more 
 than we have been taught heretofore to believe that they ought to 
 be. I was brought up in the State rights rule and I believe very 
 largely in the power of the State. My convictions are based upon 
 decisions of the court largely that have been rendered in the past 
 10 or 12 years. 
 
 Senator Newlands. It seems to me that the tendency ought to be 
 readjusted. 
 
 Mr. Vinson. It ought to be, since it is material for the growth of 
 the country. 
 
 Senator Newlands. Kather than repeat all our legislation we have 
 got to submit to it if the courts so determine; but it seems to me that 
 we should continue the contest until that is finally determined, or 
 otherwise we simply have all the businesses or vocations in the 
 country, and particularly the entire administration of the country, 
 turned over to a centralized government at Washington, and that 
 with the vast increase of population in this country the extension of 
 the States eventually would be as large as France or Germany would 
 be, and it would be a very cumbersome thing. 
 
 Mr. Vinson. It would necessarily, but it seems to me that so far 
 as trade is concerned between the people of the different States, and 
 that is really the very larger part of the trade of the country, that 
 wherever State sovereignty interferes with that trade, or with the 
 freedom of it, for any cause, the good of the country as a whole de- 
 mands that State sovereignty should be surrendered to that incident 
 to the national regulation and control, because otherwise we would 
 have conflict of interest and destructive competition existing between 
 the different States in the way of taxes and in the way of different 
 rulings of State commissions, and your industries and manufactures 
 will not get along in the smooth way that they would if you had a 
 central body regulating it. 
 
 Senator Newlands. Now, in your own State — West Virginia I 
 believe 
 
 Mr. Vinson. Yes, sir ; I live in West Virginia. 
 
 Senator Newlands. Has there been any effort upon the part of 
 your State government to cover this question to which you have 
 referred ? Have you any State commission ? 
 
 Mr. Vinson. No, sir ; we have not. 
 
 Senator Newlands. Such as you propose for the National Gov- 
 ernment ? 
 
COMMITTEE ON INTEl'STATE COMMKBCE, 51 
 
 Mr. Vinson. No, sir; we have not. We have a State mine in- 
 spector. 
 
 Senator Newlands. You have a railroad commission ? 
 
 Mr. Vinson. No, sir; we have no railroad commission. We are 
 living strictly under the common law, except we have a mining stat- 
 ute and a mining inspector. 
 
 Senator Newlands. Do you not think that you could go pretty far 
 in the direction of covering the matters which you propose by State 
 legislation ? 
 
 Mr. Vinson. We can cover some of them, but they would be in- 
 efficient. We could not cover the one that pertains to interstate com- 
 merce, and 95 per cent of the. ccal that is produced in West Virginia 
 goes into other States for consumption. 
 
 Senator Newlands. That is with reference to coal, is it? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Newlands. I presume that is the case with reference to 
 your iron? 
 
 Mr. Vinson. We do not produce any iron to amount to anything. 
 Our iron is an importation rather than an exportation. We manu- 
 facture a great deal of iron. I mean we have no local deposits of 
 iron to amount to anything. We have 'a good many furnaces and 
 quite an iron and steel industry. 
 
 Senator Newlands. You propose that the commission shall be 
 organized with reference to coal mining, and, of course, if we enter 
 upon that policy tha other businesses will be demanding at the same 
 time that we shall create commissions covering them. Is it your 
 idea that we should cover the coal-mining question first — try the 
 experiment ? 
 
 Mr. Vinson. That is what I would like to see. 
 
 Senator Newlands. And then later on take up the other subjects ? 
 
 Mr. Vinson. I believe we need that sort of a system, more per- 
 haps than any other industry in the country, and I think the ex- 
 periment in the coal business would perhaps be a justification for 
 following it up in other industries. 
 
 Senator Newlands. You would prefer that to having a general 
 commission that would cover all interstate trade, and it would have 
 powers of investigation and correction and recommendation to Con- 
 gress relating to all interstate trade? 
 
 Mr. Vinson. I think you would get much better results. The in- 
 dustry itself and the business as a whole of the country would get 
 much better results and specialize. 
 
 The Chairman. Before you proceed, Senator Brandegee, I would 
 like to ascertain the sense of the committee as to adjournment for 
 luncheon. It is now 1 o'clock. 
 
 Senator Newlands. I move that we adjourn until 2 o'clock. 
 
 The Chairman. Before we adjourn, Mr. Vontermyer writes that 
 he will be here Saturday, and I would like to get the sense of the 
 committee as to whether we shall sit Saturday. Without objection, 
 it seems to be the sense of the committee that we should sit on Satur- 
 day. The committee will now take a recess until 2 o'clock p. m., 
 when the committee will take up the examination of Mr. Vincent. 
 
 The committee thereupon took a recess until 2 o'clock p. m. 
 
52 • HEARINGS BEFORE 
 
 AFTER RECESS. 
 
 The committee met at 2 o'clock p. m. 
 
 The Chairman. The committee will come to order. Senator 
 Brandegee, have you uny inquiries to make? 
 
 Senator Brandegee. The resolution intrusted to the committee 
 provides that we are to inquire into and report what changes are 
 necessary or desirable in the laws of the United States relating to 
 the creation and control of corporations engaged in interstate com- 
 merce, and what changes are necessary or desirable in the laws of 
 the United States relating to persons or firms engaged in interstate 
 commerce. I had assumed, therefore, that it would be the task of 
 the committee, if it were possible, to suggest some one comprehen- 
 sive scheme for the regulation of corporations engaged in interstate 
 commerce among the States for all businesses, and so I was some- 
 what unprepared for the bill which you proposed, limiting your 
 recommendations simply to the coal business. Of course, I have 
 not had the opportunity to read the whole bill, but I would like to 
 ask you, if I may, to state briefly whether you think there is any- 
 thing peculiar about the coal business, as distinguished from other 
 large businesses ? For instance, other kinds of mining which would 
 necessitate a special act for the regulation of the coal business ? 
 
 Mr. Vinson. Senator, I am not familiar enough with metallic 
 mining to intelligently answer your question. I only know of it in 
 a most general way. So far as other lines of industry are con- 
 cerned, it might be that a commission along the lines indicated in 
 what I have said would be the best remedy to regulate that character 
 of business. 
 
 Senator Brandegee. Well, of course, you will admit that to clas- 
 sify the businesses of the country, all the businesses engaged in 
 commerce among the States — to have a separate commission, to be 
 paid salaries, to regulate each class of business, would involve a very 
 considerable number of commissions. 
 
 Mr. Vinson. Yes, sir ; it would. 
 
 Senator Brandegee. And if they were modeled on the plan of your 
 bill you would have, would you not, each commission determining 
 what sort of agreements it considered to be reasonably in restraint 
 of trade or unreasonably in restraint of trade, and there very likely 
 would be a lack of uniformity in the decision of those commissioners, 
 would there not ? 
 
 Mr. Vincent. I think necessarily there Avould be a lack of uni- 
 formity, dependent, of course, upon the particular character of the 
 business ; and that was one of the reasons why I suggested this plan 
 along the lines of a better efficiency; these businesses to be con- 
 trolled and regulated by a commission that knew or would be sup- 
 posed to know all about that particular branch of industry. 
 
 Senator Brandegee. Well, what is it that leads you to suppose 
 that a commission such as would be liable to be appointed by the 
 President, as provided in your bill, would be better able to say 
 whether a proposed trade agreement in restraint of commerce among 
 the States was reasonable or unreasonable restraint, rather than a 
 court ? 
 
 Mr. Vinson. My own idea, Senator, is that what is or what is 
 not an unreasonable restraint is more a question of facts thai) a 
 
COMMITTEE ON INTERSTATE COMMERCE. 53 
 
 question of law; and that a tribunal acquainted with all the facts 
 that would come to bear upon that question would be in much better 
 position to reach a wiser conclusion than a court which depended 
 only upon the facts submitted in the evidence in each particular case. 
 Senator Brandegee. Well, the courts would take the evidence just 
 the same as a commission would take it, would they not ? 
 
 Mr. Vinson. Well, they would take it in a way. My idea would 
 be that the commission would make not only its own investigation, 
 but have the witnesses appear before it at a hearing just like we 
 have here to-day, and in that way it might get at the facts much 
 more speedily than they could be gotten at through the slow process 
 of taking depositions in a regular court proceeding. 
 
 Senator Brandegee. It might be a speedier method, but my ques- 
 tion was designed to bring out your idea of whether a court was 
 not as well qualified to determine in the case of a trade agreement 
 what was reasonable as it was to determine what was reasonable in 
 any other matter that comes before a court. 
 
 Mr. Vinson. That probably might be true, generally speaking. 
 The difficulty in resorting to the court method is the long time in- 
 volved from the time your proceedings would be instituted in the 
 lower court, in producing the evidence, finally hearing arguments, 
 and then taking an appeal to the Supreme Court or to the Circuit 
 Court of Appeals. The business would be tied up two or three 
 years. 
 
 Senator Brandegee. Then, if I understand you, your objection is 
 not so much to the incompetency of the courts to determine such a 
 question as it is that under the present system the question of the 
 legality of a corporation is not determined at the time of its organ- 
 ization ? 
 
 Mr. Vinson, That is true. 
 
 Senator Brandegee. You spoke in opening about representing 
 some company in West Virginia that owned 30,000 acres of mining 
 land, was it? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Brandegee. What is the name of the company? 
 
 Mr. Vinson. The United States Coal & Qil Co. 
 
 Senator Brandegee. What is their capitalization? 
 
 Mr. Vinson. About $6,000,000. 
 
 Senator Brandegee. Are they in the oil business as well as the 
 coal business? 
 
 Mr. Vinson. No ; they are not in the oil business now. They were, 
 but they sold their oil properties, and they do nothing now but a 
 coal business. 
 
 Senator Brandegee. In what way do you represent that company? 
 
 Mr. Vinson. I am general counsel. 
 
 Senator Brandegee. Did you prepare this bill which you have 
 presented here? 
 
 Mr. Vinson. I did ; yes, sir. 
 
 Senator Brandegee. Have you presented it to the directors of 
 your company? 
 
 Mr. Vinson. Not to all of them. 
 
 Senator Brandegee. Are you prepared to say that your company 
 is in favor of that bill ? 
 
54 HEARINGS BEFORE 
 
 Mr. Vinson. The executive committee of the company were con- 
 sulted, and while it was not in a regular, formal meeting, no resolu- 
 tion having been passed, I take it that it met their approval. 
 
 Senator Brandegee. Was it submitted to any other companies en- 
 gaged in the business in West Virginia? 
 
 Mr. Vinson. We had a National Mining Congress, held in Chi- 
 cago two or three weeks ago, and I submitted it there. There was a 
 resolution passed by the congress, without a dissenting vote, urging 
 the Congress of the United States to pass a law providing for work- 
 ingmen's compensation, and also to amend or modify or give such 
 remedial legislation as would relieve the coal business from the ex- 
 actions and the trouble that it was now in and as made so by reason 
 of the operation of the Sherman antitrust law. 
 
 Senator Brandegee. Was this National Mining Convention a coal- 
 mining convention? 
 
 Mr. Vinson. Coal and oil mining, both. 
 
 Senator Brandegee. So far as you know, is there any movement 
 afoot to urge the repeal of the Sherman law? 
 
 Mr. Vinson. Well, the people do not seem to know whether the 
 law ought to be repealed or whether it ought to be modified or 
 amended. The people generally — I am speaking now of the busi- 
 ness- people generally as well — want some action taken so that they 
 can enter into these trade agreements, because they feel that these 
 trade agreements are necessities. Whether they want the act re- 
 pealed as a whole or modified or amended, I think that would be im- 
 material. It is the result they want rather than a method. 
 
 Senator Brandegee. If I understand you correctly, the people 
 whom you represent and the mining congress which you speak of 
 having attended want to be exempted from the operation of the Sher- 
 man law if that law is to stand as it is ? 
 
 Mr. Vinson. They do. 
 
 Senator Brandegee. Supposing quite a number of the smaller coal 
 mining companies were to form an agreement, a trade ^agreement, 
 and it should be approved by the commission which our bill pro- 
 vides for, and should then become a very strong company, as strong 
 as some of the large companies which you are now unable to com- 
 pete with, does your bill provide for any change of mind from time 
 to time by the commission? 
 
 Mr. Vinson. Not specifically. The bill itself provides that only 
 such agreements as would be in reasonable restraint, agreements that 
 would not raise the price or would not oppress a party not to it, 
 would be legal. 
 
 Senator Brandegee. Supposing at the time the agreement was 
 presented to the commission, which should appear to them not in 
 unreasonable restraint of trade, and supposing after the agreement 
 had been worked under for 5 or 10 years it became, in their opin- 
 ion, oppressive and in restraint of trade, in unreasonable restraint of 
 trade, does your bill provide that the commission may from time to 
 time change its opinions or make any orders adapted to the changed 
 situations ? 
 
 Mr. Vinson. It does not in specific words, but I am frank to sav 
 that it ought to. 
 
 Senator Brandegee. My idea was an agreement might appear in 
 advance to be in perfect reasonable restraint of trade, and later on it 
 
COMMITTEE ON INTERSTATE COMMERCE. 55 
 
 might become perfectly and obviously in unreasonable restraint of 
 trade. 
 
 Mr. Vinson. I say that power ought to rest in the commission 
 that -whenever an agreement heretofore reasonable becomes oppres- 
 sive, they should have the power to set it aside, cancel it. 
 
 Senator Brandegee. Does your bill in fact provide anything about 
 the determination of a reasonable price, selling price, for the com- 
 modity ? 
 
 Mr. Vinson. Only in general terms; and that is that the price 
 should not go beyond what the supply and the demand justify. 
 That is about as specific as I could get it. 
 
 Senator Brandegee. That is about as I remember it as you read 
 it ; but from the phraseology you used, it does not convey at once to 
 my mind much of a standard for a commission to go by, when you 
 say that it should not be a higher price than the supply and demand 
 justified. 
 
 Mr. Vinson. I was unable, Senator, to make it more specific 
 because of the varying conditions of the market. 
 
 Senator Brandegee. Supposing you had said it would not be an 
 unreasonable price? 
 
 Mr. Vinson. I take it it does say that. 
 
 Senator Brandegee. Is not that enough? 
 
 Mr. Vinson. Probably it would be. That really involves the other 
 expression. I construe that to mean the same thing. 
 
 Senator Brandegee. Then, as I understand you, you would advo- 
 cate the Government, through its administrative commission, fixing a 
 maximum price for the sale of coal, a price, beyond which the com- 
 panies who made the trade agreement should not be allowed to sell 
 the coal? 
 
 Mr. Vinson. No; I can not say, Senator, that that is so; that cer- 
 tainly is not the terms of the bill. 
 
 Senator Brandegee. I mean under the operation of the terms of 
 the bill, is not that what it means? If your language is susceptible 
 of the interpretation that the companies entering into the agreement 
 should not charge more than a certain price per ton for coal, does it 
 not mean that they shall not charge at unreasonable price ? 
 
 Mr. Vinson. Yes; it means that. 
 
 Senator Brandegee. Well, then, has not the commission got from 
 time to time, in view of your own standard which you set up, to wit, 
 what supply and demand will justify — has not the commission got 
 from time to time to notify the parties to the agreement, " You are 
 charging too much for coal," or " You must reduce your price for 
 coal to such an amount " ? 
 
 Mr. Vinson. They would certainly have that power. 
 
 Senator Brandegee. But does not the price of coal vary from 
 season to season? 
 
 Mr. Vinson. It does. 
 
 Senator Brandegee. In the market? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Brandegee. And if these small companies should unite 
 under their trade agreements, your idea would be that there would 
 be quite a number of them throughout the different coal-producing 
 
56 HEARINGS BEFORE 
 
 States of the country and that they would be actively competing with 
 each other? 
 
 Mr. Vinson. They would; yes, sir. 
 
 Senator Brandegee. Those companies, themselves, could also form 
 trade agreements and unite with each other if they could secure the 
 approval of this commission, could they not? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Brandegee. Then why, if the commission can at all times 
 decide that the price proposed to be charged by those in the combina- 
 tion is too high or is unreasonable, why does it not result in the com- 
 mission fixing the price if they can keep on making the companies 
 reduce the price ? 
 
 Mr. Vinson. The commission, I take it, in that respect would use 
 the price as a factor, and maybe the controlling factor, in determin- 
 ing whether or not the combination was exercising its legitimate 
 powers, just as the courts would determine and make that increased 
 price a factor in- deciding whether or not the combination was using 
 its power as a combination in restraint of trade; in other words, 
 making the price higher than it should be. 
 
 Senator Brandegee. I say, supposing the commission did find that 
 the combination is making the price higher than it should be, if it 
 can order them to reduce the price, why does it not result in allowing 
 the Government to fix the price of coal ? 
 
 Mr. Vinson. Ultimately the commission would have the power to 
 say that a certain price is too much ; you must lower it. That neces- 
 sarily follows, I take it, with any administrative tribunal that deals 
 with combinations in restraint of trade. 
 
 Senator Brandegee. Not only ultimately, but right off the reel, 
 would it not? 
 
 Mr. Vinson. That may be. 
 
 Senator Brandegee. When you file your agreement the commis- 
 sion will ask what you propose to sell coal for, probably. If you say 
 a certain price per ton, and they say, " That, under the terms of this 
 act, raises the price beyond what supply and demand at present 
 justify, and we can not approve the agreement if you are going to 
 charge that price; you must reduce it 25 cents a ton." You say, 
 "Very well." And you go on three months, and they say, "This 
 price, which was then reasonable, in view of the then supply and 
 demand, is now unreasonable, in our opinion, and you must reduce 
 it." Now, why does not that give the Government continuing power 
 to fix the actual price of coal on the market? 
 
 Mr. Vinson. I do not think it would give it that power. A price, 
 as a matter of fact, as a practical proposition, would be fixed by the 
 general trade conditions. 
 
 Senator Brandegee. It certainly gives the Government the power 
 to fix a price beyond which you should not go, does it not? 
 
 Mr. Vinson. I think so, unquestionably. 
 
 Senator Brandegee. Then, by continually lowering the maxi- 
 mum, it practically allows the Government to fix the price, does it 
 not ? 
 
 Mr. Vinson. Yes ; if the Government can say that the price at 
 which the coal is sold is the result of an agreement by which that 
 price has been unduly raised, or raised beyond what the ordinary 
 
COMMITTEE ON INTERSTATE COMMERCE. 57 
 
 market would demand, the ordinary supply and demand; that, it 
 seems to me, would be conclusive evidence of the fact that the com- 
 bination was an illegal one and violating the law. 
 
 Senator Brandegee. Supposing the Government does not say at 
 all that it is the result of an agreement, but, having authorized the 
 agreement, those in the agreement fix the price at that sum, and the 
 Government says : " This price is unreasonably high, in our opin- 
 ion." You provide for no appeal from that decision; but that is 
 •final. If the Government, through its administrative commission, 
 can forever say that the price that you are charging is unreason- 
 able, why does it not in effect result in the Government having the 
 power to fix the price of coal on the market? 
 
 Mr. Vinson. Well, I think it would to the same extent that a 
 court hearing a case on complaint would say that your price is too 
 high, and therefore it is conclusive evidence that you have an illegal 
 combination. I think the commission would have the same power in 
 that respect that the court would now have. 
 
 Senator Brandegee. Have you laid this scheme before any of the 
 independent companies — of the small companies of which you speak? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Brandegee. And they are generally in favor of it? 
 
 Mr. Vinson. Every coal operator with whom I have talked, and 
 I have .talked with a good many, are very greatly in favor of it. 
 They realize the necessity of something like this. 
 
 Senator Brandegee. I think that is about all I care to inquire. 
 
 The Chairman. Mr. Watson, have you any questions? 
 
 Senator Watson. How does the coal industry rank as compared 
 to iron and steel or agriculture? 
 
 Mr. Vinson. My recollection is that it is second in importance to 
 agriculture. 
 
 Senator Watson. Do you include anthracite coal in this arrange- 
 ment? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Watson. As well as bituminous coal? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Watson. What would become of the present Bureau of 
 Mines? 
 
 Mr. Vinson. A provision in this bill provides that it would be 
 under the present officials, and that the act would be administered by 
 this commission. 
 
 Senator Watson. How is the expense of this commission pro- 
 vided for? 
 
 Mr. Vinson. It is, in the bill, to be paid by the Government, the 
 same as the expense of the Interstate Commerce Commission. 
 
 Senator Watson. Why should it not be borne by the business? 
 
 Mr. Vinson. Well, I do not know. Most of the Government of- 
 ficials, outside of bank examiners, I believe, are paid from the Treas- 
 ury of the Government. 
 
 Senator Watson. Are you familiar with the early history of the 
 Standard Oil combination ? Was that combination made by the pur- 
 chase of the property or by competitive methods? 
 
 Mr. Vinson. My understanding, without having gone through 
 the records in detail, is that the combination was formed in the first 
 
58 HEARINGS BEFORE 
 
 instance by an offer of the Standard Oil people to purchase the inde- 
 pendents, and in the event they did not agree upon a price and no 
 sale was made, then the competitive conditions were put in as against 
 that particular plant, and ultimately it was compelled to go into the 
 combination. 
 
 Senator Watson. That is all I care to ask. 
 
 The Chairman. Senator Oliver, have you any inquiries to make? 
 
 Senator Oliver. Mr. Vincent, I want to ask you one question, sug- 
 gested to me by one of Senator Brandegee's question. Is it not the 
 case that the coal industry deals with simply one commodity, handled 
 in very large quantities, produced by the same operation in nil 
 plants, and that, therefore, the application of the theory involved 
 in your bill would be easier than it would in any other line of 
 business ? 
 
 Mr. Vinson. I think that is quite true, Senator. 
 
 Senator Oliver. It would seem so to me. 
 
 Mr. Vinson. Owing to the character of the business. 
 
 Senator Oliver. Now, with regard to the compensation part of 
 your proposition. Does your bill propose that the compensation 
 allowed by this act shall be in lieu of and exclude the right of action 
 for damages to the party injured? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Oliver. Altogether? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Oliver. It would be the only remedy? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Oliver. Do you make any distinction in your bill between 
 injuries received which are palpably the result of negligence and 
 injuries for which the employer under the common law would not be 
 ] table because they are not the result of his negligence ? 
 
 Mr. Vinson. No, sir; none whatever. 
 
 Senator Oliver. Do you not think that is a weak point in your 
 bill? 
 
 Mr. Vinson. No, Senator. I think the strong point in the bill is 
 to take every question of the compensation away from a court pro- 
 ceeding. For instance, you have an explosion in a mine that may be 
 the result of an act of the most experienced miner that you have, be- 
 cause they do forget, as we all do; and as a consequence the bill is 
 drawn upon the theory that no man will willingly injure himself. 
 Of course, if he did, that would be a subject for investigation by the 
 commission that would bar him from participating in this fund on 
 account of fraud. But most accidents are accidents that are really 
 not the fault of the man. hurt; of course, some of them are; and the 
 bill contemplates that whenever an injury occurs in the line of em- 
 ployment, and it is such an injury as will incapacitate a man from 
 working even temporarily, he is justly entitled to a compensation out 
 of the industry. 
 
 Senator Olivee. I thoroughly agree with you in everything you 
 say, but it seems to me the adoption of this plan would inevitably 
 lead, if not to carelessness, at least to an absence of the excessive care 
 which all miners or all mining operators now feel under the necessity 
 of using with regard to the prevention of accidents. 
 
 Mr. Vinson. Yes. I think that idea is covered in another section 
 of the bill, which would give the commission complete jurisdiction 
 
COMMITTEE ON INTERSTATE COMMERCE. 59 
 
 and authority to require the installation of all of the appliances 
 known and their proper conduct in order to prevent accidents. 
 
 Senator Oliver. Oh, I understand that, and that is very largely 
 covered to-day by State laws upon this subject ; but all the legislation 
 in the world is not equal to the care that the owner will take, not 
 only of the lives of his men generally, but for fear of the damages 
 that he would be compelled to suffer. 
 
 Mr. Vinson. I think the great damage that the owner of a mine 
 is compelled to suffer for an explosion is not the injury to his work- 
 ingmen, but it is the destruction of his mine. I think that the 
 inducement to preserve his mine would impel him to use all the pre- 
 cautions that he possibly could, outside of any question of consider- 
 ation that he may have for the welfare of his employees. 
 
 Senator Oliver. I refer to other accidents than those simply caused 
 by explosions. In fact, in thinking over the subject, I am thinking 
 along the line of other lines of industry as well as mining. In 
 applying this principle I should rather think that something ought 
 to be in the bill, perhaps, to guard against negligence on the part of 
 the operators. 
 
 Mr. Vinson. Well, that may be. My own idea was to keep these 
 compensation features entirely out of the courts. 
 
 Senator Oliver. Well, that is to be desired ; very much desired, I 
 acknowledge. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Oliver. That is all, Mr. Chairman. 
 
 The Chairman. Senator Pomerene. 
 
 Senator Pomerene. Mr. Vincent, as I understand your explanation 
 of your bill, there are three classes of provisions: One which looks 
 to the prevention of injuries; secondly, compensation for injuries; 
 and, thirdly, the regulation of trade agreements? 
 
 ,Mr. Vinson. And the conservation of the coal. 
 
 Senator Pomerene. Yes; and the conservation of the coal. 
 
 Mr. Vinson. Those are all the provisions, Senator. 
 
 Senator Pomerene. Now, I take it that you base this bill largely 
 on the interstate commerce provision — — 
 
 Mr. Vinson. Very largely. 
 
 Senator Pomerene (continuing). Of the Federal Constitution? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Pomerene. Is there any provision in the Federal Consti- 
 tution under which you would justify these several regulations? 
 
 Mr. Vinson. Well, Senator, I do not know, but they might be 
 justified, these particular regulations might be justified under the 
 same power that has been exercised by the Congress in creating the 
 Department of Agriculture and in creating the Bureau of Mines. 
 My own judgment is that the National Government has a police 
 power inherently vested in Congress, which it may exercise, perhaps, 
 not to the same extent that the States would exercise it, but there 
 is that police power there that it does assume to exercise, and its 
 assumptions have been largely upheld by the courts. 
 
 Senator Pomerene. Well, is not the primary part of the business 
 of coal mining a mining proposition and not a commerce proposition ? 
 
 Mr. Vinson. No, Senator; I think that the whole proposition is 
 one of transportation. 
 
60 HEARINGS BEFORE 
 
 Senator Pomeeene. We control transportation by the Interstate 
 Commerce. Commission — by virtue of the commerce clause in the Con- 
 stitution. 
 
 Mr. Vinson. Yes, sir. ' 
 
 Senator Pomeeene. Are you familiar with the doctrine of the 
 United States Supreme Court in the Knight case ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Pomerene. Well, now, in substance the facts in the case of 
 the United States against Knight were these: That the American 
 Sugar Refining Co. sought to buy out the stock in three or four 
 competitors engaged in similar business — that is, the manufacture of 
 sugar. All of these concerns were located in Philadelphia and the 
 State of Pennsylvania. It was charged that this was a combination 
 in violation of the Sherman antitrust law. The court held in that 
 instance that the manufacture was the primary purpose of the com- 
 bination, and that the selling was the secondary purpose, and that, 
 therefore, that combination did not come within the provisions of the 
 Sherman antitrust law. Now, I take it that if the primary purpose 
 of that organization had been commercial there^ would be no question 
 about the authority of Congress. But here you seek in your bill to 
 provide certain regulations looking to the prevention of accidents in 
 a property or a business which, it seems to me, is essentially intra- 
 state, and not interstate; that the commercial part of it is 'simply 
 secondary. 
 
 The same objection, it seems to me, will apply to your compensa- 
 tion provisions. 
 
 I would like to have your views upon the constitutionality of those 
 two classes of provisions in view of the doctrine laid down in the 
 Knight case. I have it here before me. 
 
 Mr. Vinson. The Knight case was based, or rather the decision 
 in the Knight case, as I recall it — it has been some little time since 
 I read it — the decision in that case was based upon the theory or 
 assumption that the business was one of manufacture and was not 
 one primarily of interstate commerce. Of course we can readily 
 understand why that would be so; and therefore, not being one of 
 interstate commerce, but one purely of local manufacture, the power 
 of Congress did not extend to it. 
 
 Now, the difference between the facts in that case and those that 
 arise in the coal-mining business are very marked. Coal mining is 
 a transportation problem. There is no semblance of manufacture 
 connected with it; none whatever. There are no manufacturing 
 processes. The first thing a miner does is to chip the coal out of 
 the bed as soon as he strikes it — -that is, dig the coal — and then and 
 there, at that point, it starts immediately on its continuous journey 
 in interstate commerce. That coal is sold in interstate commerce 
 before it is mined. So the work that the miner does is done on a 
 contract by his employer to furnish trade to interstate commerce. 
 
 Senator Pomeeene. Why, Mr. Vincent, is not the digging of the 
 coal from the seam and the carrying of it to the mouth of the mine 
 a process of manufacture? 
 
 Mr. Vinson. I think not, Senator. 
 
 Senator Pomerene. Well, assuming for the sake of the argument 
 that it is not, it seems to me that that which gives the Federal Gov- 
 
COMMITTEE ON INTERSTATE COMMERCE. 61 
 
 ernment, or failed to give the Federal Government, jurisdiction in 
 the Sugar Kenning Co. case was the fact that it was confined to a 
 locality within the boundaries of a single State. Now, in that re- 
 spect is not the mining process similar to that of the sugar refining? 
 Mr. Vinson. Well, it is similar only in this respect, I take it, 
 Senator. It is similar because it is located — or rather one end of 
 that transaction is located — in one State and the other end of it in 
 another State and there is an existing contract for the sale and 
 transportation of that product before it is mined. 
 
 Senator Pomerene. That may be so or it may not be so. In the 
 statement of this case the court has held that the sale of the sugar is 
 perhaps an incident to the manufacture, but the primary object is 
 the manufacture, and that is confined within the State. Therefore 
 the Federal Government does not have jurisdiction of that manufac- 
 turing under the Sherman antitrust law. And I fail to see the dis- 
 tinction between the principle involved in the case I have suggested 
 and the case which we have under consideration. 
 
 Now, the court, beginning on page 15, says : 
 
 In Gibbons v. Ogden, Brown v. Maryland, and other cases often cited the 
 State laws which were held inoperative were instances of direct interference 
 with or regulations of interstate or international commerce, yet in Kidd v. 
 Pearson the refusal of a State to allow articles to be manufactured within her 
 borders even for export was held not to directly affect external commerce, and 
 State legislation which in a great variety of ways affected interstate commerce 
 and persons engaged in it has been frequently sustained because the inter- 
 ference was not direct. 
 
 Contracts, combinations, or conspiracies to control domestic enterprise in 
 manufacture, agriculture, mining, production in all its forms, or to raise or 
 lower prices or wages, might unquestionably tend to restrain external as well 
 as domestic trade, but the restraint would be an indirect result, however 
 inevitable and whatever its extent, and such result would not necessarily 
 determine the object of the contract, combination, or conspiracy. 
 
 Again, all the authorities agree that in order to vitiate a contract or combi- 
 nation it is not essential that its result should be a complete monopoly ; it is 
 sufficient if it really tends to that end and to deprive the public of the advan- 
 tages which flow from free competition. 
 
 It would be interesting perhaps to read a page or two of that 
 decision, but I will not take the time of the committee to do that 
 now. I would like to have read into this record the balance of page 
 16 and page 17. I think it would be interesting when it comes to 
 the investigation of the subject. 
 
 (That part of the opinion in the case of the United States v. E. C. 
 Knight Co., referred to by Senator Pomerene, is as follows:) 
 
 Slight reflection will show that if the national power extends to all contracts 
 and combinations in manufacture, agriculture, mining, and other productive 
 industries whose ultimate result may affect external commerce, comparatively 
 little of business operations and affairs would be left for State control. 
 
 It was in the light of well-settled principles that the act of July 2, 1890, was 
 framed. Congress did not attempt thereby to assert the power to deal with 
 monopoly directly as such; or to limit and restrict the rights of corporations 
 created by the States or the citizens of the States in the acquisition, control, 
 or disposition of property; or to regulate or prescribe the price or prices at 
 which such property or the products thereof should be sold'; or to make criminal 
 the acts of persons in the acquisition and control of property which the States 
 of their residence or creation sanctioned or permitted. Aside from the pro- 
 visions applicable where Congress might exercise municipal power, what the 
 law struck at was combinations, contracts, and conspiracies to monopolize trade 
 and commerce among the several States or with foreign nations; but the con- 
 tracts and acts of the defendants related exclusively to the acquisition of the 
 Philadelphia refineries and the business of sugar refining in Pennsylvania, and 
 
62 HEARINGS BEFOKE 
 
 bore no direct relation to commerce between the States or with foreign nations. 
 The object was manifestly private gain in the manufacture of the commodity, 
 but not through the control of interstate or foreign commerce. It is true that 
 the bill alleged that the products of these refineries were sold and distributed 
 among the several States, and that all the companies were engaged in trade 
 or commerce with the several States and with foreign nations; but this was no 
 more than to say that trade and commerce served manufacture to fulfill its 
 function. 
 
 Sugar was refined for sale, and sales were probably made at Philadelphia for 
 consumption and undoubtedly for resale by the first purchasers throughout 
 Pennsylvania and other States, and refined sugar was also forwarded by the 
 companies to other States for sale. Nevertheless, it does not follow that an 
 attempt to monopolize, or the actual monopoly of, the manufacture was an 
 attempt, whether executory or consummated, to monopolize commerce, even 
 though in order to dispose of the product the instrumentality of commerce was 
 necessarily invoked. There was, nothing in the proofs to indicate any intention 
 to put a restraint upon trade or commerce, and the fact, as we have seen, that 
 trade or commerce might be indirectly affected was not enough to entitle com- 
 plainants to a decree. The subject matter of the sale was shares of manufac- 
 turing stock, and the relief sought was the surrender of property which had 
 already passed and the suppression of the alleged monopoly in manufacture by 
 the restoration of the status quo before the transfers; yet the act of Congress 
 only authorized the circuit courts to proceed by way of preventing and restrain- 
 ing violations of the act in respect of contracts, combinations, or conspiracies in 
 restraint of interstate or international trade or commerce. 
 
 The circuit court declined upon the pleadings and proof to grant the relief 
 prayed and dismissed the bill, and we are of opinion that the circuit court of 
 appeals did not err in affirming that decree. 
 
 Senator Pomerene. It occurred to me when you were explaining 
 your bill that there would be a grave constitutional question here, 
 particularly as applicable to the first two classes of provisions to 
 which I have referred. And, as Senator Oliver has suggested, when 
 it comes to legal methods designed for the protection of the work- 
 ingman or miner in a mine, that is largely taken care of, and it seems 
 to me properly, by State legislation. 
 
 Mr. Vinson. I think an examination of the later cases, and par- 
 ticularly the one decided about 10 days ago by the Supreme Court, 
 wijl show that that court has held in a great number of cases, de- 
 cided both before and since the Knight case, that whenever an 
 article has drifted from any point in one State to a purchaser or to 
 a destination in another State, that all of the agencies, all of the 
 appliances, and all of the people connected with that transportation 
 are under the exclusive jurisdiction of the power of Congress when 
 that Congress exercises that power. 
 
 Senator Pomerene. Do you mean to say that the court in this later 
 case has distinguished it from the case in 156 United States? 
 
 Mr. Vinson. Not in words; in substance, yes. In the case that 
 they decided two weeks ago — that is, a week ago last Monday — it 
 involved the question of the constitutionality of an act of Congress 
 providing for safety appliances on a car. The case went up to the 
 Supreme Court involving a safety appliance on a car which was 
 used exclusively in intrastate commerce, and the court there held that 
 that was a case properly within the jurisdiction of Congress. And 
 I think if you will read the Picture cases (decided somewhere about 
 207 U. S.) — I have referred to them in the brief that I have filed — 
 you will find that the court is rather positive upon the exclusive 
 power of Congress to regulate everything and every appliance that 
 pertains to transactions between citizens of different States, or inter- 
 state commerce, as it is called. 
 
COMMITTEE ON INTERSTATE COMMERCE. 63 
 
 Of course, you take all these appliance acts, and the acts that 
 require cattle to be unloaded and fed or watered within a certain 
 time, and employers' liability acts that Congress has assumed to 
 pass, and the courts have sustained them. They are the exercise of 
 the police power of Congress over interstate commerce. That is the 
 best way I know how to express it. And I think that that power, 
 so far as it affects or pertains to interstate commerce, the trans- 
 actions that go into that commerce, is fully and exclusively of State 
 action. 
 
 Senator Pomerene. In your brief do you discuss the question I 
 have suggested here as to whether or not mining is a part of the 
 commerce in fact? 
 
 Mr. Vinson. I do; yes, sir. You can see the difference between 
 the manufacture of sugar at a local point and a man who starts a 
 substance unchanged — unchanged, mark you — on its continuous jour- 
 ney with no stops. 
 
 Senator Pomerene. I differ from you as to that. 
 
 Mr. Vinson. I mean to say that it may stop in intrastate com- 
 merce. 
 
 Senator Pomerene. Oh, no ; but it seems to me that the legal prin- 
 ciples involved are the same. There isn't any distinction between 
 manufacturing and selling sugar and mining and selling coal. It 
 does seem to me that the same principle is involved. 
 
 That is all. 
 
 The Chairman. Senator Townsend, have you any inquiries? 
 
 Senator Townsend. Mr. Vinson, I was unfortunate in not being 
 in at the beginning of your statement, which has been exceedingly 
 interesting to me : and fortunately most of the questions that I had 
 in mind have been asked, but I would like to know for whom you 
 appear here? 
 
 Mr. Vinson. I appear primarily for myself. I am personally 
 interested in a number of small coal-mining companies. I am at- 
 torney for a great number of other small coal-mining companies, 
 and represent one of the large coal companies in the State. 
 
 Senator Townsend. And all of your clients, the small and the 
 large, are in sympathy with the proposition which you have pre- 
 sented here? 
 
 Mr. Vinson. They are, so far as I have consulted them. I have 
 not consulted all of them ; I mean each one separately. I have men- 
 tioned this matter to a number of coal companies in Illinois, in Penn- 
 sylvania, in West Virginia, and in Ohio. I met a great many coal- 
 mining people at this congress at Chicago, and I talked it — per- 
 haps I made myself a bit obnoxious to some of them — but I found 
 no criticisms of the idea. The only question that was raised at all 
 was : " Well, can it be done ? If it can, it ought to be." 
 
 Senator Townsend. Are the miners of these companies organized? 
 
 Mr. Vinson. Some of them are and some of them are not. We 
 have verv few organizations in West Virginia. 
 
 Senator Townsend. Do you represent them, so far as the compen- 
 sation feature is concerned? 
 
 Mr. Vinson. I do not. 
 
 Senator Townsend. Have you discussed the matter with them ? 
 
 Mr. Vinson. With some of the individuals, not with the organi- 
 zations. 
 
 22877— vol 1—12 5 
 
64 HEARINGS BEFORE 
 
 Senator Townsend. Are those companies subject to many losses 
 for damages ? 
 
 Mr. Vinson. They are. 
 
 Senator Townsend. And that becomes a burden upon the com- 
 panies ? 
 
 Mr. Vinson. Very great, sir. 
 
 Senator Townsend. Do you not think it would be wise, then, inas- 
 much as that is a burden from which they are seeking relief, that 
 they should at least contribute very largely to the vast fund which 
 you propose? 
 
 Mr. Vinson. I think so, Senator. 
 
 Senator Townsend. But this really does not — this method that you 
 propose. 
 
 Mr. Vinson. They contribute about four-fifths of the whole fund, 
 the way the bill is drawn. 
 
 Senator Townsend. But that is to be levied back upon the con- 
 sumer. 
 
 Mr. Vinson. That is a part of the cost, just the same as the wear- 
 ing out of a piece of machinery. 
 
 Senator Townsend. But they do not regard it as a part of the cost 
 where they are subject to damages ; it is a burden upon them. 
 
 Mr. Vinson. It is a burden upon them. That is what they want 
 to avoid. 
 
 Senator Townsend. If I understand — I am sorry to have to ask 
 you this, for if Iliad been here I should have known — do you propose 
 a general fund to be constituted from which damages are to be paid ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Townsend. And they are to be paid to companies all over 
 the United States wherever damages occur? 
 
 Mr. Vinson. Paid to the individuals ; yes, sir. 
 
 Senator Townsend. Who belong to that company ? 
 
 Mr. Vinson. Yes, sir; work for it. 
 
 Senator Townsend. Is not that going to lead to carelessness on 
 the part of the operators ? Is not the company that is most careful, 
 most conscientious in its installing of appliances, safety appliances, 
 etc., going to suffer from the more careless? 
 
 Mr. Vinson. I should think not, Senator, because every accident 
 that occurs — that is, not every one, but most of them — results in 
 great injury to the property, for which the owner would get no 
 compensation at all. 
 
 Senator Townsend. That would be true in reference to large acci- 
 dents like explosions, but not ordinary accidents. 
 
 Mr. Vinson. Well, the ordinary, accidents to the property — say 
 an accident in the mine, collisions, or anything of that sort, unless 
 it is just merely an accident between two miners handling a pick, or 
 something of that sort — must necessarily increase the expense to the 
 operator to clear up the debris, or whatever it is. Fpr instance, you 
 have a collision of two mine cars in your mine. Maybe a man is 
 injured. The electric cars are rather expensive, and they have to 
 be sent away for repairs or maybe new ones purchased. I do not 
 think it would have a tendency to decrease the watchfulness that the 
 mine people have over their mines. I want to say that is very 
 great. They all realize- that a mine may be destroyed absolutely 
 
COMMITTEE ON INTERSTATE COMMERCE. 65 
 
 by a spark of fire setting off coal dust, fire damp, or gas. And I 
 have never yet seen an operator, no matter where he was located, 
 who would not use all of the methods that he knew to prevent acci- 
 dents of all kinds. 
 
 Senator Townsend. My own experience in various matters has 
 been that most of the safety appliances which we have in use, even 
 on railroads, have been forced upon the companies; that they have 
 never voluntarily adopted what, to the novice like myself, seemed 
 money-makers for them. And I was wondering whether this was 
 going to be carried so far with reference to coal mining as to induce 
 the owners to install them, because all of the companies in the United 
 States have to help pay this loss where relieved from any damage 
 suits. If it resulted in that it would hardly be the proper thing. 
 
 Mr. Vinson. No, sir; it would not. I think the opposite would 
 really be the result. 
 
 Senator Townsend. In regard to the second phase of your propo- 
 sition, you say that the large companies are liable to destroy the 
 smaller ones. Did I understand yon to say that the large companies _ 
 are successfully conducting their business now? 
 
 Mr. Vinson. Well, in a way, the large companies that are well 
 organized are not losing any money. They are selling at a very low 
 margin. Last year the average coal brought at the mine through- 
 out the whole country $1.07 per ton — I mean it cost that. The sale 
 price was $1.11. There was a margin of only 4 cents. That did not 
 include any interest or any depreciation for the exhaustion of the 
 coal. And if you add these two items to the cost price, the coal in- 
 dustry, the bituminous-coal industry of the country last year is short 
 of actual cost between thirty-five and thirty-eight million dollars. 
 
 Senator Townsend. Then one of the objects you have, in mind, as 
 I understand you, is to increase the price of coal? 
 
 Mr. Vinson. No, not necessarily. It ought to be increased, Sen- 
 ator, because the other industries come here preying upon the coal 
 of the country and not paying for it what they really ought to pay. 
 Senator Townsend. The large companies then are not receiving 
 the price they ought to receive, in many instances, because of the in- 
 dependent companies, the smaller companies? 
 
 Mr. Vinson. Because of each other and the independent com- 
 panies. 
 
 Senator Townsend. Then one of the results of this necessarily 
 would be to maintain a fair price at least to the consumer 1 
 Mr. Vinson. It would be. 
 
 Senator Townsend. You have several times used the term '' sup- 
 ply and demand." That is the basis upon which you would fix a 
 price? 
 Mr. Vinson. I think so. 
 
 Senator Townsend. Is that the basis that the Government ought to 
 employ if the Government is going into this business? 
 Mr. Vinson. You mean going in to regulate it? 
 Senator Townsend. Yes. 
 
 Mr. Vinson. We have generally been taught to believe that that 
 is a just basis of price fixing. There are times when it would not be 
 just, because in certain districts there may be a strike that would 
 create an unnatural demand from other districts, and the price 
 
66 HEARINGS BEFORE 
 
 ought not to be raised in order to meet that unnatural and tem- 
 porary demand. 
 
 Senator Town send. Suppose the Government is asked to intervene 
 in this matter, because it is something that affects the general 
 welfare ? 
 
 Mr. Vinson. It does. 
 
 Senator Townsend. The Government would not have any business 
 to deal with this question simply for the benefit of a coal miner or a 
 coal operator, would it? 
 
 Mr. Vinson. Not for a single ooal miner or operator. But if the 
 Government passes a law and lets it remain on its statute books, if it 
 drives even a single operator out of business — that is sufficient — be- 
 cause of competitive conditions that it will not allow him to meet, the 
 Government should see to it that it is remedied in some way. 
 
 Senator Townsend. I quite agree with you. But it occurs to me 
 that this Government hasn't any business to meddle with any of the 
 affairs of the country, the business interests of the country, for the 
 benefit of a few individuals. It is only as that business affects the 
 good or the ill of the whole people that it has a right to intervene. 
 Now, I think Mr. Brandegee brought this out pretty clearly; it 
 seemed so to me, at least. If the Government is going to do any- 
 thing about it, ought it not to insist that the coal operators shall re- 
 ceive fair and reasonable compensation rather than what supply and 
 demand may happen to call for? 
 
 Mr. Vinson. If there is a difference between what is fair and 
 supply and demand, then I take it the Government ought to confine 
 itself to the proposition of what is fair. 
 
 Senator Townsend. It seems so to me. 
 
 I think I have nothing further, Mr. Chairman. 
 
 The Chairman. Has any other member of the committee any 
 further questions? 
 
 Senator Cummins. I believe I want to ask a question. With entire 
 respect, of course, to the Supreme Court, is it not generally under- 
 stood among the members of the profession that the Knight case, 
 if not overruled, has been very much entrenched upon by later 
 decisions ? 
 
 Mr. Vinson. That is the impression, Senator. 
 
 Senator Cummins. The safety-appliance case to which you re- 
 ferred, and which was decided a week ago Monday, I believe, pre- 
 sented substantially this sort of situation, did it not: A railroad 
 company that was itself engaged in interstate commerce 
 
 Mr. Vinson. And intrastate, both. 
 
 Senator Cummins. Interstate and intrastate, had a car that in itself 
 did not pass beyond the limits of the State. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Cummins. But was engaged wholly in local or intrastate 
 commerce. 
 
 Mr. Vinson. Yes, sir; that is correct. 
 
 Senator Cummins. And the question was whether the act of Con- 
 gress which required that car to be equipped with a safety appliance 
 was a constitutional provision. 
 
 Mr. Vinson. That is as I understand the decision. 
 
COMMITTEE ON INTERSTATE COMMERCE. 67 
 
 Senator Cummins. And the Supreme Court held that notwith- 
 standing the fact that the car itself had never been engaged in inter- 
 state commerce, and because it belonged to a company that was en- 
 gaged in interstate commerce, must be equipped with a safety ap- 
 pliance precisely as though it were itself engaged in passing from 
 State to State. 
 
 Mr. Vinson. I understand that is the substance of the decision 
 as you have stated it. 
 
 Senator Cummins. Without saying anything about the exact facts 
 of the Knight case, are you able to reconcile that decision with all the 
 reasoning of the Knight case? 
 
 Mr. Vinson. Senator, I am not able to reconcile the reasoning in 
 the Knight case with a great many cases that have been decided since 
 that time. For instance, you take the Northern Securities case; you 
 take that case, and you take the Standard Oil Co. case, and the 
 Tobacco case, and the reasoning in the Knight case, if put in parallel 
 columns along with the reasoning of the court in the other cases, 
 would require some trouble to harmonize them, I think. 
 
 Senator Cummins. I have not seen anyone who could harmonize 
 them. I did not know but what you had found some way in which 
 they could 'be reconciled. 
 
 Mr. Vinson* No, sir. I do not claim to be a genius. 
 
 Senator Townsend. I just want t6 ask one question more that 
 occurred to me at the time, but I forgot it. Is the cost of producing 
 coal gradually being reduced? 
 
 Mr. Vinson. No, sir ; it is gradually increasing. 
 
 Senator Townsend. So that the economies of production and man- 
 ufacture have not materially reduced the cost of production? 
 
 Mr. Vinson. Well, I am speaking now as a whole. 
 
 Senator Townsend. I Want to ask you that question in reference 
 to your best equipped mine, your big mines. 
 
 Mr. Vinson. In the best equipped mine the production of coal is 
 not any cheaper now than it was last year or the year before ; that is, 
 generally speaking. Of course, they are using better appliances and 
 more labor-saving machinery wherever they can be installed. Of 
 course, to that extent the cost of production is, to some extent, less- 
 ened. But the cost as a whole — of course, that includes the small 
 cost — increased, from 1904 to 1910, 9 cents a ton,' while the price of 
 coal remains stationary. 
 
 Senator Townsend. The price of coal at the mine? 
 
 Mr. Vinson. At the mine; yes, sir. 
 
 Senator Townsend. How has the price of coal to the consumer 
 been during that time ? 
 
 Mr. Vinson. That is, to the consumer who buys at the mine ? 
 
 Senator TowNsend. I am talking about the man who burns it in 
 his stove. 
 
 Mr. Vinson. I expect he is skinned a good deal. 
 
 Senator. Townsend. He payg more now than he did before, does 
 he not? 
 
 Mr. Vinson. I do not know. I am not sufficiently well acquainted 
 with the details of the retail trade in the cities to know. 
 
 Senator Oliver. I do not think there is much difference. 
 
 Senator Townsend. There is more than 9 cents, is there not ? 
 
68 HEARINGS BEFORE 
 
 Senator Oliver. I think not; not bituminous coal. I think the 
 consumer gets bituminous coal to-day fully as low as he got it 10 
 years ago, if not less. 
 
 Senator Newlands. Anthracite coal has increased, has it not? 
 
 Senator Oliver. I do not know anything about the anthracite 
 business. 
 
 Senator Townsend. You have said that you deliver your coal di- 
 rectly to the consumer in some instances. 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Townsend. At boats, etc. ? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Townsend. How does that price to the consumer compare, 
 if you know, to the price that his competitor has to pay who does not 
 get it directly from you ? 
 
 Mr. Vinson. Do you mean the consumer's competitor ? 
 
 Senator Townsend. Yes. 
 
 Mr. Vinson. The prices, as I understand it, are substantially the 
 same all over the country for the same grades of coal — I mean to the 
 consumer. You take all the lake business, and the price of coal at 
 the lake, or rather at the distributing .points on the lake, are sub- 
 stantially the same for the Pittsburgh district and the eastern Ohio 
 district and the West Virginia coals; there may be a slight fluctua- 
 tion, but not much; dependent, of course, to some extent upon the 
 intrinsic merit of the coal. 
 
 Senator Townsend. That is all. 
 
 Senator Watson. You spoke of 25 per cent of the coal now being 
 wasted. Do you think you would save some of that in this arrange- 
 ment, some of that 25 per cent of the coal that is now being wasted? 
 
 Mr. Vinson. I think so. I think that you could save in this way, 
 Senator: As you know, a miner who is not careful and who does 
 not rob his pillars in a scientific way has quite a loss in the method 
 by which he operates in taking out his pillars and in the results 
 which follow. If he is required to take these pillars out in the way 
 they ought to be taken out, and the way we have them taken out in 
 our mines, and the way you have them taken out, there would be a 
 big saving of the coal; that is, much more would be recovered and 
 go into the trade. There are smaller mines which do not pay much 
 attention to this feature. Sometimes the rock comes down and 
 squeezes the vein down to a foot of squeezing it out. It is necessary, 
 in many instances, to cut through that rock until you get to the coal 
 on the other side, that being a very expensive proposition, and if 
 the small miner who runs up against a f ault of that sort is selling 
 his coal at about what it costs, and in some instances less, he is not 
 going to the expense of cutting through that rock to get to the coal 
 on the other side. As a consequence, when the mine is abandoned 
 that coal is still in the mine. 
 
 The Chairman. Are there any further questions? 
 Senator Newlands. Mr. Vincent, would it be possible to pass a 
 State law containing substantially all of the provisions of this law 
 which you have drawn up? Would there be any difficulty in pass- 
 ing it, in the first place, in the State of West Virginia? 
 
 Mr. Vinson. I think there would be a great deal of difficulty, if 
 it would not be entirely impossible, in getting a law like that or any 
 other law along that line adopted by all of the coal-producing States. 
 
COMMITTEE ON INTERSTATE COMMERCE. 69 
 
 Senator Newlands. Well, suppose you should just pass it in the 
 State of West Virginia ? 
 
 Mr. Vinson. If we were to pass it in the State of West Virginia, 
 the chances are that the first time that we got an agreement there 
 that we might combine our small operations, Ave would be met by an 
 indictment from the United States court, and when we undertook 
 to plead a defense under the State statute, they would say that the 
 State had nothing to do with it, that it was interstate commerce, and 
 consequently the Sherman antitrust law was the supreme law of the 
 land. 
 
 Senator Newlands. But everything that relates to the conserva- 
 tion of the coal itself, and everything that relates to the protection 
 of employees, and the compensation for injuries could be included 
 in a State law, could it not ? 
 
 Mr. Vinson. Protection, Senator, has already been attempted, I 
 take it, by almost every State in the Union that has anything like 
 extensive coal mining. The difficulty is the laws that the States have 
 are not applicable to the differing conditions in the same States. 
 
 Senator Newlands. You say that if you came to the point of mak- 
 ing an agreement amongst operators such as is contemplated by this 
 bill you would then probably find yourself confronted by an indict- 
 ment under the Sherman Act? 
 
 Mr. Vinson. Yes, sir. 
 
 Senator Newlands. Would you not also run the chance of an in- 
 dictment under a State law ? 
 
 Mr. Vinson. No, sir ; not in West Virginia. 
 
 Senator Newlands. You have no State law on the subject ? 
 
 Mr. Vinson. We have the common law. 
 
 Senator Newlands. Would you not, then, under the common law? 
 
 Mr. Vinson. No, sir. 
 
 Senator Newlands. As I understand it, the Supreme Court has 
 declared that the Sherman law is simply a declaration of the common 
 law. 
 
 Mr. Vinson. In a certain sense, that is true. 
 
 Senator Newlands. Therefore, if the common law prevails in your 
 State, such combinations as are forbidden by the Sherman Act would 
 be forbidden by your common law ? 
 
 Mr. Vinson. Reasonable combinations are not violations at com- 
 mon law. They are not violations of law at common law. Any 
 combination was held to be legal and enforceable, even in a court of 
 equity, that was not in unreasonable restraint of trade, and this un- 
 reasonable restraint only covered such transactions as have for their 
 purpose and object the raising of prices beyond what was just and 
 fair and the creation of monopolies. Therefore, combinations at 
 common law were not only permissible but enforceable, so long as 
 they were reasonable. 
 
 Senator Newlands. Then, if such combinations as you refer to are 
 permissible at common law, are they not permissible under the Sher- 
 man law, interpreted as it has been by the Supreme Court ? Do you 
 not understand that the Supreme Court has declared that Congress, 
 in passing the Sherman law, simply intended to declare the common 
 law, and that whilst the general rule of common law was that all 
 restraint, all combinations in restraint of trade were void, vet that 
 
70 HEARINGS BEFORE 
 
 without stating them, exceptions to that rule existed, and those excep- 
 tions the Supreme Court practically gave vitality to in their de- 
 cision — do you not understand that to be the case? 
 
 Mr. Vinson. I understand, Senator, that that is the impression 
 most people have of the result of those two decisions. My own under- 
 standing is that those two decisions, when carried out and applied 
 to the practical conditions, are far from receding from what the 
 court decided in the Securities case and the Joint Traffic Associa- 
 tion case, and that was this, that any combination, whether it was 
 reasonable or unreasonable, was a violation of the Sherman antitrust 
 law. Any agreement, I mean, that lessened competition. Now, they 
 decided that in the Railroad case in the first instance. To-day thp 
 Department of. Justice has not brought suits against the railroad 
 companies for getting together and combining and agreeing and 
 fixing rates between competitive points. I suppose that the reason 
 the Department of Justice has not done that is that, as a matter of 
 fact, rates between competitive points can only be made and fixed in 
 that particular way, and yet the Supreme Cour.t has decided that 
 that is a violation of the Sherman antitrust law. So that every time 
 a rate is fixed between Chicago and New York it must be the result 
 of a conference between the representatives of the different railroads 
 operating between those points, and they agreeing upon the price 
 that the public shall pay for its transportation. That is the very 
 thing that this court has said was condemned by this Sherman anti- 
 trust law. 
 
 Senator Newlands. In what case was that? 
 
 Mr. Vinson. There are two cases, and then it was repeated in 
 the Northern Securities case. The two cases were the Trans-Missouri 
 Freight Association and the Joint Traffic Association. And then the 
 Northern Securities case was the one that spoke 1 most learnedly upon 
 the question. They said frankly, and all the judges agreed to that, 
 that Congress had" prescribed the rule of free competition without 
 limit, without restraint, or without taking into consideration any con- 
 ditions at all ; while that decision, in the line and view of what the 
 court had said before, of course, made us all believe, naturally, that 
 any combination, no matter how small or insignificant, just so it afc 
 fected interstate commerce, violated that law and made it subject to 
 its penalties. 
 
 Now, then, the practical effect, when you come to apply the deci- 
 sion of the court to existing conditions in both the Tobacco and the 
 Oil cases, it seems to me — I may be wrong — but it seems to me that 
 the practical effect of both those cases is to carry out the original 
 declaration of the court: 
 
 Senator Newlands. Then you do not take the view that the Su- 
 preme Court in its recent decision has simply declared that the Sher- 
 man law means what the common law did upon the subject and that 
 it has vitalized all the exceptions to the common law regarding com- 
 binations that were not in unreasonable restraint of trade? 
 
 Mr. Vinson. The court has unquestionably said that in its opin- 
 ion; there is no question about that. But when the court conies to 
 apply its decree and its judgment to the case before it, it is on the 
 basis, and they are enjoined — all these subsidiary companies are en- 
 joined — that they must go on into real, actual competition one with 
 (he other. 
 
COMMITTEE ON INTERSTATE COMMEECE. 71 
 
 Senator Newlands. But, as I understand it, the Supreme Court in 
 the Tobacco case and in the Standard Oil case was simply rendering 
 the judgment that would be rendered in an English court of common 
 law under similar circumstances, was it not? 
 Mr. Vinson. I understand that. 
 
 Senator Newlands. Therefore its action in this case is entirely 
 consistent with its declaration, is it not, that the Sherman law is 
 simply declaratory of the common law? 
 
 Mr. Vinson. I do not think so. I think that the application of 
 the court's decree, its injunction, goes to the point of not only pre- 
 serving, but protecting and requiring absolute and enforced competi- 
 tion. I understand that is the effect of the decree. 
 
 Senator Newlands. The purpose of my inquiry — I shall not carry 
 it any further — is to draw your mind to the question as to whether 
 the States themselves can not cover a great deal of this ground; 
 whether the wisest course to pursue is not to have the States legislate 
 regarding State commerce and have the Nation legislate regarding 
 interstate commerce, and then to bring the regulating tribunals of 
 each sovereignty into cooperation through mutual conference, instead 
 of absolutely merging all the powers of the State, police powers and 
 other powers, in the powers of the United States through the exercise 
 of the interstate-commerce power, and thus practically permitting the 
 National Government to absorb all the functions of the State with 
 reference to these vast businesses and occupations which cover almost 
 every field of effort. 
 
 I do not care to pursue the matter any further. 
 
 The Chairman. Do you desire to answer that? 
 
 Mr. Vinson. Well, I can only say, Senator, that that particular 
 phase of this whole question is comparatively new to me, and I am 
 sorry that I did not get the benefit of your suggestions or statements 
 before along that line. I can say, generally speaking, that I have 
 come to this conclusion — I may be Wrong, about it ; I do not mean to 
 say that I am — but it seems to me that modern industry and commerce 
 of this country must, to a certain extent, and I may say very largely, 
 really obliterate State lines. 
 
 Senator Cummins. I would like to keep history a little straight, if 
 possible, because we are really discussing the whole matter now. 
 Senator Newlands has asked the witness if the Supreme Court has 
 not declared that the antitrust law was simply declaratory of the 
 common law. I understand the Supreme Court has said that the 
 antitrust law, construed as it now construes it, is declaratory of the 
 common law, That is to say, if I may put this in the form of a 
 question, at the common law a contract or agreement in unreasonable 
 restraint of trade was invalid ; it was not, however, criminal. 
 
 Mr. Vinson. That is right, Senator. 
 
 Senator Cummins. Nor could the Government at common law take 
 any steps toward absolving or setting aside such an agreement. 
 
 Mr. Vinson. The parties could not specifically enforce it. 
 
 Senator Cummins. What the Supreme Court means, therefore, 
 when it says it is declaratory of the common law, is that a contract 
 at the common law in unreasonable restraint of trade could not be 
 enforced by either of the parties to it in any court; but that does 
 not mean that at the same operation at the common law or under the 
 
72 HEARINGS BEFORE 
 
 common law that it is under the antitrust law, which makes what 
 was then invalid a crime. You perceive that difference, of course. 
 I think that is the whole distinction — that the antitrust law gives 
 to the Government the power to bring its suit to enjoin these agree- 
 ments that are in unreasonable restraint of trade. No such power 
 existed at common law. Therefore it does not help us very much 
 simply to have the Supreme Court to say that the present anti- 
 trust law was found in the common law. I want to have the record 
 show that difference that I perceive between the antitrust law and 
 the common law on this subject. 
 
 Mr. Vinson. As you state, Senator, I understand it to be that way. 
 That is my opinion, my own judgment, my understanding of the 
 common law. 
 
 The Chairman. Has any other Senator any questions to ask? If 
 not, Mr. Vinson will be excused. 
 
 (The bill and brief submitted by Mr. Vinson are as follows:) 
 
 Be it enacted by the Senate and House of Representatives of the United 
 States of America in Congress assembled: 
 
 Section 1. That the provisions of this act shall apply to all persons, firms, 
 and corporations engaged in the business of mining coal and selling the same 
 for shipment into States and Territories and foreign countries other than such 
 States and Territories wherein said coal is mined. 
 
 Sec. 2. That a commission is hereby created and established, to be known as 
 United States Mining Commission, which shall be composed of five commis- 
 sioners skilled in the business of mining and selling coal, to be appointed by 
 the President, with the advice and consent of the Senate. 
 
 The commissioners first appointed under this act shall continue in office for 
 the term of four, five, six, seven, and eight years, respectively, from the first 
 day of June, nineteen hundred and twelve, the term of each to be designated 
 by the President, but their successors shall be appointed for terms of eight 
 years, except that any person chosen to fill a vacancy shall be appointed only 
 for the unexpired term of the commissioner whom he shall succeed. Any com- 
 missioner may be removed by the President for inefficiency, neglect of duty, or 
 malfeasance in office. Not more than three of the commissioners shall be ap- 
 pointed from the same political party. Said commissioners shall not engage in 
 any other business, vocation, or employment. No vacation in the commission 
 shall impair the right of the remaining commissioners to exercise all the powers 
 of the commission. 
 
 The commission is hereby authorized and required to execute and enforce 
 the provisions of this act. And upon the request of the commission it shall be 
 the duty of any district attorney of the United States to whom the commission 
 may apply to institute in the proper court and to prosecute under the direction 
 of the Attorney General of the United States all necessary proceedings for the 
 enforcement of the provisions of this act ; and the costs and expenses of such 
 prosecution shall be paid out of the funds hereinafter provided for. And for 
 the purposes of this act the commission shall have power to require by sub- 
 poena the attendance and testimony of witnesses and the production of all books, 
 papers, contracts, agreements, and documents relating to any matter which said 
 commission may have under investigation. Such attendance of witnesses and 
 the production of such documentary evidence mny be required from any place 
 in the United States at any designated place of hearing. And in case of dis- 
 obedience to a subpoena the commission or any party to a proceeding before 
 the commission may invoke the aid of any court of the United States in requir- 
 ing the attendance and testimony of witnesses and the production of books, 
 papers, and documents under the provisions hereof. 
 
 And any district court of the United States within the jurisdiction of which 
 such inquiry is carried on may, in case of contumacy or refusal to obey a sub- 
 poena issued under the provisions of this act, issue an order requiring such 
 person or company to appear before said commission and produce books and 
 papers, if so ordered, and give evidence touching the matter in question ; and 
 any failure to obey such order of the court may be punished by such court as 
 a contempt thereof. The claim that any such testimony or evidence may tend 
 
COMMITTEE ON INTERSTATE COMMERCE. 73 
 
 to criminate the person giving such evidence shall not excuse such witness from 
 testifying; but such evidence or testimony shall not be used against such per- 
 son on the trial of any criminal proceeding. The commission may take any 
 testimony in open session, or order testimony to be taken by deposition, in 
 any proceeding or investigation pending before it. Such depositions may be 
 taken under such rules and regulations as the commission may prescribe. Rea- 
 sonable notice, however, must be given to parties interested of the time and 
 place of taking said evidence or said testimony. Any person may be compelled 
 to appear and depose and produce documentary evidence in the same manner as 
 witnesses may be compelled to appear and testify and produce documentary 
 evidence before the commission. 
 
 Every person deposing as herein provided shall be sworn (or affirm if he so 
 requires) to testify the whole truth. His testimony shall be reduced to writing 
 by the officer taking the deposition, or under his direction, and shall, after it has 
 been reduced to writing, be subscribed by the deponent, unless the deponent's 
 signature be waived. 
 
 Witnesses whose depositions are taken pursuant to this act and the official 
 taking of the same shall severally be entitled to the same fees as are paid for 
 like services in the courts of the United States. 
 
 Sec. 3. That the commission shall prescribe such rules and regulations for 
 the enforcement of this act, and all the provisions thereof, as in its judgment 
 are expedient. A majority of the commission shall constitute a quorum for 
 the transaction of business, but no commissioner shall participate in any hear- 
 ing or matter in which he lias any pecuniary interest. Said commission may 
 from time to time make or amend such general rules or orders as may be 
 requisite for the regulation of the matters coming before c it. 
 
 Every vote and official act of the commission shall be entered of record. 
 Said commission shall have an official seal, which shall be judicially noticed. 
 Either of the members of the commission may administer oaths and affirma- 
 tions and sign subpcenaes. 
 
 Sec. 4. That each commissioner shall receive an annual salary of ten thou- 
 sand dollars, payable monthly. 
 
 The commission shall appoint a secretary and treasurer and such other attor- 
 neys, agents, representatives, and employees as may be necessary for the proper 
 enforcement of this act; and the said commission shall fix a compensation for 
 each and all of said employees, which shall be paid monthly. 
 
 Until otherwise provided by law the commission may hire suitable offices for 
 its use and shall have authority to procure all necessary office supplies. 
 
 Witnesses summoned before the commission shall be paid the same fees and 
 mileage that are paid witnesses in the courts of the United States. 
 
 The general offices of the commission shall be located in the city of Washing- 
 ton ; but the commission may provide offices and establish stations at other 
 places whenever the same shall expedite the business of said commission. 
 
 All salaries and expenses of the commission, its attorneys, agents, and em- 
 ployees shall be paid by the treasurer upon orders from the commission. 
 
 Sec. 5. That the commission shall, on or before the first day of DecemDer in 
 each year, make a report, which shall be transmitted to Congress, and copies of 
 which shall be distributed as are other reports transmitted to Congress. This 
 report shall contain such information and data collected by the commission as 
 may be considered of value in the distribution of qu> stions arising under the 
 provisions of this act, together with such recommendations as to additional 
 legislation relating thereto and as the commission may deem necessary, and the 
 names and compensation of the persons employed by said commission, as well as 
 a statement showing the sums of money paid to the commission and the diburse- 
 ment thereof, and the sums of money paid into the miners' relief fund and the 
 disbursement thereof. 
 
 TRADE AGREEMENTS. 
 
 Sec 6. The commission is hereby authorized and directed to sanction trade 
 agreements between competitors engaged in interstate trade or commerce pro- 
 viding for a joint selling or purchasing agency, or to supply each other with 
 any of the means or methods of carrying on their business, or for the purchase 
 or sale of their plants, or parts thereof, or property used in conducting 
 their business, whenever in the judgment of such commission such trade agree- 
 ments will not unreasonable restrict or limit competition, nor raise prices be- 
 yond what may be justified by the supply and demand, nor authorize competitors 
 
74 
 
 HEARINGS BEFORE 
 
 making such trade agreements to engage in unfair methods of competition 
 against other competitors not parties thereto. A joint application shall be pre- 
 sented to the commission filing therewith a copy of the proposed agreement 
 signed by all the parties thereto. The form and requirements of such applica- 
 tion shall be prescribed by the commission. Upon such application the com- 
 mission shall make such investigation and hear such evidence as they may 
 deem pertinent and shall approve said agreement unless it shall appear to them 
 from the facts submitted that said agreement will result in an unreasonable 
 restraint of interstate trade and commerce, or otherwise violate the provisions 
 of this act. When the commission approves any such agreement the same shall 
 be deemed a lawful contract or agreement in any court of the United States. 
 
 Sec. 7. The commission is hereby authorized and directed to prescribe and 
 enforce rules and regulations to secure the safety and health of the employees 
 engaged in and about coal mines, and also rules and regulations to prevent 
 waste and conserve unmiued coal and all the provisions of law now existing 
 for the investigation of mine explosions created by act of Congress on the — — 
 
 day of , nineteen hundred and , and shall be under the jurisdiction of 
 
 and enforced by the commission. 
 
 Sec. 8. The commission shall require each owner or operator of a mine sub- 
 ject to the provisions of this act to file a report with the commission on or 
 before the fifteenth day of each month showing the quantity of coal mined 
 the preceding month, as well as requiring a report of all accidents of every 
 character to be made immediately after such accident has occurred. Such 
 reports shall be made in the manner and upon blanks or forms to be prescribed 
 and furnished by the commission and to be verified by the person directed to 
 make such report. 
 
 BELIEF FUND. 
 
 Sec. 9. Every owner and operator of a mine shall pay to the treasurer of 
 the commission one cent per ton on all the coal so mined, and one per centum 
 to be deducted from the pay roll of all its employees. The sum so collected 
 shall be a miners' relief fund, and at all times under the direction and control 
 of the commission. 
 
 Whenever any person while employed by any such owner or operator in and 
 about his mines shall be injured from any cause* the commission shall cause 
 an investigation to be made of the extent and permanency of said injury, and 
 shall pay to the person so injured, out of the miners' relief fund, such sum as 
 will be a reasonable compensation for such injury. If the injury results in 
 death, then the commission shall pay such sum out of the miners' relief fund 
 as will be a reasonable compensation therefor, to the widow if there be one, 
 and if no widow survives, then to the personal representative of such deceased 
 person. The payments herein provided shall in no case exceed five thousand 
 dollars. The payments to be made under the provisions of this section shall 
 be in such sums and at such times as the commission may determine in each 
 case. 
 
 No person injured, nor the widow, heirs, or personal representatives of a 
 person killed, while employed in and around a mining operation, shall bring or 
 maintain any action or suit for damages, by reason of such injury or deaths 
 against any owner or operator of such mine: 
 
 The provisions of this section shall be carried out and enforced by appro- 
 priate rules and regulations to be prescribed by the commission. 
 
 Sec. 10. The commission is authorized to issue any lawful orders that may 
 be necessary to enable them to properly perform their duty under the pro- 
 visions of this act, and may enforce obedience to such orders by mandamus 
 injunction, or other appropriate writ, by a proceeding instituted in the name 
 of the commission in any court of the United States having jurisdiction of the 
 parties. 
 
 CONDITION OF BITUMINOUS-COAL TRADE. 
 
 The bituminous-coal trade is in such a deplorable condition as a whole that 
 unless immediate relief is given disaster and great loss are sure to follow. 
 Competition has driven this commodity into the markets at ruinous prices, re- 
 sulting in a total net .loss for the year 1910 of more than $17,000,000. West Vir- 
 ginia sold her coal last year for 95 cents per ton, composed of the very highest 
 grade of coal that goes to market. The average sale price through the whole 
 
COMMITTEE ON INTERSTATE COMMERCE. 75 
 
 country for 1910 was $1.11 per ton. The actual cost of producing this coal was 
 $1.07 per ton, excluding interest and depreciation for the coal mined and ex- 
 hausted. The item of depreciation will amount to 4 cents per ton, while the 
 interest on the investment of $585,000,000 is $35,100,000, at 6 per cent. The sell- 
 ing price of coal has remained stationary for the last six years, being $1.10 in 
 1904 and $1.11 in 1910, with an extreme fluctuation of only 8 cents, while the 
 cost of producing the coal has increased 9 cents a ton during that period. 
 
 The mines are only operated about 200 working days in a year, owing to then- 
 capacity being fully 50 per cent more than the consumption. This excess 
 capacity has been largely brought about in recent years by the construction of 
 very large individual plants equipped with the latest and best ipplianc^s for 
 producing the greatest quantity with the least cost. For many reasons these 
 newer mines can mine and sell their coal much cheaper than the older ones, and 
 it is the mines that have been in operation for some time that are the greatest 
 sufferers. It may be asked why is it that the mines losing money do not stop 
 and cease their operations like any other business when it is running at a loss, 
 and then start up again when conditions are such that they could reasonably 
 expect to make some profit? There are several answers to this question: 
 (1) In all leases the operator is required to pay a minimum royalty of $5 to $8 
 per acre, whether he mines coal or not; (2) no property will decay and dis- 
 integrate so rapidly as an unused coal plant; (3) the fixed charges of taxes 
 and interest must be paid at all events; and (4) in many cases ,the accumula- 
 tions of water in the mine must he kept constantly pumped out. disbanding a 
 working organization when oncfe established is a serious detriment and requires 
 many months to build it up again. Considering these inevitable losses when 
 the mine stops entirely, the operator is confronted with the problem of whether 
 he will lose less money by, running than by closing down. This situation has 
 existed for sach a length of time that the operator has about reached the limit 
 of his loses, no matter whether he closes his plant or tries to keep it alive. 
 
 The consumers of bituminous coal in the United States pay less for their fuel 
 than in any .other country in the world. The other branches of industry in this 
 country have been profiting at the expense of the bituminous-coal business, an,* 
 the only possible way that this industry can protect itself from ruin is by com- 
 bination, and itliey dare not combine as long as the antitrust law hangs over 
 them with its threats to prosecute them criminally and dissolve their organiza- 
 tion if they do combine. 
 
 You will probably find that the bituniinous-coal trade is the best concrete 
 example of one of the country's great industries being completely .demoralized 
 by the operation of the antitrust law. It will require but little investigation 
 at your hands to convince you beyond a doubt that a very large majority of 
 the companies engaged in coal mining have not only worked without profits 
 for the last three or four years, but have actually operated their mines at a 
 net loss. The competition between all the coal-produciug concerns has been so 
 acute that the larger concerns are surely driving their smaller adversaries into 
 bankruptcy by reason of greater economies both in producing and selling then- 
 output. A company mining two or three million tons per annum has a tre- 
 mendous advantage over its competitor producing only 100.000 tons. The large 
 concern possesses the financial ability to — 
 
 (1) Purchase and install the most modern machinery and labor-saving 
 devices ; , 
 
 (2) It generates its own power at the lowest possible cost per ton, and 
 
 (3) Its auditing department and clerical force is not as expensive per ton 
 of coal mined; 
 
 (4) It often owns its own cars, and 
 
 (5) Has its own selling agency, and 
 
 (6) Owns boats, barges, docks, elevators, depots, and storage grounds, 
 (71 It eliminates the middleman, his expenses and profits; 
 
 (8) It can readily secure contracts from large consumers at better prices 
 hv reason of its ability to fill such contracts whenever required ; and 
 
 (9Tlt has the ability to store its slack coal and hold it for a favorable 
 
 m Thfiaree companv will ourchase and own in fee thirty or forty thousand 
 nc-ris of coallands and open its mines only after the pl.ns of the most sc.en- 
 Jific engineering have been matured. Having the timber on its own property, 
 I cU Sruct and maintain its houses, tipples, and mine cars at the mm.- 
 mum of cost Having to pay no royalties on leases, there is no fixed charge 
 h™it is compelled to meet On the other hand, the smal operator takes a 
 
76 HEARINGS BEFORE 
 
 lease on eight hundred or a thousand acres, for which he has to pay a quarterly 
 minimum royalty, whether he mines n pot nd of coal or not, and this sum is 
 a lien upon his entire plant, and can be enforced by a distress warrant in the 
 same manner that a landlord collects his rent. In this construction and 
 maintenance of his houses, tipples, and mine cars he purchases his lumber at 
 retail prices, paying a heavy freight rate for its delivery. In the purchase of 
 store supplies and machinery, the larger concern has a material advantage in 
 prices, because of the greater quantity consumed. 
 
 All the foregoing enumerated economies are denied the small producer, be- 
 cause of his lack of capital to equip his plant so that he can produce and sell 
 on an equality with his stronger rival. These combined economies enable the 
 large producer to deliver his coal to the consumer at a cost of 10 to 15 cents 
 per ton less than it is possible for the small concern to do. This margin of 
 advantage is sufficient to crush out the small mines, and the general depression 
 of business in the last two years has forced the little mines to sell their coal 
 at a great sacrifice and personal loss. 
 
 In the year 1910 niDe companies produced 18,000,000 tons of coal in West 
 Virginia, while in the same year 3;!5 companies produced only 18,760,000 tons, 
 or an average of 56,000 tons to the company, while the big concerns averaged 
 2,000,000 tons each. It must be borne in mind that each of the 335 companies 
 must maintain a separate and distinct organization both in the production and the 
 marketing of its coal and that everyone of them is not only in competition with 
 the big producer, but with each other and with coals mined in other States. 
 These smaller concerns are trying to obey the law and keep up this destructive 
 and hopeless competition, for they are told that if they combine in order to 
 reduce expenses that they are violating the law and committing a penitentiary 
 offense; that if they attempt to save their investment by selling their property 
 to larger concerns that their contracts are void, and would at least subject the 
 purchaser to a prison sentence, as well as subject his organization to dissolu- 
 tion suits instituted by the Government. 
 
 If these operators continue to obey the law in the future as they have in the 
 past, or if the antitrust act is enforced against them, there is no other alterna- 
 tive than ruin to their business and destruction of their property. When you 
 consider that obedience to this law by the small producer spells bankruptcy, 
 it would seem that every member of Congress should aspire to be the first to 
 propose remedial legislation rather than see the small business man eliminated 
 by a statute whose original purpose was meant for his protection and not for 
 his destruction. 
 
 The industry of bituminous-coal mining is just as important to the general 
 welfare of our people as the business of agriculture. Coal is the source of 
 95 per cent of all power, and it is the basic material upon which our transpor- 
 tation ami manufacturing industries are constructed. It is the handmaiden 
 of agriculture, for that industry could not prosper without machinery and 
 implements that may only be produced by the use of coal. The protection of 
 the men engaged in this pursuit should be the prime concern of this Govern- 
 ment, because coal supplies more of the wants of civilized people than any 
 other one commodity known to commerce. The company that mines the coal is 
 just as much entitled to make a reasonable profit on its investment as the 
 carrier that hauls it to market. The law says that the carriers are entitled 
 to a fair profit for the services they render, and that neither this Congress 
 nor the State legislatures have any power to deprive them of it. In order that 
 the carriers may receive a profit, they are permitted without restraint or 
 question to confer together and agree among themselves, in the first instance, 
 as to the price they will charge the public for transportation. While this 
 method of fixing rates is a direct and positive violation of the antitrust act, 
 and expressly held to be so by the Supreme Court, yet it is permitted, because 
 it is a necessity, for rates can not be fixed in any possible way without break- 
 ing this law. In other words,- every carrier in this country is compelled to 
 violate this law before they can do business and perform their legitimate 
 functions as common carriers. Witb carriers it is disobedience or receiver- 
 ships : with the coal men disobedience means a prison ; obedience, ruin. 
 
 If any Senator or Representative desires to know just how the antitrust act 
 is applied to our transportation systems and the effect it would have if enforced 
 against them, let your committees call a representative of the Department of 
 Justice and hear his statement, and he will convince you of two things: (1) 
 That the antitrust act can not be enforced against the carriers so as to prevent 
 them from making an agreement about fixing rates without introducing inter- 
 
COMMITTEE ON INTERSTATE COMMERCE. 77 
 
 minable confusion in our transportation, resulting in great losses both to shipper 
 ana carrier and (2) he will advise you that the jurisdiction of the Interstate 
 Commerce Commission over the shipper and carrier is such that it can and does 
 protect the shipper against unjust charges and undue preferences and also it 
 saves the carrier from an unreasonable demand for rates so low that thev 
 would be unprofitable. 
 
 This last suggestion, if followed up and applied to other fields of endeavor, 
 will furnish the best solution of the economic problems with which this Gov- 
 ernment has now to deal. In other words, industrial commissions vested with 
 sufficient power and authority to perform their functions is the safest tribunal 
 to which all these questions in their practical application may be referred for 
 settlement and adjustment. 
 
 With this conviction confirmed through considerable experience in the coal 
 business, I have prepared for your consideration the outlines of a bill creating 
 a mining commission and vesting it with certain powers and duties. The scope 
 of authority to be exercised by the commission would be a general supervision 
 over the coal-mining industry of the United States, involving the power to regu- 
 late that industry in the following particulars, viz : 
 
 POWER OF THE COMMISSION. 
 
 I. To inaugurate and have carried out as perfect a system as may be of con- 
 servation in mining and for the prevention of waste. 
 
 II. To prescribe and enforce rules and regulations to secure the safety of the 
 miner, the prevention of accidents, and the preservation of his health. 
 
 III. To administer a system of workmen's compensation provided for in 
 the bill. 
 
 IV. To pass upon and approve reasonable trade agreements between com- 
 petitors, which would restrain and limit competition within certain bounds 
 mentioned in the bill. 
 
 I. 
 
 CONSERVATION. 
 
 It is estimated by competent authority that fully 30 per cent of the coal in 
 the average mine is wasted ; that only 70 per cent of this coal bed is recovered, 
 and the residue is left in the mine where it must remain a total loss. This 
 loss of unmined coal is due to many causes, the principal of which, however, is 
 the increased cost of mining owing to local conditions. When it is considered 
 that acute competition is operating continuously to compel the small operator 
 particularly to first take out his coal that can be mined cheapest, it will 
 become evident that he will not do the more expensive mining where he must sell 
 at a considerable loss. Squeezes and faults that frequently appear are let alone 
 and avoided as long as more favorable conditions are found in other parts of 
 the mine, and the chances are that the coal affected by these squeezes and 
 faults will never be mined and will finally be abandoned. A great deal of coal 
 is lost by the unscientific method of drawing pillars and robbing the mine. 
 Much is left in the cleansing process where the merchantable coal is attempted 
 to be separated from the slate and impurities that adhere to it in the mining. 
 
 The commission by proper rules and regulations could prevent this waste 
 of unmined coal, and require practically all of it to be recovered before the 
 mine is abandoned as exhausted. Such a system could be inaugurated that 
 would secure a conservation of one of the great natural resources that would 
 be practical and efficient. It would be real conservation, and not conversation 
 subserving a purpose to exploit fads and fancies. It is a tremendous economic 
 waste to withdraw from the commerce of the country more than one-fourth of 
 its fuel supply. When we realize that coal deposits can not be reproduced, 
 as they do not vegetate like annual crops, but when lost they are gone forever, 
 the necessity for utilizing the whole of these deposits becomes at once imperative. 
 
 II. 
 
 Owing to the many and appalling disasters that occur to coal miners, the ques- 
 tion of how best to prevent these accidents is and has been a matter for the most 
 serious consideration not only of the men directly affected but of the public at 
 large. In the last nine years 20,000 men have been killed in coal mines and 
 over 50,000 seriously \njured in the United States. For every thousand em- 
 
78 HEAEISGS BEFORE 
 
 ployed there have been ii deaths and 10 .serious injuries, and every million 
 tons of coal mined has cost 5i lives as a result of accidents and 13 badly in- 
 jured. The last year (1909) for which we have complete statistics exacted the 
 lives of 2,412 men and 8,000 were injured. Such a destruction of human life 
 and energy ought to be a sufficient justification to warrant legislators going to 
 almost any length to minimize this evil. The States have passed the most 
 stringent laws to prevent these accidents, but they have all failed to accom- 
 plish the purpose intended, largely due, I think, to attempts made to apply 
 State requirements indiscriminately to all the mines in the State. State laws, 
 for instance, requiring a certain quantity of air to be propelled every 'minute 
 through the mine would give the greatest measure of protection in one mine, 
 but would be wholly inadequate when applied to another mine in the same 
 vicinity, while still in other mines the same quantity of air would largely in- 
 crease the danger instead of lessening it. Rules or regulations for the preven- 
 tion of accidents must be so flexible that they can be modified to suit the pe- 
 culiar conditions obtaining in each individual mine. Whether air or moisture, 
 or both, and the quantities to be used, must be determined by the local condi- 
 tions of each mine after ascertaining if the mine is gaseous or subject to accu- 
 mulations of coal dust or subject to explosions from both these causes. A 
 study and knowledge of all these conditions for every mine is essential before 
 shot firing can be properly regulated so as to minimize the chances of mine ex- 
 plosions. Some mines are very dry and subject to coal-dust explosions ; others 
 are wet and little danger is to be feared from dust explosions; others are 
 gaseous and some are free from gas. An almost infinite variety of dangers 
 are to be found, taking a State like West Virginia as a whole, while very few 
 of the individual mines possess identically the same elements of danger in the 
 same degree. It is very evident to even the most casual observer that the en- 
 forcement of general rules throughout the whole State will hasten explosions 
 in some cases while preventing them in others. A central board or commission 
 of experts, presided over by a man like Dr. Holmes, with power to prescribe 
 rules that will fit the conditions of each mine, and with power to create, change, 
 or modify such rules according to the different characteristics in each mine, is 
 in the very nature of things the best remedy that legislation can give. 
 
 The prevention of mine explosions is a scientific problem. No adequate 
 means of prevention can be installed until the expert observes, studies, and 
 knows the kind and character of dangers that lurk in each mine. Blame is 
 often laid upon the ignorance or negligence of the miner. But before any 
 miner, however ignorant or negligent, can produce an explosion there must be 
 present in the mine some combustible and explosive substance like gas or coal 
 dust. The explosions caused by ignorance are very few. indeed, for, generally 
 speaking, a new man is taught how to prepare and set off shots before he is 
 permitted to undertake it. Forgetfulness on the part of the experienced miner 
 is generally the cause that starts the explosion. No human forethought can 
 guard against forgetfulness, for it is a defect often found in the ablest minds 
 of the country, and comes to all sooner or later. In some States penal statutes 
 have been passed punishing the miners, and these statutes are being enforced 
 without avoiding the evil. The use of powder and explosives in raining coal, 
 ] think, may be entirely done away with by the use of wedges, with which to 
 pry down the coal instead of blasting, the method now generally in use. But as 
 the wedge method would, perhaps, at first add something to the cost it would 
 have to be adopted in all the States at the same time, owing to competition for 
 markets. A national commission could require the adoption of the wedge 
 method in all the States without changing the relative cost of production. 
 Such a commission, in addition to its efforts to prevent accidents and explo- 
 sions, could also require the mines to be kept in proper sanitary condition, 
 which has a very great influence on the health of the men working in the mines. 
 
 PROTECTION TO HEALTH AND SAFETY OF MINERS. 
 
 To all who believe that it is just as important that the health and safety of 
 miners should be safeguarded as it is to compensate him for injuries received 
 this plan should commend itself, because — • 
 
 (1) The commission would be composed of men who know all the conditions 
 surrounding the mining industry, and to them would be given power and au- 
 thority to compel the owner to keep his mine in the best possible (a) sanitary 
 condition and to use (6) all the known appliances and methods for the preven- 
 tion of accidents. 
 
COMMITTEE ON INTERSTATE COMMERCE. 79 
 
 nJif * , The rllles ,. a 1 1) d regulations that such a commission would prescribe, in 
 r^,U- acc ^P Ush J?<: se «*». would be much more effective than any law or 
 regulations that a State legislature could prescribe. By the constant super- 
 vision and inspection by a commission so composed, mines would be placed in 
 the highest possible state of sanitation and accidents would be reduced to the 
 lowest possible minimum. 
 
 (3) The performance of these duties would not be influenced by political 
 considerations, but the commission would always strive to execute its functions 
 in such manner as to attain the best possible results. 
 
 ADVANTAGE OVER STATE LAWS. 
 
 State uniformity of laws providing for the health and safety of the miner 
 and making compensation to him for injuries received can not be hoped for 
 And without such uniformity the principle of competition can not be maintained 
 The Legislature of West Virginia could not be expected to place burdens upon 
 her mine owners in the treatment of their operatives that would lessen their 
 ability to produce and sell coal in competition with the coal produced in other 
 States. But if healthy competition is to be maintained between the coal- 
 producing districts of the various States for markets it is absolutely necessary 
 that all schemes for the protection of the miner's life and health and to provide 
 compensation for injuries must be uniform and controlled and directed by one 
 central regulating body. In the very nature of things this can only be done by 
 national legislation. 
 
 If the mine owners in Pennsylvania are made by statute to bear all the loss 
 occasioned by accidents to workmen and are required to pay full compensa- 
 tion for such injuries, while in West Virginia, where the common law prevails, 
 all such losses fall exclusively upon the employee, it would be a tremendous 
 handicap on Pennsylvania operators in meeting West Virginia competition 
 where their coals go to the same market. Such a difference in the cost of 
 production would ultimately drive the Pennsylvania operators out of all the 
 competitive markets. 
 
 BASIS OF EMPLOYEES' COMPENSATION FUND. 
 
 The basis upon which this proposition rests is a compulsory cooperative 
 relief fund. This fund is provided by a compulsory contribution exacted from 
 both employer and employees. It is made up by requiring the employer to pay 
 1 cent per ton on all bituminous coal mined and 2 cents per ton on anthracite, 
 and a' deduction from the pay roll of 1 per cent of the wages and salaries of all 
 employees. The sums so raised will be paid into the treasury of the commis- 
 sion by the mine owner. 
 
 ADVANTAGES OF THE PLAN. 
 
 This plan has peculiar advantages over the English scheme of employers' 
 liability or the German system of compulsory insurance and should commend 
 itself to both employer and employee. 
 
 To the employee because — 
 
 (1 ) His compensation for injuries received is certain and can not be defeated, 
 no matter who or what agency caused the accident. 
 
 (2) The payment of the compensation will begin immediately after the acci- 
 dent occurs and will continue until full, complete compensation has been meted 
 out to him. 
 
 (3) The payment will be made to the full extent of the injury without the 
 aid of lawyers or any trial or court proceedings whatever. 
 
 (4) The payments will be certain, as the fund will be provided for that pur- 
 pose, and no insolvency or bankruptcy of employers can defeat it. 
 
 (5) The contributions per man will be so small, (50 cents per month) that 
 it could not be a burden nor to any appreciable extent lessen his income. 
 
 (6) It would eliminate all feeling of hostility between employee and employer 
 which is always engendered in suits for personal injuries, and he could return 
 to his work as soon as he is recovered. 
 
 (7) In case of his death or permanent disability the employee would have 
 the satisfaction of knowing that his wife and children would be amply provided 
 for and would not be in want. 
 
 22S77— vol 1—12 6 
 
80 HEARINGS BEFOEE 
 
 (8) The amount of the compensation would be fixed by an impartial tribunal 
 according to the extent of the injury, without any reason or inducement to do 
 aught but give him a reasonable and fair compensation lur the injury inflicted. 
 
 The employer would be benefited because — 
 
 (1) It would relieve him from all suits and damages for personal injuries 
 suffered by his employees. 
 
 (2) The amount paid by him would be an extremely small sum to pay for 
 complete indemnity against losses, law suits and damages, for personal injuries 
 suffered by those engaged in such a hazardous occupation. 
 
 (3) The expense in defending personal injury suits, and the payment of 
 Judgments recovered, and in settlement of claims, would amount in the long 
 run to much more than 1 cent per ton on the coal mined. 
 
 (4) If his mine is located in States that have passed employers' liability acts, 
 and all the States will, in the near future, have such statutes unless a better 
 method is provided, an explosion would bankrupt his enterprise by taking all 
 its property to pay the losses occasioned by death and injuries. 
 
 (5) If all the mines in the country are subject to the proposed act — as they 
 would be under an act of Congress — the contributions required to raise the 
 relief fund could be counted in as part of the cost of production and the ulti- 
 mate consumer be made to pay it, thereby relieving both employee and em- 
 ployer from paying out of their earnings any part of the money that goes into 
 the relief fund. The employee's wages could be increased sufficiently to cover 
 his contributions, and, with the 1 cent per ton contributed by the owner, could 
 be added to the selling price of the coal. 
 
 It is neither just nor humane to have all the losses occasioned by industrial 
 accidents fall mainly upon (a) the employees, as at present and in the past, 
 nor (6) upon the individual employer as is suggested by some in advocating 
 employers' liability statutes after the English system. 
 
 But the true principle should be to make the industry bear the loss in the 
 first instance by requiring an immediate and fixed contribution from all per- 
 sons interested, so that the fund will always be available, and, whatever these 
 contributions amount to, should be refunded to all parties by adding it to the 
 selling price. 
 
 employees' liability system. 
 
 The principal objections to the system of employers' liability acts are: 
 
 (1) The loss falls on the individual employer and makes him l'espond in 
 damages for accidents caused without any neglect or fault of his whatever. 
 
 (2) The individual employer can not include these losses in the cost of pro- 
 duction and add it to his selling price, for such losses are never uniform in 
 the various plants devoted to the manufacture of the same commodities. 
 
 (3) The compensation can only be collected after long and expensive liti- 
 gation. 
 
 (4) The expense and delay of litigating claims for damages for personal 
 injuries is a very great economic waste. All the money paid out in such 
 litigation is thrown away, and the time it takes is that much time lost. Every- 
 one engaged in such trials, the judges, juries, court officials, attorneys, wit- 
 nesses, and parties, lose the time while engaged in the trial as well as the ex- 
 pense and time necessary to prepare for the trial. If the money actually spent 
 iin preparation, trial, and payment of judgments were added to the money value 
 ®f the time spent by each person so engaged, it would p-aount to more than the 
 eompulsory contributions herein suggested. 
 
 (5) Such controversies between employer and employee always engender a 
 feeling of hostility between them to such an extent that subornation of wit- 
 nesses too frequently results, and the verdicts of juries are either too high or 
 too low to be just. 
 
 (6) Under liability acts the employer feels that he is the victim of a passion 
 or prejudice entertained by legislators against him and his business to such an 
 extent that he is dissuaded -from eKtending his industrial efforts. 
 
 THE INSURANCE PLAN. 
 
 The insurance plan has sought to give compensation to injured working men 
 by inaugurating a system of compulsory insurance. The objections to this sys- 
 tem are: 
 
 (1) That it costs too much to execute it. It is shown by the reports that, 
 the injured workman only receives about 40 per cent of the fund required to 
 secure the insurance. The other 60 per cent is expended in paying the cost and 
 expense and profits for writing the insurance. 
 
( COMMITTEE ON INTERSTATE COMMERCE. 81 
 
 (2) The delays in making settlement with the insurance adjuster, sometimes 
 resorting to court proceedings, operates a severe hardship on the injured 
 
 (3) Contrasting the German system with the one herein proposed, if an in- 
 surance fund of $8,000,000 was provided, the best that the German employees 
 could get would be $3,200,000, while $4,800,000 would go to pay the expense 
 and profits of writing and securing the insurance. Whereas, under the plan 
 proposed, the injured employees in mining industries in the United States would 
 receive the whole sum of $S,000.000 after paying a small sum for actual medical 
 attendance. 
 
 PAYMENT OF BENEFITS. 
 
 (1) The amount of the payment should always be a reasonable compensation 
 to be measured by the extent and duration of the injury. 
 
 (2) During inability to work the payments should equal the full wages re- 
 ceived immediately prior to the accident, in addition to hospital and medical 
 attention. 
 
 (3) If death, total or partial disability ensue, the compensation should be 
 paid at such times and in such sums and manner as the commission may 
 determine. 
 
 SCOPE OF THE LEGISLATION PROPOSED. 
 
 First. To provide by national legislation a certain speedy and adequate com- 
 pensation for all persons injured while engaged in and about the business of 
 mining and shipping coal without regard to the cause of the injury. 
 
 Second. To provide and enforce rules and regulations for the mining of coal 
 that will best protect the lives and health of all persons engaged in that 
 industry. 
 
 Third. To prescribe and enforce rules and regulations for the proper mining 
 of coal, so as to prevent unnecessary waste and conserve this great natural 
 resource as far as practicable. 
 
 Fourth. To provide a method whereby trade agreements between competitors 
 engaged in mining and selling coal may be entered into and approved as lawful 
 wherever such agreements do not unreasonably limit or suppress competition. 
 While this provision would not amend the Sherman antitrust law in terms, it 
 would operate to make certain trade agreements between competitors in the 
 coal business lawful, which would be condemned under the strict construction 
 placed upon the antitrust act by the Supreme Court prior to the decisions in 
 the oil and tobacco cases. 
 
 Fifth. The appointment of commissioners acquainted with and skilled in the 
 coal-mining business to carry out the foregoing purposes, and vest them with all 
 the powers necessary to that end. 
 
 If the authors of the law expected that it would operate to increase business 
 by stimulating a healthy and continued competition, conducted on fair lines, 
 they forgot and entirely overlooked that universal, economic law that the strong 
 and efficient must certainly crush out the weaker and less efficient adversary. 
 If it is the policy of the legislation of this Government to compel, under the 
 most severe penalties, a' continued competition between a small coal operation 
 producing a hundred thousand tons per annum, and a large concern producing 
 two or three million tons per annum, then it is inevitable that the smaller con- 
 cern must close down and go out of business. By reason of boats, barges, docks, 
 depots, and coal yards, and various distributing agencies owned and used by the 
 large producer, he can and does take his coal from the mine directly to the con- 
 sumer, thereby eliminating the middleman — the broker and commission mer- 
 chant — and all his expenses and profits. In this manner of dealing directly with 
 the consumer the larger producer is enabled to make a material saving which 
 the smaller producer can not effect, because he must pay all the expenses and 
 profits of this middleman. 
 
 Every time one of the smaller concerns is forced to suspend its operations it 
 gives the larger company that much less actual competition and that much addi- 
 tional influence in controlling the market price of coal. Compelled by a harsh 
 and inflexible statute to carry on this unequal struggle the small coal operation 
 has about as much chance to succeed in its battle against its gigantic competitor 
 as a mouse would have in a combat for its life with a eat. That the men who 
 wrote and passed the antitrust act thought that it must necessarily crush the 
 small man and drive him out of business can not be believed for a moment. 
 That the operation of this law is in direct conflict with their cherished expecta- 
 
82 HEARINGS BEFORE 
 
 tions will not be doubted by anyone who has given the matter any consideration 
 at all. That all the men who are at the head of large industrial concerns are 
 malefactors engaged in a lawless defiance of law is a proposition entertained 
 only by the anarchist and revolutionist. That the enforcement of the antitrust 
 act as it stands on the statute book to-day means the destruction of the small 
 concerns and a general business depression in every branch of industry for many 
 years to come is admitted by every man who has the courage to give expression 
 to his honest opinion. 
 
 The present plan, through court proceedings, to test the legality of the larger 
 organizations is wholly inadequate from every point of view. It is very evident 
 that the Supreme Court does not intend to confiscate private property, even 
 though it is owned by an illegal combination, and its decrees will go no further 
 than to require disintegration and reorganization along competitive lines. The 
 time required to take each case through all the courts would be at the very 
 least two years, and as there would be several hundred cases that would have 
 to take this course, the confusion that now exists would still remain, causing a 
 consequent depression which is so keenly felt throughout the whole country. 
 
 Breaking up these large companies into their constituent parts and forcing 
 the subsidiary corporations thus severed from the parent company into real and 
 active competition, where the controlling interest remains in the same hands, is 
 humanly impossible, and in each instance the courts will be called upon to make 
 further rulings and readjustments after the plans of division and reorganization 
 have been approved and settled in the first instance. Such perpetual litigation 
 will create, and has created, such a state of doubt and uncertainty iu all our 
 industrial enterprises, whether legal or illegal, that we can not reasonably hope 
 for any improvement as long as this condition exists. 
 
 That legislation is necessary to change or modify the antitrust act so that 
 business men may know that they are obeying the law, and at the same time 
 carry on their affairs, is self-evident. Economic laws, strong and certain as 
 the laws of gravitation, have been brought about and compelled combination 
 and concentration, and we can not escape such laws without crippling our 
 industries and setting back the hands of progress. 
 
 The evils that may result from uncontrolled combination and concentration 
 must be eliminated, while the good should be guarded and preserved inviolate. 
 The quantity of an article or commodity produced or dealt in should not be 
 the test of the legality of the enterprise, but rather the exercise of the power 
 Which a strong combination provides, to oppress the consumer by increasing 
 prices beyond what the law of supply and demand justifies or unfair methods 
 ®f competition to destroy a weaker opponent, should be the rule by which 
 Illegality should be established. 
 
 No industrial concern should be punished or condemned because of its size 
 it has the power to oppress either the public or a competitor, until it has ac- 
 tually begun to carry out such a purpose, any more than an individual should 
 be indicted for murder simply because he has the power to commit that offense. 
 The mere fact of the existence of a large industrial combination made up of 
 smaller competing concerns should in and of itself be no more a violation of 
 law than the existence of a labor union, but each should be judged or con- 
 demned by what it actually does, rather than by what it has the power to do. 
 Each should receive the fullest protection of the law 'as long as they refrain 
 from a policy of oppression. 
 
 IV. 
 
 THE REMEDY. 
 
 Any effective remedy that may be prescribed must recognize the principle of 
 concentration and combination, as the result of economic laws operating in 
 favor of constantly increasing efficiency. The right to combine or concentrate 
 should not be impaired, nor should combinations, be deemed illegal unless they 
 actually engage in and pursue oppressive methods in the prosecution of their 
 business. 
 
 The real evil that should engage the attention of legislators is an arbitrary 
 advance in prices unwarranted by market conditions and unfair competitive 
 methods against weaker adversaries. When laws are passed that will effectively 
 prevent large companies from using their power to raise prices unreasonably 
 and will restrain them from using methods of unfair competition, all the evils 
 incident to such companies will have been cured so far as legislation can cure 
 
COMMITTEE ON INTERSTATE COMMERCE. 83 
 
 them. To attempt to go further ami prohibit combination and concentration 
 per se will be to have your legislation run counter to economic laws and repress 
 industrial enterprises rather than promote them. 
 
 In order that commerce may be unhampered and have the broadest scope in 
 which to exercise its varied activities it is essential that those who invest their 
 money should feel that the Government will protect their investment rather 
 than destroy it. 
 
 Up to a certain point combination is not only useful and beneficial but abso- 
 lutely necessary, in order that economies may be practiced, and those forces 
 making for cheaper production and distribution may have full sway. If we 
 are to continue to be a factor in the world's commerce, then we must meet the 
 world's competition with a commodity that represents a low cost of production. 
 Large capital, intelligently directed, can reduce the cost of production to a 
 point that smaller capital, although ably managed, can not hope to reach. 
 
 In our struggle for world-wide commercial supremacy we should not forget 
 our own public, nor should we impose upon our own domestic consumers unnat- 
 ural nor unnecessary burdens. The laws regulating trade should be so framed 
 as to permit combination and concentration to the extent of producing the great- 
 est possible efficiency and at the same time protect the public against unreason- 
 able exactions and weaker rivals against unfair competition. That this can be 
 done if our statesmen will approach the matter without prejudice there can be 
 no doubt. The difficulty seems to lie wholly in providing a tribunal, an arbiter, 
 if you please, vested with sufficient power and authority to determine the ques- 
 tions that would arise in the application of the law. A tribunal of some kind 
 must be provided that will decide when a combination is using its power to 
 oppress. When questions arise involving the public interest as against the 
 interest of the combination, this arbiter created by law must step in and deter- 
 mine their respective rights in each concrete case. In behalf of the public the 
 arbiter must say to the combination, You shall not use your power to oppress ; 
 and it must say to the public, You shall not use your power to harass and 
 spoliate the property either of the individual or the corporation so long as they 
 follow their business puruits without resorting to oppression. 
 
 The tribunal best suited to act as such an arbiter is a commission. Govern- 
 ment by commission, I know, has many able critics who feel that the creation of 
 commissions vested with power and authority to regulate our complex industrial 
 affairs is a surrender of the proper functions of government, and the practice 
 should not be extended. On the other hand, the one supreme test of the 
 efficiency of commission administration is to be found in the Interstate Com- 
 merce Commission. This commission has done more to prevent oppression of 
 the public by the carriers and to prevent confiscation of the property of carriers 
 by the public than all the courts combined could have done. It brings about a 
 complete understanding between shipper and carrier and compels them to 
 respect each other's rights. An industrial commission organized and admin- 
 istered along kindred lines will soon harmonize all the conflicting interests 
 between large industrial organizations and the public. 
 
 Every company, big and little, should receive the law's protection and encour- 
 agement in their efforts to extend their business activities as far as possible, as 
 long as these efforts are unaccompanied by oppression. Whenever the public 
 weal requires it, an industrial commission can give the fullest protection, and 
 at the same time confer its sanction and approval upon all combinations and big 
 business desiring to carry on a legitimate enterprise. 
 
 COMPETITION. 
 
 Until the recent decisions of the Supreme Court in the Standard Oil and To- 
 bacco Co. cases it was generally believed that the Sherman antitrust statute 
 prohibited all agreements, arrangements, or understandings which placed 
 any restraints upon interstate trade. The former opinions of the court con- 
 strued the statute to apply to any and all restraints of trade, whether such re- 
 straints were reasonable or unreasonable. (Case, Joint Traffic Association.) 
 
 These earlier decisions went further,- and defined what was meant by the 
 term "restraint of commerce." It was. held in a number of cases that an 
 agreement which tended to restrain or limit competition in interstate trade vio- 
 lated this act. The court went so far as to hold that an act or agreement that 
 in any manner had a tendency to limit or restrict competition was a violation 
 of this law, no matter how reasonable or in accord with common sense such a 
 restriction upon competition might be, and in the earlier interpretation the court 
 
84 HEARINGS BEFORE 
 
 read into the statute the word "competition," and construed it as prohibiting 
 and making criminal every agreement which in any wise decreased competition, 
 however small and Insignificant it might be. Prior to this statute the law 
 permitted and upheld contracts that were entered into for the express purpose 
 of doing away with competition, provided, however, that the restrictions thus 
 placed upon competition were not unreasonable under all the circumstances sur- 
 rounding the particular transaction. In other words, those trade agreements 
 which were dictated or supported by common sense and sanity were upheld as 
 legal and binding upon the parties making them, even though they did suppress 
 competition. 
 
 Construing this statute literally as it is written, the Supreme Court said 
 that agreements tending to lessen competition were made criminal, notwith- 
 standing they were dictated by reason and supported by common sense. In 
 other words, the necessary conclusion was that in passing this act the Con- 
 gress intended to make criminals out of men for doing those things which are 
 justified by the sanity and common sense of all right-thinking minds. 
 
 In the Standard Oil and Tobacco cases the court has said that the Congress 
 could not have had any such intention ; that it is inconceivable that the Con- 
 gress ever intended to make felons out of men for doing the reasonable, sane, 
 sensible thing in connection with their business transactions. The court has 
 been severely criticized for holding that Congress never intended that the 
 citizen should be sent to the penitentiary for doing that which is sane and 
 sensible. The logical inference to be drawn from the position taken by such 
 critics is that in order to keep out of prison. the Congress intended that busi- 
 ness men must refrain from doing the common-sense thing. I think this in- 
 ference is a necessary one, when we consider that the court is condemned 
 because it placed by construction into the statute the word " reasonable." The 
 law that will condemn men because they conduct their business affairs in a 
 reasonable and sane way must be an obstruction to business and should be 
 repealed at once. 
 
 It is a well-known fact that most of the business concerns of any magnitude 
 in this country, including merchandise, wholesale and retail, manufacturing, 
 transportation, and banking, have been created by grouping together under one 
 control and ownership a number of smaller establishments that were in com- 
 petition one with the other. Every one of these enterprises are in violation of 
 the Sherman Act as interpreted by the court's former decisions, for the reason 
 that by being consolidated under one management necessarily destroyed the 
 competition that existed among them when they were all independent units. 
 If the criminal part of the Sherman Act had been invoked before the decisions 
 in the recent trust cases, a very large part of the business men of the country 
 would now be either under conviction or indictment, and most business enter- 
 prises of importance would now be in process of dissolution in civil suits 
 brought by the Government. That the industries of the country have not been 
 completely paralyzed is due to the fact that the Department of Justice, for 
 lack of a sufficient force, has been unable to enforce the law. The enforcement 
 of the law would have destroyed our whole industrial fabric. Stability of rail- 
 way rates could not have been maintained if the carriers had obeyed this law. 
 It is a well-known fact that railway rates between competitive points are made, 
 fixed, and decided upon by agreement between the representatives of the car- 
 riers at conferences held for that purpose; that before any rate is put into 
 effect between New York and Chicago all the carriers operating between these 
 points must agree to it, otherwise rate cutting would be continuous, and both 
 shippers and carriers would be the sufferers. This agreement between the 
 carriers to make the rate the same for all the carriers violates this Sherman 
 Act, because it destroys all competition between these carriers so far as the 
 rates to be charged are concerned. Every rate in the United States to-day 
 between points served by two or more carriers has been made by an agreement 
 which violated the Sherman Antitrust Act. The fact is that rates can not be 
 made between competitive points in any other way than by agreement between 
 different carriers. If the rule laid down by the court in the Standard Oil and 
 Tobacco cases is to be changed by legislation so that the former rulings of the 
 court should prevail, then every rate maker in the country who discharges 
 his duties must necessarily violate the criminal provisions of the law. 
 
 We can better understand the operation of this statute and more fully ap- 
 preciate what it means to the general public by applying it to concrete cases. 
 In making application of it to any given case, we must keep in mind that as 
 formerly construed it was intended to prohibit and make criminal every agree- 
 
COMMITTEE ON INTEBSTATE COMMERCE. 85 
 
 rnent or understanding that lessened or restricted competition between two or 
 more persons engaged in interstate trade, and that it made no difference whether 
 such a restriction was reasonable or unreasonable. The common sense and 
 sanity of the transaction did not take it out of the statute's condemnation. 
 
 I know of a case where a coal company is mining and selling about 2 000 000 
 tons of coal per annum. This company has $6,000,000 invested in this property 
 and plant. There are t»ree other mining companies within 2 or 3 miles whose 
 capital does not exceed $100,000 each. These smaller companies are not only in 
 competition with each other and the larger company, and with the coal mined 
 from other districts, but also in other States. It costs the smaller operations 
 more per ton to mine their coal than it does the larger company, by reason of 
 the fixed charges being more per ton in proportion to the coal produced. In 
 addition to the greater cost of production it costs them 6 or 7 cents per ton more 
 to sell their coal ; owing to their limited capacity of output they can not secure 
 sale contracts from large consumers, not being able to give a daily and con- 
 tinuous supply. In the last two years they have not made any money, although 
 exhausting their property. If they could have a joint selling agency with the 
 larger concern, they would save 6 or 7 cents per ton, and thereby procure a more 
 constant demand. They are told by their counsel that if they enter into a 
 joint selling agency they will violate the Sherman law, because such an ar- 
 rangement would necessarily limit if not entirely suppress the competition that 
 now exists between these industries. The owners would sell these smaller 
 mines to the larger one, but such contract of sale would violate this act, be- 
 cause it would entirely suppress all existing competition. They can not success- 
 fully compete with the larger concerns, although the larger concerns do not cut 
 the price, nor do they attempt to drive them out of business by unfair methods 
 of competition. As they are advised, the law will not permit them to cheapen 
 their sale's cost nor sell their plant, but, on the contrary, the law that is sup- 
 posed to promote trade and expand industry is driving them slowly but surely 
 into bankruptcy. 
 
 The law that should secure to the individual the liberty to trade denies them 
 the right to save expense and to sell their property in order to save it from 
 ruin. At least five out of every six of all the coal operations in West Virginia 
 are of this smaller variety, and are thus compelled to submit to this unwar- 
 ranted economic waste. Is it a wise public policy to drive these smaller 
 independent concerns out of business? The only possible salvation for them 
 is to so change the law as to permit them to enter into trade agreements with 
 the larger concerns whereby joint selling agencies may be established. This 
 course contemplates a lessening if not a suppression of competition in the 
 markets. 
 
 The result of a policy of enforced competition should be thoroughly under- 
 stood before the Government commits itself to it. If universal competition 
 between all persons engaged in the same line of business is to be enforced by 
 law, if men may not contract to soften the cruelty of competition, then those 
 who would impose it should know in advance just what they are doing. Com- 
 petition between men engaged in the same business is a fight for life and suc- 
 cess. Such a struggle is always unequal. The large concern with unlimited 
 capital can and does command great ability in its management., It can and 
 does practice economies both in production and sale that are not possible for 
 the smaller institution. Large manufacturing establishments with ample capi- 
 tal can and do sell their products direct to the consumer, and save for them- 
 selves all the expense and profits made by the jobber and the middlemen. 
 Small concerns with limited capital can not do this. The coal company that 
 has an output of 20,000 tons a day can afford to sell at a less sum per ton than 
 the mine that is only producing 500 tons, and at the same time will make much 
 more money in proportion for its stockholders on the capital they have invested. 
 Nothing can be farther from the truth than to say the small concern can be 
 kept alive by competition with its larger and more efficient adversary. En- 
 forced competition means the survival of the fittest— the triumph of the strong 
 over the weak. 
 
 I submit that the law should not compel the small business man to engage in 
 such an unequal struggle, which must sooner or later bankrupt him. Ruin to 
 the small business is the inevitable consequence of such a policy. The law 
 should. place in his hands the power to relieve himself from destruction by 
 giving him the right to make contracts with his all-powerful competitor for a 
 joint selling agency, or for the sale of his plant if he prefers. The Supreme 
 Court in the oil and tobacco cases have said he may do this, provided such con- 
 
86 HEARINGS BEFORE 
 
 tracts be not in unreasonable restraint of trade. Now, however, it is proposed 
 by some that this construction of the anti-trust act must be nullified by legis- 
 lative enactment. 
 
 The Congress should recognize and make provision for trade agreements and 
 combinations which would be in the nature of things in restraint of competition 
 up to a certain point. Unrestrained and uncontrolled -competition would be as 
 disastrous to interstate trade as no competition at all, for ultimately the result 
 would be exactly the same. Competition is sought to be justified in the belief 
 that it insures low prices to the consumer. The producer is just as important 
 a factor in our economic life as the consumer, although certain schools of politi- 
 cal philosophy teach that spoliation of a large producer should always be en- 
 couraged, under the hope that it will reduce prices to the consumer. The con- 
 sumer's power to consume is dependent upon his ability to produce something 
 which he can sell at a profit. The public are willing to pay a reasonable price 
 for the things it consumes. Such reasonable price includes a fair profit to the 
 producer. 
 
 EXCESSIVE COMPETITION. 
 
 Te Supreme Court held in the Northern Securities case that Congress had 
 the power to prescribe the rules by which interstate and international commerce 
 should be governed, and by the antitrust act had prescribed the rule of free 
 competition among those engaged in such commerce. 
 
 The court further held in the same case "that the natural effect oC compe- 
 tition is to increase commerce, and an agreement whose direct effect is to pre- 
 vent this play of competition restrains instead of promotes trade and commerce." 
 
 This same ruling or principle is adhered to by the court in the oil and tobacco 
 cases, where it is decreed that all the subsidiary companies should be divorced 
 from the parent company and each should be managed separately and independ- 
 ently, and all should be in competition with each other. The court in the latter 
 cases has not considered tbe question as to whether real competition is possible 
 where all the competing companies are owned and managed by the same persons 
 and interests. It is confidently asserted that no real and actual competition can 
 exist under such circumstances. 
 
 The economic basis for tbe doctrine that free competition increases com- 
 merce is only partially true, for it is a fact that free and unrestricted compe- 
 tition always produces excessive competition, and excessive competition de- 
 stroys instead of promotes commerce. One of the principal grounds relied on 
 by the Government and considered by the court in the suits against the oil 
 and tobacco companies was the excessive competition waged by. these com- 
 panies against their weaker rivals. The methods employed by these com- 
 panies in their competitive warfare were condemned by the court on the ground 
 that they were unfair and operated to restrain trade. The economies which 
 tbe larger concerns can and do practice in the production and distribution of 
 their products and which the smaller concerns are unable to do must ulti- 
 mately secure such a large portion of the trade that the weaker concern will 
 be driven out of business and commerce to that extent destroyed. Some way 
 mrst be devised whereby competition will not destroy the small business. 
 This can only be done by permitting trade agreements that will limit or re- 
 strain competition to such an extent as will allow the small concern to live. 
 Tbat large and small concerns' alike may know to what extent trade agree- 
 ments are Ir.wful, it is necessary that there should be some tribunal pro- 
 vided by law to examine and pass upon tbe legality of such instruments. The 
 approval of such agreements should be secured before they go into effect or 
 become operative, for the reason tbat men should feel safe and that they are 
 within the protection of the law in all their business transactions. 
 
 One of the principal causes of the present industrial depress'on is due to the 
 uncertainty as to the legality of the organization of some of our largest indus- 
 trial enterprises. However honest the purpose or upright may be the intent'on 
 of those responsible for these organizations, they can not know whether they 
 have been engaged in violating the law or practicing sane and reasonable 
 economies until after a protracted litigation seeking to dissolve the corpora- 
 tion is ended. It is needless to say that such conditions must continue to 
 depress and keep in stagnation all our industrial enterprises. If a commission 
 vested with power to determine the legality of trade agreements had been in 
 existence at the time these great organizations were created and had passed 
 upon their legality, the doubt and uncertainty that now hangs over them and 
 
COMMITTEE ON INTERSTATE COMMEECE. S7 
 
 their stockholders would be removed and their business would have a chance to 
 grow and expand. 
 
 The preservation of the big business of the country is absolutely essential if 
 we would expand our trade. The small producer, whether he be manufacturer 
 or farmer, can not engage directly in our export trade The only foreign com- 
 merce that is permitted to him is through the instrumentality of the broker or 
 middleman. This course means a limited trade and loss of profits to the 
 producer. We must depend upon our giant enterprises for our proper share of 
 the world's trade. Legislation should aim to encourage and protect these 
 larger industrial concerns, and at the same time bestow upon them such a 
 measure of governmental regulation as will secure to our own people their 
 products at reasonable prices, without impairing their efficiency. How can this 
 be done except to permit them the greatest liberty of action in making trade 
 agreements consistent with a wise economic policy. A commission composed of 
 men conversant with the trade is the best and, I may say the only tribunal 
 that can give the necessary intelligence to all the details of these trade agree- 
 ments, and protect our own people against unreasonable prices and at the same 
 time place the least possible restraint upon their activities. 
 
 If the legislator would keep in mind the fact that the big business of the coun- 
 try is just as essential to our general welfare as the small enterprise and enti- 
 tled to the same measure of protection and encouragement, and that in the prac- 
 tice of legitimate economies in production and distribution the small concern is 
 at a great disadvantage in a competitive struggle with its more powerful antag- 
 onist, it should not be very difficult for him to frame some measure that will 
 keep the big business from being harassed and embarrassed and give the smaller 
 mau the right to make trade agreements necessary for his continuance in busi- 
 ness and at the same time protect the public against the evils of unreasonably 
 high prices. 
 
 CONSTITUTIONALITY OF PROPOSED ACT. 
 
 It may be contended that the commerce clause of the Constitution is not broad 
 enough to give Congress the power to enact legislation of this character. The 
 power of Congress over interstate commerce has been so well defined in numer- 
 ous cases that it is sufficient to state in general terms the extent of that power 
 as defined by the courts. 
 
 Commerce includes all the means and instrumentalities by which such inter- 
 course and traffic may be carried on, as well as the purchase, sale, and exchange 
 of commodities. ( Story on the Constitution, sec. 1061 ; McCall v. California, 136 
 U. S., 104 ; Hopkins v. United States, 171 U. S., 578 ; Northern Securities Co. v. 
 United States, 163 U. S., 197; United States v. Knight, 156 U. S., 1.) 
 
 The term "commerce" in its broadest acceptation embraces, not merely traf- 
 fic, but the means, vehicles, and appliances necessarily employed in carrying it 
 on. (See citations above.) 
 
 The act of intercourse and traffic again embraces all the means, instruments, 
 and places by and in which intercourse and traffic are carried on. And, further 
 still, comprehend the act of carrying them on at these places and by and with 
 these means. (Pomeroy Constitutional Law, sec. 378; McCall v. California, 136 
 U. S., 104.) 
 
 A dining car is under the control of Congress by the act of making its inter- 
 state journey, and it was equally so when waiting for a train to be made up for 
 the next trip, it being regularly used in the movement of interstate traffic. 
 (Johnson v. Southern Pacific Co., 196 U. S., 1.) 
 
 Where a contract is for the sale of an article and for its delivery in another 
 State, the transaction is one of interstate commerce, although the vendor may 
 have also agreed to manufacture it in order to fulfill his contract of sale. 
 (Addiston Pipe Co. r. United States, 175 U. S., 211.) 
 
 When an article is actually started in the course of transportation to another 
 State or country, or delivered to a common carrier for such transportation, 
 then commerce in that article has begun. (Coe v. Errol, 116 U. S., 517 : Kidd v. 
 Pearson, 128 U. S., 1 ; The Daniel Ball, 10th Wallace, 565. ) 
 
 The power conferred on Congress to regulate commerce is unlimited except so 
 far, and so far only, as such powers are limited by the Constitution itself. 
 (Gibbons v. Ogden, 9th Wheaton, 1; Commerce Commission v. Brimson,- 154 
 U. S., 447; United States v. Joint Traffic Assn., 171 U. S., 505: Lottery cases. 
 188 U. S., 321.) 
 
88 HEARINGS BEFORE 
 
 INSTRUMENTALITIES. 
 
 The power of Congress to regulate interstate and foreign commerce extends to 
 and embraces within its control and authorizes appropriate legislation with 
 respect to all the instrumentality and means by which that commerce may be 
 carried on or conducted. And Congress has authority to regulate an instru- 
 mentality or agency employed in commerce between the States not only when 
 that agency or instrumentality extends through two or more States, but also 
 when it is confined in an action within the limits of a single State. 
 
 The power granted to Congress to regulate commerce is not confined to the 
 instrumentalities of commerce known or in use when the Constitution was 
 adopted, but it keeps pace with the progress of the country and adapts itself 
 to the new developments of time and circumstances. (Gloucester Ferry Co. v. 
 Pennsylvania, 114 U. S., 196 ; Smith v. Alabama, 124 U. S„ 465 ; Pensacola, etc., 
 Co. v. Western Union Tel. Co., 96 TJ. S., 1; Scranton r. Wheeler, 179 U. S., 141.) 
 
 PROTECTION OF LIVES. 
 
 Under its commercial power Congress may enact appropriate legislation look- 
 ing to the protection of the lives and limbs of employees of railroads engaged 
 in interstate commerce. (Johnson v. Southern Pacific Co., 196 U. S., 1; Sehlam- 
 mer v. Buffalo, etc., 205 U. S., 1 ; In re Debbs, 158 U. S., 564.) 
 
 Also to provide and specify qualification of employees. (Nashville, etc., v. 
 Alabama, 128 U. S., 96 : Smith v. Alabama, 124 U. S., 465 ; Hennington v. Georgia, 
 163 U. S., 299.) 
 
 Also Congress has the power to provide for arbitration between interstate 
 railroad companies and their employees. (Act of Congress, 1888, chap. 1063; 
 In re Debbs, 158 U. S., 564.) 
 
 Congress may regulate intrastate commerce if it is a necessary consequence 
 of the exercise of its power to regulate interstate commerce, although such 
 regulation may also, to some extent, affect and regulate the intrastate commerce. 
 For, to the extent necessary completely and effectually to regulate interstate 
 commerce, the Nation, by the Congress and its courts, may affect a regular 
 intrastate commerce. (Shepherd v. Northern Pacific Ry. Co., 184 Fed., 795, 
 and numerous cases cited.) 
 
 The power of Congress to regulate commerce extends to and includes the em- 
 ployment, duties, obligations, liabilities, and conduct of all persons engaged in 
 interstate commerce. (Martin v. Pittsburgh, etc., E. It., 203 U. S., 284; Penn. 
 E. It. r. Hughes, 191 U. S., 477 ; Peirce v. Vandusen, 78 Fed., 693 ; Johnson v. 
 R. E. Co., 196 U. S., 1; Sclemmer v. Eailroad, 205 U. S., 1; Sherlock v. Ailing, 
 93 U. S., 99; Nashville, etc., v. Alabama, 128 U. S., 99.) 
 
 In the Johnson case (196 U. S., 1) and the Sclemmer case (205 U. S., 1) 
 the court has recognized and applied the foregoing principle in construing the 
 safety appliance act. 
 
 COAL MINERS ARE ENCAGED IN INTERSTATE COMMERCE. 
 
 It is a well-known fact that most of the coal mined in this country is con- 
 sumed in States and Territories other than the States wherein it is mined. 
 This is peculiarly true of West Virgina, where fully 95 per cent of the coal 
 produced goes to consumers in other States and Territories. The coal is prac- 
 tically all contracted before it is mined, and, under the terms of sale, it is to 
 be produced in one State and transported to another. 
 
 It will not be denied that every agency necessarily employed in the process of 
 interstate transportation is an instrument employed in interstate commerce. 
 It will be conceded that the miner who actually digs the coal is the first person 
 to start that coal on its interstate journey. As soon as the lumps of coal are 
 separated by pick and blast from the main coal bed they are then moving on 
 their way from one State to another. The movement is then continuous ; first 
 in the mine car, where the miner shovels them, from the mine car to the rail- 
 road car into which it is loaded at the tipple, and then it is hauled on to the 
 consumer located in another State. 
 
 Before interstate commerce can be effected in the coal trade there must exist 
 certain active, cooperative agencies and instrumentalities all necessary and 
 participating in such commerce. Each supplements the other, and all must 
 
COMMITTEE ON INTERSTATE COMMERCE. 89 
 
 unite their efforts before the commodity can move in interstate trade. There 
 must be a railroad equipped with engines, cars, and men to handle them. 
 These instrumentalities do not and can not go farther than the mine mouth 
 where they receive and take charge of the coal that has already started on its 
 interstate journey. The miner actually starts the coal on its way to another 
 State, and he is as much of a factor in interstate transportation as the engineer 
 who hauls the loaded cars away from the tipple, for without the services of the 
 miner in starting the coal there would be no interstate commerce in that 
 commodity. 
 
 The miner is in no sense of the word engaged in manufacture so as to be 
 within the ruling in the Knight case. His occupation is essentially one of 
 transportation. He does not create or change the commodity to be transported. 
 His whole energy is expended in moving coal, first with pick and blast, then 
 with shovel, and finally with mining cars to the railroad train. Being thus 
 engaged in moving the coal and actually starting it away on a continuous and 
 uninterrupted journey to another State, from the time he first touches it with his 
 pick why is he not as clearly within the jurisdiction of congressional power 
 over interstate commerce as any other necessary agent of interstate transporta- 
 tion? (Dozier v. Alabama, 218 U. S., 127 ; U. S. v. Am. Tobacco Co., 164 Fed., 
 600 ; C. & A. R. R. Co. v. Int. Com. Com., 173 Fed., 930 ; C. & A. R. R. Co. v. Int. 
 Com. Com., 215 U. S., 479; I. C. R. v. Int. Com. Com., 215 U. S., 452; Barrett v. 
 City of New York, 183 Fed., 793; Fed. Rep., Oct. 19, 1911, 189 Fed., 268.) 
 
 employers' liability cases. 
 
 (207 U. S.. 463.) 
 
 In the above-mentioned ease the Supreme Court, by a majority of one, held 
 an act of Congress unconstitutional which made interstate railway companies 
 responsible in damages for accidents occurring to any employee. The ground 
 for the majority opinion was that the act in terms iucluded all employees 
 whether they were eugaged in interstate commerce or not, and said it applied 
 as well to shopmen as to other employees engaged in hauling interstate trains, 
 and that such employees (shopmen) were not in interstate commerce, and were 
 therefore, not within the jurisdiction of congressional legislation. Justices 
 Mo"ody, Harlan, Holmes, and McKenna dissented. Of the Justices who are 
 now on the bench and who participated in the decision, Justices White and Day 
 were with the majority, and Justices Holmes and McKenna were with the 
 minority. 
 
 This is perhaps the strongest case in recent years against the power of 
 Congress under the commerce clause of the Constitution to regulate employees 
 of carriers engaged in interstate commerce. The majority ruling in this case 
 appears to be out of harinonv with the decision in the safety-appliance cases 
 (205 U. S., 1.) 
 
 The court cftd not rule upon questions raised wherein the employee would be 
 engaged in both interstate and intrastate transportation at the same time. A 
 car is loaded with traffic, a part of which is purely intrastate shipments, and a 
 part interstate, and a brakeman is injured while engaged about this car. In 
 such case if the National Government took jurisdiction it would necessarily 
 influence, if not control, the purely intrastate shipment; whereas, if it declined, 
 it would abandon its jurisdiction over a purely interstate shipment. 
 
 A very large part of interstate traffic is so mingled with purely intrastate 
 business that it is impossible to separate the two. The same train, same car, and 
 train crew are all engaged at one and the same time in handling and transport- 
 ing both interstate and intrastate articles. To require the carrier to separate 
 these articles into cars and trains used purely in intrastate shipments or inter- 
 state shipments, would add greatly to the cost of carriage, and impair the car- 
 riers' efficiency, and, in most cases, would be wholly impracticable. All will 
 agree that where interstate and intrastate commodities are so mingled in their 
 transportation that separation is impracticable, that the jurisdiction over such 
 commerce should be lodged either exclusively in the States, or in the National 
 Government. 
 
 Mr. Vinson. I desire to thank you, Mr. Chairman and gentlemen 
 of the committee, for your courtesj'. 
 
90 HEARINGS BEFORE 
 
 STATEMENT OF W. S. DWINNELL, OF MINNEAPOLIS, MINN. 
 
 Mr. Dwixkell. I want to say, Mr. Chairman, before I make the 
 few remarks that I desire to make to the committee, that I perhaps 
 ought to apologize for being here. I did not know that the committee 
 was in session until I was passing through the city. I have prepared 
 no bill and no brief and no argument. This gives me an opportunity, 
 however, to relieve myself of some ideas that have been in my system 
 for several years, and I will give them to you for what they may be 
 worth. 
 
 The primary purpose, it seems to me. of the legislation which you 
 are considering 
 
 Senator Pomerene. Before you proceed, may I ask what your 
 business is? 
 
 Mr. Dwinkell. I am a lawyer by profession, but I am not practic- 
 ing now. I am not representing any interests, but simply appearing 
 here as a citizen. 
 
 It seems to be the primary purpose of any legislation, such as you 
 are considering, is first to restore to the individual citizen, or to the 
 smaller aggregation of capital, an opportunity to do business; and, 
 second, to reduce to the consumer the price of the commodity pro- 
 duced by the so-called trusts or combinations. In my judgment, 
 the Sherman Antitrust Act, or its enforcemenf, does neither. Fur- 
 thermore, it is impossible for a man engaged in business, or a cor- 
 poration engaged in business, to know whether it is violating the 
 antitrust law until it is proceeded against by the Federal Govern- 
 ment. It is true that it can make an agreement in restraint of trade 
 which it would know to be in violation of the Sherman antitrust 
 law, but it could not know, by virtue of its size and the character 
 of its business, whether or not it was violating the law until it was 
 proceeded against because that would be very largely a matter of 
 opinion and judgment. There is no hard and fast rule. We do not 
 know whether a corporation which is manufacturing 15 per cent 
 of all of the output of a certain product is a trust, and whether it is 
 violating the Sherman antitrust law, or whether it must manufac- 
 ture 60 per cent of the product. My purpose, however, is not so 
 much to criticize the Sherman antitrust law because that act per- 
 taining to agreements in restraint of trade must stand. But I be- 
 lieve that there is a remedy which is practically self -executing ; that 
 is, it is what may be termed an administrative remedy in contradis- 
 tinction from a remedy which compels constant resort to the courts, 
 which is a very unsatisfactory way for any Government to enforce 
 its laws. The plan which I suggest is a graduated annual tax upon 
 the capital of every corporation engaged in interstate commerce 
 whose capital exceeds a certain amount. I should say that the 
 amount of capital which would be exempt from that capitalization 
 tax would be such an amount as an average person could, by legiti- 
 mate means, accumulate in his lifetime. It is based not only upon 
 the idea of necessity, but because the right to associate capital under 
 one control is a valuable right, and the Government, it seems to me, 
 has the right to demand something in return for that privilege. 
 
 Now the effect would be this : I desire to. start in business. I have 
 $500,000 which I want to use in getting a given enterprise. I find 
 
COMMITTEE OX fxTEBSTATE COMMERCE. 91 
 
 that business is very largely under the control of corporations with 
 a very large capital. For illustration, $50,000,000. It does not 
 make any difference to me whether that corporation is manufactur- 
 ing 15 per cent or 50 per cent of the particular product in which it is 
 engaged in manufacturing. I, as the owner of only half a million 
 dollars of the capital, if I am prudent, will not hazard it in competi- 
 tion with the larger corporation. But if the corporation with a capi- 
 tal of $50,000,000 is compelled to bear a burden which I am not com- 
 pelled to bear, then I am placed on an equality with that corporation, 
 and I dare to embark in that enterprise. So far for the part of the 
 suggestion which gives me an opportunity to engage in business. 
 
 Now what is the effect upon the price of the commodity which that 
 large corporation is producing? Such an act would automatically 
 and immediately force the large corporation to place its product on 
 the market at a reasonable profit, because if the profit is excessive it 
 at once stimulates competition — competition on the part of those who 
 are not subjected to the burdens to which it is. So that you at all 
 times have latent competition which will regulate the price of the 
 article which is being manufactured and sold. 
 
 Now that can be enlarged upon. There are many ramifications, 
 but that is, in substance, the effect of such an act as I propose. It 
 would restore the opportunity and it would regulate the price of the 
 commodity manufactured. It could be enforced in an administrative 
 manner, and not through the courts, and be practically self -executing. 
 It would be definite and certain, so that any man engaging in busi- 
 ness, or any set of men, would know exactly the burden which they 
 were confronting. 
 
 Now, it is claimed — and perhaps some of the Senators have actual 
 knowledge of the subject—that the cost of manufacturing steel 
 rails, for instance, is $14 a ton. We know that the going price 
 for many years has been $28 at the mills, at least so I am informed ; 
 I never bought any. Now, if every part of the. prayer of the Gov- 
 ernment in the case against the United States Steel Corporation 
 should be granted by the courts, the price of steel rails, in my judg- 
 ment, will continue to be $28. Now, it seems to me the purpose of 
 the legislation — if $14 a thousand is an undue profit, and I think 
 you will agree with me that it is — should it not be the purpose of 
 legislation to so control that and other corporations that they would 
 be compelled to take a reasonable profit? Now, in my judgment, if 
 something of this kind is not done it will not be a great while before 
 the Government would be forced into the very embarrassing position 
 of fixing prices — practically a socialistic condition, fixing prices— and 
 I do not see how you can amend the Sherman antitrust law so that 
 that condition is not apt to obtain in the future unless you place 
 a limit upon the size of a corporation. But if you are going to 
 permit great corporations to continue to exist, with the great power 
 which they possess, they are going, to a very large extent, to be able 
 to regulate the price. 
 
 Now, I am not very familiar with many of these industries, but I 
 think it is safe to say that in the larger industries— industries which 
 have been trustified, if I may use the word— that competition has not 
 materially increased during the last 10 years. The country has been 
 growing and developing, and naturally you would have expected en- 
 terprises of like character to have sprung up in different sections of 
 
92 HEARINGS BBl«'01ili 
 
 the country, and yet I do not think, generally speaking, that that has 
 been the case. The very fact that great aggregations of money are 
 permitted to exist under one control is so monopolistic that prudent 
 capital — and capital is always prudent, or supposed to be — will not 
 attempt to compete with it on equal terms unless it is in equally large 
 amount. 
 
 Now, as an American citizen, I believe that one of the greatest 
 things, and most important thing, that we might direct our attention 
 to is the preservation of opportunity to the individual. The oppor- 
 tunity to " go West and grow up with the country " will soon be a 
 thing of the past. The opportunity must come along commercial 
 lines. It is going to be rather difficult for a young man, regardless 
 of how energetic he may be, or how ambitious he may be, or how much 
 initiative he may possess, to embark in many lines of industry. 
 
 I think that is* all I care to say. gentlemen of the committee. 
 
 The Chairman. You assume, I take it, that the tendency of the 
 large concerns to add this tax to price of the consumer_ would be 
 counterbalanced by the competition which your suggestion would 
 develop ? 
 
 Mr. Dwinnell. Latent competition will prevent its being passed 
 on to the consumer as the ordinary tax is. 
 
 The Chairman. Senator Cummins, do you care to inquire? 
 
 Senator Cummins. Have you reduced your plan to such a concrete 
 form as to be able to give us any idea as to the amount of the tax? 
 
 Mr. Dwinnell. I have not ; T have thought of it. That, of course, 
 would be a very difficult thing, and something that should require 
 investigation of a character that I have not had the opportunity to 
 make. One ought to have an intimate knowledge of industries and 
 profits, etc. 
 
 Senator Cummins. I think you have said that a certain capital, 
 measured possibly by the ordinary accumulations of a lifetime, should 
 go untaxed. 
 
 Mr. Dwinnell. Yes, sir; I should say a million dollars. That is 
 what my thought has heen. 
 
 Senator Cummins. And then the tax should be a graduated one? 
 
 Mr. Dwinnell. Gradually increased with the amount of the cap- 
 ital, upon the theory that the greater the capital the greater the pos- 
 sible earning power, and the greater the tendency toward monopoly. 
 
 Senator Cummins. You recognize, I assume, that a company may 
 be able to produce a given article ; that is, a company with a capital, 
 we will say, with $1,000,000, may be able to produce a given article 
 as cheaply as a company with a capital of $50,000,000 can produce 
 the same article? 
 
 Mr. Dwinnell. Yes. and no. Under honest competition, in many 
 cases, that might be the case, but in another instance it would not be 
 the case. 
 
 Senator Cummins. It would depend very largely, would it not, 
 upon the character of the article? 
 
 Mr. Dwinnell. Well, the nature of the business. 
 
 Senator Cummins. Well, the business out of which its manufacture 
 grows ? 
 
 Mr. Dwinnell. Yes ; that is true. But it is natural for a man to 
 exercise the power that he possesses — a competitor — and while I 
 might be able as the controller or manager of $1,000,000 capital to 
 
COMMITTEE ON INTERSTATE COMMERCE. 93 
 
 compete with $50,000,000, I think if they really wanted to put me 
 out of business they could do it. 
 
 Senator Cummins. And just how had yon in mind that they could 
 put you out of business ? 
 
 Mr. Dwinnell. They could do it. If I were a manufacturer of a 
 certain product in a certain territory, they could go into that territory 
 and sell at a loss. I was talking with a manufacturer yesterday who 
 was doing that very thing. 
 
 Senator Cummins. That has been a rather common way in which 
 the ruin of the competitor has been accomplished in times past. 
 
 Mr. Dwinnell. Yes, sir ; and there are other ways also. 
 
 Senator Cummins. But do you not believe that any business ought 
 to be permitted to grow to the size that will enable it to utilize what 
 may be called the unit of cost, without any tax? 
 
 Mr. Dwinnell. Yes; that probably is true. 
 
 Senator Cummins. Your tax is rather for the purpose of dis- 
 couraging unnecessary aggregations of capital. 
 
 Mr. Dwinnell. That is the purpose. 
 
 Senator Cummins. It seems to me, however. Mr. Dwinnell, that the 
 difficulty, which you so graphically pointed out in the present situa- 
 tion, would still remain if the antitrust law is not in any wise 
 modified; namely, uncertainty and impossibility of ascertainment as 
 to whether a given proposition is lawful or criminal. What would 
 3'ou think of that ? 
 
 Mr. Dwinnell. That would be true so far as the matter of contract 
 is concerned, but no corporation would be lawful or no corporation 
 would be criminal; they would simply be subjected to a fixed annual 
 burden. 
 
 Senator Newlands. You would take off all restraint under those 
 conditions ? 
 
 Mr. Dwinnell. No; I do not think I would take off the right to 
 combine under contract in restraint of trade. 
 
 Senator Cummins. Your plan would simply legalize a single cor- 
 poration, no matter how large its capital might be. 
 
 Mr. Dwinnell. There would be nothing unlawful, and I do not 
 think, as a matter of fact, that there is anything unlawful in itself ; 
 that is, it does not appeal to us as being wrong in the sense that it 
 should be punished as a crime. 
 
 Senator Cummins. It is not generally supposed that there is 
 anything unlawful in that sort of association now, is it ? 
 
 Mr. Dwinnell. I think there might be. 
 
 Senator Cummins. That is, suppose a corporation should organize 
 with a capital of a million dollars and enter a business, and through 
 sagacity and energy the business should gradually grow in the_ ordi- 
 nary way until it included the whole business in that field, it is not 
 generally supposed that that corporation would be a violator of the 
 antitrust law, is it? 
 
 Mr. Dwinnell. Well, it would come pretty close to being a 
 monopoly. It would be a violation of the common, law if it was not 
 a violation of the antitrust law. It would monopolize the industry, 
 I think. 
 
 Senator Cummins. But you would still have the antitrust law in 
 force so far as any arrangement or agreement or combination between 
 
94 HEARINGS BEl'OKE 
 
 corporations looking either to limitation of products or price or 
 general conduct of business was concerned ? 
 
 Mr. Dwinnell. Certainly. That would be my idea. 
 
 Senator Cummins. You believe that reasonable competition ought 
 to be preserved? 
 
 Mr. Dwinnell. I think so ; I think it is absolutely essential to 
 the perpetuity of a race or a nation, and I am an individualist and 
 not a socialist. 
 
 Senator Cummins. If we do not preserve it in some form, your 
 idea is that the Government must undertake the protection of its 
 people by fixing prices? 
 
 Mr. Dwinnell. Eventually. 
 , Senator Cummins. And that is on the threshold of socialism? 
 
 Mr. Dwinnell. That is my theory. 
 
 Senator Cummins. That is all. 
 
 The Chairman. Senator Newlands, you may interrogate. 
 
 Senator Newlands. Have you any suggestion to make as to the 
 amount it takes and what revenue would be obtained? 
 
 Mr. Dwinnell. Of course the revenue would be very considerable ; 
 it would be very large. I have thought that a maximum of 1 per 
 cent on the largest corporations would be sufficient to clip their 
 wings sufficiently to enable a smaller individual or corporation to 
 compete with them. 
 
 Senator Newlands. Have you ever made an estimate as, to what 
 the amount of "revenue of such tax would be? 
 
 Mr. Dwinnell. No ; I have not. It would be large. 
 
 Senator Newlands. I will state that when the first antitrust con- 
 vention was held at Chicago, shortly after I entered Congress, I 
 was asked to make an address, and I sent to that convention an 
 article making substantially the same proposition that you make 
 now. 
 
 Mr. Dwinnell. I did not realize that I was plagarizing. 
 
 Senator Newlands. And later on I heard that a lawyer of distinc- 
 tion from St. Louis appeared before the Industrial Commission that 
 was then in existence, and taking this communication of mine as his 
 text, he amplified it and addressed the commission at length, and I 
 think it was quite seriously considered by the commission itself in 
 its report. 
 
 Mr. Dwinnell. I have not seen that. 
 
 Senator Newlands. Of course that report is among the archives 
 of the Government and has never really been read by many. It is a 
 most useful thing. If we would only read over that report it would 
 be unnecessary for us to be making investigations to-day. I do not 
 know exactly what recommendations were made by the Industrial 
 Commission, and I was glancing over the report the other day and 
 was amazed to find how, at that early day, so many of the things 
 that are being -considered now were exhaustively treated in that 
 report. 
 
 Senator Cummins. I wonder if there are enough of them out to 
 supply each member of the committee with a copy. 
 
 Senator Newlands. It was an industrial, committee, you will re- 
 member, appointed by Congress. It was in session for some years. 
 
 Senator Cummins. We ought to have one. 
 
COMMITTEE ON™INTERSTATE COMMERCE. 95 
 
 Senator 'Newlands. I believe, myself, that a very large revenue 
 could be raised by such a means, and might take the place of the 
 corporation tax and relieve the small corporations from the burdens 
 they now complain of and handicap the big corporations, and enable 
 the small corporations to live. 
 
 Mr. Dwinnell. In our State in 1899 I was in the legislature and 
 secured the enactment of an antitrust law, under which act we were 
 able to prevent the consolidation of the spring wheat flouring mills of 
 the country. They had made considerable progress at the time the 
 Attorney General retained me to proceed against them. We never 
 had to go that far because they were unable to raise the money when 
 they found the State was contemplating this procedure. At that time 
 we gave the matter considerable thought, but I held the matter very 
 largely in abeyance because I always had my doubts in regard to its 
 constitutionality until the decision in the corporation-tax case by the 
 United States Supreme Court. Since that time I have not given the 
 matter any thought or particular investigation. 
 
 Senator Newlands. Your tax, you say, would be a graduated tax ? 
 
 Mr. Dwinnell. Yes, sir; a flat tax would not accomplish the pur- 
 pose at all. 
 
 Senator Newlands. The maximum you think should be 1 per cent? 
 
 Mr. Dwinnell. I think that would probably accomplish the pur- 
 pose. 
 
 Senator Newlands. You would commence at a very much lower 
 rate? 
 
 Mr. Dwinnell. Yes, sir ; commence at a low rate. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Brandegee, do you desire to interrogate? 
 
 Senator Brandegee. I did not follow you in what I understood you 
 to say as to the effect the graduated annual tax, -based upon the 
 capitalization of the corporation, would be likely to have upon the 
 price of its products. 
 
 Mr. Dwinnell. My theory is that latent competition would always 
 exist where it doesn't now. In other words, smaller aggregations 
 of capital of individuals would dare to embark in that line of busi- 
 ness where it does not dare to now, and if the corporation unduly 
 increased its price, then the profit in the industry would be such that 
 people would at once engage in it. 
 
 Senator Brandegee. Take a concrete case, and perhaps I can make 
 myself clearer. You understand that the price of steel rails, having 
 been $28 a ton for many years, and being $14 a ton profit, as you 
 thought? 
 
 Mr. Dwinnell. Well, I do not know anything about it. It is com- 
 mon rumor. 
 
 Senator Brandegee. Well, whatever it may be let us assume that 
 that is correct. Suppose upon the capital stock of this Steel Trust 
 there was imposed a graduated annual tax of 1 per cent or more. 
 How would that encourage anybody to go into the business as a com- 
 petitor of the Steel Trust ? 
 
 Mr. Dwinnell. Because they would have an advantage over the 
 Steel Trust to that extent. 
 
 Senator Brandegee. If the Steel Trust is now making $14 a ton 
 upon its steel rails and a tax of only 1 per cent were imposed upon 
 
 22877— vol 1—12 7 
 
96 HEARINGS BEFOEE 
 
 its capitalization, would that induce anybody to go in and compete 
 with the Steel Trust? The Steel Trust would soon have a large 
 profit per ton upon its rails, would it not ? 
 
 Mr. Dwinnell. Probably not in that instance. As I stated, it is 
 a question of rates. The graduation and the ultimate limit would 
 have to be very carefully investigated. In corporations that are very 
 large and where there is undue profit and a tremendous amount of 
 water in the capitalization, it might have to be higher. I think your 
 illustration is a good one as showing that necessity. 
 
 Mr. Brandegee. Well, do you think that in all existing corpora- 
 tions where capital was larger than the amount that an individual 
 might accumulate in a lifetime, if this tax was imposed upon the 
 capitalization of all businesses, that it would bring in competitors 
 with them? 
 
 Mr. Dwinnell. It would either bring competitors or it would force 
 them to sell their products at fairly remunerative prices; not at 
 monopolistic prices. 
 
 Senator Brandegee. Why would not the tendency of it be to induce 
 them to ask a higher price for their products? 
 
 Mr. Dwinnell. Because the moment they did, this latent act of 
 competition would become actual. If they declared that to be their 
 policy and there was a great deal of profit in the business, capital 
 would go into it at once. We are very quick in this country to 
 seize upon opportunities that show good profit, and engage in that 
 particular enterprise. 
 
 Senator Brandegee. What, exactly do you mean by " latent " com- 
 petition ? I do not know that I comprehend that term. 
 
 Mr. Dwinnell. Well, it is the competition that is produced by idle 
 capital, or capital that is earning a small rate of interest, produced 
 by virtue of an opportunity to engage in enterprises which will pay 
 a larger return. 
 
 Mr. Brandegee. I do not quite see how there would be any compe- 
 tition by capital that was not actually invested in some competing 
 concern. 
 
 Mr. Dwinnell. We will use a different word. We will say " fear" 
 of competition instead of " latent." 
 
 Senator Brandegee. Fear of competition always exists, and yet 
 here we have a case where the profits on a ton of steel, if your figures 
 are correct, is equal to the cost of producing the ton of steel, and there 
 is no competition, except a few independent companies, and they get 
 the same price for their steel as the Steel Trust, would they not? 
 
 Mr. Dwinnell. Yes, sir; in that case I say that probably the tax 
 would have to be somewhat increased. 
 
 Senator Brandegee. Now, why, in your opinion, if there is such a 
 profit in that business as you think there is 
 
 Mr. Dwinnell. I am not saying that I think there is. I do not 
 know anything about it, except that it is common rumor. I cited 
 that as an illustration based upon rumor. 
 
 Senator Brandegee. Well, if it is so — if the figures you have sug- 
 gested are correct, and I do not know whether they are or not — if 
 they are, or anything like it, what in your opinion is the reason that 
 this latent competition does not come into effect now without any 
 tax on these smaller companies? 
 
COMMITTEE ON INTERSTATE COMMERCE. 97 
 
 Mr. Dwinnell. The fear of the tremendous power exercised by the 
 fourteen hundred millions of capital engaged in that enterprise. 
 Senator Brandegee. Now, if it is the fear of that dead-weight of 
 
 capital at their command 
 
 Mr. Dwinnell. It is not dead-weight. 
 
 Senator Brandegee. Well, live weight — if it is the mere fear of 
 weight of capital, how would such a tax as you indicate diminish the 
 threat of that aggregated capital ? 
 
 Mr. Dwinnell. It would impose a burden upon a larger aggrega- 
 tion and tend to place them upon equality. That would be the pur- 
 pose of the tax that as near as possible places these various amounts 
 of capital on equality. 
 
 Senator Brandegee. Well, lef me ask you this question : In your 
 opinion, would such a tax as you propose have any effect whatever in 
 inducing competitors to enter the business unless the tax was heavy 
 enough to deprive the aggregated capital in the business of any ad- 
 vantage that they would have as an existing concern and put them 
 on an almost level with the proposed competitor ? 
 
 Mr. Dwinnell. It would have to be sufficient to place them on a 
 level. 
 
 Senator Brandegee. That brings up the question, it seems to me, 
 whether it is the duty of the Government to use the taxing power 
 forever to equalize conditions among competing people in the same 
 business. 
 
 Mr. Dwinnell. Well, that is a question of policy. It may not be 
 the duty. 
 
 Senator Brandegee. Senator Cummins suggests sotto voce that we 
 sometimes do that in the tariff, where we are dealing with foreign 
 nations. 
 
 The Chairman. Senator Watson, do you care to ask any ques- 
 tions? 
 
 Senator Watson. Let me see if I understand your attitude. Sup- 
 pose two corporations were organized at a million dollars capital 
 each, and in the same business. At the end of 25 or 50 years one of 
 them has grown to a $2,000,000 corporation and the other to a 
 $10,000,000 corporation, your tax on the $10,000,000 corporation 
 would be five times as high as on the $2,000,000. 
 Mr. Dwinnell. Not necessarily five times as high. 
 Senator Watson. Well, in that proportion. 
 
 Mr. Dwinnell. Oh, no; it would not be in direct ratio with the 
 increase in capital. 
 Senator Watson. It would not be. 
 
 Mr. Dwinnell. Oh, no ; that would not be reasonable, m my judg- 
 ment. I do not think it would be graduated to that extent. 
 Senator Watson. That is all. 
 Senator Townsend. Your proposition is to impose a tax upon 
 
 capital ? 
 
 Mr. Dwinnell. Yes, sir. 
 
 Senator Townsend. What occasion would there be for a company 
 with $1,000,000 capital laying by a surplus of $10,000,000 in the 
 
 course of a year? , ., , m 
 
 Mr. Dwinnell. When I say capital, I do not necessarily mean 
 capital stock. The law of course would have to be framed to meet 
 that exigency. It would have to be framed so as to put a tax upon 
 
98 HEARINGS BEFORE 
 
 the capital, or the amount of money engaged in the business where 
 they sought to evade the tax by cutting down the capitalization. 
 
 Senator Townsend. And you would have this apply simply to 
 corporations. 
 
 Mr. Dwinnell. Yes, sir. 
 
 Senator Townsend. But you would do that on the ground that 
 because of the fact that they are permitted to combine the Govern- 
 ment has the right to tax in that respect ? 
 
 Mr. Dwinnell. Well, I do not know that I would put it exactly 
 on that ground. It is an exercise of the right of Congress under 
 the Interstate Commerce act. It is a regulation of commerce. 
 
 Senator Townsend. What would you do in the case of an indi- 
 vidual who put $10,000,000 into a business of twenty million ? 
 
 Mr. Dwinnell. There would be cases there that would not be 
 reached. 
 
 Senator Townsend. So that the man with immense capital, who 
 wanted to go into it and control that business, would not be placed 
 under the disadvantages that a large corporation would? 
 
 Mr. Dwinnell. Men of large capital operate through large cor- 
 porations as a rule, almost without exception. 
 
 Senator Townsend. Yes; but I can conceive that with immense 
 capital held by individuals throughout the United States, one man 
 might go into the manufacturing business. 
 
 Mr. Dwinnell. As a rule he would have to buy out a great many 
 associates before he could carry on the business himself. 
 
 Senator Townsend. But if he should do that, if possibly he should 
 do it, your proposition would not reach him ? 
 
 Mr. Dwinnell. It would not reach him, and it would be only cases 
 that could be covered, or that would not be covered. 
 
 Senator Townsend. I think that is all. 
 
 Senator Pomeeene. Would you apply that to transportation or in- 
 dustrial corporations. 
 
 Mr. Dwinnell. It would not apply to railroad corporations be- 
 cause under our trunk system now it is necessary to have very large 
 capitalization, and those trunk systems are in competition with the 
 other trunk systems, so you do not have to protect the small systems 
 against those trunk systems. 
 
 Senator Cummins. I can not understand why you can not apply it 
 to the individual as well as to the corporation. 
 
 Mr. Dwinnell. I suppose you could. It would be a little more dif- 
 ficult. You would have to have a statement instead of being guided 
 very largely by the professed capital stock. 
 
 Senator Cummins. _ The Supreme Court has decided that an indi- 
 vidual may be taxed in that way. 
 
 Mr. Dwinnell. Oh, yes; there is no constitutional objection to it 
 that I know of. It is only a matter of policy. 
 
 Senator Townsend. There would be a constitutional objection to it 
 if you placed it on the proposition that you were going to tax those 
 people, as is done to-day, because they had combined ; therefore, the 
 Government had the right to reach them. 
 
 Mr. Dwinnell. I was discussing policy rather than the constitu- 
 tional phase of the subject. It is a theory, a justification for the 
 act, in my judgment. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 99 
 
 There being no further questions, the witness was excused. 
 
 Senator Brandegee. Mr. Chairman, I have here a communication 
 from Mr. Easley, the chairman of the executive council of the 
 National Civic Federation, transmitting a letter, which has been 
 sent to some 20,000 competent business men and professional men of 
 the country, containing some suggestions concerning the very ques- 
 tion that we are investigating. It seems to me to comprehend the 
 issue that this committee is instructed to investigate so completely 
 that I would like permission to insert it in the record. I think it 
 would be helpful to the people to come before the committee. 
 
 The Chairman. That will be done, if there is no objection. 
 
 (The papers referred to are as follows :) 
 
 Executive Council of The National Civic Federation, 
 
 New York City, November 9, 1911. 
 Hon. Feank B. Brandegee, 
 
 Member of The Interstate Commerce Committee 
 
 of the United States Senate. 
 Dear Sib : Herewith please find a copy of a letter and a questionnaire being 
 mailed to-day to over 20,000 people, as explained in the letter of transmittal. 
 
 We believe that the hearing which your committee is going to hold is of rhe 
 highest importance to the well-being of the country, and we hope the matter 
 inclosed will help a little at least to focalize public sentiment upon your work. 
 Very truly, yours, 
 
 E. M. Easley, 
 Chairman Executive Council. 
 
 Executive Council of the National Civic Federation, 
 
 New York City, November 8, 1911. 
 
 Deab Sir: The department on the regulation of industrial corporations of 
 the National Civic Federation is preparing to propose constructive legislation 
 to deal with the business situation as it relates to the Sherman Antitrust 
 Act; and in the same connection is considering what State legislation is 
 called for, so far as State legislation is needed to cover such phases of the 
 subject as Federal law can not reach. 
 
 The Interstate Commerce Committee of the United States Senate will begin 
 a hearing on this subject in Washington on the 15th of November which will 
 doubtless continue for a number of weeks. The Senate committee consists of 
 the following members : Hon. Moses E. Clapp, chairman, Minnesota ; Hon. 
 Shelby M. Culloni, Illinois ; Hon. W. Murray Crane, Massachusetts ; Hon. 
 George S. Nixon, Nevada ; Hon. Albert B. Cummins, Iowa ; Hon. Frank B. 
 Brandegee, Connecticut ; Hon. George T. Oliver, Pennsylvania ; Hon. Henry F. 
 Lippitt, Rhode Island; Hon. Chas. E. Townsend, Michigan; Hon. Benjamin R. 
 Tillman, South Carolina ; Hon. Murphy J. Foster, Louisiana ; Hon. Francis G. 
 Newlands, Nevada; Hon. James F. Clarke, Arkansas; Hon. Thomas P. Gore, 
 Oklahoma ; Hon. Clarance W. Watson, West Virginia ; Hon. Atlee Pomerene, 
 Ohio. 
 
 The purpose of this hearing, it has been announced, is to secure representa- 
 tive views from all sections of the country. 
 
 To do what it can to facilitate a full and free discussion of this subject 
 from every standpoint, the committee in charge of the Federation's ^department 
 is sending the inclosed questionnaire to some twenty thousand representative 
 men — manufacturers, farmers, wholesale and retail merchants, lawyers, bank- 
 ers, political economists, labor leaders, officials of chambers of commerce and 
 boards of trade; in fact, to all classes of organizations directly affected by 
 existing legislation. The answers to the questionnaire will be studied by the 
 committee of the Federation and will be classified by States, and filed with 
 the Senate committee for its use. 
 
 Will you kindly fill out the inclosed blank — in whole or in part, as it pleases 
 you. 
 
 Respectfully, Seth Low, President. 
 
100 HEARINGS BEFORE 
 
 Questionnaire submitted to editors, political economists, lawyers, publicists, 
 
 statisticians, and others. 
 
 The Sherman Antitrust Act has now been interpreted by the Supreme Court 
 to mean, as to interstate commerce, that any combination in restraint of trade 
 with the purpose of controlling prices and stifling competition is unlawful. 
 
 No form of combination has been successful in surviving attack if, " in the 
 light of reason," these qualities have attached to its operations. It must, of 
 course, be proved in a given case whether the combination in question has 
 produced these results ; but it may be taken for granted that when these results 
 have been established the Sherman law will be effective to destroy the combina- 
 tion. Many evils, however, that can not be reached under the Sherman Act 
 have developed in connection with such combinations, and at the same time the 
 advantages of doing business on a large scale are so great as to make the con- 
 centration of capital essential to the full and efficient development of modern 
 business. 
 
 The problem before the country now is to secure the benefits of large aggre- 
 gations of capital in business, so far as this can be done without subjecting 
 ourselves to the evils — most of them wholly unnecessary — which have marked 
 the business methods of the last few years. 
 
 SOME ALLEGED EVILS CHARGED AGAINST LARGE COMBINATIONS. 
 
 1. Competition between the States to make laws governing incorporation more 
 and more lax. 
 
 2. Power to exploit both the producer and the consumer by depriving them 
 of a competitive market, thus making the prices of the raw material unduly 
 low and those of the finished commodity unduly high. 
 
 3. The holding company, which multiplies the power of control inherent in a 
 given amount of capital ; which leads to a concentration of power, sometimes 
 perilous, in a few hands ; and which conceals the exercise of this power by the 
 few. 
 
 4. Unfair methods of competition, as illustrated. 
 
 (a) By the selling of goods in a given locality, where a competitor is oper- 
 ating, at prices below cost of production until the local competitor is ruined. 
 
 (6) By the selling of one variety of goods at less than cost for the purpose 
 of driving from the field a rival who produces chiefly this variety. 
 
 5. Restraint of trade, as illustrated. 
 
 (a) By refusing to furnish goods at prevalent trade rates to merchants who 
 buy anything from rival producers, or who refuse to maintain list prices, as 
 required by "seller's agreements." 
 
 (6) By control of sources of raw material. 
 
 (c) By use of patents to protect what is not patented. 
 
 6. Over-capitalization. 
 
 7. Inadequate protection of minority stockholders and of subsidiary interests ; 
 and exploitation of investors by manipulation of stocks and securities. 
 
 8. The checking of improvements in methods of production, if monopoly is 
 successfully assured. 
 
 If you believe there is any other evil to be corrected (or if you think that any 
 of these things are not evils) please indicate it in your reply. 
 
 PROPOSED REMEDIES FOR ALLEGED EVILS. 
 
 1. Competition between the States to make the laws governing incorporation 
 more and more lax. 
 
 Federal legislation ,can deal with this either by requiring national incorpora- 
 tion for companies doing interstate commerce, or by requiring that State corpora- 
 tions doing interstate commerce take out a Federal license under suitable 
 conditions. 
 
 Which do you prefer? 
 
 Have you any other proposal to cover this point? 
 
 2. Exploitation of producers and consumers. 
 
 The exploitation of producers and consumers is dealt with under the Sher- 
 man Antitrust Act. 
 Do you favor additional legislation? If so, what? 
 
 3. The holding company. 
 
COMMITTEE ON INTERSTATE COMMERCE. 101 
 
 This can be remedied by laws that will prevent one company from holding 
 stock in another company. 
 Do you favor such laws? 
 Or, do you believe in holding companies'? 
 
 4. Unfair competition ; and 
 
 5. Restraint of trade 
 
 Are dealt with under the Sherman Antitrust Act. They may be reached In 
 part if not altogether by statutes expressly forbidding specified practices. 
 Which do you prefer? 
 
 6. Over-capitalization. 
 
 This can be remedied by laws that provide for Government regulation of 
 capitalization. 
 Do you favor such laws? 
 
 7. Inadequate protection of minority stockholders and of subsidiary inter- 
 ests ; and the exploitation of Investors. 
 
 Can be remedied by laws that call for publicity and that apply to commercial 
 corporations, through a commission to be appointed for that purpose, methods 
 akin to those now used in regulating common carriers and their rates through 
 the Interstate Commerce Commission. 
 
 Do you favor such laws? 
 
 ADVANTAGES CLAIMED FOR THOSE DOING BUSINESS ON A LARGE SCALE. 
 
 1. Economies in production. 
 
 2. Economies in distribution. 
 
 3. Greater use of by-products. 
 
 4. Steadier employment of labor, and at better wages. 
 
 5. Better protection against industrial accidents. 
 
 6. More command of international trade. 
 
 7. Command of the best ability. 
 
 If you believe there are other advantages, or if you deny that the above 
 advantages exist, please indicate it in your reply. 
 
 If interstate business on a scale large enough to secure these claimed advan- 
 tages is to continue, it is asserted by some that provision must be made by 
 Federal law. 
 
 (a) To permit large aggregations of capital under single control, and for the 
 merger from time to time of smaller corporations; or 
 
 (6) To permit agreements which regulate production, prices, and the like 
 under suitable public control. • 
 
 Either of these methods of controlling large aggregations of capital engaged 
 in interstate trade necessitates an interstate trade commission with powers 
 riot unlike those now enjoyed by the Interstate Commerce Commission in rela- 
 tion to common carriers. 
 
 Do you favor such an interstate trade commission? 
 
 General remarks : 
 
 Name, ; address, — ; occupation . 
 
 questionnaire submitted to manufacturers, merchants, bankers, and the 
 presidents of commercial, labor, and other organizations. 
 
 1. Do you believe that the Sherman law, as now interpreted, is made clear 
 and workable? 
 
 2. Do you consider it feasible to attempt to return to what are commonly 
 known as old competitive methods in business? 
 
 3. Do you favor a repeal of the Sherman law? 
 
 4. Do you favor amending the Sherman law in any way? If so, in what 
 particulars? 
 
 5. Should railroads be allowed to enter into agreements affecting rates, sub- 
 ject to the approval and regulation of the Interstate Commerce Commission? 
 
 6. Should trade unions be excepted from the operation of the Sherman Act? 
 
 7. Should combinations of farmers, either to restrict production or to hold 
 a crop for higher prices, be rendered lawful under the Sherman Act? 
 
 8. Do you favor a national incorporation law? 
 
 9. Do you favor a Federal license law? 
 
 10. Do you favor an interstate trade commission with powers not unlike 
 those now enjoyed by the Interstate Commerce Commission in relation to 
 common carriers? 
 
102 HEARINGS BEFORE 
 
 11. In your judgment what caused or causes the present disturbed business 
 conditions? 
 
 General remarks:- 
 
 Name, ; address, ; occupation, 
 
 The Chairman. It is now 4 o'clock, and if there is no one pise 
 who desires to address the committee, we will adjourn until to-mor- 
 iow morning. 
 
 Mr. Martin. Mr. Chairman, I will say that I came here from New 
 York purposely to appear before you. I came immediately from 
 my home, and if you desire to hear me I am ready to go on now ; if 
 not, I would like to know from the chairman if I may be heard 
 to-morrow. It will be some convenience to me to know in advance. 
 
 The Chairman. Unless there is objection you may proceed, and we 
 may ask you a little later on to suspend until to-morrow morning. 
 
 STATEMENT OF MR. HENRY B. MARTIN, OF NEW YORK, N. Y., 
 NATIONAL SECRETARY OF THE AMERICAN ANTITRUST 
 LEAGUE; ALSO ENGAGED IN THE MINING BUSINESS. 
 
 Mr. Martin. Mr. Chairman, personally I am in the mining busi- 
 ness. I appear before the committee, however, as a representative 
 of my organization. 
 
 Mr. Chairman and gentlemen of the committee, I appear before 
 the committee on behalf of the organization primarily because of the 
 fact that I noticed in the statement of the Senator from Nevada that 
 one of the purposes of his bill, which has been considered by this 
 committee and by the Senate, was to modify and amend, and prac- 
 tically to entirely restrict, the Bureau of Corporations. Our organi- 
 zation were the originators of the Bureau of Corporations law. I 
 wrote the first draft of that law myself, and when it was before the 
 House Committee on Interstate Commerce and there was an amend- 
 ment to be inserted creating the Department of Commerce and 
 Labor, three members of our organization were the only gentlemen 
 who appeared before that committee to urge its passage — Mr. Her- 
 man J. Schulteis, the attorney of our organization, the Antitrust 
 League, Congressman Sulzer, of New York, and myself. Fortu- 
 nately the amendment was accepted by the committee, inserted in the 
 bill, and it was passed by the House and adopted by the Senate and 
 was sent back to the Senate for acceptance of the House amendment. 
 
 Now, while our organization is favorably disposed toward any 
 new steps that Congress may see fit to take wisely for the regula- 
 tion of the great corporations engaged in interstate commerce — the 
 great aggregations of capital — we believe that the matter is of such 
 large importance that in any steps that Congress takes, the greatest 
 deliberation should be observed and nothing done hastily. In start- 
 ing on a voyage or a process of manufacture of any legislation gov- 
 erning this great subject, we believe there are certain great rules- 
 landmarks of our Government and of our principle of government — 
 that should be observed in this legislation. We are adherents of 
 the idea laid down in the Constitution of the United States that the 
 purpose of this Government and of its founders was the establish- 
 ment of freedom and equality, and we believe that all legislation now 
 to be enacted affecting these matters should have that purpose mainly 
 in mind, and be directed principally to that end. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 103 
 
 The objection that we have or that the Antitrust League has 
 and the great mass of the people of the United States have to the 
 operations of the so-called trusts and great corporations and aggre- 
 gations of capital in interstate commerce, is that they destroy the 
 principle of freedom and equality in commerce and industry and 
 labor. For that reason the antitrust act of 1890, which our "mem- 
 bers were very actively in favor of, was passed and is on the statute 
 books. To accomplish that purpose the interstate commerce law 
 of 1887 was enacted, and the national president of our organization, 
 Mr. M. L. Lockwood, of Oklahoma, was one of the committee of five 
 which came to Congress in 1884 with the first draft of an interstate 
 commerce law and gave it to Congressman Reagan, of Texas, who 
 introduced it. He welcomed it with open arms and said he had been 
 looking for it for many years. It was known for years as the Reagan 
 bill, afterwards passed, I believe, as the Reagan-Cullom bill, and is 
 now the great perfected statute of interstate commerce. So that for 
 a long time our people have been profoundly interested in this sub- 
 ject, and we wish to submit to this committee that the matter em- 
 bodied in the bill of the Senator from Nevada, and to some extent 
 in the bill of the gentleman from West Virginia — Mr. Vinson, I be- 
 lieve his name is — who spoke here this afternoon, seems to us to con- 
 travene a great basic principle that should govern legislation regu- 
 lating interstate commerce, which is divided into two fields — legisla- 
 tion regulating railways, steamship lines, pipe lines, telegraph lines, 
 telephone lines, and other instrumentalities -for the maintenance ot 
 highways and the operation of transportation are matters of one class 
 and entirely different and widely divergent from business of the other 
 class, such as manufacturing, mining, and merchandizing industries, 
 and agriculture. The same principle which governs the enactment of 
 law, in our belief, to regulate the maintenance of highways and the 
 transportation industry, do not apply to the regulation of organiza- 
 tions, corporations, and combinations of capital engaging in mining, 
 manufacturing, and merchandising. 
 
 I think I may say truthfully that the creation, maintenance, and 
 control of highways for travel and transportation have been from 
 time immemorial one of the most important functions of civilized 
 government; one of the half dozen great essential attributes of sov- 
 ereignty of which no State could divest itself without weakening ir« 
 the gravest and most dangerous manner its authority and power. I 
 think right in the United States the history of our transportation 
 and our railroad corporations is conclusive proof of the soundness of 
 this doctrine and that principle. They have for many years usurped 
 this great function of the Government, the maintenance and the 
 operation of highways and the creation of highways. 
 
 There is no more reason why a highway laid on steel rails should 
 not be a public highway than the streets of the city of Washington. 
 In most cases it is the essential function of the Government to create 
 and maintain that highway open and on equal terms to every citizen, 
 and every business and industry and corporation, big or little. Had 
 we done that, Mr. Chairman and members of the committee, it is 
 our belief that there would be no such thing as trusts in the United 
 States to-day. I think I may say, and it is susceptible of proof, and 
 I will undertake to prove it to the committee, if there is any doubt 
 
104 HEAEINGS BEFOBE 
 
 about it, that all the great trusts and monopolies in the United States 
 to-day — the great bulk of them at least — originated largely through 
 the favoritism in the way of rates and rebates and privileges 
 exended to them by the private corporations which controlled the 
 railways. 
 
 That being the case, one of the first things that, I believe and our 
 committee believes, should engage the attention of this committee in 
 legislating upon this matter should be to consider whether to-day 
 there are any of these great trusts and aggregations of capital who 
 are receiving any special favors or advantages to enable them to 
 crush out competition and control the market. If there are, then, 
 if the existing law does not provide for a proper and early remedy 
 for that, then, of course, that is a proper subject for legislation. 
 However, if existing law does provide adequate and thoroughgoing 
 remedies for that evil, then there must be some reason why the 
 existing law is not made effective. There can only be one reason, 
 and that is from the failure of the executive branch of the Govern- 
 ment to properly enforce the law. It is the firm belief of our organi- 
 zation, and I believe of the great mass of the people of this country 
 to-day, that the principal difficulty, the principal evil that we suffer 
 from at present in the United States from these great aggregations 
 of capital known as trusts in the manufacturing, mining, and mer- 
 chandizing business, arises from their ability to defy the law, to 
 escape its provisions and its penalties; from the laxity, negligence, 
 or carelessness and inefficiency of the executive departments in the 
 enforcement of the interstate-commerce and antitrust act of 1890, 
 and the Bureau of Corporations law as well. 
 
 I note that to-day, and it is a matter that we had under considera- 
 tion yesterday, because we understood that it was to be done in our 
 committee — that members of Congress have declared, and the chair- 
 man of the Eules Committee of the House, a very eminent member 
 of the House of Representatives, declared a very drastic measure 
 might and probably will be called the cruel Draconian law, to fur- 
 ther punish the men who violate the antitrust law, by providing that 
 the punishment shall be no fine but shall be not less than 2 years nor 
 more than 10 years in the penitentiary. 
 
 Now, the offenses that aroused the lawmakers to the extent of call- 
 ing for such drastic and savage remedies as that must be very grave 
 offenses. They must be known largely to the people of the country, 
 and I believe they are. The offenses and crimes of the trusts are so 
 great that they are no more to be hidden than the dome of the 
 Capitol. They are visible to every one. The offenses of corporations 
 like the Standard Co., the United States Steel Corporation, and the 
 Tobacco Trust are so widespread that they are known of all men. 
 
 Now, the fact, Mr. Chairman and gentlemen of the committee, that 
 these offenses have not been adequately and properly dealt with in 
 the past has aroused so much indignation that a committee was 
 appointed by the House of Representatives to investigate at the 
 spring session of this Congress the Steel Trust and the Railroad 
 Trust, the Bank Trust and the Coal Trust as prominent examples of 
 this wholesale defiance of the law and of the neglect of the executive 
 offices of the Government to properly punish or proceed against those 
 violations of the law. The complaint is made by the distinguished 
 
COMMITTEE ON INTERSTATE COMMERCE. 105 
 
 Senator from Nevada in his remarks before this committee that for 
 twenty-odd years the interstate-commerce act and the antitrust act 
 had been on the statute book ; that because one of them had been, or 
 its enforcement has been, in charge of a commission it has been suc- 
 cessfully enforced, relief has been secured for the public by the 
 enforcement of that law, as aimed and intended by the law; that 
 the other one has failed of enforcement and has been neglected and 
 the people received no relief from the enforcement of the antitrust 
 law, practically no relief, because it has been in the hands of the 
 Attorney General. If that is true, a grave, injurious, and widespread 
 extortion has been practiced upon the people of the United States 
 during these 21 years that that law has been on the statute books 
 through the neglect of executive officers, like the series of Attorney 
 Generals who have held their offices and who have failed to enforce 
 it, then it becomes not only a matter of complaint but it becomes a 
 matter for action on the part of Congress, and it is the feeling of 
 the members of our organization, and I believe it is the feeling of 
 the people of this country, that Congress should exercise a super- 
 visory authority and should look into the operations, yes, look care- 
 fully and critically into the operations of the executive officials who, 
 as complained by the distinguished Senator from Nevada, have failed 
 and neglected and refused to enforce this statute which was intended 
 to give the people relief from these almost unbearable evils. 
 
 The Constitution, as I understand it, provides process and methods 
 by which Congress may supervise and take steps to remedy these 
 difficulties. It may be necessary to resort to the drastic remedy of 
 impeachment of any public official in the executive department whose 
 conduct is such as to result in violation of the law, and in great in- 
 jury to the people. But certainly no greater injury of a financial 
 character could be wrought to the people of the United States than 
 has been wrought by the widely extended and almost unhindered 
 operations of such concerns as the beef trust, the oil trust, the to- 
 bacco trust, the steel trust, and others of that character. Nearly 
 every citizen has felt the heavy hand of oppression from them, and 
 if relief is within reach of the hands of the Attorney General we 
 believe the Attorney General ought to give the people that relief, and 
 if he fails to do it that Congress, in the exercise of its supervisory 
 authority, should look into the matter and take whatever steps may 
 be necessary for them to take, and that promptly. 
 
 On behalf of my organization I desire to submit to the committee 
 the consideration of that fact. 
 
 Now, Mr. Chairman, and gentleman of the committee, as to the 
 matter of remedy for this situation, one remedy has been suggested 
 here this afternoon that meets with my approval, and that was the 
 remedy suggested .by Mr. Dwinnel, the gentleman from Minneapolis, 
 as to a graduated tax, I think he said, upon the greater corporations 
 engaged in that line. It is an old maxim of the law that the power 
 to tax is the power to destroy, and there is no doubt in my mind but 
 what the experience of the learned gentlemen who compose this com-, 
 mittee could very readily draft a statute that would make use of the 
 power in a way that would effectively destroy the power of these 
 great interstate corporations. 
 
 The question was asked by one of the Senators of Mr. Dwinnel, 
 when he was on the stand, about how the tax of 1 per cent on capital i- 
 
106 HEARINGS BEFORE 
 
 zation would affect those corporations in the matter of causing compe- 
 tition in the price of rails, the inference being that the tax would be 
 so small that it would not amount to much, as compared with the 
 great profits in the business of producing rails and a profit of 100 
 per cent over cost. I made a small calculation while the gentleman 
 was talking on that subject, and the capitalization of the steel cor- 
 poration is to-day something over $1,700,000,000. A tax of 1 per cent 
 would be a tax of about $17,000,000 upon the steel corporation, and 
 they produce somewhere about 1,700,000 tons of rails in a year. 
 
 Senator Pomerene. How much did you say? 
 
 Mr. Martin. One million seven hundred thousand tons a year ; 
 that would be equivalent to a tax of about $10 a ton, and I do not 
 think they would relish that a bit. It seems to me that that would at 
 least call their attention to the matter and might be stimulative of a 
 little competition. As a matter of fact I think Mr. Dwinnel was 
 wise in not assenting to the proposition that the antitrust law should 
 be repealed or amended. We believe, and we desire to urge upon 
 this committee, the necessity of giving a very thorough trial to the 
 antitrust law with all its provisions before it is further amended. 
 We believe that one of the most dangerous things that Congress could 
 do to-day would be to amend the antitrust law. There is a statute 
 which was drawn by some of the greatest legal minds in the history 
 of this Republic — men of both parties who worked harmoniously and 
 earnestly in the preparation of that statute ; some of the greatest men 
 in the history of the country of both parties united in the preparation 
 of that statute, and it was reported, I believe, from the Judiciary 
 Committee unanimously. Those men were bright men, and I believe 
 that statute is a very excellent instrument for the protection of the 
 people's right against trusts if it is enforced, for no matter how good 
 a statute is, if it is not enforced the people get no relief. That is the 
 only trouble with this situation to-day, we believe. For instance, 
 President Taft said in his speech in Chicago, and we agreed with 
 him heartily, that the business men complained that they were unable 
 to understand when they were violating and when they were not 
 violating the antitrust act. We believe that the business men who 
 made that protest are either extremely innocent or intentionally 
 deceptive — one of the two — because, as the President said, he doubted 
 the soundness of their contention, and that any jury could tell in two 
 minutes whether a man was intending to establish a monopoly or a 
 corporation, or whether they were not, and our only suggestion to the 
 President now, and to the members of this committee, is that it would 
 be a good thing to give them a chance before the' juries. There are 
 very few of them who have ever been brought before any jury to try 
 whether they are guilty or innocent, and when there was a late 
 attempt to bring them before a jury they were so sure of their inno- 
 cence that they resorted to the extraordinary proceeding, habeas 
 corpus, to avoid getting before the jury. I suppose that was an 
 evidence in their minds of their innocence, that they had not violated 
 the law. We believe the criminal clauses of the law certainly ought 
 to be given much more full and thorough trial than they have been 
 given so far, before anyone passed his judgment as to whether the 
 law ought to be amended in that respect. 
 
 As to the civil provisions of the law, in the latest case, the Tobacco 
 Trust case, the Attorney General expressed his hesitancy about in- 
 
COMMITTEE ON INTERSTATE COMMERCE. 107 
 
 voking the drastic remedies of the civil clauses of the antitrust actj 
 and as a matter of fact those drastic remedies, I believe, .with one 
 lone exception in 21 years, have never been invoked. 
 
 Now, if we have a law, that even in its civil provisions, without 
 going to the criminal provisions, provides such drastic remedies that 
 the Attorney General was afraid to invoke them, I think it well 
 for this committee to have the Attorney General to come here and 
 explain why he is afraid to invoke them. 1 think the people of the 
 United States are interested to know if we have a law that in its 
 civil provisions and so effective upon the violators, that the great 
 Attorney General of the United States is afraid to invoke it against 
 them, that by the instrumentality of the law of 1890 against trusts, 
 a provision is inserted in the civil clause of the act — not one but 
 several provisions — that the giant, seasoned, rhinocerous hided cor- 
 poration, like the Tobacco Trust and Standard Oil, become tender 
 about it, and the Attorney General is afraid to invoke it, it seems 
 to me we ought to know why. They have not been tender in other 
 respects. They have not been tender of the consumers. They have 
 taken the last drop of blood and the last pound of flesh wherever they 
 could get it, but it seems to me the law should take its course with 
 these men, and the failure or neglect of our Attorneys General for 
 21 years to make use of this law, I think and it is the belief of our 
 organization that it is ample reason why something should be done- 
 now on the part of Congress in the exercise of its supervisory power 
 to see that more active steps are taken by the executive departments 
 in that direction. 
 
 Noav, when we come to the matter of new legislation, our organiza- 
 tion, the Antitrust League, is strenuously opposed to amending the 
 antitrust law at this time. Because it has never been given a full 
 and fair trial, either as to its civil or criminal provisions, is no sign 
 that we are not in favor of additional legislation regulating inter- 
 ptate commerce, and we have a bill pending in the House of Repre- 
 sentatives how which we had introduced and which was drawn up by 
 the members of our organization in consultation with our counsel. 
 It was introduced March 23, 1909— no; I have that date wrong. 
 However, it is for the purpose of creating a department of transpor- 
 tation, with a secretary of transportation at the head of it, whose 
 duties would be, as was suggested by the legal gentleman from West 
 Virginia who was on the stand this afternoon, to exercise the police 
 power, if you please, of the Federal Government over interstate com- 
 merce. As respects highways, our study of the question and observa- 
 tion of the operation Of the existing interstate-commerce law has led 
 us to the understanding that the Interstate Commerce Commission, 
 Avhile composed of the very ablest and most patriotic efficient public 
 officials, is overburdened with work — detail work of the enforcement 
 of the law rather than the primary duty which was imposed upon 
 them of practically doing the work that Congress otherwise would do. 
 
 We are of the opinion, after thorough study of the matter, that 
 the executive work of the Interstate Commerce Commission should 
 be separated from the legislative work and the judicial work placed 
 in the hands of a department of transportation with a secretary of 
 transportation at the head, whose duty would be to see, as I said, 
 to the enforcement of the police power, the police authority over the 
 
108 HEARINGS BEFORE 
 
 great empire of transportation which is now represented by more 
 than twenty millions or capital with an annual income running up to 
 nearly three billion of dollars, or almost three times the annual in- 
 come of the Government; that that is a great empire of business 
 which has no executive authority practically of the Federal Govern- 
 ment exercised over it. Its employees are a million and a half of 
 men, and its owners are hundreds of thousands of capitalists, and that 
 is such a vast empire that has been erected in the United States, which 
 has practically no executive authority that the United States Gov- 
 ernment exercises over it, that we believe a new department known 
 as the Department of Transportation should be created to take over 
 that executive work from the Interstate Commerce Commission and 
 perform it in a proper way. It would relieve the Interstate Com- 
 merce Commission of a great deal of the onerous and unnecessary 
 work that it has to do now and enable it to more efficiently and 
 perfectly perform its legitimate functions. 
 
 I will say in that connection that I have consulted with members 
 of the Interstate Commerce Commission and they are entirely in 
 accord — some of them, at least — with that idea. They are perfectly 
 willing, which is somewhat unusual in Government departments, to 
 surrender that part of their present power and authority to the 
 executive department, and I shall ask the privilege of inserting in 
 my testimony, with the kindness of the chairman, some expressions 
 from very eminent and able members of the Interstate Commerce 
 Commission in support of that idea. 
 
 The Chairman. That permission is granted, but it will have to 
 be done this evening, as the record will go to print to-night. 
 
 Mr. Martin. Well, I will let it go. Mr. Schulteis, the counsel of 
 our organization, will probably later on desire to say something on 
 the legal side of the matter. I am a layman and not a lawyer, and 
 we desire to have him present some views of the matter, and he can 
 incorporate it at that time. 
 
 Now, as the suggestion has been made here by one of the witnesses 
 and from the questions asked, I take it that some impression has 
 been made on the committee. 
 
 The Chairman. It is now half past 4 o'clock. Does the com- 
 mittee desire to proceed further or take an adjournment until to- 
 morrow morning. 
 
 Senator Watson. I move that we adjourn until 10.30 a. m. to- 
 morrow. 
 
 The Chairman. There are some gentlemen here who desire to be 
 heard by the committee, and we will appreciate it if they will be 
 here to-morrow at half past 10. We will go on with the hearing, 
 Mr. Martin, at half past 10 o'clock. 
 
 (The committee thereupon, at 4 o'clock and 40 minutes p. m., 
 adjourned until to-morrow, November 17, 1911, at 10.30 o'clock a. m.) 
 
COMMITTEE ON INTERSTATE COMMERCE. 109 
 
 FRIDAY, NOVEMBER 17, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, fo define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Brandegee, 
 Oliver, Townsend-, Newlands, Watson, and Pomerene. 
 
 STATEMENT OF GEORGE HERBERT BEAMAN, 2232 MASSACHU- 
 SETTS AVENUE, WASHINGTON, D. C. 
 
 Mr. Beaman. Mr. Chairman, I would like about five minutes in 
 which to submit some views to the committee. 
 
 The Chairman. The committee will be glad to hear you. 
 
 Mr. Beaman. I was the manager of the Boston Chamber of Com- 
 merce when the original committee was appointed, and they came 
 on to Boston. I was exporting grain from Boston to England, and 
 I made arrangements with the largest grain exporter in Glasgow, 
 David Bannerman, one of the finest men they have in the trade, and 
 I was trying to export grain, largely corn, from Boston to Glasgow 
 and Liverpool. 
 
 In trying to do that business I wo^ild buy 16,000 bushels of corn 
 and put it in the elevator in Boston, and I would cable Mr. Banner- 
 man and ship him what is called 8,000 bushels, or 16,000, or multiples 
 of 8,000 bushels of corn. My idea was to keep 16,000 or 24,000 bushels 
 of corn in the Boston elevator and replace them by ordering carloads 
 of corn from the West. That was the plan that I intended to carry 
 out. Mr. Bannerman would cable to me at Boston the price he would 
 give delivered in Glasgow for the corn, and delivered sometimes in 
 Liverpool. Then I would cable him back, and I was able to make 
 some trades with him, but I found on investigating the matter that 
 the large shippers in the West were always getting a lower rate than 
 1 could obtain. So I carried on that business for some time with Mr. 
 Bannerman, until I found it was impossible to compete with a few 
 large shippers in Chicago or St. Louis. So I made up my mind that 
 I would investigate the whole matter, and from that time to this I 
 have given my time to the investigation of this railroad rebate busi- 
 ness. I was the only member of the Boston Chamber of Commerce, 
 and an officer of that institution, that appeared before that committee, 
 and I telegraphed to Senator Cullom, the chairman of the Interstate 
 Commerce Committee at that time, telling him what was going on in 
 the country as to secret rebates. I claim, practically, to be the first 
 , man who presented that question to that extent in Boston as a mem- 
 ber and manager of the Boston Chamber of Commerce. All the state- 
 ments that I made before that committee then have proven true, and 
 the men whom I charged practically with taking those rebates have 
 been brought before the court of public opinion and condemned. 
 
 This important committee, which I consider to-day the most im- 
 portant in the Nation, is confronted now with the same question, and 
 
110 HEARINGS BEFORE 
 
 you are asked either to go forward or to go backward. I claim as a 
 citizen of this country, after having given my testimony on this ques- 
 tion, that I have a right to give an opinion which I consider valuable. 
 My brother, Charles C. Beaman, of the firm of Evarts, Choate & 
 Beaman, had more to do, I think, with the reorganization of the rail- 
 roads of the country than perhaps any other man. I consider that 
 what he did to bring about the reorganization of these great roads and 
 put them on their feet entitles him to the thanks of the country. 
 
 I received to-day a report from one of the great railroads, the Chi- 
 cago & North Western, and I consider that it is one of the most finished 
 reports that has ever been published. It shows now that your work 
 has accomplished something; that you have forced the great rail- 
 roads of the country to make reports to the people and to the stock- 
 holders that are valuable. 
 
 Mr. Chairman and members of this committee, I feel the utmost 
 confidence in your good judgment. There are things that I might 
 say to you, because I have a knowledge of the facts that would be of 
 great value, but I hesitate to say what I know to be true. I will Say 
 this, that the people of this country have resolved that we shall have 
 an honest administration of the railroads of the country. 
 
 I have been doing what I could toward electing ex-Gov. Foss gov- 
 ernor of Massachusetts. He is pledged to the reform of the railroad 
 question, and I look forward to this committee to go forward with 
 this work. I have a right to say this because the country has allowed 
 the railroads to go on and manage their business in such a way that 
 it has brought the Nation to a^great crisis. 
 
 Now, I demand that you go forward in your work ; that you insist 
 that these railroads shall make proper and correct rates. One of 
 your Senators, who has had as much experience as any Senator in 
 the United States, told me that any body of men could fix these rates. 
 The question is before the country to-day. That power must be 
 lodged somewhere. You have placed that power in the Interstate 
 Commerce Commission, and I claim, as a citizen of the United 
 States, that you shall back up that commission. That commission 
 has been given power to say what those rates shall be. Where shall 
 that power be lodged? Are there any better set of men than those 
 seven who have been appointed and confirmed by this Senate to say 
 what that rate shall be? Have you any right, having created such 
 a commission and given them that power, to bring the country into 
 a state of chaos by withholding that power? I claim as a citizen of 
 the United States that having given them that power it is your 
 duty to back them up and see to it that that power and the opinions 
 that they give shall have the merit of law. I stand here now having 
 made a study of that question, and I tell you frankly that if this 
 committee and this Senate at this Congress shall not uphold the 
 Interstate Commerce Commission in that power that you have 
 settled upon them, then I shall go and do what I can to carry out the 
 idea of William J. Bryan — that the Government itself shall take 
 possession of the railroad to protect the great interest of the United 
 States. 
 
 Mr. Chairman and members of this committee, I stand ready to 
 give such evidence as you may want to prove what I now say, that 
 the finances of this Nation are in such a position to-day that there 
 must be some power to fix those rates ; otherwise the Nation will pass 
 
COMMITTEE ON INTERSTATE COMMEECE. Ill 
 
 through years of depression. I appeal to you, therefore, as a citizen 
 of the United States having some rights in this matter, that you 
 insist that that power that you have lodged in the Interstate Com- 
 merce Commission shall remain therein* 
 
 Mr. Chairman and gentlemen, I thank you for the privilege of 
 saying these few words. These words that I have said I shall follow 
 up with all the power and strength that I have, and I hope, that I 
 shall be but an humble instrument in following the lead of this great 
 committee. 
 
 ADDITIONAL STATEMENT OF HENRY B. MARTIN, NEW YORK, 
 N. Y., NATIONAL SECRETARY OF THE AMERICAN ANTITRUST 
 LEAGUE. 
 
 The Chairman. Mr. Martin, you may resume the stand. 
 Mr. Martin. Mr. Chairman and members of the committee, I de- 
 sired, if possible, in. my statement of yesterday to make clear the po- 
 sition that our antitrust people hold, and which I believe a great 
 many people of the United States hold— and we are inclined to be- 
 lieve that the majority of people hold — that there is a wide distinc- 
 tion that should always be recognized in legislation between the 
 power of the Government to. make rates upon railroads and their 
 power to make prices on commodities and products of manufacture, 
 merchandising, and mining. The one is clearly a government func- 
 tion; the other is in no proper sense a government function. The 
 regulation of the railroad rates can not be left to the force of com- 
 petition, whereas the regulation of prices of commodities can. I 
 have endeavored to put in a very compact form, in just a few words, 
 my idea in regard to that, which I would like to give you. 
 
 The reason for this is plain. There can be no question that the 
 fixing of tolls or rates over the highways is clearly a function of the 
 Government, and is an altogether different thing from the fixing of 
 prices on pork, or potatoes, or steel, or lumber, or any of the other 
 thousands of articles of human consumption which enter into inter- 
 state commerce, the prices of which under free and fair competition 
 naturally regulate themselves by the great law o£ the supply and 
 demand. With an equity, precision, and celerity inconceivable under 
 any socialistic scheme, the Government fixes prices by the joint wis- 
 dom of a Government board and a board of directors of some great 
 combination that controls that industry on the lines suggested by 
 the testimony yesterday in regard to the coal interest. If we permit 
 a corporation or a group of corporations to seize the control of an 
 entire industry, then the effort of the Government in cooperation with 
 them to fix prices becomes an impossibly complex problem, whereas 
 if we secure equality of rates over the highways to all the shippers, 
 and enforce the provisions of the antitrust act under free and fair 
 competition, the force of supply and demand will regulate the prices 
 as naturally as that water runs downhill. 
 
 I do not think there can be any question about that, and therefore 
 we address ourselves to the proposition, and we urge upon this com- 
 mittee that the first legislation is legislation that shall secure this 
 equality of rights over the highways and restore freedom of com- 
 petition — free and fair competition. Of course it is not fair com- 
 petition when one corporation like one of the great trusts— the 
 
 22S77— vor. I— 12 S 
 
112 HEARINGS BEFORE 
 
 Standard Oil, for instance, and the Steel Trust — have special rates 
 and rebates and favoritism from the railroads in competition with 
 an independent manufacturer who has none of those privileges. 
 That is competition, but it is not free and fair competition. It is 
 destructive competition in which the trust is aided by ah instru- 
 mentality in the shape of a railroad that is in the hands of a private 
 corporation. 
 
 So the basis upon which we feel that Congress should direct its 
 efforts at the present time, if possible, would be the divorcement 
 of all connection, secret or open or otherwise, between the great 
 trusts and the railroads. Many people were inclined to the thought 
 that that had already been accomplished by laws against rebate and 
 the Interstate Commerce Commission, etc., but the investigation 
 made by the Stanley committee, which is investigating the steel and 
 railroad business in the House of Representatives, has shown clearly 
 that that is not true; that rebates and preferences and special priv- 
 ileges still continue. For instance, it was shown that a couple of 
 short railroads, running from the ore mines to the lakes in Minne- 
 sota, were charging a rate of freight on ore that was easily demon- 
 strable as being 400 per cent too high. The effect of that was to 
 give the Steel Corporation, which owns the roads, a rebate over 
 the competing steel men of somewhere in the neighborhood of $1.50 
 to $2 a ton on pig iron. Of course that was a terrible advantage. 
 
 Now, since the exposure before the Stanley committee of these 
 facts, the Steel Corporation, and the facts bearing upon that idea in 
 the press, they have decided to cut those rates 25 per cent — reduce 
 them from 80 cents to 60 cents, and there is no doubt but what the 
 Interstate Commerce Commission, or some other governmental agency, 
 will soon compel them to cut them in two — 50 per cent more — because 
 it will be entirely reasonable, for the evidence taken before the Stan- 
 ley committee shows that those roads were making 45 per cent to 75 
 per cent and 100 per cent, and in one year 150 per cent, in dividends. 
 Of course railroads that do that are certainly practicing extortion 
 on some part of their shippers or they could not do it. 
 
 That is only one illustration. Another is of the continued secret 
 alliances between the railroads and these great trusts — the fact of 
 their connecting railroads. Nearly all of these great trusts, like the 
 Steel Corporation, for instance, at their large works have a short rail- 
 road connecting their works with the trunk-line road that runs in 
 that vicinity, and they load the freight — the freight originates with 
 them — on their little short road ; their road may be 10 miles long and 
 the balance of the haul may be by a road a thousand miles long. 
 They are able to dictate to the road making the long haul the divi- 
 sion of the rate that shall be made, and they make that division of 
 rate in such a way that it amounts to an enormous rebate to them. 
 It is by such practices as that — these are only samples, they could 
 be multiplied a hundred times over in other directions — that illustrate 
 the assistance that has been rendered by the privately owned rail- 
 roads in the creation of the great trusts. Nearly all of these great 
 trusts originated in industries where freight was a large element in 
 the cost of the great bulky product, such as lumber, flour, iron, coal, 
 iron ore, steel, oil, and things of that kind. 
 
 Now, in order that these continued alliances — secret and unlaw- 
 ful alliances-rbetween the men who control these public highways 
 
CUMiVilX'l'EE UN INTERSTATE COMMERCE. 113 
 
 known as railroads, through their private corporations, and the great 
 industrial trusts and monopolies — may be severed and put an end 
 to, we have proposed to Congress two steps in the form of two bills. 
 One is the bill to which I referred yesterday, to create a Department 
 of Transportation, an executive department, with a Secretary of 
 Transportation, whose duties should be to police the railway systems 
 of the country, and seize the offenders promptly and bring them be- 
 fore the commission or the court, the same as any other police au- 
 thority would, and to a large extent, by thorough supervision, act 
 as preventives rather than punishes those offenses. That would 
 relieve the Interstate Commerce Commission of a good deal of its 
 extra labors, and would make much more efficient the enforcement of 
 the interstate-commerce law. 
 
 Another step in that direction to complete the divorcement of the 
 unholy bonds that exist between the railroads and the great indus- 
 trial and commercial trusts is a bill which we had introduced in 
 the Sixty-first Congress prohibiting and providing penalties against 
 the so-called interlocking board of directors system, prohibiting the 
 directors or stockholders of industrial corporations from being direc- 
 tors or officers of transportation companies. 
 
 In the investigation into the Steel Trust by the House committee 
 a great deal of evidence was adduced which showed how wide- 
 spread that abuse had become. In fact, the testimony and evidence 
 submitted there showed that practically the whole body of the rail- 
 road systems of the United States was dominated, directly or indi- 
 rectly, by the leading directors and stockholders of the United States 
 Steel Corporation. The vast and practical importance of this bp- 
 comes manifest when we realize that the railroads purchase nearly 
 40 per cent of all the steel manufactured in the United States, and it 
 is not in human nature that the directors of the Steel Corporation, 
 selling its millions of dollars' worth of steel in the way of structural 
 steel, rails, etc., to themselves as directors of the railroad corpora- 
 tions, should otherwise than favor their own corporations. Under 
 those circumstances it is no wonder that the price of rails, exclusively 
 consumed by the railroads, remain fixed for 10 years at the arbitrarv 
 figure of $28 a ton. 
 
 Now, we believe, Mr. Chairman and Senators, and we would re- 
 spectfully ask the consideration of your committee of the proposi- 
 tions embodied in these two bills. I have here a copy of the bill 
 creating the Department of Transportation, which I desire to have 
 made a part of my remarks. It is not very long, and I have stated 
 the substance of it, but I would like to have it handy for the mem- 
 bers of the committee and those who read my testimony, so that we 
 may get the proposition in definite form. 
 The Chairman. That privilege will be accorded. 
 (The bill referred to is as follows :) 
 
 [H. R. 17411, Sixty-flrst Congress, second session.] 
 A BILL To create the Department of Transportation. 
 
 Be it enacted by the Senate and House of Representatives of the United States 
 -,»/ America in Congress assembled, That there shall be at tee seat of government 
 an executive department to be known as the Department; of Transportation, and 
 a Secretary of Transportation, who shall be a Cabinet officer and the head 
 thereof, who shall be appointed by the President, by and with the advice and 
 
114 HEAE1NGS BEFOK15 
 
 consent of the Senate, and who shall receive a salary of twelve thousand dollar? 
 per annum, and whose term and tenure of office shall be like that of the heads 
 of the other executive departments ; and section one hundred and fifty-eight of 
 the Revised Statutes is hereby amended to include such Department of Trans- 
 portation, and the provisions of title four of the Revised Statutes, including all 
 amendments thereto, are hereby made applicable to said department. 
 
 Sec. 2. That there shall b'e in said department a First Assistant Secretary of 
 Transportation, to be appointed by the President, by and with the advice and 
 consent of the Senate, who shall receive a salary of six thousand dollars per 
 annum. He shail have charge of all matters in the Department of Transporta- 
 tion relating to steam and electric railways, and shall perform such other duties 
 as shall be prescribed by the Secretary or required by law. 
 
 There shall be in said department a Second Assistant Secretary of Transporta- 
 tion, to be appointed by the President, by and with the advice and consent of 
 the Senate, who shall receive a salary of five thousand dollars per annum ; and 
 he shall have charge of all matters in the Department of Transportation relat- 
 ing to telegraph lines. 
 
 There shall be in the said Department of Transportation a Third Assistant 
 Secretary of Transportation, to be appointed by the President of the United 
 States, by and with the advice and consent of the Senate, who shall receive a 
 salary of five thousand dollars per annum ; and he shall have charge of all mat- 
 ters in the Department of Transportation relating to telephone lines. 
 
 There shall be in the said Department of Transportation a Fourth Assistant 
 Secretary of Transportation, to be appointed by the President of the United 
 States, by and with the advice and consent of the Senate, who shall receive a 
 salary of five thousand dollars per annum ; and he shall have charge of all 
 matters in the Department of Transportation relating to waterways and similar 
 lines of transportation thereon. 
 
 There shall be in the said Department of Transportation a Fifth Assistant 
 Secretary of Transportation, to be appointed by the President of the United 
 States, by and with the advice and consent of the Senate, who shall receive a 
 salary of five thousand dollars per annum; and he shall have charge of all 
 matters in the Department of Transportation relating to pipe lines. 
 
 There shall be in the said Department of Transportation a Sixth Assistant 
 Secret ,iry of Transportation, who shall be appointed by the President of the 
 United States, by and with the advice and consent of the Senate, who shall re- 
 ceive a salary of five thousand dollars a year ; and he shall have charge of all 
 matters in the Department of Transportation relating to the express business. 
 
 There shall be one chief clerk and a disbursing clerk and such other clerical 
 assistance as may from time to time be authorized by Congress in each of the 
 said assistant secretaries' departments ; and the Auditor for the State and Other 
 Departments shall receive all accounts accruing in, or relative to, the Depart- 
 ment of Transportation and examine the same and thereafter certify the bal- 
 ance and transmit the accounts, with the vouchers and certificate, to the Comp- 
 troller of the Treasury for his decision thereon. 
 
 Sec. 3. That it shall be the province and duty of said Department of Trans- 
 portation to inspect, examine, and regulate, as may be prescribed by law, all 
 corporations engaged in interstate or foreign commerce as common carriers, or 
 owners or operators of transportation highways; and to this end it shall be 
 vested with jurisdiction and control of the departments, bureaus, offices, and 
 branches of the public service hereinafter specified, and with such other powers 
 and duties as may be prescribed by law. 
 
 Sec. 4. That the following-named offices, bureaus, divisions, and branches of 
 the public service now and heretofore under the jurisdiction of the Department 
 of Commerce and Labor, and all that appertains to the same, known as the Life- 
 Saving Service, the Lighthouse Board, and the Lighthouse Service, the Marine- 
 Hospital Service, the Steamboat-Inspection Service, the Bureau of Navigation, 
 and the United States Shipping Commissioner, and the same' are hereby trans- 
 ferred from the Department of Commerce and Labor to the Department of 
 Transportation, and the same shall hereafter remain under the jurisdiction and 
 supervision of the last-named department; and that the Secretary of Transporta 
 tion shall have complete control of the work of gathering and distributing sta- 
 tistical information naturally relating to the subjects confined to his depart- 
 ment; and to this end said Secretary shall have power to employ any or either 
 of said bureaus and to rearrange such statistical work and to distribute or con- 
 solidate the same, as may be deemed desirable in the public interest; and the 
 said Secretary phall also have authority to call upon other departments of the 
 
COMMITTEK ON INTERSTATE COMMERCE. 115 
 
 Government for statistical data and results obtained by them ; and the Secre- 
 tary of Transportation shall collate, arrange, and publish such statistical in- 
 formation so obtained in such manner as may to him seem wise. 
 
 Sec. 5. That there shall be in the Department of Transportation six bureaus. 
 to be called the Bureaus of Transportation Corporations, and a chief of each of 
 said bureaus, who shall be appointed by the President, by and with the advise 
 and consent of the Senate, to serve under each of the six assistant secretaries 
 of the Department of Transportation, and who shall receive a salary of four 
 thousand dollars per annum. There shall also be in each of said bureaus one 
 chief clerk and one auditor and such number of examiners as may be needed to 
 carry out the purposes of this act ; said auditors and examiners shall be expert 
 accountants and shall be paid a salary to be fixed by law and necessary ex- 
 penses. There shall also be such other clerical assistants as may from time to 
 time be authorized by Congress. It shall be the province and duty of said 
 Bureaus of Transportation Corporations, under the direction of the Secretary of 
 Transportation, to inspect, examine, and regulate all corporations engaged in 
 interstate and foreign commerce as common carriers, or owners or operators of 
 transportation highways, by gathering, compiling, publishing, and supplying all 
 available and useful information concerning such corporations, including the 
 manner in which their business is conducted, and by such other methods and 
 means as may be prescribed by the Secretary of Transportation or provided by 
 law. 
 
 Every corporation governed by this act shall make annual reports in writing 
 to the auditor, and such reports shall in all cases include : 
 
 (a) Capital authorized and issued, the amount paid up in cash or otherwise, 
 with a statement of the method of payment where it is not in cash. 
 
 (b) Debts, including details as to the amounts thereof, and security given 
 therefor, if any. 
 
 (c) Obligations due from officers, which shall be separately stated. 
 
 (d) A statement of assets and the method of valuing the same, whether at 
 cost price, by appraisal, or otherwise, and of the allowance made for deprecia- 
 tion. Small items of personal property included in the plant may be described 
 by the term " sundries " or like general term. 
 
 (e) Gross earnings for the period covered by the report, all deductions nec- 
 essary for interest, -taxes, and expenses of all sorts, the surplus available for 
 dividends, and dividends actually declared. 
 
 (f) Increase of assets since the last statement, with a showing in what way 
 such increase has been secured. 
 
 (g) The names and addresses of all stockholders, with the number of shares 
 held by each at the date of the report. 
 
 (h) The amount of stock disposed of and the amount of property taken for 
 stock sold since the last report, with all facts necessary to show the result of 
 the transaction. 
 
 (i) A statement showing that the corporation in question has or has not, 
 during the period covered by the said report, received or given any rebates, 
 drawbacks, special rates, or other discriminating advantages or preferences, by 
 money payments or otherwise, from or to any railroad, pipe line, water carrier, 
 or other transportation company, or paid to any shipper any such payments, or 
 if any such have been received or given stating to whom, from whom, on what 
 account, and in what manner they were so received or given, with all other 
 details necessary for the full understanding of the transaction or transactions. 
 
 (j) The names and addresses of all officers, location of transfer or registry 
 offices, wherever located. 
 
 (k) A statement that the corporation has not fixed prices or done any other 
 act with a view to restricting trade or driving ;nny competitor out of business. 
 
 (1) A statement that the corporation is or is not a party to any contract, 
 combination, or conspiracy in the form of a trust or otherwise, in restraint of 
 trade or commerce among the several States or Territories or with foreign 
 nations. 
 
 (m) It shall be the duty of the auditor of each Bureau of Transportation 
 Corporations to prescribe the form of the reports before mentioned. He may, 
 in his discretion, require additional reports at any time, upon reasonable notice, 
 whenever he may see fit. But his determination shall be prima facie proof that 
 the notice given is reasonable. 
 
 He may also require supplemental reports whenever, in his judgment, the 
 report rendered is in any particular or particulars insufficient, evasive, or 
 ambiguous. 
 
116 H BAKINGS BEFOKE 
 
 He may prescribe rules so as to avoid undue detail in making the reports, 
 but no detail of the business of the corporation shall be considered private so 
 as to be exempt from the examination of the auditor whenever he may demand 
 report thereon. 
 
 He shall make public in his reports, which shall be issued annually, all the 
 information contained in the reports so made to him. When a report has 
 been made by a corporation and, with all supplemental and additional reports 
 required by the auditor, shall have been approved by him, the corporation mak- 
 ing such report or reports shall publish the same or such summary of same as 
 directed by this department in some newspaper nearest to its principal place of 
 business, after the usual custom in such cases, with the auditor's minutes of 
 approval, and shall file with the auditor proof of such publication by the pub- 
 lishers' certificate. 
 
 Sec. 6. That if any corporation shall fail to make a report when required, 
 either by the terms of this act or when required by the auditor, as herein pro- 
 vided, said corporation shall be fined not less than five thousand dollars nor 
 more than twenty thousand dollars for each offense. Every week of failure 
 after such reasonable written demand has been made by the auditor shall con- 
 stitute a separate and distinct offense. In case also of failure, each of the 
 directors of the said corporation shall be ineligible for the year succeeding the 
 next annual meeting to hold either directorship or any other office in the said 
 corporation: but any director shall be exempt from said penalty upon making a 
 statement under oath that he has individually made such a report to the best 
 of his ability from the facts at his disposal. 
 
 If such report is false in any material respect, the officer mulling same and 
 the corporation shall be fined not less than five thousand nor more than twenty 
 thousand dollars, and each false statement in any material matter shall con- 
 stitute a separate offense. All fines and penalties imposed by this act shall be 
 recovered or enforced in any court of competent jurisdiction. 
 
 Sec 7. That it shall be tie duty of the examiners, under the direction of the 
 auditor, to make examinations of any corporation governed by this act. 
 
 Any of said examiners presenting his official credentials shall be furnished 
 by the officers of the corporation with every facility for complete and full 
 examination, riot only of the books, but of all the property, records, or papers 
 of the corporation which may be necessary, in the judgment of the examiner, 
 for a complete knowledge of the affairs of the concern as affecting the public 
 interest. 
 
 Such examinations shall not be at fixed periods, but shall be at such times 
 as the auditor shall fix and without notice. 
 
 Examiners shall have the power to examine under oath all officers or 
 employees of the corporation, or any other persons having any knowledge of 
 its affairs, and to send for, demand, and inspect books, papers, and any other 
 matter of evidence whatever which is in the possession or control of the said 
 corporation. 
 
 For the purpose of this act examiners shall have power to require, by 
 subpoena, the attendance and testimony of witnesses and the production of all 
 books, papers, contracts, agreements, and documents relating to any matter 
 under investigation. 
 
 Such attendance of witnesses and the production of such documentary evi- 
 dence may be required from any place in the United States at any designated 
 place of hearing, and in case of disobedience to a subpoena the examiner may 
 invoke the aid of any court of the United States in requiring the attendance. 
 
 And any of the district or circuit courts of the United States within the juris- 
 diction of which such inquiry is carried on may, in case of contumacy or refusal 
 of any witness to obey a subpoena issued to any corporation subject to the 
 provisions of this act, or other person, issue an order requiring such corpora- 
 tion or other person to appear before said examiner (and produce books and 
 papers if so ordered) and give evidence touching the matter in question; and 
 any failure to obey such order of the court may be punished by such court as 
 and for a contempt thereof. The claim that any such testimony or evidence 
 may tend to incriminate the person giving such evidence or testimony shall 
 not excuse such person from testifying, but such testimony shall not be used 
 against such person on the trial of any criminal proceeding. 
 
 The auditor shall also have all the authority of an examiner in any case 
 wherein he chooses himself to act. 
 
 Xo examiner shall be assigned to examine any corporation who is himself 
 interested in the business thereof, or of any competing concern, or who has 
 relatives who are so interested. 
 
COMMITTEE ON INTERSTATE COMMERCE. 117 
 
 It shall be unlawful for an examiner to divulge private business, except by 
 his report to the auditor. But such report or the substance thereof, shall be 
 open to public- inspection. 
 
 Each examiner shall follow the rules, regulations, and directions which the 
 auditor may from time to time lay down or communicate to him as to the 
 method of examination, the form of report, the matters to be covered by the 
 said examination, and all matters pertaining to his duties. 
 
 Said reports of the examiners shall be prima facia evidence as to their truth, 
 and may be introduced in evidence in all courts to prove the facts therein set 
 forth. Copies certified by the auditor shall be admissible with like effect and 
 under the same circumstances as the original. 
 
 The word " corporation," wherever used in this act, shall be deemed to include 
 companies and associations existing or authorized by the laws of the United 
 States, the laws of any State or Territory, or the laws of any foreign country. 
 
 Sic. S. That the Secretary of Transportation shall annually, at the close of 
 each fiscal year, make a report in writing to the Congress, giving an account 
 of all money received and, disbursed by him and his department, and describing 
 the work done by the department in inspecting, examining, and regulating, as 
 prescribed by law, all corporations engaged in interstate and foreign commerce; 
 in the ownership, or operation, of any of the foregoing described transporta- 
 tion highways or lines of transportation or engaged as common carriers in 
 interstate or foreign commerce, and making such recommendations as he shall 
 deem necessary for the effective performance of the duties and purposes of 
 the department. He shall also, from time to time, make such special investi- 
 gations and reports as he may be required to do by the .President, or by either 
 House of Congress, or which he himself may deem necessary and urgent. 
 
 Sec 9. That the Secretary of Transportation shall have charge of the build- 
 ing or premises occupied by or appropriated to and for the Department of 
 Transportation, of the library, furniture, fixtures, records, and other property 
 appertaining to it, or hereafter required for use in its business: and he shall be 
 allowed to expend for periodicals and the purposes of the library and for "fhe 
 rental of appropriate quarters for the accommodation of the Department ' of 
 Transportation within the District of Columbia and for all other incidental 
 expenses such sums as Congress may provide from time to time: I'rorided, 
 however, That where any office, bureau, or branch of the public service trans- 
 ferred to the Department of Transportation by this act is occupying rented 
 buildings or premises it may still continue to do so until other suitable quarters 
 are provided for its use: And provided further, That all officers, clerks, and em- 
 ployees now employed in any of the bureaus, offices, departments, or branches 
 of the pubic service referred to in this act transferred to the Department 
 of Transportation are each and all hereby transferred to said department at 
 their present grades and salaries except where otherwise provided: And pro- 
 vided further, That all laws prescribing the work and defining the duties of 
 the several bureaus, offices, departments, or branches of the public service by 
 this act transferred to and made a part of the Department of Transportation 
 shall, fo far as the same are not in conflict with the provisions of this act 
 remain in force and effect until provided by law. 
 
 Sec. 10. That all power and authority heretofore possessed or exercised by 
 the head of any executive department over any bureau, office, branch, or division 
 of the public service by this act transferred to the Department of Transporta- 
 tion, or any business arising therefrom or appertaining thereto, whether of an 
 appellate or advisory character, or otherwise, shall hereafter be vested in and 
 exercised by the head of the said Department of Transportation. And all acts 
 or parts of acts inconsistent with this act are hereby repealed. 
 
 All branches of the work of the Interstate Commerce Commission, except such 
 as relates to the work of said Commission in examining into and regulating 
 rates and classification of rates for transportation, are hereby transferred to 
 the Department of Transportation.' But nothing in this act shall be construed 
 as in any way abandoning by the Government any of the powers over inter- 
 state commerce and interstate carriers conferred by the interstate commerce act. 
 
 Sec. 11. That it shall be the duty of the Department of Transportation to 
 especially see to it that all the laws regulating common carriers and interstate 
 transportation highways are strictly enforced and that all violations of the 
 same are promptly punished according to law. And said Department of Trans- 
 
118 HEARINGS BEFORE 
 
 portation shall execute promptly the enforcement of all orders and decisions of 
 the Interstate Commerce Commission affecting rates, classifications, and so forth. 
 Sec. 12. That this act shall take effect immediately. 
 
 Mr. Martin. To conclude the suggestions that we have to make in 
 regard to the unwisdom and impracticability of creating a commis- 
 sion to regulate the price of commodities in the same way that the 
 Interstate Commerce Commission regulates the price of transporta- 
 tion — to sum that up in a word, we believe that that violates the 
 great rule of what is a proper governmental sphere of activity, and 
 that if these suggestions in regard to separation of the connection 
 between the railroads and industrial corporations is completed that 
 the danger from that source will be greatly reduced. 
 
 There is, however, a step that' might be taken in the direction of 
 delegation of authority of Congress in a matter that would affect its 
 industrial interstate corporations to a considerable extent, although 
 it is to some extent in an indirect form. That idea is embodied in a 
 bill which was prepared by myself and Congressman Thomas W. 
 Phillips, of Pennsylvania, who was the former vice chairman of the 
 Industrial Commission that Senator Newlands referred to yesterday, 
 which made a very exhaustive inquiry covering three years into these 
 questions. That bill was known as the bill to create a nonpartisan 
 revenue and industrial commission. It was introduced by a member 
 of this committee, Senator Oliver, of Pennsylvania, by request, and 
 I have a copy of that here which I would like to have to commend to 
 the attention of the committee, because it, like the Interstate Com- 
 merce Commission, would be justified in that it would be a delegation 
 of some of the authority of Congress to perform a duty which has 
 become so large and so complex and so instant in its need of prompt 
 consideration of rapid changes in the affair that the rule of delegating 
 congressional authority would be warranted. It provides for the 
 creation of a commission to consider and report to Congress upon 
 legislation relating to the raising of revenue for the Government, 
 which would invoke that great power of taxation referred to by the 
 gentleman from Minneapolis in his testimony yesterday, which would 
 be effective, perhaps, in some directions, and also clothes them with 
 authority to investigate and report to Congress as to the industrial 
 conditions in the country, because in levying taxes or in imposing 
 plans on tariff taxation to raise that large part of revenue which is 
 raised through tariff taxation one of the first things that has to be 
 considered is the relation and effect of this taxation upon industry 
 and upon labor. We are convinced that a study of the history of 
 the United States shows that for a hundred years this struggle 
 between the different schools of thinkers on the tariff question has 
 landed us practically in the same place where we started. We are 
 not much nearer a settlement now than we were then, and the vast 
 increase of the size and population of our country makes the problem 
 still more complex; and we believe it* would, in accordance with the 
 sound rule governing the creation of the Interstate Commerce Com- 
 mission, if such a commission were created, and it would not be open 
 to the objection that lies against all these commissions which propose 
 to fix the prices of commodities that under free and fair competition 
 would be fixed by the law of supply and demand. 
 
 I desire to submit that also. 
 
COMMITTEE ON INTERSTATE COMMERCE. 119 
 
 (The bill referred to is as follows:) 
 
 [S. 3104, Sixty-first Congress, first session.] 
 A BILL To create a nonpartisan Revenue and Industrial Commission. 
 
 . Whereas the history of this Government for many years past shows that 
 great disturbances and business depression have been caused by tariff agitation, 
 industrial plants shut down, developments stopped, and millions of laborers 
 thrown out of employment, and more money lost to the people in consequence 
 of partisan tariff contention than has been received by the Government in im- 
 port duties: Now, therefore, to prevent the recurrence of such distress, loss, 
 and disturbance in public and private business — 
 
 Be it enacted by the Senate and House of Representatives of the United 
 States of America in Congress assembled, That there shall be created a perma- 
 nent nonpartisan "United States Revenue and Industrial Commission. 
 
 Sec. 2. That this commission shall be composed of nine members, not more 
 than five of whom shall be members of one political party, four of whom shall 
 be appointed by the President of the United States, two shall be appointed by 
 the President of the Senate, two by the Speaker of the House of Representa- 
 tives, and one by the Chief Justice of the Supreme Court of the United States, 
 all to be confirmed by and with the advice and consent of the Senate of the 
 United States. 
 
 Sec. 3. That the term of office of the said commissioners shall be for four 
 years, and members may be eligible to reappointment. Any commissioner may 
 be removed by the President of the United States for inefficiency, neglect of 
 duty, or malfeasance in office. 
 
 Sec. 4. That the duty of the commission shall be to investigate tariff duties 
 and other means of raising necessary revenues for the support of the United 
 States Government and the effect of the same upon the welfare and industries 
 of the people of the United States. The commission shall investigate the cost of 
 producing articles subject to tariff duties in the United States and foreign coun- 
 tries, including wages and hours of labor and conditions of living, cost of raw 
 materials, domestic and foreign, capital employed, condition of markets, and to 
 examine into questions concerning agricultural, mining, manufacturing, trans- 
 portation, and other industries and commercial interests of the United States, 
 in order to furnish Congress the fullest possible knowledge of the facts as a 
 basis for tariff and other revenue legislation. The commission shall recom- 
 mend such tariff and other revenue legislation and such changes in existing 
 tariff and revenue laws as it may deem practical and wise. 
 
 Sec. 5. That the commission shall have authority to make investigation as 
 to existing industrial and commercial conditions, and to give hearings to those 
 engaged in the various industries, employments, and businesses of the country, 
 and to recommend needed legislation to correct evils which may exist in our 
 commerce and industries, for the benefit of the laborer, the producer, and the 
 consumer, so as to best conserve the public interests and secure economic liberty 
 to the whole people. 
 
 Sec. 6. That the salary of members of the commission shall be seven thou- 
 sand' five hundred dollars per year and necessary traveling expenses. Bach 
 commissioner shall be allowed a private secretary, at a salary of one thousand 
 five hundred dollars per year. 
 
 Sec. 7. That the commission shall have power to subpoena witnesses, admin- 
 ister oaths or affirmations, take testimony, compel the attendance of persons and 
 the production of books or papers, and the nearest courts of the United States 
 shall enforce its requirements in this respect. Witnesses shall be paid the same 
 fees and traveling expenses as other Government witnesses. If necessary the 
 commission may appoint a subcommission or commissions of its own members 
 to make investigations in any part of the United States or in foreign countries, 
 and it shall be allowed necessary expenses for the same, provided a majority 
 of the commission shall not be absent from the United States at one time. 
 Any member of the commission or the secretary may administer oaths and 
 affirmations and sign notices. The commission may make requisite rules to 
 govern the orderly regulation of proceedings before it, including the form of 
 notices and service thereof. 
 
 Sec. 8. That the commission shall have authority to call upon the various ex- 
 ecutive departments of the Government for facts or information in the posses- 
 sion of said departments which may be necessary for the proper performance 
 
120 HEAEIXGS BEFORE 
 
 of its duties; and said executive departments, bureaus, or commissions shall 
 furnish such information when not inconsistent with the public interest. 
 
 Sec. 9. That the commission shall make an annual report to Congress on the 
 first Monday in December of each year, and shall make such special reports as 
 may be called for by Congress from time to time. 
 
 Sec 10. That there shall be a chairman, vice-chairman, and secretary of the 
 commission, to be elected by a majority vote of the commission, and the commis- 
 sion shall have authority to employ the necessary clerical force for the proper 
 conduct of its business. A majority of the commission shall constitute a quorum 
 to do business. The commission may also employ necessary experts and legal 
 assistants and fix their salary or compensation. The commission may rent suit- 
 able quarters for its principal office and for the conduct of its business in the 
 city of Washington, District of Columbia, but whenever the convenience of the 
 public or the commissioners may be promoted or delay or expense prevented 
 thereby, the commission may hold its sessions in any part of the United States. 
 The expenses of the commission, outside of the salaries of the members, shall 
 not exceed the sum of one hundred and fifty thousand dollars per year. The 
 salaries and necessary expenses of the commission, including rent, stationery, 
 and printing, shall be paid out of any moneys in the Treasury of the United 
 States not otherwise appropriated. 
 
 Seo. 11. That in case of any vacancy in this commission caused by death, 
 resignation, or otherwise, the vacancy shall be filled by the same authority 
 which appointed the previous incumbent. 
 
 Sec. 12. That this act shall take effect ninety days after its passage. 
 
 Mr. Marten. Mr. Chairman, that concludes what I have to say, 
 and what I desired to submit to the committee in the matter of defi- 
 nite proposals already formulated as legislation. I have noticed 
 since I was on the stand yesterday that a very eminent citizen of the 
 United States, a former President, has committed himself to the idea 
 that Congress should enter into the question of fixing prices of com- 
 modities, but I believe that the experience which we had when the 
 President and the Secretary of State, acting in conjunction with the 
 directors of the S^teel Trust, undertook to fix the price of Tennessee 
 Coal & Iron, was not so successful and so satisfactory to the country 
 that a continuation of that policy would be approved, or would be 
 considered a safe one for the country to embark in, especially if the 
 power to fix those prices were delegated to subordinate executive 
 officials on the one side acting in conjunction with the great heads of 
 the industrial corporations on the other. The tendency of the great 
 corporations to dominate the conferences in fixing the prices would 
 be too great ; the risk of those conferences would be too great for us 
 to undertake with safety, and, as I have said, I believe it would be 
 entirely wrong. 
 
 Mr. Chairman and gentlemen, I thank you. 
 
 The Chairman. Senator Cummins, you may interrogate. 
 
 Senator Cummins. I take it that you are in sympathy with the 
 purposes and objects of the antitrust law? 
 
 Mr. Martin. I am. 
 
 Senator Cummins. Were you connected with the Antitrust League 
 at the time the antitrust law was enacted ? 
 
 Mr. Martin. No ; the Antitrust League was organized in its pres- 
 ent form since the antitrust law was enacted. 
 
 Senator Cummins. I understood you to say that your association, 
 or some one that preceded it, had very much to do with the passage 
 of this statute ? 
 
 Mr. Martin. I think my language was that the men who were 
 members of our association were all actively in favor of the enact- 
 ment of that law. 
 
COMMITTEE OK INTERSTATE COMMERCE. 121 
 
 Senator Cummins. The only materiality of the inquiry is to find 
 out whether you were familiar at that time with the circumstances 
 under which it was passed, and the general object sought to be ob- 
 tained by its adoption. 
 
 Mr. Martin. Somewhat, Senator. It is 21 years ago, and I do 
 not know that my recollection is perfect as to many of the details, but 
 T have somewhat of a recollection of the situation. 
 
 Senator Cummins. You have suggested two amendments to the 
 interstate-commerce law, really — one creating a Department of 
 Transportation and the other directed against the community of 
 those interested in the management of railways, and great corpora- 
 tions interested in production. Those are the only amendments that 
 you have suggested, are they not? I want to get that clear in my 
 mind. 
 
 Mr. Martin. They are the only ones I have suggested in the form 
 of bills already prepared. I suggested another bill which, while 
 directly amending the interstate-commerce law, would have a very 
 wide indirect effect upon it. 
 
 Senator Cummins. The amendments that you have brought to our 
 attention are all amendments to the interstate-commerce law ? 
 
 Mr. Martin. In effect they would be, although they are separate 
 bills. 
 
 Senator Cummins. Well, any legislation that adds to or modifies 
 an existing statute on the subject, I reckon as an amendment. But 
 you. as I understand your statement, are opposed to any modification, 
 addition, or change in the antitrust law? 
 
 Mr. Martin. At this time. 
 
 Senator Cummins. Why at this time? 
 
 Mr. Martin. Because up to this time the antitrust law of 1890 has 
 never had a fair trial or enforcement. 
 
 Senator Cummins. It has had as fair a trial as the interstate- 
 commerce law, which was passed three years before, has it not ? 
 
 Mr. Martin.. No, sir. 
 
 Senator Cummins. In what respect has it failed in its trial? 
 
 Mr. Martin. For the reason that nearly every man in those 21 
 years who has occupied the position of Attorney General of the 
 United States has been entirely out of sympathy with the purposes 
 and objects of the law, and has, to my knowledge, refrained at times 
 and refused to enforce the law when evidence was brought to his 
 attention of violations of the gravest character. 
 
 Senator Cummins. Your charge is that the executive departments 
 of the Government have betrayed the country in their refusal to exe- 
 cute the law ? That is your charge ? 
 
 Mr. Martin. That is strong language, Senator Cummins, but I 
 will stand for it. It conveys my idea, I think, exactly. 
 
 Senator Cummins. We must deal in plain language to understand 
 each other. 
 
 Mr. Martin. I hesitated myself to use the word betrayed, but, 
 since the Senator has incorporated it, I will accept it as being correct. 
 
 Senator Cummins. Do you know whether that refusal or neglect, 
 upon the part of the executive department during many years to 
 enforce the laws was because of its difference of opinion with respect 
 to what constitutes restraint of trade and commerce or whether it 
 was because the official consciously betrayed his trust? 
 
122 HKABIXGS BEFORE 
 
 Mr. Martin. In some instances I think the latter beyond any 
 doubt, and proper inquiry by Congress will, I think, develop and 
 prove that fact. 
 
 Senator Cummins. Well, there has been a great deal of activity in 
 recent years in the enforcement of the law, has there not ? 
 
 Mr. Martin. We are pleased to note that there has been. 
 
 Senator Cummins. You understand that the chief purpose, if not 
 the only purpose, of the antitrust laws is to preserve competition in 
 business, do you not? 
 
 Mr. Martin. I think that would be a correct statement, although 
 hardly wide enough to cover the whole facts of the case. 
 
 Senator Cummins. I am using competition in its broadest sense. 
 
 Mr. Martin. Taking it in its broadest sense, I accept it. 
 
 Senator Cummins. I employed it in that way just now. During 
 the 21 years that the antitrust law has been an enactment of the 
 United States more has been accomplished in the way of destroying 
 competition over the entire country than before that time, has there 
 not? 
 
 Mr. Martin. And much more would have been clone had the anti- 
 trust law not been in existence. 
 
 Senator Cummins. I am simply asking you if it is not openly 
 known by everybody that there has been more done in the way of 
 destroying competition in the last 21 years than ever before in the 
 history of the United States? 
 
 Mr. Martin. In the aggregate, and roughly, that is true. There 
 are some modifications that I would like to make to that, however, 
 Senator. 
 
 Senator Cummins. You attribute 
 
 Senator Newlands. He says that there are some modifications that 
 he desires to make. 
 
 Senator Cummins. Very well. 
 
 Mr. Martin. As, for instance, that due to the existence of the anti- 
 trust law and the threat of its enforcement. The growth of the 
 independent refiners of oil has been quite substantial, rising at the 
 time the Industrial Commission was formed, I think, in 1897 or 
 1898, from only about 3 per cent to something over 20 per cent. 
 There was a growth of some competition, which I think was largely 
 due to the threat or the fear of the enforcement of the antitrust law 
 against that combination. I believe that combination was advised 
 by their counsel that they were in danger if the law should ever be 
 enforced against them, and I think the decision of the Supreme 
 Court has demonstrated that fact. 
 
 Senator Cummins. I did not mean to suggest that all competition 
 in the United States has been destroyed, because I am sure that it has 
 not been in many of the fields of industry and business. But it is 
 still true that notwithstanding the existence of the antitrust law, 
 competition has been throttled and strangled during the last 21 years 
 so that now there is less of it than there was then. 
 
 Mr. Martin. In the aggregate, I should say yes. 
 
 Senator Cummins. Now you attribute that fact, or you explain 
 lhat fact, by the suggestion that the law has not been enforced as it 
 should have been enforced. 
 
 Mr. Martin. Exactlv. 
 
COMMITTEE ON INTERSTATE COMMERCE. 123 
 
 Senator Cummins. Do you think that if the law had been enforced 
 vigorously and properly that we would have been able to preserve 
 competition in our business? 
 
 Mr. Martin. I do. 
 
 Senator Cummins. Do you rely on the criminal or the civil reme- 
 dies of the statute chiefly in reaching that conclusion ? 
 
 Mr. Martin. Both are substantially equal in effect if thoroughly 
 enforced. 
 
 Senator Cummins. The criminal remedies have not hitherto been 
 very deterrent, have they? 
 
 Mr. Martin. They have been but partially invoked. 
 
 Senator Cummins. That is, you say the judges have been rather 
 slow to impose penalties other than fines for the violation of the law. 
 
 Mr. Martin. They have not been as slow as the Department of 
 Justice has been in asking for the imposition of those penalties. 
 
 Senator Cummins. There may have been some prosecutions, how- 
 ever, and some convictions, but so far as I remember, no imprison- 
 ments. 
 
 Mr. Martin. I think the turpentine men were sentenced to impris- 
 onment. 
 
 Senator Cummins. Yes, some of those little chaps down in Florida. 
 
 Mr. Martin. If the Senator will pardon me, I would like to say 
 just a word on that phase of the matter. 
 
 Senator Cummins. I am perfectly willing. Do not feel yourself 
 limited. 
 
 Mr. Martin. I think that I ought to say this in justice to the Attor- 
 neys General who have held office during the existence of this law. 
 Perhaps my statement of yesterday might have seemed unduly severe 
 against them. It is not only the Attorneys General who are to be 
 blamed for the nonenforcement of the law, but as in the case of the 
 Tennessee Coal & Iron absorption, the Oklahoma case, when the 
 Attorney General was asked to prosecute that case, the Attorney Gen- 
 eral was forbidden by his chief to act. And in the case of the courts, 
 they are blamable to some extent for the nonenforcement of the law. 
 I think no Senator on this committee would excuse the action of 
 Judge Archbald, of Pennsylvania, transferring for some unknown 
 reason to the Circuit Court of the United States for the Southern 
 District of New York, to deal with a trust case. The men were so 
 guilty that when they were charged they did not dare to go before 
 the jury, and did not even make a plea of not guilty. They prac- 
 tically made a confession of guilt in their plea, and yet the judge, 
 knowing that they were guilty of the grossest kind of violation, let 
 them off with a puny fine of $1,000. I have all due respect for the 
 courts of the United States, but I believe that a judge who does such 
 a thing as that is a proper subject for inquiry .under the supervisory 
 power of Congress. 
 
 Senator Cummins. That brings us to the point that I had in mind. 
 When you find a consistent course of that sort pursued by a great 
 many people, officials in high stations and in low stations, over a 
 long period of time, there are but two conclusions that can be reached, 
 as it seems to me. - One is that there is something essentially weak in 
 the law that needs strengthening, the other is that the officers of the 
 United States over a period of 20 years have been a band of rascals. 
 
124 HEARINGS BEFORE 
 
 Mr. Martin. Not a band; there are isolated cases, but there has 
 been a remarkable coincidence in their inactivity in this matter. 
 
 Senator Cummins. It is hardly believable that all our judges, and 
 all our district attorneys, and all our Attorneys General, and all our 
 Presidents have been in conspiracy to defeat the operation of this 
 law during the 21 years that it has been in existence. It is hardly 
 si fair conclusion, is it? 
 
 Mr. Martin. Senator, that is a very serious question and a very 
 grave one, and I want to ask your permission to answer it as de- 
 liberately and as fairly as I can. 
 
 Senator Cummins. The time is yours, and the opportunity, Mr, 
 Martin. 
 
 Mr. Martin. I do not charge, nor does the organization which ] 
 represent, that all these executive officers and courts, charged with 
 the enforcement of the antitrust law during the last 20 years, have 
 been in a conspiracy together. What we do charge and what we 
 stand ready to prove to this committee, or to any other committee of 
 Congress, is that the enormous wealth and power over the commerce 
 and industries and politics of the United States by the conspiracies 
 of great wealth who control these trusts has been so great, so in- 
 sidious, and so far-reaching that no man to-day can tell how far it 
 has gone in bending executive or judicial officers, by direct or indirect 
 influences, in the direction they desire them to be bent. It is easier 
 always, Senator, if you will pardon me, to prevent something from 
 being done than it is to get it done. It is easier to defeat the passage 
 of a bill than it is to pass one. It is a good deal easier fo prevent the 
 enforcement of a law than to get it enforced, and when you consider 
 the enormous discipline and powers of these great trust conspiracies 
 that have been erected in every great industry in the United States 
 and which dominate the railroads and the banks and the coal mines 
 as well as the manufacturing and merchandising industries — when 
 you consider their enormous extent and the cunning and the power 
 with which they have been directed, it is no wonder at times that 
 they have been able to resist, by one means or another, the enforce- 
 ment of the law. That is what we charge, and what we ask of Congress 
 is that it now rise and exercise its great supervisory power over the 
 executive and judicial branches of the Government and see to it that 
 when these officials do not enforce the law that their conduct is in- 
 quired into and adequate steps taken to deal with the situation. 
 
 Senator Cummins. You understand, Mr. Martin, that the power 
 of impeachment lies solely with the House of Eepresentatives. This 
 committee is composed of men who would be judges 
 
 Mr. Martin. Exactly. I appreciate that. 
 
 Senator Cummins. If any impeachment proceedings were insti- 
 tuted. So I think we might leave that phase of it out of considera- 
 tion. 
 
 Mr. Martin. I was speaking not so much of impeachment as of 
 inquiry; turning on the light sometimes will put a stop- to things. 1 
 will give an illustration of that that I have in hand. The House 
 committee to investigate the Steel Trust and the Coal Trust and the 
 Railroad Trust, known as the Stanley committee, did not have any 
 power, and did not exercise any power to impeach anvbody, but the 
 mere turning on the light of investigation has caused," in a verv few 
 months, a saving to the people of the United States by checkinV the 
 
COMMITTEE ON INTERSTATE COMMERCE. 125 
 
 operations of the Steel Trust, and the partial restoration of competi- 
 tion in the industry will save the people of the United States 
 ^25,000,000 on the cost of their steel this year, and probably for all 
 years to come. It is difficult to ever restore that again, and the con- 
 tinuance of it will probably more than double that amount in saving 
 the cost of steel to the people of the United States ; the mere turning 
 on of the. light of investigation, helping to break up the combination. 
 So this committee is doing a very beneficent work in inquiring. 
 When I referred to that I did not mean to refer solely to the im- 
 peachment question, but the supervisory duty of Congress to look 
 over those concerns and their expenditures and their conduct. 
 
 Senator Cummins. I think we are all aware of the power of asso- 
 ciated wealth in all its forms, but what I want to ask you is whether 
 the law ought not to be so changed in its terms that men could not 
 refuse to enforce it, or fail to enforce it without at once incurring 
 public criticism. Is it not possible where the law is so uncertain 
 and vague in its phraseology, that it affords the opportunity for 
 public officials to reach different conclusions with respect to a given 
 subject and thereby escape that criticism which always falls upon an 
 official if he fails to enforce a law, clear, plain, and specific in its 
 terms ? 
 
 Mr. Martin. I do not think so. I think the law is very clear, 
 very simple, and very plain, and I agree entirely with the expression 
 of President Taft in his Chicago speech, that a jury in a few minutes 
 can tell when these men are brought before them whether they are 
 violating the law or not. 
 
 Senator Cummins. The law has been enforced in the American 
 Tobacco, and the decree of the Supreme Court has been entered, and 
 under that decree the American Tobacco Co. has been reorganized 
 into four separate companies. Are you familiar with the terms of 
 the reorganization? 
 
 Mr. Martin. The decree was only handed down yesterday, and I 
 have not seen it published in any paper as yet, so I do not know 
 about it. I have talked it over with the Attorney General and with 
 the Assistant Attorney General, Mr McEeynolds, of New York, and 
 I listened for the trial of the case in New York and have examined 
 the brief of the other parties ; and Mr. Schulteis, the counsel of the 
 Antitrust League, under my direction, filed a protest in opposition 
 to the proposed plan, which we feared was going to be embodied in 
 the decree of the circuit court, and we were very much opposed to the 
 ideas set forth in the plan formulated by the attorneys of the Ameri- 
 can Tobacco Co., because we feared that the adoption of that plan 
 would be equivalent to the creation of four trusts where one now 
 exists, and that those four trusts would be controlled by the same 
 criminal common-stock owners who controlled the old trust; and I 
 think we were right about that, and we propose as an organization 
 to resist that action of the court in New York to the last extremity, 
 and we propose and believe that we can absolutely overthrow it by 
 perfectly legal and proper means, and we may call on the Senate to 
 assist us in that operation. 
 
 Senator Cummins. However that may be, the Circuit Court of the 
 United States has approved that reorganization as being in harmony 
 with the antitrust law which separates the American Tobacco Co. 
 into four corporations. That is true, is it not? 
 
126 HEARINGS BEFORE * 
 
 Mr. Martin. Yes, sir; the court has done that. 
 
 Senator Cummins. The court has done that. Now, do you believe 
 that there will be any more competition between the four companies 
 into which this great concern has been divided than there was before ? 
 
 Mr. Martin. Very little, if any, and therefore we resist the decree. 
 
 Senator Cummins. If that sort of an arrangement is an arrange- 
 ment in harmony with the antitrust law, as it is now, would you still 
 be of the opinion that the antitrust law should not be amended ? 
 
 Mr. Martin. But we believe it is not in harmony with the law, and 
 that the court is acting in defiance of the law. 
 
 Senator Cummins. As against your judgment there is the judg- 
 ment of the circuit court of the United States. 
 
 Mr. Martin. And on my side is the judgment of the Supreme 
 Court of the United States. 
 
 Senator Cummins. The Supreme Court has not passed upon that 
 question as yet, I am told. 
 
 Mr. Martin. In so far as they have passed on it in their original 
 decree, we take the exactly opposite stand from the circuit court in 
 New York. 
 
 Senator Cummins. And I understand by this morning's papers 
 that the Government has decided not to appeal from the order of the 
 circuit court approving this form of reorganization, because the At- 
 torney General's office believes that it is in harmony with the anti- 
 trust law. Did you notice that in this morning's paper ? 
 
 Mr. Martin. I did. The Attorney General made that statement 
 to me. 
 
 Senator Cummins. If it were to turn out to be the proper construc- 
 tion of the antitrust law that such organization can be carried on 
 under it, would you still be of the opinion that the antitrust law 
 should not be strengthened and made a little more effective in sup- 
 pressing trusts and preserving competition? 
 
 Mr. Martin. That is a bridge which we will cross when we get to 
 it, with the fight on the Tobacco Trust, which is not ended yet by any 
 means. We propose to call on Congress, if necessary, to aid us to 
 overthrow that decision, and it is within the power of Congress to do 
 that. 
 
 Senator Cummins. That is just what this committee is occupied in 
 doing, ascertaining whether such results can be accomplished under 
 the antitrust law. 
 
 Mr. Martin. Such results as what? 
 
 Senator Cummins. I do not believe that the antitrust law will pre- 
 serve competition. I am in favor of competition, but I do not be- 
 lieve the law will maintain it, and therefore I think it ought to be 
 amended. But you are of the opinion that, notwithstanding these 
 results may follow, we ought not to touch or amend the antitrust 
 law in any way whatever. 
 
 Mr. Martin. That, Senator, I do not concede for a moment — that 
 the results indicated by you and indicated in the opinion of the cir- 
 cuit court of New York will follow under a proper activity on the 
 part of the Department of Justice, the President, and the Congress. 
 Where a court departs so far from the proper and clear-cut applica- 
 tion of the antitrust law as the circuit court of New York, certainly 
 it ought not to be allowed to be connected with the matter any more. 
 The other departments of the Government, especially the department 
 
COMMITTEE ON INTEBSTATE COMMERCE. 127 
 
 of commerce, has supervisory power, but when the court pursues 
 such a course as that it ought to be universally condemned by the 
 people of the United States as a failure of justice, and which is 
 really condemned by the language of the court. 
 
 Senator Cummins. You say we have a supervisory power over the 
 courts. What do you mean by that? 
 
 Mr. Martin. I mean it in the broadest sense, Senator, that the 
 Circuit Court of the Southern District of New York is created by 
 an act of Congress ; the salaries of those men are paid by the appro- 
 priations of Congress. Their duties are prescribed by act of Con- 
 gress, and they can be impeached by Congress for improper conduct., 
 and there are many ways in which Congress may exercise its super- 
 visory power, and which I shall not take time now to enumerate, r 
 remember when that same court tried to prevent it. It was within 
 their jurisdiction, and an officer of that court and an officer of the 
 Department of Justice were trying to prevent the institution of the 
 suit against the Joint Traffic Association — one of the greatest victories 
 that was ever won under the antitrust law for the people and against 
 the trust — and it became necessary for this committee of the Senate 
 to bring the district attorney from New York over here and get after 
 him before he could be forced to institute the proceedings. 
 
 Senator Cummins. But, Mr. Martin, the district attorney is part 
 of the executive force of the Government. 
 
 Mr. Martin. Exactly. 
 
 Senator Cummins. And of course- he is under the direction of 
 Congress in a certain sense, but you do not mean to assert that he 
 can change or rescind a judgment of a court having jurisdiction over 
 the case in which a- judgment is rendered, do you? 
 
 Mr. Martin. Practically ; I am so advised by eminent counsel. 
 
 Senator Cummins. Suppose you did appeal for a decision from the 
 circuit court in New York to the Supreme Court, and the Supreme 
 Court affirmed that decree, and the tobacco business is carried along 
 under the reorganization that has now been affected, would you then 
 adhere to your opinion that the antitrust law did not need to be 
 amended in any way ? 
 
 Mr. Martin. We do not propose to wait for that condition. We 
 propose to meet the enemy at the gate and attack this decree the 
 moment it is issued in New York and before it gets to the Supreme 
 Court. 
 
 Senator Cummins. Attack it how? 
 
 Mr. Martin. The details of that are in the hands of our attorney- 
 T am not a lawyer and I do not know that I am qualified to go into 
 the details, but Mr. Schulteis, our counsel, thinks there are ample 
 remedies for the prevention of that scheme. 
 
 Senator Cummins. Assume that that is the law and such a thing 
 is possible under the antitrust law as it is, then you will agree, will 
 you not, that there is some need of change ? 
 
 Mr. Martin. Yes ; if I found that the law was an absolute f. ailrare: 
 and it aided in the creation of trusts rather than the destruction of 
 them, I should, certainly ; but I am absolutely sure that that is not 
 the purpose or the effect of the enforcement of the antitrust law._ 
 
 Senator Cummins. That has been the effect of it in this particu- 
 lar case. 
 
 22877— vol 1—12 9 
 
128 HEARINGS BEFORE 
 
 Mr. Martin. But this case has not been completed yet. The only- 
 trouble is the perversion of the law by the circuit court of New 
 York. That court showed in its first decision on this tobacco case, 
 and I think in one of the railroad cases, that the presiding judge, 
 Lacomb, and the others were absolutely out of- sympathy with the 
 purposes of the antitrust law; that if they had their way there 
 would not be any such thing. They said it was an unreasonable 
 statute; it was an absurd statute, in essence — I am not quoting the 
 exact language, but they instanced cases where, if the antitrust law 
 were enforced it would prevent two little expressmen who were 
 running a one-horse express in competition across the State line be- 
 tween two villages; if they joined together their business they would 
 be liable to imprisonment and fined $1,000 each. That was to make 
 the law ridiculous, and it was the intent and purpose of that court 
 beyond any question — and I say it frankly because it is a very grave 
 matter, that a law enacted for the relief of 93,000,000 people should 
 be perverted from its purpose by the twisted mind of any judge 
 who would fail to look it squarely in the face is improper. 
 
 Senator Cummins. It seems to have been the twisted minds of 
 four judges. 
 
 Mr. Martin. Well, that is not many when you consider the balance 
 of the judiciary; they are not very numerous. 
 
 Senator Cummins. Then your position that we ought not to 
 attempt to strengthen the antitrust law in any way is upon the 
 assumption that the decision in the American Tobacco Co. case will 
 not stand, but will ultimately be reversed by some process of law. 
 
 Mr. Martin. That is only one of a dozen reasons why we oppose 
 the amendment of the law at this time. 
 
 There is another very potent reason, and that is that we are ad- 
 vised by the able counsel, and by some of the most eminent legal 
 authorities in the United States, including eminent Senators and 
 members of the Judiciary Committee, that the adoption of any 
 amendment to the antitrust law at this time would open the law to 
 new litigation and new interpretation and a long series of trials and 
 delays before the meaning of the law could be settled again. Now, 
 the law is pretty well settled and established, but 
 
 Senator Cummins. It is well settled, you say ? 
 
 Mr. Martin. That is the advice of our legal friends, both in the 
 Senate and House and outside. 
 
 Senator Cummins. But the history of the Beef Trust that is now 
 going on in Chicago seems to indicate that it is not well settled. They 
 have been trying to prosecute the Beef Trust there for 10 or 12 years, 
 and the law seems to be so uncertain that they have not yet been able 
 to bring to trial, or take the judgment of a jury or court upon any 
 material question in the matter. 
 
 Mr. Martin. I think most of the people in this country have a 
 pretty clear idea as to why that situation exists, and it is mainly be- 
 cause there has never been any real thorough- going effort to bring 
 that matter to a trial. The United States attorney in the court yes- 
 terday rebuked the judge to his face for rendering an improvident 
 decision, and I think the district attorney was justified in so doing. 
 I think where judges go to the point where they do things for which 
 their own subordinate officers and their own courts can rebuke them 
 
COMMITTEE ON INTERSTATE COMMERCE. 129 
 
 publicly, I think judges of that kind have largely ceased their 
 usefulness. 
 
 Senator Cummins. Are you speaking now of Judge Kohlsaat? • 
 ' Mr. Martin. I so read the report of the proceedings yesterday in 
 the newspapers. 
 
 Senator Cummins. I have not read any such remark on the part of 
 the judge. 
 
 Mr. Martin. That was the construction that was put on it in the 
 newspaper reports of the story yesterday, in the Associated Press 
 dispatches. Senator, that again brings up the fact that we have to 
 meet everywhere, in the attempt to enforce this law, the cunning and 
 immense and widely extended power of the combined money that re- 
 sists this by every possible means. 
 
 Senator Cummins. The trouble is apparent, but we depend for the 
 enforcement of the law upon- the courts, and your suggestions here 
 this morning seemed to indicate that the courts are not to be trusted 
 in the enforcement of the law, that there is something in connection 
 with the law that enables the court to always evade, or very often 
 evade their duty ; now it seems to me that under those circumstances 
 the wit of man ought to be sufficient to put the desire of the people 
 into law in such certain terms that there can be no evasion. 
 
 Mr. Martin. I want to say that if the Senator drew that inference 
 from my statement it must have been due to my inability to use 
 clear and well-understood language, because that was not my inten- 
 tion at all. I mentioned out of the hundreds of judges and scores 
 of courts, two or three cases which were conspicuously bad, and I 
 desire, if possible, to correct the Senator's impression, and to make 
 myself perfectly clear to this committee, that I believe the great 
 bulk of the courts of the United States, especially including the 
 Supreme Court, have soundly and wisely and justly interpretated 
 this antitrust law whenever brought before them, and have given the 
 people all the relief called for under the circumstances. The judges 
 of the Supreme Court have done it over and over again in these 
 cases. The judges of the United States circuit court in the Trans- 
 Missouri case and the Addyston Pipe Co. case, when President Taft 
 sat on the bench, did it. I hold that the great bulk of the judges 
 are all right. I only spoke of this case because I though it such 
 a case of dereliction that it required the attention of the Senate and 
 Congress. In regard to cases where the judges are performing their 
 duties, we have only words of commendation. 
 
 Senator Cummins. You spoke of the Standard Oil Co. case. If 
 it should happen that that reorganization into 34 companies, all con- 
 trolled by the same people, should be found possible under the anti- 
 trust law we would not have accomplished very much, would we? 
 
 Mr. Martin. As I said before, if it will all prove to be a failure, 
 which it is not, then we would have to take some different course. 
 We do not concede that it is proved to be a failure wherever it has 
 been properly enforced. 
 
 Senator Cummins. Where has it restored competition? In what 
 particular instance has a trust been destroyed and competition re- 
 stored in the business? 
 
 Mr. Martin. Of course all things are imperfect; and when we get 
 a partial restoration of competition it is somewhat of a benefit, As 
 
130 HEARINGS BEFOEE 
 
 I spoke in the case of the Standard Oil Co., all the decisions against 
 the railroad combinations, the decision in the Joint Traffic Associa- 
 tion case and the Trans-Missouri case and others of similar character, 
 and the prosecution of the Standard Oil Co., have resulted in a 
 growth of competition. 
 
 Senator Cummins. We had nothing to do with the Traffic Associa- 
 tion case. We had nothing to do -with the rebates under which the 
 Standard Oil Co. had been built up. Those rebates were prohibited 
 in the interstate-commerce law. 
 
 Mr. Martin. Yes, sir. They had a tendency to dissolve the unified 
 action that always brought benefit to big corporations. 
 
 Senator Cummins. There was no unified action in reference to 
 rebates. In those times there were secret rebates, and the Traffic 
 Association case had nothing to do with that pernicious practice, 
 had it? 
 
 Mr. Martin. The latter part of my sentence would cover that case. 
 I was only speaking in regard to that one point, and that is, that the 
 enforcement of the antitrust law, and the beginning of the efforts 
 to enforce it, has resulted, along with the abolition of rebates on 
 railroads, to some extent in the restoration of partial competition. 
 
 Now, in the case of the Steel Corporation, the investigation as to 
 whether the law had been enforced against it, not the attempt to 
 enforce it, but the mere attempt to investigate it has caused in a few 
 months the restoration of extensive competition in that industry. I 
 think as to that there can be no question. If the civil and criminal 
 provisions of the antitrust law were thoroughly and vigorously 
 enforced it would be an impossibility to maintain any one of those 
 big trusts. 
 
 Senator Cummins. Has there been any additional steel company 
 created in the last two or three years? You say there is additional 
 competition. Has there been any other company come in to com- 
 pete with the United States Steel Co. within the last two or three 
 years ? 
 
 Mr. Martin. Not extensively. The big companies that already 
 existed have realized by this prospective 
 
 Senator Cummins. Realized in what way? 
 
 Mr. Martin. By this inquiry and the prospective action to be 
 taken. 
 
 Senator Cummins. Realized what? 
 
 Mr. Martin. Realized the condemnation of the Steel Trust. You 
 see the Steel Trust was not simply the United States Steel Corpora- 
 tion. The Steel Trust was the United States Steel Corporation 
 as the center and backbone, and then there were a lot of little com- 
 panies. 
 
 Senator Cummins. I am pretty familiar with the organization of 
 the Steel Co., but I want you to tell me in what way this competition 
 was realized. 
 
 Mr. Martin. I conld not tell you the way until I made clear the 
 fact that the independent companies were called together and held 
 together by various devices in collusion with the Steel Corporation 
 itself to maintain prices. Sometimes it was by one method and 
 sometimes by another ; sometimes it was by pools like the steel-plate 
 pool and the wire pool and various others. 
 
COMMITTEE ON INTERSTATE COMMERCE. 131 
 
 Senator Cummins. The wire pool was before the United States 
 Steel Co. was organized. 
 
 Mr. Martin. It was also after. 
 
 Senator Cummins. Are you able to be more definite in regard to 
 the way in which competition was realized, in view of the examina- 
 tion that had been going on over in the House ? 
 
 Mr. Martin. Yes, sir. I shall endeavor to do that. For instance, 
 there were meetings at regular and sometimes irregular intervals 
 known as the Gary dinners, which were supposed, in the eyes of the 
 public, to be merely social gatherings where gentlemen ate dinner, 
 drank their wine, smoked their cigars, and had a good social time. 
 As a matter of fact, when the Stanley committee came to get hold 
 of the reports of what was said and done at those Gary dinners, it 
 was developed that those Gary dinners were for the purpose of en- 
 tering into a conspiracy on the part of the Steel Corporation, under 
 the guise of an umbrella, as they called it, of the Steel Corporation, 
 to bring the independents into an understanding and agreement with 
 them to maintain and fix prices and to practically create a trust by 
 verbal agreement. 
 
 Senator Cummins. Have those dinners been abolished ? 
 
 Mr. Martin. They have. They have not occurred since. 
 
 Senator Cummins. When was the last one held ? 
 
 Mr. Maettn. In May of this year. 
 
 Senator Cummins. How often were they held previously? 
 
 Mr. Martin. Sometimes they were held once a month, or once in 
 two months, and sometimes once in six months. 
 
 Senator Cummins. We have no assurance that there won't be 
 another, have we? 
 
 Mr. Martin. We have no indication that there will be another; in 
 fact, every indication points to the fact that there won't be another, 
 because the United States Attorney General and the district attorney 
 have brought the matter to the attention of the United States courts. 
 
 Senator Cummins. And then you think competition is restored in 
 the steel business? 
 
 Mr. Martin. Not entirely. 
 
 Senator Cummins. What else should be done in order to restore it. ? 
 
 Mr. Martin. I think the enforcements of the requests made in the 
 bill of the Government and the institution of criminal prosecutions 
 against organizers and officials and managers of the Steel Trust 
 would be helpful. 
 
 Senator Cummins. I mean practically. I am not speaking of the 
 legal proceedings. What power would you give the independents 
 that they do not now have that would enable them to compete with 
 the Steel Corporation? 
 
 Mr. Martin. I would reduce the ore rates on the railroads from 
 the ore mines at least one-half of what they now are. 
 
 Senator Cummins. That is a proposition before the Interstate 
 Commerce Commission. 
 
 Mr. Martin. I would uncover- and thoroughly investigate and 
 straighten out the division of the rate scheme by which rebates go 
 to the corporations. 
 
 Senator Cummins. The commission has abundant power to do 
 that now. 
 
132 HEARINGS BEFORE 
 
 Mr. Martin. You were asking me what I would do. I am answer- 
 ing 3rour question. One thing would be done by one branch of the 
 Government and another by another branch. I am giving you a 
 practical answer as to what could be done. I believe the criminal 
 prosecution of the directors, officers, and managers would have a 
 very helpful effect. It would cause them to cease practices which 
 render them indictable and liable to fine and imprisonment. And 
 when it comes to the question of fine and imprisonment I think there 
 is. perhaps, a misunderstanding in the minds of many who favor 
 an amendment to the antitrust law that the fines imposable under 
 the antitrust law are inadequate We do not believe so. 
 
 We believe that the cumulative character of the fines imposable 
 under the antitrust law, if properly and energetically pushed, would 
 result in such penalties being imposed on the organizers and man- 
 agers of the trusts that they would be very glad, in order to escape 
 the financial penalties alone, to quit. 
 
 I want to say, Senator, on that point, if I be permitted, that our 
 organization is actuated by no vengeful spirit against the organizers 
 of these combinations. We are not seeking a " pound of flesh," nor 
 would it give us any particular pleasure to see these elderly gentle- 
 men behind prison bars and wearing stripes at hard labor. What 
 we want for the people is not revenge, but relief, and if they will do 
 as we ask them in a Christian spirit to do — repent and make restitu- 
 tion and go and sin no more — I do not think any imprisonment 
 would be necessary. But there are some who are so hard-headed 
 that a little imprisonment may be necessary. 
 
 Senator Cummins. It seems to me that your association is taking 
 a position that will not give the people relief. 
 
 Mr. Martin. In what way, Senator? 
 
 Senator Cummins. Because it will not bring competition into the 
 business and prices will still remain unduly high. Suppose there 
 could be no corporation in the steel business with a capital of more 
 than $200,000,000, do you not think that would be something to 
 restore competition to the business ? 
 
 Mr. Martin. I think it would be helpful. 
 
 Senator Cummins. Suppose that the law forbade the manufactur- 
 ing company from owning the source of supply — the ore to which all 
 manufacturing companies must resort — do you not think that would 
 do something to restore competition? 
 
 Mr. Martin. I am inclined to think it would be helpful. 
 
 Senator Cummins. Suppose the law absolutely forbade the manu- 
 facturing company from owning any railway over which these ores 
 or these products were transported, do you not think that would do 
 something toward restoring competition ? 
 
 Mr. Martin. That is one of our demands, the enforcement of abso- 
 lute separation of transportation companies and manufacturing com- 
 panies. 
 
 Senator Cummins. You are not accurate when you say you are 
 opposed to any amendment or addition to the antitrust law. " 
 
 Mr. Martin. These provisions you suggest could be adopted with- 
 out amending the antitrust law. 
 
 Senator Cummins. What do you mean by amending the antitrust 
 law? Do you mean to change the phraseology of the law— that it 
 requires that sort of legislative action in order to be an amendment? 
 
COMMITTEE ON INTERSTATE COMMERCE. 133 
 
 Mr. Martin. Not necessarily. The addition of another paragraph 
 modifying the existing phraseology just as it is would be an amend- 
 ment. 
 
 Senator Cummins. You are opposed to that as well as any other? 
 Mr. Martin. At the present time, Senator. 
 
 Senator Cummins. You are opposed to any steps toward securing 
 competition in business, and in that way relieve the people of the 
 burden they are now bearing? 
 
 Mr. Martin. By no means; no, sir. I am not. That is not my 
 position at all. My position is that I am in favor of taking any steps 
 within reason and common sense that Congress can take that will 
 restore freedom of competition and equality of rights in the world 
 of commerce and business. I have suggested two or three steps. 
 There are plenty of others we are in favor of besides. 
 
 Senator Cummins. Then you are in favor of amending the law 
 with reference to the control and regulation of trusts and corpora- 
 tions ? 
 
 Mr. Martin. I do not want to be technical or narrow in my lan- 
 guage in this matter. I take the position and our counsel takes the 
 position that the amendment of the antitrust act itself at the present 
 time, before it has had a fair chance of enforcement, involves us in 
 the danger of endless further new litigation before we can get down 
 to the point where we have it down now, and our best friends, advis- 
 ers, and our legal wisdom, both outside and inside the Senate, advise 
 us against such a course, and we believe their advice is sound, for that 
 reason, that it would involve us in a new tangle of litigation that 
 may take 10 or 15 years again before we come to a conclusion, get 
 to the point where we now are, which we submit is a very dangerous 
 risk to run if we can accomplish the same results without doing it. 
 
 Senator Cummins. But, after all, what you want is to restore 
 competition ? 
 
 Mr. Martin. That is one of the things we want, and those of us 
 who believe that the present law, no matter how vigorously enforced, 
 will not restore competition, ought to be in favor of some legislation 
 that would be, I fancy. That is the privilege of every gentleman, of 
 course. 
 
 Senator Cummins. You would oppose an amendment to the law 
 providing that no corporation could employ more than a certain 
 amount of capital in the business in which it was engaged? 
 
 Mr. Martin. I should object to that as an amendment directly to 
 the antitrust law. The same purpose can be accomplished by other 
 means without the dangers that I have spoken of. 
 
 Senator Cummins. How do you mean? I fancy you are a little 
 technical about the word " amendment." You do not understand it in 
 the same sense I do. 
 
 Mr. Martin. Possibly. 
 
 Senator Cummins. "We have a law here regulating corporations, 
 forbidding corporations from doing certain things, and persons too 
 for that matter, engaged in interstate trade. Any statute which is 
 intended to further regulate that subject is an amendment to the law 
 from my point of view ; and I want to get your opinion as to whether 
 you are going to stand here opposing any effort on the part of Con- 
 gress to deal with this subject in any other way than it is now dealt 
 with in the law. 
 
134 HEABINGS BEFORE 
 
 Mr. Martin. Un the contrary, we would welcome any action of 
 Congress that will tend to restore free and fair competition and de- 
 stroy monopoly. But we would ask Congress to guard against a 
 -danger that we foresee, that we are advised against, to take those 
 steps, because it would involve us in a lot of new litigation about the 
 proper interpretation of the antitrust law. And I think that is a 
 reasonable request on our part, and especially in view of the fact that 
 we have made it on the ground that the antitrust law has not had a 
 ifair chance yet. 
 
 Senator Cummins. You say that you still want an antitrust law 
 containing the prohibition that the Sherman antitrust law does 
 against restraint of trade, and the same prohibition with respect to 
 formation of monopoly, and the attempt to form monopoly, but other- 
 wise you stand against any changes in the law on the subject which 
 would add to the pbwer of the Government in oppressing monopoly 
 and restoring competition. 
 
 Mr. Martin. Upon that point I should say that our bill to create 
 a department of transportation would be in effect to restrain the op- 
 erations of trusts, and yet it would not be an amendment to the anti- 
 trust law. Our bill to prohibit the interlocking boards of directors, 
 which is now pending, would be in effect to restrain the operations 
 of the trusts and to prevent the successful execution of their con- 
 spiracies to monopolize interstate commerce, and yet it would not 
 be an amendment to the interstate-commerce law that would involve 
 the law in the danger of the litigation that would mean so much 
 delay. That is the line that we believe in pursuing at the present 
 time, and I have given our reasons for so doing. 
 
 Senator Cummins. I think that is all, Mr. Chairman. 
 
 The Chairman. Senator Newlands, you may proceed with the 
 inquiry. 
 
 Senator Newlands. Mr. Martin, I understand that you do not ob- 
 ject to legislation supplemental to the Sherman antitrust act which 
 will not change its terms or prevent in any way the present efforts 
 made to enforce that act ? 
 
 Mr. Martin. Provided otherwise they are in accord with the poli- 
 cies we believe in. 
 
 Senator Newlands. I understand that you are in accord with the 
 policies that are intended to permit free competition, although you 
 fear that if any effort is made to amend the antitrust act it might 
 weaken it instead of strengthening it ; and you feel confident now that 
 the Supreme Court has made, has given such an interpretation to 
 that act, that if the Supreme Court is finally consulted in all these 
 •questions now being determined by the circuit court the result will 
 be favorable to the contentions of those who are opposed to these com- 
 binations of monopolistic tendencies. Do I correctly state your 
 position ? 
 
 Mr. Marten. I think I can assent to that. 
 
 Senator Newlands. Now, take the antitrust act itself, do you think 
 it would not have been wiser at the start if that act had provided that 
 the administration and the enforcement of the act, either in an ad- 
 ministrative way or through prosecutions in the court, should be in- 
 trusted to a commission like the Interstate Commerce Commission, 
 instead of to the Attorney General's Office — do you think that would 
 have been beneficial? 
 
CUMMliTKii UM INTERSTATE COMMERCE. 135 
 
 Mr. Martin. No; I do not. I think it would be far wiser to keep 
 the administration of the law in the hands of our executive officers 
 whom Congress should hold responsible, and who, with his corps of 
 assistants, can act instantly to meet all emergencies and contingencies, 
 and that there should be no divided council. Give him the power to 
 enforce the law, and hold him responsible by the supervisory power 
 of Congress. I think that is the settled policy of the most civilized 
 nations, and I do not think that it would be wise to depart from that 
 practice. 
 
 Senator Newlands. And yet you realize, do you noi, that the ad- 
 ministration of this act by the Attorney General's Office during the 
 past 23 years, and without reference to the present incumbent, has not 
 been satisfactory? 
 
 Mr. Martin. That is true, Senator ; and if you will permit me to 
 say it, we find sometimes in our big cities, like New York and Chi- 
 cago, that the enforcement of the law against gambling and other 
 forms of vice and criminality are not well enforced because of the 
 organized power of money and cunning interested in those violations 
 of the law is so great that they find it possible to hobble the enforce- 
 ment of the law and the administration of justice. Then when you 
 multiply that power by millions and raise it to the power of billions, 
 as in the case of the combined trusts, of course, they would hobble 
 anybody to a certain extent and for a time. What we believe is that 
 the brave and fearless Government officials who attempt to enforce 
 the law against this terrible and menacing and revengeful opposition 
 should be encouraged, and those who fail should be relieved of their 
 duties and courageous men put in their places who will enforce it. 
 
 Senator Newlands You do not think, then, that this weakness of 
 prosecution is inherent in the organization of the Attorney General's 
 Office, the incumbent being frequently changed ? 
 
 Mr. Martin. Not at all, Senator. 
 
 Senator Newlands (continuing). The incumbent being subject 
 to executive control? 
 
 Mr. Martin. Not at all. They enforce the laws against smuggling 
 and against counterfeiting and against other crimes. 
 
 Senator Newlands. And the administration itself being subject 
 also to political influence at critical times, when elections are to be 
 held and when these great interests can exercise a powerful influence ? 
 
 Mr. Martin. That is one of the things that hinders it. I agree 
 with you there. But there is nothing inherent in the organization 
 or in the form of the organization of the Department of Justice that 
 should impede the proper and thorough enforcement of this law. 
 The law against smuggling is thoroughly enforced by the Depart- 
 ment of Justice, the law against illicit distilling and the revenue law, 
 and the law against counterfeiting are enforced with great rigor, 
 and almost with perfect exactness. So that there is nothing, we be- 
 lieve, inherently weak in the organization of the Department of Jus- 
 tice. It is only that the other departments of the Government, 
 especially Congress, should see that the executive department, and 
 especially the Attorney General, is properly backed up and encour- 
 aged and, if necessary, driven to enforce the law against these trusts. 
 Senator Newlands. You stated that the meaning of the antitrust 
 act has been well settled. I presume you refer by that to the decisions 
 of the Supreme Court, do you not? 
 
136 HEARINGS BEFORE 
 
 Mr. Martin. The many decisions bearing upon that question. 
 
 Senator Newlands. You say that your organization is not satis- 
 fied with the decision that has been recently reached in the tobacco 
 case in New York ? 
 
 Mr. Martin. We are not, so far as we are advised as to the terms 
 of it. We have not seen the final decree yet. 
 
 Senator Newlands. You say that that case is not yet completed, 
 and indicate that further proceedings can be had — I presume by 
 way of appeal to the Supreme Court of the United States ? 
 
 Mr. Martin. And otherwise. 
 
 Senator Newlands. How do you expect to accomplish that when 
 the Government has assented to the decree ? 
 
 Mr. Martin. Of course the Supreme Court has it within its dis- 
 cretion to recognize an appeal from that, even if not made by the 
 Attorney General. 
 
 Senator Newlands. By whom? 
 
 Mr. Martin. By the parties in interest. 
 
 Senator Newlands. You mean by the parties in interest, you 
 mean the parties to the suit ? 
 
 Mr. Martin. Parties who may satisfy the court that justice would 
 fail if they were not given an opportunity to be heard. 
 
 Senator Newlands. Have any such parties intervened in your 
 case ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Newlands. What parties? 
 
 Mr. Martin. Counsel for the Independent Leaf Tobacco Dealers' 
 Association made such a request in New York day before yesterday, 
 and have taken the necessary technical steps to accomplish that end, 
 and he will be supported in that contention by our organization and 
 by other branches of the independent dealers, and our organization, 
 speaking in behalf of the consumers, whom, we believe, are not 
 greatly overjoyed by it. It is also contemplated that, as represent- 
 ing the consumers, we will ask for a new proceeding or institute a 
 new proceeding against the United Cigar Stores Co., which is a 
 branch of the trust which comes directly in collision with the con- 
 sumer and makes him mad, and makes him feel that it has practiced 
 an injury and a swindle upon him. 
 
 Senator Newlands. Well, these independent producers hope to be 
 made parties to the suit and take an appeal to the Supreme Court? 
 
 Mr. Martin. I believe so. That phase of the matter is in the 
 hands of our attorneys, and they are working it out as best they can. 
 
 Senator Newlands. That is what you meant when you said the 
 case was not yet completed? 
 
 Mr. Martin. That is only one part of what I meant. I meant 
 very much more serious steps than that would be taken if it became 
 necessary to take them. 
 
 Senator Newlands. What other steps? 
 
 Mr. Martin. I do not know that I am justified in stating at this 
 time what they are. 
 
 Senator Newlands. I beg your pardon. 
 
 Mr. Martin. Pardon me, I do not mean to be at all discourteous, 
 Senator, in my reply, but the matter has not been fully elaborated 
 yet, and it is largely a matter of the advice of counsel, involving 
 grave legal questions, which I, as a layman, am not fully qualified 
 
COMMITTEE ON INTERSTATE COMMERCE. 137 
 
 to deal with, and perhaps in justice to myself as well as to the 
 committee, I ought not to attempt to go into the facts of the matter 
 that I am not able to satisfactorily explain. 
 
 Senator Newlands. It is not my intention to press you unduly on 
 that line. 
 
 Mr. Martin. I will say, however, that I have endeavored to get 
 the consent of our counsel to address you a letter, or a letter to the 
 chairman of the committee, embodying our views on that point, and 
 make them a part of my testimony, if you desire it. I do not feel 
 that I am justified in answering your question definitely just at this 
 moment, but I think I may be able to do it by letter very soon. 
 
 Senator Newlands. If the result should be that these applications 
 to be made parties to that proceeding by independent companies 
 should fail, that the reorganization of the Tobacco Trust should rest 
 upon the judgment of the circuit court of New York instead of the 
 judgment of the United States Supreme Court, would you then 
 insist upon your contention that the antitrust act should not be 
 amended ? 
 
 Mr. Martin. That is a hypothetical question, Senator, and I think 
 we should cross that bridge when we come to it. I do not think we 
 are in any danger of meeting that question now. 
 
 Senator Newlands. Then, I understand your hope for a successful 
 realization of all you speak of from the antitrust act rests upon the 
 ultimate decision of the Supreme Court itself in all of these matters 
 of reorganization and not upon the decision of the lower court. 
 
 Mr. Martin. Oh, welh, we recognize and are glad of the fact that 
 the Supreme Court seems to give always and generally a better and 
 more thoroughgoing interpretation of the law than some of the 
 lower courts do, and that that is a very encouraging sign to us, be- 
 cause we look upon the Supreme Court as the highest legal authority ; 
 and when we find the highest legal authority leading our way and 
 inclined to say, and in fact saying, that the things that we complain 
 of are wrong and turn their orders over to the sheriff to execute 
 them, it is up to the sheriff then to do his duty. The President and 
 the Attorney General are the sheriff in these cases. Then it is up 
 to them to do their duty. It is not like the sheriff, who said to a 
 man, " You are condemned to hang; we will let you hang yourself." 
 "All right," he said, " I will do that some time in the future." We 
 do not consider that anything like that will grow out of the decision 
 of the Supreme Court of the intention or the law. 
 
 Senator Newlands. But that hope of realizing an efficient reor- 
 ganization of the Tobacco Trust rests upon the Supreme Court ; does 
 it not in that particular case rest upon the Supreme Court ? 
 
 Mr. Martin. We still have some hopes that both Congress and 
 the President will render some assistance in the matter. In fact, we 
 feel quite sure they can and will. 
 
 Senator Newlands. How would you expect Congress to act in this 
 matter — by legislation? 
 
 Mr. Martin. Rather by the exercise of its supervisory power over 
 the judicial and executive departments. 
 
 Senator Newlands. In that individual case, how would - you call 
 upon Congress to act in a supervisory way ? 
 
 Mr. Martin. Well, I should have Congress take steps, and this 
 is a very important phase of this matter, Senator — I would have 
 
138 HEARINGS BEFOBE 
 
 Congress take steps to hold this matter where it is, by any exercise 
 of the power they can, until it is known just what this thing is that 
 it is proposed to be known. 
 
 Senator Newlands. That would mean legislation, would it not? 
 
 Mr. Martin. I will endeavor to get to that a little bit later, be- 
 cause that is somewhat of a new and complicated matter, but I think 
 it can be done. I would have Congress, to state it roughly and 
 briefly, take steps to hold this matter from going to a consummation 
 until it was known fully and thoroughly, and the people of the 
 United States, as well as the Supreme Court and the President and 
 Congress, just what there is involved in this scheme. This is a 
 parting of the ways. 
 
 Senator Newlands. Just tell me what definite form of action Con- 
 gress can take in that direction, except by legislation. 
 
 Mr. Martin. The only step Congress could take. It could bring 
 the Government attorneys in charge of that case here to this com- 
 mittee and bring the documents and evidence in the case here ; bring 
 the attorneys of the Tobacco Trust and bring the members of the 
 Tobacco Trust themselves, for that matter, and bring everything 
 connected with the proceedings, from the presiding judge of the 
 circuit court down here, and see what was actually done in that case. 
 It was done behind closed doors, to a great extent. Now, let us see 
 what was done. We believe that somebody was either overpersuaded 
 or deceived into agreeing to a plan that is a failure and the defeat 
 of the ends of justice, and before that is consummated, in a matter 
 involving such immense interests and such a far-reaching precedent 
 as is involved in this case, we think the whole searchlight of full 
 knowledge should be turned upon it. 
 
 One of the reason's why the antitrust people are devoting a great 
 part of their time to the investigation of the Steel Trust, the rail- 
 road and money trusts, and attempting to bring cases against them, 
 and has given very serious attention to this tobacco matter, was be- 
 cause we saw it plainly indicated by the representatives of the opin- 
 ion of the organized trust powers in Wall Street that this tobacco 
 thing was to be made a breaking down of a length of the fence in 
 the antitrust law, which has the 'trusts herded in the field; and if the 
 Tobacco Trust were able to get out of the fence, all the rest of the 
 trusts would rush out and get away, too. We do not propose to have 
 such a break made in the antitrust law by the consideration of any 
 legal or technical means, if we can help it, and we appeal to the Sen- 
 ate and to Congress and to the President and to public opinion to 
 aid us in preventing the breaking down of a length of the fence in 
 this law which may allow the escape technically of almost all of 
 these great trusts that have been robbing the public for so long. 
 
 Senator Newlands. Then you expect Congress to act in this matter 
 through its powers of inquiry? 
 
 Mr. Martin. And supervision. 
 
 Senator Newlands. What would you expect the President to do? 
 
 Mr. Martin. He can give directions to his subordinates, the dis- 
 trict attorney and the Attorney General, and so on. 
 
 Senator Newlands. To do what? 
 
 Mr. Martin. To appeal a case and get it before the Supreme Court 
 for review, which will bring out the facts and will cause the idea of 
 the Supreme Court to stand. 
 
COMMITTEE ON INTERSTATE COMMERCE. 139 
 
 Senator Newlands. Has that application been made? 
 
 Mr. Martin. It has not. I understand that the Attorney General 
 announced to the press yesterday that he would not make that ap- 
 plication. 
 
 Senator Newlands. I say, has an application been made to the 
 President requesting him to take an appeal? 
 
 Mr. Martin. One, I believe, has been made, and others will be 
 made. 
 
 Senator Newlands. I simply want to get at what you expect Con- 
 gress and the President to do regarding the matter. 
 
 Mr. Martin. I did not catch your question. 
 
 Senator Newlands. I simply desire to get at what you expect Con- 
 gress and the President to do in the matter. As I understand it, 
 you expect Congress to use its powers of inquiry to throw on the 
 light, as you express it, and you expect the President to direct the 
 Attorney General to go to the Supreme Court, which rendered the 
 decision upon the subject, if not satisfactory to you, to act finally 
 upon the reorganization of this trust? 
 
 Mr. Martin. That will be one of the steps; yes, sir. 
 
 Senator Newlands. Now, Mr. Martin, at the commencement of 
 your remarks you spoke of the full exercise of the supervisory power 
 of Congress over these public officials and of the delinquency of the 
 Attorney General's Office and of the desirability of impeachment 
 proceedings, etc., and you refer to certain expressions of mine, in 
 some speech upon the subject. Now, do you understand that in any 
 of those speeches I expressed any dissatisfaction with the efficiency 
 or the~ energy of the Attorney General's Office as it is at present con- 
 ducted in the prosecution of these suits. 
 
 Mr. Martin. Well, rather. That was my impression, Senator. 
 
 Senator Newlands. Well, I wish to correct that impression. 
 
 Mr. Martin. I gathered it from this thing, Senator. It appears on 
 page 6 of your argument before this committee, part 1, starting at the 
 bottom of page 5 [reading] : 
 
 The interstate-commerce act for the regulation of railroads and the antitrust 
 act for the prohibition of trusts were passed about the same time. The admin- 
 istration of the former was given to a quasi-judicial board; the administration 
 of the latter was given to the Attorney General's Office. After about 23 years 
 of operation, through a gradual process of evolution, the regulation of railroads- 
 engaged in interstate commerce has practically been accomplished. * * * 
 
 The administration of the antitrust act, on the contrary, has been lame and 
 halting, changing with the shifting incumbents of the Attorney General's Office, 
 and according to the requirements of political exigencies. 
 
 Senator Newlands. Yes ; I reiterate that now. Have you anything 
 else to read upon that subject? 
 
 Mr. Martin. That was the particular point that attracted my atten- 
 tion and caused me to make the remark I did, Senator. 
 
 Senator Newlands. Well, I do not object to the remark. It seemed 
 I o me to be rather too extensive in its application. 
 
 Mr. Martin. If I erred in that respect, I apologize to the Senator. 
 
 Senator Newlands. In order to correct that impression, that re- 
 cently and for a long time I have been attacking the system of sub- 
 mitting the enforcement of the antitrust act to the Attorney Gen- 
 eral's Office, with its shifting incumbency, sometimes as many as 
 four Attorneys General taking office in one administration, with 
 its lack of traditions and precedents, and I have insisted that if 
 
140 HEARINGS BEFOBE 
 
 Congress had at the start, when the act was passed, submitted its 
 enforcement and administration to the commission possessing pow- 
 ers similar to those of the Interstate Commerce Commission, that 
 after 20 years we would have reached the practical solution of the 
 trust question, as we have reached the solution of the railroad ques- 
 tion. And whilst I have insisted upon it that during the past the 
 administration of the Attorney General's Office has been subject to 
 varying influences — the influence of the Executive, the influence of 
 political exigencies, when the great financial powers were to deter- 
 mine whether a particular man was to be nominated or renominated 
 or whether his election would be secured — whilst I have insisted that 
 these conditions have existed under both Democratic and Kepublican 
 administrations during the past 22 or 23 years, while the Sherman 
 Antitrust Act has been in operation, I have taken express care to 
 state that I thought the Sherman Act had been more efficiently 
 administered un.der the present Attorney General than under any 
 of his predecessors. I simply wish to make that clear. I have been 
 attacking the system and not arraigning any particular incumbent 
 of the Attorney General's Office. 
 
 Mr. Martin. I think I understood the Senator correctly on that. I 
 did not mean that anything I said should indicate that he was attack- 
 ing any particular Attorney General. But, Senator, upon that point, 
 if I may be permitted, your objection that the frequent changing of 
 the incumbents of the office of the Attorney General and his assist- 
 ants does not seem to impede the enforcement of other laws. It does 
 not impede the enforcement of the laws against couterfeiting and 
 smuggling and various other offenses, and there is no reason why it 
 should impede the enforcement of the antitrust act. 
 
 Senator Newlands. Entering upon that question would involve a 
 debate here that would simply take up our time unnecessarily. All 
 I can say is that the powerful character of the organizations that are 
 affected by both the interstate-commerce act relating to railroads and 
 the antitrust act relating to great trade combinations is such as 
 to render it necessary, in my judgment, that there should be an im- 
 partial and nonpartisan and independent administrative tribunal with 
 powers of prosecution, powers of examination, and powers of correc- 
 tion and recommendation to Congress and that I think our experience 
 with reference to the railroads has proved that that system is the cor- 
 rect one, and we should extend it to these great combinations known 
 as trusts. I won't enter into any further discussion of the matter, 
 however. 
 
 Mr. Martin. Pardon me right there. Just one word. 
 
 We draw the line broad and deep and so clear that we do not 
 recognize that the regulation of railroad rates is in the same class 
 or can be dealt with in the same manner as the regulating of prices 
 of commodities in commerce. 
 
 Senator Newlands. If we do not extend these powers to the regu- 
 lation of prices there are other powers that would be very effective. 
 I am through. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. What is the full name of your organization? 
 
 Mr. Martin. The American Antitrust League. 
 
 Senator Brandegee. Is it an incorporated concern? 
 
 Mr. Martin. It is not. 
 
COMMITTEE ON INTERSTATE COMMERCE. 141 
 
 Senator Beandegee. What is the nature of its organization? 
 
 Mr. Martin. It is an organization formed by citizens of the 
 United States for the purpose of preventing the growth and putting 
 an end to the oppressions and extortions upon the people, practiced by 
 the great combinations of capital and conspiracies known as trusts. ' 
 
 Senator Beandegee. That is only the purpose of the organization. 
 I mean what is the legal character of its existence ? 
 
 Mr. Martin. It is a voluntary association of citizens, the same as 
 a political party, practically. 
 
 Senator Beandegee. Is it a voluntary association organized under 
 the laws of any State ? 
 
 Mr. Martin. No ; it is practically the same as a political party. 
 It is a free association of citizens for this purpose. It is the same 
 as a political party, except that we do not nominate candidates for 
 office. 
 
 Senator Brandegee. What determines its membership ? 
 
 Mr. Martin. Voluntary. Any man may join it who believes in 
 its policy, and he may do it with a minimum of trouble, and it is 
 in that respect practically the same as a political party. 
 
 Senator Brandegee. I mean who determines who may join? 
 
 Mr. Martin. The local groups of men in each locality are per- 
 fectly free to take anybody that applies into their councils and co- 
 operate together. It is composed of a minimum of machinery in 
 order that the maximum of effect and public opinion may be accom- 
 plished. 
 
 Senator Brandegee. I am trying to get some idea of the extent 
 and organization of the concern. Is there a list of membership of 
 the organization in existence anywhere? 
 
 Mr. Martin. You mean a complete list in any one place? 
 
 Senator Brandegee. Yes; and in all places. 
 
 Mr. Martin. I do not think there is. 
 
 Senator Beandegee. How do you know who are the members of 
 your organization for which you speak ? 
 
 Mr. Martin. It is not necessary for me to know. In fact, there 
 is very strong reason why the entire list of membership of the entire 
 organization should not be within the reach of anybody to be ob- 
 tained in any one particular locality. We are engaged in What 
 amounts practically to war with these great criminals known as 
 trusts, and they would victimize and butcher our members, espe- 
 cially those who take an active part, wherever they could get a 
 chance. It is very desirable — in fact, as a matter of military pre- 
 caution it is necessary to keep a good deal of the membership out 
 of the knowledge and out of the reach of the vengeance of these men 
 who are not at all merciful when they get anybody in their clutches 
 whom they think are dangerous to them. 
 
 Senator Brandegee. It has a secret membership then ? 
 
 Mr. Martin. Largely ; yes, sir. 
 
 Senator Brandegee. Does anybody know the members of the or- 
 ganization? 
 
 Mr. Martin. I do not think that any one man knows all the mem- 
 bers. 
 
 Senator Beandegee. Does it adopt a platform like a political party ? 
 
 Mr. Maetin. In the different States and localities the members act 
 in accordance with the needs of the locality, and nationally we have 
 
142 HEARINGS BEFOKE 
 
 practically a settled policy of simple forms, such as I stated to you 
 a moment ago. 
 
 Senator Brandegee. Does the local membership or group, or what- 
 ever you call it, elect officers ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Brandegee. Did you say you were the national secretary? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Brandegee. Who appoints you? 
 
 Mr. Martin. The national executive committee. 
 
 Senator Brandegee. Is that known to the public ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Brandegee. Well, do they have stationery containing a list 
 of the officials of the organization ? 
 
 Mr. Martin. They have stationery containing a list of the national 
 officers. 
 
 Senator Brandegee. Who is the president of it ? 
 
 Mr. Martin. M. L. Lockwood, of Oklahoma. 
 
 Senator Brandegee. Do they have a treasurer? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Brandegee. Is his name given on the list of officers? 
 
 Mr. Martin. It is. 
 
 Senator Brandegee. How long have you been its national 
 secretary ? 
 
 Mr. Martin. For quite some years. 
 
 Senator Brandegee. When was it organized ? 
 
 Mr. Martin. In 1899. I have been its national secretary in fact 
 since it was organized. In fact I was one of a small group of men 
 who originated the idea. We believed that some organized force of 
 citizens should be gathered together to urge upon the Secretary and 
 Congress and the Executive the necessity for more thoroughgoing 
 enforcement of the law. 
 
 Senator Brandegee. How are its funds collected; by voluntary 
 subscriptions ? 
 
 Mr. Martin. By voluntary contributions, the same as political 
 parties receive contributions, each man doing much or little as he 
 sees fit. 
 
 Senator Brandegee. Does the treasurer or any disbursing officer 
 make any return of his expenditures to anybody ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Brandegee. There is a system of accounting then — audit- 
 ing, I suppose ? 
 
 Mr. Martin. Yes, sir; not complicated; it is comparatively simple 
 because the organization is not wealthy, and the money it does re- 
 ceive it spends just about as fast as it gets it to conduct the struggle,, 
 and with the powerful men who compose the trusts we have ample 
 use immediately for every dollar we can get hold of. 
 
 Senator Brandegee. The officers get salaries, I assume. 
 
 Mr. Martin. No ; they all contribute their services free. 
 
 Senator Brandegee. Do you yourself represent the policies of the 
 organization before legislative bodies? 
 
 Mr. Martin. At times : yes, sir. On this occasion I do ; yes, sir. 
 
 Senator Brandegee. I mean, you have been in the habit of doing 
 it here. 
 
(jUmmix'xjiiJii ujn ijn TJSBSTATE COMMERCE. 143 
 
 Mr. Martin. Frequently I have. I appeared before the Senate 
 Committee on the Judiciary, and the House Committee on the Judi- 
 ciary in opposition to the amendment to the antitrust law wjiich 
 was proposed by President Roosevelt, of the United States, and 
 President Gary, of the Steel Trust, in 1908, and I am happy to 'say 
 that we succeeded in defeating that amendment thoroughly, so it 
 never even got out of the committee in either the Hpuse or the 
 Senate. 
 
 Senator Brandegee. Does the organization, as a national body, or 
 in the shape of these groups of locals — do they have meetings and 
 debate these questions ? 
 
 Mr. Martin. At times; that is entirely left to their convenience. 
 The organization is extremely simple in itself so far as its machinery 
 is concerned. The widest leeway is left to the people in each locality 
 to do substantially as their judgment sees fit, because we believe in 
 the great principle laid down by Thomas Jefferson that that govern- 
 ment is best which governs least, so far as we secure liberty. We 
 do not want any more government than we can help. 
 
 Senator Brandegee. I have no disposition or interest in the in- 
 terior management of the concern. I am simply trying to get at 
 this — do you have any national meeting of delegates frpm the groups 
 where your organization gets together and formulates a policy from 
 time to time? 
 
 Mr. Martin. At times, Senator; but the doctrine of our people 
 and their faith and belief is very largely opposed to the idea of 
 political conventions. We believe that the greatest curse of the 
 Republic of the United States. 
 
 Senator Brandegee. This would not be a political convention in 
 any sense of the term. It would be a convention of gentlemen inter- 
 ested in the economic conditions of the country. 
 
 Mr. Martin. It is a political organization, and its purpose and 
 object are the same, except as to the election of officers. We believe 
 that political conventions will be done away with, because they are 
 the source of much rascality and disreputable things. Political con- 
 ventions are bound by no law, and they hold delegated authority of 
 great importance, and very often misuse it and abuse it. We are in 
 favor of the direct exercise of the political party on the part of the 
 sovereign citizens themselves. 
 
 Senator Brandegee. Do you mean to say it is one of the purposes 
 of your organization to abolish all political parties? 
 
 Mr. Martin. No, sir. We believe in political party government. 
 
 Senator Brandegee. I thought you said they would soon be done 
 away with? 
 
 Mr. Martin. The conventions. I said — delegate conventions. 
 
 Senator Brandegee. Oh, yes. How is the attitude of your organ- 
 ization determined upon particular subjects — on the subject of legis- 
 lation, for instance? 
 
 Mr. Martin. National legislation by the national executive com- 
 mittee and State legislation by the various localities in the State, and 
 the cities by the local people in the States. 
 
 Senator Brandegee. The national committee; how many gentle- 
 men does that consist of? 
 
 Mr. Martin. About a dozen. 
 
 22877— vol 1—12 10 
 
144 HEARINGS BEFORE 
 
 Senator Brandegee. Have they had a meeting recently about the 
 amendment of the Sherman law? 
 
 Mr. Martin. Yes, sir; we have had several; discussed it very ex- 
 tensively and very frequently, and not only recently, but in times 
 past over and over again ; and as was declared by a Member of Con- 
 gress from New York, who was a delegate to one of our conventions 
 several years ago, in which he stated the only difficulty with the 
 Sherman antitrust law is that it was not enforced, and we believe 
 that is true to-day the same as it was when the Congressman made 
 the statement 10 years ago in Chicago. 
 
 Senator Brandegee. Do you have any stated meetings of your 
 national executive committee? 
 
 Mr. Martin. No, sir ; we meet according to the emergencies as they 
 may arise. 
 
 Senator Brandegee. Who calls the meetings? 
 
 Mr. Martin. Either the president or the secretary. 
 
 Senator Brandegee. Are there any by-laws governing those things, 
 or rules? 
 
 Mr. Martin. Not by-laws governing the meetings, but there is a 
 national declaration of principles. 
 
 Senator Brandegee. Where may it be obtained ? 
 
 Mr. Martin. I can furnish it to the Senator, if he desires. 
 
 Senator Brandegee. I wish you would. I would like to have it 
 in the record. 
 
 Mr. Martin. I would be very glad to insert it in the record. We 
 are rather proud of it. We think it is a declaration of sound gov- 
 ernment principles, and we hope it will result in the conversion of 
 all good citizens. 
 
 Senator Brandegee. The reason I asked — I am not familiar with 
 the organization, and I wanted to ascertain what the nature of it 
 wns. Of course I assume I knew what the purpose of it was. 
 
 In one of your statements you remarked rather incidentally that 
 some of the members of a Judiciary Committee had told you that it 
 would not be wise in their judgment at present to attempt any 
 amendment of the Sherman law, because it would involve new legal 
 constructions by the court, and they had better let the present law 
 be thoroughly construed, as I understood you. What Judiciary 
 Committee did you allude to? 
 
 Mr. Martin. Not the present Judiciary Committee, although I 
 think some of the present members were members then. 
 
 Senator Brandegee. I mean the Judiciary Committee of the Senate. 
 
 Mr. Martin. It was a previous Congress. 
 
 Senator Brandegee. Was it the Judiciary Committee of the Senate ? 
 
 Mr. Martin. Of the United States Senate ; yes, sir. Some of those 
 members are members now of the present Judiciary Committee, and 
 will undoubtedly be heard from on any amendment, because they 
 will probably go to that committee. 
 
 Senator Brandegee. They might come to this committee. Who 
 did you say was the counsel of your league? 
 
 Mr. Martin. Herman J. Schulties, of Washington, was one of our 
 counsel ; ex- Attorney General Frank S. Monett, of Ohio, who was in- 
 strumental in driving the Standard Oil Co. out of that State, was also 
 one of our national counsel in that matter; and also Senator Blair 
 Lee, of Maryland. He appeared for us in the preparation of our 
 
COMMITTEE ON INTERSTATE COMMERCE. 145 
 
 original case against the Steel Trust in 1901, and has acted as one 
 of our legal advisers ever since. 
 
 Senator Brandegee. I did not mean to inquire as to the names of 
 the array of counsel that you may have had in the past in different 
 matters. But who is your counsel now ? 
 
 Mr. Martin. Joseph Hartigan, of New York, and there are many 
 Members of Congress who are also kind enough to give us very 
 valuable legal advice at times. 
 
 Senator Brandegee. What I wanted to elicit a reply to was with 
 reference to your statement that you had a general counsel, an 
 attorney at law, who was your general counsel — who is that? 
 
 Mr. Martin. That is not perhaps accurate, Senator. No one man 
 is exclusively our general counsel. Mr. Schulties, who is a resident 
 of Washington, probably does more work than anyone else here in 
 town because he is a resident of the Capital. 
 
 Senator Brandegee. Who appeared for you in your proceedings 
 for bringing the Tobacco Trust decision before the Supreme Court i 
 
 Mr. Martin. Mr. Schulties, of Washington, and Joseph Hartigan, 
 of New York. 
 
 Senator Brandegee. Did they appear for you in the circuit-court 
 case? 
 
 Mr. Martin. Yes, sir. I have here the petition they filed for us 
 at that time. I think it might be interesting to members of the 
 committee if I should file it as a part of my remarks. It is not 
 lengthy, and it specifically sets forth the situation, as we under- 
 stand it. 
 
 The Chairman. There is no objection. 
 (The paper referred to is as follows:) 
 
 UNITED STATES OF AMERICA V. THE AMERICAN TOBACCO CO. ET AL. 
 
 To the honorable the judges of the Circuit Court of the United States for the 
 
 Southern District of New York: 
 
 First acknowledging the courtesy of this court in permitting this petitioner 
 to file objections in this cause, your petitioners, the members of the American 
 Antitrust League, through their national secretary, Henry B. Martin, who also 
 as an individual is injuriously affected in the same manner, together with many 
 millions of other consumers of the products of the above-mentioned American 
 Tobacco Co. within "the United States, hereby protest and remonstrate against 
 the reorganization plan of the American Tobacco Co. presented to your honor- 
 able court, because the consumers, who in numbers and interest are greater 
 than any other party to this cause, have not, as it appears to us, been directly 
 nor fully represented in these proceedings, the object, of which is to restore full 
 and free competition in the sale of tobacco and its products, and that thereby 
 the consumer be protected from the extortionate prices and inferior, adulterated 
 products which invariably follow, and in this case have followed, the establish- 
 ment of the monopoly. 
 
 After an examination of the. petition and plan of the American Tobacco Co. 
 filed herein, your petitioners find that this plan proposes to allow the vast 
 accumulated profits of extortion and monopoly to be left in the control in 
 consolidated form of the defendants, which is repugnant to the mandate of the 
 Supreme Court and to the act of July 2, 1890, known as the antitrust law. 
 
 This consolidation, in view of the vast and irreparable injury wrought in the 
 past by its power to oppress the consumers, producers, and dealers- in the 
 matter of prices and the destruction of competition, should not be allowed, 
 whether in the form of four different companies or of any other number of 
 companies, to continue their domination and control of the tobacco business 
 within the United States, which will surely result if the plan they have sub- 
 mitted is accepted and approved by this honorable court. 
 
146 HEARINGS fiEFOEB 
 
 We concur in the objections to the defendant's plan which have been sub- 
 mitted to the court by the independent manufacturers, merchants, and farmers' 
 associations, as well as those filed by the attorneys .general of the States of 
 Norh Carolina, Virginia, South Carolina, Wisconsin, Kentucky, and New York. 
 
 We also concur in the restrictions which have been presented by the Attorney 
 General of the United States, and especially urge that his proposal, that what- 
 ever plan is adopted, the future conduct of the individual and corporate de- 
 fendants to this case shall be subject to the supervision of the court, with the 
 power reserved to the Government to at any time within five years petition for 
 further relief in case of the failure of the defendants to fully comply with 
 the order of the court. 
 
 Your petitioners do not share in the fear expressed by the Attorney General 
 that the appointment of a receiver might involve any great danger to the busi- 
 ness of the country or to the interests of any considerable number of honest in- 
 vestors. Even though it be conceded that some risk be involved in a receiver- 
 ship, it is clear that, on the other hand, a far greater and more imminent danger 
 and. injury to the business and people of this country is involved in any plan 
 which permits the continued control of the hundreds of millions of dollars of 
 assets and vast cousolidated monopoly power of the tobacco combine in the 
 hands of these defendants. 
 
 Therefore we petition your honorable court to reject the plan of disintegra- 
 tion proposed by the American Tobacco Co. and the other parties to the unlaw- 
 ful tobacco combine, aud we respectfully request that a receiver or receivers be 
 appointed, to the end that the tobacco business of the country may go on unim- 
 peded and that the -men who have been adjudged by the courts to be violators 
 of the law shall no longer be permitted to control so vast an engine of extortion 
 and oppression as is the present tobacco combine and as their new-planned four- 
 square combination would be. We respectfully submit that the proposed plan 
 of the tobacco combine would create four powerful monopolies closely inter- 
 locked' together and allow the defendants to hold a powerful, if not dominating, 
 interest in and influence over the several other great companies enumerated in 
 their plan. 
 
 The proposed plan is also dangerous and unlawful in that it practically cre- 
 ates an international combination of all these tobacco companies which would 
 be more powerful to destroy competition and oppress consumers even than is the 
 present combine, and the plan, if approved by the court, would give the sanction 
 of law and the approval of the Government to this newer and greater monopoly. 
 
 Your petitioners are in no way affiliated with any of the defendants in the 
 above-entitled action, but on the contrary are consumers of tobacco products 
 vended by the defendants and are injured as hereinbefore set fQrth ; especially 
 by the United Cigar Stores Co., which could be placed in the hands of a re- 
 ceiver without involving any of the possible objections suggested to the other 
 receiverships referred to. . 
 
 In conclusion, we submit that the defendants' plan would not only result in 
 a failure of justice, but would legalize their unlawful methods in contravention 
 of the act of July 2, 1890. Your petitioners further pray to be heard herein 
 by counsel at any subsequent hearings and to file within such time as the court 
 may designate such written memoranda or argument as they may be advised. 
 
 All of which is respectfully submitted for the consideration of' this honorable 
 court. 
 
 Dated, New York, November 4, 1911. 
 
 Herman J. Schtjlties, 
 Counsel The American Antitrust League, 
 
 1519 R Street, WW., ~\Yashington, D. C. 
 Josei?h Habtigan, 
 
 Associate counsel, 
 135 Broadway, Borough of Manhattan, New York City. 
 
 Mr. Martin. Mr. Schulties and Mr. Joseph Hartigan, of New 
 York; were the gentlemen who presented that point. 
 
 Senator Brandegee. In these views that you have presented to the 
 committee as the views of your organization, I suppose they have 
 been adopted by your national executive committee ? 
 
 Mr. Martin. Not all, in a formal manner. We are all great be- 
 lievers in the power and benefits of free public opinion, and our 
 
COMMITTEE ON INTERSTATE COMMEECE. 147 
 
 members are largely active men who are writers and speakers and 
 thinkers and advisers in the world of politics and business, and by- 
 correspondence and by mutual reading of publications we are in 
 touch with one another daily and constantly as to great questions 
 arising which come within the scope of the work of our organization; 
 and our aim — and I think we are successful in it — is to keep in good 
 fighting trim all the time and in thorough touch with each other by 
 the various instrumentalities, so that we know what is going on 
 and what we want to do in connection with it. 
 
 Senator BrAndegee. What I more particularly meant was, for 
 instance, in your present appearance before this committee, did the 
 national executive committee pass a certain vote and instruct you 
 to come here and to say on behalf of the organization that the 
 organization as a whole took this attitude on the proposed amend- 
 ment of the Sherman law ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Bbandegee. And had no other attitude. 
 
 Mr. Martin. Yes, sir; repeatedly. The organization has in- 
 structed both myself and Mr. Schulties and any member of the 
 executive committee who may be in Washington to take this attitude 
 before any and all committees whenever occasion shall arise. 
 
 Senator Bbandegee. When you use the term " this attitude," of 
 course you know that in the length of your testimony you have taken 
 a great many attitudes upon a" great many subjects. I do not mean 
 that you have taken more than one on the same subject, but you have 
 represented the views of your organization upon a great many 
 questions, and what I am trying to have appear in the record is 
 what means you have of knowing whether what you have said is 
 really the attitude of all these different members of your organiza- 
 tion, which I assume are scattered all over the United Stntes. 
 
 Mr. Martin. Of course, Senator, it would be impossible to say 
 that my verbal expressions on each detail of the matter represented 
 exactly the views of every other member of the organization, but I 
 am absolutely sure that they represent, as to the main policies on all 
 these points, the clear and unquestioned sentiment of the great body 
 of our people because we have discussed them over and .over again. 
 
 Senator Brandegee. I want to draw your attention to this fact. 
 You have stated that you are not an attorney at law. 
 
 Mr. Martin. I am not. 
 
 Senator Beandegee. Yet you have opinions about the Sherman 
 law and the interstate commerce act and all these matters, legal mat- 
 ters and governmental matters, and wherever you have stated them, 
 if I recall your language correctly, you have stated that " our posi- 
 tion is this," and " we believe that." Now there are very close ques- 
 tions involved in the consideration of the Sherman law, and the dis- 
 tinction to be drawn between the different decisions of the courts are 
 very close and very complicated. So, when you say that plainly: 
 " We take this position upon that," and " we take the other position 
 on the other thing," I wondered whether you are absolutely sure that 
 all the members of your organization were aware as a whole of what 
 you were going to state to the committee before you came down. 
 
 Mr. Martin. As I said a moment ago, I would not say that each 
 individual member of- that body was thoroughly familiar with the 
 
148 HEARINGS BEFOBE 
 
 exact language I Avas going to use, but I am sure that our legal ad- 
 viser and our chief officers and the great body of our people are in 
 accord with me in these views. Of course during the course of 35 
 years, in which I have been struggling with this question and devot- 
 ing a very considerable part of my time to it, I have become pretty 
 thoroughly acquainted with the views of the men on our side of the 
 house, if you please, on these subjects, and most of the various rami- 
 fications of these questions. And I have endeavored to boil down 
 and concentrate into the briefest possible form what I am thoroughly 
 convinced is a substantially true and correct statement of the views 
 of our people; and I absolutely feel safe in standing publicly and 
 openly upon that standpoint. 
 
 Senator Beandegee. Do all your counsel and attorneys act vol- 
 untarily and without compensation ? 
 
 Mr. Martin. No. At times they are paid. That is practically 
 the only exception. The officers of our organization thought at 
 times they ought to receive some compensation. Very many of 
 them give their assistance at times freely, but there might be emer- 
 gencies that would make it necessary to compensate them. Of course, 
 counsel at times necessarily involves some expense in traveling and 
 otherwise, that makes it entirely proper and necessary that we should 
 compensate them to some extent. 
 
 Senator Beandegee. What I meant was whether your counsel 
 generally, when they appeared in court or before legislative com- 
 mittees, whether they contributed their services, or whether you 
 compensated them. 
 
 Mr. Martin. That is a detail I do not know that I am prepared 
 to go fully into. 
 
 Senator Brandegee. I do not want you to. 
 
 Mr. Martin. And perhaps it is not of public importance. 
 
 Senator Brandegee. It was of some significance, in my opinion, 
 to understand whether the attorneys that appeared for you ap- 
 peared because they were members of your association and sub- 
 scribed to your platform and acted with you, because they really 
 believed it, or whether they were employed to represent the views of 
 your association, as a lawyer would be to try a case in court, largely. 
 
 Mr. Martin. Sometimes they appeared in one way and sometimes 
 in the other, but generally it was a sort of combination of both. Most 
 of our counselors are men who hold very pronounced views on these 
 subjects, and are heartily in sympathy with us. We would consider 
 that we were taking a great deal of risk if we employed men to 
 represent our views on this question who were not in thorough sym- 
 pathy with our movement. 
 
 Senator Brandegee. How many of your counsel do you expect to 
 appear before the committee here? 
 
 Mr. Martin. I hope to have at least three or four of them before 
 the matter is over. The committee has been very generous to us in 
 this matter, and we would have our counsel wait until there came per- 
 haps a day when the attorneys might have had more opportunity of 
 hearing every phase of the legal question from the other side. 
 
 Senator Brandegee. I simply ask you this question to ascertain 
 whether I can go into the legal propositions with you or wait until 
 the attorneys who represent you will appear. 
 
CUMMlTTEJi ON INTERSTATE COMMERCE. 149 
 
 Mr. Martin. _ I will be glad to go as far as I can. Mr. Shulteis is 
 here, and he might perhaps assist me if I got over my head. I will 
 be glad to say anything that I can, because we consider the emer- 
 gency that is confronting Congress, the President, and the Depart- 
 ment of Justice and the courts in this matter of the tobacco case 
 now, which requires instant attention on the part of every patriotic 
 public-spirited citizen of the United States, and especially every 
 public official, and, if I may say so, more especially of every Mem- 
 ber of the Congress of the United States, because we feel that in the 
 past Congress has not exercised its full supervisory authority over 
 these matters, and we hope now it will. 
 
 Senator Brandegee. If your attorneys are going to appear later 
 I will withhold what legal questions I wanted to ask, and ask them 
 later. 
 
 The Chairman. Senator Oliver, you may inquire. 
 
 Senator Oliver. I understood you to say that the operations of the 
 Stanley investigating committee in the Steel Corporation had al- 
 ready resulted in a saving of $25,000,000 to the people. 
 
 Mr. Martin. Substantially, that was my remark. 
 
 Senator Oliver. I would like you to elaborate that a little, and 
 state upon what you base that. 
 
 Mr. Martin. Well, Senator, I have not with me at hand — because 
 that matter came up incidentally — I have not with me at hand the 
 full price sheets of steel covering this period, but my information 
 is that the reductions have run all the way from 5 and 10 per cent 
 up to 30 per cent in prices of steel to the consumers, embracing prac- 
 tically everything except steel rail and structural steel ; and when 
 we consider the enormous magnitude of the trade I think that 
 $25,000,000 is a very modest estimate of the saving. 
 
 Senator Oliver. Has it resulted in any change in the price of steel 
 rails? 
 
 Mr. Martin. Not that I am aware of. There may be some secret 
 reduction. 
 
 Senator Oliver. Well, then, if it has not resulted in any change 
 in the steel rails, which is a leading commodity, upon what do you 
 base your statement that the changes in the prices of other steel 
 materials have been the result of that investigation ? 
 
 Mr. Martin. That is the information that I have acquired from 
 consumers of steel as to the prices made to them. 
 
 Senator Oliver. But you do not answer my question. 
 
 Mr. Martin. Pardon me, I intended to. 
 
 Senator Oliver. I have no doubt you acquired your information 
 with regard to the changes in prices at this particular time, and 
 perhaps your information is correct, but upon what do you base 
 your statement that these changes in prices are the result of that 
 investigation ? 
 
 Mr. Martin. The fact that they did not take place until the 
 investigation began and got pretty busy. 
 
 Senator Oliver. Are you acquainted with the range of prices in 
 iron and steel products during the year 1908, following the slump of 
 1907? 
 
 Mr. Martin. Somewhat; yes, sir. I can easily produce for the 
 committee data in regard to that. 
 
150 HEAKINGS BEFOKE 
 
 Senator Oliver. Are you aware that the drop in prices during that 
 3 r ear was equal to the present drop ? 
 
 Mr. Martin. My information was that it was not. 
 
 Senator Oliver. My information differs with yours. I think you 
 will find upon investigation that the price of most iron and steel 
 articles during 1908 ranged at least as low as the prices now. There 
 was no investigation going on at that time, I believe. 
 
 Mr. Martin. In 1908? 
 
 Senator Oliver. Yes. 
 
 Mr. Martin. No. We were making strenuous efforts to get an 
 investigation in the coal and iron matter. I believe there was an 
 investigation in the latter part of 1908, or at least a committee of 
 Congress was appointed. 
 
 Senator Oliver. Assuming that these changes in prices that have 
 occurred in the last few months were the result of some sort of 
 fear on the part of the steel manufacturers, do you not credit any 
 of that to the fear of investigation by the Department of Justice? 
 
 Mr. Martin. Yes; and we believe that the activity of the Depart- 
 ment of Justice was materially stimulated by the investigation of 
 the Stanley committee. 
 
 Senator Oliver. You mean you are of the opinion — there is some 
 difference between belief and opinion? 
 
 Mr. Martin. A reading of the bill of the Department of Justice 
 amply warrants us in thinking that way — in having that belief. 
 They give credit to the Stanley committee for considerable material 
 assistance in that matter. 
 
 Senator Oliver. Don't you credit any of the change in prices to 
 the falling off in demand? 
 
 Mr. Martin. In fact, in some of the directions in which the prices 
 have been cut, materially cut, the demand is very active. In fact, 
 the reduction in prices tends to stimulate activity. That is, I think, 
 a sound maxim of economics. 
 
 Senator Oliver. In what particular line of reductions? 
 
 Mr. Martin. A reduction of price will broaden the demand. 
 
 Senator Oliver. In what particular line of steel industry is the 
 demand very active? 
 
 Mr. Martin. The demand is very active for ship plates, and the 
 demand for ship construction is very active now. 
 
 Senator Oliver. Any other activities? 
 
 Mr. Martin. I think there is an increase in demands in railroad 
 lines in various forms. 
 
 Senator Oliver. Have the reduction in prices been mainly in the 
 lines where the demand has been active? 
 
 Mr. Martin. I think the reduction in prices have stimulated the 
 activity of the demands, as they invariably do, in the great basic 
 necessaries of life. I think that is a rule well established. 
 
 Senator Oliver. What I was asking you was whether — the infor- 
 mation I want is this: Have the reductions in the prices generally 
 been in the lines of manufacture where the demand has been active, 
 or otherwise? 
 
 Mr. Martin. Well, of course, there is an active demand all the 
 time, and, of course : the degree of activity we believe everywhere 
 increases as the prices are lowered. 
 
COMMITTEE ON INTERSTATE COMMERCE. 151 
 
 Senator Oliver. I am not asking for theory; I am asking for in- 
 formation. 
 
 _ Mr. Martin. That is our observation of the facts at the present 
 time. 
 
 Senator Oliver. I guess you do not know very much about the 
 demand in the particular lines, do you? 
 
 Mr. Martin. In what particular line? 
 
 Senator Oliver. The demand, for instance — do you know anything 
 about the demand for wire products to-day, whether it is active 
 of not? 
 
 Mr. Martin. Which form* of wire products? 
 
 Senator Oliver. All kinds of wire products — fence wire, wire 1 
 nails, etc. 
 
 Mr. Martin. I have not at hand at this moment the data upon that. 
 It is a pretty complicated subject. There are various forms of wire 
 products, and I did n °t expect to go into details in regard to this 
 feature. But I will be very glad to furnish the Senator with ac- 
 curate prices upon these matters and will fully satisfy him upon 
 that point,' if he desires it. I think it would be a good thing. I 
 would not want to trust to my memory off-hand to work out the 
 details of these modifications in prices and the associated matters 
 that you have inquired about without having the whole facts before 
 me, which can readily be obtained by having the price lists of the 
 market. It is not a matter of my opinion, it is a question of what 
 the record says. 
 
 Senator Oliver. I want information and not opinions. The rea- 
 son I ask these questions is that you assume that the change in prices 
 of steel products during the past, say, six months has been the result 
 of the starting of the Stanley investigation. 
 
 Mr. Martin. Partially. 
 
 Senator Oliver. My information and my opinion somewhat differ 
 from yours. I am somewhat in touch with conditions affecting the 
 steel trade, and my information is that the change has been brought 
 about by business conditions almost entirely, and as the result of a 
 falling off in the demand, and the pressure upon the trade manu- 
 facturers to force their goods upon the market under such competi- 
 tive conditions as exist to-day. 
 
 Mr, Martin. Well, we welcome the competitive conditions. We 
 think they have a good effect on the prices to the consumer. 
 
 Senator Oliver. I have nothing further, Mr. Chairman. 
 
 The Chairman. We will take a recess until 2 o'clock. 
 
 (Accordingly, at 1 o'clock, the committee took a recess until 2 p. m.) 
 
 after recess. 
 
 The committee met at 2 o'clock p. m. 
 
 STATEMENT OF HENRY B. MARTIN, NATIONAL SECRETARY OF 
 THE ANTITRUST LEAGUE— Resumed, 
 
 The Chairman. Senator Pomerene, the inquiry is with you. 
 Senator Pomerene. Mr. Martin, as I understood your answers to 
 the interrogatories submitted by Senator Cummins and Senator 
 
152 HEARINGS BEFORE 
 
 Newlands, 3-011 do not mean to take the position of being opposed to 
 legislation -which may supplement the provisions of the Sherman 
 antitrust law. 
 
 Mr. Martin. Well, substantially; perhaps it might be made a lit- 
 tle wider than that by saying that my idea was that we are in favor 
 of any legislation that may help to curb the operations of the trusts 
 and restore the freedom of commerce if it can be enacted in a sepa- 
 rate way, so as not to involve us in a maze of new litigation over the 
 interpretation of the trust law. 
 
 Senator Pomerene. Let us refer to the Sherman antitrust law 
 specifically. The penalty provided under the criminal provision of 
 the statute is fine or imprisonment. What are your views on the 
 subject of changing that to fine and imprisonment ? 
 
 Mr. Martin. I am inclined to think the present form would be 
 preferable. 
 
 Senator Pomerene. You think it would be. 
 
 Mr. Martin. I think it would be well to have it either or both. 
 
 Senator Pomerene. As the statute now is it makes it criminal, of 
 course, for the directors or executive officials of a corporation to com- 
 mit any of the forbidden offenses, and it is broad enough to take in 
 any of the clerks or others who might aid or abet in those offenses. 
 What is your opinion as to the propriety of limiting this law, so far 
 as its criminal features are concerned, to the executive officials, and 
 not to include those who may be serving in a merely clerical capacity ? 
 
 Mr. Martin. I should incline to favor that principle — I do favor 
 that principle. 
 
 Senator Pomerene. Do you not think that in the prosecution of 
 those criminal cases that it would aid the Government materially 
 if those occupying the clerical positions were not subjected to the 
 penalties provided for in the statute ? 
 
 Mr. Martin. I believe so, and if the Senator will pardon me, I 
 will go just a step further than that — and I think it is a very im- 
 portant step — and I want to urge upon the consideration of the com- 
 mittee that there ought to be a separate law passed at once by Con- 
 gress to provide a suitable reward that would amount to a protection 
 of the witness who furnishes evidence that will lead to the arrest and 
 conviction of those men guilty of violating the antitrust law, similar 
 to the law providing a reward of 5 per cent of the damage recovered 
 in the case of smuggling and things of that kind. We will get evi- 
 dence then, and plenty of it, and quickly. I know of cases of that 
 kind. They are intimidated and afraid to testify. They are afraid 
 they will be ruined by those people. 
 
 Senator Pomerene. Senator Kenyon, I believe, at the last session 
 introduced a bill providing certain penalties against those corpora- 
 tions that made it their business to acquire titles to patents, not for 
 the purpose of manufacturing under those patents, but for the pur- 
 pose of prevening others from manufacturing articles which might 
 compete with their product. What is your judgment as to the pro- 
 priety of legislation of that character? 
 
 Mr. Martin. What was the essence of the provisions prohibiting 
 them? 
 
 Senator Pomerene. It provides certain penalties, as I remember. 
 
 Mr. Martin. For monopolization, buying them up to keep them 
 out of use? 
 
COMMITTEE ON INTERSTATE COMMEECE. 153 
 
 Senator Pomeeexe. Perhaps I can express myself a little more 
 clearly. I do not have the bill before me at the present time. 
 Mr. Martin. I think I have your idea. 
 
 Senator Pomerene. There is a disposition now among certain man- 
 ufacturers to manufacture certain articles which may be protected 
 by patents which they have acquired in good faith, and now for the 
 purpose of smothering competition they go out into the market and 
 buy up patents which may cover up other articles of a similar nature 
 and which would compete with their product. The purpose of the 
 legislation which he proposed was to prevent manufacturers from 
 acquiring title to patents which might cover articles which would 
 compete with their product. I wanted your view as to the propriety 
 of such legislation. 
 
 Mr. Martin. I think it would be highly proper and desirable, and 
 I favor an amendement to the patent laws in that direction, making 
 it so that every invention shall be free to the use of the public, and 
 a tax levied upon the users and paid into the Government Treasury, 
 the Government to pay the inventor out of that tax a compensation 
 commensurate to the magnitude of his invention. I think that would 
 break down all monopolization of patents and greatly assist in the 
 progress of inventions and inure to the safety and welfare of the 
 inventor as well. 
 
 Senator Pomerene. It has appeared that very little, if any, effort 
 has been made on the part of the Department of Justice to enforce 
 the criminal proceedings of the Sherman antitrust law. Do yon 
 know of any statute or other authority which justifies an Attorney 
 General in taking the position that he may enforce the provision of 
 that statute in the civil courts, but decline to enforce the criminal 
 provisions of that statute? 
 
 Mr. Martin. I do not. 
 
 Senator Pomerene. Do you think that when a statute provides 
 both for civil and criminal remedies that it lies in the mouth of 
 the Department of Justice to say that the law is not practicable 
 when there has been no real effort made to enforce the criminal pro- 
 visions of that statute? 
 
 Mr. Martin. I certainly do not. 
 
 Senator Pomerene. When Congress in its wisdom has seen fit to 
 provide in formal enactments both civil remedies and criminal reme- 
 dies, do you know of any justification for a department of the Gov- 
 ernment in taking the position that it will not enforce the criminal 
 provisions of that statute? 
 
 Mr. Martin. I think there is no justification whatever for that. 
 "We have been making urgent efforts to have that done. 
 
 Senator Pomerene. If a statute provided that it be an offense to 
 steal horses, and the stealing of horses continued and the law was 
 not enforced, would the department be justified in saying that a 
 statute for horse stealing was not a sufficient remedy to meet the 
 prevailing evils? 
 
 Mr. Martin. I do not think it would. I think the Senator's anal- 
 ogy in the case of the horse stealing is very good. We have often 
 used that in presenting our matters or a similar one. Our view of 
 the situation was that expressed by Judge Landis, of Chicago, when 
 he said that the men who organized and operated the trusts were 
 worse criminals than the men who counterfeited the coin or robbed 
 
154 HEARINGS BEFORE 
 
 the post office, and we believe that more than equal severit}^ and 
 skill should be expected of the Department of Justice in enforcing 
 the law against those men than would be expected in the enforce- 
 ment of the law against the man who robbed the post office or coun- 
 terfeited the coin, because they do more damage. Every citizen of 
 the United States has suffered almost incalculable injury in the 
 aggregate from the operation of these conspiracies known as trusts, 
 and the injury has been so great that no remedy is too drastic at the 
 present time, and yet the Attorney General, in a late case, has said 
 that he thought some of the civil remedies were too drastic to be 
 applied to a concern that was conducting business in so extreme a 
 manner and which justified such stern language as the Supreme 
 Court used against the tobacco people. It seems to me that no civil 
 remedy is too drastic to use against men who were as guilty as they 
 were. 
 
 Senator Pomerene. My questions were inspired by the sugges- 
 tions which were made here awhile ago by one of the Senators who 
 did not want to be put in the attitude of criticizing the Department 
 of Justice. I want to be put on record as saying that I regard its 
 course in its failure to enforce those provisions as most reprehensible. 
 
 Mr. Martin. "Well, we are living in hopes that the Attorney Gen- 
 oral will get more active in respect to the criminal clause of it. 
 
 Senator Pomerene. So am I. 
 
 Senator Newlands. I had not in view at all the criminal side of 
 the law. I was referring simply to civil prosecutions. 
 
 Senator Pomerene. It has been reasonably diligent in that respect. 
 Referring now to the Standard Oil Co., I have not seen the provisions 
 of the decree which has been entered 
 
 Senator Cummins. That decree has not been entered. 
 
 Senator Townsend. It is the Tobacco Trust. 
 
 Senator Pomerene. Well, the Tobacco Trust. Are you able to 
 advise us whether or not the affairs of the component parts of the 
 American Tobacco Co. Trust will be administered by the same offi- 
 cials who have managed and conducted the affairs of the American 
 Tobacco Co. prior to the entering of the decree ? 
 
 Mr. Martin. I believe that the provision is that the officials shall 
 be separate, but that is all immaterial ; it is not of great importance 
 because of the fact that the common-stock holders will, in all prob- 
 ability, as far as we can see from the plan, be the controlling power 
 in all three of the companies, and taking even the 27 guilty common- 
 stock holders who were condemned by the Supreme Court of the 
 United States, there would be enough of them to divide up as sepa- 
 rate directors of these three companies and acquire absolute control 
 if they saw fit. There is nothing in the record to show how much of 
 the preferred stock has now been given voting power that these same 
 common-stock holders own. Our belief, based on what we think is 
 good evidence, is that the common-stock holders, who are the con- 
 spirators who erected the Tobacco Trust conspiracy in violation of 
 the law and operated it 5 and whose attorneys, and who themselves 
 originated and invented this plan— that the Circuit Court of New 
 York accepted— certainly did not invent a plan to hang themselves. 
 They invented the plan, we are absolutely confident from what we 
 know of their record and characteristics, so as to perpetuate their 
 
COMMITTEE ON INTERSTATE CuMMEBCE. 155 
 
 control, and we believe that there ought to be a very thorough ex- 
 posure of the real facts in regard to that matter before that decree is 
 completed and made effective ; and we appeal now to the Senate and 
 to the Congress as a whole to aid in turning the light on that subject, 
 because it is a very dangerous precedent that may be established if 
 something is not done to show what the facts are. 
 
 Senator Pqmerene. Assuming that the decree of the court dissolves 
 this trust and sanctions a reorganization into the several component 
 parts as now contemplated, and afterwards there should be a con- 
 nivance between the officials of these several component parts in the 
 way of a " gentleman's agreement," or something of that character, in 
 your judgment would it be easier or more difficult to obtain conviction 
 under indictments for violation of the criminal provisions of the 
 Sherman antitrust law ? 
 
 Mr. Martin. Well, that is a question that I do not know that I 
 could, answer offhand, but we fear that there might be added diffi- 
 culties. 
 
 Senator Pqmerene. Can there be any doubt about that ? 
 
 Mr. Martin. Although the Attorney General assured Mr. Schul- 
 teis, our counsel, and myself, when we called on him day before yes- 
 terday, that he felt very confident that relief would be given by this 
 decree, and it would be easier to rectify the troubles in the future, and 
 that the control slipped through the hands of the common-stock hold- 
 ers, we are unable yet to accept that view of the situation, because we 
 do not get any facts that warrant us in believing it. I, however, do 
 not desire to condemn the opinion of the Attorney General. Un- 
 doubtedly he is familiar with the terms of the decree, which I am not. 
 It may be that the decree is a Christmas stocking, and there are 
 some good prices for the people in the decree when it comes out. I 
 hope so. He seemed to speak with great confidence that there were. 
 I hope that I shall be greatly disappointed. Until it does come out 
 we are still in doubt. 
 
 Senator Pomerene. The Supreme Court, in substance, found in 
 passing upon the American Tobacco case that that corporation had 
 notoriously violated the Sherman antitrust law ever since the date 
 of its first existence and continuously. • Do you know any reason 
 under the statutes why the Department of Justice should be devoting 
 itself to an effort to help this trust which has so violated this law — 
 getting its house in order — rather than to enforce the criminal pro- 
 visions of the statute, when it has been found by the highest court 
 in the land that that statute has been thus violated ? 
 
 Mr. Martin. Our opinion was, and our earnest desire was, that 
 the Attorney General and the Department of Justice should proceed 
 at once, and with criminal proceedings pass upon the facts already 
 in their possession, and on the opinion of the Supreme Court they 
 would at once proceed with criminal prosecution and at once apply 
 the drastic remedies of the civil section. I do not believe it was the 
 intention of the framers of the antitrust law, and our counsel advised 
 that they do not believe it was the intention of the framers of the 
 antitrust law, that the Department of Justice should assist in recon- 
 structing a new trust or two or three new trusts out of the remains 
 of the old one. Our belief is, and we are advised by counsel that the 
 plain intent of the law was, that when a trust was condemned it 
 
156 HEADINGS liEFOEE 
 
 should then be deprived of all of the instrumentalities and would be 
 made invalid, and all the papers, documents, contracts, stocks and 
 bonds, and everything else which represented the conspiracy would 
 become invalid, and they should be left in possession of the physical 
 properties except what was taken from them in fines or seized in 
 transit, and they should be left with their property to do business 
 in accordance with the terms of the law, and if they did not do busi- 
 ness in the future in accordance with the law they did it at the peril 
 of summary proceedings in the way of contempt proceedings on the 
 part of the Department of Justice and also other remedies that might 
 be invoked; that instead of the Government bothering itself with 
 the business of constructing a business organization these men should 
 be left with the freedom to go on with their business in accordance 
 with law, and if they did not do it they acted at their own peril. _ 
 
 Senator Pomekene. Now, I want to take up another branch of this 
 matter. In your testimony, both in chief and in cross-examination, 
 you have spoken with special reference to the Sherman antitrust law. 
 As I understand it, the primary purpose of this inquiry was to con- 
 sider Senator Newlands's bill with reference to the formation of a 
 commission whose duty it would be to regulate industrial corpora- 
 tions engaged in interstate traffic, similar to the control the Interstate 
 Commerce Commission has over railroads. What is your judgment 
 as to the feasibility of legislation of that character? 
 
 Mr. Martin. I believe it is impracticable and impossible to give 
 effect to. I do not believe that it is humanly possible, mentally pos- 
 sible, morally possible, or governmentally possible for a commission 
 to do the things that I will not say are exclusively in the bill proposed 
 by the Senator from Nevada, but that are embodied in most of the 
 propositions for an industrial commission to regulate the interstate 
 industrial corporations, the same as the Interstate Commerce Com- 
 mission does with railroads, because the great essential thing is that 
 the Interstate Commerce Commission regulates the prices or charges 
 for transportation. It has regulative control over that. You can not 
 confer that on a commission in regard to the prices of commodities. 
 1 would not say that I do not believe it is constitutional, but I have 
 my doubts about it. I believe that it is absolutely impracticable, and 
 a commission without that power would be of no force or effect. 
 
 The Commissioner of Corporations, as I stated in my first state- 
 ment to the committee, was created under the Bureau of Corpora- 
 tions law. It was one that originated with ex-Congressman Phil- 
 lips, of Pennsylvania, and myself, and we intended with that law to 
 create a department and a commissioner of corporations who should 
 have the power to supervise the operations of the interstate-com- 
 merce corporations and concerns, with a view to exposing their opera- 
 tions to the knowledge of the public, of Congress, and of the De- 
 partment of Justice at least; that he should have powers equivalent 
 to those of a bank examiner or a comptroller of currency over na- 
 tional banks; that if the commissioner of corporations suspected, as 
 he might well do, that the Standard Oil Trust or the Steel Trust 
 was violating the law he would have a right to go down, under the 
 authority of the United States Government, to their offices and say, 
 " Gentlemen, open up. What are you doing? Are you violating the 
 laws of the United States? Let us see your books and you*- con- 
 tracts and your railroad rebates, advise others of all these things," 
 
COMMITTEE ON INTERSTATE COMMEECE. 157 
 
 and in that way he would be able to quickly and readily expose to 
 the public eye the secret conspiracies on which the trusts are built. 
 He would be able to put before Congress the data upon which they 
 may legislate further, if necessary. He would be a very valuable 
 assistant to the restoration of free and fair competition and to the 
 destruction of monopolies simply because he would uncover the facts, 
 and then the executive officers and courts could do whatever was 
 necessary to put an end to this practice already condemned by law. 
 
 That was our idea in that matter. The law was not regarded as 
 complete, and we desire and we hope that the present Congress will 
 improve it in that direction,' and I think in that way I perhaps meet 
 the views of the Senator from Iowa. 
 _ That is one of the things we are in favor of, but it would be addi- 
 tional legislation, regulative of commerce and of commodities, with- 
 out directly amending the antitrust law. It would" be of great as- 
 sistance to the efficiency of the law without directly amending it and 
 involving a new interpretation by the courts. 
 
 Now, there is one amendment to that Bureau of Corporations law 
 that I overlooked, and I beg the indulgence of the committee if I 
 suggest that we believe that this ought to be done at once by Con- 
 gress. The Bureau of Corporations law ought to be amended so that 
 the commissioner will make all of his reports to Congress as well 
 as to the President. That was in the former bill as we had it origi- 
 nally drawn, and it was dropped out by some legerdemain — I do not 
 know how. 
 
 We believe, and I have the right to say, that there was strong 
 influence brought to bear. The trusts were very much opposed to 
 the creation of that commission and. the provision that the Com- 
 missioner of Corporations should report both to Congress and to the 
 President as to the facts that he got. It was dropped out and he 
 was directed to report only to the President. The press of the 
 country hailed the bureau when it was first created as a bureau of 
 publicity. There was more demand for publicity than a tax on 
 corporations and trusts, and that was what we wanted to make it — a 
 bureau of publicity, but it had not been in existence a month before 
 every newspaper man in the country was making a howl that it was 
 a bureau of secrecy; that you could get less information from the 
 Bureau of Corporations than from any bureau of the Government, 
 gnd that is literally true and has been ever since. The commissioner 
 even defied the committee of Congress last summer in refusing to 
 give information, and yet they paid hundreds of thousands of dol- 
 lars to get that information on matters of importance, and pressing 
 importance. I think that is a thing that ought to be rectified at 
 once. I think this committee should recommend, and the Senate 
 and House should adopt an amendment providing that the commis- 
 sioner should make all of his reports at once to Congress as well as 
 to the President, and every bit of information should be just as 
 accessible to Congress as to the President. 
 
 Senator Pomekene. You expressed a doubt as to the authority of 
 the Government to control the prices, and I recognize that that is 
 a grave question. Suppose that it should develop that there is a 
 given industrial combination whose primary purpose in combining 
 was to advance and control the prices of their output. What objec- 
 tion would there be, in the event of a combination of that kind, to 
 
158 HEARINGS BEFORE 
 
 provide by statute that after that combination, then the price of the 
 commodities of that combination should be subject to governmental 
 control ? 
 
 Mr. Martin. I should object to that. I do not believe it is any 
 province of the Government to fix the price of commodities under 
 any circumstances. 
 
 Senator Pomerene. Ordinarily, I agree with you. 
 Mr. Martin. It is a step, and a very great step, toward socialism, 
 which I am utterly and absolutely opposed to. I believe in indi- 
 vidualism. I believe in the largest liberties to the individual, in 
 commerce as well as in anything else, if it is done with equal liberty, 
 and the great objection that we have to the trusts is that they arro- 
 gate to themselves special privileges which were formerly the com- 
 mon right of all. 
 
 Senator Pomerene. That thought was suggested to me in a talk 
 with a Congressman from Ohio some days ago, and I wanted your 
 views on it. I think that is all I care to ask, Mr. Chairman. 
 The Chairman. Mr. Townsend, you may inquire. 
 Senator Townsend. Mr. Martin, as I understand it, you are in 
 favor of competition? 
 Mr. Martin. Yes, sir. 
 
 Senator Townsend. Are you also in favor of the production of 
 goods at the lowest price possible; in other words, do you believe 
 that all of the possible economies of manufacture or production 
 should be employed if they could be? 
 
 Mr. Martin. In everything except if some manufacturer con- 
 ceives the idea that the enslavement of his laborers would assist in 
 economizing. I would oppose that. Some of them have that mis- 
 taken notion that they can. I do not believe that they can. 
 
 Senator Pomerene. We will make that exception. Outside of that, 
 do you believe that all of these economies should be employed? Do 
 you agree with the gentleman from Minnesota that the large mo- 
 nopolist has the advantage over his competitor by reason of the fact 
 that he can produce more cheaply even at the same wage ? 
 
 Mr. Martin. If you mean by a larger manufacturer one of the 
 great trusts, I do not believe they can manufacture cheaper than a 
 competitor. I am sure that the Steel Corporation can not manufacture 
 steel and pay dividends on their watered stock of $6 a ton, and I 
 am sure the Standard Oil Trust can not manufacture oil as cheap 
 as the independent. It is the inherent vice of all the great trusts 
 that they are so burdened with the machinery of their organization 
 and their great mass of watered stock and other expenditures that 
 are not proper to the economical production and distribution of 
 wealth that they are handicapped. The only way they succeed is by 
 criminal collusion with the railroads, banks, and other quasi public 
 instrumentalities in which they usurp to themselves parts of the 
 sovereignty of the Government to aid in crushing the competitors. 
 Senator Townsend. So that the independent competitor does not 
 suffer except because of certain privileges or advantages which the 
 competitors receive from public-service corporations, etc « 
 Mr. Martin. Exactly. 
 
 Senator Townsend. Now, you propose to reach that in one of these 
 bills, as I understand it here, a bill introduced by Mr. Stanley? 
 Mr. Martin. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 159 
 
 Senator Townsend. In which you prohibit any persons from be- 
 coming a director in the manufacture of cars, or locomotives, or 
 engines, and coal, etc. Why do you limit that to those particular 
 things ? 
 
 Mr. Martin. That bill was the first step, and I am sure that the 
 league and Congressman Stanley and all the friends of the measure 
 would be glad to advise with the Senator from Michigan as to a 
 further extension of those provisions, and would be very glad 
 to accept anything in reason. But we wanted to make the first steps, 
 and we thought we would take the conspicuous cases that were notor- 
 iously bad, like the steel directors sitting in the directory of the rail- 
 road. 
 
 Senator Townsend. Are not lumber and phosphates, for instance, 
 as conspicuous ? 
 
 Mr. Martin. I do not think there is anything quite as conspicu- 
 ously lawless and unfair as the coal and steel directors sitting in the 
 directory of the railroads. Those are flagrant examples. 
 
 Senator Townsend. I am quite in sympathy with the idea you have, 
 but I am wondering if you simply prohibit them from being' directors 
 if the same end could be accomplished through dummies and they 
 still maintain their interests in those corporations ? 
 
 Mr. Martin. We considered that phase of it, Senator, quite at 
 length, and our opinion finally was, and the concensus of opinion of 
 counsel and members of the committee as well was, that if they re- 
 sorted to dummies in those enormous and expensive operations pretty 
 soon they would be at the mercy of some of the dummies. The thing 
 might break down of its own inherent viciousness. 
 
 Senator Townsend. Is not that quite a practice, the doing of that 
 thing now ? 
 
 Mr. Martin. Not in these matters as between the railroads and the 
 coal companies and the steel companies — not as extensively as might 
 be supposed. There are some directories in which dummies are ex- 
 tensively used; but we find in following up the ramifications of the 
 steel directors, in which it has clutched the control of probably all 
 the great railroads in the United States, that they have men who are 
 the real fellows on the job in each place — some men like Mr? Rogers. 
 He sat in a certain directorate and made a motion. A gentleman 
 wanted to rise and discuss the motion which Mr. Rogers wanted 
 adopted, and Mr. Rogers objected to his making a speech. He said, 
 " You can make the speech after the motion is adopted." The other 
 directors said that it would not be of any use to make it afterwards, 
 but Mr. Rogers said that it did not make any difference, that the 
 board of directors could adopt the motion first and the gentlemen 
 could make their speeches afterwards. 
 
 That is the type of man that they delegate to sit. One is enough in 
 a board sometimes if he is the right fellow backed up with authority, 
 and they are generally accustomed to using authority, and they are 
 not a bit timid about it when it comes within their reach. 
 
 Senator Townsend. I do not want to detain you in going over 
 ground that has been covered very completely by other Senators, but, 
 as was said by the Senator from Iowa, yesterday, in the interest of 
 history I desire to refer to one or two things and I understood you 
 yesterday to state that your organization was responsible not only for 
 
 228T7— vol i—12 11 
 
160 HEARINGS BEFORE 
 
 the bill providing for the creation of a Bureau of Corporations but 
 also for the interstate-commerce law. 
 
 Mr. Martin. Yes, sir. 
 
 Senator Townsend. That you drew, or your organization drew, 
 the bill that Mr. Reagan 
 
 Mr. Martin. No ; I did not say the antitrust bill. I said that our 
 present president of the Antitrust League, at that time a member of 
 the committee of five of the independent oil producers of Pennsyl- 
 vania in 1884, which was long before the present league was organ- 
 ized. They had an antimonopoly association, as they called it, in 
 those times, and practically the same names have succeeded. 
 
 Senator Townsend. I am not particular about that, although I 
 thought your prenatal condition had been a very active one. But 
 the fact is, that the bill introduced by Mr. Reagan — as I understand 
 it in 1885 
 
 Mr. Martin. I may have made a mistake yesterday. I am not 
 ■quite positive. 
 
 Senator Townsend. "Was practically a copy of the bill which you 
 had introduced in 1878, which provided for punishing offenders who 
 gave rebates; made it unlawful, and the bill as adopted contained a 
 provision for an Interstate Commerce Commission which was Mr. 
 Sherman's bill introduced in the Senate. 
 
 Mr. Martin. In 1878. 
 
 Senator Townsend. In 1885. That bill was opposed by Mr. Rea- 
 gan — that provision of it — very, very bitterly. In fact, Mr. Reagan 
 never consented to an Interstate Commerce Commission. The first 
 bill that was introduced in Congress providing for a commission 
 Was introduced in 1874 by George W. McCreary, who was a Con- 
 gressman from Iowa. That bill passed the House and was defeated 
 in the Senate. The same year Mr. Sherman, in the Senate, intro- 
 duced a bill providing for the punishment of roads granting rebates 
 and providing also that there should be publicity in their railroad 
 accounts. But even prior to that, in 1868, there were three resolu- 
 tions introduced in Congress by Mr. Loughridge, of Iowa, and Mr. 
 Orth, of Indiana, and some other gentlemen, and those resolutions 
 looked to the investigation of the evils of railroading. But the 
 very first bill that was ever introduced was introduced in 1865 by 
 Charles Sumner, and as respects the first law ever passed affecting 
 interstate commerce, the bill was introduced by James A. Garfield 
 in 1865, and became a law in 1866. So that while some gentlemen 
 may have been interested in drawing bills, this was an old question 
 and has been ever since 1865, and even before that it was agitated. 
 I did not want to destroy the pride of authorship that any man 
 may have, but I think that that ought to be said. 
 
 Mr. Martin. I recognize that the Senator from Michigan is a 
 very great authority upon the history and details of interstate-com- 
 merce legislation, and I admire much of his work. I was living in 
 the West in the sixties and seventies, and I know that there was 
 always more or less fighting by the people against the railroads in 
 the State legislatures, reaching as far as the National Capital, as 
 far back as I can remember, but my recollection also is that the 
 real bill for the enactment of the interstate-commerce law began and 
 was carried on around the struggle over the so-called Reagan bill 
 
COMMITTEE ON INTERSTATE COMMERCE. 161 
 
 and Cullom bill. The real big fight came at that time and was 
 finally successful. That was only in a general way that I spoke 
 of that because I felt great pride in those gentlemen who made the 
 great struggle at that time and were finally successful. I know that 
 my knowledge of the matter came directly from men who were mem- 
 bers of the committee and Members of Congress who were there at 
 that time. I am willing to accept the Senator's amendment, as I 
 think it sheds light upon the subject. 
 
 Mr. Townsend. I do not think I have anything further to ask. 
 Senator Cummins. Mr. Chairman, I hesitate to take up more time 
 of the committee, but an observation was made by the witness, I think 
 during the examination of Senator Newlands, that interested me. and 
 I do beg the privilege of asking a few additional questions. 
 The Chairman. You may proceed. 
 
 Senator Cummins. You recognize, do you not, that at present there 
 are two movements of the United States upon the subject, one of 
 them having for its object the modification of the antitrust law so 
 that combinations will become lawful under certain governmental 
 supervision — the movement that can be said fairly, I think, to be 
 toward mitigating the severities of the antitrust law? There is the 
 other for the purpose of making the antitrust law a more efficient in- 
 strument for the preservation of competition. The chief movement 
 has very little, if anything, in common. I understand that your asso- 
 ciation is opposed to both, from what you have said. 
 
 Mr. Martin. The last form of the proposed action has not been 
 so clear to me. Our idea of it was that the situation legislatively at 
 the present time resolves itself to this, that there is a considerable 
 element of the people who favored amending the antitrust law to 
 make it less drastic, and, as we believed, practically to emasculate it 
 and destroy its efficiency, and the other element, those who favored 
 the — well, I guess I will yield. The Senator is right. There is an- 
 other who favor modifying it in the way in which he suggested, and 
 perhaps that represents his school of thought. I think that is cor- 
 rect. I will accept the Senator's statement. Then the third element 
 who opposed amending the law at the present time at all. 
 
 Senator Cummins. Do you desire to put the influence of the Na- 
 tional Antitrust League against both these movements ? 
 
 Mr. Martin. Unequivocally against the first one, because the first 
 movement to amend and take the teeth out of the law was a move- 
 ment, so far as we are advised from the record of the facts, that was 
 originated by Judge Gary in the Steel Trust and was testified to on 
 the stand by Seth Low, president of the Civic Federation, and the 
 
 amendment was drawn by Francis Stetson 
 
 Senator Cummins. My question was, Do you desire to have the 
 people of the country understand that the National Antitrust League 
 is opposed to both those amendments ; that is, opposed to any modifi- 
 cation of the antitrust law? 
 
 Mr. Martin. We are opposed to the first one. Now ; as to the sec- 
 ond one, if you will state the second one again, I will answer you 
 definitely on that. 
 
 Senator Cummins. I did not put before you any specific proposi- 
 tion. I said there was a movement on the part of those who believe 
 that the antitrust law could be so supplemented or- amended as to 
 
162 HEAKINGS BEFOEE 
 
 become a more efficient instrument for the preservation of competi- 
 tion. I was a little surprised to gather from you the impression that 
 your association was as much opposed to the latter as to the former. 
 
 Mr. Martin. Oh, no ; we are not as much opposed. The latter we 
 look upon as our friends and the friends of the public welfare. We 
 believe that gentlemen who hold that position — and I think the Sen- 
 ator from Iowa, as I recall, is one of those, and perhaps other gentle- 
 men on this committee hold the same view — we look upon them as 
 friendly to the public interest and to the interests of our cause in this 
 matter,' but we believe that they are taking an unnecessary risk in 
 making direct amendments to the antitrust law at this time, and we 
 would only endeavor to persuade them to delay action on these mat- 
 ters until we can get a full and fair enforcement of the law. 
 
 Senator Cummins. How can you determine that they are taking 
 an unnecessary risk until you have considered the exact proposals 
 which they make? 
 
 Mr. Martin. Well, there have been various bills introduced and 
 
 suggestions made 
 
 Senator Cummins. Allow me to ask you about one or two of those. 
 You referred in an answer to Senator Newlands to a report made by 
 the Judiciary Committee of the Senate, upon a bill introduced, as I 
 remember, by Senator Foraker, of Ohio — at least that was one of the 
 bills. 
 
 Mr. Martin. In my former statement? 
 Senator Cummins. Yes. 
 
 Mr. Martin. No ; the bill I referred to was the bill introduced by 
 Senator Warner, of Missouri, and Congressman Hepburn, of Iowa. 
 Those were the Gary-Stetson bills — the Steel Trust bills. 
 
 Senator Cummins. At the same time you will remember the com- 
 mittee had under consideration the bill introduced by Senator 
 Foraker, of Ohio, for the modification of the antitrust law, and the 
 report of the Committee on Judiciary, which you say you were some- 
 what instrumental in preparing — covered that bill as well as the bill 
 introduced by Senator Warner, as I remember. 
 
 Mr. Martin. In our hearings we did not devote much attention 
 to the bill of Senator Foraker. Our attention was mainly directed 
 to other objects. The force of the President of the United States 
 was behind the other, and we felt that it might be gotten through. 
 
 Senator Cummins. But the whole force of the report was upon the 
 amendment proposed by Senator Foraker, was it not ? 
 
 Mr. Martin. The value of our victory was not that the report was 
 made, but the bill never got out of the committee. 
 
 Senator Cummins. There was an adverse report made on the bill. 
 The bill proposed substantially — I am not speaking now of the de- 
 tails of the Warner bill — but the bill proposed substantially to amend 
 the antitrust law by inserting before the phrase " restraint of trade, 
 or commerce," the word " unreasonable," did it not ? 
 Mr. Martin. We were opposed to that. 
 
 Senator Cummins. The fight really was upon that proposition? 
 Mr. Warner. Many of the gentlemen who spoke before the com- 
 mittee I know argued on that. 
 
 Senator Cummins. And the report was on that proposition mainly, 
 was it not? 
 
 Mr. Martin. I am not sure. 
 
m.u ui, i«j.jLnal'ATB COMMERCE. 163 
 
 Senator Cummins. You were very much opposed to an amendment 
 which would qualify the prohibition against the restraint of trade 
 or commerce by the word " unreasonable," were you not ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Cummins. And your league was opposed to that? 
 
 Mr. M\r>TiN. We were opposed to that; yes, sir. 
 
 Senator Cummins. Now do you not recognize that the opinion — I 
 will not say decision, and I want you to distinguish between decision 
 and opinion — the opinion of the Supreme Court in the American 
 Tobacco Co. case and in the Standard Oil case did amend the anti- 
 trust law by inserting at the very same place the very word which 
 had been proposed by Senator Foraker ? 
 
 Mr. Martin. I did not so understand it, Senator, and I can not 
 bring myself to believe that that was the intention of the court, and 
 that that will be the effect of the opinion. 
 
 Senator Cummins. Did not the majority opinion of the Supreme 
 Court in both of those cases proceed upon the hypothesis that in 
 order to render a combination or agreement or conspiracy contrary 
 to the law, that it must be found to be an unreasonable restraint of 
 trade or commerce? 
 
 Mr. Martin. I will express my own opinion as to that. It is an 
 individual opinion. From a very careful thought over the matter 
 and from watching the proceedings, my opinion is that that state- 
 ment was drawn out from the Supreme Court because of the effort 
 that presiding Judge Lacombe, of the United States Circuit Court 
 of the Southern District of New York, made an attempt to make 
 the whole antitrust law appear unreasonable by putting a construc- 
 tion on it that would make it apply to every little combination be- 
 tween men that did not do any public harm at all, and the court 
 did not want to appear to approve in any way the unreasonable con- 
 struction that the Circuit Court of New York had put upon it. 
 
 Senator Cummins. The argument to which I referred was first 
 used in a case with which Judge Lacombe had nothing whatever 
 to do. 
 
 Mr. Martin. It might have been. 
 
 Senator Cummins. The Standard Oil opinion was first rendered 
 and the circuit court which decided that case was, as you remember, 
 the Circuit Court for the Eighth Judicial Circuit, of which Judge 
 Lacombe is not a member. 
 
 Mr. Martin. Yes, sir. 
 
 Senator Cummins. And therefore there was nothing, as I recall, 
 in Judge Sanborn's opinion in the circuit court to furnish any 
 foundation for the suggestion you have just made. I think the 
 words used by the Supreme Court is " undue restraint of trade or 
 commerce," or " unreasonable " — I think you will find both words 
 there. Now, is the antitrust league satisfied with a law that says 
 no combination or conspiracy or agreement shall be held unlawful 
 unless some judge shall find it to be in undue or unreasonable 
 restraint of trade ? 
 
 Mr. Martin. Our opinion is that if it is a criminal violation of 
 the law that it certainly, is undue and unreasonable. There would 
 not be any question about that. 
 
 Senator Cummins. That is arguing in a circle. You have first to 
 find out whether it is a violation or the law, and if you apply the 
 
164 HEAKINGS BEFORE 
 
 test of unreasonable restraint of trade. If the judge believes that it 
 is not unreasonable restraint of trade, it will not be a crime to have 
 engaged in that conspiracy or to have been a party to that agreement 
 or contract. Now, I want to know whether the Antitrust^ League 
 is satisfied with that kind of a law in which the criminality of a 
 person or the unlawfulness of a contract shall for all time to come 
 depend upon a judge who finally decides it with regard to its reason- 
 ableness or its unreasonableness. 
 
 Mr. Martin. The case does not present itself to our minds in that 
 form. "We are satisfied that the judges of the United States courts, 
 in the main, intend and desire to enforce the law according to its 
 plain language, and we have no fear that it will be enforced that 
 way if the Department of Justice does its duty. 
 
 Senator Cummins. I have no doubt about that. 
 
 Mr. Martin. We are not worried about that end of it. What we 
 are worried about is the neglect of the executive office to press it. 
 
 Senator Cummins. You have, as we all have, the utmost confidence 
 in the Supreme Court of the United States ? 
 
 Mr. Martin. Yes, sir. 
 
 Senator Cummins. But I suppose you recognize the fact that 
 what is or what is not an undue or unreasonable restraint of trade 
 depends upon a man's opinion of political and industrial economy, 
 and those opinions vary as widely as the training and environment 
 and general bringing up of the judges vary. 
 
 Mr. Martin. Yes, sir. 
 
 Senator Cummins. I wanted to have it perfectly specific here, and 
 definite, as to whether your league was satisfied with that interpreta- 
 tion of the antitrust law. 
 
 Mr. Martin. In general our members have held the opinion that 
 under Judge Harlan's expression that that was what the lawyers 
 called an obiter dicta, to a great extent it might disappear very rap- 
 idly in the future without causing any harm. As a whole we do 
 not have any great fear of any serious damage from that, provided 
 the executive branch will get busy and do the work. 
 
 Senator Cummins. You think in the future the obiter dicta of the 
 majority of the Supreme Court might be disregarded in deciding 
 future cases? 
 
 Mr. Martin. I would not be surprised at all: 
 
 Senator Cummins. Do you think that is a safe enduring basis 
 upon which to build the business of this country? 
 
 Mr. Martin. Well, that is a question too broad to be answered 
 yes or no. The difference between the position as outlined in your 
 question — — 
 
 Senator Cummins. You need not answer it. I readily agree with 
 you that it will require an essay rather than a few sentences to 
 answer it. 
 
 Mr. Martin. It is not from fear of results, but simply that the 
 Senator in his question outlines a fear that exists in his mind but 
 does not exist in my mind at all as to the dangerous results that may 
 follow the use of that word by the court in its opinion. 
 
 Senator Cummins. I outlined just this far, if you will allow me. 
 Take a certain corporation, which everybody will agree is one in 
 restraint of trade, or a certain agreement which everybody will 
 
— CTXCTu mi i '.h UN iJN ' LjKK S'JATE COMMERCE. 165 
 
 agree is one in restraint of trade, if you were asked is it an unrea- 
 sonable restraint of trade, your answer might be, yes. If it were 
 asked of me, Is it an unreasonable restraint of trade, my answer 
 might be with equal honesty, no, and I do not believe in a law that 
 contains that discretion, or that element of discretion. 
 
 Mr. Martin. We are advised by our counsel that that does not 
 exist in that way. That danger does not exist in the law, and that 
 uncertainty does not exist in the law. 
 
 Senator Cummins. Now, I am not asking about the merits of, 
 any .particular case, but take the suit brought against the United 
 States Steel Corporation. Suppose when that reaches the Supreme 
 Court so distinguished a citizen as the late President of the United 
 States were a member of the court. He is an honest man — every- 
 body recognizes that — and a great patriot. Now, if he were a mem-, 
 ber of the Supreme Court, evidently he would hold that the United 
 States Steel Corporation was not a corporation -in unreasonable re- 
 straint of trade. We do not know who will be the judges when that 
 case or some other case reaches the Supreme Court, and the outcome 
 of any such case must depend upon a man's individual opinion with 
 regard to what is wise and for the general welfare rather than upon 
 the standard which the Legislature has erected for the government 
 of the people. That is the point I desired you to take into considera- 
 tion. 
 
 Mr. Martin. Well, gentlemen who are as positive that they are 
 right when they are wrong as our distinguished ex-President we 
 are not much afraid of any of them being on the Supreme Court, 
 We are not worrying on that score. We believe that all laws, un- 
 fortunately, in this country are in danger of construction by the' 
 courts, as indicated by the Senator's question, and they are liable to- 
 make strained constructions of them. I am not prepared at this 
 time to say how we can stop the courts from doing that kind of 
 thing. I wish we could, but I do not see that any amendments that 
 have been offered to the antitrust act at the present time are going 
 to prevent judges of the court from exercising the privilege of mak- 
 ing those statements and in issuing their opinions. 
 
 Senator Cummins. The courts must interpret and apply the law 
 which is made by Congress. Now, if Congress can erect a standard 
 about which honest men can not differ fairly, it is the duty of Con- 
 gress to do it, is it not ? 
 
 Mr: Martin. Sure, but I doubt the advisability of making a clearer 
 law on the antitrust subject than the present law. 
 
 Senator Cummins. You ought not to be so sure about that until 
 you examine some measure that is proposed. I do not want th& 
 Antitrust League to appear before the public as saying in advance 
 that Congress must not attempt to make this law a more efficient 
 instrument than it now is, to preserve the welfare of the people 
 
 Now I will ask you 
 
 Mr. Martin. Will you pardon me before you leave that phase of 
 the subject? I want to protect my own organization and myself as 
 well. We do not want to be put in that position, and it is not our 
 intention to be put in that position. We concede that the antitrust 
 law, like every other statute, is susceptible of improvement, but we 
 fear to encourage the risk involved in making an amendment to it at 
 
166 HEARINGS BEFOEE 
 
 this time. It is like suggesting the changing of horses in crossing 
 the river. We think the urgent and important thing to be done now 
 ie to enforce the law, not amend it. It is of course subject to 
 improvement. 
 
 Senator Cummins. Are you familiar with the bill that was intro- 
 duced by Senator La Follette in the closing days of the last session, 
 proposing to amend the antitrust law ? 
 
 Mr. Martin. I have seen it; yes, sir. I have not examined it as 
 carefully as I intend to before the session of Congress convened. 
 
 Senator Cummins. Is the Antitrust League opposed to that bill? 
 
 Mr. Martin. Not to the ideas embodied, so far as I know. I have 
 not examined it as carefully as I intend to before the Congress gives 
 it consideration, and it will be under consideration, I presume, and I 
 do not want to do any injustice to the bill by expressing an opinion 
 until I examine it, but as I glanced at it hastily, I gathered the im- 
 pression that many of the ideas were susceptible of amendment. The 
 question is not one of merit, but the question of adopting amendments 
 at this time. 
 
 Senator Cummins. I do not say that I am in favor of that bill. I 
 reserve my judgment with regard to that; but if one is in favor of 
 the general idea found in the bill, what possible danger is there in 
 adopting legislation of that sort? 
 
 Mr. Martin. There is this danger: That we fear that it will re- 
 open — I fear at least that it will reopen the question for litigation. 
 That will cause a long delay before we get the matter down to the 
 point of actual enforcement. 
 
 Senator Cummins. All litigation occasions delay. A bill of that 
 kind does not require any reexamination of the antitrust law as to 
 what it means; it simply provides a new standard in certain cases 
 for determining whether a given restraint is reasonable or unreason- 
 able. Now, if one believes in the standard itself, what possible ob- 
 jection is there to making it definite and certain so that everybody 
 can know that a certain combination or a certain restraint of trade 
 is to be held conclusively unreasonable. 
 
 Mr. Martin. Senator, may I inquire, Is it your understanding that 
 that amendment proposes to catalogue or list all these offenses, which 
 shall be construed in a certain way? If so, in the future there would 
 be the danger that the resourceful gentlemen at the head of the trusts 
 might invent some new wrinkle not included in that, and we might 
 have to have another act. It is like an insurance policy in which you 
 enumerate things and you do not get any insurance on anything that 
 is not enumerated, but if you say all your furniture you get the whole 
 business. 
 
 Senator Cummins. Of course, if anyone was so utterly lost to a 
 sense of public duty as to put in a bill of that sort, your conclusion 
 might follow ; but this bill says nothing of the sort. It is one of the 
 bills we have before us for consideration, and I will read a section of 
 it, in order to show you what it proposes to do. 
 
 Sec. 10. Whenever in any suit or proceeding, civil or criminal, brought under 
 or involving the provisions of this act, it shall appear that any contract, combi- 
 nation in the form of trust or otherwise, or conspiracy was entered into, existed, 
 or exists, which was or is in any respect or to any extent in restraint of trade 
 or commerce among the several Slates or with foreign nations, such restraint 
 
7TATE COMMERCE. 167 
 
 shall be conclusively deemed to have bren or to be unreasonable and in violation 
 of the provisions of this act as to any party thereto — 
 
 A. Who in carrying on any business to which such contract, combination, or 
 conspiracy relates or in connection therewith ; 
 
 (a) As the vendor, lessor, licensor, or bailor, of any article attempts to 
 restrain or prevent in any manner, either directly or indirectly, any vendee, 
 lessee, licensee, or bailee from purchasing, leasing, licensing, or obtaining such 
 article, or any other article from some other person, or using such article or 
 any other article obtained from some other person, whether such attempt (first) 
 be made by an agreement or provision, express or implied, against such pur- 
 chase, lease, license, or use, or (second) be made by a condition in the sale, 
 lease, license, or bailment against such purchase, lease, license, or use, or 
 (third) be made by imposing any restriction upon the use of the article so 
 sold, leased, licensed, or bailed, or (fourth) be made by making in the price, 
 rental, or license any discrimination based upon whether the vendee, lessee, 
 licensee, or bailee purchases, hires, or becomes a licensee of, or uses any article 
 made, sold, licensed, leased, or furnished by some other person, or (fifth) 
 be made in any other manner except the ordinary solicitation of trade; 
 
 (b) As the vendor, lessor, licensor, or bailor of any article attempts to pre- 
 vent or restrain competition by making in the price, rental, or royalty, or other 
 terms of any such sale, lease, license, or bailment any discrimination based upon 
 whether the vendee, lessee, licensee, or bailee purchases, leases, licenses, or 
 takes on bailment from him articles of a particular quantity or aggregate price ; 
 
 (c) As the vendor, lessor, licensor, or bailor of any article attempts to pre- 
 vent or restrain competition either by refusing to supply to any other person 
 
 -- requesting the same any article sold, leased, licensed, bailed, or otherwise 
 dealt in or furnished by him, or by consenting to supply the same only upon 
 terms or conditions in some respects less favorable than are accorded to any 
 other person ; 
 
 (d) As the vendor, lessor, licensor, or bailor of any article attempts to pre- 
 vent or restrain competition by supplying or offering to supply to any person 
 or persons doing business in any particular territory articles sold, leased, 
 licensed, bailed, or otherwise dealt in or furnished by him, upon terms or con- 
 ditions in any respect more favorable than are accorded by him to his other 
 customers ; 
 
 (e) As the vendor, lessor, licensor, or bailor of any article attempts to re- 
 strain or prevent competition by making any contract or arrangement under 
 which he shall not sell, lease, or license any article in which he deals to certain 
 persons or class of persons, or to those doing business within certain districts or 
 territory ; 
 
 (f) As the vendor, lessor, licensor, or bailor of any article attempts to pre- 
 vent or restrain competition by the use of any unfair or oppressive methods 
 of competition; or 
 
 B. Who has been sentenced, or who controls or is controlled by or is a mem- 
 ber of or forms a part of any corporation or association which has been sen- 
 tenced under the act to regulate commerce, approved February 4, 1S87, or any 
 amendment thereof, for any act or thing relating to any trade or business 
 affected by such restraint done or occurring after this act goes into effect. 
 
 The foregoing enumeration of acts, conduct, methods, and devices which it 
 is herein declared shall each conclusively be deemed unreasonable does not 
 include, and shall not be construed to exclude or as intended to exclude, any 
 other acts, conduct, methods, or devices which are or may be unreasonable. 
 
 The provisions of clause (a) of this section shall not apply to any case where 
 the vendor, lessor, licensor, or bailor of any machine, tool, implement, or appli- 
 ance protected by lawful patent rights vested in such vendor, lessor, licensor, or 
 bailor requires the purchaser, lessee, licensee, or bailee to purchase or hire 
 from him component or constituent parts of such machine, tool, implement, or 
 appliance which such vendee, lessee, licensee, or bailee may thereafter acquire 
 during the continuance of such patent right, nor shall any of the provisions 
 of this section apply to the mere appointment of stole agents to sell, lease, 
 license, bail, or furnish any article. 
 
 Now, that does not impair in any sense the general operation of 
 the antitrust law, but prescribes that if the combination takes a 
 certain form or relates to a certain thing it shall be regarded and 
 shall be accepted by the courts as unreasonable. Now, without 
 
168 HEAETWTTBTTETTnn! 
 
 giving my sanction to the question — I would not want to just now, 
 and I would not want you to do so, because it would require reflection 
 as to whether this particular statute is sound or not — do you see any 
 objection to strengthening the antitrust law along such lines? 
 
 Mr. Martin. The only objection that occurs to me at the moment 
 is that the language is extremely technical and, as it appears at first 
 glance, far less clear and easy to be understood than the language of 
 the antitrust act itself. That may be not a valid criticism, but it looks 
 that way to me for the moment. The further study of it may show 
 that it is perfectly clear and perfectly suitable and will not in any 
 way impair the act or involve it in further and due litigation that 
 will delay its enforcement. I am of the same opinion that the Sena- 
 tor is — that an opinion ought not to be expressed hastily upon a mat- 
 ter of that importance. 
 
 Senator Cummins. Then the sum of it all is that you do not nor 
 does your association set its fact against any attempt to so amend 
 or change or add to this law as to make it a better instrument for 
 the accomplishment of the purpose which we all have in view — 
 freedom, fairness in commerce, and substantial competition among 
 producers and sellers. 
 
 Mr. Martin. Provided they may feel assured that they will not 
 incur that danger of giving the trusts another lease of life or lead 
 to more litigation like they tried to invent in Chicago in the habeas 
 corpus matter. What our enemies seek we do not want. They 
 want delay, and they are the most eager men in the country. They 
 were the first men to aggressively and extensively organize a fight 
 for the antitrust law. They are ready for anything that looks like 
 trouble or delay, and we fear their machinations, not that there are 
 not many people patriotic and thoroughly devoted men to the cause 
 of the people like the Senator from Iowa, who, I believe, are capable 
 of making amendments. It is men like the Senator from Wisconsin, 
 whose name has been mentioned in that connection, who, through 
 experience, are able to make improvements that would be of impor- 
 tance in the antitrust law. I have myself one or two amendments 
 that I would like to see adopted, but I hesitate to bring them before 
 Congress for fear that it will renew the struggle and open up the 
 gates of litigation anew. 
 
 Senator Cummins. I am afraid you have not as much confidence 
 in the intelligence of Congress as you have in its patriotism. 
 
 Mr. Martin. I have great respect for the legal ability of the gen- 
 tlemen who represented the Steel Trust in hanging a lawsuit on the 
 smallest peg that they can get. 
 
 Senator, Cummins. Your maxim seems to be that of Napoleon, 
 " Discover what your enemy wants you to do, and then do the other 
 thing." 
 
 Mr. Martin. Yes, sir; that is a pretty good maxim. 
 
 Senator Cummins. Allow your enemies to always direct your 
 course. 
 
 Senator Newlands. As I understand it, Mr. Martin, you and 
 your organization wish the Supreme Court to pass upon the final 
 reorganization of each one of these trusts that has been prosecuted 
 in the United States courts, and you oppose any procedure which 
 leaves the final determination of that question to the lower courts: 
 is that it? 
 
-STATE COMMERCE. 169 
 
 Mr. Martin. No. We have not said that. I clo not think that I 
 have said that, and I do not want the committee to get that im- 
 pression. 
 
 Senator Newlands. That is your view regarding the Tobacco 
 case, is it not ? 
 
 Mr. Martin. It is, because there was a failure of justice in the 
 lower court. If the lower court had given a wise and just decision 
 that would hare given the people relief, put a stop to the operations 
 of the trusts, we would not have to appeal it. 
 
 Senator Newlands. I am quite in sympathy with that view my- 
 self, but so far as the Tobacco case is concerned, if the combination of 
 the very numerous corporations which resulted in that trust were 
 simply divided into four enormous combinations, which must neces- 
 sarily include a great many constituent companies that were ab- 
 sorbed in the old organization, that organization ought to be passed 
 upon by the tribunal that rendered the decision. I am quite in 
 sympathy with that view. 
 
 Mr. Martin. I agree with you, Senator, very heartily. 
 
 Senator Newlands. It does seem to me that the reorganization of 
 that enormous trust into four enormous corporations is hardly a 
 compliance with the spirit and decision of the Supreme Court. 
 
 You referred to the law authorizing the organization of the Bu- 
 reau of Corporations, and you stated that your league had some- 
 thing to do with the framing of that law. 
 
 Mr. Martin. Our committee was the only committee that appeared 
 before the House Committee on Interstate Commerce. 
 
 Senator Newlands. And the bill was changed ; you intended it to 
 be a bureau of publicity, and instead of that it was made a bureau of 
 secrecy. You do not mean to say that this has been done by the de- 
 liberate action of the Commissioner of Corporations himself? You 
 mean to say that that secrecy was imposed by limiting the bureau 
 
 Mr. Martin. No ; I believe that secrecy was imposed by the execu- 
 tive officer. It was not made mandatory that he should report to 
 Congress, but he was directed to report to the President; and the 
 executive department construed that as putting the whole thing in 
 their hands, and they would not let any of it out, which I think 
 ought to be remedied by an amendment making him report to Con- 
 gress as well as to the President. 
 
 Senator Newlands. It was the law itself that provided that he 
 should report to the President and not to Congress, and the commis- 
 sioner has simply complied with that law. 
 
 Mr. Martin. That was not the draft of the law. 
 
 Senator Newlands. You understand that the bill as it finally 
 passed provided that the commissioners should report to the Presi- 
 dent and not to Congress. 
 
 Mr. Martin. It did not say " not to Congress." It says he should 
 report to the President. 
 
 Senator Newlands. It only gave him the power to report to the 
 President, and pursuing the law, the commissioner reported only to 
 the President. Do you claim that it is also his duty to report to 
 Congress under that law ? 
 
 Mr. Martin. How is that ? 
 
 Senator Newlands. Do you claim that it is also the duty of the 
 commissioner to report to Congress under that law ? 
 
170 HEAKI 
 
 XN \Jtu urji.' v/xi.u 
 
 Mr. Martin. As it now stands ? 
 
 Senator Newlands. Yes. 
 
 Mr. Martin. No; I do not know that it is; but if Congress re- 
 quires it, I think he ought to give the information. 
 
 Senator Newlands. You think, therefore, that when Congress has 
 expressly passed a law instructing the commissioner to report 
 only to the President, that a committee of Congress, without a change 
 in the law, has a right to tell that commissioner to report to it? 
 
 Mr. Martin. I am inclined to think so, but as I said, I would 
 remedy that by changing the law which can be readily done. 
 
 Senator Newlands. Do you not think it is a rather strong term 
 to say that the commissioner himself in simply carrying out the law 
 defied Congress? 
 
 Mr. Martin. His attitude was a little bit defiant; it had that 
 appearance. 
 
 Senator Newlands. Did he not base his action upon his opinion 
 that the law made it his duty to report to the President ? 
 
 Mr. Martin. Yes; he had an opinion from the Attorney General, 
 which he took out of his pocket and read to the committee. He did 
 the same thing before the Senate Committee on Judiciary two years 
 ago. 
 
 Senator Newlands. All I wanted to call your attention to was that 
 the law was to blame and not the commissioner. 
 
 Mr. Martin. But the President afterwards directed him to furnish 
 the information and he did it. I am not blaming the commissioner. 
 That was only an incidental remark. I do not desire to condemn the 
 commissioner particularly. All I desire to suggest to the committee 
 is the desirability of amending the law and making him report to 
 both. I had no desire to criticize the commissioner in his absence. 
 
 The Chairman. Does any other Senator wish to ask Mr. Martin 
 any further questions? 
 
 Senator Oliver. Senator Pomerene, in one of the questions he 
 asked, referred to the course of the Department of Justice under its 
 present administration in enforcing this law, or rather referring to 
 its failure, as he thought, to properly enforce the criminal provi- 
 sions of the law as reprehensible. I would like to ask you, Mr. 
 Martin, your opinion as to the comparative reprehensibility of 
 an Attorney General who actively and successfully enforces a law 
 like this, who resuscitates it, and makes it effective in the highest 
 court, although up to the present time he has devoted most of his 
 attention to its civil provision, as compared with one of his prede- 
 cessors who did nothing to speak of in connection with its enforce- 
 ment, and in fact declared it to be a dead letter. I refer to the 
 record of the, present Attorney General as compared to that of former 
 Attorney General Harmon, of Ohio. I would like to have your 
 opinion as to that? 
 
 Mr. Martin. As to the relative merits of the conduct of the office 
 under the two administrations? 
 
 Senator Oliver. Relative reprehensibility. 
 
 Mr. Martin. I have no hesitancy in answering the Senator defi- 
 nitely and plainly that I consider that the present Attorney Gen- 
 eral has given a better administration of the law than the former 
 Attorney General. 
 
 Senator Oliver. I have nothing further. 
 
COMMITTEE ON INTERSTATE COMMERCE. 171 
 
 Mr. Martin. I say that because this is a matter of grave impor- 
 tance and it is vital to the citizens of this Republic, I believe, that 
 this law should be enforced, and any man who gives his efforts to 
 that direction, it matters not to me what party he belongs to or what 
 section or class, I am glad to see any steps taken toward the enforce- 
 ment of that law. But I do not want to be understood as saying by 
 that that I believe the present Attorney General has gone as far as 
 he ought to go, and I believe that this committee and Congress ought 
 to inquire why he has not gone further in enforcing the criminal 
 provisions, because time flies and we can not afford to let the growth 
 of these things go on any longer. It is a dangerous situation that 
 they are involving the country in. 
 
 Senator Pomerene. In the interests of history, as it was sug- 
 gested yesterday, my very good friend, Senator Oliver, is mistaken 
 in his statement that Attorney General Harmon declared it to be a 
 dead letter. That in substance was said by Attorney General Olney 
 at the time that Mr. Harmon became Attorney General. 
 
 Senator Oliver. I will include Mr. Olney. 
 
 Senator Pomerene. I am glad you do. 
 
 Mr. Martin. I will accept him, too. 
 
 Senator Pomerene. At the time that Harmon became Attorney 
 General the one decision by the Supreme Court on that statute was 
 the Knight case, in which the decision was adverse to the Govern- 
 ment. The only other two decisions up to that time was the one in 
 the Trans-Missouri case by the United States circuit court, in which 
 proceeding was begun by Attorney General Miller, and that was 
 adverse to the Government. On appeal to the United States circuit 
 court of appeals the decision was again adverse to the Government, 
 with one dissenting opinion. The case was then appealed to the 
 United States Supreme Court. Attorney General Olney did noth- 
 ing on the subject. Attorney General Harmon took charge of the 
 case when he became Attorney General, and against the advice of 
 others in the department, took it up himself, personally wrote the 
 brief, every word of it, personally argued the case in the Supreme 
 Court, in December, 1896, and the court did not hand its opinion 
 down until March 21, 1897, after his term had expired. 
 
 That in the interest of history. 
 
 Mr. Miller. Which was the case you refer to? 
 
 Senator Pomerene. The Trans-Missouri case. 
 
 Mr. Miller. Oh, yes. 
 
 Senator Pomerene. And he also began, or instructed to be begun 
 during that time the Addyston Pipe Co. case and the case against the 
 Joint Traffic Association. 
 
 Mr. Miller. As to the Trans-Missouri matter, I want to say that 
 we have always set great store by that decision, and whatever At- 
 torney General Harmon contributed to that, I consider that it was 
 a service to the country. 
 
 The Chairman. Any further questions? 
 
 Senator Townsend. Mr. Miller, do I understand, or do I not, that 
 if you had your way, you would advise Congress to pass a law which, 
 without regard to the effect upon the interests of these great trusts 
 and corporations which exist at the present time, would be destroyed? 
 
 Mr. Martin. I did not catch that. 
 
172 HEARINGS BEFORE 
 
 Senator Townsend. Ought the Congress in dealing with this great 
 trust question to have in mind the property of these trusts as it exists 
 to-day; final distribution of that, or should it be destroyed? 
 
 Mr. Martin. I would not destroy any personal property; no. 
 
 Senator Town send. Well, the values of any property by the owners 
 of it at present ? 
 
 Mr. Martin. Any values which arise as the result of conspiracy 
 would disappear with the destruction of the conspiracy, of course. 
 They are intangible values. 
 
 Senator Town send. No matter who owned it; whether it should be 
 an innocent stockholder or one of the offenders ? 
 
 Mr. Martin. The law does not extend much courtesy to holders 
 or the innocent purchasers of stolen property, etc., and the offenses of 
 this kind have been public and so conspicuous that such a thing as 
 an innocent purchaser of the common stock of the Tobacco Trust, or 
 an innocent purchaser of the common stock of the Standard Oil Co., 
 or of the Steel Trust is a pretty scarce article, in my judgment. Men 
 who gamble their money on partnership and crime ought to take the 
 consequences. 
 
 Senator Town send. But you would destroy, if they are found 
 guilty ; had the Tobacco Trust and the Standard Oil Co. been found 
 guilty, you would destroy all property interests of the holders, if you 
 could ? 
 
 Mr. Martin. Oh, no; I would not. 
 
 Senator Townsend. You would not do that? 
 
 Mr. Martin. No. 
 
 Senator Townsend. How would you deal with that ? 
 
 Mr. Martin. Why, 'I would — as the company has been dissolved, 
 the dissolution of the combination means its death. 
 
 Senator Townsend. What would you do with the property? 
 
 Mr. Martin. The property, of course, is legally the property of the 
 holders, except such part of it as may be taken in fines or seizure 
 in transit. The other proceedings should be left to the holders to di- 
 vide up and use as they see fit — not in violation of the law. Bearing 
 in mind always that any use they put it to in the future, they must 
 remember that the next time it will be the second offense. As a 
 certain judge in Chicago said to a defendant, " Will fine you a cer- 
 tain sum this time, but the next time you. come back here, look out." 
 
 Senator Townsend. If the civil and criminal remedies were all 
 used, there could not be any second offense that would be much more 
 drastic. 
 
 Mr. Martin. That would be the end of it. 
 
 Senator Townsend. At the present time you' would destroy all 
 property rights and the offenders would serve the penalty in prison, 
 if it were possible ? 
 
 Mr. Martin. That would be a good thing for the country. It 
 would free the country of their restraint; it would restore competi- 
 tion; prices would fall, and the quality of the products would be 
 improved, and commerce would flourish. 
 
 Senator Townsend. And you say that commerce would flourish 
 under such conditions as that? 
 
 Mr. Martin. I certainly do. 
 
 Senator Townsend. Not immediately. 
 
COMMITTEE ON INTERSTATE COMMEECE. 173 
 
 Mr. Martin. I did not understand your question when you asked 
 to know my idea in regard to the destruction of physical property. 
 I do not favor anything of that kind. 
 
 Senator Town send. I am curious to know what would become of it 
 if you would destroy their right to it, their interest in it. 
 
 Mr. Martin. In the case of the dissolution of a combination, if 
 the court appoints a receiver and the property is put up for sale and 
 sold, it will go to whoever buys it. That is not a novel or extraordi- 
 nary proceeding, as I understand it. 
 
 Senator Townsend. That is all, Mr. Chairman. 
 
 The Chairman. Does any other member of the committee have any 
 questions? If not, Mr. Martin will be excused. 
 
 Mr. Martin. Senator, I would like to say one word in regard to a 
 feature of this matter. Just before recess the Senator from Penn- 
 sylvania was questioning me in regard to certain features of the mat- 
 ter, and I was under the impression that he was going to ask some- 
 thing further at the renewal of the session, but he did not, and I ask 
 the privilege of just a suggestion here, and that is the Senator from 
 Pennsylvania appeared, as I understood him — I may have been mis- 
 taken — to criticize my suggestion as to one of the causes of the fall 
 in the price of steel to the consumer and I want to ask, in the interest 
 of instruction of all of us in the record, if the Senator would sug- 
 gest, that we might know it, what his idea was of the cause of that 
 reduction in prices. I do not know that I have any right to make 
 such a request, but I feel that in fairness to my position I would like 
 to have that information if it could be had. 
 
 Senator Oliver. I am not being heard before the committee at 
 this time. 
 
 Mr. Martin. I withdraw the question. 
 
 Senator Oliver. I will state, however, that I did not criticize the 
 statement of Mr. Martin with reference to one of the causes. Mr. 
 Martin stated unequivocally that the cause of the fall in prices of 
 iron and steel products was the investigation of the Stanley com- 
 mittee. I am free to say that I combat that proposition absolutely, 
 and in my opinion — which is only an opinion, and which I think is 
 worth as much as Mr. Martin's — a number of causes contributed to 
 that, the least of which, if it has any bearing at all, is the investiga- 
 tion of the Stanley committee. 
 
 Mr. Martin. If the Senator will permit me, I think that my state- 
 ment was that the investigation of the committee had resulted — not 
 that it was the sole cause of the reduction in prices — but that it had 
 resulted in a reduction equivalent^ approximately, to $25,000,000 a 
 year ; not that it was the sole cause, but that it had contributed. 
 
 Senator Oliver. I do not know what that means if it does not 
 mean that that was a result of the investigation. 
 
 The Chairman. If there are no further questions to be asked, you 
 are excused, Mr. Martin. 
 
 (Mr. Martin was thereupon excused.) 
 
 The Chairman. Mr. Jaritz, do you want to be heard now ? 
 
 Mr. Jaritz. I would prefer to be heard now. 
 
 Senator Newlands. Before Mr. Jaritz is heard will you just allow 
 me to make a suggestion? It will take but a moment. I observed 
 in this morning's paper that Bernard N. Baker, president of the 
 
174 HEABINGS BEFORE 
 
 Atlantic & Pacific Transportation Co., a proposed independent Amer- 
 ican line of steamships to be run between Atlantic and Pacific ports 
 of the United States and Panama, called at the White House yester- 
 day and laid before President Taft a history of the obstacles which 
 he contends have been interposed through the influence of trans- 
 continental railroads to the organization of an independent line of 
 vessels. He claims that the transcontinental roads arp blocking the 
 way of that enterprise in every way by closing the financial institu- 
 tions with which they are influential against them and also the ship- 
 building organizations, and that they have been unable to make any 
 headway and that it is entirely due to the operations of the trans- 
 continental railroads; that they are engaged in a conspiracy to 
 prevent the Panama Canal from being utilized as a highway of 
 commerce. 
 
 Mr. Baker is here, and it seems to me that it is quite important, 
 in connection with this investigation, that he should be heard, and I 
 would suggest that the chairman communicate with Mr. Baker and 
 secure his attendance before this committee. 
 
 I will also state that I have heard from other sources that there 
 is the utmost difficulty in financing an organization of this kind, 
 although it involves comparatively limited capital. The Panama 
 Canal now owns the Panama Railroad Co., and is running a line 
 of steamships from Panama to New York, and all that is needed to 
 supplement that is a line of steamships from Panama to San Fran- 
 cisco, and it seems to me perfectly clear that if by organization of 
 the great financial and transportation interests of the country that 
 that enterprise be blocked, the Government should see to it that the 
 canal is made fully complete as an instrument of commerce, by 
 itself securing these ships and operating them, just as it does the 
 line from New York to Panama. 
 
 The Chairman. Mr. Baker will be asked to appear before the 
 committee. 
 
 Mr. Jaritz, you may proceed. 
 
 STATEMENT OF ANDREW JARITZ. 
 
 The Chairman. Just state your name, residence, and occupation 
 to the stenographer. 
 
 Mr. Jaritz. My name is Andrew Jaritz; I live at 917 Nineteenth 
 • Street NW., Washington, D. C. ; I am a student studying by myself 
 at the present time. 
 
 Mr. Chairman and gentlemen of the committee, in presenting my 
 
 ideas and conclusions at whic h I have arrived in a rather co n densed 
 
 dform, I am conscious of the fact that they admit ofmiich moclifica'- 
 
 tion, amplification, and illustration. I should be very glad if I 
 
 should be given* the opportunity of applying the suggestions. 
 
 Relatively permanent and progressive habits of economic legisla- 
 tion constitute one of the most urgent and persistent needs of the 
 economic life of this Nation. 
 
 As a basis for the formation, criticism, improvement, and disin- 
 tegration of such habits of economic legislation the Nation needs a 
 body of economic principles. Economic principles alone are ade- 
 quate and permanent tools for dealing with the intricacies of modern 
 economic problems. 
 
COMMITTEE ON INTERSTATE COMMERCE. 175 
 
 The relations of modern economic problems to each other are too 
 intimate and subtle to be detected from any one particular view- 
 point, except the general economic. Economic principles alone are as 
 broad as economic situations. Given such principles it must be seen 
 that the trust problem is organically connected with other modern 
 economic problems. It should not, therefore, be treated in a discon- 
 nected and isolated manner. The trust problem should be placed 
 back into its modern economic context and should be interpreted and 
 dealt with also in its intricate relations to other problems. 
 
 The trust problem is very intimately bound up with the problem 
 of conservation, taking this problem in its broadest significance. 
 One of the main reasons of the existence of the trusts is the saving 
 or conservation of wastes. The wastes saved by the trusts can be 
 analyzed as wastes of production, wastes of distribution, and wastes 
 of consumption. 
 
 Legislative attention dwells mostly upon production, less upon 
 justice and economy in distribution — taking the word distribution 
 in its widest sense — and hardly at all upon prudence and the saving 
 of wastes in consumption. And this in spite of the probable fact that 
 production needs compartively little legislative attention, distribu- 
 tion needs a great deal more, and consumption probably the most, 
 because, first, production and distribution exist or should exist for 
 the sake of consumption; second, because the waste is probably the 
 greatest in consumption, is smaller in distribution, and is probably 
 the smallest in production, and third, because the savings effected in 
 consumption properly belong — to their greatest part, at least — 
 to the consumers, and all citizens are consumers, while not all citizens 
 are profiting equally and directly from production and distribution 
 and from the saving of the wastes of production and distribution. 
 
 The saving of waste should enrich those who are affecting it. Com- 
 binations and trusts are in the main instruments for the saving of 
 wastes. It is quite just and proper that they should profit by the 
 savings effected by them in production and distribution. It is un- 
 just if they are instruments for extorting unreasonable prices and 
 profits and if through high prices they incidentally profit from effect- 
 ing, by compulsion, savings in consumption. 
 
 Should the Government help in bringing about a saving of wastes, 
 it would thereby entitle itself to profit from part of the waste saved. 
 The waste is, indeed, so enormous that the National Government 
 could probably be supported on the national waste. Therefore, let 
 business organize itself along the lines of greatest economy and 
 efficiency. 
 
 The Government should assist business in this endeavor and should 
 share in the savings effected. As said, business has the right to profit 
 from the savings of consolidation, but it has no right to eliminate bar- 
 gaining, to raise prices and profits to unreasonable levels, and inci- 
 dentally to profit from compelled savings in consumption (compelled 
 through unreasonable prices). This is one more reason why the Gov- 
 ernment should yield to the pressure of the movement toward com- 
 bination, should step into its tide and direct it. 
 
 What we deem the Government in duty bound to do in respect to 
 this phase of the trust problem is collective bargaining for the con- 
 sumers. The Government should help guiding the productive activi- 
 ties of the trusts, in this way serving also the trusts' interests. 
 22877— tol i—12 12 
 
176 
 
 HEARINGS BEFORE 
 
 Productive efforts should be guided by an accurate knowledge of 
 the quality and quantity of the fluctuating and changing needs of 
 society. The Government should assist business in the diagnosis of 
 the quality and quantity of current social needs. 
 
 Society needs goods and services of good quality in sufficient quan- 
 tity. To this end, however, it does not need prices as cheap as possi- 
 ble. Society rather needs prices that are not too cheap, prices not so 
 cheap as to induce extravagance on its part. Modern machinery is 
 wonderfully effective in reducing costs of production and prices, and 
 in thereby promoting waste in consumption. If conservation is to 
 be comprehensive and is to help in eliminating the wastes of consump- 
 tion, the sales prices of trust products should not be allowed to be so 
 low as'to induce and invite waste. What we mean by a reasonable 
 sales price is a price not so high as to bar the satisfaction of genuine 
 needs on the one hand, and on the other hand not so low as to make 
 for wasteful expenditures and speculation. All wasteful consumption 
 can not, of course, be eliminated. 
 
 The wastes of consumption ,do not, however, constitute the only 
 waste, and a mere regulation of prices to be paid by consumers to 
 trusts does not suffice, because it does not remedy waste in distribu- 
 tion and waste in production — through overproduction, i. e., over- 
 capacity. 
 
 In order to save or reduce the waste incidental to distribution, the 
 profits made in this line of activity need to be reduced to such an 
 extent as not to invite more distributive service than society actually 
 needs. 
 
 To eliminate the wastes of production, which are largely competi- 
 tive wastes, the profits to be received by the producing trusts need 
 also to be reduced or fixed. Modern machinery is wonderfully effec- 
 tive in exhausting natural resources^ in inducing losing speculative 
 ventures, and in thus wasting enterpreneurial and productive efforts 
 and capital. This is so because machine production, through its 
 cheapness, promises large returns, and consequently invites more pro- 
 motive and productive effort, induces greater investments, and con- 
 sumes more natural resources than are actually needed to satisfy the 
 needs of consuming society. Trusts' profits should be so fixed as to 
 eliminate or rather reduce superfluous enterprising. 
 
 The difference between the net income of a trust from sales at 
 reasonable prices and its reasonable profits should go to the Govern- 
 ment. It is the similar difference between profits promised by mar- 
 ket prices and reasonable profits in a certain line of business which 
 invites unnecessary competition, which really is the animus of com- 
 petition. This difference or margin is in the end almost invariably 
 wasted in the competitive struggle, and in the end much capital and 
 labor and resources are wasted within this process of producing 
 waste. This "competitive margin," which is the object of competi- 
 tive struggle, which makes for wasteful investments, and which in 
 the end is itself wasted, should — at least in the case of industries 
 controlled by combinations — be " cut out " or levied by the Govern- 
 ment by means of taxation, and should enrich the whole Nation. 
 
 In this manner, provided the Government has an adequate method 
 of taxation, the fixing of the prices and profits of trusts and combi- 
 nations would be effected indirectly, i. e., not directly through pre- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1Y7 
 
 scription, and the freedom of the business Avould not seriously be 
 interfered with. 
 
 The method of taxing trusts must be of such a nature as to an- 
 swer two demands— that of fixing reasonable sales prices and that 
 of fixing reasonable profits. By reasonable profits we mean profits, 
 on the one hand, not too low to constitute an adequate reward or 
 return for productive services rendered, for capital invested, and 
 for labor and material used, and, on the other hand, not too high— 
 not so high as to invite and promote unnecessary and wasteful and 
 speculative production. 
 
 Trust prices are to be controlled by a tax, respectively, by the 
 remission of a tax, and in some instances by a subvention, per unit of 
 product. 
 
 Trust profits should be controlled by a fixed tax, respectively, by 
 a fixed subvention. In the levying of this fixed tax, respectively, 
 in the payment of this fixed subvention, the effect of the per unit tax, 
 respectively, of the per unit remission of a tax, and in some instances 
 of the subvention per unit of product, en the profits of a trust should 
 be taken into consideration. 
 
 TRUST PRICES AND PROFITS MAY BE REASONABLE. 
 
 The Government should follow the principle that reasonable 
 prices are to be maintained under all conditions. If reasonable 
 prices of sale are in a case higher than monopoly or quasi monopoly 
 prices charged by a combination, the Government should levy on 
 each unit of trust product a tax equal to the difference between the 
 trust price and the reasonable price. This per unit tax would, in 
 accordance with what is known in political economy as the law of 
 monopoly price, be added by the trust to the per unit sales price of 
 its product. Thus indirectly the tax would -fix the trust price for 
 the higher and lift it to the reasonable level. 
 
 Conversely, if the trust price exceeds the reasonable sales price of 
 a commodity in question, the trust price of the commodity should be 
 lowered to the reasonable level by a remission of taxes per unit of 
 product, this remission being made from the fixed tax paid by the 
 same trust, and in some instances where it is desirable to help an 
 enterprise which is a losing venture, and which therefore can not 
 pay a fixed tax by a per unit of product subvention. This per unit 
 remission, respectively, subvention, would amount to the difference 
 by which the trust price exceeds the reasonable sales price. The 
 amount remitted per unit would, in the nature of monopoly or 
 quasi monopoly prices, be deducted by the trust from its price. In 
 all of this discussion the power of a trust or combination to fix or 
 maintain prices is, of course, assumed. 
 
 The fixed taxes to be paid by atrust should be fixed in such a way 
 as to leave a reasonable profit or reward to the trust, a reward not 
 more than adequate to induce business enterprise to produce the 
 needed quality and quantity of goods or services. All efforts of the 
 trusts aiming at a better quality of goods sold or of services rendered 
 should be encouraged^ and better quality should receive its adequate 
 reward. Under competitive conditions the attention of producers 
 is necessarily divided between real social service and wasteful com- 
 
178 HEARINGS BEFOEE 
 
 petitive struggle, and competition being often competition in_ price 
 rather than competition in quality, quality not seldom suffers in the 
 competitive struggle, is not seldom willfully deteriorated to make 
 possible cheap competitive prices. 
 
 The subventions to be paid to enterprises in case industries are to 
 be encouraged in spite of their current unprofitableness should be 
 so fixed as to be not more than ample to induce business enterprise 
 to produce the needed quality and quantity of goods or services.^ 
 
 Subventions should, or rather would, be repaid by the subventioned 
 enterprises when these come to make real profits. Subventioning 
 for the sake of affording protection should cease as soon as it is no 
 longer needed. 
 
 Principles of exact modern accounting and of financiering would 
 thus come to be applied to the giving of protection and help to indus- 
 trial enterprises which are in need of temporary support. From 
 this it would follow, first, that costly protective help would not be 
 tendered to industries unless there be a secured hope of the return of 
 the cost of protection through subvention into the Nation's Treasury, 
 excepting only those cases in which industries are to be encouraged 
 and developed at any price ; and, second, that protective help given 
 to business would partake less of the nature of national speculation 
 and more of the nature of national investment. 
 
 Protective schedules would never fix prices above the reasonable 
 level, but would in part function in maintaining prices on that level. 
 Tf an industry stands in need of more protection than is afforded by 
 such a " reasonable schedule," the surplus protection, if merited, 
 would be given in the form of a subvention, ordinarily as a loan. 
 
 Tariff schedules should be fixed, if foreign goods are to be ad- 
 mitted, in such a manner as to make for reasonable sales prices. The 
 margin between the sales prices due to the tariff and the monopoly 
 or quasi-monopoly prices that are asked by a trust, should be levied 
 per unit of product if the trust price is below the tariff price, and 
 should be remitted from the fixed tax if the trust price is above the 
 tariff price. 
 
 Such methods of taxation and tariff making would need to be based 
 on an accurate knowledge of the costs of production, both home and 
 abroad. On the basis of this knowledge the Government would be 
 helped in finding out whether or not it is desirable to encourage a 
 certain industry. Moreover, the Government would have pecuniary 
 motives for doing so, and would for this reason be very liable to en- 
 courage only those industries which it is desirable to encourage for 
 the best economic interests of the whole Nation. To illustrate : The 
 cost of production of steel rails is, including reasonable profits for 
 the makers, in this country, let us suppose, $18, and abroad, includ- 
 ing both profits and transportation charges, let us assume, $19 per 
 ton. The reasonable price to be paid by railroads for a ton of steel 
 rails is, we assume, $20. This price is being maintained by the Gov- 
 ernment by means of taxation, as described, the Government, in effect 
 (as a revenue from the system of taxation as a whole, and not simply 
 from a per ton tax), receiving $2 per ton of steel rails produced in 
 this country. The prices of imported rails are maintained by means 
 of a duty of, let us suppose, $1 per ton, the Government thus receiv- 
 ing, after each ton of steel rails imported, $1. There is, we assume, 
 
COMMITTEE ON INTEBSTATE COMMERCE. 179 
 
 competition going on between home and foreign producers of steel 
 rails. The Government has, however, a pecuniary motive for levying 
 a prohibitive duty upon foreign steel rails, because it is getting $1 
 more after each ton of steel rails produced at home than after each 
 imported ton. 
 
 There is a grave danger of a divorce taking place between politics 
 and the economic interests of the Nation. To avert the crisis such a 
 divorce would inevitably bring, it is necessary to cast the govern- 
 mental care and protection of business into the shape of a profitable 
 business proposition for the whole Nation, with terms as specific, 
 definite, and secure as the case admits. Help and protection given to 
 business should have the character of a loan, not that of a present; 
 the character of a careful investment, not that of a reckless specula- 
 tion. Modern business should be made more of a worker for na- 
 tional prosperity and less of a drone. 
 
 If business shall ever come to be effectively regulated, it shall be 
 regulated by means of its motives, and the motives of business are 
 profits. The plans outlined above, affect these pecuniary motives of 
 business men, and for that reason promise success. They stand for 
 an indirect control of prices and profits and for such investigations of 
 business enterprises as are needed for making this control effective. 
 They do not stand for a policy of pet interference. 
 
 To carry out this policy of business regulation, and to carry out 
 the comprehensive economic policy of which the regulation of trusts 
 forms but a part, the Nation needs a department of economic policy, 
 to be created anew or else to be evolved out of the present Depart- 
 ment of Commerce and Labor or out of several existing and future 
 Government boards. (Tariff Board, Interstate Commerce Commis- 
 sion, Commerce Court, Bureau of Corporations, etc.) This, the 
 greatest economic nation the world has ever seen, should have a well- 
 defined economic policy elaborated, applied, and enforced by the best 
 minds in the field of economic policy. It should not go about at ran- 
 dom in matters of economic legislation. 
 
 Only experts and scientists of political economy and of the related 
 sciences are competent to evolve and to handle the tools supplied by 
 economic principles and to apply these tools in the interpretation 
 and solution of the great number of closely related, vastly complex, 
 and hourly changing problems presented by the economic life of this 
 Nation. This body of men, or rather aggregation of commissions and 
 boards and their assistants, to whom the economic guidance of this 
 Nation is to be intrusted ought to have the standing of a department. 
 This partly for the effect of impressing the popular mind with the 
 fact of the scientific guidance of the economic life of this Nation, and 
 partly because this body of experts will often be called upon to deal 
 with international situations. A mutual understanding by the 
 world's nations of each other's economic needs and possibilities can 
 only conduce to the welfare of each and all of them and to inter- 
 national peace. 
 
 I am advocating — ■ 
 
 First. Amending the Sherman Act in such a way as to bring all 
 corporations operating in violation of it under Federal control. 
 These corporations may, in the beginning, be given the opportunity 
 of choosing between dissolution and Federal control, provided such 
 an option is deemed desirable. 
 
180 HEAEINGS BEFOEE 
 
 Second. Coordinating the Tariff Board, the Bureau of Corpora- 
 tions, the Commerce Court, and the Interstate Commerce Commis- 
 sion, as well as other present and future commissions and boards 
 (Bureau of Mines) ; thus forming a department of economic policy 
 with a head in the Cabinet. This department would function not 
 only in elaborating and recommending economic legislation, but also 
 in enforcing it. 
 
 Third. Enacting a Federal incorporation law, providing for a 
 system of taxation as outlined, on the basis of the recommendations 
 of the department of economic policy. Until this act is put in 
 operation corporations violating the Sherman Act may be given a 
 temporary Federal license for doing interstate business. 
 
 Fourth. Enacting a law against unfair competition. Unless, how- 
 ever, this law be substantiated by a system of corporate taxation, as 
 outlined, it will be of comparatively little avail, it will amount to 
 mere treating of symptoms. 
 
 Fifth. Bringing industries standing near to natural resources, i. e., 
 basic industries, under such a measure of Federal control as is needed 
 to induce or to compel them to effect the saving of wastes. 
 
 I have been dwelling mostly upon the method of business regu- 
 lation. I propose to dwell on another occasion on the spirit in which 
 legislation to this end should be enacted. For unless there be some 
 ideal to inspire the Nation in undertaking to regulate business this 
 task will be looked upon as a drudgery, and will at best be accom- 
 plished in a procrastinating, wishy-washy, nolens volens attitude. 
 The success of efforts aiming at the regulation of business will to 
 not a small extent depend upon the spirit which is to animate them, 
 upon the meaning which is to be put into them. 
 
 The regulation of business should be motivated by the spirit of 
 social betterment and advancement. If the Government is saving 
 wastes it is an agent of production; if it develops withdrawn natural 
 resources it is an agent of production. The people should be made 
 to taste the fruits of governmental work. For this reason the in- 
 come from the system of taxation, which I have roughly outlined and 
 advocated, should be consecrated to social welfare. 
 
 I therefore propose to dwell another time on the ethical and philo- 
 sophical background of this whole controversy. The ethical and 
 philosophical Aspects of the problem before yon are of equal, perhaps 
 of even superior, importance to any and all questions concerning the 
 mechanism and method of trust legislation and of economic legisla- 
 tion in general. 
 
 The extortion of high prices through monopoly and the extortion 
 of low prices through invited and enforced competition are alike 
 topics that wait for ethical discussion. Similarily the survival of the 
 fittest in industry is a doctrine which calls for philosophical discus- 
 sion. Besides the survival of the fittest I shall also dwell on the sur- 
 vival of the most wretched and miserable in business and on the 
 responsibility of society for it. 
 
 The Chairman. The committee will stand adjourned until 10.30 
 to-morrow morning. 
 
 (The committee thereupon, at 4.30 o'clock, adjourned until to- 
 morrow, Saturday, November 18, 1911, at 10.30 a. m.) 
 
COMMITTEE ON INTERSTATE COMMEECE. 181 
 
 SATURDAY, NOVEMBER 18, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. G. 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
 STATEMENT OF SAMUEL UNTERMYER, LAWYER, NEW YORK 
 
 CITY. 
 
 The Chairman. You may state your name, residence, and occupa- 
 tion. 
 
 Mr. Untermyer. My name is Samuel Untermyer ; I reside in New 
 York City ; and am a lawyer by profession. 
 
 The Chairman. Following the suggestion of Senator Townsend, 
 you may state whether you appear here in behalf of anyone, or simply 
 upon your own motion. 
 
 Mr. Untermyer. Neither. I appear on the invitation of the com- 
 mittee at the request of the chairman. 
 
 The Chairman. Simpty in your capacity as a citizen. 
 
 Mr. Untermyer. Simply as a citizen. I suppose that was the 
 capacity in which I was invited to come. 
 
 The Chairman. You may proceed now and make such statements 
 as 3 r ou may see fit. 
 
 Mr. Untermyer. Well, that is rather a broad question, is it not? 
 Is there any special branch of the subject to which the committee 
 directs its investigation ? 
 
 The Chairman. The resolution reads as follows : 
 
 Resolved, That the Committee on Interstate Commerce is hereby authorized 
 and directed, by subcommittee or otherwise, to inquire into and report to the 
 Senate at the earliest date practicable what changes are necessary or desirable 
 in the laws of the United States relating to the creation and control of corpora- 
 tions engaged in interstate commerce, and what changes are necessary or de- 
 sirable in the laws of the United States relating to persons or firms engaged in 
 interstate commerce, and for this purpose they are authorized to sit during the 
 sessions or recesses of Congress, at such times and places as they may deem 
 desirable or practicable; to send for persons and papers, to administer oaths, to 
 summon and compel the attendance of witnesses, to conduct hearings and have 
 reports of same printed for use, and to employ such clerks, stenographers, and 
 other assistants as shall be necessary, and any expense in connection with such 
 inquiry shall be paid out of the contingent fund of the Senate upon vouchers to 
 be approved by the chairman of the committee. 
 
 The committee has adopted a rule under which gentlemen who 
 appear before it can go on and make their statements without inter- 
 ruption, and after that is done then the committee in turn make such 
 interrogations as they may see fit. 
 
 Mr. Untermyer. My experience with the operation of the Sher- 
 man law satisfies me that supplementary legislation for its enforce- 
 ment is necessary, and that view is very much confirmed by the recent 
 pitiful and humiliating fiasco in the tobacco case. I do not believe 
 in attempting to modify or repeal the Sherman law, except by sup- 
 plemental legislation to the extent that I will indicate. I think it 
 
182 
 
 HEABINGS BEFOKE 
 
 is a wholesome law, and that its operation should be strengthened. 
 I do not think, though, that the courts are adapted to the enforce- 
 ment of these judgments of disintegration. They have not any of 
 the machinery necessary for that purpose, and it will be, to my mind, 
 essential that some body be created, whether it be a body similar in 
 its powers to that of the Interstate Commerce Commission over 
 railroads as affecting industrial corporations, or whether it shall take 
 some other form, is immaterial, but there must be some body that 
 can not only inquire into the conditions more fully than the courts 
 could, and that can supervise the corporation that is decreed to be 
 an outlaw, but can fix upon the manner of enforcing a sensible and 
 actual disintegration, and by following it and seeing that it is car- 
 ried out somewhat as the Interstate Commerce Commission follows 
 its orders and looks to their enforcement. It is not very important 
 whether there be, in conjunction with this supplementary legislation, 
 a Federal incorporation law or Federal license, provided the license 
 is surrounded by the proper safeguards. It seems to me the distinc- 
 tion that is sought to be made is not fundamental but rather fanciful. 
 
 I can understand the hesitation of the States in wishing to forego 
 their rights to grant charters, especially those States that have been 
 the harboring places of the granting of illicit charters and that have 
 traded and trafficked in charters that allow laxity of administration. 
 My own opinion is that unless you get a Federal incorporation law as 
 applied to corporations engaged m interstate commerce you will 
 never get a decent corporation system in this country anyway. The 
 States, so long as you continue to let them grant charters to corpora- 
 tions for the purpose of getting franchise fees and organization fees 
 and patronage incident to an organization in which they have abso- 
 lutely no concern, and which never enters their borders except for the 
 purpose of getting rights and immunities to which they are not en- 
 titled — as long as you allow them to exercise these illegitimate privi- 
 leges over interstate trade because you are afraid to interfere with the 
 sacred doctrine of State rights — I do not think you will ever get 
 decent workable laws, such as England, Germany, and France enjoy, 
 and which provide for the protection of the investors, while our 
 corporation laws do nothing to secure investors. 
 
 My general thought on the subject was that as supplementing the 
 Sherman law, and perhaps as modifying it, if you choose to say so — 
 if you are going to break up these combinations of capital, you can 
 not restore unrestricted competition and you must have legislation 
 regulating competition. I think that unrestricted competition is a 
 figment of the imagination in these days. There must be some point 
 at which cooperation can be permitted under rigid Federal supervi- 
 sion. That point should be reached when the people in the industry, 
 each conducting his own business, want to enter into an agreement 
 among themselves, fixing the maximum price on their product and 
 regulating their output so that there will not be a surplus, or unnec- 
 essary surplus, I think they should be permitted to do so openly under 
 legal regulations and restrictions, instead of doing it secretly, as they 
 do now. 
 
 The country is honeycombed with these secret agreements and un- 
 derstandings, and the stronger they are the less writings they need, 
 and the more understandings they have. You can not stop people 
 from protecting themselves when they reach the point of ruin. You 
 
COMMITTEE OS INTERSTATE COMMERCE. 183 
 
 can not make a statute, in my judgment, that is going to compel 
 people to ruin themselves. When you get to that point you have no 
 alternative except to choose between proper regulation and secret de- 
 fiance of law. 
 
 My thought was, and I have held it for some years and have been 
 urging it for some years, that this commission that might be consti- 
 tuted to look after the disintegration of corporations that have been 
 declared illegal under the Sherman law, should have the power to pass 
 upon trade agreements of this character, and if they found that the 
 industry was unprofitable, and that the price proposed to be charged 
 by the agreements did not allow of an unreasonable profit, and did 
 not unduly restrict production, that they should permit those agree- 
 ments for limited terms — say for a term of three years, subject to 
 revocation of the licenses, and subject to an opportunity under the 
 agreement, if any oppressive methods were found to exist, or upon 
 any change in conditions, the commission might have the right to 
 regulate or modify its order. But there has got to be some point at 
 which this present situation can be corrected because you have these 
 understandings I should say in almost one-half of the big industries 
 of the country to-day, and this abortive attempt at the enforcement of 
 the Sherman law against trusts is not hitting at that evil at all. It 
 is hitting at one evil, and that is the big dominating corporations 
 which have great power, but it is not hitting at these trade agree- 
 ments, because it can not reach them. We all know they exist. 
 
 The administration knows that they exist as you do. We know 
 that the main purpose of the Railroad Traffic Associations is — I will 
 not say the only purpose, but certainly one of the main purposes — is 
 to agree on rates, as the six great traffic associations do when they 
 have their meetings. They have an understanding about rates. That 
 was proven here a few months ago when the administration wanted 
 to stop this advance of rates which was agreed upon at one of those 
 meetings. They did not have any trouble in making the proof that 
 would have been sufficient for a criminal conviction when they ap- 
 plied for that injunction and got it. I do not think anybody claims 
 that it was a case in which there ought to have been a criminal 
 prosecution — certainly I do not, because I do not believe in this spas- 
 modic enforcement of the law against one man picked out here and 
 one picked out there when the whole country almost are violators of 
 the law, and are forced to be violators because of an unreasonable and 
 impossible law. Bequiring the enforcement of unrestricted compe- 
 tition calls ttpon people either to make criminals of themselves or to 
 ruin themselves in obeying the law. 
 
 Even if the people would obey a law that required them to com- 
 pete to the point of ruin, it does not seem to me to be a good economic 
 policy. Overcompetition is always followed by underccmpetition. 
 The big strong fellows, after wiping out the weak ones in this game 
 of ruinous competition, turn around and " take all the traffic will 
 bear." They get back the losses thus suffered in some way or other. 
 That is the way the thing balances itself. It balances itself against 
 the weak in favor of the strong. I think that the logical outcome of 
 unrestricted competition is legalized monopoly. I think it is the 
 strongest element tending in the direction of socialism to-day, and 
 that the enforcement of any such fantastic ideas is going back to the 
 
184 HEAK1NGS BEFOBE 
 
 Middle Ages, when the conditions were so different that they could 
 not be compared with existing conditions. 
 
 I say it is a false economic policy to require it. For instance, you 
 take the copper industry, as a fair example. In our copper mines 
 we have about finished the stage of exploitation. I do not think there 
 is any room for more exploitation in the copper mines in our coun- 
 try. V\ T e have scraped the earth pretty well dry in America; It 
 takes many years to develop a copper mine, and vast amounts of 
 money. The average life of our copper mines to-day is said to be 
 about o.j years — I think it is a little less. There is an overproduc- 
 tion. We supply about four-fifths of the world's production. We 
 export the bulk of our copper. Say there is an overproduction of 
 about 10 or 15 per cent in copper. That 10 or 15 per cent surplus 
 drags down the price of copper so that the producer gets very little 
 profit. We are exhausting the natural resources of the country, tak- 
 ing our wealth out of the earth and sending it abroad and getting 
 nothing by way of return. 
 
 That does not look like good business. If these copper mines 
 were permitted to enter into an agreement subject to Federal control, 
 in which the commission could determine what the average cost of 
 producing copper was, add a fair profit, and permit of the elimina- 
 tion of this 10 per cent of surplus, you might get a little more for 
 your copper; no more than the commission would say would be a 
 reasonable profit, but still some sort of profit. 
 
 It would not be as it is now, where if by reason of overproduction 
 the mine owner has to take a small profit or no profit one year and the 
 next year there is a deficiency or underproduction the owner jumps 
 the price of copper, and the manufacturer who has his stock of copper 
 in hand is bound to lose unless he allows for these fluctuations in the 
 cost of the goods he makes in which copper forms a part. As a 
 result of this system there is no stability in the markets. It reduces 
 almost every business to a gamble. An agreement permitted among 
 the copper miners (I use them by way of illustration only, because 
 the subject is one with which I have more familiarity than with 
 some other industries) would be a good thing for the country and for 
 all kinds of business. The commission might even allow the miners 
 to sell their copper a little higher abroad than at home, and thus give 
 your home manufacturers some advantage in the markets of the 
 world in the exports of manufactures of which copper forms a part. 
 That is what the other governments are doing when they impose ex- 
 port duties. 
 
 Now take other industries. Is it any advantage that barley should 
 be 60 cents a bushel last year and $1.25 or $1.30 this year," or that 
 one year the farmers should have to burn their corn because they can 
 not sell it, there is so much of it, and the next year they have none 
 to sell, or that the cotton grower should get 9 cents this year and 
 15 cents last year for his cotton? The business of manufacturing 
 cotton goods (and the same rule is applicable to other industries) 
 is nothing but a gamble to-day by reason of that situation. The 
 cotton manufacturer must sell his goods at certain seasons of the 
 year. He must base his selling price on the price of the cotton that 
 constitutes the chief factor. In practice the merchant sells before 
 he can know definitely what will be the market for the raw material. 
 If his goods, on the other hand, are not sold, but are in stock, he never 
 
COMMITTEE ON INTERSTATE COMMERCE. 185 
 
 knows from month to month what is their value or whether he is 
 solvent. 
 
 On M'hat basis is he going to sell them? He does not know. He 
 takes a chance — that is all. He takes a flyer at it. And so with every 
 business. Every business is made a gamble by this want of stability 
 in prices. Suppose the cotton growers were permitted, under Fed- 
 eral regulation, to carry over, by arrangement between them, the sur- 
 plus crop from one year to the next and allowed a reasonable profit 
 on their cotton at a stable price. They ought to be allowed to take 
 advantage of such an agreement. They can not be allowed to get 15 
 cents one year and be compelled to take 8 cents the next year. It 
 would not be necessary, but the commission might permit the carry- 
 ing over of the surplus of one year to meet the deficiency of another, 
 under proper restrictions. 
 
 The same thing runs through nearly every industry. We have a 
 great deal to learn from the experience of foreign countries. With 
 all due respect to our President, I think we are children in the 
 science of government. 
 
 I have seen something of the operation of the German cartels. I 
 have been brought into professional relations with one aspect of that 
 situation, and it is far ahead of our chaotic haphazard system. I 
 suppose if you had a Federal license law instead of a Federal incorpo- 
 ration law in order to minimize the opposition of the States you 
 would have to require that every corporation applying for a license 
 to do interstate business should have a charter, from which there 
 would have to be eliminated certain of the present improper pro- 
 visions. 
 
 Probably you would make provisions just as though you were 
 going to prepare a charter for Federal incorporations; that is, the 
 conditions would be the same, probably, and you would eliminate 
 those abuses that have grown up through the States competing 
 against one another for the privilege of giving these sweeping and 
 unrestricted and improper charter powers. I suppose you would 
 eliminate the holding company — I mean by that the company that 
 does not hold all the stock of another company; I do not mean that 
 you would eliminate the right of one company to acquire another 
 property in the same line of business if it did not amount to a 
 monopoly and was otherwise unobjectionable. You would, I hope, 
 also correct the disgraceful impositions upon minority stockholders 
 that have come from the holding company. I suppose you would 
 also eliminate many of the other illicit immunities that the States 
 are giving them now. If one State grants these privileges the other 
 States have to follow or lose the business. Immunities from stock 
 liability ; the right to issue watered capital to an unlimited degree — 
 laws that are so framed that the stockholders have lost their remedy 
 before they knew they had it. I know of a half dozen instances m 
 which laws have been' passed in the different States just for the pur- 
 pose of taking away rights of action based on corporate mismanage- 
 ment and dishonesty, and have had the effect of taking away meri- 
 torious rights of action. If one State gives them such a license, the 
 other State lose the business if it does not follow. They have been 
 forced to follow the lead in order to keep the business of the corpo- 
 ration to which they were fairly and justly entitled. 
 
186 HEARINGS BEFORE 
 
 I do not know that there is very much else in a general way that 
 I can say unless you gentlemen care to ask some questions, which I 
 shall be glad to answer. 
 
 The Chairman. Senator Cummins, you may inquire. 
 
 Senator Cummins. Mr. Untermyer, you are a member of a commit- 
 tee appointed by the National Civic Federation to consider this 
 subject? 
 
 Mr. Untermyer. Yes, sir; in the form of a subcommittee. 
 
 Senator Cummins. You recently made a report to either the full 
 committee or the federation, did you not? 
 
 Mr. Untermyer. I made a tentative report to the subcommittee 
 that was rather informal. It has not yet been adopted by the com- 
 mittee or by the federation. It is under discussion now. 
 
 Senator Cummins. I have seen what purported to be the substance 
 of the report published in some of the newspapers. It purports to 
 cover some of the most important and vital things before us, and if 
 you had a copy of that report so that it could go into our record pre- 
 cisely as you made it, I would be very glad if you furnished it. 
 
 Mr. Untermyer. The federation has the report, and has had it 
 printed. I would be very glad to furnish it, although I ought to say 
 that it was hurriedly prepared, for a meeting that was called on a 
 day's notice, and I am amplifying it in an address that I am going to 
 deliver on Wednesday evening before the Economic Club, which will 
 probably more fully express my views. I will send you both, if you 
 like. 
 
 Senator Cummins. I would be very glad if the record could contain 
 (he report already made, because I thought it was rather complete 
 and comprehensive. 
 
 Mr. Untermyer. I will furnish it for the record. 
 
 (The paper referred to appears in a later part of to-day's record.) 
 
 Senator Cummins. I assume that the system of government which 
 you suggest would be as wise in the States, so far as that part of the 
 subject over which the States have control is concerned, as it would be 
 in the Federal affairs, would it not ? 
 
 Mr. Untermyer. Yes; I see no reason why some such general sys- 
 tem should not be applicable to the States for strictly State industries. 
 
 Senator Cummins. And the only reason you have limited yourself 
 to interstate commerce in the remarks that you have made before us is 
 because our authority is limited to interstate commerce and commerce 
 with foreign nations? 
 
 Mr. Untermyer. Not entirely, because I had really not directed 
 my attention to the question of regulation of purely intrastate cor- 
 porations. I would rather think about that. 
 
 Senator Cummins. However, if the trade agreements of which you 
 have spoken are necessary to maintain stability in interstate business, 
 whil they might not be so necessary in intrastate business, they would 
 r-till be wise and effectual? 
 
 Mr. Untermyer. Not necessarily so, for this reason : All the other 
 States, all the surrounding States, are free to compete with an in- 
 dustry that is in the grip of a monopoly. In one State it can not be 
 because we have free trade among the States, and I do not think it 
 would be quite so necessary. If, for instance, the coal merchants of 
 New York City would get together and raise the price of coal, you 
 
COMMITTEE ON INTERSTATE COMMERCE. 187 
 
 can get all the coal you want from Jersey City or some other section, 
 while that is not applicable to an industry that is nation-wide. The 
 fact is that I have never really considered the intrastate aspect of the 
 question, and would not care to say very much about it just now. 
 
 Senator Cummins. The purpose of my inquiry was to ascertain 
 whether you believed our systems of government ought to take on 
 that view of things, namely, that competition has ceased to be either 
 a safe or efficient force to regulate prices, and that combination agree- 
 ments supervised by governmental authority should be substituted 
 for the competition. 
 
 Mr. Untermyer. Of course there is a limitation on that proposi- 
 tion, to my mind ; that is, I believe in the free play of competition up 
 to the point at which there is no profit left in the business. For 
 instance, I do not think the commission should allow those agree- 
 ments unless it can be satisfied that there is no profit in the business. 
 
 Senator Cummins. You mentioned, however, in your statement, 
 agreements that would fix the maximum price ? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Cummins. You meant, did you not, the minimum price? 
 
 Mr. Untermyer. No; there is certainly bound to be a maximum, 
 otherwise the public would be subject to the same sort of imposition 
 that exists to-day. I do not think the commission should ever ap- 
 prove any agreement that has not a maximum price in it. 
 
 Senator Cummins. If, however, an agreement simply fixes a maxi- 
 mum price, the ruinous effect of competition would still be found in 
 the business? 
 
 Mr. Untermyer. I mean to fix prices which should be a maximum. 
 
 Senator Cummins. Then, j£>u believe that corporations or indi- 
 viduals engaged in a common business should be permitted to make 
 agreements fixing a price that is both maximum and minimum? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Cummins. And that the power thus given them should be 
 one subject to the supervision or review of the Government? 
 
 Mr. Untermyer. Subject to approval in the first instance. 
 
 Senator Cummins. And it necessarily follows, I take it, that if the 
 Government finds the price fixed too high or too low it must have 
 the power to say what the price shall be? 
 
 Mr. Untermyer. Well, it would have the power to reject the agree- 
 ments and not permit the combination. 
 
 Senator Cummins. But indirectly, of course 
 
 Mr. Untermyer. That would be the result. 
 
 Senator.CuMMiNS. That is, the power to fix the price? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Cummins. Because agreements could be rejected until a 
 price was determined upon that would be satisfactory to the govern- 
 mental authority after that was organized. 
 
 Mr. Untermyer. Oh, yes ; that is the logical result of it. 
 
 Senator Cummins. That is, of course, the absolute exclusion of 
 competition from the business or from such business as would be 
 covered by this agreement, is it not ? 
 
 Mr. Untermyer. It is the exclusion of competition between the 
 people who choose to enter the agreement. Nobody is compelled to 
 enter the agreement. 
 
188 HEARINGS BEFOKE 
 
 Senator Cummins. As I say, so far as the business covered by the 
 agreement or agreements is concerned, it would be the annihilation 
 of competition ? 
 
 Mr. Untermyek. Yes, sir; in the result, of course, the amount 
 of profit which each man would get out of it would depend upon 
 the skill with which he conducted his own business. 
 
 Senator Cummins. Precisely. It does not entirely eliminate the 
 articles produced, but it does tend to eliminate competition :is far 
 as prices are concerned? 
 
 Mr. Unteemyer. Yes, sir. But only when the point has been 
 reached at which ruinous competition has set in. 
 
 Senator Cummins. Then you believe that is the form in which 
 our business should be carried on. I take it ? 
 
 Mr. Untermyek. I believed that that is the form in which the 
 Government will be forced to permit it to be carried on, rather than 
 to look on at the present secret evasions by which it is carried on 
 in that form, and the public has no protection at all. The suggestion 
 is to correct existing abuses from secret price agreements that levy 
 tribute on the public. 
 
 Senator Cummins. To adopt a system of that kind, or to enact 
 a law of that kind, is to substantially repeal the first section of the 
 antitrust law, is it not? 
 
 Mr. Unteemyeb. No, not as applied to consolidations and aggre- 
 gations of capital in a consolidation. 
 
 Senator Cummins. You started out with the statement that you 
 really thought that the antitrust law was a wise and beneficent and 
 helpful statute ? 
 
 Mr. Untebmyee. Yes, sir. 
 
 Senator Cummins. Now, the first section seems to prohibit and 
 make unlawful agreements and combinations in restraint of trade or 
 commerce ? 
 
 Mr. Untermyek. Yes, sir. 
 
 Senator Cummins. As now construed, unreasonable restraint of 
 trade or commerce; but if those agreements or those combinations 
 can fix, themselves, a price to fix and limit the production and dis- 
 tribution of their products, then I do not see how any chance is left 
 for the operation of the first section of that law. 
 
 Mr. Untermyee. May I explain what I have in mind? 
 
 Senator Cummins. I do see that you would transfer to a commis- 
 sion, or a body of men, the authority to say whether any such agree- 
 ment or combination is injurious to the public welfare, but what room 
 would there be left for the operation of the first section of the law 
 as it now is? 
 
 Mr. Untermyek. May I explain? 
 
 Senator Cummins. Yes; certainly. 
 
 Mr. Unteemyer. I think the Sherman law, as I have said, is a very 
 wholesome statute, and should be enforced up to the point to which 
 it can be enforced. For instance, I think that all the great aggrega- 
 tions of capital in the nature of monopolies that have been consoli- 
 dated under it that can be dissolved should be dissolved and that all 
 future aggregations of capital in the form of consolidations should 
 he prevented. We have certain vicious conditions inherent in many 
 of these consolidated companies that do not pertain to trade agree- 
 ments at all ; the former are accompanied by a mass of watered capi- 
 
UUIVOirriEE ON INTERSTATE COMMERCE. 189 
 
 tal. The temptation to earn dividends upon that capital by these 
 combinations being not temporarily together, as they would be in the 
 form of an agreement, but being permanently linked and tied together, 
 so that they are all one, and the temptation to oppress the .outsider 
 and the ability to do so are far greater than they would be with mere 
 trade agreements, where the parties who are together to-day may 
 resume competition to-morrow. Therefore, I think the Sherman law 
 ought to be rigidly enforced for the dissolution of those corpora- 
 tions — not for their mere formal dissolution and changing of form 
 and giving them a judicial license to go on and do the same thing, as 
 is the outcome of the present prosecutions, but that the execution of 
 the judgment should be put in the hands of a commission that would 
 know how and would see to their disintegration. 
 
 I do not believe that the operation of the Sherman law should be 
 interfered with in any way until an industry gets to the point of 
 where it is going to save itself from ruin anyway. If it is strong, if 
 they have one great trust or aggregation of capital and other smaller 
 ones behind it, and that one can dominate, no agreement would be 
 necessary; a mere nod would be sufficient to control these subsidiary 
 competitors. And if they are not so big they will have their under- 
 standings. 
 
 All I say is that the operation of the Sherman law should be supple- 
 mented by such permissive licenses when it reaches the point at which 
 competition is leading to ruin, because people will not ruin them- 
 selves; they ought not to be asked to, and it is not good policy that 
 they should be. 
 
 So, in answer to your question, I would say that my proposition 
 does not involve nullifying the first section of the Sherman law at all. 
 It involves supplementing it, f>v, if you please, modifying it so that 
 these aggregations of capital and consolidations shall be, as before, 
 prohibited; that they shall not be permitted to exist. But, on the 
 other hand, we should stop the operation of the law so far as affects 
 trade agreements fixing prices and agreements that are approved by 
 the commission where it can be established that the industry needs 
 protection and that no burdensome tribute is being levied upon the 
 people. In that way, and in that way only, will we be able to prevent 
 secret violations injurious to the public. 
 
 Senator Cummins. You must have observed that my question re- 
 lated to the first section of the Sherman law, which does not relate to 
 monopolies. 
 
 Mr. Untermyer. Yes. 
 
 'Senator Cummins. And may I ask you another question on that 
 line? You have mentioned the copper business and that you believed 
 that the various copper companies, or copper mines, ought to be per- 
 mitted to enter into an understanding or agreement with each other 
 with reference to the output of the mine and with reference to the 
 prices of copper. Now, that would be, as the law now is, in violation 
 of the first section of the statute, of course, would it not ? 
 
 Mr. Untermxer. Oh, yes ; that is in violation of the present law, 
 but I want to say that I referred to the copper business simply 
 as a random illustration, because I happen to know something 
 about it. 
 
 Senator Cummins. I understand. I do not know very much about 
 the copper business, and I took it up because you referred to it ; but I 
 
190 HEARINGS BEFOBE 
 
 wanted to get it clearly before the committee and the country that 
 what you favor is, if not a repeal of the first section of the antitrust 
 law, at least a very material modification of it. 
 
 Mr. Unteemyee. I do not believe in unrestricted competition be- 
 yond a certain point and I do not believe it could be enforced, any- 
 way; that is all. 
 
 Senator Cummins. Well, I do not think there is any such thing 
 as unrestricted competition, probably, but that is in the abstract 
 
 Mr. Unteemyee. Why not : Senator? 
 
 Senator Cummins. Because the Government is a restriction of 
 competition in its broad sense. You can not have any government 
 that is not a restriction. 
 
 Mr. Unteemyee. I am using the words in their ordinary sig- 
 nificance. 
 
 Senator Cummins. You do believe in competition, of course? 
 
 Mr. Unteemyee. Certainly. 
 
 Senator Cummins. Because we are all subjects of it. You occupy 
 the place that j^ou do in the community and in the profession by 
 virtue of the law of competition, I assume. So do all of us. 
 
 Mr. Unteemyee. Either that, or through good luck. 
 
 Senator Cummins. No; I assume that you are the product of 
 competition, as I think most men are. But what you would like is 
 such a modification of the law as to enable independent producers or 
 distributors, or merchants having no community of interest — that is, 
 neither having any interest in the profits of the other — entering into 
 some agreement under the supervision of the Government that would 
 prevent, or that would enable it to establish a common price in order 
 to prevent, that competition which is juinous. 
 
 Mr. Unteemyee. When they have reached the point at which it 
 is ruinous ; yes, sir. 
 
 Senator Cummins. Now I will take up the copper illustration 
 again. You know as much or more about it than I do, but I assume 
 there are some mines which can produce copper for very much less 
 than other mines, on account of the richness of the ore, or the special 
 location, or the advantageous location of the mine. 
 
 Mr. Unteemyee. That is undoubtedly so. 
 
 Senator Cummins. That is true ? 
 
 Mr. Unteemyee. There is a range of difference between the best 
 and the poorest of the operating mines of, say, 25 per cent in the cost 
 of production. 
 
 Senator Cummins. At the low price at which copper now is some 
 of the mines can produce it and sell it and make a profit ? 
 
 Mr. Unteemyee. Yes, sir ; a modest profit. 
 
 Senator Cummins. Now when these copper manufacturers would 
 come together, or copper producers came together, for the purpose 
 of fixing a price, in fairness and justice ought the price to be fixed 
 so that the mine that is not well situated, that has poor orts, can 
 run and make a profit, or ought it to be fixed at the price at which 
 the best situated mine can run and make a fair profit? I would 
 like your idea about what would be fair and just under such circum- 
 stances. 
 
 Mr. Untermyek. Of course it is a complex problem that would 
 have to be subject to some extent to the good judgment of the 
 
COMMITTEE ON INTERSTATE COMMERCE. 191 
 
 commission, just as the question of rates is to-day; just as many- 
 questions that come before the Interstate Commerce Commission 
 to-day. 
 
 I should say this: In the copper business the cost of production 
 in each mine is pretty well known. As I say, there is a difference 
 of 25 per cent, we will say, to-day between the production — the 
 lowest cost of production and the highest cost of production of 
 any mine that can operate to-day under existing conditions. 
 
 If for the purpose of the argument I were to arrogate to myself 
 the powers of a commission such as I suggest, and were sitting on 
 such a commission, I should probably say — if I did not revise my 
 judgment after thinking it over and knowing more about it — I 
 should probably say that a commission would be likely to fix a 
 price that would permit sufficient of these copper mines to produce 
 to meet the needs of the world, and they would not fix a price 
 that would permit a copper company to produce that had no right 
 to produce because it was producing at a loss to the whole community. 
 
 Senator Cummins. As a lawyer you recognize, of course, that in 
 giving authority to a commission of that sort we would be compelled 
 to give it a standard or a rule which it must apply. We could 
 not give such a commission simply general discretion, for, as is 
 well known, that would be the delegation of legislative authority 
 which is impossible under our form of government. Now, what 
 would be the standard or rule which you would suggest for the 
 government of a commission of that sort? 
 
 Mr. Untermyer. I do not quite follow you, Senator — that you 
 could not delegate to such a commission the power to determine 
 what was a reasonable profit in any industry ? 
 
 Senator Cummins. Well, I think you recognize that we can not 
 give to any commission of that sort a general authority to do what- 
 ever in its judgment may seem best. 
 
 Mr. Untermyer. No. 
 
 Senator Cummins. We can not do that. We have got to give it 
 rules upon which it will proceed. Now, we have given the Interstate 
 Commerce Commission rules by saying that the rates and charges 
 of a railway company, or a common carrier, must be fair and 
 reasonable. 
 
 Mr. Untermyee. I do not ask any such broad power for this com- 
 mission. 
 
 Senator Cummins. You say that we ought to give to any such com- 
 mission the same authority; that the commission must find that the 
 prices fixed bv the agreement are fair and reasonable prices. 
 
 Mr. Untermyer. That they allow only a reasonable profit, and 
 that they do not restrict the output below the requirements of the 
 consumer?. 
 
 Senator Cummins. That is, it ought to be in every instance? 
 
 Mr. Untermyer. Not in each instance. I am speaking of the gen- 
 eral power. 
 
 Senator Cummins. I mean that the commission in each instance, 
 in determining the validity of the agreement, shall consider the 
 profits which the various producers could make. 
 
 Mr. Untermyer. Yes, sir. 
 22877— vol 1—12 13 
 
192 
 
 HEARINGS BEFORE 
 
 Senator Cummins. Under the prices, and in fixing the output, 
 should consider the needs of the country or the world for that par- 
 ticular product ? 
 
 Mr. Untermyeb. Yes, sir. They do it successfully in other coun- 
 tries under that system. 
 
 Senator Cummins. I know. 
 
 Mr. Unteemyer. It is an administrative system. Do not pur 
 courts do it, Senator Cummins, when they are called on to say 
 
 Senator Cummins. I doubt whether it is done in any other country 
 in that way. I will come to that presently, the German system. 
 Do you believe that under our Constitution a statute which you have 
 j^ist suggested would be valid ? 
 
 Mr. Unteemyee. Yes, sir ; entirely so. I think it is less broad in 
 its discretionary powers than the powers given now to the Interstate 
 Commerce Commission. For instance, do not the courts do when they 
 are called on to declare whether rates are confiscatory — do they -not 
 determine how much profit a railroad company can make ? 
 
 Senator Cummins. The courts have unlimited power when the 
 question is a judicial one. 
 
 Mr. Unteemyee. Yes, sir ; I agree with you. 
 
 Senator Cummins. But when Congress comes to invest some com- 
 mission or board with authority, it can not part with its legislative 
 powers. 
 
 Mr. Unteemyer. I do not think we will differ on that question, 
 Senator. 
 
 Senator Cummins. What I was getting at was whether, in your 
 opinion, the standard that you have suggested would be clear and 
 definite enough to fulfill the demands of the law. 
 
 Mr. Unteemyee. Why not ? 
 
 Senator Cummins. Now, you have said you would say to the com- 
 mission that in passing upon those agreements it should provide a' 
 price that would be fairly profitable. 
 
 Mr. Unteemyer. That the commission be empowered to approve 
 such agreements as do not involve an unreasonable profit or a restric- 
 tion of the output beyond the needs of the community. What is there 
 about that that is any broader or as broad as the present powers of the 
 Interstate Commerce Commission? 
 
 Senator Cummins. It can not be tested by the word broad. At the 
 common law the carrier was permitted only to charge a fair and rea- 
 sonable sum. Now the judiciary had its own rules to determine what 
 was a fair and reasonable charge for services, but to give to a commis- 
 sion the authority to say that a price shall be approved if it returns a 
 fair profit on a private business, and that the agreement shall be 
 approved if it does not limit the production below the needs of the 
 world — that seems to me to give it no rule at all, because what is a 
 fair profit ? There is no such thing as fair profit in private business. 
 
 Mr. Untermyee. Is that not precisely what we are doing in the 
 Interstate Commerce Commission? 
 
 Senator Cummins. Precisely ; but there is a great difference, in so 
 far as the profitsare concerned, between a public or a quasi-public 
 business and a private business. 
 
 Mr. Unteemyee. Not in this particular point of view of the consti- 
 tutionality of such a law. 
 
 Senator Cummins. I should think so. 
 
COMMITTEE ON INTERSTATE COMMERCE. 193 
 
 Mr. Untermyer. From this angle of the question. Of course there 
 are other features from other points of view, but from this angle. 
 
 Senator Cummins. I see quite a difference from this angle, but 
 possibly there is not. You would apply the same rule to all inter- 
 state business, of course. 
 
 Mr. Untermyer. Certainly. 
 
 Senator Cummins. Take, for instance, the manufacture of paper. 
 We had a report here when we were considering the tariff duties 
 that indicated that there was a very wide difference in the cost of the 
 product in the various paper mills of the United States — I think it 
 amounted to something like $5 a ton, or more. 
 
 Mr. Untermyer. Do you mean the news paper or other class of 
 paper ? 
 
 Senator Cummins. Well, print paper. What would you do in such 
 a case as that ? 
 
 Mr. Untermyer. Well, I think that the commission should meas- 
 ure — of course that is looking pretty far into the future. 
 
 Senator Cummins. That would have to be one of the first things it 
 had to do. 
 
 Mr. Untermyer. Yes ; one of the first things the commission would 
 have to do. That would be a problem for the commission. 
 
 Senator Cummins. There is a trust, and there would be an agree- 
 ment, undoubtedly, between the various manufacturers, establishing 
 the price if the trust was dissolved 
 
 Mr. Untermyer. I should say they would take, to begin with, the 
 basis of the lowest cost of manufacture, and then they would allow 
 a reasonable profit, and I would say they would not try to hold up 
 the concerns that could not come within such a rule. I would not 
 think that they would endeavor to prop up impossible business propo- 
 sitions. It would not be in the nature of things that they would 
 do so. 
 
 Senator Cummins. Of course you realize that if you depart the 
 principle of competition in one business, you must depart from, it 
 under similar circumstances in every business. 
 
 Mr. Untermyer. Yes ; of course. 
 
 Senator Cummins. Now, suppose the union labor organizations 
 throughout the country were to enter into an agreement fixing the 
 price of labor; when that labor was employed in interstate business, 
 or the production of commodities for interstate business, this com- 
 mission would be called, upon then to determine whether such an 
 agreement fixing the price of labor would return a fair profit. What 
 rule would you give to the commission for its guidance in such a case 
 as that? 
 
 Mr. Untermyer. I have never considered the question as applied 
 to labor. I have never believed that the Sherman law was ever in- 
 tended to cover the case of labor organizations, and have never been 
 able to quite understand the distinctions of the court applying it to 
 labor organizations. I should not have any of these agreements 
 applicable to labor. I do not think that any of this legislation is 
 legitimately applicable to it. 
 
 Senator Cummins. Assuming that the law does not now apply to 
 labor organizations, although, as we know, it has been held that it 
 does 
 
 Mr. Untermyer. Yes. 
 
194 HEABIXGS BEFOEE 
 
 Senator Cummins. When we are introducing this new system that 
 eliminates all competition from industrial affairs, of course all people 
 who want to eliminate competition will have the same right as the 
 producer of paper or of coal or of iron and steel, for part of us have 
 to live under the competitive rule, or part of us are to be relieved 
 from the consequences of the competitive principle, yet all of us ought, 
 to be relieved of the substantially similar circumstances, and why 
 should not the Government, if we are to take production out of the 
 competitive principle, endeavor to fix indirectly the wages of all the 
 people who are employed in interstate business? 
 
 Mr. Untermyer. I do not think that any of these economic laws 
 should be made, or attempted to be made, applicable to labor. I do 
 not think any of the abuses which we are trying to correct are appli- 
 cable to labor. It has a hard fight as it is, it seems to me, against 
 capital. 
 
 Senator Cummins. My idea is that the laborer might be able in 
 that way to very much increase his wage. 
 
 Mr. Untermyer. I do not think that has been the experience. I 
 do not think that the law has ever done much to help the laborer. 
 
 Senator Cummins. It never has been attempted. 
 
 Mr. Untermyer. That is an aspect of the subject on which I am 
 really not prepared to speak, because I have never in anj^ of these 
 thoughts on this subject considered labor as involved in this discus- 
 sion, or as legitimate!}^ applicable to it. 
 
 Senator Cummins. One of the reasons that I look upon the anni- 
 hilation of competition with a good deal of concern is that eventually 
 we must eliminate it from all of our industrial life if we eliminate 
 it from any part of it. 
 
 Mr. Untermyer. But, Senator Cummins, this proposition — if you 
 will pardon my saying it — does not involve the annihilation of compe- 
 tition. I do not think you would find much sentiment in favor of 
 annihilation of competition. I think the annihilation of competition 
 is one thing and the prevention of ruinous competition — because 
 there will be no other way of regulating the thing — is quite another. 
 What I mean is, very few corporations in my opinion, very few in- 
 dustries — comparatively few — would come under that operation of 
 this law, but there are some that would. 
 
 Now, for instance, you spoke of the paper industry. I happen to 
 know something about it. You will remember that the smaller manu- 
 facturers of paper were indicted and were fined for the violation of 
 the antitrust law. A dozen of them had failed before they made 
 that temporary trade agreement; they made practically no money 
 under the trade agreement, but simply kept their heads above water, 
 and there were a number of the very big concerns that would have 
 annihilated them if these smaller men had not gotten together under 
 the cover of that unlawful trade agreement. There was nothing 
 oppressive in that to the public at all. They were trying to get to- 
 gether and compete with some of the big fellows. Now, that is the 
 kind of trade agreement I think the law ought not to pounce upon 
 and send the small competitors to jail while the big fellow is profit- 
 ing by their punishment. 
 
 Senator Cummins. I think the merits of any individual case 
 probably will not help us very much because we are really looking at 
 
COMMITTEE ON INTERSTATE COMMERCE. 195 
 
 the principle upon which to conduct our industrial life, or at least 
 to determine what part the Government shall play in it." 
 Mr. Unteemyer. But experience is quite a guide, is it not ? 
 Senator Cummins. The proposition is to eliminate competition in 
 certain cases, and of course if we eliminate it in interstate business — 
 that is, permit the unit of production or of distribution to agree with 
 each other on the price — we must of course permit all units engaged in 
 interstate commerce to likewise agree upon a price. I see no escape 
 from that. 
 
 Mr. Unteemyer. There is no question about that. I do not think 
 anybody takes issue with that proposition. 
 
 Senator Cummins. I agree with you that there can not be any such 
 thing as unrestricted competition. I agree with you that there ought 
 to be some prevention of the ruinous and destructive competition, but 
 I do not agree with you in respect to giving the Government the power 
 to fix prices, or approve agreements which fix prices. That is the only 
 issue. 
 
 Mr. Uhtermyer. May I say this, Senator? I can see no other way 
 of doing it. What is the alternative that you are faced with? Do 
 you imagine that when an industry has gotten to a point where they 
 are cutting one another's throats and losing money, that law or no 
 law they are not going to have an understanding? And when they 
 get the understanding if they are not restricted and subject to super- 
 vision, are they not going to peg up the prices to whatever they can 
 get and take advantage of the public ? It that not the alternative ? 
 
 Senator Cummins. It may be. 
 
 Mr. Unteemyer. That is what they are doing. 
 
 Senator Cummins. I will not go into that view of it at this time. 
 
 Mr. Unteemyee. I think our dangers are not there. There are 
 great dangers and evils in the trusts, but there are greater dangers in 
 these secret pools and understandings, because they are far more 
 numerous. The country is honeycombed with them. 
 
 Senator Cummins. We have not yet had before the committee the 
 definition of " trust," and I know of no man better qualified to define 
 it than yourself. Just what do you mean when you use the word 
 " trust " ? 
 
 Mr. Unteemyee. That is very tempting, but I do not think I will 
 accept the challenge. 
 
 Senator Cummins. You have something definite in your mmd when 
 you use the word " trust " ? 
 
 Mr. Unteemyer. Yes, sir. 
 
 Senator Cummins. We all have. We do not all have the same thing 
 in our minds. 
 
 Mr. Unteemyee. I should say, in a general way, that it is a combi- 
 nation in corporate form of a substantial part of an industry under 
 single ownership, either through a holding company or by direct 
 ownership. It does not necessarily involve a monopoly, but it in- 
 volves such a domination in the trade that :t virtually invites a 
 monopoly by secret understandings with outsider. 
 
 Senator Cummins. The trust is some sort of organization in the 
 trade that is large enough, by direct ownership or by controlling other 
 corporations, to dominate the trade and prevent real, honest, fair 
 competition. 
 
196 HEARINGS BEFOBE 
 
 Mr. Untermyer. Well, no; not to prevent competition, but to 
 threaten competition. The modern definition of what we call a trust 
 need not necessarily prevent open competition. It frequently does 
 not. It has the power to do so. Like the Steel Trust it has the 
 power and it may not do it. Everybody knows it can do it. Its com- 
 petitors know that they are pygmies and that they can be choked to 
 death at any moment, but it does not choke them. 
 
 Senator Cummins. I accept your correction. It is a question of 
 power rather than the exercise of a power. 
 
 Mr. Untermyer. The danger is in the power. 
 
 Senator Cummins. But my definition, with that modification, is a 
 pretty fair one, is it not? 
 
 Mr. Untermyer. I should say it was fairly accurate ; yes, sir. 
 
 Senator Cummins. Now, you believe that such organizations — I 
 care not whether they are in direct ownership or whether they are 
 owned by way of combinations — ought not to exist, do you not? 
 
 Mr. Untermyer. You mean trusts? 
 
 Senator Cummins. Yes. 
 
 Mr. Untermyer. Yes, sir; I think they could have been prevented, 
 and should have been prevented. 
 
 Senator Cummins. One way of preventing trusts is to limit the 
 capital which may be employed by any given corporation, is it not? 
 
 Mr. Untermyer. I do not like to come into conflict with your 
 views, Senator Cummins, but I do not think so. 
 
 Senator Cummins. Well, you do not see any objection to that 
 course? 
 
 Mr. Untermyer. The difficulty is this, that $5,000,000 of capital 
 might dominate one industry, and $50,000,000 would not begin to 
 have an effect on another. 
 
 Senator CummIns. You are quite right ; but you do not understand 
 my views. 
 
 Mr. Untermyer. I am sure I do not. 
 
 Senator Cummins. I would not have the court fix an arbitrary 
 limitation upon the capitalization of corporations that might be 
 employed in a given business. I would have this commission, which 
 might be created, examine the business, and either by way of condi- 
 tions imposed upon a State corporation or by way of provision in the 
 Federal incorporation law, fix the capital which might be safely 
 employed by one corporation in that particular business. 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Cummins. Of course, it would be much larger in the steel 
 business than in the peanut business. They might want a capital of 
 $200,000,000. 
 
 Mr. Untermyer. What would be the virtue of it, Senator ? 
 
 Senator Cummins. The virtue would be this — I will put it in the 
 form of a question. There is something like $3,000,000,000 of capital 
 now in what is known as the steel business. 
 
 Mr. Untermyer. That is, capitalization, as distinguished from 
 real capital? 
 
 Senator Cummins. I shall not enter into that. I agree with you 
 that much of itis watered, but there it is. Now if we had such a 
 commission originally, and no corporation had been permitted to go 
 into that business with a capital of, we will say, more than $200,- 
 000,000, we would then have several corporations of substantiallv the 
 
COMMITTEE OX INTERSTATE COMMERCE. 197 
 
 same size able to compete with each other upon even terms, independ- 
 ent of each other. Then it is possible, between such corporations to 
 have real rivalry, restricted, I am quite willing to say, to such regu- 
 lations as would prevent the ruinous destruction of the business. 
 
 Mr. Unteemyer. Of course there is a virtue in that, in that it 
 would put an end to the vice of stock watering and would do a great 
 deal to do away with the incentive for the organization of these cor- 
 porations when that incentive is to throw the securities on the market 
 and land the investor with them. It would accomplish that purpose. 
 Take the case of the Steel Co. Instead of $1,100,000,000 of capital, 
 say that the limitation in the steel business had been $200,000,000. 
 They might just as well have made their capital $200,000,000 ana 
 their stock sell at five times as much. 
 
 Senator Cummins. No; that would b? impossible. I spoke not of 
 capital stock, but of capital. I mean they could not employ more 
 than $200,000,000 in the business in which they were engaged? 
 
 Mr. Unteemyer. My idea is that all big combinations and con- 
 solidations should be prohibited, and that when you allow inde- 
 pendent industries to enter into these agreements you give them all 
 the relief that they are really entitled to. 
 
 Senator Cummins. But suppose your plan had been enforced in 
 1901 when the United States Steel Corporation was organized. It 
 might have organized for a billion and a half of dollars. 
 
 Mr. Unteemyer. No; I beg your pardon; because if the Govern- 
 ment had been alert at that time it could have enjoined that company. 
 It could never have organized at all. It is simply becaiuj the 
 Government was supine and did not choose to do so that the Steel 
 Co. ever came into existence. Its corporate plan and activities 
 were advertised broadcast all over the country. The basis on which 
 it was. to be organized and to acquire these constituent companies 
 was known and advertised. The different constituent monopolies, 
 like the tin plate, national tube, and steel and iron companies and 
 others — the basis on which their securities were to be taken into the 
 new company were fixed by advertising. People were asked to come 
 in and exchange the old securities for the new ones on a given basis. 
 It was the most flagrant violation of the law ever known, and its 
 details were published at advertising rates for months, to the knowl- 
 edge of the Government. That is one reason why it is wrong to assail 
 the company and innocent security holders at this time for acts that 
 were acquiesced in by the Government. 
 
 Senator Cummins. I am not speaking about the inflation of their 
 stock, but under your system what would prevent a company being 
 organized, with a billion and a half of capital, which was honestly 
 paid up, which would purchase or create for its plans the property 
 of that value ? 
 
 Mr. Unteemyer. If they should attempt to purchase existing 
 plants, the application of the Sherman law would stop it by injunc- 
 tion or by the other remedies prescribed by the statute. 
 
 Senator Cummins. In what respect — what part of the Sherman 
 law? 
 
 Mr. Unteemyer. If they should do what the Steel Co. did, we 
 will say 
 
 Senator Cummins. I am not speaking about that. 
 
198 HEARINGS BEFORE 
 
 Mr. Untermyer. You see if they should purchase the plants — I 
 mean if the Steel Co. did — it acquired those different companies and 
 those different plants. Now the application of this law would stop 
 it ; the Sherman law would stop it. 
 
 Senator Cummins. Suppose that to-day under the laws of New 
 York or of New Jersey, a corporation would organize to go into the 
 steel business with a capital of a billion and a half, and put up the 
 money, do you mean to say that the Sherman law would prevent that 
 company from going out and building furnaces and rolling mills ? 
 
 Mr. Untermyer. Not from building new plants, but from acquir- 
 ing and combining existing ones, and thus removing competition. 
 The distinction is fundamental. One process stimulates competition, 
 the other restricts it. 
 
 Senator Cummins. And buying iron mills? 
 
 Mr. Untermyer. No. We ought not to prevent them from build- 
 ing new works to any extent. I would not favor preventing them. 
 That does not restrict competition. 
 
 Senator Cummins. Of course, that is the real issue between you 
 and me. I would say that one company should not employ more 
 than $200,000,000 in any such business. 
 
 Mr. Untermyer. But suppose that the men who had that billion 
 and a half saw that law on the books, and they said : " Very well, we 
 will build factories, and we will have five companies of $200,000,000 
 each instead of one company of a billion dollars, all owned by the 
 same people. 
 
 Senator Cummins. That is not difficult to reach there. However, 
 we will not pursue that further. You spoke a few moments ago 
 about the fact that we did not quite measure up to the wisdom of 
 Germany in respect to these subjects. I am not disparaging that 
 remark, but I want to ask you a little about that subject. Germany 
 has no laws attempting to regulate such combinations, has it? 
 
 Mr. Untermyer. It passes special laws. 
 
 Senator Cummins. I do not know of any law. and I have ex- 
 amined the subject a little, in Germany, with respect to this subject, 
 except the paragraph, of course, which prohibits anything that is 
 contrary to public welfare, and the courts of Germany have held that 
 these agreements are valid. 
 
 Mr. Untermyer. Senator, I can furnish you a copy of the potash 
 law, which is a special act of the Reichstag in Germany, because I 
 was professionally connected with one phase of the recent contro- 
 versy. 
 
 Senator Cummins. I wish you would. 
 
 Mr. Untermyer. I have it in my office and will be glad to furnish 
 it to you. Tt is a very comprehensive and intelligent law. 
 
 Senator Cummins. But most of the cartels of Germany are simply 
 made under what may be called the common law of Germany? 
 
 Mr. Untermyer. Most of them are under judicial construction, 
 but they are modeled after these potash laws pretty much. 
 
 Senator Cummins. But the potash law is of recent origin, is it not? 
 
 Mr. Untermyer. 1905. No; I think it is 1909. 
 
 Senator Cummins. And the difference between the laws of Ger- 
 many and Austria and France 
 
 Mr. Untermyer. And England. 
 
COMMITTEE OX INTERSTATE COMMERCE. 199 
 
 Senator Cummins. On those subjects are largely — the difference is 
 brought about largely by judicial interpretation, is it not? 
 
 Mr. Untermter. In some cases by administrative acts. You sea 
 some of them, in France, for instance, are largely regulated by admin- 
 istrative acts and not by judicial decrees at all. That is, their indus- 
 trial system is modeled on an administrative as distinguished from 
 the judicial form. 
 
 Senator Cummins. But generally speaking, in Austria and France 
 and Germany the agreements looking to the production and appor- 
 tionment and the fixing of prices and so on are declared by the courts 
 not to be invalid or not to be unlawful. There is no statute which 
 makes any of those things a crime in either of those countries ? 
 
 Mr. Untermter. Except when the company has offended by unfair 
 dealing. In Germany there is a minister of industries who has cer- 
 tain functions that we would call quasi judicial, and he passes on 
 those things. And it is in a sense a sort of judicial proceedings, you 
 may say, although they are not governed by any special statutes, 
 except the potash statute. Apart from that I know of no special 
 statute. I think you will be interested in this bill. 
 Senator Cummins. I would like to see it. 
 Mr. Untermter. I have it translated so that you can use it. 
 Senator Pomerene. I suggest that it be put in the record when it 
 comes. 
 
 The Chairman. Yes. 
 
 Mr. Untermter. It fixes the price and the quality of the product, 
 and it works automatically. It provides for changing it under 
 changing conditions. It limits the production. 
 
 Senator Cummins. Expressing my appreciation of the manner in 
 which you have answered my questions, I have nothing more. 
 The Chairman. Senator Newlands, you may proceed. 
 Senator Newlands. Mr. Untermyer. you have referred to a plan, a 
 tentative plan, which has been drawn up for a committee of the civic 
 federation by yourself. How recently was that plan drawn up % 
 
 Mr. Untermter. I should say within a month. _ I would like to say 
 that it has not the official approval of the federation. 
 Senator Newlands. I understand. 
 
 Mr. Untermter. It is being considered now in committee. 
 Senator Newlands. I introduced on the 5th of July last, at the ex- 
 tra session, a bill for the organization of an interstate-trade commis- 
 sion upon lines similar to those which you suggest, but not containing 
 the power which you suggest of supervising and regulating trade 
 agreements, and as I would be very much interested in what you 
 have to say uppn this subject I would like to go briefly over the pro- 
 visions of that bill with you. 
 
 Mr. Untermter. I would like to, very much. I have seen the 
 outline of it, but have never seen the bill itself. 
 
 Senator Newlands. The second section of this bill 
 
 Senator Brandegee. On what page is that printed ? 
 Senator Newlands. On the first page of the hearing. The second 
 section of this bill provides that the Bureau of Corporations shall be 
 separate from the Department of Commerce and Labor, and shall 
 thereafter be known as the interstate-trade commission, and that the 
 interstate-trade commission shall consist of five members, of whom 
 
200 HEARINGS BEFORE 
 
 the present chief of the Bureau of Corporations shall be one, and the 
 secretary and assistant commissioner shall be the secretary of this 
 board; thus merging the Bureau of Corporations with all its offi- 
 cials, records, and powers in the interstate-trade commission. What 
 would you think of that provision ? 
 
 Mr. Untermyer. Of course, I think very wisely of it. I had not 
 known of it, Senator Newlands, when I made the suggestion in my 
 plan, that the Bureau of Corporations should be merged in a new com- 
 mission. 
 
 Senator Newlands. Your plan embraces that suggestion ? 
 
 Mr. Untermyer. Yes, .sir. 
 
 Senator Newlands. You have not referred to it this morning. 
 
 Mr. Untermyer. There are a number of features of the plan that 
 I had not in mind at the moment in the course of my testimony here 
 to-day, but my plan does refer to the merging of the Bureau of Cor- 
 porations into this commission, and giving the commission all the 
 powers the bureau now has. 
 
 Senator Newlands. You think that is obvious, that there should 
 not be two organizations ? 
 
 Mr. Untermyer. Yes ; it is a duplication of organization. 
 
 Senator Newlands. The fourth section provides for a system of 
 registration of corporations engaged in interstate trade which is 
 analogous to your suggestion of a licensing of corporations engaged 
 in interstate trade. And I was there puzzled to know how to classify 
 the corporations which would come within the provisions of the act, 
 realizing that it would burden the commission to have it apply to all 
 corporations engaged in interstate trade. 
 
 Mr. Untermyer. My suggestion to the federation limited it to 
 corporations that have gross assets or an issued capital of $2,000,000 
 and over. 
 
 Senator Newlands. $2,000,000 ? 
 
 Mr. Untermyer. Yes, sir; that is, measured by assets, or by out- 
 standing capital stock, not measured by business. 
 
 Senator Newlands. I understand that would extend to a very great 
 number of corporations, would it not ? 
 
 Mr. Untermyer. I do not think it would strike at ,any of the 
 purely intrastate corporations that do a little interstate business. It 
 seems to me that it would particularly except every corporation that 
 was not very actively and largely engaged in interstate commerce. 
 
 Senator Newlands. Well, now, upon that subject I finally con- 
 cluded to incorporate in my bill the test that it should apply only to 
 corporations whose annual gross receipts : inclusive of the annual 
 gross receipts of their subsidiaries, exceeded $5,000,000. I made 
 inquiry in reference to that, and I found that would cover about 500 
 corporations. 
 
 Mr. Untermyer. That would take in more corporations than my 
 suggestion would, would it not ? 
 
 Senator Newlands. No ; I am speaking now of corporations 
 
 Mr. Untermyer. Who have gross receipts of $5,000,000 and more. 
 A corporation that had gross assets of $2,000,000 would do more than 
 $5,000,000 worth of business, as a rule. 
 
 Senator Newlands. You think it would? 
 
 Mr. Untermyer. Oh, yes; I should say so. 
 
COMMITTEE ON INTERSTATE COMMERCE. 201 
 
 Senator Newlands. So that you regard your suggestion as a nar- 
 rower one ? 
 
 Mr. Untebmyer. Mine would take in less companies than yours. 
 _ Senator Newlands. Yes ; I ascertained upon inquiry that this pro- 
 vision would apply to about 500 corporations; and I realize, of course, 
 that that was a great task to impose upon the commission, to inquire 
 into the affairs of even 500 corporations. You think that yours 
 would embrace less ? 
 
 Mr. Unteemter. Yes ; I think $2,000,000 assets — a corporation with 
 $2,000,000 assets would be likely to do more than $5,000,000 business. 
 
 Senator Newlands. I was also puzzled whether to classify these 
 corporations by their capitalization or their gross annual receipts, or 
 whether to classify them by their occupations, such as the coal indus- 
 try, the steel industry, the sugar industry, the copper industry, the 
 flour industry, and other occupations of that kind. What is your 
 view regarding that ? 
 
 Mr. Untermyer. My view would be that that would not be advis- 
 able. I think any law ought to take in every interstate industry 
 that is really interstate in a substantial sense. It would be difficult to 
 do otherwise. 
 
 Senator Newlands. I came to the same conclusion and applied 
 the test of gross receipts, just as you applied the test of capitaliza- 
 tion. 
 
 Mr. Untermyer. The clothing dealers might want to come together 
 some time, or some others might. 
 
 Senator Newlands. Now, with reference to the powers. 1 found 
 considerable difficulty, realizing that the regulation of interstate 
 commerce was a legislative power, and that Congress could not dele- 
 gate it to an inferior body or commission without prescribing some 
 rule under which it should act or to which it could adapt itself. Now, 
 the powers which are given in section 8, condensing them, are as 
 follows : 
 
 First. To revoke the registration, or, as you term it, the license, 
 upon its own initiative or upon the complaint of any person, corpo- 
 ration, or body, on the ground of the violation of an operative decree, 
 judicial decree 
 
 Mr. Untermyer. The violation of what? I did not hear that. 
 
 Senator Newlands. Of any operative judicial decree rendered 
 under the Sherman Antitrust Act, or for the use of materially unfair 
 or oppressive methods of competition, or for the exceptions of dis- 
 crimination, rebate, and concessions from railroads. 
 
 Mr. Untermyer. Would you put railroads under this commission ? 
 
 Senator Newlands. No; not at all. I would leave the railroads 
 under the jurisdiction of the Interstate Commerce Commission. 
 
 Mr. Untermyer. I assumed that you would not. 
 
 Senator Newlands. Or upon refusal to allow the commission ac- 
 cess to its records. I also provided that the commission should care- 
 fully investigate the capitalization and assets of the corporations 
 registered under this act, and after allowing a reasonable time for the 
 readjustment of the corporate organization and security issues in any 
 given case revoke the registration of such a corporation upon the 
 ground of overcapitalization. 
 
202 HEADINGS BEFORE 
 
 Now, then, right there I ask you whether it would be necessary, in 
 your judgment, to define under the term " Unfair or oppressive 
 methods of competition."' 
 
 Mr. Untermyer. Necessary to define it? 
 
 Senator Newlands. Would it be necessary to define it? 
 
 Mr. Untermyer. As a legal proposition ? 
 
 Senator Newlands. Yes. 
 
 Mr. Untermyer. I should say not. 
 
 Senator Newlands. The contention would be, you understand, 
 that here we are delegating or turning over the exercise of a legis- 
 lative power to a servant of Congress and it is incumbent upon us to 
 fix the rule under which it should act. Now, could we simply say 
 to such a commission '' you can revoke your license and prevent this 
 corporation from engaging in interstate trade if it uses unfair or 
 oppressive methods of competition," and leave the determination and 
 even the definition of that term to the servant of Congress ? 
 
 Mr. Untermyer. Of course, that is a legal proposition which I 
 should want to consider a little; but it seems to me, giving it as a 
 sort of curbstone opinion, that that would be sufficiently definite to 
 administer it. 
 
 Senator Newlands. I should be very glad if you would give that 
 proposition some consideration and would communicate, either to the 
 committee or to myself, some suggestions on that line. 
 
 Mr. Untermyer. I would be very glad to. Your act proposes, as 
 I understand it, to revoke the license of a corporation, now in exist- 
 ence, whose securities are scattered broadcast, if the commission 
 thinks its existing capital is inflated. 
 
 Senator Newlands. Yes. That is another provision. If the com- 
 mission finds that its capitalization is inflated, and it fails to reor- 
 ganize and readjust the matter within a specified time. What have 
 you to say upon that subject? 
 
 Mr. Untermyer. It is quite an important subject, is it not? 
 
 Senator Newlands. That is a great power. 
 
 Mr. Untermter. I do not know. I should have so much to say 
 that I do not think you would have time to hear it. It would seem 
 to me, Senator Newlands, that you might strike at a great many 
 thousands of innocent holders. This stock is all distributed. Take, 
 for instance, the Steel Co. with its $1,100,000,000 capital. The harm 
 has been done. The stock has reached its level by this time. If it is 
 not worth par it is selling for less, and the people who have been 
 victimized by the sale of this stock have been swindled by it before 
 this time. 
 
 As applied to existing corporations, I should think it would be 
 rather difficult. If it is applied to corporations not now existing: but 
 hereafter to be formed, I assume that your commission would have 
 to approve the capital. 
 
 Senator Newlands. That would be determined in the first instance. 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Newlands. My provision is to 
 
 Mr. Untermyer. Revoke it, having once licensed it. 
 
 Senator Newlands. Yes, sir. 
 
 Mr. Untermyer. If they would increase their capital after being 
 licensed, or what is the idea? You have licensed them with this 
 
COMMITTEE ON INTERSTATE COMMERCE. 203 
 
 inflated capital. You are not going to revoke it for the same reason, 
 are you? 
 
 Senator Newlands. Well, I admit that there is some imperfection 
 in that line, but my idea was this: I did not wish to make it too 
 difficult for existing corporations to continue their present opera- 
 tions in interstate commerce. 
 
 Mr. Untehmtee. I do not think it is practicable to reduce their 
 capital at all. 
 
 Senator Newlands. And I felt that if they would apply to the 
 commission that we should make it easy in the first instance for the 
 commission to give them the license; but with the power at any 
 time hereafter, if it should appear that their capitalization was 
 swollen, that there was a vast amount of watered stock, et cetera, 
 they should then call upon them to register those securities or to 
 make good their capital, or revoke the license. That was the idea I 
 had in view. I felt that if, in the first instance, we devolved upon 
 the commission the duty of strictly determining whether or not an 
 applying corporation is overcapitalized, we should load up that com- 
 mission with work that would stall it at the very start. And in addi- 
 tion to that, if they exercise that power it would prevent a large 
 number of existing corporations continuing their present occupations. 
 I felt that that would mean a great disturbance of business, so I 
 thought it best to not make the rules as stringent in the first instance 
 in reference to the issuance of a license, and give the commission the 
 power to compel the corporation within a reasonable time to adjust 
 itself to the spirit of the law. 
 
 Mr. Untermtee. It would not be possible for them to do so. You 
 see, sometimes their overcapitalization is not in the form of shares of 
 capital. Take the Steel Trust, for instance, having issued $500,000,000 
 of preferred stock, it converted half of that preferred stock into 
 bonds. The preferred stock was a 7-per cent security, and they went 
 over into New Jersey and got an amendment of the law that permit- 
 ted them to convert one-half of that stock into a 5 per cent bond and 
 to put that on the property as a debt on the property ahead of every 
 stockholder who did not choose to take bonds instead of his stock. 
 
 Senator Newlands. Of course that would be very difficult regard- 
 ing bonds, and probably very difficult as regards the preferred stock, 
 but it could compel a readjustment of the common stock, could it not? 
 
 Mr. Unteemyeb. I should think it would be rather difficult. 
 "Would it not be a more advisable thing not to attempt to regulate the 
 capital of existing companies that otherwise complied with the 
 requirements of the license, because they simply could not do it ? 
 
 Senator Newlands. I am very glad to have your suggestion on that 
 line. How would this do: Give the commission the power, as to 
 existing corporations, to ascertain whether the value of the property 
 utilized by the corporation equaled its capitalization and compel them 
 to stamp upon their securities the value of their plants so as to pro- 
 tect in that way 
 
 Mr. Unteemyee. But it changes every day ; it is changing aJ J the 
 time. 
 
 Senator Newlands. Put that valuation at a particular date. 
 
 Mr. Unteemtee. You see, the securities are spread all over the 
 world. 
 
204 HEARINGS BEFOKE 
 
 Senator Newlands. You would not think that practicable ? 
 
 Mr. Untermyee. I think it would be practicable to attempt to 
 inquire into the capital of existing corporations applying for a license, 
 but to refuse them a license on the ground of overcapitalization, that 
 seems to be a harm that has been done and can not be corrected. It 
 would be very unjust to refuse them the right to go into interstate 
 business. 
 
 Senator Newlands. You would leave all existing corporations 
 practically to the Sherman Act? 
 
 Mr. Untermyee. Yes; and not interfere with them, so far as their 
 capital was concerned. 
 
 Senator Newlands. Senator Cummins calls my attention to the 
 fact that the bill is purely permissive. 
 
 Mr. Untermyee. Oh, I did not understand that. 
 
 Senator Newlands. I hesitated whether I would make it permis- 
 sive or coercive. 
 
 Mr. Untermyee. What is the advantage of a permissive bill? 
 
 Senator Newlands. My idea was — it may be incorrect — — 
 
 Mr. Untermyee. You will pardon me asking questions. 
 
 Senator Newlands. I am very glad to have you ask questions. My 
 idea was, frankly, that I feared if the bill was made absolutely 
 coercive that the great organizations would delay and prevent its 
 passage. 
 
 Mr. Untermyer. I guess they would. 
 
 Senator Newlands. And therefore I wanted to make the way easy. 
 
 Mr. Untermyer. Then it would not affect them. 
 
 Senator Newlands. My idea was to insert an entering wedge, and 
 later on we could make it more stringent if we found it necessary. 
 Then, besides that. I had in view the fact that the license itself would 
 be regarded by the corporations as a financial asset. That to be 
 known as a registered corporation would be of value to the corpora- 
 tion, and not to be known as a registered corporation would be a dis- 
 advantage, and in that way the license would really have a valuable 
 property value, and corporations would be anxious to come within 
 the operation of the law. Those were my two considerations. I want 
 to ask you if your idea would be to make it coercive ? 
 
 Mr. Untermyer. Yes, sir. It seems to me unless you require them 
 to take out a Federal license in order to do interstate business they 
 won't take out one. Why should they ? The value of their stock will 
 be measured by the dividends that they pay. 
 
 Senator Newlands. I agree with you logically that that is the 
 weakness of the bill, but the considerations I spoke of 
 
 Mr. Untermyer. Why should not such a commission take charge 
 of the disintegration of corporations instead of leaving it to the 
 courts ? 
 
 Senator Newlands. That is a very valuable suggestion you have 
 made, and I want to carry that out. This bill does not provide that 
 the commission shall take charge of the disintegration of these cor- 
 porations when so decreed by the court. It seems to me that your 
 suggestion is an excellent one. 
 
 Mr. Untermyer. It would have to be under judicial decree. It 
 would have to be subject to the authority of the court that issued the 
 decree. 
 
COMMITTEE ON INTERSTATE COMMEHCE, 205 
 
 Senator Newlands. Just as in the case of a receivership. But it 
 would be by a board of experts familiar with the entire subject matter 
 that could act upon this question in a semi judicial way. 
 
 Mr. Untermyer. They could pass on the plan for readjustment 
 and disintegration. 
 
 Senator Newlands. Therefore it would be advisable to give them 
 such a power? 
 
 Mr. Untermyer. I think somebody ought to be given it. The 
 courts can not exercise it. They have shown that they can not by the 
 first case that has come before them. 
 
 Senator Newlands. I want to ask you why you say that the courts 
 can not exercise it. Are they not exercising it? 
 
 Mr. Untermyer. No. The first time they tried it, it seems to me 
 that they lamentably failed. 
 
 Senator Newlands. In what respects have they failed? 
 
 Mr. Untermyer. In what respects have they not failed? 
 
 Senator Newlands. The only case in which the court below has 
 attempted this process of disintegration and reorganization is in the 
 Tobacco Trust case, is it not? 
 
 Mr. Untermyer. Yes, sir. And that has been a sad commentary. 
 It has been an amazing thing, I think, to the whole profession, be- 
 cause they have given the stamp of judicial approval to another trust. 
 
 Senator Newlands. To another trust ? 
 
 Mr. Untermyer. It is the same thing. They have simply changed 
 its clothes; that is all; and they have not made a very complete 
 change at that. 
 
 Senator Newlands. You say that they have changed its character 
 to one other trust. Don't you mean several other trusts ? 
 
 Mr. Untermyer. I do not know. It seems to me that if the Attor- 
 ney General should to-morrow find that the tobacco business of this 
 country was monopolized by four companies, and that each of them 
 had the same shareholders, which is practically in a general way the 
 situation of the Tobacco Trust under the judicial decree of disin- 
 tegration, he would be likely to go after them again. In other words, 
 I think the court has permitted the creation of a condition such as 
 we would all have regarded as glaringly unlawful before this decree 
 was granted. 
 
 Senator Newlands. "What do you understand to be their decree as 
 to the number of corporations that are organized out of the remnants 
 of the old Tobacco Trust? 
 
 Mr. Untermyer. Four, including the old one, which is retained. 
 The decree is complicated ; I have it here — no, not here with me, but 
 at my hotel. It would be rather lengthy to explain it in detail. I 
 have no doubt that the committee will give it some attention. It 
 needs a great deal of attention. In effect it does this : It breaks up 
 the different brands and the different industries. The cigarette busi- 
 ness, the smoking- tobacco business, the plug-tobacco business, etc., 
 were all owned by the American Tobacco Co. This plan apportions 
 different plants to each of these new companies. It gives a certain 
 number of plants in each line of business to the Eeynolds Co., a cer- 
 tain number to the Liggett & Meyers Co., and a certain number_ of 
 plants to the Lorillard Co., so that each of these companies, including 
 the old company, will have, we will say, from 20 to 30 or 33 per cent 
 
206 HEARINGS BEFORE 
 
 oi the entire industry of the whole line of goods— cigarettes, smoking 
 tobacco, plug tobacco, and all the rest. Now, then, you have four 
 concerns set loose, each one holding 25 per cent, more or less, if you 
 please, of the business of the country in all these lines, with the same 
 common stockholders and the same management. 
 
 Then it takes the snuff industry and other related businesses, the 
 stock of which is now in the treasury of the old company; and dis- 
 tributes the stock among these same stockholders. The stocks of these 
 related businesses does not go to the companies, but to the stockholders. 
 
 Senator Newlands. Of the present Tobacco Trust? 
 
 Mr. Untermyer. Yes, sir; the present Tobacco Co. And it says 
 to all of them : " Now, then, go ahead and compete. If you strengthen 
 one and make money for it, the other loses correspondingly. You 
 thus take money out of one pocket and put it in another ; that is all. 
 Go ahead and engage in the most ruinous competition you please. 
 It is very likely that you will, when you are interested to the same 
 extent in them all, isn't it ? I think not." That is practically what 
 this decree does. 
 
 Senator Newlands. Do you not think that that stock ownership 
 would gradually change in time to the constituent members ? 
 
 Mr. Untermyer. No. I think the effect of that decree in time is 
 going to be to concentrate the ownership still more. The present 
 defendants are limited only for a certain number of years in increas- 
 ing their holdings. The stocks of the new companies will have only 
 a limited market. They are almost sure to be controlled, directly or 
 indirectly, by a few men who understand the business and know the 
 relative values of these shares, as they are not known to outsiders. It 
 offers unlimited opportunities for manipulation between the com- 
 panies. I think it is three years. I look upon it as the most colossal 
 judicial farce ever enacted, with all due respect to the court, which, I 
 am sure, tried to do what it could. In common with the entire bar 
 of that district, I have the highest respect for the tribunal that ren- 
 dered the judgment. 
 
 Senator Newlands. Are you prepared to suggest how the reor- 
 ganization should be made after the disintegration was accomplished ? 
 
 Mr. Untermyer. That would involve a very substantial retainer, 
 Senator Newlands. Seriously, that would take a long time. 
 
 Senator Newlands. Do you understand that that decree now is a 
 final one? 
 
 Mr. Untermyer. Yes; unless it is appealed from. It seems to rue 
 that the Government should be forced to appeal. 
 
 Senator Newlands. You think the Government should be forced 
 io appeal? 
 
 Mr. Untermyer. I think Congress should force the Government 
 to appeal that case. 
 
 Senator Newlands. I presume your reason for that is that, as the 
 whole principle of the disintegration was determined by the Supreme 
 Court and not by the lower court, that the court that ordered the 
 dissolution should pass upon the reorganization ? 
 
 Mr. Untermyer. That court should say what its judgment really 
 meant, whether that is what it meant. If that is what it meant, 
 the sooner we have supplemental legislation the better it will be for 
 everybody. You see the New York Circuit Court of Appeals found 
 itself helpless; that is, they thought they were helpless. I do not 
 think they were. They said : " If we do not take this plan we have 
 
 & 
 
ooiUiMTinEi UJS IJNJ.EKfc'XATE COMMERCE. 207 
 
 no alternative except to direct a receivership or to enjoin this corpo- 
 ration from doing interstate business. Either of these things will 
 create business devastation, and we do not want the responsibility." 
 In other words, the bigger the monopoly and the more dangerous it 
 is the more immunity it has, for fear that if it be disturbed the vested 
 interests will be disturbed. The little fellows may be prosecuted 
 with impunity, but when it comes to the big fellow to grant adequate 
 relief against is going to hurt business. I think, if the court had said 
 to these gentlemen : " This plan does not suit us ; you had better 
 come along with a better plan," and had put the responsibility of a 
 receivership on them, where it belonged, instead of being afraid of 
 what might happen, it would have been much better. Nothing would 
 have happened except that the company would have gone on until it 
 had gotten something that the court would have taken. But the 
 court seemed to be alarmed, and so they took the company's plan 
 with trifling modifications and said that while they did not think it 
 was the best plan they could get, yet it was the only plan the com- 
 pany would give them. 
 
 Senator Newlands. Was there any counterplan of reorganization 
 presented by the Attorney General? 
 
 Mr. Unteemyee. He presented certain suggestions. The Attorney 
 General was concerned, I think, to some extent in this plan. It was 
 the result of conferences between the court and the Attorney General 
 and the Tobacco Co. 
 
 Senator Newlands. If they should go to the Supreme Court, Avould 
 you expect the Supreme Court to map out a plan of reorganization? 
 
 Mr. Unteemyee. I would expect the Supreme Court to say this is 
 not disintegration. 
 
 Senator Newlands. And simply refer the matter back 
 
 Mr. Unteemyee. "We will give you so much time to present a 
 plan that means disintegration." 
 
 Senator Newlands. In that process you think that a commission 
 such as you suggest, and is covered by this bill, would be of service 
 to the court itself in providing for the reorganization of a trust that 
 has been disintegrated. 
 
 Mr. Unteemyee. I think it is the only way of bringing about a 
 disintegration. I think the courts are not adapted to it. The com- 
 mission to which I have referred should watch the operation of it. 
 Do you suppose, for instance, that the courts could have executed the 
 laws against railroads as they are being executed by that splendid 
 tribunal, the Interstate Commerce Commission? They have got to 
 keep watch over it ; they have to have nothing else to do. 
 
 Senator Newlands. That is the view of the Attorney General, ex- 
 pressed in his Duluth speech— that the courts were not fitted for this 
 reorganization. In his Duluth speech Mr. Wickersham says: "The 
 Federal Department of Justice is not organized or equipped to main- 
 tain constant supervision and control over business organizations. V 
 deals only with cases of violation of law. The activities of an admin 
 istrative board or commission would be directed to preventing such 
 violations and in aiding business men to maintain a continued status 
 of harmony with the requirements of law." 
 
 Mr. Unteemyee. I agree with that, except that I should go further 
 and say that it should also be empowered to look after the disinte- 
 gration question. That would be one of its most important duties. 
 22877— vol 1—12 14 
 
208 HEARINGS BEFOBE 
 
 Senator Newlands. Now, you have spoken of a national incor- 
 poration ? 
 
 Mr. Unteemyeb. Yes, sir. 
 
 Senator Newlands. As perhaps preferable to national license? 
 
 Mr. Unteemyee. Yes, sir. 
 
 Senator Newlands. You recognize the difficulty of passing such a 
 Bill, do you not? 
 
 Mr. Untermyer. Yes. I recognize the constitutional questions 
 that have been raised, but I do not quite understand why Congress 
 has not the power to regulate corporations engaged in interstate com- 
 merce to the extent of requiring that they have a national charter as 
 a condition of being permitted to do interstate business regardless of 
 any State charter that they may have. Of course I recognize that 
 there are differences of opinion on that subject. I know the decisions 
 on the subject, but if that is not an incident to the power delegated to 
 Congress to regulate commerce, I do not know what is. 
 
 Senator Newlands. I entered upon the question with a great deal 
 of enthusiasm about seven or eight years ago regarding railroads. 
 
 Mr. Unteemyeb. I know. 
 
 Senator Newlands. I found it very difficult to make any progress. 
 
 Mr. Unteemyeb. Yes ; it is. 
 
 Senator Newlands. Although a great many of my associates think 
 that, logically, that is the thing to do, they realize they could not go 
 back to their constituents — at all events they felt that way- — and 
 defend it. 
 
 Mr. Unteemyee. We have had a good deal of judicial legislation 
 in the meantime. 
 
 Senator Newlands. The fault of our present corporate system is. 
 as you suggest, due to the legislative enactment of the wildcat States 
 as you term them. 
 
 Mr. Unteemyee. Yes. 
 
 Senator Newlands. They set the pace in legislation and other 
 States have to follow. 
 
 Mr. Unteemyee. Yes, sir. I had an instance of that a few weeks 
 ago in a case in which a large corporation was to be organized, and I 
 wanted to organize it in one State — I won't name the State — but 
 another State held out by its law a little more immunity from obliga- 
 tion, and when the first State found this out they said if I would wait 
 10 days they would make it all right; they would give us the same 
 Immunity, but that is not unusual. You see these laws are practically 
 •copies of one another. 
 
 Senator Newlands. And they are really rivaling one another in 
 laxity instead of wise restrictions. 
 
 Mr. Untermyer. Yes, sir. And none of them ever thinking of the 
 investor. 
 
 Senator Newlands. Now, regarding capitalization, do you think 
 it necessary to provide in this bill the rule that shall control the com- 
 mission as to capitalization, or that a mere declaration that it should 
 not permit overcapitalization, would be sufficient ? 
 
 Mr. Untermyer. Oh, I think it is an administrative act, and that 
 is a subject that you can leave to the judgment of the commission. 
 I think it ought to be broad enough to allow the capitalization of 
 good will within reason. 
 
COMMITTEE ON INTERSTATE COMMERCE. 209 
 
 Senator Newlands. When you say " good will within reason " is 
 it not necessary, then, to define it in the law ? 
 
 Mr. Untermyer. Good will is often a more valuable asset than 
 tangible property. Tangible property in a manufacturing business 
 has no value except in connection with good will. The less assets a 
 business has and the more money it can make the more valuable it 
 is, and the more valuable the good will of the business is the more 
 valuable the business is. 
 
 Senator Newlands. Would you attempt to define the extent to 
 which we ought to recognize good will? 
 
 Mr. Untermyee. No. It would not pertain to a new business; it 
 would only pertain to an existing business with an established good 
 will, and the only test of good will is what its earnings have been ; 
 that is the test — the earnings for a series of years. 
 
 Senator Newlands. We will assume that these earnings have been 
 based upon monopoly. 
 
 Mr. Untermyee. Then, they could not get a license, according to 
 my idea of it. They have got to do away with any violation of the 
 law. In other words, they would have to show compliance with 
 the Sherman law. If a corporation applied for a license, and the 
 commission found that it was violating the Sherman law, it would 
 have to disintegrate and dissolve and be reorganized in a way to 
 satisfy the commission before it could get a license. That would be 
 my idea. 
 
 Senator Newlands. But you speak of the earning capacity. That 
 might depend upon monopolistic control? 
 
 Mr. Untermyer. If it did, of course it ought not to be capitalized. 
 
 Senator Newlands. You say that the organization of the Steel 
 Trust could, in the first instance, have been stopped? 
 
 Mr. Untermyer. Certainly. It was manifestly a violation of law. 
 
 Senator Newlands. Its entire plan of organization was advertised 
 and well known, was it not ? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Newlands. When did that organization take place? 
 
 Mr. Untermyee. I think it was in 1898— was it not, Senator 
 Cummins ? 
 
 Senator Cummins. In 1901. 
 
 Senator Newlands. Under whose administration ? 
 
 Mr. Untermyer. I think it was President McKinley. 
 
 Senator Newlands. Who was the Attorney General at that time ; 
 do you recall? 
 
 Mr. Untebmyer. No ; I do not recall. 
 
 Senator Oliver. Mr. Griggs. 
 
 Mr. Untermyee. I think it was Mr. Griggs. 
 
 Senator Newlands. Was any inquiry made by the Government 
 regarding it? 
 
 Mr. Untebmyer. No. At that time there was a sort of general 
 prevalent belief — I do not know why— but there was an idea that 
 consolidations did not come under the Sherman law ; that only pools 
 and agreements to regulate prices came under the Sherman law, and 
 the earlier decisions of the courts, you know, lent a good deal of 
 color to that view. I remember during the Cleveland administra- 
 tion — I am a democrat, by the way 
 
 Senator Newlands. I am glad to know it. 
 
210 
 
 HEARINGS BEFOBE 
 
 Mr. Untermyer. During the Cleveland administration, I remem- 
 ber, there was a case came before the courts, a combination of manu- 
 facturers of cash registers, Four or five competitors made complaint 
 that these people were endeavoring to monopolize the business, and a 
 suit was brought — I think it was a criminal prosecution, brought by- 
 indictment — and afterwards they took in the outsiders. Thereupon 
 the indictment was dismissed by the Attorney General. That was the 
 end of it. In the earlier stages of the law, and the decisions of the 
 court — in the distillers' case and a number of those cases — I think Mr. 
 Root was counsel in that case — the courts laid down rules that made 
 it very difficult to prosecute under that statute. I do not think any- 
 body was very much to blame for the earlier years of inattention to 
 the Sherman law. 
 
 Senator Newlands. At what date do you put the era of certainty? 
 
 Mr. Untermyer. I think when President Eoosevelt came in and 
 began to do business, the law began to take on life. I think he is 
 entitled to the credit for enforcing the law in one direction at least. 
 He might well have invoked the more effective sections than to use 
 the method he employed. 
 
 Senator Newlands. You referred to the administration in Ger- 
 many upon this subject, with reference to cartels and syndicates. 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Newlands. You say they are not governed by any general 
 law, but by special laws, and you refer to the potash law ? 
 
 Mr. Untermyer. Yes, sir. I think I said to Senator Cummins that 
 that was the only special law that I knew of, but that they are gov- 
 erned by administrative act. 
 
 Senator Newlands. It is the only special law ? 
 
 Mr. Untermyer. That is the only special law that I have in mind. 
 
 Senator Newlands. I want to ask you if that was made the model 
 to govern other industries? 
 
 Mr. Untermyer. No. Most other industries have been organized 
 under agreement, but that is the model under which they have or- 
 ganized. 
 
 Senator Newlands. What supervision and control does the Gov- 
 ernment there exercise over these agreements ? In the first place does 
 the law provide specifically for such supervision and control, or does 
 an administrative body just assume by reason of organization? 
 
 Mr. Untermyer. No. The law provides in the greatest detail for 
 control. It sets up a body, a board of judges, and whenever an agree- 
 ment is to be renewed and reapportioned, and the different propor- 
 tions of the industry are to be given to each one of the 54 constitu- 
 ents — there are 54 concerns under the act 
 
 Senator Newlands. That is in the potash act? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Newlands. But I am speaking now as to the regulation 
 and supervision of these agreements and syndicates, etc., outside of 
 the potash law. 
 
 Mr. Untermyer. No; they are regulated by administrative act, 
 and are subject to certain precedents of the courts. That is judge- 
 made law, as Senator Cummins stated. 
 
 Senator Newlands. Administrative act of what body? 
 
 Mr. Untermyer. The minister of industries, or some such name as 
 that. 
 
COMMITTEE ON INTERSTATE COMMERCE. 211 
 
 Senator Newlands. Are all these agreements reported to him, and 
 does he act upon them in any formal way? 
 
 Mr. Untermter. No; he does not. He has the power to, but in 
 practical operation he does not act upon them. But if they are 
 exorbitant or excessive or unfair the courts can review them, and it 
 does. 
 
 Senator Newlands. Upon the initiative of the Government or a 
 complaining party ? 
 
 Mr. Untermter. Anybody; any complaining party. It is very 
 easy to get a review, and summary action, too. 
 
 Senator Newlands. And the corrective power is applied by the 
 court instead of by an administrative body, such as we wish to create 
 here? 
 
 Mr. Untermter. There is a minister of industries. There have 
 not been so many of these pools or kartels. There are about, I should 
 say, 10 or a dozen industries. There is the coal business, and now I 
 believe the steel business, and the electrical business is just about 
 forming, and the minister of industries would have the power to stop 
 them if he wanted to, but I do not think that these agreements are 
 reported to him, although I am not sure. 
 
 Senator Newlands. In order to stop them would he have to appeal 
 to the courts ? 
 
 _ Mr. Untermter. I think that he could do that by an administra- 
 tive act ; that is my general impression. 
 
 Senator Newlands. So that he evidently has the power of super- 
 vision ? 
 
 Mr. Untermyer. I think so, but I am not sure about that. 
 
 Senator Newlands. You have observed, Mr. Untermyer, I presume, 
 that these syndicates and combinations over there in these various in- 
 dustries do not seem to be unpopular? 
 
 Mr. Untermter. No; they are not. 
 
 Senator Newlands. Why is that? 
 
 Mr. Untermter. You take, for instance, by way of illustration, the 
 potash syndicate. That act provides in the most detailed fashion for 
 the protection of labor. The Socialists had a hand in framing the 
 legislation, it is pretty evident, so far as concerns the rights of labor. 
 A man who would cut down his labor would be cut down in his allot- 
 ment next time he came for his apportionment. If he cut down the 
 wages, certain disadvantages pertain to that. The law will interest 
 you, and I will send you a copy of it. 
 
 Senator Newlands. So, then, that. bill does cover what Senator 
 Cummins was contending for in his inquiry of you ? 
 
 Mr. Untermter. Yes, sir; it does. 
 
 Senator Newlands. For in fixing the price of commodities you 
 have to fix the price of labor that enters into them. 
 
 Mr. Untermter. I do not approve of it, and I do not think it is 
 necessary. You see that was forced into the bilh, I imagine, by the 
 labor element of the Reichstag. It is no component, integral, or nec- 
 essary part of the bill at all. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. Mr. Untermyer, are you familiar with the regu- 
 lation of the Brazilian Government under which the coffee growers 
 sell their coffee ? 
 
212 HEADINGS BEFORE 
 
 Mr. Untermyer. Yes ; in a way. 
 
 Senator Watson. Do you not think it would be interesting to the 
 committee to discuss that? 
 
 Mr. Untermyer. I do not feel at liberty to discuss it. 
 
 Senator "Watson. Take the copper industry, for instance, under 
 your plan you would regulate the output of copper in accordance 
 with the laws of supply and demand. What, if any, effect would that 
 have on the cost of production ? 
 
 Mr. Untermyer. I do not think I quite get the question. 
 
 Senator Watson. If, under your plan, you regulate the output of 
 copper in accordance with the laws of supply and demand, what 
 effect would that have on the cost of the production of the copper ? 
 
 Mr. Untermyer. I do not think it would affect the cost of the- 
 production of copper at all. I think it could not, so far as I see. 
 , Senator Watson. I would not agree with you on that. 
 
 Mr. Untermyer. Why? 
 
 Senator Watson. I think it would cheapen the cost of the pro 
 duction. 
 
 Mr. Untermyer. You mean to regulate the supply so as to meet 
 the demand? 
 
 Senator Watson. The output, according to the demand. 
 
 Mr. Untermyer. Why would that cheapen the cost of production ? 
 
 Senator Watson. At times it would cut off fixed charges. 
 
 Mr. Untermyer. Why? Are not fixed charges due to the shifting 
 of production ? 
 
 Senator Watson. Additional help, superintendence. 
 
 Mr. Untermyer. That is done over night, you know, in the copper 
 mines. If they make up their minds they are going to cut 10 per 
 cent of their product, they simply take out so much less ore, and then 
 they have so many less units of their mill in operation. 
 
 Senator Watson. In the copper industry that is being done 
 already ? 
 
 Mr. Untermyer. I am not prepared to say. I do not think it is 
 being done to-day; I am quite sure it is not. I think there is very 
 open and unrestricted competition to-day. 
 
 Senator Watson. You would have one commission to govern all 
 classes of business? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Watson. Mining, manufacturing, etc. ? 
 
 Mr. Untermyer. Yes, sir. Mining is a manufacturing business 
 in these days, except gold mining. Copper mining is a very close 
 manufacturing business. The profits are in the bigness of the op- 
 erations. 
 
 Senator Watson. Much more than in some other classes of 
 business ? 
 
 Mr. Untermyer. Copper and lead are manufacturing businesses. 
 
 Senator Watson. Do you think that business could be better 
 regulated by two or three commissions? 
 
 Mr. Untermyer. I do not think so. I think you would have a 
 diversity of judgment and decisions and conflicts and claims of in- 
 equality of administration that would be very unfortunate. I do not 
 think it is going to be as big a thing as it looks. These things all 
 take on a very threatening aspect until you get at them. 
 
v> \J in. ±1 j. i _ j 
 
 „_™ATE COMMEKCE. 218 
 
 Senator Watson. Many of the railroad companies when the Inter- 
 state Commerce Commission was proposed said it would be impossible 
 for the commission to govern all the railroads. 
 
 Mr. Untermyee. Well, they were wrong. That is the greatest 
 tribute to the Government that we have ever had in our country — 
 the Interstate Commerce Commission. I mean, they have brought 
 the regulation of railroads down to a wonderful science. I have seen 
 a good deal of the inner workings of it at close range, and it is a 
 splendid system. 
 
 Senator Watson. And you believe that business can be regulated t® 
 a certain extent in the same way ? 
 
 Mr. Untermyee. I do. Business that needs protection. Business 
 that does not need protection does not need to come and ask for pro- 
 tection. All interstate business, I think, should require license. It 
 does not follow that all of them need to ask for the protection of these 
 agreements. My suggestion is this — I do not want to be misunder- 
 stood, because every time a man says anything about the regulation 
 of prices somebody shouts, " Socialism," and that ends the discussion. 
 You never get to the discussion of the merits of it. My proposition 
 is simply that those who appeal appeal because they need to appeal 
 for regulation. If they need it and can show that they do nee$ 5tj 
 they ought to have it, because if they do not get it in that way they 
 will get it in another way that will take advantage of the public with- 
 out supervision. 
 
 Senator Oliver. I have just one or two questions that I W4>jaid like 
 to ask Mr. Untermyer. 
 
 Mr. Untermyer, your proposition is to compel all corporations 
 doing an interstate business to take out Federal licenses, is it ? 
 
 Mr. Untebmyer. All corporations that have gross assets of over 
 $2,000,000. 
 
 Senator Oliver. All above a certain size? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Olivee. Do you think that is necessary ? Are there not a 
 large class of corporations who do more or less of an interstate busi- 
 ness on whom it would be somewhat of a burden to saddle them with 
 Federal supervision? 
 
 Mr. Untermyee. You have got to draw the line somewhere. 
 
 Senator Oliver. I know, but do you not think that a bill permitting 
 Federal registration would be enough ? I have in mind now a num- 
 ber of corporations. I have in mind one corporation that has been 
 doing business under corporate form for 25 years at least ; it succeeded 
 a partnership that was at least 25 years older than that. They are 
 coming in competition with dozens and dozens of others in the same 
 line. They do not have more than half a dozen stockholders. They 
 are not involved in any way whatever with other concerns or in any 
 trade agreements or in anything that would look like a violation of 
 the interstate-commerce law. They are incorporated under the laws 
 of the State in which their establishment is located. Their assets are 
 more than the amount you named. Now, it seems to me that there 
 is no necessity for taking concerns like that or for taking big jobbing 
 concerns and placing them under Federal supervision. The business 
 is necessarily competitive. 
 
214 HEARINGS BEFORE 
 
 Mr. Untermyer. Yours is an extreme instance. Of course, the 
 investigations of that commission would be secret. I do not think 
 it is fair to assume that competitors would learn what one another 
 are doing. 
 
 Senator Oliver. I do not refer to that so much as to the fact that 
 it restricts the freedom of business intercourse to a certain extent. 
 My opinion is that all those who need governmental protection, the 
 big concerns would all fly to Federal supervision. 
 
 Mr. Untermyer. It would depend upon whether it is rigid and 
 right, or whether it is merely something that is not going to amount 
 to anything. 
 
 Senator Oliver. I am assuming that it would be rigid and right, 
 and I believe that it would be as the supervision of the Interstate 
 Commerce Commission has been, and has gradually come to be more 
 and more so as the years pass by. 
 
 Mr. Untermyer. It will be denounced as that was denounced. 
 There was no name too hard to be applied to that commission when 
 it was inaugurated. I do not think that the epithets that Avere 
 applied to that piece of legislation have ever been equaled in modern 
 times, nor do I think the abuse that was heaped upon that commis- 
 sion has ever been equaled. It is only of late years that we have 
 had anything pleasant to say about the commission ? 
 
 But taking up your suggestion. What harm can it do these corpor- 
 ations? It does them no more harm than the kind of disclosures 
 they have to make now to the State in which they are incorporated 
 on the tax question. On the other hand, how are you ever going to 
 get at the existence of these secret understandings that are really far 
 more dangerous to the laws of competition unless the Federal authori- 
 ties have a right to look into the books of every concern engaged in 
 interstate commerce. That is the only way they will ever find them. 
 
 Senator Oliver. They seem to have gotten them. 
 
 Mr. Untermtee. I do not think they have gotten one out of a 
 thousand. 
 
 Senator Oliver. I do not agree with you in regard to that. I 
 think they are unearthing most of them. 
 
 Mr. Untebmyee. These agreements and understandings? 
 
 Senator Oliver. Yes: and leading to their discontinuance to a 
 great extent 
 
 Mr. Untermyer. I have known of hundreds of them being dis- 
 solved where they were under written agreements. There are safes 
 in New York stuffed with the written evidences of these conspiracies 
 with big business men's singnatures to them. Those are gone, but in 
 their places you have associations for the betterment of trade, etc.; 
 there are any number of dinner and luncheon clubs and reunions and 
 general understandings, winks, and telephone messages that are far 
 more difficult to get at. 
 
 Senator Oliver. I think you exaggerate the number of them that 
 occur to-day. I think they are growing less. 
 
 Mr. Unteemyer. I am pretty familiar with them. What I say is 
 that you will never reach them unless the Government takes advan- 
 tage of its right to control interstate commerce to look into the books 
 of these concerns. Then you will find them. Then they won't exist. 
 Then if people want to put a brake upon the laws of competition 
 they will have to do so openly and come along with their agreement 
 
COMMITTEE ON INTERSTATE COMMERCE. 215 
 
 and let the Government regulate them. If they are really in need of 
 it they will get it, and if they are not, they should not get it. 
 
 Senator Oliver. I have another question I would like to ask you. 
 When I came in you were talking about the copper business. What, 
 in your mind, would be a fair measure of profit in the mining of 
 copper, considering the risks attending the mining from the dis- 
 covery and prospecting to the great losses that occur in hunting for 
 copper and not getting it ? 
 
 Mr. Untermyer. I have some rather pronounced views on that 
 subject. 
 
 Senator Oliver. We would like to hear them. 
 
 Mr. Untermteh. In the first place it takes a great deal of money 
 to develop a copper mine, and it takes a great deal of time. I think 
 the average time is about four or five years from the date when it is 
 first taken hold of until the date when it produces. 
 
 Senator Oliver. And then perhaps it does not. 
 
 Mr. Untermter. Then perhaps you get one-eighth of 1 per cent 
 too little copper concentrates to the ton of ore to make it pay, or there 
 is some trouble in the smelting, or sometimes, and, in fact, very often, 
 3 r ou do not get anything. The risks are tremendous. 
 
 In the next place, the amount of capital required is very large. 
 
 In the next place, people imagine that you are taking your profits 
 out of the mine. You are taking your capital out. When you are 
 manufacturing copper you are not simply taking profits; you are 
 taking out capital. You are depleting your mine all the time. It 
 has a certain life, and you are just taking so much of the capital. 
 And therefore I should say that nobody would consider 15 cents a 
 pound unreasonable for copper ; I mean as an arbitrary suggestion. I 
 think the average cost of production is between 8 and 9 cents ; some 
 of them perhaps do it for a little less. 
 
 Senator Oliver. That is the running cost? 
 
 Mr. Untermter. That is the running cost ; between 8 and 9 cents. 
 Of course there are some of those new low-grade mines that do mine 
 copper at a little less, but they are all taking their money out of the 
 ore reserves of the mine that have cost millions to develop. That is 
 not profit. A certain part of that ought to go to an amortization 
 fund. I believe the country would be vastly better off if agreements 
 of that kind were permitted. 
 
 Senator Oliver. Another question, and then I am through. Do 
 you not think, assuming that this Federal incorporation or Federal 
 license law is in operation ; do you not think that a provision that in 
 order to obtain a license a company would have to submit a charter 
 limiting its operations to its legitimate business and the avenues lead- 
 ing to that business; that it should own all of its property in its own 
 name and should not be allowed to own stock in any other corpora- 
 tion, except in special instances for cause shown by consent of the 
 commission ; and furthermore, that it should not be an owner in any 
 public utilities company— I refer particularly to transportation com- 
 panies—would go far toward solving this question ? 
 
 Mr. Untermyer. I do not think it would solve it. 
 
 Senator Oliver. I did not say that it would solve it, but that it 
 would go far toward solving it. 
 
 Mr. Untermyer. It would correct a great many abuses. Before 
 you came in, I think it was, I made the suggestion that the charter 
 
216 
 
 HEABINGS BEFOEE 
 
 should prohibit them from holding the stocks of other companies 
 unless they held them all. For instance, it does not make any differ- 
 ence whether corporation A owns all the stock of corporation B or 
 owns the property physically — the title to it. 
 
 Senator Oliver. I would prefer to have it hold the property 
 physically. 
 
 Mr. Untermyer. Except sometimes some States have laws which 
 make that a little difficult. But the idea of allowing them to own and 
 control and to work corporation B for the benefit of corporation 
 A, to the exclusion of corporation B's minority stockholders ; that is 
 a practice that ought to be stopped. 
 
 Senator Oliver. That evil is not as great as it was. 
 
 Mr. Untermyer. I think it is worse; I think it is getting worse 
 every day. They are buying the majority of the stock of a company 
 and letting the minority whistle. Eailroads are doing it as well as 
 industrial companies. I can give you 20 instances in 15 minutes. 
 
 Senator Oliver. I think more attention is being given to the rights 
 of minority interests. I know it is in our section of the country. 
 
 Mr. Untermyer. You always get the education first in your sec- 
 tion. There is not another section in which that is so, but certainly 
 those provisions to which you refer would be very useful and would 
 go very far. They would not meet the question, however, of ruinous 
 competition, would they? 
 
 Senator Oliver. No; they would not, 
 
 Mr. Untermyer. That is the crux, I think, of the whole situation. 
 If you are going to enforce the Sherman law you have to have some 
 point at which it is not going to be evaded, because people are going 
 to be driven to evade it to rescue themselves. I do not care how 
 many laws you have, no man is going to ruin because there is a law 
 requiring him to do so. 
 
 The Chairman. Senator Pomerene, it is so near 1 o'clock that you 
 may prefer to defer your questions until after recess. 
 
 Senator Pomerene. Yes. I have a feAv questions, but I shall be 
 glad to ask them after recess. 
 
 The Chairman. The committee will take a recess until 2 o'clock 
 
 (The committee thereupon at 1 p. m. took a recess until 2 p. m.) 
 
 AFTER RECESS. 
 
 The committee assembled at 2 o'clock p. m. 
 
 STATEMENT OF SAMUEL T. UNTERMYER— Resumed. 
 
 The Chairman. Senator Pomerene, you may interrogate. 
 
 Senator Pomerene. Mr. Untermyer, in answer to a question, I 
 think by Senator Newlands, you used this language, " The trust 
 should have been and could have been prevented." Did you mean 
 by that by the enforcement of present or existing legislation? 
 
 Mr. Untermyer. Yes ; by the enforcement of the present Sherman 
 lav — that section of the law which permitted them to be stopped by 
 injunction and dissolution or permitted the remedy of enjoining them 
 from engaging in interstate commerce, and especially the injunctive 
 remedy, which to my mind is the most valuable feature of the act, 
 has never, to any extent, been availed of. 
 
COMMITTEE ON INTERSTATE COMMEECE. 217 
 
 Senator Pomeeene. Do you have in mind the criminal features 
 of that statute as well as the enforcement of it ? 
 
 Mr. Unteemtee. Oh, yes; but that does not seem to me as effec- 
 tive a preventive as would be the enjoining of the corporation from 
 coming into existence or engaging in interstate commerce. 
 
 Senator Pomeeene. Then, if I understand you, the present unfor- 
 tunate condition of affairs is due to their lack of enforcement of 
 present and existing remedies rather than because the remedies now 
 recognized by the law are inefficient? 
 
 Mr. Unteemyee. Well, one could hardly answer that yes or no. 
 Partially to the lack of enforcement of the law, due to a want of 
 understanding of its scope, and due also, to some extent, to the in- 
 terpretation the courts, in the earlier years, put upon it, and par- 
 tially also due to the fact, to which I have adverted, that it compelled 
 ruinous competition, which seemed to me an impossible exaction. 
 
 Senator Pomeeene. You wrote an article which appeared in the 
 July number of the North American Review, under the title, " The 
 meaning and effect of the antitrust law decisions and the remedy," 
 did you not? 
 
 Mr. Unteemyee. Yes, sir. 
 
 Senator Pomeeene. And without referring to the entire article — 
 and it is a very able one — you summarized the remedies as follows : 
 
 "(1) The compulsory Federal incorporation of all corporations en- 
 gaged in trade or commerce between the States or with foreign 
 countries. 
 
 "(2) The creation of a commission similar in its powers over busi- 
 ness corporations to those' now possessed by the Interstate Commerce 
 Commission over railroads and the utilization in that connection, so 
 far as possible, of the present Commerce Court. 
 
 "(3) That this commission pass upon the right of every applicant 
 for a Federal charter, and that where violations of law exist which 
 would prevent the granting of such a charter such violations should 
 be first removed. 
 
 "(4) That the commission have power to authorize and approve 
 agreements that will be enforcible in the courts in the form of pools, 
 cartels, or syndicate arrangements for regulating competition in any 
 industry, provided such agreement does not have the effect of un- 
 reasonably restricting competition or of operating as a direct restraint 
 of trade ; that in that connection it be empowered from time to time 
 to determine the extent to which prices may be fixed or production 
 restricted and particularly to prevent any interference by the parties 
 to the agreement with outside competition. 
 
 "(5) That the Sherman antitrust law be enforced against existing 
 offenders and that the execution of the details of the judgment be 
 intrusted to the commission, subject (wherever necessary by reason 
 of constitutional limitations) to the approval by the court and the 
 adoption by the latter of the findings of the commission. 
 
 "(6) That (a) the criminal section of the antitrust law, (b) the 
 provisions allowing an injunction against the creation or continuance 
 of violations, and (c) provisions for the summary seizure and con- 
 fiscation under section 6 of all property in interstate transit of any 
 corporation operating in violation of the statute be rigidly enforced. 
 
218 HEARINGS BEFORE 
 
 Then you add : 
 
 " With_ such a program and an administration in sympathy with 
 it and with the energy and ability necessary to carry it out every 
 existing violation of the law would soon be corrected, so far as that 
 would be possible, and we would have a consistent, workable plan 
 instead of the present intolerable condition, floundering and insincer- 
 ity on the part of the administration and chaotic from the point of 
 view of the business community." 
 
 I take it that represents your present view ? 
 
 Mr. Untermyer. Well, with some few modifications. I think the 
 ^'censing of the corporation, such as I have outlined, might answer 
 the purpose. 
 
 Senator Pomerene. Have you any other modifications in mind ? 
 
 Mr. Untermyer. Not other than I have suggested to-day in the 
 discussion. 
 
 Senator Pomerene. Now you speak, and have spoken during the 
 morning session, of Federal incorporation and of licensing the cor- 
 poration. Do you mean that you would have all of these corpora- 
 tions that are engaged in interstate traffic incorporated by Federal 
 law or simply make it permissive? 
 
 Mr. Untermyer. I think that Senator Cummins's plan of a permis- 
 sive incorporation law. with a compulsory Federal license, is a better 
 plan. 
 
 Senator Pomerene. You would have these Federal corporations 
 under the jurisdiction of the State courts as well as the Federal 
 courts? 
 
 Mr. Untermyer. Yes, sir; I think wherever possible they should 
 be subjected, by special provision of the law, to the jurisdiction of the 
 State courts, and whatever State rights can be preserved with due 
 regard to the Federal supervision should be retained. 
 
 Senator Pomerene. That is, you would have the jurisdiction of 
 the State and Federal courts concurrent? 
 
 Mr. Untermter. I would have it similar to the national banking 
 laws. 
 
 Senator Pomerene. Now, then, calling your attention to the licens- 
 ing of these corporations engaged in interstate traffic, I take it you 
 mean that the corporations would have to comply with given condi- 
 tions to be provided for by statute or otherwise before that license 
 could issue? 
 
 Mr. Untermyer. Yes, sir : I think it would take the form of a pre- 
 scribed charter in effect — I mean the result of it would be that the 
 State charter would have to be made to conform to the requirements 
 of the Federal law. and they would have to eliminate from their 
 State charters all objectionable features and still retain the State 
 charter. 
 
 Senator Pomerene. I would like to have you state in detail the con- 
 ditions which you have in mind. 
 
 Mr. Untermyer. Well, they are very numerous — the conditions 
 that would be imposed upon such a license, the charter conditions. 
 First and foremost, I would require that the State charter should be 
 so amended as to take away from the corporation the power to hold 
 stock in other corporations unless they held all the stock of other 
 corporations. I would not allow them under Federal authority, if 
 they had a Federal license, to continue the oppressive measures that 
 
COMMITTEE ON INTEESTATE COMMERCE. 219 
 
 now exist against the minority stockholders. In the second place, I 
 would provide for stock liability under certain prescribed conditions. 
 I would take away their exemptions from immunity which they now 
 enjoy under some of those charters. In the third place, I think it 
 might Jbe necessary to curtail the powers of some of those charters, 
 which are very broad. There is no kind of business undertaking or 
 any kind of guaranty or any kind of obligation that can not be under- 
 taken under some of those charters unless it be the, operation of a 
 public franchise. With few exceptions of that kind the charters are 
 entirely too broad and sweeping, and I would take away from them 
 the right to convert their own stock into an obligation of the com- 
 pany, which they enjoy in many States now. For instance, I may 
 find myself the owner of a hundred shares of stock in a corporation 
 that has a thousand shares, and the other 900 shares could convert 
 their stock into an obligation ahead of me. I could do the same if 
 I wanted to, but I do not want to. I would still have to allow the 
 rest of the stock to get ahead of me as an obligation of the company, 
 and enforceable against me. 
 
 There are so many of those impositions that have been practiced 
 under State charters that would have to be corrected that it would 
 be next to impossible to particularize. I think you ought to have 
 uniform charters. 
 
 Senator Pomeeene. Have you anything in mind touching the 
 watering of stock ? 
 
 Mr. Unteemyee. Yes ; as to future corporations. I do not think it 
 is practicable to attempt to interfere with those whose stock is out- 
 standing. I think there should be valuation of good will. I think 
 the commission would have to fix the amount of stock that should be 
 issued to them, and have a discretion in that respect. They should 
 not be tied down like public-service corporations are. 
 
 Senator Pomeeene. Before issuing that license, would you have 
 the commission, if there was one, or other governmental agency, 
 inquire into the financial status of the company ? 
 > Mr. Unteemyee. I think not. I would not suggest impeding un- 
 duly the organization of corporations. Their property would have to 
 be equal to their stock issue, with the addition of a reasonable amount 
 of good will. But, apart from that, I do not think that their finan- 
 cial condition ought to be inquired into. 
 
 Senator Pomeeene. "Would you authorize this commission or 
 agency to inquire into the question as to whether or not the cor- 
 poration had been violating any of the provisions of the Federal 
 statutes? I have in mind, for instance, the Sherman antitrust law. 
 
 Mr. Unteemyee. Most assuredly that would be an essential factor 
 of any plan. I had in mind that if the corporation was existing 
 in violation of the Sherman law it would be refused a charter, but 
 the commission would have power to approve a plan of reorganiza- 
 tion that would bring it within the law or stop it from conducting 
 interstate commerce. 
 
 Senator Pomeeene. Now, this morning you spoke of certain con- 
 tingencies, if I remember aright, in which you would even authorize 
 this commission to control or regulate prices? 
 
 Mr. Unteemyee. Yes, sir; well, to pass upon agreements regulating 
 prices. 
 
 Senator Pomerene. Would you make that a plenary power ? 
 
220 
 
 HEARINGS BEFORE 
 
 Mr. Untermter. No, sir. I should think it might be subject to 
 review. 
 
 Senator Pomerene. In that connection I want to refer to a matter 
 of which I spoke yesterday in examining another witness. A Member 
 of Congress suggested this thought : That in cases where a trust or 
 combination had been convicted of a violation of the Sherman anti- 
 trust law, after that time the Government should have the power 
 of regulating prices of the output. What is your judgment about a 
 provision of that character? 
 
 Mr. Untermter. It seems to be quite impracticable. I do not 
 see any great advantage in that discrimination. They might be con- 
 victed upon some ground that was quite foreign to any oppression 
 on the subject of prices. It might have lowered the prices. It might 
 have been convicted of the oppression it was exercising in that respect. 
 I do not see why it should be applied to one set of corporations. 
 
 Senator Pomerene. That is, you would make that power broader 
 than that contained in the instance I have given ? 
 
 Mr. Untermyer. Yes; I would make it a part of the administra- 
 tion of the Sherman law. I should say this law has got to be enforced 
 up to a certain point at which people in the industry feel that they 
 can no longer exist by reason of ruinous competition, and then that 
 there should be some way of getting relief, under the approval of 
 the commission, to ameliorate the rigors of the law and make the law 
 enforceable and respected instead of being evaded. The trusts or 
 consolidations and their regulation are a small part of this subject. 
 The gentlemen's agreements and understandings are the greater and 
 more important part of the subject in this community. They are the 
 real regulators of prices. 
 
 Senator Pomerene. Now, you have referred to the American To- 
 bacco Co. case. Is it your judgment that since the court has resolved 
 this trust into its component parts, as indicated by the decree, that it 
 would be easier for the officials of that company to enter into gentle- 
 men's agreements than before? 
 
 Mr. Untermter. I do not think they will have any need of doing" 
 so. They had no needs before in that particular case, because that 
 was a monopoly — one of the few practical monopolies in certain lines 
 of business in the country. There are a very few of them, but there 
 were lines of business in which it was a monopoly ; for instance, in 
 the snuff industry, I think, they had 97 per cent and in others 87 per 
 cent or 90 per cent, as the court found. I think in the cigarette busi- 
 ness they had over 90 per cent. So there were no gentlemen's agree- 
 ments ever necessary there and I do not see how any gentlemen's 
 agreements are going to be very necessary here when the court permits 
 the management of these companies all to be the same. I think, if 
 that is to be a precedent, that the law has absolutely broken down in 
 its most vital point. 
 
 Senator Pomerene. I think that is all T care to nsk. 
 
 Senator Cummins. Senator Townsend, do you desire to ask any 
 questions ? 
 
 Senator Townsend. Mr. Untermyer, with reference to these agree- 
 ments, as I understand you, they are simply permissible on the part 
 of the parties who wish to make them ? 
 
 Mr. Untermter. Yes, sir. 
 
COMMITTEE OK IXTEHSTATK COMMERCE. 221 
 
 Senator Townsend. Are they to be enforceable after they are once 
 made under the law ? 
 
 Mr. Untermyer. Yes, sir; they are to be, for a limited time, subject 
 to review, subject to modification by the commission at any time, and 
 subject to the right of anyone who wants to come in to be made a 
 party. 
 
 Senator Townsend. Any outsider — anybody? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Townsend. At any time during the three years? 
 
 Mr. Untermyer. At any time. 
 
 Senator Townsend. But the parties who enter into them can not 
 voluntarily vacate them? 
 
 Mr. Untermyer. Not except with the consent of the commission. 
 
 Senator Townsend. So that it is binding upon the parties to that 
 extent? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Townsend. Would you extend this right to make agree- 
 ments with the railroad companies? 
 
 Mr. Untermyer. Well, that is a different branch of the subject. 
 Yes, sir, I think railroad companies should, under the supervision of 
 the Interstate Commerce Commission, have the right to fix rates 
 subject to the approval of the commission. I think that was in the 
 Eepublican platform 
 
 Senator Townsend. And the Democratic platform. 
 
 Mr. Untermyer. Both. I have suggested, and I think President 
 Eoosevelt in two of his messages suggested it. They are doing it now 
 without any control. That is the sum and substance of it. 
 
 Senator Townsend. Now, as I understand you, these agreements 
 are clandestinely made at this time — they are entered into and called 
 gentlemen's agreements? 
 
 Mr. Untermyer. Yes, sir ; there were many hundreds of them scat- 
 tered all over the country — almost thousands — in writing until the 
 rigid enforcement of the law began. 
 
 "Senator Townsend. What object would there be for a large cor- 
 poration or association — a lawful one — to enter into this kind of an 
 agreement? 
 
 Mr. Untermyer. Because the worst kind of competition comes 
 from the irresponsible, unbusinesslike competitor. The man who is 
 living on credit, and has not much to lose, is generally the worst com- 
 petitor, and it is his competition frequently that destroys the profit in 
 an industry. 
 
 Senator Townsend. Do they make these agreements now, the large 
 ones with the smaller ones? 
 
 Mr. Untermyer. Oh, yes, sir. 
 
 Senator Townsend. Generally? 
 
 Mr. Untermyer. I should say quite generally. 
 
 Senator Townsend. Is that true with reference to the copper 
 business ? 
 
 Mr. Untermyer. I know of no agreements in the copper business 
 at all. I do not think that there are any. 
 
 Senator Townsend. But you think if this was given them— this 
 right was given to the copper-mining companies — that they would 
 make the agreements? 
 
222 
 
 HEARINGS BEFOIiE 
 
 Mr. Unterjiyer. Yes, sir; and I think they would make them very 
 much to the interest — such an agreement would be very much in the 
 interest of the country. 
 
 Senator Townsend. Do you know what proportion of the copper- 
 mining properties in Michigan, for instance, have paid dividends dur- 
 ing the last 25 years ? 
 
 Mr. Untermyer. I know their situation quite well. They have 
 paid very large dividends until recently. The Calumet and the 
 Tamarack paid large dividends for a while. The Oceola paid divi- 
 dends for a while. I haven't them in mind, but I know the records 
 of them. 
 
 Senator Townsend. But a great majority of them have never paid 
 dividends up there? 
 
 Mr. Untermyer. The great majoritj' of them were never mines. 
 They thought they were mines, but they were not. 
 
 Senator Town send. But they have been operating them for years 
 and years — many of them. 
 
 Mr. Untermyer. I do not know how many have been operated with 
 any substantial skill for years that did not pay dividends at one time 
 or another. I do not recall any. 
 
 Senator Townsend. I know nothing about the Minnesota com- 
 panies. That was given to me not a great while ago. There were 26 
 active mines, some of which had been in operation for from 15 to 25 
 years, which had never paid a dividend. 
 
 Mr. Untermyer. I do not think that that is accurate, Senator. 
 There were some like the Isle Royal and two or three others that had 
 never paid any dividends, but the bulk of the active mines have paid 
 dividends. You understand that copper, which is now 12 cents, has 
 been as high as 25 cents, and for many years was around 18 cents. 
 In reality, if the object is to get rid of them, would it not necessarily 
 result in fixing the prices so that some of these companies could live 
 ar their business and declare dividends? You mean in the general 
 broad subject? 
 
 Senator Townsend. Yes. 
 
 Mr. Untermyer. Yes ; of course the result of it would be that the 
 commission, in passing upon these agreements, would have to fix a 
 limit. They would have to find out in a general way what was the 
 lowest cost of production in a given line of industry, and I imagine 
 they would make that the basis, the lowest cost, and to that they would 
 probably add a reasonable profit. If these concerns could live under 
 those circumstances, they would. I suppose you know that it is those 
 concerns who are constantly reorganized by wiping out creditors and 
 stockholders that really can afford to do the most competing, because 
 they do not pay their debts ; they do not pay their stockholders, and 
 if they reorganized by wiping out everybody, they could afford to 
 compete. 
 
 Senator Townsend. You think that would not work to the detri- 
 ment of the ultimate consumer ? 
 
 Mr. Untermyer. No, sir ; I think it would work to his advantage, 
 because people will not stay in an industry where there is no profit. 
 It would simply lead to stability. Take the retailer or the jobber. 
 He puts the goods on his shelves to-day. He does not know what 
 the price is going to be next month or next year, and he has got to fix 
 the price to cover contingencies. There is no stability in the business, 
 
uuiviJiixiiiji ujn l^xJiilfeTATE COMMERCE. 223 
 
 and he fixes a price to cover contingencies at the expense of the con- 
 sumer. 
 
 Senator Townsend. I can see readily that this system might tend 
 to stability, but I wonder if it would not necessarily lead to a higher 
 cost of living. 
 
 Mr. Untebmyee. I think it would lead to a lower one. Let us 
 illustrate. Take the cotton industry. Cotton is now 9 cents, and 
 cotton goods should be much cheaper than when cotton was 15 cents. 
 The goods would be cheaper than they are to-day if cotton was stable 
 at 11 cents from year to year. Do you suppose the retailer, who sells 
 to the consumer, when he buys his cotton goods and puts them on his 
 shelves can now afford to sell on a basis of 9-cent cotton? The low 
 price is not helping the retailer much, and is not helping the con- 
 sumer at all. I do not think you will find much difference in the 
 price of cotton goods this year at retail prices, because the man does 
 not know when he is going to dispose of his stock, and does not know 
 what cotton is going to be in six months from now. If the planter 
 were allowed to carry over the surplus cotton, and cotton were fixed 
 at 11 cents, we will say, and they could not get any more, and if there 
 is a surplus crop one year which goes to make up a deficiency the 
 next year, the retailer and consumer would get the benefit of it. You 
 will have a smaller margin of profit required because the business 
 will be safe. Every time you put stability into business you can 
 afford to do business with smaller profit than if you are gambling 
 and speculating all the time on the value of your product. 
 
 Senator Townsend. But if agreements are permitted among the 
 larger concerns doing interstate business, and this law is followed by 
 the States, and agreements there are permitted to intrastate organi- 
 zations, it seems inevitable — and I am not saying this for the purpose 
 of getting into a controversy with you, because I am very much in- 
 terested in what you have said, and recognize that you are an author- 
 ity in this matter — it looks to hie as if the inevitable result would be 
 higher prices; that men are not. going to make agreements except for 
 the benefit of the parties to the contract, and where is it going to end ? 
 
 Mr. Untermyer. But are you not assuming that if you do not have 
 such an agreement — are you not assuming that in the changed com- 
 mercial conditions that competition is going to be unrestricted, and 
 have you a right to assume that competition will ever again be unre- 
 stricted, or can be made so ? Is it not going to be the fact that instead 
 of regulating agreements you are going to have agreements without 
 supervision, and wherever the people in an industry can get together 
 they are going to get together and exact all they can. 
 
 Senator Townsend. They are doing that now, you say. 
 
 Mr. Untebmyee. Yes, sir ; I think very largely. 
 
 Senator Townsend. Now, if they are doing it now, and doing it 
 successfully, except to get relief from the moral turpitude which 
 comes from violation, and a known violation of the law, it seems to 
 me there could be no inducements for the parties who are getting an 
 advantage over those who are their smaller competitors to enter into 
 this kind of agreement. It is not compelled by the law that they 
 should make the agreement. As to the little fellows, I can under- 
 stand how they might get together and combine against the large 
 fellow, and say "We will regulate our prices; we will not cut each 
 
 22877— vol 1—12 15 
 
224 
 
 HEARINGS BEFORE 
 
 other's throats, but will concentrate all our efforts on the largo 
 fellow." I can see how something might come out of that. 
 
 Mr. Untermyer. The inducement is right here. If you have a law 
 that prohibits any corporation from engaging in interstate Commerce 
 until it has a license, and subjects itself to the provision, you will 
 then have a means of finding out about these secret agreements. 
 
 Senator Town send. Possibly. 
 
 Mr. Untermyer. You will be able to reach them then — you will be 
 so nearly able to reach them that the people would not dare — up to a 
 certain point they would not dare, but they certainly will dare if 
 their financial business and existence depend upon it. When they get 
 to this point, where it is a question of ruin or trying to contravene the 
 law, then you will find that they will dare. It is not to anybody's 
 interest, and to my mind not in the State's interest, to have that kind 
 of competition. 
 
 Senator Townsend. Now, with reference to the licensing or char- 
 tering, whatever you are pleased to call it, as I understand you, the 
 commission would be authorized to look into the condition of the 
 company, and its assets shall not exceed, as you say, $2,000,000. 
 
 Mr. Untermyer. No ; when its assets do exceed $2,000,000. 
 
 Senator Townsend. I beg your pardon. I mean that. 
 
 Mr. Untermyer. The total assets or its issued capital. 
 
 Senator Townsend. That is what I intended to say. You include 
 in that $2,000,000 a certain amount for good will ? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Townsend. You capitalize good will as a part of that 
 $2,000,000? 
 
 Mr. Untermyer. Well, I should say yes. Of course that is an 
 arbitrary figure. 
 
 Senator Townsend. What do you include as good will ? 
 
 Mr. Untermyer. An ascertained average profit in a business over 
 and above interest on capital employed. If a business, for instance, 
 has been in existence for five years, and has $100,000 of actual invest- 
 ment in it, and it has earned, we will say, $10,000 a year, that is 10 
 per cent of its actual investment. We will say that 5 per cent of that 
 is a capital charge. So that we would capitalize its good will at the 
 surplus revenue of $5,000, as worth so many years' purchase, you 
 might say — 5 years' purchase or 10 years' purchase. 
 
 Senator Townsend. And that revenue would depend upon business 
 methods, the conduct of the business and management, very largely? 
 
 Mr. Untermyer. Yes, sir. But still it is an element of good will. 
 You would have to take from that, as merchants do, what the cost of 
 a man's service was, what his own work was worth. 
 
 Senator Townsend. You would not include in what some include 
 as franchise value, or something of that kind ? 
 
 Mr. Untermyer. No, sir; I think there is no such thing with a 
 private corporation. 
 
 Senator Townsend. I think that is all I care to ask. 
 
 Senator Brandegee. May I ask a question? Have you reduced 
 your views to a definite form of a proposed act ? 
 
 Mr. Untermyer. No, sir; I have been asked, as chairman of this 
 subcommittee of the federation, to do so, but I have not gotten to that 
 point as yet, because this committee embodies all sorts of views, and 
 we have not quite come together in our views. 
 
COMMITTEE ON INTERSTATE COMMERCE. 225 
 
 Senator Beaxdegee. When your subcommittee reports to your 
 entire committee, and the entire committee reports to the body or 
 order, or whatever it is — the Civic Federation — how many men 
 attend the meeting to accept the report? 
 
 Mr, Untermyer. This is a special committee for this purpose. I 
 will say that I do not know that this bill would be submitted to the 
 entire federation. I think the subcommittee consists of about 20 
 members; the committee consists of about — well, 40 members. I 
 think the subcommittee consists of 15 or 20 members. 
 
 Senator Brandegee. The subcommittee consists of 15 or 20 
 members ? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Brandegee. What I am trying to get at is — and I can 
 state it by asking another question — is your entire committee at 
 present authorized to perfect something and submit it to Congress; 
 are they acting with power now ? 
 
 Mr. Untermyer. Yes, sir; they are acting with power from the 
 federation. 
 
 Senator Brandegee. With power to go ahead -and recommend 
 something to Congress ? 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Brandegee. What is the membership of the entire body? 
 
 Mr. Untermyer. I do not know really. It is a very large body. 
 
 Senator Brandegee. Is it confined to any one State ? 
 
 Mr. Untermyer. No, sir; it is country wide. It takes in all the 
 capital class and the labor class. They have a great many of the 
 labor leaders. I think Senator Cummins is more familiar with it 
 than I am; are you not, Senator? 
 
 Senator Brandegee. Who appointed the committee ? 
 
 Mr. Untermyer. I think they were appointed by Mr. Seth [.owe, 
 the chairman. 
 
 Mr. Brandegee. The chairman of what? 
 
 Mr. Untermyer. The chairman of the National Civic Federation. 
 
 Senator Brandegee. Then whatever suggestion your committee 
 may make in the end, if it be a unanimous one, would not neces- 
 sarily represent the views of the majority of the Civic Federation 
 all over the country, will it ? 
 
 Mr. Untermyer. I doubt it. I think the committee, however, is 
 composed of representatives of practically every State in the country. 
 
 Senator Brandegee. Yes; I have no doubt of that; but I was try- 
 ing to get at whether the association itself, the Civic Federation, had 
 any wa3 7 s of taking a vote to see whether a majority of their mem- 
 bers recommended a certain thing or not. 
 
 Mr. Untermyer. Yes, sir; they are doing that in this way: They 
 have sent out a very comprehensive questionaire, as they call it, not 
 only to their own members, but to many thousands of other people 
 in the community. This same committee, of which I am a member, 
 has sent out these questionaires. 
 
 Senator Brandegee. That I placed in the record yesterday. I un- 
 derstand that, but that is a request for individual opinions upon a 
 very great variety of subjects. 
 
 Mr. Untermyer. Yes, sir. 
 
 Senator Brandegee. But that would not commit anybody, pro or 
 con, to a definite bill that the committee might approve. 
 
226 HEARINGS BEFORE 
 
 Mr. Untermyer. No, sir. 
 
 Senator Brandegee. You expect, then, to have somebody to intro- 
 duce a bill if you agree among yourselves in relation to this matter 
 that we have been discussing? 
 
 Mr. Untermyer. I can not say that. I have never gone any fur- 
 ther than to undertake the labor, being chairman of the subcom- 
 mittee, to prepare one. 
 
 Senator Brandegee. Do you know whether the members of the 
 association intend to appear before this committee or not? 
 
 Mr. Untermyer. I do not know. I do not appear here as a mem- 
 ber of the federation. 
 
 Senator Brandegee. You appear here as an individual? 
 
 Mr. Untermyer. Yes, sir. I do not undertake to bind the federa- 
 tion by my views, or even my own committee. 
 
 Senator Brandegee. No; I do not suppose that. You have not 
 reported to them ? 
 
 Mr. Untermyer. I have reported to the subcommittee, but I do 
 not indicate that they are bound by my statements at all. Some of 
 them do not agree with my views. 
 
 Senator Brandegee. Does your scheme, so far as you have indi- 
 cated, provide for a submission to a proposed commission of a pro- 
 posed trade agreement about anything else except prices? 
 
 Mr. Untermyer. Well, price and any limitation of output they 
 may have. That is all. 
 
 Senator Brandegee. Nothing else? 
 
 Mr. Untermyer. No, sir. 
 
 Senator Brandegee. So that it would still be subject to prosecu- 
 tion, would it not, by the United States if the members of the com- 
 bination had a contract which in any other respect violated the 
 Sherman law? 
 
 Mr. Untermyer. Yes, sir; not alone that, but, as I have suggested, 
 it would have the effect of making it revocable. The license of any 
 member who was found to be engaged in any such an undertaking 
 should be revocable. 
 
 Senator Brandegee. But that would not affect the validity of the 
 whole agreement? 
 
 Mr. Untermyer. No, sir; not as against those who were not par- 
 ties to any unlawful arrangement. 
 
 Senator Brandegee. Do you individually, or as a lawyer, take the 
 view of the Sherman law as expressed by the majority of the court 
 in the Standard Oil case, or by Judge Harlan — which view do you 
 take? 
 
 Mr. Untermyer. I take the view of the majority. I think that it 
 was a wise solution. I do not quite agree — if I might have the 
 temerity to say so — with the language of the opinion. I rather 
 assume that what the court meant to prohibit was any direct re- 
 straint of trade, rather than what they spoke of as unreasonable. 
 
 Senator Brandegee. " Undue " I think was their word. 
 
 Mr. Untermyer. It seems to me that what was meant was to pro- 
 hibit a direct restraint of trade rather than incidental restraints. 
 I do not see anything new in the decision. It seems to be in line 
 with everything that has ever been decided by the court. 
 
COMMITTEE ON INTERSTATE COMMERCE. 227 
 
 Senator Brandegee. Do you consider that in their decision they 
 had, as the expression has been used, interpolated or read into the 
 law some word that was not there if the law was properly construed ? 
 
 Mr. Untermyer. Not at all. It seemed to me a mere announce- 
 ment of existing law. 
 
 Se lator Brandegee. Then you do not consider the decision to have 
 been a judge-made law? 
 
 Mr. Untermyer. Not in the least. I think it is a very workable 
 decision. 
 
 Senator Brandegee. You think it is a proper interpretation of the 
 statute ? 
 
 Mr. Untermyer. Yes; and to my mind the only sensible one and 
 the only one that makes it workable. The other interpretation 
 would, it seems to me, have brought the law into contempt and made 
 it apply to such a variety of activities that evidently have no tend- 
 ency in the way of restraining trade that it would have defeated its 
 own purpose. 
 
 Senator Brandegee. Was there any or is there any other view to 
 be takei of the Sherman law as written except that enunciated by 
 Judge L icomb in his decision in the American Tobacco case and the 
 one announced by the majority of the Supreme Court in the Standard 
 Oil case? 
 
 Mr. Untermyer. You mean Judge Lacomb's original decision? 
 
 Senator Brandegee. "Where he used the illustration of the two 
 rival express companies. 
 
 Mr. Untermyer. I think that was rather an attempt to strike at 
 the law. 
 
 Senator Brandegee. What I mean is, it was an attempt, was it 
 not, to interpret literally the law as the words were ? 
 
 Mr. Untermyer. It would have made it quite absurd. 
 
 Senator Brandegee. You mean to say— — 
 
 Mr. Untermyer. Every man who is in business restrains trade 
 within the meaning of Judge Lacomb's decision. 
 
 Senator Brandegee. So, to come back to my question, is there no 
 middle ground between the view of Judge Lacomb, in your opinion, 
 and the view of the majority of the Supreme Court? 
 
 Mr. Untermyer. It seems to me there is not. 
 
 Senator Brandegee. Now, other than as you have indicated, as 
 may appear in your bill when it is perfected and presented, do you 
 think the Sherman law needs amendment? 
 
 Mr. Untermyer. I do not. I think it is a very effective and en- 
 forceable law as it stands, subject to its being supplemented, as I 
 have suggested. 
 
 Senator Brandegee. Yes ; I say by some bill in the nature of legal- 
 izing agreements in reasonable restraint of trade, to fixing prices. 
 
 Mr. Untermyer. Where the competition has become ruinous? 
 
 Senator Brandegee. Where the competition is, or is about to be- 
 come, ruinous, or has been, if such legislation was passed, you would 
 say let the present Sherman law alone for the present? 
 
 Mr. Untermyer. Yes, sir; of course in connection with Federal 
 regulation I should say let it alone for the present and for all time 
 to come. I think it is a marvel of simplicity and effectiveness. 
 
228 
 
 HEARINGS BEFORE 
 
 Senator Brandegee. But if I understood your previous testimony 
 correctly, if the decision of the United States Circuit Court of Ap- 
 peals in New York in the tobacco dissolution case is a practical work- 
 ing out of the Sherman law as properly construed, what would be 
 your advice then? 
 
 Mr. Untermyer. I should say that no law could ever be enacted 
 that would meet a situation like that. It would not make much dif- 
 ference how many laws were passed if you could always nullify 
 them in the form of the decree. 
 
 Senator Brandegee. In other words, is not this true, that if the 
 existing arrangement which has been pronounced valid, as I under- 
 stand, by the circuit court of appeals, to which I have alluded, is 
 an agreement in reasonable restraint of trade, you would not think 
 the Sherman law as it stands to-day was any protection to the people, 
 would you? 
 
 Mr. Untermyer. Well, of course if the judgment in that c.ase 
 stands in the form in which it has been rendered now, while the 
 Sherman law would not protect against the great mon, polies, of 
 course it would still protect against all pools and agreements. It 
 would leave every trade agreement subject to prosecution and would 
 take the trusts out of its operation so far as concerns practical results. 
 
 Senator Brandegee. But what I mean to say is, It is your opinion, 
 is it not, that the Tobacco Corporation, under its new organization, 
 as approved by that court, is really a combination in unreasonable 
 restraint of trade ? 
 
 Mr. Untermyer. Yes, sir; I think it strikes at the vitals of the 
 law as it exists to-day. I think, in other words, that if a corpora- 
 tion were proceeded against to-day under the Sherman law,' in the 
 position in which the Tobacco Co. is under the decree, that the 
 Supreme Court would hold that corporation unlawful under that act. 
 
 Senator Brandegee. But, as I understand, you do not approve of 
 any amendment to the Sherman law to-day, because you take the view 
 that the court there very properly construed the Sherman law? 
 
 Mr. Untermyer. Yes, sir; I do not think you could meet such a 
 situation by amendment without including business enterprises that 
 should not be interfered with. 
 
 Senator Brandegee. You think the Sherman law, as it stands and 
 as it has been construed by the Supreme Court in the majority 
 opinion in the Standard Oil case, is ample protection against com- 
 bination in restraint of trade? 
 
 Mr. Untermyer. Y es > sir; I do. 
 
 Senator Brandegee. Did you say anything about your view as to 
 a Federal incorporation law on the lines suggested by the President 
 in his message to the last Congress ? 
 
 Mr. Untermyer. Well, that was a permissive law, purely. 
 
 Senator Brandegee. I say, Did you express any opinion about 
 that law ? 
 
 Mr. Untermyer. No; I do not think I was asked about that. 
 
 Senator Brandegee. Do you care to express any opinion? 
 
 Mr. Untermyer. I do not see that in and of itself it would amount 
 to anything or accomplish anything. As part of a broader system 
 it might, but I have not been able to see — perhaps I do not quite 
 understand it — but I have not been able to see what could be accom- 
 
COMMITTEE ON INTERSTATE COMMERCE. 229 
 
 published by it, or why anybody could organize under it unless it is 
 for an ulterior purpose. If the purpose were to give the immunity 
 of the Sherman law to offenders who chose to organize under that 
 law, it would be a vicious one. If its purpose was not to give im- 
 munity, why should anybody take advantage of it? 
 
 Senator Brandegee. What would you say about Senator Newland's 
 proposed bill granting Federal registration— if I had the language 
 of it — or United States register ? 
 
 Mr. Untermyer. I think I have discussed that with Senator 
 Newlands. 
 
 Senator Brandegee. As I gather it, you do not see any advantage 
 to a corporation to avail itself of the terms of it, if it were a law, 
 do you ? 
 
 _ Mr. Untermyer. Not of a permissive bill. It is a purely permis- 
 sive bill. 
 
 Senator Brandegee. If it were mandatory, would it be of any 
 advantage to a corporation? 
 
 Mr. Untermyer. I have not the terms of the bill in mind at th<; 
 moment, I have rather forgotten them. 
 
 Senator Brandegee. What do you think relative to the diffi- 
 culty of having a good incorporation law in this country in view of 
 the different actions of the States? Did you not say that it was 
 pretty nearly impossible to get a decent incorporation law, or some 
 such phrase as that? 
 
 Mr. Untermyer. Yes, sir ; I said my idea of the model incorpora- 
 tion law is the English companies act, and if we could have, in con- 
 nection with the enforced Federal license, a permissive corporation 
 law, it could be made a model. It should require publicity, and that 
 investors should be informed of the terms of any issue of stock or 
 bonds. Every prospectus should be filed and a variety of details 
 provided for which the companies acts have in England. I think it 
 would be a great advantage to us. It would be a model which would 
 be of use to us in this respect : That if you had a compulsory Federal 
 license in connection with it, the corporations might be compelled to 
 conform to it in order to get a license. 
 
 Senator Brandegee. In your judgment, would it be wise to set any 
 limit upon the amount of capital which might be engaged in a par- 
 ticular business under one corporation ? 
 
 Mr. Untermyer. No ; I do not see the advantage of it. I can not 
 quite agree with Senator Cummins about that. Take, for instance, the 
 
 g ackers. There are four or five great firms of packers in the United 
 tates — corporations. I think the capital of each of them, certainly 
 of four of them, would be from $40,000,000 to $50,000,000 apiece; and 
 yet if there is no trade agreement or understanding among them, if 
 they are really competing as they are supposed to be, the fact that 
 each one of them would have a capital of $50,000,000 would not affect 
 the question of competition at all, while in some other businesses there 
 is very small capital. 
 
 Senator Brandegee. Now, to instance the Steel Corporation, would 
 you have any objection to that amount of capital being under one 
 control in the steel business, provided the stocks had not been 
 watered ? 
 
230 
 
 HEARINGS BEFORE 
 
 Mr. Untermyer. Of course, the essential question would be as to 
 whether that was in the nature of a monopoly. There is a difficulty 
 there, of course. I think the steel business, while it is conducted on 
 broad, big, generous, and enlightened business lines, is the most men- 
 acing of all the trusts, because of the great money power behind it. 
 
 Senator Brandegee. That is the reason I instanced to see if there 
 might not be some objection. 
 
 Mr. Untermyer. It is not because of the capital of the company 
 that there is any objection; it is not that. That does not make it 
 menacing. It is the concentration of the money power behind it that 
 makes every competitor in fact a puppet. A competitor can not get 
 credit if the powers behind the company do not want him to get 
 credit, because it is concentrated — it is a money control. I believe 
 that it carries a bank balance of $75,000,000 in New York City, which 
 means money power in itself. But that is the least part of the story. 
 The reality far exceeds the most vivid imagination as to the ramifica- 
 tions of its power. 
 
 Senator Brandegee. What is your distinction between money con- 
 trol and the capital of the company? I do not understand it. For 
 instance, you say it is not the amount of capital engaged in the indus- 
 try, that is a menace, but the amount of money they control. 
 
 Mr. Untermter. I mean that its menace does not lie in the money 
 that the corporation controls. The menace in the steel company, to 
 my mind, is because of the hands — the power of the people who have 
 the control, their money power — not through this corporation alone, 
 but in the effect of their other interests in giving to the steel com- 
 pany the despotic power it holds in the industry. It is true that it 
 may not now be exercising that power to the public injury. I do not 
 think it is. 
 
 Senator Brandegee. Who does have the control of the steel com- 
 pany? 
 
 Mr. Untermyer. I do not think I should like to go into any per- 
 sonalities. 
 
 Senator Brandegee. I do not want you to violate any personal 
 confidence. 
 
 Mr. Untermyer. I have no professional relations with them. 
 
 Senator Brandegee. I understood the stock was widely distributed. 
 Am I wrongly informed ? 
 
 Mr. Untermyer. No, sir; you are not. The stock is very widely 
 distributed. I believe there are 120,000 shareholders, but that proves 
 nothing when discussing the question of control. Will you tell me 
 a railroad company in the country, with exception of Mr. Hill's 
 properties, that is not controlled on less than 20 per cent of the 
 stock ownership ? Stock control plays a very little part in real con- 
 trol. The real management is frequently, and generally remains, in 
 the hands of the people who have not any stock or very little. So 
 long as they care for the stockholders' interests, and frequently when 
 they are betraying them, they retain control. It is not the business 
 of the management to take care of the public. The people who to-day 
 control the Steel Co. are almost as effectively in the saddle as though 
 they owned the stock. 
 
 Senator Brandegee. Do I understand you that the threat of a 
 company of that kind, or the danger of it, is in its bank balance and 
 the amount of business it transacts rather than its capitalization? 
 
COMMITTEE ON INTERSTATE COMMERCE, 231 
 
 Mr. Untermyer. Not even in that alone or to any considerable 
 extent. 
 
 In the first place, in the case of the Steel Co., it has control, to 
 a large extent, of the ore reserves and of railroad facilities, but that 
 does not seem to be so important as the powerful hands that protect 
 it. These same people control vast banks and trust companies add 
 railroads and other interests that would make it practically impos- 
 sible for competition to live against it. 
 
 Senator Brandegee. Then, in view of that, if Congress— — 
 
 Mr. Untermyer. It is not the amount of capital at all. Pardon 
 me for interrupting you. 
 
 Senator Brandegee. Then there would be no remedy, in your opin- 
 ion, in putting a limit to the amount of money that might go into a 
 particular business? 
 
 Mr. Untermyer. I do not think the amount of capital involved in 
 a business is a factor. I do not think the danger comes from that 
 source. It comes from ulterior things that are not illegal and are not 
 the subject of legitimate complaint, but they are there. 
 
 Senator Brandegee. Well, how can that ever be remedied? If 
 men, otherwise of great capital and large means and powerful influ- 
 ence, have a mind to get together to go into a certain business, how 
 can you ever divest from the business in which they are engaged their 
 influence and standing and wealth and their other fields of power? 
 
 Mr. Untermyer. I do not think that you can and I do not think 
 that you ought to. I am only contending for an existing situation, 
 and not for a remedy for that sort of a situation. 
 
 Senator Brandegee. But it would be well to do it if we could, if it 
 is a great danger, would it not? 
 
 Mr. Untermyer. Of course there are things that you can do when 
 you come to these broad questions of how to curb the money power, 
 but that is another subject, and a very big one, which we are not now 
 discussing. 
 
 Senator Brandegee. That is all I care to ask. 
 
 Senator Newlands. Just a few questions. Mr. Untermyer, you 
 recognize the fact, do you not, that if there is a national incorporation 
 act for corporations engaged in interstate commerce, that almost all 
 of those corporations will drift into organizations under that act, do 
 you not? 
 
 Mr. Untermyer. It depends upon the features of the act. If they 
 see any advantage they will. 
 
 Senator Newlands. There certainly would be if it were compul- 
 sory for the corporations engaged in interstate commerce. 
 
 Mr. Untermyer. Yes, sir ; if it were compulsory, and could be con- 
 stitutionally enforced. 
 
 Senator Newlands. Now, I want to question you on that line a 
 little. Of course I am not considering this in any partisan way. 
 You understand that the principles of the Republican Party permit 
 of a larger centralization of national power than those of the Demo- 
 cratic Party? 
 
 Mr. Untermyer. In theory ; yes, sir. 
 
 Senator Newlands. Personally, I have been an advocate in a meas- 
 ure of national incorporations, particularly as it relates to the great 
 transportation companies 
 
232 
 
 HEARINGS BEFOEE 
 
 Mr. Untermyer. I think I am a good Democrat, but I do not be- 
 lieve in State rights over subjects that the States can not control. 
 
 Senator Newlands. That is what I want to get at. You do not 
 feel that the Democratic principles are opposed to a national incorpo- 
 ration act, even if it does result in corporations that are engaged in 
 interstate commerce drifting into organizations? 
 
 Mr. Untermyer. I have no doubt it will raise a political howl, but 
 that is not an economic consideration. 
 
 Senator Newlands. My understanding is that the States have 
 granted to the Nation the power over interstate commerce, and that 
 the real right of the States is to have the National Government fully 
 exercise that power. 
 
 Mr. Untermyer. But my idea, Senator Newlands, is that the State 
 should exercise every power that they can get hold of that they can 
 exercise, but when they can not exercise a power it simply weakens 
 the doctrine of State rights to try to hang on to it and not let the 
 Nation exercise it. 
 
 Senator Newlands. I quite agree with you. Now, I observed, in 
 reply to Senator Pomerene, you stated that some of the objections to 
 national incorporations upon the part of the States should be re- 
 moved or lessened by providing in the act that the corporations them- 
 selves should be subject to the jurisdiction of the State courts, as in 
 the case of the national-bank act. Could they not also be subjected to 
 the jurisdiction of State as to the exercise of police power? 
 
 Mr. Unteemyee. Yes, sir; undoubtedly; and wherever the State 
 could control any branch of their regulation it ought to be left to 
 them. It is bound to cause a good deal of political ferment, there 
 is no doubt about that, because it gives one party an issue, and they 
 are both looking for issues. 
 
 Senator Newlands. What do you think of this theory, that where 
 the United States, in exercise of interstate-commerce power, legislates 
 upon matters relating to interstate-commerce matters, and instru- 
 mentalities engaged in interstate commerce, that that immediately 
 ousts the jurisdiction of the State over purely State commerce en- 
 gaged in by that national corporation? I do nbt quite see how it 
 could. 
 
 Senator Newlands. Do you think that the power of the State over 
 purely State commerce transacted by a national corporation would be 
 as great as the power of the Nation over interstate commerce trans- 
 acted by a State corporation? 
 
 Mr. Untermyer. I should say so. 
 
 Senator Newlands. So that the national incorporation act would 
 not interfere at all with the control of the State over State commerce 
 as conducted by a national instrumentality ? 
 
 Mr. Untermyee. Except where they conflicted, like in the case of 
 the Minnesota rate case. 
 
 Senator Newlands. Very well. T wanted to bring you to that. 
 What is your view as to that ? 
 
 Mr. Untermyer. That is in the Supreme Court now. 
 
 Senator Newlands. Do you concur in the views that where they 
 do contradict that it is a contradiction existing between a superior 
 sovereignty or an inferior sovereignty, or between equal sovereignties? 
 
COMMITTEE ON INTERSTATE COMMEECE. 233 
 
 Mr. Untermyer. I am afraid that I am rather a poor Democrat on 
 that particular question. I do not think the State is right in that 
 case. In the first place the master held in that case, and the court 
 held, that the State act was confiscatory, which I think will dispose 
 of the case anyway when it gets in the Supreme Court. I do not 
 think they will ever get to the discussion of the academic questions 
 that have arisen. 
 
 Senator Newlands. I simply wanted to ask your view regarding 
 that, for you can realize that the States would be very jealous of any 
 exercise of national power in the creation of national instrumentalities 
 that are engaged in — both States and interstates, if the effect of it 
 would be to oust the State of its jurisdiction over what belongs to- 
 it — purely State commerce. 
 
 Mr. Untermyer. I do not think that question really could arise with 
 respect to industrial corporation?. It seems to me that to hold other- 
 wise than the court had held would be to paralyze the Federal law. 
 I can not see how that question would ever arise in industrial corpo- 
 rations. 
 
 Senator Newlands. Is this not the proper view, that as to com- 
 merce, the Nation has jurisdiction over that part that is interstate,. 
 and the State has jurisdiction over that part that is intrastate, and 
 that as to that subject matter they are equal sovereignties, and that 
 wherever they are in contradiction as to their action, that the matter 
 must be settled as between other independent sovereignties — as be- 
 tween this country and a foreign government, for instance — either 
 by some arrangement between the States and the National Govern- 
 ment or by creation of administrative tribunals upon the part of both, 
 which, by an exchange of view, would gradually drift into harmoni- 
 ous action. 
 
 Mr. Untermyer. I do not think anybody would differ from that as 
 an abstract proposition, Senator Newlands. 
 
 Senator Newlands. And would not such a view do away with very 
 much of the objection of States to the proper exercise of the national 
 power in the creation of instrumentalities — of corporative instru- 
 mentalities — for interstate commerce ? 
 
 Mr. Untermyer. The States conceded to Congress the right to reg- 
 ulate commerce. 
 
 Senator Newlands. To regulate interstate commerce only. 
 
 Mr. Untermyer. To regulate commerce. It seems to me that inter- 
 state commerce must have the right of way. Do you not think so ? 
 
 Senator Newlands. No. I should think not. I should say 
 
 Mr. Untermyer. Then you are bound to have conflicts all the time. 
 
 Senator Newlands. Very well ; if you have conflicts between those 
 sovereignties, it is a conflict between two equal sovereignties, and can 
 only be adjusted by mutual conference. 
 
 Mr. Untermyer. That is a big question, Senator. 
 
 Senator Newlands. I find that I have the plan of industrial corpo- 
 ration to which you referred in your statement. 
 
 Mr. Untermyer. The one I prepared for the Civic Federation ? 
 
 Senator Newlands. The one prepared for the subcommittee. It 
 was sent by some one who received it, and with your permission I will 
 hand it to the reporter and ask that it be put in the record. 
 
234 HEARINGS BEFORE 
 
 (The paper referred to is as follows:) 
 
 [To editor — for immediate release.] 
 
 Plan for Regulation ,->f Industrial Corporations. 
 
 [Proposed by Samuel Untermyer, Esq., to the department on regulation of industrial 
 corporations, The National Civic Federation.] 
 
 Xew York City. October 20, 1911. 
 To the Subcommittee on Plan fob the Federal Incorporation of the Trusts 
 of the National Civic Federation : 
 
 explanation. 
 
 The legislative plan here outlined is predicated upon the recognition of the 
 following principles: 
 
 1. That the people of the country are in favor of the rigid enforcement of 
 the existing antitrust law, at least to the extent of preventing the further con- 
 solidation of competing industries and of vigorously prosecuting and disbanding 
 those that now exist in violation of that law. 
 
 2. That no future merger or acquisition of competing businesses engaged in 
 interstate commerce should hereafter be lawful, even though at present per- 
 missible under the construction given the Sherman law by the Supreme Court, 
 unless permitted by Federal authority ; that all such mergers as are not in 
 violation of the present law may be sanctioned, but that the commission for 
 which provision is hereafter made must determine that they are in conformity 
 with the law before any such merger or purchase is permitted. 
 
 3. That neither the present law nor the machinery of the courts is adapted 
 to the orderly and effective disintegration of corporations that have been de- 
 creed to have been organized or to be operating in violation of law, and that 
 the details of executing all such judgments and of the investigation of viola- 
 tions thereof should be intrusted to such a commission, subject to the control 
 of the courts by which such judgments were rendered. 
 
 4. That the effective enforcement of the antitrust law involves the freeing 
 and keeping free to competition of all the arteries and channels of interstate 
 trade and the punishment of all secret and other agreements and understand- 
 ings, express and implied, whether in writing or by parol, having for their ulti- 
 mate purpose restriction of output, division of territory, uniformity, of prices, 
 or any of the many other devices affecting competition, and that business com- 
 petitors are offered no alternative under the present law against enforced 
 competition to the point of the ruin and extermination of the weaker competitor. 
 
 5. That enforced ruinous competition is not an economic benefit or necessity, 
 but that, on the contrary, it is injurious and must in the end result in legal- 
 ized monopoly or in State socialism. It is impracticable and inconsistent for 
 the law to insist on the one hand upon punishing business methods that are 
 calculated to destroy competition and on the other to prohibit ail understand- 
 ings that are intended to revert that result and that go no further than to se- 
 cure to the parties to such agreements the right to stop competing only at the 
 point at which they would ruin one another. 
 
 6. That no law is capable of enforcement which demands as its basic prin- 
 ciple that capital must compete to the point of doing business indefinitely at a 
 loss. Men can not be forced to ruin themselves in obedience to statute, with 
 relief at hand, even though the escape from that condition involves circum- 
 venting the law. In the enforcement of the antitrust law we are accordingly 
 confronted with the alternative between permitting' on the one hand a just and 
 reasonable limitation of competition subject to supervision and control at the 
 point where the burden becomes unbearable, and on the other hand suffering 
 secret violations of law that are practically impossible of detection and with 
 no opportunity of protection to the public. 
 
 In conformity with these principles I beg to submit the following brief out- 
 line of a still crude and tentative plan for legislation supplemental to the 
 Sherman law, providing for the disintegration of trusts that have been decreed 
 to be unlawful in their inception or operation and for the Federal regulation 
 of industrial corporations engaged in interstate commerce: 
 
COMMITTEE ON INTERSTATE COMMERCE. 235 
 
 (A) Every corporation which at the time of the passage of the act or there- 
 after has gross assets or an authorized capital of $1,000,000 and over, and that 
 is now engaged in interstate commerce, is prohibited from thereafter engaging 
 in such commerce unless it shall within six months after the passage of the 
 act secure a Federal charter under a Federal incorporation law to be enacted 
 or a Federal license (as may be decided). Every corporation of the character 
 above described hereafter formed or hereafter engaging in interstate commerce 
 must secure a Federal charter or license (as may be determined) before engag- 
 ing in such commerce. 
 
 A charter is recommended instead of a license in order to put an end to the 
 powers and immunity from liability that have been and are being granted to 
 corporations in many of the States for the improper purpose of attracting to 
 those States the organization and accompanying franchise fees and other per- 
 quisites and patronage of corporations that are in effect fugitives from the 
 States where they rightfully belong and are availing themselves of the illicit 
 inducements held out to them in States where they conduct no business and 
 with which they have no legitimate relations. 
 
 If a Federal license is decided upon from motives of expediency as less 
 calculated to arouse the hostility of the States, provision would still have to be 
 made requiring that the State charters of all corporations applying for a 
 Federal license" be amended so that they shall be uniform in their powers and 
 obligations to the extent at least of preventing — 
 
 (1) The continuance of the " holding company " : 
 
 (2) The issue of watered stock ; 
 
 (3) Improper immunity of stockholders and directors from liability; 
 
 (4) Statutes of limitations in favor of corporate wrongdoers that bar causes 
 of action before the victims can possibly know that they have one ; and 
 
 (5) All the numerous other tricks and jokers which corporate cupidity and 
 dishonesty have engrafted upon the State corporation laws. 
 
 (B) An industrial commission of seven members to be appointed by the 
 President, with the advice of the Senate, similar in its general character and 
 constitution and in its powers over industrial corporations engaged in interstate 
 commerce to the present Interstate Commerce Commission, which shall have, 
 among other things, the following powers : 
 
 1. To pass upon all applications for Federal charters or licenses (as may be 
 decided) and to reject the same unless the commission is satisfied that the 
 applicant is not conducting business in violation of the Sherman law or of 
 any other law. To that end the applicant will be required to make full dis- 
 closures of its business and affairs through oral examination of its officers, 
 investigation of its books by the commissioner!?, and in such other ways as the 
 Commission may determine. 
 
 2. All the powers now possessed by the Bureau of Corporations, which bureau, 
 with- its documents and all its powers of investigation, are to be vested in the 
 commission. This would include the right of the commission on its own initia- 
 tive to investigate the businesses and affairs of every corporation engaged in 
 interstate commerce and to ascertain and report those that are operating in 
 violation of law. To conduct interstate business without such charter or license 
 should be made a felony. 
 
 3. To recommend for nrosecution by the Attorney General all corporations 
 so engaged in interstate commerce in violation of law, and through its counsel 
 to conduct the prosecution of such corporations in conjunction with the Attorney 
 General. This would include the prosecution of existing violations of the 
 Sherman law, as no corporation now engaged in business in violation of that 
 law could secure a Federal charter or license, and by its failure to do so it 
 uould be branded as an outlaw and subject to prosecution if it continued to 
 conduct interstate commerce. 
 
 All such existing violations would have to be removed by the offending cor- 
 porations before they could hope to be permitted to continue or resume interstate 
 cornm6rcG. 
 
 4. To undertake the separation and disintegration of all corporations that 
 have been adjudged by the courts to have been organized or to be existing or 
 operating in violation of the antitrust law. but subject to the direction and con- 
 trol of the courts rendering such judgments. To that end the commission should 
 have power to appoint receivers, to sell all or parts of the property, subject to 
 
236 
 
 HEARINGS BEFORE 
 
 the confirmation of the court, to ratify or reject plans for the reorganization of 
 the company to conform to the law, to keep such corporations under its general 
 supervision, and to report for the action of the court all subsequent violations of 
 the judgments of dissolution. 
 
 The purpose of these provisions would be to have in existence a body that 
 would have the power and the machinery, through its experts and other officials, 
 to supervise the proper enforcement of these judgments and see to it that they 
 are kept enforced. 
 
 5. To act upon the petition of persons engaged in competition in any inter- 
 state industry, praying that they be permitted to enter into a trade agreement 
 with one another limiting production and fixing the prices of any given com- 
 modity which is the subject of interstate commerce, provided that it shall 
 appear from the petition and the data accompanying the same and from the 
 investigations of the commission that are to be made upon the filing of such 
 petition : 
 
 (a) That the output is not to be restricted beyond the usual and legitimate 
 demands for the commodity. 
 
 (6) That the maximum price chargeable by the petitioners under the terms 
 of the agreement does not allow au undue profit ; and 
 
 (c) That as a result of competition between the petitioners and with others 
 (if there are others) who do not care to join in the petition, the industry on 
 the whole has been unprofitable for at least one year next preceding the presen- 
 tation of the petition due to overproduction and ruinous competition. 
 
 Upon the filing of such a petition the commission would investigate into the 
 condition of the business, and if satisfied of the truth of the petition and that 
 the business has on the whole been unprofitable due entirely to the causes 
 above stated would be authorized to sanction the agreement for a period of not 
 exceeding two years, but with power to the commission meantime to annul 
 the agreement and withdraw its consent either unconditionally or unless the 
 parties will agree to a reduction in the maximum prices or an increase in pro- 
 duction to the extent required by the commission. 
 
 The commission should also have power whenever it appears that unfair 
 business methods are being employed against competitors who are not parties 
 to the agreement to cancel its license and to prosecute the offenders. The 
 parties should be at liberty to enforce the performance of the agreement in any 
 court, either by action at law or in equity to enjoin its breach. All persons 
 interested in the industry that is the subject matter of such an agreement 
 should have the right to be heard by the commission in opposition thereto. 
 
 The allowance of trade agreements of this character will do away with the 
 plausible pretexts that are being urged in favor of the organization of trusts 
 and consolidations — that they arc the only means of preventing business de- 
 struction. Their allowance would at the same time obviate the evils of such 
 permanent organizations, with their accompanying stock inflations, oppression 
 of competitors, closing of factories, and like practices, and would render it easy 
 to secure convictions of persons guilty of entering into secret understandings and 
 " gentlemen's agreements " to levy tribute upon the people by taking from them 
 the existing excuse that they are pursuing the only course for self-preservation 
 that is open to them. 
 
 Under these licensed trade agreements each party would retain the manage- 
 ment and control of his own property and the extent of bis profit would be 
 measured by the economies he is able to put into effect. 
 
 (C) All orders of the commission to be subject to appeal to the commerce 
 court by the parties in interest in like manner as appeals are now authorized 
 from orders of the Interstate Commerce Commission. 
 
 Instead of the present spasmodic selection for prosecution by the Attorney 
 General of isolated cases of violation of the Sherman law, we would thus have 
 an organized body, equipped to deal systematically with all violations, aud 
 to see to it that they are removed. 
 
 In this sketch I have purposely omitted special reference to the treatment 
 of labor unions, preferring that that subject should be first discussed with the 
 subcommittee. 
 
 The above is intended only as a brief outline of the general principles gov- 
 erning the legislation that is proposed. If the outline meets with the approval 
 of the full committee I suggest that we then proceed to elaborate it with sucb 
 modifications as may be suggested by the members of the committee. 
 
 Respectfully submitted. 
 
 Samuel Untermtee, 
 
 Chairman Subcommittee. 
 
COMMITTEE ON INTERSTATE COMMERCE. 237 
 
 Mr. Untermyer. It is a tentative plan which we submitted to the 
 committee. 
 
 Senator Newlands. I will ask the reporter, in that part of my 
 inquiry of Mr. Untermyer regarding the provisions of the bill which 
 I introduced as to the organization of an interstate trade commission, 
 that he put in the record the statement that this bill appears on the 
 first page of the hearing, and also wherever I have referred to a 
 particular section, that he insert at that point the complete section. 
 
 Senator Cummins. Pardon me if I suggest that while your con- 
 clusion is adverse to mine on the subject of capitalization or capital 
 employed in the business, your argument seems to support my 
 conclusion. 
 
 Mr. Untermyer. I have not meant to express any conclusion, Sen- 
 ator. It is nothing but an impression. 
 
 Senator Cummins. The menace of the United States Steel Cor- 
 poration lies in the fact that it is so big that the men who are inter- 
 ested and control big banks and who are interested and control big 
 railroads are also interested in and control the United States Steel 
 Corporation. Is that not true? 
 
 Mr. Untermyer. Yes ; and the use they make of the power. That 
 is the menace. 
 
 Senator Cummins. Now, if the United States Steel Corporation 
 were employing $200,000,000 of capital in its business instead of 
 $1,500,000,000, the men who operate the big banks and the big rail- 
 roads could not, to the same extent anyhow, be interested in and con- 
 trol the United States Steel Corporation to the exclusion of other 
 steel corporations, could they? 
 
 Mr. Untermyer. I do not follow your sequence at all. 
 
 Senator Cummins. Suppose instead of a business being divided 
 in the way in which it is that there were 15 corporations engaged 
 in the steel business, each having a capital of $200,000,000. These 
 tremendous forces which control the banks and the railroads could 
 not be especially interested in, or probably would not be especially 
 interested in, the welfare and prosperity of any particular corpora- 
 tion engaged in the steel business. Is that not true ? 
 
 Mr. Untermyer. Not necessarily, Senator. Because if those gen- 
 tlemen could control one corporation of $1,500,000,000, why could 
 they not control five of $300,000,000? 
 
 Senator Cummins. They might. 
 
 Mr. Untermyer. It is their outside power and interests that make 
 for the danger. 
 
 Senator Cummins. But the outside power is now, or might be, 
 exercised entirely in favor of the one corporation. 
 
 But if they owned five, would it not be the same thing, and if they 
 owned five they would be interested in the prosperity of each? I 
 am assuming they would be independent of each other, for I agree 
 with you that no limit on capital can take the place of a suitable 
 prohibition against agreement and combinations and things of that 
 sort. We are simply trying to reduce the motive for these things. 
 
 Mr. Untermyer. Is it a workable thing? How are you ever going 
 to determine how much capital may be permitted to be invested in a 
 given industry? 
 
238 
 
 HEAEINGS BEFOEE 
 
 Senator Cummins. I do not know. It was simply tentative oh 
 my part. I wanted to call to your attention the fact that the power 
 which yon so graphically described, used in behalf of a single cor- 
 poration, is a power that grows in a measure, anyhow, out of the 
 bigness of that corporation. 
 
 Mr. Untermyer. But my answer would be, if those gentlemen set 
 out to control the steel industry, as they did when they organized 
 this company, that instead, if the law prohibited any corporation of 
 more than $200,000,000 of assets — -we will say by way of illustra- 
 tion, that is a mere arbitrary figure — then if they had made up their 
 minds to control that industry they would simply, instead of put- 
 ting it all under one cover, have made separate companies — the tin- 
 plate company and the steel and wire company would be one, and a 
 Carnegie would be another, etc. The limitation of capitalization 
 does not seem to meet the situation. 
 
 Senator Cummins. I agree that it would not cover the whole 
 difficulty. All that we can do is to prepare a system that would 
 make the discovery of an unlawful act as certain as possible, and 
 to remove, as far as we can, the motive for an unlawful act. I want 
 to ask you a question on another point. I will not pursue that. 
 
 Mr. Untermyer. I am afraid I am putting myself in the uncon- 
 sciously unfortunate position of having very pronounced views on 
 this subject. I have simply impressions on the subject. I do not 
 want to be understood as endeavoring to lay down any pronounced 
 ideas. 
 
 Senator Cummins. Oh, no; I think the views held by all reason- 
 able and intelligent people will yield to superior force of reason 
 whenever that force is applied. Because we are positive in our 
 statements I do not think indicates that we are not open to reason 
 and argument. 
 
 Mr. Untermyer. It is the manner more than anything else. 
 
 Senator Cummins. You recognize, do you not, that while you very 
 justly eulogized and applauded the antitrust law, that if the statute 
 were passed which you suggested, it would most radically amend or 
 change the antitrust law? 
 
 Mr. Untermyer. I do not concede that except in one particular. 
 It would radically amend it at the point at which ruinous competi- 
 tion set in, because that is on the principle of unrestricted competi- 
 tion, and this certainly would change it to the principle of qualified 
 competition. 
 
 Senator Cummins. Whenever you give to any commission or body 
 of men the authority, if you can give it, or to a Government board, 
 to approve agreements which fix prices and limit the output of the 
 production, you are providing for a power which can not now be 
 lawfuly exercised. 
 
 Mr. Untermyer. Unquestionably; you are reserving the policy of 
 the State to that extent. 
 
 Senator Cummins. Precisely. So that in that respect you believe 
 the antitrust law ought to be amended? 
 
 Mr. Untermyer. Ought to be supplemented or amended, as you 
 please. 
 
 Senator Cummins. Well, its effect would be to amend it. But 
 aside from that, aside from such agreements as might be approved 
 
COMMITTEE ON INTERSTATE COMMERCE. 239 
 
 by such a commission or board, you believe the prohibitions of the 
 antitrust law and the provisions with respect to its penalties for 
 violations should be preserved. 
 
 Mr. Untermyer. Yes ; aside from that and aside from providing a 
 method of disintegration to meet the existing situation. 
 
 Senator Cummins. Yes ; that disintegration means simply that the 
 corporations which are proceeded against, or single corporation, if 
 that be the case, shall bring themselves, or itself, into harmony with 
 the law, as it is finally determined to be. 
 
 Mr. Untermyer. That there should be an administrative power 
 under judicial direction to do it. 
 
 Senator Cummins. And that shall be governed under the admin- 
 istration, or administrative branch of the Government rather than 
 through the judicial branch. 
 
 Mr. Untermtek. Yes, sir ; but subject to the control of the judicial 
 branch. 
 
 Senator Cummins. And that shall be done through the adminis- 
 tration or the administrative branch of the Government rather than 
 through the judicial branch? 
 
 Mr. Untebmi'eb. Yes; but subject to the control of the judicial 
 branch. 
 
 Senator Cummins. You do not think, do you, that there ought to 
 be an appeal from the action of the board or commission in approv- 
 ing or disapproving a given contract that was presented to it ? 
 
 Mr. Unteemyee. No ; but I do think that the court which ren- 
 dered the judgment in the dissolution should have the right to 
 review the acts of the commission. 
 
 Senator Cummins. You did not mean to be understood, when you 
 answered the question of another Senator, as saying that there shall 
 be a review of the action of the board in approving or disapproving 
 this agreement ? 
 
 Mr. Unteemyee. No; I think you are right. My language was 
 capable of that construction, but I did not intend it that way. I 
 had in mind the other thing at the time. 
 
 Senator Cummins. There is one other suggestion in which I 
 think that you might, among your answers, be misunderstood. You 
 were asked whether the decree of the circuit court of appeals in 
 New York approving the plan of the reorganization of the American 
 Tobacco Trust resolved it into its component parts. You did not 
 mean to say that it did. 
 
 Mr. Unteemyee. No; it did not. 
 
 Senator Cummins. It simply provided for the creation of three 
 new corporations, leaving the American Tobacco Co. in charge of 
 one branch of the business in which it already is engaged. 
 
 Mr. Unteemyee. No. It left the American Tobacco Co. in charge 
 of all the branches in which it was engaged, and each of the other 
 companies also in charge of all branches. 
 
 Senator Cummins. Precisely. But it did not attempt to return 
 to the various corporations and associations which already made 
 up the American Tobacco Co. ? 
 
 Mr. Untermyee. No ; it could not. I believe the site of one of 
 them is a church now. It would not have been possible to bring 
 them back to their original form. 
 
 22S77— vol 1—12 16 
 
240 
 
 HEARINGS BEFORE 
 
 The Chairman. Are there any other questions? 
 
 Senator Townsend. I have just one. Supposing the Supreme Court 
 shall reverse the court of appeals down there on this reorganization 
 plan and send it back, what would you have to suggest as a proper 
 means — would you still think the law ought to be amended in that 
 respect? 
 
 Mr. Untebmyeb. You mean in order to give a commission power 
 to superintend the disintegration ? 
 
 Senator Town send. Should the commission have the power, if 
 the Supreme Court settles this question? 
 
 Mr. Untermyee. I think so, because it is impossible for any court 
 to supervise such a decree. The ramifications of it are so great. It 
 ought to be a tribunal that can summarily take hold at any time 
 when any violation occurs. 
 
 Senator Newlands. In that case, jou would have a commission 
 act simply as an officer of the court ? 
 
 Mr. Untermyee. In effect, yes, sir ; with summary powers to inves- 
 tigate and make complaint and to keep the decree in force. Judicial 
 processes would be too indirect, too long drawn out, to accomplish 
 any such results. 
 
 Senator Cummins. It seems to me when a decree of a court com- 
 mands a corporation to quit because it is violating the law, or holds 
 that it is in violation of the law, that then whatever corporations come 
 out of that should appear before this commission and be admitted to 
 interstate business precisely as any other corporations are admitted. 
 
 Mr. Untermyee. Certainly. 
 
 Senator Cummins. Would not that be a good plan? 
 
 Mr. Untermyee. Yes; but first it seems to me that the method of 
 disintegration should be approved. The plans to be adopted should 
 be approved. Then, of course, each separate corporation will have to 
 comply with the law to get a license. 
 
 Senator Newlands. Just one question : You spoke of an appeal to 
 the Supreme Court from the decision of the circuit court as to the 
 reorganization of the American Tobacco Co. being desirable. Can 
 you suggest any method of accomplishing that? 
 
 Mr. Untermyee. The Attorney General, I assume, can do so. I 
 think he has the right of appeal. None of the independents, nobody 
 else has, because they were not allowed to intervene. 
 
 Senator Newlands. You understand that the Attorney General and 
 the President have determined that no appeal shall be taken — at least, 
 that is the press report. 
 
 Mr. Untermyer. Yes; unless they reverse that determination. It 
 seems to me that the voice of the country may be strong enough to 
 reverse it. That is a mere administrative conclusion that can be 
 reconsidered. 
 
 The Chairman. The committee will stand adjourned until 10.30 
 Monday morning. 
 
 (The committee thereupon, at 3.40 p. m. o'clock, adjourned until 
 Monday, November 20, 1911, at 10.30 a. m.) 
 
COMMITTEE ON INTERSTATE COMMERCE. 241 
 
 MONDAY, NOVEMBEB 20, 19X1. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. G. 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an inter- 
 state trade commission, to define its powers and duties, and for 
 other purposes," introduced by Mr. Newlands July 5, 1911. 
 
 Senator Cummins. The committee will come to order. Senator 
 Clapp, the chairman, is not here, and I will take the liberty of pre- 
 siding in his absence. Mr. Bernard N. Baker is present, and the 
 committee will hear him. 
 
 STATEMENT OF BERNARD NADAL BAKER, OF BALTIMORE, MD. 
 
 • The Acting Chairman (Senator Cummins). Mr. Baker, the com- 
 mittee is acting under a resolution of the Senate, from which I quote 
 a part: 
 
 Resolved, That the Committee on Interstate Commerce is hereby authorized 
 and directed, by subcommittee or otherwise, to inquire into and report to the 
 Senate at the earliest date practicable whnt changes are necessary or desirable 
 in the laws of the United States relating to the creation or control of corpora- 
 tions engaged in interstate commerce, and what changes are necessary or de- 
 sirable in the laws of the United States relating to persons or firms engaged in 
 interstate commerce. 
 
 It has been suggested before the committee that you have recently 
 had some experience with respect to restraint of interstate or inter- 
 national trade or commerce, especially with reference to commerce 
 that may pass eventually through the Panama Canal, and the com- 
 mittee will be very glad to have from you a statement with regard 
 to that subject. 
 
 Mr. Baker. Mr. Chairman and gentlemen, I received the very 
 kind invitation from Senator Clapp to appear and express my views 
 on the subject of this resolution. I have had very little time to give 
 it any special thought or study, as I received it on Saturday morning. 
 I notified the Senator that I was at his command at any time that 
 would suit his convenience, • and he appointed half past 10 o'clock 
 this morning. 
 
 In the little time that I have had to give a study to the subject I 
 have taken the resolution as it is outlined here, " What changes in the 
 law are necessary and desirable relating to the creation," first, and 
 then the control of corporations. 
 
 My own interests are especially in connection with the develop- 
 ment of interstate commerce as applied to the use of the Panama 
 Canal from coast to coast. Having been in the water transporta- 
 tion business for many years, my experience was thought possibly 
 of some benefit. My connection with the Panama project began 
 about three years ago. It began when Secretary Wright was Sec- 
 retary of War. We had in November, 1908, quite a discussion as to 
 how could best be developed, especially, the coastwise commerce in 
 the use of the then Panama Railroad as a transfer point between 
 
242 
 
 HEARINGS BEFORE 
 
 coast and coast. The statistical information was furnished to me as 
 to the decline in that traffic. A careful study of the subject resulted 
 in my making a tentative suggestion on the 5th of February, 1909, 
 to Secretary Wright as a possible way of remedying, as far as 
 possible, the conditions then existing. That letter has been in a 
 number of committee reports, and doubtless you gentlemen are 
 familiar with it. I will go into it only casually. 
 
 It was printed by the Committee on Post Offices and Post Eoads, 
 and also by the Senate Committee on Interoceanic Canals. In ac- 
 cordance with an understanding reached at an interview on January 
 27, under date of the 5th of February, 1909, I submitted a written 
 proposition to use my best efforts to form a company for the objects 
 under discussion, which were to develop, as far as possible, pending 
 the completion of the canal, the coast-to-coast commerce. 
 
 It was considered by Secretary Wright, and the Panama Steam- 
 ship Co., by Mr. E. A. Drake, was authorized to draw up the tenta- 
 tive contract by which we might proceed, or for discussion. That 
 was drawn up and the discussion began as to how it could be ac- 
 complished — a contract to be made by a company for which I pledged 
 myself to use my best efforts to raise the necessary capital to build 
 at that time 10 steamships, and later on possibly five more, covering 
 all the requirements of the Army for use of transports and the Navy 
 for auxiliary transports. 
 
 The change in the administration resulted in Secretary Dickinson 
 being appointed Secretary of War. Secretary Wright told me that in 
 view of this change he did not feel justified in going on with the 
 execution of a contract, and he would refer it to the new Secretary 
 when he had the pleasure of seeing him. Immediately after that I 
 had the pleasure of meeting Secretary Dickinson, who was then 
 appointed, and of going down to Panama and meeting him there and 
 discussing with him fully the question of facilities, particularly of 
 the Panama Railroad Co. as to its ability to handle any large in- 
 creased volume of traffic. It was all very satisfactory. There was 
 no question as to the facilities existing there, and the opportunity 
 to do business if the steamship facilities from coast to coast were 
 provided — that is, from Panama and Balboa (the port was then 
 Toboca) — up to the California and Puget Sound points and also on 
 the east coast. But he thought at the same time, I think — -and all that 
 is very fully in the reports of the Interstate Commerce Commission 
 in the investigations printed there — he thought it was not the part of 
 the Secretary of War especially to develop the commerce; that he 
 was there to build the canal. That is all a matter of record. Noth- 
 ing was done, however, with these suggestions until the Gallinger 
 bill was brought up with the idea of developing more particularly 
 the uses of the canal with the South American business. You gen- 
 tlemen know the result of that. After the failure of the Gallinger 
 bill last March and after discussions last April — I think it was just 
 about the adjournment of Congress — it was suggested that possibly 
 now was the time to make an effort to utilize the act of March 3, 
 1891, to assist in establishing a service, the idea being that it should 
 be regular service of moderately fair speed — nothing to compare, of 
 course, with the speed they now have on the north Atlantic — and to 
 
COMMITTEE ON INTERSTATE COMMERCE. 243 
 
 insure the regular prompt delivery of all classes of freight, particu- 
 larly what is termed in water parlance " the package freight," from 
 coast to coast within a reasonable time. The suggestion, I think, was 
 made by me that under the terms of that act I thought the Post- 
 master General would have the authority to advertise that the ports 
 of Colon and Panama, within the meaning of that act, were foreign 
 ports, and such restrictions could be embodied in advertisements or 
 formal proposal as to fully protect the absolute independence of 
 such a service. This was submitted— I have forgotten the exact 
 date, but some time shortly after that^to Attorney General Wicker- 
 sham, and a decision was rendered by him on the 12th of July to 
 the Postmaster General that within the meaning of the act— and he 
 gives very fully his legal opinion— that Colon and Panama would 
 be foreign ports, and as the act specifically stated that it was for the 
 development of commerce, the Postmaster General would be author- 
 ized to provide such restrictions in accepting bids as to the character 
 of bidders as would best protect the absolute independence of the 
 service from any control that might be undesirable or for other 
 interests than the fullest development of commerce. 
 
 That resulted in an advertisement being inserted on the 7th of 
 August. I was in London at the time of the decision, and came over 
 to carry out my moral obligation that I would use my very best efforts 
 to establish, or secure the money to establish, such a service, on lines 
 to comply with the restrictions provided by the Postmaster General, 
 which we fully expected would be required. Previously to this, and 
 while it was under consideration, I took up the subject with interests 
 that I thought might possibly be desirable bidders, especially with 
 Bates & Chesebrough, in San Francisco, who had formed the Califor- 
 nia & Atlantic Steamship Co. In one of the hearings, I think before 
 the Interoceanic Canal Committee, I promised to use my very best 
 efforts, if such an advertisement were inserted, to get all the bids I 
 could, and at least assure the Government of one bid, if possible, by 
 my own efforts. Bates & Chesebrough, in the California & Atlantic 
 Steamship Co., had done a remarkable work in the development, 
 under adverse conditions, of a very large volume of traffic from San 
 Francisco to Balboa, and then by transfer across by the Panama 
 Eailroad. I also took it up with the American-Hawaiian Steam- 
 ship Co. 
 
 I visited Mr. Dearborn and told him that possibly the decision 
 might be that this opportunity would be offered. Mr. Dearborn's 
 line had developed a wonderful business by the Isthmus of Tehuan- 
 tepec in a short time from almost nothing up to five or six hundred 
 thousand tons. This being the case, it seemed to me that the Ameri- 
 can-Hawaiian might be the natural company to provide this faster 
 and what you might call the express service in connection with their 
 freight service, and thus insure the regularity of sailings on fast 
 steamers, which would give the opportunity demanded by the fruit 
 shippers, as their business could only be served by fa=t or moderately 
 fast steamers. He thought possibly it might not be profitable, but 
 would be glad to consider it. I also took it up with the other possible 
 bidder, the International Mercantile Marine, and urged upon them 
 that they look into this question fully and see whether it would not 
 be profitable, and whether an opportunity would not come to them 
 
244 
 
 HEARINGS BEFORE 
 
 to be interested in this business — whether it would not be desirable for 
 them to do so. They promised to look into it. 
 
 This was prior to the insertion of the advertisement. Immediately 
 upon my return from England — I arrived the same day the advertise- 
 ment appeared, the 7th of August — I employed the best legal advisers 
 I could to draw up a charter that would fully and freely protect the 
 making of a contract with the Government, and particularly to cover 
 the possibility of the cancellation features in case any violation 
 occurred. I suppose you gentlemen are all familiar with that. 
 There is no use of my repeating the instructions to bidders, which 
 give the right of cancellation to the Postmaster General, which, of 
 course, meant an important condition for anyone investing a very 
 large amount of money if this contract should be canceled on account 
 of stock ownership or otherwise, or any discrimination. 
 
 It took time and much consideration on the part of the lawyers to 
 prepare a charter that would meet the situation. The problem was 
 new and the charter had to follow new lines. However, it was com- 
 pleted early in September and filed at Trenton on the 5th of that 
 month. A great deal of publicity followed and the almost unanimous 
 indorsement of the press, as far as we could see, made me feel very 
 much encouraged. Now, I was bringing a principle into the business 
 which does not belong there, and which is somewhat altruistic — that a 
 company could be formed by public subscription without taking up 
 the question of any commission basis or any bond issue or preferred 
 stock; as I often express it, an old-fashioned company. I deter- 
 mined — to repeat the original expression — to use my very best efforts 
 to find out whether that could not be done. I visited the cities on 
 the Atlantic and Pacific coasts especially interested, and found the 
 most hearty and earnest sympathy and desire to assist in this way of 
 forming a company, which would be the only way which would make 
 it, in my opinion, absolutely, or as far as it possibly could be abso- 
 lutely, independent. There were certain restrictions in the charter 
 as to voting the stock, and everything of that kind, and also a special 
 restriction in case anyone should vote stock representing any com- 
 petitive interest, that we could probably legally prevent the voting of 
 that stock, as far as the charter was concerned. 
 
 All the boards of trade in the different cities met and a number of 
 them appointed committees. There was the difficulty of getting a 
 wide interest in the very limited time I had — only 80 days to the filing 
 of the bid. The bids are to be filed next Saturday under this adver- 
 tisement, and I found the period was too short ; that I would not have 
 probably sufficient time to fully educate the public as to what were 
 the objects and purposes of the proposition. A good many subscrip- 
 tions — not great in number, but still very substantial — came in, which 
 showed an interest. There was no obligation under the subscription 
 unless the contract was awarded: 
 
 ATLANTIC & PACIFIC TRANSPORT CO. — SUBSCRIPTION TO STOCK. 
 
 Whereas the Atlantic & Pacific Transport Co. has been organized under the 
 laws of the State of New Jersey with an authorized capital stock of $15,000,000 
 divided into shares of the par value of $100 each, for the purpose of engaging in 
 the transportation business by water, and intends, among other things, to bid 
 for the mail contracts with the United States Government, for which proposals 
 
COMMITTEE ON INTERSTATE COMMERCE. 245 
 
 were invited by advertisement by the Postmaster General under date of July 20, 
 1911, in pursuance of the act of Congress of March 3, 1891, routes Nos. 77, 78, 
 and 79 ; and it is desired by the undersigned to become a shareholder in said 
 corporation : 
 
 Now, therefore, the undersigned do hereby subscribe for shares of the 
 
 capital stock of said Atlantic & Pacific Transport Co. and do hereby promise and 
 agree to and with said company to pay the sum of $100 for each of said shares 
 of stock so subscribed under the following terms and conditions : 
 
 1. No demand shall be made upon the subscriber unless and until subscriptions 
 to the capital stock of the said company shall be obtained in the aggregate 
 amount of not less than $3,000,000. 
 
 2. No demand shall be made upon the subscriber unless and until said Atlantic 
 & Pacific Transport Co. shall have bid for and obtained one or more of the con- 
 tracts for the ocean mail service, routes Nos. 77, 78, and 79. hereinabove men- 
 tioned, pending the award of which this subscription will be held in escrow by a 
 responsible trust company to be delivered to the Atlantic & Pacific Transport Co. 
 upon its obtaining one or more of the said contracts for ocean mail service; 
 otherwise to be returned to the subscriber. 
 
 3. Payment hereof after subscriptions to the amount of $3,000,000 are ob- 
 tained and after the award to this company of one or more of said contracts 
 for ocean mail service shall be made 20 per cent on demand from the treasurer 
 of the Atlantic & Pacific Transport Co. and 10 per cent every 60 days thereafter 
 until the whole shall be paid. 
 
 Said Atlantic & Pacific Transport Co. on its own part, in consideration of the 
 foregoing, promises to use its best endeavors to obtain subscriptions to the 
 aggregate amount of $3,000,000, and when the same shall be secured will bid for 
 the contracts for ocean mail service hereinabove referred to. 
 
 Witness the signatures of said subscriber and of the said Atlantic & Pacific 
 Transport Co. this day of , 19 — . 
 
 Shares subscribed 
 Address: . 
 
 Subscriber. 
 
 Atlantic & Pacific Teanspobt Co., 
 By . President. 
 
 Subscriptions should be mailed or delivered to one of the following: The 
 Baltimore Trust Co.. Baltimore, Md.; Mercantile Trust & Deposit Co., Balti- 
 more, Md. ; Fidelity Trust Co., Baltimore, Md., which companies have severally 
 agreed to receive subscriptions and deliver or return the same in accordance 
 with the terms of the foregoing agreement. 
 
 After consultation with some financial interests in New York I 
 had agreed to carry the company up to the point of securing the con- 
 tract, provided a reasonable amount of subscriptions were made prior 
 to November 25, and then trust later on, by general advertisement 
 and education of the public and getting it clearly before them, to 
 secure a wide public interest in the company, thinking that that was 
 
 best. . , 
 
 At that point I found that it was impossible to get the limit, which 
 I personally arbitrarily had made, of $3,000,000 so as to justify the 
 obligation which must be assumed with the Post Office Department, 
 first as to the bond of $375,000 with the three companies, and m 
 addition to that an oath to be taken before the postmaster m what- 
 ever city the firm or individual or corporation making the bid was 
 domiciled, that they had the right to believe that they had the finan- 
 cial ability to carry out the full $15,000,000, because it would require 
 at least that amount to provide all the ships. I then began taking 
 it up with banking interests. 
 
 In the different banking interests with which I have taken it up 
 I have never found any combination or direct agreement to restrict 
 
246 
 
 HEARINGS BEFORE 
 
 the investments in this company, but nearly every banking interest 
 with whom I discussed it was naturally more or less interested, 
 not only in the direct operation of the transcontinental service, but 
 especially in stock and bond ownership and questions of that kind. 
 The almost unanimous feeling I found when presenting it to them 
 was that the restrictions, especially by the Postmaster General, would 
 naturally prevent the banking interests from taking an interest in 
 a company of this kind, especially if they had any affiliations or any 
 stock interests or their clients were largely interested in transconti- 
 nental securities, that they possibly might put themselves in a position 
 where they would lose on their investment on account of the restric- 
 tions, and especially by our charter. Then, too, when the form of 
 plan, etc., was submitted to them, they would generally dismiss it 
 without the customary procedure of going very fully into it and 
 investigating all the opportunities of profit or what it really meant. 
 
 Now, it is five days yet before any bids are to be filed. We have 
 until next Saturday. I have not by any means lost hope that the 
 bid is going to be made. In fact, I had some encouragement on Sat- 
 urday morning that very possibly a bid would be made on strictly 
 independent lines to try to comply with the conditions made by the 
 Postmaster General. So as to what the result will be I hardly think 
 it is fair to take that matter up to-day. 
 
 What I thought of in coming before you, more than anything else, 
 was to try and comply with the request as made of me, and to submit 
 any suggestions as to changes that were necessary or desirable in 
 the laws of the United States. I would first amend the interstate- 
 commerce act — and I hope I am not presuming, gentlemen, in offer- 
 ing these suggestions; they are just the result of my experience and 
 knowledge of the water business. First, give the Interstate Com- 
 merce Commission absolute and complete control over all water lines 
 as to rates in every way — of course, especially those engaged in inter- 
 state commerce from ports to ports. As I understand it now, if de- 
 livered to a railroad and delivered to the interior point, they have 
 the jurisdiction, 'but not over the water lines. 
 
 I would then suggest the passage of another law — a new law — pro- 
 hibiting the ownership of water lines from any ports to ports by 
 any competitive railroad, throwing the burden of proof on the com- 
 panies themselves that they ^ere not in the control of any such 
 interests. If a bona fide bid is made next Saturday under the terms 
 of this law as it exists — the act of March 3, 1891 — and it can be 
 carried out successfully, there will be no objection to consider what 
 I might say would be my third suggestion, and that is as to the 
 present Panama Steamship Co. It is in the control of the Isthmian 
 Canal Commission. 
 
 The president of the Panama Steamship Co. is Col. Goethals and 
 the general manager is Mr. E. A. Drake. Four visits to Panama 
 have shown me what splendid work the canal commission is doing, 
 and the management of the steamship company is a part of the 
 general record. It is a remarkable example of what the Government 
 can do in a great constructive enterprise under men like Col. Goethals 
 and Mr. Drake. The steamship company has been admirably man- 
 aged; considering the class of equipment they have been working 
 with they have done wonders, and with newer ships they could have 
 
COMMITTEE ON INTERSTATE COMMERCE. 247 
 
 done even better. I would enlarge the powers of the Panama Steam- 
 ship Co. and give it the authority to purchase a number of steamers 
 to operate in this coast-to-coast traffic entirely independent of any 
 interest. My reason for recommending this is that I believe it will 
 give to the Interstate Commerce Commission a basis of rates from 
 coast to coast that will assist very materially in reaching, in con- 
 nection with the railroads, a basis of rates to all the interior points 
 and all the intermountain business. 
 
 As I understand it, the basis of the coast-to-coast rate has always 
 been made as a justification for the changes in the interior rate. This 
 would settle it. under Government control, and while I am not in 
 favor generally of Government control, the result of the Panama 
 Steamship Co., it seems to me, would justify making the experiment 
 unless some strictly independent interest bids under the act of March 
 3, 1891. 
 
 _ Those are all the recommendations that I would make, or sugges- 
 tions, rather, as to the changing of the laws for the creation and con- 
 trol of corporations engaged in interstate commerce. 
 
 The Acting Chairman (Senator Cummins). You have before you 
 the proposition issued by the Post Office Department, have you ? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. While it is a public affair, yet I would 
 be glad if you would put it into this record in connection with your 
 statement. 
 
 Mr. Baker. I will be very glad to do so. 
 
 The Acting Chairman. So that we may know precisely what con- 
 ditions the Postmaster General has exacted of the company about 
 to engage in that business. 
 
 Mr. Baker. Would you like to hear them read now ? 
 
 The Acting Chairman. I think it would be very well if you would 
 read them. 
 
 Mr. Baker. I will not trouble to read over the bids ; that is rather 
 a matter of detail, but will read the special instructions to bidders in 
 clauses 15 and 16. They are as follows : 
 
 EXTRACTS FROJI THE POSTMASTER GENERAL'S " INSTRUCTIONS TO BIDDERS." 
 
 15. No award of contract for the mnil service on the routes herein described 
 will be made to any bidder who shall be engaged in any competitive transporta- 
 tion business by rail, or who shall be engaged in the business of exporting or 
 importing goods, wares, merchandise, or other property on his own account, or 
 who shall bid for. on behalf of, or in the interest of any person or corporation 
 engaged in such business, or either of them, or having the control thereof 
 through stock ownership or otherwise. 
 
 16. The right is reserved to the Postmaster General to cancel without in- 
 demnity to the contractor any contract entered into under the advertisement 
 if at any time the performance of the same shall rest within the control of any 
 competitive railroad company, or of any person or persons in control of the 
 same through stock ownership or otherwise, or if any party to any such contract 
 shall make or give any undue or unreasonable preference or advantage to any 
 particular person, company, firm, corporation, or locality, or any particular 
 description of traffic in any respect whatsoever, or subject any particular per- 
 son, company, firm, corporation, or locality, or any particular description of 
 traffic, to any undue or unreasonable prejudice or disadvantage. 
 
 The Acting Chairman. I would suggest also possibly, as I have 
 alluded to that, that a copy of the charter of the company formed to 
 carry this out had also better be filed, as it gives all the restrictions. 
 
248 
 
 HEARINGS BEFOEE 
 
 Mr. Baker. I will be very glad to have it filed and will furnish it 
 to the reporter, so that it may go into the record. 
 
 (The proposition of the Post Office Department and the charter 
 are, respectively, as follows:) 
 
 Ocean Mail Service. 
 
 The following is a copy of the general advertisement as it appears in news- 
 papers in Boston, New York, Philadelphia, Baltimore, New Orleans, St. Louis, 
 Charleston, Norfolk, Savannah, Galveston, Mobile, San Francisco, Los Angeles, 
 Seattle, Tacoma, and Portland (Oreg.) : 
 
 OCEAN MAIL LETTINGS — NOTICE TO BIDDERS. 
 
 Post Office Department, July 20, 1911. 
 Proposals will be received at the Post Office Department in the city of Wash- 
 ington until 4.30 p. m. November 25, 1911, for ocean mail service pursuant to the 
 act of March 3, 1891, in vessels of the second class, on the routes hereinafter 
 described, service on each route to commence not later than the 18th of October, 
 1914. The right is reserved to reject all bids. 
 
 SCHEDULE OF ROUTES. 
 
 No. 77, " O. M. S.," from Seattle — with right of call at Astoria — -to Panama, 
 once every two weeks, 26 trips a year, calling at San Francisco and alternately 
 at San Pedro and or San Diego, Oal., and from San Francisco to Panama once 
 every two weeks, 26 trips a year, calling alternately at San Pedro and or San 
 Diego, Cal. Time from Seattle to Panama 16 days and from San Francisco to 
 Panama 10 days. Contract for 10 years. Bond required with bid $200,000. 
 
 No. 78, " O. M. S.," from New York to Colon, calling at Charleston and or 
 Savannah once each week, 52 trips a year. Time to Colon 6 days. Contract for 
 10 years. Bond required with bid $100,000. 
 
 No, 79, " O. M. S.," from New Orleans to Colon, once each week, 52 trips a 
 year. Time to Colon 4 days. Contract for 10 years. Bond required with bid 
 $75,000. 
 
 The Postmaster General reserves the right to require the steamers on each of 
 the above-mentioned routes, whenever they may continue their voyage to a port 
 at the opposite end of the Panama Canal, to carry any portion of their mails to 
 such port without additional compensation, whenever in his judgment that 
 course is advantageous to the Post Office Department. 
 
 Circulars containing a description of the routes, instructions to bidders, and 
 blank forms of proposals, with accompanying bonds, can be obtained of the 
 Second Assistant Postmaster General, Post Office Department, on and after 
 August 1, 1911. 
 
 Frank H. Hitchcock, 
 
 Postmaster General. 
 
 Certificate of Incorporation. 
 
 atlantic & pacific transport co. 
 
 This is to certify that the undersigned do hereby associate themselves into 
 a corporation under and by virtue of the provisions of an act of the Legislature 
 of the State of New Jersey entitled "An act concerning corporations" (revision 
 of 1896), and the several supplements thereto and acts amendatory thereof. 
 
 I. The name of the corporation is "Atlantic & Pacific Transport Co." 
 
 II. The location of the principal office in this State is at No. 15 Exchange 
 Place, in the city of Jersey City, county of Hudson. 
 
 The name of the agent therein and in charge thereof upon whom process 
 against this corporation may be served is the Registrar & Transfer Co. 
 
COMMITTEE ON INTERSTATE COMMERCE. 249 
 
 III. The objects for which this corporation is formed are — 
 
 (a) To transport for hire passengers and mails, goods, wares, and merchan- 
 dise, animals, and other property of all kinds and nature whatsoever to, from, 
 and between the various ports, harbors, cities, and towns of the world by 
 means of vessels, ships, barges, or boats driven, propelled, or maneuvered by 
 sails, steam, or other form of power. 
 
 (B) To build, purchase, sell, lease, hire, charter, deal in, equip, operate, 
 and own vessels, ships, boats, barges, and lighters of any and every character 
 or description, and all apparel and tackle useful thereto or in connection there- 
 with; also to purchase, sell, lease, deal in, work upon, and own lands, wharves, 
 piers, water rights, warehouses, and terminal facilities in the States, Territories, 
 possessions, and dependencies of the United States, and in such other places! 
 either domestic or foreign, as the business of the company may seem to require 
 or as may be convenient or desirable. 
 
 (c) The purchase of the business and assets of any existing firm or cor- 
 poration engaged in the water transportation business and in connection there- 
 with to assume or guarantee the payment of any or all of the obligations of 
 such firm or corporation. 
 
 (d) To lease, purchase, or construct warehouses, terminals, or storage depots, 
 and therein to receive, handle, store, keep, and forward goods, wares, mer- 
 chandise, and all classes of freight by land or water, all on such terms as may 
 be agreed upon or permitted by law. 
 
 (e) To lease, purchase, or construct wireless telegraph stations and any 
 apparatus useful in connection therewith, and to maintain and operate the 
 same on terms to be fixed by the company and permitted by law. 
 
 (/) To enter into, make, perform, and carry out contracts of every kind and 
 for any lawful purpose with the Government of the United States or of any 
 foreign nation, or with any person, firm, association, or corporation. 
 
 (27) To purchase, sell, acquire, own, hold, and deal in the shares of stock or 
 other securities of corporations of this and other States, and of the United 
 States and of other countries. 
 
 IV. The amount of the total authorized capital stock of the corporation is 
 $15,000,000, divided into 150,000 shares of the par value of $100 for each share. 
 
 V. The amount of capital stock with which the corporation will commence 
 business shall be $6,000. All of the capital stock shall be common stock, and 
 no property other than cash to the amount of the par value of the shares shall 
 be received in payment therefor. 
 
 VI. The duration of the company shall be perpetual. 
 
 VII. The names and post-office addresses of the incorporators and the num- 
 ber of shares subscribed for by each are as follows : 
 
 Shares. 
 
 Bernard X. Baker, Baltimore County, Md 10 
 
 Adrian H. Boole, Washington, D. C 10 
 
 Thomas B. Hacrison, Baltimore, Md 10 
 
 James S. Whiteley, Baltimore County, Md 10 
 
 Charles G. Heim, Baltimore, Md 10 
 
 Henry T. Letts, Jersey City, N. J 10 
 
 VIII. The stockholders shall, at their first meeting, elect a board of directors 
 of such number, not less than 10, as the by-laws may provide, one-fifth of the 
 board to be elected for one year, one-fifth for two years, one-fifth for three 
 years, one-fifth for four years, and one-fifth for five years. Thereafter directors 
 shall be elected by the stockholders annually for a term of five years to take 
 the places of those whose terms have expired. The board of directors may, 
 however, fill vacancies in their number for the unexpired terms of any who may 
 resign, die, or for any reason cease to act. 
 
 In order to protect the corporation from control by competitive interests and 
 from a cancellation of any contract it may enter into with the Government of 
 the United States for ocean mail service under the powers now or hereafter 
 reserved to the Postmaster General in the award of such contracts, 
 It is provided, in addition to the qualifications prescribed by law, that 
 No person shall be eligible as a director who shall be a director in or an 
 officer or agent of any corporation or association engaged in any competitive 
 transportation business by rail or engaged in the business of exporting or im- 
 porting goods, wares, merchandise, or other property on its own account, and 
 no person elected a director shall be qualified to act until he shall have sub- 
 
250 
 
 HEARINGS BEFORE 
 
 scribed on oath that he is not the representative of or acting in the interest 
 of any such corporation or association and will not so act during his term of 
 office. , 
 
 If at any time the Postmaster General of the United States shall notify this 
 corporation that any one or more of its directors or officers represent a com- 
 petitive railway interest or are guilty of acts which would, in his opinion, 
 justify a cancellation of any contract of this corporation with the Government 
 of the United States for ocean mail service, then immediately upon such notice 
 the office of every such director or officer shall be vacant. 
 
 The power of any stockholder or director of the corporation to vote on any 
 question shall cease upon notice from the Postmaster General of the United 
 States that such stockholder or director represents a competitive railway inter- 
 est or has voted for or in any way authorized any action by or policy of said 
 corporation which would justify the cancellation of any contract for ocean mail 
 service which the corporation may have with the Government of the United 
 States. 
 
 The board of directors shall have power to hold their meetings outside of 
 the State of New Jersey at such places as from time to time may be desig- 
 nated by the by-laws or by resolution of the board. The by-laws may prescribe 
 the number of directors necessary to constitute a quorum, which number may 
 be less than a majority of the whole number of directors. 
 
 Any officer elected or appointed by the board shall hold office only during the 
 pleasure of the board and may be removed without cause at any time by affirm- 
 ative vote of a majority of the whole board of directors. 
 
 The board of directors by the affirmative vote of a majority of the whole 
 board may appoint from the directors an executive committee, of which a ma- 
 jority shall constitute a quorum, and to such extent as shall be provided in the 
 by-laws such committee shall have and may exercise all or any of the powers 
 of the board of directors. 
 
 At all meetings of the company each stockholder shall be entitled to one 
 vote for each share of capital stock held or owned by him up to 5,000 shares 
 and one vote for each 2 additional shares up to 10,000 shares, and there- 
 after he shall be entitled to one vote for each additional 10 shares he may 
 hold or own. To avoid any evasion of the foregoing limitation of the voting 
 power of large holdings, any stock held directly or indirectly for or for the 
 benefit of any stockholder shall be considered for the foregoing purposes as 
 if held outright by him. 
 
 In witness whereof we have hereunto set our hands and seals the 19th day 
 of August, 1911. 
 
 Bernard N. Baker. [seal.] 
 
 Adrian H. Boole. [seal.] 
 
 Thomas B. Harrison, [seal.] 
 James S. Whiteley. [seal.] 
 Ohables G. Heim. 4 [seal.] 
 
 Henry T. Letts. * [seal.] 
 
 State or Maryland, 
 
 City of Baltimore, to wit: 
 
 Be it remembered that on this 19th day of August, 1911, before me, the sub- 
 scriber, a notary public of the State of Maryland, in and for the city of Baltimore 
 aforesaid, personally appeared Bernard N. Baker, Adrian H. Boole, Thomas B. 
 Harrison, James S. Whiteley, and Charles G. Heim; who I am satisfied are the 
 persons named in and who executed the aforegoing certificate, and I having 
 first made known to them the contents thereof, they did each acknowledge that 
 they signed, sealed, and delivered the same as their voluntary act and deed. 
 
 Witness my hand and notarial seal. 
 
 [seal.] Harry E. Miles, 
 
 Notary Public. 
 
 State or New Jersey, 
 
 County of Hudson, to wit: 
 Be it remembered that on this 29th day of August, 1911, before me, a master 
 in chancery, personally appeared Henry T. Letts, who I am satisfied is the 
 person named in and who executed the foregoing certificate, and I having first 
 made known to him the contents thereof, he did acknowledge that he signed, 
 sealed, and delivered the same as his voluntary act and deed. 
 
 Walter L. McDermott, 
 Master in Chancery of New Jersey. 
 
COMMITTEE ON INTERSTATE COMMERCE. 251 
 
 The Acting Chairman. What capital was proposed for the com- 
 pany that you are endeavoring to organize ? 
 Mr. Baker. $15,000,000. 
 
 The Acting Chairman. What number of ships had you in mind 
 lo build and put into the service ? 
 
 Mr. Baker. About 15 steamers. You see so much depended on 
 the size and character of the steamers, as to cost. I estimated it 
 could be done within the $15,000,000 possibly, in addition to securing 
 some credit which is generally customary from the builders, if nec- 
 essary. It might require a little more than that. We could learn 
 by actual experience after providing four or five steamers what the 
 result of the business would be. It is entirely a new business, a 
 new policy — the opening of a route through the canal. No one 
 knows, of course, what the result will be. To me it offered very 
 great opportunities — I thought very great opportunities of profit, 
 in the development of the business, and in addition to regulating 
 the coast to coast traffic, providing the War Department with aux- 
 iliary transports, and the Navy Department with cruisers, it would 
 also give an opportunity to develop commerce with South America, 
 especially through the arrangements that might be made with the 
 foreign lines from foreign ports from Colon and Balboa, carrying 
 out that idea, although nothing had been done. This summer I had 
 an interesting discussion with the Royal Mail Co., that have recently 
 very much enlarged. Mr. Williams, the former managing director, 
 who is now chairman of the board, was with me for a very long 
 time. He thought opportunities for prorating with the Royal Mail 
 and such companies as the Pacific Steam Navigation Co. down the 
 west coast would be large and profitable and would result in an 
 enormous development of prorating traffic back and forth to the 
 ports of South America with the ports of the United States by 
 transfer at Colon and Panama. 
 
 The Acting Chairman. The purpose of your interview with the 
 Bates & Chesebrough and the Hawaiian Line, I assume, was not to 
 interest them in the proposed corporation of which you have spoken, 
 but in the hope that they might make independent bids for the 
 business ? 
 
 Mr. Baker. Yes, sir ; entirely so. 
 
 The Acting Chairman. You remarked that the Attorney-General 
 had rendered to the Post Office Department an opinion that the 
 ports of Panama and Colon were foreign ports in the sense that they 
 would come within the terms of the act of 1891. Did you under- 
 stand that that applied also to the ports of Cristobal and Balboa? 
 
 Mr. Baker. They were brought up. My recollection of it is that 
 those ports were mentioned, but a port of call— you are familiar 
 with that, Senator, having been down there. As you go in, of 
 course, the first port is Colon, which is the foreign port. I find that 
 I have the decision right here. Shall I read it? I will put it into 
 the record. 
 
 The Chairman. You may read any extract that you have that 
 will show what his opinion is on that point. 
 Mr. Baker. I read as follows : 
 
 It is stated, in this connection, that docking the large vessels at the cities of 
 Colon and Panama would result in serious loss of time, and that the actual 
 call at these places would be obviated by the use of a tender to meet the 
 
252 
 
 HEARINGS BEFORE 
 
 vessels upon entering the " harbor adjacent to these ports " to receive and 
 deliver the mail in Colon and Panama, the vessels then proceeding to the 
 Government docks at Cristobal and Balboa. 
 
 It has been held that the purpose of the act of March 3, 1891, is to promote 
 the carriage of the ocean mails in ships of American register, and thereby to 
 promote ocean commerce in American bottoms, and that this statute, " designed 
 to promote foreign commerce, is entitled to a liberal construction with a view 
 to carrying out the purpose of its enactment." (20 Op.. 98, 101.) 
 
 In my opinion, the service proposed is in substantial compliance with the 
 letter and spirit of the statute, as being between " ports of the United States " 
 and " ports of foreign countries." The word " port " is not limited in Its 
 application to the city which bears the same name, but has been defined as 
 including the entire harbor within its inclosures and projections of land, where 
 ships take refuge and seek shelter. (United States v. Morel, 26 Fed. Cas., 1310; 
 De Longuemere v. New York Fire Insurance Co., 10 Johns (N. Y. ), 120, 124; 
 Mobile Marine Dock Co. v. McMillan, 27 Ala., 77, 99 ; Martin v. Hilton, 9 Mete, 
 371, 378.) Constructing the word "port" as synonymous with "harbor," the 
 vessels unquestionably would be carrying the mails to a foreign port if they 
 entered the harbor, since the treaty reserves to Panama not only the cities of 
 Panama and Colon, but also "the harbors adjacent to said cities." In any 
 event. I think that carrying the mails upon such vessels within such close 
 proximity to said cities that they might safely be landed in a small boat would 
 be a substantial compliance with the terms of the act. 
 
 The Chairman. That is. a steamship leaving New York or Bal- 
 timore and destined for San Francisco, and passing through the 
 canal, if it exchanged mail at Panama or Colon, would be within the 
 act of 1891? 
 
 Mr. Baker. That is what I understand ; yes, sir. Then that other 
 point — and it is very interesting — of the right to put in these restric- 
 tions that the honorable Attorney General has in his opinion. 
 
 The Chairman. Is the opinion of the Attorney General a lengthy 
 one? 
 
 Mr. Baker. It is not very lengthy. 
 
 Senator Brandegee. For another reason I would like to have 
 it go in. 
 
 The Chairman. Very well. Will you please hand it to the 
 reporter, so that it may go into the record ? 
 
 Mr. Baker. It is dated Julv 12. and I see here the " 16th nit.," 
 which would be June 16. that it was submitted. 
 
 Senator Brandegee. 1911 ? 
 
 Mr. Baker. 1911. 
 
 (The paper in full is as follows:) 
 
 OCEAN MAIL SERVICE FOREIGN PORTS — COLON AND PANAMA- 
 
 The cities of Panama and Colon and the harbors adjacent to said cities 
 being reserved as a part of the Republic of Panama in the grant of the Canal 
 Zone to the United States, the ports of Panama and Colon are foreign ports 
 within the meaning of the act of March 3. 1S91 (26 Stat.. 830), providing for 
 ocean mail service between the United States and foreign ports. 
 
 Vessels using the Government docks at Cristobal and Balboa, which are 
 in close proximity to but outside the limits of the cities of Colon and Panama 
 and within the Canal Zone, would be carrying mails between the United States 
 and foreign ports within the spirit and letter of said act of March 3, 1891. 
 
 In entering into contracts for carrying foreign mails under the act of March 
 3. 1891 (26 Stat., 830), the Postmaster General, in the promotion of the com- 
 mercial interests of the United States, has authority to reject any bid not in 
 his opinion reasonable for attaining such purpose and may notify prospective 
 bidders in advance of his purpose not to entertain such bids and may reserve 
 the right to rescind the contract if a material condition thereof be disregarded 
 by the contractors. 
 
COMMITTEE ON INTERSTATE COMMERCE. 253 
 
 Department of Justice, 
 
 July 12, 1911. 
 Sjk: Referring to your letter of the 16th ultimo, transmitting for my con- 
 sideration certain papers relating to the proposed ocean mail service between 
 New York and Colon on the Atlantic and between San Francisco and Panama 
 on the Pacific, I beg to return the same with an expression of my opinion on 
 certain questions suggested therein. 
 
 The service referred to is to be established, under the provisions of the act 
 of March 3, 1891 (26 Stat., 830), entitled "An act to provide for ocean mail 
 service between the United States and foreign ports and to promote commerce." 
 The first section of that act authorizes and empowers the Postmaster Gen- 
 eral " to enter into contracts for a term not less than 5 nor more than 10 
 years in duration with American citizens for the carrying of mails on Ameri- 
 can steamships between ports of the United States and such ports in foreign 
 countries, the Dominion of Canada excepted, as in his judgment will best sub- 
 serve and promote the postal and commercial interests of the United States, the 
 mail service on such lines to be equitably distributed among the Atlantic, 
 Mexican, Gulf, and Pacific ports." Section 2 provides for the advertising and 
 letting of said contracts. Section 3 requires that the steamship shall be of 
 American build, officered by American citizens, nnd manned in certain pro- 
 portions by American crews. This section also divides such steamships into 
 four classes and specifies the manner and material of their build, tonnage, and 
 rate of speed, particulars which differ with the class. Section 4 provides that 
 the ships shall be constructed according to plans and specifications approved 
 by the Secretary of the Navy, and of sufficient strength to be readily con- 
 vertible into cruisers. Section 5 fixes the maximum rate of compensation to 
 be paid for such ocean mail service to the ships of each class " for each out- 
 ward voyage." It is unnecessary to refer to the other provisions of the statute. 
 The first question suggested is "whether the ports of Colon and Panama 
 will, after the canal is constructed, remain foreign ports?" 
 
 The treaty with the Republic of Panama, by which "the use, occupation, 
 and control " of the Canal Zone is granted to the United States " in perpetuity," 
 provides (33 Stat., 2234, 2235) " that the cities of Panama and Colon and the 
 harbors adjacent to said cities, which are included within the boundaries of the 
 zone above described, shall not be included within this grant." 
 
 Being thus reserved as a part of the Republic of Panama, such cities are 
 territory of that country and therefore foreign ports. I am not advised of any 
 provision that will change their status when the canal is constructed. 
 
 It appears from the papers transmitted by you that it will be more con- 
 venient for the vessels contracting for this mail service to use principally the 
 Government docks, which are being constructed at Cristobal on the Atlantic side 
 and Balboa on the Pacific side; and the question arises whether by using these 
 docks, which are in close proximity to but outside the limits of the cities of 
 Colon and Panama and within the Canal Zone, the vessels would be carrying 
 mails to foreign ports. It is stated in this connection that docking the large 
 vessels at the cities of Colon and Panama would result in serious loss of time, 
 and that the actual call at these places would be obviated by the use of a 
 tender to meet the vessels upon entering the "harbor adjacent to these ports" 
 to receive and deliver the mail in Colon and Panama, the vessels then pro- 
 ceeding to the Government docks at Cristobal and Balboa. 
 
 It has been held that the purpose of the act of March 3, 1891, is "to promote 
 the carriage of the ocean mails in ships of American register, and thereby to 
 promote ocean commerce in American bottoms." and that this statute, "de- 
 signed to promote foreign commerce, is entitled to a liberal construction, with 
 a view to carrying out the purpose of its enactment." (20 Op., 98, 101.) 
 
 In my opinion, the service proposed is in substantial compliance with the let- 
 ter and spirit of the statute, as being between " ports of the United States 
 and " ports of foreign countries." The word " port " is not limited in its ap- 
 plication to the city which bears the same name, but has been defined as in- 
 cluding the entire harbor, within its inclosures and projections of land, where 
 ships take refuge and seek shelter. ( United States v. Morel, 26 Fed Cas. 1310 ; 
 De Longuemere v. New York Fire Insurance Co.. 10 Johns. (N. Y.), 120 124, 
 Mobile Marine Dock Co. v. McMillan, 27 Ala., 77, 99 : Martin v. Hilton 9 Mete., 
 371 378 ) Constructing the word " port " as synonymous with harbor the 
 vessels unquestionably would be carrying tne mails to a foreign port if they en- 
 tered the harbor, since the treaty reserves to Panama not only the cities ot 
 Panama and Colon, but also "the harbors adjacent to said cities. In any 
 
254 
 
 HEARINGS BEFORE 
 
 event, I think that carrying the mails upon such vessels within such close prox 
 imity to said cities that they might safely be landed in a small boat would be a 
 substantial compliance with the terms of the act. 
 
 Referring doubtless to the provision of section 5 of the statute, which limits 
 the compensation to the outward voyage and makes its rate depend upon the 
 class of the ship, in which calculation speed is an important factor, the Second 
 Assistant Postmaster General, in his memorandum of June 16, 1911, accompany- 
 ing your letter, states that " in case the large vessels do not actually enter the 
 docks of Colon and Panama, but transship the mails to the tenders referred to, 
 the actual distance to the point of transshipment will be paid for." This would 
 be a necessary requirement under the act. 
 
 Advice is also desired as to the authority of the Postmaster General in con- 
 nection with sections 15 and 16 of the proposed instructions to bidders, which 
 read: 
 
 " 15. No award of contract for the mail service on the routes herein described 
 will be made to any bidder who shall be engaged in any competitive transporta- 
 tion business by rail, or who shall be engaged in the business of exporting or 
 importing goods, wares, merchandise, or other property on his own account, or 
 who shall bid for, on behalf of, or in the interest of any person or corporation 
 engaged in such business, or either of them, or having the control thereof 
 through stock ownership or otherwise. 
 
 " 16. The right is reserved to the Postmaster General to cancel, without in- 
 demnity to the contractor, any contract entered into under the advertisement if 
 at any time the performance of the same shall rest within the control of any 
 competitive railroad company or of any person or persons in control of the 
 same through stock ownership or otherwise, or if any party to any such con- 
 tract shall make or give any undue or unreasonable preference or advantage 
 to any particular person, company, firm, corporation, or locality, or any par- 
 ticular description of traffic in any respect whatsoever, or subject any particular 
 person, company, firm, corporation, or locality, or any particular description of 
 traffic, to any undue or unreasonable prejudice or disadvantage." 
 
 The statute in question does not expressly authorize the Postmaster General 
 to insert such qualifications or conditions as these paragraphs contain in the 
 advertisements for carrying the ocean mails, which he is required by section 2 
 of the act to make. That section provides : 
 
 " Sec. 2. That before making any contract for carrying ocean mails in accord- 
 ance with this act the Postmaster General shall give public notice by advertising 
 once a week, for three months, in such daily papers as he shall select in each 
 of the cities of Boston, New York, Philadelphia, Baltimore, New Orleans, 
 St. Louis, Charleston, Norfolk, Savannah, Galveston, and Mobile, and when the 
 proposed service is to be on the Pacific Ocean, then in San Francisco, Tacoma, 
 and Portland. Such notice shall describe the route, the time when such con- 
 tract will be made, the duration of the same, the size of the steamers to be 
 used, the number of trips a year, the times of sailing, and the time when the 
 service shall commence, which shall not be more than three years after the con- 
 tract shall be let. The details of the mode of advertising and letting such 
 contracts shall be conducted in the manner prescribed in chapter 8 of title 46 
 of the Revised Statutes for the letting of inland mail contracts so far as the 
 same shall be applicable to the ocean mail service." 
 
 Section 1 of the act, however, authorizes the Postmaster General to enter 
 into contracts of the character specified "as in his judgment will best subserve 
 and promote the postal and commercial interests of the United States." It 
 further provides that " said contracts shall be made with the lowest responsible 
 bidder for the performance of said service on each route, and the Postmaster 
 General shall have the right to reject all bids not in his opinion reasonable for 
 the attaining of the purposes named." It is evident from these provisions that 
 the promotion of the commercial interests of the United States was an impor- 
 tant object of the statute, and that the Postmaster General is expressly author- 
 ized to reject any bid not in his opinion reasonable for attaining such purpose. 
 Having authority to reject a bid upon such grounds, he would necessarily have 
 authority to notify prospective bidders in advance of his purpose not to enter- 
 tain such bids and to reserve the right to rescind the contract if a material 
 condition thereof were disregarded by the contractors. The paragraphs of the 
 instructions to bidders above quoted manifestly have a direct relation to the 
 commercial interests of the United States in the proposed service. They are 
 in accord with the general policy of the Government as illustrated in the inter- 
 state commerce and antitrust legislation, and are, in my judgment, fully author- 
 
COMMITTEE ON INTERSTATE COMMERCE. 255 
 
 ized by tlie act. The situation in this respect is analogous to that in United 
 States v. Mora (97 U. S., 241, 413), where it was said that a collector of 
 customs, having authority to refuse the clearance of a vessel, might exact a 
 bond differing materially from that specifically authorized by the statute for 
 the purpose of accomplishing the object thereof. 
 
 Respectfully, George W. Wickeesham. 
 
 The Postmaster General. 
 
 The Acting Chairman. You have no hope, I assume, from what 
 you have said, that within five days before the bids are due you can 
 organize this company of fifteen million of capital? 
 
 Mr. Baker. Not of fifteen millions before Saturday. It is only 
 three millions which would be required. It is an arbitrary amount 
 fixed by me that we would be justified in bidding. I have very great 
 hope. 
 
 The Acting Chairman. I am glad to hear that. 
 
 Mr. Baker. I have hope. I will never give up hope. I have also 
 very great hope, from something I have learned, that there will be 
 other independent bidders, which I am very glad to hear, and I will 
 cooperate with any independent bid. We are very anxious to see 
 it done. 
 
 The Acting Chairman. You have been very diligent, I am sure, 
 in endeavoring to interest capitalists and those who would be likely 
 to engage in the business. 
 
 Mr. Baker. I have done the best I knew how. 
 
 The Acting Chairman. I think what the committee would like, 
 or one of the things the committee would like, would be some knowl- 
 edge, a little further knowledge, with regard to the obstacles that 
 you have encountered in enlisting the interest of people in this busi- 
 ness. That is, it is commonly reported, as you know, that certain 
 interests that will not be served by a large business passing through 
 the canal have interfered with your work, and interfered to render 
 it abortive and unsuccessful, and if there is anything of that sort I 
 think the committee would like to hear from you. 
 
 Mr. Baker. The great difficulty is proving anything like that. I 
 hesitate to make a definite statement in any way without being able 
 to prove it, and I did not come here to-day really prepared to discuss 
 that question. I can not find, as I have stated Def ore, any united 
 definite effort, but I have found in many ways a discouragement of the 
 project — a serious discouragement. I wish I had gone into that 
 question a little more fully, but I really thought what you wanted 
 more particularly to-day was the suggestions along the lines of your 
 invitation. 
 
 The Acting Chairman. We want this : We realize—at least I do — 
 that the transcontinental railroads and the financial powers that 
 manage and control them do not want the business which they have 
 done diverted through the canal. 
 
 Mr. Baker. Yes. 
 
 The Acting Chairman. That is natural. 
 
 Mr. Baker. Yes. 
 
 The Acting Chairman. We want to know whether they have done 
 anything, or are doing anything, that is contrary tolaw, or contrary 
 to good policy, to prevent that competition, so that if they are doing 
 it, or propose to do it, we can take the measures that are necessary 
 to limit them within proper bounds. 
 22.ST7— vol 1—12 17 
 
256 HEARINGS BEFORE 
 
 Mr. Baker. I am not familiar with the law, but I have not found 
 any interest doing anything which I would say was contrary to law. 
 With regard to policy, it is altogether a question of opinion. Now. 
 in the discussion with some of those very interests there is no ques- 
 tion in our mind that there is going to be a very large volume of 
 business done in the heavy classes of commodity traffic, such as coal 
 going one way from the east coast and iron — more particularly the 
 manufactures of iron — that go to the Pacific coast by tramp boats and 
 chartered boats, returning lumber and the heavier commodities which 
 is not so desirable for the railroads. I found serious objection on 
 their pail to the question of putting on what we might term mod- 
 erately fast steamers, steamers that would make a regular delivery, 
 which would take care of such business as the apple, fruit, and honey, 
 and the citrus fruits, and things of that kind. They would discourage 
 it all they possibly could, and the difficulty is with the enormous 
 amount of investment in transcontinental railroads to find any bank- 
 ing interest of any national importance that could carry an opera- 
 tion of this kind. While it is not so very great, yet it still is quite a 
 large amount of money that has to be raised for quite a while before 
 any returns are made on it, as you would have to build the ships and 
 advance the money. There is the discouragement of it. I can not say 
 that I have found any positive, direct — what shall I call it? — in- 
 fluence ; yes, there has been influence, but anything that I should say 
 came within the law to begin with, and on the question of its being 
 policy, I may think differently from them. 
 
 The Acting Chairman. In all questions there may be a certain 
 influence which could be exercised by a railway man that would be 
 proper. He does not care to stimulate his competitor, but there is a 
 certain influence that would be very improper, and if it is not now 
 within the law we want to put it in the law. I would really like to 
 know what sort of influence you have met so we can determine 
 whether it ought to be one that ought to be put in the law or not. 
 
 Mr. Baker. The influence I have found would be the discourage- 
 ment of investments in this company. I can not say that there is 
 anything very improper on the part of the holder of a large amount 
 of securities in a transcontinental railroad discouraging an independ- 
 ent line. I do not know of any instance where they have directly 
 done anything except to discourage it. 
 
 The Acting Chairman. Have you discussed the matter with the 
 railway men, owners and managers? 
 
 Mr. Baker. Some, yes. I had a discussion more particularly with 
 tho'se who would be interested, however. I had a very interesting 
 talk with Mr. Flagler and Mr. Potter, of the Florida & East Coast 
 Railway, with the possibility of interesting them. I went to see 
 them. I have forgotten just how it came up, but they spoke of their 
 interest in it and whether there would be a possibility of making a call 
 at Key West as a mail port. It would add a little to the distance of 
 a steamer going from New York to Colon to make a call at Key West. 
 It would accelerate, however, the question of the mail, we calculated. 
 So I had hopes to get encouragement from them, and I discussed 
 very generally the question with them as to how it would affect the 
 railroad interests. Their particular interest would be beneficed. I 
 then had a great number of discussions with Mr. Yoakum, cf the 
 
COMMITTEE ON INTERSTATE COMMERCE. 257 
 
 Frisco system, who is especially interested from the New Orleans 
 end. It would give to their line, he thought, a very good opportunity, 
 and I had hopes, although nothing definite, that if we were not suc- 
 cessful in bidding that they would make a bid. The question of these 
 restrictions naturally came up, as to whether they would be con- 
 sidered a competitive line. Mr. Yoakum assured us that if we should 
 get a competitive interest it might lead to a cancellation and result 
 in everybody's investment being jeopardized after they had put in 
 their money and gone ahead and built the ships; and I think his 
 participation should have been welcomed by the post-office people, 
 although I am not authorized to say so, and the same way with the 
 East Coast Kailroad ; and I still have hopes possibly that something 
 may result from those two interests, which would be especially bene- 
 fited and which would develop their line. Of course in the adver- 
 tisement there is no privilege of calling at Key West. It would 
 have to be the subject of discussion before the Post Office Department 
 probably later on. Those are the only direct railroad interests I 
 have discussed it with. There have been a great many people who 
 were interested in the securities. 
 
 The Acting Chairman. Did you have any talk with Mr. Hill ? 
 
 Mr. Baker. Mr. J. J. Hill? 
 
 The Acting Chairman. Mr. Hill, of the Great Northern and the 
 Northern Pacific Railroad. 
 
 Mr. Baker. No. 
 
 The Acting Chairman. Or with those , representing the Union 
 Pacific Railroad? 
 
 Mr. Baker. No. 
 
 The Acting Chairman. Or the Southern Pacific Railroad? 
 
 Mr. Baker. No. 
 ■ The Acting Chairman. Or with the Milwaukee & St. Paul Rail- 
 road? 
 
 Mr. Baker. No; none of them. 
 
 The Acting Chairman. None of the lines that do business between 
 the two coasts? 
 
 Mr. Baker. No, sir ; not one of them. I discussed it briefly — I have 
 forgotten with whom; I think, possibly, it was Mr. Yoakum. I dis- 
 cussed with him, I think, the interest that the Georgia Central Rail- 
 road might have in it on account of its bringing business down to the 
 ports of Charleston and Savannah. There is a large amount of cotton 
 manufactured goods going from those mills from this section to the 
 Pacific coast now altogether by rail. I never wrote to the Georgia 
 Central people or discussed it Avith them. The question, if taken up. 
 would be very greatly to their interest, were they not controlled by a 
 transcontinental system. 
 
 Then the Illinois Central. I took the matter up with the former 
 president, Mr. Stuyvesant Fish, and he expressed a great deal of 
 interest in it, and said that something ought to be done. But, 6f 
 course, his interests are no longer with the Illinois Central. 
 
 The Acting Chairman. Do you believe that there is or has been 
 any concerted action upon the part of the railroads, or their backers, 
 to prevent the establishment of a line of steamships between our east 
 coast and our west coast through the canal? 
 
258 HEARINGS BEFORE 
 
 Mr. Bakek. I might say yes and no. Not in the effort to prevent 
 this being done, except in so far as they propose to do it themselves. 
 The information is not very reliable, and not such that I can prove 
 it; but all the indications are that the Pacific Mail Steamship Co., 
 which, according to the information I have, is owned by the Southern 
 Pacific Eailroad Co., that has always done this business, proposed to 
 build quite a number of ships and keep it within its own control. 
 It is also well known that this Pacific Mail Steamship Co. is cap- 
 italized at $20,000,000, and $10,010,000, I think, of it is held by the 
 Southern Pacific. So, consequently, it is under their control and 
 management. I think they will develop commerce by their ships. I 
 can only assume that. First, to prevent anyone else from doing it, 
 and, secondly, that it will be within their own control. Of course, I 
 do not think it would be right to restrict the use of the canal except, 
 possibly, in the way of toll. Some one ought to have the authority, 
 the President or some department of the Government, I should think. 
 That discussion will come up, and Prof. Johnson is making a thor- 
 ough study of it now, of discriminating in any concessions which may 
 be made in the canal tolls to domestic commerce, our own commerce, 
 or coastwise commerce. 
 
 The Acting Chairman. That question is not, of course, before our 
 committee. 
 
 Mr. Baker. That is the only way I would suggest. 
 
 The Acting Chairman. Do you know anything that could be done 
 through congressional action that would render it more certain and 
 effective that continuous competition shall be established and main- 
 tained through the canal? 
 
 Mr. Baker. Nothing more than I have suggested. As I said in 
 the beginning here, I would suggest changes in the law, enlarging the 
 Panama Steamship Co. as now organized. It would require nothing 
 new, but it would, it seems to me, do more to develop what basis of 
 rates was just and fair by water lines than anything else I know of 
 that could be done. 
 
 The Acting Chairman. It is your belief that if other companies 
 that are independent do not enter the business that it would be best 
 for the Government to continue and enlarge the facilities of the 
 Panama Steamship Co. and to allow that company to do business 
 between our east coast and our west coast ? 
 
 Mr. Baker. I certainly do. Especially if the other companies will 
 not provide a materially faster class of boats. I hope to live to see 
 the day when very fast boats will be operated through the Panama 
 Canal. 
 
 A 16-knot boat is not fast. From my study of the conditions and 
 requirements of the most valuable traffic that you want to make a 
 basis of rates on must be carried by ships of at least 16 knots. They 
 are not as profitable in carrying freight as an 11-knot boat. You 
 can carry freight on a 10, 11, or 12 knot boat per mile for much less 
 than you can on the 16-knot boat. But there are certain classes of 
 freight that you will never have a basis of fair competition on unless 
 you have the faster boats and can make the delivery within the time 
 that the character of the merchandise requires. That is the particular 
 point made in the advertisement which you have there in limiting the 
 number .of days from San Francisco to New York which they will 
 
COMMITTEE ON INTERSTATE COMMERCE. 259 
 
 .allow a steamship company to consume. If they fail to make it within 
 that number of days, they forfeit their proportion of the mail com- 
 pensation. 
 
 The Acting Chairman. What speed does that limitation require « 
 
 Mr. Baker. You mean in time of days? 
 
 The Acting Chairman. Yes; and the number of knots an hour. 
 
 Mr. Baker. At least 16 knots. Then any faster speed will be taken 
 into consideration on a competitive bid. If they had a number of 
 bids that entered, the bid for a little faster time would be given con- 
 sideration. That makes a guaranteed time of 16 days from San 
 Francisco to New York. 
 
 The Acting Chairman. You think the business ought to be carried 
 in several kinds of ships. 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. Some at slow speed and some at high 
 speed ? 
 
 Mr. Baker. Yes, sir. Certainly. What the American-Hawaiian 
 Co. are doing— and I presume they will use the canal— they are 
 doing a splendid business and will develop the heavy class of traffic. 
 
 Another point is that there ought to be a large amount of refrig- 
 eration on these ships. There always will have to be, if we are going 
 to maintain a military force such' as you gentlemen, I think, have 
 decided upon on the Isthmus of Panama. I count on there being 
 more men there after the canal is completed almost than there are 
 at present ; certainly more Americans. It is natural that they should 
 have the benefit of the markets of the country. It is necessary 
 to have refrigerated ships to carry down their supplies. That re- 
 frigeration will come back from the Pacific coast the other way 
 directly to the Atlantic coast filled with citrus fruit. There is a 
 very great advantage in carrying refrigerated fruit by water, par- 
 ticularly on account of the loss of chafing, etc. 
 
 I was sitting on the platform with Senator Works in Los Angeles 
 when he made quite a point of the saving of the duty on lemons to 
 the interests of California. I was then introduced by Congressman 
 Stevens, and I said that this would save more than the question of 
 duty in rates at which it could be carried profitably. This is my 
 opinion, and I think the opinion of every steamboat man would con- 
 firm it — the suggestion I made was $7. (We always name a rate 
 per 40 cubic feet for refrigerated space.) That cost was about $7 
 a ton, plus the tolls. I think it can be done for that. I would like 
 to enter into a large contract if I could do it for that much. That 
 is such a small percentage — about 33^ per cent of the present rail 
 rate — and it is business of an enormous volume. 
 
 The present rate by rail is $1.15 and icing, which makes it, I figure, 
 about $27.50 per ton on the basis of a steamship ton. 
 
 The Acting Chairman. $1.15 a hundred? 
 
 Mr. Baker. Yes, sir. That would make about a third of the rate— 
 a $7 rate. The great advantage would be that it would save what Ave 
 call chafing in the railroad car. In the railroad car there is the cost 
 of chafing. That is a detail of the question which it is very impor- 
 tant to consider. It is figured that by avoiding the chafing that they 
 save about 6 per cent of the value of the freight if that chafing can 
 be avoided on the outside layers of oranges and lemons. 
 
260 HEARINGS BEFORE 
 
 Nothing is being done to-day — I may be very much mistaken, as 
 I often am — but nothing is being done to-day to build any ships, as 
 far as I know, complying with this requirement. We can not find 
 any indications of that as to speed and refrigeration capacity. It 
 is none too soon to begin. If you had these ships under construction 
 to-day at the fast rate they are digging the canal, at the completion 
 of the canal they would be none too soon to begin the development of 
 this business. 
 
 The Acting Chairman. Senator Newlands, you may inquire. 
 
 Senator Newlands. Mr. Baker, how many ships has the present 
 Panama Steamship Co.? 
 
 Mr. Baker. They have, I think, four of their own and two char- 
 tered — six altogether. 
 
 Senator Newlands. What is the total tonnage ? 
 
 Mr. Baker. I can not tell you, Senator. 
 
 Penator Newlands. Are they large or small ships? 
 
 Mr. Baker. Two are right large ships. They are the C'r!M'>l;a! 
 and the Colon, which were the Pliedas and (he Tlyedas. They are 
 not very large ships. 
 
 Senator Newlands. About how many tons? 
 
 Mr. Baker. I should say about 6,000 tons. 
 
 The Acting Chairman. The Cristobal and the Ancon? 
 
 Mr. Baker. Yes; the Colon is not so large. 
 
 Senator Newlands. What would you require in tonnage as a stand- 
 ard for the ships of this trade ? 
 
 Mr. Baker. I should begin with a ship of about 6,000 tons as the 
 most economical, with that rate of speed, and I would put passenger 
 accommodations on them, too. Of course, the more passenger ac- 
 commodations the less the carrying capacity, because the passenger 
 accommodations reduce the carrying capacity. There are a very 
 large number of passengers going now, and I think it* will be enor- 
 mously increased. That feature of it would be desirable. 
 
 Senator Newlands. The Panama Steamship Co. and the Panama 
 Railroad Co. are under the ownership of the Government? 
 
 Mr. Baker. The United States Government. 
 
 Senator Newlands. The Panama Steamship Co. operates between 
 New York and Panama, does it not ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. On the other side, for a long time, the Pacific 
 Mail & Steamship Co. controlled the transportation up the coast of 
 California and Oregon, did it not ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. And since that time the Bates & Chesebrongh 
 Co. 
 
 Mr. Baker. They are both running now regular steamers. 
 
 Senator Newlands. Which one has the larger number of steamers 
 and the larger number of tonnage ? 
 
 Mr. Baker. The Pacific Mail Steamship Co. has the larger num- 
 ber of steamers. 
 
 Senator Newlands. Do you know what the capacity of the Bates- 
 Chesebrough Co. is ? 
 
 Mr. Baker. I do not. The California & Atlantic, it is now. I 
 do not know what its capacity is. 
 
COMMITTEE ON INTERSTATE COMMERCE. 261 
 
 Senator Newlands. It is called the California & Atlantic now ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. Do you know how many ships it has? 
 
 Mr. Baker. I do not know that they own any ships. They charter 
 quite a number of ships. 
 
 Senator Newlands. How long has that company been operating? 
 
 Mr. Bakee. My recollection is that it has been over 12 months; I 
 think about 18 months. 
 
 Senator Newlands. Has that company met with the active compe- 
 tition of the Pacific Mail Steamship Co. ? 
 
 Mr. Bakee. No, sir. 
 
 Senator Newlands. There has been no cutting of rates? 
 
 Mr. Baker. There was at one time a cutting of rate'-. You see 
 rates, Senator, are made through from San Francisco to New York, 
 so the United States Government has to share in those rates, in so far 
 as they have the Panama Railroad Co.'s proportion of the division 
 of that rate, and also that from Colon to New York. They did begin 
 a cutting of rates, but the Government rather called them to account 
 because they had a share in the proportion of the rate. So I under- 
 stand that it has been arranged that they have regular rates. When 
 Bates & Chesebrough first started their direct service — you know the 
 Pacific Mail & Steamship Co. had never had a direct service — they 
 stopped at all the ports along South America and made a slow de- 
 livery. My recollection of the evidence is that they never made a faster 
 voyage than 26 days, without about 3,200 knots from San Francisco 
 to Panama. It could have been covered very easily with these boats 
 in about 10 or 12 days — just half 'the time. 
 
 When Bates & Chesebrough started, with great energy and won- 
 derful pluck, the Pacific Mail & Steamship Co. started, I understand, 
 to run a boat the day before direct, which Mr. Schwerin testified 
 would never be profitable to do. I understand, however, it has been 
 very profitable to the California & Atlantic Co.— to Ba?e* & Chese- 
 brough. . 
 
 Senator Newlands. It has also been profitable to the Pacific Mail 
 & Steamship Co., has it not? 
 
 Mr. Bakee. They never have made any profit of any kind that I 
 have ever seen. I do not know how it has been with them. But 
 Bates & Chesebrough told me it had been profitable to them. 
 
 Senator Newlands. Do you think that the Pacific Mail & Steam- 
 ship Co. expect to make its operations there profitable? 
 
 Mr. Baker. I doubt it. If they did they would do it differently. 
 
 Senator Newlands. Your idea is that it is maintained there simply 
 for the purpose of protecting the transcontinental business of the 
 railroad? 
 
 Mr. Baker. It is. 
 
 Senator Newlands. Did Bates & Chesebrough have any difficulty 
 in organizing their company — I mean in financing it? 
 
 Mr. Baker. I do not know of their difficulty. I think probably 
 they did, but I do not know that personally, of course. 
 
 Senator Newlands. What is the capital of that California & At- 
 lantic Steamship Co.? . 
 
 Mr. Baker. I do not know. I have never seen the organization 
 
 papers. 
 
262 HEARINGS BEFORE 
 
 Senators Newlands. Do you know how many ships there are ? 
 
 Mr. Baker. They are operating now about 12 boats of different 
 kinds. They have 'different kinds of boats, and are towing barges, 
 etc., to take care of the large business. They chartered a number of 
 boats. It is not what they would like to have or what it would be if 
 they had the capital. 
 
 Senator Newlands. Now, then, the cities of Seattle, Portland, San 
 Francisco, Los Angeles, San Diego, all of them ports, are largely 
 interested in the development and operation of the Panama Canal, 
 are they not? 
 
 Mr. Baker. Very much. 
 
 Senator Newlands. Did you make an effort in any of those cities 
 to finance this corporation ? 
 
 Mr. Baker. In all of them. 
 
 Senator Newlands. What difficulties did you meet with, or what 
 
 success 
 
 9 
 
 Mr. Baker. The difficulties were a great many. Take San Fran- 
 cisco, particularly. The enormous amount they had recently raised 
 on account of the serious losses which they had incurred prevented 
 their giving me very much assistance. They, however, gave me all 
 the encouragement possible. I was particularly unfortunate there in 
 that the Hon. T\ x illiam K. Wheeler, who took a very great interest in 
 this project from the very beginning — you know he was the Assistant 
 Secretary of the Department of Commerce and Labor. He was tied 
 up in giving us assistance through his connection with the Merchants' 
 Exchange, in which all the railroads and the American-Hawaiian 
 Co. and the California & Atlantic Co. and the Pacific Mail & Steam- 
 ship Co. were all members. He was traffic manager for that depart- 
 ment. I found great interest there. They all wanted to encourage 
 it. If I had only had more time there, more than the 80 days, things 
 might have been different. There Mere many men who should have 
 been visited and seen who had expressed interest in it. One was Mr. 
 Smith, who owned — I do not know his initials — he is the gentleman 
 who owns the enormous wharves, or what is known as the Key route 
 in San Francisco. Are you familiar with that, Senator? 
 
 Senator Newlands. Yes. 
 
 Mr. Baker. They have enormous dock facilities there and they 
 were interested in my project. A man like Mr. Smith I should have 
 had an opportunity of seeing and discussing this with in all its de- 
 tails. I had had correspondence with him. When you would go to 
 a man like Mr. Smith he would naturally ask whether our company 
 would stop at his dock if they took an interest in it. The direct in- 
 terest in San Francisco was not very great. 
 
 In Seattle I found a very great interest. A special committee was 
 appointed by the chamber of commerce, and they sent out circulars 
 on their own account. 
 
 In Tacoma it was the same way; they rather cooperated with 
 Seattle. 
 
 At Portland, Oreg., there was also special interest shown. They 
 appointed a special committee. Mr. J. N. Teal, chairman, showed 
 a very great interest in it. He came East here and he is still acting 
 in connection with me, and is trying to assist me. 
 
 Then in Los Angeles I was unfortunate. I was sick when I was 
 there, and I sent a young man back there. 
 
COMMITTEE ON INTERSTATE COMMERCE. 263 
 
 One of the greatest difficulties I have had is to find young men 
 who can really talk the question of water transportation intelli- 
 gently. I can not find them and I do not believe they exist. I have 
 had a few work for me, but intelligent young men who thoroughly 
 understand the subject are difficult to find. 
 
 Now, all the water transportation interests are connected in some 
 way with those of the railroad interests or with foreign interests. 
 
 Senator Root said to me once : h If you will only get a half dozen 
 good men to educate the country as to what the merchant marine 
 means you will render a great favor." I told him if I could get two I 
 would be glad to get even that many. You can not get them. 
 
 Senator Newlands. In California and Oregon and Washington, 
 therefore, whilst you found great sympathetic interest, you found no 
 substantial financial response ? 
 
 Mr. Baker. Yes, sir. The most direct financial response I found 
 was in Seattle and Portland. Portland has now raised $100,000. 
 Mr. Teal said he was not satisfied, that they must raise $250,000, and 
 they would do it if they were only given time. Seattle sent their 
 representative down, and he subscribed for himself and associates 
 $500,000, and assured me that if I could spare the time to come out 
 there and go over it with them again that they would raise $300,000 
 more, if they had more time. But the time was limited. 
 
 Senator Newlands. Did you get any financial response in Los 
 Angeles or San Francisco or San Diego? 
 
 Mr. Baker. No; none whatever. 
 
 Senator Newlands. And yet in San Francisco the bankers there 
 have very large capitalizations and deposits, have they not? 
 
 Mr. Baker. Yes, sir. But they have been taken up with the enor- 
 mous demands that have been made on them. 
 
 Senator Newlands. Did you discuss it with them ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. The one difficulty you found was that all the 
 large interests on the Pacific coast were mainly financed in the East ? 
 
 Mr. Baker. Yes. Almost entirely. They would ask : " What is the 
 East going to do ? " 
 
 Senator Newlands. You propose to have a corporation of $15,- 
 000,000? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. How many ships do you expect that to cover? 
 
 Mr. Baker. Fifteen ships. 
 
 Senator Newlands. With an average tonnage of about what ? 
 
 Mr. Baker. The limit by law is 5,000 tons gross, you know, by 
 that act. 
 
 Senator Neavlands. A 5,000-ton ship would not cost a million dol- 
 lars, would it? 
 
 Mr. Baker. Oh, yes; if it was a 16-knot boat it would cost fully 
 
 that. , , 
 
 Senator Newlands. With a 16-knot boat within what number of 
 clays would you expect to make the trip from New York to San 
 Francisco? . . 
 
 Mr. Baker. We would expect to make it in 16 days. 
 Senator Newlands. Would you expect the main part of the trans- 
 portation to be between New York and San Francisco, or between 
 New Orleans 1 
 
264 HEARINGS BEFOEE 
 
 Mr. Baker. The greater part would be between New York and San 
 Francisco, but there would be, I think, a traffic of very large volume 
 in transfer at Balboa and Cristobal. With foreign ships now you 
 can make a prorating arrangement with all the foreign lines there, 
 which would be greatly to their advantage and also to the develop- 
 ment of the foreign trade. 
 
 They have, in addition to that, within a reasonable radius of the 
 ports of Balboa and Colon a large business that could be developed to 
 very large proportions if we had the facilities for doing the business. 
 
 Senator Newlands. What would you expect the average cost of the 
 transportation between San Francisco and New York to be? 
 
 Mr. Baker. Well, that is a very difficult question to answer. There 
 are so many different classes and commodities. 
 
 Senator Newlands. I understand, of course. 
 
 Mr. Baker. It runs anywhere from $60 a ton on some things 
 down to $5 or $6 a ton on very low classes of commodities, plus the 
 canal toll. 
 
 Senator Newlands. On low classes of commodities you would not 
 expect to get more than that? 
 
 Mr. Baker. $5 to $6 a ton, plus the canal toll. 
 
 Senator Newlands. I am told that the transportation charge on 
 sugar from the Philippine Islands to New York is not more than $5 
 a ton. Do you know whether that is the case? 
 
 Mr. Baker. I do not know the rates. 
 
 Senator Newlands. It is less than that, I believe, from the Ha- 
 waiian Islands. What is the lowest cost per ton of transportation on 
 the transcontinental lines between San Francisco and New York? 
 
 Mr. Baker. Maybe I have that in my book. I will look and see. I 
 think the lowest is on steel rails, about $11. Yes; steel rails, about 
 $11 for 2,240 pounds. The steamships do not make rates on a 2,000- 
 pound ton, but 2 ; 240 pounds. 
 
 Senator Newlands. Do you know what the cost of transporting 
 sugar by rail from San Francisco to New York is ? 
 
 Mr. Baker. No. 
 
 Senator Newlands. Or any other bulky commodity? 
 
 Mr. Baker. Well, they do not send the crude sugar by rail. 
 
 Senator Newlands. None of it goes by rail ? 
 
 Mr. Baker. Oh, no ; I think not. I think it" is only refined sugar 
 that goes by rail. 
 
 Senator Newlands. The transcontinental railroads, then, have no 
 competitive rates for the transportation of raw sugar from Hawaii to 
 New York? 
 
 Mr. Baker. No ; not that I know of. I do not see why they should. 
 If the United States Government had given what assistance the Mexi- 
 can Government gave the American-Hawaiian Co., you know, we 
 would have been doing all that business now, I think. 
 
 Senator Newlands. Take it on an average as to all commodities- 
 after the Panama Canal is opened what would you expect to be the 
 cost — I am not talking about the charge now, but about the cost per 
 ton of transportation from San Francisco to New York, as compared 
 with the cost by the transcontinental lines ? What proportion of the 
 cost of transportation lines would the water- route cost be ? 
 
 Mr. Baker. The almost universal basis is that you can haul 3 miles 
 of water freight for the cost of hauling 1 mile by rail. All the 
 
COMMITTEE ON 1NTKKSTATE COMMERCE. 265 
 
 original old prorating agreements in the Atlantic Transport Co. was 
 on that basis, up to 3,000 miles, the distance from New York to 
 European points generally. Longer than 3,000 miles — when we took 
 goods, for instance, down to Durban, South Africa, via London, then 
 they would demand of us that we would carry the longer water dis- 
 tance for a rate that would be much less, or 4 to 1, so that anyone can 
 make a calculation on this basis. The distance from New York to San 
 Francisco via the Panama Canal will be practically 5,300 miles. 
 That would be equivalent to one-third the number of miles of rail — 
 what it would cost to take it that distance. 
 
 When you come to the transcontinental traffic and crossing the two 
 ranges of mountains (even taking the longer distance in the nearly 
 level route of the Southern Pacific), it costs ra.ther more per ton per 
 mile to operate over the heavier grades and mountains than it does 
 that way. 
 
 Senator Newlands. But you only have 3,000 miles by one route 
 and you have over 5,000 miles by water ? 
 
 Mr. Baker. It would be equivalent to 9,000 by water. The differ- 
 ence between those two would be the general saving. 
 
 When you come to certain classes of commodities, there is a greater 
 difference than that. You take what are known as the commodity 
 rates. Take lumber, for instance, a ship coming around there, about 
 a 12-knot ship, with lumber from Seattle — I have not the exact dis- 
 tance — you ought to bring lumber on the 12-knot boat at about $6 a 
 thousand; $6 a ton. You ought to be able to do it, plus any canal 
 tollage. 
 
 Senator Newlands. Do you know what the cost of the transporta- 
 tion of lumber by railroad is? 
 
 Mr. Baker. It is very great. Let me see if I have that rate here. 
 I am not a railroad man. It would not be profitable to the railroads 
 to bring heavy timber at any rate, I should think. Mr. Weyerhauser 
 said the basis of a $6 rate from the coast would add immediately a 
 valuation of over $30,000,000 to the lumber interests of the Pacific 
 
 Now, then, as to the particular line we are discussing, the establish- 
 ment of such a line would not go into the lumber-carrying business 
 to any great extent, but would take in the manufactured lumber, like 
 sash, blinds, doors, et cetera, and things like that. Heavy lumber 
 could be carried so much cheaper on the slow boat. 
 
 Senator Newlands. You spoke of the power of cancellation in this 
 contract. Do you not think that that will constitute a great difficulty 
 to your being able to negotiate the organization of this steamship 
 company ? 
 
 Mr. Baker. Undoubtedly so. t 
 
 Senator Newlands. Suppose, for instance, a corporation should be 
 organized and that it should not be profitable for awhile, and the 
 stock should fall, and the transcontinental railroad interests would 
 get control of it by purchase. The power of cancellation would 
 exist, and the Postmaster General then could cancel the contract? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. And that would work a confiscation, whicJ) 
 would be in the interest of the railroads, but the minority stockholders 
 would suffer, would they not ? 
 
266 
 
 HEARINGS BEFORE 
 
 Mr. Baker. That is where we protect them in our charter. The 
 very moment they came to that point, they would have to buy, the 
 calculation is, 94 per cent of the stock of the company before they 
 could do that. 
 
 Senator Newlands. You have guarded against that? 
 
 Mr. Baker. So far as we can, legally; so far as the lawyers can 
 work it out, and they seem to think that they will be fully protected. 
 
 Senator Newlands. Whilst the construction of the canal has been 
 going on, you stated that it is the opinion of the Secretary of War 
 that his business was to construct the canal, and not to particularlv 
 advance transportation. 
 
 Mr. Baker. That was Secretary Dickinson who said that. That 
 is the testimon}^ before the committee. 
 
 Senator Newlands. Suppose the Government had taken the view 
 during that time that the intermediate duty was, whilst the construc- 
 tion was going on, to make transportation as cheap as possible, at 
 least between the Pacific coast and the eastern coast, could much 
 have been done in that direction by extending the operations of the 
 Panama Steamship Co. to the Pacific coast? 
 
 Mr. Baker. Oh, a great deal. 
 
 Senator Newlands. A great deal could have been done? 
 
 Mr. Baker. Yes. That has been recommended by every report 
 that the Government has had made. Senator Bristow twice reported 
 that ; first in his report of 1905 and again in 1908. 
 
 Senator Newlands. And the organization of the Bates & Chese- 
 brough enterprise was made necessary by the unwillingness of the 
 Government to respond to this demand? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. And you do not know whether they had much 
 difficulty in financing and organizing that company ? 
 
 Mr. Baker. No; I do not. I do not think they had the capital 
 they ought to have had. If they had had the capital that people 
 ought to have given them they would have done a great deal better. 
 As it is, however, they have done very well. 
 
 Senator Newlands. Even their operations were comparatively 
 limited, because it simply covers the chartering of ships, and not the 
 construction ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. And, of course, those ships are not such as are 
 really required for the trade? 
 
 Mr. Baker. No. And independent of that they had to pay the 
 owners quite a handsome profit before they could make any; so 
 they did not make the first profits. 
 
 Senator Newlands. As you have seen the organization of the 
 business side of the Panama Commission, do you think they would 
 have any difficulty in operating such a line of steamships as you 
 speak of — in operating, for instance, an enlargement of the present 
 steamship company? 
 
 Mr. Baker. I do not think they would. It is wonderfully well 
 organized. 
 
 Senator Newlands. That would be the simplest way of meeting 
 the difficulty, would it not ? 
 
 Mr. Baker. That is my suggestion. 
 
COMMITTEE ON INTERSTATE COMMERCE. 267 
 
 Senator Newlands. If you wanted to make the Panama Canal im- 
 mediately efficient, you would not only construct the canal but you 
 3 COnstruct a pIant that was necessary to operate it, would you 
 
 Mr. Baker. I would. 
 
 Senator Newlands. Between the two coasts « 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. That is all. 
 
 The Acting Chairman. Senator Brandegee, you may inquire 
 
 Senator Brandegee. I did not understand whether Mr Baker 
 meant, in answering the last question put by Senator Newlands, that 
 by the plant necessary to operate the canal he meant a Government- 
 owned line of steamboats. 
 
 Mr. Baker. Well, I did understand that he meant the working of 
 the locks and tugs, etc. They have got to do so much anyhow that 
 would naturally fall into line with just this very thing. The supply 
 of coal, the supply of oil, the supply of provisions, etc., to their 
 enormous force, and the carrying of their own supplies to all the 
 military forces that would be there. 
 
 Senator Newlands. I presume the great danger is that unless some 
 efficient work is done in the way of organizing the transportation 
 facilities that the canal will not be really used for some time after 
 its construction is completed. 
 
 Mr. Baker. You mean in passing ships through it ? 
 
 Senator Newlands. Yes. 
 
 Mr. Baker. When I was there— I was there last November, No- 
 vember of last year— Col. Goethals then said to me that he thought 
 that we could count on putting ships through in June, 1913; and 
 while the canal would not be open to an enormous volume of traffic, 
 it would still pass a good deal through from that time on. Very 
 naturally they want to begin in a sort of an experimental way with 
 somebody's ships, and it would be better to do it with their own ships. 
 I do not think there will be any difficulties at all, from my experience 
 with the docks in London. 
 
 Senator Brandegee. I was somewhat surprised to hear you say 
 that, because in your testimony before the canal's committee you 
 said, " I do not believe in a Government-owned line ; I do not think 
 it is the right Avay to do business." There are plenty of good, honest 
 men to do the business on economical lines, and you can surround the 
 contract with safeguards to prevent their doing what is wrong. 
 
 Mr. Baker. I have changed my opinion entirely after this experi- 
 ence. 
 
 Senator Brandegee. Oh, you have changed your opinion? 
 
 Mr. Baker. Yes, sir. I think, on general principles, the Govern- 
 ment — when I saw the result, after making my statement over a year 
 ago — two years ago now — of what Mr. Drake had done there, I came 
 to the conclusion that I was very much mistaken. I was very much 
 surprised at the actual result he shows there from the operation of 
 that line. I will give you a little illustration to show the results of 
 same that no private corporation could have gotten. One of the most 
 important questions of the steamship company are its terminal facili- 
 ties, particularly in the port like New York, where there is enormous 
 expense. As I understand the situation, there were five piers built 
 
268 
 
 HEARINGS BEFORE 
 
 there, known as the Chelsea piers. I may be repeating, however, a 
 little from memory. Those piers were leased by the Southern Pacific 
 Eailroad Co. for $450,000 a year. They were not using them at all ; 
 they were only to prepare for the Panama Canal business. The Pan- 
 ama Steamship Co. wanted additional facilities. Any private cor- 
 poration coming to the harbor commissioners or dock board would 
 have immediately met with the refusal, as did Mr. Drake, if they had 
 asked for additional facilities. He then appealed, as I understand 
 it, to some powers here in Washington — I do not know to whom — 
 and the Southern Pacific were compelled to surrender one of the piers 
 to the uses of the Panama Steamship Co. No private corporation 
 could have gotten that. 
 
 Senator Brandegee. Do I understand you to say you would now 
 advise the Government to build 15 steamships to run through the 
 canal ? 
 
 Mr. Baker. I would, provided no independent bid is made on this 
 basis with Government control. 
 
 Senator Brandegee. If the Government should go in and build a 
 line of ocean steamships to go through the canal, occupy the field, do 
 you think that any privately owned line would ever come in to com- 
 pete with the Government? 
 
 Mr. Baker. Oh, yes; on a different class of business altogether. 
 
 Senator Brandegee. What do you mean? 
 
 Mr. Baker. Well, now, the heavier freight, for instance. 
 
 Senator Brandegee. If it were a different class of business, it would 
 not be competition, would it? 
 
 Mr. Baker. Oh, yes. That same business which they carry on the 
 slow boats, you will want a certain proportion of it all the time. But 
 I believe a sufficient special class of business would be developed. 
 
 Senator Brandegee. What speed of boats would you advise the 
 Government to build and to put on the line ? 
 
 Mr. Baker. At least 16 knots. 
 
 Senator Brandegee. And of how much tonnage? 
 
 Mr. Baker. Not over 5,000 tons. I understand that would con- 
 form to the units required by the Navy Department as auxiliaries. 
 
 Senator Brandegee. You mean, then, that you would build these 
 boats contemplating their use for military purposes? 
 
 Mr. Baker. Oh, yes; that is what these have got to be built for. 
 They have got to be built under the supervision of the Navy Depart- 
 ment, and they have to carry so many cadets. 
 
 Senator Brandegee. What class of merchandise would these ves- 
 sels carry, these 16-knot ships, of 5,000 tons each? 
 
 Mr. Baker. All the better class of goods. The greatest volume, of 
 course, would be the fruit business, citrus fruits. And I would have a 
 certain large proportion of refrigeration space. 
 
 Senator Brandegee. I mean, would those 16-knot ships carry the 
 higher priced kinds of merchandise ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. Then would you have the Government also to 
 put on other ships, of slower rates of speed, to carry the bulkier 
 articles ? 
 
 Mr. Baker. No. I would make the experiment first with those. 
 All that they would carry would not amount to a great deal. Tf you 
 had one steamer a week to the Pacific coast and two to the Atlantic 
 
uummij.-j.jsjs urg irt xjliioj.aTE COMMEBCE. 269 
 
 coast, even with a total capacity of 5,000 tons, and then you had 
 some passenger accommodation— you would have to carry your troops 
 back and forth in great numbers, and all the force that operates the 
 canal; you know you can not live in that climate too long— they 
 would only carry as an extreme limit not more than 250,000 tons of 
 the total freight from the western to the Atlantic coast, whereas wc 
 now have over 3,000,000 tons. 
 
 _ Senator Brandegee. What class of ships do you contemplate put- 
 ting on if your hopes are realized ? 
 
 Mr. Baker. Just exactly this class of ships. I would like to make 
 them a little larger, but I do not know whether we would be justified. 
 
 Senator Brandegee. If the Government should put on this class 
 of ships that you have indicated, would you then be willing to go 
 into the enterprise with your capital and ask your friends to put on 
 a similar class of ships ? 
 
 Mr. Baker. No ; because they would cover just exactly • 
 
 Senator Brandegee. That is, what I mean to say, if the Govern- 
 ment does put on 15 or 16 knot ships to attend to this high-price 
 and faster freight, do you think that capital in the country would 
 want to go into that same line of business ? 
 
 Mr. Baker. I think they would if the Government developed that 
 it would be profitable. 
 
 Senator Brandegee. Well, I mean compete with the Government? 
 
 Mr. Baker. Yes, sir; I think there will be even faster ships. I 
 think there will be 18 or 20 knot boats before very long, and you 
 will demonstrate the practicability of doing that. 
 
 Senator Brandegee. With the Government's power to fix its rates 
 and lower them, do you think that private capital would want to 
 come into competition with the Treasury of the United States and 
 take its chance of standing the deficit ? 
 
 Mr. Baker. Well, of course, that is a difficult question, Senator. 
 
 Senator Brandegee. I know, but you are an expert in the steam- 
 ship business. 
 
 Mr. Baker. I think they would. Take, for instance, the experi- 
 ence of the British Government. Of course, the British Government 
 is practically operating the Cunard Line, their big boats; they fur- 
 nish them a certain amount of money to build them. That does not 
 prevent other people from building other big boats and running them 
 in competition with them. 
 
 Senator Brandegee. What mystifies me is that at present there is 
 no Government competition there — at least I am assuming that to 
 be so. You are now appealing to private capital to construct this 
 enterprise ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. And so far you have not been successful? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. And yet you think after the Government had 
 occupied the field with 15 vessels that this capital would come in to 
 compete with the Government ? 
 
 Mr. Baker. I am not speaking about immediately, but after the 
 Government had developed what could be done it would. If the 
 Government would announce an intention not to increase its service 
 and not to build faster ships, I think you will have still faster ships. 
 
270 HEARINGS BEFORE 
 
 Senator Brandegee. Of course, if the Government would agree 
 to bind itself hand and foot and let the other fellow beat it, I think 
 the other fellow would come in. I know that I would if I was a 
 capitalist. 
 
 Mr. Baker. Well, it is a difficult question. 
 
 Senator Brandegee. Of course, I realize that is a matter of 
 opinion. 
 
 Mr. Baker. It is a matter of opinion entirely, Senator. 
 
 Senator Brandegee. If I ask you any question that you are not 
 willing to answer, do not hesitate to say so, because I hope your 
 enterprise will be successful, and always have. 
 
 Mr. Baker. I hope so. 
 
 Senator Brandegee. I would like to see private capital come in 
 there and a good many concerns compete for the business, not only 
 actual competition with railroads, but competition with each other, 
 and have lower rates and better service. But I do not want to bring 
 out anything that you desire should not be fully known at present. 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. Your capital was to be $15,000,000? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. In one class of stock. 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. You have seen, I suppose, some articles that 
 have been appearing in the newspapers recently, to the general effect 
 that you are prevented from succeeding in your enterprise of raising 
 this capital by some conspiracy or intimidation by the railroads? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. Or words to that effect? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. Do those articles represent your views on that 
 subject? 
 
 Mr. Baker. Partly, and partly not. Not in any way in the sense 
 that there is a combination to do it, but that the influence of the rail- 
 roads and the investments in them are a natural restraining in- 
 fluence — that is all — to invest in this enterprise. There is no con- 
 certed action on the part of, well, I will call it, a big combination 
 or a sort of money trust. I can find no evidence of there being any- 
 thing of that kind. But there is an evidence on the part of a great 
 number of men to whom I have gone that they are so much inter- 
 ested in the railroads and the railroads' securities that our way of 
 doing it, particularly with these faster boats, prevents them from 
 becoming interested. 
 
 Senator Brandegee. It was stated in one of these articles that I 
 read that certain parties to whom you applied for capital had sub- 
 scribed for capital, or agreed to. and then you were informed, after 
 they had pledged themselves, that they would have to withdraw, and 
 that they couid not live up to their agreement because they did not 
 want to antagonize the railroads. Is that true? 
 
 Mr. Baker. It is partly true. They had not actually subscribed. 
 No . one has subscribed and then withdrawn. What I think was 
 meant is that there were a great many people that I had every 
 reason, every expectation, that they would be interested, and had ex- 
 pressed their willingness to — this thing has been going on for three 
 
COMMITTEE ON INTERSTATE COMMERCE. 271 
 
 years— when the time came to become interested, who did not We 
 
 i : *,?"?, - n< ? w then what class of boats woul d be built or anvthine 
 or that kind. J B 
 
 Senator Brandegee. Two years ago, or at least on February 10, 
 you testified before the Committee on Canals in the Senate that you 
 had the promises of two large steamship interests that they would 
 bid i± such contracts were advertised for by the Secretary. What 
 has become of those people? 
 
 Mr Baker. They were the two I just spoke of. I do not remember 
 that 1 said I had definite promises. 
 
 Senator Brandegee. Well, that is the way the testimony reads I 
 am reading it literally from page 51. 
 
 Mr. Baker I would like to correct that. I had every reason to 
 believe that they would bid. The American-Hawaiian Co. was one 
 of them, and the other was the International Mercantile & Marine Co. 
 
 Senator Brandegee. What were you conferring with the American- 
 Hawaiian Co. about, for instance; about subscribing to your com- 
 pany, or to get them to come in ? 
 
 Mr. Baker. To get them to come in and make a bid. 
 
 Senator Brandegee. Is this the way it was : You did not want to 
 come in or organize a company to come in and bid if any existing 
 company would bid ? 
 
 Mr. Baker. We would greatly prefer not to do it. I have repeated 
 it again and again. We have no desire to do it. 
 
 Senator Brandegee. When you went to these financiers to obtain 
 financial aid in this proposed enterprise of yours, did you agree to 
 take any stock in the company yourself? 
 
 Mr. Baker. I did. 
 
 Senator Brandegee. And you told them the proportion you would 
 take ? 
 
 Mr. Baker. Yes, sir; I did. 
 
 Senator Brandegee. You say some of them were very enthusiastic 
 about it? 
 
 Mr. Baker. Some of whom? 
 
 Senator Brandegee. Some of these people that you applied to. 
 
 Mr. Baker. Oh, yes ; a great many of them were. 
 
 Senator Brandegee. Were you able to give them any assurance 
 about the prospects of it being profitable ? 
 
 Mr. Baker. No; no assurance; only with a great many of them I 
 went into the question of the opportunities. 
 
 Senator Brandegee. Why did they not come in, then ? 
 
 Mr. Baker. That is what I can not understand. 
 
 Senator Brandegee. Did any of them express a doubt as to its 
 being a profitable thing, or did they regard it as a gamble or too 
 risky, or what was the objection? 
 
 Mr. Baker. Some of the objections made to it were, first, the ques- 
 tion of the restriction as to the ownership, which might involve a 
 question of cancellation of their rights if some party violated any of 
 these; others were 
 
 Senator Brandegee. Just a minute, if I may ask you. That would 
 occur to me if that proposition was submitted to me. Would it not 
 occur to you? 
 
 Mr. Baker. Yes, sir. 
 
 22877— vol 1—12 18 
 
272 HEARINGS BEFORE 
 
 Senator Brandegee. Do you not think that feature would be almost 
 enough to prevent a man subscribing for stock to this enterprise if 
 the Government could terminate it upon its own volition? 
 
 Mr. Baker. Not when the}' were protected in the charter that we 
 had. I thought that would fully protect them, and I have used that 
 argument to them. 
 
 Senator Brandegee. What was the protection « afforded by your 
 charter if the Government retained the right to cancel it if, in its 
 judgment, it violated any of the terms? 
 
 Mr. Baker. Anybody who violated any of these terms his interest 
 and right in the ownership of stock, so far as possible, ceased as 
 voting power. 
 
 Senator Brandegee. That would not be a consoling fact to an in- 
 vestor, would it? 
 
 Mr. Baker. Our counsel informed us that any person taking that 
 position would render himself liable, as an officer or director of the 
 company, to the other stockholders. 
 
 Senator Brandegee. What I am trying to get at is this: How did 
 your New Jersey charter — which simply was, so to speak, a contract 
 between you and the State of New Jersey, was it not ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. As to how you were to run the organization 
 that they chartered you for. How does that protect you against any 
 action of the Postmaster General in canceling the contract? 
 
 Mr. Baker. Well, here is the way they were protected. I would 
 just like to read it to yon. 
 
 Senator Brandegee. I wish you would. 
 
 Mr. Baker (reading) : 
 
 It is provided, in addition to the qualifications prescribed by law, that — 
 
 No person shall be eligible as a director who shall be a director in or an 
 officer or agent of any corporation or association engaged in any competitive 
 transportation business by rail or engaged in the business of exporting or 
 importing goods, wares, merchandise, or other property on its own account, 
 and no person elected a director shall be qualified to act until he shall haw 
 subscribed on oath that he is not the representative of or acting in the inreiesl 
 of any such corporation or association and will not so act during his term of 
 office. 
 
 If at any time the Postmaster General of the United States shall notify this 
 corporation that any one or more of its directors, or officers represent a com- 
 petitive railway interest or are guilty of acts which would in his opinion 
 justify a cancellation of any contract of this corporation with the Government 
 of the United States for ocean mail service, then immediately upon such notice 
 the office of every such director or officer shall be vacant. 
 
 The power of any stockholder or director of the corporation to vote on any 
 question shall cease upon notice from the Postmaster General of the United 
 States that such stockholder or director represents a competitive railway 
 interest or has voted for or in way authorized any action by or policy of said 
 corporation which would justify the cancellation of any contract for ocean mail 
 service which the corporation may have with the Government of the United 
 States. 
 
 Senator Brandegee. I ask, if your own charter provides that the 
 stockholders' interests shall cease if that contract is violated, how 
 could that be an inducement to a man to put his money into the 
 concern if his interests are liable to be terminated by the Government? 
 
 Mr. Baker. It would not, except that it would be a protection to 
 him; that is all. 
 
 Senator Brandegee. How would it be a protection to him? I 
 think it would be a danger to him. 
 
COMMITTEE ON INTERSTATE COMMEECE. 273 
 
 Mr. Baker. You do ? I never had that point brought out, except 
 one interest that went into that question very fully. Their exact 
 expression was that it looked as though the interests back of the 
 transcontinental railroads had written into the Government's propo- 
 sition such prohibitory conditions that it would be impossible for 
 anyone to become a subscriber to the stock of the company or to be 
 interested in anj^ way in the company unless he sold out all his other 
 investments and devoted himself exclusively to the interests of the 
 proposed companj^. He said it would be impossible to find bankers 
 anywhere in the world that would not be absolutely barred to invest- 
 ing in the stock of the company by the terms of the advertisement 
 and by the terms of the company's charter, and, further, that even 
 if they should dispose of all their holdings in the transcontinental 
 railroads for the sake of making an investment in the stock of our 
 company, their investment would at all times be subject to danger of 
 the Government's canceling the contract with our company in the 
 event that other objectionable interests became purchasers of stock 
 in our company to such an amount as to control its policies. 
 
 Senator Beandegee. Was your proposition to these people of dif- 
 ferent forms — that is, was your proposition for getting financial 
 help the same proposition to all the different people to whom you 
 applied ? 
 
 Mr. Baker. Practically the same. 
 
 Senator Brandegee. It was,' then, that they should put in cash and 
 have stock for the cash put in ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. It was not in any case a proposition to loan 
 money upon the stock of the company as collateral security ? 
 
 Mr. Baker. No. Oh, no. I never suggested that. I started out 
 originally, as I said before, with an altruistic idea of getting it with- 
 out bringing the bankers into it. I hoped to educate the public that 
 it was not necessary to bring the banking interests into it. But there 
 has been very little time, the extreme limit being only 80 days from 
 the day we were able to get a charter. It is something so entirely 
 new. 
 
 Senator Brandegee. That is just what I wanted to get at. 
 
 Mr. Baker. I am inclined to believe that if the Government would 
 extend this limit— and I have asked them to do it— and give us a 
 little more time that they will get bids. 
 
 Senator Brandegee. I have no desire in this matter, of course, as 
 you know, except to find out whether the present status of your 
 proposition, as to its temporary failure or not, is not due to the 
 reluctance of capital to embark in this enterprise, which you say 
 is a pioneer enterprise there 
 
 TVTr T^A"KER 'i gs sir. 
 
 Senator Brandegee. Nothing has been tested about it. And the 
 reluctance of capital to invest under this advertisement of the Post- 
 master General with the cancellation power and other untried ques- 
 tions, or whether, in your opinion, it is really due to the fact thai 
 some railroad men have brought some sort of influence m the nature 
 of a threat or moral suasion upon the men who have capital to pre- 
 vent them from coming to form this company of yours, in order to 
 prevent competition at the canal, and with the transcontinental lines 
 or not? 
 
274 
 
 HEARINGS BEFORE 
 
 Mr. Baker. All three are combined to do it. You have all these 
 influences to fight against. Which is the greatest it is very difficult 
 to say. 
 
 Senator Brandegee. If the three are combined, it means that the 
 railroad influence has to some extent terrorized people ? 
 
 Mr. Baker. I believe not so much the railroad influence as the 
 investments of these same people in the railroads. 
 
 Senator Brandegee. Are there not some people to whom you can 
 go who have no investments in the railroads 1 
 
 Mr. Baker. I have sought them very hard, but 1 can not find them. 
 They tell me that the figures show that there are about $14,000,000,000 
 of investments in the country in the railroads and about $10,000,- 
 000,000 are in the transcontinental railway companies and their alli- 
 ances. I myself have some transcontinental railroad securities. But 
 from that point of view I do not think it would be affected very seri- 
 ously. Nothing is so sensitive as capital, you know ; but an intimida- 
 tion — even a suggestion that it might affect the value of my securi- 
 ties- 1 — would prevent me from making a new investment. 
 
 Senator Brandegee. That would not be an improper thing, 
 would it 
 
 Mr. Baker. I have not found anything improper in that way. 
 
 Senator Brandegee (continuing). To have a railroad man largely 
 interested in his railroad securities preferring not to compete with 
 himself by a competing water line? That is not improper, is it? 
 
 Mr. Baker. No; nor not to allow any of his people interested — or 
 rather to discourage them to do it — would not be improper. 
 
 Senator Brandegee. That is not illegal, is it ? 
 
 Mr. Baker. No. As I said in the beginning, I do not know of 
 anything illegal. 
 
 Senator Brandegee. You testified two years ago, did you not, that 
 if you owned the Southern Pacific Railroad and owned the Pacific 
 Mail & Steamship Co. you would act just as the railroad acted in 
 refusing to compete with itself ? 
 
 Mr. Baker. I did. 
 
 Senator Brandegee. If all three of these causes have entered into 
 this, give the committee one specific instance where some railroad in- 
 stitution or some railroad man has prevented somebody or dissuaded 
 somebody from subscribing to the stock of your company who other- 
 wise would have subscribed. 
 
 Mr. Baker. You gave me the right of refusing to answer any of 
 your questions, and I want to say that I am not prepared to give 
 this definite information. 
 
 Senator Brandegee. Are you not prepared because you do not want 
 to mention the gentlemen's names or because you are not familiar 
 with the instance? 
 
 Mr. Baker. Both; and more particularly because of the bringing 
 of actual proof of it— satisfactory proof of it. 
 
 Senator Brandegee. Then it is not that you have definite informa- 
 tion, but that it is your conclusion that you feel that this railroad 
 influence has had something to do with the difficulty you had in 
 raising capital ? 
 
 Mr. Baker. I do firmly believe it. 
 
 Senator Brandegee. But you can not offer any evidence to convince 
 us about it? 
 
COMMITTEE ON INTEESTATE COMMERCE. 275 
 
 Mr. Baker. No, sir. 
 
 Senator Brandegee. That is all. 
 
 The Acting Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Mr. Baker, as I understand it, you found no 
 concerted action between the banks in reference to the proposition 
 of yours ? r 
 
 Mr. Baker. No ; no concerted action. 
 
 Senator Townsend. Did these men interested in banking interests 
 dicourage you— tell you why they thought it would not succeed? 
 
 Mr. Baker. Yes, sir ; in quite a number of cases. 
 
 Senator Townsend. What was it that they told you? 
 
 Mr. Baker. One banking interest in the very beginning, when we 
 proposed not to go to the banking interests, said that we could not 
 succeed unless we got some banking interest back of it. That was in 
 the very beginning. But the very limited time in which we had to 
 act had very much to do with our going to the banking interests to 
 see how they would cooperate, and the question was brought up of 
 the difficulty of not having some kind of bonus stock ; that we could 
 not give some special inducement to the banking interests out of which 
 they could make their profit. 
 
 Senator Townsend. Did they indicate that they would help to 
 finance your enterprise if there was such a bonus attached ? 
 
 Mr. Baker. Yes, sir; if there was such a bonus, attached, they 
 probably would consider it. Another and very serious difficulty 
 was — I have not been connected with any promotion before in any 
 way, but you might call it a promotion or new enterprise. But the 
 thing that impressed me most was the lack of interest on the part of 
 bankers to investigate fully whether there was the opportunity of 
 making a good deal of money or not. They would take, for instance, 
 the question of the Government's advertisement and the Govern- 
 ment's restriction, the Postmaster General's restrictions, and then, on 
 that basis, would figure out that it was not worth while to go into 
 it further. Others would go a little further than that. One par- 
 ticular interest went into it very fully and took an opportunity of 
 investigating it and attempting to find out what the business and 
 profits would amount to. I felt very much encouraged that they were 
 going to take it up; there were a number of meetings, but they 
 finally decided that they would not take it up. Then, too, another 
 very serious difficulty was possibly the length of time before returns 
 could be shown. They would have to advance a considerable amount 
 of money. 
 
 Senator Townsend. Was this particular concern to which you refer 
 connected with the transcontinental railroad ? 
 
 Mr. Baker. Not that I know of. I know they had very many 
 transcontinental securities themselves. A very rich man was inter- 
 ested in the concern. They did not give it out positively, although 
 they intimated they were interested in the transcontinental rail- 
 roads and that that would possibly influence them. 
 
 Senator Townsend. Did these financial concerns seem to have dis- 
 cussed this matter before you approached them on the subject? 
 
 Mr. Baker. Some of them had and some of them had not heard of 
 it. £)thers were very much interested in seeing what the results 
 would be in the beginning when it was to be entirely a public sub- 
 scription. 
 
276 HEAEINGS BEFORE 
 
 Senator Townsend. What is your opinion as to the advisability 
 of those restrictions which were put into the contract by the Post- 
 master General and approved by the Attorney General, as I under- 
 stood you ? 
 
 Mr. Baker. I feel very certain that they ought to be in there to 
 protect the absolute independence of the line. I do not see any other 
 way to do it. They are very similar to the clauses in the Gallinger 
 bill, and I think they ought to be in. 
 
 Senator Townsend. May I ask you, Mr. Baker, what has been 
 your experience in the shipping business — the boat business? 
 
 Mr. Baker. Well, I was for a little over 25 years a majority owner 
 of the Atlantic Transport Co. We started with one steamer, the 
 Maryland, and built up a very large business, and sold out in 1901 
 to Mr. Morgan, of the International Mercantile & Marine Co. We 
 had a very profitable service. 
 
 Senator Townsend. And your interest — and I mean this exactly 
 as I put it and without any sarcasm or anything of that nature — 
 your interest in this matter was largely altruistic, as you call it? 
 
 Mr. Baker. Almost entirely, Senator. It is hard to get the press 
 and the public to believe it, but I will be delighted to do what I can. 
 That is the motive that has actuated me in what work I have done. 
 I have asked no one for help. I have paid all the expenses out of my 
 own pocket, in order to try to settle a principle. 
 
 Senator Townsend. Have you any personal grievances against the 
 railroad companies? 
 
 Mr. Baker. Not the least in the world ; not against any one of them. 
 
 Senator Townsend. Who had to do with the limitation of this 
 period to 90 days for filing a bid? 
 
 Mr. Baker. It was fixed by law. 
 
 Senator Townsend. Ninety days from when? 
 
 Mr. Baker. From the date of the advertisement. Well, it did not 
 say 90 days, says at least 90 days, and the date was agreed upon 
 when I was not here, but in Europe. I did not know what date it 
 would be. 
 
 Senator Townsend. That leads to my other question : Why didn't 
 you ask for a longer time ? 
 
 Mr. Baker. I would, and I have asked for a longer time, and they 
 are trying to see whether it can not be arranged. 
 
 Senator Townsend. What objections have they offered to extending 
 it, if any? 
 
 Mr. Baker. They did not offer any objections, except whether they 
 could do it under the law. 
 
 Senator Townsend. Now, as I understand you, you say you think 
 that if you had a sufficient time, say six months — would that be 
 sufficient ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Townsend. If you had sufficient time, you could get a com- 
 pany organized to make this bid in good faith, and if it obtained the 
 contract it would complete it ? 
 
 Mr. Baker. I believe I could, and I would use my very best efforts 
 to do it. I would like to go to work and develop it and try to do it. 
 
 Senator Townsend. How much have you in bona fide subscription 
 to-day ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 277 
 
 Mr. Baker. We have to date actually signed in the office there 
 $1,123,000. We have also, that I can count on, I think, that I could 
 get in, $300,000, making a million and a half altogether to date? 
 
 Senator Townsend. That is, toward your $3,000,000 proposition? 
 
 Mr. Baker. Toward the $3,000,000 proposition. 
 
 Senator Townsend. What is your $3,000,000 proposition? 
 
 Mr. Baker. It is that we are then ready to put up a bond of 
 $375,000 and go ahead and contract for the first ships. Under the 
 terms of the contract, we would have until October 18, 1914, which 
 would give us ample time to complete that part of it. We would do it 
 gradually. And then my idea was that with that $3,000,000 we could 
 build four steamships and start and show what could be done. In 
 addition to that, we would advertise generally all over the country, 
 trying to make it purely a public corporation in every way. 
 
 Senator Townsend. Can you make any approximation of the 
 amount of available capital that is controlled by railroads and bank 
 interests, by railroad securities, or in railroad securities? 
 
 Mr. Baker. No; I could not do that. 
 
 Senator Townsend. You do not think it of sufficient interest to 
 prevent this scheme of yours? 
 
 Mr. Baker. Oh, no. I think if we had time it could be done. 
 
 Senator Brandegee. Do you think the difficulty of raising the 
 capital up to this point has been due at all to the fact that it is not 
 known yet what the rate of tolls will be? 
 
 Mr. Baker. That has something to do with it. The suggestion 
 has been made again and again that they will give free tolls to 
 coastwise ships, and the suggestion has also been made that the Gov- 
 ernment would give free tolls to ships that were not controlled by the 
 competitive railroads and not give them to ships controlled by the 
 competitive interests. They will enter into it. 
 
 Senator Brandegee. There was a similar provision reported from 
 the Committee on Interstate Commerce a year or two ago, that any 
 company, any steamship company, that was in any way directly or 
 indirectly interested in or controlled by a railroad company should 
 not get the lowest rate of tolls. 
 
 Mr. Baker. Yes, sir. 
 
 Senator Brandegee. And was not the department and the Presi- 
 dent at that time interested that that should be so? 
 
 Mr. Baker. Very much; I think that is what is known as the 
 Mann bill that passed the House. 
 
 Senator Brandegee. That was the Mann bill in the House, and 
 Senator Flint reported it from the Senate committee. 
 
 Mr. Baker. Senator Flint never reported that. 
 
 Senator Brandegee. Yes; it was then recommitted, and I think 
 then recommitted again, but not acted upon. 
 
 Mr. Baker. That gave the President a discretionary right. 
 
 Senator Brandegee. I think it did. 
 
 Mr. Baker. That would help something of this kind very much. 
 
 Senator Brandegee. It seems to me that the determination of the 
 question, whether our coastwise shipping could have free tolls, or 
 have the amount of tolls that it, would exact from it handed back • 
 
 Mr. Baker. Refunded. 
 
278 HEARINGS BEFORE 
 
 Senator Brandegee. Handed back to it in the form of rebates or 
 refunds or whatever you may call it 
 
 Mr. Baker. I think Senator Frye introduced a bill covering that. 
 
 Senator Brandegee. If that is so, that our coastwise shipping 
 could have practically free tolls, it would make a great difference 
 in the success, the financial success, of a new steamship company 
 operating through there, whether it had free tolls or whether it was 
 charged a dollar a ton. 
 
 Mr. Baker. Oh, that would make a great difference. I tell you 
 what I would do. I would compel any company bidding for this 
 to submit its rates to the Interstate Commerce Commission. 
 
 Senator Brandegee. It was suggested on the Isthmus in our hear- 
 ings that we recently had whether or not the canal and the Panama 
 Railroad should both be brought under the jurisdiction of the Inter- 
 state Commerce Commission, and I think that subject will be given 
 very careful consideration. 
 
 Mr. Baker. In reply to your request here as to what changes in 
 the law should be made, that was the first one I made. If that law 
 is not passed by Congress in time to do this, I would make it obliga- 
 tory upon the successful bidders of this contract to submit to the 
 jurisdiction and control of the Interstate Commerce Commission, 
 because I think it is very important, as that will help them settle the 
 whole question of rates. 
 
 Senator Brandegee. Because I assume that that would have to be 
 ordered by legislation, and, of course, the Postmaster General would 
 have no authority up to the present time to exact that as a condition 
 of the contract. 
 
 Mr. Baker. No. And in discussing it with the Interstate Com- 
 merce Commission they thought it would be a very great help to 
 them. And I told them that if we were successful we would em- 
 body that in any bids we made, voluntarily agreeing to submit to 
 its control if legislation was not passed giving the Interstate Com- 
 merce Commission control. 
 
 Senator Brandegee. It would not only be a help to the canal and 
 the steamship company, but it might be a great help to the people 
 in insuring that there would be real competition by the canal with 
 the transcontinental railroads.. 
 
 Mr. Baker. That is just what they want. 
 
 The Acting Chairman. The forfeiture that you speak of that 
 might alarm those who otherwise would subscribe to your company 
 is simply the forfeiture of the mail contract. What would that 
 amount to with each ship ? 
 
 Mr. Baker. It would amount to $750,000 ; that is, about $50,000 a 
 ship a year. Some ships make longer voyages than others. 
 
 The Acting Chairman. Was this subsidy the controlling feature 
 in entering the business? 
 
 Mr. Baker. Not by any means. The main thought when we first 
 discussed it was how to get an independent line put on without any 
 assistance. 
 
 I sounded a good many interests and they all unhesitatingly said 
 that no one would come into competition to build up a big new service 
 until they felt sure that they could not be crushed out by the trans- 
 continental railroads putting on a service alongside of them, just as 
 they always have done. 
 
COMMITTEE ON INTERSTATE COMMERCE. 279 
 
 I think it was some years ago when the Merchants' Steamship Co 
 was organized in San Francisco, about 19 years ago, when they raised 
 a million and a half dollars and attempted to run in competition with 
 the Pacific Mail & Steamship Co. The Pacific Mail & Steamship Co. 
 if I remember rightly, put on boats reducing the rate to a ridiculous 
 sum until the other company was put out of business, and then they 
 raised them. 
 
 And this suggestion was made as an evidence of good faith on the 
 part of the Government to protect them against such competition. 
 
 The Acting Chairman. For these 15 steamships you have in mind 
 the payment by the Government for carrying the mail would be about 
 $750,000 a year? 
 
 Mr. Baker. It figures about $779,000 if every sailing is made. 
 
 The Acting Chairman. Now, the slower boats could do the same 
 business without any mail contract and save $750,000 in the course of 
 a year, could they not ? 
 
 Mr. Baker. Oh, no. First they would not do the same business. 
 There would be a great many classes of business they would not 
 carry. 
 
 The Acting Chairman. I mean the same extent of business ; I do 
 not mean the same character of business, but the same volume. 
 
 Mr. Baker. I think the character of business they will carry they 
 will get anyhow. In addition to that, my recollection is that for the 
 mail for Panama from New York to Colon to-day you are paying more 
 than you would pay under this contract ; it amounts to about $200,000, 
 I think. 
 
 The Acting Chairman. Why do you not try to organize a com- 
 pany that will engage in a business in which slow boats can profitably 
 engage without reference to a Government subsidy ? 
 
 Mr. Baker. You have that now. The American-Hawaiian Co. is 
 building large ships to take care of that. You are going to have those 
 ships through the canal. 
 
 The Acting Chairman. The American-Hawaiian Co. is now using 
 the Tehuantepec Railroad, is it not? 
 
 Mr. Baker. Yes; but they will not use it after the completion of 
 the canal. 
 
 Senator Brandegee. They have already given notice of the termi- 
 nation of that contract upon the completion of the canal. 
 
 The Acting Chairman. Their boats are about 11 or 12 knot boats, 
 are they not ? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. Where is it expected that they will ply, 
 so far as these two coasts are concerned? 
 
 Mr. Baker. They are plying all along the whole coast just now. 
 Of course their main business is sugar from Hawaii and the Philip- 
 pines coming eastward; that is their main business, and a very 
 profitable business it is. 
 
 The Acting Chairman. But it is expected that they will come into 
 the same business, the general business between the two coasts through 
 the canal, is it not ? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. Do you understand that that company is 
 controlled by any transcontinental railroad company? 
 
280 HEARINGS BEFORE 
 
 Mr. Baker. I do not know much about the control. I really have 
 never investigated it. The accusation has always been made here 
 before the committees, and I think in Senator Bristow's report, that 
 the rates of the railroads went up and down automatically with those 
 of the Hawaiian Line. I know nothing about it myself. 
 
 Senator Newlands. It is a sympathetic relation. 
 
 Mr. Baker. Yes, sir ; it is a sympathetic relation. 
 
 The Acting Chairman. If it is not so controlled, then we will 
 have the competition that we want, will we not ? 
 
 Mr. Baker. No, I should not think so; not for certain classes of 
 business. Take, for instance, the one question of refrigerated fruit. 
 You can save so much to the consumers on that one item, which I do 
 not think they would be prepared to carry in large volume and regu- 
 lar sailings in rapid time. 
 
 The Acting Chairman. Why not, if it is entirely independent and 
 when it is had in business that is profitable for it to do ? 
 
 Mr. Baker. Why not? 
 
 The Acting Chairman. Why not? 
 
 Mr. Baker. There is no reason why they should not do it, if they 
 want to. They are not doing it, however. They are not building 
 any fast vessels. 
 
 The Acting Chairman. You mean they have not yet begun to 
 build those boats? 
 
 Mr. Baker. No, sir. They have a contract for a number of new 
 slow ships. 
 
 The Acting Chairman. Do you think, in order to do the business 
 that is to be done at the fast rate profitably, it must be connected with 
 the payment by the Government for carrying mail ? 
 
 Mr. Baker. I do not think it would pay to run ships there to-day 
 at 16 knots without it, Senator. 
 
 The Acting Chairman. If they had freight? 
 
 Mr. Baker. If nobody will bid for it to-day while you are offering 
 $750,000 a year, there is not much indication that it could be done 
 if you do not assist. 
 
 The Acting Chairman. If you can carry that freight so much 
 cheaper than the railroads can carry it, why would it not pay with- 
 out any regard to the mail contract ? 
 
 Mr. Baker. I am inclined to think that it would pay without a 
 mail contract. I believe it would, but you have got to develop it. It 
 will take a little while to develop it. 
 
 The Acting Chairman. Take the lemon and orange trade as an 
 illustration. Now, the trade there is established. 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. The fruit is grown every year, and there 
 is a known market for it. 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. If that product or those products can be 
 carried across profitably for one-third the rate now charged by the 
 railway company, why would not that inducement bring into exist- 
 ence these fast ships without any mail contract at all ? 
 
 Mr. Baker. It has surprised me why it would not, the same as it 
 has you ; why some one is not at work to-day in building these ships, 
 with the purpose of utilizing the canal; and yet, even while you are 
 
COMMITTEE ON INTERSTATE COMMERCE. 281 
 
 offering for bids— I do not know that you will get a bid, but I hope 
 y°H will get one Saturday— so far as I can see, there is no indication 
 
 lot? , ne when y° u are even offering .to give them that. Now 
 wl jy • I don t want to ask a question, but only answer yours. 
 ^ tT C - TIN i G Chairman - Tt se ems to me there is but one answer to 
 that. It is that the persons who have the money are deterred from 
 putting it into the business for some other reason than the unprofit- 
 able character of the business. 
 
 Mr. Baker. I agree with you, as I said before. 
 
 The Acting Chairman. What is your reason ? 
 
 Mr. Baker. The first reason is that they will come in competition 
 immediately, possibly, with an interest which may crush them out. 
 That has been the experience in the past. 
 
 The Acting Chairman. You mean that the transcontinental rail- 
 roads might put on a line of steamships and carry the freight at so 
 low a figure as to be unprofitable ? 
 
 Mr. Baker. They always have done it. There is no reason why 
 they should not at any time. 
 
 The Acting Chairman. In order that this record may indicate the 
 cases, what cases have you in mind? 
 
 Mr. Baker. I think it was the Merchants' Steamship Co., that was 
 organized in San Francisco a great many years ago, but I have not 
 the data. _ I can find it and put it in the record for you, if you wish 
 it. It will take a little while. Then there was another company 
 started. This was a case where there was no question of the canal, 
 where the merchants of New Orleans got together and tried to run a 
 line from New York to New Orleans, and it was promptly suppressed. 
 
 The Acting Chairman. Suppressed in what way ? 
 
 Mr. Baker. On account of putting the rates down to where they 
 could not compete. 
 
 The Acting Chairman. Putting the rates down so low on the rail- 
 roads or putting on an independent line of steamships ? 
 
 Mr. Baker. By the Southern Pacific steamships that were running. 
 
 The Acting Chairman. Senator Brandegee calls my attention to a 
 statement that is found in your testimony before the Canal Com- 
 mittee, made two years ago. I will read it to you. 
 
 Mr. Baker. I will be very glad to have you do so. 
 
 The Acting Chairman (reading) : 
 
 Now, in New Orleans, a short time ago, they attempted to start a line to New 
 lork in competition with the railroad-owned lines. The Morgan Line and the 
 other line down there reduced the rates very quickly to crush out competition. 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. That is one instance you have in mind? 
 
 Mr. Baker. Yes, sir; that is one instance. Now, there is another 
 one from San Francisco. 
 
 The Acting Chairman. "When it had accomplished that purpose, 
 the rate went back to the old point, did it not ? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. If, however, there was in the law some 
 provision that would prevent these temporary prices made for crush- 
 ing out a rival by charging an unreasonably low rate, it would have 
 a great tendency to induce these independent lines to come into the 
 business, would it not? 
 
282 HEARINGS BEFOKE 
 
 Mr. Baker. No doubt of it. That is just what I said. You can 
 amend the interstate-commerce law so as to prevent things of that 
 kind. Then each road or steamship line must act under the control 
 of the Interstate Commerce Commission as to rates, etc., not only as 
 to the advance but as to the reduction in rates. 
 
 The Acting Chairman. Of course, as it is now, we do not attempt 
 to fix a minimum rate on interstate commerce; it is the maximum 
 rate all the time. 
 
 Mr. Baker. You do not allow changing of rates without a cer- 
 tain notice 
 
 The Acting Chairman. We do not change the rates without a cer- 
 tain publication that is very easily complied with ? 
 
 Mr. Baker. I should think it would be a very good thing to pre- 
 vent reduction in rates below a certain point. 
 
 The Acting Chairman. Your idea is that if we had these features 
 in our bill that then you could get capital to do this business even 
 without agreement with the Government as to carrying the mail? 
 
 Mr. Baker. I believe I could. 
 
 The Acting Chairman. And that change, as I understand it, is 
 that we prohibit any carrier by land from entering into the business 
 of carrying by sea. 
 
 Mr. Baker. Yes, sir ; control any water routes. 
 
 The Acting Chairman. And, secondly, that the Interstate Com- 
 merce Commission be given power to prevent the establishment of a 
 ruinously low rate, obviously intended to drive out competition. 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. Do you look upon this $750,000 that this 
 proposed company would get for carrying the mail as a reasonable 
 compensation for carrying the mail or as a subsidy to the company? 
 
 Mr. Baker. Oh,- a subsidy. What you are paying now it is very 
 difficult to determine, particularly where you would develop a west- 
 coast mail, which you have no service for now. But the two hun- 
 dred thousand and some odd dollars that this line would earn from 
 New York to Colon, you would save a little on that. You are pay- 
 ing more than that to-day. How much mail will be delivered from 
 the west coast west of the Rocky Mountains that would come down 
 from San Diego to Panama for distribution to South America is 
 very uncertain. This will offer an opportunity for a quicker mail 
 service. I was discussing with Mr. Stewart, particularly with respect 
 to the faster boats on the Pacific coast, the 20-knot boats from Bal- 
 boa. You can make a delivery even on the east coast to Buenos 
 Aires, via the trans- Andean Railway, several days less than the pres- 
 ent route, so that you would probably increase the mail — what pro- 
 portion I do not know ; I should say certainly from 25 to 30 per cent. 
 
 In addition to that you get a great many other advantages upon 
 the steamships built under this arrangement. And there is the ques- 
 tion of carrying the naval auxiliary — one boy in training for each 
 thousand tons — and then you have a certain strengthening in the 
 forward part of the ship, so as to carry guns if necessary. All those 
 things come in under the provisions of this act of March 3, 1901. 
 
 The Acting Chairman. You spoke, I think, in answer to Senator 
 Newlands, about the rate on lumber. You said $5 a thousand. 
 
 Mr. Baker. $6 a thousand. 
 
COMMITTEE ON INTEESTATE COMMERCE. 283 
 
 The Acting Chairman. What do you mean— a thousand feet or 
 a thousand pounds? 
 
 Mr. Baker. A thousand feet. 
 
 The Acting Chairman. That depends, doesn't it ? 
 • Mr. Baker. I will say, on the basis of a steamship ton, it varies 
 in different kinds of lumber. Sometimes you won't carry as much 
 as a thousand feet, but it is $6 a ton from Puget Sound to the east 
 coast, and you ought to be able to do that, too. 
 
 The Acting Chairman. That rate now is $8, is it not? 
 
 Mr. Baker. I do not know the rate now. 
 
 The Acting Chairman. I think I was told that the rate— I do 
 not mean over the railroad, but I mean over the Panama Railroad 
 and otherwise by water. 
 
 Mr. Baker. Very little goes by Panama. 
 
 The Acting Chairman. I saw a whole steamship loaded with it 
 the other day at the harbor in Balboa. 
 
 Mr. Baker. That was dressed lumber, was it not? 
 
 The Acting Chairman. No; that was heavy lumber; heavy di- 
 mension lumber. 
 
 Mr. Baker. Was it from Puget Sound or was it from ■ 
 
 The Acting Chairman. I think it was from Seattle. 
 
 Mr. Baker. I do not know that rate. 
 
 The Acting Chairman. I am not sure about that. It was a boat 
 of the California & Atlantic Line. I was told that the rate was $8 
 a ton, but in your testimony you mentioned $5 or $6 a thousand feet. 
 
 Mr. Baker. No; a ton. Some thousand feet of timber weigh very 
 differently, according to the character of the timber. I meant on a 
 ton basis. 
 
 The Acting Chairman, Ordinarily — take hard pine, for instance — 
 $5 a ton amounts to about $6.50 a thousand feet, I think. 
 
 Mr. Baker. That is about the proportion. 
 
 The Acting Chairman. $5 a ton on Oregon fir would be about 
 $5.80 or $5.90 a thousand feet? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. I just wanted to straighten that out. 
 
 Mr. Baker. And then when you get into the hardwood there is a 
 difference in that. Then there is also a regulation in proportion to 
 the size. 
 
 The Acting Chairman. Of course railroads do not attempt to 
 transport lumber from the west coast to the east coast. They reach 
 some kinds of lumber along the Mississippi River and do not come 
 east? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. Did you not have some discussion or 
 talk with certain shipyard companies about building these ships? 
 
 Mr. Baker. Yes, sir. 
 
 The Acting Chairman. What reply was made to you by either 
 of these shipyard companies ? 
 
 Mr. Baker. Well, one, especially when I first saw them, encour- 
 aged us very much to believe that they would be able to build all 
 the ships and complete them very quickly for us, and that there 
 would be no difficulty whatever about it, and they could do it within 
 a reasonable time. Then — I know what you are alluding to — it was 
 
'284 HEARINGS BEFOBE 
 
 about five or six weeks afterwards when I saw them, and they did 
 not know whether they could build any or not. 
 
 Another circumstance of that occurred with the Sparrows Point 
 Shipbuilding Co. They felt favorably when I first discussed it with 
 them, but they have got actual orders from the American Hawaiian 
 Co. to build five big ships for them, which will keep their works busy 
 for two years. They said they could not build any on account of the 
 work of this company. 
 
 The Acting Chairman. Do you attribute any of your failures to 
 reach a successful conclusion with the shipyard companies to the 
 influence of the railroads? 
 
 Mr. Baker. Oh, it is hard to say. 
 
 The Acting Chairman. If you had the money do you think you 
 would have any trouble in getting the ships built ? 
 
 Mr. Baker. I do not. I think I could get them built. I would 
 do as J. J. Hill did, if necessary — establish a yard of my own. 
 
 Senator Oliver. I think there would be no trouble. 
 
 Mr. Baker. I do not think there would be if we had the money. 
 
 The Acting Chairman. Are there any further questions? 
 
 Senator Newlands. What, in your opinion, would be the effect of 
 this water transportation on the transcontinental traffic? Would it 
 be a factor in reducing the amount of their traffic ? 
 
 Mr. Baker. I do not believe eventually that it will reduce it a bit. 
 
 Senator Newlands. Your idea, I presume, is that in shipping 
 goods to the Pacific coast most of them will have to be transported 
 into the interior and they will have a short haul, which is a profit- 
 able haul, rather than a long haul, on which they have to reduce the 
 rate to the lowest amount? 
 
 Mr. Baker. Where I look for the greatest increase is going to be 
 the opportunity of taking a desirable class of commerce to them by 
 such ships in the transfer from Balboa and Colon. Ships coming 
 from foreign countries, from England, Germany, France, Holland, 
 Sweden, Belgium, etc., will bring from 100 to 150 immigrants; 
 they will naturally be brought by a line of this kind, and that is 
 going to develop the country in a way that will make more than 
 enough business for both the railroad and the canal in addition to 
 all the foreign freight. It will take time, and it will require some 
 readjustments of their rates. 
 
 Senator Newlands. You were speaking of the tolls. In view of 
 the fact that the cost of transportation by water is so much less than 
 the cost of transportation by rail, do you think the imposition of even 
 a dollar a ton toll on intercoast transportation would be a very serious 
 handicap ? 
 
 Mr. Baker. It would be a pretty serious handicap. 
 
 Senator Newlands. In view of the fact that the cost of transpor- 
 tation is more than one-half less, about one-third less of the trans- 
 continental transportation ? 
 
 Mr. Baker. I think that the development of this country, particu- 
 larly the west coast, arid the possible trade that the east coast would 
 gain in that way, would so much more than make up for the question 
 of tolls in the development of that country that you would be justified 
 in doing it, particularly on the coastwise commerce. 
 
 Senator Newlands. But you would not regard it as a serious handi- 
 cap? 
 
COMMITTEE ON INTEBSTATE COMMERCE. 285 
 
 Mr. Baker. No ; not as a serious handicap ; but I think you would 
 be justified in doing it for the development of the country. 
 
 Senator Newlands. Returning to the question of the Government 
 construction of these ships. As it is, the Government proposes to give 
 a subsidy of $75,000 per annum for the next four years ? 
 Mr. Baker. $750,000. 
 
 Senator Newlands. For the next four years? 
 
 Mr. Baker. For the next 10 years. 
 
 Senator Newlands. That would be $7,500,000? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. That would go a great ways toward purchas- 
 ing these ships? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. After their purchase by the Government there 
 will be no necessity for paying that subsidy, would there ? 
 
 Mr. Baker. Certainly there would not. 
 
 Senator Newlands. In addition to that, you understand that our 
 Navy is deficient in the support of auxiliary ships, do you not? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. In scouts, cruisers, colliers, transports, in case 
 of war? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. So much so that it has been claimed that our 
 fighting ships would be derelict in the ocean for the want of support 
 of the necessary business ships? 
 
 Mr. Baker. Yes, sir. So necessary that the Navy Department is 
 violating all coastwise laws to-day. 
 
 Senator Newlands. In that view, do you not think the Govern- 
 ment would be justified in building these 15 ships as a part of the 
 auxiliary Navy of the country? 
 
 Mr. Baker. I think it would, unless they could get them another 
 
 way. . 
 
 Senator Newlands. I say they would be justified as a business 
 
 proposition ? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. If they could not get them otherwise? 
 
 Mr. Baker. Yes, sir; if they could not get them otherwise. 
 
 Senator Newlands. So that they would have the use of these ships 
 in case of war as a part of the auxiliary navy? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. Does the use of these ships in times ot peace 
 for the Post Office Department save an annual expenditure of 
 $750,000 a year? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. For 10 years? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. Or $7,500,000? 
 
 Mr. Baker. Yes, sir. 
 
 Senator Newlands. In addition to that, the Government's construc- 
 tion would have the advantage of immediately settling this compli- 
 cation and throwing open the use of that canal as soon as it is com- 
 pleted for the ptffpose of advancing transportation between the two 
 coasts? 
 
286 HEARINGS BEFORE 
 
 Mr. Baker. Yes, sir. There is only one objection to that: It would, 
 in a measure — not to any great extent, not after a while — but at first 
 it would restrain anyone attempting to come into competition. 
 
 Senator Newlands. But would you permit the Government to enter 
 into competition with citizens and private companies — such a com- 
 pany as a steamship company controlled by a transcontinental line 
 would permit— you would not allow that, would you ? 
 
 Mr. Baker. Certainly not. 
 
 Senator Newlands. . Then the chief danger you have found in the 
 financial market is the fear that in some way the transcontinental 
 lines will control any steamship line and reduce it to a nondividend- 
 paying basis, just as did the Pacific Mail Steamship Co.? 
 
 Mr. Baker. Yes ; that is so. 
 
 Senator Brandegee. Then, why do you want to enter into this busi- 
 ness on this line if there is so much danger ? 
 
 Mr. Baker. Because you have this additional protection. Because 
 I do not think they would attempt to fight the Government. 
 
 Senator Brandegee. I mean your own line that you are trying to 
 finance. 
 
 Mr. Baker. Because you have the assistance of the Government. 
 That is why I say it would justify the investment of capital for that 
 $750,000 a year. 
 
 Senator Brandegee. You would be willing to take the danger if 
 you got that bonus ? 
 
 Mr. Baker. Yes, sir ; it would help. 
 
 The Acting Chairman. Mr. Baker, the committee is very much 
 obliged to you for your appearance upon this subject. 
 
 Mr. Baker. I thank you very much. You certainly have been very 
 considerate of me. I have only one object, and that is the best in- 
 terest that can be obtained. 
 
 (Mr. Baker was thereupon excused.) 
 
 The Acting Chairman. I have a matter to submit to the committee 
 before we take a recess. The only other witness we have here now is 
 Mr. Levy, of New York. He, as you know, is the attorney for the 
 Independent Tobacco Co., and formerly connected, I think, with the 
 Department of Justice. He would prefer not to go on until to- 
 morrow morning, for the reason that he wants to prepare certain 
 copies that he has not at hand just now. If there is no objection, we 
 will have no afternoon session to-day and will adjourn until to-mor- 
 row morning at 10.30. 
 
 (There being no objection, the committee adjourned at 1.30 p. m. 
 until to-morrow, Tuesday, November 21, 1911, at 10.30 a. m.) 
 
 tuesday, november 21, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
COMMITTEE OK INTERSTATE COMMERCE. 287 
 
 Present: Senators Cummins "(acting chairman), Brandegee, Oliver, 
 Townsend, Newlands, Watson, and Pomerene. 
 
 The Acting Chairman. In the absence of the chairman (Mr. 
 Clapp) I will take the liberty of presiding. Mr. Levy, the com- 
 mittee will be glad to hear from you. 
 
 STATEMENT OF MR. FELIX H. LEVY, LAWYER, NEW YORK CITY. 
 
 The Acting Chairman. Have you been connected at any time with 
 the Department of Justice? 
 
 Mr. Levy. I was from March, 1905, to June, 1907. 
 
 The Acting Chairman. In what capacity? 
 
 Mr. Levy. I was special counsel to the Department of Justice and 
 special assistant to the Attorney General, who was then Mr. Moody, 
 and for a short time afterwards Mr. Bonaparte. 
 
 The Acting Chairman. Had you anything to do with the enforce- 
 ment of the law which is now under consideration by this committee? 
 
 Mr. Levy. That appointment was solely with reference to the in- 
 vestigation and prosecution of the Tobacco Trust, and therefore, of 
 course, under the Sherman law. 
 
 The Acting Chairman. Have you been counsel for any of what 
 are known as the Independent Tobacco Associations ? 
 
 Mr. Levy. I have— for two or three of the large associations, which 
 are composed of a very large number of the boards of trade of a 
 great many cities, representing independent tobacco interests, and 
 acted in harmony — I may say, in general — with the independent 
 opposition that asserted itself in the circuit court in New York. 
 
 The Acting Chairman. Will you now give the committee your 
 views with respect to the antitrust law, its operation, and respecting 
 any changes that ought to be made in it ? You may make your state- 
 ment in your own waj T and without any interruption on the part of 
 the committee until you have finished. 
 
 Mr. Levy. At the outset, I wish to say that I have come before your 
 committee in response to the request of your chairman, Senator Clapp. 
 This request was unsolicited by me and, indeed, unexpected. I say 
 this so that it may not appear that I am here as a voluntary witness. 
 I have, however, come quite willingly to give to your committee such 
 information as I may possess with regard to the enforcement of the 
 Sherman antitrust law and to the question of its amendment or en- 
 largement. This information is based chiefly, but' not solely, upon 
 the professional experience which I have gained in governmental pros- 
 ecutions of the Tobacco Trust, in which I was engaged a few year!, 
 ago, and in private employment since that time, and quite recently in 
 opposing the plan of disintegration proposed by the tobacco com- 
 bination and within the past few days approved by the circuit court 
 in New York City. 
 
 I may say at the beginning, with all' that respect which a citizen 
 should feel for the courts, that, in my judgment and in the judgme* 
 of the great majority of the persons, official and nonofficial, who are 
 competent to express an opinion on the subject, the plan thus pro- 
 posed by the tobacco combination and approved by the Attorney 
 General and the circuit court, as a supposed compliance with the 
 decree of the United States Supreme Court, is a sham and a subter- 
 
 22877— vox I— 12 19 
 
288 HEARINGS BEFORE 
 
 luge on the part of the tobacco combination, knowingly devised by it 
 for the purpose of creating the appearance of carrying out the Su- 
 preme Court's mandate, but in reality intended to retain for the con- 
 victed conspirators, namely, the 29 individual defendants and their 
 confederates, the fruits of their unlawful conspiracy, with its monop- 
 oly value unimpaired. Indeed, if the prices of their securities as 
 shown on the New York Stock Exchange may be taken as a proper 
 criterion, the result of the approval of their plan has been to increase 
 substantially the value of their unlawfully acquired property. 
 
 I say, therefore, that these defendants have succeeded in making 
 their property more valuable than it was before, although the Gov- 
 ernment, after a litigation begun in 1904 or 1905, obtained in May, 
 1911, from the Supreme Court a decree of the most drastic nature, 
 condemning these companies and these defendants as conspirators. 
 
 The plan thus proposed, in the judgment of those well qualified to 
 speak, will result in the sacrifice of virtually all the benefits intended 
 to be given to the people of the United States by the notable victory 
 won by the Government against this most unscrupulous combination. 
 
 I realize that this is strong language, but I shall justify it before I 
 get through. 
 
 The litigation was begun by Attorney General Moody, under the 
 direction of President EoosCvelt, in the early part of 1905. My 
 official connection with the prosecution continued from March, 1905, 
 to June, 1907 (some two years and more), during which time I was 
 special counsel to the Department of Justice and a special assistant to 
 the Attorney General for the investigation and prosecution of the 
 Tobacco Trust. Shortly prior to June, 1907, Mr. James C. McRey- 
 xiolds took up the work in behalf of the Attorney General and has 
 carried it through with distinguished ability, against great difficul- 
 ties, to the very notable victory which he won in the final decree of 
 the Supreme Court in May, 1911. 
 
 In 1905 and 1906 the trust succeeded in blocking the efforts of the 
 Government for one and a half years by refusing to allow its officials 
 to give testimony before the grand jury in New York. Contempt 
 proceedings followed and the matter resulted in favor of the Gov- 
 ernment by the important decision of the Supreme Court in Hale v. 
 Henkel, which has definitely settled the right of the Government to 
 obtain information from corporations engaged in interstate com- 
 merce. This decision, and the information then obtained through 
 Jshe grand jury in New York, resulted promptly in the finding of an 
 indictment against the licorice-paste monopoly (a very complete mo- 
 nopoly held within the bigger tobacco monopoly). The two leading 
 officers of the Licorice Trust were also indicted.' This was under the 
 Sherman law — the criminal provisions of that law. Although every 
 legal device, by demurrer, was resorted to, the legal sufficiency of the 
 criminal provisions of the Sherman law was held good by the courts. 
 Under a state of facts which showed a most shameless disregard of 
 the law — both the statute and the moral law — the jury found a ver- 
 dict of guilty against the two indicted companies, but not guilty 
 against the two presidents of these companies. This result is wholly 
 snexplainable upon any logical ground. It could only have been 
 that the state of popular opinion in New York City in 1906 was not 
 such as to induce a jury to send to prison for a trust conspiracy men 
 
COMMITTEE ON INTERSTATE COMMEECE. 289 
 
 otherwise respectable and prominent in the community. It is a ques- 
 tion whether that state of mind still obtains. 
 
 This case in enough to show that the Sherman law is broad enough 
 in its criminal provisions; indeed, that, having reference to the state 
 of opinion existing, at least in New York, in 1906, it was too broad. 
 
 This is a very comprehensive subject and full of detail. I will 
 state that the popular opinion was shown 10 years earlier in New 
 York, in 1896, when the directors of this same company were in- 
 dicted under the State statutes against conspiracy, and the jury in 
 that case disagreed, it being well understood that they voted 10 in 
 favor of conviction and 2 against, and it was also well understood 
 that the reason was that those were prominent men, and they were 
 guilty of what the public had not got used to regarding as a serious 
 crime. I mention that as showing that popular opinion has a great 
 deal to do with the enforcement of the criminal provisions of this 
 law — and of any law, but notably of this law. 
 
 Proceeding from that general introduction, I would say that the 
 plan that was proposed by the Tobacco Co. for its disintegration 
 was, in the judgment of those who I think ought to be regarded as 
 people who know — that is, men in the trade who have suffered and 
 fought under the domination of this trust, and of the best thought 
 that we could command — a plan which was wrong in principle and 
 wrong in detail. It was wrong in principle mainly upon the larger 
 feature, the most important feature of it — this matter of joint-stock 
 ownership. It seemed to us and to many — I think to most — that the 
 conception that four companies engaged in the same business, owned 
 by the same men, should compete with each other is an unthinkable 
 proposition. That was the fundamental proposition we made. We 
 made four other principle objections. I shall be as brief as possi- 
 ble, and if I go too far into the subject I trust the committee will 
 stop me. 
 
 The second objection was the size of these four companies. They 
 are to have a capital stock of $57,000,000 for one — I may be a little 
 wrong about those figures, as I speak from memory, but they are 
 substantially correct— $46,000,000 as to another, $100,000,000 as to 
 the other, and the fourth not so big, about $15,000,000. 
 
 Now, we thought, and it was the general belief, that even if this 
 vicious plan, as we thought it, of joint-stock ownership should pre- 
 vail, that nevertheless there ought to be more companies, and there- 
 fore each one smaller. 
 
 The Acting Chairman. May I interrupt you to ask the reporter 
 if the plan which was approved by the circuit court has been made a 
 part of our record ? 
 
 Mr. Levy. I will say that I have it here. If it has not been, I 
 shall be glad to submit it. 
 
 The Acting Chairman. The committee will be glad to have you 
 put it in and make it a part of our record. 
 
 Mr. Levy. I will say that I have in my hand the final decree 
 which was entered in the circuit court on the 16th day of November, 
 1911, to which is prefixed the opinions of the judges of the circuit 
 court, which will perhaps make them more convenient for reference. 
 I will offer the whole thing. 
 
290 
 
 HEARINGS' BEFORE 
 
 (The paper referred to is as follows:) 
 
 [In the Circuit Court of the United States for the Southern District of New York. 
 United States of America v. The American Tobacco Co. and others.] 
 
 Opinions of the Court and Decree. 
 
 Before Lncombe, Coxe, Ward, and. Noyes, circuit judges. 
 
 The United States v. The American Tobacco Co. and others. 
 
 OPINION OF CIRCUIT JUDGE LACOMBE. 
 
 In compliance with the directions of the Supreme Court we have heard the 
 parties upon a plan proposed by the American Tobacco Co. for " dissolving the 
 combination and for re-creating out of the elements now composing it a new 
 condition which shall honestly be in harmony with and not repugnant to the 
 law." The proposed plan was filed two weeks before this hearing, at which not 
 only the parties but any persons interested who might- wish to express their 
 views as friends of the court were given opportunity so to do. 
 
 While the plau is correctly described as. the proposed plan of the American 
 Tobacco Co. since that corporation and the other defendants offer to carry it 
 out, it should be remembered that in its present form the plan is the fruit of 
 much discussion. For upward of two months successive conferences, in the 
 presence of two or more members of the court, were had between the Attorney 
 General and the counsel and representatives of the Tobacco Co. Objections 
 of the Attorney General were followed by modifications of the plan, some of its 
 most drastic provisions being inserted in order to meet or avoid his criticisms. 
 When a point was reached where such adjustment of differences ceased to be 
 practicable, a time was fixed for a hearing before the whole court upon the 
 matters remaining in dispute. It was in the course of these conferences that a 
 very material reduction of the holdings of the American Tobacco Co. was 
 brought about. According to the plan as originally proposed "it was to retain 
 in its treasury, in addition to its working capital, sufficient to pay the out- 
 standing bonds when they matured, about $104,000,000. To this the Attorney 
 General at once objected, insisting that the possession of this enormous amount 
 of money over and above its capital invested in the tobacco business was 
 fraught with possibilities of evil use, that it would be a standing menace to 
 all competitors and could not be tolerated. While not fully conceding the 
 justice of this, criticism, counsel for defendants promptly stated that they 
 would undertake to eliminate it. After discussion of two different methods of 
 so doing, which themselves presented other difficulties, defendants at the last 
 conference submitted the present scheme, whereby half of the outstanding 
 bonds would be bought up (and canceled) at a price in excess of their present 
 value, thus insuring a willing surrender of them by present holders, and for the 
 other half securities of the new companies would be offered on a basis of ex- 
 change which would insure acceptance of the offer. Since the plan was filed 
 the market reports have given quotations of such bonds of the new companies 
 " if and when." While such reports are possibly not competent evidence in the 
 trial of a cause, they seem to indicate that if the present plan be approved, a 
 very brief period will suffice for the disappearance of substantially all the old 
 bonds and the elimination from the treasury of the American company of the 
 money or securities required to make them good at maturity. Thus the menace 
 of holding an enormous amount of money, additional to what is legitimately 
 used in the business of the American company, will disappear. Upon the 
 hearing committees representing a majority of the holders of both issues of 
 bonds appeared and requested the court to approve the plan. Out of the entire 
 two issues, amounting to over $100,000,000, one holder only of ten 4 per cent 
 bonds appeared to object on the ground that the terms offered for sale and 
 exchange were not satisfactory to him. Inasmuch as he is under no obligation 
 to accept the offer if it does not please him, and the security for his bonds, if 
 the plan be carried out, will be ample, no modification of the plan is necessary 
 to protect him or others similarly situated. A committee representing a 
 majority of the preferred-stock holders also asked that the proposed plan be 
 approved. 
 
 The plan contains very many provisions, necessarily so because of the intri- 
 cate nature of the combination of corporations about to be disrupted. It would 
 
COMMITTEE ON INTERSTATE COMMEECE. 291 
 
 unreasonably extend this opinion to undertake to epitomize these provisions 
 An admirably clear summary of them has been filed by tL proponents and 
 may be considered as in the nature of a recital to this opinion Besides «s 
 holdf^fnf-w 8 US commo ?T sto f h ° ] aers a large amount^ the stock ft now 
 holds In other companies, the American Tobacco Co. will be split into three 
 compames, wh eh, with a fourth set free of control by the American Co 
 
 ow'ownp^^fvf 1 ^"? 11 ° f St0Ck ' wiH dhide between themselves Se property 
 i>ow owned and the business now done by the American Co. Each of these four 
 
 mZ^lfv S H thUS h£U V bUSlneSS whicn > in evei "y branch of it wm fall 
 matenally below a percentage sufficient to control. There are similar disrun- 
 
 ^rm^/nfay^^nlS. 00 ^ 11168 f ° r ^ deta ° S ° f ^^^XTZ 
 
 nr^S!fow f ^t - Wh ° * ave been heard in opposition insist that no plan is 
 £n aC V ^ 6; i ha i m conformi ty with the statute as construed by the Supreme 
 Court the only thmg for this court to do is to seize the property throughTe- 
 denTv tK^™ 66 ,? t °, S tV t TWS P^PO^tion need not be disctLsed! Bvl 
 h»vp y r,,wt^ P ^ me C °. U I t belleved some Pi™ was practicable, or it would not 
 ha\e directed this court to inquire into the matter. 
 
 Upon the hearing other plans for dissolving and re-creating were submitted, 
 plans not merely suggesting modifications of the one proposed, but differing 
 
 ^™! y A T^ 1 *,-^ form and scope - ° ne of them calIs for a division into 
 upward of 60 different companies. Others for a distribution of properties by 
 specific allotments, as in the case of a partition of real estate. No time need 
 be given to a consideration of any of these, since there is no suggestion that the 
 defendants will adopt them. On the contrary, counsel for the defendants 
 expressly stated on the argument that they would not undertake to carry them 
 out. Presumably they think they might better take their chances at receiv- 
 er s sale. This court has neither authority nor power to carry out and enforce 
 any plan of readjustment without the cooperation of the owners of the prop- 
 erty, the holders of these stocks and bonds. It would be a sheer waste of time, 
 therefore, to consider any plan radically different from the one now before us! 
 If we find this plan would not create the condition defined in the opinion of the 
 Supreme Court, or if such modifications as we may require as a condition of 
 giving our approval are not accepted by defendants, we must obey the mandate 
 of that court, must seize the property and sell it at public auction, in appro- 
 priate and convenient lots, applying the proceeds of the sale to the payment 
 of the debts, including the mortgages, or of such dividend thereon as the 
 proceeds may allow, turning over the surplus, if any, to the owners of the 
 equity. 
 
 The main objection to the proposed plan, an objection found in every docu- 
 ment filed by those who were given permission to be heard and which 
 seemed to be principally relied on by those who spoke, is what is referred 
 to as " common-stock holding." For instance, under the plan two new com- 
 panies, " Lorillard " and " Liggett & Myers," will be formed out of the Ameri- 
 can, which will itself, thus reduced in size, continue in existence. The same 
 individuals, the present 1,800 or more common-stock holders of the American, 
 will hold the entire common stock of each of the other two companies. A 
 similar condition will exist with some, at least, of the other companies. It is 
 contended that, although under such circumstances there may be potential 
 competition, no real competition can exist. With this argument or the reply 
 to it, it seems to me this court is not concerned. In two recent cases (the 
 Northern Securities and the Standard Oil) the Supreme Court found a combi- 
 nation of corporations to have offended against the antitrust act. As a result 
 of such finding there was a disintegration of the combination. In each case 
 the disintegration left the stock of the separate entities into which the group 
 was split in the hands of the same body of individual stockholders. Since there 
 was no disapproval of this method of disintegration indicated in either opinion, 
 it would seem that the question whether or no common-stock holding is " re- 
 pugnant to the law," that is, repugnant to the antitrust act, has been settled 
 for this court by controlling authority. 
 
 It is true that the Supreme Court did not enter into any discussion of this 
 question of "common ownership," but its existence in both cases was so plainly 
 manifest that it is difficult to understand how the court could have approved 
 of the new arrangement unless it was satisfied that such arrangement did not 
 contain the same vice as the old one which they held must be terminated. If 
 this be so, discussion here of the question whether or not common ownership 
 is within the prohibition of the statute would seem to be academic. This also 
 
292 
 
 HEARINGS BEFORE 
 
 seems to be the view of the Government, which does not discuss common- 
 stock holding. 
 
 The next objection presented by those, not parties, who have been heard Is 
 directed to the size of the companies. As an illustration, it appears from the 
 statistics submitted that of the total smoking-tobacco business of the country 
 four companies will have the following percentages: American, 33.08; Liggett & 
 Myers, 20.05 ; Lorillard, 22.82 ; Reynolds, 2.66. It is insisted that these large 
 companies should be still further disintegrated. The plan is further criticized 
 because each of these companies is described as " completely equipped for the 
 conduct of a large tobacco business," whereas existing independent concerns 
 are none of them so equipped; and it is argued that there can be no effective 
 competition until the several concerns which are to carry forward the busi- 
 ness of the trust are put into the same condition as to size and equipment as 
 now prevails among existing independent concerns. It is further contended 
 that no company engaged in the plug-tobacco business should be allowed to 
 take over any cigarette or cigar business; that a company taking a cigarette 
 business should not take over any smoking-tobacco, ping, or cigar business, and 
 so on. That there should be a rearrangement of factories and brands, an in- 
 tricate subject which is fully discussed in a report from the Bureau of Corpo- 
 rations filed at the hearing. Manifestly, the minuter the fragments into which 
 the old combination is split and the more they are prohibited from conducting 
 business as other companies are free to conduct it, the less will be their ability 
 to compete with such other companies. This whole line of argument deals with 
 the economics of the tobacco business. No doubt the novel problem presented 
 to this court is connected with questions of economics as well as with ques- 
 tions of law. But this is a court of law, not a commerce commission, and the 
 legal side of the proposition would seem to be the controlling one. The true 
 way to state the problem, as I understand it, is this: Assume that a group 
 of corporations engaged in some business which comes within the domain of 
 interstate commerce is charged before the Supreme Court with violation of 
 the antitrust act. Assume that they are organized as the companies provided 
 for in this plan will be, that they are similarly capitalized, that the business they 
 do is similar in amount and similarly distributed, that their stock is similarly 
 held, with the natural temptation to cooperate which such common-stock holding 
 may be calculated to induce, but are also curbed and restrained from yielding 
 to such temptation as these companies will be by the injunction which will 
 accompany our approval of this plan — a permanent injunction binding all de- 
 fendants in this suit and their privies, and all new companies created under 
 the plan and their privies. Would the Supreme Court hold that the condition 
 thus presented was " repugnant to the law " ; that is, repugnant to the anti- 
 trust statute? A long and careful study of the last two deliverances of that 
 court (in the Standard Oil case and in this case) has convinced me that its 
 answer to that question would be in the negative. I may be wrong in inter- 
 pretation of its deliverances — if so. it will not be for the first time — but since 
 such is my conviction there would seem to be no necessity for discussing, on 
 its economic side, a question already settled by controlling authority. 
 
 Leaving for the moment the objections and suggestions of persons not par- 
 ties, those of the Attorney General may be next considered. He does not attack 
 the general features of the proposed plan, with its division of the business con- 
 trolled by the old company among 14 companies, nor does he contend that 
 •'common-stock holding" is in and by itself an infraction of the lDtitrust 
 statute. His suggested modifications are directed mainly toward providing 
 such safeguards for the future that the 14 companies may not so conduct their 
 operations as to violate the provisions of the statute. He requests that the 
 following conditions to any approval of the plan submitted be imposed. Pre- 
 sumably the more convenient way to impose most of such restrictions would 
 be by injunctive provisions incorporated in the final decree. 
 
 1. That during a period of not less than five years no one of the corpora- 
 tions among which the properties and businesses now in the combination are 
 to be distributed shall have any officer or director who is also an officer or 
 director in any other of such corporations. This suggestion is approved. 
 
 2. That the plan be so modified that the principal company shall dispose of 
 and, when the disintegration is complete, shall not retain any of the stocks 
 of any of the accessory companies, and each of the accessory companies shall 
 dispose of all of the stocks held by it of the principal and of each of the other 
 accessory companies held by It. 
 
 The general proposition here advanced is sound and is approved, but the last 
 clause seems to be already provided for and there is probably an exception or 
 
COMMITTEE OX INTERSTATE COMMEKCE. 293 
 
 two uecessai-y to be made in tbe first clause, by reason of tbe rights of outstand- 
 ing stockholders not connected with the American Tobacco Co. Counsel can 
 the fa ts aSr6e aS t0 a phrnseolog y whlcn win conform more especially to 
 
 3. That no one of the corporations among which the property and businesses 
 now m the combination are to be distributed shall, during the same period, 
 retain or employ the same agency for the purchase of tobacco leaf or other raw 
 material, or for the sale of tobacco or other products, as that of any other olf 
 such corporations. 
 
 There should be a change of phraseology in this and some of the other re- 
 quests. It is not entirely clear whether the prohibition is directed to all the 
 14 companies or only to a part of them; it should apply to all After 
 the words " agency for the purchase " there should be added the words " in 
 the United States." This request, with such modifications is approved, and 
 counsel may agree on a phraseology which will cover any possible exceptions 
 arising from the allotments in the plan. 
 
 4. That no one of the corporations among which the property and businesses 
 now in the combination are to be distributed shall retain or employ the same 
 clerical or other organization, or occupy the same office or offices as any other 
 of the said corporations. 
 
 This is approved, with modifications similar to those indicated as to the re- 
 quest next above. 
 
 5. That no one of the corporations among which the properties and busi- 
 nesses now in the combination are to be distributed shall retain and hold 
 capital stock in any other corporation, any part of whose stock is also retained 
 and held by any of the other of the corporations among which such properties 
 and businesses are to be distributed, or shall purchase or acquire any stock 
 in any other of such corporations. 
 
 This is approved, but should contain an exception, upon which it is under- 
 stood counsel are in accord, in the single case of the Porto Rican Leaf Tobacco 
 Co. Counsel may agree upon the phraseology to be inserted in the decree. 
 
 6. That no one of the corporations among which the properties and busi- 
 nesses now in the combination are to be distributed shall, during a period of 
 five years, directly or indirectly acquire any stock in any one of the others of 
 said corporations, or purchase or acquire the property or business, or both, 
 of any other of said corporations. 
 
 With a change of phraseology which will make this applicable to all the 
 14 companies this request is approved. A similar request is found among 
 those submitted by other objectors, with an additional clause forbidding any 
 one of these 14 companies " from making loans or otherwise extending credit 
 to any of the others." This suggestion is a proper one, and may be embodied 
 in the Attorney General's request. 
 
 7. To the end that the 29 individual defendants in this suit shall not increase 
 their control over any of the corporations among which the properties and 
 businesses now in the combination are to be distributed, pursuant to the plan, 
 that such defendants be severally enjoined from, at any time within five years 
 from the date of the decree, acquiring, directly or indirectly, the legal or 
 equitable ownership of any amount of "stock in any one of said corporations in 
 addition to the amounts which they will respectively hold if and when the plan 
 shall have been carried out as proposed. 
 
 This is approved, but the phraseology should be modified, as already indicated. 
 Upon the argument the Attorney General stated that he would be willing to 
 substitute " three years " for " five years." Such change seems desirable ; it 
 would probably result in a more rapid distribution of present holdings. There 
 should also be a proviso excepting from the operation of this prohibition any 
 and all sales and purchases by these 29 individuals inter sese, the phraseology 
 of which counsel may agree upon. 
 
 It may not be a wise public policy to make it easy for foreigners to take over 
 the control of the British American Co., with its large and growing business in 
 foreign countries, notably in South Africa and the Far East, now in American 
 hands. That is what would probably happen if the 29 defendants be prohibited 
 from increasing their holdings of that stock. We do not undertake to determine 
 this question of public policy, which is one for the consideration of the executive 
 branch of the Government. It is sufficient to say that a further exception of 
 the shares of that company from the operation of this paragraph would not, 
 in our opinion, make the plan repugnant to the law. 
 
 8. That the preferred stock of the American Cigar Co., aggregating in book 
 value $2,530,216.60, held by the American Snuff Co., and the stock and bonds 
 
294 HEARINGS BEFORE 
 
 of American Tobacco Co., held by the American Snuff Co., referred to on page 
 11 of the plan (footnote A), 1 be sold or otherwise disposed of within one year 
 instead of three years, as proposed in the plan, with leave to defendants to 
 apply to the court to extend such period for not more than two years. 
 There seems to be no good reason for modifying the plan in this particular. 
 
 9. That in the distribution of the properties and businesses now held in the 
 combination pursuant to the plan of disintegration, no corporation shall be 
 allowed to acquire property, tangible or intangible, which would invest it with 
 as much as 40 per cent in volume or in value of any particular line of the 
 tobacco business. 
 
 This is substantially what the plan now provides. The few instances in 
 which the 40 per cent limitation is exceeded result from inherent difficulties 
 of distribution, which it seems impracticable to eliminate. These instances are 
 so few and the excess in each instance so small as to be fairly negligible. The 
 request is denied. 
 
 10. That the stock of the Liggett & Myers Tobacco Co. and P. Lorillard 
 Co., provided to be in accordance with the plan, be deposited with the Guaranty 
 Trust Co. of New York, as the agent or depository of this court in this cause, 
 for the purposes specified in the plan, and that at the end of the period desig- 
 nated the court make an order for their further disposition. That in the mean- 
 time no voting right with respect to such stock shall be exercised, except as the 
 court may from time to time order. 
 
 All of this is already sufficiently provided for in the plan. 
 
 11. That all covenants in any way restricting the right of any company or 
 individual in the combination to buy, manufacture, or sell tobacco or its prod- 
 ucts should be rescinded by the affirmative action of the respective parties 
 thereto who are parties to this suit. 
 
 This is approved, except that there should be a proviso excepting certain for- 
 eign business, the phraseology of which counsel may agree upon. 
 
 12. That the action proposed in subdivision C of the plan on page 6 s termi- 
 nating certain covenants be amplified so as to include like action with respect 
 to all covenants not only concerning the tobacco business, but any other business 
 which is in any way embraced in the combination. 
 
 This is approved. We understand the proposed plan as so providing in spirit 
 if not in letter. 
 
 13. That all contracts or covenants between the American Tobacco Co., or any 
 other companies in the combination, and the British-American Tobacco Co., giv- 
 ing to the latter company the exclusive right to manufacture or sell brands 
 belonging to any of the companies in the combination be rescinded or otherwise 
 terminated. 
 
 The brnnds thus sold passed to the purchaser for a valuable consideration 
 under an executed contract. The request is denied. 
 
 The fourteenth request deals with the United Cigar Co.. a subject which will 
 be treated separately infra. 
 
 The Attorney General further asks for a comprehensive injunction to be incor- 
 porated in the final decree providing — 
 
 " That the defendants named in the petition, their respective officers, directors, 
 agents, servants, and employees, be forever enjoined and prohibited from con- 
 tinuing or carrying into further effect the combination adjudged illegal by the 
 Supreme Court, and from entering into or forming any like combination or con- 
 spiracy, the effect of which is or will be to restrain commerce in tobacco or its 
 products or in articles used in connection with the manufacture and trade in 
 tobacco and its products, among the States or in the Territories or with foreign 
 nations, or to prolong the unlawful monopoly of such commerce obtained and 
 possessed by the defendants, as adjudged herein in violation of the act of 
 Congress approved July 2, 1890, either — 
 
 " 1, By causing the conveyance of the physical property and business of any 
 of the corporations among which the properties and businesses now in the 
 combination are to be distributed to any other of said corporations ; by placing 
 the stocks or any one or more of said corporations in the hands of voting trustees 
 or controlling the voting power of such stocks by any similar device ; or 
 
 " 2. By making any express or implied agreement or arrangements together 
 ©r one with another like those adjudged illegal by the Supreme Court in this 
 cause relative to the control or management of any of said corporations, or the 
 price or terms of purchase, or of sale, of tobacco or any of its products, or the 
 
 1 See decree, p. 43 hereof. ' 2 See decree, p. 38 hereof. 
 
COMMITTEE ON INTERSTATE COMMERCE. 295 
 
 supplies of other product dealt with in connection with the tobacco business, or 
 relative to the purchase, sale, transportation, or manufacture of tobacco, or its 
 product or supplies or other product dealt with as aforesaid, by any of the par- 
 ties hereto, which will have a like effect in restraint of commerce among thy 
 States, in the Territories, and with foreign nations to that of the combination 
 the operation of which is enjoined in this cause; or by making any agreement or 
 arrangement of any kind with any other of such corporations under which trade 
 or business is apportioned between such corporations, in respect either to cus- 
 tomers or localities; or by any of such corporations doing business directly or 
 indirectly, under any other than their own corporate respective names; by refus- 
 ing to sell to any jobber any brands of any tobacco product manufactured by it 
 except upon condition that such jobber shall purchase from the vendor some 
 other brand or product also manufactured and sold by it : or 
 
 "3. By the British-American Co. and the Imperial Co. employing a common 
 agent for the purchase of leaf tobacco in the United States, or by either of 
 said two companies uniting with any of the corporations among which the prop- 
 erties and business now in the combination are to be distributed, in the em- 
 ployment of a common agent for the purchase of tobacco leaf." 
 
 The clause in the latter part of subdivision 2 as to each company doing busi- 
 ness under its own corporate name should be made more specific, especially in 
 view of the requests of other objectors that tobacco products should be sold 
 only under the name of the owner. There should be nothing in the decree de- 
 stroying the value of a brand or altering the classification of products in the 
 records of the Internal-Revenue Bureau. Counsel may agree upon a modified 
 phraseology to avoid any such difficulty, leaving the 14 companies to pursue 
 all ordinary methods prevailing in the tobacco business. 
 
 The clause as to refusing to sell to any jobber should be reconstructed so as 
 not to prohibit any of the 14 companies from methods of business which are 
 open to and practiced by all their competitors. Counsel may agree to a 
 phraseology which will formulate this expression of opinion. 
 Clause 3 should be amended by adding the words " within the United States." 
 With these modifications, the entire section providing for injunctions is 
 approved. 
 
 Returning, now, to the requests of the various other objectors, we find that 
 nearly all of them are covered by those of the Attorney General or have been 
 already disposed of by the discussion of the general features of the plan. 
 Among those not so disposed of are noted requests that the 14 companies be 
 enjoined— 
 
 A. Prom giving away or selling at or below the cost of manufacture and 
 distribution any of its products; from giving rebates, allowances, or other 
 special inducements to purchasers or users; and from refusing to sell to any 
 jobber any special brand he may require. 
 
 The record in this case shows that these are the common methods of the 
 tobacco business, practiced by all alike. It is only by giving away samples 
 or by offering on favorable terms, irrespective of cost, that new brands of 
 tobacco products can be introduced or old brands extended into new territory. 
 All other companies are free to employ these methods, which are obnoxious to 
 no statute, and there is no reason why the 14 companies should be forbidden to 
 do so. This request is denied. 
 
 B. From espionage on the business of any competitor, from bribery of em- 
 ployees of such competitors, and from obtaining information from any United 
 States revenue official. 
 
 Why any one individual or corporation engaged in this business may not 
 acquire such information as he or it can legitimately obtain from private or 
 public sources as to the business of a competitor we fail to see. When illegiti- 
 mate methods are proved they may be dealt with. This request is denied. 
 
 C. That every independent or other person interested should, in the event of 
 any alleged violation of the injunction, have liberty to apply to the court for 
 protection and for such action as may appear to be appropriate. 
 
 The result of such a provision would be to overwhelm the court with a multi- 
 tude .of applications, mainly frivolous. Anyone who feels aggrieved should 
 take his complaint to the Attorney General, who will winnow the wheat from 
 the chaff. If he finds substance in any allegation he can bring it before the 
 court. This request is denied. 
 
 D. It is requested that the majority stock of the Lippfert Scales Co., now 
 owned by the R. J. Reynolds Tobacco Co., be sold, "with an injunction against 
 — " present stockholder in the Reynold Co., in the American Co.. or any of the 
 
296 HEARINGS BEFORE 
 
 allied companies, from purchasing at such sale." A similar request for a sale, 
 under like restrictions, is made as to the stock of five other companies now 
 owned by the American Tobacco Co. 
 
 This request is denied for reasons set forth infra in discussing the disposition 
 of the stock of the United Cigar Stores Co. 
 
 E. The attorney general of the State of New York suggests that he proposed 
 plan may violate the antimonopoly laws of this State. He does not indicate in 
 what respect it will do so. 
 
 We think it unnecessary to make any investigation on the line suggested. 
 Our approval of this plan will not secure to these fourteen companies immunity 
 for violation of the laws of this or of any other State. 
 
 Referring next to the defendant, the Imperial Tobacco Co., the Attorney General 
 asks that the plan shall include porvisions termiuating all executory contracts 
 or agreements between the Imperial Tobacco Co., on the one hand, and the 
 American Tobacco Co. and the British-American Tobacco Co. and each and 
 every of the corporations parties defendant hereto, on the other; and also a 
 provision enjoining the said American Tobacco Co. from uniting with the 
 BritishAmerican Co. in the employment of a common agent for the purchase 
 of leaf tobacco in the United States, and from uniting with any of the corpora- 
 tions among which the properties and business now in the combination are 
 to be distributed, in the employment of a common agent for the purchase of leaf 
 tobacco or any of the products of tobacco. 
 
 These provisions, of course, should be restricted to such as affect trade or 
 commerce between the States or between the United States and foreign coun- 
 tries. We understand that the proposed plan in substance so provides; but if 
 there be any doubt as to its doing so, counsel may agree on the form of amend- 
 ments which will insert these provisions. 
 
 The disposition of the United Cigar Stores Co. has been discussed by most 
 of the objectors. Those who represent the independents insist that it shall be 
 split up into separate concerns, " preferably 10." 
 
 It is not one of the so-called accessory companies, and the Supreme Court 
 has not directed that it be disintegrated. Upon the trial much testimony was 
 taken as to this company, and the question whether or not it was a combination 
 obnoxious to the provisions of the antitrust act was carefully examined. We 
 reached the conclusion unanimously that it. was not. A succinct statement of 
 our reasons for reaching that conclusion will be found in Judge Coxe's opinion 
 (164 F. B., 700). 
 
 We therefore dismissed the bill as to that company. The Supreme Court, 
 however, held that we erred in so doing, solely because the American Tobacco 
 Co. had bought and held two-thirds of its capital stock, which brought it into 
 the general combination. Under the proposed plan all this stock held by the 
 American Tobacco Co. is to be distributed to its own common stockholders, and 
 the sole ground upon which the Supreme Court reversed this court is thus 
 removed. The situation will then stand, as to all other grounds, as it did 
 before and we see no reason to change the opinion expressed on the original 
 hearing. Xo new evidence is offered, except to the fact that it has, in the 
 interim, largely increased the number_ of its stores. Such increase, however, 
 leaves it in control of less than 4 per' cent of the entire business in which it 
 is engaged. The request to disintegrate it is denied. 
 
 The Attorney General does not ask that it be disintegrated. He has, however, 
 argued at length and with much earnestness that the continued growth of this 
 enterprise affects the small retail dealer, who is without capital to compete 
 with it and applies to the Government to protect him. There may come a 
 time when the growth of this company or the methods by which such growth 
 is stimulated may bring it within the prohibition of the statute. But that 
 time has not yet come, and the only request the Attorney General, ih response 
 to appeals for aid, has formulated is this: 
 
 That the stock of the United Cigar Stores Co. be sold and distributed to 
 parties other than the 29 individual defendants or others of the common stock- 
 holders of the American Tobacco Co.. to the end that the corporation be en- 
 tirely separated from any connection with the corporations to which the -prop- 
 erties and businesses now in the combination are to be distributed. 
 
 We have no power to grant any such request. The antitrust act carefully 
 enumerates the penalties for a violation of its provisions — fines, imprisonment, 
 injunction against continuing to transact interstate business, treble damages 
 to all persons injured by an unlawful combination, seizure and forfeiture of 
 property in course of interstate transportation. These are certainly ample to 
 
COMMITTEE ON INTEBSTATE COMMERCE. 297 
 
 enforce obedience. By confiscation of property in transit and injunction 
 against continuance in interstate business an offender may be put out of active 
 existence Into a state of paralysis as helpless as dissolution. It might be said 
 that to these penalties the Supreme Court has added another, a qualified con- 
 fiscation of property not in transit by receivership and forced sale. 
 
 Nowhere, however, is there any authority for the proposition that this court 
 may seize the property of private persons, who may have offended against the 
 statute and sell it under conditions which would preclude the holder of the 
 title or the owner of the equity from bidding at the sale so as to compel the 
 purchaser to pay a reasonable price for it, or from buying it himself if no one 
 else will pay full value for it. That is confiscation; none the less so because 
 the proceeds of such a sale, after paying outstanding debts and expenses, are 
 to be turned over to the owner. Until Congress shall expressly give such power 
 to this court, or until some obscure language in its grant of power shall be 
 construed by the Supreme Court as in effect conveying such power, this court 
 is not prepared to assume that it possesses any such authority. The request 
 is denied. 
 
 The Ludington Cigarette Machine Co., which has a decree for an accounting 
 against the Anargyros Co., has applied for relief. The stock of the last-named 
 company is by the plan to be transferred to P. Lorillard Co. The Ludington Co. 
 asks for the insertion of a provision which will secure it against any resulting 
 difficulty on such accounting. 
 
 Provision should be made in carrying out the plan for keeping intiict the 
 books and records of the American Tobacco Co., its present constituents, and 
 branches, so that they shall be available and subject to examination to the 
 same extent as at present in suits for accounting and other existing litigation. 
 
 The Attorney General further requests that there should be reserved to the 
 Government the right at any time within five years from date of entry, to 
 apply to the court for other and further relief upon a showing that, as a mat- 
 ter of fact, such plan has not resulted in creating a new condition which shall 
 be honestly in harmony with and not repugnant to the law. 
 
 It is not apparent that this court has the power so to do. Had it not been for 
 the mandate of the Supreme Court, it might be questioned whether a Circuit 
 Court of the United States had any jurisdiction to re-create a new group of cor- 
 porations out of the elements into which a preexisting group of corporations 
 had been split or to formulate a plan or method according to which individuals, 
 natural or corporate, were to be invited to invest money and embark in busi- 
 ness. All such questions are, of course, resolved for us by the decision of the 
 court of last resort. But neither in its mandate nor in its opinion is there any 
 warrant for the conclusion that this court is to prescribe the temporary terms 
 of a modus vivendi, with power to reassemble five years hence — ourselves or 
 our successors and survivors — and modify those terms, while in the interim by 
 purchase' or exchange of these bonds upward of $100,000,000 worth of property 
 shall have changed hands irrevocably. The only function assigned to us is 
 to consider any proposed plan—which responsible parties engaged to carry 
 out— and approve or reject it. In the event of rejection the only alternative is 
 injunction, receivership, and sale. The time limit fixed in the mandate, six 
 months and possibly two more, precludes any other construction of its terms. 
 Circuit Judge Ward concurs. 
 
 OPINION OF CIRCUIT JUDGE COXE. 
 
 I approve of the proposed plan, not because I think it perfect but because it 
 is the best plan attainable. Perfection is impossible. The condition existing 
 before the illegal combination was formed can not be restored; it has gone 
 beyond the hope of recall. The plan which we have sanctioned eliminates the 
 ohjectionable features prohibited by the antitrust act and permits no unrea- 
 sonable or unlawful restraint of trade. In short, were the various corporations 
 which the plan authorizes organized for the first time to-day, they would not 
 be within the letter or the mischief of the statute. We have endeavored, while 
 punishing the guilty defendants— corporations and individuals— to remember 
 that the rights of many innocent bondholders and shareholders are at stake and 
 should be protected as far as is consistent with a complete compliance with the 
 requirements of the law. The plan disintegrates the combination, destroys the 
 monopoly, and liberates trade, but it accomplishes all this without a wanton 
 destruction of property. 
 
298 HEARINGS BEFORE 
 
 I have been impressed with the evident intention of counsel representing the 
 various defendants to accept without reservation the result of the litigation 
 and faithfully to carry out the plan, not only in letter but in spirit as well. 
 ■Many suggestions have been advanced by counsel representing persons not 
 parties to the suit which from an economic or ethical viewpoint are important 
 When, however, it is remembered that we are acting only under the command 
 of the Supreme Court, limited as to scope and time, it will be seen how power- 
 less we are to make conditions favorable to the so-called " independents " when 
 we can exact no reciprocal obligations from them. We are to ascertain and 
 determine upon " some plan or method of dissolving the combination and of re- 
 creating out of the elements now composing it a new condition which shall be 
 honestly in harmony with and not repugnant to the law." This we can do, 
 and when it is done our commission ends. The consideration which has the 
 greatest weight with me is that no one has proposed a better plan, the only 
 alternative offered being the appointment of a receiver — a receiver for corpora- 
 tions solvent and prosperous. I agree with the Attorney General that such a 
 calamity should be avoided, except as a last resort. It is impossible to forecast 
 the disaster which would follow such a step. It would wreck a flourishing 
 business upon which an army of employees are depending for a livelihood, it 
 would unsettle trade, and it would punish with equal severity the innocent and 
 the guilty. More than this, I am by no means convinced that it would not 
 produce the very evil which this action was instituted to destroy. A receiver 
 can dispose of the property in his hands only by a judicial sale to the highest 
 bidder, who will take title sanctioned by a decree of the court creating the 
 receivership. In the present case the men best equipped to make this bid are 
 the very men who now control the condemned corporations. It is surely pos- 
 sible, if not probable, that the property might thus come under their control 
 with a title which will render them immune from further prosecution. For 
 these reasons, thus briefly stated, I think that the plan, with the amendments 
 directed by this court, should be adopted. 
 
 opinion of circuit judge noyes (concurring). 
 
 The Supreme Court of the United States, after finding the illegality of this 
 combination, placed the duty upon this court of hearing the parties — 
 " for the purpose of ascertaining and determining upon some plan or method of 
 ■dissolving the combination and of re-creating out of the elements now composing 
 it a new condition which shall be honestly in harmony with and not repugnant 
 to the law." 
 
 And the Supreme Court added these words : 
 
 " In view of the considerations which we have stated, we leave the matter to 
 the court below to work out a compliance with the law without unnecessary in- 
 jury to the public or the rights of private property." « 
 
 By these directions this court is required to enter into the examination of 
 ■questions economical as well as legal, and to depart from the function of deter- 
 mining existing controversies to the decision of the legality of future proposed 
 action. The duty imposed is extraordinary because the Supreme Court in im- 
 posing it was dealing with an extraordinary situation. 
 
 The question was as to the relief to be afforded. A decree forbidding corpo- 
 rate stockholding would have been inadequate, because the combination was 
 largely bnsed upon property ownership. Original conditions could not be re- 
 stored. Immediate extreme measures would have inflicted irreparable injury 
 upon innocent interests. It was necessary to provide a method for determining 
 in advance whether a proposed plan of disintegration would harmonize with the 
 law, and hence the direction to this court. 
 
 The magnitude and varied nature of the assets of the combination, the extent 
 of its liabilities, the ramifications of its business, and the complexity of its 
 affairs would make our duty difficult if we were required merely to apply rules 
 of dissolution and re-creation prescribed by the Supreme Court. But from 
 the very intricacy of the case there are no rules. We are left without guide to 
 turn a condition in violation of the law into a condition honestly In harmony 
 with it. The only measure of the extent of rehabilitation required is the object 
 to be attained. The evils found to exist alone indicate the measures required 
 to meet them. 
 
 If, then, we approach the performance of our duty without an appreciation 
 •of the complexity of the problem and of the difficulties under which the formu; 
 iators of any plan must labor, we will not go far. If we are not satisfied with' 
 
COMMITTEE ON INTERSTATE COMMERCE. 299 
 
 a substantial compliance with the law ; if we strain after the ideal and put aside 
 the practicable, it will be easy to bring on a receivership with its attendant 
 losses to innocent investors. But that result was what the Supreme Court was 
 solicitous of avoiding, and I think it intended that we should recognize the 
 problem presented to us as a very practical one to be disposed of in a practical 
 way. Moreover, in the performance of our duty we owe much to the Attorney' 
 (j-eneral, who, while always insisting upon the rights of the public, and by such 
 insistence bringing the plan into its present shape, has, nevertheless— as it has 
 seemed to me— felt that he, too, owed a duty to protect innocent interests and 
 not to cause rum and disaster by forcing extreme measures which might, even 
 from the public point of view, in the end produce no better results than those 
 at hand, and possibly infinitely worse. 
 
 Taking up the plan, we know at the outset that it is an honest one. It has 
 been built up almost in our presence, and whatever question there may be as 
 to its merits there is none of the good faith of its authors nor of the ability 
 and conscientiousness with which they have performed their tasks. 
 
 The present combination has vast capitalization and assets. The corporations 
 of the plan will have large capitalization and assets. Whether that is an obior- 
 tion should be considered. 
 
 The Supreme Court did not condemn the combination on account of the 
 great amount of property which it had acquired. Indeed, it must now be ac- 
 cepted that magnitude of business in and of itself does not constitute unlawful 
 monopoly, at least up to the point where economy of production and manage- 
 ment are thereby promoted. There must be something more— some unlawful 
 or oppressive act or purpose in acquiring the business or after its acquisition— 
 to come within the condemnation of the statute. But it can not be denied that 
 there is an enormous inherent and collateral power incident to the holding 
 by a single corporation of vast assets which no group of individuals although 
 having similar possessions could obtain. There is such" a potentiality of monopo- 
 lization that a court in striving to bring about a condition in harmony with the 
 law should hesitate to approve the existence of a producing corporation hav- 
 ing vast assets not necessary for the work of production. Consequently when 
 it appeared in the formulation of this plan that the American Tobacco Co. 
 was to receive from the other corporations over a hundred million dollars in 
 cash and securities which it was required to hold to meet its indebtedness, but 
 which it did not need in its business, the plan, notwithstanding many valuable 
 features, seemed unacceptable. But, meeting the objections of the Attorney 
 General, a way was found, as shown in the plan, of appropriating those funds 
 to the payment of debts so that the readjusted American Co. — still the largest 
 of all — will possess some one hundred millions of property — mostly working 
 assets and brand values — as compared with the three hundred millions it for- 
 merly held. In view of modern commercial conditions, I think that the court 
 should make no objection to the mere size of the corporations of the plan. 
 
 Taking up the question, then, whether the plan gives effect to the statute, 
 the answer, as we have seen, depends upon whether it remedies the "conditions 
 found to violate the statute, and it is necessary to turn to the decision of the 
 Supreme Court to find out those conditions. 
 
 Without examining the decision in detail, it is sufficient here to say that the 
 court found broadly the combination to be in restraint of trade within the 
 first section, and an attempt to monopolize and a monopolization within the 
 second section, of the statute. In particular the court found among the bases 
 for its conclusions (a) covenants of vendors and others binding themselves 
 for long periods not to compete with the combination; (6) the absorption of 
 the control of corporations supplying the elements essential to the manufacture 
 of tobacco products and other corporate stock holding; (c) the existence of 
 controlling "power In the hands of the few"; (d) the obtaining of control 
 of the tobacco trade by wrongful and oppressive acts, agreements, and arrange- 
 ments. 
 
 Obviously the evil of restrictive covenants must be met by the termination 
 of such covenants, and that is accomplished by. the plan. It provides for 
 the abrogation of all covenants made by vendor corporations, partnerships, 
 or individuals not to engage in the tobacco business and for the termination of 
 foreign restrictive covenants. 
 
 The evil of controlling the production of the elements essential to tobacco 
 manufacture must be met by requiring the tobacco manufacturing corporations 
 to be disconnected from the production of such elements. This seems to be 
 fairly accomplished by the plan. The shares held by the combination in the 
 
300 HEARINGS BEFORE 
 
 corporation manufacturing tin foil and the voting shares held in the corporation 
 manufacturing licorice are to be distributed. When that is done none of the 
 tobacco manufacturing companies of the plan will have any legal domination 
 over the production of those essentials. So the evil of corporate stock holding 
 is met by divesting the American Co. of any interest in the snuff business, in the 
 •retail cigar business, and of its shares in other important corporations. 
 
 The evils pointed out by the Supreme Court growing out of the existence of 
 power in the hands of a "few to control the combination must be met by the 
 destruction of such power. This power had its basis in the holding of a major- 
 ity of the voting shares of the American Co. by the individual defendants in 
 this suit. It is proposed to destroy this power by giving the preferred stock of 
 the American Co., which has heretofore had no voting rights, full voting 
 power, by creating voting rights in the preferred shares of other corporations 
 and by so distributing shares that, in the language of the petition: 
 
 " No small group of men, nor even the twenty-nine individual defendants in 
 the aggregate, will own the control of any of the principal, accessory or sub- 
 sidiary companies defendant, and the control of tbe American Tobacco Company 
 itself "and of the new companies to be formed will be vested in a body of more 
 than six thousand stockholders." 
 
 In addition to these provisions this court, at the instance of the Attorney 
 General, will guard against the acquisition by the defendants of control in the 
 future by enjoining them from increasing their aggregate share holdings. 
 
 With this additional provision I think the requirement that power of control 
 be taken out of the hands of the individual defendants sufficiently met. It is 
 true that while shorn of legal control they will own substantial minority inter- 
 ests in the different corporations, and that in the practical workings of the 
 affairs of a corporation a minority interest, through the inaction of the majority, 
 may often control it. But the control of a corporation lies in the majority of its 
 shares, and if we see that the legal control of these corporations is placed in 
 other hands than those of the defendants. I think that we go far enough. In my 
 opinion we are not called upon to guard against the possible failure of the major- 
 ity to exercise its power. 
 
 The next inquiry is whether the plan fairly meets the evil of obtaining control 
 of the tobacco trade by oppressive tactics as well as the broad conclusion of 
 illegality. And my opinion is that it does in case, but only in case, the state of 
 monopoly found to exist is ended by a division of business and a state of reason- 
 ably competitive conditions established. 
 
 This is the state of monopoly which now exists: The American Co., either 
 directly or through its ownership of stock in other corporations, controls the 
 manufacture of 75 per cent of the smoking tobacco manufactured in the 
 United States; 80 per cent of the plug tobacco; 79 per cent of the fine cut; 80 
 per cent of the cigarettes ; 13 per cent of the cigars ; 90 per cent of the snuff ; 
 and 93 per cent of the little cigars. 
 
 Broadly speaking, the proposed plan of disintegration is to divide the tobacco 
 business among four corporations, no one of which is to have a controlling 
 interest therein. When the disintegration is accomplished the business will be 
 so distributed that no company will have substantially over 40 per cent in volume 
 or value of any particular line. Furthermore, I am satisfied that there is to be a 
 fair distribution of brands as well as of business. 
 
 Without examining the details of the plan, it is enough to say that careful 
 study of it has convinced me that in so far as the distribution of business is con- 
 cerned, sufficient has been done to end the state of monopoly and to establish 
 reasonable competitive conditions. If practicable, it might have been more 
 desirable to divide the business into a greater number of parts. But as the plan 
 stands it can not, in my opinion, be said that any one of the corporations will 
 have such preponderating influence in the tobacco industry as to give it power 
 to control the market either as manufacturer, seller, or purchaser. The possi- 
 bility of future acts of oppression is to be guarded against by a comprehensive 
 injunction. 
 
 This brings us to the final question, which is whether the fact of common- 
 stock holding is a material objection to the plan. 
 
 Obviously common ownership in the shares of the various corporations can 
 not well be avoided. Each stockholder of the American Co. has an undi- 
 vided interest in its property remaining after tbe payment of its debts. When 
 its assets are distributed among stockholders, each is entitled to his propor- 
 tionate share. When such distribution takes the shape of corporate shares, 
 the necessary result is a common ownership of stock in different corporations. 
 
COMMITTEE ON INTERSTATE COMMERCE. 301 
 
 I am not convinced that in the absence of statutory authority any division by 
 valuation and allotment could be effected, and if legally possible it is evident 
 that the complicated conditions which would necessarily arise in carrying it 
 out would render it impracticable within the time prescribed by the Supreme 
 Court for the disintegration of this combination. 
 
 The objection to mutual stock holding is not that competition is eliminated 
 in principle. Potential competition necessarily exists. The same conditions 
 do not continue indefinitely. Stockholders die and estates are divided. Differ- 
 ences of opinion upon values lead to sales and exchanges. Potential competition 
 with an open market must fairly end in real competition. But the objection is 
 to present and not future conditions, and from an economic point of view I 
 have always thought it entitled to serious consideration. Manifest difficulties 
 must attend the establishment of real competition between different corpora- 
 tions having the same body of stockholders. In the case of small corporations 
 having few stockholders who directly participate in their management they 
 would be perhaps insuperable. They would decrease in proportion to the 
 Increase in the size of the corporations and the separation of the stockholders 
 from the active management of their affairs until, as I view it, in the case 
 of the disintegration of a corporation having vast assets and a very large 
 number of scattered stockholders they would be so minimized as hardly to 
 warrant consideration even from an economic standpoint. 
 
 That which has made me pause in the present case is the concentrated com- 
 mon-stock holding of the individual defendants, but after careful consideration 
 I have reached the conclusion that the objection should not operate to prevent 
 the acceptance of the plan, but should call for most rigorous measures of 
 injunctive relief to keep the various corporations apart, independent and free 
 from connections or arrangements to prevent competition. In reaching this 
 conclusion I am influenced by the proposition stated at the outset, that we 
 should take care that we do not by seeking the ideal reject the practicable and 
 put in peril innocent property interests, and I am controlled, as I view it, by 
 the decisions of the Supreme Court in the Northern Securities and Standard 
 Oil cases. It is impossible for me to read those decisions without being con- 
 vinced that the Supreme Court in remanding this case to us did not intend 
 that we should reject a plan upon the ground of pro rata distribution. I am 
 also influenced, if not controlled, by the position taken by the Attorney Gen- 
 eral, the representative of the party plaintiff in the cause. 
 
 So taking the plan as a whole, with the essential measure of injunctive re- 
 lief proposed by the Attorney General, I think that it meets the principal evils 
 pointed out in the opinion of the Supreme Court ; that it brings about a con- 
 dition fairly in harmony with the law, and that it is the duty of this court 
 to approve it as the best solution possible under all the circumstances of a very 
 difficult practical problem. . ... 
 
 In conclusion : The extent to which it has been necessary to tear apart this 
 combination and force it into new forms, with the attendant burdens, ought 
 to demonstrate that the Federal antitrust statute is a drastic "^tate wtach 
 accomplishes effective results; which, so long as it stands on the statute books 
 must be obeyed, and which can not be disobeyed without incurring far-reach- 
 tag penalties And, on the other hand, the successful reconstruction of this 
 orlanization should teach that the effect of enforcing this statute against 
 tadnstifal combinations is not to destroy, but to reconstruct ; not to demolish, 
 but to re-create in accordance with the conditions which the Congress has de- 
 clared shall exist among the people of the United States. 
 
 Tconcur in the opinion of Judge Lacombe, and fully approve his deposition 
 of the subjects not considered in this opinion. 
 
 In the Circuit Court of the United States for the southern district of Xew York. 
 
 The United States of America, plaintiff, against The American Tobacco Com- 
 pany and others, defendants." 
 
 DECREE. 
 
 Appeals having been taken by the plaintiff and certain defendants in this 
 cause from the decree entered by this court on the 15th day of December 1908, 
 the Supreme Court of the United States reversed said decree and issued its 
 manlate nTed herein on the 30th day of June, 1911, by which the said cause 
 was remanded to this court with directions to enter a decree in conformity 
 
302 HEARINGS BEFOKE 
 
 with the opinion of the Supreme Court of the United States, and. to take such 
 further steps as might be necessary to fully carry out said directions. By the 
 said opinion of the Supreme Court of the United States this court was directed 
 to " hear the parties by evidence or otherwise as it may deem proper, for the 
 purpose of ascertaining and determining upon some plan or method of dissolv- 
 ing the combination, and of re-creating out of the elements now composing it 
 a new condition which shall be honestly in harmony with, and not repugnant 
 to, the law, but without unnecessary injury to the public or the rights of 
 private property." And this cause having come on to be finally heard pur- 
 suant to the order or decree of this court, made and entered herein on August 
 3, 1911, on the mandate of the Supreme Court of the United States as afore- 
 said, the American Tobacco Co. and the other defendants herein (except 
 United Cigar Stores Co., the Imperial Tobacco Co. (of Great Britain and 
 Ireland (Ltd.), and R. P. Richardson, Jr., & Co., Inc.), filed in this court 
 on October 16, 1911, a petition proposing and embodying a plan or method of 
 dissolving the combination, and of. re-creating out of the elements now com- 
 posing it a new condition in harmony with, and not repugnant to, the law. 
 Due notice was given to the parties hereto that the hearing on the said peti- 
 tion would be had on October 30, 1911, in room 124 of the Federal Building, 
 in New York City; and thereafter, to wit, on the 19th day of October, 1911, 
 the Imperial Tobacco Co. (of Great Britain and Ireland, Ltd.) filed a petition. 
 
 At the time and place aforesaid, the plaintiff filed answers to the said peti- 
 tions, embodying proposed modifications of and additions to the plan proposed 
 in said petition of the American Tobacco Co. and other defendants. The parties 
 having been heard by counsel, and certain of the modifications of said plan in- 
 cluded in the answer of the plaintiff not being opposed by the proponents of 
 said plan, and others of said modifications included in said answer having been 
 disposed of by this court in its opinions delivered after said hearing ; 
 
 Now, it is ordered, adjudged, and decreed, that all the defendants — except 
 Welford C. Reed, who died before the final hearing — heretofore became parties 
 to and engaged in the combination assailed in the pleadings, which " in and of 
 itself, as well as each and all of the elements composing it, whether corporate 
 or individual, whether considered collectively or separately," is " in restraint of 
 trade and an attempt to monopolize, and a monopolization within the first and 
 second sections of the antitrust act," and which should be dissolved and a new 
 condition brought about in harmony with and not repugnant to the law, either 
 as a consequence of the action of this court in determining an issue or in accept- 
 ing a^plan agreed upon. 
 
 And it is further ordered, adjudged, and decreed, that said plan as modified 
 by the consent of the parties, or through the action of this court as aforesaid, 
 is as follows, to wit: 
 
 A. 
 
 DISSOLUTION OF AMSTERDAM SUPPLY CO. 
 
 Amsterdam Supply Co. is a company engaged in the business of purchasing 
 for a commission or brokerage, supplies, other than leaf tobacco, its principal 
 customers being defendant corporations herein. It has $235,000 at par of 
 stock, all held in varying amounts by certain corporation defendants, one or 
 the other of your petitioners, and a surplus of $127,058.74. 
 
 It is proposed that Amsterdam Supply Co. be dissolved, converting its assets 
 into cash and distributing them to its stockholders. 
 
 B. 
 
 ABROGATION OF FOREIGN RESTRICTIVE COVENANTS. 
 
 Undei the contracts of September 27, 1902, the Imperial Tobacco Co. (of 
 Great Britain and Ireland, Ltd.) and certain of its directors agreed not to 
 engage in the business of manufacturing or selling tobacco in the United States , 
 the American Tobacco Co. and American Cigar Co. and certain of their directors 
 agreed not to engage in the business of manufacturing or selling tobacco in 
 Great Britain and Ireland ; and the American Tobacco Co., American Cigar Co., 
 and the Imperial Tobacco Co. agreed not to engage in the business of manufac- 
 turing or selling tobacco in countries other than Great Britain and Ireland and 
 the United States. Under the provisions of these contracts British-American 
 Tobacco Co. (Ltd.) was organized and took over the export businesses of the 
 
COMMITTEE ON INTERSTATE COMMEECE. 303 
 
 American Tobacco Co., and the Imperial Tobacco Co., with factories, materials 
 ana supplies. ' 
 
 It is proposed that the covenants herein just described, as well as all covenants 
 restricting the right of any company or individual in the combination to buv 
 manufacture, or sell tobacco or its products, be rescinded by the affirmative 
 action of the respective parties thereto who are parties to this suit, except such 
 ?Lo co . v( : nants > whether or not contained in the contracts of September 27 
 J?T u S A a) re'ate wholly to business in foreign countries and are covenants 
 the benefit whereof has been assigned or transferred to other parties- or (&i 
 are covenants exclusively between foreign corporations and relating wholly to- 
 business in or between foreign countries ; and that the said contracts of Sep- 
 tember 2i, 1902, be altogether terminated so far as they impose any obligations 
 upon any of the parties thereto to furnish or to refrain from furnishing manu- 
 factured tobaccos to any party, each company to treat as its own, but only to 
 the extent provided for in said contracts, all brands and trade-marks which by 
 said contracts it was given the right to manufacture and sell, the said rights 
 having been perpetual and constituting in effect a conveyance of the brands and 
 trade-marks used for the countries in which they were so used by each of s'lid 
 companies as aforesaid. 
 
 C. 
 
 ABROGATION OF DOMESTIC BESTEICTIVB COVENANTS. 
 
 It is proposed that covenants given by vendor corporations, partnerships, or 
 individuals, or by stockholders of vendor corporations, to vendee corporations 
 defendants herein, not to engage in the tobacco business or any other business 
 in any way embraced in the combination, be terminated so that all such cove- 
 nanters shall be at liberty to engage in the business of buying, manufacturing, 
 and dealing in tobacco and its products just as if such covenants had not been 
 made. 
 
 D. 
 
 DISINTEGRATION OF ACCESSORY COMPANIES. 
 
 (1) The Conley Foil Co.— The Conley Foil Co. has a capital stock of $825,000 
 at par, all of one class, of which the American Tobacco Co. owns $495,000 at 
 par, the balance being held by persons not defendants nor connected with defend- 
 ants. It is engaged in the business of manufacturing tin foil, a product used 
 largely by tobacco maufacturers, but having other uses as well. The Conley 
 Foil Co. has a plant in New York City, and it owns all the stock and bonds of 
 the Johnston Tin Foil & Metal Co., which has a plant in St. Louis. The value 
 of the output for the year 1910 of the Conley Foil Co. was $1,780,526.85, with a 
 net profit of $273,299.82, and the Johnston Tin Foil & Metal Co. had an output 
 for the year 1910 of the value of $676,520.05 and net profits of $66,255.16. On 
 December 31, 1910, the Conley Foil Co. had tangible assets (excluding its securi- 
 ties of the Johnston Tin Foil & Metal Co. ) of $1,215,321, and the Johnston Tin 
 Foil & Metal Co. had assets of the value of $379,802.11. The Conley Foil Co. 
 has a surplus exceeding the value of the securities of the Johnston Tin Foil & 
 Metal Co. 
 
 It is proposed that the Conley Foil Co. cancel the bonds of the Johnston Tin 
 Foil & Metal Co. held by it, to wit, $100,000 par value, and distribute to its 
 stockholders its holdings of stock of the Johnston Tin Foil & Metal Co., to wit, 
 3,000 shares, all of one class. 
 
 The American Tobacco Co., being a stockholder of the Conley Foil Co., will 
 participate in this distribution, and will in turn distribute its dividend, as well 
 as its stock in the Conley Foil Co., to its common-stock holders as hereinafter set 
 forth. 
 
 (2) MacAndrews & Forbes Co. — MacAndrews & Forbes Co. is a company 
 having a common capital stock of $3,000,000 at par, of which the American 
 Tobacco Co. owns $2,112,900 at par, the balance being held by persons not de- 
 fendants nor connected with defendants (except less than 3 J per cent of the 
 common stock held by R. J. Reynolds Tobacco Co.), and $3,758,300 at par of 
 6 per cent nonvoting preferred stock, of which the American Tobacco Co. holds 
 $750,000 at par, the balance being held by persons not defendants nor connected 
 with defendants. It is engaged in the production of licorice paste, with two 
 plants — one at Camden. N. J., and the other at Baltimore, Md. It had tangible 
 
 22S77— vol 1—12 20 
 
304 
 
 HEARINGS BEFORE 
 
 asssets, December 31, 1910, of the value of $5,683,824.89 (including $2,118,448.36 
 licorice root, with plants for its collection in foreign countries), and its sales 
 for the year 1910 were of the value of $4,427,023.44. MacAndrews & Forbes 
 Co. succeeded to the business of MacAndfrews & Forbes, a partnership, who 
 were pioneers in this country in the production' of licorice paste, and who had, 
 for many years before any acquisitions of other business and before they 
 had any connection with the other defendants herein, more tban 50 per cent 
 of all the licorice-paste business of the United States. 
 
 It is proposed that ,i new corporation be organized, called the J. S. Young 
 Co., and that it shall acquire the Baltimore plant of MacAndrews & Forbes 
 Co., with the assets used therein and in connection therewith, of a total value 
 of $1,000,000, and the brands of licorice paste manufactured in said Baltimore 
 plant ; that it issue in payment therefor, with the good will connected there- 
 with, $1,000,000 at par of 7 per cent preferred nonvoting stock and $1,000,000 
 at par of common stock; that MacAndrews & Forbes Co. distribute the com- 
 mon stock of the J. S. Young Co. as a dividend to its common-stock holders, 
 charging the amount thereof to its surplus account; that MacAndrews & Forbes 
 Co. offer to its preferred-stock holders proportionately to exchange the 7 per- 
 cent preferred stock of the J. S. Young Co. at par for their preferred stock of 
 MacAndrews & Forbes Co. ; that so far as the preferred stock of MacAndrews 
 & Forbes Co. is thus exchanged, it be retired ; that so far as this preferred 
 stock of the J. S. Young Co. is not forthwith thus exchanged, MacAndrews & 
 Forbes Co. be enjoined from using it to exercise, or otherwise exercising or 
 attempting to exercise, influence or control over the J. S. Young Co. ; and with 
 the further provision that on or before January 1, 1915, the whole of this pre- 
 ferred stock of the J. S. Young Co., not theretofore taken out of the treasury 
 of MacAndrews & Forbes Co. by exchange as aforesaid, be disposed of by Mac- 
 Andrews & Forbes Co. 
 
 This would give to MacAndrews & P'orbes Co. a licorice business, including 
 Spanish licorice and powdered goods, of the net selling value, based upon the 
 year 1910. of $2,514,184.64, of which $2,214,127.51 arise from sales of one brand, 
 to wit, the old "Ship'' brand. The J. S. Young Co., upon the basis of the 
 business for the year 1910, would have an output of the net selling value of 
 $1,201,109.86. 
 
 The American Tobacco Co., being a holder of the common stock of MacAndrews 
 & Forbes Co., will participate in the distribution above provided and will in 
 turn distribute its dividend, as well as its stock in MacAndrews & Forbes Co., 
 to its common-stock holders as hereinafter set forth. 
 
 (3) American Snuff Co. — American Snuff Co. is a manufacturer of snuff. It 
 holds all of the stock of De Yoe Snuff Co., to wit, $50,000 at par ; and one-half, 
 lo wit. $26,000 at par, of the stock of National Snuff Co. It owns no other 
 interest in any company manufacturing or selling snuff. 
 
 It is proposed that there be organized two new snuff companies, one to be 
 called the George W. Helme Co. and the other Weyman-Bruton Co., and that 
 American Snuff Co. convey to these two companies, respectively, factories, with 
 the brands manufactured in them, as follows: To the George W. Helme Co. the 
 factories at Helmetta, N. J., and Yorklyn, Del., except factory No. 5; to Wey- 
 man-Bruton Co. the factories at Chicago and Nashville, also all the stock of De 
 Yoe Snuff Co., and the one-half of the stock of National Snuff Co. held by 
 American Snuff Co. Based upon the business for the year 1910 and the assets 
 at the end of the year, with proper provision for leaf, materials, cash and book 
 accounts for the two vendee companies, this would leave the three companies 
 equipped as follows: 
 
 Manufacturing tangible assets. 
 
 American Snuff Co ' $5, 075, 009. 72 
 
 George W. Helme Co 4,909,000.40 
 
 Weyman-Bruton Co 3, 691, 5S8. 20 
 
 Hales value during 1910. 
 
 American Snuff Co $5,520,422.15 
 
 George W. Helme Co 4,494,556.66 
 
 Weyman-Bruton Co 4,297,486.71 
 
COMMITTEE ON INTLUSTATE COMMERCE. 305 
 
 Net income. 
 
 American Snuff Co * $1,591, 280. 49 
 
 George \V. Helme Co 1, 259, 280. 9S 
 
 Weyman-Bruton Co 1, 293, 759. 39 
 
 Each of these vendee corporations will pay for the property and business con- 
 veyed to it by the issue of $4,000,000 at par of 7 per cent voting preferred stock 
 and $4,000,000 at pur of common stock. American Snuff Co. will thus receive 
 the $16,000,000 at par of these stocks into its treasury, and will distribute to its 
 common-stock holders, as a dividend, the common stock aggregating $8,000,000, 
 to be charged to its surplus account. American Suuff Co. will offer to its pre- 
 ferred-stock holders proportionately to exchange these 7 per cent preferred stocks 
 of the George W. Helme Co. and the Weyman-Bruton Co. for their preferred 
 stock of American Snuff Co. at par. So much of the preferred stock of Ameri- 
 can Snuff Co. as is thus exchanged will be retired. As to so much of the pre- 
 ferred stocks of the George W. Helme Co. and the Weyman-Bruton Co. as is 
 not forthwith thus exchanged, American Snuff Co. to be enjoined from voting it, 
 or using it to exercise, or otherwise exercising or attempting to exercise, in- 
 fluence, or control over the George W. Helme Co. or the Weyman-Bruton Co. ; 
 and on or before January 1, 1915, all of these preferred stocks of the George 
 W. I-Ielme Co. and the Weyman-Bruton Co. not theretofore taken out of the 
 treasury of American Snuff Co. by exchange as aforesaid to be disposed of by 
 American Snuff Co. 
 
 The American Tobacco Co., being a holder of the common stock of American 
 Snuff Co., will participate in the distribution above provided, and will, in turn, 
 distribute its dividends as well as its stock in American Snuff Co., including that 
 to be acquired from P. Lorillard Co., to its common-stock holders as hereinafter 
 set forth. 
 
 (4) American Stogie Co. — American Stogie Co. is a corporation whose only 
 asset is all of the issued stock of Union-American Cigar Co., which latter com- 
 pany has cigar factories located at Pittsburgh. Allegheny, Lancaster, and New- 
 ark. Its total production, based upon business for the year 1910, is only 1.5S 
 per cent of the entire production of cigars in the TJnited States in volume, and. 
 as these petitioners believe, about the same percentage in value. American 
 Stogie Co. has $976,000 at par of 7 per cent cumulative preferred stock, of 
 which American' Cigar Co. owns $40,000 at par. and none of the other defendants 
 own any; it has $10,879,000 at par of common stock, of which American Cigar 
 Co. owns $7,303,775 at par, and none of the other defendants own any. There 
 are accumulated and unpaid dividends on the preferred stock to the amount 
 of $399,000 as of December 31, 1910. 
 
 It is proposed that American Stogie Co. dissolve, with leave granted to the 
 trustees in dissolution to either convert, the assets into cash, and distribute them 
 among the stockholders according to their rights, or to effect such reorganization 
 as they may be able to effect, provided that in either event there shall be a 
 separation into at least two different ownerships of the factories and businesses 
 now owned and operated by Union-American Cigar Co. If the dissolution is 
 
 receives upon „..— , 
 
 will distribute such as a dividend to its common-stock holders, to be charged to 
 its surplus as hereinafter set forth. 
 
 (5) American Cigar Co.— American Cigar Co. is a manufacturer of cigars 
 It has various factories of its own, and it owns all or a part of the stock of 
 several companies engaged in the manufacture of cigars, all of which com- 
 panies have been organized by it and which have received from it convey- 
 ances of part of its business, operating in this way as separate corporations 
 for trade purposes. Among these companies is Federal Ci gar Co. 
 
 i American~Snuff Co. holds securities not connected with the snuff business, to wit : 
 Stock Ind bonds of the American Tobacco Co., preferred stock of American Cigar Co 
 i^^LoH™ in hook value iS2 530 216.69, upon which American Snuff Co. received in in- 
 tefes*t g fnd dividends during the year 1910, "$176,680. It is proposed that American Snuff 
 
 which will be dissolved and liquidated. 
 
306 HEARINGS BEFORE 
 
 American Cigar Co. also owns a part of the stock of Havana Tobacco Co.. 
 which controls factories manufacturing cigars in Havana ; and a part of the 
 stock of Porto Rican-American Tobacco Co., engaged in the manufacture of 
 cigars and cigarettes in Porto Rico ; and half of the stock of Porto Rican Leaf 
 Tobacco Co., engaged in growing tobacco in Porto Rico. American Cigar Co. 
 itself uses large quantities of Porto-Rican grown leaf. Neither American 
 Cigar Co. nor any of the companies in which it is interested, except Havana 
 Tobacco Co. and Porto Rican-American Tobacco Co., is engaged in the manufac- 
 ture of cigars outside of the United States. 
 
 American Cigar Co., including with its production the production of com- 
 panies of which it owns in whole or in part the stock, has, in volume, based 
 on the business for the year 1910, 13.36 per cent of the cigar business of the 
 United States, and in value, as your petitioners believe, substantially the same 
 percentage. Havana Tobacco Co. has, directly or indirectly, control of 24.06 
 per cent of the total production of cigars in Cuba, 46 per ceut of the total 
 exportation of cigars from Cuba to all countries of the world, including the 
 United States, and 38.15 per cent of the total exportation of cigars from Cuba 
 to the United States. 
 
 It is proposed that American Cigar Co. dispose of properties belonging to 
 it, and thus disintegrate its business, as follows: 
 
 (a) That it sell to the American Tobacco Co. for cash its stock, being all 
 thereof, of Federal Cigar Co., at a fair price, to wit., $3,965,616.05. 
 
 (6) That it sell to the American Tobacco Co. for cash the stock it owns of 
 Porto Rican-American Tobacco Co., to wit., $657,600 at par, at a fair price, 
 to wit., $350 per share, or $2,301,600. 
 
 (c) That American Cigar Co. dispose of any interest in American Stogie 
 Co. by receiving cash proceeds of its stock in dissolution thereof, if American 
 Stogie Co. upon dissolution converts its assets into cash ; or by distributing 
 as a dividend to its common-stock holders out of its surplus the securities which 
 it receives upon the dissolution of American Stogie Co., if it receives such. 
 
 All stocks thus to be acquired by the American Tobacco Co. from American 
 Cigar Co. are to be disposed of by the American Tobacco Co. as hereinafter 
 set out. 
 
 E. 
 
 DISTHIBUTION BY THE AMERICAN TOBACCO CO. OF STOCKS OWNED OR TO BE ACQUIBE1) 
 
 BY IT. 
 
 (1) Immediate distribution, of stocks. — The American Tobacco Co. will buy 
 from P. Lorillard Co., for cash at par, the 11,247 shares of the preferred stock 
 of American Snuff Co. held by P. Lorillard Co., and will receive, as the sole 
 common-stock holder of P. Lorillard Co. and by way of dividends, 34,594 shares 
 of the common stock of American Snuff Co. held by P. Lorillard Co. 
 
 The American Tobacco Co. will distribute among its common-stock holders by 
 way of dividends, and to be charged to its surplus, all of its securities of the 
 following-described classes, whether now owned by it or bought by it from 
 American Cigar Co., as hereinbefore set forth, or bought by it from P. Lorillard 
 Co., as just hereinbefore set forth, or received by it by way of dividends from 
 any of the accessory companies defendant, as hereinbefore set forth, to wit: 
 American Snuff Co. common stock ; American Snuff Co. preferred stock ; George 
 W. Helme Co. common stock ; Weyman-Brnton Co. common stock ; MacAndrewb 
 & Forbes Co. common stock ; J. S. Young Co. common stock ; the Conley Foil Co. 
 stock; the Johnston Tin Foil & Metal Co. stock; R. J. Reynolds Tobacco Co. 
 stock ; Corporation of United Cigar Stores stock ; British-American Tobacco Co. 
 (Ltd.), ordinary shares; Porto Rican-American Tobacco Co. stock; American 
 Stogie Co. stock (or what is received by way of dividends from American Cigar 
 Co. upon dissolution of American Stogie Co.). 
 
 Including the amount to be paid to American Cigar Co. and P. Lorillard Co. 
 for such of these securities as are to be acquired by the American Tobacco Co. 
 from them, respectively, and excluding those to be acquired by way of dividends, 
 and which therefore do not affect the surplus of the American Tobacco Co., 
 never having been set up on its books, these securities had a book value as of 
 December 31, 1910, of $35,011,865.03. The earning capacity of all the above 
 securities thus to be distributed, based upon the results of the year 1910, is 
 $9,860,410.76, though not all thereof was distributed as dividends. 
 
 (2) Deferred disposition of stocks. — The American Tobacco Co. will sell oi 
 otherwise dispose of, or distribute by way of dividends to its common-stock 
 
COMMITTEE ON INTERSTATE COMMERCE. 307 
 
 holders out of its surplus at the time existing, before January 1, 1915, all of 
 its holdings of the following securities: British-American Tobacco Co. (Ltd.) 
 nonvoting preference shares; the Imperial Tobacco Co. (of Great Britain and 
 Ireland (Ltd.) ordinary shares; Corporation of United Cigar Stores bonds; 
 MacAndrews & Forbes Co. nonvoting preferred stock. 
 
 During the time these securities are left in the treasury of the American 
 Tobacco Co. the American Tobacco Co. to be enjoined from voting any thereof 
 that under the terms thereof might be voted, or using any thereof to exercise, or 
 otherwise exercising or attempting to exercise, influence or control over the 
 said companies which issued the said securities, respectively, and from gaining 
 possession of any of the said companies by buying in at a foreclosure had 
 under any of the securities for any default with respect thereto or otherwise. 
 
 SALE BY THE AMERICAN TOBACCO CO. OF MANUFACTURING ASSETS AND BUSINESS TO 
 COMPANIES TO BE FORMED. 
 
 (1) There will be organized a new corporation called Liggett & Myers Tobacco 
 Co. and a new corporation called P. Lorillard Co., and the American Tobacco 
 Co. will sell, assign, and convey to these two companies factories, plants, 
 brands, and businesses and capital stocks of tobacco-manufacturing corpora- 
 tions, as follows: 
 
 TO LIGGETT <& MYERS TOBACCO CO. 
 
 Liggett & Myers branch of the American Tobacco Co., engaged in the manu- 
 facture of plug tobacco at St. Louis, with the brands connected therewith. 
 
 Spaulding & Merrick, a company of which the American Tobacco Co. owns 
 and has always owned all the stock, engaged in Chicago in the manufacture 
 of fine-cut tobacco and smoking tobacco. 
 
 Allen & Ginter branch of the American Tobacco Co., engaged in the manu- 
 facture of cigarettes, at Richmond, Va., and the brands connected therewith (this 
 does not include the brand " Sweet Caporal," made partly there and partly at 
 New York). 
 
 Chicago branch of the American Tobacco Co., a factory at Chicago engaged 
 in the manufacture of smoking tobacco, with the brands connected therewith. 
 
 Catlin branch of the American Tobacco Co., a factory at St. Louis engaged 
 in the manufacture of smoking tobacco, with the brands connected therewith. 
 
 Xall & Williams Tobacco Co., a company of which the American Tobacco 
 Co. owns all the stock, engaged in the manufacture of plug and smoking tobacco 
 at Louisville, Ky. 
 
 The John Bollman Co., a company engaged in the manufacture of cigarettes 
 at San Francisco; of this corporation the American Tobacco Co. owns 90 per 
 cent of the stock, which it is proposed to turn over to the Liggett & Myers 
 Tobacco Co. 
 
 Pinkerton Tobacco Co., a corporation engaged in the manufacture of scrap 
 tobacco (a kind of smoking tobacco) at Toledo, Ohio; of this corporation the 
 American Tobacco Co. owns 77§ per cent of the stock, which it is proposed to 
 turn over to the Liggett & Myers Tobacco Co. 
 
 W. It. Irby branch of the American Tobacco Co., at New Orleans, engaged in 
 the manufacture of cigarettes and smoking tobacco, the principal brands being 
 " Home Run "' and " King Bee." 
 
 The Duke-Durham branch of the American Tobacco Co.. engaged in the manu- 
 facture of cigarettes and smoking tobacco at Durham, N. C. ; principal cigarette 
 brands, " Piedmont " and "American Beauty " ; principal smoking tobacco brand, 
 '• Duke's Mixture." 
 
 Two little cigar factories located, the one at Philadelphia and the other at 
 Baltimore, branches of the American Tobacco Co.; principal brand, "Recruits." 
 
 TO P. LORILLARD CO. 
 
 All the rights of the American Tobacco Co. in the present P. Lorillard Co., 
 to wit: All the common stock and $1,596,100 at par out of a total issue of 
 $2,000,000 of S per cent preferred stock; it is contemplated that as a part 
 of these reorganizations the Lorillard Co., as at present constituted, be wound 
 up and the new company be organized, taking over assets of the P. Lorillard Co, 
 
308 
 
 HEABINGS BEFOEE 
 
 S. Anargyros, a company enagged in the manufacture of cigarettes, in which 
 the American Tobacco Co. owns all the stock, and of which it has always 
 owned all the stock. 
 
 Luhrnmn & Wilbern Tobacco Co., a company engaged in the manufacture 
 of scrap tobacco (a kind of smoking tobacco), of which the American Tobacco 
 Co. owns and has for many years owned, all the stock. 
 
 Philadelphia branch B, at Philadelphia, Wilmington branch B, at Wilming- 
 ton, Penn Street branch at Brooklyn, Danville branch B, at Danville, and Ellis 
 branch B, at Baltimore, branches of the American Tobacco Co., manufacturing 
 little cigars, the principal brand being " Between the Acts." 
 
 Federal Cigar Co., a company all 'of whose stock is, and has always been, 
 owned by American Cigar Co., but which, as hereinbefore provided, is to be 
 purchased for cash by the American Tobacco Co. 
 
 Each of these conveyances to include proper and adequate storage houses, 
 leaf tobacco, and other materials and supplies, provision for book accounts, 
 including in each case a ratable proportion of the cash held by the American 
 Tobacco Co. on December 31, 1910, so that each of the new corporations will 
 be fully equipped for the conduct of the business of manufacturing and dealing 
 in tobacco. 
 
 (2) Resources and capitalization of companies and provisions for exchanging 
 and retiring securities of American Tobacco Go. — The American Tobacco Co. 
 has securities issued and outstanding as follows: 
 
 6 per cent bonds $52,882,650 
 
 4 per cent bonds (including outstanding 4 per cent bonds of Consolo- 
 
 dated Tobacco Co.) 51,354,100 
 
 6 per cent preferred stock 78,689,100 
 
 Common stock 40, 242, 400 
 
 The American Tobacco Co. in October, 1904, immediately after the merger, 
 had an outstanding issue of its own 4 per cent bonds and the Consolidated 
 Tobacco Co. 4 per cent bonds which it assumed, amounting to $78,689,100, but 
 it has purchased on the market and retired $27,335,000 at par of these 4 per cent 
 bonds, charging the amount thus expended to surplus. The 6 per cent bonds 
 and 4 per cent bonds aforesaid are what are ordinarily known as debenture 
 bonds, and are issued under a trust indenture which imposes a general charge 
 on the property, income, and earnings of the company in favor, first, of the 
 6 per cent bonds, and, second, of the 4 per cent bonds. The American Tobacco 
 Co., after the reduction of the surplus through the acquisition by it of 4 per 
 cent bonds as aforesaid, had on December 31, 1910, a surplus of $61,119,991.03, 
 which will be increased by the surplus earnings of the current year. The dis- 
 tribution of securities herein provided for to be forthwith made, would diminish 
 the said surplus by $35,011,865.03, the book vnlue of securities to be so dis- 
 tributed. This book value is less than actual value, but in view of the fact 
 that none of the assets of the American Tobacco Co. ;>re overvalued, the 
 advance of the book value of the securities to be distributed as hereinbefore 
 set forth to their actual value, would operate at the same time to increase 
 the surplus of the company, and so its surplus, after such distribution, would 
 remain just the same as though the advance to actual value had not been 
 made on the books of the company. 
 
 The properties to be conveyed to the Liggett & Myers Tobacco Co. and P. 
 Lorillard Co., based upon conditions as of December 31, 1910, the last completed 
 year, including in such conveyances the proper and proportionate storage 
 houses, leaf tobacco, supplies and materials, and cash, but without anything for 
 value of brands, trade-marks, formula?, recipes, and good will, but including 
 stocks of companies, are of the value of $30,607,261.96 to Liggett & Myers 
 Tobacco Co. and $28,091,748.86 to P. Lorillard Co. So far as these conditions 
 shall be changed before the day of the conveyance, any deficiency is to be made 
 good in cash, so that these two companies will have said amounts in tangible 
 assets as aforesaid, useful, and such as have been used, in the manufacture of 
 the brands to be conveyed to them, respectively, and cash. The American 
 Tobacco Co. will be left with tangible assets, including stocks of companies 
 employed in manufacturing tobacco and its products, cash and bills and accounts 
 receivable of the value of $53,408,498.94 as of December 31, 1910. The profits 
 earned during the year 1910 on the brands and businesses to be conveyed by 
 the American Tobacco Co. to Liggett & Myers Tobacco Co. amounted to 
 $7,468,172.02, and the profits on the brands and businesses to be conveyed by 
 the American Tobacco Co. to P. Lorillard Co. amounted to $5,264,729.38. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 309 
 
 It is proposed that the value of the brands, trade-marks, recipes, formula?, 
 and good will to be sold to each of these companies be determined by their 
 earning capacity, based upon the results for the year 1910, so that each shall 
 have an earning capacity of 11.02 per cent per annum upon Its total property, 
 including both tangible property and brand value and good will. Upon this 
 basis the consideration to be paid by the Liggett & Myers Tobacco Co. will be 
 ¥30,607,261.96, value of tangible assets as above stated, and $36,840,237.04, value 
 of brands, trade-marks, recipes, formula?, and good will, making a total of 
 $67,447,499 ; and the consideration to be paid by the P. Lorillard Co. will be 
 $28,091,748.86, value of tangible assets as above stated, and $19,460,752.14, value 
 of brands, trade-marks, recipes, formula?, and good will, making a total of 
 $47,552,501. The brands, trade-marks, recipes, formula?, and good will of the 
 American Tobacco Co. on December 31, 1910, were of the book value of 
 $101,324,964.07. The payments for brand value, etc., to the American Tobacco 
 Co. to be made by Liggett & Myers Tobacco Co. and P. Lorillard Co., as afore- 
 said, makes an aggregate of $56,300,989.18, and would thus leave the book value 
 of brands, trade-marks, recipes, formula?, and good will retained by the Ameri- 
 can Tobacco Co. at $45,023,974.89, which added to the $53,408,498.94 of tangi- 
 ble manufacturing assets to be retained by the American Tobacco Co., will 
 make the total book value of manufacturing property to be retained by that 
 company $98,432,473.83, upon which its earnings, based upon the results for 
 the year 1910, would be $11,369,809.82, or 11.55 per cent. 
 
 The Liggett & Myers Tobacco Co. and the P. Lorillard Co. would pay for 
 these conveyances, therefore, the aggregate as aforesaid, to wit : 
 
 Liggett & Myers Tobacco Co $67,447,499 
 
 P. Lorillard Co 47,552,501 
 
 Aggregating 115, 000, 000 
 
 or each with its earnings on the business for the year 1910 so capitalized that 
 said earnings represent 11.02 per cent upon the capital. 
 
 Liggett & Myers Tobacco Co. and P. Lorillard Co. will issue securities to 
 cover such capitalization in the aggregate as follows: To an amount equal to 
 one-half of the outstanding per cent bonds of the American Tobacco Co., 
 that is, $26,441,325 at par in 7 per cent bonds; to an amount equal to one-half 
 of the outstanding 4 per cent bonds of the American Tobacco Co., that is, 
 $25,677,050 at par in 5 per cent bonds ; to an amount equal to one-third of the 
 outstanding preferred stock of the American Tobacco Co., that is, $26,229,700 
 at par in 7 per cent cumulative voting preferred stock, which, upon liquidation 
 of the company, shall be paid at par with accrued unpaid dividends before 
 any amount shall be paid to common stock, with balance of assets distributable 
 ratably to the common stock, and the balance of said $115,000,000, that is, 
 $36 651 925 in common stock. The 7 per cent bonds and the 5 per cent bonds 
 to mature at the time fixed, respectively, for the maturity of the 6 per cent 
 bonds and the 4 per cent bonds of the American Tobacco Co. now outstanding 
 and to be issued under an indenture of substantially like tenor and terms with 
 the present indenture of the American Tobacco Co. under which its 6 per cent 
 bonds and 4 per cent bonds were issued. The 7 per cent bonds to have Priority 
 ^charge .over 'the 5 per cent bonds in the same way that the 6 per cent bonds 
 of tie American Tobacco Co. have priority of charge over the 4 per : cent bond p 
 Thus the capitalization of the Liggett & Myers Tobacco Co. and P. Lorillard 
 Co. will be as follows: 
 
 7 per cent bonds 
 
 5 per cent bonds 
 
 7 per cent preferred stock 
 Common stock 
 
 Total ' 
 
 Liggett & L orillard. 
 Myers. ; 
 
 Total. 
 
 $15,507,837 *10,933,488 ; S26,441,325 
 15 059,589 110,617,4611 25,677,0o0 
 15 383,719 ."10,845,981 j 26,229,700 
 
 21,496,354 
 
 67, 447, 499 
 
 15^ 155, 571 : 30,651,925 
 
 47,552,501 | 115,000,000 
 
 All of these securities of the Liggett & Myers Tobacco Co. and the P. Loril 
 lird Co to be turned over to the American Tobacco Co. m payment of the 
 purchase price for the factories, plants, brands, and businesses and capital 
 
310 HEAEINGS BEFOKE 
 
 stocks of tobacco manufacturing corporations so to be conveyed to Liggett & 
 Myers Tobacco Co. and P. Lorillard Co., respectively, as hereinbefore set out. 
 
 These securities will be disposed of by the American Tobacco Co. as follows : 
 
 The common stock will be offered for cash at par to the holders of the com- 
 mon stock of the American Tobacco Co. in proportion to their holdings, and any 
 not purchased by the person thus entitled thereto shall be sold to persons other 
 than the individual defendants, to the end that such offer of common stock of 
 the two new companies to the common-stock holders of the American Tobacco 
 Co. shall not be used by the individual defendants to increase their ownership 
 therein beyond the proportion of their holdings of the common stock of the 
 American Tobacco Co. 
 
 To each holder of the 6 per cent bonds of the American Tobacco Co. an offer 
 shall be made to acquire his bonds for cancellation and to give in exchange 
 therefor, as to one-half thereof, new 7 per cent bonds of Liggett & Myers To- 
 bacco Co. and P. Lorillard Co. at par, and in payment for the other half thereof 
 cash at the rate of $120 and accrued interest for each $100 face value of the 
 bonds. 
 
 To each holder of the 4 per cent bonds of the American Tobacco Co. an offer 
 shall be made to acquire his bonds for cancellation, and to give in exchange 
 therefor, as to one-half thereof, new 5 per cent bonds of, Liggett & Myers To- 
 bacco Co. and P. Lorillard Co. at par, and in payment for the other half 
 thereof cash at the rate of $96 and accrued interest for each $100 face value 
 of the bonds. 
 
 To each holder of the preferred stock of the American Tobacco Co. an offer 
 shall be made to acquire one-third of his stock for cancellation in exchange for 
 an equal amount at par of Liggett & Myers Tobacco Co. and P. Lorillard Co. 
 
 On account of the larger capitalization of the Liggett & Myers Tobacco Co., 
 as compared with the P. Lorillard Co., each class of the new securities will issue 
 in the proportion of 58.65 per cent thereof of Liggett & Myers Tobacco Co. 
 securities and 41.35 per cent thereof of P. Lorillard Co. securities. The stocks 
 will be issued in shares of $100, and coupon bonds in denominations of $1,000, 
 and registered bonds in larger denominations, and in denominations of $100 and 
 $50, and in actual issue fractions will be eliminated. 
 
 The common stocks of the two companies aforesaid are to be sold as above 
 set out prior to March 1, 1912, with three years to be allowed for the retirement 
 of the bonds and preferred stock of the American Tobacco Co., as above set out. 
 Pending such, the said 7 per cent bonds, 5 per cent bonds, and 7 per cent pre- 
 ferred stocks of the Liggett & Myers Tobacco Co. and the P. Lorillard Co., 
 together with an amount in cash, or in securities owned by the American To- 
 bacco Co., at their book value, or partly in cash and partly in such securities, 
 equal to the amounts required if all such sales and exchanges are made, will 
 be deposited with the Guaranty Trust Co. _ of New York, the trustee in the 
 indenture under which the 6 per cent bond's and the 4 per cent bonds of the 
 American Tobacco Co. are issued, as the agency to effect the purchase and ex- 
 change. Such deposit will be made, not to secure nor create a trust fund for 
 the bonds, but for« the purpose of sequestrating and taking from the control 
 of the American Tobacco Co. the securities and cash so deposited. During the 
 time of such deposit the securities shall be in the name of, as well as in the 
 custody of, said trust company, with any voting rights attaching thereto, but 
 the American Tobacco Co. shall receive from the trust company all dividends 
 aud interest collected by it on account of such securities; and the American 
 Tobacco Co. shall have the right at any time and from time to time to sell, 
 at such price as it may determine, and direct the delivery of any of such 
 securities (except the securities of Liggett & Myers Tobacco Co. and P. Loril- 
 lard Co.), the consideration therefor to go into the hands of said trust com : 
 pany; or to withdraw any of such securities (except the securities of Liggett 
 & Myers Tobacco Co. and P. Lorillard Co.) for the purpose of distribution 
 among its common-stock holders, if its surplus at the time permits; or to sub- 
 stitute other securities of like book value for the securities so deposited (except 
 as to the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.) ; or 
 to alter the relative proportion of cash and securities, it being the intent of this 
 provision that there shall be sequestrated from the control of the American 
 Tobacco Co. all the securities of the Liggett & Myers Tobacco Co. and P. Loril- 
 lard Co., and an additional amount of cash or other securities equal, upon the 
 purchase basis aforesaid, to the value of the 4 per cent bonds and the 6 per 
 cent bonds of the American Tobacco Co. at the time outstanding. At the end 
 of the three years, if there are any of such securities of the Liggett & Myers 
 
COMMITTEE ON INTERSTATE COMMEKCB. 31 1 
 
 Tobacco Co. or P. Lorillard Co. in the hands of such trust company undisposed 
 of by such exchange as aforesaid, then the American Tobacco Co. shall applv 
 to this court for an order as to the disposition thereof. Nothing contained in 
 this provision, and nothing done under this provision, shall be construed as pro- 
 viding for the creation of, or as creating, any lien or security on anything 
 deposited with the trust company in favor of the 6 per cent bonds or the 4 
 per cent bonds of the American Tobacco Co., outstanding or otherwise. 
 
 G. 
 
 VOTING RIGHTS TO PREFIGURED STOCK. 
 
 By proper amendment of the certificate of incorporation of the American 
 Tobacco Co. the preferred stock will be given full voting rights. 
 
 H. 
 
 CERTAIN INCIDENTAL PBOVISIONS. 
 
 (1) P. Lorillard Co. is a New Jersey company with $3,000,000 of common 
 stock, all of which is owned by the American Tobacco Co., and $2,000,000 of 8 
 per cent preferred stock. Of this preferred stock the American Tobacco Co. 
 holds $1,596,100 at par, and there is held by others $403,900 at par. Under the 
 laws of New Jersey the present P. Lorillard Co. may be dissolved by the 
 holders of two-thirds of the outstanding stock, and upon such dissolution the 
 preferred stock is entitled to be paid at par, the balance of the assets going to 
 the common stock. In view of the fact, however, that the preferred stock of 
 the present P. Lorillard Co. is an S per cent preferred stock with abundant 
 assets and earnings to make the principal and income secure, it is deemed fair 
 to the holders of this outstanding $403,900 of preferred stock that they be 
 given an opportunity to take, at their option, either cash at par, which they are 
 legally entitled to, or the 7 per cent preferred stock of the proposed new 
 P. Lorillard Co. As the preferred stock of the new P. Lorillard Co. is to be a 7 
 per cent preferred stock, the holders of said $403,900 of said present preferred 
 stock will be offered stock of the new company at the rate of $114.25 for each 
 share. It is therefore proposed that the new P. Lorillard Co. provide for an 
 additional amount of preferred stock sufficient to take care of $403,900 pre- 
 ferred stock on that basis, to wit, $114.25 in new 7 per cent preferred stock 
 for each $100 of said stock, amounting to $461,600 at par of preferred stock in 
 addition to that set out hereinbefore. In view of the fact that in the state- 
 ments hereinbefore made as to earnings of the P. Lorillard Co. there is included 
 only such part of the earnings of the present P. Lorillard Co. as accrued to the 
 proportion of its stock held by the American Tobacco Co., this increase of 
 preferred stock would increase proportionately the profits of the P. Lorillard Co., 
 and does not derange any of the figures hereinbefore given or given in any of 
 the exhibits hereto and hereinafter referred to. 
 
 (2) American Snuff Co. manufactures and sells a brand of snuff called " Gar- 
 rett," which has a large sale in the southern and southwestern sections of the 
 country. Originally this brand was manufactured at Yorklyn. Del., and in part 
 packed in Philadelphia. Several years ago American Snuff Co. determined, 
 on account of freight-rate conditions, to manufacture this brand at Clarksville, 
 Tenn., and to pack it at Memphis, Tenn., and that the factories at Torklyn, 
 Del., should be given up to the manufacture of other brands. It has yet, 
 though, been unable to produce in Clarksville, Tenn., goods similar to the 
 goods heretofore and now made by it at Yorklyn, Del., although the experi- 
 ment is still in progress, and with hope of success. Under the plan herein- 
 before outlined the brand "' Garrett " snuff is allotted to American Snuff Co., 
 and the factories other than one factory at Yorklyn, Del., are allotted to 
 George W. Helme Co. ; your petitioners pray that in the approval and adoption 
 by this court of this plan, American Snuff Co. and George W. Helme Co. be 
 permitted to manufacture brands the one for the other for a period not ex- 
 ceeding one year from March 1, 1912, each company paying to the other as 
 consideration for such manufacture the cost thereof plus 5 per cent ; the 
 necessity of paying 5 per cent above cost is sufficient inducement to each com- 
 pany to manufacture its own goods as soon as American Snuff Co. is able to 
 manufacture " Garrett " snuff of the requisite character and kind in its Clarks- 
 
312 HEARINGS BEFORE 
 
 ville factory, thus leaving the Xorklyn factories, other than No. 5, for the 
 manufacture by the George W. Helme Co. of its own brands. 
 
 This court having heard the parties as directed by the Supreme Court of the 
 United States, it is further ascertained and determined, and ordered, adjudged, 
 and decreed that said plan hereinbefore set forth is a plan or method which, 
 takeu with the injunctive provisions hereinafter set forth, will dissolve the com- 
 bination heretofore adjudged to be illegal in this cause, and will re-create out of 
 the elements now composing it a new condition which will be honestly in 
 harmony with, and not repugnant to, the law, and without unnecessary injury 
 to the public or the rights of private property. 
 
 It is further ordered, adjudged, and decreed that the said plan as herein- 
 above set forth be, and it is hereby, approved by this court, and the defendants 
 herein are, respectively, directed to proceed forthwith to carry the same into 
 effect. 
 
 The necessities of the situation, in the judgment of this court, requiring the 
 extension of the period for carrying into execution said plan to a further time 
 not to exceed 60 days from December 30, 1911. 
 
 It is further ordered, adjudged, and decreed that the defendants be allowed 
 until February 28, 1912, to carry said plan into execution. 
 
 It is further ordered, adjudged, and decreed that the defendants, their offi- 
 cers, directors, servants, agents, and employees be, and they are hereby, sever- 
 ally enjoined and restrained as follows : 
 
 From continuing or carrying into further effect the combination adjudged 
 illegal in this cause, and from entering into or forming any like combination 
 or conspiracy, the effect of which is or will be to restrain commerce in tobacco 
 or its products or in articles used in connection with the manufacture and 
 trade in tobacco and its products among the States or in the Territories or 
 with foreign nations, or to prolong the unlawful monopoly of such commerce 
 obtained and possessed by the defendants as adjudged herein in violation of 
 the act of Congress approved July 2, 1890, either : 
 
 1. By causing the conveyance of the factories, plants, brands, or business of 
 any of the 14 corporations among which the properties and businesses now in 
 the combination are to be distributed, to wit, The American Tobacco Co., 
 Liggett & Myers Tobacco Co., P. Lorillard Co., American Snuff Co., George W. 
 Helme Co., Weyman-Bruton Co., R. J. Reynolds Tobacco Co., British-American 
 Tobacco Co. (Ltd.), Porto Rican-American Tobacco Co., Mac Andrews & Forbes 
 Co., J. S. Young Co., The Conley Foil Co., The Johnston Tin Foil & Metal Co., 
 and United Cigar Stores Co.. to any other of said corporations, by placing the 
 stocks of any one or more of said corporations in the hands of voting trustees or 
 controlling the voting power of such stocks by any similar device ; or 
 
 2. By making any express or implied agreement or arrangement together or 
 one with another like those adjudged illegal in this cause relative to the 
 control or management of any of said 14 corporations, or the price or terms 
 of purchase or of sale of tobacco or any of its products or the supplies or 
 other products dealt with in connection with the tobacco business, or relative to 
 the purchase, sale, transportation, or manufacture of tobacco or its products 
 or supplies Or other products dealt with as aforesaid by any of the parties 
 hereto which will have a like effect in restraint of commerce among the States, 
 in the Territories, and with foreign nations to that of the combination, the 
 operation of which is enjoined in this cause, or by making any agreement or 
 arrangement of any kind with any other of such corporations under which 
 trade or business is apportioned between such corporations in respect either 
 to customers or localities. 
 
 3. By any of said 14 corporations ret-iining or employing the same clerical or- 
 ganization, or keeping the same office or offices, as any other of said corporations. 
 
 4. By any of said 14 corporations retaining or holding capital stock in any 
 other corporation any part of whose stock is also retained and held by any 
 other of said corporations: Provided, however. That this prohibition shall not 
 apply to the holding by the Porto Rican-American Tobacco Co. and American 
 Cigar Co. of stock in Porto Rican Leaf Tobacco Co., nor shall it apply to the 
 holding of stock of the National Snuff Co. (Ltd.), by Weyman-Bruton Co. and 
 British-American Tobacco Co. (Ltd.). 
 
 5. By any of said 14 corporations doing business directly or indirectly under 
 any other than its own corporate name or the name of a subsidiary corpora- 
 tion controlled by it: Provided, however, That in case of a subsidiary corpora- 
 tion the controlling corporation shall cause the products of such subsidiary 
 corporation which are sold in the United States and bear the name of the manu- 
 facturer, to bear also a statement indicating the fact of such control. 
 
COMMITTEE ON INTEKSTATE COMMERCE. 313 
 
 6. By any of said 14 corporations refusing to sell to any jobber any brawl 
 • v.u ny i ob , acca Product manufactured by it except upon condition that such 
 jobber shall purchase from the vendor some other brand or product also manu- 
 factured and sold by it: Provided, however, That this prohibition shall not 
 be construed to apply to what are known as " combination orders " under which 
 some brand or product may be offered to a jobber or dealer at a reduced price 
 on condition that he purchase a given quantity of some other brand or product 
 
 It is further ordered, adjudged, and decreed that during a period of five 
 years from the date hereof, each of said 14 corporations hereinbefore named 
 its officers, directors, agents, servants, and employees, are hereby enjoined and 
 restrained, as follows : 
 
 .1. None of the said 14 corporations shall have any officer or director who 
 is also an officer or director in any other of said corporations. 
 
 2. None of said 14 corporations shall retain or employ the same agent or 
 agents for the purchase in the United States* of tobacco leaf or other raw 
 material, or for the sale in the United States of tobacco or other products as 
 that of any other of said corporations. 
 
 3. None of said 14 corporations shall directly or indirectly acquire any stock 
 in any other of said corporations, or purchase or acquire any of the factories 
 plants, brands, or business of any other of said corporations, or make loans or 
 otherwise extend financial aid to any other of said corporations. 
 
 The provisions of this decree shall apply only to trade and commerce in or 
 between the several States and Territories and the District of Columbia, and 
 trade and commerce between the United States and foreign nations. 
 
 It is further ordered, adjudged, and decreed that British-American Tobacco 
 Co. (Ltd.) and the Imperial Tobacco Co. (of Great Britain and Ireland, Ltd.) 
 shall not act as agent for each other, nor employ a common agent, for the pur- 
 chase of leaf tobacco in the United States, and neither of said two companies 
 shall unite with any of the said 14 corporations among which the properties 
 and businesses now in the combination are to be distributed, in the employ- 
 ment of a common agent for the purchase of tobacco leaf in the United States. 
 
 It is further ordered, adjudged, and decreed that each of the 29 individual 
 defendants in this suit be enjoined and restrained from at any time within 
 three years from the date of this decree, acquiring, owning, or holding, directly 
 or indirectly, any stock, or any legal or equitable interest in any stock in any 
 one of said 14 corporations, except British-American Tobacco Co. (Ltd.), in 
 excess of the amount to which he will be entitled under the provisions of ths 
 plan when the same shall have been carried out as proposed as the present 
 owner of the amount of stocks in said several companies shown by the affidavits 
 of said several defendants filed herein on the 16th day of November, 1911 : 
 Provided, hoicercr, That any of said defendants may, notwithstanding this pro- 
 hibition, acquire from any other or others of said defendants, or in case of death 
 from their estates, any of the stock held by such other defendant or defendants 
 in any of said corporations. 
 
 It is further ordered, adjudged, and decreed that the new companies whose 
 organization is provided for in the plan hereinabove set forth, to wit : Liggett & 
 Myers Tobacco Co., P. Lorillard Co.. George W. Helme Co., Weyman-Brnton Co., 
 and J. S. Young Co., shall, after their formation and by appropriate proceeding, 
 be made parties defendant to this cause and subject to the provisions of this 
 decree and bound by the injunctions herein granted. 
 
 It is further ordered, adjudged, and decreed that any party hereto may make 
 application to the court for such orders and directions as may be necessary or 
 proper in relation to the carrying out of said plan, and the provisions of this 
 decree. 
 
 It is further ordered, adjudged, and decreed that the costs of this action shall 
 be paid by the defendants other than R. P. Richardson, jr., & Co. (Inc.), as to 
 whom the suit has heretofore been dismissed, and the payment by the defendant, 
 the American Tobacco Co., of the reasonable costs and counsel fees of the com- 
 mittees organized for the protection of the 6 per cent bonds, 4 per cent bonds 
 and preferred stock of the American Tobacco Co. is hereby approved. 
 
 It is further ordered, adjudged, and decreed that the defendants, the American 
 Tobacco Co., MacAndrews & Forbes Co.. American Snuff Co., and each of them 
 and their and each of their officers, directors, servants, agents, and employees, 
 be severally enjoined and restrained, as in said plan set forth, from voting stocks, 
 exercising influence or control over other companies or gaining possession of 
 other companies through the use of securities temporarily held by them, re 
 spectively- under said plan in each and every case in which it is provided in 
 
314 HEARINGS BEFORE 
 
 and by the said plan that any of said three last-named defendants shall be so 
 enjoined. 
 
 It is further ordered, adjudged, and decreed that such books and papers of 
 the defendants, the American Tobacco Co. and S. Anargyros. or either of them, 
 as relate to the suit of the Ludington Cigarette Machine Co. v. S. Anargyros 
 and the American Tobacco Co., or the subject matter thereof or any part thereof, 
 be preserved by the said defendants, respectively, until after the accounting, if 
 any shall take place in said suit, and said suit be finally determined and ended. 
 It is further ordered, adjudged, and decreed that jurisdiction of this cause is 
 retained by this court for the purpose of making such other and further orders 
 and decrees, if any, as may become necessary for carrying out the mandate of 
 the Supreme Court. 
 November 16, 1911. 
 
 E. Henry Lacombe, 
 
 Circuit Judge. 
 Alfred C. Coxe, 
 
 Circuit Judge. 
 H. G. Ward, 
 
 Circuit Judge. 
 Walter C Noyes, 
 
 Circuit Judge. 
 
 Our third objection was that this plan, if adopted, would result 
 in a separation of the monopoly into what might be called — somewhat 
 paradoxically — four monopolies. It is a little paradoxical because 
 usually there can be only one monopoly, I should judge, but here there 
 appear to be four great companies that would grasp and control the 
 entire trade — bearing in mind that each one of the four is vastly 
 larger than all the independents put together — and since, therefore, 
 there is no concert of action among the independents, none what- 
 ever, the result will be that each of those four companies will stand 
 competing with the independents taken separately. 
 
 Now, if each one is vastly larger than all the independents taken 
 together, manifestly it is much greater than each one taken sepa- 
 rately, or the average of them, so that it is fair to argue that those 
 huge aggregations themselves would be monopolies. And right there 
 I may say that the fourth and smallest one of those, the R. J. Rey- 
 nolds Tobacco Co., stands to-day condemned by the Supreme Court 
 in its decree as a separate combination in restraint of trade, in and 
 by itself. It has gathered to itself a number of other corporations, 
 some few still existing, but most of them closed out and dismantled as 
 soon as they were bought. It is a most grasping monopoly in the 
 kSouth, both in the buying end of the leaf-tobacco business and in 
 the sale of plug tobacco. Thnt corporation is under the plan cut 
 off, but it is set adrift as a combination in and by itself, and it was 
 condemned as such by the Supreme Court. 
 
 And how is it set apart? Why, it would be bad enough if it was 
 set apart by its stock being sold on the market to outsiders and the 
 present stockholders debarred from buying it. That would be bad, 
 because it is still a dangerous combination in restraint of trade, but 
 I submit that it is much worse when you consider that the stock of 
 that R. J. Reynolds Co. is to be put under the control of the common- 
 stock holders of the American Tobacco Co. 
 
 So the stock-ownership feature of the R. J. Reynolds Tobacco 
 Co., a combination of itself, is a very vicious and dangerous one, as 
 it is brought about by distributing the stock now held by the parent 
 compan} 7 among whose common-stock holders who right along have 
 dominated the American Tobacco Co. under the control of the 29 
 defendants in the suit; the 29 own 56 per cent of the stock of the 
 
COMMITTEE ON INTERSTATE COMMERCE. 315 
 
 American Tobacco Co. So that the K. J. Reynolds Tobacco Co. will 
 
 ' ^qM h6 com . m A °51 tock holders of the American Tobacco Co., 
 S it ?i * c u onvicted * or conspiracy own 56 per cent of the stock 
 and of that number some 6 or 8 control the whole number 
 rf JS" th "j d "j^ 1 ™, and I will say that as to this we went into full 
 n!l fii/S? no * deare needlessly to encumber your record, but I 
 ril , V?!?^ lf th - e committee desires. I will leave that to the 
 judgment of the committee. The third objection was that it was an 
 unfair distribution 
 
 The Acting Chairman. Permit me to interrupt you. You are 
 now speaking of your brief, I take it? 
 
 Mr. Levy. Our formal objections filed with the court. 
 
 1 he Acting Chairman. I will take the sense of the committee as 
 to whether they shall be made a part of the record 
 
 Senator Pomerene. Yes; I should think so. 
 
 The Acting Chairman. If there is no objection, it will be made a 
 part of the record. 
 
 (The papers referred to, being the objections and brief, are as 
 follows:) 
 
 [In the Circuit Court of the United States for the Southern District of New York 
 United States of America v. The American Tobacco Co. and others.] 
 
 Objections of National Cigar Leaf Tobacco Association, the Oig^u Manu- 
 factures' Association, and the Independent Tobacco Salemen's Asso- 
 ciation to the Plan of Disintegration, Filed by the American Tobacco 
 Co. and Others October 16, 1911. 
 
 Louis D. Brandeis, Felix H. Levy, counsel for remonstrants. 
 
 United States of America against American Tobacco Co. and others. 
 
 To the honorable circuit judges sitting in the southern district of New York: 
 
 The above-named associations, in pursuance of leave granted October 18, 1911, 
 respectfully submit herewith certain objections to said plan. 
 
 We submit that the plan is not in accordance with the opinion of the Supreme 
 Court of the United States in this cause. The plan, if approved, would result 
 in legalizing monopoly instead of restoring competition. Its effect upon the 
 tobacco planters, independent tobacco manufacturers, the jobbers, the retailers, 
 and upon labor engaged in the manufacture of tobacco products would be more 
 injurious than the continuance of the present illegal monopoly. 
 
 Fundamental Defects. 
 
 There are five fundamental defects in the plan, each so serious that it forms 
 alone a sufficient ground for the rejection of the plan. 
 
 COMMON OWNERSHIP. 
 
 First. The plan proposes to divide the main properties of the trust among 
 several corporations legally distinct, but to distribute the stock in these Severn] 
 corporations pro rata among common-stock holders of the American Tobacco 
 Co. No plan can be effective to restore competition which does not include as 
 an essential condition a provision that the separate corporations or segments 
 which are to carry forward the business of the trust shall, at the outset and 
 for a limited period thereafter, be owned by absolutely distinct groups of in- 
 dividuals. 
 
 (a) Under the proposed distribution of the securities of the several corpora- 
 tions formed to carry forward the business of the trust as alleged competitors, 
 competition between these concerns would of course be legally possible, but 
 common ownership of the stock would make it certain that in fact there would 
 
316 
 
 HEARINGS BEFORE 
 
 be (at least in the immediate future) no real competition. This would be so, 
 no matter how great the number of corporations into which the business of 
 the trust were divided. It is contended that the 29 individual defendants con- 
 trol to-day only 56 per cent of the voting power of the American Tobacco Co., 
 find that under the plan they will control a smaller per cent of the stock and 
 voting power of the several segments into which the trust is to be divided. 
 But it is obvious that a legal majority of the stock of a corporation is not 
 essential to actual control. A small minority may control; and as the same 
 individuals would at the outset select the directors and the officers of each of 
 these colorable competitors, it is certain that the officers and the directors of 
 the several companies would be friendly, if not in fact identical. 
 
 (&) In view of the past affiliations of these stockholders, no reasonable as- 
 surance of competition between the several segments of the trust can be had, 
 unless each segment is owned by an entirely distinct group of individuals. 
 Such ownership of separate corporations by distinct groups of individuals was 
 the condition which existed prior to the illegal combination which restrained 
 competition. Real competition is not a commercial possibility unless that essen- 
 tial condition of competition be restored. 
 
 (c) The framing of a plan for dividing among distinct groups of individuals 
 the stock of the several companies which take over the properties of the trust 
 would present no serious difficulties. The division would be effected by valuation 
 and allotment in a manner similar to that pursued when partition is made 
 among heirs or other tenants in common of several parcels of land, whereby each 
 person is allotted in severalty a particular parcel of real estate formerly held 
 in common. 
 
 {d) It is essential that the ownership of the stock in the different corpora- 
 tions which are to carry forward the business of the trust as competitors of 
 one another should not merely be held at the outset by distinct groups of in- 
 dividuals, but that it should be so held for a limited period thereafter, say, 
 for five years. Provision should therefore be made prohibiting by injunction 
 those who at the time of distribution acquire stock in any one of the segment 
 corporations from acquiring stock during such period in any other of the seg- 
 ments, This injunction should not be confined in its operation to the 29 indi- 
 vidual stockholders who are now named as defendants. It should extend to every 
 stockholder who participates in. the distribution under the plan. No legal or prac- 
 tical difficulty would present itself in the adoption of such a course. The stock- 
 holders would be made parties to the proceeding and bound by the decree in 
 the same manner that a decree becomes operative upon a purchaser at a fore- 
 closure sale. 
 
 DOMINATING CONCERNS. 
 
 Second. The plan provides for a division (generally) among only three huge 
 corporations of nearly all of the properties now held by the trust. No plati 
 can be effective to restore competition which does not include as an essential 
 condition that no department of the tobacco business now conducted by the 
 trust shall be divided into segments so large as to prevent the independents 
 engaged in that branch of the business from competing with them under fair 
 conditions. 
 
 Under the plan each one of the three or four corporations designed to carry 
 forward the main businesses of the trust would hold alone so large a percentage 
 of the whole business of the country in the respective departments of the 
 tobacco trade as to dominate the independents engaged in that department of 
 the tobacco business, whether as planters, manufacturers, or dealers, and thus 
 unreasonably restrain trade. The three or four concerns formed to carry for- 
 ward the main business of the Tobacco Trust would together be in a position to 
 crush the independents even more effectually than has been done in the past. 
 
 In determining how large the several segments into which the trust's busi- 
 ness is to be divided, may properly be, existing trade conditions must be con- 
 sidered. The question is one that should be decided not by generalizations, but 
 by reference to the specific commercial facts prevailing in the several depart- 
 ments of the tobacco trade. That each of the three or four corporations would 
 under the proposed plan in fact dominate and could crush the existing inde- 
 pendents becomes clear when their relative positions in the trade is considered. 
 
 A. The cigarette business of the trust is divided by the plan among three 
 oncerns. It should be divided among at least seven separate concerns. 
 
COMMITTEE ON INTERSTATE COMMERCE. 317 
 
 The American Tobacco Co. would have 33.15 per cent in value of the whole 
 cigarette business of the country; the Lorilhml Co., 20.02 per cent; and the 
 Liggett & Myers Co., 21.03 per cent. All of the independents together control 
 only 19.80 per cent. Each of the three companies among which the trust's 
 cigarette business is to be divided would thus start with a cigarette business 
 greater than the aggregate business of all the independents. 
 
 (a) While it is undesirable to place a limit upon the size to which a business 
 may grow, or to determine the proportion of the whole business of the country 
 in any article which may properly be acquired by one concern through such 
 growth, it is absolutely necessary to take relative size into consideration when 
 it is sought to restore competition which has been suppressed through illegal 
 combination. 
 
 (6) Futhermore, under the plan the distribution of the brands of cigarettes, 
 is such that each of the three colorable competitors who are to carry forward 
 the business of the trust will, as against the other two, dominate a particular 
 branch or market of the cigarette trade. 
 
 (c) In considering the propriety of dividing the present cigarette business 
 af the trust into more than 3 units, it should be noted that this business 
 represents the absorption into the trust of IS separate business concerns, that 
 the cigarettes now manufactured by the trust are of several distinct classes, 
 and that, according to latest information available, the Irus-t even now manu- 
 factures its cigarettes in 7 separate factories. 
 
 SMOKING TOBACCO. 
 
 B. The smoking-tobacco business of the trust is divided by the plan among 
 4 concerns. It should be divided among at least 12 separate concerns. 
 
 (o) The American Tobacco Co. would, under the plan, have 40.53 per cent 
 in value of the whole smoking-tobacco business of the country ; the Lorillara 
 Co., 18.88 per cent ; and the Liggett & Myers Co., 16.47 per cent ; while all the 
 independents together would have only 21.39 per cent. In other words, the 
 American Tobacco Co. would alone have a snioking-tpbacco business nearly 
 twice that of all the independents together. The Liggett & Myers Co. and the 
 Lorillard Co. would each start with a smoking-tobacco business nearly as large 
 as the aggregate business of all the independents. 
 
 (6) Furthermore, under the plan, the distribution of the brands is such that 
 three of the four colorable competitors would, as against the others, dominate a 
 particular branch or market of the smoking-tobacco trade. 
 
 (c) In considering the propriety of insisting upon dividing the smoking- 
 tobacco business of the trust among a larger number of corporations, it should 
 be remembered that the smoking-tobacco business now controlled by the trust is 
 the result of combining over 57 separate businesses; that the smoking tobacco 
 manufactured is of several distinct classes; and that at the present time, and 
 according to the latest information available, the trust manufactures its smoking 
 tobacco in 12 different factories. 
 
 PLUG TOBACCOi 
 
 C. The plug-tobacco business of the trust is to be divided, by the plnn, among 
 4 companies. It should be divided among at least 12 separate concerns. 
 
 (a) Liggett & Myers Co. would have, under the plan. 37.84 per cent m value 
 of the plug-tobacco business of the country, the American Tobacco Co. 22.98 per 
 cent, and the Reynolds Tobacco Co. 15.49 per cent, as against only 19.05 per cent 
 now held bv all the independents together. Liggett & Myers Co. would tow a 
 plug-tobacco business nearly twice as large as the aggregate business of all the 
 independents. The American Tobacco Co.'s plug-tobacco business would be 
 larger than the aggregate of all the independents, and the Reynolds Tobacco 
 Co.'s plug-tobacco business would be more than three-quarters the aggregate 
 business of all the independents. 
 
 (5) Furthermore, under the plan, the distribution of the brands is such tnat 
 at least two of the four companies would, as against the others, dominate par- 
 ticular branches or. markets of the plug-tobacco trade. _ 
 
 (c) In considering the propriety of dividing the plug-tobacco business of the 
 trust among a larger number of corporations, it should be noted that the 
 present plug-tobacco business of the trust is the result of combining at lease 
 43 separate concerns; that plug tobacco manufactured by the trast is of several 
 distinct classes; and that, according to the latest information available, the 
 trust manufactures its plug tobacco in 12 different factories. 
 
318 
 
 HEARINGS BEFORE 
 
 LITTLE CIGAE8. 
 
 D. The little-cigar business of the trust is divided, by the plan, among three 
 concerns. It should be divided among at least seven separate concerns. 
 
 (o) The Lorillard Co. would, under the plan, have 40.95 per cent in value of 
 the little-cigar business of the whole country, the Liggett & Myers Co. would 
 have 38.69 per cent, and the American Tobacco Co. 13.41 per cent, as against 
 only 6.95 per cent held by the aggregate of all the independents. That is, the 
 Lorillard Co. would control nearly seven times as much little-cigar business as 
 the aggregate of all the independents, the Liggett & Myers Co. over six times as 
 much, and the American Tobacco Co. nearly twice as much. 
 
 (6) In considering the propriety of dividing the little-cigar business of the 
 trust among a greater number of corporations, it should be remembered that 
 this business, though largely developed by the trust, rests upon a combination 
 of distinct business concerns ; that the little cigars are of several distinct 
 qualities, and that, according to the latest information available, the trust now 
 does its little-cigar manufacturing in seven separate factories. 
 
 E. The snuff-tobacco business of the trust is divided by the plan into three 
 parts. It should be divided among six separate concerns. 
 
 (a) The American Snuff Co. would, under the plan, have 35.55 per cent in 
 value of the whole snuff business of the country, the George W. Helme Co. 28.95 
 per cent, and the Weyman & Bruton Co. 27.68 per cent, as against 7.82 per 
 cent now controlled by all the independents together. That is, the American 
 Snuff Co. would have a snuff business more than four times as large as the 
 aggregate snuff business of all the independents, and the George W. Helm Co. 
 and the Weyman & Bruton Co. a snuff business each more than three times as 
 large as the aggregate business of all the independents. 
 
 (&) In considering the propriety of the division of the snuff business of 
 the trust among a larger number of concerns, it should be borne in mind that 
 the present snuff business of the trust is the result of combining 29 separate 
 concerns, and that, according to the latest information available, it now manu- 
 factures snuff in more than three factories. 
 
 LICORICE PASTE. 
 
 F. The licorice-paste business of the trust is divided, under the plan, into 
 two parts. It should be divided among at least four separate concerns. 
 
 The trust, through the MacAndrews & Forbes Co., now controls 90 per cent 
 of the licorice-paste business of the country. There is but one independent 
 manufacturer, and until the commencement of this suit that manufacturer con- 
 ducted the business under an agreement in combination with the trust. 
 
 (a) Under the plan the trust's licorice-paste business is to be divided among 
 two concerns, so that the MacAndrews & Forbes Co. will retain about 60 per 
 cent of the whole licorice paste business of the country, and the J. S. Young 
 Co. have about 30 per cent. Thus the MacAndrews & Forbes Co. will have a 
 licorice-paste business six times as large as that of the independent manu- 
 facturer, and the J. S. Young Co. a business nearly three times as large. 
 
 (6) In considering the propriety of dividing the licorice-paste business among 
 a larger number of concerns, it should be borne in mind that the present 
 licorice-paste business of the trust is the result of combining six separate 
 concerns. 
 
 (o) The control by the trust of the licorice-paste business gave it control 
 of the chewing-tobacco business, as chewing plug can not be made without 
 licorice; and its control of the licorice-paste business of the whole country is 
 fortified by its control of the raw material, licorice root. The plan makes no 
 provision for breaking the trust's monopoly of licorice root. 
 
 (d) The plan also omits to provide for a cancellation of those covenants by 
 which those whose licorice-paste business was absorbed by the trust are pre- 
 cluded from reentering the business. 
 
 G. The tin-foil business of the trust is divided by the plan into two parts. 
 It should be divided among at least five separate concerns. 
 
 (a) The exact percentage of the tin-foil business of the country controlled 
 by the trust is not stated in the petition. It is, however, so large a percentage 
 
COMMITTEE ON INTERSTATE COMMERCE. 319 
 
 of the whole tin-foil business of the country that the division of the trust's 
 tin-foil business between the Conley Tin Foil Co. and the Johnson Tin Foil & 
 Metal Co., as proposed, would still leave the Conley Tin Foil Co. in a dominant 
 position. 
 
 (6) The plan also omits to provide for a cancellation of those covenants by 
 which those whose tin-foil business was absorbed by the trust are precluded from 
 reentering the business. 
 
 " COMPLETELY EQUIPPED " CONCERNS. 
 
 Third. The plan provides that the three companies among which all the 
 manufacturing properties of the trust are divided shall be " each completely 
 equipped for the conduct of a large tobacco business." No independent con- 
 cern is now " completely equipped for the conduct of a large tobacco business," 
 or indeed completely equipped to do any tobacco business covering all the main 
 branches of the tobacco trade. No plan to restore competition can be effective 
 which does not include as an essential condition that the several concerns which 
 are to carry forward the business of the trust shall be, at the outset, of a char- 
 acter similar to tbat of the remaining independent concerns. It follows that 
 any corporation taking over a part of the plug-tobacco business or smoking- 
 tobacco business of the trust shall not take over any of the cigarette or cigar 
 business ; that a corporation taking over a part of its cigarette business shall 
 not take over any of its smoking-tobacco business, plug-tobacco business, or 
 cigar business ; and tbat a corporation taking over any part of the cigar busi- 
 ness shall not take over any of its smoking-tobacco business, plug-tobacco busi- 
 ness, or cigarette business. 
 
 (a) Under the proposed plan the American Tobacco Co. would have a cig- 
 arette department with 33.15 per cent in value of the whole cigarette business 
 of the country, a smoking-tobacco department with 40.53 per cent 'of the whole 
 smoking-tobacco business of the country, a plug-tobacco department with 22.98 
 per cent of the whole plug-tobacco business of the country, a fine-cut-tobacco 
 department with 13.52 per cent of the whole fine-cut-tobacco business of the 
 country, a cigar department with 8.90 per cent of the whole cigar business of 
 of the country, and a little-cigar department with 13.41 per cent of the whole 
 little-cigar business of the country. In the Liggett & Meyers Co. the percentages 
 would be 21.02 per cent in the cigarette department, 16.47 per cent in the smok- 
 ing-tobacco department, 37.S4 per cent in the plug-tobacco department, 36.26 per 
 cent in the fine-cut-tobacco department, and 38.69 per cent in the little-cigar de- 
 partment. The Tjorillard Co. would have a cigarette department with 26.02 
 per cent, a smoking-tobacco department with 18.88 per cent, a plug-tobacco de- 
 partment with 4.64 per cent, a fine-cut-tobacco department with 29.57 per cent, 
 a cigar department with 2.88 per cent, and a little-cigar department with 40.95 
 per cent. 
 
 (&) The impossibility of fair competition between the independents and these 
 four companies, into which it is proposed to divide the manufacturing business 
 of the trust, is due to the cumulative effect of three distinct advantages which 
 the trust has secured through its illegal combination: 
 
 1. The large percentage of the whole business in any department which each 
 would have as compared with the independents. 
 
 2. The fact that its business extends over all departments of the tobacco 
 trade. . , ,. , 
 
 3. The fact that the trust holds and is proposing to distribute among 
 the three companies certain brands which are practically indispensable to the 
 successful conduct of business by any jobber or retailer of tobacco. 
 
 Each company would therefore be enabled, by means of these indispensable 
 brands," to largely compel dealers to give preference to its other products over 
 those of the existing independents. It would also, by use of the huge profits 
 derived from those indispensable brands, be enabled to crush these independents 
 as competitors of other departments of its business. 
 
 (c) In considering the propriety of limiting the number of departments of 
 the tobacco business of the trust which should be allotted under the plan i to 
 any single company, it should be noted that prior to the trust's illegal opera- 
 tions no one concern was so "completely equipped" and that the Present 
 business of the trust is the result of combining and absorbing i legacy at 
 least 250 separate concerns; that furthermore, even to-day, the trust manu- 
 factures its products in at least 100 different factories; that in none of these 
 does ifnow manufacture all of the several tobacco products which it is pro- 
 
 22877— vol i—12 21 
 
320 
 
 HEARINGS BEFOKE 
 
 posed to handle through each of these " completely equipped companies " ; and 
 that also in the selling of its product it employs separate salesmen for different 
 classes of tobacco products. 
 
 RESTRAINTS ON UNFAIE COMPETITION. 
 
 Fourth. The plan contains no provision under which the several corporations 
 which are to carry forward the manufacturing business of the trust will be 
 enjoined from practicing those methods of unfair competition by means of 
 which the trust has in the past overcome its competitors. It is clear that for 
 a limited period the independents should have more protection than would 
 ordinarily be necessary in trade where one concern has not succeeded in 
 illegally dominating the trade. For this reason it is not sufficient that the 
 corporations carrying forward the business of the trust be merely enjoined 
 from a continuation of the illegal practices pursued by the trust; they should 
 also be prohibited for a limited, period — say, five years, and such further time, 
 If any, as the court may hereafter order — against other practices not neces- 
 sarily illegal, but which if resorted to at the outset would tend to stifle compe- 
 tition. The plan should therefore include, among other acts to be prohibited 
 for such limited period, the following: 
 
 (A) Each corporation which is to carry forward any part of the manufac- 
 turing business of the trust should be restrained — 
 
 (1) From acquiring or holding stock or other interest in, or undertaking to 
 exercise any control over, or making loans or otherwise extending credit to, 
 any other corporation carrying forward any part of the business of the trust, 
 except as hereinafter provided. 
 
 (2) From having any person act as one of its officers or directors who is 
 also an officer or director in any of the other corporations carrying forward 
 any other part of the business of the trust, except as hereinafter provided. 
 
 (3) From combining in any way with any other corporation carrying for- 
 ward any part of the business of the trust, either in purchasing raw material 
 or supplies or in selling manufactured products or otherwise, or having any 
 joint or common agents or enterprises in connection with the purchase of raw 
 materials or supplies or the sale of manufactured products, or otherwise. 
 
 (4) From making any agreement or arrangement of any kind, with any cor- 
 poration carrying forward any part of the business of the trust under which 
 trade is apportioned in respect either to customers or localities. 
 
 (5) From doing business directly or indirectly under any name other than 
 its own corporate name. 
 
 (6) From holding stock in or being otherwise interested in any other cor- 
 poration, except as hereinafter provided. 
 
 (7) From espionage on the business of any competitor either through bribery 
 of any agent or employee of such competitor, or obtaining information from 
 any United States revenue official. 
 
 (8) From giving away, selling at or below the cost of manufacture and 
 distribution, any of its products, or adopting any other method of cutthroat 
 competition for the purpose of destroying or of acquiring the business or 
 trade of a competitor. 
 
 (9) From refusing to sell to any jobber any brand of snuff or cigarettes or 
 smoking or chewing tobacco manufactured by it which is indispensable in the 
 particular market. It should also be restrained from giving any rebates, allow- 
 ances, or other special inducements to those who use its goods exclusively or 
 give preference to them over the goods of competitors. 
 
 (10) No corporation carrying forward any part of the manufacturing busi- 
 ness of the trust should be allowed to hold any part of the stock of or any 
 other interest in any concern engaged in jobbing tobacco products; but it 
 should he permitted, except as above stated, to own the stock of another cor- 
 poration organized to carry on any part of its permissible business, provided 
 such other corporation shall have a corporate name, and the business is done 
 under a name, substantially identical with its own. 
 
 (B) Bach of the 29 individual defendants, and also the other stockholders 
 among whom distribution of the property of the trust is made, should be 
 restrained from doing, or aiding in the doing, of any acts which the corpora- 
 tions are to be prohibited from doing as above set forth. 
 
 (C) Every independent or other person interested should in the event of 
 any alleged violation of the injunction have liberty to apply to the court for 
 protection and such action as may appear to be appropriate. 
 
COMMITTEE ON INTERSTATE COMMERCE. 321 
 
 UNITED CIGAK STOKES. 
 
 Fifth. The plan provides for leaving intact the United Cigar Stores Co. and 
 merely distributing among the common-stock holders of the American Tobacco 
 Co. its stock holdings in the United Cigar Stores Co. No plan can be effective 
 to restore competition which does not provide for dividing the businesses and 
 property of the United Cigar Stores Co. among many separate concerns owned 
 by absolutely distinct groups of individuals. These businesses should be 
 divided, preferably among at least 10 separate corporations, and no one corpo- 
 ration should be given a predominant power in any locality. 
 
 (a) The power acquired by the United Cigars Stores Co. through the illegal 
 operations of the trust is so great that its continued existence would render 
 effective competition improbable, even if, as contended above, the manufacturing 
 properties were divided into separate segments owned each by distinct groups 
 of individuals. The distribution of the United Cigar Stores Co.'s stock among 
 the stockholders of the American Tobacco Co. would in itself create a bond 
 of union among the several segments sought to be kept separate and distinct each 
 from the other. In considering the disposition to be made of the United Cigar 
 Stores Co., the court should be guided by the actual commercial situation, to 
 be ascertained by an inquiry into the actual facts. The United Cigar Stores 
 Co., developed through the illegal practices of the trust, possesses to-day a 
 capital and a peculiar position which makes it so potent in the tobacco busi- 
 ness as to be a menace alike to independent manufacturers and to independent 
 retailers. Its division is a commercial necessity. 
 
 (6) When divided each segment of the United Cigar Stores Co. should be 
 owned by a different group of individuals; and like provision should be made 
 as in the case of the segments of the manufacturing properties of the trust — 
 that for a limited period, say, five years, none of the original stockholders 
 should be allowed to acquire an interest in any of the other segenmts into 
 which the United Cigar Stores Co. is divided. 
 
 (c) Specific provision should also be made to prevent, as in the case of the 
 manufacturing companies, any combination between the different corporations 
 formed to carry forward the United Cigar Stores Co. business. They should 
 among other things be expressly prevented from combining in any way in pur- 
 chasing or in selling tobacco products or in purchasing or leasing real estate, 
 and specifically from issuing interchangeable coupons. 
 
 II. 
 
 Otheb Important Defects. 
 
 In addition to the five fundamental objections to the plan set forth above, 
 there exist other important objections, among which are the following : 
 
 THE BRITISH AMERICAN CO. 
 
 First. Under the plan the covenant restricting the British American Tobacco 
 Co. from competing within the United States is to be abrogated ; but no provi- 
 sion is made for terminating the practical monopoly acquired by the British 
 American Co. in the purchase and manufacture within the United States for 
 export of certain kinds of tobacco leaf and the manufacture of cigarettes 
 within the United States for export. *...,, 
 
 The leaf-tobacco business of the British American Co. should be divided 
 among four concerns, taking over, respectively, the businesses heretofore done 
 by the David Dunlop Co., T. C. Williams Co., Cameron & Cameron, and 
 William Cameron & Bros. 
 
 The export cigarette business should be taken by two companies, assuming, 
 respectively, the business done at the Richmond and the Durham plants. The 
 separate concerns so created should be subject to prohibitions similar to those 
 suggested above for the other segments of the trust, and the provisions should 
 be made specifically to encourage competition between the cigarette plants 
 now controlled by the British American Co. and those controlled by the 
 American Tobacco Co. 
 
 COMPETITION IN BUYING TOBACCO. 
 
 Second. The plan fails to provide adequately for preventing a restraint of 
 competition in the purchase of leaf tobacco through some combination between 
 the Imperial Co., the British American Co., and the segments into which the 
 
322 HEARINGS BEFOEE 
 
 American Tobacco Co. may be divided. There should be a specific prohibition 
 against the British companies joining with each other or with any of the 
 segments of the American Tobacco Co. in the purchase of leaf tobacco or in 
 employing any common agent for that purpose. 
 
 THE CIGAK BUSINESS. 
 
 Third. Under the plan the American Tobacco Co. is to retain in its treasury 
 the stock of the American Cigar Co. now held by it. The American Cigar Co. 
 should be separated absolutely from every other corporation which carries 
 forward any part of the manufacturing business of the trust in other tobacco 
 products. All the American Cigar Co. stock held by the trust should be trans- 
 ferred to some group of individuals entirely distinct from those who hold the 
 stock in the corporations which take over the smoking-tobacco, plug-tobacco, 
 snuff, and cigarette business of the trust. 
 
 Furthermore the manufacturing business of the American Cigar Co. should 
 be divided among at least four separate corporations, each owned by a distinct 
 group of stockholders; and each of these corporations should be subject to 
 prohibitions substantially similar to those above set forth in respect to the 
 other corporations carrying forward parts of the business of the trust. 
 
 Leave is respectfully reserved to submit additional objections to the plan, as 
 well as argument in support of all objections in accordance with said order 
 entered October 18, 1911. 
 
 Lotris D. Brandeis, 
 Felix H. Levy, 
 Counsel for Remonstrants. 
 
 New Yoek, October 25, 1911. 
 
 [Circuit Court of the United States for the Southern District of New York.] 
 
 United States of America against American Tobacco Co. and others. 
 
 Brief in support of objections of the National Cigar Leaf Tobacco Association, 
 the Cigar Manufacturers' Association of America, and the Independent To- 
 bacco Salesmen's Association to the plan of disintegration filed by the Ameri- 
 can Tobacco Co. and others, defendants, October 10, 1911. 
 
 Introductory Statement. 
 
 The Supreme Court has found that the defendants (29 individuals and 67 
 corporations) " by the doing of acts which it was the obvious purpose of the 
 statute to forbid " have acquired substantial control of interstate and foreign 
 commerce in tobacco and formed a combination which in itself and each ele- 
 ment of it is illegal under the Sherman Act. The defendants have offered a 
 plan which they allege will dissolve the combination and re-create a condition 
 in harmony with the law. 
 
 I. — THE POWER AND FUNCTION OF THE COURT. 
 
 The power and function of this court appears to be clear. By decree entered 
 by this court August 3, 1911, in pursuance of the mandate from the Supreme 
 Court of the United States, it is declared that the court will — 
 "give effect to the requirements of the statute (the Sherman law) by issuing 
 an injunction restraining the movement of the products of the combination in 
 the channels of interstate commerce or by the appointment of a receiver in 
 the event that the combination * * * is not dissolved and a condition of 
 disintegration in harmony with the law is not brought about either as a con- 
 sequence of the action of the court in determining an issue on the subject or 
 accepting a plan agreed upon." 
 
 The Attorney General has not agreed with the defendants upon a plan — and 
 this court therefore is hearing the parties — " for the purpose of ascertaining 
 and determining upon some plan or method of dissolving the combination and 
 of re-creating out of the elements now composing it a new condition which shall 
 be honestly in harmony with and not repugnant to the law, but without un- 
 necessary injury to the public or the rights of the private property." 
 
 The power of the court is limited to the determination of this issue — whether 
 the plan submitted will so dissolve the illegal combination as to re-create a 
 
COMMITTEE ON INTERSTATE COMMERCE. 323 
 
 now condition in harmony with the law. The court has no power to enforce 
 the adoption of any plan. It has power merely to approve or disapprove If 
 
 Is^nZw? Pla V h6 bUrden Wil1 reSt wholly upon P thedefendaZ P to secure 
 its adoption through any necessary cooperation of those interested If itail 
 approves and no other or modified plan satisfactory to the com-t is submitted 
 iSmhW- / n ° alter P ative exce Pt to issue the injunction restraining the 
 combination from engaging in interstate commerce, or to appoint a receiver 
 
 Ihe court will not undertake to compel a stockholder or bondholder in 'the 
 American Tobacco Co., or in any of the defendant corporations total stock in 
 some other corporation in exchange for his present holdings. The court is n£ 
 concerned with the method by which the disintegration required by the judg- 
 ment of the Supreme Court and by the decree of this court of August 3 1911 
 
 SSL^ "f „ ab0Ut " 1S the dllty of the def endants themselves to bring 
 themselves into harmony with the law. They may do this in one of two ways 
 They may cease doing business altogether or they may reorganize in such a 
 way as to comply with the law. As the Supreme Court said of the Northern 
 Securities Co. when the holding by that company of stocks in the Northern 
 Pacific Railway and the Great Northern Railway had been adjudged illegal • 
 
 Doubtless it became the duty of the Securities Co. to end a situation that 
 had been adjudged unlawful." (Harriman v. Northern Securities Co, 197 
 U. S., 244, at 299.) 
 
 A similar duty involves upon the defendants in the case at bar They must 
 bring about a condition in conformity with the law or be enjoined from trans- 
 acting interstate or foreign commerce. The court has no alternative in the 
 matter. 
 
 It is true that the burden of securing the necessary consent of security holders 
 may be a serious one, but it is unavoidable as an alternative to the injunction 
 or the receiver. 
 
 The plan submitted by the defendants itself requires the assent of thousands 
 of security holders who are not parties to the suit, just as does the modified 
 plan suggested by the independents. 
 
 (1) The holder of each of the $52,882,650 of American Tobacco Co. 6 per 
 cent debentures, due October 1, 1944, will be offered for each $100 par value, 
 $60 and accrued interest in cash, and $60 in 7 per cent bonds of Liggett & 
 Myers Tobacco Co. and P. Lorillard Co. at par. 
 
 (2) The holder of each of the $51,354,100 American Tobacco Co. 4 per cent 
 debentures, due August 1, 1951, will be offered for each $100 face value, $48 
 and accrued interest in cash, and $50 in 5 per cent bonds of Liggett & Myers . 
 Tobacco Co. and P. Lorillard Co. at par. 
 
 (3) The holder of each share of the $7S,6S9,100 American Tobacco Co. 6 per 
 cent preferred stock will be offered for .one-third of his holdings at par an 
 equal amount at par of Liggett & Myers. Tobacco Co. and P. Lorillard Co. 
 securities in the proportion of 5S.65 per cent of Liggett & Myers Tobacco Co. 
 and 41.35 per cent of P. Lorillard Co. 
 
 The defendants evidently recognize that there may be serious difficulty in 
 obtaining the consent of all these security holders, for the plan involves allow- 
 ing the defendants three years from January 1, 1912, to carry it out and three 
 years of control of possibly a large minority' of the stock of Liggett & Myers 
 Tobacco Co. and P. Lorillard Co. by a trust company at least not unfriendly 
 to the American Tobacco Co. 
 
 Furthermore, the common stock to be issued by the Liggett & Myers Tobacco 
 Co. and P. Lorillard Co. is to be sold to persons other than the individual 
 defendants except parts thereof proportionate to the holding of the common 
 stock of the American Tobacco Co. by the present defendants. Since the indi- 
 vidual defendants are in good faith to keep free of any interest in 59.24 per 
 cent of the new stock of Liggett & Myers Tobacco Co. and P. Lorillard Co., this 
 provision involves the investment by entirely independent people of about 
 $22,000,000 in the common stock of these two companies. 
 
 II. — THE PLAN OFFERED BY THE DEFENDANTS. 
 
 <A) The provisions for common ownership of the several corporations proposed 
 continues the illegal combination. 
 
 In the present combination the American Tobacco Co. owns or controls all the 
 other corporations defendant and is itself owned and controlled by its stock- 
 holders (of whom only the holders of common stock have voting rights), and 
 the 29 individual defendants hold at least 56 per cent of this common stock 
 
324 HEARINGS BEFORE 
 
 The holders of the stock of the American Tobacco Co. are, therefore, the real 
 owners of all the assets of the combination, managing these assets through the 
 American Tobacco Co. 
 
 Under the plan the ownership of the assets retained by the American Tobacco 
 Co. (from 30 to 40 per cent of all the assets owned by the combination) would 
 not be affected at all, for the stockholders in this company are not changed. 
 The control would be slightly modified, in that the preferred stockholders 
 would be entitled to vote. But the actual control would remain where it 
 now is — in the 29 individual defendants. 
 
 The remaining assets (60 to 70 per cent of the total assets of the combina- 
 tion) would be held in 13 other corporations, in each of which the 29 individual 
 defendants would hold sufficient stock to give them an actual control — and all 
 the stockholders of the American Tobacco Co. would probably together hold a 
 majority of all the stock of each of the 13. The change would be in form only; 
 instead of control through the American Tobacco Co. there would be control by 
 direct ownership of stock in several companies. It is substantially only a 
 change in stock ownership. 
 
 The Supreme Court has clearly indicated that such a change will not restore 
 legal conditions : 
 
 ■ " it is obvious that a mere decree forbidding stock ownership by one part 
 
 of the combination in another part or entity thereof would afford no adequate 
 measure of relief, since different ingredients of the combination would remain 
 unaffected and by the very nature and character of their organization would 
 be able to continue the wrongful situation which it is our duty to destroy." 
 (U. S. v. Am. Tobacco Co., 221 U. S., 106, 185-186.) 
 
 (B) The proposed segments are themselves illegal under the statute. 
 
 Each of the 14 units described in the plan of the defendants violates the act 
 in one or more ways. 
 
 1. As a combination of previously competing concerns. 
 
 The several corporations under this plan would hold businesses of the fol- 
 lowing classes, those of each class formerly competing with each other .(the 
 numbers of each appear in the schedules in the appendix annexed) : (a) Ameri- 
 can Tobacco Co., cigarettes, smoking, fine cut, plug, cigars, distributors (whole- 
 sale), by-products, machinery, boxes, tobacco business in Cuba, miscellaneous; 
 (6) Liggett & Myers Tobacco Co., cigarettes, smoking, fine cut, plug; (c) R. J. 
 Reynolds Tobacco Co., smoking, plug; (d) American Snuff Co., snuff data not' 
 available; 1 (e) Geo. A. Heline Co., snuff, 2 (at least) ; (/) Weyman & Bruton 
 Co., snuff, 2 (at least) ; (fir) MacAndrews & Forbes Co., (ft) J. S. Young Co., 
 licorice, 4; (i) United Cigar Stores Co., retailers of tobacco products and ac- 
 cessories, hundreds of stores; (/) British-American Tobacco Co., export busi- 
 ness of at least 4 concerns in the. United States (combination of very large 
 number of foreign concerns; (U) Porto Rican-American Tobacco Co., 4. 
 
 It is elementary that such a combination to suppress competition among con- 
 cerns thus previously competing in interstate or foreign commerce is illegal 
 under the statute. 
 
 2. As a combination of potentially competing concerns. 
 Under the plan as the defendants state it (pp. 35-37 and 42). 
 
 (a) The American Tobacco Co. is to retain, in addition to all its business 
 in subsidiary and allied industries and cigars, 17 great factories situated in 11 
 cities devoted to: Cigarettes. 5; smoking and fine cut, 4; little cigars, 2; plug, 0, 
 
 (6) Liggett & Myers Tobacco Co. is to receive (plan, p. 43) 12 factories in 10 
 cities devoted to : Cigarette and smoking, 2 ; cigarettes, 2 ; smoking and fine 
 cut, 1 ; smoking, 2 ; plug and smoking, 1 ; plug, 1 ; little cigars, 2 ; scrap, 1. 
 
 (e) P. Lorillard Co. is to receive (plan, p. 43) 10 factories in 10 cities de- 
 voted to: Turkish cigarettes, 1; plug, 1; scrap, 1; little cigars, 5; cigars, 2. 
 
 (d) Of the three snuff companies two are each to receive (plan, p. 10) at 
 least two factories in different cities. It does not appear what factories the 
 third (American Snuff Co.) is to retain. 
 
 (e) The United Cigar Stores Co. will receive and retain nearly a thousand 
 stores, some cities having many. 
 
 (/) The facts as to the plants to be received by the R. J. Reynolds Tobacco 
 Co., the Porto Rican-American Tobacco Co., and the British-American Tobacco 
 Co. (in the United States), do not appear in the plan. 
 
 1 The present American Snuff Co. is a combination of the snuff business of at least 34 
 concerns. The plan does not show how far the plants and businesses of these still exist 
 as separate organizations. 
 
COMMITTEE ON INTEESTATE COMMEBCE. 325 
 
 Disregarding the previous history of these plants, the unification of control 
 over so many potentially competing concerns in each of the units named (if 
 they were now thus for the first time brought under one control as in the 
 several companies above named) would create a "prima facie presumption of 
 
 ^f «J° J 6S ??vm ^ rade ' t0 mon °P oli ze and bring about a monopolization." 
 (See Standard Oil Co. v. U. S., 221 TJ. S.. 1, 75.) 
 
 The presumption becomes almost conclusive in view of the vast assets of the 
 first three proposed companies : 
 
 f?S a ? Tobacco Co. _■ $U8 803> m. 20 
 
 P. Lorillard Co 47> 552 ; 501 w 
 
 and of the overwhelming assets of each of the other segments proposed as com- 
 P™ ^ i those of a n J r possible competitor. (See Standard Oil Co. v. V. S., 
 ZZ\ u. S., 1, (2, 75.) 
 
 3. As monopolies. 
 
 The practical monopoly that each of the 14 corporations would'holcl is pointed 
 out m the •' objections " of National Cigar Leaf Tobacco Association and others 
 (pp. 4-14) and in the following: 
 
 The language of Mr. Chief Justice White in discussing an analogous situa- 
 tion in the present case is suggestive: 
 
 "The question would yet remain whether (these 14 corporations) by virtue 
 of the power which they would continue to possess, even although thus stripped 
 would amount to a violation of both the first and second sections of the act," 
 and whether these 14 corporations would not be " inherently possessed of a 
 sufficient residuum of power to cause them to be in and of themselves either a 
 restraint of trade or a monopolization, or an attempt to monopolize" (U S 
 i-. American Tobacco Co., 221 U. S., 176.) 
 
 (C.) The plan would result in four monopolies instead of one. 
 
 That the division of the American Tobacco Co. properties as between the 
 American Tobacco Co., Liggett & Myers Tobacco Co.. the P. Lorillard Co.. and 
 R. J. Reynolds Tobacco Co.. is a continuation of the illegal combination, is 
 discussed in Part II above. That the percentages of the whole business of the 
 country in the several branches of the tobacco trade allotted to each of .these 
 four companies is such as to preclude the possibility of fair competition as 
 between them and the existing independents is set forth in our objections 
 filed October 25 (pp. 4-10). A detailed examination of the trade conditions 
 will disclose, in addition, that the brands and business are so distributed under 
 the plan as to prevent, in large measure, competition among the four companies. 
 
 The facts necessary to bring this matter fully before the court do not appear 
 in the present record. They can not be adequately presented without the 
 examination of witnesses familiar with trade conditions, and also without 
 an opportunity of submitting to the court certain data in regard to the defen- 
 dants' business included among the papers to which these remonstrants sought 
 access by their petition filed October 18, 1911; and access to which was denied 
 by the court. But the following facts not disclosed by the defendants in their 
 petition filed October 16, 1911, will, we believe, suffice to show the court that the 
 proposed division of the trust's properties would leave each of the four com- 
 panies so dominant in important departments and markets that, through them, 
 the existing monopoly would be practically continued. 
 
 Fiest. — The leaf-tobacco trade. 
 
 Defendants' plan, Exhibit E, sets out the average production of five leading 
 types- of tobacco, together with the estimated purchases of each type by the 
 American Tobacco Co., Liggett & Myers Co., P. Lorillard Co., R. J. Reynolds 
 Tobacco Co., and the British-American Tobacco Co. From the face of those 
 figures it would appear as if the plan had provided for reasonable competition 
 as between these companies for the various types of tobacco. Facts not dis- 
 closed by the plan will show a very different result. 
 
 1. Burley tooacco. — Defendants' plan, Exhibit E, sets forth that of the total 
 average crop of burley (200,000,000 pounds) the American Tobacco Co. would 
 purchase 41,969,955 ; Liggett & Myers Tobacco Co., 69,163,946 ; P. Lorillard Co., 
 24,074,643 ; and R. J. Reynolds Tobacco Co., 5,000,000 pounds, as if these four 
 companies would be competitors for this aggregate of 130,000,000 pounds. As 
 a matter of fact, the burley type of tobacco comprises 40 different grades, of 
 
326 HEARINGS BEFORE 
 
 which the most important are the following : Medium red burley leaf, of which 
 the average crop is about 60,000,000 pounds ; common red burley, leaf and tips, 
 of which the average crop is about 40,000,000 pounds; trashes (of various 
 qualities), of which the production is about 50,000,000 pounds; fine bright leaf 
 and fine white burley, of which the production is from 10,000,000 to 15,000,000 
 pounds. These various grades vary in quality and quantity in almost every 
 crop, according to the season. The values of the said classes in a single year 
 are widely different. The average price per pound of the medium red burley 
 would be, perhaps, 12 to 15 cents ; of common- red, 7 to 10 cents ; of trashes, 
 7 to 12J cents; of bright leaf and fine white burley, 16 to 20 cents. 
 
 The distribution of the brands of plug and of smoking tobacco under the 
 defendants' plan is such that the American Tobacco Co., the Liggett & Myers 
 Tobacco Co.. the P. Lorillard Co., and the R. J. Reynolds Tobacco Co. would 
 not, to any large extent, be competitors for burley tobacco, but would each be 
 practically a dominating purchaser of different grades of burley; for instance: 
 
 (a) Medium red leaf burley: The Liggett & Myers Tobacco Co. would control 
 the medium red leaf burley market as maker of the " Star " and " Horseshoe " 
 brands of chewing tobacco, by far the leading chewing tobacco brands in the 
 country, for they would be the principal purchasers of medium red leaf burley. 
 Neither the American Tobacco Co. nor the P. Lorillard Co. nor the R. J. Rey- 
 nolds Tobacco Co. requires any appreciable quantity of this grade of burley. 
 
 (6) Common red burley: The American Tobacco Co. would control the com- 
 mon red burley market as maker of the following brands of plug chewing 
 tobacco : "American Navy," " Square Deal," " Standard Navy," " Corker," and 
 " Town Talk." Neither the Liggett & Myers Tobacco Co. nor the P. Lorillard 
 Co. or the R. J. Reynolds Tobacco Co. requires any appreciable quantity of 
 this common red burley for the brands assigned to them in the plan. There- 
 fore the American Tobacco Co. would control the common red burley market. 
 
 (c) Burley trashes: The P. Lorillard Co. would dominate the market for 
 burley trashes as the maker of the " Union Leader," " Sensation," and " Just 
 Suits "' brands of smoking tobacco. Neither the American Tobacco Co., Liggett 
 & Myers Tobacco Co.. or the R. J. Reynolds Tobacco Co. requires any appre- 
 ciable quantity of that grade of burley. 
 
 (<7) Fine white burley: The American Tobacco Co., as maker of the "Lucky 
 Strike." " Tuxedo," and " Old English " brands of smoking tobacco, would re- 
 quire the greater part of the fine white burley. Liggett & Myers Tobacco Co. 
 would require a small quantity of this grade for their " Velvet " brand of smok- 
 ing tobacco, and the R. J. Reynolds Tobacco Co. a small quantity for their 
 "Prince Albert" brand of smoking tobacco. 
 
 2. Yhr/inia and North Carolina bright tobacco. — Defendants' plan, Exhibit E, 
 states the total average crop of Virginia and North Carolina bright tobacco to 
 be 240,000.000 pounds, of which the American Tobacco Co. would require 
 51.295-870: the Liggett & Myers Tobacco Co.. 27.755,411; the P. Lorillard Co., 
 2,556,007: the R. 3. Reynolds Tobacco Co., 25,000,000; and the British-American 
 Tobacco Co., 40,000,000 pounds. 
 
 On the face of the exhibit it would appear that four important competitors 
 for this type of tobacco were provided by the trust's plan. The plan fails, 
 however, to disclose that there are numerous grades of the type of tobacco 
 known as Virginia and North Carolina bright, of which, perhaps. 12 important 
 grades are required for different classes of tobacco products. Consequently 
 there might be a number of large and active buyers for Virginia and North 
 Carolina tobacco in the same market and yet no one compete with any of the 
 others. 
 
 (a) High-grade smoker: Thus, under the plan, the American Tobacco Co., for 
 its biand of " Bull Durham," the largest selling brand of smoking tobacco in the 
 country, would require great quantities of the grade known as high-grade 
 smoker. Neither the Liggett & Myers Tobacco Co. nor the P. Lorillard Co. nor 
 the British-American Co. appears to have allotted to it any brand of smoking 
 tobacco which requires this grade of Virginia and North Carolina tobacco; and 
 the requirements of the R. J. Reynolds Tobacco Co. for this grade would be 
 insignificant. 
 
 (b) Low-grade smoker: The Liggett & Myers Tobacco Co. requires for its 
 brand of " Duke's Mixture." the grade known as Virginia and North Carolina 
 low-grade smoker. Neither the American Tobacco Co. nor P. Lorillard Co. ap- 
 pears to have had allotted to it any brand of smoking tobacco which requires 
 this low-grade smoker, and the amount, if any, required by the R. J. Reynolds 
 Tobacco Co. or the British-American Co. would be insignificant. 
 
COMMITTEE ON" INTERSTATE COMMERCE. 327 
 
 (c) Leaf: The R. J. Reynolds Tobacco Co., for their brands of " Schnapps" 
 and " Brown's Mule" and minor brands, purchase the greater part of the grade 
 known as leaf Virginia and North Carolina. Neither the American Tobacco 
 Co. nor the Liggett & Myers Tobacco Co. requires any of this grade. 
 
 (d) Export leaf: The British-American Tobacco Co. purchases for its ex- 
 port business entirely different grades of Virginia and North Carolina from 
 those referred to above, the grades purchased by them being known as export 
 leaf Virginia and North Carolina. Neither the American Tobacco Co the 
 Liggett & Myers Tobacco Co., the P. Lorillard Co., nor the R. J. Reynolds 
 Tobacco Co. requires any appreciable quantity of the distinct export grades of 
 tobacco. 
 
 3. Dark western tobacco. — Defendants' plan, Exhibit E, shows, that the aver- 
 age crop of dark western tobacco is 200,000,000 pounds, of which, however, a 
 large part is exported. Of the American consumption, the American Tobacco 
 Co. takes 19,433,365 ; Liggett & Myers Tobacco Co., only 3,196,866 ; P. Lorillard 
 Co., only 1,446,213 ; and the R. J. Reynolds Tobacco Co. none. It will be seen, 
 therefore, that the greater part of all the purchases of dark western is made 
 by the American Tobacco Co. aud is used by it for its smoking brands of " Five 
 Brothers " and " Peerless," the two largest selling brands of long-cut in 
 America. 
 
 4. Seed leaf. — Defendants' plan. Exhibit E, shows that of the seed-leaf to- 
 bacco, which is used mainly for cigars and so-called scrap smoking and 
 chewing tobacco, the average production of the country is 180,000,000 pounds. 
 Of this the quantity purchased by the American Tobacco Co. is estimated at 
 6,112,099; by the Liggett & Myers Tobacco Co., 5,676,180; by the P. Lorillard 
 Co., 19,993,726 ; and by the. R. J. Reynolds Tobacco Co. none. The trust's use 
 of this tobacco, aside from cigars and cheroots, is mainly for its scrap-tobacco 
 business and little cigars, of which the largest selling brands are " Honest " 
 and " Polar Bear." Both of the brands are assigned to the P. Lorillard Co., 
 thus making that company among the constituent elements of the trust, by far 
 the leading purchaser of seed leaf. The trust's purchases of low-grade seed 
 leaf — that is, the filler types, hail-cut types, and other types of leaf damaged 
 in growing — are so great iu Wisconsin, Connecticut, and New York that it prac- 
 tically dominates the American markets for low grades of seed-leaf tobacco, 
 with the exception perhaps of Pennsylvania and Ohio — and in some years the 
 markets of these States also. 
 
 Second. — The cigarette trade. 
 
 Defendants' plan, Exhibit D, indicates on its face such a distribution of the 
 cigarette business of the trust as to create reasonable competitiou between the 
 American Tobacco Co., Liggett & Myers Tobacco Co., and the P. Lorillard Co. 
 The American Tobacco Co. is given four brands, Liggett & Myers six brands, 
 and the Lorillard Co. five brands. As a matter of fact, the creation of competi- 
 tion in cigarettes among these three companies is apparent only ; because the 
 brands are so distributed as to give each of the three companies substantially 
 a dominating position in a specific branch of the cigarette trade or of a specific 
 cigarette market. 
 
 The cigarette trade falls substantially into six classes: Turkish high-grade 
 cigarettes, Turkish lower-grade cigarettes, domestic or Virginia cigarettes, 
 Turkish and domestic mixed, lowest grade of mixed Turkish and domestic, and 
 domestic cigarettes with Turkish mouthpieces. 
 
 1. Turkish high grade. — Under the plan, the dominating position in the 
 Turkish high grade is given to the American Tobacco Co. through the " Pall 
 Mall" brand. No brand of high-grade Turkish cigarette is allotted to the Liggett 
 & Myers Tobacco Co. The brand given the P. Lorillard Co., " Egyptian Deities," 
 has become relatively unimportant as compared with " Pall Mall." 
 
 2. Turkish lower grade. — The dominant position in the lower-grade Turkish 
 cigarettes is given to the P. Lorillard Co. by allotting to it the " Helmar," 
 " Murad." " Mogul," and " Turkish Trophies." Neither the American nor the 
 Liggett & Myers Tobacco Co. is allotted any strictly competing brand. 
 
 3. Domestic or Virginia. — The Liggett & Myers Tobacco Co. is given the domi- 
 nant position through the " Piedmont," " Home Run," " King Bee," and " Ameri- 
 can Beauty " brands. The P.' Lorillard Co. is not allotted any competing brand. 
 The American Tobacco Co. receives the "Sweet Caporal " ; but the sales of 
 that brand have become insignificant. 
 
 4. Turkish and domestic mixed. — The Liggett & Myers Tobacco Co. is allotted 
 the " Fatima " brand, which is believed to be the most important brand of 
 
328 HEABINGS BEFORE 
 
 cigarette upon the market. Neither the American Tobacco Co. nor the P. Loril- 
 lard Co. is allotted any brand which competes with this. 
 
 5. Lowest grade Turkish or perhaps Turkish and Virginia mixed.— -The Ameri- 
 can Tobacco Co. is allotted both the " Hassan " and the " Mecca " brands. 
 Neither the Liggett & Myers Tobacco Co. nor the P. Lorillard Co. is allotted any 
 competing brands. 
 
 6. Domestic with Turkish mouthpiece. — The Liggett & Myers Tobacco Co. is 
 allotted the " Iniperiales," which has a monopoly not merely in this kind of 
 cigarette but also substantially of the market (mainly the Pacific coast) where 
 it is sold. 
 
 Not only is each of the three companies thus given a dominating position in 
 the respective classes of the cigarette trade, but the domination through those 
 classes extends to a certain extent also to particular territories. For instance, 
 the P. Lorillard Co. has been allotted the brands which sell most largely in 
 the East, and the Liggett & Myers Tobacco Co. the brands which sell best in the 
 Middle West and South. 
 
 Third. — The smolcing-tooacco trade. 
 
 Defendants' plan, Exhibit D, presents the apparent creation of competition 
 in smoking tobacco by giving to the American Tobacco Co. six brands, to the 
 Liggett & Myers Tobacco Go. seven brands, and to the P. Lorillard Co. five 
 brands. In fact, no substantial competition between these three companies is 
 provided for. 
 
 The smoking tobacco of the country is divided into seven different classes, 
 namely, high-grade granulated, low-grade granulated, high-grade burley granu- 
 lated put up in 10-cent tin boxes, sliced plugs, long cuts, cut plugs, and scrap. 
 
 1. High-grade granulated. — The American Tobacco Co. is allotted " Bull 
 Durham," the leading brand of smoking tobacco in the country. No brand of 
 high-grade Virginia granulated smoking tobacco is allotted either to the Lig- 
 gett & Myers Tobacco Co., the P. Lorillard Co., or the B. J. Reynolds Tobacco Co. 
 
 2. Low-grade granulated. — The Liggett & Myers Tobacco Co. is allotted 
 " Duke's Mixture." the leading brand of low-grade granulated tobacco in the 
 country, as well as " King Bee." No competing brand of low-grade Virginia 
 granulated smoking tobacco is allotted eithpr to the American Tobacco Co. or 
 to the P. Lorillard Co. 
 
 3. High-grade hurley granulated.— In this department there is a reasonable 
 distribution of brands between the three companies, the American Tobacco Co. 
 having " Tuxedo," the Liggett & Myers Tobacco Co. " Velvet," and the R. J. 
 Reynolds Tobacco Co. the " Prince Albert " brands. 
 
 4. Sliced plugs. — The leading brands are " Lucky Strike " and " Old English," 
 both assigned to the American Tobacco Co. Neither the Liggett & Myers To- 
 bacco Co., the P. Lorillard Co., nor the R. J. Reynolds Tobacco Co. is allotted 
 any sliced plug brand. 
 
 5. Long cuts. — The leading brands are " Five Brothers " ;uid '' Peerless," both 
 allotted to the American Tobacco Co. These are the best selling brands in the 
 country manufactured from dark tobacco. Nether the Liggett & Myers Tobacco 
 Co.. the P. Lorillard Co., nor the R. J. Reynolds Tobacco Co. is allotted any 
 brand competing with these. On the other hand, Liggett & Myers Tobacco Co. 
 is allotted " Sweet Tip Top," a kind of long-cut made from burley tobacco, and 
 neither the American Tobacco Co. nor the P. Lorillard Tobacco Co., nor the 
 R. J. Reynolds Tobacco Co. is allotted any brand which competes with it. 
 
 6. Cut plugs. — The three leading brands of cut plugs are allotted to" the 
 P. Lorillard Co , namely. " Union Leader," " Sensation." and " Just Suits." 
 Neither the American Tobacco Co. nor the Liggett & Myers Tobacco Co. is 
 allotted any brand which competes with these. The R. J. Reynolds Tobacco 
 Co. has a new brand, " Geo. Washington," not yet well established, which may 
 be deemed a competitor. 
 
 7. Scrap. — The two principal brands are assigned to the P. Lorillard Co., 
 namely, "Honest" and "Polar Bear." Neither the American Tobacco Co., the 
 Liggett & Myers Tobacco Co., nor the R. J. Reynolds Tobacco Co. appears to 
 have any brand of scrap tobacco. 
 
 Fourth. — The plug-tooacco- trade. 
 
 Defendants' plan, Exhibit D. presents an apparent competition in plug to- 
 bacco by giving to the American Tobacco Co. nine brands, Liggett & Myers 
 three brands, and P. Lorillard two brands. As a matter of fact, there are sev- 
 
COMMITTEE ON INTERSTATE COMMERCE. 329 
 
 ^^^S^&^V™^"™*?*** «?*» sweet 
 grades-high, medium, fnd tow. The to7pS« are d Sd if^? lnto , three 
 sun-cured and flue-cured . dnideci into two classes, 
 
 B 3<?S7 m u H T-Zr The lefldm S brands of medium navy plu- are " Stir " 
 ™t~ ^l . BOth ° f these »™ allotted to the Liggett & M vers Tobacco Co 
 
 p T ^ a ™o the controllin S brands in America. The American Tobacco Co is 
 allotted '-Spearhead.- a competing brand, belt its saleTare ,4° hX urim 
 S?h ^ P -^ Tl "*l a Co - «8 allotted, likewise, a competing brand ' ' CH 
 S "'Star " were 2 T4UU U ' e ^ r6 l ft » «*»portant. The "sales for 1907 
 
 «.. « , ,,*: 27 ' 322 - 4 '8 Pounds, of "Horseshoe" 19,211,575 whereas those- 
 
 of Spearhead " were 6,850,025, and of " Climax " 2 657 306 wn ereas those 
 
 The P- Lonllard Co. also is allotted the "Planet" brand, but that is of a 
 
 srsur Sef arncter - « stands in a c,ass by its ^ «* «* ^ 
 
 3. Navy low grade— The leading brand of low-grade navy is "American 
 Navy. This, as well as " Square Deal," " Corker," and " Town Talk " all 
 ?„ aVy l0 7 u sr ade - ar e allotted to the American Co. Neither the Liggett & 
 Myers Tobacco Co., the P. Lorillard Co., nor the R. J. Reynolds Tobacco Co. 
 is allotted any brand of this class. 
 
 4. Sun-cured plug.— The R. J. Reynolds Tobacco Co. controls many brands 
 of the sun-cured plug, the principal of which is " R. J. R. Sun-cured."' Exhibit 
 D does not disclose that either the American Tobacco Co., the Liggett & Myers 
 Tobacco Co., or the P. Lorillard Tobacco Co. will baye any competing brand. 
 
 5. Flue-cured plug.— The R. J. Reynolds Tobacco Co., through its several 
 brands, of which the two leading ones are " Schnapps " and " Brown's Mule." 
 controls the flue-cured flat plug. Neither the American Tobacco Co. nor P. 
 Lorillard Co. would have, so far as the plan discloses, any competing brand. 
 
 The domination by particular companies of particular departments of the 
 plug-tobacco trade is not, however, confined merely to the domination of classes 
 of plug, as indicated above. It extends to a certain extent also to the domina- 
 tion of markets. Thus the Liggett & Myers Tobacco Co., with " Star " and 
 "Horseshoe," will dominate the Middle West; R. J. Reynolds Tobacco Co., 
 with " Brown's Mule " and. " Schnapps," will dominate the South ; and the 
 P. Lorillard Co., with " Planet," will dominate the chewing-plug business of 
 New England. 
 
 Fifth. — Little-cigars trade. 
 
 Defendants' plan, Exhibit D, purports to show competition in little cigars, 
 awarding to the American Tobacco Co., Liggett & Myers Tobacco Co., and the 
 P. Lorillard Co. each one brand. As a matter of fact, there are two or three 
 distinct kinds of little cigars — the high grade, selling 10 for 10 cents ; the low 
 grade, selling 10 for 5 cents; some with Burley and some with seed wrapper. 
 
 The Lorillard Co., with " Between the Acts," will dominate the high-grade 
 little-cigar business ; the Liggett & Myers Tobacco Co. with " Recruit," will 
 dominate the low-grade little-cigar business ; and the American Tobacco Co. 
 will have " Sweet Caporal," a little-cigar brand of a distinct type. 
 
 III. — THE PLAN SUGGESTED BY THE REMONSTRANTS. 
 
 (A) The requirement that the competing companies be owned by distinct groups 
 • of stockholders. 
 
 It has been pointed out that in this proceeding the court will not order the 
 adoption by the stockholders of any plan, but merely define the kind of dis- 
 integration which will satisfy the court. The remonstrants, by insisting upon 
 ownership of competing segments of the trust by distinct groups of stock- 
 holders, do not, therefore, ask the court to order the stockholders of the Ameri- 
 can Tobacco Co. to accept securities in a company holding a part of the joint 
 property in exchange for their present interest in the American Tobacco Co., 
 but in an appropriate proceeding such direction by the court would under some 
 circumstances not be either unconstitutional or illegal, or even unusual. 
 
330 HEARINGS BEFORE 
 
 It is said that the stockholders in the American Tobacco Co. made an invest- 
 ment in a corporation controlling and operating many branches of the tobacco 
 business and that the stockholders can not lawfully be compelled either to sepa- 
 rate themselves from one another in their common ownership or to accept in 
 exchange for their present stock interests equivalent in value in a single branch 
 of the tobacco industry. But nothing is better established than the power of the 
 court to compel persons owning property together to own it in severalty and to 
 compel each to accept an interest in severalty in one parcel of the common prop- 
 erty in exchange for an interest in common in many parcels. 
 
 For centuries tenants in common have been required to yield up their joint 
 ownership in the common property and to allow the common property to be divided 
 in severalty or the property itself sold and the proceeds divided. Any tenant 
 in common may compel a division in severalty of the property, real or personal, 
 held in common. The fact that another cotenaut desires to retain au undivided 
 interest in the whole property is not a defense to a proceeding for partition, 
 sees. 423-426; 30 Cyc, 174. 177; 21 Amer. and Eng. Bncyc, 2d ed., 1159.) 
 The right to partition is absolute. (See Freeman, Cotenancy and Partition, 
 
 It is important to observe that the right to compel a cotenant to give up his 
 interest in the common property in exchange for an interest in severalty in a 
 part of the common property or an equivalent in cash was not founded on 
 statute, but in the general equity powers of the courts. The early English 
 statutes authorizing partition in actions at law did not authorize partition 
 in all cases of cotenancy of real estate or in any case of cotenancy in person- 
 alty. And in those cases where the statutes authorized partitiou the legal 
 remedy was cumbersome and inadequate. Without statutory authority the 
 courts of equity, at least as early as the time of Elizabeth, assumed jurisdic- 
 tion to decree partition among cotenants of personalty and among cotenants 
 of realty as well. (Freeman, Cotenancy and Partition, sec. 423 et seq. ; Mount, 
 Partition of Real Estate, 1.) 
 
 Although the matter is now regulated largely by statutes in the various 
 States, the equity jurisdiction still exists in many States, both in the Federal 
 and the State courts. (30 Cyc, 170.) 
 
 The procedure is familiar. Generally speaking, it is the same throughout 
 the United States, although there are, of course, many local differences under 
 the different statutes. The cotenant seeking partition files his petition; the 
 other cotenants answer ; the court determines the relative shares and makes 
 an interlocutory decree for partition. Thereupon some disinterested persons 
 (commissioners, referees, masters) are appointed to make or recommend parti- 
 tion; the commissioners investigate the property to be divided and determine 
 the values of the common properties and of the several shares; if an advan- 
 tageous physical division can be made, they make or recommend such division. 
 If such can not be made, they make or recommend a sale and division of the 
 proceeds. The court confirms the partition. (30 Cyc, 247 et seq.) 
 
 There can be no question as to the constitutionality of proceedings for par- 
 tition. 
 
 The equity courts, when the property could not be divided advantageously in 
 accordance with the shares of the cotenants, frequently, nevertheless, ordered 
 a physical division and compelled the tenant receiving more than his share to 
 pay owelty to the others, and the statutes have followed the equity practice. 
 (21 Am. & Eng. Encyc, 2d ed., 1179.) 
 
 In partition proceedings, if the common property to be divided consists of 
 more than one parcel, one cotenant can not insist upon receiving a portion of 
 each parcel : 
 
 " Where there are several separate tracts, no duty is imposed by law on the 
 commissioners to make as many partitions as there are tracts. They may, 
 therefore, make an allotment restricted to one tract only, if the allotment cor- 
 responds in value to the interest of the allottee in the whole property subject 
 to partition. If there is any presumption on the subject, it is that the interest 
 of an allottee will be promoted by restricting his allotment to one parcel rather 
 than by extending it over two or more parcels." (30 Cyc, 262.) 
 
 " Where the property is in several parcels each parcel need not, and if it 
 would lessen the value of the property should not, be divided, but one or more 
 entire parcels may be assigned to each party according to circumstances and 
 the situation of the estate." (21 Am. & Eng. Encyc, 2d ed., 1164.) 
 
 " The law does not require * * * that a portion of each * * * parcel 
 of land should be set in severalty to each ; only that partition shall be so made 
 that owners in common shall become owners in severalty in exact proportions in 
 
COMMITTEE ON INTERSTATE COMMEECE. 331 
 
 value to their respective interests in the joint ownership." ( Stannard v. Sperry, 
 56 Conn., 541, 545. See, in accordance with this, Claude v. Hendy, 83 Md., 225, 
 238; Buck v. Wolcott, 15 Gray, 502; Hagar v. Wiswall, 10 Pick., 152; Barnes v 
 Lynch. 151 Mass., 510; Henrie v. Johnson, 28 W. Va., 190, 194; Clarendon v. 
 Hornby, 1 P. Wms., 446; Peers v. Needham, 19 Beav., 316, 320; Freeman Co- 
 tenancy & Partition, sec. 522.) 
 
 So far does this principle extend that in some jurisdictions a conveyance by 
 one cotenant of his rights in a portion of the common property gives his grantee 
 no rights therein against the other cotenants, for the grantor can not thus in 
 effect compel a division of the common property by which a certain part of the 
 common property will go to him or to his grantee in severalty. (Barnes v. 
 Lynch, 151 Mass., 510.) 
 
 (B) The prohibition for a limited period against original stockholders of one 
 segment acquiring stock in any competing segment. 
 
 Insistence upon this provision as an essential of a satisfactory plan of disin- 
 tegration does not, of course, involve the assertion of the power of the court to 
 compel stackholders to accept such a limitation of their freedom of investment. 
 It would be merely a declaration by the court that no plan would be approved 
 which does not contain this provision. 
 
 (a) The machinery for subjecting to this prohibition the numerous stock- 
 holders not now parties to the suit would be simple. It could be made a part of 
 the detail of the plan that every stockholder as a condition of receiving his pro- 
 portionate share of the corporate property should, when presenting his stock 
 certificate for exchange and stamping, sign appropriate papers signifying his 
 appearance in the case as a party affected by the terms of the injunction order. 
 In this way the stockholders at the time of distribution — the ones whom it is 
 desired to affect by the injunction — would become bound. 
 
 (6) The stockholders' position would be legally analogous to that of a pur- 
 chaser at a foreclosure sale who thereby becomes a party to the suit and would 
 practically resemble that of a bondholder who, in foreclosure and reorganization 
 proceedings, turns in his bonds for exchange and stamping. 
 
 The principles in such cases are well settled : " Purchasers under decrees in 
 chancery are regarded to a certain extent as parties to the suit, so as to be under 
 the control of the court on the one hand and its protection on the other." 
 (Daniell, Chancery Practice, 5th ed., p. 161, note.) 
 
 Thus a purchaser under an order or decree in chancery will be compelled to 
 complete his purchase by summary order. In Wood v. Mann (Fed. Cas., 17954; 
 3 Sumner, 318) Mr. Justice Story held that the successful bidder at a master's 
 sale and the surety on the bidder's undertaking to pay might both be com- 
 mitted for contempton a summary order in the original suit if they did not pay 
 within the time limited by the court, and said that the power was incidental to 
 the exercise of the principal jurisdiction, and added (p. 161): "The notion 
 indeed is utterly groundless that no person but a direct party to the suit can be 
 made subject to the orders or processes of the court." 
 
 (c) The L'nited States Supreme Court has repeatedly laid down the rule 
 that a bidder at a foreclosure sale becomes a party to the case. Mr. Justice 
 Brewer, in Ivneeland v. American Loan Company (136 U. S., 89), said (p. 95) 
 that a party bidding at a foreclosure sale becomes thereby a party to the pro- 
 ceedings and subject to the jurisdiction of the court for all orders necessary 
 to compel the perfecting of his purchase with a right to be heard on all ques- 
 tions thereafter arising affecting his bid. (See also Davis v. Mercantile Trust 
 Co., 152 U. S.. 590 at 594; Stuart v. Gay, 127 U. S.. 518; Tennessee v. Quintard, 
 80 Fed., 829, C. C. A.) 
 
 In the case last named Clarke, J., said (p. 835) : "It is also settled that the 
 purchaser by his bid becomes a quasi party to the suit and is affected with notice 
 of every proceeding subsequently taken in the case relating to the purchase 
 and the title acquired thereby." 
 
 The same doctrine has been applied to purchasers at judicial sales not in 
 equitable proceedings. (See Archer v. Archer, 155 N. T., 415.) 
 
 The doctrine is laid down generally that "a purchaser at a judicial sale 
 becomes from the time of his purchase, in effect, a party to the action, so far 
 as to be subject to the jurisdiction of the court and entitled to notice in sub- 
 sequent proceedings relating to the sale" (24 Cyc, 30), and that in foreclosure 
 proceedings the purchaser becomes a quasi party to the suit and subjects him- 
 self to the jurisdiction of the court. (Jones Mortgages, 6th ed., sec. 1642; Jones 
 Corporate Bonds, 3d ed., sec. 1644.) 
 
332 HEARINGS BEFOKE 
 
 (C) The number of units necessary to secure fair competition. 
 
 In our objections, filed October 25 (pp. 2-11, inclusive), we have stated in 
 respect to the several departments of the tobacco business and to certain allied 
 trades the number of separate concerns into which properties of the trust 
 should be divided. 1 
 
 In order to advise the court accurately in regard to the specific division which 
 should be made of the trust's properties in the several departments of the 
 tobacco business, the testimony of witnesses familiar with the trade conditions 
 should be submitted to the court, and we should, in this connection, have access 
 also to the data on which the plan submitted by the trust is based, as requested 
 in our petition of October IS. We are. however, able to submit now certain 
 •definite suggestions as to the divisions which should be made. 
 
 (1) Cigarette business. — As stated in our objections filed October 25 (p. 5), 
 the cigarette business of the trust, which the plan divides among three concerns, 
 should be divided among at least seven separate concerns. 
 
 (a) They might each continue the operation of one of the following factories: 
 Kinney Branch, New l r ork; Butler-Butler (Inc.), New York; S. Anargyros Co., 
 New York: Allan & Ginter (Inc.), Richmond, Va. ; John Bollman Co., San 
 Francisco. Cal. ; AV. K. Irby, New Orleans, La. ; Durham Branch, Durham, N. C. 
 
 (6) The brands should be distributed among these seven concerns in such a 
 way as to secure competition in brands. Provision should be specifically made 
 so that no one concern should have more than one of the following brands: 
 Hassan, Murad, Helmar, Mogul, Piedmont, Mecca, Fatima. 
 
 All the remaining brands controlled by the trust should be similarly dis- 
 tributed so as to secure competition among the several concerns in respect to 
 the various kinds of cigarettes. 
 
 (c) The separation of the cigarette business into seven distinct concerns is 
 made easier by the fact that at the present time the trust holds as separate 
 subsidiary concerns the following cigarette concerns : S. Anargyros Co., Butler- 
 Butler (Inc.), John Bollman Co., W. R. Irby. 
 
 (2) Smoking-tobacco business. — As stated in our objections (p. 6). the smok- 
 ing-tobacco business of the trust, divided by the plan among four concerns, 
 should be divided among at least 12 separate concerns. 
 
 (a) The following factories operated by the trust should be held by separate 
 companies : Blackwells-Durham Tobacco Co., Durham, N. C. ; Dukes' Mixture 
 Factory, at Durham, N. C. ; P. H. Mayo & Bro. Branch, Richmond, Va. ; 
 Patterson Tobacco Co., Richmond, Va. ; Marburg Factory, Baltimore, Md. ; 
 Lorillard Factory, Jersey City, N. J. : Catlin Factory. St. Louis, Mo. ; Spaulding 
 & Merrick, Chicago; F. F. Adams Co., Milwaukee; F. R. Penn Co., Readsville, 
 N. C. : Finzer Factory, at Louisville : National Tobacco Works, Nashville, Tenn. ; 
 It. J. Reynolds. Winston-Salem, N. C. ; Luhrman & Wilbura; Middletown, Ohio: 
 Liggett & Myers, St. Louis; Pinkerton Tobacco Co., Toledo, Ohio. 
 
 Among the concerns owning these several factories should be distributed the 
 various brands of smoking tobacco so as to insure reasonable competition in 
 respect to each of the kinds of smoking tobacco referred to above in article — . 
 
 (6) This distribution should be made in such a way that no two of the fol- 
 lowing brands should be owned by the same company: Durham Bull, Duke's 
 Mixture, Five Brothers, Union Leader, Sensation, Just Suits, Honest, Polar 
 Bear, Velvet, Prince Albert, Old English, Gale and Ax's Navy, Tuxedo (or 
 Lucky Strike). 
 
 (c) This separation of the smoking tobacco business of the trust into 16 
 different concerns would be facilitated by the fact that at the present time the 
 trust does its smoking-tobacco business in part through 11 subsidiary com- 
 panies which could be maintained in operation as separate and distinct con- 
 cerns, namely: Blackwells-Durham Tobacco Co.; Spaulding & Merrick; F. F. 
 Adams Co. ; F. R. Penn Co. ; National Tobacco Works ; R. J. Reynolds ; Liipf ert 
 
 1 It does not follow, however, that the number of separate corporations to be created 
 for this purpose is equal to the aggregate of the several units there set forth. A smaller 
 number will suffice, because no commercial reason exists why, in respect to certain of 
 the different branches of trade, one unit in each of several departments of the tobacco 
 business can not be combined in a single company. 
 
 For instance, it is stated that the plug business should be divided into a least 12 con- 
 cerns and that likewise the smoking-tobacco business should be divided into at least 12 
 concerns. No commercial reason exists why a single company should not manufacture 
 both plug and smoking tobacco, or indeed fine cut and snuff. But strong commercial rea- 
 sons exist why a company manufacturing those tobacco products should not also estab- 
 lish a cigarette department or a cigar department or vice versa. In other words, as set 
 forth in our objections (pp. 11-14), neither the cigarette business nor the cigar business 
 ought to be combined either with one another or with the smoking or chewing tobacco, 
 
COMMITTEE ON INTERSTATE COMMERCE. 333 
 
 Scales Co.; Pinkerton Co.; Luhrnian & Wilburn Co.; Nail & Williams; R. A. 
 Patterson Tobacco Co. 
 
 (3) Plug tobacco.— As stated in our objections filed October 25, 1911 (p 7) 
 the plug-tobacco business of the trust is divided by the plan among four com- 
 panies, but should be divided among at least 12 separate concerns. 
 
 (a) The following factories should be each owned by different concerns 
 namely: Lorillard. Jersey City; Liggett & Myers, St. Louis; Natioual Branch! 
 Louisville; Sorg Branch, Middletown ; Spaulding & Merrick, Chicago- Mayo 
 Branch. Richmond: Patterson Branch, Richmond; Reynolds, Winston ' Salem, 
 N. C. ; Liipfert Scales Co., Winston Salem. N .C. ; Penn Co., Reidsville- Nail & 
 Williams, Louisville; Nashville Tobacco Works, Nashville, Tenn. 
 
 (6) Among these 12 different concerns the brands of plug tobacco should be 
 distributed in such a way as to secure competition in the various kinds and 
 grades of plug tobacco. No two. of the following brands should be allotted 
 to the same concern: Star, Horse Shoe, Spearhead, Climax, J. T., Standard 
 Navy, Piper Heidsieck, Boot Jack, Schnapps, Brown's Mule, Town Talk, Planet. 
 
 (ft The division of the plug tobacco business of the trust nmors 12 separate 
 concerns is facilitated by the fact that the trust now does its plug-tobacco 
 business in pail through 6 subsidiary companies, all of which should be main- 
 tained in existence ae part of the separate concerns to carry forward the 
 business of the trust in plug tobacco, namely : Spaulding & Merrick • R A 
 Patterson Tobacco Co.; Nail & Williams; F. R. Penn Co.; R. J. Reynolds 
 Tobacco Co. : National Tobacco Works. 
 
 '.(4) Snuff business— As stated in our objections filed October 25 (p. 7), the 
 snuff business of the trust should be divided amoung at least six different con- 
 cerns. The brands now controlled by the trust should be distributed among 
 these six concerns in such a way as to secure full competition in each of the 
 different kinds of snuff. 
 
 (5) Little cigar business. — As stated in our objections (p. S), the little cigar 
 business of the trust is divided by the plan among three concerns, but should 
 be divided among at least seven separate concerns. Among these seven con- 
 cerns should be distributed the several brands controlled by the trust in such 
 a way as to secure fair competition in the several classes of little cigars. 
 
 (D) The restraints on unfair competition, proposed by the remonstrants. 
 
 The remonstrants submit that for a limited period the corporations carrying 
 forward the business of the trust be restrained from certain specific practices 
 which would tend to stifle competition, and that the individual defendants be 
 restrained from doing or aiding in the doing of the things prohibited to the 
 corporations. (Objections, pp. 14-17.) 
 
 (1) The power of the court to restrain specific methods of unfair competition. 
 
 If to recreate a condition in the tobacco industry in harmony with the law 
 requires that the restraints suggested be imposed upon the new segments and 
 the individual defendants, the court, as already argued, has power, by withhold- 
 ing its assent from any reorganization which does not impose such restraints, 
 to compel the new segments and the individual defendants to submit to these 
 restraints. 
 
 (a) Quite apart from this, however, the court, under its jurisdiction "to 
 prevent and restrain violations" of the Sherman Act (Sherman Act, sec. 4) 
 clearly may enjoin any act found to be in violation of the statute. As Mr. 
 Chief Justice White said in Standard Oil Co. v. U. S. (221 U. S., 1, 181) : 
 " Similar devices in the future may be enjoined ; " and Mr. Justice Peckham, 
 in one of the first cases under the statute, said the court should " enjoin 
 defendants from entering into or acting under any similar agreement in the 
 future." (TJ. S. v. Transmission Freight Assn., 166 U. S., at 308.) 
 
 So the courts have repeatedly enjoined acts and conditions found illegal under 
 the statute, e. g. : 
 
 1. Contracts or associations unlawfully regulating trade (U. S. v. Trans- 
 Missouri Freight Assn., 166 U. S„ 290; V. S. v. Joint Traffic Assn., 171 U. S., 
 505 : Addyston Pipe & Steel Co. v. V. S., 175 TJ. S., 211 ; TJ. S. v. Jellico Mountain 
 Coal & Coke Co., 46 Fed., 432 ; U. S. v. Coal Dealers' Assn., 85 Fed., 252 ; U. S. 
 v. Chesapeake & Ohio Fuel Co., 105 Fed., 93). 
 
 2. Combinations through the device of a holding company (TJ. S. v. Northern 
 Securities Co., 193 TJ. S., 197; TJ. S. v. Standard Oil Co., 173 Fed., 177, 221 
 U. S„ 1). 
 
 3. Numerous specific devices and methods used to restrain trade, or to create 
 or maintain monopoly (Swift & Co. v. U. S., 196 TJ. S., 375, 393; U. S. v. Gen- 
 
334 HEARINGS BEFORE 
 
 eral Electric Co., decree entered in circuit court, northern district, Ohio, October 
 12, 1911, Electric Lamp Trust case). 
 
 (&) Matters which " isolatedly viewed" might be legal, may nevertheless, 
 be enjoined if they have been employed as a part of the general plan or com- 
 bination, illegal under the statute. 
 
 As Mr. Justice Holmes said in the Swift case, in delivering the unanimous 
 opinion of the Supreme Court (196 U. S., 396) : 
 
 " The scheme as a whole seems to us to be within reach of the law. The 
 constituent elements, as we have stated them, are enough to give to the scheme 
 a body and, for all that we can say, to accomplish it. Moreover, whatever we 
 may think of them separately when we take them up as distinct charges, they 
 are alleged sufficiently as elements of the scheme. It is suggested that the 
 several acts charged are lawful and that intent can make no difference. But 
 they are bound together as the parts of a single plan. The plan may make the 
 parts unlawful." 
 
 In Grenada Lumber Co. r. Mississippi (217 TJ. S., 433, 440-441), Mr. Justice 
 Lurton said : 
 
 "That any of the persons engaged in (he retail lumber business might have 
 made a fixed rule of conduct not to buy his stock from a producer or wholesaler 
 who should sell to consumers in competition with himsfelf. is plain. No law 
 which would infringe his freedom of contract in that particular would stand. 
 But when the plaintiffs in error combine and agree that no one of them will 
 trade with any producer or wholesaler who shall sell to a consumer within 
 the trade range of any of them, quite another case is presented. An act barm- 
 less when done by one may become a public wrong when done by many acting 
 in concert, for it then takes on the form of a conspiracy, and may be pro- 
 hibited or punished, if tbe result be hurtful to the public or to the individual 
 against wbom the concerted action is directed." 
 
 And compare the language of Mr. Chief Justice White in the present case. 
 (U. S. v. American Tobacco Co., 221 TJ. S., 183.) 
 
 (0) The power of the court is not limited to merely enjoining generally the 
 continuance of the wrongful situation or the repetition of the wrongful acts; 
 to award relief coterminous with the ultimate redress of the wrongs found to 
 exist (U. S. r. American Tobacco Co., 221 TJ. S., 185) the court may add such 
 apt injunctions as will make its relief effective. 
 
 (1) Thus, e. g., the court may enjoin the illegal combination from engaging 
 in interstate commerce (TJ. S. v. American Tobacco Co., 221 TJ. S., 186; TJ. S. v. 
 Standard Oil Co., 173 Fed., 177) : (2) or enjoin a holding company from receiv- 
 ing dividends on the stock illegally held and from voting these stocks (TJ. S. v. 
 Northern Securities Co., 193 TJ. S., 197 ; Standard Oil Co. v. TJ. S., 221 TJ. S., 1, 
 78, 79, 80) : (3) or impose such proper restraints a a may effectively prevent 
 re-creating the illegal combination dissolved (Standard Oil Co. v. TJ. S., 221 
 TJ. S., 1, 80-81 ; TJ. S. v. General Electric Co., C. C. N. D., Ohio, Oct. 12, 1911, 
 unreported). 
 
 (2) The legality of the particular restraints suggested by the remonstrants. 
 The several restraints suggested were against — 
 
 (1) Combination by stock ownership or loans: 
 
 " From acquiring or holding stock or other interest in, or undertaking to 
 exercise any control over, or making loans or otherwise extending credit to, any 
 other corporation carrying forward any part of the business of the trust, 
 except as hereinafter provided." 
 
 Among other considerations overwhelmingly establishing the conclusion of 
 wrongful purpose and illegal combination Chief Justice White pointed out 
 (221 TJ. S., 182) "the control exerted by the taking of stock in one or another 
 or several (corporations) so as to observe the result actually attained," and 
 elsewhere in his opinion (e. g., pp. 162-164) mentions many instances of such 
 control. 
 
 Combination by stock ownership of the separated corporations of the Standard 
 Oil Co. was enjoined (TJ. S. v. Standard Oil Co., 173 Fed., 197-200), and this 
 part of the decree in that case was expressly approved by the Supreme Court. 
 (Standard Oil Co. v. TJ. S., 221 TJ. 8., 1, 79.) 
 
 (2) Common officers: 
 
 " From having any person act as one of its officers or directors who is also an 
 officer or director in any of the other corporations carrying forward any other 
 part of the business of the trust, except as hereinafter provided." 
 
COMMITTEE ON IXTERSTATE COMMERCE. 335 
 
 (3) Combination in buying and selling: 
 
 " From combining in any way with any other corporation carrying forward 
 any part of the business of the trust, either in purchasing raw material or 
 supplies, or in selling manufactured products, or otherwise, or having any joint 
 or common agents or enterprises in connection with the purchase of raw ma- 
 terials or supplies, or the sale of manufactured products or otherwise." 
 
 Mr. Chief Justice White alludes to the fact that certain officers were the 
 same in the American Tobacco Co. and in the other companies. (221 U. S., 
 p. 161.) 
 
 (4) Apportionment of trade by customers or locality: 
 
 " From making any agreement or arrangement of any kind with any corpora- 
 tion carrying forward any part of the business of the Trust under which trade 
 is apportioned in respect either to customers or localities." 
 
 The defendants admittedly divided the world's trade among themselves. 
 
 The Standard Oil case decree specifically forbade the segments of the Stand- 
 ard Oil Co. to make agreements apportioning trade. 
 
 (5) Fake independents : 
 
 " From doing business directly or indirectly under any name other than its 
 own corporate name." 
 
 As Mr. Chief Justice White stated (221 U. S., p. 163) " It is * * * undis- 
 puted that in many instances the acquired corporations * * * were carried 
 on ostensibly as independent concerns ; " and one of the foundations of his con- 
 clusion of illegality was (p. 1S3) that the defendant's placed "control in the 
 hands of seeming independent corporations serving as perpetual barriers to the 
 entry of others into the tobacco trade." 
 
 The Electrical Lamp Trust decree restrained the defendants from doing busi- 
 ness disguised as Independents. 
 
 (6) Holding stock in other corporations: 
 
 (7) Espionage: 
 
 " From espionage on the business of any competitor either through bribery 
 of any ;igent or emplo3'ee of such competitor, or obtaining information from any 
 United States revenue official." 
 
 (8) Cutthroat competition : 
 
 " From giving away, selling at or below the cost of manufacture and distribu- 
 tion, any of its products, or adopting any other method of cutthroat competition 
 for the purpose of destroying or of acquiring the business or trade of a com- 
 petitor." 
 
 Among the undisputed facts of the case Mr. Chief Justice White states (pp. 
 160-161) the " ruinous competition (which) by lowering the price of plug below 
 cost * * * produced its natural result * * * the company acquired 
 control of important plug tobacco concerns * * * others engaged in that 
 industry came to terms " ; and among the bases of his conclusion of illegality 
 he refers (p. 182) to the "trade conflicts designed to injure otners, either by 
 driving competitors out of the business or compelling them to become parties to 
 a combination." 
 
 (9) Discrimination between jobbers and special advantages for exclusive 
 dealing : 
 
 "From refusing to sell to any jobber any brand of snuff or cigarettes or 
 smoking or chewing tobacco manufactured by it, which is indispensable in the 
 particular market. It should also be restrained from giving any rebates, allow-' 
 ances, or other special inducements to those who use its goods exclusively or 
 give preference to them over the goods of competitors." 
 
 Somewhat similar methods of unfair competition were enjoined in the 
 Electrical Lamp Trust case. 
 
 (10) Holding stock in jobbing concerns: 
 
 "No corporation carrying forward any part of the manufacturing business 
 of the trust should be allowed to hold any part of the stock of or any other 
 interest in any concern engaged in jobbing tobacco products; but it should be 
 permitted, except as above stated, to own the stock of another corporation 
 organized to carry on any part of its permissible business, provided such other 
 corporation shall have a corporate name and the business is done under a 
 name substantially identical with its own." 
 
 Each of these 10 methods of unfair competition was extensively employed by 
 the trust to restrain trade and to create and maintain monopoly. 
 
 As a part of the general illegal scheme, each device was undoubtedly illegal. 
 The individual defendants ought to be restrained from continuing their illegal 
 
 22877— vol 1—12 22 
 
336 
 
 HEARINGS BEFORE 
 
 practices ; and the new segments ought to be prevented from using the instru- 
 ments by which the combination suppressed all competition. No legitimate 
 business purpose requires that any of the methods in question be permitted. 
 That the court may properly not only withhold its approval from any plan 
 which does not embody a prohibition of, but also directly enjoin such devices 
 has already been shown. 
 
 (E) The commercially efficient unit : 
 
 It would, of course, be no justification for the continuance of an illegal com- 
 bination that the concentration of the business is attended by important econo- 
 mies and that disintegration would result in economic waste. But, as a matter 
 of fact, the nature of the tobacco business is such that efficiency does not 
 demand great concentration. In other words, in the tobacco business (unlike, 
 for instance, steel) the efficient unit may be relatively small. This is strikingly 
 shown by the fact that the trust, after its many years of combination, still 
 conducts its manufacturing in so many distinct establishments and its dis- 
 tribution through so many distinct selling forces or agencies. 
 
 That the huge earnings of the Tobacco Trust have been made, in the main, 
 by its control of prices — in other words, by illegal monopolistic control, and 
 not by economies in production and distribution — is clearly established by the 
 report of the Commissioner of Corporations on the Tobacco Industry, Part II. 
 
 " The table shows clearly that in those periods in which the Tobacco Combi- 
 nation had a substantial control over the branches in which it was engaged 
 the rate of earnings was extraordinarily high. On the other hand, in periods 
 of relatively low degree of control there was an immediate and pronounced 
 reduction in rate" (p. 18). 
 
 " The results of the Spanish War tax upon tobacco products especially illus- 
 trate the monopolistic power of the combination. When that tax was imposed 
 in 189S prices were generally raised. In 1901 and 1902 the tax was reduced to 
 its former basis, but the combination was powerful enough to keep its prices 
 at the higher level. It thus absorbed practically all the benefit of the reduc- 
 tion, adding millions yearly to its income. The episode shows the unforeseen 
 results of fiscal legislation affecting monopolistic conditions not fully recognized 
 The tax reduction, of course, was intended to benefit the consumers. As a 
 matter of fact, it benefited almost solely the controlling interest in the industry " 
 (p. xx). 
 
 " The most striking feature of the entire preceding discussion is the almost 
 Invariable association of higher rates of profit with a high degree of control, 
 or with monopolistic conditions, and of lower rates of profit with a lesser 
 degree of control or active competitive conditions" (p. 36). 
 
 " In the snuff business the combination has an almost complete monopoly — 
 96 per cent of the whole business. From a rate of less than 9 per cent in the 
 first year (1901) the earnings rose in 1903 to 15 per cent and in 1906 to over 
 22 per cent. * * * ' 
 
 " In the highly controlled ' smoking-tobacco ' business the average earnings of 
 important subsidiaries increased from 17 per cent in 1900 to 55 per cent in 
 1908 (pp. xix-xx). 
 
 " Conversely, the subsidiaries engaged in the flat-plug business, with more 
 active competition, in.no year earned 19 per cent — in 1906 less than 8 per cent 
 (pp. xix-xx). 
 
 " Finally, in the cigar business, of which the combination controls not over 
 15 per cent, its rate of earnings has never exceeded 9 per cent, and from 1901 
 to 1908 averaged less than 6 per cent" (pp. xix-xx). 
 
 In 1908 the cigarette subsidiaries earned 222 per cent on the tangible assets, 
 the smoking group 103.5 per cent, the plug group only 21.4 per cent (p. 20). 
 
 The successful businesses which combined to form or were purchased by the 
 trust were " originally acquired at a price which indicates that the value of 
 the previous earnings was figured on approximately an 8 per cent basis. The 
 combination, therefore, has been able to increase the average profitableness of 
 this vast business which it has combined under one control almost threefold. 
 This has not alone been due to economies in concentration; instead, as will 
 clearly be brought out in a subsequent part of the report, the increase in profit- 
 ableness is chiefly attributable to the decrease in the internal-revenue tax in 
 1901 and 1902 and a practically corresponding increase in the net price, less 
 the tax. In other words, it is directly attributable to the monopolistic control 
 of the combination, since had there been effective competition it is incredible 
 that the benefit of the reduction in the tax could thus have been retained by 
 the combination for any length of time" (p. 27). 
 
COMMITTEE ON INTERSTATE COMMERCE. 337 
 
 " The enormously profitable nature of the plug and smoking tobacco and snuff 
 business of the combination stands out in striking contrast to the comparatively- 
 moderate rates of profit for the independent business in the same branches " 
 (p. 34). 
 
 " The lower rate of earnings for certain branches and for certain limited 
 periods in the history of the combination when a much lower degree of control 
 prevailed, are on the other hand a tribute to the efficiency of competition as a 
 regulator of profits and of prices" (p. 36). 
 
 IV. FINANCIAL ASPECTS OF THE PLAN. 
 
 As the independents are interested merely in the commercial aspects of the 
 plan — that is, securing a re-creation of conditions of reasonable competition, we 
 have not deemed it proper to make any suggestions regarding its financial 
 aspects. To what extent it may be fair or unfair as between the security holders 
 of the trust does not concern the independents. Nor have we thought it proper 
 to suggest how these financial relations should be adjusted if a modified plan 
 as suggested by us is adopted. These are problems of a class in which the 
 individual defendants have a recognized mastery, in which the independents 
 have no interest as such, and of which they possess no special knowledge. 
 They are, however, willing to aid in the solution of these problems, if access, 
 is given them to the papers and data necessary for that purpose, requested in 
 their petition filed October 18, 1911. 
 
 (a) It may be proper, however, to suggest that the financial condition of the 
 trust is such that the outstanding bonds do not appear to present any serious 
 obstacle to any plan requiring the disintegration of the trust into many rela- 
 tively small units. 
 
 The bonds aggregate only $101,045,200. On December 31, 1910, the surplus 
 of the American Tobacco Co. was $61,119,911.63. Many of the subsidiary com- 
 panies have also large surpluses. The earnings for the last year of the Amer- 
 ican Tobacco Co. alone, applicable to dividends, were $30,297,457.35. They are 
 presumably no less this year. The American Tobacco Co. and its subsidiaries 
 held (besides unusually large cash assets) securities and other property of 
 great value easily convertible into cash. The company has, therefore, means 
 available to pay off its bonds. Most of the bonds could doubtless be purchased 
 and paid off at their proper value. The balance could be otherwise provided 
 for. Certainly the existence of indebtedness could not prevent a dissolution 
 of the company if that is essential to secure compliance with the Sherman law. 
 
 (6) The legitimate interests of stockholders must not be sacrificed. But there 
 is no danger that thev will be. The illegal operations of the trust have for 
 many years been so profitable that large surpluses have been accumulated, 
 which would readily enable the company, by the sale of its marketable assets, 
 to pay par in cash to the holders of both common and preferred stock. That 
 extravagant value of the common stock, due to extortionate profits incident to 
 monopolistic control, is, of course, not a vested right. Indeed, it is the very pur- 
 pose of this suit to destroy that monopoly. It is the court's " duty " to give 
 "complete and efficacious effect to the prohibitions of the statute" and ' to 
 destroy" the present "wrongful situation." (U. S. v. American Tobacco Co., 
 221 TJ. S., 106, 185-186.) 
 
 Even those stockholders who did not actively participate in the illegal acts of 
 the combination must bear whatever disadvantage may attend their having be- 
 come partners in an illegal enterprise, of which they enjoyed the fruits. 
 
 Louis T>. Brandeis, 
 
 New York, October 30, 1911. 
 
 Felix H. Levy, 
 Counsel for Remonstrants. 
 
 Appendix. 
 
 j, —PROPERTIES RETAINED AND SUBSIDIARY CORPORATIONS CONTROLLED BY AMERICAN 
 
 TOBACCO CO. 
 
 The American Tobacco Co. will have (after retirement of all bonds), accord- 
 ing to defendant's plan, Exhibit C, assets, $118,803,711.20; estimated net earn- 
 ings, $14,530,563.71; estimated sales (apparently of the main company alone), 
 $65,622,948.26. 
 
338 HEARINGS BEFORE 
 
 Its properties and subsidiaries so far as disclosed will be as follows : 
 (a) Branches of American Tobacco Co.: Kinney branch, Penn Street branch, 
 Duke branch. 
 
 (6) Subsidiary companies : Butler-Butler (Inc.). 
 
 Second. Smoking-tobacco businesses: (a) Branches of American Tobacco 
 Co. — Marburg branch, Finzer branch, Mayo branch, Feigner branch. (6) Sub- 
 sidiary corporations — Blackwell's Durham Tobacco Co., F. F. Adams Tobacco 
 Co., R. A. Patterson Tobacco Co., F. R. Penn Tobacco Co. 
 
 Third. Plug-tobacco businesses: (a) Branches of American Tobacco Co. — 
 National branch, Sorg branch, Mayo branch. (6) Subsidiary companies — R. A. 
 Patterson Tobacco Co., F. R. Penn Tobacco Co., Nashville Tobacco Works. 
 
 Fourth. Little-cigar businesses : Branches of American Tobacco Co.— Dan- 
 ville branch, Ellis A. 
 
 Fifth. Cigar businesses : Subsidiary companies — American Cigar Co., Cres- 
 cent Cigar & Tobacco Co. Subsidiary company of American Cigar Co. — Havana- 
 American Co. 
 
 Sixth. Machinery businesses : Subsidiary companies — -Standard Tobacco 
 Stemmer Co., United States Cigar Machine & Manufacturing Co., American 
 Machine & Foundry Co., International Cigar Machinery Co., American Cigar 
 Machine Co. of Maine, New Jersey Machine Co., Union Cigar Making Ma- 
 chine Co., Garson Vending Machine Co. 
 
 Seventh. Tobacco-box businesses: Subsidiary companies — Mengol Box Co. 
 Columbia Box Co., Tyler Box Co. 
 
 Eighth. Tobacco-bag business : Subsidiary company — Golden Belt Manufae 
 turing Co. 
 
 Ninth. Jobbing businesses : Subsidiary companies — Monopol Tobacco Works, 
 Louisiana Tobacco Co. (Ltd.), J. B. Moos Co., J. & B. Moos, Acker, Merrill & 
 Condit Co., R. D. Burnett Cigar Co., M. Blaskower Co., Cliff Weil Cigar Co., 
 Dusel, Goodhue & Co., J. J. Goodrum Tobacco Co., Jordan Gibson & Baum. 
 
 Tenth. Tobacco-pipe businesses: Subsidiary companies — Manhattan Briar 
 Pipe Co., Baltimore Briar Pipe Co. 
 
 Eleventh. Real-estate business : Subsidiary company — Federal Cigar Real 
 Estate Co. 
 
 Twelfth. Billboard advertising business: Subsidiary company — Thos. Cu- 
 sack Co. 
 
 Thirteenth. Tobacco by-products : Subsidiary companies — Health Tobacco 
 Co., Kentucky Tobacco Products Co., Louisville Spirit & Tobacco Co. 
 
 Fourteenth. Cuban concerns: Subsidiary companies — Cabanas y Carbajal, 
 Havana Tobacco Co., Cuban Land & Leaf Co., Havana Commercial Co. (a con- 
 solidation of 13 companies), Henry Clay and Bock & Co. (Ltd.) (a consolidation 
 of 9 companies), Havana Cigar & Tobacco Factories (Ltd.) (a consolidation of 
 9 companies), F. Garcia Bros., J. S. Murios y Ca. 
 
 II. — PROPERTIES RECEIVED AND SUBSIDIARY CORPORATIONS WHOSE STOCKS ARE TO BE 
 DISTRIBUTED AMONG STOCKHOLDERS OF AMERICAN TOBACCO CO. 
 
 (1) Liggett & Myers Tobacco Co. — The Liggett & Myers Tobacco Co. will have, 
 according to defendants' plan, Exhibit C. as assets, $67,447,499 ; estimated net 
 earnings, $7,468,171.02; estimated sales, $54,402,812.47. 
 
 Its properties and subsidiaries as disclosed by the plan are : 
 
 First. Cigarette businesses: (a) Branches of American Tobacco Co. — Allen 
 & Ginter branch, W. R. Irby branch, Duke-Durham branch. (6) Subsidiary 
 company — John Bollman Co. 
 
 Second. Smoking-tobacco businesses : (a) Branches of American Tobacco Co.— 
 Duke-Durham branch, Catlin branch, Liggett & Myers, Chicago branch, W. R. 
 Irby branch, (h) Subsidiary companies — Spaulding & Merrick, Pinkerton To- 
 bacco Co., Nail & Williams Tobacco Co. 
 
 Third. Plug-tobacco businesses: (o) Branches of American Tobacco Co. — Lig- 
 gett & Myers. (6) Subsidiary companies — Spaulding & Merrick, Nail & Wil- 
 liams Tobacco Co. 
 
 Fourth. Little-cigars businesses: Branches of American Tobacco Co. — Wil- 
 mington — A, Philadelphia — A, Baltimore branch. 
 
 (2) P. Lorillard Co. — The P. Lorillard Co. will have, according to defendants' 
 plan, Exhibit C, assets, $47,552,501 ; estimated net earnings, $5,264,729.38 ; esti- 
 mated sales, $38,718,052.25. 
 
 Its properties and subsidiaries are disclosed by the plan : 
 First. Cigarette business : Subsidiary company — S. Anargyros. 
 Second. Smoking-tobacco businesses : Subsidiary companies — Luhrman & Wil- 
 burn Tobacco Co., P. Lori llard & P,o 
 
COMMITTEE ON INTEESTATE COMMERCE. 339 
 
 Third. Plug-tobacco business : Subsidiary company — P. Lorillard & Co. 
 Fourth. Little-cigars businesses: Branches of American Tobacco Co. — Phila- 
 delphia — B, Wilmington — B, Danville— B, Ellis branch — B. 
 Fifth. Cigar business : Subsidiary company — Federal Cigar Co. 
 
 (3) R. J. Reynolds Tobacco Go. — The R. J. Reynolds Tobacco Co. will have, 
 according to defendants' plan, Exhibit C, assets, $10,516,247.59 ; estimated net 
 earnings, $1,675,616; estimated sales, $13,905,520. 
 
 Its properties and subsidiaries are as follows : 
 
 First. Smoking-tobacco businesses : Subsidiary companies— R. J. Reynolds To- 
 bacco Co., Llipfert Scales Co. 
 
 Second. Plug-tobacco businesses : Subsidiary companies — R. J. Reynolds To- 
 bacco Co., Liipfert Scales Co. 
 
 (4) American Snuff Co. (snuff). — The American Snuff Co. will have, accord- 
 ing to the defendants' plan, page 10, tangible assets (other assets not given), 
 $5,075,969.72; estimated net earnings, $1,591,280.49; estimated sales, 
 $5,520,422.15. 
 
 The plan does not show what plants are to be retained by American Snuff 
 Co., and the data and papers on which the plan is based are not accessible. 
 
 (5) Geo. W. Helme Co., (snuff).— The George W. Helme Co. will have, ac- 
 cording to defendants' plan, page 10, tangible assets (others not given), $4,909,- 
 000.40; estimated net earnings, $1,259,280.98; estimated sales, $1,293,759.39. 
 Certain factories at Helmetta, N. J., and Torklyn, Del. 
 
 The plan does not describe these factories further, and the data and papers 
 on which the plan is based are not accessible. 
 
 (6) Weyman & Bruton Co. (snuff). — The Weyman & Bruton Co. will 
 have, according to defendants' plan, Exhibit C, tangible assets (others not 
 given), $3,691,588.20; estimated net earnings, $1,293,759.39; estimated sales, 
 $4,297,486.71. Factories at Chicago and Nashville. 
 
 The plan does not describe these factories further, and the data and papers 
 on which the plan is based are not accessible. 
 
 Subsidiary companies — Devoe Snuff Co., National Snuff Co. 
 
 (7) Conley Foil Co. (tin foil). — This company will have, according to the 
 plan, page 7, tangible assets (others not given), $1,215.32; estimated net profits, 
 $273,299.82; estimated sales, $1,780,526.85. Plant in New York City. 
 
 (8) Johnston Tin Foil £ Metal Co. (tin foil). — This company will have, 
 according to the defendants' plan, page 7, tangible assets, $379,255.16; esti- 
 mated net earnings, $66,255.16 ; estimated sales, $676,520.05. Plant in St. Louis. 
 
 (9) Mao Andrews & Forbes Co. (licorice paste). — This company will have, 
 according to defendants' plan, pages 8 and 9, estimated sales of net selling 
 value of $2,514,184.64. The assets of the present company are $5,683,824.89, and 
 sales $4,427,023.44. Plant at Camden, N. J. 
 
 (10) J. L. Young Go. (licorice paste). — This company will have, according 
 to defendants' plan, page 9, sales of net selling value of $1,201,109.86. Plant at 
 Baltimore, Md. 
 
 (11) United Cigar Stores Co. — Retail stores: Nearly a thousand retail stores. 
 Subsidiary companies — Acker. Merrill & Condit Co., Independent Cigar Stores 
 Co., United Cigar Stores Co. of Illinois, United Cigar Stores Co. of Rhode Island, 
 the Royal Co., C. A. Whelan & Co. (Inc.), United Cigar Stores Co. Agency, United 
 Merchants Realty & Improvement Co., Moebs Cigar Stores Co., Wm. Baeder 
 k Co. 
 
 (12) British-American Tobacco Co. — Export business : Subsidiary companies- 
 David Dunlop, T. C. Williams Co.. W. S. Matthews & Son, W. S. Matthews & 
 Son, Cameron & Cameron, Wm. Cameron & Son. 
 
 (The foreign properties of this corporation are omitted.) 
 
 (13) Porto Rican American Tobacco Co. — Porto Rican business. Subsidiary 
 companies— Porto Rican Leaf Tobacco Co., Industrial Co. of Porto Rico, Ruca- 
 bado & Portela. 
 
 (14) Imperial Tobacco Co. — Buying and rehandling leaf tobacco. Business 
 in United States only considered. Several leaf factories. 
 
 (15) American Stogie Co. — Stogie business: Plants in Pittsburgh. Sub- 
 sidiary company — Union American Cigar Co. 
 
 III. — SCHEDULE OF FACTORIES OK DEPARTMENTS OF MANUFACTURING ACQUIRED BY 
 THE TRUST WHICH HAVE BEEN CLOSED (SEE NOTE). 
 
 First. Smoking tobacco (35) : August Beck & Co., J. G. Butler Tobacco Co., 
 American Eagle Co., Banner Tobacco Co., *National Cigarette & Tobacco 
 Co., *Gradle & Kratz, *Reynolds Tobacco Co., C . V. Winfree Tobacco Co., 
 
 • Names marked with asterisk Indicate this department appears to have been closed. 
 
340 HEARINGS BEFORE 
 
 Wellman-Dwire Tobacco Co., D. H. McAlpin & Co., *Buchner Tobacco Co., 
 *John Anderson & Co., Manufacturers' Tobacco Co., T. C. Williams Co., J. H. 
 Fye Co., Henry Weissinger Tobacco Co., Meriwether Snuff Tobacco Co., John 
 W. Carroll Tobacco Co., Weyman & Bro.. Brittain Tobacco Works, *Daniel 
 Scotten & Co., Buchanan & Lyall, S. W. Venable Tobacco Co., Wright Bros. 
 Tobacco Co., Addison Tinsley Tobacco Co., M. C. Wetmore Tobacco Co., Mid- 
 dleton Tobacco Co., Butler & Bosher Co., Michigan Tobacco Co., R. F. Morris & 
 Son, *Craft Tobacco Works, Wells-Whitehead Tobacco Co., Bland Tobacco Co., 
 J. Wright Co., Drummond Tobacco Co., Cameron & Cameron. 
 
 Second. Plug tobacco (33) : Rucker & Witten Tobacco Co., H. W. Meyer, 
 Drummond Tobacco Co., Wright Bros. Tobacco Co., B. Leidersdorf Co., Monopol 
 Tobacco Works, Brown Bros. Co., P. H. Hanes & Co., B. F. Hanes & Co., J. G. But- 
 ler Tobacco Co., T. C. Williams Tobacco Co., Brown Tobacco Co., Wellman-Dwire 
 Tobacco Co., Bland Tobacco Co., J. Wright Co., Meriwether Snuff & Tobacco 
 Co., *Daniel Scotten & Co., Buchanan & Lyall, Rice & Vaughn, Harry Weissinger 
 Tobacco Co., Brittain Tobacco Works, S. W. Venable Tobacco Co., Addison 
 Tinsley Tobacco Co., M. C. Wetmore Tobacco Co., Butler & Bosher Co., Michigan 
 Tobacco Co., Manufacturers' Tobacco Co., B. F. Gravely & Son, A. H. Motley 
 Co., Wilson & McCollay Tobacco Co.. D. H. Spencer & Son, Spencer Bros., J. L. 
 Vaughn & Co. 
 
 Third. Cigarettes (14) : W. S. Kimball & Co., Cameron & Cameron, Universal 
 Tobacco Co., Liggett & Myers, Drummond Tobacco Co.. *National Cigarette 
 & Tobacco Co., C. W. Winfree Tobacco Co., Brown Bros. Co.. B. F. Hanes & Co., 
 P. H. Hanes & Co., *Craft Tobacco Co., Wells-Whitehead Tobacco Co., S. Herns- 
 heimer Bros. & Co., Monopol Tobacco Works. 
 
 Fourth. Fine-cut tobacco (13) : American Eagle, Banner Tobacco Co., August 
 Beck & Co., S. Hernsheim Bros. & Co., D. H. McAlpin & Co., *Buchner Tobacco 
 Co., *John Anderson & Co., *Daniel Scotten & Co., Michigan Tobacco Co., Gail & 
 Ax, H. W. Meyer, B. Leidersdorf Co., Wellman-Dwire Tobacco Co. 
 
 Fifth. Scrap tobacco (5) : Queen City Tobacco Co., Duwel Bros. Tobacco Co, 
 August Schroer Tobacco Co., Day & Night Tobacco Co., Luhrman-Wilburn 
 Tobacco Co. (Cincinnati factory.) 
 
 Sixth. Cigars, exclusive of Cuban concerns (12) : *W. W. Stewart Co. : United 
 States Cigar Co. ; Roth, Bruner & Feist ; Brown Bros. Co. ; S. Levy & Co. ; Hum- 
 mel & Vogt Co. ; Barlow, Rogers & Co. ; Harburger, Herman & Co., with plants 
 in New York, Philadelphia, Camden, Trenton, Baltimore ; Binghamton Cigar 
 Co. ; M. W. Mendel & Bros. ; Philippi Cigar Manufacturing Co. ; cigar manu- 
 facturing business of United Cigar Stores Co. 
 
 Seventh. Little cigars (4) : M. S. Pacholder, H. Mandelbaum, Thos. H. Hall, 
 Consolidated Cigarette Co. 
 
 Eighth. Snuff (25) : G. W. Gail & Ax, *Marburg Bros., H. W. Meyer, *Tobacco 
 Manufacturing Co., *W. R. Irby Cigar & Tobacco Co., August Beck & Co., 
 D. H. McAlpin & Co.. R. F. Morris & Son Manufacturing Co., *Meriwether Snuff 
 & Tobacco Co., *Daniel Scotten & Co., *Bowers Snuff & Tobacco Co., *P. Loril- 
 lard & Co., Atlantic Snuff Co., Southern Snuff Co., Stewart Ralph Snuff Co., 
 Dental Snuff Co., Dahner & Co., Steward Snuff Co., McNainara Laird Co., Inde- 
 pendent Snuff Mills, Skinner & Co., W. L. Venable & Co., Standard Snuff Co., 
 H. Bolander & Co., J. B. Holaway & Co., J. H. Fye & Co., Sun Tobacco Co., 
 R. Starr & Co., Arnd Bros. 
 
 [In the Circuit Court of the United States for the Southern District of New York.] 
 
 United States of America against the American Tobacco Co. and others. 
 
 ARGUMENT OF FELIX H. LEVY IN SUPPORT OF THE OBJECTIONS FILED HEREIN BY 
 THE NATIONAL CIGAE LEAF TOBACCO ASSOCIATION, THE CIGAR MANUFACTURERS' 
 ASSOCIATION OF AMERICA, AND THE INDEPENDENT TOBACCO SALESMEN'S ASSO- 
 CIATION TO THE PLAN OF DISINTEGRATION FILED HEREIN BY THE AMERICAN 
 TOBACCO CO. AND OTHERS, DEFENDANTS. 
 
 I. The plan submitted by the tobacco combination docs not, in any substantial 
 sense, comply with the requirements of the opinion of the United States 
 Supreme Court or of the decree rendered herein. 
 
 (a) At the outset it will be useful for a clear understanding of the require- 
 ments of the opinion of the Supreme Court to point out a few of the salient 
 features of that opinion as indicating the character of dissolution contemplated 
 by that court. 
 
 * Names marked with asterisk indicate this department appears to have been closed. 
 
COMMITTEE ON INTERSTATE COMMERCE. 341 
 
 It is a significant fact that the court deemed it unnecessary to take into 
 consideration any of the numerous facts in the record which were disputed bv 
 the defendants. The court said (p. 155) : 
 
 i. * * * iu our opinion the case can be disposed of by considering onlv 
 those facts which are indisputable and by applying to the inferences properly 
 deducible from such facts the meaning and effect of the law as expounded in 
 accordance with the previous decisions of this court " 
 and again (p. 157), 
 " * * * we propose only to deal with facts which are not in controversy " 
 
 Despite the fact that the court limited itself to the consideration of the 
 undisputed facts only the court gave judgment of dissolution and disintegra- 
 tion of a most drastic character. 
 
 (6) The court recognized the fact that a substantial control of the com- 
 bination was exercised by a very small number of its stockholders At Daee 
 174 the court said: 
 
 "Through the method of distribution of the stock of the new company in 
 exchange for shares in the old American and in the Continental Co., it resulted 
 that the same six men in control of the combination through the Consolidated 
 Tobacco Co. continued that control by ownership of stock in the merged or new 
 American Tobacco Co. * * * The record indisputably discloses that after 
 this merger the same methods which were used from the beginning continued 
 to be employed." 
 
 And it also recognized the necessity of a complete divesting of stock owner- 
 ship by one part of the combination in other parts of the combination, as is 
 thus shown (p. 176) : 
 
 " Thus, even if the ownership of stock by the American Tobacco Co. in the 
 accessory and subsidiary companies and the ownership of stock in any of 
 those companies among themselves were held, as was decided in United States 
 against Standard Oil Co., to be a violation of the act, and all relations resulting 
 from such stock ownership were therefore set aside, the question would yet 
 remain whether the principal defendant, the American Tobacco Co.. and the 
 five accessory defendants, even when divested of their stock ownership in 
 other corporations, by virtue of the power which they would continue to 
 possess, even although thus stripped, would amount to a violation of both the 
 first and second sections of the act. * * * Still further, the question would 
 yet remain whether particular corporations which, when bereft of the power 
 which they possessed, as resulting from stock ownership, although they were 
 not inherently possessed of a sufficient residuum of power to cause them to be 
 in and of themselves either a restraint of trade or a monopolization or an 
 attempt to monopolize, should nevertheless be restrained because of their 
 intimate connection and association with other corporations found to be within 
 the prohibitions of the act." 
 
 (c) The wrongful character and the essentially wicked purposes and acts 
 of the combination were indicated by the Supreme Court, thus (p. 181) : 
 
 " Considering, then, the undisputed facts which we have previously stated, 
 it remains only to determine whether they establish that the acts, contracts, 
 agreements, combinations, etc.. which were assailed were of such an unusual 
 and wrongful character as to bring them within the prohibitions of the law. 
 That they were, in our opinion, so everwhelmingly results from the undisputed 
 facts that it seems only necessary to refer to the facts as we have stated them 
 to demonstrate the correctness of this conclusion. Indeed, the history of the 
 combination is so replete with the doing, of acts which it was the obvious 
 purpose of the statute to forbid, so demonstrative of the existence from the 
 beginning of a purpose to acquire dominion and control of the tobacco trade, 
 not by the mere exertion of the ordinary right to contract and to trade, but by 
 methods devised in order to monopolize the trade by driving competitors out 
 of business, which were ruthlessly carried out upon the assumption that to work 
 upon the fears or play upon the cupidity of competitors would make success 
 possible. We say these conclusions are inevitable, not because of the vast 
 amount of property aggregated by the combination, not because alone of the 
 many corporations which the proof shows were united by resort to one device 
 or another. * * * 
 
 " Indeed, when the results of the undisputed proof which we have stated are 
 fully apprehended and the wrongful acts which they exhibit are considered, 
 there comes inevitably to the mind the conviction that it was the danger 
 which it was deemed would arise to individual liberty and the public well- 
 being from acts like those which this record exhibits, which led the legislative 
 mind to conceive and to enact the antitrust act, considerations which also 
 
342 HEARINGS BEFORE 
 
 serve to clearly demonstrate thnt the combination here assailed is within the 
 law as to leave no doubt that it is our plain duty to apply its prohibitions." 
 
 It may be permissible at this point to digress briefly in order to point out the 
 close similarity in the language used by the learned Chief Justice in the 
 sentence last quoted to that which was used by the President of the United 
 States, Mr. Cleveland, in his message to Congress in the year 1896. He said: 
 
 "Another topic in which our people rightfully take a deep interest may be 
 here briefly considered. I refer to the existence of trusts and other huge aggre- 
 gations of capital, the object of which is to secure the monopoly of some par- 
 ticular branch of trade, industry, or commerce and to stifle competition. * * * 
 Their tendency is to crush out individual independence and to hinder or prevent 
 the free use of human faculties and full development of human character. 
 Through them the farmer, the artisan, and the small trader is in danger of 
 dislodgment from the proud position of being his own master, watchful of all 
 that touches his country's prosperity in which he has an individual lot, and 
 interested in all that affects the advantages of business of which he is a factor, 
 to be relegated to the level of a mere appurtenance to a great machine with 
 little free will, with no duty but that of passive obedience, and with little hope 
 or opportunity of rising in the scale of responsible and helpful citizenship. 
 
 " To the instinctive belief that such is the inevitable trend of trusts and 
 monopolies is due the widespread and deep-seated popular aversion in which 
 they are held and the not unreasonable insistence that whatever may be their 
 incidental economic advantages, their general effect upon personal character, 
 prospects, and usefulness can not be otherwise than injurious." 
 
 These words were written 15 years ago. Since that time the growth of 
 " trusts and other huge aggregations of capital," of which the Tresident then 
 spoke, has vastly enlarged their power. 
 
 (d) The order of importance in which the Supreme Court considered that 
 the various complex features of the case should be. treated is thus shown 
 (p. 185) : 
 
 " In considering the subject from both of these aspects three dominant influ- 
 ences must guide our action : 1. The duty of giving complete and efficacious 
 effect to the prohibitions of the statute; 2, the accomplishing of this result 
 with as little injury as possible to the interest of the general public ; and 3, a 
 proper regard for the vast interests of private property which may have become 
 vested in many persons as a result of the acquisition either by way or stock 
 ownership or otherwise of interests in the stock or securities of the combination 
 without any guilty knowledge or intent in any way to become actors or partici- 
 pants in the wrongs which we find to have inspired and dominated the combi- 
 nation from the beginning." 
 
 The order of importance which the court attached to these several elements 
 indicates that the primary element was that of giving complete and efficacious 
 effect to the prohibitions of the statute, thereby restoring genuine competitive 
 conditions in the industry heretofore dominated by the combination. 
 
 The nature of the dissolution decreed by the court was (p. 187) — 
 " some plan or method of dissolving the combination and of re-creating, out of 
 the elements now composing it, a new condition which shall be honestly in 
 harmony with and not repugnant to the law." 
 
 Allusion will be made hereafter to the importance of the language used by 
 the court in the third of the " three dominant influences " which the court said 
 must guide its action. Attention is here called merely to the fact that the 
 court said that proper regard must be given to the investors in this combination 
 who had acquired interests in the stock or securities of the combination " with- 
 out any guilty knowledge or intent in any way to become actors or participants 
 in the wrongs which we find to have inspired and dominated the combination 
 from the beginning." 
 
 I submit that this clearly puts beyond the pale of the protection of this court 
 all of the 29 individual defendants and all others who acquired their interests 
 in the stock or securities of the combination with guilty knowledge or intent 
 in any way to become actors or participants in the wrongs referred to. What- 
 ever loss they may suffer in consequence of the dissolution and disintegration 
 ordered by the Supreme Court is the result of their own conduct. The only 
 protection for the investors in the securities of the combination, provided in 
 the opinion, was that which was due to innocent investors. These can not in 
 any aspect comprise any of the 29 individual defendants or any of the others 
 who were participants in the wrongful <;onduct denounced by the Supreme Court. 
 Even as to these " innocent investors," whatever injury they may sustain as a 
 
COMMITTEE ON INTERSTATE COMMERCE. 343 
 
 result of the dissolution and disintegration commanded by the court can not be 
 avoided. The Supreme Court said (p. 188) : 
 
 " In view of the considerations we have stated, we leave the matter to the 
 ■court below to work out a compliance with the law without unnecessary injury 
 to the public or the rights of private property." 
 
 Such injury as must necessarily fall upon the innocent investor as a result 
 of a proper plan of dissolution and disintegration may be unfortunate, but 
 should not prevent the rigid execution of such a plan. 
 
 (e) The court clearly reoosmzed the necessity of a separation of stock con- 
 trol, as is thus shown (p. 185) : 
 
 " Looking at the situation as we have hitherto pointed it out, it involves diffi- 
 culties in the application of remedies greater than have been presented by any 
 case involving the antitrust act which has been hitherto considered by this 
 -court: First, because in this case it is obvious that a mere decree forbidding 
 stock ownership by one part of the combination in another part or entity thereof 
 would afford no adequate measure of relief, since different ingredients of the 
 combination would remain unaffected, and by the very nature and character 
 of their organization would be able to continue the wrongful situation which it 
 is our duty to destroy. * * * Third, because the methods devised by which 
 the various essential elements to the successful operation of the tobacco business 
 from any particular aspect have been so separated under various subordinate 
 combinations, yet so unified by way of the control worked out by the scheme 
 here condemned, are so -involved that any specific form or relief which we 
 might now order in substance and effect might operate really to injure the 
 public and, it may be, to perpetuate the wrong." 
 
 It is thus made obvious that one of the principal features comprised in the 
 objections filed by the remonstrants — that which objects to stock ownership 
 by the stockholders of any one of the segments into which the combination shall 
 be divided in any of the other segments — was contemplated by the court, and, 
 apparently, the only objection thereto was that such prohibition would not go 
 far enough. To emphasize this, we repeat the language of the court : 
 
 " * * * In this case it is obvious that a mere decree forbidding stock 
 ownership by one part of the combination in another part, or entity thereof, 
 would afford no adequate measure of relief." 
 
 There is here no suggestion of the illegality of such a prohibition. The court 
 says only that it will not go far enough. 
 
 The danger' of a renewal of a unified control through such stock ownership 
 is clearly apprehended by the court as shown by the words used above, which 
 we here again quote (p. 1S6) : 
 
 " * * * Because the methods devised by which the various essential ele- 
 ments to the successful operation of the tobacco business from any particular 
 aspect have been so separated under various subordinate combinations, yet so 
 unified by way of the control worked out by the scheme here condemned," etc. 
 
 (/) It seems obvious that the court had in mind the probability that a 
 receivership or an injunction against the movement in interstate commerce of 
 the products of the combination would be necessary on account of the com- 
 plexity of the situation created by the conspirators who controlled the com- 
 bination. The court makes clear the possible necessity of such a procedure, 
 and its unwillingness to resort thereto forthwith, without first giving the 
 controllers of the combination an opportunity to formulate and present to this 
 court a plan of dissolution and disintegration which would honestly conform 
 with the requirements of the statute. The court said (p. 1S7) : 
 
 " But, having regard to the principles which we have said must control our 
 action, we do not think we can now direct the immediate application of either 
 of these remedies. We so consider as to the first because, in view of the extent 
 of the combination, the vast field which it covers, the all-embracing character 
 of its activities concerning tobacco and its products, to at once stay the move- 
 ment in interstate commerce of the products which the combination or its co 
 operating forces produce or control might inflict infinite injury upon the public," 
 etc. * * * " The second because the extensive power which would result 
 from at once resorting to a receivership might not only do grievous injury to 
 the public," etc. 
 
 It thus appears that instead of resorting forthwith to either of these drastic 
 remedies, the court gave to the defendants the opportunity of working out some 
 plan of dissolution find disintegration which would conform to the requirements 
 of the decree and adequately meet the situation ; and failing so to do, resort 
 to one or the other or both of these remedies would become necessary. The 
 
344 HEARINGS BEFORE 
 
 insistence upon a diversity of stock ownership is based not upon any claim 
 of the right of this court to enforce such condition upon the stockholders 
 against their will, but Is based upon the contention that unless the stockholders 
 of their own free will and accord present to the court, as a part of their plan 
 of dissolution and disintegration, a provision preventing mutuality of stock 
 ownership, the defendants will not hove met the requirements of the opportunity 
 thus given to them by the Supreme Court. In other words, the Supreme Court 
 has, if we may be permitted to paraphrase its language, said in effect to these 
 defendants : 
 
 " We hesitate to appoint forthwith a receiver and to issue an injunction 
 against interstate traffic in your products because of the injury that will 
 thereby be occasioned to the public. We therefore give you an opportunity of 
 working out and presenting to the circuit court a plan of dissolution and disin- 
 tegration which will honestly re-create conditions of free and unrestricted com- 
 petition. If you are unable or unwilling to do this, there will be no alternative 
 open except the appointment of a receiver or the issuance of such an injunction. 
 It will therefore be necessary for you to devise a plan to which your security 
 holders will of their own accord consent whereby the true intent and purpose 
 of our decree will be carried out. If such a plan shall necessitate your security 
 holders placing themselves under a prohibition against mutual or joint-stock 
 ownership of the various segments into which your combination shall be divided, 
 then that must be done. While it may be that a court can not compel you to 
 do this, nevertheless unless you consent, no effective restoration of real competi- 
 tive conditions can be brought about and accordingly it would become necessary 
 for the court to appoint a receiver or to issue an injunction." 
 
 II. The court has power to enjoin the purchase, directly or indirectly, by the 
 29 individual defendants and their confederates, of the stock of the constitu- 
 ent companies. 
 
 We protest against any method of distribution by which the stock of the con- 
 stituent companies will be placed in the hands of the common-stock holders 
 of the American Tobacco Co. The American Tobacco Co. must, it is true, dis- 
 pose of its holdings in the shares of the constituent companies, but it should 
 not be allowed to distribute those shares among its own common-stock holders. 
 On the contrary, an injunction should issue restraining the common-stock 
 holders of the American Tobacco Co. from acquiring those shares. Such an 
 injunction involves no violation of any legal principle. It merely enjoins the 
 perpetuation of a criminal conspiracy under another form. 
 
 An analysis of the situation must, we think, sustain the correctness of this 
 view. These 29 individual defendants combined with the American Tobacco 
 Co., or combined with each other, by and through the corporate form of the 
 American Tobacco Co., to monopolize trade and suppress competition by cen- 
 tralizing under one control the business of previous diverse units. To effectuate 
 that end they adopted the plan of putting the stock of the units into the owner- 
 ship of the dominant corporation. They might have adopted other methods, 
 and if the end which they had in view had been the same, the illegality would 
 have been in no way cured. In other words, if these 29 defendants conspired 
 to monopolize trade, and adopted the expedient of putting the ownership of the 
 stock of the constituent units in their own names, they would still have been 
 parties to a criminal conspiracy. Acting individually, but not in concert, each 
 one of them, it may be, might have acquired whatever shares he pleased. 
 When, however, by concerted action, they set about to monopolize a great in- 
 dustry, they would not have escaped the penalties of the law if they had put 
 the title to the shares in their individual names. The purpose and intent of 
 using the ownership acquired through this joint action in order to crush com- 
 petition and to establish monopoly, would have vitiated their acts. 
 
 The Supreme Court of the United States said in Swift & Co. v. U. S. (196 
 TJ. S., 375) : 
 
 " Even if the separate elements of such a scheme are lawful, when they are 
 bound together by a' common intent as parts of an unlawful scheme to monopo- 
 lize interstate commerce, the plan may make the parts unlawful." 
 
 The plan now proposed attempts, therefore, to perpetuate a criminal con- 
 spiracy. It seeks to cure a great evil and a great wrong by substituting 
 another. The 29 individual defendants, convicted of conspiracy, are making 
 reparation, not by yielding up their collective control, but, by taking in their 
 own names the title which for convenience they had vested in the company. 
 They would have violated the law if, with concert of action, they had taken 
 the title in their own names when the combination was first formed. They 
 
COMMITTEE ON INTERSTATE COMMERCE. 345 
 
 surely do not bring themselves within the law by doing something to-day 
 which, if they had done at the outset, would have been denounced as a crime. 
 
 It is said, however, in defense of the plan, that the control will be diluted 
 because voting rights are now to be given to the preferred-stock holders. We 
 have no list of the present preferred-stock holders. We have no doubt that if 
 the list is scrutinized, and if the individual defendants are compelled to submit 
 to an examination under oath with reference thereto, it will be found that the 
 preferred stock is held in large part by the conspirators and by their agents 
 and relatives. We urge that before the court shall accept the word of an 
 adjudged wrongdoer that it has reformed itself altogether, there be a rigid 
 investigation, under the sanction of an oath, of these professions of reformed 
 innocence. 
 
 No plan should be approved unless the common-stock holders are prohibited 
 from obtaining or retaining control. Contr61, moreover, may be exercised by 
 something less than a majority. The cohesive power of large stockholders rep- 
 resenting 30 or 40 per cent may outmatch the scattered forces of unorganized 
 individuals. The percentages of the voting stock held by the individual de- 
 fendants in the 14 corporations into which they propose to divide the existing 
 combination are as follows: 
 
 Per cent. 
 
 American Tobacco Co 35.16 
 
 Liggett & Myers Co 40.76 
 
 P. Lorillard Co 40.76 
 
 American Snuff Co 38.65 
 
 Geo. W. Helme Co 28.49 
 
 Weyman & Burton Co 28.49 
 
 Conley Foil Co 33. 88 
 
 Johnston Tin Foil Co 33.73 
 
 MacAndrews & Forbes Co 39.77 
 
 J. S. Young Co 43.87 
 
 R. J. Reynolds Tobacco Co 37. 53 
 
 United Cigar Stores Co 37.65 
 
 British-American Tobacco Co 34.46 
 
 Porto Rican- American Tobacco Co 45. 31 
 
 It is apparent from these figures that the individual defendants will, in the 
 absence of united action by the majority of the stockholders of any of the 
 companies, control each and all of the said companies. Especially will this be 
 so when it is borne in mind that the individual defendants will start out in 
 actual control of each and every one of such corporations, by reason of the 
 fact that they will, upon the organization of these corporations, undoubtedly 
 control the nomination and election of the directors and officers and through 
 them of each and every employee of the said corporations. 
 
 Thus to restrain the individual defendants and those who, while not joined 
 as defendants are so related to them that they must have been animated, and 
 will be animated, by a common purpose is not an arbitrary judicial fiat. It 
 is not to cast aside settled legal principles and single out special individuals 
 to bear some special burden ; the underlying principle is this : These men have 
 combined and conspired in violation of law, and the injunction restraining 
 them from acquiring the shares merely restrains them from giving effect to 
 and perpetuating the same combination and conspiracy under another form. 
 They might have been restrained from these acts when the monopoly was first 
 planned. A long career of oppression and the exercise of monopolistic power 
 has given, them no broader license. 
 
 III. The court has power to impose any terms that it thinks just upon the 
 defendants, as a condition of securing exemption from the appointment of a 
 receiver and the issuance of an injunction against interstate traffic. 
 
 We have argued that the court has power to enjoin the common-stock holders 
 from purchasing shares of the constituent corporations. We have no doubt 
 that this proposition is well founded in law. If, however, we are wrong, the 
 court is not bound to accept any plan of dissolution not believed by it to be 
 adequate to restore competition. Unless such a plan is proposed, it must wind 
 up the company through a receiver. Holding this power in reserve, it may 
 properly say to the defendants that the power will be exercised unless they 
 modify their plan and submit to prescribed conditions. It is like the power to 
 set aside an excessive verdict unless the plaintiff consents to a reduction. The 
 condition may be one which could not be enfoced without consent, but it may 
 
346 HEARINGS BEFORE 
 
 properly be imposed as the price of escaping some other remedy which the 
 court has the power to grant regardless of consent. 
 
 IV. The individual defendants are not deprived of their property without due 
 process of law when they are enjoined, in connection with the proposed dis- 
 solution, from receiving the shares of the constituent corporations. 
 
 We do not ask that the defendants be deprived of anything which they now 
 own. We do not ask that a single share now belonging to them be surrendered. 
 We merely ask that when the Tobacco Co. parts with the shares which it 
 owns, it be required to do so in such a way as to prevent the conspiracy from 
 being perpetuated. If the court may compel the chief corporate defendant to 
 break up the combination by ridding itself of its shares, it may compel the in- 
 dividual defendants to break up the combination by refraining from buying 
 these shares. No vested right is thereby destroyed. There is no vested right 
 to be allowed to continue a criminal conspiracy. If loss results from such an 
 injunction, it flows, not from the impairment of any right of property, but from 
 the disruption of a conspiracy already adjudged to be illegal. Such loss, how- 
 ever unfortunate, must be borne. Every illegal monopoly is likely to bring 
 profit to those creating it, which profit its dismemberment may destroy. That 
 fact does not supply a valid reason why monopolies should be continued. The 
 individual defendants are deprived of the right to buy the stock of the con- 
 stituent companies, because to permit them to buy that stock would be to per- 
 mit the conspirators to continue their illegal combination. The injunction is 
 necessary in order to make the disentegration complete. 
 
 V. Those investors who, being " innocent," are entitled to consideration at the 
 hands of the court, have had ample opportunity and full notice to dispose of 
 their holdings. 
 
 The beginning of this suit by the Government in July, 1907, was in itself 
 notice to these innocent investors that their investment was of doubtful legality. 
 The final decree rendered by the circuit court in December, 1908, was still 
 stronger notice to this effect. The opinion rendered by the Supreme Court of 
 the United States in May, 1911, was final and emphatic notice to them. 
 
 If, after these repeated and solemn warnings, they have persisted in retain- 
 ing their investments in this combination, they must be deemed to have done so 
 with all the risks thereunto appertaining. They may be likened to a purchaser 
 of a negotiable instrument who purchases the same after maturity and thereby 
 takes it with all of its imperfections. 
 
 It can not be argued that the sale by these innocent investors to others would 
 be working a wrong upon such others, because they, too, would, if they pur- 
 chased, be doing so with full notice of these three several warnings. That the 
 general investing public have, nevertheless, been ready and willing to purchase 
 these securities, even after the last of these warnings, namely, that given by 
 the Supreme Court of the United States in its opinion rendered on May 29, 
 1911, is fully borne out by an examination of the transactions upon the New 
 York Stock Exchange in these securities since May 29, 1911. It may be well 
 that, if an opportunity be given to examine under oath the individual defend- 
 ants, it will be found that the larger part of these purchases were made by 
 the 29 individual defendants themselves or in their behalf. This would, how- 
 ever, not change the force of the argument. The transactions on the New 
 York Stock Exchange since May 29, 1911, in these securities show a large vol- 
 ume of sales and a steady maintenance of prices up to the present day, and, in 
 some instances, a steady increase in price from the beginning of the period 
 which commenced with the rendering of the Supreme Court's decision on May 
 29, 1911, and which ended on October 27 or 28, 1911. These transactions are 
 shown in a list which will be annexed to this argument. 
 
 VI. In considering the question of .adopting that feature of the proposed plan 
 which contemplates mutual or joint stock ownership of the constituent com- 
 panies by the common-stock holders of the dominant company, the past con- 
 duct of the controlling interests of the combination must be borne in mind. 
 It can not be doubted that if the principle of joint or mutual stock ownership 
 
 be approved by this court, the 29 individual defendants and their satellites will 
 have ample opportunity, by covert means, to effectuate a unified control of all 
 of the constituent companies. The likelihood that they will seek to exercise such 
 control and the deceptive and devious devices to which they will probably 
 
COMMITTEE ON INTERSTATE COMMERCE. 347 
 
 resort lu order to do so, will be better understood by an examination of their 
 past conduct as shown by the record in this cause. The record shows number- 
 less instances of the grossest acts of duplicity, deception, and trickery practiced 
 by these men. In the light of their past conduct it may well be assumed that 
 no scruples of conscience or moral restraints will withhold them from a repeti- 
 tion of similar acts. It is, therefore, pertinent to scrutinize the proposed plan 
 in the light of the possibilities given, through joint or mutual stock ownership, 
 to these individual defendants to gain a unified control of the constituent com- 
 panies, as shown by their willinguess in the past to resort to methods of gross 
 and shameless business immorality. Of the countless instances with which the 
 record in this cause is replete we refer only to the following : 
 
 Ten months after the combination had acquired control of the United Cigar 
 Stores Co. by obtaining the ownership of all of the bonds and all of the pre- 
 ferred stock and two-thirds of the common stock of that company, Percival S. 
 Hill, the first vice president of the American Tobacco Co., wrote to Mr. Frederick 
 Estabrook, of Boston, Mass., a letter (II., II., 232), in which he said: 
 
 " Of course all rumors to the effect that our company is back of the United 
 Cigar Stores Co. are entirely without foundation, as we have no financial interest 
 whatever in that company." 
 
 The following letter (R., II., 633) was written to Mr. C. C. Dula, one of the 
 vice presidents of the American Tobacco Co., by one Augustus Craft, who had 
 been secretly furnished with funds to establish the Craft Tobacco Co. at New 
 Orleans, which was intended to destroy the People's Tobacco Co. of that city : 
 
 " My Dear Mb. Dula : I inclose you letter and sample paper * * * I will 
 as soon as ' the Craft Tobacco Co.' is ready for business not only draw from the 
 People's their principal force, but will endeavor to cause a strike in their 
 factory. 
 
 And on the day after the above letter was written, Craft wrote to Dula (thus 
 apparently showing Dula's complicity in this shameful conduct) the following 
 (R., II., 633) : 
 
 " You need have no fear as to my success in carrying out your purpose in 
 regard to the People's Tobacco Co. I am sure to get the support of the various 
 unions and somebody has got to get out of business eventually." 
 
 The following letter (R. II, 298) was written by Mr. Percival S. Hill, the 
 first vice president of the American Tobacco Co., to W. M. Carter, an officer of 
 the Wells, Whitehead Tobacco Co., a bogus independent company owned by the 
 combination and engaged in business at Wilson, N. C, where the Ware-Kramer 
 Tobacco Co., a genuine independent, was endeavoring to build up a business : 
 
 " Mr. W. M. Carter, Wilson, N. C. 
 
 "Dear Sib: We are advised that a carload of cigarettes has been exported to 
 China by the Ware-Kramer Tobacco Co. If possible, I wish you would ascertain 
 to what port these goods were shipped and the name of the consignee. If you 
 can not learn the name, perhaps you can find out the markings on the cases, as 
 well as the point in this country from which the goods were shippedpy steamer. 
 " Very truly, yours, " P- S. H." 
 
 And there was subjoined to this letter the following : 
 
 "A carload means to us about 5,000,000 cigarettes. If we get this information, 
 I think we can shut off their market." 
 
 The following shows that this information was obtained and what steps the 
 combination then took to " shut off " the market of the Ware-Kramer Co. 
 
 It is a letter written by William R. Harris, one of the vice presidents of the 
 American Tobacco Co. and of the British-American Tobacco Co., to Mr. CunlifC- 
 Owen, a representative of the British-American Tobacco Co. : 
 
 " Dear Mr. Owen : You will remember that there is a little concern in Wilson, 
 N. C, by the name of the Ware-Kramer Tobacco Co., which is trying to do a 
 little business in the cigarette line. Some little while ago they made a shipment 
 to China with a lot of hue and cry connected with it in the way of having the 
 cars prominently labeled ' Solid car White Rolls Cigarettes for China.' We were 
 advised of this right away and in turn we advised Mr. Thomas so that he could 
 be on the lookout. 
 
 "Yours, truly, "Wm R. Harris." 
 
 The nature of the attention which Mr. Thomas was to give to this shipment 
 may be appreciated from the following, which Vice President Harris wrote 
 
348 HEARINGS BEFOKE 
 
 J. A. Thomas, representative of the British-American Tobacco Co., at Shanghai, 
 China : 
 
 " I inclose you herewith copy of a newspaper just at hand from New Orleans 
 stating that half a million cigarettes are being shipped from that city to Hong- 
 kong. Fearing that this is not the true destination, I thought it wise to inform 
 you of this transaction and suggest to you that in the event of their making 
 their appearance at Shanghai that you take the necessary steps to give them 
 a warm reception. 
 
 "Wm. R. Hakeis." 
 
 The determination of the combination to prevent the growth of independent 
 opposition is illustrated by the letter of Vice President Hill to Mr. J. H. Luce, 
 in which he complained that Mr. Luce was permitting the sale of independent 
 cigarettes in his store, and said : " I can not understand why in the world they 
 should be purchased. I know the amount is small, but large oaks from little 
 acorns grow." 
 
 If it be said that the foregoing disgraceful exhibitions of business immorality 
 were between heads of the combination and subordinates, and therefore subject 
 to some explanation, this can not be said about the following letter (R. II, 256), 
 which was written by Mr. Percival S. Hill, one of the vice presidents of the 
 American Tobacco Co., to Mr. Cobb, another vice president of the same 
 company : 
 
 " My Dear Me. Cobb : At Mr. Duke's suggestion I write you to the effect 
 that a plan has been about decided upon which differs from the one that was 
 being considered before you left ; and as in carrying out this plan it will be 
 undesirable to give control of any brands to individuals in any part of the 
 country, Mr. Duke requests me to write you explaining "it, so that in any case 
 If any of our customers go to Habana you will not promise them control of 
 any special brand. * * * Mr. Duke's idea is to make a confidential ar- 
 rangement with the Messrs. Park & Tilford and Acker, Merrall & Condit by 
 which they will sell Habana cigars both to the consumer and the retailer at 
 present cost, so that the retailer will be paying exactly the same price as the 
 consumer. Of course it will be necessary to keep this matter entirely confi- 
 dential. The result will be a demoralization of the business for such length 
 of time as may be deemed desirable to continue on this basis. The final upshot 
 will be that the importers will be forced into an arrangement by which they 
 will maintain prices agreed upon. * * * Mr. Duke expects to have an inter- 
 view with MM. Park & Tilford to-day to ascertain if this plan will be carried 
 out by them. * * * 
 
 " Yours, very truly, " Pebcival S. Hill." 
 
 These examples of wicked and depraved business methods might be greatly 
 enlarged by further references to the record. They are sufficient, however, 
 to show that these men, who are among the principal controllers of this great 
 combination, are men whose every act must be watched with the closest 
 scrutiny, and whose past record is such as to make it likely that they will 
 avail themselves of every loophole or stratagem which may be left open to 
 them in order to perpetuate the immensely profitable combination which they 
 helped to create and maintain. 
 
 It may well be that such acts as those above mentioned were in the con- 
 templation of the Supreme Court when it said (p. 182) "the ever-present 
 manifestation which is exhibited of a conscious wrongdoing by the form in 
 which the various transactions were embodied from the beginning, ever chang- 
 ing but ever in substance the same." 
 
 VII. The proposed plan is significant in respect of the concerns which are not 
 
 to be parts of the three great corporations, namely, the American Tobacco 
 
 Co. (new), Liggett & Myers Co., and the P. Lorillard Co. 
 
 (a) The American Tobacco Co. is to divest itself of its interest in the two 
 tin-foil companies, but that interest (which is 60 per cent) is to be distributed 
 to its common-stock holders as a dividend. 
 
 (6) The American Tobacco Co. is to divest itself of its interest in the R. J. 
 Reynolds Tobacco Co. (more than two-thirds interest), but that interest is to 
 be distributed to its common-stock holders as a dividend. This company is a 
 very large combination in itself, controlling several branches and subcompanies, 
 and has a practical monopoly of the flat-plug business of the South. 
 
COMMITTEE ON INTERSTATE OOMMEECE. 349 
 
 (c) It will also divest itself of its interest in the American Snuff Co (about 
 43 per cent), but that interest is to be distributed to its common-stock holders 
 as a dividend. 
 
 (<Z) It will also divest itself of its interest (about 75 per cent) in the 
 MacAndrews & Forbes Co., but this interest is to be distributed to its common- 
 stock holders as a dividend. 
 
 (e) It will also divest itself of its interest (about two-thirds) in the British- 
 American Tobacco Co., but that interest will be distributed to its common-stock 
 holders as a dividend. 
 
 (/) It will also divest itself of its interest in the United Cigar Stores Co 
 (about two-thirds), but that interest will be distributed to its common-stock 
 holders as a dividend. 
 
 It will therefore result that each of these six constituent parts of the pres- 
 ent combination will continue to be controlled by the same " small number of 
 individuals who own a majority of the common stock " of the American Tobacco 
 Co. (See opinion of the United States Supreme Court, p. 175.) 
 
 The viciousness of such an arrangement is made manifest more strikingly 
 in the case of the United Cigar Stores Co. than in the case of the other five 
 companies thus sought to be separated. The United Cigar Stores Co. has been 
 the most powerful agency of the combination in obtaining the control of the 
 tobacco industry. Through the hundreds of stores which that company oper- 
 ates, and by virtue of the special trade advantages given to it by its owner, 
 the American Tobacco Co., and by the exercise of the most ruthless and cruel 
 practices in driving out retail opposition and obstructing the avenues of dis- 
 tribution on the part of independent manufacturers, this company has proven 
 the most effectual of all the barriers to the entry of others into the tobacco 
 trade. If the mild expedient of merely separating this company from the com- 
 bination but of leaving its control in the hands of the same men who have 
 heretofore controlled the combination, if the rose-water remedy of gently set- 
 ting aside this vast agency of destruction from its former control by the com- 
 bination and placing it in the hands of the same men who control that combi- 
 nation, is to be adopted, it is no exaggeration to say that, in this respect at 
 least, the decree of the Supreme Court of the United States might as well have 
 been a blank piece of paper. 
 
 VIII. It is obvious that the real purpose of the defendants in the preparation 
 of their plan is to retain to themselves the " monopoly " value which the 
 combination has acquired. 
 
 We repeat the statement quoted above from the opinion of the Supreme Court 
 (p. 182) : 
 
 " By the ever-present manifestation which is exhibited of a conscious wrong- 
 doing by the form in which the various transactions were embodied from the 
 beginning, ever changing but ever in substance the same. Now the organiza- 
 tion of a new company, now the control exerted by the taking of stock in one 
 or another or in several, so as to obscure the result actually attained, never- 
 theless uniform in their manifestations of the purpose to restrain others and 
 to monopolize and retain power in the hands of the few who, it would seem, 
 from the beginning contemplated the mastery of the trade which practically 
 followed." 
 
 The plan now proposed comes squarely within this description. It leaves 
 unimpaired the opportunity for the exercise of all the manifold devices to which 
 the managers of this combination have heretofore resorted for the purpose of 
 retaining " power in the hands of the few who, it would seem, from the begin- 
 ning, contemplated the mastery of the trade which practically followed." 
 
 We submit that there is every probability that if these individual defendants 
 be allowed to retain control of the constituent companies (as well as those 
 named above as of the three or four great corporations into which they propose 
 to divide the rest of the business of the combination), they will again resort 
 to the same devices and practices as they have in the past for the purpose of 
 using such control to retain and extend their mastery and dominion over the 
 entire tobacco industry. 
 
 The enormous value which has been acquired by the combination through its 
 monopolistic practices and the great inducement thereby held out to these 
 defendants in their effort to retain the same is shown in Exhibit C (p. 41) 
 of their proposed plan. This exhibit shows that as to the proposed Liggett & 
 Myers Co. the value of the tangible assets is stated as about $30,000,000 and 
 the value of the "trade-marks and brands" as about $36,000,000. The corre- 
 
350 HEARINGS BEFORE 
 
 sponding figures as to the proposed P. Lorillnrd Co. are, as to the tangible as- 
 sets, about !?2S,000,000 and as to " trade-marks and brands " about $19,000,000. 
 Although we have been denied access to the data upon which these figures are 
 based, we feel justified in the assumption that a very large part of the great 
 value assigned to " trade-marks and brands " is represented by " good-will 
 value," which must in turn have as a large element the " monopoly " or 
 " merger " value. This fact is further shown by a scrutiny of the said exhibit, 
 from which it will appear that as to each of the two new companies the earn- 
 ings over and above the amounts necessary to pay interest on all the bonds and 
 the dividends on the preferred stock, and which will be available as dividends 
 on the common stock, will be over 20 per cent of the amount of the common 
 stock. The inducement plainly exists for these defendants to retain the con- 
 trol of all these companies. If this control is exercised in the same way as they 
 exercised their control of the combination in the past, it can only result in a re- 
 tention and extension of this " monopoly " value. 
 
 Mr. Levy. Those are the objections filed by the three great asso- 
 ciations. 
 
 The Acting Chairman. You may proceed. 
 
 Mr. Levt. The further objection is that these four companies had 
 been arranged with such adroitness that there was a still further 
 monopolistic feature injected into them; that is to say, there would 
 be assigned to one of the companies a given product, like the famous 
 " Star " brand of chewing tobacco, which has large sales throughout 
 the Middle West. That was assigned to the new Liggett & Myers Co., 
 and the " Horseshoe " brand — those two brands together consumed 
 47,000,000 pounds of tobacco — I may be in error as to that; that is 
 the amount of either the raw material consumed or the finished out- 
 put. It is 47,000,000 pounds per annum. None of the four other 
 companies I have named could compete with those brands. The 
 Lorillard Co. have the " Planet " brand, and none of the other com- 
 panies have anything to compete with the " Planet " brand, which 
 has the controlling demand in New England. 
 
 More strikingly is that true with regard to cigarettes. I shall not 
 go into the details. I am not a tobacco man and neither are any of 
 you gentlemen, but an examination will show how the cigarettes 
 have been divided among those four companies. All these features 
 are set forth in full detail in our objections and brief, which have 
 jusl been received in evidence. 
 
 So take, for example, without giving brand names, the high-grade 
 Turkish cigarettes. They are given to one company. The low-grade 
 Turkish to another, the Virginia cigarettes to another, and so on, so 
 that the four new companies will not compete with each other in those 
 classes of cigarettes. 
 
 Now, in addition to that — and with great adroitness, as we think, 
 and the Attorney General disagreed with us — the production and 
 purchase of leaf tobacco is in the same way monopolized. For ex- 
 ample, this great Star and the great Horseshoe brands, assigned to 
 the Liggett & Myers Co., use a certain grade or a certain type of bur- 
 ley tobacco to a tremendously preponderating extent. The other 
 three do not use it at all. They buy that particular grade of burley 
 in Kentucky. The other three companies do not need it; they do 
 not use it. It might have been a little difficult to meet this objection 
 in the case of these two enormous brands. Those are the biggest 
 brands in the world. You could not split up those brands very well ; 
 but as to the others, they could have been so apportioned and divided 
 as to equalize it all around. They claim that they did it. The Attor- 
 
COMMITTEE ON INTERSTATE COMMERCE. 351 
 
 ney General says that they did it. We do not think so. The Attorney 
 General submitted a report, which was furnished to him by the 
 Bureau of Corporations a day before the argument, which we never 
 had a chance to see and did not see until after the argument was 
 closed, and we submitted a brief in answer to it which I have here, 
 by which we undertake to show, first, that the Bureau of Corpora- 
 tions' report largely sustains our contention. 
 Senator Townsend. Have you his report? 
 
 Mr. Levy. The Attorney General's ? I have not. I forgot to bring 
 it with me. There is such a mass of papers that I forgot to bring 
 it, but it can easily be obtained from the Bureau of Corporations or 
 the Department of Justice. I have our answer to it and will under- 
 take to furnish that 
 
 Senator Beandegee. May I ask a question? 
 The Acting Chairman. Certainly. 
 
 Senator Beandegee. As far as my understanding of the case is 
 concerned, it would be rather essential for me in order to understand 
 what is coming. You have, you stated, either now or can furnish at 
 your convenience what the process was by which these particular 
 articles of manufacture were assigned by the court to these four con- 
 cerns; that is, whether it was done by assigning the stock to the dif- 
 ferent parties? How did they get the property itself into the custody 
 of the corporation so that it could not compete ? Do I make myself 
 plain ? 
 
 Mr. Levy. You do. The answer is, I think, quite plain. The 
 plan shows it — that for the purpose of disintegrating the American 
 Tobacco Co. the parent company sells to these two new companies — 
 Liggett & Myersand the Lorillard Co. — certain parts and branches 
 of Its business, certain warehouses, etc., and they start out equipped 
 to the extent of $57,000,000 for Liggett & Myers and $46,000,000 for 
 the other, for which they pay in stock and various other securities 
 to the parent company. 
 
 Senator Beandegee. Did the court itself fix the prices at which 
 those things were sold? 
 
 Mr. Levy. The court approved in this respect the whole thing as 
 proposed by the plan of the defendants. 
 
 I will qualify what I mean by " new companies " for the benefit of 
 a clearer understanding. They were really not new. Liggett & 
 Myers have always been in existence as one of the subsidiary com- 
 panies of the main company. They would have to change their 
 capital or go through some legal device to make it commensurate 
 with this new property. So with the Lorillard Co. They did not 
 have to organize a new company. They will have to organize new 
 companies as to some of the additional 10 that they have created. 
 But that is another branch of the subject. 
 
 Senator Beandegee. Allow me to ask you this question. Take the 
 Star plug tobacco — is that the name you gave it? 
 Mr. Levy. The Star brand. 
 
 Senator Beandegee. That, you say, has been assigned to one par- 
 ticular company? 
 Mr. Levy. Liggett & Myers. 
 
 Senator Beandegee. Has that company been ordered by the court 
 to pay in cash or securities so much to the corporation that owned it 
 to purchase the Star brand? 
 22S77— vol i— 12 23 
 
352 HEARINGS BEFOKE 
 
 Mr. Levy. It was this way: That brand was always made by the 
 Liggett & Myers factory, which belonged to the American Tobacco 
 Co. The American Tobacco Co., in the four secret conferences 
 which were held, discussed all these things. They were secret, and 
 of course I do not know what took place there. However, it cul- 
 minated in their presenting a plan. That plan said, in elfect : '' We 
 propose to divide up our business by selling to a new Liggett & 
 Myers Co." — new in the sense I have stated — " these various proper- 
 ties, including these various brands." It goes into detail, but that 
 illustrates the idea. " In return, we are going to ask from the Lig- 
 gett & Myers Co. certain moneys, stocks, and bonds," which are set 
 out in the plan. They did the same thing with the other new 
 companies. 
 
 I have said it was vicious in principle, and I have also said that 
 it is vicious in detail in the way I have indicated. It is vicious in fur- 
 ther detail. They have split up 10 further companies, like this very 
 Licorice Trust, and I have spoken of that Licorice Trust and con- 
 sidered it very completely and carefully; that is to say, it must 
 have controlled at least 98 per cent of the trade in licorice paste. 
 Licorice paste is made from licorice root; that is the stuff the chil- 
 dren chew for the sweet juice it gives. You are perhaps more 
 familiar with that when you buy it from the drug' store. But its 
 most important commercial use is in making licorice paste, and that 
 is a most indispensable ingredient of chewing tobacco, which can 
 not be made without it. So the control of licorice means the control 
 of the chewing-tobacco business. 
 
 Now, the American Tobacco Co. began in 1902 to control the 
 licorice-paste business, and acquired all the factories in the United 
 States except one, or maybe two, of comparative insignificance, and, 
 in connection with that, they acquired with great adroitness and very 
 great difficulty the control of all the licorice-root lands in Asia 
 Minor. That is the important thing. They got control of the lico- 
 rice lands of Asia Minor and drove out of the business — I do not 
 want to make my statement too broad; it may be subject to a few 
 errors here and there; I do not intend to do that — they drove out 
 of business every importer of licorice root. 
 
 There was a large business in that among the seaports, principally 
 in New York. That was the time we tried that indictment against 
 them. This plan proposed to correct that by splitting up the com- 
 pany which controlled the licorice business, called the MacAndrews 
 & Forbes Co., the great preponderance of whose stock was owned by 
 the American Tobacco Co. They split that into two companies by 
 setting free the Baltimore company, called the J. S. Young Co., 
 which they had absorbed, and equipping it in a way to be a going 
 concern in that business. But the plan does this by distributing all 
 the common stock of the MacAndrews & Forbes Co. and of the 
 Young Co. — distributing all that which had belonged to theAmerican 
 Tobacco Co. among its common-stock holders. 
 
 That vice permeates the whole thing. But the vice in detail that 
 I want to point out in this particular instance is that there is not the 
 slightest allusion in that plan which the Attorney General has ap- 
 proved — that I have been able to discover — to the fact that the 
 MacAndrews & Forbes Co. still controls the licorice-root lands in 
 Asia Minor. 
 
UUIVLMITTEE ON INTERSTATE COMMERCE. 353 
 
 The result is that you have two great big companies — the Mac- 
 Andrews & Forbes Co. and the J. S. Young Co. — supposed to com- 
 pete with each other, although owned by the same people, and if a 
 new manufacturer should want to go into that business he could not 
 get any licorice root, unless the conditions have changed since that 
 indictment, and I have never heard that they have changed — the plan 
 does not say so. 
 
 The conferences in regard to the plan were secret, and we do not 
 know what was said or done in them. The principle of these con- 
 ferences was all wrong. These conferences were held in private, at 
 which were present two or three members of the court, the Attorney 
 General, or his representative — I think always the Attorney Gen- 
 eral — the counsel for the defendant companies, and some of the 
 officers of the companies. 
 
 Now. in that tripartite conference the only ones who really knew 
 about the business were the defendants and their counsel, and I say 
 that in my opinion it would have been proper that those conferences 
 should have been public so that in some way or other — if an error 
 like that about the licorice-root lands crept into it, somebody could 
 have stood up and said so. The court — giving it credit for good 
 faith — could not know about those things, and with all deference to 
 the Attorney 'General, he could not know, because he did not go 
 through the immense labor of preparing this case. He argued it in 
 the Supreme Court, and that, as those of the committee who are 
 lawyers will know, means simply that he studied the printed record. 
 Every lawyer knows that the printed record does not tell more than 
 one-tenth of the story. You have got to work into the case to know 
 all of that, and therefore that serious error crept in — subject to my 
 being entirely wrong about it. I may be wrongs but I am sure that 
 I am not wrong, as I have studied the case very closely and went 
 fully into the licorice-root case and licorice-paste case, because I 
 helped try the licorice indictment. I was before the grand jury all 
 the time when we elicited the testimony on that subject. 
 
 But there are other similar vicious features. The snuff company 
 was treated in the same adroit way. Let me read just a word from 
 the Bureau of Corporations' report about the snuff company. That is 
 one of the most complete monopolies existing to-day. It controls 96 
 or 97 per cent of the snuff business, and here is what the Bureau of 
 Corporations said about it: 
 
 In the snuff business the combination has an almost complete monopoly — 96 
 per cent of the whole business. From a rate of less than 9 per cent in the 
 first year (1901) the earnings rose in 1903 to 15 per cent and in 1906 to over 
 22 per cent. The common stock of the snuff company, originally all " water," 
 paid 20 per cent dividends in 1909 and 27 per cent in 1910. * * * 
 
 Insiders' profits. — Through adroit and frequent adjustments of the securi- 
 ties of the combination, a very large part of its great earnings have gone to a 
 small group of insiders, who have throughout retained substantial voting con- 
 trol. These insiders in 1901 induced the common-stock holders of the old 
 American and Continental Cos. to surrender their stocks for 4 per cent 
 bonds of the new Consolidated Tobacco Co., thus securing for the common 
 stock of the Consolidated (most of which the insiders held) the great increase 
 in earnings, which they foresaw, from the reduction in the war-revenue tax. 
 This increase the rank and file of stockholders of the older concerns did not 
 foresee. In the reorganization in 1904 the advantage of the insiders was per- 
 petuated. Of the book profits of the new American Tobacco Co. in 1910 (not 
 the "earnings" as revised by the bureau), namely, $35,000,000, only about 
 $5,300,000 went to the holders of the $104,000,000 bonds, $4,700,000 to the 
 
354 HEARINGS BEFORE 
 
 holders of the $79,000,000 preferred stock, leaving no less than $25,000,000 for 
 the comparatively small number of holders of the $40,000,000 common stock, 
 which alone has voting power. This was over 60 per cent on the common 
 stock in one year, not including extra dividends of subsidiary companies. In 
 short, the bulk of the earnings of this great combination, increased by monopo- 
 listic power, has, by clever arrangement of capitalization, been more and more 
 centered in a very small group of individuals. 
 
 There must also be considered here the profits arising from the inflation of 
 the combination's securities. For example, one of the constituent businesses 
 was valued in 1885, under competition, at $250,000. Five years later, at the 
 organization of the old American Tobacco Co., it formed the basis for the issue 
 of $7,500,000 of stock. By 1908, due to various readjustments, the securities 
 based on this business had increased to $22,000,000. Meantime cash dividends 
 and interest thereon had amounted to $16,900,000. Thus the total par value of 
 these securities (the combined market value being substantially the same), plus 
 the dividends and interest paid up to 1908, amounted to nearly $39,000,000, or 
 156 times the value of this particular business in 1885. 
 
 The combination's history therefore shows these foremost facts: The earning 
 power of a monopolistic position in a great industry, excessive capitalization, 
 and remarkable concentration of the resulting wealth in a few hands, through 
 control of the voting security issues. 
 
 Now, they set that snuff company free, as they call it, in the same 
 way — by distributing its stock among the common-stock holders of 
 the American Tobacco Co. 
 
 The American Cigar Co. they have left entirely alone, although it 
 was denominated in the Supreme Court's opinion as one. I will read 
 from the Supreme Court's opinion very briefly. It was denominated 
 in that opinion as one of the five accessory defendants. The Supreme 
 Court, as Senators will remember, divided the defendant companies 
 into three classes. The primary defendant was the parent company. 
 There were five accessory defendants, of which the cigar company 
 is one. The Supreme Court says : 
 
 For convenience of statement, we classify the corporate defendants, exclusive 
 of the two foreign ones, which we shall hereafter separately refer to, as fol- 
 lows : The American Tobacco Co., a New Jersey corporation, because of its 
 dominant relation to the subject matter of the controversy, as the primary 
 defendant; five other New Jersey corporations, viz, American Snuff Co., Ameri- 
 can Cigar Co.. American Stogie Co., MacAndrews & Forbes Co., and Conley 
 Foil Co., because' of their relation to the controversy, as accessory, and the 59 
 other American corporations as the subsidiary defendants. 
 
 Now, they have undertaken to set free, in the adroit sense which 
 I have mentioned, all of the accessory corporations except the Ameri- 
 can Cigar Co. That is a very astonishing situation. They have not 
 undertaken to set free that company, and these are the facts about it: 
 
 No distribution of the stock, of the American Cigar Co. among 
 the stockholders of the American Tobacco Co. is provided for as in 
 the case of the other accessory companies, but the American Cigar 
 Co. is merged with the new American Tobacco Co. 
 
 Merged ; that is, it is left where it was before. 
 
 This should not be permitted. Whatever advantage to competi- 
 tion there is in the distribution of stock of a company among the 
 stockholders of the parent company should be given to the competi- 
 tors of the American Cigar Co. 
 
 An advantage which I very much doubt; but whatever that ad- 
 vantage is, it should be given to the competitors of the American 
 Cigar Co. 
 
 The situation of the American Cigar Co. is different from manu- 
 factured tobacco, snuff, cigarettes, etc., because in the American Cigar 
 
COMMITTEE ON INTEKSTATE COMMERCE. 355 
 
 Co. case we have the beginning of monopoly ; in the others we have 
 completed monopoly. 
 
 And that, I dare say, is why they have not set it free. They want 
 to keep it still tighter under control ; not only still tighter, but they 
 want to have the right to make up its deficiencies by their own big 
 capital, because you will find something in the decree about not 
 lending money to those who have been set free. But that will not be 
 so here in the case of the cigar company. 
 
 The time to check a monopoly is when it starts, and before the 
 same difficulties that attend the disintegration of a completed 
 monopoly come into the question. 
 
 The American Cigar Co. is a sizable corporation with some 
 $30,000,000 outstanding securities, $10,000,000 in notes, $10,000,000 in 
 preferred stock, $10,000,000 in common stock. Its output of cigars is 
 some 14 per cent of the entire output, or three times as large as the 
 largest independent cigar factory. It is a prospering corporation, but 
 its profits are not exorbitant, as competition takes care of that. 
 Standing on its own feet as a separate entity, which it is by nature 
 and by the method of conduct by which its affairs should be run, it 
 may in time develop, by merit and good trading, into a very large or 
 dominant factor in the cigar business. With this the independent 
 cigar trade can have no fault to find, provided it is accomplished out 
 of its own resources and not out of the resources of the other profit- 
 able branches of the tobacco, cigarette, etc., business which the new 
 American Tobacco Co. seeks to ally with the American Cigar Co. for 
 the future. The cigar trade sees in. this contemplated alliance the 
 threat of the monopolization of the cigar business by the same means 
 by which the trust acquired each branch of the tobacco business over 
 which it has gotten control. 
 
 If, therefore, there is any merit in the plan of distributing stocks 
 of accessory and subsidiary companies among the stockholders of 
 the American Tobacco Co., this course should be pursued in the case 
 of the American Cigar Co. The failure of the plan to provide for 
 such distribution in the case of the American Cigar Co., is most 
 significant and must have been the result of deliberate design. It 
 is not surprising that this was not discovered in the secret conferences, 
 where the judges and the Attorney General had no expert trade 
 advisers to aid them in detecting the hidden purposes of the trust. 
 
 The objections which I have just stated in regard to the cigar com- 
 pany were submitted to the Attorney General after the plan had been 
 made public ; but he set them aside, as he did with many others which 
 were submitted to him. 
 
 I will be glad to answer any question with respect to this phase of 
 the matter, but perhaps, as a more orderly way of treating it, I should 
 state what was done by the court, in plain English and in a few 
 words. 
 
 Shortly after the last secret conference, which was some time in 
 September of this year, the general nature of the plan in some way 
 or other became public, particularly as to the distribution of stock 
 among the stockholders of the parent company, and there was 
 immediately widespread opposition all over the country by the grow- 
 ers of tobacco down in the Southern States — Virginia, North Caro- 
 lina, and South Carolina on the one hand, where they grow bright 
 leaf tobacco, and Kentucky and Tennessee, where they grow the dark 
 
356 HEAEINGS BEFOEE 
 
 tobacco, and Wisconsin, Ohio, and New York, where cigar leaf is 
 grown, and there was great disturbance among the retailers in par- 
 ticular on account of the United Cigar Stores Co., which stands out 
 very conspicuously as the worst feature of the trust. It was then 
 understood that the court would hear anybody who was interested, 
 and thereupon we presented a petition in behalf of these three large 
 associations — the National Cigar Leaf Association, the Cigar Manu- 
 facturers' Association, and the Independent Salesmen's Association — 
 which are simply like, you might say, boards of trade. They are 
 made up of boards of trade, in fact, from all over the country. There 
 is nothing in common in their business whatsoever. I filed a written 
 request — and I use the word advisedly, because to those Senators who 
 are lawyers I want to point out that it was not a formal notice or 
 motion; it was simply a written request for leave to file objections, 
 and to be heard at the oral argument, and a decision came down that 
 I have here, as follows, and it is of some moment as bearing upon 
 the last decision that came down: 
 
 United States Circuit Court, Southern District of New Tork. United States of 
 America v. The American Tobacco Co. and others. 
 
 Per curiam : 
 
 A joint petition has been received from the National Cigar Leaf Tobacco 
 Association, the Cigar Manufacturers' Association of America, and the Inde- 
 pendent Tobacco Salesmen's Association of America asking that they be per- 
 mitted to file written objections to ihe proposed plan of reorganization of the 
 American Tobacco Co. and to be heard by counsel at the hearing; also that 
 certain documents be filed with the clerk of the court. 
 
 The joint petitioners, while not granted leave to intervene, will be given an 
 opportunity to present their objections to the plan at the hearing Monday, 
 October 30. Any briefs or memoranda desired to be presented to the court 
 must be handed up at or before the commencement of the hearing on that day. 
 The court will entertain no application for the filing of documents except by 
 parties to the suit. 
 
 October 18, 1911. 
 
 "Whereupon we filed the objections that have been offered in evi- 
 dence, and at the hearing we were heard, and during the hearing 
 there was again presented a further written request, or, rather, this 
 time asking to intervene because in the previous paper we had 
 simply asked for leave to be heard, and also asking that testimony 
 be taken because we apprehended that the true facts had not been 
 ascertained in the secret conferences, as shown by these numerous 
 defects. The motion was denied on October 31, as follows. I must 
 interrupt myself to say that there was joined in that petition the 
 State of "Wisconsin, whose governor gave authority to counsel to 
 present, in behalf of the State, a similar application, and the order 
 read: 
 
 United States Circuit Court, Southern District of New York. United States 
 v. American Tobacco Co. 
 
 The petitions of the State of Wisconsin and of the National Cigar Leaf 
 Tobacco Association, the Cigar Manufacturers' Association of America, and 
 the Independent Tobacco Salesmen's Association to intervene and take testi- 
 mony, said petitions being filed on the second day of the hearing, are denied. 
 
 Octobee 31, 1911. 
 
 That refers to the fact that the earlier decision said that any 
 briefs or memoranda must be filed before October 30, and this was 
 
COMMITTEE ON INTERSTATE COMMERCE. 357 
 
 the second day of the hearing, October 31. Whereupon, after the 
 argument was closed and before the opinions were handed down, I 
 submitted a formal petition, duly verified, and on notice to all coun- 
 sel, that being the first formal motion that was served upon all the 
 attorneys for the defendants and upon the Attorney General. This 
 motion was. first, for leave to intervene; second, making the sug- 
 gestion, as friends of the court, that the decree about to be entered 
 should contain a clause directing that the decree be submitted to 
 the Supreme Court for review, and in the latter event we need not 
 have been made parties — we would have had no desire to be made 
 parties. We simply sought to see to it that a review should be had. 
 That motion came on. The defendants did not appear. They inter- 
 posed no objection or anything at all, but the Attorney General 
 objected. He filed a written objection to that being granted, where- 
 upon this order was handed down, dated November 15. 
 
 " The within petition is denied." 
 
 Thereupon, within a day or two after that, with much greater 
 speed than was anticipated, the decree approving the plan was 
 handed down with quite unusual rapidity. 
 
 We have observed that apparently, as a result of the haste with 
 which the final decree was entered, one of the objections which was 
 made by the Attorney General, and which was approved by the court 
 in the opinions handed down, has had added to it in the final decree 
 a proviso which was never mentioned at the argument and was 
 never included in the Attorney General's objections. This proviso I 
 personally regard as exceedingly dangerous in its possibilities of 
 aiding and building up the monopoly. The matter that I refer to 
 is one of the clauses contained in the Attorney General's answer, in 
 which he requested that the final decree should contain an injunction 
 against the defendants from " refusing to sell to any jobber any 
 brands of any tobacco product manufactured by it except upon 
 condition that such jobber shall purchase from the vendor some 
 other brand or product also manufactured and sold by it." This 
 suggestion was approved by the circuit court, but in the final decree 
 the same appears in the form in which I have quoted it, but with 
 this important additional provision: '■'■Provided, however, That this 
 prohibition shall not be construed to apply to what are known as 
 ' combination orders ' under which some brand or product may be 
 offered to a jobber or dealer at a reduced price on condition that he 
 purchase a given quantity of some other brand or product." 
 
 I can only attribute the addition of this important and dangerous 
 proviso to the fact that the final decree was agreed upon between 
 the Attorney General and the defendants' attorneys within a week 
 after the opinions were handed down, and that to this unusual speed 
 it must be due that a vital matter of this sort, which had never been 
 discussed in the argument or presented in the plan, was allowed to 
 pass by. 
 
 Moreover, there was also, owing to the speed that I have spoken 
 of with which the decree was settled and entered, using those tech- 
 nical words which the lawyers on this committee will understand, a 
 further error— and I say it with all deference — made on the part 
 of the presiding judge, who, in the opinion which he wrote, when 
 he reached the point of considering the objections that we had filed 
 left off the last part of one of these objections in this way: One of 
 
358 HEARINGS BEFORE 
 
 the objections which we made was that the defendants should be en- 
 joined " from giving away, selling at or below the cost of manu- 
 facture and distribution any of its products, or adopting any other 
 method of cutthroat competition for the purpose of destroying or of 
 acquiring the business or trade of a competitor." In the opinion of 
 the presiding judge he alludes to this objection, but omits entirely 
 the words " for the purpose of destroying or of acquiring the busi- 
 ness or trade of a competitor." 
 
 But our objection was not that. Our objection had added to the 
 words there " giving away, selling at, or below the cost of manufac- 
 ture or distribution any of its products — for the purpose of destroy- 
 ing competition," which changed the whole meaning of it. Nobody 
 objects to giving away or selling below the cost for legitimate reasons, 
 but if it is done to destroy competition it is objectionable. Our objec- 
 tion had that qualifying clause added to it. In the written opinion 
 of the judge that important qualification is omitted, and he thereupon 
 sweeps away the objection. I dare say that if that qualification were 
 added and a different sense thereby given to it, it may have been that 
 that objection would have been sustained, because it is a very im- 
 portant objection. It was by the use of such methods that the Tobacco 
 Trust drove out competition. They did it in the notable case in 
 Virginia of the Ware-Kramer Co. The trust gave away tens of 
 thousands of cigarettes, and did other similar things, with the result 
 that that little concern went into bankruptcy. That is the little 
 concern of which that letter was written, where we find they were 
 shipping goods to China, and the trust had spies down there and 
 located the goods and wrote to China to give them a warm reception. 
 
 But I am digressing. I do not wish to do that. Senators will 
 observe that this question is very intricate. Perhaps I had better be 
 asked questions, because I may continue on too long. 
 
 Speaking on this question of appeal, it is interesting to observe 
 that this same circuit court in 1908 decided this case, one of the judges 
 voting to dismiss the bill entirely and the other three voting to sus- 
 tain the bill, but not as to the foreign corporations and not as to the 
 United Cigar Stores Co. and not as to any of the 29 individual de- 
 fendants. They dismissed the bill as to those. The Supreme Court 
 reversed all that, making the relief much more drastic. 
 
 Now, what I want to come to is this: That the remedy given by 
 the circuit court below was fairly sweeping. The Supreme Court 
 made it more so. The plan as adopted makes it less so than in the 
 first instance. It went right around in a circle. The circuit court 
 said so much relief; the Supreme Court said so much more. The 
 plan says less than the circuit court said. I will submit that to the 
 scrutiny of any fair man to say if that is not so. I can go into de- 
 tail, but it would take up too much time. 
 
 Now, all that impressed us, and so we laid before the Attorney 
 General the wisdom of taking an appeal. It seemed to us that in 
 this great pioneer case of tremendous importance to perhaps 5,000,000 
 of people who work in the trade from the ground up, as well as to 
 the community at large, it would have been only a natural and or- 
 derly thing for the court itself to direct that the Supreme Court 
 should review the matter; and we suggested to the court that this 
 should be done. The Attorney General alone objected to this sug- 
 gestion. And so the court refused our request, presumably upon the 
 Attorney General's objection. 
 
. COMMITTEE ON INTERSTATE COMMERCE. 359 
 
 In his formal statement, just after the decree came down, the At- 
 torney General gave as his reason the following : He set out at some 
 length his ideas of the correctness of this plan — which is at the 
 service of the committee if they desire it — and he concluded as fol- 
 lows: 
 
 The Attorney General believes that this plan, with the restrictive provisions 
 embodied in the decree, will accomplish a recreation of lawful conditions, and, 
 being so convinced, he has opposed the efforts Of outsiders to inject themselves 
 into the situation and to delay or prevent the carrying out of the plan. 
 
 The Acting Chairman. Have you in your hands the objection or 
 statement of the Attorney General? 
 
 Mr. Levy. Yes, sir. I have in my hand a newspaper, dated No- 
 vember 16, containing a statement issued by the Attorney General of 
 some length, in which he justified, or seeks to justify in detail this 
 plan, and he concludes with the words I have just read. 
 
 The Acting Chairman. If there be no objection, that will be made 
 a part of the record. 
 
 Senator Townsend. May I ask, Mr. Chairman, if we have not the 
 actual report somewhere that he made, setting forth his objections, 
 which would quote him accurately ? Possibly this may not. 
 
 The Acting Chairman. I understand that that is a copy of it. 
 
 Mr. Levy. This is a statement which he made in public press. The 
 Senator refers, no doubt, to the objections on file in the court. 
 
 Senator Townsend. Yes. 
 
 Mr. Levy. I can readily furnish that. The Attorney General's 
 office has it. 
 
 Senator Pomerene. Does that profess to be an official statement or 
 is it a mere interview he gave out afterwards? 
 
 Mr. Levy. I can only answer, Senator, by what I read and what I 
 saw in the other papers, that this is entitled " The Attorney General's 
 Statement." It was given out to the press in the usual way in which 
 those statements are given out. 
 
 The Acting Chairman. It quotes him, does it not ? 
 
 Mr. Levy. Yes, sir; it quotes him. 
 
 The Acting Chairman. It does not simply appear to be a news- 
 paper account? 
 
 Mr. Levy. No, sir; I have no doubt that it is authentic. 
 
 Senator Pomerene. What paper is it in? 
 
 Mr. Levy. The New York Sun. The other papers had it, but that 
 was the onlv paper that printed it in extenso, and that is why I cut it 
 out. I do not want to do the Attorney General any injustice what- 
 ever, but that has every earmark of a justification of his course. 
 
 Senator Pomerene. You have not taken pains to verify it ? 
 
 Mr. Levy. I have read it very fully, and it conforms to his de- 
 clared attitude on the subject. I have not asked the Department of 
 Justice. 
 
 (The newspaper article is as follows:) 
 
 NO TOI1ACCO PLAN APPEAL — DEPARTMENT OF JUSTICE TO STT STILL AND WATCH — 
 FOE THE PRESENT IT ACCEPTS THE DECREE ENTERED HERE YESTERDAY — COURT 
 REFUSES TO LET OUTSIDERS INTERVENE OR TO ACCEPT THEIR SUGGESTION OF A 
 REVIEW. 
 
 Washington, November 16. 
 The Government will not appeal from the decree entered in the circuit court 
 in New York for the reorganization of the Tobacco Trust. This was announced 
 
360 HEARINGS BEFORE 
 
 at the Department of Justice after the decree had been entered. Mr. Wicker- 
 sham issued a statement in which he contends that the decree embodies sub- 
 stantially all of the requests made by the Government. 
 
 In his statement the Attorney General finds that the only two requests of the 
 Government denied in the decree were the enforced sale and distribution to 
 outsiders of the United Cigar Stores Co. and the right of the Government to 
 apply to the courts for relief at any time within five years if it could be shown 
 that competitive conditions had not been restored by the reorganization plans. 
 
 Mr. Wickersham opposes the objection of the independents to the size of the 
 distributed companies with the statement that the public would benefit more 
 from competition between large well-organized companies in strong hands than 
 from destructive competition between a great number of weak organizations. 
 " The objection to the retention of the stock by the original stockholders," the 
 Attorney General says, " is offset by the voting right conferred upon preferred- 
 stock holders and by the restrictions set upon the actions of the corporations 
 in the decree of the court." The bureau of corporations was relied upon solely 
 by the Attorney General for an opinion as to the competitive results to be 
 obtained under the scheme for division of brands, and its approval of that 
 portion of the decree is accepted by Mr. Wickersham as satisfactory. 
 
 The Attorney General's statement follows: 
 
 By this decree the court approves the plan for the termination of the existing 
 unlawful combination and the re-creation of competitive conditions, embodying, 
 as it does, substantially all of the modifications suggested on behalf of the Gov- 
 ernment. 
 
 By the terms of the plan the business of the trust in its various branches 
 is distributed among 14 separate and distinct corporations, no one of which will 
 acquire substantially more than one-third (in one or two instances rising to 
 40 per cent) of the business of the country in any particular line in which it 
 is to deal. The court perpetually enjoins all of the defendants, as well as the 
 new corporations to be created under the plan, from such conduct in the 
 future as in the past had resulted in unlawful conditions. It specifically enjoins 
 the conveyance of property by any one of the 14 companies to any other, the 
 adoption of a voting trust or other similar methods of stock control, the making 
 of agreements as to price, terms of purchase or of sale of leaf tobacco, or 
 tobacco or other products dealt in by the companies, or the apportionment of 
 business between the 14 corporations respecting localities. 
 
 It enjoins the employment by any one of the distributee companies of the 
 same business organization as that of any other, or the occupation of the same 
 offices. With a few trifling exceptions, it enjoins any one of the distributee 
 companies from holding stock in any corporation a part of whose stock is held 
 by any other of such companies. It enjoins any one of the distributee com- 
 panies from doing business except in its own name or that of a subsidiary 
 company, and where business is done in the name of a subsidiary the product 
 must also bear the name of the controlling company ; it enjoins the sale of 
 any brand on condition that the vendee shall also buy of the vendor some other 
 brand manufactured or sold by it. 
 
 The British-American Tobacco Co. and the Imperial Tobacco Co. are enjoined 
 from acting as agent for each other, from employing a common agent in the 
 purchase of leaf tobacco, and from uniting with any of the 17 distributee com- 
 panies in the employment of a common agent for the purchase of leaf tobacco 
 in the United States. 
 
 During a period of five years the 14 distributee companies are enjoined from 
 having common officers or directors, from employing the same agents for the 
 purchase of leaf tobacco or other products, or for the sale of tobacco or other 
 products. Each corporation is also enjoined from acquiring stock in any 
 other, from purchasing factories, brands, plants, or business from any other, 
 and from making loans or extending financial aid to any other. The 29 indi- 
 vidual defendants are also enjoined from purchasing, except from each other, 
 any additional stock in any of the 14 distributee companies except the British- 
 American Co. 
 
 The decree thus embodies substantially all of the requests made by the Gov- 
 erment except the enforced sale and distribution to outsiders of the United 
 Cigar Stores Co., and as authorization to the Government at any time within 
 five years to apply to the court for relief based upon a showing that competitive 
 conditions have not actually resulted from the operations of the plan. 
 
COMMITTEE ON INTERSTATE COMMERCE. 361 
 
 It is the opinion of the Attorney General that the execution of this plan will 
 necessarily result in a termination of the monopolistic conditions created by 
 the unlawful combination and in substituting actual competitive conditions 
 instead. 
 
 The principal objections made by the so-called " independents " to the plan 
 were based, first, on the fact that the stocks of the respective distributee com- 
 panies are to be distributed to and among the stockholders of the American To- 
 bacco Co., so that the same body of shareholders will substantially control each 
 of the distributee companies. The objections to this necessary consequence of 
 any plan of disintegration which could possibly be worked out within the period 
 allowed by the Supreme Court are met first by conferring voting rights which 
 now are vested in the common stock alone to the preferred-stock holders, also, 
 secondly, by the restrictions upon the actions of the respective corporations 
 embodied in the injunctive features of the decree. 
 
 The next objection made was that the size of some of the corporations was 
 greater than that of any of the existing independents. Nothing in the law 
 requires, or in the opinion of the Attorney General would justify the Govern- 
 ment in taking the position that to reduce a monopolistic combination to legal 
 size no one of the distributee concerns should be larger than the existing inde- 
 pendent concern. The public at large will be more apt to benefit from compe- 
 tition between a number of large, solvent, well-organized companies in strong 
 hands than from the general demoralization of business which would ensue 
 were the business to be distributed between a large number of small, weak 
 organizations without sufficient capacity to maintain themselves in active 
 competition. 
 
 Some of the representatives of the so-called " Independent Retail Dealers' 
 Association " urged the distribution of the business among 70 corporations 
 instead of 14. The suggestion might as well have been 50 or 200. For the 
 Government to have supported any such contention would have undoubtedly 
 resulted in a receivership and enormous and widespread injury to the general 
 business conditions of the country. 
 
 A point was also made that in the division of brands or factories the condi- 
 tions respecting the purchase of various varieties of the different types of to- 
 bacco leaf would not be actually competitive, but the expert of the Bureau of 
 Corporations of the Department of Commerce and Labor, to whom these phases 
 of the matter was referred by the Attorney General, reported so emphatically 
 in favor of the competitive results which would be realized under the plan 
 that they were accepted by the department. 
 
 The Attorney General fully concurs with the opinion expressed by Circuit 
 Judge Noyes that " in so far as the distribution of business is concerned suffi- 
 cient has been done to end the state of monopoly and to establish reasonable 
 competitive conditions." If practicable it might have been more desirable to 
 divide the business into a greater number of parts, but as the plan stands it 
 can not, in my opinion, be said that any one of the corporations will have such 
 preponderating influence in the tobacco industry as to give it power to control 
 the market either as manufacturer, seller, or purchaser. The possibility of 
 future acts of oppression is to be guarded against by a comprehensive injunction. 
 The Attorney General believes that this plan, with the restrictive provisions 
 embodied in the decree, will accomplish a re-creation of lawful conditions ; and 
 being so convinced, he has opposed the efforts of outsiders to inject themselves 
 into the situation and to delay or prevent the carrying out of the plan. 
 
 The Government has the right to appeal from the decree within a year, and 
 will therefore watch the operation of the reorganization closely in that period. 
 
 INDEPENDENTS RULED OTTT. 
 
 The decree of the United States circuit court approving the disintegration 
 plan submitted by the American Tobacco Co. was filed here yesterday and 
 signed by Judges Lacombe, Coxe, Ward, and Noyes. Counsel for the tobacco 
 concerns that were parties to the action and United States Attorney Henry A. 
 Wise for the Government signified their approval of the decree. Lewis Cass 
 Ledyard prepared the draft. . . 
 
 The decree provides for an extension of the circuit court's jurisdiction of the 
 tobacco case on the terms already specified for a period of five years. On 
 January 1, 1912, the circuit court goes out of existence by act of Congress, and 
 accordingly the jurisdiction of the tobacco case will go over to the district 
 court. 
 
362 HEARINGS BEFOEF 
 
 The judges denied the petition of Felix H. Levy on behalf of the National 
 Cigar Leaf Tobacco Association and the Cigar Manufacturers' Association of 
 America to be allowed to intervene in the case and to have a provision inserted 
 in its decree providing for a speedy review by the United States Supreme Court. 
 
 Now, at that time, feeling greatly alarmed at the situation, and 
 especially at our being excluded from the right of intervening or 
 of seeing to it that an appeal should be taken, we then appealed to 
 President Taft, and I will read here the telegram that was sent 
 to President Taft on November 6, 1911, the purpose "being to bring 
 the matter to his own attention in the belief that the Attorney 
 General had misconceived the situation due to the fact that it is 
 an enormous case and required years of study to master. 
 
 The following telegram was sent to President Taft : 
 
 New York, November 6, 1911. 
 Hon. William H. Taft, 
 
 President of the United States, Cincinnati, Ohio: 
 
 The undersigned associations, representing a very large number of firms and 
 individuals engaged in the manufacture of cigars, and in the growing, pack- 
 ing, importing, and selling of leaf tobacco, respectfully call your attention to 
 the plan of disintegration recently submitted to the circuit court in this city 
 by the tobacco combination, whereby the combination proposes to separate the 
 combination into 4 major companies and 10 minor companies, the ownership 
 of which will in substance and effect be left in the hands of the present com- 
 mon-stock holders of the American Tobacco Co. 
 
 General objection on the part of the varied tobacco interests was made to 
 this plan on the principal ground that it will leave the present common-stock 
 holders, and particularly the 29 individual defendants who were found by the 
 Supreme Court to be guilty of conspiracy and a violation of the Sherman law, 
 in continued control of all of the 14 proposed companies. The Attorney General 
 has approved the main features of the proposed plan. 
 
 We respectfully submit that such a plan would be at variance with the views 
 expressed by you in your Detroit speech on September IS, where you said that 
 it will be necessary to distribute the plants owned by the combination into 
 different and differing ownerships in order to create competition between them. 
 We further submit that the proposed plan will perpetuate the power of the 
 combination and will in no substantial sense comply with the requirements of 
 the decree of the Supreme Court. We submit, on the contrary, that the pro- 
 posed plan is even milder in its treatment of the situation than the course 
 which was required by the decree of the circuit court below, which decree was 
 greatly enlarged iu its scope by the Supreme Court. 
 
 We respectfully request that this matter have your prompt personal atten- 
 tion, and that if the views which we have expressed appeal to you we respect- 
 fully suggest that you direct the Attorney General to request the circuit court 
 to withhold its decision until you can cause further inquiry to be made into 
 the matter, and that then you direct the Attorney General to withdraw the 
 present answer interposed by the Government and to file a new answer which 
 will carry out your views that the plants owned by the combination be dis- 
 ributed into different and differing ownerships. 
 
 The proposed plan, if adopted, even with the Government's proposed modifi- 
 cations, will, in our opinion, not be a proper and lasting solution of the grave 
 trust problem now confronting the country, because its efficacy in restoring 
 competition will depend chiefly upon the good faith of the 29 individual defend- 
 ants who have already beeii found guilty of violating the Sherman law, and 
 because the plan rests upon no principle which of itself will restore competi- 
 tion. If you desire, a committee with counsel thoroughly familiar with the 
 subject will wait upon you wherever you may designate to submit the foregoing 
 facts to you in greater detail, but we believe that it is urgently necessary that 
 immediate attention be given by you personally on account of the need of 
 prompt action before the circuit court shall render its decision. 
 
 National Cigar Leaf Tobacco Association. 
 Cigar Manufacturers' Association of America. 
 
COMMITTEE ON INTERSTATE COMMERCE. 363 
 
 To that the President replied, on November 6, as follows: 
 
 Cincinnati, Ohio, November 6. 
 National Cigar Leaf Tobacco Association, 
 Cigar Manufacturers' Association of America, 
 
 Xen- York City: 
 The President has received your telegram of November 6. He will not return 
 to the Executive Office at Washington until November 13. The matter of 
 which you speak is in the hands of the Attorney General, to whom your tele- 
 gram will be repeated by wire to-night, 
 
 Charles D. Hilles, Secretary. 
 
 To which this reply was sent: 
 
 November 7, 1911. 
 To the Hon. W. H. Taft, 
 
 President of the United States, Cincinnati, Ohio: 
 Telegram from your secretary received. We respectfully renew our request 
 that the tobacco matter receive your personal attention, believing that you will 
 thereby see that the Attorney General's position is at variance with your de- 
 clared policy as to enforcement of Sherman law, particularly as shown by your 
 Detroit speech. His attitude has met with widespread disapproval of all classes 
 in the tobacco industry, and if approved will sacrifice in great part the ad- 
 vantages gained by the Government through the Supreme Court decision. We 
 have made earnest representations to the Attorney General, but without suc- 
 cess, and we believe that he misconceives the situation in the tobacco industry 
 as affected by the trust. We accordingly renew most respectfully, but most 
 earnestly, our request that you will give the subject your personal attention. 
 Tour reference of our telegram of yesterday to the Attorney General simply 
 leaves the matter where it was before. Please inform us whether a committee 
 may appear before you after your return to Washington. 
 
 Cigar Manufacturers' Association. 
 
 National Cigar Leaf Association. 
 
 To which no reply has been received. 
 
 That is the legal situation, and we are left in this position— that 
 the Government opposes our efforts to have review of the decision, or 
 to be made parties, which would have given us.only the advantage of 
 seeing to it that a review should be made by the Supreme Court. We 
 are left, therefore, in a position which lawyers will appreciate, where, 
 on account of the Government's attitude, it will be difficult to obtain a 
 review cf the case. I may say that steps are being taken — I have 
 taken steps — to endeavor in an orderly way to secure such a review. 
 I think it would be ill advised to speak of that method here, but 
 whatever may be done will be done with the knowledge that the 
 attitude of the Government has seriously jeopardized the prospect of 
 success of such an effort. 
 
 I have in mind among the multitude of situations affected here, the 
 situation with regard to the United Cigar Stores Co. as bearing on 
 this question of appeal. The Attorney General suggested, and made 
 an objection to the plan with regard to the United Cigar Stores Co., 
 that that ought to be the one exception to this joint-stock ownership 
 feature, as we call it. Senators will understand that I mean by that, 
 brieflv, that the stock all goes back to the common-stock holders of 
 the American Tobacco Co.Vho jointly, therefore, own all of the new 
 separated companies. He objected to that with regard to the United 
 Cigar Stores Co., because he said that was the most vicious branch 
 of" the trust and had become most unpopular because it struck 
 at the little corner dealers, as he said in his speech — the iron hand of 
 the trust, as he put it, reached the little corner dealer— and he asked 
 as to that that the plan should be modified ; that as to the stock of 
 
364 
 
 HEARINGS BEFORE 
 
 the United Cigar Stores Co., faro-thirds of it was owned by the 
 American Tobacco Co., the common stock; that instead of that com- 
 pany distributing its stock among the common-stock holders of the 
 American Tobacco Co., they ought to be debarred from owning any 
 of it, and that it ought to be sold to the public generally, and the 
 circuit court rejected his suggestion. I think upon that ground espe- 
 cially the Attorney General should have appealed, because that is a 
 branch of the trust which has caused more anger, has been more 
 harassing and incensing to a vast body of people — all the retail deal- 
 ers of the United States — than any other branch of the trust. That is 
 one that comes more nearly in contact with the people. His objection 
 on that head was overruled, and yet he has acquiesced. His further 
 important objection that there ought to be a five-year supervision 
 over all of them was rejected, and he has acquiesced. 
 
 Senator Brandegee. Is there no way by which the Supreme Court 
 can itself take judicial notice of whether its own orders have been 
 executed according to its own views? 
 
 Mr. Levy. Senator, that is a very difficult question to answer, and 
 it is on that line that I am now working. I think it may be. It is 
 a very difficult question to answer. Putting it in very plain English, 
 suppose Jones is suing Smith and a decree is entered, and Jones and 
 Smith are both satisfied, what right has Robinson to come to court 
 and say "I do not like that decree"? That is reducing it to plain 
 terms. 
 
 Senator Bkandegee. I know; but suppose 
 
 The Acting Chairman. Senator Brandegee, suppose we pursue 
 the rule that we have established with regard to questioning ? 
 
 Senator Brandegee. Very well. I withdraw the question. 
 
 Mr. Levy. Now, with great reluctance, and disavowing at all times 
 any desire to do anything but what a lawyer ought to do, I am struck 
 very much with the inconsistency of the Attorney General's attitude 
 in filing, in the same week in which he approves this plan, his bill 
 against the United States Steel Corporation. Now, if this plan is 
 all right, the Steel Co. is still further all right — if that is good Eng- 
 lish, which it is not; but if this plan, with all its potentiality of 
 monopoly and evil, based upon the most vicious, immoral, wicked 
 practices — I speak from the record, and will point to the record — if 
 that plan is all right as to the Tobacco Trust, then as to the Steel 
 Co. the bill filed against it that I have here is utterly silent as to any 
 oppressive, vicious, unethical practices, utterly silent, and the re- 
 port of the Bureau of Corporations even goes further and says in- 
 stead of having a tendency toward monopoly it has a tendency the 
 other way. I say that is a striking inconsistency. I want to say 
 this: I do not know one steel man from another. I do not know 
 one of their lawyers. My only knowledge of it is as a lawyer work- 
 ing under the Sherman law, and I have read the bill against the 
 Steel Co. and studied it and if you will read this excellent report of 
 the Bureau of Corporations it will strike you as an unobjectionable 
 thing from an economic standpoint. I will read from the corpora- 
 tions report of 1911 : 
 
 The Steel Corporation, despite its great size, is not exempt from competition. 
 Indeed, the evidence on the whole indicates that competition in the industry has 
 steadily been increasing. Notwithstanding the great additions made by the cor- 
 
COMMITTEE ON" INTERSTATE COMMERCE. 365 
 
 poration to Us properties by earnings and the acquisition of several important 
 competing concerns, its proportion of the business in nearly every important 
 product except pig iron and steel rails is less than it was in 1901, * * * 
 
 And the bill, which I have read with great care, and of course 
 the pleader, as lawyers say, put his " best foot foremost." 
 
 Senator Pomerene. Will you pardon me an interruption? Will 
 you refer to the page of the bureau's report, so that the record may 
 show it? 
 
 Mr. Levy. It is on page 56 of part 1 of the Eeport of the Com- 
 missioner of Corporations on the Steel Industry. I realize that I 
 am digressing, which I ought not to do, but I am trying to get this 
 appeal matter thoroughly understood. It is very plain. I say that 
 is a striking inconsistency, still more striking when you have in 
 mind not merely that the tobacco plan was approved, but the At- 
 torney General steadfastly refused to permit an appeal — a fact which 
 passes my understanding. 
 
 I will now read from a summary of part 2 of the Report of the 
 Commissioner of Corporations on the Tobacco Industry, to contrast 
 this with the Report on the Steel Trust, and you will see a very 
 different state of things. 
 
 I have read to you a little while back the high rate of earnings 
 that they have and their complete control. Now, listen to this, which 
 I will read from page 4 of the bureau's report on tobacco : 
 
 The results of the Spanish Wnr tax upon tobacco products especially illus- 
 trate the monopolistic power of the combination. When that tax was imposed 
 JQ 189S prices were generally raised. In 1901 and 1902 the tax was reduced to 
 its former basis, but the combination was powerful enough to keep its prices on 
 the higher level. It thus absorbed practically all the benefit of the reduction, 
 adding millions yearly to its income. This episode shows the unforeseen results 
 of fiscal legislation affecting monopolistic conditions not fully recognized. The 
 tax reduction, of course, was intended to benefit the consumer. As a matter 
 of fact, it benefited almost solely the controlling interest in the industry. 
 
 But the benefit of this reduction did not' go to the combination 
 itself. 
 
 The committee will see who really got the benefit of it. I will 
 read further from page 5 of the report : 
 
 Through adroit and frequent adjustments of the securities of the combination, 
 a very large'paft of its great earnings have gone to a small group of insiders, 
 who have throughout retained substantial voting control. These insiders in 
 1901 induced the common-stock holders of the old American and Continental 
 companies — 
 
 And I also pause to say that they were afterwards merged into the 
 one company — 
 
 to surrender their stocks for 4 per cent bonds of the new Consolidated Tobacco 
 Co., thus securing for the common stock of the Consolidated (most of which 
 the insiders held) the great increase in earnings, which they foresaw, from 
 the reduction in the war-revenue tax. 
 
 I hope to make myself clear on that. 
 
 This increase the rank and file of stockholders of the older concerns did not 
 foresee. In the reorganization in 1904 the advantage of the insiders was 
 perpetuated. Of the book profits of the new American Tobacco Co. in 1910— 
 not the " earnings," as revised by the bureau — namely, $35,000,000, only about 
 $5,300,000 went to the holders of the $104,000,000 bonds, $4,700,000 to the 
 holders of the $79,000,000 preferred stock, leaving no less than $25,000,000 for 
 the comparatively small number of holders of the $40,000,000 common stock, 
 which alone has voting power. This was over 60 per cent on the common 
 
366 
 
 HEARINGS BEFORE 
 
 stock in one year, not including extra dividends of subsidiary companies. . In 
 short, the bulk of the earnings of this great combination, increased by monopo- 
 listic power, has. by clever arrangement of capitalization, been more and more 
 centered in a very small group of individuals. 
 
 There must also be considered here the profits arising from the inflation 
 of the combination's securities. For example, one of the constituent businesses 
 was valued in 18^5, under competition, at $250,000. Five years later, at the 
 organization of the old American Tobacco Co., it formed the basis for the 
 issue of $7,500,000 of stock. By 190S. due to various readjustments, the 
 securities based on this business had increased to $22,000,000. Meantime cash 
 dividends and interest thereon had amounted to $16,900,000. Thus the total 
 par value of these securities, the combined market value being substantially 
 the same, pins the dividends and interest paid up to 1908, amounted to nearly 
 $39,000,000, or 150 times the value of this particular business in 1885. 
 
 The combination's history, therefore, shows these foremost facts : The earn- 
 ing power of a monopolistic position in a great industry, excessive capitaliza- 
 tion, and remarkable concentration of the resulting wealth in a few hands 
 through control of the voting security issues. 
 
 One of the constituent businesses was valued in 1885, under competition, at 
 $250,000. Five years later, at the organization of the old American Tobacco 
 Co., it formed the basis for the issue of $7,500,000 of stock. By 1908, due to 
 various readjustments, the securities based on this business had increased to 
 $22,000,000. Meantime cash dividends and interest thereon had amounted to 
 $16,900,000. Thus the total par value of these securities, the combined market 
 value being substantially the same, plus the dividends and interest paid up to 
 190S, amounted to nearly $09,000,000. 
 
 That is upon the basis of a value of $250,000 in 1885 — 25 years ago. 
 
 I have read that extract, first, to show what the methods of the 
 Tobacco Trust and its insiders have been, and, second, to contrast it 
 with the report of the Bureau of Corporations on the steel business, 
 
 Now, as I say, I was only a lawyer in the tobacco fight. I am only 
 contrasting the approval of this plan with the curiousness of the 
 action of the Attorney General in beginning the steel suit — attribut- 
 ing to him all possible good faith. 
 
 I will hurry through my notes so as not to take up too much time. 
 I run across the subject of the " innocent investors," and that is a 
 very important factor of it. We were all impressed at the argu- 
 ments with the theory — which both the court and especially the 
 Attorney General held — that he was charged primarily with the duty 
 in this disintegration of taking care of the security holders. The 
 opinion did not say so. The opinion said — and I will allude to it 
 in my own printed argument of which I have copies here — the 
 opinion said: 
 
 In considering the subject from both of these aspects three dominant in- 
 fluences must guide our action : (1) The duty of giving complete and efficacious* 
 effect to the prohibitions of the statute; (2) the accomplishing of this result 
 with as little injury as possible to the interest of the general public; and (3) 
 a proper regard for the vast interests of private property which may have 
 become vested in many persons as a result of the acquisition either by way of 
 stock ownership or otherwise of interests in the stock or securities of the com- 
 bination without any guilty knowledge or intent in any way to become actors 
 or participants in the wrongs which we find to have inspired and dominated 
 the combination from the beginning. 
 
 Now, the deduction to be drawn from that is that the security 
 holders were to be considered last, and among them those that had 
 a guilty part in the transaction were not to be considered at all ; 
 and then the court went on to say : 
 
 In view of the considerations we have stated, we leave the matter to 1he 
 court below to work out a compliance with the law without unnecessary injury 
 to the public or the rights of private property. 
 
COMMITTEE ON INTERSTATE COMMERCE. 367 
 
 Now ; I may be wrong, but as I conceived and so understood— and 
 the opinion of the circuit court seems to bear it out— the primary 
 purpose of that court was the protection of security holders— the 
 common stock, the preferred stock, and the two classes of bonds; 
 and, of course, reversing the situation in that way, it may well be 
 that only such a plan as that could be forthcoming, and, as I charge 
 in my oral argument, which is printed here, it was the purpose of 
 the tobacco people in presenting that plan to save for themselves the 
 merger or monopoly value. They wanted to hold it together, natu- 
 rally. I might almost say I do not blame them, but the court ought 
 not to have taken that view of it. The court ought to have said : 
 "Our first duty is to restore competition. In doing that, let us 
 injure the public as little as possible and let us injure the innocent 
 investors as little as possible, and as for the guilty investors, we do 
 not care about them." That was that situation. And so it goes at 
 great length, and there is almost no end to it. 
 
 And then I find another important mistake in this decree. To the 
 lawyers on the committee, you will readily understand our technical 
 term in New York when we say that we " settle " a decree. That is. 
 the lawyers get together after a decision and agree on the phrase- 
 ology. This decree was settled too quick, because there were very 
 important injunctive features in it regarding the 14 companies. I 
 may be wrong about that, but I can turn to the page of the decree 
 regarding that matter— it is page 66, and it will be seen that some 
 of those 14 companies who are there enjoined are not in existence, 
 and therefore the injunction, I think, has no value. I say, at least^ 
 that that is a clear oversight that ought to be corrected. 
 
 Now, the Attorney General rejected the suggestion of separating 
 the stock ownership, as we urged it, upon two grounds. First, that 
 he was foreclosed — that is his view on that — by what he called a 
 long line of decisions; and, secondly, the time was too short. The 
 decisions he alluded to were those in the Northern Securities case 
 and the Standard Oil Co. case. We handed up a brief on that, in 
 which we contended that in neither the Securities case nor the Stand- 
 ard Oil case was there any objection made by the Government to 
 this joint ownership. But, on the contrary, the Government had 
 asked for it in each of those instances. I think in the Standard Oil 
 Co. case it was very injurious to a proper result of that suit. But 
 I do say that it is not a precedent for this case, because the Supreme 
 Court in those two cases gave the Government what it asked for, 
 and the Supreme Court says that the Tobacco case was a very differ- 
 ent case from the Standard Oil case and from the Northern Securi 
 ties case. The Supreme Court repeatedly said in this case that it 
 must be treated from an original standpoint, that the antitrust law 
 must be enforced upon broader lines than ever before. And yet the 
 Attorney General and the court agree that those two decisions fore- 
 close them. 
 
 I think that in a great big case like this, that if three months 
 or six months or a year possibly, was not sufficient to properly dis- 
 pose the case, more time ought to be allowed. The court ought to 
 have said : "Take a year more if you need it." Instead of doing that 
 they would not allow our principal objections, and they made the 
 further statement that our conception of this thing was absurd and 
 
 22877— vol i—12 24 
 
368 HEARINGS BEEOKE 
 
 could not be countenanced. The Attorney General would not ap- 
 prove it, and the court took that view. 
 
 I will simply say here that Senators will find the objections 
 filed here have overshot the mark. We have asked for a vast number 
 of companies, but we could not help that. We pointed out, with the 
 best information we could, how each branch of the business should be 
 split up. When Ave had figured all those companies up, it reached the 
 sum of sixty-odd companies, which was rather " going some," as they 
 say. Even if we erred in that, it would be quite idle to say that our 
 error should justify some other error by the Attorney General or the 
 court. I think our objection was the keynote of it, namely, against 
 the plan of joint-stock ownership and that there ought to be a suffi- 
 cient splitting up into smaller units, but the court held that that was 
 confiscation. We did not mean to take away from anybody a single 
 share of his stock. 
 
 We said that the Supreme Court had in effect said to these de- 
 fendants : 
 
 We hesitate to appoint forthwith a receiver and to issue an injunction . 
 against interstate traffic in your products because of the injury that will thereby 
 be occasioned to the public. We therefore give you an opportunity of working 
 out and presenting to the circuit court a plan of dissolution and disintegration 
 which will honestly re-create conditions of free and unrestricted competition. 
 If you are unable or unwilling to do this, there will be no alternative open ex- 
 cept the appointment of a receiver or the issuance of such an injunction. It 
 will, therefore, be necessary for you ,to devise a plan to which your security 
 holders will of their own accord consent, whereby the true intent and purpose 
 of our decree will be carried out. If such a plan shall necessitate your security 
 holders placing themselves under a prohibition against mutual or joint stock 
 ownership of the various segments into which your combination shall be divided, 
 then that must be done. While it may be that a court can not compel you to 
 fto this, nevertheless unless you consent, no effective restoration of real competi- 
 tive conditions can be brought about and accordingly it would become neces- 
 sary for the court to appoint a receiver or to issue an injunction. 
 
 So that while it would have been easy for the Supreme Court to 
 issue an injunction, that would have been undesirable, so that, as an 
 alternative to that, the defendants themselves and their stockholders 
 could agree among themselves as to a fair and proper disintegration 
 and thus avoid a receivership or an injunction, and I have no doubt 
 that as a practical proposition — and I say it quite seriously — that 
 there would have been no difficulty in working out some such division. 
 
 That much for our proposed suggestion amounting to confiscation. 
 
 I promise now not to look at too many more of these papers, be- 
 e-ause they will take too much of the time of the committee. I would, 
 however, like to read Judge Harlan's opinion in the Northern Secu- 
 rities ease and run briefly over that opinion, but I won't do it. 
 
 It may be that when Senators ask some questions that I could 
 finish more rapidly. I will just leave that so that I can refer to it 
 in. order to answer any questions that may be asked regarding it. 
 
 I have tried to treat a very comprehensive subject with as little 
 consumption of time as possible. 
 
 The Acting Chairman. Mr. Levy, you have before you the decree 
 of the Supreme Court?. 
 
 Mr. Levy. The opinion of the Supreme Court. 
 
 The Acting Chairman. I mean the opinion of the Supreme Court. 
 
 Mr. Levy. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 369 
 
 The Acting Chairman. That opinion reverses the opinion of the 
 court below, does it not? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. I assume from what vou say that it is 
 your judgment that the plan of reorganization approved by the cir- 
 cuit court is not in harmony with the opinion of the Supreme Court 
 of the United States in that case ? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. Will you point out definitely that part, or 
 those parts, of the opinion of the Supreme Court which you think is 
 either disregarded by the decree or approved by the plan of the circuit 
 court? 
 
 Mr. Levy. I took the pains in my printed argument in the court 
 below to set them out, so that all of them are in printed form. 1 
 can read them if you desire. 
 
 The Acting Chairman. If you will read them, not of any great 
 length— I assume they can be compressed within a short space. 
 
 Mr. Levy. In the first place, I pointed out that the Supreme Court, 
 at page 155 of its opinion ■ 
 
 Senator Brandegee. "What is the page of your brief ? 
 
 Mr. Levy. Page 2 of my printed argument. I have other copies 
 if Senators want them. 
 
 I pointed out, in the first place, that the Supreme Court decided 
 the case upon the undisputed facts which, to a lawyer, would appeal 
 very strongly. They did not go into the disputed facts at all, and 
 there must have been a large number of disputed facts. 
 
 On page 155 they said : 
 
 In our opinion the case can be disposed of by considering only those facts 
 which are indisputable and by applying to the inferences properly deducible 
 from such facts the meaning and effect of the law as expounded in accordance 
 with previous decisions of this court. 
 
 On page 174 the court recognized the fact that a substantial control 
 of the combination was exercised by a very small number of its 
 stockholders. 
 
 And it also recognized the necessity for a complete divesting of 
 stock ownership by one part of the combination in other parts of the 
 combination, as is shown on page 176, as follows : 
 
 Thus, even if the ownership of stock by the American Tobacco Co. in the 
 accessory and subsidiary companies and the ownership of stock in any of those 
 companies among themselves were held, as was decided in United States v. 
 Standard Oil Co., to be a violation of the act, and all relations resulting 
 from such stock ownership were therefore set aside, the question would yet 
 remain whether the principal defendant, the American Tobbaco Co., and the 
 five accessory defendants, even when divested of their stock ownership in other 
 corporations, by virtue of the power which they would continue to possess, 
 even although thus stripped, would amount to a violation of both the first and 
 second sections of the act, * '* * Still further, the question would yet 
 remain whether particular corporations which, when bereft of the power which 
 they possessed, as resulting from stock ownership, although they were nor 
 inherently possessed of a sufficient residuum of power to cause them to be in 
 and of themselves either a restraint of trade or a monopolization or an attempt 
 to monopolize, should nevertheless be restrained because of their intimate 
 connection and association with other corporations found to be within the 
 prohibitions of the act. 
 
 It seems to me that is utterly at war with the idea of a common- 
 stock ownership of the whole combination. This raises the question 
 
370 HEARINGS BEFOBE 
 
 whether, when left in common-stock ownership, the power would not 
 still remain in them and would not still leave them dangerous factors 
 in restraint of trade. Therefore I say it would be more in harmony 
 with the Supreme Court's opinion if the features of common-stock 
 ownership were eliminated. 
 
 Now. then, as to the wrongful character of this combination the 
 court below said in its decision of 1908 : " We have found nothing 
 wicked or oppressive in this record." The Supreme Court, on page 
 181, said : 
 
 Considering, then, the undisputed facts, which we have previously stated, it 
 remains only to determine whether they establish that the acts, contracts, 
 agreements, combinations, etc., which were assailed were of such an unusual 
 and wrongful character as to bring them within the prohibitions of the law. 
 That they were, in our opinion, so overwhelmingly results from the undisputed 
 facts that it seems only necessary to refer to the facts as we have stated them 
 to demonstrate the correctness of this conclusion. Indeed, the history of the 
 combination is so replete with the doing of acts which it was the obvious pur- 
 pose of the statute to forbid, so demonstrative of the existence from the begin- 
 ning of a purpose to acquire dominion and control of the tobacco trade, not by 
 the mere exertion of the ordinary right to contract and to trade, but by methods 
 devised in order to monopolize the trade by driving competitors out of business, 
 which were ruthlessly carried out upon the assumption that to work upon the 
 fears or play upon the cupidity of competitors would make success possible. 
 We say these conclusions are inevitable, not because of the vast amount of 
 property aggregated by the combination, not because alone of the many cor- 
 porations which the proof shows were united by resort to one device or an- 
 other * * *. 
 
 Indeed, when the results of the undisputed proof which we have stated are 
 fully apprehended, and the wrongful acts which they exhibit are considered, 
 there comes inevitably to the mind the conviction that it was the danger which 
 it was deemed would arise to individual liberty and the public well-being from 
 acts like those which this record exhibits which led the legislative mind to 
 conceive and to enact the antitrust act, considerations which also serve to clearly 
 demonstrate that the combination here assailed is within the law as to leave 
 no doubt that it is our plain duty to apply its prohibitions. 
 
 The Acting Chairman. There is another page, I think, that you 
 have not reached. Possibly you have quoted it in your brief. 
 
 Mr. Levy. " By the ever-present manifestation 
 
 The Acting Chairman. When the case was remanded, the alterna- 
 tives that were presented to the courts below to embody them in the 
 decree. 
 
 Mr. Levy. I have that here. I will read first this, as to the stock 
 control. I will read from page 185 of the Supreme Court's decision : 
 
 Looking at the situation as we have hitherto pointed it out, it involves 
 difficulties in the application of remedies greater than have been presented by 
 any case involving the antitrust act which has been hitherto considered by this 
 court: First, because in this case it is obvious that a mere decree forbidding 
 stock ownership by one part of the combination in another part or entity 
 thereof — 
 
 I say that is a direct negation of this plan. 
 Senator Cummins. Just read on. 
 Mr. Levy (reading) : 
 
 would afford no adequate measure of relief, since different ingredients of the 
 combination would remain unaffected, and by the very nature and character 
 of their organization would be able to continue the wrongful situation which 
 it is our duty to destroy. Second, because the methods of apparent ownership 
 by which the wrongful intent was, in part, carried out and the subtle devices 
 which, as we have seen, were resorted to for the purpose of accomplishing the 
 wrong contemplated, by way of ownership or otherwise, are of such a char- 
 
COMMITTEE ON INTERSTATE COMMERCE. 37l 
 
 acter that it is difficult, if not impossible, to formulate a remedy which could 
 restore in their entirety the prior lawful conditions. Third, because the meth- 
 ods devised by which the various essential elements to the successful operation 
 of the tobacco business from any particular aspect have been so separated under 
 various subordinate combinations, yet so unified by way of the control worked 
 out by the scheme here condemned, are so involved that any specific form of 
 relief which we might now order in substance and effect might operate really to 
 injure the public and, it may be, to perpetuate the wrong. 
 
 Senator Townsend. What are you reading from now? 
 
 Mr. Levy. The opinion of the Supreme Court. It is extracted 
 in my printed argument and is there more easily referred to. It is 
 the very heart of the opinion. [Reading :] 
 
 But, having regard to the principles which we have said must control our 
 action, we do not think we can now direct the immediate application of either 
 of these remedies. 
 
 That is referring to the injunction and receivership. 
 
 We so consider as to the first, because in view of the extent of the combina- 
 tion, the vast field which it covers, the all-embracing character of its activities 
 concerning tobacco and its products, to at once stay the movement in inter- 
 state commerce of the products which the combination or its cooperating forces 
 produce or control might inflict infinite injury upon the public by leading 
 to a stoppage of supply and a great enhancement of prices. The second, because 
 the extensive power which would result from at once resorting to a receivership 
 might not only do grievous injury to the public, but also cause widespread and 
 perhaps irreparable loss to many innocent people. Under these circumstances, 
 taking into mind the complexity of the situation in all of its aspects and giving 
 weight to the many-sided considerations which must control our judgment, 
 we think, so far as the permanent relief to be awarded is concerned, we should 
 decree as follows : First, that the combination in and of itself, as well as each 
 and all of the elements composing it, whether corporate or individual,, whether 
 considered collectively or separately, be decreed to be in restraint of trade and 
 an attempt to monopolize and a monopolization within the first and second 
 sections of the antitrust act ; second, that the court below, in order to give 
 effective force to our decree in this regard, be directed to hear the parties, 
 by evidence or otherwise, as it may be deemed proper, for the purpose of 
 ascertaining and determining upon some plan or method of dissolving the com- 
 bination and of re-creating, out of the elements now composing it, a new 
 condition which shall be honestly in harmony with and not repugnant to the law. 
 
 Senator Pomerene. You are reading from page what? 
 Mr. Levt. Page 187. They say [reading] : 
 
 Not alone because of the dominion and control over the tobacco trade which 
 actually exists, but because we think the conclusion of wrongful purpose and 
 illegal combination is overwhelmingly established by the following considera- 
 tions : 
 
 I will get down to " e" the third one [reading] : 
 
 (c) By the ever-present manifestation which is exhibited of a conscious 
 wrongdoing by the form in which the various transactions were embodied from 
 the beginning, ever changing but ever in substance the same, now the organi- 
 zation of a new company, now the control exerted by the taking of stock in 
 one or another or in several, so as to obscure the result actually attained, 
 nevertheless uniform in their manifestations of the purpose to restrain others 
 and to monopolize and retain power in the hands of the few who, it would 
 seem, from the beginning contemplated the mastery of the trade which prac- 
 tically followed. 
 
 All that upon the undisputed testimony. 
 
 The Acting Chairman. Do you think, Mr. Levy, that the purposes 
 or objects which the chief spirits of the American Tobacco Co. enter- 
 tained in bringing it together can be taken into account in determin- 
 ing whether the present organization, as now approved, is lawful or 
 unlawful? 
 
372 HEARINGS BEFORE 
 
 Mr. Levy. Beyond a doubt. 
 
 The Acting Chairman. Is that assumption a part, a fundamental 
 part or an essential part, of your view that the reorganization is not 
 in compliance with the opinion of the Supreme Court? 
 
 Mr. Levy. It is. And it is based upon express remarks of that 
 nature by the Supreme Court. 
 
 The Acting Chairman. If those four companies, I believe, into 
 which the property -of the American Tobacco Co. has gone 
 
 Mr. Levy. Fourteen, to be accurate; 4 big ones and 10 subsidiary 
 companies. 
 
 The Acting Chairman. Yes; -i big one? and the 10 srnaH ones; if 
 they had been brought together in the way or in the form in which 
 they now appear, controlled by the same ownership which now con- 
 trols them or will control them under this plan, as an original propo- 
 sition do you think that they would have been in violation of the 
 antitrust law ? 
 
 Mr. Levy. I have not the slightest doubt. 
 
 The Acting Chairman. Therefore, it has been decided, naturally, 
 by the circuit court that the business, as contemplated in this re- 
 organization, is in harmony with the antitrust law and will not 
 constitute a violation of it? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. You understand it so? 
 
 Mr. Levy. Perfectly so. 
 
 The Acting Chairman. Is there any dispute about this fact, that 
 in the business as reorganized the same persons will control all the 
 companies ? 
 
 Mr. Levy. They claim not. I do not see how they can make that 
 claim good, however, but they do claim not. 
 
 The Acting Chairman. Will you elaborate a little on that claim ? 
 In what way is it made to appear that the same members will not 
 control each branch of this reorganization? 
 
 Mr. Levy. Because they are under the injunctive features of the 
 decree; they are required to have separate boards of directors and 
 separate officers. I do not agree with them as to it having any ulti- 
 mate effective result. 
 
 The Acting Chairman. So far as you have heard, is that the only 
 basis of the claim that there will be a separate and independent con- 
 trol of these companies? 
 
 Mr. Levy. No, sir. To state it fairly, as I remember it, they make 
 the further claim that the preferred-stock holders of the present 
 parent company are also going to be given a vote, so that the present 
 control of the common-stock holders, who now alone have a vote, will 
 be diluted, as it were, among all of them. 
 
 The Acting Chairman. That is, the preferred-stock holders of 
 the parent company are now brought into voting power ? 
 
 Mr. Levy. That is it, with an important distinction that they do 
 not point out. The ownership of all these so-called separate com- 
 panies goes to the present common-stock holders; it does not go to 
 the present preferred-stock holders. Consequently, a change in the 
 charter of the present company will operate this way: Very soon, 
 when the plan is carried out to its full execution, the parent company 
 will shrink in size; it will reduce itself to a smaller company of 
 $100,000,000. Of that company the common and the preferred stock 
 
COMMITTEE ON INTERSTATE COMMERCE. 373 
 
 holders will have the control by vote ; but of all the other companies 
 the present common-stock holders of the parent company will alone 
 have the control. Do I make myself clear? 
 
 The Acting Chairman. Precisely. So you still insist that those 
 who control the present American Tobacco Co. or the old American 
 Tobacco Co. will control each of these organizations. 
 
 Mr. Levy. Yes, sir. I might say that I have got the percentages 
 of stock which they will hold in each of them. 
 
 The Acting Chairman. And you insist that in the very natura of 
 things there can not be any competition between them in trade ? 
 
 Mr. Levy. Personally I can conceive of no such a thing. I do not- 
 understand how a man can compete with himself. 
 
 The Acting Chairman. You understand, I assume, that the very 
 purpose or the reason of the law in condemning such an organiza- 
 tion is because it believes that competition ought to be preserved in 
 the business of this country? 
 
 Mr. Levy. I do, sir. 
 
 The Acting Chairman. And are you of the opinion that any re- 
 organization that takes place must be such a one as, according to 
 the experience of men, will result in competition in the business? 
 
 Mr. Levy. Beyond a doubt, sir. 
 
 The Acting Chairman. If it shall turn out that the plan which 
 has been proposed and approved by the circuit court is the law of the 
 land, in so far as a precedent can constitute the law of the land, what 
 is your opinion with respect to the efficiency of the antitrust law in 
 preserving competition ? 
 
 Mr. Levy. My opinion is that that very important provision of law 
 will be worthless. But I do not agree to the hypothesis. 
 
 The Acting Chairman. However, so far as we have gone with it, 
 we have a decree affirming that interpretation of the law which, at 
 this time, seems to be final. 
 
 Mr. Levy. You had it before by this same court in 1908, when they 
 handed down their decree that weakened the Sherman antitrust law. 
 
 The Acting Chairman. There was an appeal taken from that de- 
 cree. There seems to be no appeal legally possible from this decree. 
 
 Mr. Levy. Unless by good fortune the Attorney General will 
 change his mind. I hope he will. 
 
 The Acting Chairman. And if, upon appeal, the Supreme Court 
 shall affirm the action of the circuit court, then it is apparent, is it 
 not, that the antitrust law, so far as existing combinations are con- 
 cerned, anyhow, has ceased to be efficient? 
 
 Mr. Levy. Well, with this important qualification, if the Supreme 
 Court approves this decree — of course, we will all bow to it — I per- 
 sonally will go further, and then I will say that our judgment of the 
 matter will be wrong. I. will then agree with your hypothesis that 
 the Sherman Act is inefficacious. 
 
 The Acting Chairman. You agree that in some way we must give 
 the law an application that the circuit court of New York has denied 
 to it? 
 
 Mr. Levy. I do not follow you. 
 
 The Acting Chairman. If this is to stand as the proper interpre- 
 tation of the law, we must — that is, in order to accomplish the purpose 
 which the law had in mind — we must do something in the way of 
 amending it, or changing it ? 
 
3 74 
 
 HEARINGS BEFORE 
 
 Mr. Levy. There is nothing you can do. This law is as broad as 
 the English language can make it. You would have to bow to the 
 combinations. That is ray personal opinion. 
 
 The Acting Chairman. You think that if the language of the 
 antitrust law will not bring about the result desired we can not use 
 any language that will? 
 
 Mr. Levy. It can not be done. The Sherman antitrust law is a 
 mere crystalization of the common law that has been existing for 
 centuries, with certain modifications. 
 
 The Acting Chairman. You recognize the right of Congress, then, 
 within proper limits, to change the common law and to add to its 
 severity or mitigate its severity, as it sees fit? 
 
 Mr. Levy. But the human mind can not go further than to say 
 that contracts in restraint of trade are unlawful. I think that the 
 whole question resolves itself into the smaller one as to whether the 
 circuit court is right or wrong. I do not think it is the big question 
 as to whether the Sherman law is efficacious or not. 
 
 The Acting Chairman. Then it is your contention that if this plan 
 shall be finally approved by the highest court in the land that Con- 
 gress is powerless to deal with this very great evil ? 
 
 Mr. Levy. I say, with a great deal of deference, I would think so. 
 I would say that the law has exhausted its power in enacting the. 
 Sherman law. 
 
 The Acting Chairman. Very well. You spoke of certain con- 
 ferences between members of the court and the attorneys of the 
 defendants in this case, the defendants themselves, and the legal 
 representatives of the Government. Have you been careful in your 
 selection of the word which describes such meetings ? 
 
 Mr. Levy. I will read from the opinion. 
 
 The Acting Chairman. Do you mean, upon reflection, to call 
 them conferences? 
 
 Mr. Levy. That is the word they used. 
 
 The Acting Chairman. Were those meetings secret? 
 
 Mr. Levy. They were secret. That is to say — I want to use my 
 words very carefully, and I will state the facts without characteriza- 
 tion. It was known publicly that there were meetings — that is a 
 more general word — from which the public were excluded, and at 
 which there were present two or three members of the court, the 
 attorneys for all \ the defendants, and some individual defendants, 
 and the Attorney General and Mr. McReynolds, and nobody else 
 was permitted to go to these secret conferences; and they were 
 called conferences. 
 
 The Acting Chairman. Was not this recognized as one of the 
 ordinary court proceedings which are held in public ? 
 
 Mr. Levy. So far as I know, not. 
 
 The Acting Chairman. I can not understand the practice of New 
 York. 
 
 Mr. Levy. Well, it is about like this : In ordinary litigation — if I 
 may be bold enough to say it, in the chairman's own practice, you 
 may have had a case, and you and your adversary would meet in the 
 judge's chamber and settle the decree. In a sense, that is private. 
 
 The Acting Chairman. That is quite common and quite proper. 
 Do you mean then by these conferences to describe similar meetings 
 
COMMITTEE ON INTERSTATE COMMERCE. 375 
 
 of the counsel and parties to a cause for the purpose of arguing a 
 proposed decree ? 
 
 Mr. Levy. That is exactly what was done ; and the court says, one 
 of them says : " It was built up in our presence ; " and the other one 
 says that there were conferences at which there were present two, 
 and sometimes three, of the judges and the attorneys. 
 
 The Acting Chairman. You do not mean that there were con- 
 ferences for negotiation? 
 
 Mr. Levy. You will have to characterize it. That was the fact. 
 That plan was built up in that way. I am sorry that I have not got 
 the opinion here, because you will find that I have followed it very 
 carefully. 
 
 The Acting Chairman. You, as representing the independent 
 tobacco men, sought to be heard as against the proposed decree, and 
 you were permitted to be heard? 
 
 Mr. Levy. That was after the plan had been filed in open court. 
 
 The Acting Chairman. Did the Attorney General object to your 
 being heard ? 
 
 Mr. Levy. No, sir. 
 
 The Acting Chairman. After being heard, as I understand it, and 
 the refusal of the court to accept your views, you asked then to be 
 made parties to the suit by intervention ? 
 
 Mr. Levy. While the argument was still in progress ; it was on the 
 second day of the argument, which lasted two days. We made our 
 application in writing, but did not do it in a formal way. 
 
 The Acting Chairman. Was that before or after the objections of 
 the Attorney General to the. proposed plan had been passed on ? 
 
 Mr. Levy. It was before they had been passed on. It was on the 
 morning of the day he argued the case; but his objections were 
 known. I think they were handed around to counsel in the room. 
 
 The Acting Chairman. And the Attorney General objected to 
 your becoming parties to the suit ? 
 
 Mr. Levy. Not at that time. That was the third application that 
 we made, after the opinion had been rendered. 
 
 The Acting Chairman. You mean after the opinion had been ren- 
 dered ? 
 
 Mr. Levy. Handed down. After the case had been decided. 
 
 The Acting Chairman. Did you state the only respect in which 
 the court denied the objection of the Attorney General ? 
 
 Mr. Levy. No ; there were others that the court also denied. I have 
 stated the two principal objections— the five years' supervision, and 
 the real separation of the United Cigar Stores Co. 
 
 The Acting Chairman. Those were the objections that went to 
 the heart of the whole controversy ? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. And those objections were denied by the 
 court ? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. Did the Attorney General press those ob- 
 jections with vigor? 
 
 Mr. Levy. Yes, he did, orally, in his oral arguments, which I have 
 here. 
 
 The Acting Chairman. And you joined him in those objections, 
 
 I assume ? 
 
376 HEARINGS BEFOBE 
 
 Mr. Levy. Oh, yes ; but we went further. We agreed to the extent 
 that he had gone. 
 
 The Acting Chairman. And then after the court had denied the 
 validity of those objections and had decided adversely to the Attorney 
 General upon these fundamental matters you sought to be made 
 parties to the suit in order that you might take an appeal ? 
 
 Mr. Levy. That is correct. We also sought to have a clause in- 
 serted in the decree — making the suggestion, as friends of the court, 
 providing that the decree should be carried up for review. 
 
 The Acting Chairman. It was at that time that the Attorney 
 General objected to your becoming parties? 
 
 Mr. Levy. Yes, sir ; or to this other clause being inserted. 
 
 The Acting Chairman. Or to the provision which required the 
 Supreme Court to pass on the decree for the plan of reorganization? 
 
 Mr. Levy. Yes; he objected in writing. It was the only objection 
 filed. 
 
 The Acting Chairman. After that time did you ask the Attorney 
 General to appeal the case — appeal from the decree? 
 
 Mr. Levy. I communicated with him. I asked him whether he 
 would appeal, and he wrote me he would not. 
 
 The Acting Chairman. Has he indicated to you in any way that 
 he is satisfied with the plan of reorganization? 
 
 Mr. Levy. His public statement that is in evidence says so specifi- 
 cally and points out the reasons. 
 
 The Acting Chairman. You understand that it is his opinion that 
 the plan is in harmony with the antitrust law and that therefore an 
 appeal would be unavailing? 
 
 Mr. Levy. Yes; and he went further and said that the decree was 
 satisfactory and consented to it; upon which the court issued its 
 formal decree. There is a clause in it saying that it is an honest 
 compliance with the law — using the language that the Supreme 
 Court used of that nature. 
 
 The Acting Chairman. So that we have, at the present time at 
 least, the opinion of the circuit court that the plan is an honest com- 
 pliance with the antitrust law ; the opinion of the Attorney General 
 that it is an honest compliance with the antitrust law; and one might, 
 infer the opinion of the President of the United States that it is an 
 honest compliance with the antitrust law ? 
 
 Mr. Levy. Well, as to the first two, I can say definitely, yes. As 
 to the last, I do not know. 
 
 The Acting Chairman. You have put into the record certain cor- 
 respondence, by telegraph or otherwise, that you had with the Presi- 
 dent ; and that correspondence has not resulted in either a conference 
 with the independent committee or in the direction to the Attorney 
 General to take an appeal ? 
 
 Mr. Levy. It has not, Senator; but there is this important point, 
 that the Detroit speech that President Taft made on September 18 
 addressed itself to this case just as if he had been counsel in the case — 
 and I can quote it almost literally; he said that in the tobacco case 
 it is different. There the combinations must be separated, must be 
 divided into separate plants of different and differing ownership, 
 and they must be kept apart by the power of an injunctive decree. 
 
 The Acting Chairman. I am not using it to disparage any of these 
 men or to apply it to either of them; I am simply trying to get the 
 
COMMITTEE ON INTERSTATE COMMERCE. 377 
 
 facts in the record, and those facts seem to be that these three emi- 
 nent sources of information or of opinion seem to concur in the belief 
 that the plan of reorganization is in accord with the spirit of the 
 antitrust law. 
 
 Mr. Levy. Well, I can not assent to that, for the reason that the 
 last-known authoritative public statement of the President was the 
 statement at Detroit, and that statement is wholly inconsistent with 
 this plan. Of course, the acquiescence, if I may say so, in the official 
 action of the Attorney General, in his failure to appeal, and in his 
 affirmative approval, may be attributed to his superior — that I do 
 not know, and it would be presumptuous for me to say so. 
 
 The Acting Chairman. You can readily see that he may not have 
 had time to carefully review the whole subject. 
 
 Mr. Levy. That was precisely the purpose of these telegrams. 
 There was a real belief that the President may not have known what 
 was being done, through other occupations and for other legitimate 
 reasons. But, unfortunately, we have received no proper reply to 
 those telegramSj and no action has been taken except in a contrary 
 way, in that it has been decided that no appeal shall be taken. 
 
 The Acting Chairman. You remarked somewhat upon the suit 
 being brought against the United States Steel Corporation. Is the 
 charge made in the bill filed against the corporation that it has sup- 
 pressed competition? 
 
 Mr. Levy. No; not specifically. I do not think so. I have ex- 
 amined it, and I may say that from my examination of the bill I 
 have got this idea, that, in my opinion, it is not the purpose of the 
 Sherman law to attack a corporation simply because of its size, and 
 the court has said that over and over again. It said so in the tobacco 
 company case. Nor because of its potential power to restrain trade; 
 but only if it uses wicked, oppressive, or unethical methods — those 
 are not my own words; they are taken out of the decisions — for the 
 purpose of restraining trade. That is my idea of it. I think that 
 the Steel Co., in a strict technical sense, apparently violated that 
 law, but in a practica'l sense it has worked no injury. It is purely a 
 technical violation of the law. 
 
 The Acting Chairman. I do not quite catch your discrimination. 
 What is there to show that these companies into which the American 
 Tobacco Co. has been disintegrated will use their power unethically ? 
 
 Mr. Levy. Why, just such a thing as this ; Senator. These are men 
 who have done these things. The following letter was written to 
 Mr. C. C. Dula, one of the vice presidents of the American Tobacco 
 Co., by one Augustus Craft, in which he said to his superior 
 [reading] : 
 
 I inclose you letter and sample paper. J * * I will, as soon as "the Craft 
 Tobacco Co." is ready for business, not only draw from the People's their 
 principal force, but will endeavor to cause a strike in their factory. 
 
 I call that wicked, oppressive, and unethical. 
 
 The Acting Chairman. Undoubtedly. These are things that 
 have been done in the past. 
 
 Mr. Levy. The Steel Co. has not done those things. 
 
 The Acting Chairman. And therefore I want to get your view 
 clearly, whether you regard these companies into which the Amer- 
 ican Tobacco Co. has been separated as contrary to the antitrust law 
 
378 
 
 HEAKINGS BEFOEE 
 
 or in violation of the antitrust law, because of things that they maj 
 have power to do in the future or because of the things which the 
 men who control them have done in the past. 
 
 Mr. Levy. Partly each, Senator; partly each. There are a great 
 many elements here in this new plan which of themselves are affirma- 
 tively destructive of competition — like the licorice-root lands, for 
 instance, and the snuff industry. 
 
 The Acting Chairman. Among those things, I take it, are, first, 
 the division between the several companies of the brands of tobacco? 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. Through which a monopoly or oppres- 
 sion has been practiced in the past? 
 
 Mr. Levy. Yes, sir. And by which failure to compete would 
 necessarily result, because they have nothing to compete about. 
 
 The Acting Chairman. With respect to the licorice root, you say 
 that the American Tobacco Co. owns the sources of supply? 
 
 Mr. Levy. Either owned or leased, in Asia Minor, all the lands 
 from which licorice root comes. 
 
 The Acting Chairman. Is the area limited in which it is pro- 
 duced ? 
 
 Mr. Levy. Very much. 
 
 The Acting Chairman. And is the ownership of that land or the 
 leasing of the land in the American Tobacco Co. ? 
 
 Mr. Levy. No. It was entirely in the hands of a subsidiary com- 
 pany, the licorice company — MacAndrews & Forbes Co. It was 
 when I last knew it. 
 
 The Acting Chairman. In this disintegration where would the 
 ownership be? 
 
 Mr. Levy. It stays where it was — in the MacAndrews & Forbes Co. 
 
 The Acting Chairman. How will the Baltimore company get on? 
 
 Mr. Levy. They will have to make some private arrangement. 
 
 The Acting Chairman. And then they will keep out other com- 
 panies? 
 
 Mr. Levy. They might think of that later on and give them certain 
 allotments. I suppose that is the easiest way among friends, I dare 
 say. I do not mean to be flippant. 
 
 The Acting Chairman. I have in mind asking you a question about 
 some remarks that have been made, some suggestions that have been 
 made in the way of amending the antitrust law, but I will not do 
 that until after other members of the committee have had an oppor- 
 tunity of examining you on this particular point. I think that under 
 the rule, as I am acting chairman, Senator Brandegee has the first 
 opportunity, but he is not here, and therefore I will call upon Sen- 
 ator Newlands. 
 
 Senator Newlands. Mr. Levy, the business of the old tobacco com- 
 pany is now practically divided up between 4 major corporations and 
 10 minor corporations, according to your statement? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. What proportion of the whole is taken by the 
 four major companies? 
 
 Mr. Levy. Why, in every branch except cigars they have 75 or 
 80 per cent of the entire business. It runs from 97 per cent in snuff 
 down to somewhere in the 80's for cigarettes. 
 
COMMITTEE OK INTERSTATE COMMERCE. 379 
 
 Senator Newlands. In capitalization and value, how much have 
 the 4 companies as compared to the 10 minor companies? 
 
 Mr. Levy. The 4 as compared to the 10? 
 
 Senator Newlands. Yes- 
 Mr. Levy. I have not addressed myself to that, but I know that 
 the four companies have together in capitalization $230,000,000. 
 Whether that is capitalization or property I do not know. I do not 
 distinguish in saying that, but I know there is at present $230,000,- 
 000 of assets in those four companies. That would leave something 
 less than that for the 10. Those 10 are offshoots of the combination 
 through this link of joint-stock ownership. 
 
 Senator Newlands. The total assets or value of capitalization will 
 aggregate pretty nearly $500,000,000? 
 
 Mr. Levy. It is considerably over $400,000,000. I will frankly say 
 that I have had not very much to do with that in the question of 
 litigation. I know it exceeds $400,000,000. 
 
 Senator Newlands. All I want to get is the general idea. Into 
 about how many different kinds or* enterprise is the tobacco business 
 divided ? 
 
 Mr. Levy. Well, after the purchase of the raw material, they make 
 plug tobacco, smoking tobacco, cigarettes, snuff,' cigars, stogies, and 
 things like that. But those are the big products. And then there 
 are things that hang on to them. They make their own licorice 
 paste, their own tin foil, their own boxes, bags, etc. And in each one 
 they have a particularly tight control all along the line. 
 
 Senator Newlands. Take these four major companies. Does each 
 one of them engage in each of these five major divisions, into which 
 you have divided the tobacco business, such as the purchase of leaf 
 tobacco, etc.? 
 
 Mr. Levy. In everything except cigars, but not, of course, in these 
 supplies, as you might call them — tin foil, licorice, etc. They call 
 them completely equipped to do a tobacco business. 
 
 Senator Newlands. Is each one of them a completely equipped to- 
 bacco business? 
 
 Mr. Levy. That is their own term. 
 
 Senator Newlands. In every branch? 
 
 Mr. Levy. Except cigars. 
 
 Senator Newlands. In every branch of the business except cigars ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. So that each company will do its own buying, 
 or can do its own buying; each company can make plug tobacco, 
 smoking tobacco, cigarettes, and snuff ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. And each one can make its own tin foil ? 
 
 Mr. Levy. Well, it can ; but of course they have got their own foil 
 company. That belongs to the common-stock holders, whoown their 
 own company. But they have the power and right to do it. 
 
 Senator Newlands. But has each one of them a plant to do it ? 
 
 Mr. Levy. No, sir. 
 
 Senator Newlands. But each one has a plant to do these other 
 businesses ? 
 
 Mr. Levy. Yes, sir. 
 
380 HBABINGS BBFOBE 
 
 Senator Newlands. Very well, then. These four companies will 
 each be in competition with each other unless the management is the 
 same? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Unless there is a union of thought and action ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Each one of these companies will be prepared 
 to compete with the others in the matter of purchase of tobacco and 
 the making of plug tobacco, smoking tobacco, snuff, etc. ? 
 
 Mr. Levy. Yes, sir; and cigarettes. 
 
 Senator Newlands. And cigarettes. Then apart from the question 
 of the ownership of the stock in these companies by the same stock- 
 holders, they are equipped to compete with each other fully ? 
 
 Mr. Levy. With the qualification about the brands. The brands 
 are not divided so that the brands will compete with each other. 
 One company has the whole call in the West and another in the East. 
 One has the low grade of Turkish tobacco cigarettes and the other 
 has the high grade of Turkish tobacco cigarettes. With that quali- 
 fication I assent to your statement. 
 
 Senator Newlands. Would it have been possible to have divided 
 up the different brands between these four companies so as to make 
 them compete with each other in the sale of a particular brand? 
 
 Mr. Levy. Yes ; to a much further extent than they did. 
 
 Senator Newlands. Then it could have been done ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Then you say that each one of these brands 
 has a certain market in a particular section? 
 
 Mr. Levy. In general ; yes. 
 
 Senator Newlands. And that the control of that particular brand 
 will give the company that owns it the monopoly in that particular 
 section ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. That is one of your complaints ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Then, as I understand it, one of your criti- 
 cisms of this plan is that it does not provide for a division, for the 
 segregation, the dividing up of the brands themselves, between the 
 different companies, so as to make them compete with each other in 
 the sale of these particular brands ? 
 
 Mr. Levy. That is correct. 
 
 Senator Newlands. Now, then, you say these companies have no 
 plants for the making of the foil, for instance ? 
 
 Mr. Levy. No ; not as such. These two other companies that have 
 been set free have plants, but these four companies have nothing to 
 do with that. 
 
 Senator Newlands. Are there two companies in competition with 
 each other, assuming that they are under different managements and 
 have not the same thought and control — are those two other com- 
 panies prepared to compete with each other? 
 
 Mr. Levy. They could ; yes, sir. 
 
 Senator Newlands. In foil? 
 
 Mr. Levy. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 381 
 
 Senator Newlands. Is there anything else that enters into the 
 tobacco business that these 10 minor companies, any one of them, 
 control ? 
 
 Mr. Levy. I have named the licorice paste. 
 
 Senator Newlands. Is there any one of them that controls that? 
 
 Mr. Levy. That is to be split up into two, likewise, just like the 
 tin-foil company. 
 
 Senator Newlands. So that if the control is not the same they 
 will be competitive with each other ? 
 
 Mr. Levy. Oh, yes. That will be all right. But the root business 
 is separate. 
 
 Senator Newlands. As to the root, the licorice root, is that owned 
 by either one of these companies, that monopoly ? 
 
 Mr. Levy. It was the last time I had official knowledge of it, in 
 1907. It was then owned by the MacAndrews & Forbes Co. They 
 owned then, by lease or otherwise, the available root lands of Asia 
 Minor, and perhaps Asia generally beyond Asia Minor. They 
 owned them and controlled them so that nobody brought licorice 
 root into this country except, substantially, themselves. 
 
 Senator Newlands. Is this one of the 10 minor companies to which 
 you refer? 
 
 Mr. Levy. It is to be split into two. 
 
 Senator Newlands. And then, if they have no unity of control, 
 those two companies will be in competition with each other ? 
 
 Mr. Levy. If the other company can get the root. 
 
 Senator Newlands. I thought you said they divided ownership and 
 control. 
 
 Mr. Levy. No, no. They throw off this Baltimore company, which 
 they have always kept as a company, but under their own ownership. 
 The McAndrews & Forbes Co. is the licorice-paste company in the 
 trust. They acquired at the time of the indictment all the stock 
 of the J. S. Young Co., with which it had a working agreement, in 
 order to forestall the effect of this indictment. They have kept it 
 alive as a corporation. Now they are setting it free. So far as the 
 plan discloses, it says nothing about giving it any root or the control 
 of the root lands. I may be wrong about that, but I believe I have 
 the right to infer that, because nothing was said about the, root lands 
 in plan or the decree. 
 
 Senator Newlands. Then if they should divide the control of the 
 root lands, then the other two corporations would be equipped for 
 competition ? 
 
 Mr. Levy. Yes, sir; absolutely, beyond a question. 
 
 Senator Newlands. Then the difficulty seems to be in the identity 
 or control, stock control, in these corporations, does it not? 
 
 Mr. Levy. That is the principal difficulty. 
 
 Senator Newlands. How is it best to do away with that identity 
 in a disintegration of these corporations, if you recognize the prop- 
 erty rights of the existing stockholders of the existing Tobacco Trust ? 
 
 Mr. Levy. In the first place, the Attorney General has himself 
 urged, with regard to one of them, the Cigar Stores Co.— his objec- 
 tion to the plan was that the United States Cigar Stores Co. ought to 
 be separated from the parent company, by having them sell out the 
 stock which it owned in that company to outsiders. 
 
382 HEARINGS BEFOEE 
 
 Senator Xewlakds. Did he propose that they should sell the stock 
 to outsiders or the plants, the various plants? 
 
 Mr. Levy. No ; the stock. 
 
 Senator Newlands. Of the cigar company ? 
 
 Mr. Levy. I speak from a, very clear recollection — I may be wrong, 
 but I do not think so. He proposed to sell its stock — that is, two- 
 thirds of the common stock of the company. 
 
 Senator Newlands. If, then, they should sell the stock of the To- 
 bacco Stores Co. to outsiders, that company would still exist as an 
 odious monopoly, would it not ? 
 
 Mr. Levy. So it would, and it would not cure the situation. 
 
 Senator Newlands. And the only method of really breaking up 
 that monopoly would be to provide for the sale of the plant and the 
 stores ? 
 
 Mr. Levy. Precisely. That is precisely it. 
 
 Senator Newlands. Assuming that it is the only way of getting 
 rid of the monopoly, so far as the stores are concerned, does not that 
 similarly apply to the snuff business, the plug-tobacco business, the 
 smoking-tobacco business, etc. ? 
 
 Mr. Levy. Quite true. But there is a difference. The snuff com- 
 pany, if you put the stock ownership in the hands of outsiders and 
 then split it into so many companies — I do not say how many — that 
 would meet the situation. Letting each one be owned by a different 
 set of people, that would be all right. You can not do that with the 
 Cigar Stores Co. 
 
 Senator Newlands. Then, assuming in your decree that you pro- 
 vide for the sale of the stock of the various companies representing 
 (hese various businesses, the cigarette, snuff, etc., and your stock is 
 sold by a receiver and is bought in upon the open market, or at 
 public auction, how can you prevent the original stockholders of the 
 Tobacco Trust from buying that stock up ? 
 
 Mr. Levy. By refusing to ■ confirm the master's report or the re- 
 ceiver's report if it reestablishes the same thing that was condemned. 
 
 Senator Newlands. How would you prevent them from acquiring 
 it after the sales were made to the outsiders? 
 
 Mr. Levy. By putting them under an injunction. 
 
 Senator. Newlands. Do you not think it would be comparatively 
 easy, though, to make the acquisition of these aggregated interests 
 later on so secretly as to escape detection? 
 
 Mr. Levy. I do not. sir. The business would not permit it. 
 
 Senator Newlands. Assuming that that process of disintegration 
 should be resorted to. In the first place, in the sale to disinterested 
 men, either of the shares in the subsidiary companies or the plants 
 owned by them, would there not be a considerable loss in value? 
 
 Mr. Levy. Beyond a doubt. 
 
 Senator Newlands. Have you any idea what that would be? 
 
 Mr. Levy. Well, it would approximate the merger value — the 
 monopoly value. 
 
 Senator Newlands. At what figure do you put that? 
 
 Mr. Levy. The Bureau of Corporations figures it out at a very 
 large figure. But that is the fruit of the monopoly. 
 
 Senator Newlands. How much; do you know? 
 
 Mr. Levy. I can turn to it? It is a very large figure. Here it is. 
 Perhaps it is not for the record, or shall I read it in for the record? 
 
COMMITTEE ON INTERSTATE COMMERCE. 383 
 
 The Acting Chairman. You may put it in. 
 Mr. Levy (reading). 
 
 Valuation of Assets. — The combination's capitalization (exclusive of inter- 
 company holdings) is much greater than its actual investment. The difference 
 lies in the value attributed to " good will." The tangible assets (plant and 
 working capital), have usually been entered on its books at approximately their 
 true valuations. But the " good will " in its domestic busiuess alone stood on 
 the books in 1908 at, roughly, $148,000,000, whereas the bureau after careful 
 analysis has computed its actual cost (not present value) at 64 million, or 35 
 per cent of the entire investment. In this allowance of 64 million the bureau 
 clearly recognizes the great value of "good will" (chiefly brand value) in the 
 tobacco industry. Over and above this, however, almost every important 
 step in the expansion of the combination, there have been issued against that 
 good will great blocks of new securities Representing nothing but overvalua- 
 tion, or capitalization of monopolistic power. 
 
 So you find that good will is estimated at. $148,000,000. 
 
 Senator Newlands. How much — about $60,000,000 — is genuine? 
 Mr. Levy. The actual cost is about $64,000,000. 
 
 Senator Pomerene. Cost of the property ? 
 
 Mr. Levy. No; of good will — the brand value, which _ is a very 
 important part of it. So that there is a lot of real value in there as 
 good will, but there is something superadded in the nature of monop- 
 oly value. 
 
 Senator Newlands. The difference between the $64,000,000 and 
 $148,000,000— namely, about $88,000,000— represent what you term 
 monopoly value? 
 
 Mr. Levy. No, sir; not quite, because you will observe they put 
 the $64,000,000 at the actual cost of these brands, and it is really 
 worth more than that. 
 
 Senator Newlands. What would you put it at ? 
 
 Mr. Levy. I would have to guess ; I do not know. 
 
 Senator Newlands. Would you put it at $75,000,000? 
 
 Mr. Levy. You mean the actual value of the brands ? 
 
 Senator Newlands. The cost of the actual brands was $64,000,000, 
 was it not ? 
 
 Mr. Levy. It would be more than that. 
 
 Senator Newlands. Would it be $80,000,000? 
 
 Mr. Levy. Senator, frankly, as a lawyer simply interested in the 
 law side of it, it would simply be guesswork on my part. 
 
 Senator Newlands. I want to get at approximately what was the 
 so-called value of the monopoly— what the merger value would be. 
 
 Mr. Levy. It has been stated by some people who might know 
 that by the removal of the merger value there might be a shrinkage 
 of $100,000,000. I think that is an excessive value. These figures 
 would not bear that out. 
 
 Senator Newlands. Those figures would not bear that out. They 
 would not bear out a shrinkage of more than $80,000,000, would they? 
 
 Mr. Levy. Yes ; at the outside. 
 
 Senator Newlands. So the fact remains that by the suggested sys- 
 tem of selling out either the plants or the stock in the subsidiary 
 companies to disinterested purchasers— upon what class of security 
 holders would that loss fall ? 
 
 Mr. Levy. Upon the common-stock holders, I think, alone ; because 
 there are plenty of live assets to take care of the bonds and the 
 preferred stock. 
 
 22877— vol 1—12 25 
 
384 HEARINGS BEFORE 
 
 Senator Newlands. How do these securities stand ; what amount is 
 bond issue and what preferred stock and what common stock? 
 
 Mr. Levy. The common stock is $40,000,000, the two classes of 
 bonds together are $104,000,000, and the preferred stock is $79,000,000. 
 
 Senator Newlands. The preferred stock is $79,000,000? The bond 
 issue is how much ? 
 
 Mr. Levy. The two classes are $104,000,000 — 4 per cent and 6 per 
 cent. 
 
 Senator Newlands. $183,000,000. 
 
 Mr. Levy. And the common stock is $40,000,000. 
 
 Senator Newlands. That is $223,000,000. 
 
 Mr. Levy. You want to bear in mind the market value of those 
 securities. The common stock is worth $450 a share, so that that 
 $40,000,000 of common stock ■ 
 
 Senator Newlands. And the par value is $100 a share ? 
 
 Mr. Levy. Yes, sir; so that it is worth four and one-half times the 
 par value. 
 
 Senator Newlands. On the market common stock is worth, instead 
 of $40,000,000, $160,000,000 ? 
 
 Mr. Levy: More than that, because it is worth $450 a share. 
 
 Senator Newlands. $180,000,000? 
 
 Mr. Levy. Yes, sir; plus the earnings that they have received in 
 the meantime, which is in their pockets. 
 
 Senator Newlands. And then this loss of monopoly value of 
 $75,000,000 or $80,000,000 would fall upon that $180,000,000, or the 
 market value of the stock at the present time? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Reducing the total to about $100,000,000 in 
 market value? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. Assuming that that was done, would that loss 
 fall upon the men who are responsible for the creation of this merger 
 or would it fall upon holders who simply bought it in the market as 
 investments, basing their judgment upon the dividends paid? 
 
 Mr. Levy. Well, there are two answers to that. In the first place 
 the 29 individual defendants are the preponderating element among 
 the stockholders; I mean in the ownership of the stock. And the 
 next feature of it is that everybody who bought stock bought it with 
 the knowledge that it was tainted. And the last reason is that they 
 could have gotten rid of it. Three times they have been warned. 
 
 Senator Newlands. I was only inquiring as to the value of it. 
 Would that loss fall in any great degree upon the men who aro 
 responsible for organizing and putting this merger through ? 
 
 Mr. Levy. In the largest proportion. 
 
 Senator Newlands. Do you think more than one-half? 
 
 Mr. Levy. I know more than one-half, because they now admit 
 that 29 of them own 56 per cent of the common stock. 
 
 Senator Newlands. Is there any way that you could suggest that 
 the entire loss could be imposed upon them, instead upon those who 
 simply came in as investors? 
 
 Mr. Levy. It would be a ver}' just thing. 
 
 Senator Newlands. Is there any legal method that you could 
 suggest by which that could be done? 
 
COMMITTEE ON INTERSTATE COMMERCE. 385 
 
 Mr. Levy. Yes. Anything can be done with a receivership, or 
 with injunction held before them as a final end. Any court could 
 do that. 
 
 Senator Newlands. So that there is no necessity for being deterred 
 in rigidly carrying out the principles of the law, the principles of 
 the Supreme Court decision regarding this matter, based upon the 
 fear that it will strike innocent people? 
 
 Mr. Levy. Not at all. 
 
 Senator Newlands. It can be so arranged that the law will fall 
 upon the men who are responsible for the merger? 
 
 Mr. Levy. I have no doubt of it. 
 
 Senator Newlands. Now, then, the remaining question is, sup- 
 pose the entire properties we're put in the hands of a receiver, and 
 the court ordered the sale either of the securities of these subsidiary 
 companies or their plants, do you think in that contingency they 
 would realize on the market an amount equal to the present market 
 value of those securities, less simply the value that is to be assigned 
 to the merger? 
 
 Mr. Levy. If it is done gradually and sensibly, I think so. 
 
 Senator Newlands. You think it could be done? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. You do not think there would be a very great 
 sacrifice which would result in a disastrous depreciation in value 
 arising from putting so vast a property upon the market? 
 
 Mr. Levy. If it is done gradually, there would not be; it might 
 take from three to five years, but then there would be no harm done. 
 
 Senator Newlands. I think that is all. 
 
 The Acting Chairman. It is now 1 o'clock, and if there be no ob- 
 jection the committee will take a recess until 2 o'clock. 
 
 (Thereupon, at 1 o'clock p. m., the committee took a recess until 2 
 o'clock p. m.) * 
 
 AFTER RECESS. 
 
 The committee reassembled at 2 o'clock p. m. 
 
 STATEMENT OF FELIX H. LEVY— Resumed. 
 
 The Acting Chairman. Senator Brandegee, you may proceed. 
 
 Senator Brandegee. Mr. Levy, I find that you have covered the 
 ground so clearly that I hesitate to consume any time in asking 
 questions. I will ask you just one or two questions. I assume the 
 history of the organization and methods of the Tobacco Co. are 
 reviewed in the report of the Commissioner of Corporations and in 
 the bill filed by the Government in their suit ? 
 
 Mr. Levy. Yes ; sir. 
 
 Senator Brandegee. Pretty extensively, are they not? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Brandegee. What are your views about the necessity for 
 any changes in the laws of the United States relating to the creation 
 or control of corporations engaged in commerce among the States ? 
 
 Mr. Levy. I do not think any change is needed whatever. 
 
 Senator Brandegee. If I understood you correctly, if the Supreme 
 Court should review the tobacco case and confirm the decision of the 
 
386 HEAKINGS BEFORE 
 
 lower court, you would think there was no advisability of legislative 
 action to correct such a slate of affairs? 
 
 Mr. Levy. I do not think any legislative action could enlarge the 
 power of the Sherman law, but it might be, in the superior wisdom of 
 the Supreme Court in this particular case, they might think this was 
 the only practicable plan under the circumstances, and yet in some; 
 other case they might think that an effective restoration of competi- 
 tion could be brought about. 
 
 Senator Beandegee. And is it not possible that some statute drawn 
 in different language, or some amendment to the statute, in that event 
 might receive a construction of its own, independent of what con- 
 struction had been given to this law ? 
 
 Mr. Levy. I do not see how, having in view that this statute is in 
 the main in comprehensive language, coveting every conceivable con- 
 tingency that might arise. 
 
 Senator Beandegee. You do not think, then, that a statute which 
 might set up a list of specific things that might be done or might 
 not be done would be susceptible of any closer or more accurate con- 
 struction than the Sherman law itself? 
 
 Mr. Levy. I do not. I might give a reason for that. 
 
 Senator Beandegee. I would like to hear it. 
 
 Mr. Levy. The reasons are that under the decisions that have been 
 rendered for centuries, you might say, under the old common law, 
 of which this is simply the declaration or crystallization, every pos- 
 sible form of device that can possibly be resorted to to restrain trade 
 has been adjudicated, so you have that list available, and if the only 
 purpose is to make a sort of calendar or standard that you can readily 
 resort to, like the calendar for the months, that, of course, would have 
 the advantage of convenience, but would have the great disadvantage 
 of incompleteness. 
 
 Senator Beandegee. The,n, if you take that view about there being 
 no necessity for any change in the laws of the United States relat- 
 ing to these corporations, the object of your appearance is, I assume, 
 in some way to see if a review of this decision of the circuit court in 
 New York could not be arrived at ? 
 
 Mr. Levy. No, sir. 
 
 Senator Beandegee. Then I do not' understand it. What is the 
 object of your appearing ? 
 
 Mr. Levy. I came here solely at the request of the committee. 
 
 Senator Beandegee. Of this committee? 
 
 Mr. Levy. Of this committee. Not on my own account at all. 
 
 Senator Beandegee. Then do you or do you not intend to ask the 
 committee to attempt to do anything to redeem the situation of 
 which you complain? 
 
 Mr. Levy. Well, I am frank to say that if we should fail in our 
 efforts to procure a review I would suggest that Congress, either 
 House, request the Attorney General to take an appeal, or to take 
 some appropriate action of that sort. 
 
 Senator Beandegee. But, then, do I understand you correctly that 
 at present you want to rely, upon your own efforts in the court in a 
 legal way, to see what relief you can obtain? 
 
 Mr. Levy. Yes, sir; I think that is the orderly and proper thing 
 for anyone to do who has a legal complaint. He ought to assert it 
 in the courts. 
 
COMMITTEE ON INTERSTATE COMMERCE. 387 
 
 Senator Brandegee. I do not desire to inquire into any legal steps 
 that you may contemplate taking if it will hinder the success of the 
 step, but I was wondering whether you intended to take the steps, as 
 counsel for the independent companies, to try to get into the Supreme 
 Court? 
 Mr. Levy. Entirely so; yes, sir. 
 Senator Brandegee. That is all. 
 
 The Acting Chairman. Senator Pomerene, you may inquire. 
 Senator Pomerene. Mr. Levy, as I understand your statement, 
 under this decree of the court, the entire property, assets, and busi- 
 ness of the American Tobacco Co. has been divided into four larger 
 companies and 10 smaller companies? 
 Mr. Levy. Yes, sir. 
 
 Senator Pomerene. And that was the only division provided for 
 in the decree? 
 
 Mr. Levy. With some modifications. They set free the British- 
 American Tobacco Co. and the Imperial Tobacco Co. Those are the 
 two English companies. So to make my answer quite accurate I 
 would have to point that out. 
 
 Senator Pomerene. And you spoke of a licorice company? 
 Mr. Levy. That does not come under that qualification. 
 Senator Pomerene. You, I believe, have been familiar with the 
 history of this American Tobacco Co. since 1905, 1 believe you stated. 
 Mr. Levy. More intimately since then ; yes, sir. 
 Senator Pomerene. Does j^our information enable you to state how 
 many independent companies — and I use that in its generic sense and 
 not specific — there were absorbed by the American Tobacco Co. in 
 the history of its existence ? 
 
 Mr. Levy. I have estimated that there were 250 altogether. That 
 is largely conjectural, but I have here an accurate statement on page 
 63 of our brief, headed " Schedule of factories or departments of 
 manufacturing acquired by the trust which have been closed," and 
 you will observe that that list is very numerous. There are 35 smok- 
 
 mg-tobacco concerns 
 
 Senator Pomerene. What page is that? _ _ 
 
 Mr. Levy. That is the joint brief. I do not know whether it is in 
 evidence in the record or not. 
 
 Senator Pomerene. In speaking of different States, I have not in 
 mind that number. 
 Mr. Levy. Two hundred and fifty. That is a conjecture. 
 Senator Pomerene. It is approximately that? 
 
 Mr. Levy. It is over 150. Two hundred and fifty is not far from 
 top mRT*k 
 
 Senator Pomerene. Are you able to state, or say, in how many 
 States these companies were located? 
 
 Mr. Levy. I could enumerate a number of States— New York, New 
 Jersey, Delaware, Pennsylvania, Virginia, North Carolina, South 
 Carolina, Tennessee, Kentucky; Rhode Island, I believe; in Mary- 
 land, I know. 
 
 Senator Pomerene. Ohio? 
 
 Mr. Levy. Ohio, Michigan, and a number of others. I am speak- 
 ing now from memory. My memory tells me of factories in those 
 States. That is what I mean by my answer. 
 
388 HEAEINGS BEFOBE 
 
 Senator Pomerene. Now, assuming that there are approximately 
 250 of those companies scattered throughout a substantial part of 
 the Union ; they were combined into one company, and now the cir- 
 cuit court of appeals ratines this reorganization of 250 companies 
 into 14 companies? 
 
 Mr. Levy. Well, there is an error there. The 250 companies were 
 different firms and concerns that were acquired in one way or an- 
 other, and that list that you have in your hands shows that a very 
 large number of them were closed up and abandoned. That is one 
 of the very serious charges that the Supreme Court made against 
 this company. So you will observe from that list that there are 35 
 in one class and 33 in another, which makes 68. 
 
 Senator Pomerene. This shows 35 in the smoking tobacco, 33 in 
 plug tobacco, 14 in cigarettes, 13 in fine-cut tobacco, 5 in scrap 
 tobacco, 12 in cigars, 4 in little cigars, and 25 in snuff. 
 
 Mr. Levy. They have all been closed up. You will see that that 
 amounts in the aggregate to 125 alone. That is a hasty addition. 
 
 Senator Pomerene. That is, all these concerns have been closed up 
 and are entirely out of business ? 
 
 Mr. Levy. Yes, sir; the caption shows that, 
 
 Senator Pomerene. So that there is no business conducted in any 
 one of those concerns now ? 
 
 Mr. Levy. That is my understanding. They have been dismantled 
 and abandoned. 
 
 Senator Pomerene. Well, that would leave what number of plants, 
 if you can tell us, that are now comprehended under the name of 
 the American Tobacco Trust? 
 
 Mr. Levy. There are 56 corporate defendants in the answer. So 
 there must be at least 56 separate companies, each with their own 
 trailers, you may say. I do not know how many there are. They can 
 be computed. I should say there are at least 100 at the present day. 
 There are certainly 56 separate corporations made defendants, plus 
 the two foreign corporations, which is a different story entirely. 
 
 Senator Pomerene. You refer to the decision of the Supreme 
 Court showing, in effect, that it was their judgment that the Ameri- 
 can Tobacco Co. and its constituent companies, from its very incep- 
 tion to the date that the case was submitted for trial, were all being 
 conducted in violation of the Sherman antitrust law ? 
 
 Mr. Levy. Yes, sir ; collectively and separately. 
 .Senator Pomerene. Notwithstanding that there were at least 56 
 of these companies violating the law under the present decree, their 
 consolidation has been justified to the extent of permitting 14 of 
 them to continue in business ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Pomerene. And those 14 are 
 
 Mr. Levy. I would like to interrupt you there. Senator. Fourteen 
 carry with them the whole 56 in some form of corporate ownership. 
 
 Senator Pomerene. And those 14 have practically the same direc- 
 torates ? 
 
 Mr. Levy. No, sir; the decree provided that they must have dif- 
 ferent men on the different boards, but their owners are the same. 
 The owners are the common-stock holders of the parent company. 
 
 Senator Pomerene. That is, the directorates, then, will be selected 
 by the same stockholders? 
 
COMMITTEE ON INTERSTATE COMMERCE. 389 
 
 Mr. Levy. Precisely. 
 
 Senator Pomerene. Does your knowledge of the business enable 
 you to state at whose instigation the prosecution of this trust was 
 begun ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Pomerene. Who did it? 
 
 Mr. Levy. Mr. Roosevelt. 
 
 Senator Pomerene. Well, I perhaps did not make myself clear. I 
 intended to go back of that. 
 
 Mr. Levy. You mean the tobacco people? 
 
 Senator Pomerene. Yes. Who made the complaint to the Presi- 
 dent? 
 
 Mr. Levy. It came from two or three sources. It came from the 
 Kentucky dark-tobacco people where these night-rider outrages had 
 sprung up in defense against the trusts, and largely from the plug 
 people in Virginia and thereabouts — the Southern Association. They 
 made individual complaints to the President. 
 
 Senator Pomerene. I am not familiar with that part of it. Were 
 they understood to be independents? 
 
 Mr. Levy. They were, in fact. 
 
 Senator Pomerene. And are they among your clients? 
 
 Mr. Levy. They are cooperating with us. They are not among our 
 clients, but they are cooperating fully. 
 
 Senator Pomerene. And it was after these complaints were made 
 to President Roosevelt that this litigation was begun ? 
 
 Mr. Levy. Well, first a long investigation preceded it and then the 
 litigation was begun. 
 
 Senator Pomerene. Now. how many of these independent compa- 
 nies are represented by yourself ? You have spoken of certain organi- 
 zations here which resembled boards of trade. 
 
 Mr. Levy. Yes, sir. 
 
 Senator Pomerene. I want to have some idea of the number of in- 
 dependent concerns that are interested in the appeal of this case. 
 
 Mr. Levy. I am one of the counsel for those three associations: 
 First, the National Cigar Leaf Tobacco Association, which is an as- 
 sociation comprised of the cigar-leaf boards of trade of at least 25 
 cities, extending from Boston to San Francisco. Those boards of 
 trade in turn are made up of the dealers in that town in leaf tobacco, 
 either imported from Cuba or grown in Wisconsin and Ohio — 1 
 am not sure whether Ohio raises cigar leaf, but I think it does. 
 However, I doubt it. I will leave a question mark there. But New 
 York and other States raise cigar leaf. The boards of trade in those 
 various cities together comprise the National Cigar Leaf Tobacco 
 Association. I think there are also included in that the packers and 
 growers of the Wisconsin leaf and the Ohio leaf. The Cigar Manu- 
 facturers' Association is composed of 65 concerns engaged in the 
 manufacture of cigars— domestic cigars. The Independent Tobacco 
 ' Salesmen Association is a relatively unimportant concern. It repre- 
 sents the salesmen for independent tobacco manufacturers. But the 
 two larger concerns represent a great variety of separate concerns 
 that have no business interest in common at all, just as a board of 
 trade in any town. Those are the people we represent; but in that 
 connection there was cooperation by the Virginia, North Carolina, 
 
390 HEAE1NGS BEFOEE 
 
 and South Carolina growers, and the Kentucky growers, and a 
 variety of others, but that was a mere cooperation, as counsel would 
 cooperate who are on the same side of the table of a given cause and 
 yet not related to each other professionally. 
 
 Senator Pomeeene. Are 3'ou able to state how much of an invest- 
 ment these clients of yours have in these matters ? 
 
 Mr. Levy. There would be no way of computing that at all. There 
 was a newspaper statement that it was $250,000,000, but there is no 
 way of conjecturing what a number of people are worth collectively 
 when they have no business interests in common. There must be a 
 million people engaged in this, including the growers in the several 
 different States. The retailers number alone 600,000, it is believed. 
 
 Senator Pomeeene. I called your attention to the clients repre- 
 sented by yourself. Were others represented at those hearings in- 
 dependently of you ? 
 
 Mr. Levy. Yes, sir. Mr. John W. Yerkes, of this city, represented 
 the Independent Tobacco Manufacturers' Association, which has 
 members in 12 States, principally Southern and Middle Western 
 States, and their principal business is manufacturing chewing tobacco. 
 
 Senator Pomeeene. Do you have any knowledge as to the amount 
 of their investment? 
 
 Mr. Levy. I would not have any way of knowing that. None of 
 them are very big. 
 
 Senator Pomeeene. Who was represented in these hearings? 
 
 Mr. Levy. The Retail Tobacconists' Association of New York was 
 represented. Their membership is made up of retail tobacco dealers. 
 
 Senator Pomeeene. About how many are there? 
 
 Mr. Levy. There are said to be, together with their dependents or 
 clerks who are interested in them, 20,000 in New York, and there are 
 said to be 600.000 retail dealers, big and little, throughout the United 
 States. There were other representations through the attorneys gen- 
 eral of the three States of North Carolina, South Carolina, and 
 Virginia. They claimed to represent — I forget how many hundreds 
 of thousands of people engaged in the growing of tobacco. 
 
 Senator Pomeeene. Was anyone else represented among these 
 protestants ? 
 
 Mr. Levy. The attorney general of New York and the attorney 
 general of Kentucky. Those are the principal ones. 
 
 Senator Pomeeene. Wisconsin? 
 
 Mr. Levy. The governor of Wisconsin requested the interests that 
 I represent to appear for him. 
 
 .. Senator Pomeeene. Were any other of those represented by either 
 the attorneys general or other officials ? 
 
 •. Mr. Levy. New York, Wisconsin, Kentucky, North and South 
 Carolina, and Virginia were all. 
 
 Senator Pomeeene. Were they all protesting against the confirma- 
 tion of this plan which was submitted by the American Tobacco Co.? 
 
 Mr. Levy. Every one of them in full detail. 
 
 Senator Pomeeene. Were any other classes or interests repre- 
 sented among those objectors? 
 
 Mr. Levy. That represents every one of them, from growers to re- 
 tailers, carrying every grade in between them. 
 
 Senator Pomeeene. And do I understand that, notwithstanding 
 the fact that there was this vast number of people representing these 
 
COMMITTEE ON INTERSTATE COMMEBCE. 391 
 
 very large interests, and several States officially by their attorneys 
 general protesting against this plan, that the Attorney General ob- 
 jected to their intervening in this case? 
 
 Mr. Levy. With this qualification, that allowing us to have the 
 leadership in a way, because we were on the ground, we made the 
 request. The State of Wisconsin did join in one of our petitions, but 
 it was known that they were all indorsing our position and cooper- 
 ating with us. That was fully stated and generally recognized. 
 
 Senator Pomerene. Did these other pepole that you have referred 
 to join in the request that the Attorney General should appeal from 
 the decision of the United States circuit court to the United States 
 Supreme Court. 
 
 Mr. Levy. There was no formal request made to him by anybody, 
 but. the interrogatory was made of him whether he would, and he 
 officially informed me that he would not. It is my impression that 
 others of them, among them some of the attorneys general, asked him, 
 but I am not sure about that. But it was well known that he would 
 not, when that point was reached. 
 
 Senator Pomerene. Is it your judgment that from your investiga- 
 tion of the record in this case, and your former official, and your 
 present professional connection with this case, that the criminal pro- 
 visions of the Sherman antitrust law have been violated? 
 
 Mr. Levy. Beyond any doubt. 
 
 Senator Pomerene. Do you know whether any criminal prosecu- 
 tions are contemplated against this company, or its constituent com- 
 panies, by the Attorney General? 
 
 Mr. Levy. 1 have no knowledge whatever. 
 
 Senator Pomerene. Mr. Levy, you presented certain objections to 
 the plan of reorganization submitted by the American Tobacco Co. 
 I have not gone over those objections, but did you suggest any 
 amendment or modification thereof? 
 
 Mr. Levy. We did. 
 
 Senator Pomerene. What were those amendments or modifications ? 
 
 Mr. Levy. They were under five principal heads. The first was 
 that the principle of joint-stock ownership by distributing the stock 
 among the common-stock holders of the parent company was wrong 
 and should be changed to separate ownership among separate groups. 
 The next was the objection to the size of those four companies. They 
 were too big. There ought to have- been more companies. The next 
 was the distribution of brands within those companies, making them 
 a completely equipped tobacco business; that that was unfair. The 
 next was in great many details as to the various restrictive cove- 
 nants that ought to be inserted, and principally, I forgot to say, that 
 the strongest objection was to the United Cigar Stores Co., which 
 is looked upon, as I said before, as the worst agency of the trust. 
 
 Senator Pomerene. You say that was the strongest objection, and 
 you characterize it as the worst agency of the trust. I wish you would 
 go into detail and tell us why you so regard it. 
 
 Mr. Levy. I want to modify the words " the strongest objection." 
 Clearly the objection to the mutuality of stock ownership, the joint 
 ownership, is above all things the strongest, objection. But on the 
 lower level, so to speak, that is standing out conspicuously, the attack 
 upon the United Cigar Stores Co. was, we thought, the most im- 
 portant, for the reason that it now has, to u«e the figures of the 
 
392 HEAKIXGS BEFORE 
 
 Attorney General, six or seven or eight hundred concerns spread out 
 through the country. They have had the advantage of the immense 
 financial backing of this great combination, with its unquestionable 
 financial resources, so that their equipment is much better than the 
 average retailer can reproduce. They have enjoyed special trade 
 advantages from the combination. They get their goods at a lower 
 price; they are enabled to use this vicious coupon system by which, 
 in effect, they cut the price of the article by giving this premium, 
 and wherever necessary in a particular neighborhood, if there is a 
 thriving retail dealer whom they want to get out of the way, they will 
 double or treble their coupons, so that if his resources are limited— 
 if he has $1,000 or $5,000 capital— they can soon eat that up by sell- 
 ing their goods so cheaply that people in general will go to the 
 cheaper place. 
 
 Then, in addition, the powerful advantage that they enjoy is to ob- 
 struct the independent manufacturer. They will not handle his 
 goods, or if they do handle them, it will be in a disadvantageous way. 
 They will damage his goods or hide them, and resort to petty tricks, 
 as the Attorney General himself admitted, to harass and incense peo- 
 ple and do them a vital injury; and the independent manufacturer 
 can not market his goods except through retailers. That is a principle 
 of the trade — that a manufacturer can not retail his own goods. He 
 can not parcel them out in such little quantities. He must sell them 
 through retailers. 
 
 So there they are with a chain of stores, some 200, I think, in the 
 city of New York, and six or seven or eight hundred all over the 
 country, and with an avowed declaration this year before the decree 
 came down from the Supreme Court that they were going to increase 
 that bv many hundred' and that they were going to increase their 
 capital stock from $900,000 to -$10,000,000. 
 
 Just on that subject I do not know that it may appear that the 
 Supreme Court stopped it, but there they were with this progressive 
 or enlarged purpose of theirs, with this immense chain of stores, 
 splendidly equipped and great talent back of it, and with these tre- 
 mendous advantages over their retail competitors. 
 
 Moreover, they were using such other devices as renting the store 
 over the head of some little retailer whose lease was about to expire, 
 so as to drive him out of business. At the end of the time he could 
 not renew the lease and the United Store would spring up. The re- 
 sult was that in the smaller towns of the country the small dealer, who 
 had been thriving, upon the advent of the United Cigar Co. store 
 would be bankrupt. 
 
 It was that that made it so vicious. In principle it is no different 
 from their other practices, but in its application it is. The force of 
 that is shown by the Attorney General yielding to the argument 
 about stock ownership. He said he wanted it to apply in that in- 
 stance. That was not a part of the plan as agreed upon in the secret 
 conferences, but he proposed that as a modification of it after the 
 plan had been filed in court. That was one of his principal modifica- 
 tions, and the court addressed itself to that view of his and then re- 
 jected the modification. 
 
 Senator Pomerene. Does he still insist upon his objection in that 
 behalf, or has he submitted to the views of the court and is now 
 indorsing the view of the court in that respect? 
 
COMMITTEE ON INTERSTATE COMMEECE. 393 
 
 Mr. Levy. That is best answered by saying that he has agreed 
 to the form of decree and has declared that he would not appeal. 
 
 Senator Pomekene. Going now to another branch of the subject. 
 Are you opposed to any amendment of the Sherman law as it now is ? 
 Mr. Levt. In general, yes. I have seen one amendment that Avould 
 be useful, and that is one that would permit an injured competitor 
 of a trust to prove his treble damages in the main action — if you 
 understand what I mean. Where the Government brings a suit 
 against a trust, the injured competitor can come in and prove his 
 damages and if the main case is made out — if it is a trust — he can 
 get his damages, because the present process is entirely too cumber- 
 some and expensive. That does not go to the principle of the Sher- 
 man law at all. It is a mere annex, you might say. 
 
 Senator Pomeeene. This statute, as now written, makes the crimi- 
 nal features apply not only to the board of directors and other execu- 
 tive or administrative officials of the company, but is broad enough 
 so as to make it apply with equal force to any clerks or employees 
 of the company who might have been directly connected with viola- 
 tion of the law. What would you say as to the wisdom or unwisdom 
 of so modifying this law as to make it apply only to the directors 
 and other executive or administrative officials? 
 
 Mr. Levt. I should say it would be legally unnecessary and prac- 
 tically and economically bad. It is legally unnecessary for the rea- 
 sons that the immunity statute of 1903 enables the district attorney 
 to give them exemption. ' It is economically bad, because it would be 
 an inducement to them to do these things. Our experience in the 
 indictment of the Licorice Trust people showed up that we could sub- 
 poena any subordinate that we wanted and make him answer because 
 he thereby got immunity. 
 
 Senator Pomeeene. That is by virtue of that statute to which you 
 referred ? 
 
 Mr. Levy. Purely. 
 
 Senator Pomerene. Going back again to that case, you did appear 
 before the United States circuit court of appeals and presented the 
 interests of your clients? 
 
 Mr. Levy. If you will permit me, it is the United States circuit 
 court ; it is not the United States circuit court of appeals. There are 
 four judges which would make a lawyer think that. Answering 
 your question, we did appear before them and made an oral argu- 
 ment in addition to the printed objection. 
 
 Senator Pomeeene. There was no oral testimony taken, was there? 
 
 Mr. Levy. None whatever. We asked that and it was denied. 
 
 Senator Pomeeene. What reasons were given for the denial of that 
 request or of vour motions "to intervene in the case ? 
 
 Mr. Levy. I read into the record this morning the orders them- 
 selves, but I can state them very briefly. 
 
 Senator Pomeeene. That is, the orders themselves were read, but 
 what reasons were given, if any ? 
 
 Mr. Levy. None; nothing was done except those orders that were 
 handed down in the clerk's office in writing. 
 
 Senator Pomeeene. I think that is all I care to ask. 
 
 The Acting Chaieman. Senator Oliver, do you care to ask any 
 questions ? 
 
394 HEARINGS BEFORE 
 
 Senator Oliver. My questions have all been anticipated by the 
 other Senators. 
 
 The Acting Chairman. Senator Townsend, do you care to ask any 
 questions ? 
 
 Senator Townsend. Mr. Levy, the notice that Senator Clapp sent 
 you, I suppose, contained a copy of the resolution, did it not? 
 
 Mr. Levy. No, sir ; it was simply an invitation to appear here. 
 
 Senator Townsend. Did anybody ask you to come here for the pur- 
 pose of discussing this lawsuit? 
 
 Mr. Levy. Not a soul. 
 
 Senator Townsknd. And you did not come with the idea of giving 
 the committee any ideas as to how, in any way, this law should be 
 amended ? 
 
 Mr. Levy. No; I came simply to answer questions — that was the 
 broad view, and I mean that quite politely. 
 
 Senator Townsend. The reason I asked that was because you com- 
 menced your discussion by reading a . written statement here and 
 launched out at once into that suit. 
 
 Mr. Levy. Yes, sir. 
 
 Senator Townsend. Without any discussion of the merits or de- 
 merits of the Sherman antitrust law? 
 
 Mr. Levy. I naturally assumed that I was invited here only be- 
 cause of my recent connection with this tobacco suit. 
 
 Senator Townsend. You understand that we were here for the 
 purpose of trying to find out how, if in any way, the law should 
 be amended? 
 
 Mr. Levy. Yes, sir ; I heard the resolution read yesterday. I hap- 
 pened to be in the room when one of the witnesses was testifying. 
 
 Senator Townsend. You do not think it ought to be amended 
 at all? 
 
 Mr. Levy. No, sir; I do not. 
 
 Senator Townsend. What was your interest in trying to intervene 
 in this suit? 
 
 Mr. Levy. To free thdse independent associations from the domi- 
 nation of the Tobacco Trust. 
 
 Senator Townsend. How, in your judgment, ought that trust to 
 have been treated? What kind of a decree ought the circuit court 
 to have rendered? 
 
 Mr. Levy. It ought to have been split up into many more com- 
 panies and on a different basis of distribution, and the stock of those 
 different companies ought, as President Taft said, to have been put 
 into different and differing ownerships, and if possible he should 
 have gone a step further and debarred the 29 individual defendants 
 from being any part of those owners. "That is not very well ex- 
 pressed, but the idea is thete. 
 
 Senator Townsend. Who would take this property and separate 
 it if you barred those? 
 
 Mr. Levy. There would be no difficulty. They are all very profit- 
 able establishments. Capital would soon flock into that. You could 
 find good managers and buy up those various plants. It would be 
 a fine opportunity, I should judge. 
 
 Senator Townsend. Would the independents embrace that op- 
 portunity ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 395 
 
 Mr. Levy. Well, as a rule, they are people of limited means, but 
 I dare say — I have no knowledge on the subject — but I should judge 
 as a commercial fact, really it has never been discussed, but as a 
 rule they are people of small means, and particularly the packers and 
 growers who are, in plain English— farmers. They could hardly 
 do it. 
 
 Senator Town send. The independents would have been glad to 
 have had these corporations not only disorganized but destroyed, 
 but would have been pleased to have put out of the business any man 
 who had been actively engaged in that business, would they? 
 
 Mr. Lew. I disagree with your whole question. They do not want 
 anyone destroyed, and they do not want to put anybody out of the 
 business. They want the domination of the trusts taken off of their 
 shoulders. Mr. Wickersham said in his Omaha interview, and he 
 was greatly mistaken, but he said, " The independents are thriving in 
 the shadow of the trusts." He said in the court in New York that 
 they wanted it broken up so that " they might grow as great as this 
 great combination has grown." I do not know why Mr. Wicker- 
 sham said that. He was wrong in both respects. 
 
 Senator Townsend. Mr. Wickersham, if I understand you cor- 
 rectly, believes that this organization is going to comply substan- 
 tially with the decree of the Supreme Court? 
 
 Mr. Levy. He says so. 
 
 Senator Townsend. Is it your contention that if these 14 com- 
 panies are now permitted to do business under the decree of the 
 circuit court., that it thereby validates any act in restraint of trade 
 which may be made hereafter? 
 
 Mr. Lew. Oh, I do not think so — not as to the future. 
 
 Senator Townsend. They would still be subject to the antitrust 
 law? 
 
 Mr. Levy. With this qualification, that as a lawyer I would say 
 that if I was going to frame a bill against them and could not avail 
 myself of their initial infirmity — their past conduct and their past 
 record up to date — the superstructure would be left in the air. That 
 would not amount to much; that is to say, if I could reach only 
 things done since this decree; whereas if I could take their whole 
 history from the beginning and go back of the decree, we might make 
 a case. As I understand it, everything they have done up to date is 
 legalized, and you can not go back of the present date if you are 
 going to make an attack on them in the future. 
 • Senator Townsend. Suppose they go ahead, as the Attorney Gen- 
 eral seems to think they will, and do their business legally and 
 compete, do you still have a grievance against them ? 
 
 Mr. Levy. Well, if you will pardon me — and again politely — I 
 have no grievance against them, but I do claim that even then they 
 are too powerful for any citizen to embark in the tobacco business 
 and expect to succeed, whether they compete or do not compete with 
 each other. 
 
 Senator Townsend. WelL, ought not the Sherman antitrust law be 
 so amended that aggregations of capital could engage in business and 
 compete with individual enterprises? 
 
 Mr. Levy. No law could do that. No man of limited capital could 
 compete with four concerns with a capital of $46,000,000, $56,000,000, 
 
396 
 
 HEAB1NGS BEFORE 
 
 and $100,000,000. In other words, in plain English— and I hope 
 you will believe that I am not trying to quibble — these four com- 
 panies are too big. No tobacco company ought to have $50,000,000 
 of capital, and never could have it except through unlawful means. 
 
 Senator Townsend. Any business doing a business of $56,000,000, 
 $46,000,000, or $100,000,000 is too big, you think? 
 
 Mr. Levy. I could not answer that. It is too big for the tobacco 
 business, because the tobacco business is never an all-around business. 
 As to the steel business, I can not say, but in an ordinary commodity 
 like shoes and hats — and, of course, as to those things I can not say 
 accurately, as I am a lawyer — I dare say that that would be true. 
 If there was a shoe factory of $100,000,000', the little fellow had better 
 look out. 
 
 Senator Townsend. As I understand you, you complained because 
 one of these particular concerns got a particular brand of tobacco, 
 for instance; another got a particular brand of cigarettes, and another 
 a,nother brand of cigarettes. As to that brand of tobacco which you 
 mentioned, how did it get into the trust in the first place? 
 
 Mr. Levy. "Well, the way they got the " Star " brand is a big his- 
 tory. They hammered it in. They started in the plug war of 1898, 
 and the American Tobacco Co. lost millions of dollars in driving Lig- 
 gett & Myers into the trust. There is a long story back of that. 
 
 Senator Townsend. They did not get that as part of their assets 
 from one particular factory? 
 
 Mr. Levy. Oh, yes; that particular brand came from one particular 
 factory — Liggett & Myers. 
 
 Senator Town send. So that before the trust was organized that 
 brand was monopolized? 
 
 Mr. Levy. Partly; but this firm of Liggett & Myers in St. Louis 
 was the greatest plug factory in the world, and they were making 
 this famous " Star " brand, but there were all sorts of little fellows 
 getting into that territory and selling a little here and a little there, 
 and the trust finally absorbed the whole thing. I may be a little 
 wrong on my trade facts, because I am a lawyer. The Horseshoe " 
 brand, which is another brand of that same company, has gotten 
 much into demand among the consumers of chewing tobacco in all 
 that territory. My point is that they ought to have given to one of 
 those two or three companies some brand that might compete there, 
 and they have not. I find that the weakest point of my contention, 
 because it is hard to make anything to compete with " Star," as it 
 has such a big reputation. The two together consumed or sold, [ 
 do not know which, 47,000,000 pounds a year, which is colossal. 
 
 Senator Townsend. Now let us take the Turkish cigarette. 
 
 Mr. Levy. That is better — The Turkish high grade. 
 
 Senator Townsend. One of the companies had the sole right to 
 that? 
 
 Mr. Levy. It has been given the right to that. 
 
 Senator Townsend. Where did the trust acquire that ? 
 
 Mr. Levy. From here and there— different sources— they split it 
 up in part, I darg say. 
 
 Senator Townsend. How would you divide it? 
 
 Mr. Levy. We set that out in*the brief here. 
 
 Senator Townsend. Just tell me briefly. 
 
COMMITTEE ON INTERSTATE COMMERCE. 397 
 
 Mr. Levy. We would give one brand of Turkish, high grade, to 
 Lorillard; another brand to the New American Tobacco Co.; an- 
 other to Liggett & Myers; and another to Reynolds— not bunch 
 them all into one company, and bunch all the low-grade Turkish 
 cigarettes in another company, and bunch all the Virginia cigarettes 
 in another company. In other words, distribute each group of a 
 particular kind of cigarette among all of them. If I do not state 
 that clearly, I will do so. 
 
 Senator Townsend. The Turkish high grade consists of several 
 varieties ? 
 
 Mr. Levy. Several brands that the public demand. A man will 
 go in and buy a Hassan or a Murad or whatever it may be, I do' not 
 smoke them, but those are all different brands. They have put all 
 these brands into one of those new companies. They ought to have 
 been distributed among all four companies. One ought to have had 
 Murad, the other Hassan, and the other Egyptian Deities, etc. That 
 was done in the secret conferences. 
 
 Senator Town send. You know what the conferences did, do you 
 not? 
 
 Mr. Levy. No, sir ; not a syllable. 
 
 Senator Townsend. About these secret conferences, were those 
 anything further than the attorneys and parties getting together for 
 the purpose of settling the decree? 
 
 Mr. Levy. Oh, yes ; they worked out this plan. 
 
 Senator Townsend. That is, they worked on the decree — worked at 
 a decree? 
 
 Mr. Levy. Oh, no, sir; they worked on the plan, which I could 
 show you here. 
 
 Senator Townsend. How do you separate the plan which was 
 finally promulgated by the court, and the court's decree? Was it not 
 a part of it ? 
 
 Mr. Levy. No, sir; there is a very sharp distinction. At the end 
 of the fourth private conference, there was filed in court a printed 
 book declared to be the proposed plan of the Tobacco Co. Now, 
 tha£ was the result of the conference. It later transpired that the 
 Attorney General had some additional modifications to make, but 
 that was their proposed plan which they submitted for the decree of 
 the court. Then came on the hearing, and everybody had a say. 
 Then followed the opinions of the court and the decree last week, 
 November 16, just four days ago, which approved the plan with the 
 modifications that the court had accepted from various objectors. 
 
 Senator Townsend. Those opinions were presented at these con- 
 ferences, were they not? 
 
 Mr. Levy. No, sir ; they were presented in open court. 
 
 Senator Townsend. What do you understand that conference was ? 
 There has been some insinuation. I would like to know what you 
 think about it. 
 
 Mr. Levy. I would like to say that I have sought to avoid insin- 
 uations or any characterization. My knowledge of it is — it is not 
 conjecture — I live in New York and practice law there, the public 
 newspapers reported it and we all know that at the courthouse, the 
 Federal post-office building, beginning in July, there was held a 
 private conference, at which everybody was excluded because the 
 attorney for one of these associations told me he tried to get in and 
 
398 HEARINGS BEFORE 
 
 was told he could not. There "were present — and the opinion of the 
 court says so — two, and in some instances three, members of the 
 court, and attorneys for all the defendants, and some of the defend- 
 ants themselves. 
 
 Now, if I am asked to point out a criticism, I will put my finger 
 on that. Also the Attorney General, and I think his assistant, Mr. 
 McReynolds. Those conferences were four in number. There were 
 conjectures as to what was being done, and it turned out that many 
 of these rumors were entirely erroneous. Some were correct, but it 
 was only at the end of them that it was known that this joint-stock 
 ownership plan was to be the central feature. It was then that this 
 independent opposition sprung into activity. 
 
 Senator Townsend. The Attorney General was not in favor of that 
 joint common ownership, was he? 
 
 Mr. Levy. He is and was. He says our objection to that is im- 
 practicable, as I said this morning. He said that it would take too 
 much time to carry out the other plan. 
 
 Senator Townsend. Is there any rule of law or equity whereby 
 you had any standing, or could hope to have any standing, in that 
 lawsuit? 
 
 Mr. Levy. Only on the ground of large public interests, and on 
 the other ground 
 
 Senator Townsend. You were representing especially private in- 
 terests ? 
 
 Mr. Levy. Well, those boards of trade, if you call them that. 
 
 Senator Townsend. Did you ever invoke, or did they, to your 
 knowledge, ever invoke this seventh section of the Sherman antitrust 
 law in asking for treble damages for any injuries they may sustain 
 by reason of these unlawful things ? 
 
 Mr. Levy. They certainly did; yes, sir. 
 
 Senator Townsend. In what case? 
 
 Mr. Levy. In the case of the Ware-Kramer Tobacco Co. against 
 the American Tobacco Co. That is the concern they wrote one of 
 those letters about, and I was myself, in my private practice, one 
 of the counsel in the case. 
 
 Senator Townsend. That was one in Philadelphia? 
 
 Mr. Levy. No, sir ; in Raleigh, N. C. It was tried there last July. 
 They put that concern out of business. They had $150,000 capital 
 stock and owed $80,000 to their creditors. They went into bank- 
 ruptcy and the receiver realized $15,000. They brought suit at once 
 for treble damages, and it took two years to prepare the suit, and 
 they recovered $70,000. 
 
 Mr. Wickersham said in his Omaha interview that that section 
 gives an adequate remedy under the Sherman law. It is wholly 
 insufficient where the plaintiff has to prove his whole case, namely, 
 that it is an unlawful combination, which is a staggering proposition 
 for a puivate litigant to undertake. 
 
 Senator Townsend. An action would not lie now, would it, after 
 the decree of the Supreme Court dissolving the tobacco company, 
 against that company for your clients for damages ? 
 
 Mr. Levy. It was res judicata. They have their judgment. 
 
 Senator Townsend. I mean your present clients. Do you not claim 
 that your clients have been injured by the Tobacco Trust? 
 
COMMITTEE ON INTERSTATE COMMERCE. 399 
 
 Mr. Levy. Do you mean all this vast number of boards of trade ? 
 
 Senator Townsend. Yes. 
 
 Mr. Levy. As boards of trade they have not. Their members have, 
 of course. 
 
 Senator Townsend. That is what I referred to. 
 
 Mr. Levy. That would be mighty difficult to show that they had 
 absorbed the trade in a given community. It would be hard to make 
 it specific. That section of the law would be wholly inadequate for 
 that. But the Ware-Kramer Tobacco Co. proved it; they proved 
 direct acts of wickedness and oppression practiced against themselves 
 in particular, because the American Tobacco Co. made it their busi- 
 ness to drive that concern out of business. Shall I read this letter 
 written about them? It will throw light on the subject. It is very 
 short. Here is a letter written to Mr. Cunliff-Owen, a representative 
 of the British-American Tobacco Co. : 
 
 Dear Mr. Owen : You will remember that there is a little concern in Wilson, 
 X. C, by the name of the Ware-Kramer Co., which is trying to do a little busi- 
 ness in the cigarette line. Some little while ago they made a shipment to China 
 with a lot of hue and cry connected with it in the way of having the car nroirii- 
 nently labeled, " Solid car, White Rolls cigarettes, for China." We were advised 
 of this right away and in turn we advised Mr. Thomas, so that he could be on 
 the lookout. 
 
 Wm. R. Harris. 
 
 Now, another one shows what he was to be on the lookout for, 
 namely, to give it a warm reception. 
 Senator Pomerene. Will you please read the other one ? 
 Mr. Levy. I quote : 
 
 The nature of the attention which Mr. Thomas was to give to this shipment 
 may be appreciated by the following, which Vice President Harris wrote J. A. 
 Thomas, representative of the British-American Tobacco Co. at Shanghai, China 
 twho was referred to in the letter above]. " I inclose you herewith copy of a 
 newspaper just at hand from New Orleans, stating that half a million ciga- 
 rettes are being shipped from that city to Hongkong. Fearing that this is not 
 the true destination, I thought it wise to inform you of this transaction and 
 suggest to you that, in event of their making their appearance at Shanghai, 
 that you take the necessary steps to give them a warm reception. 
 
 " William R. Harris." 
 
 I did not mean to put emphasis there, but it did kill that little 
 company, and they went out of business. 
 
 Senator Townsend. What have any of these retail cigar men done 
 against the United Cigar Stores Co., or whatever you call the com- 
 pany ? , 
 
 Mr Levy. Senator, without intending to be flippant, they have 
 stood in fear and trembling. They are too little. There are 20,000 
 of them in New York, having an average capital of $500. . 
 
 Senator Townsend. In every one of these cases have the United 
 Cigar Stores Co., or whatever they are called, reduced the price of 
 cigars to the consumer to destroy their competitor? 
 
 Mr. Levy. If you will pardon me, just as if you are a lawyer in 
 the case— they have. How do you mean in every instance? Every 
 one of the other concerns ? 
 
 Senator Townsend. How have they destroyed them t 
 
 Mr. Levy. It has been the uniform settled policy. If I may say 
 so with deference, in your own town I dare say you would find a 
 
 22877 — vol i — 12 26 
 
400 
 
 HEARINGS BEFORE 
 
 United Cigar Stores Co., with splendid equipment, that has caused 
 all the concerns around to shrivel, because they had the cheaper prod- 
 uct and have used the coupons, which is a very vicious practice. 
 
 Senator Townsend. How does it affect the consumer ? 
 
 Mr. Levy. You mean the consumer of cigarettes ? 
 
 Senator Townsend. Yes. 
 
 Mr. Levy. Whether he gets a better or worse grade? I have not 
 paid the slightest attention to that. 
 
 Senator Townsend. Whether he £-ets it cheaper or pays more? 
 
 Mr. Levy. That plays no part in the matter, and we have paid no 
 attention to it. 
 
 Senator Townsend. I was very much interested in what you had 
 to say about the revenue tax during the Cuban War. There was a 
 revenue or stamp tax on tobacco at that time, was there not ? 
 
 Mr. Levy. Yes, sir; in 1898, or soon afterwards. 
 
 Senator Townsend. When was that repealed? 
 
 Mr. Levy. About 1901 or 1902. 
 
 Senator Townsend. Do you know whether or not the cigar dealers 
 and manufacturers paid that tax, or the consumer ? 
 
 Mr. Levy. The record shows that the manufacturer did not pay it, 
 because he lifted his price correspondingly. 
 
 Senator Townsend. Did he do that always, or did he reduce the 
 size of his package ? 
 
 Mr. Levy. I do not know. That would, of course, be the same 
 thing ; but I do not know. The report shows that they lifted it. 
 
 Senator Townsend. Do you know whether or not he changed that 
 back after that tobacco tax was repealed ? 
 
 Mr. Levy. You heard the bureau report read that they kept it all ; 
 but not only that, but the insiders of the Tobacco Trust kept all the 
 money themselves. They did not even divide it among their security 
 holders. They induced the common-stock holders of the two com- 
 panies — there has been merger after merger — they induced them to 
 surrender their common stock for 4 per cent bonds. 
 
 Senator Townsend. Did you testify to that? 
 
 Mr. Levy. Oh, yes, sir. 
 
 Senator Townsend. I was out of the room at the time, and I shall 
 not ask you to go over that again. I did not know that you had dis- 
 cussed it. 
 
 Mr. Levy. The result of that was that they kept all of that profit 
 for themselves — the owners of the common stock — inducing the other 
 common-stock holders to give up their stock and take bonds. 
 
 Senator Townsend. My information was, and I was wondering if 
 you are familiar with the fact, that when that tax was levied they 
 reduced the size of their package to the dealer, and then when the 
 tax was repealed they continued to sell the same undersized package, 
 so that instead of being a detriment to the cigar manufacturers and 
 tobacco manufacturers of the country it was the best thing that ever 
 happened to. them. 
 
 Mr. Levy. Well, they had an additional profit added to their wares, 
 and it stood that way. That is, the price that was added to the goods 
 on account of the tax was allowed to remain there after the tax was 
 removed, so instead of taking the money in and paying it out as a tax, 
 they took it in and kept it. 
 
COMMITTEE ON INTERSTATE COMMERCE. 401 
 
 But the charge I make is based on the Bureau of Corporations' re- 
 port and shows, as to the 29 defendants, that they not only took it 
 for their company, but took it for themselves individually by engi- 
 neering this change of stock into bonds on the part of the other 
 stockholders than themselves. 
 
 Senator Townsend. How did the independents treat this? Did 
 they sell the full-sized package during the time? 
 
 Mr. Levy. I do not know. It is well to correct that error of a union 
 among the independents. Mr. Wickersham seems to have the idea 
 that there is some union among these men. They do not know each 
 other. I do not know the number of boards of trade that went into 
 this opposition. 
 
 Senator Townsend. The boards of trade are institutions peculiar to 
 the tobacco business and not boards of trade of a city ? 
 
 Mr. Levy. No; they are leaf-tobacco boards of trade. Every town 
 nearly, has them. 
 
 Senator Townsend. You think there is absolutely full and free 
 competition between these independents. 
 
 Mr. Levy. I know that. I have no manner of doubt about it at 
 all. It must be. I do not see how the contrary idea could have pre- 
 vailed for a moment, and I wonder very much at Mr. Wickersham's 
 statement to that effect. It was verv unjust, and I told him so. 
 
 Senator Townsend. I think that is all I care to ask. 
 
 The Acting Chairman. Mr. Levy, I want to refer for a moment 
 to the subject of the additional legislation or amendment to the 
 antitrust law. You said you did not think it could be improved 
 and have given us as a reason that it is declaratory of the common 
 law, and that in the course of judicial experience so many instances 
 have arisen that they afford the best protection possible to the trade. 
 Neither the common law nor the antitrust statute prohibits owner- 
 ship by one person of capital stock in competing corporations, 
 does it? 
 
 Mr. Levy. No, sir. 
 
 The Acting Chairman. Suppose that there was in the Federal 
 statutes a provision tha"t no person could own stock or other interests 
 in competing corporations or corporations engaged in doing the 
 same business and which ought to be competing. Do you not think 
 that such a law would have prevented the reorganization of which 
 you have complained? 
 
 Mr. Levy. It is a little hard to answer that. Of course that would 
 be a specific law, intended to prevent a specific act, and being at 
 war with it, would have prevented the specific act. That would not 
 have been necessary. 
 
 The Acting Chairman. I am not speaking, of course, of the law 
 applicable to the American Tobacco Co. alone, but suppose it was a 
 condition imposed upon any corporation doing business among the 
 States, a condition upon all corporations doing business among the 
 States and which were competing with each other or engaged in the 
 same business — no common-stock holders. 
 
 Mr. Levy. I think the result of that would be again, as I said, I 
 think, to Senator Pomerene, unnecessary legally and bad economi- 
 cally. It is unnecessary legally because the Sherman law will reach 
 them. If these men owning these competing factories are engaged 
 in a restraint of trade, the Sherman law reaches them. They can 
 
402 ," HEARINGS BEFORE 
 
 not get away. And the economic disadvantage would be that very 
 often — I do not have it in my mind just now. It might be economi- 
 cally disadvantageous. We will say a man inherits some stock. He 
 buys some stock in a factory in Philadelphia and in a factory here 
 in Washington so they can cover different fields. That ought not 
 to be forbidden. 
 
 The Acting Chairman. It is very essential, is it not, that the 
 opportunity for competition or understanding be reduced to its 
 minimum and that all motive for competition possible be supplied? 
 
 Mr. Levy. That is true. 
 
 The Acting Chairman. And where there is a common ownership 
 of controlling stock it is very much easier to have an understanding 
 which destroys the competition than though the ownership were 
 separate. 
 
 Mr. Levy. It is true if that common ownership were general, but 
 your suggestion I understand referred to preventing 1 man out of 
 40 owning shares in one company, from owning any shares in an- 
 other company. 
 
 The Acting Chairman. What would be the economic disadvan- 
 tage of preventing any man from owning an interest in two or more 
 competing corporations? 
 
 Mr. Levy. Well, up to the point where he violates the Sherman 
 law, you would be shackling his just liberties. 
 
 The Acting Chairman. In what respect? 
 
 Mr. Levy. An enterprising man might find it useful to be inter- 
 ested in a shoe factory in Washington and in one in St. Louis. 
 
 The Acting Chairman. But an enterprising man often finds it to 
 his advantage to suppress competition. 
 
 Mr. Levy. Well, the Sherman law will reach him. 
 
 The Acting Chairman. And the difficulty is, I take it, preventing 
 any understanding or agreement to suppress competition where you 
 have two corporations with a common ownership in stock? 
 
 Mr. Levy. If I may say so, you put your finger right on the meat 
 of the situation — and that is a very bad phrase, but you will see 
 what I am getting at — for this reason. The confusion of the Sher- 
 man law all came out of the Knight case in 1895, and ever since that 
 time, intentionally or unintentionally, the Sherman law has been 
 perverted, and claimed to have been misunderstood. It has not been 
 by the men who have understood or known what it meant. There is 
 no occasion for any man saying that he does not know. There really 
 ought not to have been any 10 years ago, and knowing it, it is my 
 contention that such a picture as you make would be instantly met 
 through the Bureau of Corporations by investigation, or if that is 
 not enough, the Attorney General by convening grand juries in 
 Washington and St. Louis and subpoenaing the secretary to bring 
 the books and look at the letter books. You would then find out in 
 one week what they have been doing, and indict them or file a bill 
 of equity. 
 
 The Acting Chairman. You would depend, then, entirely upon 
 proof that they still had a common price? 
 
 Mr. Levy. No, sir. 
 
 The Acting Chairman. In order to establish an agreement that 
 it suppressed competition? 
 
COMMITTEE ON INTEESTATE COMMERCE. 403 
 
 Mr. Levy. No, sir ; in the Licorice Trust we had their books in the 
 grand-jury room and we showed the restrictions. 
 
 The Acting Chairman. I understand perfectly; you mean in re- 
 gard to the American Tobacco Co., but suppose a business generally; 
 if three people owned all the stock of three competing corporations, 
 with the best intent in the world, competition between those three 
 corporations is not going to be very severe or continuous? 
 
 Mr. Levy. It would be suppressed, in fact. 
 
 The Acting Chairman. Is it your contention, as a lawyer, that 
 the Sherman antitrust law prohibits that ownership if the practice 
 of a corporation be fair? 
 
 Mr. Levy. You have omitted to state whether they comprise the 
 bulk of the business. If it were an immaterial part of the business 
 and an unsubstantial part, I should say that was a perfectly fair 
 arrangement under the Sherman law ; if it is only a small part. If 
 there were three wholesale grocers in Missouri — one grocer in three 
 different towns, respectively, I find no harm in that. 
 
 The Acting Chairman. But your objection to the limitation of 
 stock ownership is one that lies in your general belief that it would 
 unduly restrain private enterprises? 
 
 Mr. Levy. Not merely that ; principally because it is not necessary, 
 and it might therefore do something that was harmful. 
 
 The Acting Chairman. And yet that is the principal objection 
 that you make to the reorganization of the American Tobacco Co., 
 that there is a community or identity to ownership ? 
 
 Mr. Levy. But that is a different thing. Here we have a whole 
 aggregation of them, not one man. I understand the illustration 
 to be one man owning shares of different companies. Here we have 
 the whole lot of them holding shares in all of them; therefore all 
 of them collectively owning all of the business. 
 
 The Acting Chairman. That simply means the various companies 
 will be controlled by some man? 
 
 Mr. Levy. If your illustration had said all the stockholders alike 
 in both the companies, my answer would have been different ; but you 
 said one stockholder should not be allowed to own stock in two com- 
 peting companies. 
 
 The Acting Chairman. Of course, if the prohibition was against 
 ownership by one person of stocks in competing corporations, the 
 result would be that the ownership would be separate and distinct 
 and the control would be independent. 
 
 Mr. Levy. That is very true. That is right. 
 
 The Acting Chairman. Of course, it is obvious that if that had 
 been the law of the United States the circuit court in New York could 
 not have approved the plan against which you so strenuously object? 
 
 Mr. Levy. Quite so. 
 
 The Acting Chairman. Without asking your professional opinion, 
 or too many legal questions 
 
 Mr. Levy. I am very glad to answer your questions, Senator. I 
 will say, as a test of the Sherman law, that no man who has studied it 
 can fail to respond immediately to any test put uponit. 
 
 The Acting Chairman. The common law, of which the antitrust 
 law is an expression, does not prohibit a corporation from growing to 
 any size that its owners may desire, short of a dominating monopoly, 
 does it ? 
 
404 HEARINGS BEFORE 
 
 Mr. Levy. It does not. 
 
 The Acting Chairman. Now, suppose we had an industrial board 
 or commission that was given the authority to look over a particular 
 business and fix the amount of capital which might be safely — I mean 
 safely so far as the public is concerned — employed by any one person 
 or one corporation in that business, and still with such directions as 
 would give it the guide toward the end to be reached, do you believe 
 that, then, there would have been organized out of the American 
 Tobacco Co., one concern with $56,000,000, and another with 
 $46,000,000, and another with a slightly lesser sum as capital ? 
 
 Mr. Levy. That is all predicated upon the theory that the decision 
 of the circuit court is in accordance with the Sherman law and the 
 decision of the Supreme Court, and I do not think it is. 
 
 The Acting Chairman. You do not believe, do you, that the Su- 
 preme Court, or any other court will ever assume in the reorganiza- 
 tion of a trust to fix the amount of capital that a corporation may 
 employ in its business ? 
 
 Mr. Levy. No. But a grand jury may indict them, if the amount 
 
 fets so big that they threaten to violate the second section of the 
 herman law. 
 
 The Acting Chairman. But short of the second section there is 
 no way to prohibit the corporation growing to such size that it 
 might exercise dominating influence in the trade, if it is free from 
 other practices? 
 
 Mr. Levy. If it is not an attempted monopolization or monopoly, 
 then it is free from any objection. 
 
 The Acting Chairman. A monopoly, however, is the substantial 
 control of the business as to output and prices, etc. ? 
 
 Mr. Levy. That never happens except by the employment of op- 
 pressive practices. 
 
 The Acting Chairman. Precisely, and that is what it is. 
 
 Mr. Levy. Yes, sir. 
 
 The Acting Chairman. And the other offense under the second 
 section is the attempt to create a monopoly which may be interfered 
 with or taken in hand before the effort is fully completed or success- 
 ful. Do you recognize that there is such a thing as an unfair com- 
 petition ? 
 
 Mr. Levy. Unqestionably, and courts will issue decrees against 
 them. 
 
 The Acting Chairman. Do you think that the Sherman antitrust 
 law is sufficient to prevent in all cases unfair competition ? 
 
 Mr. Levy. Well, it depends on the degree of unfairness. A very 
 small degree might never be discoverable, or be very hurtful, just 
 as many other statutes are violated and there is no substantial harm 
 done. Nobody could complain about it, but if it is a substantial 
 and concrete restraint of trade, the Sherman law will take care of it. 
 
 The Acting Chairman. Suppose that one corporation engaged in 
 a business, simply for the purpose of enlarging its business, but not 
 for the purpose or thought or hope of establishing a monopoly, 
 should enter upon the course of selling its products below cost, with- 
 out any profit whatsoever, and that course continued for a time to the 
 apparent unsettlement of the whole business and closing of some 
 factories and the discharge of employees, do you thing such a case 
 could be reached by the antitrust law? 
 
COMMITTEE ON INTERSTATE COMMERCE. 405 
 
 Mr. Levy. Unquestionably. 
 
 The Acting Chairman. Under what provision of the antitrust 
 law — what section ? 
 
 Mr. Levy. Section 1. 
 
 The Acting Chairman. And that is 
 
 Mr. Levy. An act in restraint of trade. 
 
 The Acting Chairman. The law does not prohibit an act in re- 
 straint, does it? 
 
 Mr. Levy. I have the exact language here. 
 
 The Acting Chairman. I wish you would cite the exact language 
 in order to end that question. 
 
 Mr. Levy. Here it is : 
 
 Every contract, combination in the form of trust or otherwise, or conspiracy 
 in restraint of trade or commerce * * *. Every person who shall make any 
 such contract or engage in ariy such combination, etc. 
 
 Of course all this is predicated on more than one person. 
 
 The Acting Chairman. I am speaking of one person, one cor- 
 poration, pursuing the course I have outlined. You would not con- 
 tend that such course would be unlawful under section 1 of the anti- 
 trust law ? 
 
 Mr. Levy. Ordinarily, if it is simply one ordinary corporation it 
 could not do that alone, because it would fail; but if that corpora- 
 tion is a result of a combination of others against the law, that com- 
 bination is in restraint of trade. 
 
 The Acting Chairman. Precisely ; but I am citing a case in which 
 there was no combination. 
 
 Mr. Levy. Then there would not be any damage. 
 
 The Acting Chairman. But business might be very seriously dis- 
 turbed by such a course. 
 
 Mr. Levy. "Well, the antitrust law would take care of that. 
 
 The Acting Chairman. Is it not to prevent ofttimes just such con- 
 sequences that dealers or producers are led into some kind of under- 
 standing to sustain the prices or limit the output? 
 
 Mr. Levy. I do not quite understand you. 
 
 The Acting Chairman. Is it not to prevent the consequences of 
 just such competition as I have outlined that producers or dealers are 
 often led into an agreement or understanding or conspiracy, if you 
 call it so, to sustain the falling prices ? 
 
 Mr. Levy. You mean to prevent cutting prices? 
 
 The Acting Chairman. Yes. 
 
 Mr. Levy. That is true. 
 
 The Acting Chairman. Now, you recognize, I take it, that there . 
 are a great many of these understandings which are really in violation 
 of the antitrust law which are never discovered ? 
 
 Mr. Levy. I do not know ; I dare say it must be so. 
 
 The Acting Chairman. Do you not think that some such provi- 
 sion as I have outlined, namely, an administrative power on the part 
 of the Government to prevent the ruinous competition I suggested, 
 would tend very much to remove the motive for those secret criminal 
 conspiracies and agreements in restraint of trade? 
 
 Mr. Levy. I quite understand you now. You are looking at the 
 opposite extreme, the case of an unrestricted competition, where some 
 in the trade cut the prices and drive the others to form an agreement? 
 
 The Acting Chairman. Yes. 
 
406 HEARINGS BEFORE 
 
 Mr. Levy. I do not think that point has been reached. I think at 
 present most trades are pretty well tightened up into combinations, 
 but when that extreme is reached I would still say the Sherman law 
 is equal to it, or perhaps I might make this radical suggestion — 
 radical in a qualified .sense — that the law ought to be enforced with 
 little discrimination. For example, a number of men, I will again 
 say, go into the shoe trade where prices are falling and business is 
 bad, and somebody is cutting prices ; they will be careful to see to it 
 that the price is not unduly high. The radical part is this, it would 
 require the district attorney to sort of shut one eye to it — and they 
 have to do it very often. I realize that that is a weakness in my 
 position. There is no doubt about that. 
 
 The Acting Chairman. That brings us to the very point. The 
 law, in order to produce its best effect, according to your view, must 
 then be administered or enforced with a great deal of discretion on 
 the part of the Attorney General ? 
 
 Mr. Levy. Only in that one particular, to prevent destructive com- 
 petition, which is a thing that will take care of itself, and then the 
 district attorney and the Attorney General and judges have to close 
 their 'eyes, as they do every day. 
 
 The Acting Chairman. There may be good trusts and bad trusts, 
 and the Attorney General ought not to prosecute any but bad trusts ? 
 
 Mr. Levy. No, sir ; I do not say that. 
 
 The Acting Chairman. It is pretty nearly the result of your rea- 
 soning, is it not ? 
 
 Mr. Levy. No, sir ; that is a very difficult problem. I am not here 
 to claim any great credit for a panacea. 
 
 The Acting Chairman. Do you not think it ought to be the policy 
 of every law to repose as little discretion as possible in an adminis- 
 trative officer who enforces it? 
 
 Mr. Levy. In general, yes. But if there is a healthy public senti- 
 ment back of the officer, he will exercise that discretion right or 
 get out. 
 
 The Acting Chairman. You have the illustration right here. You 
 are endeavoring to bring public opinion to bear upon the Attorney 
 General, who thinks that he ought not to appeal the American To- 
 bacco Co. case. Do you not think it would be better if the Attorney 
 General had little or no discretion about such things? 
 
 Mr. Levy. No; I do not think Mr. Wickersham has understood 
 the situation, and I say it with all respect. I have told him so. 
 There is the whole trouble. I dare say, with great deference, if the 
 Senate of the United States would request him, he would do it; but 
 we are unimportant people, and he does not pay any attention. 
 
 The Acting Chairman. What authority have we under our con- 
 stitution and form of government to request the Attorney General 
 to do his duty? 
 
 Mr. Levy. In order that you might find out how the Sherman law 
 is working. 
 
 The Acting Chairman. Suppose the Attorney General would say 
 to us that he would attend to his business, and that we ought to at- 
 tend to ours, what reply would we make? 
 
 Mr. Levy. I would not dare say. Quite seriously, there might be 
 another course. 
 
COMMITTEE ON INTERSTATE COMMERCE. 407 
 
 The Acting Chairman. If we should ask him to do it, and he 
 should refuse to do it, we would be at the end of our power, would 
 we not? 
 
 Mr. Levy. I am not expert in the functions of the executive de- 
 partment, and I can not answer. I dare say the Senate could not ap- 
 point special counsel to take an appeal. As an elementary proposi- 
 tion of law I would say that that would not be possible, because the 
 Government of the United States, the plaintiff in this case, has its 
 attorney, who is the Attorney General. 
 
 The Acting Chairman. Therefore we ought to have the law, if 
 we have not one now, that should be enforced without any discrimi- 
 nation on the part of the Attorney General or any person else, should 
 we not ? 
 
 Mr. Levy. That is perfectly true. You have really instanced 
 an extreme case. Where there is destructive competition that will 
 spring up. Publicists say that it will spring up if the Sherman law 
 is enforced. Wait until that happens, or if you are obliged to give 
 an answer now, it may be said that every law is enforced with some 
 idea of its effect upon humanity and upon beings. We are fallible, 
 and no law is perfect, but my contention is this, and I would like to 
 impress it upon the attention of the committee, that if the Tobacco 
 decision had resulted in a real disintegration — as I humbly think it 
 was intended by the Supreme Court — the Sherman law thus inter- 
 preted will meet every one of these situations. 
 
 The Acting Chairman. The real enforcement of the law, with 
 which I am in entire sympathy, would bring about the very situa- 
 tion which I am outlining, would it not ? 
 
 Mr. Levy. You mean unrestricted competition, with the likelihood 
 of trade agreements ? 
 
 The Acting Chairman. If it were enforced in the way you have 
 suggested, it would furnish to business a motive 
 
 Mr. Levy. For getting together 
 
 The Acting Chairman. For making secret arrangements, or hav- 
 ing some understandings by or through which prices could be sus- 
 tained, my only point is to ask whether or not from your experience 
 you are not of the opinion that we ought to have some additional 
 power through which indefensible and injurious and ruinous com- 
 petition could be suppressed ? 
 
 Mr. Levy. I think you would be embarking upon a course of the 
 greatest difficulty. 
 
 The Acting Chairman. As was suggested here a day or two ago, 
 when you reach that point where such competition is destroying the 
 business and ruining those who are engaged in it, you drive men into 
 these agreements. 
 
 Mr. Levy. That is true. 
 
 The Acting Chairman. They are condemned by the antitrust law ; 
 but if we had some way in which that feature and phase of the busi- 
 ness could be taken care of, we would have fewer violations of the 
 law. Now, this does not contemplate a change in the law you pro- 
 pose, but simply to supplement it with an additional provision to 
 take care of that kind of a situation. 
 
 Mr. Levy. As I understand it, the criticism is this, that if the 
 Sherman law is rigidly enforced and widely carried out, whereby 
 all agreements will be swept away, it will soon result in destructive 
 
408 HEARINGS BEFORE 
 
 competition, and there would be an inducement again for the people 
 in a given trade to get together simply for self-protection. That 
 criticism is perfectly sound. But I do not know how you are going 
 to correct it, except like every other law on the statute books, it 
 must be enforced with a certain amount of plain good sense. 
 
 So I would say that any agreement — and I am on thin ice here ; I 
 realize that — any agreement which contemplated — and I am going 
 to use the language of the book ; I can not find it, but I remember it- 
 unethical, wicked, oppressive, destructive practices, and did not tend 
 to a monopoly, ought to be left alone. Whether that means reading 
 something new into that law I am frank to say I do not know, but 
 that would be the test. If the competition became destructive, and 
 they would have an understanding, it would be well if it could be 
 made public, and the Bureau of Corporations could make them do 
 that without any new law. They would say, " Let us know what you 
 are doing," and the prosecuting officer could then wink an eye. 
 
 The Acting Chairman. The trouble about that is that the At- 
 torney General might think he was right in winking an eye, and a 
 great majority of the people might think he was wrong. 
 
 Mr. Levy. That is quite true. I phrased it unfortunately. I did 
 not mean to do so, but that this is true of every statute, I dare say — 
 the statutes as to smuggling, the national-bank act, and other laws. 
 
 The Acting Chairman. That is all I care to ask. 
 
 Senator Brandegee. I would like to ask a question. You may have 
 answered it while I was absent from the room ; and if so, I will with- 
 draw it. Did you hear the testimony or read the testimony of Mr. 
 Samuel Untermeyer? 
 
 Mr. Levy. I read it pretty comprehensively. 
 
 Senator Brandegee. Well, you are familiar with his recommenda- 
 tions that when the point of ruinous competition was imminent there 
 should be a commission appointed acting in behalf of the Govern- 
 ment, which might permit trade agreements between competitors as 
 to their prices of production? 
 
 Mr. Levy. Like the German cartels, I think he said. 
 
 Senator Brandegee. Do you remember reading that in his testi- 
 mony? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Brandegee. What is your view about the expediency of 
 that? 
 
 Mr. Levy. I think you would be embarking on a pretty big under- 
 taking. If the suggestion made by me of giving a certain latitude to 
 law officers in the way indicated and which Senator Cummins has 
 said would be dangerous, how much more dangerous is it than to give 
 a board the right to fix prices of commodities and all the conditions 
 that enter into them with all the risk of using that power in some 
 wrongful way, with no power of public influence to arrest or correct 
 its action as it would in the case of a district attorney who fails to 
 indict a criminal ? So, with all deference to Mr. Untermeyer — with 
 whom I have discussed the matter — I do not agree with him. I con- 
 fess I do not know how it works in Germany. He spoke of the potash 
 trust there. The Government is a partner in the potash trust, but 
 our Government could not be. 
 
COMMITTEE ON INTEKSTATE COMMEECE. 409> 
 
 Senator Brandegee. Have they any national statute in Germany 
 similar to the Sherman antitrust law ? 
 
 Mr. Levy. I believe not. 
 
 Senator Brandegee. So the fact that it worked well in Germany 
 might not make it work so well in this country if we had the Sherman 
 law maintained ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Brandegee. I have here, and I suppose you have heard and 
 read a good deal in the papers and magazines and have heard state- 
 ments by public men and by business men, to the effect that large busi- 
 ness combinations at present in existence were apprehensive about 
 their business and their future, personally and property, because they 
 were unable under the present decisions of the court and present 
 statutes to determine whether their business organizations and their 
 acts were really violating the law or not, and that some action can be 
 taken by Congress to inform them, so that they might know whether 
 they at present are within or without the law. What is your view 
 about that situation ? 
 
 Mr. Levy. You mean that a man does not know whether or not 
 he has been guilty of an attempt to monopolize or whether he has 
 been guilty of wicked, oppressive, nonethical acts. Everybody's 
 conscience would tell them that. Therefore I say that anybody who 
 wanted to know could know. 
 
 Senator Brandegee. That is what I supposed, because, if I recall 
 it, you said a little while ago that he knew exactly that he was doing 
 something in restraint of trade and when he was not. 
 
 Mr. Levy. Yes, sir. 
 
 Senator Brandegee. When they protest that they do not know, 
 what have you to say about whether they are deceiving themselves 
 ' or attempting to deceive others ? 
 
 Mr. Levy. Well, partly one and partly the other. I can instance 
 an illustration of that in the case of a certain grand- jury inquiry, 
 in connection with the Tobacco Trust — I have to be a little guarded — 
 that I was aiding in conducting under the Sherman law. The fore- 
 man of that grand jury argued in the grand-jury room with law 
 books before him, although he was a merchant and not a lawyer, 
 against finding a certain indictment in that matter, and the jury 
 outvoted him and found the indictment. And within a year or two 
 a bill was found against his company, which proved to be one of 
 the worst violators of its kind. He knew that his company was 
 violating the law when he was arguing to the grand jury. 
 
 I believe, as President Taft has put it, your conscience will tell 
 you if you are violating the law. 
 
 My idea about the Steel Trust is that it was not oppressive, it 
 has not oppressed, it did not use unethical measures, it had not done 
 anything destructive, it had not, I think, raised prices harmfully, 
 but it was technically a big combination. I think that alone did 
 not make it liable under the Sherman antitrust law unless it used 
 some of the methods which have been condemned by the courts. 
 
 Senator Brandegee. Have you read a recent editorial in the Out- 
 look by Ex-President Roosevelt on this general subject ? 
 
 Mr. Levy. Yes, sir. 
 
410 HEARINGS BEFORE 
 
 Senator Brandegee. What are your views as to the position he 
 takes in that article? 
 
 Mr. Levy. Well, he suggests some form of supervisory commis- 
 sion. I do not agree with him there. I agree with his views on 
 the Steel Co. and the Tobacco Co. He said that the tobacco decree 
 was a miscarriage of justice and that the trust ought to be disbanded 
 and these 29 men disbarred from any connection with it. On the 
 other hand, it seems to me that in the case of the Steel Co. that it is 
 simply an unobnoxious combination. 
 
 As to his commission theory, I do not agree with him at all. I do 
 not think it is needed. On the other hand it would be rather a 
 dangerous instrument. The Bureau of Corporations can do it all, 
 plus the district attorneys. 
 
 I want to impress the members of the committee with the confusion 
 caused by this Knight case. Prof. Henry R. Seager, professor of 
 political economy of the Columbia University, a most able professor, 
 points out that if the Tobacco case and the Standard Oil case had been 
 begun 15 years before there would never have been any trouble about 
 the Sherman law. It would have been enforced, like the statute 
 against arson. 
 
 Senator Brandegee. In what publication does Prof. Seager say 
 that ? Give the name of it to the stenographer. 
 
 Mr. Levy. It is " The Recent Anti-Trust Decisions " by Prof. Henry 
 R. Seager, professor of political economy at Columbia University . It 
 is contained in the advance sheets of the Political Science Quarterly 
 for December, 1911. It is in advance of the full publication. 
 
 Senator Brandegee. I do not know but what you have stated — if 
 so I do not recall it — but do you desire to express any view about the 
 expediency of some attempt to enforce the Federal incorporation of 
 companies doing an interstate business? 
 
 Mr. Levy. I have given considerable thought to that, Senator, 
 but my mind is confused about it in this way. Suppose there is a 
 Federal incorporation law, or a license — there is not much difference 
 in principle — and it says that a corporation shall do this and shall 
 not do that. Well, now, that is what the Sherman law as now settled 
 says. If so, where is the difference ? How are you going to discover 
 it any easier, or when you discover it, how are you going to act upon 
 it any easier than you can now? Since the law is definitely settled, 
 you can act speedily; you can get an injunction, which you could not 
 get before. The Government has brought the Harvester Trust and 
 the Electrical Trust to book by the means of a voluntary decree and 
 injunction, which does not take four or five years now, as it formerly 
 did. That would act just as quickly as revoking a license, and it 
 would have other advantages. There would be the additional dis- 
 advantage of rearranging all the State charters. It seems to me to 
 be a mere phantom. 
 
 Senator Brandegee. Of course I do not feel authorized to state 
 the argument of those who advocate that, but we are seeking infor- 
 mation, and that is the purpose of the inquiry I am now going to 
 make of you. I assume that the advocates of this commission argue 
 that if a large business concern were either incorporated under a 
 Federal charter or had to take out a Federal license and were super- 
 vised in their daily operations by a Government commission to see 
 
COMMITTEE ON ISTTEBSTATE COMMERCE. 411 
 
 that they did not enter upon violations of the rules laid down in 
 their charter or in their license that there would be less chance for 
 them to get into full swing and build up oppressive practices and 
 these monopolies to the disadvantage of the people. 
 
 Mr. Levy. But, Senator, the Bureau of Corporations can do that 
 this minute. And inasmuch as they can do that, why cause all this 
 confusion? View it now for a moment as a lawyer practicing in 
 your own State. Every lawyer knows his own corporation laws. 
 View it in the aspect of all the confusion that will be caused. To my 
 mind there is- no end to that confusion by obliterating the State 
 charters, if that is contemplated, and causing the corporations to 
 take out Federal charters, when the only advantage would be — be- 
 cause I apprehend the advantage to be from what you have stated- 
 supervision. Bearing in mind that the Bureau of Corporations can 
 do that now, I can not understand what advantage there would be. 
 The Bureau of Corporations can promptly go into any corporation 
 doing an interstate business and ask to see their books, or if they can 
 not, the grand jury can do it. They have that power now. 
 
 Senator Beandegee. Of course I understand that the Bureau of 
 Corporations can go and inspect the books of any of the companies 
 that come within their jurisdiction ; but they have no power to order 
 them to do this or that or to abstain from a practice, have they, in 
 any court proceedings? 
 
 Mr. Levy. No ; but other branches of the Government do that. 
 
 Senator Beandegee. Do what? 
 
 Mr. Levy. The Bureau of Corporations can say to a corporation, 
 "We do not approve of this," or " You are doing wrong, and if you 
 do not look out when we tell you privately, we will ask you and your 
 lawyer to come up to the district attorney's office." Or they can say, 
 " We do not like this, and if you do not stop it we are going to have 
 you indicted or a bill filed against you for an injunction." That is 
 just as effective as taking away their charter. A bill in equity would 
 take away their charter, and an indictment would put them out of 
 business. Plus the further disadvantage that your Federal corpora- 
 tion law would have to detail in extenso that it permitted this thing 
 and forbade that, unless it reproduced the Sherman law. In other 
 words, it takes us back to that one thing, that inasmuch as the Sher- 
 man law, framed with a great deal of wisdom, merely crystallizes 
 and declares the common law, it must be all comprehensive, because 
 the common law for all these centuries has comprehended substan- 
 tially everything that has ever arisen. 
 
 Senator Bbanoegee. Well, you are giving me just the sort of answer 
 I wanted to draw out by my question, the advantages and disadvan- 
 tages of the various propositions; and you think, then, that there 
 would be no advantage if we had a Federal incorporation act or 
 license which would detail what a corporation might do and what it 
 must abstain from, accompanied by a supervision of a commission 
 to inspect it as often as necessary, and upon finding violations to 
 inhibit it promptly — you think there would be no advantage in that 
 system as compared with the present system with the inspection 
 powers and powers of recommendation and complaint of the Bureau 
 of Corporations? 
 
412 HEARINGS BEFOKE 
 
 Mr. Levy. On the contrary, every disadvantage. If you would 
 make it an automatic executive bureau, then I would say it is a most 
 dangerous power. And if you attempt to specify and enumerate the 
 powers you are up against the same thing that some of the Western 
 States were up against in 1901 — Illinois and Texas and others — when 
 •they attempted to frame an antitrust law and enumerated the things 
 they desired to be done and not to be done. They made the mistake 
 as to excepting certain things. They excepted agricultural imple- 
 ments, or something of that sort, that Senators from that section will 
 remember, and nullified the whole law. The Texas law was declared 
 unconstitutional and the Illinois law has not done anything. The 
 Sherman law has done everything it was intended to accomplish since 
 it was put into activity after the incubus of the Knight case decision 
 was removed. 
 
 It has been asserted— I say that with hesitation, because I may be 
 wrong — that that case was purposely mistried. I say that with some 
 precaution. It was suggested that the prosecuting official was not 
 what he should have been. And Prof. Seager also has said in his 
 book that this case was wrongly tried, but he does not blame the law 
 or the courts, but he blames the prosecuting official. 
 
 When that case came up to the Supreme Court the law was new. 
 •It was the first case that came up to the Supreme Court under the 
 Sherman law. You will find that in 156 United States, page 1. 
 
 Unfortunately the Supreme Court — and I say this with the greatest 
 respect — Chief Justice Fuller wrote the opinion. The court in that 
 case spoke in generalities ; it did not know how the law would shape 
 itself. Instead of saying, " Decree affirmed because an intrastate 
 transaction," because that is all the transaction showed, they dealt in 
 generalities. 
 
 That case was assumed by trust lawyers to mean that it did not 
 apply to industrial or trade combinations at all, but only to railroad 
 combinations, until the Addyston Pipe Co. case was decided. Judge 
 Taft, now President Taft, wrote the opinion in that case, and the 
 Supreme Court affirmed it. It was the universal belief, and Attorney 
 General Olney so reported to Congress in 1896, that the Sherman law 
 in effect applied only to transportation combinations. Naturally, it 
 resulted in all kinds of confusion. That has been obliterated. 
 
 If this Tobacco Trust error is corrected, as I believe it will be, the 
 Sherman law is all right. 
 
 Senator Brandegee. It has been some time since I read the Knight 
 case. It lies in my mind that there was some intimation there by the 
 court that the information or bill did not allege, in fact 
 
 Mr. Levy. Did not show an interstate transaction. The allegations 
 there were that the Sugar Refining Co. had bought up four or five 
 refineries in Pennsylvania, but it neglected to show an interstate 
 -shipment. 
 
 Senator Cummins. But the bill in the case showed that they were 
 doing an interstate business. 
 
 Mr. Levy. That is perfectly true. I think there was enough evi- 
 dence there for the Supreme Court — I think it would have been ex- 
 ercising its sound discretion if it had said, " We do find an element of 
 interstate commerce here in this transaction," but they do not say so, 
 for some reason. 
 
COMMITTEE OX INTERSTATE COMMERCE. 413 
 
 Senator Pomerene. Their position was that the interstate com- 
 merce feature was a mere incident to the manufacture. 
 
 Mr. Levy. It seems to me that they could have found an interstate 
 transaction, but they did not do so. That has caused all this confu- 
 sion. So that from that time on till 1900 and later the Sherman law 
 was looked upon as being unusable to suppress combinations. 
 
 Senator Brandegee. With regard to the advisability of creating a 
 national commission to ascertain the facts of violation of law by the 
 corporations, and then if we have to order them to abstain from the 
 violations, I understood you to say that you regarded that as very 
 dangerous — what was your language? 
 
 _ Mr. Levy. I thought it was a dangerous power to give a commis- 
 sion. It might easily be perverted, and it is very difficult to use 
 properly. For example, compose that commission of lawyers or 
 partly of lawyers and merchants, and then let a case come up before 
 them with which they are entirely unfamiliar, being entirely un- 
 familiar with all the questions that go to make up the prices and 
 other trade questions, and they will not know how to handle it. 
 Whereas the Bureau of Corporations — my illustration is not very 
 good there — the Bureau of Corporations would have to pick out an 
 expert in that line. My illustration is not very good in regard to that. 
 
 Senator Brandegee. You mean that there is not one tribunal, other 
 than a court, that you would be willing to delegate this power to ? 
 
 Mr. Levy. I did not say that. I say the Sherman law with its 
 punitive features and its injunctive features in a court of equity, 
 with the assistance of the Bureau of Corporations on one side and the 
 assistance of the district attorney through the grand jury on the 
 other, will cover the whole thing. 
 
 Senator Brandegee. That is all. 
 
 The Acting Chairman. Does any other member desire to inquire 
 of Mr. Levy F 
 
 Senator Newlands. You are satisfied with the Sherman law; if 
 this decision in the Tobacco case stands, will you be satisfied with it ? 
 
 Mr. Levy. I won't know what to say about that. 
 
 Senator Newlands. If the decision is extended to a number of 
 other cases which may hereafter arise by similar methods to be pur- 
 sued in disintegrating a combination and then of reorganizing, will 
 you be satisfied with it? 
 
 Mr. Levy. With all politeness, I can not concede that, for the 
 reason that this same court was reversed before in the same case, and 
 1 can not get out of my mind the belief that it is going to be reversed 
 again. So I have not put my mind to the conception of this decree 
 standing good. 
 
 Senator Newlands. Then what you say is based upon the assump- 
 tion that that decree will not stand good ? 
 
 Mr. Levy. In order to answer your question I would say — taking 
 the other side of it, as you assume — that the Sherman law has proven 
 inefficacious, and that no law can be effective, and that we must be 
 subjected to the necessity of aggrandizement and combinations. 
 
 Senator Newlands. Your objection to this reorganization, in the 
 main, is twofold, is it not; first, that the corporations themselves are 
 too large. By that, I presume, you mean that they control too much 
 of a proportion, too large a proportion of the business ? 
 
 Mr. Levy. And have too large a volume of assets. 
 
414 HEARINGS BEFORE 
 
 Senator Newlands. And the other is that they have common-stock 
 holders which involves, necessarily in the end, common management ? 
 Now, that question as to the size of corporations could be taken hold 
 of by an amendment, could it not, or by legislation supplementary to 
 the present law ? 
 
 Mr. Levy. But with risk, Senator, because you have to make the 
 law general. 
 
 Senator Newlands. If you find that the courts permit, in this 
 process of reorganization, corporations to be reorganized which, in 
 your judgment, are too large either in their assets or in the control of 
 business, then the only way to do is to pass a statutory law on the 
 subject, is it not? 
 
 Mr. Levy. Yes; unless the Supreme Court reviews this case and 
 reverses it. 
 
 Senator Newlands. Unless the Supreme Court lays down the prin- 
 ciple as to what area a reorganized corporation can occupy? . 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. And unless it declares that these new corpora- 
 tions shall not have common-stock holders, thus bringing about a com- 
 mon management, you admit that the only remedy is by statutory 
 legislation ? 
 
 Mr. Levy. I would admit that, but I would not know how to frame 
 such a statute. That is another question. 
 
 Senator Newlands. Now, the next question is as to the process of 
 carrying out the disintegrating decree. Do you think that the process 
 employed by the court in this tobacco case is as it would have been, 
 for instance, had the court called in, in some way, the Chief of the 
 Bureau of Corporations with his corps of experts ? 
 
 Mr. Levy. I believe it would have been very different if they had. 
 
 Senator Newlands. And after a conference with all the parties who 
 had presented a plan of reorganization, do you think that would have 
 been the better process ? 
 
 Mr. Levy. Decidedly so. 
 
 Senator Newlands. Do you think that would have been a good 
 process ? 
 
 Mr. Levy. Yes, sir. 
 
 Senator Newlands. And there could have been no objection in the 
 law to making the Bureau of Corporations or the Commissioner of 
 Corporations an officer of the court, you might say, for the purpose 
 of assisting it in reaching a proper decree ? 
 
 Mr. Levy. No ; except that that is now open to the Attorney Gen- 
 eral, if he wishes it. 
 
 Senator Newlands. The Attorney General could do it, but could 
 the court do it now ? 
 
 Mr. Levy. No ; I presume except as a matter of comity from the 
 President. 
 
 Senator Newlands. Then, in that direction there can be supple- 
 mentary legislation that might be beneficial? 
 
 Mr. Levy. But you would then immediately run up against a legal 
 obstacle, that you would make the views of the Bureau of Corpora- 
 tions obligatory upon the court. 
 
 Senator Newlands. I would make it advisory. The Bureau of 
 Corporations in that instance, outside of its other functions, would 
 simply act as a receiver or a commissioner of the court. 
 
COMMITTEE ON INTERSTATE COMMERCE. 415 
 
 Mr. Levy. To advise the conscience of the court, as lawyers say. 
 
 Senator Newlands. Yes. 
 
 Mr. Levy. That would be perfectly feasible. 
 
 Senator Newlands. Then legislation in that direction might be 
 beneficial ? 
 
 Mr. Levy. Yes ; I should say so. 
 
 Senator Newlands. Now, then, you would approve of the Bureau 
 of Corporations? 
 
 Mr. Levy. My observation of it has been that it is a very useful 
 bureau. It has issued the reports in the three great industries- 
 sugar, tobacco, and steel — in most splendid fashion. 
 
 Senator Newlands. I agree with you. Do you think that act, 
 however, is wise in that it does not compel publicity, but makes pub- 
 licity subject entirely to the will of the President of the United 
 States? 
 
 Mr. Levy. I do not think that is entirely Avise. 
 
 Senator Newlands. So that there could be a change in that direc- 
 tion that could be beneficial ? 
 
 Mr. Levy. Yes. However, my own observation and experience, 
 both inside and outside of the Department of Justice, and my private 
 practice, have shown that no harm has, come of it now, but it does 
 not seem to me to be just right. 
 
 Senator Newlands. You can imagine. a condition where these com- 
 binations are so powerful at election and nomination time, etc., as to 
 be pretty influential with the administration and with executive 
 officers under the control of the administration, can you not? 
 
 Mr. Levy. Yes ; it would be pretty hurtful. 
 
 Senator Newlands. Now, then, the next thing is: Do you not be- 
 lieve that the great functions exercised by the Bureau of Corporations 
 should be exercised by an independent body of men, sUch as the rail- 
 road commission, which also employs experts and pursues the same 
 lines of investigation regarding railroads — a tribunal, semi judicial 
 in character, a tribunal of dignity, independent of executive control, 
 continuous in service, the members varying from time to time, but the 
 commission on the whole remaining practically the same ; with prece- 
 dents and authorities and traditions and building up a body of ad- 
 ministrative law, such as the Interstate Commerce Commission has 
 built up — with that form of an administrative tribunal we will also 
 say that the present Chief of the Bureau of Corporations is one of its 
 members — independent in character, would be better than the present 
 organization under a bureau officer who is under the control of the 
 President and likely to be subjected at any time to political influence? 
 
 Mr. Levy. You mean in general with the same powers? 
 
 Senator Newlands. With the same powers ? 
 
 Mr. Levy. I would say emphatically, yes. 
 
 Senator Newlands. You think that would be preferable? 
 
 Mr. Levy. Decidedly. 
 
 Senator Newlands. Then, as I understand it, you would feel that 
 the merging and enlarging and extension of the Bureau of Corpora- 
 tions into a quasi-judicial tribunal, such as I have referred to, with 
 the present powers of a Bureau of Corporations, with full publicity 
 and full power itself, without dictation from anyone, to publish what 
 it chooses, and with powers of examination and correction and recom- 
 
 22N77— vol 1—12 27 
 
416 
 
 HEARINGS BEFOKE 
 
 mendation to Congress, would be an improvement upon the existing 
 system ? 
 
 Mr. Levy. I think so ; yes, sir. 
 
 Senator Newlands. Now, regarding the Tobacco Trust. We will 
 assume that this decree stands; that these 4 corporations, with the 
 10 minor corporations, continue to exist. We will assume, on the 
 other hand, that there had been no Tobacco Trust at all organized, 
 such as has been organized, but that there was a form of organization 
 undertaken by 26 men, with their associates, the 26 men having the 
 control under which they would organize to-day for such corpora- 
 tions as you have referred to and in such minor corporations as you 
 have referred to, and they themselves, with the capital, built the 
 plants — not purchased them nor combined them — but built the plants, 
 which would be an exact duplicate of the plants about to go into the 
 position of these 4 major corporations and these 10 minor corpora- 
 tions^ — would you regard that as a violation of the Sherman Act? 
 
 Mr. Levy. Well, you are starting without any past history at all ? 
 
 Senator Newlands. Yes; I am starting without any past history. 
 
 Mr. Levy. Then, until they begin to make a record they will not 
 commit any acts. I would say, first, speaking narrowly and precisely, 
 that the only way they could approach a violation of the Sherman 
 law would be in the probability that they were an attempt to 
 monopolize. 
 
 Senator Newlands. Then, that would come under the second sec- 
 tion and not under the first section of the Sherman law ? 
 
 Mr. Levy. Yes ; that would come under the second section and not 
 the first. 
 
 Senator Newlands. They would not come under the act as a com- 
 bination in restraint of trade, but simply as an attempt at monopoly, 
 and then you would have to prove the acts constituting that offense ? 
 
 Mr. Levy. Yes, sir ; but the moment they got into- business actively 
 you would soon be able to tell whether they were restraining trade. 
 
 Senator Newlands. Let me assume that, without any such act as 
 you have referred to — acts of oppression, acts that are not altruistic, 
 and other forms of expression that you have used — nonethical — 
 would not the very existence of these enormous corporations, con- 
 trolling so large an area of the tobacco business, have the effect of 
 monopoly, and have an oppressive effect upon other competitors, 
 without resorting to any of the methods that you speak of as stamp- 
 ing an effective monopoly ? 
 
 Mr. Levy. I would say yes to that. Of course, you realize that 
 that, is a hypothetical condition that never can exist. But if the 
 question has to be answered, it must be answered yes. . 
 
 Senator Newlands. Then that brings us necessarily to the ques- 
 tion, does it not, that apart from the act necessary to prove an. at- 
 tempt at monopoly there may be, in the very size of the corporation 
 itself, and in the common-stock holding, and in the common manage- 
 ment arising from unity of interest of stockholders, the very dangers 
 which were intended to be averted by the passage of the Sherman 
 antitrust law — isn't that so ? 
 
 Mr. Levy. There is no doubt about that. 
 
 Senator Newlands. If that is so, ought we not to meet that condi- 
 tion by legislation directed to the size of the corporations and the 
 number of plants which they may own and the question as to whether 
 
COMMITTEE ON INTERSTATE COMMERCE. 417 
 
 such corporations can continue to exist with the same body of stock- 
 holders and the same body of directors and the same unity of inter- 
 est — is not legislation in that regard necessary ? 
 
 Mr. Levy. Upon a strict construction of the law, that must be 
 deemed to be unlawful. 
 
 Senator Newlands. Apart from that construction, does not the 
 law-making power throw upon the courts a very extraordinary bur- 
 den in calling upon them in their decrees practically to legislate upon 
 the size and the operations of stockholders and managers and 
 directors ? 
 
 Mr. Levy. I do not think so. Courts handle as hard questions as 
 those to-day. They administer big estates, railroad foreclosures, etc. 
 I do not think it is a very formidable question. I think in this case — 
 again with all due deference — that the court exaggerated the diffi- 
 culty. It was great, no doubt, but not insurmountable, particularly 
 if they had put it up to these men, had said to them with all polite- 
 ness, You have gotten together this combination ; you know how 
 you 1 have formed it and how you got it together ; now you must find 
 a way to get it apart." And if you held over their heads the threat 
 of a receivership they would get it apart. The defendants in this 
 case would have established 25 companies or 30 companies instead of 
 4. They would have eliminated stock ownership. 
 
 Senator Newlands. It would have the effect of giving the men 
 who are about to organize a business in a big way — and of course we 
 all agree that within certain limits that is desirable 
 
 Mr. Levy. Yes. 
 
 Senator Newlands. Would it not have the effect of letting them 
 know with certainty the limit to which they can go, and is it not un- 
 fair to turn them over to the varying judgments of different judges 
 in different courts and all the uncertainty of the future regarding 
 this question of size ? 
 
 Mr. Levy. I do not think so. Their consciences will answer. And 
 I think the immediate future is going to take care of itself. 
 
 Senator Newlands. I do not think that a man's conscience is going 
 to tell him that a corporation in which he is interested is in violation 
 of the Sherman law because it has a capitalization of $20,000,000 
 instead of $10,000,000. 
 
 Mr. Levy. I do not mean to be understood that way. It will tell 
 him whether he is oppressing somebody, trying to drive somebody 
 out of business, trying to obtain a monopoly. 
 
 Senator Newlands. Recollect that we have started out on the as- 
 sumption that the mere size, without any obnoxious acts, is not going 
 to be oppressive. 
 
 Mr. Levy. I think the law has been modified in that respect. It 
 is the law to-day. The Supreme Court stated it in this tobacco case. 
 The mere size would not be in violation, in the absence of' these op- 
 pressive and other like acts. It must be oppressive and wicked and 
 must be monopolistic. 
 
 Senator Newlands. That is all. 
 
 Senator Brandegee. Let me ask you this, Mr. Le - ' : The so-called 
 Steel Trust stands to-day indicted 
 
 Mr. Levy. No : not indicted. A bill has been filed against it. 
 
 Senator Brandegee. A bill has been filed against it to break it up,, 
 dismember it. on the ground that it violates the Sherma 1 law. 
 
418 HEABINGS BEFOBE 
 
 Mr. Levy. Yes, sir. 
 
 Senator Beandegee. Suppose all the independent companies in the 
 same business to-day should cast about to get additional capital to go 
 into a combine, claiming that they did not intend to combine to stifle 
 competition or to restrain trade, but did intend to combine to compete 
 more effectively with the Steel Trust; and they should get their plants 
 and their large capital and proceed to turn over a great variety of 
 plants to corporations in the different States, mines and transporta- 
 tion instrumentalities, and manufacturing plants, and should take 
 their proposition to the best lawyers they could employ, with a view 
 to finding out whether they were liable to be proceeded against by 
 the Government and restrained from operation on the ground that 
 they were in violation of law — do you not think there would be a 
 diversity of opinion among the best lawyers of the country as to 
 whether they could safely embark in an enterprise of that kind ? 
 
 Mr. Levy. The proposition being that all the outside opposition of 
 the steel business should come together? 
 
 Senator Beandegee. That they should unite and make a powerful 
 competitor of the present trust. I simply cite that as a case. 
 
 Mr. Levy. I would say that if their volume of business approached 
 a monopoly, then they would to that extent violate the second section 
 of the Sherman law. Your question states everything to be in future. 
 If I was their adviser and they were not going to do anything oppres- 
 sive, etc., I should say to them, " You are free to go ahead. Go 
 right ahead." 
 
 Senator Brandegee. Do you think, now, irrespective of what your 
 personal opinion may be — do you think that the minds of the best 
 lawyers in the country would meet on that question ? Do you think ' 
 they would get the same opinion from a dozen of the leading corpora- 
 tion lawyers of the country? 
 
 Mr. Levy. They have had experiences of their own, and they gen- 
 erally rely on the Knight case. Often their personal advantage has 
 lain in another direction than that of a sincere opinion on this law. 
 
 Senator Beandegee. If the lawyers have not been able to think 
 clearly about it, because they have been on a false scent, by false inter- 
 pretation or a correct interpretation of the Knight case, do you not 
 think it would be quite natural that the minds of the business men of 
 the country would be somewhat confused ? 
 
 Mr. Levy. I do not think so. Usually when a man doubts he is 
 likely to be in the wrong. That is rather a flippant way to put it, 
 though I do not mean it to be such. If men -are acting fairly and 
 squarely in the case such as you put and it is not their intention to 
 drive anybody out of business they will scarcely need to get a lawyer. 
 When they are in doubt, they may be pretty sure that they are in the 
 wrong. 
 
 Senator Beandegee. Supposing a person of large capital starts out 
 to-day to get capital to associate with him, procuring from whomso- 
 ever he may be able to convince that there is an opportunity for profit- 
 able employment if they will combine their capital in launching out 
 extensively into a great industry invloving commerce among the 
 States. The original promoter of the scheme may have the best pur- 
 pose and intent and not intend anything unethical or to drive any- 
 body out of business except to get enough business to make his cor- 
 poration successful; in other words, to compete. When he gets his 
 
COMMITTEE ON INTERSTATE COMMERCE. 419 
 
 ideas crystallized in the form of a charter and the capital paid in so 
 that the corporation may be said to have been formed, the intent of 
 the, combination directorate is not so simple as. the intent of his orig- 
 inal conception, the conception of the single mind. - Now, how is a 
 man to satisfy these people whom he has asked to cooperate with him 
 and to put in their money and take shares in the common enterprise 
 .. represented by stock that the business is legal and safe? 
 
 Mr. Levy. I would say with the state of mind that has existed for 
 the last two or three years, that it would be pretty difficult for him to 
 do that. For the reason that unnecessary alarm has been spread 
 around on the subject. There are many honest well-meaning men 
 who are honestly alarmed where they need not be, It is due to the 
 confusion created by newspapers and by the general talk on this sub- 
 ject. When you sift it down, you will find that in every instance 
 where a trust has been attacked there has been present in it some defi- 
 nite concrete act of wrongdoing. 
 
 Senator Brandegee. The concrete situation at present is that the 
 minds of the business men and the minds of the lawyers of the 
 country are in confusion and in a state of unrest; is not that your 
 opinion on this question ? 
 
 Mr. Levy. Not rightfully, but I think it is. To answer your ques- 
 tion fairly, I think it is. 
 
 Senator Brandegee. Looking the situation squarely in the face? 
 
 Mr. Lev r. Yes, sir ; whether or not it ought to be, it is a fact. 
 
 Senator Brandegee. And this committee stands charged by the 
 Senate with the duty of investigating and reporting whether in our 
 opinion further legislation is necessary upon this question of inter- 
 state corporations. I judge, to boil your views down and frame them 
 in one sentence, that you would advise the committee that further 
 legislation was not necessary, would you not ? 
 
 Mr. Levy. Yes, absolutely; with some modifications like Senator 
 Newlands has suggested. 
 
 Senator Brandegee. Senator Newlands has suggested that the 
 Bureau of Corporations should be made more independent. 
 
 Mr. Levy. Yes. That is more a matter of detail than of substance. 
 
 Senator Brandegee. He has suggested the merging of it into a new 
 corporation independent of the dictation or influence of any de- 
 partment. 
 
 Mr. Levy. Yes, sir. 
 
 Senator Brandegee. That is all. 
 
 Senator Pomerene. Mr. Levy, I take it, that it is your judgment 
 that if the organizers and promoters of the American Tobacco Co. 
 had honestly stated to their lawyers what, they intended to do under 
 its organization, that those lawyers would have had very little diffi- 
 culty in advising them whether the acts which they had intended to 
 do were a violation of law? 
 
 Mr. Levy. Unquestionably. 
 
 Senator Pomerene. So that if the lawyers were fully advised, 
 then they are to blame for the predicament into which the American 
 Tobacco Co. has gotten itself? 
 
 Mr. Levy. I would say so without any doubt. 
 
 Senator Pomerene. And if they were not fully advised, then the 
 clients are themselves to blame? 
 
420 HEARINGS BEFORE 
 
 Mr. Levy. Quite so. T think the decision of the Supreme Court 
 makes that clear, because it does not leave the question of legality in 
 any uncertainty, and it decided the case on the undisputed facts 
 which to a lawyer appeals very strongly. Everything in controversy 
 was set aside. Only that which was conceded was made the basis of 
 the decision. 
 
 The Acting Chairman. Of course, there are many cases in which 
 the law is perfectly clear, where an honest man would see that his case 
 is either in violation of law or it is not; but you say that there are 
 not many instances in wh.'ch there would be great differences of 
 opinion with regard to the validity or legality of a particular cor- 
 poration or combination? 
 
 Mr. Levy. Not if it is approached with an open mind. 
 
 The Acting Chairman. You have been very familiar with the law ; 
 you have helped to enforce it and have studied it deeply. You have 
 suggested here that from your knowledge of the situation the United 
 States Steel Corporation is not in violation of the law ? 
 
 Mr. Levy. Except in a narrow and technical sense, provided those 
 two features are eliminated; that is, the ore leases and the transpor- 
 tation rates question. 
 
 The Acting Chairman. But evidently the Attorney General, who 
 has studied the question, thinks otherwise. 
 
 Mr. Levy. I do not think he wrote that bill. That, however, I 
 would not like to go on the record. 
 
 The Acting Chairman. Whoever is responsible for it thinks other- 
 wise. 
 
 Mr. Levy. It is astonishingly contradictory to what he has done 
 here. 
 
 The Acting Ch urman. There are a great many people who believe 
 that the United States Steel Corporation is in violation of law, are 
 there not? 
 
 Mr. Levy. I have never heard it agitated. It has generally been 
 regarded as a harmless combination. 
 
 The Acting Chairman. I have heard it held up as the sum of all 
 villainies for years yast. 
 
 Mr. Levy. That is news to me. 
 
 Senator Newlands. On the question of capitalization it has been 
 the subject of severe criticism, has it not? 
 
 Mr. Levy. That is another question. Economists might pause 
 before such a huge aggregation of capital. It might be turned into 
 the wrong channels. 
 
 The Acting Chairman. The United States Steel Corporation pro- 
 duces one-half, I think, of the product of that industry, does it not ? 
 
 Mr. Levy. A little over half. 
 
 The Acting Chairman. Not much more ? 
 
 Mr. Levy. Fifty-six per cent, I think. 
 
 The Acting Chairman. Possibly 53 per cent ? 
 
 Mr. Levy. That is what I read this morning. 
 
 The Acting Chairman. That is not material. It is somewhere 
 between 50 and 60 per cent of the total output. 
 
 Mr. Levy. Fifty- four and three-tenths per cent. 
 
 The Acting Chairman. If you had been the Attorney General, 
 would you not have advised the prosecution of that suit? 
 
COMMITTEE ON INTERSTATE 'COMMERCE. 421 
 
 Mr. Levy. Not unless there were some facts that were not disclosed. 
 I think I should have asked for an abrogation of that ore lease, and 
 a change of their transportation charges. They own many railroads, 
 and I am told make discriminating rates against their competitors. 
 
 The Acting Chairman. If that is an interstate matter, the railroad 
 company that discriminates is subject to proceedings by the Inter- 
 state Commerce Commission 
 
 Mr. Levy. Yes, sir. Except for those two features I would say 
 that I would not have filed that bill. 
 
 The Acting Chairman. The very fact illustrates how easy it is for 
 men who have given great study to the law to reach different con- 
 clusions. 
 
 Mr. Levy. Well, unless they are animated by different objects. 
 
 The Acting Chairman. We will assume that the United States 
 Steel Corporation produces about 56 per cent of the total output of 
 that field of industry. Now, suppose that some other great figure in 
 the financial world, who could bring such capital to his aid as Mr. 
 Morgan, in looking over the field, and seeing the immense profit that 
 has been made by the United States Steel Corporation, and attribut- 
 ing those profits to doing business in a large way. should come to the 
 conclusion that he would like to imitate that example, and having 
 organized a company with a billion and a half capital, or something 
 like that, would proceed to buy all the outstanding or existing inde- 
 pendent plants, in order to do business, and to compete with the 
 United States Steel Corporation, if I understood you aright, it is 
 your opinion that the transaction would be entirely innocent and 
 legal ? 
 
 Mr. Levy. Except in a very narrow sense, for all practical pur- 
 poses I would so regard it. 
 
 The Acting Chairman. What is the narrow sense in which it 
 would be unlawful? 
 
 Mr. Levy. It might be an attempt to monopolize, because they 
 have such a great possibility. 
 
 The Acting Chairman. Do you think that a company with a com- 
 petitor like the United States Steel Corporation in existence could 
 entertain the hope of monopolizing the business ? 
 
 Mr. Levy. No, sir. I would even withdraw that limitation — where 
 the entire trade was engrossed by two gigantic trusts. 
 
 The Acting Chairman. So that under the operation of the anti- 
 trust law we will have this situation: The United States Steel Cor- 
 poration doing half the business, and another corporation of similar 
 size doing the other half of the business. 
 
 Mr. Levy. Where is the harm in that? 
 
 The Acting Chairman. And that would be, economically and 
 legally, also a condition that could not be interfered with by the 
 State law? 
 
 Mr. Levy. And no harm would happen. 
 
 The Acting Chairman. What do you mean by harm ? 
 
 Mr. Levy. Until they began to violate the Sherman law affirma- 
 tively, competitors would spring up. as they do in other businesses. 
 Tf they should hurt any of them as result of an unlawful agreement, 
 then they would violate the first section. 
 
 The Acting Chairman. If it is true that a company like the 
 United States Steel Corporation can manufacture its products for 
 
422 HEAEINGS BEFORE 
 
 $2, $3, or $4 a ton less than its smaller competitors it would be true 
 that the other large corporation, having gathered in all the outstand- 
 ing plants, could also manufacture its products for a similar sum 
 less than the smaller plants could do it. Do you think there would 
 be any likelihood of competition springing up against those two 
 aggregations ? 
 
 Mr. Levy. "Well, I would answer that, first, by saying that competi- 
 tion would spring up between the two big combinations themselves, 
 or else they would violate the Sherman law. 
 
 The Acting Chairman. Then the safety of the people who deal or 
 might deal with those immense corporations would depend entirely 
 upon the fact of real competition between them ? 
 
 Mr. Levy. Of course, always granting 
 
 The Acting Chairman. And if they could have an understanding 
 between themselves that could not be reached or discovered by the 
 Government, there would be no remedy for the people of the country? 
 
 Mr. Levy. They could not have such an agreement and not be 
 discovered, because if uniform prices were maintained a statistician 
 and the grand jury would find it out in a week. 
 
 The Acting Chairman. You mean, if the Government found that 
 the commodities were being sold at too high a price that it would 
 accept that fact as evidence of a conspiracy or combination between 
 them? 
 
 Mr. Levy. No, sir ; that would be the starting point for the grand 
 jury to act. It would also be a signal for the competitors to come in. 
 
 The Acting Chairman. You do not think there is any competition 
 between the United States Steel Corporation and all the other con- 
 cerns doing a like business, do you? 
 
 Mr. Levy. I have not knowledge enough to answer that. My 
 knowledge is limited to reading the reports of the bureau and the bill 
 filed and what I have read in the newspapers. Otherwise I have not 
 the smallest idea of the business. I have also read the law cases that 
 have figured in the matter. 
 
 The Acting Chairman. If that situation should come about law- 
 fully, I think the people generally throughout the country would be 
 very much of the opinion that we should do something. 
 
 Mr. Levy. It could not come about, just as none of these combina- 
 tions could have grown up except by resorting to affirmatively oppres- 
 sive practices. 
 
 The Acting Chairman. What oppressive practices did the United 
 States Steel Corporation exercise in the formation of its organiza- 
 tion? 
 
 Mr. Levy. It has not suppressed competition like the oil and 
 tobacco trusts. 
 
 The Acting Chairman. I am not speaking of that feature. But 
 you are of the opinion that if these two great colossal forces that I 
 have described should agree between themselves upon prices so as to 
 destroy competition the people of this country would have no relief? 
 
 Mr. Levy. It could not spring up. It could not be. Of course a 
 hypothesis of that kind — I ought not to say that your hypothesis is 
 impossible, because any hypothesis is assumed to be possible. But it 
 could not be. Trade conditions would not permit. One of them 
 would break away. It never has been done. 
 
 The Acting Chairman. It has been done once. 
 
COMMITTEE ON INTERSTATE COMMERCE. 423 
 
 Mr. Levy. When? 
 
 The Acting Chairman. The United States Steel Corporation. 
 
 Mr. Levy. With all the independent companies? 
 
 The Acting Chairman. It bought up all it wanted to buy up. 
 
 Mr. Levy. They represented 40 per cent at that time, and that 40 
 per cent began to grow immediately, and the independents have 
 steadily increased in power, and the combination has steadily de- 
 creased in power. 
 
 The Acting Chairman. You think it would not be possible for 
 some other financial instrumentality to buy up all that remain and 
 transfer their property to a single corporation ? 
 
 Mr. Levy. That would be possible, but it would not be possible for 
 any harm to come from that without at once violating the Sherman 
 law and making it a crime. If their prices were in violation of law, 
 or if they drove out .a competitor, the Sherman law would be effective 
 at once. 
 
 The Acting Chairman. But the very fact that they buy up the 
 concerns, buy up a plant that was in business or a dozen plants, that 
 would in a sense reduce the number of competitors ; although it might 
 not reduce the competition. 
 
 Mr. Levy. Certainly. 
 
 The Acting Chairman. And before that the competition which 
 had existed between two such concerns, embracing a capitalization of 
 something like $3,000,000,000, would be of the kind that the people 
 need in order to protect themselves against high prices, unduly high 
 prices ? 
 
 Mr. Levy. You mean they would not compete with each other? 
 
 The Acting Chairman. I mean that they might compete with each 
 other, but I take it that the competition would not be very severe. 
 
 Mr. Levy. If it is not, that means that they would keep up the 
 price so as to make a better price, as the result of a secret understand- 
 ing. 
 
 The Acting Chairman. But if they had no secret understanding 
 they simply do it in order to make all the money they can. 
 
 Mr. Levy. Then in the course of trade a little competitor would 
 spring up here and there; and if they tried to crowd them out, then 
 the Sherman law would interfere. 
 
 The Acting Chairman. It is a common report that the United 
 States Steel Corporation has been compelled to hold up the prices 
 of its commodities in order to keep its competitors alive. 
 
 Mr. Levy. That I do npt know enough about to refer to. If they 
 do that to a degree making it harmful to anybody, it ought to be re- 
 pressed. 
 
 The Acting Chairman. It would do that without any conspiracy 
 or agreement or combination with any other corporation. It would 
 simply do it because it wanted these competitors in existence. 
 
 Mr. Levy. Why should it want that ? 
 
 The Acting Chairman. I suppose to prevent the suit that has now 
 been brought against it ; in order to relieve itself of the odium which 
 the American Tobacco Co. and the Standard Oil Co. have incurred. 
 
 Mr. Levy. But. Senator, the odium that the Ooil Co. and the To- 
 bacco Co. have incurred has been based entirely upon a different 
 state of facts. The Oil Co. in the seventies started blowing up 
 
424 HEARINGS BEFORE 
 
 opposition refineries with, dynamite. And then they had that agree- 
 ment with the Erie Kailroad. Are you familiar with the record in 
 that case, where they got a rebate on their own shipments and a 
 corresponding drawback on their competitors' shipments? But the 
 Steel Co. does not do that. 
 
 The Acting Chairman. Mr. Levy, the committee thanks you for 
 your attendance here to-day. 
 
 (Mr. Levy was thereupon excused.) 
 
 The Acting Chairman. The hour of adjournment haying arrived, 
 if there be no objection, the committee will adjourn until to-morrow 
 morning at half past 10. 
 
 Thereupon, at 4.35 p. m., the committee adjourned until to-morrow, 
 Wednesday, November 22, 1911, at 10.30 a. m. 
 
 wednesday, november 22, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce. 
 
 Washington., B.C. 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Brandegee, Town- 
 send, Newlands, and Pomerene. 
 
 The Chairman. Gentlemen, the committee will come to order. 
 Mr. Hay will be heard. 
 
 STATEMENT 0E EUGENE G. HAY, OF NEW YORK. 
 
 The Chairman. Please give your full name, residence, and occu- 
 pation to the stenographers. 
 
 Mr. Hay. Eugene G. Hay is my name. My residence is Summit, 
 N. J. ; that is my place of abode. I have always held my legal resi- 
 dence in Minnesota. My present occupation is that of a member of 
 the Board of United States General Appraisers. Our jurisdiction 
 is of all ports, but our offices are in New York. 
 
 The Chairman. You may proceed. 
 
 Mr. Hay. I do not know that any explanation or excuse of any 
 kind is necessary for one's being here. I have no doubt every gen- 
 tleman who accepts your chairman's invitation to come before you 
 hopes to add something to the sum of wisdom on the subject. It 
 happened that I was United States district attorney at the time of 
 the passage of the so-called Sherman law, the antitrust law. It fell 
 to my lot, as a part of my official duties, to prepare and try one of 
 the earlier indictments under that law, and I have watched with a 
 great deal of interest all the litigation since. That earlier study of 
 the law prompted and stimulated me to a study of the questions that 
 are embraced within your inquiry, stimulated me in a general way 
 as a lawyer and as a student. 
 
 I have prepared a memorandum of what I care to say to the com- 
 mittee, and unless it is not in order I would like to adhere closely to 
 
COMMITTEE ON INTERSTATE COMMERCE. 425 
 
 it. I have no objection to being interrupted, as I would just as leave 
 be asked any question Senators may desire to ask me at one time as 
 at another, but for purposes of exactness and brevity, I should like to 
 adhere fairly closely to the memorandum that I have prepared. 
 
 The first thought that had come to my mind I was more or less dis- 
 abused of the necessity of suggesting at all by the inquiries by the 
 members of the committee on yesterday to the gentleman on the stand. 
 That thought isthat I have been impressed by all that has been writ- 
 ten and said in the newspapers, magazine articles, and public 
 speeches that there was too generally a disposition to confine the in- 
 quiry as to the effect of both present laws and proposed legislation, 
 to what is or would be their effect upon business. As I say, the in- 
 quiries of the Senators yesterday left the impression with me that 
 that did not prevail here. It seems to me that there are considerations 
 of importance before that. Regarding any legislation and the effect 
 of any law, the first thing to be considered by anyone proposing the 
 law, a Congressman or a citizen, is what will be its effect upon our 
 institutions, upon the fundamental principles that underlie our form 
 of government. And, next, its effect upon the interests of the people 
 en masse and individually ; and the effect upon business stability and 
 prosperity, although of very great importance should come after- 
 wards. Any legislation that is destructive of, or affects in any way 
 detrimentally, the institutions of our country, or affects for ill the 
 people of the country, is unwise legislation, even if it will stimulato 
 and improve business. 
 
 The fact that you gentlemen are making this inquiry, perhaps es- 
 tablishes the general fact that there is something wrong with com- 
 mercial conditions. The very fact of your inquiring about it indicates 
 that. 
 
 I believe that most of the political troubles that we have had in 
 the last 40 years have grown out of the same source — the Granger 
 movement, the Greenback and the free silver agitation, the Populist 
 Party, the war against the boss in politics, the election reforms, the 
 recall and the referendum, were and are, all of them, attempts on 
 the part of those who advocate them, who believe in them, to alleviate 
 the conditions of the great mass of the people. All of these political 
 movements have, it seems to me, as I have watched them through the 
 years that they have flourished, simply scratched the surface of 
 things and have not gone deep enough to find the source. 
 
 It was apparent that the great mass of people did not have their 
 share in the country's wealth, nor even in the wealth that their indus- 
 try and their energy produced. Hence it has at various times been 
 proposed to print more greenbacks, coin more silver, organize the 
 masses against the classes, drive the boss out of politics, bring the 
 Government nearer to the people — all for the purpose of relieving 
 an evil condition that was perfectly apparent but without, as I be- 
 lieve, fully understanding or at least appreciating the cause. 
 
 Sometimes I think, too, we have lost sight of ideals. The great 
 ideal that underlies our form of government is the equality of op- 
 portunity. For the first hundred years of our country's life politi- 
 cal economists believe that we were realizing that great ideal, but 
 a study of public events for the last 25 years will, I believe, dis- 
 close that that ideal has been day by day and year by year slipping 
 away from us. The consensus of opinion is now centering upon the 
 
426 HEABINGS BEFOBE 
 
 belief that the institution that we call the trust has worked the dis- 
 integration of that ideal. 
 
 Definitions are important. I should define a trust as a corpora- 
 tion which controlled a large part of any given industry. In the 
 indictment that I had occasion to try as district attorney the court 
 held that it must control nearly all. That is not now the law, nor 
 the sense in which we generally use the word. I would say that an 
 embryo trust is, therefore, a corporation capable of becoming a 
 trust — that is, a corporation with chartered powers which renders 
 it capable of absorbing all or a large part of the commerce of the 
 country in any given line or in all lines. Any remedy; to be effective 
 must go back in its application to the source of the evil. 
 
 In what I consider to be an exceedingly masterful address, deliv- 
 ered by the president of the American Bar Association at its last 
 annual meeting in Boston, the source of that evil is accurately and 
 completely revealed, and with your permission I would like to read 
 a page or two from that address. 
 
 Mr. Farrar, the president of the association, after referring to the 
 general work 
 
 Senator Brandegee. Who is the president? 
 
 Mr. Hat. Mr. Farrar — Edgar H. Farrar, of New Orleans — he is 
 
 not president now; he retired at that meeting and Mr. , of 
 
 Chicago, was elected. I can not now recall his name. [Reading :] 
 
 By a short review of the corporation laws of this country I shall demonstrate 
 that the people themselves are responsible for the conditions of which they 
 now complain ; that if there are Franken steins in corporate form stalking over 
 the land, spreading terror and threatening destruction, the people themselves 
 have created them by their duly accredited representatives in the legislatures 
 of the States. 
 
 In 40 States corporations may be organized for any lawful business or purpose. 
 
 In 41 States there is no superior limit on the capital stock of a corporation. 
 In only 11 States is there an inferior limit ranging from $1,000 to $10,000. 
 
 In 24 States perpetual charters are permitted, and in most of the others 
 charters limited as to time may be renewed again and again. 
 
 In 17 States the merger or consolidation of corporations is specially per- 
 mitted. It is specially prohibited in only 2 States. 
 
 In 19 States the power to hold stock in other corporations is broadly given. 
 It is specially prohibited in only 2 and given under restrictions in 7. 
 
 In 39 States there is no provision that any part of the capital stock shall be 
 paid in money either before the corporation becomes a going concern or at any 
 period in its history. One State provides for the payment of $1,000 in money, 
 3 provide that 10 per cent, 1 that 20 per cent, 1 that 25 per cent, and 1 that 50 
 per cent of the capital stock shall be so paid. 
 
 In 38 States, by statute, and in 3 by jurisprudence, it is provided that 
 stock may be issued for property, and in most of them for labor or services as 
 well. In only 14 States is the issue of fictitious stock declared void. In 9 
 States the judgment of the board of directors as to the value of the property 
 for which stock is issued is declared conclusive, except in case of actual fraud: 
 but the stock is not declared void. In Montana any arbitrary value whatever 
 may be placed on a mine for which stock is issued. In Iowa, Massachusetts, 
 Texas, and Virginia only is any State supervision exercised over the issuance 
 of stock for property. 
 
 In 21 States corporate meetings may be held either within or without the 
 State of incorporation. 
 
 Annual financial reports are required to be made to a State officer ia 11 
 States. In 18 States is required an annual report containing nothing but certain 
 formal matters, such as the name and domicile of the company, the names and 
 residences of officers, and the amount of capital stock. 
 
 In none of the States is any provision made against the same persons acting 
 as directors in corporations of the same character and engaged in the same 
 business. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 427 
 
 111 32 States there are no provisions requiring any of the directors of a 
 corporation to be residents of the creating State. Eleven States require one 
 director, two States three directors, and two States a majority of the directors 
 to be residents of the State. 
 
 During the last 10 years there seems to have been a competition between the 
 States as to which of them would be able to invent and adopt the most un- 
 restricted corporation laws. The spur to this competition has been a greed for 
 revenue, and the encouragement lay in the success of the State of New Jersey, 
 which was the pioneer in this legislation Out of her bosom have come the great 
 trusts, the holding companies, and the gigantic monopolies, all with their water- 
 logged capital stocks. But there are now eight other States prepared to compete 
 with her in the launching of similar piratical craft upon the sea of commerce. 
 
 The corporation laws of the United States, for the incorporation of com- 
 panies in the District of Columbia, and the national banking laws contain 
 many of the objectionable features of the State incorporation laws. 
 
 In the District of Columbia a corporation without limit as to capital stock, 
 and without limit as to corporate existence, may be formed for any enterprise 
 or business which may be lawfully conducted by an individual, except to buy, 
 sell, or deal in real estate. The power to consolidate with other companies is 
 not given, and the holding of stock in other corporations is prohibited ; and here, 
 too, there is an absence of prohibition against the identity of directors or officers 
 of corporations of the same character, and against the holding of their stocks 
 by other corporations. 
 
 Under the national banking laws there is no limit to the capital stock. 
 Corporate life is for 20 years, but may be renewed an indefinite number of times. 
 National banks can not hold stock in other corporations, but there is no pro- 
 vision against other corporations holding stock in national banks, and no 
 provision against the identity of the directors in two or more banks. Merger 
 or consolidation of banks is not provided for. 
 
 It thus appears that hy the law of the land there stands prepared all the 
 legal machinery apt to the hands of tfle unscrupulous to create combinations 
 and monopoly, to concentrate wealth and power in a few hands, and to defraud 
 the unthinking investor with wind-blown stock. 
 
 In New York, under whose laws a perpetual corporation with unlimited 
 capital stock, with the power of merger, and with the power to hold stock in 
 other corporations, can be formed for any lawful purpose or purposes, except 
 to practice law, or to employ attorneys to perform legal services, they have 
 begun to incorporate estates. If this is lawful there, it must also be lawful 
 under the statutes of many other States whose laws are similar. Is not this 
 a form of mortmain contrary to the fundamental principles of Anglo-Saxon 
 government? How will it stand with the Republic in a generation from now 
 if the estates of all the millionaires and multimillionaires are perpetually 
 incorporated? 
 
 In some of the agricultural States great planting companies are organized, 
 which absorb farm after farm, until their land holdings approach a principality 
 in extent. How can that firmest foundation of free government, a land-owning 
 yeomanry, exist under such conditions? Down into the hearts of all English- 
 speaking people have sunk the picture of The Deserted Village, and the words 
 of its author pronouncing accursed the land "where wealth accumulates and 
 men decay." , ... 
 
 Under the power to create corporations with unlimited capital stock, either 
 directly or by consolidation, great aggregations of capital have been formed 
 which have seized upon specific industries and driven everybody else out of 
 them. They stand like armed colossusses astride the gateways of commerce 
 and destroy every entrant who presumes to compete with them. They have no 
 legal grant of monopoly, but monopoly comes to them by virtue of their size, 
 organization, and strength, just as surely as monopoly went to the Bast India 
 Co. by royal grant. 
 
 I read this for the purpose of showing what seems to me to be 
 the source of whatever evil grows out of the trusts. It is the extra 
 charter powers that have been given to corporations by the States. 
 
 The ideal remedy for such a condition would be for the States to 
 reform their corporation laws. I may say that is the remedy that 
 Mr. Farrar suggested in his address, and he goes on to show at 
 considerable length what may be done by invoking a provision of our 
 
428 HEARINGS BEFOBE 
 
 constitution which has, perhaps, seldom been invoked. But the 
 practical possibilities of this seem to me to be remote. It was the 
 very fact that there was no possibility of concordant action among 
 the colonies that brought about the formation of the Federal Union. 
 There is certainly no more probability of 48 States acting in har- 
 mony than there was of 13 Colonies. Forty-eight States never could 
 and never would all reform their corporation laws, as is evident 
 from the effort for a uniform divorce law, that has been going on 
 ever since the American Bar Association was organized. Almost • 
 from its beginning it has sought to bring about that condition, but 
 the results have come very slowly. 
 
 Now, I have gone through, thus far, this preliminary — possibly 
 unnecessary preliminary — statement for the purpose of making what 
 seems to me a practical suggestion. 
 
 Logically one or the other of three policies must of necessity, it 
 seems to me, be adopted, either by affirmative legislation or by drift- 
 ing into it. I think everyone will sympathize with the demand of 
 business for some definite knowledge as to what is the policy of the 
 National Government toward corporations, toward trusts, toward 
 big business. For, while these trusts are rendered possible by the , 
 charter powers given to corporations by the several States, and hence 
 the States are responsible for their existence, the Federal Govern- 
 ment is not without responsibility for their growth. 
 
 The antitrust law was passed during the administration of Presi- 
 dent Harrison, and the Departmenfof Justice immediately sought to ; 
 put the law in force. I speak advisedly, because I was connected 
 with the department at that time. But for the two succeeding admin- 
 istrations, the administrations between those of Harrison. and Roose- 
 velt, the law was permitted to fall into desuetude. In a recent able 
 article by a professor in Columbia College, whose name does not occur 
 to me right now 
 
 Senator Cummins. Prof. Saeger, is it not? 
 
 Mr. Hay. I think it is. He includes Harrison's administration as 
 one of those, or criticizes the three administrations for failure to en- 
 force the law, or rather lays the blame upon this failure for ths 
 present conditions. I think he is mistaken in regard to the Harrison 
 administration ; in fact, I know he is. I can not at this moment recall 
 any conversation that I ever had with President Harrison on the 
 subject, but I know from general conversations with him, and from 
 his public expressions, that he was in sympathy with this law, and I 
 know that the Department of Justice did enter into the work of 
 enforcing it. 
 
 One thing the professor loses sight of — and what I have said with 
 reference to the succeeding administrations may be construed as a 
 criticism, which I do not intend, if I do not mention this — was the 
 condition of those times. 
 
 In the first place, public sentiment had not crystallized in favor of 
 that legislation. It is true, I think, that the law was passed re- 
 sponsive to a general public sentiment, responsive to a public senti- 
 ment that found voice in the Republican platform of 1888, but that 
 public sentiment had not definitely settled upon the trusts as the one 
 great danger that the country was threatened with, and that public 
 sentiment favored a vigorous enforcement of that law, can not be 
 said. 
 
COMMITTEE OX INTERSTATE COMMERCE. 429 
 
 Another thing, there was no machinery at hand to enforce it; 
 there was no Department of Commerce and Labor; there was no 
 Bureau of Corporations; there was no inspectors available for the 
 Department of Justice to investigate with reference to trusts. The 
 Assistant Attorneys General were very limited in that day. A dis- 
 trict attorney received the munificent salary of $200 a year. His com- 
 pensation came from fees; and the customary docket fee for the 
 trial of a case was $20, to which the court might add $30 in case of 
 conviction upon a jury trial. The Attorney General had available 
 for the employment of special counsel in all classes of litigation 
 throughout the country an appropriation of only $5,000 a year at 
 that tune. So that the enforcement or nonenforcement of the law 
 during the earlier years of its existance must be considered in the 
 light of those conditions rather than in the light of present-day 
 conditions. 
 
 But, by the failure to enforce the law, the Government, as such, 
 without criticizing any department of it, is in some measure responsi- 
 ble for the great growth of the trusts, and that fact should, I think, 
 be taken into consideration in connection with any remedy that 
 might be suggested. 
 
 Now, the three courses which seem to me logically possible for our 
 Government to follow relative to the trusts are : First, let them alone 
 to work out their own destiny. Second, foster and control them. 
 Third, prohibit and destroy them. One or the other of these courses 
 is a necessity, and whatever may be the legislation upon the subject, 
 the logic of the situation will eventually drift the Nation into one 
 or the other of these policies. 
 
 In my judgment the first policy is economically unsound. Society, 
 drawn together in that concrete form we call government, should, in 
 a certain sense, have a monopoly of organization. Those things 
 which the Government does not undertake to do should be performed 
 as largely as possible by the individual. Commerce is one of those. 
 Not but what men may properly group themselves together either in 
 copartnerships or in corporations for the conduct of business : but it 
 •is economically unsound to permit any association of men to exist 
 that have in the form of their association the possibilities of becoming 
 more powerful than the government which society has ordained. 
 
 The second policy, to foster and control the trusts, would, in my 
 judgment, lead, when carried to its logical conclusion, to the disinte- 
 gration of representative democracy. President Taft was absolutely 
 right in one of his western speeches when he said that the abandon- 
 ment of competition leads unerringly to socialism. I heard Senator 
 Cummins say substantially the same thing in a most eloquent speech 
 before the Republican Club in the city of New York last winter. 
 The most minute study of the history of the commerce of the world, 
 from the Phcenecian traders upon the Mediterranean down to the 
 present hour, reveals but two forces that can control that greed and 
 ambition which are the great moving power in commerce. The one 
 is law and the other is competition. 
 
 The theories of socialism are as many as the individuals that hold 
 them. One thing, however, is common to them all. It is that the 
 distribution of the proceeds of labor is a governmental function. 
 That, is, that the individual is nothing; that the community is every- 
 thing ; and whatever wealth is produced by the labor of the individual 
 
430 HEARINGS BEFORE 
 
 becomes the property of the community, to be distributed to all the 
 individuals that compose the community by some authorized agency 
 of the community. The regulation of interstate commerce by laws 
 which 3 either in terms or through a governmental bureau, seeks to 
 establish and compel cooperation, leads therefore unerringly to 
 socialism. Cooperation, except it have the sustaining power of the 
 law, must prove a snare by which capital will more firmly fasten its 
 hold upon labor or will go the way of New Harmony and Brook 
 Farm. 
 
 To foster and control the trusts, therefore, if the control is to be 
 effective, means to go deep into all interstate business, to regulate the 
 capital stock, the wages of employees, and the profits. _ This would 
 be effectually distributing the proceeds of labor, and logically lead us 
 into socialism and change our form of government in fact, if not in 
 name'. Representative democracy, which is the form of government 
 we have established, is based upon individualism; and experience 
 teaches that this can only exist where there is free and open compe- 
 tition. 
 
 All that brings me to what has seemed to me the wisest course and 
 what I believe is the best remedy; and it is because I have believed 
 that that I am here in answer to the invitation of the chairman to 
 present such views as I have. 
 
 The antitrust law I never have looked upon as constructive legisla- 
 tion, or as intended to be so. It is a remedial statute and a penal 
 statute, and as such it impresses me as being about as near perfect as 
 human wits can devise. I might say, I hope without being charged 
 with using too strong language, that I would just as leave, if I was 
 charged with the responsibility, undertake to amend the decalogue, 
 or the commerce clause of the Constitution, which I have always con- 
 sidered the most all-embracing. and comprehensive provision in human 
 law as to amend the antitrust la'w. But this law does not pretend to 
 create anything. It simply prescribes a punishment, a penalty, for 
 certain things. It is remedial purely. 
 
 My suggestion is that Congress, having absolute power over inter- 
 state commerce — for I take it that if anything is settled by the courts 
 it is settled that Congress has absolute power over interstate com- 
 merce. My suggestion is the enactment of a law that would define 
 the charter powers of such corporations as may engage in interstate 
 commerce and prohibit the engaging in interstate commerce of all 
 other corporations. 
 
 In going into detail with reference to any such law, I appreciate 
 the danger and particularly if one is not charged with the responsi- 
 bility, as you gentlemen are and as I am not, of framing a law. But 
 if you will permit me I shall make a few suggestions as to what I 
 think such a law should contain, not with any thought that the sug- 
 gestions I make are perfect or that I would act upon them without 
 giving much more deliberation to them than I have if I were going 
 to prepare a law. 
 
 My suggestion is a law requiring every corporation organized after 
 the passage of the law to file with the Secretary of Commerce and 
 Labor its charter or articles of incorporation, and to secure from that 
 official a certificate which would entitle them to engage in interstate 
 commerce; that this certificate should be issued by the Secretary 
 when, and only when, the charter or articles of incorporation of the 
 
COMMITTEE ON INTERSTATE COMMERCE. 431 
 
 company shall fully describe the business which it is chartered to 
 engage in, and expressly confine its operations to the business so 
 stated, and contain, in addition, the following powers and limita- 
 tions : 
 
 (1) A prohibition against directly or indirectly acquiring or hold- 
 .ag stock in any other corporation, either as owner or bailee, except 
 under circumstances and regulations similar to those under which a 
 national bank may now acquire and hold real estate; that is, such as 
 is acquired in the ordinary course of the legitimate business the cor- 
 poration is chartered to engage in, as in the discharge of a debt or 
 the satisfaction of a judgment, and requiring that stocks thus ac- 
 quired shall be disposed of as soon as possible. 
 
 (2) A prohibition against purchasing, acquiring, or holding, di- 
 rectly or indirectly, either as owner, lessee, or bailee of the plant 
 property of another corporation or any part thereof, except under the 
 same circumstances that it may acquire the stock of another corpo- 
 ration. 
 
 (3) A provision which by direct terms renders ineligible as a 
 director or officer of the corporation any person who is a director, 
 officer, or stockholder in any other corporation engaged in the same 
 line of business, or engaged in any line of business that could be so 
 conducted or managed as to affect the interest of the corporation ap- 
 plying for the certificate. 
 
 (4) A provision requiring that before the corporation can engage 
 in any business at all its capital stock shall be paid in full, either in 
 money or in property of equivalent value. 
 
 (5) A provision which by express terms prohibits the corporation 
 from entering into any contract, agreement, or arrangement with any 
 other corporation, copartnership, or individual which would directly 
 or indirectly interfere with free and open competition. 
 
 (6) A provision requiring that the directors of such corporation, 
 or a majority of them, shall be residents of the State creating the 
 corporation, and that all stockholders' and directors' meetings shall 
 be held within said State. 
 
 This I would apply only to such corporations as are organized 
 after the passage of the law. I would have the law provide fur- 
 ther that every corporation organized within two years preceding 
 the passage of the law should be required within two years there- 
 after to file its charter or articles of incorporation in like manner 
 and secure a like certificate, and that every corporation in existence 
 more than two years prior to the passage of the law should be re- 
 quired within 10 years to file its charter or articles of incorporation 
 in like manner and to secure a like certificate. 
 
 The law should prohibit all corporations not complying with 
 its provisions from engaging in interstate commerce, and affix a se- 
 vere penalty to be enforced against the corporations and also 
 against the officers and directors for violating this prohibition. It 
 should provide further that the certificate, issued by the Secretary 
 of Commerce and labor to any corporation which shall thereafter 
 do any act or engage in any business that is in violation of or in 
 excess of ite charter, shall be, ipso facto, annulled, and said corpora- 
 tion forever thereafter prohibited from engaging in interstate com- 
 merce, and declare invalid and nonenforceable all contracts made in 
 interstate commerce by such corporations. 
 
 22877— vol i—12 28 
 
432 HEAKINGS BEFOKB 
 
 My reason for suggesting the three classes is doubtless apparent, 
 whether sufficient or not, that while I do not believe the courts, not- 
 withstanding the Knight case, are responsible for any misunder- 
 standing on the part of the business world as to what the antitrust 
 law means, I do believe that the States in granting charter 
 powers far beyond and in excess of those recognized by the common 
 law as inhering in a corporation, and the Federal Government, in 
 its failure to enforce for so many years the antitrust law, may have 
 very readily led men to believe and may have caused lawyers, prob- 
 ably, to advise their clients that they could do many things which 
 it is now apparent to you gentlemen, as lawyers, that they could 
 not do. 
 
 In a word, my thought is that the commerce of this country ought 
 to be brought back to a competitive system; that such a law would 
 make this the declared policy of the Government, but that existing 
 business should be given ample time to adjust itself thereto. I would 
 leave the antitrust law unamended, to deal with corporations which 
 may violate its provisions. 
 
 I believe that is all, gentlemen, that I have to say. 
 
 The Chairman. Senator Cummins, you may inquire. 
 
 Senator Cummins. You recognize, I assume, that what you have 
 proposed would either be a very substantial amendment of the anti- 
 trust law or a very substantial addition to it, do you not? 
 
 Mr. Hat. It had not occurred to me that it would necessarily be 
 either. It might be done in the way of independent legislation, 
 might it not? 
 
 Senator Cummins. I am not discriminating between the changes 
 that are effected by independent legislation and the changes that 
 might be effected by modifying the law itself. But what you have 
 proposed would make a great difference in the application of the 
 laws of the United States to business? 
 
 Mr. Hay. I do. 
 
 Senator Cummins. And, therefore, you are not one of those who 
 think the situation should be left as it is ? 
 
 Mr. Hay. Absolutely not. 
 
 Senator Cummins. You have expressed the opinion that the anti- 
 trust law in its present form is easily understood and that honest 
 and intelligent men ought not to reach different conclusions in respect 
 to its application to a given state of facts ? 
 
 Mr. Hay. I did not put it quite that way. 
 
 Senator Cummins. Is that what you meant? 
 
 Mr. Hay. What I meant is that the language of the law could be 
 scarcely improved upon. I can conceive how honest and intelligent 
 men may differ with reference to the construction of any human 
 language, Senator. 
 
 Senator Cummins. I refer now especially to the first section of the 
 law, in which there is a prohibition against the restraint of trade or 
 commerce. Do you think that there is very much concurrence of 
 opinion with regard to what are restraints of commerce or business ? 
 
 Mr. Hay. I do not. 
 
 Senator Cummins. The Supreme Court has recently declared that 
 the restraints of trade or commerce, brought about in the way the 
 statute prescribes that are forbidden or made unlawful, are undue 
 or unreasonable restraints of trade or commerce. Is it not clear that 
 
COMMITTEE ON INTERSTATE COMMERCE. 433 
 
 that interpretation of the law, of which I do not complain, renders 
 the subject still more vague and uncertain? 
 
 Mr. Hat. I would say it rendered litigation more necessary. 
 
 Senator Cummins. Do you not believe that your view, sitting as a 
 judge, of what constitutes an unreasonable restraint of trade — by 
 which I assume there is meant some restraint of trade that is inju- 
 rious to the public welfare — might be very different from my view 
 of what would injuriously affect the public welfare? 
 
 Mr. Hay. Unquestionably. 
 
 Senator Cummins. It is true, is it not, that when any judge comes 
 to consider a question of that kind he would necessarily be influenced 
 by the trend or direction of his thought upon these economic prob- 
 lems ? 
 
 Mr. Hay. Quite so; and also by the conditions of the times, I 
 would say. 
 
 Senator Cummins. Therefore is it not obvious that, with respect 
 to very many agreements or combinations which are alleged to be 
 in restraint of trade, their lawfulness must remain unsettled, unde- 
 termined, unknown until the particular agreement or combination 
 reaches the Supreme Court of the United States and is there passed 
 upon? 
 
 Mr. Hay. Unquestionably so. 
 
 Senator Cummins. Do you believe that that constitutes a suf- 
 ficiently safe or certain guide for men in business affairs? 
 
 Mr. Hay. No ; I do not. But I do not believe that any remedial 
 statute can constitute a safe or certain guide for men engaged in 
 business affairs. I think there ought to be constructive legislation 
 for that purpose. 
 
 Senator Cummins. Is it not reasonably clear that, with respect 
 to that field in which this doubt may reasonably exist, the Govern- 
 ment ought in some form or other, in some way or other and through 
 some commission or department of its institutions, to advise busi- 
 ness men who propose a certain venture whether it is lawful or 
 unlawful to go forward in the way proposed ? 
 
 Mr. Hay. I would not think that safe governmental policy, I 
 would not think that safe administrative policy, for this reason: 
 Your inquiry awhile ago elicited from me the belief that my judg- 
 ment as to what might be reasonable might be different from yours : 
 the one who is intrusted with that duty to-day might not have the 
 same view as the man intrusted with that duty to-morrow. 
 
 Senator Cummins. When the Government undertakes to condemn 
 a certain thing because it is in restraint of trade and when the opinion 
 of the Government, whether expressed through its judicial depart- 
 ment or its administrative department, must determine whether the 
 business shall be carried on or ought to be carried on in that way, 
 ought we not, for the stability of business, in order that honest men 
 can go on with their affairs, undertake to tell them in advance 
 whether a particular arrangement is unlawful or lawful? 
 
 Mr. Hay. Except by some such legislation, not necessarily the 
 exact legislation as I suggest, I do not think that we should. In 
 other words, Senator — let me make myself clear — I do not believe 
 that it would be possible to say to the business world what restraint 
 of trade would be a reasonable restraint of trade for many reasons, 
 but particularly because that which would be a reasonable restraint. 
 
434 HEARINGS BEFORE 
 
 in one line of business would not be a reasonable one in another, and 
 that which would be reasonable to-day might not be reasonable a 
 year from now. 
 
 Senator Cummins. I concur with your answer entirely, and it 
 seems to me it emphasizes the point I am trying to make instead of 
 weakening it. 
 
 Mr. Hay. Probably so. 
 
 Senator Cummins. Three honest men go into business to-day, and 
 we will assume that according to the thought of this time, the man- 
 ner in which they propose to go into it and conduct it is regarded 
 as a reasonable restraint of trade, if it constitutes any restraint of 
 trade. They go into the business, invest their capital in it, arrange 
 all their affairs with, respect to it, and the common judgment of the 
 country approves what they are doing. Do you think it is fair that 
 next year, or 10 years hence, on account of some change in public in- 
 fluence with respect to what constitutes arrangements that are opposed 
 to the public welfare or are in restraint of trade, that their business 
 should be condemned and taken away from them by a court which 
 had a proceeding final in the case ? 
 
 Mr. Hay. Your inquiry is a little long. Let me see if I follow it. 
 You say that a condition of affairs that exists to-day, entirely justi- 
 fiable under the present situation, became, as a result of changing con- 
 ditions in national life or something else, nonjustifiable — should it be 
 taken away by a court acting under that condition ? 
 
 Senator Cummins. Yes. 
 
 Mr. Hay. I think such a condition is absolutely inevitable in any- 
 thing in the nature of remedial laws. Any attempt to define things 
 very definitely in legislation of that character would seem to me, iri 
 the first place, to leave out a great deal, necessarily ; and, in the next 
 place, go into a labyrinth of detail that would be difficult, if not im- 
 possible, to understand. 
 
 Senator Cummins. You have given some study to the first section 
 of the antitrust law, I am sure. Do you think that a series of cor- 
 porations organized to carry on some kind of business, with com- 
 mon-stock holders, is a violation of that section ? Consider it entirely 
 apart from any oppressive or dishonest practices which these cor- 
 porations might engage in. 
 
 Mr. Hay. I would say if it was in restraint of trade it would be. 
 I should say whether it was a restraint of trade would depend neces- 
 sarily upon the very minute details of the combination. 
 
 Senator Cummins. One of the things, if not the chief thing, that 
 was sought to be accomplished by the antitrust law was to preserve 
 and maintain competition in business. 
 
 Mr. Hay. I think so. It was to prohibit the destruction of com- 
 petition, was it not ? 
 
 Senator Cummins. Very well. That is simply putting it another 
 way. 
 
 Mr. Hay. Because it is a denunciatory statute. 
 
 Senator Cummins. That is another way of putting it. It was to 
 maintain competition by preventing its destruction. The case I have 
 put to you— of a series of corporations which are engaged in a com- 
 petitive business,_with_ common-stock holders, and, therefore, common 
 *ontrol, and an identity of interest in so far as the control is con- 
 ■^rned. I ask your opinion as to whether it would be a restraint of 
 
COMMITTEE ON INTERSTATE COMMERCE. 435 
 
 trade in and of itself condemned by the first section of the anti- 
 trust law ? 
 
 Mr. Hay. It seems to me almost impossible to answer the question 
 without knowing what would be the effect of that combination. I 
 might say that my opinion would incline to the view that the effect 
 of it would be a restraint of trade. 
 
 Senator Cummins. That is, you could hardly conceive that there 
 would be any effective competition between the companies so or- 
 ganized and so owned ? 
 
 Mr. Hay. I could hardly conceive it. 
 
 Senator Cummins. Do you not think that it is the general opinion 
 that, aside from any oppressive or unjust practices, that a combina- 
 tion or a series of combinations so organized, would not be in viola- 
 tion of the first section of the antitrust law ? 
 
 Mr. Hay. I do not know what the general opinion is. 
 
 Senator Cummins. I wish you would read to me again the second 
 requirement that you propose with respect to corporations doing an 
 interstate business. 
 
 Mr. Hay. A prohibition against purchasing, acquiring, or holding, 
 directly or indirectly, either as owner, lessee, or bailee, of the plant 
 or property of another corporation or of any part thereof, except 
 under the circumstances that it may acquire the stock of another 
 corporation, as indicated in the first prohibition. 
 
 Senator Cummins. Now, the power that you propose to invest in 
 the Department of Commerce and Labor has reference only to the 
 form of the organization ? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Cummins. That is, to the articles of incorporation or 
 charter ? 
 
 Mr. Hay. Charter powers and limitations. 
 
 Senator Cummins. Of the corporations so organized. And you do 
 not propose to give to the Department of Commerce and Labor any 
 discretion whatever, do you? 
 
 Mr. Hay. None whatever. The discretion as to whether or not the 
 charter does comply with the substantive provisions of the law, I sup- 
 pose, must necessarily be vested in it. 
 
 Senator Cummins. I did not mean that, 
 
 Mr. Hay. I did not suppose so. 
 
 Senator Cummins. I did not mean that it would involve the exer- 
 cise of a different quality of judgment. You would not favor the 
 adoption of a Federal incorporation law, I take it? 
 
 Mr. Hay. Why, certainly not, unless it could be so framed that those 
 wanting to engage in interstate business would take their charters 
 under it. In other words, a voluntary Federal incorporation law, it 
 seems to me, would not be at all effective for remedying any of the 
 evil conditions that now exist, for the reason that anybody who 
 wanted to engage in these evil practices, whatever they may be, would 
 not take a charter under the Federal incorporation law. And one 
 that was compulsory, it seems to me, might be intrenching upon what 
 we have 'always known as the province of States to create corporations. 
 
 Senator Cummins. It would be practicable to supplement a volun- 
 tary Federal incorporation law — or a Federal license, which is sub- 
 stantially what you propose — by creating certain conditions which 
 
436 HEARINGS BEFOEE 
 
 corporations organized under the State laws must fulfill before they 
 are permitted to carry on interstate business ? 
 
 Mr. Hay. Yes; I can see how that might be possible. 
 
 Senator Cummins. Your proposal is practically a Federal license 
 law, is it not ? 
 
 Mr. Hay. I would not label it that; but perhaps there is a differ- 
 ence in the use of a word ; that is all. 
 
 Senator Cummins. Your proposition is that a corporation that pro- 
 poses to enter interstate business shall file with the Department of 
 Commerce and Labor its articles of incorporation or its charter? 
 
 Mr. Hay. Yes. 
 
 Senator Cummins. And that these articles of incorporation or 
 charter shall contain certain provisions, certain limitations, certain 
 prohibitions ? 
 
 Mr. Hay. Yes. 
 
 Senator Cummins. But these limitations and these conditions could 
 be imposed just as well without any modification of the State char- 
 ters as with such a modification, could they not ? 
 
 Mr. Hay. I think they could. I do not believe it would be so simple 
 a process of administration. 
 
 Senator Cummins. In the one case you mention, a change of the 
 charter might involve a conflict with the State laws, whereas the 
 mere imposition of conditions would not, or might not, involve that 
 same conflict, I can see. 
 
 Mr. Hay. That is possible ; but I do not see why it might involve 
 any conflict with State laws, because I take it, even in the State of 
 New Jersey, a corporation can organize with all the limitations I have 
 suggested. I do not mean to speak advisedly about that, because I 
 have not examined the corporation laws of New Jersey. 
 
 Senator Cummins. Have you believed that it was practicable, 
 through some function of the Government, to limit the amount of 
 capital which any given corporation or individual, for that matter, 
 could employ in a given business ? 
 
 Mr. Hay. It does not strike me as quite practicable. I confess I 
 have given a good deal of thought to that. 
 
 Senator Cummins. You recognized in the first lines of your state- 
 ment that one of the evils, one of the things that made trusts possible, 
 was unlimited power to employ capital. 
 
 Mr. Hay. I think that is the principal thing. 
 
 Senator Cummins. Now, if there was some board or commission 
 of the Government that, taking into view the necessities of the par- 
 ticular business, the amount of capital required to reach the economi- 
 cal unit of cost, could limit the capital that could be used by any 
 company in that business we would do a great deal, would we not, 
 toward enforcing competition between companies that were substan- 
 tially on even terms ? 
 
 Mr. Hay. I think so. But the practical difficulties seem to me very 
 great. 
 
 Senator Cummins. You think, do you not, that there ought to be 
 somewhere a prohibition against common directorates? 
 
 Mr. Hay. I certainly do. 
 
 Senator Cummins. Why should we not go one step further and 
 prohibit common stockholders in competing enterprises? 
 
COMMITTEE ON" TNTEESTATE COMMERCE. 437 
 
 Mr. Hay. It would strike me as rather drastic, but it would be 
 effective to destroy stock speculation, at all events. 
 
 Senator Cummins. Not necessarily. There are enough men in 
 this country with money, I fancy, to distribute among the various 
 enterprises of the country that are competitive in their 
 
 Mr. Hay. I did not mean to destroy investments. I say specula- 
 tion in stocks. 
 
 Senator Cummins. Do you see any special injury to come from 
 destroying what is known as speculation in stocks? 
 
 Mr. Hay. No ; I do not. 
 
 Senator Cummins. If another part of your paper were put into 
 execution — namely, all stocks must represent real value; that is, 
 real in the sense that it has market value — that would destroy much 
 of the speculation in stocks, would it not ? 
 
 Mr. Hay. I think so. 
 
 Senator Cummins. If we are seeking competition to-day, we would 
 do very much in attaining that object by making companies that 
 ought to be competitive really independent of each other, would we 
 not? We will always be afflicted, of course, with secret understand- 
 ings and agreements that never appear on the face of things, but if 
 the men who were interested in the profits of one corporation were 
 not interested in the profits of another corporation doing a like busi- 
 ness, we would furnish a motive for competition that does not now 
 exist, would we not? 
 
 Mr. Hay. I think so. I think you would be going a step further 
 than I have indicated and in the same direction. As to how it would 
 work out as a practical proposition, I do not know; I do not mean 
 as to its enforceability; I think that is easy enough. But upon the 
 business world I do not know what effect it would have. Certainly 
 it would stop speculation in stocks effectively. 
 
 Senator Cummins. You recognize, of course, that there is such a 
 thing as unfair competition, competition that unsettles business and 
 destroys value without any compensating advantage or benefit to 
 the public? 
 
 Mr. Hay. Why, I suppose there is such a thing as unfair compe- 
 tition, but I believe I should say right at this point that I believe 
 that the operation of the law of the survival of the fittest, of the 
 death of the old and the birth of the new — as it has been put by 
 some one — is as important in a healthy commerce as it is in organic 
 life ; that so long as we are living in a wicked age, and when ethical 
 conditions are not in everybody's heart, and ethical thoughts and 
 ethical purpose do not characterize everybody's lives, that there is 
 nothing that will regulate as well as the constant strife and the 
 constant battle. 
 
 Senator Cummins. I quite agree with you about that, but still 
 there must be such a thing as unfair competition. 
 
 Mr. Hay. I suppose there must be. 
 
 Senator Cummins. Because all government really is organized to 
 restrict competition in a sense. That is, if I should meet you on the 
 street, and you had a hundred dollars, which is likely, and I wanted 
 it, which is more likely, and I was stronger 
 
 Mr. Hay. That is a good deal more likely. 
 
438 HEARINGS BEFORE 
 
 Senator Cummins. x\nd was stronger than you and should take it 
 from you, that is a certain kind of competition in the struggle of 
 life, but it is unfair and therefore prohibitive. 
 
 Mr. Hat. I think it was Hamilton who said that all government 
 had its excuse for existence in the protection of the weak against the 
 strong. That I would hardly call competition. 
 
 Senator Cummins. In a broad sense I would call it so. Have you 
 thought of any way in which that competition, which we all recog- 
 nize is for an evil purpose rather than for a good purpose^ and which 
 is ruinous rather than helpful, can be prevented ? 
 
 Mr. Hat. I have thought on the subject, but I can not think of 
 any way by which it can be prevented logically. 
 
 Senator Cummins. You know, do you not, that the motive or rea- 
 son for many of these agreements between producers, fixing the prices 
 or limiting an output, and things of that sort, arise out of the fear 
 of that competition which will render the whole business unprofit- 
 able? 
 
 Mr. Hat. I know that that is an alleged reason for most of them, 
 and I doubt not it is the real reason for some of them. 
 
 Senator Cummins. Suppose that in this arrangement of yours 
 either the Department of Commerce and Labor, properly organized, 
 or some other board were given the power to enforce this regulation, 
 that a seller or producer making a price to one man in one com- 
 munity were compelled to make the same price to every man and to 
 every locality — the cost of transportation considered — do you not 
 think that that would have a deterrent effect upon the competition 
 which those men who fear it call ruinous ? 
 
 Mr. Hat. That is, in effect, what the interstate-commerce law 
 does, is it not? 
 
 Senator Cummins. That is what the interstate-commerce law does 
 in respect to common carriers. It is purely tentative on my part, 
 and I was proposing it to you because you have thought on the sub- 
 ject. What would you think of the same general regulation as ap- 
 plied to all business in interstate commerce ? 
 
 Mr. Hat. I confess I would not think well of it. I would think it 
 a most difficult thing to bring about. I tried, a good many years 
 ago, a lawsuit involving the discrimination in wheat and grain by 
 the four great railroads that center in Minneapolis and St. Paul, and 
 I confess that I did at that time go as deeply as I could into the gen- 
 eral principles of that law. It seems to me until you gave the Inter- 
 state Commerce Commission additional power, only a few years ago — 
 I do not remember when the legislation was passed — that while the 
 theories were thoroughly laid down in the original law, they did not 
 work out very well. 
 
 Senator Cummins. That is the hnv now, so far as the common 
 carrier is concerned. 
 
 Mr. Hats. So far as the theory is concerned, but you have given 
 the commission much greater power, have you not? 
 
 Senator Cummins. A few years ago, in our State, the favorite 
 method of the Standard Oil in creating competition was to put down 
 the price in a particularly locality, in which an independent sprung 
 up, to a point that would ruin the new company to follow it. Now, 
 we undertook to cure that by requiring the Standard Oil Co., or any 
 oil company, when it put down its price in any locality to put clown 
 
COMMITTEE ON INTERSTATE COMMERCE. 439 
 
 its price accordingly in every community in the State. It worked 
 well for a while, and we established competition immediately. Have 
 you ever examined similar experiments made in that respect ? 
 
 Mr. Hay. I have not. I recall in a general way what you refer 
 to in your State as a neighbor of yours, but I do not recall it in its 
 detail, and, answering your query, I have never examined it. 
 
 Senator Cummins. Well, 1 sum it all up, and close my examination 
 by simply asking you — which is probably unnecessary — whether all 
 your propositions and suggestions have one end in view, and that is 
 the maintenance of competition? 
 
 Mr. Hay. Of the competitive system in commerce ; yes, sir. 
 
 Senator Cummins. And you believe that that is necessary not only 
 for the welfare of our institutions, but for the health and vigor and 
 strength of business itself? 
 
 Mr. Hay. I do. 
 
 Senator Cummins. That is all I care to ask. 
 _ The Chairman. Senator Newlands, do you wish to ask any ques- 
 tions ? 
 
 , Senator Newlands. Mr. Hay, you propose, as I understand it, to 
 provide by law for a Federal charter applying to corporations here- 
 after organized ? 
 
 Mr. Hay. Well, not quite that, Senator Newlands. I proposed 
 that before corporations should be permitted to do business they 
 should file their charter or articles of incorporation, which should 
 contain certain limitations, not that the Government itself should 
 issue the charter. 
 
 Senator Newlands. You spoke of a Federal charter. 
 
 Mr. Hay. I did not intend to. If I did, I misstated it. 
 
 Senator Newlands. As I understand it, you wish it to apply to cor- 
 porations hereafter organized ? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. You mean organized under the laws of the 
 States? 
 
 Mr. Hay. Under the laws of the States ; yes, sir. 
 
 Senator Newlands. And not licensed? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. Your theory, then, would be that a corporation 
 engaged in interstate commerce would have practically two charters, 
 one from the State, permitting it to engage in State commerce, and 
 the other from the Nation, permitting it to engage in interstate 
 commerce upon certain conditions? 
 
 Mr. Hay. That was not my intention. My thought was that only 
 such corporations as contained limitations and powers which I out- 
 lined should be permitted to engage in interstate commerce; that 
 others should not be permitted to enter it. 
 
 Senator Newlands. Ah, your purpose, then, is to practically con- 
 trol, in the respect in which you have indicated, the form of the 
 charters granted by the States? 
 
 Mr. Hay. Not that; the form of the charter of corporations that 
 may engage in interstate commerce. 
 
 Senator Newlands. I understand. The form of the charter of cor- 
 porations organized under the laws of the State that are to engage 
 in interstate commerce. 
 
 Mr. Hay. Yes, sir. 
 
440 HEARINGS BEFORE 
 
 Senator Newlands. And having prescribed that charter, or those 
 provisions, you Avould not permit any State corporation whose char- 
 ter did not contain the limitations or restrictions to which you have 
 referred to engage in interstate commerce ? 
 
 Mr. Hay. That is right. 
 
 Senator Newlands. And that you would apply only in the first 
 instance to corporations hereafter organized? 
 
 Mr. Hay. That is right — in the first instance. 
 
 Senator Newlands. Your idea being that it would not be fair to 
 immediately apply it to State corporations which had been in oper- 
 ation in tlie past? 
 
 Mr. Hay. Exactly. 
 
 Senator Newlands. Now, as to corporations organized in the past, 
 you would provide that those that had been organized within two 
 years should comply with the requirements of the Federal provisions 
 within a period of two years or be thereafter barred from interstate 
 commerce ? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. Giving them time to adjust their charter 
 powers ? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. And as to corporations that have been in 
 existence for 10 years 
 
 Mr. Hay. More than two years. 
 
 Mr. Newlands. More than two years, and for a period of 10 
 years ; you would give them 10 years in which to readjust themselves? 
 
 Mr. Hay. Yes. 
 
 Senator Newlands. Why do you give the corporations that have 
 been in existence 10 years a longer time than those which have been 
 engaged in it two years ? 
 
 Mr. Hay. Becaiise I apprehend that any corporation that has 
 been in existence only two years that is engaged in a large interstate 
 business has not really done very much in the way of establishing 
 business or of creating itself as a great quantity. That is the only 
 reason, and that suggestion, as a matter of course, is purely tentative. 
 The purpose of it you have stated. 
 
 Senator Newlands. And therefore one of the more recent organi- 
 zations would be able to comply with the Federal requirements in 
 a shorter time? 
 
 Mr. Hay. Yes. 
 
 Senator Newlands. Now, then, as to the machinery for the en- 
 forcement of that law. You spoke of the Department of Commerce 
 as the department to which you would intrust the enforcement of 
 the law. 
 
 Mr. Hay. That would seem to be the more logical one ; yes, sir. 
 
 Senator Newlands. "Would it be your idea that it would be best 
 to intrust the enforcement of that law to a single executive officer, 
 acting for a definite term and likely to be subjected to political 
 exigencies or to a political control rather than business control, or 
 would you think it best to submit it to a commission resembling the 
 interstate commerce commission — an independent tribunal ? 
 
 Mr. Hay. I know what you mean. That goes into an entirely 
 different realm from what I had in mind. I should say, on general 
 principles, that I should think the administration of any great func- 
 
COMMITTEE ON INTERSTATE COMMERCE. 441 
 
 tion of the Government that might involve vast difference of opinion 
 and vast interests would be better in the hands of those who were 
 furtherest removed from all political influence. 
 
 Senator Newlands. In that view, then, a quasi-judicial commission, 
 composed of men whose terms would vary in length and with con-, 
 tinuous policy and precedent, a body of administrative law built up 
 by one organization, would be preferable to intrusting it to the shift- 
 ing incumbency of political office, would it not? 
 
 Mr. Hat. My thought was that the discretion vested in the Secre- 
 tary of Commerce would not be very great. 
 
 Senator Newlands. Right there, your idea would be that there 
 would be no very great discretion, would it ? 
 
 Mr. Hay. It would be more or less automatic. 
 
 Senator Newlands. And you think there would be little discre- 
 tion because you would require the existing corporations to shape 
 their charters just to meet the requirements of the Federal law ? 
 
 Mr. Hat. Yes. 
 
 Senator Newlands. That would mean that they would have to go 
 to their respective States and induce the States to pass corporation 
 laws containing the Federal restrictions and requirements, would it 
 not? 
 
 Mr. Hat. I would not think so, because in the States whose cor- 
 poration laws I am at all familiar with a corporation could organize 
 now with all those restrictions in its articles. 
 
 Senator Newlands. You would simply compel the corporations 
 hereafter to be organized to place these requirements and restrictions 
 in its articles of incorporation, and would not require the State itself 
 to change its corporation laws so as to meet those requirements? 
 
 Mr. Hat. Quite right. 
 
 Senator Newlands. And in that view you think there^ would be 
 partial discretion to be exercised by the supervising official or offi- 
 cials? 
 
 Mr. Hat. It occurred to me that it would not be very great. 
 
 Senator Newlands. "Well, now, would there not be in the sense you 
 propose, to give the regulating officials or the supervising officials 
 power, in case a corporation violates any of the provisions of the 
 Federal law, to make an order prohibiting that corporation from en- 
 gaging in interstate commerce? 
 
 Mr." Hat. Oh, yes, sir. I do not mean there would be no discretion. 
 There would be^ unquestionably. 
 
 Senator Newlands. Would that not involve a very wide discretion 
 and involve powers fully as great as those exercised by the Interstate 
 Commerce Commission? For instance, I presume if a corporation 
 so organized should, in violation of the Federal requirements, acquire 
 stock in other corporations doing a similar business, there would have 
 to be an inquiry into that fact. 
 
 Mr. Hat. Oh, yes. 
 
 Senator Newlands. And a quasi judicial determination upon a con- 
 tested matter of fact? . 
 
 Mr. Hay. Yes, sir ; there would have to be, unquestionably, machin- 
 ery for the enforcement of any such law. 
 
 'Senator Newlands. You would therefore require experts and ex- 
 aminers and investigators similar to those now employed by the Inter- 
 
442 HEAKINGS BEFOEE 
 
 state Commerce Commission in making inquiries as to the violation 
 of the interstate-commerce act, would you not? 
 
 Mr. Hay. Yes. 
 
 Senator Newlands. Well, then, if the question arose as to whether 
 such a State corporation had acquired a plant, a competitive plant, 
 and was holding it under some secret trust, or having it held for it 
 under some secret trust, etc., or some other evasion of the law, there 
 would have to be an inquiry into that, would there not ? 
 
 Mr. Hay. I should think so ; yes, sir. 
 
 Senator Newlands. Then, as to the question whether the capital 
 had been fully paid up, as a matter of fact, there would be an inquiry 
 as to that? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. Then, as to whether or not such a corporation 
 had gentlemen's agreements with other competitive corporations, that 
 would be a matter concerning which inquiry would have to be made, 
 would it not? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Newlands. Now, would you rather intrust all these pow- 
 ers of inquiry, investigation, and determination to a single official 
 who was under the control of the administration and who might be 
 in a political exigency, or whose chief might be a candidate for re- 
 nomination or reelection, or would you prefer to submit those ques- 
 tions to a quasi judicial tribunal, like the Interstate Commerce Com- 
 mission ? 
 
 Mr. Hay. Eecurring to my answer a moment ago, that I believe 
 that the exercise of governmental power was safer and better when 
 it was as far removed from a political campaign as possible, I con- 
 fess that your inquiry opens up a field upon which my mind is not 
 entirely at rest, as to the concentrating of responsibility in the hands 
 of some one who is directly responsible to the people or in the hands 
 of those who are guided only by their judgment and their conscience. 
 What I mean is, that I can see by the constant increasing of the num- 
 ber of bureaus and the number of commissions, and the number of 
 tribunals of one kind and another, the Government would become 
 very heavy, and I simply say that my mind is not entirely at rest on 
 that general proposition. 
 
 Senator Newlands. You can see that such a commission would 
 have investigations and inquiries, such as those of the Interstate 
 Commerce Commission is engaged in? 
 
 Mr. Hay. Yes; and the Comptroller of the Currency has at pres- 
 ent, so far as national banks are concerned. 
 
 Senator Newlands. I think you will probably find on investigation 
 that very serious complaint can be made of the administration in that 
 respect. 
 
 Mr. Hay. Probably so ; I do not know. 
 
 Senator Newlands. I do not speak of the present comptroller, but 
 the practice of banks absorbing our comptrollers and taking them 
 into their private employ has been almost a scandal in the past. Now, 
 you would give that official, or commission, the power to enter an 
 order restraining the corporation from engaging in interstate com- 
 merce ? How would you enforce that, through the court ? 
 
 Mr. Hay. You are bound to. Under our form of government I 
 know no other means of enforcing anything. 
 
COMMITTEE ON INTERSTATE COMMERCE. 443 
 
 Senator Newlands. Your plan would be to have the States them- 
 selves the creating source of all corporations, and would simply 
 fasten upon all such corporations organized under State law the re- 
 strictions imposed by a Federal statute and giving them the powers 
 granted by a Federal statute ? 
 
 Mr. Hat. Yes, sir. 
 
 Senator Newlands. As a condition of engaging in interstate com- 
 merce. You regard that as a better thing than a national incorpora- 
 tion act ? 
 
 Mr. Hat. I do ; yes, sir. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Brandegee, do you desire to ask any 
 questions ? 
 
 Senator Brandegee. Will you be kind enough to read again the 
 provisions that you would suggest for the capitalization and control 
 of corporations ? 
 
 Mr. Hat. I have mislaid the manuscript of my notes. I would 
 rather read it exactly. _ However, I can state it, probably accurately. 
 Let me have your inquiry again. 
 
 Senator Brandegee. I wanted to know what the provision was that 
 your plan provided should be inserted in the certificate which the 
 corporation must obtain from the department, which referred to the 
 capitalization of a corporation. 
 
 Mr. Hat. That the capital should be paid in full, either in money 
 or property of equivalent value. 
 
 benator Brandegee. That is as to all these classes of corporations 
 that you have discussed ? 
 
 Mr. Hat. Yes, sir. 
 
 Senator Brandegee. If I understood you, your plan was that with 
 reference to corporations engaged in commerce among the States, 
 which had been doing business for a period of 10 years, they should 
 not file this certificate until 10 years after the passage of your pro- 
 vision ? 
 
 Mr. Hat. Not quite. For a period of more than two years. They 
 should not file a certificate until 10 years after the passage of the 
 law. 
 
 Senator Brandegee. If they had been doing business for more than 
 two years they should not file the certificate until 10 years after the 
 passage of the law ? 
 
 Mr. Hat. Yes, sir. 
 
 Senator Bbandegee. Does your provision as to capitalization ap- 
 ply to those corporations that were already capitalized ? 
 
 Mr. Hat. Yes, sir. 
 
 Senator Brandegee. And had been transacting business for two 
 years ? 
 
 Mr. Hat. They would be adjusted accordingly. 
 
 Senator Brandegee. If that is so, that is all I wanted to inquire 
 about. I assume that your proposed law would apply to all rail- 
 road companies as being engaged in commerce among the States ? 
 
 Mr. Hat. Without amendment of the Interstate Commerce Law 
 it could not, could it? That is a thought that had not come to me 
 until just this moment of your inquiry. 
 
 Senator Brandegee. Of course I have not seen the language of 
 your proposed bill. If it should read that every corporation en- 
 
444 HEABINGS BEFORE 
 
 gaged in commerce among the States should do these things or should 
 be prohibited from such commerce, it seems to me that it should in- 
 clude railroad companies. 
 
 Mr. Hay. I had not prepared any bill, of course, and my thought 
 only had to do with the industrial corporations. 
 
 Senator Beandegee. Then I will ask you this : If you were draw- 
 ing such a bill, would you include railroads within the operation 
 of it? 
 
 Mr. Hay. I think not. 
 
 Senator Beandegee. You would limit it only to industrial corpora- 
 tions ? 
 
 Mr. Hay. Mercantile. 
 
 Senator Beandegee. Mercantile. "Would you exclude specifically 
 such corporations from its operations? For instance, would you in- 
 clude insurance 'companies ? 
 
 Mr. Hay. I think insurance has never been held to be an interstate 
 business. I would not, I may say, because I would put in as little 
 as possible. 
 
 Senator Beandegee. You would like to include them, although it 
 has been held that insurance was not strictly commerce among the 
 States? 
 
 Mr. Hay. Yes, sir. 
 
 Senator Beandegee. "Would you include them or exclude them ? 
 
 Mr. Hay. I would, if they were engaged in interstate commerce. 
 
 Senator Beandegee. You would include them? 
 
 Mr. Hay. Yes. 
 
 Senator Beandegee. Now, take the case of a large corporation like 
 the Steel Corporation, which has been transacting business for more 
 than two years — and it seems to be admitted that its common stock 
 was mostly unpaid for in cash or property either — would you give 
 the Bureau of Corporations, or the administrative official from whom 
 the certificate had to be procured, authority to prohibit a corpora- 
 tion like that from engaging in interstate commerce unless it had 
 wiped out all of its unpaid stock? 
 
 Mr. Hay. Yes ; in other words I would give them the 10 years in 
 which to adjust themselves to that condition. 
 
 Senator Beandegee. That is what I am trying to ascertain. How 
 could the Government prohibit a corporation from engaging in in- 
 terstate commerce unless it obliterated its unpaid issue of common 
 stock? 
 
 Mr. Hay. You mean 
 
 Senator Beandegee. I mean would not the operation of your 
 proposition result in practically confiscating enormous quantities of 
 stock that is now paying dividends, although not originally paid 
 for in cash, in the hands of innocent third parties and trust estates ? 
 
 Mr. Hay. I would not say that it would result; I would say it 
 might result. I conceive that any readjustment of present commer- 
 cial conditions must of necessity result in great loss in values. 
 
 Senator Beandegee. You say it might result. It seems to me the 
 inevitable operation of it would be, if you prohibit the corporation 
 from engaging in commerce among the States, that you thereby 
 deprive it of the right of doing its business. Of course, if that is so, 
 its securities would be' of no value whatever. What I am trying to 
 get at is, whether your plan would be a practicable, workable plan, 
 
COMMITTEE ON INTERSTATE COMMERCE. 445 
 
 or whether it would result in simple confiscation or devastation of all 
 the securities in the country that had not been originally paid for ? 
 
 Mr. Hay. If the suit now pending against the Steel Corporation 
 were to result successfully and the corporation could not adjust itself 
 to such decrees as the court might render, under the decision in the 
 Tobacco case a receiver would be necessary, and that would result in 
 the depression of the value of the properties that did not have tangi- 
 ble value, would it not ? 
 
 Senator Brandegee. I was not contemplating any suit. 
 
 Mr. Hat. I know; I was coming to that point. Consequently, it 
 seems to me that any legislation or enforcement of laws which shall 
 restore competition means the destruction of many large business con- 
 cerns ; not necessarily total destruction, but partial destruction — that 
 is, such value as is in them that has no property or tangible value 
 must of necessity, to some extent, come out. 
 
 Senator Brandegee. That is all. 
 
 The Chairman. Senator Pomerene, do you desire to ask any 
 questions ? 
 
 Senator Pomerene. Just a few questions. Mr. Hay, you spoke of 
 the simplicity of the language of the Sherman antitrust law, and 
 that led to some discussion as to the difficulty of applying it to special 
 cases. I take it that the difficulties which you had in mind would 
 grow out of the phrase, "Unreasonable restraint of trade," rather 
 than any other provisions of the statute? 
 
 Mr. Hat. Of course that is not in the statute. 
 
 Senator Pomerene. I understand that, but in construing the statute 
 in the light of the Supreme Court's decision in the Standard Oil 
 Co. and American Tobacco Co. cases, as lawyers, we treat the stat- 
 ute as if that word was in it ? 
 
 Mr. Hay. Yes. 
 
 Senator Pomerene. Are those the only difficulties that you had in 
 mind? 
 
 Mr. Hat. Oh, no, sir. I think it would be impossible to write a 
 statute of any kind that was not susceptible of more than one con- 
 struction ; but it seems to me that the antitrust law is as simply stated 
 as it could be. That is all I meant to say with reference to it. 
 
 Senator Pomerene. But is this not true, that the principal difficul- 
 ties would be met in determining what is a reasonable or an unrea- 
 sonable restraint of trade? 
 
 Mr. Hat. I think that must of necessity be a question for deter- 
 mination from the facts of every particular case as they arise. 
 
 Senator Pomerene. Exactly. That is just what I wanted to call 
 your attention to. So that when it would come to a given case, 
 either civil or criminal, it would be a matter for court and jury to 
 determine as to whether a given situation was an unreasonable 
 restraint of trade. 
 
 Mr. Hay. Yes, sir. 
 
 Senator Pomerene. Now, as lawyers, we agree, 1 think, that no 
 court and no legislature has ever attempted to define what constitutes 
 
 Mr. Hay. Well, I do not know whether it has ever been attempted 
 or not. I think it has probably never been successful, if it has been. 
 
 Senator Pomerene. All the textbooks on equity jurisprudence 
 speak of the fact that no court has ever pretended to define a fraud. 
 
446 HEARINGS BEFORE 
 
 Mr. Hay. Yes. 
 
 Senator Pomerene. That what is a fraud depends upon the fact 
 and circumstances attached to the particular transaction that is being 
 investigated ? 
 
 Mr. Hat. Yes. 
 
 Senator Pomerene. Now, would it be any more difficult for the 
 court to determine what is a reasonable or unreasonable restraint of 
 trade than it would be to determine whether a given act was fraudu- 
 lent or not ? 
 
 Mr. Hay. Probably not. I should say it would depend upon the 
 complication of the facts in any particular case, entirely. 
 
 Senator Pomerene. And just so as to fraud ? 
 
 Mr. Hay. Just so as to fraud. 
 
 Senator Pomerene. So that the mere fact that a lawyer or a busi- 
 ness may be confronted with the' proposition as to whether or not a 
 given act or agreement or contract is an unreasonable restraint of 
 trade is not an insurmountable difficulty? 
 
 Mr. Hay. Oh, no, sir. Courts are open for the adjudication of such 
 questions, as well as all others. 
 
 Senator Pomerene. Most assuredty. Then it would only be those 
 concerns, or those lawyers who tried to get their clients up as near 
 to the jail doors as possible without getting them inside, that would 
 find any difficulty in applying the principles of the Sherman antitrust 
 laM'. Is that true? 
 
 Mr. Hay. I can not say that I quite follow the question. I think 
 probably I would agree with you about that. If you mean by that 
 that a lawyer who has the greatest difficulty in construing the' law 
 is the one who is trying to find something in the law that is not there, 
 I agree with you. 
 
 Senator Pomerene. The one that is trying to evade and not the one 
 that is trying to live up to the provisions of the law ? 
 
 Mr. Hay. That is right on general principles. 
 
 Senator Pomerene. I think that is all I care to inquire. 
 
 The Chairman. Senator Townsend, do you care to ask any ques- 
 tions ? 
 
 Senator Townsend. I have nothing to ask. I did not get in in time 
 to get the full benefit of Mr. Hay's statement. 
 
 The Chairman. I think that is all. 
 
 (There being no further questions, Mr. Hay was thereupon ex- 
 cused.) 
 
 STATEMENT OF ROBERT R. REED, ATTORNEY AT LAW 100 
 BROADWAY, NEW YORK, N. Y. 
 
 The Chairman. Mr. Keed, you may proceed. 
 
 Mr. Reed. It is probably true that nearly every lawyer in the 
 United States has some remedy for this evil. It has been so stated, 
 so I hardly think I need an excuse for accepting the chairman's invi- 
 tation to appear on behalf of the Williams bill, which was introduced 
 by Senator Williams last year, and which I had drawn at his request, 
 to embody a proposition which I first published in the Atlantic 
 Monthly some three years ago. Senator Williams at that time took 
 it up and asked me to draw a proposed statute. 
 
COMMITTEE ON INTERSTATE COMMHKGE. 447 
 
 The accident of events has brought me here following Mr Hay 
 His views and those that are at the base of the Williams bill are 
 almost identical, and they are views that are becoming more and 
 more common to-day, but were rarely known three years ago 
 
 As you are considering a great number of proposals looking to the 
 increase and centralization of the powers of government, I hope that 
 you will consider this one, which is radically opposed to that policy 
 and promises a remedy without it. 
 
 I call your attention to the fact that the title of the Williams bill 
 says nothing of monopoly. It is a bill to prescribe the conditions 
 under which corporations may engage in interstate commerce, and 
 provide penalties for otherwise engaging in the same. I would ask 
 you to consider it primarily as a bill to compel the reform of cor- 
 porate charters. If, as a result of such a law, monopoly and restraint 
 of trade are prevented, that certainly is an argument in favor of it 
 and possibly a reason at this time for its adoption. My idea is that 
 such a law should be adopted, and when it is adopted there will be 
 less need for more revolutionary measures. 
 
 The first novelty in the proposition, when it was published, seemed 
 to be that to which Mr. Hay referred this morning— the fact that the 
 real evil of monopoly lies in the corporation laws of the State. I 
 thought that was novel when I published it. I soon learned that it 
 had been preached by other men, at least by Mr. Augustus L. Mason, 
 . of Indianapolis. It has since been generally accepted, as I think 
 Mr. Hay's address this morning shows. I have never heard a more 
 admirable statement of it in some respects than that read by him 
 of the president of the American Bar Association. It has been ac- 
 cepted, notably by Mr. Wickersham, who repeatedly in the last two 
 or three years has voiced that truth ; it also has been accepted by the 
 President in his message on January 7, 1910, in which he referred to 
 the holding company as " the chief agency in the creation of our great 
 trusts and monopolies." 
 
 In an address before the Indianapolis Bar Association, in October, 
 1908, Mr. Mason stated a truth that has been generally ignored in 
 connection with this subject. Eeplying to the claim of these large 
 corporate interests that their prosperity and growth is a triumph 
 of individual freedom, and that to interfere with them is govern- 
 mental aggression, he said : 
 
 The answer to this argument is that government has already interfered 
 with business by the creation of private corporations. 
 
 It has created unsafe corporations Avith unsafe powers. It has 
 "departed from the early conception of a corporation, which was of a 
 body formed in the interests of the public. When it was first ex- 
 tended to private business it was with most adequate safeguards. 
 That was the original idea of a corporation. Those private charters 
 became the subject of abuse, and we had general laws, and the general 
 laws became subject to abuse. The corporation is what you make it. 
 It may be an effective instrument of legitimate business, or it may be 
 a piratical giant. I believe it is only the latter class that require 
 regulation, and that they are a class that should not exist. 
 
 Mr. Mason, prior to 1909, had advocated the adoption of an amend- 
 ment to the Federal Constitution giving Congress the power spe- 
 cifically to restrict the State charters. The second and distinctive 
 22S7T — vol i—12 20 
 
448 HEARINGS BEFORE 
 
 feature of my proposition is different from that of Mr. Mason's. 
 That difference lies in the proposition, which is also accepted now, 
 and I think probably had not been voiced at that time — that Con- 
 gress in its power to regulate commerce has the power to prescribe 
 the conditions under which corporate agencies may be utilized. They 
 may prescribe what kinds of companies may engage in commerce. 
 
 It may do that under its duty to maintain the freedom of com- 
 merce, and it has ample power to compel the reform of the State 
 charters by excluding from that commerce all corporations whose 
 charters do not conform to prescribed conditions of organization and 
 conduct. As I stated in the Atlantic Monthly for January, 1909 : 
 
 The remedial Federal law should be a simple and effective attack on the 
 actual abuse; it should be, so far as possible, self-operating ; an effective 
 prohibitory law, stating in detail the conditions of incorporation, management, 
 and governing laws necessary to enable a corporation to depart from the State 
 of its birth to engage in interstate commerce, prescribing adequate penalties 
 and making void and unenforceable by a corporation any contract made in viola- 
 tion of its provisions. 
 
 This distinctive feature has recently been adopted in one form 
 or another in various suggestions, one made but not urged by Mr. 
 Wickersham in his speech of July 19, 1911, to which I shall refer 
 later; others that I have noticed in the past month by Mr. Nagel, 
 Secretary of Commerce; and by Mr. Littleton; and Mr. Untermyer, 
 I think, also; and certainly by Mr. Hay this morning. I never 
 knew of his connection with the matter before, I am sorry to say. 
 
 It was in response to this suggestion that Mr. Mason, abandoning 
 his own former proposal, wrote me in February, 19Q9, that " with- 
 out doubt, your notion of a Federal statute, not of license, but of 
 restriction, is the key to the whole situation," and Mr. Williams, 
 then Senator-elect, gave it his support and asked me to draft a pro- 
 posed law for introduction in Congress. It was this initial encour- 
 agement increased by the partial approval of the press, and by the 
 interest or tentative approval of other men, several of them recog- 
 nized leaders in national politics and at the American bar, that made 
 me realize the importance and possibilities of the proposal I had 
 ventured to publish. Finally, the radical difference between this 
 proposal and others that attempt to deal with monopoly as it now 
 exists, is that this remedy makes possible the reform of existing con- 
 ditions without resort to Federal incorporation or Federal license, 
 and without the need of Federal regulation, without the creation 
 of a single Federal bureau, office, or commission. It simply asserts 
 the undoubted Federal power and duty to maintain the freedom of. 
 commerce from corporate abides, to protect the rights of the indi-' 
 vidual from the abuse of powers of the State governments, rather 
 than to extend the Federal power as a bureaucratic invader of indi- 
 vidual rights. This I considered very important. As I expressed 
 it in January, 1909, " to recognize and license the far-flung corpo- 
 rate monopolies that rule the business of the country, and to increase 
 and centralize the powers of government to regulate them, means the 
 beginning of the end of those sound principles of government which 
 are our special heritage as a people; the abandonment forever of 
 the simple independence of the individual ; to increase his industrial 
 dependence, and make it political and permanent." Federal incor- 
 poration, commissions, license, and regulation are all alike dangerous, 
 
COMMITTEE ON INTERSTATE COMMERCE. 449 
 
 un-American, and unnecessary ; they have, it is rumored, a common 
 source and a common purpose; hiding the real cause and the real 
 remedy, hiding the conspiracy, if it exists, which promotes them all, 
 they seek through popular pleas and popular men to fasten licensed 
 monopoly on the Nation. They all have in them the seed of political 
 revolution. 
 
 I urge the Williams bill not only as a law necessarv in itself to 
 compel the reform of corporate charters and to prevent corporate 
 monopoly, but to those who do not assent to this I urge it as an 
 alternative to Federal incorporation and regulation. 
 
 Senator Williams, in a letter addressed to me and published Sep- 
 tember 27, 1910, after referring to Mr. Roosevelt's Osawatomie 
 speech urging a " way out " of our difficulties by Federal regulation 
 and cooperation, said: 
 
 I can imagine nothing more dangerous to the American Republic than con- 
 trol of great corporations by a Federal bureau subject in its turn to a political 
 administration of either party, excluding or admitting participation in business 
 substantially at the whim and caprice and by the favoritism or enmity of the 
 head of the bureau, influenced by Senators, Speakers, and Presidents, whose 
 " pull " would be in favor of " good trusts " and whose frowns would be for 
 " bad trusts." In such a case " good " would come to mean subservient. The 
 remedy is to exclude trusts from Interstate commerce, but to exclude them not 
 by the fiat of a bureau (which in tie last analysis is a man influenced by 
 other men and acting secretly, with subordinates forbidden to give out infor- 
 mation), but to exclude them by fiat of law. providing that corporations having 
 charters conferring powers broad enough to establish monopoly or near mo- 
 nopoly and unlimited in the interest of the public shall be excluded. * * * 
 Tour remedy seems to me the right one — efficient, sufficient, operating in the 
 open and by force of prescribed law. 
 
 This remedy it is my duty and desire to make clear, so that its 
 efficiency and simplicity may appeal to all who are seeking a " way 
 out" without a political revolution. It is inevitable that I must 
 discuss this proposal in its intended effect on corporate monopoly, 
 though I repeat that it deals primarily with simple and necessary 
 reforms of corporate charters. Even assuming that monopolies 
 and " near monopolies " are inevitable; as some say, yet there are 
 obvious evils in our corporate laws which obviously require cor- 
 rection, which obviously affect and confuse the question of monopoly, 
 which obviously can be corrected. They should, I maintain, be 
 corrected before we either assume that monopoly is inevitable or 
 decide as to the need and extent of its regulation. These " obvious " 
 facts are ignored by those who allege the need of Federal regulation. 
 I shall be better convinced of their good faith when they meet and 
 discuss these facts. 
 
 There is only one way of clearly presenting this proposal. With- 
 out discussing at this point the details of the Williams bill, I quote 
 from its first section, with one addition which I believe increases its 
 efficiency at the present time : 
 
 No corporation shall engage in commerce between the States unless it is or- 
 ganized as follows: It shall have only such powers as are incidental to thb 
 business in which it is authorized to engage, which shall not include any ex- 
 press power to hold the stock of any other corporation. * * * 
 
 I will state right there that that is the only provision that is neces- 
 sary to exclude holding companies from commerce. The stockhold- 
 ers will take care of a corporation that attempts to hold stock in vio- 
 lation of its charter. Unless it has the express power granted by the 
 
450 HEARINGS BEFORE 
 
 State charter it can not do it. It is, not necessary to tell them how 
 much stock they can hold. They can not hold any unless it is in 
 their charter powers : 
 
 Xo other corporation or association or person holding or owning, directly or 
 indirectly, any stock or interest in or acting for or connected with any corpora- 
 tion or association engaged in the same or any competing business shall be 
 entitled to any vote or voice, directly or indirectly, in its affairs. * * * 
 
 If that provision were in the charter of a corporation, the stock- 
 holders would take care of the question as to who should vote. If 
 it were placed in the charters of the disintegrated Tobacco Trust and 
 the Standard Oil subsidiaries to-day, the stockholders would be fall- 
 ing over themselves in the different corporations to get rid of their 
 stock in one so that they could control the other, and they would 
 control it if the charter provided that no competing interest should 
 have a vote. This is a thing which every charter should, I believe, 
 provide. The State, in creating the corporation, has granted it that 
 special feature, unlike partnerships, whereby a man may come in 
 without the choice of the other members. Now, you can not drive the 
 corporation out of commerce because somebody else buys into it, but 
 the State can, and the State should, and Congress should, I believe, 
 require the State to put in their charter a condition that will prevent 
 anyone having any voice in the corporation if they represent any 
 competing interest, and it will be a matter within the control of the 
 State courts, and be enforced by them, so that competing interests 
 can not vote. 
 
 Its directors shall be required to be actual owners of stock and not to be 
 directors, officers, stockholders, or employees of any corporation engaged in the 
 same or any competing business. 
 
 The provision excluding stockholders of competing companies 
 from voting is not in the Williams bill. It was adapted from a pro- 
 vision that was in the former proposed law, from which that bill 
 was adopted, and I certainly think it ought to be in the bill, espe- 
 cially in view of existing conditions. If we had started 20 years ago, 
 that danger would not be so great, but it is necessary in reorganizing 
 these great existing trusts. For the purpose of compelling reorgani- 
 zation the Sherman law is entirely sufficient, but in reorganizing 
 them we are met with these conditions," that substantially the same 
 men remain stockholders of the competing corporation. 
 
 All these provisions which I have quoted could be inserted to-day 
 in the charter of a corporation organized under the laws of New 
 Jersey or New York. They could be required to-day by Congress as 
 a condition of the right of any such corporation to continue in inter- 
 state commerce. The reorganization of all existing trusts could be 
 so required and, in fact, effected by Congress, to the great relief of 
 Mr. Wickersham and the courts, and the army of investigators and 
 prosecutors who are seeking to establish the fact and effect the reform 
 of monopoly under existing laws. They would prevent the evasion 
 of the Sherman Act, which under existing laws and existing charters 
 is now in its final and dramatic enforcement seen to be as ineffectual 
 as it was previously asserted to be as the excuse for its nonenf orcement. 
 
 The Sherman Act, I believe, is an admirable law, dealing with 
 common-law conditions, but dealing with the corporation which 
 represents another series of laws created to evade it, it is ineffective. 
 
 If you consider such requirements in any way impracticable, I 
 would ask you to consider the much more remarkable but similar 
 
COMMITTEE ON INTEBSTATE COMMEECE. 451 
 
 provisions which have in fact been inserted in a charter of a corpo- 
 ration organized in New Jersey since the introduction of the Wil- 
 liams bill. I refer to the Atlantic & Pacific Transport Co., incorpo- 
 rated m August, 1911, to carry on a steamship business through the 
 Panama Canal. Its charter, apparently under the sanction of a 
 Federal department, contains as published the following provisions: 
 
 No person shall be eligible as a director who shall be a director in or an 
 officer or agent of any corporation or association engaged in any competitive 
 transportation business by rail, or an importer of goods or merchandise on his 
 own account. 
 
 The power of any stockholder or director to vote on any question shall cease 
 upon notice from the Postmaster General of the United States that such a 
 stockholder or director represents a competitive railway interest. 
 
 Who drew and who suggested this charter I do not know, except 
 that the published statement of its purpose shows the interest of the 
 administration in its success. It looks like an administration ex- 
 periment with the principles of the Williams bill, for which we 
 should be duly grateful. But it is the Executive and not Congress 
 that has dictated the charter requirements. 
 
 I do not know but it is quite possible that in many of these reor- 
 ganizations that are being effected by consent of theTJepartment of 
 Justice that similar conditions are being required by the Attorney 
 General to suit his views. It is possible. That, of course, is a per- 
 version of the principle, as I call it, of the Williams bill. It illus- 
 trates more forcibly than I would dare to do its efficiency and elas- 
 ticity. I trust that Congress, if it adopts this principle, will never 
 seek by indirection through it to give to a Federal department the 
 control of corporate business. That seems to be the determined de- 
 sign of some men. If they can not do it in their own way, by Federal 
 incorporation or license, they may seek to do it by a misuse of the 
 Williams bill. They could just as well have made a general prohibi- 
 tion that would be enforced by the corporation and its stockholders. 
 Instead, they make it subject to the dictation of the Postmaster 
 General, whoever he may "be. 
 
 They could just as well have made a general prohibition in this 
 case against all competing interests, one that could be enforced by 
 the corporate stockholders. 
 
 It is my business, as a lawyer, to examine municipal and corporate 
 securities issued all over the country, and I know how any lawyer 
 of that character would look at a provision cf that kind. It would 
 not be safe. If it were under a general law that men could read and 
 understand, defining the existing rights of parties and providing for 
 the preservation of rights of parties, as the law should do, that 
 would be different. 
 
 Determine, if you will, the particular safeguards and limitations 
 which should be imposed by a State upon one or more classes of cor- 
 porations engaged in interstate commerce, and then require^ those 
 safeguards and limitations of such corporations as a condition of 
 their right to engage in such commerce. That is the principle of the 
 Williams bill, applied according to its intent. 
 
 The proposal at the present time has several aspects. It is the 
 " yardstick " which Senator Bourne has recently demanded, to be 
 prescribed by Congress by which the right to engage in commerce 
 fhall be determined. It is the definite legislative rule, taking the 
 
452 HEARINGS BEFORE 
 
 place of the executive fiat, by which business men may be able to act 
 intelligently and certainly. It is the permanent, uniform law by 
 which existing trusts may be both compelled and permitted to disin- 
 tegrate and reorganize and thereafter conducted in obedience to law, 
 instead of the hopeless and endless plan of reorganizing and conduct- 
 ing the business of the country at the foot of an equity decree under 
 a continuing injunction. It is returning to the original conception 
 of a corporation, correcting the extreme departure from that concep- 
 tion by the States, and restoring the limitations and safeguards es- 
 sential to protect the public against the possible abuse of the corpo- 
 rate franchise; in a word, making the corporation what it was de- 
 signed to be, an instrument of public good. 
 
 It is the correction of the evil of monopoly in its source, the re- 
 moval of the power of evil from the corporate charter, as opposed to 
 its sporadic prosecution or permanent regulation by the Federal 
 Executive. 
 
 To summarize the matter, the underlying difficulty in the trust 
 question is the corporation — the corporation laws of the States. This 
 difficulty was the cause of 20 years' evasion of the Sherman law. 
 It is the cause of the present impossibility of reorganizing the trusts 
 so as to insure compliance with that law. It is the cause of monop- 
 oly, the one efficient cause, and it still exists. This fact is now gen- 
 erally admitted, but Congress has enacted no law based upon it. 
 There is but one remedy — the right one — to attack the cause. The 
 power of Congress is ample. It is the power to regulate interstate 
 commerce and to exclude from that commerce all corporate instru- 
 ments which endanger it. Under this power you may regulate the 
 State corporations. You may, it is asserted, exclude them entirely 
 from commerce and create Federal trading corporations. But vou 
 do this with a certain peril in the experiment, a peril of centraliza- 
 tion, of regulated monopoly and universal corruption, a peril also of 
 violating the Constitution, a peril possibly of not getting the votes 
 for so drastic and un-American a program*. You may attempt also 
 to condition by law the conduct and relations of corporations engaged 
 in commerce. This is one part of my proposal, it is a part of the 
 Williams bill, but if you stop there you leave the State laws free as- 
 means of evasion, which you can not prevent so long as those laws 
 remain unlimited as the governing laws of interstate corporations. 
 You will have one set of laws working against another, the same con- 
 dition of inefficiency now existing. You may and you must to be 
 effective strike directly at the admitted source of the evil, compel 
 the reform of the charter and governing laws. You will then, I 
 believe, destroy monopoly and render Federal regulation, the plea of 
 Federal incorporation, unnecessary. 
 
 One important feature of this proposition is that you may write 
 into the charter and governing laws any conditions which you feel 
 should be there, and at the same time remain free to write in others. 
 Congress has not licensed, and I think should not license ; the Execu- 
 tive has not licensed, except possibly in one particular case, and 
 should not license any corporation to engage in commerce. Congress 
 should remain free, I believe, to prohibit, and the Executive should 
 be free to enforce the law, and his activity should be limited to' the 
 enforcement of the laws. That is especially important when you 
 come to possible defects in this proposed law. There are defects, but 
 
COMMITTEE ON INTERSTATE COMMERCE. 453 
 
 there is no defect, there is nothing that any State corporation can 
 attempt to do or that can be attempted to be done with a corporation, 
 that you can not reach by a future provision or amendment of this 
 law when you see it. 
 
 All these companies are corporate companies, and when you have 
 once asserted this power you can reach them. You can go right back 
 to their charter and compel them to write into their own charters the 
 thing that will prevent them from evading the law. 
 
 The proposition is conservative and constructive. It is effective. 
 It is conservative because it accords. with existing principles of gov- 
 ernment, because it is restrictive, because it rests upon the undoubted 
 power of Congress to regulate commerce and limits the exercise of 
 that power to maintaining the freedom of commerce. 
 
 It is constructive because it removes the evil of our corporation 
 laws, restores and preserves commercial freedom, and furnishes a uni- 
 form and safe basis of future growth. 
 
 It is effective because it strikes at the source and removes the cause 
 of corporate monopoly, because it leaves no room for evasion and 
 involves no question of power, because it safeguards us against the 
 abuse of power by the States without exposing us to a greater abuse 
 by the Federal Government. 
 
 The application of this remedy requires a correct knowledge of 
 the corporation, of its nature, and of the laws which govern it. This 
 knowledge must be used for the benefit of the public, not solely of the 
 corporate interests. This knowledge has too frequently been lacking 
 in State legislatures, but undoubtedly exists in Congress, and is, I 
 think, gradually being acquired by the intelligent public. The power 
 asserted and evidenced by the Williams bill is capable, as I' have in- 
 stanced, of abuse. That it exists and that it furnishes a correct and 
 possible basis for the reform of existing evils is my primary conten- 
 tion. 
 
 I have endeavored to make my proposal clear. I wish, if the com- 
 mittee cares to hear me, to present at more length some of the consid- 
 erations in its support, especially as opposed to Federal incorpora- 
 tion. I should also like to say something in brief explanation of 
 several details of this particular bill. 
 
 The President and Mr. Wickersham are to-day the recognized lead- 
 ers of Federal incorporation. The latter particularly Avas the author 
 of the Federal incorporation law proposed in January, 1910. I wish 
 to quote them with a great deal of respect. I think I can almost, if 
 not quite, establish by the weight of their authority and admissions, 
 my own contention that the Williams bill, which is the opposite of 
 Federal incorporation, is the logical and sufficient remedy for the 
 situation. 
 
 I have stated that this remedy is based on what is now a recognized 
 fact, that the fundamental difficulty underlying the enforcement of 
 the Sherman law, as well as of the common law, against monopolies, 
 lies in the loose corporation laws of the States. These laws are acts 
 of government, and the modern monopoly rests upon these acts of 
 government, as all monopolies at all times have rested and must 
 rest, if they are to successfully defeat the laws of trade and of indi- 
 viduals. These principles are set out at length in the magazine 
 articles which I have mentioned. They are accepted and established 
 in our political forum by various speeches, letters, and messages of 
 
454 HEARINGS BEFORE 
 
 public men, notably in Mr. Wickersham's addresses of February 22, 
 1910, and July 19, 1911, and the President's special message -of 
 January 7, 1910. 
 
 Mr. Wickersham is a student of law and government, though, 
 temporarily at least, he seems to be embarked on an unfamiliar sea 
 of political expediency. His address of February 22, 1910, was not 
 a political address. It does not mention Federal incorporation. It 
 was delivered, I understand, to the student body of the George 
 Washington University, and was entitled " The Progress of the Law." 
 I wish that all who are interested in this subject could read this 
 address, as it both states the cause of the difficulty and furnishes an 
 effective summary of the principles underlying its solution, the prin- 
 ciples recognized by Mr. Wickersham, the lawyer-scholar, and 
 strangely at variance with the program of Mr. Wickersham, the 
 political leader. 
 
 Comparing our modern corporate monopolies with the monopolies 
 created by Queen Elizabeth, he said : 
 
 No such comprehensive control over any one of the great industries which 
 were dominated by those large aggregations of capital called trusts could have 
 been attained but through the exercise of powers granted by the sovereign 
 States, and the condition, therefore, was strongly analogous to that which 
 arose in the reign of Elizabeth. 
 
 In the same address, speaking of the principles of legislation on the 
 subject — the Attorney General's address was an address to law stu- 
 dents, I believe; it was not a political address; he does not mention 
 Federal incorporation — he quotes Mr. Carter, the late James C. 
 Carter, to the effect that "the sole function both of law and legisla- 
 tion is to secure to each individual the utmost liberty which he can 
 enjoy consistently with the preservation of the like liberty to all 
 others." 
 
 Adding that — 
 
 every abridgment of liberty demands an excuse, and that its only good excuse is 
 the necessity of preserving it. • 
 
 These are not new maxims, but their insistence at this time in this 
 connection is, I think, of much value. Speaking of the State-created 
 corporate monopoly which he had described, Mr. Wickersham affirms 
 that — 
 
 there was found in the simple but comprehensive charter of our National Gov- 
 ernment the basis for a solution of this problem. * * * In the power con- 
 ferred "upon Congress to regulate trade and commerce among the States and 
 with foreign nations, there was discovered a weapon adequate to the need. 
 
 On the subject of legislation he says this, and I desire to empha- 
 size it in this connection : 
 
 The sound growth and development of the written law must follow and make 
 more specific and more readily enforceable the principle of the unwritten law, 
 or it becomes an instrument of dissatisfaction and even of oppression * * ". 
 " The underlying principle in this legislation is the preservation of the right of 
 the individual to carry on trade and commerce free from undue control and 
 restraint on the part of great aggregations of individuals or capital ; in a word, 
 to protect the individual from the tyranny of a group." 
 
 I might add on this point the words of Secretary Nagel in an 
 article published last Sunday : 
 
 It is the province of the law not to prescribe a result, but to create conditions 
 that may work out their own solution. 
 
COMMITTEE ON" INTERSTATE COMMERCE. 455 
 
 Finally, on this point, Mr. Wickersham, in an interview from 
 which Senator Clapp quoted in his speech of August. 1009. on the 
 Federal corporation tax, suggested that the States should exclude 
 from their borders corporations a majority of who>e stock was owned 
 by other corporations. In his address of last July, in Duluth, he 
 said, but did not urge, this: 
 
 If Congress should euact that no corporation engaged hi interstate commerce 
 shall hereafter acquire any stock of any other corporation so engaged, and that 
 unless such corporation should dispose of all stock held by them in other cor- 
 porations engaged in interstate commerce within some specified period, they 
 should be prohibited from engaging in interstate commerce until they did so 
 dispose of such stock, the ax would indeed be laid at the root of the trust evil. 
 
 Now, Mr. Wickersham did not indorse that, because he felt that it 
 would injure investors. He is now seeking to dissolve the greatest 
 investment corporation in the world, the Steel Trust, without any 
 definite certainty as to the result of reorganization. His incorpora- 
 tion bill, which he now says should exclude the holding companies — 
 prevent the holding of stock, although the actual bill which was 
 prepared by him and published in 1910 authorized holding compa- 
 nies—would compel the reorganization of the Steel Trust and the up- 
 setting of investments in it. So I take it that as to any bill that is not 
 more destructive than his own policies and measures, we have the 
 benefit of his concession, that to exclude holding companies lays the 
 ax at the root of the trust evil. 
 
 He is, I believe, demonstrably wrong in that statement, although 
 it is an acceptance of the principle of the Williams bill. To exclude 
 only holding companies from interstate commerce is the smaller end 
 of the problem. We must exclude the companies controlled by hold- 
 ing companies, otherwise the holding company remains in its own 
 State and controls the commerce of the Nation. The Williams bill 
 provides that the charter must not contain the power to hold stock, 
 which excludes the holding companies, and it also requires that the 
 charter shall provide that no other corporation or association shall 
 have any vote or voice, directly or indirectly, in its affairs. It thus 
 cuts it out, I think effectively, at both ends. It meets the other sug- 
 gestion of Mr. Wickershanij in which he would have the State, in 
 effect, exclude companies that are controlled by holding companies. 
 
 Mr. Wickersham is now in favor of a Federal incorporation law 
 that shall prohibit holding companies. Mr. Taft, in his Detroit 
 speech of September 18, repeated his suggestion of a Federal incor- 
 poration law, with this language, so that— 
 
 by the supervision which might be maintained by an executive bureau of the 
 Government over their transactions, it would be possible to prevent future viola- 
 tions of the antitrust law by those companies on the one hand and to secure 
 to them a freedom of constant fear of prosecution on the other. 
 
 In other words, to hold them on the borderland of monopoly and 
 as near to its rich rewards as the Executive, for the time being, may 
 permit. 
 
 I do not see any other meaning to that language. They are to 
 be held as near-monopolies, and whether they shall step over the 
 line or not is for the Federal Executive to determine. It is also for 
 him to prevent, which, under any law, is a much more difficult matter. 
 
 Mr. Wickersham in his Duluth speech says that this regulation 
 could extend to the regulation of prices. It would be important to 
 know what the President and the Attorney General would do with 
 
456 HEARINGS BEFOBE 
 
 this power if they had it; but it is a great deal more important to 
 know what their successors would do with it, if they so wished, 
 what may be done with it by their successors, by the men who influ- 
 ence them, if they so wish — if they are so influenced. 
 
 I am a young man to speak so categorically on this point, but I 
 do not see how we can speculate on a thing of such absolute cer- 
 tainty. If you consider the nature of the interests involved and the 
 power proposed to be used, interests involving billions, controlled by 
 the elective head of a popular Government, held on the borderland 
 of monopoly, all the great brains and all the big money of the coun- 
 try working toward a common end, and nothing to prevent them but 
 a handful of men, big and little, holding down their jobs until some 
 one offers them better ones. 
 
 As Senator Newlands has said this morning, and it is possibly 
 true in many cases, the officials of the Federal bureaus, after they 
 retire from office, go into the employ of the corporations which they 
 have been managing while they are in office. 
 
 But apart from all this, the proposition is of very doubtful con^ 
 stitutionality. The Federal power to create or indeed to license 
 corporations can in law only exist upon the assumption that it is 
 necessary to the power of regulating commerce. And, of course, 
 it is not necessary if commerce can be completely regulated without 
 it, if everything that could be effected under the disputed power can 
 be effected under existing powers as to which there is no dispute. 
 
 The power to regulate commerce does not include the power to 
 regulate all business dependent on commerce. 
 
 The Williams bill, I believe, lies directly in the " way out " by 
 Federal incorporation. It rests on the same power ; it cures the same 
 evil, provides the same specific reforms, and yet involves no de- 
 parture from precedent, no question of constitutionality, and, I think, 
 no fear of popular disapproval. I urge it not only as a law neces- 
 sary in itself, but to those who think otherwise I urge it as an alter- 
 native to Federal incorporation. 
 
 I do not wish to take the time of the committee in discussing the 
 provisions of this bill unless they desire to go into them at this time. 
 The proposition is the thing in which I am chiefly concerned. The 
 details must be worked out by men better able than I and more 
 familiar with the conditions. There is, I think, no provision in the 
 bill which compares in importance with its principle. If the prin- 
 ciple be adopted, time will improve and correct its provisions. 
 
 There is one general question, and that is the question of certainty 
 in the language. I believe it is absolutely necessary to justice that 
 the things that are to be permitted or forbidden shall be certain. 
 They are endeavored to be made so in the Williams bill, especially 
 in the first paragraph of the first section, which deals with organiza- 
 tion, and in the second paragraph, which deals with capitalization. 
 The third paragraph deals with conduct, and there the language is 
 general. I believe that in creating the corporation the State has 
 the right to impose specific conditions upon it, even more specific, 
 possibly, than it would upon individuals. That paragraph is general 
 in its prohibitions, but I do not believe there can be much doubt as 
 to its application to a specific case. 
 
 There is a provision as to capitalization here, requiring its limita- 
 tion by the court of the home State. That is, of course, important, 
 if it is to be adopted. The theory on which the Williams bill is 
 
COMMITTEE ON INTERSTATE COMMERCE. 457 
 
 drawn is to require every possible safeguard in the inception of the 
 corporation, and when you come to a question of capitalization it is, 
 of course, unwise that any State should organize a corporation with 
 unlimited capital — unlimited in the amount and in the use to which 
 it may be put. In the situation we have to deal with to-day that 
 would permit a reorganization of potential monopolies, or actual 
 monopolies as they are, without disintegration, unless, of course, it 
 be effected under the Sherman Act. The best thought that has 
 occurred to us, although some very able lawyers have disagreed 
 with itj is that the State court in possibly an ex parte proceeding — 
 not necessarily ex parte — should pass upon the question of capital 
 and determine in advance whether or not the capital for an author- 
 ized specific purpose would tend to create a monopoly or restraint of 
 trade. As I say, that suggestion may be criticized, but strangely 
 enough it has been actually adopted in Vermont since the Williams 
 bill was first proposed and a draft of it circulated. The Vermont 
 corporation law was amended in 1911 so as to provide as to any cor- 
 poration over $10,000,000 that it should be organized only upon 
 application to a judge^ " who shall not permit the organization of the 
 corporation if, in his opinion, it would result in creating a monopoly 
 or restraining competition in trade." ' That is the Vermont corpo- 
 ration law to-day. 
 
 As I say, Mr. Edward M. Shepard, of New York, and other lawyers 
 have doubted the advisability of giving a function like that to the 
 judiciary — to the courts — but I think when it comes to the question 
 of deciding whether a corporation, in its organization, complies with 
 the law, it is better and safer to leave it with the court. There is 
 abundant precedent for it. I am familiar personally with the stat- 
 utes of different States that provide for a validation of municipal 
 securities — a validation proceeding which is required to be had be- 
 fore the court, which settles certain questions. So I think in that 
 respect that question might be submitted to the consideration of the 
 committee, if they are interested in the proposal. 
 
 Senator Pomerene. In that connection, what States have these 
 validation laws that you speak of? 
 
 Mr. Reed. Georgia has the most complete one, and New York has 
 recently adopted one. There are different States. In Georgia it is 
 compulsory. In New York it is permissible. In Georgia it is 
 under the jurisdiction of the superior court. 
 
 The Chairman. The committee will now take a recess until 2 
 o'clock. 
 
 (Accordingly, at 1 o'clock p. m. the committee took a recess until 2 
 o'clock p. m.) 
 
 AFTER RECESS. 
 
 The committee met at 2 o'clock p. m. 
 
 The Chairman. The committee will come to order. 
 
 STATEMENT OF E0BEET E. EEED— Continued. 
 
 The Chairman. Your plan proceeds upon the theory, broadly 
 stated that the Government, instead of supervising and becoming 
 in any sense responsible for the conduct of business, shall establish 
 
458 HEARINGS BEFORE 
 
 some plain prohibitions, so plain that there is no question as to what 
 they mean, and then enforce those prohibitions against offenders. 
 Now, do you not think that that provision of your bill which author- 
 izes the court to pass upon the stock, where it is in excess of $5,000,000, 
 is violative of the underlying principle of your plan ? 
 
 Mr. Reed. Senator, I do not agree that the underlying principle 
 is just as you have stated it. That is one of the principles. The un- 
 derlying principle of the bill is to send the corporation back to the 
 State, and require the most effective safeguards that Congress can re- 
 quire of the States. 
 
 The Chairman. But your plan, the vital principle of your plan, 
 as distinguished from the propositions' of others, who propose a sort 
 of coordination of government with business, is the elimination of 
 that cooperation and the establishment of certain prohibitions. 
 
 Mr. Reed. That is true as to the charter. 
 
 The Chairman. Now, do you not think that is violative of that 
 principle when you give this authority to the court ? 
 
 Mr. Reed. I do not want to be misunderstood on that point. It is 
 the purpose of the bill to require certain provisions in the charter ; all 
 the provisions that can be placed in the charter properly, and those 
 provisions should be certain and fixed and easily understood and self- 
 operating. 
 
 But when you come to the question of capitalization, it is impossi- 
 ble, unless you were to put an absolute prohibition on capitalization 
 above a certain amount, to provide for it, unless you leave it to some 
 body or board or court that is having judicial knowledge, if not 
 judicial powers, to pass upon the question as to whether or not the 
 specific purposes for which they shall use that capital would create 
 a monopoly or restraint of trade. It is requiring that to be passed 
 upon in the first instance by the creative authority, and thus reduc- 
 ing the need of another authority coming in later and attacking it. 
 
 The Charman. Of course, you would either have to leave the capi- 
 talization absolutely open, or you would have to prescribe a legisla- 
 tive rule, or leave it to somebody. Now, your plan proceeds here 
 upon the theory of our prescribing a legislative rule. It does seem 
 to me that when you coordinate government, even though it is a 
 State court, it is violative of the very basic principle of your plan. 
 
 Mr. Reed. No ; it is intended to place a power of that kind, if it 
 must be exercised, in the State, rather than to centralize it. 
 
 The Chairman. You provide that it shall specify the amount, and 
 under its order finding, upon competent proof, that the authorized 
 use of the capital does not involve any violation of paragraph 3, it 
 seems to me that it is impossible as a plan to reconcile it with the 
 balance of your bill. It is subject, so far as it goes, to the very 
 objections which you urge to the coordination of the Government in 
 business. I just wanted to call your attention to that. 
 
 Mr. Reed. Yes, sir. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Has this bill been printed in the records yet ? 
 
 The Chairman. No ; it has not. It will be printed in the record, 
 of course. 
 
 Senator Brandegee. I have nothing to ask, then. 
 
 The Chairman. Senator Newlands, you may inquire. 
 
COMMITTEE ON INTERSTATE COMMERCE. 459 
 
 Senator Newlands. Mr. Seed, your bill as originally drawn sim- 
 ply provided, regarding capitalization, that the capital stock of a 
 corporation should not exceed $5,000,000. There the maximum was 
 arbitrarily fixed? 
 
 Mr. Reed. I think you are mistaken, Senator. 
 
 Senator Newlands. As originally drawn. 
 
 Mr. Reed. Yes; as originally drawn it provided a limitation as to 
 its capital stock. But it also provided that that could be increased 
 by a proper application to a competent court. 
 
 Senator Newlands. Where is that? 
 
 Mr. Reed. On pages 38 and 39. That language has been so gener- 
 ally misunderstood. 
 
 Senator Newlands. What section? 
 
 Mr. Reed. Second paragraph of the first section. 
 
 Senator Newlands. Oh, yes. I supposed it made an arbitrary 
 limitation as to the capital, and that later on in your proposed amend- 
 ment you enlarged that so as to permit a court, upon competent proof 
 that the corporation had no monopolistic purpose in view, to allow a 
 larger capitalization, but not exceeding, I believe 
 
 Senator Beandegee. Any amount. 
 
 Senator Newlands. Yes; I see. 
 
 Mr. Reed. The language has been recast for the purpose of cor- 
 recting that misunderstanding, which I found was general. 
 
 Senator -Newlands. You found it difficult, I presume, to fix an 
 arbitrary capital? 
 
 Mr. Reed. The bill was tentatively drawn by Senator Williams and 
 myself. It is not intended ; of course, to be final. It was only drawn 
 for the purpose of presenting a formal proposition in concrete form. 
 I could not say what provisions were presented by Mr. Williams and 
 what were presented by myself. 
 
 Senator Newlands. I am asking for your individual views. What 
 is your individual view — that there should be a limit to the amount 
 of capital fixed in the law itself? 
 
 Mr. Reed. My personal view of that is that there should be a 
 supervision by the creating authority determining, in the first in- 
 stance, the legality of the intended use of the capital. 
 
 Senator Newlands. That creating authority would be the State? 
 
 Mr. Reed. The State. 
 
 Senator Newlands. Under your plan would you expect the States 
 to gradually change their laws so as to bring them in conformity 
 with the provisions of the Federal statutes? 
 
 Mr. Reed. The most distinctive provisions, those contained in 
 paragraph 1, are such as could be placed in the charters of the cor- 
 porations under the existing laws of the so-called- corporation States, 
 and many others. 
 
 Senator Newlands. You mean to say they could be inserted as a 
 part of the powers and restrictions and limitations expressed in the 
 articles of incorporation? 
 
 Mr. Reed. Yes, sir. 
 
 Senator Newlands. But my question went further than that. 
 Would you expect a State to pass legislation containing similar pro- 
 visions ? 
 
460 HEARINGS BEFOKE 
 
 Mr. Eeed. I would expect them to gradually reform their laws to 
 conform to the requirements of Congress as to all corporations that 
 expected to engage in interstate commerce. 
 
 Senator Newlands. Would that be necessary to the successful op- 
 eration of your plan? 
 
 Mr. Eeed. Not to its most distinctive and effective features ; no. 
 
 Senator Newlands. Would it be necessary as to any of your 
 features ? 
 
 Mr. Reed. It would be necessary as to the provisions of paragraph 
 2, relative to the capitalization. The existing laws of most States do 
 not contain provisions authorizing a court to pass upon the question 
 of capitalization and the use to which it should be put. That would 
 have to be provided for, and pending such provision I would sug- 
 gest the proposed law contain a provision permitting compliance with 
 that feature by application to a circuit court of the United States. 
 
 Senator Newlands. Until the State could act? 
 
 Mr. Reed. Until and unless the State acted; yes, sir. As I have 
 said, I think, I do not consider the provisions here as to capitaliza- 
 tion an essential part of the proposal. The distinctive provision is 
 with regard to the limitations and safeguards of the charter. That 
 is in the articles of association. 
 
 Senator Newlands. Would not doing this thing through a court 
 involve the question of judicial sanction which might be invoked 
 later on as an absolute validization or legalization involving vested 
 rights ? 
 
 Mr. Reed. I think the bill is so drawn as not to preclude the Fed- 
 eral Government from attacking an actual monopoly in violation of 
 paragraph 3 of the first section or in violation of the Sherman Act. 
 It simply requires a State to do its best to safeguard the capitaliza- 
 tion of corporations in the first instance, leaving it open to the 
 National Government to attack any actual monopoly or restraint of 
 trade, as it has been construed. 
 
 Senator Newlands. But where the State has taken no action, and 
 you authorize an application to the Federal court to validate this 
 capital, would not that close the transaction so far as the legality of 
 that capitalization was concerned? 
 
 Mr. Reed. It might close the transaction as to the authorization 
 in the first instance, but it would not close it as to any violations or 
 conditions which constituted a violation of the Sherman law or of 
 this law, and also I have inserted tentatively in this draft a pro- 
 vision that the court decree authorizing the capitalization shall pro- 
 vide that the authorized capital may thereafter be reduced to remedy 
 any such violation or any unauthorized use thereof. These pro- 
 visions as to capitalization are susceptible, I am sure, of much 
 improvement, both as to their main details, and especially as to 
 what your questions suggest — whether or not they should be final. 
 Of course they should not be final unless provision is made for the 
 Attorney General becoming a party to the proceeding. 
 
 Senator Newlands. Would a corporation organized under your 
 plan, under the law, we will assume, of the State of New Jersey, be 
 permitted to hold plants, manufacturing plants, we will say, similar 
 to those which it owns in New Jersey in other States? 
 
 Mr. Reed. Undoubtedly. 
 
 Senator Newlands. And without limitation? 
 
COMMITTEE ON INTERSTATE COMMERCE. 461 
 
 Mr. Reed. No; the capitalization in New Jersey would be subject 
 to limitation. 
 
 Senator Newlands. But without limitation as to number? 
 
 Mr. Reed. As to number of plants. But they would, in the first 
 instance, I believe, as the bill is drawn, they would have to get the 
 authority of the courts to buy these particular plants. They would 
 have to get the authorization of the court for this increased' capital, 
 stating the purposes to which it was to be applied. 
 
 Senator Newlands. Suppose the corporation should be organized 
 for the purpose of constructing and operating manufacturing plants 
 in New Jersey and also for the purpose of constructing and operating 
 similar manufacturing plants in half a dozen States, naming them, 
 would you expect a transaction of that kind to be permitted by your 
 act? 
 
 Mr. Reed. Undoubtedly, if it were permitted by the court that 
 passed upon its capitalization. If its capital were less than $5,000,000 
 it would undoubtedly be able to do so without any supervision. 
 
 Senator Newlands. And if it were above $5,000,000 the court 
 would then determine both as to the reasonableness of the capitaliza- 
 tion, its incapacity to produce a monopoly or something tending to 
 monopoly, and at the same time pass upon the # number of plants and 
 the States in which those plants could be constructed upon which the 
 capital is to be expended. 
 
 Mr. Reed. It is not assumed by the act that the court shall pass 
 upon the question of capitalization alone. No court, I take it, could 
 well say in advance whether twenty-five or fifty million dollars in any 
 given industry was going to create a monopoly ; but it passes upon the 
 capital and authorizes it for specific purposes and uses. 
 
 Senator Newlands. I- see. Then in this case the specific purpose 
 and use would be the construction of similar plants in other States? 
 
 Mr. Reed. I want to state again these provisions are not an essen- 
 tial part ; are not the distinctive features of the bill. 
 
 Senator Newlands. Assuming that it is desired that one corpora- 
 tion should own a manufacturing plant or plants, not only in the 
 State of its creation, but also in half a dozen other States, do you 
 think it is best to allow that transaction to be accomplished by the 
 organization of a single corporation in New Jersey, with power to 
 absolutely own plants in other States, or by the organization of such 
 a corporation in New Jersey, with power simply to hold the stock 
 of corporations organized in the States in which these various plants 
 are to be located ? 
 
 Mr. Reed. I do not assume my own competency to pass upon these 
 questions without detailed study of many laws and conditions, but I 
 certainly think it would be much better to have one corporation 
 owning all the plants, with full publicity and general knowledge as 
 to its organization, properties, and business. 
 
 Senator Newlands. You know that serious objections are enter- 
 tained by some States as to permitting foreign corporations to own 
 plants within their State; first, because such a corporation can claim 
 citizenship that will entitle them to go into the Federal courts; and 
 there are other objections. But, on the other hand, many corpora- 
 tions engaged in the manufacturing business in different States find 
 that the transaction of business by foreign corporations is impeded 
 
462 HEARINGS BEFORE 
 
 in such State, and therefore prefer to organize their local plants 
 under the laws of those States. How would you reach those 
 difficulties ? 
 
 Mr. Eeed. Well, in one aspect of it I would reach it in this way : 
 I do not believe that that policy would be continued by any State to 
 the disadvantage of its own citizens when corporate conditions gen- 
 erally had been properly reformed. 
 
 Senator Xewlaxds. Well, you know, as a matter of fact, that often- 
 times it is the custom of corporations to organize under the law of a 
 State in which they have little business, in order to claim Federal 
 jurisdiction in the courts in other States where their principal busi- 
 ness is transacted, do you not ? 
 
 Mr. Reed. Yes; I realize that. 
 
 Senator Newlands. And that is a serious question in those States ? 
 
 Mr. Reed. I might say that one of the provisions of this bill, which 
 may or may not be a wise provision at this time, is a requirement 
 that a corporation shall be organized under the State or Territory 
 in which its chief place of business and its executive offices are located 
 and its directors' meetings regularly held. In other words, it is in- 
 tended as a proper situation, when it can be brought about, to re- 
 quire all corporations, to be organized in their home State, and to do 
 away entirely with the practice of sovereign States competing with 
 each other in the liberality and looseness of their laws which they 
 offer to aliens for alien use. 
 
 Senator Newlands. What objection would there be in such a plan 
 as you contemplate^ provided that a corporation organized for the 
 purpose of conducting a business in several States, and, organizing 
 subsidiary corporations in those States, complied with their laws, 
 and meeting in that way local prejudice, etc., if all the restrictions 
 of your national law are observed? 
 
 Mr. Reed. There would be no objection to it if it was found that 
 it could be adequately safeguarded, but I doubt very much if it could 
 be, as it authorizes corporate agencies which have been found by 
 practice to be dangerous to public policy and to interstate commerce. 
 
 Senator Newlands. But could not your restrictions, the Federal 
 restriction and conditions, be so framed as to do away with the evils 
 that have hitherto arisen from holding companies? 
 
 Mr. Reed. I think possibly. To meet the views of many men I 
 would be glad to see it done, but I have not felt competent to tackle 
 it myself. I Lave tried to draw the bill as simply as I could along 
 general lines to present the proposition in its effective form. 
 
 Senator Newlands. You seem to feel that if such a bill was passed 
 it would probably do away with the necessity for supervising and 
 regulating official?, etc. Do you not suppose that the National Gov- 
 ernment would be compelled to keep some such organization, either 
 in the shape of a bureau or commission, such as it now has in the 
 form of the Bureau of Corporations, to make inquiries regarding 
 the infractions of the law and investigation?, and to see that the law 
 is enforced ? 
 
 Mr. Reed. The main infractions of the law, Senator, I take it, 
 would be in the corporate charter, ascertainable by inspection. The 
 other infractions, I think, would be reduced to a minimum. They 
 would, of course, require the attention, when they existed, of the 
 Department of Justice. I haven't any idea of entirely abolishing 
 
COMMITTEE ON INTERSTATE COMMERCE. 463 
 
 the Bureau of Corporations. The plan is not intended to be as 
 ambitious as that, but to present an effective law. 
 
 Senator Newlands. Constant vigilance would be required upon the 
 part of the national authorities, would it not, to see that the restric- 
 tions and conditions of the charter were not violated? 
 
 Mr. Reed. I think not. Nine-tenths, probably, of the conditions in 
 a corporate charter, such as are provided for in the bill, would be, I 
 am sure, effected automatically by the other stockholders and parties 
 in the corporation. The home* law would attend to it, I think. 
 
 Senator Newlands. You refer to this as a charter, do you not? 
 
 Mr. Reed. To the bill as a charter? 
 
 Senator Newlands. Yes, sir. 
 
 Mr. Reed. No ; I would not do so intentionally. 
 
 Senator Newlands. Well, you have in your remarks referred to it 
 as a charter, as I understood you, and I want to know in what sense 
 you regard it as a charter. 
 
 Mr. Reed. I have not intentionally referred to the law as a charter. 
 In fact, I wanted to draw a distinction between it and those pro- 
 posals that do provide for some Federal body passing upon the State 
 charter and giving the corporations a charter or license for doing 
 interstate business. My idea is that compliance with the law would 
 be the only charter required, and that Congress could remain free to 
 impose further restrictions and the Executive to enforce the law when 
 necessary. 
 
 Senator Newlands. The difference in your plan and the licensing 
 plan is that in the latter a license is given, in compliance with which 
 a State corporation can engage in interstate commerce, and under 
 your plan conditions are imposed the violation of which will prohibit 
 that corporation from engaging in interstate commerce. Is not one 
 about the equivalent of the other ? 
 
 Mr. Reed. If the law is so drawn that the license should be a mere 
 tag I think it is nonessential. If it is so drawn as to give to any 
 supervising body the power to pass upon matters of policy and to 
 grant leave to engage in interstate commerce to one corporation and 
 to refuse it to another, in their discretion, then there would be a 
 vast difference. I understood Mr. Hay, in stating his proposition 
 this morning, to say that he thought there was very little discretion 
 to be given to a Federal board. If that is the case, there is no neces- 
 sity for creating a Federal board. The law speaks for itself. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. As I understood you, Mr. Reed, the distinc- 
 tive feature about this plan of yours— the one you regard as the dis- 
 tinctive feature — is the fact that it leaves the control of this practice 
 to the State ; they get their charter there and they get their author- 
 ity to do business there, and you think that a Federal incorporation 
 law would have to enumerate so many things that by that very fact 
 it would exclude others not enumerated, and those would become en- 
 cumbrances and make the restriction possibly inefficient ? 
 
 Mr. Reed. I think that is true, Senator, although I do not believe 
 I have stated the thought in that way. My objection to a Federal 
 incorporation law is not to its inefficiency. I have no doubt that a 
 Federal incorporation law might be drawn, if Congress had tne 
 general constitutional power to draw it, that would be efficient as 
 
 22S77— vol i—12 30 
 
464 HEARINGS BEFORE 
 
 an incorporation law ; but, as stated by the President in a very recent 
 address, its purpose under the present constitutional power is to 
 enable the Federal Executive to continue a supervising control of 
 corporations, and by that, as he expressed it, to keep them from 
 violating the law and to keep them from fear of prosecution ; and I 
 characterized that, I think, as keeping them on the borderland of 
 monopoly. I spoke entirely of the executive feature of the bill; but 
 as to its efficiency, I had not intended 
 
 Senator Town send. Perhaps I misunderstood you. You have 
 some doubt about a constitutional Federal incorporation law, be- 
 cause, if I took your words correctly, you say that the only basis 
 upon which the Federal Government could exercise that was the 
 constitutional basis of regulating commerce, and if it was not neces- 
 sary to adopt this plan, then it could not be constitutional; is that 
 your view ? 
 
 Mr. Reed. I think that is so. As I stated, it Avas that in a correct 
 interpretation of the Constitution, as I take it, a decision approving 
 Federal incorporation would only be adopted upon the view of ex- 
 treme necessity in the regulation of commerce. Assuming that Con- 
 gress can completely maintain the freedom of commerce without it, 
 I do not believe the Supreme Court would hold a Federal incorpora- 
 tion law valid if it were of the opinion that Congress could completely 
 exercise its power without it. 
 
 Senator Townsend. That is, if there were some other way to do it? 
 
 Mr. Reed. Some restrictive way to do it, based upon established 
 precedents. 
 
 Senator Townsend. You may be right about it, although it seems 
 hardly to be a tenable position. 
 
 Mr. Reed. My impression is that the constitutionality of a Federal 
 incorporation law is doubted by a great many men and prominent 
 lawyers. 
 
 Senator Townsend. Yes; I should say; but not on the ground 
 that there might be some other way to regulate it. If Congress had 
 
 Eower to regulate commerce, and employs means for regulating it, 
 ecause there was some other way that might have been employed, 
 that would not necessarily preclude that way, would it? 
 
 Mr. Reed. If the Supreme Court were of the opinion that Con- 
 gress could regulate commerce completely without resorting to a 
 Federal incorporation law, I do not believe that the Supreme Court 
 would uphold a Federal incorporation law. That is not so much a 
 statement of a legal principle as the statement of a conclusion. 
 
 Senator Townsend. Why is a legal incorporation more objection- 
 able than any other method — constitutionally, I mean? 
 
 Mr. Reed. Well, Federal incorporation law involves the taking to 
 itself by Congress of a power that has never been exercised by it, 
 that has never been asserted until the last few years. I am speaking, 
 of course, of industrial corporations, not of railroads and other cor- 
 porations. And from my knowledge of legal principles and the 
 Supreme Court decisions, I take it that it would not sanction such a 
 departure unless it were impressed with the necessity of it. In other 
 words, it would have to be under the power to regulate commerce. 
 
 Senator Townsend. Oh, yes ; of course, that is granted. 
 
 Mr. Reed. There is no power to incorporate industrial corpora- 
 tions, and unless under the power to regulate commerce Congress 
 
COMMITTEE ON INTERSTATE COMMERCE. 465 
 
 finds it necessary to have a Federal incorporation law, I hardly think 
 it would have power to do it. 
 
 Senator Townsend. There is no power under the Constitution, 
 except under the provision to regulate commerce. 
 
 Mr. Eeed. I think that is regulating commerce; that is, regulating 
 the agencies of commerce and not the persons who engage in it. 
 
 Senator Townsend. You propose, so far as the capital is con- 
 cerned, to allow the circuit court to determine wherever the capitali- 
 zation exceeds $25,000,000? 
 
 Mr. Eeed. I am afraid the bill is very easily misunderstood. 
 
 Senator Townsend. Perhaps I am a little dull in comprehending. 
 _ Mr. Reed. The provisions you refer to are, of course, merely tenta- 
 tive, anyhow. 
 
 Senator Townsend. Yes ; I know that. 
 
 Mr. Eeed. But the only suggestion as to the circuit court is where 
 the State laws do not provide for their own courts passing upon the 
 questions of capitalization; that a corporation wishing to engage in 
 commerce and not having the means otherwise to comply with the 
 law may apply to a circuit court, and if the capital exceeds 
 $25,000,000, whether they are acting under the State law or under 
 this law, the order, I think, as a matter of safety should not be effec- 
 tive until it had been passed upon by a reviewing court. That is 
 where the $25,000,000 comes in. 
 
 Senator Townsend. I am not particular about the $25,000,000. 
 But in all cases where the court, either the State court or the circuit 
 court, passes upon the capitalization — suppose you had two corpo- 
 rations, similar corporations engaged in the steel business or wanting 
 to engage in the steel business, one under one jurisdiction and another 
 under another jurisdiction, and one court holds that $100,000,000 is 
 about right, and the other jurisdiction says $150,000,000 or 
 $200,000,000 are needed. There is nothing here to prevent getting 
 two decisions from two separate courts of different States fixing 
 different amounts as to the capitalization of those corporations, is 
 there? 
 
 Mr. Eeed. Nothing at all. The present corporation statutes of the 
 different States differ in a great many ways. 
 
 Senator Townsend. But if you had a Federal law, they would be 
 uniform, probably, on that subject? 
 
 Mr. Eeed. They should be, and I am not at all sure that a pro- 
 vision allowing the Federal courts to decide upon it would be dan- 
 gerous, if it were a judicial and not an executive function and was 
 completed at the time it was done and not a matter for continued 
 supervision. My idea is that in adherence to the democratic prin- 
 ciples and the present relations, historic relations between State and 
 Nation, that the effort should be made to require the States to exercise 
 a safeguard through its courts. As I said before, that leaves the 
 Federal Government free to question the result. 
 
 Senator Townsend. WeU : how is this going to affect the Sherm*" 
 law, if this bill should pass ? 
 
 Mr. Eeed. It would make its evasion impossible. 
 
 Senator Townsend. You clo not propose to repeal the Sherman 
 law? 
 
 Mr. Eeed. Not at all. 
 
466 HEARINGS BEFORE 
 
 Senator Townsend. You would make yours in addition to that; 
 leave the other one and all its other provisions the same? 
 
 Mr. Reed. Yes, sir. This simply deals with corporations. There 
 are specific prohibitions against corporate acts that relate to monop- 
 oly that might amplify the Sherman law as to corporations, it being 
 generally recognized that the corporation has been the means of the 
 evasion of the act in the last 20 years. 
 
 Senator Townsend. Are there any penalties here that are not 
 found in the Sherman law that might apply to the Sherman law ? 
 
 Mr. Reed. There are. These special provisions, or the distinctive 
 provision here as to penalties is this — that is, as to any person acting 
 in violation of law, through a corporation or otherwise, if the viola- 
 tion is willful, with intent to defraud or to create a monopoly, then 
 they shall be liable to both fine and imprisonment not exceeding five 
 years. 
 
 Senator Townsend. You have made it apply to persons in some 
 particulars ? 
 
 Mr. Reed. Yes, sir. That is, it limits the penalty of imprisonment 
 lo violations that are willful, with intent to defraud or create a 
 monopoly. In other words, the imprisonment feature attaches only 
 where there is a willful violation; where the intent was to violate 
 the purpose of law. 
 
 Senator Townsend. I think that is all. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. I do not believe I quite understand why you 
 used this expression on page 42 : " It shall have only such powers as 
 are incidental to the business in which it is authorized to engage, 
 which shall not include any express power to hold the stock." Query : 
 Why do you use the qualifying word " express " ? 
 
 Mr. Reed. For this reason, that unless there is an express power, a 
 provision in the charter to hold stock, then it stands as it did at com- 
 mon law, without power to hold stock. 
 
 Senator Powerene. Well, your purpose is to prevent the holding 
 of stock under any circumstances ? 
 
 Mr. Reed. By corporations. 
 
 Senator Pomerene. Then, why not leave out the word " express " 
 and say that it shall not have any power to hold stock ? 
 
 Mr. Reed. Well, I would not like to interfere with the common-law 
 power of a corporation in the collection of its debt, to buy in securities 
 that had been pledged. 
 
 Senator Pomerene. That can be provided for by simply saying, 
 as it does in the national banking act, that it might have the power 
 to acquire real estate, but it shall only hold it for a given time. 
 
 Mr. Reed. That can be done. 
 
 Senator Pomerene. You use your word " express " seemingly in 
 contradistinction to " implied " power. 
 
 Mr. Reed. Yes ; because it is only under the express powers that are 
 given by the corporation laws, that a holding company becomes pos- 
 sible. The implied power never would have created that condition. 
 It is only to make it explicit and clear that I think it has any value 
 in that connection. 
 
 Senator Pomerene. It occurred to me that it added an uncertainty 
 to it which ought not to be there. If you would strike out the word 
 " express " I think you would remove that uncertainty. 
 
COMMITTEE ON INTERSTATE COMMERCE. 467 
 
 Mr. Reed. I do not believe we would — I beg your pardon for saying 
 so — because I think it makes it clear that it shall not have in its 
 articles of association any power to hold stock. 
 
 Senator Pomerene. But in other ways it may have some implied 
 power, under the expression that the inclusion of one thing is the 
 exclusion of the other. 
 
 Mr. Reed. The holding company exists under the express power; 
 ,the implied power is not a dangerous thing at all. I would not lay 
 any great stress upon that point, but that is the reason of its being 
 in there. 
 
 Senator Pomerene. You apply the terms of your bill to corpora- 
 tions. Why ought it not to apply with equal force to an association 
 of individuals, two or three or more, who might attempt to monop- 
 olize a business? 
 
 Mr. Reed. In the first place, section 3 provides that the prohibition 
 of section 1 shall apply to any association 
 
 Senator Pomerene. Oh, I did not notice that. 
 
 Mr. Reed. The membership in which is represented by shares 
 
 Senator Pomerene. Section 3. 
 
 Mr. Reed. It can be made to apply to a partnership, if it is so 
 desired. The act deals primarily with corporations and organized 
 associations. 
 
 Senator Pomerene. Well, do you know of any reason why it would 
 not apply to partnerships? 
 
 Mr. Reed. Well, of course, there are specific provisions as to stocks, 
 etc., which could not apply to those. Th6 Sherman law, I think, 
 would cover the partnership combination, and that very effectively. 
 There is no reason why the principle of the bill could not be applied 
 to partnerships. 
 
 Senator Pomerene. By what principles would you expect the 
 courts to be controlled in determining the amount of capital which 
 could be invested in this business? 
 
 Mr. Reed. The application for capital would have to be accompa- 
 nied by a specific statement of the purposes, and the authorization 
 would be for those specific purposes, and if the court were of the 
 opinion that it involved a restraint of trade in any particular in- 
 dustry, then they would not authorize the capitalization. Those are 
 substantially the same as now stated in the Vermont incorporation 
 laws. 
 
 Senator Pomerene. Would it not be well to provide what these 
 specific objections should be by statute which should control the 
 court in attempting to administer the law ? 
 
 Mr. Reed. It states that in the Williams bill as introduced. It 
 states that if the court finds it involves no violation of paragraph 3, 
 which contains specific prohibitions of certain acts that experience 
 has shown tend to create corporate monopolies — the act as tenta- 
 tively changed provides that if the court shall be of the opinion 
 that it does not violate any Federal law, which would include both 
 the Sherman law and this act 
 
 Senator Pomerene. I may be mistaken in this, as I have read this 
 over hurriedly, but you provide that they shall not be a ithorized 
 to do business unless this capital stock is fully paid up ? 
 
 Mr. Reed. Fully paid or payable in cash or property. 
 
 Senator Pomerene. Does it say " payable " ? 
 
468 
 
 HEARINGS BEFORE 
 
 Mr. Reed. -Paid or payable in cash or property. 
 
 Senator Pomerene. That is what I had in mir.d. I did not believe 
 that it said " payable." 
 
 Mr. Reed. In the bill as introduced that provision is in paragraph 
 1, In revising it, I think it ought to be put with the provisions as to 
 capital in paragraph 2. 
 
 Senator Pomerene. " Fully paid or payable " — that is right, I see. 
 
 I think that is all. 
 
 The Chairman. Mr. Reed, referring to this Vermont law, it says: 
 " Such judge shall not permit the organization of such a corporation 
 if. in his opinion, its organization is liable to create a monopoly or 
 result in restraining competition or trade." 
 
 Now, in assailing an alleged trust, one of the elements of proof, 
 whch might be a very important element, would be the circumstances 
 of its organization, would it not ? 
 
 Mr. Reed. I think so ; yes, sir. 
 
 The Chairman. The authorization by the courts under the Sher- 
 man law would eliminate that element of proof in a subsequent attack, 
 would it not ? 
 
 Mr. Reed. In the State courts it probably would. 
 
 The Chairman. Well, if Congress authorizes it with reference to a 
 corporation through the interstate-commerce law, would not the 
 United States be precluded from questioning or seeking to avail itself 
 of that element of proof in an attack upon the corporation ? 
 
 Mr. Reed. I think not, Senator. The bill as introduced provides, 
 first, a limitation in the charter power, and safeguards, which are 
 most important. It provides, second, the conditions as to capitaliza- 
 tion to which you are referring. It provides, third, that after all these 
 things have been done, " such corporation shall not be formed or op- 
 erated for the purpose or with the effect of monopolizing or unreason- 
 ably restraining trade in any article of commerce not the subject of 
 any patent, trade-mark, or copyright held by it, or be a part of or 
 controlled directly or indirectly by any combination formed or op- 
 erated for such purpose or with such effect." 
 
 I think that first sentence there will reach the situation you have 
 suggested. 
 
 The Chairman. That is all true. And when you come to attack 
 it you would attack it for a violation of it, but, would you not, by 
 authorizing a State court to pass on the capitalization, eliminate that 
 as a factor of proof? Clearly, under the Vermont law, I think you 
 will agree that in a subsequent attack upon the corporation you 
 could not bring in as a factor of proof the organization. The court 
 has passed upon that. 
 
 Mr. Reed. I believe, Senator, the bill is so drawn that the action 
 of a State court does not preclude the Federal Government 
 
 The Chairman. Not from attacking. 
 
 Mr. Reed. Not from attacking any feature of it, either its authori- 
 zation or its results. It simply requires that safeguard. It simply 
 requires that thing to be done in the first instance as a check. But it 
 does not preclude the Federal Government. The whole purpose of 
 this bill, one underlying purpose of this bill, is to leave the Federal 
 power free at all times. 
 
 The Chairman. That is all true. But when you employ a judicial 
 agency to pass upon a fact, and the judicial agency has made its 
 
COMMITTEE ON INTERSTATE COMMERCE. 469 
 
 decision, whatever might have been drawn from the establishment 
 of that condition, independent of a judicial function, certainly must 
 be eliminated as proof of purpose or intent, when it has been done 
 under a judicial construction authorized by the law. 
 
 Mr. Reed. That might be true. That is one of the objections, 
 possibly, to having it passed upon by a Federal court; but where 
 Congress simply requires that authority be given to a corporation 
 before it can do certain acts, it does not preclude itself as to the 
 result in its compliance with other provisions. 
 
 The Chairman. That is true. But you are not requiring them to 
 give authority to certain acts. You are authorizing a judicial tri- 
 bunal to pass upon a certain condition and to approve it judicially. 
 While you may still attack the corporation for violating the law, are 
 you not obliged to eliminate whatever force might be derived from 
 the circumstance over which the court had jurisdiction and upon 
 which the court has passed? 
 
 Mr. Reed. I think, Senator, that the answer to that lies in the 
 recognition of the distinctive sovereignties of the State and Nation. 
 Congress does not authorize a State court to pass upon it. The State 
 law must authorize it to pass upon it. Congress simply requires 
 that that thing must have been authorized and done. It is created 
 by a separate sovereignty before it comes into the Federal domain. 
 And if it comes into the Federal domain and is found to violate 
 section 3, then the Federal authority or the Federal power will 
 restrain it from engaging in interstate commerce. It leaves its crea- 
 tion to its home State. 
 
 The Chairman. By what process will it thereafter reduce the 
 capital stock? 
 
 Mr. Reed. That provision is put in there in general language as 
 being possibly the best way it could be put in. In reducing the 
 
 capital stock, the court would follow the procedure of 
 
 The Chairman. I am not speaking of the Federal court. What 
 would it resort to? 
 
 Mr. Reed. The Federal Government has no power to reduce the 
 capital stock. It could only do it under a bill in equity, as it is now 
 able to do it under the Sherman law. But under this provision here 
 the State court itself could correct its own wrongs. 
 
 The Chairman. Suppose the State declined to correct any wrongs I 
 Mr. Reed. Then the Attorney General would have to proceed by 
 bill in equity or by criminal proceedings against the corporation. 
 
 The Chairman. After the State court has passed on this stock, 
 would you think that the Federal Government could then proceed to 
 T*pniipp the stock . 
 
 Mr Reed. No. I beg your pardon. The Federal Government 
 could then proceed to file a bill in equity to restrain it from engaging 
 in interstate commerce, and to satisfy that decree might permit it to 
 
 reduce its stock. 
 
 The Chairman. After a corporation had complied with the provi- 
 sions of this law. including the judgment of the court as to capital 
 stock do you think that the Federal Government could then sustain 
 a bill in equity against that corporation, restraining it from doing 
 business upon the sole ground that its stock was too large? 
 
 Mr. Reed. Oh, not at all ; not unless it violated the provisions of 
 paragraph 3 by effecting a monopoly. 
 
470 HEASINUS BEFORE 
 
 The Chairman. Exactly. Now, let us get back to this court. 
 What power will you invoke under this bill to reduce this capital 
 stock under section 2? 
 
 Mr. Reed. No power. But I believe that a State should reserve to 
 itself, where it creates a corporation of very large capitalization, the 
 power of reducing its capital stock to prevent a monopoly. If the 
 State does not do that effectively, the only thing the Federal power 
 can do is to prevent it from engaging in interstate commerce. 
 
 The Chairman. Again I ask you what power would you invoke 
 under this bill when there is no complaint except that it has got too 
 much stock? 
 
 Mr. Reed. The Federal power has nothing to do with that. 
 
 The Chairman. Then who could enforce this? You can not 
 compel the State to enforce it. 
 
 Mr. Reed. It is not necessary that it should be enforced. It has 
 not got too much capital if it is not creating a monopoly. 
 
 The Chairman. You provide here : " Such capital stock may be 
 thereafter reduced to remedy or prevent any such violation or any 
 unauthorized use thereof." Now, I ask you again, what tribunal 
 would you go into to secure a reduction of stock? 
 
 Mr. Reed. You would have to go into the State tribunal to do that, 
 if you wanted specifically to sue for the reduction of that stock. In 
 fact, only a complaining party or stockholder or the State itself in 
 a State court could proceed under that proviso. 
 
 The Chairman. Then that is not a Federal remedy in itself? 
 
 Mr. Reed. It is a requirement by the Congress that the State shall 
 have that power over its corporations. It is not an essential pro- 
 vision of this bill. 
 
 The Chairman. Its simply requiring that the States should have 
 power would not meet any condition that requires a remedy, if such 
 condition arose, unless there was some way to enforce it. 
 
 Mr. Reed. The Federal power all the time may proceed by an 
 action against a monopoly. 
 
 The Chairman. Independent of what has been passed upon by 
 the courts? 
 
 Mr. Reed. I proposed those provisions, those requirements, of 
 charter limitations, as safeguards in the organization requiring States 
 to do all they can in the first instance so as to reduce to the minimum 
 the need for Federal intervention. If, as the result of noncompliance 
 with these provisions, there still exists a monopoly, the law provides 
 that the Attorney General can still prevent them from engaging in 
 interstate commerce. 
 
 The Chairman. Of course he can. 
 
 Mr. Reed. But it is intended to reduce to a minimum 
 
 The Chairman. But you have put this provision in here evidently 
 for a purpose, and yet there is no authority. You can not compel 
 the State to proceed. It is very clear. I think, that the Federal 
 Government could not proceed. 
 
 Mr. Reed. There is no intention for anyone to proceed unless 
 it effects a monopoly, and if it effects a monopoly or restraint of 
 trade, then the Federal Government can interfere under the third 
 paragraph. But that provision, as I say, is not an essential provision. 
 The purpose of that provision is to give to the State itself the power 
 
COMMITTEE ON INTERSTATE COMMERCE. 471 
 
 to correct its own creature. The Federal Government has no power 
 to compel it to do so. 
 
 The Chairman. The Federal Government could proceed against 
 a corporation for violating this law, but the Federal Government 
 could not proceed to reduce the stock of the corporation ? 
 
 Mr. Reed. Not directly; no, sir. 
 
 The Chairman. That is a vital matter, and there should be some 
 authority somewhere with reference to it. Leaving it to the State, 
 it has no authority whatever. 
 
 Mr. Reed. It is not, I believe, a vital matter or a matter with 
 which the Federal Government should be concerned, so long as that 
 corporation does not engage in interstate commerce. The Federal 
 Government can drive it back into its own State, and it will reduce 
 its capital before it comes out again. 
 
 The Chairman. The Federal Government could not drive it back 
 into its own State unless it found it was violating some provisions 
 of this law. Then why assume a remedy that does not exist? 
 
 Mr. Reed. That is simply a remedy which enables the State to 
 correct its own creatures if it sees fit. 
 
 The Chairman. I wish now to direct your attention to the inquiry 
 of Senator Pomerene. You would not hold that a corporation could 
 not be clothed with the power to hold stock in another corporation 
 except by an express authorization? Its charter might contain pro- 
 visions which would not amount to an express authorization, and yet 
 from which the powers could be very clearly applied. 
 
 Mr. Reed. I think not, Senator. I think the law is well settled 
 that a corporation can not hold stock — can not acquire and hold stock 
 by purchase unless it has an express power. 
 
 The Chairman. Well, the power may be express, but it does not 
 have to be expressed in the sense in which you have used the term. 
 The power may be inferred from the language of the charter with- 
 out the express declaration of that power. Of course, at common 
 law a corporation could not hold the stock of any other corporation 
 unless it was authorized to do so. But you will find nowhere that 
 that authorization, I think, must be in express terms. It may be 
 gathered from the language of the charter itself. 
 
 Senator Pomerene. From the whole context. 
 
 Mr. Reed. That may be so ; and if so, that word should be elimi- 
 nated. 
 
 Senator Pomerene. No doubt of it. 
 
 Mr. Reed. But I do not know of any such State law or charter 
 provision from which it could be implied. 
 
 Senator Townsend. I did not quite get the same view of it that the 
 chairman did with reference to reducing capital. May I ask a ques- 
 tion or two to see if I am clear about it? The only way provided 
 for any reducing of capital here in this bill of yours is because it is 
 some violation of this act. Now, if there was a violation of the act, 
 even authorized capital might be prohibited by the Federal Gov- 
 ernment. That is, they could not engage any longer in interstate 
 commerce. Is not that your idea ? 
 
 Mr. Reed. Yes, sir. I think your question makes that language 
 perhaps a little bit clearer. The purpose of that is to enable the State 
 to correct it if it wishes to. If it does not, the Federal Government 
 
472 HEARINGS BEFOBE 
 
 is not concerned with it, except to file a bill in equity to restrain the 
 corporation from engaging in interstate commerce. 
 
 Senator Townsend. That is what I thought. 
 
 Mr. Keed. But the State, as a matter of protection, should reserve 
 that power to itself, whether it exercises it or not. 
 
 Senator Townsend. The Federal Government is not particularly 
 interested in it. 
 
 Mr. Keed. It is not interested at all, unless it creates a monopoly in 
 interstate commerce. 
 
 Senator Townsend. That is, if a corporation authorized under a 
 State law to do business with a given amount of capital should use 
 that capital for some purpose prohibited in this act, then the Federal 
 Government can say, " You shall no longer engage in interstate com- 
 merce until that capital is reduced " ? 
 
 Mr. Reed. Yes; it can say, " You shall no longer engage in inter- 
 state commerce, because you constitute a monopoly " ; and then to 
 satisfy the decree the court may permit them to come in with a dis- 
 integrating and reorganizing plan. 
 
 The Chairman. That is quite true, but unfortunately you apply 
 this provision for a remedy in express terms. 
 
 Mr. Reed. That is a State remedy for a violation of a State re- 
 striction. That is simply to enable the State to correct that violation, 
 if it chooses, and reduce the need for Federal intervention. 
 
 The Chairman. " It may be thereafter reduced to remedy or pre- 
 vent " — what? "Any such violation or any authorized use thereof." 
 If that paragraph means anything at all, it means a relation between 
 the capital stock and the fact that the corporation is engaging in 
 interstate commerce under certain Federal prohibitions. 
 
 Mr. Reed. There is only one thing further I might say as to that, 
 and that is as to the use of the words " unauthorized use thereof." 
 That part of the restriction could be availed of by a stockholder, and 
 probably would be, in a State court. But it is true, of course, that the 
 only remedy that the Federal Government has is to file its bill in 
 equity. 
 
 (There being no further questions, Mr. Reed was thereupon 
 excused.) 
 
 (By direction of the chairman the Williams bill is incorporated 
 in the record:) 
 
 Mr. Williams introduced the following bill, which was rend twice and referred 
 :o the Committee on Interstate Commerce. 
 
 ;S. 1377. In the Senate of the United States. April 20, 1911.] 
 
 A BILL To prescribe the conditions under which corporations may engage in Interstate 
 commerce, ami to provide penalties for otherwise engaging in the same. 
 
 Be it enacted by the Senate and House of Representatives of the United States 
 of America in Congress assembled. That no corporation shall engage in commerce 
 between the States or Territories, or in the District of Columbia, by the purchase, 
 sale, or consignment of any article of commerce, or otherwise, unless it is or- 
 ganized, conducted, and managed as follows: 
 
 First. It shall be organized under the laws of a State or Territory in which 
 Its chief place of business and executive offices are located and its directors' 
 meetings regularly held. It -shall hare only such powers as are incidental to 
 the business in which it is authorized to engage, which shall not include any 
 express power to hold the stock of any other corporation or to do anything out- 
 ride of the State or Territory of its incorporation which it is not permitted to do 
 
COMMITTEE ON" INTERSTATE COMMERCE. 473 
 
 therein. All of -its stockholders or members shall have an equal right to vote 
 the number of shares held by them respectively at all meetings and for all direc- 
 tors, subject to any general limitation on the number of votes that may be cast 
 by a single member, and excepting that no other corporation or association shall 
 be entitled to any such vote or any voice directly or indirectly in its affairs. Its 
 directors shall be required to be actual owners of stock, and not to be directors, 
 officers, stockholders, or employees of any corporation engaged in the same busi- 
 ness. Its stock shall be full paid or payable in cash or in property or services 
 where the issuance of such stock for such property or services has been author- 
 ized upon application to a competent court and under its order finding upon 
 competent and specific proof that it is based on a fair valuation of such property 
 or services. It shall be specifically stated in the certificate or articles of incor- 
 poration that such corporation intends to engage in commerce between the 
 States subject to all acts of Congress regulating such commerce or limiting or 
 affecting the rights, powers, or duties of corporations and associations engaged 
 therein. 
 
 Second. The capital stock of such corpor. tion shall not exceed five million 
 dollars, nor shall its surplus be permitted to exceed fifty per centum of its capital 
 stock, nor shall its indebtedness be permitted to exceed its full paid capital 
 stock and surplus : Provided, That the limitation as to its capital stock shall 
 not apply to a corporation whose capital stock in a larger amount has been 
 authorized upon application to a competent court for a specific purpose or 
 purposes and in a specific amount and under its order finding upon competent 
 proof that the authorized use of such capital stock does not involve any viola- 
 tion of paragraph third and providing that such capital stock may be therer 
 after reduced to remedy or prevent any such violation or any unauthorized 
 use thereof. 
 
 Third. Such corporation shall not be formed or operated for the purpose or 
 with the effect of monopolizing or unreasonably restraining trade in any arti- 
 cle of commerce, not the subject of any patent, trademark, or copyright held 
 by it, or be a part of or controlled directly or indirectly by any combination 
 formed or operated for such purpose or with such effect. It shall not directly 
 or indirectly of itself or in connection with others destroy fair competition 
 in any part of the United States in the manufacture, production, mining, pur- 
 chase, sale, or transportation of any such article of commerce, either by mak- 
 ing or effecting exclusive contracts, rights, or privileges relating thereto, by 
 restricting its customers or other persons with regard to price, territory, or 
 otherwise, in freely buying, selling, or transporting any such article, by secur- 
 ing the monopoly or control of raw material or sources of supply or of any 
 business connected therewith, by accepting rebates, or by any other act, device, 
 or course of business that is unfair and tends to secure an unfair advantage 
 and unreasonably and unfairly to destroy competition. 
 
 Sec. 2. That the prohibition of section one shall apply to any association 
 membership in which is represented by shares, but shall not apply to any cor- 
 poration or association not engaged in business or engaged exclusively in any 
 one of the following businesses : A railroad or other common or public carrier of 
 property or persons or messages ; banking ; insurance ; the supply of water, light, 
 heat, or power ; or engaged in any business or businesses the substantial bulk of 
 which is carried on in foreign countries or in any one State or Territory or 
 district and which does not involve the customary transmission of goods from 
 one State or Territory or district to another, nor the purchase, sale, or con- 
 signment of articles commonly the subject of commerce between the States 
 and Territories and actually intended for or becoming the subject of such 
 commerce. 
 
 Sec. 3. That every contract made in violation of this act shall be void. 
 
 Sec. 4. That no person or persons shall form, operate, or act as or for a 
 corporation or association for the purpose or with the effect of violating this 
 act, or conspire thereto and of themselves or by a coconspirator do any act 
 or things to effect such conspiracy. 
 
 Sec. 5. That every corporation, association, or person violating this act shall 
 be subject upon conviction thereof, in case of a corporation or association, to 
 a fine not exceeding ten per centum of its capital stock, or to a perpetual 
 injunction against engaging in interstate commerce, or both, and in Hie case 
 of a person to a fine not exceeding ten thousand dollars, and if the violation 
 is willful with intent to defraud or to create a monopoly to such fine and 
 imprisonment for not exceeding five years. 
 
474 
 
 HEARINGS BEFORE 
 
 Sec. G. That the act of February eleventh, nineteen hundred and three, rela- 
 tive to the expedition of certain suits in equity, and sections four and five of 
 the act of July second, eighteen hundred and ninety, known as the Sherman 
 Antitrust Act, shall apply to all proceedings and suits in equity under this act. 
 
 Sec. 7. That the foregoing provisions of this act shall take effect January 
 first, nineteen hundred and twelve, but shall not apply to corporations 
 or associations having a capital stock and surplus under ten million dollars 
 until September first, nineteen hundred and thirteen. 
 
 Sec S. That any corporation or association organized, conducted, and man- 
 aged as required by section one shall, after the passage of this act, be entitled 
 to engage in commerce between the States and Territories, and to carry on its 
 authorized business relative to such commerce in any State or Territory and 
 in the District of Columbia, subject to all present or future acts of Congress, 
 and to the general laws and taxing power of any State, Territory, or District 
 in which it may do business. 
 
 SUGGESTED REVISION OF WILLIAMS BILL DRAFTED TO MORE EFFECTIVELY PRESENT THE 
 PROPOSAL ON WHICH IT IS BASED. 
 
 A proposed law to prescribe the conditions under which corporations may engage in 
 interstate commerce and to provide penalties for otherwise engaging in the same. 
 
 Section 1. That do corporation shall engage in commerce between the States 
 or Territories, or in the District of Columbia, by the purchase, sale, or consign- 
 ment of any article of commerce, or otherwise, directly or indirectly, unless it is 
 organized, conducted, and managed as follows : 
 
 First. It shall be organized under the laws of a State or Territory in which 
 its chief place of business and executive offices are located and its directors' 
 meetings regularly held. It shall have only such powers as are incidental to 
 the business in which it is authorized to engage, which shall not include any 
 express power to hold the stock of any other corporation or to do anything 
 outside of the State or Territory or district of its incorporation which it is 
 not permitted to do therein. All of its stockholders or members shall have an 
 equal right to vote the number of shares held by them, respectively, at all meet- 
 ings and for all directors, subject to any general limitations on the number of 
 votes that may be cast by a single member, and excepting that no other cor- 
 poration or association or person holding or owning directly or indirectly any 
 stock or interest in or acting for or connected with any corporation, association, 
 or trust engaged in the same or any competing business, shall be entitled to any 
 vote or any voice directly or indirectly in its affairs. Its directors shall be 
 required to be actual owners of stock, and no person shall be eligible as a 
 director who is a director, trustee, officer, stockholder, member or employee of 
 or acting for or connected with any corporation, association, or trust engaged 
 in the same or any competing business. It shall be specifically stated in the 
 certificate or articles of incorporation that such corporation intends to engage 
 in commerce between the States subject to all acts of Congress regulating such 
 commerce or limiting or affecting the rights, powers, or duties of corporations 
 and associations engaged therein, and that any provision that may thereafter be 
 required by Congress as a condition of its right to engage in interstate com- 
 merce shall, by a vote by its directors, be inserted in its charter or governing 
 laws. 
 
 Second. Its capital stock shall be full paid, or payable in cash or in property 
 or services, when the issuance of such stock for such property or services has 
 been authorized upon application to a competent court, and under its order 
 finding upon competent proof that it is based on a fair valuation of such 
 property or services. If the total capital stock exceeds five million dollars, it 
 ■shall only be authorized for a specific purpose or purposes in a specific amount 
 or amounts, upon application to a competent court and under its order, finding 
 upon competent proof that the authorized use of such capital does not involve 
 a violation of this act or of any other Federal law, and providing that such 
 authorized capital stock may be thereafter reduced to remedy any such viola- 
 tion or any unauthorized use thereof. If the total capital exceeds. twenty-five 
 million dollars, any order hereinabove provided for, before it becomes effectual, 
 must be reviewed and affirmed, together with the findings on which it is based, 
 by the highest court of the State or Territory in which such corporation is 
 organized. Provided, That if the laws of the State or Territory in which such 
 
COMMITTEE ON INTERSTATE COMMERCE. 475 
 
 corporation is organized do not provide for compliance with the foregoing con- 
 ditions, any application as aforesaid may be made to the circuit court of the 
 United States having jurisdiction thereof, for its order as aforesaid, and if 
 the total capital stock exceeds twenty-five million dollars, such order, before it 
 becomes effectual, must be reviewed and affirmed, as aforesaid, by the circuit 
 court of appeals having jurisdiction thereof. The surplus of such corporation 
 shall never be permitted to exceed fifty per centum of its full paid capital stock, 
 nor shall its indebtedness be permitted to exceed its full paid capital stock and 
 surplus. The surplus and indebtedness, respectively, if in excess of five million 
 dollars, shall be permitted only upon application to a court and under its 
 findings and subject to reduction as aforesaid. 
 
 Third. That such corporation shall not be formed or operated for the purpose 
 or with the effect of monopolizing or restraining trade in any article of com- 
 merce not the subject of any patent, trade-mark, or copyright held by it, or be 
 a part of or controlled directly or indirectly by any combination formed or 
 operated for such purpose or with such effect. It shall not directly or in- 
 directly of itself or in connection with others destroy fair competition in any 
 part of the United States in the manufacture, production, mining, purchase, sale, 
 or transportation of any such article of commerce, either by making or effect- 
 ing exclusive contracts, rights, or privileges relating thereto by restricting its 
 customers or other persons with regard to price, territory, or otherwise in 
 freely buying, selling, or transporting any such article, by securing the monopoly 
 or control of raw material or sources of supply or of any business connected 
 therewith, by accepting rebates, or by any other act, device, or course of 
 business that is unfair and tends to secure an unfair advantage and unreason- 
 ably and unfairly to destroy competition. 
 
 Sec. 2. That every contract made in violation of this Act shall be void, and 
 no corporation or association shall bring or maintain any suit or proceeding in 
 any court of the United States, unless it is organized, conducted, and managed 
 as required by section one, nor shall this provision prevent the removal of any 
 such suit or proceeding to such courts where such defense may be available to 
 the defendant. 
 
 Sec. 3. That the prohibition of section one and section two shall apply to any 
 association or trust membership in which is represented by shares, but shall not 
 apply to any corporation, association, or trust not engaged in business or 
 engaged exclusively in any one or more of the following businesses : A railroad 
 or other common or public carrier of property or persons or messages ; banking, 
 insurance, the supply of water, light, heat, or power; or engaged in any busi- 
 ness or businesses the substantial bulk of which is carried on in foreign coun- 
 tries or in any one State or Territory or District, and which does not involve 
 the customary transmission of goods from one State or Territory or District 
 to another, nor the purchase, sale, or consignment of articles commonly the 
 subject of commerce between the States and Territories, and actually intended 
 for or becoming the subject of such commerce. 
 
 Sec. 4. That no person or persons shall form, operate, or act as or for a 
 corporation or association or trust for the purpose or with the intent of violat- 
 ing this act, or conspire thereto and of themselves or by a coconspirator do 
 any act or thing to effect such conspiracy. 
 
 Sec. 5. That every corporation, association, trust, or person violating this act 
 shall be subject upon conviction thereof, in case of a corporation, association, 
 or trust, to a fine not exceeding ten per centum of its capital Stock or to a 
 perpetual injunction against engaging in interstate commerce, or both, and in 
 the case of a person to a fine not exceeding ten thousand dollars for each such 
 violation, and if the violation is willful, with intent to defraud or to create a 
 monopoly, to such fine and imprisonment for not exceeding five years. 
 
 Sec 6 That the act of February eleventh, nineteen hundred and three, 
 relative to the expedition of certain suits in equity, and sections four and five 
 of the act of July second, eighteen hundred and ninety, known as the Sherman 
 Antitrust Act, shall apply to all proceedings and suits in equity under this act. 
 Sec 7 That the foregoing provisions of this act shall take ettect September 
 first nineteen hundred and twelve, but shall not apply to corporations or 
 associations having a capital stock and surplus under ten million dollars until 
 September first, nineteen hundred and thirteen. . 
 
 Sec 8 That any corporation or association organized, conducted, and man- 
 azed as reauired by section one shall, after the passage of this act, be entitled 
 to engage in commerce between the States and Territories, and to carry on its 
 authorized business relative to such commerce in any part of the United States, 
 
476 
 
 HEARINGS BEFOEE 
 
 subject to till present or future acts of Congress and to the general laws and 
 taxing power of any State, Territory, or District in which it may do business. 
 Sec. 9. That the purchase, sale, or consignment of any article intended to 
 become and actually becoming an article of commerce between the States or 
 Territories shall be deemed to be an act of engaging in such commerce under 
 this act. 
 
 (Senator Clapp asks to have following letter inserted:) 
 
 Auburn, Cal., November Iff, 1911. 
 
 Dear. Senator Clapp: Either last Monday or Tuesday — two or three days 
 ago — I mailed a short letter to the honorable Committee on Interstate Commerce 
 of the United States Senate. That same evening, after mailing the letter, I 
 learned from the newspaper that you were chairman of said committee. 
 
 I was very glad to learn that you were at the head of this important com- 
 mittee, involving deliberations and discussions concerning incorporated business 
 of an interstate character. 
 
 In my letter of a few days ago I most respectfully and earnestly requested 
 that, as preliminary to scientific investigation, your committee read the memorial 
 and petition I sent to Congress just a year ago, and which was introduced in the 
 House of Representatives (and on file with the Committee on Judiciary of that 
 branch of Congress) by Senator Poindexter on January 25, 1911. 
 
 I renew this earnest request to you in this personal letter. 
 
 For the past three years at the opening of Congress I have mailed my printed 
 pamphlet sheets to its members, and one well-defined purpose in so doing was to 
 protest against any kind of Federal incorporation act and for the reasons set 
 forth. 
 
 Your committee has again met, as I understand, ahead of the opening of 
 Congress in order to report the earlier with your recommendations to the Senate. 
 I do, indeed, most earnestly renew the request that the " Philosophy of the 
 situation of incorporation," which has not yet been considered by Congress, be 
 considered. It would necessarily carry great weight, even in a minority report, 
 if such request was indorsed, such recommendation made to the Senate by your 
 committee. 
 
 Permit me to quote from two or three paragraphs of the memorial in the 
 hope of persuading you to read the whole of this paper in committee. I have 
 retained the rough draft of a letter I wrote Senator La Follette on June 6, 
 1908. I have not the time this morning to copy and put in shape to mail you. 
 It is somewhat long — 15 pages. If you or other members of your committee 
 ask what I mean by the " Philosophy of the situation." I think this letter fully 
 explains. Senator Poindexter has very recently written me that he was much 
 interested in the " Philosophy of the situation of incorporation." It is neces- 
 sarily all a priori on my part in its presentation, because if others have con- 
 sidered and discussed it, I don't know it, and therefore, of course, have no 
 authorities to cite or precedent to go by other than the reference given in the 
 memorial to " First principles," by Herbert Spencer, the great English phi- 
 losopher, and my deductions were wholly independent of this famous author, 
 and it was but an accident that in cursory reading, glancing through this work 
 of his, I found confirmation of what I termed " Such comprehensive view or 
 philosophy of the situation " yet to be considered in regard to incorporation 
 by others which I had thought out. Philosophy is needed at this time for 
 proper handling of this big question, and, to quote the above-mentioned extracts 
 from said memorial, " science is but the implements with which to work. 
 Philosophy is, as stated by Spencer, a ' final product.' " 
 
 " Scientific culture of the analytical kind in very high degree has been 
 exhibited and applied by some of our Members of Congress, who have labored 
 hard and done their full duty as they saw it, and yet that full duty as they 
 have seen it has not gone beyond a very imperfect analysis of the phenomena 
 of incorporation as affecting the moral, social, political, and economic status 
 of the people of the country in relation to governmental action in their behalf ; 
 in fact, such great predominance has been given to the economic (properly 
 subsidiary to the other factors mentioned in a well-ordered State or Govern- 
 ment) that perhaps their attention has been almost exclusively directed to it, 
 and consequently their vision or viewpoint correspondingly narrowed. 
 
 "At any rate and for whatever cause, the philosophy of the situation of 
 incorporation has not been considered by them. 
 
COMMITTEE ON INTERSTATE COMMERCE. 477 
 
 " Wherefore let us consider the structural nature of democracy and its 
 republican form of representative expression as well as the scheme of manage- 
 ment of public affairs with reference to some aim or resuM, if we would avoid 
 the analogous error endeavored to be pointed out with reference to cause and 
 effect and not confine ourselves to the mere consideration of policies, whether 
 good or bad, when the time has arrived iu the critical state of the Union of 
 indissoluble, autonomous States for Congress to pass upon the policy of 
 national incorporation, which, if adopted, will necessarily have a momentous 
 effect as a result before any consideration of the cause. 
 
 " To be sure it can be said that the cause or reason for national incorporation 
 lies in the fact that the several States of the Union are incapable of handling 
 separately and properly the great interstate business conducted under iucorpora"- 
 tion, and when so put, is it not at once seen that we still proceed upon the 
 dogmatic assumption of the stability of the law of incorporation and still only 
 deal with the condition of incorporation as a positive, resultant quantity, and 
 the quality and comparative quality as between the States and Nation, without 
 considering the primordial cause, incorporation, itself? 
 
 " I again beg you to consider the ' Philosophy of the situation ' and not accept 
 as conclusive a mere creature of law and invest that creature by national policj 
 with a power beyond the control of the States, without further careful consid- 
 eration of the structural nature of said State and National Governments to be 
 affected by the result." 
 
 The above quoted few paragraphs simply if possible to get the mere beginning 
 of a hearing of this big and grave question from you and other members of your 
 Committee on Interstate Commerce in the Senate. 
 
 While this memorial and petition was introduced in the House of Repre- 
 sentatives by Senator Poindexter and referred to the Committee on Judiciary at 
 the last session of Congress, I failed then (as I understand) in having it read 
 or discussed. 
 
 I now most respectfully and earnestly ask you, individually, ahd you as chair- 
 man of your Committee on Interstate Commerce, and each and every other mem- 
 ber of said committee, that you consider this memorial and report it in your 
 report to the Senate. 
 
 Personally, I thank you most heartily for the kind consideration you have 
 heretofore given me, as evidenced by your several letters in reply to communica- 
 tions sent you, and I wish it were my honor and pleasure to know and meet you, 
 and hope that I may some time in the near future. 
 
 Very sincerely, yours, A. B. Reading. 
 
 THE TRUST SITUATION. 
 
 The trust is not, as some superficial thinkers believe, the product of the tariff, 
 though the tariff has been a contributing factor. 
 
 On the other hand, the trust is not, as its apologists claim, a normal and 
 natural development growing out of present-day conditions ; for if that was 
 true its operations would be entirely beneficent, whereas we know that the 
 trust, in its operation and results, has been maleficent as regards the general 
 public. 
 
 The trust is really an excrescence which has fattened upon the ignorance of 
 the public, and is a creation of greedy men who have taken advantage of con- 
 ditions and built a FrankensteiD, which unless destroyed will destroy us. 
 
 Pat6 de foie gras is much relished by certain gourmands, but it is death to 
 the goose. 
 
 So trust operations and profits are most satisfactory to financial gourmands, 
 but are death to the people who furnish the liver. 
 
 For the roots of the trust we must burrow in several directions. 
 
 The privilege of overcapitalization, of watering stock, as it is termed, may be 
 accepted, I think, as a most potent factor. It will be observed that in every 
 merger or trust that has been organized this overcapitalization, or discounting 
 the future, is a noticeable feature. This discounting of the future has resulted 
 in an abnormal development of business, in itself unhealthy, and has placed 
 upon the productive activities of the country an undue burden. 
 
 But this watering of stock would in itself have been vain but for some 
 medium through which to bolster its value, and that medium was found in the 
 
478 HEARINGS BEFORE 
 
 New York Stock Exchange, which is to-day the greatest gambling concern on 
 earth and the deadliest enemy to legitimate business in America. 
 
 The New York Stock. Exchange is, in turn, bolstered by the associated banks 
 of New York, which at times have $4 loaned on these gambling transactions 
 to $1 based on commercial paper or legitimate business. 
 
 The New York banks get their money from all the people of all the country, 
 so we come to the proposition that the people's own money is used for their 
 undoing. 
 
 Out of this condition has grown the deplorable get-rich-quick spirit, the 
 gambling mania which is afflicting our people in every section of the country. 
 
 Another factor in the trust growth has been the very natural desire of the 
 people in every section for a development of their resources, and in order to 
 bring this about they have surrendered, and are surrendering, valuable rights 
 and franchises to shrewd promoters, and thus placing unendurable burdens 
 upon themselves and their posterity. 
 
 The present activity in the creation of water-power trusts in certain sec- 
 tions is an illustration of this phase of the question. 
 
 In certain directions the tariff has contributed largely to the building up of 
 the trust. • 
 
 I want to lay down here the axiomatic truth : " That no government in the 
 world has the moral right to take, by process of law, money from the pocket of 
 one citizen and put it in the pocket of another citizen." 
 
 Tried by this acid test, the protective theory falls to the ground. I fully 
 concede that any government has hhe right to levy a tariff, in any amount 
 whatever, that may be necessary to preserve the national existence or to pay 
 actual governmental expenses, and this government may do, irrespective of 
 whether this action' operates to protect certain interests or not, but beyond 
 this government has no right to go. 
 
 As I have already said, the tariff has been a contributing factor in building 
 up the trust along certain lines, but the trust could never have risen to its 
 present power, except in a few cases, but for the greater help obtained from 
 the watering of stocks. 
 
 I would respectfully ask your committee to consider especially the remarks 
 on " Manufactures," contained in my article on " Freight rates, manufactures, 
 and immigration," published in 1906, and a copy of which is submitted herewith. 
 
 The prospect of gaining a monopoly, or a near monopoly, in given lines has, 
 of course, been the underlying motive in the trust organizations. 
 
 A private monopoly is abhorrent to the mind of every right-thinking man. 
 No monopoly is defensible except such as, like the postal service, belong to all 
 the people. 
 
 I believe the fundamental error that we commit in dealing with the trust 
 question is that we have allowed shrewd lawyers to make us believe that we 
 must not destroy or even weaken the vested rights which have been created. 
 
 The trust is predicated on the securing of an unfair advantage, and to allow 
 so-called vested rights, built upon such a foundation, to stand is to give to 
 every shrewd trickster the profits of his trickery and at the public expense. 
 
 The true position, as I see it, is to establish the precedent that no vested 
 right accrues in anything which is of the nature of private monopoly or which 
 is able to dictate terms to a given line of trade. 
 
 Gentlemen of the committee, the time has come to make new precedents. 
 
 We have come to an impasse 1 ; nothing but legal dynamite will clear the 
 atmosphere. As between trust domination and State socialism the people of 
 this country will go to State socialism. The public men, facing this condition, 
 must become real leaders and blaze the way if we are to remain a democratic 
 Republic and maintain the moral and material health of the people. 
 
 The promoter and the exploiter, the trust magnate, and the too highly 
 protected manufacturer must go, and business must be lightened of the load 
 of these too highly priced gentry. 
 
 How shall we do this? All of us see the evils, but the remedy is hard to find. 
 
 Proper tariff revision will help much as to that feature. In a previous letter 
 to your chairman I laid down a plan that I believe will reach the gambling 
 New York Stock and Cotton Exchanges. 
 
 The Federal Government can reach the national banks by forbidding them to 
 lend on speculative or " call " loans, as most of these speculative loans are 
 called, and the other banking institutions can not alone carry the gambling 
 interests. 
 
COMMITTEE ON INTEBSTATE COMMEECE. 479 
 
 Our 48 different governments make the problem most difficult, but the things 
 I have mentioned will all help and are all within the province of the Federal 
 Government. 
 
 Another thing that will go far — indeed, I believe it will do more than any 
 other one thing to equalize matters — is a graduated and drastic income tax. 
 
 The Federal Government can force those concerns doing an interstate busi- 
 ness to show their books, and can thus see who gets the profits. 
 
 A graduated income tax, exempting all incomes under $2,000 and $2,000 of 
 all incomes above that figure, can be laid, grading from 1 per cent at the mini- 
 mum up to 50 per cent at the maximum, which might be placed at $10,000,000. 
 
 This would give to the Government an enormous revenue. The Government 
 could then plan a great system of national roads, penetrating every State, to 
 be pushed as labor was available, at a minimum wage of $2 per day. This would 
 put the revenue back into circulation, would steady wages, would insure each 
 man work in his own State, and would prevent the oppression of the workers 
 by penurious or greedy employers. 
 
 A recommendation from the Congress to the various States to enact such cor- 
 poration laws as would prevent further stock watering would be helpful and 
 would soon narrow the field of operations of the promoters. 
 
 A physical valuation of all concerns doing an interstate business could be 
 made, and if such valuation showed overcapitalization of any corporation it 
 might be prohibited from doing business until this was remedied. 
 
 These suggestions are given only in a tentative way ; they occur to me as 
 feasible and practical ; others will occur to you. 
 
 The one thing I want to stress is that if the Congress is really determined to 
 find a way out that will be in the interest of the masses there is enough wis- 
 dom in the Congress to do an effective job. The first step is the determination 
 to do it ; the next is to do it. 
 
 Briefly stated, the trust situation calls for new precedents. 
 
 The idea that any man or any company of men can acquire vested property 
 rights by the commission of acts inimical to the public welfare must be aban- 
 doned. This would mean confiscation of the property claimed by the wrong- 
 doers, as well as imprisonment. 
 
 Full recognition must be given to the fact that the true primary purpose of 
 government is moral rather than material. 
 
 The government that preserves equality of opportunity, that compels men 
 to do justice in their social relations, that refuses special privileges or fran- 
 chises to all men, will not need to trouble itself about the material welfare Of 
 the people ; the problem will be solved. 
 
 Old wrongs must be righted, mere perfunctory reorganizations will not suffice, 
 and at any cost these huge and iniquitous concerns must be torn to pieces. 
 No price is too great to pay for the reestablishment of the business of the 
 country on a basis of moral health. 
 
 Any nation can endure honest poverty. No nation can long survive ill-gotten 
 wealth. 
 
 There must be a new alignment of governmental powers. Judicial and execu- 
 tive authority have trenched upon the rights of the legislative power. 
 
 The legislative power must be recognized as supreme. 
 
 The duties of the executive and judicial powers must be restrained Within 
 proper limits, and that proper limit is the carrying out of the laws made by 
 the legislative body, which is the direct agent of the people. 
 
 No court-made amendments to law should be tolerated, and the Constitution 
 should be so amended as to take from the Supreme Court the power to declare 
 null a law of the Congress. 
 
 These may seem to you rather radical views, but it is along this line we must 
 move or accept the alternative — socialism. 
 
 GENERAL REMARKS. 
 
 There is one phase of this trust question that I think people do not properly 
 grasp. A very common argument advanced is that a big corporation is not 
 necessarily bad merely because it is big, and that our people should not fear 
 mere bigness. This is fallacious reasoning. Indeed, if there was absolutely 
 no other objection to these giant corporations except their size, that in itself 
 is to my mind a fatal one. It would be a very shallow man who would argue 
 that one 30,000-acre farmer with his tenants was of as much value to the 
 
 22877 — vol i — 12 31 
 
480 HEARINGS BEFORE 
 
 country as 300 independent 100-acre fanners. If i.rtv* no nrgr.ir.ent whatever 
 upon that proposition — all men recognize its soundness — that the numerous 
 small farmers are worth more to the country than the one big planter. 
 
 The same principle or economic law runs through other things. One hundred 
 factories, each with a capital of $1,000,000, are worth more to the country than 
 one factory with a capital of $100,000,000. The big factory may cheapen the 
 cost of production, but it is demonstrable that the consuming public do not 
 get the benefit of that reduction, and it is made too often at the expense of the 
 wage earner. 
 
 But this is not all. The giant corporation, able to produce a given article at 
 a minimum of cost, is tempted beyond its virtue to use its power to crush out 
 smaller competitors, who are unable to produce at a similar cost. Naturally 
 their argument takes the line that the smaller competitor, not being able to 
 produce at so small a cost, is not a benefit to the country. This looks plausible 
 on its face,' but it lacks the vitalizing element of truth. 
 
 As I have just said, the big man does not give the benefit of the reduced 
 cost to the public. So, as far as the consuming public is concerned, it is just 
 as well off dealing with the little man ; and aside from this the wage earner 
 suffers a distinct loss in his reduced earning power when controlled by the big 
 producer, and the commercial morality of the country is undermined by the 
 methods of the big producer to destroy competition. These methods are now 
 known of all men and need no amplification here. I merely want to emphasize 
 the fact that bigness in itself is dangerous, and the record of the past 20 years 
 easily proves that statement. Therefore I fear bigness, even if lawful. 
 
 The real trouble at the root of this whole matter of readjustment of our 
 business conditions lies in the public disinclination to submit to severe sur- 
 gery. All history shows that in dealing with social evils nations have refused 
 to submit to the necessary treatment until bloody revolution comes along and 
 wipes off the slate. It seems to me that we ought to be wiser than that. The 
 cry that the necessary cautery will injure business is not well founded, even if 
 we admit that it might produce what we call a panic. It would mean no more 
 than our going through a siege of boils in order to get the humors out of our 
 system. If we refuse that, the boils become carbuncles, and they are often 
 fatal. As a matter of fact, these periodical panics, though harmful to some of 
 us at the moment (and I know by experience), result in temporarily clearing 
 the atmosphere and bringing us to a realization of the necessity of wiser pro- 
 cedure. In two or three years we forget the lesson, and then a few more 
 years and we go through the same experience again. 
 
 As a matter of fact, however severe a disturbance may be precipitated by 
 a relentless prosecution of wrongful methods by a forcing of the business of 
 the country back to a standard of common honesty, by the restraining of 
 greed, by the limitation of power in the hands of commercial pirates, the fact 
 remains that our fields will not be less fruitful, our lands will not blow away, 
 nor will our factories perish from the earth. The productive power of the 
 Nation will not be lessened, though its productive output may for the moment 
 be shortened, and we may for a season have to endure hardship. Better so 
 than that the Republic should perish — for that the present methods will bring 
 us to destruction can not be questioned. 
 
 Many of the remedies proposed strike me as of the patent-medicine variety. 
 One of my correspondents wants a court established in Washington composed 
 of big business men. In other words, he would establish as the regulator of 
 these evil conditions a court composed of some of the men who have created 
 them. When one comes to think of that proposition it smacks of the ridicu- 
 lous. We have already too many courts and too much law. If we could wipe 
 off the statute books one-half the law we now have and substitute therefor 
 a few plain, definite declarations in English that can not be misunderstood, and 
 then enforce them with the courts we now have, our condition would speedily 
 show a better state of health. The multiplication of courts and commissions 
 to treat symptoms and to find palliatives will not do. What we need is not 
 a pruning knife to cut off the small branches far out, but a saw that will take 
 off some of the big limbs close down to the body. The tree may not look so 
 pretty after this necessary arboreal surgery, but it will be a healthy tree, 
 To-day the decay from these rotten branches is spreading to the trunk, and 
 unless we can muster moral courage and civic virtue strong enough to face 
 any present hardship rather than to see the tree perish, either we or our chil- 
 dren will inevitably see the tree perish. 
 
COMMITTEE ON INTERSTATE COMMERCE. 481 
 
 No better illustration "of the utter futility of the present trust prosecutions 
 S? n °V ound than tfl e legal football games played with the Sugar Trust and 
 the Tobacco Trust. The players, who are the lawyers, and the trusts get the 
 proceeds— the people pay. In the Sugar Trust the Government gets restitution 
 ot a few millions of stolen money, and the trust then blandly proceeds to 
 recoup itself by raising sugar (a necessity) to a level unknown in many years 
 on the ground of scarcity, when Russia has millions of tons which it is anxious 
 to sell at moderate prices. But here the tariff and trust agreements come in 
 There is not in all history a more shining illustration of governmental incom- 
 petence than is exhibited in this case. 
 
 Take the Tobacco Trust. The sapient court orders a reorganization' when 
 what was needed was demolition. A 10-year-old schoolboy can see that the 
 proposed reorganization which has already been sanctioned by the court will 
 leave us exactly where we were at the beginning of the struggle. 
 
 The courts must be put on notice that the people will not longer submit to 
 such trifling with the public. 
 
 The judges must unlearn a lot of rubbish by which they are now governed 
 and which consists of outworn precedents, legal technicalities, preconceived 
 opinions, and a lot of nonsense about vested rights. They must learn that an 
 intrenched wrong, however powerful, can never be a vested right. They must 
 learn that decisions which fail to do justice are not good law, however specious 
 the arguments with which they fortify these paltering decisions. 
 
 STATEMENT OF SENATOR NEWLANDS. 
 
 The Chairman. Senator Newlands, some days ago you suggested 
 that you had some matters that you wanted put into the record. 
 
 Senator Newlands. Yes. 
 
 The Chairman. If you have them ready you may just as well in- 
 sert them now. 
 
 Senator Newlands. Mr. Chairman, early in our hearings Mr. 
 Dwinnell, of Minnesota, presented a plan for regulating trusts by 
 the exercise of the taxing power of the Nation, and suggested a 
 graduated tax which would increase as the capitalization of the cor- 
 porations would increase, and that this tax would limit the very 
 large capitalizations which in themselves are likely to promote 
 monopoly. 
 
 I called his attention then to the fact that I addressed a communi- 
 cation to the conference on trusts, held in Chicago in 1899, in which 
 I had suggested this method; and that later on my suggestion had 
 been taken up by Mr. Allen, a lawyer of St. Louis, and brought to 
 the attention of the National Industrial Commission, then in exist- 
 ence, a commission organized by Congress and composed of Senators 
 and Representatives, economists and others on the outside, and that 
 such commission later on embodied the suggestion in their report 
 and recommendation. 
 
 I find, in looking over my papers, that I have the communication 
 which I addressed to that trust conference, and I will quote from it. 
 
 After considering, first, what a trust is; and second, the various 
 methods of regulating trusts, through State legislation and other- 
 wise coming to the question of Federal regulation, I said: 
 
 FEDERAL LEGISLATION NEEDED. 
 
 The only adequate remedy is 'through Federal legislation, the operation of 
 which will be uniform throughout the Republic. It is true that the Federal 
 Government can not prevent the organization of State corporations, nor is this 
 desirable, but it can, through its power regarding the regulation of interstate 
 commerce, restrain their operation, and it can use its taxing power in such a 
 way as either to destroy or to regulate and control. 
 
482 HEARINGS BEFORE 
 
 The power relating to the regulation of interstate commerce is hardly suffi- 
 cient to meet the evil, as evasion would be easy. Any trust could restrain its 
 operations to the limits of the State under the laws of which it was organized. 
 At the same time purchasers from other States could buy in such State. The 
 sale would be domestic, the transfer of the product would be interstate, and 
 legislation aimed at the trust in its interstate business might be evaded. 
 
 BESI AND ONLY REMEDY. 
 
 The power of taxation of the Federal Government is ample to meet the diffi- 
 culty, and it is much more far-reaching than the power exercised under the 
 interstate commerce section of the Constitution. The power of taxation can be 
 used either to destroy or restrain, and it has been so used within our experience. 
 
 Thus, for instance, as to the undoubted right of State banks to issue currency 
 under State statutes permitting it, the Federal Government does not deny the 
 right, but it has seen fit to impose a tax of 10 per cent upon State-bank currency, 
 and thus practically to prohibit its issue. So also with reference to oleomar- 
 garine. The Beef Trust had organized for the production and sale of oleomar- 
 garine upon a great scale. Oleomargarine was innocuous and resembled in 
 appearance and taste the genuine butter. The use of this material was threat- 
 ening the destruction of the dairy interests of the country, in which large 
 amounts of capital were invested and hundreds of thousands of people were 
 employed. 
 
 The States took hold of the matter and by legislation within their own 
 boundaries sought to protect the dairy interests and restrain the oleomargarine 
 interest. Their legislation was, in the main, ineffective, and so recourse was 
 had to the Federal Government for a far-reaching law. The result was that the 
 power of taxation was so exercised by the Federal Government as to restrain 
 the oleomargarine interest and to protect the dairy interest. Thus oleomar- 
 garine was made a subject of revenue to the Government and the tax imposed 
 upon it served to limit its competitive efficiency. 
 
 EVILS CAN BE BEACHED. 
 
 Here, then, we have two illustrations of the power of Federal taxation — one 
 the power to destroy, the other the power to regulate and restrain. Why can 
 not this power be used with reference to the modern trust and in a most effi- 
 cient way? Through it two evils can be reached — one, the monopoly of pro- 
 duction by unions of capital, and the other, the escape of organized wealth un- 
 der present conditions from the burthens of Federal taxation. The latter is 
 one of the crying evils of the times. The whole tendency of Federal legislation 
 has been to exempt accumulated wealth. The wealth of the country has been 
 for years rapidly drifting into corporations. 
 
 Stocks in corporations represent more than any other class of property the 
 surplus wealth of the country, for the man who has a share of stock has some- 
 thing which he has accumulated over and above his current wants and expendi- 
 tures, and the best method of reaching the surplus wealth of the country is to 
 tax corporations. 
 
 It is true that the income-tax decision has in a measure restricted the field of 
 Federal taxation. It practically exempts real property and its income and per- 
 sonal property and its income from internal-revenue taxation ; yet the field of 
 Federal taxation is still a large one, for it embraces all the transactions of 
 business, and though the real and personal property of a corporation and the 
 income therefrom can not be directly reached, yet every transaction in which 
 such corporations engage may be made the subject of taxation by the Federal 
 Government and the taxes imposed may be classified in such a way as to re- 
 strain unions of capital in their monopolistic tendencies. 
 
 LEGITIMATE, SPHERE OF CORPORATIONS. 
 
 Sow, it is well understood that the great monopolies of production can only 
 be. accomplished through the formation of gigantic corporations. The forma- 
 tion of those gigantic corporations means concentrated control, diminution of 
 the number of officials, improved economies in every line. 
 
 From the standpoint of economics it is hard to point out any danger to which 
 society is subjected by their creation so long as their only purpose is the con- 
 
COMMITTEE ON INTERSTATE COMMERCE. 483 
 
 servation of energy, but they go further than this. If allowed to go unchecked 
 they will undoubtedly attack labor itself by the diminution of its wages. 
 
 The ordinary producer, having but one factory, can not afford to get into a 
 controversy with his employees, for that would involve an absolute cessation of 
 the work of his enterprise. A corporation owning a dozen factories can easily 
 operate 11 whilst it is engaged in bringing the operatives of the twelfth to 
 its terms, and thus, step by step, can bring about a reduction of wages through- 
 out all' of its 12 factories. So also, having destroyed competition, it can raise the 
 price of its products and thus increase the profits of capital both by diminished 
 wages of its employees and increased prices charged to its consumers. 
 
 It can also destroy all competition by selling its products below cost within 
 the territory of competitive operation, retaining its prices in the field of its 
 monopoly, and thus, without loss in the aggregate, yield to a localized loss which 
 will destroy all competitive enterprises. Thus the individual stands no chance 
 against the corporation, and individualism is practically destroyed. 
 
 TAX ACCUMULATED WEALTH. 
 
 The purpose then of Federal legislation upon this subject would be to reach 
 accumulated wealth and at the same time protect individualism. Taxes, there- 
 fore, imposed upon the transactions of corporations, will accomplish both 
 purposes. They will reach accumulated wealth and they will protect indi- 
 vidualism, for the individual, freed from the handicap of such taxes', may be 
 able to hold his own, and thus the handicap of the tax will preserve the 
 equilibrium between individual enterprises on the one hand and corporate 
 enterprises on the other. 
 
 It is true that it will take time to work out this problem wisely and justly, 
 but I see no reason why progressive legislation, advancing with conservatism, 
 step by step, should not ultimately reach every difficulty. 
 
 The first step should be the organization of a bureau of industry, somewhat, 
 resembling that of the Bureau of the Comptroller of the Currency, to which 
 report should be made by all corporations, showing the amount of their capital 
 Stock, their bonds, their income, their transactions, the number of operatives 
 employed, the wages paid, and all the other data which in time will present, a 
 mass of statistical information that will aid and guide legislation. Publicity 
 itself will do much in the way of correcting evils, for definite statistics will 
 suggest definite remedies. 
 
 The tax at first inaugurated should be moderate. It should reach at first 
 only those great organizations whose evil effects upon modern individualism is 
 conceded, and reliance should be placed upon the statistics accumulated later 
 on, to furnish suggestions for additional tax legislation. 
 
 TIME FOR DECISIVE ACTION. 
 
 The powers of the Federal Government relating to taxation and interstate 
 commerce in connection with published reports should be ample to meet every 
 difficulty No time should be wasted in academic discussion as to the precise 
 evils that may result from unions of capital, or as to whether such evils have 
 as yet been realized. - , 
 
 Accumulated wealth should contribute more than it does to the Federal 
 revenue This is a sufficient reason for commencing immediately with corpora- 
 tions even if as is claimed, the evils of unions of capital are imaginary. The 
 machinery being prepared by law, the evils can be taken hold of as they arise, 
 and taxation can be so levied as to restrain, if that only is desirable, or to 
 destroy, if relief is otherwise unobtainable. 
 
 This suggestion was called to the attention of the Industrial Com- 
 mission. .... , , ' 
 Mr. Allen, a prominent lawyer of St. Louis, m his address to the 
 
 commission said: 
 
 My attention has been called to the paper of Hon. Francis G. Xewlands in the 
 report of the Chicago conference on trusts (p. 305), and his principal suggestion 
 of a remedy for the trust evil has so much force that it is adopted in this argu- 
 ment as a recommendation in addition to those already given, viz : 
 
484 
 
 HEADINGS BEFOKE 
 
 7. Let Congress exercise the power of taxation vested in the Federal Govern- 
 ment; a more far-reaching power than that exercised under the interstate 
 commerce section of the Constitution. 
 
 As a practical suggestion for a beginning Mr. Newlands says : " The first step 
 should be the organization of a bureau of industry, somewhat resembling that 
 of the Bureau of the Comptroller of the Currency, to which report should be 
 made by all corporations, showing the amount of their capital stock, their bonds, 
 their income, their transactions, the number of operatives employed, the wages 
 paid, and all the other data which in time will present a mass of statistical 
 information that will aid and guide legislation. Publicity itself will do much 
 in the way of correcting evils, for definite statistics will suggest definite reme- 
 dies. The tax at first inaugurated should be moderate. It should reach at first 
 only those great organizations whose evil effects upon modem individualism 
 are conceded, and reliance should be placed upon the statistics accumulated later 
 on to furnish suggestions for additional tax legislation." 
 
 Later on the National Industrial Commission filed its report, a 
 volume of about 1,200 pages, and that report closed with a favorable 
 recommendation regarding the application of the taxing power to 
 trusts in the following words: 
 
 5. That plan three — Federal taxation and supervision — heretofore outlined, 
 be adopted, and to accomplish its purposes — 
 
 (a) That an annual franchise tax be imposed upon all State corporations 
 engaged in interstate commerce, calculated upon the gross earnings of each 
 corporation from its interstate business; that the minimum rate of such tax 
 be low, but that the rate be gradually increased with increases in earnings. 
 
 (6) That there be created in the Treasury Department a permanent bureau, 
 the duties of which shall be to register all State corporations engaged in inter- 
 state or foreign commerce ; to secure from such corporations all reports needed 
 to enable the Government to levy a franchise tax with certainty and justice, 
 and to collect the same; to make such inspection and examination of the 
 business and accounts of such corporations as will guarantee the completeness 
 and accuracy of the information needed to ascertain whether such corporations 
 are observing the conditions prescribed in the act, and to enforce penalties 
 against delinquents ; and to collate and publish information regarding such 
 combinations and the industries in which they may be engaged so as to furnish 
 to the Congress proper information for possible future legislation. 
 
 The publicity secured by the governmental agency should be such as will 
 prevent the deception of the public through secrecy in the organization and 
 management of industrial combinations or through false information. Such 
 agency would also have at its command the best sources of information regard- 
 ing special privileges or discriminations, of whatever nature, by which indus- 
 trial combinations secure monopoly or become dangerous to the public welfare. 
 It is probable that the provisions herein recommended will be sufficient to 
 remove most of the abuses which have arisen in connection with industrial 
 combinations. The remedies suggested may be employed with little or no 
 danger to industrial prosperity and with the certainty of securing information 
 which should enable the Congress to protect the public by further legislation 
 if necessary. 
 
 That seems to have been the origin of the Bureau of Corporations. 
 Since that time we have adopted a corporation tax, but principally as 
 a revenue matter and not with a view to regulating these great trusts 
 and combinations. And the suggestion that in order to accomplish 
 that, of course, the tax would have to be a graduated one, com- 
 mencing with a small percentage 
 
 The Chaibman. You would tax the holding companies ? 
 
 Senator Newlands. I should think so. 
 
 The Chairman. I would. But the corporation-tax law we passed 
 expressly exempted them, against my protest. 
 
 Senator Newlands. The corporation-tax law was imperfect, from 
 the standpoint of the regulation of the trusts. It did not provide 
 
COMMITTEE ON INTERSTATE COMMERCE. 485 
 
 for publicity, for one thing, of the transactions of these corporations, 
 nor for the classification of their business or capitalization, nor any- 
 thing of that kind. 
 
 I introduced some amendments to that effect when the corporation- 
 tax bill was under consideration. You will observe that the report 
 of the Industrial Commission not only calls for the imposition of a 
 (ax, but suggests that such taxation and the inspection and rigid 
 supervision of corporations, made necessary by such taxation, would 
 be likely to bring to the surface all the conditions that are likely to 
 develop monopoly or a tendency to monopoly, and that the handicap 
 of the tax upon large capitalization would prevent the very highly 
 capitalized corporations from being so potential, even under the law, 
 in the matter of oppressing and terrorizing the smaller corporations, 
 individuals, and firms. 
 
 (By direction of the chairman, the following letter received from 
 Mr. Reed subsequently to his statement, is incorporated in the record:) 
 
 New York, N. Y., November 27, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Interstate Commerce Committee, 
 
 Senate, Washington, D. C. 
 
 My Dear Senator Clapp: Referring to my statement before vour committee on 
 the 22d instant, and particularly to the various questions asked me as to the tentative 
 provisions of the Williams bill relating to capitalization, may I ask if the minutes 
 could be supplemented with this statement from me: 
 
 "The most logical and the most effective way of meeting the question of capital- 
 ization would in my opinion be for Congress itself, having knowledge of conditions 
 and of the public interests, to prescribe a limit of capitalization for corporations 
 engaged in particular industries, in accordance with the early and better practice 
 under some State laws. It is I believe practicable to do this. For this purpose I 
 would have the first section of the Williams bill provide on this point somewhat as 
 follows: 'Its authorized capital stock shall not exceed $100,000,000, subject to any 
 lower or higher limitation that Congress may prescribe for any particular class of 
 corporations,' omitting, of course, the provisions as to the authorization of the capital 
 in the State courts, which could I believe be made effective, but at the present time 
 detract from the simplicity and clearness of the bill as a whole. 
 
 "The fixing of a limitation for each class of corporations should, of course, be the 
 subject of a separate act; in most cases it would be lower, in a very few higher, than 
 the limit named." 
 
 You will, I trust, pardon this request. As I have given a great deal of time and thought 
 to the proposal of the Williams bill during the past three years, I want to make its pre- 
 sentation to your committee cover my best thought on the completed details of the 
 bill itself. I shall appreciate it if this statement can be placed on the minutes. 
 Very truly, yours, 
 
 Robert R. Reed. 
 
 The Chairman. The committee will take a recess until to-morrow 
 morning at 10.30. 
 
 (Thereupon the committee, at 3 o'clock and 30 minutes, took a 
 recess until to-morrow, Thursday, November 23, 1911, at 10.30 a. m.) 
 
486 
 
 HEARINGS BEFORE 
 
 thursday, november 23, 1911. 
 
 United -States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 The committee met at 10.30 o'clock a. m. for the purpose of fur- 
 ther considering the bill (S. 2941) entitled "A bill to create an inter- 
 state trade commission, to define its powers and duties, and for 
 other purposes," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Brandegee, Townsend, and 
 Pomerene. 
 
 There being no one present who desired to address the committee, 
 a recess was taken until to-morrow, Friday, NoA T ember 24, 1911, at 
 10.30 o'clock a. m. 
 
 friday, november 24, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. G. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m. 
 Present: Senators Clapp (chairman), Cummins, Brandegee, Town- 
 send, and Pomerene. 
 
 There being no one present who desired to address the committee, 
 a recess was taken until to-morrow, Saturday, November 25, 1911, at 
 10.30 o'clock a. m. 
 
 saturday, november 25, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 The committee met, pursuant to adjournment, at 10.30 o'clock 
 a. m. 
 
 Present: Senators Clapp (chairman), Cummins, Brandegee, Town- 
 send, and Pomerene. 
 
 There being no one present who desired to address the committee, 
 a recess was taken until Monday, November 27, 1911, »t 10.30 o'clock 
 a. m. 
 
 monday, november 27, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 The committee met, pursuant to adjournment, at 10.30 o'clock 
 a. m. 
 
 Present: Senators Clapp (chairman), Cummins, Brandegee, Town- 
 send, and Pomerene. 
 
COMMITTEE ON INTERSTATE COMMERCE. 487 
 
 (By direction of the chairman the following papers are incorporated 
 in the record:) 
 
 Plan for Regulation of Industrial Corporations. 
 
 [Proposed by Samuel Unterrayer, Esq.. to the department on reeulation of industrial corporations, the 
 
 National Civic Fi-'kration,] 
 
 New York City, October 26, 1911. 
 To the "subcommittee on plan" for the Federal incorporation of the trusts of the National 
 Civic Federation: 
 
 explanation . 
 
 The legislative plan here outlined is predicated upon the recognition of the follow- 
 ing principles: 
 
 1. That the people of the country are in favor of the rigid enforcement of the exist- 
 ing antitrust law at least to the extent of preventing the further consolidation of com- 
 peting industries and of vigorously prosecuting and disbanding those that now exist 
 m violation of that law. 
 
 2. That no future merger or acquisition of competing businesses engaged in inter- 
 state commerce should hereafter be lawful, even though at present permissible under 
 the construction given the Sherman law by the Supreme Court, unless permitted by 
 Federal authority; that all such mergers as are not in violation of the present law may 
 be sanctioned, but that the commission for which provision is hereafter made 
 must determine that they are in conformity with the law before any such merger or 
 purchase is permitted. 
 
 3. That neither the present law nor the machinery of the courts is adapted to the 
 orderly and effective disintegration of corporations that have been decreed to have 
 been organized or to be operating in violation of law, and that the details of executing 
 all such judgments and of the investigation of violations thereof should be entrusted 
 to such a commission, subject to the control of the courts by which such judgments 
 were rendered. 
 
 4. That the effective enforcement of the antitrust law involves the freeing and 
 keeping free to competition of all the arteries and channels of interstate trade and 
 the punishment of all secret and other agreements and understandings, express 
 and implied, whether in writing or by parol, having for their ultimate purpose 
 restriction of output, division of territory, uniformity of prices, or any of the many 
 other devices affecting competition, and that business competitors are offered no 
 alternative under the present law against enforced competition to the point of the 
 ruin and extermination of the weaker competitor. 
 
 5. That enforced ruinous competition is not an economic benefit or necessity, 
 but that on the contrary it is injurious and must in the end result in legalized monop- 
 oly or in State socialism. It is impracticable and inconsistent for the law to insist 
 on the one hand upon punishing business methods that are calculated to destroy 
 competition and on the other to prohibit all understandings that are intended to 
 avert that result and that go no further than to secure to the parties to such agree- 
 ments the right to stop competing only at the point at which they would ruin one 
 another. , ... 
 
 6. That no law is capable of enforcement which demands as its basic principle 
 that capital must compete to the point of doing business indefinitely at a loss. Men 
 can not be forced to ruin themselves in obedience to statute, with relief at hand, 
 even though the escape from that condition involves circumventing the law. In 
 the enforcement of the antitrust law we are accordingly confronted with the alterna- 
 tive between permitting on the one hand a just and reasonable limitation of com- 
 petition subject to supervision and control, at the point where the burden becomes 
 unbearable, and on the other hand suffering secret violations of law that are practi- 
 cally impossible of detection and with no opportunity of protection to the public. 
 
 In conformity with these principles I beg to submit the following brief outline of 
 a still crude and tentative plan for legislation supplemental to the Sherman law pro- 
 vidinu- for the disintegration of trusts that have been decreed to be unlawful in their 
 inception or operation, and for the Federal regulation of industrial corporations 
 engaged in interstate commerce: 
 
 plan. 
 
 (a) Every corporation which at the time of the passage of the act or thereafter 
 has gross assets or an authorized capital of $1 ,000.000 and over, and that is now en- 
 gaged in interstate commerce, is prohibited from thereafter engaging in such com- 
 merce unless it shall within six months after the passage of the act set ure a Federal 
 
488 HEAKINGS BEFORE 
 
 charter under a Federal incorporation law to be enacted or a Federal license (as may- 
 be decided). Every corporation of the character above described hereafter formed 
 or hereafter engaging in interstate commerce must secure a Federal charter or licence 
 (as may be determined) before engaging in such commerce. 
 
 A charter is recommended instead of a license in order to put an end to the powqrs 
 and immunity from liability that have been and are being granted to corporations 
 in many of the States for the improper purpose of attracting to those States the organi- 
 zation and accompanying franchise fees and other perquisites and patronage of corpo- 
 rations that are in effect fugitives from the States where they rightfully belong and are 
 availing themselves of the illicit inducements held out to them in States where they 
 conduct no business and with which they have no legitimate relations. 
 
 If a Federal license is decided upon from motives of expediency as less calculated 
 to arouse the hostility of the Stated, provision would still have to be made requiring 
 that the State charters of all corporations applying for a Federal license be amended 
 so that they shall be uniform in their powers and obligations to the extent at least of 
 preventing — 
 
 (1) The continuance of the "holding company," 
 
 (2) The issue of watered stock, 
 
 (3) Improper immunity of stockholders and directors from liability, 
 
 (4) Statutes of limitations in favor of corporate wrongdoers that bar causes of action 
 before the victims can possibly know that they have one, and • 
 
 (5) All the numerous other tricks and jokers which corporate cupidity and dis- 
 honesty have engrafted upon the State corporation laws. 
 
 (6) An industrial commission of seven members, to be appointed by the President, 
 with the advice of the Senate, similar in its general character and constitution and in 
 its powers over industrial corporations engaged in interstate commerce to the present 
 Interstate Commerce Commission, which shall have, among other things, the following 
 powers: 
 
 1. To pass upon all applications for Federal charters or licenses (as may be decided) 
 and to reject the same unless the commission is satisfied that the applicant is not 
 conducting business in violation of the Sherman law or of any other law. To that 
 end the applicant will be required to make full disclosures of its business and affairs 
 through oral examination of its officers, investigation of its books by the commissioners, 
 and in such other ways as the commission may determine. 
 
 2. All the powers now possessed by the Bureau of Corporations, which bureau, 
 with its documents and all its powers of investigation, are to be vested in the com- 
 mission. This would include the right of the commission on its own initiative to 
 investigate the businesses and affairs of every corporation engaged in interstate 
 commerce and to ascertain and report those that are operating in violation of law. To 
 conduct interstate business without such charter or license should be made a felony. 
 
 3. To recommend for prosecution by the Attorney General all corporations so 
 engaged in interstate commerce in violation of law; and through its counsel to con- 
 duct the prosecution of such corporations in conjunction with the Attorney General. 
 This would include the prosecution of existing violations of the Sherman law, as no 
 corporation now engaged in business in violation of that law could secure a Federal 
 charter or license, and by its failure to do so it would be branded as an outlaw and 
 subject to prosecution if it continued to conduct interstate commerce. 
 
 All such existing violations would have to be removed by the offending corporations 
 before they could hope to be permitted to continue or resume interstate commerce. 
 
 4. To undertake the separation and disintegration of all corporations that have been 
 adjudged by the courts to have been organized or to be existing or operating in viola- 
 tion of the antitrust law; but subject to the direction and control of the courts rendering 
 such judgments. To that end the commission should have power to appoint receivers, 
 to sell all or parts of the property, subject to the confirmation of the court; to ratify 
 or reject plans for the reorganization of the company to conform to the law, to keep 
 such corporations under its general supervision, and to report for the action of the 
 court all subsequent violations of the judgments of dissolution. 
 
 The purpose of these provisions would be to have in existence a body that would 
 have the power and the machinery, through its experts and other officials, to supervise 
 the proper enforcement of these judgments and see to it that they are kept enforced. 
 
 5. To act upon the petition of persons engaged in competition in any interstate 
 industry, praying that they be permitted to enter into a trade agreement with one 
 another limiting production and fixing the prices of any given commodity which is 
 the subject of interstate commerce, provided that it shall appear from the petition 
 and the data accompanying the same and from the investigations of the commission 
 that are to be made upon the filing of such petition: 
 
 (a) That the output is not to be restricted beyond the usual and legitimate demands 
 for the commodity; 
 
COMMITTEE ON INTEKSTATE COMMERCE. 489 
 
 (b) That the maximum price chargeable by the petitioners under the terms of the 
 agreement does not allow an undue profit; and 
 
 (c) That as a result of competition between the petitioners and with others (if there 
 are others) who no not care to join in the petition, the industry on the whole has been 
 unprofitable for at least one year next preceding the presentation of the petition due 
 to overproduction and ruinous competition. 
 
 Upon the filing of such a petition the commission would investigate into the con- 
 dition of the busiuess and if satisfied of the truth of the petition and that the business 
 has on the whole been unprofitable, due entirely to the causes above stated, would be 
 authorized to sanction the agreement for a period of not exceeding two years, but with 
 power to the commission meantime to annul the agreement and withdraw its consent 
 either unconditionally or unless the parties will agree to a reduction in the maximum 
 prices or an increase in production to the extent required by the commission. 
 
 The commission should also have power, whenever it appears that unfair business 
 methods are being employed against competitors who are not parties to the agreement, 
 to cancel its license and to prosecute the offenders. The parties should be at liberty 
 to enforce the performance of the agreement in any court, either by action at law or in 
 equity to enjoin its breach All persons interested in the industry that is the subject 
 matter of such an agreement should have the right to be heard by the commission in 
 opposition thereto. 
 
 The allowance of trade agreements of this character will do away with the plausible 
 pretexts that are being urged in favor of the organization of trusts and consolidations 
 that they are the only means of preventing business destruction. Their allowance 
 would at the same time obviate the evils of such permanent organizations with their 
 accompanying stock inflations, oppression of competitors, closing of factories and lite 
 practices, and would render it easy to secure convictions of persons guilty of entering 
 into secret understandings and "gentlemen's agreements" to levy tribute upon the 
 people by taking from them the existing excuse that they are pursuing the only 
 course for self-preservation that is open to them. 
 
 Under these licensed trade agreements each party would retain the management and 
 control of his own property, and the extent of his profit would be measured by the 
 economies he is able to put into effect. 
 
 (c) All orders of the commission to be subject to appeal to the Commerce Court by 
 the parties in interest in like manner as appeals are now authorized from orders of the 
 Interstate Commerce Commission. 
 
 Instead of the present spasmodic selection for prosecution by the Attorney General 
 of isolated cases of violation of the Sherman law, we would thus have an organized 
 body, equipped to deal systematically with all violations, and to see to it that they 
 are removed. 
 
 In this sketch I have purposely omitted special reference to the treatment of labor 
 unions, preferring that that subject should be first discussed with the subcommittee. 
 
 The above is intended only as a brief outline of the general principles governing the 
 legislation that is proposed. If the outline meets with the approval of the full com- 
 mittee I suggest that we then proceed to elaborate it with such modifications as may 
 be suggested by the members of the committee. 
 
 Respectfully submitted. 
 
 Samuel Untermyer, 
 Chairman Subcommittee. 
 
 First Supplement to the German Reichsanzeiger and the Royal Prussian 
 
 Staatsanzeiger. 
 
 [Official news. German Empire.] 
 
 No, 125. Berlin, Tuesday, May SI, 1910. 
 
 Law on the sale of potassium salts of May 25, 1910. 
 
 We William, by God's grace, German Emperor, King of Prussia, etc., decree in 
 the name of the Empire, upon consent of the Bundesrath and the Reichstag, as 
 
 follows: . . . . , , 
 
 For the period up to December 31, 1925, the following regulations are in force rela- 
 tive to the sale of potassium salts: 
 
 Section I. — General Regulations. 
 
 Section 1. 
 
 Potassium salts may be sold by the owners of potaBBium mined only in accordance 
 with the provisions of the law. 
 
490 HEARINGS BEFORE 
 
 Section 2. — Definition of potassium salts. 
 
 Potassium salts in the meaning of the law are: 
 
 (a) Potassic minerals obtained from the potassium salt mines — crude potassium 
 salts— in solid or dissolved form. 
 
 (b) Chloride of potassium, sulphate of potash, potassium-magnesium sulphate, the 
 so-called potassium fertilizing salts, as also all other manufactures containing potas- 
 sium, which are generally produced directly from the crude potassium salts; further- 
 more, all residues of these products containing potassium. 
 
 (c) The mixtures of crude salts (a) and products (6) — mixed salts. 
 
 In doubtful cases as to whether a product of the potassium industry belongs to the 
 potassium salts cited under (a) to (c), the Bundesrath will decide. 
 
 Section 3. — What constitutes a sale. 
 
 A sale within the meaning of the law is any transfer of possession of potassium salts 
 to another. 
 
 The delivery of potassium salts to a factory or factory section belonging to the owner 
 of the potassium-salt mine for the purpose o fbeing further worked into products not 
 mentioned under section 2; parts 1 (b) and (c), constitutes a sale. 
 
 Thirdly, every shipment of potassium salts to a foreign country constitutes a sale. 
 
 The delivery of crude salts to be further worked into the products designated under 
 section 2, parts 1 (6) and (c), to a factory the proprietor of which is absolutely held 
 to comply with the provisions relative to selling, by the owner of the potassium-salt 
 mine making the delivery, does not, however, constitute a sale. The materials pro- 
 duced in such factories are considered as the products of the potassium mine supply- 
 ing the crude salts. The distributing station will decide whether the factory comes 
 under the provisions of this paragraph. 
 
 Section 4. — Sale into foreign countries. 
 
 The sale into a foreign country may be effected only by the proprietors of potassium 
 mines. 
 
 Section 5. 
 
 The materials designated in section 2, part 1, under (6) and (e), may be produced 
 only by potassium-mine owners and the proprietors of separate factories (sec. 4) 
 existing at the time this law goes into effect. Proprietors of separate factories have 
 this right only so long as they do not produce these materials on a larger scale than 
 hitherto. 
 
 Section 6. — What constitutes the proprietor of a potassium mine. 
 
 Anyone operating at his own expense a potassium mine (potassium works) is the 
 proprietor of a potassium mine within the meaning of this law. Provisions made 
 for the proprietor of the potassium mines are also valid for unions of the same. 
 
 Section II. — Determination op the Total Amount op the Sales and of the 
 Shake in the Sale of the Separate Potassium Mines. 
 
 Section 7. — Total amount of the sale. 
 
 The total amount of the sale to be allotted for the calendar year to the proprietors 
 of potassium mines is determined yearly by the distributing station. It is to be deter- 
 mined in double hundredweights of pure potassium (K 2 0) and is to be at least on 
 a par with the total sale determined for the previous year plus 5 per cent. At the 
 same time the distributing station has to decide what part of the total sales quantity 
 is for the home market and for export and what quantities of the different sorts are 
 to be supplied. 
 
 The distributing station can subsequently increase the quantities determined on. 
 
 For the period from May 1, 1910, to December 31, 1910, a proportionate quantity 
 is to be determined on by the Bundesrath. 
 
 Section 8. — Participation ratio. 
 
 The determination of the proportion of participation of the separate potassium-mine 
 proprietors in the sale of potassium salts (of the participation ratio) is made by the 
 distributing station. 
 
COMMITTEE OK INTERSTATE COMMERCE. 491. 
 
 The potassium-mine owners participate in the home sale and in the export sale 
 as also in the sale of the different sorts of potassium salts, in accordance to the relation 
 of their participation ratio. 
 
 The potassium-mine owner may exceed the sales quantity allotted to him by at 
 most 10 per cent if he renounces the assignment of the corresponding sales quantity 
 for the following calendar year. ' 
 
 If he remains below the sales quantity allotted to him by at most 10 per cent he 
 may subsequently deliver a corresponding quantity within the next calendar year 
 
 Potassium-mme owners who in consequence of the nature of their deposits can 
 not supply some of the kinds of potassium salt mentioned in section 20, part 1, are 
 to be given a proportionate participation in other kinds of potassium salt by the 
 distributing station in order to equalize them. 
 
 The participation of a potassium-mine owner in the export sale decreases in the 
 same proportion in which the potassium-mine owner defaults in his home sale dur- 
 ing the calendar year. 
 
 Section 9.— Principles for the determination of the participation ratio. 
 
 The participation figures are expressed in thousandths of the total sale. A divi- 
 sion of the thousandths may be done only by the decimal system. 
 
 The value of the participation figures is to be determined by the size and nature 
 of the potassium-salt deposits opened up by mining and borings, as also by the capac- 
 ity of the operating plant. 
 
 Only one participation figure is determined upon for every potassium mine. 
 
 Section 10. 
 
 If from one potassium mine several are formed, they count only then as inde- 
 pendent plants, to be given separate participation figures, even when they were 
 extended by the purchase of outside field parts; if — 
 
 (1) According to the position of the geological conditions and according to the 
 openings made by mining and borings at least 5,000 double hundredweights of pure 
 potassium (K 2 0) can be yearly supplied for 50 years. 
 
 (2) They are so equipped with technical devices that they can mine and ship a 
 quantity of crude salt corresponding to their participation figure. 
 
 Section 11. 
 
 For a second operating shaft opened in the same mine and connected with the 
 main shaft an addition to the participation figure will be granted from January 12, 
 1912, which amounts to 10 per cent of the average participation figure of all mines. 
 For second shafts which become operative after the, 1st of January, 1912, the addi- 
 tion enters into force with the day. on which the opening with the mam shaft is 
 effected. 
 
 Section 12. — Preliminary participation figures. 
 
 To owners of such potassium mines which become capable of delivery after pro- 
 mulgation of the law there will be assigned a temporary participation figure for the 
 first two years after the potassium-salt deposit has been reached by mining, and if then 
 a sufficient clearing of the deposit and operating conditions has not been produced 
 the same is to be made so high until such clearing that it allows of a regular opening and 
 preparation of the deposit. The preliminary participation figure must not exceed 
 50 per cent of the average participation figure of all the mines. 
 
 After clearing the deposit and the operating conditions, but at the earliest after the 
 expiration of two years since the potassium-salt deposit has been reached by mining, 
 a final participation figure will be established for such plants. This participation 
 figure is reduced for the third year after the potassium deposit has been reached by 
 30 per cent, for the fourth year by 20 per cent, and fdr the fifth year 10 per cent. 
 
 Potassium mines which are in possession of and in operation by the Empire or one 
 of the union States, or in which the Empire or a union State is interested to the extent 
 of at least one-third, are given until the deposit and operating conditions are cleared 
 a temporary participation figure according to part 1 , and as soon as the clearing is effected 
 a final participation figure; the limitations of part 2 are not applicable to these mines. 
 The same is to be said of other mines which before December 17, 1909, have begun 
 with the sinking of shafts or have probably made serious preliminary efforts therefor; 
 that is, if they have continued the sinking of shafts or the preliminary work without 
 culpable delay. 
 
492 HEARINGS BEFORE 
 
 Section 13. — Reduction of the participation figures. 
 
 If in a potassium mine the wages paid to a class of workmen decrease in the yearly 
 average for a regular labor shift below the wage paid to this class on the average for the 
 calendar years 1907 to 1909, then the participation figure of the plant is reduced in 
 the following year in the same proportion in which "the wage has decreased for the 
 labor class which has suffered the greatest decrease in wage. 
 
 The participation figure is furthermore reduced if in a labor class the regular time 
 of work is extended beyond the time limit prevailing in the year 1909, and that in 
 proportion to the increase to the labor class hit the hardest. 
 
 The decrease in the participation figure will be at least 10 per cent. 
 
 If potassium plants were not yet in operation in the year 1909, or if some kinds of 
 work in the plant were started only after the beginning of the year 1909, or if the 
 operating conditions in the plant have changed considerably as compared with those 
 of the year 1909, a reduction will be made if the wage conditions or the shift hours 
 in the yearly average after taking up the output operations are more unfavorable than 
 they were in the yearly average during the years 1907 to 1909 in other potassium 
 plants with similar conditions. 
 
 Section 14. 
 
 A reduction of the participation figure is not made if the potassium-mine owner 
 
 E roves that the average wage amounts were not reduced for work done on the shift 
 asis or by the piece as compared with the wage sums paid for similar work done in 
 the years 1907 to 1909. 
 
 Section 15. 
 
 The increase in the participation figure which occurs in consequence of the reduc- 
 tions is not participated in by the potassium-mine owners whose participation 
 figure was decreased by the provision of section 13. 
 
 Section 16 
 
 The provisions of sections 13 and 14 are not applicable tp potassium plants in which 
 the wage and labor conditions are regulated by special contracts made between the 
 potassium-mine owners and the majority established by secret vote of the workmen 
 interested; the contracts must not contain any provisions which would forbid the 
 right, of the laborers to unite. 
 
 Section 17. — Validity of the participation figures. 
 
 For the potassium mine owners the participation figures cited in the attached table 
 are in force until new ones are determined upon. A new determination of the par- 
 ticipation figures of all potassium plants on the basis of the provisions of this section 
 is made with the effect that the new participation figures to be determined upon 
 enter into force on January 1, 1912. From then on there will be a new determina- 
 tion of the participation figures every five years for all the potassium plants. 
 
 If a potassium plant becomes permanently incapable of supplying, its participation 
 figure will be canceled; decision relative hereto lies with the distributing station. 
 
 If a part of the field worked is separated from a potassium mine, for which a par- 
 ticipation figure waB given, the participation figure is determined anew. 
 
 ■Section 18. — Change of the participation figure. 
 
 A change of the participation figures by recalculation takes place: 
 
 (a) In the case of the determination of a preliminary or final participation figure for 
 a new plant (sees. 8 to 12). 
 
 (b) In the case of section 11. 
 
 (c) In the case of sections 13 and 14. 
 
 (d) In the case of the permanent incapacity of a plant to supply. 
 
 (e) In the case of section 17, part 3. 
 (/) In the case of sections 47 and 48. 
 
 The recalculation is to be made by the distributing station. 
 
COMMITTEE ON INTERSTATE COMMERCE. 493 
 
 Section III. — Transfer op Participation Figures and Exchange. 
 
 Section 19. 
 
 Potassium mine owners may transfer their share in the sale entirely or partially to 
 other potassium mines and exchange their right of sale of separate kinds among one 
 
 If on account of the tranfercnce of participation figures, workmen or officials lose 
 their occupation without being able to find occupation in accordance with their 
 capabilities, or if they suffer a decrease in their earnings, then the transferring potas- 
 sium mine owner must make good the resulting loss in earnings up to the period of 26 
 weeks In disputes on this question between potassium mine owners and workmen 
 the trades court or miners court, where such exist, have jurisdiction. 
 
 If the transfer exceeds more than one-half of the entire participation of the trans- 
 ferring potassium mine owner in pure potassium, it will require the consent of the 
 proper central district authorities. The consent is to be made dependent on the guar- 
 anty oi damage claims cited in part 2. Prior to granting the consent the interested 
 communities must be heard. 
 
 Section IV.— Sales Price. 
 
 Section 20. — Home prices. 
 
 The sales prices of the potassium mine owners for the Bupply of potassium salts to 
 the home market must not exceed the following figures at the plant (for 1 per cent 
 of potassium (K 2 0) in 2 hundredweights): 
 
 d. 
 
 I. Camalite with at least 9 per cent and less than 12 per cent of K 2 ' 8. 5 
 
 II. Crude salts with 12 to 15 per cent of K ,0 ' 10. 
 
 III. Fertilizing salts with — 
 
 20 to 22 per cent of K 2 14 
 
 30 to 32 per cent of K 2 14 5 
 
 40 to 42 per cent of K 2 15. 5 
 
 The calculation of the prices is on total percentages. Fractions of a 
 per cent are not taken into consideration. 
 
 IV. Chloride of potassium with — 
 
 50 to 60 per cent of K 2 27.0 
 
 More than 60 per cent of K 2 29. 
 
 V. Sulphate of potash with over 42 per cent of K 2 35. 
 
 Potassium-magnesium sulphate 31. 
 
 For potassium salts, which arenot indicated in part 1, the Bundesrath will determine 
 the maximum price in accordance with the above determinations of prices. 
 
 The above maximum prices remain in force until December 31, 1913. For the 
 following period the maximum prices will be determined every five years by the 
 Bundesrat after hearing the representatives of the potassium mine owners and of 
 the consumers. An increase requires the consent of the Reichstag. Until new 
 prices are determined upon, the old ones remain in force. 
 
 Section 21. — Reductions. 
 
 The Bundesrat has the right to determine upon a corresponding reduction to be 
 granted the buyers of larger quantities of potassium salts. Further, that a discount 
 shall be granted for cash payments for the testing as to the proper quality and for 
 cooperation in the improvement of the sales of potassium. All consumers may unite 
 in order to obtain the above reductions. Under like assumptions consumers must 
 • not be differently treated in respect to the reductions. 
 
 Section 22. — Freight equalization. 
 
 In the calculation of the freight to be charged the home recipients there will be 
 an equalization of the freight by taking as basis at least three initial stations, and 
 for destinations which are more than 500 kilometers distant from the initial station 
 forming the basis of the freight calculation, a freight rebate will be granted to be 
 determined upon by the Bundesrath. 
 
 i In a ground condition. 
 
494 HEARINGS BEFORE 
 
 The freight equalization and the equalization of the freight rebates is effected by 
 the distributing station for account of all the potassium mines in accordance with 
 their home sales. 
 
 Section 23. — Guaranty against inferior quality. 
 
 The potassium mine owners are held to indicate the holding in pure potassium 
 when making deliveries. The permissible deviations from the indicated holdings, 
 the manner of determining the inferior holdings, and the compensation to be granted 
 for lack of purity are determined by the Bundesrath. The analysis of the pf oof drawn 
 at the mine is not exclusively conclusive. 
 
 Section 24. 
 
 The prices for sales and supplies of potassium salts to foreign countries must not be 
 inferior to the home prices indicated in sections 20 and 21 for the home market. 
 Exceptions are permissible by consent of the Bundesrath. 
 
 Section 25. 
 
 The Bundesrat determines under what conditions the prescriptions in force relative 
 to the prices for the home market are applicable to sales into German protectorates. 
 
 Section V. — Taxes. 
 
 Section 26. 
 
 In so far as the potassium mine owner exceeds the sales quantity for potassium salts 
 allotted to him, he must pay a tax into the imperial treasury for the excess quantities. 
 
 The tax is, per 2 hundredweights of pure potassium (K 2 0), in Group I and II Marks, 
 
 (sec. 20) 10 
 
 In Group II: 
 
 Fertilizing saltB, with 20 to 22 per cent of K^O 13 
 
 Fertilizing salts, with 30 to 32 per cent of K 2 14 
 
 Fertilizing salts, with 40 to 42 per cent of K 2 16 
 
 In Group IV and V 18 
 
 For potassium salts which are not indicated in part 2, the Bundesrath will determine 
 the tax in accordance in the above-stated taxes. 
 
 Section 27. 
 
 Every potassium-mine owner must pay into the imperial treasury a tax of 0.60 
 marks for every 2 hundredweights of pure potassium of his entire sale. 
 
 The receipts from these taxes are to cover the expenses incurred by the Empire by 
 the enforcement of this law and to improve the sale of potassium. The receipts and 
 outlays are to be figured in the budget of the Empire. 
 
 Section 28. 
 
 The taxes (sees. 26 and 27) become due on tbe day of the sale. 
 
 The collection of the taxes is carried out by the local authorities in accordance 
 with the provisions in force for the collection of public taxes. The Empire will com- 
 pensate the union States for the costs incurred in the enforcement of mis law or by 
 any further cooperation. 
 
 Section 29. — Time limitation. 
 
 Claims for the payment or return of taxes become prescribed in one year from the 
 day when the tax becomes due. Claim to subsequent payment of an additional tax 
 becomes prescribed in three years. 
 
 The prescription is interrupted by any action brought against the tax delinquent 
 by the proper authorities for the purpose of enforcing the claim. 
 
COMMITTEE ON INTERSTATE COMMERCE. 495 
 
 Section VI. — Distributing Station, Appeal Commission. 
 Section 30. — Distributing station. 
 
 The distributing station has a presiding officer and six members. The presiding 
 officer and two members, as also their substitutes, are appointed by the imperial chan- 
 cellor with the consent of the Bundesrath. They may neither possess a share in 
 private potassium mines, nor be interested in their proceeds. Remaining members 
 of the distributing station and their substitutes are elected by the potassium-mine 
 owners. 
 
 In the decision of the distributing station on the reductions (sec. 13) are the participa- 
 tion figure there participate in place of two of the four members selected by the potas- 
 sium-mine owners, two members who are elected by the labor representatives of the 
 labor unions (sees. 113, 144 of the law on labor accident insurance) from among the 
 workmen occupied in potassium mining and in accordance with the directions of the 
 Bundesrath. 
 
 Section 31. — Appeal commission. 
 
 The appeal commission consists of five members, who are appointed by the imperial 
 chancellor with the consent of the Bundesrath. A substitute is appointed for every 
 member. The members must neither possess a potassium mine nor shares in private 
 potassium mines or be interested in their proceeds, nor belong to the management or 
 the board of control of a potassium mine. 
 
 Section 32. — Objections to iJw determinations. 
 
 The presiding member may file appeal to the Bundesrath from the decision of the dis- 
 tributing station, as in section 7, within the limit time of one week after the date of the 
 decision. 
 
 Appeal may be had to the appeal commission I'sec. 31 ) from the determinations and 
 decisions of the distributing station on the basis of sections 3, 8, to 18 and 22. 
 
 Appeal must be filed with the appeal commission within a time limit of one month 
 after receipt of the decision of the distributing station. 
 
 Section 33. 
 
 Regular legal proceedings are not permissible in so far as by this law appeal againBt 
 the decision and determination of the distributing station is to the Bundesrath, or to the 
 appeal commission is indicated. 
 
 Section 34. — Information. 
 
 The potassium mine owners are held to give information to the distributing station 
 and the appeal commission or their representatives as to the quantities of potassium 
 salt sold, or the prices and the delivery conditions agreed upon, on other business 
 measures, as also on the wage conditions and the duration of the work, and to permit 
 the inspection of the plants and the entrance into the mines. They are further held 
 to show the books and documents of the potassium mines for the purpose of proving 
 the statements made. . , 
 
 The distributing station, the appeal commission and their representatives are under 
 obligation to keep secret the business measures of the potassium mine owners which 
 come to their knowledge. 
 
 Section VII. — Punishments. 
 Section 35. 
 
 Whoever attempts to defraud the Government of the taxes mentioned in sections 26 
 and 27 is guilty of embezzlement. t , , , 
 
 Whoever commits embezzlement is punishable by a money fine to the fourtold 
 amount of the tax. The tax must, furthermore, be paid. If the amount of the tax 
 can not be determined, a money fine up to 500,000 marks may be imposed. 
 
 In case of a repetition of the embezzlement subsequent to a prior punishment, a 
 prison term may be imposed up to six months. 
 22877— vol 1—12 32 
 
496 HEARINGS BEFORE 
 
 Section 36. 
 
 Violations of the provisions of sections 4, 5, 20, and 24 of this law are punishable 
 by a money fine up to 100,000 marks. 
 
 In case of the repetition of the previous punishment, a prison term up to six months 
 may be additionally imposed. 
 
 Section 37. 
 
 Violations of the provisions of this law and the controlling decisions subsequently 
 published or specially made known to the interested parties, in so far as they are not 
 liable to a special punishment as per sections 35 and 36, are punishable by a fine up 
 to 10,000 marks. 
 
 Section 38. 
 
 The undertakers of the work are liable for their directors, business managers, assist- 
 ants, and other persons in their serivce or wage, if they incur fines and the costs of the 
 proceedings as per sections 35 to 37, in case of the impecuniosity of the actually guilty 
 party, if it can be proven (1) that the violation was perpetrated with their knowledge 
 or (2) that they have not proceeded in the choice and engagement of the directors, 
 business managers, and other persons in their service or wage or in their supervision 
 with the care of an ordinary business man. 
 
 Section 39. 
 
 In case of section 35 and in so far as the violated provisions relate to the payment of 
 taxes, also in the case of section 37, there are applicable relative to the court proceed; 
 ings the decrease in punishment and the release of the fine by pardon as also the exe- 
 cution of the punishment, the provisions which prevail in proceedings in violation 
 of the customs law. 
 
 Section 40. 
 
 The fines prescribed on the basis of sections 35 to 37 are payable to the State treasury 
 of the union State the authorities of which have imposed the punishment. 
 
 In the case of section 35, part 2, sentence 3, the fifth part of the fine, taking the 
 place of the nondetermined tax, must be paid into the imperial treasury. 
 
 Section 41. 
 
 The potassium mine owners may be held to the fulfillment of their duties prescribed 
 in sections 23 and 34, aside from the penalties, by the threat and collection of fines up 
 to 10,000 marks by the authorities designated by the State government. The proceed- 
 ings are regulated by the prescriptions governing the respective authorities in coercive 
 measures. 
 
 Section 42. 
 
 A fine which can not be collected is to be converted into imprisonment. 
 
 Section 43. 
 
 The prosecution for embezzlements and violations of section 36 become outlawed 
 in three years, violations punishable by disciplinary penalty become outlawed in one 
 year. 
 
 Section VIII. — Costs. 
 
 Section 44. 
 
 The costs of the distributing station and of the appeal commission are borne by 
 the Empire. Relative to the costs of procedure the provisions of sections 91, 92 of 
 the civil-suit procedure are respectively applicable. 
 
 Section IX. — Transition Provisions. 
 
 Section 45 
 
 The provisions of sections 20 to 25 are not applicable to contracts made prior to 
 April 17, 1910. 
 
COMMITTEE ON INTERSTATE COMMERCE. 497 
 
 Section 46. 
 
 The Bundesrat has authority to so far modify the taxes of section 36 on deliveries 
 as per contracts concluded before December 17, 1909, that the prices for the quantities 
 supplied after May 1, 1910, inclusive of the taxes do not become higher than those 
 prevailing up to June 30, 1909. 
 
 Section 47. 
 
 The participation figure of the plants cited in the participation table under numbers 
 57 and 59 to 68 is to be increased, upon request of thj plant, prior to January 1, 1913, 
 if the conditions of its deposit and operating conditions justify the increase in accord- 
 ance with Section II. 
 
 Section 48. 
 
 If, before January 1, 1912, an independent plant, to be given a. separate participa- 
 tion figure, is branched off from a potassium mine, for which a participation figura has 
 been determined, then the participation figure of such plant is to be deducted from 
 the participation figure of the potassium mine. 
 
 Section 49. 
 
 Potassium mine owners may supply crude"salts beyond their participation figure 
 to separate factories existing prior to. the enforcement of this law, under the condi- 
 tions to be determined by the Bundesrat; the Bundesrat may in such case reduce 
 the tax prescribed in section 26. These deliveries may not in all exceed the quantity 
 of pure potassium taken over by the separate factories in the period from May 1, 1909, 
 to the same date of 1910. 
 
 Section X. — Final Provisions. 
 
 Section 50. 
 
 Contracts as to deliveries of potassium salts which were concluded before July 1, 
 1925, with effect beyond December 31, 1925, are invalid. 
 
 Section 51.- — Provisions relative to enforcement. 
 
 The Bundesrath issues the orders required to enforce the law; it especially has the 
 authority to promulgate further controlling provisions, by which the observance of 
 the provisions of this law are secured. It has to determine the principles for the 
 equalization to be effected as per section 8, part 5, for the determination of the par- 
 ticipation figure (sees. 9 to 12), for the prescriptions relative to the election of the 
 members, the arrangement and proceedings of the distributing station, and of the 
 appeal commission and the compensation of expenses (sec. 28, pt. 2). 
 
 The Reichstag is to be kept informed of all the decisions, provisions, and orders 
 issued by the Bundesrath relative to this law. 
 
 Section 52. — Time of entering into force of the law. 
 
 This law enters into force on the day of its publication. 
 Authenticated under our own august signature and affixed imperial seal. 
 Issued at the New Palace, May 25, 1910. „ „„ 
 
 r SBAL I William von Bethmann Holwey. 
 
 Letters from American-Hawaiian Steamship Ca. 
 
 New York, November S3, 1911. 
 
 lion. Moses E. Clapp, 
 
 Chairman Committee on Interstate Commerce, 
 
 United States Senate, Washington, D. C. 
 Dfar Sir- Thanking you for the courtesy of your acknowledgment of ours of the 
 21st instant,' I beg to say that we would be much pleased to have the letter made a 
 nart of the record of the committee hearings. , 
 
 ' topectfully, yours, Geo. S.Dearborn, President. 
 
498 HEARINGS BEFORE 
 
 American-Hawaiian Steamship Co., 
 
 New York, November 21, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Senate Committee on Commerce, Washington, D. C. 
 
 Sir: In view of the statement Mr. Bernard N. Baker was reported to have made to 
 your committee to the effect that there will be no independent steamship service 
 through the Panama Canal in the event of his failing to carry out his steamship project, 
 1 beg to submit these facts to the contrary: 
 
 The existence of the American-Hawaiian Steamship Co., now owning 18 steamers 
 with an average dead-weight cargo capacity of 10,000 tons, all built in American 
 yards in the last 11 years, operating a service between Atlantic and Pacific United 
 States ports and Hawaii via the Isthmus of Tehuantepec. 
 
 A company independent in every sense of the word, which is evidenced by its 
 having developed since 1900 an annual movement of 750,000 tons of freight as com- 
 pared to 12,000 tons in 1899, the last year of the old clipper-ship service it succeeded. 
 
 All of this freight has been diverted from the transcontinental railroads through 
 competitive rates of freight. 
 
 In preparation for the opening of the canal the American-Hawaiian Steamship Co. 
 has recently contracted for 5 new steamers, each to carry 10,000 tons of freight, 
 which, with its present fleet of 18 steamers, in all 23, will have an annual cargo capacity 
 in the canal service of 1,500,000 tons; making it necessary to fix such rates as will divert 
 750,000 tons additional freight from the transcontinental railroads the first year the 
 canal is open. 
 
 This company is prepared to provide as practical a mail service as that contem- 
 plated by the Baker service at a cost to the Government of 4 cents per pound on all 
 mail carried, amounting to a few thousand dollars per annum, as compared to $750,000, 
 the amount the Government proposed to pay in a subsidy for the same service. 
 
 Attention is called to the fact that there is no precedent for the application of the 
 mail subsidy to ships protected as the proposed Baker ships would be by the naviga- 
 tion laws in the coastwise trade — in effect, a double subsidy. 
 
 The service of delivering a few bags of mail at Colon and Panama can hardly be 
 considered a quid pro quo tor the annual payment of a subsidy of $750,000. 
 
 It may be added that the American-Hawaiian Steamship Co. has plans under con- 
 sideration for building more steamers. The plans for the further development of this 
 company, as well as the development of other steamship companies which will com- 
 pete with this company for business through the canal, must be adversely affected by 
 the menace of Government-owned lines, with which no private concern can suc- 
 cessfully compete. 
 
 Respectfully, G. S. Dearborn, President. 
 
 (There being no one present desiring to be heard, the committee 
 thereupon took a recess until to-morrow, Tuesday, November 28, 
 1911, at 10.30 o'clock a. m.) 
 
 tuesday, november 28, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met, pursuant to adjournment, at 10.30 o'clock a. m. 
 Present: Senators Clapp (chairman), Cummins, Brandegee, Oliver, 
 Townsend, Watson, and JPomerene. 
 
 The Chairman. The following letter will be inserted in the record : 
 
 November 25, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Senate Committee on Interstate Commerce, Washington, D. C. 
 Dear Sir: I duly received your letter of 21st instant inviting me to appear before 
 your committee during its hearings concerning the laws relating to the control of cor- 
 porations engaged in interstate commerce. 
 
 While deeply interested in this problem and desirous of contributing to its solution 
 if I can, I can not conveniently go to Washington at present, for the reason that next 
 week I am to go on the witness stand in a suit relating to the trade-mark interests of 
 
COMMITTEE ON 1NTEHSTATE COMMERCE. 499 
 
 this company and of vital importance to it, with the expectation that my examination 
 will probably continue for several weeks. 
 
 I am inclosing herewith, however, a statement I have recently compiled, embody- 
 ing the substance of what I would probably submit to your committee if invited to 
 express my views concerning the subject it has under investigation. If you so desire, 
 you are at liberty to present this statement to your committee for its consideration. 
 I shall be much relieved if you will accept this statement in lieu of my personal 
 appearance before the committee at this time. 
 
 Yours, truly, Henry R. Towne. 
 
 P. S. — I presume your committee is familiar with the simple but effective provi- 
 sions of the Canadian combines act of May 4, 1910. 
 
 H. R T. 
 
 (The statement herein referred to appears in the statement of Mr. 
 Seth Low.) 
 
 STATEMENT OF SETH LOW, PRESIDENT OF THE NATIONAL 
 CIVIC FEDERATION, NEW YORK CITY. 
 
 The Chairman. You may state your residence and occupation. 
 
 Mr. Low. My name is Seth Low ; I reside in New York City. I am 
 president of the National Civic Federation, and my occupation is 
 that of a farmer just now. Mr. Chairman and gentlemen of the 
 committee, the National Civic Federation, of which I am president, 
 sent out a little while ago a questionnaire upon this subject, which 
 was submitted to manufacturers, merchants, bankers, and the 
 presidents of commercial, labor, and other organizations. I thought 
 it might interest the committee to report the result of that question- 
 naire, as far as it has been tabulated. We sent out a somewhat 
 more lengthy paper to lawyers and editors and professors, which has 
 not yet been tabulated. So far we have here a tabulation, I think, of 
 1,00*6 answers from manufacturers, merchants, and bankers, as 
 follows : 
 
 [Totals of 8 tally sheets, November 27, 1911.] 
 
 QUESTIONNAIRE SUBMITTED TO MANUFACTURERS, 'MERCHANTS, BANKERS, AND THE 
 PRESIDENTS OF COMMERCIAL, LABOR, AND OTHER ORGANIZATIONS. 
 
 The Sherman Antitrust Act has now been interpreted by the Supreme Court to 
 mean, as to interstate commerce, that any combination in restraint of trade with the 
 purpose of controlling prices and stifling competition is unlawful. 
 
 No form of combination has been successful in surviving attack, if, ' in the light of 
 reason " these qualities have attached to its operations. It must of course be proved 
 in a given case whether the combination in question has produced these results; but 
 it may be taken for granted that when these results have been established the Sher- 
 man law will be effective to destroy the combination. Many evils, however, that 
 can not be reached under the Sherman Act have developed in connection with such 
 combinations; and, at the same time, the advantages of doing business on a large 
 scale are so great as to make the concentration of capital essential to the full and 
 efficient development of modern business. 
 
 The problem before the country now is to secure the benefits of large aggregations 
 of capital in business, so far as it can be done without subjectmg ourselves to the 
 evils, most of them wholly unnecessary, which have marked the business methods ot 
 
 the last few years. . , . , . , _ , 
 
 (1) Do you believe that the Sherman law, as now interpreted, is made clear and work- 
 able? Yes, 192; no, 841. , , , 
 
 (2) Do you consider it feasible to attempt to return to what are commonly known 
 as old competitive methods in business? Yes, 181; no, 881. 
 
 (3} Do vou favor a repeal of the Sherman law? Yes, 379; no, 600. 
 
 (4) Do you favor amending the Sherman law in any way? If so, in what particulars ? 
 
 7?)) Should railroads be allowed to enter into agreements affecting rates, subject to 
 the approval- an_d .regulation of the Interstate Commerce Commission? Yes, 97&; 
 no, 63. 
 
500 
 
 HEARINGS BEFORE 
 
 (6) Should trade unions be excepted from the operation of the Sherman Act? 
 ..Yea, 102; no, 962. 
 
 (7) Should combinations of farmers, either to restrict production or to hold a crop 
 for higher prices, be rendered lawful under the Sherman Act? Yes, 209; no, 828. 
 
 (8) Do you favor a national incorporation law? Yes, 757; no, 191. 
 
 (9) Do you favor a Federal license law? Yes, 451; no, 294. 
 
 (10) Do you favor an interstate trade commission with powers not unlike those now 
 enjoyed by the Interstate Commerce Commission in relation to common carriers? 
 Yes, 614; no, 278. 
 
 (11) In your judgment what caused or causes the present disturbed business condi- 
 tions? 
 
 You will notice that these replies all come from manufacturers, 
 merchants, and bankers. 
 
 I have here a list by occupations of those who have answered, 
 .which if the committee pleases I will file with it, so that they may 
 see the names for themselves. I simply offer it to the committee, 
 but if the committee would rather have it come later, when it is 
 complete, I shall be very glad to see that you have a complete com- 
 pilation. 
 
 Senator Brandegee. As these reports are coming out from day to 
 day, I think it would be well to let it go in now and be perfected later. 
 
 (The list referred to is as follows:) 
 
 MANUFACTURERS. 
 
 Name. 
 
 Firm name or business and address. 
 
 A. T. EastwicK... 
 A. V. Rosencranz. . 
 
 P. N. Bucher 
 
 S. T.Harrison 
 
 James B. Hammett 
 
 J. T.Howard 
 
 Chas. J. Davol 
 
 J.W.Koch 
 
 W. J. Eckman 
 
 C. W. Parker 
 
 D. N. Cain 
 
 B.V. M. La Rue.. 
 
 E. W. Handlan 
 
 F. P. Boynton 
 
 J.O.Walker 
 
 E.H.Archibald 
 
 Simons Barnard 
 
 John L. Inglis 
 
 James I. Levy 
 
 E. P. Sedgwick 
 
 S. W. Utley 
 
 Edgar Woelfel 
 
 C L. Becker 
 
 S. Buell 
 
 O. E. Oberstadt.... 
 James R. Keiser... 
 
 Jacob Elsas 
 
 Thomas Devlin 
 
 F. W. Williams 
 
 G. F.Berry 
 
 Lewis V. Brown... 
 
 Arthur Meeker 
 
 J. T. Holliday 
 
 Abiel J. Abbot 
 
 Henry Albers 
 
 Jay Smith 
 
 F.D.Fletcher 
 
 L.B.Curtis 
 
 F. E. Eckhart 
 
 Albert Carry 
 
 G. W. Fuller 
 
 James Lee & Sons Co., worsted and woolen yam*, Bridgeport. Pa. 
 
 The Vulcan Plow Co., 101 Lower First Street, Evansville, Ind. 
 
 Pierce, Butler & Pierce Manufacturing Co., Syracuse, N. Y. 
 
 Harrison-Headrick Hardware Co., Memphis, Tex. 
 
 Anderson Cittin Mills, lock drawer 442, Anderson, S. C. 
 
 Dallas Cotton Mills, Dallas, Tex. 
 
 Davol Rubber Co., Providence, R. I. 
 
 The Stoneware Pipe Co., East Alton, 111. 
 
 The M. B. Farrin Lumber Co., Cincinnati, Ohio. 
 
 Manufacturer of amusement devices, Leavenworth, Kans. 
 
 Cain Mill Co., Atchison. Kans. 
 
 Southwestern States Portland .Cement Co., Delias, Tex. ' 
 
 Handlan-Buck Manufacturing Co., railroad supplies, St. Louis, Mo. 
 
 Boynton & Co., moldings, carvings, etc., 1725 Dickson Street, Chicago, 111. 
 
 Escambia Land & Manufacturing Co., lumber and naval stores, Ponsacola, 
 
 Fla. 
 Archibald Wheel Co., Lawrence, Mass. 
 Clothing manufacturer, 34 Chauncy Street, Boston, Mass. 
 Dummellon Phosphate Co., Rockwell, Fla. 
 Ashland Cigar & Tobacco Co.; Ashland Home Telephone Co.; Ashland, 
 
 Wis. 
 Chicago Hardware Foundry Co., North Chicago, 111. 
 Detroit Steel Casting Co., Detroit, Mich. 
 Woelfel Leather Co., Morris. 111. 
 Becker Brewing & Malting Co., Ogden, Utah. 
 The Sherwin-Williams Co., 601 Canal Road NW., Cleveland, Ohio. 
 The Peter Schoenhofen Brewing Co., Chicago, 111. 
 James R. Keiser (Inc.), neckwear and handkerchiefs, Fourth Avenue and 
 
 Twenty-seventh Street, New York City, N. Y. 
 Fulton Bag & Cotton Mills, box 773, Atlanta, Ga. 
 
 Thomas Devlin Manufacturing Co., lace curtains, Lehigh Avenue, Ameri- 
 can and Third Streets, Philadelphia, Pa. 
 California Glove Co., 86 Third Street. San Francisco, Cal. 
 W. A. Gaines & Co., distillers, Frankfort, Ky. 
 The Canaan Coal Co., Athens, Ohio. 
 Armour & Co., packers, Chicago, 111. 
 W. J. Holliday & Co., iron and heavy hardware, 326 West Georgia Street, 
 
 Indianapolis, Ind. 
 Abbot Worsted Co., Westford, Mass. 
 Albers Bros. Milling Co. , Portland , Oreg. 
 Marshall-Wells Hardware Co., Portland, Oreg. 
 Texas Strainer Co., Beaumont, Tex. 
 The National Society of the Sons of the American Revolution, Bridgeport, 
 
 Conn. 
 Eckhart Carriage Co., Auburn, Ind. 
 National Capital Brewing Co., Washington, D. C. 
 A. S. Cameron Steam Pump Works, 433 East Twenty-third Street, New 
 
 York City, N. Y. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 MANUFACTURERS— Continued. 
 
 501 
 
 Name. 
 
 H. S. Willard 
 
 W. H. Cowdery 
 
 Charles H. Williams. 
 
 C. B. Rockwell 
 
 Ferdinand L. Loeb . . 
 
 \V. n. Luden 
 
 A. AlbartLack 
 
 Augustus P. Loring. 
 
 Sedgwick Kistler 
 
 John C. J.ay,jr 
 
 Victor Manck 
 
 W. T. \Vildrup,jr... 
 B.C. Follansbee 
 
 Charles K. Eagle 
 
 Andrew H. Noah. . . 
 
 A.J. Murray 
 
 Wm. H.Butler 
 
 Clyde Mitchell Carr. 
 
 Julius Heimann 
 
 Thomas A. Kirkham.. 
 
 Richard Hardy 
 
 Hugo Bilgram 
 
 Henry Gold water 
 
 R. H. Stockton. 
 
 T. Frank Stevens 
 
 F. A. Worthington 
 
 George Faxton Diehl. . . 
 
 Frank H. Payne 
 
 G.Bartol 
 
 O.E. Collins 
 
 Wilson Kistler 
 
 Edward Hamlin 
 
 Abram C. Mott 
 
 J. R. Montgomery 
 
 William A. Heismann . 
 
 N.H. Taylor 
 
 Allen Merrill Rogers . . . 
 
 John W.Narz 
 
 F.C.Fletcher 
 
 Frank C. Henderson . 
 
 Harry F. Jones 
 
 A. B. Rincbart. .... . 
 
 T. A. Lesmon 
 
 O.F.Transue 
 
 F. A. Seibaling 
 
 Paul Wessonger 
 
 E. F. Underhill 
 
 C.D.Mitchell 
 
 Frank J. Enger 
 
 John C. Dunbar 
 
 Alburtis ^Tooney 
 
 J. L. Mauldin 
 
 Houston Lowe 
 
 J. G. Straub 
 
 Thos. D. Sturtevant.. 
 
 Herman Ellis 
 
 Wm. J. Farrell 
 
 Robert Rogers 
 
 A. W. Chaffee 
 
 Max Brummel 
 
 Charles H. Draper 
 
 A. McCallum 
 
 C. C. Rounseville 
 
 James Rogers 
 
 Worth Kilpatrick 
 
 S.M.Dalzell 
 
 W. T. Lewis 
 
 W.N. Small 
 
 George D. Howell — 
 
 S. F. Seager... 
 P. N. Jackson. 
 
 Firm name or business and address. 
 
 J. A. Brett. 
 
 Pig-iron manufacturer, Welleston, Ohio. 
 American Fork & Hoe Co., Cleveland, Ohio. 
 United States Rapid-Fire Gun & Power Co., Derby, Conn. 
 Cranston Worsted Mills, Bristol, R. I. 
 
 Copley Cement Manufacturing Co., 1106 Land Title Building, Philadel- 
 phia, Pa. 
 Manufacturing confectioner, 208 North Eighth Street, Reading, Pa. 
 Lymansville Co., manufacturers worsted goods, Providence, R. I. 
 Plymouth Cordage Co., 40:State Street, Boston, Mass. 
 Kistler, Lesh & Co., manufacturers, Lock Haven, Pa. 
 The Pennsylvania Steel Co., 71 Broadway, New York City, N. Y. 
 John Wood Manufacturing Co., electric weld products, Conshohocken, Pa. 
 Harrisburg Pipe & Pipe Bending Co., box 757, Harrisburg, Pa. 
 Follansbee Bros. Co., tin plate and metals, Liberty and Third Avenues, 
 
 Pittsburgh, Pa. 
 J. H. & C. K. Eagle, silk manufacturers, 454 Broome Street, New York 
 
 City, N. Y. 
 Diamond Rubber Co., Akron, Ohio. 
 Cortland Carriage Goods Co., Cortland, N. Y. 
 Manufacturer, 142 West Twenty-first Street, New York City, N. Y. 
 Joseph T. Ryerson & Son, iron steel machinery, Sixteenth and Rockwell 
 
 Streets, Chicago, 111. 
 Heimann & Licnten, ladies' hats, Monson, Mass. 
 Berkshire Fertilizer Co., Bridgeport, Conn. 
 Dixie Portland Cement Co., Chattanooga, Tenn. 
 Bilgram Machine Works, 1235 Spring Garden Street, Philadelphia, Pa. 
 H. Goldwater & Co.,infants' and children's garments, 182 Avenue 0, New 
 
 York Citv, N. Y. 
 Maiestic Manufacturing Co., cooking ranges, 2018 Morgan Street, St. Louis, 
 
 Mo. 
 Maine Manufacturing Co., refrigerators, Nashua, N. H. 
 Agawam Co., woolen goods, Agawam, Mass. 
 Eagewood Distilling Co., 419 Elm Street, Cincinnati, Ohio. 
 Metric Metal Works, Erie, Pa. 
 Otis Steel Co. (Ltd.), Cleveland, Ohio. 
 Cotton mill, Methuen, Mass. 
 Kistler, Lesh & Co., tanners, Lock Haven, Pa. 
 Metropolitan Coal Co., 20 Exchange Place, Boston, Mass. 
 Abram Cox Stove Co., 1329 North Broad Street, Philadelphia, Pa. 
 J. R. Montgomery Co., cotton yarns, etc., Windsor Locks, Conn.. 
 Penn Hardware Co., locks and builders' hardware, Reading, Pa. 
 Pittsburgh Coal Co., H. W. Oliver Building, Pittsburgh, Pa. 
 H. A. Rogers Co., railway, mill, and mining supplies, 19 John Street, New 
 
 York City, N. Y. 
 Princeton Worsted Mills, Trenton, N. J. 
 100 Boylston Street, Boston, Mass. 
 F. C. Henderson Co., 229 Clinton Road, Brookline, Mass. 
 United Steel Co,. Canton, Ohio. 
 
 Akron Belting Co., Akron. Ohio. . 
 
 Chicago, Wilmington & Vermillion Coal Co., 407 McCormick Building, 
 
 Chicago, 111. . 
 
 Transue & Williams Co., drop forgings, Alliance, Ohio. 
 Goodyear Tire & Rubber Co., Akron, Ohio. 
 Henry Wernhom Brewery, 475 Burnside Street, Portland, Oreg. 
 American Laundry Machinery Co.. 105 South La Salle Street, Chicago, 
 Chattanooga Plow Co., implements, Chattanooga, Tenn. 
 Enger Motor Car Co., Cincinnati, Ohio. 
 
 International Silver Co., 9 Maiden Lane, New York City, N. \ . 
 Brewer, 518 State Street, Hudron, . Y. 
 
 Cleveland ArmaUro Works, 4732 St.. Clair Avenue, ( leveland, Ohio. 
 Lowe Bros. Co., Dayton, Ohio. 
 Distillery manager. Cheswick, Pa. 
 Sturtevant Mill Co., Harrison Square, Boston, Mass. 
 Wilson DistilUn? Co., 303 Fifth Avenue, "-'ew York City. N. Y. 
 Corks, 11. "i Maiden Lane, " "ew York City, N. Y. „. 
 
 Wire Cloth Manufacturer, 299 Broadway, , cw \ ork City, i.. 1 . 
 " "ew York Net & Twine Co., Moodus. Conn. 
 Ackermar & Brummel, 645 Atlantic Avenue, Boston, Mass. 
 C. F. Roper & Co., Hopedale, Mass. 
 Manufacturer of silk hosiery, Northampton. Mass. 
 Shove Mills, Fall River, Mass. . 
 
 J & J. Rogers Co., Pulp and paper manufacturers, An Sable 1- oris, ^ ._i . 
 Coal operator and banker, Indian Ridge Coal & Coke Co. Conndlsyille, la. 
 Spring Valley Coil Co , co il operator. 705 01 1 Colony Building. Chicago, 111. 
 Mitchell-Lewis Motor Co.. Racine, Wis. 
 El Paso Foundry & Machine Co., El "aso, Tex. 
 The McCrum-Hbwell Co., boilers, radiators, and vacuum cleaning system, 
 
 103 Park Avenue, ."ew York City, '. Y. 
 Seager Engine Works, Lansing, Mich. 
 International Cotton Mills Corporation, 161 Devonshire Street, Boston, 
 
 w'estinghouse Electric & Manufacturing Co. , Traction Building, Cincinnati, 
 Ohio. 
 
502 
 
 Name. 
 
 Augustus P. Loring. 
 
 T.J. Short 
 
 Edward E. Hughes.., 
 
 John J. Glessner 
 
 Geo. W. Tiedemann.. 
 
 Franklin H. Head 
 
 Louis W. Gross 
 
 W. A. B. Dalzell 
 
 Franklin Murphy 
 
 G.E. Grafts 
 
 Robert Chapman 
 
 Geo. McMaster 
 
 Livingston Fargo 
 
 Wm. H. Taylor 
 
 M. C. Butler 
 
 Geo. F..S. Singleton.. 
 James It. Nicholson. . 
 
 E. D. Johnston 
 
 H. A. Holder 
 
 G.W.Caswell 
 
 O. W. Robertson 
 
 L. Waldauer 
 
 Wm. L. Brown 
 
 Adolph Karpen 
 
 W. W. Harker 
 
 Perrin P. Hunter 
 
 L. A Littauer 
 
 C. E. Van Zandt 
 
 V. A. Wallin 
 
 M. I. Arms 
 
 A. F. Henston 
 
 William B. Relish... 
 
 OtisE. Pierce.. 
 
 W. A. Garrigues 
 
 T. H. Letson 
 
 N. E. Loomis 
 
 W. H. Childs 
 
 H. F. Van Keep 
 
 A. J. Sunstein 
 
 Philip T. Dodge 
 
 C. Arthur Dunlavy . 
 
 Jeremiah Dwyer 
 
 J. D. Khimon 
 
 Geo. T. Betts 
 
 Daniel Wells 
 
 George G. Wheeler.. 
 
 J . A. Campbell 
 
 John A. Mathews- . . 
 
 E.J. French 
 
 Charles Cheney 
 
 L. D. Hawkins 
 
 Henrv Gund 
 
 W. V.Crawford 
 
 Alfred F. Isaacs 
 
 E. G. Blanton 
 
 Fredk. Swindell 
 
 W. J. Snvder 
 
 H. C. Osborne 
 
 G. P.Steele 
 
 IT. J. Fleming 
 
 Wakefield Baker 
 
 George W. Thurston 
 
 S.S.Wheeler 
 
 Ernest E. Tobias 
 
 W. W.Case 
 
 Howard Caswell Smith. . 
 
 L. M. Butman 
 
 L. B. Faulkner 
 
 Judson G. Rosebush 
 
 F. F. Peabody 
 
 Sheldon J. Glass 
 
 Z. G. Simmons 
 
 H. R. Kingman 
 
 Dickson Q. Brown ..... 
 
 Asher Miner 
 
 W. J. Strassburger 
 
 C. E. Sheldon 
 
 C. C. Smith 
 
 Robert L. Chamberlain . 
 
 HEARINGS) BEFOfcE 
 
 MANUFACTURERS— Continued. 
 
 Firm name or business and address. 
 
 Loring, Coolidge & Noble, manufacturer and lawyer, 40 State Street, 
 
 Boston, Mass. 
 Ashland Leather Co., Ashland, Ky . 
 Franklin Steel Co., Franklin, Pa. 
 International Harvester Co., Chicago, 111. 
 Charles Tiedemann Milling Co., O'Fallon, HI. 
 Manufacturer and banker, 3 Banks Street, Chicago, 111. 
 L. N. Gross Co., makers of ladies' waists and dresses, Cleveland Ohio. 
 Fostoria Glass Co., Moundsville, W. Va. 
 Manufacturer, Newark, N. J. 
 
 Orono Pulp & Paper Co., pulp and paper, Bangor, Me. 
 Marlboro Cotton Mills, McColl, S. C. 
 Mutual Wheel Co., Moline, 111. 
 Iron-ore mints, Plaza Hotel, New York City, N. Y. 
 2725 Whitehall Building, New York City, N. Y. 
 Mine superintendent, Fairfax, Wash. 
 Singltton Vi orsted Co., Franklin, Mass. 
 Harvard Brewing Co., do Commercial Wharf, Boston, Mass. 
 P. H. & F. M. Roots Co., Connersville, Ind. 
 Turner Tanning Machinery Co., Peabody, Mass. 
 N. W. Manufacturing Co., Fort Atkinson, Wis. 
 Union Lime Co., Milwaukee,^ is. 
 
 719 Commercial Street, cigar maker, Atchison, Kans. * 
 
 Pickands, Brown & Co., Comm. National Bank Building, Chicago, III. 
 Manufacturers of furniture, Twenty-second and Munroe Streets, Chicago, 111. 
 Harker Pottery Co., manufacturer and banker, East Liverpool, Ohio. 
 American Carriage Co., 1275 Budd Street, Cincinnati, Ohio. 
 Littauer Bros., 715-717 Broadway, New York City, N. Y. 
 Van Zandt, Jacobs & Co., Troy, N. Y. 
 Wallin Leather Co., Grand Rapids, Midi. 
 639 Wick Avenue, Youngstown, Ohio. 
 Lukene Iron & Steel Co., Coatesville, Pa. 
 Bromwell Brush & Wire Goods Co., 612 West Sixth Avenue, Cincinnati, 
 
 Ohio. 
 Grinnell Manufacturing Co., cotton yarns, post-office box 7, New Bedford, 
 
 Mass. 
 Levering & Garrigues, 552 West Twenty-third Street, New York City, N. Y. 
 American Heist & Derrick Co., 39 Cortlandt Street, New York City, N. Y. 
 The Mosaic Tile Co., Zanesville, Ohio. 
 
 American Coal Products Co., 17 Battery Place, New York City, N. Y. 
 Cheboygan Paper Co., Cheboygan, Mich.- 
 Thompson Distilling Co., 319 First Avenue, Pittsburgh, Pa. 
 Mergenthaler Linotype Co., Tribune Building, New York City, N. Y. 
 Broderick & Bascom Rope Co., 7fi Warren Street, New York City, N. Y. 
 Michigan Stove Co., Detroit, Mich. 
 Libbev Glass Co.. Toledo. Ohio. 
 J. S. Betts Co., Ashbuni, Ga. 
 
 Lumber manufacturer, Majestic Building, Detroit, Mich. 
 W. & S. Blackinton Co., jewelry, North Attleboro, Mass. 
 Youngstown Sheet & Tube Co ' Youngstown, Ohio. 
 Halcourt Steel Co., Syracuse, N. Y. 
 Fall River, Mass. 
 
 Cheney Bros., South Manchester, Conn. 
 Faribault Furniture Co., Faribault, Minn. 
 John Gund Brewing Co., La Crosse, Wis. 
 190 Montague Street, Brooklyn, N. Y. 
 S. Isaacs & Co., 100 William Street. New York City. 
 B. F. Avery & Sons Tlow Co., 205 West First Street, Oklahoma, Okla. 
 Rock Manufacturing Co., Uockville, Conn. 
 Zeller, MeClellan & Co., coal operators, Brazil, Ind. 
 American Multieraph Co., East Fortieth Street and Kelly Avenuo NE., 
 
 Cleveland, Ohio. 
 Hekonsa-Edwards Paper Co., Port Edwards, Wis. 
 Chipman Knitting Mills, Easton, Pa. 
 
 Pacific Portland Cement Co., 821 Pacific Building, San Francisco, Cal. 
 American Screw Co., North Station, Providence, K. I. 
 Crocker-Wheeler Co., Ampere, N. J. 
 Michiean Wire Fence Co., Adrian. Mich. 
 Anderson Electric Car Co., Detroit, Mich. 
 45 Wall Street, New York City, N. Y. 
 Empire Worsted Mills, Jamestown, N. Y. 
 Olympia Light & Power Co., 523 Main Street, Olympia, Wash. 
 Patten Paper Co., Applcton, Wis. 
 Cluett, Peabody & Co., Troy, N. Y. 
 
 Milwaukee Gas Light Co., 182 Wisconsin Street, Milwaukee, Wis. 
 Simmons Manufacturing Co., brass and iron beds, Kenosha, Wis. 
 Yakima Branch, Pacific Power & Light Co., North Yakima, Wash. 
 Tide Water Oil Co., 11 Broadway, New York City, N. Y. 
 Miner-Hillard Milling Co., Wilkes-Barre. Pa. 
 Allegheny Plate Glass Co., Glassmore, Pa. 
 Whitman & Barnes Manufacturing Co., Akron, Ohio. 
 Union Steel Casting Co., Pittsburgh, Pa. 
 Knickerbocker Chocolate Co., 445-457 West Thirty-first Street, New York 
 
 City, N. Y. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 MANUFACTURERS— Continued. 
 
 503 
 
 Name. 
 
 Henry C. Dexter 
 
 Alfred Stanley 
 
 D. B. Meacham 
 
 A. F. Rockwell 
 
 A. C. Stebbins 
 
 Edward C. Hin man 
 
 S. H. McVitty 
 
 ZacharyT. Hollingsworth 
 
 Albert Krell 
 
 C. L. Bent 
 
 Alfred E. Hamill 
 
 Horace A. Carter 
 
 Geo. E. Keith 
 
 R. B. Lowe 
 
 Lucius W. Robinson 
 
 Firm name or business and address. 
 
 Vf, A. Marble. 
 
 F. M. Hodge 
 
 F. K. Russell 
 
 James P. Gardner.. 
 
 Henrv C, Bannard . 
 
 W. J.Olcott.. 
 
 William Gray 
 
 E. A. Wurster 
 
 M. A. Wertheimer. 
 
 E. B. Hutch 
 
 L. D. Kellogg 
 
 Greene & Daniels Manufacturing Co., Pawtucket, R. I. 
 Livermore Falls Pulp Co., Plymouth, N. H. 
 
 Hanging Rock Iron Co., Carew Building, Cincinnati, Ohio. 
 New Departure Manufacturing Co., Bristol, Conn. 
 
 Lansing Wheelbarrow Co., Lansing, Mich. 
 
 American Steam Pump Co., Battle Creek, Mich. 
 
 Leas & McVitty (Inc.), Salem, Va. 
 
 Hollingsworth & Vose Co., 141 Milk Street, Boston, Mass. 
 
 Krell Piano Co., Ninth, Richmond, and Harriet Streets, Columbus, Ohio. 
 
 S. Bent & Bros., Station A, Gardner, Mass. 
 
 137 South La Salle Street, Chicago, 111. 
 
 Wm. Carter Co., Needham Heights, Mass. 
 
 Geo. E. Keith Co., shoe manufacturer and banker, president, Brockton, 
 Mass. 
 
 Parkhlll Manufacturing Co. , cotton manufacturers, Fitchburg, Mass. 
 
 Rochester & Pittsburgh Coal & Iron Co., Punxsutawney, Pa. 
 
 J. W. Phinney ! 279 Congress Street, Boston, Mass. 
 
 J. S. Keen i Detroit Oak Belting Co., 266 Wight Street, Detroit, Mich. 
 
 E. J. Stewart j United Cork & Seal Co., Chamber of Commerce Building, Boston, Mass. 
 
 Geo. G. Coffin i Lalance & Grosjean Manufacturing Co., 351 Congress Street, Boston, Mass. 
 
 M. L. Sperry ! Savannah Electric Co., Savannah, Ga. 
 
 Levi Smith | Clarendon, Pa. 
 
 L. R. Crame ' G. F. Harvey Co., Saratoga Springs, N. Y. 
 
 Manufacturer of corsets, 890 Broadway, New York City, N. Y. 
 
 Kalamazoo Paper Co., Kalamazoo, Mich. 
 
 F. K. Russell Machine Co., 2318 Live Oak Street, Dallas, Tex. 
 
 Morgan Gardner Electric Co., Twenty-seventh Street and Shields Avenue, 
 Chicago, 111. 
 
 United Breweries Co.. 1550 First National Bank Building, Chicago, 111. 
 
 Oliver Iron Mining Co., Wolvin Building, Duluth, Minn. 
 
 Gray & Davis, Amesbury, Mass. 
 
 The Falk Co., 3207 Highland Boulevard, Milwaukee, Wis. 
 
 Thilmanv Pulp & Paper Co., Kaukauna, Wis. 
 
 Johns-Pratt Co., 555 Capitol Avenue, Hartford, Conn. 
 
 Kellogg Switchboard & Supply Co., corner Congress and Green Streets, 
 Chicago, 111. 
 
 Plum, Charles, and Twelfth Streets, Cincinnati, Ohio. 
 
 B. F. Avery & Sons, plow manufacturers, Louisville, Ky. 
 
 Henry W. Wellington & Co., braided cordage, 78 Chauncy Street, Boston, 
 Mass. 
 
 Louisville Cotton Mills Co., Louisville, Ky. 
 
 Russell-Miller Milling Co., Minneapolis, Minn. 
 
 Cumberland Glass Manufacturing Co., Bridgeton, N. J. 
 
 Acushnet Saw Mills Co., 2381 Acushnet Avenue, New Bedford, Mass. 
 
 Duluth-Superior Milling Co., Duluth, Minn. 
 
 Blair, Milling Co., Atchison, Kans. 
 
 Lynn Wood Heel Co., Lynn, Mass. 
 
 F. W. Prentice & Co., Adrian, Mich. 
 
 Otis Elevator Co.. 34-35 India Street, Boston, Mass. 
 
 Doud Stock Car Co., Fisher Building, Chicago, 111. 
 
 Ludlow Manufacturing Association, 55 Congress Street, Boston, Mass. 
 
 Postum Cereal Co. (Ltd.), Battle Creek, Mich. 
 
 United States Wind Engine & Pump Co., Batavia, 111. 
 
 White Enamel Refrigerator Co., St. Paul, Minn. 
 
 Ault & WiborgCo., Cincinnati, Ohio. „,.„». „ -un- 
 
 united States Reduction & Refining Co.. 301 Mining Exchange Building, 
 Colorado Springs, Colo. 
 
 Beaumont Iron Works Co., Beaumont, Tex. 
 
 Chickasha Milling Co., Apache, Okla. 
 
 Rodney Hunt Machine Co., Orange, Mass. 
 
 Logan-Gregg Hardware Co., Pittsburgh, Pa. 
 
 Carpenter Steel Co., Reading, Pa. .„,. . 
 
 United Engineering & Foundry Co., Farmers Bank Building, Pittsburgh, 
 Pa. 
 
 Mount Vernon Car Manufacturing Co., Mount Vernon, 111. 
 
 Williams, White & Co., Moline, 111. 
 
 Heine Safety Boiler Co., 2449 East Marcus Avenue, St. Louis, Mo. 
 
 Bridge & Beach Manufacturing Co., 503 South First Street, St. Louis, 
 
 N. H. Bragg & Sons, pulp and paper, Bangor, Me. 
 
 Anderson Hardware Co.. 9-11 Pryor Street, Atlanta, Ga. 
 
 Fones Bros. Hardware Co., 114 North Main Street, Little Rock, Ark. 
 
 Barrett Hardware Co., Joliet, 111. 
 
 M. C. Lilley & Co., Columbus, Ohio. 
 
 Schulze Bros. & Co., harness and saddlery, Duluth, Minn. 
 
 197 Adams Street, Chicago, 111. 
 
 Traer Coal Co., Fisher Building, Chicago. 111. 
 
 Warwick Iron & Steel Co., Pottstown, Pa. 
 
 Herreshofl Manufacturing Co., Bristol, R. I. 
 
 Hunter Arms Co., Fulton, N. Y. 
 
 Rathbone Stove Works, Albany, N. Y. 
 
 American Plate Glass Co., Kane, Pa. 
 
 Atlanta Stove Works, Atlanta, Ga. 
 
 Eastern Ohio Glass Co., Barnesville Ohio. 
 
 Otto Armeleder 
 
 Charles F. Muhlein 
 
 Henry W. Wellington. 
 
 Philip T. Tuley 
 
 C. T. Wyncoop 
 
 C. W. Shoemaker 
 
 Frederick B. Hawes. . 
 
 B. Stockman 
 
 W. A. Blair 
 
 P. A. Brown 
 
 F. W. Prentice 
 
 Rumsey W. Scott . . . 
 
 C. J.Miles... 
 
 Cranmon N. Wallace. 
 
 C. W. Post 
 
 H. W. Wade 
 
 Gebhard Bonn 
 
 L. A. Ault 
 
 J. D. Hawkins 
 
 S.J. Black 
 
 C.Arthur Blair... 
 Nelson E. Harris. 
 George B. Logan.. 
 W. B. Kunhardt. 
 Isaac W. Frank... 
 
 W. G. Arthurs 
 
 Harry Ainsworth 
 
 E.R. Fish 
 
 F. H. Booch 
 
 C. F. Bragg 
 
 Sims Bray 
 
 lames Mandlebaum 
 
 J. O. Barrett 
 
 Charles H. Lindenberg. 
 
 E. A. Schulze 
 
 A. W. Philipsbom 
 
 Glenn W. Traer 
 
 EdgarS. Cook 
 
 John B. Herreshofl 
 
 Phinneas Hunter 
 
 Grange Sard. 
 
 A. H. Gaflney 
 
 Samuel D.Jones 
 
 Arthur Rogers 
 
 Mo. 
 
504 
 
 HEARINGS BEFORE 
 MANUFACTURERS— Continued. 
 
 Name. 
 
 Firm name or business and address. 
 
 H. L. Kramer 
 
 Charles J. Lynn 
 
 Wm. Martin 
 
 W. H. MeCurdy 
 
 J. B. Livingston 
 
 Robert Bentley . , v . 
 
 Charles Soby 
 
 E. L. Frisbie 
 
 F.E.Nellsen 
 
 J. G. Woodruff 
 
 John E. Warren 
 
 A. Alexander 
 
 J. Alex Hayden 
 
 Ellibovitz Pruyitz 
 
 John S. Brittain 
 
 R. B.Pitts 
 
 E. P. Schvening. 
 
 Charles H. Jones 
 
 E. H. Outerbridge 
 
 Edward P. Reichhelm . . 
 
 M. Cochrane Armour 
 
 John J. Amory 
 
 Richard B. Carter 
 
 James Couzens 
 
 A. D. Hawley 
 
 F. A. Brainerd 
 
 R. H. Jeffrey 
 
 Silas J. Llewellyn 
 
 Paul Beer 
 
 Edward P. Nichols 
 
 William A. Rogers 
 
 R. C. Peabody.,1 
 
 George H. Christian 
 
 Alexander W. Hartman. 
 
 John W. Smith 
 
 Samuel Woolner, jr 
 
 H. Clay Evans 
 
 C. F. Burroughs 
 
 G. H. Duncker 
 
 A. C. Phelps 
 
 F. Covns 
 
 C.L. Golden 
 
 George J. Gensman 
 
 John Reid 
 
 Frank J. Whitney 
 
 W. L. Blackburn 
 
 J. G. Timolat 
 
 JohnS. Clark 
 
 J. Walter Freiberg 
 
 JohnH. Flint 
 
 Robert Fullerton 
 
 E.T.Weir 
 
 C. S. Luitwiller 
 
 Lew C.Hill 
 
 Franklin L. Sheppard... 
 
 Charles Pfaff 
 
 James J. Heekin 
 
 F. H. Maynard 
 
 W. P. Gallahen 
 
 William Clerkin 
 
 Charles H. Zehnder 
 
 Charles L. Beall 
 
 John Stambaugh 
 
 C. J. Hanover 
 
 Z. P. Bennett 
 
 James M. Young 
 
 J. W. Johnson 
 
 James C. Clow. . . i 
 
 Ed. L. Buckwalter 
 
 I. Baumgarth 
 
 Charles W. Mixter 
 
 B. Eldinge 
 
 S. J. Gilbert 
 
 E. H. Foote 
 
 Lucien Wulsin 
 
 Sterling Remedy Co., Kramer, Ind. 
 
 Ell Lilly & Co., pharmaceutical chemists, Indianapolis, Ind. 
 
 T. Martin & Bro. Manufacturing Co.. Chelsea, Mass. 
 
 Hercules Buggy Co., Evansville, Ind. 
 
 Bridgeport By-Products Co., 87 Orange Street, New Haven, Conn. 
 
 Ohio Iron & Steel Co., 712 Stambaugh Building, Youngstown, Ohio. 
 
 Cigar manufacturer, 855 Main Street, Hartford, Conn. 
 
 Benedict & Burnham Manufacturing Co., brass and copper rolling and 
 wire, Waterburv, Conn. 
 
 Missouri Malleable Iron Co., East St. Louis, 111. 
 
 Wm. L. Gilbert Clock Co., Station B, Winsted, Conn. 
 
 Cumberland Mills, paper manufacturers, Westbrook, Me. 
 
 National Gum & Mica Co., 502 West Forty-fifth Street, New York City, 
 N. Y. 
 
 Hayden Co., manufacturing and decorating. 523 Fifth Avenue, New York 
 City, N. Y. 
 
 Pelzer Manufacturing Co.. Greenville, S. C. 
 
 John S. Brittain Dry Goods Co., southwest corner Fourth and Jule Streets, 
 St. Joseph, Mo. 
 
 Hermitage Cotton Mills, Camden, S. C. 
 
 Columbia Star Milling Co., Columbia, 111. 
 
 Commonwealth Shoe & Leather Co., 72 Lincoln Street, Boston, Mass. 
 
 Harvey & Outerbridge, 11 Broadway, New York City, N. Y. 
 
 American Swiss File & Tool Co., 24 John Street, New York City, N. Y. 
 
 Iroquois Iron Co., 1515 Corn Exchange Bank Building, Chicago. 
 
 Morris Heights, N. Y. 
 
 Carter's Ink Co., 239 First Street, East Cambridge. Mass. 
 
 Ford Motor Co., Detroit, Mich. 
 
 Bristol Manufacturing Co., knit underwear, Bristol, Conn. 
 
 Rendrock Powder Co., 11 Broadway, New York City, N. Y. 
 
 Jeffrey Manufacturing Co., Columbus, Ohio. 
 
 Interstate Iron & Steel Co., Chicago, 111. 
 
 Barber Asphalt Paving Co., Des Moines, Iowa.. 
 
 Great Falls Manufacturing Co., 53 State Street, Boston, Mass. 
 
 Tonawanda Iron & Steel Co., N. Tonawanda, N. Y. 
 
 American Stoke Co., 11 Broadway, New York City, N. Y. 
 
 Hardwood Manufacturing Co., 101 Third Avenue S., Minneapolis, Mian. 
 
 Northern Shoe Co., Duluth, Minn. 
 
 Muncie Gas Engine & Supply Co., Muncie. Ind. 
 
 Woolner Distilling Co., Peoria, 111. 
 
 Chattanooga Car & Foundry Co., Chattanooga, Tenn. 
 
 F. S. Royster Guano Co., fertilizer manufacturers, Norfolk, Va. 
 
 Trorlicht-Duncker Carpet Co., Fourth and Washington Streets, St. 
 Louis, Mo. 
 
 German-American Co. Mills, Draper, N. C. 
 
 J. C. Pearson Co., drawer 9, Boston, Mass. ' 
 
 Holden-Leonard Co., ladies' dress goads, Bennington, Vt. 
 
 Gensman Bros., hardware and implements, Enid, Okla. 
 
 J. L. Mott Iron Works, 118 Fifth Avenue, New York City, N. Y. 
 
 Wachusett Shirt Co., Leominster, Mass. 
 
 Novelty Stamping Co., Bellaire, Ohio. 
 
 Oakland Chemical Co. 98 Front Street, New York City, N. Y. 
 
 Manufacturer, Philadelphia, Pa. 
 
 Freiberg & Workum Co., distillers, 216 East Front Street, Cincinnati, Ohio. 
 
 Type Rubber Co., Andover, Mass. 
 
 Lumber manufacturer and retail dealer in lumber, Des Moines, Iowa. 
 
 Phillips Sheet & Tin Plate Co., Weirton, W. Va. 
 
 American Stay Co., 299 Marginal Street, East Boston, Mass. 
 
 John L. Whiting, J* J. Adams Co., fi90 Harrison Avenue, Boston, Mass. 
 
 Isaac A. Sheppard & Co., stove "manufacturers, Fourth Street and Mont- 
 gomery Avenue, Philadelphia, Pa. 
 
 Massachusetts Breweries Co., 38 Hawley Street, Boston, Mass. 
 
 Heekin Can Co., Heekin Building, Cincinnati, Ohio. 
 
 General Fire Extinguisher Co.. 1 Liberty Street, New York City, N. Y. 
 
 Northwestern Consolidated Milling Co., Minneapolis, Minn. 
 
 Taplin, Rice-Clerkin Co., manufacturers stoves, ranges, Akron, Ohio. 
 
 Coal operator and iron manufacturer, 140 Cedar Street, New York City, 
 
 n.yT 
 
 Beall Bros., tools and shovels, East Alton, 111. 
 
 Youngstown Steel Co., Youngstown, Ohio. 
 
 Appleton Woolen Mills, Appleton, Wis. 
 
 Phelps. Lewis & Bennett.Co., 4 and 6 North Main Street, Wilkes-Barre, Pa. 
 
 Fort Pitt Supply Co., 328 Second Avenue, Pittsburgh, Pa. 
 
 Johnson & Johnson, manufacturers' chemists, New Brunswick, N: J. 
 
 James B. Clow & Sons, wholesale plumbers' supplies, Harrison Street 
 
 Bridge, Chicago, 111. 
 American Seeding Machine Co., Springfield, Ohio. 
 Art Wall Paper Mills, 2414 West Twenty-first Street, Chicago, III. 
 J. W. Mixter Son Tool Co., 93 South Willard Street, Burlington, Vt. 
 National Sewing Machine Co., Belvidere, 111. 
 Armstrong Cork Co., 10 North Second Street, St. Louis, Mo. 
 Grand Rapids Chair Co., Grand Rapids, Mich. 
 Baldwin Piano Co., 142 West Fourth Street, Cincinnati, Ohio. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 MANUFACTURERS— Continued. 
 
 505 
 
 Name. 
 
 Firm name or business and address. 
 
 O. P. Smith 
 
 W. S. Poling 
 
 W. A. Herron 
 
 August Brentanp 
 
 John A. C. Men ton . . . 
 
 D. A. Gregg 
 
 H. W. King 
 
 Julius F. Kurtz 
 
 John B. Adt 
 
 Theodore F. Thieme. 
 
 J.M.Taylor 
 
 Eugene C. Calloway.. 
 L. W.Fogg 
 
 W. A. Crawford 
 
 E. C. Bellany 
 
 James M. Dodge 
 
 Q.W.Olmsted 
 
 Chas. E. Sohou 
 
 C. H. Salisbury 
 
 James B. Wharton. . . 
 
 S.C. Irving 
 
 W. T. Reangh 
 
 Ralph L. Shainwald . 
 
 A. W. Brooks 
 
 Jno. Montgomery 
 
 J. J. Donovan 
 
 Edward King 
 
 William L. Lyall 
 
 Geo. E. Nicholson 
 
 Leucien C. Warner. . . 
 
 I. B. Blackstock 
 
 S. Odenheimer 
 
 A. J. Meier 
 
 Franklin Remington. 
 
 E. A. S.Clarke 
 
 William Cammell 
 
 John M. Cameron 
 
 F. W. Pilsbry 
 
 A. B. Farquhar 
 
 William M. Pratt 
 
 D. E. Austin 
 
 Herbert G. Pratt 
 
 R. S Crawford 
 
 E. W. Hake 
 
 Cigar maker, Logansport, Ind. 
 
 Spring Steel Fence & Wire Co., Anderson, Ind. 
 
 Steel manufacturer, 1104 Arrott Building, Pittsburgh, Pa. 
 
 Southern Stove Works, Evansville, Ind. 
 
 1323 South Saginaw Street, Flint, Mich. 
 
 Nashua, N. H. 
 
 Sheffield King Milling Co., 38 Chamber of Commerce, Minneapolis, Minn. 
 
 Emerson, Smith & Co., saw manufacturers, Beaver Falls, Pa. 
 
 Machine works, 332-342. North Holliday Street, Baltimore, Md. 
 
 Wayne Knitting Mills, Fort Wayne, Ind. 
 
 Taylor Instrument Co., Rochester, N. Y. 
 
 Gate City Coffin Co., Atlanta, Ga. 
 
 Tower Hill Connellsville Coke Co., 503 First National Bank Buildiing, 
 Uniontown, Pa. 
 
 Griffin Manufacturing Co., Erie, Pa. 
 
 Mammoth Spring Milling Co., Mammoth Spring, Ark. 
 
 Link-Belt Co., Nicetown Station, Philadelphia, Pa. 
 
 J. G. Curtis Leather Co., Ludlow, Pa. 
 
 Empire Cream Separator Co., 1225 Wabash Avenue, Chicago, 111. 
 
 Jacob naish Co., De Kalb, 111. 
 
 Richmond Light, Heat & Power Co., 618 Main Street, Richmond, Ind. 
 
 Paraffin Paint Co., 34 First Street, San Francisco, Cal. 
 
 Jacksonville, 111. 
 
 Standard Paint Co , 100 William Street, New York City, N. Y. 
 
 Pratt Shoe Co , Natick. Mass. 
 
 John Wildi Evaporated Milk Co , Union National Bank Building, Colum- 
 bus, Ohio. 
 
 Lake Whatcom Logging Co , 1201 Garden Street, Bellingham, Wash. 
 
 Pennsylvania Engineering Works, New Castle, Pa. 
 
 Brighton Mills, Passaic, N. J. 
 
 Iola Portland Cement Co , Commerce Building, Kansas City, Mo. 
 
 Warner Chemical Co , 141 Broadway, New York, N. Y. 
 
 Pure Ice & Cold Storage Co , Springfield, 111. 
 
 Lane Cotton Mills Co , New Orleans, La 
 
 St. Louis Smelting & Refining Co , 1001 Liggett Building, St. Louis, Mo. 
 
 Foundation Co , 115 Broadway, New York, N Y. 
 
 Lackawanna Steel Co , 2 Rector Street, New York City, N. Y. 
 
 Cotton manufacturer, Providence, R. I 
 
 Great Western Oil Refining Co , Erie, Kans 
 
 Santa Car Icing Co , 1660 Monadnock Block, Chicago, 111. 
 
 A. B. Farquhar & Co , York, Pa 
 
 Goodell-Pratt Co , Greenfield, Mass 
 
 Henri Nestle, 99 Chambers Street, New York City, N. Y. 
 
 Samson Cordage Works, 88 Broad Street, Boston, Mass. 
 
 Acme White Lead & Color Works. 1418 Chestnut Street, St. Louis, \.o. 
 
 Monitor Stove & Range Co., Cincinnati, Ohio. 
 
 MANUFACTURERS— COMPANIES LIST. 
 
 Name. 
 
 Sohn & Reutschler 
 
 Follmer, Clogg & Co 
 
 Pierce Arrow Motor Car Co 
 
 Pacific Coast Borax Co 
 
 Krohn, Fechheimer & Co 
 
 H. F. C. Dovenmuehle & Son 
 
 Ashley & Bailey Co 
 
 Empkie Shurgart Hill Co 
 
 Failing-McCalman Co 
 
 Ralston Steel Car Co 
 
 Charles A. Eaton Co 
 
 Kalamazoo Corset Co 
 
 Connellsville Central Coke Co 
 
 Ludlow Manufacturing Association 
 
 Whittemore Bros. & Co 
 
 Farist Steel Co 
 
 F. E. KohlerCo 
 
 L. B. Darling Fertilizer Co 
 
 Yale & Towne Manufacturing Co 
 
 Peninsular Portland Cement Co 
 
 Salt Lake City Brewing Co 
 
 F; Mayrer Boot & Shoe Co 
 
 Lovell & Bufnngton Tobacco Co 
 
 Newport Rolling Mill Co.. - . ... ..... 
 
 Peck-Williamson Heating & Ventilating 
 Co. 
 
 Business and address. 
 
 Iron foundries, Hamilton, Ohio. 
 
 Umbiella and parasol manufacturers, Lancaster, Pa. 
 
 Manufacturers of automobiles, 1695 Elmwood Avenue, B u Halo, 
 
 N. Y. 
 Oakland, Cal. 
 
 Shoe manufacturers, Cincinnati, Ohio. 
 
 Wholesale boots and shoes, 321 West Monroe Street, Chicago, 111. 
 Silk manufacturers, 109 Spring Street, New York, N. Y. 
 Wholesale hardware, Council Bluffs, Iowa. 
 Wholesale hardware, 90 Front Street, Portland, Oreg. 
 Builders of steel cars, Columbus. Ohio. 
 Manufacturers of boots and shoes, Brockton, Mass. 
 Kalamazoo, Mich. 
 
 Coke manufacturers, Empire Building, Pittsburgh, Pa. 
 Jute, 55 Congress Street, Boston, Mass. „,. <. r. _ 
 
 Manufacturers of shoe polishes, 20-26 Albany Street, Cam- 
 
 bridgeport, Mass. 
 Bridgeport, Conn. 
 
 Manufacturers of hardware specialties, Canton, Ohio. 
 Pawtuckct R I 
 
 Locks hardware, and chain blocks, 9 Murray Street, New 
 . York, N. Y. 
 Jackson, Mich. 
 Salt Lake City, Utah. 
 Milwaukee, Wis. 
 
 Tobacco manufacturers, Covington, Ky. 
 Black iron and galvanized sheets, Newport, Ky. 
 Manufacturing heating apparatus, Cincinnati, Ohio. 
 
506 
 
 HEARINGS BEFORE 
 MANUFACTURERS— COMPANIES LIST— Continued. 
 
 Name. 
 
 Business and address. 
 
 John Pritzlaff Hardware Co 
 
 Hood Rubber Co 
 
 Eastern Clay Goods Co 
 
 South Bend Chilled How Co 
 
 Armstrong & Graham 
 
 Graton & Knight Manufacturing Co 
 
 Meridian Fertilizer Factory 
 
 Meriden Cutlery Co 
 
 Lovell & Burlington Tobacco Co 
 
 Federal Chemical Co 
 
 Improved Mailing Case Co 
 
 D. M. Seehler Implement & Carriage Co. 
 
 Lippincott Glass Co 
 
 Eberhard Manufacturing Co 
 
 1. 1. Case Threshing Machine Co 
 
 Hamilton Manufacturing Co 
 
 J. B.Williams Co , 
 
 Newton Wagon Co 
 
 Bostwick Braun Co 
 
 Rheinstrom Bros 
 
 Joseph Klee's Sons 
 
 M. Garland Co 
 
 Deuber Watch Case Co 
 
 BrechtCo 
 
 Frank Geele Hardware Co 
 
 Selton Manufacturing Co 
 
 Union Starch & Re • , 
 
 Broderick & Bascom Rope Co 
 
 National Candy Co 
 
 James S. Kirk & Co 
 
 Phillips Insulated Copper Wire 
 
 Legallett-Hellwig Tanning Co 
 
 American Metal Co 
 
 Chaffee Bros. Co 
 
 Panliow Bros 
 
 Harter Milling Co 
 
 Weston Dodson & Co 
 
 Rueckheim Bros. & Eckstein 
 
 Builders' Iron Foundry 
 
 H. H. Franklin Manufacturing Co 
 
 National Lime & Stone Co 
 
 Aberdeen Mill Co 
 
 John Foster Co 
 
 John J. Griffin & Co 
 
 Milburn Wagon Co 
 
 William Nelson Page, Gauley Mountain 
 Coal Co. 
 
 American Pad & Textile Co 
 
 Davis Sewing Machine Co 
 
 Bloom Bros. & Co 
 
 Worthy Paper Co 
 
 Hewes & Potter 
 
 Stephen Moore 
 
 Wisconsin Tissue Paper Co 
 
 Richardson & Boynton Co 
 
 7. B. Williams & Sons 
 
 Prentiss Toll & Supply Co 
 
 J. A. Lamy Manufacturing Co 
 
 Clark Bros. Bolt Co 
 
 Bay State Belting Co 
 
 Warner Moore & Co 
 
 Western Stoneware Co 
 
 Olive & Myers Manufacturing Co 
 
 Standard Plato Glass Co 
 
 Indianapolis Mortar & Fuel Co 
 
 Milwaukee, Wis. 
 
 Manufacturers, 99 Bedford Street, Boston, Mass. 
 
 141 Milk Street, Boston, Mass. 
 
 South Bend, Ind. 
 
 Wholesale manufacturers harness and saddlery, 128 Jefferson 
 
 Avenue, Detroit, Mich. 
 Oak leather tanners and belt makers, 196 Franklin Street, 
 
 Worcester, Mass. 
 Manufacturers of commercial fertilizers and cottonseed prod- 
 ucts, Second Street, Twenty-fifth Avenue, Meridian, Miss. 
 Table cutlery, Meriden, Conn. 
 Covington, Ky. 
 
 Columbia Building, Louisville. Ky. 
 158 West Broadway, New York City, N. Y. 
 Agricultural implements and vehicles, Moline, Bl. 
 Glass lamp chimneys, 102 East Third Street, Cincinnati, Ohio. 
 Carriage and saddlery hardware and malleable iron castings, 
 
 2734 Tennyson Road, Cleveland, Ohio. 
 Racine, Wis. 
 
 Manufacturing furniture, Two Rivers, Wis. 
 Soaps and toilet articles, Glastonbury, Conn. 
 Wagon manufacturers, Batavia, N. Y. 
 Wholesale hardware, Toledo, Ohio. 
 Fruit conservers and distillers, Cincinnati, Ohio. 
 Clothing manufacturers, Moundsville, W. Va. 
 Manufacturers of sawmill and conveying machinery, Bay City, 
 
 Mich. 
 Canton, Ohio. 
 Manufacturers of machinery used in meat packing, etc., Twelfth 
 
 and Cass Avenue, St. Louis, Mo. 
 Sheboygan, Wis. 
 
 1301 West Thirty-fifth Street, Chicago, 111. 
 Manufacturers of starch, glucose, etc., Edinburg, Ind. 
 805-809 North Main Street, St. Louis, Mo. 
 Manufacturers of chocolate and candy, 421 Pine Street, St. 
 
 Louis, Mo. 
 Manufacturers of soaps, etc., 106 East Michigan Street, Chicago, 
 
 Manufacturers bare and insulated wlre,Pawtucket, R. I. 
 Tanners, Sixth Avenue South between Phelps and Quint 
 
 Streets, San Francisco, Cal. 
 Smelters, refiners, etc., New York City, N. Y. 
 Box manufacturing, retail lumber, coal, and wood, Oxford, 
 
 Mass. 
 Foundry and machine works, Sioux Falls, S. Dak. 
 Flour and grain, Toledo, Ohio. 
 Coal mining, Bethlehem, Pa. 
 Manufacturing confectioners, Harrison, Peoria, and Sangamon 
 
 Streets, Chicago, 111. 
 Founders and machinists. Providence, R. I. 
 Automobiles and finished castings, Syracuse, N. Y. 
 Lime and crushed stone, Carey, Ohio. 
 Aberdeen, S. Dak. 
 Ladies' fine shoes, .Beloit, Wis. 
 Gas meters, 1513 Race Street, Philadelphia, Pa. 
 Manufacturing wagons, Toledo, Ohio. 
 Ansted, W. Va. 
 
 Manufacturers of pads for horses, Greenfield, Ohio. 
 
 Sewing machines, bicycles, screw machinery, Dayton, Ohio. 
 
 Wholesale clothing manufacturers, 24 West Third Street, Cin 
 cinnati, Ohio. 
 
 Paper manufacturers, Mittineague, Mass. 
 
 Suspenders, belts, and neckwear, 85 Lincoln Street, Boston, 
 Mass. 
 
 President Leathereid Manufacturing Co., 194 Lincoln Street, 
 Boston, Mass. 
 
 Paper manufacturer, Appleton, Wis. 
 
 Manufacturers, 31 West Thirty-first Street, New York City. 
 
 Leather belting, Dover, N. H. 
 
 149 Broadway, New York City. 
 
 Pacific and Osage Streets, Sedalia, Mo. 
 
 Milldale, Conn. 
 
 605 Atlantic Avenue, Boston, Mass. 
 
 Manufacturers of flour and meal, lime, dealers in building sup- 
 plies, Richmond, Va. 
 
 Monmouth, 111. 
 
 Manufacturers and jobbers of furniture and household furnish- 
 ings, Dallas, Tex. 
 
 Plate-glass manufacturers, Butler, Pa. 
 
 407-408 Odd Fellows Building, Indianapolis, Ind. 
 
COMMITTEE OX INTERSTATE COMMERCE. 
 MANUFACTURERS— COMPANIES LIST— Continued. 
 
 507 
 
 Name. 
 
 Chattanooga Brewing Co 
 
 Libbey & Dingley Co 
 
 W. Smith Grubber Co 
 
 E. A. Mallory & Sons 
 
 E. Ira Richards & Co 
 
 Midvale Steel Co 
 
 S. L.Allen & Co 
 
 Janeway & Carpender 
 
 A. II. Sweet & Son 
 
 Hook-Eastings Co 
 
 Goehrine Manufacturing Co 
 
 Scoville Manufacturing Co 
 
 J. Miller Co 
 
 Iron & Russell Co 
 
 Bessemer Gas Engine Co 
 
 Attleboro Chain Co 
 
 Headley.il Farmer Co 
 
 Sunny Brook Distillery Co 
 
 Plainville Stock Co 
 
 Globe- Wernicke Co 
 
 Irish Bros 
 
 United States Horse Shoe Co 
 
 G. Heileman Brewing Co 
 
 Geo. D. Barnard & Co 
 
 Winona Wagon Co 
 
 Russell, Burdsall & Ward Bolt & Nut Co 
 
 Business and address. 
 
 Brewers, Chattanooga, Tenn. 
 
 Cotton and woolen manufacturers, box 313, Lewiston, Me. 
 Manufacturers of stump pullers, La Crescent. Minn. 
 Manufacturers of fur felt hats, Danbury, Conn. 
 Manufacturingjowelers, 43 Nassau Street, New York City. 
 Philadelphia, Pa. 
 
 Manufacturers of agricultural implements, Philadelphia, Pa. 
 Manufacturers of wall papers. New Brunswick, N.J, 
 Manufacturers of wood and paper boxes, Norton, Mass. 
 Pipe organ manufacturers, Kendal Green, Mass. 
 Manufacturers of mirrors and sash and doors, Akron, Ohio. 
 Waterbury, Conn. 
 Shoe manufacturers, Racine, Wis. 
 
 Manufacturing jewelers 95 Chestnut Street, Providence, R. I. 
 Builders of gas engines, Grove City, Pa. 
 Manufacturing jewelers. Attleboro, Mass. 
 Trunk, bag, and suit case manufacturers, Newark, N. J. 
 Distillers, 174 Randolph Street, Chicago, 111. 
 Manufacturing jewelers, Plainville, Mass. 
 Manufacturers of office and library furniture, Cincinnati, Ohio 
 Miners and shippers of coal, West End Trust Building, Phila- 
 delphia, Pa. 
 Erie, Pa. 
 La Crosse, Wis. 
 
 Manufacturing stationer. St. Louis, Mo. 
 Winona. Minn. 
 Manufacturers of nuts and bolts, Port Chester. N. Y. 
 
 BANKERS AND BROKERS. 
 
 Name. 
 
 Firm name or business and address. 
 
 E. Nelson Blake 
 
 Felix T. McWhirter... 
 
 Charles E. Ulrich 
 
 Hamilton Mayo 
 
 G. H. Nye 
 
 Frank N. Foster 
 
 Eugene Levering 
 
 Warner Van Norden . . 
 
 J. M. Holley 
 
 Thomas F. Balfe 
 
 R. F. Ganunell 
 
 Chase & Barstow 
 
 C. L. Watson 
 
 Frederick W. Crosby.. 
 Henry M. Garlick 
 
 F. II. Chalmers 
 
 C. G. Barkwill 
 
 Forst National Bank.. 
 
 ' C. Cadogan 
 
 F. E. Leflord 
 
 Fred A. Dexter 
 
 Wilbur M. Burrington 
 
 II. W. Stevens 
 
 John A. Potter 
 
 J. H. Brosius 
 
 Waldo I'-'ewomer 
 
 Morris Sternbach 
 
 E. Q. Trowbridge 
 
 Joseph Seligman 
 
 E. E. Rogers 
 
 Wm. H. Sandford 
 
 Oscar L. Richard 
 
 C. Hillitmer 
 
 Edwin A. Potter 
 
 W. F. Paxton 
 
 W. D.Vincent 
 
 Will W . Morrison 
 
 Theodore W. Schimpf. 
 
 Willis C. Allen 
 
 A.H.Hale 
 
 Otto Fowle 
 
 Daniel A. Kimball.... 
 
 J. F. McKinney 
 
 W. B. Anderson 
 
 W. S. Hazelton 
 
 First National Bank, Arlington, Mass. 
 
 i'eoples State Bank, Indianapolis, Ind. 
 
 Peoria, 111. 
 
 Leominster National Bank, Leominster, Mass. 
 
 Cayuga County National Bank, Auburn, N. Y. 
 
 National Bank, Claremont, N. H. 
 
 National Bank of Commc-ee, Baltimore, Md. 
 
 Retired banker, 22 West Fifty-ninth Street, New York City. 
 
 Banker, La Crosse, Wis. 
 
 Newburgh Savings Bank, Newburgh, N. Y. 
 
 Providence national Bank, Providence, R. I. 
 
 Stock brokers, 25 Ames Building, Boston, Mass. 
 
 Banking and oil producer, Parkersburg, W. Va. 
 
 Retired banker, 134 La Salle Street, Chicago, 111. 
 
 Banker, Youngstown, Ohio. 
 
 Farmers National Bank, Salem, Va. 
 
 The Columbia Savings & Loan Co., 5601 Broadway, Cleveland, Ohio 
 
 Appleton, Wis. 
 
 The Citizens National Bank, Hornell, N. Y. 
 
 First National Bank, Waverly, N. Y. 
 
 Orange National Bank; also Leavitt Machine Co., Orange, Mass. 
 
 Haydenville Savings Bank, Haydenville, Mass. 
 
 Hartford National Bank, Hartford, Conn. 
 
 Patchogue Bank, Patehogue, >'. Y. 
 
 The National Bank of Avondale, Avondale, Pa. 
 
 The ''ational Exchange Bank, Baltimore, Md. 
 
 Morris Sternbach & Co., 40 Exchange Place. New York City. 
 
 Trowbridge & Co., bankers, 111 Broadway, New York City. 
 
 Banker, 1 William Street, New York City, N. Y. 
 
 Rogers & Gould, 71 Broadway, *ow York City, N. Y. 
 
 The First National Bank, Patton, Pa. 
 
 The State Bank, 378 Grand Street,, > ew York City. 
 
 First ational Bank, Greenville, .'a. 
 
 American Trust Bank Building, Chicago, 111. 
 
 Citizens Savings Bank, i'ad'.icah, Ky. 
 
 The Old National Bank, Spokane, Wash. 
 
 The Continental Trust & Savings Bank, Toledo, Ohio. 
 
 Marine Trust Co., Atlantic City, N. J. 
 
 Waidell Investment Co. , 921 Baltimore Avenue, Kansas City, Mo 
 
 The First National Bank, Manchester, N. H. 
 
 First National Bank, Sault Ste. Marie, Mich. 
 
 Housatonie National Bank, Stockbridge, Mass. 
 
 Palisades Trust & Guaranty Co., Englewood, N. J. 
 
 Merchants & Miners Bank, 498 Fifth Street, Calumet, Mich. 
 
 St. Joseph Valley Bauk, Elkhart, Ind. 
 
508 
 
 HEARINGS BEFOEE 
 BANKERS AND BROKERS— Continued. 
 
 Name. 
 
 Firm name or business and address. 
 
 T. G. Coombe&Co 
 
 F. S. Jerome 
 
 J. H. Hunt 
 
 T. Jefferson Coolidge, jr 
 
 R. L. Seldon 
 
 Bro'd. W. Spencer 
 
 Lyman P. Osborn 
 
 Henry L. Holmes 
 
 Leslie M. Shaw 
 
 Bankers and brokers, 100 Broadway, New York City, N. Y. 
 First National Bank, Norwich, Conn. 
 Union National Bank, Massillon, Ohio. 
 Post office box 363, Boston, Mass. 
 Deep River National Bank, Deep River, Conn. 
 Peoples Bank & Trust Co., Passaic, N. J. 
 WarreD National Bank, Peabody, Mass. 
 Orangj National Bank, Orange, N. J. 
 
 First Mortgage Guarantee & Trust Co., 927-929 Chestnut Street, Phila- 
 delphia, Pa. 
 Rathbone Gardner I Union Trust Co., Providence, R. I. 
 
 Ferdinand Hermann. 
 
 A. D. Swift 
 
 D. L. Evans 
 
 E. Baumoister 
 
 L. G. Worden 
 
 L. A. Williamson 
 
 D. B. Lynd 
 
 Geo. W. McCahl 
 
 James K. Blish 
 
 Frank C. Bolt 
 
 I. P. Pardee 
 
 A. A. Dryden 
 
 Walter F. McCaleb 
 
 Wirt Wright 
 
 James H. Rhter. 
 
 C.H.Worthing 
 
 A.D.Allen... 
 
 Clarence H. Kelsey 
 
 F.J. Hollocher 
 
 W. L. Threlkeld..? 
 
 Hon. J. Sloat Fassett... 
 A.M. Shook 
 
 A. G. Kendall 
 
 J. W. Vanden 
 
 E. W. Bowen & Co 
 
 F. V. Bleese 
 
 D. J. F. Strother 
 
 F. M. Lisman 
 
 Frank Chapman 
 
 J. W. Innton 
 
 M. W. Mattecheck 
 
 Remsen Rushmore 
 
 B. F. White 
 
 F. P. Browne 
 
 Thoman Thorson 
 
 .1. K. Beretla 
 
 Geo. B. Pendleton 
 
 W. P. Manley 
 
 H. P. Dowling 
 
 J. F. Ebeling 
 
 Ambrose Cramer 
 
 W. M. Van Deusen 
 
 Wm. C. Heppcnheimer . 
 
 A. M.Hyatt 
 
 Alex. M. Iludnul 
 
 Geo. W. Burton 
 
 Orion Latmann 
 
 Henry W. Yates 
 
 J. W. Campbell 
 
 Tourtellotte 
 
 Geo. H. Hollister 
 
 Frank N Briggs 
 
 Edward Burns 
 
 Wm. Barret Ridgely 
 
 Wm. J. Lovejoy 
 
 John B Purcell 
 
 J. S Aisthorpe 
 
 William Carson 
 
 Seymour Cowan 
 
 Samuel Lehman 
 
 Alex. Gilbert 
 
 A. R Shattuck 
 
 Dudley Olcott 
 
 James R Magoffin 
 
 T. R. Freotz 
 
 W. J. Thorn 
 
 Julius Wongenheim. 
 F. Hegem»n 
 
 Speyer & Co., 24 Pine Street; also 20 East Eightieth Street, New York 
 City, N. Y. 
 
 F.Ik County National Bank, Ridgway, Elk County, Pa. 
 
 I. N. Ireland & Co., Malad City, Idaho. 
 
 E. Baumoister & Co., Asotin, Wash. 
 
 The First National Bank of Merced, Merced, Cal. 
 
 Wells County Bank, BlulTton, Ind. 
 
 Citizens National Bank, Louisville, Ky. 
 
 Lake View State Bank, 3160-3162, North Clark Street, Chicago, III. 
 
 Lawyer, and president First National Bank, Kewanee, 111. 
 
 San Gabriel Valley Bank, Pasadena, Cal. 
 
 Hazleton Bank, Hazleton, Ta. 
 
 Miners Savings Bank, Pittston, Pa. 
 
 West Texas Bank & Trust Co., San Antonio, Tex.; the Union Trust Co., 
 Indianapolis, Ind. 
 
 The National Stock Yards National Bank, National Stock Yards, 111. 
 
 Chelton Trust Co., 5614 Germantown Avenue, Germantown, Philadel- 
 phia, Pa. 
 
 First National Bank, Fort Wayne, Ind. 
 
 Fidelity Trust Co.. Louisville, Ky. 
 
 Title Guarantee & Trust Co., 176 Broadway, New York City, N. Y. 
 
 The Trust Co. of St. Louis County, Clayton, Mo. 
 
 Lexington Banking & Trust Co., Lexington, Ky. 
 
 Banker, rancher, and lumberman, Elmira, N. Y. 
 
 The First Savings Bank & Trust Co., Nashville, Tenn. 
 
 Farmers' Exchange National Bank, San Bernardino, Cal. 
 
 First National Bank, Jackson, Tenn. 
 
 Bankers, Delphi, Ind. 
 
 First National Bank, Eagle Pass, Tex. 
 
 First National Bank: also of Anderson, Strother & Hughes, Welch, W. Va. 
 
 Banker, 30 Broad Street, New York City, N. Y. 
 
 Ogdensburg Bank, Ogdensburg, N. Y. 
 
 The Syracuse National Bank, Syracuse, Dekalb County, III. 
 
 Gogebic National Bank, Ironwood, Mich. 
 
 The City Savings Bank, Flatbush and Fourth Avenues, Brooklyn, N. Y. 
 
 First National Bank, Dillon, Mont. 
 
 The First National Bank, Bay City, Mich. 
 
 First National Bank, Canton, S. Dak. 
 
 Laredo National Bank, Laredo, Tex. 
 
 Newbern Bankine & Trust Co., Newbern, N. C. 
 
 Security National Bank, Sioux City, Iowa. 
 
 The Shelby County State Bank, Harlan, Iowa. 
 
 Quarter Savings Bank, Wheeling, W. Va. 
 
 Banking, real estate, investment, Lake Forest, 111. 
 
 National Newark Banking Co., Newark, N. J. 
 
 Bergen & Lafavette Trust Co., 291 Montgomery Street, Jersey City, N. J. 
 
 Lincoln Trust Co., 208 Fifth Avenue, New York City, N. Y. 
 
 Broker in stocks and bonds. No. 5 Nassau Street, New York City, N. Y. 
 
 The National Bank of La Crosse, La Crosse, Wis. 
 
 First National Bank, Abingdon, 111. 
 
 Nebraska National Bank, Omaha, Nebr. 
 
 Commercial National Bank, Fort Dodge, Iowa. 
 
 Putnam Savings Bank, Putnam, Conn. 
 
 The Northern Trust Co , Fargo, N Dak. 
 
 Interstate Savings Bank, Denver, Colo. 
 
 The American Exchange National Bank, 128 Broadway, New York Cltr, 
 
 1908 Q Street NW , Washington, D C. 
 
 Fulton Savings Bank, Fulton, N. Y. 
 
 First National Bank, Richmond, Va. 
 
 First Bank & Trust Co , Cairo, TIL 
 
 First National Bank, Burlington, Iowa. 
 
 Cowan, Lanquist & Co , 206 South La Salle Street, Chicago, HI. 
 
 Pearl Street Market Bank, Cincinnati, Ohio. 
 
 Market & Fulton National Bank, New York City, N. Y. 
 
 British & American Mortgage Co. (Ltd.), 11 Broadway, New York City. 
 
 Banker, Albany, NY. 
 
 Dealer in investment securities, 20 Broad Street, New York City, N. Y. 
 
 The New German American Bank, Oshkosh, Wis. 
 
 First National Bank, Hood River, Oreg. 
 
 The First National Bank, Buffalo, Wyo. 
 
 Bank of Commerce & Trust Co , San Diego, Cal. 
 
 National Bank of America, Salina, Kans. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 BANKERS AND BROKERS— Continued. 
 
 509 
 
 Name. 
 
 Chas. M. McCurdy. 
 H. R. Page 
 
 F. Ernest Cramer. 
 O. C. Davidson . . . 
 
 O. M. Baker 
 
 C. W. Snow 
 
 Fred T. Bristow 
 
 Andrew J. Framo 
 
 A. O. Paunack 
 
 C.R.Wheeler 
 
 Paul E. Havens 
 
 Edwin R. Fay & Sons. 
 
 Lorenzo Leland 
 
 Harold Harding 
 
 E. H. Coombs 
 
 William LI Baker 
 
 A.W. Mullins 
 
 A. D. Buckner 
 
 C. H.Brownell 
 
 H. L. Hoblit 
 
 0. F. Anderson 
 
 Geo. W. Close 
 
 W.J. Echols 
 
 Frank Bailey 
 
 R. E. Frey 
 
 H. P. Havons 
 
 Samuel P. Bell 
 
 A. E. Mason 
 
 Harry Lee Taft 
 
 Chas. C. Haring 
 
 1. C. Alexander 
 
 C. R. Breckenridge 
 
 J. A. Cragin , 
 
 Geo. D. Dayton 
 
 S.M. Smith 
 
 2 Key 
 
 W.E. Coffin 
 
 Henry Koehler 
 
 Chas. J. Seeds 
 
 S. W. Piene 
 
 Joseph A. McNames. . 
 
 R.F.Clarke 
 
 Chalmers Curtis 
 
 L. M. Bashinsky 
 
 R. L. Saville 
 
 H. K. Twitchell 
 
 Sidney Z. Mitchell 
 
 A. F. Dawson 
 
 E. H. Sighmey 
 
 P. D. Hansen 
 
 Thomas W. Barrett. . . 
 
 E. A. Vinison. 
 
 J. W. L. Carty 
 
 <3. Frederick Childs. . . 
 
 J. T. Hamilton 
 
 Frank Harding 
 
 JohnT. Mott 
 
 J. F. Wheeler 
 
 Oscar P. Miller 
 
 C.E. Floch 
 
 Robert E. Huff 
 
 J. T. Wettack 
 
 FredE. McGill 
 
 L. M. Necomen 
 
 F.H.Gorr 
 
 J. H. Sharon 
 
 Allen W. Johnston 
 
 J. F. Brookmeyer 
 
 Henry L. Ward 
 
 J. W. P. Lombard... 
 
 John M. We ver 
 
 Walter S. Reed 
 
 H. M. Shnavely 
 
 Hugh L. McElderry. 
 
 W. H. Bucholz 
 
 H. V. Alward 
 
 John Barbey 
 
 Frank H. Denman.. 
 
 E. W. Carpenter 
 
 W. R. Thompson... 
 
 Firm name or business and address. 
 
 First National Bank, Bellefonte, Pa 
 
 Central State Bank, Home Store Co. oi Chicago, Chicago Sewer Pipe Co. of 
 
 Brazil, Ind , Jackson, Mich- 
 Broadway National Bank, 1701 South Broadway, St. Louis, Mo. 
 The Commercial Bank, Iron Mountain, Mich. 
 Miami Valley National Bank, Hamilton, Ohio. 
 First National Bank; also C. W. Snow & Co , Syracuse, N. Y. 
 The American Trust & Savings Bank, Springfield, Ohio. 
 The Citizens Savings & Loan Co. , Mansfield, Ohio. 
 Waukesha National Bank, Waukesha, Wis. 
 The Commercial National Bank, Madison, Wis. 
 
 The First National Bank of Peoria, 21.0 South Adams Street, Peoria, 111. 
 Leavenworth National Bank, Leavenworth, Kans. 
 Bankers, Auburn, N. Y. 
 The First National Bank, Ottawa, 111. 
 Patapsco National Bank, Ellicott City, Md. 
 Bank of the Monongahela Valley, Morgantown, W. Va. 
 Minnehaha National Bank, Sioux Falls, S. Dak. 
 Moore & Mullins, Linneus, Mo. 
 Paris National Bank, Paris, Mo. 
 Citizens National Bank, Peru, Ind. 
 Carlinville National Bank, Carliuville, 111. 
 Moline Trust & Savings Bank, Moline, 111. 
 The Commercial Savings Bank & Trust Co., Toledo, Ohio. 
 The Merchants National Bank, Fort Smith, Ark. 
 Title Guarantee & Trust Co., 175 Ramsen Street, Brooklyn, N. Y. 
 Carthage National Bank, Carthage, Mo. 
 Treasurer. Savings Bank, post-office box 332, Boston, Mass. 
 The Larchmont National Bank, Larchmont, N. Y. 
 Glens Falls Trust Co... Glens Falls, N. Y. 
 
 Pearsons-Tart Land Credit Co., 106 South La Salle Street, Chicago, 111. 
 Quakertown National Bank, Quakertown, Bucks County, Pa. 
 First National Bank, Corona, N. Y. 
 Arkansas Valley Trust Co., Fort Smith, Ark. 
 First National Bank, Joulin, Mo. 
 
 Merchant and banker, 700 Nicollet Avenue, Minneapolis, Minn. 
 Wendell State Bank, Wendell, Idaho. 
 First National Bank Marshall, Tex. 
 
 Iowa Loan & Trust Co., 902 Seventh Street, Des Moines, Iowa. 
 Western Exchange Bank, Kansas City, Mo. 
 Delaware County State Bank, Manchester, Iowa. 
 Central National Bank, Junction City, Kans. 
 Marine Trust Co., Atlantic City, N. J. 
 Peoples National Bank, Independence, Iowa. 
 The First National Bank, Petoskey, Mich. 
 Farmers & Merchants National Bank, Troy, Ala. 
 Dawson National Bank, Dawson, Ga. 
 
 Vice president of a national bank, 270 Broadway, New York City, N. Y. 
 Banker, 71 Broadway, New York City, N. Y. 
 First National Bank, Davenport, Iowa. 
 First National Bank, Dubuque, Iowa. 
 Grand Island National Bank, Grand Island, Nebr. 
 Poughkeepsie Trust Co., Poughkeepsie, N. Y. 
 American National Bank, Cordele, Ga. 
 Banker, Frederick, Md. . 
 
 C. F. Childs & Co., 29 South La Salle Street, Chicago, 111. 
 The Merchants National Bank, Cedar Rapids, Iowa. 
 Banker and lawyer, Middletown, N. Y. 
 First National Bank, Oswego, N. Y. 
 Pioneer Dime Bank, 70 Spring Street, Carbondale, Pa. 
 Lyon Countv National Bank, Rock Rapids, Iowa. 
 Armour State Bank, Armour, S. Dak. 
 First National Bank, Wichita Falls, Tex. 
 First National Bank, Coffeyville, Kans. 
 Oil City National Bank, Oil City, Pa. 
 The First National Bank, Chippewa Falls, Wis. 
 Cleveland Trust Co., Cleveland, Ohio. 
 
 Harrison National Bank, Cadiz, Ohio. piw,»> fitroot 
 
 The Schenectady Savings Bank, 500 State Street, corner Clinton Street, 
 
 Schenectady, N. Y. 
 First National Bank, Logansport, Ind. 
 Banker, Burlington, Vt. 
 National Exchange Bank, Milwaukee, Wis. 
 Merchants National Bank, Plattsburg, N. Y. 
 First National Bank, Corning, N. Y. 
 The Farmers National Bank, Ephrata, Pa. 
 The Talladega National Bank, Talladega, Ala. 
 Omaha National Bank, Omaha, Nebr. 
 First National Bank, Kalisijell, Mont. 
 Keystone National Bank, Reading, Pa. 
 Sonoma County National Bank, Petaluma Cal. 
 Manufacturers National Bank, North Attleboro, Mass. 
 First National Bank, Hancock, Mich. 
 
510 
 
 HEARINGS BEFORE 
 BANKERS AND BROKERS— Continued. 
 
 Name. 
 
 Herbert A. Rhoades 
 Wm. Hind Hillyer. . 
 
 Edw. H. Mason 
 
 Herman Engelbach. 
 Chas. J. Griswold... 
 
 F. Smith 
 
 George Woodruff. . . 
 
 E. Keaton 
 
 Blake Bros. &Co... 
 
 O. T. Townsend 
 
 W. H.'Purnell 
 
 M. B. Wellborn 
 
 Saml. E. Elmers 
 
 A. Goepel 
 
 Stuart Wilson 
 
 F. J. Atwood 
 
 Emerson McMillan. . 
 Omar H. Wright. . . . 
 W. H. Humphrey.. 
 M. A. O. Packard... 
 
 F. T. Conkling 
 
 H. W. Sutton 
 
 S. F. Estabrook 
 
 John Stites 
 
 S. A. Robin 
 
 Chas. H. Brest >n . . . 
 Robt. E. Gillespie.. 
 
 R.H. Ensign 
 
 H.C. Perrine 
 
 W. D. Morgan 
 
 H. Thane 
 
 Chas. W. Wright.... 
 
 S. H. Beach 
 
 Leslie French 
 
 William Ingle 
 
 Chas. Shads 
 
 David H. Seibert... 
 
 E. L. Smith 
 
 William A. Paine. . . 
 
 David J. Charles 
 
 Andrew T. Sullivan 
 Chas. McCullocho. . . 
 noward Bayne 
 
 F. ?:. Burgess 
 
 F. S. Chapman 
 
 Adolf Pavenstedt . . . 
 
 G. J. Planz 
 
 E. Cotton 
 
 Geo. C. Watt 
 
 Firm name or business and address. 
 
 Dorchester Trust Co., Boston, Mass. 
 
 Hillyer Trust Co., Atlanta, Ga. 
 
 National Bank of Brunswick, Brunswick, Ga. 
 
 Banking & Lumber, Arenzville, 111. 
 
 The National Hamilton Bank, Hamilton, N. Y. 
 
 First National Bank, Jersey City, N. J. 
 
 Banker, lawyer, and editor, Joliet, 111. 
 
 First National Bank, Cortland, N. Y. 
 
 Bankers and brokers, 14 State Street, Boston, Mass. 
 
 Merchants National Bank, Middletown, N. Y. 
 
 First National Bank, Kenosha, Wis. 
 
 First National Bank, Anniston, Ala. 
 
 Connecticut River Banking Co., Hartford, Conn. 
 
 Germania Savings Bank, 37.5 Fulton Street, Brooklyn, N. Y. 
 
 State National Bank, Texarkana, Ark. 
 
 First National Bank, Concordia, Kans. 
 
 Emerson McMillan & Co., 40 Wall Street, New York City, N. Y. 
 
 Second National Bank, Second National Bank Building, Belvidere, 111; 
 
 Banker, Warsaw, N. Y. 
 
 First National Bank of Marshall County, Plymouth, Ind. 
 
 Greenville National Bank, Greenville, Ohio. 
 
 First National Bank, McKees Rocks, Ta. 
 
 Banker, IS State Street, Boston, Mass. 
 
 South Branch Valley National Bank, Moorefleld, W. Va. 
 
 The Louisville Trust Co., Louisville, Ky. 
 
 Texarkana — Banker, Texarkana, Tex. 
 
 State Banking & Trust Co., Sioux Falls, S. D. 
 
 Danvers Savings Bank, Danvers, Mass. 
 
 Illinois State Trust Co., East St. Louis, 111. 
 
 Investor, Simsburv, Hartford County, Conn. 
 
 First National Bank; also H. C. Perrine & Son, clay miners and shippers, 
 
 South Amboy, N. J. 
 Bank of Georgetown, Georgetown, S. C. 
 Desha Bank & TrUit.Co., Arkansas City, Ark. 
 Municipal bonds, 506 Great Northern Building, Chicago, 111. 
 The Rome National Bank, Rome, N. Y. 
 First National Bank, Eseanaba, Mich. 
 
 Merchants National Bank. 1710 Park Avenue, Baltimore, Md. 
 .The First National Bank, Rock Rapids, Iowa. 
 The Pennsylvania National Bank, Pottsville, Pa. 
 National Shoe & Leather Bank, Auburn, Me. 
 Paine, Webber & Co., 82 Devonshire Street, Boston, Mass. 
 Miners Savings Bank & Trust Co., Butte, Mont. 
 The Nassau Trust Co., 356 Fulton Street, New York City, N. Y. 
 Hamilton National Bank, Fort Wayne, Ind. 
 Columbia Trust Co., 135 Broadway, New York City, N. Y. 
 Howard National Bank, Burlington, Vt. 
 
 Farmer and country banker, Jersey State Bank, Jerseyville, 111. 
 G. Amsinck & Co., 6 Hanover Street,-New York City, N. Y. 
 Banker, Bakersfleld, Cal. 
 
 Walker Bros., 71 Broadwav, New York City, N. Y. 
 First National Bank, Braddock, Pa. 
 
 MERCHANTS. 
 
 J.J. Hanshe 
 
 F. B. Thomas & Co 
 
 C. S. Tracy 
 
 Bogg3 & Buhl 
 
 Haw & Simmons Co 
 
 E. 'i Bowen 
 
 Geo. W. Nuhlike 
 
 Wheeler & Dusenbury 
 
 as. E. Brodhead 
 
 E. N. Day 
 
 Brown & Adams 
 
 J. T. Doster 
 
 Frank Jay Saxe 
 
 Dibert, Stark & Brown Cy- 
 press Co. (Ltd.). 
 Abraham Roberts 
 
 Wesley M. Oler 
 
 W. T. Brown 
 
 Ed ward A. Morrison 
 
 L. S. Coffin 
 
 ' Wallace L. Pierce 
 
 Wm. Glattly 
 
 J. J. Patterson 
 
 I.. E. Denison 
 
 Wholesale flour, Lansing, Mich. 
 
 Dry goods and notions, 215 Campbell Avenue, Roanoke, Va. 
 
 O. 'V. Tracy & Co., wholesale grocers, Syracuse, N. Y. 
 
 General merchandise, North Side, Pittsburgh, Pa. 
 
 Wholesale hardware, Ottumwa, Iowa. 
 
 Newell Coal & Lumber Co., Fawtucket, R. I. 
 
 Merchant, 17 Battery Plaoe, New York, N. Y. 
 
 Lumbermen and farmers. Endeavor, Forest County, Pa. 
 
 Lumber merchant, Flemingtou, N. J. 
 
 Day Bros. Lumber Co., 1021 Maison Blanche Building, New Orleans, La. 
 
 Wool dealers and commission merchants, 274 Summer Street, Boston, Mass. 
 
 Doster-Northington Drug Co., wholesale druggists, 2110 First Avenue, 
 
 Birmingham, Ala. 
 Atlantic Coast Lumber Corporation, 42 Broadway, New York, N. Y. 
 Donner, La. 
 
 Tamarack Cooperative Association (general merchandise business), Cal- 
 umet, Mich. 
 American Ice Co., Broadway and Twenty-eighth Street, New York, N. Y. 
 A. G. Spalding & Bro., 1248 Nassau Street, New York, N. Y. 
 Retired dry goods business, 49 West Forty seventh Street, New York, N. Y. 
 Collin-Redington Co., merchants, 30 Cliff Street, New York, N. Y. 
 S. S. Pierco Co , merchant and manufacturer, box 57, Boston, Mass. 
 Glattly Lumber Co., dealfrs, Afton, Iowa. 
 Wholesale eTocer, Chatham, Va. 
 Denison-Ghelson Dry Goo Is Co., Cairo, 111. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 MERCHANTS— Continued. 
 
 511 
 
 Name. 
 
 Firm name or business and address. 
 
 Bent C. Lane The Allen-Lane Co., 2uu Devonshire Street, Boston, Mass. 
 
 Frederick H. Lane. 
 
 Win. Harris Douglas. . . 
 Francis H. Southwick.. 
 
 F. B. W. Folsom 
 
 Samuel Robert. . 
 Clinton Crane . . 
 John Calvin 
 
 Geo. E. Foster 
 
 Charles H. Wray.. 
 Walter J. Burns. . . 
 Shem Spigelmyer . 
 Jacob Epstein 
 
 H. Weinstock 
 
 E. B.Hazen 
 
 Balkley, Dunton & Co . 
 D. Wile 
 
 Hirsch Bros. Dry Goods Co.. 
 
 J. B.Corlett 
 
 A. Stamford White 
 
 James Campbell 
 
 Agnew & Co 
 
 S. Herman 
 
 Louis Windmuller. 
 
 James O. Bloss 
 
 R.T.Jones 
 
 Joseph Mantner. 
 
 W . Tyrie Stevens 
 
 Wm. H. Vanderhoof . . 
 
 A. J. Elias 
 
 Win. B. Deming ... 
 
 Frank B. Downs 
 
 Wm.Taylor 
 
 Francis B. Reeves, jr.. 
 
 R. V. Covington. 
 Charles W. Ott... 
 
 A. L. Eberhart 
 
 Marshall Oil Co 
 
 Frank Depew 
 
 J. B. Shea 
 
 John S. Miller 
 
 Ragoa Bros 
 
 E. N. Soarbrough 
 
 F. M. Young 
 
 George N. Crouse 
 
 John W. May 
 
 D. Q. Fox 
 
 Edward D. Page 
 
 Albert A. Sprague 
 
 Samuel Marion 
 
 Wm. G.Wales 
 
 H. E. Tredway 
 
 Yahr & Lange Drug Co. 
 Otto C. Ericson 
 
 B. B. Cushman 
 
 Robert C. Ogden... 
 
 C. C. Sterl &Co.... 
 
 C. F. Jackson 
 
 Chas. Leich & Co... 
 Frank R. Chamers. 
 Wallace L. Pierce.. 
 Willard H. Piatt. . . 
 
 Edward D. Page.... 
 
 E. G. Fairfield 
 
 W. E. Peck 
 
 F. M. Slagle&Co.. 
 
 Sieg Iron Co 
 
 Welding Ring 
 
 Wm. Willis Merrill. 
 
 22877 — vol i — 12- 
 
 The Allen Lane Co., dry goods commission merchants, 233 Fourth Avenue, 
 New Yoik, N. Y. 
 
 Exporter, 22 Exchange Place, New York, N. Y. 
 
 Retired merchant and corporal ion officer, 31 Pierrepont Street, New 
 York, N. -i . 
 
 Chas. L. Richardson & Co., wholesale and retail grocers, 107 Beach Street, 
 Boston, Mass. 
 
 Merchant and importer. 2(1 Beaver Street, New York, N. Y. 
 
 C. Crane & Co., hardwood lumber, 1739 Eastern Avenue, Cincinnati, Ohio*. 
 
 Bonniwell-Calvin Iron Co., wholesale iron merchants, 1205 West Tenth 
 Street, Kansas City, Mo. 
 
 Mellen Lumber Co., Mellen, Ashland County, Wis. 
 
 Jobbing grocer, post-office box MO, Fremont, Nebr. . 
 
 Balfour, Guthrie & Co., general shipping merchants, Portland, Oreg. 
 
 Gheen <s Spigelmyer, grain, leaf tobacco, and merchandise, Antes Fort, Pa. 
 
 Baltimore Bargain House, wholesaler of general merchandise, manufac- 
 turer of clothing, importer and converter, Baltimore, Md. 
 
 Merchant, 19 President Terrace, San Francisco, Cal. 
 
 Bridal Veil Lumbering Co., Bridal Veil, Oreg. 
 
 Paper merchants and manufacturers, 75-77 Duane Street, New York, N. Y. 
 
 Kaufman Straus & Co., dry goods merchants, 322 West Mam Street, Lex- 
 ington, Ky. 
 
 Eighth and Felix Streets, St. Joseph, Mo. 
 
 Moresby Island Lumber Co. (Ltd.), 717 White Building, Seattle, Wash. 
 
 Export merchant, grain and provisions, Royal Insurance Building, Chi- 
 cago, 111. 
 
 Hardware merchant, 106 Occidental Avenue, Seattle, Wash. 
 
 Wholesale dealers in hides, skins, tallow, and wool, Port Henry, N. Y. 
 
 Merchant, Oshkosh, Wis. 
 
 New York, N. Y. . > 
 
 Retired merchant, 55 Wall Street, New York, N. Y. 
 
 The R. T. Jones Lumber Co., wholesale lumber dealer, North Tonawanda, 
 N.Y. • 
 
 Importer, and commission merchant in furs and skins, 22 West Twenty- 
 seventh Street, New York, N. Y. ' ' 
 
 Export merchant, 24 State Street, New York, N. Y. 
 
 Merchant, 82 Beaver Street, New York, N. Y. 
 
 G. Elias & Bro., lumber dealers. 965 Elk Street. Buffalo, N. Y. 
 
 Export merchant, 17 State Street , New York, N.Y. 
 
 Philadelphia Distributing Co., 1345 Frankford Avenue, Philadelphia, Pa. 
 
 John Taylor Dry Goods Co., 1034 Main Street, Kansas City,' Mo. 
 
 Reeves, Parwin & Co., wholesale grocers, 116 South Delaware Avenue, 
 Philadelphia, Pa. 
 
 Covington Co., wholesale dry goods merchants, Jacksonville, Fla. 
 
 Wm. Steinmayer & Co., wholesale and retail grocers, 312-320 Third Street, 
 Milwaukee, Wis.. 
 
 Geo. A. Hormel & Co., pork packers, Austin, Minn. 
 
 Jobbers, Marshalltown, Iowa. 
 
 Edward Depew & Co. , wholesale grocers, 615 Canal Street, New 1 ork, N 
 
 Joseph Home Co., dry goods, Pittsburgh, Pa. 
 
 Westmoreland Grocery Co., Uniontown, Pa. 
 
 Wholesale grocers, Evansville, Ind. 
 
 Merchant, box 377, Austin, Tex. 
 
 E. L. Durkee & Co., hardware merchants, Gloversville, N. Y. 
 
 Crouse Grocery Co., Syracuse, N. Y. 
 
 W. H. May & Son, merchants, Alexandria, Va. 
 
 The D. Q.'Fox Co., wholesale grocers, Springfield, Ohio. 
 
 Faulkner, Page & Co., merchants, 78 Worth Street, New York, N. Y. 
 
 Sprague, Warner & Co., wholesale grocers, Chicago, 111. 
 
 J. H. Merrill Co., wholesale grocers, Ottumwa, Iowa. 
 
 Brown-Wales Co., merchants, Boston, Mass. 
 
 John Ernsdorfl Iron Co., wholesale heavy hardware, Dubuque, Iowa. 
 
 Wholesale druggists, Milwaukee, Wis. 
 
 C. Jevine & Co", importers and grocers, 32 South \\ abash Avenue, Chicago 
 
 National Grocer Co., 29 Lamed Street West, Detroit, Mich. 
 
 Retired retail merchant, 125 East Fifty-sixth Street, New York, N. Y. 
 
 Merchants, Abilene, Kans. 
 
 The C. Fi Jackson Co., department store, Norwalk, Ohio. 
 
 Wholesale druggists, Evansville, Ind. ' 
 
 Rogers Feet & Co., clothiers, 842 Broadway, New York, N. Y. 
 
 S. S. Pierce Co., merchants, post-office box 57, Boston, Mass. 
 
 Greene Tweed & Co., hardware merchants, 109 Duane Street, New Yor*,. 
 
 N.Y, 
 Merchant, 78 Worth Street, New York, N. Y. ;. 
 
 Lindsay Bros., jobbers of agricultural implements, Minneapolis, Minn. 
 Exporter, 116 Broad Street, New York, N. Y. 
 Lumber and grain dealers, Alton, Iowa. 
 Wholesale heavy hardware, Davenport, Iowa. 
 Export and import merchants; Mailler & Qhereau, Australian and New 
 
 Zealand shipping merchants, 31-35 Stone Street, New York, N Y. 
 Produce Exchange, merchant, room 419, New York, N. Y. 
 
 -33 
 
512 
 
 HEARINGS BEFOEE 
 MERCHANTS— Continued. 
 
 Name. 
 
 Finn name or business and address. 
 
 Freed L. Carter 
 
 C. K. Doud 
 
 Chas. B. Yookin 
 
 Clayton T. Tunis. .".. 
 
 N. J. Goubre 
 
 James W. Cromwell. 
 
 K. O. Bolman 
 
 T. W.Marse 
 
 John S. Lawrence. . . 
 Lawrence J. Morris. 
 
 CailGolby 
 
 E. H. Boehnken.. 
 U. C. Southworth. 
 
 J. C. Ulrick 
 
 A. Lowenstein 
 
 S. HamillCo 
 
 V. A. Peterson 
 
 L. P. Larson 
 
 Philip Weigel, jr. 
 LDrt 
 
 Southwestern Drug Co. 
 
 Joseph Lindauer 
 
 A. F. Clough & Co 
 
 C.F.Morse 
 
 G.N.'Wells 
 
 Morris Stern 
 
 George R. Collett 
 
 George P. Smith... 
 John J. Van Wort. 
 Arthur W. Joun. . . 
 
 George S. Hage 
 
 C.J. Felber 
 
 Bacon Bros 
 
 Burlington Drug Co.. 
 Chas. L. Bernheimer. 
 
 Wheeler & Motter Mercantile 
 Co. 
 
 Fred'k Victor & Achelis 
 
 A. K. Edwards 
 
 Daniel Stewart Co 
 
 A. C. Barlett 
 
 W. F. McLaughlin & Co. 
 D. L. Gore 
 
 Hunter Stevens & Co 
 
 Givernaud Bros 
 
 Wilcox Crittenden & Co 
 
 L. Wolff Manufacturing Co. 
 Harry B, French 
 
 George W. Pratt 
 
 A. F. Neilson Co. (Ltd.). 
 Wm. A. Petas 
 
 S>hn J. Dolphin 
 
 Irving A. Sibley 
 
 Reehm & Davison . . . 
 
 6. C.Wagner 
 
 W. L.Milner 
 
 Newmen Walbridge., 
 Dudley M. Irwin 
 
 Max Morehouse. 
 R. J. Bennett... 
 
 Fred Schuette 
 
 V. J. Freudenthal 
 
 B. W. Sutclifl 
 
 Sanders, Orr & Co 
 
 A. M. Marshall 
 
 Sehon Stevenson & Co. 
 
 J. W. West 
 
 F. N. Joslin & Co 
 
 J. M. Comstock 
 
 A. Augustus Nealy 
 
 B. F- Riter 
 
 Hoopeston Canning Co. 
 K. S. Hazen 
 
 Wholesale druggists, 20-38 Merrimac Street, Boston, Mass. 
 
 Ronaldson & Puckett Co. (Ltd.), wholesale grocers, Baton Rouge, La. 
 
 Retired, 79 Milk Street, Boston, Mass. 
 
 Snow-Tullis Hardware Co., wholesale hardware, Montgomery, Ala. 
 
 W. V. Snyder Co., dry goods merchant, Broad Street, Newark, N. J. 
 
 Wm. Iselin & Co., dry goods commission merchants, 1 Greene Street, New 
 York, N. Y. 
 
 The Corfeyville Mercantile Co., wholesale grocer, Coffeyville, Kans. 
 
 T. W. Marse & Co., country merchant, P. O. box 439, Taylor, Tex. 
 
 Merchant, 89 Franklin Street, Boston, Mass. 
 
 Lawrence Johnson & Co., merchants, 209 South Third Street, Philadelphia, 
 Pa. 
 
 Golby Bros. & Co., merchants, Abbotsford, Wis. 
 
 Crane Co., merchants, 5083 Washington Avenue, St. Louis, Mo. 
 
 Merchant, automobiles, 1733 Broadway, New York, N. Y. 
 
 Wholesale grocer, Columbus, Ohio. 
 
 Wholesale produce dealer, Chillicothe, Mo. 
 
 Wholesale grocers, Keokuk, Iowa. 
 
 Grain buyer, box 127, Shickley, Nebr. 
 
 Binford, N. Dak. 
 
 Hardware, iron, and steel, 6 Peace Street, New Brunswick, N. J. 
 
 Wholesale drugs, Wichita, Kans. 
 
 Herman Bros., Lindauer & Co., wholesale dry goods, Nashville, Term. 
 
 Retail lumber dealers, Canova^S. Dak. 
 
 Kansas City Stock Yards Co., Kansas City, Mo. 
 
 Gould Wells & Blackburn Co., wholesale grocers, Madison, Wis. . 
 
 Ullman, Stern & Krausse, merchants, Galveston, Tex. 
 
 St. Louis National Stock Yards, National Stock Yards Street, St. Clair 
 County, 111. 
 
 John T. Nancock Co. Branch, Western Grocer Co., Dubuque, Iowa. 
 
 Jonas Long's Sons' Department Store, Scranton, Pa. 
 
 William Simpson Sons & Co., dry goods commission, lock box 1571, Phila- 
 delphia, Pa. 
 
 Retail lumber, S. Hage Lumber Co., Madelia, Minn. 
 
 E. R. Barron Co., dry goods at retail, 426-430 Main Street, La Crosse, Wis. 
 
 Cando Towner Co., North Dakota. 
 
 Wholesale druggists, 126, 127, and 129 College Street, Burlington, Vt. 
 
 Bear Mill Manufacturing Co., cotton-goods merchandise, 120 Franklin 
 Street, New York, N. Y. 
 
 Wholesale dry goods, St. Joseph, Mo. 
 
 Dry goods merchants, 50 Union Square, New York, N. Y. 
 
 The Edwards & Chamberlin Hardware Co., jobbers and retailers of hard- 
 ware, Kalamazoo, Mich. 
 
 Wholesale druggists, South Meridian Street, Indianapolis, Ind. 
 
 Hibbard, Spencer, Barlett & Co., State Street Bridge, Chicago, 111. 
 
 Coffees, Chicago, 111. 
 
 D. L. Gore Co., wholesale grocers, 120 North Water Street, Washington, 
 D. C. 
 
 Lumber merchants and farmers. 726 Second Street, La Salle, 111. 
 
 Silks, 71-73 Greene Street, New York, N. Y. 
 
 Marine and awning hardware, Middletown, Conn. 
 
 Plumbers' supplies, 601 West Lake Street, Chicago, 111. 
 
 Smith Kline & French Co., wholesale druggists, 429 Arch Street, Phila- 
 delphia. Pa. 
 
 J. J. Fairbanks & Co., stationers, 15 Franklin Street, Boston, Mass. 
 
 Wholesale grocers, Alexandria, La. 
 
 George C. Buell & Co., wholesale grocers, 27-29 Exchange Street, 
 Rochester, N. Y. 
 
 Jacob Dold Packing Co., Buffalo, N. Y. 
 
 Hardware merchant, 128-130 South Michigan Street, South Bend, Ind. 
 
 Wholesale merchants, Detroit, Mich. 
 
 The Wagner Hardware Co., hardware merchant, Mansfield, Ohio. 
 
 W. L. Milner & Co., merchant, Toledo, Ohio. 
 
 Walbridge & Co. , hardware merchant, "post-office drawer 952, Buffalo, N. Y. 
 
 Grain merchant and manufacturer, 117 Chamber of Commerce, Buffalo, 
 N. Y. 
 
 Merchant, Columbus, Ohio. 
 
 W. M. Hoyt Co., wholesale grocers, Twenty-second StreetBridge, Chicago, 
 
 General retail merchant, Manitow oc, Wis. 
 
 Merchant, El Paso, Tex. 
 
 Carstes Packing Co., Aberdeen, Wash. 
 
 Cotton merchants, Charlotte, N. C. 
 
 Marshall Wells Hardware Co., wholesale hardware, Duluth, Minn. 
 
 Wholesale grocers, Huntington, W. Va. 
 
 Naval stores, Decatur, Ga. 
 
 Merchant, Maiden, Mass. 
 
 Spokane Dry Goods Co., merchant, Spokane, Wash. 
 
 Retired merchant, 90-Gold Street, New York, N. Y. 
 
 Riter Bros. Drug Co., 33 North Main Street, Logan, Utah. 
 
 Packers of sweet corn, Hoopeston, 111. 
 
 Hazen & Lotspeich Co., wholesale grocers, Knoxville, Tenn. 
 
COMMITTEE ON INTERSTATE COMMEECE. 
 MERCHANTS— Continued. 
 
 513 
 
 Name. 
 
 E. S. Moore 
 
 l.C.Hirsch 
 
 W. B. Ayer 
 
 BUsh, Mi7,e & Sillinian Hard- 
 ware Co 
 
 A. H Lindeke 
 
 Plumb & Nelson Co 
 
 Arthur I. Smith 
 
 The P. Hayden Saddlery 
 Hardware Co. 
 
 Huge Reisinger 
 
 Henry Diesel 
 
 F. E. Harwi 
 
 T. C. Jenkins 
 
 Ogden T. McClurg 
 
 Firm name or business and address. 
 
 Wholesale grocer, Parkersburg, W. Va. 
 
 Interested in real estate and retail and wholesale merchandise business. 
 
 226 East Fourth Street, Cincinnati, Ohio. 
 Eastern & Western Lumber Co., Portland, Oreg. 
 Jobbers of hardware, Atchison, Kans. 
 
 Wholesale dry goods, St. Paul. Minn. 
 
 Wholesale grocers, Manitowoc, W is. 
 
 Wholesale dry goods merchant, Ninth and Faman Streets, Omaha, Nebr. 
 
 Columbus, Ohio. 
 
 Import and export. 11 Broadway, New York, N. Y. 
 The Atchison Saddlery Co., Atchison, Kans. 
 
 The A. J. Harwi Hardware Co. (Atchison wholesale hardware), Atchi- 
 son. Kans. 
 Wholesale grocer and flour jobber. Terminal Way, Pittsburgh, Pa. 
 Merchant and publisher, 1444 Lake Shore Drive, Chicago, 111. 
 
 LUMBER. 
 
 P.J. Brix 
 
 J. G. Smythe. 
 
 E.D. Sweet 
 
 Jas. A. Smith 
 
 B. K. Wood Lumber Co. 
 
 J. N. Marr 
 
 Colins, Darrali & Co 
 
 George H. Mell 
 
 W.M.Whaley 
 
 Genesee Lumber Co 
 
 A. C. Kennett 
 
 D. Woodward 
 
 N.S. Abbott 
 
 W. B.Tawnsend 
 
 E.L.Murth 
 
 John Lindas 
 
 PaulE. Page 
 
 R. D. Smith 
 
 C. S. Butterfleld 
 
 W. A. Smoot, jr 
 
 F.J. Elton 
 
 Chas. H.Turner 
 
 A.G.Webb 
 
 H.E.Riley 
 
 Geo. M. Paine 
 
 Augusta Lumber Co 
 
 C. M. Crawford 
 
 N. A. Moore 
 
 J. F. Wigginton 
 
 C. N. Worcester 
 
 H. K. TJneopher 
 
 W. T. Turner 
 
 J. S. Molynn 
 
 Thos. J. Aycock 
 
 S. H. Chatten 
 
 E.D. Whiteside 
 
 William Lothman 
 
 G. W. Campbell 
 
 S. H. Fullerton 
 
 Standard Lumber Co . . . 
 Wyatt Lumber Co 
 
 E. Bailey & Sons 
 
 New River Lumber Co.. 
 
 A. Spies Lumber & Cedar Co.. 
 
 George W. Sisson 
 
 C. G. Freck 
 
 Geo. H. Holt 
 
 S. E. Slade 
 
 Josiah Howard 
 
 E. R. Darlington 
 
 John W. Tuthill 
 
 Brown Bros. Lumber Co. . 
 
 Marbury Lumber Co 
 
 James T. Barber 
 
 Flambeau Lumber Co 
 
 Brix Logging Co., lumberman, Oneida, Wash. 
 
 J. G. Smythe & Co., lumberman, cattleman, ranch owner, merchant, and 
 
 banker, Uvalde, Tex. 
 Long-Bell Lumber Co., Cedar Vale, Kans. 
 Retail lumber yards, Osage, Iowa. 
 Lumberman, 112 Market Street, San Francisco, Cal. 
 Lumber and grain business, Davenport, Nebr. 
 Lumbermen, builders of coal barges, Nebraska, Pa. 
 Wholesale lumber dealer, Kane, Pa. 
 Merchant and manufacturer, Norfolk, Va. 
 Lumber manufacturer, Genesee, La. 
 Lumber, North Conway, N. H. 
 Woodward Lumber Co., Atlanta, Ga. 
 Spencer & Abbott, lumbermen, Stamford, Tex. 
 Little River Lumber Co., Townsend, Term. 
 Angelina County Lumber Co., Keltys, Tex. 
 Lumber dealer, Larned, Kans. 
 Lumberman, Buckley, Wash. 
 Edwards & Bradford Lumber Co., Center, Nebr. 
 Lumber manufacturer, Northiield, Minn. 
 W. A. Smoot & Co. (Inc.), coal, lumber, Alexandria, Va. 
 Secretary Manistee Land & Timber Co., Manistee, Mich. 
 Lumber manufacturer, Malone, N. Y. 
 Lumberman, 1996 West Third Street, Cleveland, Ohio. 
 Lumberman, Brookings, S. Dak. 
 Paine Lumber Co., Oshkosh, Wis. 
 Lumber manufacturers, Augusta, Me. 
 Yellow Poplar Lumber Co., Coal Grove, Ohio. 
 Long Bell Lumber Co., Bluff City, Kans. 
 Bowie Lumber Co., Bowie, La. 
 Worcester Lumber Co., Chassell, Mich. 
 Long Bell Lumber Co., Augusta, Kans. 
 Emporium Lumber Co., Keating Summit, Pa. 
 Dierks Lumber & Coal Co., Broken Bow, Nebr. 
 Aycock Lumber Co., Jackson County, Fla. 
 Lumberman, Kansas City, Mo. 
 Long Bell Lumber Co., Columbus, Kans. _ 
 
 Lothman Cypress Co., Angelica Street, St. Louis, Mo. 
 Campbell Lumber Co., lumber manufacturer, Marlington, W. Va. 
 Chicago Lumber & Coal Co., Third National b ik Building, St. Louis, Mo. 
 Manufacturers yellow pine lumber, Alton, Fla. 
 Manufacturers of lumber, Wyatt, La. 
 
 Lumber and manufacturing, Patchogue, N. Y. ..„.,„ 
 
 Producers of hardwood lumber, 1620 Union Trust Co. Building, Cincinnati, 
 
 Ohio. 
 Manufacturing lumber, Menominee, Mich. 
 A. Sherman Lumber Co., Potsdam, N. Y. 
 Pennsylvania Lumber Co., Sheffield, Pa. 
 Holt Lumber Co., 431 South Dearborn Street, Chicago, IE. 
 S. E. Slade Lumber Co., 112 Market Street, San Francisco, Cal. 
 C. B. Howard Co., manufacturers of lumber, Emporium, Pa. 
 E R. Darlington Lumber Co., 3900 Chouteau Avenue, St. Louis, Mo. 
 John W. Tuthill Lumber Co., Sioux Falls, S. Dak. 
 Lumbermen, Rhinelander, Wis. 
 Lumber manufacturers, Marbury, Ala. 
 Lumberman, manufacturer, Eau Claire, Wis. 
 Lac du Flambeau, Wis. 
 
514 HEARINGS BEFORE 
 
 Mr. Low. I had those names prepared in order that the committee 
 might see from whom the replies came. 
 
 I have also here a shorter list of men who have gone outside of the 
 questionnaire and given their views somewhat at length, which I will 
 place at the service of the committee if you care to invite any one of 
 them before you. 
 
 (The paper referred to is as follows:) 
 
 Herbert L. Satterlee, lawyer and manufacturer, 120 Broadway, New York. 
 
 J. W. Busiel & Co., Granite Hosiery Mills, Laconia, N. H. 
 
 W. W. Salmon, president General Railway Signal Co., Rochester, N. Y. 
 
 W. B. Campbell, secretary Perkins-Campbell Co. (saddlery), Cincinnati, Ohio. 
 
 J. L. Record, president Minneapolis Steel & Machinery Co., Minneapolis, Minn. 
 
 John J. Carter, oil producer, Titusville, Pa. 
 
 A. E. Adams, First National Bank, Youngstown, Ohio. 
 
 J. H. McMillan, Cargill Elevator Co., Minneapolis, Minn. 
 
 A. Henley, president American Cement Plaster Co., Lawrence, Mass. 
 
 Leo Ernst, president Independent Brewing Association, 1440 North Halstead Street, 
 Chicago, 111. 
 
 James Benedict, retired merchant, 72 Irving Place, New York. 
 
 W. S. Benson, vice president Tide Water Oil Co., 11 Broadway, New York. 
 
 J. W. Pero, manufacturer and banker, Fremont, Ohio. 
 
 Charles F. Brooker, Coe Brass Manufacturing Co., Ansonia, Conn. 
 
 Justus Collins (extensive colliery and fuel interests), Union Trust Building, Cin- 
 cinnati, Ohio. 
 
 W. T. Scott, Scott Lumber Co., Bridgeport, Ohio. 
 
 George H. Stowell, manufacturer cotton goods, Claremont, N. H. 
 
 W. L. Ratclifl'e, Thomas G. Plaut Co. (shoe manufacturers), Boston, Mass. 
 
 "William Waterall, president Pittsburgh & Philadelphia Oil Refining Co., Camden, 
 N.J. 
 
 Edwin Golding, president Golding Sons' Co., pottery materials, Trenton, N. J. 
 
 J". O. Wood, president City National Bank, Goshen, Ind. 
 
 John C. Bridgman, Hazard Steel Co., Wilkes-Barre, Pa. 
 
 David Jameson, vice president Citizens National Bank, Newcastle, Pa. 
 
 0. Owen, secretary to the Port Arthur Board of Trade, Port Arthur, Tex. 
 
 Albert Strauss, J. & W. Seligman & Co., New York. 
 
 Samuel M. Smith, Merchants & Savings Bank, Janesville, Wis. 
 
 C. R. Hunter, Hampden Watch Co., Canton, Ohio. 
 
 Robert H. Gross, president East Butte Copper Mining Co., 85 Devonshire Street, 
 Boston, Mass. 
 
 L. P. Rexford, president American Paper Products Co., Second Street and Bremen 
 Avenue, St. Louis, Mo. 
 
 N. G. Lamson, president Merrimack River Savings Bank, Lowell, Mass. 
 
 Taft-Pierce Machinery Co., Woonsocket, R. I. 
 
 A. F. Bragg, president Irons Pulp & Paper Co., Bangor, Me. 
 
 F. S. Thomas, chairman General Committee Adjustments Order Railway Conductors 
 of Big Four Roads, 239 East Pratt Street, Indianapolis, Ind. 
 
 H. L. Kramer, manufacturer, Kramer, Ind. 
 
 William Nelson Page, president of several collieries, Ansted, Fayette County, 
 W. Va. 
 
 Daniel H. Kimball, president Housatonic National Bank, Stockbridge, Mass. 
 
 George W. Close, banker and manufacturer, 1712 Madison Avenue, Toledo, Ohio. 
 
 Nelson G. Harris, president Rodney Hunt Machine Co., Orange, Mass. 
 
 Edwin S. Todd, professor of economics, Miami University, Oxford, Ohio. 
 
 Rev. John A. Ryan, D. D., professor of economics, St. Paul Seminary, St. Paul, 
 Minn. 
 
 Clarence M. Case, professor of economics, Penn College, Oskaloosa, Iowa. 
 
 J. A. Campbell, president Youngstown Sheet & Tube Co., Youngstown, Ohio. 
 
 William F. Pierce, president Kenyon College, Gambier, Ohio. 
 
 J. B. Patterson, president Detroit & Western Railroad, 1929 West Boulevard, De- 
 troit, Mich. 
 
 Charles H. Jones, president Commonwealth Shoe & Leather Co., 72 Lincoln Street, 
 Boston, Mass. 
 
 J. B. Purcell, president First National Bank, Richmond, Va. 
 
 H. Clay Evans, manufacturer, Chattanooga, Tenn. 
 
 John H. McCraeken, professor of politics, New York University. 
 
COMMITTEE ON INTERSTATE COMMERCE. 515 
 
 George F. Swain, professor of civil engineering, Harvard University, Cambridge, 
 
 JVI clSS. 
 
 Hon. Charles F. Scott, Member uf Congress, Iola, Kans. 
 
 C. W. Snow, president First National Bank, Syracuse, N. Y. 
 
 Charles H. Warren, treasurer Mutual Life Insurance Co., New York. 
 
 Thomas J. Hoskins, chairman Southeastern Association, 405 East Oklahoma Avenue 
 Knoxville, Tenn. 
 
 Morris L. Johnston, lawyer and capitalist, Chicago Stock Exchange Building, Chi- 
 cago, 111. 
 
 C. H. Huklein, president B. F. Avery & Sons (plows), Louisville, Ky. 
 
 W. E. McEwen, secretary-treasurer Minnesota State Federation of Labor, Manhattan 
 Building, Duluth, Minn. 
 
 E. B. Linsey, Sheffield Car Co., Three Rivers, Mich. 
 
 E. A. S. Clarke, president Lackawanna Steel Co., 2 Rector Street, New York. 
 
 E. O. Smith, secretary Connecticut Agricultural College, Storrs, Conn. 
 
 L. S. Rowe, professor of political science, University of Pennsylvania. 
 
 Nordyle & Marmon Co., founders and machinists, Indianapolis, Ind. 
 
 T. S. Adams, Wisconsin tax commissioner, Madison, Wis. 
 
 Frank Bergen, Esq., general counsel public service commission of New Jersey, 
 Newark, N. J. 
 
 Amos K. Fiske, associate editor Journal of Commerce, New York. 
 
 David G. Evans, Curtis Publishing Co., 1 Madison Avenue, New York. 
 
 Patrick Cudahy, Cudahy Bros. Co., packers, Milwaukee, Wis. 
 
 Mr. Low. That, Mr. Chairman, and gentlemen, exhausts all that I 
 am at liberty to say as president of the National Civic Federation. 
 
 For the rest, I shall only speak for myself. I speak with a little 
 bit of embarrassment, which I think the committee will understand, 
 because I am the chairman of a committee of the federation which is 
 trying to develop a plan for submission to the federation before it is 
 suggested to this committee. We may, or may not, be able to agree. 
 But the particular suggestion which I shall make to-day is entirely 
 personal to myself. It is the result of reflection upon such discussions 
 as we have had, but I have not been able to submit it to the judgment 
 of my colleagues on our own committee, and I may, after discus- 
 sion, wish to modify it myself. 
 
 It seems to me, Mr. Chairman, that in order to deal sagaciously 
 with the present problem before the country, we must begin by 
 recognizing that the tendency to combinations and trade agreements 
 is universal. It is not confined to this country. I think it is found 
 in every civilized country. " It is just as strong, and just as natural 
 a tendency in business life as it is in mechanics to resort to large 
 units. The locomotive of to-day is much more powerful than the 
 locomotive of years ago. 
 
 My father used to own a fleet of clipper ships that sailed to China. 
 Now we have the Olympic, with its immense capacity. The old 
 clipper ships would hardly be more than jolly boats as compared with 
 the Olympic. In- other words, we are confronted by a tendency that 
 is so universal that I think we should hesitate in attempting to check 
 it, however we may wish to regulate it. This tendency does not stop 
 at national lines. It is really international. I think thereare com- 
 binations between organizations of different countries which affect 
 the business that is carried on all over the world. 
 
 Now these natural tendencies, I think, signify that the power of com- 
 bination is almost a new force in our day, precisely as the application 
 of electricity is new now. You have to regulate and control elec- 
 tricity, and I think you must regulate or control the power of com- 
 bination, but I think we shall be attempting the impossible — literally 
 the impossible — if we undertake to pursue a course that prevents 
 
516 HEARINGS BEFOEE 
 
 combination and trade agreements. I think there are certainly some 
 combinations that affect output which are very much in the public 
 interest. Perhaps I may illustrate by certain facts which came to 
 my observation during my last visit to Europe. I had a conversation 
 with a lady who is managing a large estate in Silesia. She says that 
 out of an estate in that part of Prussia, of thirty or forty thousand 
 acres, perhaps 4,000 acres is delegated to woodland. That piece is 
 divided into 100 plats of 40 acres each. One plat is cut down entirely 
 every year and another plat is planted every year, and all the other 
 plats are thinned out every five years ; and she knows that the trees 
 that she plants this year will grow, except as they are thinned out, for 
 lOOyears before they are cut down. 
 
 When I was at Baden Baden I asked some questions in regard to 
 the care of the Black Forest, and I was told that much of it was 
 owned by the State of Baden — most of it, in the region of the city, 
 at any rate, by the city of Baden Baden — and some of it by private 
 owners, but that all are controlled by the same law, because, as it 
 was explained, if a private owner cuts down his trees he makes a 
 hole in the forest and the wind comes in and destroys the other trees, 
 and the State wants these forests preserved. 
 
 Now, of course, in Germany they accomplish that result by a 
 species of legislation which we have not yet undertaken. I imagine 
 it will be a great many years before we do undertake it and that the 
 same result can be obtained here only by cooperation between the 
 private owners of forests; but any such cooperation, the end of which 
 is to manage forest property in accordance with the best understood 
 rules for the conservation of forests, must mean a limitation of out- 
 put; for conservation means the thinning out of a forest instead of 
 the cutting down of a forest. It is a perfect illustration, I think, 
 and I have no doubt there are many more that might be given of the 
 fact that there may be trade, agreements that are in the public inter- 
 est. Whether or not such an agreement would be in contravention 
 of the Sherman law I do not know; but I think there ought to be 
 some way of determining as to that kind of an agreement, and every 
 other like it, whether it be in contravention of the Sherman law or 
 not, so that men who want to deal honorably in business may know 
 in advance what they can lawfully do. 
 
 It seems to me that there are two things characteristic of this gen- 
 eral tendency, as we see it in the United States, that are rather pecu- 
 liar to our own country. If they are not absolutely confined to this 
 country, I think we see them here in their greatest development. 
 Those things are, first, the tremendous aggregations of capital under 
 single control. The second is the concentration of the control of all 
 kinds of industry in comparatively few hands. 
 
 I do not know of any other country in the world in which those two 
 results have been carried so far as in this country, and in asking myself 
 what is the explanation of that fact, it seems to me that the explana- 
 tion of the concentration of capital in vast sums under single control 
 is due particularly to two things, first, to our Federal system, and 
 second, to the effect of the Sherman law itself. 
 
 As to our Federal system, in order to put my thought briefly, the 
 situation as it exists in this Republic, I understand to be this — of 
 course I am not a lawyer and my language may not be exact, but I 
 think I can make myself clear. As I understand the legal situation 
 
COMMITTEE ON INTERSTATE COMMERCE. 517 
 
 under which interstate commerce is conducted in this country, the 
 State creates the agents that do it, since the corporate form has come 
 into general use; but the States can not control the business that those 
 corporations do, in so far as it is interstate commerce. Congress, on 
 the other hand, can regulate the business that is done, but it can not 
 regulate, as such, the agent that does it. In other words, it is not a 
 question whether the State ought to do this or the Nation. The fact 
 is that we have no Government at all in the United States, so far, that 
 controls both the agent that does interstate business and the business 
 that it does. I think the result of that has been to permit the States 
 to create agents that have been practically lawless, because the State 
 having created them, and having no relation to the interstate business 
 that they do, has let them alone. 
 
 The Nation has tried, through the Sherman law, to regulate the 
 business after it has been done, but it has taken 21 years to reach 
 even the point at which we now are. It is rather striking that no other 
 Federal system in the world that I know of — no independent Federal 
 system— has failed to put commerce under the general control, 
 Germany does it; Switzerland does it; Mexico does it, and Brazil 
 does it. I am not quite sure as to Argentina, but as to those four 
 I believe my information is correct. I suppose they may have done 
 so because they were formed much later; before the railroads were 
 thought of, or the telegraph. At any rate, the fact is that we are the 
 only Federal system that is left in that curious situation, where it is 
 possible to have no Government at all that controls the agent that 
 does interstate business, as well as the business that it does. 
 
 Now, of course, our constitution, according to my understanding, 
 gives the Federal Government the power to control the agent as well 
 as the thing it does, when it will, but it has not so far undertaken to 
 do so, and the point of my argument is to try to make it clear that 
 we must. Personally I do not believe that we can make any sub- 
 stantial progress in the solution of the commercial problems that 
 confront us to-day unless the Federal Government will take charge, 
 as far as may be necessary, of the agent that does interstate business 
 as well as of the business that it does. 
 
 I stated that the second tendency which seemed to me to have 
 brought about this tremendous concentration of capital was the 
 Sherman law itself. As I have followed the developments of the 
 period since this law was placed upon the statute books, they have 
 been something like this: Evidently the Sherman law in terms for- 
 bade a trust and the trust was abandoned. Then pooling was 
 attempted, and that was declared contrary to the Sherman law and 
 that was abandoned. Finally, the legal advisers of men who wanted 
 to carry on business in the modern way conceived the idea that per- 
 haps by concentrating different businesses that had been united by 
 temporary or permanent agreement, by concentrating them into a 
 single control they might avoid the condemnation of the Sherman 
 Act; so that I do believe that there has been no single influence more 
 powerful in leading to the tremendous concentration of capital in one 
 or two great concerns than the Sherman Act itself. 
 
 I think that that ought to be borne in mind when it is now 
 attempted to interpret the Sherman Act in quite a different spirit. 
 
 At one stage in this process the unhappy thought occurred to some- 
 body — unhappy as it seems to me — of the holding company. I 
 
518 HEARINGS BEFORE 
 
 believe that the holding company is more responsible than any other 
 commercial agency for bringing about the control of industry by a 
 few people, because the effect of the holding company — whatever 
 other effect it may have — is to multiply the power of a given amount 
 of money to exercise control. For example, if any one of us wanted 
 to control the New York Central Railroad Co., if you please, we must 
 buy one share more than half — put in money enough to do that. 
 That is all the money that a holding company has to put in; but 
 any one of us could get control of the holding company by securing 
 one share more than one-half of its capital. In other words, by a 
 single holding company the power of a given amount of capital for 
 the purposes of control has been doubled. If now you permit holding 
 companies, one upon another, you can see how far that can go, at any 
 rate theoretically. I have been told of one instance where 6 per cent 
 of the capital of the concern that is controlled, actually controls it 
 through a series of holding companies. Now, if the holding company 
 has multiplied the power of capital to control eightfold, as seems to 
 have been done in that instance, I think we can get some idea why it 
 is that industry is so largely under the domination of a few very 
 strong men. That I believe to have been the chief commercial 
 influence at work. 
 
 I suppose that the money system .which the Aldrich Commission is 
 trying to correct may have also a very important bearing upon it. 
 I am not at all competent to say which influence is the greater. I 
 think the Aldrich Commission plan — which will make it possible for 
 a farmer, or a small dealer anywhere, to have his note discounted, if 
 his local bank will indorse it, at the same rate as the richest man in 
 New York can get his note discounted in the city of New York — is 
 one of the most superb things ever proposed for the benefit of the 
 country, and that it will greatly tend to break up the present control 
 of industry by a few. 
 
 That, however, has not to do with this particular problem. I only 
 spoke of it because I do not think the concentration of control is 
 entirely due to the holding company. I think the money situation 
 has something to do with it. But 1 do think, for the reasons that I 
 have outlined, that the holding company has a great deal to do with 
 it. Therefore, I should favor, as one detail of any plan that might 
 be adopted, that no holding company should be recognized in inter- 
 state commerce by the American Government. I do not mean to 
 say that as to such companies now in existence. I think it may be 
 exceedingly difficult, perhaps impossible, to deal with the situation 
 that exists; but I would stop it right there. Precisely as in limiting 
 the heights of tall buildings, it might not be right to compel every 
 tall budding to come down, but you could certainly prevent the 
 grow h of tall buildings by applying it to the future. I think the 
 prohibition of holding companies ought certainly to be made as to 
 the future, and I think very careful inquiry should be made as to 
 what exists in order to ascertain what can be done in regard to them. 
 Of course, I mean by a holding company a company that holds enough 
 of the stock of another to control it. I do not know that there is any 
 serious objection to a company holding all of the stock of another 
 company, and so hold its assets by holding its stock. I am only trying 
 to point out the objectionable quality that the holding company has 
 in multiplying the power of control inherent, in a given number of 
 dollars. 
 
COMMITTEE ON INTERSTATE COMMERCE. 519 
 
 If my diagnosis of the situation is correct, therefore, it seems to 
 me that the time has now come when we must have Federal regula- 
 tion of the agents that do interstate commerce as well as of the inter- 
 state commerce that they do. I assume — and I am now expressing 
 my personal views — that the Sherman law as now interpreted embod- 
 ies the present policy of the Nation as to commerce and industry, 
 first, in forbidding monopolization, which I conceive to be the pur- 
 pose of the second section of the law, and, secondly, in recognizing 
 that all restraint of competition is not restraint of trade. I do not 
 know whether as a layman I am justified in making that assumption; 
 but I know that the circuit court of the United States in the Du Pont 
 case has used that exact phrase; and that phrase, it seems to me, is 
 a very happy equivalent, from the point of view of the layman, of the 
 phrase, <r the light of reason," used by the Supreme Court of the 
 United States. 
 
 Senator Pomerene. Will you let me have that expression again? 
 
 Mr. Low. "Recognizing that all restraint of competition is not 
 restraint of trade." What is evidently needed is supplementary leg- 
 islation that will enable business men to know in advance what the 
 Sherman law forbids and what it does not forbid. As a means to this 
 end I propose the following. Let the Sherman Act stand as it is, but 
 supplement it by the following legislation: First, a permissive 
 national incorporation act. If I could have it, I should prefer a 
 compulsory corporation act for the corporations that are really 
 national in character. When they are very large, their money comes 
 from all over the Nation. Their plants are in many States, and it 
 seems to me more appropriate in every way that such organizations 
 should be incorporated nationally than locally; but I appreciate the 
 fact that you can not leap to the goal at one bound, and I think that 
 perhaps all we can expect to do at the present time is to offer national 
 incorporation as a permissive course. 
 
 I think national incorporation has this other advantage. As long 
 as interstate commerce was earned on by natural persons the citi- 
 zen of every State had the same relation to the law. The moment 
 commerce was transferred to the conduct and care of artificial per- 
 sons known as corporations we see to-day that the artificial citizens 
 of one State have very different rights from the artificial citizens of 
 another State, and in interstate commerce I doubt whether that is 
 quite fair. It seems to me that the citizens of one State should have 
 the same relation to interstate commerce as the citizens of every 
 other State. On the other hand, permissive incorporation is the 
 least costly way of dealing with the situation. If the Government 
 were to demand compulsory national incorporation it would compel 
 an immense expenditure of money by many organizations in order 
 to comply with that demand, and if the necessary result can be 
 obtained without that expense a Federal license may be the better. 
 
 Some people may say, "What is the use of a permissive incorpo- 
 ration act? Nobody will take advantage of it." 1 do not think 
 that is conclusive. I think that if the law is well drawn some may 
 take advantage of it. I am inclined to think that an increasing 
 number would; but, in any event, if Congress will pass a model incor- 
 poration act it will serve as a model for ail the States. In the pure 
 food and drug legislation the law of Congress has been the model 
 which has been followed more or Jess closely by all the States. None 
 
520 HEABIXGS BEFOEE 
 
 of them follow this slavishly, but all of them follow national legisla- 
 tion, or all are very apt to follow it if Congress is first in the field, at 
 any rate to the extent of taking the same general standard and 
 method. All of these advantages seem to me to inhere at the present 
 time in a permissive national incorporation act. 
 
 Secondly, I propose a compulsory Federal license for all corpora- 
 tions having $2,000,000 of assets or of paid-up capital. Of course, 
 that is a perfectly arbitrary distinction, but the desire is not to over- 
 whelm the central government at the first step with a work so great • 
 that it will break it down. 
 
 We have discussed that particular feature in our federation com- 
 mittee, and we think that this provision would be somewhat more 
 restrictive than the proposal in Senator Newlands's bill of $5,000,000 
 of gross business, because we think that a capital or assets of 
 $2,000,000 would ordinarily be turned over' more often in a year 
 than $5,000,000 would represent. 
 
 Now, the necessity for having a Federal license — if you do not have 
 Federal incorporation — comes, in my thought, from the necessity of 
 bringing publicity to bear on this question. I confess that I would 
 like to see publicity tried out in all its force before we get to any more 
 artificial way of attempting to control business. We all know that 
 in some of the most important establishments in our cities the safe 
 is not defended by a watchman but by a 'ight, and I suspect that 
 that illustration indicates what would take place in regard to trade 
 agreements and business combinations if they are made public. I 
 do not think men would ordinarily make public combinations of 
 which they are ashamed, or ought to be ashamed, and therefore my 
 thought is to create a situation by permissive national incorporation 
 and a compulsory Federal license among all the larger enterprises by 
 which publicity can be brought fully to bear. 
 
 I would then provide for an interstate-trade commission of seven 
 members with power to administer the policies of the Sherman Act. 
 It seems to me, if I understand the theory of such a commission, that 
 Congress must lay down the rule which is to govern it. I understand 
 that is what Congress has done in very broad phrase for the Interstate 
 Commerce Commission. Now, if this Sherman law is sufficiently 
 clear to be the guide of business men, it would seem to me it ought 
 to be sufficiently clear to be the guide of an interstate-trade com- 
 mission, and that in some such phrases as sections 1 and 2 of 
 that law the rule which is to govern the commission might be laid 
 down, and that the trade commission should have power to admin- 
 ister the policy of the Sherman Act so as to do these several things: 
 (a) To carry out the decrees of the courts with reference to the 
 disintegration of existing combinations (I think that such a body 
 would be vastly better equipped to do that work than the circuit 
 court of the United States) ; (o) to agree, subject to the approval of 
 the court, with existing combinations, not already in court by com- 
 plaint, as to modifications in their organization or methods or doing 
 business that may be necessitated by the policy of the Sherman law. 
 At present the Attorney General has to do that. In effect, he has 
 to take the whole responsibility of saying in advance of action by 
 the court whether a plan proposed is all right or is not all right. 
 I think a commission such as has been suggested is far better 
 equipped to do that work than the Attorney General. 
 
COMMITTEE ON INTERSTATE COMMEECE. 521 
 
 Then, third, this commission should apply the policy of the Sher- 
 man Act to trade agreements in the manner following. I suppose 
 that there are a great many trade agreements in the business world ; 
 I know that there have been. I am told that where formerly they 
 were written, now they are unwritten. I do not believe it is possible 
 to continue business in modern days without such agreements, and 
 my proposition would be this: Provide that after a date to be fixed 
 trade agreements affecting prices and output are unlawful, or shall 
 be unlawful, unless filed with the interstate-trade commission. 
 'That is to say, provide that agreements in secret are contrary to the 
 law. Provide that trade agreements affecting prices and output, if 
 filed with the interstate-trade commission, shall be lawful until 
 declared contrary to the policy of the Sherman Act. I believe that 
 such a system would be very largely self-correcting. If those trade 
 agreements provided for an excessive price, and it were publicly 
 known, competition would certainly spring up; and I think the mere 
 fact that they had to be known would prevent anything outrageous 
 from being attempted. 
 
 I know that the ordinary trade agreements between small dealers 
 which affected or used to affect prices and output were known to 
 everybody in the trade. There was no attempt to confine this 
 knowledge to the parties who were concerned in the agreement, and 
 it seems to me that it is perfectly legitimate, if we are to recognize 
 combinations between persons in business, that the terms of those 
 combinations should be made known, exactly as the terms of a 
 charter are made known. Make it the duty of the interstate trade 
 commission to enforce the policy of the Sherman Act in the manner 
 in which the Interstate Commerce Commission now enforces the 
 interstate-commerce law. That is to say, if the interstate trade 
 commission challenges any such trade agreement, let it give notice 
 to the parties of the ground of their objections so that the parties 
 concerned may have the opportunity to modify their trade agree- - 
 ments, if they will, so as to meet the criticism of the commission. If 
 the parties concerned decline to do this, give the interstate trade 
 commission the authority to ask for an injunction pending the 
 determination of the case by the Commerce Court or by the Supreme 
 Court of the United States, as may be thought best. 
 
 I think that is a perfectly practicable policy as to all of the agree- 
 ments between business men. If they exist in secret, they are unlaw- 
 ful. Every business man would know whether he is offending that 
 law or not. If they are filed with the commission, they are lawful 
 until they are set aside. Every business man in that case would 
 know that he will not be indicted under the Sherman Antitrust Act 
 until he has had an opportunity to learn on what specific ground that 
 general law is applied to his particular situation. I understand 
 that that is the method of the Interstate Commerce Commission 
 when they become aware of a practice which they think is forbidden 
 by the interstate commerce law. They notify the parties concerned 
 and ask them to change their practice. If the parties concerned 
 decline to do it, the commission then makes a ruling against that 
 particular practice, and if they go to court the court decides. 
 
 Now, that is a perfectly fair, simple, and effective way, it seems to 
 me, of dealing with the Sherman antitrust law, through such a 
 commission. Let it be brought down by actual notice to the parties 
 concerned that that law applies to what they are doing in the judg 
 
522 HEARINGS BEFOEE 
 
 ment of this commission. Then if they will not change the practice 
 which is objected to,' let the court decide whether the commission is 
 right or wrong. 
 
 Give the interstate trade commission the power to call the attention 
 of the Department of Justice to any violation of the public policy 
 embodied in the Sherman Act that may come to its knowledge. I 
 would give it also the power to pass upon the propriety of new 
 mergers of corporations proposing to engage in interstate commerce 
 before such mergers can be made, applying in every case the policy 
 of the Sherman law. 
 
 I suppose if a merger proposed to control 95 per cent of the business 
 they would say, ''That is monopolizing; we can not permit that." 
 On the other hand, if the result of the merger were, say, to put only 
 10 per cent under one control, they would probably say the Sherman 
 law is not concerned. 
 
 That, of course, is an offhand illustration, but that power, I think, 
 clearly should go to this commission so that future mergers should be 
 under such control. Then I would give to the interstate trade com- 
 mission full power to examine the books of all combinations having 
 a national incorporation, a Federal license, or who are parties to a 
 trade agreement affecting prices and output, and I think with that 
 power it would be impossible to maintain secretly a trade agreement 
 affecting prices and output. If it were not reported to the trade 
 commission by those who were parties to it, I think, through an 
 examination of the books of all affected by the agreement it could 
 be easily demonstrated. 
 
 Mr. Chairman, that completes the outline of what I wished to say. 
 
 The Chairman. I do not care to enter into a discussion of the 
 matter, but in order that silence may not be taken as acquiescence, I 
 should question the propriety of permitting the trade agreement to 
 be subsequently attacked. It seems to me it should be first sanctioned 
 if permitted at all. 
 
 Mr. Low. If you were starting afresh, Mr. Chairman, I think that 
 would be a practicable scheme; but I do not think you can hold up 
 the business of the country until such a commission has been able to 
 go through all the trade agreements that I suspect exist. 
 
 The Chairman. Then you would permit them to run riot until they 
 were examined ? 
 
 Mr. Low. I would, because I do not think they would run riot, as 
 you express it, for very many years. They exist now, and I do not 
 believe they would be found out except by some such process as this. 
 
 The Chairman. I simply wanted to make that statement. Senator 
 Cummins, you may inquire. 
 
 Senator Cummins. Mr. Low, I hope you will not regard the ques- 
 tions I put to you as indicating any purpose on my part to enter into 
 an argument, although they may take on sometimes an argumen- 
 tative form. They are put for the purpose of a better understanding 
 of some of the propositions you have suggested in their application to 
 the actual affairs of our interstate or international commerce. To 
 begin with, I wish you would read again that question which you 
 submitted to certain persons with regard to competition, or the return 
 to the old ways of doing business. 
 
 Mr. Low. It is as follows: 
 
 Do you consider it feasible to attempt to return to what are commonly known as 
 old competitive methods in business? 
 
COMMITTEE ON INTEKSTATE COMMEECE. 523 
 
 Senator Cummins. Now, of course, I can not inquire of you how 
 the persons to whom this question was addressed understood it, but 
 I would like a little' more information as to how you understand that 
 question. What do you mean by a "return to old methods?" 
 
 Mr. Low. I should understand the question as signifying, ' 'Do you 
 think that it is possible to carry on modern business without mergers 
 and combinations and trade agreements?" 
 
 Senator Cummins. Does that question, in your mind, bear any 
 relation to the size of the corporations or concerns that carry on the 
 business ? 
 
 Mr. Low. Not necessarily. 
 
 Senator Cummins. In making your meaning clear to us, originally 
 you used an illustration which compared the old sailing ships in 
 commerce with ships like the Olympic. Do you think there is any- 
 thing in that advance which is inconsistent with competition ? 
 
 Mr. Low. No; but I think that it necessitates a very much larger 
 capitalization and a very much stronger organization in every way 
 to maintain it. 
 
 Senator Cummins. That competition has little or nothing to do 
 with the size of corporations which carry on the business in which 
 they are all engaged, has it? 
 
 Mr. Low. No ; but I read in the paper this morning that the 
 Cunard Steamship Co. had just obtained possession of another line of 
 steamships. 
 
 Senator Cummins. For instance, to pursue your illustration, while 
 it is true that the business of this day must be carried on in such 
 steamships as the Olympic and the Mauretania, and so forth, there is 
 nothing in that development which prevents competition between 
 the White Star Line, which owns the Olympic, and the Cunard Line, 
 which owns the Mauretania, is there? 
 
 Mr. Low. Not necessarily; and yet I observe that the companies 
 maintaining the ocean traffic meet every year and agree upon the 
 rates for passengers and freight. They compete in quality of service 
 but not in prices. 
 
 Senator Cummins. Yes, they do; but there is nothing in their size 
 which compels that agreement, is there ? 
 
 Mr. Low. Oh, no. 
 
 Senator Cummins. They could compete with each other much 
 more effectually than the old clipper ships could compete with either ? 
 
 Mr. Low. I am not arguing against competition, Senator. I am 
 not assuming to say that there should be no competition. 
 
 Senator Cummins. I gather from what you said that the great 
 development of recent years, the necessity for carrying on business 
 in a big way, and with big instrumentalities, was inconsistent in 
 some way or other with the prevalence or the maintenance of com- 
 petition in business. 
 
 Mr. Low. I think that it is inconsistent as a matter of fact with 
 the conduct of business unregulated by Government; but I should 
 hope that there would always be competition in some form, and, as 
 I say, there is such competition on the ocean. 
 
 Senator Cummins. Yes; it is quite common nowadays, I have 
 noticed, with those who believe that competition has- passed away 
 or ought to pass away, to prove, or attempt to prove, their conclu- 
 sions t>y the suggestion that electricity and steam and the telephone 
 
524 HEABINGS BEFORE 
 
 and the telegraph, and all those other mighty modern instrumental- 
 ities are in themselves repugnant to the maintenance of competition. 
 You do not think so, do you ? 
 
 Mr. Low. No, sir; not within limits. I think that there are, and 
 have been, tremendous forces compelling old competitors to work 
 together through great combinations. 
 
 Senator Cummins. No matter what the agency employed may be, 
 whether it is big or little, whether it is old or new, the real purpose 
 of a trade agreement such as you have suggested, or a combination, 
 is, as I understand it, to introduce a certain stability into business 
 and to render the profits of the business sure and continuous ? 
 
 Mr. Low. I think so, and I think that such trade agreements are 
 often the only manner in which the small competitor can compete 
 with the larger one. 
 
 Senator Cummins. Precisely. But I want to be perfectly sure 
 whether you regard competition as impossible in these days because 
 we are bound to do business or carry on business in a big way; that 
 is, through large aggregations of capital and tremendous instru- 
 mentalities. 
 
 Mr. Low. No, sir; I do not think that competition is impossible, 
 and I should be very sorry indeed ever to see the day when there was 
 no competition — exceedingly sorry; but I think that 
 
 Senator Cummins. That brings me back to the question which you 
 have propounded to your correspondents. They seem to have 
 accepted that question as the equivalent of saying, or asking them, 
 "Is it possible to return to the old little ways of doing business by the 
 old methods," rather than the equivalent of asking them, "Do you 
 believe that competition ought to disappear in the business world?" 
 
 Mr. Low. I should think that that was a fair interpretation of the 
 question. 
 
 Senator Cummins. Fair competition among business institutions 
 of substantially equal advantages ought to be encouraged, ought it 
 not? 
 
 Mr. Low. I think so, decidedly. 
 
 Senator Cummins. And what you mean by suggesting the necessity 
 of some sort of trade understanding or trade agreement is to provide 
 something that will prevent the unfair and unreasonable competition 
 which is not intended to advance the business, but to ruin or destroy 
 a competitor ? 
 
 Mr. Low. I mean that, certainly. I do not think that we can 
 maintain that situation under modern conditions without Govern- 
 ment regulation. 
 
 Senator Cummins. It would be a great deal easier to maintain com- 
 petition — reasonable and fair competition — among rivals in business 
 if those rivals were substantially of the same size and had the same 
 stake in affairs, and could do the business as substantially the same 
 concern, would it not ? 
 
 Mr. Low. I am not sure of that. I think you will find that units 
 of any size tend to draw together, and in that way to eliminate com- 
 petition. Take the steamships of the Atlantic as your type. They 
 are not only larger ships, but they are larger companies, and the 
 companies meet and agree. 
 
 Senator Cummins. The trade agreements which you have in mind 
 are the agreements which create the complications which you have 
 in mind, I suppose ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 525 
 
 Mr. Low. May I read a part of a letter which Mr. Henry R. Towhe, 
 I think, addressed to your chairman, because, if it has not been brought 
 to the attention of the committee, it will be very illuminating upon 
 this point. 
 
 Senator Cummins. I will be very glad to have you do so. 
 
 Mr. Low. Mr. Towne is the head of the Yale & Towne Manufactur- 
 ing Co., that makes the Yale locks. He is president of the Merchants' 
 Association of New York. He says: 
 
 THE SHERMAN ACT IN ITS RELATIONS TO TRADE ORGANIZATIONS —SUGGESTIONS CON- 
 CERNING A SIMPLE AMENDMENT. 
 
 [By Henry R. Towne, November, 1911.] 
 
 The decisions of the Federal courts thus far rendered in cases arising under the 
 Sherman Antitrust Act of 1890, and involving either attempted monopoly or attempted 
 restraint of interstate commerce, have been confined chiefly, if not wholly, to two 
 classes of cases, viz: (1) Those in which control was sought through a holding com- 
 pany, by which the operations of a number of corporations, previously independent 
 and competitive, were brought under a single management; and (2) those in which 
 control was sought by the merging, into a single corporation, of the property and 
 ownership of numerous smaller corporations previously independent and competitive. 
 
 While these two classes undoubtedly represent the largest and most prominent 
 cases to which the Sherman Act was intended to apply, there remains a third class, 
 which, if less spectacular and prominent as to its units, includes a vastly larger num- 
 ber of cases than either of the other two classes, and which, in aggregate importance 
 in the industry and commerce of the country, probably exceeds either if not both of 
 the others. This class embraces the vast number of small industrial and commercial 
 units which form a constituent part of the many lesser industries, each of which latter 
 is. important if not essential to the welfare and convenience of the people, or to the 
 efficiency of other related industries. Probably the employees of this group include 
 a large majority of our citizens of both sexes who are engaged in organized industry. 
 Among the units of this great class the practice has prevailed for at least a generation, 
 and probably much longer, of forming cooperative trade associations for mutual pro- 
 tection and benefit. Among the various purposes sought have been the regulation 
 of prices and the pooling of profits, both of which are now held by many authorities 
 to be forbidden by the Sherman Act, although, so far as I know, no decisions have 
 been rendered covering precisely the class of cases to which I refer. Where an asso- 
 ciation or pool accomplishes or attempts a substantial monopoly of an industry, 
 unquestionably the Sherman Act applies, and should apply. A serious doubt arises, 
 however, whether the Sherman Act does or should apply in cases where most or 
 all of the following conditions prevail, viz: 
 
 (1) The group includes only a fraction of the industry, a substantial number of 
 units remaining outside. , 
 
 (2) The group maintains uniformity of prices among its members on a level which 
 yields only reasonable profits, which enables the smaller and weaker members of 
 the group to continue in existence, and which, instead of suppressing, tends to encour- 
 age competition by maintaining conditions which invite new competitors to enter 
 the field, and which imposes no penalties upon them, but rather confers benefits. 
 
 (3) The group attends strictly to its own affairs, without attempting to interfere 
 with or molest outside competitors, in some cases even extending to the latter an 
 invitation to join the group. . 
 
 (4) The group imposes no restriction upon competition among its members or with 
 outsiders, except as to the maintenance of uniform prices, each member having the 
 same incentive and freedom as before to develop its business as largely as possible 
 and in whatever ways it may find expedient. In other words, there is no restriction 
 of competition except by cutting prices. 
 
 (5) In some cases the plan provides not only for the fixing of prices by concurrent 
 action, but also for the pooling of profits. Even so, the members collectively have 
 the same incentive and freedom as before to prosecute and develop the business the 
 sole qualification being that one who does so unfairly and at the expense of his fellow 
 members forfeits to the latter some share of his excess profits. In this case, as before, 
 however, no limitation of or interference with outside competitors results; on the 
 contrary, such competition is protected and encouraged by the maintenance of profit- 
 able prices by the group._ Poolingfmerely regulates internal competition; it does 
 not affect external competition. 
 
526 HEARINGS BEFORE 
 
 (6) In addition to regulating prices, or the distribution of profits, or both, such in- 
 dustrial groups usually perform many other functions useful to their members and 
 often beneficial to the community, as for example, the ascertainment of credits, the 
 collection of debts, the prosecution of dishonest customers, and the encouragement 
 of regularity of trade practices, thereby preventing unfair discrimination between 
 customers of different kinds or in different localities. 
 
 Many thousands of associations of the kind thus indicated have heretofore existed 
 throughout the country and in nearly every branch of organized industry. Many of 
 these were in existence long before the enactment of the Sherman law of 1890 and 
 have been in continous operation until now. Many, if not all, of their members, 
 aroused by the recent decisions of the courts, have sought legal counsel of late as to 
 whether these operations do or do not come within the scope of the Sherman law. 
 The advice so obtained has differed widely. Some have been advised that the law 
 applies, some that it does not, and all are at sea. The net result has been to produce 
 profound disturbance and unrest, which is felt even more than is expressed, and this 
 in turn is operating adversely upon business of all kinds, especially in the halting of 
 plans for further development and for new undertakings. 
 
 Speaking from long and wide experience and as a student of this subject, I express 
 unqualifiedly the conviction that in the great majority of cases these friendly associa- 
 tions of competitors have not only promoted the interests of their members in many 
 and important ways, but on the whole have promoted also the welfare of distributors, 
 and consumers. A striking confirmation of this view is the fact that, in most cases, 
 these associations have been conducted openly, with full knowledge of all concerned, 
 and without protest or objection from any side. Obviously this would not have been 
 the case had their operations been oppressive or injurious or unfair. Thousands 
 of small producers have been enabled by these associations to continue in successful 
 operation which otherwise would have been crushed out of existence by the ruinous 
 competition of their stronger neighbors. The adequate profits realized have largely 
 been devoted to the upbuilding of industries which otherwise would have halted 
 or languished because of inadequate means wherewith to develop. A railroad or 
 a great industrial corporation can obtain the capital needed for growth by successive 
 issues of new securities, but this resource is rarely available or expedient to the small 
 industrial unit. Almost invariably the capital needed for the growth of the latter 
 is obtained by appropriating part, or sometimes all, of the profits of the business to 
 increased and improved facilities, and it is to the interest of the community that this 
 process should be encouraged and continued. It is possible only when fair profits 
 are realized which leave some surplus available for reinvestment. Under unregu- 
 lated competition such profits can rarely be earned by the smaller and less-favored 
 units, whereas under regulated competition they prosper and grow and new com- 
 petitors are encouraged to enter the field as the industry expands. 
 
 The class of competitors to which the foregoing arguments apply, whether manu- 
 facturers or distributors, includes almost every field of production and a very wide 
 range in size of unit. In aggregate numbers it includes by far the greater part of 
 organized industry. Cooperative arrangements of the kind referred to affect small 
 rather than "big" business, but the aggregate interests included in the former group 
 are undoubtedly greater than those included in the latter. Germany, by her system 
 of "cartels," not only permits but actively encourages cooperative arrangements of 
 the kind in question. 
 
 The spirit of the method under discussion is embodied in the phrase "Cooperation 
 is the life of trade." It stands for peace and prosperity, versus war and persecution. 
 Under modern conditions of industry and commerce, as in the affairs of nations, 
 "War is hell." 
 
 It is not argued that competition should be eliminated, but that it needs to be and 
 should be regulated; that we should aim to retain its beneficent and constructive 
 features while eliminating those which are baneful and destructive. Unbridled 
 competition tends to defeat the end now so urgently sought by destroying the weaker 
 units of an industry, and thus creating a monopoly among the survivors. Cooperative 
 competition tends to promote the end in view, by preserving the smaller units, by 
 helping them to become stronger, and by thus encouraging a true competition which, 
 because healthy and conservative, will be lasting. 
 
 At present industry and commerce are in doubt as. to the extent to which, if at all, 
 cooperative competition is permissible under the Sherman law as interpreted by 
 recent decisions of the courts. This doubt would be dispelled by an amendatory act 
 further defining the intent and scope of the Sherman law. It has well been said that 
 the proper function of the law is to indicate the things which are prohibited rather 
 than those which are permitted; that every citizen should be free to conduct himself 
 and his affairs in whatever way he may see fit, so long as his acts do not comprise 
 
COMMITTEE ON INTERSTATE COMMERCE. 527 
 
 things which are forbidden by the laws. An act clearly defining the things which 
 are forbidden and unlawful in the relations of competitors in the conduct of interstate 
 commerce would greatly, perhaps completely, clear the situation, dispel existing 
 doubts, and restore most if not all our industries and commerce to complete prosperity. 
 
 Those are the sort of agreements that I had 'in mind when I pro- 
 posed that when made public they should be lawful until they are 
 challenged explicitly for contravention of the Sherman Act. 
 
 Senator Cummins. In a general way, the letter just read by you 
 from Mr. Towne expresses your idea about the matter, does it ? 
 
 Mr. Low. About that proposition; yes, sir. 
 
 Senator Cummins. Now, to return to the question that I had pro- 
 pounded to you when you read the letter. The combinations that 
 you think ought to be authorized are the combinations brought about 
 through those trade agreements which have for their purpose either 
 the limiting of the output or the establishment of prices directly. 
 In other 'words, you do not believe in a combination which brings 
 business within a common control and allows a central board to 
 operate the entire business which formerly had been operated by a 
 number of persons or corporations, do you ? 
 
 Mr. Low. I have tried to suggest that that commission should be 
 made the agenc} r for the administration of the public policy embodied 
 in the Sherman law, and in order that it may be effectively the agent, 
 it has got to have powers, it seems to me, to deal with every aspect 
 of the situation. 
 
 Senator Cummins. But you said, during the course of your state- 
 ment, that you did not believe in the holding company. 
 
 Mr. Low. I do not. 
 
 Senator Cummins. Therefore, a combination that was brought 
 about by a trade agreement, vested with the power of conducting the 
 essential parts of the business in the hands of a single board, I take it, 
 you would not approve because that is substantially the same thing, 
 and has the same result as the holding company ? 
 
 Mr. Low. I think there are a good many trade agreements that do 
 not attempt to do that. 
 
 Senator Cummins. Yes; I am not speaking of individual trade 
 agreements, but getting your idea generally. You do .not believe in 
 that kind of business, I take it, because that would be plainly and 
 obviously a combination in restraint of trade. 
 
 Mr. Low. I do not believe in combinations in restraint of trade, 
 drawing the distinction between restraint of trade and restraint of 
 competition. 
 
 Senator Cummins. I understand that. We know generally what 
 an arrangement in restraint of competition is, but I have never yet 
 found a man who could give a very comprehensive definition of what 
 a combination in restraint of trade is. 
 
 Mr. Low. That is why I think this commission should be created, 
 to examine each case on its merits, and to say whether it comes 
 within the purview of the Sherman law or not. 
 
 Senator Cummins. But putting aside now the detail of the admin- 
 istration of the law, I am trying to confine myself to what the law 
 itself should be. You believe that trade agreements which have for 
 their object the fixing of prices, either directly or indirectly, as 
 between those who enter into them, ought to be lawful ? 
 
 Mr. Low. Within limits, I do. 
 22877— vol 1—13 84 
 
528 HEARINGS BEFORE 
 
 Senator Cummins. I mean if the prices fixed are reasonable_ and 
 the practices to secure observance of the agreement are fair and just ? 
 
 Mr. Low. I do; yes, sir. 
 
 Senator Cummins. • Do you believe that an agreement of that sort, 
 which would include all the concerns interested in the particular 
 business involved, is right and just ? 
 
 Mr. Low. I do not believe it would be possible as long as the Sher- 
 man law remains on the books, because then, I think, it would run 
 contrary to the prohibition of monopolizing, which, it seems to me, 
 is an entirely different thing. 
 
 Senator Cummins. You would recognize a contract or agreement 
 that would unite in that way all the persons or corporations engaged 
 in the business as the establishment of a monopoly or attempted 
 monopoly ? 
 
 Mr. Low. I certainly should. 
 
 Senator Cummins. And therefore you do not favor any power 
 that would enable manufacturers or producers to bring about that 
 result ? 
 
 Mr. Low. Certainly not. 
 
 Senator Cummins. Then, if I gather your idea, it is that as between 
 a part, some reasonable part of those engaged in a common business, 
 you would permit trade agreements that would fix prices 1 
 
 Mr. Low. I should; yes, sir. 
 
 Senator Cummins. Have you any idea as to how long the terms of 
 any such agreement should continue? 
 
 Mr. Low. I should think three years. I would have it short. 
 
 Senator Cummins. Do you recognize that every such agreement 
 should have a period of termination, so that matters could be read- 
 justed periodically ? 
 
 Mr. Low. I think so, decidedly. 
 
 Senator Cummins. Can you give the committee any definite idea 
 of what proportion of the business might wisely be permitted to 
 combine m that way ? 
 
 Mr. Low. I doubt whether that is capable of answer in the abstract. 
 I think that if you will create an agency for definite application of the 
 Sherman law to a business as it stands and let that commission work 
 at the problem for three or four or five years, the country will know 
 and Congress will know how to legislate a great deal better than at 
 present, and I would trust in the meantime, as I say, very largely to 
 publicity. I should hope that we never would have to go further. 
 
 Senator Cummins. Your reason for excluding those trade agree- 
 ments which created a combination that would include the whole 
 field, I assume, is that there must be left outside of the combination 
 made by such an agreement enough corporations or persons engaged 
 in business to create competition ? 
 
 Mr. Low. Yes; I think so. I do not believe in any monopoly or 
 monopolization. 
 
 Senator Cummins. So that after all the basis of the suggestion which 
 you make is that there must remain all the while fair and reasonable 
 ■competition between those who are engaged in business ? 
 
 Mr. Low. I would maintain it if I could. 
 
 Senator Cummins. Very well. If we should enforce or can enforce 
 the law which you approve, namely, the law which prohibits monopoly 
 or attempted monopoly, then that would preserve or maintain the 
 opportunity for competition ? 
 
COMMITTEE ON INTEKSTATE COMMEECE. 529 
 
 Mr. Low. I should think so. 
 
 Senator Cummins. Now, inasmuch as the existence of opportuni- 
 ties for competition is the real basis in your suggestion, what wise 
 object is accomplished by allowing a part of the producers or sellers 
 or buyers — it might possibly be — to combine under a trade agree- 
 ment fixing prices ? 
 
 Mr. Low. I think Mr. Towne has expressed that very admirably in 
 his letter. I think business has found it a necessity. 
 
 Senator Cummins. I take it from what he says that his object is to 
 exclude competition as between those who enter into the agreement. 
 'Mr. Low. Yes. 
 
 Senator Cummins. I mean competition as to prices and output, etc. 
 
 Mr. Low. Precisely. 
 
 Senator Cummins. But if the price of the article or articles, what- 
 ever they may be, is in the end fixed by competition occurring between 
 those who are outside the agreement and those who are inside the 
 agreement, I can hardly see how the agreement is of much benefit. 
 
 Mr. Low. Well, it prevents destructive competition. 
 
 Senator Cummins. As between those who are parties to it? 
 
 Mr. Low. Yes; and because that much of the trade helps to main- 
 tain uniform prices. It practically, I assume, establishes the price 
 through a great part of the trade. But it leaves open competition in 
 quality and in service. 
 
 Senator Cummins. For instance, to give an illustration that has 
 often been made use of here since we began these hearings — the steel 
 business. You would say that the law ought to permit the United 
 States Steel Corporation and the Pennsylvania Co., and the Cambria 
 Co., and one or two others to enter into an agreement fixing the price, 
 we will say, of steel rails over a certain period; but that if the agree- 
 ment were extended so as to include all the producers of steel rails it 
 would be obnoxious to some wise policy oi trade. I do not quite 
 understand that discrimination or distinction. Possibly you could 
 make it a little clearer. 
 
 Mr. Low. I think there is all the difference between monopoly and 
 no monopoly. 
 
 Senator Cummins. Suppose those who are engaged in what is com- 
 monly known as the tonnage steel business were to form under two 
 combinations, through agreements of this sort, at liberty to compete 
 with each other, but not at liberty — I mean each combination at 
 liberty to compete with the other, but not at liberty to compete as 
 between themselves — do you think that would bring about a very 
 desirable condition in the business * 
 
 Mr. Low. I think if the course of action which I have suggested 
 were acted upon, that if you have a commission in position to say at 
 once whether what was proposed was contrary to the spirit of the 
 Sherman law or not, it would solve the problem. It seems to me that 
 whether such an agreement would be good or bad would depend upon 
 the price fixed, very largely. 
 
 . Senator Cummins. Suppose we can not simply say to the commis- 
 sion that you can approve of those things that are good and disap- 
 prove of those things that are bad, as you have suggested. We must 
 give the commission some definite rule. 
 
 ° Mr. Low. What better rule can you have than the Sheiman law, 
 the first two sections of the Sherman law % You expect all business 
 to conduct itself under that law. 
 
530 HEARINGS BEFOEE 
 
 Senator Cummins. Suppose all the producers of steel rails were to 
 unite in a trade agreement fixing the price at a reasonable one; 
 what would you say about such a situation? 
 
 Mr. Low. Well, I think that would be a very difficult question to 
 pass upon. 
 
 Senator Cummins. You said before that you would look upon it 
 as a monopoly. 
 
 Mr. Low. I would look upon it as a monopoly; but if a monopoly 
 does not act like a monopoly, is there any ban under the Sherman 
 law except that it may use its power to oppress, and if it does not 
 use its pcfwer to oppress, what advantage do you gain by breaking 
 it up ? 
 
 Senator Cummins. As I say, I do not intend to argue the matter, 
 but I want to get clear your views; then it seems to me that you 
 would have to reach the conclusion that this trade agreement might 
 include all the producers of a particular commodity or commodities, 
 and be objectionable to the law, only if the price or prices which are 
 agreed upon are unreasonably high? 
 
 Mr. Low. That might be wise legislation, but I do not tbink that 
 is the Sherman law. I think the Sherman law is that if it is a 
 monopoly it has got to be broken up. 
 
 Senator Cummins. We are considering now whether the Sherman 
 law should be in any wise amended or changed ; and the Sherman law, 
 as I understand it, prohibits agreements between half of the producers 
 fixing prices just as emphatically as it prohibits agreements between 
 all of the producers fixing prices. 
 
 Mr. Low. Well, I suppose that this commission would have to pass 
 upon that proposition m each particular case, according to the facts. 
 Don't you think so ? 
 
 ■ Senator Cummins. Then the substance of it is that if we amend the 
 law so as to vest any such power in a commission, we must permit 
 practically any trade agreements between business concerns which do 
 not unreasonably enhance prices ; or, if among buyers, do not unreason- 
 ably reduce prices. That is the end after all to be reached, is it not ? 
 
 Mr. Low. I suppose that is the idea of the Sherman law, is it not ? 
 
 Senator Cummins. I do not think it is quite; because I think that 
 an agreement fixing prices between those who are engaged in the busi- 
 ness might be objectionable to the Sherman law, even though the 
 prices fixed were very reasonable. The policy of the law seems to be 
 to prevent any such agreement lest the power to make them might 
 be abused. Therefore we will prohibit them entirely. 
 
 Mr. Low. I do not think the conclusion follows ; because I think you 
 can create, if you will, an agency to apply the Sherman law to each 
 particular case, and determine whether it is legal or illegal. 
 
 Senator Cummins. If I may be permitted to say so, I agree with 
 that part of your answer entirely, that there ought to be a trade 
 commission to administer a great many phases of the Sherman law, 
 or of any law that we may pass upon this subject, but we come back 
 always to the proposition that we must give that commission a guide 
 for its conduct, and we have got to say whether we will permit 
 agreements or combinations between business concerns that have 
 for their purpose the fixing of prices. That is the essential point. 
 
 Mr. Low. Why do you have to say that ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 531 
 
 Why not say that they are to administer those two sections of the 
 law, and let them decide, as the courts decide, whether an agreement 
 fixing prices in this way is contrary to the law or not ? 
 
 Senator Cummins. We might do that, but, in my opinion, we could 
 not accomplish anything except one thing, which I think would be 
 wise if it could be accomplished, namely, to advise business men in 
 advance whether what they propose to do was lawful or unlawful. 
 But we would not, after all, touch this question which you have 
 elucidated with so much clearness and so much strength, namely, 
 whether the modern necessities include an agreement, between 
 business men fixing prices or limiting output. That would still be 
 inhibited by the Sherman law, no matter by whom administered. 
 
 Mr. Low. If you think that any agreement which is intended to 
 fix prices and limit output is in violation of the first section of the 
 Sherman Act, then I think you should give power to the commission 
 to accept those limitations within certain limits. 
 
 Senator Cummins. As I understood it, that is the very point of your 
 statement, that inasmuch as business had developed and these 
 intimacies had been created, that it was essential that there should 
 be some way of business men getting together and agreeing between 
 themselves as to prices which they would charge or would pay for 
 certain commodities; that is the very point of it all, is it not? 
 
 Mr. Low. Yes; I do think that. I do not feel sure that that is 
 forbidden by the Sherman law. If the proposition is sound that 
 restraint of competition is not synonymous with restraint of trade, 
 there is room under that first section to give to the Sherman law, as 
 it stands 
 
 Senator Cummins. I do not contend, of course, to go into the deci- 
 sions of the courts with you upon this subject; that nearly every- 
 body is familiar, and I know you are, with the first case, I think it 
 was the first case that ever involved that point, as I remember — 
 namely, the Addiston Co. case, and that, as I remember it, involved 
 that very thing. 
 
 Mr. Low. I think that involved the partition of territory, and all 
 that. 
 
 Senator Cummins. So it did. It involved an agreement between 
 the competitors of the business which was intended to suppress or 
 annihilate that competition. Of course, an agreement between com- 
 petitors as to prices suppresses or annihilates that competition. 
 
 Mr. Low. You see that that took on very much of the attitude of a 
 monopoly within the district. Each one was to be supreme in a 
 certain territory. 
 
 Senator Cummins. While there are differences of opinion with 
 regard to the construction of the antitrust law, I agree with you in 
 your opinion that if it does not prohibit such an agreement as we 
 have been discussing, it ought to be amended so that it would not 
 prohibit. 
 
 Mr. Low. Yes; I am exactly of that opinion. 
 
 Senator Cummins. But you still say that such an agreement should 
 only be made between a part of the persons or corporations engaged 
 in the business ? 
 
 Mr. Low. Precisely. I do not think that there ought to be a 
 monopoly by agreement. 
 
532 HEARINGS BEFOKE 
 
 May I point out there, Senator, that such agreements involve the 
 cooperation of all of the capital that is invested. When that sort 
 of an agreement is made through a holding company, it involves a 
 very small part of the capital that is invested. 
 
 Senator Cummins. I think you are right in saying that there is a 
 difference between an agreement which includes only a part of the 
 business and an agreement that includes all of the business. There 
 is a very great difference between those two things. What I want to 
 make clear is that the agreement which you approve will leave com- 
 petition in full vigor for the purpose of fixing prices generally. 
 
 Mr. Low. I should be very sorry, indeed, to see competition oblit- 
 erated. I hope that day may never come. 
 
 Senator Cummins. And therefore it is your conclusion that this 
 opinion, which seems to be expressed quite widely now, that the day 
 of competition is over is not well founded ? 
 
 Mr. Low. I think, if I were to try to state it myself, I should say 
 that the day of unrestricted competition is over, because I think under 
 modern conditions that means the survival of the fittest, and that 
 means only of the largest and strongest. 
 
 Senator Cummins. Let us see about the survival of the fittest. 
 Suppose that a half a dozen concerns were to enter into an agreement 
 to fix prices, and assume that the prices fixed would permit the least 
 advantageously situated of the concerns to do business at a profit, 
 otherwise there would be no motive for that concern to enter the 
 agreement. 
 
 Mr. Low. Probably. 
 
 Senator Cummins. The effect of that is always, therefore, if not for 
 the purpose of sustaining the weak, that means that the public will 
 not get the benefit of the prices which could be made by the strongest 
 and the most advantageously situated of the concerns, but must 
 always pay the prices necessary to the profit of the weakest and most 
 poorly managed of the concerns. That is true, is it not ? 
 
 Mr. Low. I should not want to admit that without a good deal 
 of reservation. Broadly, the tendency might be so, but there is a 
 neighborhood service that it is very important should be retained, 
 and yet the neighborhood may only be served at a greater expense 
 than if every factory were close to the mines. I mean by that that 
 practically almost every case stands on its own footing, its own con- 
 ditions. Take the steel industry. I can remember when in almost 
 every large town in Massachusetts there was an iron works, and they 
 did the work of the neighborhood. They never attempted to reach 
 beyond that. Then, when transportation became better, it became 
 advantageous for those industries to move nearer to the source of 
 supply — the ore and the coal. And then, unless all of those local under- 
 takings, which had grown up and had become useful, were to be oblit- 
 erated, and all that they had stood for in the past were to be wiped 
 out, they came into combination in some large enterprise. That has 
 been the history of all such development. It has not been anybody's 
 intention; but it has been a perfectly natural development from one 
 condition of society to another. 
 
 Senator Cummins. It seems to me that the agreements that you 
 think ought to be made lawful will have a tendency to return the busi- 
 ness to the old and ineffectual way of doing; that is, if the agreements 
 are made for the purpose of enabling the weak to do business at a 
 profit. 
 
COMMITTEE ON INTERSTATE COMMEECE. 533 
 
 Mr. Low. Well, Senator, if you follow that argument to its con- 
 clusion, you will see that manufacturing will ultimately be done 
 by the strongest concerns, because while the strong alone are manu- 
 facturing at a profit everybody else would be losing. 
 
 Senator Cummins. I am a firm believer in the doctrine that the- 
 Government ought to allow every man to take care of himself, unless 
 some vicious and dishonest practices are directed against him. 
 
 Mr. Low. I think the less interference by Government there is the 
 better, but I think the Government must interfere within certain; 
 limits. 
 
 Senator Cummins. And, therefore, I do not see how you reconcile 
 your view with this situation. Suppose we have a dozen steel mills 
 represented in this room, their representatives sitting in this room for 
 the purpose of making a trade agreement to fix the price on steel rails. 
 The United States Steel Corporation says — this is merely a hypo- 
 thetical case, of course — "We can produce steel rails and sell them" 
 profitably at $24"; and another concern says: "I can not do that; 
 if we put the price at $24 I will have to go out of the business. In 
 order to enable me to continue in business the price must be $28 a 
 ton."_ The United States Steel Corporation says: "I do not desire 
 to drive you out of business; therefore I will agree," and they all 
 agree to sell steel rails at $28 a ton. Now, do you think that brings 
 about a healthful condition in business affairs ? 
 
 Mr. Low. I think it is very much better than having the United 
 States Steel Corporation drive everybody else out and do the whole 
 business, because I think it is to the public interest to have more than 
 one party doing business. Otherwise, when the Steel Corporation is, 
 the only survivor, it can sell at any price. Therefore I would permit 
 the thing to be done, but I would have it done publicly and under 
 Government supervision, so that the common price agreed upon 
 should not be unfair to the public. 
 
 Senator Cummins. Suppose you were sitting as one of these 
 commissioners, and an agreement were presented to you for your 
 approval or disapproval, would you approve a price at which the 
 large concern could sell profitably, or would you approve a price, 
 that was necessary to include the small concern to sell profitably ? 
 
 Mr. Low. Of course, I think that anyone sitting on such a case, 
 would have to go into the matter a great deal more carefully than, 
 can be done around this table. All, the circumstances of the situa- 
 tion would have to be considered. You would have to consider 
 the effect of closing this factory, the effect on the community, the 
 effect on the transportation systems, and all that sort of thing. 
 And if I felt that it was in the general interest of the public to have 
 companies continue in existence which could not continue if the 
 United Steel Co. named the lowest possible price, I should certainly 
 approve an agreement which permitted the enterprise you speak of 
 and others to remain in the field. 
 
 Senator Cummins. That situation is found in every business, 
 unfortunately. We had here the other day a very intelligent and 
 well-informed gentleman who was discussing the coal business. 
 Take the coal mines. Here they are, side by side; one with a capital 
 of $2,000,000 and another with a capital of $75,000. He said that 
 the large concern could put coal on the market, I think, at 15 or 18 
 or 20 cents a ton less cost than the small concern; possibly more 
 than that. That is more than a fair profit. 
 
534 - HEARINGS BEFORE 
 
 Senator Pomerene. Senator, his figures were 6 cents. 
 
 •Senator Cummins. No; I think he said 
 
 Senator Townsend. I think he said 9 cents. 
 
 Senator Cummins. He said it could be produced in the mine at 
 6 or 9 cents a ton cheaper, and then the cost of selling 
 
 Senator Pomerene. Pardon the interruption 
 
 Senator Cummins. Have you such a case as that before you ? Do 
 you think the price of coal to the consumer should be adjusted with 
 reference to the cost of the small producer ? 
 
 Mr. Low. I should not think that it ought to be adjusted from the 
 point of view of the producers alone. I think it should be fixed 
 from the point of view of the public interests, and where you come to 
 a product like coal, which is a natural resource, which can not be 
 reduplicated, I think it is very unfortunate to have the coal taken 
 out of the eai th more rapidly than it ought to be. I think it is taken 
 out very wastefully very often. When you compel the people who 
 are not well situated to compete with those who are stronger, I think 
 you get a series of considerations there that have very great weight, 
 indeed. 
 
 Senator Cummins. I dismissed those considerations because I 
 agree that they ought to enter into the regulation of any coal busi- 
 ness. Suppose we have a coal company with a capital of $2,000,000 
 in one part of Pennsylvania, and a company with a capital of 
 $2,000,000 having the same facilities in every way in another part of 
 Pennsylvania, but owing to the circumstances of mining that it 
 costs one of these companies, for instance, 10 cents a ton more to 
 put its coal on the market than the other, and they come together and 
 they agree that they will fix the price so that the least fortunately 
 situated of the mines can do business at a profit. Do you think that 
 the Government ought to help along that sort of a readjustment of 
 affairs ? 
 
 Mr. Low. I do not think that it is possible to answer a question 
 like that abstractly, Senator. I think we have to go into every pos- 
 sible element that enters into the problem. I think that there should 
 be a commission which could say that it could be done or that it could 
 not be done. 
 
 Senator Cummins. You recognize, anyhow, that this plan involves 
 ultimately the power on the part of a governmental commission or 
 board to fix these prices ? 
 
 Mr. Low. It may, in exceptional cases, where conditions are prac- 
 tically those of a monpooly, just as it does for public franchise cor- 
 porations. I should hope that we could get along under publicity 
 for a long while. If we can not, why, then, I think you would hav8 
 to go to the full extreme. 
 
 Senator Cummins. I, of course, have not been including in my 
 questions, and I have not had in my mind the public utility corpora- 
 tions which are, and must be treated oftentimes and generally as 
 monopolies. 
 
 Mr. Low. I think I stated at a meeting where you were present, 
 Senator, that New York State fixed the pries of gas. And is it any 
 easier to fix the pries of gas than to fix the price of coal ? 
 
 Senator Cummins. Of course, the Government has undertaken 
 everywhere, both Federal and State, to fix the price or prices of these 
 pubtic utility services. I think that is a very well-recognized rule. 
 
COMMITTEE ON INTERSTATE COMMERCE. 535 
 
 Mr. Low. I think so, too. 
 
 Senator Cummins. But you do not believe that the same rule ought 
 to be applied to industrial affairs, private industrial affairs, of the 
 country '( 
 
 Mr. Low. Not at large. The point of my illustration was that I 
 think that if the trend of events is such that the Government has to 
 deal with these great private undertakings upon the theory that they 
 are like public utilities in their relation to other affairs, I do not think 
 it is impracticable. I think, as I said before, that it is no more dif- 
 ficult to say what is a proper price for gas in the city of New York 
 than to say what is the proper price of coal at the mines in Penn- 
 sylvania. 
 
 Senator Cummins. Possibly I do not quite understand you. When 
 the Government attempts to fix the price of gas, there are certain 
 standards that are accepted, namely, that the gas ought to be sold at 
 a price that will pay the cost of maintenance and operation and return 
 a fair interest or reward upon the capital which is invested in the 
 enterprise. But you do not agree that there is any such standard as 
 that with regard to the profits that ought to be made out of the mining 
 and selling of coal, do you ? 
 
 Mr. Low. No; I do not think there is. There may never come any 
 such; but I can imagine conditions which will make it desirable for 
 the Government to take the same attitude toward coal or ore. 
 
 Senator Cummins. One can imagine those things. I think that is 
 true. But you do not want to hasten 
 
 Mr. Low. No; I do not. 
 
 Senator Cummins (continuing). The time when the Government 
 shall attempt to find a standard for the reward of private capital 
 engaged in private business ? 
 
 Mr. Low. No; I do not. 
 
 Senator Cummins. I am very much obliged to you for your answers. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. Before I ask any questions, I should like to cor- 
 rect an impression made by Senator Cummins's question regarding 
 Mr. Vinson's testimony. As I understood it, his argument was to 
 the effect that trade agreements between the coal companies was to 
 reduce the cost of production of the small producers; that was the 
 basis of his argument. Is that correct ? 
 
 Senator Cummins. I think so; and sale. 
 
 Senator Watson. Mr. Low, would you have this interstate trade 
 commission regulate capitalization of these corporations ? 
 1 Mr. Low. I should certainly have them pass on the capitalization 
 of new corporations. 
 
 Senator Watson. How about the old ones ? 
 
 Mr. Low. I think the old ones would have to be dealt with from 
 quite a different point of view. There is a good deal to be said in 
 favor of letting bygones be bygones and protecting the future. For 
 instance, take the United States Steel Corporation. I can not see 
 the slightest public advantage in breaking that up now. I wish it 
 had never been formed in the way in which it was formed. But 
 being here, I think the effect of breaking it up would be mainly to 
 give to the large interests in that association an opportunity, almost 
 inevitably, to make money again at the expense of the small stock- 
 Holders, just as a great deal of money vas made by those who sold 
 the watered stock to the original stockholders. 
 
536 HEARINGS BEFORE 
 
 When you are dealing with a situation "in being" I do not think 
 you can take exactly the same attitude which you would take with 
 reference to the future. 
 
 .Senator Watson. Do you think that Congress could pass any 
 law that will compel or create general or unlimited competition ? 
 
 Mr. Low. I do not. I think that if that is attempted there will 
 be those agreements, as Mr. Untermyer said the other day, that 
 you can not get at. That is why I suggested that all secret agree- 
 ments should be made unlawful, and all agreements that are made 
 Eublic should be made lawful until they are discredited under the 
 herman law. N 
 
 Senator Watson. Then it would be the business of this commission 
 to regulate competition or monopoly ? 
 
 Mr. Low. Yes, sir. I think they would have to say, in effect, 
 in each particular case, whether it was monopolizing. If it were 
 monopolizing, I should suppose they would have to correct it. If 
 it were not monopolizing and the prices were not unreasonable, I 
 should think that they would let it alone. If there be doubt of 
 their ability to do so under the Sherman law, I would like to see 
 the law changed so that they would have undoubted ability to do so. 
 
 Senator Watson. That is" all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Mr. Low, you used the expressions "merg- 
 ers" and "combinations." What do you mean by "merger" ? 
 
 Mr. Low. I mean by mergers, where different companies are united 
 into one. By combinations, I mean the cooperation of companies 
 that remain independent. 
 
 Senator Brandegee. And the trade agreements which you would 
 have this commission legalize would be agreements between mergers 
 or combinations ? 
 
 Mr. Low. Between independent factors in business. It might be 
 practicable to limit them to the smaller concerns and not allow it to 
 the larger. But it has always been difficult to discriminate only 
 by size. 
 
 Senator Brandegee. If I understand you correctly, your proposi- 
 tion would be that the commission, when organized, should pass 
 upon the policy of the Government, or the public policy to be pursued 
 under the Sherman law ? 
 
 Mr. Low. Precisely. 
 
 Senator Brandegee. I did not quite get the distinction of passing 
 upon the public policy to be pursued, as distinguished from the 
 decisions of the Supreme Court as to what the intent of the Sherman 
 law was. 
 
 Mr. Low. Of course, the commission would have to be guided by 
 the decisions of the Supreme Court. I suppose it would have these 
 different functions: First, it should be the agent, I think, for disin- 
 tegrating combinations that the Supreme Court says must be disin- 
 tegrated. It is a much better agency than the court itself. It is the 
 only agency that I can conceive of that can go into that matter 
 thoroughly and do it well. 
 
 In the next place, I think that it ought to be authorized to confer 
 with companies that think they may be operating contrary to law,, 
 and agree, subject to the approval of the court, to such modifications, 
 either of their organization or of their methods of doing business, as 
 they may think proper. 
 
COMMITTEE ON INTERSTATE COMMERCE. 537 
 
 Senator Brandegee. Subject to the approval of what? 
 Mr. Low. Subject to the approval of the court. In other words, I 
 do not think you should give the commission the final word as to the 
 reorganization of a company that wants to reorganize voluntarily. I 
 think they should approve the plan, as now the Attorney General has 
 to, and then submit it to the court, as was done in the tobacco case, 
 because that was the instruction of the court. But there are cases, 
 I judge from the press, where the Attorney General has been asked to 
 consider whether such and such a plan of reorganization is within the 
 law; his attitude has been that he will give his opinion, but that it 
 must go to the court for confirmation. I think that is a function that 
 this commission should have ; and that it would be much better fitted 
 to do that than the Attorney General. He is only one man, with a 
 great many other duties to perform. This commission would be com- 
 posed of a number of men, presumably selected for their fitness for 
 the work, and they would be able to talk it over; and, having nothing 
 else to do but administer the Sherman law, they would soon become 
 very expert. 
 
 That covers the case of all those who are condemned, and of all 
 those who may want to reorganize voluntarily, because they think 
 the decisions of the court make that desirable. 
 
 You will have to deal, I think, with a great many trade agree- 
 ments, such as we have been discussing, that exist in fact. I do not 
 know that they exist in writing, but I believe that they exist in fact. 
 How are you going to make the business men who are involved in 
 that sort of thing know what the Sherman law means to them? I 
 think this commission is the agency through which you can do that. 
 
 My proposition was that agreements that are not filed should be 
 unlawful. Every business man knows whether his agreement is filed 
 or not. It is a perfectly clear rule of action or conduct. Then I 
 would make agreements that are filed lawful until they are shown to 
 be contrary to the Sherman act. 
 
 Now, then, that validates all sorts of agreements, if you please, 
 some of which may be harmless and some very objectionable. It 
 only validates them, however, until this commission can pass upon 
 them. 
 
 I would not have this commission say to those who have an obnox- 
 ious agreement, simplv "That is contrary to the Sherman Act." I 
 would like to have it say that it is contrary to the Sherman Act for 
 such and such reasons, just as the Interstate Commerce Commission 
 does — that such and such a practice is contrary to the Interstate Com- 
 merce law for certain reasons — and then give the parties to tha agree- 
 ment a chance to amend their agreement. If they bring their 
 agreement witnin the purview of the act as interpreted by the com- 
 mission, I would let it stay lawful. If the commission thinks it is 
 wrong, I would let the court say whether it is right or wrong. 
 
 That would cause no interruption or check to the business of the 
 country that is now going on perhaps in a questionable form. 
 
 If the suggestion is made that judgment must be rendered on the 
 merits before anyone can get a license, I think you would bring 
 business to a standstill. One or two cases could be quickly passed 
 upon, but my impression is that this practice is on a \ery much 
 larger scale than can be quickly passed upon. I should ims gine that 
 it would be two three, four, or five years before the commission could 
 
538 HEARINGS BEFORE 
 
 ^pass upon every agreement that would be filed with it, Under my 
 •suggestion the merchant would know that until his agreement was 
 declared contrary to the Sherman law he was free from attack. When 
 it was declared unlawful he could either amend his agreement in a 
 way to come under the law, or he could challenge the application of 
 the law and go to the courts and let them decide. 
 
 That is my theory of it. Then by giving the commission access 
 to the books of the concerns that are nationally incorporated, or 
 federally licensed, or who are parties to such an agreement, I think 
 that the commission could very quickly learn whether there were 
 secret agreements in force of which they knew nothing, because in 
 this way they could very easily learn when a large number of people 
 were selling at the same price or raising prices at the same time. 
 Information is the basis of wise action. In other words, I would look 
 upon that commission as an agency to administer the Sherman Act 
 in detail and to bring its significance home in detail to every man 
 who thinks he is affected by it. There is no other agency that can 
 do it. Qf course you, can imagine a suit being brought in court in 
 «very one of these cases, but that is interminable. What business 
 wants is something that settles promptly the basis on which business 
 can be carried on lawfully in this country. Most business men want . 
 to obey the law. They do not want to disobey it, but when the law 
 is uncertain then there is great trouble. > 
 
 Senator Brandegee. Have you reduced this plan of yours to 
 writing ? Have you attempted to formulate a statute providing for 
 the creation of such a commission as you have suggested and clothing 
 it with powers ? 
 
 Mr. Low. The National Civic Federation has appointed a com- 
 mittee, of which Mr. Untermyer is a member and of which I myself 
 am a member, and we and others are at work on that. I do not know 
 whether we shall agree among ourselves. Some of these propositions 
 that I have made to-day I have made for the first time here, but I 
 hope that we may agree and submit to the committee later, if not 
 one proposal, perhaps two alternative proposals, worked out in detail, 
 so that you can see exactly what we, have in mind. 
 
 Senator Brandegee. The reason I have asked that is because it 
 is so much easier to discuss a definite proposition reduced to writing 
 than it is general ideas. 
 
 Mr. Low. Naturally. 
 
 Senator Brandegee. Let me ask you a few questions and see if I 
 can grasp your plan a little better than I think I do now. Would 
 you recommend the establishment of this commission as a corrollary 
 to the Federal incorporation act or as an entirely separate thing ? 
 
 Mr. Low. I should have it deal with the whole question of inter- 
 state commerce as it is affected by the Sherman law. 
 
 Senator Brandegee. I mean, do you intend to recommend both ? 
 
 Mr. Low. Oh, yes; both. 
 
 Senator Brandegee. If there could not be a Federal incorporation 
 act, either permissive or mandatory, would you still recommend the 
 creation of this commission to inform people in advance as to their 
 trade agreements under the Sherman law ? 
 
 Mr. Low. I should. 
 
 Senator Brandegee. It seems to me that the two are not neces- 
 sarily connected. 
 
COMMITTEE ON INTERSTATE COMMERCE. 539 
 
 Mr. Low. No; not in any way. 
 
 Senator Brandegee. Then if the commission were in existence now 
 any number of parties in business could get together and formulate 
 an agreement regulating prices and practices, and upon the mere 
 filing of it with the commission it would be legal, no matter what its 
 provisions were ? 
 
 Mr. Low. If it affected prices and output it would be legal until 
 it could be passed upon. 
 
 Senator Brandegee. What I mean to lead up to is this: If I under- 
 stood you correctly, the mere filing of it before the commission legal- 
 ized the combination or agreement ? 
 
 Mr. Low. I should say so until it was shown to be contrary to the 
 Sherman law. 
 
 Senator Brandegee. And there being thousands and thousands of 
 these understandings in the nature of agreements, not reduced to 
 writing, in operation at present, any agreement that any combina- 
 tion wanted to form and submit to the commission would, ipso facto, 
 become legal, irrespective of its terms, until these thousands upon 
 thousands of agreements could be adjudicated one by one by the 
 commission ? 
 
 Mr. Low. I think that is better than the present situation. 
 
 Senator Brandegee. I mean that would be the effect of it ? 
 
 Mr. Low. Yes; that would be the effect of it. 
 
 Senator Brandegee. When a certain proposed agreement was sub- 
 mitted to the commission you would say it should be legalized and 
 exempt the proponents of it from prosecution under the Sherman 
 Act, as I understand it, until it was set aside by the commission ? 
 
 Mr. Low. That was my suggestion. Of course, in the bill it would 
 be very easy to limit that by saying: "Agreements made before 
 such and such a time and filed within such and such a time." 
 Practically, I think it is necessary in business to bring publicity 
 to bear upon actual practices of business and then pass upon them. 
 
 Senator Brandegee.' I think I understand your view about that. 
 I am simply restating it, as I understood you, to make sure I under- 
 stood you. Now, you say the agreement when proposed should be 
 acted upon by the commission when it was able to give it its atten- 
 tion under the advice of the court, or subject to the approval of the 
 court, or some such phrase as that. How aid your scheme propose to 
 get it before the court ? 
 
 Mr. Low. I proposed that this commission should adopt the 
 practice of the Interstate Commerce Commission, which has very 
 general phrases to guide it. If that commission becomes aware of a 
 practice which they think is obnoxious to those general phrases, the 
 practice of that commission, as I understand it, is to call the atten- 
 tion of the parties concerned to the fact that in the judgment of the 
 Interstate Commerce Commission that practice is obnoxious to the 
 law. f i hat brings the general phrase of the law home to a particular 
 ense. If the railroad concerned thinks that the commission is right 
 they modify their practice. If they think it is wrong then the com- 
 mission makes a ruling finding them at fault, and then the case comes 
 up to be decided by the court, lhat, I think, is the practice. 
 
 Senator Brandegee. I do not think you quite understood my 
 question. Perhaps I can ask a different question and get the infor- 
 mation I want. Is it your idea that the commission should have the 
 
540 HEARINGS BEFORE 
 
 right — the agreement being legal on the mere filing — that there 
 would be no court review of that at that time? 
 
 Mr. Low. No. 
 
 Senator Brandegee. Nor by the commission at all. Subsequently, 
 if the commission took it up and thought it was a legal agreement 
 and should not be interfered with, then, with this combination that 
 had filed the agreement be subject to attack by the Attorney General, 
 to get the construction of the Supreme Court upon whether the 
 Sherman law was being violated or not ? 
 
 Mr. Low. I should think not, if they had approved of it. If they 
 had disapproved of it, I think my suggestion was that they should 
 have authority to ask for an injunction to prevent the agreement 
 being kept in force any longer until passed upon by the court. 
 
 Senator Brandegee. You say that you would let the Sherman law 
 stand as at present, and that you think on the whole it is a wise 
 statute and a wise public policy, and yet if I understand you, your 
 plan would involve setting up a commission that would really have 
 authority to exempt any combination which, in their judgment, 
 should be exempted from the operation of the law. 
 
 Mr. Low. I think it depends upon the real significance of the 
 court's decision. I do not understand that they would have any 
 authority to approve what the courts had declared to be unlawful, 
 and I suppose that if the Attorney General thought they had, he 
 could take it into court. 
 
 Senator Brandegee. That brings me to this inquiry: Does your 
 scheme involve any procedure by which the judgment of the com- 
 mission in approving of the agreement proposed can be immediately 
 reviewed and attacked in court ? 
 
 Mr. Low. If that were thought desirable it could be easily included. 
 
 Senator Brandegee. If it did provide for such an attack, what 
 would be the advantage of it in allowing the honorable business men 
 to conduct business without being subject to prosecution by the 
 Sherman law ? 
 
 Mr. Low. Well, I think, in the first place, that it would be a specific 
 practice that would be called into question. 
 
 Senator Brandegee. Suppose it was not. Suppose the contention 
 of the Attorney General, after the commission had set the seal of its 
 approval upon the proposed agreement, was that the entire agree- 
 ment at almost all points violated the Sherman law and the com- 
 mission was utterly mistaken ? 
 
 Mr. Low. Well, that is conceivable, but I do not believe it is very 
 likely to happen. I mean by that that I think after the commission, 
 composed of capable men, had gone into the case in great detail, the 
 instances would be very few indeed where it would be questioned by 
 the Attorney General. I do not know whether I should object to 
 letting their decision be final under the law. I can imagine some 
 might think there should be an appeal to the court. 
 
 Senator Brandegee. My idea is that if the decision were final upon 
 the judgment of the commission there would be no chance to test the 
 operation of the Sherman law, so far as any agreement was concerned 
 that had been approved by the commission. That takes the whole 
 construction of the Sherman law away from the courts and gives it 
 to a commission. 
 
COMMITTEE ON INTERSTATE COMMERCE. 541 
 
 Mr. Low. It gives it to a commission much better qualified than 
 the court to pass upon detailed questions, I think; much better in 
 fdrm. But even if there would be an appeal to the court as the final 
 arbiter, I think the business man gains a great deal. He knows that 
 what he is doing can not be the foundation of criminal proceedings 
 against him until it has been shown that he is at fault. You cer- 
 tainly could not attack a business man for making an agreement 
 that was finally overthrown under those conditions — I mean you 
 could not attack him criminally. 
 
 _ Senator Brandegee. But under your plan would it not be pos- 
 sible that a great many agreements might be operated for years 
 before the courts would have a chance of saying that they were 
 illegal ? 
 
 Mr. Low. I think so, but that is the case now. Suppose we do not 
 do this, how is the Attorney General, through the ordinary processes 
 •of litigation, to determine that question ? For one that will be taken 
 into court there will be hundreds that are never taken in. It seems 
 to me that is one great defect in the present situation, that a man can 
 be discriminated against here, and a man can be discriminated 
 against there, whereas by the proposal which I have in mind every- 
 body concerned is passed upon sooner or later. 
 
 Senator Brandegee. But while two or three or four are being 
 passed upon by the Supreme Court, there would be discrimination in 
 picking out the three or four that are prosecuted and tested while the 
 others were left to go on, would there not ? 
 
 Mr. Low. Yes but I am afraid that is inevitable. It would be 
 better than it is now. because the commission's propesses would ulti- 
 mately cover the whole problem. 
 
 Senator Brandegee. It has been proposed here by some gentle- 
 man who appeared before us to in general terms pass a law that no 
 corporation engaged in commerce among the States shall continue 
 in that commerce until their capital stock shall have been reduced, 
 so as to be issued for value; that no corporation with watered capital 
 stock should continue in commerce among the States. What would 
 you think would be the wisdom of such a statute ? 
 
 Mr. Low. I think that any attempt to deal with the business of 
 the United States in that fashion, so as to say "business must stop 
 until some one has procured a license " or lias done this or that, 
 would produce chaos. Supposing we take all the great meat 
 
 E ackers — for example, are you going to prevent the people of the 
 United States from having meat because the packers can not get a 
 license ? 
 
 Senator Brandegee. I did not speak about a license. I meant 
 what would you think of a public policy of Congress saying to cor- 
 porations engaged in commerce among the States, which are those 
 which we have jurisdiction to legislate: "You shall not continue 
 with that commerce until you have squeezed the water out of your 
 stock," to put it in common parlance ? 
 
 Mr. Low. I should say that there should be a compulsory or per- 
 missive incorporation law or a license and that this commission to 
 be appointed should have authority to correct evils of that kind as 
 soon as it can. But I do not think you can take the business of this 
 country and hold it up abruptly until it does something by any 
 process whatever. It has to keep on, and you have to correct it 
 while it is going. That is my opinion. 
 
542 HEARINGS BEFORE 
 
 Senator Beandegee. Suppose you had a Federal incorporation act 
 in existence, and companies already in existence, with their existing 
 securities, desire to incorporate under it, and the Federal incorpora- 
 tion act should provide that any company incorporated under it 
 should not transact business among the States unless it should reduce 
 its capital to such an amount as the commission thought was a rea- 
 sonable sum, or to such amount as had actually been paid in cash. 
 What would you think about the wisdom of such a statute, such a 
 Federal incorporation act ? 
 
 Mr. Low. My answer would have to be divided into two parts. If 
 it were a condition precedent for the continuing in business, I think it 
 would work very badly, because I do not think you could stop busi- 
 ness by any artificial requirement like that. It has got to go on. 
 
 As a requirement under a Federal license or a national incorpora- 
 tion bill, I think there ought to be provisions to control capitalization. 
 I think that the public — investors, perhaps, more than the public—- 
 and, yet, indirectly the public, have suffered greatly from all absence 
 of control in the past. 
 
 Senator Beandegee. So do I; but my idea was whether that con- 
 trol of the capitalization should be limited to companies that are to be 
 formed, or should attempt to correct the overcapitalization in com- 
 panies formed heretofore. 
 
 Mr. Low. I think my instinct would be to leave what is, alone. I 
 do not believe you can go backward and correct mistakes very advan- 
 tageously; but I should apply those things to new companies 
 certainly. 
 
 Senator Beandegee. Do you make any distinction between a Fed- 
 eral license and a Federal incorporation act ? 
 
 Mr. Low. I think Federal incorporation for companies that are 
 really national — I mean by that, get their money all over and have 
 their plants everywhere — is much better than a license, because I 
 think it gives more complete control to the Government. You would 
 have the same control over such corporations as you have over a 
 national bank. 
 
 Senator Brandegee. But your license would be a compulsory 
 affair? 
 
 Mr. Low. I think it would have to be for the limit that is agreed 
 upon, whatever that is. 
 
 Senator Beandegee. That is, if it were adopted, it would be upon 
 the theory that no corporation engaged in commerce among the States 
 should continue in such business without taking out a Federal license ? 
 
 Mr. Low. Yes, sir. 
 
 Senator Beandegee. If you make it a compulsory act it would be 
 a similar thing to that, would it not ? 
 
 Mr. Low. Only it would give the Federal Government more control. 
 
 Senator Beandegee. It would compel them to recognize Govern- 
 ment supervision ? 
 
 Mr. Low. I think so. I think that is essential. I do not believe 
 you will make any progress without that. I think the Federal 
 license has this advantage over incorporation, that it would do a great 
 deal to bring about uniformity in legislation in the States in the 
 matter of charters. 
 
 Senator Beandegee. Why would it do more than a Federal incor- 
 poration act, a compulsory act ? 
 
COMMITTEE ON IKTERSTATE COMMERCE. 543 
 
 Mr. Low. It could not do more than that. I do not think it would 
 do as much, because in that case the Federal incorporation act would 
 supplant the State incorporation act. The Federal license, I suppose, 
 leaves the State chartei in existence and simply imposes new 
 conditions. 
 
 Senator Brandegee. Some companies would ask for Federal incor- 
 poration, perhaps, to continue. A State business alone ? 
 
 Mr. Low. I think that might be so. I would want simplicity and 
 not a duplication of control. 
 
 Senator Brandegee. You would then compel corporations 
 engaged in interstate commerce among the States to surrender their 
 State charters and take out a Federal charter ? 
 
 Mr. Low. No, sir. I said permissive incorporation; but com- 
 pulsory license, as I understand, leaves the State charter subject to 
 certain conditions. 
 
 Senator Brandegee. My question was, What would be the differ- 
 ence between compulsory license and a compulsory incorporation act ? 
 
 Mr. Low. They ought to aim at the same things. 
 
 Senator Brandegee. Would it not be possible to put the conditions 
 of your Federal incorporation act or charter exactly as the terms of 
 your license were? 
 
 Mr. Low. I think they ought to be substantially identical. 
 
 Senator Brandegee. In your opinion, therefore, is it not practi- 
 cally the same tiling whether it is a license or on act of incorporation, 
 provided that the conditions and terms are the same. 
 
 Mr. Low. No; I do not think so. Of course the conditions that 
 would have to be in a license would only cover part of the activities 
 of the corporation; and the corporation, as long as it has a State 
 charter, is subject to the State in a great many other ways. It 
 would simply be where it touched interstate commerce that it must 
 have those provisions. Of course, if a State corporation gives up its 
 State charter and takes out a Federal charter, then it is no longer 
 subject to that sort of control by the State. A very evil part of our 
 present system is that of States competing against each other to 
 make bad corporation laws. They give, for instance, exceptional 
 freedom of liability to their stockholders. They reduce the period 
 within which claims can be brought against directors, and all that 
 sort of thing. 
 
 Senator Brandegee. You are in favor, if I understood you, of a 
 compulsory Federal incorporation act ? 
 
 Mr. Low. I would much prefer it, if I thought it were practicable. 
 
 Senator Brandegee. What do you think would be the induce- 
 ment which would actuate a corporation having a State charter which 
 was satisfactory to itself now, to voluntarily submit to Federal incor- 
 poration ? 
 
 Mr. Low. I think it might very easily prefer to have one master 
 for the whole country, where its interests were national, than to be 
 subject to the control of a single State. 
 
 Senator Brandegee. But if the control of the single master was 
 to be strict and the control of the State was loose, why would the 
 corporation prefer to be more closely restricted ? 
 
 Mr. Low. I think the motive would be to stand better with the 
 people of the United States and have a better standing in the finan- 
 cial world. 
 
 22877 — vol i—12 35 
 
544 HEARINGS BEFORE 
 
 Senator Brandegee. Well, then, if that motive would be suffi- 
 ciently strong to induce thern to come under a permissive Federal 
 incorporation act, what is the objection to a compulsory Federal 
 incorporation act ? 
 
 Mr. Low. I know of no objection to a compulsory Federal incor- 
 poration act, except the difficulty of passing it against the objection 
 of the States. 
 
 Senator Brandegee. You do not think it would be the corpora- 
 tions but the States who would object to it. 
 
 Mr. Low. I think that is it exactly. I think the corporations in 
 most instances would welcome it. 
 
 Senator Brandegee. I am glad to have that distinction. That is 
 all I care to inquire. 
 
 The Chairman. Senator Pomerene. 
 
 Senator Pomerene. Doctor, I do not know that I quite understood 
 you. Your thought is to file an agreement which may be made 
 between some corporations with this interstate trade commission 
 and that fact would validate anything which had theretofore been 
 done under the agreement, or which might be done under the agree- 
 ment, until such time as the interstate trade commission should 
 decide otherwise ? 
 
 Mr. Low. I do not think I should make it retroactive. I should 
 make it from that date on. 
 
 Senator Pomerene. Now, you realize that by the adroitness of 
 counsel, by reason of the accumulated condition of the docket, by 
 reason of the plea that it might take a considerable time to prepare 
 the case for submission, necessarily months, if not years or longer 
 might elapse before there could be a final decree as to the validity or 
 invalidity of that agreement ? 
 
 Mr. Low. I do; yes, sir. 
 
 Senator Brandegee. And assuming now that the purpose of the 
 parties to the agreement was ulterior, that they had some particular 
 transaction before them and in mind, do you not feel that the mis- 
 chief might be done between the time of the filing of the agreement 
 and the time that a decree, might be entered ? 
 
 Mr. Low. I doubt it very much. You perhaps did not notice that 
 I propose that all future mergers and future combinations should be 
 subject to the control of this commission before they could be made. 
 Therefore, if this ulterior object were involved from its 
 
 Senator Pomerene. But this is my t ought: Suppose your con- 
 spirators, if I may name them as such to make myself clear — if they 
 formed their agreement, it is going to take them a little time to accom- 
 plish the things they had in mind at the time of the agreement, and 
 all that they want now is to stay the hand of the law until they can 
 accomplish their purpose. Now, under the scheme you propose would 
 not they put themselves in a position where they would not be 
 amenable to the penalties of the law ? 
 
 Mr. Low. Well, I think it is very doubtful whether any such thing 
 could happen. 
 
 Senator Pomerene. I recognize that is an extreme case, but we 
 test the law by suggesting extreme cases. 
 
 Mr. Low. My impression is that the moment such an agreement 
 were made public it would be criticized; and if it were evidently a 
 conspiracy of that character I think the commission would take hold 
 of it very quickly. 
 
COMMITTEE ON INTERSTATE COMMERCE. 545 
 
 _ Senator Pomerene. You assume that the people who might be 
 injured thereby would have knowledge of this agreement ? 
 
 Mr. Low. I do. 
 
 Senator Pomerene. And what was to be done under it ? 
 
 Mr. Low. They might not understand all its complications and 
 implications, but they would know what was in the agreement. At 
 the present time those things are done secretly and nobody knows. 
 
 Senator Pomerene. Now let me see further. Did I understand 
 you correctly as taking the position that the Sherman law was in 
 part responsible for the present combinations and conditions? 
 _ Mr. Low. Yes, sir; I said that. I think it is the most important 
 single agent that has brought them into being. 
 
 Senator Pomerene. I wish you would explain why you so think. 
 
 Mr. Low. Because the tendency on the part of business has been 
 to combine for many years. When the Sherman law was passed it 
 forbade a combination by way of trust, and therefore the trusts — 
 the Standard Oil Co. was condemned in your State, was it not? 
 
 Senator Pomerene. It was. 
 
 Mr. Low. It was condemned in your State and it reorganized as a 
 new company in New Jersey, and in that particular case it was your 
 State action that compelled the change of form. Now, when they 
 could not form a trust they began to form pools, and my recollection 
 is that the Supreme Court declared that those were contrary to the 
 Sherman law. 
 
 Senator Pomerene. Yes. 
 
 Mr. Low. That set the wits of the legal profession at work to see 
 how the thing that business men wanted to do could be done in a 
 way not coming under the condemnation of the Sherman law; and in 
 a great number of cases, I assume, they thought that if they could 
 concentrate in one corporation the different enterprises that before 
 had been acting together in some sort of combination like a kartel, 
 as they call it in Germany, they could probably escape the condem- 
 nation of the Sherman law, because there would be not a combina- 
 tion but simply a large corporation. Therefore I think there is no 
 single agency that has done as much to create those great corpora- 
 tions as the Sherman law. 
 
 Senator Pomerene.. Now, there is no decision of the court that has 
 sustained the validity of any of those pooling agreements or combi- 
 nations that you have had in mind ? 
 
 Mr. Low. No; I say that by condemning them the court made 
 some other method seem desirable. 
 
 Senator Pomerene. Very well. Then, has not the difficulty been 
 this, that the parties who have not been in sympathy with the Sher- 
 man law have been devising one scheme after another whereby to 
 evade its provisions, and certain lawyers, because they have gotten 
 large fees, have been of the opinion that they had a legal form of 
 organization under which these things might be done and the law 
 evaded ? 
 
 Mr. Low. I think these combinations have clearly been made in 
 the hope that they would not be obnoxious to the Sherman law. 
 That is exactly my proposition. 
 
 Senator Pomerene. I am leading up to something else. We agree, 
 I feel sure, that the Supreme Court and other courts which have con- 
 sidered the Sherman law have in effect said that the Sherman law 
 
546 HEARINGS BEFORE' 
 
 was simply a crystallization in statutory form of the common law as 
 it had existed for almost time out of mind. 
 
 Mr. Low. I so understand, but with new remedies. 
 
 Senator Pomerene. Yes, with new remedies; and the remedies are 
 simply the penal provisions and the provision for a suit in equity and 
 a suit for damages. In other words, Congress has given remedies in 
 the Sherman law where the common law failed. But the principles 
 involved in the Sherman law are identical with those involved in the 
 common law. 
 
 Mr. Low. In the main, I so understand it. 
 
 Senator Pomerene. Then, how do you explain your position that 
 the Sherman law has been responsible for these combinations which, 
 we must conclude from the admissions made, were in violation of the 
 common law as well ? 
 
 Mr. Low. I do not know whether they were or not. In the cases 
 decided it has been held that they were. But I do not understand 
 that a large corporation is obnoxious to the common law. 
 
 Senator Pomerene. Oh, no. And no large corporation is now 
 obnoxious to the Sherman law. 
 
 Mr. Low. I do not know that it is. My proposition is just embodied 
 in the words of your question — the effort to evade what was evidently 
 forbidden by the Sherman law has led to these devices. 
 
 Senator Pomerene. Why so ? It is the effort to evade, and not 
 the validity of the law; that is the point I am calling attention to. 
 
 Mr. Low. I do not care to dispute as to words. 
 
 Senator Pomerene. Well, is not that the fact ? I simply want to 
 understand your position in the matter. 
 
 Mr. Low. Well, I think it was the effort to do what modern busi- 
 ness seems to make desirable, not to say necessary, in a form that 
 was not obnoxious to the Sherman law, that has led to these great 
 corporations. I am not prepared to admit that it was' the effort to 
 evade the spirit of the Sherman law. 
 
 Senator Pomerene. Then your position, likewise, is that by the 
 filing of an agreement of this kind it should validate it for the time 
 being not only as against the provisions of the Sherman law, but 
 against the provisions of the common law as well ? 
 
 Mr. Low. Well, I would validate it-until it could be gone into on 
 its merits. At the present time they exist indefinitely. My sugges- 
 tion would provide a means of disposing of the whole question sooner 
 or later. I do not think that in the course of a very few years very 
 much harm can be done, especially when the remedy is all the. 
 time in reserve if they are at fault. 
 
 Senator Pomerene. It is now nearly recess time, and I will defer 
 my other questions until after recess. 
 
 The Chairman. The committee will take a recess until 2 o'clock. 
 
 (Thereupon, at 1 o'clock p. m., the committee took a recess until 
 2 o'clock p. m.) 
 
COMMITTEE ON INTERSTATE COMMERCE. 547 
 
 AFTER RECESS. 
 
 At the expiration of the recess the committee reassembled. 
 STATEMENT OF SETH LOW— Resumed. 
 
 The Chairman. Mr. Low, in view of your desire to leave the city, 
 if you care to proceed in the absence of one or two Senators, we will 
 hear you. 
 
 Mr. Low. Mr. Chairman and gentlemen, I simply desire to say 
 that I think my plan as proposed this morning was incomplete in not 
 «learly making the distinction, where trade agreements were con- 
 cerned, between those that are now in existence and new trade agree- 
 ments; because I intended to imply the same difference as to trade 
 agreements that I suggested with regard to existing mergers and new 
 mergers. I think the proposition which I made should be limited 
 to trade agreements in existence at a fixed date, and it seems prob- 
 able that it might be sufficient if those who made such agreements 
 were exempted from criminal procedure until action was taken by 
 the commission, leaving them, if you please, subject to the civil 
 remedies, if people are aggrieved by the agreements. As to new 
 trade agreements that are sought to be made, I think the commission 
 should have the power to pass on the merits before the right is given 
 to make the agreements. In other words, I think a distinction 
 between "existing" and "new" trade agreements can be made 
 advantageously. 
 
 Senator Pomerene. That is, you would modify it to this extent, 
 that any new trade agreement which was in contemplation should 
 first be submitted to the commission ? 
 
 Mr. Low. Yes, sir; before it could be made. 
 
 Senator Pomerene. Before it could be made, or before any action 
 might be validated by the filing of it ? 
 
 Mr. Low. Yes, sir. 
 
 Senator Pomerene. Well, that would be a material modification? 
 
 Mr. Low. Yes. 
 
 Senator Pomerene. You, before the lunch hour, used the expres- 
 sion that you believed in letting bygones be bygones. I assume, 
 not from what you said directly but from your testimony in general, 
 that you had in mind the United Steel Co. and similar combinations 
 and corporations, and whatever they may have done ? 
 
 Mr. Low. I do not think there is any advantage to be gained by 
 breaking them up unless their practices are bad, or have been bad. 
 
 Senator Pomerene. I simply want to get your thought. Without 
 committing yourself, or the committee, or any member of the com- 
 mittee to the charge that their actions have been a gross violation 
 of the Sherman law — and one witness who was before us made some 
 such statement as that, the violations were flagrant, etc. — assuming 
 that now to be so, do you feel that with that assumption there should 
 be no action taken against the corporations ? 
 
 Mr. Low. Well, of course in that particular case action has been 
 begun, and I take it for granted it will be finished. It seems to me 
 that what is important with regard to an existing^ corporation — that 
 or any other — is to ascertain whether its practices have been at 
 fault or not, and if they have, it is much more important to break 
 
548 HEARINGS BEFORE 
 
 up those practices, to put an end to them, than it is to break up the 
 corporation. I can imagine very few things more, disadvantageous 
 than to break up what is already practically a vital part of the busi- 
 ness system of the country, provided you can keep it from doing 
 wrong in the future. 
 
 Senator Pomerene. Assuming that these violations have been of 
 the character I have indicated, you would not, as a general propo- 
 sition, say that violations of the law should be ignored because they 
 had been passed, or, in other words, to use your expression, let 
 bygones be bygones and turn over a new leaf ? 
 
 Mr. Low. I think in rearranging the business system of the country 
 there is a good deal to be said for that. I think that was my expres- 
 sion. I think it is very difficult to answer hypothetical ques- 
 tions 
 
 Senator Pomerene. I agree with you. 
 
 Mr. Low. Without the reservations that they require. When I 
 was mayor of Brooklyn I used to say that the Government never 
 answers a hypothetical question. 
 
 Senator Pomerene. That is a very good rule, I think, but we are 
 trying to get some information upon which we can base some new 
 legislation, and it is very necessary that we use hypothetical cases 
 as applied to new legislation. Have you in mind any distinction 
 between the classes of violation that you would overlook and those 
 that you would not? 
 
 Mr. Low. No, sir; I do not think my mind has addressed itself to 
 that aspect of the matter very much. My effort has been rather to 
 try to suggest a working plan by which the business of the country 
 can know how to go on. If you notice the answers to that question- 
 naire, a very large proportion of those who replied thought the 
 Sherman law is not clear. 
 
 Senator Pomerene. Well, I take it before you would accept this 
 statement you would like to ask a few questions of each of these 
 witnesses to ascertain upon what they based that? 
 
 Senator Brandegee. May I interrupt with a question there ? 
 
 Senator Pomerene. Surely. 
 
 Senator Brandegee. I meant to have asked Mr. Low, when I was 
 asking him some questions, this one: I notice the way you put that 
 
 ?uestion it is a question in two parts, involving two different things, 
 f I recall the question, it is whether in your opinion the Sherman 
 law is clear and workable, and it occurred to me that many people in 
 answering yes or no might mean that it was not workable, but was 
 clear. 
 
 Mr. Low. Some have said that. I do not know how they have 
 been assigned under that summary. 
 
 Senator Pomerene. I was going to ask some questions along that 
 line, but I desist, because there are some others that I want to get 
 to, and I do not want to take up too much of your time. Your are 
 familiar with the conditions of the steel trade, I take it, at or about 
 the time the steel company was formed ? 
 
 Mr. Low. Only as an ordinary intelligent American is. I have 
 never had any connection with the business. 
 
 Senator Pomerene. Now, the burden of your testimony was to the 
 effect that we have changed conditions and that the industries of the 
 present age, so far as capitalization is concerned, differ from those of 
 
COMMITTEE ON INTERSTATE COMMERCE. 549 
 
 a generation ago. Now, will you explain what the conditions were in 
 the trade at the time of the formation of the United States Steel Co. 
 which justified that combination ? 
 
 Mr. Low. Well, if I were responsible for the combination I would 
 try to do it. I have heard the statement made by those whom I 
 suppose know something on the subject, that if there had been no 
 United States Steel Corporation made, and things had gone on as 
 they were going, by this time there would have been two concerns in 
 the steel business — the Carnegie Co. controlling absolutely all that 
 part of the business with which they are concerned, and the tube 
 company— -I do not remember its name— controlling all that part 
 of the business in its sphere. 
 
 Senator Pomerene. You mean the National Tube Co. 
 
 Mr. Low. The National Tube Co.; yes. That, I think, was the 
 point of view that led to the formation of the United States Steel 
 Corporation. 
 
 Senator Pomerene. Would they have been competitors ? 
 
 _ Mr. Low. Very indirectly, I should think, because they make such 
 different products. They might have been competitors for the raw 
 material. 
 
 Senator Pomerene. Do you understand that these two contem- 
 plated companies — if I may use that expression — are now embraced 
 in the United Steel Co. 1 
 
 Mr. Low. I did not say that those companies were contemplated. 
 They were in existence, I think, at the time, were they not ? They 
 would have been the survivors as the result of unrestricted com- 
 petition. 
 
 Senator Pomerene. I may not express myself clearly. I under- 
 stood you to say that your information, was that there would have 
 been two large companies at that time if it had not been for the 
 organization of the United Steel Co. 
 
 Mr. Low. I did not say "my information," Senator. I said the 
 impression I gathered was that as the result of unrestricted competi- 
 tion there would have been now two survivors in the field — those two. 
 
 Senator Pomerene. Now, assuming that to be so, what evils were 
 avoided by the organization of the United Steel Co. ? 
 
 Mr. Low. I do not hold any brief, Senator, for the United States 
 Steel Co. 
 
 Senator Pomerene. I -understand that, and I am not so charging, 
 but you made this statement, that there were necessities for larger 
 aggregations of capital now than there were a generation ago, and I 
 agree with you in that, and, inf erentially, I drew from that that you 
 were justifying all large combinations, such as the steel company. 
 
 Mr. Low. I think that they have a great deal to be said for them. 
 They evidently also are capable of doing a great deal of mischief. 
 Any power can be well used or ill used, and they have so much power 
 that I would not leave them free from regulation; but when they 
 exist I should hesitate a long time to break them up on the theory 
 that I was going to do any good. 
 
 Senator Pomerene. Now, assuming that all of the corporations 
 and firms engaged in the steel industry at the time of the organization 
 of the United Steel Co. had continued on their course in business as 
 separate companies, what advantage or disadvantage do you think 
 the country would have received or suffered ? 
 
550 HEARINGS 13EFORE 
 
 Mr. Low. I think it would have seen the obliteration of all of the 
 small concerns in those two lines of business; and I think one or two 
 large concerns would have dominated different parts of the industry. 
 
 Senator Pomerene. We can not assume that those companies 
 would violate, or would have violated, the provisions of either the 
 common law or the Sherman antitrust law. 
 
 Mr. Low. I do not think they would have had to violate either one 
 car the other. I think it would have been the result of unrestricted 
 competition. 
 
 Senator Pomerene. Well, is it your view that these concerns who 
 are supposed to be made up of intelligent and conservative men 
 would so clutch each other by the throat that they would destroy one 
 another, and it would have been simply a question of the survival 
 of the fittest. 
 
 Mr. Low. They would certainly do it unless they had combined. 
 I think that many of the steel corporations of that day were in 
 utmost peril. Mind you, I am giving my impression, as I said, as 
 that only of an ordinarily intelligent man. I have never made a 
 special study of the subject, and I have no special information. 
 
 Senator Pomerene. There was a time when these companies did 
 business and prospered, and when there was legitimate competition, 
 and at or about that time, or shortly thereafter, the Sherman anti- 
 trust law was formed for the purpose of continuing that competition. 
 Now, do you think that at or about that time there was such a cut- 
 throat competition as that there was a public necessity fqr these 
 combinations ? 
 
 Mr. Low. Well, I think that there would have been a great many 
 failures in the steel business if it had not been made. I do not 
 believe you can make people compete at a loss. 
 
 Senator Pomerene. No one disputes that. 
 
 Mr. Low. And when they find themselves threatened with extinc- 
 tion, as the result of unlimited competition, they form a trade agree- 
 ment or consolidate ; they do something. I think that was precisely 
 the situation which led to the United States Steel Corporation. 
 My own thought is that the United States Steel Corporation — 
 assuming that its practices have not been wrong at any point — is 
 an advantage rather than a disadvantage to the country. What I 
 object to about it is that it was formed with such a vast amount of 
 water. I think it most regrettable that such a thing was possible. 
 
 Senator Pomerene. You speak of the water in this stock. Is it 
 not a fact that that corporation was formed by a number of finan- 
 ciers who were not directly connected with the steel industry, but 
 rather as a financial proposition for them than any necessities of the 
 steel trade at that time? 
 
 Mr. Low. Of course I can not say what was in their minds. What 
 I suppose was very likely the case is — and I have not any more knowl- 
 edge on the subject than you have — that they knew perfectly the 
 condition of these different steel corporations. This method had 
 already demonstrated itself on a small scale as a method by which 
 combinations could be brought about and a good deal of money 
 made in the process, and this seems to have been the culmination of 
 that sort of procedure. 
 
 Senator Pomerene. I know of no one who is a keener observer of 
 current events than yourself, and as j'ou look back now do you know 
 
COMMITTEE ON INTERSTATE COMMERCE. 551 
 
 of any particular condition in the steel trade, or kindred trades, that 
 necessitated this combination, looking at it now from the standpoint 
 of the public ? 
 
 Mr. Low. That is asking me, Senator, whether I would have made 
 the combination. I do not know anything about it. The best 
 answer I can give is what I have already said. I have been told 
 that if the combination had not been formed the result of destructive 
 competition — not by the intention of anybody — would have been that 
 at this time there would have been a Carnegie company in charge of 
 all its part of the steel business and the National lube Co. in charge 
 of all the rest. In other words, we would have had two great com- 
 panies instead of one. We would have had two great companies 
 ■created by the destruction of a great deal of property instead of one 
 created by the use of a great deal of water. 
 
 Senator Pomerene. Now, do you know of any necessity at that 
 time for the organization or existence of two great companies instead 
 of a multitude of smaller companies that there were ? 
 
 Mr. Low. I can not say anything about the necessity, but I think 
 it would have resulted from the conditions of competition — at least 
 that is my information. 
 
 Senator Pomerene. I have in mind in my own section — the State 
 of Ohio — a number of steel concerns — small concerns — that were 
 employing from 300 to 1,000 men, all doing a prosperous business, 
 and those were, many of them, absorbed by the steel company 
 eventually. Now, while they were prospering it seems to me that 
 there was no such cut-throat competition as would necessitate any 
 combination, and the point that I am trying to make is this: As to 
 whether or not the steel trade or public enterprises were in such con- 
 dition at that time — looking at it from a public standpoint — as to 
 necessitate a combination of this character? 
 
 Mr. Low. I have not the information to justify me in answering 
 that question. 
 
 Senator Pomerene. I think that is all I care to inquire. 
 
 The Chairman. Senator Townsend, do you desire to ask any 
 questions. 
 
 Senator Townsend. Mr. Low, to what people are you sending 
 these interrogatories ? 
 
 Mr. Low. We have sent them to 20,000 people, largely through 
 chambers of commerce, and through trade organizations of every 
 kind, and through the labor organizations and the agricultural 
 organizations. 
 
 Senator Townsend. And you have reported here to-day on 
 
 Mr. Low. A few more than a thousand. 
 
 Senator Townsend. From whom ? 
 
 Mr. Low. From manufacturers, from merchants, and from bankers. 
 
 Senator Townsend. Have you heard from the other classes of men 
 to whom you have sent your questions ? 
 
 Mr. Low. I fancy all the business men are included in one of those 
 three. 
 
 Senator Townsend. I will call laboring men business men. 
 
 Mr. Low. No; we have not, because as you know the Federation 
 of Labor has been holding its annual meeting at Atlanta, and I do not 
 think we shall get answers from them until that is over. 
 
552 HEARINGS BEFORE 
 
 Senator Townsend. What was your object in getting these answers 
 and in sending out these interrogatories ? 
 
 Mr. Low. In the hope of gettrng some information that might be 
 valuable to this committee. That was the motive, and was so stated. 
 
 Senator Townsend. Are you going to use them in framing your 
 recommendations to Congress or to this committee ? 
 
 Mr. Low. We study them as far as we can; yes, sir. 
 
 Senator Townsend. Will they affect your judgment in the matter? 
 
 Mr. Low. Some do; I think the replies show clearly that the 
 Sherman law is not yet understood by the mercantile communities. 
 We have received many answers from lawyers also, but I have not 
 yet got them analyzed. I think on that point they would be much 
 more conclusive than the answers of business men. But it is very 
 clear from Mr. Towne's letter that the people whom he is familiar 
 with have consulted their counsel, and that they get entirely different 
 advice. 
 
 Senator Townsend. Some questions have been asked that I 
 wanted to ask you, largely by Senator Brandegee, but if I under- 
 stood you correctly just as I came in after lunch you now abrogate 
 the idea of having these trade agreements approved by the commis- 
 sion before they are legalized — new ones, I mean. 
 
 Mr. Low. Yes; as I said, my plan, as I submitted it this morning 
 was incomplete in not making, as to trade agreements, the same 
 distinction that I made in regard to mergers; that there should be a 
 difference between the old and the new. I thought that the course 
 which I suggested might apply to all agreements in effect at a cer T 
 tain fixed date — the 1st of July of this year, if you please, or any 
 day, so it would apply to the old ones, but that any new agreements 
 to be made should be passed upon before they became lawful. 
 
 Senator Townsend. You think those that had entered into an 
 unlawful agreement, or one that had been prohibited by the Sherman 
 antitrust law — and for that reason had been kept secret — that those 
 people would come forward with their agreement under this law? 
 
 Mr. Low. No,. I do not; but I think the great body of these agree- 
 ments have been made by men in perfect good faith without any cer- 
 tain knowledge that they are in contravention of the Sherman anti- 
 trust law. 
 
 Senator Townsend. Why do they not put them in writing ? 
 
 Mr. Low. That I do not know. They have had them in writing. 
 
 Senator Townsend. Yes ; but our information is that there are 
 none of those in existence now and have not been for some years 
 because of the fact that they were fearful that they were violating 
 the law. 
 
 Mr. Low. That is precisely it. They do not know whether they are 
 or are not. They want to be able to do business lawfully, but they 
 want every advantage that the law permits. 
 
 Senator Townsend. I quite agree with you on that proposition. I 
 do not believe the community is dishonest — that is, the business com- 
 munity — as a whole. 
 
 Mr. Low. I am sure it is not. 
 
 Senator Townsend. I am not at all in sympathy with that propo- 
 sition, but I am wondering how you are going to bring this agreement 
 out of hiding. 
 
COMMITTEE ON INTERSTATE COMMERCE. 553 
 
 Mr. Low. I think you might bring such agreements out of hiding 
 by the provision that anyone who signed an agreement should be free 
 from criminal prosecution, even though the civil remedy, if he has 
 violated the antitrust law, should remain. I do not think that is a 
 very great concession to make as to what is in existence, nor as to 
 what came into existence before the law was defined. I really think 
 the Sherman law, as a criminal statute, is almost a crime itself, 
 because it is so unclear as to what it means. 
 
 Senator Townsend. That is, you do not tbink the enforcement of 
 the criminal provisions are practicable or justifiable ? 
 
 Mr. Low. No, sir; I do hot, under all the history of the situation 
 with which we are confronted. I think the criminal provisions may 
 very well be postponed until conditions have been created which 
 enable men to know in advance when they are breaking the law. 
 
 Senator Townsend. Then you are not criticizing the Attorneys 
 General for not having enforced that provision to any great extent ? 
 
 Mr. Low. No; I am not criticizing anybody. 
 
 Senator Townsend. Now, you believe in the Sherman antitrust 
 law as it stands — that is, you would not amend that law ? 
 
 Mr. Low. At the present time I would not, because I think the 
 first thing to do is to find out, in its application to actual things that 
 are believed to be innocent, what it means. 
 
 Senator Townsend. How would you find that out, Mr. Low? 
 That is what I want to know. 
 
 Mr. Low. Through this commission, which would have those agree- 
 ments before it, and which would do, as the Interstate Commerce 
 Commission does, notify these people that this seems to contravene 
 that law — this particular thing which they are doing. 
 
 Senator Townsend. But the Interstate Commerce Commission is 
 instructed as to how it shall proceed. For instance, we have a pos- 
 itive law to the effect that all rates and regulations of the interstate 
 carriers shall be just and reasonable. 
 
 Mr. Low. Yes. . . 
 
 Senator Townsend. That is the law. Now, it is purely a ministe- 
 rial function that is conferred upon the commission in that respect — 
 to find out what is just and reasonable. Do you think the Sherman 
 law is that clear now that it would lay down a rule of proceedings for 
 the trade commission to act upon ? 
 
 Mr. Low. If it is not, how can you expect business men to be con- 
 trolled by it, and especially, how can you expect to sustain criminal 
 proceedings under it ? If a commission charged with the duty of 
 seeing what the first and second sections of that act means can not do 
 it, how can the ordinary business man be held guilty when he does 
 not know? 
 
 Senator Townsend. Well, there seems to be some dispute among 
 people. Most of the witnesses who have appeared before us have, if 
 I understood them correctly, insisted that the provisions were clear, 
 absolutely clear. Now, if they a,re not clear, as you maintain, and 
 as the majority of these correspondents all still insist that they are 
 not, will you delegate to a commission the administrative authority 
 of determining a clear law on that subject ? 
 
 Mr. Low. No, I should not consider that that was delegating the 
 legislative authority any more than in the case of the Interstate 
 Commerce Commission. I think the law — if you ask me what I 
 
554 HEARINGS BEFORE 
 
 think personally — is pretty clear on the subject of monopolizing. 
 I think it is quite clear thkt it will break that up. As to what the 
 first section means, I do not think it is clear, because I understand that 
 the Supreme Court said that every agreement must be interpreted in 
 the light of reason; I suppose, but I do not know, that that is the 
 equivalent, as I have suggested, of that other phrase that all restraint 
 of competition is not restraint of trade. In that case the finding 
 would depend on the circumstances of each particular agreement, 
 whether the particular restraint of competition practiced was a 
 restraint of trade under the Sherman antitrust law. 
 
 Senator Townsend. But do you think it would be safer to leave 
 that power to a commission than it would be for Congress to try to 
 frame a law making that absolutely clear ? 
 
 Mr. Low. I think the attempt to define is really to limit the reach 
 of the law, because anything you leave out of your definition goes 
 uncovered. I think a law that is precise would be very much better, 
 unless you can create some agency through which the Sherman law 
 itself can be made precise before it is brought into action. I think 
 this commission would be just such an agency. That is the whole 
 point of my suggestion. 
 
 Senator Townsend. Would you permit the commission to act 
 upon its own initiative in all matters, or would it wait for a complaint ? 
 
 Mr. Low. I would let it act on its own initiative or upon complaints. 
 I would put in its hands the administration of that law. 
 
 Senator Townsend. Now, if we had to pass on these agreements in 
 advance, do you think an ordinary commission would have time to 
 attend to these matters and complete them ? 
 
 Mr. Low. I do not think it could do so promptly as to agreements 
 that are already in existence. That is precisely the distinction that 
 I made. I would not check business by any such demands; but as 
 to new agreements I think they could. 
 
 Senator Townsend. Do you not think that the disposition of any 
 question would be to make new agreements rather than to rely upon 
 any old agreement that had been hidden ? 
 
 Mr. Low. If so, you would get a perfectly fair start, which would 
 perhaps be desirable. 
 
 Senator Townsend. I think that would be very desirable, if it is 
 physically possible. 
 
 Mr. Low. I think it is entirely possible; quite as possible as the 
 work of the Interstate Commerce Commission, which I hear com- 
 mended in every quarter by all kinds of men — business men, students, 
 lawyers, shippers, and railroad men. Really, as Mr. Untermyer said 
 here the other day, it is a great achievement in government, what that 
 commission has done ; and I believe if you will hand this problem over 
 to a trade commission you will find the same results. 
 
 Senator Townsend. You do not think it is any more complicated 
 or difficult, what you are putting on this commission, than what the 
 Interstate Commerce Commission does ? 
 
 Mr. Low. I do not think it is any more impracticable. I do not 
 know whether it is more difficult or less difficult ; but I think you will 
 get from a commission in that way, in the course of a very few years, 
 much wiser suggestions as to further legislation than you will ever get 
 in any other way. 
 
 Senator Townsend. I will not detain you any longer. 
 
COMMITTEE ON INTERSTATE COMMEECE. 555 
 
 Senator Pomerene. I just want to ask you, in view of what the 
 Senator has asked, what is there in that first section of the Sherman 
 antitrust law that is so difficult to understand ? 
 
 Mr. Low. The significance of the words "restraint of trade." 
 
 Senator Pomerene. Now, as the Supreme Court has defined that, 
 that means unreasonable restraint of trade — actual agreements in 
 unreasonable restraint of trade ? 
 
 Mr. Low. Did they use that expression ? I thought they said that 
 every agreement must be interpreted in "the light of reason." 
 
 Senator Pomerene. I know; but in the discussion of the matter 
 they express it in another way — that it is a crystallization of the com- 
 mon law, and the common law only forbade agreements which were in 
 unreasonable restraint of trade. 
 
 Mr. Low. Does the common law forbid all restriction of com- 
 petition ? 
 
 Senator Pomerene. It forbids agreements in unreasonable restraint 
 of trade. 
 
 Mr. Low. That is where the uncertainty comes all the time. 
 
 Senator Pomerene. I understand; that is all true; but as an intel- 
 ligent man do you not think if you were embarking on a business 
 enterprise that you could determine for yourself,, with your enlight- 
 ened conscience, whether a given course was to be in restraint of 
 trade or whether it was to be in unreasonable restraint of trade ? 
 
 Mr. Low. No; I do not. 
 
 Senator Pomerene. If — to borrow an expression from another 
 Senator here — you were sitting as a juror in the trial of a criminal case 
 and you were told by the court that you must find the defendant 
 guilty beyond the existence of a reasonable doubt, do you not think 
 that you could determine in your own mind whether you had a 
 reasonable doubt on the subject or not ? 
 
 Mr. Low. I suppose I could do that; yes sir. 
 
 Senator Pomerene. Now, what is the difference between a reason- 
 able doubt, looking at it from the standpoint of principle, and the 
 ability to extend that to a restraint of trade or an unreasonable or a 
 reasonable restraint of trade ? 
 
 Mr. Low. There is no difficulty at all between the two extremes. 
 The difficulty here comes that the extremes meet in the center. It 
 is very easy to tell night from day, but there is a twilight zone, and 
 there is where all the uncertainty arises. 
 
 Senator Pomerene. Is that not the difficulty which a man meets 
 when he comes to the question of the transgression of any law? 
 
 Mr. Low. Yes, if I understand you; but I would not say that if he 
 does not know the law. I think that it ought to be within the power 
 of a man with any conscience to know when he is doing right or wrong 
 when he knows the law; but there is the whole trouble. 
 
 Senator Pomerene. We lawyers are grounded in the faith that 
 "ignorance of the lawexcuseth no man." Now, you do not believe 
 in that principle, do you ? 
 
 Mr. Low. I prefer not to discuss that under the head of restraint of 
 trade, Senator. 
 
 Senator Pomerene. In other words, when it comes to these things 
 which come within the purview of the Sherman law, ignorance of the 
 law ought to excuse ? 
 
556 HEARINGS BEFORE 
 
 Mr. Low. Xo; what I mean is this — as nearly as I can put it with 
 perfect explicitness : If restraint of trade is the equivalent of restraint 
 of competition, I know what it means. If it is not, I do not know; 
 because I do not know how much restriction of competition is per- 
 missible before restraint of trade is reached. Now there is the situa- 
 tion, as I understand it, in a nutsheU. 
 
 Senator Pomerene. That is all. 
 
 The Chairman. Are there any further questions? 
 
 Senator Cummins. I would like to ask one or two questions on this 
 very point suggested by Senator Pomerene. If a dozen men — honest, 
 law-abiding men — sit around a table, proposing a certain agreement 
 among themselves relating to their business, what you mean, I take 
 it, is that there might be among those men a very great difference of 
 opinion as to whether a given arrangement was in restraint of trade 
 or not ? 
 
 Mr. Low. Yes. 
 
 Senator Cummins. And you think the law ought to be so clear that 
 an ordinarily intelligent man, knowing the facts, could reach a certain 
 conclusion in respect to whether that given course was in violation of 
 the law or not ? 
 
 Mr. Low. I do; at the same time I recognize that as to fraud you 
 can not make a precise definition. You have to trust to the general 
 phrase. 
 
 Senator Cummins. But as we go on and business develops, it will 
 be very often found that there are certain arrangements which are 
 doubtful, and you believe that it would be wise that those arrange- 
 ments should be more definitely described, and either made lawful or 
 unlawful ? 
 
 Mr. Low. I think it would be a very great .advantage. I think 
 the more precise the law can be, the better, and if the law relies, as 
 the Sherman law relies on general phrases, I think you must have a 
 commission that will bring the bearing of the general phrase home 
 to the specific offense before you can justly punish for it. 
 
 Senator Cummins. As it is now, whether that given arrangement 
 is in unreasonable restraint of trade or not, depends entirely upon 
 the economic education and view of the judge who finally is called 
 upon to pass upon the question ? 
 
 Mr. Low. That is it exactly. 
 
 Senator Cummins. And you think the business world ought to be 
 advised in advance, with all certainty possible, whether a given 
 arrangement can be lawfully executed or not ? 
 
 Mr. Low. I do, absolutely. 
 
 Senator Cummins. In this connection, Mr. Chairman, in order to 
 settle the little difference of recollection about the testimony of Mr. 
 Vinson, I wish to read from his testimony on pages 30 and 31 of the 
 record in which he sums it up as follows : 
 
 So that by the time the coal is mined and goes to the consumer the large producer 
 gets his coal to his consumer at from 12J to 15 cents a ton cheaper than the small con- 
 sumer can possibly do it, and that has been going on for the last three or four years. 
 
 I simply wanted to call attention to that suggestion. 
 
 Senator Pomerene. Just another question. Taking the illus- 
 tration given b}*- Senator Cummins of a dozen men sitting around a 
 table, and there being a difference of opinion, assuming an honest 
 difference of opinion, as to whether a given act was in violation of 
 
COMMITTEE ON INTERSTATE COMMEECE. 557 
 
 this law, and they are men of an equal degree of intelligence, and 
 so forth, and there was an honest difference of opinion, do you not 
 think that good political morals would require the men to refrain 
 from doing that which was dangerous ? 
 
 Mr. Low. I do not think that I can answer that question, Senator. 
 
 Senator Watson. I would like to ask a question. Suppose a 
 dozen men are around a table considering whether a certain trade 
 agreement or agreements would be in violation of the law. They 
 would likely submit that question to their attorney, would they not ? 
 
 Mr. Low. Yes, sir. 
 
 Senator Watson. Did you ever know two attorneys to give the 
 same decision on the Sherman law ? 
 
 Mr. Low. That is why I say it is very uncertain. 
 
 The Chairman. If there are no other questions, that will be all, 
 Mr. Low. We are very much obliged to you for appearing before us. 
 
 Mr. Low. It has been a very great pleasure, gentlemen, to be here. 
 
 (Mr. Low was thereupon excused.) 
 
 STATEMENT OF WILLIAM L. EOYALL, OF RICHMOND, VA. 
 
 Mr. Eoyall. Mr. Chairman, in the following I do not pretend to 
 accuracy in some of the statements. Brevity compels me to confine 
 myself to general statements, but all these general statements con- 
 tain the substance of things. 
 
 Under the mandate of the Supreme Court of the United States, 
 the Circuit Court of the United States for New York has made its 
 ruling, splitting up the American Tobacco Co. into three companies, 
 to wit, the American Tobacco Co., the Pierre Lorillard Co., and the 
 Liggett & Myers Co. The American Tobacco Co. transfers about one- 
 third of its property and business to the Pierre Lorillard Co. and 
 about one-third to Liggett & Myers Co., and retains about one-third 
 for itself. It is idle to say this was the American Tobacco Co.'s own 
 
 glan for dissolution. It was its plan because under the Supreme 
 ourt's order the circuit court held over its head the coercion of an 
 injunction and receiver. 
 
 The Central Law Journal of St. Louis for October 27, 1911, page 
 297, contained an article by me devoted to maintaining the following 
 thesis, to wit: It is established law that the business which a man 
 has built up by years of toil and energy is his property, as much soas 
 his house or his lot. The Constitution of the United States forbids 
 Congress to deprive the citizen of his property without making him 
 full compensation therefor. The American Tobacco Co. has about 
 enough tangible property to pay its debts and its preferred stock- 
 holders, but it has a business that earns it more than $30,000,000 a 
 year. This business is a vast mass of property that yields 6 per cent 
 per annum and it is worth $500,000,000. Two-thirds of this vast 
 business or property is forcibly taken from the American Tobacco 
 Co., so that its income hereafter will not be $30,000,000 per annum, 
 but what it can make out of one-third of its old property and business 
 and what it gets from the other two new companies. The difference 
 will probably be enormous, and this difference has been caused by 
 the action of the court in forcibly taking from it a vast mass of its 
 property. Congress has, therefore, in taking away two-thirds of this 
 
558 HEARINGS BEFORE 
 
 company's business, deprived it of an enormous amount of property 
 without any compensation. 
 
 But it will be said that this business was built up in violation of 
 law and is therefore not entitled to the protection of the law. The 
 article referred to fully considers and meets that view thus : 
 
 It is settled law that if a person makes money in violation of the 
 law he nevertheless acquires that money as his own property, though 
 he is liable to be punished for violating the law. The case of Brooks 
 v. Martin (2 Wall. Rept., 70), a decision of the Supreme Court of 
 the United States, is full authority for this statement. The facts in 
 that case were thus: During the Mexican War Congress passed an 
 act providing that each soldier might locate a claim of land out in 
 the far western territory, and to prevent the soldier becoming a 
 victim of the land sharks, it provided that none of them should sell 
 their claims until they were actually in the form of certificates granted 
 by the Government. Brooks and Martin entered into a partnership 
 to buy up the claims in violation of this law, and the} T did buy up 
 many of them in plain and open violation of it. Brooks went out 
 into the wilderness, located these claims, sold them, and made a laige 
 sum of money. Martin sued him for an account and Brooks pleaded 
 that the whole thing was in violation of law and that the courts would 
 take no cognizance of it. But the Supreme Court of the United 
 States decided that he had made the money and that one-half of 
 what he had made belonged to his partner. 
 
 The principle at the bottom of this case lies at the foundation of 
 society. If society allows men to make money by violating the law, 
 it condones the offense so far as the money acquired is concerned, 
 though it will punish the transgressor. Think of what would occur 
 if this were not the principle involved. How many fortunes in our 
 great cities rest upon illegal transactions. How many upon bucket- 
 shop transactions; how many upon other forms of gaming; upon 
 usury? Are you after the money is acquired and the possessor is 
 enjoying himself in a serene home going to say to Mm, This money 
 must be surrendered and you must become a pauper ? Suppose the 
 case of a successful merchant who is also a skilled pickpocket: Will 
 you say to him after he has retired, You must surrender $25,000 of 
 your fortune because you made that part by picking pockets? To 
 entertain such a proposition would be to overthrow the foundations 
 upon which society rests. 
 
 In this American Tobacco Co. case we have a complete case in 
 which the United States circuit court has forcibly taken from a citizen, 
 without compensation, an enormous amount of property. It must 
 be admitted, though, that the Supreme Court's mandate compelled' 
 it to do this or to enjoin the company from doing any further business 
 and appointing a receiver to wind it up and divide its assets amongst 
 its stockholders. No issue had been before the court involving this 
 matter, and no argument on it had been heard by the court. It 
 evolved its conclusion from its own inner consciousness. The circuit 
 court, therefore, stood in a most unenviable position. This, then, is 
 what has actually been accomplished in this case, if anything has 
 been accomplished. But has anything been accomplished? Is not 
 the whole thing simply a roaring farce ? 
 
 We are now to take another view of what has been actually done. 
 The American Tobacco Co. has $40,000,000 of common stock, of 
 
COMMITTEE ON INTERSTATE COMMERCE. 559 
 
 which a majority is owned by five individuals and is pooled so that 
 the pool trustees absolutely control all of the vast business of this 
 company. These five persons can at once reform their pool, bring 
 in their new stock, whereupon they will control all of the business of 
 the three companies just as they controlled the American Tobacco 
 Co. before. It will simply be the old American Tobacco Co. under 
 three names instead of under one name, and all the fuss that has 
 been made over this matter will have been for nothing. We stand 
 at the end where we were at the beginning. When the American 
 Tobacco Co. was attacked by the Government its stock sold for 
 more than $500 per share. It fell immediately after the Supreme 
 Court's decision below $400 per share. As soon as the circuit court 
 adopted the plan now in force the stock jumped up 40 points and is 
 rapidly going back to $500. The Street sees through the whole 
 business and understands perfectly that the old American Tobacco 
 Co. remains in the saddle. I do not think Chief Justice White and 
 his associates would recognize their bantling, but, as I have said, I 
 do not know that the circuit court is to be criticized. The Supreme 
 Court had the whole case before it and it could have formulated a 
 plan, and Justice Harlan insisted that it should do so. The circuit 
 court of New York was confronted with a tremendous proposition. 
 It might very well have said that as the Supreme Court shrank from 
 the task that was before it and left it all to them, they would do 
 what they pleased in the premises. 
 
 But the Attorney General, Mr. Wickersham, deserves a few words 
 at this point. He consented to this farce, and the court would prob- 
 ably not have been part of it if he had not consented to it. Whilst 
 theories were being discussed Mr. Wickersham was a roaring lion, 
 but when the time for action came he was a sucking dove. He was 
 like the clown at the circus. All the real athletes clear the banked 
 horses, but when the clown's time comes, though he has made more 
 preparation for the leap than all the others combined, he runs under 
 the bellies of the horses. 
 
 This subject has now got itself into an impossible situation, which 
 induces me to make a general review of it. It has been miscon- 
 ceived from the beginning, and consequently it has miscarried from 
 the beginning. The beginning was the passage of the Sherman law 
 in 1890. That act made "every" combination that put any restraint 
 on trade illegal. There can be no possible question that Congress 
 meant "every" to mean "every." The language used proves it; all 
 the surroundings prove it. In the trans-Missouri case, decided in 
 1897, the Supreme Court of the United States decided that was what 
 Congress meant. 
 
 In the winter and spring of 1896-97, I was engaged in writing a 
 pamphlet in which I was endeavoring to show that if the word ' ' every ' ' 
 was to be interpreted literally, that it made the Sherman law uncon- 
 stitutional and void. I made the following case : 
 
 NATURAL AND INHERENT RIGHTS OF THE CITIZEN. 
 
 The Sherman law makes "every" combination in restraint of interstate trade void. 
 In so doing it deprives the citizen of natural and inherent rights, which no legislative 
 
 Eower can rightly deprive him of, and it deprives him of rights which are secured to 
 im by the Constitution of the United States. 
 
 The citizen has a natural and inherent right to compete in business with his fellow 
 citizen to the point of destroying him, if he does it by open, fair, and free competition. 
 
 22877 — vol I — 12 36 
 
560 HEARINGS BEFORE 
 
 This is the survival of the fittest. This is evolution, and to deny the citizen this right 
 is simple tyranny. It is to turn the hands on the clock of time backwards, and to 
 start us in the journey of life back toward barbarism. 
 
 But whilst the citizen has a natural and inalienable right to compete fairly with his 
 fellow man to the point of destroying him, is there no limit upon this right? There is 
 one and only one, and it is illustrated in a case decided 200 years ago by Lord Chief 
 Justice Holt, the case of Keeble v. Hickeringill. (11 Mod., 74, 131, and note to Car- 
 rington v. Taylor, 11 East, 514.) In that case the plaintiff had a water front where he 
 shot ducks at a "decoy" for a living. The defendant had an adjoining water front, 
 and he had malevolent feelings toward the plaintiff. So he walked up and down his 
 water front firing off his gun for the purpose and with the intention of frightening the 
 ducks away from the plaintiff's decoy. Being sued for damages, Lord Chief Justice 
 Holt held him liable. He said that'though the action was new in instance, it was 
 not new in reason and principle and well lay, for he said that the use of a "decoy" 
 was a lawful trade, and that he who hinders another in his trade or livelihood is liable 
 to an action if the injury is caused by a violent or malicious act. "Suppose, for 
 instance," he said, "the defendant had shot in his own ground, if he had occasion to 
 shoot it would have been one thing, but to shoot on purpose to damage the plaintiff is 
 another thing, and a wrong." But, he added, if the defendant, using the same 
 employment as the plaintiff," had set up another decoy so near as to spoil the plain- 
 tiff's custom, no action would lie, because the defendant had "as much liberty to 
 make use of a decoy" as the plaintiff. In support of this view he referred to earlier 
 authorities. In one of them it had been held that by setting up of a new school to 
 the damage of an ancient one, by alluring the scholars no action would lie, although 
 it would have been otherwise if the scholars had been driven away by violence or 
 threats. 
 
 No this case contains the whole philosophy of this subject of competition. The 
 man who fired the gun had a perfect right to set up a "decoy" in competition with 
 the plaintiff, and if his bona fide competition resulted in the destruction of the plain- 
 tiff he did him no wrong, although he intended to drive him out of the business and 
 get it all for himself. But if he had no occasion to fire his gun off and did it only to 
 injure the plaintiff from malevolence, then he did the plaintiff an injury for which 
 he was accountable to him before the law. 
 
 The rationale of this case is that a man has a natural right to compete with his rival 
 in business, even to the destruction of that rival by fair competition, although he 
 intends to destroy him and thereby get the whole business for himself. That is 
 evolution. It is Mr. Darwin's survival of the fittest. But he has no right to com- 
 pete with another nominally when his real purpose and intention is simply to do a 
 wanton injury to that other and not to benefit himself at all. I am a merchant, keep- 
 ing a hat store. Jones has a perfect right to open a hat store next door to me, and if 
 he sells hats so reasonably as to get all the custom and thereby drives me out of busi- 
 ness, he has done me no wrong, although he intended to bring about that very result 
 in order to get the whole business. But if he hates me and opens his store not to 
 make money for himself but to beggar me and my family, he has done me a wrong for 
 which he must answer to me before the law. 
 
 These views were reiterated by the judges in the great case of Mogul Steamship v. 
 McGregor (App. Cases, 1891, p. 25). 
 
 I affirm, then, that as a proposition of common sense, as a proposition in the philosophy 
 of evolution, and as a deduction from the authorities quoted the citizen has a natural 
 and inherent right to compete in business with his rival even to the point of destroying 
 that rival by fair competition, and that even though he intend to destroy him; but 
 that he has no right to inflict a malicious injury upon him that is not intended to be 
 for his own benefit, but simply to inflict an injury upon his rival. 
 
 This word malice must be understood in its legal and not its popular sense. As 
 defined by Bayley, justice, in Bromage v. Prosser (4 B. & C, 255) it correctly 
 expresses the idea. "Malice," said he, "in common acceptance means ill will against 
 a person, but in its legal sense it means a wrongful act done intentionally without just 
 cause or excuse." This definition is now the accepted one everywhere, and it means, 
 in substance, that no man has a right to do a wanton injury to another. 
 
 Purpose and intention, then, is the test in every case. A man has a natural right to 
 do anything in business in the way of competition that is intended bona fide te advance 
 his own interests, even if he thereby destroys his rival and intends to destroy him. 
 The intention is of no consequence if the purpose is to get the trade for himself by fair 
 competition. But if his real purpose is simply to inflict a wanton injury upon his 
 rival (the legal sense of malice), then he does that rival a legal wrong. 
 
 The ease oj Allen v. Flood. — The world understood this to be the philosophy of this 
 subject after the decision of the Mogul Steamship case. But in 1898 the House of 
 Lords decided the case of Allen v. Flood (App. Cases, 1898, p. 74), in which it was 
 
COMMITTEE ON INTEBSTATE COMMEECE. 561 
 
 announced that purpose and intention were of no consequence. That if a man had 
 the legal right to do a thing, it was of no consequence that he had an evil intent. This 
 threw everything into confusion. But this case is practically overruled by the subse- 
 quent case of Quran v. Leathern (App. Cases, 1901. p. 534). The two can not be recon- 
 ciled, and the still subsequent case of Giblin v. The National Union (1903, 2 K. B., 
 GOO) seems to proceed upon the theory that purpose and intention are all important. 
 
 But the American courts seem to be unanimously resolved to repudiate the doctrine 
 of Allen v. Flood, and to hold that intention is vital. Allen v. Flood was distinctly 
 repudiated by the Supreme Court of Illinois in Doremusti. Hennessy (43 L. R. A., 797), 
 by the Supreme Court of Wisconsin in State ■y.Durner (62 L. R. A., 744), by the Supreme 
 Court of Massachusetts in Plant v. Woods (51 L. R. A., 33), by the Supreme Court of 
 Georgia in Employing Club v. De Brosser Co. (69 L. R. A., 95), and see Gray v. Build- 
 ing Council (63 L. R. A., 758). 
 
 The Supreme Court of the United States has also sanctioned the doctrine that ah 
 act may be good when done with a good intent, that will be bad when done with a 
 bad intent (U. S. v. Angle, 151 U. S., 1). 
 
 The most recent discussion of the subject that I know of, and an exceedingly intel- 
 ligent one, is to be found in the case of Tuttle v. Buck (119 N. W., 946), a decision of 
 the Supreme Court of Minnesota, made in February, 1909, which reviews all the cases 
 and holds that intention is the test. 
 
 Evil purpose or intention. — I am safe, therefore, in saying that whatever may be 
 the law in England, the American law is that an act which may be innocent when 
 done with a good purpose may be a bad act when done with an evil purpose, and one 
 that the law takes cognizance of as a bad act. 
 
 What is it that has so stirred up popular wrath against the great and powerful cor- 
 porations that the public denominate as trusts? It is the custom they have fallen 
 into of giving their goods away or selling them below cost, which is pro tanto, the 
 same thing, for the purpose of destroying a weak rival or driving him out of the busi- 
 ness. If the great corporation would confine itself to a sale of its goods at a profit, 
 there could be no just complaint of its course in business and no one would be pre- 
 vented from doing business m rivalry with it. But it does not do this. When a weak 
 rival begins to cut into its profits, it commences giving its goods away or sellingthem 
 below cost for the purpose and with the intention of destroying that rival. When it 
 does this it is doing exactly what the gunner did in the duck case. It is apparently 
 exercising one of the rights of a citizen, but doing it without any purpose to benefit 
 itself, and only with the intention to do an injury to its rival. This is not the exer- 
 cise of a citizen's right, but the abuse of it. It is what all the judges I have quoted 
 condemn as unlawful. It is what common sense and the principles of evolution 
 condemn as unlawful. The legal definition of malice quoted from Mr. Justice Bayley 
 is in substance that any wanton (that is the real word) act of injury done by one man 
 to another is a violation of the latter's rights. When the great corporations give their 
 goods away for the purpose of destroying a weak rival, they are doing him a wanton 
 injury and are therefore doing an unlawful act. I ask particular attention to this 
 word "wanton." It is the key to the situation. I have known it to be asked, Can 
 not a man give away what is his own? " " Can not a man give away his goods to adver- 
 tise his business?" "Can not a man have a bargain counter where he will sell ofl 
 eoods at any price to get rid of old stock?" I answer, "Yes. He can do all these 
 things when that is bona fide his purpose. He can undoubtly give away his goods 
 when charity is his object. He can undoubtedly give away his goods when the 
 advertisement of his business is his object. He can undoubtedly have a bargain 
 counter to sell off old stock when that is bona fide his object." That is one thing. 
 But giving away his goods for the purpose and with the intention of destroying his 
 rival is quite another thing. The purpose and the intention stamp upon the act its 
 nature. These make it an unlawful act, and this brings out the point I have so 
 earnestly discussed as to purpose and intention. (tm .in,„„j 
 
 I have also heard it arguecf that the trust expects to reap its reward after it has de- 
 stroyed its rival, and therefore that in giving away its goods to destroy its rival it .w 
 really doing it to benefit itself. But the benefit it expects to receive is not the natural 
 and proximate result of its act. Its chief and primary purpose in giving away ^ s 
 goods P is to destroy its rival. Any benefit it may expect to receive wi I be & = resuk 
 of something else it will do after the rival is destroyed Suppose a iter .the > rival ih 
 destroyed it does nothing more in the matter, but lets it drop. Could it be said m 
 such a case that the benefit it was to receive was the primary object it had in yiewf 
 Its direct and primary objept is the destruction of its rival, and that makes its primary 
 and direct object an unlawful act. The idea dealt with here is the same ideabrought 
 out by th-^ United States Supreme Court in the E. C. Knight case and the Hopkins 
 
562 HEARINGS BEFORE 
 
 The State courts can deal with this evil upon common-law principles. But the courts 
 of the United States are powerless to deal with it without the authority of an act of 
 Congress, and the" Sherman law fails to confer upon them the power, because it con- 
 demns lawful acts of competition, and thereby makes the whole act void. I shall dis- 
 cuss this subject more at large when I come to consider the true cure for the evil. 
 
 Beyond power of Congress. — We have gotten this far, then, in the argument. The 
 right to compel e in business even to the point of destroying; a rival and with the inten- 
 tion of destroying him to get the whole business is a natural right that inheres in every 
 citizen; the pretended exercise of that right with the purpose and intention of inflict- 
 ing a wanton injury upon another is a wrong to that other. It is now to be shown that 
 Congress can not forbid the citizen to exercise that right and that the Sherman law in 
 attempting to do thJB is void . The Declaration of Independence says: " We hold these 
 truths to be self-evident: That all men are created equal; that they are endowed by 
 their Creator with certain unalienable rights; that among these are life, liberty, and 
 the pursuit of happiness." 
 
 The "liberty and pursuit of happiness" spoken of must include the right to make 
 the usual contracts necessary for conducting the ordinary businesses of life whereby 
 men earn their livelihoods. These, says the Declaration of Independence, are 
 "unalienable" rights, and if the citizen can not himself part with them it will surely 
 not be contended that the legislative power can forcibly take them from him. 
 
 In Loan Association v. Topeka (20 Wall.) Mr. Justice Miller, in delivering the 
 opinion of this court, said, at page 662: "It must be conceded that there are such 
 rights in every free government beyond the control of the state. A government which 
 recognizes no such rights, which, holds the lives, the liberty, and the property of its 
 citizens subject at all times to the absolute disposition and unlimited control of even 
 the most democratic depositary of power is, after all, but a despotism. It may be well 
 doubted, if a man is to hold all that he is accustomed to call his own, all in which 
 he has placed his happiness and the security of which is essential to that happiness 
 under an unlimited dominion of others, whether it is not wiser that this power should 
 be exercised by one man than by many. (See to same effect Fletcher v. Peck, 6 
 Cranch, p. 135; Legal Tender cases, 12 Wall., 581; Parkersburg v. Bowen, 106 U. S., 
 487; Madisonville Co. v. St. Bernard Co., 96 U. S., 252.) 
 
 The elementary right to make the usual innocent contracts of business is therefore 
 one of the fundamental rights of the citizen that the legislative power can not deprive 
 him of. 
 
 The fifth amendment to the Constitution forbids Congress to deprive the citizen of 
 his life, liberty, or property. The Supreme Court has many times held that the right 
 to make the usual contracts of life are included in that "liberty," and that Congress is 
 forbidden by this amendment to deprive the citizen of the right to make those con- 
 tracts. (Allgeyer v. Louisiana, 165 U. S., 578; Lochner v. New York, 198 U. S., 45; 
 Adair v. U. §., 208 U. S., 161.) 
 
 The right to make the usual contracts of business — to compete in business with 
 rivals — is therefore one of the fundamental rights of the citizen which it is beyond 
 the power of Congress to take from the citizen, and when the Sherman law under- 
 takes to take that right from him it runs counter to (a) the Declaration of Independ- 
 ence; (b) that principle of natural justice laid down by Mr. Justice Miller in Loan 
 Association v. Topeka; (c) the fifth amendment to the Constitution of the United 
 States. And it is therefore null and void. 
 
 Acts by many. — So far this article has been, in the main, devoted to the question of 
 the acts of one person. Is there any difference whether an act be done by one instead 
 of by many? That great political economist. Prof. W. Stanley Jevons, has treated 
 this view of the matter most luminously in his little book, The State in Relation to 
 Labor, at page 129. He says: 
 
 "What is conspiracy? That confident but often mistaken economist, MacCulloch, 
 has touched the point of the matter when he says, in his little treatise on wages (2d 
 ed., p. 90): 'A criminal act can not be generated by the mere multiplication of acts 
 that are perfectly innocent.' This statement may be true as it stands, but it has no 
 reference to conspiracy. To ask for more wages is a perfectly legal act, and if a 
 thousand men were to be struck independently with a wish for higher wages, and 
 were to go and ask separately, there would be no conspiracy in the matter; but if 
 a number of men went together and agreed jointly to ask for more, and then persuade 
 others to do likewise, it is not a mere multiplication of requests; it is that plus an 
 agreement and an organized arrangement. The difference is even greater than 
 this. The act becomes different in nature by reason of the concert and the purpose 
 implied in that concert. It is, for example, a perfectly legal action to walk along 
 a highway, and no multiplication of such acts in the ordinary course of life or busi- 
 ness can render them illegal. If so many men happened some day to walk through 
 Throckmorton Street that the street became entirely blocked up, there would still 
 
COMMITTEE ON INTERSTATE COMMERCE. 563 
 
 bo no legal offense. The concourse would be fortuitous, and each man would simply 
 be exercising his legal rights under difficulties. But if a number of men were to 
 agree together that they would walk up and down Throckmorton Street on a partic- 
 ular day, the complexion of the act would be entirely changed. The act is, no doubt, 
 physically the same; but being accompanied with the knowledge that other people 
 would do the same and that a block would be occasioned, there would be reason to 
 presume some special purpose, as, for instance, the obstructing the business of the 
 stock exchange or occasioning alarm, perhaps panic, in the city. The act would 
 be illegal in respect to the intention to block up the Queen's highway." 
 
 This is an unanswerable argument, that if an act is good when done by one it can not 
 be made bad when done with a good intent by many. But it is equally unanswerable 
 as showing that an evil intent may convert a good act into a bad one. It completely 
 answers Allen v. Flood; but it also unequivocally sustains the argument of this article. 
 
 When many men combine together to operate in business their combination can 
 never be wrongful if it is aimed bona fide at bettering their own condition. But if it 
 has a sinister purpose and is aimed simply at injuring some other person, then their act 
 becomes unlawful. Exactly the same principles apply in the case of an act by many 
 as apply in the case of an act by one, and the argument of this article if sound in the 
 case of one is equally sound in the case of many. The Sherman' law is therefore bad in 
 making "every" combination in restraint of trade void, by making those void that aim 
 simply and in good faith at bettering the conditions of those engaged in them and that 
 interfere in no way with the lawful rights of others or of the public. If by any possi- 
 bility I should be wrong in my common-law view of this whole subject, still the legis- 
 lative power can certainly make the improper conduct of the trusts unlawful. 
 
 Restraints on trade. — Is the fact that the Sherman law deals with restraints upon 
 trade one that exempts it from the general considerations of this article? 
 
 Undoubtedly the common law forbade restraints upon trade. But after much 
 controversy it was finally decided in the House of Lords in the case of Nordenfeld v. 
 Maxim Co. (App. Cas., 1894, p. 535) that the test, whether a restraint upon trade was 
 lawful or unlawful depended upon the question whether it was reasonable or unreason- 
 able. This is now the accepted doctrine everywhere, and it is an absolutely essential 
 doctrine. Jones and I go into the business, in Richmond city, of exporting tobacco. 
 Jones is much addicted to speculating in stocks, and I make him agree that he will not 
 speculate in stocks, but will give his whole attention to our tobacco business. We 
 have put a restraint upon the Btock business, but have greatly helped the export 
 tobacco business. It is hardly possible to do any cooperative business that does not 
 hurt some sort of trade somewhere, and the whole question in any case is whether the 
 particular restraint is reasonable or unreasonable. Is it one of those restraints that are 
 necessary to the ordinary affairs of life, or is it an unreasonable or a wanton act injurious 
 to the public? The doctrine of reasonable or unreasonable is as essential to evolution 
 and the development of our institutions as freedom of innocent contracts is. 
 
 Now, the Nordenfeld case establishes that from the beginning it was one of the natural 
 and inherent rights of the citizen to put reasonable restraint upon trade because he 
 could not get along in competition or in commerce without authority to put such 
 restraints upon it. When, therefore, the Sherman law forbids the citizen or the 
 combination of citizens to put reasonable restraints upon trade it strikes at the natural 
 and fundamental rights of the citizen as effectively as when it forbid? him to make 
 innocent contracts, and it violates the Declaration of Independence, the natural 
 rights of man, and the fifth amendment. 
 
 I became a painstaking and laborious student of the questions 
 raised by the trusts from the time they began to come under public 
 discussion. In the winter and spring of 1897 I prepared a pamphlet 
 discussing these questions, and setting out in great part the views 
 stated heretofore in this argument. Just as I was about to publish 
 it the Supreme Court announced its decision in United States v. 
 Trans-Missouri Association (166 U. S. K, 290). I had never heard 
 of that case before. On reading the opinion of the court I saw that 
 my views were wholly ignored, if, indeed, the opinion did not run 
 wholly counter to them. On examining the briefs filed in the case I 
 saw there was no hint or suggestion of them, and I saw that they 
 had never entered into the minds of any of the counsel in the case. 
 Learning that the case of United States v. Joint Traffic Association, 
 
564 HEARINGS BEFOKE 
 
 which involved the same questions as were involved in the Trans- 
 Missouri case was to be argued in the following October, I deter- 
 mined to publish my pamphlet in the hope that it might have some 
 influence m the decision of that case. I accordingly published it in 
 April, 1897, and sent a copy of it to each justice of the court and to 
 each of the counsel who were to argue the Joint Traffic case, amongst 
 whom were the late Mr. E. J. Phelps. Without making the slightest 
 acknowledgment to me, Mr. Phelps appropriated my argument as 
 far as he understood it and incorporated it in his brief in the Joint 
 Traffic case. This is a very serious charge, and as Mr. Phelps is now 
 dead and can not defend himself, I feel bound to quote from his brief 
 to prove what I say. 
 
 He says, at page 38-39 of his brief: 
 
 A just freedom of contract in lawful business is one of the most important rights 
 reserved to the citizen under the general term of "liberty," for all human industry 
 depends upon such freedom for its reward. 
 
 We had heard nothing of that in the preceding case of United States 
 v. Trans-Missouri Association, although Mr. Phelps was one of the 
 counsel, and that was the very point that my pamphlet was written 
 to establish. 
 
 On page 18 he said: 
 
 In the antitrust act the plain object is to reach and put down mischievious trusts in 
 restraint of trade and monopolies. 
 
 We had heard nothing of that in the previous argument, and that 
 was what I had written my pamphlet to prove. 
 On page 43 he says: 
 
 The question in the present case is whether the agreement here under consideration 
 is one that may be prohibited by legislation, without infringing the freedom of contract 
 and the right of prosperity, which the Constitution declares and protects. 
 
 On page 57 he says: 
 
 The considerations that are thus seen to attend and control the discussion of the subject 
 conduct by inevitable logic to this conclusion: The true test of the constitutionality 
 of a law which abridges the freedom of contract must necessarily be found in the 
 reasonableness and justice of the contract abridged. The power of the legislature to 
 prevent unjust and mischeivous contracts when the public welfare requires it, must 
 be admitted. The constitutional prohibition against the deprivation of liberty and 
 property does not prohibit such a law, because the freedom to make contracts of that 
 character is not a part of the liberty of the citizen, nor is it a right of property. But 
 when the contract which a statute undertakes to forbid is not unjust or unreasonable and 
 is one that the general principles of law and morality sanction, and much more when 
 it is seen to be necessary to the lawful enjoyment of lawful property, then the consti- 
 tutional prohibition designated as a protection against precisely such legislation 
 is directly encountered. * * * This, then, must be the criterion: Is the contract 
 sought to be prohibited one that by the general principles of law and justice it is the 
 right of the party to make; or is it unjust, unreasonable, and mischievous and there- 
 fore unlawful? 
 
 Almost all of Mr. Phelps's brief is devoted to establishing these prop- 
 ositions, although there was no suggestion of the ideas involved in his 
 argument of the preceding case, and these are the identical proposi- 
 tions that my pamphlet was written to establish. Mr. Phelps says of 
 these propositions, at page 58: 
 
 This point was not made in the argument of the Trans-Missouri case, because no 
 such construction of the act was anticipated by cousel, nor was it considered by the 
 court, since it is an unvarying rule that no objections to the constitutionality of a law 
 will be considered unless raised by the party affected. 
 
COMMITTEE ON INTERSTATE COMMERCE. 565 
 
 I think it would have been far more candid in Mr. Phelps if he had 
 said the points were not made in the preceding argument because 
 he had never then seen Mr. Koyall's pamphlet, and as to what he 
 says of the court's not considering the constitutionality of a law 
 unless raised by counsel, I never knew of that rule before. On the 
 contrary, it is the doctrine of this court that the constitutionality of 
 a law is a jurisdictional question (Ex parte Yarbrough, 110 U. S. R 
 651), and a further doctrme is that the court itself will always raise a 
 jurisdictional question (M. C. & L. Ry. v. Swan, 111 U. S. R., 379). 
 
 When the court came to decide the case it had this to sav (171 
 U. S. R., 566): J 
 
 Regarding the two agreements as alike in their main and natural features, we are 
 brought to an examination of the question of the constitutionality of the act, con- 
 strued as it has been in the Trans-Missouri case. It is worthy of remark that this 
 question was neyer raised or hinted at upon the argument of that case, although if 
 the respondent's present contention be sound, it would have furnished. a conclusive 
 objection to the enforcement of the act as construed. The fact that not one of the 
 many astute and able counsel for the transportation companies in that case raised an 
 objection of so conclusive a character, if well founded, is strong evidence that the 
 reasons showing the invalidity of the act as construed do not lie upon the surface and 
 were not then apparent to those counsel. 
 
 The court was perfectly justified in this thrust at counsel. The 
 reasons did not lie on the surface, but were hidden down deep and 
 had their inspiration in long previous study of the laws of nature as 
 they were related to the elementary principles of out Constitution, 
 and yet Mr. Phelps comes along and appropriates my laboriously 
 wrought out thoughts and flippantly presents them to the court 
 as an inspiration thajt had casually come to him in some midsummer 
 night's dream. 
 
 And, this explanation being made, I feel justified in claiming that 
 I was the first person ever to bring forward the proposition that the 
 right to make an innocent contract as distinguished from one founded 
 in malice — wantoness — was a natural right essential to' evolution and 
 a liberty secured by the Constitution, and that the court has prac- 
 tically recognized that claim in the extract quoted above. 
 
 The subject as affected by the commerce clause. — Before the Constitution was adopted 
 a citizen of Maryland, living just at the State line, had a natural and inherent right 
 to take his basket of eggs across the State line to a village in Pennsylvania, half a mile 
 away, and sell them in that village. In Gibbons v. Ogden (9 Wheat), Chief Justice 
 Marshall said (p. 211): "It has been said that the Constitution does not confer the 
 right of intercourse between State and State. That right derives its source from 
 those laws whose authority is acknowledged by civilized man throughout the world. 
 This is true. The Constitution found it an existing right and gave Congress the power 
 to regulate it." (This is quoted with approval by Chief Justice Fuller in Dooley v. 
 United States, 183 U. S., p. 170.) 
 
 There can be no doubt that that was general and universal law before the Constitution 
 was adopted. In the absence of any colonial statute or act of Parliament forbidding 
 the Marylander to cross the line and sell his eggs to the Pennsylvanian , there can be 
 no doubt that it was the Marylander's natural right to cross the line and sell his eggs 
 to the Pennsylvanian. The citizen of France, if there is no statute forbidding it, 
 has a right to cross the line and sell his eggs to a Switzer. And, according to the 
 argument already submitted, if one Marylander could do this, five Marylanders could 
 associate themselves together and do the same thing in cooperation, although all five 
 might have theretofore been in active competition with each other in the egg business. 
 
 It was, therefore, the natural and inherent right of Marylanders, before the Con- 
 stitution was adopted, to associate themselves together and carry their product across 
 the State line and sell it to Pennsylvanians in any numbers whatever, and although 
 all those entering into the association had been rivals in the business before the associ- 
 ation was formed. 
 
566 HEAEINGS BEFOKE 
 
 When the Constitution was adopted it was intended to confer upon Congress power 
 to lay down rules which should govern the traffic of these Marylanders with the Penn- 
 sylvanians, but it was never intended to give Congress the power to break up and 
 destroy that traffic and forbid the Marylanders to carry their eggs across the line 
 any more and sell them to the Pennsylvanians. Congress was authorized to "regulate " 
 the traffic, but it was never intended to give Congress the power to destroy it. The 
 right to take their eggs across the line and sell them was one of the "liberties" of the 
 citizen, and it was never intended to give Congress the power to take from the citizen 
 any of his "liberties." (Monongahela Cc. r. U. S., 148 U. S., 312; U. S. v. Joint 
 Traffic Assn., 171 U. S.. p. 571.) 
 
 It was undoubtedly intended to give Congress power to establish regulations under 
 which the five Marylanders were to carry their eggs across the State line, but it was 
 never intended to authorize Congress to deprive them of their "liberty" to enter 
 into a partnership and carry their eggs across the line. 
 
 The Sherman law says these five Marylanders shall not combine to put any restraint 
 on interstate trade, and the lower court says in the case under argument that as the 
 combination of these five Marylanders ends a competition that had previously existed 
 between them, that puts a restraint upon interstate trade, and the Sherman law there- 
 fore makes the combination void. The five Marylanders had a "liberty " to make this 
 combination before the Constitution was adopted, and the Constitution was never 
 intended to deprive them of that "liberty." And to make this still clearer after the 
 Constitution was adopted the fifth amendment was added, which forbids Congress to 
 deprive anyone of his "liberties" without due process of law. 
 
 Private contracts. — And independently of these considerations is it not pertinent to 
 inquire here if there is not a wide difference between contracts like that between 
 railroads, which were under review in the joint traffic case, and the business agree- 
 ments between individuals? Contracts between railroads for transporting traffic 
 across State lines are plainly the kind of contracts that it was intended Congress should 
 have the power to regulate under the commerce clause. But how is a power to regu- 
 late traffic across a State line to be held to give Congress a power to dive down into 
 the transactions of two citizens of a State and establish rules by which their transac- 
 tions are to be governed merely because what they manufacture may come to get into 
 the channels of interstate commerce? It would seem to be an anomaly, and the 
 Supreme Court seems to have set its face against any such proposition in the joint 
 traffic case. 
 
 Progress work of trusts. — The incredible improvements in the condition of man- 
 kind in the past century have almost all come'from the work of great corporations. 
 They promote the new enterprises, have built up the waste places, and if they are 
 not unwisely interfered with in their legitimate work, though they should be care- 
 fully watched and held down to their legitimate work, the improvement in man's 
 condition which they are yet to bring about is beyond the wildest dreams of human 
 imagination. If we frame our laws so as to put an end to the ability of great corpo- 
 rations to further new enterprises and keep the wheels of progress in motion, we shall 
 bring the world to a standstill and produce a condition of stagnation. Mutatis 
 mutandis we could then say with Othello: "Farewell the plumed troop and the big 
 wars, that make ambition virtue." 
 
 Stop the great corporations from putting harmless restraints upon trade and from 
 establishing that sort of monopoly which our laws permit, to be directly explained, 
 and the great corporations will go out of business and progress will be stunted in its 
 growth. The evils of the trusts do not come from their wealth but from their abuse 
 of the power which their wealth gives them. The remedy is not to deprive men of 
 their natural and inherent liberties, but to put the Government between the strong 
 and the weak and compel the strong to-live within their own bounds. Government 
 prevents murder, arson, and larceny; why should it not prevent the trusts from 
 practices which are undoubtedly crimes? 
 
 Monopoly. — The common law was undoubtedly opposed to monopoly. Rex v. 
 Waddington (1 East, 143, decided in 1801) is a decision of the Court of King's Bench, 
 presided over by Lord Kenyon. In that case a man was prosecuted under the com- 
 mon law for buying up all the hops near a village in England. He was convicted, 
 fined $2,500, and sent to jail for six months. The case was elaborately argued by the 
 first lawyers in England and carefully considered by the court. The principle to be 
 deduced from the case is this : That for the legal status of monopoly to arise, the party 
 charged must have acquired what he holds with the intention of unduly raising prices 
 and he must have acquired a control of so much of a commodity as enables him actually 
 to raise prices unduly. That is the law to-day, and it is essential in considering this 
 matter that this principle should be borne in mind, for it is not acquiring control of a 
 great part of a commodity that constitutes monopoly, as the populace thinks, but, in 
 
COMMITTEE ON INTEBSTATE COMMERCE. 567 
 
 the eye of the law, by acquiring such a part of it as enables the party to unduly raise 
 prices. 
 
 Now, the quantity acquired in 1801 that would enable the party to unduly raise 
 prices, and the quantity acquired to-day that would enable the party to unduly raise 
 prices, are two very different things. A village in England in 1801 was practically 
 cut off from the rest of the world. It had no means but the old methods for getting 
 a new supply. But raw materials lie around everywhere now and means for manu- 
 facturing and presenting it are all about. To-day everything that is in the world is at 
 the beck and call of every locality. The telegraph and the telephone communicate 
 orders instantly and steam cars running at 40 miles an hour fetch the commodities. A 
 man or a corporation would have to be alert to acquire so much of any commodity as 
 would enable him or it to unduly raise prices. Besides, if it did raise them above the 
 normal, there would certainly be competition if the Government curbed the mo- 
 nopolist and made it safe to compete with him. 
 
 There ia no monopoly, therefore, to-day in the eye of the law unless the party has 
 secured control of so much of a commodity as will enable him to unduly raise prices. 
 I see no reason, therefore, why a holding corporation may not legitimately buy up any 
 number of other and competing corporations. Why may not a man buy whatever he 
 wishes to buy? 
 
 What is there in our institutions that says him nay? 
 
 The only effect is that he may become limitlessly rich, but our institutions are not 
 opposed to that. All our institutions are opposed to his using his wealth in a way 
 to oppress others, and it is the function of the Government to see that he shall not do 
 that. Our institutions contemplate, then, that a holding company may buy up as 
 many other companies that are competing amongst themselves as it pleases to buy, 
 providing it does not acquire a monopoly as above defined, and the Government will 
 see to it that it does not oppress its rivals by a tyrannical use of its power. 
 
 Northern Securities case. — But the Northern Securities case must be taken into 
 consideration here. In that case Justice Harlan delivered the opinion of four justices 
 and Justice White delivered the opinion of four justices and Justice Brewer delivered 
 his own opinion, so that there was no opinion of the court and nothing can be held to 
 have been settled by that case except that the combination then before the court 
 was an unlawful one. But Justice Harlan said certain things had been settled by 
 the previous decisions of the court, though I can not find this to be so as to two proposi- 
 tions stated by him. These are: 
 
 1. That the Sherman law condemned any combination that put an end to an existing 
 competition, and 
 
 2. That the Sherman Act condemned any combination that tended to monopoly. 
 If it be true that the Sherman law condemns all combinations that end existing 
 
 competitions, then the Sherman law has put an end to all progress. Whenever a new 
 order of things arises from the introduction of new devices or new ideas in business 
 methods, competitions that theretofore existed are necessarily ended and new com- 
 petitions arise in their places. A combination may propose to put an end to existing 
 competition, but it may intend to put in its place another competition that will be 
 far more to the interests of the public and of everyone concerned. Aviation may 
 destroy two competing railroads and cause their tracks to turn to two streaks of rust, 
 but are we to be deprived of aviation because it.may produce this result? 
 
 Competition must be left free, even if a competitor is destroyed and even though it 
 ends countless competitors. The public safety is in preventing anyone, rich or poor, 
 from making an improper use of his power. Justice Harlan's doctrine is the doctrine 
 of the labor union which confines the fastest to the speed of the slowest and opposes 
 the introduction of new devices because it may throw many employees out of work. 
 Justice Harlan says Congress may enact such measures as will prevent free competition 
 being interfered with. This is undoubtedly so, but it is one thing to say free compe- 
 tition shall not be interfered with and quite another thing to say that an existing com- 
 petition shall not be destroyed. 
 
 The one proposition is directly opposed to the other, as free competition may neces- 
 sarily result in the destruction of an existing competition. The destruction of an 
 existing state of competition may be necessary to carry forward a great enterprise of 
 the utmost importance to mankind, but the freedom of all men to compete with each 
 other to the death must not be interfered with in the smallest degree. 
 
 . Of what moment is it if an existing competition is suppressed, or if many existing 
 competitions are suppressed, if prices of the commodities are kept at the normal? It 
 is nothing to the public whether it gets its supplies from one man or one hundred 
 men if the price is no higher than it should be. . 
 
 Take the United States Steel Corporation, for instance. When it was formed it 
 suppressed many plants and ended many competitions, but if it can supply whatever 
 
568 HEARINGS BEFOBE 
 
 is needed without theae suppressed plants, then the suppressed plants were not 
 required, and to keep them in operation in competition with each other was simply to 
 force destructive competition, and if the United States Steel Corporation has kept 
 prices at the normal, how is the public hurt? But if the great concern raises prices 
 above the normal, then there will certainly be new competitions, if the Government 
 makes it safe to compete. It is preposterous for the Government to take the ground 
 that it is going to forbid the disuse of useless plants and force them to remain in com- 
 petition with each other. That is a subject which must be governed by business con- 
 siderations; at bottom by the law of supply and demand. The thing to do therefore 
 is not to interfere with the freedom of men, to conduct their business in the way that 
 suits them, but for the Government to stand between the strong and the weak and 
 force the strong to respect the rights of the weak. 
 
 Justice Harlan's second proposition is just as harmful as his first one. Our laws 
 do not condemn a status that tends to monopoly. They condemn monopoly as monop- 
 oly is explained above, but not a tendency to monopoly. A business is tending to a 
 monopoly from the day it starts. The parties engaged intend from the outset to get 
 control of as much of the business as they can control, but they are never monopolists 
 in the eye of the law until they control so much of it as enables them to unduly raise 
 prices. To say that a tendency to monopoly is condemned is not far from Mr. Bryan's 
 idea that a corporation should not be allowed to obtain control of more than 25 per 
 cent of a business. 
 
 It is a very great error to suppose the independent can not compete with the trusts. 
 The trust is full of water and it must sell at a price that will enable it to pay divi- 
 dends upon this water. But the capital of the independent is gold dollars and it must 
 pay dividends on them alone. The independent has an advantage also in proclaiming 
 that his goods are not made by a trust, which counts for much when all other things 
 are equal. The independent had also much rather compete with one rival especially 
 if its capital is largely made up of water than with 20 rivals all of whom have gold 
 dollars for their capital. 
 
 Returning from this long digression, I continue: So matters stood 
 until the fall of 1909 when the case of the United States v. A-merican 
 Tobacco Co., came on to be heard by the Supreme Court of the United 
 States. As no one had gone to the root of this matter in 1897, 1 felt that 
 no one would go to it in 1909. I determined therefore to ask the Su- 
 
 ?reme Court to allow me to file a brief in those cases as an amicus curiae, 
 printed the brief and sent copies to all the counsel in the case. On 
 the first business day of the fall term, 1909, I filed 25 copies with the 
 clerk and I saw him distribute a copy to each Justice. The court had 
 been so pestered by applications of this sort that it had adopted a rule 
 that it will not accept briefs of this sort unless counsel on both sides 
 agree to it. When I moved for leave to file my brief, the Chief Justice 
 asked if there was any objection. The Solicitor General said the 
 Government made no objection, but the counsel for the company sat 
 there saying nothing, which was equivalent to an objection, and so 
 the court refused the leave. Meanwhile, I had printed my brief in the 
 Central Law Journal for October 1, 1909, where it can be seen. 
 
 When the decision of the court came, in May, 1911, to the aston- 
 ishment of mankind the court held that Congress had never intended 
 to say that the word "every" meant "every," and it modified the 
 Sherman law so as to make if forbid only unreasonable restraints of 
 trade. This was all I wanted accomplished, so that I felt my brief had 
 done its work though not in the form in which I wanted it done. It 
 is hard to understand wh}~ the court put its action in the form of a 
 totally unreasonable construction of the statute instead of in the 
 declaration that the word "every "meant "every" and that this made 
 the law void. But this it did and the country got the relief that it 
 sought; that is to say, the evils of the word "every" are ended, but 
 in making the act break up and destroy an existing business the Su- 
 preme Court has brought it into square conflict with the Constitution 
 of the United States. 
 
COMMITTEE ON INTERSTATE COMMERCE. 569 
 
 The court's mandate went down to the circuit court and the'result 
 has been what is stated in the early part of this article. No one can 
 read the opinion of the Supreme Court without seeing that the circuit 
 court has fallen far short of what the Supreme Court intended that 
 it should do. It intended that the American Tobacco Co. should be 
 broken up, root and branch, and dissolved into thin air. But it is 
 to be noticed that there h»d been no issue before the Supreme Court 
 involving the radical orders that it sent to the circuit court and 
 there had been no argument before it to show how those orders 
 might be in conflict with the Constitution of the United States, 
 which to my mind they plainly are. Under these circumstances I 
 can not doubt that if it is shown to the Supreme Court that, it has 
 fallen into an error it will correct that error. To my mind it has 
 made the gravest error that any judicial tribunal ever fell into. 
 What is said to the circuit court is therefore not judicial decision but 
 obiter dicta. As stated in the early part of this article, the business 
 which a man has built up is his property as much so as his house or 
 his lot. As argued there the settled principle is that money acquired 
 in violation of law becomes the money of the party violating the 
 law, though he is liable to punishment for violating the law. This 
 principle lies at the foundation of all social order. The idea is that 
 the Government is equitably estopped to interfere with the party in 
 possession of what he has acquired. The Government should have 
 interfered and stopped the unlawful business at the start, but if it 
 stood by and allowed the party to go on with the unlawful business, 
 then it consented to his owning what he made. This is the crux of the 
 case, and I submit that the proposition can not be gainsaid. 
 
 But it is also argued that the combination is an unlawful combi- 
 nation, and that the Government can as a matter of course put an 
 end to a combination existing in defiance of law. I submit, how- 
 ever, that there is no such combination in the business of the United 
 States. 
 
 If five men entered into a combination to rob on the highway, 
 that would be an illegal combination which would always remain 
 an illegal combination. But there are no corporations in the busi- 
 ness of the United States that can be likened to such a combination 
 as this. All corporations are formed for the conduct of lawful busi- 
 ness, but some of them, like the American Tobacco Co., have been 
 misled into the performance of unlawful acts. I think I would ven- 
 ture nothing in saying that 1.000 of the American Tobacco Co.'s 
 transactions have been perfectly lawful transactions where one of 
 them has been an unlawful transaction. Will you take from a man 
 what he made by lawful transactions because he has been led into 
 some unlawful things,? 
 
 The true theory is that you will let him go along with his lawful 
 business but forbid him to do any more unlawful things. 
 
 BILL OF ATTAINDER. 
 
 It is perfectly plain also that if the Sherman Act has the effect of 
 confiscating property that the citizen has acquired according to law, 
 it is a bill of attainder, which the Constitution forbids Congress to 
 pass. This proposition is fully reasoned out in my article in the 
 Central Law Journal of October 27, 1911,. printed as an appendix to 
 
570 HEAE1NGS BEFORE 
 
 this address, and in my letter to the same journal of November 24, 
 1911, printed also as an appendix to this address. 
 
 CONCLUSION. 
 
 In conclusion, then, I submit the following: 
 
 We need none of the revolutionary proceedings called for on all 
 hands for dealing with this subject. All we need is to look the situa- 
 tion squarely in the face and to apply to it the old and venerable 
 principles of our laws, which are the outcome of ages of experience, 
 governed by common sense. Stand super antiquas vias and force 
 all men to live and act upon the principles of our institutions; respect 
 property, respect the natural and inherent rights of the citizen — what 
 the Constitution calls his "liberties" — and force all men to do the 
 same. Better a thousand American tobacco companies should go 
 hence with ill-gotten gains than that the principle that what belongs 
 to a man shall remain his should be violated in the smallest particular. 
 
 I undertake to say that if the courts are given full power to enjoin 
 all wanton injury to the citizen, to enjoin all unreasonable restraint 
 upon trade and all monopoly, as monopoly is herein defined, and are 
 required to keep all equitable suits upon their docket for relief in the 
 future, all trouble with this matter will come to an end. 
 
 Since the Supreme Court has made the Sherman law forbid un- 
 reasonable restraints on trade only, it affords all the radical relief 
 that the country requires in the matter of the trusts. All now neces- 
 sary is to really and truly enforce that law. 
 
 All that is needed is for the courts to enjoin a company from inflict- 
 ing a wanton injury upon its rival, to enjoin it from making any undue 
 restraint on trade, and to enjoin it from creating a monopoly, as 
 monopoly is explained herein. It is idle to say that the corporations 
 will disregard the injunctions of the courts, if the court is in earnest. 
 The most powerful agency on earth is a court of equity enforcing its 
 decrees. Its eyes are all-seeing and it peers into all transactions, 
 looking through all disguises, and stripping every subject of its false 
 garments. Its powers of punishment are without limit, so far as 
 fine and imprisonment go, and it has never yet failed to secure obe- 
 dience to its orders when real disobedience was intended. Its power 
 can be aided, though. Invite all men to bring to its attention viola- 
 tions of its injunctions, pay them to do it, make their cases the first 
 to be heard, give them stenographers, clerks, and give them lawyers, 
 to be paid by the Government liberal fees for prosecuting the cases, 
 and give the complainants half of the fines. If measures of this sort 
 are adopted the courts will be informed when corporations violate 
 their orders, and if they are informed they will certainly stop the 
 violations. 
 
 I can not within the limits of an address like this touch upon all 
 the details of the subject that should be properly dealt with, but my 
 various publications cover, I believe, every important view of it. I 
 therefore file with the committee my original pamphlet, The Pool 
 and the Trust; the Central Law Journal of October 1, 1909, page 
 238; the same journal for July 28, 1911, page 57; same journal for 
 October 27, 1911, page 297; same journal for November 24, 1911, 
 pages 380-381 ; my book, Some Reminiscences, chapter 4, and I refer 
 the committee to my brief filed in the clerk's office of the Supreme 
 Court of the United States in United States v. American Tobacco Co. 
 
COMMITTEE ON INTEKSTATE COMMEKCE. 571 
 
 as amicus curiae, at the beginning of October term, 1909. All of 
 these taken together contain my complete views upon this matter 
 
 Senator Cummins. Your conclusion seems to be, Mr. Eoyall, that 
 the law as it is, with the addition of a privilege upon the part of 
 some third person to sue out an injunction for its violation, should 
 stand. 
 
 Mr. Royall. Not to sue out an injunction. The injunction has 
 already been given in a case where the parties interested have been 
 litigating. Authorize a third person to bring to the attention of the 
 court any violation of that injunction. 
 
 Senator Cummins. Precisely; but with that addition or statement 
 you think the law is about what it ought to be ? 
 
 Mr. Royall. Since the word "every" has been made to have its 
 proper sense. 
 
 Senator. Cummins. That is the law; that is the statute as it has 
 been construed or interpreted by the Supreme Court of the United 
 States. 
 
 Mr. Royall. Yes; that is the statute. Before that it was all rad- 
 ically wrong. 
 
 _ Senator Cummins. So that you would not, by additional legisla- 
 tion, change the law or add to it except in the one respect that you 
 have already noted ? 
 
 Mr. Royall. I would add this: I would add to the Sherman law 
 a provision forbidding anybody to do a wanton injury in interstate 
 trade; to prevent the big man from crushing out the small man. 
 
 Senator Cummins^ At the same time, you are of the opinion that 
 under the law as it is and as it has been construed by the court, it 
 has taken from the American Tobacco Co. hundreds of millions of 
 dollars without any compensation? 
 
 Mr. Royall. Now let me interrupt you. 
 
 Senator Cummins. I simply ask you that question. 
 
 Mr. Royall. Let me interrupt you. I want you to get my idea. 
 The law is sufficient as it stands now, with the additions that I have 
 suggested. What is to be treated now, I submit, by this committee 
 and by Congress under your recommendation, is a provision having 
 that in view, that you can not take a man's property away from him, 
 a great mass of property like this. That is an element of the case 
 that has got to be corrected by legislation. 
 
 Senator Cummins. Then you do believe that there ought to be 
 some change in the law? 
 
 Mr. Royall. As regards that situation there must be. 
 
 Senator Cummins. I can hardly understand it yet. The law as it 
 is has taken away from the American Tobacco Co., without any 
 compensation, a very large part of its property, as you view it. Of 
 course, from this standpoint the law must be radically wrong. Then 
 in close proximity to that statement you state that the law as it was 
 applied to the American Tobacco Co. was a roaring farce. What do 
 you mean by that ? 
 
 Mr. Royall. I did not say that the law was a roaring farce. I say 
 that this prosecution of the American Tobacco Co., I think, has 
 resulted in a roaring farce. 
 
 Senator Cummins. If it resulted in a roaring farce it must have 
 been because it did not take from the American Tobacco Co. these 
 hundreds of millions of dollars ? 
 
572 HEARINGS BEFORE 
 
 Mr. Royall. That is just what has happened, sir. Had it been 
 carried out as the Supreme Court sent its message to the circuit court 
 then the American Tobacco Co. would have been ruined. 
 
 Senator Cummins. In your opinion, then, the law as it has finally 
 been crystallized into the decree of the Circuit Court of New York 
 has not taken away from the American Tobacco Co. these hundreds 
 of millions of dollars ? 
 
 Mr. Royall. It has not taken away anything. 
 
 Senator Cummins. And it is because it has not taken it away that 
 you call it a roaring farce ? 
 
 Mr. Royall. Yes, sir. 
 
 Senator Cummins. But if it had taken it away, it would have 
 been 
 
 Mr. Royall. A roaring tragedy. 
 
 Senator Cummins. And you attribute this result, I take it, from 
 what you say, to the fact that the Circuit Court of New_ York has not 
 executed the mandate of the Supreme Court of the United States ? 
 
 Mr. Royall. If I understand the opinion of the Supreme Court of 
 the United States, what has come out of this thing is as far from being 
 what it expected to come out of it as one thing can be from another. 
 
 Senator Cummins. So that inasmuch as we must always accept as 
 final the decisions of the Supreme Court of the United States as the 
 law of the land, if the decision in this particular case had been carried 
 out and this property had been destroyed, you would be very clearly 
 of the opinion that there must be some very radical change in the law? 
 
 Mr. Royall. Yes, sir. That, as I say, is now to be considered by 
 this committee. The original law is all right now. 
 
 Senator Cummins. Then, no matter what abortion may have hap- 
 pened in this particular case, if it is to be assumed that the decisions 
 of the Supreme Court in other cases will be like the one already ren- 
 dered, and that the^ courts which do finally enter the decrees will 
 follow the decisions of the Supreme Court, it must necessarily result 
 that you believe the present law is not only unconstitutional 
 
 Mr. Royall. Most destructively so. 
 
 Senator Cummins. But is unjust in taking away property without 
 due process of law ? 
 
 Mr. Royall. Absolutely so. That is my conclusion. 
 
 Senator Cummins. That means that we ought to revise or reform the 
 entire law, does it not ? 
 
 Mr. Royall. Yes ; it means this : The law, the Sherman law, under 
 its present construction, the word "undue" or "unreasonable" being 
 put in, the Sherman law does all that Congress can accomplish. 
 
 Senator Cummins. That is not the point that I have in mind. The 
 Supreme Court has interpreted the law to mean what you say? 
 
 Mr. Royall. Yes, sir. 
 
 Senator Cummins. It has applied the law as thus interpreted to the 
 affairs of the American Tobacco Co., and we must assume properly 
 applied it, and you say that that proper application of the law 
 destroyed, or would have destroyed, a very large part of the property 
 of the American Tobacco Co. ? 
 
 Mr. Royall. Let me interrupt you, please, Senator. 
 
 Senator Cummins. That is what you say? 
 
 Mr. Royall. Yes. But let me interrupt you. I want to make 
 this point. If you had followed me you would know that I had made 
 
COMMITTEE ON INTERSTATE COMMEECE. 573 
 
 this point. This thing -was never argued out before the Supreme 
 Court. There never was any issue made of it, and the Supreme 
 Court, in my opinion, has made a terrible blunder. It is not the 
 first time it has done so, but it has been big enough to acknowledge it. 
 Senator Cummins. So that your view of our duty in the matter — 
 that is, attempting to change or not to change the law — is based 
 upon your opinion that the Supreme Court has made a grievous error 
 or committed a grievous mistake in its application of the law, and 
 that in future cases it will not repeat that mistake ? 
 
 Mr. Royall. I believe that if the thing is brought back before them 
 and this question is argued out again before them the Supreme Court 
 will say it was unadvisedly adopted. 
 
 Senator Cummins. I believe 1 get your view. Your view is that if 
 the law were interpreted in a different way and applied in a different 
 way from that which it has been interpreted and has been applied it 
 would be all right ? 
 
 Mr. Royall. Yes; all right. If the Supreme Court in this case had 
 confined itself to enjoining the American Tobacco Co. from doing any 
 of these practices in the future and keeping their case upon its docket 
 to see that the company did not do it in the future the Supreme Court 
 would have done, m my judgment, what was right. It would have 
 been carrying out the Sherman law and would have been clearly within 
 its powers, and there would have been no occasion for it to do anything 
 else. It would have left the American Tobacco Co. its property. 
 
 Senator Cummins. One question with regard to the nature of the 
 property which you think it attempted or intended to destroy. You 
 have stated that the physical or tangible property of the American 
 Tobacco Co. was about sufficient to pay its bonds and its preferred 
 stock and that the remaining value was the business value. 
 
 Mr. Royall. Its established value; its established business. 
 
 Senator Cummins. And that it had earned something like 
 $30,000,000 a year net profit formerly out of that busness ? 
 
 Mr. Royall. That is it; sir. 
 
 Senator Cummins. Of course it earned that money because it was 
 able to charge sufficient prices for its products to aggregate this enor- 
 mous sum in revenue; that is it, isn't it ? 
 
 Mr. Royall. I do not suppose that one-hundredth part of the busi- 
 ness of the American Tobacco Co. was unlawful business. 
 
 Senator Cummins. I am not asking about that. I am simply put- 
 ting to you the apparent conclusion that its vast revenues depended 
 upon the prices at which it sold its products. 
 
 Mr. Royall. Yes; undoubtedly. 
 
 Senator Cummins. And the prices under which it sold these prod- 
 ucts depended very largely upon the fact that it had, in many branches 
 of the business, a substantial monopoly. Is that not true ? 
 
 Mr. Royall. To a certain extent that is true. 
 
 Senator Cummins. And the Supreme Court held that the monopoly 
 that it had established or was attempting to establish was unlawful 
 under the Sherman law. You do not believe that it was unlawful ? 
 
 Mr. Royall. Oh, I do not blink at all at the fact that it did a great 
 deal of unlawful business, but it did a great deal of lawful business 
 
 Senator Cummins. You do not believe under the definition of the 
 word "monopoly' which you read to us that the American Tobacco 
 Co. had a monopoly or it attempted a monopoly. 
 
574 HEARINGS BEFORE 
 
 Mr. Royall. I would not say that. I was merely dealing there 
 with the proposition of what is really a monopoly. 
 
 Senator Cummins. You say it is your opinion that we ought to 
 accept the definition given by the House of Lords, which was a com- 
 plete foregathering of all the particular commodity or particular 
 business. Therefore, applying that principle, you would have held 
 that the American Tobacco Co. was not a monopoly or attempt at 
 monopoly. 
 
 Mr. Royall. Observe what the principle is in the case of Rex v. 
 Waddington. A monopoly was said there to exist when a person 
 acquired so much of a commodity as to enable him to unduly raise 
 the prices. There is no monopoly until that condition arises; there 
 was no monopoly until the American Tobacco Co. had acquired so 
 much of the tobacco product as to enable it to unduly raise prices; 
 then it was a monopoly. 
 
 Senator Cummins. Assuming that the decision of the Supreme 
 Court is right in that respect, how would it stop the monopoly or 
 dissolve the monopoly without destroying this business that you 
 speak of and that which enabled it to earn the $30,000,000 ? 
 
 Mr. Royall. I do not see any difficulty about enjoining it from 
 further prosecution of measures that resulted in monopoly. 
 
 Senator Cummins. But its business, the extent of it, and the way 
 in which it was carried on, constituted the monopoly as laid down by 
 the Supreme Court. Now, the property in this business that you 
 speak of was the right to continue the business in that way? 
 
 Mr. Royall. Not in that way; no, sir. Continue the business law- 
 
 Senator Cummins. If it continued the business lawfully it could 
 not earn $30,000,000, could it? 
 
 Mr. Royall. I do not know whether it could or not. 
 
 Senator Cummins. Therefore, this business would not be worth 
 these hundreds of millions of dollars which you speak of ? 
 
 Mr. Royall. It might not be worth that much. It might be worth 
 half of that — $250,000,000, perhaps. Are you going to destroy that 
 because it has done unlawful business to the extent of $250,000,000 ? 
 
 Senator Cummins. No. I was simply getting your views as to how 
 you were going to preserve this business which is worth so much and 
 still prevent the company from going on in the way which has been 
 condemned by the Supreme Court. 
 
 Mr. Royall. That part of the business which is monopoly, that 
 part of the business which is in restraint of trade, is unlawful. Enjoin 
 them in regard to that. But it does an immense business outside of 
 that which would earn an immense amount of money. 
 
 Senator Cummins. That is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Did you read both the opinions in the Stand- 
 ard Oil case, the opinions of the Supreme Court ? 
 
 Mr. Royall. The Standard Oil case and the Tobacco case ? 
 
 Senator Brandegee. No. Did you read the majority and minority 
 opinion of the court in the Standard Oil case ? 
 
 Mr. Royall. Yes; both of them. 
 
 Senator Brandegee. Did you agree with either of thenf? 
 
 Mr. Royall. Well, there was a great deal in Chief Justice White's 
 opinion that I agreed with, and there was a great deal that I did not 
 
COMMITTEE ON INTERSTATE COMMERCE. 575 
 
 agree with. But I thoroughly agree with the conclusion he arrived 
 at. I do not see how he got to his conclusion. I can not figure it 
 out for the life of me. I have read it over a hundred times, and I can 
 not understand how he arrived at it, to save my life. Logically, he 
 was led up to saying this act, in making every combination void- 
 logically that makes this law repugnant to the fifth amendment ^o 
 the Constitution of the United States. That is what he ought to 
 have said. But for him to go through all that immense process of 
 ratiocination, that the word "every" does not mean every, I am 
 unable to understand it. 
 
 Senator Brandegee. As I understand you, you agree with his 
 conclusion ? 
 
 Mr. Koyall. He was right, I think. 
 
 Senator Brandegee. In his conclusion? 
 
 Mr. Royall. He ought to have said: "This thing makes this law 
 an unconstitutional law." This word "every" was intended to mean 
 "every," and that makes it an unconstitutional law, because it un- 
 dertakes to condemn things that Congress can not undertake to con- 
 demn. But when he goes through all that immense process of ratio- 
 cination to prove that the word "every" does not mean "every," I 
 can not follow him. 
 
 Senator Brandegee. In your opinion, is the Sherman law as you 
 think it ought to be construed an unconstitutional law ? 
 
 Mr. Boy all. With this word "undue" there? 
 
 Senator Brandegee. No; that is not the question. Do you think 
 the Sherman law is unconstitutional? 
 
 Mr. Royall. I think if the Sherman law is to have the interpreta- 
 tion the court intended it to have when it sent it down yonder m the 
 American Tobacco case to break up their business, I think that is 
 unconstitutional. It is unconstitutional when it takes property away 
 from them without due process of law, and it is a bill of attainder. 
 
 Senator Brandegee. I do not ask you whether you think it is un- 
 constitutional as the Supreme Court has interpreted it, because I 
 understand that they think it was constitutional as they have inter- 
 preted it; but I ask you, as you would interpret it, if the Supreme 
 Court had not given its decision, would you pronounce it an unconsti- 
 tutional law? 
 
 Mr. Royall. If you would let me say to the circuit court "restrain 
 all undue restraint of trade, all monopolies, according to the proper 
 definition of monopoly" 
 
 Senator Brandegee. I do not want to give any instructions to 
 the circuit court. I want to ask you, as you read oyer the Sherman 
 law, do you think it is constitutional or unconstitutional ? 
 
 Mr. Royall. I really never considered the question whether the 
 Sherman law really commands them to break up all that business. 
 I just said to myself, "If the Supreme Court gave it that interpreta- 
 tion, that makes the whole thing void. You can not take their 
 property away from them." 
 
 Senator Brandegee. As I understand you, you have been stating 
 here that the Sherman law, containing the word "every," that every 
 contract or agreement in restraint of trade is illegal. 
 
 Mr. Royall. Is illegal. 
 
 Senator Brandegee. Every contract ? 
 
 Mr. Royall. Yes, sir. 
 22877— vol 1—12 37 
 
576 HEARINGS BEFORE 
 
 Senator Brandegee. Do you construe that law to mean that 
 every contract in restraint of trade is illegal? 
 
 Mr. Royall. That is what the Supreme Court of the United States 
 said in the Trans-Missouri case and in the Joint Traffic case, and I 
 thought they were right. I think that is what Congress meant. 
 
 Senator Brandegee. You still think so ? 
 
 Mr. Royall. I can have my own private opinion without express- 
 ing it. 
 
 Senator Brandegee. That is what I ask you. 
 
 Mr. Royall. I can not say it to this committee. That would be 
 against the opinion of the Supreme Court. It meant that. I 
 believe that is what Congress meant; it meant to condemn every 
 restraint of trade. 
 
 Senator Brandegee. If you think Congress meant that, then you 
 think that is the true construction of the law? 
 
 Mr. Royall. I do. 
 
 Senator Brandegee. If that is the true construction of the law, do 
 you think it is unconstitutional ? 
 
 Mr. Royall. I do. 
 
 Senator Brandegee. Are you sure you stated the position of the 
 Chief Justice correctly as to the position in which private monopolies 
 stood under the common law ? 
 
 Mr. Royall. He has argued very much at large there. There are 
 a number of things in the opinion I can not understand. 
 
 Senator Brandegee. I understood you to quote him as having 
 taken the position that private monopolies were not odious to the 
 common law. 
 
 Mr. Royall. He does say so in his opinion. 
 
 Senator Brandegee. Without disputing with you, although my 
 recollection was not quite that, he said something to the effect that 
 under the common law in old times it was not apprehended that a 
 private person could get strong enough to produce a monopoly, and 
 therefore the effort of the law was exerted against governmental 
 monopoly. 
 
 Mr. Royall. I understand the Chief Justice had been following this 
 idea. The great case on monopolies in Coke's Reports was this, that 
 Queen Elizabeth had granted a right to a courier to sell all the playing 
 oards in England, and nobody else could sell a playing card. That 
 oase was taken to the Court of King's Bench, and the Court of King's 
 Bench held that it was_ a void act of the Queen. That has always 
 been known as the leading case on monopolies. 
 
 I understand the Chief Justice to say that is the only idea of 
 monopoly known to the common law, where the sovereign granted a 
 right exclusively to sell an article. That totally overlooks this final 
 decision in Rex v. Waddington, where there was a prosecution of a 
 man under the common law. 
 
 Senator Brandegee. As I understand you, the only change you 
 think advisable in the laws of the United States relating to those 
 corporations engaged in commerce among the States is that parties 
 should be furnished with attorneys to be paid by the Government 
 for contesting 
 
 Mr. Royall. For bringing the thing up. 
 
 Senator Brandegee. For bringing suits against corporations in the 
 courts ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 577 
 
 ™, r " R° YALL - Fo r bringing it to quick judicial interpretation. 
 The Chairman. That will be all, Mr. Royall. 
 Mr. Royall. I would like, with permission, to have inserted in 
 the record a paper entitled "The Pool and the Trust." 
 (The paper is as follows :) 
 
 The Pool and the Trust— Their Side of the Case— Review of the Supreme 
 Court's Traffic Decision. 
 
 [By William L. Royall, of the Richmond (Va.) and New York City bar.]'' 
 
 The following essay was completed and ready for the press when, on March 22, 1897 
 the Supreme Court of the United States announced its decisions in the case of United 
 States s._ Trans-Missouri Freight Association. It would be idle to say that decision 
 did not ignore, if it did not actually run counter to, the principal proposition upon 
 which my essay had been constructed . But there is no suggestion of that proposition 
 •in the opinion of the majority or in that of the minority of the court, and no one of the 
 briefs filed in the case even hints at it. I am justified, therefore, in saying that the 
 proposition I have endeavored to maintain was not submitted to the court in the argu- 
 ment of that case or considered by it, and that the decision can not be claimed to be a 
 decision against it. The case is, therefore, an undecided case, so far as the grounds 
 contended for here are concerned, and I am not arguing against a decision of the court 
 in putting this essay before the world . 
 
 But further, a new case has been brought before the Supreme Court involving the 
 same questions as were before it in the one referred to, and this case is set down for 
 argument in October, 1897. The whole subject is therefore to be reviewed then, 
 and I do nothing but make a contribution to the discussion of a living issue bv Dublish- 
 ing this. ' F 
 
 I have therefore determined to bring my essay before the public for what it is worth. 
 If its thoughts are valuable, they will receive recognition when the new case is decided. 
 If they are worthless, no attention will be paid to them, and no harm will be done. 
 With such modifications, therefore, as the court's decision referred to made necessary, 
 the essay is laid before the public as, in a measure, a review of and a refutation of the 
 doctrines announced by the court in the decision referred to. 
 
 THE "POOL" OR "TRUST" A PRODUCT OF EVOLUTION. 
 
 I regard the "trust" and its kindred organizations as products of evolution destined 
 to restrict competition within wholesome bounds. 
 
 In the endeavor to demonstrate this I have proposed to work a foundation for "the 
 trust" out of the elementary principles of our institutions and laws, thus securing for 
 them the sanction of an intelligent public opinion and the protection of the Constitu- 
 tion of the United States. The subject therefore obviously resolves itself into one 
 composed in part of considerations of political economy and in part of general and 
 constitutional law. I have written, then, with the purpose of showing, first, that 
 the trust is in perfect harmony with the elementary principles of our laws, and, 
 second, that it is under the sanction and protection of the Constitution of the United 
 States, which instrument, I have endeavored to show, must be departed from in 
 essence and principle and overthrown before the legislatures of the States can pass any 
 act that can have permanent influence of a prejudicial character upon them. 
 
 As a great deal of the discussion will turn upon what is and what is not "public 
 policy," and what are "restraints upon trade," it may be as well to state at the begin- 
 ning that I shall contend — 
 
 (a) That the public policy of a people, so far as the subject under discussion is con- 
 cerned, varies with conditions, and is whatever existing conditions of a people require 
 it to be, notwithstanding what courts aforetime may have declared it to be. 
 
 (6) Next, restrictions upon trade are not necessarily "restraints upon trade" in the 
 legal sense of that phrase. 
 
 (c) And that, in legal contemplation, no contract that several persons make one 
 party to can be a "restraint upon trade" in the legal sense of those words, unless they 
 are animated by malice or ill will toward some other person or persons. , 
 
 This will of course lead to the conclusion that the contract that was before the 
 Supreme Court of the United States in the Trans-Missouri traffic case was not a contract 
 in restraint of trade in contemplation of law. 
 
578 HEARINGS BEFORE 
 
 NATURE OF TRUSTS. 
 
 What have been opprobriously designated as "trusts" are the result of unbridled 
 and destructive competition made possible by the development of steam and electric- 
 ity. Production having outrun consumption, manufacturers and dealers, finding them- 
 selves confronted by products offered below the cost of such products to them, have felt 
 coerced into uniting their operations for offense and defense in order to prevent ex- 
 termination. It must be admitted by those who have given thought to the subject 
 that in many branches of business quick transportation of wares and instantaneous 
 communication of thought and intelligence have engendered such competition as to 
 force upon many business concerns the alternative of going out of business or discover- 
 ing some method by which such competition may at least be qualified. It is just as 
 much the result of what we call evolution as the reaper was the result of the greatly 
 increased crops of wheat brought to the world by our new and fertile country. 
 
 Those interested readily discovered the fact that in all ages and in all civilized 
 societies it has been recognized as the elementary and natural right of men to do in 
 concert whatever any one might do when acting by himself; that men have always 
 agreed that the propriety or impropriety of an act can never turn upon the number of. 
 persons engaged in performing it, but must turn upon the nature and character of the 
 act itself; that in all ages and in all civilized societies mercantile partnerships have 
 existed in which different individuals have combined their resources and their energies 
 for joint action. They naturally asked why this principle of self-protection could not 
 be applied against destructive competition; why, if 10 men could properly combine 
 their resources to form a mercantile partnership, 10 mercantile partnerships could not 
 equally combine their resources to form a larger mercantile partnership; and they then 
 asked why they should not be permitted to save themselves from destroying themselves 
 by such an agreement. 
 
 When the movement was started and the best and wisest men were asked why the 
 principle of mercantile partnership did not apply, they were all forced to admit that 
 it did. It did, in fact, and it applies no less to-day than it did at the beginning. 
 "The trust," and I take in all cognate agreements whenever I use this expression, is 
 nothing but a mercantile partnership upon a great scale. 
 
 But great movements such as this never stop at the point from which they started. 
 The trust, having had its origin in the desire to abridge destructive competition, was 
 in its incipiency a protective movement. But those connected with it soon dis- 
 cerned that it had elements of offense as well as defense. They discovered that they 
 could not only protect themselves from injury, but that it could also be made a source 
 of profit. If a dozen mercantile firms engaged in exactly the same business could, 
 when combined, do the whole business with but little more than the expenses of one, 
 why should not the useless expense be saved? If two merchants acting together as a 
 partnership have a right to reduce the charges on their business, a combination of 
 mercantile or manufacturing firms surely have the same right. This no one could 
 deny. It is clear, therefore, that the universally accepted principles of the ordinary 
 mercantile partnerships justified separate mercantile partnerships in pooling their 
 resources into a greater partnership to protect themselves from the loss of unrestrained 
 competition and to secure the greater profit due to the larger organization. 
 
 PURPOSE AND INTENTION AS AFFECTING INDUSTRIAL COMBINATIONS. 
 
 While the general proposition that has been laid down is undoubtedly a sound one, 
 yet every man'scommon sense tells him that there are some combinations between 
 men that the principles of our institutions must, in the nature of things, condemn. 
 It is the business of this essay to endeavor to determine and state some common prin- 
 ciple upon which every such agreement may be tested to ascertain what combinations 
 are allowable and what are not. 
 
 What is popularly known as the "antitrust act" of Congress provides that "every 
 contract, combination in the form of trust or otherwise, or conspiracy in restraint of 
 trade or commerce among the several States or with foreign nations, is hereby declared 
 to be illegal." When the tranB-Missouri freight case was before the Supreme Court 
 of the United States it was argued to the court (and that was the burden of the whole 
 argument) that contracts in restraint of trade have been settled by the adjudica- 
 tions of the, courts to be contracts in unreasonable restraint of trade, and that the 
 contract involved in that case was one that put only a reasonable restraint upon trade, 
 and should therefore be held to be exempted from the operation of the statute. But 
 the court replied that the statute declared "every" contract in restraint of trade void, 
 and that it was not authorized to read this word "unreasonable" into the act. 
 
COMMITTEE ON INTERSTATE COMMERCE. 579 
 
 Nevertheless, it is simply impossible for the court to hold that every agreement 
 which restrains some persons from some sort of interstate trade is within the condem- 
 nation of the act. Jones and Smith enter into a partnership in the city of Lynchburg, 
 Va., to buy tobacco there and ship it to New York for export. Each makes the other 
 agree that his entire time and attention shall be given to the tobacco business, and 
 that neither shall engage in any other business. This restrains each from dealing in 
 wheat or lumber, and the contract is therefore, in a certain sense, a restriction upon 
 trade. But it is impossible to suppose the court would say the act of Congress intended 
 to prevent such a partnership as this. It is not, therefore, every restriction upon 
 trade which is really a restraint. On the contrary, such a partnership contract as that 
 mentioned rather promotes trade than restrains it. It is necessary, therefore, to look 
 into the nature of trade and traffic to determine what contracts, though putting some 
 restrictions upon trade, are really not in restraint of trade but in fact promoters of it. 
 
 The inquiry is one of the deepest and the broadest that our institutions ever call 
 upon us to make. But it must be pursued, nevertheless, until its bottom and limits 
 are reached. 
 
 The proposition which I shall contend for in this essay is that the purpose and 
 intention of the parties in forming their agreement is the test of whether the agree- 
 ment is one approved of by the spirit of our laws or condemned by them. This is the 
 test to be applied to all such contracts as are under discussion, whether they be called 
 "trusts," or "boycotts," or "pools," or "monopolies," or "contracts in restraint of 
 trade," though something special will be said of each at the proper place. 
 
 There has been a good deal of contention at one time and another that an act, inno- 
 cent in itself, may become bad by being performed by numbers instead of by one. 
 The political economist, MacCulloch, has examined this matter with great perspicuity 
 and has demonstrated that this can not be so. Indeed, enlightened opinion every- 
 where concedes now that the proposition can not be maintained. In the great case 
 of the Mogul Steamship Co., decided by the English House of Lords in 1891, Lord 
 Morris said, in delivering his judgment (App. Cas. 1891, p. 50): 
 
 "Again, what one trader may do in respect of competition a body or set of traders 
 may lawfully do." 
 
 And in his work upon Trades Unions, Sir William Erie says (p. 25): 
 
 "As to combination, each person has a right to choose whether he will labor or not, 
 and also to choose the terms on which he will consent to labor, if labor be his choice. 
 The power of choice in respect of labor and terms which one person may exercise 
 and declare singly, many, after consultation, may exercise jointly, and they may make 
 a simultaneous declaration of their choice and may lawfully act thereon for the imme- 
 diate purpose of obtaining the required terms." 
 
 Lord Hannen quotes this in the Mogul steamship case with approbation. (lb., 59.) 
 
 I take it, therefore, as too well settled for discussion that the mere fact that an act is 
 done by many instead of by one can have no bearing upon the question whether it is a 
 good act or a bad act. But an act which is innocent when done by one may become a 
 vicious act when done by many, by reason of the purpose and intention with which the 
 many were inspired. That great and luminous writer upon political economy, Prof. 
 W. Stanley Jevons, has treated this subject with his customary clearness and ability in 
 his work entitled ' ' The State in Relation to Labor. ' ' He says, at page 129 : 
 
 "What is conspiracy? That confident but often mistaken economist, MacCulloch, 
 has touched the point of the matter when he says, in his little treatise on Wages (2d 
 ed., p. 90): 'A criminal act can not be generated by the mere multiplication of acts 
 that are perfectly innocent.' . 
 
 "This statement may be true as it stands, but it has no reference to conspiracy . lo 
 ask for more wages is a perfectly legal act, and if a thousand men were to be struck inde- 
 pendently with a wish for higher wages, and were to go and ask separately, there would 
 be no conspiracy in the matter; but if a number of men meet together and agree jointly 
 to ask for more, and then persuade others to do likewise, it is not a mere multiplication 
 of requests; it is that plus an agreement and an organized arrangement. The differ- 
 ence is even greater than this. The act becomes different in nature by reason of the 
 concert and the purpose implied in that concert. . 
 
 "It is, for example, a perfectly legal action to walk along a highway, and no multipli- 
 cation of such acts in the ordinary course of life or business can render them illegal. 
 
 "If so many men happened some day to walk through Throgmorton Street that the 
 street became entirely blocked up there would still be no legal offense. Theconcourse 
 would be fortuitous, and each man would simply be exercising his legal right under 
 difficulties. But if a number of men were to agree together that they would walk up 
 and down Throgmorton Street on a particular day, the complexion of the act wouldbe 
 entirely changed. The act is, no doubt, physically the same; but, being accompanied 
 with the knowledge that other people would do the same and that a block would be 
 
580 HEABI2STGS BEFORE 
 
 occasioned, there would be reason to presume some special purpose, as, for instance, 
 the obstructing the business of the stock exchange or occasioning alarm, perhaps panic, 
 in th* city. The act would be illegal in respect to the intention to block up the Queen's 
 highway." 
 
 That is entirely satisfactory as far as it goes, and yet it leaves an element in the case 
 that is not provided for. 
 
 An agreement between two or more with the intention and for the purpose of doing 
 another or others an injury may not, by itself, be a vicious or unlawful agreement, 
 even though that intention is present. 
 
 A has a retail hat store on Broadway in which he does a very profitable business^ 
 The cupidity of B and C is tempted by A's profits, and they agree together that they 
 will open a hat store by the side of A's and sell hats at one-half of what he sells them for 
 to drive him out of the business and get it for themselves. Now, although it is their 
 purpose and intention to ruin A, this agreement is a perfectly lawful one. It is_ lawful 
 because, although they intend to break down A, that is only an incident of their main 
 purpose, which is to benefit themselves. 
 
 In the Mogul steamship case Lord Morris says (ib., 49): 
 
 "It is not illegal for a trader to aim at driving a competitor out of trade, provided the 
 motive be his own gain by appropriation of the trade." 
 
 And, on page 51, he adds: 
 
 "I entertain no doubt that a body of traders, whose motive object is to promote their 
 own trade, can combine to acquire, and, thereby, in so far to injure the trade of com- 
 petitors, provided they do no more than is incident to such motive object, and use no 
 unlawful means." 
 
 And in the same case Lord Chancellor Halsbury said (p. 37): 
 
 "I should rather think as a fact, that it is very commonly within the ordinary course 
 of trade so to compete for a time as to render trade unprofitable to your rival in order 
 that, when you have got rid of him, you may appropriate the profits of the entire trade 
 to yourself. I entirely adopt and make my own what was said by Lord Justice Bowen 
 in the court below: 'All commercial men with capital are acquainted with the ordinary 
 expedient of sowing one year a crop of apparently unfruitful prices in order, by driving 
 competition away, to reap a fuller harvest of profit in the future; and, until the present 
 argument at the bar, it may be doubted whether shipowners or merchants were ever 
 deemed to be bound by law to conform to some imaginary "normal " standard of freights 
 or prices, or that law courts had a right to say to them, in respect to their competitive 
 tariffs, "thus far shalt thou go and no further." " 
 
 There can be no doubt, then, that the intention to injure, by itself, will not make an 
 agreement between parties bad. There must be something more. What is that some- 
 thing? 
 
 Suppose, in the case mentioned, of the hat store, B and C had hated A, and they had 
 agreed together to open the rival hat store — not to get a profitable business for them- 
 ' selves, but to gratify their malicious feelings toward A, by Beeing him ruined and his 
 family reduced to beggary. In that case their agreement would have been a vicious 
 and a bad one, condemned by the principles of our law. An agreement which contem- 
 plates injury to another, then, but only as necessarily incident to the purpose of the 
 contractors to benefit themselves, will be good, notwithstanding the intention to injure. 
 But an agreement in which the parties do not aim at improving their own conditions, 
 but aim at simply doing another a malicious injury, will be a vicious and a bad agree- 
 ment. 
 
 There is the touchstone, then, of every agreement, whether to "boycott," to create a 
 "monopoly," to create a "trust," or to "restrain trade." If the parties to it have in 
 mind to benefit their own condition, the agreement will be a good one; but if the par- 
 ties have it in mind to do another or others a purely willful and malicious injury, the 
 agreement will be a bad one. 
 
 This subject has been thoroughly investigated by the best minds of England, and 
 this was the conclusion reached, after the investigation, by the House of Lords in 1891, 
 in the great case of Mogul Steamship Co. v. McGregor (App. Cas., 1891, p. 25). The 
 case involved all the elements of what we call "trusts" and "pools" and "boycotts" 
 and "monopolies" and "contracts in restraint of trade." It was begun in the courts 
 in 1885, and was pending in them until 1891. Involving these social questions, it was 
 discussed and debated as a case depending upon considerations of political economy 
 by the first minds of England, whether lawyers or laymen, with a view to determining 
 just what are the rights and duties of citizens toward each other in society in matters 
 of this sort. It is, perhaps, the greatest and most important case ever decided by a 
 court of justice. 
 
 The test mentioned was what was determined in this case to be the true test of all 
 combinations, as a statement of the case and a few extracts from the opinions of the 
 judges will show. The case was this: 
 
COMMITTEE ON INTERSTATE COMMERCE. 581 
 
 Several lines of steamship traded to China all the year. The trade was unprofitable 
 except in what is called "tea season," when it was very profitable. The losses of the 
 year were made up and a profit gained by the freights on tea in "tea season." Another 
 line of steamers traded to Australia all the year until "tea season" came on when its 
 steamers were diverted to Hankow to get a part of the profitable tea trade. The lines 
 which traded to China all the year entered thereupon into an agreement, called there 
 a conference, which was in all essentials one of our "trusts " or "pools" or "monopo- 
 lies or boycotts or "contracts in restraint of trade," or whatever else of the same 
 sort can be suggested They agreed together to divide out freights amongst them- 
 selves and they published a notice to all merchants in China that if they would ship 
 everything all the year by one of the conference lines, they would be allowed a rebate 
 upon all freights at the end of the year of 5 per cent, and whenever one of the steamers 
 of the Australian line came to Hankow the conference had a steamer there to underbid 
 it on freights; so that whatever the Australian got caused it a loss. Thereupon the 
 Australian line applied to the English courts for protection, upon the ground that this 
 combination of many against one was contrary to the principles of our laws. It is plain 
 that the case brought up for discussion all the questions relating to pools and trusts 
 now agitating the American mind, and these questions received a treatment in Eng- 
 land worthy of their magnitude and scope. 
 
 The case was tried first by Lord Chief Justice Coleridge and Lord Justice Fry It 
 was then tried by Lord Coleridge alone, and, upon appeal from his decision by Lords 
 Justices Bowen and Fry, and Esher, master of the rolls, and upon appeal from them 
 to the House of Lords, it was heard before the Lord Chancellor, Halsbury, Lord Wat- 
 son, Lord Macnaghten, Lord Bramwell, Lord Morris, Lord Field, and Lord Hannen 
 Each decision was in favor of the conference, and every one of these 1 2 eminent judges 
 except Esher, M. R., held that the agreement was a perfectly good and valid one 
 according to the principles of our common law. 
 
 The guiding principle in the case was held to be the one stated. If the parties con- 
 templated their own improvement only it was immaterial that they contemplated 
 injury to the Australian, or that injury to him would be the result of their acts; but 
 if they were actuated by malice toward the Australian, then the agreement would have 
 been a vicious one, condemned by the principles of oui law. This was held to be the 
 test in all such cases. 
 
 The idea is very admirably brought out in the opii on that was delivered in the 
 House of Lords by Lord Field. (lb., 51.) He said: 
 
 "My lords, I think that this appeal may be decided upon the principles laid down 
 by Holt, C. J., as far back as the case of Keeble v. Hickeringill (11 Mod., 74, 131, and 
 note to Carrington v. Taylor, 11 East., 514). In that case the plaintiff complained of 
 the destruction of his 'decoy' by the defendant having discharged guns near to it, 
 and so driven away the wild fowl, with the intention and effect of the consequent 
 injury to his trade. Upon the trial a verdict passed for the plaintiff, but in arrest of 
 judgment it was alleged that the declaration did not disclose any cause of action. 
 Holt, C. J., however, held that the action, although new in instance, was not new in 
 reason or principle, and well lay, for he said that the use of a 'decoy' was a lawful 
 trade and that he who hinders another in his trade or livelihood is liable to an action 
 if the injury is caused by 'a violent or malicious act.' 'Suppose, for instance,' he 
 said, 'the defendant had shot in his own ground, if he had occasion to shoot it would 
 have been one thing, but to shoot on purpose to damage the plaintiff is another thing, 
 and a wrong.' But, he added, if the defendant, 'using the same employment as the 
 plaintiff,' had set up another decoy so near as to spoil the plaintiff's custom, no action 
 would lie, because the defendant had 'as much liberty to make use of a decoy' as the 
 plaintiff. In support of this view he referred to earlier authorities. In one of them 
 it had been held that by the setting up of a new school to the damage of an ancient 
 one by alluring the scholars no action would lie, although it would have been other- 
 wise if the scholars had been driven away by violence or threats. 
 
 "It follows, therefore, from this authority, and is undoubted law, not only that it 
 is not every act causing damage to another in his trade, nor even every intentional act 
 of such damage, which is actionable, but also that acts done by a trader in the lawful 
 way of his business, although by the necessary results of effective competition inter- 
 fering injuriously with the trade of another, are not the subject of any action. 
 
 "Of course it is otherwise, as pointed out by Lord Holt, if the acts complained of, 
 although done in the way and under the guise of competition or other lawful right, are 
 in themselves violent or purely malicious, or have for their ultimate object injury to 
 another from ill will to him, and not the pursuit of lawful rights. " 
 
 Lord Hannen said, in delivering his opinion in the same case (ib., 59): 
 "I arrive at the conclusion therefore that the objects sought and the means used 
 by the defendants did not exceed the limits of allowable trade competition, and I 
 
582 HEARINGS BEFORE 
 
 know of no restrictions imposed by law on competition by one trader with another 
 with the sole object of benefiting himself. 
 
 "I consider that a different case would have arisen if the evidence had shown that 
 the object of the defendants was a malicious one, namely, to injure the plaintiffs 
 whether they, the defendants, should be benefited or not." 
 
 Lord Watson said, in delivering his opinion in the case (ib., p. 42): 
 
 "If the respondents' combination had been formed, not with a single view to the 
 extension of their business and the increase of its profits, but with the main or ulterior 
 design of effecting an unlawful object, a very different question would have arisen for 
 the consideration of your lordships." 
 
 Lord Justice Fry said, in delivering his opinion in the same case: 
 
 "These are, so far as I am aware, all the relevant authorities, and none of them 
 appear to me to support the proposition that mere competition of one set of men 
 against another man, carried on for the purpose of gain, and not of actual malice, is 
 actionable, even though intended to drive the rival in trade away from his place of 
 business and though that intention be carriedinto effect." 
 
 This is the idea that runs through the judgment of each one of the judges. In the 
 newspaper reports at the time of the argument of the case by counsel, Lord Hannen 
 was reported to have said to one of the lawyers: 
 
 "This conference had no sort of ill will toward the Australian. Nothing would 
 have made it happier that to have heard that it had gone off to other waters and had 
 become as rich as Rothschilds. All they wanted was that it would leave them alone 
 in their waters." 
 
 This Mogul steamship case is authority, then, for the proposition that by the 
 elementary principles of our laws any agreement between parties which aims bona fide 
 at the bettering of the condition of the parties to the agreement is good and valid, even 
 though it is intended to injure another in his business,, but that those agreements 
 which are founded in ill will or malice are opposed to the principles of'our laws. For 
 an agreement to be bad, therefore, according to the elementary principles of our 
 institutions, the parties to it must be actuated by ill will or malice toward some one. 
 
 This gives us a clear-cut, definite, and intelligible principle that is in conformity 
 with the natural liberty and freedom of contract of every citizen, upon which we can 
 judge of the validity or invalidity of every agreement, and that principle is that men 
 may think as they please, may act as they please, and may do what they please with 
 their own so long as they are bona fide seeking to benefit themselves, and are not 
 aiming at the malicious injury of thoir fellow men. It is that absolute freedom which 
 it is the dream of republics to leave to the citizen. It gives the true interpretation to 
 that foundation maxim of the law, sic utere tuo, ut alienum non laedas'. You may do 
 what you will with yourself and what is yours so long as you leave others to do the 
 same with theirs, and do not seek to inflict a willful or malicious injury upon another. 
 
 It is well to quote in this connection some of the things said by the judges in the 
 Mogul steamship case that bear upon this idea. The lord chancellor (Halsbury) 
 said (ib., 36): 
 
 "Now, it can not be denied, and can not be even argued, that prima facie a trader 
 in a free country in all matters 'not contrary to law, may regulate his own mode of 
 carrying on his trade according to his own discretion and choice.' This is the language 
 of Baron Alderson in delivering the judgment of the Exchequer Chamber, and no 
 authority, indeed, no argument, has been directed to qualify that leading proposition." 
 
 Lord Watson said in the same case (ib., 42): 
 
 "There is nothing in the evidence to suggest that the parties to the agreement had 
 any other object in view than that of defending their carrying trade during tea season 
 against the encroachments of the appellants and other competitors, and of attracting 
 to themselves custom which might otherwise have been carried off by these com- 
 petitors. That is an object which is strenuously pursued by merchants, great 
 and small, in every branch of commerce; and it is, in the eye of the law, perfectly 
 legitimate." 
 
 I have already quoted what Lord Morris said in the same case, but it will bear 
 quoting again in this connection. He said (p. 49): 
 
 "The object was a lawful one. It is not illegal for a trader to aim at driving a 
 competitor out of trade, provided the motive be his own gain by appropriation of the 
 trade, and the means he uses be lawful weapons. 
 
 Lord Chief Justice Coleridge said, in delivering his opinion in the same case: 
 
 "It must be remembered that all trade is, and must be, in a sense, selfish; trade 
 not being infinite, nay, the trade of a particular place or district being possibly very 
 limited, what one gains another loses. In the hand-to-hand war of commerce, as in 
 the conflicts of public life, whether at the bar, in Parliament, in medicine, in engi- 
 neering (I give examples only), men fight on without much thought of others, except 
 a desire to excel or defeat them. Very lofty minds like Sir Philip Sidney, with his 
 
COMMITTEE ON INTERSTATE COMMEECE. 583 
 
 cup of water, will not stoop to take an advantage if they think another wants it more 
 Uur age, in spite of high authority to the contrary, is not without its Sir Philip Sidneys 1 
 but these are standards of perfection which it would be silly indeed to make the 
 measure of the rough business of the world as pursued by ordinary men of business " 
 While we hold to the principle of the Mogul steamship case, we know where we are 
 We have a definite principle to go by. 
 
 THE ALTERNATIVE IDEA. 
 
 The alternative idea, which turns courts loose to judge of the validity or invalidity 
 of each particular agreement accordingly as the judge may think it is in harmony or 
 out of harmony with his ideas of public policy, leaves the question of the citizen's rights 
 to the discretion, and the arbitrary discretion, of a judge. It is that sort of equity 
 which is measured by the chancellor's foot. Lord Bramwell is a great judge In. the 
 Mogul steamship case, already referred to several times, he said in delivering his 
 opinion (ib., 45): & 
 
 "The first position of the plaintiffs is that the agreement among the defendants is 
 illegal as being m restraint of trade, and therefore against public policy, and so illegal 
 Public bohcy,' said Burroughs, judge (I believe, quoting Hobart, chief justice), 'is 
 an unruly horse and dangerous to ride.' I quote also another distinguished judge, 
 more modern, Cave: 'Certain kinds of contracts have been held void at common law 
 on the ground of public policy;- a branch of the law, however,' which certainly should 
 not be extended, as judges are more to be trusted as interpreters of the law than as 
 expounders of what is called public policy. ' 
 
 'I think the present case is an illustration of the wisdom of these remarks. I 
 venture to make another. No evidence is given in these public-policy cases. The 
 tribunal is to say, as matter of law, that the thing is against public policy and void. 
 How can the judge do that without any evidence as to its effect and consequences? 
 
 "If the shipping in this case was sufficient for the trade, a further supply would 
 have been a waste. There are some people who think that the public is not concerned 
 with this — people who would like a second railway by the side of one existing, saying 
 'only the two companies will suffer,' as though the wealth of the community was not 
 made up of the wealth of the individuals who compose it. I am by no means sure 
 that the conference did not prevent a waste and was not good for the public. Lord 
 Coleridge thought it was — see his judgment." 
 
 These are very profound remarks that are entitled ts the greatest consideration. 
 
 Now, the decision in this case of the Mogul Steamship Co. is to be considered as 
 relating backward, and determining that from the beginning the true principles of 
 our laws permitted any agreements whatever between men so long as the parties to 
 them were seeking to improve their own condition and had no evil or malicious motive 
 toward any of their fellow men. It is an enunciation of a principle of natural law, 
 which the common law is when not controlled by conditions. 
 
 OLD DOCTRINES TO BE REVISED. 
 
 It is undoubtedly true that there is a great deal in the decisions of the courts and in 
 the utterances of text writers in England prior to the Mogul steamship case, and in 
 America both before and since that decision, that must be accounted for and disposed 
 of before this view can be unconditionally accepted. There are cases in both coun- 
 tries that have held contracts void where no element of malice was present. But I 
 submit that all of them can be satisfactorily disposed of, and they must be now aban- 
 doned when the reasons upon which they are based are critically considered and 
 compared with the reasons for ceasing to regard them as any longer guides. All of 
 them are based upon reasons growing out of feudalism and Middle Age notions of 
 political economy. 
 
 But the reasons that led to those decisions are utterly out of harmony with the 
 conditions now existing in the world, and they have to be abandoned if we wish to 
 continue our career of improvement and advance. The world has gone so far ahead 
 of what it was when those reasons were put out as considerations that should control 
 men that we are now justified in casting them aside and following such paths as are 
 marked out to us by right reason and sound principle. 
 
 In the Nordenfeld case in the House of Lords (App. case, 1894, p. 547), to be more 
 fully commented upon hereafter, the Lord Chancellor of England said in 1894: 
 
 "In considering the application of the rule and the limitations, if any, to be placed 
 on it, I think that regard must be had to the changed conditions of commerce and of 
 the means of communication which have been developed in recent years. To disre- 
 gard these would be to miss the substance of the rule in a blind adherence to its letter. 
 
584 HEARINGS BEFORE 
 
 Newcastle-upon-Tyne is, for all practical purposes, as near to London to-day as towns 
 which are now regarded as suburbs of the metropolis were a century ago. An order 
 can be sent to Newcastle more quickly than it could then have been transferred from 
 one end of London to the other, and goods can be conveyed between the two cities in 
 a few hours and at a comparatively small cost. Competition has assumed altogether 
 different proportion 1 ! in these altered circumstances, and that which would have been 
 once merely a burden on the covenantor may now be essential if there is to be reason- 
 able protection to the covenantee." 
 
 In the same case Lord Ashbourne said: 
 
 "The cases that have been referred to are interesting and important as showing the 
 history, growth, and development of an important branch of our law. In considering 
 them it is necessary to bear in mind the vast advances that have, since the reign of 
 Queen Elizabeth, taken place in science, inventions, political institutions, commerce, 
 and the intercourse of nations. Telegraph, postal systems, railways, steam, have 
 brought all parts of the world into touch. Communication has become easy, rapid, 
 and cheap. Commerce has grown with our growth, and trade is ever finding new 
 outlets and methods that can not be circumscribed by areas or narrowed by the 
 municipal laws of any country. It is not surprising to note that our laws have been 
 also expanded, and that legal principles have Keen applied and developed so as to 
 suit the exigencies of the age in which we live." 
 
 And in the same case, in dealing with the argument that contracts deliberately 
 made between men are to be set aside as opposed to a judge's crude notions of public 
 policy, Lord Watson said : 
 
 "But it must not be forgotten that the community has a material interest in main- 
 taining the rules of fair dealing between man and man. It suffers far greater injury 
 from the infractions of these rules than from contracts in restraint of trade." 
 
 The lawyer requires no suggestion upon the point, but the layman needs to be told 
 that a decision by the English House of Lords is not one in which the lay peers have 
 any voice. A certain number of the peers are the most eminent judges in England, 
 who have been elevated to the peerage because of their distinguished services in the 
 law. The decisions are really the decisions of these judges only. They are looked 
 up to in America as correct expositions of the principles of American law with the same 
 respect and regard as they are looked up to in England. They are regarded as the 
 most authoritative of all expositions of the true principles of our common law. 
 
 MONOPOLIES. 
 
 Now, in old times it was said that the common law was opposed to monopoly,, 
 and especially monopoly in articles of prime necessity, to many other similar things, 
 and to contracts that restrained trade. I will deal with monopoly and contracts in 
 restraint of trade and the others separately. 
 
 Notwithstanding all that has been said in respect to the common law being opposed 
 to monopoly, pretty much all that we are to hold or regard as binding authority upon 
 the subject is the case of the monopolies reported in Lord Coke's Reports and decided 
 in the reign of Queen Elizabeth. But all that the case decided was that the Crown 
 could not grant to a citizen an exclusive right to sell an article in common use 
 . amongst the people. That was the enunciation of a most wholesome principle, which 
 satisfied everyone then and which satisfies everyone now. But there is nothing in 
 that principle which even tends to prove that the foundation principles of our laws 
 are opposed to one or more persons acquiring by their own efforts or with their own 
 resources as much of any commodity as they might be able to secure, and I insist that 
 there is absolutely nothing in the elementary principles of our laws which is opposed 
 to any citizen or any combination of citizens securing for themselves by fair means 
 any quantity of any given article that they may desire to possess. 
 
 It is true that in the distant past the authorities of the law in England interfered 
 with the strong hand of power and prohibited any one citizen or any combination of 
 citizens securing control of the whole or a greater part of any commodity thought 
 necessary to the well-being of the people, and when this arbitrary exercise of power 
 was made the courts of England justified it, and, to that extent, it became a part of 
 the common law that no man or set of men should acquire a monopoly. But this was 
 done because, in those times, the people had no means except water for transporting 
 bulks from one locality to another. The people of a locality were forced to subsist 
 upon what that locality produced or starve. Therefore the authorities of the law 
 interfered and said that one or two should not monopolize or engross what was abso- 
 lutely necessary for all. It was action based upon the principle of our laws embodied 
 in the maxim, salus populi suprema lex, and it was upon that principle that the old- 
 time courts sustained the actions of the executive authorities. The remarks just 
 
COMMITTEE ON INTERSTATE COMMERCE. 585 
 
 quoted of the Lord Chancellor and Lord Ashbourne in the Nordenfeld case are directly 
 in point here. 
 
 When this idea was put out as part and parcel of our laws the inhabitants of one side' 
 of Kent County were about as far from those of the other side, so far as getting supplies 
 was concerned, as those that live in the center of Kent County now are from the 
 wheat growers of the Dakotas. There was every reason, therefore, at that time why 
 one man or a few men should not be permitted to take possession of a greater part of 
 anything produced in Kent County that the population needed. There is no reason 
 now why one or more should not be permitted to buy everything raised in Kent 
 County, because the people of Kent County how buy, with the money they sell their 
 products for, whatever they need, and if they find it more to their advantage to sell 
 all that they raise than to consume it, why should they be denied the opportunity 
 to do it? 
 
 RESTRAINT ON TRADE BY SEVERAL. 
 
 Contracts by several in restraint of trade were condemned by the authorities of 
 the law in old times upon the same principles. (I am speaking now of contracts in 
 restraint of trade to which several were parties. I shall deal with the case of a con- 
 tract by one man only that was condemned as in restraint of trade as a separate heading 
 and to itself.) 
 
 But these contracts have had some special reasons assigned in respect to them 
 that it will be well to give a little special attention to. 
 
 The case of Hilton v. Eckersley, reported in 6 E. & B., 47, is the leading case in 
 condemnation of contracts by several alleged to be in restraint of trade. Let us look 
 into that and see just what its lesson is. 
 
 Eighteen cotton manufacturers in the town of Wigan, Lancaster County, England, 
 had been very much embarrassed in their business by their operatives striking and 
 intimidating other operatives from taking their places. They consequently entered 
 into a bond whereby each bound himself to all the others in the penalty of £500 that 
 each would run his establishment for 12 months in the matter of wages to be paid, 
 the persons to be employed, the time each employee was to be engaged for, the houra 
 of work and of suspending work, and the general discipline and management of their 
 works, in conformity with what might be resolved upon a by majority of the 18. 
 One of the contracting parties broke his contract and he was sued for £500. He set 
 up as a defense to the suit that the contract operated as a restraint upon trade, and 
 was therefore against public policy and void. The case was tried first before Cromp- 
 ton, J., Erie, J., and Lord Campbell, C. J., and the contract was held by them to be 
 one in restraint of trade and void, Erie J. dissenting. It was then appealed to the 
 Exchequer Chamber and heard there by seven other judges, all of whom concurred 
 in holding it to be a contract in restraint of trade and void. 
 
 Now, let us see the reasons that were given for this conclusion. Crompton, J., said: 
 
 "In the present case the agreement is that, in a certain event, all the parties con- 
 tracting are to close their works, and the consideration of the promise of each is the 
 promise of the others likewise to close their works. So that the public are not recom- 
 pensed for the closing of one party by the other parties being able to carry on their 
 trade with increased facilities." 
 
 Now, the idea involved here is that when a man sets up a private business, with 
 his own resources only, and with no aid or assistance of any sort whatever from the 
 public, the public acquires some sort of right or interest in his busines that entitles 
 it to have that business kept going under any and all circumstances. The man who 
 started the business may think his interests require him to close it, but the logic of 
 this judge's remarks is that he must keep it going, although it may destroy him to 
 do so. . . . 
 
 The Supreme Court of the United States announced the doctrine in Munn v. Illi- 
 nois that where a business was of a public nature, the public had such an interest in 
 it that it had a right to regulate its charges for services, but such a doctrine as Oromp- 
 ton's, in respect to a private business, has never been announced in any court of 
 justice in this country, so far as I know. Doubtless it is a part of HerrMost's encyclo- 
 pedia of law, but he has never put it forward, so far as I know, in any court of justice. 
 I submit that no argument is needed to an American public in contravention of this 
 proposition. No one will ever be heard to say here that when a man starts a business 
 he may not discontinue it when he pleases, and if he may discontinue it entirely, 
 surely he may part with control of it for one year, or such other period that he may 
 think will be for his benefit. If a man's business is his own, upon what principle is 
 it to be said that he shall not cease to control it for a certain period if he is given in 
 exchange for the control what he thinks more valuable to him than the control? Of 
 course Judge Crompton 's notion that the public has rights in his business would 
 
586 HEARINGS BEPOEE 
 
 deny the privilege to him; but must an argument in support of his right be adduced 
 to those who think that a man's own business belongs to him and may be controlled 
 or disposed of by him as he pleases? Judge Crompton's idea is plainly a remnant 
 of feudalism and of Middle Age notions of political economy that we have long turned 
 our backs upon. 
 
 That was Judge Crompton's first reason for thinking this contract opposed to public 
 policy. His second is thus stated by him: 
 
 ' 'One of the most objectionable parts of this bond is that it takes away the freedom 
 of action of the individual to carry on the trade and to open and close his works accord- 
 ing as it may be for his interest or that of the public. It appears to me obviously 
 mischievous that the parties shall give up the right of judging for themselves and 
 place themselves and their trades under the dictation of either a majority or of a 
 committee of delegates. " 
 
 A man whose mind was imbued with the middle-age notions of political economy 
 could, of course, think that the public had an interest in forcing this cotton manu- 
 facturer to go on with his business whether he wanted to or not. But it can not be 
 necessary to refute this idea at this day. So far as the rest of this reason is concerned, 
 it is the same in substance as the preceding one, and the answer to that is an answer 
 to it. Crompton assigned one other reason, which I will take up in connection with 
 the same as assigned by Campbell, chief justice, when I have noticed the only others 
 that were advanced. 
 
 Campbell, chief justice, while agreeing with what Crompton had said, added: 
 
 "If such an association is good for such a district, it would be equally good for tha 
 whole county of Lancaster or for the whole nation of England." 
 
 And I reply, certainly. Whatever one man may lawfully do any number of men 
 may do when acting together in concert. No such idea as that would have been 
 tolerated in 1855, when this case was decided, but it is now accepted all over America 
 and in England as a perfectly sound proposition. This disposes of all the arguments 
 in the court of first instance except one advanced by both Campbell and Crompton, 
 which will be noticed when the arguments advanced on the appeal have been dealt 
 with. 
 
 When the case came before the Exchequer Chamber the opinion of all seven judges 
 there was read by Baron Alderson. The argument of that opinion was the same in 
 substance as the argument made by Campbell and Crompton in the court below. 
 
 "All this," said Alderson, "for a fixed period of twelve months. All these are 
 surely regulations restraining each man's power of carrying on his trade according 
 to his discretion for his own best advantage, and therefore are restraints on trade 
 not capable of being legally enforced." 
 
 This is the same thing in another form. It is the assertion of the socialist's idea 
 that a man is to carry on his business as the public thinks will be to his advantage, 
 and not as he may think. It was good feudal doctrine, but it will not do in this day 
 of enlightenment and freedom. AH the reasons advanced by these judges are now 
 disposed of except one, and that is a reason concurred in by all of them, and it is really 
 the "crux" of the case. It is thus stated by Lord Campbell. He said: 
 
 "Again, there must be entire reciprocity between liberty to the masters and liberty 
 to the men; and it seems to me that a decision in favor of this bond would establish 
 a principle upon which the fantastic and mischievous notions of a 'Labor Parliament' 
 might be realized for regulating the wages and the hours of work in every branch of , 
 trade all 6ver the empire. The most disastrous consequences would follow to masters 
 and to men, and to the community." 
 
 Here we have it at last. Here is feudalism and the rule of the "best born." There 
 is the foundation idea at the bottom of all of this business. But the "best born" 
 are no longer the "best born" and the "natural rulers." In this country, and in 
 England, too, the humblest laborer has all the rights in the social establishment that 
 the proudest nobleman, so-called, has. The "masters" have the right to make their 
 concerted agreements between themselves so long as they aim at their own good only, 
 and have no malice toward their fellow men, and the laborers have the same right, 
 and they have the right to carry it to the length of a "Labor Parliament, " which may 
 make rules for the government of all who choose to submit to their rules, so long as 
 these laborers are seeking their own good only, have no malice toward anyone, 
 and leave all laborers free to live under the laws of their parliament or not, as they 
 please. 
 
 The spirit out of which all these idea3 and notions grew is finely portrayed by old 
 Chamberlayne in his "Present State of England," when describing the England of 
 1682, just prior to the Revolution. 
 
 Descanting upon the theme that whatever prosperity England had arose from the 
 profuseness of those who were "nobly born," he says: 
 
COMMITTEE ON INTERSTATE COMMERCE. 58V 
 
 "Whereby it comes to pass that cooks, vintners, innkeepers, and such mean fellows 
 enrich themselves and beggar and insult over the gentry. In a word, by their prodi- 
 ¥r£ y X l £ omes t0 P ass that > not 0IQ ly these, but tailors, dancing masters, and such 
 trifling fellows arrive to that riches and pride as to ride in their coaches, keep summer 
 houses, to be served on plate, etc., an insolence insupportable in other well-eoverned 
 countries." (14th ed., vol. 1, p. 43.) 
 
 A few pages before this writer said the laws of England looked upon traders as a 
 "meaner and baser sort of people.',' 
 
 There is the genesis of the doctrine announced by these judges, who could not 
 tolerate laborers having unions and combinations to advance their own interests. 
 It would result in tailors, innkeepers, and other such "mean and trifling fellows " 
 .'arriving to that riches and pride as to ride in their coaches, keep summer houses, 
 to be served on plate, etc., an insolence insupportable in other well-governed countries 
 Of course it would be straining a point to say that their interference with the right 
 of a man to do what he pleased with his own establishment was the natural outcome 
 of these aristocratic social ideas. Yet it is the child of the same parent stock. A 
 political economy which considers some citizens better than others naturally shades 
 off into a theory that government controlled by the "best born" should watch over 
 its citizens as a parent watches over his child and see that they make no improvident 
 bargains that may work to their injury. 
 
 This prejudice of caste colored all public actions in England until a very recent 
 period. A great novelist writing of the period soon after 1870 makes a haughty old 
 English family turn the portrait of one of its members to the wall, with an inscription 
 on it, "Gone into trade." 
 
 The case of Hilton v. Eckersley was decided in 1855. But the judges who sat in it 
 had been reared under the ancient regime, and their minds and feelings were colored 
 by its inspirations and ideas. Hence the reasons given by them for the decisions 
 they made. But such reasons as these, in this day and generation and amongst a free 
 people like ours, are regarded as simply childish and not entitled to a moment's con- 
 sideration. They are distinctly repudiated by the Supreme Court of the United 
 States in the trans-Missouri traffic case. In delivering the opinion of the court in 
 that case, Mr. Justice Peckham says: 
 
 " The trader or manufacturer carries on an entirely different business, and can sell 
 to whom he pleases; he may charge different prices for the same article to different 
 individuals; he may charge as much as he can get for the article in which he deals 
 whether the price be reasonable or unreasonable; he may make such discrimination 
 in his business as he chooses, and he may ceaBe to do any business whenever his choice 
 lies in that direction." 
 
 The judges who sat in Hilton v. Eckersley, then, had received their bent from the 
 old order of things. But the new order of ideas was abroad in the land. The French 
 Revolution, with all its blood and butchery, had pulled down the fortress of feudalism 
 and had released the minds of men from the shackles and bonds in which they had 
 been so long bound . The old ideas that dominated those judges had made England a 
 land of titled gentry that revelled in every luxury known to the age and a commonalty 
 starving for want of bread. 
 
 In a speech made by Richard Cobden in the House of Commons in 1845, when he 
 was attacking the remnants of feudalism that still bound the poor people of England, 
 he said: 
 
 " He knew of a place where a hundred wedding rings had been pawned in a single 
 week to provide bread ; and of another place where men and women had subsisted 
 on boilea nettles, and dug up the decayed carcass of a cow rather than perish." 
 
 This was no exceptional case. The evidence is abundant that it fairly represented 
 the condition of hundreds of thousands, aye millions. The work of Richard Cobden 
 and John Bright resulted in the repeal of the restrictive laws that had bound English 
 thought and action down for so many centuries, and from 1846, England has been the 
 home of free thought and free action. This glorious result was the direct consequence 
 of the great work of Richard Cobden and John Bright in applying the principles that 
 the French Revolution had sent out into the world to the institutions of England. 
 Consequently, when the judges who sat in 1891 in the case of the Mogul Steamship 
 Co. and who had been reared under the new order that the work of Cobden and Bright 
 made for England came to look into the questions that the old judges had taken such 
 a hide-bound view of in Hilton v. Eckersley, they repudiated the old feudal ideas 
 that had controlled those judges, and they declared that from that time forward 
 thought and action in England should be free, and that all men should be free to work 
 together as they pleased, so long as they were simply aiming to improve their own con- 
 ditions and had no ill will or malice toward their fellow men. That great decision 
 marks the boundary line between feudalism and the free thought and free action 
 
588 HEAB1NGS BEFOKE 
 
 which republics are instituted to secure . It is the great fortress that will forever stand 
 guard over the liberty of the citizen. 
 
 THE KERNEL TAKEN OUT OP THE HILTON CASE. 
 
 The case of Hilton v. Eckersley is not to be left without one word further. 
 
 Lord Hannen and several others of the judges who sat in the Mogul steamship case 
 and agreed to the decision, said that Hilton v. Eckersley still remains law, so far as 
 the parties to an agreement are concerned. In other words, an agreement of that 
 sort will be good when the parties to it assert any claim or demand against a third 
 party, but is void if one of the parties to the agreement seeks to hold another party to 
 it bound by it. . 
 
 This must be set down as a testimonial to English conservatism. It is a monstrous 
 proposition in England to say in a court of justice there that a solemn decision of the 
 Court of Exchequer Chamber is not law. That is a heresy that is not to be tolerated. 
 The judges in the Mogul steamship case consequently cut all the kernel out of Hilton 
 v. Eckersley, but said that as a shell, it still remained a good nut. We are compelled 
 to attribute the remarks of Hannen and the others to this idea, because the Mogul 
 case has certainly overthrown the Hilton case in its essential matters, and it is simply 
 preposterous to attempt to bolster up the Hilton case upon any such theory as that 
 advanced with the Mogul case conceded to be law. 
 
 It is absurd to say that when half a dozen parties to an agreement come into a court 
 of justice demanding that some one shall perform a contract he has made with the 
 partnership, the law will look upon the partnership as a good one to which the de- 
 fendant must perform his contract obligations, but that when five of the parties to the 
 c ontract sue the sixth to compel him to perform his obligations to it, the law is to say 
 that the agreement between the parties is void as being against public policy. This 
 would be a case of felo de se. It is simply preposterous. However, though Hannen's 
 remark was a sound one, it would not affect the general argument now being sub- 
 mitted. He expressly claimed that the agreement, though void between the parties 
 to it, was valid as to the rest of the world. But his proposition is a preposterous one 
 that can not be maintained for a moment. 
 
 Hilton v. Eckersley was pressed upon the judges in the Mogul steamship case as 
 authority for the proposition that the agreement in the Mogul case was one in restraint 
 of trade, and it was expressly repudiated by them. The Mogul case has, therefore, 
 overruled and overthrown the Hilton case; and it is an express announcement that 
 agreements of that sort are not agreements in restraint of trade according to the legal 
 idea of restraints of trade. 
 
 AMERICAN DOCTRINE. 
 
 I have now shown how these false ideas of political economy got a place in English 
 law and how they were rooted out of it. It remains to be shown how they received 
 a place in American law, and how they should be discarded from it. 
 
 We followed English decisions in this country in this as we followed them in all 
 other matters. We did so without question because no great interests were affected 
 by them,, and the minds of the people were never aroused to the necessity of examining 
 into the foundations upon which they rested. But conditions have so changed now 
 that we are confronted with the necessity of treating the matter as one of principle 
 and of determining what the essential principles of our institutions require of us in 
 the case. 
 
 ~j All that has ever been said here respecting "monopolies," "contracts in restraint 
 of trade," and other such matters have been nothing but declarations of a principle 
 of public policy. But the public policy of a country is what the circumstances and 
 conditions of that country require it to be. Its public policy may be one thing in one 
 century and exactly the reverse in the next. 
 
 May the courts of a country change the rule which its public policy has been declared 
 by previous courts to require? I say unhesitatingly that it may. 
 
 Lord Mansfield — clarum et venerabile nomen — was the leader in the line of thought 
 and decisions that I am about to discuss. Starting in the case of Rex v. Mayor (1 
 Burr, 292) with the proposition, "General rules are wisely established for attaining 
 justice with ease, certainty, and dispatch. But the great end of them being to do 
 justice,' the courts are to see that it be really attained. What I have suggested seems 
 to be the true way to come at justice ; and what we ought therefore to do, for the genuine 
 testis 'bonijudicisampliariiustitiam' (not 'jurisdictionem,' as ithas been often cited)," 
 he advanced in Burgess v. Wheat (W. Black, 123) to this proposition: 
 
COMMITTEE ON INTERSTATE COMMERCE. 589 
 
 "Arguments of convenience and inconvenience are always to be taken into con- 
 sideration where we are not tied down by erroneous opinions which have prevailed 
 so far in practice that property would be shaken by any alteration of them." 
 
 He laid down there the principle which guided him in his great career of law reform 
 and the true principle which should guide all courts in determining how far they are 
 to be bound by old declarations of what is the policy of the people. Wherever those 
 declarations have been acted upon until they have become a canon of property rights, 
 they must be accepted and adhered to until the legislature changes them. But 
 wherever those declarations of principle relate only to the policy of the people as a 
 nation we are to look into the actual conditions that existed when those declarations 
 were made, and if those conditions have changed we are then to see if those declara- 
 tions can not be changed or modified so as to bring the actual law into greater harmony 
 with the new conditions and therefore into greater harmony with justice. 
 
 But a word further is to be said upon this subject. There are some acts and con- 
 tracts condemned by the principles of our laws as being opposed to public policy 
 that are vicious in their nature, and the law can never be changed in respect to these 
 acts and contracts except by act of the legislature. Illustrations of these will 
 readily occur to anyone at all versed in the principles of our law. For instance, a 
 contract is void and against public policy, and can have no standing in court, by 
 which one party stipulates to employ a number of secret agents in order to obtain the 
 passage of a particular law by the legislature of a State and the other party promises 
 to pay a large sum of money in the case that law should pass. (Marshall v. R. R. Co., 
 16 How., 314.) 
 
 This contract is made void by the law as being against public policy, and condi- 
 tions can never so change as that courts would be justified in changing the rule. These 
 are cases when the vice in the contract grows out of the nature of the subject. 
 
 But there are other cases where the opposition of the law grows out of conditions, 
 and as these conditions change the rule may also change. A leading instance of this 
 is furnished by the celebrated case of Omichund v. Barker, which Mr. Smith has 
 made one of his "leading cases." 
 
 Seven or eight hundred years ago the religious bigotry then ruling England would 
 not permit a heathen or an infidel to testify as a witness. This was then the public 
 policy. But in the last century liberality and enlightenment had advanced and 
 conditions had so changed that the necessities of the English people required that 
 infidels and heathens should be accepted as witnesses, and in this great case the English 
 court overthrew the old rule and accepted them. 
 
 Lord Chief Justice Willes, in delivering the opinion of the court when the old rule 
 was repudiated, said in speaking of Lord Coke's views: 
 
 "And I think that even the devils themselves, whose subjects he says the heathen 
 are, can not have worse principles; and besides the irreligion of it, it is a most impolitic 
 notion and would at' once destroy all that trade and commerce from which this nation 
 reaps such great benefits. * * * For though it may be founded upon some general 
 sayings in Bracton, Fleta, and Briton, and other old books, those I think of very little 
 weight and therefore shall not repeat them; first, because they are only general dicta; 
 and, in the next place, because these great authors lived in veryiaigoted popish times, 
 when we carried on very little trade except the trade of religion, and consequently 
 our notions were very narrow and such as I hope will never prevail again in this 
 country." 
 
 This great judge then referred to the old common-law rule that an alien heathen 
 could not even bring a suit in an English court, and he continues: 
 
 "No one will, I believe, now say that he has not a right to bring such a suit or that 
 he is not entitled to justice. For though there was such an old notion in popish times, 
 and for some little time afterwards till the Reformation was fully established, that 
 even an alien friend, especially if he were an infidel, could not sue in a court of justice 
 here, this most absurd, wicked, and unchristian notion has, God be thanked, been 
 long since exploded and will, I hope, never be revived again." 
 
 Now, when it was declared , as a rule of the common law based upon public policy, 
 that a heathen's testimony could not be heard in an English court and that a heathen 
 could not sue in an English court, England was no more than a principality of the Pope 
 of Rome. Popery and England's public policy were one and the same. 
 
 Here, then, is a case where the old rule of the law was declaratory of a public policy 
 that depended upon the conditions existing when it was declared. But when the 
 conditions changed, then the courts held that no obligation rested upon them to 
 respect further the old' rule. Cessante ratione legis cessat lex ipsa, is the maxim of 
 
 the law. , . . , . , , u j 
 
 Every reason that justified the courts in that case in refusing to be longer bound 
 
 by a rule that depended upon conditions long passed away justifies them in saying 
 
590 HEARINGS BEFORE 
 
 now that it if no longer public policy to forbid monopolies or contracts that restrain 
 trade, if the parties are only seeking their own advancement. Properly regulated 
 (not unbridled) competition, aided by steam and electricity, is the antidote to any 
 poison growing out of such contracts. 
 
 In the case of Nordenfeld (App. cas., 1894, p. 45), Lord Watson said: 
 
 "A series of decisions based upon grounds of public policy, however eminent the 
 judges by whom they were delivered, can not possess the same binding authority 
 as decisions which deal with and formulate principles which are purely legal. The 
 course of policy pursued by any country in relation to, and for promoting the interests 
 of, its commerce must, as time advances and as its commerce thrives, undergo change 
 and development from various causes which are altogether independent of the action 
 of its courts. In England, at least, it is beyond the jurisdiction of her tribunals to 
 mold and stereotype national policy. Their function, when a case like the present 
 is brought before them, is, in my opinion, not necessarily to accept what was held 
 to have been the rule of policy a hundred or a hundred and fifty years ago, but to 
 ascertain with as near an approach to accuracy as circumstances permit what is the 
 rule of policy for the present time." 
 
 American courts then will change American public policy to suit American con- 
 ditions. 
 
 The case comes down then to this: An agreement between parties founded in malice 
 or ill will toward others, to create a "monopoly," to "pool," to create a "trust," to 
 "boycott," or that operates "in restraint of trade," will be held to be illegal and 
 void. But all agreements that aim, in good faith, to advance the interests of the par- 
 ties to the agreement only, will be held to be valid. 
 
 If a party of men should enter into an agreement to create a monopoly or to restrain 
 the trade of a place for the purpose of ruining that place, this agreement would be 
 unlawful. But if their agreement looked only to their own good, the fact that it 
 might grow into a monopoly or injure some of the trade of the place would not make it 
 unlawful. 
 
 RESTRAINTS UPON TRADE BY ONE. 
 
 In view of the decision of the Supreme Court of the United States on March 22, 1897, 
 in the case of the United States v. Trans-Missouri Freight Association, it remains now 
 to say a word upon the special case of contracts alleged to be in restraint of trade. 
 
 There is no head in the law that has involved a greater contrariety of decision than 
 this. A glance at the opinion of Lord Macnaghten in the Nordenfeld case (App. cas., 
 1894, p. 563) will show how the judges differed fro:n each other upon questions of this 
 sort, and how one has criticized and almost abusec another. 
 
 Finally the subject came under the review of the louse of Lords of Great Britain in 
 1894, in the case of Nordenfeld v. Maxim Co. (App. cas., 1894^ p. 535), and, after 
 elaborate review of it, the doctrine was announced that in cases like that before the 
 court, the test of whether the contract was one in restraint of trade or whether it was 
 not, was whether the restraint was a reasonable or an unreasonable one, and, in the 
 argument of the Trans-Missouri Freight Association case, following the Nordenfeld 
 case, the whole question made before the Supreme Court was whether the agreement 
 in that case was one that put a reasonable or an unreasonable restraint upon trade, 
 and the whole question considered by the court was whether or not it was to be bound 
 by that test. 
 
 The facts of the Nordenfeld case were these: Nordenfeld, the inventor of the cele- 
 brated quick-firing gun of his name, sold out all his rights to the Maxim Co., and agreed 
 with it that for 25 years from date he would not engage in a rival business anywhere 
 in the world. He received large compensation for his rights. Afterwards, having 
 spent what was paid him (as is to be inferred, since he argued his own case in the 
 House of Lords under the designation of a pauper), he undertook to violate his contract 
 and start a rival business. The Maxim Co. applied to the courts to restrain and enjoin 
 him and compel him to abide by his agreement. Nordenfeld claimed that as his 
 contract bound him not to engage in a rival business anywhere in the world it was 
 one in restraint of trade under the old rule that allowed a man to contract not to carry 
 on a business within a limited space, but forbade him to contract generally that he 
 would not carry on a business anywhere. After an elaborate review of the subject 
 the judges resolved to abandon the old idea depending upon locality, and they declared 
 the rule to depend upon whether the restraint put upon trade was reasonable or 
 unreasonable. 
 
 Now, it is clear that the whole scope of that case has relation to the right of one man 
 to put himself under a servitude. Every man in England and America is a freeman, 
 and the whole idea and policy of the institutions of both countries are that men shall 
 remain freemen as long as it is possible for them to be so. The citizen must, of course, 
 
COMMITTEE ON INTERSTATE COMMERCE. 591 
 
 be permitted to part with some portion of his freedom or he could not enter into the 
 contract obligations which are essential to civilization and commerce. But the law 
 will not countenance his subjecting himself to what is practical slavery. It will 
 allow him to part with so much of his freedom as is necessary for the demands of trade 
 and commerce, but it will not allow him to part with more than that. When he under- 
 takes to part with more than that the law says he is simply making himself a slave, 
 wantonly, and without any sound reason for it. 
 
 This, I submit, is the whole scope and meaning of the Nordenfeld case, and when 
 the judges talk of "reasonable" and "unreasonable," it is with reference to this 
 foundation idea. 
 
 Lord Macnaghten, in delivering his opinion, said: 
 
 "There is no higher authority upon the subject 'contracts in restraint of trade,'- 
 than Tindal, C. J. He had more to do with molding the low on this head and bringing 
 it into harmony with common sense than all the judges since Lord Macclesfield's 
 time put together. You will hardly find any judgment in reference to restraint of 
 trade delivered by any court in England or America during the last 60 years in which 
 some passage is not cited from some judgment of Tindal, C. J." (lb., 569.) 
 
 In the case of Horner v. Graves (7 Bing., 735-743), Chief Justice Tindal thus describes 
 the test of a contract that is in restraint of trade : 
 
 "We do not see how a better test can be applied to the question, whether unreason- 
 able or not, than by considering whether the restraint is such only as to afford a fair 
 protection to the interests of the party in favor of whom it is given, and not so large 
 as to interfere with the interests of the public. Whatever restraint is larger than the 
 necessary protection of the party can be of no benefit to either; it can only be oppres-. 
 sive, and, if oppressive, it is, in the eye of the law, unreasonable." 
 
 This is quoted with approbation by the Lord Chancellor in the Nordenfeld case, 
 and is accepted as the correct exposition of the law by the other judges. It is the hinge 
 upon which the Nordenfeld case turns. 
 
 This, then, is all that the Nordenfeld case establishes, to wit, that if a person binds, 
 himself to do what can not be of benefit to the covenantee and is simply oppressive 
 to the covenantor, then the covenantor shall be held to have parted with more of, 
 his freedom as a citizen than there was any occasion for, and he shall not be held bound , 
 by the part of the contract that is simply oppressive to him though bound by that part 
 which gives the covenantee a benefit and is not needlessly oppressive to the 
 covenantor. 
 
 It is true the "interests of the public" and the "rights of the public" and "public 
 policy" are phrases that occur throughout the opinions of all the judges in this case. 
 But we must understand those phrases as relating to the case that was actually before 
 the court. The judges had before their minds the question how far a man might 
 part with his freedom as a free man by contract, and when they speak of "the public " 
 and "public policy" they refer to the public policy that is interested in every man 
 remaining a free man and not converting himself into a Blave. They were dealing 
 with that question under the name of a "contract in restraint of trade." 
 
 There is one other idea connected with the subject that should also be noticed. 
 There was undoubtedly a notion in old times that the public had an interest in . 
 preventing a man making a contract that would disable him to perform his part in . 
 the labors required by society of its citizens, because if one man could so disable 
 himself all others might do the same, and society might thereby be deprived of so 
 many laborers that men would starve or freeze. But modern thought discards this, 
 along with many of the other old-time and false notions of political economy. 
 
 The supply must always equal the demand, if there is any source of supply which 
 can meet demand. If such a thing could happen as that so many men disabled 
 themselves by contract not to labor as to endanger the necessary supplies for men, 
 then it would at once become more to the interest of those who controlled the laborers 
 to allow them to labor than to keep them from laboring. They would be offered such 
 remunerative prices for allowing their covenantees to labor that they would find it 
 to their interest to allow them to labor. Society might have to pay a high price for 
 what it needed, but that would only be the usual case of provident men getting the 
 advantage of their foresight and improvident men having to pay for their ineptitude. 
 Society would run no risk, though some short-sighted men might have to pay very 
 roundly for what they needed. It is entirely in order to quote again here what Lord 
 Watson said upon this point in the Nordenfeld case. (lb., 552.) He said: 
 
 "It must not be forgotten that the community has a material interest in maintain- 
 ing the rules of fair dealing between man and man. It suffers far greater injury from 
 the infraction of these rules than from contracts in restraint of trade." 
 
 These are words fit to be written in letters of gold in every tribunal of justice or 
 other public place. 
 
 22877— vol 1—12 38 
 
592 
 
 HEARINGS BEFORE 
 
 CASE WHERE "REASONABLE" IS REALLY THE TEST. 
 
 Thia analysis and explanation of the Nordenfeld case has been a little prolonged, 
 But it has seemed necessary in view of the fact that the whole discussion there turned 
 upon the phrase "contracts in restraint of trade," and as "reasonable" or "unreason- 
 able" was made the test there, it would seem to have established that "contracts in 
 restraint of trade " were to be subjected to that test and not to the test of malice or 
 good intention. 
 
 But when the Nordenfeld case is critically examined it becomes clear that every- 
 thing said in it has reference to the case of one man putting himself under a servitude 
 by his contract, and that the test of "reasonable" or "unreasonable" has relation to 
 that case alone. It was not intended by the judges in that case to intimate that that 
 test had any relation whatever to a case in which several men have agreed together 
 to do a thing in concert. 
 
 It must be manifest that a case in which a pauper who has squandered what he 
 received for agreeing not to do a thing, endeavors to free himself from the obligations 
 of his contract, stands upon a very different footing from a case in which the sovereign 
 charges that a number of its citizens have conspired and agreed together to form them- 
 selves into a combination to do an injury to their fellow citizens, and that they are 
 actually carrying their agreement into effect, to the great injury and loss of the others. 
 The first case stands upon considerations that relate wholly to the ability of the citizen 
 to part with his liberty as a free man. The second stands upon considerations that 
 relate to the right of numbers to combine together against one. So manifestly do 
 the cases separate from each other that the Mogul steamship case was not even referred 
 to in the Nordenfeld case. The Nordenfeld case gives the law where one man has 
 put himself under a servitude and seeks to escape his obligations. The Mogul steam- 
 ship case solves the great social problem of iow far men dwelling together under the 
 restraints of society may cooperate together when the consequence of their coopera- 
 tion may be the destruction of some of their fellow citizens. 
 
 It comes down then to this, that there never was a day when the elementary prin- 
 ciples of our laws regarded any agreement between men as a "contract in restraint of 
 trade," if the parties to the agreement were seeking their own good only and had no 
 malice or ill will toward any others; and that for a contract to have been one in "re- 
 straint of trade," according to the legal idea of "restraint of trade," the parties to it 
 must have been animated by a malicious purpose to do another an injury from ill will 
 toward him. 
 
 THE BOYCOTT. 
 
 A few words should now be addressed especially to the boycott. So far this essay 
 has treated the subject as though malice was the only element that could cause the 
 actions of men to be condemned as vicious. That was because the character of action 
 most liable to be called in question is action to which malice only can be attributed 
 as a ground for viciousness. But the actions of individual man or of men acting in 
 concert may, of course, be called in question upon many other grounds. There may 
 be attempts to coerce by force, or attempts to intimidate by threats of force, or actual 
 trespasses. Any of these would make the action of a combination bad just as well 
 as malice. So there may be actual malice, or there may be a state of facts which 
 warrants imputation of malice, although none may exist. The vice in a boycott may 
 arise from any one of these causes. It may be an attempt to coerce by force, or by 
 threats of force, or it may be an actual trespass, or it may be actuated by malice, or 
 it may present facts wanting in actual malice, but of such a character that the law will 
 impute malice to those participating in it. 
 
 A great case arose in Virginia a few years back which went to the supreme court of 
 appeals of the State, and is reported in the eighty-fourth volume of Virginia Reports, 
 at page 927, under the name of Commonwealth v. Crump, that illustrates the subject 
 fully. There was a mercantile firm of stationers and employers of printers in Rich- 
 mond called B. & B., and there was a printers' union in the city called Typographical 
 Union No. 90. B. & B. refused to employ union printers only, and the union there- 
 fore "boycotted " the firm. They published a weekly paper called the Labor Herald, 
 in which they published under the heading "Black List" the names of all persons 
 who dealt with B. & B., and they warned all "friends of labor" against dealing with 
 any person on this "black list." There were a number of other facts in the case 
 which made it one that might have fallen under any one of the heads mentioned — 
 that is, an attempt to coerce by force or by threats of force, or an attempt to ruin 
 B. & B. from actual malice, or by act" to which the law imputes malice — or it could 
 have been regarded as a simple case of naked trespass. It is in the last three lights 
 that I will consider it. 
 
COMMITTEE ON INTERSTATE COM11EECE. 593 
 
 The action of these parties was plainly a naked trespass upon the rights of B. & B. 
 They were not employers of printers, but actual printers. Thsy were not, therefore, 
 rivals in business of B. & B., seeking to get for themselves a business that B. & B 
 then had. They depended upon B. & B. in a sense. It was not the case of competitors 
 striving for a prize that both could not enjoy and that must fall to only one of the two. 
 It was, therefore, a simple, naked, barefaced attempt to ruin B. & B., because B. & B. 
 would not conduct their business as the printers desired, rather than as B. & B. chose. 
 It was the case of a meddler interfering with the business of a man who had no relations 
 of any sort whatever with him. It was a naked trespass upon the rights of B. & B., 
 differing in no way in principle from an invasion of their premises and the breaking up 
 of one of their presses. That was clearly one head of illegality under which this 
 "boycott" fell. 
 
 But it might also have been held to fall under the head of a combination to ruin B. 
 & B. because of actual malice. The facts of the case justified the conclusion that men 
 who would injure another by such a barefaced trespass as this entertained ill will and 
 malicious feelings for that other. Or it might have fallen into the class of cases in which 
 the law imputes malice, whether any exists or not. If a man recklessly fires a gun 
 into a crowd and kills another, the law will not allow him to say he entertained no 
 ill will toward the man he killed. It imputes malice to any man capable of such a 
 wicked and reckless act. So the law would say to these boycotters: "It is vain for 
 you to come forward saying you have no ill will to B . & B . ; you are seeking to ruin them, 
 not as a competitor in business, but as a naked trespasser upon their rights, and I will 
 hold that you are animated by the only feeling which could possibly prompt such 
 action." 
 
 THE SUBJECT AS RELATED TO AMEEICAN INSTITUTIONS. 
 
 We have now taken a view of the elementary and foundation principles of our laws 
 as they are related to this subject, and of their growth and development in being 
 applied to changing conditions in England. It is next in order to take a glance at 
 them as related especially to the institutions of this country. 
 
 The English grew up to the state of the law declared by the Mogul steamship case. 
 But we started out, in this country, upon that as the basis of our institutions. Thomas 
 Jefferson had more to do with shaping and coloring our institutions than all the other 
 statesmen of a hundred years back put together. We are not left in doubt about what 
 he thought of these questions. When he came to die he wrote in his will that he wished 
 his monument to tell mankind in all ages, and only that, that he was the author of the 
 Virginia statute of religious freedom, the author of the Declaration of Independence, 
 and the founder of the University of Virginia, where the doctrines of those two instru- 
 ments were to be taught. When we look to the Virginia statute of religious freedom 
 we find it opening with these solemn and impressive words: 
 
 "Whereas Almighty God hath created the mind free." 
 
 When we look to the Declaration of Independence we find him writing: 
 
 "We hold these truths to be self-evident: that all men are created equal; that they 
 are endowed by their Creator with certain inalienable rights; that among these are life, 
 liberty, and the pursuit of happiness." . . . 
 
 Mark, the right is to liberty, not license, and the pursuit of happiness— that is, tne 
 right to freely labor for one's own advancement. ,,_•*• 
 
 Here, then, was Jefferson's philosophy. The mind was to be free and the citizen 
 was to be free in person to do whatever he pleased to advance himself in life so long 
 as he did not trespass upon the rights of his fellow-citizen. That is the idea of liberty 
 to pursue happiness," for the essence of "liberty" is freedom restrained by law, and 
 "liberty to pursue happiness" was the right to do whatever suited any citizen, so 
 that he had no malicious purpose to cause his fellow-citizen an injury in what he did. 
 
 This , then, was the idea with which we commenced our national life . Jivery citizen 
 was to be free to think as he pleased, to express himself as he pleased, and to act as he 
 pleased so long as he was in good faith seeking to advance his own fortunes in life and 
 had no sinister intentions toward his Mlow-citizens. Our citizenry was to be one of 
 free competitors, the strongest and m t virile to have and enjoy whatever rewards 
 they might secure for themselves by eai est toil, thrift, economy, and good judgment. 
 
 Bight at once, and as soon as our National Government was formed, our forefathers, 
 jealous of that liberty which they had formed the Union to secure, forbade the Govern- 
 ment of the United States to interfere with these broad rights by the fifth amend- 
 ment to the Constitution, which prohibited it from depriving anyone of life, liberty, 
 or property without due process of law. The citizen was left at the mercy of his State, 
 in a measure, until the fourteenth amendment was adopted, when his fundamental 
 rights were secured to the citizen against State action, also by the provision that for- 
 bids any State to deprive any person of life, liberty, or property without due process 
 of law. 
 
594 HEAEIKGS BEFORE 
 
 Are we, then, at the end of the nineteenth century, going to throw away the priceless 
 heritage we derived from our Revolutionary forefathers and retrograde behind that 
 state mat England has grown up to, toward the conditions existing in England in 
 1682, that old Chamberlayne has so graphically described? It is impossible that the 
 enlightened thought of America can permit it. 
 
 THE RELATION OF COMPETITION TO THE SUBJECT. 
 
 The next proposition demanding consideration is that the pool or trust suppresses 
 competition. The allegation is founded upon the so-called aphorism that Compe- 
 tition is the life of trade." While competition, properly understood, is necessary to 
 healthy trade, ill-regulated competition may as well be said to be the death of trade. 
 The survival of this saw shows how tenaciously an error may cling to the public mind 
 in spite of the most overwhelming proofs that it is an error. 
 
 In the days of stagecoaches, when news was carried a paltry 40 miles a day by the 
 mounted courier and when the heavy products of one locality could only be sent to 
 another locality by water transportation, the freest competition was consistent with 
 profitable trading by all engaged in business. But now that steam and electricity 
 have brought all localities into direct and almost instantaneous touch, unwholesome 
 competition is mischievous and can not survive. These conditions have coerced those 
 engaged in business into resorting to the trust as one means of putting a restriction 
 upon destructive competition. 
 
 It is now in order to consider some of the practical results brought about by the trust. 
 
 LIMITATION OF PRODUCTION. 
 
 It is alleged against the trust that it limits production and thus enables those inter- 
 ested in it to extort higher rates than the public would otherwise have to pay. The 
 notable point in this connection, however, is the fact that if the trust does limit pro- 
 duction, it nevertheless allows a sufficient production to answer every demand. It 
 is pertinent now to ask, How is the public hurt by a limitation of production if pro- 
 duction is left at a point which offers an abundant supply? To produce more than 
 this is to open the door to waste and loss. It can not be denied that the operation of 
 the trust has been to produce a steady and certain decline in the prices of articles con- 
 trolled. A notable instance is that of the Standard Oil Company, which between 1865 
 and 1896 has reduced the price of refined petroleum in barrels from 65 to 7 cents a 
 gallon. Sugar furnishes another illustration. The average price of granulated sugar 
 for nine years prior to the formation of the sugar trust was 7.90 cents per pound, while 
 the average for nine years since the formation of the trust was 5.27 cents per pound. 
 In 1880 granulated sugar cost 10.31 cents per pound, wholesale price at the refinery; 
 to-day the price at the refinery is 4 cents a pound. It can be absolutely affirmed that 
 the inexorable law of the trust is to lower prices of the articles dealt in to the lowest 
 that will bring a reasonable profit, because the most powerful of all influences — selfish- 
 ness — impels it to that course. No truth is more fully recognised than that the dealer's 
 great rewards come from large sales at small profits rather than from small sales at 
 large profits. Furthermore, low prices give a wider and therefore safer market. 
 
 Mr. John E. Searles touched the point of this matter in his testimony before the 
 Lexow Committee February 8, 1897. He was asked, "Is it not a fact that, having 
 destroyed competition, you have now reached a point when people will refuse to buy? " 
 
 He answered, "On the contrary, the policy of the American Sugar Refineries Co. is, 
 and has been since its organization, to furnish sugar to the consumer at the lowest 
 possible price, not for philanthropic reasons, but because it is good business." 
 
 Although not entirely pertinent it is just as well to meet here the laborer's fear that 
 the closing of productive plants by the trust will inure to his disadvantage by dimin- 
 ishing the number of employing agencies. Instead of diminishing, the trust multi- 
 plies the number of employing agencies indefinitely. By cheapening everything it 
 increases the demand. And again, when the trust reduces the price of one article it 
 leaves the consumer money with which to purchase others, and consequently manu- 
 factories must be established to supply this demand. 
 
 For instance, when oil was 65 cento a gallon and sugar 10 cents a pound, a dollar 
 would buy a laboring man, we will suppose, a gallon of oil and 3$ pounds of sugar, and 
 these would last him a week. But now he can buy his week's supply of oil and sugar 
 for 21 cents (a gallon of oil and 3 J pounds of sugar), which leaves him 79 cents of the 
 dollar over for other purposes. Men's desires increase as they have the means of grati- 
 fyingthem. This laboring man and his family never wore gloves to church on Sunday, 
 we will suppose. But, seeing their neighbors, who were better off, wearing gloves on 
 Sunday they naturally desired to do the same. Having this much over of their dollar, 
 they bought gloves with it. Now, new glove factories must be erected to supply this 
 
COMMITTEE ON INTERSTATE COMMERCE. 595 
 
 aew demand for gloves, and these employ additional laborers, and so the thing goes on. 
 The trust cheapens the price of products to consumers. This gives them the means of 
 gratifying a greater variety of tastes. As they call for new articles new industries 
 must be started to furnish them, and these new industries must employ new laborers. 
 The thing is automatic. All that is needed is to leave natural laws to their appropri- 
 ate work, and everything will come down in price and employment for everybody 
 will consequently increase. 
 
 This is plainly the economic law of the case, as every one must admit who reflects 
 upon the greater comforts that the poorest man now has. The mechanic now has many 
 comforts in life that Louis XIV, in all his pride and power, was utterly unable to 
 obtain. I saw in my own house recently a rug 15 feet long and 3£ feet wide, for which 
 my wife told me she paid $2.50. Every mechanic can now have such rugs in his 
 house. I never saw so good a rug in my father's house 50 years ago, when I was a 
 child, though my family was considered one of the well-to-do in our region of country. 
 We kept pleasure carriages and horses, and the children were sent to the most expensive 
 schools. 
 
 UNREASONABLE CHARGES BRING ON COMPETITION. 
 
 Successful business inevitably invites competition. If a trust sells its products for 
 an unreasonable profit, it will inevitably have to contend with competition, but such 
 competition is healthy and sound. The Wire Nail Trust is a signal instance of this. 
 The manufacture of wire nails is very simple and cheap . The unreasonable profit of the 
 trust tempted the cupidity of others, who opened competing factories. It bought off 
 one after another, but the profit in the business at the trust's prices for nails tempted 
 others until the trust was finally overthrown and the business opened to unrestrained 
 and destructive competition. 
 
 The recent collapse of the Steel Rail Trust is another illustration. The trust's profit 
 of $10 or more a ton on steel rails tempted others. According to published reports one 
 of the members of the trust became its rival. He deserted his comrades, as he believed 
 that if he could get eight or nine dollars profit he could make more than his share in the 
 trust profits. 
 
 The testimony before the Lexow committee in New York in February, 1897, fur- 
 nishes another illustration. The Havemeyers ascertained that the Arbuckles were 
 making from 3 to 4 cents a pound on coffee, and at once entered into competition 
 with them. 
 
 Mr. John E. Searles touched the point of the matter on February 8, 1897, in his 
 testimony in New York before the Lexow committee. On February 6 Mr. Henry 0. 
 Havemeyer had testified that since 1894 there had been a great increase in competition 
 in the sugar business. Mr. Searles was asked, "How much does the Sugar Refineries 
 Co. produce of that total" (1,500,000 tons)? He replied, "About 1,200,000 tons." 
 
 "Then you fix the price?" 
 
 He replied, "We fix the price only in so far as we make low prices that we may 
 undersell our competitors." 
 
 That is it. They must always fix the price below that of their competitors to pre- 
 serve their monopoly, and that price must be no more than a reasonable one, or they 
 will always have competitors, just as other competition for them increased after 1894, 
 owing to the impression that they were makiDg unreasonable profits. 
 
 COMPETITION NOT THE MOST POTENT FACTOR IN DECLINE. 
 
 Whilst fortuitous, uncertain, and often detrimental decline in prices may be observed 
 •as the immediate effect of competition, the causa causans of permanent decline is the 
 ■endeavor by low charges to augment the traffic. It is the silent but inexorable work- 
 ing of this economic law that drives manufacturers and dealers to sell at the lowest 
 possible price consistent with a profit, because they make more money by it. That 
 law is always operating to press prices down, and however much greedy men may 
 resist it they are forced to obey it in time. That is the real cause of prices coming 
 down, and that cause will inevitably reduce prices to the lowest point consistent with 
 a reasonable profit. 
 
 During the month of March, 1897, Mr. William J. Bryan argued the Nebraska maxi- 
 mum railroad rate case in the Supreme Court of the United States. He contended 
 that in determining what was the highest rate a railroad should be allowed to charge, 
 the railroad commission should ascertain what the road could be duplicated for and 
 should allow it to charge a rate that would make a. reasonable return upon that sum of 
 money. 
 
 One of the justices asked him if no allowance was to be made for the money spent in 
 "building the road, whether wisely or unwisely. He replied that none was to be made 
 for that, but the test was to be, What could the road be reproduced for? 
 
596 HEABINGS BEFORE 
 
 Now, I submit that neither Mr. Bryan nor the justice suggested the true principle; 
 involved in the case. The true principle upon which rates are to be adjusted is that 
 every article is to be charged what it will bear. What it will bear is the lowest rate- 
 consistent with a reasonable profit to the road. That is the economic law of the case, 
 and every railroad and every other business will come to be governed by it if the 
 road or the business is left alone to adjust its chargeB according to the exigencies of th& 
 business, and is not interfered with by a bungling public officer executing a miscon- 
 ceived act of a legislature. I do not say the business will come to be governed by this 
 principle in a day, a week, or a month. But if it is left alone it will work down to a 
 bearing and finally come to be adjusted upon that basis. Water in the stock of the- 
 road will make no difference. The business can only make a' certain return, and if 
 rates are raised in the hope of making the return greater, the only effect will be to 
 diminish the business. The only way the returns can be increased is to cheapen rates 
 and thereby increase business and build up the country along the line. This is so 
 whether the road is overloaded with obligations or whether it is not. Obligations 
 can not get interest merely because they are obligations. They must get business for 
 the road to earn interest, and business comes as rates are lowered. 
 
 The principle, then, which reduces railroad rates and the prices of all articles is 
 the law that increases profits as prices fall. 
 
 The truth is, there is no difference in principle between the sale of transportation 
 and the sale of groceries. Each is the sale of a commodity, and the business in each 
 case is governed' by the same laws. The grocer is forced down in the price of his 
 groceries by the silent operation of the inexorable law that increases his profits as he 
 cheapens his goods. The railroad is forced down in its rates by the silent operation of 
 the same law. Both businesses are the same in principle and both are governed by the 
 same natural law. 
 
 THE POPULISTS' IDEA OP WEALTH. 
 
 The theory of those who oppose that sort of apparent monopoly that may be acquired 
 by a union of the resources and efforts of different individuals, is that there is a fixed 
 quantity of wealth and other good things, and that if two or three are allowed to- 
 monopolize to themselves more than their due share of what exists, there will not be 
 enough remaining for all the others to get what they should fairly and equitably 
 have; but this idea proceeds upon a total misconception. There is not, and never 
 can be, a limit upon possible wealth. Two hundred and fifty years ago there was 
 very little wealth here except that which nature had provided in the forests, the 
 streams, the minerals, and the herbage of the country. All the rest is the result of 
 labor applied to the production of what man wants. The possibilities in this are 
 without limit. If a man is turned loose to contend with nature, without the aid of 
 accumulated wealth, he is able to do little or nothing for himself. Instead of being 
 better off in that state than when he is in a highly organized society, where there are 
 great accumulations of wealth, he is much worse on. In the one case he can do 
 nothing; in the other case, if he can commend himself to the favorable notice of 
 wealth he may secure an opportunity to do everything for himself. 
 
 The case amounts, then, to this, that however much wealth there is, there is still 
 room for an unlimited increase of it through labor intelligently applied to the creation 
 of what man desires. The union of men and resources reduces the price of what is 
 produced, and thereby increases the consumption and the production of a greater 
 variety of articles and of new kinds of articles. These require additional laborers, 
 so that the union of means and effort — what we call the trust — directly tends to- 
 increase the opportunity of each individual to accumulate far beyond what it would 
 be without that union by infinitely increasing the quantity of wealth and the employ- 
 ments of labor. 
 
 The philosopher of the Populists' school is always recalling to us "the good old 
 times," forgetting that "all times, when old, are good." The Tory farmer of the 
 Tattler was of opinion that there had been no good weather Bince the reign of Charles 
 IIj and some one has stated that the inhabitants of Charleston, S. 0., say the moon- 
 shine is nothing like so bright now as it was before the war. But in spite of all such 
 philosophy the world and civilization are advancing, and nowhere so rapidly as in 
 this free country, where thought and action have so far been entirely free. Are we 
 to return to old methods and have our progress brought to an end? 
 
 THE TRUST AS BELATED TO CORPORATIONS. 
 
 One of the most curious forms of the popular enmity to trusts is the prevalent view 
 of corporations. Certain existing corporations excite a great many people to a condi- 
 tion approaching mania. In their hatred of trusts they confound these corporations 1 
 with trusts. They overlook the distinction between the two, and ignore the fact that 
 
COMMITTEE ON INTERSTATE COMMERCE. 597 
 
 the corporations thus condemned are in no respect different from any other industrial 
 corporation. 
 
 The American Tobacco Co. is an illustration. It was chartered under the laws of 
 New Jersey, and is neither more nor less than an ordinary industrial corporation. 
 The company was formed of several separate concerns, and purchased all the rights, 
 property, and trade-marks of each, paying for the same with its own stock. There is 
 no transaction known to our laws that has their sanction more entirely than this 
 identical arrangement. Can there be suggested any ground for distinguishing between 
 this corporation and a corporation with a capital of |5,000 chartered to grind Sumac? 
 If the one is a trust so is the other. If either is to be so regarded, then it is because 
 we chose to adopt a new nomenclature and call that which was heretofore simply a 
 corporation by the new name of trust. It is not that we have in any way changed the 
 nature and character of the thing, but we choose arbitrarily to call it a trust. 
 
 The American Tobacco Co. recently required the jobber to sign a contract pledging 
 himself not to sell the product of any rival concern at all and not to sell its product 
 below a fixed price. The company has been especially attacked upon the ground 
 that this contract makes the company's business a monopoly and amounts to a restraint 
 on trade. This point has already been sufficiently treated under the appropriate 
 heading. To put limitations upon the right of this company to dispose of its own 
 wares upon such terms as suited it best would be a tyrannical interference with the 
 right of the citizen to do what he will with his own. An important fact in this con- 
 nection was brought out in the Mogul steamship case. A shipping agent at Hankow 
 acted as agent for the conference line and also for the Australian line. When the 
 Australian went to Hankow for a cargo of tea, one of the conference lines notified this 
 agent that if he loaded the Australian the conference would discharge him. This 
 circumstance was not allowed to have any weight in the consideration of the case, 
 several of the learned judges saying that it was an allowable method in trade. There 
 is no difference in principle between this case and that of the American Tobacco Co. 
 in its relation to the jobber. It should be noted here that the concerns that make 
 this contract with their customers claim that it is a matter of no moment to them; 
 that they do it to protect the jobbers from cutthroat competition amongst themselves. 
 
 On February 15 Mr. Searles, the treasurer of the Sugar Refining Co., gave to the 
 Lexow committee the following account of the contract (one of the kind under con- 
 sideration) which his company makes with the jobbers. Being asked what its object 
 was, he said: 
 
 "I will tell you what the object is. The wholesale grocers had for years made a 
 leader of sugar. They had sold it without any profit and without realizing sufficient 
 to secure the cost of distribution. Sugar represented about 40 per cent of their sales 
 and making a loss on that left their business in a very bad condition. We had many 
 conferences over this thing, and I took enough interest personally to go and see the 
 wholesalers. They told me that the average cost of distribution was about 5 per cent; 
 that was 21 cents a hundred. They wanted an agreement with us that we would 
 give them a quarter of a cent a pound to pay the cost of distribution. We made 
 careful computation, and we ascertained that it would cost us three-sixteenths of a 
 cent a pound to distribute the product. That being the case, we agreed to give them 
 this three-sixteenths; in other words, through the factors' agreement we employed 
 them to distribute our product and paid them exactly what it would have cost us to 
 distribute it ourselves, with this exception, that if we had distributed it ourselves 
 we would have had to take the risk of bad debte and all that. They take all the 
 risks, the three-sixteenths of a cent enables them to distribute our goods without 
 cost to them, and they make their profit on the other goods that they handle. Inis 
 factors' agreement was not a proposition made by the refining company, but it was 
 made by the wholesale grocers. It was a question of life or death to them 
 
 The officers of the American Tobacco Co. say that they make their contact with 
 their jobbers solely for the protection of the jobbers, and that they would be glad to 
 feel relieved from any necessity to enter into it. They say, with great force, that 
 their goods are all standard goods that the public insists upon having. They also 
 affirm that they have expended vast sums of money and great labor m advertising 
 and popularizing their brands, and that it is no more than fair that they should now 
 receive appropriate returns. ■ . 
 
 This company is not allowed by recent antitrust laws of Georgia and iexas to maKe 
 this contract with the jobbers in those States. Investigation shows that the result 
 has not lessened the company's sales in those States, but the jobbers there complain 
 greatly of the cutthroat competition among themselves, and there is a great outcry 
 among them against these laws. , ^ ■ « ■ « ;>„ 
 
 One of the acts of New York, under which the prosecution of the omcers oi uie 
 American Tobacco Co. is being made, reads as follows: "If two or more persons con- 
 spire together to commit any act injurious to the public health, to public morals, or 
 
598 HEAB1NGS BEFORE 
 
 ■to trade and commerce, each of them is guilty of a misdemeanor." The New York 
 judge, before whom the caae was heard, has ruled that if a jury finds that the officers 
 pi the American Tobacco Co. impose the contract already described upon the jobbery 
 with an intention thereby to threaten them and coerce them into selling their ciga- 
 rettes only they may be convicted of a conspiracy to put a restraint upon trade. 
 
 "Two or more persons" will, of course, just as well describe the members of an 
 ordinary mercantile partnership as the officers of a corporation. Is it to be said that 
 a mercantile partnership, manufacturing tin buckets, is not to be permitted to dic- 
 tate to the jobbers who sell its product the terms upon which they may handle that 
 product? If this is to be said, then the merchants of this country will be aroused to 
 consciousness that a state of law exists here that they never had any idea of before. 
 And if the law is enforced in the full length to which it may logically be carried it 
 will probably turn out that the partners in the ordinary mercantile partnership are 
 practically deprived of all power to conduct their business by conference and joint 
 action, for upon such a theory there is hardly any partnership action that can not be 
 construed into a restraint of trade. If the argument which is submitted in this essay 
 be sound, then the officers of the American Tobacco Co. have a right to reply to the 
 New York judge that they have a right to put moral coercion upon the jobber when 
 their whole aim and purpose is to make money, and that such coercion is not a restraint 
 -upon trade in the legal sense of that phrase. If they are animated by ill will to the 
 jobber, then their coercion would be a restraint upon trade. 
 
 The claim that a corporation is a trust to be pursued by all the forces of society is, 
 in fact, a war upon the principle of incorporation or perhaps very rich corporations. 
 It is either equivalent to saying that corporations have no rights that should be 
 respected or that very rich corporations have none. There is of course no ground 
 tor distinguishing between rich and poor corporations. It would be a sad day for 
 mankind if the human race should adopt the view that men have no right to do busi- 
 ness through incorporated companies. The great bulk of modern progress has been 
 due to incorporated companies. This proceeds from the fact that a man can operaie 
 through them without risking more than he puts in. The prevailing idea upon this 
 subject was strikingly illustrated by the examination before the Lexow committee 
 of two members of the firm of Arbuckle & Co. It appeared in the testimony that 
 the Woolson mills had paid a dividend the preceding year of 100 per cent on its 
 actual capital. The New York Sun's account of the examination of witnesses says: 
 
 The committee listened with great interest, and then Senator Lexow asked: "Now, 
 3et me ask you, Mr. Jarvie, do you think that that is a fair business proposition? Do 
 you think that making consumers pay 100 per cent annually on the capital invested 
 is fair to the consumer? Don't you think that that profit is exorbitant?" 
 
 "Well, I can't answer that question. You know, according to my figures, there 
 is only 5 per cent profit, because the stock is worth $1,000, and you would have to pay 
 that much if you wanted to buy a share." 
 
 "I understand all that," said Senator Lexow, "but the original investment in that 
 company was 1150,000. . Now they have accumulated a surplus which makes their 
 stocks worth the higher price. The fact is that the investment is but $150,000, and the 
 profit is actually 100 per cent on that investment. In other words, the stockholders — 
 that is, the original stockholders — get back every year the total amount of money that 
 they invested in the stock. Do you think that is fair business? " 
 
 Mr. Jarvie hesitated again. "Well," he said, "I Bhouldsay that that is a very profit- 
 able business." 
 
 Senator Lexow said: "Isn't it exactly that tendency, that desire to gain money, that 
 brings corporations to-day into bad odor? " 
 
 "Do you not think," asked Senator Lexow again, "that the attacks that are made 
 !>n corporations are due to their development on this line and the knowledge gained 
 by the people of just this sort of thing? They make the necessities of life the subject 
 of speculation and secure profits that can't be made in any other line of business. 
 Now, don't you think that this profit of 100 per cent a year is too large?" 
 
 "Well," said Mr. Jarvie, "judging from our business, I don't think the profits are so 
 large as that." 
 
 Oh, don't misunderstand me," said Senator Lexow. "I am not criticizing your 
 business at all; not at all. We are talking about this rival concern, the Woolson Spice 
 Co. Now, tell me, doesn't the payment of any such profit show that their charges for 
 \he product is unreasonable? " 
 
 Mr. Jarvie didn't answer, but he moved about uneasily. 
 
 ''Tell me," said Senator Lexow, "is it proper and fair that a private corporation 
 should pay 50 per cent dividends and accumulate at the same time a surplus which 
 raises the value of its stock from $100 per share to $1,000?" 
 
 "Well," said Mr. Jarvie, "I should say that it discloses extraordinary ability in the 
 purchase of raw material." 
 
COMMITTEE ON INTERSTATE COMMERCE. 599 
 
 Q. How long do you carry raw material in your business?— A. Well, we carrv it 
 sometimes in the coffee business three or four years. 
 
 "That is to say," said Senator Lexow, "you buy the coffee at a low price and vou 
 keep it until you can get a big profit on it?" y 
 
 "Well, we have done that sometimes." 
 
 "Now,;' said Senator Lexow, "if the Woolson Co. had been satisfied to charge a fair 
 commercial profit on the coffee that they handled, all the other coffee houses would 
 have had to come down in their price to meet the competition, would thev not?" 
 
 "Is not that the fact? " asked Senator Lexow again. 
 
 Still Mr. Jarvie did not answer. 
 
 "That is a great interest to get on an investment, is it not, that the coffee men have 
 been getting? " asked Senator Lexow. 
 
 ^Oh, no," said Mr. Jarvie, "they have only got a fair return." 
 
 "Do you wish it to be understood that the accumulation of a surplus 10 times the 
 original capital, and at the same time the paying of 50 per cent dividends is nothing 
 more than a fair profit? " asked Senator Lexow. 
 
 "No,'; ?aid Mr. Jarvie. "You ddn't seem to understand this thing. It wasn't 50 
 per cent, it was 5 per cent, because the stock is worth that much " 
 
 "I understand your contention very well," said Senator Lexow, "but the fact 
 is it was not 50 per cent, it was 100 per cent on the original investment. Do vou think 
 that was fair?" J 
 
 Mr^ Jarvie said: "Well, I don't want to state an opinion of a competitor in busi- 
 
 D.6S3. 
 
 It developed next that Mr. Arbuckle had not been altogether satisfied with the 
 result of the committee's work in the morning, and he wanted to be heard again 
 
 Senator Lexow called out, "I understand, Mr. Arbuckle, that you want to make 
 some explanation." 
 
 Mr. Arbuckle made his way to the witness chair, and said: "Oh, ves. It was about 
 that 50 per cent dividend . You know your committee got the wrong impression about 
 that 50 per cent. The dividend is really only 5 per cent on the market value of the 
 stock. Don't you see? Now, another thing. I don't think that all that surplus was 
 accumulated in the manufacture of coffee. Coffee business has .ups and downs. 
 Sometimes firms and concerns have lucky streaks, and it must have been through 
 these lucky streaks that the Woolson people had that they ran their capital stock 
 up to $1,500." * F 
 
 Q. You mean $1,500 market value?— A. Yes, sir. Why, you don't know how coffee 
 fluctuates. Now, I have known coffee No. 7 to be down to 5f cents, and it started 
 going up and up, and it kept going up until it was 27-J cents. Then, again, I have seen 
 it start at 8 and go up to 23 cents. 
 
 Chairman Lexow listened, and when Mr. Arbuckle finished he said: "Don't you 
 consider that this explanation of yours makes the matter worse instead of better? 
 Do you mean to say that they add the profits of speculation to the capital stock, and 
 then pay 50 per cent dividends on the capital stock? " 
 
 "Oh, it's all in speculation," said Mr. Arbuckle. "Now, in the 20 years that I 
 have been in the coffee business nineteen-lwentieths of the men in it have failed. It 
 is a speculative business. It goes up and down. Now, you know, to run a business 
 you have got to have hundreds of thousands of bags of coffee in stock. You have got 
 to carry a'big stock. Now, when you get your coffee when it is low, and that coffee 
 goes up on you, you see, you make a bit; profit; but if it goes down on you, you don't." 
 
 "Well, if it goes up on you," Baid Senator Lexow, "you don't give the consumers 
 the benefit of any of the going up, do you? " 
 
 "No; you see it is a speculative business," said Mr. Arbuckle. 
 
 Now, the first thing to be noted in connection with this testimony is the fact that 
 the coffee business is one of such ups and downs that in the 20 years Mr. Arbuckle had 
 been in the business nineteen-twentieths of the men engaged in it had failed. Yet 
 Mr. Lexow thought a corporation was fleecing the public because it made a very large 
 profit in one year. But this is all by the way. The important thing is that Mr. Lexow 
 thought, and millions of his fellow countrymen agree with him, that it is a wrong, 
 almost a fraud, upon mankind at large for a corporation to make immense profits in 
 its business. 
 
 There is undoubtedly a certain prevalent jealousy of rich and successful men. But 
 it is very questionable if that goes to any great length. The jealousy is of the success- 
 ful and rich corporation. Now it is entirely in order to ask, Would Mr. Lexow have 
 thought the public robbed if the Woolson mills had never taken out a charter, but had 
 remained "a partnership and had made a profit of 100 per cent upon its capital in 1896? 
 
 The prejudice against corporations must take one of two courses if it has its way, 
 and either of them would be most disastrous to the public. Either it must go the 
 
600 HEARINGS BEFORE 
 
 length of forbidding corporations entirely, which would be the same thing as putting 
 an end to progress and starting backward toward another dark age, or it must put a 
 limit beyond which corporations will not be allowed to expand either in the way of 
 amassing wealth or of extending their operations, which would be almost, if not quite, 
 as injurious to public interests as the first. Men are not going to take much interest 
 in an enterprise that is allowed to go "thus far but no farther." They go into new 
 enterprises that hold out the possibilities of great results, but are not willing to risk 
 their capital in enterprises which are limited by law to a moderate return. It seems, 
 therefore, that the prejudice against corporations will, if it is allowed to have its way, 
 almost arrest civilization. 
 
 DOES THE TRUST ALTER COMPETITIVE CONDITIONS? 
 
 I have known the following view of the subject to be presented: There are 50 
 manufacturers of plug tobacco, we will suppose, m the United States. The partners 
 in each house receive a support, but a bare support. They all unite and form one 
 great corporation, which issues its stock to each partner according to tin arbitrary 
 valuation of the interest of each that they make, and forthwith each of these part- 
 ners, from being a man of the most limited means, becomes a man of affluence. There 
 must be something wrong, it is claimed, where such a phenomenon as this can be 
 presented, though the increased profits that enrich the partners are merely expenses 
 saved. But how is the public hurt by it? If the trust, as the public will insist 
 upon calling such a corporation, reduces the price of the manufactured article to the 
 consumer, as I insist is demonstrated in this essay, what right has the consumer of 
 plug tobacco to complain? It is said, however, that the trust also reduces the 
 price which the grower of tobacco gets for his product. I think it could be shown 
 that this is not so; but I pass that by. Here is something to be thought of, though: 
 There are 100 usera of tobacco, perhaps, whore there is 1 grower of tobacco. AH 
 the consumers are interested in getting their tobacco as cheaply as possible. If 
 they secure this result, does it rest with them to complain? 
 
 But, it is said, the trust prevents other persons from becoming manufacturers 
 of tobacco. It must be remembered, however, that the only reason the trust 
 was formed was that competition had become so close and destructive that none of 
 those engaged in the business could make more than a bare living. How was a new- 
 comer to open a business against such competition as that? If he attempted it, he 
 would be destroyed, for unbridled competition had reduced profits to a point that 
 would make it impossible for a newcomer to get a footing. But if, as is claimed, 
 the trust charged such prices as to make unreasonable profits, he might stand 
 a chance of opening a business in competition with it. If he competed with the 
 separate firms he was necessarily destroyed. If he competed with the trust, 
 he" had a chance if it charged unreasonable prices. The new man had no chance, 
 therefore, under old conditions; he might have one under the new. How, then, has 
 the trust interfered with competition more than old conditions interfered with it? 
 
 THE TRUST AS RELATED TO THE CONSTITUTION. 
 
 The fourteenth amendment to the Constitution of the United States provides 
 that no State shall "deprive any person of life, liberty, or property without due 
 
 Srocess of law," and the fifth amendment does the same as to the United States. 
 >oes this forbid the United States and the legislatures of the States to enact statutes 
 that in effect break up the trusts? To determine this question, we must first deter- 
 mine whether the citizen has a right to enter into one of the partnership agreements 
 that we call a trust, and if so, whether that right is a liberty or property. 
 
 The matter of monopolies at common law has already been touched upon. It is 
 stated in many places that the common law condemns monopolies, contracts in 
 restraint of trade, and agreements to control articles of "prime necessity," such as 
 food or coal. But there is great confusion of thought involved in this matter. What 
 we know certainly is that in the reign of Queen Elizabeth a practice had grown up 
 for the Crown to grant to favorites an exclusive right to manufacture or vend cer- 
 tain articles. The Queen granted to a courtier the exclusive right to sell playing 
 cards. The English court decided that such a grant was an infringement upon com- 
 mon right, that it was beyond the prerogative of the sovereign to make. When the 
 attempt is made to carry this doctrine beyond the case in which it was announced, 
 error and confusion creep in, notwithstanding the fact that such persistent claim 
 is made that articles of "prime necessity," as they are called, stand upon a Bpecial 
 footing. 
 
 What countenance is there for the proposition that the common law; that ia, our 
 institutions in their essential elements, forbid two or more traders who may be work- 
 
COMMITTEE ON INTERSTATE COMMEECE. 601 
 
 ing together jointly for their mutual benefit to secure all they can of any business 
 even to the extent of a practical control of it, whether it. concerns articles of "prime 
 -necessity' or not? The spirit of our institutions encourages every citizen to labor 
 at his calling, whatever it may be, with his best efforts, and to encourage him thereto 
 it holds out to him the assurance that he shall have the protection of the law in possess- 
 ing and enjoying whatever he may accumulate. Those institutions also declare that 
 whatever one man may do others may do jointly. Our institutions, therefore instead 
 of prohibiting, encourage the citizens to work together and to secure as much as pos- 
 sible of the line of business that they may be engaged in, even its control, although 
 this control is now called monopoly. Our institutions, instead of discouraging monop- 
 oly of this sort, when secured by the citizen through his own effort and not by aid 
 of the sovereign power, the same opportunity being open to all others, actually encour- 
 age it, and even if it be in articles of "prime necessity." 
 
 Why, then, shall it be said that the common law opposed this kind of so-called 
 monopoly in articles of "prime necessity" more than in others? Can anyone say 
 that the common law forbade a citizen to buy meat or grain and sell it again for a 
 profit? If it allowed one man to do this, did it not equally allow several to do it 
 together in concert, and in any quantity desired by them? 
 
 Our institutions in their spirit and nature are under discussion. What courts and 
 writers may have said is put aside now. The common law in its essence is the matter 
 being examined. It has always been the boast that the common law was the per- 
 fection of reason. That means that the common law adapts itself to actual conditions 
 and furnishes that principle of rule for those conditions which justice and right reason 
 require. It is true that some conditions have lasted so long that rules of action pre- 
 scribed for those conditions have been aTted on every day until they have become 
 too_ firmly woven in the general fabric of the law to be discarded, except by act of the 
 legislative power. But in other cases principles have been declared by the authori- 
 ties of the land which seemed to be called for by justice in the conditions that then 
 existed. But they remained as declared principles only with little or no action 
 based upon them, and in time, as those conditions have changed with the progress 
 of civilization, the authorities of the law have felt themselves at liberty to set the old 
 declarations of principle aside and declare new ones, suited to the new order of things. 
 In the last half of the eighteenth century, that great luminary in the reform of law, 
 Lord Mansfield set aside old notion after old notion and absolutely reconstructed 
 England's code of commercial law so as to cut out of it rules and regulations inspired 
 by an age of rapine and war and bring it into harmony with an age of progress and 
 commercial ventures. 
 
 The declaration made by courts in old time, that the common law condemned the 
 kind of monopolies we have described, and particularly in articles of "prime neces- 
 sity," were declarations not of the true principles of the common law but declarations 
 fitting the rule of the people to the conditions of the people, and as they had no steam, 
 electricity, and modern machinery to enable restricted competition to pull down any 
 monopoly that trade might erect, the principles declared for that condition are not 
 to be held binding in a totally different condition that neither requires it nor can 
 endure it. 
 
 And so we find the English judges in 1891, in the Mogul steamship case, repudiating 
 the whole theory in all its forms and branches. This subject has been fully treated 
 in a preceding part of this essay, but I can not forbear to add the following remarks: 
 
 When is a cooperative arrangement amongst individuals to lose its character of a 
 mercantile partnership and fall into the category of the baneful "trust"? If it is- 
 lawful and just for six men, each having a capital of $100,000, to combine their re- 
 sources and work together as a mercantile partnership, upon what principle is it to be 
 said that when 16 men, each having a capital of $1,000,000, combine their resources 
 and work together as a mercantile partnership, their arrangement has become an 
 unlawful and injurious "trust"? If it is lawful for every individual to do a thing 
 by himself, upon what principle does the act become unlawful when done by two or 
 more individuals acting together? 
 
 These are considerations, the force of which I have never been able to avoid, and 
 I candidly confess my utter inability to appreciate the arguments that go to showing 
 that combinations of individuals to do things that each one may lawfully do by him- 
 self are unlawful and injurious arrangements. 
 
 I am equally unable to appreciate the argument that defines the subject matter in 
 respect to which there must be no combination. Those who argue that side of the case 
 tell us that the foundation principles of our laws forbid combinations to control traffic 
 in articles which are " staple articles or articles of prime necessity." 
 
 It is beyond question that this statement of the case can be found in text writers 
 and in the opinions of courts, but I have never yet been able to understand the ration-- 
 ale of it. If men may lawfully combine their efforts and their capital for the purpose 
 
602 HEARINGS BEFOliE 
 
 of tradings I can not see how the line at which combinations may be lawfully made, 
 and at which they are forbidden, is to be fixed upon any such basis. What is a 
 "staple article," and what is an article of "prime necessity"? Is wheat a "staple 
 article" and one of "prime necessity"? There are hundreds of millions of men in 
 the world who never eat a mouthful of wheat bread, and even in this country hun- 
 dreds of thousands eat corn bread more than wheat bread. In the East great masses 
 of population live on rice; but is rice to be considered a "staple article' and one of 
 "prime necessity" in the United States, in respect to the purchase and sale of which 
 there shall be no cooperative labor? 
 
 The truth is, there is hardly an article of merchandise that can be mentioned that 
 is used by all mankind, while every article that can be named is used by some part of 
 mankind. What is "staple" and of "prime necessity" to some is to others a matter of 
 indifference. The true philosophy of the matter seems to be that the legislator has 
 nothing to do with the subject. Men are to be left free to do as they please with their 
 own, and then the all-prevalent desire to make money will cause them to sell whatever 
 they have at the lowest price that will bring a profit, because the cheaper they sell 
 the more they will sell, and profits come from great sales at small profits rather than 
 small sales at great profits. 
 
 THE FOURTEENTH AMENDMENT. 
 
 If the line of argument that has so far been pursued be sound, then it is proved that 
 by the original and essential principles of our institutions it is every citizen's natural 
 and inherent right to buy and sell any article of merchandise, whether one of " prime 
 necessity" or not, and in any quantity that may suit him, and it is his further right 
 to join with his fellow citizens in so doing. It is further proved that there is no 
 limitation upon these rights except the mandate of the law that neither one citizen 
 when acting by himself, nor a number when acting together, shall exercise their rights 
 with the malicious purpose of inflicting an injury upon others. These, then, are of 
 those unalienable rights that our Declaration of Independence says men have. They 
 are of the foundation rights of citizenship. 
 
 A number of the States have passed acts which undertake to forbid the people to 
 dispose of their property according to their own will and choice when they do it 
 according to methods which the legislatures of those States think would result in 
 monopolies or in restraint of trade. But this is against the right of the citizen, as has 
 been shown, and such an act by a Statelegislaturedepriveshimof hisproperty without 
 due process of law. An Illinois statute forbade laborers to hire themselves out for 
 more than eight hours a day. The supreme court of that State decided that the 
 laborer's right to sell his labor was his property, and that such a statute deprived him 
 of his property without due process of law, and was repugnant to the Constitution. 
 (Ritahie v. Peonle, 155 111., 98; Allgeyer v. Louisiana, 165 U. S., 578.) 
 
 The trader's right is to sell his goods without molestation if his purpose be to benefit 
 himself, and a statute that forbids him to do this deprives him also of his property. 
 (See opinion of Mr. Justice Field, 111 U. S., R. 757; see also United States Judge 
 Swayne's decision on the Texas antitrust law.) 
 
 One of the New York statutes, under which the directors of the American Tobacco 
 Co. are being prosecuted, forbids two or more persons to agree together to do any act 
 injurious to trade or commerce, and the New York judge rules that when these gentle- 
 men say to a jobber that he shall not sell their goods unless he agrees to sell their goods 
 only, and at their price, they coerce the jobber and thereby restrain trade. But the 
 defendants had a right to have the judge say that there was no unlawful coercion unless 
 the directors were animated by an evil mind. They had a right to coerce the jobber 
 by moral coercion when profit alone was their object, and when he failed to say this 
 he gave an effect to the State law which deprived them of their property, the property 
 being the right to sell their goods upon any terms that suited them, and by any lawful 
 methods, so long as their intention was good and no malice existed toward anyone. 
 
 Another act of the New York Legislature provides that if officers of a corporation 
 enter into a combination to restrain or prevent competition in the supply or price of 
 any article or commodity in common use, or with intent to restrict or restrain com- 
 merce in the State, they shall be prosecuted. But this act ignores the intent also. 
 It undertakes to forbid the citizen to sell his goods for the best obtainable price, 
 although his intention is solely to benefit himself, and it thereby abridges his "liberty " 
 and deprives him of his property. 
 
 Vice Chancellor Malins, of England, said, in the case of Dixon v. Holden (L. R., 7 
 Equity Cases, 490) : 
 
 One man has property in lands, another in goods, another in business, another in 
 skill, another in reputation; and whatever may have the effect of destroying property 
 in any one of these things (even in a man's good name) is, in my opinion, destroying 
 
COMMITTEE ON INTEBSTATE COMMERCE. 603 
 
 property of a most valuable description. Now, the business of a merchant is about 
 the most valuable property he can have. Here it is the source of his fortune and 
 therefore, to be injured in his business is to be injured in his property " 
 
 Adam Smith, in his Wealth of Nations (Book I, ch. 10), lays down doctrines of 
 exactly similar character in speaking of the property a man possesses in his ability to 
 work and thereby acquire property. 
 
 The value of a business as property can be illustrated with the New York Herald 
 That is supposed to have an income of more than a million dollars, but its visible 
 property is of comparatively small value. If the Herald, without a piece of its property, 
 were offered at auction it would sell for several million dollars. All this immense 
 property is in its business— the result of years of labor and the expenditure of money. 
 Is it to be said that its intangible power of earning income is not property? 
 
 WORKINGMEN. 
 
 These are the rights of the trader which the fifth and fourteenth amendments.protect. 
 But if they protect the trader they protect the workingman also, and if the legislatures 
 of the States can enact valid statutes like those of New York against the trader, they 
 can also enact valid statutes in depriving the workingmen of their right to associate 
 themselves into trade unions. But if the test of every association is the intention 
 with which it is formed, the right to form trades unions is a "liberty" within the 
 protection of the amendment so long as the intention of those forming it is to better 
 their own condition only. The workingman is, therefore, as deeply interested as the 
 trader to see the doctrines of this essay prevail. With them his unions have the 
 protection of the Constitution of the United States; without them they may be for- 
 bidden by the State legislatures. 
 
 IT IS WAR ON CAPITAL. 
 
 The clamor against trusts is at bottom a war upon capital. Capital finds itself com- 
 pelled to form combinations to protect itself against destructive competition, and it 
 also finds that when separate interests are combined it can introduce all sorts of acces- 
 sories in administration that the separated industries can not have. The clamor 
 against trusts is an endeavor to force capital to submit to destroying competition, and 
 to abandon the economical methods of doing business. 
 
 Freedom to capital to protect itself in every way in business and to save expense by 
 every possible economy is just as necessary to the public as it is to the capitalist. 
 When the capitalist is thus conceded the right, inhering in all Americans, business 
 runs along smoothly, it is ever on the increase, and consumers get the advantage of 
 every reduction in price that improved machinery and improved methods entail. 
 
 In an article in the North American Review several years back, Mr. Henry George 
 pictured a deplorable condition of the miners in Pennsylvania. The inference he 
 undertook to convey was that the Government should force the employing capitalists 
 to deal better by these miners. The effect of such governmental interference would 
 be the refusal of the capitalists to mine upon any terms. The war upon trusts is 
 driving elsewhere people who have money invested in them, railroad mortgage bonds 
 being especially in demand, but the railroads can not earn the interest if manufactories 
 and other industries are crippled or broken down. The unreasonableness of all this 
 clamor against the trust was demonstrated by the result of the Lexow committee 
 investigation of the Sugar Trust which shows that the difference between the price for 
 raw, unrefined sugar and refined sugar is from three-quarters to seven-eighths of a cent 
 a pound. How can we expect producer and consumer to be brought any closer 
 together than this? How can it be said that the public is being robbed? The Gov- 
 ernment tax upon sugar is 1 cent a pound and yet the refineries turn the undesirable 
 raw stuff into a choice staple for less than the tax imposed by the Government. 
 Furthermore, one of the strongest claims of the trust is that its operations tend to the 
 advantage of the working people by giving them constant employment, while the 
 old separate industries were frequently idle at certain seasons. 
 
 When the argument against the trust is reduced to its ultimate analysis, candid 
 men will have little difficulty in reaching the conclusion that it is largely inspired by 
 envy. Men who do not prosper envy the prosperous. 
 
 CONCLUSION. 
 
 In the trans-Missouri freight case the Supreme Court of the United States has said, 
 in'effect, that as the antitrust act of Congress makes "every" agreement which puts 
 any restrictions upon trade void, it must hold every such one to be void. I submit 
 
604 HEAEINGS BEFORE 
 
 that there is a vice in the court's argument, and that the vice is in confounding restric- 
 tions upon trade with the legal idea of "restraints upon trade." 
 
 It does not follow because an agree.ment between men may put restrictions upon 
 some sort of traffic somewhere that such agreements must necessarily operate as 
 "restraints upon trade." Upon the contrary, they may operate as the greatest possible 
 promoters of trade. Take the case put in the early part of this essay of a partnership 
 contract between two citizens of Virginia to ship tobacco to New York, in which each 
 binds the other not to deal in corn, wheat, or lumber, but to give his whole time and 
 attention to the business of shipping tobacco. This puts restrictions upon trade by 
 preventing either of these parties from dealing in corn, wheat, or lumber. Never- 
 theless, the agreement is one which will have the healthiest and most beneficial effect 
 possible upon trade. It makes those two men specialists in the tobacco-shipping 
 business and tends to encouraging them to develop the business to its utmost possible 
 limits. 
 
 It is not possible to have trade without restrictions of some sort upon some sort of 
 trade. Trade is nothing but a vast aggregation of contracts, and contracts necessarily 
 involve restrictions. The very life of a contract is that the contractor shall do nothing 
 that is inconsistent with that which he agrees to do. The contract binds the con- 
 tractor, therefore, that he will not engage in that sort of traffic which will nullify what 
 he has undertaken to do, and it operates, therefore, as a restriction upon trade to that 
 extent. Considered broadly, therefore, restrictions upon trade are essential to the 
 life of trade. There can be no trade without them. The test of what is and what is 
 not a "restraint upon trade" must, therefore, be found somewhere else 1 than at bare 
 restrictions upon trade. What is that point? 
 
 It is found at the dividing line between liberty and license. License is freedom 
 to do what one will without regard to the rights of others. It is the autocrat's function. 
 Liberty is freedom restrained by law — that is, the right to do what one will with his 
 own so long as he does not trespass upon the rights of another and he leaves that 
 other full opportunity to do what he will with his. The Czar of Russia has license; 
 Queen Victoria has liberty. Whilst that stands as the guiding principle men are 
 left in full enjoyment of their natural liberty. Every man makes for himself the 
 most that is possible because he has full and free opportunity to use his talents, his 
 energies, and his material resourcea to the very best possible advantage. That is the 
 contract the citizen may make. The contract he may not make is the one which is 
 not inspired by the desire and purpose to improve his own condition, but by the 
 devilish one of trying to make another man and his family beggars because he hates 
 them. The one class of contracts, though involving restrictions of certain sorts upon 
 trade, really promotes trade by inspiring every man to do his best to spread trade 
 out into the greatest volume it can attain to. The other really restrains trade 
 because it is the act of a pirate, whose philosophy makes him hostis humani generis. 
 He is a restrainer of trade because he would prey upon it and make it his sport and 
 jest, and thereby destroy it. That is the only restriction which restrains in the true 
 sense of restrain. But whilst those engaged in trade have no evil intentions toward 
 others, their agreements promote trade, even though imposing restrictions of some 
 sorts, somewhere, on some kinds of trade. 
 
 The plea upon which it is claimed that this should not be the rule of life takes 
 cognizance only of helpless citizens that are to be protected from the injurious actions 
 of their robust fellow citizens who are exerting all their powers of mind and body 
 to push their fortunes along. But that is the way to grow a dependent and enervated 
 race. The way to grow a self-reliant and progressive race is to throw all citizens 
 upon their own resources and allow each to make every possible use of his faculties 
 of mind and body that he can make while pursuing his own good only. 
 
 Mrs. Battle said upon taking her seat at the whist table: "Now for a clean hearth, 
 a bright fire, and the rigor of the game." That is what, and only what, the self-reliant 
 citizen asks in trade. He neither asks favors nor gives favors. All that he asks is 
 an open field, a fair fight, and the "rigor of the game." He who can not survive in 
 that contest must perish. Liberty of thought and action are not to be denied to the 
 capable and the reBolute because the weaklings are not equal to keeping up with their 
 speed. That is the law of life, and when we accept it we bring the greatest good to 
 the greatest number. When we reject it we interfere with the due course of nature 
 and produce discord and the beginning of decay. 
 
 The Supreme Court's decision has now brought us in this country in the progress 
 of our civilization to the parting of the ways. If we take the road pointed out to us 
 by the principle of the Mogul steamship case, we shall go on in the development of 
 our institutions upon the lines of democratic freedom of thought and action. 
 
 J f we take the other, we shall fall under Populistic leadership and march steadily 
 forward to the tutelage of a paternal government that will gradually spread out into 
 
COMMITTEE ON INTERSTATE COMMERCE. (J05 
 
 a broad scheme of socialism, where all aim at living upon the Government, and those 
 live best who are the laziest but the most skilled in thimblerigging. 
 
 And now, with these closing remarks, I bring to an end this essay, which covers no 
 great space, though it has cost me months and years of patient thought and investi- 
 gation With entire confidence in the soundness of its propositions and distrustful 
 only of the manner m which I have presented them, I submit my little work to the 
 intelligent judgment of my fellow citizens. 
 
 The Chairman. We will now hear Mr. Barker. 
 
 STATEMENT OF ME. WHARTON BARKER, OF PHILADELPHIA. 
 
 The Chairman. Please giro your residence and occupation to the 
 reporter, so that it may be made a part of the record. 
 
 Mr. Barker. My name is Wharton Barker; my residence is Phila- 
 delphia; at the present time I am not engaged in any money-making 
 business; in my early life I was the junior partner of my father in the 
 banking business, and I have been a student for many years of 
 economic questions. I do not know what to call myself. The 
 assessor in my voting precinct calls me an economist, but it is far- 
 fetched. 
 
 The Chairman. Mr. Barker, the plan adopted by the committee is 
 for those who appear before it to make their statements without inter- 
 ruption, after which they are inquired of by the members of the com- 
 mittee. You may proceed. 
 
 Mr. Barker. I am here Mr. Chairman and gentlemen, at the invi- 
 tation of the chairman, sent to me I understood, on behalf of the 
 committee to give my view of the Sherman law and incidentally of 
 the trusts as affected by it or not affected by it. I think the Sherman 
 law, until the decision of the Supreme Court was clear and adequate 
 but I think that since the reading into the Sherman law of the word 
 "reasonable" Congress should amend the law by striking out the 
 word "reasonable." and put it back where Congress in its wisdom 
 20 years ago passed it. I think that the Sherman law can break up 
 any combination, either corporate or private, but I do not think 
 breaking up the combinations, corporate or private, in any way 
 touches the trouble the country suffers from, to wit. I do not think 
 that in any way the trust question is reached. The great moneyed 
 oligarchy that the Sherman law was intended to curb controls now, 
 and the country knows it controls now, all lines of finance, of trans- 
 portation, of commercial distribution, without question. And there 
 are three kinds of trusts, I think. One kind that rests upon natural 
 conditions — natural monopolies. One that rests upon public 
 franchise, and one upon statute law. And this statute law covers 
 the tariff law which I will discuss in a minute. 
 
 The natural monopolies should be, I believe, under public ownership 
 and control, and should be administered by private parties under lease 
 from Government for short periods, fixed periods, with proper return 
 to Nation and State in the way of royalties, I would think that was 
 quite sufficient. But I doubt very much whether it can be so 
 reached. I think the great monopolies, natural monopolies, should 
 be public, not private monopolies, but until we reach the stage 
 where we are willing to make them public monopolies, I think we 
 can curb them by a very simple method — natural monopolies I am 
 now speaking of — for the Nation and State to take them over undei 
 the right of eminent domain, which lodges in Nations as in States, and 
 
606 heabings before 
 
 then lease them to private individuals or to private corporations, 
 semipublic corporations. I think these can be met in that way. 
 
 Those that rest on public franchise can only be destroyed by. 
 taking away the privileges that the public franchise grants; and 
 those that rest upon tariff protection can only be destroyed by 
 taking away from the combinations making the restraint of trade 
 the tariff protection accorded under the tariff laws. 
 
 I would like to discuss first, in some little detail, the Money Trust, 
 which, to my mind, is the most obnoxious of all the trusts. Very 
 few people, I think, appreciate how this moneyed oligarchy, by 
 control of the banks, of the trust companies and of the savings funds, 
 and of the insurance funds, has throttled all individual enterprise 
 in this countr) r . 
 
 The only wav, I think, to destroy that money trust is by two 
 specific acts. T?irst, I think the present national banking act should 
 be amended. I have been fighting for this since 1878. It should 
 be amended in just one particular, to wit, to require that all national 
 banks keep all their reserve moneys in their own possession and no 
 part of it in the possession of other banks, to be used by those banks 
 as the tools of the gamblers. I say I have been urging that since 1878. 
 When Mr. John Sherman was Secretary of the Treasury I urged it 
 upon him. He would not recommend it. He did not want to do 
 anything that would curtail the power of New York, and why not '( 
 And why New York? Because in New York the reserves of the 
 country had even then gathered to the extent that made New York 
 the money center of this country. Nothing but these reserves could 
 make New York the money center. Nothing but these reserves did 
 make New York the great money power that it is. 
 
 The national banks of the United States outside of New York have 
 had for a period of 20 years a large part of their reserve moneys on 
 deposit in New York banks. The New York banks pay interest at 
 3 per cent on these deposits. They have had never below $250,000,000 
 and frequently $350,000,000, and the trust companies all organized 
 under State laws, and State banks and various other money institu- 
 tions organized under State laws, have also had their reserves in New 
 York, so that New York at the time of the great panic of 1907 had 
 over $700,000,000 of the sacred reserve funds of the banks, National 
 and State, and of the trust companies, and of other concerns author- 
 ized to receive deposits by Nation and State. And that money, 
 being subject theoretically to sight draft, was loaned arid loaned 
 only to the gamblers. The merchant and the manufacturer could 
 not borrow that money, because it had to be loaned theoretically on 
 call, and the manufacturer and the merchant would not subject 
 himself to that condition. 
 
 When we approached the panic — and I think I could tell you some- 
 thing that may be of interest to you. This is a little irrelevant, but 
 I think you will be interested in it. Many think that the great panic 
 of 1907 was the result of overtrading. But, gentlemen, as early as 
 May of that year, May of 1907, a gentleman who was present at a 
 conference at Mr. J. P. Morgan's — at Mr. Morgan's house — told 
 another gentleman who came the day following the conference to 
 Philadelphia to see me. That gentleman was a rich man, of course, 
 or he would not have been there. He was a very rich man. But he 
 thought the thing there proposed was one of the most terrible things 
 
COMMITTEE ON INTEBSTATE COMMEECE. 607 
 
 he had ever heard of, and he thought I could present it to the Pres- 
 ident of the United States, Mr. Theodore Roosevelt. The gentleman 
 who came to me had tried to present it to the President, because he 
 had been a captain in the Rough Rider Regiment of which Roosevelt 
 was colonel. But the President would not listen to him. 
 
 What was done ? They agreed to curtail loans, withdraw credits 
 generally, to put money in places where they would have it when they 
 needed it to stop the panic which they themselves were going to 
 create, and also to see that the State laws, which had been enacted 
 under the.ir direction requiring trust companies to keep reserve 
 moneys at various sums of 12 to 15 per cent, some at 22 per cent, of 
 deposits, be enforced and the deposits with national banks not counted 
 as money. And they concluded that $750,000,000 of money would 
 be thus taken out of circulation for the purpose of making up the 
 reserves of the trust companies and other State institutions. We all 
 know that if you take $750,000,000 out of the circulation of money, 
 which was about $3,000,000,000, you produce a very disturbed con- 
 dition. But they coupled that with withdrawing all loans, all credits. 
 That was in May. 
 
 The President would not listen to the gentleman, one of his cap- 
 tains, or to me, who came to me, because he knew of my connec- 
 tions with Roosevelt, and he thought the President would listen to 
 me, but he would not. 
 
 Then the great panic came. It was in the latter part of October. 
 At that time the Secretary of the Treasury had in the vaults about 
 $145,000,000 of free money, and the banks throughout the country 
 were endeavoring to withdraw their reserves from the city of New 
 York to their own sections and cities and towns to save themselves 
 from the impending panic. They could not get a dollar from New 
 York. 
 
 Chicago had on deposit in New York about $50,000,000; Phila- 
 delphia had about $50,000,000; Boston had about $40,000,000; and 
 so on down the line. 
 
 I then made an effort to see the President, and I wrote to him 
 afterwards, so as to have something fixed for him to consider. I said, 
 "If you want to stop the panic, you take your free money, and you 
 can give it to Boston, give it to Philadelphia, Pittsburgh, Chicago, 
 Louisville, Cleveland, and to other cities, and take bank drafts on New 
 York in exchange. The Government will be perfectly safe, because 
 the Government's deposit is always a preferred claim." He wanted 
 to do it, and he intended to do it, when I discussed the situation, I 
 am sure. But he did not do it. I said to him, "You must now take 
 the responsibility of either breaking the country or breaking the 
 bankers — the gamblers. They call themselves bankers now, but they 
 are nothing at all but credit mongers." 
 
 But he called in ¥r. Knox; he called in Mr. George Cortelyou; he 
 called in Mr. Root. And what happened ? Instead of doing that, he 
 flung the whole money into Wall Street, and he broke the country ; but 
 he saved the gamblers. 
 
 Those are facts, gentlemen; and while that is a digression, I hope 
 you will excuse me For taking the time that I have. 
 
 Now, I shall go back. If you will pass a law amending the national- 
 banking act, simply requiring all banks to keep their reserves in their 
 own vaults, reducing the reserve, as it now is, 25 in some cases and 
 22877— vol 1—12 39 
 
608 HEARINGS BEFORE 
 
 15 in others, according to the place, and make it 15 in all cases, and 
 let the banks keep all of their reserves, New York's supremacy will 
 be destroyed and the country wilt have control of its money, for 
 domestic purposes. That, I think, is all that can be done to curb 
 the money trusts, so far as the national-banking act is concerned. 
 
 But I think there is, a far greater thing necessary. We have now 
 what is known as the Aldrich Commission and the Aldrich plan. I 
 have known Mr. Aldrich since he and I were both young men, 
 although he is a little my senior. I have known him well. He has 
 brought out a plan which will, if carried out, in my judgment, 
 strengthen the grip of the money oligarthy now situated in New 
 York and ruin the rest of the country. He is working with the 
 bankers of the great centers where the money is gathered; he is 
 starting a great propaganda. Only yesterday they started out in 
 my city — Philadelphia — to collect Philadelphia's portion of the 
 $1,000,000 to be spent for the propaganda. Philadelphia is to pay 
 $100,000. If you will look at the Aldrich plan you will find that 
 note issues by the banks are in some way to shelter under public 
 credit, for Aldrich knows that in times of panic private credit breaks 
 down and only public credit restores confidence. 
 
 I am informed he proposes that banks shall pay 1^ per cent or 1J 
 per cent for the use of the public credit. 
 
 Do you not see that if you lodge with the banks the power to expand 
 the currency of the country at will, sometimes expanding it, some- 
 times contracting it, that you do nothing at all but create a body 
 omnipotent to make booms, to make panics, to encourage people by 
 loans to develop things partially, and when they are almost developed 
 to the point of standing on their own feet, of breaking them by with- 
 drawal of credit ? 
 
 My notion is that his plan ought to be set aside, and that instead 
 of having such a reserve institution as he proposes, Congress should 
 create a Bank of the United States. Of course, you all know it is not 
 Mr. Aldrich's proposition; of course, you know the whole plan from 
 beginning to end is the creation of a member of Kuhn, Loeb & Co. 
 
 I have said Congress should create a Bank of the United States — 
 of course, a bugaboo will be raised against a Bank of the United States, 
 because of the recollection of the Jackson period. I think what we 
 need — mind you, this is in addition to the amendment to the banking 
 act requiring reserves to be kept at home — what we need is a new 
 act creating a Bank of the United States, with $500,000,000 capital; 
 the bank to be a bank of deposit, of discount, and of exchange, but 
 not of issue; a bank that is to be run not for profit, but to serve the 
 people in their exchanges and in the conduct of their business. I 
 think that bank ought also to be permitted to loan upon real estate 
 as well as upon personal property. 
 
 To prevent the bank from being a monopoly in the hands of the 
 money oligarchy, it must be a bank that is really of the people. And 
 how can that be 1 
 
 There are in round numbers 90,000,000 people in the United States 
 to-day. If you cut them up into sections of 2,000,000 people each, 
 and have one director of the great bank from each of these sections, 
 and let that director be appointed by the President, but really upon 
 the nomination of the board of trade or chamber of commerce, or 
 both, if there are both in any given place, thus taking the bank out 
 of politics, that would give you 45 directors. 
 
COMMITTEE ON INTERSTATE COMMERCE. 609 
 
 I would have the head of that bank here in Washington; have it a 
 depository for the funds of the Government, of course, to receive 
 at the main office and branches ; and I would have a branch at the 
 largest cities of every two-million section of the country; and I would 
 have agencies established by the branch through the subdivisions of 
 the territory; and I would have the local boards of these branches 
 also selected by the boards of trade and the chambers of commerce 
 
 Now, gentlemen, if such a bank as that could be created I think 
 that, coupled with the other things, would take this people out from 
 the clutches of Wall Street and put them in possession of their own 
 rights. 
 
 I know such a scheme as that will be opposed by every banker 
 because of self-interest, but I know that such a bank would be the 
 universal depository of people who were not gamblers. It would 
 use up some of the banks— -I do not mean break them up, but they 
 would have to go out of business, because they could only be the 
 banks of speculators. The great bank would be the bank of the 
 people, to conduct their exchanges, receive their deposits, and dis- 
 count their notes. 
 
 How would I have them discount notes ? I would have them dis- 
 count notes at a rate at all times at 1 per cent above that which the 
 United States pays upon deposits at the post-office banks, if there are 
 such. Or if there are not such, then at 1 per cent above the rate at 
 which the United States could borrow money in the open market. 
 You see what a benefit such an institution would be to the whole 
 commercial and the whole industrial people, the corporations as well 
 as to individuals. 
 
 The bank of the United States which Jackson throttled was simply 
 a private bank, very much like the present national banks. That is 
 a question that I have studied very deeply, because it so happened 
 that my grandfather, Jacob Barker, was Jackson's chief advisor 
 on the bank question in what was called his "kitchen cabinet"; 
 and therefore it has been a sort of family tradition that we have 
 studied. 
 
 In the paper that I am going to leave with you I have in detail 
 discussed the bank. I do not care to say, until you come to question 
 me,, any more about the way to handle and to meet the money trust 
 question. 
 
 Next are the trusts that rest upon public franchise, and, of course, 
 those are the railroads primarily. This is a railroad country; almost 
 everything depends upon transportation. That is second only in its 
 viciousness to the money trust; and it is vicious not only in the 
 discriminations, in the special privileges granted to some, but far 
 more in the overcharges. Of course, you all know that at the present 
 time these railroads, with a general mileage of line of about 230,000 
 miles, have double track siding tracks and terminal tracks of one sort 
 and another of about 120,000 miles more, making 350,000 miles of 
 track in the United States. The railroad companies have a capitaliza- 
 tion at the present time of approximately $17,000,000,000. It is not 
 all, however, capital in the hands of the public, because there has 
 been of late a good deal of intermarriage, let me say, of the corpora- 
 tions, so that one corporation owns the securities of another. But 
 we have gone up since the passage of the railroad bill, which was 
 
610 
 
 HEARINGS BEFORE 
 
 engineered through Congress under the leadership of Roosevelt — 
 we have gone up from about $13,000,000,000 at that time to some- 
 thing like 117,000,000,000 now. 
 
 And here again I am going to ask the courtesy of the committee to 
 tell them an incident which has not yet been told, but it is interest- 
 ing. And the only reason I do not name the* man with whom I spoke 
 and who spoke with me is that he is dead ; but you can all guess who 
 he is as I go on. 
 
 I was coming down Broadway two or three weeks before the elec- 
 tion of 1904, and one of the great money kings of New York — one 
 of the most distinguished, one of the most successful, one of the 
 most heralded, came up to me at the head of Wall Street and said 
 he knew I was not in favor of the election of Roosevelt; that I was 
 not a Republican; that I was not in favor of the election of a Dem- 
 ocrat; that I was a wretched Populist. He said, "We are going to 
 elect Roosevelt." I said, "Are you? I thought you were going to 
 elect Judge Parker." He said, "Oh, no; that is all given up. The 
 putting up of Parker has had its effect; it has frightened Roosevelt, 
 and he has made a bargain." 
 
 I wish Mr. Roosevelt were here. 
 
 Senator Townsend. It would be very interesting. 
 
 Mr. Barker. Yes; we would have a little passage at arms. 
 
 He said, 'iWe have made a bargain." I said, "What is it; what 
 is the bargain ?" He said, ' ' On the railroad question. He is to holler 
 all he wants to, but by and by, not immediately, but by and by, a 
 railroad bill will be brought in by recommendation of the President 
 which shall cut off rebates. That suits the owners of the railroads, 
 but it does not suit the officers or beneficiaries who divide with the 
 officers their profit, but it suits the railroad owners. It will cut off 
 all free passes for the same reason, allow pooling and the fixing 
 of maximum rates. The fixing of maximum rates will enable the 
 railroads to take from the country annually a sum varying from 
 $300,000,000 to $400,000,000 more than now, and thereby justify 
 the increase of capitalization of the railroad corporations." 
 
 We were walking down toward the City Bank. I suppose many 
 people on the street wondered why we were walking together. We 
 walked back again to Broad Street. Then the conversation was 
 almost ended. I said, "I do not believe it; I do not believe that 
 Roosevelt, for the price of reelection, has made such a bargain with 
 the moneyed men." He said, "It is true." 
 
 December after the election came and the President did not say a 
 word about any railroad bill. But come along now to his next an- 
 nual message to Congress in 1905 and what do you find? In a few 
 words the President recommended that Congress enact a railroad 
 bill carrying out such a thing. And then I wrote to the President. 
 I was one of the few whom he allowed to address him as "My dear 
 Mr. Roosevelt" instead of "Mr. President." I wrote him and told 
 him of these things, and told him that I told the man he lied, but 
 that I had to believe he had been telling me the truth. Of all the 
 letters that I have ever written Theodore Roosevelt, this is the only 
 one that he never answered, and I have written a good many. 
 
 Now, gentlemen, I have no right to name the man, because he is 
 dead, and he is not here to contradict me, but you will all remember 
 that at a subsequent period in the Roosevelt administration somebody 
 
COMMITTEE ON INTEBSTATE COMMERCE. 611 
 
 stole in New York some correspondence between Mr. Harriman and 
 the President, telling of $250,000 that was put up for the election 
 expenses in the city of New York. Does anybody familiar with 
 elections for one minute think that it was for literature or any let me 
 say, legitimate election expense ? 
 
 Thank you for allowing me the digression. 
 
 Then we come to the trusts that rest upon tariff protection. I have 
 been a protectionist from early boyhood; yes, from childhood, be- 
 cause I was admitted early, I do not know why, to sit at the knee of 
 , Henry C. Carey, the great economist, who really brought about 
 what we now know as our American system of protection, and from 
 him I learned to believe in the doctrine of protection and also in the 
 doctrine of money he taught, often called "the heresy of money." 
 I am a protectionist, but long ago I saw that under tariff protection 
 monopoly was being built up, that the people were being robbed, and 
 the whole claim that we protectionists set up was being destroyed by 
 the domestic monopolies created by tariff protection. 
 
 As long ago as 1891 I proposed in an open letter to my personal 
 friend, Col. Henry A. du Pont of Delaware, now Senator, your col- 
 league, to put upon the free list all articles a trust of any sort manu- 
 factured. I tried several times to get through Congress an amend- 
 ment to the tariff law, but I have never been able to get that amend- 
 ment any further than the presentation of a bill in the Senate or the 
 House of Representatives. 
 
 The best statement I have made was in a bill presented for me by 
 Senator Pettigrew in the Senate of the United States, May 12, 1897, 
 and here set out: 
 
 Amendment intended to be proposed by Mr. Pettigrew to the bill (H. E. 379) to provide revenue for the 
 Government, and to encourage the-industries of the United States 
 
 That any or all articles on the dutiable list mentioned in this act shall be admitted 
 free of duty on submission of proof that one-half or more of the domestic production 
 of any article or articles on the importation of which a tariff duty is levied is con- 
 trolled or in any way regulated by a trust or combination of any kind, corporate or 
 other organized to control domestic production or to repress competition. 
 
 Any citizen of the United States may file a petition, verified by oath or affirmation, 
 in any district court of the United States where the defendant has an office or place 
 of business, or may reside, alleging the existence of a trust or. combination organized 
 to control domestic production or to repress competition, and that articles or products 
 subject to duty under this act or articles or products of like character of domestic 
 production are manufactured or their sale controlled or the price affected by said 
 trust; whereupon a summons shall be immediately issued from said court directing 
 the defendent to appear and answer said petition, the case to be governed as to time 
 and manner of service, the pleadings and all proceedings had therein as is now provided 
 by law in civil causes instituted in the district courts of the United States. 
 
 If any citizen of the United States shall file with any district attorney for said dis- 
 trict the petition herein set forth it shall be the duty of said attorney to institute 
 proceedings forthwith in the district court for said district in the name of the United 
 States for the purpose of determining the issues made by said petition, like proceed- 
 ings to be had in such case as hereinbefore prescribed. 
 
 The summons to the defendant or defendants herein required shall be served upon 
 the president, or chief officer, if a corporation, or upon all the members, if an associ- 
 ation or partnership, and the Secretary of the Treasury shall also be notified of the 
 existence and nature of the suit. 
 
 All cases instituted as herein provided shall be advanced upon the docket of the 
 court so as to have precedence of trial over all civil causes thereon. 
 
 If the decision of the court shall be that the allegations of the petition are true, an 
 order directing the customs officers of the United States to thereafter permit the 
 importation of such article or articles free of duty shall at once issue: Provided, That 
 
612 HEARINGS BEFORE 
 
 where a duty is levied upon raw material or any article that is impvored by any pro- 
 cess after being imported the duty on the raw material or unrefined or unimproved 
 article shall be. collected and a like amount of duty upon the refined or improved 
 article as provided by this act; but the differential or additional duty shall not be 
 collected if the improved or refined product is found to be the subject of a trust, as 
 hereinbefore set forth. 
 
 Now, I have said that I was a protectionist. Of course I am, and 
 anybody in this country knowing the different values of money here 
 and in other lands must be a protectionist. He can not be anything 
 else. Go to China, as I did. I went to China in 1905 upon an invita- 
 tion from Li Hung Chang to discuss there some measures, and what ' 
 did I find? 
 
 As an illustration, I went to a silk shop in Shanghai, and I bought 
 the most splendid brocaded silks, 36 inches wide, at prices varying 
 from 70 to 90 cents a yard — beautiful things, both in design and in 
 fabric. I brought them home and submitted them one night at the 
 manufacturers' club of Philadelphia to a lot of manufacturers, and 
 there were some people there who knew all about silks. They said 
 that such silks would sell at that time in Lyons for $8 a yard. 
 
 What enabled the Chinese to do that ? Simply because $1 in China — 
 one American dollar in China — at that time would buy as much as 15 
 American dollars would buy here at home. That is the reason; that 
 is the only reason. There were reasons why it ought to cost more 
 over there than here, because they did not have at tnat time, as they 
 now have, a great deal of modern machinery. 
 
 Well, I went out there in 1895 wavering somewhat in my belief in 
 my protection. I came home the stanchest kind of a protectionist. 
 
 Since that time they have put up at Hang Yang a very great steel 
 works, not of the most modern type, but as modern as the American 
 and English and German and Belgian ironmasters could plan in 1891. 
 Therefore you see it is not entirely a plant of the past. There they 
 make iron and steel in every form — structural iron for their bridges 
 and steel rails for their railroads, and so on. And they can manufac- 
 ture rails theie at Hang Yang this minute, carry them 650 miles down 
 the river, and bring them across the Pacific Ocean and lay them down 
 at San Francisco or Seattle, barring duties, at less than $10 a ton. 
 
 That is a very interesting situation. 
 
 Now, gentlemen, I think I have said enough in illustration of indus- 
 trial trusts that rest upon tariff protection, and I hand you a brief 
 statement prepared by me before leaving Philadelphia that covers 
 in concise form all I have said to-day upon the Sherman Act and upon 
 the trusts — money, transportation, and industrial — the moneyed oli- 
 garchy has created, and I ask you to print it as part of the record of 
 my statement. 
 
 (The statement is as follows :) 
 
 November 28, 1911. 
 Senators of the United States Interstate Commerce Committee. 
 
 Gentlemen: In accordance with your invitation to discuss before and with you 
 the question of control of corporations, firms, and individuals engaged in interstate 
 commerce, I have the honor to submit a brief statement that presents my views upon 
 the "trust question." What I may say in general discussion of this vital question the 
 clerk of your committee will make record of. 
 
 Trusts founded on natural monopoly, tariff, or public franchise must be abolished. 
 To talk of licensing trusts is to trifle with evil. The trusts have come — some as the 
 product of industrial evolution, from the fact that great combinations have, made 
 possible the introduction of economies in production; some as the product of Bpecial 
 legislation, largely the granting of franchises exclusive by their nature; some as the 
 
COMMITTEE ON INTERSTATE COMMERCE. 613 
 
 result of railroad discriminations forbidden by the law, but which the law has been 
 powerless to prevent. And so arising, the trusts must be treated with some regard to 
 the manner in which they have arisen. Those that have arisen in the third way, in 
 railroad discriminations, can be dealt with effectively, properly, by absolute Govern- 
 ment control of them or by the Government taking possession of the railroads and put- 
 ting an end to the evil of freight discrimination, so destructive of the first right of the 
 American people — the right to an equality of opportunity. Those that have arisen 
 in the second way can be successfully treated only by the National, State, and munici- 
 pal governments taking back the public franchises they have given away and which 
 they have a common-law right to do; those that have arisen in the first way and have 
 abused their power, the power that comes with concentration and that ought to benefit 
 the general public, must be taken by the people as they see the necessity and that 
 they may enjoy the benefits of the industrial evolution going on around them. So 
 do we declare that where trusts and monopolies are not the artificial creation of trans- 
 portation and other discriminations, and that can, therefore, be destroyed by the 
 removal of such discriminations, but are the growth of natural conditions, are and must 
 continue to be monopolies because of the very nature of their being, that the Nation, 
 the State, the municipalities must be the monopolist in order that the people may be 
 protected in their rights. Where monopoly can not be destroyed, or where, being of 
 natural growth, it is not to the interest of the people to destroy it, the Government 
 must be the monopolist. Private monopoly must be a bane; Government monopo- 
 lization of natural monopolies must be a blessing. 
 
 The history of the formation of trusts is so well known now that no discussion of that 
 question is needed here. The purpose was to ge rid of competition, to enhance profits 
 by raising prices, by shutting down some plants, and so restricting production as to 
 make competition among buyers more active; by pressing down wages, by narrowing 
 the demand for labor and so increasing the competition among laborers for work. All 
 the great trusts, the Money Trust, the Transportation Trust, the Industrial Trust, are 
 under control of a moneyed oligarchy and no private or corporate organization can 
 purge the trust scheme of its illegality, and it is opposed to the principles of sound 
 public policy. A decade since the making of trusts went on at an astounding rate, 
 and vast overcapitalization was created and profits of hundreds of millions of dollars 
 wrung from the people to pay dividends upon capital stocks and bonds for which no 
 actual capital was paid. This overcapitalization was and is intolerable. The lawyers 
 defend the trusts on the ground that they were not organized to restrain trade, to get 
 rid of competition, to enhance profits by raising prices, by cutting down wages, but ' 
 with expectation of enlarging profits through unnamed economies of production. 
 Those who create, own, and manage trusts declare that swelling profits of trust corpora- 
 tions and other associations naturally increase profits for those outside, and so an 
 enhancement of prices engineered by a trust carry with it its own check. For if the 
 trust does not hold itself in check, if it does undertake to swell its profits bv raising 
 prices, such competition will spring up as must cause it to collapse; and if there was 
 an open field and fair chance for all, special favors for none, this would happen It 
 would then be abuse by a trust of its monopoly, increased profits for them outside, 
 then more competition, the collapse of the trust, and the trust evil would cure ltselt. 
 But there is not this open field, for the moneyed oligarchy, by control of the Money 
 Trust, the Industrial Trust, and the Transportation Trust wreck all outside so-called 
 independent concerns. Under the Sherman law the trust corporations can be and 
 will be declared by the Supreme Court illegal, and will so be forced to dissolution, 
 but such dissolution will not end the evil. New laws and new agencies of association 
 must be had. The trusts the moneyed oligarchy gather under and rob the people 
 
 m S TheMoney Trust, (2) the Transportation Trust, and (3) the Industrial Trust. 
 
 Of the three, the Money Trust is the most noxious. Bankers, dealers in money, 
 creditmongers, of course, want to maintain the system of money, the system or bank- 
 ing they can manipulate, and standing together make booms and panics, refuse to 
 owners of deposits with them the use of their own funds and drive to bankruptcy the 
 public— themselves bankrupt— and profit by the wrecks they have caused. I he 
 present bank system does not at all times meet the wants of the money lords, and so 
 they seek the enactment of the scheme the Aldrich Commission proposes. The spon- 
 sors of the Aldrich plan say in a circular they issue with pamphlets sent out now We 
 now have sound banks but an unsound system." This is not the time or the place to 
 discuss that plan but to present an alternative plan that I believe, would insure an 
 eauality of opportunity and prevent booms and panics, and free the people from the 
 slavery the Money Trust imposes upon them. The question of money and credit 
 are discussed in as concise a way as I am able to do in an open letter addressed to 
 President Roosevelt November 9, 1908, and printed as Senate Document 14, April 28, 
 
614 HEABINGS BEFORE 
 
 1911. The part that presents the bank plan I urge adoption of I make part of thiB 
 statement: 
 
 1. The bank must be a bank of deposit, discount, and exchange, but not a bank of 
 issue. 
 
 2. The capital of the bank furnished wholly by the United States by act of Congress 
 must be national money, legal tender for all debts public and private, and should 
 be the surplus money in the Treasury at the time of creation of the bank and money 
 otherwise provided by Congress to make up the deficiency. 
 
 3. The capital at the start of business, provided as stated above, must be $500,000,000, 
 and it must be increased from time to time whenever 60 per cent of the citizens voting 
 at any general national election demand an increase. The power to order a vote on 
 an increase of capital of the bank must lodge (a) with the directors of the bank, a 
 majority of the board voting for such action; (6) with Congress, a majority of both 
 Senate and House of Representatives voting for such action; (c) with boards of trade 
 or chambers of commerce, or by both in cities where both exist, 10 per cent of said 
 boards voting for the demand; (d) with 5 per cent of citizens voting at any national 
 election for said increase of capital. 
 
 This bank must be operated not for profit, but for service of the people. Interest 
 charges to be at all times 1 per cent over those paid on deposits with United States 
 post offices, should a postal savings bank be in operation, or 1 per cent above rate at 
 which the United States could borrow in the open market; all other charges to be 
 sufficient to cover cost of the several transactions. So much of the profit to be surplus 
 as may be decreed necessary by the directors as an insurance fund to be held by the 
 bank and the balance to be used at each and every quarterly settlement for purchase 
 of bonds of the United States outstanding at the time and when the Nation is out of 
 debt, said profit to be used for the creation of public works ordered by Congress. As 
 a large majority of operations of industry and trade are and can always be carried on 
 by use of credits on books of banks, no actual money being required, we should and 
 must separate credit and money accounts in the future and so relieve many financial 
 situations from hardships and danger. 
 
 This proposed bank of the people should inaugurate this most beneficial practice and 
 establish two classes of accounts, one payable in actual money when money has been 
 deposited and one payable by credit on the bank books when a credit has been 
 deposited or a note discounted, the bank making a charge for actual money when a 
 transfer from a credit to a money account is demanded when money for any reason 
 may have been withdrawn from bank centers. This procedure is so sound and easily 
 understood by all those engaged in business and out of business that no objection can 
 be or will be offered to it. The use of a credit to pay a debt of banks to banks through 
 the clearing-house system must be at once extended to individuals, firms, and corpora- 
 tions, and banks making loans of credit must be relieved from the obligation to pay a 
 credit so created in actual money. This use of money of account, credit money, has 
 been in operation in China for many generations and no hardships have ever been 
 experienced. 
 
 The United States bank to loan its credit at all times to farmers, miners, manufac- 
 turers, merchants, transportation companies, and other corporations and individuals 
 at rates heretofore stated when loans are declared good by local boards, so that no curb 
 could be put upon legitimate operations of the people. Loans supported by collateral 
 securities be accepted even though borrowers had no property beyond security offered, 
 such loans to stand upon value of securities, not upon personal credit. 
 
 When collateral loans are sought, bonds and stocks offered as security must have 
 paid annual interest or dividends for three years prior to date of loan. Bonds at 2 J per 
 cent and above and stock 3 per cent and above, no advance to be for more than 60 per 
 cent of the average market price at which such bonds and stock have sold during a 
 period of four months prior to date of loan. The bank to have specific power to loan 
 upon real estate, upon bonds and mortgages, the United States court in the several dis- 
 tricts would permit executors, administrators, and trustees to purchase. This rule for 
 collateral loans and loans upon real estate would put real and personal property as se- 
 curity for loans on the same basis; no preference to either class as now. Exchange 
 business between different parts of the country to be done at lowest rates to cover cost. 
 Bank to be place of deposit of all money of the United States, and so all evils of the 
 "Independent Treasury" would be done away with. No locking up of money; no 
 loan of public funds to favored bankers be possible. 
 
 The capital of the bank to be distributed over the country in proportion to popula- 
 tion or to volume of business, as directors of bank may direct from time to time. Bank 
 to have power to purchase any property, real or personal, when sold to cover loans in 
 default. 
 
 Of course, such a mighty power as the United States bank would be must be in 
 control of the people, for otherwise politicians, sharpers, "captains of industry," would 
 
COMMITTEE ON INTERSTATE COMMERCE. 615 
 
 nfK»tw^ engine for wrong and their own aggrandizement. Absolute management 
 of bank to lodge with boards of directors elected by boards of trade, chambers of com- 
 merce and other commercial and industrial associations. The board of directors to 
 o°n™n™ ° ne dlr I Ct ?. r f r° m each and every section of the country with a population of 
 2,000 000, so on the ba S18 of 90,000,000 population the bank would be managed by 45 
 directors., one of whom should, by election of associates, act as president an3 serve as 
 such one year by authority of one election, but be eligible for reelection. The several 
 industrial and commercial associations specified, each December, to elect a director from 
 the section to serve the following year. A board of directors so constituted would be 
 of course, nonpartisan and made up wholly of men skilled in financial, industrial and 
 commercial operations. This board would hold regular meetings on the first Monday 
 of each month in the city of Washington at-the office of the bank, two-thirds to con- 
 stitute a quorum. An executive committee of the board to be in Washington in 
 attendance at the bank each and every day save Sundays and public holidays, and to 
 be vested with all powers of the full board. President and all directors to be paid 
 adequate salaries; all directors to serve some part of the year at the Washington office 
 of the bank. a 
 
 _ Each section of the country entitled to a director will have located at the chief 
 city of the section a branch bank. These branch banks to be governed by local 
 boards of directors of 20 members, one for each 100,000 population, and be elected as 
 the members of the national board are elected, so that each branch bank would have 
 a governing board of 21, for the national director from the district must be also a director 
 from the branch bank and act as president or vice president of the local bank, as the 
 directors of the branch bank might decide to be for the best interest of the branch 
 bank. All local directors to be paid adequate salaries and seven, one-third of these 
 directors, to be at the office of the branch bank at all times during business hours, so 
 that the president would be at all times only an adviser and executive officer. 
 
 The money overlordship of New York must be broken up at once and the country 
 at large given possession of its own capital. This can be done by an amendment to the 
 national-bank act that will require all banks to keep in their own vaults all of their 
 reserve money. Under the present law New York banks hold the vitals of country 
 banks. 
 
 The Transportation Trust can be broken up only by enactment and enforcement of 
 laws that will limit charges of public-service corporations to an amount that will cover 
 a fair interest — say 6 per cent — on cost of reproduction, plus the highest maintenance 
 and efficient operation of the property. Physical valuation should be made at time 
 of taking the national census and rates for freight and passenger charges for 10 years 
 thereafter adjusted at these periods. This action would cut off all dividends on over- 
 capitalization and destroy the earning power of more than 50 per cent of the present 
 capital of transportation corporations. 
 
 The Industrial Trust can be broken up, not by overthrow of industrial corporations, 
 but by taking from them tariff protection, and in no other way. 
 _ The petition of the United States for dissolution of the United States Steel Corpora- 
 tion and constituent or subordinate companies must be granted, because there can be 
 ' no defense the courts can recognize; but such dissolution can be no relief to the people 
 bo long as private industrial monopolies of any kind exist beeausa of tariff protection. 
 The benefits of protection are to my mind unquestioned if the protective system 
 is to be what its honest advocates have intended it to be, but if it be made the shield 
 for capitalistic greed, then we must either dislodge those who abuse its purpose or 
 give up the fight for its maintenance. We must prevent the use of import duties for 
 purposes of industrial monopoly; we must throw overboard unhesitatingly all protec- 
 tive duties that are the result of jobbery and log rolling, and so remove the shield from 
 monopoly. Free domestic competition is the indispensable counterpart of external 
 protective charges. We must treat industrial trusts as conspiracies against the public 
 and remove all tariff import protection from articles which the trusts monopolize. 
 More than 20 years since, I proposed that any or all articles on the dutiable list should 
 be admitted free of duty on submission of proof that one-half or more of the domestic 
 production of any article or articles on the importation of which a tariff duty is levied 
 is controlled or in any way regulated by a trust or combination of any kind, corporate 
 or other, organized to control domestic production or to repress competition or to put 
 up prices to gather money to pay interest or dividends upon capital purely fictitious — 
 capital created solely for the purpose of satisfying the greed of those who organize, 
 create, and work the trusts. The overcapitalization of transportation and industrial 
 corporations is the most noxious of all forms of robbery associated capital has created 
 in Its aggressions upon the rights of the public, because it enables the imposition and 
 collection of a huge indirect tax. The dissolution of the United States Steel Corpora- 
 tion and constituent or subordinate companies will not break up the monopoly that 
 
616 HEARINGS BEFORE 
 
 now robs the people of many million dollars annually. As almost all industrial trusts 
 rest upon tariff protection, we must destroy these trusts by taking from them tariff 
 protection. We can not destroy them solely by breaking up the corporations, organ- 
 izations made to conduct the nefarious business. Many politicians strive to establish 
 a belief that trusts exist because of tariff protection, but all who consider the .situation 
 know that trusts exist also because of public franchises and natural monopolies in 
 private ownership. A moneyed oligarchy — able, resolute, inhuman, and aggressive — 
 controls because of associated capital and political power, (1) money trusts, (2) in- 
 dustrial trusts; (3) transportation trusts, (4) commercial distribution trusts; and 
 because of this control the oligarchy is enthroned and the people are outcast. 
 
 All operations that are monopolies by tariff laws, by public franchises, or by con- 
 trol of natural products must be public, not private, monopolies, if a free people is to 
 exist. 
 
 The paper on the anthracite-coal situation, hereto attached, written November 11, 
 1906, but never published (costs and charges stated do not vary much from those at 
 this time), is important and valuable, for it sets out the gross and huge overcharge 
 the people must pay for anthracite coal because of the anthracite-coal combination — 
 a gigantic monopoly. 
 
 Trusts that exist because of private ownership of natural monopolies can be dealt 
 with only by the Nation and States, under the right of eminent domain, taking over 
 those monopolies and putting them out under lease for limited periods to private 
 operators with adequate royalties to Nation and States. To illustrate, take bitu- 
 minous coal. Lease lands to private operators that have by estimate of competent 
 engineers a coal content of marketable coal 25,000,000 tons; make lease for 20 years 
 with royalty to Nation or State 1\ or 10 cents per ton; minimum outtake 1,000,000 
 tons per annum, thus insuring working of the property and annual profit of not less 
 than $75,000 per annum to Nation or State; charge to consumers of coal a price not 
 to exceed a sum to cover cost of mining plus a sum that would pay 6 per cent upon 
 the capital tenant must invest in the operation of mining and in building private 
 lines of railroad from mines to public railroad — a common carrier — and to sink or 
 pay the capital invested within one-half the period of the lease. The operator would 
 then have 6 per cent on the amount of the investment for the whole period of the 
 lease and a sum, in addition, equal to the total investment in the operation. This 
 basis is probably fair to people, Nation, or State, and to capital. 
 
 Wharton Barker. 
 
 I am going to leave with you a paper that I wrote, because I believe 
 some of you would like to look it over and perhaps later talk with me 
 about it. I wrote it in 1906 on the anthracite-coal situation. This 
 paper has never been published, but the facts in it have, I think, 
 never been laid before anybody, except President Roosevelt, to whom 
 I sent them in the years when he was settling the great anthracite- 
 coal strike in Pennsylvania. I was requested, not formally, to go to 
 the commission then sitting round about and sec whether the cor- 
 porations and private operators were at fault, or the miners. I went 
 to Carroll D. Wright, who was the secretary of that commission, and 
 he said that it ought to go in. Thereupon I went to the commission, 
 of which Judge Gray, as you know, was the head. He came back; 
 and he said that the commission ruled that it could not consider any 
 question that the President had not sent to them for arbitration, and 
 that the only question sent to them to arbitrate was the difference 
 between capital and labor. Organized labor and organized capital 
 were to be protected, to be cared for, but the poor public — the buyers 
 of coal — were to be left out in the cold. 
 
 But the President would not amend his instructions to the com- 
 mission. So we had the decision. Before the strike we were buying 
 coal at $4.75 and $5 per ton in Philadelphia and New York. Boston, 
 for some reason, always had coal at about the same price charged at 
 Philadelphia. As soon as the decision of that commission was 
 rendered the price of coal to consumers was advanced to $6.75 and 
 $7 a ton and maintained to this day. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 617 
 
 • ?k] s i s ^e result of the work of the commission, because it decided 
 it had not, the power to protect the public. The figures that I am 
 gomg to lay on this table, the cost of mining, etc., I obtained from 
 a person whom the Philadelphia & Reading Railway Co. sought a 
 loan from. 
 
 That is a pretty interesting subject, and it may be useful to you in 
 some of your other investigations. 
 
 I am not an engineer and I am not a miner; but whom do you 
 think I had to help me in that ? I will tell you why I had him. 
 
 One of the questions I went to China to discuss was the develop- 
 ment of an anthracite coalfield to the west of Peking. It has an area 
 about three times larger than that of Pennsylvania, with coal almost 
 identical, by analysis, almost identical in the structure of the seams. 
 I went to Joseph S. Harris, who, at the time of my going to China 
 was president of the Lehigh Coal & Navigation Co., the first com- 
 pany organized in Pennsylvania to mine and to transport anthra- 
 cite coal. Later he was president of the Philadelphia & Reading 
 Railway Co., put there by Mr. Morgan and his Philadelphia partners. 
 J. went to him because I esteemed him as an engineer and a coal 
 geologist among the first. I learned to know him because he was a 
 colleague of mine on the board of trustees of the University of Penn- 
 sylvania. I said to him, "I want you to tell me who the best man 
 in the United States is to go to China." He said, "Take James F. 
 Jones." 
 
 I took into my counsel a railroad engineer of high authority for 
 cost of railroad. 
 
 That is the thing I want to leave with you, for your guide. 
 
 Senator Townsend. You have just one copy ? 
 
 Mr. Barker. I have two copies here. 
 
 Senator Townsend. You haven't enough copies to go around ? 
 
 Mr. Barker. No. 
 
 The Chairman. It will be printed in the record. 
 
 Mr. Barker. I think it is worth printing, because it is really a 
 very important thing. 
 
 (The paper is as follows:) 
 
 THE ANTHRACITE COAL SITUATION. 
 
 The owners of the 312,000 acres of land, the anthracite coal fields of Pennsylvania; 
 force consumers of anthracite coal, because of monopoly, to pay each year more than 
 $125,000,000 too much. Because of the right of eminent domain, and no one now 
 disputes this right of the people, the State can take these lands, so the public have 
 the power and a right to buy coal at all times at prices that pay fair wages to miners 
 and all others employed in the business of mining and transporting coal to market, 
 also paying a fair interest charge upon the actual capital used in the business. 
 
 What price the people should pay for anthracite coal is the question that confronts 
 us. The people discontented and dissatisfied, are inactive only because they do not 
 how see the way to stop the abuses they suffer; they do not know their rights are 
 secured them under the constitution of Pennsylvania; they do not know the value 
 of the anthracite coal fields, what they cost the present owners, or what they were valued 
 at prior to the Roosevelt commission settlement of 1903; they do not know the cost of 
 mining this coal at proper wages to miners, breaker boys, and to all those employed 
 in getting the coal on cars at mines; they do not know the cost of transportation from 
 mines to consumers' market. That the people may appreciate and understand the 
 wrongs they suffer, see clearly the situation the moneyed oligarchy has made for 
 them, the power that is in their own hands, this paper is written. 
 
 When the State granted the several railroad corporations engaged in transportation 
 of coal their broad charters no one believed a charge would be made at any time for 
 use of a public franchise by these corporations, for all believed at -that time that a 
 public franchise was a public trust. I am of the opinion that under the common. 
 
818 HEARINGS BEFORE 
 
 law the State can withdraw and repeal a franchise where the powers granted are 
 abused as railroad corporations abuse them. In his acceptance of the presidential 
 nomination given him by the Republican national convention of 1904, President 
 Roosevelt said: "The Democratic State convention in New York dealt with the 
 anthracite coal strike by demanding in deliberate and formal fashion that the National 
 Government should take possession of the coal fields; yet champions of that conven- 
 tion's course now condemn the fact that there was any action by the President which 
 prevented the movement for national ownership of the coal fields from gaining what 
 might have been an irresistable impetus." From this statement the public learn the 
 motive of President Roosevelt in the appointment of the "Anthracite Coal Strike 
 Commission" of October, 1902-Mareh, 1903. From information sent me from Wash- 
 ington when the appointment of this commission was under consideration I learned 
 that the rights of the public were not considered, and on November 6, 1902, I wrote 
 the President as follows: 
 
 "From your instructions to the Anthracite Coal Commission, and from all public 
 reports of what members of that commission understand the work before them to be, 
 any observer must come to the conclusion that the rights of the public, of those who 
 consume the coal, are not to be taken into consideration; that only the difference 
 between organized capital and organized labor are to be considered and adjusted by 
 the commission you have adopted under great public pressure. That public pres- 
 sure did not mean that wages and conditions of the miners on one side and the profits 
 of capital on the other were the only questions for the commission to consider and 
 settle. That public pressure was brought upon capitalists, miners and upon you for 
 the settlement of these large but minor questions, and also for the settlement of the 
 larger and far more important question — the right of the people to have coal at all 
 times and at fair prices. The wage-earning classes are entitled to have fair, adequate 
 wages, proper hours of labor, and proper conditions of labor, and capitalists are entitled 
 to fair, adequate interest upon the actual capital invested in the operation, but are 
 not entitled to interest upon fictitious capital, to interest upon bonds and stock for 
 which not $1 was paid. This question of over-interest charge and over-capitalization 
 can not be put aside by the commission you have appointed, and the public be satis- 
 fied with the conclusions and recommendations come to — a decision that gives to 
 organized capital and organized labor the demands of both and that leaves out the 
 rights of the public will settle nothing except to establish, as far as this commission 
 can do so — that these organized bodies of wage earners and capitalists may by agree- 
 ment rob the public, who are not organized and can not organize for protection against 
 aggression." 
 
 On January 16, 1903, I again wrote the President giving him, at length, a full state- 
 ment of the situation in the hope that he would at once enlarge the powers of the com- 
 mission he had appointed, but he would not do so. This letter began with these 
 words: 
 
 "For a time I hoped you would move to protect the people from aggression, but 
 your inaction and your silence leave no doubt in my mind that you believe all respon- 
 sibility is with the commission you appointed to review and pass upon the differences 
 between organized capital and organized labor. The members of the commission 
 consider these differences are before them for arbitration and that, under your instruc- 
 tions, they have no power to take up other questions. In this conclusion they are 
 probably correct." 
 
 It is probable there is no way for the National Government with its limited powers 
 to exercise any control over corporations owning and operating coal mines wholly 
 within a State, but there can be no question that the State may so limit the capacity 
 or power of corporations of its own creation as to prevent all impositions and extortions 
 in their dealings with the public and with their employees. The State has surely the 
 right to fix the price at which any natural commodity owned and marketed after the 
 fashion of a monopoly may be sold. The same right to fix a maximum rate at which 
 coal, oil, or iron may be sold as to fix the rate of interest, legal rate, the money lenders 
 may charge for the use of money. The State has surely the right to fix minimum prices 
 per ton for mining coal and also to fix civil and criminal penalties against private 
 individuals or any corporations which may make contracts with miners for less than 
 fair prices. The State can stop combined mining corporations in fixing rates of 
 wages too low and in fixing prices at which coal may be sold so high as to be simply 
 robbery. The individual miner and the individual consumer is helpless. To pro- 
 tect the miner the United Mine Workers' Union was very properly organized. The 
 •consumers can not organize and are wholly at the mercy of the coal combinations 
 unless the State stands to protect them. 
 
 I have said it is probable the National Government has no power to regulate Penn- 
 sylvania corporations, but the sovereign people of the United States 'may amend, 
 enlarge, or abridge the power of the General Government and of the several States. 
 The sovereignty of a political co mmunity reate with those who hvae the p ower to make 
 
COMMITTEE ON INTERSTATE COMMERCE. 619 
 
 and change fundamental laws. The people are therefore supreme in our country. 
 The State— the people— has the right of eminent domain. The State has the right to 
 take for public use any private or corporate property the general welfare demands 
 should be so taken. 
 
 The Pennsylvania anthracite coal field has an acreage of about 312,000 acres Its 
 coal content is some 22,000,000,000 tons, and with present mining appliances, a mar- 
 ketable content from 13,000,000,000 to 15,000,000,000 tons. AY ill increased skill in 
 mining, improved mechanical equipment, and better methods of ventilation, the 
 mines will probably increase this estimate of marketable coal content. Five years 
 since the 312,000- acres were valued by a very high authority, an authority accepted 
 by owners, as such, at an average of $800 per acre, in the aggregate $249,600,000. 
 These lands did not cost the present owners such sum of money. There can be no 
 dispute that this valuation of $250,000,000 is a fair and an adequate one for these 
 lands unimproved. Since advance in retail price of anthracite coal from $5 to $6.75 
 per ton, capitalists owning these properties have put a valuation of $1,500 per acre 
 upon them, and in some cases balance sheets have been made to conform to the 
 advanced valuation of these coal lands. At this point note advance in stock exchange 
 prices of stocks of five corporations classed in the public mine as "anthracite coal 
 properties": 
 
 Delaware, Lackawanna & Western: 
 
 1901 , average price 223 
 
 1902, average price 264 
 
 1906, November 555 
 
 . Delaware & Hudson: 
 
 1901, average price 145 
 
 1902, average price * 169 
 
 1906, November 219 
 
 Lehigh Valley: 
 
 1901, average price 34 
 
 1902, average price 34 
 
 1906, November 80J 
 
 Reading Railroad: 
 
 1901, average price 20J 
 
 1902, average price 32| 
 
 1906, November 73 
 
 Central Railroad of New Jersey: 
 
 1901, average price 171^ ' 
 
 1902, average price 181^ 
 
 1906, November 223 
 
 Value of lands unimproved fixed at $800 per acre give an aggregate valuation of 
 $250,000,000. The improvements of all kinds can be replaced for a sum not exceed- 
 ing $85,000,000, but place upon them a valuation of $100,000,000 and adverse criticism 
 is prefiluded. We have a total cash valuation for all the anthracite coal lands with, 
 improvements upon them of $350,000,000, surely a very liberal estimate. of value. 
 The interest charge for this capital at 6 per cent per ann\»m is $21,000,000, or 30 cents 
 per ton of coal on an annual consumption of 70,000,000 tons, the present annual con- 
 sumption. A royalty of 30 cents per ton would provide a sinking fund of $21,000,000' 
 per annum. It is probable that the annual increase of consumption of anthracite coal 
 will be such that a royalty of 30 cents per ton and the saving in the interest charges 
 would pay the $350,000,000 capital invested in the Pennsylvania anthracite coal 
 properties within 10 years; a charge of 20 cents per ton for opening new mines, for 
 mine and breaker repairs, would much more than cover these charges, for on 70,000,000 
 tons annual sales we have a sum of $14,000,000 per annum available for these charges. . 
 For wages to miners, helpers, and to all others employed in mining coal, putting it 
 through the breakers, on cars at mines, and for sundry other expenses allow $1.80 per 
 ton. This allowance is probably 20 cents per ton too high. We have now cost of 
 coal $2.60 per ton on cars at mines ready for shipment to market, wages, repairs, and 
 improvements, interest at 6 per cent per anuum, and royalty to sink total capital of 
 $350,000,000 in 10 years all included in this price. The cost of $2.60 per ton is made , 
 up as follows: 
 
 Wages and sundry charges $1. 80 
 
 Improvements and repairs 20 
 
 Interest on capital at 6 per cent \ 30 
 
 Royalty 30 
 
 2.60 
 
620 HEARINGS BEFORE 
 
 This make up of cost on cars at mines is proven correct by reference to cost sheet of 
 the Reading Co. here quoted. This coBt includes royalty, but not interest on capital. 
 Cost of mining in Schuylkill County is higher than in other parts of the anthracite, 
 coal field by about 10 cents per ton, for reasons well known to all operators. 
 
 Reading Coal Co. cost sheet: Per t<m - 
 
 1899 |1. 58A 
 
 1900 (9 months) 1. 66J 
 
 1900 (3 months) 1. 82^ 
 
 This advance because of 10 per cent increase in wages: 
 
 1901 1. 82^ 
 
 1902 2. 02,V 
 
 1903 2. 18-& 
 
 This advance because of award of the Roosevelt settlement board: 
 
 1904 2. 22^ 
 
 1905 2. 20-iV 
 
 We come now to the consideration of the question of transportation of coal from the 
 Pennsylvania anthracite fields to market. In doing so there is no reason, and surely 
 no advantage, in taking up the reports and the balance sheets of the several corpora- 
 tions engaged in transportation of anthracite coal, because all are engaged also in gen- 
 eral freight and passenger business, and because this is not the place to discuss the 
 overcapitalization of some of these corporations. Some overcapitalization because of 
 bad and most incompetent management, some overcapitalization because of improper 
 commissions paid to bankers at times of financial stress and at times of reorganization, 
 some overcapitalization because of improper capitalization at time of consolidations 
 and reorganizations. All that need be said at this time is that there are bonds and 
 stocks amounting to maftiy millions of dollars, overcapitalization of one kind or another, 
 in the hands of small investors, induced to buy them by their bankers and brokers 
 because of dividends paid upon them. Most of these corporations have issued bonds 
 and stocks far in excess of the amount of capital required to reproduce the properties 
 at this time, and all are operated on the principle of "charge all the business will 
 stand " and not upon the principle in the minds of the men who sought and secured, 
 and by the men who granted, the great public franchises these corporations enjoy. 
 
 When these railroad charters were granted, all believed the railroads were to be for 
 all time common carriers at equal rates on like conditions, and that at no time were 
 charges for transportation of passengers and freight to be in excess of rates that would 
 properly operate and maintain the properties and pay to capitalists a fair annual inter- 
 est on actual capital invested and provide an adequate sinking fund. 
 
 The question to consider now is not what charges railroad corporations must make 
 for transportation of coal to meet interest charges upon the present, often fictitious, 
 capitalization of the railroad companies, but what these charges must be to cover 
 interest upon the capital that would be required to build and operate lines of trans- 
 portation in every way adequate to the proper conduct of the business and also to 
 cover a sinking fund that will pay off the total capital invested in the railroad lines 
 required for the advantageous conduct of the business within a period of 10 or 15 years. . 
 No one with knowledge of the business will dispute the statement that 10,000 mileB of ' 
 track for main line, terminal yards, and side tracks is a larger mileage than the business 
 requires; the coal business separated from the general freight and passenger business. 
 Those most competent will, without hesitation, fix this mileage at 8,000 miles. I mean 
 the railroad men who know the business, the men who now manage it. No one with 
 knowledge of the cost of building railroads at this time will dispute the statement that 
 $25,000 per mile of track would be more than required to purchase right of way for line, 
 buy lands for yards and terminals, and to construct the line of railroad needed. At 
 $25,000 per mile of track there would be an investment of $250,000,000 for 10,000 
 miles of track. Add to this $5,000 per mile of track, probably $4,000 per mile would be 
 a too liberal allowance, for locomotive and car equipment, and we have a further 
 investment of $50,000,000, or a total investment in railroads of $300,000,000. We 
 will allow 6 per cent per annum interest on this investment, say $18,000,000, for annual 
 interest charge. To provide a sinking fund to pay off the principal investment in 10 
 years we require an additional $18,000,000. To cover interest and sinking fund ' 
 charges, we require 52 cents per ton, say on 70,000,000 tons, $36,400,000. Officers* of 
 the several railroad companies have at various times when seeking new loans or when 
 an increase of stock was desired, stated that coal was carried to market, including 
 terminal charges and coBt of return to mines of empty coal cars, from 1J to 3 mills 
 per ton per mile, from.15 to 30 cents per ton for a haul of 100 miles. Take the higher 
 cost of 3 mills per mile and assume the average haul of anthracite coal at 150 miles 
 and we have 45 cents per ton for haul of coal from mine to market. Probably 30 cents 
 
COMMITTEE ON INTERSTATE COMMERCE. 621 
 
 per ton is in excess of present coat of transportation. With these allowances we have 
 a total proper freight charge of 97 cents from anthracite coal field to market per ton to 
 cover interest and sinking capital in 10 years and cost of operation: 
 
 Cost of transportation and maintenance of property $0. 45 
 
 Interest on capital at 6 per cent and sinking fund ". 52 
 
 .97 
 
 The final charges for coal to consumers can not be made up without allowances to 
 retail dealers, for costs of doing business, and for profit of $1 per ton, surely a liberal 
 estimate. On basis of 6 per cent interest on capital we have proper cost to consumers 
 $4.57 per ton. 
 
 Cost on cars at mines $2. 60 
 
 Railroad charges 97 
 
 Retail dealers 1. 00 
 
 4.57 
 
 Because of consolidation of the coal mining and coal transporting companies, a con- 
 solidation prohibited by the spirit of the law if not by the letter, the owners are taking 
 from the people at large not less than $125,000,000 per annum more than they are 
 entitled to. When the retail price is $6.75 peV ton to consumers when cost at market 
 does not exceed $4.75, my estimate fixes price at $4.57, owners of the properties take 
 on an annual sales output of 70,000,000 tons, $140,000,000 per annum too much. The 
 owners of these properties have destroyed competition and have placed the people in a 
 position where they must pay for coal what the oligarchy demands. So long as the 
 anthracite coal properties remain in private hands, unrestrained as at present, the 
 people must pay these private owners a great tribute, from $125,000,000 to $150,000,000 
 each year. With public ownership of the coal and railroad properties the public 
 would no doubt be supplied with anthracite coal at less than $4 per ton. ' That a 
 better understanding of how these properties are now operated on the basis "charge 
 all the business will stand," note that the charge for transportation of anthracite coal 
 from Schuylkill County, 125 miles average haul to Philadelphia, is $1.70 per ton, and 
 the charge for transportation of bituminous coal from Clearfield County to Perth 
 Amboy, 346 miles average haul, is $1.70 per ton. So the rates on anthracite coal are 
 nearly three times those on bituminous coal. With this position before us is there any 
 question of need of public regulation of the anthracite coal properties in the interest 
 of the Commonwealth? 
 
 Look at the Roosevelt Anthracite Coal Strike Commission settlement from any stand- 
 point, and the only conclusion that can be reached is that the public were sacrificed to 
 the interests of organized eapital and of organized labor. This sacrifice was possible 
 only because the people were unorganized. But this gross abuse and other abuses as 
 intolerable, so well understood now by many people, must soon awaken a sovereign 
 people to organized action that will restore to them their sovereignty and their rights. 
 They will not tolerate much longer class government and general robbery by a moneyed 
 oligarchy working through many associated corporations. The aggressions of associated 
 capital must end and give place to justice and equality of opportunity. The anthra- 
 cite coal combination, now 20 years old, has its fangs securely fastened_ upon the 
 throats of consumers of this coal. It can be cast off by public action and in no other 
 manner. The only way open to the people for an adequate supply of coal at fair 
 prices is for them to establish public regulation that will regulate public ownership of 
 the coal properties and of railroads needed to transport the coal to market. The time 
 has come for the people of Pennsylvania to take over the anthracite coal properties and 
 to build, own, and operate railroads if the railroad corporations now mining and trans- 
 porting anthracite coal refuse to sell and to carry the coal at fair rates. The present 
 situation must have been looked for in 1873 by the men who made the present consti- 
 tution of Pennsylvania, for in Article XVI, section 3, we read: "The exercise of the 
 right of eminent domain shall never be abridged or so construed as to prevent the 
 general assembly from taking the property and franchises of incorporated companies, 
 and subjecting them to public use, the same at the property of individuals; and the 
 exercise of the police power of the State shall never be abridged or so construed as to 
 permit corporations to conduct their business in such a manner as to infringe the 
 equal rights of individuals or the general well-being of the State. ' ' 
 
 So the people of Pennsylvania have the right to protect themselves from further 
 aggression of the oligarchy of wealth without change in the fundamental law of the 
 
622 HEARINGS BEFOEE 
 
 State, the constitution, and they have the power to do so for they have a very great 
 majority of ballots. They can defeat the corporations that are used to enslave them. 
 The proper solution of the situation is in the hands of the people. 
 November 11, 1906. 
 
 Mr. Barker. Now, let me go back just a bit and then I will stand 
 for cross-examination. 
 
 The money trust, the franchise trust, the industrial trust, are the 
 ones you must deal with. There is no change at all that you can 
 make in the Sherman law that is going to destry the trusts in one 
 form or another. I think you have a splendid bill after you have 
 amended it and take out of the law that which the Supreme Court 
 put into it — "reasonable" — and then let it stand as it passed 20 
 years ago, and it is all right. I do not think it needs anything else 
 to any fair-minded man, any man who will bring his common sense 
 to bear. 
 
 But those are the trusts. Every other kind of trust shelters under 
 one or the other of those divisions. 
 
 Now, gentlemen, Senator Clapp, your chairman, told me that the 
 manner of examination would be to allow the victim to make such 
 statement as he desired -and then stand for examination. I think I 
 have said enough to bring down upon me enough of inquiry to annoy 
 me. I hope not, however. I am at your service now, gentlemen. 
 
 The Chairman. Senator Cummins, you may inquire. 
 
 Senator Cummins. Is it your purpose to close this evening ? 
 
 The Chairman. Yes, unless the committee overrules me. 
 
 Senator Cummins. I think, in view of the lateness of the hour that 
 I will waive. my right to inquire of Mr Barker, because it is per- 
 fectly apparent that it is a wide field and it could not be covered in 
 any ordinary time. 
 
 Mr. Barker. Well, Senator Cummins, the- reason I expect the 
 chairman has said we must close to-night is because I told him I did 
 not wish to stay here longer than one day, when he most courteously 
 invited me to come. 
 
 Senator Cummins. Well, you have been very clear in all your 
 statements, and I do not believe could elucidate them any further 
 by inquiry. Therefore, I will not ask any questions. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. I have just one or two questions. Mr. Barker, 
 you spoke of a meeting at Mr. Morgan's house in May, 1907, and the 
 purport of that meeting was given to you by a captain of the Rough 
 Riders ? 
 
 Mr. Barker. Yes, sir. 
 
 Senator Watson. Would you object to giving us his name ? 
 
 Mr. Barker. Yes; I can not do that. It would not be fair to 
 him to do it. 
 
 Senator Watson. It is rather an important matter. 
 
 Mr. Barker. It is a very important matter, but I would not like 
 to do that without permission from him, unless under certain condi- 
 tions, of course, it would be my duty. But other than that I hope 
 the Senators will not press me. 
 
 Senator Watson. If he gave you permission I wish you would send 
 his name to the committee. 
 
 Mr. Barker. If I get permission I will certainly send it to the 
 committee. 
 
COMMITTEE ON INTERSTATE COMMERCE. 623 
 
 Senator Watson. Do you care to say what member of the firm of 
 Kuhn, Loeb & Co. prepared the Aldrich plan? 
 
 Mr-, 8 ^?™*- ^?s; I will certainly tell you if I can think of it. It 
 was Mr. Paul Warburg. 
 
 Senator Watson. Do you care to tell us what Mr. Roosevelt's 
 reply was to your letter ? 
 
 Mr. Barker. Which letter do you refer to— the one on the coal, 
 or the other one ? ' 
 
 Senator Watson. The one you said was the only answer 
 
 Mr. Barker. The only one he never did answer. I have had many 
 letters from him. And very often— this is just in the privacy of the 
 room, and the reporters must not send this out — I have had several 
 when he made what he thought was an exceedingly fine speech; he 
 would frequently send me a copy on embossed paper, printed in 
 beautiful style, and tucked in with white satin ribbon. 
 
 Senator Townsend. Do you want to keep that out of the record ? 
 
 Mr. Barker. No; it can go into the record, but I do not want it 
 to go out to the public until you publish the record. 
 
 Senator Watson. I ask if you care to tell us what the answer was ? 
 
 Mr. Barker. I think the answer was that "I practically agree 
 with you," and then, to my utter astonishment, he went just the 
 other way. And I told that one day to the editor of a newspaper 
 who at one time, and maybe is yet, a great admirer of his, and he 
 said, "You know he always agrees with the last man who is there." 
 
 Senator Watson. That is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Very briefly, you spoke about natural 
 monopolies, and you advocate the plan of the Government con- 
 demning or purchasing all the objects of natural monopoly and 
 administering them in behalf of the interests of the people. 
 
 Mr. Barker. Yes, sir. 
 
 Senator Brandegee. Have you a brief catalogue of what you 
 consider natural monopolies ? 
 
 Mr. Barker. No; but I think I could make you one now. Some 
 of those would have to be acquired by the Nation and some by the 
 States, because the Nation has lost its rights to take those from the 
 States, I think. 
 
 Senator Brandegee. I do not mean a complete fist. 
 
 Mr. Barker. I mean some must be taken by the Nation and some 
 by the States. In Pennsylvania, of course, we take anthracite coal. 
 We have a clause in the constitution of Pennsylvania — section 16, 
 article 3, I think it is. 
 
 Senator Brandegee. We are not concerned with State acquisition; 
 but what products would you advise the United States Government 
 to acquire? 
 
 Mr. Barker. I would acquire coal wherever it existed, and after 
 a while maybe iron; not yet. Let iron remain as it is for a little 
 while and see if it does not come right under the law of competition. 
 
 Senator Brandegee. What else ? 
 
 Mr. Barker. And forestry — trees; and any of the other metals 
 that, because of their limited supply, could easily be corralled and 
 become monopolies. 
 
 Senator Brandegee. Would you include water powers ? 
 
 Mr. Barker. Certainly. 
 
 22877— vol I— 12 40 
 
624 HEARINGS BEFORE 
 
 Senator Brandegee. That is all. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Mr. Barker, when you were discussing your 
 plan for a bank, while you were speaking of discounts you promised 
 us that you would later speak of the securities, but you omitted to 
 do so. 
 
 Mr. Barker. I forgot. So far as personal property goes, I would 
 have that bank loan upon any stocks or bonds 60 per cent of the 
 average price for two or three years prior to the date of the loan, 
 provided those securities had paid dividends on stocks and interest 
 on bonds at the rate of 2J per cent and above. So far as realty is 
 concerned, I would have loans made upon real estate, secured, of 
 course, by the ordinary form of bond and mortgage in the way that 
 the orphans courts of the various States permit executors, adminis- 
 trators, and trustees to invest. That would bring to this bank all 
 the real and solid business and all the gambling business would go 
 to outside banks. 
 
 I have given an immense deal of study to that bank question, and 
 I have been to Europe several times for the purpose of seeing what 
 they have over there. I think there is no other salvation for this 
 people but that great bank. You will have, I think, next year the 
 greatest industrial and financial disturbance — I do not say panic — 
 disturbance that you have ever seen in our country unless the 
 Aldrich plan goes through or the bank I propose is created, and the 
 Aldrich plan can only give temporary relief. My plan would give 
 
 Eermanent relief. We would have had a panic this year if it had not 
 een that business for a time has been only about 60 per cent of 
 normal. 
 
 The clearing-house certificates, which some people think so much of, 
 are a fine thing for banks to pay their debts with when they have no 
 money; but, of course, they are illegal and are used only by sufferance. 
 If I can find it, I will furnish you a copy of a paper in which I discuss 
 the clearing-house question with the late Mr. B. B. Comegys, president 
 of the Philadelphia Bank. It was written at the time of the panic 
 of 1903. 
 
 Clearing-house certificates are a very curious concoction. They 
 were originally issued only under the authority of the national 
 banking act in place of actual money ; but they have been used, with 
 the connivance of the Secretary of the Treasury and the Comptroller 
 of the Treasury — I do not mean this Secretary of the Treasury and 
 this Comptroller, but all the Secretaries and all the Comptrollers for a 
 great many years — in lieu of money whenever the banks got in a hole, 
 m times of panic. 
 
 Senator Pomerene. That is all. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Mr. Barker, why were these incidents with 
 reference to President Roosevelt and this rough rider, Mr. Harri- 
 man, and others not told before? I understood you to say that you 
 are giving us these things for the first time. 
 
 Mr. Barker. In public. I have told a half a dozen individuals 
 before, but always under the promise that nothing was to be made 
 public until I said so. Of course, these people will now be at liberty, 
 if any leakage comes out from here. 
 
 Senator Townsend. You understand, of course, that these are 
 public hearings ? 
 
COMMITTEE ON INTERSTATE OOMMEECE. 625 
 
 Mr. Barker. Certainly, sir. I am not running away from the 
 publicity at all. 
 
 Senator Townsend. Now, as I understand you, you are in favor 
 of protection very strongly ? 
 
 Mr. Barker. Yes, sir; I am. 
 
 Senator Townsend. But you would take away the protection from 
 goods that are in the trust. To what extent must it be to form a 
 trust ? 
 
 Mr. Barker. I would say five-eighths of the production. 
 
 Senator Townsend. Why ? 
 
 Mr. Barker. The best bill that was ever presented on that sub- 
 ject I have a copy of in my bag, in a little book that I printed of 
 things from time to time, and I will get it and show it to you. I will 
 leave it with you if you desire it. 
 
 Senator Townsend. It is very late, and I do not want to get into 
 a discussion. I simply wanted to get your idea. 
 
 Mr. Barker. That is my idea. 
 
 _ Senator Townsend. I understand you are in favor, where^ a com- 
 bination or trust manufactures five-eighths of the goods, of taking 
 away the protection. What will you do with the other three-eighths ? 
 
 Mr. Barker. They will have to suffer. 
 
 Senator Townsend. They might be in the trust. 
 
 Air. Barker. They will have to be under the circumstances. It 
 is just as you do sometimes, in sending a lot of soldiers to a charge. 
 You lose them for the sake of the victory. That ought to be on page 
 150 and 151. 
 
 Senator Brandegee. I have it here. The amendment was offered 
 by Senator Pettigrew. 
 
 Mr. Barker. He offered it for me at that time. 
 
 Senator Cummins. Just a question. I do not intend to go over 
 this subject generally, because we have not time to do it this even- 
 ing. You have spoken twice with regard to the plan proposed by 
 Mr. Aldrich, utilizing the public credit to sustain those financial 
 operations. 
 
 Mr. Barker. Have you a copy of the Aldrich commission bill here ? 
 
 Senator Cummins. I have not got it before me. But I do not 
 understand that the Government of the United States undertook any 
 obligation whatsoever. 
 
 Mr. Barker. They did not in the original proposition, but in a 
 later modified plan, when he was satisfied that unless the Govern- 
 ment came in in times of panic and distress when private credit was 
 broken down — unless the public credit was used, that even its notes — 
 which the American central bank — I have forgotten the name for 
 the moment — would not use, he proposed to pay 1£ per cent to the 
 Government for their use. 
 
 Senator Cummins. I have seen what purports to be the last draft 
 of the recommendation of Senator Aldrich, but there is not in that 
 plan any assumption on the part of the Government of any notes or 
 guaranty or obligation whatsoever. 
 
 Mr. Barker. Well, I was told that at New Orleans he made such 
 a proposition; it was told by a banker who was there, and who is now 
 contributing money and collecting money for the propaganda. He 
 does not believe in it, but he thinks something has to be done to 
 fend off this impending trouble. 
 
626 HEARINGS BEFORE 
 
 Senator Cummins. I think you will find that that is an error; that 
 the plan as proposed by Senator Aldrich does not involve the use of 
 the national credit at any time or under any circumstances. If it 
 does, it is a modification that has not yet been generally circulated. 
 
 Mr. Barker. I do not think it has been generally circulated. 
 
 Senator Cummins. One of the great objections, as I understand and 
 which I have heard made to the plan, is that the National Eeserve 
 Association can issue its own paper or its own notes to such an extent 
 as might destroy its usefulness. 
 
 Mr. Barker. "Yes; the Government might, but not under the pres- 
 ent law. 
 * Senator Cummins. I wish you would look into that. 
 
 Mr. Barker. I wiU, surely. 
 
 Senator Cummins. I fancy you will find that there is no such propo- 
 sition in the plan at all. 
 
 Mr. Barker. I would like to detain the committee just one minute 
 longer to show wby trouble is unavoidable. I do not know whether 
 you know — may be you have not had occasion to look into the matter 
 to see — the terrible annual charge against the United States for items 
 I now name. According to my estimate, Europe has invested in 
 American operations about $8,000,000,000, averaging 5 per cent per 
 annum. That would be $400,000,000 a year. Mr. Adams sent me 
 from Boston, a year ago, an English economist's estimate, in which 
 he says " there are $8,000,000,000 invested by Englishmen in our coun- 
 try and $4,000,000,000 by European continental capitalists." But 
 take my estimate, which is a little over that — $400,000,000 is the 
 annual charge. 
 
 Senator Cummins. Four hundred million ? 
 
 Mr. Barker. Four hundred million, I thank you. Then it has been 
 the habit of the American fire insurance companies for many years to 
 reinsure in the British company, and the moneys paid out in insurance 
 premiums by the American companies to European companies — Brit- 
 ish companies, nearly all — has averaged from fifty to seventy-five mil- 
 lions for a number of years; and as we have no ships, we have to pay 
 foreign shipowners certainly fifty millions more, and that makes five 
 hundred millions. 
 
 Now we have this year three hundred and odd thousands of our 
 fellow citizens traveling in Europe. I do not believe they spend on 
 an average less than $750 each. I never could travel as cheaply as 
 that. That makes two hundred and twenty-five millions. That 
 is seven hundred and twenty-five millions. 
 
 Now there is one other charge. George Baer, a personal friend of 
 mine, president of the Reading — and others — established a while 
 ago, the importation of cheap labor; they got them in somehow, not- 
 withstanding the immigration law and its violation. These men 
 left their wives and children in Europe and have been sending home 
 great amounts of money. I asked that remarkable and splendid 
 statistician, Mr. Austin — I think he is the best statistician in this 
 country — to find out how much that was, and after diligent search 
 he wrote me a letter sending me some figures, and he said he could 
 not get nearer than one hundred and fifty or two hundred millions of 
 dollars. 
 
 Now you have four hundred, and one hundred ; that is five hundred, 
 and two hundred and twenty-five is seven hundred and twenty-five, 
 
COMMITTEE ON INTERSTATE COMMERCE. 627 
 
 and one hundred, making eight hundred and twenty-five millions 
 annual charge against us this year. We are going to have a commer- 
 cial balance in our favor of about $500,000,000; last year it was not ' 
 that large; the year before it was larger. There is an arrangement 
 between the French and English bankers and American bankers, 
 calling themselves international bankers, for settlement of this bal- 
 ance by loans. But suppose they would make up their minds to 
 call those loans — they are not long-time loans — how long could we 
 stand a draft ? I expect at this time there are $500,000,000 of what 
 you might perhaps name call loans. This demoralization caused by one 
 nation drawing from another has never been clearly understood until 
 just now when Great Britain, France, and Holland forced Germany 
 to pull in her horns and not go to war with France and England by 
 withdrawal of loans. 
 
 I must keep you one minute more. A good many years ago I 
 was selected bj' Alexander II of Russia to be his banker here. I 
 spent a' good deal of money for the Russian Government in America, 
 and one time when I was in St. Petersburg — it was in 1879, and 
 Vishmegradski, one of the greatest economists I ever met, said to me, 
 "The Emperor wants me to submit to you a plan for keeping by 
 Russia of cash balances in England and western Europe subject to 
 demand draft." He said, "My proposition is to keep on deposit 
 in London thirty millions sterling, subject to sight draft, ten millions 
 in Germany, and ten millions in France." He said, "What do you 
 think of it?" I said it would give Russia power to demoralize 
 British, French, and German exchanges. And he said, "I can give 
 them hell, can't I?" And of course he could. 
 
 That was in 1879 that Vishmegradski spoke with me. I happened 
 to be in Europe in May, 1890, with my three sons. I was doing busi- 
 ness in this country for the Barings. I happened to be in Lord 
 Revel Stokes's office on Saturday afternoon and he came in. He had 
 two or three great drops of sweat on his forehead. I was sitting at a 
 desk writing to my father. I said, "What is the matter with your 
 lordship?" He said, "Your damn friends, the Russians, have just 
 drawn on me to ship them on Monday £2,000,000 sterling, which is 
 $10,000,000 of your money." I said, "I do not suppose they. are 
 asking from you a loan?" He said, "No ; but the money has been here 
 so long that we look upon it as a fixed deposit." In November of 
 that year they drew £2,000,000 sterling more, common report said, 
 and Baring Bros, suspended, and then the Bank of England, and 
 the whole British financial world had to come to the support of the 
 Barings and guarantee the bills of Baring Bros. & Co., so that the 
 Barings would have time to utilize the commercial products upon 
 which they had made advances of upward of three hundred millions 
 of dollars, it was said. 
 
 I thank you, gentlemen. 
 
 The Chairman. The committee will now take a recess until 10.30 
 o'clock to-morrow morning. 
 
 Senator Brandegee. Mr. Chairman, before we take a recess I 
 would like to have the paper which I hand to the reporter incor- 
 porated in the record. 
 
628 HEARINGS BEFORE 
 
 (The paper was as follows:) 
 
 ANTITRUST LEGISLATION AND LITIGATION. 
 
 [Annual address before the American Bar Association, at Boston, Mass., Aug. 30, 1911, by William B. 
 
 Hornblower, of New York.] 
 
 Twenty-one years ago Congress passed the so-called Sherman antitrust law. 
 
 This designation of the law is a misnomer. The law as it stand is not attributable to 
 Senator Sherman, nor is the law properly called an antitrust law. 
 
 Senator Hoar says in his autobiography that this law is called the Sherman Act "for 
 no other reason that I can think of except that Mr. Sherman had nothing to do with 
 framing it whatever." (Vol. II, p. 363.) 
 
 The word ' ' trust" acquired an unenviable prominence in the eighties and became the 
 familiar and common expression for a combination of competing interests under one 
 management. To-day, and for many years past, the so-called trust in its original sense 
 has become rare, but the expression survives and has assumed a generic significance 
 as indicating and connoting every form of combination of competing interests. The 
 original trust arrangement was, as will be remembered, an arrangement whereby a 
 number of competing manufacturers, individual or corporate, while retaining their 
 individual or corporate identity and their individual or corporate ownership of their 
 respective properties, put into the hands of trustees their respective interests, the 
 trustees being clothed with the right to dictate to the respective competitors the terms 
 on which they should compete, the amount and character of their output, and the prices 
 at which the output should be sold. The term ' ' trust" soon became a term of opprobrium 
 and has so remained. The large combinations of capital which now exist in various 
 branches of industry have inherited the opprobrium attaching to this term. To call 
 a combination or a corporation a trust is to excite public condemnation and to put the 
 combination or the corporation on the defensive. 
 
 The statute passed in 1890 by Congress is entitled "An act to protect trade and com- 
 merce against unlawful restraints and monopolies." We still for purposes of conven- 
 ience continue to call the law the Sherman antitrust law, although it is not the Sherman 
 law as originally reported by the Finance Committee of the Senate of which Senator 
 Sherman was chairman and although it is not particularly directed against trusts, but 
 is directed generally against contracts or combinations or conspiracies in restraint of 
 trade and also against monopolizing. 
 
 This law was carefully framed, amended, and reamended and was debated in detail 
 by the ablest lawyers in Congress, some of the ablest lawyers who ever sat in that body, 
 including such men as Senators Edmunds, of Vermont, and George F. Hoar, of Massachu- 
 setts. One would have supposed that if ever a statute would prove to be unambiguous, 
 intelligible, and enforceable this would be that statute; yet it is safe to say that no 
 statute ever passed since the foundation of the Government has been the subject of 
 more difference of opinion or the cause of more perplexity, both to judges and lawyers, 
 than this same statute. Three times have the Justices of the United States Supreme 
 Court been divided in opinion on the question of its construction, twice by a vote of 
 5 to "4 and once by a vote of 5 to 3. 
 
 In its latest phase the question of construction has been the occasion for a moBt 
 violent and impassioned dissent by the senior Justice of the court from the views 
 expressed by the Chief Justice, concurred in by all the associate Justices, except the 
 senior Justice, who in his dissenting opinion has accused his brethren of judicial legis- 
 lation and of practically nullifying the will of Congress as expressed in the statute and 
 of reversing their previous decisions. 
 
 The reason why the eminent and able lawyers who framed this statute failed in their 
 attempt to enact a law which should be clear and unambiguous is a reason which 
 inheres in all attempts to provide for a large class of cases by statutory enactment. The 
 principles of the common law grow by a process of organic growth. The law slowly 
 develops and enlarges to meet actual cases and existing situations. The law is made 
 by applying principles of morality and public policy and sound reason to a given state 
 of facts. On the other hand, lawmaking by legislation must undertake to deal with a 
 vast number of complicated situations thereafter to arise, and must deal with such 
 situations either by very general phraseology which will be dangerous when applied 
 to all possible cases coming within the apparent meaning of the language or else it must 
 go into great detail and deal with the subject matter in its various phases. 
 
 With regard to the subject matter attempted to be covered by the Sherman law there 
 were peculiar difficulties and dangers. 
 
 As I have pointed out on a prior occasion, the requisites of a proper statute are: (1) 
 That its language should be capable of application to all cases covered by such language 
 construed in its ordinary and natural sense; (2) that it should be applicable to all 
 
COMMITTEE ON INTERSTATE COMMERCE. 629 
 
 persons and corporations coming within its terms without arbitrary discrimination; 
 (3) that it should be clear and certain in its provisions so that all persons can be guided 
 thereby. This statute fails to comply with any one of these requisites. 
 
 The first section of the act provides that "every contract, combination in the form 
 of trust or otherwise, or conspiracy in restraint of trade or commerce among the several 
 States or with foreign nations, is hereby declared to be illegal." 
 
 The phrase "contracts in restraint of trade," as used in the common-law decisions, 
 primarily had reference to contracts by which a merchant or manufacturer agreed to 
 sell to a competitor in the same line of business the good will of his business, such sale 
 to be accompanied by a covenant on the part of the vendor to refrain from competition. 
 Such contracts were originally held to be void as against public policy because neces- 
 sarily restraining trade. The leading case on this subject is Mitchel v. Reynolds (1 
 P. Wms., 181). Gradually, however, such contracts came to be recognized as valid in 
 cases where the covenant to refrain from competition was limited in time and space so 
 as to be not an unreasonable restriction or, as the courts sometimes stated it, a restriction 
 no greater than was necessary in order to protect the vendee in the right to tbe use of 
 the property purchased by him, or, as it was otherwise put, a contract "in partial 
 restraint of trade " as distinguished from a contract "in general restraint of trade." It 
 was with regard to such contracts that the words "reasonable" and "unreasonable" 
 came to be used, and contracts in reasonable restraint of trade were sustained by the 
 courts, while contracts which were in unreasonable restraint of trade were coi demned 
 by the courts. The test of what is a reasonable or an unreasonable restraint of trade 
 has been gradually liberalized by the courts from time to time, until now, as laid 
 down by the Court of Appeals of New York in the Diamond Match case (106 N. Y., 473), 
 and by the House of Lords in England in the Norderifelt case (L. R., 1894, Appeal 
 Cases, 535), a covenant by a vendor to refrain from competition is valid even though 
 practically unrestricted as to time and space, provided it is necessary for the 
 protection of the vendee that an unrestricted covenant should be made. 
 
 There were, however, other classes of contracts which came within the condemnation 
 of the common law as "in restraint of trade," such as contracts between competitors 
 to regulate prices or to prevent competition among themselves or by rivals. These 
 classes of contracts were held to be illegal as tending to raise prices or to create a 
 monopoly by limiting competition. These classes of contracts were evidently 
 intended to be covered by the statute. 
 
 Manifestly, however, if the statute were to be construed literally as declaring 
 "every" contract in restraint of trade to be illegal and if that phrase were to be con- 
 strued as meaning that every contract which actually restrains trade or competition 
 shall be illegal, not only would it run counter to the common law but it would be 
 
 Eractically meaningless and unenforceable. This is clearly pointed out by Judge 
 acombe in delivering his opinion in the tobacco case, where he uses the striking and 
 telling example of a contract between "two individuals who have been driving rival 
 express wagons between villages in two contiguous States, who enter into combina- 
 tion to join forces and operate a single line." As Judge Lacombe well points out, such 
 combination operates to "restrain an existing competition." (164 Fed. Rep., 702.) 
 This of course amounts to a reductio ad absurdum, the only escape from which is to 
 say, as has been said by some of the defenders of the literal construction of the law, 
 that the law was not designed and will not be interpreted by the courts to apply to 
 trifles. The suppression, however, of competition between two rival expressmen may 
 be as important to a small community as the suppression of competition between two 
 great railroad systems is to a large community. 
 
 The objections to section 1 of this act were emphatically pointed out by no less a 
 person than President Roosevelt. In his annual message to Congress under date of 
 December 8, 1908, he said: ... 
 
 "I believe that it is worse than folly to attempt to prohibit all combinations as is 
 done by the Sherman antitrust law, because such a law can be enforced only imper- 
 fectly and unequally, and its enforcement works almost as much hardship as good. _ 
 
 The second section of the act— with regard to "monopolizing"— is equally incapable 
 of a literal interpretation or a literal enforcement. This section reads: 
 
 "Every person who shall monopolize or attempt to monopolize or combine or con- 
 spire with any other person or persons to monopolize any part of the trade or commerce 
 among the several States, or with foreign nations, shall be deemed guilty of a 
 misdemeanor. " 
 
 The absurdity of this section if literally construed and enforced is well pointed out' 
 by Judge Ward in his dissenting opinion in the tobacco case in the United States Cir- 
 cuit Court (164 Fed. Rep., 727): . 
 
 "As this section prohibits a monopoly of or an attempt to monopolize any part ot 
 such commerce, it can not be literally construed. So applied, the act would prohibit 
 commerce altogether." 
 
G30 HEARINGS BEFORE 
 
 The same criticism is forcibly made by Judge Sanborn in delivering the opinion of 
 the court in Whitwell v. The Continental Tobacco Co. (125 Fed. Rep., 454): 
 
 "But is every attempt to monopolize any part of interstate commerce made unlawful 
 and punishable by section 2 of the act of July 2, 1890? (C. 647, 26 Stat., 209.) If so, 
 no interstate commerce has ever been lawfully conducted since that act became a 
 law, because 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. An attempt by each competitor to 
 monopolize a part of interstate commerce is the very root of all competition therein. 
 Eradicate it, and competition necessarily ceases — dies. Every person engaged in 
 interstate commerce necessarily attempts to draw to himself, and to exclude others 
 from, a part of that trade; and, if he may not do this, he may not compete with his 
 rivals, and all other persons and corporations must cease to secure for themselves any 
 part of the commerce among the States, and some single corporation or person must be 
 permitted to receive and control it all in one huge monopoly." 
 
 In fact, this statute never has been, and never can be, literally and strictly applied. 
 To so apply it would produce chaos in the business world. 
 
 The statute must be applied, not according to its language, but according to its 
 reasonable meaning, or else it becomes the instrument of injustice and of ruin to the 
 mercantile community. 
 
 The phrase "restraint of trade" as used by the courts is, as I understand the cases, 
 the equivalent of restraint of competition; that is to say, if free competition be re- 
 strained, trade is restrained. 
 
 It has been claimed with great insistence that there is a distinction between "re- 
 straint of trade" and "restraint of competition," and that the latter is not unlawful, 
 •except as it results in the former, and if the restraint of competition does not in fact 
 restrain the volume or extent of trade, there is no illegal restraint of trade, and it is 
 further insisted that this 'distinction has been recognized by the Supreme Court in its 
 recent opinions in the Standard Oil and tobacco cases. 
 
 With all due respect for the ability of those who support these views, I am unable 
 to concur in their conclusions. 
 
 The common-law meaning of "restraint of trade" was certainly "restraint of com- 
 . petition." The numerous cases in the common-law courts discussing the validity 
 or invalidity of contracts in restraint of trade turn on the question of whether they 
 reasonably or unreasonably interfere with free competition. As is said in the head- 
 note to the opinion of Mr. Justice Harlan in the Northern Securities case (193 U. S., 
 198): 
 
 "The antitrust act has prescribed the rule of free competition." * * * "The 
 natural effect of competition is to increase commerce, and an agreement whose direct 
 effect is to prevent this play of competition restrains instead of promotes trade and 
 commerce." 
 
 It is because the agreements in the Addyston Pipe case (175 U. S., 211), the Montague 
 case (193 U. S., 38), and the Swift case (196 U. S., 38) restrained competition that they 
 were held to be in restraint of trade, and finally, in the Standard Oil case and the 
 tobacco case, it is because the combinations in these cases were held to unduly restrain 
 free competition that they were held to be in undue restraint of trade. 
 
 It is said by Mr. Chief Justice White in the recent Standard Oil case, speaking of 
 the common law decisions: 
 
 "It is also true that while the principles concerning contracts in restraint ot trade — 
 that is, voluntary restraint put by a person on his right to pursue his calling, hence 
 only operating subjectively — came generally to be recognized in accordance with the 
 English rule, it came moreover to pass that contracts or acts which it was considered 
 had a monopolistic tendency, especially those which were thought to unduly diminish 
 competition and hence to enhance prices — in other words, to monopolize — came also, 
 in a generic sense, to be spoken of and treated, as they had been in England, as restrict- 
 ing the due course of trade, and therefore as being in restraint of trade." 
 
 And again: 
 
 "The dread of enhancement of prices and of other wrongs which it was thought 
 would flow from the undue limitation of competitive conditions caused by contracts 
 or other acts of individuals or corporations led, as a matter of public policy, to the 
 prohibition or treating as illegal all contracts or acts which were unreasonably re- 
 strictive of competitive conditions, either from the nature or character of the contract 
 . or act or where the surrounding circumstances were such as to justify the conclusion 
 that they had not been entered into or performed with the legitimate purpose of 
 reasonably forwarding personal interest and developing trade, but on the contrary 
 were of such a character as to give rise to the inference or presumption that they had 
 been entered into or done with the intent to do wrong to the general public and to 
 
COMMITTEE ON INTERSTATE COMMERCE. 631 
 
 limit the right of individuals, thus restraining the free flow of commerce and tending 
 to bring about the evils, such as enhancement of prices, which were considered to be 
 against public policy." 
 
 In stating the conclusions of the court, the Chief Justice says: 
 
 "In view of the common law and the law in this country as to the restraint of trade, 
 which we have reviewed, and the illuminating effect which that history must have 
 under the rule to which we have referred, we think it results: (a) That the context 
 manifests that the statute was drawn in the light of the existing practical conception 
 of the law of restraint of trade, because it groups as within that class, not only con- 
 . tracts which were in restraint of trade in the subjective sense, but all contracts or 
 acts which theoretically were attempts to monopolize, yet which in practice had 
 come to be considered as in restraint of trade in a broad sense." 
 
 In the tobacco case there was no proof that the volume of trade had been in fact 
 restrained. On the contrary, the proof showed an enormous increase of the volume 
 of trade and a large increase in the number of independent dealers during the existence 
 of the American Tobacco Co., but the court held that there was an intent to restrict 
 or suppress competition and to form a monopoly which rendered the combination 
 obnoxious to the statute as a combination "in restraint of trade." 
 
 As one of the counsel who argued the tobacco case before the Supreme Court, appear- 
 ing in that court in behalf of the Imperial Tobacco Co. of Great Britain and Ireland, 
 I ought to say in justice to myself and in justice to my client so far as it was involved 
 in the conclusion arrived at by the court and in justice to the American Tobacco Co., 
 that I did not regard and do not now regard the testimony as justifying the sweeping 
 condemnation announced by the court on the facts, or the decision arrived at by the 
 court, even as to the American Co., much less as to the Imperial Co. I concur, how- 
 ever, fully in the views expressed by the court as to the construction of the statute 
 as I shall hereafter more fully point out. 
 
 Taking it as established that "restraint of trade" means restraint of competition, 
 the necessity of a reasonable construction of the statute is clearly apparent. 
 
 While the maxim that "competition is the life of trade" is in a certain sense a cor- 
 rect proposition, yet there is a point at which competition becomes the death of trade. 
 It may well be that two competitors, carrying on business in competition with each 
 other, may engage in such ruinous competition by cutting prices or otherwise that one 
 pr the other must necessarily be driven to the wall. Unless therefore one or both 
 of those competitors can protect himself or themselves by a mutual agreement involv- 
 ing the sale of the property of one to the other, or by a combination to regulate prices, 
 one or the other must be forced to the wall and thus practical monopoly will result. 
 Undue competition may thus lead to monopoly while a reasonable regulation or a 
 reasonable arrangement between the competitors may prevent monopoly. A rigid 
 and drastic statute overreaches itself, while a reasonable and just statute, which is 
 readily enforceable, will accomplish beneficial results. Prohibition of all combina- 
 tions and of all restraint of trade is unwise. Civilization means cooperation; cooper- 
 ation means combination; combination means restraint of competition. 
 
 There has been so much misunderstanding and so much intentional or unintentional 
 misrepresentation of the recent opinions of the United States Supreme Court in the 
 Standard Oil and the tobacco cases and so much unjust and unfounded criticism of 
 those opinions as an alleged departure from and repudiation of the previous decisions 
 of the court, that a brief review of the decisions is necessary to a clear understanding 
 of the situation. 
 
 The extremists have opened the vials of their wrath upon the court, and sarcasm, 
 abuse, and even threats have been freely indulged in by those who inveigh against 
 what they call judicial legislation. v 
 
 Let us endeavor to consider the history of the litigation calmly and dispassionately 
 and see how far the critics are justified in their attacks on the court. I shall not hope 
 to satisfy the radical who "sees red" or the pessimist who thinks blue; but I shall 
 hope to convince the calm intelligence of the American Bar Association that there 
 never was a more uncalled-for, unwarranted, or unjustified attack upon a judicial 
 opinion. 
 
 In this review of the decisions, it is well to bear in mind what is said by Senator 
 Hoar (Autobiography, Vol. II, p. 364) as to what was intended by its framers: 
 
 "It was expected that the court, in administering that law, would confine its opera- 
 tion to cases which are contrary to the policy of the law, treating the words 'agree- 
 ments in restraint of trade' as having a technical meaning, such as they are supposed 
 to have in England. The Supreme Court of the United States went in this particular 
 further than was expected. In one case it held that 'the bill comprehended every 
 scheme that might be devised to restrain trade or commerce among the several States 
 or with foreign nations. ' From this opinion several of the court including Mr. Justice 
 
632 HEARINGS BEFOEE 
 
 Gray, dissented. It has not been carried to its full extent since, and I think will 
 never be held to prohibit the lawful and harmless combinations which have been 
 permitted in this country and in England without complaint, like contracts of part- 
 nership, which are usually considered harmless. We thought it was best to use this 
 general phrase which, as we thought, had an accepted and well-known meaning in 
 the English law, and then after it had been construed by the court, and a body of 
 decisions had grown up under the law, Congress would be able to make such further 
 amendments as might be found by experience necessary." 
 
 The first great legal battle over the meaning and application of the statute took place 
 within two or three years after its enactment and was an attempt to deal with the 
 so-called Sugar Trust and to put an end to a great and growing power of control over 
 one of the necessaries of life. The attempt, however, to reach the Sugar Trust was a 
 failure. The Supreme Court held in the, Knight case (156 U. S., 1) that the statute 
 was not intended to "assert the power to deal with monopoly directly as such; or to 
 limit or restrict the right of corporations created by the States or the citizens of the 
 States in the acquisition, control, or disposition of property; or to regulate or prescribe 
 the price or prices at which such property, or the products thereof, should be sold; 
 or to make criminal the acts of persons in the acquisition and control of property 
 which the States of their residence or creation sanctioned or permitted." The bill 
 in the Knight case seems to have been drawn in such shape as to fail to sufficiently 
 disclose that the Sugar Trust was actually carrying on the business of interstate trade 
 or commerce in the manufactured product. 
 
 The next great legal battle took place in the trans-Missouri case and the joint traffic 
 case, both of which were instituted within two or three years after the passage of the 
 act. It might reasonably have been expected that these cases would settle once and 
 for all what the statute meant and what were its applications and its limitations. 
 Unfortunately, the decisions in these cases were but starting points for new uncer- 
 tainties and furnished obiter dicta which have misled the bench and the bar in subse- 
 quent cases and which remained until 1911 the source of new perplexities. Both of 
 these cases were decided by a bare majority of the court. 
 
 The prevailing opinion in the trans-Missouri case contained dicta which were under- 
 stood to mean that every contract which operated in restraint of trade was invalid 
 under the statute whether such contract was reasonable or unreasonable. The main 
 ground of contention in that case was whether the Sherman law applied to railroad 
 companies engaged in interstate transportation so far as to prohibit mutual regulation 
 by agreement of rates for transportation. The majority of the court held that it did, 
 the minority of the court dissenting on this proposition. Incidentally, the majority 
 opinion as delivered by Mr. Justice Peckham announced the proposition that the 
 Sherman law applies to all combinations in restraint of interstate or foreign trade or 
 commerce without exception or limitation and that the prohibitions of that section 
 are not confined to unreasonable restraints of such trade or commerce, Mr. Justice 
 Peckham saying in his opinion: 
 
 "It is now with much amplification of argument urged that the statute in declaring 
 illegal every combination in the form of trust or otherwise, or conspiracy in restraint of 
 trad<e or commerce, does not mean what the language used therein plainly imports, 
 but that it only means to declare illegal any such contract which is in unreasonable 
 restraint of trade while leaving all others unaffected by the provisions of the act; that 
 the common-law meaning of the term 'contract in restraint of trade' includes only 
 such contracts as are in unreasonable restraint of trade, and when that term is used in 
 the Federal statute it is not intended to include all contracts in restraint of trade, but 
 only those which are in unreasonable restraint thereof. The term is not of such 
 limited significance." (United States v. Freight Association, 166 U. S., 327.) 
 
 It was most unfortunate that the learned justice who delivered the opinion of the 
 court used this language which was really an obiter dictum. All that was really 
 decided by the court in that case was that a contract to regulate rates made between 
 railroad companies carrying on a public-service business as common carriers, exer- 
 cising public franchises, was against public policy as in restraint of trade and came 
 within the prohibition of the Sherman law irrespective of the question of whether the 
 rates prescribed were reasonable or unreasonable, or whether the agreement would 
 operate beneficially or injuriously. The circumstance that the combination between 
 the railroad companies was capable of being operated so as to prescribe unjust or 
 unreasonable rates was held to be sufficient to bring it within the intent of the statute, 
 even though the actual operation of the combination was beneficial to the community. 
 
 Mr. Justice Peckham, however, followed up his obiter dictum by a very emphatic 
 statement which he subsequently enlarged upon in the Joint Traffic case and by which 
 he carefully warned against the very construction which was subsequently placed upon 
 these decisions by the profession and by some of the lower courts, and even by the 
 
COMMITTEE ON INTERSTATE COMMERCE. 633 
 
 Supreme Court itself in subsequent cases. Thus, in the opinion of Mr. Justice Peck- 
 ham as delivered in the Joint Traffic case (171 U. S., 566), he says: 
 
 ' ' We also repeat what is said in the case above cited that ' the act of Congress must 
 have a reasonable construction or else there would scarcely be an agreement or con- 
 tract among business men that could not be said to have indirectly or remotely some 
 bearing upon interstate commerce and possibly to restrain it.' To suppose, as is 
 assumed by counsel, that the effect of the decision in the trans-Missouri case is to 
 render illegal most business contracts or combinations, however indispensable and 
 necessary they maybe, because, as they assert, they all restrain trade in Borne remote 
 and indirect degree, is to make a most violent assumption, and one not called for or 
 justified by the decision mentioned, or by any other decision of this court." 
 
 Mr. Justice Peckham further says: 
 
 ' ' In dwelling upon the far-reaching nature of the language used in the act as con- 
 strued in the case mentioned, counsel contend that the extent to which it limits the 
 freedom and destroys the property of the individual can scarcely be exaggerated, and 
 that ordinary contracts and combinations, which are at the same time most indis- 
 pensable, have the effect of somewhat restraining trade and commerce, although to a 
 very slight extent, but yet, under the construction adopted, they are illegal. 
 
 "As examples of the kinds of contracts which are rendered illegal by this con- 
 struction of the act, the learned counsel suggest all organizations of mechanics engaged 
 in the same business for the purpose of limiting the number of persons employed in the 
 business, or of maintaining wages; the formation of a corporation to carry on any par- 
 ticular line of business by those already engaged therein; a contract of partnership 
 or of employment between two persons previously engaged in the same line of business, 
 the appointment by two producers of the same person to sell their goods on commis- 
 sion; the purchase by one wholesale merchant of the product of two producers; the 
 lease or purchase by a farmer, manufacturer, or merchant of an additional farm, 
 manufactory, or shop; the withdrawal from business of any farmer, merchant, or 
 manufacturer; a sale of the good will of a business with an agreement not to destroy 
 its value by engaging in a similar business; and a covenant in a deed restricting the 
 use of real estate. It is added that the effect of most business contracts or combinations 
 is to restrain trade in some degree. 
 
 "This makes quite a formidable list. It will be observed, however, that no con- 
 tract of the nature above described is now before the court, and there is some embar- 
 rassment in assuming to decide herein just how far the act gees in the direction claimed. 
 Nevertheless, we might say that the formation of corporations for business or manu- 
 facturing purposes has never, to our knowledge, been regarded in the nature of a con- 
 tract in restraint of trade or commerce. The same may be said of the contract o 
 partnership. It might also be difficult to show that the appointment by two or more 
 producers of the same person to sell their goods on commission was a matter in any 
 degree in restraint of trade. 
 
 "We are not aware that it has ever been claimed that a lease or purchase by a farmer, 
 manufacturer, or merchant of an additional farm, manufactory, or shop, or the with- 
 drawal from business of any farmer, merchant, or manufacturer restrained commerce 
 or trade within any legal definition of that term; and the sale of a good will of a busi- 
 ness with an accompanying agreement not to engage in a similar business was in- 
 stanced in the trans-Missouri case as a contract not within the meaning of the act; 
 and it was said that such a contract was collateral to the main contract of sale and 
 was entered into for the purpose of enhancing the price at which the vendor sells 
 his business." 
 
 Mr. Justice Peckham further statesthat the real point decided and the only point 
 decided as follows (171 U. S., 568): . . . 
 
 "The question really before us is whether Congress, in the exercise of its right to 
 regulate commerce among the several States, or otherwise, has the power to prohibit, 
 as in restraint of interstate commerce, a contract or combination between competing 
 railroad corporations entered into and formed for the purpose of establishing and 
 maintaining interstate rates and fares for the transportation of freight and passengers 
 on any of the railroads parties to the contract or combination, even though the rates 
 and fares thus established are reasonable. Such an agreement directly affects and of 
 course is intended to affect the cost of transportation of commodities, and commerce 
 consists, among other things, of the transportation of commodities, and if such trans- 
 portation be between States it is interstate commerce. * * * 
 
 "Has not Congress with regard to interstate commerce and in the course of regulating 
 it, in the case of railroad corporations, the power to say that no contract or combination 
 Bhall be legal which shall restrain trade and commerce by shutting out the operation 
 of the general law of competition? We think it has." 
 
634 HEARINGS BEFORE 
 
 The learned justice proceeds to discuss at length the nature of the franchises of a rail- 
 road, and on page 570 says: 
 
 "We do not think, when the grantees of this public franchise are competing rail- 
 roads seeking the business of transportation of men and goods from one State to another, 
 that ordinary freedom of contract in the use and management of their property re- 
 quires the right to combine as one consolidated and powerful association for the pur- 
 pose of stifling competition among themselves, and of thus keeping their rates and 
 charges higher than they might otherwise be under the laws of competition. And 
 this is so, even though the rates provided for in the agreement may for the time be not 
 more than are reasonable. They may easily and at any time be increased. It is the 
 combination of these large and powerful corporations covering vast sections of terri- 
 tory, and influencing trade throughout the whole extent thereof, and acting as one 
 body in all the matters over which the combination extends, that constitutes the 
 alleged evil, and in regard to which, so far as the combination operates upon and 
 restrains interstate commerce, Congress has power to legislate and to prohibit." 
 
 In view of these carefully measured statements of Mr. Justice Peckham in the 
 trans-Missouri case and in the joint traffic case, and in view of his expressed state- 
 ment that "the act is to have a reasonable construction," it is difficult to understand 
 the criticism that has been made upon the language of Mr. Chief Justice White in the 
 recent decisions in the Standard Oil and tobacco cases, to the effect that the statute 
 is to be interpreted by the "light of reason." 
 
 Furthermore, in the case of the Northern Securities Co. (193 TJ. S., 197), which, 
 as will be remembered, was a case dealing with the question of restraining trade 
 and commerce between competing railroads by the device of a holding company, 
 holding a majority of the stock of the two competing companies, the court di- 
 vided five to four on the question of the illegality of such a holding company, but Mr. 
 Justice Brewer took occasion to say, in concurring with the majority, that he wished 
 to modify his concurrence in the opinion of Mr. Justice Peckham in the trans-Missouri 
 case so far as that opinion stated that "every" contract or combination in restraint 
 of trade was within the statute, whether "reasonable or unreasonable." As Mr. Jus- 
 tice Brewer was one of the five justices whose concurrence made up the majority 
 necessary to a decision in the trans-Missouri case, his expression of opinion in the 
 Northern Securities case made the unfortunate obiter dictum of Mr. Justice Peckham 
 the dictum of a minority instead of a majority of the court and deprived it of any 
 binding authority in subsequent cases. 
 
 Mr. Justice Brewer, in his opinion in the Northern Securities case, said (193 U. S., 
 361): "1 think that in some respectsjthe reasons given for the judgments can not be 
 sustained. Instead of holding that the antitrust act included all contracts, reasona- 
 ble or unreasonable, in restraint of interstate trade, the ruling should have been that 
 the contracts there presented were unreasonable restraints of interstate trade, and as 
 such within the scope of the act. That act, as appears from its title, was leveled at 
 only unlawful restraints and monopolies. 
 
 "Congress did not intend to reach and destroy those minor contracts in partial 
 restraint of trade which the long course of decisions at common law had affirmed were 
 reasonable and fit to be upheld. The purpose rather was to place a statutory prohibi- 
 tion with prescribed penalties and remedies upon those contracts which were in direct 
 restraint of trade, unreasonable, and against public policy. Whenever a departure 
 from common law rules and definitions is claimed, the purpose to make the departure 
 should be clearly shown. Such a purpose does not appear and such a departure was 
 not intended." 
 
 He further says (at p. 364): 
 
 "I have felt constrained to make these observations for fear that the broad and 
 sweeping language of the opinion of the court might tend to unsettle legitimate busi- 
 ness enterprises, stifle or retard wholesome business activities, encourage improper 
 disregard of reasonable contracts, and invite unnecessary litigation." 
 
 In view of these emphatic statements of Mr. Justice Brewer, one of the majority in 
 the trans-Missouri case, in which he expressly repudiates the' "reasonable and unrea- 
 sonable" dictum, it is difficult to understand how any one can assert that that dictum 
 is binding in subsequent cases on the principle of stare decisis, or that to call that 
 dictum in question is sacrilege. 
 
 The situation after the Northern Securities case was thus forcibly put by the Hon. 
 Simeon E. Baldwin, the present Governor of Connecticut, at the time chief justice 
 of that State, in 1904, in his work on American Kailroad Law, on page 16 of the first 
 edition, in a footnote: 
 
 "That the phrase 'agreements in restraint of trade' was adopted by the framers of 
 the Sherman Act, supposing that it would be given the same construction accepted 
 by the English courts. See George P. Hoar's 'Autobiography' (II, 364). Mr. Justice 
 
COMMITTEE ON INTEESTATE COMMEECE. 635 
 
 Brewer, by whose concurrence in the judgment the decision mentioned in the pre- 
 ceding note (viz, the Northern Securities Co. case) was reached, in his opinion approves 
 such a construction as will make the act applicable only to unreasonable contracts 
 and combinations which are in direct restraint of trade." 
 
 Judge Baldwin then adds: 
 
 "It seems probable that this will ultimately be the prevailing view." 
 
 A brief resume will be needful of the other decisions of the Supreme Court inter- 
 mediate between the trans-Missouri and joint traffic cases and the latest caBes of the 
 Standard Oil and the tobacco companies bearing on the interpretation and applica- 
 tion of the Sherman law to mercantile and manufacturing combinations and contracts. 
 
 Two cases decided at the same term of court as the trans-Missouri and joint traffic 
 cases (U. S. v. Hopkins, 171 U. S., 579, and U. S. v. Anderson, 171 TJ. S., 604) were 
 decided in favor of the defendants, the opinions in both of these cases being delivered 
 by Mr. Justice Peckham, the same judge who had delivered the opinions in the trans- 
 Missouri and joint traffic cases. 
 
 In the opinion in the Hopkins case Mr. Justice Peckham reiterates the statement 
 that the statute must have a "reasonable construction" and repeats what he had said 
 in the traffic cases: 
 
 "The act of Congress must have a reasonable construction or else there would 
 scarcely be an agreement or contract among business men that could not be said to 
 have, indirectly or remotely, some bearing upon interstate commerce, and possibh 
 to restrain it." (171 U. S., 600.) 
 
 The famous Addyston Pipe case (175 U. S., 211) involved an agreement between 
 a number of rival and competing manufacturers to the effect that there should be no 
 competition between them in certain States and Territories. It was held that the 
 "direct, immediate, and intended effect" of the agreement was the "enhancement" 
 of the "price." 
 
 The agreement contemplated fake bids by the rival competitors and fixing the price 
 at which one of the competitors could obtain the contract desired and below which 
 none of the parties to the agreement was allowed to bid. The agreement would have 
 been held to be against public policy and illegal at common law. 
 
 This Addyston contract was so flagrantly a violation not only of the letter but of the 
 spirit of the Sherman Act that it is difficult to conceive of any combination or conspiracy 
 -which could be brought within the act if that contract were held not to be within it. 
 
 In the very careful, able, and elaborate opinion delivered by Judge Taf t in this case 
 in the United States circuit court of appeals (85 Fed. Rep., 271) the authorities on 
 "restraint of trade" at common law are exhaustively reviewed and the distinction is 
 clearly pointed out between valid and invalid contracts "in restraint of trade." 
 
 At page 282 Judge Taft says: 
 
 "In Horner v. Graves (7 Bing., 735) Chief Justice Tindal, who seems to be regarded 
 as the highest judicial authority on this branch of the law (see Lord Macnaghten's 
 judgment in Nordenfelt v. Maxim Nordenfelt Co. [1894], App. Cas. 535, 567), used the 
 following language: 'We do not see how a better test can be applied to the question 
 whether this is or not a reasonable restraint of trade than by considering whether the 
 restraint is such only as to afford a fair protection to the interests of the party in favor 
 of whom it is given and not so large as to interfere with the interests of the public' " 
 
 The case of Montague v. Lowry (193 U. S., 38) was a case where there was a combina- 
 tion of wholesale dealers in tiles, mantels, and grates who conspired to confine the 
 business in California to the members of the combination by refusing to sell or deliver 
 tiles, grates, or mantels to any other party in California and who conspired to raise the 
 prices of those articles in the California market. The combination was one which 
 would have been illegal at common law as against public policy. 
 
 The case of Swift & Co. v. U. S. (196 U. S., 375) involved a combination of inde- 
 pendent meat dealers who agreed not to bid against each other in the live-stock 
 markets, to bid up prices for a few days in order to induce shipments to the stock 
 yards, to fix selling prices and to that end to restrict shipments of meat when necessary, 
 to establish a uniform rule of credit to dealers and to keep a blacklist, to make uni- 
 form and improper charges for carriage, and to secure less than lawful freight rates to 
 the exclusion of competitors. 
 
 Assuming that that was a case of interstate commerce within the meaning of the 
 Sherman law, as was held by the court, it would be difficult to conceive of any element 
 of a combination for unlawful restraint of trade or of an attempt to monopolize which 
 was lacking in the Swift case. 
 
 The case of Chattanooga Foundry v. Atlanta (203 U. S., 390) was a sequel of the 
 Addyston 1 Pipe case, the action being brought by the city of Atlanta against two of 
 the members of the trust or combination which had been held unlawful in the Addyston 
 case. The only questions really discussed by the court in that case were as to the right 
 of the city to maintain the action and as to the statute of limitations of Tennessee. 
 
636 HEARINGS BEFOKU 
 
 In the case of Shawnee Compress Co. v. Anderson (209 U. S., 423), an agreement of 
 lease had been held bjr the Supreme Court of the Territory of Oklahoma to be void as 
 an unreasonable restraint of trade and as against public policy. 
 
 In that case the lessor company had agreed with the lessee company not only to go 
 out of the field of competition and not to enter that field again, but had further agreed 
 "to render every assistance to prevent others from entering it." There were other 
 facts in the case showing that the lease was in aid of a scheme of monopoly on the part 
 of the lessee company, the Gulf Compress Co. It was shown that the lessee company 
 was in the business of leasing and operating competing compresses for the purpose of 
 monopolizing as far as possible the business of compressing cotton in a large portion, 
 if not all, of the cotton-raising districts of the United States, and that the lease was pro- 
 cured from the Shawnee Co. in pursuance of said scheme, and other leases of other 
 compressors were also secured for like purposes, "and that it is the design of the Gulf 
 Compress Co. to increase the charge of compressing cotton." 
 
 In the lease the Shawnee Co. had agreed not only to refrain from competition, but 
 to "render the Gulf Co. every assistance in discouraging unreasonable and unneces- 
 sary competition." It further appeared from the evidence that the Gulf Co. had 
 announced in a letter to the Shawnee Co. in effect its purpose to create as far as pos- 
 sible a monopoly of the compressing business (p. 433). It further appeared (p. 434) 
 that the "Gulf Co. was a close corporation which, starting in Alabama, rapidly 
 extended from Alabama to all the cotton -growing territory." 
 
 The court recognized the principle announced in the Trans-Missouri and Joint 
 Traffic cases "that the sale of the good will of a business with an accompanying agree- 
 ment not to engage in a similar business was not a restraint of trade within the meaning 
 of the Sherman Act." The court said: 
 
 "The principle is well understood. The restraint upon one of the parties must not 
 be greater than protection to the other party requires, and it needs no further explana- 
 tion than is given in Gibbs v. Baltimore Gas Co. (130 U. S., 396). The supreme court 
 of the Territory recognized the principle, but said: 'Tested by the general principles 
 applicable to contracts of this character, this agreement is far more extensive in its 
 outlook and more onerous in its intention than is necessary to afford a fair protection 
 to the lessee.' " 
 
 The case of Continental Wallpaper Co. v. Voight Sons (212 U. S., 227) was a case of a 
 agreement between a number of manufacturers who organized a selling company 
 through which their entire output was sold to such persons only as would enter into 
 a purchasing agreement by which their sales were restricted. It was held that the 
 clear effect of this arrangement was to restrain and monopolize. The agreement pro- 
 vided for selling to jobbers for the account of the Continental Wallpaper Co. at particu- 
 lar specified prices, with particular discounts. The company was a selling company, 
 organized to control all the selling business of the manufacturing wall-paper corpora- 
 tions, partnerships, and persons who owned the stock of the Continental Wallpaper 
 Co. and who made separate contracts with that corporation, giving it entire control 
 of the selling business of the manufacturers. The illegality of this arrangement 
 seemed to the court too clear for discussion, and was not in fact discussed by the court, 
 the only question discussed and decided being whether a purchaser of goods at the 
 stipulated prices could avoid payment on the ground that the vendor company was an 
 illegal combination. 
 
 In each and all of the cases which the court held to be obnoxious to the Sherman 
 Act the contracts or combinations were clearly in ' ' unreasonable " or " undue " restraint 
 of trade, and would have been illegal at common law. 
 
 On the other hand, in Cincinnati Packet Co. v. Bay (200 U. S., 179), it is said by 
 Mr. Justice Holmes, at page 184, in upholding a covenant not to complete made in 
 connection with a sale: 
 
 "It is argued, to be sure, that the last-mentioned covenant is independent and not 
 connected with the sale of the vessels. The contrary is manifested as a matter of 
 good sense, and is proved even technically by the words ' it is also agreed as a part of 
 the consideration of this agreement.' By these words the covenant not to do business 
 between Cincinnati and Portsmouth for five years is imported into the sale of the ships, 
 and made one of the conventional inducements of the purchase. The price is paid 
 not for the vessels alone, but for the vessels with the covenant. So, still more clearly, 
 the parallel installments for five years are paid for the covenant, at least in part. It is 
 said that there is no sale of good will. But the covenant makes the sale. 
 
 "Presumably all that there was to sell, besides certain instruments of competition, 
 was the competition itself, and the purchasers did not want the vendors' names. 
 
 "This being our view of the covenant in question, whatever differences of opinion 
 there may have been with regard to the scope of the act of July 2, 1890, there has been 
 no intimation from anyone, we believe, that such a contract, made as part of the 
 sale of a business and not as a device to control commerce, would fall within the act. 
 
COMMITTEE ON INTERSTATE COMMEECE. 637 
 
 On the contrary, it has been suggested repeatedly that such a contract is not within 
 the letter or the spirit of the statute (United States v. Trans-Missouri Freight Associa- 
 tion, 166 U. S., 290, 329; United States v. Joint Traffic Association, 171 U. S., 505, 568), 
 and it was so decided in the case of a patent, Bement v. National Harrow Co. (186 
 U. S., 70, 92). It would accomplish no public purpose, but simply would provide a 
 loophole of escape to persons inclined to elude performance of their undertakings if 
 the sale of a business and temporary withdrawal of the seller necessary in order to give 
 the sale effect were to be declared illegal in every case where a nice scrutiny could 
 discover that the covenant possibly might reach beyond the State line. We are of 
 opinion that the agreement before us is not made illegal by either of the provisions 
 thus far discussed." 
 
 Coming now to a consideration of the recent decisions of the Supreme Court in the 
 Standard Oil case and in the Tobacco case, I submit that the opinions in these cases 
 are in consonance with and not a repudiation of the previous decisions of the court, 
 so far as they distinguish between "reasonable" and "unreasonable" contracts. 
 
 In discussing these decisions I wish to once more point out, as I have already stated, 
 that while I regard the opinions of the court, so far as they discuss the construction of 
 the statute, as correct expositions of the meaning and intent of the statute, I do not 
 wish to be understood as concurring in the conclusion of the court as to the facts of the 
 case or as to the application of the statute to the American Tobacco Co. or the Imperial 
 Tobacco Co., of Great Britain and Ireland, the latter of which companies I represented 
 on the argument in the Supreme Court. 
 
 The opinions of Mr. Justice White do not, in fact, use the word unreasonable in 
 defining the class of contracts prohibited by the statute, but substitute for that word 
 the word ' ' undue " or " unduly " The Chief Justice would have been justified by the 
 previous decisions of the courts in using the term "unreasonable." The test, however, 
 as actually laid down by the Chief Justice in his opinions in those cases and concurred 
 in by all the justices, except Mr. Justice Harlan, is that contracts are within the statute 
 which unduly restrain trade. 
 
 It is quite true that this word apparently interjects into the statute a test which 
 the statute itself does not apply. The statute says every contract in restraint of trade. 
 The court says every contract in undue restraint of trade. By the insertion of this 
 word undue or unduly, however, the statute is made logical, reasonable, and enforce- 
 able. It is quite true that the test of what is a due or an undue restraint of trade is 
 left an open question which the court must decide in each case as it comes up, upon 
 the facts and circumstances of that case, but the same is true of a vast number of other 
 matters which are the subject of litigation. Where a hafd and fast rule can not be 
 applied, then it is necessary trjat discretion should be allowed to the courts in deter- 
 mining between what is lawful and what is unlawful, what permissible and what 
 not permissible. 
 
 Just what did the Supreme Court hold in the Standard Oil and Tobacco cases? 
 And just how would the law read if these opinions were set aside by legislation? 
 Let us test the logic of those who criticize these opinions as judicial legislation, by 
 making them read as the critics would have them read. 
 
 In the Standard Oil opinion, Mr. Chief Justice White says that the statute "evi- 
 denced the intent not to restrain the right to make and enforce contracts, whether 
 resulting from combination or otherwise, which did not unduly restrain interstate 
 or foreign commerce, but to protect that commerce from being restrained by methods, 
 ^whether old or new, which would constitute an interference that is an undue restraint. ' ' 
 
 And again the Chief Justice, referring to the second section of the act, which pro- 
 hibits monopolizing, says: 
 
 "The ambiguity, if any, is involved in determining what is intended by monopo- 
 lize. But this ambiguity is readily dispelled in the light of the previous history of 
 the law of restraint of trade to which we have referred and the indication which it 
 gives of the practical evolution by which monopoly and the acts which produce the 
 same result as monopoly, that is, an undue restraint of the course of trade, all came to 
 be spoken of as, and to be indeed synonymous with, restraint of trade." 
 
 And again he says that the purpose of the statute "was to prevent undue restraint 
 of every kind or nature." 
 
 And again, speaking of the remedies to be awarded by the court, he says: "The fact 
 must not be overlooked that injury to the public by the prevention, of an undue 
 restraint on, or the monopolization of, trade or commerce is the foundation upon which 
 the prohibitions of the statute rest, and moreover, that one of the fundamental pur- 
 poses of the statute is to protect, not to destroy, rights of property." 
 
 In the Tobacco case, the Chief Justice says: 
 
 "It was held in the Standard Oil case that as the words restraint of trade at common 
 law and in the law of this country at the time of the adoption of the antitrust act only 
 
(338 HEARINGS BEFORE 
 
 embraced acts or contracts or agreements or combinations which operated to the preju- 
 dice of the public interests by unduly restricting competition or unduly obstructing 
 the due course of trade or which, either because of their inherent nature or effect ' 
 or because of the evident purpose of the acts, etc., injuriously restrained trade, that 
 the words as used in the statute were designed to have and did have but a like 
 significance." 
 
 Now, let us eliminate the word unduly and substitute duly and see how the statute 
 would read: 
 
 "Every contract, combination in the form of trust or otherwise, or conspiracy, in 
 restraint of trade or commerce (even though it duly restrains such trade or commerce) 
 among the several States or with foreign nations, is hereby declared to be illegal." 
 
 The absurdity of any such statutory declaration is manifest. 
 
 The Chief Justice applies the "rule of reason" to the statute and holds that the 
 statute is to have a "reasonable construction," but in so doing he simply follows the 
 decision of the court in the trans-Missouri case and quotes the exact language of Mr. 
 Justice Peckham in his opinion in that case. 
 
 Surely, the most extreme champion of literal construction of this act would hardly 
 venture to amend the act, so as to read: 
 
 "This act shall not have a reasonable construction, shall not be subject to the 'rule 
 of reason,' and shall not be interpreted by the 'light of reason.' " 
 
 It is urged that this leaves the law uncertain. True; but uncertainty is better than 
 the ghastly certainty of business chaos, which would assuredly result if the law should 
 be enforced according to its language as invalidating and penalizing every combina- 
 tion in actual restraint of trade. Verily, "the letter killeth" in this case. 
 
 Let us try to understand what literal interpretation and enforcement would mean in 
 practice. It is difficult to arrive at a conclusion on this subject, since the most ultra 
 radical of the supporters of a liberal interpretation are staggered when presented by- 
 concrete instances. Take, for example, the most common case of a contract in restraint 
 of trade — that is to say, of a contract m restraint of competition — namely, a partnership. 
 Two individual dry goods merchants, competing with each other in interstate busi- 
 ness — that is to say, in selling and shipping goods to the various States of the Union — 
 combine and form a firm. Thereby competition is pro tanto eliminated. It "is at 
 once protested, of course, that that is not a violation of the Sherman law. But why 
 not? I have yet to hear any satisfactory answer to this question. It is certainly a 
 contract and a combination. It is certainly in restraint of competition and, therefore, 
 in restraint of trade. If the # statute is to be literally and impartially and thoroughly 
 enforced, then every partnership between individuals engaged in interstate commerce 
 must be enjoined. 
 
 So, when several individual competing manufacturers or traders carrying on, inter- 
 state commerce unite to form a corporation, why is that not a combination in restraint 
 of competition — that is to say, in restraint of trade? I have yet to hear any intelligible 
 answer to this question. If the statute is to be equally and impartially enforced 
 according to its letter, then every corporation whose stockholders formerly competed 
 in interstate business must be enjoined, and this, of course, would cover a vast propor- 
 tion of the manufacturing corporations in the United States. 
 
 A fortiori would this be true, where two or more corporations unite to form a third, 
 to whom their properties' are transferred, or where one corporation sells its business 
 to another and agrees to go out of business itself. 
 
 A thousand similar instances can be suggested as to which the statute, if literally . 
 construed, would apply. What is said by the advocates of a literal interpretation to 
 these instances? What tests do they lay down to discriminate between the cases 
 where the law should be enforced and the cases where it should not be enforced? I 
 have yet to hear any satisfactory answer to this question. Of course, the test can not 
 be the magnitude of the interests involved, since that at once makes a basis of dis- 
 crimination based upon considerations on which the judgment of courts may differ 
 and ipso facto makes the law uncertain which they say ought to be certain and not 
 subject to judicial discrimination. 
 
 The truth is, and there is no logical escape from the conclusion, that a literal inter- 
 pretation and an impartial enforcement of the statute would stop the wheels of industry 
 and would paralyze trade. 
 
 As President Eoosevelt forcibly put the situation: "It is a public evil to have on 
 the statute books a law incapable of full enforcement, because Doth judges and juries 
 realize that its full enforcement would destroy the business of the country." (Annual 
 message to Congress, 2d sess., 59th Cong.) 
 
 I can not believe that if the American people with their hard-headed common 
 sense and sense of justice really understood what is meant by the clamor for a literal 
 interpretation and enforcement of the law they would tolerate it for a moment. Even 
 
COMMITTEE ON INTERSTATE COMMERCE. 639 
 
 on the lowest plane of self-interest they would object to having the law applied to 
 the thousands of combinations of small capital throughout the country. They may 
 enjoy the slaughter of the Philistines, but they can hardly fall in love with suicide. 
 
 The law as interpreted by the Supreme Court has been sufficiently effective to 
 catch some of the biggest fishes, the Beef Trust, the Standard Oil, and the American 
 American Tobacco Co. The little fishes may well be allowed to escape through the 
 mesheB of the net. 
 
 After all the whole basis of our Anglo-Saxon jurisprudence rests upon the discretion 
 and discrimination of the courts, who work out for the community the rules of public 
 policy guided by the light of reason. Better far the discretion of the courts than the 
 discretion of the Executive. 
 
 I have thuB far considered the statute in its civil aspect as affecting the right of 
 the courts to apply remedies at law or in equity. When we come to consider the 
 law in its criminal aspect, we find ourselves confronted by a somewhat different and 
 very serious situation. 
 
 Public opinion appears now to be clamoring for victims. It is not satisfied with 
 damages or injunctions or possible receiverships, but punishment of individuals is 
 loudly called for. Protests are even made against mere pecuniary fines. Actual 
 imprisonment of the offenders is demanded. "Thumbs down" appears to be the 
 state of mind of the spectators of the conflict between the Government and the so-called 
 "trust magnates." This state of mind is largely because of resentment at the results 
 accomplished by the combinations and the power which they have acquired rather 
 than because of "righteous indignation" at the methods pursued in accomplishing 
 the results or acquiring the power. The anger excited by the "swollen fortunes" of 
 the multimillionaires has much to do with this state of mind. We are in danger of 
 losing our heads and of plunging into a crusade of vindictive attacks, not only upon 
 capital, but upon capitalists. We are in danger of forgetting that even the rich man 
 has rights which can not be wantonly disregarded without danger to the poor man. * 
 
 For myself and at the risk of being out of accord with the present state of public 
 sentiment I do not hesitate to say, as I have said before in discussing this statute on 
 public occasions, that the sweeping penal provisions of this law are unwise and unjust 
 and should be made more limited m their scope and much more definite and certain. 
 _ Penal statutes involving personal punishment which are not based on moral dis- 
 tinctions are wrong in principle. To punish by imprisonment a man who has vio- 
 lated a prohibitory statute by performing an act which is malum prohibitum but 
 not malum in se, shocks the sense of justice. Of course there are certain mala pro- 
 hibita which are so clearly definable that personal punishment for a wanton disregard 
 of them is appropriate; but such instances are exceptional. Where, however, the act 
 which is malum prohibitum is not precisely defined, but is covered only by such 
 general language as "restraint of trade," personal punishment is unfair and unjust. 
 
 Restraint of trade is not per se an immoral act, nor is a contract or combination in 
 restraint of trade per se an immoral transaction. Its morality or immorality depends 
 upon the accompanying circumstances. 
 
 There may be and frequently are acts of moral turpitude committed in the crea- 
 tion or in the conduct of combinations in restraint of trade. Such acts of moral tur- 
 pitude, if properly defined in advance, may well be made criminal. 
 
 Such acts of moral turpitude are, for instance, the use of unfair means to suppress 
 competition and to crush out rivals, and agreements with competitors to raise prices 
 or to restrict production . 
 
 To make "restraint of trade" criminal, irrespective of its character and purposes 
 and irrespective of the methods pursued to accomplish the restraint, is to punish alike 
 the intentional malefactor and the honorable and upright business man who has been 
 guilty only of a technical violation of a prohibitory law. Especially is this true if the 
 literal constructionists be taken at their word. If every contract or combination in 
 restraint of trade is criminal, then, aB we have already seen, the most ordinary and 
 usual and hitherto innocent transactions may land a man in jail. Sales of business 
 and good will, partnership agreements, formation of corporations between competitors 
 in interstate commerce, all are illegal if the law be strictly ejiforced, and if the test 
 of reasonableness or unreasonableness be not applied. There is absolutely no escape 
 from this conclusion if the critics of the recent decisions of the Supreme Court were 
 to have their way. The entire business community would be practically under the 
 ban of the law and the jails of this country would not suffice to hold the criminals. 
 No wonder that President Roosevelt said, with his customary vigor of language and 
 force of expression: 
 
 "It is profoundly immoral to put or keep on the statute books a law, nominally in 
 the interest of public morality, that really puts a premium upon public immorality 
 by undertaking to forbid honest men from doing what must be done under modern 
 
 22S77— vol 1—12 41 
 
640 HEARINGS BEFORE 
 
 business conditions, so that the law itself provides that its own infraction must be 
 the condition precedent upon business success." (President Roosevelt's annual mes- 
 sage to the first session of the Sixtieth Congress.) 
 
 The only escape from this condemnation of the penal features of this law is to apply 
 the very test of reasonableness which the Supreme Court, as we have seen, has applied 
 not only in its latest decisions, which have been so fiercely attacked by the literal 
 constructionists, but in the trans-Missouri and joint traffic cases themselves. 
 
 So far as I can recall, the criminal features of the act have not yet come before the 
 Supreme Court, except incidentally, as, for instance, on the question of the right to 
 examine corporate books before a grand jury and the application of the statute of 
 limitations. What that court will hold when the criminal provisions of the Sherman 
 Act shall come squarely before it on an appeal from an actual conviction of an indi- 
 vidual defendant indicted for "restraint of trade" is a debatable question. 
 
 It has been very forcibly urged that the statute, while sufficiently definite to sup- 
 port a civil suit at law or in equity, is altogether too vague and indefinite to support 
 a criminal indictment. The absence of all definition of what constitutes restraint of 
 trade or monopolization would seem to leave to the arbitrary decision of a petit jury 
 what acts should be criminally punished. 
 
 Here, again, however, we find the recent decisions of the Supreme Court to be 
 clarifying in that they have supplied a distinction between what are legal and what 
 are illegal restraints of trade, and to that extent have made the statute more definite 
 and certain. Not all contracts or combinations in restraint of trade, but only those 
 in undue restraint of trade are criminal. True, it must be left to the jury to say what 
 is a due and what is an undue restraint of trade. Nevertheless some test is laid down, 
 and the jury must exercise the same function as in many other cases where, under 
 proper instructions from the court, they are called on to pass, in criminal as well as 
 civil cases, upon questions of due care or undue recklessness or negligence, or other 
 similar questions. 
 
 The probabilities are that in view of its previous decisions on the questions hereto- 
 fore submitted to it the Supreme Court will uphold the penal provisions, if the indict- 
 ment be sufficiently specific as to the overt acts and if the jury be properly instructed 
 as to the necessity of finding that the "restraint" was "unreasonable" or "undue." 
 
 But whether the Supreme Court does or does not uphold the criminal provisions aa 
 sufficiently definite to be enforced, I submit that it is unwise and unjuBt and fraught 
 with danger to individuals engaged in business enterprises to leave the penal provisions 
 in such general language and covering acts not per se immoral. The criminal pro- 
 visions should be amended so as to be made more specific and so as to bring within 
 their scope only acts involving moral turpitude and clearly definable. 
 
 There are three evils to be apprehended from combinations in restraint of trade and 
 from monopolization: (1) Crushing out of competitiors; (2) increase of prices to con- 
 sumers; (3) decrease of prices to producers of raw material. 
 
 • So far as any one of these evils is the result of unfair business methods, such unfair 
 business methods are not only matters for civil cognizance, but may properly be 
 remedied by penal statutes, which shall prescribe punishment to the offenders. 
 Furthermore, any agreement or combination which has for its direct and immediate 
 object the crushing out of competition or the increase of prices to consumers or the 
 lowering of prices to producers may be regarded as per se immoral and may well be 
 made not only illegal but punishable criminally. 
 
 Various suggestions have been made looking toward other amendatory legislation. 
 
 Certain ultraradical champions of the antitrust campaign are clamorous to overrule 
 by new legislation the "rule of reason " decisions of the Supreme Court in the Standard 
 Oil and the Tobacco cases. It is difficult to perceive how such legislation can be 
 accomplished. 
 
 A proposition to enact that the statute shall not have a reasonable construction 
 and shall not be interpreted by the "light of reason" is, as I have already pointed out, 
 a proposition that can hardly commend itself to even the most radical of the critics 
 of the Supreme Court. 
 
 A proposition to insert in the statute the words "reasonable or unreasonable'' so 
 that the statute should read ' ' every contract or combination in restraint of trade, whether 
 reasonable or unreasonable, shall be illegal, " seems to be equally unthinkable. It is 
 claimed that the Supreme Court has judicially legislated so as to insert the word 
 "unreasonable" into the act. As a matter of fact, as I have already pointed out at 
 some length, the court uses the word "undue" or "unduly," so that to meet the 
 decision of the court the statute would have to be amended so as to read "every 
 contract or combination in restraint of trade, whether reasonable or unreasonable, 
 whether in due restraint or in undue restraint of trade, shall be illegal. " A statute 
 
COMMITTEE ON INTERSTATE COMMERCE. 641 
 
 reading in this language would be on its face, I submit, a contradiction in terms. A 
 "due restraint" can not be an "illegal restraint." 
 
 Another suggestion for amendment of the statute has the weight of the authority of 
 the former President of the United StateB, who, in his last annual message to Congress 
 said: 
 
 "I strongly advocate that, instead of an unwise effort to prohibit all combinations, 
 there shall be substituted a law which shall expressly permit combinations which are 
 in the interest of the public, but shall at the same time give to some agency of the 
 National Government full power of control and supervision over them. " 
 
 This was in accordance with his often expressed division of trusts into "good trusts" 
 and "bad trusts." According to President Roosevelt's scheme, as advocated in his 
 message, this power of "control and supervision" was to be exercised "not by judicial 
 but by Executive action, to prevent or put a stop to every form of improper favoritism 
 or other wrongdoing. " 
 
 This idea of Federal control by Executive action has been carried further and made 
 more explicit by others who have advocated a Federal license for corporations doing an 
 interstate business, which license should be revocable in case of wrongdoing by any 
 such corporation or in case of a practical monopoly acquired by such corporation by 
 control of the whole or the greater part of any class of trade or commerce. 
 t All these schemes for' control by Executive action, whether permissive or prohibi- 
 tive, whether exercised by the President or by any subordinate authority, are, I sub- 
 mit, repugnant to our American traditions and principles. It has always been our 
 boast that no one should be condemned except by the courts, after an opportunity 
 to be heard and upon competent testimony. The Supreme Court said in Garfield v. 
 Goldsby (211 U. S., 262): "As has been affirmed by this court in former decisions, 
 there is no place in our constitutional system for the exercise of arbitrary power." It 
 seems to me incredible that the American people should consent to have their acts 
 approved or condemned and their property rights and their business rights licensed or 
 outlawed by Executive mandate. 
 
 _ If this is to become a Government by Executive edict or by bureaucratic domina- 
 tion, the days of republican institutions are certainly numbered. I for one am not 
 prepared to admit that we are reduced to this extremity. 
 
 Another suggestion has been recently exploited and has the support of able advo- 
 cates, namely, the creation by the Federal Government of a commission or a number 
 of commissions who shall have power to regulate prices of articles of interstate com- 
 merce. This suggestion has been approved and advocated by some of the "trust 
 magnates" themselves. It has even received the tentative approval of the Attorney 
 General in a recent public address as a scheme inviting consideration, though it has 
 not received his definite approval or indorsement. 
 
 To my mind this is, with all due deference to its able advocates, an appalling sug- 
 gestion. The imagination is staggered when one undertakes to think out soberly and 
 calmly what the suggestion means. Articles of interstate commerce include all 
 articles dealt in throughout the United States — the power to fix prices means the 
 power of life and death to the various industries engaged in trade and_ commerce. 
 Not only that, but it means the right to control the prices of the necessaries of life to 
 the "ultimate consumer." What the average American and his wife and children 
 shall eat and drink and wherewithal they shall be clothed depend upon the prices to 
 be paid for such necessaries of life. 
 
 To confer such a power upon any body of men, however wise and however incorrup- 
 tible, seems to me, as I have already said, appalling: Nothing short of omniscience 
 can enable such a commission to perform its work with intelligence and with safety to 
 the best interests of producer and consumer. The analogy of the Interstate Commerce 
 Commission is an imperfect analogy. That commission has_ to do with a single_ sub- 
 ject — the regulation of railroads. The problems to be considered are comparatively 
 simple; there are certain general principles common to all railroads^ which can be 
 applied to the subject. Besides, the railroads are carrying on a public business and 
 are charged with public duties. 
 
 The regulation of prices of a thousand articles of manufacture, affecting the business 
 interests of millions of producers and the domestic affairs of millions of consumers is a 
 task from which the boldest man may well shrink. 
 
 Even if the law of supply and demand and the regulation of prices by competition 
 have broken down and if the laws against ' 'restraint of trade " are not adequate to meet 
 the situation — and if some remedy for the situation is necessary — we must surely find 
 some remedy less revolutionary than this, which means arbitrary power in its most 
 objectionable form. 
 
 I have refrained from discussing the economic questions lying back of repressive and 
 restrictive measures such as the Sherman law. These questions are too far-reaching 
 
642 HEARINGS BEFORE 
 
 and too controversial to be appropriate to this occasion. I have assumed for the pur- 
 poses of this discussion that the policy of the Sherman law is a sound policy and that 
 restriction and prohibition and penalizing of great combinations of capital are wise and 
 expedient. 
 
 It is open to debate whether we have not made a step backward instead of a step 
 forward in civilization toward the days of the antiengrossing statutes of three centuries 
 
 Certainly the law as it was supposed to stand before the recent decisions of the 
 Supreme Court was decidedly a step backward. The prohibition of every contract in 
 restraint of trade whether reasonable or unreasonable, whether in due or in undue 
 restraint of trade, was clearly a step backward and if enforced would have put an 
 effectual embargo on business enterprises and would have paralyzed trade and 
 commerce. 
 
 Is it not time to call a halt on further legislation against business interests and to let 
 business adjust itself to the present law as interpreted by the Supreme Court? I am 
 inclined to believe that the highest point of consolidation has been reached in manu- 
 facturing and trading enterprises and that hereafter under the operation of natural 
 and economic laws the tendency will be to fall apart, to separate and to segregate. 
 However this may be, I believe that the Sherman law as interpreted and enforced by 
 the Supreme Court is quite adequate, so far, at least, as civil remedies are concerned., 
 to meet any further attempts at dangerous aggregations of capital . I protest against any 
 further experiments in drastic legislation, especially in the direction of conferring 
 arbitrary power upon the executive branch of the Federal Government which will be 
 perilous, if not fatal, to our republican institutions. 
 
 The Chairman. I think I will have the Standard Oil and Tobacco 
 case opinions inserted in the record at this point. 
 (The opinions referred to are as follows:) 
 
 The Standard Oil Co. of New Jersey v. United States. 
 
 [Supreme Court of the United States. No. 398, October term, 1910. The Standard Oil 
 Co. of New Jersey et al., appellants, v. The United States. Appeal from the Circuit 
 Court of the United States for the Eastern District of Missouri. May 15, 1911.] 
 
 Mr. Chief Justice White delivered the opinion of the court : 
 
 The Standard Oil Co. of New Jersey and 33 other corporations, John D. 
 Rockefeller, William Rockefeller, and five other individual defendants prose- 
 cute this appeal to reverse a decree of the court below. Such decree was 
 entered upon a bill filed by the United States under authority of section 4 
 of the act of July 2, 1890, known as the antitrust act, and had for its object 
 the enforcement of the provisions of that act. The record is inordinately vo- 
 luminous, consisting of 23 volumes of printed matter, aggregating about 12,000 
 pages, containing a vast amount of confusing and conflicting testimony relating 
 to innumerable, complex, and varied business transactions extending over a 
 period of nearly 40 years. In an effort to pave the way to reach the subjects 
 which we are called upon to consider, we propose at the outset, following the 
 order of the bill, to give the merest possible outline of its contents, to sum- 
 marize the answer, to indicate the course of the trial, and point out briefly the 
 decision below rendered. 
 
 The bill and exhibits, covering 170 pages of the printed record, was filed on 
 November 15, 1906. Corporations known as Standard Oil Co. of New Jersey, 
 Standard Oil Co. of California, Standard Oil Co. of Indiana, Standard Oil Co. of 
 Iowa, Standard Oil Co. of Kansas, Standard Oil Co. of Kentucky, Standard Oil 
 Co. of Nebraska, Standard Oil Co. of New York, Standard Oil Co. of Ohio, 
 and 62 other corporations and partnerships, as also 7 individuals, were named 
 as defendants. The bill was divided into 30 numbered sections, and sought 
 relief upon the theory that the various defendants were engaged in conspiring 
 '• to restrain the trade and commerce in petroleum, commonly called ' crude oil,' 
 in refined oil, and in the other products of petroleum among the several States 
 and Territories of the United States and the District of Columbia and with for- 
 
COMMITTEE ON INTERSTATE COMMERCE. 643 
 
 «ign nations, and to monopolize the said commerce." The conspiracy was 
 alleged to have been formed in or about the year 1870 by three of the indi- 
 vidual defendants, viz, John D. Rockefeller, William Rockefeller, and Henry 
 M. Flagler. The detailed averments concerning the alleged conspiracy were 
 arranged with reference to three periods— the first from 1870 to 1882, the second 
 from 1882 to 1899, and the third from 1899 to the time of the filing of the bill 
 
 The general charge concerning the period from 1870 to 1882 was as follows ■ 
 That during said first period the said individual defendants, in connection 
 with the Standard Oil Co. of Ohio, purchased and obtained interests through 
 stock ownership and otherwise in and entered into agreements with various 
 persons, firms, corporations, and limited partnerships engaged in purchasing 
 shipping, refining, and selling petroleum and its products among the various 
 States for the purpose of fixing the price of crude and refined oil and the prod- 
 ucts thereof, limiting the production thereof, and controlling the transportation 
 therein, and thereby restraining trade and commerce among the several States 
 and monopolizing the said commerce." 
 
 To establish tbis charge it was averred that John D. and William Rockefeller 
 and several other named individuals, who, prior to 1870, composed three separate 
 partnerships engaged in the business of refining crude oil and shipping its prod- 
 acts in interstate commerce, organized in the year 3870 a corporation known as 
 the Standard Oil Co. of Ohio, and transferred to that company the business of the 
 said partnerships, the members thereof becoming, in proportion to their prior 
 ownership, stockholders in the corporation. It was averred that the other indi- 
 vidual defendants soon afterwards became participants in the illegal combina- 
 tion and either transferred property to the corporation or to individuals to be 
 held for the benefit of all parties in interest in proportion to their respective 
 interests in the combination ; that is, in proportion to their stock ownership in 
 the Standard Oil Co. of Ohio. By the means thus stated it was charged that 
 by the year 1872 the combination had acquired substantially all but 3 or 4 of 
 the 35 or 40 oil refineries located in Cleveland, Ohio. By reason of the nower 
 thus obtained and in further execution of the intent and purpose to restrain 
 trade and to monopolize the commerce, interstate as well as intrastate, in 
 petroleum and its products, the bill alleged that the combination and its mem- 
 bers obtained large preferential rates and rebates in many and devious ways 
 over their competitors from various railroad companies, and that by means of 
 the advantage thus obtained many, if not virtually all, competitors were forced 
 either to become members of the combination or were driven out of business ; 
 and thus, it was alleged, during the period in question the following results 
 were brought about: (a) That the combination, in addition to the refineries in 
 Cleveland which it had acquired as previously stated and which it had either 
 dismantled to limit production or continued to operate, also from time to time 
 acquired a large number of refineries of crude petroleum situated in New York, 
 Pennsylvania, Ohio, and elsewhere. The properties thus acquired, like those 
 previously obtained, although belonging to and being held for the benefit of the 
 •combination, were ostensibly divergently controlled, some of them being put 
 in the name of the Standard Oil Co. of Ohio, some in the name of corporations 
 or limited partnerships affiliated therewith, or some being left in the name of 
 the original owners, who had become stockholders in the Standard Oil Co. of 
 Ohio, and thus members of the alleged illegal combination. (6) That the com- 
 bination had obtained control of the pipe lines available for transporting oil 
 from the oil fields to the refineries in Cleveland, Pittsburgh, Titusville, Philadel- 
 phia, New York, and New Jersey, (c) That the combination during the period 
 named had obtained a complete mastery over the oil industry, controlling 90 
 per cent of the business of producing, shipping, refining, and selling petroleum 
 and its products, and thus was able to fix the price of crude and refined petro- 
 leum and to restrain and monopolize all interstate commerce in those products. 
 
 The averments bearing upon the second period (1882 to 1899) had relation to 
 the claim : 
 
 " That during the said second period of conspiracy the defendants entered into 
 a contract and trust agreement, by which various independent firms, corpora- 
 tions, limited partnerships, and individuals engaged in purchasing, transporting, 
 refining, shipping, and selling oil and the products thereof among the various 
 States turned over the management of their said business, corporations, and 
 limited partnerships to nine trustees, composed cniefly of certain individuals 
 
644 HEAKINGS BEFORE 
 
 defendant herein, which said trust agreement was in restraint of trade and 
 commerce and in violation of law, as hereinafter more particularly alleged." 
 
 The trust agreement thus referred to was set out in the bill. It was made in 
 January, 1882. By its terms the stock of 40 corporations, including the Stand- 
 ard Oil Co. of Ohio, and a large quantity of various properties which had been 
 previously acquired by the alleged combination and which was held in diverse 
 forms, as we have previously indicated, for the benefit of the members of the 
 combination, was vested in the trustees and their successors, " to be held for all 
 parties in interest jointly." In the body of the trust agreement was contained a 
 list of the various individuals and corporations and limited partnerships whose 
 stockholders and members, or a portion thereof, became parties to the agree- 
 ment. This list is in the margin. 1 
 
 The agreement made provision for the method of controlling and managing 
 the property by the trustees, for the formation of additional manufacturing, 
 etc., corporations in various States, and the trust, unless terminated by a mode 
 specified, was to continue " during the lives of the survivors and survivor of the 
 trustees named in the agreement and for 21 years thereafter." The agree- 
 ment provided for the issue of Standard Oil Trust certificates to represent the 
 interest arising under the trust in the properties affected by the trust, which, 
 of course, in view of the provisions of the agreement and the subject to which it 
 related, caused the interest in the certificates to be coincident with and the 
 exact representative of the interest in the combination — that is, in the Standard 
 Oil Co. of Ohio. Soon afterwards it was alleged the trustees organized the 
 Standard Oil Co. of New Jersey and the Standard Oil Co. of New York, the 
 former having a capital stock of $3,000,000 and the latter a capital stock of 
 $5,000,000, subsequently increased to $10,000,000 and $15,000,000, respectively. 
 The bill alleged " that pursuant to said trust agreement the said trustees caused 
 to be transferred to themselves the stocks of all corporations and limited part- 
 nerships named in said trust agreement, and caused various of the individuals 
 and copartnerships, who owned apparently independent refineries and other 
 properties employed in the business of refining and transporting and selling oil 
 in and among said various States and Territories of the United States as 
 aforesaid, to transfer their property situated in said several States to the 
 respective Standard Oil Cos. of said States of New York, New Jersey, Penn- 
 sylvania, and Ohio, and other corporations organized or acquired by said trus- 
 tees from time to time * * *." For the stocks and property so acquired 
 the trustees issued trust certificates. It was alleged that in 1888 the trustees 
 " unlawfully controlled the stock and ownership of various corporations and 
 
 1 First. All the stockholders and members of the following corporations and limited 
 partnerships, to wit : Acme Oil Co., New York ; Acme Oil Co., Pennsylvania ; Atlantic 
 Refining Co. of Philadelphia ; Bush & Co. (Ltd.) ; Camden Consolidated Oil Co. ; Elizabeth- 
 port Acid Works; Imperial Refining Co. (Ltd.) ; Charles Pratt & Co.; Paine, Ablett & 
 Co. ; Standard Oil Co., Ohio ; Standard Oil Co., Pittsburgh ; Smiths Ferry Oil Transporta- 
 tion Co.; Solar Oil Co. (Ltd.) ; Stone & Fleming Manufacturing Co. (Ltd.). Also all the 
 stockholders and members of such other corporations and limited partnerships as may 
 hereafter join in this agreement at the request of the trustees herein provided for. 
 
 Second. The following individuals, to wit : W. C. Andrews, John D. Archbold, Lide K. 
 Arter, .1. A. Bostwick, Benjamin Brewster, D. Bushnell, Thomas C. Bushnell, J. N. Cam- 
 den, Henry L. Davis, H. M. Flagler, Mrs. H. M. Flagler, John Huntington, H. A. Hutch- 
 ins, Charles F. G. Heye, A. B. Jennings, Charles Lockhart, A. M. McGregor, William H. 
 Macy, William H. Macy, jr. ; estate of Josiah Macy, William H. Macy, jr., executor ; 
 O. H. Payne, A. J. Pouch, John D. Rockefeller, William Rockefeller, Henry H. Rogers; 
 W. P. Thompson, J. J. Vandergrift, William T. Warden, W. G. Warden, Joseph L. Warden, 
 Warden, Frew & Co., Louise C. Wheaton, H. M. Hanna, and George W. Chapin, D. M. 
 Harkness, D. M. Harkness, trustee ; S. V. Harkness, O. H. Payne, trustee ; Charles Pratt, 
 Horace A. Pratt, C. M. Pratt, Julia H. York, George H. Vilas. M. R. Keith, trustees ; 
 George F. Chester. Also all such individuals as may hereafter join in the agreement of 
 the request of the trustees herein provided for. 
 
 Third. A portion of the stockholders and members of the following corporations and 
 limited partnerships, to wit : American Lubricating Oil Co., Baltimore United Oil Co., 
 Beacon Oil Co., Bush & Denslow Manufacturing Co., Central Refining Co. of Pittsburg, 
 Chesebrough Manufacturing Co., Chess Carley Co., Consolidated Tank Line Co., Inland 
 Oil Co., Keystone Refining Co., Maverick Oil Co., National Transit Co., Portland Kerosene 
 Oil Co., Producers' Consolidated Land & Petroleum Co., Signal Oil Works (Ltd.), Thomp- 
 son & Bedford Co. (Ltd.), Devoe Manufacturing Co., Eclipse Lubricating Oil Co. (Ltd.), 
 Empire Refining Co. (Ltd.), Franklin Pipe Co. (Ltd.), Galena Oil Works (Ltd.), Galena 
 Farm Oil Co. (Ltd.), Germania Mining Co., Vacuum Oil Co., H. C. Van Tine & Co. (Ltd.), 
 Waters-Pierce Oil Co. Also stockholders and members (not being all thereof) of other 
 corporations and limited partnerships who may hereafter join in this agreement at the 
 request of the trustees herein provided for. 
 
COMMITTEE ON INTERSTATE COMMEECE. 
 
 645 
 
 limited partnerships engaged in such purchase and transportation, refining, 
 selling, and shipping of oil," as per a list which is excerpted in the margin. 1 
 
 The bill charged that during the second period quo warranto proceedings 
 were commenced against the Standard Oil Co. of Ohio, which resulted in the 
 entry by the Supreme Court of Ohio, on March 2, 1892, of a decree adjudging 
 the trust agreement to be void, not only because the Standard Oil Co. of Ohio 
 was a party to the same, but also because the agreement in and of itself was in 
 restraint of trade and amounted to the creation of an unlawful monopoly. It 
 was alleged that shortly aftet this decision, seemingly for the purpose of comply- 
 ing therewith, voluntary proceedings were had, apparently to dissolve the trust, 
 
 1 List of corporations the stocks ol which were wholly or partially held by the trustees ot 
 Standard Oil Trust: 
 
 New York State: 
 
 Acme Oil Co., manufacturers of petroleum products.- 
 
 Atlas Refining Co., manufacturers of petroleum products 
 
 American Wick Manufacturing Co., manufacturers of lamp wicks. 
 
 Bush & Denslow Manufacturing Co., manufacturers of petro- 
 leum products. 
 
 Ohesebrough Manufacturing Oo., manufacturers of petroleum.. 
 
 Central Kenning Oo. (Ltd.), manufacturers of petroleum prod- 
 ucts. 
 
 Devoe Manufacturing Oo., packers, manufacturers of petroleum. 
 
 Empire Refining Oo. (Ltd.), manufacturers of petroleum prod- 
 ucts. 
 
 Oswego Manufacturing Oo., manufacturers of wood cases 
 
 Pratt Manufacturing Oo., manufacturers of petroleum products- 
 Standard Oil Oo. of New York, manufacturers of petroleum 
 products. 
 
 Stone & Fleming Manufacturing Oo. (Ltd.), manufacturers of 
 petroleum products. 
 
 Thompson & Bedford Oo. (Ltd.), manufacturers of petroleum 
 products 
 
 Vacuum Oil Oo., manufacturers of petroleum products— 
 
 New Jersey: 
 
 Eagle Oil Oo., manufacturers of petroleum products 
 
 McKirgan Oil Oo., jobbers of petroleum products 
 
 Standard Oil Oo. of New Jersey, manufacturers of petroleum 
 products. 
 Pennsylvania: 
 
 Acme Oil Oo., manufacturers of petroleum products - 
 
 Atlantic Refining Co., manufacturers of petroleum products 
 
 Galena Oil Works (Ltd.), manufacturers of petroleum products- 
 Imperial Refining Oo. (Ltd.), manufacturers of petroleum 
 products. 
 
 Producers' Consolidated Land & Petroleum Co., producers of 
 crude oil. 
 
 National Transit Oo., transporters of crude oil -- 
 
 Standard Oil Oo., manufacturers of petroleum products 
 
 Signal Oil Works (Ltd.), manufacturers of petroleum products- 
 Ohio: 
 
 Consolidated Tank Line Oo., jobbers of petroleum products 
 
 Inland Oil Oo., jobbers of petroleum products 
 
 Standard Oil Oo., manufacturers of petroleum products 
 
 Solar Refining Oo., manufacturers of petroleum products 
 
 Kentucky: 
 
 Standard Oil Co., jobbers of petroleum products 
 
 Maryland: 
 
 Baltimore United Oil Co., manufacturers of petroleum products. 
 West Virginia: 
 
 Camden Consolidated! Oil Co., manufacturers of petroleum 
 products. 
 Minnesota: 
 
 Standard Oil Co., jobbers of petroleum products 
 
 Missouri: 
 
 Waters-Pierce Oil Oo., jobbers of petroleum products 
 
 Jft aoc q f i ]"i 1 ] c (t +" f; Q ' 
 
 Beacon Oil Oo., jobbers of petroleum products— 
 
 Maverick Oil Co., jobbers of petroleum products 
 
 Maine: 
 
 Portland Kerosene Oil Co., jobbers of petroleum products 
 
 Iowa.: . , , , , 
 
 Standard Oil Oo., jobbers of petroleum products 
 
 Continental Oil Oo., jobbers of petroleum products - 
 
 Capital 
 stock. 
 
 Standard Oil 
 Trust ownership. 
 
 $300,000 
 200,000 
 25,000 
 300,000 
 
 Entire. 
 
 Do. 
 
 Do. 
 50 per cent. 
 
 600,000 
 200,000 
 
 2,661-6,000. 
 1-67 2 per cent. 
 
 300,000 
 100,000 
 
 Entire. 
 80 per cent. 
 
 100,000 
 
 600,000 
 
 5,000,000 
 
 Entire. 
 Do. 
 Do. 
 
 250,000 
 
 Do. 
 
 250,000 
 
 80 per cent. 
 
 25,000 
 
 75 per cent. 
 
 350,000 
 
 75,000 
 
 3,000,000 
 
 Entire. 
 Do. 
 Do. 
 
 300,000 
 400,000 
 150,000 
 300,000 
 
 Do. 
 
 Do. 
 861 per cent. 
 Entire. 
 
 1,000,000 
 
 •fth per cent. 
 
 25,455,200 
 400,000 
 100,000 
 
 94 per cent. 
 Entire. 
 383 Per cent. 
 
 1,000,000 
 
 60,000 
 
 3,500,000 
 
 500,000 
 
 67 per cent. 
 60 per cent. 
 Entire. 
 Do. 
 
 600,000 
 
 Do. 
 
 600,000 
 
 5,059-6,000. 
 
 200,000 
 
 61 per cent. 
 
 100,000 
 
 Entire. 
 
 400,000 
 
 50 per cent. 
 
 100,000 
 100,000 
 
 Entire. 
 Do. 
 
 200,000 
 
 Do. 
 
 600,000 
 300,000 
 
 60 per cent. 
 621 per cent. 
 
646 HEARINGS BEFORE 
 
 but that these proceedh gs were a subterfuge and a sham, because they simply 
 amounted to a transfer of the stock held by the trust in 64 of the companies 
 which it controlled to some of the remaining 20 companies, it having controlled 
 before the decree 84 in all, thereby, while seemingly in part giving up its do- 
 minion, yet in reality preserving the same by means of the control of the com- 
 panies as to which it had retained complete authority. It was charged that 
 especially was this the case, as the stock in the companies selected for transfer 
 was virtually owned by the nine trustees or the members of their immediate 
 families or associates. The bill further alleged that in 1897 the attorney gen- 
 eral of Ohio instituted contempt proceedings in the quo warranto case, based 
 upon the claim that the trust had not been dissolved as required by the decree, 
 in that case. About the same time, also, proceedings in quo warranto were 
 commenced to forfeit the charter of a pipe line known as the Buckeye Pipe 
 Line Co., an Ohio corporation, whose stock, it was alleged, was owned by the- 
 members of the combination, on the ground of its connection with the trust, 
 which had been held to be illegal. 
 
 The result of these proceedings, the bill charged, caused a resort to the 
 alleged wrongful acts asserted to have been committed during the third period, 
 as follows : 
 
 " That during the third period of said conspiracy and in pursuance thereof the 
 said individual defendants operated through the Standard Oil Co. of New 
 Jersey, as a holding corporation, which corporation obtained and acquired the 
 majority of the stocks of the various* corporatins engaged in purchasing, trans- 
 porting, refining, shipping, and selling oil into and among the various States 
 and Territories of the United States and the District of Columbia and with 
 foreign nations, and thereby managed and controlled the same, in violation of 
 the laws of the United States, as hereinafter more particularly alleged." 
 
 It was alleged that in or about the month of January, 1899, the individual 
 defendants caused the charter of the Standard Oil Co. of New Jersey to be 
 amended so that the. business and objects of said company were stated as 
 follows, to wit : " To do all kinds of mining, manufacturing, and trading busi- 
 ness ; transporting goods and merchandise by land or water in any manner ; to 
 buy, sell.- lease, and improve land ; build houses, structures, vessels, cars, wharves, 
 docks, and piers; to lay and operate pipe lines; to erect lines for conducting 
 electricity ; to enter into and carry out contracts of every kind pertaining to its 
 business ; to acquire, use, sell, and grant licenses under patent rights ; to pur- 
 chase or otherwise acquire, hold, sell, assign, and transfer shares of capital 
 stock and bonds or other evidences of indebtedness of corporations, and to exer- 
 .cise all the privileges of ownership, including voting upon the stock so held; 
 to carry on its business and have offices and agencies therefor in all parts of 
 the world ; and to hold, purchase, mortgage, and convey real estate and personal 
 property outside the State of New Jersey." 
 
 The capital stock of the company — which since March 19, 1892, had been 
 $10,000,000— was increased to $110,000,000; and the individual defendants, as 
 theretofore, continued to be a majority of the board of directors. 
 
 Without going into detail it suffices to say that it was alleged in the bill that 
 shortly after these proceedings the trust came to an end, the stock of the various 
 corporations which had been controlled by it being transferred by its holders 
 to the Standard Oil Co. of New Jersey, which corporation issued therefor cer- 
 tificates of its common stock to the amount of $97,250,000. The bill contained 
 allegations referring to the development of new oil fields, for example, in Cali- 
 fornia, southeastern Kansas, northern Indian Territory, and northern Okla- 
 homa, and made reference to the building or otherwise acquiring by the combi- 
 nation of refineries and pipe lines in the new fields for the purpose of restrain- 
 ing and monopolizing the interstate trade in petroleum and its products. 
 
 Reiterating in substance the averments that both the Standard Oil Trust 
 from 1882 to 1899 and the Standard Oil Co. of New Jersey since 1899 had 
 monopolized and restrained interstate commerce in petroleum and its products, 
 the bill at great length additionally set forth various means by which during 
 the second and third periods, in addition to the effect occasioned by the com- 
 bination of alleged previously independent concerns, the monopoly and restraint 
 complained of was continued. Without attempting to follow the elaborate 
 averments on these subjects, spread over 57 pages of the printed record, it 
 suffices to say that such averments may properly be grouped under the follow- 
 ing heads: Rebates, preferences, and other discriminatory practices in favor 
 of the combination by railroad companies; restraint and monopolization by 
 
COMMITTEE ON INTERSTATE COMMERCE. 647 
 
 control of pipe lines and unfair practices against competing pipe lines; con- 
 tracts with competitors in restraint of trade; unfair methods of competition, 
 such as local price cutting at the points where necessary to suppress compe- 
 tition; espionage of the business of competitors, the operation of bogus inde- 
 pendent companies, and payment of rebates on oil, with the like intent; the 
 division of the United States into districts, and the limiting of the operations 
 of the various subsidiary corporations as to such districts so that competition 
 in the sale of petroleum products between such corporations had been entirely 
 eliminated and destroyed ; and finally reference was made to what was alleged 
 to be the " enormous and unreasonable profits " earned by the Standard Oil 
 Trust and the Standard Oil Co. as a result of the alleged monopoly, which 
 presumably was averred as a means of reflexly inferring the scope and power 
 acquired by the alleged combination. 
 
 Coming to the prayer of the bill, it suffices to say that in general terms the 
 substantial relief asked was, first, that the combination in restraint of inter- 
 state trade and commerce and which had monopolized the same, as alleged in 
 the bill, be found to have existence and that the parties thereto be perpetually 
 enjoined from doing any further act to give effect to it ; second, that the transfer 
 of the stocks of the various corporations to the Standard Oil Co. of New Jersey, 
 as alleged in the bill, be held to be in violation of the first aDd second sections 
 of the antitrust ac£ and that the Standard Oil Co. of New Jersey be enjoined 
 and restrained from in any manner continuing to exert control over the sub- 
 sidiary corporations by means of ownership of said stock or otherwise ; third, 
 that specific relief by injunction be awarded against further violation of the 
 statute by any of the acts specifically complained of in the bill. There was also 
 a prayer for general relief. 
 
 Of the numerous defendants named in the bill the Waters-Pierce Oil Co. was 
 the only resident of the district in which the suit was commenced and the only 
 defendant served with process therein. Contemporaneous with the filing of 
 the bill the court made an order, under section 5 of the antitrust act, for the 
 service of process upon all the other defendants wherever they could be found. 
 Thereafter the various defendants unsuccessfully moved to vacate the order 
 for service on nonresident defendants or filed pleas to the jurisdiction. Joint, 
 exceptions were likewise unsuccessfully filed, upon the ground of impertinence, 
 to many of the averments of the bill of complaint, particularly those which 
 related to acts alleged to have been done by the combination prior to the 
 passage of the antitrust act and prior to the year 1899. 
 
 Certain of the defendants filed separate answers, and a joint answer was 
 filed on behalf of the Standard Oil Co. of New Jersey and numerous of the 
 other defendants. The scope of the answers will be adequately indicated by 
 quoting a summary on the subject made in the brief for the appellants. 
 
 " It is sufficient to say that, whilst admitting many of the alleged acquisitions 
 of property, the fprmation of the so-called trust of 1882, its dissolution in 1892, 
 and the acquisition by the Standard Oil Co. of New Jersey of the stocks of the 
 various corporations in 1899, they deny all the a negations respecting combina- 
 tions or conspiracies to restrain or monopolize the oil trade; and particularly 
 that the so-called trust of 1882, or the acquisition of the shares of the defend- 
 ant companies by the Standard Oil Co. of New Jersey in 1899. was a combina- 
 tion of independent or competing concerns or corporations. The averments of 
 the petition respecting the means adopted to monopolize the oil trade are 
 traversed either by a denial of the acts alleged or of their purpose; intent, or 
 effect." 
 
 On June 24, 1907, the cause being at issue, n special examiner was appointed 
 to take the evidence, and his report was filed March 22, 1909. It was heard 
 on April 5 to 10, 1909. under the expediting act of February 11, 1903, before a 
 circuit court consisting of four judges. . 
 
 The court decided in favor of the United States. In the opinion delivered all 
 the multitude of acts of wrongdoing charged in the bill were put aside, in so far 
 as they were alleged to have been committed prior to the passage of the anti- 
 trust act, "except as evidence of their (the defendants') purpose, of their 
 continuing conduct, and of its effect." (173 Fed. Rep., 177.) 
 
 By the decree which was entered it was adjudged that the combining of the 
 stocks of various companies in the hands of the Standard Oil Co. of New 
 Jersey in 1899 constituted a combination in restraint of trade, and also an 
 attempt to monopolize and a monopolization under section 2 of the antitrust 
 act. The decree was against 7 individual defendants, the Standard Oil Co. of 
 
648 HEARINGS BEFORE 
 
 New Jersey, 36 domestic companies, and 1 foreign company, which the Standard 
 Oil Co. of New Jersey controls by stock ownership ; these 38 corporate defend- 
 ants being held to be parties to the combination found to exist. 1 
 
 The bill was dismissed as to all other corporate defendants, 33 in number, it 
 being adjudged by section 3 of the degree that they " have not been proven 
 to be engaged in the operation or carrying out of the combination." 2 
 
 The Standard Oil Co. of New Jersey was enjoined from voting the stocks 
 or exerting any control over the said 37 subsidiary companies, and the subsidiary 
 companies were enjoined from paying any dividends as to the Standard Co. or 
 permitting it to exercise any control over them by virtue of the stock ownership 
 or power acquired by means of the combination. The individuals and corpora- 
 tions were also enjoined from entering into or carrying into effect any like 
 combination which would evade the decree. Further, the individual defendants, 
 the Standard Co. and the 37 subsidiary corporations, were enjoined from 
 engaging or continuing in interstate commerce in petroleum or its products 
 during the continuance of the illegal combination. 
 
 At the outset a question of jurisdiction requires consideration, and we shall, 
 also, as a preliminary, dispose of another question, to the end that our attention 
 may be completely concentrated upon the merits of the controversy when we 
 come to consider them. 
 
 First. We are of opinion that in consequence of the presence within the dis- 
 trict of the Waters-Pierce Oil Co. the court, under the authority of section 5 of 
 the antitrust act, rightly took jurisdiction over the cause and properly ordered 
 notice to be served upon the nonresident defendants. 
 
 Second. The overruling of the exceptions taken to so much of the bill as 
 counted upon facts occurring prior to the passage of the antitrust act — whatever 
 may be the view as an original question of the duty to restrict the controversy 
 to a much narrower area than that propounded by the bill — we think by no 
 possibility in the present stage of the case can the action of the court be treated 
 as prejudicial error justifying reversal. We say this because the court, as we 
 shall do, gave no weight to the testimony adduced under the averments com- 
 plained of except in so far as it tended to throw light upon the acts done after 
 the passage of the antitrust act and the results of which it was charged were 
 being participated in and enjoyed by the alleged combination at the time of the 
 filing of the bill. 
 
 We are thus brought face to face with the merits of the controversy. 
 
 Both as to the law and as to the facts the opposing contentions pressed in the 
 argument are numerous and in all their aspects are so irreconcilable that it is 
 difficult to reduce them to some fundamental generalization, which by being dis- 
 posed of would decide them all. For instance, as to the law. While both sides 
 agree that the determination of the controversy rests upon the correct construc- 
 tion and application of the first and second sections of the antitrust act, yet the 
 views as to the meaning of the act are as wide apart as the poles, since there is 
 -no real point of agreement on any view of the act. And this also is the case as 
 to the scope and effect of authorities relied upon, even although in some in- 
 stances one and the same authority is asserted to be controlling. 
 
 So also is it as to the facts. Thus, on the one hand, with relentless perti- 
 nacity and minuteness of analysis, it is insisted that the facts establish that 
 the assailed combination took its birth in a purpose to unlawfully acquire wealth 
 by oppressing the public and destroying the just rights of others, and that its 
 entire career exemplifies an inexorable carrying out of such wrongful intents, 
 since, it is asserted, the pathway of the combination from the beginning to the 
 time of the filing of the bill is marked with constant proofs of wrong inflicted 
 upon the public and is strewn with the wrecks resulting from crushing out, 
 without regard to law, the individual rights of others. Indeed, so conclusive, 
 it is urged, is the proof on these subjects that it is asserted that the existence 
 of the principal corporate defendant — the Standard Oil Co. of New Jersey — 
 with the vast accumulation of property which it owns or controls, because of 
 
 1 Counsel for appellants says : " Of the 38 (37) corporate defendants named in sec. 2 
 of the decree, and as to which the judgment of the court applies, 4 have not appealed, to 
 wit : Corsicana Refining Co., Manhattan Oil Co., Security Oil Co., Waters-Pierce Oil Co., 
 and 1, the Standard Oil Co. of Iowa, has been liquidated and no longer exists." 
 
 2 Of the dismissed defendants 16 were natural gas companies and 10 were companies 
 which were liquidated and ceased to exist before the filing of the petition. The other 
 dismissed defendants, 7 in number, were : Florence Oil Refining Co., United Oil Co., Tide- 
 water Oil Co., Tide Water Pipe Co. (Ltd.), Piatt & Washburn Refining Co., Franklin Pipe 
 Co., and Pennsylvania Oil Co. 
 
COMMITTEE ON INTERSTATE COMMERCE. 649 
 
 its infinite potency for harm and the dangerous example which its continued 
 existence affords, is an open and enduring menace to all freedom of trade and is 
 a byword and reproach to modern economic methods. On the other hand, in a 
 powerful analysis of the facts, it is insisted that they demonstrate that the 
 origin and development of the vast business which the defendants control was 
 but the result of lawful competitive methods, guided by economic genius of the 
 highest order, sustained by courage, by a keen insight into commercial situa- 
 tions, resulting in the acquisition of great wealth, but at the same time serving 
 to stimulate and increase production, to widely extend the distribution of the 
 products of petroleum at a cost largely below that which would have otherwise 
 prevailed, thus proving to be at one and the same time a benefaction to the 
 general public as well as of enormous advantage to individuals. It is not 
 denied that in the enormous volume of proof contained in the record in the 
 period of almost a lifetime to which that proof is addressed, there may be 
 found acts of wrongdoing, but the insistence is that they were rather the excep- 
 tion than the rule, and in most cases were either the result of too great indi- 
 vidual zeal in the keen rivalries of business or of the methods and habits of 
 dealing which, even if wrong, were commonly practiced at the time. And to 
 discover and state the truth concerning these contentions both arguments call 
 for the analysis and weighing, as we have said at the outset, of a jungle of 
 conflicting testimony covering a period of 40 years, a duty difficult to rightly 
 perform and, even if satisfactorily accomplished, almost impossible to state 
 with any reasonable regard to brevity. 
 
 Duly appreciating the situation just stated, it is certain that only one point 
 of concord between the parties is discernible, which is, that the controversy in 
 every aspect is controlled by a correct conception of the meaning of the first 
 and second sections of the antitrust act. We shall therefore — departing from 
 what otherwise would be the natural order of analysis — make this one point of 
 harmony the initial basis of our examination of the contentions, relying upon 
 the conception that by doing so some harmonious resonance may result adequate 
 to dominate and control the discord with which the case abounds. That is to 
 say, we shall first come to consider the meaning of the first and second sections 
 of the antitrust act by the text, and after discerning what by that process 
 appears to be its true meaning we shall proceed to consider the respective con- 
 tentions of the parties concerning the act, the strength or weakness of those 
 contentions, as well as the accuracy of the meaning of the act as deduced from 
 the text in the light of the prior decisions of this court concerning it. When 
 we have done this we shall then approach the facts. Following this course we 
 shall make our investigation under four separate headings : First, the text of 
 the first and second sections of the act originally considered and its meaning 
 in the light of the common law and the law of this country at the time of its 
 adoption ; second, the contentions of the parties concerning the act, and the 
 scope and effect of the decisions of this court upon which they rely ; third, the 
 application of the statute to facts; and, fourth, the remedy, if any, to be 
 afforded as the result of such application. 
 
 First. The text of the act and its meaning. 
 
 We quote the text of the first and second sections of the act, as follows : 
 
 " Section 1. Every contract, combination in the form of trust or otherwise, or 
 conspiracy in restraint of trade or commerce among the several States, or with 
 foreign nations, is hereby declared to be illegal. Every person who shall make 
 any such contract, or engage in any such combination or conspiracy, shall be 
 deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by 
 fine not exceeding $5,000 or by imprisonment not exceeding one year, or by both 
 said punishments, in the discretion of the court. 
 
 " Sec. 2. Every person who shall monopolize, or attempt to monopolize, or 
 combine or conspire with any other person or persons to monopolize, any part 
 of the trade or commerce among the several States or with foreign nations 
 shall be deemed guilty of a misdemeanor, and on conviction thereof shall be 
 punished by fine not exceeding $5,000 or by imprisonment not exceeding one 
 year, or by both said punishments, in the discretion of the court." 
 
 The debates show that doubt as to whether there was a common law of the 
 United States which governed the subject in the absence of legislation was 
 among the influences leading to the passage of the act. They conclusively 
 show, however, that the main cause which led to the legislation was the 
 thought that it was required by the economic condition of th'e times ; that is, 
 the vast accumulation of wealth in the hands of corporations and individuals, 
 
650 HEARINGS BEFORE 
 
 the enormous development of corporate organization, the facility for combina- 
 tion which such organizations afforded, the fact that the facility was being 
 used, and that combinations known as trusts were being multiplied, and the 
 widespread impression that their power had been and would be exerted to 
 oppress individuals and injure the public generally. Although debates may not 
 be used as a means for interpreting a statute (United States v. Trans-Missouri 
 Freight Association, 16C U. S., 318, and cases cited) that rule in the nature of 
 things is not violated by resorting to debates as a means of ascertaining the 
 environment at the time of the enactment of a particular law ; that is, the 
 history of the period when it was adopted. 
 
 There can be no doubt that the sole subject with which the first section deals 
 is restraint of trade, as therein contemplated, and that the attempt to monop- 
 olize and monopolization is the subject with which the second section is 
 concerned. It is certain that those terms, at least in their rudimentary mean- 
 ing, took their origin in the common law and were also familiar in the law of 
 this country prior to and at the time of the adoption of the act in question. 
 
 We shall endeavor, then, first to seek their meaning, not by indulging in an 
 elaborate and learned analysis of the English law and of the law of this 
 country, but by making a very brief reference to the elementary and indis- 
 putable conceptions of both the English and American law on the subject prior 
 to the passage of the antitrust act. 
 
 (a) It is certain that at a very remote period the words contract in restraint 
 of trade in England came to refer to some voluntary restraint put by contract 
 by an individual on his right to carry on his trade or calling. Originally all 
 such contracts were considered to be illegal, because it was deemed they were 
 injurious to the public as well as to the individuals who made them. In the 
 interest of the freedom of individuals to contract this doctrine was modified 
 so that it was only when a restraint by contract was so general as to be 
 coterminus with the kingdom that it was treated as void. That is to say, if the 
 restraint was partial in its operation and was otherwise reasonable the con- 
 tract was held to be valid: 
 
 (6) Monopolies were defined by Lord Coke as follows: 
 
 "A monopoly is an institution, or allowance by the king by his grant, com- 
 mission, or otherwise to any person or persons, bodies politic or corporate, of or 
 for the sole buying, selling, making, working, or using of anything, whereby any 
 person or persons, bodies politic or corporate, are sought to be restrained of any 
 freedom or liberty that they had before, or hindered in their lawful trade. 
 (3 Inst, 181.)" 
 
 Hawkins thus defined them : 
 
 "A monopoly is an allowance by the king to a particular person or persons of 
 the sole buying, selling, making, working, or using of anything whereby the 
 subject in general is restrained from the freedom of manufacturing or trading 
 which he had before. (Hawk. P. C. bk. 1 c. 79.)" 
 
 The frequent granting of monopolies and the struggle which led to a denial 
 of "the power to create them, that is to say, to the establishment that they were 
 incompatible with the English constitution, is known to all and need not be 
 reviewed. The evils which led to the public outcry against monopolies and to 
 the final denial of the power to make them may be thus summarily stated: 
 (1) The power which the monopoly gave to the one who enjoyed it to fix the 
 price and thereby injure the public; (2) the power which it engendered of 
 enabling a limitation on production; and (3) the danger of deterioration in 
 quality of the monopolized article which it was deemed was the inevitable 
 resultant of the monopolistic control over its production and sale. As monop- 
 oly, as thus conceived, embraced only a consequence arising from an exertion of 
 sovereign power, no express restrictions or prohibitions obtained against the 
 creation by an individual of a monopoly as such. But as it was considered, at 
 least so far, as the necessaries of life were concerned, that individuals by the 
 abuse of their right to contract might be able to usurp the power arbitrarily 
 to enhance prices, one of the wrongs arising from monopoly, it came to be that 
 iaws were passed relating to offenses such as forestalling, regrating, and en- 
 grossing, by which prohibitions were placed upon the power of individuals to 
 deal under such circumstances and conditions as, according to the conception 
 of the times, created a presumption that the dealings were not simply the 
 honest exertion of one's right to contract for his own benefit unaccompanied 
 by a wrongful motive to injure others, but were the consequence of a contract 
 or course of dealing of such a character as to give rise to the presumption of 
 an intent to injure others through the means, for instance, if a monopolistic 
 
COMMITTEE ON INTERSTATE COMMERCE. 651 
 
 increase of prices. This is illustrated by the definition of engrossing found in 
 the statute (5 and 6 Edw. VI, ch. 14) as follows- 
 
 "Whatsoever person or persons * * * shah engross or get into his or 
 their hands by buying, contracting, or promise taking, other than by demise 
 grant, or lease of land, or tithe, any corn growing in the fields, or any other- 
 corn or gram, butter, cheese, fish, or other dead victual, whatsoever, within the 
 realm of England, to the intent to sell the same again, shall be accepted, re- 
 puted, and taken an unlawful engrosser or engrossers." 
 
 As by the statutes providing against engrossing the quantity engrossed was 
 not required to be the whole or a proximate part of the whole of an article, it 
 is clear that there was a wide difference between monopoly and engrossing, etc 
 But as the principal wrong which it was deemed would result from monopoly— 
 that is, an enhancement of the price— was the same wrong to which it was 
 thought the prohibited engrossment would give rise, it came to pass that 
 monopoly and engrossing were regarded as virtually one and the same thing 
 In other words, the prohibited act of engrossing because of its inevitable accom- 
 plishment of one of the evils deemed to be engendered by monopoly, came to be 
 referred to as being a monopoly or constituting an attempt to monopolize. Thus, 
 Pollexfen, in his argument in East India Co. v. Sandys (Skin., 165, 169). said: 
 
 " By common law, he said that trade is free, and for that cited 3 Inst., 81 ; 
 F. B., 65; 1 Roll., 4; that the common law is as much against 'monopoly' as 
 ' engrossing ' ; and that they differ only that a ' monopoly ' is by patent from 
 the king, the other is by the act of the subject between party and party; but 
 that the mischiefs are the same from both, and there is the same law against 
 both. (Moore, 673; 11 Rep., 84.) The sole trade of anything is 'engrossing' 
 ex rei natura, for whosoever hath the sole trade of buying and selling hath 
 ' engrossed ' that trade ; and whosoever hath the sole trade to any country 
 hath the sole trade of buying and selling the produce of that country at his own 
 price, which is an ' engrossing.' " 
 
 And by operation of the mental process which led to considering as a 
 monopoly acts which, although they did not constitute a monopoly, were thought 
 to produce some of its baneful effects, so also because of the impediment or 
 burden to the due course of trade which they produced, such acts came to be 
 referred to as in restraint of trade. This is shown by my Lord Coke's definition 
 of monopoly as being " an institution or allowance * * * whereby any 
 person or persons, bodies politic or corporate, are sought to be restrained of 
 any freedom or liberty that they had before or hindered in their lawful trade." 
 It is illustrated also by the definition which Hawkins gives of monopoly wherein 
 it is said that the effect of monopoly is to restrain the citizen " from the free- 
 dom of manufacturing or trading which he had before." And see especially the 
 opinion of Parker, C. J., in Mitchell v. Reynolds (1711, 1 P. Williams, 181), 
 where a classification is made oi monopoly which brings it generically within 
 the description of restraint of trade. 
 
 Generalizing these considerations, the situation is this: (1) That by the com- 
 mon law monopolies were unlawful because of their restriction upon individual 
 freedom of contract and their injury to the public; (2) that as to necessaries of 
 life the freedom of the individual to deal was restricted where the nature and 
 character of the dealing was such as to engender the presumption of intent to 
 bring about at least one of the injuries which it was deemed would result from 
 monopoly, that is, an undue enhancement of price; (3) that to protect the free- 
 dom of contract of the individual not only in his own interest, but principally 
 in the interest of the common weal, a contract of an individual by which he put 
 an unreasonable restraint upon himself as to carrying on his trade or business 
 was void. And that at common law the evils consequent upon engrossing, etc., 
 caused those things to be treated as coming within monopoly and sometimes to 
 be called monopoly, and the same considerations caused monopoly because of its 
 operation and effect, to be brought within and spoken of generally as impeding 
 the due course of or being in restraint of trade. 
 
 From the development of afore accurate economic conceptions and the 
 changes in conditions of society it came to be recognized that the acts prohib- 
 ited by the engrossing, forestalling, etc., statutes did not have the harmful 
 tendency which they were presumed to have when the legislation concerning 
 them was enacted, and therefore did not justify the presumption which had 
 previously been deduced from them, but, on the contrary, such acts tended to 
 fructify and develop trade. See the statutes of 12 George III, chapter 71, 
 enacted in 1772, and statute of 7 and 8 Victoria, chapter 24, enacted in 1844,. 
 
652 HEARINGS BEFORE 
 
 repealing the prohibitions against engrossing, forestalling, etc., upon the express 
 ground that the prohibited acts had come to be considered as favorable to the 
 development of and not in restraint of trade. It is remarkable that nowhere 
 at common law can there be found a prohibition against the creation of mo- 
 nopoly by an individual. This would seem to manifest, either consciously or 
 intuitively, a profound conception as to the inevitable operation of economic 
 forces and the equipoise or balance in favor of the protection of the rights of 
 individuals which resulted. That is to say, as it was deemed that monopoly in 
 the concrete could only arise from an act of sovereign power, and, such sover- 
 eign power being restrained, prohibitions as to individuals were directed not 
 against the creation of monopoly, but were only applied to such acts in relation 
 to particular subjects as to which it was deemed, if not restrained, some of the 
 consequences of monopoly might result. After all, this was but an instinctive 
 recognition of the truisms that the course of trade could not be made free by 
 obstructing it, and that an individual's right to trade could not be protected by 
 destroying such right. 
 
 From the review just made it clearly results that, outside of the restrictions 
 resulting from the want of power in an individual to voluntarily and unrea- 
 sonably restrain his right to carry on his trade or business, and outside of the 
 want of right to restrain the free course of trade by contracts or acts which 
 implied a wrongful purpose, freedom to contract and to abstain from contract- 
 ing and to exercise every reasonable right incident thereto became the rule in 
 the English law. The scope and effect of this freedom to trade and contract is 
 clearly shown by the decision in Mogul Steamship Co. v. McGregor (1891, A. 0., 
 25). While it is true that the decision of the House of Lords in the case in 
 question was announced shortly after the passage of the antitrust act, it serves 
 reflexly to show the exact state of the law in England at the time the antitrust 
 statute was enacted. 
 
 In this country also the acts from which it was deemed there resulted a part, 
 if not all, of the injurious consequences ascribed to monopoly came to be re- 
 ferred to as a monopoly itself. In other words, here, as had been the case in 
 England, practical common sense caused attention to be concentrated not upon 
 the theoretically correct name to be given to the condition or acts which gave 
 rise to a harmful result, but to the result itself and to the remedying of the 
 evils which it produced. The statement just made is illustrated by an early 
 statute of the Province of Massachusetts — that is, chapter 31 of the laws of 
 177S-79, by which monopoly and forestalling were expressly treated as one and 
 the same thing. 
 
 It is also true that while the principles concerning contracts in restraint of 
 trade — that is, voluntary restraint put by a person on his right to pursue his 
 calling, hence only operating subjectively — came generally to be recognized 
 in accordance with the English rule ; it came, moreover, to pass that contracts 
 or acts which it was considered had a monopolistic tendency, especially those 
 which were thought to unduly diminish competition and hence to enhance 
 prices — in other words, to monopolize — came also in a generic sense to be 
 spoken of and treated as they had been in England, as restricting the due 
 course of trade, and therefore as being in restraint of trade. The dread of 
 monopoly as an emanation of governmental power, while it passed at an early 
 date out of mind in this country, as a result of the structure of our Govern- 
 ment, did not serve to assuage the fear as to the evil consequences which might 
 arise from the acts of individuals producing or tending to produce the conse- 
 quences of monopoly. It resulted that treating such acts as we have said as 
 amounting to monopoly, sometimes constitutional restrictions, against legis- 
 lative enactments or judicial decisions, served to enforce and illustrate the 
 purpose to prevent the occurence of the evils recognized in the mother country 
 as consequent upon monopoly, by providing against contracts or acts of indi- 
 viduals or combinations of individuals or corporations deemed to be conducive 
 to such results. To refer to the constitutional or legislative provisions on the 
 subject or the many judicial decisions which illustrate it would unnecessarily 
 prolong this opinion. We append in the margin a note to treaties, etc., wherein 
 are contained references to constitutional and statutory provisions and to 
 numerous decisions, etc., relating to the subject. 1 
 
 It will be found that as modern conditions arose the trend of legislation and 
 judicial decision came more and more to adapt the recognized restrictions to 
 
 1 Furdy's Beach on Private Corporations, vol. 2, pp. 1403 et seq., chapter on Trusts and 
 Monopolies ; Cooke on Trade and Labor Combinations, App. II, pp. 194-195 ; Am. & Eng. 
 Eney. Law, 2d ed., article " Monopolies and Trusts," pp. 844 et seq. 
 
COMMITTEE ON INTERSTATE COMMERCE. 653 
 
 newmazilf estaUona o* conduct or of dealing which it was thought justified the 
 inference of intent to do the wrongs which it had been the purpose to prevent 
 
 oTco * SL T^T^™ is ^ learly P „° iDted 0ut in NaToiLVcoIton 
 tt o ,'aZox ®, ( . I U " S " 115) and Shawnee Compress Co. v. Anderson (209 
 U. S 423) ; and indeed, will be found to be illustrated in various aspects by 
 the decisions of this court which have been concerned with the enforcement 
 of the act we are now considering. ™ 
 
 Without going into detail and but very briefly surveying the whole field it 
 may be, with accuracy, said that the dread of enhancement of prices and of 
 other wrongs which it was thought would flow from the undue limitation on 
 competitive conditions caused by contracts or other acts of individuals or 
 corporations led, as a matter of public policy, to the prohibition or treating 
 as illegal all contracts or acts which were unreasonably restrictive of com" 
 petitive conditions, either from the nature or character of the contract or act 
 or where the surrounding circumstances were such as to justify the conclusion 
 that they had not been entered into or performed with the legitimate purpose 
 of reasonably forwarding personal interest and developing trade but on the 
 contrary, were of such a character as to give rise to the inference or presump- 
 tion that they had been entered into or done with the intent to do wrong to the 
 general public and to limit the right of individuals, thus restraining the free 
 flow of commerce and tending to bring about the evils, such as enhancement 
 of prices, which were considered to be against public policy. It is equally 
 true to say that the survey of the legislation in this country on this subject 
 from the beginning will show, depending as it did upon the "economic concep- 
 tions which obtained at the time when the legislation was adopted or judicial 
 decision was rendered, that contracts or acts were at one time deemed to be of 
 such a character as to justify the inference of wrongful intent which were at 
 another period thought not to be of that character. But this again, as we have 
 seen, simply followed the line of development of the law of England. 
 
 Let us consider the language of the first and second sections, guided by the 
 principle that where words are employed in a statute which had at the time a 
 well-known meaning at common law or in the law of this country they are pre- 
 sumed to have been used in that sense unless the context compels to the 
 contrary. 1 
 
 As to the first section, the words to be interpreted are : " Every contract, com- 
 bination in the form of trust or otherwise, or conspiracy in restraint of trade or 
 commerce * * * is hereby declared to be illegal." As there is no room for 
 dispute that the statute was intended to formulate a rule for the regulation of 
 interstate and foreign commerce, the question is, What was the rule which it 
 adopted? 
 
 In view of the common law and the law in this country as to restraint of 
 trade, which we have reviewed, and the illuminating effect which that history 
 must have under the rule to which we have referred, we think it results : 
 
 (a) That the context manifests that the statute was drawn in the light of the 
 existing practical conception of the law of restraint of trade, because it groups 
 as within that class not only contracts which were in restraint of trade in the 
 subjective sense, but all contracts or acts which theoretically were attempts to 
 monopolize, yet which in practice had come to be considered as in restraint of 
 trade in a broad sense. 
 
 ( 6 ) That in view of the many new forms of contracts and combinations which 
 were being evolved from existing economic conditions, it was deemed essential 
 by an all-embracing enumeration to make sure that no form of contract or com- 
 bination by which an undue restraint of interstate or foreign commerce was 
 brought about could save such restraint from condemnation. The statute under 
 this view evidences the intent not to restrain the right to make and enforce con- 
 tracts, whether resulting from combinations or otherwise, which did not unduly 
 restrain interstate or foreign commerce, but to protect that commerce from 
 being restrained by methods, whether old or new, which would constitute an 
 interference that is an undue restraint. 
 
 (c) And as the contracts or acts embraced in the provision were not ex- 
 pressly defined, since the enumeration addressed itself simply to classes of acts, 
 those classes being broad enough to embrace every conceivable contract or com- 
 bination which could be made concerning trade or commerce or the subjects of 
 such commerce, and thus caused any act done by any of the enumerated methods 
 
 iSwearingen v. United States (161 D. S., 446) ; United States v. Wong Kim Ark (169 
 U S 649) ; Keck v. United States (172 U. S., 446) ; Kepner v. United States (195 
 U.' S., 126). 
 
654 
 
 HEARINGS BEFORE 
 
 anywhere in the whole field of human activity to be illegal if in restraint of 
 trade, it inevitably follows that the provision necessarily called for the exercise 
 of judgment which required that some standard should be resorted to for the 
 purpose of determining whether the prohibitions contained in the statute had 
 or had not in any given case been violated. Thus not specifying, but indubitably 
 contemplating and requiring a standard, it follows that it was intended that 
 the standard of reason which had been applied ai the common law and in this 
 country in dealing with subjects of the character embraced by the statute was 
 Intended to be the measure used for the purpose of determining whether in a 
 given case a particular act had or had not brought about the wrong against 
 which the statute provided. 
 
 And a consideration of the text of the second section serves to establish that 
 it was intended to supplement the first and to make sure that by no possible 
 guise could the public policy embodied in the first section be frustrated or evaded. 
 The prohibitions of the second embrace " Every person who shall monopolize, 
 or attempt to monopolize, or combine or conspire with any other person or per- 
 sons to monopolize, any part of the trade or commerce among the several'States, or 
 with foreign nations * * *." By reference to the terms of section 8 it is certain 
 that the word " person " clearly implies a corporation as well as an individual. 
 
 The commerce referred to by the words " in part " be construed in the light of 
 the manifest purpose of the statute has both a geographical and a distributive 
 significance — that is, it includes any portion of the United States and any one 
 of the classes of things forming a part of interstate or foreign commerce. 
 
 Undoubtedly, the words "to monopolize" and "monopolize" as" used in the 
 section reach every act bringing about the prohibited results. The ambiguity, 
 if any, is involved in determining what is intended by monopolize. But this am- 
 biguity is readily dispelled in the light of the previous history of the law of 
 restraint of trade to which we have referred and the indication which it gives 
 of the practical evolution by which monopoly and the acts which produce the. 
 same result as monopoly — that is, an undue restraint of the course of trade — • 
 all came to be spoken of as and to be, indeed, synonymous with restraint of 
 trade. . In other words, having by the first section forbidden all means of 
 monopolizing trade — that is, unduly restraining it by means of every contract, 
 combination, etc. — the second section seeks, if possible, to make the prohibitibns 
 of the act all the more complete and perfect by embracing all attempts to reach 
 the end prohibited by the first section — that is, restraints of trade — by any 
 attempt to monopolize, or monopolization thereof, even although the acts by 
 which such results are attempted to be brought about or are brought about be 
 not embraced within the general enumeration of the first section. And, of 
 course, when the second section is thus harmonized with and made, as it was 
 intended to be, the complement of the first, it becomes obvious that the criteria 
 to be resorted to in any given case for the purpose of ascertaining whether 
 violations of the section have been committed is the rule of reason guided by 
 the established law and by the plain duty to enforce the prohibitions of the act 
 and thus the public policy which its restrictions were obviously enacted to 
 subserve. And it is worthy of observation, as we have previously remarked 
 concerning the common law, that although the statute, by the comprehensive- 
 ness of the enumerations embodied in both the first and second sections, makes 
 it certain that its purpose was to prevent undue restraints of every kind or 
 nature, nevertheless, by the omission of any direct prohibition against mo- 
 nopoly in the concrete, it indicates a consciousness that the freedom of the in- 
 dividual right to contract, when not unduly or improperly exercised, was the 
 most efficient means for the prevention of monopoly, since the operation of the 
 centrifugal and centripetal forces resulting from the right to freely contract 
 was the means by which monopoly would be inevitably prevented if no ex- 
 traneous or soyereign power imposed it and no right to make unlawful con- 
 tracts having a monopolistic tendency were permitted. In other words, that 
 freedom to contract was the essence of freedom from undue restraint on the 
 right to contract. 
 
 Clear as it seems to us is the meaning of the provisions of the statute, in the 
 light of the review which we have made, nevertheless before definitely applying 
 that meaning it behooves us to consider the contentions urged on one side or the 
 other concerning the meaning of the statute, which, if maintained, would -give 
 to it in some aspects a much wider and, in every view at least a somewhat dif- 
 ferent significance. And to do this brings us to the second question, which, at 
 the outset, we have stated it was our purpose to consider and dispose of. 
 
 Second. The' contentions of the parties as to the meaning of the statute and 
 the decisions of this court relied upon concerning those contentions. 
 
COMMITTEE ON INTERSTATE COMMEECE. 655 
 
 In substance, the propositions urged by the Government are reducible to this- 
 that the language of the statute embraces every contract, combination, etc in 
 restraint of trade, and hence its text leaves no room for the exercise of iu'de- 
 ment, but simply imposes the plain duty of applying its prohibitions to everv 
 case within its literal language. The error involved lies in assuming the matter 
 to be decided. This is true because, as the acts which may come under the 
 classes stated in the first section and the restraint of trade to which that sec- 
 tion applies are not specifically enumerated or defined, it is obvious that judg- 
 ment must in every case be called into play in order to determine whether a 
 particular act is embraced within the statutory classes and whether, if the act 
 is within such classes, its nature or effect causes it to be a restraint of trade 
 within the intendment of the act. To hold to the contrary would require the 
 conclusion either that every contract, act, or combination of any kind or nature 
 whether it operated a restraint on trade or not, was within the statute, and' 
 thus the statute would be destructive of all right to contract or agree or' com- 
 bine in any respect whatever as to subjects embraced in interstate trade or 
 commerce, or if this conclusion were not reached, then the contention would re- 
 quire it to be held that as the statute did not define the things to which it re- 
 lated and excluded resort to the only means by which the acts to which it re- 
 lates could be ascertained— the light of reason — the enforcement of the statute 
 was impossible because of its uncertainty. The merely generic enumeration 
 which the statute makes of the acts to which it refers and the absence of any 
 definition of restraint of trade as used in the statute leaves room for but one 
 conclusion, which is that it was expressly designed not to unduly limit the 
 application of the act by precise definition, but while clearly fixing a standard — 
 that is, by defining the ulterior boundaries which could not be transgressed with 
 impunity — to leave it to be determined by the light of reason, guided by the 
 principles of law and the duty to apply and enforce the public policy embodied 
 in the statute in every given case, whether any particular act or contract was 
 within the contemplation of the statute. 
 
 But, it is said, persuasive as these views may be, they may not be here 
 applied, because the previous decisions of this court have given to the statute 
 a meaning which expressly excludes the construction which must result from 
 the reasoning stated. The cases are United States v. Freight Association (166 
 TJ. S-, 290) and United States v. Joint Traffic Association (171 U. S., 505). 
 Both the cases involved the legality of combinations or associations of rail- 
 roads engaged in interstate commerce for the purpose of controlling the conduct 
 of the parties to the association or combination in many particulars. The 
 association or combination was assailed in each case as being in violation of 
 the statute. It was held that they were. It is undoubted that in the opinion 
 in each case general language was made use of which, when separated from its 
 context, would justify the conclusion that it was decided that reason could not 
 be resorted to for the purpose of determining whether the acts complained of 
 were within the statute. It is, however, also true that the nature and char- 
 acter of the contract or agreement in each case was fully referred to and sug- 
 gestions as to their unreasonableness pointed out in order to indicate that they 
 were within the prohibitions of the statute. As the cases can not by any pos- 
 sible conception be treated as authoritative without the certitude that reason 
 was resorted to for the purpose of deciding them, it follows as a matter of 
 course that it must have been held by the light of reason, since the conclusion 
 could not have been otherwise reached, that the assailed contracts or agree- 
 ments were within the general enumeration of the statute, and that their op- 
 eration and effect brought about the restraint of trade which the statute pro- 
 hibited. This being inevitable, the deduction can, in reason, only be this : That 
 in the cases relied upon, it having been found that the acts complained of were 
 within the statute and operated to produce the injuries which the statute forbade, 
 that resort to reason was not permissible in order to allow that to be done which 
 the statute prohibited. . This being true, the rulings in the cases relied upon, 
 when rightly appreciated, were therefore this and nothing more: That as con- 
 sidering the contracts or agreements, their necessary effect and the character 
 of the parties by whom they were made, they were clearly restraints of trade 
 within the purview of the statute, they could not be taken out of that category 
 by indulging in general reasoning as to the expediency or nonexpediency of 
 having made the contracts or the wisdom or want of wisdom of the statute 
 which prohibited their being made. That is to say, the cases but decided that 
 the nature and character of the contracts, creating as they did a conclusive 
 presumption which brought them within the statute, such result was not to be 
 
 22877 — vol i — 12 42 
 
656 HEARINGS BEFORE 
 
 disregarded by the substitution of a judicial appreciation of what the law 
 ought to be for tbe plain judicial duty of enforcing the law as it was made. 
 
 But aside from reasoning it is true to say that the cases relied upon do not 
 when rightly construed sustain the doctrine contended for is established by 
 all of the numerous decisions of this court which have applied and enforced 
 the antitrust act, since they all in the very nature of things rest upon the 
 premise that reason was the guide by which the provisions of the act were 
 in every case interpreted. Indeed, intermediate the decision of the two cases — 
 that is, after the decision in the freight association case and before the de-< 
 cision in the joint traffic case — the case of Hopkins v. United States (171 U. S., 
 578) was decided, the opinion being delivered by Mr. Justice Peckham, who 
 wrote both the opinions in the freight association and in the joint traffic cases. 
 And, referring in the Hopkins case to the broad claim made as to the rule of 
 interpretation announced in the freight association case, it was said (p. 592) : 
 
 " To treat as condemned by the act all agreements under which, as a result, 
 the cost of conducting an interstate commercial business may be increased 
 would enlarge the application of the act far beyond the fair meaning of the 
 language used. There must be some direct and immediate affect upon inter- 
 state commerce in order to come within the act." 
 
 And in the joint traffic case this statement was expressly reiterated and 
 approved and illustrated by example. Like limitation on the general language 
 used in freight association and joint traffic cases is also the clear result of 
 Bement v. National Harrow Co. (186 U. S., 70, 92), and especially of Cincin- 
 nati Packet Co. v. Bay (200 U. S., 179). 
 
 If the criterion by which it is to be determined in all cases whether every 
 contract, combination, etc., is a restraint of trade within the intendment of 
 the law is the direct or indirect effect of the acts involved, then of course the 
 rule of reason becomes the guide, and the construction which we have given 
 the statute, instead of being refuted by the cases relied upon, is by those cases 
 demonstrated to be correct. This is true, because as the construction which 
 we have deduced from the history of the act and the analysis of its text is 
 simply that in every case where it is claimed that an act or acts are in viola- 
 tion of the statute the rule of reason, in the light of the principles of law and 
 the public policy which the act embodies, must be applied. From this it fol- 
 lows, since that rule and the result of the test as to direct or indirect, in their 
 ultimate aspect, come to one and the same thing, that the difference between 
 the two is therefore only that which obtains between things which do not differ 
 at all. 
 
 If it be true that there is this identity of result between the rule intended to 
 be applied in the freight association case — that is, the rule of direct and indirect, 
 and the rule of reason which, under the statute as we construe it, should be 
 here applied — it may be asked how was it that in the opinion in the freight 
 association case much consideration was given to the subject of whether the 
 agreement or combination which was involved in that case could be taken 
 out of the prohibitions of the statute upon the theory of its reasonableness? 
 The question is pertinent and must be fully and frankly met, for if it be 
 now deemed that the freight association case was mistakenly decided or too 
 broadly stated, the doctrine which it announced should be either expressly 
 overruled or limited. 
 
 The confusion which gives rise to the question results from failing to dis- 
 tinguish between the want of power to take a case which by its terms or the 
 circumstances which surrounded it, considering among such circumstances the 
 character of the parties, is plainly within the statute, out of the operation of 
 the statute by resort to reason in effect to establish that the contract ought 
 not to be treated as within the statute and the duty in every case where it 
 becomes necessary from the nature and character of the parties to decide 
 whether it was within the statute to pass upon that question by the light of rea- 
 son. This distinction, we think, serves to point out what in its ultimate concep- 
 tion was the thought underlying the reference to the rule of reason made in 
 the freight association case, especially when such reference is interpreted 
 by the context of the opinion and in the light of the subsequent opinion 
 in the Hopkins case and in Cincinnati Packet Co. v. Bay. 
 
 And in order, not in the slightest degree to be wanting in frankness, we 
 say that in so far, however, as by separating the general language used in 
 the opinions in the freight association and joint traffic cases from the con- 
 text and the subject and parties with which the cases were concerned, it 
 may be conceived that the language referred to conflicts with the construc- 
 tion which we give the statute, they are necessarily now limited and qualified 
 
COMMITTEE ON INTEKSTATE COMMERCE. 657 
 
 We see no possible escape from this conclusion if we are to adhere to the 
 many cases decided in this court in which the antitrust law has been applied 
 and enforced and if the duty to apply and enforce that law in the future is 
 to continue to exist. The first is true, because the construction which we now 
 give the statute does not in the slightest degree conflict with a single previous 
 case decided concerning the antitrust law aside from the contention as to the 
 freight association and joint traffic cases, and because every one of those cases 
 applied the rule of reason for the purpose of determining whether the subject 
 before the court was within the statute. The second is also true, since, as we 
 have already pointed out, unaided by the light of reason it is impossible to 
 understand how the statute may in the future be enforced and the public 
 policy which it establishes be made efficacious. 
 
 So far as the objections of the defendants in error are concerned, they are all 
 embraced under two headings: 
 
 (a) That the act, even if the averments of the bill be true, can not be 
 constitutionally applied, because to do so would extend the power of Con- 
 gress to subject dehors the reach of its authority to regulate commerce, by 
 enabling that body to deal with mere questions or production of commodities 
 within the States. But all the structure upon which this argument proceeds 
 is based upon the decision in "United States v. B. C. Knight Co. (156 U. S., 1.) 
 The view, however, which the argument takes of that case and the arguments 
 based upon that view have been so i-epeatedly pressed upon this court in con- 
 nection with the interpretation and enforcement of the antitrust act, and 
 have been so necessarily and expressly decided to be unsound as to cause the 
 contentions to be plainly foreclosed and to require no express notice. (United 
 States v. Northern Securities Co., 193 U. S., 334; Loewe v. Lawler, 208 U. S., 
 274; United States v. Swift & Co., 196 U. S., 375; Montague v. Lowry, 193 
 V. S., 38; Shawnee Compress Co. v. Anderson, 209 U. S., 423.) 
 
 (&) Many arguments are pressed in various forms of statement which 
 iD substance amount to contending that the statute can not be applied under 
 the facts of this case without impairing rights of property and destroying the 
 freedom of contract or trade, which is essentially necessary to the well-being 
 of society and which it is insisted is protected by the constitutional guaranty 
 of due process of law. But the ultimate foundation of all these arguments 
 is the assumption that reason may not be resorted to in interpreting and 
 applying the statute, and therefore that the statute unreasonably restricts the 
 right to contract and unreasonably operates upon the right to acquire and hold 
 property. As the premise is demonstrated to be unsound by the construction 
 we have given the statute, of course the propositions which rest upon that 
 premise need not be further noticed. 
 
 So far as the arguments proceed upon the conception that in view of the 
 generality of the statute it is not susceptible of being enforced by the courts 
 because it can not be carried out without a judicial exertion of legislative 
 power, they are clearly unsound. The statute certainly generically enumerates 
 the character of acts which it prohibits and the wrong which it was intended to 
 prevent. The propositions therefore but insist that consistently with the funda- 
 mental principles of due process of law never can be left to the judiciary to 
 decide whether in a given case particular acts come within a generic statutory 
 provision. But to reduce the propositions, however, to this their final meaning 
 makes it clear that in substance they deny the existence of essential legislative 
 authority and challenge the right of the judiciary to perform duties which that 
 department of the Government has exerted from the beginning. This is so 
 clear as to require no elaboration. Tet, let us demonstrate that which needs 
 no demonstration by a few obvious examples. Take, for instance, the familiar 
 cases where the judiciary is called upon to determine whether a particular act 
 or acts are within a given prohibition, depending upon wrongful intent. Take 
 questions of fraud. Consider the power which must be exercised in every case 
 where the courts are called upon to determine whether particular acts are 
 invalid which are, abstractly speaking, in and of themselves valid, but which 
 are asserted to be invalid because of their direct effect upon interstate 
 commerce. 
 
 We come, then, to the third proposition requiring consideration, viz : 
 Third. The facts and the application of the statute to them. 
 Beyond dispute the proofs establish substantially as alleged in the bill the 
 following facts : 
 
 (1) The creation of the Standard Oil Co. of Ohio. 
 
 (2) The organization of the Standard Oil Trust of 1882, and also a previous 
 one of 1879 not referred to in the bill, and the proceedings in the Supreme 
 
658 
 
 HEARINGS BEFORE 
 
 Court of Ohio, culminating in a decree based upon the finding that the com- 
 pany was unlawfully a party to that trust; the transfer by the trustees of 
 stocks in certain of the companies ; the contempt proceedings ; and, finally, 
 the increase of the capital of the Standard Oil Co. of New Jersey and the 
 acquisition by that company of the shares of the stock of the other corporations 
 in exchange for its certificates. 
 
 The vast amount of property and the possibilities of fai reaching control 
 which resulted from the facts last stated are shown by the statement which 
 we have previously annexed concerning the parties to the trust agreement of 
 1882, and the corporations whose stock was held by the trustees under the 
 trust and which came therefore to be held by the New Jersey corporation. 
 But these statements do not with accuracy convey an appreciation of the 
 situation as it existed at the time of the entry of the decree below, since during 
 the more than 10 years which elapsed between the acquiring by the New 
 Jersey corporation of the stock and other property which was formerly held 
 by the trustees under the trust agreement, the situation, of course, had some- 
 what changed, a change which, when analyzed in the light of the proof, we 
 think, establishes that the result of enlarging the capital stock of the New 
 Jersey company and giving it the vast power to which we have referred pro- 
 duced its normal consequence; that is, it gave to the corporation, despite 
 enormous dividends and despite the dropping out of certain corporations 
 enumerated in the decree of the court below, an enlarged and more perfect 
 sway and control over the trade and commerce in petroleum and its products. 
 The ultimate situation referred to will be made manifest by an examination 
 of sections 2 and 4 of the decree below, which are excerpted in the margin. 1 
 
 1 Sec. 2. That the defendants John D. Rockefeller, JYilliam Rockefeller, Henry H. 
 Rogers, Henry M. Flagler, John D. Archbold, Oliver H. Payne, and Charles M. Pratt, 
 hereafter called the seven Individual defendants, united with the Standard Oil Co. and 
 other defendants to form and effectuate this combination, and since its formation have 
 been and still are engaged in carrying it into effect and continuing it ; that the defendants 
 Anglo-American Oil Co. (Ltd.), Atlantic Refining Co., Buckeye Pipe Line Co., Borne- 
 Scrymser Co., Chesebrough Manufacturing Co. (Consolidated), Cumberland Pipe Line Co- 
 Colonial Oil Co., Continental Oil Co., Crescent Pipe Line Co., Henry C. Polger, jr., and 
 Calvin N. Payne (a copartnership doing business under the firm name and style of Corsi- 
 cana Refining Co.), Eureka Pipe Line Co., Galena Signal Oil Co., Indiana Pipe Line Co., 
 Manhattan Oil Co., National Transit Co., New York Transit Co., Northern Pipe Line Co., 
 Ohio Oil Co., Prairie Oil & Gas Co., Security Oil Co., Solar Refining Co., Southern Pipe 
 Line Co., South Penn Oil Co., Southwest Pennsylvania Pipe Lines Co., Standard Oil Co. of 
 California, Standard Oil Co. of Indiana, Standard Oil Co. of Iowa, Standard Oil Co. of 
 Kansas, Standard Oil Co. of Kentucky, Standard Oil Co. of Nebraska, Standard Oil Co. of 
 New York, Standard Oil Co. of Ohio, Swan & Pinch Co., Union.Tank Line Co., Vacuum Oil 
 Co., Washington Oil Co., Waters-Pierce Oil Co., have entered into and become parties to 
 this combination and are either actively operating or aiding in the operation of it ; that 
 by means of this combination the defendants named in this section have combined and 
 conspired to monopolize, have monopolized, and are continuing to monopolize a substan- 
 tial part of the commerce among the States, in the Territories, and with foreign nations,. 
 In violation of section 2 of the antitrust act. 
 
 * * * * * * * 
 
 Sec. 4. That in the formation and execution of the combination or conspiracy the 
 Standard Co. has issued its stock to the amount of more than $90,000,000 in exchange 
 for the stocks of other corporations which it holds, and It now owns and controls all of 
 the capital stock of many corporations, a majority of the stock or controlling interests in 
 some corporations, and stock In other corporations as follows : 
 
 Names of companies. 
 
 Total 
 
 Owned by 
 
 capital 
 
 Standard 
 
 stock. 
 
 Oil Go. 
 
 £1,000,000 
 
 £999,740 
 
 $6,000,000 
 
 $5,000,000 
 
 200,000 
 
 199,700 
 
 10,000,000 
 
 9,999,700 
 
 500,000 
 
 277,700 
 
 250,000 
 
 249,300 
 
 300,000 
 
 300,000 
 
 3,000,000 
 
 3,000,000 
 
 6,000,000 
 
 4,999,400 
 
 10,000,000 
 
 7,079,500 
 
 1,000,000 
 
 999,700 
 
 450,000 
 
 450,000 
 
 150,000 
 
 149,900 
 
 500,000 
 
 500,000 
 
 25,455,200 
 
 25,451,650 
 
 6,000,000 
 
 5,000,000 
 
 4,000,000 
 
 4,000,000 
 
 2,775,250 
 
 1,649,460 
 
 10,000,000 
 
 9,999,850 
 
 1,000,000 
 
 1,000.000 
 
 Anglo-American Oil Co. (Ltd.) — 
 
 Atlantic Refining Oo 
 
 Borne-Scrymser Oo 
 
 Buckeye Pipe Line Oo 
 
 Chesebrough Manufacturing Co., Consolidated 
 
 Colonial Oil Co 
 
 Continental Oil Oo 
 
 Orescent Pipe Line Oo 
 
 Eureka Pipe Line Co 
 
 Galena-Signal Oil Co 
 
 Indiana Pipe Line Oo 
 
 Lawrence Natural Gas Oo 
 
 Mahoning Gas Fuel Oo 
 
 Mountain State GaB Oo 
 
 National Transit Oo 
 
 New York Transit Oo 
 
 Northern Pipe Line Oo 
 
 Northwestern Ohio Natural Gas Co 
 
 Ohio Oil Oo 
 
 People's Natural Gas Oo 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 659 
 
 Giving to me facts just stated the weight which it was deemed they were 
 entitled to, in the light afforded by the proof of other cognate facts and circum- 
 stances, the court below held that the acts and dealings established by the proof 
 operated to destroy the " potentiality of competition " which otherwise would have 
 existed to such an extent as to cause the transfers of stock which were made to 
 the New Jersey corporation and the control which resulted over the many and 
 various subsidiary corporations to be a combination or conspiracy in restraint 
 of trade in violation of the first section of the act, but also to be an attempt 
 to monopolize and a monopolization bringing about a perennial violation of the 
 second section. 
 
 We see no cause to doubt the correctness of these conclusions, considering the 
 subject from every aspect— that is, both in view of the facts established by the 
 record and the necessary operation and effect of the law as we have construed 
 it upon the inferences deducible from the facts — for the following reasons : 
 
 (a) Because the unification of power and control over petroleum and its prod- 
 ucts which was the inevitable result of the combining in the New Jersey cor- 
 poration by the increase of its stock and the transfer to it of the stocks of so 
 
 Names of companies. 
 
 Total 
 capital 
 stock. 
 
 Owned by 
 
 Standard 
 
 Oil Oo. 
 
 Pittsburg: Natural Gas Oo 
 
 Solar Reflnlng Oo 
 
 Southern Pipe Line Oo 
 
 South Penn OH Oo 
 
 Southwest Pennsylvania Pipe Lines 
 
 Standard Oil Oo. ot California 
 
 Standard Oil Oo. of Indiana 
 
 Standard Oil Co. of Iowa 
 
 Standard Oil Oo. of Kansas 
 
 Standard Oil Oo. of Kentucky— 
 
 Standard Oil Oo. of Nebraska 
 
 Standard Oil Oo. of New York. 
 
 Standard Oil Oo. of Ohio 
 
 Swan & Pinch Oo 
 
 Union Tank Line Co 
 
 Vacuum Oil Oo 
 
 Washington Oil Oo 
 
 Waters-Pierce Oil Oo 
 
 10 
 
 2 
 
 $310,000 
 
 500,000 
 000,000 
 500,000 
 
 ,600,000 
 000,000 
 000,000 
 000,000 
 000,000 
 000,000 
 600,000 
 000,000 
 
 ;500,000 
 100,000 
 
 ,600,000 
 600,000 
 100,000 
 400,000 
 
 $310,000 
 
 499,400 
 
 10,000,000 
 
 2,600,000 
 
 3,600,000 
 
 16,999,500 
 
 999,000 
 
 1,000,000 
 
 999,300 
 
 997,200 
 
 599,500 
 
 15,000,000 
 
 3,499,400 
 
 100,000 
 
 3,499,400 
 
 2,500,000 
 
 71,480 
 
 274,700 
 
 That the defendant National Transit Co., which Is owned and controlled by the Stand- 
 ard Oil Co. as aforesaid, owns and controls the amounts of the capital stocks of the fol- 
 lowing-named corporations and limited partnerships stated opposite each, respectively, as 
 follows : 
 
 Names of companies. 
 
 Total 
 capital 
 stock. 
 
 Owned by 
 
 National 
 
 Transit Oo. 
 
 Connecting Gas Oo 
 
 Cumberland Pipe Line Oo 
 
 East Ohio Gas Oo 
 
 Franklin Pipe Oo. (Ltd.). 
 Prairie Oil & Gas Co 
 
 $325,000 
 
 1,000,000 
 
 6,000,000 
 
 60,0^) 
 
 10,000,008 
 
 $412,000 
 
 998,500 
 
 5,999,500 
 
 19,500 
 
 9,999,600 
 
 That the Standard Co. has also acquired the control, by the ownership of its stock or 
 otherwise, of the Security Oil Co., a corporation created under the laws of Texas, which 
 owns a refinery at Beaumont, in that State, and the Manhattan Oil Co., a corporation 
 which owns a pipe line situated in the States of Indiana and Ohio; that the Standard Co. 
 and the corporations and partnerships named in section 2 are engaged in the various 
 branches of the business of producing, purchasing, and transporting petroleum m the 
 principal oil-producing districts of the United States, in New York, Pennsylvania, West 
 Virginia, Tennessee, Kentucky, Ohio, Indiana, Illinois, Kansas, Oklahoma, Louisiana, 
 Texas, Colorado, and California, in shipping and transporting the oil through pipe lines 
 owned or controlled by these companies from the various oil-producing districts into and 
 through other States, in refining the petroleum and manufacturing it into various prod- 
 ucts in shipping the petroleum and the products thereof into the States and Territories 
 of the United States, the District of Columbia, and to foreign nations, in shipping the 
 petroleum and its products in tank cars owned or controlled by the subsidiary companies 
 Into various States and Territories of the United States and into the District of Columbia, 
 and in selling the petroleum and its products in various places in the States and Terri- 
 tories of the United States, in the District of Columbia, and in foreign countries ; that 
 the Standard Co. controls the subsidiary companies and directs the management thereof 
 so that none of the subsidiary companies competes with any other of those companies or 
 with the Standard Co., but their trade is all managed as that of a single person. 
 
660 HEARINGS BEFORE 
 
 many other corporations, aggregating so vast a capital, gives rise, in and of 
 itself, in the absence of countervailing circumstances, to say the least, to the 
 prima facie presumption of intent and purpose to maintain the dominancy over 
 the oil industry, not as a result of normal methods of industrial development, 
 but by new means of combination which were resorted to in order that greater 
 power might be added than would otherwise have arisen had normal methods 
 been followed, the whole with the purpose of excluding others from the trade 
 and thus centralizing in the combination a perpetual control of the movements 
 of petroleum and its products in the channels of interstate commerce. 
 
 (6) Because the prima facie presumption of intent to restrain trade, to mo- 
 nopolize and to bring about monopolization resulting from the act of expanding 
 the stock of the New Jersey corporation and vesting it with such vast control 
 of the oil industry, is made conclusive by considering (1) the conduct of the 
 persons or corporations who were mainly instrumental in bringing about the 
 extension of power in the New Jersey corporation before the consummation of 
 that result, and prior to the formation of the trust agreements of 1879 and 1882 ; 
 (2) by considering the proof as to what was done under those agreements and 
 the acts which immediately preceded the vesting of power in the New Jersey 
 corporation, as well as by weighing the modes in which the power vested in 
 that corporation has been exerted and the results which have arisen from it. 
 
 Recurring to the acts done by the individuals or corporations who were mainly 
 instrumental in bringing about the expansion of the New Jersey corporation 
 during the period prior to the formation of the trust agreements of 1879 and 
 1882, including those agreements, not for the purpose of weighing the substan- 
 tial merit of the numerous charges of wrongdoing made during such period, but 
 solely as an aid for discovering intent and purpose, we think; no disinterested 
 mind can survey the period in question without being irresistbly driven to the 
 conclusion that the very genius for commercial development and organization 
 which it would seem was manifested from the beginning soon begot an intent 
 and purpose to exclude others which was frequently manifested by acts and 
 dealings wholly inconsistent with the theory that they were made with the 
 single conception of advancing the development of business power by usual 
 methods, but which, on the contrary, necessarily involved the intent to drive 
 others from the field and to exclude them from their right to trade, and thus 
 accomplish the mastery which was the end in view. And, considering the 
 period from the date of the trust agreements of 1879 and 1S82, up to the time 
 of the expansion of the New Jersey corporation, the gradual extension of the 
 power over the commerce in oil which ensued, the decision of the Supreme Court 
 of Ohio, the tardiness or reluctance in conforming to the commands of that 
 decision, the method first adopted and that which finally culminated in the 
 plan of the New Jersey corporation, all additional]}' serve to make manifest 
 the continued existence of the intent which we have previously indicated and 
 which, among other things, impelled the expansion of the New Jersey corpora- 
 tion. The exercise of the power which resulted from that organization fortifies 
 the foregoing conclusions, since the development which came, the acquisition 
 here and there which ensued of every efficient means by which competition 
 could have been asserted, the slow but resistless methods which followed by 
 which means of transportation were absorbed and brought under control, the 
 system of marketing which was adopted, by which the country was divided 
 into districts and the trade in each district in oil was turned over to a desig- 
 nated corporation within the combination and all others were excluded, all lead 
 the mind up to a conviction of a purpose and intent which we think is so cer- 
 tain as practically to cause the subject not to be within the domain of reasonable 
 contention. • 
 
 The inference that no attempt to monopolize could have been intended, and 
 that no monopolization resulted from the acts complained of, since it is estab- 
 lished that a very small percentage of the crude oil produced was controlled by 
 the combination, is unwarranted. As substantial power over the crude product 
 was the inevitable result of the absolute control which existed over the refined 
 product, the monopolization of the one carried with it the power to control the 
 other, and if the inference which this situation suggests were developed, which 
 we deem it unnecessary to do, they might well serve to add additional cogency 
 to the presumption of intent to monopolize which we hove found arises from 
 the unquestioned proof on other subjects. 
 
 We are thus brought to the last subject which we are called upon to con- 
 sider, viz : 
 
 Fourth. The remedy to be administered. 
 
 It may be conceded that ordinarily where it was found that acts had been 
 done in violation of the sta"- 1 - ~ J i - * — "~* 1J 1A * 
 
COMMITTEE ON INTERSTATE COMMEECE. 661 
 
 • 
 
 restraining the doing of such acts in the future. (Swift v. United States, 96 
 U. S., 375.) But in a case like this, where the condition which has been 
 brought about in violation of the statute, in and of itself, is not only a contin- 
 ued attempt to monopolize, but also a monpolization, the duty to enforce the 
 statute requires the application of broader and more controlling remedies. As 
 penalties which are not authorized by law may not be inflicted by judicial 
 authority, it follows that to meet the situation with which we are confronted 
 the application of remedies twofold in character becomes essential: (1). To for- 
 bid the doing in the future of acts like those which we have found to have 
 been done in the past which would be violative of the statute; (2) the exer- 
 tion of such measure of relief as will effectually dissolve the combination found 
 to exist in violation of the statute, and thus neutralize the extension and con- 
 tinually operating force which the possession of the power unlawfully obtained 
 lias brought and will continue to bring about. 
 
 In applying remedies for this purpose, however, the fact must not be over- 
 looked that injury to the public by the prevention of an undue restraint on or 
 the monopolization of trade or commerce is the foundation upon which the pro- 
 hibitions of the statute rest, and, moreover, that one of the fundamental pur- 
 poses of the statute is to protect, not to destroy, rights of property. 
 
 Let us then, as a means of accurately determining what relief we are to afford, 
 first come to consider what relief was afforded by the court below, in order to 
 fix how far it is necessary to take from or add to that relief, to the end that 
 the prohibitions of the statute may have complete and operative force. 
 
 The court below by virtue of sections I, 2, and 4 of its decree, which we have 
 in part previously excerpted in the margin, adjudged that the New Jersey cor- 
 poration in so far as it held the stock of the various corporations, recited in 
 sections 2 and 4 of the decree, or controlled the same, was a combination in vio- 
 lation of the first section of the act, and an attempt to monopolize or a monopo- 
 lization contrary to the second section of the act. It commanded the dissolu- 
 tion of the combination and therefore, 'in effect, directed the transfer by the 
 New Jersey corporation back to the stockholders of the various subsidiary cor- 
 porations entitled to the same of the stock which had been turned over to the 
 New Jersey company in exchange for its stock. To make this command effec- 
 tive, section 5 of the decree forbade the New Jersey corporation from in any 
 form or manner exercising any ownership or exerting any power directly or 
 indirectly in virtue of its apparent title to the stocks of the subsidiary cor- 
 porations, and prohibited those subsidiary corporations from paying any divi- 
 dends to the New Jersey corporation or doing any act which would recognize 
 further power in that company, except to the extent that it was necessary to 
 enable that company to transfer the stock. So far as the owners of the stock 
 of the subsidiary corporations and the corporations themselves were concerned 
 after the stock had been transferred, section 6 of the decree enjoined them from 
 in any way conspiring or combining to violate the act or to monopolize or at- 
 tempt to monopolize in virtue of their ownership of the stock transferred to 
 them, and prohibited all agreements between the subsidiary corporations or 
 other stockholders in the future tending to produce or bring about further 
 violations of the act. 
 
 By section 7, pending the accomplishment of the dissolution of 1 lie combination 
 by the transfer of stock and until it was consummated, the defendants named in 
 section 1, constituting all the corporations to which we have referred, were 
 enjoined from engaging in or carrying on interstate commerce. And by section 
 9, among other things, a delay of 30 days was granted for the carrying into 
 effect of the direction of the decree. 
 
 So far as the decree held that the ownership of the stock of the New Jersey 
 corporation constituted a combination in violation of the first section and an 
 attempt to create a monopoly or to monopolize under the second section and com- 
 manded the dissolution of the combination, the decree was clearly appropriate. 
 And this also is true of section 5 of the decree, which restricted both the New 
 Jersey corporation and the subsidiary corporations from doing anything which 
 would recognize or give effect to further ownership in the New Jersey corpora- 
 tion of the stocks which were ordered to be retransferred. 
 
 But the contention is that, in so far as the relief by way of injunction which 
 was awarded by section 6 against the stockholders of the subsidiary corporations 
 or the subsidiary corporations themselves after the transfer of stock by the New 
 Jersey corporation was completed in conformity to the decree, that the relief 
 awarded was too broad: (a) Because it was not sufficiently specific and tended 
 to cause those who were within the embrace of the order to cease to be under 
 
662 HEARINGS BEFORE 
 
 the protection of the law of the land and required them to thereafter conduct 
 their business under the jeopardy of punishments for contempt for violating 
 a general injunction. (New Haven E. R. v. Interstate Commerce Commission, 
 200 U. S., 404.) Besides, it is said that the restraint imposed by section 6 — even 
 putting out of view the consideration just stated — was moreover calculated to 
 do injury to the public, and it may be in and of itself to produce the very re- 
 straint on the due course of trade which it was intended to prevent. We say 
 this since it does not necessarily follow because an illegal restraint of trade 
 or an attempt to monopolize or a monopolization resulted from the combination 
 and the transfer of the stocks of the subsidiary corporations to the New Jersey 
 corporation that a like restraint or attempt to monopolize or monopolization 
 would necessarily arise from agreements between one or more of the subsidiary 
 corporations after the transfer of the stock by the New Jersey corporation. For 
 illustration, take the pipe lines. By the effect of the transfer of the stock the 
 pipe lines would come under the control of various corporation?; instead of be- 
 ing subjected to'a uniform control. If various corporations owning the lines de- 
 termined in the public interests to so combine as to make a continuous line, such 
 agreement or combination would not be repugnant to the act, and yet it might 
 be restrained by the decree. 
 
 As another example, take the Union Tank Line Co., one of the subsidiary cor- 
 porations, the owner practically of all the tank cars in use by the combination. 
 If no possibility existed of agreements for the distribution of these cnrs among 
 the subsidiary corporations the most serious detriment to the public interest 
 might result. Conceding the merit, abstractly considered, of these contentions, 
 they are irrelevant. We so think, since we construe the sixth paragraph of the 
 decree not as depriving the stockholders or the corporations, after the dissolu- 
 tion of the combination, of the power to make normal and lawful contracts or 
 agreements, but as restraining them from, by any device whatever, re-creating, 
 directly or indirectly, the illegal combination which the decree dissolved. In 
 other words, we construe the sixth paragraph of the decree not as depriving the 
 stockholders or corporations of the right to live under the law of the land, but 
 as compelling obedience to that law. As, therefore, the sixth paragraph as 
 thus construed is not amenable to the criticism directed against it and can not 
 produce the harmful results which the arguments suggest, it was obviously 
 right. We think that, in view of the magnitude of the interests involved and 
 their complexity, the delay of 30 days allowed for executing the decree was 
 too short and should be extended so as to embrace a period of at least six 
 months. So also, in view of the possible serious injury to result to the public 
 from an absolute cessation of interstate commerce in petroleum and its products 
 by such vast agencies as are embraced in the combination, a result which might 
 arise from that portion of the decree which enjoined carrying on of interstate 
 commerce not only by the New Jersey corporation but by all the subsidiary 
 companies until the dissolution of the combination by the transfer of the stocks 
 in accordance with the decree should not have been awarded. 
 
 Our conclusion is that the decree below was right and should be affirmed, ex- 
 cept as to the minor matters concerning which we have indicated the decree 
 should be modified. Our order will therefore be one of affirmance, with direc- 
 tions, however, to modify the decree in accordance with this opinion ; the court 
 below to retain jurisdiction to the extent necessary to compel compliance in 
 every respect with its decree. 
 
 And it is so ordered. 
 
 Dissenting Opinion of JIe. Justice Hablan. 
 
 [Supreme Court of the United States. No. 398, October term, 1910. The Standard Oil 
 Co. of New Jersey et al., appellants, v. The United States. Appeal from the Circuit 
 Court of the United States for the Eastern District of Missouri. May 15, 1911.] 
 
 Mr. Justice Harlan, concurring in part and dissenting in part : 
 A sense of duty constrains me to express the objections which I have to cer- 
 tain declarations in the opinion just delivered on behalf of the court. 
 
 I concur in holding that the Standard Oil Co. of New Jersey and its sub- 
 sidiary companies constitute a combination in restrain of interstate commerce, 
 and that they have attempted to monopolize and have monopolized parts of 
 such commerce — all in violation of what is known as the antitrust act of 1S90. 
 (26 Stat., 209, ch. 647.) The evidence in this case overwhelmingly sustained 
 that view and led the circuit court, by its final decree, to order the dissolution 
 
COMMITTEE ON INTERSTATE COMMERCE. 663 
 
 of the New Jersey corporation and the discontinuance of the illegal combination 
 between that corporation and its subsidiary companies. 
 
 In my judgment the decree below should have been affirmed without qualifi- 
 cation. But the court, while affirming the decree, directs some modifications 
 in respect of what it characterizes as "minor matters." It is to be appre- 
 hended that those modifications may prove to be mischievous. In saying this 
 I have particularly in view the statement in the opinion that " it does not 
 necessarily follow that because an illegal restraint of trade or an attempt to 
 monopolize or a monopolization resulted from the combination and the transfer 
 of the stocks of the subsidiary corporations to the New Jersey corporation 
 that a like restraint of trade or attempt to monopolize or monopolization would 
 necessarily arise from agreements between one or more of the subsidiary cor- 
 porations after the transfer of the stock by the New Jersey corporation." 
 Taking this language in connection with other parts of the opinion, the sub- 
 sidiary companies are thus, in effect, informed — unwisely, I think— that, although 
 the New Jersey corporation, being an illegal combination, must go out of 
 existence, they may join in an agreement to restrain commerce among the 
 States if such restraint be not " undue." 
 
 In order that my objections to certain parts of the court's opinion may dis- 
 tinctly appear, I must state the circumstances under which Congress passed the 
 antitrust act and trace the course of judicial decisions as to its meaning and 
 scope. This is the more necessary because the court, by its decision, when 
 interpreted by the language of its opinion, has not only upset the long-settled 
 interpretation of the act, but has usurped the constitutional functions of the 
 legislative branch of the Government. With all due respect for the opinions of 
 others, I feel bound to say that what the court has said may well cause some 
 alarm for the integrity of our institutions. Let us see how the matter stands. 
 
 All who recall the condition of the country in 1890 will remember that there 
 was everywhere among the people generally a deep feeling of unrest. The 
 Nation had been rid of human slavery — fortunately, as all now feel — but the 
 conviction was universal that the country was in real danger from another kind 
 of slavery sought to be fastened on the American people, namely, the slavery 
 that would result from aggregations of capital in the hands of a few individuals 
 and corporations controlling, for their own profit and advantage exclusively, 
 the entire business of the country, including the production and sale of the 
 necessaries of life. Such a danger was thought to be then imminent, and all 
 felt that it must be met firmly and by such statutory regulations as would 
 adequately protect the people against oppression and wrong. Congress there- 
 fore took up the matter and gave the whole subject the fullest consideration. 
 All agreed that the National Government could not, by legislation, regulate the 
 domestic trade carried on wholly within the several States ; for power to regu- 
 late such trade remained with, because never surrendered by, the States. But, 
 under authority expressly granted to it by the Constitution, Congress could 
 regulate commerce among the several States and with foreign States. " Its au- 
 thority to regulate such commerce was and is paramount, due force being given 
 to other provisions of the fundamental law devised by the fathers for the safety 
 of the Government and for the protection and security of the essential rights 
 inhering in life, liberty, and property. 
 
 Guided by these considerations, and to the end that the people, so far as 
 interstate commerce was concerned, might not be dominated by vast combina- 
 tions and monopolies, having power to advance their own selfish ends regard- 
 less of the general interests and welfare, Congress passed the antitrust act of 
 1890 in these words : 
 
 " Sec. 1. Every contract, combination in the form of trust or otherwise, or 
 conspiracy in restraint of trade or commerce among the several States or with 
 foreign nations is hereby declared to be illegal. Every person who shall make 
 any such contract or engage in any such combination or conspiracy shall be 
 deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished 
 by fine not exceeding $5,000 or by imprisonment not exceeding one year, or by 
 both said punishments, in the discretion of the court. 
 
 " Sec. 2. Every person who shall monopolize or attempt to monopolize or com- 
 bine or conspire with any other person or persons to monopolize any part of the 
 trade or commerce among the several States or with foreign nations shall be 
 deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished 
 by fine not exceeding $5,000 or by imprisonment not exceeding one year, or by 
 both said punishments, in the discretion of the court. 
 
664 HEARINGS BEFORE 
 
 " Sec. 3. Every contract, combination in form of trust or otherwise or con- 
 spiracy in restraint of trade or commerce in any Territory of the United 
 States or of the District of Columbia, or in restraint of trade or commerce 
 between any such Territory and another, or between any such Territory or 
 Territories and any State or States or the District of Columbia or with foreign 
 nations, or between the District of Columbia and any State or States or foreign 
 nations is hereby declared illegal. Every person who shall make any such 
 contract or engage in any such combination or conspiracy shall be deemed 
 guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine 
 not exceeding $5,000 or by imprisonment not exceeding one year, or by both 
 said punishments, in the discretion of the court. (26 Stat., 209, c. 647.)" 
 
 The important inquiry in the present case is as to the meaning and scope of 
 that act in its application to interstate commerce. 
 
 In 1S96 this court had occasion to determine the meaning and scope of the act 
 in an important case known as the Trans-Missouri Freight case. (166 U. S., 
 290.) The question there was as to the validity under the antitrust act of a 
 certain agreement between numerous railroad companies, whereby they formed 
 an association for the purpose of establishing and maintaining rates, rules, and 
 regulations in respect of freight traffic over specified routes. Two questions 
 were involved : First, whether the act applied to railroad carriers ; second, 
 whether the agreement which was the basis of the suit which the United States 
 brought to have the agreement annulled was illegal. The court held that 
 railroad carriers were embraced by the act. In determining that question the 
 court, among other things, said : 
 
 " The language of the act includes every contract, combination in the form of 
 trust or otherwise, or conspiracy in restraint of trade or commerce among the 
 several States or with foreign nations. So far as the very terms of the statute 
 go, they apply to any contract of the nature described. A contract, therefore, 
 that is in restraint of trade or commerce is by the strict language of the act 
 prohibited, even though such contract is entered into between competing com- 
 mon carriers by railroad, and only for the purposes of thereby affecting traffic 
 rates for the transportation of persons and property. If such an agreement 
 restrains trade or commerce, it is prohibited by the statute, unless it can be 
 said that an agreement, ao matter what its terms, relating only to transporta- 
 tion can not restrain trade or commerce. We see no escape from the conclu- 
 sion that if an agreement of such a nature does restrain it the agreement is 
 condemned by this act. * * * Nor is it for the substantial interests of the 
 country that any one commodity should be within the sole power and subject 
 to the sole will of one powerful combination of capital. Congress has, so far 
 as its jurisdiction extends, prohibited all contracts or combinations in the form 
 of trusts entered into for the purpose of restraining trade and commerce. 
 * * * While the statute prohibits all combinations in the form of trusts or 
 otherwise, the limitation is not confined to that form alone. All combinations 
 which are in restraint of trade or commerce are prohibited, whether in the form 
 of trusts or in any other form whatever. (U. S. v. Freight Asso., 166 U. S., 
 290, 312, 324, 326.)" 
 
 The court then proceeded to consider the second of the above questions, 
 saying : 
 
 " The next question to be discussed is as to what is the true construction of 
 the statute, assuming that it applies to common carriers by railroad. What is 
 the meaning of the language as used in the statute, that ' every contract, com- 
 bination in the form of trust or otherwise, or conspiracy in restraint of trade 
 or commerce among the several States or with foreign nations is hereby 
 declared to be illegal ' ? Is it confined to a contract or combination which is 
 only in unreasonable restraint of trade or commerce, or does it include what 
 the language of the act plainly and in terms covers, all contracts of that nature? 
 It is now with much amplification of argument urged that the statute in declar- 
 ing illegal every combination in the form of trust or otherwise or conspiracy in 
 restraint of trade or commerce does not mean what the language used therein 
 plainly imports, but that it only means to declare illegal any such contract 
 which is in unreasonable restraint of trade, while leaving all others unaffected 
 by the provisions of the act ; that the common-law meaning of the term ' con- 
 tract in restraint of trade ' includes only such contracts as are in unreasonable 
 restraint of trade, and when that term is used in the Federal statute it is not 
 intended to include all contracts in restraint of trade, but only those which are 
 in unreasonable restraint thereof. * * * By the simple use of the term 
 'contract in restraint of trade' all contracts of that nature, whether valid or 
 
COMMITTEE ON INTEESTATE COMMERCE. 665 
 
 otherwise, would be included, and not alone that kind of contract which was 
 invalid and unenforceable as being in unreasonable restraint of trade. When, 
 therefore, the body of an act pronounces as illegal every contract or combina- 
 tion in restraint of trade or commerce among the several States, etc., the plain 
 and ordinary meaning of such language is not limited to that kind of contract 
 alone which is in unreasonable restraint of trade, but all contracts are included 
 in such language, and no exception or limitation can be added without placing 
 in the act that which has been omitted by Congress. * * * If only that kind 
 of contract which is in unreasonable restraint of trade be within the meaning 
 of the statute, and declared therein to be illegal, it is at once apparent that the 
 subject of what is a reasonable rate is attended with great uncertainty. * * * 
 To say, therefore, that the act excludes agreements which are not in unreason- 
 able restraint of trade, and which tend simply to keep up reasonable rates for 
 transportation, is substantially to leave the question of unreasonableness to the 
 companies themselves. * * * But assuming that agreements of this nature 
 are not void lat common law and that the various cases cited by the learned 
 courts below show it, the answer to the statement of their validity now is to be 
 found in the terms of the statute under consideration. * * * The arguments 
 which have been addressed to us against the inclusion of all contracts in 
 restraint of trade, as provided for by the language of the act, have been based 
 upon the alleged presumption that Congress, notwithstanding the language of 
 the act, could not have intended to embrace all contracts, but only such contracts 
 as were in unreasonable restraint of trade. Under these circumstances we are, 
 therefore, asked to hold that the act of Congress excepts contracts which are 
 not in unreasonable restraint of trade and which only keep rates up to a reason- 
 able price, notwithstanding the language of the act makes no such exception. 
 In other words, we are asked to read into the act by way of judicial legislation 
 an exception that is not placed there by the lawmaking branch of the Govern- 
 ment, and this is to be done upon the theory that the impolicy of such legisla- 
 tion is so clear that it can not be supposed Congress intended the natural 
 import of the language it used. This we can not and ought not to do. * * * 
 
 " If the act ought to read as contended for by defendants, Congress is the 
 body to amend it, and not this court by a process of judicial legislation wholly 
 unjustifiable. Large numbers do not agree that the view taken by defendants 
 is sound or true in substance, and Congress may and very probably did share 
 in that belief in passing the act. The public policy of the Government is to be 
 found in its statutes, and when they have not directly spoken, then in the deci- 
 sions of the courts and the constant practice of the Government officials; but 
 when the lawmaking power speaks upon a particular subject, over which it has 
 constitutional power to legislate, - public policy in such a case is what the statute 
 enacts. If the law prohibit any contract or combination in restraint of trade 
 or commerce, a contract or combination made in violation of such law is void, 
 whatever may have been theretofore decided by the courts to have been the 
 public policy of the country on that subject. The conclusion which we have 
 drawn from the examination above made into the question before us is that the 
 antitrust act applies to railroads, and that it renders illegal all agreements 
 which are in restraint of trade or commerce as we have above defined that 
 expression, and the question then arises whether the agreement before us is of 
 that nature." 
 
 I have made these extended extracts from the opinion of the court in the 
 Trans-Missouri Freight case in order to show beyond question that the point 
 was there urged by counsel that the antitrust act condemned only contracts, 
 combinations, trusts, and conspiracies that were in unreasonable restraint of 
 interstate commerce, and that the court in clear and decisive language met that 
 point. It adjudged that Congress had in unequivocal words declared that 
 "every contract, combination in the form of trust or otherwise, or conspiracy 
 in restraint of commerce among the several States " shall be illegal, and that no 
 distinction, so far as interstate commerce was concerned, was to be tolerated 
 between restraints of such commerce as were undue or unreasonable and re- 
 straints that were due or reasonable. With full knowledge of the then condi- 
 tion of the country and of its business, Congress determined to meet, and did 
 meet, the situation by an absolute, statutory prohibition of "every contract, 
 combination in the form of trust or otherwise, in restraint of trade or com- 
 merce." Still more, in response to the suggestion by able counsel that Con- 
 gress intended only to strike down such contracts, combinations, and monopolies 
 as unreasonably restrained interstate commerce, this court, in words too clear 
 to be misunderstood, said that to so hold was " to read into the act by way of 
 
666 HEARINGS BEFOEE 
 
 judicial legislation an exception not placed there by the lawmaking branch of 
 the Government." " This," the court said, as we have seen, " we can not and 
 ought not to do." 
 
 It thus appears that 15 years ago, when the purpose of Congress in passing 
 the antitrust act was fresh in the minds of courts, lawyers, statesmen, and the 
 general public, this court expressly declined to indulge in judicial legislation, 
 by inserting in the act the word " unreasonable " or any other word of like 
 import. It may be stated here that the country at large accepted this view of 
 the act, and the Federal courts throughout the entire country enforced its 
 provisions according to the interpretation given in the Freight Association case. 
 What, then, was to be done by those who questioned the soundness of the in- 
 terpretation placed on the act by this court in that case? As the court had 
 decided that to insert the word " unreasonable " in the act wduld be " judicial 
 legislation " on its part, the only alternative left to those who opposed the 
 decision in that case was to induce Congress to so amend the act as to recognize 
 the right to restrain interstate commerce to a reasonable extent. The public 
 press, magazines, and law journals, the debates in Congress, speeches and ad- 
 dresses by public men and jurists, all contain abundant evidence of the general 
 understanding that the meaning, extent, and scope of the antitrust act had been 
 judicially determined by this court, and that the only question remaining open 
 for discussion was the wisdom of the policy declared by the act — a matter that 
 was exclusively within the cognizance of Congress. But at every session of 
 Congress since the decision of 1896, the lawmaking branch of the Government, 
 with full knowledge of that decision, has refused to change the policy it had 
 declared or to so amend the act of 1890 as to except from its operation con- 
 tracts, combinations, and trusts that reasonably restrain interstate commerce. 
 
 But those who were in combinations that were illegal did not despair. They 
 at once set up the baseless claim that the decision of 1896 disturbed the 
 " business interests of the country," and let it be known that they would 
 never be content until the rule was established that would permit interstate 
 commerce to be subjected to reasonable restraints. Finally, an opportunity 
 came again to raise the same question which this court had, upon full con- 
 sideration, determined in 1896. I now allude to the case of United States v. 
 Joint Traffic Association, 171 U. S., 505, decided in 1898. What was that case? 
 
 It was a suit by the "United States against more than SO railroad companies 
 to bare the court declare illegal, under the antitrust act, a certain agreement 
 between these companies. The relief asked was denied in the subordinate 
 Federal courts and the Government brought the case here. 
 
 It is important to state the points urged in that case by the defendant com- 
 panies charged with violating the antitrust act, and to show that the court 
 promptly met them. To that end I make a copious extract from the opinion in 
 the Joint Traffic case. Among other things, the court said : 
 
 " Upon comparing that agreement [the one in the Joint Traffic case, then 
 under consideration, 171 U. S., 505] with the one set forth in the case of United 
 States v. Trans-Missouri Freight Association, 166 U. S., 290, the great sim- 
 ilarity between them suggests that a similar result should be reached in the 
 two cases (p. 558)." 
 
 Learned counsel in tbe Joint Traffic case urged a reconsideration of the 
 question decided in the Trans-Missouri case, contending that "the decision in 
 that case [the Trans-Missouri Freight case] is quite plainly erroneous, and 
 the consequences of such error are far-reaching and disastrous and clearly at 
 war with justice and sound policy, and the construction placed upon the anti- 
 trust statute has been received by the public with surprise and alarm." They 
 suggested that the point made in the Joint Traffic case as to the meaning and 
 scope of the act might have been but was not made in the previous case. The 
 court said (171 U. S., 559) that "the report of the Trans-Missouri case clearly 
 shows not only that the point now taken was there urged upon the attention 
 of the court, but it was then intentionally and necessarily decided." 
 
 The question whether the court should again consider the point decided in 
 the Trans-Missouri case was disposed of in the most decisive language, as 
 follows : 
 
 " Finally, we are asked to reconsider the question decided in the Trans-Mis- 
 souri case, and to retrace the steps taken therein, because of the plain error 
 contained in that decision and the widespread alarm with which it was received 
 and the serious consequences which have resulted or may soon result from the 
 law as interpreted in that case. It is proper to remark that an application 
 for a reconsideration of a question but lately decided by this court is usually 
 fcased upon a statement that some of the arguments employed on the original 
 
COMMITTEE ON INTERSTATE COMMERCE. 66 T 
 
 hearing of the question have been overlooked or misunderstood, or that some 
 controlling authority has been either misapplied by the court or passed over 
 without discussion or notice. While this is not strictly an application for a 
 rehearing in the same case, yet iu substance it is the same thing. The court 
 is asked to reconsider a question but just desided after a careful investigation 
 of the matter involved. There have heretofore been in effect two arguments of 
 precisely the same questions now before the court, and the same arguments 
 were addressed to us on both those occasions. The report of the Trans-Missouri 
 case shows a dissenting opinion delivered in that case, and that the opinion 
 was concurred in by three other members of the court. That opinion it will be 
 seen gives with great force and ability the arguments against the decision 
 which was finally arrived at by the court. It was after a full discussion of 
 the questions involved and with the knowledge of the views entertained by the 
 minority, as expressed in the dissenting opinion, that the majority of the court 
 came to the conclusion it did. Soon after the decision a petition for a rehear- 
 ing of the case was made, supported by a printed argument in its favor, and 
 pressed with an earnestness and vigor and at a length which were certainly 
 commensurate with the importance of the case. This court, with care and delib- 
 eration and also with a full appreciation of their importance, again considered 
 the questions involved in its former decision. A majority of the court once 
 more arrived at the conclusion it had first announced, and accordingly it denied 
 the application. And now for the third time the same arguments are employed, 
 and the court is again asked to recant its former opinion, and to decide the 
 same question in direct opposition to the conclusion arrived at in the Trans- 
 Missouri case. The learned counsel while making the application frankly con- 
 fess that the argument in opposition to the decision in the case above named 
 has been so fully, so clearly, and so forcibly presented in the dissenting opinion 
 of Mr. Justice White [in the Freight case] that it is hardly possible to add to it, 
 nor is it necessary to repeat it. The fact that there was so close a division of 
 opinion in this court when the matter was first under advisement, together with 
 the different views taken by some of the judges of the lower courts, led us to 
 the most careful and scrutinizing examination of the arguments advanced by 
 both sides, and it was after such an examination that the majority of the 
 court came to the conclusion it did. It is not now alleged that the court on 
 the former occasion overlooked any argument for the respondents or misapplied 
 any controlling authority. It is simply insisted that the court, notwithstand- 
 ing the arguments for an opposite view, arrived at an erroneous result which, 
 for reasons already stated, ought to be reconsidered and reversed. As we 
 have twice already deliberately and earnestly considered the same arguments 
 which are now for a third time pressed upon our attention, it could hardly 
 be expected that our opinion should now change from that already expressed." 
 These utterances, taken in connection with what was previously said in" the 
 'Trans-Missouri Freight case, show so clearly and affirmatively as to admit of no 
 doubt that this court many years ago, upon the fullest consideration, inter- 
 preted the antitrust act as prohibiting and making illegal not only every con- 
 tract or combination, in whatever form, which was in restraint of interstate 
 commerce, without regard to its reasonableness or unreasonableness, but all 
 monopolies or attempt to monopolize " any part " of such trade or commerce. 
 Let me refer to a few other cases in which the scope of the decision in the 
 Freight Association case was referred to: In Bement v. National Harrow Co. 
 (186 U. S., 70, 92) the court said, "It is true that it has been held by this 
 court that the act (antitrust act) included any restraint of commerce, whether 
 reasonable or unreasonable," citing United States v. Trans-Missouri Freight 
 Association (166 U. S., 290) ; United States v. Joint Traffic Association (171 
 U. S., 505); Addyston Pipe, etc., Co. v. United States (175 U. S., 211). In 
 Montague v. Lowry (193 U. S., 38, 46), which involved the validity, under the 
 antitrust act. of a certain association formed for the sale of tiles, mantels, and 
 grates, the court, referring to the contention that the sale of tiles in San Fran- 
 cisco was so small " as to be a neglible quantity," held that the association was, 
 nevertheless, a combination in restraint of interstate trade or commerce in 
 violation of the antitrust act. In Loewe v. Lawlor (208 U. S., 274, 297) all 
 the members of this court concurred in saying that the Trans-Missouri, Joint 
 Traffic, and Northern Securities cases "hold in effect that the antitrust law 
 has a broader application than the prohibition of restraints of trade unlawful 
 at common law." In Shawnee Compress Co. v. Anderson (1907) (209 U.S., 423, 
 432) all the members of the court again concurred in declaring that "it has 
 been decided that not only unreasonable but all direct restraints of trade are- 
 
668 HEARINGS BEFORE 
 
 prohibited, the law being thereby distinguished from the common law." In 
 United States v. Addyston Pipe Co. (85 Fed. Rep., 278) Judge Taft, speaking 
 for the Circuit Court of Appeals for the Sixth Circuit, said that according to 
 the decision of this court in the Freight Association case " contracts in restraint 
 of interstate transportation were within the statute, whether the restraints 
 could be regarded as reasonable at common law or not." In Chesapeake & Ohio 
 Fuel Co. v. United States (1902) (115 Fed. Rep., 610, 619) the Circuit Court of 
 Appeals for the Sixth Circuit, after referring to the right of Congress to regu- 
 late interstate commerce, thus interpreted the prior decisions of this court in 
 the Trans-Missouri, the Joint Traffic, and the Addyston Pipe & Steel Co. cases: 
 " In the exercise of this right Congress has seen fit to prohibit all contracts 
 in restraint of trade. It has not left to the courts the consideration of the 
 question whether such restraint is reasonable or unreasonable, or whether 
 the contract would have been illegal at the common law or not. The act leaves 
 for consideration by judicial authority no question of this character, but all 
 contracts and combinations are declared illegal if in restraint of trade or com- 
 merce among the States." 
 
 As far back as Robbins v. Shelby Taxing District (120 U. S., 489, 497), it 
 was held that certain local regulations, subjecting drummers engaged in both 
 interstate and domestic trade, could not be sustained by reason of the fact that 
 no discrimination was made among citizens of the different States. The court 
 observed that this did not meet the difficulty, for the reason that " interstate 
 commerce can not be taxed at all." Under this view Congress no doubt acted, 
 when by the antitrust act it forbade any restraint whatever upon interstate com- 
 merce. It manifestly proceeded upon the theory that interstate commerce could 
 not be restrained at all by combinations, trusts, or monopolies, but must be 
 allowed to flow in its accustomed channels, wholly unvexed and unobstructed 
 by anything that would restrain its ordinary movement. (See also Minnesota v. 
 Barber, 136 U. S., 313, 326; Brimmer v. Rebman, 138 U S., 78, 82, 83.) 
 
 In the opinion delivered on behalf of the minority in the Northern Securities 
 case (193 TJ. S.) our present Chief Justice referred to the contentions made by 
 the defendants in the Freight Association case, namely, one of which was that 
 the agreement there involved did not unreasonably restrain interstate com- 
 merce, and said: 
 
 " Both these contentions were decided against the association, the court hold- 
 ing that the antitrust act did embrace interstate carriage by railroad corpora- 
 tions, and as that act prohibited any contract in restraint of interstate com- 
 merce, it hence embraced all contracts of that character, whether they were 
 reasonable or unreasonable." 
 
 One of the justices who dissented in the Northern Securities case, in a sepa- 
 rate opinion, concurred in by the minority, thus referred to the freight and joint 
 traffic cases: 
 
 " For it can not be too carefully remembered that that clause applies to 
 ' every ' contract of the forbidden kind — a consideration which was the turning 
 point of the Trans-Missouri Freight Association case. * * * gi ze h as noth- 
 ing to do with the matter. A monopoly of ' any part ' of commerce among the 
 States is unlawful." 
 
 In this connection it may be well to refer to the adverse report made in 1909, 
 by Senator Nelson, on behalf of the Senate Judiciary Committee, in reference 
 to a certain bill offered in the Senate and which proposed to amend the anti- 
 trust act in various particulars. That report contains a full, careful, and able 
 analysis of judicial decisions relating to combinations and monopolies in re- 
 straint of trade and commerce. Among other things said in it which bear on 
 the questions involved in the present case are these : 
 
 " The antitrust act makes it a criminal offense to violate the law, and provides 
 a punishment both by fine and imprisonment. To inject into the act the ques- 
 tion of whether an agreement or combination is reasonable or unreasonable 
 would render the act as a criminal or penal statute indefinite and uncertain, 
 and hence, to that extent, utterly nugatory and void, and would practically 
 amount to a repeal of that part of the act. * * * And while the same 
 technical objection does not apply to civil prosecutions, the injection of the rule 
 of reasonableness or unreasonableness would lead to the greatest variableness 
 and uncertainty in the enforcement of the law. The defense of reasonable 
 restraint would be made in every case, and there would be as many different rules 
 of reasonableness as cases, courts, and juries. What one court or jury might 
 deem unreasonable another court or jury might deem reasonable. A court or 
 jury in Ohio might find a given agreement or combination reasonable, while a 
 
COMMITTEE ON INTEBSTATE COMMERCE. 669 
 
 court and jury in Wisconsin might find the same agreement and combination 
 unreasonable. In the case of the People v. Sheldon (139 N. T., 264) Chief 
 Justice Andrews remarks: 'If agreements and combinations to prevent com- 
 petition in prices are or may be hurtful to irade, the only sure remedy is to 
 prohibit all agreements of that character. If the validity of such an agreement 
 was made to depend upon actual proof of public prejudice or injury, it would 
 be very difficult in any case to establish the invalidity, although the moral 
 evidence might be very convincing.' * * * To amend the antitrust act, as 
 suggested by this bill, would be to entirely emasculate it, and for all practical 
 purposes render it nugatory as a remedial statute. Criminal prosecutions would 
 not lie and civil remedies would labor under the greatest doubt and uncertainty. 
 The act as it exists is clear, comprehensive, certain, and highly remedial. It 
 practically covers the field of Federal jurisdiction, and is in every respect a 
 model law. To destroy or undermine it at the present juncture, when combina- 
 tions are on the increase and appear to be as oblivious as ever of the rights of 
 the public, would be a calamity." 
 
 The result was the indefinite postponement by the Senate of any further con- 
 sideration of the proposed amendments of the antitrust act. 
 
 After what has been adjudged, upon full consideration, as to the meaning 
 and scope of the antitrust act, and in view of the usages of this court when 
 attorneys for litigants have attempted to reopen questions that have been 
 deliberately decided, I confess to no little surprise as to what has occurred in 
 the present case. The court says that the previous cases, above cited, "can 
 not by any possible conception be treated as authoritative without the certitude 
 that reason was resorted to for the purpose of deciding them." And its opinion 
 is full of intimations that this court proceeded in those cases, so far as the 
 present^ question is concerned, without being guided by the " rule of reason " 
 or " the light of reason." It is more than once intimated, if not suggested, 
 that if the antitrust act is to be construed as prohibiting every contract or 
 combination, of whatever nature, which is in fact in restraint of commerce, 
 regardless of the reasonableness or unreasonableness of such restraint, that 
 fact would show that the court had not proceeded, in its decision, according 
 to " the light of reason," but had disregarded the " rule of reason." If the 
 court, in those cases, was wrong in its construction of the act, it is certain that 
 it fully apprehended the views advanced by learned counsel in previous cases 
 and pronounced them to be untenable. The published reports place this beyond 
 all question. The opinion of the court was delivered by a justice of wide 
 experience as a judicial officer, and the court had before it the Attorney General 
 of the United States and lawyers who were recognized on all sides as great 
 leaders in their profession. The same eminent jurist who delivered the opinion 
 in the Trans-Missouri case delivered the opinion in the Joint Traffic case, 
 while the association in the latter case was represented by lawyers whose 
 ability was universally recognized. Is it to be supposed that any point escaped 
 notice in those cases when we think of the sagacity of the justice who expressed 
 the views of the court or of the ability of the profound, astute lawyers, who 
 sought such an interpretation of the act as would compel the court to insert 
 words in the statute which Congress had not put there, and' the insertion of 
 which words would amount to "judicial legislation "? 
 
 Now, this court is asked to do that which it has distinctly declared it 
 could not and would not do, and has now done what it then said it could not 
 constitutionally do. It has by mere interpretation modified the act of Congress 
 and deprived it of practical value as a defensive ■ measure against the evils 
 to be remedied. On reading the opinion just delivered the first inquiry will 
 be that as the court is unanimous in holding that the particular things done 
 by the Standard Oil Co. and its subsidiary companies in this case were illegal 
 under the antitrust act, whether those things were in reasonable or unreason- 
 able restraint of interstate commerce, why was it necessary to make an 
 elaborate argument, as is done in the opinion, to show that, according to the 
 " rule of reason," the act as passed by Congress should be interpreted as if it 
 contained the word "unreasonable" or the word "undue"? The only answer 
 which in frankness can be given to this question is that the court intends to 
 decide that its deliberate judgment 15 years ago to the effect that the act 
 permitted no restraint whatever of interstate commerce, whether reasonable 
 or unreasonable, was not in accordance with the " rule of reason." In effect 
 the court says that it will now for the first time bring the discussion under 
 the " light of reason " and apply the " rule of reason " to the questions to be 
 decided. I have the authority of this court for saying that such a course of 
 proceeding on its part would be " judicial legislation." 
 
670 HEARINGS BEFOBE 
 
 Still more, what is now done involves a serious departure from the settled 
 usages of this court. Counsel have not ordinarily been allowed to discuss 
 questions already settled by previous decisions. More than once at the present 
 term that rule has been applied. In St. Louis, I. M. & S. Ry. Co. v. Taylor 
 (210 U. S., 281) the court had occasion to determine the meaning and scope of 
 the original safety-appliance act of Congress passed for the protection of 
 railroad employees and passengers on interstate trains. (27 Stat., 531.) A 
 particular construction of that act was insisted upon by the interstate carrier 
 which was sued under the safety-appliance act ; and the contention was that 
 a different construction than the one insisted upon by the carrier would be a 
 harsh one. After quoting the words of the act, Mr. Justice Moody said for 
 the court : 
 
 " There is no escape from the meaning of these words. Explanation can not 
 clarify them, and ought not to be employed to confuse them or lessen their 
 significance. The obvious purpose of the legislature was to supplant the quali- 
 fied duty of the common law with an absolute duty deemed by it more just. 
 If the railroad does, in point of fact, use cars which do not comply with the 
 standard, it violates the plain prohibitions of the law, and there arises from 
 that violation the liability to make compensation to one who is injured by it. 
 It is urged that this is a harsh construction. To this we reply that, if it be 
 the true construction, its harshness is no concern of the courts. They have no 
 responsibility for the justice or wisdom of legislation and no duty except to 
 enforce the law as it is written, unless it is clearly beyond the constitutional 
 power of the lawmaking body. * * * It is quite conceivable that Congress, 
 contemplating the inevitable hardship of such injuries, and hoping to diminish 
 the economic loss to the community resulting from them, should deem it wise 
 to impose their burdens upon those who could measurably control their -causes, 
 instead of upon those who are in the main helpless in that regard. Such a 
 policy would be intelligible, and, to say the least, not so unreasonable as to 
 require us to doubt that it was intended and to seek some unnatural interpre- 
 tation of common words. We see no error in this part of the case." 
 
 And at the present term of this court we were asked, in a case arising under 
 the safety-appliance act, to reconsider the question decided in the Taylor case. 
 We declined to do so, saying in an opinion just now handed down : 
 
 " In view of these facts, we are unwilling to regard the question as to the 
 meaning and scope of the safety-appliance act, so far as it relates to automatic 
 couplers on trains moving Interstate traffic, as open to further discussion here. 
 If the court was wrong in the Taylor case the way is open for such an amend- 
 ment of the statute as Congress may, in its discretion, deem proper. This court 
 ought not now disturb what has been so widely accepted and acted upon by the 
 courts as having been decided in that case. A contrary course would cause 
 infinite uncertainty, if not mischief, in the administration of the law in the 
 Federal courts. To avoid misapprehension, it is appropriate to say that we are 
 not to be understood as questioning the soundness of the interpretation hereto- 
 fore placed by this court upon the safety-appliance act. We only mean to say 
 that until Congress, by an amendment of the statute, changes the rule announced 
 in the Tavlor case this court will adhere to and apply that rule. (C, B. & Q. 
 Ey. Co. v. United States, 220 TJ. S.)" 
 
 When counsel in the present case insisted upon a reversal of the former 
 rulings of this court, and asked such an interpretation of the antitrust act as 
 would allow reasonable restraints of interstate commerce, this court, in defer- 
 ence to established practice, should, I submit, have said to them : 
 
 " That question, according to our practice, is not open for further discussion 
 here. This court long ago deliberately held (1) that the act, interpreting its 
 words in their ordinary acceptation, prohibits all restraints of interstate com- 
 merce by combinations in whatever form, and whether reasonable or unreason- 
 able ; (2) the question relates to matters of public policy in reference to com- 
 merce among the States and with foreign nations, and Congress alone can deal 
 with the subject; (3) this court would encroach upon the authority of Congress 
 if, under the guise of construction, it should assume to determine a matter of 
 public policy; (4) the parties must go to Congress and obtain an amendment 
 of the antitrust act if they think this court was wrong in its former decisions ; 
 and (5) this court can not and will not judicially legislate, since its function is 
 to declare the law, while it belongs to the legislative department to make the 
 law. Such a course, I am sure, would not have offended the ' rule of reason.' ' 
 
 But my brethren, in their wisdom, have deemed it best to pursue a different 
 course. They have now said to those who condemn our former decisions and 
 
COMMITTEE ON INTERSTATE COMMERCE. 671 
 
 who object to all legislative prohibitions of contracts, combinations, and trusts 
 in restraint of interstate commerce, " Yon may now restrain such commerce 
 provided you are reasonable about it ; only take care that the restraint is not 
 undue. The disposition of the case under consideration, according to the 
 views of the defendants, will, it is claimed, quiet and give rest to " the busi- 
 ness of the country." On the contrary, I have a strong conviction that it will 
 throw the business of the country into confusion and invite widely extended 
 and harassing litigation, the injurious effects of which will be felt for many 
 years to come. When Congress prohibited every contract, combination, or 
 monopoly in restraint of commerce, it prescribed a simple, definite rule that all 
 could understand, and which could be easily applied by everyone wishing to 
 obey the law and not to conduct their business in violation of law. But now, 
 it is to be feared, we are to have, in cases without number, the constantly 
 recurring inquiry— difficult to solve by proof— whether tbe particular contract, 
 combination, or trust involved in each case is or is not an " unreasonable " or 
 " undue " restraint of trade. Congress, in effect, said that there should be no 
 restraint of trade, in any form, and this court solemnly adjudged many years 
 ago that Congress meant what it thus said in clear and explicit words, and that 
 it could not add to the words of the act. But those who condemn the action 
 of Congress are now, in effect, informed that the courts will allow such re- 
 straints of interstate commerce as are shown not to be unreasonable or undue. 
 It remains for me to refer, more fully than I have heretofore done, to another 
 and, in my judgment— if we look to the future— the most important aspect of 
 this case. That aspect concerns the usurpation by the judicial branch of the 
 Government of the functions of the legislative department. The illustrious men 
 who laid the foundations of our institutions deemed no part of the National 
 Constitution of more consequence or more essential to the permanency of our 
 form of government than the provisions under which were distributed the 
 powers of government among three separate, equal, and coordinate depart- 
 ments — legislative, executive, and judicial. This was at that time a new fea- 
 ture of governmental regulation among the nations of the earth, and it is 
 deemed by the people of every section of our own country as most vital in the 
 workings of a representative Republic whose Constitution was ordained and 
 established in order to accomplish the objects stated in its preamble by the 
 means, but only by the means, provided either expressly or by necessary impli- 
 cation, by the instrument itself. No department of that Government can con- 
 stitutionally exercise the powers committed strictly to another and separate 
 department. 
 
 I said at the outset that the action of the court in this case might well alarm 
 thoughtful" men who revered the Constitution. I meant by this that many 
 things are intimated and said in the court's opinion which will not be regarded 
 otherwise than as sanctioning an invasion by the judiciary of the constitutional 
 domain of Congress — an attempt by interpretation to soften or modify what 
 some regard as a harsh public policy. This court, let me repeat, solemnly ad- 
 judged many years ago that it could not, except by ' 'judicial legislation," read 
 words into the antitrust act not put there by Congress, and which, being 
 inserted, give it a meaning which the words of the act, as passed, if properly 
 interpreted, would not justify. The court has decided that it could not thus 
 change a public policy formulated and declared by Congress ; that Congress has 
 paramount authority to regulate interstate commerce, and that it alone can 
 change a policy once inaugurated by legislation. The courts have nothing to 
 do with the wisdom or policy of an act of Congress. Their duty is to ascertain 
 the will of Congress, and if the statute embodying the expression of that will 
 is constitutional, the courts must respect it. They have no function to declare 
 a public policy, nor to amend legislative enactments. " What is termed the 
 policy of the Government with reference to any particular legislation," as this 
 court has said, " is generally a very uncertain thing, upon which all sorts of 
 opinions, each variant from the other, may be formed by different persons. It 
 is a ground much too unstable upon which to rest the judgment of the court 
 in the interpretation of statutes." (Hadden v. Collector, 5 Wall., 107.) Never-, 
 theless, if I do not misapprehend its opinion, the court has now read into the 
 act of Congress words which are not to be found there, and has thereby done 
 that which it adjudged' in 1896 and 1898 could not be done without violating 
 the Constitution, namely, by interpretation of a statute changed a public policy 
 declared by the legislative department. 
 
 After many years of public service at the National Capital, and after a 
 somewhat close observation of the conduct of public affairs, I am impelled to 
 
 22S77 — vol I — 12 43 
 
672 HEARINGS BEFORE 
 
 say that there is abroad in our land a most harmful tendency to bring about 
 the amending of constitutions and legislative enactments by means alone of 
 judicial construction. As a public policy has been declared by the legislative 
 department in respect of interstate commerce, over which Congress has entire 
 control, under the Constitution, all concerned must patiently submit to what 
 has been lawfully done, until the people of the United States — the source of 
 all national power — shall, in their own time, upon reflection and through' the 
 legislative department of the Government, require a change of that policy. 
 There are some who say that it is a part of one's liberty to conduct commerce 
 among the States without being subject to governmental authority. But that 
 would not be liberty regulated by law, and liberty which can not be regulated 
 by law is not to be desired. The supreme law of the land — which is binding 
 alike upon all — upon Presidents, Congresses, the courts, and the people— gives 
 to Congress, and to Congress alone, authority to regulate interstate commerce, 
 and when Congress forbids any restraint of such commerce, in any form, all 
 must obey its mandate. To overreach the action of Congress merely by judi- 
 cial construction — that is, by indirection — is a blow at the integrity of our 
 governmental system, and in the end will prove most dangerous to all. Mr. 
 Justice Bradley wisely said, when on this bench, that illegitimate and uncon- 
 stitutional practices get their first footing by silent approaches and slight de- 
 viations from legal modes of legal procedure. (Boyd v. United States, 116 U. S., 
 616, 635.) We shall do well to heed the warnings of that great jurist. 
 
 I dp not stop to discuss the merits of the policy embodied in the antitrust 
 act of 1890; for, as has been often adjudged, the courts, under our constitu- 
 tional system, have no rightful concern with the wisdom or policy of legislation 
 enacted by that branch of the Government which alone can make laws. 
 
 For the reasons stated, while concurring in the general affirmance of the de- 
 cree of the circuit court, I dissent from that part of the judgment of this court 
 which directs the modification of the decree of the circuit court, as well as 
 from those parts of the opinion which, in effect, assert authority, in this court, 
 to insert words in the antitrust act which Congress did not put there, and 
 which, being inserted, Congress is made to declare, as part of the public policy 
 of the country, what it has not chosen to declare. 
 
 United States v. American Tobacco Company. 
 
 [Supreme Court of the United States. Nos. 118 and 119, October term, 1910. No. 118, 
 The United States of America, appellant, v. The American Tobacco Co. and others. 
 No. 119, The American Tobacco Co. and others, appellants, v. The United States of 
 America. Appeals from the Circuit Court of the United States for the Southern 
 District of New York. May 29, 1911.] 
 
 Mr. Chief Justice White delivered the opinion of the court : 
 This suit was commenced on July 19, 1907, by the United States, to prevent 
 the continuance of alleged violations of the first and second sections of the anti- 
 trust act of July 2, 1890. The defendants were 29 individuals, named in the 
 margin, 1 65 American corporations, most of them created in the State of New 
 Jersey, and 2 English corporations. For convenience of statement we classify 
 the corporate defendants, exclusive of the 2 foreign ones, which we shall here- 
 after separately refer to, as follows : The American Tobacco Co., a New Jersey 
 corporation, because of its dominant relation to the subject matter of the con- 
 troversy as the primary defendant, 5 other New Jersey corporaions (viz, Ameri- 
 can Snuff Co., American Cigar Co., American Stogie Co., MacAndrews & Forbes 
 Co., and Conley Foil Co.), because of their relation to the controversy as the 
 accessory, and the 59 other American corporations as the subsidiary defendants. 
 The ground of complaint against the American Tobacco Co. rested not alone 
 upon the nature and character of that corporation and the power which it 
 exerted directly over the five accessory corporations and some of the subsidiary 
 corporations by stock ownership in such corporations, but also upon the control 
 which it exercised over the subsidiary companies by virtue of stock held in 
 
 1 James B. Duke, Caleb C. Dula, Percival S. Hill, George Arents, Paul Brown, Robert B. 
 Dula, George A. Helme, Robert D. Lewis, Thomas J. Maloney, Oliver H. Payne, Thomas 
 F. Ryan, Robert K. Smith, George W. Watts, George G. Allen, John B. Cobb, William R. 
 Harris, William H. McAlister, Anthony N. Brady, Benjamin N. Duke, H. M. Hanna, 
 Herbert D. Kingsbury, Pierre Lorillard, Rufus L. Patterson, Frank H. Ray, Grant B. 
 Schley, Charles N. Strotz, Peter A. B. Widener, Welford C. Reed (now deceased), and 
 Williamson W. Fuller. 
 
COMMITTEE ON INTERSTATE COMMERCE. 673 
 
 said companies by the accessory companies by stock ownership in which the 
 American Tobacco Co. exerted its power of control. The accessory companies 
 were impleaded either because of their nature and character or because of the 
 power exerted over them through stock ownership by the American Tobacco 
 Co., and also because of the power which they in turn exerted by stock owner- 
 ship over the subsidiary corporations, and, finally, the subsidiary corporations 
 were impleaded either because of their nature or because of the control to 
 which they were subjected in and by virtue of the stock ownership above 
 stated. We append in the margin a statement showing the stock control exer- 
 cised by the principal defendant, the American Tobacco Co., over the five acces- 
 sory corporations, and also the authority which it directly exercised over 
 certain of the subsidiary corporations, and a list showing the control exercised 
 over the subsidiary corporations as a result of the stock ownership in the 
 accessory corporations, they being in turn controlled, as we have said, by tne 
 principal defendant, the American Tobacco Co. 1 
 
 The two foreign corporations were impleaded either because of their nature 
 and character and the operation and effect of contracts or agreements with 
 
 1 Extent of control of American Tobacco Co. over the accessory corporations : 
 
 American Snuff Co. Of 120,000 shares of preferred stock owns 12,517 shares directly 
 and 11.274 shares by reason of stock control of P. Lorillard Co., in all, 25,764 shares ; of 
 110,017 shares of common stock owns 41,214 directly and 34,594 by reason of stock con- 
 trol of P. Lorillard Co., in all, 75,808 shares. 
 
 American Cigar Co. Of 100,000 shares of preferred stock owns 89,700 shares directly 
 and 5,000 shares through control of American Snuff Co., in all, 94,700 shares ; of 100,000 
 shares of common stock owns directly 77,451 shares. 
 
 American Stogie Co. Of 108,790 shares of common stock controls 73,0723 shares 
 through stock interest in American Snuff Co. The American Stogie Co. owns all of the 
 stock — 12,500 — of the Union American Cigar Co. — cigars and stogies. 
 
 MacAndrews & Forbes Co. Of 37,583 shares of preferred stirek (no voting power) 
 owns 7,500 shares ; of 30,000 shares of common stock owns 21,129 shares directly and 
 983 shaves through stock control of the E. J. Reynolds Co., In all, 22,112 shares. 
 
 The Conley Foil Co. Of 8,250 shares of stock directly owns 4,950 shares. 
 
 The American Tobacco Co. By stock ownership is the owner outright of the following 
 defendant companies :. S. Anargyros (the S. Anargyros Co. owns all the capital stock, 10 
 shares, of the London Cigarette Co.) ; F. F. Adams Tobacco Co.; Blackwell's Durham To- 
 bacco Co. ; Crescent Cigar & Tobacco Co. ; Day & Night Tobacco Co. ; Luhrman & Wiibern 
 Tobacco Co. ; Nail & Williams Tobacco Co. ; Nashville Tobacco Works ; E. A. Patterson 
 Tobacco Co. ; Monopol Tobacco Works ; Spalding & Merrick. 
 
 The American Tobacco Co. also has the stock interest indicated in the following de- 
 fendant corporations : 
 
 British-American Tobacco Co. Owns 1,200,000 shares of 1,500,000 shares of preferred 
 stock and 2,280,012 shares of 3,720,021 shares of common stock. 
 
 The Imperial Tobacco Co., etc. Owns 721,457 pounds sterling of 18,000,000 pounds 
 sterling of stock. 
 
 The John Bollman Co. Of 2,000 shares of stock owns 1,020 shares. 
 
 F. E. Penn Tobacco Co. Of 1,503 shares of stock owns 1,002 shares (through Black- 
 well's Durham Tobacco Co.). 
 
 E. P. Richardson, jr., & Co. (Inc.). Owns 600 out of 1,000 shares of stock and $120,000 
 of $200,000 issue of bonds. 
 
 R. J. Reynolds Tobacco Co. Owns 50,000 out of 75,250 shares of stock. 
 
 Pinkerton Tobacco Co. Owns 775 out of 1,000 shares of stock. 
 
 Reynolds Tobaceo Co. (of Bristol, Tenn.). Owns 1,449 shares out of 2,500 shares. 
 
 J. W. Carroll Tobaceo Co. Owns 2,000 out of 3,000 shares. 
 
 P. Lorillard Co. Owns 15,813 out of 20,000 shares of preferred and all the common 
 stock (30,000 shares). 
 
 Kentucky Tobacco Product Co. Owns 14 of 1,900 shares preferred and owns directly 
 5,264 and, through the American Cigar Co., 355 out of 8,100 shares of common stock. 
 (The Kentucky Tobacco Product Co. owns all the capital stock, 100 shares, of the Ken- 
 tucky Tobacco Extract Co.) 
 
 Porto Eican-American Tobacco Co. Owns directly 6,578 and, through the American 
 Cigar Co., 6,576 of 19,984 shares of stock. (The Porto Rican-American Tobacco Co. owns 
 190 of the 380 shares of preferred and 300 of the 450 shares of common stock of Inde- 
 pendent Co. of Porto Rico ; also owns 2,150 of the 5,000 shares of capital stock of the 
 Porto Rico Leaf Tobacco Co.) 
 
 The American Tobacco Co. is also interested, as indicated, in the following defendants, 
 supply or machinery companies : 
 
 Golden Belt. Manufacturing Co. (cotton bags). Owns 6,521 of 7,000 shares. 
 
 Mengel Box Co. (wooden boxes). British-American Tobacco Co. owns 3,637 of 5,000 
 shares of stock. (The Mengel Co. owns all of the capital stock of the Columbia Box Co. 
 and of the Tyler Box Co., respectively 1,500 and 250 shares.) 
 
 Amsterdam Supply Co. (agency to purchase supplies). Owns majority of stock and 
 controls large part of remainder through subsidiary companies. 
 
 Thomas Cusack Co. (bill posting). Owns 1,000 out of 1,500 shares. 
 
 Manhattan Briar Pipe Co. Owns all of stock, 3,500 shares. 
 
 International Cigar Machinery Co. Of 100,000 shares owns 33,637 shares directly and 
 29,902 shares through American Cigar Co. ; in all 63,539 shares. 
 
 The American Tobacco Co. is also interested in the following companies, not named as 
 defendants : 
 
 American Machine & Foundry Co. Owns 510 shares directly and remainder (490) 
 through American Cigar Co. 
 
674 HEARINGS BEFORE 
 
 the American Tobacco Co. or the power which it exerted over their affair* 
 by stock ownership. 
 
 As we shall have occasion hereafter in referring to matters beyond dispute 
 to set forth the main facts relied upon by the United States as giving rise 
 to the cause of action alleged against all of the defendants, it suffices at this 
 moment to say that the bill averred the origin and nature of the American 
 Tobacco Co. and the origin and nature of all the other defendant corporations, 
 whether accessory or subsidiary, and the connection of the individual de- 
 fendants with such corporations. In effect the bill charged that the individual 
 defendants and the defendant corporations were engaged in a conspiracy in 
 restraint of interstate and foreign trade in tobacco and the products of tobacco 
 and constituted a combination in restraint of such trade in violation of the first 
 section of the act, and also were attempting to monopolize and were actually 
 a monopolization of such trade in violation of the second section. In support 
 of these charges general averments were made in the bill as to the wrongful 
 
 New Jersey Machine Co. Owns 510 shares directly and remainder (490) through 
 American Cigar Co. 
 
 Standard Tobacco Stemmer Co. Of 17,300 shares owns 16,895 shares. 
 
 Garson Vending Machine Co. Of 500 shares owns 250 shares. 
 
 The American Snuff Co., in addition to stock, etc., interests in the American Tobacco- 
 Co., American Cigar Co., and the Amsterdam Supply Co., has stock interests in the fol- 
 lowing defendants : 
 
 H. Bolander. Owns all of stock, 1,350 shares. 
 
 De Voe Snuff Co. Owns all of stock, 500 shares. (The De Voe Snuff Co. owns all the 
 capital stock, 400 shares, of Skinner & Co., snuff.) 
 
 Standard Snuff Co. Owns all of stock, 2,816 shares. 
 
 The American Cigar Co., in addition to stock interests in the Amsterdam Supply Co., 
 American Stogie Co., Porto Rican-American Tobacco Co., Kentucky Tobacco Product Co., 
 and International Cigar Machinery Co., has the stock interest indicated in the following 
 defendants : » 
 
 R. D. Burnett Cigar Co. Owns 77 out of 150 shares. 
 
 M. Blaskower Co. Owns 1,875 out of 2,500 shares preferred and 1,875 out of 2,500 
 shares of common. 
 
 Cuban Land & Leaf Tobacco Co. Owns all of stock, 1,000 shares. (The Cuban Land, 
 etc., Co. owns 1,320 of the 1,890 shares of stock of the Vuelta Abajo. Steamship Co.) 
 
 Cliff Weil Cigar Co. Owns 255 out of 500 shares. 
 
 Dusel, Goodloe & Co. Owns 510 out of 750 shares. 
 
 Federal Cigar Real Estate Co. Owns all stock, 6,000 shares. 
 
 .T. ,T. Goodrum Tobacco Co. Owns 477 out of 600 shares. 
 
 Havana-American Co. Owns all stock, 2,500 shares. 
 
 Havana Tobacco Co. Owns 700 shares out of 47,038 preferred, 166,800 out of 297,912 
 common stock, and $3,500,000 of $7,500,000 bonds. 
 
 Jordan Gibson & Baum Co (Inc.). Owns all preferred and common stock, 250 shares- 
 each. 
 
 Louisiana Tobacco Co. (Ltd.). Owns 375 out of 500 shares. 
 
 The J. B. Moos Co. Owns all of stock, 2,000 shares. 
 
 J. & B. Moos. Owns all of common stock, 1,000 shares. 
 
 Torto Rican Leaf Tobacco Co. Owns 2,500 out of 5,000 shares. 
 
 The Smokers' Paradise Corporation. Owns all of common stock, 250 shares, and 34ft 
 of 500 shares preferred. 
 
 Havana Tobacco Co. has a stock interest in the following corporations : 
 
 H. de Cabanis y Carbajal. All of stock, 15,000 shares. 
 
 Hy. Clay and Bock & Co. (Ltd.). Owns 9,749 out of 16,950 shares preferred and 14,687 
 out of 15,990 shares common. (The Hy. Clay, etc., Co. is owner of 16,667 shares of the 
 ordinary capital stock of the Havana Cigar & Tobacco Factories (Ltd.), and also owns 
 64 shares of the 1,890 shares of the capital stock of the Vuelta Abajo Steamship Co.) 
 
 Cuban Tobacco Co. Owns all of stock, 50 shares. 
 
 Havana Commercial Co. Owns 55,562 out of 60,000 shares preferred and 124 718 out 
 of 125,000 shares common. (The Havana Commercial Co. owns all of the capital stock 
 100 shares, of the M. Valle y Co., cigars.) 
 
 Havana Cigar & Tobacco Factories (Ltd.). Owns 6,774 out of 25,000 shares ordinary 
 stock. 
 
 J. S. Murias y Co. Owns all of stock, 7,500 shares. 
 
 Blackwell's Durham Tobacco Co. In addition to a stock interest in the Amsterdam 
 Supply Co., has the stock interest indicated in the following defendant corporations • 
 
 F. P. Penn Tobacco Co. Owns 1,002 out of 1,503 shares. 
 
 Scotten-Dlllon Co. Owns $10,000 out of $500,000 of stock. 
 
 Wells-Wbitehead Tobacco Co. Owns all of stock, 1,500 shares. 
 
 Conley Foil Co. Owns all of the capital stock, 3,000 shares, of the Johnston Tin Foil 
 & Metal Co. 
 
 P. Lorillard Co. Has a stock interest in the American Snuff Co. and the Amsterdam 
 Supply Co. 
 
 R. J. Reynolds Tobacco Co. In addition to a stock interest in the Amsterdam Sunnlv 
 Co. and the MaeAndrews & Forbes Co., owns one-third of the 5,000 shares of stock of 
 the Lipfert Scales Co. 
 
 The British-American Tobacco Co. In addition to a small interest in the Amsterdam 
 Supply Co., has the following stock interest in certain defendants : 
 
 David Dunlop (plug). Owns 3,000 of 4,500 shares. 
 
 W. S. Mathews & Sons (smoking). Owns 3,637 out of 5,000 shares of stocn 
 
 T. C. Williams Co. (plug). Owns all of stock, 4,000 shares: 
 
COMMITTEE ON INTERSTATE COMMERCE. 675 
 
 purpose and intent with which acts were committed which it was alleeed 
 brought about the alleged wrongful result. <"«Jseu 
 
 The prayer of the bill was as follows : 
 
 " Wherefore petitioner prays : 
 
 "1. That the contracts, combinations, and conspiracies in restraint of trade 
 and commerce among the States and with foreign nations, together with the 
 attempts to monopolize and the monopolies of the same hereinbefore described 
 be declared illegal and in violation of the act of Congress passed July 2 189o' 
 and subsequent acts, and that they be prevented and restrained by proper 
 orders of the court. J iJi "f cl 
 
 _ "2 That the agreements, contracts, combinations, and conspiracies entered 
 into by the defendants on or about September 27, 1902, and thereafter and evi- 
 denced among other things by the two written agreements of that date' Exhibits 
 
 1 and 2 hereto, be declared illegal, and that injunctions issue restraining and 
 prohibiting defendants from doing anything in pursuance of or in furtherance 
 of the same within the jurisdiction of the United States. 
 
 _ " 3. That the Imperial Tobacco Co., its officers, agents, and servants be en- 
 joined from engaging in interstate or foreign trade and commerce within the 
 jurisdiction of the United States until it shall cease to observe or act in pur- 
 suance of said agreements, contracts, combinations, and conspiracies entered 
 into by it and other defendants on or about September 27, 1902, and thereafter 
 and evidenced among other things by the contracts of that date', Exhibits 1 and 
 
 2 hereto. 
 
 "4. That the British-American Tobacco Co. be adjudged an unlawful Instru- 
 mentality created solely for carrying into effect the objects and purposes of 
 said contract, combination, and conspiracy entered into on or about September 
 27, 1902, and thereafter, and that it be enjoined from engaging in interstate or 
 foreign trade and commerce within the jurisdiction of the United States. 
 
 "5. That the court adjudge the American Tobacco Co., the American Snuff 
 Co., the American Cigar Co., the American Stogie Co., the MacAndrews & 
 Forbes Co., and the Conley Foil Co. is each a combination in restraint of inter- 
 state and foreign trade and commerce ; and that each has attempted and is at- 
 tempting to monopolize, is in combination and conspiracy with other persons 
 and corporations to monopolize, and has monopolized, part of the trade and com- 
 merce among the several States and with foreign nations ; and order and decree 
 that each one of them be restrained from engaging in interstate or foreign 
 commerce, or, if the court should be of opinion that the public interests will be 
 better subserved thereby, that receivers be appointed to take possession of all 
 the property, assets, business, and affairs of said defendants and wind up the 
 same, and otherwise take such course in regard thereto as will bring about con- 
 ditions in trade and commerce among the States and with foreign nations in 
 harmony with law. 
 
 " 6. That the holding of stock by one of the defendant corporations in another 
 under the circumstances shown be declared illegal and that each of them be 
 enjoined from continuing to hold or own such shares in another and from exer- 
 cising any rignt in connection therewith. 
 
 " 7. That defendants, each and all, be enjoined from continuing to carry out 
 the purposes of the above-described contracts, combinations, conspiracies, and 
 attempts to monopolize by the means herein described, or by any other, and be 
 required to desist and withdraw from all connection with the same. 
 
 " 8. That each of the defendants be enjoined from purchasing leaf tobacco or 
 from selling and distributing its manufactured output as a part of interstate 
 and foreign trade and commerce in conjunction or combination with any other 
 defendant and from taking part or being interested in any agreement or combina- 4 
 tion intended to destroy competition among them in reference to such purchases 
 or sales. 
 
 " 9. That petitioner have such other, further, and general relief as may be 
 proper." 
 
 As to the answers, it suffices to say that all the individual and corporate 
 defendants other than the foreign corporations denied the charges of wrong- 
 doing and illegal combination, and the corporate defendants in particular in 
 addition averred their right under State charters by virtue of which they 
 existed to own and possess the property which they held, and further averred 
 that they were engaged in manufacturing, and that any combination amongst 
 them related only to that subject, and therefore was not within the antitrust 
 act. The two foreign corporations asserted the validity of their corporate 
 
676 HEARINGS BEFOKE 
 
 organizations and of the assailed agreements, and denied any participation in 
 the alleged wrongful combination. 
 
 After the taking of much testimony before a special examiner the case was 
 heard before a court consisting of four judges, constituted under the expediting 
 act of February 11, 1903. In deciding the case in favor of the Government, 
 each of the four judges delivered an opinion. (164 Fed., 700.) A final decree 
 was entered on December 15, 1908. The petition was dismissed as to tihe 
 English corporations, three of the subsidiary corporations, the United Cigar 
 Stores Co., and all the individual defendants. It was decreed that the defend- 
 ants other than those against whom the petition was dismissed had thereto- 
 fore entered into and were parties to combinations in restraint of trade, etc., 
 in violation of the antitrust act, and said defendants and each of them, their 
 officers, agents, etc., were restrained and enjoined " from directly or indirectly 
 doing any act or thing whatsoever in furtherance of the objects and purposes 
 of said combinations, and from continuing as parties thereto." It specifically 
 found that each of the defendants " the American Tobacco Co., American 
 Snuff Co., American Cigar Co., American Stogie Co., and MacAndrews & Forbes 
 Co., constitutes and is itself a combination in violation of the said act of 
 Congress." The corporations thus named, their officers, etc., were next 
 restrained and enjoined " from further directly or indirectly engaging in inter- 
 state or foreign trade and commerce in leaf tobacco, or the products manu- 
 factured therefrom, or articles necessary or useful in connection therewith. 
 But if any of said last-named defendants can hereafter affirmatively show 
 the restoration of reasonably competitive conditions, such defendant may 
 apply to this court for a modification, suspension, or dissolution of the injunc- 
 tion herein granted against it." The decree then enumerated the various cor- 
 porations which it was found held or claimed to own some or all of the capital 
 stock of other corporations, and particularly specified such other corporations, 
 and then made the following restraining provisions : 
 
 " Wherefore each and all of defendants, the American Tobacco Co., the 
 American Snuff Co., the American Cigar Co., P. Lorillard Co., R. J. Reynolds 
 Tobacco Co., Blackwell's Durham Tobacco Co., and Conley Foil Co., their 
 officers, directors, agents, servants, and employees, are hereby restrained and 
 enjoined from acquiring, by conveyance or otherwise, the plant or business of 
 any such corporation wherein any one of them now holds or owns stock; and 
 each and all of said defendant corporations so holding stock in other corpora- 
 tions, as above specified, their officers, directors, agents, servants, and 
 employees, are further enjoined from voting or attempting to vote said stock at 
 any meeting of the stockholders of the corporation issuing the same and from 
 exercising or attempting to exercise any control, direction, supervision, or 
 influence whatsoever over the acts and doings of such corporation. And it is 
 further ordered and decreed that each and every of the defendant corpora- 
 tions the stock of which is held by any other defendant corporation as here- 
 inbefore shown, their officers, directors, servants, and agents, be and they are 
 hereby respectively and collectively restrained and enjoined from permitting 
 the stock so held to be voted by any other defendant holding or claiming to 
 own the same or by its attorneys or agents at any corporate election for 
 directors or officers and from permitting or suffering any other defendant 
 corporation claiming to own or hold stock therein, or its officers or agents, 
 to exercise any control whatsoever over its corporate acts." 
 
 Judgment for costs was given in favor of the petitioner and against the 
 defendants as to whom the petition had not been dismissed, except the R. P. 
 Richardson, Jr., & Co., a corporation, which had consented to the decree. The 
 decree also contained a "provision that the defendants or any of them should 
 » not be prevented " from the institution, prosecution, or defense of any suit, 
 action, or proceeding to prevent or restrain the infringement of a trade-mark 
 used in interstate commerce or otherwise assert or defend a claim to any 
 property or rights." In the event of a taking of an appeal to this court, the 
 decree provided that the injunction which it directed " shall be suspended 
 during the pendency of such appeal." 
 
 The United States appealed, as did also the various defendants against 
 whom the decree was entered. For the Government it is contended : 
 
 1. That the petition should not have been dismissed as to the individual de- 
 fendants. 
 
 2. That it should not have been dismissed as to the two foreign corpora- 
 tions — the Imperial Tobacco Co. and the British-American Tobacco Co. and 
 the domestic corporations controlled by the latter — and that, on the contrary, 
 
COMMITTEE ON INTERSTATE COMMERCE. 677 
 
 the decree should have commanded the observance of the antitrust act bv the 
 foreign corporations so far as their dealings in the United States were con- 
 cerned, and should have restrained those companies from doing any act in 
 the United States in violation of the antitrust act, whether or not the right to 
 do said acts was asserted to have arisen pursuant to the contracts made out- 
 side of or within the United States. 
 
 3. The petition should not have been dismissed as to the United Cigar 
 Stores Co. 6 
 
 4. The final decree should have adjudged defendants parties to unlawful 
 contracts and conspiracies. 
 
 5. The final decree should have adjudged that defendants were attempting 
 to monopolize and had monopolized parts of commerce. More particularly it 
 is urged, it should have adjudged that the American Tobacco Co., American 
 Snuff Co., American Cigar Co., American Stogie Co., MacAndrews & Forbes 
 Co., the Conley Foil Co., and the British-American Tobacco Co. were severally 
 attempting to monopolize and had monopolized parts of commerce and that 
 appropriate remedies should have been applied. 
 
 6. The decree was not sufficiently specific, since it should have described with 
 more particularity the methods which the defendants bad followed in forming 
 and carrying out their unlawful purpose, and should have prohibited the resort 
 to similar methods. 
 
 7. The decree should have specified the shares in corporations disclosed by 
 the evidence to be owqed by the parties to the conspiracy, and should have 
 enjoined those parties from exercising any control over the corporations in 
 which such stock was held, and the latter, if made defendant, from permitting 
 such control, and should have also enjoined the collecting of any dividends 
 upon the stock. 
 
 8. The decree improperly provided that nothing therein should prevent de- 
 fendants from prosecuting or defending suits; also improperly suspended the 
 injunction pending appeal. 
 
 The defendants, by their assignments of errors, complain because the petition 
 was not dismissed as to all, and more specifically (a) because they were ad- 
 judged parties to a combination in restraint of interstate and foreign com- 
 merce and enj/ained accordingly; (&) because certain defendant corporations 
 holding shares in others were enjoined from voting them or exercising control 
 over the issuing company, and the latter from permitting this; and (e) because 
 the American Tobacco Co., American Snuff Co., American Cigar Co., American 
 Stogie Co., and the MacAndrews & Forbes Co. were adjudged unlawful combina- 
 tions and restrained from engaging in interstate and foreign commerce. 
 
 The elaborate arguments made by both sides at bar present in many forms 
 of statement the conflicting contentions resulting from the nature and character 
 of the suit and the defense thereto, the decree of the lower court, and the 
 propositions assigned as error to which we have just referred. In so far as all 
 or any of these contentions, as many of them in fact do, involve a conflict as to 
 the application and effect of sections 1 and 2 of the antitrust act their consid- 
 eration has been greatly simplified by the analysis and review of that act and 
 the construction affixed to the sections in question in the case of Standard Oil 
 Co. et al. v. United States, quite recently decided. In so far as the con- 
 tentions relate to the disputed propositions of fact we think, from the view 
 which we take of the case, they need not be referred to, since in our opinion 
 the case can be disposed of by considering only those facts which are indisput- 
 able and by applying to the inferences properly dedueible from such facts the 
 meaning and effect of the law as expounded in accordance with the previous 
 decisions of this court. 
 
 We shall divide our investigation of the case into three subjects: First, the 
 undisputed facts ; second, the meaning of tbe antitrust law and its application 
 as correctly construed to the ultimate conclusions of fact dedueible from the 
 proof; third, the remedies to be applied. 
 
 "UNDISPUTED FACTS. 
 
 The matters to be considered under this heading, we think, can best be made 
 clear by stating the merest outline of the condition of the tobacco industry 
 prior to what is asserted to have been the initial movement in the combination 
 which the suit assails, and in the light so afforded to briefly recite the history 
 of the assailed acts and contracts. We shall divide the subject into two periods, 
 (a) the one from the time of the organization of the first or old American To- 
 
678 HEAKINGS BEFOKE 
 
 bacco Co., in 1S90, to tlie organization of the Continental Tobacco Co., and (6) 
 from the date of such organization to the filing of the bill in this case. 
 
 Summarizing in the broadest way the conditions which obtained prior to 
 1890, as to the production, manufacture, and distribution of tobacco, the fol- 
 lowing general facts are adequate to portray the situation : 
 
 Tobacco was grown in many sections of the country having diversity of soil 
 and climate, and therefore was subject to various vicissitudes resulting from 
 the places of production, and consequently varied in quality. The great diver- 
 sity of use to which tobacco was applied in manufacturing caused it to be 
 that there was a demand for all the various qualities. The demand for all 
 qualities was not local, but widespread, extending as well to domestic as to 
 foreign trade, and therefore all the products were marketed under competitive 
 conditions of a peculiarly advantageous nature. The manufacture of the prod- 
 uct in this country in various forms was successfully carried on by many indi- 
 viduals or concerns scattered throughout the country, a large number, perhaps, 
 of the manufacturers being in the vicinage of production and others being ad- 
 vantageously situated in or near the principal markets of distribution. 
 
 Before January, 1890, five distinct concerns — Allen & Ginter, with factory at 
 Richmond, Va. ; W. Duke, Sons & Co., with factories at Durham, N. C, and 
 New York City; Kinney Tobacco Co., with factory at New York City; W. S. 
 Kimball & Co., with factory at Rochester, N. Y. ; Goodwin & Co., with factory 
 at Brooklyn, N. Y. — manufactured, distributed, and sold in the United States 
 and abroad 95 per cent of all the domestic "cigarette and less than 8 per cent of 
 the smoking tobacco produced in the United States. There is no doubt that 
 these factories were competitors in the purchase of the raw product which 
 they manufactured and in the distribution and sale of the manufactured prod- 
 ucts. Indeed, it is shown that prior to 1S90 not only had normal and ordinary 
 competition existed between the factories in question, but that the competition 
 had been fierce and abnormal. In January, 1890, having agreed upon a capital 
 stock of $25,000,000, all to be divided amongst them, and who should be direc- 
 tors, the concerns referred to organized the American Tobacco Co. in New Jer- 
 sey "' for trading and manufacturing," with broad powers, and conveyed to it 
 the assets and businesses, including good will and right to use the names of 
 the old concerns; and thereafter this corporation carried on the .business of all. 
 The $25,000,000 of stock of the tobacco company was allotted to the charter 
 members as follows: Allen & Ginter, $3,000,000 preferred, $4,500,000 common; 
 W. Duke Sons & Co., $3,000,000 preferred, $4,500,000 common ; Kinney Tobacco 
 Co., $2,000,000 preferred, $3,000,000 common; W. S. Kimball & Co., $1,000,000 
 preferred, $1,500,000 common ; and Goodwin & Co., $1,000,000 preferred, $1,500,000 
 common. 
 
 There is a charge that the valuation at which the respective properties were 
 capitalized in the new corporation was enormously in excess of their actual 
 value. We, however, put that subject aside, since we propose only to deal with 
 the facts which are not in controversy. 
 
 Shortly after the formation of the new corporation the Goodwin & Co. fac- 
 tory was closed, and the directors ordered " that the manufacture of all- 
 tobacco cigarettes be concentrated at Richmond." The new corporation, in 
 "S90, the first year of its operation, manufactured about 2,500,000,000 cigar- 
 ettes, that is about 96 or 97 per cent of the total domestic output, and about 
 5,500,000 pounds of smoking tobacco out of a total domestic product of nearly 
 70,000,000 pounds. 
 
 In a little over a year after the organization of the company it increased its 
 capital stock by $10,000,000. The purpose of this increase is inferable from the 
 considerations which we now state. 
 
 There was a firm known as Pfingst, Doerhoefer & Co., consisting of a number 
 of partners, who had been long and successfully carrying on the business of 
 manufacturing plug tobacco in Louisville, Ky., and distributing it through the 
 channels of interstate commerce. In January, 1891, this firm was converted 
 into a corporation known as the National Tobacco Works, having a capital stock 
 of $400,000, all of which was issued to the partners. Almost immediately 
 thereafter, in the month of February, the American Tobacco Co. became the pur- 
 chaser of all the capital stock of the new corporation, paying $600,000 cash and 
 $1,200,000 in stock of the American Tobacco Co. The members of the previously 
 existing firm bound themselves by contract with the American Tobacco Co. to 
 inter its service and manage the business and property sold, and each further 
 agreed that for 10 years he would not engage in carrying on, directly or in- 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 679 
 
 directly, or permit or suffer the use of his name in connection with the carrvine 
 on of the tobacco business in any form. 
 
 T3h-v A ^l 1 - + , f0l ! 0wi ? g n ^ e American Tobacco Co. bought out the business of 
 Philip Whitlock, of Richmond, Va., who was engaged in the manufacture of 
 cheroots and cigars, and with the exclusive right to use the name of Whitlock 
 The consideration for this purchase was $300,000, and Whitlock agreed to be^ 
 come an employee of the American Tobacco Co. for a number of years and not 
 to engage for 20 years in the tobacco business. 
 
 In the month of April the American Tobacco Co. also acquired the business 
 of Marburg Bros., a well-known firm located at Baltimore, Md., and engaged in 
 the manufacture and distribution of tobacco, principally smoking and snuff 
 The consideration was a cash payment of $164,637.65 and stock to the amount 
 of $3,075,000. The members of the firm also conveyed the right to the use of 
 the firm name and agreed not to engage in the tobacco business for a lengthy 
 period. 
 
 Again, in the same month, the American Tobacco Co. bought out a tobacco 
 firm of old standing, also located in Baltimore, as G. W. Gail & Ax, engaged 
 principally in manufacturing and selling smoking tobacco, buying with the 
 business the exclusive right to use the name of the firm or the partners, and 
 the members of the firm agreed not to engage in the tobacco business for a 
 specified period. The consideration for this purchase was $77,582.66 in cash 
 and stock to the amount of $1,760,000. The plant was abandoned soon after. 
 
 The result of these purchases was manifested at once in the product of the 
 company for the year 1891, as will appear from a note in the margin. 1 It will 
 be seen that as to cheroots, smoking tobacco, fine-cut tobacco, snuff, and plug 
 tobacco, the company had become a factor in all branches of the tobacco 
 industry. 
 
 Referring to the occurrences of the year 1891 as in all respects typical of the 
 occurrences which took place in all the other years of the first period, that is, 
 during the years 1892, 1893, 1894, 1895, 1896, 1897, and 1898, we content our- 
 selves with saying that it is undisputed that between February, 1891, and 
 October, 1898, including the purchases which we have specifically referred to, 
 the American Tobacco Co. acquired 15 going tobacco concerns doing business in 
 the States of Kentucky, Louisiana, Maryland, Michigan, Missouri, New York. 
 North Carolina, and Virginia. For 10 of the plants an all-cash consideration 
 of $6,410,235.26 was paid, while the payments for the remaining 5 aggregated in 
 cash $1,115,100.95 and in stock $4,123,000. It is worth noting that the last 
 purchase, in October, 1898, was of the Drummond Tobacco Co., a Missouri cor- 
 poration dealing principally in plug, for which a cash consideration was paid 
 of $3,457,500. 
 
 The corporations which were combined for the purpose of forming the Ameri- 
 can Tobacco Co. produced a very small portion of plug tobacco. That an in- 
 crease in this direction was contemplated is manifested by the almost immediate 
 increase of the stock and its use for the purpose of acquiring, as we have indi- 
 cated, in 1891 and 1892, the ownership and control of concerns manufacturing 
 plug tobacco and the consequent increase in that branch of production. There 
 is no dispute that as early as 1893 the president of the American Tobacco Co., 
 by authority of the corporation, approached leading manufacturers of plug 
 tobacco and sought to bring about a combination of the plug-tobacco interests, 
 and upon the failure to accomplish this ruinous competition by lowering the price 
 of plug below its cost ensued. As a result of this warfare, which continued 
 
 1 The output of the American Tobacco Co. lor 1691 was: 
 
 Cigarettes 
 
 Cheroots and little cigars 
 
 Smoking- 
 
 Fine cut— 
 
 Snuff 
 
 Plug— 
 
 Total output for the United States, 1891: 
 
 Cigarettes — 
 
 Smoking- 
 
 Fine cut— 
 
 Plug and twist — 
 
 Snuff 
 
 Number. 
 
 2,788,778,000 
 40,009,000 
 
 3,137,318,596 
 
 Pounds. 
 
 13,813,355 
 
 660,633 
 
 383,162 
 
 4,442,774 
 
 76.708.300 
 16,968,870 
 166,177,916 
 10,674,241 
 
680 HEARINGS BEFORE 
 
 until 1898, the American Tobacco Co. sustained severe losses aggregating more 
 than $4,000,000. The warfare produced its natural result, not only because the 
 company acquired during the last two years of the campaign, ns we have stated, 
 control of important plug-tobacco concerns, but others engaged in that industry 
 came to terms. We say this, because in 1898, in connection with several leading 
 plug manufacturers, the American Tobacco Co. organized a New Jersey corpora- 
 tion styled the Continental Tobacco Co., for '• trading and manufacturing," with 
 a capital of $75,000,000, afterwards increased to $100,000,000. The new com- 
 pany issued its stock and took transfers to the plants, assets, and businesses of 
 five large and successful competing plug manufacturers. 1 
 
 The American Tobacco Co. also conveyed to this corporation, at large valua- 
 tions, the assets, brands, real estate, and good will pertaining to its plug- 
 tobacco business, including the National Tobacco Works, the James G. Butler 
 Tobacco Co., Drummond Tobacco Co., and Brown Tobacco Co., receiving as 
 consideration $30,274,200 of stock (one-half common and one-half preferred), 
 $300,000 cash, and an additional sum for losses sustained in the plug business 
 during 1898, $840,035. Mr. Duke, the president of the American Tobacco Co., 
 also became president of the Continental Co. 
 
 Under the preliminary agreement which was made, looking to the formation 
 of the Continental Tobacco Co., that company acquired from the holders all the 
 $3,000,000 of the common stock of the P. Lorillard Co. in exchange for $6,000,000 
 of its stock, and $1,581,300 of the $2,000,000 preferred in exchange for notes 
 aggregating a sum considerably larger. The Lorillard Co., however, although 
 it thus passed practically under the control of the American Tobacco Co. by 
 virtue of its ownership of stock in the Continental Co., was not liquidated, but 
 its business continued to be conducted as a distinct corporation, its goods being 
 marked and put upon the market just as if they were the manufacture of an 
 independent concern. 
 
 Following the organization of the Continental Tobacco Co., the American 
 Tobacco Co. increased its capital stock from $35,000,000 to $70,000,000 and 
 declared a stock dividend of 100 per cent on its common stock; that is, a stock 
 dividend of $21,000,000. 
 
 As the facts just stated bring us to the end of the first period which at the 
 outset we stated it was our purpose to review, it is well briefly to point out the 
 increase in the power and control of the American Tobacco Co. and the extension 
 of its activities to all forms of tobacco products which had been accomplished 
 just prior to the organization of the Continental Tobacco Co. Nothing could 
 show it more clearly than the following : At the end of the time the company 
 was manufacuring 86 per cent or thereabouts of all the cigarettes produced in 
 the United States, above 26 per cent of all the smoking tobacco, more than 22 
 per cent of all plug tobacco, 51 per cent of all little cigars, 6 per cent each of 
 all snuff and fine-cut tobacco, and over 2 per cent of all cigars and cheroots. 
 
 A brief reference to the occurrences of the second period, that is, from and 
 after the organization of the Continental Tobacco Co. up to the time of the 
 bringing of this suit, will serve to make evident that the transactions in their 
 essence had all the characteristics of the occurrences of the first period. 
 
 In the year 1899 and thereafter either the American or Continental Co., for 
 cash or stock, at an aggregate cost of $50,000,000, bought and closed up some 
 30 competing corporations and partnerships theretofore engaged in interstate 
 and foreign commerce as manufacturers, sellers, and distributors of tobacco 
 and related commodities, the interested parties covenanting not to engage in 
 the business. Likewise the two corporations acquired for cash, by issuing stock, 
 and otherwise, control of many competing corporations, now going concerns, 
 with plants in various States, Cuba and Porto Rico, which manufactured, bought, 
 sold, and distributed tobacco products or related articles throughout the United 
 States and foreign countries, and took from the parties in interest covenants 
 not to engage in the tobacco business. 
 
 1 P. J. Sorg Co., having factory at Middletown, Ohio, who received preferred stpqk 
 $4,350,000, common stock $4,525,000, and cash $224,375. 
 
 John Pinzer & Bros., having factory at Louisville, Ky., who received preferred stock 
 $2,250,000, common stock $3,050,000, and cash $550,000. 
 
 Daniel Scotten & Co., having factory at Detroit, Mich., who received preferred stock 
 $1,911,100 and common stock $3,012,500. 
 
 P. H. Mayo & Bros., having factory at Richmond, Va., who received preferred stock 
 $1,250,000, common stock $1,925,000, and cash $66,125. 
 
 John Wright Co., having factory at Richmond, Va., who received preferred Btock 
 $495,000, common stock $495,000, and cash $4,116.67. 
 
COMMITTEE ON INTERSTATE COMMERCE. 681 
 
 The plants thus acquired were operated until the merger in 1904, to which 
 we shall hereafter refer, as a part of the general system of the American and 
 Continental Cos. The power resulting from and the purpose contemplated in 
 making these acquisitions by the companies just referred to, however, may 
 not be measured by considering alone the business of the company directly 
 acquired, since some of those companies were made the vehicles as representing 
 the American or Continental Co. for acquiring and holding the stock of other 
 and competing companies, thus amplifying the power resulting from the acqui- 
 sitions directly made by the American or Continental Co., without ostensibly 
 doing so. It is, besides, undisputed that in many instances the acquired cor- 
 porations, with the subsidiary companies over which they had control through 
 stock ownership, were carried on ostensibly as independent concerns discon- 
 nected from either the American or the Continental Co., although they were 
 controlled and owned by one or the other of these companies. Without going into 
 details on these subjects, for the sake of brevity, we append in the margin a 
 statement of the corporations thus acquired, with the mention of the competing 
 concerns which such corporations acquired. 1 
 
 It is of the utmost importance to observe that the acquisitions made by the 
 subsidiary corporations in some cases likewise show the remarkable fact stated 
 above ; that is, the disbursement of enormous amounts of money to acquire 
 plants, which on being purchased were not utilized but were immediately closed. 
 It is also to be remarked that the facts stated in the memorandum in the 
 margin show on their face a singular identity between the conceptions which 
 governed the transactions of this latter period with those which evidently ex- 
 isted at the very birth of the original organization of the American Tobacco Co., 
 as exemplified by the transactions in the first period. A statement of particular 
 transactions outside of those previously referred to as having occurred during 
 the period in question will serve additionally to make the situation clear. And 
 to accomplish this purpose we shall, as briefly as may be consistent with clarity, 
 separately refer to the facts concerning the organization during the second 
 period of the five corporations which were named as defendants in the bill, as 
 heretofore stated, and which for the purpose of designation we have hitherto 
 classified as accessory defendants, such corporations being the American Snuff 
 Co., American Cigar Co., American Stogie Co., MacAndrews & Forbes Co. 
 (licorice), and Conley Foil Co. 
 
 (1) The American Snuff Co. — As we have seen, the American Tobacco Co. at 
 the commencement of the first period produced a very small quantity of snuff. 
 Its capacity, however, in that regard was augmented owing particularly to the 
 
 1 Monopol Tobacco Works (New York, N. Y. ). Capital, $40,000; cigarettes and smoking 
 tobacco. In 1899 the American Tobacco Co. acquired all the shares for $250,000, and it 
 is now a selling agency. 
 
 Luhrman & Wilbern Tobacco Co. (Middletown, Ohio). Capital, $900,000; scrap to- 
 bacco. This business was formerly carried on by a partnership. 
 
 Mengel Box Co. (Louisville, Ky.). Capital, $2,000,000; boxes for packing tobacco. 
 This company has acquired the stock ($150,000) of Columbia Box Co. and of Tyler Box 
 Co. ($25,000), both at St. Louis. 
 
 The Porto Eican- American Tobacco Co. (Porto Rico). Capital, $1,799,600. In 1899 
 the American Co. caused the organization of the Porto Ri can- American Tobacco Co., which 
 took over the partnership business of Rucabado y Portela, manufacturer of cigars and 
 cigarettes, with covenants not to compete. The American Tobacco Co. and American 
 Cigar Co. each hold $585,300 of the stock ; the balance is in the hands of individuals. 
 
 Kentucky Tobacco Product Co. (Louisville, Ky.). Capital, $1,000,000. In 1899 the 
 Continental Co. acquired control of the Louisville Spirit-Cured Tobacco Co., engaged in 
 curing and treating tobacco and utilizing the stems for fertilizers. By agreement the 
 Kentucky Tobacco Product Co. was organized in New Jersey, with $1,000,000 capital, 
 $450,000 issued to the old stockholders and $550,000 to Continental Co., as consideration 
 for agreement to supply stems. 
 
 Golden Belt Manufacturing Co. (North Carolina). Capital, $700,000; cotton bags and 
 containers. In 1899 the American Tobacco Co. acquired the business of this corporation, 
 which was formed to take over a qoing business. 
 
 The Conley Foil Co. (New York). Capital, $825,000; tin-foil combination. In Decem- 
 ber, 1899, the American Tobacco Co. secured control of the business of John Conley & Son 
 (partnership), New York, N. Y., manufacturers of tin foil, an essential for packing tobacco- 
 products. By agreement the Conley Foil Co. was incorporated in New Jersey " for trad- 
 ing and manufacturing," etc., with $250,000 capital (afterwards $375,000 and $825,000), 
 which took over the firm's business and assets, etc., and the American Tobacco Co. be- 
 came owner of the majority shares. The Conley Foil Co. has acquired all the stock of the 
 Johnson Tinfoil & Metal Co. — a defendant — of St. Louis, a leading competitor, and they 
 supply under fixed contracts the tin foil used by defendants. 
 
 R. J. Reynolds Tobacco Co. (Winston Salem, N. C). In 1899 the Continental Tobacco- 
 Co. acquired control of the E. J. Reynolds Tobacco Co., one of the largest manufacturers 
 of plug — output in 1898, 6,000,000 pounds. By agreement a new corporation (with same 
 name) was organized in New Jersey and capitalized at $5,000,000 (afterwards $7,525,000), 
 which took over the business and assets of the old one. The Continental Co. immediately 
 
682 HEARINGS BEFORE 
 
 formation of the Continental Tobacco Co. and the acquisition of the Lorillard 
 Co., by which it came to be a serious factor as a snuff producer. There shortly 
 ensued an aggressive competition in the snuff business between the American 
 Tobacco Co., with the force acquired from the vantage ground resulting from 
 the dominancy of its expanded organization, and others in the trade operating 
 independently of that organization. The result was identical with that which 
 had previously arisen from like conditions in the past. 
 
 In March, 1900, there was organized in New Jersey a corporation known as 
 the American Snuff Co., with a capital of $25,000,000. one-half preferred and 
 one-half common, which took over the snuff business of the P. Lorillard Co., 
 Continental Tobacco Co., and the American Tobacco Co., with that of a large 
 competitor, viz, the Atlantic Snuff Co. The stock of the hew company was thus 
 apportioned: Atlantic Snuff Co., preferred, $7,500,000, common, $25,000,000; 
 P. Lorillard Co., preferred, $1,124,700, common, $3,459,400; the American 
 Tobacco Co., preferred, $1,177,800, common, $3,227,500; Continental Tobacco 
 Co., preferred, $197,500, common, $813,100. The stock issued to Continental 
 Tobacco Co. and the defendants, P. Lorillard Co. and the American Tobacco 
 Co., is still held by the latter, and they have at all times had a controlling in- 
 terest in the snuff company. All the companies, together with their officers and 
 directors, convenanted that they would not thereafter engage as competitors in 
 the tobacco business or the manufacture, sale, or distribution of snuff. 
 
 Among the assets transferred by the Atlantic Snuff Co. to American Snuff 
 Co. were all the shares ($600,000) of W. B. Garrett & Sons (Inc.), then and 
 now one of the oldest and very largest producers of snuff, for a long time and 
 still engaged at Torkland, Del., in interstate and foreign commerce in tobacco 
 and its products, and which controlled through stock ownership the Southern 
 Snuff Co., Memphis, Tenn. ; Dental Snuff Co., Lynchburg, Va. ; and Stewart- 
 Ralph Snuff Co:, Clarksville, Tenn. The separate existence of W. E. Garrett 
 & Sons (Inc.) has been preserved and its business conducted under the corpo- 
 rate name. In March, 1900, the American Snuff Co. acquired all the shares 
 of George W. Helme Co., one of the oldest and largest producers of snuff and 
 actively engaged at Helmetta, N. J., in interstate and foreign commerce in com- 
 petition with defendants, by issuing in exchange therefor $2,000,000 preferred 
 stock and $1,000,000 common ; and it thereafter took a conveyance of all assets 
 of the acquired company and now operates the plant under its own name. 
 
 As a result of the transactions just stated, it came to pass that the American 
 Tobacco Co., which had at the end of the first period only a very small per- 
 centage of the snuff-manufacturing business, came virtually to have the domi- 
 nant control as a manufacturer of that product. 
 
 acquired the majority shares and the American Co. now holds $5,000,000 of stock. The 
 separate organization has been preserved. 
 
 There was acquired in the name of the new Reynolds Co., with covenants against com- 
 petition, the following plants : 
 
 In 1900, T. L. Vaughn & Co., partnership, of Winston, N. C. ; consideration, $90,506; 
 Brown Bros. Co., a North Carolina corporation, Winston, N. C. ; consideration, $67,615 ; 
 and P. H. Hanes & Co. and B. F. Hanes & Co., Winston, N. C, partnership ; consideration, 
 3671,950. 
 
 In 1905, Eucker & Witten Tobacco Co., Martinsville, Va. ; consideration, $512,898. 
 
 In 1906, D. H. Spencer & Co., Martinsville, Va. ; consideration, $314,255. 
 
 (All of the foregoing plants were closed as soon as purchased.) 
 
 A majority of the $400,000 capital stock in the Lipfert-Scales Co., of Winston, N. C, 
 a corporation largely engaged in the manufacture of plug tobacco and interstate and 
 foreign commerce in leaf tobacco and its products, was acquired by the Reynolds Co. 
 The separate organization of the Lipfert-Scales Co. is preserved and the business carried 
 on under its corporate name. 
 
 The R. J. Reynolds Tobacco Co. also holds $98,300 stock of the MacAndrews & Forbes 
 Co. and $9,600 of the Amsterdam Supply Co. 
 
 Blackwell's Durham Tobacco Co. (Durham, N. C). Capital, $1,000,000. In 1899 the 
 American Tobacco Co. procured for $4,000,000 all the stock of Blackwell's Durham 
 Tobacco Co. at Durham, N. C, manufacturer and distributor of tobacco products. There- 
 upon the Blackwell's Durham Tobacco Co. of New Jersey, capital, $1,000,000, all owned 
 by the American, was organized and took over the assets of the old company, then under 
 receivership. Its separate organization has been preserved. 
 
 The Durham Co. has acquired control of the following competitors : Reynolds's Tobacco 
 Co., F. R. Penn Tobacco Co., and Wells-Whitehead Tobacco Co. 
 
 The following companies came also under the control of the American Tobacco Co. 
 through acquired stock ownership : 
 
 S. Anargyros. Capital, $650,000 ; Turkish cigarettes. In 1890 the American Tobacco 
 Co. procured the organization of corporation of S. Anargyros, which took over that indi- 
 vidual's going business and has since controlled it. Through this company the business 
 In Turkish cigarettes is largely conducted. 
 
 The John Bollman Co. (San Francisco). Capital, $200,000; cigarettes. In 1900 the 
 American Tobacco Co. procured organization of the John Bollman Co., which took over 
 the business of the former concern in exchange for stock. Its separate organization has 
 tieen preserved. 
 
COMMITTEE ON INTERSTATE COMMERCE. 683 
 
 (2) Conley Foil Co., manufacturers of tinfoil, an essential for packing tobacco 
 products.— In December, 1899, the American Tobacco Co. secured control of the 
 business of John Conley & Sons, a partnership, of New York City Bv agree- 
 ment the Conley Foil Co. was incorporated in New York "for trading and 
 manufacturing," etc., with $250,000 capital, ultimately increased to $825,000 
 The corporation took over the business and assets of the firm, and the Ameri- 
 can Tobacco Co. became owner of a majority of the shares of stock. The Conley 
 Foil Co. has acquired all the shares of stock of the Johnson Tinfoil & Metal 
 Co., of St. Louis, a leading competitor, and they supply, under fixed contracts at 
 remunerative prices, the tinfoil used by the defendants, which constitutes the 
 major part of the total production in the United States. 
 
 (3) American Cigar Co.— Prior to 1901 the American and Continental Tobacco- 
 Cos, manufactured, sold, and distributed cigars, stogies, and cheroots. In the 
 year stated the companies determined to engage in the business upon a larger 
 scale. Under agreement with Powell, Smith & Co., large manufacturers and 
 dealers in cigars, they caused the incorporation in New Jersey of the American 
 Cigar Co., " for trading and. manufacturing," etc., to which all three conveyed 
 their said business, and it has since carried on the same. The American and 
 Continental Cos. each acquired 46i per cent of the shares, and Powell, Smith 
 & Co. 7 per cent; the original capitalization was $10,000,000 (afterwards 
 $20,000,000), and more than three-fourths is owned by the former. The cigar 
 company acquired many competitors (partnerships and corporations) engaged 
 in interstate and foreign commerce, taking from the parties covenants against 
 engaging in the tobacco business ; and it has also procured the organization of 
 controlled corporations which have acquired competing manufacturers, jobbers, 
 and distributors in the United States, Cuba, and Porto Rico. It manufactures, 
 sells, and distributes a considerable percentage of domestic cigars ; is the domi- 
 nating factor in the tobacco business, foreign and domestic, in Cuba and Porta 
 Rico, and is there engaged in tobacco planting. It also controls corporate job- 
 bers in California, Alabama, Virginia, Pennsylvania, Georgia, Louisiana, New 
 Jersey, and Tennessee. 
 
 (4) The HacAndrews & Forbes Co., manufacturers of licorice. — There is no 
 question that licorice paste is an essential ingredient in the manufacture of 
 plug tobacco, and that one who is debarred from obtaining such paste would 
 therefore be unable to engage in or carry on the manufacture of such product. 
 The control over this article was thus secured: In May, 1902, the Continental 
 Co. secured control of MacAndrews & Forbes Co., of Newark, N. J., and organ- 
 ized " for trading and manufacturing " a corporation known as the MacAndrews 
 & Forbes Co., with a capital of $7,000,000, $4,000,000 preferred and $3,000,000 
 common, which took over the business of MacAndrews & Forbes and another 
 large competitor. The Continental Co. acquired two-thirds of the common stock 
 by agreeing to purchase its supply of paste from the new company. The Ameri- 
 can Tobacco Co., at the time of the filing of the bill, was the owner of $2,112,900 
 of the common stock and $750,000 preferred. By various purchases and agree- 
 ments the MacAndrews & Forbes Co. acquired, substantially, the business of all 
 competitors. Thus, in June, 1902, it purchased the business of the Stamford 
 Manufacturing Co., of Stamford, Conn., and incorporated the National Licorice 
 Co., which acquired the business of Young & Smylie and F. B. & V. P. Scudder, 
 and the National Co. agreed with MacAndrews & Forbes not to produce licorice 
 for tobacco manufacturers. In 1906 all the stock in the J. S. Young Co. — 
 $1,800,000 — which had been organized to take over the business of the J. S. 
 Young Co., of Baltimore, Md., was acquired by the MacAndrews & Forbes Co. 
 The MacAndrews & Forbes Co. use in excess of 95 per cent of the licorice root 
 consumed in the United States. 
 
 ;5) American Stogie Co. — In May, 1903, the American Cigar Co. and the 
 American and Continental Tobacco Cos. caused the American Stogie Co. to be 
 incorporated in New Jersey with $11,979,000 capital, which immediately took 
 over the stogie and tobie business of the companies named in exchange for 
 $8,206,275 stock, and then in the usual ways acquired the business of others in 
 the manufacture, sale, and distribution of such products, with covenants not to 
 compete. It acquired, in exchange for $3,647,725 stock, all shares of United 
 States Cigar Co. (which had previously acquired and owned the business of 
 important competitors) and subsequently took the conveyance of the plant and 
 assets. The majority shares always have been held by defendant, the American 
 Cigar Co. 
 
 As we think the legitimate inferences deducible from the undisputed facts 
 which we have thus stated will be sufficient to dispose of the controversy, we do 
 not deem it necessary to expand this statement so as to cause it to embrace a 
 
684 HEARINGS BEFOBE 
 
 recital of the undisputed facts concerning the entry of the American Tobacco 
 Co. into the retail tobacco trade through the acquisition of a controlling interest 
 in the stock of what is known as the United Cigar Stores Co., as well as to some 
 other subjects which, for the sake of brevity, we likewise pass over in order to 
 come at once to a statement concerning the foreign companies. 
 
 The English companies. — In September, 1901, the American Tobacco Co. pur- 
 chased for $5,347,000 a Liverpool (England) corporation, known as Ogden's 
 Limited, there engaged in manufacturing and distributing tobacco products. A 
 trade conflict which at once ensued caused many of the English manufacturers 
 to combine into an incorporation known as the Imperial Tobacco Co. of Great 
 Britain and Ireland, capital £15,000,000, afterwards increased to £18,000,000, 
 sterling. The trade war was continued between this corporation and the Amer- 
 ican Tobacco Co., with a result substantially identical with that which had 
 hitherto, as we have seen, arisen from such a situation. 
 
 In September, 1902, the Imperial and the American companies entered into 
 contracts (executed in England) stipulating that the former should limit its 
 business to the United Kingdom, except purchasing leaf in the "United States 
 (it buys 54,000,000 pounds annually) ; that the American -companies should 
 limit their business to the United States, its dependencies, and Cuba; and that 
 the British-American Tobacco Co., with capital of £6,000,000 apportioned be- 
 tween them, should be organized, take over the export business of both, and 
 operate in other countries, etc. This arrangement was immediately put into 
 effect and has been observed. 
 
 The Imperial Co. holds one-third and the American Co. two-thirds of the 
 capital stock of the British-American Tobacco Co. (Ltd.). The latter com- 
 pany maintains a branch office in New York City, and the vice president of the 
 American Tobacco Co. is a principal officer. This company uses large quan- 
 tities of domestic leaf, partly exported to various plants abroad and about half 
 manufactured here and then exported. By agreement all this is purchased 
 through the American Tobacco Co. In addition to many plants abroad, it has 
 warehouses in various States and plants at Petersburg, Va., and Durham, N. C, 
 where tobacoo is manufactured and then exported. 
 
 The purchase of necessary leaf tobacco in the United States by the Imperial 
 Co. is now made through a resident general agent and is exported as a part of 
 foreign commerce. 
 
 Not to break the continuity of the narrative of facts, we have omitted in the 
 proper chronological order to state the facts relative to what was known as the 
 Consolidated Tobacco Co. We now particularly refer to that subject. 
 
 The Consolidated Tooacco Co. — In June, 1901, parties largely interested in 
 the American and Continental Cos. caused the incorporation in New Jersey of 
 the Consolidated Tobacco Co., capital $30,000,000 (afterwards $40,000,000), 
 with broad powers and perpetual existence ; to do business throughout the 
 world, and to guarantee securities of other companies, etc. A majority of 
 shares was taken by a few individuals connected with the old concerns : A. N. 
 Brady, J. B. Duke, A. H. Payne, Thomas Ryan, W. C. Whitney, and P. A. B. 
 Widener. J. B. Duke, president of both the old companies, became president of 
 the Consolidated. Largely in exchange for bonds the new company acquired 
 substantially all the shares of common stock of the old ones. Its business of 
 holding and financing was- continued until 1904, when, with the American and 
 Continental Cos., it was merged into the present American Tobacco Co. 
 
 By proceedings in New Jersey, October, 1904, the (old) American Tobacco 
 Co., Continental Tobacco Co., and Consolidated Tobacco Co. were merged into 
 one corporation, under the name of the American Tobacco Co., the principal 
 defendant here. The merged company, with perpetual existence, was capital- 
 ized at $180,000,000 ($80,000,000 preferred, ordinarily without power to vote). 
 
 The powers conferred by the charter are stated in the margin. 1 
 
 2 To buy, ffissufacture, sell, and otherwise deal In tobacco and the products of tobacco 
 in any and all forms; * * * to guarantee dividends on any shares of the capital 
 stock of any corporation in which said merged corporation has an interest as stock- 
 holder ; * * * to carry on any business operations deemed by such merged corpora- 
 tion to be necessary or advisable in connection with any of the objects of its incorpora- 
 tion or In furtherance of any thereof, or tending to Increase the value of its property or 
 stock ; * * * to conduct business In all other States, Territories, possessions, and 
 dependencies of the United States of America, and in all foreign countries ; * * * to 
 purchase or otherwise acquire and hold, sell, assign, transfer, mortgage, pledge, or other- 
 wise dispose of the shares of the capital stock or of any bonds, securities, or other evi- 
 dences of Indebtedness created by any other corporation or corporations of this or any 
 other State or Government, and to issue its own obligations in payment or exchange 
 therefor. • • » 
 
COMMITTEE ON INTERSTATE COMMERCE. 685 
 
 Prior to the merger the Consolidated Tobacco Co., a majority of whose 
 $40,000,000 share capital was held by J. B. Duke, Thomas F. Ryan, William C 
 Whitney, Anthony N. Brady, Peter A. B. Widener, and Oliver H. Payne, had 
 acquired, as already stated, nearly all common shares of both old American and 
 Continental Cos., and thereby control. The preferred shares, however, were 
 held by many individuals. Through the method of distribution of the stock of 
 the new company, in exchange for shares in the old American and in the 
 Continental Co., it resulted that the same six men in control of the combina- 
 tion through the Consolidated Tobacco Co. continued that control by ownership 
 of stock in the merged or new American Tobacco, Co. The assets, property, 
 etc., of the old companies passed to the American Tobacco Co. (merged), which 
 has since carried on the business. 
 
 The record indisputably discloses that after this merger the same methods 
 which were used from the beginning continued to be employed. Thus, it is 
 beyond dispute: First, that since the organization of the new American To- 
 bacco Co. that company has acquired four large tobacco concerns; that 
 restrictive covenants against engaging in the tobacco business were taken from 
 the sellers, and that the plants were not continued in operation, but were at 
 once abandoned. Second, that the new company has, besides, acquired control 
 of eight additional concerns, the business of such concerns being now carried on 
 by four separate corporations, all absolutely controlled by the American To- 
 bacco Co., although the connection as to two of these companies with that 
 corporation was long and persistently denied. 
 
 Thus, reaching the end of the second period and coming to the time of the 
 bringing of the suit, brevity prevents us from stopping to portray the differ- 
 ence between the condition in 1890 when the (old) American Tobacco Co. was 
 organized by the consolidation of five competing cigarette concerns and that 
 which existed at the commencement of the suit. That situation and the vast 
 power which the principal and accessory corporate defendants and the small 
 number of individuals who own a majority of the common stock of the new 
 American Tobacco Co. exert over the marketing of tobacco as a raw' product, its 
 manufacture, its marketing when manufactured, and its consequent movement 
 in the channels of interstate commerce, indeed relatively over foreign com- 
 merce, and the commerce of the whole world in the raw and manufactured 
 products, stand out in such bold relief from the undisputed facts which have 
 been stated as to lead us to pass at once to the second fundamental proposition 
 which we are required to consider — that is, the construction of the antitrust act 
 and the application of the act as rightly construed to the situation as proven 
 in consequence of having determined the ultimate and final inferences properly 
 deducible from the undisputed facts which we have stated. 
 
 THE CONSTRUCTION AND APPLICATION OF THE ANTITRUST ACT. 
 
 If the antitrust law is applicable to the entire situation here presented and 
 is adequate to afford complete relief for the evils which the United States 
 insists that situation presents, it can only be because that law will be given a 
 more comprehensive application than has been affixed to it in any previous 
 decision. This will be the case, because the undisputed facts as we have 
 stated them involve questions as to the operation of the antitrust law not hitherto 
 presented in any case. Thus, even if the ownership of stock by the American 
 Tobacco Co. in the accessory and subsidiary companies and the ownership of 
 stock in any of these companies among themselves were held, as was decided 
 in the Standard Oil Co. case, to be a violation of the act and all relations result- 
 ing from such stock ownership were therefore set aside, the question would 
 yet remain whether the principal defendant, the American Tobacco Co., and 
 the five accessory defendants, even when divested of their stock ownership in 
 other corporations, by virtue of the power which they would continue to 
 possess, even although thus stripped, would amount to a violation of both the 
 first and second sections of the act. Again, if it were held that the corporations, 
 the existence whereof was due to a combination between such companies and 
 other companies was a violation of the act, the question would remain whether 
 such of the companies as did not owe their existence and power to combinations,' 
 but whose power alone arose from the exercise of the right to acquire and own 
 property, would be amenable to the prohibitions of the act. Tet, further, even 
 if this proposition was held in the affirmative, the question would remain 
 whether the principal defendant, the American Tobacco Co., when stripped of 
 Its stock ownership, would be in and of itself within the prohibitions of the 
 
686 
 
 HEARINGS BEFOBE 
 
 act, although that company was organized and took being before the antitrust 
 act was passed. Still further, the question would yet remain whether par- 
 ticular corporations which, when bereft of the power which they possessed as 
 resulting from stock ownership, although they were not inherently possessed 
 of a sufficient residuum of power to cause them to be in and of themselves 
 either a restraint of trade or a monopolization or an attempt to monopolize, 
 should nevertheless be restrained because of their intimate connection and 
 association with other corporations found to be within the prohibitions of the 
 act. The necessity of relief as to all these aspects, we think, seemed to the 
 Government so essential, and the difficulty of giving to the act such a com- 
 prehensive and coherent construction as would be adequate to enable it to 
 meet the entire situation, led to what appears to us to be in their essence a 
 resort to methods of construction not compatible one with the other. And the 
 same apparent conflict is presented by the views of the act taken by the de- 
 fendants when their contentions are accurately tested. 
 
 Thus the Government, for the purpose of fixing the illegal character of the 
 original combination which organized the old American Tobacco Co., asserts 
 that the illegal character of the combination is plainly shown because the 
 combination was brought about to stay the progress of a flagrant and ruinous 
 trade war. In other words, the contention is that as the act forbids every 
 contract and combination it hence prohibits a reasonable and just agreement 
 made for the purpose of ending a trade war. But as thus construing the act 
 by the rule of the letter which kills would necessarily operate to take out of 
 the reach of the act some of the accessory and many subsidiary corporations, 
 the existence of which depend not at all upon combination or agreement or 
 contract, but upon mere purchases of property, it is insisted in many forms of 
 argument that the rule of construction to be applied must be the spirit and 
 intent of the act, and therefore its prohibitions must be held to extend to acts 
 even if not within the literal terms of the statute if they are within its spirit, 
 because done with an intent to bring about the harmful results which it was 
 the purpose Of the statute to prohibit. So as to the defendants. While it is 
 argued, on the one hand, that the forms by which various properties were ac- 
 quired in view of the letter of the act exclude many of the assailed transac- 
 tions from condemnation, it is yet urged that giving to the act the broad con- 
 struction which it should rightfully receive, whatever may be the form, no 
 condemnation should follow, because, looking at the case as a whole, every act 
 assailed is shown to have been but a legitimate and lawful result of the exer- 
 tion of honest business methods brought into play for the purpose of advancing 
 trade instead of with the object of obstructing and restraining the same. But 
 the difficulties which arise, from the complexity of the particular dealings 
 which are here involved and the situation which they produce, we think grows 
 out of a plain misconception of both the letter and spirit of the antitrust act. 
 We say of the letter, because while seeking by a narrow rule of the letter to 
 include things which it is deemed would otherwise be excluded the contention 
 really destroys the great purpose of the act, since it renders it impossible to 
 apply the law to a multitude of wrongful acts which would come within the 
 scope of its remedial purposes by resort to a reasonable construction, although 
 they would not be within its reach by a too narrow and unreasonable adher- 
 ence to the strict letter. This must be the case unless it be possible in reason 
 to say that for the purpose of including one class of acts which would not other- 
 wise be embraced a literal construction, although in conflict with reason, must 
 be applied, and for the purpose of including other acts which would not other- 
 wise be embraced a reasonable construction must be resorted to. That is to say, 
 two conflicting rules of construction must at one and the same time be applied 
 and adhered to. 
 
 The obscurity and resulting uncertainty, however, is now but an abstrac- 
 tion, because it has been removed by the consideration which we have given 
 quite recently to the construction of the antitrust act in the Standard Oil 
 case. In that case it was held, without departing from any previous decision 
 of the court, that as the statute had not defined the words " restraint of trade," 
 it became necessary to construe those words, a duty which could only be dis 
 charged by a resort to reason. We say the doctrine thus stated was in accord 
 with all the previous decisions of this court, despite the fact that the contrary 
 view was sometimes erroneously attributed to some of the expressions used in 
 two prior decisions. (Trans-Missouri Freight Association and Joint Traffic 
 cases, 166 U. S., 290, and 171 TJ. S., 505.) That such view was a mistaken one 
 was fully pointed out in the Standard Oil case and is additionally shown by a 
 
COMMITTEE ON INTERSTATE COMMERCE. 687 
 
 passage in the opinion in the Joint Traffic case, as follows (171 U. S., 568) ; 
 " The act of Congress must have a reasonable construction or else there would 
 scarcely be an agreement or contract among business men that could not be 
 said to have, indirectly or remotely, some bearing on interstate commerce, and 
 possibly to restrain it." Applying the rule of reason to the construction of 
 the statute, it was held in the Standard Oil case that as the words " restraint 
 of trade" at common law and in the law of this country at the time of the 
 adoption of the antitrust act only embraced acts or contracts or agreements 
 oi combinations which operated to the prejudice of the public interests by 
 unduly restricting competition or unduly obstructing the due course of trade 
 or which, either because of their inherent nature or effect or because of the 
 evident purpose of the acts, etc., injuriously restrained trade, that the words 
 as used in the statute were designed to have and did have but a like signifi- 
 cance. It was therefore pointed out that the statute did not forbid or restrain 
 the power to make normal and usual contracts to further trade by resorting 
 to all normal methods, whether by agreement or otherwise, to accomplish such 
 purpose. 
 
 In other words, it was held not that acts which the statute prohibited 
 could be removed from the control of its prohibitions by a finding that they 
 were reasonable, but that the duty to interpret which inevitably arose from 
 the general character of the term " restraint of trade " required that the words 
 '• restraint of trade " should be given a meaning which would not destroy 
 the individual right to contract and render difficult if not impossible any 
 movement of trade in the channels of interstate commerce — the free move- 
 ment of which it was the purpose of the statute to protect. The soundness 
 of the rule that the statute should receive a reasonable construction, after 
 further mature deliberation, we see no reason to doubt. Indeed, the necessity 
 for not departing in this case from the standard of the rule of reason which 
 is universal in its application is so plainly required in order to give effect 
 to the remedial purposes which the act under consideration contemplates, and 
 to prevent that act from destroying all liberty of contract and all substantial 
 right to trade, and thus causing the act to be at war with itself by annihilating 
 the fundamental right of freedom to trade which, on the very face of the 
 act, it was enacted to preserve, is illustrated by the record before us. In truth, 
 the plain demonstration which this record gives of the injury which would 
 arise from and the promotion of the wrongs which the statute was intended 
 to guard against which would result from giving, to the statute a narrow, un- 
 reasoning, and unheard-of construction, as illustrated by the record before 
 us, if possible serves to strengthen our conviction as to the correctness of the 
 rule of construction, the rule of reason, which was applied in the Standard Oil 
 case, the application of which rule to the statute we now, in the most un- 
 equivocal terms, reexpress and reaffirm. 
 
 Coming, then, to apply to the case before us the act as interpreted in the Stand- 
 ard Oil and previous cases, all the difficulties suggested by the mere form in 
 which the assailed transactions are clothed become of no moment. This follows 
 because, although it was held in the Standard Oil case that, giving to the stat- 
 ute a reasonable construction, the words " restraint of trade" did not embrace 
 all those normal and usual contracts essential to individual freedom and the 
 right to make which were necessary in order that the course of trade might be 
 free, yet, as a result of the reasonable construction which was affixed to the 
 statute, it was pointed out that the generic designation of the first and second 
 sections of the law, when taken together, embraced every conceivable act which 
 could possibly come within the spirit or purpose of the prohibitions of the law, 
 without regard to the garb in which such acts were clothed. That is to say, it 
 was held that in view of the general language of the statute and the public 
 policy which it manifested, there was no possibility of frustrating that policy 
 by resorting to any disguise or subterfuge of form, since resort to reason ren- 
 dered it impossible to escape by any indirection the prohibitions of the statute. 
 
 Considering, then, the undisputed facts which we have previously stated, it 
 remains only to determine whether they establish that the acts, contracts, 
 agreements, combinations, etc., which were assailed were of such an unusual 
 and wrongful character as to bring them within the prohibitions of the law. 
 That they were, in our opinion, so overwhelmingly, results from the undisputed 
 facts that it seems only necessary to refer to the facts as we have stated them 
 to demonstrate the correctness of this conclusion. Indeed, the history of the 
 combination is so replete with the doing of acts which it was the obvious pur- 
 
 22877— vol i—12 44 
 
688 HEAHINGS BEFORE 
 
 pose of the statute to forbid, so demonstrative of the existence from the begin- 
 ning of a purpose to acquire dominion and control of the tobacco trade, not 
 by the mere exertion of the ordinary right to contract and to trade, but by 
 methods devised in order to monopolize the trade by driving competitors out of 
 business, which were ruthlessly carried out upon the assumption that to work 
 upon the fears or play upon the cupidity of competitors would make success 
 possible. We say these conclusions are inevitable, not because of the vast 
 amount of property aggregated by the combination ; not because alone of the 
 many corporations which the proof shows were united by resort to one device 
 or another. Again, not alone because of the dominion and control over the 
 tobacco trade which actually exists, but because we think the conclusion of 
 wrongful purpose and illegal combination is overwhelmingly established by the 
 following considerations : 
 
 (a) By the fact that the very first organization or combination was impelled 
 by a previously existing fierce trade war, evidently inspired by one or more of 
 the minds which brought about and became parties to that combination. 
 
 (&) Because, immediately after that combination and the increase of capital 
 which followed, the acts which ensued justify the inference that the intention 
 existed to use the power of the combination as a vantage ground to further 
 monopolize the trade in tobacco by means of trade conflicts designed to injure 
 others, either by driving competitors out of the business or compelling them to 
 become parties to a combination — a purpose whose execution was illustrated by 
 the plug war which ensued and its results, by the snuff war which followed 
 and its results, and by the conflict which immediately followed the entry of the 
 combination in England and the division of the world's business by the two 
 foreign contracts which ensued. 
 
 (c) By the ever-present manifestation which is exhibited of a conscious 
 wrongdoing by the form in which the various transactions were embodied from 
 the beginning, ever changing but ever in substance the same. Now the organi- 
 zation of a new company, now the control exerted by the taking of stock in one 
 or another or in several, so as to obscure the result actually attained, neverthc 
 less uniform, in their manifestations of the purpose to restrain others and tu 
 monopolize and retain power in the hands of the few who, it would seem, from 
 the beginning contemplated the mastery of the trade which practically followed. 
 
 (<Z) By the gradual absorption of control over all the elements essential to 
 the successful manufacture of tobacco products, and placing such control in 
 the hands of seemingly independent corporations serving as perpetual barriers 
 to the entry of others into the tobacco trade. 
 
 (e) By persistent expenditure of millions upon millions of dollars in buying 
 out plants, not for the purpose of utilizing them, but in order to close them up 
 and render them useless for the purposes of trade. 
 
 (/) By the constantly recurring stipulations, whose legality, isolatedly viewed, 
 we are not considering, by which numbers of persons, whether manufacturers 
 stockholders, or employees, were required to bind themselves, generally for long 
 periods, not to compete in the future. Indeed, when the results of the undis- 
 puted proof which we have stated are fully apprehended and the wrongful acts 
 which they exhibit are considered there comes inevitably to the mind the con- 
 viction that it was the danger which it was deemed would arise to individual 
 liberty and the public well-being from acts like those which this record exhibits 
 which led the legislative mind to conceive and to enact the antitrust act, con- 
 siderations which also serve to clearly demonstrate that the combination here 
 assailed is within the law as to leave no doubt that it is our plain duty to apply 
 its prohibitions. 
 
 In stating summarily, as we have done, the conclusions which, in our opinion, 
 are plainly deducible from the undisputed facts, we have not paused to give 
 the reasons why we consider, after great consideration, that the elaborate argu- 
 ments advanced to affix a different complexion to the case are wholly devoid 
 of merit. We do not, for the sake of brevity, moreover, stop to examine and 
 discuss the various propositions urged in the argument at bar for the purpose 
 of demonstrating that the subject matter of the combination which we find to 
 exist and the combination itself are not within the scope of the antitrust law, 
 because when rightly considered they are merely matters of intrastate com- 
 merce, and therefore subject alone to State control. We have done this be 
 cause the want of merit in all the arguments advanced on such subjects is so 
 completely established by the prior decisions of this court, as pointed out in the 
 Standard Oil case, as not to require restatement. 
 
COMMITTEE ON INTERSTATE COMMERCE. 689 
 
 Leading as this does to the conclusion that the assailed combination in all 
 its aspects— that is to say, whether it be looked at from the poin of view 
 of stock ownership or from the standpoint of the principal corporation and the 
 accessory or subsidiary corporations viewed independently, including the foreign 
 corporations in so far as by the contracts mnde by them they became cooperators 
 in the combinations—comes within the prohibitions of the first and second sections 
 of the antitrust act, it remains only finally to consider the remedy which it 
 is our duty to apply to the situation thus fouud to exist. 
 
 THE REMEDY. 
 
 Our conclusion being that the combination as a whole, involving all its 
 cooperating or associated parts in whatever form clothed, constitutes a restraint 
 of trade within the first section, and an attempt to monopolize or a monopoliza- 
 tin within the second section of the antitrust act, it follows that the relief 
 which we are to afford must be wider than that awarded by the lower court, 
 since that court merely decided that certain of the corporate defendants consti- 
 tuted combinations in violation of the first section of the act because of the 
 fact that they were formed by the union of previously competing concerns and 
 that the other defendants not dismissed from the action were parties to such 
 combinations or promoted their purposes. We hence, in determining the 
 relief proper to be given, may not model our action upon that granted by the 
 court below, but in order to enable us to award relief coterminous with 
 the ultimate redress of the wrongs which we find to exist, we must approach 
 the subject of relief from an original point of view. Such subject necessarily 
 takes a twofold aspect — the character of the permanent relief required and the 
 nature of the temporary relief essential to be applied pending the working out 
 of permanent relief in the event that it be found that it is impossible under 
 the situation as it now exists to at once rectify such existing wrongful condition. 
 In considering the subject from both of these aspects three dominant influences 
 must guide our action: (1) The duty of giving complete and efficacious effect 
 to the prohibitions of the statute; (2) the accomplishing of this result with as 
 little injury as possible to the interest of the general public: and (3) a proper 
 regard for the vast interests of private property which may have become vested 
 in many persons as a result of the acquisition either by way of stock ownership 
 or otherwise of interests in the stock or securities of the combination without 
 any guilty knowledge or intent in any way to become actors or participants in 
 the wrongs which we fiud to have inspired and dominated the combination from 
 the beginning. Mindful of these considerations and to clear the way for their 
 application we say at the outset, without stopping to amplify the reasons which 
 lead us to that conclusion, we think that the court below clearly erred in dis- 
 missing the individual defendants, the United Cigar Stores Co., and the foreign 
 corporations and their subsidiary corporations. 
 
 Looking at the situation as we have hitherto pointed it out, it involves diffi- 
 culties in the application of remedies greater than have been presented by any 
 case involving the antitrust law which has been hitherto considered by this 
 court: First, because in this case it is obvious that a mere decree forbidding 
 stock ownership by one part of the combination in another part or entity 
 thereof would afford no adequate measure of relief, since different ingredients 
 of the combination would remain unaffected, and by the very nature and char- 
 acter of their organization would be able to continue the wrongful situation 
 which it is our duty to destroy; second, because the methods of apparent 
 ownership by which the wrongful intent was in part carried out and the subtle 
 devices which, as we have seen, were resorted to for the purpose of accomplish- 
 ing the wrong contemplated, by way of ownership or otherwise, are of such 
 a character that it is difficult, if not impossible, to formulate a remedy which 
 could restore in their entirety the prior lawful conditions; third, because the 
 methods devised by which the various essential elements to the successful 
 operation of the tobacco business from any particular aspect have been so 
 separated under various subordinate combinations, yet so unified by way of 
 the control worked out by the scheme here condemned, are so involved that any 
 specific form of relief which we might now order in substance and effect might 
 operate really to injure the public and, it may be, to perpetuate the wrong. 
 Doubtless it was the presence of these difficulties which caused the United 
 States, in its prayer for relief, to tentatively suggest rather than to specifically 
 demand definite and precise remedies. We might at once resort to one or the 
 
690 ' HEARINGS BEFORE 
 
 other of two general remedies — (a) the allowance of a permanent injunction 
 restraining the combination as a universality and all the individuals and cor- 
 porations which form a part of or cooperate in it in any manner or form from 
 continuing to engage in interstate commerce until the illegal situation be cured, 
 a measure of relief which would accord in substantial effect with that awarded 
 below to the extent that the court found illegal combinaions to exist; or (6) 
 to direct the appointment of a receiver to take charge of the assets and prop- 
 erty in this country of the combination in all its ramifications for the purpose 
 of preventing a continued violation of the law, and thus working out by a sale 
 of the property of the combination or otherwise a condition of things which 
 would not be repugnant to the prohibitions of the act. 
 
 But, having regard to the principles which we have said must control our 
 action, we do not think we can now direct the immediate application of either 
 of these remedies. We so consider as to the first because in view of the extent 
 of the combination, the vast field which it covers, the all-embracing character 
 of its activities concerning tobacco and its products, to at once stay the move- 
 ment in interstate commerce of the products which the combination or its coop- 
 erating forces produce or control might inflict infinite injury upon the public 
 by leading to a stoppage of supply and a great enhancement of prices. The sec- 
 ond because the extensive power which would result from at once resorting to 
 a receivership might not only do grievous injury to the public, but also cause 
 widespread and perhaps irreparable loss to many innocent people. Under these 
 circumstances, taking into mind the complexity of the situation in all of its 
 aspects and giving weight to the many-sided considerations which must control 
 our judgment, we think, so far as the permanent relief to be awarded is con- 
 cerned, we should decree as follows : 
 
 First. That the combination in and of itself, as well as each and all of the 
 elements composing it, whether corporate or individual, whether considered col- 
 lectively or separately, be decreed to be in restraint of trade and an attempt to 
 monopolize and a monopolization within the first and second sections of the 
 antitrust act. 
 
 Second. That the court below, in order to give effective force to our decree 
 in this regard, be directed to hear the parties, by evidence or otherwise, as it 
 may be deemed proper, for the purpose of ascertaining and determining upon 
 some plan or method of dissolving the combination and of re-creating, out of 
 the elements now composing it, a new condition which shall be honestly in har- 
 mony with and not repugnant to the law. 
 
 Third. That for the accomplishment of these purposes, taking into view the 
 difficulty of the situation, a period of six months is allowed from the receipt of 
 our mandate, with leave, however, in the event, in the judgment of the court 
 below, the necessities of the situation require, to extend such period to a further 
 time, not to exceed 60 days. 
 
 Fourth. That in the event, before the expiration of the period thus fixed, a 
 condition of disintegration in harmony with the law is not brought about, either 
 as the consequence of the action of the court in determining an issue on the sub- 
 ject or in accepting a plan agreed upon, it shall be the duty of the court, either 
 by way of an injunction restraining the movement of the products of the combi- 
 nation in the channels of interstate or foreign commerce or by the appointment 
 of a receiver, to give effect to the requirements of the statute. 
 
 Pending the bringing about of the result just stated, each and all of the de- 
 fendants, individuals as well as corporations, should be restrained from doing 
 any act which might further extend or enlarge the power of the combiuation, by 
 any means or device whatsoever. In view of the considerations we have stated, 
 we leave the matter to the court below to work out a compliance with the law 
 without unnecessary injury to the public or the rights of private property. 
 
 While in many substantial respects our conclusion is in accord with that 
 reached by the court below, and while also the relief which we think should be 
 awarded in some respects is coincident with that which the court granted, in 
 order to prevent any complication and to clearly define the situation, we think 
 Instead of affirming and modifying, our decree, in view of the broad nature of 
 our conclusions, should be one of reversal and remanding with directions to the 
 court below to enter a decree in conformity with this opinion and to take such 
 further steps as may be necessary to fully carry out the directions which we 
 bave given. 
 
 And It Is so ordered. 
 
COMMITTEE ON INTERSTATE COMMERCE. 691 
 
 Dissenting Opinion of Mr. Justice Haelan. 
 
 CSupreme Court of the United States. Nos. 118 and 119, October term. 1910 No 118 
 
 The United States of America, appellant, v. The American Tobacco Co. and others' No' 
 
 119, The American Tobacco Co. and others, appellants, v. The United States of 
 
 . America. Appeals from the Circuit Court of the United States for the Southern 
 
 District of New York. May 29, 1911.] 
 
 Mr. Justice Harlan concurred in part and dissented in part : 
 
 I concur with many things said in the opinion just delivered for the court, 
 but it contains some observations from which I am compelled to withhold my 
 assent. 
 
 I agree most thoroughly with the court in holding that the principal defend- 
 ant, the American Tobacco Co. and its accessory and subsidiary corporations 
 and companies, including the defendant English corporations, constitute a com- 
 bination which, " in and of itself, as well as each and all of the elements com- 
 posing it, whether corporate or individual, whether considered collectively or 
 separately," is illegal under the antitrust act of 1890, and should be decreed to 
 be in restraint of interstate trade and an attempt to monopolize and a monopo- 
 lization of part of such trade. 
 
 The evidence in the record is, I think, abundant to enable the court to render 
 a decree containing all necessary details for the suppression of the evils of the 
 combination in question. But the case is sent back, with directions further to 
 , hear the parties, by evidence or otherwise, " for the purpose of ascertaining and 
 determining upon some plan or method of dissolving the combination, and of 
 re-creating out of the elements now composing it a new condition " which shall 
 not be repugnant to law. The court in its opinion says of the present combina- 
 tion that its illegal purposes are overwhelmingly established by many facts, 
 among others, " by the ever-present manifestation which is exhibited of a con- 
 scious wrongdoing by the form in which the various transactions were embodied 
 from the beginning, ever changing, but ever in substance the same. Now the 
 •organization of a new company, now the control exerted by the taking of stock 
 in one or another, or in several, so as to obscure the result actually attained, 
 nevertheless uniform in their manifestations of the purpose to restrain others, 
 and to monopolize and retain power in the hands of the few, who, it would 
 seem, from the beginning contemplated the mastery of the trade which practi- 
 cally followed. By the gradual absorption of control over all the elements 
 essential to the successful manufacture of tobacco products and placing such 
 control in the hands of seemingly independent corporations serving as perpetual 
 barriers to the entry of others into the tobacco trade." 
 
 The court further says of this combination and monopoly : 
 
 " The history of the combination is so replete with the doing of acts which it 
 was the obvious purpose of the statute to forbid, so demonstrative of the exist- 
 ence, from the beginning, of a purpose to acquire dominion and control of the 
 tobacco trade, not by the mere exertion of the ordinary right to contract and to 
 trade, but by methods devised to monopolize the trade by driving competitors 
 out of business, which were ruthlessly carried out, upon the assumption that 
 to work upon the fears or play upon the cupidity of competitors would make 
 success possible." 
 
 But it seems that the course I have suggested is not to be pursued. The case 
 is to go back to the circuit court in order that out of the elements of the old 
 combination a new condition may be " re-created '" that will not be in viola- 
 tion of the law. I confess my inability to find, in the history of this combina- 
 tion, anything to justify the wish that a new condition should be " re-created " 
 out of the mischievous elements that compose the present combination, which, 
 together with its component parts, have, without ceasing, pursued the vicious 
 methods pointed out by the court. If the proof before us — as it undoubtedly 
 does — warrants the characterization which the court has made of this monster 
 combination, why can not all necessary directions be now given as to the terms 
 of the decree? In my judgment there is enough in the record to enablo this 
 court to formulate specific directions as to what the decree should contain. 
 Such directions would not only end this litigation, but would serve to protect 
 the public against any more conscious wrongdoing by those who have per- 
 sistently and " ruthlessly," to use this court's language, pursued illegal methods 
 to defeat the act of Congress. 
 
 I will not say what, in my opinion, should be the form of the decree nor 
 (speculate as to what the details ought to be. It will be time enough to speak 
 
692 HEABINGS BEFOBE 
 
 on that subject when we have the decree before us. I will, however, say now 
 that, In my opinion, the decree below should be affirmed as to the tobacco 
 company and its accessory and subsidiary companies and reversed on the 
 cross appeal of the Government. 
 
 But my objections have also reference to those parts of the court's opinion 
 reaffirming what it said recently in the Standard Oil case about the former 
 decisions of this court touching the antitrust act. We are again reminded, 
 as we were in the Standard Oil case, of the necessity of applying the " rule 
 of reason " in the construction of this act of Congress — an act expressed, as I 
 think, in language so clear and simple that there is no room whatever for 
 construction. 
 
 Congress, with full and exclusive power over the whole subject, has signified 
 its purpose to forbid every restraint of interstate trade, in whatever form or 
 to whatever extent, but the court has assumed to insert in the act. by con- 
 struction merely, words which make Congress say that it means only to pro- 
 hibit the "undue " restraint of trade. 
 
 If I do not misapprehend the opinion just delivered, the court insists that 
 what was said in the opinion in the Standard Oil case was in accordance with 
 our previous decisions in the Trans-Missouri and Joint Traffic cases (166 U. S., 
 290; 171 U. S., 505), if we resort to reason. This statement surprises me quite 
 as much as would a statement that black was white or white was black. It is 
 scarcely just to the majority in those two cases for the court at this late day 
 to say or to intimate that they interpreted the act of Congress without regard to 
 the " rule of reason," or to assume, as the court now does, that the act was, 
 for the first time in the Standard Oil case, interpreted in the " light of reason." 
 One thing is certain, " rule of reason," to which the court refers, does not 
 justify the perversion of the plain words of an act in order to defeat the will 
 of Congress. 
 
 By every conceivable form of expression the majority, in the Trans-Missouri 
 and Joint Traffic cases, adjudged that the act of Congress did not allow re- 
 straint of interstate trade to any extent or in any form, and three times it 
 expressly rejected the theory, which had been persistently advanced, that the 
 act should be construed as if it had in it the word " unreasonable " or " undue." 
 But now the court, in accordance with what it denominates the " rule of rea- 
 son," in effect inserts in the act the word " undue," which means the same as 
 " unreasonable," and thereby makes Congress say what it did not say, what, as 
 I think, it plainly did not intend to say, and what, since the passage of the act, 
 it has explicitly refused to say. It has steadily refused to amend the act so 
 as to tolerate a restraint of interstate commerce even where such restraint could 
 be said to be " reasonable " or " due." In short, the court now, by judicial 
 legislation, in effect amends an act of Congress relating to a subject over which 
 that department of the Government has exclusive cognizance. I beg to say 
 that, in my judgment, the majority, in the former cases, were guided by the 
 " rule of reason " ; for, it may be assumed, that they knew quite as well as 
 others what the rules of reason require when a court seeks to ascertain the 
 will of Congress as expressed in a statute. It is obvious, from the opinions in 
 the former cases, that the majority did not grope about in darkness, but in dis- 
 charging the solemn duty put on them they stood out in the full glare of the 
 " light of reason " and felt and said time and again that the court could not, 
 consistently with the Constitution, and would not, usurp the functions of Con- 
 gress by indulging in judicial legislation. They said in express words, in the 
 former cases, in response to the earnest contentions of counsel, that to insert by 
 construction the word " unreasonable " or " undue " in the act of Congress 
 would be judicial legislation. Let me say, also, that as we all agree that the 
 combination in question was illegal under any construction of the antitrust act, 
 there was not the slightest necessity to enter upon an extended argument to 
 show that the act of Congress was to be read as if it contained the word " un- 
 reasonable " or " undue." All that is said in the court's opinion in support of 
 that view is, I say with respect, obiter dicta, pure and simple. 
 
 These views are fully discussed in the dissenting opinion delivered by me in 
 the Standard Oil case. I will not repeat what is therein stated, but it may be 
 well to cite an additional authority. In the Trade-Mark cases (100 U. S., 82), 
 the court was asked to sustain the constitutionality of the statute there involved. 
 But the statute could not have been sustained except by inserting in it words 
 not put there by Congress. Mr. Justice Miller, delivering the unanimous judg- 
 ment of the court, said : 
 
COMMITTEE ON INTERSTATE COMMERCE. 693 
 
 " If we should, in the ease before us, undertake to make by judicial construc- 
 tion a law which Congress did not make, it is quite probable we should do what 
 
 ™1 m , atter were now before that body, it would be unwilling to do." 
 tt « 4 ftQ D «lof e ^ as /ited with approval in Employer's Liability cases (207 
 u. 8., 4bd, 502) I refer to my dissenting opinion in the Standard Oil case as 
 containing a full statement of my views of this particular question 
 
 For the reasons stated, I concur in part with the court's opinion and dissent 
 in port. 
 
 (Accordingly, at 5 o'clock p. m., the committee took a recess until 
 to-morrow, Wednesday, November 29, 1911, at 10.30 o'clock a. m.) 
 
 WEDNESDAY, NOVEMBER 29, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. 0. 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands, July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Brandegee. 
 Oliver, Townsend, Watson, and Pomerene. 
 The Chairman. The committee will come to order. 
 
 STATEMENT OF ELBERT H. GARY, OF NEW YORK, N. Y., CHAIR- 
 MAN AND CHIEF EXECUTIVE OFFICER OF THE UNITED STATES 
 STEEL CORPORATION. 
 
 The Chairman. Mr. Gary, under the arrangement adopted by the 
 committee, gentlemen who appear before it make their statements 
 without interruption, after which they are interrogated by the com- 
 mittee. You may proceed. 
 
 Mr. Gary. Mr. Chairman, and gentlemen of the committee, I have 
 prepared hastily a very short statement which I will read with the 
 permission of the committee : 
 
 I. 
 
 The great consolidations which have been created during the last 15 years 
 for the conduct of many kinds of business are of public benefit in many ways: 
 
 First. By reason of their large resources, their special study of foreign trade 
 conditions, and their manufacture and sale of many kinds and classes of prod- 
 ucts, these great integrated organizations develop the foreign trade of the 
 country to an extent impossible for individuals, firms, and small business 
 corporations. An example of this is seen in the enormous export business in 
 steel products created by the United States Steel Corporation. Ninety-five 
 per cent of all the steel exported is sold by the United States Steel Corporation, 
 although it sells not more than 50 per cent of the steel used at home. 
 
 Second. By reason of their financial resources and power to employ the ablest 
 men in management and scientific research these great organizations are able 
 to conduct experiments and develop new methods which could not be done in 
 the conduct of small business operations. 
 
 Third. The extent of their operations allows them to effect economies, reduc- 
 ing the cost to the consumer ; and also to conserve the natural resources of 
 the country. An example of these economies is the employment of certain mills 
 wholly in the manufacture of particular classes of goods, instead of attempting 
 to make all classes of goods at the same mill, also the production of goods for 
 certain sections of the country in mills located in those sections, thus avoiding 
 useless expense of transportation. An example of the conservation of natural 
 resources is the utilization of by-products, which usually requires large-scale 
 production and an investment prohibitive in small industries. 
 
694 
 
 HEARINGS BEFOEE 
 
 Fourth. These great integrated corporations have done much more than it was 
 possible for small business organizations to do toward the improvement of the 
 condition of their workmen, such as profit-sharing plans, pension funds, vol- 
 untary accident relief, endeavors to prevent accidents, sanitation, higher wages, 
 and many other efforts to improve the conditions of workmen in which the great 
 integrated business organizations are recognized as the leaders. 
 
 Fifth. The creation of these great corporations drawing their capital from 
 the investing public has transferred the ownership of our great* basic indus- 
 tries from a comparatively small number of persons to great numbers of the 
 people. The United States Steel Corporation alone probably represents upwards 
 of 150,000 persons who are the holders of its stock and bonds. Great numbers 
 of persons of very small means are thus enabled to share in the profits of enter- 
 prises whose conduct requires enormous capital. 
 
 II. 
 
 It is fair to assume that the power of these great business organizations might 
 be used to the detriment of the public. 
 
 III. 
 
 Since great benefits result from these consolidations, and yet possibilities of 
 danger may arise from a misuse of their power, it would seem necessary to 
 find some plan for preserving the benefits and eliminating the dangers by some 
 sort of regulation. 
 
 IV. 
 
 The only regulation adequate in scope and power to deal with these aggre- 
 gations of capital is regulation by the Federal Government, because the subject 
 matter of the regulation is largely interstate commerce with which the states 
 may not interfere, and the size and extent of the organizations involved is such 
 as to require uniform and national regulation. 
 
 V. 
 
 It is suggested that the dangers which are possible from the great corpora- 
 tions can be eliminated and their benefits as suggested may be preserved by the 
 following plan for their regulation : 
 
 First. Every corporation engaged in interstate commerce should be required 
 to obtain a Federal license, which would be granted only upon the following 
 conditions : 
 
 (a) That the utmost publicity should be observed in all matters specified by 
 the Federal authorities. 
 
 (6) That there should be no overcapitalization. 
 
 (c) That prices should be the same to all customers without discrimination 
 between persons or localities. 
 
 (d) That the business should be conducted in conformity to the laws of the 
 United States and not in contravention thereof. 
 
 If there be other regulations capable of general application they could be 
 made conditions of the granting and continuance of these licenses. 
 
 Second. A corporation commission should be created, similar to the Inter- 
 state Commerce Commission, with power to grant, suspend, and revoke these 
 licenses, subject to a right of appeal to the courts. This commission should 
 be given the following powers: 
 
 (a) To see to it that the conditions upon which interstate commerce licenses 
 have been granted are strictly observed. 
 
 (&) To decide questions submitted by the managers of business organizations 
 who desire to observe the law in all respects and to avoid any question of 
 illegality in their actions. 
 
 (c) To regulate prices so far as necessary to prevent monopoly and restraint 
 of trade; for example, if prices should be established by trade agreements, 
 or if raw materials, such as cotton or tobacco, should be pooled, or if patents 
 should be used to the public detriment, this commission should be empowered 
 to establish maximum prices for the goods thus controlled. 
 
 (d) Provision should be made for a review of the decisions of this corpora- 
 tion commission by the Commerce Court or some other qualified tribunal, so 
 
COMMITTEE ON INTEBSTATE COMMEECE. 695 
 
 that the refusal, suspension, or revocation of an interstate-commerce license 
 could be finally determined by the courts. 
 
 CONCLUSION. 
 
 What is needed is fair, honest, and healthy competition. It is the opposite 
 of restraint of trade. Unrestrained competition in the end results in monopoly 
 and the restraint of trade. 
 
 I do not know whether you would care to have me elaborate. I 
 shall be very glad to give you my views somewhat more at length, 
 and of course will be willing to have you ask me anything that you 
 may think of. 
 
 I believe honest men, whether they are capitalists or poor men, 
 whether they are employers or employees, whether they are Repub- 
 licans or Democrats, are at the present time generally looking in 
 the same direction, trying to find a solution of the problems under 
 consideration which will protect all interests. No decent man is 
 desirous of violating the laws of the country or of doing anything 
 which is inimical to the public interests. I think people with con- 
 nections such as myself realize that all over the world at the present 
 time there is a feeling of more or less unrest. A great many things 
 have been suggested which are impracticable and undesirable, and, 
 carried to their natural and logical sequence, will result in a, great 
 deal of harm. 
 
 I am one of those who believe that it is unwise, if honest ; it is 
 impolitic, if decent, to shut our eyes to these conditions. It is the 
 most natural thing in the world for a man who is out of office to want 
 to get in office ; for a man who has no property to desire the property 
 of a man who has property, and so on. It always has been a war- 
 fare on the part of the " outs " against the " ins." 
 
 Now r those are conditions that the business man, I think, must 
 deal with, and it is a great deal better for him to assist in bringing 
 about a fair solution than to oppose what may be suggested by others 
 in that direction and thereby permit the question to drift until it is 
 disposed of by an unthinking and, perhaps, a dishonest man or set 
 of men. 
 
 What I have said is more or less apologetic, because I know there 
 are those who think my individual opinion, in view of my connec- 
 tions, is somewhat radical and extreme. I have often been accused 
 of being a Socialist, or with having socialistic views. I believe what 
 I suggest is the way to prevent the bad results which would come, 
 or might come, from socialism, so called, carried to what I believe to 
 be its extremes. I believe the man — the business man or the states- 
 man — who is conservative and constructive, and who is sufficiently 
 aggressive to bring about conditions which are calculated to thor- 
 oughly protect all interests and all sides of these controversies, with 
 injury to no one, is the man, or are the men, the country needs at the 
 present time. 
 
 I recognize the fact that during the past years there has been 
 much in the management of great business affairs which was wrong. 
 I think many of the business men in the past, quite likely including 
 myself with all the rest, have had notions concerning the conduct 01 
 business which should be changed. It is not necessary to be specific, 
 but when we realize the fact that, with the ability to accomplish great 
 and good results is necessarily involved the power to do wrong, 
 
696 HEARINGS BEFORE 
 
 it goes without saying there should be some way of protecting the 
 interests of large aggregations, so far as they are promoting the best 
 interests of the country as well as their own private interests, and 
 yet at the same time of preventing them from doing the great wrong 
 which they have the power to do. 
 
 If this country is to keep its position in the contest with other 
 nations of the world for business success, if it is to secure for its 
 people the very best results which come from successful business, there 
 must be large aggregations of wealth. The corporation, having the 
 financial power and strength, can do a great many things which the 
 small capitalist can not do. Other countries are aggressive. The 
 business men are assisted by the Government. They are making very 
 great progress, and we would soon lose our position, in my opinion, 
 if we should go back to the old style of doing business, which 
 would mean unrestrained competition, destructive competition — 
 destruction of the weaker individuals or companies by the greater, 
 and we would have monopolies, and, more than that, waste and 
 abuse — abuse of the public, abuse of the employees, and abuse of one 
 another. 
 
 The great corporation of financial strength, which is compelled 
 in the first place to publish its facts and figures, and in the second 
 place to live up to the requirements of the law, is a great benefit. 
 The first essential, I think, is publicity. We were early taught 
 that the one who loves darkness is the one whose deeds are evil, 
 and that is particularly true of business life. There is nothing like 
 publicity — allowing the public to look into a company to see what 
 it is doing, to know what its figures are. That is the first essentia?, 
 and the next thing, as I have said, is some way of compelling the 
 company in its daily conduct to live up to the requirements of th^ 
 law. Of course, the natural suggestion is, Why can not all the cor- 
 porations live up to the requirements of the law? 
 
 My answer to that is, if you had occupied the position I have 
 occupied, you would know ; you could answer the question for your- 
 selves. It is very easy to say the law is simple and clear and the 
 corporation now knows exactly what to do, but I do not agree with 
 the statement. I know that it is not the fact. I know that we have 
 been in a position of great uncertainty during the last few years, and 
 particularly during the last few months. We have been very much 
 troubled to know just exactly what our position ought to be, what our 
 conduct ought to be, and as a result there has been created in this 
 country a feeling of great uncertainty and doubt. Capitalists who 
 have money to invest have been uncertain as to what they ought to do. 
 The corporation or capitalist who has been disposed to make exten- 
 sions in his business lines has not been willing to make them because 
 he felt uncertain as to what the result might be, and whatever may be 
 said by anyone who is not practically connected with the business 
 affairs of life, I do not hesitate to say that this country has been suf- 
 fering, and is suffering to-day, very much because of this feeling of 
 uncertainty. These men would like to know what they can do ; what 
 they have the right to do ; what they have the right to do from the 
 standpoint of observance of the laws and from the standpoint of the 
 public sentiment, which is just as important to consider; and they 
 would not only like to know that for their present action, but they 
 would like to know it for their future action. 
 
COMMITTEE ON INTERSTATE COMMERCE. 697 
 
 I know there are those who say that it is a strange position to 
 take — that the Government of the country should manage the private 
 affairs of an individual. I do not believe in that myself. I do not 
 believe in the Government engaging in business in the sense in which 
 this expression is used. I do not believe that the Government is 
 competent to do it. It requires greater experience and greater expert 
 knowledge than a Government official could have. But at the same 
 time, I believe that it is a very easy matter to have such governmental 
 control, such governmental regulation, and such publicity as will 
 afford protection not only to the man who wishes to increase his busi- 
 ness lines but to continue in business, and to all others who are 
 affected by it. 
 
 The export business of the subsidiary companies of the United 
 States Steel Corporation, when it was organized over 10 years ago, 
 amounted to something like 390.000 tons per annum. I think we 
 shall do in 1911, about 2,000,000 tons of export business. Our export 
 business for the month of November will be from 250,000 to 300,000 
 tons. This brings an enormous sum of money from the neutral ports 
 of the world to America, and it keeps in employment thousands and 
 thousands of workmen, and it enables the corporation to continue 
 in business to a very much greater extent than it possibly could ex- 
 cept for this export trade. 
 
 Now, without the capital at our command the organization which 
 we have, which includes, of course, departments maintained^ in foreign 
 countries, and includes the very best talent which can be secured, 
 and without the great knowledge of the business which is acquired 
 by reason of our very extensive and thoroughly equipped organiza- 
 tions, we could not possibly do anything like the amount of export 
 business which we are doing at the present time. 
 
 Moreover, we are husbanding the natural resources of the country 
 to a very large extent by reason of our organization, our results by 
 comparison, our research and study and experiment, and our ability 
 to carry on our affairs in such a way as to save what used to be lost. 
 For instance, take the coal mines. Under the old regime, it was 
 customary to take out the best part of a vein of coal, utilizing that 
 which could be mined at least cost, and wasting — leaving in the 
 ground and wasting — very much that we now use. The same is 
 true of the iron-ore mines. We are now using very much more of 
 the ore that we find in the ground by reason of our very extensive 
 operations and large numbers of furnaces, and our different character 
 and quality of iron, and especially as the result of our experiments; 
 we are using very large quantities of ore which in other days would 
 have been discarded. 
 
 We are saving a great deal as the result of the location of our 
 furnaces and mills in such a way as to manufacture at the lowest 
 cost, by reason of the low cost of assembly which comes_ from the 
 location, and also by reason of the low cost of distribution of the 
 finished product by reason of location. We are manufacturing ce- 
 ment in very large quantities. We are making the very best Port- 
 land cement with a capacity of, I suppose, about 40,000 barrels a 
 day perhaps more than that now, as the business is growing rap- 
 idly an d one-half of the material used in making that cement is the 
 
 waste from the furnaces, which we call slag, and which used to be 
 
698 HEARINGS BEFORE 
 
 wasted, not only wasted but we used to have to distribute it or get 
 rid of it at large cost. 
 
 We are building and equipping by-product ovens — coke ovens — in 
 very large numbers, and are saving and utilizing the by-products, in 
 that way reducing the cost of coke by selling these by-products which 
 used to be wasted. That is being done by others to a greater or less 
 extent, but by us to a very much larger extent. And in the develop- 
 ment of that business after a great deal of experimentation and study, 
 by sending our experts all over Europe, by experiments in labora- 
 tories, and by experiments at the furnaces, we have discovered that 
 we can use a large per cent of Illinois coal in making coke. 
 
 There are gentlemen on this committee who know that some years 
 ago it was not believed possible that the Illinois coal could ever be 
 utilized in making coke because it was too high in sulphur, because 
 its chemical contents were not suitable, and because its physical 
 structure was not adequate to carry the burden in the furnace; but 
 by mixing that now with Pocahontas coal and other coals we are 
 already using 20 or 25 per cent of the Illinois coal, and we shall 
 eventually probably be able to use at least 50 per cent of that coal — 
 perhaps all Illinois coal. 
 
 Now, there is an immense quantity of that character of coal in this 
 country. We have bought thousands of acres in Illinois during the 
 last two or three years at about $30 an acre; whereas, if we should 
 buy coal now, if we had an opportunity to buy coking coal in Penn- 
 sylvania — even in the districts adjoining the old Connellsville dis- 
 trict — we would have to pay $1,500 an acre. 
 
 Then, from what I have said, without carrying that question any 
 further, it applies in all directions. We have our parallel columns 
 showing our comparative cost in the different locations, and by keep- 
 ing them before our people there is a good-natured rivalry to ascer- 
 tain how the cost can be reduced, and as a result the costs are being 
 reduced in many ways by the discovery and development of new ideas, 
 and all this enables us to make a better article. 
 
 You have heard the statement, no doubt, that the rails made at the 
 present time are not as good as the rails used to be. That is a very 
 great mistake. The rails were never so good before as they are at the 
 present time, on the average, and that is the result of study, and 
 more than that, expenditures of large sums of money and the applica- 
 tion of the work of the very best talent that could be secured. It is 
 one thing to run a light engine and a light car over a track, and it is 
 another thing to run such equipment as you see to-day over a track. 
 I went from New York to Chicago a few days ago on the Twentieth 
 Century, and we had a train, it seems to me, of about twenty cars — 
 one of the largest passenger trains ever hauled over the road. These 
 were immense cars and most of them were all steel, and there were 
 two of the biggest engines pulling that train; and you gentlemen 
 know by practical experience what it means to run two big engines 
 of the size now in use, one after the other, over the rails, especially 
 if the roadbed is not absolutely solid, pounding that track; especially 
 if the roadbed is counterbalanced for one curve or one level and run- 
 ning over another. You take a piece of ordinary wire and bend it 
 back three or four times and it will suddenly snap. 
 
 You take a rail, and you pound it with that engine, and if the 
 engine is counterbalanced for a certain curvature, or a certain level, 
 
COMMITTEE ON INTERSTATE COMMERCE. 699 
 
 and it is running over another curvature, so that the outer wheel is 
 raised a little, and comes down on the rail like that [indicating] with 
 those big engines over it, of course the strain is very great. Now, 
 we have been endeavoring to make the nearest perfect rail possible. 
 and what I say of rails is true of every other line. We are making 
 better goods all the time. It is the same old question that the rail- 
 roads used to have when the rates were made and the business of the 
 railroads was really done by the traffic manager and the shipper, 
 When the competition was so great that the shipper could have his 
 goods carried at almost any price, the big railroads escaped receiver- 
 ships, while the little roads were going into bankruptcy and into the 
 hands of receivers and the traveling public was getting poor cars to 
 ride in and poor rails to run over; and it was not until there was 
 some way of governmental regulation which protected the railroads 
 in fair and decent returns and permitted all of them to live, and at 
 the same time protected the great traveling public, that we arrived at 
 the conditions which exist at the present time. 
 
 It is so in our business. To get the best results, to get the best 
 products at the lowest cost, and to properly take care of the em- 
 ployees requires a great deal of money, and a small corporation, or 
 one of small capital, can not reach these results, in my opinion. 
 
 I have only given you a hint of what seems to me to be the bene- 
 ficial results. 
 
 Now, on the other hand, I am just as ready to concede that in some 
 way there should be protection to everybody interested against pos- 
 sible imposition or oppression by the capitalist — by the man who has 
 the power. One of the greatest and one of the most important 
 questions pending in this country, or in any other, is how to protect 
 the public against possible oppression on the part of great capital — 
 the power that comes from it; and it is not only, as I have stated, 
 good judgment and good policy on the part of the capitalists to 
 recognize that fact, but it is good honesty. 
 
 We have established in our company conditions, relations.^ and 
 benefits for our workmen that we could not possibly have done if we 
 had been small or had been comparatively poor. We have a volun- 
 tary relief association ; that is, we furnish relief promptly to a man 
 who is injured or to the family of the man who is killed, whether 
 there is any legal liability or not. Sometime or another that has 
 got to be everywhere enforced by law, and perhaps ought to be. We 
 established that system a long time since. We have a pension system. 
 We have bureaus that are all the time studying the question of how 
 to prevent accidents. We have spent millions of dollars, I think — I 
 do not know but we have spent more than a million dollars in a year, 
 not intending to be strictly accurate without looking at the figures— 
 in the installation of devices and improvements and in making 
 changes which are calculated to prevent accidents. We have done 
 that because it is the right thing to do, and we have done it because it 
 is good policy to do it. It is a great thing to have our men protected. 
 It is a great thing to have friendly and pleasant relations with our 
 men. and we have shown most remarkable figures with respect to the 
 number of injuries, which are so much less than they used to be 
 because of these changes that we have made at this great expense. 
 
 We have a bureau which is studying the question of sanitation for 
 the purpose of determining what can be done and what ought to be 
 
700 HEAMNG? 1 "EFOEE 
 
 done to preserve the health of the employees. It is a very interesting 
 study, and some of the developments have been most remarkable, to 
 my mind — to one who is as ignorant as I. For instance, to know that 
 in one mill by furnishing water which is pure and of a certain tem- 
 perature in the hot months of the summer the number of diseases of 
 a certain kind in that mill is reduced by a very large percentage, and 
 a great many other things like that. 
 
 Of course it all requires expenditure of large sums of money, and 
 in the results it pays, no doubt, in dollars and cents, but it could not 
 be done unless the corporation had the resources. And then we are 
 making progress in the diversity of products; we are multiplying the 
 different products which we had. We are refining and carrying them 
 very much farther. We are developing new kinds and new styles 
 which are economical in their use and which are better and of greater 
 utilitj r . In other words and to sum it up, we are making progress in 
 many directions in the development and expansion of our business 
 that would be impossible for a corporation of limited means. 
 
 The wages of our employees are considerably larger than they have 
 ever been before. We have steadily increased wages. I do not say 
 that we are paying more than we ought to pay. I am one of those 
 who believe in good wages. I think it is good policy and good morals 
 both to pay good wages. We have at times declined to reduce wages 
 when others wanted to do it, and sometimes when they did it. You 
 will remember, perhaps, in 1909, following the year 1908, which fol- 
 lowed the panic of 1907, many, if not most, of our competitors in the 
 business materially reduced the wages of their men, and I have no 
 doubt were forced to do it. 
 
 The question was considered by our companies and our local offi- 
 cials generally thought we were not only justified in doing it, but 
 that it ought to be done, and urged it. We believed we could go 
 through the season without reducing wages ; anyhow, we determined 
 to try it, and we did go through, and conditions improved in the fall 
 of 1909 and we did not reduce our wages at all. 
 
 So that on the whole our men have been very much benefited by 
 reason of our position and by reason of our ability. 
 
 There is another thing that I believe is important to consider. 
 We have more or less steadied the market. We have to a greater or 
 less extent prevented wide and sudden fluctuations. If you say that 
 our prices have been too high, that our profits have been too large, 
 I am willing to answer, that is a question I believe ought to be under 
 some kind of control. If there is natural competition, healthy com- 
 petition and full publicity, competition itself will take care of prices. 
 It is only when competition — that is, healthy competition — is sup- 
 pressed, in my opinion, that there comes an opportunity to charge 
 undue prices. But if the public can look into the affairs of the com- 
 pany; if it can know all the time what the company is doing, what 
 it charges, and why it charges these prices, then if there is an oppor- 
 tunity to make it certain day by day that the law is lived up to, and 
 there is no restraint of trade, there is not much danger of abuse. 
 
 Now, there are two sides to this question of prices. The man who 
 buys is not the only one who is interested in that question. He ought 
 to be protected. We must concede that. He ought not be imposed 
 upon, I admit. But here are others to be considered. Of course, 
 
COMMITTEE ON INTERSTATE COMMEECE. 701 
 
 there is the investor, who is entitled to a fair return, and there is the 
 employee, and then there are different customers. 
 
 Following the panic of 1907 we received letters from all over the 
 country, many of which I have saved, from our customers begging 
 us to do what we could to prevent the demoralization in business 
 such as used to exist on such occasions, and the necessary and natural 
 destruction of prices and of business which would leave these cus- 
 tomers with large stocks on hand, many of whom owed money at the 
 bank and who preferred the stability of business which would enable 
 them in the ordinary legitimate way to dispose of their goods. It is 
 not a mere question of maintaining prices, keeping prices up to a fair 
 basis, but it is just as particularly the question of keeping prices 
 down at times when the demand is so great, when the necessities of 
 the purchaser are so great, that they are willing to pay almost any- 
 thing. It is just as important on such occasions as that, and under 
 such conditions as those, to keep the prices down. You have heard a 
 great deal about the manufacturers of rails keeping the prices of 
 rails up to $28 a ton, and you gentlemen have heard more about 
 rails, I have no doubt, than any other one thing, and some of you 
 might be surprised to know exactly the facts in regard to that. 
 
 In years gone by there were more or less conferences among the 
 rail makers, and there may have been at that time what you lawyers 
 might say amounted to an agreement to maintain prices. Some of 
 you gentlemen know very well that the old understanding of the 
 Sherman law was quite different from the understanding at the pres- 
 ent time. Lawyers generally believed you could do things then legiti- 
 mately which some of the lawyers now believe you could not do. It 
 will interest Senator Cummins to know that we found in the files of 
 the Washburn & Moen Co. at Worcester a written opinion from 
 Senator Hoar, given in August, 1891, saying that agreements be- 
 tween manufacturers to divide their territory and maintain prices 
 were perfectly legal notwithstanding the Sherman law; that the 
 Sherman law was not intended to affect them because on the whole 
 trade was not restrained. 
 
 Senator Cummins. I have seen the opinion. 
 
 Mr. Gary. You have seen it. I would not dare make such an agree- 
 ment now. Senator Cummins would not render such an opinion as 
 that now. But it is a fact that in those days it was believed the 
 manufacturers coidd get together and agree upon certain things if 
 the total net result was not to restrain trade, and I am not _ so certain 
 that it is not the law now. I am not expressing any opinion on the 
 subject, but we gentlemen would not think of doing now what Mr. 
 Carnegie and others might have done 15 or 20 years ago, and believed 
 it perfectly right and legal to do. 
 
 Now, the average price of rails for 20 years has been about $28 — 
 the average price. The cost of making rails to-day, considering the 
 immense and larger investment for plants and otherwise, is a good 
 deal more than it was 10 years ago, because of the treatment of the 
 rails, and the method of manufacture, the discard of a part of the 
 billet or ingot, etc., and there have been times when some of the manu- 
 facturers of rails were desirous of putting up the price of rails ; but 
 our company has stood against that, and I would say, as my opinion, 
 the price has not been kept up to $28 in the last few years, but it has 
 been kept down to $28. 
 
702 HEARINGS BEFORE 
 
 I think the testimony before the Ways and Means Committee dur- 
 ing the last tariff consideration showed the average mill cost of 
 rails to be about $22.50, while the Pennsylvania Co. and some others 
 were higher than that. Now, to build a rail mill, with what goes with 
 it — the necessary blast furnaces, blooming mills, machine shops, coke 
 ovens, transportation facilities, etc. — would cost at least $50,000,000, 
 and perhaps more than that. I have heard it estimated at $75,000,000. 
 When you consider the interest on the investment and the difference 
 between the mill cost of manufacture and the selling price you will 
 find that there is not very much profit. It has not been unreasonable. 
 
 I mention that simply because it is a question which we see often 
 referred to in the public press. We have up to date kept prices of 
 rails down to $28, although, as I have said before another committee, 
 I think it is too low ; I think it ought to be higher, and I stated to 
 two or three of the railroad presidents the last year that I thought 
 the price of rails would have to be increased. If it is we will no 
 doubt take it up with the railroad people themselves and try to reach 
 a conclusion as to what is a fair price. 
 
 Our disposition has been to cooperate, so far as we legitimately 
 could, not only with one another, but with our customers as well. Of 
 course, I am not here to speak of the good things which the Steel 
 Corporation has done. That is not my object at all, nor do I mean 
 to do more than suggest that whether the corporation with large 
 wealth is disposed to do those things or not, it is only fair and just 
 that there should be some way whereby the Government can enforce 
 publicity and retain control — do what the Constitution, I understand, 
 permits it to do, and that is to regulate the interstate business. 
 
 I referred to the fact that the securities of the company had been 
 widely distributed. I will only say that there are thousands and 
 thousands of stockholders of limited means who own only a few 
 shares of stock, but who are the owners of this corporation, and 
 whose pecuniary interest ought to be protected, and whose best 
 interests are advanced when the corporation is required in some way 
 to do the fair and decent thing by everybody. 
 
 I am not going to refer in detail to the reasons I have given in 
 this paper, but there seems to be a suggestion, which you may have 
 noticed in a short editorial in the New York Herald within a few 
 days which is a very good one — not that it is a new question, but it 
 is a new question in its application to industrial business life — that is, 
 some way of compelling the sale of any commodity at the same 
 price wherever it is sold and to whomsoever it is sold. I believe that 
 if that is carefully considered it will be seen that there is a good 
 deal in that; the tendency of that would be very beneficial. 
 
 Personally I should dislike very much to see any law which would 
 place the business of a corporation absolutely under the control or 
 direction of a department of Government whose officials were un- 
 learned in the law. I think the salvation of the country really is in 
 the courts. I do not believe in the recall of judges at all, and that 
 is not saying anything against the reasons which are given by those 
 who urge it. It goes without saying that a judge may make a mis- 
 take; that a judge may do things he ought not to do, but every 
 lawyer on this committee will bear me out in the statement that there 
 is very little corruption, and very little dishonesty among judges. 
 
COMMITTEE OST INTERSTATE COMMERCE. 703 
 
 If judges are all made independent of the people, independent of 
 the rich man and independent of the poor man, so that they are 
 uninfluenced by any question except the question of what is the right 
 thing to do, there will be very little danger of a judge perpetrating a 
 wrong, in my opinion. I would like to see all the judges appointed 
 for life or during good behavior. I would make them removable for 
 cause. When there was cause, then they should be removed, and re- 
 moved m a hurry, but not otherwise. If a judge is independent of the 
 people, if he is not seeking the influence or the assistance of anybody, 
 if he is absolutely independent ; if he is an educated man, selected be- 
 cause of his merits, as the judges usually are— I do not think we will 
 have any trouble from the courts. That should be the place to which 
 every one might look for final satisfaction, relief, or protection. 
 
 In that connection I just want to throw in a remark; it is not of 
 any great importance in this matter. I think one of the great dis- 
 turbers and objections to the conditions and proceedings of this coun- 
 try is the frequent elections. I would like to see the President of the 
 United States have a longer term; I would like to see him given a 
 term of eight years, and no reelection. I would like to see even the 
 President of the United States, after he is elected, absolutely inde- 
 pendent. In other words, in such a position and such a frame of 
 mind that he has no temptation or inclination to look in any direction 
 or toward any interest with reference to his future. 
 
 Of course, I need not say that I have no reference to any individual 
 in making such a statement as that, because I have not. 
 
 But, gentlemen, one of the things that are most harmful to the 
 business interests of this country is our frequent elections, and while, 
 as I say, it has no bearing upon the subject except very indirectly, 
 there isn't any doubt that at the present time we are more or less 
 affected by the approaching presidential year. I wish elections came 
 more seldom, and I wish we could elect all the officers, National, 
 State, and municipal, at one time and have it over with, and not have 
 the elections so often. That is gratis. 
 
 But it seems to me there ought to be a department, a commission, 
 something like the Interstate Commerce Commission, that business 
 men could be more or less in consultation with. There are times 
 when the business men could do something for the country which, 
 perhaps, under the present Sherman law and the decisions which 
 have been made, they would hesitate to do. 
 
 For instance, during the panic of 1907, as all of you know — some 
 of you better than I, perhaps — the financial people of this country, 
 the bankers, were in very grave doubt as to what the result might 
 be. That feeling was not confined to New York ; it extended all over 
 the country, not only in the cities, but in the small places. I know 
 of little bankers in the interior who drew their money, so far as they 
 could, to the extent that they could, from the city banks, and put it 
 in their vaults. They were all frightened; they did not know what 
 the result would be. They wanted to protect themselves regardless 
 of all others. And at that time the steel people were approached 
 in one way or another by bankers, by their customers who had stocks, 
 by the leaders in their mills— by the managers and the foremen in 
 their mills — and by business men generally, with the statement that 
 if there should be such a demoralization in the steel business as there 
 22877— vol 1—12 45 
 
704 HEAEINGS BEFORE 
 
 had been in times past, that the panic conditions could not be changed, 
 and the results would be dangerous, and quite probably disastrous. 
 
 Now, I was in very great doubt at that time what to do to try to 
 steady the steel business. Without taking any time I will only say 
 that you know, in substance, what I did. I got all the steel people 
 possible together, and after stating to them the conditions,told them 
 that we could not make any agreement of any sort or description, but 
 we could consider one another's interests, and could consider condi- 
 tions and try to take care of our customers, and could do what was in 
 our power to do, without making agreements, to maintain the general 
 equilibrium of trade. 
 
 I endeavored to get the best advice possible ; made public what we 
 did ; gave it to the newspapers, notified the departments in Washing- 
 ton what we were doing ; that is, the Department of Justice and the 
 Department of Commerce and Labor, etc. But I was afraid all the 
 time that there might be some question on the part of some one as to 
 whether or not we were not going too far. 
 
 Now, on such an occasion as that, it would be a great relief and a 
 great benefit to have a department that we could go to and say: 
 
 Here are all the facts ; here is what we would like to do ; here are 
 the results, the probable results; we do not want to antagonize the 
 law; we do not want to do anything that we ought not to do. We 
 would like to be a benefit to the situation if we can. We want your 
 advice." 
 
 It would be a great thing to a business man. And that often hap- 
 pens in our relations with foreigners. As you know, there are neutral 
 markets all over the country where steel is not manufactured; the 
 residents are simply purchasers, and the steel manufacturers are 
 selling and delivering to those markets. It would be a great benefit 
 to all of us if we had the right to get together and talk the situation 
 over, and have such maps before us as would show which market is 
 most readily and most cheaply reached by the different steel manu- 
 facturers, so that as a natural result we would all save money. 
 Although I believe I could do that now without any agreement 
 whatever by simply coming into contact with them and explaining 
 the situation and talking it over, and trying to satisfy them by argu- 
 ment as to what was for their particular interest, I believe in a per- 
 fectly legitimate way, yet I would hesitate to do it now, in view of 
 what has occurred during the last year. It is a pity, because I think 
 we could, legitimately, very materially extend our export business at 
 the present time, and I would like to have a department to which I 
 could go and explain the situation and get advice. 
 
 You gentlemen who have practiced law, as I have, know very well 
 it is the last thing that a lawyer wants to do, to violate the law. No 
 man of legal knowledge and legal experience would like to violate 
 any law of the country. At the same time the business interests of 
 the country require that there should be some method, not of re- 
 straining trade, but of expanding trade, extending trade, increasing 
 trade. That is what we want to do. Our efforts, the efforts of our 
 company, have been to foster competition, not to suppress it. We 
 have, by our connections, our associations, our friendly meetings, our 
 dinners, etc., endeavored to establish and maintain relations which 
 are calculated not to restrain trade, but to expand trade ; not to de- 
 stroy competition, but to build up competition ; not to increase prices, 
 
COMMITTEE ON INTEKSTATE COMMERCE. 705 
 
 but to prevent them going up as well as preventing them, so far as 
 we legitimately could, from going down, certainly, suddenlv. We 
 have never been able to do that, but have done it m a measure. 
 
 But you have noticed during the last year the criticisms before 
 some of the committees, possibly in some of the newspapers, though 
 I do not know whether that is accurate, of this conduct on the part 
 of the steel people; and there have been hints that it was really a 
 method of secretly evading the law and obtaining unusual prices, un- 
 reasonable prices, etc. And in view of this condition at the present 
 time, and in view of the bill of complaint which has been filed, in 
 which these Gary dinners have been referred to, I am afraid I might 
 antagonize public sentiment if I should do anything to try to main- 
 tain the equilibrium of trade at the present time. And what is the 
 result? Many of .the steel manufacturers are selling to-day below 
 cost, if you take into account wear and tear, take into consideration 
 overhead charges and that sort of thing; making proper and legiti- 
 mate and necessary deduction. And if this be continued many of 
 them may go into bankruptcy. 
 
 Unrestrained competition means the survival of the fittest. This 
 country can not any more go back to the old method of competition 
 than it can deliberately go back to the doctrine of the survival of the 
 fittest, which means the destruction of the smaller, the weaker, the 
 poorer concerns, and the survival of the few, and, therefore, the 
 necessary forcing of monopoly and restraint of trade. 
 
 At least those are my views, and I have studied the question as 
 carefully as anyone possibly can. 
 
 It is not a fact; it is a mistake to suppose that a business man 
 knows what he can do and what he can not do at the present time. 
 I have nothing to say against the Sherman law. I have nothing to 
 say against what the Sherman law is intended to prevent. I have 
 nothing to say against the protection of every one. But practically 
 the Sherman law is not adequate to meet the present situation. "We 
 need something more. These people who take the opposite view 
 laugh at the idea of the business of a corporation being regulated, 
 and particularly at one connected with a corporation who is willing 
 (o have the business regulated. But what are the corporations get- 
 ting now except regulation ? 
 
 I reckon if the pupil in the school should feel the rod of the 
 master on his head and should hear the teacher say that he "was 
 struck because he had been looking out of the window he would 
 think that was some kind of regulation, and he would prefer to have 
 the teacher tell him in advance that if he looked out of the window 
 he would get hit. 
 
 It is a great deal better to have regulation by a department which 
 knows all the facts from day to day and which can advise a corpora- 
 tion than it is to have regulation by a lawsuit, particularly when the 
 corporation does not know that it is violating the law. 
 
 Personally, it would not make much difference to our corporation, 
 or some of those who believe as I do, what the form is, but of course 
 we want to protect all interests. 
 
 Now, you could say, as some of the members of this committee have 
 said publicly with great force, that you can prevent by law certain 
 things being done; that you can lay down in the law itself certain 
 rules so as to keep the corporation within a certain domain ; that you 
 
706 HEABINGS BEFORE 
 
 can provide that no corporation shall have more than a certain per- 
 centage of the business; that one corporation shall not hold the 
 stock of another corporation, and various other things of that kind ; 
 that there shall be no interlocking directors, etc. The danger of that 
 is that you may restrict a corporation to a point where it can not 
 reach the highest success for the country, for the people themselves. 
 That is the danger. If large aggregations of capital are beneficial, 
 then I do not know whether or not there is a point beyond which you 
 can say they are not of an increasing benefit. It is just as necessary 
 to have some measure that will protect and promote the interests of 
 capital itself as it is to protect those who are influenced on the out- 
 side by capital. And if you can have some kind of governmental 
 control or regulation which absolutely secures the public against 
 imposition and oppression, then it seems to me the importance of 
 these other questions is modified. 
 
 I have nothing to say against the plan which was proposed by the 
 Civic Federation some years ago and which, I presume, Mr. Low 
 advocated yesterday, though I have not read his testimony. I know 
 he favored it at that time. I have nothing to say against Federal 
 incorporation. There is this about that: It seems to me. and you 
 gentlemen are better advised than I am, that Federal incorporation 
 may enter the domain of the rights and interests of the States. Of 
 course, that is a legal question that I do not assume to be competent 
 to speak upon. If not objected to on legal grounds, it might be 
 objected to from the standpoint of the best interests of the State. It 
 seems to me that it is not advisable to enter into the consideration 
 of a question which involves more or less doubt and difficulty. What 
 we want is relief and we want it immediately, if we can get it, or as 
 soon as we can get it. That is what the business interests of the 
 country need. Therefore, it seems to me, from our standpoint, and 
 speaking for our company particularly, and for other business inter- 
 ests associated with vis — it seems to me we would favor a law that 
 would meet with the least opposition. 
 
 Now, I understand the Constitution of the United States gives to 
 the Government exclusively the right to regulate interstate com- 
 merce. I think that is covered by a Federal license. I think if the 
 Government has the right under Federal license to regulate the busi- 
 ness of a corporation engaged in interstate commerce it has such a 
 control of it as will enable the Government to absolutely protect 
 every interest, and that without meeting reasonable opposition on 
 the part of any of the States or of anyone else. 
 
 Now, our country has grown so fast, and is growing so fast; our 
 business is so great and so much involved, and the necessities being 
 so great in favor of continuing and protecting the big industries and 
 the benefits which they bring, that if we have a Federal license which 
 places that business within the control and regulation of the Govern- 
 ment there ought not to be any objection on the part of anyone 
 desirous of seeing only the fair thing done. 
 
 We know very well that there have been a great many temptations 
 for corporations to make money, and to make more money than 
 they ought to make. We can not deny that. It is the most natural 
 thing in the world. I am not saying anything for or against our 
 corporations, although I might on another occasion, when I say 
 that if a corporation is very largely overcapitalized and its stock 
 
COMMITTEE ON INTERSTATE COMMERCE. 707 
 
 distributed and the stockholders are clamoring for dividends on 
 their stock there is a great temptation to realize sufficient profit to 
 pay dividends on that inflated capitalization or stock issue, and I 
 think that ought to be prevented, no matter where the question is 
 applied or who is affected by it. 
 
 I think that if a corporation engaged in interstate commerce is 
 obliged to take out a Federal license that is the time to have the 
 question determined as to whether or not the capitalization is fair 
 and reasonable, and it could be done by a commission such as has 
 been suggested. That commission could pass upon that and all 
 other questions. If they are satisfied from an examination that 
 the proposed directors of that corporation were interested in and 
 controlled the affairs of another corporation competing in that line 
 of business, that would be the time to prevent such a condition and 
 any other undesirable condition. 
 
 If the circumstances were such that the commission were satis- 
 fied that that corporation ought not to have more than 40 per cent 
 or 50 per cent or 60 per cent of the 'business it proposed to engage 
 in, then is the time and the opportunity for the commission to say 
 it will not grant the license unless the conditions are changed. If 
 that corporation has too large a percentage of the raw product, 
 assuming that there could be too large a percentage, or if it has 
 too many railroads, or if it has things which it ought not to have 
 and could not have and use without necessarily affecting adversely 
 the interests of the public, that is the time and opportunity to change 
 that. 
 
 I do not agree at all with the suggestion that a manufacturing 
 company ought not to have the ownership and control of a railroad, 
 although I am disagreeing with a gentleman whose views I gen- 
 erally agree with. It can not get its business properly done unless 
 it has a railroad. The charges which that railroad makes to out- 
 siders ought to be regulated by the Interstate Commerce Commission, 
 and they are so regulated at the present time. But so far as owning 
 and controlling and utilizing it in such a way as to do its business 
 to the very best advantage and the least cost, I think it is necessary 
 for the corporation. 
 
 We carry from 20,000,000 to 25,000,000 tons of ore a year, although 
 not so many this year, I am sorry to say. We could not take care 
 of our business ; we could not get our ore transported in such a way 
 and at such times and under such circumstances as to secure the 
 best economies or to take care adequately of our necessities unless 
 we had and controlled our own railroads. ' But all the time, not only 
 at the time it is proposed to issue the license, but in the conduct of 
 the affairs of the corporation, I think this commission should have 
 the right to sav to the corporation it must make changes— in its 
 ownership, in its control, in its methods, in its management, in its 
 prices, even — in so far as the present conditions might, in the opinion 
 of the commission, interfere with fair and healthy _ competition or 
 might restrain trade or might create a monopoly, giving the party 
 who may complain of the decision the right to appeal to a court of 
 competent jurisdiction, where the question might be determined on 
 its merits. . . 
 
 Now it seems to me that the fair-minded man, whether he is 
 interested on one side of the question or the other, ought to feel 
 
708 HEARINGS BEFORE 
 
 under such circumstances that he was fully protected. And, I take 
 it, that is all this committee is trying to do, and I want to claim for 
 myself that is all that I am interested in. If this committee will 
 give us the same protection it gives to the consumer and to every one 
 else, if it will bring about some result which is entirely protective 
 to all interests, we will make no complaint. We will be the first to 
 live up to the law which you may pass. That is our attitude, and 
 always has been our attitude. There has never been a time since 
 our organization when I have not said to the powers rhat be in 
 Washington — the Department of Justice, the Department of Com- 
 merce, and everyone else : " Show us where we are wrong in an>' 
 respect, and we will get right." There has never been a time that 
 we have not been willing to do that. I am not trying to put the 
 company on any pedestal. I say that we are no better than anybody 
 else, but it is good policy to take that position, as well as good 
 honesty. 
 
 I did not intend, until the chairman suggested it, to make an ex- 
 tended statement. I had not intended to say anything except what 
 was in my paper. 
 
 The Chairman. That is all right. Now, Mr. Gary, you say it is 
 necessary for you to have your own railroad, as I understand you ? 
 
 Mr. Gary. Yes, sir. 
 
 The Chairman. Of course, you would concede that that railroad 
 must be a common carrier ? 
 
 Mr. Gary. Yes, sir. 
 
 The Chairman. You would expect to get some revenue from that 
 railroad, aside from the management of it or the conduct of it in 
 connection with your own business? 
 
 Mr. Gary. Yes, sir. 
 
 The Chairman. And you would concede and think that it would 
 not be wise to build railroads in excess of their capacity to earn, 
 independent of the burden which the road would be to the business 
 of the concern which built it — do I make that clear ? 
 
 Mr. Gary. I do not know that I quite understand you. 
 
 The Chairman. Supposing that there was a rival corporation of 
 yours that wanted a railroad. You would concede that there would 
 come a time, or might come a time, when it would be unwise, 
 economically, to build railroads simply for the use of the manu- 
 facturers, each company building its own road ? 
 
 Mr. Gary. Well, are you speaking of building a new railroad? 
 
 The Chairman. Yes ; building a new railroad. 
 
 Mr. Gary. Yes ; I can see that that might be possible, of course. 
 
 The Chairman. Now, you would concede to other manufacturers 
 an equality of right in the use of this railroad that you have, cor- 
 responding to your own right in the road, would you not ? 
 
 Mr. Gary. I think so. 
 
 The Chairman. If the other manufacturers had an absolute equal- 
 ity of right in the use of that railroad — and I emphasize the word 
 " absolute " — where would your advantage be in owning the road, 
 except from the earnings of the road ? 
 
 Mr. Gary. Because we would make such extensions and furnish 
 such facilities as to make it absolutely certain that our necessities 
 would be taken care of. 
 
COMMITTEE ON INTERSTATE COMMERCE. 709 
 
 The Chairman. Would not that likely be the case with railroads 
 generally ? 
 
 Mr. Gary. I do not think it would be ; I do not think it has been. 
 The Chairman. Then, in order for rival corporations to reach the 
 degree of business that you have reached, and successfully, or most 
 successfully manage their business, they would have to have rail- 
 roads that they would see to were extended commensurate with the 
 business needs of their concerns ? 
 
 Mr. Gary. Quite likely they would, if they were not served prop- 
 erly. I believe there has been no complaint of that kind up to date 
 against us. 
 
 The Chairman. No. But vou insist upon an absolute equality 
 in the right of a use of the railroad, and yet insist that it is necessary 
 that you own a railroad in connection Avith your business. If that 
 is economically correct, it would apply also to other corporations, 
 would it not ? 
 
 Mr. Gary. I think so. 
 
 The Chairman. And might produce a multiplicity of roads in 
 excess of a real economic demand for roads? 
 
 Mr. Gary. Yes. You see our railroads are built in such locations 
 as to take care of a particular line of business, a special line of busi- 
 ness, and are largely confined to that. Our ore railroads, in other 
 words, carry ore, and that is their principal business. Now, in afford- 
 ing facilities for adequately taking care of our ore business, we fur- 
 nish facilities for taking care of the business of our competitors, and 
 I believe there has never been any complaint; I have never heard 
 of any. But a railroad engaged in all kinds and all lines of business 
 is very differently situated, and not only that, but its business more 
 or less fluctuates with the general business conditions of the country, 
 and therefore, it is not always prepared to adequately take care of 
 the business which is offered at a time when business is very good, 
 when it is booming. The conditions which apply to our railroads 
 do not apply to railroads generally, it seems to me. We have the 
 money and also have the disposition growing out of our necessities 
 to keep our railroads thoroughly up and thoroughly ahead of the 
 necessities of our lines of business. 
 
 The Chairman. That applies to other roads similarly related to 
 the business, does it not? 
 
 Mr. Gary. Yes, sir. 
 
 The Chairman. Now, at the outset, I think you stated that there 
 was a danger in large aggregations of capital, if improperly used ? 
 
 Mr. Gary. Yes, sir. 
 
 The Chairman. Now, that grows out, of course, of the infirmities 
 of human nature. 
 
 Mr. Gary. Yes, sir. And we could operate our railroads to the 
 prejudice of our competitors. 
 
 The Chairman. You could? 
 
 Mr. Gary. I think we could. 
 
 The Chairman. Isn't that one of the dangers that should be safe- 
 guarded against? 
 
 Mr. Gary. I think not. 
 
 The Chairman. Let us withdraw the United States Steel Corpo- 
 ration and deal with this in a general sense. 
 
710 
 
 HEARINGS BEFORE 
 
 Mr. Gary. Yes : sir. 
 
 The Chairman. What are the specific dangers, as you view them, 
 which may result from large capitalization, and which should be the 
 subject of legislation? 
 
 Mr. Gary. Well, there are a great many. 
 
 The Chairman. Well, name some of them. 
 
 Mr. Gary. With reference to this railroad, for instance? 
 
 The Chairman. Well, I am going back now to the beginning of 
 your argument, where you conceded that large capital was necessary, 
 but that there was a danger of its misuse. In what way, to your 
 mind, is that danger situated ? 
 
 Mr. Gary. Of course, one who is interested in purchasing our com- 
 modities or in competing with us or in the general public welfare 
 might be very much more competent than I to express an opinion 
 concerning those. They might have a great many things I would 
 not think of. When I conceded the whole question that seems to 
 me to be sufficient from my point of view, but that does not mean 
 to say that I have in mind things that I have any hesitation about 
 expressing. 
 
 A rich corporation might enter into a competition which would 
 be unfair, which would be destructive, which would result in driv- 
 ing its competitors out of business. It might resort to the use of 
 spies ; it might reduce its prices in certain localities down to or below 
 cost and thereby drive its competitor in that particular location en- 
 tirely out of business ; it might in another location, where it had no 
 opposition, put its prices up to an unreasonable point and thereby 
 injure its consumers. It might, in all the ways which applied to the 
 business — the steel business — 15 years ago, build itself up, enrich it- 
 self, to the prejudice of its consumers, its employees, its competitors, 
 and the general public, I believe. 
 
 The Chairman. Those things would ultimately go very largely to 
 the price, would they not ? 
 
 Mr. Gary. Yes ; if the corporation secured control of the business, 
 established a monopoly, the temptation then to use its powers with 
 these prices would be very great. It ought not be allowed, in my 
 opinion. 
 
 The Chairman. Well, now, have you considered the effect of these 
 large corporations on the political policy of the country, as a factor 
 in 
 
 Mr. Gary. Of course ; I have considered it a great deal, because so 
 much has been said about it in the newspapers. 
 
 The Chairman. Have you considered it with reference to its socio- 
 logical effect in decreasing the number of men who would occupy the 
 position of heads of smaller concerns, or, more broadly stated, in its 
 effects upon reducing or its tendency to reduce the population to its 
 two extremes? 
 
 Mr. Gary. I have ; and there is not so much in that as some people 
 think, in my opinion. 
 
 The Chairman. Then you do not attach much importance to that? 
 
 Mr. Gary. No. We have kept up the organization of our subsi- 
 diary companies. There was a time when it was believed by the 
 Department of Justice, I think, that a corporation such as ours was 
 not in so good a position as a holding company as it would be if 
 it absolutely owned and operated the business of each of the com- 
 
COMMITTEE ON INTERSTATE COMMERCE. 711 
 
 parties, but I think that, legally speaking, or, speaking from a legal 
 standpoint, that that opinion has been changed, perhaps by these 
 recent decisions. From an economic standpoint, it is better to keep 
 the companies as they are. 
 
 In the first place, our subsidiary companies have kept up their 
 organizations, their directories, their officers from president down, 
 and everything just as they used to be, and just as they would if 
 they were disintegrated. That is, they maintain a sense of responsi- 
 bility on the part of those operating officials which would not exist 
 if they were simply superintendents and employees of the United 
 States Steel Corporation. And each company in that way is all the 
 time fighting for supremacy; that is, for the greatest success. Of 
 course the United States Steel Corporation ultimately controls the 
 policies of these companies, because at the end of any year we can 
 change the directories and change the officers, but we have never done 
 that; we have never had occasion to do it. I do not mean that thev 
 would contest for business against one another, trying to get busi- 
 ness away from one another to any extent ; but so far as the question 
 of successful operation is concerned there is a very keen contest all 
 the time. As we have said, these deadly parallels which are put up 
 to them from time to time showing the results of operations of the 
 different mills have increased that feeling on their part, and we 
 thought it was very beneficial. 
 
 The Chairman. Judge, you draw all your illustrations from the 
 United States Steel Corporation, and my knowledge of human nature 
 leads me to feel that possibly, and very naturally, too, you have 
 opinions concerning that company. But my questions are directed 
 to the economic and sociological effect of vast combinations. Do 
 you believe that, as a rule — eliminating now the policy of your 
 own company — a dozen corporations taken into one great concern 
 affords that opportunity for independent, individual development 
 which would have been afforded to men associated with those at or 
 near the head of those companies if they had been kept separate? 
 
 Mr. Gary. Without evading your question at all, let me answer it 
 in this way, Mr. Chairman : If a corporation, one corporation, is so 
 situated financially by reason of its organization or for any other 
 reason that it has an "advantage over its competitors, it will, by the 
 old methods, enter into such a competition that will enable it to 
 extend its works in every direction all the time, and manage its affairs 
 in such a way as to drive out or reduce to a minimum its competitors, 
 and in that way it secures control, the same control that it would 
 secure in the first place by buying them up, taking them in, putting 
 them together. 
 
 Now, for instance, I would suggest to the practical men on this 
 committee — I mean by that, men who have personally been connected 
 with business, as some of you have— that under the old Carnegie 
 regime they had a decided advantage over their competitors. First, 
 they had a good location for the time, and for the present for that 
 matter. They had the largest percentage of the best coal, although 
 there was coal by the millions all over the country, and those condi- 
 tions have changed somewhat. They had a very fine organization. 
 Mr. Carnegie was aggressive and very able, and he had around him 
 men of great ability— Mr. Frick and others— and they were aggres- 
 sive and progressive, and they were building up their company very 
 
712 HEARINGS BEFORE 
 
 fast, and to a corresponding extent the competitors failed to succeed. 
 Some of them did succeed, because the country grew so fast, the op- 
 portunities were so great in those days, but many of them failed. 
 Pittsburghers will tell you of the wrecks all along the road. 
 
 Now, I do not know what would have become of the steel business 
 if those methods had not been changed. I expect, possibly, that 
 company might have been the Standard Oil Co. I do not speak of 
 that in any invidious sense. It was aggressive, successful, well man- 
 aged, and rich, and growing richer, and it had the resources. But 
 it does not make any difference whether a corporation starts out by 
 buying property and building plants and by its aggressiveness and by 
 securing advantages and increasing them gets a monopoly of the 
 business — speaking of the results now, not the law — or whether at 
 the start it takes a number of corporations and in that way saves 
 those corporations, and then builds up from them; especially if, 
 after doing that, it allows, or at least does not prevent, growing com- 
 petition on the part of others. The trouble is that it depends on the 
 management of a corporation as to what is the final result. If you 
 have men with the right disposition, fair-minded and honest and de- 
 cent, doing their business publicly, whatever they do, whether they 
 take in companies or whether they build up a business, they will not 
 prejudice or injure. But, on the other hand, in either case, if the 
 disposition is wrong, then there will be oppression, and that is why 
 it is necessary to guard against the dispositions of men and to make 
 it absolutely impossible in either case or in any case. 
 
 The Chairman. That is all true. And if a plan could and should 
 be devised now that could and should be devised to meet a condi- 
 tion which the Carnegie Co. presented 10 or 12 years ago. But 
 that is not the question of the present time. The question to my 
 mind — you say that it is not as important as some think it to be. 
 I certainly hold your views in very high regard. 
 
 Mr. Gary. That was with reference to one question. 
 
 The Chairman. It does seem to me that one of the great evils, 
 if you could reduce the industry of the United States so that every 
 line of industry would be represented by one great overshadowing 
 corporation — I do not use the word " corporation " in any offensive 
 sense. 
 
 Mr. Gary. No. 
 
 The Chairman. It would largely eliminate individuality and indi- 
 vidual progress and would tend rapidly to reduce the social structure 
 to two extremes. 
 
 Mr. Gary. Yes. I do not think I disagree with the chairman at all. 
 
 The Chairman. Now, then, going back to the first menace, and 
 eliminating the United States Steel Corporation for the present, be- 
 cause I realize it is very difficult for a man to get out of his imme- 
 diate environments — admitting that there is a danger in great capi- 
 talization, which the Government must seek to guard against — is not 
 one of those dangers — does not one of those dangers result from one 
 concern owning not only the rival plants in the last analysis, but the 
 instrumentalities which rival plants must use in their competition? 
 As a general proposition, would you not say that that was the 
 advantage? 
 
 Mr. Gary. That may be so, certainly, unless there is something 
 thrown around it. But I think you leave out one side of the ques- 
 tion, if you will allow me to suggest it. 
 
COMMITTEE ON INTERSTATE COMMEECE. 713 
 
 The Chairman. Certainly ; I want you to. 
 
 Mr. Gary. It seems to me the lawmakers should always consider 
 the question of reaching the greatest success. Now, if the laws and 
 the practice under the laws reserve the right to meet and prevent the 
 opportunity to oppress either the consumer or the competitor, then 
 competition is naturally built up and you secure exactly what you 
 have in mind. But, on the other hand, if you undertake to limit one 
 corporation from getting larger 
 
 The Chairman. No. You do not understand my question. I am 
 not dealing now with the magnitude of a corporation. Here are two 
 corporations; for the present I say nothing of the magnitude. But 
 one of these corporations owns the instrumentalities which the other 
 corporation must have the use of in competition. Now, taking into 
 account the infirmities of human nature, is it possible — I am speak- 
 ing now of a rule, not of an isolated case like yours — to guard or 
 safeguard the rights of the competitor who does not own these instru- 
 mentalities so that he can have an absolute equality in the use of 
 them? 
 
 Mr. Gary. Do you mean by taking the other man's property away 
 from him, or taking some of the facilities of the one man and giving 
 them to the other? There are different ways of doing that. If you 
 leave the matter in such way and keep the matter in such way that 
 this other man, as you call him, is allowed to furnish — provide him- 
 self with, the other facilities, then you are protecting him. If he 
 has the skill and the energy to succeed, and you make it impossible 
 for another man to interfere with that in any respect, then, it seems 
 to me, you have accomplished all you aimed at; 
 
 The Chairman. But here is a railroad which serves a factory, and 
 in connection with the other factories which it serves, and in con- 
 nection with the general public which it serves, it is a fair invest- 
 ment and a common carrier. To force a competitor to build a rail- 
 road for its own use — while, of course, he has the right to do it ; he 
 can go on and condemn as the first railroad company did — might be 
 to compel the building of a railroad which would not be a fair in- 
 vestment, which was absolutely unnecessary. Of course, the oppor- 
 tunity is there to build, but it is not an economic opportunity. Now, 
 do you think, as a general rule, that it is safe to allow the first man 
 or the competitor to have the agency and own the agency which the 
 other competitor must use, or, in lieu of using, be forced to build 
 unnecessary agencies? 
 
 Mr. Gary. This is the first time in this connection you have used 
 the word " railroad," and I didn't know whether you had meant that 
 or not. But I will try to answer your question from my point of 
 view comprehensively. I would not in any case allow one man to 
 take another man's property away from him. If we do that, you and 
 I could go to New York and I would take a part of Mr. Rockefeller's 
 property and you would take a part of Mr. Morgan's property. 
 
 The Chairman. Pardon me, Judge. Does anything in my ques- 
 tion suggest the taking of a railroad away from anybody ? 
 
 Mr. Gary. I will try to cover your whole question, Senator. I 
 would not try to compel a competitor to build a railroad, of course, 
 nor would I permit the one who has the railroad to impose upon the 
 other — the outsider who needs his railroad. Nor would I permit the 
 railroad to do anything that was extortionate or unfair or unreason- 
 able. The railroads are subject to the control of the Interstate 
 
714 HEARINGS BEFORE 
 
 Commerce Commission, and I have gone so far as to say that I would 
 make the manufacturing companies the same. It seems to me the 
 outsider is protected when there is a common carrier who is com- 
 pelled to serve him at reasonable rates and under reasonable con- 
 ditions. I would not allow the owner of a railroad, a common car- 
 rier, to conduct its affairs unfairly or to the prejudice of a competitor 
 or of anyone else, of course. But at the same time if it is to the 
 advantage of the manufacturing company which owns the railroad, 
 ho that it can make it certain that the facilities will be such as to 
 care for the necessities of the manufacturing corporation, then I 
 would allow it to own it, and I would allow the competitor to build 
 one for himself. 
 
 The Chairman. Now, assuming all the time in this illustration 
 that an additional railroad would not in itself be a profitable invest- 
 ment, so that if the competitor is forced to build a railroad he is 
 forced to build one which detracts from his power rather than en- 
 hances it. Take the question of rates. It is true that the Interstate 
 Commerce Commission has the control of rates, but supposing they 
 find, honestly but mistakenly, that the rate is unduly high. That 
 does not harm the man who owns the railroad and owns the mill. 
 It does not make any difference to him what the rate is. More than 
 that, the burden of getting these concessions, which in itself is a 
 limitation on fair and open competition, is thrown upon this com- 
 petitor. And back of all that those means by which a man is in the 
 position and control of property can always, in spite of all regula- 
 tion, impose a burden upon the man who uses it. Now, do you think 
 that, as a rule — not applying it to your company, but as a rule — it 
 is right and wise to allow men engaged in a certain kind of business 
 to own the instrumentalities which competitors practically must use 
 or else replace at a loss which would weaken their power of compe- 
 tition ? Should they not be dissociated ? Should not a common car- 
 rier be a common carrier to all people alike? 
 
 Mr. Gary. I want to answer that frankly, sincerely, and honestly 
 of course. It seems to me it would be just as proper to suppose the 
 Interstate Commerce Commission made a decision that was very 
 unfair to the railroads. We may assume that the decision would be 
 fair to both. I do not think it would be any fairer to take away from 
 a corporation a railroad which it had built in connection with its busi- 
 ness and factories and mills, because that gave it an advantage in 
 business, than it would be to go to a corporation and take away its 
 best expert or take away from it another facility or take away from 
 it one of its best mills, thereby placing it at a disadvantage, or at 
 least decreasing its advantage so that a competitor less successful 
 might have equal facilities. It seems to me that that theory is all 
 wrong, Senator. 
 
 The Chairman. It might be if it involved the taking away of 
 property, but it does not. The property would belong to somebody. 
 
 Mr. Gary. But it takes it away from the manufacturing company. 
 
 The Chairman. It takes away the control which may be used in a 
 secret way to their advantage and to the disadvantage of someone 
 else. But you forget, evidently— or at least I want to suggest — the 
 difference between the mill and the railroad. 
 
 Mr. Gary. 'Will vou tell me what is the difference? 
 
COMMITTEE ON INTERSTATE COMMERCE. 715- 
 
 The Chairman. The railroad is a common carrier. The men who 
 formed that road got their charter upon the theory that it would be 
 a common carrier and serve all people equally. 
 
 Mr. Gary. And, therefore, they must do it. I admit that. 
 
 The Chairman. When you build your mill, you buy your site for 
 that mill ; you invoke no public function in that matter. 
 
 Mr. Gary. But, after all, is not that a legal question, a technical 
 question ? 
 
 The Chairman. Not at all. 
 
 Mr. Gary. It seems to me it is, if you will excuse me. Of course, 
 there is a difference between a corporation which has the power of 
 eminent domain, and, therefore, is subject to certain restrictions on 
 account of that, and a corporation which has not the power of 
 eminent domain. Legally speaking, the public has greater control 
 over the corporation which has the power of eminent domain, and for 
 reasons. But when you are considering the question of taking away 
 from a manufacturing company its facilities for success, it does not 
 make any difference whether you take away its railroad or whether 
 you take away its mill. 
 
 The Chairman. But if that company is going to give an absolute 
 equality of use, it has no facilities beyond what the other corporation 
 has. There is the trouble. 
 
 Mr. Gary. It must give the same facilities. 
 
 The Chairman. If it must, then there is no objection to enforcing 
 the conditions that 
 
 Mr. Gary. You see you and I are almost on a platform. If you 
 will allow me, Mr. Chairman, I think that statement is accurate. 
 In the first place, I say that it must furnish the outsider the same 
 facilities it has itself. It must be compelled to do that, if it is not 
 disposed to do it. In the first place, it does it for its own interest,, 
 but whether it does it for its own interest or not, it must be compelled 
 to do it. But we are overlooking what I said a few moments ago, 
 that if a corporation owns this railroad itself, it has the power to 
 keep it in such a condition, to keep it up to such a condition of 
 efficiency as to make it certain that its own interests are taken care 
 of and protected as well as the interests of the outsider. Whereas, 
 if it had to depend on the disposition of an outside common carrier, 
 there might be times when it would suffer great loss, as we have where 
 we have depended upon common carriers. 
 
 For instance, there was a time — I think in 1906; it might have 
 been in 1905 — when we suffered very great loss in dollars and cents 
 in the Pittsburgh district because the outside railroads did not ade- 
 quately serve us. They could not do it. They did not have the 
 facilities for doing it. They did not have the necessary sidetracks 
 or terminal facilities. They did not have the equipment, and they 
 were behind. Several times I had to see the president of the Pennsyl- 
 vania Railroad Co. in order to get relief, and several times he person- 
 ally came to Pittsburgh to help the situation, and did help it. 
 
 Now, if we had had control of those railroads, we would have had 
 them in a condition to take care of our interests under all circum- 
 stances, as well as the interests of our competitors who used those 
 railroads. 
 
 That has been true of our ore district, or with reference to any busi- 
 ness that was served by our own railroads. We did not take the 
 
716 HEARINGS BEFOBE 
 
 chances of having inadequate facilities, not only for ourselves but 
 for our competitors. 
 
 Now, you say you do not refer to our corporation. I say that 
 ought to apply to all corporations, and it is applying more and more, 
 because the jurisdiction, the power, and the practice of the Inter- 
 state Commerce Commission have been increased, and they are ex- 
 ercising a greater supervision all the time over these railroads, and 
 they are not only requiring very many precautions against danger, 
 but are insisting upon additional facilities, and just now they are 
 considering, and I think it will result in something beneficial, cer- 
 tain tests which will increase the capacity and the safety of much 
 that is being used by the railroads. 
 
 But if the laws are not adequate to protect the public, they ought 
 to be made adequate. "We can not in our business, or rather we ought 
 not to be subjected to any possible delays, so long as we are willing 
 to furnish the facilities ourselves, and at the same time protect our 
 competitors. 
 
 The Chairman. Yes. So long as you are willing to do those 
 things, and do do them, but we all know — and that is what we are 
 dealing with, at the very outset of your argument — the infirmities 
 of human nature which have got to be safeguarded against by 
 legislation and it does seem to me to give a manufacturing corpora- 
 tion the right to own and control the agencies which others must 
 use, or else supply at a loss, is very far from giving an equality 
 of opportunity. 
 
 I see that it is 1 o'clock. The committee will take a recess until 2 
 o'clock. 
 
 (Thereupon at 1 o'clock the committee took a recess until 2 
 o'clock p. m.) 
 
 AFTER RECESS. 
 
 At the conclusion of the recess, the committee reassembled. 
 STATEMENT OF ELBERT H. GARY— Resumed. 
 
 The Chairman. Judge, you spoke this morning of a state of un- 
 rest throughout the world, if I remember it correctly; does my 
 memory serve me aright? 
 
 Mr. Gary. I did. 
 
 The Chairman. Do you care to state in what country you think 
 that is the most marked, with reference to industrial conditions? 
 
 Mr. Gary. I do not think I am qualified to answer the question. 
 It is very marked, I think, in England and France, and some loca- 
 tions in Germany and Italy, and to some extent in Austria. 
 
 The Chairman. You spoke also of the efforts other countries made 
 to enable the manufacturers to meet the world competition abroad. 
 Do you care to state which country you think carries that to the 
 greatest extent? 
 
 Mr. Gary. Germany, I believe — that is, of the largest producing 
 countries. Of course, in my other statement, I did not exclude 
 America. I think it is wider spread just now in America than in 
 other countries. That is, I think the agitation covers a wider range 
 of subjects. 
 
COMMITTEE ON INTERSTATE COMMERCE. 717 
 
 The Chairman. Now, I think you stated that your company ex- 
 ported 95 per cent of the steel that we exported from this country. 
 
 Mr. Gary. I think so. 
 
 The Chairman. Will you state, if you can, what percentage of 
 that output is sold at a less price abroad than at home ? 
 
 Mr. Gary. You mean on the average ; you do not mean now ? At 
 the present time I presume the export prices are higher than the do- 
 mestic prices, but on the average a very large percentage of the 
 export business is sold down to or below the domestic prices : and a 
 considerable amount below the domestic prices. 
 
 The Chairman. Have you any information which would warrant 
 your answering the question, approximatey at least, as to the pro- 
 portion of goods which those other countries sell for less abroad than 
 they do at home? 
 
 Mr. Gary. I think the proportion is as great or greater than ours. 
 England and Germany are the large export countries ; both of them 
 are large. They export very much more than we do. 
 
 The Chairman. Yes ; but 
 
 Mr. Gary. Pardon me, I undertook to answer your question by 
 saying that their proportion of products selling at less prices for 
 export than domestic prices is as great or greater than ours, accord- 
 ing to my information. It is the same theory exactly there as it is 
 here. It does not apply to our business alone, but it applies to all 
 lines of business. I have no doubt that you are thoroughly familiar 
 with the reasons for it. 
 
 The Chairman. Would you care to express an opinion as to 
 
 Mr. Gary. May I just add there a word, because otherwise I might 
 do the business an injustice. Of course, those prices relate to the mill 
 prices, not to delivery prices. The cost of transportation is large. 
 That reduces the mill price. If the price sold at is equal to or not 
 very much larger than the domestic delivered price. 
 
 The Chairman. Well, that would result, then, relative in a sale 
 abroad at less than at home ? 
 
 Mr. Gary. Yes ; if you are considering our mill prices. 
 
 The Chairman. Would you care to express an opinion as to the 
 cause of this unrest that you have referred to in other countries than 
 our own? 
 
 Mr. Gary. Well, that is a very big economic question, and I am 
 not qualified to speak on that subject. There may be many causes. 
 The progress of the world has been so great — activities in the differ- 
 ent branches of business life have increased so rapidly, the wealth 
 has accumulated to such an extent, making the comparisons between 
 certain classes and other classes so prominent, and perhaps more 
 particularly the means of conveying news, have multiplied to such 
 an extent, that the average person, the large numbers of citizens, 
 have now the information almost day by day as to what is going 
 on; whereas, in the earlier days, it took days or weeks or months to 
 convey this information, but the fact that almost every one at the 
 present time has immediate information of conditions, and also 
 reads or hears opinions expressed, sometimes by agitators, and some- 
 times by demagogues, and sometimes by the honest men, that people 
 are better posted and are doing more thinking; and I have no doubt, 
 although I may be mistaken, that there is a feeling in many cases, 
 
718 
 
 HEARINGS BEFORE 
 
 with just cause, that wealth has been used improperly to the preju- 
 dice of those who have not wealth ; the poAver has been used. 
 
 The Chairman. You know my question related to countries other 
 than our own? 
 
 Mr. Gary. I was speaking of other countries. Of course, I would 
 like to emphasize the fact that I am not competent to express an 
 opinion. Nevertheless, I have some information on the subject. 
 Human nature is about the same the world over. It is not at all 
 unlikely that conditions are more or less the same the world over, 
 and I have no doubt the people in power, either on account of their 
 position, their education, or their wealth, in other countries have 
 used their power to the detriment of the common people. Then, 
 of course, the same^ thing applies to the other classes. Personally I 
 have very little to say against the working classes, but power in the 
 hands of the working man — the working classes — is used to the 
 same extent, and perhaps to a greater extent, than it is in the hands 
 of capitalists — certainly in the hands of an ignorant class of men 
 it is used to a greater extent than it is in the hands of educated 
 people. 
 
 Now, this bringing together of the people all over Europe by the 
 means I have suggested has resulted in organization and in conduct 
 which at times has been very oppressive. There is no doubt about 
 that. There has been a lack of cooperation and also there has been 
 a lack, it seems to me, of capitalists, those educated men trying to 
 bring about improved conditions. We have been dealing more or 
 less at arm's length not only with the working men, but with the 
 public, and have failed to get together and cooperate and try to help 
 one another. 
 
 These are important questions, and they are larger than I can 
 compass, and I am sorry to say that in some places at times the 
 newspaper or periodical interested in extending circulation, because 
 it thereby increases the value of its advertising space, publishes what 
 the classes or large numbers of people desire to read; and it is not 
 only a natural thing, but unfortunately it is more or less the fashion 
 and the disposition, to assail rich men or men in power, men in office, 
 men in high positions, because there are a large number of men who 
 like to read that kind of statements and opinions. All this keeps up 
 and increases the agitation which is based to some extent — perhaps 
 to a large extent — on real foundation. 
 
 The Chairman. Do you not attribute the unrest in' each country 
 largely to a local condition — the unrest, we will say, that exists in 
 Germany we will attribute to a condition in Germany rather than to 
 their knowledge of the conditions in the United States or in Eng- 
 land? 
 
 Mr. Gary. Yes; but influenced by conditions elsewhere, sympa- 
 thetic to some extent. 
 
 The Chairman. Now, in this policy of the nations, each one to 
 quite a large percentage selling abroad for less than they sell at 
 home, results, if that is done at a loss, in the people at home bearing 
 the loss, or if it is done at less than a loss 
 
 Mr. Gary. You mean less than cost? 
 
 The Chairman. No; I do not mean less than cost; I mean other 
 than at a loss — the larger profit which they make at home compen- 
 sating for the smaller profit abroad is also borne by the home market. 
 
COMMITTEE ON INTERSTATE COMMEBCE. 719 
 
 Mr. Gary. No ; quite the contrary, Senator in my opinion. That 
 is, I answer the first part of your questions, which I think covers the 
 principle which you have in mind. 
 
 The Chairman. The principle is the same. I simply include both 
 in the same principle, of course. 
 
 Mr. Gary. Yes. A mill running full manufactures at a lower cost 
 than it would have if the mill was only partly filled, and besides the 
 organization is kept intact and the workmen employed. Now, if the 
 mill has a surplus over and above the domestic demand, or the de- 
 mand by domestic consumers, they can afford and can profit by a sale 
 of that surplus at a low cost down to what it cost them to manu- 
 facture, with great benefit to the mill, because its average cost on the 
 whole production is decreased, and thereby it is enabled to sell to the 
 domestic consumer at a less price than it could otherwise afford to sell. 
 
 The Chairman. Yes; I am familiar with that argument. Does 
 England import any steel rails into the United States? 
 
 Mr. Gary. No, sir. 
 
 The Chairman. Does Belgium? 
 
 Mr. Gary. Belgium has imported some. 
 
 The Chairman. Does Germany? 
 
 Mr. Gary. To some extent. They have dumped the surplus, just 
 the same as others have. 
 
 The Chairman. Of course^ this excess which the various nations 
 sell abroad for less than what they sell at home must necessarily get 
 into some market ? 
 
 Mr. Gary. Yes; generally neutral ports; most of it in neutral 
 ports. 
 
 The Chairman. Some of it may be neutral ? 
 
 Mr. Gary. Most of it. 
 
 The Chairman. Most of it must be competitive, must it not? 
 
 Mr. Gary. No, sir ; most of it is in neutral ports. That is necessa- 
 rily so. We could not afford to sell in Germany in competition with 
 them, nor could they afford to sell in competition with us, except in 
 some places. For instance, since the last amendment of the tariff 
 laws, Germany con outsell us at the seacoast. Our freights from the 
 mills to the seacoast— particularly to the Pacific Ocean — and the 
 ocean rates of the Germans are so low in comparison that they can 
 sell lower than we, and we can not meet their competition, and they 
 have sold a good deal since this amendment. But if they have to 
 come inland and pay that freight, then they can not compete with us 
 very much. That is the basis. 
 
 The Chairman. That is probably true of the steel industry, but 
 I am trying to discuss this, or get a discussion, upon somewhat 
 broader lines thsn your company, although I must admit that they 
 are something more than a minimum factor in the world's industry. 
 
 Mr. Gary. I am speaking of the steel industry, of course. 
 
 The Chairman. But trade generally. I do not suppose there is 
 any use in asking you the question, for I assume you differ, but in 
 view of your statement here it dqes seem to me that we exaggerate 
 the importance of the foreign relations; not only in commercial and 
 industrial relations but in all other lines, and if each one of those 
 countries paid more attention to their own house cleaning and sac- 
 rificed less to get foreign markets, there would be less unrest in each 
 one of the respective nations. I submit that for your consideration. 
 22877— vol i—12 46 
 
^20 HEARINGS BEFORE 
 
 Mr. Gary. No. sir; this feeling of unrest that I spoke of is not in- 
 fluenced, I believe, by export trade. It does not seem to me that it is. 
 
 The Chairman. It is influenced by industrial conditions some- 
 what? 
 
 Mr. Gary. Yes; but see how much worse the industrial condition 
 would be if Germany should cut off its five or six million tons an- 
 nually of steel which is now exported. The mills would be half idle — 
 half the mills would be idle most of the time, as the men would be 
 out of employment, and the cost of production would be increased 
 and the wages would be lower. 
 
 The Chairman. It would be true if they cut it off; but if they 
 never had done it, do you not think that every people feel that same 
 failure to reconcile a situation of selling from their own country 
 cheaper in foreign markets than their own that the people of this 
 country feel? 
 
 Mr. Gary. Mr. Chairman, they do not — — • 
 
 The Chairman. And it is impossible to reconcile the people of this 
 country to it? 
 
 Mr. Gary. Sales are hot made abroad at any lower price than 
 they have to be made. We get the largest prices we can get. For 
 instance, one year the average price of our rails exported was higher 
 than the average price of our domestic rails here, and is generally 
 r about up to it, and that is true of many of our products, and those 
 * prices are increasing a little year by year, so they are nearer together. 
 Since the United States Steel Corporation— and excuse me for re- 
 ferring to; that, but I know more about it — since that was formed 
 the average price of export steel has been increasing year by year, 
 because of a better organization and better facilities for doing our 
 business. We get the very biggest price we can ; but I will ask the 
 chairman if he does not think that it is a mistake — even though, as 
 you say, we may not agree — do you not think it would be a mistake 
 for' one nation to neglect to supply neutral foreign markets where 
 their commodities are not manufactured, thereby benefiting them- 
 selves in dollars and cents, benefiting their workmen, bringing into 
 the country from those neutral ports millions upon millions of money, 
 instead of allowing other nations to do it? If we withdrew from 
 that and England withdrew from that and we turned the field over 
 to Germany, what a fine thing it would be for Germany. Their 
 business would be taken care of then. 
 
 The Chairman. I would not have any nation withdraw from that, 
 but I can not assent to the fundamental that you laid down at the 
 outset, that this law must be adjusted; its industrial relation must 
 be adjusted with reference to enabling American manufacturers to 
 control foreign markets. I believe we should adjust it first with 
 reference to the American market; then if we can reach out, well 
 and good. But I believe too much importance has been attached 
 not only in this country but in other countries — and that that is 
 largely the cause of this unrest — to sacrificing for foreign markets, 
 I may be mistaken about that. 
 
 Mr. Gary. I think you do not carry the principle quite far enough; 
 I did not say anything about controlling the foreign markets. 
 
 The Chairman. Well, dominating. It is the same thing. 
 
 Mr. Gary. No ; I did not say that, Mr. Chairman. I am very sure 
 I could not have said that. 
 
COMMITTEE ON INTERSTATE COMMEECE. 721 
 
 , The Chairman. Well, securing. 
 
 . Mr. Gary. Securing our share. We are not getting our share 
 now by a good deal, but we have been increasing our output all the 
 time and are trying to get out share of the foreign markets. That 
 is a great business and a growing business, and if we got out of that 
 business the necessary result, in my opinion, would be to increase 
 the domestic prices, and not only that, but to deprive our workmen 
 of the opportunity to work, and the wages of our men would neces- 
 sarily be reduced. It seems to me it is a question of figures largely, 
 not a question of principle. 
 
 The. Chairman. I would not advise getting out of it, but I have 
 never yet been able to satisfy an American citizen, and I do not think 
 you have been — the whole country is against the proposition — that we 
 should stand a condition here which enables our people to sell 
 cheaper abroad than we do at home. It strikes me that where a 
 whole people look at a thing in the same way there is some merit in it. 
 
 Mr. Gary. Is not the ordinary argument that if the manufac- 
 turer can afford to sell abroad at one price, then he can afford to sell 
 to the domestic purchaser at the same price? Is that not the real 
 argument that is used and the only argument that is used by those 
 who object? I have never heard any other. 
 
 The Chairman. No; I have heard the other argument, that we 
 have a condition here which gives us sufficient prices to enable us to 
 sell abroad. That is what seems to be troubling the people, and I 
 think it is the same thing in other countries. Now, Judge, speaking 
 of this commission, take your illustration of the window — the boy 
 looking out of the window. Your idea would be, I take it, that 
 somebody could say when he could look out of the window and when 
 he- should not. 
 
 Mr. Gary. No; .whether he would look out of the window or not. 
 
 The Chairman. Well, look at all. 
 
 Mr. Gary. Perhaps the other is just the same; yes. 
 
 The Chairman. You were using it at that time with reference, 
 as I understood, to getting a foreign market? 
 
 Mr. Gary. Yes. 
 
 The Chairman. Now, a commission that was empowered to do 
 that — Congress would, under the Constitution, have to prescribe the 
 rule under which the commission could allow you to do these various 
 things, would it not? 
 
 Mr. Gary. Well, the first and elementary principle or rule should 
 be that the licensee must do nothing to restrain trade, or, if you 
 please, to unduly restrain trade, because none of us is dealing with 
 technicalities. 
 
 The Chairman. That would be a legislative rule, would it not? 
 
 Mr. Gary. I think that would. I think the Sherman law perhaps 
 establishes that, and the commission could not go beyond that, but 
 that should be the keynote of its considerations and decisions, I think. 
 That is, every one, I believe, is driving at the same thing — that is, 
 we want to reach healthy competition because that corrects almost 
 everything. 
 
 The Chairman. That is true; but we are confronted with the 
 proposition of some legislation. 
 
 Mr. Gary. Yes. 
 
722 HEARINGS BEFORE 
 
 The Chairman. Now, this commission could be given very little 
 authority except to ascertain whether the facts brought a matter 
 within the prescribed legislative condition? 
 
 Mr. Gary. I believe that you should legislate rules, and I have 
 suggested some things. 
 
 The Chairman. That is all. Senator Cummins, do you desire to 
 ask any questions? 
 
 Senator Cummins. Mr. Gary, you are a lawyer by profession, are 
 you not? 
 
 Mr. Gary. Yes, sir ; I retired from practice about 13 years ago. 
 
 Senator Cummins. When did you become connected with the iron 
 and steel business professionally? 
 
 Mr. Gary. You mean as a lawyer ? 
 
 Senator Cummins. As a lawyer. 
 
 Mr. Gary. I should think in the early nirteties, perhaps about 
 iS ( J2 or 1893; I believe you would remember it as well as I. You 
 remember the circumstances, at least. 
 
 Senator Cummins. Yes. 
 
 Mr. Gary. It was when the Consolidated Steel & Wire was or- 
 ganized. 
 
 Senator Cummins. When did you become connected with the iron 
 and steel business in the way of management ? 
 
 Mr. Gary. After the Federal Steel organization was completed, 
 about October 1, 1898. 
 
 Senator Cummins. And since that time you have been contin- 
 uously engaged in that general business? 
 
 Mr. Gary. I have. 
 
 The Chairman. If you will pardon me a moment. Will you 
 kindly furnish the committee with a statement of the constituent 
 companies, their capitalization, and the stock quotations at the time 
 the United States Steel Co. was formed? 
 
 Mr. Gary. I will endeavor to do that, Mr. Chairman. 
 
 (The statement referred to will be found on p. 811.) 
 
 Senator Cummins. Your connection first was with the Consoli- 
 dated Steel & Wire Co.? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Cummins. Professionally ? 
 
 Mr. Gary. Yes, sir; as a lawyer. 
 
 Senator Cummins. And in the way of management with the Fed- 
 eral Steel Co. ? 
 
 Mr. Gaby. Yes, sir. 
 
 Senator Cummins. And from the management of the Federal 
 Steel Co. you passed into the management of the United States Steel 
 Corporation. Since its organization in 1901, you have been con- 
 tinuously in the management of that company; that is, as the chief 
 managing officer of that company. 
 
 Mr. Gary. Well, that needs a little modification. When we were 
 first organized, we had an executive committee and a finance com- 
 mittee. The executive committee had charge of everything except 
 the financial matters. I was chairman of the executive committee, 
 and in the absenee of the committee had the power of the committee. 
 As to the matters in charge, or within the jurisdiction of that com- 
 mittee, it had all the powers of the board of directors when it was 
 not in session, and the same principles apply to the finance committee. 
 
COMMITTEE ON INTERSTATE COMMEECE. 723 
 
 I was a member of the finance committee. The president of the 
 company was in charge of manufacturing and operations, subject to 
 the executive committee of which I was chairman. The treasurer, 
 comptroller, and the legal department were subject to the finance 
 committee ; so that at that time our responsibility was more or less 
 divided, and with respect to practical questions or operating ques- 
 tions, I did not devote so much time as I afterwards did. Two or 
 three years after that time we abolished the executive committee and 
 created the position of chairman of the board of directors. The 
 chairman of the board of directors was ex officio member of the 
 finance committee. The chairman of the board of directors and 
 finance committee together had all the power of the committee when 
 it was not in session, which had all the power of the board when it 
 was not in session, and later I was made also chairman of the finance 
 committee, which left me occupying the position of chairman of the 
 board and chairman of the finance committee, with the powers which 
 were given, as I have described. Since that time I have been named 
 as the chief executive officer of the corporation and have had more 
 or less authority — of course, a great deal of authority — and have for 
 five or six years been, I will say, prominent in the management of all 
 of the affairs of the corporation. I think the by-laws say " in 
 general charge of the affairs of the corporation." 
 
 Senator Cummins. I have mentioned these matters simply to make 
 the record show your familiarity with the business, both from the 
 professional standpoint and from the managerial standpoint. 
 
 Mr. Gary. I said what I did, Senator, because I do not know that 
 I would personally like to be held responsible to the same extent for 
 what may have appeared in the business management during the 
 earlier history of the corporation that I would be willing to assume 
 for the last five or six years. That is the only reason. 
 
 Senator Cummins. That was not in my thought. 
 
 Mr. Gary. I suppose not. 
 
 Senator Cummins. I was simply endeavoring to show that since 
 1891 or 1892 
 
 Mr. Gary. 1901 or 1902, you mean? 
 
 Senator Cummins. No ; I am going back now to your original con- 
 nection with the business that you have been familiar with — the iron 
 and steel business. 
 
 Mr. Gary. Well, in a general way, but, of course, there was a 
 period in there, as you know, when I did not know very much about 
 the wire company, and up to 1901 I did not know anything about 
 any of these other lines— the tube and the sheet and tin plate, etc. 
 
 Senator Cummins. Prior to 1898, for instance, you knew some- 
 • thing about the business of the Illinois Steel Co., and the Wash- 
 burn & Moen Manufacturing Co.. and the Carnegie Co. ? 
 
 Mr. Gary. I knew something about them; yes. I was general 
 counsel for the Illinois Steel Co. . 
 
 Senator Cummins/ And you remember, I assume, the organization 
 of the American Steel & Wire Co. in 1898? 
 
 Mr. Gary. Yes; of Illinois, in 1898. 
 
 Senatoi Cummins. Of New Jersey? 
 
 Mr. GUry. That was in 1899; I think early in 1899. 
 
 Senator Cummins. Possibly in the spring in 1899, although I re- 
 member it as the spring of 1898. 
 
724 HEARINGS BEFORE 
 
 Mr. Gary. The American Steel & Wire Co. of Illinois was organ- 
 ized, as I remember, in the spring of 1898, and the American Steel 
 & Wire Co. of New Jersey, I think, was organized in the spring of 
 1899. 
 
 Senator Cummins. It was in one or .the other of the years; I 
 rather thought it was in 1898 that the American Steel & Wire Co. of 
 New Jersey was organized. I may be in error about that, but it is 
 not material. 
 
 Senator Oliver. It was in 1899. 
 
 Senator Cummins. Therefore, you have viewed the subject both 
 from its legal standpoint and its manufacturing or mechanical stand- 
 point ? 
 
 Mr. Gary. More or less. 
 
 Senator Cummins. You recognize, therefore, that in the work in 
 which we are engaged — and we are trying to get all the help we can 
 from those who are familiar with the subject— that we must first de- 
 termine upon a policy, which is difficult, and then put that policy into 
 suitable language or phraseology, which is not less difficult ? 
 
 Mr. Gary. I do. 
 
 Senator Cummins. You have stated, I think, substantially, that 
 there are some things which the antitrust law forbids, which it 
 ought not to forbid, that are certain and generally recognized by all 
 who know anything about the subject, and that there are other things 
 which it may or not forbid, according to the judgment of the indi- 
 vidual, concerning which there is very great difference of opinion? 
 
 Mr. Gary. Well, I would rather have you ask me as to some spe- 
 cific point with reference to either subject, and then I will answer it 
 the best I can. 
 
 Senator Cummins. I will put it in this way : First confining our- 
 selves to those things upon which there are no differences of opinion, 
 or at least slight differences of opinion, and Which are forbidden by 
 the antitrust law, what do you think corporations engaged in busi- 
 ness should be permitted to do which they are now plainly forbidden 
 to do by the antitrust law ? 
 
 Mr. Gary. Well, I have not said up to the present time that the 
 Sherman law forbids anything corporations ought to be allowed to 
 do. I have said, hoAvever, that in my opinion it is quite uncertain as 
 to just what we have the right to do and what we are forbidden to 
 do by the Sherman law. For instance, speaking to a Senator now 
 as I would speak to a lawyer, if I were going to Senator Cummins 
 as a lawyer and should say to him, " I would like to pursue this course, 
 and I understand under the decisions of the Supreme Court I have 
 no right to do that if that would result in an undue restraint of 
 trade ;" or, stated differently, I would have no right to do that if, in 
 the light of reason, that would be a restraint of trade under the law. 
 Now, can I do it ? It seems to me the Senator would say, " There is 
 involved not only a question of business and a question of law but a 
 question of the application of the law to business, and I might say 
 to you that if I were a judge I would not think that would result in 
 an undue restraint of trade, but another judge might say it did r 
 and you will have to take your chances on that." Now, whether it 
 ought to be so or not, that is the condition we are in, and have been 
 in, and to my mind the declarations of some of the leading statesmen 
 of the country on this subject have not been exactly the same at all 
 
COMMITTEE ON" INTERSTATE COMMERCE. 725 
 
 times,, and on all occasions, and in all their addresses. Not only that, 
 it seems to me from my knowledge of the law and the advice which 
 1 get that the opinions of the judges have not been the same. Those 
 are more or less influenced, as I think, by the conditions of the coun- 
 J& ,? chan S ed a . nd ch anging conditions of the country, and the 
 difficulty of applying the rules as ordinarily laid down to present 
 conditions. I do not know but that I am taking too much of vour 
 time J 
 
 Senator Cummins. Take as much time as you like. 
 
 Mr. Gary. Just to make it a little clearer, it seems to me, from the 
 standpoint of fair-minded men, there ought not to be any objection 
 to the principles of the Sherman law if they are what I suppose they 
 are, namely, that there shall not be created a monopoly with the in- 
 tention or with the purpose of restraining trade to a point which 
 materially interferes with the right to compete or with free compe- 
 tition. If that expreses substantially what the law is, I would not 
 oppose those. Therefore your question, while it is very clear and very 
 explicit and very comprehensive, yet it is difficult for me to answer. 
 
 Senator Cummins. I do not think I made myself entirely clear to 
 you, and I will put it in another way, because I think it is the very 
 pivot of the whole controversy, the controversy being as to whether 
 there shall be any change or amendment or supplement to the anti- 
 trust law. That is what we are here engaged in considering. 
 
 Mr. Gary. Yes. 
 
 Senator Cummins. There seems to be no dissent — practically 
 none — to the principle of the antitrust law? 
 
 Mr. Gary. That is correct. 
 
 Senator Cummins. There seems to be very little difference of 
 opinion that it expresses in a general way a sound economic policy, 
 but the whole difficulty arises in its application to the actual affairs 
 of the country. Now, gradually all men, I think, of intelligence have 
 come to one opinion with respect to its application to certain states 
 of facts ; that is, they all agree that those facts constitute a violation 
 of the law or that those facts are lawful under the law. But there 
 is an intervening zone, if you please, in which in its application to 
 the actual affairs of business it appears to be exceedingly uncertain, 
 where honest men differ with regard to the quality of the acts which 
 are inquired into. In my question I attempted to limit you to those 
 things which everybody understands are forbidden by the law. Take 
 it out of the field of uncertainty, do you think any of those things 
 should be permitted by the law? For instance, suppose that you 
 and all your competitors were to get together in a room, look over 
 the State of business, and come to a conclusion that the prices of steel 
 bars or steel rails or structural iron and steel, or any other com- 
 modity, were too low, and you entered into a written agreement that 
 for two years or five years you would all sell at a given price and 
 would not under any circumstances go below that price. I think at 
 the present time everybody understands that would constitute a vio- 
 lation of the law. 
 
 Mr. Gary. Yes. I do not think that ought to be permitted. 
 
 Senator Cummins. Now, I am simply giving you that as an in- 
 stance because there may be other arrangements which are forbid- 
 den by the law with equal certainty, concerning which your answer 
 might be different. Now, you do not want the law changed so as to 
 
726 HEARINGS BEFOBE 
 
 permit agreements between manufacturers and producers fixing 
 prices ? 
 
 Mr. Gaby. No ; I do not — except in specific instances by permission 
 of a commission or court. 
 
 Senator Cummins. Do you know of any other instances in which 
 the law, as everybody concedes it 
 
 Mr. Gary. Pardon me, you mean by agreement, fixing prices by 
 agreement ? 
 
 Senator Cummins. Yes, by agreement. Do 'you know of any other 
 instances in which the law forbids you or any of your associates from 
 «ntering into any agreement or arrangement that you think you and 
 your associates ought to be permitted to enter into ? 
 
 Mr. Gary. I do not know whether I can answer that intelligently 
 and specifically or not, but I will endeavor to tell you what seems to 
 me to be a defect in the Sherman Act as applied to present business 
 conditions. On the face of it, it seems to me one section is opposed to 
 monopoly. Now I should think a monopoly means a control of a 
 business or the substantial control of a business, and the object of 
 preventing monopoly is to prevent the power to restrain trade, to 
 suppress competition,' to unduly enhance prices, to oppress the con^ 
 sumer, and perhaps also the competitor. Another provision is op- 
 posed to the restraint of trade, and I think — -perhaps it is presump- 
 tious for me to say so — but I think it is difficult for the layman, or 
 even the lawyer, to say, even under the present decisions- — which I 
 know are generally considered as being very comprehensive and very 
 explicit — just what would be restraint of trade within the meaning 
 of that section. But certainly an agreement to maintain prices, an 
 agreement by competitors to maintain prices, to divide territory, and 
 to restrict output, would be considered a restraint of trade and a vio- 
 lation of that section. 
 
 Now, leaving out the United States Steel Corporation for the 
 moment, take any corporation in any line which is so equipped with 
 money, with location, or with organization that it has a decided 
 advantage over competitors, so that it may sell in localities, or even 
 in all localities, its product at a profit, but at a price which is as 
 low or lower than the cost of its competitors, and it has no under- 
 standing or agreement of any sort or description with its competi- 
 tors, and therefore is compelled to enter the field and remain in 
 the field as an old-style competitor, which means that that corpora- 
 tion will keep its mills running full, if there is enough business in 
 the country to keep them full, and means that the competitor must 
 go down and out. Now, that leaves this successful corporation in posr 
 session of the field, and it is a monopoly in spite of itself, and even 
 though it had no disposition at the start to secure a monopoly. Now, 
 I am inclined to think that that would be a violation of one section 
 of the statute, and not only that, it would be the very worst thing 
 that could happen to the country and everybody interested in the 
 business or corporation. 
 
 Now, that has been our difficulty and that has been my particular 
 difficulty all these years, Senator Cummins, to know what to do to 
 keep between those extremes. I have endeavored to keep away from 
 a' monopoly, and as a result have, in some cases, perhaps without my 
 power to prevent it, but in other cases because it was my disposi- 
 tion — in one way or another as a result, fostered competition, and 
 
COMMITTEE ON INTERSTATE COMMEECE. 727 
 
 yet, at the same time I have kept away from making any agreement 
 of any sort or description, direct or indirect, these many years. That 
 is what the Gary dinners really were for, to get around the table 
 and simply by disclosing to one another frankly our affairs so that 
 every gentleman there, knowing exactly the conditions, could go 
 away, and if he was a gentleman and wanted to be fair and decent 
 with his competitors could do business in such a way as not to nec- 
 essarily harm his competitors. But even that has been criticized 
 of late, and it has been a great puzzle. 
 
 I think those two provisions in their application are more or less 
 contradictory, and if there is not an amendment — and it is probably 
 not necessary — there should be some way of determining through a 
 commission various principles and of establishing and maintaining 
 the conditions which all desire. 
 
 Senator Cummins. I will reach that presently. I want to satisfy 
 myself upon this point. If I am charged with the duty of prepar- 
 ing any amendment or supplement to this law, I have got to write 
 it down. My general opinions as to policy must finally be crystal- 
 lized in language, and I wanted you to tell us, if you can, whether 
 there is anything that is now generally regarded as a violation, of 
 the antitrust law that you think corporations or concerns engaged 
 m interstate business ought to be permitted to do, so that I can put 
 it down in writing. 
 
 Mr. Gary. That imposes upon me the burden of determining what 
 is generally considered, and that I can not say. I have only referred 
 to what is considered by some and by the Department of Justice ■ 
 
 Senator Cummins. Well, I will come to that. I know what you 
 have in mind, and I will come to that in a moment. But, so far as 
 you know or can instance, there is nothing forbidden by the anti- 
 trust law which is commonly accepted; as forbidden that you think 
 ought to be permitted ? 
 
 Mr. Gary. Well, it depends altogether upon the construction of 
 that law. May I make any specific instance? It might occur in 
 many ways. I will just refer to the Tennessee Coal & Iron purchase. 
 
 Senator Cummins. Yes; but that is a disputed matter that is not 
 generally accepted. That is a question upon which there is a dis- 
 pute. I am speaking now of the law as it is understood by every- 
 body to be in its application to corporate acts, and I think we failed 
 then to find anything which would constitute a violation of the law 
 which public policy ought to permit. Now I will come to the next 
 proposition. I recognize that there are a great many things which 
 corporations have done, which individuals possibly have done, and 
 which some people claim to be or believe to be in violation of the 
 law, and which other people believe to be entirely lawful and innocent. 
 
 Mr. Gary. I think there might be cases where the corporation 
 should be allowed to purchase the property of a corporation which 
 had been competing. I think there are cases where a corporation 
 ought to have the right to make an agreement with another corpora- 
 tion to maintain a certain price, depending upon conditions and de- 
 pending upon the best interests of the customers of those corporations 
 and the desires of those corporations. But I would have all those 
 submitted to some commission 
 
 Senator Cummins. Certainly ; but even if they are submitted to any 
 commission, that commission must simply enforce or administer the 
 
728 HEARINGS BEFORE 
 
 law. But Ave are charged with the duty of making the law, and 
 therefore I come back to the proposition. It appears that you are 
 in favor of taking out of the antitrust law its prohibition against 
 agreements between manufacturers or producers fixing prices. 
 
 Mr. Gary. No ; T do not admit that. 
 
 Senator Cummins. You stated a few moments ago — and I do not 
 want to misunderstand you at all, because there are a great many 
 people who take that view of it, as you know — if a commission is 
 under any circumstances to be permitted to approve such an agree- 
 ment, that commission must be authorized by the law to do so, and 
 therefore we would have to change the antitrust law in that respect 
 and to that extent, anyhow, would we not? 
 
 Mr. Gary. Yes ; well, either amend it or, what I would prefer and 
 what I think is the only practicable way, I would have supple- 
 mentary legislation which would be calculated to enforce the prin- 
 ciples of the Sherman Act and to accomplish what is intended by 
 the act to be accomplished. That- is what I would do. 
 
 Senator Cummins. When I use the words " amend the law " I 
 make no distinction between the method of amendment, whether it 
 is by change in the phraseology of the statute or whether it is by 
 supplementary legislation. 
 
 Mr. Gary. Then we have been dealing at cross purposes, and I 
 ask your pardon. 
 
 Senator Cummins. I am speaking about the subject somewhat 
 more broadly. 
 
 Mr. Gary. I think I must have been confused, then. 
 
 Senator Cummins. Any legislation that changes the application 
 of the law to a particular state of fact is an amendment to the law, 
 as I use the word. 
 
 Mr. Gary. I did not use it in that sense. 
 
 Senator Cummins. So that you believe that we ought to change 
 the law, or the application of the law, so that 
 
 Mr. Gary. I think we ought to have supplementary legislation. 
 That is what I think. 
 
 Senator Cummins. So that a commission or board would be in- 
 vested with the authority to permit agreements between manufac- 
 turers fixing prices. 
 
 Mr. Gary. Yes; with the right of appeal, by one or the other, to 
 a court of competent jurisdiction. 
 
 Senator Cummins. I will come to that in a moment. Now, that is 
 one respect, at least, in which you believe that the application of this 
 law ought to be changed — with regard to agreements which are now 
 plainly and admittedly contrary to the law ? 
 
 Mr. Gary. Yes, sir; you see how much better able I would be to 
 answer your question if I knew exactly what can be done lawfully 
 and what can not now be lawfully done under the law. 
 
 Senator Cummins. I am trying to keep your mind now upon those 
 things which we all agree can not be lawfully done, and I assume 
 that the agreement between manufacturers or producers to fix prices, 
 and thus entirely eliminate competition for the period covered by the 
 agreement, is unlawful and would be condemned by any court before 
 which the case might come. 
 
 Mr. Gary. That is right. 
 
COMMITTEE ON INTERSTATE COMMERCE. 729 
 
 Senator Cummins. But you believe that the effect of the statute 
 should be so far modified as to permit the propriety of such an agree- 
 ment to be determined by a commission in the first instance ? That is, 
 I assume that the commission should be charged with the duty 01 
 determining whether such an agreement was for or opposed to the 
 public welfare. 
 
 Mr. Gary. No; to determine the question on the basis that the 
 result would be or would not be an undue restraint of trade. I 
 think you have got to have some standard. I know how difficult 
 the question is, of course. 
 
 Senator Cummins. According to the law as it is now, and as it is 
 construed now, everybody concedes that such an agreement would be 
 an undue restraint of trade, I think. 
 
 Mr. Gary. Yes ; I think so. 
 
 Senator Cummins. Therefore, if we give this power to a commis- 
 sion, we must in some way change the effect of the law by permit- 
 ting a thing to become lawful that is now unlawful, as it seems to 
 me. Now, do you know of any other instance, according to your 
 observation of business, that would now be plainly in violation of the 
 law that ought not be in violation of the law ? 
 
 Mr. Gary. You mean making agreements for purchasing prop- 
 erty? 
 
 Senator Cummins. Suppose an arrangement were brought up to 
 you, for instance, and that you would say instantly, "According to 
 the accepted opinions of all people and of all judges, I can not do it." 
 Is there anything of that kind more than you have stated that you 
 would like to do ? 
 
 Mr. Gary. That is perfectly clear now ? 
 
 Senator Cummins. Yes. 
 
 Mr. Gary. I do not know that I can. 
 
 Senator Cummins. We all recognize — at least most of us do — that 
 there is a wide zone in which questions arise that are not clear and 
 upon which there is a great deal of difference of opinion. 
 
 Mr. Gary. Yes, sir ; that is the difficulty. 
 
 Senator Cummins. I suppose that the very organization of a busi- 
 ness involves some of those disputed questions. 
 
 Mr. Gary. I think so. 
 
 Senator Cummins'. For instance, take your own corporation. The 
 extent to which, under the law in 1901 3 you could take in various 
 plants engaged in the business seems now to be a matter of un- 
 certainty. 
 
 Mr. Gary. Yes ; and I think it should be left to some authority — 
 some disinterested public authority. 
 
 Senator Cummins. And when you came, in 1907, 1 think it was, to 
 take in the Tennessee Iron & Coal Co., again the same general ques- 
 tion arose as to whether it was authorized or forbidden by the law, 
 Now you believe that such questions ought to be determined in ad- 
 vance' by some tribunal so that you could either recede from the ven- 
 ture or ' go forward with it with absolute knowledge that you were 
 within the law ? 
 
 Mr. Gary. I do. 
 
 Senator Cummins. Then that is one of the questions that you 
 Avould submit to the commission? 
 
730 
 
 HEARINGS BEFORE 
 
 Mr. Gaby. Yes. 
 
 Senator Cummins. Have you ever attempted to put down in such 
 language as should be used in a statute the rules which should guide 
 the commission rhat you have proposed ? 
 
 Mr.. Gary. No: except as I stated this morning. 
 
 Senator Cummins. Now, suppose there were up before such a com- 
 mission — and we will assume that the law would permit now this 
 authority to be exercised — the question of the propriety of an agree- 
 ment between your company and your competitor companies fixing a 
 price on steel mils, as that seems to be a favorite subject for com- 
 parison, and the commission were called upon to pass upon that 
 agreement, which we will imagine provided that rails should be sold 
 for the next two years at $28 per ton — what phraseology would you 
 use to give the commission the authority to determine whether such 
 an agreement should be approved or not? 
 
 Mr. Gary. The authority to determine whether such an agreement 
 would be in undue restraint of trade. 
 
 Senator Cummins. The commission would not know anything 
 more about what was undue restraint of trade than we do. That is 
 the very difficulty with that phraseology — nobody knows what it 
 means. 
 
 Mr. Gary. Well, you say they would not. I do not know. If 
 they had all the facts in a. given case, I think they would — just as 
 it turned out to be with reference to the railroads. We all know 
 what was said against the commission controlling tariff rates by 
 railroads. The commission, if made up of the right kind of men — 
 that is, men of sufficient experience and education and intelligence, 
 and who shall become fully possessed of all the facts — I think it is 
 quite competent to pass upon the question. 
 
 Suppose, if you will just allow me there — and it may be of some 
 benefit — suppose the manufacturers of rails should go to a commis- 
 sion, as has been suggested, with the statement that they could not 
 afford to manufacture rails and sell them at less than $30 per ton, 
 and should present facts to show that by a demonstration that satis- 
 fied the commission that it was probable they could not maintain 
 that rate absolutely except by an agreement at some particular time 
 when the capacity is double that of the demand, and the further evi- 
 dence that the railroad purchasers themselves, the only ones inter- 
 ested, had considered the question and had reached the same con- 
 clusion and were perfectly satisfied to have that price fixed, it seems 
 to me the commission ought to have the right in such a case as that 
 to say, "All right; make your agreement and maintain it at $30." 
 That is for the interest of everybody; it is for the interest of the 
 railroads as well as anybody else. 
 
 We do not always wish to buy what we buy at the very lowest 
 price, because we know, as a total result, in the long run, that it is 
 not for our interest. We won't pay any less. What we desire is to 
 have fair prices maintained and to feel that when we make the pur- 
 chase that the price will not be reduced before our competitor in 
 business purchases the same commodity. 
 
 Senator Cummins. Do you not recognize, Mr. Gary, as a lawyer, 
 that if you would put into a statute, as a guide to the commission, 
 just what you have now stated that it would be unconstitutional ? 
 
 Mr. Gary. You mean undue restraint of trade ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 731- 
 
 Senator Cummins. No; I mean just what I have stated. 
 
 "Mr. 'Gary. The facts, you mean, in the case? 
 
 Senator Cummins. Yes. 
 
 Mr. Gary. Perhaps it -would ; I do not say it would not. That 
 would apply to railroads the same, would it not ? 
 
 'Senator Cummins. You have compared this to railroads. Of course,, 
 from time immemorial there has been a standard for the compensa- 
 tion which public utility corporations should use in determining: 
 their charters. 
 
 Mr. Gary. "What is that standard? 
 
 Senator Cummins. The standard is one, as I understand it, and 
 which has been recognized -very many times, which, after the deduc- 
 tion of the cost of maintenance and operation and replacement, and 
 other current charges Of that sort, will return — that being of course 
 not reduced to certainty — a fair reward upon the value of the prop- 
 erty devoted to the public use. 
 
 Mr. Gary. Is that -a fixed standard by decision of the court? 
 
 Senator Cummins. That is a fixed standard, but there is no such 
 standard in private industrial affairs. No commission could say that 
 because a company was earning 25 per cent upon the value of its- 
 property it was earning an undue or unlawful profit, whereas it 
 could say that with respect to a public company. 
 
 Mr. Gary. I may be mistaken, but I can not agree with you there. 
 I do not think there is any difference between the railroad and the 
 manufacturing concerns with reference to that. 
 
 Senator Cummins. You know there is a difference in the law? 
 
 Mr. Gary. I know because the Interstate Commission act has 
 made it. 
 
 Senator -Cummins. No, there was difference before. Under the 
 common law a common carrier, in the first place, must serve every- 
 body who appeared to be served, and serve them upon the same terms r 
 and must serve them at a reasonable charge, and if more was asked a 
 suit could be brought to recover the overcharge at the common law. 
 
 Mr. Gary. Various operations would come within the police power ,- 
 and also principles which came within the principle which gave the 
 creating power a control which resulted from the additional right- 
 given to the corporation to exercise the right of eminent domain. 
 
 Senator Cummins. Because of the character of the service which 
 those companies render or rendered to the public. 
 
 Mr. Gary. That was a quasi-public corporation. That was the- 
 reason they had the right to do it. 
 
 Senator Cummins. There is no law either in the statute books or 
 in morals, so far as I know, that would require a manufacturer of 
 steel to sell his steel at a rate that would simply return him what we 
 generally understand to be a fair and just profit upon his capital. 
 You do not believe that the Government ought to put upon private 
 business the same limit of return, do you, that is put upon public 
 business? 
 
 Mr. Gary. Not as to amount, but I believe this sincerely- — I be- 
 lieve the sentiment of the country and the principles of law in their 
 application are being modified to meet the changed and changing 
 conditions. I believe that even private corporations, so called, are 
 reaching the position where they are, in principle, more or less 
 quasi-public corporations, and I believe that the Government has the- 
 
732 HEARINGS BEFORE 
 
 right under the Constitution, in the regulation of interstate com- 
 merce, to say that there shall be a maximum price fixed for the sales 
 of the products of a manufacturing concern, provided it is necessary 
 to do so in order to prevent an undue restraint of trade. 
 
 The Chairman. I will say to the committee that there was a little 
 confusion as to the gentleman who would appear before the com- 
 mittee this morning. Mr. Gary had right of way. Mr. Gray is here 
 from Minneapolis, and as it seems evident that we can not get 
 through with Mr. Gary to-day and he has expressed the desire to be 
 excused at 3.30 and to return next Tuesday, we will now hear Mr. 
 Gray. 
 
 Mr. Gary. Tuesday is a very bad day for me. Wednesday would 
 be better. 
 
 Senator Cummins. It is entirely satisfactory to me, Mr. Chairman. 
 I am very willing to resume with Mr. Gary when he returns, whether 
 it be Tuesday or Wednesday. 
 
 Mr. Gary. I will come at any time the committee insists on my 
 coming, but Tuesday is a very bad day. 
 
 (Mr. Gary was thereupon temporarily excused.) 
 
 STATEMENT OF PKOF. JOHN H. GRAY, OF THE UNIVERSITY 0E 
 
 MINNESOTA. 
 
 The Chairman. Give your full name, residence, and occupation 
 to the reporter. 
 
 Mr. Gray. My name is John H. Gray ; my residence is Minneapo- 
 lis, Minn. ; I am professor of economics in the University of Minne- 
 sota. 
 
 The Chairman. You heard the statement this morning as to the 
 plan of our hearings. You may proceed now with your statement, 
 subject later on to the interrogatories of the committee. 
 
 Mr. Gray. Yes, sir. I may begin by saying that I am a teacher, 
 and I always tell my students that I am not sure of accomplishing 
 anything until I get them to talking back; and I suggest that my 
 preliminary statement ought to be very brief, in order to give the 
 members of the committee a chance to call out such views as they 
 care to hear from me. 
 
 We are considering fundamentally, Mr. Chairman, in my judg- 
 ment, a question of the distribution of wealth and the inequalities: 
 of wealth. We can approach that from two or three standpoints, 
 and I want to take up first, if you will, the idea that is involved in 
 ail of our antitrust legislation, Federal and State. Those all rest 
 on the theory of competition ; and I want to take about five minutes 
 of the committee's time to show that, in my judgment, the use of that 
 term in this connection is a misnomer. 
 
 Our present system of economics took definite shape at the hands 
 of Ricardo. 
 
 Ricardo, in the first place, was a Jew, who had been shut out by 
 the persecution of his race for thousands of years from the land, 
 and had devoted themselves almost exclusively to commerce. In the 
 next place, he was a banker, dealing with fluid or mobile capital. 
 Again, he was a London banker, in the very center of the commercial 
 world. The whole theory of competition as worked out by Ricardo 
 rests on certain fundamental conceptions which were only measur- 
 
COMMITTEE ON INTERSTATE COMMERCE. 733 
 
 ably true in his day, and which every stage in human progress has 
 made less true than they were a hundred years ago, when he offered 
 them. 
 
 What do you mean by competition? Eicardo's theory was this, 
 that when two or more people were trying to serve the same markets, 
 in striving to gain that market each of them cuts the price as long as 
 he can do it and have any profit left ; and some of them being more 
 efficient than the others, find that they can cut further than the 
 others, and then the less efficient withdraw their capital and labor 
 and place them in more lucrative enterprises. 
 
 Now, in his day steam had just come in ; and in his conception of 
 the commercial world the withdrawing of the capital when it ceased 
 to yield average gains could be accomplished practically without 
 loss. If he had a million dollars more in his bank than was profit- 
 able, he could transfer it without loss. 
 
 Now, that is the essence of competition — that the less efficient 
 should be driven out of the market, and on the assumption that 
 when he is driven out of the market he can transfer his talents and 
 his capital to some occupation which, by supposition, is more 
 profitable. 
 
 Perhaps the railroad is the largest instrument of production of 
 wealth and the largest cause of the division of labor, and serves as 
 well for illustration of the principles with which you are struggling 
 as anything else, although I understand you are dealing particularly 
 with the great industrial trusts. 
 
 When you get a railroad " competing " with another railroad, if 
 you will allow me to use that word, they begin to cut rates. 
 
 The first thing I would like to observe is that that is an industry 
 which is subject to what, in the lingo of my profession, we call in- 
 creasing returns. How far you can cut rates and have a profit de- 
 pends on the extent of your output or scale of operations. If you 
 can steal the other man's traffic, you can cut your rates below what 
 you can if yon are dividing it in half with him. 
 
 But, passing that for a moment, when you cease to make a profit, 
 when your capital ceases to earn an average profit, what becomes of 
 the capital? Does it go out of the business? You do not pull the 
 railroad up. It is there. It is what the economist calls fixed capital. 
 
 And, being fixed, it is there to struggle for an income until it is 
 worn out. 
 
 And every step in human progress in the last hundred years has 
 tended to increase the significance of the fixed capital. And the 
 moment that capital, which ceases to be productive under a competi- 
 tive effort, can not be withdrawn without great or total loss compe- 
 tition has disappeared. Suppose you sell that railroad. If you sell 
 it to the railroad that is already there, you cease to compete. If 
 you sell it to somebody else, you begin the operation over again right 
 where you left it. The last fellow may have bought it cheaper than 
 the fellow who built it or who acquired it later. If so, he can fight 
 longer and do more damage. But it is the same process and with- 
 out" any limitation until the railroad is worn out or the traffic has 
 grown up to support both of them. 
 
 There is a great deal of talk and much difference of opinion about 
 maintaining competition, and it is bandied about every day that 
 competition has disappeared. On the other hand, it is often said 
 
734 HEARINGS BEFORE 
 
 that there is no safety for the public unless we restore competition — 
 the old-fashioned competition. Neither of those things is true. 
 "We are going to have competition in a large part of the industrial 
 field for an indefinite time — for a sufficiently long time to no longer 
 interest you and me. I do not mean our own lifetime by that, but 
 as long a period as humanity ordinarily takes into view. But such 
 competition is not the Ricardian competition which drives capital out 
 of the business into more profitable channels. Our aim must be to 
 improve the rules of such competition as remains; to see that it is 
 fair and increases human efficiency and does not merely destroy 
 profits on the road to combination. 
 
 But we have got to face the proposition that competition, in the 
 Ricardian sense, has ceased to be dominant. All economic reasoning 
 is a discussion of causes and tendencies, and I will admit that it is 
 not an exact science. Competition has ceased to be a dominant ele- 
 ment in our life, because as society progresses more and more of the 
 capital in machinery and plant becomes fixed and can not be with- 
 drawn when it ceases to earn average profits, or even any profits at all. 
 Because the industries that we are now constructing, not only the 
 railroads but the great industrial trusts, are all subject to its increas- 
 ing returns. By which I mean that the cost per unit of goods depends 
 largely — not without some modification — but primarily upon the 
 number of units you turn out of a _given plant. That being the 
 case, we have got to face the subject of monopoly. It is a new era 
 we are in. The circumstances are different from those of a hundred 
 years ago. 
 
 Now, I want to say a word, if I may be permitted, in regard to 
 the public industries. We talk about " quasi-publrc corporations," 
 *' public industries," and all that. "We use that phrase in a dangerous 
 way. "We use it implying an economic fact when we are dealing only 
 with a technical legal classification. Now, a public-service company, 
 a quasi-public corporation, is a perfectly definite thing in the law. 
 
 The thing that you are wrestling with is an economic thing, and 
 it has nothing to do with that. And that raises the question of the 
 basis of regulation of anything. If you are talking about law, a 
 public-service corporation is a perfectly definite category. It means 
 an industry which, in our complex, technical, and involved system of 
 law. we have actually legally, if not in practice, submitted "to regu- 
 lation. But it is an economic condition that you are wrestling with, 
 an economic cause and an economic result. What is the basis and 
 what is the justification, economically — not legally — of undertaking 
 to regulate a rate, a railroad rate, for instance? There is only one 
 justification, and that is that natural forces have ceased to protect the 
 consumer. It took us a long time to find that out. It is about 2fr 
 years since the first State of this Union undertook to compel com- 
 pulsory service by a gas company. It is a new phenomenon. 
 
 Now, as society progresses and natural forces either cease to work 
 or to work less efficaciously and in a different way — as long as there 
 is competition you do not need to regulate. The consumer is pro- 
 tected. If one man charges too much, by presumption, another man 
 underbids him, and the consumer gets the benefit of that. But the 
 minute that competition disappears or ceases to control then you 
 have got to raise the question of whether or not it is safe to leave- 
 
COMMITTEE OUT INTERSTATE COMMERCE. 735 
 
 that to individual initiative and individual management. You have 
 got to face the question then. 
 
 That becomes, economically— not legally— a public industry. In 
 the case of certain of these industries we have bv law subjected to 
 regulation, and because of that fact only we calf them quasi public 
 or public industries. 
 
 Wherever an industry or thing is necessary to the public con- 
 venience and welfare we leave it in fact to the private initiative so 
 long as natural laws work efficaciously. The minute such laws cease 
 to work — the minute the consumer ceases to be protected— then we 
 modify our laws, and we classify that as a public industry. 
 
 I want to submit to this committee, in all seriousness, that, in our 
 present situation, what we call the great industrial trusts are just 
 as much beyond the control of natural laws as a railroad company 
 or a gas company. Quite as much. 
 
 They used to regulate horseshoers when the way was beset with 
 robbers and the horseshoers were far apart. Horseshoeing was a 
 public industry. I have been in localities where I wished it was a 
 public industry yet. When we got the modern means of transpor- 
 tation, and horseshoers could be found at all desirable points, we 
 did not need to regulate that industry, and it disappeared from the 
 list of public industries. 
 
 From time to time the circumstances change and a reclassification 
 of industries becomes necessary. 
 
 We have not come, I say, to the point where all competition has 
 disappeared. It will never disappear, at least so far as you and I 
 can see. But we have come, in these great industrial trusts, to 
 where the advantages of concentrated industry make it absolutely 
 impossible for competition to work broadly enough and quickly 
 enough and actively enough to protect the consumer. 
 
 Let me turn my attention for a few moments to the different kinds 
 of combinations. And without meaning to be egotistic, perhaps I 
 might illustrate what I mean by some of my personal experience. 
 
 I began my studies by writing a history of the gaslighting in 
 Paris and Vienna and comparing it with our Massachusetts way. 
 And I found myself astounded at the increased efficiency of mo- 
 nopoly. The company had an assured legal monopoly for 50 years, 
 beginning with 1855. 
 
 I do not care to go over the ground Judge Gary covered this 
 morning. He said a good deal of what I was going to say ; he " stole 
 my thunder." But it is true that the mere mass of capital often is 
 determining as to the cost of production. It is true that the most 
 significant thing, apart from monopoly, in our last decade or two 
 has been the saving of waste; waste materials which are not pro- 
 duced on a large enough scale in the small plants to justify either 
 the scientific or the financial expense necessary for the effective 
 utilization of them. 
 
 When I was writing the history of the Paris Gas Co. I found 
 they were distilling, asthey called it. a million tons of coal a year. 
 Most of that coal was imported, although not all of it. They were 
 distilling a million tons of coal a year, and they were paying from 
 $4 to $5 a ton, and they were paying for every ton of their coal from 
 the sale of their by-products. They changed the whole method of 
 22877— vol 1—12 47 
 
t 736 HEARINGS BEFOBE 
 
 coloring matter in the world. Others discovered the art of making- 
 coal-tar dyes, and these fellows exploited it. They changed the 
 whole process from vegetable dyes to coal-tar dyes as a result of their 
 experiments. They had the most noted chemists in France con- 
 stantly in their employment. 
 
 Under those circumstances the small man can not compete. In 
 the first place, as I have said, you do not get competition. You can 
 not make men knowingly fight and destroy each other's property 
 perpetually. With a fixed capital there is no competition econom- 
 ically. You can not compel it. One buys the other out, or they 
 form an agreement ; whether the law allows it or not. The isolated 
 plant is not as efficient. If you want to maintain the isolated plant 
 you will have combinations and monopoly as the result of your at- 
 tempt on the one hand and you will have a tremendous waste of 
 life on the other. 
 
 Ours is the only industrial Nation in the world, gentlemen, that 
 has undertaken to prevent consolidations of industry. England has 
 gone farther than any other continental country, and very much less 
 far than we have. Every other nation has realized that here is an 
 increased effectiveness which can be got in no other way, and have 
 dealt with that situation as I used to deal with my father's colts, 
 when my father was raising wild colts for the market. If one of 
 them was wild, we never killed him ; we broke him and we used him 
 for the family interest. If a trust is doing things that are against 
 the public interest, in my judgment you ought not to try to kill it, 
 but you ought to break it; you ought to use it. 
 
 Now, Judge Gary spoke at great length with his eye on their own 
 company. He spoke of the economic advantages, the increased 
 cheapness of doing a certain amount of this work by what we call, 
 what he called, the integration of the industry. 
 
 Perhaps I could illustrate that as well, doing it briefly, by refer- 
 ring to what Mr. Rockefeller said a few years ago in regard to 
 his experience when he first became interested in the Lake Superior 
 iron mines. It is typical of modern industry. It is nothing pri- 
 vate; he told it himself. He said when he got to be worth a good 
 deal of money in the eighties, that often a man in his position had 
 to invest in things that he had no knowledge of in order to conciliate 
 somebody whom he wanted to use in other connections. He had thus 
 invested money in these mines before the panic of 1893. When the 
 panic came he found the only way to save himself was to buy and 
 operate the mines.. This, Mr. Chairman, goes to your question about 
 the railroad this morning. He said, when he began to think of op- 
 erating the mines, that the first thing he found was that somebody 
 else owned the railroad down to the lake shore, and that the fellow 
 who owned the railroad wanted to bargain with him and get most 
 of the profit of the joint operation. Then he acquired the railroad. 
 After that he said he found that the wharves and docks were owned 
 by somebody else, and they were going to take all the profits. They 
 insisted upon terms that would take all the profit. And he had to 
 huj and acquire those. Then he found the lake carriers were going 
 to do the same thing, and he found the same condition on Lake Erie, 
 and from Lake Erie up to Pittsburgh, and finally he found that the 
 only way he could save himself would be to own the industry from 
 the raw material to the finished product. 
 
COMMITTEE ON INTERSTATE COMMERCE. 737 
 
 I do not think there can be any question that that sort of an inte- 
 gration, while entirely at variance with the theory of our corpora- 
 tion laws until New Jersey began to bid for corporations by relaxing 
 her corporations laws, is a necessity of modern business with its enor- 
 mous and ever-increasing fixed capital. In fact, the question of 
 classification of industries is a very arbitrary one at best. Witness 
 the demonstration disputes in the labor world and the confusion in our 
 census returns. I do not think there can be any doubt that such 
 integration in the case of the steel industry has enabled steel to be 
 put on the market at a profit at a lower price than by any other 
 human agency, with those instrumentalities divided up under differ- 
 ent ownerships. I do not think there is a shadow of doubt about 
 that. 
 
 I do not mean to say that an unregulated company will put it on 
 cheaper. That is another question. That raises the question of mo- 
 nopoly again. 
 
 Now, the things we are confronted with here are much more wide- 
 spread than that. There is a combination which we call in economic 
 parlance a horizontal combination — a question of owning somewhat 
 similar plants widely distributed territorially and managing them 
 under one management. 
 
 There are certain gains which Judge Gary implied this morning, 
 but did not explain, which come from this form of combination. 
 
 If I have any knowledge it is in regard to the local public-service 
 corporation, although I have lectured on railroads a good deal. I 
 am reasonably familiar with the history of what we call the local 
 public-service corporation, and I have made considerable study of 
 the big concern, which has its head office at Philadelphia, known as 
 the United Gas Improvement Association. That has integrated a 
 great variety of local industries as widely separated as Maine and 
 Florida. And perhaps you will pardon me for two or three minutes 
 in showing you how these things came about and how they work. 
 
 That company acquired patents for a new process of making gas, 
 known as the low-water gas process. It tried to lease the right to 
 use those patents to existing gas companies who were charging 
 monopoly prices, charging traditional prices, and making all the 
 money that they dared to distribute. But, naturally, those men did 
 not want anything to do with a new process; they did not want to 
 bother with it. The result was that the company that owned these 
 patents had to begin to buy up the gas companies and to introduce 
 this new process in their own plants. They had only got fairly 
 started when electricity came into use. Then they would have been 
 compelled to undergo a competition which it was then believed would 
 be perfectly destructive. To protect themselves against that they be- 
 gan to buy up all the electric-lighting companies. They had not 
 caught their breath irom doing this until electricity was applied to 
 transportation — to the trolley. Now, everybody knew — they cer- 
 tainly knew — that if they allowed the trolley companies to manu- 
 facture their own electricity they would ask for a franchise for 
 lighting purposes. 
 
 I have cited this bit of history to show how these things are 
 inevitable with fixed capital. They were likely to have their plants 
 wiped out if they did not go into the trolley business — destroyed 
 by these fights. Let us ask now of the real advantage. I am pretty 
 
738 HEARINGS BEFORE 
 
 familiar with that concern. It' is said now to be dominated by the 
 Standard Oil interests, as you know. I am perfectly familiar with 
 that. And I am free to say — not that those fellows always charge 
 as low a price as they ought to, that is entirely a different question. 
 But I do say, without any fear of successful contradiction, that they 
 can produce and deliver their service or commodity, as the case may 
 be, at a profit, at a lower price than the independent companies could 
 possibly do it. Now, why? Well, in the first place they keep com- 
 parative tables of costs that Judge Gary was telling us about this 
 morning. The man at the head of that office in Philadelphia com- 
 pares every day the effectiveness of each one of those plants. If 
 one of the managers is inefficient, he is called to time and made to 
 feel that he has got to make good or get out. And the result of 
 tiiat combination is that after they paid all their long-distance and 
 telegraph charges and traveling expenses, and other expenses of 
 supervision, they still have an enormous economic gain. There is 
 no question about that, gentlemen. 
 
 That is a very effective means of doing business, even at those 
 great distances. That does not mean that those fellows ought to be 
 left free to charge what they want to. That does not mean that it 
 is a safe thing for any community to allow certain combinations to 
 go unregulated. As soon as any subject or citizen of a sovereignty 
 it; more powerful than the sovereignty itself, civilization is in danger 
 of disappearing. This is true of all individual citizens and of all 
 corporations and business organizations. 
 
 It goes without saying that no monopoly ever extorts, theoretically r 
 the full extent of its monopolistic power, for very simple rea- 
 sons. The first is that they are afraid of this unrest of which we 
 iear so much, and they would rather forego a little possible gain 
 to-day than to run the risk of investigation, to say nothing of regu- 
 lation, to-morrow. They also are afraid of attempts at so-called 
 competition, which never means competition in an economic sense. 
 It means the trusts buying out the other fellow at an excessive price 
 and then trying to saddle the burden of it on the consumer. They 
 are afraid of those attempts. The result is that they get a higher 
 rate of gain when they get the monopolistic power than they would 
 get under competition, but not as high as is theoretically possible. 
 
 Now, returning to the question of the increasing gains. We talk 
 about a reasonable price and a fair price, and the best economists 
 will talk about these monopolies and say their prices ought not to be 
 above a competitive price. The first thing I will say to that is that 
 there will be no competitive price. I think I have shown already 
 that there is no such thing in these trusts and combinations, with 
 their great fixed capital, as competitive prices. Their fights are not 
 competition in the economic sense. You have got to determine, as a 
 matter of public policy, what, under all the circumstances, in view 
 of the general rate of profit — a vague term, I confess — what is- 
 fair and reasonable for these gentlemen to have. Of course,, 
 too, you must have in mind in every case the degree of risk in- 
 volved. I do not see any hope of getting back to effective com- 
 petition. We do have some competition, but it is not dominant.. 
 I am willing to admit that we have progressed in our economic de- 
 velopment a little too fast for our morals and our spiritual welfare. 
 Nevertheless, I am not willing to admit that it would be advan- 
 
COMMITTEE ON INTEKSTATE COMMERCE. 739 
 
 tageous if we could go back to the meager and hungry days of hand 
 labor, and that is what competition, carried to its logical conclusion, 
 would do. I do not believe that it would be desirable if we could 
 do it, and we can not do it if we would. Nobody, in fact, is willing 
 to follow this logic of competition to its necessary conclusion and 
 thus destroy all fixed capital, and as long as fixed capital remains 
 there is no natural law to determine what the profits should be and 
 there is no competitive price to determine prices. There is one 
 method of dealing with those things. 
 
 The late President Harrison said in one of his California lectures 
 that a private citizen who held unrestrained power over a necessity of 
 life held the power of life and death and of slavery. And that is 
 true. He also said that no man was ever good enough, morally, to be 
 intrusted with unrestrained power over his fellow man ; and I indorse 
 that also. 
 
 The American people have got their choice, in my judgment, of 
 admitting once for all that natural laws have ceased to protect the 
 consumer and of developing an effective regulation — vague as those 
 terms are about a reasonable profit and all of that — or of seeing a 
 wholesale and indiscriminate movement toward public ownership. 
 Every industry which is not regulated by natural laws is a public 
 industry. And if there be any justification for allowing private 
 citizens to deal with it, it is that that is more advantageous to the 
 public, and not that a private citizen has a right to do so. The real 
 justification of private ownership is that private ownership is be- 
 lieved to be more efficient and, therefore, to lead to a greater accu- 
 mulation of capital. 
 
 Now, our traditions are all in favor of a private ownership and 
 the corporate management, and there is very much to be said in a 
 democracy in favor of proceeding along traditional lines, so long as 
 you can do it without positive harm. We are sure to have an in- 
 crease of public ownership, and, on the whole, that is likely to be 
 wholesome, provided it does not go too fast; but we are not going 
 back to hand labor ; we are not going to abolish the trusts. We can 
 not ; and we would wish that we hadn't if we did. 
 
 I want to illustrate the fact— I do not want to appear merely as a 
 doctrinaire. I have lectured on railroads for a great many years, 
 and mv students alwavs asked me whether I believed that the rail- 
 roads ought to be allowed to pool their business. I have always 
 answered that in this wise, which I think is as far as an honest and 
 sane man can go : To refuse them the right to pool is to force them to 
 fight and destrov property. It is to force them to be less effective 
 in a public service than they would be under a pooling arrangement 
 properly managed. But until we can get a government which is 
 strong enough, and honest enough, and expert enough to exercise an 
 efficient control over railroad pools, perhaps we had better make them 
 fight. The real problem of democracy is the problem of creating a 
 government stronger than any of its creatures or subjects. 
 
 I was impressed once by reading the life of Luther, where answer 
 was made to the charge that the Protestant reformation was bad, be- 
 cause instead of one unified Catholic Church gave us a multitude of 
 warring Protestant denominations. The author admitted the fact, 
 but said that while this had some drawbacks, yet it had a great ad- 
 
740 HEABINGS BEFOKE 
 
 vantage, it gave democracy a chance to develop. So our destructive 
 railroad and other business wars may give the Government time to 
 grow. 
 
 Now, I do not care to say very much more. But I want to em- 
 phasize, and I hope you will allow me to reiterate, that there is no 
 shadow of a difference in the economist mind between the steel cor- 
 poration and a railroad corporation or a gas corporation. One, 
 economically, is as much a public interest as the other; and the 
 American public and every other public ought to take those things 
 over and own them if they can not control monopoly in the public 
 interest. 
 
 There is one other thing I ought to have said — I have spoken about 
 protecting the consumer. That is a point upon which a^l the atten- 
 tion has been drawn. There is another point that I have not referred 
 to, and perhaps it is not worth while to go into it now. With our 
 corporations as they are to-day the investor is in need of protection 
 against the corporate management. I want to say that the need th^re 
 is as great as the need of protection to the consumer. But the two go 
 hand in hand. 
 
 Again, ours is the only nation that has undertaken to repress con- 
 tracts in restraint of trade — monopolies, if you like. The German 
 Government has always permitted those contracts, and in some cases, 
 where the fight was especially injurious to the public, compelled them 
 by law. In the phosphate business they absolutely commanded 
 such contracts. Under their system they have this very great ad- 
 vantage, that they can try an experiment without putting their 
 necks in a halter so far as we have done. When they have a con- 
 tract in the coal business — the coal and the steel are the two most 
 important combinations. The coal, best for purposes of illustration, 
 offers some advantages. When they have a contract in the coal busi- 
 ness — a cartel, as they call it — every individual producer is left in 
 charge of his own plant. He is allowed to make all the economies 
 he can. He must sell at the price fixed by the combination, and he 
 must in all matters conform to the rules of the combination. 
 
 He has all the incentive to efficiency that he needs. Then, if the 
 scheme proves bad, all the Government has to do is, with its hand 
 upon it, to press the button, and it can modify or repress that con- 
 tract. Under such an agreement we have the only beneficial com- 
 petition that is possible in large scale capitalistic industry. 
 
 In this country we started out with the pools. The pools were, of 
 course, against the common law at first, and later against the stat- 
 utes. In this country nobody would Keep them. You could not 
 enforce them. They went to pieces of their own rottenness. Then 
 came the formal trust, by which they surrendered the stock to trus- 
 tees and issued trust certificates. This form was prohibited by the 
 courts nearly 20 years ago. 
 
 And the result was that the men would not destroy their property 
 by fighting. They then began to form the holding company, under 
 the generosity of the State of New Jersey. Some question about 
 that then arose. It is only in recent years that it has been seriously 
 attacked. There was some question about it, and we finally forced 
 the consolidated corporation, with one large company issuing its 
 stock for the other companies and destroying the corporate organi- 
 zation of the other companies where possible. The result is that we 
 
COMMITTEE ON INTEESTATE COMMERCE. 741 
 
 have a consolidation that is more formidable and more powerful than 
 in any other country. 
 
 We have larger financial resources; we have a more virile race 
 than those old traditional countries, and we have had less positive 
 law in force, and a very much less restraining tradition. The conse- 
 quence is, we have gone to a greater extent in the inequality of 
 wealth than any other nation. 
 
 In Germany the unrest is largely political. They have developed 
 their workmen's insurance and their housing regulations very much 
 more than we have. The unrest there is due to the undemocratic 
 system of voting, and is therefore more political than economic. 
 It is a plea for equal adult male suffrage which they lack in all the 
 States and which they have only in the Empire, and that at the age 
 of 25. 
 
 I perhaps have said as much as the circumstances justify me in 
 saying. I shall now be glad to answer any questions that is within 
 my power to answer. "> > 
 
 The Chairman. I presume you are fairly familiar with the Sher- 
 man law? 
 
 Mr. Gray. I know something of it. 
 
 The Chairman. And the recent decisions of the Supreme Court? 
 
 Mr. Gray. I have reread those within the last 24 hours, both of 
 them. 
 
 The Chairman. Have you any suggestion to make as to a remedy 
 for this situation ? 
 
 Mr. Gray. I think the remedy is a legislative one. 
 
 The Chairman. I know, but what would be your suggestion? 
 
 Mr. Gray. Let me say this: I hope I am modest; I am sure I 
 have no desire to be otherwise, or to appear otherwise. I think the 
 antitrust act was justified only by the fact that we knew so little 
 about the situation. But, coming to those decisions, those decisions 
 are typical of a great many things. We are living under a pretty 
 hard and fast constitution. We have a separation of powers — a sep- 
 aration which can never in practice be complete, but which brings out 
 ill results accordingly as one department of the Government or an- 
 other actually goes more largely than has been customary into the 
 field of the other. Under our division of powers the legislature is 
 supposed to determine public policy. The courts are supposed to 
 enforce the laws, and we have actually come — I do not see how any 
 mind at all scientific can see it otherwise — to a place where the legis- 
 lature is about to be abolished. The courts are interpreting the law. 
 The man who interprets the law, instead of enforcing it, is the man 
 who actually amends the law, and the man who amends the law will, 
 in the last analysis, be the man who makes the law, and you can have 
 all the popular sentiment in favor 
 
 The Chairman. But you have not answered my question. What 
 plan of legislation would you suggest? 
 
 Mr. Gray. I would like to suggest what I am afraid would be 
 rather bizzare, in your opinion — T mean to make no reflection on 
 either the intelligence or the honesty of judges. I think I can show 
 that the court is the last body on earth that is adapted to controlling 
 industry. 
 
 I should like to see the right of the court — of course, it means the 
 Supreme Court — to interpret laws tested. I should like to see Con- 
 
742 HEARINGS BEFORE 
 
 gress pass an act establishing some sort of commission to interpret, 
 not to enforce, the law. That raises the whole question of dele- 
 gating legislative power — a very delicate one. I make a sharp dis- 
 tinction between those two things. I would like to see the Supreme 
 Court pass on that sort of an act. That is not an impossible thing 
 at all, you know. I mean impossible in principle. I do not know 
 what the court would say about it. I think we are hopeless as long 
 as the courts attempt to administer by interpretation, as they have 
 been doing. I think we are wasting our time in passing acts. 
 
 We must have either a constitutional amendment — and I know 
 something of the difficulty of that — or we have got to have a new 
 interpretation from the court itself as to the powers of the court. 
 However, I agree with Judge Gary that we have been marvelously 
 free from dishonesty and corruption of judges of the higher courts. 
 But that has nothing to do with the problem we are considering. 
 It would be sad if it were otherwise than as he has stated. But even 
 granting that, it has nothing to do with the practical problem of 
 regulating industry, for the reason that a court, in the first place, is 
 concerned, as the late Justice Brewer said — is concerned primarily 
 in protecting private property and private rights. I put private 
 property first. Furthermore, the courts are concerned largely in 
 protecting those in the same sense that those terms were used a cen- 
 tury ago. In the next place, it is dealing with a series of facts that 
 are often changed before the decision came. 
 
 Now, I was very much pleased with Judge Gary's position on that. 
 The only way that you will eve rcontrol in fact is to get so constant 
 daily, intelligent, well-informed knowledge of the business to prevent 
 people from doing what is against public interest, rather than to 
 punish them by fines or imprisonment, or both, after it is done. And 
 the court has no facilities for that kind of investigation. The court 
 is conservative by nature. It is dealing with fictions. 
 
 The law is marvelously artificial. Perhaps it has to be so. And 
 the result is that it furnishes no practical control, as administered by 
 the courts only. It can not. It is impossible. 
 
 The Chairman. Senator Cummins, you may inquire. 
 
 Mr. Gray. May I say one word more? 
 
 The Chairman. Certainly. 
 
 Mr. Gray. There is a very great fear of what we call socialism, 
 and many people with vast interests think that anything is socialism 
 which disturbs the present unregulated power. I want to submit 
 to this committee that such a condition as has come about in the 
 tobacco industry as a result of the court's decision is the most awk- 
 ward, the most inefficient method of public management of business 
 that the human mind could conceive. 
 
 We have our courts now bringing in certain parties and making 
 them submit their plans of reorganization. Do you suppose thai 
 an outsider is going to feel the same courage and liberty in trying 
 to establish a tobacco factory without the O. K. of the court? Do 
 you suppose that they are going every day to the court to get an 
 O. K. on every contract and every move they make? They are not, 
 as a matter of fact. They are going their own sweet way. That 
 is public management through the court, really, and I do not see 
 how anybody can hope to make it effective. I do not think it will 
 ever be effective myself. 
 
COMMITTEE ON INTERSTATE COMMERCE. 743 
 
 The Chairman. Proceed, Senator Cummins. 
 
 Senator Cummins. Mr. Gray, is it your opinion that we ought to 
 repeal the antitrust law? 
 
 Mr. Gray. That raises some very difficult questions. It raises the 
 question of whether you have the moral and the legal power of con- 
 trol. You ought not to repeal it unless you put something effective 
 in its place. These industries have to be controlled. 
 
 Senator Cummins. Do you think anything more effective can be 
 put in its place? 
 
 Mr. Gray. I think we have got to come to an administrative — not 
 a judicial or a legislative — control. We must come to a commission 
 or commissions. I do not believe that any legislation which does not 
 set a watch over these industries and know at all times what they 
 are doing before controversy arises will be effective. We have tried 
 legislative control and we have tried the judicial control, and both 
 of them have proved ineffective. 
 
 Senator Cummins. You recognize that to come to that way of 
 dealing with the subject we must repeal the present law? 
 
 Mr. Gray. I should repeal it at the same time that I set up the 
 new form of control and not leave the matter open. As I said in 
 regard to railroad pooling, it is better that they should have a club 
 hanging over them than to be entirely free from control. 
 
 Senator Cummins. But as a matter of Government policy you 
 think we ought to repeal the antitrust law and substitute for it some 
 governmental function that would regulate the practices and fix th« 
 prices ? 
 
 Mr. Gray. Yes. 
 
 Senator Cummins. Of those various industries ? 
 
 Mr. Gray. Yes; as soon as you feel confident that you have got 
 the other agency in working order. 
 
 Senator Cummins. You recognize, I suppose, they can not vevy 
 well go on together? 
 
 Mr. Gray. No. The two are inconsistent. 
 
 Senator Cummins. We would really have to adopt the one policy 
 or the other? 
 
 Mr. Gray. Eegulation is inconsistent with competition, and com- 
 bination or monopoly always results in practice from trying to com- 
 pel competition. 
 
 Senator Cummins. Assuming that our Federal Constitution re- 
 mains practically as it is and that the courts exercise the power which 
 they say they have under the Constitution, would you abandon the 
 prohibitive part of our policy and attempt to put the power of fixing 
 prices and regulating practices in the hands of a commission? 
 
 Mr. Gray. I scarcely know how to answer that, Senator, because 
 it is a question of probabilities. I do not believe we are going to have 
 anything effective done under the present arrangement. I think that 
 things have got to go from bad to worse until the court either openly 
 and positively reverses itself or we get a constitutional amendment 
 changing the' system. I know the difficulty of doing that, but when 
 the people have all come to one mind it can be done. I do not like 
 to answer your question directly. 
 
 Senator Cummins. Do you use the words " trust " and monopoly 
 synonomously % 
 
744 HEARINGS BEFORE 
 
 Mr. Gray. I am glad you called my attention to that. I use the 
 popular language, and let me answer that in an indirect way. I 
 think I can make my meaning clear. Whenever' competition ceases 
 to be the dominant controlling element, then there enters an element 
 of monopoly. And there is only one kind of absolute monopoly— 
 perhaps I might say two. One is the old one, which has almost dis- 
 appeared, namely, a grant from the Government of an exclusive 
 legal right, and the other is where one controls all the resources 
 affecting an industry. 
 
 Neither of those is the significant thing that we are dealing with 
 to-day. They are both significant in a way, but neither is the chief 
 thing. There are very few monopolies of either kind, and most of 
 them are temporary. The question now is preeminently one of 
 industrial monopoly. It goes back to the case the chairman was 
 asking about this morning. There would be no advantage to the 
 Steel Corporation of owning that railroad if it were of equal use to 
 the other fellow. It is the advantage of using that when the need 
 comes and letting the other fellow take what is left. In other words, 
 they are afraid that there would be equal use of it. If there were 
 absolutely equal use of it there would be no advantage in their using 
 it. Just as soon as one concern, by buying or by amassing capital, 
 gets to where it competes at great advantage, an element of monopoly 
 eomes in. Then you have all the problems of monopoly. 
 
 Senator Cummins. So you do not use the words in the same sense? 
 
 Mr. Gray. No ; not exactly. 
 
 Senator Cummins. The trust, as I understand it, then, is an institu- 
 tion, a business institution, which is able to produce or transport, 
 if that be its business, at much less cost than others who may be 
 engaged in the same business, and that can afford to sell at a less 
 price or render their service at less price, and still make a profit? 
 
 Mr. Gray. Yes, sir. If it competes on equal terms. The word 
 " trust " is a misnomer. It came from the time when we had trusts 
 in the strictly legal sense. 
 
 Senator Cummins. I wanted to have clear in my mind what you 
 meant by the word " trust." 
 
 Mr. Gray. I mean by that any organization which is large enough 
 to have a marked advantage in competition. 
 
 Senator Cummins. And you recognize that when any business 
 establishment reaches that stage, for whatever reason, then its busi- 
 ness becomes a public business ? 
 
 Mr. Gray. Yes, sir. 
 
 Senator Cummins. And that the Government should undertake to 
 treat, and actually treat, that whole business precisely as it treats 
 railroads and gas companies? 
 
 Mr. Gray. Exactly. 
 
 Senator Cummins. And street car companies ? 
 
 Mr. Gray. Exactly. There is no economic difference. 
 
 Senator Cummins. That is your conclusion ? 
 
 Mr. Gray. Yes ; there is no economic difference whatever. 
 
 Senator Cummins. If that is true then, of course, you must favor 
 the absolute repeal of the antitrust law ? 
 
 Mr. Gray. I should not be willing to answer that, "Yes." I 
 would rather say, have a bar up which is a hindrance to their activ- 
 
COMMITTEE ON INTERSTATE COMMEECE. 745 
 
 ity, rather than to run the danger of leaving the industry without 
 any regulation. 
 
 Senator Cummins. Then I will put it in another way. Whenever 
 we find that any business has reached that stage, or any institution 
 in the business, then we should undertake to protect the public 
 against any undue profits or undue prices by fixing those prices 
 ourselves ? 
 
 Mr. Gbay. Whenever it is necessary. Of course, that is the ulti- 
 mate object of all regulations. If you will allow me, I would tackle 
 it at the point of prices, rather than profits. I should not attempt 
 directly to limit the profits. I would approach it from the standpoint 
 of prices. I say yes to your ideas, as I understand them. 
 
 Senator Cummtns. That being true, it ought to be the policy of the 
 Government to, as speedily as possible, get the whole business into a 
 single institution? 
 
 Mr. Gray. I should not go quite so far as that, because this whole 
 business of monopoly and these industries are so new that we do not 
 know yet how far that increased efficiency is going. 
 
 Senator Cummins. There are difficulties on the other side, I take it. 
 For instance, the iron and steel business, of which we have heard so 
 much to-day. I will assume, without asserting it to be a fact, that 
 the United States Steel Corporation can, on an average, produce its 
 commodities for $2, $3, $4, $5, or $6 a ton less than any other con- 
 cern engaged in the business, and we will suppose this commission 
 engaged in the work of fixing prices. Now, shall it fix prices that 
 will enable these concerns which are disadvanta'geously situated to 
 make a profit, or will it fix the prices so that the large concerns alone 
 can make a profit? 
 
 Mr. Gray. I think you have got to make a distinction there be- 
 tween a sudden change and a gradual change. As soon as we are 
 convinced that the large concern has permanency, advantages, and 
 efficiency, why, then we ought to work toward that, so far as we 
 can without great injustice to the capital which has already been 
 devoted to it. Vested interests must always be regarded in making 
 changes. 
 
 Senator Cummins. But in the end that does precisely what the 
 ruinous competition of which you spoke accomplishes? 
 
 Mr. Gray. No ; I do not agree with you there. The ruinous com- 
 petition destroys property, and that often with great suddenness. 
 I say you ought to make that change so slowly as to sort of split the 
 difference in deference to the capital already in the business. 
 
 Senator Cummins. Suppose a part of the difference lies merely in 
 the employment of larger capital? 
 
 Mr. Gray. That is a very large point, as a matter of fact. The 
 large capital within any limits yet reached is generally more effective. 
 
 Senator Cummins. That is a permanent disability? 
 
 Mr. Gray. Within the limits we have reached, I am not at all sure 
 that it will not cease to be as effective in the future. You have two 
 opposing forces. You have the advantages that have been set forth 
 by the previous witness and myself, on the one hand, and you have 
 an increasing difficulty in supervision 
 
 Senator Cummins. I understand that, but I have disposed of all 
 those things by the assumption that the large concern can produce- 
 
746 HEARINGS BEFORE 
 
 in this instance — suppose that it could produce for $5 or $6 less than 
 the smaller concerns. Now, what are you going to do with a case 
 like that in fixing prices ? 
 
 Mr. Gray. I should be very tender to the capital already devoted to 
 the enterprise, and I would try to fix prices, if I were on the commis- 
 sion, so as to discourage additional capital from coming in independ- 
 ently and permit the larger corporation, while the condition lasted, 
 to have somewhat larger profits than the less efficient from the 
 uniform prices. 
 
 Senator Cummins. Now, then, you know that would approach that 
 -economic condition and that cheapness which is represented in an 
 establishment that employs the unit of cost, would it not, Mr. Gray? 
 
 Mr. Gray. I do not quite follow you. 
 
 Senator Cummins. Well, if you establish as a permanent policy for 
 the country that a given industry, the prices of the products of a given 
 industry, should be fixed so that the weaker establishments could 
 make money, that would be a permanent condition, would it not? 
 
 Mr. Gray. No ; I do not think so. I should fix it so that if the dif- 
 ference is as great as you assume it to be the small concern would 
 make less than the normal profit. In the first place, we are a grow- 
 ing country, and in the next place we are rapidly wearing out your 
 machinery. So that it is a thing that cures itself. I should not advo- 
 cate any sudden change, but I should permit the less efficient to make 
 some money, the more efficient to make more than the average return, 
 until we grew up to the investment or until the capital in the less 
 efficient plans should be worn out. By supposition such capital would 
 be renewed less freely. 
 
 Senator Cummins. But that is the equivalent of the Government 
 interfering and fixing prices upon a competitive basis, is it not, 
 practically ? 
 
 Mr. Gray. No; that is a temporary arrangement, if I follow you. 
 T could not quite agree with that. The commission, if it be a com- 
 mission, would look about and undertake to find out what was a 
 fair price for producing the amount demanded at that price, and 
 it might let one fellow have more than a fair average profit and the 
 other fellow a little less until the change in demand equalized things. 
 
 Senator Cummins. That equalization, however, you say, would 
 be made simply to protect the fixed capital engaged in a losing busi- 
 ness? 
 
 Mr. Gray. Yes ; I should say so. 
 
 Senator Cummins. And you would, of course, protect that to the 
 end? 
 
 Mr. Gray. Well, I should protect it in a way which would not 
 encourage other inefficient capital to come in. Our antitrust law 
 at present attempts to make those fellows fight forever. Of course, 
 there are a lot of elements there that we have not had time to go into. 
 
 If you have simply the law that we have now — assuming it is en- 
 forced — you have got destructive competition. I am trying to fix 
 a price that will prevent the destruction of property. You have got 
 the large concern now finding out where this fellow has his easiest 
 market and cutting his price below cost and all :hat port of thing, 
 That is what the present law will result in. I should attempt to safe- 
 guard the property that is in there and to restrain meantime unfair 
 and cutthroat competition 
 
COMMITTEE ON INTERSTATE COMMERCE. 74 T 
 
 Senator Cummins. I agree with you about that. But some prog- 
 ress could be made in regulating or preventing unfair competition, 
 could it not? 
 
 Mr. Gray. Yes; but only with an administrative commission. I 
 do not think we will ever make any significant progress through 
 mere legislation and the court's. 
 
 Senator Cummins. You are assuming that the courts from time to 
 time deliberately, or — yes, deliberately set aside the intention of the 
 legislature ? 
 
 Mr. Gray. I do not think there is any doubt about that, Senator. 
 
 Senator Cummins. At least that is not acknowledged by the courts,. 
 I think. 
 
 Mr. Gray. That is a big subject. 
 
 Senator Cummins. Even if you had a commission, it might from 
 time to time have difficulty in construing or interpreting the language- 
 used by a legislative body ? 
 
 Mr. Gray. Yes; but it is quite a different problem there. The' 
 court is busy with other things, and the court has a training which 
 is adverse to progressive legislation. The court represents the tradi- 
 tional; the court represents the sequence; it represents the ideas that 
 have come down from simpler times. Every court — I do not care 
 how intelligent and how honest. — is going as far as it can honestly 
 do to maintain things as they are and have been. 
 
 Now circumstances are changing, and the legislature finds that 
 out sooner than the courts; and the legislature is trying to adapt our 
 law to the conditions of to-day, and the court is honestly trying to- 
 adapt it to the conditions that have gone by. 
 
 Senator Cummins. Do you favor giving the commission or the 
 tribunal that you have suggested power to determine when a par- 
 ticular industry is dominated by a trust ? 
 
 Mr. Gray. I should give it the ultimate power to fix prices — un- 
 reasonable prices. 
 
 Senator Cummins. Whenever it believes that there is a trust any- 
 where in the business ? 
 
 Mr. Gray. Yes; whenever an element of monopoly enters in. 
 
 Senator Cummins. You have several times used the phrase " nat- 
 ural force " in business. You mean by " natural force " the competi- 
 tive force? 
 
 Mr. Gray. Yes; in that connection that is what T mean._ 
 
 Senator Cummins. And you would give the commission the au- 
 thority to determine when that force had been driven out so that the- 
 governmental function should intervene? 
 
 Mr. Gray. Yes, sir; and also power to deal with unfair competi- 
 tion. 
 
 Senator Cummins. That is all. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. Professor, do you agree with Judge Gary that 
 publicity will largely cure the situation ? 
 
 Mr. Gray. I thmk it will have a wholesome effect. I do not think 
 it is a panacea. T think any man who has bpen abroad as much as 
 1 have and seen the difference between the way a young man behaves 
 at home and the way he behaves in Turkey will agree that a little 
 publicity — the watchful eye of a friend there — is a very powerful 
 
748 HEARINGS BEFORE 
 
 influence in making him decent. I think publicity will have a great 
 effect. 
 
 Senator Watson. That is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Professor, I understand you to say that this 
 suggestion of yours is somewhat bizare ? 
 
 Mr. Gray. Kather, I meant to imply it might be thought so. 
 
 Senator Brandegee. You would have the commission interpret 
 the statute? 
 
 Mr. Gray. Excuse me, Senator, I did not say that. I do not have 
 in mind just what you referred to. I think we need a special com- 
 mission for that, not a regulating commission. 
 
 Senator Brandegee. But you would have a separate commission 
 to interpret the laws, and another administrative commission to 
 fix prices and regulate practices? 
 
 Mr. Gray. Yes; I should not put it under one bureau. If the 
 legislature finds that it made a mistake, or the statute is not clear, 
 it has the right to amend it. But the legislature is not always in 
 session. 
 
 Senator Brandegee. What I want to have you say is whether 
 these various propositions that you have suggested were sufficiently 
 matured in your own judgment as to take the form of positive rec- 
 ommendations to the committee and to Congress, or whether they 
 are merely in the line of speculations of what might possibly be done 
 if the present situation can not be remedied otherwise ? 
 
 Mr. Gray. I never have attempted to write those out for publica- 
 tion. They are the result of my studies and thinking for 20 years. 
 
 Senator Brandegee. Then, they are matured, if they are the result 
 of 20 years of study ; they are matured opinions ? 
 
 Mr. Gray. I confess that this particular suggestion has come 
 rather as a result of the recent decision. 
 
 Senator Brandegee. Which particular suggestion? 
 
 Mr. Gray. In regard to a separate commission to interpret the 
 decision. 
 
 Senator Brandegee. I won't go into that, but I would like to ask 
 one or two other questions about this other commission, and I shall 
 be very brief about it. Your administrative commission, which you 
 would like to see established to command prices or to limit prices and 
 regulate practices would be one commission for all the businesses of 
 the country which have become sufficiently prominent, in the opinion 
 of Congress, to be considered as public businesses ? 
 
 Mr. Gray. The answer to that question turns on strictly political 
 considerations. I should feel we were perfectly justified, and that it 
 is highly desirable to have more than one commission, if we can get 
 the public to indorse the view. 
 
 Senator Brandegee. I was simply trying to get at what was your 
 recommendation— whether you were prepared to say if there ought 
 to be one commission or many ? 
 
 Mr. Gray. I should say possibly, considering how difficult it is to 
 move the public mind, that one commission would be more expedient. 
 More than one would be better if the public agreed to it. 
 
 Senator Brandegee. If you have one commission appointed by 
 Congress or by the President to fix prices above which no com- 
 
COMMITTEE ON INTERSTATE COMMERCE. 749 
 
 modities in which it was dealing could be sold, would it not also 
 have to fix the prices at which other businesses could sell to it ? 
 
 Mr. Gray. That would ultimately come. 
 
 Senator Brandegee. In other words, it would not be fair to take a 
 business and say, " You shall not sell your product for more than so 
 much," and leave them helpless for somebody else to put up the price 
 on their raw materials 3 so that they could not do business with a 
 profit? 
 
 Mr. Gray. Ultimately it comes to that. 
 
 Senator Brandegee. Ultimately doesn't it come to this, that one 
 commission has got to have a universal education in the intricacies of 
 all large businesses and the prices for all large businesses? 
 
 Mr. Gray. I should say yes to that if you will allow me to ex- 
 plain it. 
 
 Senator Brandegee. Certainly. 
 
 Mr. Gray. I doubt if I would agree, Senator, with this in the im- 
 plication that I suspect you mean to give. When we come to do busi- 
 ness on as large a scale as we do in all the great industries, the head of 
 the business does not know anything about the details. He gets his 
 information and details through experts. Here we have Judge Gary, 
 who has made a great reputation in a profession far removed from 
 practical business, at the head of all this steel business now. He de- 
 pends upon experts. It means a large appropriation and a large 
 corps of experts. 
 
 Senator Brandegee. You mean that the one commission would have 
 to employ a large force of experts to keep it informed about the state 
 of the trades ? 
 
 Mr. Gray. Yes, sir. 
 
 Senator Brandegee. And that in the end, if pursued to its logical 
 conclusion, means that the Government shall fix the prices of every- 
 thing that is extensively dealt with ? 
 
 Mr. Gray. Well, now, I suspect that the unforeseen elements in 
 progress are so many that in the course of centuries and milleniums 
 the action of this generation has not much prospect of being very 
 effective. There are too many incidents that may happen on the road. 
 
 Senator Brandegee. We are not philosophers. We are instructed 
 to report whether it is advisable to change any of the existing United 
 States statutes. Now, of course, the future is full of unforeseen con- 
 tingencies, but are you so firm in your own opinion that this would 
 be a wise thing to do that you are ready to abandon the existing 
 machinery which has heretofore attempted to control trusts and to 
 take up as an actual plan with the suggestion of a commission to fix 
 the price of everything? 
 
 Mr. Gray. I should approach that in this wise if I were a mem- 
 ber of the committee : I should require either Federal incorporation— 
 a voluntary one — or a Federal license. I think I should leave the 
 old law to the people who did not want to come in under the new. 
 And then I should make the people who took out a Federal license 
 or charter come under the new commission. I would proceed that 
 way, and I would leave the antitrust law for the fellow who had 
 a reason for wanting to stay out under the new law. 
 
 Senator Brandegee. Would you recommend a compulsory Federal 
 incorporation law or a permissive one ? 
 
750 HEARINGS BEFORE 
 
 Mr. Gray. I doubt the wisdom of a compulsory law. I would 
 leave the old antitrust law to make the fellows want to come in, 
 and then I would give them- a chance to come in under a voluntary 
 scheme. 
 
 Senator Brandegee. Do you think that the present discomfiting 
 of these trusts by the Sherman law would be a sufficient club with 
 which to drive them into having their prices regulated by a govern- 
 mental commission? 
 
 Mr. Gray. I think so. That is a matter of conjecture. I think 
 the most successful ones and those that have tried to come more nearly 
 within the law would be glad to come in. There are some old- 
 fashioned people that still think these are private businesses, and 
 everything is wrong that puts the finger of the Government on them. 
 I think their position is absolutely untenable. There is a lot of that 
 left, but it is not nearly as widespread as it used to be. 
 
 Senator Bhamdeoee. That is all. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. I was curious to know, Professor, what is to 
 become of the Supreme Court or all our courts under this commission 
 proposition ? 
 
 Mr. Gray. Until the Constitution is changed the Supreme Court 
 has the last word in the way of judicial review, and the Supreme 
 Court ought to be a body to enforce the law, in my judgment, and 
 not to make it. I do not see how any student can say that the Su- 
 preme Court has not been legislating. 
 
 Senator Townsend. Would you still have three branches of the 
 Government ? 
 
 Mr. Gray. Yes ; but the court would be to enforce the law as cases 
 arise under it. 
 
 Senator Townsend. What would become of the Executive ? 
 
 Mr. Gray. He is to see that the law is enforced when cases arise. 
 He has the administrative side. The courts deal with infractions of 
 the law by individuals, but are not in a position to determine policies. 
 
 Senator Townsend. You would substitute for the courts — which we 
 have always understood to be our interpreting body telling what the 
 law was — you would substitute for that this commission? 
 
 Mr. Gray. Yes; I think that first formal suggestion came from 
 your own State. I think that originated with Prof. Smalley. I 
 think he is the first man I ever heard putting that out in this country,, 
 but similar institutions exist in some foreign countries. 
 
 Senator Townsend. I am not responsible for Smalley. Would' 
 the commission be governed by precedents, or would it be governed 
 by public sentiment ? 
 
 Mr. Gray. You are talking about a commission to interpret ? 
 
 Senator Townsend. Yes. 
 
 Mr. Gray. They would use ordinary discretion. Prof. Smalley, 
 who first made this proposition, stated that there are two kinds of 
 law. One has to do largely with constitutional matters, and he 
 thought somebody ought to be learned in the law for that. But 
 he thought when it came to the question of general legislation that 
 you want to have hard-headed practical men rather than lawyers. 
 You want somebody to determine on the English language, just as 
 you would if you were writing something that was not a legal", 
 document. 
 
COMMITTEE ON INTERSTATE COMMERCE. 751 
 
 Senator Townsend. Did I understand you to say also that you 
 would amend the Constitution so that we could delegate legislative 
 authority to this commission? 
 
 Mr. Gray. I think so. That is, in that sense I should say " yes " 
 meaning not legislation strictly so called, but the power to determine 
 the meaning of the language. We, above all other nations in the 
 world, have tried to make the Government run itself, and have laced 
 and interlaced our civilization with prohibitions and balances and 
 checks to keep somebody from doing harm until we can not do 
 much good. 
 
 Senator Townsend. Then you would change the legislative de- 
 partment of our Government to some extent also ? 
 
 Mr. Gray. To the extent explained only. If anybody has put a 
 word in an act of legislation that is not clear, or a phrase is not 
 clear, it ought to be made clear before rights are established and 
 controversy arises under it. 
 
 Senator Townsend. You would have the legislature change the de- 
 cisions of the commission ? 
 
 Mr. Gray. Yes; the legislature under our system has the right to 
 determine what the law is. 
 
 Senator Townsend. Suppose the decisions were not right? 
 
 Mr. Gray. Let the court enforce the law as the law is — not make 
 the law. 
 
 Senator Townsend. As the law is made by the commission and not 
 by the legislature ? 
 
 Mr. GRAr. I should not use as vigorous a word, if the Senator will 
 allow me. While technically speaking that is a delegation of legis- 
 lative authority, I should use a milder word. I do not like the ex- 
 pression, " Legislation made by the commission." Leave that to the 
 legislature. ' 
 
 Senator Townsend. What business would the Congress have; what 
 would its business be under your plan? 
 
 Mr. Gray. To make the law. If a question arose about what this 
 thing is — this is English language — you don't need a trained lawyer 
 to say what this or that means. If there is any doubt raised about 
 what the statute means, let the commission decide that when the 
 legislature is not in session. That kind of a commission can say 
 what it means, and the courts can apply it to cases. 
 
 Senator Townsend. If I understood you correctly, when either 
 Senator Clapp or Senator Cummins asked you a question as to what 
 specific recommendations you had to make, you thought that noth- 
 ing could be done practically now; that we would have to go on from 
 bad to worse until the thing had gotten so universally bad that 
 everybody would reccgnize that is was rotten, I think you said. I 
 think you used that term, or something like it. 
 
 Mr. Gray. I do not think I did. 
 
 Senator Townsend. I beg your pardon. I will use it then. Is 
 that your idea ? 
 
 Mr. Gray. Why, perhaps I was a little pessimistic in view of the 
 decisions of the courts. I think this unrest that we hear so much 
 about is a very wholesome thing. I think that is a necessary step 
 toward organizing our civilization. You can get peace, if you want 
 it, in a graveyard, but you are not going to get any peace in a demo- 
 cratic form of government until the peopled will is reasonably car- 
 22877 — vol i — 12 48 
 
752 HEARINGS BEFORE 
 
 ried out. I do not know that it is desirable that you should. I 
 mean, of course, the more or less deliberate and permanent desires 
 of the people. 
 
 Senator Townsend. I think I understood you. 
 
 The Chairman. If there are no other questions Mr. Gray will be 
 excused. 
 
 (Mr. Gray was thereupon excused.) 
 
 The Chairman. The committee will now take a recess until Tues- 
 day morning, December 5, at 10.30 o'clock. 
 
 (Thereupon, at 5 o'clock p. m., the committee took a recess until 
 Tuesday, December 5, 1911, at 10.30 o'clock.) 
 
 TUESDAY, DECEMBER 5, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 The committee met, pursuant to recess, at 10.30 o'clock a. m. for 
 the purpose of further considering the bill (S. 2941) entitled "A 
 bill to create an interstate trade commission, to define its powers and 
 duties, and for other purposes," introduced by Mr. Newlands July 5, 
 1911. 
 
 Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, 
 Oliver, Townsend, Newlands, Watson, and Pomerene. 
 
 The Chairman. The following communication will be incorporated 
 in the record : 
 
 St. Louis, Mo., November 23, 1911. 
 Hon. Moses E. Clapp, 
 
 Washington, D. C. 
 
 Dear Sie : I am one in a circle of Insurgent Republicans who are opposed to 
 the proposition to combine each branch of industry into very large corpora- 
 tions, or one large corporation, the Government then to attempt to control the 
 giants thus created. 
 
 This is the plan of the firm of J. P. Morgan & Co., who are in the business 
 of promoting such combinations for enormous commissions. Each partner 
 in that firm has a branch of the propaganda and of the business to look after. 
 I presume the truth of the statement would be questioned if one were to say 
 that Theodore Roosevelt is — and for 10 years has been — one of the partners in 
 that firm, his task being to look after the presidency and to round up the 
 insurgents. We are ready to believe that he is a partner; "at least, he is 
 their tool. 
 
 In our judgment that propaganda is driving us pell-mell to Socialism. We 
 believe that the insurgent West, where you are strong, is opposed absolutely 
 to that propaganda, even while being vociferous for Roosevelt. The " high- 
 brow " dicta — that the promoters of these combinations have secured from the 
 lips and pens of college professors and prominent men to help their stock 
 flotations — is to the effect that " economic necessity " is compelling the consoli- 
 dations. That dicta we believe to bf> absolutely false, and the man who advances 
 it is an enemy to the country and an advance agent of socialism. 
 
 The utter absurdity and falsity of the theory can be proved if the present 
 Senate committee will take any one of the consolidations already made and 
 ■examine and analyze it, and this circle of voters that I am speaking for sisks 
 you to bring out the fact in that inquiry that none of the present consolidations 
 could have been successfully made nor any future ones be brought about until 
 the following conditions had been jind are met: 
 
 1. The promoter had to have an enormous commission assured him. 
 
 2. The owners of the combined parts had to be able to realize in a few months 
 from sale of the same their expectation of profit for the next 10 years or so. 
 
COMMITTEE ON INTERSTATE COMMERCE. 753 
 
 3. The middle syndicate that bought the constituent separate companies and 
 turned them over to the consolidation had to have an outrageous rake-off. 
 
 4. To pay the above three sets of gentlemen the stock of the consolidation had 
 to be enormously watered. 
 
 5. The public had to furnish the money by buying the shares of stock put 
 out by the consolidation. 
 
 All five of above conditions are absolute necessities to the successful consoli- 
 dation of our industries but they are not " economic necessities." 
 
 Could a law be passed effectually preventing any profit going to the three 
 classes of gentlemen described above as first, second, and third, and com- 
 pelling the consolidation to operate on a capital basis entirely free from in- 
 flation or water, the " economic necessity " of consolidations would disappear 
 over night. The three classes of gentlemen instead of selling out and be- 
 coming speculators would continue as business men at the heads of their 
 various companies, and the trust question would be solved right there. 
 
 If we are mistaken and there is any other compelling " economic necessity " 
 than that coming from these three classes, it will assert itself after they have 
 been cut off from their present enjoyment of the profits. When that has been 
 done we can all tell whether combination is a necessity or not, and, if it is, 
 ask for it. At present, many people think it is, because of the confusion in 
 their minds caused by the specious arguments advanced by the three classes 
 that are getting rich by it. It is high time that the farce be stopped. We have 
 already plunged headlong too far in the path it leads to. 
 
 Also we believe that the public would not furnish the money by buying the 
 shares if each interstate corporation was compelled each month to send to 
 every stockholder an accurate list of stockholders, showing number of shares 
 held by each, and quarterly a complete statement, a copy of the lists and 
 statements to be filed with the Secretary of State of each State and to be 
 public, and if the law could prevent shares being carried by dummies to con- 
 ceal the identity of the real owners. Can the scope of the inquiry be made to 
 cover this? 
 
 We intend to support for President the man who best represents our view on 
 this question, whether he is a Democrat or Republican. 
 
 Where do you stand on it? 
 
 Thanking you in advance for reply, I am, 
 
 Yours, respectfully, F. C. Taylor, 
 
 4121 Delmar Avenue, St. Louw, Mo. 
 
 STATEMENT OF PEOF. JAMES H. GOEE, OF WASHINGTON, D. C. 
 
 Prof. Gore. Mr. Chairman and gentlemen of the committee, for 
 26 years I was professor of mathematics in Columbian University. 
 For the last three years I have devoted myself to lecturing upon 
 trusts in different universities in the United States, and also in 
 Europe. 
 
 I shall occupy but a very few minutes of the time of the com- 
 mittee. 
 
 My objection to the Sherman antitrust law as it stands is in the 
 fact that the law does not take into consideration the quality of the 
 acts that are proscribed. It condemns the function of various com- 
 binations because of the irregularity in their form. The law having 
 been violated in the way in which the company came into existence, 
 while the method of doing business at the present time may not be 
 in contravention of the spirit, at least, of the Sherman law, it plainly 
 inhibits the elimination of competition. 
 
 Now we can understand how there might be some elimination of 
 competition that would be a benefit or an advantage to the com- 
 munity at large. For instance, we have one case. The line between 
 Virginia and Tennessee runs along the middle of the street of the 
 town of Bristol, and if two men engaged in the express business in 
 that town should find that by uniting their efforts, having one per- 
 son to drive the wagon and the other one to solicit business, there 
 
754 
 
 HEARINGS BEFORE 
 
 might be a great benefit to this little community by this combination. 
 But competition has been eliminated by this combination, so that a 
 strict construction of the letter of the law would make those men 
 amenable to punishment. We can conceive of a man living in New 
 Jersey engaged in truck farming, selling his vegetables in New York 
 City. We can understand that he might have a poor neighbor en- 
 gaged in a similar business, and the marriage of those two would 
 hardly be regarded as a combination in restraint of trade, but still 
 competition would be eliminated by this act. 
 
 So it is unfortunate that the spirit of the law — to which the late 
 Senator Edmunds has referred in his article in the current number 
 of the American Review — can not be observed in some way and not 
 left to the uncertainties of judicial decisions. For instance, just 
 this morning I made a clipping from a newspaper in regard to the 
 experiences of the International Harvester Co., which, as is known. 
 has been ousted recently from the State of Missouri. One of the 
 judges, Chief Justice Valiant, in giving his decision in the case, uses 
 these words, which I quote : 
 
 On the whole, the evidence shows that the International Harvester Co. has 
 not used its power to oppress or Injure the farmers, who are its customers. 
 
 And Judge Ferriss uses these words in the same case : 
 
 In this case the court is required by the statutes to pronounce a judgment of 
 condemnation on a combination which is proved by the facts in this record to 
 have been so far beneficial to the community that the price of mowers and 
 reapers has not been raised in proportion to the increased cost of materials 
 and labor, and that otherwise incidental benefits have accrued to the con- 
 sumers, and, furthermore, that independent manufacturers have not suffered 
 by reason of the combination. 
 
 And in the decree of the court these words appear: 
 
 In this case the court is required by the statute to pronounce judgment of 
 condemnation upon a combination which is proved by the facts as they appear 
 in the record to have been so far beneficial to the community. 
 
 It thus appears that a concern might be wrong by statute but right 
 economically. 
 
 The Sherman law also inhibits monopolies, and I have a very large 
 number of judicial decisions in regard to monopoly, but still that 
 term is rather undefined; it is indefinite. A monopoly might be 
 individual. We had a very interesting illustration of that some 
 years ago in the case of emery. When an emery mine was first found 
 in the State of Massachusetts the owner of that mine had a mo- 
 nopoly so far as this country is concerned, and I believe he suc- 
 ceeded in protecting his infant industry by securing a duty upon 
 emery. Now, the monopoly in his case was an accidental one, so to 
 speak. It came into his hands, and there should be no punishment 
 visited upon a person who secures a monopoly in this natural way. 
 
 Of course, the fear of a monopoly is that prices will be raised or 
 production affected, but no wise business concern would run the risk 
 of increasing prices inordinately because of the mere power to in- 
 crease prices, because from the time of the British Indies companies 
 down to the present daythe experience has been that whenever there 
 has been an effort to raise prices unduly through the power to mo- 
 nopolize, consumption has decreased to such an extent that the profits 
 have been lessened by the diminished consumption. So that the gen- 
 eral principle of wise business concerns is to secure their profits from 
 
COMMITTEE ON INTEKSTATE COMMERCE. 755 
 
 very large sales, encouraging, in that way, consumption. They have 
 also learned in recent years that their safety also depends upon small 
 profits. The greatest deterrent that business concerns • meet is the 
 potential competition. As has often been said, the mill that is not yet 
 built is the one that keeps some business concerns closer to the path of 
 rectitude, perhaps, than they would otherwise walk. 
 
 If the purpose of the Sherman law is to restore competition, it 
 would bring us back into a condition such as we had prior to the en- 
 actment of the Sherman law. The majority of consolidations that 
 took place in the seventies — the late seventies or early eighties — were 
 the result of weaker competitors going out of business through the 
 cutthroat competition that existed at that time. We would hardly 
 wish to throw the larger combinations into individual and competing 
 units with the fear of repetition of the methods that were followed at 
 that time. 
 
 Competition, in general, is wasteful, as we have been told, and it 
 also brings about bad credits and inferior products. We have often 
 heard it said that competition is the life of trade, but the producer, 
 the manufacturer, will say that it is the death of profits. The worst 
 feature that we have had from the combinations, perhaps, has been 
 overcapitalization, and to a large extent that has been due to the 
 greed of the promoters. When the competing units found it difficult 
 to secure to themselves a reasonable profit, there was an energetic and 
 zealous promoter who suggested to them the advisability of going 
 into a combination, and to induce them to agree to this combination 
 they would offer a larger amount for the plant than it was really 
 worth, this amount being paid in stock of the consolidated concerns. 
 
 There have been some cases in which consolidation has been over- 
 capitalized because of a realization of the fact that there would be 
 great economies of production, that there would naturally be large 
 profits, but to keep the rate of dividends down below the danger 
 mark in the estimation of some of the State legislatures, perhaps, the 
 capital stock was placed unduly large. Also, if it were known that 
 the dividends were very high, there would be a demand on the part 
 of the laborers for increased wages, and these consolidations, these 
 combinations, by having a large capital stock could point to their 
 low dividends as an argument why 'hey could not afford to pay 
 higher wages. 
 
 Now. the desiderata, as I see it, is, first, Federal supervision. It 
 has been said repeatedly that when corporations have become so large 
 that they have passed beyond the control of the States that their 
 magnitude calls for a supervision by a power greater than that which 
 is possessed by the individual State. Under this Federal supervision 
 there could be a control of capitalization perhaps more effective than 
 could be exercised by any individual State. This Federal supervision 
 could also provide for publicity, which perhaps is the greatest safe- 
 guard that could be thrown around large business operations. Evil 
 deeds, like our enemies, the microbes, suffer under strong light, and 
 there are very few business concerns that would be willing, if doing 
 acts which were wrong, to have their methods made public. This 
 publicity, like that which is given to the operations of national banks, 
 would show the capitalization, the net profits, and the way in which 
 those net profits were distributed. 
 
756 HEARINGS BEFORE 
 
 Of course there are in this country certain people who are opposed 
 to government by commission, but we could bring about a commission 
 such as I have in mind by enlarging the functions of our present 
 Bureau of Corporations and giving to such commission the powers 
 to supervise the concerns that are engaged in interstate commerce. 
 This commission could instigate or begin the investigation of the con- 
 cerns to see whether they are transacting their business in a way 
 which is deemed right and proper. The corporation could become 
 a petitioner or a plaintiff, in that it could go to this commission and 
 lay before it its methods of transacting business and see whether it 
 meets with the approval of the commission. At the present time the 
 corporations do not know, unless their own conscience would tell 
 them, whether their methods of transacting business are right in the 
 eyes of the law until there has been a judicial decision. In other 
 words, they are made defendants before they have an opportunity 
 to have any information in regard to the legality or correctness of 
 their methods of transacting business. 
 
 A pertinent commission of this sort would perhaps be better quali- 
 fied to act in such cases than the circuit courts, to whom are referred the 
 cases under the existing law. In case of a dissolution, such as follows 
 the decrees of the courts at present, there is an understanding in 
 regard to the form of dissolution that is acceptable. The matter 
 comes before the court and the Attorney General presents his views 
 in regard to the proposed method of disintegration, and if it is pos- 
 sible, after a case has been decided, to formulate a method of disinte- 
 gration, it would be equally possible prior to any suit to formulate 
 a method of disintegration, and this could be done by the commis- 
 sion proposed. It would avoid the long delay between institution of 
 suit, as we have at present, and the final decree of the court after it 
 has received its orders to pass upon the method of dissolution from 
 the Supreme Court. A commission of this sort would be continuous, 
 and each action that was taken would aid in forming a precedent 
 for the next case that might come up. At the present time the suits 
 can be brought before any of the circuit courts, and we have a variety 
 of methods of procedure and different decrees or verdicts that are 
 rendered in the different circuit courts, and there is a lack of uni- 
 formity in the decisions of the various courts. Before this commis- 
 sion there would be due weight given to the economic right or wrong 
 of the combination under examination; while the court, I suspect, 
 would give more weight to the legal aspect of the case, as to whether 
 it was legally right or wrong. So far as the interests of the country 
 at large are concerned, it seems to me that the economic aspect is of 
 more importance than the legal aspect. 
 
 Those remarks, I think, Mr. Chairman, embody the views that I . 
 would like to lay before this honorable committee. 
 
 The Chairman. Senator Cummins, you may proceed. 
 
 Senator Cummins. Your last remark rather interested me, espe- 
 cially. You evidently contemplate that there may be a difference 
 between the legal requirements and the economic requirements. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. That ought not to be, ought it? 
 
 Prof. Gore. If the suits were drawn wisely and were sufficiently 
 elastic to cover all possible contingencies that could arise, it would 
 not be. 
 
COMMITTEE ON INTERSTATE COMMERCE. 757 
 
 Senator Cummins. You recognize, do you not, that the legal re- 
 quirements should be observed under all circumstances, and by all 
 persons, whether commissioners or manufacturers or any others who 
 may be interested in the subject ? 
 
 Prof. Gore. I am anticipating that these first and second, or none 
 of the clauses of the Sherman law are to be amended. 
 
 Senator Cummins. Well, if they are to be amended, and they 
 should be amended so as to bring the legal requirements into har- 
 mony with the economic requirements, you are not proposing a sys- 
 tem by which commissioners can disobev the law in order to reach 
 economic results, I take it. 
 
 Prof. Gore. Oh, not at all, if you will allow me. There are over 
 800. we will assume, combinations in existence at the present time— 
 800 or 900, we do not know how many. With the legal machinery 
 at the disposal of our Government only a few of those can come 
 under examination at any one time, and with all the possible delays 
 that they would naturally throw around in case of any attempt to 
 bring them under judicial review. Now the time that elapses be- 
 tween the instigation of a suit and when it would naturally come to 
 its final stage, is so long that economic conditions may change very 
 radically within that period. 
 
 Senator Cummins. But it is not your suggestion, is it, that the 
 commission which you advise shall rule that a certain combination 
 or corporation is economically right, and therefore should continue, 
 and that thereafter the Attorney General should bring a suit against 
 it for the purpose of having it adjudged that it is legally wrong \ 
 
 Prof. Gore. My plan would be for the instigation of a suit to 
 begin with the commission. Let the commission say : " Here is a 
 combination that we find is wrong, and it has nothing to condone 
 its offense ;" pass it over to the Attorney General to prosecute. 
 
 Senator Cummins. You do not mean to say, do you, that the com- 
 mission will permit, under any circumstances, a state of affairs which 
 is condemned by the law, whatever the law may be? That is not 
 your idea? 
 
 Prof. Gore. No, sir. 
 
 Senator Cummins. And, therefore, when the commission comes to 
 look over the situation, if the law condemns it the commission would 
 be compelled to condemn it 5 no matter how economically right the 
 commission might believe it to be. That is obviously true, is it not? 
 
 Prof. Gore. Certainly. 
 
 Senator Cummins. Therefore, I am unable to see the distinction 
 that you made between the action of a commission that would give 
 permanence to the economic requirements and subordinate the legal 
 requirements. 
 
 Prof. Gore. Only to this extent: I think the commission could 
 point out or would point out cases that are flagrantly in need, so to 
 speak, of action; whereas, I can understand how an Attorney Gen- 
 eral, through some of the assistants, or the assistant in the different 
 States, might point to a concern that he would like to prosecute, and 
 prosecution would begin at once; whereas there are other cases that 
 would be more flagrantly in need of punishment than the one that 
 was picked up haphazard, so to speak. 
 
758 HEAKINGS BEFOKE 
 
 Senator Cummins. After all, the commission must be, if it is 
 organized at all, a mere instrument of the law to carry into effect the 
 purpose and objects of the law? 
 
 Prof. Goee. Yes, sir. 
 
 Senator Cummins. And it must act in obedience to the law. You 
 do not mean to give the commission a discretion, or attempt to give it 
 a discretion, that would authorize it to disregard the law? 
 
 Prof. Goee. Oh, by no means. 
 
 Senator Cummins. So after all, we come back to the essential 
 fundamental proposition, "What shall the law be, no matter through 
 what agency the law is administered, whether through a commission 
 or a court? Now, what is your concrete proposition with regard to 
 the phraseology of the law. or the purpose of the law ? 
 
 Prof. Gore. I would like to see the idea of reasonableness placed in 
 the first section of the Sherman law, with the idea that unreasonable 
 restraint only ought to be regarded as offensive, because every trans- 
 action that takes place is a restraint of trade in that it is a restriction 
 of trade. One man who sells a bill of goods on one side of the street 
 interferes to that extent with the possibilities of sale by a man on the 
 other side of the street. 
 
 Senator Cummins. You mean that it is in restraint of a trader, not 
 necessarily in restraint of trade. 
 
 Prof. Gore. Well, the two are not very far apart. 
 
 Senator Cummins. If two men are engaged on opposite sides of 
 the street in selling the same commodity, and there is a certain 
 demand for the commodity that must be supplied, it would not be 
 in restraint of trade if one man sold three-fourths and the other one- 
 fourth of the demand, would it ? 
 
 Prof. Gore. No, sir ; that is correct. 
 
 Senator Cummins. And therefore that illustration would hardly 
 serve as an instance of restraint of trade. What is your idea of an 
 unreasonable restraint of trade? 
 
 Prof. Gore. Well, the resorting to acts that are — to come back to 
 the word — " unreasonable " again. It is the method of doing busi- 
 ness. We can not say it is illegitimate, because it is not illegitimate 
 unless it is against some law. 
 
 Senator Cummins. But in what way illegitimate ? 
 
 Prof. Gore. As I say, it can not be said to be illegitimate unless 
 it is contrary to some law ; but coercive methods, for instance. 
 
 Senator Cummins. Instance some of them. 
 
 Prof. Gore. Putting down prices, for instance — to drive out the 
 competitor and restoring the prices to recoup losses. That would 
 be a concrete illustration of a restraint of trade. 
 
 Senator Cummins. That is, if there were two of those storekeepers 
 on opposite sides of the street and one of them should put down his 
 prices so as to secure the trade that had formerly been done by the 
 man on the other side, with the object or purpose in mind to compel 
 the other man to quit, would you say that that is an unreasonable 
 restraint of trade? 
 
 Prof. Gore. I would not look upon it with approval, although you 
 see it done. 
 
 Senator Cummins. I am now using this term; the law uses the 
 term " restraint of trade," and the Supreme Court has said it must 
 be an undue and unreasonable restraint of trade. Now, would you 
 
COMMITTEE ON INTERSTATE COMMERCE. 759 
 
 look upon such an instance as I have given you as an unreasonable 
 restraint of trade? How would it restrain trade at all? 
 
 Prof. Gore. In that particular instance? It is a method that re- 
 lates to the ethics of business. I do not think we look upon it as 
 being ethical. 
 
 Senator Cummins. It may be very unethical from a business stand- 
 point, but is it in restraint of trade? 
 
 Prof. Gore. Using the word " trade " as you used it a few moments 
 ago, it would not be. 
 
 Senator Cummins. Would you propose to give the commission that 
 you would organize the power to arrest or prevent that method of 
 doing business? 
 
 Prof. Gore. Yes, sir; of lowering prices with the idea — and fol- 
 lowing it up with the plan of raising prices to recoup. 
 
 Senator Cummins. If it was not for the purpose of driving the 
 other man out but getting the greatest possible volume of trade for 
 himself, how then? 
 
 Prof. Gore. That comes down to looking into a person's motives, 
 which is rather difficult. 
 
 Senator Cummins. Would you make it depend upon the motive or 
 upon the act? 
 
 Prof. Gore. Upon the act. 
 
 Senator Cummins. Take this case that I put, the one merchant 
 who puts down his prices, you would not make that unlawful? 
 
 Prof. Gore. No, sir. 
 
 Senator Cummins. How far would he have to put down his prices 
 in order to become unlawful? 
 
 Prof. Gore. It would be the effect that it had on the competitor 
 and the way in which he behaved afterwards, whether he raised 
 prices. 
 
 Senator Cummins. If you put it down so low that his competitor 
 could not follow him, ought that to be unlawful? 
 
 Prof. Gore. If the object was to drive the competitor out of busi- 
 ness, it would be unlawful. 
 
 Senator Cummins. You have just stated that you were not want- 
 ing to consider his intent. 
 
 Prof. Gore. Only as in the result or aftereffect. 
 
 Senator Cummins. Would you make the mere fact of putting him 
 out of business the evidence of the unlawful design? 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. Even though the man who put down the prices 
 was selling himself at a profit all the time? 
 
 -Prof. Gore. I should think so; yes, sir; because the effect is the 
 same — because we are engaging now in interstate commerce. 
 
 Senator Cummins. So you do not believe that there should be any 
 struggle in business at all? 
 
 Prof. Gore. Oh, yes, sir. 
 
 Senator Cummins. That if one man is willing to sell at a lower 
 price than another, and the result is that the other has to go out of 
 business, that should be made unlawful? 
 
 Prof. Gore. Oh, no, sir. We are going too far. In that case is 
 the power of a large concern to drive, out a small concern engaged 
 in interstate commerce by lowering its prices in such a way as to 
 
760 HEADINGS BEFORE 
 
 eliminate the competitor completely; I think that is wrong. When 
 it comes to a business between a merchant on one side of the street 
 and a merchant on the other, it is a question of State or municipal 
 regulation. 
 
 Senator Cummins. You would confine your application of the law 
 to the large concerns? 
 
 Prof. Gore. Those engaged in interstate commerce. 
 
 Senator Cummins. Well, very small concerns might be engaged in 
 interstate commerce. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. But you mean that you would confine the appli- 
 cation of such a law to an aggregation or corporation that we call, 
 in common parlance, a trust? 
 
 Prof. Gore. Well, it would be very hard to draw any dividing line 
 as to where this regulation could begin, if we are going to let the 
 size determine it- 
 Senator Cummins. That is what I thought. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. Then your general idea is to absolutely annihi- 
 late all competition in business? 
 
 Prof. Gore. Oh, no, sir. 
 
 Senator Cummins. What would you call, then, fair competition? 
 
 Prof. Gore. Where one concern does not exercise any coercive 
 power. 
 
 Senator Cummins. What is a coercive power, according to your 
 view ? 
 
 Prof. Gore. It is, for instance, the securing of rebates which existed 
 at the time. That is, of course, eliminated. 
 
 Senator Cummins. That is an unlawful thing. 
 
 Prof. Gore. That is eliminated now — limiting production. 
 
 Senator Cummins. By whom? 
 
 Prof Gore. I mean limiting production and putting into a com- 
 munity a certain commodity that a competitor manufactures, and 
 and putting it at a price that the competitor can not possibly meet, 
 with the idea of dropping, and actively, as is shown in subsequent 
 acts, dropping the production of that particular article just as soon 
 as this competitor is forced out of business. 
 
 Senator Cummins. That involves the intent, does it not? 
 
 Prof. Gore. And also the intent as shown by the results. 
 
 Senator Cummins. But you would not restrain or prevent a man 
 or a corporation from making goods or commodities and selling them 
 at a price that would reward that man or the corporation, would you ? 
 
 Prof. Gore. Oh, no. 
 
 Senator Cummins. And if the effect of that was to put somebody 
 out of business, you would not suggest, that the Government should 
 intervene to keep that man in business? 
 
 Prof. Gore. Not as long as he is making profits, if he wants to do 
 his business in that way. 
 
 Senator Cummins. What you really mean, I take it, is that the law 
 ought to be so framed as to prevent a man or a corporation from sell- 
 ing his goods or its goods below cost in order to drive out somebody 
 else who may be engaged in the same business ? 
 
 Prof. Gore. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 761 
 
 Senator Cummins. But so long as the man or corporation continues 
 to sell them at cost or above cost you would regard that as being 
 possibly unfair ? 
 
 Prof. Gore. No, sir ; not at all. 
 
 Senator Cummins. And you would not make any difference be- 
 tween a large corporation and a small one, I take it? 
 
 Prof. Gore. No, sir. 
 
 Senator Cumming. Then, what you really want this commission to 
 do, as I gather it, is to prevent unfair competition. You do not think 
 it ought to be authorized to approve an agreement between corpora- 
 tions to sell at a given price, do you ? 
 
 Prof. Gore. No, sir. 
 
 Senator Cummins. Suppose that the law required a seller or manu- 
 facturer to make his price at the factory or store, so that the price 
 to one buyer would be the price to all buyers, and the price in one 
 locality should be the price in all localities, cost of transportation 
 considered 
 
 Prof. Gore. Absolutely. 
 
 Senator Cummins. Do you not think that that would do very 
 much to prevent this ruinous cutting of prices, to drive a competitor 
 out of a particular field ? 
 
 Prof. Gore. Absolutely. Some of the States have laws that re- 
 quire prices to be maintained. 
 
 Senator Cummins. Then, when we get down to it, you really 
 believe in preserving competition — healthful, fair competition in 
 business ? 
 
 Prof. Gore. Yes, sir; but I do not believe in forcing it into 
 existence, 
 
 Senator Cummins. How would you force it into existence? 
 _ Prof. Gore. I think there are some dissolutions, or existing com- 
 binations might bring into existence competition that is not de- 
 manded, and that would be artificial competition. 
 
 Senator Cummins. Then you do not believe in dissolving any of 
 these great combinations that now exist ? 
 
 Prof. Gore. Well, that is a little too general. I would not say, 
 that I do not believe in dissolving any of them. There are some that 
 could not be dissolved a bit more than if you would take a half 
 a dozen globules of mercury in your hand, let them rnn together, and 
 then try to separate each globule into its integral part. It is 
 impossible. 
 
 Senator Cummins. What combinations have you in mind when 
 you say that? 
 
 Prof. Gore. I have not any in mind when I say that, but I can 
 understand how they can so completely coalesce that it would be 
 impossible to separate them. 
 
 Senator Cummins. How would it be possible for such a combina- 
 tion, in and by itself, without considering its practices, to be a vio- 
 lation of the antitrust law, and how could it, therefore, be dissolved ? 
 
 Prof. Gore. Well, if a court would declare — and I can not con- 
 ceive how a court might declare — that the combination when it was 
 created eliminated competition and to that extent it was in restraint 
 of trade. Now, I do not subscribe to that doctrine. 
 
 Senator Cummins. If any such corporation had been organized 
 for the purpose of creating a monopolyj and had actually created a 
 
762 HEARINGS BEFORE 
 
 monopoly, it ought to be dissolved, ought it not, no matter how in- 
 dissoluble it may be in so far as its business was concerned ? 
 
 Prof. Gore. There we have to define a monopoly, as to what a 
 monopoly is. My understanding of a monopoly is a concern that 
 controls the raw material, or the method of manufacture, or the 
 means of distribution. Now if a combination such as recited were 
 created in order to secure either one or more of those three conditions, 
 then I think it would be committing a wrong. 
 
 Senator Cummins. Then you think there could not be any monop- 
 oly so long as there is potential competition? 
 
 Prof. Gore. That is my notion ; yes, sir. 
 
 Senator Cummins. Even if a given concern was making and selling 
 all of a given commodity, supplying the whole market, from your 
 standpoint that would not be a monopoly if the raw material was 
 open so that some other corporation could come in and sell the same 
 commodity ? 
 
 Prof. Gore. It would be a monopoly in a dictionary definition, 
 but I do not think it would be a monopoly that is so dangerous that 
 it should call for the invoking of the law. 
 
 Senator Cummins. I am speaking of it as we have used the word 
 in the antitrust law. What I have just said would be a monopoly 
 under the antitrust law if there were potential competition. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. The Supreme Courtj I think, in the Tobacco 
 Co. case said that it was a monopoly? 
 
 Prof. Gore. Yes : sir. 
 
 Senator Cummins. Now of course there is plenty of earth out of 
 which tobacco can be grown and ground upon which tobacco fac- 
 tories can be established, and yet the Supreme Court held that was 
 a monopoly or an attempt to create a monopoly. Now what would 
 you do with such concerns? 
 
 Prof. Gore. Well, I do not want to give an opinion contrary to 
 the opinion that has just been given by the Supreme Court, so I do 
 not believe I should be called upon to answer. 
 
 Senator Cummins. But you are here for the purpose of helping 
 us, first, to reach a conclusion as to whether the law should be 
 changed, and, secondly, if it should be changed, how it should be 
 changed. 
 
 Prof. Gore. I should say if such a concern as you have cited — 
 I would not say the particular one, but such as you have cited — shows 
 a spirit to maintain its control of the business through coercive meas- 
 ures, that it should be punished. If it has this control which has 
 come to it in the natural development of business, then I think it 
 would be very wrong to punish it. 
 
 Senator Cummins. Do you think this commission, which you have 
 suggested, should be given the power to fix prices — establish prices — 
 when it finds that the natural forces no longer fix prices? 
 
 Prof. Gore. I think the fixing of prices is an exceedingly dan- 
 gerous thing to undertake because it goes down to the very bottom 
 almost of society itself. If you fixed the price of a commodity, you 
 can fix the price of labor, fix the price of raw material, and fix the 
 way in which the laborer lives and what he pays for his support, and 
 so forth. I do not see where you are going "to come to the end of 
 an attempt to fix prices. 
 
COMMITTEE ON INTERSTATE COMMERCE. 763- 
 
 Senator Cummins. I think that is a very sound analysis of the 
 matter. When the Government once goes into the business of fixing 
 prices it must fix all prices. 
 
 Prof. Gore. Right down to the rent the man pays for his house. 
 
 Senator Cummins. Therefore, you are not in favor of that, are 
 you? 
 
 Prof. Gore. Not fixing prices beyond 
 
 Senator Cummins. What do you think will fix prices? 
 
 Prof. Gore. The law of supply and demand. 
 
 Senator Cummins. Does the law of supply and demand depend 
 upon competition? 
 
 Prof. Gore. No, sir. 
 
 Senator Cummins. It does not. With the opportunity to increase 
 indefinitely the supply, does it not entirely depend on competition as. 
 to how much shall be produced ? 
 
 Prof. Gore. The demand rather determines that. 
 
 Senator Cummins. But you said a few moments ago that the de- 
 mand depends on the price, as we all know, within reasonable bounds. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Cummins. And the people who produce, of course, deter- 
 mine how much shall be produced, take them as a whole. Now, if 
 you have no competition, what is it that determines how much shall 
 be produced of a given commodity, or at what price it shall be sold ? 
 
 Prof. Gore. I do not know any other than the demand, the relation' 
 between the demand and the willingness on the part of those who are 
 to supply this demand. 
 
 Senator Cummins. Competition, as I am using it, means the will- 
 ingness ; that is, the willingness of one engaged in business to do it at 
 a fair profit, and his willingness to do it at a fair profit will prevent 
 anyone else doing it at an excessive profit. That is competition in 
 the general sense. Now, the very moment you reach the conclusion 
 that the Government must not fix prices, you must have some force to 
 fix prices, and I would like to have you give that force, whatever it 
 is, a name. 
 
 Prof. Gore. I think your definition of competition is exactly the 
 correct one; that is, the willingness to unite in meeting a demand. 
 I do not think there should be any artificial restriction upon that 
 willingness, and I think that unrestrained willingness would go very 
 largely toward fixing the prices. 
 
 Senator Cummins. Therefore, is it not obvious that we must de- 
 pend upon competition in some of its various forms to fix prices ? 
 
 Prof. Gore. Yes, sir. I think it is just as important to restrict 
 wild and wasteful competition 
 
 Senator Cummins. I agree with you about that perfectly. 
 
 Prof. Gore. As it would be to restrict combinations. 
 
 Senator Cummins. I was coming to that. Therefore, what we 
 ought to try to do— and I ask you this question although it may be- 
 expressive of my own view — is to regulate competition so as to ex- 
 clude the vicious, dishonest, ruinous competition which is carried on, 
 not to earn a fair profit, but to ruin a rival. That is what we ought 
 to do, is it not? 
 
 Prof. Gore. I agree with you absolutely ; yes, sir. 
 
 Senator Cummins. That is all. 
 
 The Chairman. Senator Newlands? 
 
764 HEARINGS BEFORE 
 
 Senator Newlands. I did not have the pleasure of hearing the pro- 
 fessor's preliminary statement, and I am afraid if I should examine 
 him I would only carry him over the ground he has already covered. 
 Senator Watson. Professor, I understood you to say that fixing 
 uniform prices at the factory would be a proper and wise provision? 
 Prof. Gore. Yes, sir ; I do. 
 
 Senator Watson. In the case of heavy commodities, where the 
 freight rate is the principal factor, you think that would be healthy? 
 Prof. Gore. Absolutely so, yes, sir ; because as at present the manu- 
 factures are obliged to pay these heavier freight rates. 
 
 Senator Watson. In a great many instances,_ would that not result 
 in absolute monoply of certain markets to certain concerns ? 
 Prof. Gore. It may be, but I can not conceive of any. _ 
 Senator Watson. Well, as an illustration, take a brickyard that 
 had the lowest freight rate to Washington City. 
 
 Prof. Gore. I think a concern that locates itself conveniently to 
 Washington City deserves to profit by the wisdom of selecting that 
 location. 
 
 Senator Watson. Even if it gave a monopoly of a certain market? 
 Prof. Gore. Yes, sir. 
 Senator Watson. That is all. 
 
 Senator Pomeeene. Professor, have you attempted to write out 
 what you mean by governmental supervision? 
 
 Prof. Gore. No, sir ; the views of Senator Newlands along that line 
 are so close to my own that I have not attempted to make any changes 
 in the proposition he has submitted. 
 
 Senator Pomerene. I wish you would go into detail and tell us 
 what you mean by governmental supervision so as to give the com- 
 mittee some idea as to the extent to which you would have this 
 supervision. 
 
 Prof. Gore. I do not think it wise to make any change in the 
 method of incorporation. Incorporation of the various concerns, I 
 take it. should be left to the different States as now prevails. This 
 Federal commission ought to prescribe that if the act of any incor- 
 porated concern satisfies certain requirements in regard to capitali- 
 zation, for instance, that the capitalization should represent the value 
 of tangible property — that whenever it satisfies the commission that 
 those requirements have been fulfilled, then this commission could 
 grant to such corporation a license, and that in itself would be in 
 the nature of a guaranty that the requirements prescribed by this 
 law have been satisfied, and then this Federal commission should see 
 that reports are presented periodically with regard to the amount 
 of business or dividends paid. 
 
 Senator Pomerene. That is going into the publicity feature. 
 Prof. Gore. Yes, sir; and it should control, in general, the pub- 
 licity. 
 
 Senator Pomerene. Now you speak of the requirements. What 
 requirements ? 
 
 Prof. Gore. Well, for instance, the matter of capitalization T think 
 is the most important, and also they should see to it that this ques- 
 tion of prices — equable prices — should be maintained. 
 Senator Pomerene. That is, at the factory. 
 Prof. Gore. At the factory. 
 Senator Pomerene. How would you do that? 
 
COMMITTEE ON INTERSTATE COMMERCE. 765 
 
 Prof. Gore. Require each of these concerns to give their prices, 
 and where there was a disagreement in prices call attention to it and 
 correct it. 
 
 Senator Pomerene. That is, you would have each concern state in 
 advance what their prices were? 
 
 Prof. Gore. Not long in advance. That would be impossible ; but 
 at least contemporaneous prices. 
 
 Senator Pomerene. I realize that those would necessarily have to be 
 modified from time to time under conditions with which we are all 
 familiar. 
 
 Prof. Gore. Certainly. 
 
 Senator Pomerene. But is not that practically fixing a price by 
 the Government? 
 
 Prof. Gore. No, sir ; it is simply seeing to it that a price is main- 
 tained. In other words, that a concern is honest in selling its goods 
 at the same price to people of all localities. As I understand it, the 
 greatest danger has come from making a price of goods that go into 
 a certain locality in order to drive out competition. That is the 
 iniquitous practice that I think would be avoided by having this 
 one price. 
 
 Senator Pomerene. You would not necessarily have the prices the 
 same at the different factories? 
 
 Prof. Gore. No, sir; because one concern may have certain trade 
 secrets or methods of manufacture, and it has a right to profit by 
 those advantages. 
 
 Senator Pomerene. That is one of the requirements — that the 
 price should be made public and it should be one and the same price 
 at the factory. 
 
 Prof. Gore. And the capitalization. 
 
 Senator Pomerene. And the capitalization. Now, what other re- 
 quirements have you in mind ? 
 
 Prof. Gore. I think those are the only ones that occur to me. 
 
 Senator Pomerene. You would have this as a matter of publicity, 
 would you, for each of these factories, subject to investigation by 
 officials of the Government for the purpose of reporting to the com- 
 mission ? 
 
 Prof. Gore. I do not know that there is anything that such an 
 investigation would reveal; but they should have the power to make 
 visitorial investigations. 
 
 Senator Pomerene. That is, have it permissive. 
 
 Prof. Gore. Yes, sir; absolutely. 
 
 Senator Pomerene. You have spoken of the supervision and of the 
 publicity. What other matters would you provide for, or what other 
 powers would you give, if any, to this commission ? 
 
 Prof. Gore. They should have the right, or be instructed to report 
 any violation, as they see it, of the law as it now stands — the Sherman 
 law — to the Attorney General with the intention of prosecuting, and 
 also the other privilege, which I think I have mentioned, that they 
 could confer with a corporation and decide upon some method of 
 conduct of their business which the commission might think needed a 
 revision. 
 
 As I see it, there are some corporations that might feel that their 
 method of doing business was in contravention of the law, and they 
 
766 HEARINGS BEFORE 
 
 would like to see the way in whicli it could be brought into harmony 
 with the law, and this commission, naturally, ought to have the right 
 to exercise advisory power. 
 
 Senator Pomerene. Well, you say you would not have the Govern- 
 ment fix the price. Assume an instance where the price was really 
 excessive in an article that, for instance, the factory might have a 
 monopoly on, or a substantial monopoly — would you attempt in any 
 way to regulate or control that price ? 
 
 Prof. Gore. No, sir. 
 
 Senator Pomerene. I think that is all I care to ask. 
 
 The Chairman. Senator Townsend. 
 
 Senator Townsend. Prof. Gore, did I understand you to say that 
 you are not satisfied with the Sherman antitrust law as it is now ? 
 
 Prof. Goee. I would be satisfied if we could supplement it by the 
 commission such as I propose. 
 
 Senator Townsend. Do you think that the case you mentioned 
 of the expressmen on the border line between Virginia and Tennessee 
 comes within the prohibitions of the statutes ? 
 
 Prof. Goee. It has been so declared by some judges, as an illustra- 
 tion. I borrowed it from a decision in a case; so I do not think it 
 ought to, no, sir; because I do not feel that it is within the spirit 
 of the law 
 
 Senator Townsend. On the contrary, did not the court say that 
 it was not intended to apply to such case as that in the illustration ? 
 
 Prof. Goee. Some courts have so declared, and other judges have 
 used that very thing as an illustration — I do not think so; it was 
 not contrary to the spirit of .the law. 
 
 Senator Townsend. If the antitrust law is enforced according 
 to the recent decisions of the Supreme Court, would it be satisfactory 
 to you? 
 
 Prof. Gore. Yes, sir; the only difficulty is that all of the 800 or 
 more combinations that are now in existence would have a feeling 
 of uncertainty as to whether the temperament of the court, when 
 the case came up to it, would be the same as it is now in the interpre- 
 tation of the idea of reasonableness. There is that uncertainty. 
 
 Senator Townsend. What authority would the findings of the com- 
 mission have with reference to that? Suppose it were granted these 
 advisory powers that you suggest, and it should advise a body of 
 gentlemen who were seeking to incorporate in a business that the 
 methods which they proposed were in accordance with the law ; sup- 
 posing it should develop that the Department of Justice should decide 
 that they were not in accordance with the law, what would happen 
 then? 
 
 Prof. Goee. They would have a conflict of authority. 
 
 Senator Townsend. Which would you make supreme, if either? 
 
 Prof. Gore. I think you would have to regard the Attorney General 
 as supreme. The commission would have the opportunity of point- 
 ing out flagrant cases that needed rectification. That would be one 
 of their most valuable functions. 
 
 Senator Townsend. Would you make it incumbent on the com- 
 mission to institute all proceedings for violations of the law ? 
 
 Prof. Gore. I think it would be wise ; yes, sir. 
 
 Senator Townsend. Suppose they did not do it ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 767 
 
 Prof. Gore. The law now makes it possible for anyone who feels 
 that he is injured to bring suit. 
 
 Senator Townsend. I ask you first, if you would make it incum- 
 bent upon the commission to take the initiative — that cases would 
 have to originate with the commission ? 
 
 Prof. Gore. I would not say that I would make a limit of authority 
 on the commission by any means. We must have the possibility of 
 independent instigation of suits, just as well, but we would come, 
 I think, directly to cases that needed adjustment more quickly than 
 with the haphazard methods — with all due respect to the authori- 
 ties — that are employed at the present time. 
 
 Senator Townsend. You believe generally in these combinations — 
 large combinations to do business? 
 
 Prof. Gore. Yes, sir. 
 
 Senator Townsend. You think they are absolutely necessary for 
 the conduct of the business of the world to-day ? 
 
 Prof. Gore. Large business is necessary. Large corporations are 
 not necessarify combinations. The only difficulty is that, in order to 
 bring into existence the large corporations necessary to compete in the 
 markets of the world, the amount of capital necessary could not be 
 secured immediately nor could the factories be equipped immediately, 
 and so the only way has been by consolidating the forces already in 
 existence. In other words, we can not grow a horse large enough to 
 pull a 6-ton load, but we hitch up six horses to do the work. 
 
 Senator Townsend. You think there are bad trusts and good 
 trusts? 
 
 Prof. Gore. Yes, sir; I do. 
 
 Senator Townsend. And your scheme is to try and preserve the 
 good ones? 
 
 Prof. Gore. Exactly, but let the good ones realize that they have a 
 hope of some continuity of existence. 
 
 Senator Townsend. Do you not believe that a combination — a 
 large combination which can take advantage of all the economies of 
 production, all of the accessories necessary to complete production, 
 would of necessity tend to destroy competition? 
 
 Prof. Gore. I think they need to be watched very carefully. 
 
 Senator Townsend. As I understood you at the beginning, you 
 have been lecturing on trusts during the last three years here and in 
 Europe. 
 
 Prof. Gore. Yes, sir. 
 
 Senator Townsend. Before universities? 
 
 Prof. Gore. Yes, sir ; at Yale and Princeton and the University of 
 Copenhagen, chiefly along historic development of the trust. 
 
 Senator Townsend. And you have there advocated the same ideas 
 that you have here before the committee to-day? 
 
 Prof. Gore. Yes, sir. 
 
 Senator Townsend. I think that is all. 
 
 The Chairman. The committee will now take a recess until to- 
 morrow morning at half past 10 o'clock. 
 
 Accordingly, at 11 o'clock and 35 minutes a. m., the committee- 
 took a recess until to-morrow, Wednesday, December 6, at 10.30 
 o'clock a. m.) 
 
 22877 — vol i — 12- 49 
 
768 HEABINGS BEFORE 
 
 WEDNESDAY, DECEMBER 6, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, I). C. 
 
 The committee met at 11.30 o'clock a. m. for the purpose of further 
 considering the bill (S. 2941) entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, 
 Oliver, Lippitt, Townsend, Gore, Watson, and Pomerene. 
 
 The Chairman. The following communication will be incorporated 
 in the record: 
 
 Indianapolis, Ind., December 4, 1911. 
 To Chairman Senate Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 Dear Sir: I desire to present to you and through yon to the committee the 
 following suggestions as to the Sherman law : 
 
 I have believed and still believe that the antitrust law is good law, but I do 
 believe that it should be amended. We will admit the evils of trusts and mo- 
 nopolies. The fight is not against big business, in the minds of thoughtful men 
 but against criminal business, although I confess that from much that I read 
 and hear, there is a tendency to treat the terms as synonymous. This, it seems 
 to me, is unfair and complicates the solution of a very difficult economic 
 problem. 
 
 To start with, perhaps it were best to go back to basic principles and rights. 
 Every citizen is entitled to life, liberty, and the pursuit of happiness. Even 
 under the common law he had the free right to trade, to buy, and sell without 
 obstruction by wrongful acts of others, nor could his free right to trade be 
 accompanied by a wrongful motive on his part to injure others. Now it seems 
 to me that this right is just as sacred and as much entitled to the protection 
 of the law as the rights of property or person. To prevent larceny, robbery, 
 embezzlement, burglary, arson, assault, murder, mayhem, rape, statutes are 
 passed carefully and accurately defining all of the elements entering into and 
 constituting the prohibited and criminal act, and fixing the punishment and the 
 method of punishment. Nothing is left for the court to do but exocute the law. 
 Now I submit that this free right to trade is not given the importance it de- 
 serves. If it is a felony for a man to enter my house and steal my coat, why 
 is it not a feiony for him to steal my business, or my opportunity to do busi- 
 ness, or to deprive me of it, or drive me out of it after I have acquired it? 
 The right and free opportunity to do business is often of more value than 
 mere property. Yes; you agree with me; then why is it that our lawmakers 
 have not carefully and accurately defined the acts constituting this felony and 
 fixed a like punishment with larceny, burglary, or embezzlement. 
 
 I know that it may be difficult to define all of the acts that wicked ingenuity 
 devised, or may devise, to drive others out of business, and to exclude them from 
 the right to trade, but we all know a good many of the methods that have been 
 adopted, such as selling below cost in the markets of the competitor. Advertis- 
 ing him out of business, libeling him and his wares and business, spying on 
 his business, accepting rebates, injuring his credit, preventing him from getting 
 credit, trading stamps, fake competitors, etc. A careful study of the main 
 elements of these crimes by a congressional committee would, in my opinion, 
 furnish sufficient data to enable the committee to accurately and carefully de- 
 fine tliem. Then, the law should be amended and. the offense made a felony, 
 with the minimum punishment fixed at two years in the penitentiary. 
 
 If this were done, the owners of large business could not complain, as they 
 now often do, that they have no way of telling whether they are violating the 
 law or not. It is the function and purpose of the law to define and punish 
 wrongdoing and not to halt or throttle business. It is hard for even the most 
 intelligent to tell just what is meant by the Sherman law. The judges disagree, 
 the lawyers disagree, the newspapers disagree, Members of Congress disagree. 
 
 The law in substance says: "Every contract, combination in the form of a 
 trust or otherwise, or conspiracy in restraint of trade or commerce is illegal. 
 And every person who shall make any such contract or engage in any such 
 
CUMM1TTEE ON INTEKSTATE COMMEKCE. 769 
 
 combination or conspiracy shall be deemed guilty of a misdemeanor, and every 
 person who shall monopolize, or attempt to monopolize or combine with another 
 to monoplize any of the trade or commerce, shall be guilty of a misdemeanor." 
 
 It is contended with much force that the acts which may come under the 
 classes stated in the law are not specifically enumerated or accurately de- 
 fined. It is therefore necessary for the courts to decide whether, in a given 
 case, particular acts come within the statutory classes. 
 
 Many claim that as a man proceeds in business he has no sure way of know- 
 ing whether he has violated the law or not until he is prosecuted and the court 
 decides the question. 
 
 Now, that is all right for a court of equity (equity is defined as that wherein 
 the law is deficient) to pass upon and exercise judgment and declare what, 
 in any particular case, is wrong and conflicts with, the statute, and what is 
 not wrong. A court of equity can reach out its long arm and correct evil con- 
 ditions and enjoin future violations of those specific acts. This is valuable 
 and salutory, but it is not enough; we need the crime defined, and it is more 
 than a misdemeanor, it is a felony, and should be denominated as such, and 
 then these illegal acts will, in my opinion, cease, or be no more common than 
 larceny, burglary, and like crimes. The line of progress lies not in arbitrary 
 action, but by accurate definition of wrongs and the infliction of proper pun- 
 ishment. I can not bring myself to believe that the courts can lay down such 
 criminal rules. The most they can do is to say that the particular act before 
 them is illegal. The question then arises, When would there be enough cases 
 decided to furnish definite rules for future action? I can well understand why 
 Chief Justice White, in the Packers' case, did not want to take the responsi- 
 bility of passing on such a momentous question by himself. My guess is that 
 the court, on full hearing, will hold the criminal features of the law unconsti- 
 tutional. But why not amend the law so as to avoid these criticisms? It is 
 not one of the ten commandments. If the law were effectively amended along 
 the lines here suggested, a trust or large corporation would not hinder or 
 deter anyone from going into business. The purchase of competitors (even 
 that could be prohibited) would only invite new competition. The moment 
 a trust or combination raised the price above a fair profit others would go 
 into the business and bring them down again. It is the fear of the criminal 
 action of the trusts that keeps competition out now and makes monopoly 
 rampant. 
 
 No matter what we do, I do not believe that we can ever restore the old-time 
 unregulated competition, with its deceit and fraud in business, its violent 
 fluctuation in prices, the deliberate driving to the wall of weak brothers, and 
 the creation of monopoly in the survivors. I believe that in this economic 
 revolution, or evolution, individual business is largely going out and the cel- 
 lective system is coming in. 
 
 The officials of the Government are certainly exerting a great deal of energy 
 trying to enforce this law and make it effective; a good many people believe 
 that, considering the uncertainty of the law, they are pushing it with too much 
 speed. 
 
 At any rate, good results are being obtained with the present law, and per- 
 haps in time, as the number of decided cases multiply, the abuses will be re- 
 duced to the minimum. In the meantime, the effect on the business of the coun- 
 try is not good. That there is halting doubt and uncertainty, will not be denied. 
 Then, I repeat, why not amend the law at once and set out in detail, as far as 
 is possible, the specific acts of various kinds that constitute the offenses that 
 are the principal cause of the present conditions? 
 
 I believe that there are some combinations and monopolies, such as those 
 holding patents, secret processes of manufacture, the exclusive sources of supply 
 of materials of manufacture, and perhaps some great industries that require 
 tremendous capital to successfully operate, that should be placed under Govern- 
 ment supervision or control, much as the national banks and railways are now 
 supervised and controlled. 
 
 Yours, respectfully, C. A.. Kenyon. 
 
 The Chairman. Mr. Earle, under a rule adopted by the committee, 
 those who appear before it are allowed to make their statements with- 
 out interruption, after which they are interrogated by the committee. 
 
770 HEARINGS BEFORE 
 
 STATEMENT OF GEORGE H. EARLE, JR., REAL ESTATE TRUST CO., 
 BROAD AND CHESTNUT STREETS, PHILADELPHIA, PA. 
 
 The Chairman. You may proceed. 
 
 Mr. Eaele. How shall I proceed ? About what ? 
 
 The Chairman. I wrote you, sending you a copy of the resolution 
 under which we are sitting, and the desire was to have you express 
 your views as to the subject matter of the resolution, which, broadly 
 stated, is possible legislation with reference to the trust situation. 
 
 Mr. Earle. I understand. 
 
 The Chairman. What suggestions you may have to make as to 
 the desirability of legislation, and the character of the legislation 
 desired. 
 
 Mr. Earle. It has been my fortune to have had to follow up some 
 of this trust litigation very carefully, which counsel had advised me 
 probably would not be successful because of the Knight case; and 
 having practiced some years ago as a lawyer, that made it necessary 
 for me to study these questions with some care, and I reached conclu- 
 sions which I do not want you to take as criticisms upon the conclu- 
 sions of anybody else, but simply my views, for whatever they are 
 worth, if they may help you to elucidate the truth of this matter. 
 
 There was one thing about which I was perfectly convinced, and 
 that was that there had never been a better piece of work done than 
 the drafting of the Sherman Act by Congress. The question that it 
 deals with is one that has been constantly troubling men for at least 
 two milleniums, and has had the attention of practically all the 
 greatest economic thinkers that have ever lived, and I think the re- 
 sult of that thought has been very well stated in the Sherman Act 
 itself. 
 
 There is no difficulty with that act, and I will give you my reasons, 
 if you desire them. The difficulty with the business of this country 
 and in the law has been, as I see it, because we have tried everything 
 to remedy the trust evil in this country except the Sherman Act. The 
 work done by Congress has, if I understand the matter, never really 
 been used at all. We 'have had at least three different interpreta- 
 tions of the Sherman Act by the Supreme Court. Of course all of 
 them have been varied or repudiated by that body except the last one, 
 but no interpretation that has yet been rendered has been a simple 
 compliance with the law as made by Congress, which was the power 
 that had the right, and the sole right, of making that law. 
 
 The Sherman Act provides for two things in principle. The first 
 is that there shall not be contracts, combinations, or conspiracies in 
 restraint of trade. The second is that monopolies, and attempts at 
 monopolies, shall be prohibited. 
 
 It has always seemed to me perfectly obvious what that meant. 
 Congress has spent, I suppose, upward of a thousand millions of 
 dollars in trying to enlarge and develop the trade of this country. I 
 think it has wisely spent it. I think it is the one subject upon which 
 there has been no criticism whatever, and it would be folly to say 
 that that work which it has done should be permitted to be thwarted 1 
 by any private interest, for any private profit, or purpose ; and con-' 
 sequently, with that in view, you passed the Sherman Act. And all 
 you said was that there should be no restraints of trade — -and it is 
 important to remember that that is all that you said — and that there 
 
COMMITTEE ON INTERSTATE COMMERCE. 771 
 
 should be no attempt at monopoly, which, of course, is a complete 
 restraint of trade, because monopoly— as all the political economists, 
 1 think, without dissent, agree— is a turning of trade into the taxing 
 power or taxation itself. The man who has an iudustrv which 
 another must take at his price, and not a trade price fixed by compe- 
 tition, of course can take all he has got or starve him, if he wants to 
 Wow when you had only said there should be no restraint of trade, 
 the Supreme Court began in the Knight case by adding a word' 
 It you gentlemen have leisure and will look at the dissent of Mr 
 Justice Holmes in the Northern Securities case, you will see how 
 ably he points out the danger of doing that. 
 
 There is a doctrine which has been adopted by the courts to recon- 
 cile the difficulties of having two forms of laws, those made by the 
 State and those by the United States, which says that the States 
 shall have the power where they have no purpose of regulating inter- 
 state trade but of carrying out some legal purpose that is proper and 
 within their jurisdiction, of passing laws even though they may have 
 a direct or remote or unintended effect on interstate or foreign 
 commerce. 
 
 The Supreme Court of the United States, however, in the Knight 
 case said that when you said that trade should not be restricted, if 
 you meant that it should not be restricted, by corporations formed 
 by States, indirectly, you had exceeded your constitutional powers. 
 I think that was, on well-settled principles, a mistaken decision. I 
 think you had a perfect right — and I will, in anything I say, be glad 
 to verify it by decisions — I think the discretion was with you, and 
 not with the Supreme Court, to determine what were obstructions to 
 the trades you had in charge ; and that you had a right to say that 
 trade should not be restricted — trade within your jurisdiction, directly 
 or indirectly, or in any other way. The constitutional provision, 
 however, as 'interpreted in all the other cases, was that when Congress 
 acted on the subject which is exclusively within its jurisdiction the 
 .action by the State fell, but in this one instance the action by the 
 State was not to fall ; it was to stand and your action was to fall, the 
 States supreme, you subordinate, notwithstanding the Constitution 
 to the contrary. 
 
 My chief objection, however, to that decision is that by introducing 
 the word "indirect" into the act not merely limited the just power 
 of Congress, but introduced the greatest confusion possible. Take 
 the Knight case as a sample. It was its confusion and uncertainty 
 that unsettled business and not the Sherman Act. It is the confusion 
 and uncertainty of that decision that made the first trouble. Now, 
 I am both a lawyer and a business man, and I say it is utterly beyond . 
 the ability of any man in the United States — I do not care how good 
 a lawyer he is — to-day to tell you what is a lawful contract in this 
 respect, an inability which would never have arisen under the Sher- 
 man Act without interpretation. That uncertainty is the great blight 
 on business; it is not the Sherman Act that causes the trouble. In 
 the Knight case and the Anderson case the Supreme Court's reasoning 
 conflicted as to what was a direct restraint of trade. Take again, 
 for example, the Joint Traffic and Trans-Missouri cases to ascertain 
 what is " direct." 
 
 The court there said, in the opinions written by Mr. Justice Peck- 
 ham, if you restrain, by a combination, competition among the vari- 
 
772 
 
 HEABINGS BEFOEE 
 
 ous railroads the natural consequence of that will be to advance 
 freight rates. If you advance freight rates they must be paid by 
 commodities, and the consequence of that is a higher price for com- 
 modities. If the commodities cost more there will be less consumed, 
 and therefore you will have restrained trade to that extent. 
 
 Now, the Supreme Court has expressly said that that, through all 
 these steps, was a direct restraint of trade which Congress could pre- 
 vent. But it said if when gentlemen get together, possibly to in- 
 crease the price of commodities, through monopoly of production, 
 the inference of the law being that their sole purpose was monopoly. 
 Yet if some lawyer said : " I can go to any State in the Union, and 
 under laws which involve no exercise of discretion by the States at 
 all — because all corporation laws are now general, for the requisite 
 number of men can take out a charter- if I come back with a stamped 
 piece of paper called a charter, the inference from all those acts, 
 which remain identical, is instantly and absolutely reversed and no 
 restraint is intended. You then do not intend to restrain trade at 
 all." That restraint would not any longer be a natural consequence, 
 although you eliminated all competition and established a complete 
 monopoly in the manufacture, and not only did you not interfere with 
 interstate trade, but it was such an abuse of Congress to say that that 
 was a restraint of trade, that the act would have had to be stricken 
 down as unconstitutional for so saying. You could do everything 
 just as before, have all the same natural tendencies, but the inter- 
 vention of a stamped piece of paper not only changed all the legal 
 inference, but made the purpose of Congress so unreasonable, for 
 thinking them the same, that the court must substitute its judg- 
 ment and its opinion for that of the body which the Constitution haa 
 said should have the exclusive power of deciding what were obstruc- 
 tions to trade, and then control them. 
 
 Now, I think an enormous amount of trouble arose from that case. 
 If you will take the later decisions as to what was direct and indirect 
 and compare them with the Knight case, you will find that nobody 
 under Heaven could for a long time, even if now, tell what was a 
 direct restraint or an indirect restraint, and that confusion is all I 
 am speaking about. Under it these combinations were formed in 
 every direction, and nobody, until the Supreme Court decided, could 
 tell whether there was a restraint of trade that was direct or indirect. 
 And as no one could tell, it was hard to punish for guessing wrong. 
 You had, then, all the uncertainty hanging over business thus re- 
 sulting, and absolutely no check on forming monopolies, for they 
 would take chances honest business feared to. 
 
 Well, now, that case has been cited in the last opinion, where this 
 old argument was made again by Mr. Johnson, and the Chief Justice 
 treats it with scant consideration. He said it has been explained time 
 and time again and constitutes no defense. So I suppose that is out 
 of the way, but historically it is exceedingly important, because if 
 you gentlemen want to reach results you have got to remove such un- 
 certainty and let the Sherman Act stand for what it was intended to 
 stand — stand on its own plain and simple provisions. 
 
 The revolt against that and the consequences which followed it in 
 the formation of trusts all over the country finally resulted in a com- 
 plete change of opinion, and so another word was written into the 
 act. Instead of the word " indirect," alone, which may have had a 
 
COMMITTEE ON INTEBSTATE COMMEECE. 773 
 
 purpose but not as wide a one as was given by the court, the prime 
 consideration became, under the various decisions, the trans-Missouri, 
 the Joint Traffic, and the Addyston Pipe case, a question not whether 
 you have restrained trade — all the act provided against — but whether 
 you had restrained competition. 
 
 Now, gentlemen, you can not do any business without restraining 
 competition. Trading, is in a sense restraining competition. If I 
 own a cargo of wheat and I agree to sell it to one of you gentlemen, 
 and another one of you comes along and says, " I would like to buy 
 that cargo of wheat, 1 " my contract with the person who has agreed to 
 buy it is a restraint upon my freedom to sell to anybody else. To 
 make a restraint of competition and nothing else the test, was to 
 totally misunderstand the Sherman Act and the common law — and I 
 think this is perhaps the most important thing I have to say. For 
 the Supreme Court has now definitely, and I think wisely, determined 
 that the Sherman Act was but an application of the common-law 
 principles to our national questions of interstate commerce, with 
 added sanction to enforce that law. The conclusion of Mr. Justice 
 Harlan — because he was largely responsible for it, and though I 
 differ, there is no man in the history of the country whom I admire 
 more — was that all restraints on competition were necessary equiva- 
 lent of restraints on trade: whereas, as an economical fact, restraints 
 on competition are trade. 
 
 You had the country, therefore, in this particular position, that to 
 protect trade, all trade was illegal. And in a little while they had to 
 admit that a partnership which made it a fraud between the two 
 partners to compete with each other, was a palpable restraint on 
 competition — of their freedom to compete, which is really what is 
 meant — that such a partnership was nevertheless not within the 
 law. They also said when you sell a business and agree not to steal 
 the good will back by again competing, though you completely re- 
 strain your right of competition, it is not against the law. 
 
 "So you then had a universal rule with many exceptions, which, of 
 course, is a logical absurdity and contradiction. 
 
 Now, gentlemen, the act of Congress said that you should not 
 restrain trade. It did not say that you should not restrain competi- 
 tion. But the common law, which was written into the act of Con- 
 gress, said, and very properly, that whilst the only protector for 
 the consumer is competition, and that if you strike down competition 
 you create a prima facie presumption that your purpose or that the 
 result will be to restrain trade, that, therefore, where you could prove 
 that an agreement was made that limited a man's freedom to compete 
 you had made a prima facie case and tbat it then became the duty of 
 the defendant to go further and prove that though he had restrained 
 competition he had benefited and advanced trade ; it never said that 
 he could not thus defend himself by showing that in the particular 
 case he had aided trade by a partial restraint of freedom to compete. 
 
 Now, that has been adjudicated agam and again, and I can give 
 you the cases, if you desire them. Some of them have been decided by 
 the Supreme Court of the United States. But the rule of common 
 law, and the rule that you have got to come back to and the rule which 
 you enacted — for'younever mentioned the subject of competition in 
 the act you have passed — the rule is at common law, and will be in 
 this country sooner or later, that all contracts in restraint of freedom 
 
774 
 
 HEARINGS BEFORE 
 
 of competition are only prima facie contracts in restraint of trade, 
 but that as there are many restraints of freedom to compete, which 
 really increase the effectiveness of competition and tend to the en- 
 largement of trade, in such cases there is a perfectly good defense. 
 
 If I do not make myself clear, will you be good enough to call my 
 attention to it, because this is a matter that I have thought a good 
 deal about, and, perhaps, understanding my own thoughts, I may be 
 saying what seems clear to me and may not be to some of you. 
 
 Senator Brandegee. Mr. Chairman, I think we had better state to 
 the witness that we can not ask any questions until he finishes. 
 
 The Chairman. I stated that at the outset. 
 
 Senator Townsend. There will be plenty asked, undoubtedly. 
 
 Mr. Earle. Now, then, we had another interpretation of the Sher- 
 man Act. The first interpretation was that it had to be " indirect," 
 with no clear definition possible that I could ever find from the cases 
 of really what was "indirect." I think I can give you a very im- 
 portant illustration of that. In the Knight case, as I have pointed 
 out, it was held that the very same things which had they been done 
 by these gentlemen without forming a corporation and would have 
 been "direct" restraints of trade, with a legal inference that they 
 were intended as "direct" restraints of trade, did not justify that 
 inference at all; that it was even absurd to draw the inference if 
 there was in addition but a charter granted to gentlemen who were 
 going to bring about identical results and identical evils. 
 
 Now, when it came to the criticisms which that raised — I do not 
 know whether I can find it here; I will not stop now 
 
 The Chairman. Take your own time. I think the committee is 
 very much interested. 
 
 Mr. Earle. The purport of all I am going to say is that Congress 
 did have the right remedy; that that was in conformity with the 
 common law, and that Congress acted in conformity with that; but 
 that these undefined additions caused all the trouble. I want to 
 lead up to that to show how plainly it is so. 
 
 In the Anderson case, where the Supreme Court was practically 
 unanimous, Mr. Justice Peckham wrote the opinion, and this was his 
 definition — and I want you to remember the definition of " indirect " 
 in the Knight case and contrast them : 
 
 .Where tlie subject matter of the agreement does not directly relate to and act 
 upon and embrace interstate commerce, and where the undisputed facts clearly 
 show that the purpose of the agreement was not to regulate, obstruct, or re- 
 strain that commerce, but that it was entered into with the object of properly 
 and fairly regulating the transaction of the business in which the parties to 
 the agreement were engaged, such agreement will be upheld as not within the 
 statute where it can be seen that the character and terms of the agreement are 
 well calculated to attain the purpose for which it was formed ; and where the 
 effect of its formation and enforcement upon interstate trade or commerce is, 
 in any event, but indirect and incidental, and not its purpose or object. As is 
 said in Smith v. Alabama (124 XJ. S., 473, 1888) : 
 
 " There are many cases, however, where the acknowledged powers of a State 
 may be exerted and applied in such a manner as to affect foreign or interstate 
 commerce without being intended to operate as commercial regulation." 
 
 The same is true as to certain kinds of agreements entered into between 
 persons engaged in the same business for the direct and bona fide purpose of 
 properly and reasonably regulating the conduct of their business among them- 
 selves and with the public. If an agreement of that nature, while apt and 
 proper for the purpose thus intended, should possibly, though only indirectly 
 and unintentionally, affect interstate trade or commerce, in that event we think 
 
COMMITTEE OS INTERSTATE COMMERCE. 775 
 
 the agreement would be good. Otherwise there is scarcely any agreement 
 among men which has interstate or foreign commerce for its subject that may 
 not remotely be said to in some obscure way affect that commerce, and be void. 
 
 at 
 
 all only in a very indirect and remote," "no direct tendency to°' diminish 
 or in any way impede or restrain," "no tendency directly or indirectly to re- 
 Strict competition," " not with intent or purpose of affecting in the slightest de- 
 gree," " no tendency to limit the extent of the demand or to limit the number 
 marketed or to limit or reduce price or place any impediment in the course of 
 the commercial stream," " too remote and fanciful," " reasonable and fair," 
 " possibly in but a remote way." 
 
 Now, of course, that amounted to nothing if these were the 
 synonyms of indirect, but in the Knight case the synonym was but 
 a charter added without at all decreasing the danger and tendency 
 to public harm. 
 
 The Supreme Court of the United States in the Barbour case 
 (136 IT. S.) — Barbour v. Minnesota — said that the purpose of even 
 the act of a sovereign State in legislating was to be found in the 
 natural results of that legislation — but you had the decision in the 
 Knight case that if there was a purpose so ascertained to restrain, 
 the mere charter changed it. You had, in the Knight case, the abso- 
 lute decision that the identical facts, plus only a purchase under a 
 charter, did not show any purpose to restrain, and no lawyer under 
 heaven could draw the line as to what made the difference between 
 those two decisions, the Knight and Anderson and the others, and 
 yet the Knight case was said to be good law even after the Anderson 
 case was determined. 
 
 So you have, gentlemen, these questions which came up to the 
 practicing lawyer and not to the judges of the Supreme Court. They 
 had merely passed on those things after they were all over, and the 
 lawyer would have to advise in advance, and until he advised Wade 
 must wait, and I do not believe there is a lawyer in the United States 
 of any responsibility who would dare say in such an important 
 matter — because it was punishable by imprisonment if you go beyond 
 to business that involves any restraint of competition, or involves 
 any of these things— " I can say whether you are going to jail or not." 
 You could not put such a pall over trade ; that is, tell the whole trade 
 of the United States that if merchants did anything that required 
 cooperation (and of course we do not want to get into the condition 
 of the inhabitants of New Holland, where they have no cooperation 
 at all in life, and where it is said that the condition of human beings 
 is even more unfortunate than that of the animals), for any effort 
 at cooperation in the United States, to a good lawyer, was an effort 
 that might or might not be criminal on lines that he could not pos- 
 sibly define and expect Wade to flourish. And so when " indirect " 
 became less important and was finally modified and, perhaps, .elim- 
 inated, without saying that it was eliminated (if you will read the 
 cases in 220 and 221 United States Reports you will see that the 
 Knight case has probably largely ceased to be a factor). When that 
 was gotten rid of then we were told that anything that restrained 
 competition, necessarily and per se, restrained trade, although for 
 2,000 years it has been known that that was not the fact really and 
 economically. 
 
776 HEARINGS BEFORE 
 
 As I have said, removing competition at all was always a dangerous 
 indication, and it made out a prima facie case, but it was always 
 possible at the common law to answer that the restaints of competi- 
 tion that were made in business arrangements did not really restrain 
 trade, and if they did not restrain the effectiveness of competition, 
 and thus trade, they were not illegal. 
 
 So we come finally to the last decisions of the Supreme Court of the 
 United States. They are very long, and very long decisions make it 
 difficult to get the real rule and purpose of the decisions out of them, 
 and I may misinterpret them. I hope I do. Do they improve (he 
 situation? I do not at all think that the Supreme Court was wrong 
 in saying that every act must be construed " reasonably." Of course 
 it must be. If the Supreme Court is to pass upon your work, and not 
 to pass upon it in the light of reason, I do not know what other 
 guide they can have. How they can act at all? But my fear about 
 the decisions — and I think they are doing great harm — is that they 
 introduce tremendous uncertainty by both misplacing the word " rea- 
 son " and using it as the equivalent of another word which is actually 
 used, and that is the word " undue." It is all right to say that a 
 statute prohibiting murder or assault or anything else should be rea- 
 sonably interpreted, but to say that it would not be reasonably inter- 
 preted unless you wrote the word " reasonable " before the offense 
 does not convince me that it is reasonable. I say that a statute, against 
 murder means " murder," not unreasonable murder ; or a statute 
 against assault means against assault, not merely an " undue " as- 
 sault ; against restraining the nation's trade, restraining that trade at 
 all, not merely restraining it, as someone after the offense may think, 
 "unduly." Such a test leaves everything undefined, uncertain, un- 
 settled; and I do not think it reasonable at all to say the Nation's 
 trade or any part of it is to be destroyed for private gain, if that is 
 meant. 
 
 I do not know whether I make myself clear. I entirely agree with 
 the decision of the court that this statute should be reasonably inter- 
 preted, but I do not think it is reasonably interpreting a statute to 
 write the word " reasonable " in the definition of the offense, and I 
 want to show you the genesis of that thought, because it all originated 
 with Mr. Justice Jackson, and Mr. Justice White has been fighting for 
 it ever since, if I understand his opinions, and fighting with tremen- 
 dous ability for it. His opinions in the Tobacco and Oil cases prac- 
 tically make his dissent in the trans-Missouri case the opinion of the 
 court. Mr. Justice Jackson, and any very able man, can go wrong. 
 Even such men sometimes go wrong because they think they are 
 right, and when wrong their arguments are terrifically powerful and 
 dangerous because of their ability ; and you have got to think a long 
 while before you can work out where the possible mistake may be, 
 even if you can do it at all. 
 
 The Green case was one of the very first cases in which an inter- 
 pretation of this act was given, and Mr. Justice Jackson said : 
 
 The quetion of its (a contract) reasonableness depends on the consideration 
 of whether it is more injurious to the public — 
 
 I want you to notice that language — 
 
 more injurious to the public than is required to a ford a fair protection to a 
 party in whose favor it is secured. 
 
COMMITTEE ON INTERSTATE COMMERCE. 777 
 
 In other words, the decision of Mr. Justice Jackson was that in 
 passing this law for the protection of the public, and every member 
 of the public, your purpose was to let an injury be inflicted upon 
 the public if it was, in comparison, justified by the profits to the 
 man who was disobeying the law. 
 
 Now, I have never seen that doctrine anywhere in any case in any 
 country except in a few opinions in courts of the United States. Our 
 maxim is still, of course, salus populi supfema lex. Any injury to 
 the public the public has a right- to protect itself against, and it is its 
 duty, I think, to protect itself against, for what hurts the whole 
 public hurts everybody, and the doctrine that private individuals for 
 private profit, private right, and benefits had a constitutional right 
 to do things that were injurious to the public, provided they were 
 commensurate or satisfactory to the courts because largely beneficial 
 to the people combining or contracting, has no place in any system 
 of jurisprudence with which I am familiar. I have tried to find a 
 parallel for it, and it certainly is not in the common law. 
 
 When the Trans-Missouri case came before the court, that state- 
 ment of Mr. Justice Jackson, naturally, very strongly affected some 
 of the judges in that case — Judge Sanborn writing the opinion — 
 and two of them said that the same thing might be so. I have the 
 language here in the Trans-Missouri case. You w,ill find it in 696 
 of the first volume of antitrust decisions, which was printed by 
 Congress. On appeal, Justice White dissents, and says: 
 
 Though a contract may in some measure restrain trade, it is not for that rea- 
 son void unless the restraint which it produces be unreasonable. 
 
 And in the court below the judge who wrote the opinion had said 
 that — 
 
 A restriction that was unreasonably injurious was illegal. 
 
 Now, that is where the whole trouble started. That was not the 
 law — I do not know whether it is the law even now. I hope not. 
 Of course, whai the Supreme Court says is the law until it is 
 changed. Anything that restrained was injurious to the public and 
 any restraint of trade was certainly unreasonable at common law, 
 even if not now, but a contract that prevented a man exercising 
 his full liberty to compete was not necessarily a restraint of trade, 
 and under the common-law doctrine of unreasonable restraints of 
 trade it was merely meant — as I will show you by the decisions, if 
 you are interested— it was merely meant and only referred to, not 
 obstructions of trade by monopoly, or in any other way, but* it was 
 meant that a man could contract away a certain portion of his lib- 
 erty to compete, provided it encouraged honest trade, and that is all 
 it meant. The courts have said so again and again, and why it has 
 not been clearly seen is something that is simply beyond my ken, 
 because it has been said so often and so well that it has almost been 
 said ad nauseam. 
 
 I will cite a few of the decisions which Mr. Justice White referred 
 to; some of them he even quotes himself, and he says they are the 
 decisions that most control the interpretation of this act : 
 
 Sir F. Pollock (citing Leather Cloth Co. v. Lorsont, 9 Eq., 353, 1S69) saysr 
 '•The admission of limited restrictions is commonly spoken of as an exception 
 to the general policy of the law. But it seems better to regard it rather as 
 
778 HEARINGS BEFORE 
 
 another branch of it. Restriction which is reasonable * * * is allowed by 
 the very same policy that forbids restrictions generally, and for like reasons." 
 
 Again in Rannie v. Irvine (7 Man & G., 978, 1844), Maule, J., says with 
 fine succinctness : " The exception is in furtherance of the rule." 
 
 That is, it was made to further trade, and had no other purpose. 
 
 In Homer v. Ashford (3 Bing., 326, 1825), Best, B. J., says: "The first 
 object of the law is to promote the public interest ; the second, to preserve the 
 rights of individuals ;" and then, after denouncing restraints of trade, he again 
 gives the true reason for allowing "partial" or "reasonable" restraints of it: 
 " The effect of such contracts is to encourage rather than cramp." 
 
 And a contract that did not encourage rather than cramp is not 
 within the exception at all. 
 
 Now, you come to Baron Parke's great decision in Mallan v. May — 
 and nobody ever laid down the common law better than Baron Parke. 
 He afterwards became a judge in the House of Lords, and his name 
 will live as long as the common law lives. 
 
 In the leading case of Mallan v. May (11 M. & W., 665, 1843), 
 unanimously approved by eight judges in the Exchequer Chamber 
 in Prices. Greene (16 M. & W., 346, 1847), Baron Parke, whose 
 -explanations are always so clear, says: 
 
 The rule * * * is, that total restraints of trade, which the law so 
 favors, are absolutely bad, and that all restraints, though only partial, if noth- 
 ing more appear, are presumed to be bad. * * * Contracts in restraint of 
 trade are in themselves, if nothing show them to be reasonable, bad in the 
 -eye of the law. * * * But if there are circumstances recited in the instru- 
 ment (or, probably if they appear by averment) it is for the court to determine 
 whether the contract be a fair and reasonable one or not — 
 
 And this is the important part — 
 
 and the test appears to be, whether it be prejudicial or not to the public 
 interest — 
 
 The direct opposite of the doctrine I have read you of Justice 
 Jackson — 
 
 for it is on the grounds of public policy alone that these contracts are supported 
 or avoided. * * * It is justly observed by Lord Wynford that the effect 
 of those contracts — 
 
 That is, the ones allowed — 
 
 is to encourage rather than cramp the employment of capital in trade, and the 
 promotion of industry. 
 
 And finally this question was taken to the House of Lords, which 
 is the same as our Supreme Court, and this case has been cited as 
 late as- 221 U. S., by Mr. Justice Hughes, in a case in which Mr. 
 Justice Holmes alone dissents, and I think the very language used 
 that I now quote: 
 
 Lord Macmighten, speaking in the House of Lords and so settling the law 
 of England, says in Nordenfelt v. Maxim (1894 A. C, 559, 1994) : "The public 
 have an interest in every person carrying on his trade freely ; so has the indi- 
 vidual. All interference with individual liberty of action, in trading, and all 
 restraints of trade of themselves, if there is nothing more, are contrary to pub- 
 lic policy, and, therefore, void. That is the general rule. But, there are ex- 
 ceptions. * * * It is sufficient justification and, indeed, it is the only jus- 
 tification, if the restriction is reasonable — reasonable, that is, in reference to 
 the interests of the parties concerned, and reasonable in reference to the inter- 
 ests of the public — so framed and so guarded as to afford adequate protection 
 to the party in whose interest it is imposed, while at the same time it is in no 
 way injurious to the public." 
 
COMMITTEE ON INTERSTATE COMMERCE. 779> 
 
 Now, there you have a perfectly sane law, and they have no trouble. 
 You have, I believe, passed the identical law and passed it in the 
 light of these decisions, and yet your language has always been 
 added to in every single case that has ever been decided. 
 
 In the Addystone case, where Mr. Justice Harlan and Mr. Taft,. 
 and, I think, Judge Lurton, sat, the court said : 
 
 The inhibition .ngainst restraints of trade at common law seems, at first, to 
 have had no exceptions. * * * After a time it became apparent to the 
 people and the courts that it was in the interest of trade that certain cov- 
 enants in restraint should be enforced. It was of importance, as an incentive 
 to industry and honest dealing in trade. 
 
 Now, I could go on with citations, but I think that when a thing is 
 proven it saves time to drop it. The common law never said that any 
 contract that was injurious in any degree to the public was a legal 
 contract. It merely said, " You can not obstruct trade in any way.' r 
 The one way in which trade is of tenest obstructed — that is, of restrain- 
 ing the freedom to compete, of men, by contract — may be in reality 
 merely cooperation and civilization put to its highest purpose. But, 
 nevertheless, it is suspicious, and you have got to show, if you stop a 
 man from any part of his freedom, that what you are doing is en- 
 couraging trade. 
 
 Now, gentlemen, let me show you how finely your act expresses 
 that. • 
 
 You begin by saying nothing about competition; not one single 
 word from beginning to end in that act. You say that that trade 
 which you are doing more to nourish and cultivate than anybody in 
 the world by your enormous expenditures, by opening up rivers, by 
 aiding railroads — by doing whatever is in your power — that that 
 trade must not be restrained. You then leave the whole field open, 
 between what restrains trade and is but wholesome cooperation,, 
 for arrangements that allow cooperation, so long as they do not 
 " restrain trade " up to monopoly. Monopoly always, of course, re- 
 strains trade. It always has restrained trade and it always will. 
 Your provisions as to the prohibition of monopolies and things that 
 tend to monopoly or are intended to create monopoly were beyond 
 that and necessary, for if anything is intensified tendency to destruc- 
 tion of trade it is monopoly. But your provision as to monopoly 
 has no purpose in the act if your act were not simply following the 
 common law and leaving cooperation free so long as it did not so- 
 stifle competition as to restrain trade or reach or tend to monopoly. 
 
 You can not make a monopoly, of course, without making con- 
 tracts in restraint of trade, and your first section would have done- 
 the whole thing; but, leaving restraints of competition open, as you 
 did, provided people could prove to the court that they were increas- 
 ing the effectiveness of competition and thus increasing the trade of 
 the country and placing the limit at attempts to monopolize, proves 
 my contention that you'knew and were applying the sensible common 
 law. But Congress was perfectly conscious that such arrangements 
 might tend to monopoly, and while it left the field open to restraints 
 of competition that did not destroy the effectiveness of competition 
 or thus tend to decrease trade, it wisely says "When you approach 
 monopoly, we say, in addition there, you shall go no further." 
 
 Now, that is as complete an exposition in a few words of the com- 
 mon law — that act of yours— as could possibly be drawn, and the- 
 
780 HEARINGS BEFORE 
 
 more I study this question the more I am impressed by the fact that 
 it was not only drawn by great lawyers, but by great historians and 
 
 ?olitical economists. They knew exactly what they were about, 
 hey were, perhaps, too. great for the public throught of the time, 
 and their purpose has been missed until just within the last few 
 years, but now I think that there is an awakening consciousness that 
 we owe an enormous debt of gratitude for the service they have really 
 rendered to the country. The lawyer again appears in it in the 
 damage clause. The damage is not awarded to men who suffered dam- 
 age, but to the man who has been " injured." It gives you a right 
 of action which carries damage with it for the mere injury, without 
 reference to the damage. I do not mean it would be as great a meas- 
 ure as if the damage were greater, but that is following simply Lord 
 Chief Justice Holt's opinion in the Ashby v. White case, which is, 
 of course, the foundation of the whole law on this subject. From 
 beginning to end it is the work of really great lawyers, and, perhaps, 
 as I have said, they were too great. 
 
 Now, gentlemen, the consequence of all this is that if the Supreme 
 Court now means that this act is to be interpreted by the common law, 
 and if you are to insist upon its being interpreted by the common law, 
 because that would be desirable, we are out of the woods. But it is 
 not interpreted by the common law if it is said that any injury could 
 be inflicted upon the public for private gain or at the expense of the 
 people of this United States, provided only the injury is not "un- 
 due." I do not want to pass on that question, because, as I have said, 
 the opinions are very long and I may be misled. But my own con- 
 clusion is that whatever the court meant by introducing that word 
 " undue," and I have shown you its genesis and history, or at least 
 I have tried to, from the unhappy remark of Mr. Justice Jackson, 
 that you could salt the public, provided somebody else thought you 
 were not doing it unduly, measured by private interest — it it is a 
 continuation of that thought it is exceedingly dangerous; if it is 
 not, we have made tremendous progress. But we have not gotten out 
 of the woods yet, because as long as that word " undue '' remains in 
 the ruling of the Supreme Court of the United States nobody knows 
 what he can do. The Goddess Uncertainty still rules trade. 
 
 So, there is your trouble. The business of the country, as far as 
 the trust question is concerned, will be solved the minute you do one 
 thing or the Supreme Court does it. It has become a practice in 
 England, and I think it is one you should encourage, to supply a 
 glossary with an act. If the gentlemen who drew this statute had 
 given it a glossary, defining the meaning of the terms in the sense 
 they were using them, I think it would have saved — I was going to 
 say thousands of millions in losses in the uncertainty that has re- 
 sulted. If you will take these common-law cases, which are now ad- 
 mitted by the Supreme Court to be the guide, and simply give the 
 schedule of the meaning in which you are using them, and use them 
 according to the common law, we will ha\e just as little trouble with 
 trusts in this country as they have in some other countries. Qf course 
 in Germany they have given free rein to the trusts, and the Socialistic 
 vote, I am told by reports to the Government, will be 150 members, 
 which will possibly control the country in connection with the Lib- 
 erals in the next Reichstag. 
 
COMMITTEE ON INTERSTATE COMMERCE. 781 
 
 I have seen a good many suggestions to overcome our difficulties. 
 While my opinion has just the weight of that of any one man of 
 one hundred millions, perhaps I should not state it with much con- 
 fidence, but I do not like any of them. I like your law. If you are 
 going to adopt the socialistic view which was so ably presented to 
 you by Mr. Gary you have got to save the McNamaras — you have 
 got to have men of that caliber to carry out the " maximum." They 
 tried it in the French Revolution in 1793. There is no commodity 
 in the world of any kind that has not been so treated by legislation. 
 But the one lesson always has been that you can not enforce a maxi- 
 mum. Here prices fluctuate every day in every great commodity. 
 It would take weeks and months and years to justly fix a single 
 price, and it would change the next minute. Take the length of 
 time it takes to get a freight-rate decision from the Interstate Com- 
 merce Commission, and after it goes up on appeal. It is perfectly 
 impossible to fix the prices of commodities by law. When Robes- 
 pierre and the Terrorists had France, they tried it, and they gave it 
 up in utter despair. They had the guillotine back of it. But you 
 can not make men make things and sell them at less than cost; and, 
 if you attempt it and fix the prices too high, the public is suffering 
 all the evils of monopoly until they go down again. You would 
 have impossible confusion, and it only proves the absolute futility 
 of attempting to establish permanent monopolies that the people 
 interested in them make such suggestions. 
 
 You have three ways, gentlemen, of regulating prices. First, 
 by preserving the necessary amount of competition. That has been 
 for centuries God's way. It will continue, no matter what legis- 
 lation you pass. You might chop some people's heads off for not 
 obeying the law, and you can put men in prison and upset business, 
 but you will not succeed, because that is the eternal law, and it has 
 been well said that there is " no use in kicking against the pricks." 
 You can do it by introducing socialistic suggestions and having the 
 Government take over all business. Even if we did, it would still be 
 controlled by competition unless individuality should disappear and 
 the progress that so far has come from developing the free, indi- 
 vidual man. And then you can do it in the third way, and that is the 
 way it has been done for the last 20 or 30 years— you can do it by 
 monopolies. 
 
 Now. two of those things have been tried again and again and 
 failed, and the other, whether it is tried or not, has always succeeded 
 in the long run. and it always will succeed, for it obeys natural law. 
 
 If I could make any additions to this act there are two things, I am 
 told— I do not know myself, but I am told— that a procedure act re- 
 cently passed covers one of them. I do not think that if a trust or a 
 combination which is illegal goes into one of your States from a far- 
 distant State and closes down a business there for the purpose of ad- 
 vancing its monopoly that the man there who has had his business 
 destroved should be compelled to go and try them m the forum 
 chosen of that trust. Of course there are different views all over 
 this country. There are men in Philadelphia who might not feel so 
 sorry if the industries in Baltimore were not thriving, or Chicago, or 
 some place else, provided they did all the business in Philadelphia, 
 
782 HEABINGS BEFORE 
 
 and I think where an industry of any one State or city is stricken 
 down that there is the forum in which the case should be tried. 
 
 Now, under the present laws, unless they have been changed by 
 this procedure act — and I only have hearsay knowledge on that 
 subject — I think that where there has been a wrong of this kind the 
 man ought to be permitted, as he would if it were a prosecution for 
 crime, to have it tried where the wrong has been perpetrated. 
 
 There is one other thing in your act — one other addition — it is 
 not to modify this act at all, but to add a new subject. I think you 
 ought to define the measure of damages. You can see the difficulty. 
 •A man has a great mill, or any other business, and it is kept closed 
 by a criminal conspiracy. He goes into court and the defendant 
 can always say : " I did keep closed your mill, but this is not a crimi- 
 nal prosecution. What is your damage?" The man then says: 
 "Well, I had this very great mill just ready to start. I had all my 
 capital invested in it, and I am ruined. It has stood idle until I 
 have been destroyed. I think I have suffered a great deal." And 
 the court will say : " Well, you think you have, but we want legal 
 proof. We will give you nominal damages if you can not give legal 
 proof of just what you would have made, and you can't do that." I 
 think that the law has been sufficiently humane and sensible to reach 
 that case, but the danger is always open. In many of the States 
 there are decisions that where one man, in order to enhance his own 
 business, wrongfully closes down the business of another man, if that 
 other man has not been permitted to run during that time, he can 
 prove his damage by proving what the other man made in a like 
 business. 
 
 I think that is good law and good sense and good morals. If 
 that were allowed to be proved, this act would be very much more 
 efficient in the hands of the people whom you represent— that is, the 
 individual voters whom you wish to protect. 
 
 Now, there is one other thing that I thing might be useful to you. 
 Judge Shiras dissented in the circuit court of appeals in the Trans- 
 Missouri case. He there shows how utterly these rules that are pro- 
 posed on the other side of this contention must fail to protect the 
 individual. A man, if he has got to go into court to prove when 
 he has been hurt, has got to show by proof that a railroad was " un- 
 reasonable," a thing that takes governmental machinery and re- 
 sources. No man can be possibly protected under any such rules, 
 and the Supreme Court sanctions Judge Shiras's reasoning on 
 appeal, where his dissent was taken in the place of the majority 
 opinion delivered by Judge Sanborn. You can see that it would 
 rather be adding insult to injury to ask one of the people that you 
 really intended to protect, for example, to supply the amount of 
 proof in the Standard Oil case, to prove that it was unreasonable, 
 when the judges could hardly be seen for the volumes of records 
 that were placed on their desks when that case was argued. It 
 would ruin any private individual, and if you are going to make 
 any other test except the test of the common law, i. e., whether com- 
 petition were improperly removed as the regulator of prices, you are 
 going to put your grapes out of the reach of the people that vou 
 are chiefly interested in protecting. No man in any one of these 
 enormous combinations can go in and prove what is "reasonable and 
 unreasonable, because it would require an investigation that costs 
 
COMMITTEE ON INTERSTATE COMMERCE. 783 
 
 tens of thousands of dollars. It is in your power to find out how 
 much it cost the Government to carry on the Standard Oil case and 
 the Tobacco case. Every one of you know that there is hardly a 
 man in the United States, who does not have the resources of mon- 
 opoly to help him, that could possibly resort to any such litigation. 
 But he can prove, and prove easily, if there has been a divergence 
 from the common-law rule that you must not stifle competition 
 unless you can also prove that you have not stifled trade in so doing. 
 He can prove his prima facie case, and then the burden is on the 
 other side, that can afford to discharge it for the gain that it may 
 make. 
 
 I do not want to bother you by reading these cases, because they 
 are open to you; but I think you would find great advantage in 
 reading Judge Shiras's dissent in the circuit court of appeals in the 
 Trans-Missouri case. He shows how futile these artificial tests as 
 substitutes for competition must be — and I think he demonstrates 
 it — to the individual citizen who has been injured. A man pays too 
 much for his tobacco or his flour, or anything else — I do not care 
 what it is — and the few thus acquire dangerously large fortunes. 
 But what is the use of telling him he can get redress, if he proves 
 that the business of a corporation with a thousand millions of capital 
 has been carried on unreasonably? He would be ruined by the ex- 
 pense almost before he got started. 
 
 I think, gentlemen, that is the result of the thoughts that have 
 come to me, and I give them to you for what they are worth. I 
 know I am radically differing from much abler men, but free dis- 
 cussion aids in establishing truth. 
 
 The Chairman. The committee will now take a recess until 2 
 o'clock. 
 
 (Accordingly, at 12 o'clock and 55 minutes p. m., the committee 
 took a recess until 2 o'clock p. m.) 
 
 AFTER RECE88, 
 
 The committee met at 2 o'clock p. m. 
 
 STATEMENT OF GEORGE H.. EARLE, JR.— Resumed. 
 
 The Chairman. Mr. Earle, you stated that, in your opinion, the 
 Sherman antitrust law was, to use an expression, all right in the 
 form in which it was passed. 
 
 Mr. Earle. I think it was perfect. 
 
 The Chairman. Now, taking into account your knowledge of the 
 law and the decisions which have modified it, and the jurisdiction 
 exercised by the court, what could you have done to have insured 
 the interpretation of the law as contemplated ? 
 
 Mr. Earle. By defining the sense in which you used the terms 
 
 The Chairman. Well, what terms? 
 
 Mr. Earle. Instead of leaving that to interpretation. As I have 
 said, that is a constant practice in England now, and it is growing 
 in the United States. 
 
 The Chairman. Yes; I understand it is the custom in other conn- 
 tries. But take the Sherman law, what terms could you have defined 
 22877 — vol i—12 50 
 
784 HEARINGS BEFORE 
 
 that could have prevented the grafting of the terms which the court 
 has grafted upon that law ? 
 
 Mr. Earle. I think I could do that without much trouble, but I 
 would have to sit down and think carefully of my definitions. 
 
 The Chairmax. Well, now, the trouble has been, has it not, that 
 they have not had terms ? 
 
 Mr. Earle. That has been, from my point of view, the great 
 troiible. 
 
 The Chairman. How would you avoid that by any definition of 
 terms used in the bill ? 
 
 Mr. Earle. For example, you could have defined "restraint of 
 trade " from the definition given in the Nordenfeldt-Maxim case, and 
 by Baron Parke in Mallan v. May. It would have been almost im- 
 possible for the court to have taken a different view from that if 
 those cases had been specifically cited and the definitions stated. 
 If you had said : " By restraint of trade ' Ave mean every obstruc- 
 tion of trade, including limitations upon the liberty of individuals 
 who engage in trade as defined," and then quoted from the cases, it 
 would have made the statute a little longer, but it would make it ab- 
 solutely beyond the possibility of change, it seems to me. 
 
 The Chairman. Well, now, taking into account the law as it reads, 
 your judgment that it was perfect as it was passed — the jurisdiction 
 exercised by our courts, the relation which the legislative department 
 of government sustains to the judiciary — are you prepared to sug- 
 gest a concrete remedy in the form of legislative enactment ? 
 
 Mr. Earle. Of course, you are raising now the gravest constitu- 
 tional question that can be raised, but that has always been raised in 
 every Government, where there is a divided authority. Each branch 
 of the Government must safeguard its own particular authority. 
 The Constitution gives Congress the fullest power of protecting its 
 own. And the Supreme Court has defined your rights clearly. I 
 think I can explain what I mean. It would be unconstitutional for 
 a legislature to say that one citizen had a right to put a knife into 
 another citizen. In the case of Jacobson versus Massachusetts, how- 
 ever, in 197 U. S., a statute was passed in Massachusetts which 
 provided that in cases of epidemics of smallpox a physican could 
 put a knife into a man to vaccinate him, and he had to submit. The 
 Supreme Court sustained that. And the ground upon which it sus- 
 tained it was this — that the legislation in favor of the police power 
 or under the police power, which all of these acts are, was not sub- 
 ject to the arbitrary opinion of the Supreme Court — and I think, 
 gentlemen, it is important for you to have in mind in this relation — 
 that the legislature in the field designated by the Constitution was 
 supreme ; that if it passed acts that exceeded its power it could only 
 be because they were unreasonable; but that was not because the 
 court simply differed — thought they were unreasonable. For if there 
 was a large body of public opinion at the time that did not think 
 so, the courts could not declare on their mere opinion that it was so 
 unreasonable as to be unconstitutional. The courts could not de- 
 clare that the legislation was to that extent unreasonable. 
 
 Now, that very same principle — and if you will read that case you 
 will find how well it is expressed in the New York case, which is 
 cited with approval by the Supreme Court of the United States, and 
 «uoted when the case of National versus Texas, in the same volume 
 
COMMITTEE ON INTERSTATE COMMEECE. 785 
 
 of reports, came to be decided — was applied to statutes relating to 
 trade: the State of Texas had passed a law — and this shows the 
 pertinency or brings it home to you — had passed a law declaring 
 all trusts and monopolies illegal. It was taken to the Supreme 
 Court on exactly the same grounds that that was an unreasonable 
 exercise of legislative authority, and the court said that the consti- 
 tutional rule was just the same as to trusts as it was as to anything 
 else. If there was a large body of public opinion that concurred in 
 the thing being an obstruction and danger to trade, the Supreme 
 Court of the United States had no jurisdiction to say that the legis- 
 lature had acted unconstitutionally. I can not reconcile that with 
 the Knight case. 
 
 Now, we are asking about the principles which the highest tribu- 
 nal has laid down itself. And yet in the Knight case the Supreme 
 Court of the United States, when Congress said — and it took the 
 assumption that it had said it for the purpose of its opinion — that 
 a monopoly in a State might be a restraint of interstate trade, and 
 although Congress had, under its own decisions, the same right to 
 protect trade throughout the United States — provided it was inter- 
 state and national trade that it was protecting, that the States had 
 within their own determination and' jurisdiction — the Supreme Court 
 in that case held that if you had meant to legislate, and thought 
 that a monopoly in a State was a burden upon interstate trade — 
 which, of course, it may really be — that you had done an unreason- 
 able thing; so unreasonable that it was unconstitutional. It is ut- 
 terly impossible to reconcile those two decisions, to my mind. 
 
 The Chairman. That is what I thought. 
 
 Mr. Eatile. The State could do it. And the Supreme Court had 
 no jurisdiction to substitute its judgment for yours, provided there 
 was a defined public opinion that did not make your legislation ap- 
 pear ridiculous to all fair, sensible men. And so the United States, 
 which was the supreme authority as to interstate commerce, does not 
 have the same protection to its use of discretion to preserve its great 
 and vital trade as the State of- Texas had — that is, if the Knight case 
 was right. And I believe that is perfectly unsound, because if the 
 Supreme Court, against well-defined public opinion, can say the 
 statute is unconstitutional, it follows that it is the final power as to 
 what is restraint of interstate trade, and you are not, as provided 
 by the Constitution. 
 
 Now, of course, if one branch of the Government thinks it a duty 
 to do what may be thought fit to intrude upon the jurisdiction of an- 
 other branch of the Government, I know of no remedy except for 
 that other branch to assert its authority as best it may under the 
 Constitution. That would raise a grave constitutional question, but 
 it has been met in every country in the world when the question 
 has arisen, I think, in a peaceful and orderly way. 
 
 The Chairman. It has never been met under our system. 
 
 Mr. Earle. No; it has never been met under our system, because 
 our system does not exist anywhere else. 
 
 The Chairman. There is no other country in the world where the 
 judiciary exercises a function as we exercise it. 
 
 Mr. Earle. No; that is unique of our Government. But each 
 branch, under any system, can safeguard itself, if it deserves safe- 
 guarding. 
 
786 HEARINGS BEFORE 
 
 The Chairman. When the judiciary can say that they will not 
 declare an act void if a great body of people hold it to be reasonable, 
 that does not in the least limit the ultimate claim of the judiciary 
 to declare it void, because they are left to determine according to 
 their theory of when this popular support of the measure exists, 
 
 Mr. Eaele. Here is a line from the joint traffic decision in the 
 United States Supreme Court. It will be found at page 934 of the 
 first volume of the Federal Antitrust Decisions. It is just to show 
 what I mean. The test of the constitutionality of a law is treated 
 by the Supreme Court of the United States itself. [Reading :] 
 
 The prohibition of such contracts may, in the judgment of Congress, be one 
 of the reasonable necessities for the proper regulation of commerce, and Con- 
 gress is the judge of such necessity and properly, unless in a case of possible 
 gross perversion of principle, the courts might be applied to for relief. 
 
 They do not claim any right of relief except in the case of a pos- 
 sible gross perversion of principle. 
 
 The Chairman. They claim the authority to determine when that 
 gross exercise has occurred 
 
 Mr. Earle. Well, then, I should suppose that the only— — 
 
 The Chairman. And with that conceded, where is the limitation 
 on the authority? 
 
 Mr. Earle. I think that Congress could, by resolution, call at- 
 tention to the reasonableness of its own decisions as to what the 
 Constitution provided, and I think that the Supreme Court would 
 in time, if there was, as there would be, a public sentiment created; 
 its membership would be changed, and I think in addition to that 
 it would be affected very much by the reasonableness of the position 
 that Congress took, because it is not conceivable that the Supreme 
 Court would take such a position except mistakenly, and the cor- 
 rection of mistakes lies in pointing out the error of them. Of course, 
 they are acting patriotically and according to their best lights. I 
 think that " Homer sometimes nods," and that applies to everybody 
 that is not divine, but we have seen that the Supreme Court is quite 
 ready to correct its mistakes in this very matter if it is satisfied of 
 them. 
 
 1'he Chairman. Senator Cummins, you may inquire. 
 
 Senator Cummins. Mr. Earle, I hope you will not interpret the 
 questions I may ask you as in the nature of a cross-examination, for 
 I begin my inquiries by saying that in the main I concur with the 
 views or conclusions that you- have expressed. But we are here 
 charged with the duty of ascertaining whether there should be a 
 legislative amendment or a legislative supplement to the antitrust 
 law, and I wish to inquire along those lines. 
 
 The Supreme Court is unquestionably clothed with the authority 
 to compare any legislation that we may pass with the Constitution 
 and decide whether in the Constitution the power to enact such legis- 
 lation has been granted — you recognize that? 
 
 Mr. Earle. That is the purpose of the Constitution itself. I be- 
 lieve there was a dispute at the very foundation of the Government 
 as to whether they could annul legislation but they decided they 
 could. 
 
 Senator Cummins. Precisely. But that has become now the ac- 
 cepted doctrine of the country. It not only has that authority but it 
 lias the authority all courts have of applying any particular law to a 
 
COMMITTEE ON INTERSTATE COMMERCE. 787 
 
 particular state of facts in order that the remedy may be granted or 
 refused, as the case may be. That is unquestioned. 
 
 Mr. Earle. That is given to all courts. 
 
 Senator Cummins. And the courts here and probably elsewhere, 
 so far as I know, in deciding these particular cases which arise be- 
 fore them and within their jurisdiction, are in the habit of writing 
 essays upon the law which interpret or construe or define the terms 
 of the law. You do not object to that custom on the part of the 
 courts, do you? 
 
 Mr. Earle. Well, I think it is very important that the people 
 should have a clear and succinct definition of what the crime is, and 
 too diffusive essays are apt to be very confusing as to what the meat 
 of the thing is. 
 
 Senator Cummins. However, so far as I know, all courts, whether 
 administering the common law or the statute law, have indulged in 
 that practice. 
 
 Mr. Earle. A certain amount of it is absolutely necessary. 
 
 Senator Cummins. Unless, therefore, we undertake to reform our 
 institutions and to change the relations between the legislative and 
 the judicial branches, we must accept the interpretation or the con- 
 struction or the definition which the court puts upon the law, at least 
 until we can induce the court to change its construction or unless we 
 change it by more definite legislation. That seems to be pretty sure. 
 
 Mr. Earle. You are in the horns of a dilemma. If you do not 
 have your present method, you may have too violent changes in the 
 law that may be very injurious. On the other hand, if you have your 
 present method the getting at the real solution of the question may 
 be very long delayed. 
 
 Senator Cummins. Yes. I realize that. 
 
 Mr. Earle. But ultimately the courts, like the legislatures and 
 everything else, conform to well-educated public opinion, and you 
 gentlemen have it in- your power to educate public opinion very rap- 
 idly if you want to. 
 
 Senator Cummins. Do you mean through public addresses or 
 through legislation? 
 
 Mr. Earle. Through addresses and through legislation and reso- 
 lutions of Congress. 
 
 Senator Cummins. That is what I am now approaching. The anti- 
 trust law is, speaking practically, what the Supreme Court has in 
 the last 16 or 18 years said that it is. 
 
 Mr. Earle. No. It is the last thing that it said it is. It is not all 
 the things it has said it is. It admits that already. 
 
 Senator Cummins. If there be repugnance, of course, between a 
 former utterance and a recent utterance, that is undoubtedly true. 
 
 Mr. Earle. All that they have said in the 16 years is not law. They 
 expressly said in the last decision that it is not. 
 
 Senator Cummins. That is the inference that a great many people 
 draw from the last decision. 
 
 Mr. Earle. The Chief Justice said precisely that the opinion in 
 the Trans-Missouri and the Joint Traffic Association cases, so fas as 
 they conflict with the latter opinion of the Supreme Court, are over- 
 ruled. 
 
 Senator Cummins. I renew the question — whether parts of the de- 
 cisions have been overruled or not — it is in these decsions that we 
 must find the true meaning of the antitrust law? 
 
788 HEARINGS BEFORE 
 
 Mr. Eable. That is correct. 
 
 Senator Cummins. And your conclusion that these decisions hare 
 rendered the law so uncertain and vague in its application to the 
 actual affairs of business that men can not safely proceed with the 
 enterprises they may have in hand — safely proceed in the sense that 
 they do not know whether they are about to do a lawful thing or 
 an unlawful thing? 
 
 Mr. Eaeie. That is my personal opinion of the whole difficulty. 
 
 Senator Cummins. Now, if that is true — and I agree with you 
 about that — then it is imperative, if we would introduce safety and 
 certainty into the business of the country, that something shall be 
 done to remove the doubt that now exists in the minds of lawyers and 
 business men respecting the lawfulness or the unlawfulness of par- 
 ticular ventures or transactions. Now, how will we do that? 
 
 Mr. Eakle. Well, I think that, as I have said, if you were to reenact 
 the Sherman Act — and it is perfect, so far as it goes. I do not mean 
 that any act covers everything that might arise. It is perfect, so far 
 as the language of Congress is concerned, applying to these specific 
 questions dealt with. If you were to reenact that and state that the 
 law of the United States was so and so, pointing out, for example, 
 the doctrine of Mallan v. May, and as determined in the case of 
 Nordenfeldt v. Maxim, that that was the meaning that you intended. 
 You have to be careful how you express it, because you can not in- 
 terpret your language; you can not say that it is to have a certain 
 interpretation, because that is usurping the court's function. But 
 you can define the terms you use, if you would state it that way, 
 and I have no doubt that the Supreme Court at this time or at any 
 other time will accept and agree with you. On the other hand, until 
 you get in close touch with these questions you do not really realize 
 what goes on. The difficulty of the United States is that you have a 
 militia of lawyers fighting against a trained army of regular lawyers. 
 The people fighting the trusts were generally small people who had 
 been destroyed and could not pay very large fees ; they are not the best 
 clients, whereas those trying to form monopolies can make such im- 
 mense fortunes out of them, if legally established, that they can 
 afford to pay the very highest prices for the best talent. I have such 
 confidence in the integrity of ihe courts that I believe that they 
 pretty nearly always are right, if cases are fully and clearly argued. 
 
 The lawyers that fight monopolies are a shifting body. They are 
 appointed or selected or employed by accidents, by political change, 
 by all sorts of things. The trust lawyers are men of tremendous 
 ability, and they raise these questions, and they are pretty certain 
 to create uncertainty in many cases. Thus a precedent is made, and 
 if the new case comes up against that precedent later, there is the very 
 important doctrine that the law should not be shifting all the time, 
 and the courts try, for very good reasons, to stand by what has been 
 determined, to avoid future confusion; and it takes great effort to 
 get right again. 
 
 If Congress itself will express its definition and express it clearly, 
 and even, if necessary, cite the decisions upon which it bases it, I 
 am perfectly sure, for example, that the Supreme Court would not 
 say that Mallan v. May did not decide that all restraints of trade 
 were prima facie illegal, because it does decide so. I am perfectly 
 pure that it would not say that, for example, you could not injure the 
 
COMMITTEE ON INTERSTATE GOMMEECE. 789 
 
 public and let private interests make a very great profit out of doing 
 it. I am sure that all these authorities would be accepted. It is a 
 little laborious to put all this forward in a statute, but an argument 
 of that kind coming from the body the Constitution of these United 
 States gives this subject to, I believe would be tremendously poten- 
 tial, and I do not believe we would have much trouble. 
 
 I am a great believer in free discussion, intelligent discussion. 
 Senator Cummins. Do you believe that a law which would adopt 
 the English decisions in defining the phrase " in restraint of trade," 
 as distinguished from the decisions of the Supreme Court of the 
 United States in defining the same phrase, would be practicable? 
 
 Mr. Earle. I believe it would instantly accept it, because in the 
 last decision they say they are only attempting to apply the common 
 law. 
 
 Senator Cummins. And the Supreme Court, therefore, has said 
 what it understands to be the common law ? 
 
 Mr. Earle. Yes; but 
 
 Senator Cummins. You would have the Congress overrule the 
 Supreme Court of the United States in its definition of restraint and 
 accept the definition of an English court? 
 
 Mr. Earle. No; I do not think that that states the proposition 
 as I see it. The Supreme Court of the United States has only said 
 up to this time that your language meant a certain thing. A differ- 
 ence of opinion between you and the Supreme Court is, as I under- 
 stand it, that your language, if it did not mean that, that it meant 
 another thing, and therefore I do not believe for a moment that if 
 you define it as meaning the other thing that you really meant, I am 
 sure the Supreme Court would never say that your own definition 
 was not the definition that you now mean, and enforce it, if constitu- 
 tional. It is a question of definition. The act was left, as it turns 
 out, too wide of definition, and I believe the Supreme Court, of 
 course, came conscientiously to the definition that it thought was 
 accurate. I personally— and I say it with ail modesty, because _ my 
 opinion against the opinion of the Supreme Court of the United 
 States is perhaps not entitled to any weight at all— my personal 
 opinion is that the Supreme Court was mistaken in its, maybe, hasty 
 consideration of the common-law cases and that your language under 
 them was perfect. 
 
 I can explain something to you on that subject. This question 
 came up most unhappily. In the Trans-Missouri case the lower 
 court held, erroneously, that the contract there was a reasonable re- 
 straint of trade. It was not at all. I could give you the cases to 
 show that it was not. It went to the Supreme Court therefore, on 
 that ground. The Supreme Court did not look into the question of 
 what were reasonable and unreasonable restraints of trade. It ]ust 
 said that Congress had said " every," and it meant every. 
 Do I make myself clear ? 
 Senator Cummins. Perfectly. 
 
 Mr Eaele And therefore whether it was reasonable or unrea- 
 sonable was utterly unimportant. That was the decision to get a 
 result but it was not a careful consideration of the point now in- 
 volved. And it clearly got rid of the question for that one case, but 
 it has made a great part of the difficulty later. 
 
790 HEARINGS BEFORE 
 
 I still have perfect confidence that if this question was on the 
 plainly adjudicated authorities, clearly expressed to the Supreme 
 Court, that it would not disagree at all with your view of the inter- 
 pretation. 
 
 Senator Cummins. Do you believe that it is possible to define the 
 phrase "in restraint of trade " so that its application to a particular 
 case can be certain? 
 
 Mr. Earle. Yes ; I do not think there is any difficulty at all. 
 
 Senator Cummins. Do you believe that an agreement between a 
 portion of the persons or corporations engaged in a particular busi- 
 ness which fixes the prices at which commodities shall be sold by the 
 persons or corporations which enter into the agreement, and leading 
 others who are not otherwise bound by the agreement, parties to it, 
 and upon the assumption that the prices fixed are reasonable prices, 
 is an agreement in restraint of trade ? 
 
 Mr. Earle. Perfectly plainly, and always has been. 
 
 Senator Cummins. You say it is an agreement in restraint of trade? 
 
 Mr. Earle. Any agreement that prevents independent unmerged 
 businesses from fixing prices as the owners of the respective busi- 
 nesses see fit, has always been an illegal contract under the common 
 law and under the Sherman Act. 
 
 Senator Cummins. If, therefore, you were attempting to define 
 "in restraint of trade," would you specify such constructions as I 
 have just given you as the test of the application of the phrase to 
 particular cases? 
 
 Mr. Earle. If the question was coming up de novo I think I 
 should, but as that question has been settled by the English decisions 
 and by the numerous decisions of the Supreme Court in a way which 
 I think is correct, and as the common law and their decisions abso- 
 lutely accord, I would not think it necessary. I think it would be 
 Unnecessarily prolonging the statute. You will find the decision in 
 the case of Dr. Miles v. Park Medical Co. (221 U. S.), with reference 
 to that, laid down as clearly as it can be. 
 
 Senator Cummins. I have no doubt about the doctrine; but I am 
 simply using it as an illustration to ascertain whether we can make 
 headway by attempting to instance these cases in which the court 
 should hold the particular arrangement to be in restraint of trade, or 
 whether we can say anything that will make that phrase more defi- 
 nite and leave no opportunity for difference of opinion as to what 
 it is, as to what it means. 
 
 Mr. Earle. I think if you would insert the principle of the de- 
 cisions of Mallan v. May and of Nordenfeldt v. Maxim as your 
 definition, you would eliminate these doubtful questions that have 
 caused the trouble. You could almost define the sense in which you 
 use your terms by quotations from the opinions of those judges. 
 
 Senator Cummins. Do you agree that there may be restraint of 
 open competition that is not restraint of trade? 
 
 Mr. Earle. I think I go a little further than that and say that 
 there can not be any trade at all without restraint of open competi- 
 tion. It is an impossibility. 
 
 Senator Cummins. But your position is that — I repeat it — thai 
 there mav be restraint of open competition that is not restraint of 
 trade? 
 
COMMITTEE ON INTERSTATE COMMEECE. 791 
 
 Mr. Earle. That is perfectly correct. I will give you an illustra- 
 tion. Suppose there were 100 very weak firms with high cost of 
 operating — butcher shops, for example — in a town. Suppose they 
 consolidated into 25 strong firms. You would have all the expenses 
 of the rent, of extra pervice, of everything eliminated, and yet I am 
 perfectly clear in my mind that that totality of competition between 
 the 25 remaining firms, if it was honest and not under any such ar- 
 rangement as you and I agree is illegal, would be a greater protec- 
 tion to the consumer than under the 100 weak firms. But if you 
 went further and got such a proportion that they would in effect 
 have the arbitrary power of fixing prices as they chose, then you 
 would inevitably restrain trade. 
 
 Senator Cummins. They could not have the arbitrary power of 
 fixing prices until competition between the 25 concerns you have indi- 
 cated was eliminated or destroyed? 
 
 Mr. Earle. Pretty nearly eliminated. 
 
 Senator Cummins. And that, on the kind of arrangement you have 
 just suggested, would not be an arrangement in restraint of compe- 
 tition?"" 
 
 Mr. Earle. Not under consolidations that did not. tend really and 
 practically, as a sensible question, to monopoly. 
 
 Senator Cummins. But you have instituted a very striking com- 
 parison between competition and restraint of trade. Now, it seems 
 to me that you at times have confused competition between particular 
 persons and competition in the abstract. The law is not intended 
 to cover only competition between particular persons - 
 
 Mr. Earle. That is just what I have been trying to say. 
 
 Senator Cummins (continuing). In the abstract; that is, com- 
 petition that will prevent arbitrary prices. 
 
 Mr. Earle. I think the purpose of the law and the public policy 
 now is, and for 2,000 years has been, to preserve the total effectiveness 
 of competition as a price regulator, and not to look at the mere 
 details of it. 
 
 Senator Cummins. And, therefore, if the law definitely and spe- 
 cifically prohibited a restraint of competition, which I would construe 
 to mean the establishment of a condition in which competition dis- 
 appeared, it would be quite as definite a protection as a prohibition 
 against restraint of trade, would it not ? 
 
 Mr. Earle. I am not quite sure that I understand you. 
 
 Senator Cummins. Well, generally speaking, this law has for one 
 of its objects, anyhow, the prevention of undue prices for commodities 
 which must be bought by people who are unable, of course, to pro- 
 duce them for themselves, and I assume always that it meant that 
 the natural forces of business must prevail in order that prices shall 
 not be unduly high. You recognize that as one of the objects of the 
 antitrust law, do you not? 
 
 Mr. Earle. I think that is its chief object. 
 
 Senator Cummins. I agree with you there. And that natural 
 for*ce which the world has always looked upon as the force which 
 would protect the people from unduly high prices is a thing that we 
 ordinarily call competition; is not that true? 
 
 Mr. Earle. Yes, sir. 
 
 Senator Cummins. And competition, therefore, to put it in ordi- 
 nary phrase, prevents one person from exacting unreasonably high 
 
792 HEARINGS BEFOEE 
 
 prices because some other person engaged in the same business is 
 willing to sell at a reasonably high price. 
 
 Mr. Eaele. The theory of the political economists — and I think it 
 is the correct one, if I may state it — is this : That capital flows of its 
 own natural volition to such industries in which it can get the best 
 remuneration. That the tendency, under conditions of freedom, 
 therefore, is to give men, no matter what pursuits they are in, an 
 equality of advantages by tending to make the returns in the various 
 pursuits equal; because the minute one commodity gets too large a 
 price to be advantageous to the consumer of it, who produces other 
 commodities, there will be a flow of capital to that; and increased 
 production lowers prices, and automatically it will thus be regulated. 
 But you have got to distinguish, Senator — and this is the important 
 point — between competition used as a price regulator and cooper- 
 ation, which is, to a certain extent, an elimination of competition, but 
 need not at all destroy its effectiveness. Whereas, on the other hand, 
 it increases the effectiveness of the production enormously if it is 
 governed in accordance with the unification of prices that Justice 
 McKenna talks about, which simply turns trade into taxation. 
 
 Senator Cummins. I am looking at competition simply as a price 
 regulator. 
 
 Mr. Eaele. Used in that sense, you are entirely right. But used 
 as a prohibition of cooperation, where it does not interfere with com- 
 petition as a price regulator — there is your whole difficulty — to rec- 
 oncile the two things. They are both vital to prosperity. 
 
 Senator Cummins. And, therefore, what we need probably is a 
 statute that will preserve competition as a regulator of prices ? 
 
 Mr. Eaele. You have got it exactly. But not as a destroyer of 
 cooperation, where it does not interfere with its natural function 
 of price regulation. 
 
 Senator Cummins. Do you think that those words "in restraint 
 of trade" can be applied to instances of cooperation that do not 
 affect prices with more effect than the prohibition against any ar 
 rangement that destroys price-regulating competition? 
 
 Mr. Eaele. I have said, I think, that in my study of the common 
 law, that you have already used the best language possible ; but, un- 
 fortunately, a very much more important body has not agreed with 
 me — the Supreme Court. You can not use better language, and 
 that is the only reason I suggested that you should 
 
 Senator Cummins. The words, " in restraint of trade," under our 
 interpretation at least, have become somewhat uncertain. We do 
 not know what they mean. 
 
 Mr. Eaele. Exactly. 
 
 Senator Cummins. And our mission is to endeavor in some way 
 to express that change that we all have in mind in language that 
 can not be misunderstood. 
 
 Mr. Eaele. That is just what I would recommend. And, if you 
 can not do it, I still think it would be a patriotic thing to make ihe 
 attempt. 
 
 Senator Cummins. If we bring about such a state of affairs, we 
 would be compelled, as it seems to me, to resort to some measures 
 that will have the price-regulating competition in view rather than 
 the restraint of trade, as that phrase has been construed by our 
 court. 
 
COMMITTEE ON INTERSTATE COMMERCE, 793 
 
 Mr. Eaele. I think, Senator, in the last few years there has been 
 a growing conviction throughout this country that the legislative 
 work was well done. It was attacked, as I have said, by the ablest 
 men in the United States, who were employed to attack it. I think 
 that growing conviction in itself is a tremendous advantage. The 
 supreme power in the United States, after all, is the people of the 
 United States. We are a republic. And I believe that when legis- 
 latures or courts, or anybody else, make mistakes, you always have 
 that supreme appeal to the people, and I believe that if they are 
 properly educated, courts, legislatures, and presidents, and every- 
 body else get educated with them. And, if necessary, even consti- 
 tutional amendment follows. 
 
 Senator Cummins. Well, do you think that we ought to wait until 
 public opinion has its effect upon the Supreme Court of the United 
 States in order to remove this trouble, or that we ought to facilitate 
 it — public opinion or its crystallization — by attempting some legisla- 
 tion on the subject? 
 
 Mr. Earle. I think, if I were a Uniten States Senator, I should 
 feel that I had reached a position where I would want, to lead public 
 opinion, and not wait for it, if I felt that I was right. 
 
 Senator Cummins. And your opinion is that the best thing we can 
 do is to establish a test for the interpretation o'f the words " in 
 restraint of trade " by reference to certain English decisions ? 
 
 Mr. Eakle. If I was going to draw a statute, I would begin it 
 with a number of " whereases," and I would say : " Whereas it was 
 decided in such case so and so, and whereas it was decided in such 
 case so and so, and we wish to apply that law to the trade of 
 which we are the supreme judges, because what we say is the supreme 
 law of the land on all questions of interstate commerce." I would 
 state that clearly so that any man could understand it as he ran and 
 read. And then, having said that, I would define the terms I 
 would use and reenact just the act you have, with the two changes 
 that I have suggested, which are administrative changes, and which 
 are not dealt with by Congress, and so are not defects. 
 
 Senator Cummins. Do you think a corporation can become so 
 large that the business of which it does, assuming it is short of a mo- 
 nopoly, will be in restraint of trade ? 
 
 Mr. Eaele. I do not, provided it has not the power of arbitra- 
 rily fixing prices. If it reaches that size, or if it is in dangerous 
 proximitv of reaching it, it ought to be stopped. 
 
 I do not think it would do any harm to have this put in your 
 
 record. . 
 
 John Stewart Mill says, speaking of the socialistic doctrines, It 
 you gentlemen do not stop this we are going, just as surely as we 
 live, just as Germany is going, toward socialism, because socialism 
 believes in the elimination of the individual and in the destruction 
 of competition. TJip people who wish to destroy the idea that the 
 Government exists for each one of us, and not each one of us for 
 the Government, all are in favor of these monopolies. For while 
 thev consider them present evils, they consider them working to the 
 good of an established government in which the individual is lost T 
 and every man belongs to the State, and has lost his individual man- 
 hood and freedom. 
 
794 HEARINGS BEFORE 
 
 Now, John Stewart Mill says: 
 
 But while I agree and sympathize with Socialists in this practical portion 
 of their aims, I utterly dissent from the most conspicuous and vehement part 
 tf their teaching, their declamations against competition. With moral con- 
 ceptions in many respects far ahead of the existing arrangements of society, 
 they have in general very confused and erroneous notions of its actual work- 
 ing; and one of their greatest errors, as I conceive, is to charge upon com- 
 petition all economical evils which at present exist. They forget that where- 
 ■ever competition is not, monopoly is; and that monopoly, in all its forms, is 
 the taxation of the industries for the support of indolence, if not of plunder. 
 
 Now, that is sound. He continues: 
 
 I do not pretend that, there are no inconveniences in competition. But if 
 competition has its evils, it prevents greater evils. If competition has great 
 power for evil, it is no less fertile of good, especially in what regards the devel- 
 opment of the individual faculties and the success of innovations. * * * 
 Competition may not be the best conceivable stimulus, but it is at present a 
 necessary one, and no one can foresee the time when it will not be indispensable 
 to progress. 
 
 Now, he continues: 
 
 Instead of looking upon competition as the baneful and antisocial principle 
 which it is held to be by the generality of Socialists, I conceive that even in 
 the present state of society and industry every restriction of it is an evil, and 
 every extension of it, even for the time injuriously affecting some class of 
 laborers, is always an ultimate good. To be protected against competition is 
 to be protected in idleness, in mental dullness ; to be saved the necessity of 
 being as active and as intelligent as other people; * * * 
 
 To confer a monopoly upon a producer or dealer, or upon a set of producers 
 or dealers not too numerous to combine, is to give them the power of levying any 
 amount of taxation on the public, for their mutual benefit, which will not make 
 the public forego the use of the commodity. * * - * 
 
 Now, it is a striking thing. Aristotle in his Economics saw almost 
 exactly the same thing. He said a citizen of Athens went to Syracuse 
 when Dionysius ruled and bought up all the iron in Syracuse, and 
 when the merchants came to get the iron supply which was there con- 
 centrated, he charged them what he pleased for it, and made an 
 immense fortune at the expense of the consumers who, at that time — ■ 
 that was what? 335 before Christ, I think. He said Dionysius 
 sent for him and said : " You have been very smart ; jow can take 
 what you have made, but you must get out of Syracuse or I will 
 kill you, because you have entrenched on my function." Meaning 
 that he had taxed the people, and that the taxing power belonged 
 to the government. That was the astute Greek intellect at the time 
 of its highest development. And it was entirely correct. 
 
 Senator Gore. He said he thought that was an unreasonable re- 
 straint of trade? 
 
 Mr. Earle. Of course it was, and it was a tax and nothing else. 
 This country can not stand State taxing and city taxing and national 
 taxing and a thousand other kinds of taxing. 
 
 Senator Cummins. I think that is pretty clear; but to come back 
 to the antitrust law. You have said that in your opinion there was 
 no bigness of a corporation that would in and of itself constitute a 
 violation of the antitrust law or would be in restraint of trade? 
 
 Mr. Earle. No ; I do not think I said that. 
 
 Senator Cummins. Well, that could' exercise a certain power 
 where it had the power of fixing prices or dominating the indus- 
 try — substantially that. Now, do you believe the question of whether 
 a given corporation has attained that size or is of that size should 
 
COMMITTEE OK INTERSTATE COMMERCE. 79 5> 
 
 remain undetermined until a case involving it reaches the Supreme 
 Court of the United States, or should there be some other way of 
 determining that in advance? 
 
 Mr. Eakle. You have two ways of determining it under the anti- 
 trust act. In the first place, the minute you can prove that they 
 have eliminated competition you have made out a prima facie case. 
 The Government and the individual have not the burden; it is on 
 the combinations under the antitrust law and the common law. In 
 the second place, the minute they threaten the danger of monopoly^ 
 they have passed the line. The Supreme Court of the United States 
 and the common law and the declaration of the common law and 
 the statute 21, James I, all say that a thing that tends to monopoly 
 is illegal. But until that tendency is shown I am in favor of freedom. 
 
 Senator Cummins. Well, I will put it in another way. Suppose- 
 that a corporation about to be organized desired to purchase six out 
 of twelve factories or institutions already established in a business 
 and that those six establishments comprise, we will say, 50 per cent 
 of the business. Now, suppose that they intend to carry on their 
 business with perfect honesty and fairness, do you think it would be 
 clear to those persons who were thus entering upon the venture 
 whether they were violating the antitrust law or whether they were 
 not? 
 
 Mr. Eakle. I think if they had gathered into one hand one-half 
 of the business of the United States, it would be the duty of the- 
 Attorney General to watch them very carefully; and I think that 
 it would be almost certain to develop in a little while that they 
 intended more than having a large business. 
 
 Senator Cummins. Do you not believe that before they carry out 
 any such enterprise' there should be a tribunal organized for the 
 Government to which they could go and ask whether, in the view 
 of that tribunal, such an organization, if honestly earned forward, 
 was hostile to or in violation of the antitrust law ? 
 
 Mr. Eakle. That commission would have to he composed of men,, 
 and in a very little while it would be composed of men subject to 
 about the most frightful temptation you could possibly put over a 
 man. And I think it would be, possibly, a very dangerous experi- 
 ment, because if those six men — uninfluenced or not — made a mis- 
 take you then would have a monopoly started with governmental, 
 sanction, and you would get back to the condition that existed under 
 the Stuarts. 
 
 Senator Cummins. If the Supreme Court, when it reaches that tri- 
 bunal, says that it is an innocent transaction — but in fact is a monop- 
 oly, or has that effect, then we have made a great mistake, too. 
 
 Mr. Eaele. Yes; but that is an inherent constitutional difficulty. 
 I would not double it because I do net like it. It is a necessary 
 trouble. I would avoid unnecessary additions. 
 
 Senator Cummins. Then, your objection to any such procedure is 
 because we must submit it to the Supreme Court and do not have 
 to submit it to a commission ? 
 
 Mr. Eakle. Exactly. You have to submit everything to somebody 
 ultimately, and we have picked out the Supreme Court. 
 
 Senator Cummins. But when you take such a case as that and.' 
 come down to 40 per cent or 30 per cent or 25 per cent and admit 
 
796 HEARINGS BEFORE 
 
 that there is uncertainty about either, you have that difficulty in 
 business which you have so graphically described. How are you 
 going to remove it ? 
 
 Mr. Eakle. I think you have your positive tests. I think that if 
 they have eliminated competition it is upon them to show that they 
 have not restrained trade. If they can not show that, it is like any 
 other judicial question — it has to be determined. They will have 
 to show that they have done no harm by increasing the size of their 
 trade. 
 
 Senator Cummins. What you may believe restrains trade I might 
 believe does not restrain trade. These" things change not only with 
 individuals, but they change with the times. 
 
 Mr. Eable. Yes; but the rules 
 
 Senator Cummins. What is restrain of trade in one decade may 
 not be restraint of trade in another. 
 
 Mr. Eaele. I can illustrate that. At the common law — and of 
 course the courts all say that the object is to protect trade, not re- 
 strain it, and not to continue any particular institution — in com- 
 mon law businesses were allowed to be bought because it was not 
 conceived that if a man would buy a business and consolidate it 
 he would not wish to run it and make money out of the thing" he 
 spent something on. It was an innovation in our time that people 
 began to buy immense businesses simply to destroy them, and there- 
 fore you have created a new business condition, in which a corpora- 
 tion buys a business not to continue it but to destroy it, and thus to 
 make what it pays for the business out of the higher prices it will 
 charge consumers for the product which they had manufactured in 
 both, after competition is eliminated. 
 
 Nobody in advance can meet every case, but I think that the com- 
 mon law has laid down the best rules for governing those questions 
 that are possible. I would not say that 10 per cent or 20 per cent 
 or any other per cent was illegal alone, but 1 would say that as soon 
 as competition could be shown to have been eliminated to a point 
 that it either had given the power to arbitrarily fix prices or had 
 arbitrarily fixed them, that the Government would have a perfectly 
 plain case. And I would say that the evil was negligible until some 
 such condition appeared. 
 
 But you will find, Senator, I think without trouble, that where 
 there has been a real monopoly the other incidents of monopoly have 
 always appeared. They can not keep them up without going fur- 
 then than that mere thing. You have seen scandal after scandal in 
 these cases. 
 
 Senator Cummins. A monopoly and an institution that is large 
 enough to influence prices otherwise than through competition are 
 two different things, are they not ? 
 
 Mr. Eaele. I consider that monopoly exists the very minute there 
 are such unified tactics as to prices or power for unified tactics as to 
 prices as enabled them to fix them in any way arbitrarily. That is 
 my idea of monopoly. I can show you something very interesting on 
 that subject. 
 
 Another mistake, as I think, of Mr. Justice Jackson was that he 
 took Lord Coke's definition of a monopoly as a grant from the 
 Sovereign. I do not think that that is correct, legally or historically, 
 
COMMITTEE ON INTERSTATE COMMERCE. 797 
 
 and I think it has added a great deal to our trouble. Monopolies 
 existed before the sovereigns used them as means of rewarding favors 
 or raising taxation. You will find a case reported in Moore's Re- 
 ports, in which Lord Coke himself argued that there was monopoly 
 by a by-law of a guild or a corporation — which really are our exact 
 corporation methods of to-day. That case antidated the monopolies 
 case of Queen Elizabeth. Now I want to point out to you how that 
 was worked out. They passed a statute — and I do not think any 
 statute has ever been better expressed than that one. They passed a 
 statute in 1436, long before the United States was discovered, in 
 which they prohibited that, and it was a declaratory statute of the 
 English people. I can read it here, because I think the language is 
 fine. And I might refer to. Prof. Stimson's work on Statute and 
 Federal Constitution, where he has gathered all these old English 
 common-law statutes. 
 
 To the gentlemen who are present who are not lawyers I might say 
 any statute in England, a little before Elizabeth, was not a statute 
 in the sense we have it now. It was a declaration of the common 
 law. They did not attempt to make new laws. The Parliament 
 would pass statutes simply attaching a new penalty for a violation of 
 the law, so that all of those old statutes are simply the common law 
 of England. 
 
 Now, in 1436 the Parliament passed a statute against by-laws in 
 restraint of trade, which are our modern trust, to my mind, and the 
 language covered " Persons in confederacy for their singular profit 
 and the common damage of the people." 
 
 I do not think that has ever been exceeded in finesse of expression. 
 They thought so well of that that they reenacted it in 1503, and in 
 Devenant's case they held that such an arrangement, which is our 
 modern monopoly, was illegal at the common law. 
 
 Now. Senator, just to finish that'out. Then Queen Elizabeth and 
 Henry VIII came along, and there has been a complete misconcep- 
 tion of this subject in America. They came and said : 
 
 Notwithstanding that is the common law, our prerogative is superior to the 
 common law, and we license these people to do that which was illegal at com- 
 mon law. 
 
 So, when Lord Coke came to define monopoly, these alone having 
 been kept up and not being illegal because the prerogative saved 
 them, he simply said a monopoly then was a grant of the sovereign, 
 because that was the only thing they had left to deal with. 
 
 And if you will look at Sir Simonds D'Ewes's reports of all the de- 
 bates of the Parliament of Elizabeth, you will find that the great 
 body of men — Burleigh, Lord Bacon, Sir Walter Raleigh, and others — 
 discussed this question out, and the only result was that they advised 
 the Queen not to give them relief against monopolies but to with- 
 draw the protection of her prerogative from them and leave them to 
 be judged at common law. The Tudors, when you question their 
 prerogative, have a cheerful habit of cutting your heads off. 
 
 An amusing incident happened in regard to Sir Walter Raleigh 
 with reference to the tin monopoly. It is said that it made him blush 
 when that was inquired about, because he had the tin monopoly 
 himself. 
 
798 HEABINGS BEFORE 
 
 Queen Elizabeth's address to the Commons was most able. She 
 put the whole blame on her advisers and withdrew the protection of 
 her prerogative, and then the case of monopolies struck down the 
 very thing that was called monopoly, simply because it was then 
 adjudged at common law. 
 
 Do I make the distinction clear to you ? 
 
 Monopoly was always the evil of having the power of fixing arbi- 
 trary prices. Coke denned monopoly legal because of the protection 
 of the Queen's prerogative. But the act of 1436 and others made 
 all it legal, and it has not been legal under our system of jurispru- 
 dence for over a thousand years. 
 
 Senator Cummins. But in your view of it, the trust, as we ordi- 
 narily understand it, and the monopoly are one and the same thing. 
 
 Mr. Eaele. If the trust is not a monopoly, of course there is no 
 harm in it. 
 
 Senator Cummins. Is there any arrangement that enables a cer- 
 tain number of people to arbitrarily fix prices for the public 
 generally ? 
 
 Mr. Eaele. I think the word itself gives the best definition. Mon- 
 opoly is, of course, from the Greek words "monos" and "polo," 
 meaning to sell alone ; but the statute of James defines it as selling 
 and buying solely, etc. 
 
 Senator Cummins. But, if you have one corporation that is able,, 
 for any reason at all, to exercise the power of fixing prices, that is 
 a monopoly, so far as the public welfare is concerned? 
 
 Mr. Eaele. If you let it alone, it will be as powerful as the Gov- 
 ernment of the United States. It can draw to itself the whole 
 revenue of the people ; that is, if it deals in a necessity. 
 
 Senator Cummins. Your idea is that the words "in restraint of 
 trade " would, if properly interpreted and properly applied, correct 
 all those offenses against public welfare, or would remedy them ? 
 
 Mr. Eaele. We have the object lesson of England. By merely 
 striking to its own law on the subject, it had no trouble at all. But 
 we have said that this law means something different, and we have 
 had endless trouble and uncertainty. 
 
 Senator Cummins. There are instances in England of these same 
 obnoxious trusts, are there not ? 
 
 Mr. Eaele. There are different conditions in England. In a coun- 
 try that has a protective tariff it is doubly necessary to prevent 
 monopoly. I am not discussing the question of the tariff, for that 
 is endless. But if a government decides that a protective tariff is 
 a necessity — and that question I do not want to enter into, because it 
 is apart from this — it then becomes ten times its duty to prevent 
 monopolies, because there are less competitors that can prevent the 
 fixing of arbitrary rules than in a country where they have the other 
 policy. I am perfectly sure that England would, even with her sen- 
 sible laws, have a great deal more trouble with monopolies if she did 
 not have the whole world entering into competition there practically 
 without restraint. 
 
 Senator Cummins. Do you recognize that there is such a thing as 
 unfair competition ? 
 
 Mr. Eaele. I rather agree with Lord Bowen on that subject. I 
 should say that as long as competition did not amount to molestation, 
 
COMMITTEE ON INTERSTATE COMMERCE. 799 
 
 or the procurement of a breach of contract, it would be beyond the 
 power of us to define what was fair or unfair. But Mogul v. Mc- 
 Gregor, rightly understood, would make competition to destroy later 
 competition unlawful under our act. 
 
 Senator Cummins. Do you think that there is any competition 
 that is prohibited by a prohibition against restraint of trade? 
 
 Mr. Earle. No, I do not; at common law, under our act, I think 
 there mighty be. 
 
 Senator Cummins. Even if the competition is being carried on for 
 the express purpose of establishing a monopoly? 
 
 Mr. Earle. I think that if you look at the case of Mogul Steam- 
 ship Co. v. McGregor, which you will find in 23d Queen's Bench 
 Division, and look at the opinion of Lord Bowen, you will see the 
 best decision on that subject ever written. He says that you can no 
 more restrain competition in a free country than you can restrain 
 the flowing of the tide. I think you have got to take your chances 
 on that. But the law would be different, perhaps, under our acts. 
 
 Senator Cummins. Some of us realize that you can no more re- 
 strain ours than you can the tide. 
 
 Mr. Earle. Yes you can. You are making progress. Do not 
 become discouraged. We have made very great progress. 
 
 Senator Cummins. Since the passage of the antitrust law nearly 
 all of the combinations in existence have been organized. 
 
 Mr. Earle. Yes ; but I think you are in sight of daylight now. 
 
 Senator Cummins. I think that is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Mr. Earle, have you read the address of Mr. 
 William D. Hornblower before the American Bar Association in 
 Boston on August 30, 1911, which is printed, beginning on page 
 628 of this record? 
 
 Mr. Earle. I have not. 
 
 Senator Brandegee. I think you would be much interested in it. 
 Mr. Hornblower takes exactly the opposite view from what you do 
 as to the common-law cases. I shall be interested to compare what 
 you have said with what he has said. 
 
 Mr. Earle. I think the more valuable thing would be to read the 
 cases I have referred to. Then we would have your judgment, which 
 is probably worth more than either of ours. 
 
 Senator Brandegee. I do not care to ask any questions. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Just a question or two. 
 
 Mr. Earle, in answer to Senator Cummins, if I understood you 
 correctly, you said, in substance, that it would not be difficult to 
 define the words " in restraint of trade " as applied to a given state 
 of fact. Do I correctly quote your position ? 
 
 Mr. Earle. I think it would not be any more difficult than an 
 ordinary judicial question. 
 
 Senator Pomerene. Do I understand from that that would be a 
 specific definition as applied to a given state of fact or a general defi- 
 nition as applied for the purpose of determining all conditions ? 
 
 Mr. Earle. Of course, you can not ever in advance do anything 
 except lay down general rules. You can not in any legal question. 
 22*77 — vol I — 12 51 
 
800 HEARINGS BEFORE 
 
 Senator Pomerene. I recognize that difficulty. Would you be 
 willing to give us any definition of the words " restraint of trade " ? 
 
 Mr. Earle. I think that there is no definition better than the 
 words themselves. I believe that anything naturally tending or actu- 
 ally restraining trade or its freedom is restraint 01 trade, and I be- 
 lieve that that is a thing that can easily be proven. I believe that 
 there are many cases where a specific state of fact have been held to 
 be restraint of trade, which would, of course, be helpful. 
 
 Senator Pomerene. You indicated that you might be" willing to 
 further modify the Sherman law by writing into it the definitions 
 contained in the Nordenfeldt v. Maxim decision, and perhaps some 
 other decisions? 
 
 Mr. Earle. And the decision in the case of Mallan v. May. 
 
 Senator Pomerene. What would be your purpose in that ? 
 
 Mr. Earle. I believe that if you, in any statute, state the sense 
 in which you use the language or the words of that statute, you 
 necessarily reduce the necessity of construction, which is bj r a body 
 of an entirely different class. The Senate of the United States, for 
 example, is not only made up of lawyers, but it is made up of 
 business men, and people of various pursuits, who are familiar 
 with more questions than the mere one of law. And, therefore, 
 if they state the meaning in which they are using terms, that mean- 
 ing might, and without any impropriety anywhere, frequently 
 mean different things from the meaning that a body of very able 
 men who are simply trained in the law might attribute to those 
 words. Therefore, I think in business statutes it is peculiarly nec- 
 essary that you should define the meaning in which you use them. 
 
 Senator Pomerene. You recognize the fact, do you not, that a 
 court in declaring the law in a given case declares it with reference 
 to the particular state of fact embraced within that case? And do 
 you not think that if you attempt to modify the Sherman statute 
 in the particulars to which you have referred, that you might be 
 confronted with the danger of applying specific definitions to gen- 
 eral rules of law. and thereby bring about many difficulties and 
 misunderstandings ? 
 
 Mr. Earle. I really can not see how it would increase the difficulty 
 for you to define the terms any more than it would for the Supreme 
 Court to do it. Somebody has got to do it. 
 
 Senator Pomerene. You have just said it would. 
 
 Mr. Earle. In the one case you would be sure to have the enact- 
 ment carried out in the meaning that you intended to give it, and in 
 the other you would have to take you chances. 
 
 Senator Pomerene. You have just said that you knew of no clearer 
 definition of the words "restraint of trade" than the words them- 
 selves. Now, assuming that to be so, do you not think that if you 
 attempted to modify it by applying a definition which is given in 
 a particular case that we might be confronted with untold difficul- 
 ties? 
 
 Mr. Earle. I think not, because I think the whole business of 
 England is conducted on this definition and conducted without any 
 friction at all. Those definitions are general statements of the law. 
 
COMMITTEE ON INTERSTATE COMMERCE. 801 
 
 Senator Pomerene. It is your understanding that the present 
 statute is about as clear as it can be made ? 
 
 Mr. Earle. I think the language of the statute is perfectly accu- 
 rate, but I think that it has ceased to be clear because people have 
 taken it to have different meanings for different phrases and ex- 
 pressions. I think, therefore, that difficulty having arisen, it can 
 only be eliminated by Congress itself in defining the meaning of the 
 terms it has used. Then you will at least be certain of having the 
 Supreme Court pass upon the question of whether a statute couched 
 in these terms is constitutional or not, whereas at present you have 
 the double difficulty — in the first place, of the Supreme Court deter- 
 mining what you actually did mean and how those words should be 
 defined, and the second question of whether it was constitutional. 
 
 Senator Pomerene. That is, the difficulty in the Supreme Court 
 has arisen after these able arguments on the one side to which you 
 referred and another kind of argument on the other side ? 
 
 Mr. Earle. There have been both kinds of arguments. You always 
 have able ones on one side and sometimes able and sometimes not, 
 according to who appears as counsel, on the other side. 
 
 Senatdr Pomerene. Just one or two other questions. What is 
 your judgment of the practicability of having these corporations 
 which are engaged in interstate trade licensed by the Government 
 or some bureau of the Government? 
 
 Mr. Earle. I would not anticipate any good from that. I think 
 that one of the greatest restraints of trade is constant interference 
 of Government in it that is unnecessary. The minute you do that 
 you build up another great department. A friend of mine told me 
 the number of additional clerks he had to employ now in the manu- 
 facturing business just to make up data for the Government. Very 
 often the appointees are not broad students of political economy and 
 they very often hamper the trade. I do not think it is well for the 
 Government to interfere in trade unless there is a plain necessity, 
 as there is in case of real restraint and monopoly. You understand 
 that I am merely giving you my information — my best opinions — 
 for what they are worth. We are covering a very wide range. 
 
 Senator Pomerene. Certainly ; that is what I am asking for. Our 
 attention has been called to the statute of the State of Iowa, which 
 later was enacted in Minnesota, which provides, in substance, that 
 where a company that is dealing in petroleum or its by-products 
 attempts to reduce the price at which it sells its products in a given 
 locality which is way below the cost of production, and for the pur- 
 pose of killing off competition, that then it shall be unlawful for 
 the company to sell those products at any other point in the State 
 in excess of the low price in the first instance. What is your judg- 
 ment as to the effect of legislation of this character, to prevent cut- 
 throat competition and its consequences? 
 
 Senator Cummins. There is one element that you left out. 
 
 Senator Pomerene. I would be very glad to have you suggest it. 
 
 Senator Cummers. The cost of transportation. 
 
 Senator Pomerene. Yes; the cost of transportation to be added or- 
 to be taken into consideration. 
 
802 HEARINGS BEFORE 
 
 Mr. Eakle. Such a statute would appeal to a man's sense of fair- 
 ness, but I personally have not very much confidence in laws that 
 limit the right to compete. I think the limitation should be in the 
 other direction, and I repeat what I said. I think, if you will read 
 Lord Bowen's opinion in Mogul v. McGregor, you will see a pretty 
 accurate expression of what I think is the correct answer on that 
 subject. 
 
 Senator Gore. Is that included in the case you give us to-day ? 
 
 Mr. Eable. Yes, sir. You will find it. Let me point out some of 
 the innumerable difficulties that would arise. A man would be in 
 business. He would want to sell a leading article as an advertise- 
 ment. You see that constantly all over the country. He would sell 
 something at cost to bring customers there. You can pick up any 
 daily paper in any great city and see that they are selling such and 
 such a thing at cost or below cost, and they get a horde of people 
 there and they buy other things that they make money on. That is a 
 constant trade device. As Lord Bowen says — if I remember his 
 language — "All trade is sowed one year to reap the next." While 
 they are selling cheaper the customer certainly gets the value of it. 
 It is awfully easy to pick, out theoretical things, but when you come 
 to put them in practice you see the difficulty of them. Would you 
 have every merchant arrested who sold an article cheap because he 
 might interfere with somebody else's trade or would you leave it to 
 the natural law of competition to ultimately correct it ? I think you 
 would be running into a police system of government that would turn 
 out in the end very troublesome. I think I would let men compete if 
 they wanted to, even if they sold their property cheap. Suppose a 
 man had property that he had to get rid of ; suppose he was in dan- 
 ger of bankrutpcy unless he sold as best he could — I do not think a 
 day passes that people do not offer to sell things below value — would 
 you make that class of people criminals? 
 
 Senator Pomerene. Let me use a concrete illustration. Suppose 
 there was a man who establishes himself in the oil business in a 
 given locality and he succeeds in building up a substantial trade; 
 that he is a man of very limited means and he buys his oil from an 
 independent company. Then comes in the Standard Oil Co., and in 
 order to kill him off sells their oil at perhaps 33^ per cent of its real 
 market value, simply for the purpose of killing off a small com- 
 petitor and getting him out of the way. Do you not think it would 
 be wise to provide some legislation in order to prevent such methods 
 of competition? 
 
 Mr. Eakle. Now, let me try to explain what I do think about it. 
 I think the thing that was done would be reprehensible. I think the 
 effort to remedy it by law might carry you into tremendous difficul- 
 ties. I do not know whether you could make a law possibly effective, 
 and, above all things, I pray you not to pass laws that would not be 
 effective, because they bring the country into a disregard of the law 
 that is dangerous. Of course, in a supposititious case of that kind, 
 you attach the malignant motive, which is instantly denied the 
 moment a man is brought into court. Do I make myself clear ? 
 " Senator Pomerene. I am giving you an actual situation that I 
 have personal knowledge of, except, perhaps, as to the per cent of 
 the selling price. It is not a suppositious case at all. 
 
COMMITTEE ON INTERSTATE COMMERCE. 803 
 
 Mr. Eaele. If you could prove that there was an actual criminal 
 conspiracy to destroy, a wicked motive, the present law, of course, 
 would reach it. 
 
 Senator Pomerene. If the facts were that after they had killed 
 off the competitor they immediately put up the prices of oil, it 
 would be pretty convincing evidence that they intended to do that 
 which they in fact did, would it riot ? 
 
 Mr. Eaele. Well, they probably would, without any evidence, in- 
 tend that thing, but is that not after all just trade rivalry ? Is that 
 not what has existed always? I think, as Lord Bowen expresses 
 it so very much better than I can, that you really would be bene- 
 fited more by following his reasoning than anything I can say in 
 support of it. I sympathize entirely with your dislike of a thing 
 of that kind ; but, whether you can pass a law that will make every 
 man, who, for any legitimate or other reason wants to sell some- 
 thing cheap, feel that he may be putting his head in a noose is a 
 very serious question with me ; and experimental legislation of that 
 kind, I think, has not been as a rule satisfactory to the people who 
 have passed it. 
 
 Senator Cummins. I do not want to interfere, but he misunder- 
 stands. He stated the Iowa law, and I think Mr. Earle misunder- 
 stands what the Iowa law is. It does not prohibit selling, but that 
 the company must sell it all over the State at the same price, and in 
 helping to get rid of it if you want to get rid of it. 
 
 Mr. Eaele. I would not object to that a bit. 
 
 The Chairman. I do not think that yet you understand the propo- 
 sition. Those laws simply prohibit a company from selling in one 
 locality for less than they are selling elsewhere in the State, trans 
 portation taken into account. 
 
 Mr. Earle. That is, they require equality of treatment ? 
 
 The Chairman. Yes. 
 
 Mr. Earle. Equality of treatment is the chief purpose for which 
 this Government exists. I think some gentleman of eminence said 
 that " all men are born free and equal," and that he meant by that 
 that they should have an equal chance. Liberty is but an equality 
 of justice. 
 
 The Chairman. Senator Oliver, do you care to ask any questions. 
 
 Senator Oliver. Mr. Earle, you expressed the opinion that we 
 were beginning to see daylight with regard to this trust business. 
 Now, assuming that it has been said that there are good trusts and 
 bad trusts — assuming that to be the case — what would be your 
 method of dealing with the good trusts ? 
 
 Mr. Earle. I would let good things alone to work out their own 
 salvation. I think you gentlemen have enough evils at the present 
 time to deal with without trying to improve tilings that are, I should 
 say, even half good. 
 
 Senator Oliver. We surely have. One more question: You ex- 
 pressed the opinion that the reason why the forms of combinations 
 in England are not creating the same trouble as in this country was 
 largely on account of the protective tariff of the United States. 
 
 Mr. Earle. In a more general sense, I mean, because they have a 
 wider competition only. 
 
804 
 
 HEARINGS BEFORE 
 
 Senator Oliver. Is there not another element entering into it, 
 which is a very important one. that to a very great extent the manu- 
 factures in England are sold outside the boundaries of the United 
 Kingdom, whereas our products are, to a great extent, sold within 
 our own borders ? 
 
 Mr. Earle. I think that would be an important consideration. I 
 did not say that it was the only consideration. I only mentioned 
 another one myself. 
 
 Senator Oliver. I understand that. 
 
 Mr. Earle. I do not want you to misunderstand me. I am not 
 criticizing the tariff at all, but I say if you, for a national purpose, 
 cut off part of the competition, it is quite important that you should 
 preserve the rest. I think you will all agree with me there, if com- 
 petition is a good thing. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Mr. Earle, did I understand you to say that 
 you are in favor of a glossary of terms if it could be prepared, sim- 
 ilar to the one they have in England? 
 
 Mr. Earle. We have it here quite constantly. I think that ought 
 to be in every statute. You put part of your work on the courts if 
 you do not define your terms (the sense in which you are using the 
 terms), and it is not quite fair if you let the business man and rep- 
 resentative man from all walks of life use their own language and 
 put the job on the courts of finding out if they had a meaning dif- 
 ferent from the judicial view and say, after they have done the best 
 they could, " now you have used a word in a sense we did not mean 
 at all." I think it reduces the judicial functions enormously, and in 
 addition makes your own legislation clearer. _If any judges there 
 are passing upon it they have before their eyes a glossary of mean- 
 ings in which the terms are used. I think it is a splendid legislative 
 practice. 
 
 Senator Townsend. That is in England. 
 
 Mr. Earle. And it is growing all over the world. 
 
 Senator Townsend. Are the English cases pretty generally uni- 
 form in their decisions on their trust questions over there? 
 
 Mr. Earle. I do not think that I have ever seen any conflict in 
 them from my study of them. 
 
 Senator Townsend. And they are based on the cases that you have 
 suggested, Mallan v. May and Nordenfeldt v. Maxim ? 
 
 Mr. Earle. Yes, sir ; and earlier cases. 
 
 Senator Townsend. They are not mentioned in their statutes? 
 
 Mr. Earle. No, sir. They have not any statutes on this subject. I 
 think they repealed every one of them in Queen Victoria's time and 
 in the time of George III — some of them — just left all to the com- 
 mon law. 
 
 Senator Townsend. Until the recent trust law they had over there, 
 I believe? 
 
 Mr. Earije. Well, I am not familiar with it, if there is one. 
 
 Senator Townsend. Do you think that corporations generally 
 should be treated differently from railroad corporations or common 
 carriers ? 
 
 Mr. Earle. Oh, of course, a common carrier is in a sense in part- 
 nership with the public, because it can not move an inch without the 
 public granting the right of eminent domain, and many other things. 
 
COMMITTEE OX INTERSTATE COMMERCE. 805 
 
 I think there should be a decided distinction. Where a corporation 
 is merely an aggregate of individuals doing what is done by individ- 
 uals, and can be done by them alone. I think as a rule the laws apply- 
 ing to it should approximate those applying to everybody, and where. 
 a corporation is of a character that makes it of necessity a monopoly 
 the public will be perfectly in its power unless it has some restric- 
 tions, such as a gas company in a city or a sole railroad between two 
 places. 
 
 Senator Town send. In dealing with these questions, or this ques- 
 tion, ought the element of capitalization to enter at all? That is, as 
 to whether there is an overcapitalization according to assets, or not. 
 
 Mr. Eaele. I hate to be thought radical, but I think a good deal 
 of harm has been done in the development of the United States by 
 the excitement against What is called water in stocks. Suppose there 
 are two towns but not a railroad — suppose there was a section in the 
 West that needed a railroad, that would not pay for 10 years; that 
 could not possibly pay for 10 years. If you can go to investors and 
 say, "We will give you this railroad, which only costs so much, but 
 it will take 10 years before you can get any returns, and we will de- 
 velop the country, so you will get returns from it after awhile, 
 and we will give you present securities that will make it profitable if 
 you will wait that time"; I think very often you can start enter- 
 prises that develop the country and increase the wealth of a section 
 by a thousandfold to the expenditure necessary by that method. 
 That, even though the ultimate hope of profit be large, the public 
 gains a thousandfold. On the other hand, you have to be very 
 Careful that it is not real water. I do not know whether I make 
 that very clear, gentlemen. If you say to a man, " Here are two sec- 
 tions. Will you take the chance of waiting a long while and put 
 money in to develop that part of the United States, now," I think that 
 it is a wholesome thing to make that profitable, and I think it should 
 not be stopped. I think to take an established railroad and just issue 
 securities against it is often simply to burden the people. 
 
 Senator Townsend. Suppose it is conceded that it is real water? 
 
 Mr. Eaele. Then I do not think it is desirable. 
 
 Senator Townsend. How would you deal with that, Mr. Earle? 
 
 Mr. Eaele. Well, if you watch the stock market, I think it deals 
 with itself. I think natural processes squeeze it out. 
 
 Senator Towxsend. That is, you would not try to deal with it by 
 law? 
 
 Mr. Eaele. I think that you run the other danger of stopping 
 development. I think if a man chooses to put his money into a 
 thing of that kind that is in the future, if it does not work out it 
 is his own risk ; but if the law interferes it is hard to surmise how 
 much needed enterprise is hindered by murdering hope. 
 * Senator Townsend. You think the investors know that it is not 
 based on genuine assets? 
 
 Mr. Eakle. He should know. Any law that tends to publicity I 
 am always in favor of. 
 
 Senator Townsend. That brings me to that question. One of the 
 arguments in favor of a commission, or of allowing the Department 
 of Commerce and Labor to have charge of this matter, is that it will 
 induce and compel publicity. 
 
806 HEARINGS BEFORE 
 
 Mr. Eaele. Is that not already the case? I had the impression 
 that everything is now examined. 
 
 Senator Townsend. Well, it is a sort of general inspection. 
 
 Mr. Eaele. Under this tax law I am quite sure we have to return 
 our tax in all corporations on our income, and they make the fullest 
 investigation to see whether we are paying the tax that we ought to. 
 I think you have that already. 
 
 Senator Townsend. You think that you have a sufficient statute 
 to compel publicity of capitalization? 
 
 Mr. Eaele. I think so, but I would not object if it is not sufficient 
 to making it sufficient. I think you have the means for. publicity 
 now, if you choose to use them, without further burdening the tax- 
 payers. I do not know whether you do use them. 
 
 Senator Townsend. You would propose no amendment, then, to 
 the Sherman antitrust law unless it be to make definitions a little 
 more clear? 
 
 Mr. Eaele. And let a man sue where he is injured, which is a 
 mere addition. It is not a change of the law, and to define your 
 measure of damage where by wrongful act a corporation or an 
 individual has been interfering with another. 
 
 Senator Townsend. You think that would remove the doubt and 
 uncertainty that there is in the mind of any business man who is 
 trying to conduct his business honestly? 
 
 Mr. Eaele. If it were properly drawn, I think there would be no 
 trouble at all after that — more than in any other case. There is 
 alwaj^s some uncertainty in all human affairs. 
 
 Senator Townsend. You never attempted to put that in the form 
 of an amendment — or have you? 
 
 Mr. Earle. I have not attempted it. It is not in my field, but I 
 would be willing to render any assistance that I could. 
 
 Senator Townsend. I would be very glad of your efforts on that 
 subject. 
 
 Mr. Eaele. Is there not a Judge Rucker in Congress? Some one 
 said a bill was proposed by him in the House. Have you seen that ? 
 
 Senator Townsend. No; I have not. 
 
 Mr. Eaele. It was some member of the House committee in the 
 Sugar Trust investigation, and I think, if you will have one of your 
 secretaries ask for it, you will find it. I think there have been some 
 pretty good bills drawn. I have seen one, at least, but it has been 
 a good while ago, and my memory may not be correct. 
 
 Senator Townsend. You are in favor of legislation on that sub- 
 ject, are you? 
 
 Mr. Eaele. I am in favor of — in every statute you propose — de- 
 fining any term that is open to doubt, because it saves litigation and 
 saves criticism of the' courts. 
 
 Senator Townsend. Mr. Seth Low and other witnesses here have 
 called attention to the fact, which was suggested by Senator Pom- 
 erene, that when you commence to define you necessarily limit. 
 
 Mr. Eaele. That is what you want to do. Now no one knows what 
 is and what is not criminal — the greatest of all legal and business 
 evils. 
 
 Senator Townsend. And I am wondering if there is not some 
 danger in that. 
 
COMMITTEE ON INTERSTATE COMMERCE. 807 
 
 Mr. Eaele. If you do not define right. There is always danger 
 in saying what you do not mean, or failing to make what you do 
 mean clear. If you want your Will enforced, the first step is to make 
 it clear 
 
 Senator Townsend. Do you always know a year from now what 
 will be necessary to meet conditions then ? Do you know now what 
 will be necessary in a year from now to meet conditions at that time 
 which might come under the statute ? 
 
 Mr. Eaele. I do not think that I can say definitely now; but we 
 have got to act upon the light of ages of experience, because it is the 
 only light we have, and all ages have found restraints of trade tend- 
 ing to monopoly " odious." 
 
 Senator Townsend. I want to pay you the compliment of saying 
 that I think you know as much about this subject as any man I know. 
 
 Mr. Eaele. And I want to thank you for that, because I feel very 
 modest about my knowledge. 
 
 The Chairman. We are very much disappointed that Mr. Bartels 
 was not here this morning to give his experience as to this law, which 
 is designed to prohibit the sale in one section of a State at less than 
 in other parts, and I will put the law into the record. 
 (The law referred to is as follows :) 
 
 Minnesota Geneeal Laws of 1907. 
 
 [Printed for the use of the ommiCttce on Interstate Commerce.] 
 ■ [Chapter 269.- S. F. No. 458.] 
 
 AX ACT To prohibit unfair discrimination between different sections, communities, or 
 localities, unfair competition, and providing penalties therefor. 
 
 Be it enacted by the Legislature of the State of Minnesota: 
 
 Section 1. Discrimination declared unlawful. — Any person, firm, company, 
 association, or corporation, foreign or domestic, doing business in the State of 
 Minnesota and engaged in the production, manufacture, or distribution of 
 petroleum or any of its products, that shall, intentionally or otherwise, for the 
 purpose of destroying the business of a competitor or creating a monopoly in 
 any locality, discriminate between different sections, communities, or cities of 
 this State, by selling such commodity at a lower rate in one section, com- 
 munity, or city than is charged for such commodity by said party in another 
 section, community, or city, after making due allowance for the difference, if 
 any. in the test or quality and in the actual cost of transportation from the 
 point of production, if a raw product, or from the point of manufacture, if a 
 manufactured product, shall be deemed guilty of unfair discrimination, which 
 is hereby prohibited and declared to be unlawful. 
 
 Sec. 2. Gross misdemeanor — Penalty. — Any person, firm, company, associa- 
 tion, or corporation violating any of the provisions of the preceding section, 
 and any officer, agent, or receiver of any firm, company, association, or cor- 
 poration, or any member of the same, or any individual found guilty of viola- 
 tion thereof, shall be guilty of a gross misdemeanor and shall be fined not 
 more than five thousand dollars or be imprisoned in the county jail not to 
 exceed one year, or both. 
 
 Sec. 3. Contracts void. — All contracts or agreements made in violation of 
 any provisions of the two preceding sections shall be void, and any money or 
 property paid or transferred for any such commodity under any such agree- 
 ment shall be paid back within ten days after demand therefor, and on failure 
 to so repay, then the purchasers may recover back in a civil action any such 
 money or property, together with reasonable attorneys' fees not less than 
 twenty-five dollars. 
 
 Sec. 4. Duty of county attorney.— It shall be the duty of the county attor- 
 neys in their counties and the attorney general to enforce the provisions of the 
 
808 HEARINGS BEFORE 
 
 preceding sections of this act by appropriate actions in courts of competent 
 jurisdiction. 
 
 Sec. 5. Duty of secretary of state. — If complaint shall be made to the secre- 
 tary of state that any corporation authorized to do business in this State is 
 guilty of unfair discrimination, within the terms of this act, it shall be the 
 duty of the secretary of state to refer the matter to the attorney general, who 
 may, if the facts justify it in his judgment, institute proceedings in the courts 
 against such corporation. 
 
 Sec. C. Secretary of state to revoke license. — If any corporation, foreign or 
 domestic, authorized to do business in this State is found guilty of unfair dis- 
 crimination, within the terms of this act, it shall be the duty of the secretary 
 of state to immediately revoke the permit of such corporation to do business in 
 this State. 
 
 Sec. 7. Attorney general to oust. — If after the revocation of its permit such 
 corporation, or any other corporation (not having a permit and found guilty of 
 having violated any provisions of this act), shall continue or attempt to do, 
 business in this State, it shall be the duty of the attorney general, by a proper 
 suit in the name of the State of Minnesota* to oust such corporation from all 
 business of every kind and character in said State of Minnesota. 
 
 Sec. 8. Nothing in this act shall be construed as repealing any other act or 
 part of an act, but the remedies herein provided shall be cumulative to all 
 other remedies by law. 
 
 Sec. 9. This act shall take effect and be in force from and after its passage. 
 
 Approved, April 20, 190T. 
 
 Senator Gore. I would like to ask a question or two. 
 
 Mr. Earle. May I say a word ? I do not want you to think that 
 I know peculiarly very much about this matter. When I received 
 the invitation from such a body as this to come down and give you 
 my thoughts, I felt it a command that had to be respected, and so I 
 wish to say that they are only my thoughts, and I do not want you 
 to give them overmuch weight. 
 
 The Chairman. It may strike you that they interest the commit- 
 tee anyway. 
 
 Mr. Earle. That may be because you are very courteous and 
 amiable. 
 
 Senator Cummins. I either misunderstood you in answering a 
 question of mine or in answering one propounded by Senator Oliver. 
 He assumes in a question that he asks you that you had said that 
 there were good trusts and bad trusts. 
 
 Senator Oliver. I said it had been said. I did not attribute it to 
 Mr. Earle. 
 
 Senator Cummins. I understood you so. 
 
 Mr. Earle. No; I never said that. A very much more eminent 
 man than myself said that, and I do not father it or sanction it at all. 
 
 Senator Cummins. I wanted to hear you upon that. 
 
 Mr. Earle. If trust means monopoly, there are no good monopo- 
 lies, and never have been, except, perhaps, where monopoly is in- 
 herent in the matter. 
 
 Senator Cummins. In your meaning of the word " trust " there is 
 no good trust ? 
 
 Mr. Earle. Not if you mean what the public does, that it is a 
 monopoly, a power of arbitrary tax fixing for individual benefit at 
 public charge. 
 
 Senator Cummins. That is, a corporation that has arbitrarily the 
 power to fix prices. 
 
 Mr. Earle. I think that has always been pernicious and always 
 will be. Under the common law it is called " odious." 
 
COMMITTEE ON INTERSTATE COMMERCE. 809 
 
 The Chairman. Senator Gore, you may inquire. 
 
 Senator Gore. Do you think the dissolution of the Standard Oil 
 and Tobacco Trusts will restore competition among the integral 
 companies formerly constituting the trust? 
 
 Mr. Earle. I have not read the decree. I have seen an excited 
 discussion about that, but my opinion would not be worth anything 
 on it, because I do not know anything about it. 
 
 Senator Gore. Judicial decrees and dissolutions of trusts that do 
 not restore competition and would not provide the possibility, at 
 least, of prices being affected by competition are unavailing, are they 
 not? 
 
 Mr. Earle. I should think they would be perfectly illusory. But 
 I do not want to be unfair to anybody. I do not know anything 
 about those decrees. If the power of fixing arbitrary rather than 
 natural trade prices remains, the evil will only be intensified by hav- 
 ing apparent legal sanction; if it is destroyed, much good has, of 
 course, been accomplished. If they are illusory, they are, in mj' 
 judgment, illusory, and if they are not, they are good. But I per- 
 fectly agree with you that if they do not restore competition noth- 
 ing has been accomplished, but harm. 
 
 Senator Gore. And, as far as consumers are concerned, unless it 
 results in the reduction of prices, it is really of very little avail to 
 them ? 
 
 Mr. Earle. What I would like to get is a law where a private 
 individual and a consumer could get equal treatment, and which 
 would not necessitate a complicated proceeding and require all the 
 machinery of the Government to establish the case, a thing be- 
 yond private means; arid safeguarding necessary competition will 
 alone accomplish that. 
 
 Senator Gore. I understand ; that is an impossible undertaking. 
 
 Mr. Earle. That law is illusory to the individual consumer. He 
 is mulcted all the time. 
 
 Senator Gore. It is a vain law. 
 
 Mr. Earle. Precisely. Unless proper competition be the price 
 fixer. 
 
 Senator Gore. There is no way to compel people to compete if 
 they do not want to compete, is there ? 
 
 Mr. Earle. No, sir. 
 
 Senator Gore. That is one of the difficulties. 
 
 Mr. Earle. The natural human desire to make profit will make 
 enough of us compete if there is a fair chance to make profits by so 
 doing. Human cupidity has its value, as well as defects. 
 
 Senator Gore. Some of these larger corporations, as they are 
 called, violate the law, some of them because they do not know what 
 acts really constitute a violation of the law, and others because they 
 do not care what action constitutes a violation of the law. Do you 
 not think that is true? 
 
 Mr. Earle. Of course, the temptation of all of us to make a for- 
 tune in an easy way will always be active ; even those who denounce 
 wealth often change their views after getting it. 
 
 Senator Gore. Some violate the law because they do not know 
 what the law is; they can not tell whether a given act i<* lawful or 
 unlawful. 
 
810 HEAEINGS BEFORE 
 
 Mr. Eaele. That is the greatest fault of the law, and it always 
 ought to be made certain. 
 
 Senator Goee. It ought to have the benefit of the certainty which 
 can be brought about. 
 
 Mr. Earle. Others who are intelligent and want to obey the law 
 ought to have it so drawn that it can not be misunderstood, and then 
 punishment will be just. 
 
 Senator Gore. Others do not care if it is lawful or unlawful if 
 they get all the profit. 
 
 Mr. Eaele. Because they would rather be wealthy than law- 
 abiding. 
 
 Senator Goee. That is really the point. Do you not think that if 
 all companies engaging in interstate commerce were required to ob- 
 tain a license not prescribed under existing conditions, but simply 
 require them to obtain a license before they can engage in interstate 
 commerce, and then as to those who are convicted of willful violation 
 of the law, and the second class you have just mentioned, who do 
 not care whether their acts are lawful or unlawful, revoke their 
 license and not permit them to engage in interstate commerce ; do you 
 not think that would be a much stronger restraining influence? 
 
 Mr. Eaele. I have a general prejudice — maybe it is my educa- 
 tion — against creating any more bureaucracies than are necessary in 
 a free government. And the same evil would remain, and the pun- 
 ishment be unjust, if the law remained uncertain. 
 
 Senator Gore. That would not require any bureaucracy if they 
 are simply required to make application to engage in interstate com- 
 merce, and on that grant them a license, but if on judicial proceed- 
 ing they were convicted of willfuly violating the law, then they for- 
 feit their right to transact the business. 
 
 Mr. Eaele. I perfectly agree with that. They were " willful." 
 They would not merely mistake. 
 
 Senator Gore. There would not be any complication about that, 
 and it is the only penalty ; they would not care to incur it. 
 
 Mr. Earle. I think it is the place of business to support the Gov- 
 ernment, and it is the place of the Government, in return, not to 
 interfere with business in doing so except where it is necessary. 
 
 Senator Gore. I am inclined to share your view. 
 
 Mr. Earle. It is necessary at times, unfortunately. 
 
 Senator Gore. I think a tariff that restrains trusts restrains trade ; 
 one is about as bad as the other. Of course, we differ on those propo- 
 sitions. I think that is all I care to ask. 
 
 The Chairman. Mr. Earle, while it is asking a great deal of you, 
 perhaps more than we have a right to do, the committee would ap- 
 preciate it if you could submit a tentative bill embodying your views 
 as to additional legislation. 
 
 Mr. Earle. If my other work will permit of the time, of which 
 you must realize it will take considerable, I will try to do so. 
 
 The Chairman. If no other Senator cares to ask any other ques- 
 tions we will excuse Mr. Earle, and the committee will now take a 
 recess until to-morrow morning, at 10.30 o'clock. 
 
 (Accordingly, at 3.45 p. m., the committee took a recess until to- 
 morrow, Thursday, December 7, 1911, at 10.30 o'clock a. m.) 
 
COMMITTEE ON INTEESTATB COMMEECE. 
 
 811 
 
 thtjbsday, decembeb 7, 1911. 
 
 United States Senate, 
 Committee on Interstate Commebce, 
 
 Washington, D. C 
 The committee met at 10.30 o'clock a. m. for the purpose of further 
 considering the bill S. 2941, entitled "A bill to create an interstate 
 trade commission, to define its powers and duties, and for other pur- 
 poses," introduced by Mr. Newlands, July 5, 1911. 
 
 Present: Senators Clapp (chairman), Crane, Nixon, Cummins 
 Brandegee, Oliver, Lippitt, Townsend, Gore, Watson, and Pomerene. 
 The Chairman. The committee will come to order. Judge Gary, 
 we are ready to proceed with your hearing. 
 
 STATEMENT OF ELBERT H. GARY— Resumed. 
 
 Mr. Gary. Mr. Chairman, you asked me to make up a statement for 
 you; I have prepared it and it is here. 
 The Chairman. Yes. 
 
 Mr. Gary. Shall I give it to the stenographer ? 
 The Chairman. Yes. I will be very glad if you will. 
 (The statement referred to is as follows:) 
 
 Schedule showing securities of various companies which were acquired by United States 
 Steel Corporation in 1901, and the prices at which the same were then selling, so far as 
 ascertainable. 
 
 Total par 
 
 value of 
 
 securities. 
 
 Market prices in March, 1901. 
 
 High. 
 
 Low. 
 
 Mar. 30. 
 
 Carnegie Co 
 
 American Sheet Steel. . 
 American Steel Hoop . . 
 American Steel & Wire 
 American Tin Plate. . . 
 
 Federal Steel 
 
 National Steel 
 
 National Tube 
 
 American Bridge 
 
 Lake Superior Consolidated Iron Mines 
 
 Shelby Steel Tube 
 
 Oliver Iron Mining (one-sixth interest only) 
 Pittsburgh Steamship (one-sixth interest 
 
 only). 
 Bessemer Steamship 
 
 Bonds . . . 
 Common. 
 Common. 
 Preferred 
 Common. 
 Preferred 
 Common. 
 Preferred 
 Common. 
 Preferred 
 Common. 
 Preferred 
 Common. 
 Preferred. 
 Common. 
 Preferred. 
 
 MM, 
 1M, 
 24, 
 24, 
 19, 
 14, 
 50, 
 40, 
 28, 
 18, 
 46, 
 53, 
 32. 
 27, 
 40, 
 40, 
 
 000,000 
 OM.OOO 
 500,000 
 500.000 
 000,000 
 000,000 
 000,000 
 000,000 
 000.000 
 325,000 
 484,300 
 260, 900 
 
 oro.ooo 
 
 000,000 
 000,000 
 000, 000 
 
 (') 
 (') 
 
 45} 
 96 
 
 40 
 
 90 
 
 m 
 
 ill* 
 
 V 
 118' 
 
 52: 
 104-J 
 
 57 
 1184 
 
 64i 
 115 
 
 36 
 
 80J 
 24} 
 80} 
 38 
 95 
 61 
 98J 
 42} 
 86 
 434 
 994 
 52 
 100 
 
 Common 
 
 30, 950, 800 
 
 
 31,373,800 
 
 Common 
 
 29,887,449 
 
 Common 
 
 8,151,500 
 
 Preferred 
 
 5,000,000 
 
 Common 
 
 '200,000 
 
 Common 
 
 « 221, 700 
 
 Common 
 
 5,000,000 
 
 Mar. 29. 
 
 «4 
 104J 
 
 m 
 
 8 
 
 0) 
 
 45} 
 95f 
 46 
 
 464 
 1114 
 
 nil 
 
 52} 
 1044 
 
 57 
 1184 
 
 64{ 
 115 
 
 Apr. 5. 
 
 49j 
 1054 
 
 ( 8 ) 
 6 ) 
 (') 
 
 ( 5 ) 
 
 1 No current market quotations. Sales of the bonds were reported at various times during 1900 at 105 
 per cent of par; a few shares of stock were also reported as sold at par. 
 
 1 No current market quotations. Some few shares were during 1900 offered at $75 per share. 
 
 3 No current market quotations available. Bureau of Corporations reports average price during 1900 of 
 $56.48 for preferred and $10.90 for common. 
 
 < Total issued capital stock of Oliver Iron Mining Co. was $1,200,000, the balance (five-sixths) was owned 
 by Carnegie Co. 
 
 6 Nomarket quotations and no sales made of these stocks prior to acquirement by United States Steel. 
 
 • Total issued capital stock of Pittsburgh Steamship Co., $1,330,000; the balance (five-sixths) was owned 
 by Carnegie Co. 
 
312 HEARINGS BEFOKE 
 
 The Chairman. You m.a,j proceed, Senator Cummins. 
 
 Senator Cummins. Mr; Gary, you instanced the other day one 
 sort of an arrangement that you thought that corporations engaged 
 in the same business ought to be permitted to make with each other 
 under the supervision and approval of a Government commission 
 that was clearly forbidden now by law. Now, I pass from that to 
 ask you what do you think that corporations engaged in the same 
 business or producers, whether they are corporations or not, ought 
 to be permitted to do concerning which there is now doubt under 
 the law in the way of cooperation ? 
 
 Mr.- Gary. I do not know whether it is quite accurate to say 
 that I gave an instance the other day in which I thought the cor- 
 porations should be permitted to do what was contra^ to law. 
 There might be cases, I think, in which the commission should be 
 allowed, and might be allowed, to suspend temporarily the opera- 
 tion of the law in times of financial distress; but in my opinion 
 the object of the commission, so far as this question is concerned, 
 should be rather -to enable the corporation in advance, or other- 
 wise, to know what was or what was not an undue restraint of trade. 
 That is to say, when we adopt the meaning of the Sherman law, 
 which I understand has been placed upon it by the Supreme Court, 
 when we recognize the fact that the law seeks to prevent a monopoly 
 with the purpose of restraining trade, or where the necessary result 
 is to restrain trade, then the question is how to determine, as we 
 proceed in business, what is or what is not a violation of that prin- 
 ciple of law. 
 
 Senator Cummins. But I understood you to say the other day 
 that you believed that producers, such as companies engaged in the 
 production of iron and steel, should be permitted to make or have 
 an understanding with each other with respect to prices and output, 
 if that were necessary, if the understanding were submitted to a 
 commission or governmental tribunal, and approved by that com- 
 mission or tribunal. 
 
 Mr. Gary. Not if the result would be an undue restraint of trade, 
 Senator Cummins. That is where I draw the line. I would lay 
 down the rule definitely, and when that rule and that line of conduct 
 was determined by the law then I would leave it to the commission 
 to determine where that line was, and whether what was proposed 
 was keeping up to that line of conduct, with the right of appeal, of 
 course, to a court of competent jurisdiction. 
 
 Senator Cummins. I thought we had reached the conclusion the 
 other day that any agreement between independent producers fixing 
 prices as between them was such a restraint of trade, or would be 
 such a restraint of trade, as is condemned by the antitrust law, no 
 matter whether the price was a reasonable one or an unreasonable one. 
 
 Mr. Gary. No. If you will turn to your question, you will find it 
 was more comprehensive than that Your statement, as I remember 
 it, was that if all the manufacturers of a certain line, or at least a large 
 number of them, should get around the table and agree or make an 
 agreement that they would maintain certain prices and divide a cer- 
 tain territory, restrict the territory, et cetera, that that would be a 
 violation. In such a case as that I do not think it would take the 
 commission very long to pass upon the question which was submitted, 
 namely, that they would not allow that because it would be a restraint 
 
COMMITTEE ON INTERSTATE COMMERCE. 813 
 
 of trade. If, however, they could find under all the facts that it was 
 not an undue restraint of trade, and they should be allowed so to find, 
 the corporations should be governed accordingly in the conduct of 
 their business. 
 
 Suppose, for instance, to make plain what is in my mind — suppose 
 the manufacturers of rails should come to the commission in a time of 
 panic or under any peculiar conditions and represent to the commis- 
 sion that it was necessary for the best interests, not only of the manu- 
 facturers, but of the purchasers and of the community, to have an 
 agreement made that the price of rails should be maintained during 
 a given period of, say, six months or a year, and that if that agreement 
 was made it would not result in an undue restraint of trade, and the 
 commission then should say: "According to your representation, if 
 you did that there would be no restraint of trade, but for that period 
 we will fix a maximum price of $28 per ton for those rails, so that there 
 can possibly be no undue restraint of trade." I think that should be 
 allowed. 
 
 Of course I am trying to make this practical. 
 
 Senator Cummins. That is what I want — the practical side of it. 
 We have had a good deal of abstract discussion here, which was very 
 interesting, but I want to get down to the actual thing, if I can. 
 
 That, you recognize, would require a change in the law. I do not 
 mean a change in the law merely creating a commission, but it would 
 require a definition of "restraint of trade" that is not now attached 
 to the law. 
 
 Mr. Gary. I do not think so. I think quite the contrary to that. 
 Senator Cummins. Well, do you believe that under the law as it is 
 now that if all the steel-rail manufacturers of the country would get 
 together and agree upon a price that should be maintained during a 
 certain period, that that could possibly be construed as in harmony 
 with the law by anybody or by any court ? 
 
 Mr. Gary.- I do not think it would be, unless there was some pro- 
 vision for a determination of the question as to whether or not, in 
 view of all the facts, there would be or would not be an undue restraint 
 of trade. 
 
 Senator Cummins. But the determination of the commission, if we 
 do not change the law, would be the same determination as that 
 which the courts would finally reach upon a suit brought, if the law 
 were the same ? 
 Mr. Gary. Exactly. 
 
 Senator Cummins. And you do not think, of course, that either a 
 commission or a court could, under the circumstances I have given 
 you, hold that such a contract or arrangement as that was a valid 
 one, do you? 
 
 Mr. Gary. You mean a contract ? Perhaps I have gotten away 
 from your original proposition. 
 
 Senator Cummins. I do not care what the circumstances are now — 
 how badly the trade was disorganized. You do not believe that 
 under the law as it is there might be an agreement made between 
 the manufacturers of steel rails fixing the price that should be main- 
 tained for a certain period, do you ? 
 Mr. Gary. Yes; I do. I think it could be. 
 Senator Cummins. Now ? 
 
814 HEARINGS BEFORE 
 
 Mr. Gary. Yes, now, under the law, depending upon circum- 
 stances. 
 
 Senator Cummins. Then, if that is true, all that you suggest is that 
 whatever doubt there may be about it arising out of the circum- 
 stances shall be settled before the arrangement is made, and not 
 wait until everybody has taken his position and then find it to be 
 wrong when you reach the Supreme Court — that is the idea ? 
 
 Mr. Gary. That is one idea of it, certainly. 
 
 Senator Cummins. Well, with respect to agreements between man- 
 ufacturers or producers looking to the maintenance of prices, it is your 
 opinion that the law does not need any change ? 
 
 Mr. Gary. I do not think the law needs any change, so far as 
 establishing the rule of action is concerned. But so far as deter- 
 rnining what would or what would not be a violation of that law, 
 depending upon the circumstances, I think it' is necessary to have 
 supplemental- legislation, what I call supplemental legislation and 
 what you call amendment. 
 
 Senator Cummins. It does not make any difference what you call it. 
 
 Mr. Gary. I understood you the other day that it doesn't make 
 any difference. 
 
 Senator Cummins. That is, you think the language of the law pro- 
 hibiting anything in restraint of trade is ample to protect the business 
 world, if it is administered or interpreted in advance of the act which 
 might thereafter be complained or? 
 
 Mr. Gary. Yes; in advance or from time to time. As I under- 
 stand your question, I would answer that in the affirmative. 
 
 May I just restate n^ proposition again briefly, Senator Cummins ? 
 
 Senator Cummins. Go ahead. 
 
 Mr. Gary. I assume that what is needed is the absolute protection 
 of the purchasing public and of the public generally, and in fact of 
 anyone who is interested in the business ; and, on the other hand, the 
 protection of the manufacturer, the corporation, in order to enable 
 it to transact its business fairly and justly and with the greatest 
 success. Now, it seems to me that no corporation has the right to 
 object to the Sherman law if it means, as I suppose it does under the 
 decisions, that there shall be no combination created with the purpose 
 of creating a monopoly or the necessary result of which will be a 
 monopoly, or created for the purpose of carrying on or with the 
 intention of carrying on or with the result of unduly restraining trade. 
 In other words, that if the public only desires to prevent monopoly 
 and the resulting undue restraint of trade so that there should be left 
 free and open competition, the corporation has no right to object-to 
 that. On the other hand, if the corporations are prevented from 
 carrying on monopolies for the purposes I have suggested, or of 
 unduly restraining trade, then the public is absolutely protected. 
 
 Now, the Sherman law, as I understand it, at the present time 
 leaves everyone in that position, but the difficulty is that no one 
 knows, not even the courts, exactly what would be an undue restraint 
 of trade. That has been our difficulty. And not only that, in our 
 daily management of business we have been uncertain as to whether 
 or not what was proposed to be done was a benefit to the public inter- 
 est or whether it was an injury to the public interest, in view of this 
 line of conduct laid down by the law itself. So that if in advance 
 of a contemplated action the corporation could seek the advice of a 
 
COMMITTEE ON INTERSTATE COMMERCE. 815 
 
 commission and have a determination as to whether or not what it 
 proposed to do would be or would not be an undue restraint of trade, 
 then it could act intelligently and it would be protected and every- 
 one else would be protected. So far as I am concerned in my opinion, 
 it is only a question of absolutely protecting both sides and all sides 
 of the question, and yet permitting a corporation to proceed to 
 reach the success it is entitled to. 
 
 Senator Cummins. You will understand I am trying to get at that 
 exact point, because nobody knows more about it than you do; 
 nobody is better qualified to speak for large corporations than your- 
 self. Now suppose that it was very well established for a great 
 many years that a contract or an arrangement between all the pro- 
 ducers of a given commodity that for a given period a certain price 
 should be maintained was a "restraint of trade," as it is known at 
 the common law, or an "undue restraint of trade," as it is known to 
 our law, you do not believe that a commission authorized to pass on 
 the law, if supplied with the facts in advance, would be of any service 
 to you, if you believe that such an arrangement ought to be made 
 lawful ? That is the point I am trying to get at. 
 
 Mr. Gary. I would not like to say that such an arrangement aa 
 that would be considered lawful. I would not like to say that it 
 would not be an undue restraint of trade. I believe it would be, 
 Senator Cummins. But there might be exceptions to that. There 
 might be a time when every Senator would say that for a given period 
 of time an arrangement to do a thing temporarily would not be an 
 undue restraint of trade. 
 
 Take as an illustration, although I am not competent to speak about 
 it, the question of cotton. There might be a time when, for the pro- 
 tection of the cotton growers, they ought to be allowed to pool their 
 cotton and to make certain agreements with reference to the dispo- 
 sition of that product and the price to be maintained if such could be 
 done without any injury to the public interests. And, if so, I would 
 think for the one transaction, as a temporary expedient, it might be 
 necessary to have a commission which should determine whether that 
 did unduly restrain trade. The trouble is, of course, that this question 
 of unduly restraining trade is so elastic in the minds of the many that 
 it is difficult to apply the law, except under the advice and direc- 
 tion of a commission. 
 
 It is the same thing with reference to railroad rates. I believe it 
 has been demonstrated now that it is necessary for the protection of 
 the public interests to have a commission qualified to act who shall 
 say whether a rate proposed or put into effect is or is not a reasonable 
 rate; or whether or not even the railroads in a certain territory should 
 establish and maintain the same rates. 
 
 Senator Cummins. Well, then, you would like a law applicable to 
 general industrial affairs that would allow the words "restraint of 
 trade" to be administered practically as the words "fair and reason- 
 able" are, as applied to railroad rates? 
 
 Mr. Gary. Well, I would not suggest changing the law from the 
 present language of it as construed by the Supreme Court. 
 
 Senator Cummins. I would rather put it as an "undue restraint.*' 
 I know, at least I feel sure, that if we would create a commission and 
 could give it authority, and did give it authority, to pass on these 
 questions as they came up on the application of manufacturing and 
 
 22877— vol I— 12 52 
 
816 HEARINGS BEFORE 
 
 producing concerns that commission would never say that an agree- 
 ment between the manufacturers to fix prices over a given period 
 was lawful under our law. 
 
 ,Now, I am trying to find out whether you want the law changed so 
 that that commission could, under some circumstances, declare that 
 such an agreement as that was lawful. 
 
 Mr. Gary. Under your statement of the case I would answer it in 
 the negative. 
 
 Senator Cummins. You do not want the law changed at all, except 
 to permit it to be interpreted and applied before the act, instead of 
 after the act ? 
 
 Mr. Gary. Yes; but you will remember I made various sugges- 
 tions about that. I think the commission should have pretty broad 
 powers. For instance, I think there should be a Federal license 
 required. 
 
 Senator Cummins. Oh, I understand that. 
 
 Mr. Gary. And I think the commission should have the right at 
 that time to pass upon questions concerning the organization itself, 
 whether it was overcapitalized, etc., and also, after the license 
 was granted, the commission should have the power to revoke the 
 license, depending upon whether or not in each case, in the opinion 
 of the commission, the capitalization, the organization, or the con- 
 duct resulted in an undue restraint of trade. I would make that the 
 rule. I would tie up the corporations to that. And if that is done 
 and secured, I believe allinterests are fully protected. 
 
 Senator Cummins. There has been a prevalent impression that 
 those who represent large business affairs felt that there should be 
 more or greater opportunity for cooperation than now exists; that 
 is, there has been a notion that they want to substitute cooperation 
 in some way for competition. Now, I take it that you are not of that 
 school of thought. You do not believe, then, in the cooperation 
 that is now or could by any possibility be declared to be in violation 
 of the antitrust law ? 
 
 Mr. Gary. I believe thoroughly in cooperation, as against the old 
 style of competition; but I do not believe in the permission of any 
 cooperation which would result in an undue restraint of trade or 
 which would be inimical to the public interest. 
 
 Senator Cummins. Well, would you kindly give us some illustra- 
 tions of. the cooperation which you think ought to be permitted and 
 which you believe is permitted under the antitrust law. 
 
 Mr. Gary. Well, there might be a good many illustrations. I have 
 already given some in my testimony. I would think in such times 
 as the panic of 1907 the corporations engaged in the same line of 
 business should, with the advice and under the direction of a com- 
 mission, be permitted to come together and for a given period be per- 
 mitted to cooperate to the extent of reducing their production to 
 meet the demand, distributing it fairly between the different corpora- 
 tions, so that their employees, respectively, should have the same treat- 
 ment, provided at the same time the commission should have the right 
 to make the maximum price to be charged in order to protect the pur- 
 chasing public; and I believe in all times that there should be per- 
 mitted by a commission, and therefore by law, such cooperation 
 amongst competing competitors, competing corporations, as would 
 result in the promotion of the interests of all the competitors, and not 
 
COMMITTEE ON INTERSTATE COMMEKCE. 817 
 
 the destruction of any of them, and to the extent that the purchasers 
 of the commodities of those corporations would not be injured. 
 
 Now, I have supposed under the Sherman Act, until it was com- 
 plained of by the Government in a recent suit, that competitors had the 
 right to come together and freely exchange information in regard to 
 one another's business, stating frankly what their productions were, 
 so far as they were willing what their costs were, giving the names of 
 their customers, giving the prices which they were charging, and 
 forming such a friendly relation as would make it impossible from 
 a standpoint of honor between men of any one of them doing anything 
 which was dishonest or tricky, to the injury of the other or his busi- 
 ness. The result of that is to more or less maintain the equilibrium 
 all the time. It does not establish and maintain prices absolutely, or 
 approximately even, because human nature is too weak for that, and 
 because there is no agreement to do so. It is understood that every 
 individual is free to enter into just as much competition as he pleases. 
 
 Now that, I do not think, and I have never believed heretofore, was 
 a violation of the Sherman law, and I am sure it did not result in undue 
 restraint of trade nor in the suppression of competition, but had the 
 opposite e~ ect. And I think that the competitors should be allowed 
 to cooperate in that way, and that there should be some commission, 
 with a representative, if you please, present at the meetings, knowing 
 exactly what was being said and done. 
 
 Now, this old style of competition, Senator Cummins, in my opinion, 
 and I believe in yours, because you have had long experience, was to 
 get your competitor's business away from him by hook or by crook, 
 and drive him out of business; drive the weak ones out of business. 
 Temporarily it resulted in cheap and low prices to the purchaser, but 
 in the long run it resulted in higher prices. It resulted in the con- 
 trol of the field by a few, certainly in locations. That was competi- 
 tion — that was the old style of competition. 
 
 Now, cooperation is a new style of competition. It is a fair com- 
 petition; it is an open competition. It is competition just the same. 
 And if it gets to the point where it is unreasonable either way, par- 
 ticularly where it is unfair, and results in hardship to the purchaser, 
 there ought to be a commission with the ability and with the authority 
 to say to that competitor, "You must come back, within safer and 
 better and fairer lines," and if necessary there must be a maximum 
 price established, so that the purchaser is protected. I do not know 
 that I make it very clear. I may be confused in my statements, but 
 not in my mind. 
 
 Senator Cummins. I think your statements are very clear. I have 
 no difficulty in understanding them. You believe that these general 
 understandings which arise out of the interchange of information as to 
 the business of each, and which invokes a sort of commercial honor, 
 ought to be innocent ? 
 
 Mr. Gary. Ought to be what ? 
 
 Senator Cummins. Ought to be innocent. And if they are unlawful 
 they ought to be made lawful — I think that that is your view ? 
 
 Mr. Gary. Well, I think that is a fair statement; they ought to be 
 legalized by the commission. In other words, it ought to be made cer- 
 tain that they are legal and are proper. 
 
 Senator Cummins. This sort of meeting or understanding which 
 you have described — does it leave everj^ man as he goes out from the 
 
818 HEARINGS BEFORE 
 
 meeting absolutely free to carry on his business in his own way and 
 charge his own price ? 
 
 Mr. Gary. It does, absolutely. And that is why I believe they 
 have been legal under the Sherman law. I think there must be an 
 agreement, express or implied, which deprives a man from going out 
 and competing just as he sees fit, in order to be a violation of the 
 Sherman law. But the Government bill is to the contrary. 
 
 Senator Cummins. You think that a meeting between two pro- 
 ducers which leaves each one of them free to sell his product at any 
 price he pleases, and as much of it as he pleases, or to produce as 
 much of it as he pleases, is not the equivalent of an agreement be- 
 tween the two to sell at a given price ? 
 
 Mr. Gary. I do. 
 
 Senator Cummins. The cooperation, therefore, of which you speak 
 is really decent, civilized competition % 
 
 Mr. Gary. I think so. 
 
 Senator Cummins. And you have no desire that the law shall be 
 changed so as to permit anybody at any time or under any circum- 
 stances to enter into a contract which will prevent that decent, civil- 
 ized competition % 
 
 Mr. Gary. No, sir. 
 
 Senator Cummins. I think in your direct examination you spoke 
 of an arrangement that might be made in the law, the tendency of 
 which would be to insure fair competition; namely, an even price to 
 all persons and to all localities at the factory of the producer. 
 
 Mr. Gary. Yes; I think that the result of that in the main would 
 be very beneficial. 
 
 Senator Cummins. As applied to big businesses, anyhow, that 
 would take away from the dominant producer in any particular field 
 one of the great weapons that it has to drive out what you might 
 call the localized competitor, would it not % 
 
 Mr. Gary. I think it would. 
 
 Senator Cummins. That is, for instance, if your corporation estab- 
 lished a price for steel bars in a certain locality and it was compelled 
 to sell at the same price in every locality, you would not probably 
 do it if you were going to lose very much money in the transaction % 
 Tbat is the idea? 
 
 Mr. Gary. That is the idea. 
 
 Senator Cummins. I gather from what you say that you would 
 favor giving the commission of which you have spoken the power to 
 say to any business concern: "Here is the law that compels you to sell 
 at an even price at a factory or point of production to all persons and 
 to all localities, and if you violate that law, we will take away from 
 you your license to do mterstate business." 
 
 Mr. Gary. Yes; unless in a given instance the commission found, 
 or should find, that the particular act or proposed act did not or 
 would not result in undue restraint of trade. So that passing from 
 that question, there should be the right of appeal by one party or 
 another to a court of competent jurisdiction. Twould make that the 
 rule. 
 
 Speaking of the theory in regard to prices, that I think should be 
 made an established rule of the commission; but I do not think I 
 would put it in the law. It seems to me the rule for the guidance of 
 the commission must be in the law. I believe you intimated that the 
 
COMMITTEE ON INTERSTATE COMMERCE. ,819 
 
 other day, and I have no doubt that is so. And the undue restraint 
 of trade, the free competition, is what all ought to desire — all well- 
 intentioned people ought to desire. That is, there ought to be a rule 
 of the commission. There might be an exception to it m a given case. 
 
 Senator Cummins. I see two very distinct fields for this subject: 
 One is, prices would be organized for the corporation itself; the other 
 is, its practices ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Cummins. I understand you think there ought to be a 
 commission that can determine, in the first instance, how much 
 capital a corporation should have and how it should be paid up. 
 That would, m a general way, determine whether the corporation as 
 it was proposed was a violation of the antitrust law ? 
 
 Mr. Gary. Not quite that* Senator. I would make it obligatory 
 upon the corporation to apply for and secure a Federal license. I 
 would give the commission the right to determine upon these ques- 
 tions which you suggest, but their decision must be based upon the 
 one rule as to whether or not the result of the decision would or would 
 not be an undue restraint of trade. 
 
 Senator Cummins. Precisely. And if the commission thought a 
 corporation like yours as organized in 1901 with $1,400,000,000 of 
 capital was so large that it would restrain trade in that particular 
 business it ought to say, "You can not have so much capital." 
 
 Mr. Gary. Yes, sir. With a right of appeal to the court before it 
 .is finally passed upon. 
 
 Senator Cummins. And I would go a little further. I want to 
 make that perfectly clear. The character of the articles of incor- 
 poration — I am not now speaking of an established concern, but for 
 the future — the articles of incorporation, and what they provide and 
 the safeguards they propose, all should be submitted to the commis- 
 sion, to find out whether a corporation so organized would be one 
 in undue restraint of trade. 
 
 Mr. Gary. Yes, sir; that is right. And the reason why I would 
 give this authority to this commission under the rule of law, as here- 
 tofore stated, instead of putting it in the act itself, is that if it is 
 attempted to amend the Sherman law by providing that a great 
 many different "things shall be unlawful and a great many others 
 lawful ; in other words, if it shall be attempted to define what is and 
 what is not an undue restraint of trade, the result would be to make 
 it impracticable to reach a fair measure of success, because you 
 would have to make it so stringent, in order to be sure you would be 
 safe, that the corporation would be very much handicapped. 
 
 Senator Cummins. However, if you were going to give the power 
 to any governmental tribunal you would have to take your chances 
 on the wisdom with which that power is exercised. 
 
 Mr. Gary. I think the commission and the court. Ought we not 
 to be willing to do that ? Ought not a corporation be willing to do 
 that? 
 
 Senator Cummins. I think you ought. 
 
 Mr. Gary. 1 do, too. I do not know that I am competent, but I 
 try to look at both sides of the question, because I do not believe 
 any corporation can permanently succeed in this country unless it 
 is willing to recognize all the time the public interest or public welfare . 
 
820 ■ HEARINGS BEFORE 
 
 Senator Cummins. I do not quite understand your notion about 
 an appeal to the court. I will give you a case, to apply it concretely. 
 
 Mr. Gary. Yes, sir. 
 
 Senator Cummins. Suppose you were organizing a corporation in 
 some business or other, and you propose a million-dollar capital to do 
 an interstate business, and therefore it applies to the commission, 
 which we will assume is in existence. The commission says: "We 
 can not give you a license upon a corporation with a capital of a mil- 
 lion dollars; it is too big for that business; it would be a restraint of 
 trade." And your idea is that there and then, and without any 
 further action on the part of the applicant, there shall be an appeal 
 to the court ? 
 
 Mr. Gary. Yes sir. 
 
 Senator Cummins. What would be the judicial question involved 
 in an appeal of that kind ? 
 
 Mr. Gary. The question as to whether or not that would result 
 in an undue restraint of trade. 
 
 Senator Cummins. Yes; but the courts can not, under our system 
 of government act as advisors; they can only pass upon the validity 
 or legality or innocence of an act done I did not quite understand 
 how you would get an appeal to the courts. 
 
 Mr. Gary. I think that the court has a right to pass upon just 
 that question, Senator. I am so advised, and I believe that that is 
 the law. I believe that a judicial question which the courts, under 
 the decisions have determined may be passed upon. 
 
 Senator Cummins. You would not have the corporation go on and 
 organize according to its own view of the law, and enter business 
 and then be prosecuted for a violation of the law ? 
 
 Mr. Gary. No; I would not. 
 
 Senator Cummins. You would want the court to pass upon it 
 before anything more than the proposition was made ? 
 
 Mr. Gary. Yes sir. 
 
 Senator Cummins. Or anything more was done than to make the 
 proposition ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Cummins. Does the United States Steel Corporation make 
 wire any cheaper than the American Steel & Wire Co. made it ? 
 
 Mr. Gary. I think it does, Senator. 
 
 Senator Cummins. In what does the economy or lessened cost of 
 production consist ? How does it arise ? 
 
 Mr. Gary. Well, there are a great many elements which enter into 
 that. We have been over that more or less, and I have no doubt 
 you are familiar with them more or less. 
 
 Senator Cummins. Well, the American Steel & Wire Co. was a 
 large corporation, a very large corporation, with $90,000,000 capital 
 or capital stock, I think. What economy, now, in the manufacture 
 of wire can be employed by the United States Steel Corporation that 
 was not capable of being employed by the American Steel & Wire Co. ? 
 
 Mr. Gary. Well, we are making improvements in our methods all 
 the time, Senator. We have made very remarkable progress in a 
 good many directions. It would be very difficult for me to tell you 
 in a short time what they are. But from the stripping the ground 
 to take the ore out of the ground by the use of shovels, down to the 
 point of actual delivery of the finished article, we have made a great 
 
COMMITTEE ON INTERSTATE COMMERCE. 821 
 
 many improvements and are making improvements. We have given 
 to the Commissioner of Corporations, of the Department of Commerce 
 and Labor, more or less information concerning these things. 
 
 Senator Cummins. I am not going into the details of it, but I ■ 
 want to know whether there is any improvement or development or 
 discovery that could not, in the ordinary course of production, have 
 been made or employed by such a company as the American Steel 
 & Wire Co. ? " 
 
 Mr. Gary. I would answer that in the affirmative, decidedly. I 
 am very sure that is true. 
 
 Senator Cummins. I can understand that if the American Steel & 
 Wire Co.. did not take its wire from the ore itself, but bought the ore 
 or bought the pig iron or bought the billets, it might have to pay 
 more than it cost your company to produce those same things. 
 
 Mr. Gary. I am not referring to that. 
 
 Senator Cummins. You are not referring to that ? 
 
 Mr. Gary. No; I am not referring to that at all. We are making 
 experiments all the time. We have employed and are employing 
 the very best talent. We are improving in- installing additional and 
 better machinery. We are sending our experts all over Europe in 
 order to ascertain what has been done and what is being done there. 
 We are developing new processes for utilization, as I said the other 
 day, of by-products, for the better utilization of raw products in 
 cases where it was very materially wasted. 
 
 We have what we call parallel columns, showing the costs of our 
 different products at the different locations, and those columns go to 
 the managers of our different works, and when they compare them, 
 of course, they all come together to find out why it is that the costs 
 are lower at one place than at another, and when they find out, then 
 they utilize the best methods at all the plants. But particularly in 
 the development of new processes. Our blast furnaces have been 
 very materially improved by long experiment and continued experi- 
 ment; our manufacturing mills of steel. For instance, we have been 
 developing the finishing of wire, the finishing of steel by electricity. 
 At Worcester we have put an electric furnace there at very large 
 cost, which a small company could hardly afford to do. We are 
 hoping to make, and I believe we shall make, a very fine quality of 
 steel. 
 
 Senator Cummins. You would not call a company with a capital .of 
 $90,000,000 a small one, would you 1 
 
 Mr. Gary. Well, we are carrying the subject of experimentation 
 very much further in wire than it was ever carried before or ever 
 could be carried by a small company. 
 
 Senator Cummins. Is what you have said of wire also true of the 
 other steel mills ? 
 
 Mr. Gary. Yes; it is true of all of them. 
 
 Senator Cummins. You are making steel rails now cheaper than the 
 old Illinois Steel Co. made them or the old Carnegie Co. made them? 
 
 Mr. Gary. I suppose we are. I am not certain that the cost of 
 steel rails, the mill cost of steel rails at the present time, is very 
 much lower then the best cost 10 years ago. The reason of that is 
 that labor is very much higher, nearly twice as high, but more particu- 
 larly because we are making a good deal better rail. 
 
822 HEARINGS BEFORE 
 
 In order to get a fine quality of rail it is necessary to have one that 
 is hard and yet at the same time is tough. Now, we make it hard 
 by the introduction of more carbon, but if we increase the carbon 
 and do not decrease the phosphorus it becomes more or less brittle and 
 breaks, and so we have improved very materially the quality of our 
 steel, and that is quite expensive. 
 
 Senator Cummins. Well, have you employed methods that could • 
 not have been employed by those other companies ? 
 
 Mr. Gary. I think we have gone very much further; I have no 
 doubt of it. 
 
 Senator Cummins. How large do you think, in the steel business, 
 a corporation ought to be in order to utilize all the economies which 
 are known in that business ? 
 
 Mr. Gary. I do not believe it is possible to fix that amount in the 
 law, but I do think it is possible that a commission being familiar with 
 the facts in detail from day to day could determine whether or not 
 the maximum 
 
 Senator Cummins. I do not think it is possible to fix it in the law 
 either, because it must vary from day to day, as various businesses 
 vary. 
 
 Mr. Gary. That is the point. 
 
 Senator Cummins. I think I have taken up enough time. I will 
 yield to some other Senator. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Judge, the other day in discussing the propo- 
 sition generally you spoke of the present greater necessity for large 
 accumulations of capital as compared with the conditions of years 
 ago, say a generation ago. The United States Steel Corporation was 
 organized in what year ? 
 
 Mr. Gary. 1901. 
 
 Senator Pomerene. Now, will you state what the conditions of the 
 trade were at that time which necessitated the larger aggregation of 
 capital, as compared with the conditions of the trade, say 4 or 5 or 8 
 or 10 years before ? 
 
 Mr. Gary. Well, preceding, say, the middle or latter part of 1898, 
 you know, there had been a great depression in business lor a number 
 of years. The business began to inprove, as I remember, along about 
 the latter part of 1898. Business grew pretty rapidly, and as the vol- 
 ume increased, of course, more capital was made necessary. During 
 the time preceding the revival in business, as I have stated, there had 
 been a great many failures in the iron and steel business. The Car- 
 negie Co. was the successful company. As I have said, they had more 
 money; they had large credit ; they had a splendid organization ; the 
 company was in the management of very able men, and they had built 
 up their corporation; they had a good location, and they had facil- 
 ities for doing business which others did not have, particularly in the 
 finishing lines, and their competitors to a large extent were not suc- 
 cessful; they were unsuccessful. 
 
 The Federal Steel Corporation was organized in the summer or fall 
 of 1898. It had a capitalization of $100,000,000, and was made up of 
 companies, and ore, transportation lines, coal, coke, and finishing 
 mills to some extent. I had something to do with the organization 
 of that company, as you know, and accepted the presidency of it. 
 The object of that corporation was to secure, if possible, a manufac- 
 
COMMITTEE ON INTERSTATE COMMERCE. 823 
 
 turing plant which should be self-contained; that is, which should 
 have every facility for manufacturing and distributing steel at the 
 lowest cost. We had ore and we had the facilities I have mentioned. 
 
 Now, those companies had a small export business, not very large. 
 All the companies which went into the United States Steel Corpora- 
 tion had an export business of about 390,000 tons. After the Federal 
 Steel Co. had been in existence a couple of years or so it was very 
 evident that we were limited in our opportunity to take care of the 
 growing trade of the country, and particularly of the export business; 
 and we were considering the advisability of raising additional capital 
 to build and equip finishing mills. I had that particularly under 
 consideration for about a year, and had formulated the plan for 
 raising capital. The securing of the money was rather slow; we had 
 not completed our arrangements, and it was at this juncture, at the 
 beginning of 1901, that it seemed to some of the business men that 
 we could form a combination of companies which would result in 
 securing a full, complete, rounded-out proposition for the manufac- 
 ture of steel at the very lowest cost, and the distribution of its prod- 
 ucts at the very lowest cost, and particularly to take care of the export 
 business, which seemed to promise very great success. The econo- 
 mies of owning the plants in the different parts of the country, 
 thereby avoiding the unnecessary transportation of products, and of 
 utilizing the talent we had to the very hest advantage, by reason of 
 information which could be received in one locality from any other 
 locality, was very apparent, and the United States Steel Corporation 
 was organized with the intention and for the purpose of producing at 
 the lowest cost and of distributing at the lowest cost and of increasing 
 the business, not only for this country but for export, in such a way 
 as to not injure but to benefit the purchaser — not to injure but to 
 benefit the employees — and simply for business purposes and in a 
 business way to do what I think has been done since it was organized. 
 I do not say that for the purpose of trying to make any defense for 
 the corporation, Senator, but I give you sincerely what was in the 
 minds of the business managers; and if we have not done that, if we 
 are not doing that, if we are of injury to anybody, I am willing to 
 concede, so far as I am personally concerned, that the Congress or the 
 courts ought to compel us to do it. In other words, if the United 
 States Steel Corporation has not been doing business in a business 
 way, and if it is not doing it now, I am willing to concede that there 
 ought to be a law to compel us to do it that way. 
 
 Senator Pomerene. Judge, I do not ask these questions by way 
 of criticism, but for the purpose of eliciting information, if we can, 
 which may be of value to us. 
 
 Now, pursue that question a little further. There were a given 
 number of plants taken into this larger concern. What was the 
 investment of those plants which were taken in, at a fair valuation? 
 
 Mr. Gart. You mean the original investment ? 
 
 Senator Pomerene. The original investment, yes; of the plans 
 that were taken into the concern. 
 
 Mr. Gary. I can not tell you that, Senator. I do not know. 1 
 haven't the figures here, and I have never had the figures; but I 
 would answer your question perhaps to your satisfaction in this way: 
 On the basis of the original cost of the properties involved, these 
 companies which were taken over and taken into the United States 
 
824 
 
 HEARINGS BEFORE 
 
 Steel Corporation were overcapitalized; there is no doubt about 
 that. On the basis of the original cost of the property, the United 
 States Steel Corporation was overcapitalized. In my opinion, on 
 the basis of the actual values of the properties at the time the United 
 States Steel Corporation was formed and the amount which it would 
 have cost to reproduce them if they could have been reproduced, the 
 corporation was not overcapitalized. Of course, I may be mistaken 
 about that. The Department of Commerce and Labor, through 
 the Commissioner of the Bureau of Corporations, has found that we 
 were overcapitalized $500,000,000 or $600,000,000, I believe it is. I 
 do not attempt to be strictly accurate as to the figures. But they 
 say in their report that in reaching that conclusion they make no 
 allowance whatever for the value of these properties put together as 
 a going concern, nor do they allow any value for the raw products 
 over and above what they originally cost, and they ignore the fact 
 that at that time, if the ore and coal properties could have been 
 reproduced, they would have made the valuation of the properties 
 amount up to about the capitalization, I think. 
 
 Senator Pomerene. How much new capital was put -into these 
 various concerns after the reorganization ? 
 
 Mr. Gary. You mean to ask the United States Steel Corporation ? 
 
 Senator Pomerene. I do not mean money which w'as paid to the 
 owners of these subsidiary companies, but the new capital which 
 went into this investment ? 
 
 Mr. Gary. As I remember, only $25,000,000 new money. That is 
 my recollection. 
 
 Senator Pomerene. Now, you speak of the developing of trade as 
 being one of the necessities that brought about this corporation. 
 Assume that your $25,000,000 had been added to the constituent 
 companies separately, what leads you to think that the United States 
 Steel Corporation as a unit was more capable of taking care of this 
 increased trade than the several companies composing it, if they had 
 continued their separate existence? Do I make myself clear? 
 
 Mr. Gary. Yes, I think you do. Perhaps it is more difficult to 
 answer the question than it is to ask it, but I would say the results — 
 what we believed would be the results, and the results. When I tell 
 you that those subsidiary companies, as we call them, in 1901 had an 
 export business of only 390,000 tons, which we have steadily increased 
 since until we have builded up to 2,000,000 tons or more, as I think it 
 is at the present time, there is a demonstration of what we believed 
 could be done and ought to be done. 
 
 We keep in the banks about $75,000,000; sometimes it runs down 
 to $55,000,000, and sometimes it is more than $75,000,000, perhaps 
 $80,000,000. We utilize that money like a central bank would utilize 
 money in supplying it where it is needed at the different localities from 
 time to time to take care of the particular business. We know by 
 experience that if these companies were operating separately, to do 
 the same business they would need at least twice as much money and 
 perhaps more. That is true of all the different departments of busi- 
 ness. A single corporation, with its organization and its talent is 
 reaching a measure of success in a certain direction, and another cor- 
 poration in another direction. What one does, all get the benefit of. 
 It is a concentration of effort. It would not be possible, I know by 
 experience, whether I can make it plain by words or not — I know by 
 
COMMITTEE ON INTERSTATE COMMERCE. 825 
 
 experience that this big aggregation enables us to utilize to better 
 advantage in every direction, in every department, all the talents and 
 all of the opportunities that can be found in the different locations, 
 and which could not possibly be utilized if there was a disintegration 
 of this great corporation. 
 
 Senator Pomerene. Well, but Judge, looking over the history of 
 the steel and iron trade, was not there a continued and substantial 
 increase of the output of these mills as separate organizations which 
 would compare very favorably with the output of the United States 
 Steel Co. mills? 
 
 Mr. Gary. I think not. 
 
 Senator Pomerene. Before this organization the mills in their 
 separate condition were able to take care of thier domestic trade 
 fully, were they not ? 
 
 Mr. Gary. Oh, no ; they would not have been able to take care of 
 it at times, the way it was growing, the way the country has been 
 developing. The companies of the United States Steel Corporation 
 have increased their capacity during 10 years from, say, 23,000 tons 
 or 24,000 tons a day to about 42,000 tons a day, and yet have not 
 increased their capacity anything like the way their competitors 
 have increased their capacity. 
 
 It shows, of course, that in order to take care of the growing trade — 
 export trade — it has been necessary to invest large sums of money 
 and very materially increase the producing capacity. I presume 
 Jones and Laughlin, for instance, have trebled their capacity during 
 that time, and others more than that even, of our competitors. If 
 you say that they were able to take care of the business prior to 1898, 
 for a period of five or six years, I say yes, because business was very 
 bad. 
 
 Senator Pomerene. The point I was seeking to make was this, 
 that if plants had been proportionately increased, why would they 
 not have been able to have taken care of this trade, that is, to use an 
 illustration, a dozen separate concerns, quite as well as the one large 
 concern which absorbed the dozen — assuming that to be so? 
 
 Mr. Gary. Well, I could not say that it could not have been pos- 
 sible for these companies, provided they had sufficient credit, to 
 increase their capacity sufficiently to take care of the domestic 
 business. I do not think they would have done it. I do not think 
 without such a big corporation as ours the consumers would have 
 been as well served or served at as low a cost. I am sure they would 
 not. 
 
 Senator Pomerene. Just one question on that line and I will con- 
 clude that part of it. Was this organization of the United Steel 
 Co. due to the then necessities of the trade, or was it the result of a 
 financial combination rather than a manufacturing combination ? 
 
 Mr. Gary. I conceive that to be a very pertinent and very proper 
 question, and I will give you an answer based on my knowledge and 
 experience. 
 
 There is not any doubt there were individuals connected with some 
 of the subsidiary companies, at least, and there may have been some 
 that were to some extent connected with the United States Steel 
 Corporation after it was organized by being directors, or otherwise, 
 who were to a greater or less extent influenced by financial consider a- 
 
826 HEARINGS BEFORE 
 
 tions. I was president of the Federal Steel Corporation. That cor- 
 poration was reaching considerable success. It was made up of com- 
 panies not co mpe ting. It was the largest corporation of that kind 
 at the time. We were putting into practice what has been carried 
 on since by the United States Steel Corporation. It was evident to 
 my mind, made clearer every day by actual and personal contact 
 with the business, that the company was too limited in its financial 
 resources, in its mills, in its diversities, in its organization, in its 
 operation and experiments and improvements, to adequately take 
 care of the growing business which was offered, and I was one of those 
 who was constantly urging the securing of large additional capital in 
 order to properly advance and carry on and protect this growing 
 business. The organization of the United States Steel Corporation 
 started with that movement and by those people and for those 
 reasons. 
 
 After Mr. Carnegie offered to sell to Mr. Morgan the Carnegie prop- 
 erties, Mr. Morgan sent his partner to me to go over the question. I 
 spent considerable time and agreed to meet Mr. Morgan on the follow- 
 ing day at the bank, which I did. He had submitted that proposition 
 for consideration. I told him I believed that would take the place 
 of raising large amounts of capital and put the Federal Steel Co. in 
 such condition as seemed to me to be necessary to reach the success 
 to which I have referred. I got together the leading directors of the 
 Federal Steel Co., Mr. H. Kogers, Mr. H. H. Porter, Mr. Marshall 
 Field, Mr. Norman B. Ream, and Mr. D. O. Mills, and presented 
 this question to them, and they agreed with me in a moment, but 
 during the day Mr. Morgan said to those people whose names I have 
 mentioned, "If you consider it a good business proposition, if you 
 can organize and carry on a company here which will result as you 
 have suggested, I am ready to undertake to finance it. I am ready 
 to form a syndicate and provide such financial support as will allow 
 it to be done." 
 
 That is where, and that is how and why the United States Steel 
 Corporation was started. In other words, the leading or controlling 
 motive of its organization, whatever may have been said or what- 
 ever may have been thought by some, was to form a corporation for 
 business purposes that should be of real substantial benefit to the 
 business interests of the country and not inimical to anyone. 
 
 Now, I do not deny that the syndicate which was formed realized 
 a large profit for their work and for the risk involved. I do not deny 
 that there were those who were very much interested in securing 
 financial benefit; but it is not right, it is not fair, and it is not in 
 accordance with the truth to say that it was a financial or a Wall 
 Street exploitation at all, and I believe that I am not immodest 
 when I say that from the time we started business to the present 
 time there has been no intentional act on our part which has shown 
 in the slightest degree anything different from what I have stated 
 here to have been the real object of the formation of that corpora- 
 tion. If there has been, I am very sorry for it. That is why I am 
 in this position to-day before this tribunal saying that if we are wrong, 
 if we are not sufficiently controlled, if we are of injury, or can be of 
 injury, it is only fair and right; and I would be the last to complain 
 of some law that would keep us in proper control and which will 
 protect the public interests. 
 
COMMITTEE ON INTERSTATE COMMERCE. 827 
 
 Senator Pomerene. Now, then, applying your testimony to the 
 question immediately— and my purpose was to lead up to this — 
 your judgment is, then, that it would be unwise for Congress to 
 attempt to limit by legislation capitalization of companies ? 
 
 Mr. Gary. I think it would. 
 
 Senator Pomerene. And you would leave that question, then, to 
 a commission, such as you have suggested ? 
 
 Mr. Gary. I would for the present, at least, until it got to the 
 point where I might change my mind or others might change. I do 
 not overlook the fact that there may be a limit. I sincerely believe 
 law makers and law administrators ought to have in mind all the 
 time this question of the great power of great wealth. What is 
 necessary is control. Unbridled license from anybody or any cor- 
 poration, or any individual, is a thing to be deplored — I do not 
 care whether it is rich men or poor men, whether it is employer or 
 employed. 
 
 Senator Pomerene. Now, Judge, the other day in discussing the 
 effect of the Sherman antitrust law you used an illustration to indicate 
 your belief in the unfairness of the law in this way : That where a pupil 
 does not know the rules it is unfair to strike him over the head with a 
 rule for looking out of the window. They first ought to be told. Now, 
 do you not think Congress told that pupil he ought not to look out 
 of the window when the law was passed ? 
 
 Mr. Gary. No; I do not. 
 
 Senator Pomerene. I would like to have that made clear. 
 
 Mr. Gary. The law said there should be no monopoly and there 
 should be no restraint of trade. It has been disputed almost ever 
 since what was a monopoly and what was restraint of trade within 
 the meaning of that law. The Knight case, with which you are fa- 
 miliar, made it very uncertain as to whether this manufacturing con- 
 cern came within the Sherman law at all. The interpretation and 
 application of the law have been the result of a changing sentiment 
 which has grown out of the necessities of conditions — great develop- 
 ment of the country and great increase in wealth. As I said the other 
 day, we recognized the fact some years ago — a good many years ago — 
 in fact, the time we started, that it would not be a good thing for the 
 public interests to continue the competition and the kind of compe- 
 tition which existed in some, if not most, of the companies which were 
 taken over by the United States Steel Corporation, because if we did 
 the necessary result would be to drive out competitors, just as the 
 result of Mr. Carnegie's competition drove out of business many, many 
 competitors. I am not criticizing that at all. It was what everyone 
 urged and thought ought to be done. It was the doctrine of the sur- 
 vival of the fittest. But, on the other hand, if we were to establish 
 and maintain such relations with our competitors as would enable 
 them to get along with us, whether they had as much money or as 
 great facilities or not, whether they could install the very latest de- 
 vices or not and have the very best talent or not, if we should coop- 
 erate with them to the extent of enabling them to do business at a 
 fair profit, we approached the danger line, which has been suggested 
 in the inquiry of Senator Cummins, of doing something which might 
 restrain trade. We have been within those two positions in the 
 application of the Sherman law. There was danger to the corpor»- 
 tion. 
 
828 HEARINGS BEFORE 
 
 Therefore, in its application, I do not believe the law was quite 
 fair, or is quite fair, to the corporations at the present time.. It is 
 not practical; it is not adequate — adequate to meet present condi- 
 tions. That is what I said. I have nothing to say against the Sher- 
 man law, you understand. 
 
 Senator Pomerene. I understand. 
 
 Mr. Gary. But I tell you sincerely, speaking from my own personal 
 standpoint, that I have had this responsibility largely — and it has 
 been a pretty heavy burden to carry— -that I have not known exactly 
 what was the right thing to do in the last few years. 
 
 Senator Pomerene. Well, Judge, you have been a practicing 
 lawyer as well as a judge on the bench. Has it not been your expe- 
 rience that in all legal matters that came before you as a lawyer, you 
 could advise certain clients positively as to a given fact, either that 
 it was wrong or that it was right, and that there are other certain 
 occasions where there is a certain danger line? Now, what reason 
 is there for wanting a board to advise you in advance as to whether 
 a given case comes within the provisions of the Sherman law which 
 does not apply at least with equal logic to every other business trans- 
 action which may arise ? 
 
 Mr. Gary. My answer first is that if Congress can enact any legis- 
 lation which shall remove the uncertainties of the questions you have 
 referred to as being uncertain, even in the mind of a lawyer, it ought 
 to do so. 
 
 Senator Pomerene. I agree with you that if there are any uncer- 
 tainties they ought to be made as certain as it is possible for human 
 intellect to make them. 
 
 Mr. Gary. Now give me the latter part of your question. 
 
 Senator Pomerene. I beg your pardon. 
 
 (The reporter read as follows :) 
 
 Now, what reason is there for wanting a board to advise you in advance as to whether 
 a given case comes within the provisions of the Sherman law which does not apply at 
 least with equal logic to any other business transaction which may arise. 
 
 Mr. Gary. I would like to have you put yourself in my place for the 
 purpose of considering that question. No man of your experience or 
 mine is desirous of conducting large business with a feeling of uncer- 
 tainty as to whether or not what he proposes to do may be criticized 
 by the Department of Justice, or even by public sentiment. We 
 would rather feel certain in advance,, if we can, whether or not what 
 we proposed to do is the right thing to do and the legal thing to do. 
 You must realize, I am sure, that the position I have taken here is 
 rather extreme from the standpoint of a corporation. Certainly, it is 
 different from the opinions of the old regime, who believed that a cor- 
 poration was private and the public had no interest in it. I think, in 
 our progress in business lines, we have got beyond that position. As 
 I stated here the other day, our corporation is so large that I consider 
 it a quasi public corporation. I do not use that in a technical sense, 
 of course. It is a big corporation, affected with the public interest, 
 as some of the courts, I think, have determined. 
 
 We want to do business successfully; but it is no pleasure to be 
 connected with business where there is danger of doing something that 
 may justly be criticised, and so, when, for myself, occupying my posi- 
 tion, I express a willingness to subject a corporation to a governmental 
 commission, subject to review by the courts in such way that, as I 
 
COMMITTEE ON INTERSTATE COMMERCE. 829 
 
 thinky the public can not be injured by the conduct of its affairs, it 
 seems to me there must be some good reason for it, and that it is a suf- 
 ficient reason to say that we recognize not only the justice of it, but the 
 necessity of it, in order to do business successfully and yet peacefully. 
 
 I do not know whether that is an adequate reply to your question. 
 
 Senator Pomerene. I understand your position. Have you at- 
 tempted to block out anj? bill which would express clearly the powers 
 that you would give this commission ? 
 
 Mr. Gary. No, sir; except in my own mind. I am very certain it 
 can be done — very certain it can be done — to enact a bill that is legal, 
 and is constitutional, and is adequate. 
 
 Senator Pomerene. I wish you would state the provisions that you 
 have in mind ? 
 
 Mr. Gary. I have already given them. 
 
 Senator Pomerene. I know. Is there anything further than that ? 
 
 Mr. Gary. Do not ask me to do that, because that is 
 
 Senator Pomerene. I understand. Have you anything further in 
 mind ? I realize that this is all tentative. 
 
 Mr. Gary. I have once stated the principles, but I have a good deal 
 in mind concerning it. But I want to be very definite. If you are 
 going to ask me to prepare a bill, let me prepare it with a great deal 
 of care. 
 
 Senator Pomerene. I understand that whatever you may say is 
 merely tentative and subject to change. 
 
 Mr. Gary. I do not like to do that. 
 
 Senator Pomerene. Now, I will waive that. You instanced a 
 moment ago the panic of 1907 as being a time when this commission 
 should have been empowered to ratify agreements — trade agree- 
 ments — I am not using your language, but that was the substance of 
 your statement, was it not, to fix prices ? 
 
 Mr. Gary. Well, that is your statement of my statement, which I 
 might construe one' way and you another. I do not want to be 
 technical about it. 
 
 Senator Pomerene. I was simply referring to that part of your 
 testimony. 
 
 Mr. Gary. I think there might be times when the commission 
 would think that the entering into an agreement would be not a 
 restraint of trade, but rather would be a promotion of trade. Now, 
 for instance, I am not sure, but I believe it possible, that we could 
 arrange at times with our competitors in European countries for such 
 a division of territory involving neutral ports as would enable us to 
 materially expand our business. I am not sure that we are pro- 
 hibited from doing it by the Sherman Act, but it is questionable, I 
 believe. If we had the right, acting under the direction of a com- 
 mission, to present that question at periods, giving them all the cir- 
 cumstances, I think we could bring millions of money into this country 
 and furnish -employment to thousands of men, and without injuring 
 anybody. 
 
 Senator Pomerene. I do not want to interrupt your statement, 
 but my purpose in calling your attention to the matter was to ascer- 
 tain whether, in your judgment, Congress, by legislation, should 
 attempt to prescribe the times and conditions when these trade 
 agreements could be legalized or ratified, or should they be left to 
 the commission ? 
 
830 HEARINGS BEFORE 
 
 Mr. Gary. I think it should be left to the commission, tying them 
 down to the basis where it should be, that there must not be an undue 
 restraint of trade. They should base their act, or their decision, 
 upon that question, with the right on the part of the court to say 
 whether they erred or not. 
 
 Senator Pomerene. Would you pen that in by any further restric- 
 tions ? 
 
 Mr. Gary. I do not think I would. I certainly would not if Con- 
 gress is satisfied that that would adequately protect everyone. Of 
 course I do not mean to get away from or modify the statement which 
 I made here the first day. The supplemental law would have to 
 provide for some of the rules to be adopted by the commission, such 
 as uniformity of prices, etc.; that there must be publicity, and 
 various other things that were suggested in that paper, but as to the 
 rule for the conduct of the commission, the decisions of the com- 
 mission outside of what I have just suggested, I do not think I would 
 put it in the law. That, perhaps, ought to be studied a little. I left 
 that, you know, somewhat upon my statement, but there might be 
 other things. 
 
 Senator Pomerene. I think that is all I care to ask. 
 
 The Chairman. Senator Brandegee, do you care to ask any 
 questions ? 
 
 Senator Brandegee. Judge, what proportion of exports of foreign 
 business does your company do ? 
 
 Mr. Gary. I suppose 95 per cent of it. 
 
 Senator Brandegee. What proportion of domestic trade % 
 
 Mr. Gary. I think at the present time, on an average, about 48 per 
 cent. 
 
 Senator Brandegee. Can the independent steel companies who 
 compete with you manufacture the product as cheaply as your 
 company ? 
 
 Mr. Gary. I think not. 
 
 Senator Brandegee. Have you any idea what the difference 
 would be ? Does it vary with the different independent companies ? 
 
 Mr. Gary. It varies with the different independent companies. 
 I believe we can manufacture it at lower cost than any of them, and 
 a good deal lower cost than some of them. 
 
 Senator Brandegee. Then you could undersell any one of them 
 if you wanted to and still make a profit ? 
 
 Mr. Gary. I think so. 
 
 Senator Brandegee. Now, when these companies that were put 
 together in the so-called Steel Trust were competing among them- 
 selves, were they all making a profit ? 
 
 Mr. Gary. At times yes, and at other times no. The old rule was, 
 when the demand was less than the supply, to cut prices and go down 
 to cost or below cost; and then at other times, where the necessities 
 of the purchasing public were great, the demand was correspondingly 
 great to put their prices as high as the purchaser would stand. 
 
 Senator Brandegee. Generally, for a period of five years before 
 the formation of the trust, were the conditions in the steel industry 
 stable or unstable 1 
 
 Mr. Gary. Unstable. 
 
 Senator Brandegee. You eliminated the competition between the 
 constituent members of your corporation, did you not ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 831 
 
 Mr. Gary. We did, in the sense you use it. There was a good- 
 natured competition, you understand, all the time to see which could 
 get the most business legitimately, and which could secure the lowest 
 cost, and all that sort or thing. 
 
 Senator Brandegee. Well, is there competition now among your 
 subsidiary companies in the same way that there was before the Steel 
 Trust was organized ? 
 
 Mr. Gary. There is not. 
 
 Senator Brandegee. Do you claim that you are not in unrea- 
 sonable restraint of trade, so far as the Steel Trust is concerned ? 
 
 Mr. Gary. We do. 
 
 Senator Brandegee. Do you claim that you are not in restraint of 
 trade at all? 
 
 Mr. Gary. We do. 
 
 Senator Brandegee. And yet you say you have eliminated com- 
 petition with each other? 
 
 Mr. Gary. When the United States Steel Corporation was formed 
 there is no doubt competition between the different companies, or 
 some of the different companies, was to some extent eliminated, but 
 in so far as competition was thus eliminated it was incidental. You 
 know, of course, that our object was to secure a diversified line of' 
 business as well as a rounded-out plan. For instance, I have hereto- 
 fore stated just what the competition was, but the different sub- 
 sidary companies were not generally competing with one another. 
 The tube company made tubes and what goes with tubes; the wire 
 company, wire and what would go with wire; and sheets the same, 
 etc., all around. There was some competition. The Illinois Steel 
 Co. and the Carnegie Co. were competitors in the manufacture of 
 rails, and there was a little other competition, but not so very much. 
 
 Senator Brandegee. Is this a fair statement of it, that in some 
 cases the subsidiary companies of your concern manufactured the 
 same things, or some of the same things; in other words, they over- 
 lapped to a certain extent in their production ? 
 
 Mr. Gary. That is true. 
 
 Senator Brandegee. And when you went into the trust, so-called, 
 instead of putting in new money that you say was necessary to 
 develop these individuals to their fullest capacity, you were enabled to 
 render certain common service to each one — that is, the whole concern 
 was? 
 
 Mr. Gary. That is true. 
 
 Senator Brandegee. What is the total railroad mileage that your 
 company controls ? 
 
 Mr Gary.' I have forgotten now. I have the figures. 
 
 Senator Brandegee. Is it stated in the Government bill ? 
 
 Mr. Gary. I presume it is. I am not certain. 
 
 Senator Brandegee. Have you the bill here ? 
 
 Mr. Gary. No, sir; I have not. If you will let my assistant give 
 me my report I can give you that. Eailroads, altogether, main line, 
 948 miles; branches and spurs, 710 miles; operated under track- 
 age rights, 376 miles; second tracks, 350 miles; and sidings, 920 
 . miles. Nine hundred and forty-eight miles covers your question, I 
 
 suppose. . , , , , ^ • n 
 
 Senator Brandegee. Have you any idea how much oi this mileage 
 was controlled by the subsidiary companies before they came into 
 the Steel Corporation ? 
 
 22877— vol 1—12 53 
 
832 HEARINGS BEFORE 
 
 Mr. Gary. I have not, but the larger part of it by different com- 
 panies. 
 
 Senator Brandegee. I do not care to ask you any question if you 
 do not care to answer it. I realize of course that you have a suit in 
 court, and if I ask you anything that you do not care to answer, you 
 may say so. I see in the papers that you have cancelled the Mesaba 
 ore lease.. 
 
 Mr. Gary. The Hill lease, so called. 
 
 Senator Brandegee. Yes. How large a proportion of your ore 
 held by the corporation is supposed to be canceled ? 
 
 Mr. Gary. The report of the Commissioner of Corporations esti- 
 mates that quantity at 500,000,000 tons. On that basis it would 
 be about 25 per cent, I suppose, of our northern ores. I think that 
 estimate is rather large, perhaps. 
 
 Senator Pomerene. I did not get that percentage. 
 
 Mr. Gary. Twenty-five per cent. 
 
 Senator Brandegee. Now, you need not answer this unless you 
 care to do so, but do you care to state the reasons why you are can- 
 celing the so-called Hill lease ? 
 
 Mr. Gary. There were two reasons — of course, I speak for myself. 
 •I am only one of 24 directors, I think. I had doubts as to the 
 advisability of continuing the lease for business reasons. 
 
 Senator Brandegee. I simply meant to inquire whether it was 
 because in your judgment it would be profitable financially, or because 
 it might be legally embarrassing ? 
 
 Mr. Gary. I was really going to give both reasons. This lease had 
 been criticized by the Department of Commerce and by the Stanley 
 committee. It had been criticized to some extent, and we have been 
 generally pretty willing to recognize the wishes of the governmental 
 departments. Ever since the company was organized I have tried 
 to keep the Government, through the different departments, advised 
 as to what we were doing, and, so far as I could, sought advice. 
 While the Government made no suggestion that we should cancel 
 this lease, yet there were criticisms, as you probably have seen in the 
 papers, and I believed we ought to recognize that. 
 
 Senator Brandegee. Supposing it should be decided by the courts 
 that the Steel Corporation was not in reasonable restraint of trade, 
 but should be dissolved; supposing it should be ordered to dissolve 
 into three sections, say transportation business in one corporation, 
 raw material, the ore, in another, and the manufacturing and factory 
 department in a third, what in your judgment would be the effect 
 upon the price of steel products to the consumer as compared with 
 present prices ? 
 
 Mr. Gary. I think the effect would be to increase those prices 
 because cost would be increased. 
 
 Senator Brandegee. You think, then, the public gets better ser- 
 vice, if I understand you, better goods at cheaper prices under the 
 present system than they would under the division as I have indicated ? 
 
 Mr. Gary. I do. I have no doubt of it. 
 
 Senator Brandegee. And the further the subdivision was carried, 
 in your opinion, the worse it would be for the consumer ? 
 
 Mr. Gary. The worse it would be for the consumer. 
 
 Senator Brandegee. Suppose you were back in the situation that 
 you were before you organized the Steel Corporation, and supposing 
 
COMMITTEE ON INTERSTATE COMMEECE. 833 
 
 your plan of a commission was in legal existence, and you should 
 come before the commission with the request that you should be 
 allowed to form the Steel Corporation as you have done, do you think 
 they would grant it ? 
 
 Mr. Gary. I think they would. 
 
 Senator Brandegee. And if they did not, you would want the right 
 of appeal to the courts ? 
 
 Mr. Gary. Oh, yes sir. 
 
 Senator Brandegee. What court would you suggest 1 
 
 Mr. Gary. I do not see why the Commerce Court — if that is the 
 technical name for it — would not be the proper court. 
 
 Senator Brandegee. Now in case of appeal like that, if the com- 
 mission declined to give you the license required on the ground that 
 it was in their judgment an agreement or combination in undue or 
 unreasonable restraint of trade, and you should appeal to the court 
 and the court should decide that it was not unreasonable restraint of 
 trade, would you have the court mandamus the commission, or order 
 the commission to grant it in spite of their own judgment ? 
 
 Mr. Gary. Yes, certainly. 
 
 Senator Brandegee. Then you would be willing to be placed under 
 the control of that commission right along as to your practices and 
 capitalization, et cetera? 
 
 Mr. Gary. I would, yes sir. Because a man does not agree with 
 me is no evidence of his not being an honest or an able man, or does 
 not agree with the court itself. 
 
 Senator Brandegee. Not at all. Now what would you say if we 
 should create this commission, and your present Steel Corporation 
 should apply to it for a Federal license, as to the power of the commis- 
 sion to say to you that you must squeeze all the water out of your 
 securities before the Government would give you a Federal license, or 
 else go out of interstate business ? 
 
 Mr. Gary. I think the commission should have to decide that ques- 
 tion on the ground that otherwise there would be an undue restraint of 
 trade, and that question should be submitted to the courts, if we dis- 
 agreed. 
 
 Senator Brandegee. How would the question of whether your 
 original stock had been paid for in cash or property at the time of the 
 organization of the Steel Trust, have any bearing upon whether 
 you were now in restraint of trade or not ? 
 
 Mr. Gary. I do not know that it would have any. If not, there 
 ought not to be any forced deductions. If you will allow me to say 
 this, I think there should be a difference drawn between a corporation 
 which has been in existence and one which is about to be formed. It 
 does not seem to me quite fair— fair, if it is legal— for even a Govern- 
 ment to permit a corporation to be formed and to exist for 11 years 
 when all the facts are known to the public and to the Government, 
 and after the securities, the stocks, of the company have been so dis- 
 tributed that the company is owned by 150,000 or more people, to say, 
 "Now, that capital stock is too large and should be reduced "—unless 
 in a very extraordinary case. The difference is not so very important, 
 but the commissioner has found that the present value of our properties 
 is between eleven and twelve hundred million dollars as against a 
 capitalization of fourteen hundred millions, is it ? Senator Cummins 
 gave the figures this morning. 
 
834 HEARINGS BEFORE 
 
 Senator Cummins. Originally fourteen hundred millions. 
 
 Mr. Gary. There is not so very much difference in his report, and 
 when you take into consideration the fact that in reaching that con- 
 clusion he put the ore at only the value of original cost, whereas' 
 everyone understands perfectly well that if we were buying ore now 
 we would have to pay many times what it originally cost. But that 
 is getting away from your question. 
 
 Senator Brandegee. What I wanted to get was, in view of all these 
 facts that you have stated, whether you would advocate giving to this 
 commission the power to say to the existing corporations who might 
 apply for a license that they might be refused unless they should call 
 in such part of their capital stock and cancel it as had not originally 
 been issued for cash or its equivalent ? 
 
 Mr. Gary. It would not be right to allow that unless absolutely 
 necessary, in new of the reasons I have given. Still, I would give 
 them that right, if the commission could show to a demonstration 
 that it would unduly restrain trade to permit it to go on. That would 
 be a question to be determined by the court on the merits. 
 
 Senator Brandegee. I do not know the facts about this 
 
 Mr. Gary. At the same time I must concede that the suggestion 
 which you make is very forcible, that probably it would not have any- 
 thing to do with it. 
 
 Senator Brandegee. I do not know the facts as to what propor- 
 tion the so-called water was in the common stock of the steel corpo- 
 ration, but it is common talk that it was all watered at the time it 
 was issued. Now, assuming that the commission should take that 
 view and should order you to call in your capital stock, because it 
 had not been originally paid for in easn or its equivalent, before they 
 would give you a license, how could you do it ? What method would 
 you take of complying with the order ? 
 
 Mr. Gary. That is a question that I would propound to the com- 
 mission, if they should suggest it. 
 
 Senator Brandegee. Suppose the commission says, ' 'That is the 
 order; now it is up to you to execute in your own way," would it be 
 possible for you to go into the market and buy in your entire capital 
 stock ? 
 
 Mr. Gary. I do not think it would; it does not seem to me that it 
 would. There really ought to be a distinction between corpora- 
 tions in existence and those which are to be formed hereafter. Really, 
 that is your point, and of course it is forcible. 
 
 Senator Brandegee. Have you read Mr. Untermyer's testimony 
 before the committee ? 
 
 Mr. Gary. I have not. I saw just a little of it. 
 
 Senator Brandegee. He was in favor, if I recall his testimony, of 
 giving the commission authority to authorize trade agreements and 
 fix prices. Now, I understand you are in favor of that substantially — 
 the fixing of a maximum price. 
 
 Mr. Gary. Under certain circumstances, and in a modified way, 
 and tying it up to the question of undue restraint of trade. What I 
 have suggested I think has not been suggested before. I think it 
 furnishes a basis which has never been suggested. That is what has 
 troubled me, and has troubled others, I have no doubt. 
 
 Senator Brandegee. What furnishes a basis ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 835 
 
 Mr. Gary. The question as to whether or not what is proposed to 
 be done would result in undue restraint of trade. 
 
 Senator Brandegee. Now, supposing in the panic of 1907 you 
 could come before such a commission as that and ask to have an 
 agreement fixing prices, a maximum price, approved and authorized 
 by the commission, and they should deny it, and you should have 
 the right to appeal to a court. Does it seem to you that you would 
 likely get a decision on a case tried on appeal before the appellate 
 tribunal in time to have any effect on the panic ? 
 
 Mr. Gary. There ought to be some provisions to guard against 
 that. 
 
 Senator Brandegee. Would not the remedy come too slowly to 
 be of any service to you ? 
 
 Mr. Gary. It would not. Under such circumstances as that the 
 case ought to be advanced and decided very speedily and would be, 
 in such times as we had in 1907, in the courts. 
 
 Senator Brandegee. You would have to argue your case before 
 the court and put in your testimony, would you not ? 
 
 Mr. Gary. Any court appreciating the conditions which existed 
 at that time would dispose of the case within five days. 
 
 Senator Brandegee. What exactly did you mean by a flat-price 
 competition ? I did not understand it. 
 
 Mr. Gary. I did not use that expression. 
 
 Senator Brandegee. I was under the impression that Senator 
 Cummins was asking you about the fixing of a flat price, or the mill 
 price, for your products. You favored, as I understood it, fixing a 
 flat price for delivery at the mill. Now, if there was such a flat price 
 fixed, how would there be any competition if they were all charging 
 the same price for the same kind of article at the mill ? 
 
 Senator Townsend. That was not the proposition. 
 
 Senator Brandegee. I am trying to clear it up. What did you 
 say about the fixing of a flat price at your mills, or what is your idea 
 about it if you do not recall what you stated % 
 
 Mr. Gary. If a manufacturer, a corporation, was compelled to sell 
 at the same mill price to all its customers of course the effect of that 
 would be to furnish adequate protection in all localities and would 
 prevent the manufacturer from selling in one locality at such a rate as 
 to drive its competitor out of business in that particular location. It 
 would be of general benefit, no doubt, to the trade. It would not 
 prevent the manufacturer from reducing its price, but if it reduced its 
 price it would have to reduce it everywhere, and it might be that one 
 corporation, having a very decided advantage over other corporations, 
 could at times, for a period, put its price very low and injure its com- 
 petitors very much, and in that way secure control of the field and 
 then put its. prices up as high as it pleased. 
 
 Senator Brandegee. Now, if that is so, and it seems to me it may 
 be so — why would it not be necessary for the commission to fix the 
 minimum price as well as the maximum price ? That is, when they 
 approve an agreement that they should not charge more than a certain 
 price, why should they not prevent the fellow in control of the market, 
 or the biggest one, from putting prices down to such a ruinous point 
 as to drive his rivals out Dy underselling them in that way % 
 
 Mr. Gary. Of course, corporations would be glad of that. I do not 
 know that it is necessary. I have not urged and have not suggested 
 because it might be considered selfish from my standpoint. 
 
836 HEARINGS BEFORE 
 
 Senator Brandegee. I think some of them would be very glad and 
 some might not. 
 
 Mr. Gary. Well, perhaps so. 
 
 Senator Brandegee. That is all I care to ask. 
 
 The Chairman. The committee will now take a recess until 2.30 
 o'clock p. m. 
 
 (Accordingly, at 1 o'clock p. m., the committee took a recess unti 
 2.30 o'clock p. m.) 
 
 AFTER RECESS. 
 
 The committee met at 2.30 p. m. 
 
 The Chairman. The committee will please come to order. 
 
 STATEMENT OF ELBERT H. GAEY— Resumed. 
 
 The Chairman. Senator Gore, you may proceed. 
 
 Senator Gore. Judge Gary, the questions that I desire to ask you 
 go more to the efficacy or inefficacy of the present law. But I want 
 to ask first if you have carefully considered the opinions of the court 
 in the Standard Oil and Tobacco cases ? 
 
 Mr. Gary. I have considered them; I have read them, and have 
 given them thought. 
 
 Senator Gore. Have you considered the decrees of the court and 
 the plan for the reorgamzation of those concerns ? 
 
 Mr. Gary. To some extent. 
 
 Senator Gore. Have you considered the probable effect of those 
 decrees 1 
 
 Mr. Gary. To some extent.. 
 
 Senator Gore. I want to ask you if you think the decision and the 
 decrees will restore competition between the integral companies 
 which formerly constituted the Tobacco and the Standard Oil Trusts- 
 so-called trusts ? 
 
 Mr. Gary. I hope so ; but the question is involved in some doubt. 
 
 Senator Gore. You think there is some doubt as to whether it does 
 or does not restore competition ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Gore. Then you would, of course, think there was an 
 equal doubt as to whether the reorganization, when effected, would 
 reduce the price of oil and the price of tobacco ? 
 
 Mr. Gary. I think there is a doubt. I do not mean temporarily, 
 but I mean permanently. I suppose that is what you refer to. 
 
 Senator Gore. Do you not think that any legislative enactment, 
 or any judicial decree, that does not reduce prices, the price of the 
 trust-made goods, will do very little good ? 
 
 Mr. Gary. It depends upon whether the prices are fair. 
 
 Senator Gore. Assuming that the trust or the monopoly restrains 
 competition and restrains trade. In other words, of course a monop- 
 oly that does not advance prices or maintain them higher than they 
 would be maintained under a system of competition, does very 
 little harm — is that not right ? 
 
 Mr. Gary. I would answer your question by saying that any law 
 which does not prevent monopoly and restraint of trade and higher 
 prices is not adequate. 
 
COMMITTEE OH" INTERSTATE COMMEECE. 837 
 
 Senator Gore. Of course, a monopoly that would not advance 
 prices or that does not maintain prices higher than they would be 
 under a competitive system does very little harm as a monopoly, 
 > does it not ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Gore. That is the one evil, the higher prices, as I under- 
 stand it. What the people want is lower prices, and if they do not 
 get lower prices out of it, they get very little out of it, do they not? 
 
 Mr. Gary." That is the principal question. I do not know that 
 it is the only question, because I think very low prices, which would 
 drive decent men and companies and competition out of the field, 
 ought to be prohibited. 
 
 Senator Gore. No doubt of that — cutthroat competition. I am 
 glad you suggested that, because I would like to get your view as to 
 the question that was raised here yesterday. When a*ny concern, 
 company, or corporation reduces a price so extremely low in a com- 
 munity, with the apparent if not the avowed purpose of driving a 
 competitor out of business — what do you think of the laws in Iowa and 
 Minnesota which require them to sell at the same price, plus the 
 freight ? 
 
 Mr. Gary. I think favorably of the law. 
 
 Senator Gore. You think that would tend to restrain that sort of 
 cutthroat competition? 
 
 Mr. Gary. I do. 
 
 Senator Gore. And preserve the existence of the competitor? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Gore. Judge Gary, do you think there is any way by law 
 to compel people to compete who do not want to compete ? 
 
 Mr. Gary. I do not. 
 
 Senator Gore. And all efforts in that direction have always been 
 in vain and always will be in vain ? 
 
 Mr. Gary. I think so. 
 
 Senator Gore. In answer to Senator Cummins you said you thought 
 the representatives of different competing concerns ought to be allowed 
 to meet and discuss business conditions, business prospects, and sim- 
 ilar subjects, with a view to furthering the business of legitimate 
 concerns ? 
 
 Mr. Gary. Yes; I did. I think the tendency in such cases is to 
 maintain the equilibrium of trade, which furnishes steady and con- 
 tinuous employment to working people, and puts the consumer or 
 purchaser in a condition of trade where he can protect himself. The 
 wide and sudden fluctuations in prices, as you know, are very hurtful 
 to the consumer himself, because even though he may purchase at a 
 very low cost to-day, if his competitor in business purchases the same 
 commodity to-morrow or next week at a lower price, then he is placed 
 at a disadvantage. 
 
 Senator Gore. Yes. It multiplies the evil. As I understood you 
 to say to Senator Cummins, you thought in those cases that the people 
 would depart from these meetings with the right to compete ? 
 
 Mr. Gary. Certainly. , , , , i 
 
 Senator Gore. Do you not think they would at least be under an 
 implied obligation not to exercise the right ? . . 
 
 Mr. Gary. No. But still I think there would be certain implied 
 obligations— the obligation of doing business fairly, honorably. For 
 
838 HEARINGS BEFORE 
 
 instance, if two competitors met in that way and secured and main- 
 tained a relation of business friendship, I think either one would be 
 disinclined to get the business of the other away by unfair, means, 
 by misrepresentations. More than that, I think he would be under 
 obligations when he changed, and after he changed, or after he had 
 decided to change his prices, he would be in honor bound to notify his 
 competitor, so as to put him in the position of taking care of himself. 
 There are certain things that we know can be done and have to be 
 done in order to maintain the equilibrium of trade which are not 
 illegal, certainly not in intent. But I need not tell this committee 
 that there has been competition that was so unfair, so dishonest, so 
 tricky, so secret as to be very harmful to business men generally. 
 
 You see, any substantial competitor can keep prices down, but he 
 can not keep them up. And when a customer is in the position that 
 secret methods are resorted to, he does not know which way to turn 
 or what to do for himself. 
 
 As I remarked the other day, we have letters from many of our 
 customers asking us to do what we legitimately could to maintain the 
 equilibrium of trade. 
 
 I had a long letter — I meant to put it in my pocket, as I thought it 
 would be interesting. I had a long letter from some manufacturing 
 concern in Detroit who said he was a purchaser of our corporation to 
 the extent of many hundreds of thousands of dollars' worth of goods a 
 year, and that our influence on the trade conditions generally, keeping 
 prices from going too low suddenly and from going too high, had been 
 of immense benefit to him as a purchaser, and he gave the reasons. 
 
 That explains what I mean. There is a right way of competing, a 
 fair way of competing. 
 
 Senator Gore. That brings up the thought that you suggested a 
 moment ago about the prevention of cutthroat competition — requiring 
 uniform prices plus the freight. You suggested that you could keep 
 down the prices, but you could not keep them up. That would have 
 a tendency, I believe, to deter your competitor from going too far, at 
 least too fast. 
 
 Mr. Gary. I think it would, because it would affect his whole line, 
 his whole business. 
 
 Senator Gore. Now, that and the cooperation to which you 
 referred this morning — do you think of any other suggestions to 
 restrain that sort of competition ? 
 
 Mr. Gary. I do not think I understand your question. 
 
 Senator Gore. The law alluded to in Iowa and Minnesota requires 
 them to sell every where at the same price, plus the freight. That is 
 one method of restraining unfair and vicious competition. The other, 
 as I inferred, was the meetings to which you have alluded, and the 
 cooperation of business concerns, to which you also made reference. 
 
 Mr. Gary. Now, you ask me if there are any other things which 
 ought to be insisted upon ? 
 
 Senator Gore. I was wondering if you had any other suggestion in 
 your mind to restrain unfair competition. 
 
 Mr. Gary. I have given some suggestions here. I think this 
 question of capitalization is a very important question. An over- 
 capitalized concern has more or less of a temptation to secure an 
 undue proportion of business, at unfair and unreasonable prices. 
 I think that is very important. There may be many other conditions 
 that ought to be insisted upon. 
 
COMMITTEE ON INTERSTATE COMMERCE. 839 
 
 Senator Gore. Do you not think that overcapitalization makes a 
 dividend appear reasonable that is not actually reasonable on the 
 actual investment ? 
 
 Mr. Gary. Yes. Not only that, but there is the temptation to 
 secure sufficient dividends to satisfy the stockholders. One who 
 goes in the market and buys stock without any particular knowledge 
 as to what value is behind the stock, of course buys with the assump- 
 tion that the capitalization is fair, and, therefore, that he is entitled 
 and will receive fair dividends on that stock. 
 
 Senator Gore. You do not think that the earning power of stock 
 ought to be the only test of its value; that is, the only right to justify 
 its issuance ? 
 
 Mr. Gary. No, not the only one. There might be intrinsic values 
 which would add very materially to the selling price, the fair selling 
 price of securities, even though the earnings did not justify a capital 
 based on that. 
 
 Senator Gore. You know there are some sane men who insist that 
 any company has a right to earn a reasonable dividend on the invest- 
 ment, and also insist that the earning power ought to be the test of 
 the value of the stock. 
 
 Mr. Gary. I think a corporation is entitled to earn, if it can legiti- 
 mately do so, a fair return on the value of its investment, provided 
 that it has not so much surplus property not needed as to make it 
 unreasonable to have such a return. Of course, a corporation may 
 pile up property which is not needed in its business and which is more 
 than sufficient to take care of its present and future requirements, 
 and in that case it would not be entitled to the interest on the invest- 
 ment. 
 
 Senator Gore. The principal object of the organization of the 
 United States Steel Corporation, as I understand it, was to eliminate 
 the waste of production and distribution ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Gore. And increase the efficiency of the combined plant ? 
 
 Mr. Gary. Increase the efficiency. Produce the very best articles 
 at the lowest cost. 
 
 Senator Gore. There is no doubt that centralized production does 
 result in economy ? 
 
 Mr. Gary. Absolutely none. 
 
 Senator Gore. Is it not your idea that these economies ought to 
 be preserved, but that they ought to be distributed among the 
 consumers, instead of being reserved exclusively to the producers or 
 the corporation engaged in the production ? 
 
 Mr. Gary. If you mean to ask me if I do not think the purchaser 
 should receive a part of the benefit by securing a good article at a low 
 cost, I answer in the affirmative. 
 
 Senator Gore. That is the main point, it seems to me, we are 
 driving at. Nobody wants to insist on a method of production that 
 is extravagant simply for the sake of the extravagance. The point 
 is that the benefits and economies ought not to be reserved exclu- 
 sively to the corporation, but they should be distributed among the 
 consumers. If that is done, it takes the sting out, to some extent. 
 
 Mr. Gary. I think in a measure that is so. Of course, you can 
 carry that proposition so far as to do away with the incentive for 
 making improvements. It is still true that the laborer is "worthy of 
 his hire." 
 
840 HEARINGS BEFORE 
 
 Senator Gore. Well, assuming that they make a reasonable profit 
 on the entire output, economies would be still effected and the same 
 incentive would exist, because they would still make a reasonable 
 profit on the entire business done — on the entire output and the 
 economies which increased the output to the same extent. It would 
 still be advantageous to the company, because if they did $2,000,000 
 worth of business at 6 per cent, instead of $1,000,000 worth, they 
 would still be ahead;' and it is a good deal better proposition. There 
 is no reason why they should realize larger profits on a larger business 
 than on a smaller business — percentage of profit. That is the point. 
 
 Mr. Gary. No; I think not. 
 
 Senator Gore. How many independent concerns are there in com- 
 petition with the United States Steel Corporation ? 
 
 Mr. Gary. Some one told me the other day, it seems to me, it was 
 upward of 200; I have forgotten, but it was a very large number. 
 
 Senator Gore. And they do about 52 per cent of the business ? 
 
 Mr. Gary. Yes; in some lines more than that. 
 
 Senator Gore. I understood you to tell Senator Cummins that the 
 object of your taking over the Wire Company was that you could 
 reduce the cost of production and the cost of distribution, and that 
 you effected economies that they could never have effected? 
 
 Mr. Gary. That is correct. 
 
 Senator Gore. Is that not true with reference to your concern and 
 all other competitive concerns ? 
 
 Mr. Gary. The larger they are the more effective ? 
 
 Senator Gore. That you have centralized the management for the 
 distribution of the product ? 
 
 Mr. Gary. I think so; but I would not favor a monopoly. 
 
 Senator Gore. Well, isn't it virtually a monopoly whenever it 
 can? If your concern can produce cheaper than your competitors, 
 you can, of course, undersell them. Isn t it a fact that they exist 
 simply by-grace of your company? 
 
 Mr. Gary. No ; that would be an exaggerated statement, Senator. 
 I answered this morning that I believed that we could manufacture 
 at a lower cost than our competitors could. Of course, I should have 
 said, if I did not say, that there would be a very marked difference 
 between the costs of our competitors, respectively. Some of our 
 competitors can produce at nearly as low a cost as we can; others 
 can not. All of our competitors are strengthening themselves in 
 various ways. But with a limited capital, of course, it is a fact that 
 they can never reach the same point of efficiency and of quality and 
 of low cost such as a corporation with a higher capital can reach. 
 
 Senator Gore. That seems perfectly apparent. 
 
 Mr. Gary. Therefore, if you mean to ask if large capitalization 
 gives the corporation an advantage over others of small capitaliza- 
 tion, I must answer the question in the affirmative. 
 
 Senator Gore. Now, in regard to the uniformity of prices between 
 you and your competitors. Are not your prices about the same ? 
 
 Mr. Gary. Oh, there are times when they are near together and 
 other times when they are wide apart. They have never been the 
 same in any line, so far as I know, with the exception of rails. Rails 
 have been substantially the same, not exactly, but have been sup- 
 posed to be substantially the same for a great many years. 
 
 Senator Gore. Some of your competitors may sell a given article 
 higher than you and others might sell it lower ? 
 
COMMITTEE ON INTERSTATE COMMEECE. 841 
 
 Mr. Gary. Well, if others sold lower than we sell they would not 
 last very long, unless it was pretty low — down to about cost, I would 
 say. 
 
 Senator Gore. Then you think, as a rule, that the prices of the 
 independents are a little higher than yours ? 
 
 Mr. Gary. Well, I could not answer that definitely; but I know 
 that very many times some of our competitors have complained 
 because we would not increase some of our prices which we thought 
 were fair or reasonable. They would inform us that they could get 
 more than we were getting, and were getting more. 
 
 Senator Gore. The point I was getting at was that if their prices 
 were not lower, and, if the prices were not uniform, their prices would 
 necessarily be higher than yours. 
 
 Mr. Gary. That might be on the average, and yet in places they 
 might be lower. That is the trouble. 
 
 Senator Gore. But you have the power to undersell your com- 
 petitors ? 
 
 Mr. Gary. Unless they were willing to go into bankruptcy, and 
 we were not willing to go into bankruptcy. That sometimes happens. 
 
 Senator Gore. Yes, I know. 
 
 Mr. Gary. If a corporation is hard pressed for money, is owing 
 money at the bank and the loans are called, very frequently it is 
 compelled to sell below cost. I think at the present time some of 
 pur competitors are selling below their cost, taking into account 
 overhead charges, etc. And if they survive, of course, when business 
 is good and the demand is greater, they would have the capacity to 
 run the prices just as high as they can get. And at such times as 
 that we use our influence to keep the prices down to what we con- 
 sider fair. We know it would not be consistent for us to argue in 
 favor of the maintenance of reasonably high prices unless at the 
 same time we used our influence in favor of reasonably low prices ; 
 and we have acted on that basis consistently, as far as I know and 
 believe. 
 
 Senator Gore. You have resisted both, excessively high and 
 excessively low prices ? 
 
 Mr. Gary. So far as we could. As I said this morning — perhaps 
 it was a few moments ago — we can not keep prices up, but we can 
 keep them down pretty well. Last spring, you will remember, per- 
 haps, that the Republic Iron & Steel Co., not a very large corpora- 
 tion by comparison, reduced the price of bars, and we reduced our 
 prices within a few days. The price of bars has been altogether too 
 low, and the price is too low at the present time. Of course, that 
 particular corporation would have been very glad to raise its prices 
 if it could get others to raise theirs. I presume it will be some 
 time before they get back. 
 
 Senator Gore. Of course, if these independent concerns sell on 
 the same margin of profit as your corporation, they will have to sell 
 higher than you sell. I am getting to this point, that they will either 
 have to sell on a lower margin of profit than you sell or else they will 
 have to sell for higher prices than you seU ? 
 
 Mr. Gary. Yes ; I think that is right if I understand you ; or sell 
 at no profit at all. 
 
 Senator Gore. Now you think it' is as possible to fix the price of 
 a commodity as it is to fix the price for a service ? 
 
842 HEARINGS BEFORE 
 
 Mr. Gary. I think it is doubtful. 
 
 Senator Gore. Do you think it must be a monopoly before the 
 Government could fix a maximum price ? Is not a railroad essentially 
 a monopoly ? 
 
 Mr, Gaby. I do not know that I would subscribe to that. 
 
 Senator Gore. Well, in a way it is a national monopoly, so far as 
 its particular territory is concerned. In the main, all public-service 
 corporations are. 
 
 Mr. Gary. In that sense, every corporation may be a monopoly. 
 Take, for instance, the Colorado Fuel & Iron Co., located in Colorado. 
 In that sense it is a monopoly in a certain territory. The freight 
 rates would keep other competitors out of that location. 
 
 Senator Gore. Do you not think that the fact of a practical 
 monopoly would have to be a condition precedent to the fixing of 
 prices by the Government ? 
 
 Mr. Gary. You mean legally or practically ? 
 
 Senator Gore. Practically. It would have to be one cost sheet 
 if there is a varying cost of production among the concerns. And if 
 the Government were to fix the price of your production so that you 
 would only get a reasonable profit, would it not necessarily drive 
 your competitors out of business, if it cost them more than it cost 
 you ? Would they not have to allow you more profit than you were 
 entitled to, make the consumer pay more for his necessity ? 
 
 Mr. Gary. That may be so. I doubt if any laws can be passed 
 which will deprive the best-equipped man or corporation from hav- 
 ing and maintaining an advantage over others. 
 
 Senator Gore. You think the "law of the survival of the fittest" 
 would probably suggest itself in that connection ? 
 
 Mr. Gary. Of course, we can not have things exactly right. There 
 are two sides to this question. There is involved more or less the 
 question of socialism. Socialism, as I understand it, is nothing more 
 and nothing less than the possession of all property by the Government 
 and the distribution of the income ratably amongst all the people, 
 whatever definitions may be given or however they may be divided. 
 While that is ideal to the man who has nothing, yet it is a bad thing 
 for the country. It takes away the motive for striving for success. 
 
 Senator Gore. You think it destroys individual initiative ? 
 
 Mi-. Gary. Yes, I think it would. Therefore, I believe thoroughly 
 in competition, healthy competition. 
 
 Senator Gore. Efforts to regulate prices, as I remember, have 
 generally been failures. 
 
 Mr. Gary. You think that is true of common carriers ? 
 
 Senator Gore. No, sir. Where the monopoly or fact of monopoly 
 enters, I think that is practical. It would be practical if the Steel 
 Trust, the United States Steel Corporation, controlled the entire 
 output, or the Standard Oil Co., or any other other concern that has a 
 monopoly. 
 
 Mr. Gary. Do you remember what I suggested with reference to 
 that? In a given case where the circumstances are such as to give 
 the competing companies the opportunity to make unreasonable 
 prices, I think it would only be fair to give the commission power to 
 fix a maximum price during the existence of that condition. To that 
 extent I do not think it is impracticable. 
 
COMMITTEE ON INTERSTATE COMMEECE. 843 
 
 Senator Gore. One other question. In case you had a Federal 
 license, which I believe you have suggested, if the company violated 
 the conditions of that license would you deprive them of the right to 
 engage in interstate commerce ? 
 
 Mr. Gary. I would until the wrong was remedied, provided there 
 had been a final decision of the question in the way I have suggested. 
 While it is a wide departure, as I know, from our past business prac- 
 tice, yet it seems to me that inview of the great aggregations of 
 wealth, the increasing wealth of the country and of corporations, that 
 we must settle down to some kind of adequate control and protection. 
 Not that I do not believe that our corporation can manage its affairs 
 properly and honestly and fairly to all who are interested in it without 
 Governmental control, yet the fact that we have the power or might 
 have the power to oppress makes it necessary that in order to protect 
 everyone there should be some kind of Governmental regulation. 
 
 Senator Gore. That suggests the question of your power. I want 
 to ask if you do not have the power, in case you had the disposition, 
 to crush your competitors? Of course, you may regard that as a 
 little presumptious, as your competitors might hear of it. I should 
 like to have an answer to that question if you do not object to answer- 
 ing it. 
 
 Mr. Gary. You ask me if I did not think we had the power ? 
 
 Senator Gore. To crush them if you had the disposition. From 
 what you have stated I have inferred that at least you have implied 
 that. 
 
 Mr. Gary. Assuming that we can manufacture at a materially 
 less price than any of our competitors, then I think if we are not 
 controlled by the law, by the Snerman Act, or in some other way, 
 we might drive them out of business. Of course, I do not overlook 
 the fact that it would be an unenviable position for any business man 
 to occupy if he felt that he had driven his competitors out of business 
 to secure possession of the field. But men are not always actuated 
 by a feeling or a disposition to be moral and decent and honest and 
 fair. 
 
 Senator Gore. And magnanimous in business. 
 
 Mr. Gary. And magnammous in business. 
 
 Senator Gore. The revocation of a license, alluded to a minute 
 
 a g° 
 
 Mr. Gary. There was a thought in my mind there, if you will excuse 
 
 me, Senator. 
 
 Senator Gore. Yes; I will be very glad to hear you. 
 
 Mr. Gary. I have assumed that the big aggregations of capital are 
 necessary to reach the highest point of business success. Therefore, 
 you can not prevent the condition which you have suggested unless 
 you permit these big organizations with the advantages which you 
 have referred to. So, it seems to me, it necessarily follows that in 
 order to protect the people against imposition on the part of the 
 managers of those aggregations of wealth there should be govern- 
 mental control. You can not leave out either one of them, if this 
 Nation is to maintain its position in the contest with other nations 
 of the world for business success and supremacy. 
 
 Senator Gore. You think that the highest efficiency can only come 
 through centralized ownership and management ? 
 
 Mr. Gary. Yes, sir. 
 
844 HEARINGS BEFORE 
 
 Senator Gore. That is what I suggested a moment ago; that the 
 economies ought to be transferred to the people, instead of to the 
 promoters. 
 
 Mr. Gary. Not only the consumer, but the laboring people, the 
 workmen, are getting the benefit of it. I undertook to give my ideas 
 the other day of what had been done by our corporation in those 
 directions. I am certain that we have been not only of great benefit 
 to our customers, but to our workmen in the many improvements 
 that we have made, and we have distributed millions of money for 
 those purposes. 
 
 Senator Gore. You think the saving, then, in the waste has been 
 shared by the public and by the laborers as well as by the stock- 
 holders ? 
 
 Mr. Gary. I think so. I think they ought to be, and I think they 
 have been, so far as our company is concerned — if not in fair propor- 
 tion, then that ought to be shown. We do not disregard criticisms. 
 
 Senator Gore. The revocation of this license that you alluded to 
 a moment ago, might not that punish or injure innocent stockholders 
 who really are not responsible for violations of the law? It would 
 undoubtedly depreciate the price of the stock. 
 
 Mr. Gary. The Federal license ? 
 
 Senator Gore. Yes, in case it was revoked for a violation of the 
 law. 
 
 Mr. Gary. It certainly would. Any misconduct by the managers 
 of a corporation works to the prejudice of the stockholders. And if 
 anything can be done to bring the managers of great corporations to 
 a sense of their responsibility to their stockholders — if that can be 
 done by law, I favor it. 
 
 Senator Gore. That is the point I was coming to, as to whether 
 you have any suggestion as to how you would segregate the respon- 
 sibility of the parties and make the pains and penalties fall upon 
 those responsible. 
 
 Mr. Gary. The great thing is publicity. That is the first essen- 
 tial. If the stockholders all the time can know as soon as the mana- 
 gers of a corporation know themselves just what is being done and 
 what is going to be done, I think the stockholders are in a position 
 to protect themselves. 
 
 That, to my mind, is the most important of anything — publicity. 
 
 I remember very well, if I may mention it without mentioning 
 names, when the chief official of a certain corporation proposed to 
 
 five to the public at the quarterly meeting a statement which had 
 een given to the board. One of the directors, a member of the old 
 regime, asked whether or not that would be done when the report 
 was not so favorable, and when he received an affirmative answer 
 he hesitated a moment and said it would never be done; it never 
 had been done and never would be done, and he said: "I have had 
 longer experience than you have had." But that only was equiva- 
 lent to saying that conditions- have changed; [sentiment has changed. 
 We have all improved our methods more or less; we have all been 
 influenced by what has been written and said on these subjects. 
 And I think when we realize that at the present time — when the 
 large majority of business men in charge of the greatest business 
 affairs of this country realize that it is very important to conduct 
 their affairs in such a way as to secure the approval of the general 
 
COMMITTEE ON INTERSTATE COMMERCE. 845 
 
 public, we must conclude that publicity, enforced publicity, will cure 
 many of the evils which have hitherto existed. 
 
 Senator Gore. Do you not think there are two classes of men — 
 some men who violate the law as it now stands because they are not 
 able to tell whether a given thing is in violation of law or not ? 
 
 Mr. Gary. Yes, sir. 
 
 Senator Gore. And then there is another class who violate the 
 law, not caring whether they do it or not. 
 
 Mr. Gary\ Yes ; but the latter class is growing fewer in number, I 
 believe. 
 
 Senator Gore. These recent decisions of the Supreme Court — do 
 you not think they shift the problem instead of solving the problem ? 
 That is, a business man is confronted by a proposition or state of facts 
 which before these decisions he was called upon to decide whether the 
 proposed act was lawful or unlawful. Now he is called upon to decide 
 whether it is reasonable or unreasonable. Does that really get us out 
 of the fog ? 
 
 Mr. Gary. I do not think it does. 
 
 Senator Gore. Do you not think that is one of the main points we 
 ought to get at ? 
 
 Mr. Gary. I do. 
 
 Senator Gore. I think that is all. 
 
 The Chairman. Senator Oliver, you may inquire. 
 
 Senator Oliver. Judge Gary, I understood you to give your ap- 
 proval to the proposition to provide that all commodities should be 
 sold at an equal price, millprice, or at an equal price in the same terri- 
 tory. In short, that the Iowa law, which applies only to petroleum, 
 as I understand, should be extended to all lines of business — is that 
 correct ? 
 
 Mr. Gary. Yes; I think that rule should be established. Perhaps 
 not an invariable rule. I think that rule should be established by a 
 commission. 
 
 Senator Oliver. Would not the application of that rule to your 
 business, to the iron and steel business, be extremely difficult ? 
 
 Mr. Gary. Perhaps it would. 
 
 Senator Oliver. Almost impossible? Wouldn't it be impossible? 
 
 Mr. Gary. I am not sure of that. I hardly think it would. There 
 might have to be exceptions, but in such cases I do not think the 
 corporations ought to be the ones to decide. 
 
 Senator Oliver. No; I agree with you in that, and I agree with 
 you also that it would be wellto have such a rule, if it could be applied. 
 Now, the various subsidiary companies of the Steel Corporation pro- 
 duce themselves thousands of different articles, do they not ? 
 
 Mr. Gary. A great many. I presume so. 
 
 Senator Oliver. They run up into the thousands, I have no 
 doubt. 
 
 Mr. Gary. I have no doubt. 
 
 Senator Oliver. And isn't it the custom, founded on long usage, 
 to have different classes of consumers? For instance, there is the 
 jobber, the carload buyer, and the consumer; and you now have 
 different prices for those different classes of consumers. Would it 
 not do away with that custom — drive the jobber out of business ? 
 
 Mr. Gary. It has been customary to make different prices, to 
 some extent, depending upon quantity sold, time of delivery, and 
 credit of the purchaser. 
 
846 HEARINGS BEFORE 
 
 Senator Oliver. Well, does not the character of the customer 
 come in — I mean the character of his business ? 
 
 Mr. Gary. Yes; no doubt. But you are only arguing, as I interpret 
 your question, that what is proposed would to some extent be inju- 
 rious to the business. It would interfere more or less with the success 
 of the manufacturer, which I must concede. 
 
 Senator Oliver. I did not have that in view. I had in view the 
 absolute revolution that it would cause in the methods of distribution 
 of the different commodities. 
 
 Mr. Gary. Well, I did not know about that. I do not know that it 
 would interfere in any way with the distribution of commodities. 
 
 Senator Oliver. If you are compelled, for instance, to sell to the 
 jobber and the dealer at the same price, wouldn't it drive the jobber 
 out of business, so far as that commodity is concerned? 
 
 Mr. Gary. Well, I don't know about that. It would interfere with 
 his business. The jobbers, as you know, have been used to the preju- 
 dice of the consumer. 
 
 Senator Oliver. The jobbers and the dealer overlap a good deal? 
 
 Mr. Gary. I have nothing to say against the jobbers, but, as you 
 know, they have been in the habit of coming around to the manufac- 
 turer at a certain season of the year and arranging to buy a very large 
 quantity of goods, with the understanding that soon after the price 
 shall be increased. The manufacturer has sold out his mill for a 
 number of months, and then the jobber takes advantage of the 
 increased price and sells at a higher price to the consumer. 
 
 We are all the time talking about the greatest good to the greatest 
 number. We can not make any rule that will not result in some hard- 
 ship to some class. But I say we must consider the total effect, the 
 net results. 
 
 I realize the importance of what you suggest, Senator. 
 
 Senator Oliver. It seems to me that what would be an excellent 
 rule as applied to a commodity like petroleum, which is delivered 
 direct to the consumer, as a rule, would De exceedingly hard as applied 
 to a business involving all sorts of odd-shaped and sizes of articles. 
 
 Mr. Gary. There is a difference; but you know that the jobber has 
 been more or less going out of business; that is, the number has 
 decreased. 
 
 Many years ago — I do not know how long ago — our finance com- 
 mittee, who determines the policy of our corporation, passed a reso- 
 lution to the effect that, so far as practicable, we should make uniform 
 prices to all our customers, and we have pretty nearly lived up to that. 
 We have not always found it convenient to do that ; we have made 
 some exceptions, I must admit. But we realized that that was the 
 fair thing to do, from the standpoint of the customer. 
 
 We are in very close touch with our consumers all the time. We 
 have no customers who do not have the right to come even into my 
 office at any time and make complaints or make inquiries and try to 
 secure additional rights for themselves. That is a good policy. It 
 is not because it is good morals, but it is good policy to do that, and 
 we do it. We have realized that the consumers heretofore have been 
 more or less imposed upon by the jobbers, and we have eliminated 
 them to a large extent. 
 
 We have been building warehouses all over the country, as you 
 know, at very large cost, so as to keep our goods in locations through- 
 
COMMITTEE ON INTERSTATE COMMEKCE. 847 
 
 out the country for the convenience of our customers and so as to 
 sell them at the lowest cost. It is good business. Nobody knows 
 better than you and I that it is good business for the manufacturer 
 to please his consumer and treat him right. 
 
 Senator Oliver. Yes; and to get as close to the customer as 
 possible ? 
 
 Mr. Gary. Yes ; just as close as possible. 
 
 Senator Oliver. Now, in the original organization of your com- 
 pany the Carnegie Steel Co. was the largest factor, was it not? 
 
 Mr. Gary. Yes, sir; it was. 
 
 Senator Oliver. Is it not a fact that the Carnegie Steel Co. had the 
 three great plants — the Edgar Thompson, the Homestead, and the 
 Duquesne; and is it not a fact that only one of those plants was built 
 by the Carnegie people 2 
 
 Mr. Gary. Only one. 
 
 Senator Oliver. The other two were built, according to my recol- 
 lection—and I believe you will bear me out — in competition with the 
 Carnegie's, and were driven out of business, and they finally acquired 
 them ? 
 
 Mr. Gary. If they were not driven out, they were unable to com- 
 pete and go on, and Carnegie picked them up. 
 
 Senator Oliver. And that, under the extreme competitive condi- 
 tions which existed along in the eighties or early nineties ? 
 
 Mr. Gary. That is true. 
 
 Senator Oliver. How many stockholders are there in the United 
 States Steel Corporation ? 
 
 Mr. Gary. I do not know exactly. 
 
 Senator Oliver. I mean in round numbers ? 
 
 Mr. Gary. I suppose there are at least 150,000. I might be mis- 
 taken. I suppose that, because there are blocks held by individuals 
 against which certificates have been issued to large numbers of 
 persons. 
 
 Senator Oliver. Do you know how many preferred and how many 
 common stock holders there are ? 
 
 Mr. Gary. I can not divide that. I have given those figueres. It 
 is a very large number of each. 
 
 Senator Oliver. How does that number, say about 150,000, com- 
 pare with the number of stockholders shortly after the organization, 
 say 10 years ago. 
 
 Mr. Gary. Many times as many. I am unable to say just how 
 many; but the number of people who owned these subsidiary compa- 
 nies at the time of the organization of the steel corporation was small 
 as compared with the number of stockholders or present owners of the 
 same property. 
 
 Senator Oliver. So the increased number of stockholders that 
 hold stock now in excess of the number that held stock at that time 
 have bought this stock and paid for it in money ? 
 
 Mr. Gary. Yes, sir. The ownership of the Steel Corporation has 
 totally changed hands, I believe, according to the figures, five or 
 six times since it was organized. 
 
 Senator Oliver. Now, I believe, Judge Gary, that very early in its 
 history the steel corporation officials — the controllers of the steel 
 corporation — adopted the plan of encouraging their employees to 
 buy stock. Can you tell me to what extent that has been carried out I 
 
 22877 — vol i — 12 54 
 
848 HEARINGS BEFORE 
 
 Mr. Gary. At the present time there are between 35,000 and 
 40,000 of the employees who are owners of stock in the steel corpora- 
 tion. We allow them to subscribe under favorable conditions — fav- 
 orable terms — at little below the market, and then for five years, if 
 they properly behave — by that I mean are industrious and commit 
 no crimes, etc. — they get a rebate on their subscription of $5 a share 
 as to preferred, and about three or three and a half as to common 
 per year. 
 
 Senator Oliver. Those 35,000 stockholders have all paid for their 
 stock in money, have they ? 
 
 Mr. Gary. Yes, sir.; between 35,000 and 40,000, I should think, at 
 the present time. 
 
 Senator Oliver. You referred to overcapitalization as an element 
 in producing unfair competition. Is it not a fact that undercapitali- 
 zation, or poverty of resources, is rather more likely to lead to undue 
 competition ? 
 
 Mr. Gary. I do not think I said it led to competition, but probably 
 you are right in your last question. Overcapitalization affords temp- 
 tation on the part of the corporation to get large earnings, if possible, 
 by one means or another. 
 
 Senator Oliver. What I meant was is not the need of money more 
 likely to lead to undue cutting of prices and selling at a loss and 
 demoralization in business generally? 
 
 Mr. Gary. No, doubt; that is, immediate need. 
 
 Senator Oliver. I have nothing further to ask. 
 
 The Chairman Senator Lippitt. 
 
 Senator Lippiti. 1 merely want to ask one or two questions. You 
 spoke of the penalty of forbidding the corporation violating the law 
 to engage in interstate commerce. Would you make that the only 
 penalty, without regard to the magnitude of the offense, whether it 
 was technical and slight in its character or whether it was evidently 
 intentional and extreme, or would you have some slighter penalty 
 for a slighter offense ? 
 
 Mr. Gary. Well, I would leave that more or less to the discre- 
 tion of the commission, .1 think. I have not given that any thought, 
 and therefore it is entirely a new question to my mind; but it would 
 seem to me offhand that the commission would not revoke a license 
 except for substantial cause; and more than that, if you warned the 
 corporation against a continuance, or against what seemed, in the 
 opinion of the commission, an undue restraint of trade, and if under 
 those circumstances a corporation would not change its methods, 
 and was defiant and persistent, and the courts determined the 
 commission was right in its conclusion, the license ought to be 
 revoked, and perhaps it might be well to make the penalty a dis- 
 continuance of a license for a certain time until conditions were 
 improved, or something of that sort. I would want to think about 
 that some. It is a very important question. 
 
 Senator Lippitt. In the case of the United States Steel Co., for 
 instance, suppose their license was revoked, would it not throw all 
 of their employees out of employment ? 
 
 Mr. Gary. I think it would. 
 
 Senator Lippitt. Under those circumstances would it not be 
 rather a drastic punishment to throw a good many thousands of 
 people out of employment for the sake of punishing the head of a 
 corporation 1 
 
COMMITTEE ON INTERSTATE COMMERCE. 849 
 
 Mr. Gary. You are speaking now not of the punishment of the 
 head of the corporation, but you are really speaking of the punish- 
 ment of the stockholders. The Sherman law gives both—that is, the 
 Sherman law gives the right of criminal prosecution against the 
 manager of a corporation, and it also provides a penalty to the 
 stockholders of injunction or dissolution, etc. The managers of a 
 corporation, of course, ought to be held to a strict responsibility in 
 regard to the conduct of the affairs of the corporation as it affects 
 the interests of the public, as it affects the interests of the employees, 
 and of course as it affects the interests of the stockholders them- 
 selves. Heretofore, in my opinion, the stockholders of corpora-, 
 tions in many instances have been imposed upon by the managers of 
 the corporations. 
 
 Senator Lippitt. You referred to economies. I supopse the 
 economies that you have been able to make have been both financial 
 and manufacturing and distributive ? 
 
 Mr. Gary. That is true. 
 
 Senator Lippitt. Has there been a preponderance of economies in 
 any one of those three departments? Perhaps I will put that in 
 another form. Have not the distributive economies been very large ? 
 
 Mr. Gary. Yes; they have. Distributive economies have been 
 very large. They have all been very important. I do not know that 
 I can say one was more important than another. 
 
 Senator Lippitt. Taking your manufacturing economies, are they 
 not largely of such nature that now that you have blazed the way, the 
 new corporation will get the benefits of them, provided it was of 
 reasonable size, say, $50,000,000 or $100,000,000, in some specialties ? 
 
 Mr. Gary. That may be true of those that have been established, 
 but we have not finished. We are making further economies all the 
 time, more or less. I think there is a great future for the steel industry 
 in relation to economy of production and also quality of products. 
 
 Senator Lippitt. You do not think you have reached anywhere 
 near the limit ? 
 
 Mr. Gary. Not at all. We have a large office, many employees, 
 devoting their time largely to that question all the time. We have 
 committees made up or five or six men selected from the different 
 companies who are studying the different questions all the time, meet- 
 ing and discussing and experimenting — some on one line and. some 
 on another; and we have a committee — perhaps it is not very impor- 
 tant — but we have a welfare committee, for mstance. It is a large 
 committee, which is all the time working on the question as to how 
 we can prevent accidents in the mills, and how we can better protect 
 the lives and the health of our employees; there are a great many 
 things of that kind that a small company could not very well do, as it 
 involves too much money. 
 
 Senator Lippitt. A small company can certainly take just as good 
 care of the welfare of its employees as the large one ? 
 
 Mr. Gary. The answer is they never have. 
 
 The Chairman. Senator Lippitt, I think we Will have to adjourn 
 the inquiry in so far as Judge Gary is concerned. We will not get 
 through with him this afternoon. 
 
 Senator Lippitt. You need not do it on my account, Mr. Chairman, 
 because I have scarcely anything further to ask, and the ground has 
 been so thoroughly covered anyway that I would not care to keep 
 him. 
 
850 HEARINGS BEFOKE 
 
 Mr. Gary. I suppose I could stay five minutes longer. 
 
 The Chairman. I have no idea that we can get through with vou 
 this afternoon. 
 
 Senator Townsend. I am perfectly willing to let the judge go if 
 that is what is holding him. 
 
 Senator Cummins. There is just one question that I want to ask, 
 but I do not want to put it in ahead of Senator Townsend's. 
 
 The Chairman. I think the judge had better be excused now and 
 come back later. 
 
 (Mr. Gary was thereupon temporarily excused.) 
 
 STATEMENT OF GEORGE W. HARRIS, CINCINNATI, OHIO, 
 RETIRED MERCHANT, VICE PRESIDENT OF THE TRUSTEES 
 OF THE SINKING FUND OF THE CITY OF CINCINNATI. 
 
 The Chairman. Under the rule that the committee has adopted, 
 those appearing before it are allowed to submit their statements and 
 are interrogated by the committee after they have finished. 
 
 Mr. Harris. Mr. Chairman and gentlemen, I am here chiefly on 
 account of my interest as a citizen of the United States in the enforce- 
 ment of the Sherman law. I believe that not an "i" should be dotted 
 nor a "t" crossed. It has almost become, since the decision of the 
 Supreme Court of the United States, a sacred institution. Whatever 
 supplementary legislation your committee may deem proper, that I 
 have no objection, but I firmly believe that there are no men of 
 sufficient intelligence to conduct large businesses who do not know 
 now, if they had any doubts before, what they can do and what they 
 are forbidden to do under the Sherman law. I have listened to this 
 discussion and have read all that has appeared in the Associated 
 Press dispatches, and I have been amazed at what seems to me the 
 unusual frame of mind of many of those who have appeared before 
 the committee, as well as many of those who seem to control the 
 sources of our information through the public press. 
 
 There are hundreds of thousands of corporations to-day doing 
 interstate business who do not conduct their business contrary to the 
 Sherman law, and who have not so conducted their business, and 
 there seems to have been no doubt in any of their minds as to what 
 they could do. Some of those corporations are large and are doing a 
 wonderful business. There is no public clamor against a corporation 
 simply on account of its size. It is simply on account of its method 
 of doing business. 
 
 I have in mind a corporation in the city of Cincinnati, a grocery 
 company, which owns and operates about 200 retail grocery stores 
 in the city of Cincinnati, Covington and Newport, Ky. That 
 company has grown from small beginnings, and has established its 
 business on sound economic basis, and its business in part, or in 
 
 Erincipal rather, does not differ from the business of the United 
 tates Steel Corporation, save in its method of formation and its 
 trade agreements with competitors. Now, you hear no one fearful 
 of the power of this corporation, and there are hundreds of others 
 like it. We have one nearly as great, much greater, in fact, in the 
 city of Cincinnati, with which you are probably acquainted — the 
 Proctor & Gamble Co., with twelve millions of capital, and the market 
 value of the stock is 400, so that it is practically a $50,000,000 
 
COMMITTEE ON INTERSTATE COMMERCE. 851 
 
 corporation doing an interstate business, and yet you hear no com- 
 plaints of its methods of doing business. 
 
 But I will give you a concrete illustration of what I mean by this 
 grocery business, because in every city in which you gentlemen live 
 there are probably the same conditions; if it is not in the grocery 
 business it is in the dry goods store or the department store — because 
 the conditions are ideal and the sound economic subjects are complied 
 with — economy of production, economy of distribution, economy of 
 transportation, and a reduced price to the consumer. 
 
 In these other giant corporations of which the public complains 
 so justly — and all the people of the United States could not be fooled 
 or humbugged — they had the first three conditions, economy of 
 production, economy of transportation, and economy of distribution, 
 but the fourth economy they have taken to themselves, and now they 
 are of such enormous power and they are so interwoven with the 
 great financial interests that they have become an absolute menace 
 to business and the social and political life of the country. 
 
 The action of the Supreme Court of the United States in disinte- 
 grating the Standard Oil Co. and the tobacco company has probably 
 gone as far as the court could go, but we now find in the oil company 
 35 independents, apparently, or rather separate corporations, and in 
 the tobacco company, I believe, 25. The value of the stock of a com- 
 mercial proposition is based principally on its earning power, real or 
 prospective. Of course, back of their earning power is assets, but the 
 assets do not figure as much as the probable earning power. The 
 value of the bonds depends practically exclusively on the value of the 
 assets. Now, in these two corporations we find the stock market 
 shows the American Tobacco Co., within the last few days, at 510, 
 notwithstanding the disintegration, and the Standard Oil Co. at 620, 
 notwithstanding the disintegration, which means that those who are 
 best capable to judge, and the people in command of those institu- 
 tions are best capable to judge, know that the earning power has not 
 been materially decreased, and if the earning power has not been 
 materially deci eased, then all the elements of the monopoly remain, 
 no matter what the form of it. 
 
 So I maintain that there must be some plan evolved which would 
 take away the incentive to oppress the consumer or oppress the com- 
 petitor, and, as I am a strong individualist as opposed to socialist, I 
 want that which will least interfere in the freedom of action of the 
 individual. • 
 
 Commerce must be absolutely free. It is well said that those 
 people are best governed who are least governed, and that should hold 
 true here. No laws should be made that interfere in the least pos- 
 sible way with the freedom of the individual except those that public 
 necessity compels. 
 
 So the problem to me was how to take away that which has given 
 rise to these great oppressive corporations which are the birth of the 
 lust of power, and unless you can reach the lust of power, you will 
 never, by any form that has yet been devised or any proposition of 
 regulation you have yet made, reach the source of the evil. 
 
 I therefore assume that a corporation which, say, controls 10 per 
 cent of the business of the country, whether it be manufacturing or 
 merchandising — 10 per cent naturally of the business in which it is 
 concerned — is a public menace. It carries within itself the seed of 
 
852 HEARINGS BEFOEE 
 
 great public injury, and being a corporation existing only by suffer- 
 ance of the States, not having the attributes of Jife, liberty, and the 
 pursuit of happiness that the human being has, it comes more clearly 
 and more easily within the control and jurisdiction of the State. 
 
 So the remedy that I suggest — I do not offer it as a panacea; I only 
 say to you that after a good deal of careful thought it has occurred to 
 me as being sound in law; that it covers all the objection that I per- 
 sonally have to interference with the individual, which is the freedom 
 of right to contract, and my abhorrence to Congress or any commis- 
 sion fixing the price of an article, or of any particular article, unless 
 they are willing to fix the price of all articles made and consumed in 
 the United States — is this : I say that you have created these great 
 industrial corporations. According to the interpretation of the Sher- 
 man law as put upon it by the Supreme Court, you have acted illegally 
 in creating them. Your justification has been that apparently the 
 Department of Justice has been in as much doubt as yourself as to 
 the interpretation of the law, for it did not attempt to enforce it with 
 the means best adapted to the end, and that is by the injunction, 
 scattering it before it had come together. 
 
 So I would not personally institute criminal proceedings. I would 
 say that you have created this economic monstrosity, this Franken- 
 stein, and it will turn your instrument of self-aggrandizement into an 
 instrument for the common good. 
 
 So I say that all corporations doing an interstate business whose 
 business shall be 10 per cent — not less than 10 per cent nor more than 
 15 per cent — of the business of the country in that particular line, 
 whether it be manufacturing or merchandising, that is distributing, 
 that all the profits of that corporation in excess of 12 per cent per 
 annum on its paid-in capital stock, represented by real assets, no 
 water — and by that I mean to eliminate good will — shall flow into 
 the United States Treasury. Where the business is 15 per cent and 
 not in excess of 20 per cent, all profits in excess of 1 1 per cent. Where 
 the business is 30 per cent, all profits in excess of 10. Where it is 
 40 per cent, all profits in excess of 9. Where it is 45 per cent, all in 
 excess of 8. Where it is 50 per cent, all in excess of 7, and where it 
 is 60 per cent or more, all profits in excess of 6 shall flow into the 
 United States Treasury. 
 
 Now, as to the question of legality. I am not a lawyer. That 
 question you will determine. But it has seemed to me that under 
 the right to regulate commerce, and under the public-welfare clause 
 of the constitution, that possibly should come within your province — 
 the province of the Government. But it is the principle underlying 
 it that I would like you to first consider. 
 
 You see it takes away the incentive. It does not limit the size of 
 your corporation; it can be a million, a billion, or three billion, of 
 any other sum, but it limits the incentive to charge a greater price for 
 that which it produces, and produces more cheaply than anybody else 
 by reason of its economies in production, distribution, and transporta- 
 tion, because it would not be benefited. It gives the corporation a 
 sufficiently large income to justify any merchant or investor going 
 into the business. It does not in any manner, shape, or form fix 
 the price of any article. It leaves that to a natural competition. 
 Of course, it does not guarantee any rate of interest. That corpora- 
 tion which would be limited under the law to pay into the public 
 
COMMITTEE ON INTEBSTATE COMMEECE. 853 
 
 Treasury all its net profits in excess of 12 per cent in the preceding 
 year might, as a matter of fact, lose 10 per cent the preceding year. 
 It does not destroy the individual competitor, but if the individual 
 competitor were destroyed under the conditions that all the con- 
 sumers of the country got the benefit of the low price, that would not 
 trouble me in the least, because that I would consider perfectly sound 
 politically, economically, and from any other point of view. 
 
 That seems to me a more workable plan than any that I have 
 seen proposed. It is apparently different from what has heretofore 
 been suggested ; at least, I have never read of it nor heard it discussed, 
 but its novelty will not necessarily condemn it. 
 
 I feel that this great unrest that we see and feel throughout the 
 country — and I come in contact with many men of many shades of 
 opinion; I rub elbows in my advisory capacity with the laboring man, 
 the merchant, the lawyer, the physician, and the banker — and I am 
 sometimes amazed at the deep undercurrent of unrest. I feel that 
 this economic dissatisfaction and unrest is simply the Federal stream 
 of the political unrest, both of which have their source in the one 
 common lake of deep discontent. The efforts to curb these cor- 
 porations to which I refer — and I am simply referring now to the 
 monopolistic corporations — you will observe go hand in hand with 
 the demand and the effort to secure political power. The people are 
 demanding, say, the initiative and referendum, because they feel 
 that by some means, by its intricate complex civilization as we call it, 
 the connection and close association of the financial interests with 
 the industrial where political power has been taken away from them, 
 as well as the right of equal opportunity — you will also observe that 
 these are not confined to any one class, as all past movements of 
 importance in the last 50 years have been. You have had in your 
 time the granger movement, but it was the farmer alone who 
 was interested; it was the farmers' movement. Again you have had 
 the labor movement, but it was the laboring man's movement. But 
 neither had any particular sympathy with the other. But to-day 
 the conditions in this country are that all classes of the people are 
 joined together in the demand for a change in these conditions. 
 The people feel that they have been raped of their political liberties, 
 and so they are demanding the initiative and referendum as the 
 instrument to get back their political liberties. They feel that they 
 have been robbed of their economic privileges, and so they are 
 demanding the curbing or the destruction of the trusts. They go 
 hand in hand; at least so it would seem to me. 
 
 That is all I care to say, Mr. Chairman. 
 
 The Chaieman. Senator Cummins, have you any questions to ask ? 
 
 Senator Cummins. I think the record does not show your occu- 
 pation or residence. 
 
 Mr. Hareis. Yes, sir; I gave them to the reporter. I am a retired 
 merchant. I retired from business five years ago. 
 
 Senator Cummins. I did not hear that. 
 
 Mr. Hareis. And in order that no misunderstanding may exist, I 
 simply retired because I had all I wanted and the making of money 
 got distasteful to me. 
 
 Senator Cummins. You have stated that your advice is to leave the 
 antitrust law just as it is, without any change whatsoever ? 
 
854 HEARINGS BEFORE 
 
 Mr. Harris. The law itself. Supplementary legislation, I think, is 
 absolutely necessary in the line of being able to catch quickly criminal 
 violations of the law. 
 
 Senator Cummins. In other words, the prohibition against inter- 
 ference with or the destruction of the freedom of commerce and 
 business, you think, is sufficiently found in the prohibition against 
 restraint of trade and monopoly ? 
 
 Mr. Harris. I do. 
 
 Senator Cummins. Two instances have been mentioned here, and 
 I think you referred to them, namely, the disintegration of the Stand- 
 ard Oil Co. and of the American Tobacco Co. And there has been a 
 little confusion — I think you did not create it, however — with respect 
 to those two cases in this, that the plan of reorganization or the 
 disintegration in the one, namely, first, the Standard Oil Co., has not 
 been subjected to the criticism of or approval by any governmental 
 agency, whereas the plan of reorganization or disintegration of the 
 American Tobacco Co. has received the approval of one of the high 
 courts of the United States. You recognize that difference? How 
 familiar are you with the plan of reorganization of the American 
 Tobacco Co., or the properties which it owns, that has been approved 
 by the Circuit Court of the United States for the Southern District of 
 New York ? 
 
 Mr. Harris. I am not sufficiently acquainted with the plan to 
 express any opinion thereon. 
 
 Senator Cummins. You assumed that because the stock of the 
 American Tobacco Co, after it was known what the plan of reorgani- 
 zation would be, attained within a few points at least of the highest 
 market value that it ever had, that the monopoly feature recognized 
 in the American Tobacco Co. is preserved in the reorganization? 
 
 Mr. Harris. Unquestionably. The stock market seldom lies. 
 
 Senator Cummins. That means simply that the business is still to 
 be controlled by a common mind or a common power ? 
 
 Mr. Harris. Why, it is inconceivable that the same people who hold 
 the dominant interest now, owing to the disintegration of the com- 
 panies whereby they simply hold a dominant interest in so many more 
 companies rather than one or two, would lose control thereby. They 
 retain control. 
 
 Senator Cummins. I think you are entirely right about that, for it is 
 my judgment that little, if anything, has been accomplished by the 
 attempted disintegration of the American Tobacco Co. 
 
 Mr. Harris. As affecting that particular company. 
 
 Senator Cummins. But the Circuit Court of the United States for 
 the Southern District of New York has said, in the most formal and 
 solemn mariner possible, that the disintegration or reorganization is 
 in harmony with the antitrust law, and that it is not in restraint of 
 trade. If that be true, is it not a little difficult to insist that the law 
 is what it should be ? 
 
 Mr. Harris. Would that necessarily follow? If by reasons of condi- 
 tions to which the Supreme Court did not contribute they found a 
 state of circumstances which compelled them to divide that into 10 
 or 20 or 30 or 40 companies, which did not change conditions because 
 there was no change of the stock, the court went as far as it could. 
 N ow, it is not the fault of the court that the conditions are such 
 
COMMITTEE ON INTERSTATE COMMERCE, 855 
 
 Senator Cummins. Do you believe that the reorganization is in 
 restraint of trade or is not ? 
 
 Mr. Harris. I believe that the constituent companies will restrain 
 probably more than they did before. 
 
 Senator Cummins. Then you believe that the reorganization is in 
 itself unlawful and is in violation of the antitrust law '( 
 
 Mr. Harris. But they have not yet restrained trade. I think the 
 
 Erobable result will work out as you say. But the Supreme Court 
 as dissolved them. 
 
 Senator Cummins. I assume that you agree that an organization 
 may in and of itself be in restraint of trade simply because it has the 
 power to restrain trade. You recognize that ? 
 
 Mr. Harris. Correct. 
 
 Senator Cummins. Now, it is quite evident that the Circuit Court 
 of the Southern District of New York does not believe that this reor- 
 ganization is in restraint of trade. The Attorney General does not 
 so believe, for he has publicly announced it. Now, in view of these 
 things, how can it be said that the law is so plain that honest men will 
 agree with regard to its application to the affairs of men ? 
 
 Mr. Harris. The circuit court has probably gone as far as it could 
 go; I do not know that it has, but, in order to make my position clear 
 to you, it has dissolved the company; it has disintegrated them. 
 
 Senator Cummins. No; you probably are not familiar with the 
 situation. The Supreme Court of the United States, after most 
 severely denouncing and condemning the American Tobacco Co. and 
 its organization and its practices, remanded the case to the circuit 
 court from which it came, namely, the Circuit Court for the Southern 
 District of New York, with direction 
 
 Mr. Harris. I am familiar with that, Senator. 
 
 Senator Cummins. With direction to approve a plan of reorganiza- 
 tion that would bring the company and the business in harmony with 
 the law, or, fading in that, to appoint a receiver and wind up the affairs 
 of the company in the usual way. Now, therefore, it is perfectly clear 
 to me that the circuit court of the United States — composed, I think, 
 of four eminent judges — having held that this reorganization, which 
 you and I agree is just as fruitful of injury to the public welfare as the 
 American Tobacco Co. itself, is just what the antitrust law wants to 
 exist in this country. 
 
 Mr. Harris. Of course, that is your assumption and mine. I am 
 giving my opinion and so are you, but we both might be mistaken 
 as to the practical working out of that combination. 
 
 Senator Cummins. That is possible, of course; but I am only 
 addressing my questions to your statement that this law was so 
 certain and plain that all business men would without any dissent 
 reach the same conclusion with regard to the validity or lawfulness 
 of a particular transaction or a particular organization. That is the 
 point I am trying to get your opinion upon. 
 
 Mr. Harris. T see the point. I appreciate your mental attitude - 
 on it. I go one step further. I say I believe it will not accomplish 
 anything, Decause the people dominant in control ares till dominant 
 in control. That, of course, supposes that there will be real competi- 
 tion to accomplish anything. I db not believe there will be real 
 competition, but it is a matter of proof. The difficulty is in proving 
 
856 HEARINGS BEFOEE 
 
 it. I do not believe there will be any more companies like the Ameri- 
 can Tobacco Co. or the United States Steel Co. or the Harvester Co. 
 
 Senator Cummins. But I believe that the creation of a series of 
 corporations commonly controlled in the tobacco business, or that 
 would have that influence over the tobacco business that these cor- 
 porations will have and must have, are in and of themselves a restraint 
 of trade; but in that respect it is perfectly apparent that the Circuit 
 Court of the United States in New York, and the Attorney General 
 here, who is endeavoring to enforce the law, are of a different opinion. 
 Now, I want to know how anyone can say, therefore, that the law is 
 so clear and so plain that nobody could err in administering it ? 
 
 Mr. Harris. I do not agree with you, Senator, in that proposition. 
 Let us assume, as the circuit court had a right to assume — and, of 
 course, as a layman I can only look at it from a layman's point of 
 view, and I miss those fine legal points that your legal mind grasps — 
 but let us assume that the stock ownership in those 20 to 29 companies 
 of the American Tobacco Co. are immediately, or within a reasonable 
 time, distributed and change hands from their p'resent owners and 
 would go into general distribution, the conditions of which you com- 
 
 Elain no longer exist. It is only the present ownership of the stock 
 y those same interests which I do not see how the circuit court, or 
 any other court, could have changed unless they had, as was claimed 
 in the beginning, a. receivership. That was the only way that I can 
 see out of the difficulty. 
 
 Senator Cummins. If this plan had been presented to you, and you 
 were under the direction to see that it was in harmony with the anti- 
 trust law, would you have approved it ? 
 
 Mr. Harris. Well, I would not like to answer that question. The 
 courts are human, and the property interest was so large, and with 
 the knowledge that as to the direct enforcement the Government, 
 or the Department of Justice, for twenty-odd years, or anyhow a 
 sufficiently long number of years to make it notorious, had slept at 
 its post or did not believe the law was as the Supreme Court said it 
 was, they may have been governed by practical considerations and 
 said, "We will give these people a chance to distribute their stock." 
 This is the only practical solution, and now if they do not distribute 
 their stock, human nature is that they are going to act cautiously, 
 and some are going to be a little uncautious, and the moment that 
 man does, I think he will go to jail. That would be my judgment. 
 
 Senator Cummins. I will put it in another way: Suppose there 
 had been no American Tobacco Co. and that you were one of the 
 commissioners which some people have advised here, to administer 
 the antitrust law, and that a series of corporations were organized 
 controlling the business to the same extent that these do, and they 
 were to apply to you for a license to carry on interstate commerce, 
 and your guide was the present law, namely, that they shall be 
 licensed if they do not restrain trade, and they shall not be licensed if 
 they do restrain trade — assuming now that in every other respect they 
 were all right ; would you grant the license ? 
 
 Mr. Harris. If I knew that the ownership of the stock at the time 
 they made application was as it is now ? 
 
 Senator Cummins. Yes. 
 
 Mr. Harris.- Certainly not. 
 
COMMITTEE ON INTERSTATE COMMERCE. 857 
 
 Senator Cummins. Of course the plan that has been approved by 
 the circuit court is not in harmony with the law which forbids re- 
 straint of trade. 
 
 Mr. Harris. But I would have in advance of me the knowledge 
 that they owned this stock, and the common ownership of this stock 
 presupposes that they will work in harmony. 
 
 Senator Cummins. The* circuit court of New York knew of the com- 
 mon ownership because it decreed it; it provided this plan, provided 
 for the distribution of the common stock of the American Tobacco Co. 
 among these several corporations in the proportion in which they now 
 hold the stock of the American Tobacco Co. So it had that informa- 
 tion ? 
 
 Mr. Harris. But there is the greatest difference in the world in the 
 formation of the new companies with that knowledge and the existing 
 conditions which the circuit court, nor any other, could not very well 
 change. 
 
 Senator Cummins. The circuit court did not have to approve any 
 plan. 
 
 Mr. Harris. I am not questioning that. 
 
 Senator Cummins. It could have wound up the affairs of the cor- 
 poration, but it was limited by the direction of the Supreme Court. 
 
 Mr. Harris. I do not want to create the impression that I think 
 this was correct, or good, or proper, or in harmony with the spirit of 
 the decision. I have no opinion on it at all. I simply do not know 
 anything about it. 
 
 Senator Cummins. But notwithstanding what has happened, you 
 still believe that the law which prohibits restraint of trade without 
 any other guide than its various applications in the suits that have 
 been brought is an entirely certain and safe guide to business ? 
 
 Mr. Harris. I do. I do not believe that there ever can be formed 
 in this country, so long as that law remains on the statute books 
 unchanged, any combination of the character of those companies 
 which are held in bad repute to-day. 
 
 Senator Cummins. I can conceive easily, however, that under the 
 late decision of the circuit court the form of control might very easily 
 be changed so as to accomplish the evil results of consolidation and 
 yet be within the law, and we must provide against the probable 
 evolution of or ingenuity of man in trying to accomplish these same 
 results in some other way. 
 
 . Mr. Harris. It is because I agree with you so thoroughly on that 
 proposition that I have made this apparently revolutionary sugges- 
 tion. 
 
 Senator Cummins. Well, I return to that for a moment 
 
 Mr. Harris. Will you permit me to complete what I had in my 
 mind? 
 
 Senator Cummins. Certainly. 
 
 Mr. Harris. I want to say that I am in favor of a Federal license— 
 a commission, if you please— a Federal license where the charge shall 
 be nominal, $1 or $10, whether the corporation be a billion dollars 
 or $1, for every corporation doing an interstate business, and that 
 corporation must make its returns annually, as they do now. It 
 would be practically a duplication of the report which goes to the 
 Bureau of Corporations, and this commission would have before it all 
 the data that would enable it to determine if any one of these corp 
 
858 HEARINGS BEFORE 
 
 rations came within the conditions which I named, and at the same 
 time it would interfere with no other person's business. You could 
 see that he is conducting business according to law. I am opposed 
 to Federal incorporation Decause I do not believe in taking the power 
 away from the States, as the power of taxation of the State is so 
 much more important than that to the Federal Government. In the 
 income tax the Federal Government will 'have an instrument by 
 which it can get all the taxes it needs, and therefore I am opposed to 
 Federal incorporation. I want simply the license of the Federal 
 Government to do interstate-commerce business, the State reserving 
 the control as they do now. I wanted to make that clear. 
 
 Senator Cummins. If your plan were in effect, do you believe the 
 tendency would be toward smaller corporations or larger corpo- 
 rations ? 
 
 Mr. Harris. Smaller. 
 
 Senator Cummins. If the United States Steel Corporation, for 
 instance — I instance that because we had it before us this morning- 
 could lawfully monopolize all the business of the United States in its 
 line, and have a profit of 6 per cent on the capital 
 
 Mr. Harris. Actual paid-in capital. 
 
 Senator Cummins. Actual paid-in capital, and also I think you are 
 willing that good will should be capitalized 
 
 Mr. Harris. Oh, yes; a certain amount. The man is entitled to 
 that. 
 
 Senator Cummins. Do you not think it probably would very soon 
 take in all the business of the United States ? 
 
 Mr. Harris. That would be the most glorious condition that the 
 human mind could conceive of, from an economic point, of view — 
 6 per cent interest. 
 
 Senator Cummins. I am not speaking now of what would be for 
 the welfare of the people but what would probably happen, in your 
 opinion ? 
 
 Mr. Harris. Unquestionably; that is to say — when I say unques- 
 tionably — I did not mean unquestionably — that answer was based 
 on what the Steel Corporation would do if it controlled all the busi- 
 ness. What I mean to say is that human nature — the very thing 
 that has made these great corporations — would prevent it. They 
 want 12 per cent. So they would immediately sell, split up, and start 
 new business. 
 
 Senator Cummins. Suppose the United States Steel Corporation 
 were changed now to start out with this project of controlling the 
 entire business, and it goes to Jones and Laughlin and offers them a 
 certain amount of their plant; it issues stock for it, buys it, and so 
 with all the plants. Do you not think that it would find some com- 
 pensation in monopolizing the business even though it were limited 
 to 6 per cent on the actual capital that it had laid out to secure all 
 those plants ? 
 
 Mr. Harris. Does it not require all these plants to do all the busi- 
 ness of the United States. If those plants are required now to 
 do it 
 
 Senator Cummins. I am asking you what you think the tendency 
 would be, not whether it would be wise or not, or for the welfare of 
 the people, but do you think it would result in monopoly or dis- 
 tribution ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 859 
 
 Mr. Harris. Absolutely not. Instead of it being the centrifugal 
 force now, that lust of power, it is the centrifugal force to disintegrate. 
 
 Senator Cummins. There are other considerations, however, which 
 might compensate a company of that kind for the limitation upon 
 its dividends, I think. The very power that you speak of can be 
 exerted in a great many ways other than through the mere acqui- 
 sition of d .vidends. 
 
 Mr. Har 1 ris. There is no power, Senator, save that expression that 
 I used, the lust of power, which is responsible for the aggregations of 
 these great corporations — not for money itself, but for the power that 
 goes with it. Take these great men like John D. Rockefeller, Andrew 
 Carnegie, and J. P. Morgan, for instance. They are as wise in the 
 distribution of their moneys as they are in the acquisition of them. 
 They do not hoard up hundreds of millions; but human nature is 
 there. So long as you give them the opportunity by law they are 
 going to do all they can, and I would do the same if I had the ability 
 and the opportunity. 
 
 Senator Cummins. You are making just the argument that had 
 occurred to me, that this lust for power would lead to complete 
 monopoly even though the complete monopoly was limited in its 
 provision, and it would find its compensation for diminished divi- 
 dends in other ways. 
 
 Mr. Harris. My mind can not conceive in what other ways. I 
 can not grasp it. 
 
 Senator Cummins. Then you do not think that this lust for power 
 which comes from immense aggregations 
 
 Mr. Harris. Lust for financial power. 
 
 Senator Cummins. Just one moment. This lust for power that 
 you have spoken of that comes from these immense aggregations, 
 would lead to these combinations or consolidations at the expense 
 or risk of diminished profits ? 
 
 Mr. Harris. Absolutely not. You destroy the lust of power at 
 its root. There can be no power when there is no possibility to make 
 large sums of money. You destroy that. The lust of power is in 
 all of us. One wants to be a United States Senator; another wants 
 to be the governor of his State; the other wants to be the head of a 
 bank or an industrial corporation. 
 
 Senator Cummins. Precisely. Now, we will take, as an illustration,. 
 Mr. Morgan. Do you not think that Mr. Morgan would like to be 
 the chief spirit in a company that controlled all the iron and steel 
 business of the United States and in a measure all its officers, its 
 employees, and its relations to other kinds of business, even though 
 the stockholders in that immense aggregation were to receive but 
 6 per cent upon their stock ? 
 
 Mr. Harris. I do not. 
 
 Senator Cummins. You do not think he would \ 
 
 Mr. Harris. No, sir. Can vou conceive, Senator, ol John D. 
 Rockefeller— without in the slightest intending to reflect on any of 
 these men; when I use their names they simply represent the su- 
 preme wonderful genius of power, strength, and ability— do you con- 
 ceive of men of that kind caring two cents for the formation? No; 
 he lets vou and lets me and lets the other man, whose lust of power 
 is in a different direction. Lust of power to the financier is wealth 
 
860 HEARINGS BEFORE 
 
 that is the representation of it. To the lawyer it is a position on the 
 Supreme Bench. 
 
 Senator Cummins. Precisely. The only thing that is strange to 
 me is your argument seems to lead to my conclusions, while to you 
 it seems to lead to yours. I can very easily conceive of men like 
 Mr. Morgan and Mr. Rockefeller and Mr. Gary wanting to officer and 
 manage a corporation that should embrace all the business of the 
 United States, even though the stockholders ol that corporation 
 would receive only 6 per cent. 
 
 Mr. Harris. Have you noticed John D. Rockefeller and William 
 Rockefeller and the Rockefeller family have resigned from the 
 Standard Oil since the lust of power is curtailed I 
 
 Senator Cummins. I do not agree that the lust of power has been 
 curtailed. I think myself that the reorganization of the Standard 
 Oil Co. rather ministers to the lust of power than takes away from it. 
 But however that ma} T be, you are of the opinion that your plan 
 would result in small corporations rather than in large ones ? 
 
 Mr. Harris. And I do not consider, notwithstanding the judgment 
 of the distinguished gentleman who proceded me — that the small cor- 
 poration — small relatively, I mean, of five hundred million or two 
 million of dollars — will produce less economies or less results than the 
 billion and a half corporation — the steel corporation. We only need 
 to look around. All theories amount to nothing when you are face to 
 face with practical conditions that would change those theories. In 
 every one of the cites in which we live there are shoe manufacturers. 
 Everybody in the United States knows to-day that the laboring man 
 can get a shoe for $2 a pair that 35 years ago he could not get 
 unless he had a pair made that would have cost him $7 or $8. 
 And so it is in every line. That is one superstition of these great cor- 
 porations; that is one of the excuses they give; that is how they fool 
 the people. I do not agree with it at all. 
 
 Senator Cummins. I do not either. 
 
 Mr. Harris. I see the individual efforts in every line of business 
 producing the most substantial and practical results, which is different 
 from their statements, but they iterate and reiterate it so often that a 
 lot of people believe it. 
 
 Senator Cummins. There is a certain size that is necessary to reach 
 an economical cost of production. It may be too large as easily as it 
 may be too small? 
 
 Mr. Harris. Yes, sir; or too small. 
 
 Senator Cummins. You instanced a company in Cincinnati that 
 owned 200 grocery stores 
 
 Mr. Harris. Retail grocers. 
 
 Senator Cummins. And in the towns adjoining, but you had no 
 doubt that that was entirely innocent? 
 
 Mr. Harris. Not only innocent 
 
 Senator Cummins. Stop there. You have no doubt about that ? 
 
 Mr. Harris. No question at all. 
 
 Senator Cummins. Now, suppose that company, instead of having 
 gradually built up 200 stores, were to come in now and buy 200 
 stores already in existence, would you consider that organization a 
 combination equally innocent ? 
 
 Mr. Harris. Just as innocent, whether they bought 200, 2,000, or 
 200,000, provided they did not take the fourth step that these corpo- 
 rations have taken, and that is to increase the price to the consumer. 
 
COMMITTEE ON INTERSTATE COMMEECE. 861 
 
 Senator Cummins. You do not think, then, that there is any form 
 of organization that can be in violation of the antitrust law ? 
 Mr. Harris. I do not. 
 
 Senator Cummins. Then, if a company should buy all the grocery 
 stores in the United States, you would still consider it entirely inno- 
 cent under the antitrust law ? 
 
 Mr. Harris. Well, of course, you must not {ire such legal questions 
 at me. My impression is that the antitrust law presents a monop- 
 oly, does it not ? 
 
 Senator Cummins. It prohibits a monopoly. 
 
 Mr. Harris. And, of course, the ownership of all the grocery stores 
 in the United States would, it seems to me, per se, be a monopoly. 
 
 Senator Cummins. But even then it has got to leave enough out 
 to create competition — reasonably fair competition — and if the owner- 
 ship of those 200 stores in Cincinnati by one concern precludes the 
 opportunity for fair and honest competition it would be in violation 
 of the law. Now, who is to determine that ? 
 
 Mr. Harris. Any person who is aggrieved would apply to the 
 commission. I could apply immediately, assuming that there was 
 this -commission. Would they not determine it? 
 
 Senator Cummins. I am speaking of the law as it is. 
 
 Mr. Harris. The present law. Very well, then, I would say to 
 the Attorney General "such and such a condition of affairs exists, 
 and in my judgment it is a violation of the interstate-commerce 
 law." He would send his official to Cincinnati, through the Depart- 
 ment of Justice, and he would investigate, and he would say, "You 
 have no case; there is nothing at all in violation of the interstate- 
 commerce law." We must have some authority. 
 
 Senator Cummins. There may be a great difference of opinion as 
 to whether he did violate or did not violate the law — that is to 
 say, while the Attorney General might think it was in violation of 
 the law, another might think it was not. Now, is it not our duty to 
 remove, as far as possible, that uncertainty in the law ? 
 
 Mr. Harris. Yes, if you can do it, provided you do not touch that 
 law. You can reach that by supplementary legislation. 
 
 Senator Cummins. Of course all legislation on the subject must be 
 supplementary or additional. I am not discriminating between a 
 law that is added to the antitrust law, if it is inefficient, and one 
 that changes the phraseology of the antitrust law. I think either 
 would be an amendment of it. That is all I care to ask. 
 
 The Chairman. Senator Gore, do you care to ask any questions? 
 
 Senator Gore. Just one question. Do you not think, now, that this 
 tobacco company has been dissolved into several subordinate con- 
 cerns, that your impression is that they will still avoid competition ? 
 
 Mr. Harris. That is my opinion — that is, any competition harm- 
 ful to themselves, not to us. 
 
 Senator Gore. Take the Standard Oil Co., for instance; I believe 
 it controls about 80 per cent of the amount of business of the country, 
 perhaps 85 per cent. Now, if it had subdivided voluntarily into, say, 
 10 concerns, which controlled a little less than 10 per cent of the 
 business of the country, under your plan there would be no limita- 
 tion whatever on their devidends ? 
 
 Mr. Harris. None whatsoever, so long as they control less than 
 10 per cent. 
 
862 HEARINGS BEFORE 
 
 Senator Gore. Each company controlled less. But they could, by 
 concert of action or understanding, still act in harmony and avoid 
 positive competition, just as these tobacco companies, do you not 
 think ? Do you get the point ? 
 
 Mr. Harris. Yes. Or course that could be conceded. I assume 
 that the commission — whatever you would call this licensing com- 
 mission — would, on complaint of anyone, as they will do to-day by 
 the proper authorities, investigate, and if they found such a violation, 
 they are right up against the Sherman law. As I say, there ought to 
 be some legislation by which, instead of wasting 10 years in investiga- 
 tions in trying to find out the secrets of the business — and it seems to 
 me wonderful that they have accomplished that much— they would 
 immediately enforce some criminal act, the criminal feature of it. 
 It is difficult for us to believe over a long period of years 8 or 10 
 or 20 companies will continue to act together by simply a tacit 
 understandmg. There will be shifting of the ownership of stock. 
 Now, there is no plan that can be presented which will not have 
 some weak features ; there is nothing perfect ; but if you take away the 
 incentive — and that is the only way that I see that you can take 
 away the incentive — it should be done. The present officials of these 
 great combinations may be benevolent despots, but they die and we 
 may not have benevolent despots, but I am opposed even to benevo- 
 lent despots. 
 
 Senator Gore. I think you are right. I believe that is all I care to 
 ask. 
 
 Senator Pomerene. I would like to ask you just one or two ques- 
 tions. What is your view of the advisability and practicability of 
 having the Government, by commission or otherwise, fix prices ? 
 
 Mr. Harris. It is absolutely abhorent as a matter of principle, and 
 absolutely impracticable for the Federal Government to do anything 
 of the kind. \ 
 
 Senator Pomerene. Why ? 
 
 Mr. Harris. You have no more right to fix a price on one article 
 of commerce than you have on all the articles; you have no more right 
 to fix the price on steel than you have on bread of eggs or clothing 
 or boots and shoes, or the thousand and one other articles that enter 
 into the daily life and use of the people. So if you say the principle is 
 correct for one or two or three or six, you must say it is for all, and 
 that is absolutely socialistic, to which I am unequivocally opposed. 
 
 Now, as to its impracticability, there are many conditions that 
 enter into the giving of credit, as any merchant knows full well. One 
 man may say, "I will practically furnish the capital for Jones to do 
 business" — I have done it often in my business. "I think he is 
 thoroughly honest; I think he is capable." But it is a great risk. 
 He is loaning the money that I give to him. He is extending the credit 
 to the trade, to the retail trade, and that is extremely hazardous. 
 Now, I am willing to give him that credit, first, for the greater profit. 
 I go on my judgment and I give him a credit, to which he is not in 
 any way entitled, for the greater profit in the transaction, and if he 
 has sense enough to know what he is doing he knows that. He does 
 it. You are not asking that. He is willing to pay that 5 per cent 
 difference possibly in cost, because it means nothing to him. If he is 
 successful he is making 30 to 40 per cent off of your capital and you 
 are taking all the risks, because if he fails there is no recourse. 
 
COMMITTEE ON INTERSTATE COMMERCE. 863 
 
 The question, therefore, is the nature of the risk, and you can not 
 fix the price on one tiling without fixing it on all, nor in one section of 
 the country without fixing it in all sections of the country. 
 
 Now, in the South, when I was in business, although we sold only 
 to the jobbing trade and took none of those risks of which I am speak- 
 ing, in all the Southern States people to whom we sold, great jobbers 
 and grocers, men quoted at from half a million to a million and a half 
 dollars, handled whiskys in bond. We sold to another trade in 
 Texas, in Louisiana, and Mississippi, planters, at 12, 18, 24, or 36 
 months. It all depended on what the crops were. It is not unusual. 
 It may have been changed; I have not had anything to do with that 
 matter for 20 years, but it illustrates my point. They got enormous 
 prices for their goods. They sold to men that they might have to 
 carry for two or three years at $3 a gallon, while the man who was 
 going to pay them promptly within four months got his goods at $2 
 a gallon. That was their way of doing business. They have explained 
 it to me, and I know it to be a fact. 
 
 Now, those conditions exist in duTerent sections of the country. 
 Where you go into a newlv developed part of the country there are 
 great risks. There is recklessness in the way of doing business and 
 recklessness in the method of loaning moneys. The risk in one is 
 entirely different from the risk in another. 
 
 If there were a monopoly, then, and only then — wherever you 
 have a monopoly, then the Government can fix the price. 
 
 Senator Pomerene. You do not believe with Judge Gary that 
 contingencies might arise, as during the panic of 1907, when it 
 would be a wise thing for the Government to attempt to regulate 
 prices ? 
 
 Mr. Harris. Absolutely not; and I can see no relation whatso- 
 ever in the conditions which he named and the statement which he 
 made. What has a panic got to do with regulating prices ? The 
 only thing the panic of 1907, in my judgment, had to do with the 
 regulating of prices was that Col. Roosevelt was buncoed. The 
 Tennessee Coal & Iron Co. was taken away from 
 
 Senator Pomerene. It was a natural and not an industrial panic ? 
 
 Mr. Harris. It was. Of course Col. Roosevelt will not admit 
 that, because his temperament is not of that kind. But when the 
 Tennessee Coal & Iron Co. was swallowed up, the panic ceased. 
 Can you tell me, or can any man make me believe, that the ability 
 to control the panic at its worst stage was not as great as to control 
 it a week or two weeks before, at its much lesser and acute stage, 
 or if there had been any desire to do it for really the good of the com- 
 munity, they would not have lent, them the money on the Tennessee 
 Coal & Iron Co., and when the acute conditions had passed that 
 they would not have turned them back their stock ? 
 
 Senator Pomerene. I think that is all. 
 
 The Chairman. That will be all, Mr. Harris. 
 
 (Mr. Harris was thereupon excused.) 
 
 The Chairman. The following petition- in the circuit court of the 
 United States in the case of the United States of America v. The 
 United States Steel Corporation and others will be incorporated in 
 the record. 
 
 22877— vol 1—12 55 
 
864 HEABIXGS BEFORE 
 
 (The petition is as follows :) 
 
 [In the Circuit Court of the United States for the District of New Jersey. United States of America v. 
 United States Steel Corporation and others.] 
 
 To the Judges of the Circuit Court of the United States for the District of New Jersey: 
 
 The United States of America, by John B. Vreeland, attorney for the district of 
 New Jersey, acting under the direction of the Attorney General of the United States, 
 brings this proceeding in equity against United States Steel Corporation, Carnegie 
 Steel Co., Carnegie Co. of New Jersey, Federal Steel Co., National Steel Co., American 
 Steel & Wire Co. of New Jersey, National Tube Co., Shelby Steel Tube Co., Ameri- 
 can Tin Plate Co., American Sheet & Tin Plate Co., American Sheet Steel Co., Ameri- 
 can Steel Hoop Co., American Bridge Co., Lake Superior Consolidated Iron Mines, 
 Uinon Steel Co., H. C. Frick Coke Co., Clairton Steel Co., Tennessee Coal, Iron & 
 Eailroad Co., Great Western Mining Co., West Missabe Land Co. (Ltd.), Wright Land 
 Co. (Ltd.), Davis Land Co. (Ltd.), Wells Land Co. (Ltd.), Stone Land Co. (Ltd.), 
 Wabigon Iron Co., Minosin Iron Co., Nibiwa Iron Co., Wenona Iron Co., Minawa Iron 
 Co., Leonard Iron Mining Co., Arthur Iron Mining Co., Fillmore Iron Mining Co., 
 Harrison Iron Mining Co., Jackson Iron Mining Co., Polk Iron Mining Co., Tyler Iron 
 Mining Co., Van Buren Iron Mining Co., Louis W. Hill, James N. Hill, Walter J. Hill, 
 Edward T. Nichols, J. H. Gruber, said named individuals being sued as trustees, 
 J. P. Morgan, Charles Steele, George W. Perkins, E. H. Gary, Chas. M. Schwab, 
 Andrew Carnegie, Henry C. Frick, James Gayley, William H. Moore, J. H. Moore, 
 Edmund C. Converse, Percival Roberts, jr., Daniel G. Reid, Norman B. Ream, 
 John D. Rockefeller, John D. Rockefeller, jr., P. A. B. Widener, and William P. 
 Palmer. 
 
 The following of said defendants are corporations organized under the laws of the 
 State of New Jersey and are residents of the State of New Jersey, to wit: 
 
 United States Steel Corporation, Carnegie Steel Co., Carnegie Co. of New Jersey, 
 Federal Steel Co., National Steel Co., American Steel & Wire Co. of New Jersey, 
 National Tube Co., Shelby Steel Tube Co., American Tin Plate Co., American Sheet 
 & Tin Plate Co., American Sheet Steel Co., American Steel Hoop Co., American 
 Bridge Co., Lake Superior Consolidated Iron Mines 
 
 On information and belief your petitioner alleges and shows: 
 
 I Conditions Before the Consolidation of 1898-1900. 
 
 Previous to and until the year 1898 the bulk of the iron and steel business of the 
 United States among the several States and between the several States and foreign 
 countries was carried on by many different persons, partnerships or corporations, 
 which were in active and general competition with each other, except at various times 
 and in various localities, where such trade was restrained by them oy unlawful pools 
 and combinations. 
 
 In 1898 there began a rapid and radical revolution in the steel and iron business, 
 characterized by great consolidations, resulting in bringing, by the year 1900, a very 
 large proportion of important branches of those industries, such as crude and semi- 
 finished steel, rails, structural Bteel, plates, merchant bars, wire rods and wire products, 
 sheets, tin plate, and tubes, under the control of consolidated concerns, each compris- 
 ing many who formerly had been competitors. Such consolidations affecting the 
 defendants to this petition were aB follows: 
 
 II. Consolidations 1898-1900. 
 
 FEDERAL STEEL CO. 
 
 In September, 1898, the Federal Steel Co. was incorporated under the laws of the 
 State of New Jersey. It was a security-holding company. It issued a capital stock 
 of approximately $100,000,000, which exceeded, by many millions, not less than 
 20, the value of the properties obtained. It acquired the entire capital stock of the 
 Illinois Steel Co., the Lorain Steel Co. of Ohio, the Johnson Co. of Pennsylvania, the 
 Minnesota Iron Co., one of the largest ore concerns in the Lake Superior regions (which 
 owned an important ore railroad and a fleet of ore vessels), and the Elgin, Joliet & 
 Eac tern Railway Co. By this step there was brought under one control approximately 
 15 per cent of the steel ingot production of the country. The Minnesota Iron Co. 
 owned or leased about 40,000 acres of mineral lands in Minnesota, and controlled the 
 Duluth & Iron Range Railroad, the Minnesota Steamship Co., and the Minnesota 
 Dock Co. The said railroad extended from Duluth into me iron-ore district owned 
 
COMMITTEE ON INTEESTATE COMMEECE. 865 
 
 by the Minnesota Iron Co. in Minnesota. The Minnesota Steamship Co owned a fleet 
 01 nine steel steamships and seven steel barges, operating on the Great Lakes. 
 
 The Illinois Steel Co. owned large works at North and South Chicago, also at Chicago, 
 at Joliet, 111., and at Milwaukee, wis. It also owned all the stocks and bonds of the 
 Chicago, Lake Shore & Eastern Railway Co., the Chicago & Kenosha Railway Co., 
 Chicago & South Eastern Railway Co., the Joliet & Blue Island Railway Co., and the 
 Milwaukee, Bay View & Chicago Railroad Co. It also owned the entire capital stock 
 of the Southwest Connellsville Coke Co. and the Cundy Iron Co. of Michigan, and 
 owned or leased about 7,000 acres of ore and mineral lands in Michigan. 
 
 The Elgin, Joliet & Eastern railway extended from Waukegan, 111., around Chicago 
 to Porter, Ind., and connected with every railroad entering Chicago. It had branches 
 to Aurora and Whiting, Ind., and South Chicago, 111., where it owned extensive 
 wharfs and other terminal property. 
 
 The property of the Lorain Steel Co . , of Ohio, consisted of a large steel plant at Lorain, 
 Ohio, with 525 acres of land on the Balck River. 
 
 The Johnson Co., of Pennsylvania, owned a manufacturing plant and 150 acres of land 
 at Johnstown, Pa. 
 
 The Illinois Co. and the Lorain Co., above referred to, were, previous to said com- 
 bination, competitors. 
 
 In addition, the Federal Steel Co., owne:l the entire capital stock of the Lake Ter- 
 minal Railroad Co., and the Johnstown & Stony Creek Railroad Co., which owned 
 respectively the terminal roads connecting the steel works at Lorain, Ohio, and Johns- 
 town, Pa. It owned also the entire capital stock of the Ingleside Coal Co. 
 
 The underwriting syndicate of the Federal Steel Co., received approximately 
 15,680,000 preferred stock and $8,400,000 of common stock for approximately $4,800,000 
 in cash, and their services in organizing the concern. 
 
 The purpose and the effect of such consolidation were a combination between said 
 consolidated companies and the Federal Steel Co., their officers, agents, promoters, 
 and underwriters, in restraint of trade and commerce among the several States and 
 with foreign nations, within the meaning of section 1, and were an attempt by the said 
 parties to monopolize and a monopolization of part of the trade or commerce among the 
 several States and with foreign nations, within the meaning of section 2, of the anti- 
 trust act. 
 
 The control of all of the said companies, with their properties, was acquired by the 
 United States Steel Corporation by the consolidation as hereinafter described. 
 
 CARNEGIE CO. OP NEW JERSEY. 
 
 The Carnegie Co., of New Jersey was incorporated by the State of New Jersey in 
 March, 1900, with a capitalization of $320,000,000, half in stock and half in bonds. 
 
 It took over the Carnegie Steel Co. (Ltd.), and an affiliated company, the H. C. 
 Frick Coke Co., with all of their subsidiary companies. At the time of its formation it 
 controlled fully 18 per cent of the steel-ingot production of the country. 
 
 The Carnegie steel interests had previously absorbed the Duquesne Steel Works, 
 a competitor. The purpose and effect of such consolidation and absorption were a 
 combination in restraint of trade and commerce among the several States and with 
 foreign nations, and an attempt to monopolize and a monopolization of, a part of the 
 trade and commerce among the several States and with foreign nations within the 
 meaning of the antitrust act. 
 
 At the time of its acquirement by the principal defendant, the United States 
 Steel Corporation, as hereinafter shown, it owned or controlled the following com- 
 panies and their properties: 
 
 Carnegie Steel Co. of Pennsylvania, owning Edgar Thomson Works, Bessemer, Pa.; 
 Duquesne Works, Duquesne, Pa.; Homestead Works, Munhall, Pa.; Upper and 
 Lower Union Mills, Pittsburgh, Pa.; Carrie Blast Furnaces, Rankin, Pa.; Lucy Blast 
 Furnaces, Pittsburgh, Pa., and Howard Axle Works, Howard, Pa. 
 
 Forty-three and six-tenths per cent of Pennsylvania & Lake Erie Dock Co. 
 
 Twenty-five per cent of New York, Pennsylvania & Ohio Dock Co. 
 
 Carnegie Land Co. and Conneaut Land Co. 
 
 Eighty-three and one-third per cent of Oliver Iron Mining Co., owning or leasing 
 a large number of active and inactive iron-ore properties on the Michigan and Mesabi 
 Ranges, which were acquired from various independent mining companies. 
 
 Fifty per cent of Pewabic Co. 
 
 Fifty-two per cent of Pittsburg, Bessemer & Lake Erie Railroad Co 
 
 Union Railroad Co. 
 
 Eighty-three and one-third per cent of Pittsburg Steamship Co. 
 
 Seventy-five per cent of PiUshnre Limestone Co. (Ltd'). 
 
866 
 
 HEARINGS BEFORE 
 
 Pittsburg & Conneaut Dock Co.; Carnegie Natural Gas Co.; Youghiogheny North- 
 ern^ Railway Co.; Mount Pleasant Water Co.; Trotter Water Co.; Mingo Coal Co.; 
 Union Supply Co. ; and H. C. Frick Coke Co. ; the latter holding by direct ownership, 
 or through subsidiary companies, about 40,000 acres of coking coal land, 11,000 coke 
 ovens, and 3,500 dwellings, and other property. 
 
 The purpose and effect of such consolidation were a combination in restraint of 
 trade and commerce among the several States and with foreign nations, within the 
 meaning of section 1, and an attempt to monopolize and a monopolization of part of 
 the trade or commerce among the several States or with foreign nations, within the 
 meaning of section 2, of the antitrust act. 
 
 The control of all of said companies with their properties was acquired by the 
 United States Steel Corporation, as hereinafter described. 
 
 AMERICAN STEEL & WIRE CO. OF NEW JERSEY. 
 
 The American Steel & Wire Co. of New Jersey was incorporated under the laws of 
 the State of New Jersey in January, 1899, with $90,000,000 capital stock. It combined 
 under one management and control all of the leading concerns engaged in the produc- 
 tion in the United States of wire, wire nails, and other wire products. 
 
 Said concerns, before and up to the said time of consolidation, except when self- 
 restrained by unlawful pools and agreements, had competed with each other in inter- 
 state and foreign trade and commerce. 
 
 One of its constituent companies was the American Steel & Wire Co., of Illinois, 
 organized in 1898, which was itself a consolidation of six competitor companies. 
 This company, in taking over one of its constituent companies, the Consolidated Steel 
 & Wire Co., itself a consolidation of seven plants, gave for each $100 of stock of that 
 company $175 of preferred and $175 of common stock of its company, viz, $350 for 
 $100. In the consolidation under the name of American Steel & Wire Co. of New 
 jersey each $100 of preferred stock of the American Steel & Wire Co. of Illinois received 
 $100 of preferred and $60 in common stock, and each $100 of the common stock received 
 $120 in common stock of the new concern. 
 
 Thus each $100 of stock of the old consolidated company became $490 in the atock 
 of the New Jersey concern. This stock so increased far exceeded the value of the 
 property it represented, and the effect of such increase was to stimulate efforts to earn 
 a return upon a fictitious valuation, through the power created by Buch consolida- 
 tion, and through unlawful expedients, by agreements, combinations, and otherwise, 
 and thus to onerate consumers and the public generally with an unjust burden, which 
 was done by and through the means aforesaid. This condition of inflated securities, 
 with the results as above set out, was still further aggravated by the fact that the pro- 
 moters and underwriters of the organization of the said American Steel & Wire Co. 
 received for their services, etc., of the common stock $11,600,000. The defendant, the 
 American Steel & Wire Co. of New Jersey, by the said consolidation, came into the 
 ownership or control of the companies and properties as follows: 
 
 American Steel & Wire Co. of Illinois, controlling Consolidated Steel & Wire Co., 
 composed of seven united plants; Salem Wire Nail Co., of Salem and Findlay, Ohio; 
 H. P. Nail Co., of Cleveland, Ohio; American Wire Co., of Cleveland, Ohio; American 
 Wire Nail Co., of Anderson, Ind.; Ellwood Wire & Nail Co., and I. L. Ellwood Manu- 
 facturing Co., of DeKalb, 111. 
 
 Washburn & Moen Manufacturing Co., with four plants at Worcester, Mass., Wauke- 
 
 fan, 111., and San Francisco, Cal.; Worcester Wire Co., of Worcseter, Mass.; Cleveland 
 tolling Mill Co., of Cleveland and Newburg, Ohio; Oliver Wire Co., of Pittsburg, Pa.; 
 Oliver & Snyder Steel Co., of Pittsburgh, Pa.; Pittsburgh Wire Co., of Braddock, Pa.; 
 Indiana Wire Fence Co., of Crawfordsville, Ind.; Garden City Wire & Spring Co., 
 of Chicago, 111.; Consolidated Barb Wire Co., of Joliet, 1,11., and Lawrence, Kans.; 
 Laidlaw Bale Tie Co., of Joliet, 111.; Cincinnati Barb Wire Fence Co., of Cincinnati, 
 Ohio; Union Rolling Mill Co., of Cleveland, Ohio; Portage Iron Co., of Duncanville, 
 Pa.; Newburgh Wire & Nail Co., Newburgh, N. Y.; Allegheny Furnace Co., Alle- 
 
 fheny, Pa.; Shenango Valley Steel Co., Newcastel, Pa.; Shoenberger Steel Co., Pitts- 
 urgh, Pa.; Puget Sound Wire Nail & Steel Co., Everett, Wash.; 50 per cent of the 
 Juniata Coke Co., Dawson, Pa.; 19 per cent of the Pennsylvania & Lake Erie Dock 
 Co.; and 80 per cent of the Edgar Zinc Co., with plants at St. Louis, Mo., and Cherry- 
 vale, Kans. 
 
 After its organization it organized and owned American Mining Co., American Coke 
 Co., American Steamship Co., and acquired 50 per cent of the Huron Water Co. 
 
 It thus obtained an almost complete monopoly of barbed wire and of woven wire 
 production, and controlled approximately four-fifths of the wire fencing and nails 
 produced in the United States. The prices were greatly increased. The price of 
 nails in 1900 was more than 200 per cent of the price in 1897. 
 
COMMITTEE ON INTERSTATE COMMERCE. 867 
 
 The purpose and effect of such consolidation were a combination between said con- 
 solidated companies and the American Steel & Wire Co. of New Jersey, their officers, 
 agents, promoters, and underwriters, in restraint of trade and commerce among the 
 several States and with foreign nations within the meaning of section 1, and was by- 
 said parties an attempt to monopolize and a monopolization of part of the trade or 
 commerce among the several States and with foreign nations within the meaning of 
 section 2 of the antitrust act. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control 
 or ownership of all the aforesaid companies and properties. 
 
 NATIONAL TUBE CO. 
 
 The United States Tube Co. was incorporated under the laws of the State of New 
 Jersey in February, 1899. In June of that year its name was changed to National 
 Tube Co. The capital stock was $40,000,000, 7 per cent cumulative preferred, and 
 $40,000,000 common. It combined under one management concerns which, at that 
 time, controlled the bulk of the production of iron and steel wrought tubing of the 
 United States — approximately 90 per cent. 
 
 Said concerns, before and up to the said consolidation, except when self-restrained 
 by unlawful pools and agreements, had competed with each other in interstate and 
 foreign trade and commerce in said products. 
 
 The defendant, the National Tube Co., by the said consolidation, came into the 
 ownership or control of the companies and properties as follows: 
 
 Allison Manufacturing Co.'s tube mill, American Tube & Iron Co., Chester Pipe & 
 Tube Co., Cohoes Tube Works, Delaware Iron Co., National Galvanizing Works, 
 Ohio Tube Co., Oil Well Supply Co.'s Continental Tube Works and Elba Iron Works, 
 Pennsylvania Tube Co., Riverside Iron Works, Oil Citv Tube Co., and Syracuse 
 Tube Co. 
 
 It also acquired the entire capital stock of the National Tube Works Co., and a 
 large interest in the Western Tube Co., the Pittsburg Tube Co., and 7 per cent of the 
 Pennsylvania & Lake Erie Dock Co. 
 
 The purpose and effect of such consolidation were a combination between said 
 consolidating companies and the National Tube Co., their officers, agents, promoters, 
 and underwriters, in restraint of trade and commerce among the several States and 
 with foreign nations, within the meaning of section 1, and were, by the said parties, 
 an attempt to monopolize and a monopolization of part of the trade or commerce 
 among the several States and with foreign nations, within the meaning of section 2 
 of the antitrust act. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control 
 or ownership of all the aforesaid companies and properties. 
 
 NATIONAL STEEL CO. 
 
 The National Steel Co. was incorporated under the laws of the State of New Jersey, 
 in February, 1899, and issued a capital stock of $59,000,000. It acquired the prin- 
 cipal crude-steel manufacturing companies west of the Alleghenies, chiefly in Ohio, 
 other than those owned by the Federal Steel Co. and by the Carnegie Steel Co. (Ltd.). 
 They had a yearly capacity of about 1,800,000 tons of steel. 
 
 Said concerns, before and up to the said consolidation, except when self -restrained 
 by unlawful pools or agreements, had competed with each other in interstate and 
 foreign trade and commerce in said product. 
 
 At least $5,000,000 of the common stock went for promotion. 
 
 By this combination it controlled approximately 12 per cent of the steel-ingot output 
 of the United States. 
 
 The National Steel Co. by the Baid consolidation came into the ownership or control 
 of Ohio' Steel Co., Youngstown, Ohio; Shenango Valley Steel Co., New Castle, Pa.; 
 Sharon Iron Co. (Ltd.) and Buhl Steel Co., Sharon, Pa.; King, Gilbert & Warner Co., 
 Columbus, Ohio; Bellaire Steel Co., Bellaire, Ohio; and Mingo Works of iEtna Stan- 
 dard Iron & Steel Co., Mingo Junction, Ohio. 
 
 The purpose and effect of said consolidation were a combination between said con- 
 solidating companies and the National Steel Co., their officers, agents, promoters, and 
 underwriters, m restraint of trade and commerce among the several States and with 
 foreign nations within the meaning of section 1, and were by the said parties an 
 attempt to monopolize and a monopolization of part of the trade or commerce among 
 the several States and with foreign nations within the meaning of section 2 of the 
 antitrust act. 
 
868 HEARINGS BEFORE 
 
 Subsequent to its formation the National Steel Co. acquired control of other com- 
 panies and concerns, so that in addition to those mentioned above it also owned or 
 controlled at the time of its absorption by the United States Steel Corporation Rosena 
 Furnace Co., Thomas Furnace Co., Ohio Iron Co., 33$ per centof National Mining Co., 
 Chapin Mining Co., Winthrop Iron Co., Standard Connellsville Coke Co., Continental 
 Coke Co., Mutual Transportation Co., and Menominee Transit Co. 
 
 It also acquired 800 acres of coking-coal lands in Westmoreland County, Pa., and a 
 one-sixth interest in all the iron ore produced by the Oliver Iron Mining Co. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control or 
 ownership of all the aforesaid companies and properties. 
 
 AMERICAN TIN PLATE CO. 
 
 The American Tin Plate Co. was incorporated under the laws of the State of New 
 Jersey, in December, 1898, as a consolidation of 39 plants, with 279 mills, engaged in 
 the tm-plate industry in the United States. It issued $46,000,000 of capital stock. 
 It acquired practically every tin-plate concern in the United States and secured 
 thereby an almost complete monopoly of that branch of industry. 
 
 The concerns thus combined, before and up to the said consolidation, except when 
 self-restrained by unlawful pools or agreements, had competed with each other in inter- 
 state and foreign trade and commerce in said product. 
 
 Ten million dollars of the common stock went to the organizers. 
 
 The following companies, or their plants, were acquired by this consolidation: 
 
 JStna Standard Iron & Steel Co.'s Tin Plate Works, Bridgeport, Ohio. 
 
 American Tin Plate Co., Elwood and Montpelier, Ind. 
 
 Atlanta Steel & Tin Plate Co., Atlanta, Ind. 
 
 Baltimore Tin Plate Co., Baltimore, Md. 
 
 Beaver Tin Plate Co., Lisbon, Ohio. 
 
 Blairsville Rolling Mill & Tin Plate Mill, Blairsville, Pa. 
 
 Britton Rolling Mill Co., tin plate works of, Cleveland, Ohio. 
 
 Canonsburg Iron & Steel Co., Canonsburg, Pa. 
 
 Champion Iron & Steel Co., Muskegon, Mich. 
 
 Cincinnati Rolling Mill & Tin Plate Co., Cincinnati, Ohio. 
 
 Crescent Sheet & Tin Plate Co., Cleveland, Ohio. 
 
 Cumberland Steel & Tin Plate Co.. Cumberland, Md. 
 
 Ellwood Tin Plate Co., Ellwood City, Pa. 
 
 Falcon Tin Plate & Sheet Co., Niles. Ohio. 
 
 Great Western Tin Plate Co., Joliet, 111. 
 
 Hamilton & Co., West Newton, Pa. 
 
 Humbert Tin Plate Co., Connellsville, Pa. 
 
 Irondale Steel & Iron Co., Middleton, Ind. 
 
 Johnstown Tin Plate Co., Johnstown, Pa. 
 
 La Belle Iron Works, tin plate works of, Wheeling, W. Va. 
 
 Laughlin Nail Co., Martins Ferry, Ohio. 
 
 Marshall Bros. & Co., Philadelphia, Pa. 
 
 Monongahela Tin Plate Co., Pittsburgh, Pa. 
 
 Morewood Co., Gas City, Ind. 
 
 Morton Tin Plate Co., Cambridge, Ohio. 
 
 National Tin Plate Co., Monessen, Pa., and Anderson, Ind. 
 
 Neshannock Sheet & Tin Plate Co., New Castle, Pa. 
 
 New Castle Sheet & Tin Plate Co., New Castle, Pa. 
 
 Ohio River Sheet & Tin Plate Co., Rochester, Pa. 
 
 Pennsylvania Tin Plate Co., New Kensington, Pa. 
 
 Pittsburgh Tin Plate Works, New Kensington, Pa. 
 
 Reeves Iron Co., Canal Dover, Ohio. 
 
 Shenango Valley Steel Co., tin plate works of, New Castle, Pa. 
 
 Star Tin Plate Co., Pittsburgh, Pa. 
 
 United States Iron & Tin Plate Manufacturing Co., McKeesport, Pa. 
 
 Wallace, Banfield & Co., Irondale, Ohio. 
 
 Washington Steel & Tin Plate Mills, Washington, Pa. 
 
 The purpose and effect of said consolidation were a combination between said 
 consolidating companies and the American Tin Plate Co., their officers, agents, pro- 
 moters, and underwriters, in restraint of trade and commerce among the several 
 States and with foreign nations within the meaning of section 1, and were by the 
 said parties an attempt to monopolize and a monopolization of part of the trade or 
 commerce among the several States and with foreign nations within the meaning of 
 section 2 of the antitrust act. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control 
 or ownership of all the aforesaid companies and properties. 
 
COMMITTEE ON INTERSTATE COMMERCE. 869 
 
 AMERICAN STEEL HOOP CO. 
 
 The American Steel Hoop Cp. was incorporated under the laws of the State of New 
 Jersey in April, 1899, with a capital stock of .133,000,000 and brought into combina- 
 tion under one control the leading concerns engaged in the production of cotton ties, 
 steel bands, hoops, and like products in the United States. 
 
 At least $5,000,000 of the common stock went for promotion. 
 
 The concerns thus combined before and up to the said consolidation, except when 
 self-restrained by unlawful pools or agreements, competed with each other m inter' 
 state and foreign trade and commerce in said products. 
 
 The said company acquired, at the time of its formation, the following: 
 
 Union Iron & Steel Co., Youngstown, Warren, and Girard, Ohio; Isabella Furnace 
 Co., Pittsburgh, Pa.; Monessen Steel Co., Monessen, Pa.; J. Painter & Sons, Pitts* 
 burgh, Pa.; Wm. Clark & Sons, Pittsburgh, Pa.; Lindsay & McCutcheon, Pittsburgh, 
 Pa.; P. L. Kimberly Co., Sharon and Greenville, Pa.: Pomeroy Iron & Steel Co.> 
 Pomeroy, Ohio; Portage Iron Co. (Ltd.), Duncansville, Pa.; one-fifth of Mahoning 
 Ore & Steel Co., Mahoning, Pa., and one-third of National Mining Co. 
 
 The purpose and effect of said consolidation were a combination between said com* 
 panies and the American Steel Hoop Co., their officers, agents, promoters, and under* 
 writers in restraint of trade and commerce among the several States and with foreign 
 nations within the meaning of section 1, and were by the said parties an attempt to 
 monopolize and a monopoliziation of part of the trade or commerce among the several 
 States and with foreign nations within the meaning of section 2 of the antitrust act. 
 
 Shortly thereafter the said company acquired control of the iEtna & Montrose Rail- 
 road Co., 50 per cent of the stock of the Union Ore Co., and 8J per cent of the stock of 
 the Pennsylvania & Lake Erie Dock Co. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control or 
 ownership of all the aforesaid companies and properties. 
 
 AMERICAN SHEET STEEL CO. 
 
 The American Sheet Steel Co. was incorporated under the laws of the State of New 
 Jersey in March, 1900, and took over the principal manufacturers of sheet steel of all 
 kinds. The capital stock authorized was $26,000,000, 7 per cent preferred, and 
 $26,000;000 common. A large amount of the capital stock went for promotion. 
 
 The concerns thus combined, before and up to the said consolidation, except when 
 self-restrained by unlawful pools or agreements, competed with each other in inter* 
 state and foreign trade and commerce in said products. The said company acquired, 
 at the time of its formation, the following: 
 
 Apollo Iron & Steel Co., Apollo and Vandergrift, Pa.; Cambridge Iron & Steel Co., 
 and roofing plant of Cambridge Manufacturing Co., Cambridge, Ohio; Canton Rolling 
 Mill Co., Canton, Ohio; Chartiers Iron & Steel Co., Carnegie, Pa.; Corning Steel Co., 
 Hammond, Ind.; Dennison Rolling Mill Co., Dennison, Ohio; Dresden Iron & Steel 
 Sheet Co., Dresden, Ohio; Falcon Iron & Nail Co., Niles, Ohio; Hyde Park Iron & 
 Steel Co., Hyde Park, Pa.; Kirkpatrick & Co. (Ltd.), Leechburg, Pa.; P. H. Lauf- 
 man & Co., Paulton, Pa.; Midland Steel Co., Muncie, Ind.; iEtna Standard Iron & 
 Steel Co., Sheet Steel Works, Bridgeport, Ohio; New Philadelphia Iron & Steel Co., 
 New Philadelphia, Ohio; Old Meadow Rolling Mill Co., Scottdale, Pa. ; Piqua Rolling 
 Mill Co. and roofing plant of Cincinnati Corrugated Co., Piqua, Ohio; Pittsburgh Steel 
 Manufacturing Co., Shousetown, Ohio; Scottdale Iron & Steel Co. (Ltd.), Scottdale, 
 Pa.; Struthers Iron & Steel Co., Struthers, Ohio; Chester Rolling Mill Co., Chester, 
 W. Va.; Coshocton Rolling Mill Co., Coshocton, Ohio; W. Dewees Wood Co., McKees* 
 port, Pa., and Wellsville, Ohio; Reeves Iron Co., Canal Dover, Ohio; West Penn 
 Sheet Steel Works, Leechburg, Pa., and Saltsburg Rolling Mill Co., Saltsburg,_Pa. 
 
 The purpose and effect of said consolidation were - a combination between said con* 
 Bolidating companies and the American Sheet Steel Co., their officers, agents, pro* 
 moters, and underwriters in restraint of trade and commerce among the several States 
 and with foreign nations, within the meaning of section 1, and were by the said parties 
 an attempt to monopolize and a monopolization of part of the trade or commerce among 
 the several States and with foreign nations within the meaning of section 2 of the 
 antitrust act. 
 
 The United States Steel Corporation acquired, as hereinafter set out, the control of 
 ownership of all the aforesaid companies and properties. 
 
870 HEARINGS BEFORE 
 
 III. Conditions Leading to Formation of United States Steel Corporation. 
 
 While, through the formation of the companies aforesaid, competition was largely 
 eliminated in their respective lines, there was in 1900, and up to the time when 
 effective steps were taken to absorb all of these concerns by the United States Steel 
 Corporation, active competition between the Carnegie Co., the Federal Steel Co., 
 and the National Steel Co., the three principal producers of crude steel. These three 
 companies were also in competition with some of the other said consolidated com- 
 panies in the sale of the lighter finished products. The success achieved and the 
 power gained by the consolidations aforesaid stimulated these companies and those 
 controlling them, severally, to larger enterprise and more ambitious plans, involving 
 further elimination of competition and restraint of trade and commerce. A general 
 consolidation was brought about through the defendant, the United States Steel 
 Corporation, as hereinafter set out, thereby still further preventing competition 
 which was imminent. 
 
 The Carnegie Co. and the Federal Steel Co. manufactured steel rails, some other 
 heavy finished products, and semifinished steel products. For the sale of their 
 semifinished products they were dependent on other manufacturers, among whom 
 were some of the consolidated companies aforesaid. 
 
 The National Steel Co. was in the same condition, except that as to marketing its 
 products it could count the American Sheet Steel Co., the American Steel Hoop Co., 
 and the American Tin Plate Co., as customers, on account of their being closely 
 affiliated through a common control. 
 
 The American Steel & Wire Co. , which in its beginning enjoyed a practical monopoly 
 in wire products, and subsequently had acquired iron and coal properties and a vessel 
 fleet, was mainly dependent on other producers for the steel billets used in making 
 its product. The National Tube Co., which, at its formation, controlled the greater 
 part of the production of wrought pips and tubes in the United States, purchased a 
 very large part of its crude steel. 
 
 The American Sheet Steel Co., the American Tin Plate Co., and the American 
 Steel Hoop Co. were only partially protected as to obtaining their raw material from 
 the National Steel Co. through a common control. 
 
 There was a general movement upon the part of these concerns to control their raw 
 material and all stages of the manufacture of their products. 
 
 For example, the American Steel & Wire Co., whose constituent concerns had largely 
 patronized the Federal Steel Co. and the Carnegie Co., planned in 1900 to make its 
 own iron and steel. 
 
 The National Tube Co., a large customer of the Carnegie Co., proposed to erect 
 additional blast furnaces and steel works. 
 
 The American Tin Plate Co., the American Sheet Steel Co., and the American Steel 
 Hoop Co., large customers of the Carnegie Co. and other makers of steel, were rapidly 
 making themselves independent through the increase of the crude steel capacity of 
 the National Steel Co., which secured extensive ore and coal properties and a fleet of 
 Lake ore vessels. 
 
 Thus competition under old methods of doing business having been restricted, and 
 in some products almost entirely destroyed, threatened to make a new way and rees- 
 tablish itself in vigorous life. The leaders in the steel industry feared the breaking 
 down of the restraints upon trade and the overthrow of the partial or complete monopo- 
 lies which they had established. 
 
 The Carnegie Co. and the Federal Steel Co. saw the danger of their former customers 
 becoming their rivals. Both of these companies took steps looking to the manufac- 
 ture of finished products, such as structural material, tubes, and universal plates. 
 
 About the close of the year 1900, the Carnegie interests announced that they would 
 erect an immense tube plant at Conneaut, on Lake Erie-. A period of greater com- 
 petition had already been foreshadowed. This announcement brought affairs to a 
 crisis. A "battle of the giants" was discussed in the daily press and in the trade 
 journals. 
 
 If each of these actual and prospective competitors had worked out its own destiny 
 in trade, commerce, and production, unobstructed by combinations or agreements 
 entered into for the purpose of restraining competition and trade and commerce among 
 the States, and between the States and foreign countries, new plants would have been 
 established, and said trade and commerce would have developed under different 
 conditions, and free from restraints which, as will be shown, were imposed with the 
 purpose and effect of unduly restraining such trade and commerce and monopolizing 
 in part such trade and commerce. 
 
 An opportunity was offered, through further consolidation and restriction of trade 
 and commerce, for enormous profits as a reward for effecting the combination and as 
 a result of the flotation of inflated stocks. 
 
COMMITTEE ON INTERSTATE COMMERCE. 871 
 
 On account of its announced purpose, which contributed largely toward precipi- 
 tating the crisis, and also on account of its great strength, it was manifest that in 
 order to form an effective combination it was necessary to control the Carnegie Co. 
 
 Considering the magnitude of the entire undertaking it was carried to a conclusion 
 with unprecedented swiftness. 
 
 Within four months from the announcement by the Carnegie' Co. of ita purpose to 
 extend its activities into new fields, a new corporation was formed, which is the United 
 States Steel Corporation, for the purpose of preventing further competition, and 
 eliminating the existing competition between said companies. 
 
 In pursuance thereof, by about April 1, 1901,. the United States Steel Corporation 
 united and brought under one control all of the companies heretofore particularly 
 referred to and their properties, and also acquired the control of certain other com- 
 panies in 1901, as hereinafter shown. 
 
 The details of said combination will now be given, the said United States Steel Cor- 
 poration being hereinafter designated as the Corporation. 
 
 IV. Formation of United States Steel Corporation. 
 
 J. P. Morgan, aside from the prominent part taken by him as a member of the firm 
 of J. P. Morgan & Co., who were syndicate managers in charge of the organization of 
 the corporation, was a director in the Federal Steel Co. He became a member of the 
 first board of directors of the Corporation. 
 
 Charles Steele, who was a member of the firm of J. P. Morgan & Co., and acted in 
 the negotiations for the consolidation, was a director in the American Bridge Co. and 
 the National Tube Co., and became a member of the first board of directors of the 
 Corporation. 
 
 George W. Perkins came into the firm of J. P. Morgan & Co. after the negotiations 
 for the first combination began. He became active in bringing about subsequent 
 combinations herein mentioned. He became a member of the board of directors of 
 the Corporation in 1901. 
 
 E. H. Gary was active in bringing about the combination. At the time of the 
 merger he was president, director, and a member of the executive committee of the 
 Federal Steel Co. He became a member of the first board of directors of the Corpora- 
 tion, chairman of the executive committee, and a member of the finance committee, 
 and has been the leading person in controlling its affairs throughout its existence. 
 
 Charles M. Schwab was active in the negotiations leading up to the formation of the 
 Corporation, was president and director of the Carnegie Co. when absorbed, and be- 
 came the first president and a member of the first board of directors of the Corporation. 
 
 Andrew Carnegie was in control of the Carnegie Co. of New Jersey, was fully advised 
 as to the formation of the Corporation and its character, and combined in the plan for 
 the purpose and to the extent of transferring to it the control of the Carnegie Co. of 
 New Jersey. 
 
 Henry C. Frick was prominent in the Carnegie Co., was active in the effort to sell 
 the Carnegie properties and merge them in the Corporation, and became a member of 
 the first board of directors of the Corporation. 
 
 James Gayley was a director in the Carnegie Co., participated in the formation of 
 the Corporation, and became vice president. 
 
 William H. Moore, J. H. Moore, and Daniel G. Reid were active organizers of the 
 Corporation, and controlled the terms on which the American Tin Plate, American 
 Steel Hoop, American Sheet Steel and National Steel Cos. were taken over by the 
 Corporation. 
 
 William H. Moore and Daniel G. Reid became members of the first board of directors 
 of the Corporation. 
 
 Edmund C. Converse was president and director of the National Tube Co., was 
 active in bringing about the combination, and became a member of the first board of 
 directors of the Corporation. 
 
 Percival Roberts, jr., was president and director of the American Bridge Co., was 
 active in bringing about the combination; and became a member of the first board of 
 directors of the Corporation. 
 
 Norman B. Ream was a director of the Federal Steel Co., took part in bringing about 
 the combination, and became a member of the first board of directors of the Corpora- 
 tion. 
 
 John D. Rockefeller and John D. Rockefeller, jr., were largely interested in the 
 Lake Superior Consolidated Iron Mines, John D. Rockefeller, jr., being a director in 
 that company. Both of them participated in bringing about the combination and 
 became members of the first board of directors of the Corporation. 
 
872 
 
 HBAEINGS BEFOEE 
 
 P. A. B. Widener was a director in the American Steel & Wire Co. of New Jersey, 
 took part in bringing about the combination, and became a member of the first board 
 of directors of the Corporation. 
 
 William P. Palmer was president and director of the American Steel & Wire Co., of 
 New Jersey, took part in bringing about the combination, and continued as president 
 of the said Steel & Wire Co. after the transfer of that company to the Corporation. 
 
 The Corporation was organized under the laws of New Jersey, the original certificate 
 having been filed at Trenton, February 25, 1901. An amended certificate was filed 
 April 1, 1901. 
 
 The authorized capital stock was $550,000,000, 7 per cent cumulative preferred and 
 $550,000,000 common. 
 
 The Corporation in 1901, shortly after its organization had been completed and after 
 it had acquired in 1901 the properties as hereinafter shown, had a capitalization as 
 follows: 
 
 Preferred stock, 7 per cent cumulative $510, 205, 743 
 
 Common stock : 508, 227, 394 
 
 Steel Corporation bonds 303, 450, 000 
 
 Underlying bonds : 59, 091, 657 
 
 Purchase-money obligations and real-estate mortgages 21, 872, 023 
 
 Total 1, 402, 846, 817 
 
 The corporation is not an operating but only a holding company. In 1901, it 
 acquired practically all of the issue of capital stock of the companies named below, 
 the holders of such stock receiving in exchange for each $100 par value thereof the 
 amount set opposite thereto in preferred or common stock of the Corporation at par. 
 
 Names of companies and classes of stock acquired. 
 
 Federal Steel, preferred stock 
 
 Federal Steel, common stock 
 
 National Tube, preferred stock 
 
 National Tube, common stock 
 
 A. S. & W. Co., New Jersey, preferred stock 
 
 A. S. & W. Co., New Jersey, common stock 
 
 National Steel, preferred stock 
 
 National Steel, common stock 
 
 American Tin Plate, preferred stock 
 
 American Tin Plate, common stock 
 
 The Carnegie Co., viz: 
 
 For $64,000,000 of stock 
 
 For $96,000,000 of stock there were issued $144,000,000 of United States 
 Steel collateral trust bonds. 
 
 American Steel Hoop, preferred stock 
 
 American Steel Hoop, common stock 
 
 American Sheet Steel , preferred stock 
 
 American Sheet Steel, common stock 
 
 American Bridge, preferred stock 
 
 American Bridge, common stock 
 
 Lake Superior Consolidated Iron Mines 
 
 Shelby Steel Tube, preferred stock 
 
 Shelby Steel Tube, common stock 
 
 Amount of new stock re- 
 ceived in par value. 
 
 Preferred. 
 
 $110.00 
 4.00 
 
 125.00 
 8.80 
 
 117. 50 
 
 125.00 
 
 125.00 
 20.00 
 
 153. 50 
 
 100.00 
 
 100.00 
 
 "iio'66 
 
 135.00 
 37.50 
 
 Common. 
 
 $107. 50 
 
 125.00 
 'i02.'5O 
 
 125.00 
 "l25.'66 
 141.00 
 
 105.00 
 135.00 
 
 25.00 
 
 The Corporation also acquired $159,450,000 of the Carnegie Co. collateral trust 
 bonds, for which an equal amount of United States Steel collateral bonds was issued. 
 
 The Corporation also acquired the Bessemer Steamship Co.; also a one-sixth interest 
 in the stock of the Oliver Iron Mining Co. and the Pittsburg Steamship Co., the 
 remaining five-sixths interest in these two stocks being owned by the Carnegie Co. 
 
 The capitalization was many millions of dollars, not less than $600,000,000, in 
 excess of the value of the properties thus taken over. It was vastly in excess of the 
 amount upon which those properties under normal conditions could earn a fair return. 
 The earnings of the Corporation were not commensurate with its actual capital, nor 
 were they entirely the legitimate fruits of the earning capacity of those properties 
 separately controlled, however well administered, but were to a very large extent, 
 approximately one-half, the result brought about by the power exerted over trade 
 
COMMITTEE ON INTERSTATE COMMEBCE. 878 
 
 and commerce by such a vast combination of capital, the restraint imposed upon trade 
 and commerce, the suppression of competition, the influence upon the control of 
 prices, and the many direct and indirect advantages derived from the cooperation of 
 so many men of influence in trade and commerce, who formerly acting in rivalry 
 wereby the combination drawn together in a common interest. Consumers and the 
 public at large were, through the power created and exerted by such a vast combina- 
 tion, compelled to pay an unlawful tribute of many millions of dollars annually to 
 the Corporation. 
 
 Much stock was issued on an inflated basis in exchange for stock acquired in absorbed 
 companies, which stock itself had been issued upon a partly inflated basis, and of the 
 balance many millions of dollars were a reward for mere promotion and underwriting. 
 
 In the direct exchange of securities the Corporation issued $1,191,882,532 of stock 
 and bonds in exchange for a total of $881,224,405 stocks of the constituent companies 
 and Carnegie Co. bonds. 
 
 The carrying through of the consolidation was entirely under the supervision of J. P. 
 Morgan & Co. as syndicate managers. The syndicate turned over to the Corporation 
 $25,000,000 in cash, which constituted all that was added of intrinsic value to the 
 properties combined, except for $3,000 cash paid in by the incorporators and sundry 
 stocks of a par value of $174,000. For this consideration, and its expenses, services, 
 and risk, the syndicate received $64,998,768 (par value) of preferred and $64,998,837 
 (par value) of common stock of the Corporation. This enormous takeout was possible 
 because the syndicate managers and those most influential in effecting the combina- 
 tion were prominently identified with the management of several of the constituent 
 companies, and afterwards with the control of the Corporation itself. 
 
 The underwriting syndicate included several who variously were officers or direc- 
 tors of the companies which were combined. The total amount of the new capitali- 
 zation representing payments in stock to syndicates sis promoters for organizing the 
 new corporation and the previous combinations which it took over, exceeded 
 $150,000,000, after allowing for new capital contributed and reasonable expenses. 
 
 The new inflated capitalization of the Corporation exceeded the old inflated capi- 
 talization of the constituent concerns, plus the new cash capital provided and sundry 
 stocks as above mentioned, by $415,481,732, or by over 45 per cent. 
 
 The main prospect for maintaining earnings on the many millions given for.promo- 
 tion and issued in excess of valuation was the power in the business achieved by com- 
 bination, the potency of vast aggregation of capital, the affiliations brought about with 
 powerful banking and transportation companies and the direct and indirect control 
 of trade that thereby ensued. This was a fictitious basis resting on unlawful combi- 
 nation. 
 
 The value of stock thus issued largely depended upon earnings largely based upon 
 subjecting the public to conditions which could only continue by an abuse of the 
 public. 
 
 The $160,000,000 in bonds of the Carnegie Co., except $550,000, were exchanged for 
 a like amount of the bonds of the Corporation. The stock holdings in said company 
 of Andrew Carnegie, Mrs. Lucy C. Carnegie, and George Lauder, amounting tc- 
 $96,000,000, par value, were exchanged for $144,000,000, par value, in first mortgage 
 bonds of the Corporation. The remainder of the Carnegie stock, $64,000,000, par 
 value, was exchanged for $98,277,120, par, in preferred stock, and $90,279,040, par, in 
 the common stock of the Corporation. There was given for the $160,000,000, par value, 
 of stock and $159,450,000 bonds of the Carnegie Co. $303,450,000 of bonds and 
 $188,556,160 of stock of the Corporation, making a capitalization of $492,006,160 in 
 exchange for one of $319,450,000. 
 
 The value of the tangible property of the Carnegie Co. did not exceed $160,000,000. 
 The books of the Carnegie Steel Co. (Ltd.) showed that the net value on the 31st day 
 of December, 1899, of the assets was $75,610,104.96. This, to a large extent, repre- 
 sented the actual cost of the property as shown in the balance sheets of the company, 
 and the same was a full, fair, and accurate valuation. This statement from the books 
 was verified under oath by Andrew Carnegie and other members of the company. 
 Before the Corporation was formed, and within three years prior thereto, H. C. Frick 
 obtained an option upon the Carnegie property at the price of $160,000,000. He 
 proposed the purchase to J. P. Morgan, who declined it upon the ground that the 
 price was too high. And yet, when the plan was made to bring all of these properties 
 under one great combination and get rid of Mr. Carnegie as a competitor, Mr. Morgan 
 and associates paid not less than $492,006,160 for substantially the same property 
 which he but a short time before did not consider worth $160,000,000. 
 
874 
 
 HEARINGS BEFORE 
 
 V. Capacity and Extent or Properties Brought Under Combination in 1901. 
 
 At its organization the Corporation, through the stocks transferred to it, acquired 
 works with an annual capacity of over 9,400,000 tons of steel ingots, and more than 
 7,700,000 tons of finished rolled iron and steel products. The proportions of output 
 of principal iron and steel products produced by the Corporation and by other com- 
 panies in the United States in 1901 were as follows: 
 
 Steel Cor- 
 poration's 
 percentage, 
 1901. 
 
 Independ- 
 ent com- 
 panies' 
 percentage. 
 
 Pig iron, spiegel and ferro 
 
 Steel ingots and castings 
 
 Rails 
 
 Structural shapes 
 
 Plates and sheets of all kinds (including sheets for tinning, galvanizing, and other 
 
 coatings) 
 
 Black plate produced in tin mills 
 
 Coated tin-mill products 
 
 Black and coated sheets produced in sheet mills 
 
 Wire rods 
 
 Wire nails 
 
 Wrought pipe and tubes capacities 
 
 Seamless tubes capacities 
 
 43.2 
 65.7 
 59.8 
 62.2 
 
 64.6 
 79.8 
 73.1 
 67.3 
 77.7 
 68.1 
 57.2 
 82.8 
 
 56.8 
 34.3 
 40.2 
 37.8 
 
 35.4 
 20.2 
 26.9 
 32.7 
 22.3 
 31.9 
 42.8 
 17.2 
 
 It also acquired several railroads with over 1,000 miles of main track and a large 
 mileage of second track and sidings; a fleet of 112 Lake ore vessels; iron ore reserves 
 in the Lake region, estimated by the Corporation at over 500,000,000 tons; more than 
 50,000 acres of coking coal lands, with a great acreage of other grades of coal; and, 
 besides, numerous miscellaneous properties. 
 
 In 1902 the president of the Corporation, Mr. Schwab, with the purpose of justify- 
 ing the capitalization, valued the ore at $700,000,000. This was a great overestimate 
 of the actual value of the iron ore under free commercial conditions, and could only 
 be sustained as an artificial valuation produced by the power for monopoly of, and 
 restraint of trade and commerce arising from, such large holdings under one control. 
 
 VI. Acquisitions Subsequent to the Original Combination. 
 
 THE AMERICAN BRIDGE COMPANY. 
 
 This company was incorporated under the laws of New Jersey, in April, 1900, and 
 was a consolidation of the following manufacturing companies or properties: 
 
 A. & P. Roberts Co. (Pencoyd Iron Works), Philadelphia, Pa.; Keystone Bridge 
 Works, formerly of the Carnegie Co., Pittsburgh, Pa.; Berlin Iron Bridge Co., East 
 Berlin, Conn.; Post & McCord, Brooklyn, N. Y.; Elmira Bridge Co., Elmira, N. Y.; 
 Union Bridge Co., Athens, Pa.; Edge Moor Bridge Works, Wilmington, Del.; Lassig 
 Bridge & Iron Works, Chicago, 111.; Shinier Bridge Co., Pittsburgh, Pa.; Detroit 
 Bridge & Iron Works, Detroit, Mich.; Rochester Bridge & Iron Works, Rochester, 
 N. Y.; Groton Bridge & Manufacturing Co., Groton, N. Y.; Youngstown Bridge Co., 
 Youngstown, Ohio; J. G. Wagner Co. (bridge and structural plant), Milwaukee, Wis.; 
 Wrought Iron Bridge Co., Canton, Ohio; New Columbus Bridge Co., Columbus, Ohio; 
 ■Gillette-Herzog Manufacturing Co., Minneapolis, Minn.; La Fayette Bridge Co., 
 La Fayette, Ind.; Pittsburgh Bridge Co., Pittsburgh, Pa.; Schultz Bridge & Iron Co., 
 Pittsburgh, Pa.; Buffalo Bridge & Iron Works, Buffalo, N. Y.; Koken Iron Works, 
 St. Louis, Mo.; Hilton Bridge Construction Co., Albany, N. Y.; Horseheads Bridge 
 Co., Horseheads, N. Y.; American Bridge Works, Chicago, 111.; New Jersey Steel & 
 Iron Co., Trenton, N. J.; Toledo Bridge Co., Toledo, Ohio; Nelson & Buchanan Co., 
 Chambersburg, Pa. 
 
 The said companies were competitors and controlled a very large part — more than a 
 majority — of the bridge construction of the United States. There was issued over 
 $60,000,000 of stock, par value. 
 
 The said American Bridge Co. had acquired and exercised a practical monopoly 
 in the bridge business of the United States. 
 
 The purpose and effect of said consolidation were a combination between said 
 consolidating .companies and the American Bridge Co., their officers, agents, pro- 
 moters, and underwriters, in restraint of trade and commerce among the several States 
 and with foreign nations, within the meaning of section 1, and were by the said parties 
 
COMMITTEE ON INTERSTATE COMMEECE. 875 
 
 an attempt to monopolize and a monopolization of part of the trade or commerce among 
 the several States and with foreign nations, within the meaning of section 2 of the 
 antitrust act. 
 
 The said company, together with the control of all the said consolidated com- 
 panies and their properties, was acquired by the Corporation in 1901. For each share 
 of its preferred stock, par $100, was given $110 in the preferred stock of the Corpora- 
 tion, and for each share of its common stock ; par $100, there was given $105 in common 
 stock of the Corporation. By this acquisition of this large monopolistic combination, 
 which was a large consumer of steel products for the sale of which there was compe- 
 tition, the Corporation added greatly to its strength and power to restrain competition 
 and trade and commerce. 
 
 LAKE SUPERIOR CONSOLIDATED IRON MINES. 
 
 This company was incorporated under the laws of the State of New Jersey in 1893, 
 to acquire and operate mines chiefly in Minnesota. It combined a large number of 
 important mining companies and properties which previously were competitive. 
 The purpose and effect of said combination were a restraint of trade and commerce 
 and a monopolization of part of the trade or commerce within the meaning of the 
 antitrust act. 
 
 It was acquired by the corporation in April, 1901. When absorbed, the outstand- 
 ing stock of the company was $29,424,594. The stock of the company was heavily 
 watered. The stock of this combination was exchanged for stock in the Corporation 
 on the basis of $135 of preferred and $135 of common stock of the Corporation for 
 each $100. 
 
 The company had in 1901, from 300,000,000 to 400,000,000 tons of ore, part leased and 
 part ownedin fee. It owned the entire capital stock of the Duluth, Missabe & North- 
 ern Railway Co., amounting to $2,512,500. This road extended from Duluth into the 
 Mesabi Range and chiefly transported ore. It operated at a low cost. Its earnings were 
 high. It was a very important acquisition to the Corporation. The control of this 
 road, with that of the Duluth & Iron Range Railroad, gave the_ Corporation a very 
 effective control of ore transportation in the Minnesota ore regions, not only with 
 respect to its own production but also to that of many of its competitors. 
 
 BESSEMER STEAMSHIP CO. 
 
 This was the leading ore-vessel interest on the Great Lakes. The company owned 
 56 vessels, with a combined capacity of about 228,600 tons per trip. Its properties 
 were acquired in 1901 by the Corporation for $8,5Q0,000 in cash. 
 
 SHELBY STEEL TUBE CO. 
 
 In 1897 the Shelby Steel Tube Co was incorporated under the laws of Pennsylvania. 
 It was a consolidation of several seamless-tube companies. The combination produced 
 about 90 per cent of the entire output of the country. In 1899 several other companies 
 were acquired. In 1900 the Shelby Steel Tube Co was reorganized under the laws of 
 New Jersey. It had obtained a practical monopoly by uniting under one combination 
 concerns which were natural competitors and which had until said combination com- 
 peted with each other except when self-restrained by unlawful pools and agreements. 
 Its authorized capital stock was $15,000,000. Of this $1,305,900 was issued for fees, 
 expenses, organization, etc. . 
 
 The purpose and effect of said consolidation were a combination between said con- 
 solidating companies, their officers and agents, in restraint of trade and commerce 
 among the several States and with foreign nations, within the meaning of section 1, 
 and were by the said parties an attempt to monopolize and a monopolization of part of 
 the trade and commerce among the several States and with foreign nations within the 
 meaning of section 2 of the antitrust act. . 
 
 The control of the Shelby Steel Tube Co. was acquired by the Corporation in Au- 
 gust, 1901, by an exchange of stock, the Corporation giving of ite stock $1 , 791,038 pre- 
 ferred and $2,004,550 common for practically the entire stock of the bhelby Oo. 
 
 Through this acquisition the Corporation got rid of a competitor of its constituent 
 company, the National Tube Co., and established its supremacy in the seamless tub- 
 ing branch of the steel industry. 
 
876 HEAEINGS BEFOEE 
 
 OLIVER IRON MINING CO., PITTSBURG STEAMSHIP CO., AND POCAHONTAS COAL LANDS. 
 
 In addition, the Corporation, shortly after its organization, acquired a one-sixth inter- 
 est in the Oliver Iron Mining Co. and the Pittsburg Steamship Co., the remaining 
 five-sixths interest in these concerns being owned by its constituent, the Carnegie Co. 
 
 In the fall of 1901 it secured by lease about' 50,000 acres of best Pocahontas coking 
 and fuel coal. 
 
 UNION STEEL CO. 
 
 The Union Steel Co. was incorporated under the laws of Pennsylvania in Novem 
 ber, 1899, with $1,000,000 capital stock. Its plant was located at Donora, Pa., and 
 was started for the purpose of manufacturing wire rods, wire, and nails. It acquired 
 considerable ore property through the Donora Mining Co., a subsidiary company, 
 with $500,000 capital stock. It also secured large tracts of coking and steam coal in 
 the Connellsville region. The Union Steel Co. was an important competitor of the 
 Corporation. 
 
 The Sharon Steel Co. was incorporated under the laws of Pennsylvania, in October, 
 1899, to erect a steel plant at Sharon, Pa. Its plant was enlarged so as to manufacture, 
 in addition to pig iron and heavy semifinished steel products, rods, wire, and wire 
 nails. The company also commenced the construction of tin-plate mills through a 
 subordinate company, the Sharon Tin Plate Co. The original capitalization of the 
 Sharon Steel Co. was $3,000,000, which was increased to $6,000,000. The company 
 had blast furnaces, open-hearth furnaces, continuous wire-rod millB, and was under- 
 taking the construction of a wrought-steel-pipe plant. It had acquired a valuable 
 ore property on the Mesaba Range, and had long-time contracts with the Minnesota 
 Iron Co. for a supply of ore. It had also secured a large tract of coking coal land 
 in the ConnellBville region and had other coal lands elsewhere. It also owned a 
 limestone property and terminal railroad property. Its operations were such as 
 brought it into sharp competition with the Corporation. 
 
 In November, 1902, a merger was announced of the Union Steel Co. and the Sharon 
 Steel Co., under the name of the Union Steel Co., with a capitalization of fifty mil- 
 lions of dollars, thus forming the largest consolidation in the steel industry proper 
 which had been effected since the organization of the Corporation itself. The new 
 concern had a pig-iron capacity of about 750,000 tons yearly and a steel-ingot capacity 
 of about 850,000 tons yearly. With the announcement of the merger were coupled 
 intimations that plans were projected for constructing other important works as well 
 as the acquisition of other concerns then engaged in the manufacture of rods, wire 
 products, sheets, and pipes. There were also rumors that the new concern might 
 construct a railroad from Lake Erie to the Connellsville coke region, with connections 
 with the company's plants. Within a month from this merger the Corporation pur- 
 chased the entire property through the issue of $45,000,000 of bonds of the Union 
 Steel Co., guaranteed by the Corporation. Of this total, $29,113,500 were issued at 
 the time for the property, $8,512,500 were sold to the vendors, to be paid for in cash 
 at par under the agreement, while $3,500,000 were reserved to retire bonds outstand- 
 ing against the Sharon properties, and $3,874,000 were reserved for future construction 
 and improvements. The price paid for these properties was greatly in excess of the 
 cost to the Union Steel Co. and the Sharon Steel Co. and was in excess of their actual 
 value at the time they were taken over by the Corporation. The Corporation desired 
 to eliminate the competition of influential interests back of the Union concern, 
 particularly that of H. C. Frick. 
 
 The Union Steel Co., organized in 1899, and the Sharon Steel Co., organized in 
 the same year, were competitors, and their combination in the new Union Steel Co. 
 was in restraint of trade and commerce among the several States and with foreign 
 countries and a monopolization of a part of the trade or commerce among the several 
 States and with foreign countries within the meaning of the antitrust act. 
 
 TROT STEEL PRODUCTS CO. 
 
 The American Steel & Wire Co., one of the constituents of the Corporation, con- 
 trolled and directed by it, acquired as of January 1, 1903, the entire issue of capital 
 stock and first mortgage bonds of the Troy Steel Products Co., a competitor which 
 owned three blast furnaces, steel works, and a rolling mill, situated in the State of 
 New York. 
 
COMMITTEE ON INTERSTATE COMMERCE. 877 
 
 THE CLAIETON STEEL CO. 
 
 In May, 1904, the Corporation acquired the entire capital stock of the Clairton Steel 
 Co., formerly owned by the Crucible Steel Co. Coupled with this transaction was 
 a contract by which the Crucible Steel Co., was to secure a large amount of pig iron and 
 billets from the Corporation for a period of 10 years, which contract was in restraint 
 of trade and commerce within the meaning of the antitrust act. The Clairton Steel 
 Co., in addition to its manufacturing plant, with a capacity of 475,000 tons of pig iron 
 and 400,000 tons of steel ingots yearly, owned or leased very large quantities of ore in 
 the Lake Superior region and valuable deposits of coking coal. The Corporation thus 
 got rid of a competitor, and its monopolistic control of such ore and coal was thus 
 increased. 
 
 GREAT NORTHERN ORE LEASE. 
 
 In the early part of 1907, the Great Northern Railway interests, which had acquired 
 control of immense tonnages of ore by purchase or lease, caused to be transferred by 
 lessor companies controlled by it, viz: 
 
 West Missabe Land Co. (Ltd.), Wright Land Co. (Ltd.), Davis Land Co. (Ltd.), 
 Wells Land Co. (Ltd.), Stone Land Co. (Ltd.), Wabigon Iron Co., Minosin Iron Co., 
 Nibiwa Iron Co., Wenona Iron Co., Mmawa Iron Co., Leonard Iron Mining Co., 
 Arthur Iron Mining Co., Fillmore Iron Mining Co., Harrison Iron Mining Co., Jackson 
 Iron Mining Co., Polk Iron Mining Co., Tyler Iron Mining Co., Van Buren Iron 
 Mining Co., the larger part of these holdings by lease to the Great Western Mining Co., 
 subsidiary of the Corporation, the performance of the stipulations of the lease being 
 
 fuaranteed by the Corporation. In said lease, Louis W. Hill, James N. Hill, Walter J. 
 [ill, Edward T. Nichols, and J. H. Gruber joined as trustees. The corporation agreed 
 to mine the ore and ship it over the Great Northern Railway, paying therefor a royalty. 
 It was provided that the Corporation might cancel the lease January 1, 1915, on giving 
 two years| written notice. The Corporation, by this transaction, desired to prevent 
 this ore either from being mined and sold to independent producers, or from being 
 utilized to build up a new and dangerous competitor in the iron and steel business. 
 The practical effect was to forestall competition and greatly increase the Corporation's 
 control of the ore resources of the country. The royalty agreed to be paid was unpre- 
 cedentedly large, thus showing the extent to which the corporation was willing to go 
 to prevent this ore falling into the hands of competitors. By this acquisition the 
 Corporation strengthened its dominating position. In 1907 the holdings of the 
 Corporation in Minnesota, which State includes the Mesabi and Vermilion Ranges, 
 amounted to about 913,000,000 tons, or 75 per cent of the total ore deposits of the State. 
 Its proportion of ore of the whole Lake Superior region was approximately the same. 
 Authoritative data submitted to the Senate Finance Committee in 1909, with the 
 Corporation's consent, showed that the Corporation itself then reckoned on about 
 1,625,000,000 tons of Lake ore, of which 1,258,000,000 tons were of the current com- 
 mercial standard, which quantity was approximately 75 per cent of the total com- 
 mercially available ore in the entire Lake Superior region. 
 
 The purpose and effect of said lease were to shut off competition by preventing the 
 establishment of a competitor, to secure an undue power ove* the steel business«by 
 controlling the source of supply of ore by taking it out of the market, and to restrain 
 trade and commerce, and a monopolization within the meaning of the antitrust act. 
 
 Petitioner has been informed by the Corporation that its finance committee, on 
 October 17, 1911, unanimously decided tocancelsaid lease. However, underthe terms 
 of said lease no such cancellation can take effect before January 1, 1915, and there 
 is no limitation upon the amount of ore that can in the meantime be taken out by 
 the Corporation. 
 
 TENNESSEE COAL, IRON & RAILROAD CO. 
 
 In 1907 the Corporation acquired the control and almost the entire ownership of the 
 Tennessee Coal, Iron & Railroad Co., which" will hereinafter be called the Tennessee 
 Co. The properties of this company were located mainly in Alabama and Tennessee. 
 
 Owing to the character of its coal and iron deposits, their location, and that of 
 limestone, with reference to each other and to furnaces and transportation, the Ten- 
 nessee Co. could manufacture pig iron cheaper than it could be made in any other part 
 of the United States. On account of its vast holdings of coal and iron properties, the 
 steady growth of the manufacturing interests of the South, the fact that the known 
 commercially available coal and iron deposits of the United States had been almost 
 entirely acquired by manufacturing companies looking to their development, the 
 gradual overlapping of the zones of competition, and its control by a strong and aggres- 
 sive syndicate of capitalists, it was a strong probable future competitor of the Corpora- 
 tion. Most of the rails in the United States had been made out of Bessemer ores. On 
 
878 HEARINGS BEFORE 
 
 account of accidents attributed to inherent weakness in such rails, a demand arose 
 for an open-hearth rail, and for such process the ores owned by the Tennessee Co. were 
 available. In 1907, a sensation was created in the steel-rail market by E. H. Harri- 
 man, who controlled a large railroad mileage, ordering from the Tennessee Co. 157,500 
 tons of open-hearth steel rails, at $1 more per ton than the price of Bessemer rails. This 
 at once put that company into a position of an actual competitor of the Corporation, 
 and of a possible competitor that could not be ignored, of great potentiality. _ The 
 Corporation was not slow to discern the situation. James Gayley, first vice president 
 of the Corporation, having acquainted himself with the properties of the Tennessee 
 Co., had already recommended to Mr. Frick, who then was a director of the Corpora- 
 tion, that it acquire the properties of the Tennessee Co. This was about six months 
 before the purchase was made. A syndicate, which purchased, at $110 per share, 
 118,500 of the total 225,000 shares of the Tennessee Co., acquired the control for the 
 purpose of development and operation. Subsequently, a syndicate composed partly 
 of the original members, purchased 5.0,000 additional shares at $120 or $130 per share, 
 thus putting 168,500 shares under syndicate control. After these purchases the com- 
 pany expended $7,000,000 in betterments and additions, andwas preparing to spend 
 $3,000,000 more. It was the purpose of the syndicate to bring the whole plant up 
 to modern standards, and to increase the capacity as conditions warranted. The 
 company had rails booked for 1908 delivery of about 350,000 tons. 
 
 Grant B. Schley, of the firm of Moore & Schley, of New York City, was one of the 
 syndicate holding a majority of the stock. This was known to the officers of the 
 Corporation. Moore & Schley, in October, 1907, owed large sums of money in New 
 York and elsewhere, from $35,000,000 to $38,000,000, upon call and time loans which 
 were running to maturity. Some of these loans were partly secured by pledge of 
 100,000 shares of Tennessee stock, the amount fluctuating. 
 
 In October, 1907, a great panic came, and New York was the storm center. 
 
 Those in control of the Corporation obtained intimate knowledge of the affairs of 
 Moore & Schley, and of their holdings of Tennessee stock. The credit of Moore & 
 Schley, and the character of their stock holdings, such as Tennessee stock, Republic 
 Iron and Steel stock, and other industrials, was discussed on the Street and among bank- 
 ers, and the question of their failure was mooted. The Tennessee stock was specially 
 subjected to criticism, and, in Wall Street parlance, was "hammered" as a collateral. 
 H. C. Frick and E. H. Gary, representing the Corporation, took up the negotiation 
 with Schley for the purchase of the syndicate stock of the Tennessee Co., offering him 
 first the equivalent of 60 cents on the dollar and afterwards 75 cents on the dollar 
 in cash for the stock, which Schley declined. Oakleigh Thome, who was president 
 of the Trust Co. of America, a New York institution, was one of the syndicate that 
 purchased the majority of the stock of the Tennessee Co., having subscribed for 12,500 
 shares. 
 
 In a New York paper of October 23 appeared a statement headed "Aid Trust Co. of 
 America." Among other things it said that at a meeting the night before of the chief 
 bankers of the city, headed by J. P. Morgan & Co., it was formally decided that the 
 point then needing buttressing was the Trust Co. of America, and that this determina- 
 tion was announced after Mr. Perkins (meaning George W. Perkins, of J. P. Morgan 
 & So.) had been in conference subsequent to said gathering of bankers. A part of the 
 article, subheaded "The official statement," said: "The chief sore point is the Trust 
 Co. of America." After expressing confidence in the condition of the company, and 
 stating that it would be aided, and that cash had been guaranteed therefor, it was 
 stated that these steps were taken for the purpose of announcing that the company- 
 would be taken care of if an examination into its affairs, which had been authorized, 
 showed conditions to be as sound as there was every reason to believe them to be. 
 This announcement helped materially to cause a run on the said trust company, and 
 aggravated the general uneasy condition, and made the position of Moore & Schley 
 more desperate. It was generally known that Thome and Schley were members of the 
 Tennessee syndicate. Regardless of the intent in giving out the statement — and the 
 facts are not sufficiently known to make any charge in this regard — the fact is that it 
 contributed directly and strongly toward bringing Moore & Schley to a point of immi- 
 nent failure, although they were amply solvent. Their condition had become des- 
 perate. It being generally regarded by bankers and financiers that their failure might 
 precipitate a general crisis, they, J. P. Morgan & Co. taking the lead, exerted them- 
 selves by advances of ready money to meet pressing demands and otherwise to prevent 
 their suspension. Much of the effort, however, revolved about the proposition for the 
 Corporation to acquire the stock of the Tennessee Co. Nothing less than the control 
 of the Tennessee Co. was considered by the Corporation, and negotiations proceeded 
 rapidly and steadily to that end, it being represented to Schley that in no other way 
 could relief be brought to him. There was fear upon the part of the Corporation that 
 
COMMITTEE ON INTERSTATE COMMERCE. 879 
 
 when the movement became publicly known the Government might take steps to 
 prevent its consummation. 
 
 In view of this, E. H. Gary, the chairman of the executive committee of the Cor- 
 poration, and H. C. Frick, a director, went to Washington, reaching there Sunday 
 morning, November 4, to see the President, having previously made an appointment. 
 Without fully disclosing all the facts in regard to the Tennessee stock, its ownership, 
 the amount of money estimated as necessary to relieve Moore & Schley, and the 
 arrangements that had already been made to relieve the Trust Co. rf America, they 
 represented ft> the President that the only thing that would prevent a vicious spread 
 of the panic was for the Corporation to acquire thutftocK of the Tennessee Co. The 
 President recorded, in a letter to the Attorney General, written in their presence, 
 their representations. He states that said Gary and Frick told him that there was a 
 certain business firm which would fail if help shoutdnot be given, and that among its 
 assets were a majority of the securities of the Tennessee Coal Co. The firm referred 
 to was undoubtedly Moore & Schley, but it was not true that among the assets of the 
 firm were a majority of said securities. Nor was it true that said Schley had among 
 his assest a majority or anything approximating it. The President further said in 
 his letter: "Judge Gary and Mr. Frick informed me that but little benefit will come 
 to the Steel Corporation from the purchase." This statement to the President was a 
 misleading one. The property was very valuable. Next to the Corporation the 
 Tennessee Co., as will be shown, had the largest coal and ore properties in the United 
 States of any steel concern. A competitor was removed. The Corporation, in its 
 report to its stockholders of this purchase, said that the terms of purchase were satis- 
 factory, both as to price and manner of payment; that the purchase of the property 
 promised benefit to the Corporation, and that the Tennessee property was very 
 valuable. 
 
 The President was not made fully acquainted with the state of affairs in New York, 
 relevant to the transaction as they existed. If he had been fully advised, he would 
 have known that a desire to stop the panic was not the sole moving cause, but that 
 there was also the desire and purpose to acquire the control of a company that had 
 recently assumed a position of potential competition of great significance. The Presi- 
 dent, taken as he was partially into confidence and moved by his appreciation of the 
 gravity of the situation and the necessity for applying what was represented to him to 
 be the only known remedy, stated that he did not feel it to be his duty to prevent the 
 transaction . The matter then moved rapidly to consummation . The Corporation and 
 its powerful banker allies did not advance the money or lend the bonds of the Corpora- 
 tion upon the Tennessee stock, which would have relieved Moore & Schley, so far as 
 the Tennessee collateral was concerned, and which would not have exceeded $6,000,000 
 or $8,000,000. They took the position that nothing would relieve the situation but 
 the Corporation taking over absolutely the majority of the Tennessee stock. This was 
 done, and it acquired also, under the same agreement, additional stock, bringing the 
 entire amount up to $30,374,825, leaving outstanding only $220,160. The Corporation 
 exchanged for the stock its own bonds on a basis which paid par in cash for stock which 
 Gary a few days before said was not worth more than 60 cents on the dollar. 
 
 While as to much of the situation the facts are in doubt, it is certain that the Corpo- 
 ration availed itself of the embarrassment of Moore & Schley at a most critical period, 
 and the hammering of the Tennessee stock and the threatening of a general financial 
 calamity, to acquire the control of a competitor, taking on a formidable aspect. 
 
 By this purchase the Corporation acquired 447,423 acres of mineral lands in Tennes- 
 see, Georgia, and Alabama, containing approximately 400,000,000 tons of merchantable 
 ore and 1,200,000,000 tons of coal, of which over one-third is coking coal. 
 
 The Tennessee properties embraced 18 developed and active iron-ore mines and 23 
 coal mines, 16 blast furnaces, the ownership of several land companies holding exten- 
 sive tracts of lands, and the Birmingham Southern Railroad Co.? a terminal property 
 of great value connecting the various mines and plants in the Birmingham district 
 with all the diverging trunk lines. 
 
 The capacity of the Tennessee Co.'s blast-furnaces a year was about 1,000,000 tons, 
 and its steel-ingot capacity was about 500,000 tons. 
 
 The possibilities of the Tennessee properties and the development of its raw material 
 are immense, and greatly increase the control by the Corporation over the total avail- 
 able ore supply of the country. 
 
 The Corporation thus greatly strengthened its control of the iron-ore supply of the 
 country, its predominating position in the iron and steel trade of the South, eliminated 
 a competitor, and unlawfully acquired a power which is a menace to the welfare of the 
 country and should be destroyed. 
 
 22877— vol i—12 56 
 
880 HEARINGS BEFORE 
 
 VII. Position Achieved by the Corporation Through the Ownership or 
 Control op Coal, Coke, Iron Ore, and Transportation. 
 
 The control of transportation of ore by means of railroads and ships, acquired by the 
 Corporation as heretofore shown gives it a commanding position over its competitors, 
 none of whom has any such transporattion of any consequence, and some of whom 
 are dependent for their ore upon the transportation furnished by the Corporation. 
 The profits derfVed by the Corporation from its transporation properties, chiefly rail- 
 road lines, represent a large part of its earnings, and these are largely derived from the 
 rates and tolls imposed by trier Sbrporation upon other steel manufacturers who have 
 to have their ore transported in the Minnesota ore region by the Duluth & Iron Range 
 and the Duluth & Missabe Railroads. By the power thus acquired a burden is imposed 
 upon competitors and a restraintXis thereby exercised upon trade and commerce 
 between the States. Since 1904 the Duluth & Iron Range Railroad Co. has paid divi- 
 dends upon the capital which have averaged more than 100 per cent per annum. For 
 the same period those of the Duluth, Missabe & Northern Railway Co. have been from 
 102 per cent to 240 per cent per annum, upon the capital stock . Petitioner has recently 
 received information of the purpose of the Corporation to reduce the rates of these roads 
 on ore 20 cents per ton. 
 
 Through the ownership of the Elgin, Joliet & Eastern Railway, and more particu- 
 larly through the Bessemer & Lake Erie, the Corporation has a further important 
 advantage over most of its competitors with respect to transportation. 
 
 Its minor railroad properties, particularly the Union Railroad of Pittsburg, the 
 Chicago, Lake Shore & Eastern Railway, the Connellsville & Monongahela Railway, 
 and that of the Tennessee Co. are important factors in its transportation system and 
 give it an advantage over its competitors. 
 
 At its organization it controlled the bulk of the best coking coal lands in the Connells- 
 ville region and so acquired a great advantage over its competitors. In 1911 it made 
 an important acquisition of coking coal properties from the Pittsburg Coal Co. The 
 control acquired of coking and other coal through the Tennessee Co. has added vastly 
 to the strength of its position through absorption of raw material, thus locking it up 
 and withdrawing it from the market and acquirement by its possible competitors. 
 Its holdings of commercially available ores greatly exceed those of all other iron and 
 steel interests combined. The ores of the Lake Superior region substantially form the 
 basis of the steel production of the country. Of this ore in the State of Minnesota the 
 Corporation controls not less than 75 per cent. Its control of the ore in Michigan is 
 approximately the same. In acquiring these ores the Corporation has pursued tho 
 policy of securing the ore supply of the country far in advance of any of its needs in the 
 near future, with the result that it has largely forestalled competition by shutting off 
 the sources upon which it could be successfully based. 
 
 The ore-leasing system, where there is no limit placed on the number of leases that 
 can be combined under a single interest, greatly facilitates the gathering in by a great 
 concern like the Corporation of a vast amount of ore reserves, far in advance of any 
 commercial need for them. It affords an opportunity for a strong concern to corner 
 ore reserves, and forestall the rise of competition. 
 
 E. H. Gary stated upon oath, before the Ways and Means Committee of the House, in 
 December, 1908, that the Corporation pretty nearly controlled the ultimate ore supply 
 of the country. 
 
 The control of such a large proportion of available ore and of so much of the trans- 
 portation of ore from the ore fields gave the Corporation the power to largely control 
 the iron and steel market, enforce its plans and wishes upon its competitors, restrain 
 competition, control market prices, restrain trade and commerce among the States 
 and with foreign countries, and this it has since 1901 continuously done, in contra- 
 vention of the antitmst act. 
 
 VIII. Extensions and Earnings. 
 
 Since its organization the Corporation, by means of its great earnings made possible 
 largely through the power and control over the trade in iron and steel derived from 
 and exercised by the combinations described, has further increased its power, influ- 
 ence, and dominancy, by enlarging its old plants and constructing new ones, paid 
 for largely from its earnings. 
 
 The investment of earnings has been from $400,000,000 to $450,000,000. 
 
 Its net earnings, as shown by its annual reports for nine months of the year 1901, 
 and for the years 1902 to 1910, inclusive, aggregated $980,045,838.80. This was an 
 average of about 7 per cent per annum upon the total capitalization of the company. 
 The real earnings amounted to an average approximating 12 per cent per annum upon 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 881 
 
 the actual average investment in the properties, but in estimating such actual invest- 
 ment there are included values which arose from additions made out of earnings, 
 which earnings were largely and wrongfully enhanced by the unlawful combination 
 and the power and control exerted by it. 
 
 IX. Changes as to the Properties of Various Constituent Companies. 
 
 In April, 1903, the Carnegie Co. of New Jersey, the National Steel Co., and the 
 American Steel Hoop Co. were combined under a corporation chartered by the State 
 of New Jersey, named the National Steel Co., which name was changed to Carnegie 
 Steel Co., With a capital stock of $63,000,000, afterwards increased to $65,250,000. 
 The Carnegie Co. of New Jersey and the National Steel Co. were both large producers 
 of pig iron and steel billets and other heavy steel products, and but for their common 
 control by the Corporation would, as to these things, have been competitors. The 
 said Carnegie Co. also produced merchant bars and other products similar to those 
 made by the American Steel Hoop Co., and said companies as to said products would 
 have been competitors but for their common control by the Corporation. Thus by 
 this rearrangement there has been a further consolidation of naturally competitive 
 concerns under subordinate companies and corporations. 
 
 In April, 1903, the coke properties of the various subsidiary concerns of the Corpo- 
 ration were transferred to the H. C. Prick Coke Co., the capital stock of which was 
 increased from $10,000,000 to $20,000,000. 
 
 On December 31, 1903, a further consolidation was brought about through the pur- 
 chase by the American Sheet Steel Co. of all the property of the Amercian Tin Plate 
 Co., the name of the Sheet Steel Co. being changed to the American Sheet & Tin 
 Plate Co. Thus were brought together under one consolidation of subordinate com- 
 panies concerns which would have been competitors but for the common control 
 exercised over them by the Corporation. 
 
 In the same way and with the same effect the plants of the Lorain Steel Co., at 
 Lorain, Ohio, which had a large tube manufactory, were brought under the control 
 of the National Tube Co. 
 
 In 1904 all the various ore properties of the Corporation were placed under the 
 active control of the Oliver Iron Mining Co. 
 
 About the same period the various properties of the Union Steel Co. were leased 
 to other subsidiary concerns of the Corporation. Thus, the blast furnaces and the 
 steel works were leased to the Carnegie Steel Co. and the wire plants to the American 
 Steel & Wire Co. 
 
 After these changes the principal constituent concerns of the Corporation, the 
 stocks of which were directly held by it on July 1, 1911, were as follows: 
 
 Company. 
 
 Carnegie Steel Co? of New Jersey . 
 Federal Steel Co 
 
 American Steel & Wire Co of New Jersey . 
 
 National Tube Co 
 
 American Sheet & Tin Plate Co 
 
 American Bridge Co. . . 
 Shelby Steel Tube Co . 
 
 Class of 
 stock. 
 
 Common 
 
 Preferred — 
 
 Common 
 
 Preferred 
 
 Common 
 
 Preferred — 
 
 Common 
 
 Preferred 
 
 Common 
 
 Preferred 
 
 Lake Superior Consolidated Iron Mines 
 
 Pittsburgh Steamship Co 
 
 Union Steel Co I 
 
 Clairton Steel Co j 
 
 Tennessee Coal, Iron & Railroad Co Common — 
 
 : Preferred 
 
 Guaranteed 
 preferred. 
 
 Total 
 
 outstanding 
 
 capitalization. 
 
 S65, 250 
 46,484 
 53,260, 
 50, 000, 
 40,000, 
 40, 000, 
 40, 000, 
 24,500, 
 24, 500, 
 10,000, 
 
 8, 151, 
 
 5,000, 
 29,887, 
 
 7, — 
 20,000, 
 
 3,500, 
 
 32,529, 
 
 124. 
 
 178 
 
 000. 00 
 300. 00 
 900. 00 
 000. 00 
 000. 00 
 000. 00 
 000. 00 
 000. 00 
 000. 00 
 000. 00 
 500. 00 
 000. 00 
 448.97 
 000.00 
 000. 00 
 000. 00 
 997. 50 
 500. 00 
 600.00 
 
 Amount 
 
 owned by 
 
 United States 
 
 Steel 
 Corporation. 
 
 $65,250, 
 46,484, 
 53,260, 
 49,989, 
 39, 999, 
 40,000, 
 40,000, 
 24, 499, 
 24, 499, 
 10,000, 
 8,151, 
 5,000, 
 29,887, 
 "221 
 
 20,000; 
 
 3,500, 
 32,442, 
 
 000. 00 
 300. 00 
 900. 00 
 400. 00 
 000. 00 
 000. 00 
 000. 00 
 600.00 
 600.00 
 000. 00 
 500. 00 
 000. 00 
 448. 97 
 700. 00 
 000. 00 
 000.00 
 795. 00 
 
 The balance of the capital stock of Pittsburgh Steamship Co. ($7,R58,300) is owned bv Carnegie Steel Co. 
 
882 
 
 HEARINGS BEFOBE 
 
 A number of these constituents had subsidiary companies, in addition to property 
 held in fee. A statement as to these constituent companies and their subsidiary 
 companies is as follows: 
 
 CARNEGIE STEEL CO. (NEW JERSEY). 
 
 Capital stock, 165,250,000. All owned by the Corporation. 
 
 In addition to the amount of capital stock as above, the Carnegie Steel Co. has a 
 capital surplus account of $189,000,000, arising as follows: In 1903 a consolidation or 
 merger was made of the Carnegie Co., National Steel Co., and American Steel Hoop Co. 
 The aggregate amount of capital stocks of these three companies before the merger was 
 $252,000,000. The stock of the merged or consolidated company was fixed at 25 per 
 cent of the total of the old companies' stocks, or $63,000,000 (since increased to 
 $65,250,000), thus giving to the consolidated company a capital surplus of $189,000,000. 
 
 The Carnegie Steel Co. of New Jersey, aside from owning in fee all the manufacturing 
 properties formerly owned by the National Steel Co. and the American Steel Hoop Co., 
 also controls the following companies through ownership of their capital stocks, the total 
 capital stock of said companies being as stated below: 
 
 Subsidiaries.! 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 Carnegie Steel Co. (Pa.) (3) 
 
 Carnegie Natural Gas Co. (3) 
 
 Union R. E. Co. (3) 
 
 Slackwater Connecting R. R. Co. (3) 
 
 Etna & Montrose R. R. Co. (3) 
 
 Sharon Connecting R. R. Co. (4) 
 
 Pittsburgh & Conneaut Dock Co. (3) 
 
 Youghiogheny Northern R. R. Co. (3) 
 
 Mount Pleasant Water Co. (3) 
 
 Trotter Water Co. (3) 
 
 Union Supply Co. (2 j 
 
 Bessemer & Lake Erie R. R. Co (3) 
 
 Pittsburgh, Bessemer & Lake Erie R. R. Co.: (2) 
 
 Common 
 
 Preferred 
 
 Carnegie Land Co. (3) 
 
 Conneaut Land Co. (3) 
 
 Conneaut & Eastern R. R. Co. (3) 
 
 Pennsylvania & Lake Erie Dock Co. (2, 5) 
 
 Columbus Stone Co. (2) 
 
 Mahoning Limestone Co. (2) 
 
 Isabella Limestone Co. (3) 
 
 Pittsburgh Limestone Co. (Ltd.) (3) 
 
 Peoples Supply Co. (Ltd.) (3) 
 
 Bessemer Electric Power Co. (4) 
 
 Mingo Coal Co. (3) 
 
 National Mining Co. (3) 
 
 Pewabic Co. (2) 
 
 H. C. FrickCokeCo. (2,6) 
 
 Pittsburgh S. S. Co. (1,3) 
 
 Oliver Iron Mining Co. (3) 
 
 Subsidiary companies of foregoing. 
 Of Union R. R. Co.: 
 
 Monongahela Southern R. R. Co. (3) 
 
 Of H. C. Frick Coke Co.: 
 
 Standard Water Co. (3) 
 
 Sewickley Water Co. (4) 
 
 Hostetter-Connellsville Coke Co. (2) 
 
 Of Oliver Iron Mining Co.: 
 
 Lake Superior Iron Co. (2) 
 
 Regent Iron Co. (2) 
 
 Security Land & Exploration Co. (2) 
 
 Braddock Iron Mining Co. (4) 
 
 Homestead Iron Mining Co. (4) 
 
 Duquesne Iron Mining Co. (4) 
 
 Allegheny Iron Mining Co. (4) 
 
 Hope Iron Mining Co. (4) 
 
 Neville Iron Mining Co. (4) 
 
 Monongahela Iron Mining Co. (4) 
 
 Lorainlron Mining Co. (4) 
 
 Agawam Iron Mining Co. (4) 
 
 Great Western Mining Co. (4) 
 
 Ambridgelron Mining Co. (4) , 
 
 Morewood Iron Mining Co. (4) 
 
 Pencoyd Iron Mining Co. (4) 
 
 Munhall Iron Mining Co. (4) 
 
 Monessen Iron Mining Co. (4) 
 
 Somerset Iron Mining Co. (4) 
 
 $50,000,000 
 
 300,000 
 
 2,000,000 
 
 10,000 
 
 60,000 
 
 10,000 
 
 100,000 
 
 400,000 
 
 150,000 
 
 850,000 
 
 500,000 
 
 500,000 
 
 10,000,000 
 
 2,000,000 
 
 10,000 
 
 10,000 
 
 1,000 
 
 675,000 
 
 60,000 
 
 50,000 
 
 3,000 
 
 60,000 
 
 10,008 
 
 5,000 
 
 1,000 
 
 500,000 
 
 200,000 
 
 20,000,000 
 
 7,880,000 
 
 1,200,000 
 
 160,000 
 
 10,000 
 
 60,000 
 
 1,500,000 
 
 2,100,000 
 450,000 
 
 100,000 
 
 30,700 
 30,000 
 22,100 
 22,900 
 36,200 
 50,000 
 5,700 
 50,000 
 17,400 
 6,000,000 
 50,000 
 50,000 
 48,300 
 50,000 
 50,000 
 50,000 
 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 55 
 
 38 
 100 
 100 
 100 
 
 52 
 100 
 
 51 
 
 67 
 
 75 
 
 75 
 100 
 100 
 
 66% 
 
 50 
 
 74+ 
 
 97+ 
 100 
 
 100 
 
 100 
 100 
 87 
 
 75 
 75 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 1 The numbers refer to notes at p. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 FEDERAL STEEL CO. (NEW JERSEY). 
 
 883 
 
 Capital stock: Common, $46,484,300; preferred, $53,260,900. Entire amount is 
 owned by the Corporation. 
 
 The Federal Steel Co. owns no property in fee. It controls the following companies 
 through ownership of their capital stocks. The total capital stocks of said companies 
 are as stated below: 
 
 * 
 
 Subsidiaries' 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 Minnesota Iron Co (2) 
 
 $16,500,000 
 18,650,600 
 10,000,000 
 
 6,000,000 
 
 3,000,000 
 
 3,000.000 
 
 2,000,000 
 
 91,500 
 
 14.000 
 
 20,000,000 
 
 10,000 
 
 700,000 
 
 100 
 100 
 60 
 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 Illinois-Steel Co. (2) 
 
 Elgin, Joliet & Eastern Ry. Co. (2, 7) 
 
 The National Tube Co. (of Ohio) (2): 
 
 Preferred 
 
 The Lorain Steel Co. (3) 
 
 The Lake Terminal R. R. Co. (3) 
 
 Johnstown* Stony Creek R. R. Co. (3) 
 
 Ingleside Coal Co. (Ltd.) (3) 
 
 Indiana Steel Co. (4) 
 
 Gary Land Co. (4) 
 
 Connellsville & Monongahela Ry. Co. (4) 
 
 H. C. Frick Coke Co. (for capitalization see Carnegie Steel Co.) (2). . . 
 
 34- 
 100 
 
 Bunsen Coal Co. (4) 
 
 10,000 
 1,000,000 
 1,000,000 
 50,000 
 65,000 
 20,000 
 
 U. S. Steel Products Co. (4) 
 
 Minnesota Steel Co. (4) 
 
 
 Interstate Transfer Ry. Co. (4) 
 
 
 Spirit Lake Transfer Ry. Co. (4) 
 
 
 Piloto Mining Co. (4) 
 
 
 . 
 
 
 SUBSIDIARY COMPANIES OF FOREGOING. 
 
 Of Minnesota Iron Co.: . 
 
 Chandler Iron Co. (2) 
 
 Chapin Mining Co. (2) 
 
 Winthrop Iron Co. (2) 
 
 Alpha Ore Co. (3) 
 
 Auburn Iron Co. (3) 
 
 Beta Ore Co. (3) 
 
 Bishop Iron Co. (3) 
 
 Canton Iron Co. (3) 
 
 Chippewa Iron Co. (3) 
 
 Delaware Iron Co. (3) 
 
 Elba Iron Co. (3) 
 
 FayallronCo. (3) 
 
 Genoa Iron Co. (3) 
 
 ITugo Iron Co. (3) 
 
 Manila Iron Co. (3) 
 
 Norman Iron Co. (3) 
 
 Northern Development Co. (3) 
 
 Duluth & Iron Range R. R. Co. (3) 
 
 Of Illinois Steel Co.: 
 
 Universal Portland Cement Co. (4) 
 
 United States Coal & Coke Co. (4) 
 
 H. C. Frick Cqke Co. (for capitalization see Carnegie Steel Co.) (2). 
 
 United Supply Co. (4) 
 
 Cundy Iron Co. (3) 
 
 Illinois Steel TTarehouse Co. (4) . . , 
 
 Chicago. Lake Shore & Eastern Ry. Co. (3) , 
 
 Joliet & Blue Island Ry. Co. (3) 
 
 Chicago & So. Eastern Ry. Co. (3) 
 
 Chicago & Kenosha Ry. Co. (3) 
 
 Milwaukee, Bay View & Chicago R. R. Co. (3) 
 
 Of Gary Land Co.: 
 
 Gary Heat. Light & Water Co. (4) 
 
 Of U. S. Steel Products Co.: 
 
 Isthmian S. S. Co. (4) 
 
 $80,000 
 
 1,000,000 
 
 500,000 
 
 500 
 
 400,000 
 
 500 
 
 57,000 
 
 50,000 
 
 27,000 
 
 S,000 
 
 100,000 
 
 45,450 
 
 9,000 
 
 50,000 
 
 32,000 
 
 50,000 
 
 100,000 
 
 3,000,000 
 
 1,000,000 
 2,000,000 
 
 loo.ooo t 
 
 50,000 
 100,000 
 9,000,000 ' 
 100,000 j 
 100,000 
 100,000 
 100,000 
 
 100,000 \ 
 
 £25,003 
 
 51 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 100 
 100 
 10+ 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 
 100 
 
 ion 
 
 ' The numbers refer to note at p. 886. 
 AMERICAN STEEL & WIRE CO. OP NEW JERSEY. 
 
 Capital stock: Common, $50,000,000; preferred, $40,000,000. All but 106 shares 
 common and 10 shares preferred is owned by the Corporation. 
 
 A very large part of the property of the American Steel & Wire Co. is owned in fee. 
 The company also controls the following subsidiaries. 
 
884 
 
 HEARINGS BEFOEE 
 
 Subsidiaries. 1 
 
 American Steel & Wire Co. (of Alabama) (4) 
 
 American Steel & Wire Co. (of Colorado) (3) 
 
 Trenton Iron Co. (2) 
 
 Canadian Steel & Wire Co (3) « 
 
 Griswold Wire Co. (2) 
 
 Troy Steel Products Co. (2) 
 
 American Mining Co. (3) 
 
 American Land Co. (3) 
 
 Edgar Zinc Co. (2) 
 
 Pittsburgh & Ohio Valley Ey. Co. (3) 
 
 Northern Liberties Ry. Co. (3) 
 
 Newburg& South Shore Ry. Co. (3) 
 
 Waukegan & Mississippi Valley Ry. Co. (3) 
 
 H. C. Frick Coke Co. (for capitalization, see Carnegie Steel Co.) (2) 
 
 United Coal Co. (for capitalization, see A. S. & T. P. Co.) (4) 
 
 Pennsylvania & Lake Brie Dock Co. (for capitalization, see Carnegie Steel 
 Co.) (2) 
 
 Amount of 
 capital stock. 
 
 $100,000 
 
 25,000 
 
 600,000 
 
 30,000 
 
 75,000 
 
 900,000 
 
 1,000,000 
 
 200,000 
 
 1,000,000 
 
 60,000 
 
 5,000 
 
 1,500,000 
 
 22,000 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 100 
 80 
 100 
 100 
 100 
 100 
 
 11 
 
 25 
 
 1 The numbers refer to notes at p. 886. 
 NATIONAL TUBE CO. (NEW JERSEY). 
 
 Capital stock: Common, $40,000,000; preferred, $40,000,000. Entire amount is 
 owned by the Corporation. 
 
 The greater part of the property of the National Tube Co. is owned in fee. The 
 company also owns the following stocks of subsidiary companies: 
 
 Subsidiaries. 1 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 National Tube Works Co. (2) 
 
 Benwood & Wheeling Connecting Ry. Co. (3) 
 
 McKeesport Connecting R. R. Co. (3) 
 
 H. C. Frick Coke Co. (for capitalization, see Carnegie Steel Co.) (2) 
 
 Pennsylvania & Lake Erie Dock Co. (for capitalization, see Carnegie Steel 
 Co.) (2) 
 
 $100,000 
 
 50,000 
 
 1,000,000 
 
 100 
 100 
 100 
 
 1 
 
 7+ 
 
 1 The numbers refer to notes at p. 886. 
 AMEBICAN SHEET & TIN PLATE CO. (NEW JERSEY). 
 
 Capital stock: Common, $24,500,000; preferred, $24,500,000. All but four shares 
 of each class of stock is owned by the Corporation. 
 
 In addition to the amount of capital stock as above, the American Sheet & Tin 
 Plate Co. has a capital surplus account of $46,325,000 arising from the merger of the 
 American Tin Plate Co. and the American Sheet Steel Co. In that merger the stock 
 of the consolidated company remained the same as the stock of the American Sheet 
 Steel Co. previously was, thus resulting in the company having a capital surplus 
 equal to the stock of the American Tin Plate Co., in lieu of which no new stock was 
 issued. 
 
 Nearly all of the property of -the company is owned in fee. The subsidiary con- 
 cerns are as follows: 
 
 Subsidiaries. 1 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 W. De.wees Wood Co. (2) 
 
 $1,500,000 
 100,000 
 12,000 
 50,000 
 100,000 
 60,000 
 
 100 
 
 
 100 
 
 
 100 
 
 Elwood, Anderson & Lapelle R. R. Co. (3) 
 
 100 
 
 Apollo Gas Co. (3) 
 
 100 
 
 United Coal Co. (4,8) 
 
 75 
 
 National Mining Co. (3, 9) 
 
 33i 
 40j 
 
 Sharon Tin Plate Co. (2, 10) 
 
 
 
 
 
 1 The numbers refer to notes at p. 
 
COMMITTEE OX INTERSTATE COMMERCE. 
 
 AMERICAN BBIDGE CO. (NEW JERSEY). 
 
 Capital stock, $10,000,000. All owned by the Corporation. 
 
 In addition to the amount of capital stock as above, the American Bridge Co. has a 
 capital surplus account of $52,324,600 arising from reducing the par value of its capi- 
 tal stock from $62,324,600 to the nominal amount of $10,000,000. 
 
 The greater part of the property of the company is owned in fee. Its subsidiary 
 companies are as follows: 
 
 Subsidiaries. 1 
 
 American Bridge Co. (of New York) (4) 
 
 Empire Bridge Co. (4) 
 
 American Improvement Co. (4) 
 
 Pencoyd & Philadelphia R. R. Co. (3). . 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 parent 
 pany 
 
 $100,000 
 
 3,000,000 
 
 2,500 
 
 5,000 
 
 100 
 100 
 100 
 100 
 
 1 The numbers refer to notes; at p. 886. 
 LAKE SUPERIOR CONSOLIDATED IRON MINES (NEW JERSEY). 
 
 Capital stock, $29,887,448.97. All owned by the Corporation. 
 The subsidiary companies of the Lake Superior Consolidated Iron Mines and their 
 capital stocks are as follows: 
 
 Subsidiaries.! 
 
 Duluth, Missabe & Northern Ry. Co. (2) 
 
 Proctor Water & Light Co. (4, 11) 
 
 Adams Mining Co. (3) 
 
 Spruce Mining Co. (2) 
 
 Mountain Iron Co. (2) 
 
 Great Northern Mining Co. (2) 
 
 Shaw Iron Co. (2) 
 
 Rathbun Iron Mining Co. (2) 
 
 Greenville Iron Mining Co. (4) 
 
 Missabe & Northern Town Site Co. (2) . . 
 
 Cambridge Iron Mining Co. (4) 
 
 Clarion Iron Mining Co. (4) 
 
 Crawford Iron Mining Co. (4) 
 
 Cumberland Iron Mining Co. (4) 
 
 Essex Iron Co. (3) 
 
 Roucheleau-Rey Mining Co. (3) 
 
 Tubal Iron Mining Co. (3) 
 
 Owasco Iron Co. (3) 
 
 Oneida Iron Co. (3) 
 
 Seneca Iron Co. (3) 
 
 
 Per cent 
 
 Amount of 
 
 owned by 
 
 capital stock. 
 
 parent 
 
 
 company. 
 
 $4,112,500.00 
 
 100 
 
 250,000.00 
 
 100 
 
 220,000.00 
 
 100 
 
 66,000.00 
 
 100 
 
 1,603,600.00 
 
 100 
 
 3.500,000.00 
 
 99+ 
 
 2,970,900.00 
 
 99+ 
 
 100,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 6,900.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 1,293,267.48 
 
 100 
 
 95,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 50,000.00 
 
 100 
 
 1 The numbers refer to notes at p. 886. 
 UNION STEEL CO. (PENNSYLVANIA). 
 
 Capital stock, $20,000,000. All owned by th* Corporation. 
 The Union Steel Co. owns a considerable amount of property in fee. 
 The subsidiary companies (which hold a large portion of the property and their 
 capital stocks are as follows: 
 
 Subsidiaries. 1 
 
 Sharon Coke Co. (3) 
 
 Republic-Connellsville Coke Co. (3, 12) 
 
 Sharon Ore Co. (3) 
 
 Donora Mining Co. (3) 
 
 Mercer Valley R. R. Co. (3) 
 
 Donora Southern R. R. Co. (3) 
 
 Girard Land Co. (3) 
 
 Sharon Land Co. (3) 
 
 Sharon Tin Plate Co. (2) 
 
 Matthews Woven Wire Fence Co. (3) . 
 Sharon Coal & Limestone Co. (3) 
 
 Amount of 
 capital stock. 
 
 510,000 
 500,000 
 000,000 
 000,000 
 275,000 
 
 40.000 
 
 300,000 
 
 5,000 
 
 800,000 
 
 49,000 
 300,000 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 100 
 100 
 1C0 
 100 
 100 
 100 
 100 
 100 
 
 591 
 100 
 
 663 
 
 1 The numbers refer to notes at p. i 
 
886 
 
 HEARINGS BEFORE 
 
 CLAIRTON STEEL CO. (PENNSYLVANIA). 
 
 Capital stock, $3,500,000. All owned by the Corporation. 
 The greater part of the property of Clairton Steel Co. is owned in fee. 
 companies and their capital stocks are as follows: 
 
 Its subsidiary 
 
 Subsidiaries. 1 
 
 St. Clair Terminal R. R. Co. (3).. 
 
 Clairton Land Co. (3) 
 
 Champion Iron Co. (2) 
 
 St. Clair Limestone Co. (3) 
 
 Amount of 
 capital stock. 
 
 $1,000,000 
 
 1,000 
 
 498, 750 
 
 25,000 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 100 
 100 
 100 
 51 
 
 1 The numbers refer to notes below. 
 TENNESSEE COAL, IRON * RAILROAD CO. (TENNESSEE). 
 
 Capital stock: Common, $32,529,997.50; preferred, $124,500; guaranteed preferred 
 (Alabama Steel & Ship Building Co.), $178,600. All of the common stock, except 
 187,202.50, is owned by the Corporation, but none of the preferred or guaranteed 
 preferred stock is owned by the Corporation. 
 
 The great bulk of the property of the Tennessee Coal, Iron & Railroad Co. is owned 
 in fee; the company has, however, the following subsidiaries: 
 
 Subsidiaries. 1 
 
 Amount of 
 capital stock. 
 
 Per cent 
 owned by 
 
 parent 
 company. 
 
 Birmingham Southern R. R. Co. (2) | $1,200,000.00 
 
 Tennessee Land Co. (3) ! 10, 000. 00 
 
 Ensley Land Co. (3) I 450, 163. 75 
 
 Potter Ore Co. (3) 800, 000. 00 
 
 100 
 100 
 
 57+ 
 
 50 
 
 1 The numbers refer to notes below. 
 
 1. The United States Steel Corporation also owns $221,700 (par value) of the stock of the Pittsburg 
 Steamship Co., the balance of the stock being owned by the Carnegie Steel Co. 
 
 2. Companies which were independent concerns prior to the time that control or ownership thereof 
 passed to the parent company now controlling or owning same. 
 
 3. Companies which were promoted and organized in the interest of their respective parent companies, 
 in the extension of their business, prior to the date the United States Steel Corporation acquired control 
 of the said parent companies. 
 
 4. Companies which have beeen promoted and organized in the interest of their respective parent com- 
 panies, in the extension of their business, since the time the United States Steel Corporation acquired con- 
 control of said parent companies. 
 
 5. American Steel & Wire Co. and National Tube Co. also own stock of this company, giving an owner- 
 ship by United States Steel interests of 77.9 per cent of total. 
 
 6. The remaining 26 per cent of Frick CokcCo- stock is owned by other companies controlled by the 
 United States Steel Corporation, viz, National Tube Co., 1 per cent; American Steel & Wire Co., 11+ per 
 cent: Illinois Steel Co., 10+ per cent: Federal Steel Co., 3+ per cent. Thus the entire stock of Frick Coke 
 Co. is owned by the United States Steel interests. In addition to its outstanding stockof $20,000,000 the 
 Frick company has a capital surplus of $4,871,231.30 arising from merger of companies. 
 
 7. The remaining 40 per cent of this company's stock is owned by the Chicago, Lake Shore & Eastern 
 Railway Co., a subsidiary of the Illinois Steel Co. 
 
 8. Balance of stork owned by American Steel & Wire Co. 
 
 9. See Carnegie Steel Co. for particulars of stock, etc. 
 
 10. See Union Steel Co. for particulars of stock, etc. 
 
 11. Authorized amount. 
 
 12. This company has also a capital surplus of $2,000,000 arising from merger of companies. 
 
 X. Consolidations. 
 
 The said several constituent companies and the owners of the said several properties 
 brought together by the said several combinations and consolidations under the said 
 several defendant constituent companies as aforesaid, which, as shown, were subse- 
 quently combined under the Corporation, were, before and at the time of the said 
 several combinations and consolidations entered into by said constituent companies, 
 engaged in manufacturing products or mining, according to the character of their sev- 
 eral businesses, for trade and commerce among the States and Territories of the United 
 
COMMITTEE ON INTERSTATE COMMEECE. 887 
 
 States, the District of Columbia, and with foreign nations, and in having the same 
 transported outside of the States severally where they were manufactured, or where 
 said mining was carried on, and into the several States and Territories of the United 
 States, the District of Columbia, and foreign nations, and in selling the same outside of 
 the States where they were produced and in the several States and Territories of the 
 United States, the District ot Columbia, and foreign nations; and since said combina- 
 tion and consolidation under the Corporation, the aforesaid constituent companies of 
 the Corporation and the corporation controlling them have from time to time and down 
 to the present -time engaged in manufacturing products or mining, according to the 
 businesses of the said several constituent companies, for trade and commerce among the 
 States and Territories of the United States, the District of Columbia, and with foreign 
 nations, and in having the same transported outside of the States severally where such 
 products were manufactured, or where the said mining was carried on, and into the 
 several States and Territories of the United States, the District of Columbia, and 
 foreign nations, and in selling the same outside of the States where they were produced 
 and in the several States and Territories of the United States, the District of Columbia, 
 and foreign nations. 
 
 The Corporation and the several companies combined under the first consolidation 
 in 1901, their officers and agents, and the individual defendants, in what they did, 
 as aforesaid, entered into an agreement or combination in restraint of trade and com- 
 merce among the several States and with foreign nations within the meaning of sec- 
 tion 1, and a combination to monoplize a part of the trade or commerce among the 
 several States and with foreign nations, within the meaning of section 2, of the anti- 
 trust act, and the same is true in respect of the action of the Corporation, of said indi- 
 vidual defendants, and of the seyeral companies herein named, in the acquisition of 
 the control severally of the American Bridge Co., Lake Superior Consolidated Iron 
 Mines, Shelby Steel Tube Co., Union Steel Co., the Troy Steel Products Co., the 
 Clairton Steel Co., the Tennessee Coal, Iron & Railroad Co., and the iron ores of the 
 Great Northern interests. 
 
 All the business of the Corporation and its controlled companies is conducted with- 
 out competition among them, and as a part of a general plan and combination by which 
 they have partially destroyed competition in trade and commerce among the States 
 and with foreign nations, and have, by their strength, acquired a great and unwhole- 
 some influence over competitors, whereby they are brought into harmonious action 
 with the Corporation in restricting competition and in restraining such trade and 
 commerce. 
 
 XI. Pools and Agreements. 
 
 The Corporation, through its' holdings of stocks in the operating companies con- 
 trolled their acts and brought about the combined control of the market as completely 
 as of it had been the direct legal owner of the properties and businesses of the controlled 
 corporations. 
 
 Prior to 1900 following trade wars, makers of iron and steel products would come 
 together and form an arrangement with each other whereby they would limit their 
 percentages of output and fix upon and maintain prices. This was done by the makers 
 of structural materials, of plates, of billets, of rails, of beams, of nails, etc. 
 
 Under some of these arrangements, if a maker exceeded the tonnage of his allotment 
 he paid a penalty into the pool. The purpose and effect of this was to maintain prices. 
 When these pools were not in operation there were competition and fluctuations in 
 prices. 
 
 PLATE ASSOCIATION. 
 
 In the year 1900, prices of steel plate fell. There was sharp competition. The 
 representatives of 11 steel-plate manufacturers, whose combined output exceeded 
 75 per cent of the steel-plate output of the United States, met to establish and main- 
 tain prices. On about November 1, 1900, they entered into a conspiracy, combina- 
 tion, or agreement for that purpose, and had prepared a contract to carry it out. It 
 provided that all sales between parties to the agrtement should be at pool prices fixed 
 by them, that sales to the public should be apportioned between them by percentages, 
 that no party could withdraw except under three months' notice, that other firms and 
 corporation^ might be admitted, and that minimum fixed rates should be maintained 
 and should not be altered except by unanimous consent. 
 
 To insure performance, a guaranty fund was paid in subject to forfeiture or penalty 
 by any party violating the agreement, in the discretion of the other members. A 
 written instrument was prepared and signed by some of the parties. A copy of same 
 is made part hereof as Exhibit A. 
 
S88 HEARINGS BEFORK 
 
 It appearing that this might be damaging evidence, an effort wan made to suppress 
 it, and so far as defendants knew all copies were gathered in and burned. Petitioner 
 has not been able to obtain a copy of agreement B, referred to in Exhibit A. 
 
 While the agreement shown in Exhibit A may not have been executed by all of the 
 parties named in it, all of them operated under and carried into effect one substan- 
 tially like it, down to about the early part of 1905. They communicated with each 
 other, met together, usually once a month, and reached understandings as to their 
 future action, by which they maintained prices and apportionment of sales. 
 
 Three of the constituent companies of the Corporation were parties to the said 
 agreement, viz: Carnegie Steel Co., Illinois Steel Co., and the American Steel & Wire 
 Co. E. H. Gary, who took an active part in the organization of the Corporation and 
 has always held office in it, being chairman of the executive committee from 1901 to 
 1903, and thereafter chairman of the board of directors, and since 1906 chairman of 
 the finance committee, was, when said agreement was made, president of the Federal 
 Steel Co. He had full knowledge of the formation of this combination and of the 
 participation in it by the said constituent companies after their absorption by the 
 Corporation. During the period from 1901 to 1905, the said makers restrained compe- 
 tition and trade and maintained prices at a higher level than had prevailed when 
 competition existed. 
 
 While since 1904 the said parties may not have acted under said agreement, or any 
 written agreement, nevertheless they and other makers of steel plates have continued 
 to meet together from time to time and to enter into understandings as to the mainte- 
 nance by them of prices and the apportionment of sales, by which they have effectu- 
 ally restrained competition, maintained prices, and restrained trade and commerce 
 between the States and with foreign countries, in contravention of the antitrust act. 
 
 This result has come mainly from the cohesive power and overmastering influence 
 ovcited by the Corporation. 
 
 STRUCTURAL STEEL ASSOCIATION. 
 
 On January 1, 1897, sharp competition then existing between them, certain makers 
 of structural steel in the United States entered into an agreement for the purpose of 
 limiting sales and fixing and maintaining prices. A copy of said contract is made part 
 hereof, as Exhibit B. It sets out the names of the contracting parties. Among them 
 is the Carnegie Steel Co. (Ltd.), which was absorbed by the Carnegie Co. of New 
 Jersey, which, as shown, entered in 1901 into the combination designated herein as 
 the Corporation. This agreement was operated under until about the year 1905, 
 in the same manner and with the same purpose and effect as has been previously 
 alleged in respect of the Plate Association, both associations having had the same 
 commissioner and having been conducted in exactly the same way, and with the same 
 results in respect to the maintenance of prices, suppression of competition, and restraint 
 of trade. 
 
 While since 1904 the same parties may not have acted under said agreement or any 
 written agreement, nevertheless they, and other makers of structural steel have con- 
 tinued to meet together from time to time and to enter into understandings as to the 
 maintenance by them of prices and the apportionment of sales, by which they have 
 effectually restrained competition, maintained prices, and restrained trade and com- 
 merce between the States and with foreign countries, in contravention of the anti- 
 trust act. 
 
 This result has come mainly from the cohesive power and overmastering influence 
 exerted by the Corporation. 
 
 THE STEEL-RAIL COMBINATION. 
 
 In November, 1897, there were approximately 25 mills in the United States making 
 standard rails. From 1867 to the year 1900, inclusive, a period of 34 years, the prices 
 of rails varied every year. In no two years in that period did the prices continue the 
 same throughout said years. In 1897 and 1898 there was severe competition and the 
 prices fell from $28 per long ton, in 1896, to which it had been put by a pool or combi- 
 nation, to $18 in 1897, and to $17 in 1898. Through combination by said makers the 
 price went as high as $35 in 1899 and 1900. In the early part of 1901 it went as low as 
 $26 per ton. In April, 1901, the Corporation began operations. Of the said mills 
 making standard steel rails, 11 came under the combination and control of the Cor- 
 poration, and have so continued. In May, 1901, under the dominating influence and 
 great power exercised over the industry by the Corporation, the price went to $28 per 
 ton, and has been there maintained without the slightest variation, and regardless of 
 the cost of production or demand for same, down to the present time, thus being held 
 at a fixed price throughout a period of 11 years. 
 
COMMITTEE ON INTERSTATE COMMERCE. 889 
 
 While no written agreement has come into the possession of petitioner, yet the facts 
 are that throughout the period since 1901 the constituent companies of the Corporation 
 and the Corporation itself have been parties to agreements or undertakings reached 
 through meetings of makers of such rails (who naturally were, and, unrestrained by 
 combination, would have been, competitors), by which competition and commerce 
 and trade have been re'strained, and said prices have been thus maintained in contra- 
 vention of the antitrust act. The greatest factor in producing this unlawful result has 
 been the Corporation. 
 
 THE WIRE-ROPE COMBINATION. 
 
 On the 1st day of January, 1908, the American Steel & Wire Co. of New Jersey ; 
 Broderick & Bascom Rope Co., a corporation; Hazard Manufacturing Co., a corpora- 
 tion; A. Leschen & Sons Rope Co., a corporation; John A. Roebling's Sons Co., a 
 corporation; and Trenton Iron Co., a corporation — all then being engaged in carrying 
 on the business of manufacturing and dealing in wire rope, a useful article of mer- 
 chandise, and selling same not only in the States where they were manufactured but 
 in other States of the United States, and being engaged in trade and commerce in 
 said wire rope among the several States of the United States and in foreign countries 
 and producing in the aggregate 80 per cent of the entire amount of wire rope con- 
 sumed in the United States and being, when unrestrained by self-imposed agreement 
 between each other, competitors in such interstate business, trade, and commerce — 
 entered into upon the said day and carried on an unlawful combination and conspir- 
 acy in restraint of said business, trade, and commerce and since the said day contin- 
 uously have, through such unlawful combination and conspiracy, wrongfully and 
 unduly restrained the aforesaid interstate business, trade, and commerce from said 
 date until and on the 1st day of January, 1909. 
 
 Under said unlawful combination and conspiracy the said parties sold the wire 
 rope manufactured by them respectively at arbitrary, artificial, and noncompeti- 
 , tive prices, fixed, determined, and agreed upon by them from time to time, which 
 prices were greatly in excess of those which would have been obtained but for such 
 unlawful combination and conspiracy. The said parties, under said unlawful com- 
 bination and conspiracy, limited the amount of wire rope to be produced by each of 
 them to a fixed and arbitrary percentage, to be determined and agreed upon from 
 time to time, which would be different from the normal and natural amount thereof 
 that they would each otherwise produce but for such unlawful combination and con- 
 spiracy. Under said agreement and combination they conducted their trade and 
 commerce in said wire rope so as to destroy and prevent all competition between them 
 and to injure the business, trade, and commerce in the United States in wire rope 
 of all other than themselves engaged in such business. In furtherance of said com- 
 bination and conspiracy they, on or about the 1st of January, 1908, entered into an 
 association known as the Wire Rope Manufacturers, under which they held regular 
 meetings, at which each member of the association had a vote on all questions com- 
 ing before the association. Under and by virtue of said agreement they agreed upon 
 and fixed an arbitrary rating for each of said corporations, which was established by 
 determining the ratio of the output of the aforesaid merchandise by each of said 
 corporations to the total output thereof by all of said corporations during an agreed 
 period of time, which said ratios should be and were known and treated bv said par- 
 ties as allotments, which were the percentage bases upon which said parties were 
 required and compelled to conduct their said business, trade, and commerce. 
 
 They agreed upon a schedule of prices at which they should sell the wire rope 
 thereafter to be produced by them, which prices should continue in force until 
 changed by them. . 
 
 The said American Steel & Wire Co. is a subsidiary of the Corporation and has at 
 all times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement and in its conduct in pursuance of same it 
 acted under the authority and sanction of the Corporation. 
 
 THE RUBBER-COVERED WIRE COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel & Wire Co. of New Jersey; the 
 American Electrical Works, a corporation; Bishop Gutta-Percha Co., a corporation; 
 Orescent Belting & Packing Co., a corporation; Habirshaw Wire Co., a corporation; 
 Hazard Manufacturing Co., a corporation; Indiana Rubber & Insulated Wire Co., a 
 corporation; Marion Insulated Wire & Rubber Co., a corporation; National Indiana 
 Rubber Co., a corporation; New York Insulated Wire Co., a corporation; Phillips 
 Insulated Wire Co., a corporation; John A. Boebling's Sons Co., a corporation; Safety 
 
890 HEABINGS BEFOBE 
 
 Insulated Wire & Cable Co., a corporation; Simplex Electrical Co., a corporation; 
 Standard Underground Cable Co., a corporation; General Electric Co., a corporation, 
 being then engaged in carrying on the business of manufacturing and dealing in rubber- 
 covered telephone and telegraph wires, useful articles of merchandise, and selling the 
 same in the States where they were manufactured, and also in other States of the 
 United States, and in shipping the same for the purposes of such sale from their respec- 
 tive factories into the different States of the United States, and producing in the 
 aggregate not less than 80 per cent of the entire amount of rubber-covered telephone 
 and telegraph wire consumed in the United States, and being previous thereto and 
 at that time, except when restrained by unlawful agreement, competitors of each other 
 in said business, trade, and commerce, entered into an unlawful combination and 
 conspiracy in restraint of trade and commerce in said article among the several States 
 and continuously acted thereunder for a long period thereafter. By said agreement 
 and combination they sold their several products of said wires in the several States 
 of the United States at arbitrary, artificial, and noncompetitive prices, fixed and 
 agreed upon by them from time to time, which were in excess of the prices which 
 would have been demanded for such wire but for such unlawful combination and 
 conspiracy. 
 
 By said combination they limited the amount of rubber-covered telephone and 
 telegraph wires to be produced by each of them to a fixed and arbitrary percentage 
 to be determined and agreed upon by them from time to time, which would be dif- 
 ferent from the normal and natural amount thereof that they would each otherwise 
 produce but for such unlawful combination and conspiracy. By said unlawful 
 agreement and combination they conducted their respective business, trade, and 
 commerce aforesaid so as to destroy and prevent all competition between themselves 
 and to injure and destroy the business, trade, and commerce in the United States in 
 rubber-covered telephone and telegraph wires of all other persons and corporations 
 engaged in the manufacture and sale of same. In pursuance of said agreement, on 
 the 1st day of June, 1908, they entered into a voluntary association, known as the 
 Blubber-covered Wire Association, which said association was to continue until the 
 1st day of February, 1913, and which did T:ontinue until about the time that the ' 
 said parties were indicted therefor in June, 1911, in the United States Circuit Court 
 for the Southern District of New York. 
 
 The said American Steel & Wire Co. is a subsidiary of the Corporation and has at 
 all times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement and in its conduct in pursuance of same it 
 acted under the authority and sanction of the Corporation. 
 
 THE HORSESHOE MANUFACTURERS' COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel and Wire Co. of New Jersey; 
 American Horseshoe Co., a corporation; Bryden Horseshoe Co., a corporation; Old 
 Dominion Iron & Nail Works, a corporation; Phoenix Horseshoe Co. of Illinois, 
 a corporation; Rhode Island-Perkins Horseshoe Co., a corporation, being engaged in 
 the business of manufacturing and dealing in horse and mule shoes, useful articles of 
 merchandise, selling same in the States of the United States other than those where 
 they were manufactured, and in shipping the same from their respective factories in 
 the different States to other States and Territories of the United States, and producing 
 in the aggregate 70 per cent of the entire number of horse and mule shoes consumed 
 in the United States, and being competitors in interstate business, trade, and com- 
 merce in said products when not restrained by unlawful combination among them- 
 selves, entered into an unlawful combination and conspiracy, wrongfully and unduly 
 to restrain the aforesaid interstate business, trade, and commerce, and in pursuance 
 of said combination after said date down to about the 29th of June, 1911, continu- 
 ously carried out said unlawful combination and conspiracy and restrained trade 
 and commerce among the States in said products. 
 
 By said unlawful agreement they have sold horse and mule shoes manufactured by 
 them, respectively, at arbitrary, artificial, and noncompetitive prices, fixed and 
 determined by them from time to time, which were greatly in excess of those which 
 would have been demanded but for such unlawful combination and conspiracy. 
 
 By said unlawful agreement, they have limited the amount of horse and mule shoes 
 to be produced by each of them to a fixed and arbitrary percentage to be determined 
 and agreed upon by them from time to time, different from the normal and natural 
 amount that they would respectively produce but for such unlawful combination 
 and agreement. 
 
 By said unlawful agreement they conducted, respectively, their business, trade, 
 and commerce, so as to destroy all competition between themselves in said business, 
 trade, and commerce and so as to injure and destroy the business, trade, and commerce 
 
COMMITTEE ON INTERSTATE COMMERCE. 891 
 
 in the United States in horse and mule shoes of all persons and corporations other than 
 those with which said persons were connected as aforesaid. 
 
 On the said 1st day of June, 1908, said persons, in furtherance of and pursuant to 
 said unlawful combination and conspiracy, by written articles of agreement, formed 
 an association known as the Horseshoe Manufacturers' Association. 
 
 The said American Steel & Wire Co. is a subsidiary of the Corporation and has at all 
 times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement, and in its conduct in pursuance of same, it 
 acted under the authority and sanction of trie Corporation. 
 
 THE UNDERGROUND POWER CABLE COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel & Wire Co. of New Jersey; National 
 Conduit & Cable Co., a corporation; John A. Roebling's Sons Co., a corporation; and 
 Standard Underground Cable Co., a corporation, then engaged severally in carrying 
 on the business of manufacturing and dealing in underground power cables, a useful 
 article of merchandise, and manufacturing large quantities of same, and selling it 
 not only in the States wherein they severally manufactured it, but in the other States 
 of the United States, and in shipping the same from their respective factories into 
 the different States of the United States for the purposes of sale, and producing in the 
 aggregate 95 per cent of the entire amount of underground power cable consumed 
 in the United States, and being competitors of each other in said business, trade, and 
 commerce, except when restrained by unlawful combination, entered into and carried 
 on continuously until the 1st day of April, 1909, an unlawful combination and con- 
 spiracy in restraint of the said business, trade, and commerce in underground power 
 cable among the States. 
 
 By said unlawful agreement they sold the said cable produced by them, respectively , 
 at arbitrary, artificial, and noncompetitive prices, fixed by them from time to time, 
 which were greatly in excess of the prices which would have been demanded but for 
 such unlawful combination and conspiracy. 
 
 By said agreement they limited the amount of underground cable to be produced 
 by them severally to a fixed and arbitrary percentage, agreed upon by them from time 
 to time, which was different from the amount thereof that they each otherwise would 
 have produced but for such unlawful combination and conspiracy. 
 
 By said unlawful combination and conspiracy they so conducted their respective 
 business, trade, and commerce aforesaid as to destroy and prevent all competition 
 between themselves and to injure the business, trade, and commerce in the United 
 States in underground power cable of all persons or corporations other than those 
 with which they were connected. 
 
 On the 1st day of June, 1908, said corporations, in furtherance of and pursuant to 
 said unlawful combination and conspiracy, by written articles of agreement, formed 
 and entered into a voluntary association, known as the Underground Power Cable 
 Association, which said association was to continue until the 1st day of May, 1911. 
 
 The said American Steel & Wire Co. is a subsidiary of the Corporation and has a 
 all times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement and in its conduct in pursuance of same, it 
 acted under the authority and sanction of the Corporation. 
 
 THE WEATHERPROOF AND MAGNET WIRE COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel & Wire Co. of New Jersey; the 
 American Electrical Works, a corporation; the Ansonia Brass & Copper Co., a cor- 
 poration; the Ansonia Electrical Co., a corporation; Benedict & Burnham Manu- 
 facturing Co., a corporation; the Hazard Manufacturing Co., a corporation; Alfred 
 F. Moore and Antoine Bournonville, partners doing business under the name of 
 Alfred F. Moore; the National Conduit & Cable Co., a corporation; the Phillips 
 Insulated Wire Co., a corporation; John A. Roebling's Sons Co., a corporation; the 
 Standard Underground Cable Co., a corporation; engaged severally in carrying on 
 the business of manufacturing and dealing in weather proof and magnet wires, useful 
 articles of merchandise, and selling same m the several States other than where they 
 were manufactured and in shipping same from their said factories into the several 
 States and Territories of the United States other than those wherein they were manufac- 
 tured, and producing in the aggregate 90 per cent of the entire amount of weatherproof 
 and magnet wires consumed in the United States, and being competitors in said inter- 
 state business, trade, and commerce with each other, except when restrained by 
 unlawful combination, entered into an unlawful combination and conspiracy to 
 wrongfully and unduly restrain the aforesaid interstate business, trade, and com- 
 merce, so then and since then carried on and conducted by the aforesaid corporations 
 
892 HEARINGS BEFOKE 
 
 and copartnership; and from the 1st day of June, 1908, and continuously and at all 
 times from said date until and on the 20th day of November, 1908, all of said par- 
 ties were knowingly and willfully engaged in said unlawful conbination and con- 
 spiracy and in furtherance of its unlawful objects for the purposes aforesaid, in restraint 
 of said business, trade, and commerce in weatherproof and magnet wires. By said 
 agreement said parties sold the weatherproof and magnet wires produced by them, 
 respectively, at arbitrary, artificial, and noncompetitive prices, fixed and agreed 
 upon by them from time to time, in excess of what would have been demanded but 
 for such unlawful combination and conspiracy. 
 
 By said unlawful combination said parties limited the amount of such wires to be 
 produced by them severally to a fixed and arbitrary percentage, determined and agreed 
 upon by them from time to time, which was different from the amounts that they other- 
 wise respectively would have produced but for such unlawful combination and 
 conspiracy. 
 
 By said combination and conspiracy they conducted their respective business, 
 trade, and commerce aforesaid so as to destroy and prevent all competition between 
 themselves and so as to injure and destroy the business, trade, and commerce in the 
 United States in weatherproof and magnet wires of all persons or corporations other 
 than those with which they were connected. 
 
 On the 1st day of June, 1908, they, in furtherance of and pursuant to the aforesaid 
 unlawful combination and conspiracy, by written articles of agreement, formed and 
 entered into an association known as the Weatherproof & Magnet Wire Association, 
 which was to continue until the 1st day of May, 1911. 
 
 The said American Steel & Wire Co. is a subsidiary of the Corporation, and has at 
 all times since about April 1, 1901, been controlled by it, and in entering into said un- 
 lawful combination and agreement, and in its conduct in pursuance of same, it acted 
 under the authority and sanction of the Corporation. 
 
 Petitioner further alleges that previous to the agreement aforesaid the said American 
 Steel & Wire Co. of New Jersey entered into other similar agreements! from time to 
 time with concerns that were its competitors', which agreements were for the same 
 purpose and effect as the said agreement of 1908, were carried out substantially in the 
 same way and with the same effect, and that this was done with the consent ol the 
 Corporation. 
 
 THE LEAD-INCASED RUBBER CABLE COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel & Wire Co. of New Jersey; Habir- 
 shaw Wire Co., a corporation; John A. Roebling's Sons Co., a corporation; Safety 
 Insulated Wire & Cable Co., a corporation; Simplex Electrical Co., a corporation; 
 Standard Underground Cable Co., a corporation, then engaged in carrying on the 
 business of manufacturing and dealing in lead-incased rubber insulated cable, a 
 useful article of merchandise, and selling same in the several States of the United 
 States other than those wherein their respective factories are situated, and shipping 
 same from their respective factories to States and Territories other than those wherein 
 said factories were located, and producing in the aggregate 80 per cent of the entire 
 amount of said cable consumed in the United States, and being competitors in said 
 business, except when restrained by unlawful combination and conspiracy entered 
 into by them, entered into an unlawful combination and conspiracy wrongfully and 
 unduly to restain the aforesaid interstate business, trade and commerce so then and 
 since then carried on and conducted by them, and from said 1st day of June, 1908, and 
 continouusly and at all times from said date until the 10th day of January, 1910, all 
 of said parties engaged in said unlawful combination and conspiracy in restraint of 
 the said trade and commerce in said cable. 
 
 By said combination and agreement they sold the said cable produced by them, 
 respectively, at arbitrary, artificial, and noncompetitive prices, fixed, determined, and 
 agreed upon by them, which were greatly in excess of those which would have been 
 demanded but for such unlawful combination and conspiracy. 
 
 By said, combination they limited the amount of such cable to be produced by them, 
 respectively, to a fixed and arbitrary percentage agreed upon by them, which was 
 different from the amount that they otherwise would have respectively produced 
 but for such unlawful combination and conspiracy. 
 
 By said combination and conspiracy they so conducted their respective business, 
 trade, and commerce aforesaid as to destroy all competition between themselves and 
 to injure and destroy the business, trade, and commerce of the United States in said 
 cable of all persons or corporations other than those with which they were connected. 
 
 On the said 1st day of June, 1908, said parties in furtherance of and pursuant to 
 the aforesaid unlawful combination and conspiracy, by written articles of agreement, 
 
COMMITTEE ON INTERSTATE COMMEKCE. 893 
 
 formed and entered into a voluntary association known as the Lead-Encased Rubber 
 Insulated Cable Association, which was to continue until the 1st dav of January, 1911. 
 The said American Steel & Wire Co. is a subsidary of the Corporation, and has 
 at all times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement, and in its conduct in pursuance of same, it 
 acted under the authority and sanction of the Corporation. 
 
 THE BARE COPPER WIRE COMBINATION. 
 
 On the 1st day of June, 1908, the American Steel & Wire Co. of New Jersey, Ameri- 
 can Electrical Works, a corporation; Ansonia Brass & Copper Co., a corporation; 
 Benedict & Burnham Manufacturing Co., a corporation; Coe Brass Manufacturing 
 Co., a corporation; National Conduit & Cable Co., a corporation; John A. Roebling's 
 Sons Co., a corporation; and Standard Underground Cable Co., a corporation, then 
 engaged in carrying on the business of manufacturing and dealing in bare copper 
 wire, a useful article of merchandise, and selling same in the several States of the 
 United States other than those wherein their respective factories are situated, and 
 shipping same from their respective factories to States and Territories other than 
 those wherein said factories are located, and producing in the aggregate 95 per cent 
 of the entire amount of bare copper wire consumed in the United States, and being 
 competitors in said business, except when restrained by unlawful combination and 
 conspiracy entered into by them, entered into an unlawful combination and con- 
 spiracy wrongfully and unduly to restrain the aforesaid interstate business, trade, and 
 commerce, so then and since then carried on and conducted by them, and from said 
 1st day of June, 1908, and continuously and at all times from said date until the 22d 
 day of November, 1909, all the said parties engaged in said unlawful combination 
 and conspiracy in restraint of the said trade and commerce in said bare copper wire. 
 
 By said combination and agreement they sold the said bare copper wire produced 
 by_ them, respectively, at arbitrary, artificial, and noncompetitive prices, fixed, deter- 
 mined, and agreed upon by them, which were greatly in excess of those which would 
 have been demanded but for such unlawful combination and conspiracy. 
 
 By said combination they limited the amount of such copper wire to be produced by 
 them, respectively, to a fixed and arbitrary percentage, agreed upon by them, which 
 was different from the amount that they otherwise would have respectively produced 
 but for such unlawful combination and conspiracy. 
 
 By said combination and conspiracy they so conducted their respective business, 
 trade, and commerce aforesaid as to destroy all competition between themselves and 
 to injure and destroy the business, trade, and commerce in the United States in said 
 copper wire of all persons or corporations other than those with which they were con- 
 nected. 
 
 On the 1st day of June, 1908, said parties, in furtherance of and pursuant to the afore- 
 said unlawful combination and conspiracy, by written articles of agreement, formed 
 and entered into a voluntary association known as the Bare Copper Wire Association, 
 which was to continue until the 1st day of May, 1911. 
 
 The said American Steel & Wire Co." is a subsidiary of the Corporation and has at all 
 times since about April 1, 1901, been controlled by it, and in entering into said 
 unlawful combination and agreement and in its conduct in pursuance of same it 
 acted under the authority and sanction of the Corporation. 
 
 Petitioner further alleges that previous to the agreement aforesaid the said American 
 Steel & Wire Co. of New Jersey entered into other similar agreements from time to 
 time with concerns that were its competitors, which agreements were for the same 
 purpose and effect as the said agreement of 1908, were carried out substantially in the 
 same way and with the same effect, and that this was done with the consent of the 
 Corporation. 
 
 OTHER POOLS AND AGREEMENTS. 
 
 In addition to said pools and agreements specifically referred to, other constituent 
 companies of the Corporation, engaged in making and selling other lines of products, 
 and the Corporation have, since 1901, from time to time, entered into pools and 
 agreements with concerns which were their competitors, by which they have sup- 
 pressed competition, agreed upon and maintained prices, and restrained commerce 
 and trade among the States and with foreign countries. 
 
 XII. Interlocking Directorates. 
 
 In addition to pools, a more euphonious, refined, but none the less effective, method 
 came into vogue. Conditions had so changed as to make the way for this new pro- 
 cedure easy. When the iron and steel products were made by independent concerns, 
 
894 HEARINGS BEFOKE 
 
 which, in their desire for business, broke out from time to time in sharp competi- 
 tion, the only method of restraint was an agreement or pool, and this was not 
 always effective, for they frequently played false to such combinations. Under 
 the policy of the Corporation there grew up a community of interest and a power 
 to influence action to a common purpose never exceeded in the commercial his- 
 tory of the world. There came into existence a system of interlacing of director- 
 ates which embraced almost the entire commercial and financial powers of the 
 country. Appended as Exhibit G is a list of the officers and directors of the 
 Corporation, and also a list of the various companies with which they severally were 
 connected as of the year 1910. This shows the status substantially as it had been 
 for preceding years and as it is at the present time. It has been a constantly growing 
 system since the'creation of the Corporation, and therefore the personnel and alliances 
 vary for the several years since 1901, but the system and the power achieved by it 
 have been practically the same from 1901 down to the present time. 
 
 George F. Baker was a director in 56 other companies, among them being trust 
 companies, 7 banks, 18 railroad companies, the Pullman Co., and the International 
 Harvester Co. 
 
 Edmund C. Converse was a director in 28 other companies, among them being banks, 
 trust companies, railroad companies, and other concerns, which are large consumers 
 of iron and steel. He was a director in the Shefield Coal & Iron Co., which operates 
 in the Birmingham district, and is a natural competitor of the Corporation. 
 
 William E. Cory was a director in 32 other companies, most of them constituent 
 companies of the Corporation. 
 
 John F. Dryden was a director in three large trust companies and two banks. 
 
 Henry C. Frick was a director in the Chicago & North Western Railway Co., the 
 Pennsylvania Railroad Co., Philadelphia & Reading Railway Co., and the Union 
 Pacific Railroad Co. The Pennsylvania Railroad Co. dominates the Cambria Steel 
 Co. and the Pennsylvania Steel Co., naturally competitors of the Corporation, but 
 which have under the operation of this new system cooperated with it. 
 
 Elbert H. Gary, besides being a director in the constituent companies of the Cor- 
 poration, was a director of several railroad companies and the International Harvester 
 Co. He was also a director in 6 important banks and trust companies. 
 
 William H. Moore was a director in several large railroad companies. 
 
 J. P. Morgan was a director in 51 other companies. This includes many railroads 
 and other companies, such as the Pullman Co. and the Western Union Telegraph Co. 
 
 George W. Perkins was a director of several banks, trust companies and railroad 
 companies, and of the International Harvester Co. 
 
 Norman B. Ream was a director of a number of large railroad companies, the Pull- 
 man Co., the International Harvester Co., and several banks and trust companies. 
 
 John D. Rockefeller, jr., was a director of the Delaware, Lackawanna & Western 
 Railroad Co., and of the Standard Oil Co. 
 
 Charles Steele was a director of a number of large railroad companies and the Inter- 
 nationa! Harvester Co. 
 
 Henry Walters was a director in several large railroad companies and in the Western 
 Union Telegraph Co. He was also director of the Lackawanna Steel Co., naturally 
 a competitor of the Corporation, but which has acted in harmony with it under the 
 new system. 
 
 All of the said railroad companies, the Pullman Co., the International Harvester 
 Co., and the Western Union Telegraph Co., are heavy consumers of iron and steel. 
 
 Through its directors thus distributed the Corporation is in direct touch with all 
 of the large railroad and steamship companies of the United States, such powerful 
 concerns as the Standard Oil Co., the Pullman Co., the International Harvester Co., 
 and the Western Union Telegraph Co., and with the overwhelming majority in money 
 and power of the banks and trust companies of the United States. The possibilities 
 of the power and control that may thus be exerted over trade and commerce is inesti- 
 mable. The power and control that have been exerted by the Corporation, largely 
 through the grasp of its tentacles thus thrown out upon the consumer, competitors, 
 and capital, io incompatible with the healthy commercial life of the Nation. 
 
 XIII. Combinations Other Than Written Pools or Agreements. 
 
 Under the auspices of the Corporation, these interests, naturally competitive, but 
 harmonized by this network of correlations, and overshadowed and dominated by the 
 power of the Corporation arising from its preeminence in the business, and the irre- 
 sistible strength of its alliances, come together, from time to time, find out the views 
 of the Corporation in respect of prices and output, and all that hitherto was affected 
 by pools and formal agreements, reach a common understanding and purpose, and 
 proceed to carry them out. It is not here alleged that merely assembling and mutually 
 
COMMITTEE ON INTERSTATE COMMERCE. 895 
 
 exchanging information and declaration of purpose amounts to an agreement or com- 
 bination in restraint of trade. These meetings and their results have gone further. 
 What they actually accomplished shows the great and dangerous power achieved by 
 the Corporation through unlawful combination exercised over the trade and com* 
 merce of the country. The concerted action taken has prevented fluctuations in 
 prices and competition. 
 
 At the meetings have been represented, of the iron and steel trade in the United 
 States, fully 90 per cent of the total. In no line of business in the world at any time 
 has there been such a large percentage of those engaged in a business as the percentage 
 of those in this country who at these meetings go along day by day, hand in hand, 
 pursuing the same course. At the time of one of these meetings, held in New York, 
 January 11, 1911, there was not in this country a demand for more than 50 per cent of 
 the total producing capacity in the lines of those there represented, and there was not 
 enough business to go around, and there was no possible way of protecting themselves 
 from competition except by coming to an understanding that each would be satis- 
 fied with a proportion of the business, which was understood by all, and this under- 
 standing was carried out, and no one of them competed for the recognized business 
 of the others. 
 
 These meetings accomplished more than did the old pools and agreements, which 
 were frequently broken. 
 
 It was understood and agreed that they were bound to protect one another; that to 
 carry out this purpose their honor was at stake and that the obligation binding on 
 them was even dearer than life itself, and that no one of them should act or fail to act 
 except with a distinct and clear understanding that his honor was involved, and that 
 this was more binding on him than any written or verbal contract. 
 
 When bidden by the chief executive of the Corporation, they came at any time, 
 from any distance ; ready, willing, and anxious to turn over to him and to his friends 
 all that was in their minds and in their hearts concerning their own business. 
 
 When they met, the chief executive of the Corporation admonished them that no 
 one of them should forget the high moral obligation he was under toward his neighbor, 
 and that it was of the highest importance at that particular time that every one of 
 them should have a keen and abiding sense of the personal obligation which he had 
 toward all the others, and to make no mistake of running the risk of trespassing within 
 the domain of the rights of his neighbor who had given his confidence and trust, 
 and who was willing at all times to put within the knowledge, and therefore more or 
 less under the charge and control of the others, the very direction of his affairs. 
 
 By these meetings and interchange of information and understanding each became 
 in honor bound not to get the trade of the other, and each by the concerted action 
 acquired participation in the direction of the affairs of the other. 
 
 The main purpose of the meeting of January 11, 1911, was the question of main- 
 taining or changing the prices of the commodities in which they dealt. A majority 
 came to a consensus which was accepted and followed by all. 
 
 At these meetings they not only exchanged information, but advocated control of 
 prices, and reached a common understanding, which was followed, under solemn 
 admonition that they were bound by an obligation more estimable than life. 
 
 These meetings brought about the maintenance of prices. 
 
 It was understood by them that they were traveling together, and that they were 
 going to stand together. 
 
 They understood and acted upon the understanding that a statement as to what one 
 would do as to prices or output was a promise and a pledge upon honor to the others. 
 
 At the meeting of January 11, 1911, and at the other meetings, there was a general 
 expression of opinion that prices should be maintained, and in pursuance of this 
 .understanding and agreement they were maintained. 
 
 When an understanding was reached, individual declarations were made of intention 
 to follow the movement. 
 
 It was recognized that they followed the policy laid out for them by the head of the 
 Corporation. 
 
 This meeting of January 11, 1911, was attended by about 80 representatives of iron 
 and steel concerns, being a large majority in number and output ofsuch concerns in the 
 United States. They understood that the purpose was to consider the prices of iron 
 and steel, that the cpnsensus of opinion was that the prices should not be lowered, but 
 that they should be maintained, and that by virtue of what occurred, they were in 
 honor bound to each other to maintain them. In fact, they, in pursuance of this 
 •action, did maintain them. 
 
 By the aforesaid pools, agreements, meetings, and acts the Corpora,tion, the said 
 several companies and individual defendants, in addition to the several unlawful 
 agreements and combinations by which all of the companies and properties aforesaid 
 
 22877— vol i— 13 57 
 
896 
 
 HEARINGS BEFORE* 
 
 were brought under one control, have combined or conspired in restraint of trade and 
 commerce among the several States and with foreign nations within the meaning of 
 section 1, and to monopolize a part of the trade or commerce among the several StateB 
 and with foreign nations within the meaning of section 2, of the antitrust act. 
 
 PEAYER. 
 
 In consideration whereof, and inasmuch as adequate remedy in the premises can 
 only be obtained in a court of equity, the United States of America prayB your honors: 
 
 (1) To order, adjudge, and decree that the combinations and conspiracies and 
 monopolizations of trade and commerce hereinbefore described are unlawful ; and that 
 all acts done or to be done to carry out the same, or any part thereof, are in violation of 
 the act of Congress of July 2, 1890, entitled "An act to protect trade and commerce 
 against unlawful restraints and monopolies." 
 
 (2) That the defendants and each and every one of them, and the officers, directors, 
 stockholders, and agents of the defendant corporations, and of each and every one of 
 them, be perpetually enjoined from doing any act in pursuance of or for the purpose 
 of carrying out the same. 
 
 (3) That the United States Steel Corporation, in and of itself, as well as each and all 
 of the elements composing it, whether separate or individual, whether considered col- 
 lectively or separately, be decreed to be illegal and in restraint of trade and an 
 attempt to monopolize and a monopolization within the first and second sections of 
 said act of Congress of July 2, 1890, and that it be dissolved. 
 
 (4) That each and all of the said constituent or subordinate companies shown as 
 aforesaid to have been combined in restraint of trade and commerce and in monopo- 
 lization of trade or commerce within the meaning of the antitrust act, each in and of 
 itself, as well as each and all the elements composing each, respectively, whether con- 
 sidered collectively or separately, be decreed to be illegal, in restraint of trade, and an 
 attempt to monopolize, and a monopolization within the first and second sections of 
 said act, and that each be dissolved. 
 
 (5) That the holding of stock by any one of the defendant corporations in another of 
 the defendant corporations under the circumstances shown be declared illegal, and 
 that each of them be enjoined from continuing to hold or own such shares and from 
 exercising any right in connection therewith. 
 
 (6) That the said several defendant corporations, shown as aforesaid to be constit- 
 uents or subsidiaries of the United States Steel Corporation, be enjoined and prohibited 
 from declaring or paying any dividends to the said United States Steel Corporation 
 or to any person or corporation for its use. 
 
 (7) That it be decreed that the several individual defendants combined each with 
 other persons and corporations to restrain trade and commerce and to attempt to 
 monopolize and in monopolizing within the first and second sections of said act, and 
 that each of them be enjoine4 from continuing to carry out the purposes of any of the 
 above-described combinations and conspiracies and attempts to restrain commerce 
 and trade, or to monopolize any part of commerce and trade among the States and with 
 foreign nations. 
 
 (8) That such orders and decrees be made in respect of the stock issued under the 
 several combinations aforesaid as shall be in accordance with equity and good con- 
 science, and that such disposition be made of the said various properties as shall 
 effectuate the purposes of the said antitrust act. 
 
 (9) That the said lease entered into as aforesaid by the Great Northern interests and 
 the Great Western Mining Co. be decreed to be illegal, in restraint of trade and com- 
 merce, an attempt to monopolize, and a monopolization within the first and second 
 sections of said act, and that the same be now canceled. 
 
 (10) The United States also prays for such other and further relief as the nature of 
 the case may require and the court may deem proper in the premises. 
 
 To the end, therefore, that the United States of America may obtain the relief to 
 which it is justly entitled in the premises, may it please your honors to grant to it 
 writs of subpoena directed to the said defendants, United States Steel Corporation, 
 Carnegie Steel Co., Carnegie Co. of New Jersey, Federal Steel Co., National Steel Co., 
 American Steel & Wire Co. of New Jersey, National Tube Co., Shelby Steel Tube Co., 
 American Tin Plate Co., American Sheet & Tin Plate Co., American Sheet Steel Co., 
 American Steel Hoop Co., American Bridge Co., Lake Superior Consolidated Iron 
 Mines, Union Steel Co., Clairton Steel Co., H. C. Frick Coke Co., Tennessee Coal, 
 Iron & Railroad Co., Great Western Mining Co., WestMissabe Land Co. (Ltd.), Wright 
 Land Co. (Ltd.), Davis Land Co. (Ltd.), Wells Land Co. (Ltd.), Stone Land Co. 
 (Ltd.), Wabigon Iron Co., Minosin Iron Co., Nibiwa Iron Co., Wenona Iron Co., 
 Minawa Iron Co., Leonard Iron Mining Co., Arthur Iron Mining Co., Fillmore Iron 
 
COMMITTEE ON INTERSTATE COMMERCE. 897 
 
 Mining Co., Harrison Iron Mining Co., Jackson Iron Mining Co., Polk Iron Mining Co 
 Tyler Iron Mining Co., Van Buren Iron Mining Co., Louis W. Hill, James N. Hili! 
 Walter J. Hill, Edward T. Nichols, J. H. Gruber, said named individuals being sueo? 
 as trustees, J. P. Morgan, Charles Steele, George W. Perkins, E. H. Gary, C. M Schwab 
 Andrew Carnegie, Henry C. Prick, James Gayley, William H. Moore, J. H. Moore' 
 Edmund C Converse, Percival Roberts, jr., Daniel G. Reid, Norman B. Ream, John 
 D. Rockefeller, John D. Rockefeller, jr., P. A. B. Widener, and William P. Palmer 
 and each and every one of them, commanding them and each of them to appear herein 
 and answer, but not under oath (answer under oath being hereby expressly waived) 
 the allegations contained in the foregoing petition and abide by and perform sucli 
 order and decree as the court may make in the premises, and upon hearing hereof to 
 permanently enjoin said defendants as hereinbefore prayed, and pending a final 
 hearing of this case a temporary restraining order to issue enjoining the defendants, 
 and each of them, and each of their officers, agents, and servants, as hereinbefore 
 prayed. 
 
 John B. Vreeland, 
 District Attorney of the United States for the District of New Jersey. 
 
 George W. Wickersham, 
 
 Attorney General of the United States. 
 J. M. Dickinson, 
 
 Special Assistant to the Attorney General of the United States. 
 
 Exhibit A. 
 
 AGREEMENT A. 
 
 This agreement, made and entered into this 9th day of November, 1900, by and 
 between: 
 
 Carnegie Steel Co. 
 
 Jones & Laughlins (Ltd.). 
 
 Illinois Steel Co. 
 
 Crucible Steel Co. 
 
 Otis Steel Co. 
 
 Tidewater Steel Co. 
 
 Lukens Iron & Steel Co. 
 
 Worth Bros. Co. 
 
 Central Iron & Steel Co. 
 
 The American Steel & Wire Co. 
 
 The Glasgow Iron Co. 
 
 Witnesseth, that the above said parties have mutually agreed to and with each 
 other to form an association for mutual interests, and to enable them to pay liberal 
 wages to their workmen, to be known as the Steel Plate Association of the United 
 States. 
 
 First. Each of the parties above named, being manufacturers and sellers of steel 
 plates, shall by reason of such manufacture and sale, be entitled to membership in 
 this association, and each of the parties hereto shall be entitled to portion of all snip- 
 men ts in the following proportions: 
 
 Carnegie Steel Co 46. 25 
 
 Jones & Laughlins (Ltd.) 4. 75 
 
 Illinois Steel Co 11.00 
 
 Crucible Steel Co. of America 4. 50 
 
 Otis Steel Co 2.50 
 
 Tidewater Steel Co 3.00 
 
 Lukens Iron & Steel Co 7.50 
 
 Worth Bros. Co 7.00 
 
 . Central Iron & Steel Co 8.00 
 
 American Steel & Wire Co 5. 50 
 
 Glasgow Iron Co. to the extent of sales and output up to 40,000 tons, should they be 
 able to accomplish them, prior to December 31, 1901. 
 
 Second. The officers of this association shall be as follows: A president, a treasurer, 
 a commissioner, and an executive committee consisting of six members, including 
 the president. The conclusions of all the executive committee meetings shall be at 
 once communicated to all members of this association. 
 
898 HEARINGS BEEOBE . 
 
 Third. Each member of this association shall, on or before the 10th day of Decem- 
 ber, 1900, and on or before the 10th day of every month thereafter during the term 
 of this agreement, or any extension thereof, render to the commissioner of this asso- 
 ciation a statement, which statement shall be sworn to or affirmed to by one of the 
 principal executive officers of the member so making the report, or, in case the member 
 bo making the report is a copartnership, then, in that case, the report shall be sworn 
 to or affirmed to by one of the firm holding membership in this association, which 
 qath or affirmation shall be to the effect that the report so made is a true and correct 
 report of all the material described in the first clause of this agreement which was 
 shipped by the member making the report during the month for which the report is 
 made; the form of the report and oath or affirmation as to its correctness shall be fur- 
 nished by the commissioner, and shall include a statement of the rolling production 
 for each, month; and upon the commissioner's receiving from the respective members 
 their reports, as aforesaid, he, the commissioner, shall render to each member monthly, 
 as soon as possible after the receipt of all the statements of all the members, copies of 
 statements last rendered by each member, and shall forthwith "state an account," 
 charging each member who has shipped during the month more than its or their 
 percentage of the total amount shipped by all the members of the association the sum 
 of 0.35 cent per pound on each and every pound of such excess, and crediting each 
 member who has not shipped its or their percentage of the total amount shipped by 
 all members of the association with the sum of 0.35 cent per pound on each and every 
 pound with which it or they fail to ship during the month for which the reports are 
 made, as aforesaid, and as a basis of calculation making such "statement of accounts," 
 the commissioner shall use the table of percentages as set forth in the first clause of 
 this agreement; and upon the statement of any such account by the commissioner, he 
 shall immediately mail a copy thereof to each member of this association, and within 
 five days after the receipt of any account by the member of this association, which 
 account shall show that the member receiving the same is indebted to the associa- 
 tion, the member so receiving its or their account showing its or their indebtedness 
 shall forward to the treasurer a check or sight draft drawn to the order of T. Mellon & 
 Sons in payment of such indebtedness, which check or sight draft the treasurer shall 
 deposit in the said Mellon & Sons' Bank, Pittsburgh, Pa., to the credit of this associa- 
 tion and to remain to the credit of the member paying on excess of shipments, and 
 being increased or diminished as each month's business shows. 
 
 It shall be the right and privilege of each member who shall not have shipped 
 his full percentage, to call, through the commissioner on members who have made 
 an excess, to transfer to the short member a sufficient amount of tonnage or otherwise 
 enable him to fill up his order book. It being the intent of this agreement that each 
 member shall ship his entire percentage, and at the end of each year it shall be the 
 duty of the commissioner to so arrange between the members as to have the pool 
 balanced, but any member unable at the end of each year to produce his allotment, 
 after first deducting his exempted tonnage; which shall be divided among other mem- 
 bers of the pool in proportion to their respective tonnage allotment. 
 
 "Fourth. To insure the rendering of the statements and the faithful adherence of 
 each party to the terms of this agreement, a guarantee fund of $100,000 shall be formed 
 by the payment on or before December 3, 1900, of $1,000 for each per cent of allotment, 
 as provided for in the first clause of this agreement, to the treasurer, which fund shall 
 be deposited or invested as directed by the executive committee in trust for the mem- 
 bers in the same proportion as received, subject, however, to such forfeiture or penalty 
 as may be declared by a vote of the remainder of the members against any member 
 violating the terms of this agreement, as hereinafter provided. 
 
 Fifth. Whereas, it has been agreed by and between all the members of this asso- 
 ciation to exempt certain tonnage to cover orders already taken, it is agreed that such 
 exemptions shall be as follows: 
 
 Tone. 
 
 Carnegie Steel Co 140, 000 
 
 Jones & Laughlins (Ltd.) 9, 400 
 
 Illinois Steel Co 15, 394 
 
 Crucible Steel Co. of America . 2, 687 
 
 Otis Steel Co 1, 740 
 
 Tidewater Steel Co 2, 520 
 
 Lukens Iron & Steel Co 5,778 
 
 Worth Bros. Co 3, 863 
 
 The American Steel & Wire Co 15, 116 
 
 Glasgow Iron Co 7. 965 
 
COMMITTEE ON INTERSTATE COMMERCE. 899 
 
 It is understood that those who hold exemptions under this agreement are to pro- 
 portion the shipments applying to them in monthly allotments between the date of 
 this agreement and January 1, 1902, and such shipments shall not be subject to the 
 pool assessment. 
 
 Sixth. It is required that all plates shipped into the States bordering on the Pacific 
 coast and to be actually used in the territory into which it is shipped and als6 all 
 plates actually exported for use outside the limits of the United States be reported 
 to the commissioner, together with bills of lading or other evidence of exportation 
 for actual use abroad satisfactory to him (said evidence to be confidential and not to 
 be circulated among the members). Such tonnage will be deducted from the mem- 
 ber's report and the agreed pool tax charged on the balance. 
 
 Seventh. Upon receiving the written request of two members of the association, 
 stating the object, the commissioner shall, upon the approval of the executive com- 
 mittee, call a meeting of the parties to this agreement, to be held from five days from 
 date of his receiving such written request. 
 
 . Eighth. If at any time any of the parties hereto shall have reason to suppose that 
 any other party or parties to the agreement have violated any of the provisions of this 
 agreement, the said party so supposing the agreement has been violated shall file 
 with the commissioner of the association a bill of complaint against the party or 
 parties so suspected of such violation, which bill of complaint shall fully set forth 
 the act or acts complained of, together with all the matters or things connected there- 
 with; the said bill of complaint shall be in writing, and shall furnish all the evidence 
 that can be submitted in connection with the alleged violation, and upon receipt by 
 the commissioner of any and all bills of complaint, as aforesaid, he shall forthwith use 
 his best offices to have the accuser and accused arrive at an amicable settlement, 
 failing in which, he shall then submit all the information he may have to the executive 
 committee for action. If the said executive committee shall determine that the charges 
 have been sustained they, the executive committee, shall impose a penalty of not 
 less than $1,000 nor more than the amount standing to the, credit of the member so 
 punished, in the guaranty fund at the time the fine is imposed upon the partv so 
 adjudged as having violated the agreement, but if the executive committee shall 
 determine that the charges have not been sustained, they shall dismiss the complaint 
 from further consideration by them. 
 
 It is further understood and agreed that no member of the executive committee 
 shall act upon any bill of complaint made by or made against the member of the asso- 
 ciation which he represents nor shall any representative of a member of the associa- 
 tion vote upon any bill of complaint brought by or brought against the member of 
 the association he represents. Any penalty imposed by the executive committee 
 will be collected by the treasurer, deducting the amount therefrom the deposit made 
 by the member, against whom the penalty is imposed, to the guaranty fund, as pro- 
 vided for in clause fourth of this agreement, within two weeks after such penalty, is 
 thus imposed, the sum thereof shall be transferred pro rata as per allotments to the 
 accounts of the members of the association, excluding the member against whom the 
 penalty is imposed, by the treasurer of the association, in which case the member so 
 punished shall immediately remit an amount sufficient to make good the sum taken 
 from the guaranty fund. 
 
 In case the offending member shall appeal to the association and the action of the 
 executive committee shall not be sustained by a majority vote of the members of the 
 said association , then the fine imposed shall be remitted, and any sum that the member 
 may have paid into the association by reason of this shall be returned. 
 
 Ninth. No consideration, in the nature of brokerage or commission, shall be paid 
 to anyone on sales of plates on or after January 1, 1901. 
 
 All sales between parties to this agreement shall be at pool prices, as provided in 
 agreement B, and all shipments shall be reported by the manufacturer, on which the 
 pool tax will be charged the same as to outside parties, the purchaser also to report 
 shipments of all such materials so bought, for which they shall claim and receive credit. 
 
 Tenth. At any meeting of the members of this association, called by the commis- 
 sioner, as herein provided, any party or parties may give three months' notice of 
 withdrawal herefrom, but no such notice shall take effect prior to January 1, 1902. 
 Statements shall continue to be rendered of all plates shipped up to date of such with- 
 drawal, the pool assessment to be charged thereon. 
 
 Eleventh. In case other firms or corporations are admitted as partners to this agree- 
 ment, the percentage of the pool allotted to each shall be deducted pro rata from the 
 percentages of the members immediately prior to the time of its admission; and in 
 case any of the parties hereto, or any of the parties hereafter admitted, shall withdraw, 
 the percentage of the pool allotted to such withdrawing party or parties shall be added 
 pro rata to the percentages of the parties remaining. In such case the commissioner 
 
900 HBAEINGS BBFOKE 
 
 shall compute and report the new postages to the nearest one-hundredth of 1 per cent, 
 which degree of accuracy shall be deemed sufficient. 
 
 Twelfth. The agreement herein made of percentages, the amount of the guaranty- 
 fund as herein provided, and the agreement to maintain minimum fixed rates as cov- 
 ered in agreement B shall not be altered, amended, or changed in any respect, except 
 by the unanimous consent of all parties to this agreement. 
 
 Thirteenth. To provide for the prompt payment of all salaries, rents, and other 
 expenses a general expense fund shall be called in as needed, by the treasurer, in pro- 
 portion to the percentage allotted each member of the association. 
 
 Fourteenth. No matter of account or understanding outside of this agreement shall 
 affect the settlements herein provided for, either as an offset or otherwise; nor shall 
 any written or unwritten agreement of the parties hereto, or any of them, establisband 
 maintain uniformity prices, or controversy arising out of any such agreement or any 
 failure to carry out any of its provisions or to maintain prices, affect in any way the 
 rendering of the statements and the making of the settlements herein required. 
 
 Fifteenth. Whenever this agreement shall have been terminated the balance of 
 the deposit, with accumulated interest, remaining in the hands of the treasurer to the 
 credit of each party, after provision shall have been made for the payment of all 
 expenses, shall be returned to it, provided it shall have rendered all the statements 
 required from it under this agreement and have paid all its debtor balances. In case 
 any party hereto shall not have fulfilled its money obligations under this agreement, the 
 amount it has on deposit in the guaranty fund shall be applied toward the fulfill- 
 ment of those obligations, and the excess, if any, returned to it. But in case any party 
 shall not have fulfilled its agreement, the amount it has on deposit on the guaranty 
 fund, or the excess thereof, as above stated, shall be divided among the parties who 
 shall have fulfilled their obligations under this agreement, in the proportion of their 
 respective percentages. 
 
 Sixteenth. For all purpose of this contract a ton shall be taken and held as 2,000 
 pounds. 
 
 In witness whereof the above parties have signed this agreement the day and year 
 first above written. 
 
 Exhibit B. 
 
 AGREEMENT A. 
 
 This agreement, made and entered into this 1st day of January, 1897, by and between 
 the Passaic Rolling Mill Co., Pottsville Iron & Steel Co., A. & P. Roberts Co., Cambria 
 Iron Co., Phoenix Iron Co., New Jersey Steel & Iron Co., Universal Construction Co., 
 the Carnegie Steel Co. (Ltd.), Cleveland Rolling Mill Co., Jones & Laughlin Steel Co. 
 (Ltd.), 
 
 Witnesseth that the above said parties have mutually agreed to and with each other 
 to form an association, to be known as the Structural Steel Association of the United 
 States. 
 
 FirBt. Each of the above parties named, being manufacturers and sellers of steel 
 I beams and channels of sizes not less than 3 inches in depth, shall, by reason of such 
 manufacture and sale, be entitled to membership in this association, and each of the 
 parties hereto shall be entitled to such portion of all sales by parties hereto of I beams 
 and channels of sizes not less than 3 inches in depth (except I beams and channels 
 for use in car construction and deck or bulb beams) as is allotted to it under the fol- 
 lowing table: 
 
 Per cent. 
 
 The Carnegie Steel Co. (Ltd.) 49$ 
 
 Jones & Laughlin (Ltd.) 12| 
 
 A. & P. Roberts Co Hi 
 
 Passaic Rolling Mill Co 6 
 
 Phoenix Iron Co 5 
 
 Cambria Iron Co 5 
 
 Universal Construction Co 4J 
 
 Pottsville Iron & Steel Co 3 
 
 Cleveland Rolling Mill Co ■ 3 
 
 100 
 
 It being understood that members of this association having bridge works wherein 
 beams and channels, as covered by this agreement, are consumed shall report to this 
 association all shipments to such departments and pay the agreed pool tax as herein- 
 after provided on shipments so made (except such as are used in the construction of 
 
COMMITTEE ON INTERSTATE COMMERCE. 901 
 
 buildings for their own respective works, which tonnage shall be reported and credit 
 given therefor). 
 
 Second. The officers of this association shall be as follows: A president, a treasurer, a 
 commissioner, and an executive committee, consisting of three members (the president 
 being a member of the executive committee, ex officio). 
 
 Third. Each member of this association (the New Jersey Steel & Iron Co. excepted) 
 shall, on or before the 10th day of February, 1897, and on and before the 10th day of 
 each any every month thereafter, during the terms of this agreement, or any extension 
 thereof, render to the commissioner of this association a statement, which statement 
 shall be sworn to or affirmed to by one of the principal executive officers of the member 
 so making the report, or in case the member so making the report is a copartnership, 
 then, in that case, the report shall be sworn to or affirmed to by one of the firm holding 
 membership in this association, which oath or affirmation shall be to the effect that the 
 report so made is a true and correct report of all the material described in the first 
 clause of this agreement which was shipped by the member making the report during 
 the month for which the report is made; the form of the report and oath or affirmation 
 as to its correctness shall be furnished by the commissioner. And upon the com- 
 missioner's receiving from the respective members their reports, as aforesaid, he, 
 the commissioner, shall render to each member monthly, as soon as possible after the 
 receipt of all the statements of all the members, copies of statements last rendered 
 by each member, and shall forthwith "state an account," charging each member, who 
 has shipped during the month more than its or their percentage of the total amount 
 shipped by all the members of the association, the sum of five-tenths cent per pound 
 on each and every pound of such excess, and crediting each member who has not 
 shipped its or their percentage of the total amount shipped by all the members of the 
 association with the sum of five-tenths cent per pound on each and every pound 
 which it or they fail to ship during the month for which the reports are made, as 
 aforesaid; and as a basis of calculation in making such "statement of account" the 
 commissioner shall use the table of percentages as set forth in the first clause of this 
 agreement. 
 
 And upon the statement of such account by the commissioner, he shall immediately 
 mail a copy thereof to each member of this acssoiation and within five days after the 
 receipt of any account by the member of this association, which account shall show that 
 the member receiving the same is indebted to the association, the member so receiving 
 its or their account snowing its or their indebtedness, shall forward to the treasurer a 
 check or sight draft drawn to the order of T. Mellon & Sons, in payment of such indebt- 
 edness, which check or sight draft the treasurer shall deposit in the said T. Mellon & 
 Sons' bank to the credit of this association, and immediately upon the treasurer receiv- 
 ing from the members all their respective remittances, in payment of their indebted- 
 ness to the association, for any month, he, the treasurer, shall notify the respective 
 members whom the aforesaid ' 'account stated' ' shall show to be creditors of the asso* 
 ciation for any month, to draw on him (the treasurer) for the amount due to them as 
 shown by said ' 'account stated, " and upon receipt of their several drafts so made the 
 treasurer shall accept the same payment at T. Mellon & Sons', and charge the amounts 
 thereof to the fund created by the payments made by the members who shipped in 
 excess of their proportion during the month for which the ' 'account stated' ' was made, 
 thus closing that account each month. 
 
 Fourth. To insure the rendering of the statements and the settlement of the balances 
 due between the members of this association, at the time required by the provisions 
 of this agreement, each member (the New Jersey Steel & Iron Co. excepted) shall, 
 immediately after the signing of this agreement, remit to the treasurer its or their 
 check or sight draft for the sum of §2,500, and shall, on or before the 10th day of each 
 month thereafter, remit its or their check or sight draft for $500, the said checks or sight 
 drafts shall be made in favor of T. Mellon & Sons, who shall become the depository of 
 all the proceeds of such checks or sight drafts, which shall form a guaranty fund and 
 be held by said T. Mellon & Sons during the continuance of this agreement, or any 
 extension thereof, and disposed of finally as hereinafter provided. 
 
 It being understood that when the said guaranty fund reaches the sum total of 
 $45,000, that the payments toward said fund shall thereupon cease. 
 
 Fifth. Whereas it has been agreed by and between the several other members and 
 the New Jersey Steel & Iron Co. that the works of the said New Jersey Steel & Iron Co. 
 shall remain inoperative in the manufacture of I beams and channels, of sizes coming 
 under the provision of and during the life of this agreement, in consideration of which 
 the New Jersey Iron & Steel Co. shall receive from this association the sum of $5,000 
 per month. Said sum of $5,000 to be paid by the several other members in proportion 
 to their allotments as shown by the table in the first clause of this agreement. On the 
 10th day of each month the treasurer shall draw at sight on the respective parties to this 
 agreement for the proportionate amount of the indebtedness, and when all such drafts 
 
902 HEARINGS BEFORE 
 
 shall have been paid, he shall immediately notify the New Jersey Steel & Iron Co. 
 to draw upon him at sight for the sum of $5,000, thus closing this account each month. 
 In case any draft which the treasurer shall make, as in this clause provided, shall not 
 be promptly paid, the amount of such draft shall be taken from the deposition the 
 guaranty fund of the party failing to pay such draft, and payment made to the New 
 Jersey Steel & Iron Co., the same as if all such drafts of the treasurer has been paid, and 
 such party shall immediately remit to trie treasurer an amount sufficient to make good 
 the sum so taken from the guaranty fund . 
 
 Sixth. Whereas it has been agreed by and between all the members of this associa- 
 tion (the New Jersey Steel & Iron Co. excepted) to exempt all members except the 
 Phoenix Iron Co., to the extent of 5 per cent of 300,000 tons, in the proportions ex- 
 pressed in the table of allotments contained in clause 1 of this agreement; the afore- 
 said Phoenix Iron Co. to be exempted to the amount of 11,000 tons; the pool araess- 
 ment shall not be charged on any member's shipments until it or they shall have 
 completed its or their quota of exempted tonnage. 
 
 Seventh.. It is required that all I beams and channels shipped into the States 
 bordering on the Pacific coast and to be actually used in the territory into which it 
 is shipped and also all I beams and channels actually exported for use outside the 
 limits of the United States be reported to the commissioner together with bills of 
 lading or other evidence of exportation satisfactory to him (said evidence to be confi- 
 dential and not to be circulated among the members). Such tonnage will be deducted 
 from the member's report and the agreed pool tax charged on the balance. 
 
 Eighth. Upon receiving the written request of any one member of the association 
 the commissioner shall call a meeting of the parties to this agreement, to be held 
 within five days from the date of his receiving such written request. 
 
 Ninth. If at any time any of the parties hereto shall have reason to suppose that 
 any other party or parties to the agreement have violated any of the provisions of this 
 agreement, the said parties so supposing the agreement has been violated shall file 
 with the commissioner of the association a bill of complaint against the party or parties 
 bo suspected of such violation, which bill of complaint shall fully set forth the act or 
 acts complained of, together with all the matters or things connected therewith. The 
 said bill of complaint shall be in writing, and shall furnish all the evidence that can be 
 submitted in connection with the alleged violation, and upon receipt by the commis- 
 sioner of any and all bills of complaint as aforesaid, he shall forthwith use his best 
 offices to have the accuser and accused arrive at an amicable settlement, failing in 
 which, he shall submit all the information he may have to the executive committee 
 for action . If the said executive committee shall determine that the charges have been 
 sustained, they, the executive committee, shall impose a penalty not less than $1,000, 
 nor more than the amount standing to the credit of the member so punished in the 
 guaranty fund at the time the fine is imposed upon the party so adjudged as having 
 violated the agreement, but if the executive committee shall determine that the 
 charges have not been sustained they shall dismiss the complaint from further con- 
 sideration by them. It being further understood and agreed that no member of the 
 executive committee shall act upon any bill of complaint made by or made against 
 the member of the association which he represents, nor shall any representative of a 
 member of the association vote upon any bill of complaint brought by or brought 
 against the member of the association which he represents. Any penalty imposed 
 by the executive committee will be collected by the treasurer, deducting the amount 
 thereof from the deposit made by the member against whom the penalty is imposed 
 to the guaranty fund, as provided for in clause fourth of this agreement, within two 
 weeks after such penalty is thus imposed, the sum thereof shall be transferred pro 
 rata as per allotments to the accounts of the members of the association, excluding 
 the member- against whdm the penalty is imposed, by the treasurer of the association, 
 in which case the member so punished shall immediately remit an amount sufficient 
 to make good the sum taken from the guaranty fund. 
 
 In case the offending member should appeal to the association and the action of the 
 executive committee should not be sustained by a majority vote of said association, 
 then the fine imposed shall be remitted and any sum that the member may have paid 
 into the association by reason of this shall be returned. 
 
 Tenth. No member of this association (the New Jersey Steel & Iron Co. excepted) 
 shall make any lump-sum bid, nor shall they or it erect any building, directly or indi- 
 rectly. This applies only to members as "Rolling Mills." Any question arising as to 
 the interpretation of this clause shall be referred to the commissioner for his immediate 
 decision. 
 
 Eleventh. No consideration in the nature of brokerage or commission is to be allowed 
 except to the accredited agents of the parties to this agreement, whose names shall be 
 on file with the commissioner; and in no case will it be permissible for such commission 
 to be divided. 
 
COMMITTEE ON INTERSTATE COMMERCE. 903 
 
 No Bales or contracts shall be made to or with middlemen except on specific work for 
 immediate specifications. 
 
 All sales between parties to this agreement shall be at pool prices, as provided in 
 agreement "B ; " and all shipments shall be reported by the manuacturer, on which 
 the pool tax will be charged the same as to outside parties, the purchaser also to report 
 shipments of all such material so bought, for which they shall claim and receive credit. 
 
 Twelfth. At any meeting of the members of this assbciation, called by the commis- 
 sioner as herein provided, any party or parties may give notice of withdrawal herefrom, 
 but no such notice shall take effect until January 1, 1898. If the aggregate pool per- 
 centages of the parties giving such notice of withdrawal shall amount to lesB than 4 
 per cent, this agreement shall continue in force as between the remaining parties, but 
 if such aggregate shall amount to 4 per cent or more this agreement shall terminate at 
 the time so fixed. But statements shall continue to be rendered of all I beams and 
 channels shipped up to date of its termination, the pool assessment. 
 
 Thirteenth. The percentages of the parties hereto or of their successors (including 
 as such any concern mainly owned or controlled by any of the said parties of any of 
 their stockholders) shall be maintained in the same relative proportion until other- 
 wise agreed, and if any party shall at any time have more than one successor or allied 
 concern the aggregate percentages allotted to itself and all its successors and allied 
 concerns shall not exceed the percentage that the original concern would have been 
 entitled to if it had continued alone its relations to the other parties under this agree- 
 ment, and the parties thereto shall include in their statement the shipments for such 
 successors and allied concerns. 
 
 Fourteenth. In caBe other firms or corporations are admitted as partners to this 
 agreement, the percentage of the pool allotted to each shall be deducted pro rata from 
 the percentages of the members immediately prior to the time of its admission; and 
 in case any of the parties hereto or any of the parties hereafter admitted shall withdraw 
 the percentage of the pool allotted to such withdrawing party or parties Bhall be added 
 pro rata to the percentages of the parties remaining. In such case the commissioner 
 shall compute and report the new percentages to the nearest one-hundredth of 1 per 
 cent, which degree of accuracy shall be deemed sufficient. 
 
 Fifteenth. The allotment herein made of percentages, the amount of the guaranty 
 fund, and the payment made to the New Jersey Steel & Iron Co., as herein provided, 
 shall not be altered, amended, or changed in any respect except by the unanimous 
 consent of all the parties to this agreement, but any other matters or things whatsoever 
 which concern this agreement or the association formed thereby or any regulations 
 hereafter adopted may, at any time, be abrogated or amended or altered at any meet- 
 ing of the members of this association, provided that two-thirds of the members if 
 the association are present thereat, that they represent at least two-thirds of the per- 
 centage allotted to all, and vote in favor thereof. 
 
 Sixteenth. To provide for the prompt payment of all salaries, rents, and other 
 expenses (except the payment which is to be made monthly to the New Jersey Steel 
 & Iron Co.), a general expense fund shall be called in as needed by the treasurer in 
 proportion to the percentage allotted each member in the association. 
 
 Seventeenth. No matter of account or understanding outside of this agreement 
 shall affect the settlements herein provided for, either as an offset or otherwise, nor 
 shall any written or unwritten agreement of the parties hereto, or any of them, to 
 establish and maintain uniformity in prices, or any controversy arising out of such agree- 
 ment, or any failure to carry out any of its provisions, or to maintain prices, affect in 
 any way the rendering of the statements and the making of the settlements therein 
 required. 
 
 Eighteenth. Whenever this agreement shall have been terminated the balance of 
 the deposit, with accumulated "interest, remaining in the hands of the treasurer to 
 the credit of each party, after provision shall have been made for the payment of all 
 expenses, shall be returned to it, provided it shall have rendered all the statements 
 required from it under this agreement and have paid all its debtor balances. In case 
 any party hereto shall not have fulfilled its money obligations under this agreement, 
 the amount it has on deposit in the guarantee fund shall be applied toward the ful- 
 fillment of those obligations, and the excess, if any, returned to it. But in case any 
 party shall not have fulfilled its agreement to render the monthly statements under 
 this agreement, the amount it has on deposit in the guarantee fund, or the excess 
 thereof, as above stated, shall be divided among the parties who shall have fulfilled 
 their obligations under this agreement, in the proportion of their respective percentages. 
 
 Nineteenth. At the expiration of this agreement, or at any time the president of 
 the association, together with the majority of the executive committee, determine 
 that it is advisable that all or any part of any funds belonging to the association shall 
 be withdrawn from the depository then holding the same, upon notification by the 
 
904 HEARINGS BEFOKE 
 
 president and a majority of the executive committee of such determination being 
 given the treasurer, he, tie treasurer, shall make and sign a sight draft or check upon 
 the depository so holding such funds for the sum named in such notification, which 
 check or sight draft shall then be countersigned by the president or one member of 
 the executive committee, and when such checks or sight drafts are so made and signed 
 by the treasurer and countersigned by the president or one member of the executive 
 committee and duly presented for payment at the office of the depository holding the 
 funds of the association, all such checks and sight drafts shall be paid by such 
 depository. 
 
 Twentieth. For all purposes of this agreement a ton shall be taken and held of 
 2,000 pounds. 
 
 In witness whereof the parties hereto have signed this agreement the day and year 
 first above written. 
 
 Exhibit C. 
 
 OFFICERS AND DIRECTORS OF THE U. S. S. C. 
 
 Chairman of board and chairman of finance committee, E. H. Gary. 
 
 President, W. E. Corey. 
 
 First vice president, W. B. Dickson. 
 
 Second vice president, David G. Kerr. 
 
 Secretary and treasurer, Richard Trimble. 
 
 General counsel, Francis Lynde Stetson. 
 
 Assistant secretary, Thomas Murray. 
 
 Assistant treasurer, H. G. Hay. 
 
 Comptroller, W. J. Filbert. 
 
 Assistant comptroller, Jos. H. Craig. 
 
 Directors. 
 
 Term expiree ■ 
 
 Baker, Geo. F 1911 
 
 Clifford", Alfred 1910 
 
 Converse, E. C 1910 
 
 Corey, W. E 1911 
 
 Dryden, Jno. F 1911 
 
 Frick, Henry C 1912 
 
 Gary, Elbert H 1910 
 
 Griscom, Clement A 1911 
 
 Mather, Samuel 1911 
 
 Moore, William H 1912 
 
 Morgan, J. P 1910 
 
 Morgan, J. P., jr 1910 
 
 Morrison, Thos 1910 
 
 Perkins, Geo. W 1910 
 
 Phipps, Henry 1910 
 
 Ream, Norman B 1912 
 
 Reed, James H 1912 
 
 Reid, Daniel G 1911 
 
 Roberts, Persival, jr 1912 
 
 Rockefeller, John D., jr 1912 
 
 Steele, Chas 1912 
 
 Thayer, Nathaniel 1911 
 
 Walters, Henry 1911 
 
 Widener, P. A. B 1912 
 
 Winsor, Robt 1912 
 
 The following of said officers and directors are also directors of the following com- 
 panies: 
 
 Baker, George F. 
 
 Adams Express Co., The, member of board of managers. 
 
 American Telephone & Telegraph Co., director. 
 
 Astor Trust Co., director. 
 
 Atlas Portland Cement Co., The, director. 
 
 Bankers' Safe Deposit Co., vice president and trustee. 
 
 Bowery Savings Bank, The, trustee. 
 
COMMITTEE ON INTEBSTATE COMMERCE. 905 
 
 Car Trust Investment Co., (Ltd.), London, director. 
 
 Central R. R. Co. of N. J., The, director. 
 
 Chase National Bank, The, director. 
 
 Chicago, Burlington & Quincy R. R. Co., director. 
 
 Cincinnati, Hamilton & Dayton Railway Co., director. 
 
 Colorado & Southern Railway Co., director. 
 
 Consolidated Gas Co. of New York, trustee. 
 
 Continental Insurance Co., The, director. 
 
 Delaware, Lackawanna & Western R. R. Co., member of board of managers. 
 
 East Jersey Water Co., director. 
 
 Erie R. R. Co., director. 
 
 Farmers' Loan & Trust Co., The, director. 
 
 First National Bank of Chicago, director. 
 
 First National Bank of N. Y., chairman of the board of directors. 
 
 First Security Co. of the City of N. Y., president and director. 
 
 Guaranty Trust Co. of N. Y., director. 
 
 Industrial Trust Co., Providence, director. 
 
 International Harvester Co., director, 
 
 Jersey City Water Supply Co., vice-president and director. 
 
 Lake Erie & Western R. R. Co., The, director. 
 
 Lake Shore & Michigan Southern Ry. Co., The, director. 
 
 Lehigh & Wilkesbarre Coal Co., director. 
 
 Lehigh Valley Coal Co., director. 
 
 Lehigh Valley R. R. Co., director. 
 
 Liberty National Bank, The, director. 
 
 Manhattan Trust Co., director. 
 
 Metropolitan Opera & Real Estate Co., president and director. 
 
 Michigan Central R. R. Co., The, director. 
 
 Mohawk &"Malone Railway Co., director. 
 
 Montclair Water Co., The, director. 
 
 Morton Trust Co., director. 
 
 Mutual Life Insurance Co., of New York, The, trustee. 
 
 National Bank of Commerce in New York, director. 
 
 New Jersey General Security Co., president and director. 
 
 New York and Harlem R. R., director. 
 
 New York & Long Branch R. R. Co., president and director. 
 
 New York & Putnam R. R. Co., director. 
 
 New York Central & Hudson River R. R. Co., director. 
 
 New York, Chicago & St. Louis R. R. Co., director. 
 
 New York Clearing House Building Co., director. 
 
 N. Y. Mutual Gas Light Co., The, director. 
 
 Newport Trust Co., director. 
 
 Northern Pacific Railway Co., director. 
 
 Northern Securities Co., second vice president and director. 
 
 Pennsylvania Coal Co., director. 
 
 Pere Marquette R. R. Co., director. 
 
 Provident Loan Society of N. Y., The, trustee. 
 
 Pullman Co., The, director. 
 
 Spring Brook Water Supply Co., director. 
 
 IT. S. Steel Corporation, director. 
 
 West Shore R. R. Co., director. 
 
 Converse, Edmund C. 
 
 Allis-Chalmers Co., director. 
 
 American Bank Note Co., director. 
 
 American Can Co., director. 
 
 Astor Trust Co., president and director. 
 
 Bankers' Trust Co., president and director. 
 
 Coronet Phosphate Co., president and director. 
 
 Fidelity Fire Insurance Co., director. 
 
 Fourth Street National Bank, Philadelphia, director. 
 
 Hudson & Manhattan R. R. Co., director. 
 
 International Nickel Co., director. 
 
 International Smelting & Refining Co., director. 
 
 Inter-Ocean Steel Co., director. 
 
 Interstate Investing Co., director. 
 
906 HEAKINGS BEFOKE 
 
 Kewanee Oil & Gas Co., director. 
 
 Liberty National Bank, The, director. 
 
 Manning, Maxwell & Moore (inc. _), director. 
 
 McKeesport Connecting R. R., director. 
 
 Mohican Oil & Gas Co., vice president. 
 
 National Supply Co., Toledo, director. 
 
 National Tube Co., director. 
 
 National Tube Works Co., director. 
 
 Phoenix Insurance Co., of Brooklyn, director. 
 
 Sheffield Coal & Iron Co., director. 
 
 Texas & Pacific Coal Co., director. 
 
 Union Trust Co., Pittsburgh, director. 
 
 United Bank Note Corporation, president and director. 
 
 U. S. Steel Corporation, director. 
 
 West Penn. Railway's, chairman of the board of directors. 
 
 Westinghouse Electric & Manufacturing Co., director. 
 
 Corey, William E. 
 
 American Mining Co., director. 
 
 American Sheet & Tin Plate Co., director. 
 
 American Steel & Wire Co., of N. J., director. 
 
 Birmingham Southern Railway Co., director. 
 
 Carnegie, Phipps & Co. (Ltd.), director. 
 
 Carnegie Steel Co., director. 
 
 Carnegie Steel Co. (Ltd.), The, director. 
 
 Carnegie Steel Co. of Pennsylvania, director. 
 
 Clairton Steel Co., director. 
 
 Chicago, Lake Shore & Eastern Railway Co., director. 
 
 Connellsville & Monongahela Railway Co., director. 
 
 Duluth & Iron Range Railroad Co., director. 
 
 Edgar Zinc Co., director. 
 
 Elgin, Joliet & Eastern Railway Co., director. 
 
 Federal Steel Co., director. 
 
 Gary Land Co., director. 
 
 H. 0. Frick Coke Co., director. 
 
 Illinois Steel Co., director. 
 
 Minnesota Steel Co., director. 
 
 Minnesota Iron Co., director. 
 
 Mount Pleasant Water Co., director. 
 
 National Tube Co., director. 
 
 National Tube Works Co., director. 
 
 Pittsburg Steamship Co. f director. 
 
 Sharon Tin Plate Co., director. 
 
 Shelby Steel Tube Co., director. 
 
 Tennessee Coal, Iron & R. R. Co., director. 
 
 Trotter Water Co., director. 
 
 Troy Steel Products Export Co., director. 
 
 Union Steel Co., director. 
 
 United States Coal & Coke Co., director. 
 
 United States Steel Products Export Co., director. 
 
 Youghiogheny Northern Railway Co., director. 
 
 Drtden, John F. 
 
 Prudential Insurance Co. of America, president and director. 
 
 Equitable Trust Co., of New York, The, trustee. 
 
 Fidelity Trust Co., Newark, N. J., vice president and director 
 
 Mercantile Trust Co., The, director. 
 
 National Bank of Commerce in New York, director. 
 
 Public Service Corporation, director. 
 
 Union National Bank, Newark, N. J., director. 
 
 United States Casualty Co., director. 
 
 United States Steel Corporation, director. 
 
COMMITTEE OJST INTERSTATE COMMERCE. 907 
 
 Frick, Henry C. 
 
 Chicago & Northwestern Railway Co., director. 
 
 City Deposit Bank, Pittsburgh, director. 
 
 Mellon National Bank, Pittsburgh, director. 
 
 National Union Fire Insurance Co., Pittsburgh, director. 
 
 Pennsylviana Railroad Co., The, director. 
 
 Philadelphia & Reading Coal & Iron Co., director. 
 
 Philadelphia & Reading Railway Co., director. 
 
 Reading Co., director. 
 
 Union Insurance Co., Pittsburgh, director. 
 
 Union Pacific Railroad Co., director. 
 
 Union Trust Co. of Pittsburg, The, director. 
 
 United States Steel Corporation, director. 
 
 Gary, Elbert H. 
 
 Allis-Chahners Co., chairman of the board of directors and member of finance 
 committee. 
 American Bridge Co., director. 
 American Bridge Co. of New York, director. 
 American Sheet & Tin Plate Co., director. 
 American Steel & Wire Co., of New Jersey, director. 
 American Steel Foundries, director. 
 American Trust & Savings Bank, Chicago, director. 
 Bessemer & Lake Erie R. R. Co., director. 
 Bullock Electric Manufacturing Co., director. 
 Carnegie Steel Co., director. 
 Chicago, Lake Shore & Eastern Ry. Co., director. 
 Commercial National Bank of Chicago, director. 
 Duluth & Iron Range R. R. Co., director. 
 Duluth, MiBsabe & Northern Ry. Co., director. 
 Elgin, Joliet & Eastern fiy. Co., director. 
 Empire Bridge Co., director. 
 Federal Steel Co., president and director. 
 Gary-Wheaton Bank, Wheaton, 111., president and director. 
 H. C. Frick Coke Co., director. 
 Hudson & Manhattan R. R. Co., director. 
 Illinois Steel Co., director. 
 International Harvester Co., director. 
 Lake Superior Consolidated Iron Mines, director. 
 Merchants Loan & Trust Co., Chicago, director. 
 Minnesota Iron Co., director. 
 Minnesota Steel Co., director. 
 National Tube Co., director. 
 Newburg & South Shore Ry. Co.,' director. 
 
 New York Trust Co., member of executive committee and director. 
 Oliver Iron Mining Co., director. 
 
 Phoenix National Bank of the City of New York, The, director. 
 Pittsburgh, Bessemer & Lake Erie R. R. Co., director. 
 Pittsburgh Steamship Co., director. 
 Southern Ry. Co., director. 
 Tennessee Coal, Iron & R. R. Co., director. 
 Union Steel Co., director. 
 United States Coal & Coke Co., director. 
 United States Natural Gas Co., director. 
 United States Steel Products Export Co., director. 
 Universal Portland Cement Co., director. 
 
 Ghiscom, Clement A., Jr. 
 
 Griscom-Spencer Co., president and director. 
 American Finance & Securities Co., The, director. 
 Bell Pure Air & Cooling Co., president and direqtor. 
 Development Co. of America, Th,e, director. 
 El Tiro Copper Co., director. 
 Empire Trust Co., director. 
 
908 HEABINGS BEFORE 
 
 Guanajuato Reduction & Mines Co., The, vice president and director. 
 New York Real Estate Security Co., director. 
 Reilly Heater & Evaporator Co., director. 
 
 Moore, William H. 
 
 American Can Co., director. 
 
 Chicago & Eastern Illinois R. R. Co., director. 
 
 Chicago, Rock Island & Pacific R. R. Co., director. 
 
 Chicago, Rock Island & Pacific Railway Co., director. 
 
 Delaware, Lackawanna & Western Railway Co., director. 
 
 Evansville & Indianapolis R. R., director. 
 
 Evansville & Terre Haute R. R. Co., director. 
 
 Evansville Belt Railway Co., director. 
 
 Fidelity Fire Insurance Co., director. 
 
 First National Bank of N. Y., director. 
 
 First Security Co. of the City of N. Y., director. 
 
 Kansas City, Fort Scott & Memphis Railway Co., The, director. 
 
 Kansas City, Memphis & Birmingham R. R. Co., director. 
 
 Keokuk & Des Moines Railway Co., director. 
 
 National Buiscuit Co., director. 
 
 Peoria & Bureau Valley R. R. Co., director. 
 
 Price Flavoring Extract Co., director. 
 
 Rock Island Co., The, director. 
 
 St. Louis & San Francisco R. R. Co., director. 
 
 U. S, Steel Corporation, director. 
 
 Morgan, J. Pierpont. 
 
 .35tna Insurance Co., Hartford, Conn., director. 
 
 Carthage & Adirondack Railway Co., director. 
 
 Carthage, Watertown & Sackets Harbor R. R. Co., director. 
 
 Central New England Railway Co., director. 
 
 Cleveland, Cincinnati, Chicago & St. Louis Railway Co., director. 
 
 Columbus, Hope & Greensburg R. R., director. 
 
 Dunkirk, Allegheny Valley & Pittsburgh R. R. Co., director. 
 
 Ellenville & Kingston R. R. Co., director. 
 
 First National Bank of N. Y., director. 
 
 First Security Co. of the City of N. Y., director. 
 
 Fort Wayne, Cincinnati & Louisville R. R. Co., director. 
 
 Fulton Chain Railway Co., director. 
 
 Fulton Navigation Co., director. 
 
 General Electric Co., director. 
 
 Harlem River & Port Chester R. R. director. 
 
 Hartford & Connecticut Western R. R. Co., director. 
 
 Jersey City & Bayonne R. R. Co., director. 
 
 Lake Erie & Western R. R. Co., director. 
 
 Lake Shore & Michigan Southern Railway Co., The, director. 
 
 Mexican Telegraph Co., director. 
 
 Michigan Central R. R. Co., The, director. 
 
 Mohawk & Malone R. R. Co., director. 
 
 National Bank of Commerce in N. Y., director. 
 
 New England Navigation Co., director. 
 
 New England R. R. Co., director. 
 
 N. J. Junction R. R. Co., director. 
 
 N. J. Shore Line R. R. Co., director. 
 
 Newport Trust Co., director. 
 
 N. Y. & Harlem R. R. Co., director. 
 
 N. Y. & Northern Railway Co., director. 
 
 N. Y. & Ottawa Railway Co. director. 
 
 N. Y. & Putnam R. R. Co., director. 
 
 N. Y. Central & Hudson River R. R. Co., The, director. 
 
 N. Y., Chicago & St. Louis R. R. Co., director. 
 
 N. Y., New Haven & Hartford R. R. Co., director. 
 
 N. Y., Ontario & Western Railway, Co., director. 
 
 N. Y., State Realty & Terminal Co., director. 
 
 Niagara Falls Branch R. R. Co., director. 
 
COMMITTEE ON INTERSTATE COMMEECE. 909 
 
 Ontario, Carbondale & Scranton Railway Co., director. 
 
 Pittsburgh & Lake Erie R. R. Co., director. 
 
 Port Jervis, Monticello & Summitville R. R. Co., director. 
 
 Poughkeepsie Bridge R. R. Co., director. 
 
 Pullman Co., The, director. 
 
 Raquette Lake Railway Co., director. 
 
 Rhode Island Co., (Electric Line), director. 
 
 Rutland R. R. Co., director. 
 
 St. Lawrence & Adirondack Railway Co., director. 
 
 Syracuse, Geneva & Corning wailRay Co., director. 
 
 Terminal Railway of Buffalo, director. 
 
 U. S. Steel Corporation, director. 
 
 Wallkill Valley R. R. Co., director. 
 
 West Shore R. R. Co., director. 
 
 "Western Union Telegraph Co., director. 
 
 Morgan, J. Pierpont, jr. 
 
 Acadia Coal Co. (Ltd.), director. 
 
 International Mercantile Marine Co., The, director. 
 
 Northern Pacific Railway Co., director. 
 
 Murray, Thomas. 
 
 American Bridge Co., director. 
 
 American Bridge Co., of N. Y., director. 
 
 American Sheet & Tin Plate Co., director. 
 
 American Steel & Wire Co., of N. J., The, director. 
 
 Duluth & Iron Range R. R. Co., assistant secretary, assistant treasurer, and director. 
 
 Federal Steel Co., first vice president and director. 
 
 Lake Superior Consolidated Iron Mines, vice president and director. 
 
 National Tube Co., director. V 
 
 Scott & Fowles Co., director. 
 
 Tennessee, Coal, Iron & R. R. Co., director. 
 
 Traction Equipment Co., director. 
 
 U. S. Steel Products Export Co., secretary and director. 
 
 Perkins, George W. 
 
 Astor Trust Co., director. 
 
 Bankers' Trust Co., director. 
 
 Cincinnati, Hamilton & Dayton R. R. Co., chairman of the board of directors. 
 
 Dayton & Union R. R. Co., director. 
 
 German-American Insurance Co., director. 
 
 Great Central Dock Co., vice president and director. 
 
 Hamilton Belt Railway Co., vice president and director. 
 
 International Harvester Co., chairman of finance committee and director. 
 
 International Mercantile Marine Co., director. 
 
 Marquette & Bessemer Dock & Navigation Co., director. 
 
 National City Bank of New York, The, director. 
 
 New York Trust Co v trustee. 
 
 Northern Pacific Railway Co., director. 
 
 Northern Securities Co., director. 
 
 Pere Marquette R. R. Co., chairman of the board of directors. 
 
 United States Steel Corporation, director. 
 
 Phipps, Henrt. 
 
 Mellon National Bank, Pittsburgh, director. 
 Philadelphia Rapid Transit Co., director. 
 United States Steel Corporation, director. 
 
 Ream, Norman B. . 
 
 Baltimore & Ohio R. R. Co., director. 
 Brooklyn Heights R. R. Co., director. 
 Brooklyn Rapid Transit Co., director. 
 Central Safety Deposit Co., vice president and director. 
 
910 HEARINGS BEFORE 
 
 Chicago & Erie R. R.Co., director. 
 
 Chicago, Burlington & Quincy R. R. Co., director. 
 
 Cincinnati, Hamilton & Dayton R. R. Co., director. 
 
 Cumberland Corporation, director. 
 
 Erie R. R. Co., director. 
 
 First National Bank of Chicago, director. 
 
 Franco-American Financial Association, The, director. 
 
 International Harvester Co., director. 
 
 Metropolitan Trust Co. of the City of New York, director. 
 
 National Biscuit Co., director. 
 
 New York, Susquehanna & Western R. R. Co., director. 
 
 New York Trust Co., trustee. 
 
 Pennsylvania Coal Co., director. 
 
 Pere Marquette R. R. Co., director. 
 
 Pullman Co., The. director. 
 
 Reliance Co., The, director. 
 
 Seaboard Air Line Railway, director. 
 
 Securities Co., The, director. 
 
 United State3 Steel Corporation, director. 
 
 Reid, Daniel G. 
 
 Liberty National Bank, vice president and director. 
 
 American Can Co., director. 
 
 Astor Trust Co., director. 
 
 Bankers' Trust Co., director. 
 
 Chicago & Eastern Illinois R. R. Co., director. 
 
 Chicago, Rock Island & Pacific R. R. Co., director. 
 
 Chicago, Rock Island & Pacific Railway Co, The, chairman of the board of directors. 
 
 Continental Insuarnce Co., The, director. 
 
 Evansville & Indianapolis Railway, vice president and director. 
 
 Evansville. <& Terre Haute R. R. Co., vice president and director. 
 
 Guaranty Trust Co. of New York, director. 
 
 Keokuk & Des Moines R. R. Co., vice president and director. 
 
 Peoria & Bureau Valley R. R. Co., president and director. 
 
 Rock Island Co., The, director. 
 
 St. Louis & San Francisco R.'R. Co., director. 
 
 Second National Bank, Richmond, Ind., director and vice president. 
 
 Union National Bank, Richmond, Ind., director. 
 
 U. S. Steel Corporation, director. 
 
 Rockefeller, John D., Jr. 
 
 American Linseed Co., director. 
 
 Delaware, Lackawanna & Western R. R. Co., member of board of managers. 
 
 Standard Oil Co. (of N. J.), director. 
 
 United States Steel Corporation, director. 
 
 Steele, Charles. 
 
 Adams Express Co., The, member of the board of managers. 
 
 Alabama Great Southern R. R. Co., director. 
 
 Atchison, Topeka & Santa Fe Railway Co., The, director. 
 
 Central R. R. Co. of N. J., The, director. 
 
 Chicago & Erie R. R. Co., director. 
 
 Chicago, Indianapolis & Louisville Railway Co., director. 
 
 Cincinnati, Hamilton & Dayton Railway Co., director. 
 
 Erie & Jersey R. R. Co., director. 
 
 Erie R. R. Co., director. 
 
 General Electric Co., director. 
 
 Gulf, Colorado & Santa Fe Railway Co., director. 
 
 International Harvester Co., director. 
 
 International Mercantile Marine Co., The, director. 
 
 Lehigh Valley R. R. Co., director. 
 
 Lehigh Valley Railway Co., director. 
 
 National Tube Co., director. 
 
 N. J. & N. Y. R. R. Co., director. 
 
 N. Y., Susquehanna & Western R. R. Co., director. 
 
COMMITTEE ON INTERSTATE COMMERCE. 911 
 
 Northern Pacific Railway Co., director. 
 
 Pere Marquette R. R. Co., director. 
 
 Santa Fe, Prescort & Phoenix Railway Co., director. 
 
 Southern Railway Co., director. 
 
 Standard Trust Co., director. 
 
 U. S. Steel Corporation, director. 
 
 Stetson, Francis Lynde. 
 
 Atlantic Coast Lumber Corporation, director. 
 
 Cataract Power & Conduit Co., of Buffalo, director. 
 
 Chicago & Erie R. R. Co., director. 
 
 Erie & Jersey R. R. Co., director. 
 
 Genesee River R. R. Co., director. 
 
 N. Y., Susquehanna & Western R. R. Co., director. 
 
 Niagara Falls Power Co., The, director. 
 
 Niagara Development Co., director. 
 
 Niagara Junction Railway, director. 
 
 U. S. Express Co., director. 
 
 U. S. Rubber Co., director 
 
 Trimble, Richard. 
 
 Elgin, Joliet & Eastern Railway Co., director. 
 Federal Steel Co., secretary, treasurer, and director. 
 Lake Superior Consolidated Iron Mines, director. 
 Minnesota Steel Co., treasurer and director. 
 National Tube Co., director. 
 Tennessee Coal, Iron & R. R. Co., director. 
 Union Steel Co., director. 
 
 Walters, Henry. 
 
 Atlanta & West Point R. R. Co., director. 
 
 Atlantic Coast Line Co., The, chairman of the board of directors. 
 
 Atlantic Coast Line R. R. Co., chairman of the board of directors. 
 
 Belt Line Railway Co. (Montgomery Ala.), director. 
 
 Charleston & Western Carolina Railway Co., vice president and director. 
 
 Chesapeake Steamship Co., director. 
 
 Chicago, Indianapolis & Louisville Railway Co., director. 
 
 Columbia, Newberry & Laurens R. R. Co., director. 
 
 Cuba Co., The, director. 
 
 Lackawanna Steel Co., director. 
 
 Louisville & Nashville R. R. Co., chairman of board of directors. 
 
 Milledgeville Railway Co., director. 
 
 Nashville, Chattanooga & St. Louis Railway Co., director. 
 
 N. Y. Shipbuilding Co., director. 
 
 Northern Central Railway Co., director. 
 
 Northwestern R. R. Co., of South Carolina, director. 
 
 Old Dominion Steamship Co., director. 
 
 Richmond-Washington Co., director. 
 
 Safe Deposit & Trust Co., Baltimore, vice president and director. 
 
 Southern Cotton Oil Co., The, director. 
 
 Virginia-Carolina Chemical Co., director. 
 
 Washington Southern Railway Co., director. 
 
 Western Railway of Alabama, director. 
 
 Western Union Telegraph Co., The, director. 
 
 Wilmington Savings A Trust Co. (Wilmington N. C), vice president and director 
 
 Dickson, William B. 
 
 Butte Coalition Mining Co., director. 
 
 Carnegie Steel Co., director. 
 
 Minnesota Steel Co., president and director. 
 
 Montclair Trust Co., director. 
 
 National Tube Co., director. 
 
 Red Metal Mining Co., director. 
 
 Tennessee Coal, Iron & R. R. Co., director 
 
 Trenton Iron Co., director. 
 
 Union Steel Co., president and director. 
 
 22877— vol i—12 58 
 
912 HEARINGS BEFORE 
 
 Filbert, William J. 
 
 Essex, Iron Co., director. 
 
 Lake Superior Consolidated Iron Mines, director. 
 
 Minnesota Steel Co., secretary and director. 
 
 Tennessee Coal, Iron & R. R. Co., director. 
 
 Troy Steel Products Co., director. 
 
 Union Steel Co., director and secretary. 
 
 The Chairman. The committee will take a recess until 10.30 
 o'clock to-morrow morning. 
 
 (Thereupon, at 4 o'clock and 45 minutes p.m., the committee took a 
 recess until Friday, December 8, 1911, at 10. 30 o'clock.) 
 
 FRIDAY, DECEMBER 8, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m. for 
 the purpose of further considering the bill (S. 2941) entitled "A 
 bill to create an interstate trade commission, to define its powers 
 and duties, and for other purposes," introduced by Mr. Newlands 
 July 5, 1911. 
 
 Present: The chairman. 
 
 There being no one present who desired to address the committee, 
 a recess was taken until to-morrow, Saturday, December 9, 1911, at 
 10.30 o'clock a. m. 
 
 SATURDAY, DECEMBER 9, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m. for 
 the purpose of further considering the bill (S. 2941) entitled "A 
 bill to create an interstate trade commission, to define its powers 
 and duties, and for other purposes," introduced by Mr. Newlands 
 July 5, 1911. 
 
 Present: Senators Clapp (chairman), Townsend, Newlands, Lip- 
 pitt, and Watson. 
 
 The Chairman. The committee will come to order. Mr. Moore- 
 head is present and desires to address the committee. 
 
 STATEMENT OF J. R. MOOREHEAD, NATIONAL SECRETARY OF 
 THE NATIONAL FEDERATION OF RETAIL MERCHANTS, LEX- 
 INGTON, MO. 
 
 Mr. Moorehead. Mr. Chairman and Senators, on October 18 and 19 
 last there assembled in the city of Chicago a body of business men, 
 which for numbers, personnel, constituency, unity of purpose, and 
 enthusiasm had not heretofore gathered together in this country. 
 The meeting was composed of 233 representatives, from 35 States, 
 
COMMITTEE ON INTERSTATE COMMERCE. 913 
 
 representing some 15 different lines of retail trade, organizations, and 
 associations, having a membership of more than 212,000. It was 
 discovered for the first time that all of these men had been, and were, 
 thinking along the same lines, were facing the same conditions, and 
 were attempting to solve similar problems, as they appeared to them, 
 without regard to the character or kind of business in which they were 
 engaged. Out of this meeting was formed a National Federation of 
 Ketail Merchants, having for its object, as laid down in the constitu- 
 tion, the following : 
 
 Section 1. To safeguard and serve the interests of all retail mer- 
 chants. 
 
 Section 2. To oppose all unjust legislation inimical to retail mer- 
 chants. 
 
 Section 3. To promote all just legislation designed for the benefit 
 of retail merchants. 
 
 Section 4. To demonstrate the necessity of retail merchants to 
 manufacturers wholesalers, and consumers of the United States. 
 
 Section 5. To cooperate with all other organizations ha>dng for 
 their objects the advancement of the best interests of commerce. 
 
 After perfecting an organization and electing a set of officers I had 
 the honor and responsibility of being chosen secretary by its board of 
 directors, and by invitation of your chairman through a mutual 
 friend, I have come here to submit for your consideration some obser- 
 vations relative to some of the conditions that confront the small 
 business men of the country, and it is for these 212,000 officially, and 
 for five times that many more I shall speak. 
 
 Under the resolution authorizing you to meet, I understand that 
 it is your duty "to inquire into and report to the Senate at the 
 earliest date practicable what changes are necessary or desirable 
 in the laws of the United States relatmg to the creation and control 
 of corporations engaged in interstate commerce, and what changes 
 are necessary or desirable in the laws of the United States relatmg 
 to persons or firms engaged in interstate commerce." It is not my 
 purpose, and I shall not undertake to suggest any definite amend- 
 ments at this time. I shall only attempt to lay before you some 
 of the conditions and suggest to you some of the most probable 
 results that will surely come to pass if the present policies are to be 
 continued, and this done I shall leave it to your wisdom and judg- 
 ment to determine whether or not our cause is worthy of favorable 
 consideration and positive action. I shall only attempt to show 
 you that in considering legislation upon the subject at hand the 
 little retail merchants of this country must necessarily be taken 
 into consideration. 
 
 Bradstreet reports 1,778,425 as the number of manufacturers, 
 Wholesalers, jobbers, retailers, bankers, and trust companies as 
 doing business in this country. I am advised that there are some- 
 thing like 28,000 banks and trust companies thus listed. I am not 
 able to say just how many manufacturers, wholesalers, jobbers, and 
 sundry lines are thus reported, but I am surely safe in saying that 
 more than 1,000,000 of these are retail merchants; in fact, men of 
 small means, absolutely depending upon their retail business for 
 support of themselves and their families. It is safe to say that 
 each of them employs directly at least three people. This million 
 or more of firms and individuals therefore constitute a considerable 
 percentage of our population when we add to their numbers their 
 
914 HEARINGS BEFORE 
 
 families and dependents, and when we consider that the progress 
 and prosperity of the thousands of communities in which they do 
 business largely depend upon these retail merchants. And I may 
 add here that all these merchants and their families and employees 
 are consumers upon which the farmers directly depend for their 
 home market, the best market they have to depend upon. 
 
 You will all agree that there are grave problems confronting big 
 business of this country, and there are grave problems confront- 
 ing Congress and the people of the country in dealing with big busi- 
 ness. I want to say that although it may not have been intentional 
 on the part of those who are responsible for the present situation — 
 and I have no reason to believe that it is — there are also grave problems 
 confronting the small business men of the country. I want to say 
 in the beginning that many of the stones that are being cast at the 
 big fellows are missing the mark and crossing the street and breaking 
 the windows of the little fellows. In other words, the efforts that 
 are being made to curb the powerful, the rich, and the grasping are 
 recoiling upon that class of men in this country for whom we believe 
 it was not intended, those who are the least able and the least organized 
 to secure their rights and combat the opposition. In other words, we 
 know that the antitrust law of the Nation and the States as well is 
 being perverted and is being used for ends that were never intended, 
 and should present conditions continue would bring about a situation 
 that can not be later on remedied. There are no longer any uncer- 
 tain theories confronting the little man in business. We have a con- 
 dition, and had we come here oftener and made our wants known 
 and our influence in politics felt, long since, perhaps, the status of 
 these I have the honor to represent could be better determined. 
 
 First. There is a great outcry in this country just now for the 
 elimination of the "middle man," better known as the retail mer- 
 chant, although the wholesaler and jobber may be classed as such. 
 Our answer to this demand is that we do not propose to be eliminated 
 if concerted action on our part should be able to show the Congress 
 and the legislatures of the several States that we have a place in the 
 economy of the country and that our preservation is for the best 
 interest of the greatest number; best for their economical, political, 
 and social welfare. This outcry emanates from four principal sources: 
 First. The great aggregations of capital known as mail-order houses; 
 second, almost all of what are known as farm journals; third, a great 
 part of the metropolitan press; fourth, many politicians seeking to 
 curry favor with the farming and laboring classes. These elements 
 in our national make-up, along with others of lesser influence, have 
 brought about a condition in the minds of the public adverse to the 
 retail merchants, especially among the farmers and laboring men, 
 that is no less than criminal. To my mind, this is the most serious 
 side of the whole question. Just to think that it has been possible 
 in this country of ours to so organize and conduct a campaign of 
 advertising to so poison the minds of hundreds of thousands of people 
 scattered all over the country against their neighbors, the home 
 merchant, that they will not even give us a chance to meet outside 
 competition. Under these false representations, carried on for so 
 long, the public seems not able to distinguish between our efforts to 
 obtain a fair living and the practice of extortion. They set us down 
 as extortionists, without argument or chance to be heard. 
 
COMMITTEE ON INTERSTATE COMMERCE. 915 
 
 I am not here to criticize the President of the United States or the 
 Attorney General or any of his assistants. I have had occasion to 
 more particularly call the President's attention to some of these 
 facts and conditions, and the reply to my communication comes 
 through the office of the Attorney General to the effect that "It is not 
 the duty of those upon whom the responsibility of the enforcement of 
 a law is imposed to consider general economic questions in determin- 
 ing whether a prosecution should be had for its violation." This 
 being the case, which I am perfectly willing to admit without any 
 question whatever, then it is the duty of Congress to settle economic 
 questions if it is in their power so to do. I have mentioned four of the 
 principal elements that are just now, intentionally or not, working to 
 the undoing of the little man in business. Gentlemen, the attempt at 
 combination or concentration of business into the hands of a few is no 
 more manifest or real than is now being brought about in the distri- 
 bution of merchandise of every kind, known as the retail business. 
 This country has been wonderfully prosperous in the last 10 years. 
 I venture to assert that there never was a time in the history of this 
 country, taking into account the last five years or more, when there 
 were so many people in every walk of life who were doing so well, 
 making such a good living, getting such prices for farm products and 
 live stock, making better wages, better housed, better fed, better 
 clothed, and, taking all things into consideration, no greater general 
 prosperity ever existed in the country. We can and do rejoice in this 
 fact. Not one of us would reduce the price of a single item raised 
 upon our farms or produced by our labor; but I am confident that I 
 am within the truth when I say that the million or more retail mer- 
 chants of this country have received less of the benefits growing out 
 of this great era of prosperity than any one other class of our people. 
 I feel safe in saying that the little merchants of the country have not 
 reaped their share of the reward. Their business nor their profits have 
 grown in proportion to the general prosperity that surrounds us. 
 Certainly there has been a greater consumption of merchandise in the 
 shape of clothing, food, and every other class of goods used by human- 
 ity; but the increase has not fallen into the lap of the small retailer. 
 
 When you have the opportunity to go amongst your constituents, 
 who are the retailers of merchandise, you will surely find that the 
 great majority of them have done little more than hold their own. 
 Many of them do not do that well. Farm lands have increased beyond 
 all expectations, and I am not saying they are too high. Wages have 
 increased, but I do not say that labor is too well paid. No one knows 
 better than those for whom I speak that upon these two elements rest 
 our security and prosperity, and they nave no better friends or 
 defenders in the country than their home merchants, but we do 
 assert, with emphasis, that the business, the storehouses, the homes, 
 the stocks of goods, and the profits of the retailers have not grown in 
 proportion to that obtained by either of the above-mentioned class or 
 any others. Where has it gone ? Who has gathered the harvest ? 1 
 have said that "mail-order houses" are one of the factors that has 
 brought about this condition of affairs. What are some of the facts ? 
 It has gone the rounds of the press, and is no doubt a fact, that one of 
 these houses alone sold more than $63,000,000 of merchandise by mail 
 last year. The business of one increased, it is said, 1,000 per cent in 
 three years — so much business that they were scarcely able to take 
 
916 HEARINGS BEFORE 
 
 care of it. And while the "control of trusts" and the influence of 
 Wall Street are pertinent questions for debate at this time, I venture 
 to remind you that it is not disputed that the chairman of the board of 
 directors of the largest mail-order house in this country is the presi- 
 dent of one of the largest banks in New York. It might not be out of 
 place to suggest that this would be a fruitful field for investigation. 
 If the business of this class is to go on increasing, how long will it be 
 before there will be dictation to the jobber, wholesaler, and manu- 
 facturer as to whom they shall sell, and we can imagine what would 
 happen to the little fellows in business. 
 
 I have referred to the feeling of public sentiment which has obtained 
 in the public mind against the retail merchant. Ever since this 
 method of merchandising by mail began to take root in this country 
 a great part of their advertising has not been in praise of their wares, 
 but has Deen a tirade of insinuation, misrepresentation, and abuse for 
 the home merchants, as being nothing more than robbers and thieves, 
 and when we attempt to get together to protect our business, our 
 homes, and our families we find out how tney are able to invoke in 
 in their own behalf the antitrust laws of the country. Almost without 
 exception the greater part of the advertising avenue of the farm 
 journals comes from the mail-order house, just as the daily press is 
 largely supported by revenues from the large department stores. I 
 think you can readily see why there is rarely ever a good word spoken 
 for the little man in business from these sources. There are undoubt- 
 edly exceptions, but they are exceedingly rare. 
 
 1 want to quote from an editorial which recently appeared in a farm 
 journal which bears the name of one of the most prominent men of 
 our clay. It says : 
 
 The fact is that outside of mining and manufacturing districts, and cities where there 
 are colleges, academies, and other schools, the country town exists simply for supplying 
 the wants of the people on the farms. With the exceptions above noted, the country 
 town has no other conceivable reason for iis existence. 
 
 I want also to quote from an editorial in a daily paper written in 
 connection with the discussion of the passage of a parcels-post law: 
 
 But suppose the parcels post should drive the country merchant out of business. 
 This could only happen because of a more effective and economical method of supply- 
 ing goods to the people, and therefore the country as a whole would be benefited and 
 the country merchant himself could find a more beneficial way of earning a living. 
 
 From which editorial I can only infer that economy in distribution, 
 if that were actually true, is the only feature to be considered in deter- 
 mining what is best for the greatest number of our people, and that 
 for a million or more retail merchants to go out and seek other 
 methods of making a living, together with the fifteen or twenty 
 millions depending upon them, is of small consequence to such as 
 preach the doctrine as above quoted. Without going further into 
 details I am sure you can see the trend of public sentiment and the 
 cause therefor. I do not blame the farm journals for standing up 
 for those who support them, for they could not exist without this 
 kind of support. I do not blame the daily press for talking for the 
 great department stores which furnish them with such profitable 
 business; they would be ingrates if they did not. But I do complain, 
 and we believe we have a just complaint, when we find ourselves 
 involved in this already unequal struggle and the Government steps 
 in and says, "Stop; you are restraining the trade of the mail-order 
 
COMMITTEE ON INTERSTATE COMMEECE. 917 
 
 house, the manufacturers and the big fellows. You are operating a 
 new kind of trust, a trust of power." What greater trust of power 
 could there be than that of a great aggregation of capital to spread it 
 broadcast through the daily and farm press and catalogues that they 
 can sell their wares at half the price charged by the home merchants ? 
 
 To be more specific, a United States grand jury in Chicago recently 
 indicted 14 secretaries of as many retail lumber associations, and I 
 am informed upon good authority, by the parties themselves, that 
 the retail implement dealers' association and the retail coal dealers' 
 association are undergoing the same kind of an investigation. It is 
 only fair to presume that these latter two organizations, and perhaps 
 others, will meet the same fate as the lumber secretaries have, for 
 during the recent trip of the President across the country he certainly 
 made it plain that all, at least, would have to submit to the same 
 methods of investigation, and the legal department of the Govern- 
 ment seems to be entirely in accord with this plan of procedure. 
 Civil action has also been brought against a number of the lumber 
 associations, and I am quite sure, had the legal department of the 
 Government been willing to stop here, that they would have wel- 
 comed the opportunity of finding out whether or not they were 
 violating a law which no one seems to be able to correctly interpret. 
 I call your attention to the fact that in bringing indictments above 
 referred to, the Government had to admit, or at least could not 
 charge, that these organizations, which their secretaries represented, 
 "had no incorporation, no capital stock, and did not even try to 
 control prices among themselves," and we are safe in saying that 
 other organizations which will have to submit to like treatment will 
 be able to show likewise. But what is the charge ? In short, it is 
 that these retail merchants have been guilty of "restraining the trade 
 of certain companies and corporations by furnishing information to its 
 membership." As to their double dealing and duplicity, which I 
 wish to remind you, it is in no wise charged as being false in any 
 particular. If I steal a horse, and my neighbor or a newspaper 
 charges me with the crime and the charge is proven in court, I have 
 no recourse; but if I can show that I did not steal the horse, have I 
 not recourse to the law against my neighbor or the newspaper for 
 libel or damage to character ? Nowhere, at no time, has any person, 
 company, or corporation sought redress because of any false state- 
 ments being made or published. If it is unlawful to furnish informa- 
 tion of this character to each other as to the action or practices of a 
 manufacturer, wholesaler, or mail-order house, why is it not also 
 unlawful for Dun's or Bradstreet's to furnish the manufacturers or 
 wholesalers with the information that will enable them to ^avoid 
 great loss in the sale of merchandise to the retailer. What Is the 
 difference? If a manufacturer or wholesaler sells me a stock of 
 goods to be sold at retail and then turns around and sells to my 
 customers, wherein is the difference between my telling or reporting 
 this fact to my fellow merchants and a commercial agency reporting 
 me as not being worthy of credit, or that I had mortgaged my property 
 and was not therefore considered responsible for my obligations? 
 But, gentlemen, that was not the milk in the coconut in the actions 
 referred to. 
 
 A number of manufacturers, along with certain mail-order houses, 
 were named in these indictments as being nominal plaintiffs in the 
 
918 HEARINGS BEFORE 
 
 case, but these manufacturers have almost without exception repu- 
 diated in writing any suggestion that their business had m any way 
 been restrained. Therefore, this situation resolves itself into the only 
 solution possible, that this is a fight for the retail business of the 
 country between the little fellows and the mail-order house and, 
 unfortunately for the little fellows, the Government is furnishing the 
 stronger with the ammunition and the attorneys to fight their battles. 
 When these indictments were brought the headlines of the daily 
 papers reporting them were reproduced in groups and sent broadcast 
 over this country, both signed and anonymously, by the mail-order 
 house. I had the great pleasure of having three of them handed to 
 me, two of them from' my bankers. It would appear that they 
 would even attempt to injure our credit at home. Just consider, 
 gentlemen, for one moment what methods are being used to get 
 business other than meeting competition with an article of merchan- 
 dise which speaks for itself in quality and price. You ask what has 
 this to do with suggesting amendments to the Sherman antitrust law? 
 Just this. The retail merchants, for whom I speak, do not ask you 
 to pass any law or make any amendments to the present law that 
 will in any way curtail the rights of those who are surely working to 
 the reduction of the little merchants to nothing more than make- 
 shifts ; to serve as an accommodation when the people have no money 
 to send away from home for what they want, when crops fail and 
 when the strike is on. All that we ask is a chance for a fair fight and 
 no favors, but we do insist that this law shall in some way be made so 
 
 Elain along these lines that the threat of being sent to jail will not be 
 anging over us when we join hands to fight for our business exist- 
 ence, upon which so much depends, our happiness and the welfare 
 of our families and everyone in the communities in which we are 
 
 Eerchance doing business. It is out of all reason to think that the 
 usiness man has to submit, or work under a law the uncertainties of 
 which are such that he has no idea or conception of his standing 
 before such a law until he has been brought into court and tried. 
 Therefore, it would seem that it should be the aim of Congress to 
 make it so plain in so far as it affects voluntary associations of busi- 
 ness men not formed for making prices or profits that "he who runs 
 may read." Does this seem to be an unreasonable demand, although 
 the exact terms in which it is to be expressed may not at this time be 
 clear ? We are restless under suspicion and surveillance, when Gov- 
 ernment and State officials are upon our heels and delving into our 
 business. 
 
 When we met in Chicago in October last to organize the federation, 
 which I have the honor to represent, a Government agent was there 
 to watch us as if we were a lot of criminals, and I had not been secre- 
 tary of the organization longer than 30 minutes until this Govern- 
 ment representative asked me for a copy of the minutes of our board 
 of directors. I should like to ask, gentlemen, how much of an appro- 
 priation for the Secret Service would you vote for if a part of it was 
 to be used to pay a man to stand at the door of this committee room 
 and watch your every movement? Is the blood of the men I repre- 
 sent any less red than the Members of Congress; or, in other words, 
 of your constituency? The retail merchant is not going to be put 
 out of business, but he will be reduced to a mere means of accomo- 
 dation to those who have not the cash to send away from home to 
 
COMMITTEE ON INTERSTATE COMMERCE. 919 
 
 supply their wants. We believe we have a right to more than this. 
 We believe that we are of as much a necessity to the community as 
 the farmer, laborer, the doctor, lawyer, or postmaster. We believe 
 that a good live town, with live merchants making something more 
 than a living, are as much of a necessity in our economy as is the 
 farmer. For you can not deny that every acre of land is increased 
 in value in proportion to its proximity to a good town or city, and 
 depreciates in value just in proportion to its distance from a good 
 town or city. A good town or city is as much of a necessity to the 
 farmer as" the farmer to a good town. It appears to us that such a 
 condition would be ideal in this country a,nd should not be in anywise 
 disturbed or discounted, even though it might be admitted that the 
 farmer or any other citizen might save in a small way upon his pur- 
 chases when sent to a city. In this connection I want to say, al- 
 though it might not be germane to the question to be decided by you, 
 that the new shibboleth is the demand for a parcels post, a new link 
 to be forged into the chain. I might not be competent to give advice, 
 but, gentlemen, look well and you will find that the demand for this 
 law emanates from the sources about which I have been speaking, and 
 is desired for the purpose of further crippling the small communities 
 of this country to the advantage of the mail-order house and the city 
 department store. Have we not already enough problems growing 
 out of the drift of the population to the great centers '( Do we want 
 to increase our social, economical, and political problems along this 
 line ? 
 
 The late Senator Dolliver, in a communication addressed to a 
 farmers' institute in his State, upon the subject of a parcels post, said: 
 
 I think the chief danger of our civilization lies in the concentration of the population 
 and business of a community in the cities. I have rejoiced all my lifetime in the fact 
 that our State has built up no great cities, but instead a large number of flourishing 
 towns and villages scattered throughout our borders. I believe it would be fatally 
 injurious to our farming interests to disturb the prosperity of our little cities and towns. 
 They are necessary not only to the comfort but to the material welfare of our farming 
 
 Eopulation. They furnish our home markets and many of our products, which would 
 e totally lost but otherwise find sales in the neighborhood of market towns. If a few 
 of us took advantage of the alleged bargains that are advertised by the department 
 stores and left off patronizing home merchants, it may be we could make a little in 
 that way; but if the whole community took the same view it is obvious that our home 
 town would be totally destroyed, its business ruined, and now where we have hundreds 
 of little thriving towns in Iowa, we would in time find ourselves surrounded with 
 shiftless and backward village population, wholly out of line with the progress of 
 which we are so proud in Iowa. The immediate effect of conditions would be to 
 depreciate our lands and fatally injure our people. 
 
 Gentlemen, if I appear to be too zealous in presenting this matter 
 to you, it is because I speak out of a full heart and because I believe 
 our cause is just, and in determining what shall be done you have a 
 great responsibility resting upon you, in that you are called upon to 
 decide one of the most important questions of legislation ever brought 
 before you. In conclusion, let me say that it is my commission to 
 tell you that if we do not, as little merchants, obtain our rights as we 
 see them, it will not be because we have not asked for them and 
 because we will not continue to ask for them henceforth. Surely you 
 will, in considering this great question, not forget that this great 
 body of our citizenship, which I have the honor to represent, must 
 have due consideration in determining a future plan of action in 
 dealing with this law. Here is a class of our citizenship who pay 
 
920 HEARINGS BEFORE 
 
 more taxes and insurance, extend a greater line of credit, take the 
 lead in every public enterprise, in schools, churches, charity, good 
 roads, libraries, and work longer hours and yet, as a class, we are 
 looked upon by a large part of our population as being no better than 
 crooks and criminals and only fit for the gibes of the press and poli- 
 ticians, and it is my commission to say to you, with all due respect 
 for the high position which you occupy, that against such persecutions 
 more than a million of retail merchants in this country enter their 
 protests and ask at your hands that we be given relief to the extent 
 that we may fight for our rights untrammeled and under a law that 
 we in no wise desire to violate when it can be ascertained just what 
 constitutes a violation. Our neighboring country, Canada, has 
 solved this question to the satisfaction of the retail merchants, the 
 consumers, and the people generally of that country. And they have 
 the same antitrust law in that country which we have in ours, but it 
 has been amended to meet the conditions of which I have been 
 speaking. 
 
 I do not doubt your patriotism or desire to get at the root of this 
 trouble and supply the remedy, and certainly our Congress is none 
 the less able to cope with this great economical question than the 
 statesmen of Canada. Certainly you will not be frightened from the 
 performance of your duty to this large and necessary class of our 
 citizenship by the cry of "Stop thief," when you know who "fathers 
 the cry." 
 
 I thank you, Mr. Chairman and gentlemen of the committee. 
 
 The Chairman. Have you with you a copy of any of the indictments 
 that you have referred to ? 
 
 Mr. Moorehead. No, sir; I have not. 
 
 The Chairman. Will you kindly send one to the committee for 
 insertion in the record ? 
 
 Mr. Moorehead. Yes, sir. Will } r ou have an}^ particular case? 
 There are four or five of them. 
 
 The Chairman. I presume they are all along the same lines ? 
 
 Mr. Moorehead. Yes, sir; I think there is no difference, except 
 possibly in one or two of the States there is a trade paper probably 
 hooked up with them in the indictments. 
 
 The Chairman. So far as you can discover them, will you send one 
 of each class ? 
 
 Mr. Moorehead. Yes, sir; I shall be glad to do so. 
 
 The Chairman. Have you, in your study of this situation, evolved 
 any suggestion as to amendment or modification or supplement to 
 the Sherman antitrust law ? 
 
 Mr. Moorehead. No, sir; I have not. I referred in conclusion, 
 in my statement, to what had been done along that line in Canada, 
 and I can leave a copy of their laws. 
 
 The Chairman. We have that already in the record. 
 
 Mr. Moorehead. I have not anything, Mr. Chairman, that is 
 definite at all. It is just one of those questions that has come up, 
 and it is indefinite, and we can only hope that something can be 
 thrashed out that will at least give the little man a chance to show 
 that he is not practicing extortion before he is put in jail for it. That 
 is the proposition. 
 
 The Chairman. Now, in regard to these proceedings that are pend- 
 ing, and in view of the fact that they are pending, no inference what- 
 
COMMITTEE ON INTERSTATE COMMERCE. 921 
 
 ever should, nor do I take would, be drawn from a disinclination on 
 your part to discuss the facts. I simply suggest, in view of the fact, 
 that those proceedings are pending, whether you care at this time to 
 make a statement concerning the facts of the alleged association, 
 and I repeat frankly that no inference should be drawn from the 
 disinclination on your part to do so in view of that fact. 
 
 Mr. Moorehead. In reply to that I will say that I am not an officer 
 in any association. I am not in any way personally connected with 
 any of these proceedings or indictments or civil actions and have 
 really not given the matter particular study. 
 
 The Chairman. Would you care to give the name of the Govern- 
 ment agent who attended the meeting you referred to ? 
 
 Mr. Moorehead. Mr. McKenzie I think is his name — I believe 
 Ralph McKenzie. I do not know his first name, but I believe it is 
 Ralph. 
 
 The Chairman. That is all. Senator Townsend, do you wish to 
 inquire ? 
 
 Senator Townsend. When was your retail dealers' association 
 organized — the national association ? 
 
 Mr. Moorehead. October 18 and 19. 
 
 Senator Townsend. Last ? 
 
 Mr. Moorehead. This organization that I represent; yes, sir. 
 
 Senator Townsend. There has been no indictment against that 
 association ? 
 
 Mr. Moorehead. Oh, no, sir. 
 
 Senator Townsend. What is the object of your association? 
 
 Mr. Moorehead. Simply, as expressed in the first part of my state- 
 ment, to oppose legislation that is against our interests and to fight 
 for legislation that is for our interest, and to cooperate with other 
 organizations for the good of not only the manufacturers and the 
 retailers but the consumer as well. 
 
 Senator Townsend. Who determines what legislation is good or 
 bad for you ? 
 
 Mr. Moorehead. We can only do that by resolution in convention. 
 
 Senator Townsend. You calf a convention of the general member- 
 ship, do you? 
 
 Mr. Moorehead. Yes, sir; to discuss public questions. 
 
 Senator Townsend. Do you have a legislative committee? 
 
 Mr. Moorehead. No, sir. 
 
 Senator Townsend. But you rely on instructions from your asso- 
 ciation ? 
 
 Mr. Moorehead. We do it just as we adopted a set of resolutions 
 at Chicago when we first met on the question of the parcels post, for 
 example. We took our position on that question at our first meeting. 
 
 Senator Townsend. Do you admit into your association any retail 
 business man ? 
 
 Mr. Moorehead. Any retailer. The units of this organization, as 
 we understand, would be an association interstate or a national asso- 
 ciation of some kind that is already in existence in some special line. 
 
 Senator Townsend. You are an organization of organizations? 
 
 Mr. Moorehead. Yes, sir; the only object would be to bring to- 
 gether all retail organizations and interests for the discussion of com- 
 mon interests in open meetings. As I have said, we had a represen- 
 tation there of 233 men from 35 States, and those men represented 
 
922 HEARINGS BEFORE 
 
 organizations that had a membership of 212,000. No such meeting 
 ever assembled before in this country. They had never got together 
 before in this country dry-goods men, lumbermen, etc., to discuss 
 their mutual interests. No such meeting was ever called before. 
 
 Senator Townsend. What, specifically and as briefly as you can 
 put it, are your objections to the Sherman antitrust law as applied to 
 the retail dealer? 
 
 Mr. Moorehead. Personally I think that the little man, or big 
 man for that matter, ought to have a right to show that he is not 
 practicing extortion on the people that he is dealing with. 
 
 Senator Townsend. What little man would be affected by the 
 Sherman antitrust law ? How would he be affected ? 
 
 Mr. Moorehead. If he were in an organization. Of course I do 
 not think there is any foundation for the position the Government 
 has taken in regard to these indictments, because, as I have said, 
 this organization which I represent has never at any time in any way 
 attempted to dictate the prices of anything. 
 
 Senator Townsend. What do they do ? 
 
 Mr. Moorehead. They meet for discussion of questions of common 
 interest. As I stated to you in your office this morning, we have 
 succeeded in cutting our insurance more than half in two. As lum- 
 bermen, we keep a mechanic's lien law on our books in our States. 
 As grocerymen, we keep a garnishment law on our books, and things 
 like that. 
 
 Senator Townsend. Has the Government attempted to interfere 
 with that prerogative of yours ? 
 
 Mr. Moorehead. It seems not. I was going further. The charge 
 is made in these indictments that through the machinery of some of 
 these organizations they furnish information one to another as to 
 what this man or that man is doing, and that is really the bottom of 
 the charges, as I understand, in these suits — not only against lum- 
 bermen, but presumably to come against other organizations — that 
 they exchange information among themselves. 
 
 Senator Townsend. For what purpose ? 
 
 Mr. Moorehead. For the purpose of informing themselves as to 
 the actions of the people from whom they buy goods or the people 
 from whom they buy goods, sell goods to. 
 
 Senator Townsend. What do they want with that information? 
 What is the particular use to which they propose to put that 
 information ? 
 
 Mr. Moorehead. To act upon it just the same as the manufacturer 
 or wholesaler would, if he should get a report on myself, for instance, 
 as to whether I was competent to pay my debts or was good pay. He 
 could either sell my goods or not. There is nothing obligatory upon 
 any member to refrain from buying from anybody by reason of having 
 any information as to what this manufacturer or that manufacturer 
 may sell or whom he may sell to or anything except free will. A man 
 acts as he pleases. 
 
 Senator Townsend. The object of this — and I am not saying this 
 to get into a controversy with you, but to get into the record clearly 
 your position with reference to this matter, if I may — your object 
 m getting this information is not really, is it, for the purpose of 
 determining the financial responsibility of the different dealers, but 
 it is rather to determine whether certain of the mail-order houses, as 
 
COMMITTEE ON INTEESTATE COMMERCE. 923 
 
 you call them, have been selling directly to any of the retail men 
 aside from selling to the customer direct or the consumer direct ? 
 
 Mr. Moorehead. That might be construed as that. 
 
 Senator Townsend. Can there be any other object? What other 
 object could you have ? 
 
 Mr. Moorehead. It would be information for the purpose of letting 
 the retailer determine as to whether or not he wanted to give his 
 business to this man or to that man after he had done certain things. 
 
 Senator Townsend. The Government has not attempted through 
 any indictment to interfere with your finding out the financial respon- 
 sibility of people, has it ? 
 
 Mr. Moorehead. Well, we would have no object in that. 
 
 Senator Townsend. Do you know whether any of the retail organi- 
 zations, including the lumbermen or any other retail "organization, 
 attempts through their organization to divide up the territory in 
 which the goods will be sold ? 
 
 Mr. Moorehead. Never. If that is done, it would be done by the 
 individual himself; the association or organization or membership 
 would have nothing to do with it whatever directly or indirectly, and 
 I can say further, speaking for most any of these lines of organization, 
 they are not all in the organization. In my State, for example, there 
 are only 60 per cent of the lumber dealers in the organization. There 
 are competitors that are not in the organization in my own commun- 
 ity. Talse other lines of business; there are hundreds of thousands 
 of them that are not in, and to show you the disposition to magnify 
 the importance of that organization, here is an organization of lumber- 
 men, or any other line of business, and we are only able to get into it 
 60 per cent possibly, or half, or 70 per cent of the dealers in the com- 
 munity with a $5 a year initiation fee. Now if that organization were 
 of any great pecuniary value to those men — as may be intimated by 
 certain parties or elements — they could not afford to stay out for 
 $100 or $500 a year. 
 
 Senator Townsend. If it were not for the Sherman antitrust law 
 and you had a free hand in this matter, how could your organiza- 
 tion meet the competition of the mail-order business? 
 
 Mr. Moorehead. We can always meet them on prices and quality 
 if we get the chance. They can not sell goods cheaper than the 
 retail merchant can sell them, I believe, only in a few instances. 
 Their practice is this: They will take a staple and sell it at cost to 
 make an impression on somebody, and make it up somewhere else. 
 They will take a staple, for instance, and sell it at practically cost 
 as a matter of advertisement. A great many retailers will do that. 
 Take the groceryman, for instance; he will sell sugar at cost in 
 order to make it up on something else. In my business I can meet 
 any mail-order competition that ever came up against me, per- 
 sonally. 
 
 Senator Townsend. Then why do you need an organization of 
 retailers, if you can do that, to take care of the mail-order houses ? 
 
 Mr. Moorehead. We can meet it, but we can not make a profit 
 on it, because we have to stand a great deal of expense for service 
 that the mail-order house does not have to pay at all. 
 
 Senator Townsend. Then you can not meet them, can you ? 
 
 Mr. Moorehead. We can meet it, if it was the mail-order house 
 and we had to add our expense of handling it and our service at 
 
.924 HEARINGS BEFORE 
 
 home that we have to render, such as delivery, and things of that 
 kind — taking back and selling on credit, and loss of accounts. We 
 could all possibly meet it if all business was that way. But what 
 would be the effect on the communities in which we live if all the 
 business were done away from home ? 
 
 Senator Townsend. That is another point. I just want to carry 
 that out a little further. In answer to my question as to what you 
 would do it if were not for the restraining influence of the Sherman 
 antitrust law, you said you could meet it. Now let me ask that 
 again, in view of the conversation that has occurred between us. 
 What would you do now to take care of the mail-order house if you 
 had a free hand in reference to it; what have you been trying to do 
 that the Government has tried to prevent? 
 
 Mr: Moorehead. I do not know that I exactly understand what 
 you are trying to get at. 
 
 Senator "Townsend. Well, perhaps I did not make myself very 
 clear. 
 
 Mr. Moorehead. I can possibly explain to you. There are plenty 
 of people in every line of business — the retail manufacturer, and 
 everyone else — who do not cater to the retail trade at all. We 
 would not say to Congress, "Shut those people off." We would not 
 say to Congress, "Pass any law to prevent those people from selling 
 goods direct to the consumer." That is all right, but I would reserve 
 the right, as a retailer, to not buy from them myself, but use any 
 information or knowledge that I might have of them. There is not a 
 line of business in the country where there is not somebody selling to 
 the consumer. 
 
 Senator Townsend. That brings out the point I wanted to reach. 
 
 Mr. Moorehead. In other words, competition is awfully fierce in 
 every line that I know of. I do not know of a thing that can not be 
 bought from a mail-order house except possibly coffins or false teeth, 
 or something of that kind. 
 
 Senator Townsend. One of the objects of this association has been 
 to give its members information as to the business of the mail-order 
 house, is it not ? 
 
 Mr. Moorehead. Or manufacturer. 
 
 Senator Townsend. And then, either by open and direct agree- 
 ment, or else by gentlemen's agreement or arrangement, not to buy 
 of the mail-order houses ? 
 
 Mr. Moorehead. I would not say it was by any agreement what- 
 ever. I deny that, for this reason: We believe there should be trade 
 ethics in our business as well as there should be ethics amongst lawyers 
 or amongst doctors. You would not go into a law case and suggest 
 to your client if he had employed another lawyer, "I will take your 
 case for so much." You would not, to use a common expression, 
 "butt in" on that proposition. Now, to be very candid with you, I 
 would not " butt in ' on my competitor in that way and cut his throat. 
 I think there is common decency in trade ethics. I would not do it 
 without any law — any antitrust law or anything else. I do not think 
 it would be right. I could not make anything by doing so. I should 
 only cut his throat. 
 
 Senator Townsend. I think there is a good deal of merit in your 
 claim. I am wondering what the general effect is on the people, upon 
 the consumers. You say generally that the farmer, the consumer, is 
 
COMMITTEE ON INTERSTATE COMMEBCE. 925 
 
 dependent to a large extent upon your retail merchants, and your 
 retail merchants upon the consumer, of course. You also say that 
 there are certain expenses in your business as a retailer which the 
 mail-order house does not have, and that he thereby might undersell 
 you; that is, he could sell and live at it? 
 
 Mr. Moorehead. He could put it down at the station cheaper 
 than I could, you understand. 
 
 Senator Townsend. Do they not deliver to the consumer direct? 
 
 Mr. Moorehead. No, sir. You mean pay the freight ? 
 
 Senator Townsend. Yes. 
 
 Mr. Moorehead. As a general proposition, I think not. They may 
 in some cases. 
 
 Senator Townsend. A gentleman stated to me the other day that 
 they did; that they delivered it from the station to the farmhouse, 
 if they wanted them to do so. That is not true? 
 
 Mr. Moorehead. No, sir. 
 
 Senator Townsend. A man was telling me that. 
 
 Mr. Moorehead. I never heard of that. 
 
 Senator Newlands. How do they deliver it — through the mails or 
 by express ? 
 
 Senator Townsend. No; they hire wagons. 
 
 Mr. Moorehead. I do not think they do that. 
 
 Senator Townsend. A retail merchant told me that. 
 
 Mr. Moorehead. I never heard of that. 
 
 Senator Townsend. Does, your organization have certain trade 
 papers ? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Townsend. Have the owners of those papers been indicted 
 in some instances with your organization ? 
 
 Mr. Moorehead. There has been no indictment, as I understand it. 
 Two of those papers have been made parties to civil action, one in 
 Minneapolis and one in Detroit, but no criminal action against the 
 editor or anything of that kind. It is only a civil action. 
 
 Senator Townsend. And those papers are supported by your 
 organization, are they? 
 
 Mr. Moorehead. No; not by our organization. The large part of 
 the support comes from advertising wholesalers in lumber. As 
 any other trade journal, they would be largely supported by the manu- 
 facturers and jobbers advertising, just like any other newspaper. The 
 bulk of their income comes from advertising. 
 
 Senator Townsend. They are published rather directly in the 
 interests of this retail association, are they ? 
 
 Mr. Moorehead. No, sir; they are published in the interest of the 
 trade generally. On the rarest occasions you will find one that is 
 published in the interest of retailers particularly, because they carry 
 an immense amount of wholesale and jobbing advertisements. That 
 is true in every line of business. 
 
 Senator Townsend. Are they generally favorable to the parcels- 
 post system? 
 
 Mr. Moorehead. As far as I know, they are all opposed to it. 1 
 have never seen one that was not opposed to it. 
 
 Senator Townsend. Are the wholesalers generally in favor of or 
 opposed to the parcels post, as far as your information goes ? 
 
926 HEARINGS BEFORE 
 
 Mr. Moorehead. They are opposed to it. I think they see that if 
 goods were shipped and distributed from the large centers that there 
 would be no use for a jobber or wholesaler. 
 
 Senator Townsend. Do you know what the attitude of the express 
 companies is on that proposition? 
 
 Mr. Moorehead. I do not know actually; I only know what I have 
 heard, that they are opposed to it. I have had it thrown at me that I 
 was in league with the express companies — but of course I could deny 
 that very emphatically — in trying to prevent the parcels post. 
 
 Senator Townsend. So that before the Congress of the United 
 States you propose to take action, through your organization, to resist 
 legislation which to you seems inimical to the retail business generally ? 
 
 Mr. Moorehead. Yes, sir; that is one of our objects, I think. 
 What I said was not intended as a reflection on Congress, that they 
 had not taken it into consideration at all, but what I attempted to 
 convey was this, that we had not come here as little fellows to ask for 
 anything, and if we had, that possibly our status could be a little 
 better determined. Those are the exact words, I believe, I used. We 
 come here on our own behalf to endeavor to enlighten you a little as 
 to what would be best for us and also the people with whom we live 
 and do business. 
 
 Senator Townsend. Do you classify the Retail Lumber Dealers' 
 Association as little fellows ? 
 
 Mr. Moorehead. Yes, sir; the great bulk of them are small. 
 
 Senator Townsend. They combine into one organization as much 
 as they can, do they not; they have a retail lumber dealers' associ- 
 ation ? 
 
 Mr. Moorehead. The States have them, yes, sir; but, as I said 
 awhile ago, in all the cities there are a large number of retail lumber- 
 men, as there are of every other kind, who do not join an organiza- 
 tion, although the yearly dues are practically nothing — often not 
 more than $5. 
 
 Senator Townsend. I understood you to say that none of your 
 arrangements looked to the fixing of prices ? 
 
 Mr. Moorehead. I do absolutely say that. 
 
 Senator Townsend. Or to the dividing up of territory ? 
 
 Mr. Moorehead. I do, as an association, say so. If that is done, 
 it is done by the individual himself and not by any connivance or 
 arrangement or any attempt on the part of the association or its 
 officials to help him do that thing. I do say that, as far as I know. 
 
 Senator Townsend. That is all I care to ask. 
 
 The Chairman. Senator Newlands, do you care to inquire ? 
 
 Senator Newlands. You probably stated against whom and what 
 the character of these indictments was, but I did not hear it. Against 
 whom are these indictments ? 
 
 Mr. Moorehead.- The indictments so far have been brought against 
 a certain number of secretaries of lumber associations in the West. 
 There was no indictment brought against the lumber secretaries in 
 the Eastern States. After that civil action was also brought against 
 three or four lumber associations in the West similar, I believe, asf ar 
 as practicable, to those brought in the East ; that is, civil action was 
 brought in the East against retail associations, then against the 
 consumers. 
 
 Senator Newlands. By whom were those civil actions brought? 
 
COMMITTEE ON INTERSTATE COMMERCE. 927 
 
 Mr. Moorehead. They were brought in the United States court. 
 
 Senator Newlands. And who was the plaintiff, the United States 
 Government ? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator NEWLANDSi Were they Government actions ? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Newlands. Were the indictments against the secretaries 
 only ? 
 
 Mr. Moorehead. Yes, sir, only. 
 
 Senator Newlands. And not against the members of the organi- 
 zations themselves ? 
 
 Mr. Moorehead. No, sir. 
 
 Senator Newlands. Those organizations were not incorporated ? 
 
 Mr. Moorehead. No, sir; none of them. I say none. I believe 
 there is one possibly in Colorado. That, I believe, has incorporated. 
 I only noticed that in the last week. But as a general proposition 
 they are not. 
 
 Senator Newlands. Take the great trusts, do they deal, as a rule, 
 directly with the retailers, or do they attempt to reach consumers 
 without the intervention of the retailers ? 
 
 Mr. Moorehead. I do not know that I can answer that. For 
 instance, take the Steel Trust. I presume the bulk of their stuff is 
 sold directly to the parties who consume it, such as structural-iron 
 companies and railroads. The small things that they make of iron 
 and steel go through, possibly, jobbing warehouse interests before it 
 gets to the retailer. The retailer could not buy and I do not suppose 
 would want to buy because he could not. 
 
 Senator Newlands. Are you informed on the subject as to how it 
 is with the other trusts ? 
 
 Mr. Moorehead. I do not know. I am unable to tell you. 
 
 Senator Newlands. Now, as to the mail-order houses. Do they 
 deal in any degree through the retailers, or do they deal directly with 
 the consumers ? 
 
 Mr. Moorehead. They go right to the consumer. They never 
 lose a chance to go after the retailer while they are selling to the 
 consumer. 
 
 Senator Newlands. Do they receive their orders by mail? 
 
 Mr. Moorehead. Entirely so, I understand. 
 
 Senator Newlands. Do they ship their commodities by freight or 
 through express companies ? 
 
 Mr. Moorehead. Both, I think. 
 
 Senator Newlands. Do they deliver directly to the consumers or 
 only to the station ? 
 
 Mr. Moorehead. Only to the station. Senator Townsend raised 
 that question. I never heard it. They have no way of delivering. 
 
 Senator Newlands. When they send by express, do they not 
 deliver directly to the consumer ? 
 
 Mr. Moorehead. No, sir; the express company would deliver it in 
 the community if it was sent to the community. The express com- 
 pany would deliver it the same as they would deliver a package to a 
 merchant, but freight would not be. That is my understanding. 
 
 Senator Newlands. Now, then, as to retailers: Whom do they 
 regard as the most prejudicial to their business, the trusts or the 
 mail-order houses ? 
 
 22877— vol 1—12 59 
 
928 HEARINGS BEFORE 
 
 Mr. Moorehead. I would not want to say as to that. I suppose 
 the greatest opposition that came to our business would be directly 
 from the mail-order houses. 
 
 Senator Newlands. That opposition would be very largely in- 
 creased, would it not, if there were a parcels-post delivery ? 
 
 Mr. Moorehead. I think the effect of a parcels post would be to 
 educate the farmer particularly, possibly, because more of his busi- 
 ness, in proportion than any other class of people, goes to outside 
 business houses, such as mail-order houses, and the disposition 
 would be to educate him to sit down in his house and send his money 
 away around the home merchant. 
 
 Senator Newlands. And avoid the home merchant ? 
 
 Mr. Moorehead. Avoid the home merchant. That is being done 
 now. 
 
 Senator Newlands. You think that disposition would be increased 
 if there were a parcels post — parcels delivery system ? 
 
 Mr. Moorehead. I do not think there would be any question 
 about that. If the parcels post could be established on service ren- 
 dered, on distance and on the size of the package, I do not suppose 
 anybody would object to it. x 
 
 Senator Newlands. Do these mail-order houses involve a very 
 large capitalization ? 
 
 Mr. Moorehead. Yes, sir; enormous, some of them. 
 
 Senator Newlands. Can you tell the capitalization of any of them ? 
 
 Mr. Moorehead. Not from my own knowledge, except from news- 
 paper reports. 
 
 Senator Newlands. Are there very many of them ? 
 
 Mr. Moorehead. Not a great many. 
 
 Senator Newlands. A dozen ? 
 
 Mr. Moorehead. I do not know. I could not name you a half a 
 dozen. 
 
 Senator Newlands. Are they located generally in large cities ? 
 
 Mr. Moorehead. Practically always. 
 
 Senator Newlands. Are these mail-order houses ever manufac- 
 turers ? 
 
 Mr. Moorehead. I understand they own interests in factories and 
 own, in some cases, outright the factories, manufacturing their own 
 goods. They claim that they own their own sawmills, some of them, 
 when they only own timber; cut their own timber. 
 
 Senator Newlands. You admit that the price itself — the price to 
 the ultimate consumer — may be diminished by doing away with all 
 obstructions between the manufacturer of the product and the con- 
 sumer, do you not? 
 
 Mr. Moorehead. I do not know whether it could or not. I do not 
 know what that might lead to. 
 
 Senator Newlands. I mean as to that particular thing you admit 
 that there would be a reduction of prices provided the mail-order 
 house would satisfy itself with only a reasonable profit ? 
 
 Mr. Moorehead. No, sir; I would not admit that. I think the 
 retailer renders the service for what he gets. 
 
 Senator Newlands. I am not considering now the general economic 
 question of the benefit of the retailer to the community or the relation 
 he bears in the shape of a general creditor and helper in times of dis- 
 tress, etc., but I am simply considering the question of price. 
 
COMMITTEE ON INTERSTATE COMMERCE. 929 
 
 Mr. Moorehead. If a manufacturer attempted — not in any specific 
 line that I recall now — to distribute his stuff direct to the consumer, 
 he could not distribute it to the consumer at the price he is able to 
 distribute it to a jobber and let him do it, because he could not do it 
 with his force and with his plant. He has got to pay somebody for 
 that service. 
 
 Senator Newlands. But the jobber is a wholesaler, is he not? 
 
 Mr. Moorehead. Practically the same thing — jobbers and whole- 
 salers, yes, sir. 
 
 Senator Newlands. Then you think the most economic method of 
 distributing goods from the producer to the consumer is first by the 
 sale to the jobber, second by the jobber to the retailer, and third by 
 the retailer to the consumer ? 
 
 Mr. Moorehead. I believe that is as cheap as it could be done by 
 anybody. I do not think a factory could put its goods into the hands 
 of the consumer any cheaper. 
 
 Senator Newlands. If that is the case, how is it that these mail- 
 order houses are able to make such invasions upon the business of the 
 retailers ? 
 
 Mr. Moorehead. Well, I have my idea about those things. I think 
 a great many people patronize them, thinking they are saving when 
 they do not do it. I make it a practice, if I know it, to always meet 
 mail-order competition. Personally I can do that. 
 
 Senator Newlands. Are not the people likely to find that out in 
 time ? 
 
 Mr. Moorehead. Well, a great many people are finding out just 
 the opposite — that it does not pay. 
 
 Senator Newlands. Now, the remedy that you propose is not to 
 take hold with any strong hand of these trusts or mail-order houses 
 but to give the retailers the power of organization on the other side 
 as a matter of mutual protection? 
 
 Mr. Moorehead. I disclaim any disposition of coming here to 
 propose any definite plan. I am in the dark just as much, possibly, 
 as Congress is as to what ought to be done. It does seem that a man 
 ought to have the chance to show that he is not practicing extortion 
 and that he is not robbing his neighbor before he is put in jail for it. 
 
 Senator Newlands. Your claim is that these organizations are sim- 
 ply made not with a view to extortion or oppressing the consumers or 
 with a view to exercising injurious restraint upon trade, but simply 
 with a view to mutual protection of the little man in business 
 
 Mr. Moorehead. Yes, sir ; and building up the community. 
 
 Senator Newlands. Who feel that they are being crushed by these 
 great organizations of capital in the shape of trusts or mail-order 
 houses 1 
 
 Mr. Moorehead. Possibly that is a better statement of it than I can 
 make, Senator. 
 
 Senator Newlands. Now, as it is, you form these organizations 
 under the fear of indictment under the Sherman antitrust law, do you 
 not ? As a matter of fact such indictments have been found ? 
 
 Mr. Moorehead. These organizations — practically all of the organ- 
 izations that are represented here in this general organization that I 
 am representing — have been in existence a great many years. 
 
 Senator Newlands. In how many that you know of have there 
 been indictments of the secretaries of these organizations ? 
 
930 HEARINGS BEFORE 
 
 Mr. Moorehead. So far as I know, only amongst lumber secre- 
 taries up to date. As I stated in my written statement, the same kind 
 of investigation is going on in other lines of business, I am told, and I 
 guess there is no doubt of it. 
 
 Senator Newlands. Do you know whether or not these various 
 organizations are uncertain or in a state of alarm regarding the appli- 
 cability of the Sherman antitrust law to them ? 
 
 Mr. Moorehead. I do not know about that. As I say, I am not an 
 officer in any organization except this one. 
 
 Senator Newlands. You claim that this one is just like other 
 organizations of retailers ? 
 
 Mr. Moorehead. This one I represent is an organization of organ- 
 izations. It is just a forum for getting together of all lines of business 
 and all lines of retail trade for discussing common problems. 
 
 Senator Newlands. How is it with your organization ? Do they 
 realize the advantage of having a staple price both to businesses and to 
 communities and the consumers themselves ? 
 
 Mr. Moorehead. We do not think that would be to their disadvan- 
 tage, if that price were not exorbitant. 
 
 Senator Newlands. Do you find the general feeling to be in favor 
 of staple prices rather than prices that are constantly fluctuating 
 through cutthroat competition? 
 
 Mr. Moorehead'. That would certainly be my view of it, per- 
 sonally. But I should much prefer to know, if I had a stock of goods 
 that I bought to-day, that m six months from now that stock of 
 goods would depreciate 20 per cent or would advance 20 per cent. 
 
 Senator Newlands. Do you think that is a better condition for 
 the consumer? 
 
 Mr. Moorehead. Yes, I do. 
 
 Senator Newlands. Do these retail organizations wish to be ex- 
 
 J>ressly exempted from the operation of the antitrust law, as the 
 abor organizations are ? 
 
 Mr. Moorehead. No, sir; I am not asking that, and I am not com- 
 missioned to ask that. All I suggest along that line is that in Canada 
 that has been done to an extent, and I only ask that you look into 
 what they have done there. 
 
 Senator Newlands. Have they also exempted labor organizations 
 there? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Newlands. As well as retail organizations? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Newlands. Making the law operative only regarding big 
 and wealthy organizations, is that it ? 
 
 Mr. Moorehead. As I understand it, the retail organizations of 
 Canada went to Parliament and asked for a certain law and got it, 
 and they are now working under that law. 
 
 Senator' Newlands. Assuming that these organizations can be 
 formed for mutual protection, and at first their purpose is beneficial, 
 such as you speak of, do you not realize that, unless there is some 
 check of the law, they will be likely to gradually indulge in a form of 
 organization that will result in oppression and extortion ? 
 
 Mr. Moorehead. I do not think that you will find any of these 
 organizations that would object to a law if they knew what the law 
 
COMMITTEE ON INTERSTATE COMMERCE. 931 
 
 would restrain them from doing. We are not asking for a repeal or 
 anything of that kind, or anything that would cripple the law. 
 
 Senator Newlands. Have you any form of law to suggest ? 
 
 Mr. Moorehead. No, sir; I have not. I am in the dark as to that. 
 
 Senator Newlands. Does it really not mean in the end that if 
 Congress should enact a law upon this subject, permitting an organi- 
 zation of retailers and practically exempting them from the opera- 
 tion of the Sherman Act, that it would be, necessary to exercise a 
 very close supervision 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Newlands (continuing) . Over their methods of organiza- 
 tion and practices ? . 
 
 Mr. Moorehead. They ought to. 
 
 Senator Newlands. Would not that be very cumbersome? 
 Would not such a system break down when you applied it to ninety 
 millions of people ? 
 
 Mr. Moorehead. I could not say, Senator. You are getting me 
 into deep water on that proposition. I suppose that you have had a 
 great many men who are wiser than I am come here and give you 
 their views on this proposition. 
 
 Senator Townsend. You are in distinguished company. 
 
 Mr. Moorehead. I would not presume to come out of the West 
 and suggest to Congress or to other distinguished men who come 
 here a remedy that would work. I hope in beating the brush that 
 somebody will find the remedy. 
 
 Senator Newlands. The only thing I can see for clearing the atmos- 
 
 Ehere is to organize a commission of some kind of capable men that, 
 y a gradual process of evolution, will work out some such scheme. 
 
 Mr. Moorehead. This Canadian law works. Those people are 
 satisfied with it. The gentleman who occupies there the same posi- 
 tion that I do here is very much satisfied with that proposition, and 
 the people, he says, are satisfied. He says that he does not hear the 
 denunciations of the retail merchant in Canada which you do in this 
 country. 
 
 Senator Newlands. I presume that the real fact of it is that these 
 organizations have practically been forced by the existence of the 
 great combinations of capital, of trusts, and mail-order houses ? 
 
 Mr. Moorehead. There is no doubt about that. Everybody else 
 is organized. 
 
 Senator Newlands. Then would not the necessity for these 
 counter organizations entirely disappear if we should break up these 
 organizations of great capital, the mail-order houses, and the trusts, 
 and prescribe a limit of capitalization or limit the extent to which 
 they can absorb the business ? 
 
 Mr. Moorehead. Now, when you ask those big questions you are 
 getting my head under water again. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Mr. Moorehead, would what you contend for as 
 rights include a right to agree on prices ? 
 
 Mr. Moorehead. No, sir; I do not think anybody would ask for 
 that. 
 
 The Chairman. Would it include a right to divide territory ? 
 
 Mr. Moorehead. No, sir; I do not think anybody would ask for 
 that. 
 
932 HEARINGS BEFORE 
 
 The Chairman. Would it include a right in any manner to stifle 
 competition ? 
 
 Mr. Moorehead. I do not think so, sir. Nothing unreasonable at 
 all. We never have attempted to do those things. We would like 
 to work under a law, but we would really like to know just where we 
 stood. 
 
 The Chairman. What I am trying to get at is this: What kind of 
 protection would you want under the Sherman antitrust law ? 
 
 Mr. Moorehead. I ca'n only say, in a general way, that — not 
 speaking for the organization— I am in the dark about that. As I 
 said in the written statement, the public does not seem to understand 
 that the effort of the retail organization is to get a living; the public 
 does not seem to understand the difference between getting a living 
 and practicing extortion. 
 
 The Chairman. Would you want the right to do anything that 
 operated in restraint of trade ? 
 
 Mr. Moorehead. No, sir; but I believe we would like to have the 
 right, and I think it would be fair to have the right, to show that we 
 were not robbing the people before we were sent to jail for it. 
 
 The Chairman. That is another phase of the inquiry I will take up 
 in a moment. As I gather from your statement, you do not want 
 any legislation which would exempt you from those things which are 
 prohibited by the Sherman antitrust law ? 
 
 Mr. Moorehead. Not in one sense; no, sir. We would like to have 
 some machinery whereby we could find out where we stand. 
 
 The Chairman. That is another question that we will get to in a 
 moment. But what I am trying to get at first is, whether you desire 
 to be exempted — whether you desire that there shall be one law of 
 
 Erohibition applied to other kinds of business from which you shall 
 e exempted ? I do not understand that you ask for that at all. 
 
 Mr. Moorehead. Well, I do not know that I could answer that. 
 We are not asking ourselves to be put outside of the law or over 
 anybody else. We would not ask that, I do not believe. 
 
 The Chairman. It is not a question of being put over anybody 
 else, but the question of being exempted from a law that is calculated 
 to prevent monopoly in restraint of trade. That is the fundamental 
 purpose of the Sherman antitrust law. Now, as I understand you, 
 you desire to ask for no exemption from that law ? 
 
 Mr. Moorehead. Not in a sense 
 
 The Chairman. That is, you do not ask the right to make a kind 
 of agreement that other people would be prohibited from making, 
 either as to price or territory or anything else calculated to stifle 
 competition ? 
 
 Mr. Moorehead. I am not far enough along to say that they 
 would ask that or think of asking that. As I say, our organization — 
 I only represent people who have been together less than 60 days, 
 and the idea was to be heard on just this question, if possible. This 
 invitation came to me very unexpectedly through our friend, Mr. 
 Flynn, from you. I had no thought that I should be asked, within 
 such a short time, to come here. There has been no deliberation, so 
 far as that is concerned, by our organization, and no plan has been 
 formed. That is why I have nothing to suggest. I only come to ask 
 you to give us consideration, and to show you just how many there 
 are of us and our position. 
 
COMMITTEE ON INTERSTATE COMMERCE. 933 
 
 The Chairman. I do not think you catch the drift of my inquiry- 
 yet. The Sherman antitrust law is designed, broadly stated, to pre- 
 vent combinations in restraint of trade, and monopoly. Now, I do 
 not understand that you ask to be exempted from it. 
 
 Mr. Moorehead. We are not asking that; no, sir. 
 
 The Chairman. Now, in regard to the right to be heard — of 
 course, the right to be heard can only be secured in one of two ways: 
 That is, either by trial, where the charge of a violation is made (and, 
 of course, there can be no punishment until the trial is concluded), or 
 by a commission, somewhat advisory in its functions, with which 
 the organization can cooperate so as to be advised in advance if, 
 within the authority of the commission, a matter would or would 
 not be within the prohibition of the law. 
 
 Mr. Moorehead. I think that would be a long step. 
 
 Senator Newlands. You mean a desirable step ? 
 
 Mr. Moorehead. I think so. 
 
 The Chairman. That is advocated quite generally 
 
 Mr. Moorehead. That is the Canadian plan. 
 
 The Chairman (continuing). With reference to corporations. 
 
 Mr. Moorehead. Oh, yes; let them all come under the same plan, 
 for that matter — big and little. I am not suggesting that, how- 
 ever. 
 
 The Chairman. No; it is not a question of big or little. It is a 
 question of corporate identities, or mere associations which are not 
 incorporated. I think you are the first one to have suggested the 
 application of a commission plan to bodies that are not subject to 
 the law through incorporation. 
 
 Mr. Moorehead. No, sir. They are all practically volunteer, so 
 far as I know. 
 
 The Chairman. While it is not, perhaps, germane to this inquiry 
 except in its general bearing upon the ability of great aggregations 
 to affect competition — you have spoken of the so-called parcels-post 
 proposition. 
 
 Mr. Moorehead. Yes ; only in connection with being one of the 
 things we believe work to our disadvantage as a little man. 
 
 The Chairman. Now, if the postal laws were so modified as to 
 allow the transportation of larger packages, but at a rate which 
 would not impose the cost of them upon those who do not use the 
 parcel post, would you object to that ? 
 
 Mr. Moorehead. I personally could not see any objection to a 
 
 farcels post, based upon service rendered and distance hauled; and 
 certainly would like to see the express companies brought to that 
 position . 
 
 The Chairman. In other words, a general reduction in transpor- 
 tation would work for the benefit of everybody ? 
 
 Mr. Moorehead. I think so; yes, sir. 
 
 The Chairman. I think that is all. 
 
 Senator To wnsend. I should just like to ask one question more. Mr. 
 Moorehead, I understood you, in answer to the chairman's question, to 
 say that you did not want any relief from the operations of the Sher- 
 man antitrust law so far as it attempts to afl'ect restraint of trade. 
 Am I stating this correctly now ? I think I am, and I am quite in 
 sympathy with the proposition myself, that you do not believe that 
 the mail-order houses offer fair competition, and you would like, as 
 
934 HEARINGS BEFORE 
 
 retail men, to be able to get together and inform the trade, for in- 
 stance, that a certain large manufacturing concern manufacturing 
 chairs, for instance, has been selling to Sears, Roebuck & Co., or some- 
 thing of that kind or some concern like that ? You would like the 
 right to keep the trade posted as to that kind of transactions, would 
 you not ? 
 
 Mr. Moorehead. That was just the charge, as I understand, that 
 the Government has made that we have been doing, and that is illegal; 
 that we have been doing that thing; that we furnished this informa- 
 tion, and that is illegal. Of course, whether it is or not I do not know. 
 
 Senator Townsend. The object in furnishing it, if it was furnished, 
 was to induce the trade, either directly or indirectly, not to patronize 
 that particular wholesale manufacturing concern which dealt with 
 Sears, Roebuck & Co. ? 
 
 Mr. Moorehead. To put it up to them to use their judgment. 
 
 Senator Townsend. Now, do you think, as a business man, that 
 that would be a restraint of trade if you were permitted to do that 
 and did it 1 
 
 Mr. Moorehead. No, sir; I do not think so. 
 
 Senator Townsend. You do not think that would be a restraint of 
 trade ? 
 
 Mr. Moorehead. No, sir; because there is no combining not to 
 trade with these people any more than there would be if a manufac- 
 turer decided not to sell me, because he knew that I had a mortgage 
 on my place, or could not take a bill from me because I was not finan- 
 cially responsible. He might sell mc if he wanted to or he might not, 
 just as he pleased. 
 
 Senator Townsend. That would be a sort of boycotting, as they 
 call it, similar to what labor sometimes does, and which has been 
 prohibited under a statute? 
 
 Mr. Moorehead. No, sir. We would not look at it that way. 
 
 Senator Townsend. I want to get your ideas. 
 
 Mr. Moorehead. I think there is ethics in our business as well as 
 there is in any profession. I think it is self-evident "that I could not 
 stay in business, if a manufacturer or wholesaler would sell to me, and 
 you were living in my town, and he would sell to you at the same price, 
 although you might be an attorney, or possibly in Congress. I do 
 not think that is fair. That condition has existed in this country for 
 a hundred years, and I think it is just common fairness and ethics of 
 business that have been maintained in this country for a hundred 
 years, that it would be impossible for the little man, or the retailer, to 
 exist if the manufacturer or wholesaler sold to the consumer at the 
 same price that he did to me, a retail merchant, because the retail 
 merchant has greater expense in furnishing the service to this man, a 
 consumer, that is not counted by the manufacturer. 
 
 Senator Townsend. You would carry that a step further, and not 
 only make it apply to the manufacturer, but to trie jobber and the 
 wholesaler as well ? 
 
 Mr. Moorehead. Yes, sir. I, as a lumberman, buy from the 
 manufacturer. I rarely ever buy from the jobber. We have jobbers 
 in the lumber business, but the stuff usually comes directly from the 
 mdl. 
 
 Senator Townsend. Did not the jobber have the right to com- 
 plain that you were doing that? Supposing there is a jobber in 
 
COMMITTEE ON INTEBSTATE COMMERCE. 935 
 
 lumber, and he says, "I want to sell to the retail trade and I insist 
 the retailer shall not buy from the manufacturer, but he must buy 
 through the jobber" ? 
 
 Mr. Moorehead. That condition does not maintain in the lumber 
 business, for the simple reason that a jobber in lumber does not carry 
 the lumber; the mill carries it. and he only is the sales agent, as a 
 general proposition. Usually he simply represents the mill in a 
 city. 
 
 Senator Townsend. Do you think the jobber is a necessary factor 
 in the industrial life of the country ? 
 
 Mr. Moorehead. Yes. There are a great many things that you 
 could not do without. Products of hundreds of lines of businesses 
 could not be distributed nearly as cheaply as they are now through a 
 jobber, because those people furnish them money, furnish them cap- 
 ital. 
 
 Senator Townsend. Then, I again ask you why has not the jobber 
 a right to insist that the retailer must buy through him, just the same 
 as you insist that the consumer must buy through you ? 
 
 Mr. Moorehead. I think, perhaps, that that maintains in a very 
 great many lines of business. I think that there are a great many 
 manufacturers of goods who would not sell through a retailer, because 
 they dispose of their products through a jobber. I think that is 
 done in the grocery husiness almost exclusively. 
 
 Senator Townsend. Let me ask you this question : So far as your 
 concern goes — because this question has been up and you are a man 
 of experience in the retail business, and we have had no other man 
 here m your line on that subject. We have been told by witnesses 
 that the prices of products at the factory vary; sometimes they are 
 higher and sometimes they are lower. What can you say as to whether 
 the consumer gets the benefit of that lower price when it is lower, 
 and gets the disadvantage of the higher prices, and has to pay a 
 higher price when it is higher ? 
 
 Mr. Moorehead. I believe he gets the advantage just as often as 
 he gets the raise. For example, I mean this, that in my own expe- 
 rience I have been unable to advance my goods at retail in proportion 
 to the advance of the manufacturer to me. I have kept my prices 
 down. 
 
 Senator Townsend. In other words, the retail price is not always 
 gauged by the wholesale price or the manufacturer's price ? 
 
 Mr. Moorehead. In other words, it does not fluctuate as much. 
 
 Senator Townsend. No; it is more staple. 
 
 Mr. Moorehead. Yes, sir; either up or down. 
 
 Senator Townsend. I think that is all. 
 
 The Chairman. Senator Lippitt, you may inquire. 
 
 Senator Lippitt. In regard to this question of selling to the retailer 
 and to the jobber; do you not think that there is a certain proportion 
 of so-called retail trade that can be better served by such an insti- 
 tution as the mail-order house — more economically served — or do you ? 
 
 Mr. Moorehead. No, sir; I do not. 
 
 Senator Lippitt. Take the case of a farmer away from a large 
 center. Isn't it frequently convenient, or do you consider it a con- 
 venience at times for him to be able to order his goods by mail from 
 a catalogue instead of going himself to the country store or to the 
 city for what he wants ? 
 
936 HEARINGS BEFORE 
 
 Mr. Moorehead. If he could not get it there, he would have to 
 buy it somewhere. If he could not get it from his local merchant 
 he would have to get, it somewhere else; but the local merchant, as 
 a general thing, can get almost anything the farmer wants. 
 
 Senator Lippitt. Would there not be cases where the farmer would 
 have to leave his farm and go to a neighboring town, perhaps 7 or 
 8 or 10 miles, and take his time in doing that, when in the other case 
 he could simply order by mail and stay at home and do his work ? 
 
 Mr. Moorehead. He could do that. But I do not think he could 
 save anything in the end, in money. He might save a little on that 
 transaction, but I believe in the end he would more than injure his 
 own property in his own community to an amount more than he 
 would save by doing that thing, in not building up his own community. 
 As I said in my paper, quoting from the late Senator Dolliver: "A 
 few of us might save something by sending away to buy, but if we all 
 did that, obviously the town could not exist." 
 
 Senator Lippitt. It could not, of course, if you all did it. Isn't 
 it true that the reason for the jobber as an intermediary between the 
 retailer and the manufacturer, is that the jobber buys in larger 
 quantities than the retailer would buy? 
 
 Mr. Moorehead. Yes, sir; I suppose it is true in every case; 
 practically true. 
 
 Senator Lippitt. And he buys from a number of different concerns, 
 and then redistributes his package lots into smaller lots, as the 
 retailer wants to buy? 
 
 Mr. Moorehead. Yes, sir. 
 
 Senator Lippitt. If a retailer can buy in as large lots as the jobber, 
 would you forbid the retailer from buying directly from the factory % 
 
 Mr. Moorehead. No, sir; I do not see how you could forbid him 
 if the factory wanted to sell him. In some lines the factories do not 
 do that, and in other lines the factories do it. It varies in different 
 businesses. In my own business, we buy from the factory, from the 
 mill, but we can buy from what is called a jobber-wholesaler, who 
 represents a mil] — not a man who has a stock of goods ntored in a 
 city, but who is representing a mill in the South or the West, and 
 sells those goods on commission, or buys them straight out and 
 sells them that way. But he does not sell to me like a jobber in dry 
 goods or groceries would. The goods are handled but once. 
 
 Senator Lippitt. That is, in that particular industry ? 
 
 Mr. Moorehead. Yes; in that particular industry. In a great 
 many lines of industry the jobbers handle a great many things that 
 are not actually handled in other lines. In some he takes the order 
 and sends it to the factory and the factory ships the retailer or 
 whoever it goes to. 
 
 Senator Lippitt. I am sorry I did not hear your paper, but what 
 I am trying to get at is whether or not you would like to have the 
 law, so fixed that a manufacturer would not be allowed to sell to a 
 retailer in a business where the jobbing feature exists ? 
 
 Mr. Moorehead. No, sir. I think the wholesale jobber is just 
 as much of a necessity as a clerk in a store; is just as much a part of 
 it. If you would upset that system I think it would mean an upturn- 
 ing of business. In certain lines it is absolutely indispensable. 
 
 Senator Lippitt. Do I understand that you would like to have 
 some legal provision made by which the manufacturer would be 
 obliged to sell to the jobber and not to the retailer ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 937 
 
 Mr. Moorehead. No, sir; it would not be my province to ask 
 that. That is far beyond anything I would suggest. 
 
 Senator Lippitt. But you do object to it as a policy — as a custom? 
 
 Mr. Moorehead. The manufacturer selling to the retailer ? 
 
 Senator Lippitt. The manufacturer selling to the retader, instead 
 of to the jobber. 
 
 Mr. Moorehead. No, sir. That is not a matter that I have ever 
 considered, certainly not officially, because in certain lines the jobbers 
 sell all in their lines or the manufacturers sell all in their lines direct 
 to whoever their customer is. 
 
 Senator Lippitt. I understood you were objecting to certain 
 houses like Sears, Koebuck & Co. interfering with the retail trade ? 
 
 Mr. Moorehead. I do not consider them manufacturers or jobbers 
 in any way. Thej T are retailers. 
 
 Senator Lippitt. If I understood you correctly, you do object to 
 that form of business ? 
 
 Mr. Moorehead. We do not object to anybody selling to Sears, 
 Roebuck & Co. We do not object to them selling at all. Our only 
 contention is that it ought not be Illegal or unlawful for us to get that 
 information if ihej are doing it, if they are selling to Sears, Roebuck 
 & Co., and govern ourselves accordingly, the same as a lawyer would 
 under certain ethical conditions in his profession, and the same as a 
 doctor would under certain ethical conditions in his profession. 
 
 Senator Lippitt. You want that information for the purpose of 
 creating a sentiment against dealing with the mail-order houses ? 
 
 Mr. Moorehead. For the purpose of letting the merchant use his 
 own judgment as to whether he would want to buy from a factory 
 who would sell to a concern of that kind and sell to the two. 
 
 Senator Lippitt. That is all. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. I would like "to instance a case. Are you 
 familiar with the Arbuckle Co., just to use that as an illustration? 
 They are large importers of coffee, and the usual way of distribution 
 is to the jobber, from the jobber to the retailer, and from the retailer 
 to the consumer. Assuming that there is a large hotel in Washington 
 that uses a very large amount of Arbuckle's coffee, do you think that 
 it should be required to get that coffee through the jobber or the 
 retailer, or be allowed to buy it direct from the importer ? 
 
 Mr. Moorehead. Senator, I could not answer a question of that 
 kind. I do not know anything about that line of business. 
 
 Senator Watson. I only used it as an dlustration, whether you 
 think the goods of this country should be distributed to the jobber, 
 then to the retailer, then to the consumer ? 
 
 Mr. Moorehead. I would not know how to go about answering 
 that, because the business and the practice of distribution of certain 
 lines oi merchandise vary. 
 
 Senator Watson. I was trying to get your idea if you thought it 
 was necessary in all these businesses for the jobber and the retailer 
 to have a profit before the goods reach the consumer? 
 
 Mr. Moorehead. I think the jobber and the retader perform a 
 service for which they are entitled to a profit; that if either one or 
 both of them should be eliminated, the manufacturer would have 
 to so increase his cost in distributing these goods that he would get 
 that just the same, because he would have to increase his force, 
 
938 HEARINGS BEFORE 
 
 he would have to render the service that the retail merchant renders 
 to-day, and that he does not and can not render without an enor- 
 mous increase of his selling force. He would have to support his 
 traveling men if he sold direct, instead of jobbing. 
 Senator Watson. The question that we are discussing has a 
 
 fpod deal to do, oneway or the other, with the so-called high cost of 
 iving. 
 
 Mr. Moorehead. Yes, sir. But I believe that the jobberperforms 
 a service and I do not think that his price is exorbitant. The truth 
 is, I expect, that it could be ascertained that the jobber sells his 
 goods on a very close margin. 
 
 Senator Watson. Six or 7 per cent, usually. 
 
 Mr. Moorehead. And he certainly renders that service, I believe, 
 because he is carrying — in a great many lines, he is carrying the 
 man, furnishing him money. That isn't a rule, but it is just a con- 
 dition that prevails. 
 
 The Chairman. We are very much obliged to you, Mr. Moorehead. 
 
 (Mr. Moorehead was thereupon excused.) 
 
 SHERMAN ANTITRUST LAW WITH AMENDMENTS. 
 
 The Chairman. The following pamphlet will be inserted in the 
 record at this point: 
 
 The Sherman Antitrust Law. 
 
 [Act of July 2, 1890 (26 Stat., 209).] 
 
 AN ACT To protect trade and commerce against unlawful restraints and monopolies. 
 
 Be it enacted by the Senate and House of Representatives of the United States of America 
 in Congress assembled, 
 
 Section 1. Every contract, combination in the form of trust or otherwise, or con- 
 spiracy, in restraint of trade or commerce among the several States, or with foreign 
 nations, is hereby declared to be illegal. Every person who shall make any such 
 contract or engage in any such combination or conspiracy, shall be deemed guilty of a 
 misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding 
 five thousand dollars, or by imprisonment not exceeding one year, or by both said 
 punishments, in the discretion of the court. 
 
 Sec. 2. Every person who shall monopolize or attempt to monopolize, or combine 
 or conspire with any other person or persons to monopolize any part of the trade or 
 commerce among the several States, or with foreign nations, shall be deemed guilty 
 of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding 
 five thousand dollars, or by imprisonment not exceeding one year, or by both said 
 punishments, in the discretion of the court. 
 
 Sec 3. Every contract, combination in form of trust or otherwise, or conspiracy, in 
 restraint of trade or commerce in any Territory of the United States or of the District of 
 Columbia, or in restraint of trade or commerce between any such Territory .and another, 
 or between any such Territory or Territories and any State or States or the District of 
 Columbia, or with foreign nations, or between the District of Columbia and any State 
 or States or foreign nations, is hereby declared illegal. Every person who shall make 
 any such contract or engage in any such combination or conspiracy, shall be deemed 
 guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not 
 exceeding five thousand dollars, or by imprisonment not exceeding one year, or by 
 both said punishments, in the discretion of the court. 
 
 Sec 4. The several circuit courts of the United States are hereby invested with 
 jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the 
 several district attorneys of the United States, in their respective districts, under the 
 direction of the Attorney General, to institute proceedings in equity to prevent and 
 restrain such violations. Such proceedings may be by way of petition setting forth 
 the case and praying that such violation shall be enjoined or otherwise prohibited. 
 When the parties complained of shall have been duly notified of such petition the 
 court shall proceed, as soon as may be, to the hearing and determination of the case; 
 
COMMITTEE ON INTERSTATE COMMERCE. 939 
 
 and pending such petition and before final decree, the court may at any time make 
 such temporary restraining order or prohibition as shall be deemed just in the premises. 
 
 Sec. 5. Whenever it shall appear to the court before which any proceeding under 
 section four of this act may be pending, that the ends of justice require that other 
 parties should be brought before the court, the court may cause them to be summoned, 
 whether they reside in the district in which the court is held or not; and subpoenas to 
 that end may be served in any district by the marshal thereof. 
 
 Sec. 6. Any property owned under any contract or by any combination, or pursuant 
 to any conspiracy (and being the subject thereof) mentioned in section one of this act, 
 and being in the course of transportation from one State to another, or to a foreign 
 country, shall be forfeited to the United States, and may be seized and condemned 
 by like proceedings as those provided by law for the forfeiture, seizure, and condemna- 
 tion of property imported into the United States contrary to law. 
 
 Sec. 7. Any person who shall be injured in his business or property by any other 
 person or corporation by reason of anything forbidden or declared to be unlawful by 
 this act, may sue therefor in any circuit court of the United States in the district in 
 which the defendant resides or is found, without respect to the amount in controversy, 
 and shall recover threefold the damages by him sustained, and the costs of suit, 
 including a reasonable attorney's fee. 
 
 Sec. 8. That the word "person," or "persons," wherever used in this act shall'be 
 deemed to include corporations and associations existing under or authorized by the 
 laws of either the United States, or the law of any of the Territories, the laws of any 
 State, or the laws of any foreign country. 
 
 Antitrust Amendments to the Wilson Tariff Act of August 27, 1894 — Sec- 
 tions 73-77. 
 
 [28 Stat., 570.] 
 
 Sec. 73t That every combination, conspiracy, trust, agreement, or contract is.hereby 
 declared to be contrary to public policy, illegal, and void, when the same is made by or 
 between two or more persons or corporations either of whom is engaged in importing 
 any article from any foreign country into the United States, and when such combina- 
 tion, conspiracy, trust, agreement, or contract, is intended to operate in restraint of 
 lawful trade, or free competition in lawful trade or commerce, or to increase the market 
 price in any part of the United States of any article or articles imported or intended to 
 be imported into the United States, or of any manufacture into which such imported 
 article enters or is intended to enter. Every person who is or shall hereafter be engaged 
 in the importation of goods or any commodity from any foreign country in violation of 
 this section of this act, or who shall combine or conspire with another to violate the 
 same, is guilty of a misdemeanor, and, on conviction thereof in any court of the United 
 States, such person shall be fined in a sum not less than one hundred dollars and not 
 exceeding five thousand dollars, and shall be further punished by imprisonment, in 
 the discretion of the court, for a term not less than three months nor exceeding twelve 
 months. 
 
 Sec 74. That the several circuit courts of the United States are hereby invested 
 with jurisdiction to prevent and restrain violations of section seventy-three of this act; 
 and it shall be the duty of the several district attorneys of the United States, in their 
 respective districts, under the direction of the Attorney General, to institute pro- 
 ceedings in equity to prevent and restrain such violations. Such proceedings may be 
 by way of petitions setting forth the case and praying that such violations shall be 
 enjoined or otherwise prohibited. When the parties complained of shall have been 
 duly notified of such petition the court shall proceed, as soon as may be, to the hearing 
 and determination of the case; and pending such petition and before final decree, the 
 court may at any time make such temporary restraining order or prohibition as shall 
 be deemed just in the premises. 
 
 Sec. .75. That whenever it shall appear to the court before which any proceeding 
 under the seventy-fourth section of this act may be pending that the ends of justice 
 require that other parties should be brought before the court, the court may cause them 
 to be summoned, whether they reside in the district in which the court is held or not; 
 and subpoenas to that end may be served in any district by the marshal thereof. 
 
 Sec 76. That any property owned under any contract or by any combination, or 
 pursuant to any conspiracy (and being the subject thereof) mentioned in section 
 seventy-three of this act, and being in the course of transportation from one State to 
 another, or to or from a Territory or the District of Columbia, shall be forfeited to the 
 
940 HEAKINGS BEFORE 
 
 United States, and may be seized and condemned by like proceedings as those pro- 
 vided by law for the forfeiture, seizure, and condemnation of property imported into 
 the United States contrary to law. 
 
 Sec. 77. That any person who shall be injured in his business or property by any 
 other person or corporation by reason of anything forbidden or declared to be unlawful 
 by this act may sue therefor in any circuit court of the United States in the district in 
 which the defendant resides or is found, without respect to the amount in controversy, 
 and shall recover threefold the damages by him sustained and the costs of suit, includ- 
 ing a reasonable attorney's fee. 
 
 [The foregoing sections were expressly preserved in the Dingley Act of 1897. Sec- 
 tion 34 of that act (30 Stat., 213) concludes as follows:] 
 
 And further provided, That nothing in this act shall be construed to repeal or in any 
 manner affect the sections numbered seventy-three, seventy-four, seventy-five, sev- 
 enty-six, and seventy-seven of an act entitled " An act to reduce taxation, to provide 
 revenue for the Government, and for other purposes," which became a law on the 
 twenty-eighth day of August, eighteen hundred and ninety-four. 
 
 [32 Stat., 823.] 
 
 AN ACT To expedite the hearing and determinat'on ofsuits in equity pending or hereafter brought under 
 the act of July second, eighteen hundred and ninety, entitled "An act to protect trade and commerce 
 against unlawful restraints and monopolies," "An act to regulate commerce," approved February fourth, 
 eighteen himdred and eighty-seven, or any other acts having a like purpose that may be hereafter enacted. 
 
 Be it enacted by the Senate and House of Representatives of the United States of America 
 in Congress assembled, That in any suit in equity pending or hereafter brought in any 
 circuit court of the United States under the act entitled "An act "to protect trade and 
 commerce against unlawful restraints and monopolies," approved July second, eight- 
 een hundred and ninety, "An act to regulate commerce," approved February fourth, 
 eighteen hundred and eighty-seven, or any other acts having a like purpose that here- 
 after may be enacted, wherein the United States is complainant, the Attorney General 
 may file with the clerk of such court a certificate that, in his opinion, the case is of 
 general public importance, a copy of which shall be immediately furnished by such 
 clerk to each of the circuit judges of the circuit in which the case is pending. There- 
 upon such case shall be given precedence over others and in every way expedited, 
 and be assigned for hearing at the earliest practicable day, before not less than three 
 of the circuit judges of said circuit, if there be three or more; and if there be not more 
 than two circuit judges, then before them and such district judge as they may select. 
 In the event the judges sitting in such case shall be divided in opinion the case shall 
 be certified to the Supreme Court for review in like manner as if taken there by appeal 
 as hereinafter provided. 
 
 Sec. 2. That in every suit in equity pending or hereafter brought in any circuit 
 court of the United States under any of said acts wherein the Unted States is com- 
 plainant, including cases submitted but not yet decided, an appeal from the final 
 decree of the circuit court will lie only to the Supreme Court and must be taken within 
 Bixty days from the entry thereof: Provided, That in any case where an appeal may 
 have been taken from the final decree of a circuit court to the circuit court of appeals 
 before this act takes effect, the case shall proceed to a final decree therein, and an 
 appeal may be taken from such decree to the Supreme Court in the manner now pro- 
 vided by law. 
 
 Approved, February 11, 1903. 
 
 [32 Stat., 854, 903.] 
 
 AN ACT Making appropriations for the legislative, executive, and judicial expenses of the Government 
 for the fiscal year ending June thirtieth, nineteen hundred and four, and for other purposes. 
 
 ******* 
 That for the enforcement of the provisions of the act entitled "An act to regulate 
 commerce," approved February fourth, eighteen hundred and eighty-seven, and all 
 acts amendatory thereof or supplemental thereto, and of the act entitled "An act to 
 protect trade and commerce against unlawful restraints and monopolies," approved 
 July second, eighteen hundred and ninety, and all acts amendatory thereof or supple- 
 mental thereto, and sections seventy-three, seventy-four, seventy-five, and seventy- 
 six of the act entitled "An act to reduce taxation, to provide revenue for the Govern- 
 ment, and other purposes," approved August twenty-seventh, eighteen hundred and 
 ninety-four, the sum of five hundred thousand dollars, to be immediately available, 
 is hereby appropriated, out of any money in the Treasury not heretofore appropriated, 
 to be expended under the direction of the Attorney General in the employment of 
 special counsel and agents of the Department of Justice to conduct proceedings, suits, 
 and prosecutions under said acts in the courts of the United States: Provided, That no 
 person shall be prosecuted or be subjected to any penalty or forfeiture for or on account 
 
COMMITTEE ON INTERSTATE COMMERCE. 941 
 
 -of any transaction, matter, or thing concerning which he may testify or produce evi- 
 dence, documentary or otherwise, in any proceeding, suit, or prosecution under said 
 acts: Provided further, That no person so testifying shall be exempt from prosecution 
 or punishment for perjury committed in so testifying. 
 
 ******* 
 Approved, February 25, 1903. 
 
 [32 Stat., 825, 827.] 
 AN ACT To establish the Department of Commerce and Labor. 
 ******* 
 
 Sec. 6. That there shall be in the Department of Commerce and Labor a bureau to 
 be called the Bureau of Corporations, and a Commissioner of Corporations, who shall 
 be the head of said bureau, to be appointed by the President, who shall receive a 
 salary of five thousand dollars per annum. There shall also be in said bureau a deputy 
 commissioner, who shall receive a salary of three thousand five hunrded dollars per 
 annum, and who shall, in the absence of the commissioner, act as and perform the 
 duties of the Commissioner of Corporations, and who shall also perform such other 
 duties as may be assigned to him by the Secretary of Commerce and Labor or by the 
 said commissioner. There shall also be in the said bureau a chief clerk and such spe- 
 cial agents, clerks, and other employees as may be authorized by law. 
 
 The said commissioner shall have power and authority to make, under the direction 
 and control of the Secretary of Commerce and Labor, diligent investigation into the 
 organization, conduct, and management of the business of any corporation, joint- 
 stock company, or corporate combination engaged in commerce among the several 
 States and with foreign nations excepting common carriers subject to "An act to regu- 
 late commerce," approved February fourth, eighteen hundred and eighty-seven, and 
 to gather such information and data as will enable the President of the United States 
 to make recommendations to Congress for legislation for the regulation of such com- 
 merce, and to report such data to the President from t me to time as he shall require; 
 and the information so obtained, or so much thereof as the President may direct, shall 
 be made public. 
 
 In order to, accomplish the purposes declared in the foregoing part of this section, 
 the said commissioner shall have and exercise the Bame power and authority in respect 
 to corporations, joint-stock companies, and combinations subject to the provisions 
 hereof as is conferred on the Interstate Commerce Commission in said "act to regulate 
 commerce," and the amendments thereto, in respect to common carriers, so far as the 
 same may be applicable, including the right to subpoena and compel the attendance 
 and testimony of witnesses and the production oi documentary evidence and to 
 administer oaths. All the requirements, obligations, liabilities, and immunities 
 imposed or conferred by said "act to regulate commerce " and by "An act in relation 
 to testimony before the Interstate Commerce Commission," and so forth, approved 
 February eleventh, eighteen hundred and ninety-three, supplemental to said "act 
 to regulate commerce " shall also apply to all persons who may be subpoenaed to testify 
 as witnesses or to produce documentary evidence in pursuance of the authority con- 
 ferred by this section. 
 
 It shall also be the province and duty of said bureau, under the direction of the 
 Secretary of Commerce and Labor, to gather, compile, publish, and supply useful 
 information concerning corporations doing business within the limits of theUnited 
 States as shall engage in interstate commerce or in commerce between the United 
 States and any foreign country, including corporations engaged in insurance, and to 
 attend to such other duties as may be hereafter provided by law. 
 
 ******* 
 
 Approved February 14, 1903. , 
 
 [34 Stat., 798.] 
 
 AN ACT Defining the right of immunity of witnesses under the act entitled "An act in relation to testi- 
 mony before the Interstate Commerce Commission," and so forth, approved February eleventh, eighteen 
 hundred and ninety-three, and an act entitled " An act to establish the Department of Commerce and 
 Labor," approved Februaryfourteenth, nineteen hundred and three, and an act entitled "An act to fur- 
 ther regulate commerce with foreign nations and among the States," approved February nineteenth, 
 nineteen hundred and three, and an act entitled " An act making appropriations for the legislative^ execu- 
 tive, and judicial expenses of the Government for the fiscal year ending June thirtieth, nineteen 
 hundred and four, and for other purposes," approved February twenty-fifth, nineteen hundred and 
 three. 
 
 That under the immunity provisions in the act entitled "An act in relation to testi- 
 mony before the Interstate Commerce Commission," and so forth, approved February 
 eleventh, eighteen hundred and ninety-three, in section six of the act entitled "An act 
 to establish the Department of Commerce and Labor," approved February fourteenth, 
 
942 HEARINGS BEFORE 
 
 nineteen hundred and three, and in the act entitled "An act to further regulate com- 
 merce with foreign nations and among the States," approved February nineteenth, 
 nineteen hundred and three, and in the act entitled An act making appropriations 
 for the legislative, executive, and judicial expenses of the Government for the fiscal 
 year ending June thirtieth, nineteen hundred and four, and for other p*urposes," ap- 
 proved February twenty-fifth, nineteen hundred and three, immunity shall extend 
 only to a natural person who, in obedience to a subpoena, gives testimony under oath 
 or produces evidence, documentary or otherwise, under oath. 
 Approved, June 30, 1906. 
 
 Suits Brought and Prosecutions Instituted by the United States under the 
 Sherman Antitrust Law. 
 
 President Harrison's administration, March 4, 1889, to March 4, 189S. 
 
 [William H. Miller, Attorney General, Maroh 5, 1889, to March 6, 1893.] 
 
 1. United States v. Jellico Mountain Coal Company, 43 Fed. Rep., 898; 46 Fed. 
 Rep., 432. (Circuit Court, M. D. Tennessee; October 13, 1890; June 4, 1891.) Suit 
 against the members of the "Nashville Coal Exchange," composed of various coal min- 
 ing companies operating mines in Kentucky and Tennessee, and of. persons and firms 
 dealing in coal in Nashville, formed for the purpose of fixing prices and regulating the 
 output of coal. A preliminary injunction was denied on October 13, 1890. Upon full 
 hearing the court, on June 4, 1891, held the combination to be in violation of the anti- 
 trust law, and enjoined the further carrying out of the agreement. 
 
 2. United States v. Greenhut et al., 50 Fed. Rep., 469. (District Court, Massachu- 
 setts; May 16, 1892.) A proceeding by indictment against the officers of the Dis- 
 tilling & Cattle Feeding Co. (Whisky Trust) for an alleged violation of the antitrust 
 law. Indictment quashed, as allegations were held not to constitute an offense under 
 the statute. 
 
 2a. In re Corning, 51 Fed. Rep., 205. (District Court, N. D. Ohio; June 11, 1892.) 
 Application for a warrant of removal from Ohio to Massachusetts to answer to the in- 
 dictment found in the Greenhut case. Application denied and prisoner discharged. 
 
 26. In re Terrell, 51 Fed. Rep., 213. (Circuit Court, S. D. New York; June 28, 
 1892.) Application for a writ of habeas corpus to secure a discharge from arrest and 
 detention upon a warrant for removal from New York to Massachusetts to answer to 
 the indictment found in the Greenhut case. Petitioner discharged. 
 
 2c. In re Greene, 52 Fed. Rep., 104. (Circuit Court, S. D. Ohio; August 4, 1892.) 
 Petition for writ of habeas corpus to secure release from the custody of the marshal, by 
 whom he was held awaiting an order for the removal of Greene to Massachusetts to 
 answer to the indictment in the Greenhut case. Prisoner discharged. 
 
 3. United States v. Nelson, 52 Fed. Rep., 646. (District Court, Minnesota; October 
 10, 1892.) Indictment of a number of lumber dealers for conspiring together to raise 
 the price of lumber in violation of the antitrust law. Demurrer to indictment sus- 
 tained, the court holding that an agreement between a number of dealers to raise 
 prices, unless they controlled nearly the entire commodity, could not operate as a 
 restraint of trade under the act. 
 
 4. United States v. Trans-Missouri Freight Association, 53 Fed. Rep., 440; 58 Fed. 
 Rep., 58; 166 U. S., 290. (Circuit Court, Kansas; November 28, 1892. Circuit Court 
 of Appeals, Eighth Circuit; October 2, 1893. United States Supreme Court; March 
 22, 1897.) Bill filed January 6, 1892, to enjoin the operations of a combination of 
 railroads engaged in interstate commerce, formed for the purpose of maintaining 
 "just and reasonable rates," etc. Bill dismissed by Circuit Court; decree of dis- 
 missal affirmed by Circuit Court of Appeals, and reversed by the United States Supreme 
 Court on March 22, 1897 . 
 
 5. United States v. Workingmen's Amalgamated Council of New Orleans et al., 
 54 Fed. Rep., 994; 57 Fed. Rep., 85. (Circuit Court, E. D. Louisiana; March 25, 
 1893. Circuit Court of Appeals, Fifth Circuit; June 13, 1893.) Suit to restrain 
 defendants, a combination of workmen, from interfering with interstate and foreign 
 commerce, in violation of the antitrust law. The injunction was granted, and the 
 law held to apply to combinations of laborers as well as capitalists. This decree 
 was affirmed by the Circuit Court of Appeals. 
 
 6. United States v. Patterson et al., 55 Fed. Rep., 605; 59 Fed. Rep., 280. (Circuit 
 Court, Massachusetts; February 28 and June 7, 1893.) Cash register case. Indict- 
 ment of members of a combination formed for the purpose of controlling the price 
 of cash registers. A demurrer was sustained as to certain counts of the indictment 
 and overruled aB to others, and leave granted to file special demurrers to the counts 
 
COMMITTEE ON INTERSTATE COMMERCE. 943 
 
 which were sustained. The special demurrers were heard on .Tune 1, 1893, and the 
 demurrers overruled, the court adhering to its former ruling. Letter of Attorney 
 General dated October 16, 1893, shows case was allowed to lapse because of consoli- 
 dation of complaining witness with defendants. 
 
 7. United States v. E. 0. Knight Company (Sugar Trust), 60 Fed. Rep 306" 60 
 Fed. Rep., 934; 156 U. S., 1. (Circuit Court, E. D. Pennsylvania; January '30 
 1894. Circuit Court of Appeals, Third Circuit; March 26, 1894. United States 
 Supreme Court; January 21, 1895.) Bill in equity to enjoin the operations of the 
 Sugar Trust, charged with a violation of the antitrust law. The bifi was dismissed 
 January 30,1894. Appeal was taken to the Circuit Court of Appeals, and the decree 
 affirmed. From this decision an appeal was taken to the Supreme Court of the United 
 States, where the decree of dismissal was affirmed. 
 
 President Cleveland's second administration, March 4, 1893, to March 4, 1897. 
 
 [Kichard Olney, Attorney General, March 6, 1893, to June 7, 1895; Judson Harmon. Attorney General 
 '" June 8, 1895, to March 5, 1897.] .'■'.■."'• 
 
 1. United States v. Agler, 62 Fed. Rep., 824. (Circuit Court, Indiana; July 12, 
 1894.) Information charging contempt of court in disobeying an injunction restrain- 
 ing Agler and others from interfering with interstate commerce and obstructing the 
 mails. Information quashed. It was charged that Agler was a member' of the 
 American Railway Union, the members of which order were on a strike and bad been 
 enjoined under the antitrust law from interfering with the carrying of the mails anil 
 from obstructing interstate commerce. This is one of the "Debs"' cases 
 
 2. United States v. Elliott, 62 Fed. Rep., 801; 64 Fed. Rep., 27. (Circuit Court, 
 E. D. Missouri; July 6, and October 24, 1894.) Suit to restrain Elliott,' Debs, and 
 others, members of the American Railway Union, from carrying put their unlawful 
 conspiracy to interfere with interstate commerce and to obstruct the carrying of the 
 mails, in violation of the antitrust law. Preliminary injunction granted. A'demurrer 
 to this bill was overruled. 
 
 3. United States v. Debs et al., 64 Fed. Rep., 724. (Circuit Court, N. D., Illinois; 
 December 14, 1894.) Proceedings in contempt to punish Debs and others for disobey- 
 ing an injunction restraining them from interfering with interstate commerce and' with 
 obstructing the mails, by means of a conspiracy, in violation of the antitrust law. De- 
 fendants found guilty and punished. 
 
 3a. In re Debs, petitioner, 158U.S., 5,64. (United States Supreme Court. May 27, 
 1895.) Proceeding instituted July 2, 1894. Application for a writ of habeas corpus 
 to secure a discharge from imprisonment for disobeying ah injunction of trie Circuit 
 Court for the Northern District of Illinois, restraining Debs and others from .'conspiring 
 to interfere with interstate commerce, in violation of the antitrust law. Petition for 
 the writ denied. 
 
 1 4. United' States v. Cassidy, 67 Fed. Rep., 698. (District Court N. D. California. 
 April 1 and 2, 1895.) Cassidy and others were indicted under section 5440, United 
 States Revised Statutes, for conspiring to commit offenses against the United States, 
 which acts consisted in a combining and conspiring to restrain tra'de and commerce 
 between the States, in violation of the antitrust law, and grew out of the Pullman strike 
 in California. The trial lasted five months and resulted in a disagreement of the jury. 
 
 5. Moore v. United States, 85 Fed. Rep., 465. (Circuit Court of Appeals, Eighth 
 Circuit. February 14, 1898.) Indictment of the members of an association of dealers 
 in coal at Salt Lake City for entering into a conspiracy to Regulate the price of coal. 
 Indictment returned November^, 1895. Moore was tried and convicted in the District 
 Court of Utah upon this indictment. The Circuit Court of Appeals reversed the judg- 
 ment of conviction, for the reason that upon the admission of Utah as a State it was no 
 longer a "Territory" within the meaning of the antitrust act, and the combination was 
 not in restraint of interstate commerce, and the court therefore had no jurisdiction of 
 the offense! 
 
 6. United States v. Joint Traffic Association, 76 Fed. Rep., 895; 89 Fed. Rep., 1Q20; 
 171 U. S., 505. (Circuit Court S. D., New York; May 28, 1896. Circuit Court of Ap- 
 peals, Second Circuit; March 19, 1897. United States Supreme Court; Q'ctbber 28, 
 1898.) Suit instituted January 8, 1896. Bill in equity to enjoin the alleged violation 
 of the antitrust law by a combination of railroads. The Circuit Court dismissed the 
 bill, and the Court of Appeals affirmed the action of the Circuit Court. These judg- 
 ments were reversed by the United States Supreme Court.' 
 
 7. United State's v. Addyston Pipe and' Steel Company, 7,8 Fed. Rep., 712; 85 Fed. 
 Rep., 271; 175 U. S., 211. (Circuit Court, E. D. Tennessee; February 5, 1897. Cir- 
 cuit Court of Appeals, Six^h Circuit; February 8, 1898. United States Supreme 
 Court; December 4; 1899.) Suit instituted December 10, 1896. Bill in equity to 
 
 22877— vol i—12 60 
 
944 HEARINGS BEFORE 
 
 enjoin the operations of the cast-iron pipe trust, which attempted to control the price 
 of cast-iron pipe. The bill was dismissed by the Circuit Court. The Circuit Court 
 of Appeals reversed the decree of the Circuit Court and remanded the case, with 
 instructions to enter a decree for the Government. On appeal to the Supreme Court 
 the action of the Circuit Court of Appeals was affirmed. 
 
 8. United States d. Hopkins etal., 82 Fed. Rep., 529; 84 Fed. Rep., 1018; 171 U.S., 
 578. (Circuit Court, Kansas; September 20, 1897. Circuit Court of Appeals, Eighth 
 Circuit; December 27, 1897. United States Supreme Court; October 24, 1898.) Suit 
 instituted December 31, 1896. Bill to restrain the operations of the "Kansas City 
 Live Stock Exchange," organized to control the shipments of live stock. The in- 
 junction was granted, but on appeal the Supreme Court reversed the decree of the 
 Circuit Court and remanded the case, with instructions to dismiss the bill. 
 
 President McKinley's administration — March 4, 1897-September 14, 1901. 
 
 [Joseph McKenna, Attorney General, March 5, 1897, to June 25, 1898; John W. Griggs, Attorney General, 
 June 25, 1898, to March 29, 1901; Philander C. Knox, Attorney General, April 5, 1901, to June 30, 1904.] 
 
 1. Anderson v. United States, 82 Fed. Rep., 998; 171 U. S., 604. (Circuit Court, 
 
 N.D.Missouri; . Circuit Court of Appeals, Eighth Circuit; . United States 
 
 Supreme Court; October 24, 1898.) Bill in equity to restrain the operations of "The 
 Traders' Live Stock Exchange," of Kansas City, an association formed for the pur- 
 pose of buying cattle on the market. This suit was instituted June 7, 1897, in the 
 Circuit Court of the United States for the Western District of Missouri. Decree of 
 temporary injunction was granted and the case appealed to the Circuit Court of Ap- 
 peals for the Eighth Circuit. From there it was certified to the Supreme Court of the 
 United States for instructions upon certain questions, under the provisions of section 
 6 of the act of March 3, 1891 (26 Stat., 828). The Supreme Court reversed the decree 
 of the Circuit Court and remanded the case with directions to dismiss the bill, holding 
 that the acts complained of were not a violation of the antitrust law. 
 
 2. United States v. Coal Dealers' Association, 85 Fed. Rep., 252. (Circuit Court, 
 N. D. California; January 28, 1898.) Suit brought December 16, 1897. Bill for 
 injunction to restrain the operations of a combination of coal dealers known as the 
 "Coal Dealers' Association of California." A temporary injunction was granted. 
 
 3. United States v. Chesapeake and Ohio Fuel Company et al., 105 Fed. Rep., 
 115 Fed. Rep., 610. (Circuit Court, S. D. Ohio; August 31, 1900. Circuit Court of 
 Appeals, Sixth Circuit; April 8, 1902.) Bill filed May 8, 1899, to annul a contract 
 and dissolve a combination of producers and shippers of coal in Ohio and West Vir- 
 ginia engaged in mining coal and making coke intended for "western shipment," 
 under agreement to sell the same at not less than a memorandum price, to be fixed 
 by an executive committee appointed by the producers. Defendants enjoined, con- 
 tract declared void and illegal, and the combination dissolved. Affirmed by Circuit 
 Court of Appeals. No appeal taken. 
 
 President Roosevelt's administration — September 14, 1901- March 4, 1909. 
 
 fiPhilanderC. Knox, Attorney General, April 5, 1901, to June 30, 1904; William H. Moody, Attorney General 
 July 1, 1904, to Decemher 16, 1906; Charles J. Bonaparte, Attorney General, December 17, 1906, to March 
 4, 1909.] 
 
 1. United States v. Northern Securities Co., Great Northern R'y Co., Northern 
 Pacific R'y Co. et al., 120 F. R., 721; 193 U. S., 197. (Circuit Court, Minnesota; 
 
 1 April 9, 1903.) (United States Supreme Court; March 14, 1904.) This suit was 
 brought on March 10, 1902, in the Circuit Court of the United States for the District of 
 Minnesota, to enjoin the defendant, the Northern Securities Co., from purchasing, 
 acquiring, receiving,^ holding, voting, or in any manner acting as the owner of any of 
 the shares of the capital stock of the two defendant railway companies, and to restrain 
 the defendant railway^ companies from permitting the securities company to vote any 
 of the stock of said railways, or from exercising any control whatsoever over the cor- 
 porate acts of either of said railway companies, it being charged that the securities com- 
 pany was formed for the purpose of acquiring a majority of the capital stock of the 
 two railway companies in order that it might in that way effect practically a consoli- 
 dation of the two companies by controlling rates and restricting and destroying com- 
 petition, in violation of the Sherman antitrust law. 
 
 The Circuit Court on April_9, 1903, entered a decree in favor of the Government as 
 prayed in the petition, and this decree was, on March 14, 1904, affirmed by the Supreme 
 Court of the United States. 
 
 2. United States v. Swift & Co. et al., 122 F. R., 529; 196 U. S., 375. Suit brought 
 on May 10, 1902, in the Circuit Court of the United States for the Northern District 
 
COMMITTEE ON INTERSTATE COMMERCE. 945 
 
 of Illinois to restrain the defendants (commonly known as the Beef Trust), who are 
 engaged in the buying of live stock and the selling of dressed meats, from carrying out 
 an unlawful conspiracy entered into between themselves and with the various rail- 
 way companies, to suppress competition and to obtain a monopoly in the purchase 
 of live stock and in the selling of dressed meats. A preliminary restraining; order was 
 granted on May 20, 1902. 
 
 The defendants having demurred to the bill, the court, after hearing, on April 18, 
 1903, overruled the demurrers and granted a preliminary injunction. The defendants 
 having failed to answer, the court on May 26, 1903, entered an order making the 
 decree final and perpetually enjoining the further operations of the trust. 
 
 The defendants, on August 14, 1903, appealed from the final decree of the Circuit 
 Court to the Supreme Court of the United States, where decree was affirmed Januarv 
 30, 1905. ' 
 
 3. United States v. The Federal Salt Company et al. Suit brought in the Circuit 
 Court of the United States for the Northern District of California, on October 15, 
 1902, to restrain the defendants (known as the Salt Trust) from unlawfully combining 
 and conspiring to suppress competition in the manufacture and sale of salt in the 
 States west of the Rocky Mountains, in violation of the Sherman antitrust law. A 
 temporary restraining order was issued on that date, and the cause coming on for hear- 
 ing, the court on November 10, 1902, granted an injunction pendente lite, thus in 
 effect making the restraining order perpetual. No appeal was taken from this order. 
 
 4. United States v. The Federal Salt Company. On February 28, 1903, the grand 
 jury for the United States District Court for the Northern District of California returned 
 an indictment against the Salt Trust for having violated the antitrust law. On May 
 12, 1903, the trust pleaded guilty, and the court sentenced it to pay a fine of $1,000, 
 which was paid. 
 
 5. United States v. Jacksonville Wholesale Grocers' Association. A proceeding in 
 equity, instituted on September 12, 1903, in the United States Circuit Court for the 
 Southern District of Florida, for the purpose of dissolving a combination of wholesale 
 grocers operating in violation of the antitrust law. November 1, 1907, dismissed. 
 
 6. United States v. General Paper Co. et al. December 27, 1904, a bill in equity 
 was filed in the Circuit Court of the United States for the District of Minnesota against 
 the General Paper Co. and 23 other corporations engaged in the manufacture ana sale 
 of paper, alleging that they had entered into a combination and conspiracy to restrain 
 trade and commerce in the manufacture of news print, manila, fiber, and other papers 
 by making the General Paper Co. their common sales agent. On May 11, 1906, the 
 court ordered judgment in favor of the Government, dissolving the combination and 
 affording all relief prayed in the bill. (See also Nelson v. United States, 201 U. S., 
 92; Alexander v. United States, id., 117.) 
 
 7. United States v. Armour & Co. et al. After the affirmance by the Supreme Court 
 of the decree of the Circuit Court in United States v. Swift & Company (above referred 
 to) complaints from various quarters were made to the department that the combina- 
 tion still continued. The department thereupon began an exhaustive inquiry before 
 the grand jury for the Northern District of Illinois, which resulted in the return of an 
 indictment on July 1, 1905, against Armour & Co., J. Ogden Armour, president; Pat- 
 rick A. Valentine, treasurer; Arthur Neekler. general manager; Thomas J. Connors, 
 superintendent, and Samuel A. McRoberts, assistant treasurer, of Armour & Co.; the 
 Armour Packing Co., and Charles W. Armour, president; Swift & Co., and Louis F. 
 Swift, president; Lawrence A. Carton, treasurer; D. Edwin Hartwell, secretary, and 
 Albert H. Veeder and Robert C. McManus and Arthur F. Evans, agents of Swift & Co.; 
 the Fairbank Canning Co., and Edward Morris, vice president; Ira N. Morris, secre- 
 tary of the Fairbank Canning Co.; the Cudahy Packing Co., and Edward A. Cudahy, 
 vice president and general manager of the Cudahy Packing Co. Against this indict- 
 ment many preliminary objections were urged. All were disposed of in favor of the 
 Government, except certain special pleas of immunity in bar, based upon information 
 concerning the matters for which the defendants were indicted, which they had given 
 to the Department of Commerce and Labor. The court sustained the pleaB so tar as 
 the individual defendants were concerned and overruled them with respect to the cor- 
 porations. 
 
 8. United States v. MacAndrews & Forbes Company et al. (149 Fed., 823; 212 U. S., 
 585). In June, 1906, the grand jury returned an indictment against the MacAndrews 
 & Forbes Co., the J. S. Young Co., a corporation of Maine, and Karl Jungbiuth and 
 Howard E. Young, their respective presidents, for illegally combining and conspiring 
 to regulate the interstate trade and sale in licorice paste, an article used in the manu- 
 facture of plug and smoking tobacco, snuff, and cigars. Defendants entered pleas of 
 not guilty, with leave to withdraw or demur on or before July 9, 1906. July 9, 1906, 
 demurrers filed by all of the defendants. December 4, 1906, demurrers overruled. 
 
946 HEADINGS BEFORE 
 
 December 19, 1906, trial commenced. January 10, 1907, MacAndrews & Forbes Co. 
 was found guilty on first and third counts of indictment, the J. S. Young Co. guilty on 
 first and third counts; verdict of acquittal as to individual defendants. MacAndrews 
 & Forbes Co. fined $10,000. J. S. Young Co. fined $8,000. 
 
 8a. The Tobacco Trust cases (Hale v. Henkel, 201 U. S., 43; McAllister v. Henkel, 
 id., 90; 149 Fed., 823; 212 U. S., 585). These cases grew out of an investigation by a 
 Federal grand jury in the Southern District of New York of the American Tobacco Co. 
 and the MacAndrews & Forbes Co., believed to be violating the antitrust laws, the 
 matter having been brought to the attention of the grand jury by the officers of the 
 Department of Justice, special counsel having been appointed for the purpose of invep- 
 tigation and prosecution. Subpoenas duces tecum were served upon the officers of the 
 companies directing them to produce papers and other documentary evidence belonging 
 to the corporations. They refused to obey the subpoena or to answer questions pro- 
 pounded to them. The Circuit Court adjudged them in contempt and committed 
 them until they should produce the bookB and answer the questions. They applied 
 to another judge of the same court for writs of habeas corpus, which, upon hearing, were 
 discharged. Upon appeal the Supreme Court affirmed the orders denying the writs. 
 
 9. United States v. Metropolitan Meat Company et al. Bill filed in equity in Octo- 
 ber, 1905, in the United States Circuit Court for Hawaii, to restrain the operation of 
 alleged unlawful combinations in restraint of the trade in beef and beef products. 
 Demurrer to bill overruled October 2, 1906. Pending. 
 
 10. United States v. Nome Retail Grocers' Association. November 4, 1905, the 
 department directed the United States attorney for the Second Division of Alaska to 
 file a bill in equity against the Nome Retail Grocers' Association, alleging a combina- 
 tion to fix prices and to suppress competition. Suit was promptly instituted, where- 
 upon the defendants agreed to the entry of a decree granting all the relief prayed for 
 in the petition. A decree dissolving the combination was entered accordingly. 
 
 11. United States v. Terminal Railroad Association of St. Louis etal. Petition filed 
 in Circuit Court of United States for the Eastern District of Missouri on December 1, 
 
 1905, to enjoin the defendant railroads from continuing an unlawful combination 
 entered into between them to operate Eads Bridge and Merchants Bridge as a common 
 agency of interstate commerce. Upon disagreement of Circuit Judges case was carried 
 to the Supreme Court and was remanded by that court for further proceedings. Gov- 
 ernment then attempted to secure rehearing in the Circuit Court and failed, and has 
 appealed to the Supreme Court, where the case is set for hearing in October, 1911. 
 
 12. United States v. Allen & Robinson et al. Bill filed in October in United States 
 Circuit Court for the District of Hawaii alleging unlawful combination to control the 
 trade in lumber in that Territory. Answers filed January 2, 1906. Pending. 
 
 13. United States v. Otis Elevator Co. et al . Bill filed March 7, 1906, in the United 
 States Circuit Court for the Northern District of California against the Otis Elevator 
 Co., and a number of other corporations and individuals, in -^vhich it was alleged that 
 they were maintaining a combination in restraint of trade in the matter of the manufac- 
 ture and sale of elevators. June 1, 1906, a decree was entered by consent dissolving 
 the combination and granting the relief prayed. 
 
 14. United States v. F. A. Amsden Lumber Company et al. Indictment returned 
 in the District Court of Oklahoma May 4, 1906, for violation of the Sherman Act in 
 restricting competition and maintaining prices in the sale of lumber. May 13, 1907, 
 change of venue granted to Grant County. September 25, 1907, pleas of guilty and 
 fines imposed aggregating $2,000, which were paid. 
 
 15. United States v. National Association of Retail Druggists et al. Bill in equity 
 filed May 9, 1906, in the United States Circiut Court for the District of Indiana against 
 the National Asspciaijiqn of Retail Druggists, alleging a combination in restraint of 
 interstate trade in the sale of drugs and proprietary medicines. May 9, 1907, final 
 decree entered by agreement, giving the Government all the relief prayed for in the 
 petition. 
 
 16. United States v. Virginia T Carolina Chemical Company et al. May 25, 1906, the 
 Federal grand jury for the Middle District of Tennessee, upon information furnished 
 by the Department of Justice, returned an indictment against 31 corporations and 25 
 individuals engaged in the fertilizer business in the States of North Carolina, South 
 Carolina, Georgia, Florida, Alabama, Mississippi, Arkansas, and Tennessee, charging 
 them with engaging in a conspiracy in violation of the Federal antitrust act, and with 
 conspiring to commit an offense against the United Stages, viz, the aforesaid con- 
 spiracy, in violation of section 5440 of the Revised Statutes. The fertilizer manu- 
 facturers combined to fix the price of fertilizers in the territory mentioned and to, 
 apportion the trade among themselves according to an agreed percentage. July 11, 
 
 1906, all the defendants appealed to the Supreme Court of the United States from an 
 order of the Circuit Court of the Eastern District of Virginia denying the right of habeas 
 
COMMITTEE ON INTERSTATE COMMERCE. 947 
 
 corpus and remanding them to the custody of the marshal for removal to the Middle 
 District of Tennessee for trial. The case before the Supreme Court was argued on 
 December 3, 1906, and on March 4, 1907, the judgment of the Circuit Court for the 
 Eastern District of Virginia was reversed and the case remanded to that court for 
 further proceedings in accordance with the opinion of the Supreme Court. April 17, 
 
 1908, various motions, pleas in abatement, and demurrers filed. July 3, 1908, certain 
 motions and demurrers overruled, plea in abatement allowed, and indictment quashed. 
 
 17. United States v. American Ice Company et al. July 12, 1906, indictment 
 returned in the Supreme Court of the District of Columbia, charging an unlawful agree- 
 ment to control prices and restrict competition in the sale of ice. Case pending. 
 
 18. United States v. Chandler Ice and Cold Storage Plant et al. September 19, 
 1906, indictment returned in the District Court for the Territory of Oklahoma against 
 the Chandler Ice and Cold Storage Plant and others, charging a combination to appor- 
 tion territory in the matter of the sale of ice. May 5, 1907, demurrer filed by defendant 
 Groves and overruled. May 20, 1907, demurrer filed by Chandler Ice and Cold Storage 
 Plant. Dismissed. 
 
 19. United States v. Alfred M. Gloyd et al. September 21, 1906, indictment 
 returned against Alfred M. Gloyd and others in the District Court for the Territory of 
 Oklahoma, charging a combination to maintain prices and restrict competition in the 
 sale of lumber. Dismissed. 
 
 20. United States v. People's Ice and Fuel Company, a corporation, and W. B. 
 Lount. October 23, 1906, indictment returned in the District Court for the Territory 
 of Arizona, charging a combination to control prices and restrict competition in the 
 sale of ice*. January 5, 1907, trial commenced. Verdict not guilty as to People's Ice 
 and Fuel Co. ancj company held to next grand jury. Trial of W. B. Lount continued 
 over term. October 16, 1907, plea in bar filed. October 17, 1907, plea in bar sus- 
 tained. 
 
 21. United States v. Demund Lumber Company etal. October 23, 1906, indictment 
 returned in the District Court for the Territory of Arizona, charging a combination to 
 control prices and restrict competition in the sale of lumber. January 2, 1907, trial 
 commenced. Verdict of not guilty as to Demund Lumber Co. January 7, 1907, cases 
 against Chamberlain Lumber Co. and Valley Lumber Co. continued over term. May 
 8, 1907, motion made to court to instruct for acquittal. Motion argued and taken 
 under advisement. May 9, 1907, motion sustained and verdict of acquittal returned. 
 
 22. United States v. Phoenix Wholesale Meat and Produce Company, a corporation, 
 P. T. Hurley, and S. J. Tribolet. October 23, 1906, indictment returned in the Dis- 
 trict Court for the Territory of Arizona, charging a combination to control prices and 
 restrict competition in the sale of meats. January 7, 1907, trial commenced. Ver- 
 dict of not guilty as to Phoenix Wholesale Meat & Produce Co. January 8, 1907, 
 indictment against Hurley dismissed. Verdict of guilty as to defendant S. J. Trib- 
 olet. January 12, 1907, Tribolet sentenced to pay fine of $1,000.. January 9, 1907, 
 case against Phoenix Wholesale Meat & Produce Co. dismissed. Appeal to the 
 Supreme Court of the Territory of Arizona. Supreme court affirmed decision of lower 
 court. Fine paid. 
 
 23. United States v. Standard Oil Company of N. J. et al. (United States Circuit 
 Court E. Missouri, 173 Fed., 177; United States Supreme Court, 121 U. S., 1.) 
 November 15, 1906, bill in equity filed in United States Circuit Court for the East- 
 em District of Missouri against the Standard Oil Co. and others, in which it is alleged 
 that they are maintaining a combination in restraint of trade in the manufacture and 
 sale of petroleum. Decision by unanimous court favor Government November 20, 
 
 1909. Appealed to Supreme Court and judgment affirmed May 15, 1911. 
 
 24. United States v. T. B. Hogg et al. December 8, 1906, indictment returned in 
 the District Court for the Territory of Oklahoma, charging a combination and con- 
 spiracy in restraint of trade and commerce in the sale of lumber. March 25, 1907, 
 plea of not guilty. Change of judge granted on application of defendants. Dismissed. 
 
 25. United States v.. Atlantic Investment Company et al. February 11, 1907, 
 indictment returned in the United States District Court for the Southern District 
 of Georgia against the Atlantic Investment Co. and others, charging a combination 
 in restraint of trade and commerce in the matter of the manufacture and sale of tur- 
 pentine. February 18, 1907, four corporations and two individuals, defendants to 
 this indictment, entered pleas of guilty, and the court imposed a fine of $5,000 upon 
 each of the six defendants, making a total of $80,000. 
 
 26. United States v. American Seating Company et al. March 12, 1907, indict- 
 ment returned in the District Court of the Northern District of Illinois, charging a 
 violation of the Sherman antitrust law by engaging in a combination in restraint of 
 trade in the manufacture and sale of school and church furniture. April 1, 1907, 
 defendant corporations entered pleas of guilty, with one exception. May 20, 1907, 
 
948 HEARINGS BEFOEE 
 
 fines imposed aggregating $43,000. Defendant E. H. Stafford Manufacturing Co. 
 filed demurrer April 3, 1907. May 31, 1907, demurrer overruled and plea of not guilty 
 entered. 
 
 27. United States v. American Seating Company et al. March 12, 1907, bill in 
 equity filed in the United States Circuit Court for the Northern District of Illinois 
 against the American Seating Co. and others, in which it is alleged that they are 
 maintaining a combination in restraint of trade in the manufacture and sale of school 
 and church furniture. August 15, 1907, decree entered granting perpetual injunction 
 against all defendants except E. H. Stafford Manufacturing Co., E. H. Stafford, 
 E. M. Stafford, and E. G. Bentley. 
 
 28. United States v. Santa Rita Mining Company and Santa Rita Store Company. 
 April 4, 1907, indictment returned in the district of New Mexico, charging a viola- 
 tion of section 3 of the Sherman antitrust law for engaging in a combination in restraint 
 of trade. Demurrer filed and overruled. Fine of $1,000 imposed on each defend- 
 ant; total, $2,000. Appeal taken to the Supreme Court of the Territory of New 
 Mexico. 
 
 29. United States v. The Reading Company et al. (United States Circuit Court, 
 E. Pennsylvania, 183 Fed., 427.) June 12, 1907, bill in equity filed in the Circuit 
 Court for the Eastern District of Pennsylvania to dissolve a combination among the 
 anthracite coal-carrying roads and others, alleged to be operating in violation of the 
 Sherman law. December 8, 1910, decision dismissing petition, except as to Temple 
 Iron Co., which was adjudged illegal. Cross appeals taken to Supreme Court, where 
 case is now pending. Set for argument in October, 1911. 
 
 30. United States v. National Umbrella Frame Company et al. July 1, 1907, in- 
 dictment returned in the District Court for the Eastern District of Pennsylvania charg- 
 ing a conspiracy to restrain interstate trade and commerce in the manufacture and 
 sale of umbrella material, in violation of the Sherman antitrust law and section 5440, 
 R. S. Pleas of guilty entered and fines aggregating $3,000 imposed. 
 
 31. United States v. American Tobacco Company et al. (United States Circuit 
 Court, S. New York, 164 Fed., 700. United States Supreme Court, 121 U. S., — .) 
 
 Bill in equity filed July 10, 1907, by the United States against the American To- 
 bacco Co. and others, in which it was alleged that they were maintaining a combina- 
 tion in restraint of trade and commerce in the manufacture and sale of tobacco. No- 
 vember 7, 1908, decision rendered in favor of the. Government except as to individual 
 defendants and certain foreign and other corporations. Cross appeals were taken to 
 the Supreme Court, where, on May 29, 1911, a sweeping decision was rendered sustain- 
 ing the Government on every point. 
 
 32. United States v. E. H. Stafford Manufacturing Company et al. July 10, 1907, 
 indictment returned in the District Court for the Northern District of Illinois charging 
 a violation of the Sherman antitrust law by engaging in a combination in restraint of 
 trade in the manufacture and sale of school and church furniture. Case pending. 
 
 33. United States v. E. I. du Pont de Nemours & Co. et al. July 30, 1907, a bill 
 in equity filed in the Circuit Court for the District of Delaware against E. I. du Pont 
 de Nemours & Co. and others, in which it is alleged that they are maintaining a com- 
 bination in restraint of trade in the manufacture and sale of gunpowder and other 
 high explosives. September 1, 1908, examiner appointed to take testimony. June 
 21, 1911, a decision was rendered ordering the dissolution of the combination. 
 
 34. United States v. One hundred and Seventy-five Cases of Cigarettes. October 
 28, 1907, information filed in the District Court for the Eastern District of Virginia 
 covering the seizure of 175 cases of cigarettes under section 6 of the Sherman Anti- 
 trust Act. Case pending. 
 
 35. United States v. H. D. Corbett Stationery Company et al. November 1, 1907, 
 indictment returned in the District Court for the District of Arizona charging a com- 
 bination in restraint of trade. November 4, 1907, demurrer filed. November 14, 
 
 1907, demurrers sustained and defendants referred to next grand jury. October 28, 
 
 1908, reindicted. November 6, 1908, verdict not guilty. 
 
 36. United States v. Union Pacific Coal Company et al. (173 Fed., 737.) November 
 20, 1907, indictment returned in the District Court for the District of Utah, charging 
 a conspiracy to violate and a violation of the Sherman Act. January 6, 1908, demur- 
 rer filed. March 2, 1908, demurrer sustained as to first count and overruled as to 
 second count. December 3, 1908, verdict guilty. March 29, 1909, fines aggregating 
 $4,000 imposed. November, 1909, judgment reversed 
 
 37. United States v. Chas. L. SimmofS et al. January 20, 1908, indictment returned 
 in the District Court for the Southern District of Alabama charging a combination 
 in restraint of trade and commerce in the matter of the manufacture and sale of plumb- 
 ers' supplies. December 1, 1910, pleas of guilty, and fines aggregating $265 imposed. 
 
 38. United States v. Union Pacific Railroad Company et al. February 1, 1908, a bill 
 in equity was filed in the Circuit Court of the United States for the District of Utah, 
 
COMMITTEE ON INTERSTATE COMMERCE. 949 
 
 charging a combination and conspiracy in violation of the Sherman Act on the part 
 of the so-called Harriman lines. June 23, 1911, decision by Circuit Court to the 
 effect that the roads involved were not competing lines and hence the combination 
 was not a violation of law. 
 
 39. United States v. E. J. Kay et al. February 14, 1908, indictment returned in 
 the Circuit Court for the Eastern District of Louisiana against 72 laborers, charging 
 a combination and conspiracy in restraint of foreign trade and commerce, in violation 
 of the Sherman Act. 
 
 40. United States v. E. J. Ray et al. February 15, 1908, indictment returned in 
 the Circuit Court for the Eastern District of Louisiana against 72 laborers, charging 
 a combination and conspiracy in restraint of interstate trade and commerce, in vio- 
 lation of the Sherman Act. January 26, 1911, cases consolidated for trial. Verdict 
 of guilty as to three defendants and fines amounting to $110 imposed. 
 
 41. United States v. Joseph Stiefvater et al. February 15, 1908, indictment returned 
 in the United States Circuit Court for the Eastern District of Louisiana, charging a 
 
 . combination in restraint of trade and commerce in the matter of the manufacture 
 and sale of plumbers' supplies. June 25, 1910, dismissed. 
 
 42. United States v. American Naval Stores Company et al. (151 Fed., 834; charge to 
 grand jury, 186 Fed., 592). April 11, 1908, indictment returned in the United States 
 Circuit Court for the Southern District of Georgia, charging a combination in restraint 
 of trade and commerce in the matter of the manufacture and sale of turpentine. 
 May 10, 1909, verdict guilty as to five individual defendants. Fines aggregating 
 $17,500 imposed and two defendants sentenced to three months in jail. Appealed 
 to Circuit Court of Appeals and judgment affirmed. Certiorari granted to Supreme 
 Court, where case is now pending. 
 
 43. United States v. New York, New Haven & Hartford Railroad Company et al. (165 
 Fed., 742). May 22, 1908, a bill in equity was filed in the Circuit Court of the United 
 States for the District of Massachusetts, charging the New Haven Co. with com- 
 bining and attempting to combine under one common control the various railroad 
 and electric railway systems in New England in violation of the Sherman Act. 
 
 Dismissed June 26, 1909. 
 
 44. United States v. John H. Parks et al. June 16, 1908, indictment returned in 
 the Circuit Court of the United States for the Southern District of New York, charging 
 a combination in restraint of trade in the matter of the manufacture and sale of paper. 
 June 19, 1908, defendants plead euilty and sentenced to pay fines aggregating $50,000, 
 which were paid. 
 
 President Toft's administration, March 4, 1909. 
 [Geo W. Wickersham, Attorney General, March 4, 1909.] 
 
 1. United States v. American Sugar Refining Company et al. Indictment under 
 Sherman law, July 1, 1909. A plea of the statute of limitations was interposed by the 
 defendant, Kissell, which was taken to the Supreme Court, where it was decided in 
 favor of the Government. (See U. S. v. Kissell, 218 U. S., 601.) Pending. 
 
 2. United States v. Albia Box & Paper Company et al. December 7, 1909, indict- 
 ment returned in Southern District of New York charging combination in restraint of 
 trade in paper board. February 7, 1910, all defendants plead guilty and fines aggre- 
 gating $57,000 were assessed. 
 
 3. United States v. John S. Steers et al. Indictment returned in Eastern District 
 of Kentucky, February 17, 1910, charging conspiracy to restrain trade. This is the 
 so-called Night Rider case, where the restraint consisted in preventing the shipment 
 of tobacco in interstate commerce by means of violence and intimidation. After the 
 overruling of demurrers and various pleas in abatement a trial was had, and on April 
 16, 1910, a verdict of guilty was returned as to 8 of 12 defendants and fines aggregating 
 $3,500 imposed. Appealed to Circuit Court of Appeals, where case is now pending. 
 
 4. United States v. Imperial Window Glass Company et al. Indictment found in 
 western Pennsylvania, April 7, 1910, charging combination and conspiracy to enhance 
 the price of window glass. Demurrers to the indictment were overruled, and on 
 November 10, 1910, pleas of nolo contendere were entered and fines aggregating 
 $10,000 and costs were imposed. 
 
 5. United States v. National Packing Company et al. Indictment returned in 
 Northern District of Illinois, March 2, 1910, charging combination to restrain trade in 
 fresh meats. Demurrer to indictment sustained June 23, 1910. . , 
 
 6. United States v. National Packing Company et al. Northern Illinois. Bill in 
 equity charging combination in restraint of trade in fresh meats and praying for dis- 
 solution filed March 21, 1910. Dismissed in order to facilitate the prosecution of later 
 criminal case. 
 
950 HEARINGS BEFORE 
 
 7. United States v. Armour Packing Company et al. Indictment returned at 
 Savannah, Ga., in April, 1910, charging combination to control prices and restrict 
 competition. Case now pending. 
 
 8. United States v. Missouri Pacific Railroad Company and twenty-four other rail- 
 roads. Petition to restrain violation of Sherman law filed May 31, 1910, and temporary 
 restraining order issued on that day enjoining advances in freight rates in western 
 trunk-line territory, which would Lave become effective June 1, 19101 Thereupon 
 the railroads, after consultation with the President, withdrew their proposed advances 
 in freight rates, and after the passage of the act of June 18, 1910, the matter was referred 
 to the Interstate Commerce Commission. Thereafter the Interstate Commerce Com- 
 mission enjoined the rate advances which the temporary restraining order obtained 
 by the department on May 31, 1910, had prevented from going into effect. 
 
 9. United States v. Southern Wholesale Grocers' Association. Bill in equity charg- 
 ing combination to regulate prices of necessities of life filed at Birmingham, Ala., June 
 9, 1910. An examiner has been appointed and the taking of testimony is being pushed 
 to a speedy conclusion, and an early hearing and determination is expected. 
 
 10. United States v. Great Lakes Towing Company et al. Petition filed in Northern 
 District of Ohio on June 19, 1910, against an alleged combination of towing facilities 
 on the Great Lakes. The taking of testimony is nearing completion, and the case 
 will be assigned for an early hearing. 
 
 11. United States v. Chicago Butter & Egg Board. Bill asking for dissolution 
 filed at Chicago June 13, 1910. A demurrer to the petition was sustained, with leave 
 to amend. An amended bill has been filed, and the case is now pending. 
 
 12. United States v. Frank Hayne, James A. Patten, et al. (180 Fed., 946). Indict- 
 ments returned at New York City against alleged cotton-pool conspirators August 4, 
 1910. Demurrers were sustained as to certain counts of indictment and overruled as 
 to others, and case is now on appeal to the Supreme Court. 
 
 13. United States v. Standard Sanitary Manufacturing Company et al. Petition 
 filed at Baltimore July 22, 1910, charging a combination, under cover of a patent- 
 licensing arrangement, to restrain competition and enhance prices of enamel ware. 
 Four volumes of testimony were taken and case set for argument at Richmond on 
 June 15, 16, and 17, 1911. An early decision is expected. 
 
 14. United States v. Louis F. Swift et al. Indictment returned by the grand jury 
 at Chicago in September, 1910, against 10 prominent individuals engaged in the 
 meat-packing industry. Defendants have filed numerous pleas in bar, etc., all of 
 which were decided in favor of the Government, and it is hoped that an early trial 
 may be had. 
 
 15. United StateB v. John Rcardon & Sons Company and Consolidated Rendering 
 Co. Indicted jointly by Federal grand jury at Boston in October, 1910. Demurrer 
 to indictment sustained June 23, 1911. 
 
 16. United States v. Ferdinand Sulzberger, doing business under the name of John 
 Reardon & Sons Company, and Horatio W. Heath, of Boston, doing business as the 
 Consolidated Rendering Company. Jointly indicted at Boston in October, 1910, 
 for violation of the Sherman law. Demurrer to indictment sustained June 23, 1911. 
 
 17. United States v. Horatio W. Heath and Cyrus S. Hapgood. Indictment returned 
 in October at Boston, charging violation of the Sherman law. Demurrer to indict- 
 ment sustained June 23, 1911. 
 
 (Note. — In the last three indictments, which were found simultaneously, the 
 Government charges that the defendants have attempted to divide territory between 
 themselves throughout New England, so as to avoid competition and drive out com- 
 petitors in the hide and rendering business.) 
 
 18. United States v. Standard Sanitary Manufacturing Company et al. In addi- 
 tion to the above suit in equity (No. 13, supra), indictments were returned by grand 
 jury at Detroit' on December 6, 1910, against the same corporations and individuals 
 charging the same acts. Various demurrers and dilatory pleas have been filed, argued, 
 and overruled, and an early trial is expected. 
 
 19. United States v. American Sugar Refining Company et al. A suit in equity 
 was filed at New York on November 28, 1910, against this corporation, its officers and 
 agents, and its owned and controlled corporations, attacking it as a combination in 
 restraint of trade and praying for its dissolution. The case is now pending and will 
 be prosecuted diligently. 
 
 20. United States v. General Electric Company et al. Bill in equity filed at Cleve- 
 land, Ohio, on March 3, 1911, charging a combination in incandescent electric lamps. 
 This suit is the outcome of an extensive investigation into the electrical industry. 
 Like the enameled ware combination, it is founded on a cross-licensing arrangement 
 under patents. Answers have been filed, and the taking of testimony will shortly 
 begin. 
 
I 
 
 COMMITTEE ON INTERSTATE COMMERCE. 951 
 
 21. United States v. Purrington et al. Indictment returned in the Northern Dis- 
 trict of Illinois September 14, 1910, charging combination to restrain trade in paving 
 bricks and paving blockB. Pending. 
 
 22. United States v. Hamburg-Amerikanisehe Packetfahrt Actien'Gesellschaft and 
 others. Trans-Atlantic steamship pool. Combination of steamship lines regulating 
 steerage traffic on the Atlantic Ocean. Suit filed January 4, 1911, at New York City. 
 Now pending. 
 
 23. United States v. Eastern States Retail Lumber Dealers' Association. Suit in 
 equity filed at New York on May 19, 1911, charging the Eastern States Lumber Dealers' 
 Association, its officers and members, with a conspiracy in restraint of trade through 
 the instrumentality of black lists and trade agreements. 
 
 24. United States v. Isaac Whiting, John K. Whiting, Charles H. Hood, Edward J. 
 Hood, and William A. Graustein. Indictment returned by the grand jury at Boston, 
 Mass., on May 26, 1911, charging a combination to restrain trade in milk throughout the 
 New England States. 
 
 25. United States v. Isaac Whiting, John K. Whiting, Charles H. Hood, Edward J. 
 Hobd, and William A. Graustein, and William A. Hunter, secretary of Producers' Co. 
 Indictment returned by the grand jury at Boston, Mass., May 26, 1911, charging a 
 conspiracy to restrain trade in milk throughout the New England States. 
 
 26. United States v. Lumber Secretaries' Bureau of Information et al. Indictment 
 returned June 23, 1911, in the Northern District of Illinois, charging that the secre- 
 taries of 14 retail lumbermen's associations covering 23 States from Pennsylvania 
 to the Pacific coast, were in a conspiracy by means of a central controlling bureau to 
 control the marketing of lumber by forcing the product through the retailer to the 
 consumer, and restraining the trade of the manufacturer, wholesaler, and consumer, 
 and eliminating competition for the trade of the consumer. 
 
 SUMMARY OP CASES UNDER ANTITRUST LAWS. 
 
 President Harrison's administration: Four bills in equity; three indictments. 
 
 President Cleveland's administration: Four bills in equity; two indictments; two 
 informations for contempt. 
 
 President McKinley's administration: Three bills in equity. 
 
 President Roosevelt's administration: Eighteen bills in equity; twenty-five indict- 
 ments; one forfeiture proceeding. 
 
 President Taft's administration: Ten bills in equity; sixteen indictments. 
 
 Cases Decided Under the Sherman Law or Relating Thereto. 
 
 Abner-Drury Brewing Co., Leonard v., 25 D. C. App., 161. 
 A. Booth & Co. v. Davis, 127 Fed., 875; 131 Fed., 31. 
 
 Addyston Pipe & Steel Qo., U. S. v., 78 Fed., 712; 85 Fed., 271; 175 U. S., 211. 
 Agler, U. S. v., 62 Fed., 824. 
 Alexander v. U. S., 201 U. S., 117. 
 
 Allen Bros. Tob. Co., R. J. Reynolds Tob. Co. v., 151 Fed., 819. 
 American Banana Co. v. United Fruit Co., 153 Fed., 943; 160 Fed., 184; 166 Fed., 
 261; 213 U. S., 347. 
 American Biscuit & Mfg. Co. v. Klotz, 44 Fed., 721. 
 American Brake Beam Co. v. Pungs, 141 Fed., 923. 
 American Naval Stores Co., U. S. v., 172 Fed., 455. 
 American Preservers' Co., Bishop v., 51 Fed., 272; 105 Fed., 845. 
 American School Furniture Co., Metcalf v., 108 Fed., 909; 113 Fed., 1020; 122 
 
 American Sugar Ref. Co., Pennsylvania Sugar Ref. Co. v., 160 Fed., 144; 166 Fed., 
 254. 
 American Tel. & Tel. Co., Ames v., 166 Fed., 820. 
 American Tob. Co., Larcus v., 163 Fed., 712. 
 American Tob. Co., Monarch Tob. Works v., 165 Fed., 774. 
 American Tob. Co., People's Tob. Co. v., 170 Fed., 396. 
 American Tob. Co., U. S. v., 164 Fed., 700; 221 U. S., — . 
 American Tob. Co., U. S. Tob. Co. v., 163 Fed., 701. 
 
 American Tob. Co., Ware-Kramer Tob. Co. v., 178 Fed., 117; 180 Fed., 160. 
 American Tob. Co., Weisert Bros. Tob. Co. v., 163 Fed., 712. 
 American Union Coal Co. v. Penna. R. Co., 159 Fed., 278. 
 Ames v. American Tel. & Tel. Co., 166 Fed., 820 
 
952 ' HEARINGS BEFORE 
 
 Anderson, Shawnee Compress Co. v., 87 Pac, 315; 209 U. S., 423. 
 
 Anderson v. United States, 82 Fed., 998; 171 U. S., 604. 
 
 Arkansas Brokerage Co. v. Dunn & Powell, 173 Fed., 899. 
 
 Armour & Co., U. S. v., 142 Fed., 808. 
 
 Atchison, T. & S. F. Ry. Co. v. Prescott & A. C. Ry. Co., 73 Fed., 438; 84 Fed., 213. 
 
 Atchison, T. & S. F. Ry. Co., U. S. v., 142 Fed., 176. 
 
 Barber Asphalt Paving Co., Field v., 117 Fed., 925; 194 U. S., 618. 
 
 Bay, Cincinnati, Portsmouth, Big Sandy and Pomeroy Packet Co. v., 200 U. S., 179. 
 
 Beef Trust Cases. See U. S. v. Swift and TJ. S. v. Armour. 
 
 Bement v. National Harrow Co., 186 TJ. S., 70. 
 
 Bigelow v. Calumet & Hecla Min. Co., 155 Fed., 869; 167 Fed., 704; 167 Fed., 721. 
 
 Bishop v. American Preservers' Co., 51 Fed., 272; 105 Fed., 845. 
 
 Blindell v. Hagan, 54 Fed., 40; 56 Fed., 696. 
 
 Block v. Standard Distilling & Distributing Co., 95 Fed., 978. 
 
 Blount Mfg. Co. v. Yale & Towne Mfg. Co., 166 Fed., 555. 
 
 Board of Trade v. Christie Grain & S. Co., 116 Fed., 944; 121 Fed., 608; 125 Fed., 161; 
 198 U. S., 236. 
 
 Bobbs-Merrill Co. v. Status, 139 Fed., 155; 210 TJ. S., 339. 
 
 Booth & Co. v. Davis, 127 Fed., 875; 131 Fed., 31. 
 
 Bradley, Fonotipia (Ltd.) v., 171 Fed., 951. 
 
 Bradley, Victor Talking Mach. Co. v., 171 Fed., 951. 
 
 Buchanan, Foot v., 113 Fed., 156. 
 
 Callam, Northwestern Consol. Min. Co. v., 177 Fed., 786. 
 
 Calumet & Hecla Min. Co., Bigelow v., 155 Fed., 869; 167 Fed., 704; 167 Fed., 721. 
 
 Camors-McConnell Co. v. McConnell, 140 Fed., 412; 140 Fed., 987; 152 Fed., 321. 
 
 Carter-Crume Co., Cravens v., 92 Fed., 479. 
 
 Carter-Crume Co. v. Peurrung, 86 Fed., 439. 
 
 Case, J. I., Threshing Mach. Co., Indiana Mfg. Co. v., 148 Fed., 21; 154 Fed., 365. 
 
 Cassidy, United States v., 67 Fed., 698. 
 
 Central Coal & Coke Co. v. Hartman, 111 Fed., 96. 
 
 Central Railroad & Banking Co. of Ga., Clarke v., 50- Fed., 338. 
 
 Charles E. Wisewall, The, 74 Fed., 802; 86 Fed., 671. 
 
 Chattarrooga Foundry & Pipe Works, City of Atlanta v., 101 Fed., 900; 127 Fed., 23 
 203 U. S., 390. 
 
 Chesapeake & Ohio Fuel Co., U. S. v., 105 Fed., 93; 115 Fed., 610. 
 
 Chicago Wall Paper Mills v. General Paper Co., 147 Fed., 491. 
 
 Christie Grain & Stock Co., Board of Trade v., 116 Fed., 444; 121 Fed., 608; 125 
 Fed., 161; 198 U. S., 236. 
 
 Cilley v. United Shoe Mach. Co., 152 Fed., 726. 
 
 Cincinnati, N. O. & T. P. Ry. Co., Thomas v., 62 Fed., 803. 
 
 Cincinnati, Portsmouth, Big Sandy & Pomeroy Packet Co. v. Bay, 200 U. S., 179. 
 
 City of Atlanta v. Chattanooga Foundry & Pipe Works, 101 Fed., 909; 127 Fed., 23; 
 203 U. S., 390. 
 
 Clabaugh v. Southern Wholesale Grocers' Ass'n, 181 Fed., 706. 
 
 Clarke v. Central R. R. & Banking Co. of Ga., 50 Fed., 338. 
 
 Cole Transp. Co. v. White Star Line, 186 Fed., 63. 
 
 Coal Dealers' Ass'n of Calif., U. S. v., 85 Fed., 252. 
 
 Comer, Waterhouse v., 55 Fed., 149. 
 
 Connolly, Union Sewer-Pipe Co. v., 99 Fed., 354; 184 U. S., 540. 
 
 Continental Tobacco Co., Whitwell v., 125 Fed., 454. 
 
 Continental Wall Paper Co. v. Voight, 148 Fed., 939; 212 U. S., 227. 
 
 Corning, In re, 51 Fed., 205. 
 
 Cravens u. Carter-Crume Co., 92 Fed., 479. 
 
 Creamery Package Mfg. Co., Virtue v., 179 Fed., 115. 
 
 Danbury Hatters' Case. See Loewe v. Lawlor. 
 
 Darius Cole Transp. Co. v. White Star Line, 186 Fed., 63. 
 
 Davis et al., A. Booth & Co. v., 127 Fed., 875; 131 Fed., 31. 
 
 Debs, United States v., 64 Fed., 724. 
 
 Debs, In re, 158 U. S., 564. 
 
 Delaware, L. & W. R. Co. v. Frank, 110 Fed., 689. 
 
 Delaware, L. & W. R. Co. v. Kutter, 147 Fed., 51. 
 
 D. E. Loewe & Co. v. Lawlor, 130 Fed., 633; 142 Fed., 216; 148 Fed., 924; 208 U. S., 
 
 Dennehy't). McNulta, 86 Fed., 825; 77 Fed., 900. 
 Dr. Miles Med. Co. v. Jaynes Drug Co., 149 Fed., 838. 
 Dr. Miles Med. Co. v. Park, 164 Fed., 803; 220 U. S., 373. 
 
COMMITTEE ON INTERSTATE COMMERCE. 953 
 
 Dueber Watch Case Mfg. Co. v. Howard Watch & Clock Co., 55 Fed., 851: 66 Fed 
 637. » . . i 
 
 Dunn & Powell v. Arkansas Brokerage Co., 173 Fed., 899. 
 
 Eastman Kodak Co., Loeb v., 183 Fed., 704. 
 
 E. C. Knight Co., U. S. v., 60 Fed., 306; 60 Fed., 934; 156 U. S., 1. 
 
 E. Howard Watch & Clock Co., Dueber Watch Case Mfg. Co. v., 55 Fed.. 851- 56 
 Fed., 637. 
 
 Elliott, United States v., 62 Fed., 801; 64 Fed., 27. 
 
 Ellis v. Inman, Poulsen & Co., 124 Fed., 956; 131 Fed., 182. 
 
 Evans v. Lowenstein, 69 Fed., 908. 
 
 Farmers' Loan & Trust Co. v. Northern Pac. R. R. Co., 60 Fed., 803. 
 
 Field v. Barber Asphalt & Paving Co., 117 Fed., 925; 194 U. S., 618 
 
 Fonotipia (Ltd.) v. Bradley, 171 Fed., 951. 
 
 Foot v. Buchanan, 113 Fed., 156. 
 
 Frank, Delaware, L. & W. R. Co. v., 110 Fed., 689. 
 
 Geiger, Otis Elevator v., 107 Fed., 131. 
 
 General Electric Co. v. Wise, 119 Fed., 922. 
 
 General Paper Co. v. Chicago Wall Paper Mills, 147 Fed., 491. 
 
 Gibbs v. McNeeley (Shingle Trust), 102 Fed., 594; 107 Fed., 210; 118 Fed., 120. 
 
 Goshen Rubber Works v. Single Tube Auto. & Bicycle Tire Co., 166 Fed., 431. 
 
 Grand Jury, In re., 62 Fed., 840. 
 
 Grand Jury, In re charge to, 151 Fed., 834. 
 
 Green, In re, 52 Fed., 104. 
 
 Greenhut, United States v., 50 Fed., 469. 
 
 Greer, Mills & Co. v. Stoller, 77 Fed., 1. 
 
 Griffin & Skelly Co., U. S. Consol. S. R. Co. v., 126 Fed., 364. 
 
 Gulf, C. & S. F. Ry. Co. v. Miami S. S. Co., 86 Fed., 407. 
 
 Hadley Dean Plate Glass Co. v. Highland Glass Co., 143 Fed., 242. 
 
 Hagan, Blindell v., 54 Fed., 40; 56 Fed., 696. 
 
 Hale, In re, 139 Fed., 496. 
 
 Hale v. Henkel, 201 U. S., 43. 
 
 Hale v. O'Connor Coal & Sup. Co., 181 Fed., 267. 
 
 Harriman v. Northern Securities Co., 132 Fed., 464; 134 Fed., 331; 197 U. S., 244. 
 
 Harrington, Pidcock v., 64 Fed., 821. 
 
 Hartman, Central Coal & Coke Co. v., Ill Fed., 96. 
 
 Hartman v. John D. Parks & Sons Co., 145 Fed., 358; 153 Fed., 24. 
 
 Heike, United States v., 175 Fed., 852; 217 U. S., 423. 
 
 Hench, National Harrow Co. v., 76 Fed., 667; 83 Fed., 36; 84 Fed., 226. 
 
 Henkel, Hale v., 201 U. S., 43. 
 
 Henkel, McAlister v., 201 U. S., 90. 
 
 Highland Glass Co., Hadley Dean Plate Glass Co. v., 143 Fed., 242. 
 
 Hocking Valley Ry. Co., Mannington v., 183 Fed., 133. 
 
 Hopkins, United States v., 82 Fed., 529; 84 Fed., 1018; 171 U. S., 578. 
 
 Howard Watch & Clock Co., Dueber Watch Case Mfg. Co. v., 55 Fed., 851; 66 Fed., 
 637. 
 
 In re Corning, 51 Fed., 205. 
 
 In re Debs, Petitioner, 158 U. S., 564. 
 
 U. S. v. Debs, 64 Fed., 724. 
 
 In re Grand Jury, 62 Fed., 840. 
 
 In re Grand Jury — charge to, 151 Fed., 834. 
 
 In re Green, 52 Fed., 104. 
 
 In re Hale, 139 Fed., 496. 
 
 Hale v. Henkel, 201 U. S., 43. 
 
 In re Kittle, 180 Fed., 946. 
 
 In re Terrell, 51 Fed., 213. 
 
 Indiana Mfg. Co. v. J. I. Case Threshing Mach. Co., 148 Fed., 21; 154 Fed., 365. 
 
 Inman, Poulsen & Co., Ellis v., 124 Fed., 956; 131 Fed., 182. 
 
 Iola Portland Cement Co., Phillips v., 125 Fed., 593. 
 
 Jayne, Loder v., 142 Fed., 1010; 149 Fed., 21. 
 
 Jaynes Drag Co., Dr. Miles Med. Co. v., 149 Fed., 838. 
 
 Jellico Mountain Coke & Coal Co., U. S. v., 43 Fed., 898; 46 Fed., 432. 
 
 J. I. Case Threshing Mach. Co., Indiana Mfg. Co. v., 148 Fed., 21; 154 Fed., 365. 
 
 John D. Parks & Sons Co., Hartman v., 154 Fed., 895; 153 Fed., 24. 
 
 Joint Traffic Association, U. S. v., 76 Fed., 895; 89 Fed., 1020; 171 U. S., 505. 
 
 Kinsey Co. v. Board of Trade, 198 U. S., 236. 
 
 Kissell, United States v., 173 Fed., 823; 218 U. S., 601. 
 
 Kittle, In re, 180 Fed., 946. 
 
954 HEARINGS BEFORE 
 
 Klotz, American Biscuit & Mfg. Co. v., 44 Fed., 721. 
 
 Knight Co., United States v., 60 Fed., 306, 934; 156 U. S., 1. 
 
 Kutter, Delaware, L. & W. R. Co. v., 147 Fed., 51. 
 
 Laemuile et al., Motion Picture Patents Co. v., 178 Fed., 104. 
 
 Larcus v. American Tob. Co., 163 Fed., 712. 
 
 Lawlor, Loeweu., 130 Fed., 633; 142Fed.,216; 148Fed., 924; 208U.S.,283. 
 
 Lehigh Valley R. Co., Meeker et al. v., 162 Fed., 354; 183 Fed., 548. 
 
 Leonard v. Abner-Drury Brewing Co., 25 D. C. App., 161. 
 
 Licorice Paste Trust. See U. S. v. MacAndrews & Forbes Co. 
 
 Loder v. Jayne, 142 Fed., 1010; 149 Fed., 21. 
 
 Loeb v. Eastman Kodak Co., 183 Fed., 704. 
 
 Loewev. Lawlor, 130 Fed., 633; 142 Fed., 216; 148 Fed., 924; 208 U. S., 283. 
 
 Lowensteinu. Evans, 69 Fed., 908. 
 
 Lowry v. Tile, Mantel & Grate Ass'n, 98 Fed., 817; 106 Fed., 38. 
 
 Lowry, W. W., Montague & Co. v., 115 Fed., 27; 193 U. S., 38. 
 
 McAlister v. Henkel, 201 U. S., 90. 
 
 MacAndrews & Forbes Co., U. S. v., 149 Fed., 823; 212 U. S., 585. 
 
 McConnell, Camors-McConnell Co. v., 140 Fed., 412; 140 Fed., 987; 152 Fed., 321. 
 
 McNeeley, Gibbs v., 102 Fed., 594; 107 Fed., 210; 118 Fed., 120. 
 
 McNulta, Dennehy v., 86 Fed., 825. 
 
 Mannington v. Hocking Valley Ry. Co. et al., 183 Fed., 133. 
 
 Meeker etal. v. Lehigh Valley R. Co., 162 Fed., 354; 183 Fed., 548. 
 
 Metcalf v. American School Furniture Co., 108 Fed., 909; 113 Fed., 1020; 122 Fed., 
 115. 
 
 Miami S. S. Co., Gulf C. & S. F. Ry. Co. v., 86 Fed., 407. 
 
 Milwaukee Rubber Works, Rubber Tire Wheel Co. v., 142 Fed., 531; 154 Fed., 358. 
 
 Mines v. Scribner, 147 Fed., 927. 
 
 Minnesota v. Northern Securities Co., 123 Fed., 692; 194 U. S., 48. 
 
 Monarch Tob. Works v. American Tob. Co., 165 Fed., 774. 
 
 Montague & Co. v. Lowry, 115 Fed., 27; 193 U. S., 38. 
 
 Moore v. United States, 8*5 Fed., 465. 
 
 Motion Picture Patents Co. v. Laemuile, 178 Fed., 104. 
 - Motion Picture Patents Co. v. Ullman, 186 Fed., 174. 
 
 National Folding-Box & Paper Co. v. Robertson, 99 Fed., 985. 
 
 National Harrow Co. v. Hench, 76 Fed., 667; 83 Fed., 36; 84 Fed., 226. 
 
 National Harrow Co. v. Quick, 67 Fed., 130; 74 Fed., 443. 
 
 National Harrow Co., Bement v., 186 U. S., 70. 
 
 National Harrow Co., Strait v., 51 Fed., 819. 
 
 National Window Glass Jobbers' Ass'n, Wheeler Stenzel Co. v., 152 Fed., 864. 
 
 Nelson, United States v., 52 Fed., 646.' 
 
 Nelson v. United States, 201 U. S., 92. 
 
 Northern Securities Co., Harriman v., 132 Fed., 464; 134 Fed., 331; 197 U. S., 244. 
 
 Northern Securities Co., U. S. v., 120 Fed., 721; 193 U. S., 197. 
 
 Northern Securites Co., Minnesota v., 123 Fed., 692; 194 U. S., 48. 
 
 Northwestern Consol. Min. Co. v. Wm. Callam & Son, 177 Fed., 786. 
 
 O'Connor Coal & Sup. Co., Hale v., 181 Fed., 267. 
 
 Otis Elevator Co. v. Geiger, 107 Fed., 131. 
 
 Park, Dr. Miles Med. Co. v., 164 Fed., 803; 220 U. S., 373. 
 
 Park, John D., & Sons Co., Hartman v., 145 Fed., 358; 153 Fed., 24. 
 
 Patterson, United States v., 55 Fed., 605; 59 Fed., 280. 
 
 Penna. R. Co., American Union Coal Co. v., 159 Fed., 278. 
 
 Penna. Sugar Ref. Co. v. American Sugar Ref. Co., 160 Fed., 144; 166 Fed., 254. 
 
 People's Tob. Co. v. American Tob. Co., 170 Fed., 396. 
 
 Peurrung, Carter-Crume Co. v., 86 Fed., 439. 
 
 Phillips v. Portland Cement Co., 125 Fed., 593. 
 
 Pidcock v. Harrington, 64 Fed., 821. 
 
 Prescott & A. C. R. Co. v. Atchison, T. & S. F. R. Co., 73 Fed., 438; 84 Fed., 213. 
 
 Pungs, American Brake Beam Co. v., 141 Fed., 923. 
 
 Quick, National Harrow Co. v., 67 Fed., 130; 74 Fed., 236. 
 
 R. J. Reynolds Tob. Co. v: Allen Bros. Tob. Co., 151 Fed., 819. 
 
 Reading Gompany, U. S. v., 183 Fed., 427. 
 
 Rice v. Standard Oil Company, 134 Fed., 464. 
 
 Robertson v. National Folding-Box & Paper Co., 99 Fed., 985. 
 
 Robinson v. Suburban Brick Co., 127 Fed., 804. 
 
 Rubber Tire Wheel Co. v. Milwaukee Rubber Works Co., 142 Fed., 531; 154 Fed., 
 358. 
 
 Scribner, Mines v., 147 Fed., 927. 
 
COMMITTEE ON INTERSTATE COMMERCE. 9fj£ 
 
 Shawnee Compress Co. v. Anderson, 87 Pac, 315; 209 U. S., 423. 
 
 Shingle Trust. See Gibbs v. McNulta. 
 
 Single Tube Auto. & Bicycle Tire Co., Goshen Rubber Works v., 166 Fed., 431 
 
 Southern Indiana Exp. Co. v. United Sta,tes Exp. Co., 88 fed., 659; 92 Fed.. 1022. 
 
 Southern Railway, Tift v., 138 Fed., 753. ' 
 
 Southern Wholesale Grocers' Ass'n, Clabaugh v., 181 Fed., 706. 
 
 Standard Distilling & Distributing Co., Block v., 95 Fed., 07.8. 
 
 Standard Oil Cpmpany, Rice v., 134 Fed., 46*4. 
 
 Standard Oil Co. of New Jersey, U. S. v., 152 Fed., 2p0; 173 Fed., 177; 221 ,U S 1 
 
 State of Minnesota v. Northern Securities Co., 123 Fed., 692: 194 U S . 48 
 
 Stoller (Greer, Mills & Co. v.), 77 Fed., 1. 
 
 Strait v. National Harrow Co., 51 Fed., 819. 
 
 Straus, Bobbs-Merrill Co. v., 139 Fed., 155; 210 U. S., 339. 
 
 Suburban Brick Co., Robinson u.,U27 Fed., 804. 
 
 Swift & Co., United States v., 122 Fed., 529; 196 U. S., 375. 
 
 Terrell, In re., 51 Fed., 213. , 
 
 Thomas v. Cin., N. O. & T. P. Ry. Co., 62 Fed., 803. 
 
 Thompson v. Union Castle Mail S. S. Co., 149 Fed., 933; 166 Fed., 251 
 
 Tift v. Southern Ry. Co., 138 Fed., 753. 
 
 Tile, Mantel & Grate Ass'n v. Lowry, 98 Led., 817; 106 Fed., 38. 
 
 Tobacco Trust Cases. (See U. S. v. American Tobacco Co., Hale ,v. Henkel, McAttj" 
 ter v. Henkel, and U. S. v. MacAndrews & Forbes Co.) 
 
 Trans-Missouri Freight Ass'n, U. S. v., 53 Fed., 440; 58 Fed., 58; 166 U. S., 290. 
 
 Tribolet, United States v., 95 Pac, 85. 
 
 Ullman, Motion Picture Patents Co. v., 186 Fed., 174. 
 
 Union Castle Mail S. S. Co., Thomson v., 149 Fed., 933; 166 Fed., 251. 
 
 Union Pacific Coal Co. v. U. S., 173 Fed., 737. 
 
 Union Sewer-Pipe Co. v. Connolly, 99 Fed., 354; 184 U. S., 540. 
 
 United Fruit Co., American Banana Co. v., 153 Fed., 943; 160 Fed., 184; 166 Fed., 
 261; 213 U.S., 347. 
 
 United Shoe Mach. Co., Cilley v., 152 Fed., 726. 
 
 U. S. v. Addyston Pipe & Steel Co., 78 Fed., 712; 85 Fed., 271; 175 U. S., 211. 
 
 U. S.i). Agler,62Fed., 824. 
 
 U. S. v. American Naval Stores Co., 172 Fed., 455. 
 
 U. S. v. American Tobacco Co., 164 Fed., 700; 221 U. S., — . 
 
 U. S. v. Armour & Co., 142 Fed., 808. ' 
 
 U. S. v. Atchison, T. & S. F. Ry. Co., 142 Fed., 176. 
 
 U. S. v. Cassidy, 67 Fed., 698. 
 
 U. S. v. Chesapeake & Ohio Fuel Co., 105 Fed. ,,93; 115 Fed., 610. 
 
 U. S. v. Coal Dealers' Assn. of Calif., 85 Fed., 252. 
 
 U. S. v. Debs, 64 Fed., 724. 
 In re Debs, '158 U. S., 564. 
 
 U. S. v. E. C. Knight Co., 60 Fed., 306; 60 Fed., 934; 156 U. S., 1. 
 
 U. S.'v. Elliott, 62 Fed., 801; 64 Fed., 27. 
 
 U. S. v. Freight Association. (See U. S. v. Trans-Missouri Freight Association.) 
 
 U. S. v. General Paper Co. (See Nelson v. U.' S". and Alexander v. U. S.) ' " 
 
 U. S. v. Greenhut, 50 Fed., 469. 
 
 U. S. v. Heike, 175 Fed., 852; 217 U. S., 423. 
 
 U. S. v. Hopkins, 82 Fed., 529; 84 Fed., 1018; 171 U. S., 578. 
 
 U. S. v. Jellico Mpuntain Coke & Coal Co., 43 Fed., 898; 46 Fed., 432. 
 
 U. S. v. Joint Traffic Association, 76 Fed., 895; 89 Fed., 1020; 171 U. S., 505. 
 
 U. S. v. Kissell, 173 Fed'.', 823; '218 U. S., 601. 
 
 U. S. v. MacAndrews & Forbes Co., 149 Fed., 823; 212 U. S., 585. 
 
 U. S. v. Nelson, 52 Fed., 646. 
 
 Nelson v. United States, 201 U. S., 92. 
 
 U. S.' v. Northern 'Securities Company, 120 Fed., 721; 193 U. S., 197. 
 
 U. S. v. Patterson, 55 Fed., 605; 59 Fed., 280.' 
 
 U. S. v. Reading Company, 183 Fed., 427. 
 
 U. S. v. Standard Oil Co. of New Jersey, 152 F^d., 290; 173 Fed., 177; 221 U. S., 1. 
 
 U. S.'v. Swift & Co., 122 Fed., 529; 196 U. S., 375. 
 
 U. S. v. Trans-Missouri Freight Ass'n., 53 Fed., 440; 58 Fed., 58; 166 U. S., 290. 
 
 U. S.v. Tribolet, 95 Pac, 85.' 
 
 U. S. v. Virginia-Carolina Chemical Co., 163 Fed., 66.. 
 
 U. S. v. Workingmen's Amalgamated Council, 54 Fed., 994; 57 Fed., 85. 
 
 U.S.,' Alexander v., 201 U. S., 117: 
 
 U. S., Anderson v., Si Fed., 998; 171 ,U. S., 604. 
 
 U. S., Moore v., 85 Fed., 465. 
 
956 HEARINGS BEFORE 
 
 U. S., Union Pacific Coal Co. v., 173 Fed., 737. 
 
 U. S. Consolidated S. R. Co. v. Griffin-Skelly Co., 126 Fed., 364. 
 
 U. S. Exp. Co., Southern Ind. Exp. Co. v., 88 Fed., 659; 92 Fed., 1022. 
 
 United States Tob. Co. v. American Tob. Co., 163 Fed., 712. 
 
 Victor Talking Mach. Co. v. Bradley, 171 Fed., 951. 
 
 Virginia-Carolina Chemical Co. v. U. S., 163 Fed., 66. 
 
 Virtue v. Creamery Package Mfg. Co., 179 Fed., 115. 
 
 Voight, Continental Wall Paper Co. v., 148 Fed., 939; 212 U. S., 227. 
 
 Ware-Kramer Tob. Co. v. American Tob. Co., 178 Fed., 117; 180 Fed., 160. 
 
 Waterhouse v. Comer, 55 Fed., 149. 
 
 Weisert Bros. Tob. Co. v. American Tob. Co., 163 Fed., 712. 
 
 Wheeler Stenzel Co. v. National Window Glass Jobbers' Ass'n, 152 Fed., 864, 
 
 White Star Line, Cole Transp. Co. v., 186 Fed., 63. 
 
 Whitwell v. Continental Tob. Co., 125 Fed., 454. 
 
 Wise, General Electric Co. v., 119 Fed., 922. 
 
 Wisewall, The CHarles E., 74 Fed., 802; 86 Fed., 671. 
 
 Workingmen's Amalgamated Council, U. S. v., 54 Fed., 994; 57 Fed., 85. 
 
 Yale & Towne Mfg. Co., Blount Mfg. Co. v., 166 Fed., 555. 
 
 The Chairman. The committee will take a recess until 10.30 o 'clock 
 Monday morning. 
 
 (Thereupon, at 12 o 'clock and 30 minutes p. m., the committee took 
 a recess until Monday, December 11, 1911, at 10.30 a. m.) 
 
 monday, december 11, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met, pursuant to recess at 10.30 o'clock a. m. for 
 the purpose of further considering the bill (S. 2941) entitled "A 
 bill to create an interstate trade commission, to define its powers and 
 duties, and for other purposes," introduced by Mr. Newlands July 5, 
 1911. 
 
 Present: Senators Clapp (chairman) , Cummins, Brandegee, Oliver, 
 Townsend, Nixon, Newlands, Watson, Lippitt, and Pomerene. 
 
 STATEMENT OF ME. FRANCIS L. STETSON, LAWYER, OF NEW 
 
 YORK, N. Y. 
 
 Mr. Stetson. Mr. Chairman and gentlemen, the question of 
 remedies must be considered with reference to the condition of public 
 sentiment as well as in view of economic requirements. 
 
 The experience of the 21 years since the passage of the Sherman 
 law, and analogous enactments, in many of the States indicates an 
 almost unparalled unanimity and persistence of public sentiment that 
 some such law must be maintained, 
 
 Thus it must be conceded that the question of remedy is one not 
 now susceptible of unrestricted consideration, but is what may be 
 done, not what should be done. 
 
 This condition may not continue indefinitely, for if, as I believe, the 
 Sherman law, like high protection, involves economic error, then it 
 is certain that ultimately the people will come to a recognition of 
 injustices in laws against all trade combinations and agreements, just 
 as now they are awakening to the evils of high protection. 
 
COMMITTEE ON INTERSTATE COMMERCE. 957 
 
 For the present, however, they have analyzed the compound term 
 political economy, and disregardful or distrustful of practical eco- 
 nomics and those representing them, have made the entire subject one 
 of political consideration and are not prepared to tolerate or to palter 
 with any proposition to weaken the law. 
 
 This result involves a remarkable reaction. During the first 
 century of our independence, the ideal of America was business enter- 
 prise to a degree unexampled in any previous age or in any other 
 country. To labor, to invent, to save, to accumulate, to invest, and 
 to accumulate still more was the commended career of the so-called 
 successful man in every community and in all callings. 
 
 Suddenly and almost without warning a wave of popular reaction 
 coming out of the northwest overspread the country. The granger 
 legislation of the late seventies found sympathetic response in Texas 
 in the early eighties, and resulted in the 'interstate commerce act of 
 1887 and the Sherman law of 1890. 
 
 The new legislative policy and the public sentiment underlying 
 these acts was a stumbling block and foolishness to the man of affairs, 
 bred and developed in the conditions previously adopted and main- 
 tained by all the people. 
 
 The ideals of the legislator fairly representing the mass of his . 
 constituents, had parted company with the ideals of that portion of 
 his constituents, fewer in number but important in influence, con- 
 ducting the industries of the country. 
 
 The conflict of views and ideals thus developed, like all other con- 
 flicts, has had to run its course till one or the other party was ex- 
 hausted. Now we are at the point of exhaustion of our industries 
 and of those engaged in them. 
 
 In the course -of the long period of conflict, as always is the case, 
 painful and harmful hatred and regrettable misunderstandings have 
 been fomented. One class has distrusted the motives and the sin- 
 cerity of the other class. The country has been divided into rival 
 camps, as harmfully hostile as though arrayed for physical warfare. 
 
 The time has come to preach a gospel of reconciliation. Let us 
 have peace, not peace at any price, but peace with honor. The law 
 has been interpreted and established. It must be accepted and main- 
 tained, but as the law exists not for itself alone but for the prevention 
 of injury to the public, its enforcement should be made practicable 
 with the least possible injury to the vast volume of the industries of 
 the public. 
 
 These observations may seem to come within the category of 
 "glittering generalities," but in my opinion no specific or effectual 
 remedy can be found unless sought for under the influence of an 
 earnest and patriotic determination to promote the general welfare 
 and not that of any particular class. 
 
 Coming now to the question of specific remedies and disclaiming 
 any peculiar fitness to advise this committee, which of its own 
 motion has honored me with its invitation, I would say I find much 
 to my liking in the late message of President Taft, in the bill of 
 Senator La Follette, and in the suggestions of Judge Gary. 
 
 In the message of President Taft, I like his idea of a voluntary 
 Federal incorporation, of permissive Federal license, and of a cor- 
 poration commission. 
 
958 HEARINGS BEFORE 
 
 In the bill of Senator La Follette, I see light in his definition of 
 things that business may do, though these definitions may be modi- 
 fied before adoption. As an important business man once said to 
 me: " I do nqt so much care what the law is, as to know what it is; 
 when I know what it is, I will conform to it." 
 
 I accept the principles involved in the suggestions of Judge (Jary 
 up to the point of governmental regulation of prices which lies 
 somewhat beyond my experience and mode of thought. 
 
 My acceptance of these general propositions involves the f ollowing 
 considerations : 
 
 The Sherman law as it now exists may nqt be amended, but it 
 should be supplemented. 
 
 In whatever cases are committed to it by the wisdom and express 
 enactment of Congress, the proposed corporation commission shoujd 
 have power to« make and to revoke its declaration of the innocuous- 
 ness of any particular corporation or agreement, and during th,e con- 
 tinuance of such declaration, the Department of Justice should be 
 relieved from the duty of proceeding against the corporation in 
 respect of any matter covered by such declaration. 
 
 This method of procedure would leave the law unimpaired and 
 also would leave the corporation free to assert its legal defenses, and 
 it would avoid the question of any improper delegation of jurisdic- 
 tion, either legislative or judicial. 
 
 For the protection of the public investing in securities, the pro- 
 posed corporation commission should have power to make, but not 
 to revoke, a declaration as to the innocuousness of any corporation 
 hereafter formed in its organization, or in the acquisition or proper- 
 ties constituting part of its capital stock ; and no prosecution or dis- 
 solution of the corporation for any matter covered by such declara- 
 tion should be permitted after a period tp be prescribed by the act. 
 
 The definite views that I hold with reference to existing corpora- 
 tions may npt properly be made the object of presentation by me at 
 the present juncture, but I may call attention to the difficulty, if 
 not the impossibility, of compelling a recapitalization pf stocks and 
 bonds distributed and owned throughout the world as a cpn^ition of 
 continuing the business of interstate commerce. As to any impor- 
 tant corporation, the suspension of its business during the interval 
 required for the cpnsummation of any suqh reduction would injure 
 the public more than any conceivable benefit therefrom. 
 
 As to holding companies, there are two possible injuries, one 
 that to the dissentient stockholders of the corporations whose stock 
 is held, and the other to the dissentient stockholders pf the holding 
 company. These evils could be relieved by providing for the ap- 
 proval and purchase of their shares as in case of consolidation. As a 
 speedy and effective means of consolidation in cases authorised by 
 law, the acquisition of stocks is highly convenient and apparently 
 harmless. (See Hill v. Nisbet, 100 Ind., 341.) For instance, it is 
 wholly immaterial whether the United States Steel Corporation 
 holds any one of its subsidiary New Jersey corporations by owning all 
 of its stock, or by consolidation which is authorized by law. 
 
 In advance of any Federal license, corporations should be per- 
 mitted to register and to proceed thereunder, for the number of cor- 
 porations applying for license would be'so vast as to congest the ( bu^i- 
 ness of the country awaiting action. 
 
COMMITTEE ON INTERSTATE COMMERCE. 959 
 
 That is all I have to say, gentlemen. 
 
 Senator Cummins. In the course of your practice, Mr. Stetson, 
 you have become somewhat familiar with the application of the law 
 to business affairs, I take it? 
 
 Mr. Stetson. The application of the law by the business men or by 
 the courts? The application of the law by the courts, I am very 
 familiar with. The application by business men, I am only inci- 
 dentally familiar with ; that is, the incidents relating to organization. 
 I have known very little of the practices of corporations after they 
 have been launched. 
 
 Senator Cummins. I refer, of course, to the application of the law 
 by the courts that are created to administer it. 
 
 Mr. Stetson. I have ; yes, sir. 
 
 Senator Cummins. You are very familiar with that, are you? 
 
 Mr. Stetson. I am. I am familiar with all the cases. 
 
 Senator Cummins. That is the application of it? 
 
 Mr. Stetson. Yes, sir; I think so. 
 
 Senator Cummins. Your paper or observations just submitted seem 
 to be based upon Avhat you believe it is possible to do, and not upon 
 what you believe ought to be done. Am I right in interpreting the 
 paper in that way? 
 
 Mr. Stetson. You are right. 
 
 Senator Cummins. What do you think the law prohibits which 
 ought to be permitted? 
 
 Mr. Stetson. I do not know that I am qualified by reflection to 
 answer that question completely. I am that kind of a lawyer who 
 generally addresses himself to the practicable rather than to the pos- 
 sible, and I have not considered the possibility of an amendment of the 
 law much beyond the point that I have suggested. That point is so 
 remote that I have not thought out the part beyond it. My attention 
 has been directed principally to the formation of these organizations, 
 and at the present moment, and ever since Judge Thayer wrote in 
 1904, I am concerned more with the question as to whether the sup- 
 pression of competition between the parties combining for a lawful 
 purpose otherwise, and the mere possession of the power to suppress 
 competition with other parties potentially, though not. actually, is in 
 itself to be considered or deemed to be a violation of the act. If 
 those features are to be considered (and in view of the later decisions 
 I frankly say that I do not suppose that they are) , if that matter is 
 not yet finally determined or definitely determined, then I think the 
 law should make provision on the line that I have suggested, so that 
 the public at large may know what they are dealing with, whether 
 when they are making purchases of interests in corporations they are 
 exposing their investments to a subsequent destructive procedure by 
 the Government of the United States. 
 
 Senator Cummins. Do you mean that the question as to the power 
 of a proposed corporation or combination growing out of its size and 
 the extent of the business which it embraces is not yet determined to 
 be either in restraint of trade or otherwise ; do you mean that ques- 
 tion has not yet been determined ? 
 
 Mr. Stetson. "Well, to be specific, in the Northern Securities case, 
 upon the very luminous and powerful argument of Mr. David T. 
 Watson, Judge Thayer expressed the opinion that the mere acquisi- 
 tion of power to suppress competition between those two railway cor- 
 
 22877— vol 1—12 61 
 
960 HEADINGS BEFORE 
 
 porations in itself constituted an offense against the act. I do not 
 suppose that that depended on the size of the corporations, but upon 
 their relation. That view seemed to have been adopted by Mr. Jus- 
 tice Harlan in the opinion which was concurred in by three other 
 members of the court, though I do not understand that it was the 
 opinion of the court. It was the opinion of the Circuit Court of 
 Appeals in the Eighth Circuit. 
 
 Isow Mr. Raymond, who has written very intelligently upon this 
 subject in two numbers of the Harvard Law Review, was of the opin- 
 ion (March, 1910) that prior to the recent decisions of this year, the 
 Supreme Court was committed to the doctrine that mere possession 
 of the power to suppress competition, not dependent upon size but 
 upon any other thing, in itself was an offense against the act. In a 
 luminous article, which was published in the Harvard Law Review 
 for November, 1911, he adheres to his previous position that such was 
 the tendency of the prior decisions, but that the court has, to say the 
 least, not adhered to that previous view and apparently is now of the 
 opinion that the mere possession of the power does not in itself con- 
 stitute an offense against the act. 
 
 Senator Cummins. In the Northern Securities Co. case the power 
 to suppress competition arose not ^ut of the magnitude of corpor- 
 ations, but out of the location of the railway company and its prop- 
 erties, and of course the impossibility of the people in that part of 
 the country resorting to any other means of transportation. But I 
 want to take your mind away from that for a moment to the general 
 industrial corporations which operate everywhere, and can operate 
 everywhere, and ask you whether you believe the law prohibits the 
 organization of a corporation or a combination so large, and embrac- 
 ing so much of the business, that it will be able to dominate the par- 
 ticular field in which it operates even though the power has not been 
 exercised ? 
 
 Mr. Stetson. You ask for my belief? 
 
 Senator Cummins. Yes. 
 
 Mr. Stetson. I do not believe that it does. I have advised that it 
 does not. That is not only my belief, but my advice. 
 
 Senator Cummins. Therefore the antitrust law, from your stand- 
 point, would need no supplement or amendment in order to permit 
 organizations of that character with that power? 
 
 Mr. Stetson. Not if everybody would be kind enough to accept, as 
 some people do, my opinion upon the subject. But if the question 
 still be regarded by many as still open there is no point whatever of 
 more difficulty with the public than that. For instance, I do not 
 recall that I have advised the formaion of any combination since the 
 decision in the Northern Securities case. I do not know what to 
 advise as lawful. I should not advise the formation of any cor- 
 poration until that is settled. That is one of the things that has un- 
 settled business. Men are stopping; they are not going on. The 
 reason is that they could not get from their trusted counsel advice 
 that it is wise or prudent to go on. Now, unless the intimations of 
 the court are not to be followed, and possibly it may yet be decided 
 that the law is created by the mere acquisition of power to suppress 
 competition, or by the mere termination of competition between in- 
 dustries combining for legitimate business reasons, a remedy should 
 be given by Congress. The courts can not and ought not attempt to 
 
COMMITTEE QN INTERSTATE COMMERCE. 961 
 
 give it in case they determine to the contrary the meaning of the ex- 
 isting law. 
 
 Senator Cummins. That is one of the uncertainties which now 
 exist in the business world? 
 
 Mr. Stetson. I think it is the greatest uncertainty in my ex- 
 perience. 
 
 Senator Cummins. If it is entirely apart from any vicious or op- 
 pressive practices, the organization which has grown or is immedi- 
 ately combined to the extent that it can dominate in a practical way 
 the business of which it is a part; nobody knows whether that is in 
 violation of the law or not, as yet? 
 
 Mr. Stetson. I think no one can certainly 3ay. A good many peo- 
 ple may think they know, but no one can say with confidence. 
 
 Senator Cummins. At any rate, the people who do the business of 
 the country are not willing to take the risk of the determination of 
 that question. 
 
 Mr. Stetson. The Attorney General of the United States, at a 
 dinner that was given in New York immediately after his appoint- 
 ment, indicated the disposition of the administration not to view 
 harshly things that had been done before in ignorance. He said, 
 " Hereafter whatever is done is going to expose one to the extreme 
 penalties." With such a warning as that, no one wished to take any 
 chances. 
 
 Senator Cummins. Must it not always be true, Mr. Stetson, that 
 the judgment of a court as to whether an organization of the char- 
 acter I have described is or is not in restraint of trade must depend 
 upon the economic view and training of the judge who announces the 
 opinion ? 
 
 Mr. Stetson- Very largely. 
 
 Senator Cummins. It is not likely in the course of development 
 that any two such combinations or corporations will be so similar 
 and exercise so nearly the same influence that a judgment as to one 
 can be accepted as final or conclusive as to the other ? 
 
 Mr. Stetson. It seems so to me. Therefore I think it is beyond 
 the province of the judge, as I have just said, or the court, to pass 
 upon that question. 
 
 Senator Cummins. Therefore— it may be included in your sugges- 
 tion, and I rather think it is — do you not think that somewhere or 
 somehow there should be reposed in a Government tribunal, not 
 judicial, the authority to say when such a combination or organization 
 is proposed whether that particular combination or corporation, by 
 reason of the power that it may exercise, is or is not in violation 
 of the law in advance of its actual organization or creation? 
 
 Mr. Stetson. That is what I think, or, at least, as I intended to 
 convey in what I said at the outset. Such a declaration should be 
 obtainable promptly upon organization, though perhaps not in ad- 
 vance of the organization. As you know, such projects move very 
 quickly. "When a business man entertains an idea it develops almost 
 immediately into practice, and you will, I think, find that the cor- 
 poration would have to come into existence as a corporation, though 
 before the transaction of business. It is come into that part. 
 
 Senator Cummins. Technically into existence? 
 
 Mr. Stetson. I mean the mere scheme of a corporation about to 
 be formed could not be submitted. 
 
962 HEARINGS BEFORE 
 
 Senator Cummins. I agree with you perfectly that it wcffald have 
 to take such form, of course, as to be judged. 
 
 Mr. Stetson. So that it could be definitely presented and passed 
 upon. Now, what I said or meant to intimate in my statement is 
 that I look with great reluctance upon Congress delegating to a small 
 commission its power to (what in effect is to) legislate, but I think 
 the Sherman law, still standing, with its penalties as they are, Con- 
 gress could appoint a commission to pass upon propositions such as 
 you have just suggested and could authorize the commission to make 
 a declaration as to the innocuousness of such corporation with the 
 right to revoke it — to revoke not as to its essential constitution but 
 as to its future action. 
 
 Senator Cummins. Precisely. 
 
 Mr. Stetson. And that during the continuance of that declaration 
 unrevoked the Department of Justice should be relieved from the 
 necessity of prosecuting any such corporation. Thus you would re- 
 lieve the corporation from the danger of having its great business sud- 
 denly broken up by a revocation of the license, and would leave it 
 to justify its acts under the law before the court in the proceeding 
 brought by the Department of Justice. This would not be sub- 
 stituting the commission for the court or for the Congress, and I 
 think, to my mind, nothing is more vital than to avoid an unconsti- 
 tutional delegation. 
 
 Senator Cummins. I think I understand your statement. I want 
 to pursue it just a little bit further. When such commission is or- 
 ganized, if it ever shall be, it will of course be bound by the law 
 which prohibits combinations or arrangements in restraint of trade. 
 Now, when any such proposition is put before the commission for 
 the purpose of receiving its approval, the commission will be gov- 
 erned by its judgment as to whether such a proposition if carried out 
 will be in restraint of trade. Now, can you help the committee by 
 suggesting the form in which we ought to put the authority which 
 we thus give to a commission of that character so that it could exer- 
 cise that judgment more certainly than it could with the simple 
 direction that it must not be in restraint of trade ? 
 
 Mr. Stetson. I purposely avoided the phrase " restraint of trade " 
 and I used the word " innocuous." I think that the object of all laws 
 is to prevent injury to the public, or, as Mr. Jefferson said, " to pre- 
 vent people from injuring each other." Therefore in answering 
 your question — I would not undertake to advise the committee — but 
 in answering your question, I should authorize that commission upon 
 investigation to issue a declaration that the proposed combination 
 would not be injurious to the public interests. 
 
 Senator Cummins. Do you think that the guide or standard that 
 we would give the commission, if we were to employ the phrase that 
 you have just stated, would be sufficient under the Constitution to 
 validate its acts? 
 
 Mr. Stetson. I do, because it is not a judicial question that I am 
 discussing. The law stands, and we have got now an interpretation 
 of the law — that the law forbids any restraint of trade, the term 
 being interpreted either "in the light of reason" or according to 
 "the standard' of reason," or, perhaps — though I am not clear on 
 this — or as though it read "undue restraint of trade." Now, there 
 is the law as it stands and as it would continue to stand. All that 1 
 
COMMITTEE ON INTERSTATE COMMERCE. 963 
 
 am suggesting is with respect to such corporations as the commission 
 should find, not to be injurious to the p^lic; The Department of 
 Justice should be relieved from proceeding under the act. 
 
 Now, there is no constitutional question involved in that. 
 
 Senator Cummins. Suppose, however, we were to say to this com- 
 mission that if any such proposition were submitted to it, if it found 
 that the powers of the combination or corporations so proposed 
 could be exercised and that there would still remain the opportunity 
 for healthful and reasonable competition, it should not be regarded 
 in restraint of trade? * 
 
 __ Mr. Stetson, I would like that far better. But .that is one of the 
 things. I did not consider practicable. If it be open to me so to 
 speak, I should be very glad to see such a provision enacted into law. 
 . Senator Cummins, I pass now to another branch of the subject. 
 It has been suggested before us many times that a practicable way 
 out of the uncertainties that are said to be in the business world, if 
 such a commission were organized and it were given authority to 
 approve or disapprove trade agreements which had for their chief 
 purpose the fixing of prices, either directly or through limitation of 
 production or division of territory, or in any other way, I assume 
 that most people will agree that such an agreement now is unlawful 
 because it is in restraint of trade. Such seems to be the trend of 
 judicial as well as popular thought. Now, do you believe that a 
 commission ought to be clothed with any such authority ? 
 
 Mr. Stetson. I answered your first question by saying that I 
 had no practical experience with reference to the conduct of corpo- 
 rations after they are launched. I never had anything to do with 
 nor. have I had any knowledge of the existence or the methods 
 of conducting such trade agreements as you have suggested, and 
 which, unquestionably, I should consider as contrary to the law as 
 it has stood since the decision in the Addyston Pipe case. 
 
 Now, I have been much impressed by the communication which 
 Mr. Henry R. Towne addressed to your committee with reference to 
 that particular subject. I was, I confess, amazed at the extensive 
 prevalence of such agreements, notwithstanding the existence of the 
 law as thus interpreted; and if, as I said, the keynote of legislation 
 is to prevent injury to the public, it would seem that some legisla- 
 tion is required to meet a condition so extensive as indicated by Mr. 
 Towne. 
 
 Senator Cummins. If that were done, would if not inevitably re- 
 sult, in operation, in the Government fixing prices ? 
 
 Mr. Stetson. I am not certain of that. I have not given thought 
 to that point. As I say, that particular feature of the subject is so 
 new to me that I do not attach very much importance to my conclu- 
 sions with reference to it; but so far as I have been able to reflect 
 since I have read Mr. Towne's letter, which was only within the 
 last few days, I do not at all see that relief for such agreement neces- 
 sarily involves the fixing of prices. I should suppose that relief 
 might be found in the power of the commission to denounce the 
 agreement. -That is why I said to make and to revoke a declaration 
 as to whether or not an agreement — not an organization — was injuri- 
 ous to the public. If it were injurious to the public, I would termi- 
 nate the agreement. 
 
964 HEARINGS BEFORE 
 
 Senator Cummins. I take it that such agreement would be injuri- 
 ous to the public or otherwise, dependent upon the reasonableness of 
 the price. 
 
 Mr. Stetson. That may be. 
 
 Senator Cummins. At least, that would be one of the great factors. 
 
 Mr. Stetson. That might be one of the conditions. Of course, it 
 would be an important element. 
 
 Senator Cummins. And if the commission believed that the price 
 established by any such arrangement was an unreasonably high one, 
 it, of course, would have to condemn the arrangement. 
 
 Mr. Stetson. Well, Senator Cummins, in answer to that, I must 
 say that I am unable to come to the recognition of the wisdom of the 
 Government fixing prices, and if that be the only alternative, it is 
 my present impression thdt it would be better not to tolerate the 
 agreement. 
 
 Senator Cummins. I quite agree with you, as to your conclusion 
 that the Government ought not to attempt to fix the prices of com- 
 modities in common use among the people of the United States, but 
 I do not see any escape from the conclusion that if the Government 
 undertakes to approve or disapprove agreements which fix prices, that 
 in the end. it must fix the price itself. 
 
 Mr. Stetson. I heard your address on the subject last winter in 
 New York and I was very much impressed by it, as I am by what 
 you say now, and that is why I hesitate to say a word or even to 
 venture an opinion about anything subsequent to the original organ- 
 ization, the subject that I have studied. I am convinced as to the 
 correctness of that first position, but as to what should be done with 
 reference to the subsequent conduct of the corporations or of the parties 
 in trade who are not incorporated, as to trade agreements, I do not 
 consider my opinion as of particular value. 
 
 Senator Cummins. That is all I care to ask. 
 
 Senator Townsend. Just one question. I do not believe I quite 
 understood you in your reference to a protective tariff. Did you 
 associate that with the trust proposition? 
 
 Mr. Stetson. I took them as both being illustrations of what, in 
 my experience and observation, have been laws that have been based 
 upon economic errors. I am a radical free trader; I may say that 
 at the outset. I have no interest in the protective tariff. I think it 
 has been a curse to the country. I think we would have better trade 
 to-day if we never had had a protective tariff, and, with great respect, 
 I think interstate commerce would have worked itself out better 
 to-day if we had never had a Sherman antitrust law. I think by this 
 time matters would have come around by the operation of natural 
 cause and the possible evils would have corrected themselves. I 
 think we would have more trade to-day if we had never had a tariff, 
 and think we would be in a better commercial position to-day if we 
 had not had this trust law. 
 
 Senator Townsend. Would you, if you could, do away with or 
 repeal the tariff and trust laws? 
 
 Mr. Stetson. As I just now stated, there is a political question 
 there which embarrasses the consideration of what I consider the 
 economic question. I do not think it is practicable at the present 
 minute to repeal either law. 
 
COMMITTEE ON INTERSTATE COMMERCE. 965 
 
 Senator Townsend. I think I understood you correctly then. Your 
 notion is that if there had been no restrictions in the form of the 
 Sherman antitrust law that the trade conditions of the country would 
 have worked out all right? 
 
 Mr. Stetson. Nothing ever works out all right in human affairs. 
 I think it would have worked out as well without the law as with it. 
 The law never does anything concretely; it never makes any money 
 for anybody; it never provides anything except a punishment. It 
 says, " You are punished if you do something," and that is all the 
 law does. I feel very little interest in that side of human affairs. 
 
 Senator Townsend. You are not in favor of monopoly ; or are you ? 
 
 Mr. Stetson. Of monopolies? 
 
 Senator Townsend. Yes. 
 
 Mr. Stetson. I do not care much about it, either one way or the 
 other. I do not believe that the danger of any monopolies, unless 
 created by law, is very serious. They have no such law in England ; 
 they have no such law in France; they have no such law in Italy; 
 they have no such law in Germany. They have a law in Germany, 
 but it is no such law. I do not think that those countries are very 
 much worse off than ours. They have no such law in Canada. But 
 I am not undertaking to contest the continuance of the Sherman law. 
 It is here, and in my judgment it would be folly to attempt to repeal 
 it to-day, or even to amend it an any substantial particular. There 
 is a question of political sagacity — political in the broad sense of 
 the word; political as well as economic. 
 
 Mr. Townsend. What particular dangers are you up against in 
 amending a bad law? 
 
 Mr. Stetson. When the people have made up their minds that a 
 law is for the public interest — and I think that if ever there was a 
 law which at the present time is enshrined in the affections of the 
 public it is the Sherman law — they will distrust the sincerity of 
 those who attempt to amend it. There is nothing more injurious 
 than the general destruction of the confidence of the people at large 
 in their Eepresentatives. I think that the danger of exciting such 
 popular distrust overweighs any economic error. 
 
 Senator Townsend. I think that is all. 
 
 The Chairman. You say that business is hesitating and you 
 would be embarrassed in advising certain business enterprises. 
 Would there be any embarrassment to you in advising a proposed 
 business enterprise, except in so far as that enterprise actually or 
 potentially involved a restraint of trade or a monopoly? 
 
 Mr. Stetson. That is the whole question. I would not know when 
 it involved potentially a restraint of trade or a monopoly. 
 
 The Chairman. Well, you would gather some light on that sub- 
 ject from the Northern Securities case. 
 
 Mr. Stetson. Not any as to industrial conditions, as Senator Cum- 
 mins very properly has pointed out. That was a question of instru- 
 mentalities of interstate commerce and not 
 
 The Chairman. Yes; but it was because those instrumentalities 
 might result in monopoly. The principle of the potentiality of 
 monopoly would be as applicable to one case as to another, if appli- 
 cable at all to the situation, would it not? 
 
966 HEADINGS BEFORE 
 
 Mr. Stetson. Hardly, in my view. As has been said again and 
 again, the railroad is a natural monopoly. It may be said that to 
 bring together two natural monopolies clearly would be a combination 
 for the purpose of restraining trade, or of a monopoly. I think there 
 is an essential difference in principle in dealing with instrumentalities 
 of commerce and industrial organizations which employ the instru- 
 mentalities of commerce. It is very much easier to point out the 
 monopoly or the monopolistic tendency with reference to instru- 
 mentalities of commerce than with reference to industrial concerns. 
 
 The Chairman. Do you see any difference between the proposition 
 to organize a company to engage in the production of a newly dis- 
 covered product in which no one else was engaged, and in which it, 
 of course, would for the time being be the sole concern engaged, or 
 the organization so engaged, to the extent of absorbing the production 
 of an article which was already the subject of production by a number 
 of different instrumentalities? 
 
 Mr. Stetson. There would be no difference, possibly, in the result. 
 There certainly would be a difference in the intent. 
 
 The Chairman. Exactly. 
 
 Mr. Stetson. Because there could not be any intent to create a mo- 
 nopoly when a man undertook to organize for the purpose of develop- 
 ing something that had not been developed. Of course, in such case 
 there would be no intent to form a monopoly, but a legitimate intent 
 to develop that industry. 
 
 The Chairman. Consequently no possible infringement of the law ? 
 
 Mr. Stetson. I should think not. I do not see how it is possible. 
 
 The Chairman. Now ; Mr. Stetson, is it not a fact that your em- 
 barrassment as a lawyer in advising as to organization simply in- 
 volves the two questions of whether that organization amounts to a 
 restraint of trade or a monopoly ? 
 
 Mr. Stetson. Of course it does ; that is the whole question. If I 
 could not get anything else, I would rather take Senator La Follette's 
 bill just as it stands. I would know then what I could advise. 
 
 The Chairman. In other words, you have no difficulty in advising 
 any business enterprise that seeks your advice where it does not in- 
 volve restraint of trade or monopoly — as to this subject, I mean? 
 
 Mr. Stetson. We have approached a condition when I have very 
 little other advice than that. It would seem that business now thinks 
 only in terms of expansion. 
 
 Senator Brandegee. I do not know whether this point was touched 
 upon ; and if not, I would like to ask you, Mr. Stetson, if there is any 
 question in your mind, under the authority of Congress to regulate 
 commerce among the States and the instrumentalities thereof, as to 
 that power to regulate the issuing of securities by those corporations 
 which are now chartered by the States ? 
 
 Mr. Stetson. I am in doubt on that point. I have indicated what 
 I thought would be the unwisdom of it. I do not know of anything 
 to guide me upon that view. The farthest advance we have made in 
 that direction was in the railway employees' liability case, the How- 
 ard case, and that hardly goes as far as that. 
 
 Senator Cummins. The questions put by the chairman raise an- 
 other inquiry in my mind. Let me see if I clearly understand you. 
 If a man propose to buy a lot or a tract of land and comes to you to 
 ascertain whether the proposed vendor has a good title and can con- 
 
COMMITTEE ON INTERSTATE COMMEECE. 967 
 
 vey a good title, he furnishes you with the evidence of the title, and 
 you reach a conclusion that is entirely certain, I assume, and advise 
 him whether he can get or can not get a good title from the proposed 
 vendor. That might be called a certain field of the law. Men come 
 to you proposing to organize a corporation, we will assume something- 
 like the character of the United States Steel Corporation, and say, 
 " Can we organize this corporation and do the business which we pro- 
 pose to do rightly? Will it be in restraint of trade?" You do, not 
 know ; that is, you can not advise with the same certainty ? 
 
 Mr. Stetson. By no means. 
 
 Senator Cummins. Simply because the phrase "in restraint of 
 trade " is one which can never be reduced to absolute certainty. 
 
 Mr. Stetson. My client can satisfy me that this corporation is 
 always going to be a good boy and never will do anything wrong; 
 that it is designed for purely legitimate purposes ; but, nevertheless, 
 there remains the question as to whether the potentiality of the cor- 
 poration for wrongdoing in itself constitutes an insuperable barrier 
 against its formation. Now, that is the difficulty I have. 
 
 Senator Cummins. That is all. 
 
 Senator Pomerene. Did I understand you, in answer to one ques- 
 tion, to indicate that you had doubted the wisdom of the enactment of 
 the Sherman laAv in the first instance? 
 
 Mr. Stetson. I said that, as an original proposition, I regarded 
 the tariff law and the Sherman law each as founded on economic 
 error. 
 
 Senator Pomereise. For what reason do you think that the Sher- 
 man law is an error? 
 
 Mr. Stetson. I do not like unnecessary interference with human 
 activities. I think the mass of men are properly disposed; that the 
 natural development of mankind is better than that under tutelage 
 of the law. 
 
 Senator Pomerexe. As a general proposition, I agree with you; 
 but you understand, do you not, that the Supreme Court has re- 
 peatedly said that the Sherman law was simply a declaration of the 
 common law as it has existed for time out of mind almost ? 
 
 Mr. Stetson. There is no State in which the leadership in legis- 
 lation and decision against restraint of trade has been more pro- 
 nounced than in New York. Nearly all of the recent cases cite Hooker 
 v. Vandewater (4 Denio, 349). the old canal case (21 Wend., 157), 
 and the Lockport coal dealers' case (People v. Sheldon, 139 N. Y., 
 251). But, nevertheless, business in good faith has not been em- 
 barrassed or destroyed by the officials of the State of New York. 
 Indeed, the very judge who delivered the opinion of the court of 
 appeals in the Lockport coal dealers' case delivered the opinion of 
 our court of appeals in the Diamond Match case (106 N. Y., 483), in 
 which he said : 
 
 We are not aware of any rule of law which makes the motive of the cove- 
 nantee the test of the validity of such a contract. On the contrary, we suppose 
 a party may legally purchase the trade and business of another for the very 
 purpose of preventing competition, and the validity of the contract, if supported 
 by a consideration, will depend upon its reasonableness between the parties. 
 Combinations between producers to limit production and to enhance prices may 
 or may not be unlawful, but they stand on a different footing. 
 
 And in support of this proposition, as being part of the common 
 law, he cites many cases. See also Peckham, J., in Gambles case, 
 
 19,a TVT V ft1_1fU- TtvifvvUj o, -Rnffdr, rioc C,c. 37 Ann Div.. 618. 
 
968 HEARINGS BEFORE 
 
 In the above cited case of Chappel v. Brockway (21 Wend., 125- 
 165) Judge Bronson made a forecast of present conditions which is 
 sufficiently interesting to justify quotation : 
 
 If any danger to public interests can justly be apprehended from allowing 
 many men of wealth and influence to associate as partners for the purpose of 
 carrying on business, or if that competition which results from the enterprising 
 character of our citizens and the active employment of capital ought to be 
 regulated or restrained, it belongs to the legislature, and not the courts, to 
 apply the proper remedy. (P. 165.) 
 
 Senator Pomerene. But in view of the fact that the common law 
 and the statute law are practically one and the same, I fail to under- 
 stand why you should hold the Sherman law responsible for these 
 conditions. 
 
 Mr. Stetson. Well, I am powerfully, affected by facts, and I have 
 seen that the facts in the history of the Sherman law are entirely dif- 
 ferent from the facts in the history of the common law against re- 
 straint of trade. This may be logically insufficient, but it is practi- 
 cally impressive. 
 
 Senator Pomerene. What facts do yon refer to ? 
 
 Mr. Stetson. The fact that substantially all of the suits against 
 the mere existence of corporations such as are alleged to exist in vio- 
 lation of the Sherman law have been brought under the Sherman law 
 and not under the decisions of the laws of the several States against 
 restraint of trade. 
 
 Senator Pomeeene. Suppose we had had no Sherman law, I take 
 it, if I understand the decision of the court correctly, that, for in- 
 stance, the American Tobacco Co. or Standard Oil Trust would have 
 been a violation of the common law ? 
 
 Mr. Stetson. Yes, sir ; upon the facts as there found by the court 
 I think the decisions were right. There was a question not merely of 
 organization, but of oppressive conduct. 
 
 Senator Pomerene. I understand that, but I still do not understand 
 why you can object to the Sherman law, in view of the fact that the 
 provisions of the common law are practically what the Sherman law 
 is, save as to penalties and remedy? 
 
 Mr. Stetson. Because I have never heard of a single decision under 
 the common law against restraint of trade which said that the mere 
 potentiality of the power to restrict competition was an offense 
 against that law. I never have heard of such a decision, and that is 
 the point, and the only point, that I have made. 
 
 Senator Pomeeene. The only difference between the common law 
 and the Sherman law is that one has penalties and provides some 
 affirmative relief? 
 
 Mr. Stetson. No; pardon me. The difference is, I think, as I 
 have pointed out, that the mere combination of two parties without 
 any overt act in suppression of competition or trade has never, as far 
 as I know, been considered as in restraint of trade, and I think that 
 under the decision in the Mogul steamship case, interpreting the Eng- 
 lish common law in restraint of trade, there is a vast difference between 
 the meaning of the common law against restraint of trade and the 
 Sherman law. 
 
 Senator Pomeeene. Have you in mind any authority now that 
 points out that distinction between the common law and the Sherman 
 law? 
 
COMMITTEE ON INTERSTATE COMMEECE. 969 
 
 Mr. Stetson. Yes, sir ; the declination of the courts of the United 
 States to accept the Mogul case decision as ah interpretation of our 
 law. They have proceeded on an entirely different basis. 
 
 Senator Pomerene. I think that is all. 
 
 Senator Newlands. When was the Mogul case decided, Mr. Stet- 
 son? 
 
 Mr. Stetson. I think it was in 1891. 
 
 Senator Newlands. Where was that decision rendered ? 
 
 Mr. Stetson. In the House of Lords. It is a great case. It has 
 been cited here before you several times. 
 
 Senator Newlands. Did the Supreme Court expressly consider that 
 case? 
 
 Mr. Stetson. They referred to it. Mr. Justice White, in his opin- 
 ion, refers to it. There it was held that it was not contrary to law 
 for a shipping combination to grant a rebate to shippers who would 
 employ the line of steamers of the corporation exacting such a con- 
 tract upon condition that the shipper would not employ the other line. 
 That contract was held not to be illegal, and that certainly would be 
 illegal under the Sherman law. 
 
 Senator Newlands. That decision was interpreting the common 
 law as to restraint of trade? 
 
 Mr. Stetson. Yes, sir. 
 
 Senator Newlands. And the Supreme Court refused to follow the 
 line of that decision or to interpret the Sherman law under the same 
 rule? 
 
 Mr. Stetson. I would not say that they refused, but I do not see 
 how anyone could doubt that under the Sherman law that would be 
 a violation of the law. 
 
 Senator Newlands. Then, assuming the Mogul case was a proper 
 interpretation of the common law, and the decision of the Supreme 
 Court was a proper interpretation of the Sherman Act, it is a mis- 
 take to say that the Sherman Act is simply a reenactment of the 
 common law, is it not ? 
 
 Mr. Stetson. It would seem so to me. I think it is wider in its 
 reach and more inevitable in its command than that. 
 
 The effect of the Sherman antitrust law in making criminal that 
 which under the common law in restraint of trade was not criminal 
 was accurately pointed out in the Addyston Pipe case (85 Fed., 271, 
 279-286) by Judge Taft, as follows: 
 
 Contracts that were in unreasonable restraint of trade at common law were 
 not unlawful in the sense of being criminal, or giving rise to a civil action for 
 damages in favor of one prejudicially affected thereby, but were simply void, 
 and were not enforced by the courts. (Mogul Steamship Co. v. McGregor, Gow 
 & Co (1892), App. Cas., 25; Hornby v. Close, L. R., 2 Q. B., 153; Lord Camp- 
 bell C J. in Hilton v. Eckersley, 6 El. & Bl., 47, 66 ; Hannen, J., in Farrer v. 
 Close, L, k, 4 Q. B., 602, 612.) 
 
 The effect of the act of 1890 is to render such contracts unlawful in an affarma- 
 tive or positive sense, and punishable as a misdemeanor, and to create a right 
 of civil action for damages in favor of those injured thereby, and a civil remedy 
 by injunction in favor of both private persons and the public against the execu- 
 tion of such contracts and the maintenance of such restraints (p. 279). 
 
 The case of Mogul Steamship Co. v. McGregor, Gow & Co. (1892, App. Cas., 
 25) has been cited to sustain the position of the defendants. It does not do so. 
 It was a suit for damages, brought by a company engaged in the tea-carryiD? 
 
970 
 
 HEARINGS BEFOBE 
 
 trade at Hankow, China, against six other companies engaged iu the same trade, 
 for loss inflicted by an alleged unlawful conspiracy entered into by them to 
 drive the plaintiff out of the trade and to obtain control of the trade themselves. 
 It appeared that the defendants agreed to conform to a plan of association by 
 which they should constantly underbid the plaintiff and take away his trade by 
 offering exceptional and very favorable terms to customers dealing exclusively 
 with the members of the association, and that they did this to control the 
 business the next season after he had been thus driven out of competition. 
 It was held by the House of Lords that this was not an unlawful and indictable 
 conspiracy, giving rise to a cause of action by the person injured thereby; but 
 it was not held that the contract of association entered into by the defendants 
 was not void and unenforceable at common law. On the contrary, Lord Bram- 
 well, in his judgment (at p. 46), and Lord Hannen, in his (at p. 58), distinctly 
 say that the contract of association was void as in restraint of trade (Lord 
 Bramwell said, " I will assume that it was, though I am not quite sure." 
 F. L. S.), but all the law lords were of opiniou that contracts void as in restraint 
 of trade were not unlawful in a criminal sense, and gave no right of action for 
 damages to one injured thereby. The statute we are considering expressly gives 
 such contracts a criminal and unlawful character. It is manifest, therefore, 
 that whatever of relevancy the Mogul Steamship Co. case has in this discussion 
 makes for rather than against our conclusion (p. 286). 
 
 Senator Newlands. I do not recall exactly the phraseology of the 
 Supreme Court decision upon that matter. Do they expressly declare 
 that the Sherman Act is simply declaratory of the common law? 
 
 Mr. Stetson. I do not know. The decisions are beautiful reading, 
 but they are somewhat difficult reading. I am not prepared to say 
 that I know exactly what they mean. I have read them a great many 
 times with a great deal of care. 
 
 Senator Newlands. What they do say is that in passing the Sher- 
 man Act Congress had in view the common law with reference to 
 restraints of trade, and that in reenacting that doctrine they neces- 
 sarily included the exceptions with reference to restraints that were 
 not injurious to the public and not unreasonable in their character. 
 
 Senator Pomerene. You do not understand that the Supreme 
 Court approved the doctrine of the Mogul case, do you ? 
 
 Mr. Stetson. I do not understand that they disapproved it, as a 
 statement of the common law of England. 
 
 Senator Pomerene. So it may have been one common law of Eng- 
 land and it may have been another one in the United States, as far 
 as the principles are concerned? 
 
 Mr. Stetson. I suppose that there is only one common law, but 
 that it may be interpreted one way in England and another way 
 here. That may amount practically to saying that there are two 
 common laws, but I should not like to say so in express terms. 
 
 Senator Pomerene. I know ; but we do as practical lawyers know 
 that there may in one particular case be one principle recognized by 
 the common law of Ohio and another one by the common law of 
 New York. 
 
 Mr. Stetson. Well, as I say, that is perhaps a question of terms. 
 I should say the common law as interpreted in any particular juris- 
 diction is applied in that jurisdiction. But it does not cease to be 
 the common law of England. 
 
 Senator Newlands. I have understood from English merchants 
 and manufacturers that it is the common practice there to have 
 trade agreements regulating production with a view to prevent- 
 ing overproduction, providing for cases of various factory orders, 
 and fixing reasonable prices. Do you know whether any of these 
 have passed under the test of the courts there? 
 
COMMITTEE ON INTERSTATE COMMERCE. 971 
 
 Mr. Stetson. I do not. I have no knowledge on that subject at all. 
 
 Senator Watson. If that powerful factor, public sentiment, would 
 permit would you advise the absolute repeal of the Sherman law? 
 
 Mr. Stetson. As I said, I have not considered that side of it. I 
 do not know that I should. I am perfectly clear — so clear in my 
 mind that the Sherman law should not be in any sense repealed or 
 amended to-day, but something supplementary to it should be en- 
 acted, that I have not given the reflection upon the other aspect of 
 the case, which perhaps would lead me to a different conclusion. 
 
 Senator Watson. I understood you to come to that conclusion 
 because you did not believe public sentiment would permit % 
 
 Mr. Stetson. Therefore I had not thought out the other alterna- 
 tive— -an attempt to repeal or to reconstruct the Sherman law. I had 
 not given any attention to it. It is a subject of immense consequence, 
 of course. But, as our friend Heraclitus says: "Make no random 
 guesses about the greatest things." I do not want to make any 
 guesses concerning the greatest things. 
 
 Senator Watson. There is no one more able to express an opinion, 
 however. 
 
 Mr. Stetson. I do not say that. 
 
 (There being no further questions, Mr. Stetson was excused.) 
 
 Senator Beandegee. Mr. Chairman, in view of the fact that the 
 Mogul case has been referred to, I would like to put in the record 
 here that utterance of the Supreme Court of the United States where 
 it cites the Mogul case. It appears in our record on page 652. 
 
 The reference is as follows : 
 
 From the review just made it clearly results that, outside of the restrictions 
 resulting from the want of power in an individual to voluntarily and unrea- 
 sonably restrain hi« right to carry on his trade or business, and outside of the 
 want of right to restrain the free course of trade by contracts or acts which 
 implied a wrongful purpose, freedom to contract and to abstain from contract- 
 ing and to exercise every reasonable right incident thereto became the rule in 
 the English law. The scope and effect of this freedom to trade and contract is 
 clearly shown by the decision in Mogul Steamship Co. v. McGregor (1892, A. C, 
 25). While it is true that the decision of the House of Lords in the case in 
 question was announced shortly after the passage of the antitrust act, it serves 
 reflexly to show the exact state of the law in England at the time the antitrust 
 statute was enacted. 
 
 STATEMENT OF PROF. JOHN BATES CLARK, PROFESSOR OF ECO- 
 NOMICS, COLUMBIA UNIVERSITY, NEW YORK. 
 
 The Chairman. Prof. Clark, you may state your name, residence, 
 and occupation for the record. 
 
 Prof. Clark. My name is John Bates Clark; I am professor of 
 economics in Columbia University, New York. 
 
 I suppose I ought, Mr. Chairman and gentlemen of the committee, 
 to say at the outset that I am utterly incapable of discussing this sub- 
 ject from a legal point of view, and that what I have to offer must 
 of necessity be on the economic side. And it is one of the great privi- 
 leges of the economist, and I think also one of his duties, in confining 
 himself to his own field, to neglect, for the time being, the legal 
 difficulties which may arise in the carrying out of his plans. Persons 
 of legal attainment may find a way to overcome them, and in any 
 case that is not his particular mission. Looking at the question 
 solely from an economic side, I may be altogether too bold, and yet 
 
972 
 
 HEARINGS BEFORE 
 
 I shall have to say that I think there is a clear course of action before 
 the American people in regard to combinations — clear in so far as the 
 economic needs of the case go. 
 
 The attitude of people in late years has been one of discourage- 
 ment with regard to the preservation of any system of effective com- 
 petition. The view, in the first place, has been that the Sherman law 
 would not be enforced except sporadically; that if it were not en- 
 forced we would have a regime of private monopoly; and that if it 
 were enforced it would necessarily lead to ruinous competition, to 
 desperate efforts to form secret agreements, and if those were 
 thwarted by the law, to a very strong pressure on the Government 
 to induce it to permit agreements under close restraint. That close 
 restraint could scarcely mean anything but price regulation, as the 
 less radical of the measures in view, with governmental ownership 
 and management as the more radical. A hybrid of these two has 
 been more or less favored in foreign countries. 
 
 The evil which, as an economist, I see in governmental regulation 
 of prices goes beyond the mere difficulties which are apparent on the 
 face of the measure. Those are great and probably insuperable. 
 Charging any commission with a duty so comprehensive and intri- 
 cate as that of fixing prices would in itself involve grave dangers; 
 but if all of these were surmounted, what I think would remain 
 would be a certain protection to the public as against extortionate 
 prices, but' no protection whatever as regards the repression of tech- 
 nical progress. Such repression is the greatest evil which can pos- 
 sibly result from monopolies. Unless price regulation were man- 
 aged with a degree to scientific insight which it would be overconfi- 
 dent to expect, it would increase the tendency which adheres in a 
 monopoly of causing industrial progress itself to stagnate. 
 
 It is owing to the spur of competition, which has existed until 
 very recent times and still exists to a goodly degree, that producers 
 have engaged in the race for improvement, making larger quantities 
 of goods with the same amount of labor or using less labor for a 
 given amount' of goods. That is a product-multiplying operation 
 which has gone far to enrich the country and is- a perfectly essential 
 condition of anything approaching comfort for laboring people in 
 the future. We are facing an increase of population which, in 
 itself, in the absence of technical improvement would mean disaster 
 to the working people ; it can be counteracted by the product-multi- 
 plying process. Granted the existence of effective competition, we 
 can expect a regime of greater and greater productivity and wage- 
 paying power, but without it there is no such outlook possible. 
 Monopoly with or without governmental regulation of prices means 
 increasing poverty. 
 
 With any regulation of prices, which should make them conform 
 to the cost of the goods plus a fixed amount of profit, even the limited 
 incentive which a monopoly has to make improvements would be 
 lessened. If they can make no more profit with good appliances than 
 they can with old and worn-out ones, why should they inflict upon 
 themselves the losses involved in throwing out their worn appliances 
 and putting in better ones? 
 
 In my view, therefore, the greatest evil that could possibly come 
 from a regime of legally regulated prices would be the check which 
 would be imposed on technical improvement. 
 
COMMITTEE ON INTEKSTATE COMMERCE. 973 
 
 On the other hand, there now seems to be under the Sherman law 
 the possibility of sufficient competition, both where the law causes 
 the dissolution of a corporation and where it is not so applied. In 
 many cases it will not be necessary to apply it. Without this we 
 can secure a guaranty of technical progress and of reasonable prices 
 as well. For that which guarantees progress also guarantees techni- 
 cal progress ; that is, the survival of effective competition. 
 
 Within my own recollection when trusts were first formed on a 
 large scale in the United States, there was an era of discouragement 
 as to the survival of competition. This, however, was followed 
 by an era of encouragement, which dates from the middle eighties, 
 about the time when a considerable number of trusts and some of 
 them large ones, got into difficulties in consequence of charging too 
 high prices. This invoked a large amount of new competition, which 
 broke the prices and forced certain of the trusts into new forms 
 of organization. It came then to be the policy of trusts .to be 
 moderate in raising prices, lest new competition should be evoked; 
 and the phrase " potential competition " applied to the act of a com- 
 petitor who is not now in the field, but will surely be called into the 
 field by unduly high prices, came to be the common term to express 
 what, for a few years, was the chief protector of the public. 
 
 During the more recent periods- the public has had less confidence 
 in the efficacy of potential competition ; and while I would not for a 
 moment give the opinion of other economists than myself, my judg- 
 ment is that economists have somewhat less confidence in it. What 
 it might do under a different set of conditions can certainly be 
 created; but what it can do under existing conditions is less than 
 it was at an earlier time. 
 
 The fact is that this potentiality of competitors was neutralized 
 by another potentiality, namely, the power of the great consolidation 
 to drive the competitor out of the field by unfair means whenever 
 he actually made his appearance. It was the swing of the club in 
 the hands of the trust which terrorized the competitor and prevented 
 his actual appearance. It was bullying or the threat of "slugging" 
 which means attacking the competitor unfairly, and using weapons 
 which the competitor does not possess. 
 
 Without going into details as to any of those measures, it may 
 be said that the leading ones are not numerous or excessively diffi- 
 cult to deal with. I understand that they are all prohibited under 
 the present interpretation of the law. Whether they should be de- 
 fined and prohibited by statute is one of those legal questions I have 
 professed an intention of avoiding. It would be an enormous com- 
 fort, however, to an economist to know in some way they would be 
 prohibited, and that some body of men were charged with the duty 
 of seeing to it that they were not done. As an outsider in legal 
 matters I should suppose that it would strengthen public confidence 
 to have some of these practices defined by statute, and some com- 
 mission appointed having, among its duties, that of suppressing 
 them. 
 
 One thing is the local competition that goes into a territory occu- 
 pied by a smaller producer and lowers prices in that territory while 
 keeping them up everywhere else. 
 
 Another thing is the singling out of a particular brand or variety 
 of goods produced by a small competitor, but constituting only a 
 
974 HEARINGS BEJFOKE 
 
 small part of the goods of the great producer, and making it the 
 object chosen for price cutting. 
 
 Senator Newlands. For what? 
 
 Prof. Clark. For cutthroat competition in the matter of prices. 
 
 There is the so-called factor's agreement; that is, the boycot- 
 ting of dealers who refuse to sell exclusively the products of the 
 trust. 
 
 As a matter of course special favors of transportation fall in this 
 category, and so does the command of the supply of raw material, 
 or motive power, or needed facilities for shipping. 
 
 Back of all these things and often in a way sustaining them all is 
 the very dangerous power which inhered in a holding company. 
 Economically it would be a source of great encouragement to have 
 this menacing institution repressed altogether. A discussion of this, 
 however, would take me out of the direct line of the facts and 
 principles which I would like to talk about. 
 
 During all this period when by unfair means the potential com- 
 petitor has been prevented from becoming an actual one and monop- 
 oly has been pretty firmly seated it would, conceivably, have been 
 possible, by statute or otherwise, to take effective action against the 
 specific acts which have thus repressed the potential competitor; and 
 certain economists have not failed to call for action of that sort. Each 
 one of these things is susceptible of definition and repression. They 
 now come, however, under the general prohibitions of the Sherman 
 Act; and if we can assume that they will in the future actually be 
 repressed we shall have an economic situation which we have never 
 had in the world, and it is a thoroughly encouraging one. 
 
 I encounter persons whose views not only on legal subjects but on 
 economic subjects I respect in the highest degree who say that it has 
 been demonstrated that competition is dead, that you can not bring 
 it to life, and that there is nothing you can do but reorganize the 
 existence of monopoly and proceed with price regulation. And the 
 thing that seems perfectly evident on the face of the historical facts 
 is that competition has never been proved dead. It has been terror- 
 ized largely out of existence in certain quarters. There has not 
 been a year when, even under this regime of bullying of independent 
 producers, potential competition has not assisted in putting some 
 limit on the increase of prices made by monopolistic companies. 
 This limitation, however, has not been as close as it should have been. 
 Of course the smaller the probability that a competitor will appear 
 the greater is the combination's power to raise its prices. With the 
 possibility of having to compete with the independent producer on 
 more or less even terms, with a severe repression of the weapons which 
 it has been accustomed to use, the trust will find that both potential 
 competition and actual competition will be very different things from 
 what they have been. 
 
 It is necessary to concede that without a fair amount of actual com- 
 petition merely potential competition is not practically worth very 
 much. There must be some actual competitors in the field. When 
 prices are high many a man would like to enter the field, if he could 
 safely do it. If then no one actually enters it, it is fair to infer that 
 they are all under terrorism. The presence of actual competition on 
 that ground alone is quite essential. But it is also essential that there 
 
COMMITTEE ON INTERSTATE COMMERCE. 975 
 
 should be some competition in order to produce a direct effect on 
 prices, and in this connection small local producers perform a valu- 
 able function. Department stores compete with each other, but are 
 also affected by another type of competition, that of the local store, 
 which runs cheaply, and is found all over the city, surviving and 
 making a modest livelihood for its owner in spite of its great rival. 
 It is protected by its locality. It caters to a traffic of convenience, 
 and, moreover, has a personal hold on its customers. The depart- 
 ment store is not able to repress it. That is only an imperfect picture 
 of what might exist all over the United States. In some depart- 
 ment of industry there are local producers, each one catering to a 
 limited district and well able to supply its needs, though none of them 
 can cater to the general or national market. Their presence wher- 
 ever they are found is important. 
 
 Nevertheless, it is desirable that there should be some competition 
 of a more general kind. There should be some concerns equipped 
 with such excellent facilities for production that they can boldly enter 
 the national field and compete with the trusts without fear and with- 
 out favor. Now, the point I am trying to make is, first, that there 
 is a strong probability that a severe repression of unfair practices 
 by the trusts would insure exactly that. There may be some branches 
 of industry which tend so strongly to natural monopoly that you 
 could not trust this regulator, but in most cases there would be a 
 goodly amount of real and active competition and a very dominant 
 amount of potential competition if the unfair means of terrorizing 
 a rival, wherever he appears, were no longer in the hands of the trust. 
 
 Just a little as to the possibilities after radical action shall have 
 been taken and trusts dissolved. Suppose them broken up into, frag- 
 ments, each one of which is an absolutely large and efficient company, 
 and all of which are supposed to be competing with each other. 
 
 Even now in the common view what will follow from such a divi- 
 sion as that is a regime of ruinous competition. I may safely ex- 
 press the opinion that that conclusion is by no means well taken in 
 advance of the actual experiment. On the contrary, with certain con- 
 ditions which we can create, there is more likely to be a tolerant com- 
 petition, competition of the normal sort, more nearly akin to that 
 which existed long before the trusts were formed in the days when 
 competitors were numerous and fairly efficient. 
 
 In the first place, the great incentive to the cutthroat policy is 
 to get possession of the competitor's business, either by making him 
 consent to a consolidation or by driving him out and taking pos- 
 session of his field. If those things are rendered impossible under 
 the law, why should any one of these powerful corporations attack 
 another ? Why should it try to drive the other out ? The two would 
 not be allowed to consolidate and one would not be allowed to drive 
 the other out by any unfair means. It would be a doubtful under- 
 taking to try to drive him out in any other way. 
 
 Again, the thing which chiefly facilitates competition of the ruin- 
 ous sort is the lack of a one-price regime — the easy possibility of 
 asking one price here and another price there. It is that which chiefly 
 prevents the department stores from going into violent competition 
 with each other. They can not single out a part of their constitu- 
 ency and favor them. They live under a one-price system, and 
 22877— vol i— 12— —62 
 
976 HEABINGS BEFOEE 
 
 though they may cut prices on a certain line of goods, even this is 
 too costly to be often worth while and the cutting of prices on every- 
 thing would be ruinous. It is a wholesome respect for competition 
 which can not be confined to any specific part of a business that keeps 
 them from being drawn into a very dangerous sort of rivalry. Now, 
 nobody can predict in advance the efficiency of these two influences 
 in the industrial field. The impossibility of consolidating with a 
 competitor would be one real and powerful influence and the peril 
 involved in trying to drive him out would be another. No gain 
 would be in sight which would seem to justify a competitor entering 
 upon a price-cutting war with rivals as well equipped as himself. 
 
 My personal conviction is that, in the case of those trusts which 
 shall be divided into smaller corporations under the action of the 
 Sherman law, we are likely to see a regime of tolerant rather than 
 intolerant competition. I do not refer here to the fact that what is 
 called " community of interest " will prevent it. Suppose there was 
 none of this. Suppose they were completely independent, each hav- 
 ing its own stockholders and none of them being common to the two. 
 They would have a goodly degree of respect for the disaster of a 
 general rate war which could not be confined to a particular terri- 
 tory, but would have to be waged throughout all the territory at 
 once. It seems more likely than otherwise that this will prevent 
 them from being drawn into a cutthroat type of competition. 
 , What seems, therefore, to be in sight from a purely economic point 
 of view is an amount of efficient competition which will regulate 
 prices even in the case of the many trusts, which shall never be 
 divided at all; and, secondly, a regime of tolerant rather than in- 
 tolerant and perilous competition in case of the minority, which shall 
 be divided. 
 
 ' This involves some discrimination as to what ones should be and 
 what ones should not be divided, and perhaps an economist must 
 convict himself of belonging to that class of people who tread boldly 
 " where angels fear to tread " if he offers a confident opinion as to 
 where that line should be drawn. Nevertheless he has no great diffi- 
 culty in drawing a fairly clear line, on one side of which consolida- 
 tions are harmless, while on the other side they are perilous to the 
 public. The test which he would always apply would be the test 
 of efficiency of the surviving competition. If it does insure an ade- 
 quate supply of goods, and if it does keep the prices of the goods as 
 near as they should be to the cost of producing them, then that com- 
 petition is adequate to protect the public. It will further be adequate 
 to insure industry against that stagnation as to methods and that 
 check upon general progress, which would be the gravest of all 
 disasters. 
 
 Those, Mr. Chairman and gentlemen, are my grounds for thinking 
 that, apart from these legal difficulties, with which I have no ambi- 
 tion to try to wrestle, there is a fairly clear route before us leading 
 to an economic condition which is eminently desirable and affords a 
 most encouraging outlook into the future. 
 
 The Chairman. Senator Cummins, do you wish to make any 
 inquiries ? 
 
 Senator Cummins. Professor, if I understand your general conclu- 
 sions correctly, you are of the opinion that whatever is done by the 
 Government should be directed toward the preservation, possibly 
 
COMMITTEE ON INTERSTATE COMMERCE. 977 
 
 the creation, of reasonable competition as a price regulator rather 
 than an interposition of the Government itself as a price regulator ? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. And your view is that the Government may do 
 something— possibly it can do something— to prevent that ruinous 
 and unreasonable competition, which is obviously carried on only for 
 the purpose of suppressing competition. 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. I will not direct your attention to the difficul- 
 ties of interfering with existing corporations or trusts, but, assuming 
 that we are not confronted with problems growing out of allowing 
 these institutions to come into existence, I want to ask you whether, 
 in your opinion, a limitation, a fair and proper limitation, upon the 
 amount of capital which any one corporation can employ would not 
 be a step toward the preservation and maintenance of this helpful 
 competition of which you have spoken ? 
 
 Prof. Clark. I may say, sir, that this is one of the cases in which 
 I have found myself demanding a thing on economic grounds and be- 
 ing opposed on legal grounds. I think it is desirable to treat the 
 capital of one company, as compared with the total capital engaged 
 in the industry, as an element in shaping a policy in dealing with it. 
 On economic grounds no fixed amount of capital would apply to the 
 wide range of different cases. Between a little yeast-cake monopoly 
 which once existed and the Steel Trust there is such an enormous 
 range of difference that what would be an excessive capital in one 
 case would not make an impression at all on the necessary capital in 
 the other case. 
 
 Senator Cummins. I do not mean a capital fixed by Congress, but 
 a capital limited by the act of some governmental board which would 
 survey the field and determine what amount of capital could be em- 
 ployed without unduly restraining trade. 
 
 Prof. Clark. I am perfectly free to say that that is what I do be- 
 lieve in. I should not appreciate the difficulty arising from the fact 
 that the total capital in an industry is a changeful amount. Of course 
 it is. It does not change so rapidly that, if a governmental bureau 
 had a record of the real capital of each of the various corporations 
 of which' it takes cognizance in a certain year, this might not prop- 
 erly be made the basis of action for a short term of years following 
 that date. In my view, the amount of capital which one corporation 
 can have without danger to its rivals varies in different cases, but 
 may always be defined as the fraction of the entire capital of an 
 industry which experience shows that it may have without unduly 
 restraining competition. It might be a large part of the whole, but 
 it would become too large a part whenever we should discover that 
 actual competitors were being unfairly crowded to the wall, so that 
 potential competition could not do what we expect of it. 
 
 Senator Cummins. The limitation of capital which I had in mind 
 was one which might be increased from time to time under the order 
 or permission of the commission, having regard for the development 
 of the business. For instance, we have had a good deal of evidence 
 here with regard to the steel business, and you have mentioned it. 
 I will use that as an illustration. In a broad way, there is something 
 like, probably, two billion and a half dollars of capital employed in 
 the business of producing and selling what is known as tonnage steei. 
 
978 HEARINGS BEFORE 
 
 Now, if it were true that with $200,000,000 of capital any corporation 
 could utilize all the advantages which grew out of a big business — 
 that is, could employ all the economies that will make it efficient — 
 if a corporation were thus limited, there would necessarily be in that 
 business, in order to supply the demand, 10 or 12 other corporations 
 of practically the same size and employing the same advantages. 
 Now, among them, I ask you whether you think it would not be pos- 
 sible to preserve that reasonable and healthy competition of which 
 you have spoken much more easily than between a corporation with 
 a billion and a half of capital and the remainder distributed among 
 much smaller concerns ? 
 
 Prof. Clark. I certainly live in the hope that that will be the ex- 
 perience ; that the large fragments of a great corporation after divi- 
 sion — or the large independent corporations and the original trust, 
 in case there never has been a division — may compete reasonably 
 with each other. I think that to that end it is very essential that 
 all corporations in both cases should come under the rule forbidding 
 all unfair acts of competition and, particularly, that there should be 
 a uniform price regime. 
 
 Senator Cummins. Precisely. I think that must always be taken 
 into account. But, of course, there would be no motive for one of 
 these corporations to destroy the other simply with the object of 
 taking it in, inasmuch as it could not increase its capital to accom- 
 plish that object. 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. And, therefore, whatever competition would be 
 necessary to get the business, to do the business, it could do within 
 the limits of its capital? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. Now, one other thing. Passing the holding 
 corporations, which I think have received the condemnation of almost 
 all thinkers or students on the subject, as well as of the courts; if 
 we had no corporations and each of these various enterprises occupy- 
 ing any one field were owned and operated by different men, there 
 would be a motive for competition ; that is, the ordinary motive which 
 inspires every man to get along. The corporation, however, changes 
 that and permits this community of interests of which you have 
 spoken. Suppose that it were forbidden to any person to own stock 
 in two or more corporations engaged in the same line of business, 
 do you not think it would supply the motive which existed originally 
 among individuals? 
 
 Prof. Clark. It certainly would to a very large degree. If I may 
 add, my conclusion has been that it might not prove necessary to 
 divide a great many corporations. It might not prove necessary to 
 have a number of large and more or less equal corporations in the 
 field if experience shows that the remaining competition between 
 the large one and the considerable number of small ones and the 
 potentiality of other large ones should prove sufficient. 
 
 Senator Cummins. But the potential competition, of course, in any 
 particular industry is affected somewhat by the amount of capital 
 that it is necessary to invest in order to bring a new rival into the 
 business. 
 
 Prof. Clark. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMBBOB. 979 
 
 Senator Cummins. And, therefore, when you get a situation in 
 which you must get together a billion and a half of capital in order 
 to come in, the corporation that is already in does not fear that 
 interruption as much as if it were a lesser amount, I take it ? 
 
 Prof. Clark. Certainly. 
 
 Senator Cummins. You referred to, I think, a very important phase 
 of this subject in the matter of a common price at the factory for 
 the same thing or sort or whatever it may be. You regard that as 
 one of the methods by which unfair, ruinous competition could 
 probably be restricted if not wholly prevented ? 
 
 Prof. Claek. The discriminating prices which that measure would 
 prevent have always seemed to me to constitute the chief club which 
 the combination wields, although there are others, of course, that 
 are efficient. 
 
 Senator Cummins. And you favor some regulation that would 
 require any company or corporation or association engaged in inter- 
 state commerce to make the same price to all localities and to all per- 
 sons for the same article? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. At the factory, so that you take into account 
 the difference in the cost of transportation? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Cummins. That is all. 
 
 The Chairman. Senator Newlands, you may inquire. 
 
 Senator Newlands. Professor, you favor the regulation that would 
 compel factories to fix the common price for all purchasers? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. In that you apply the doctrine that is applied 
 to the public utilities 
 
 Prof. Clark. I beg pardon? 
 
 Senator Newlands. In that you apply the doctrine that is applied 
 to public utilities generally, that a commodity or a service should 
 be given to all at the same price, and an additional requirement that 
 they should be supplied at a reasonable price. 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. Now, if you propose to apply only one of 
 these principles to the general trade, why should not you apply the 
 other: that you should not only require them to charge the same 
 price to all, but a reasonable price to all? 
 
 Prof. Clark. My distinction, Senator, would be that in the case 
 of public utilities — which, for the most part, are natural monopolies — 
 it is necessary for the public to say what is a reasonable price; 
 whereas if we can rescue competition, we have a guaranty that the 
 price will be reasonable, if it is a common price to all. Therefore, 
 it was not a part of my scheme to look to any direct regulation of 
 price by the State, but rather to trust to the fixing of the price by 
 the play of economic forces. 
 
 Senator Newlands. And in that connection you would recognize 
 a tolerant competition but condemn an intolerant competition? 
 That is an excellent phrase, and it is the first time I have heard it. 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. Now, can you divide competition into two 
 branches — tolerant competition and intolerant competition? 
 
 Prof. Clark. I should say we could. 
 
980 HEARINGS BEFOEE 
 
 Senator Newlands. Do you think it can be done? 
 
 Prof. Clark. I think it can. 
 
 Senator Newlands. Where do you find the dividing line? 
 
 Prof. Clark. I should say the only way in which you can prac- 
 tically draw the line is to prohibit certain things which naturally 
 involve the intolerant kind of competition. You can not easily say 
 that cutting prices 10 per cent is tolerant and cutting them 20 per 
 cent is intolerant ; but you can say, if one corporation, which is large 
 and doing a general business, invades a territory of another corpora- 
 tion which is small and doing a local business and puts prices below 
 the costs of production, that that is an intolerant sort of competi- 
 tion. It is calculated to induce a similar cut on the part of the local 
 producer, but that will be ruinous to him. 
 
 Senator Newlands. Well, suppose a big corporation should deter- 
 mine to invade the field of another big corporation and should seek 
 to get its customers by real competition, which means really a lower 
 price or a quicker service, would you have your rule apply there ? 
 
 Prof. Clark. I have not gone to the length of saying that the law 
 should say, in terms, that such a struggle must not take place. The 
 most I have tried to claim is that a certain condition can be created 
 under which the probability is rather against its being done. But 
 even then I would not say with a certainty that it would not be. I 
 am not prepared at all to say that when 10 corporations or 20 cor- 
 porations enter a field in a certain line they will not be drawn into 
 ruinous competition. Nobody can know that till the experiment of 
 creating the condition favorable for the normal and useful type of 
 competition shall have been tried. 
 
 Senator Newlands. Assuming that we intend to restore competi- 
 tion as a means of establishing fair prices, how can you place any 
 restraint upon that competition without practically determining 
 what a fair price is ? Competition means an endeavor to secure your 
 rival's customers. 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. And it means the accomplishment of that by 
 offering your goods at a lower price or furnishing them more quickly, 
 or perhaps giving a little better quality than the standard. How can 
 you measure to an exact degree? If it is a worthy purpose to get 
 your neighbor's customers away from him, how can you say that it 
 is unworthy to resort to every method that is necessary in order to 
 get those customers and to reduce your price to a standard that will 
 secure what you have in view? 
 
 Prof. Clark. I might say, Senator, that my scheme would cer- 
 tainly allow a perfectly free reduction of prices by the large corpora- 
 tion in competition with the smaller one, provided they were uniform, 
 provided the large company's entire output of that particular com- 
 modity which is the subject of competition shall be subject to the 
 cut. A belief in the efficiency of that rule is based on what I sup- 
 pose to be the fact, namely, that new competitors who enter a field 
 intending, as the common expression is, to " fight a trust," are pretty 
 sure to be equipped with very recent and efficient appliances, to be 
 well located, and, as a rule, probably well managed. On the Avhole, 
 up to the present time, they are better off, so far as facilities for 
 production go, than the average of the plants belonging to the trusts; 
 and they can stand the competition which applies to the entire out- 
 
COMMITTEE ON INTERSTATE COMMEHCE. 981 
 
 P^* tru st perfectly well. That is, if the corporation having 
 $100,000,000 chooses to compete by putting the price of its product 
 ^■nty u ' the chances are that the corporation having $10,000,000 
 will be able to hold out even longer than the $100,000,000 corporation. 
 
 benator Newlands. Well, then, if that is the case, why can we not 
 trust to those factors as the best method of accomplishing the reform 
 that we wish ? 
 
 Prof. Clark. Personally, I do believe that we can rely upon it. 
 
 Senator Newlands. The new factory has to get business, after hav- 
 ing a large capital? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. There is but one way of getting that busi- 
 ness, and that is to sell for less than the old factory ? 
 
 Prof. Clark:. Yes, sir. 
 
 Senator Newlands. Now, then, we will assume that the price is 
 lowered below the standard price charged by the old factory, and 
 the old factory, in order to hold its business, goes still lower, find 
 then the new factory goes still lower. Now, at what point would 
 you stop ? 
 
 Prof. Clark. I do not think the law could draw the point. 
 _ Senator Newlands. At what point would you stop that competi- 
 tion which is admittedly destructive in its character ? 
 
 Prof. Clark. The point at which economic forces will compel it 
 to stop is the point when the price reaches the level of cost of the less 
 efficient of the two producers. If that is the trust, then the efficient 
 competitor of the trust will have his part of the field in perfect 
 security and still make a little money. If it is the smaller competi- 
 tor, he, will have to stop if the trust so elects. But the thing I should 
 hope for as a practical outcome, although no one could predict it, 
 would be that almost any trust would be willing, if it were a superior 
 producer and really could make a considerable margin while selling 
 at what it would cost to another producer, to accept that margin as 
 a profit rather than to try to go below that in order to get further 
 business. 
 
 Senator Newlands. Yes, but the new competitor reaching out for 
 more business would be constantly lowering the price. How is it pos- 
 sible then to stop that destructive competition without some agreement 
 between those competitors or some understanding ? 
 
 Prof. Clark. It would be difficult unless there were a natural 
 tendency to stop at a certain point. 
 
 Senator Newlands. The inevitable result would be, would it not, if 
 that constant cutting goes on, that the new factory will in time, with 
 its cheaper production, take the business of the old factory and have 
 practically a monopolistic control of the field, would it not ? 
 
 Prof. Clark. I should suppose that because of its superior facili- 
 ties, as compared with the average of the trust plants, it would make 
 a considerable impression on the business of the trust, but that it would 
 encounter a difficulty in carrying that policy so far as to shut up the 
 really efficient plants belonging to the trusts. It is only of the aver- 
 age of the trust plants that one may assume that the new competitor 
 is the more efficient. That can only be assumed of the average of the 
 trusts at present, because some of the trusts have continually been 
 bringing up the standard of their equipment. 
 
982 HEARINGS BEFOEE 
 
 Senator Newlands. Well ; now we will assume that the new com- 
 petitor lowers the price in order to get the business of the old fac- 
 tory, or as much of it as he can, and that the operations of the new 
 factory are within the comparatively limited field — would you com- 
 pel that old factory not only to lower the price in the field of com- 
 petition so as to meet the rate of the new competitor but also to lower 
 the price throughout its whole field of custom not affected by such 
 competition ? 
 
 Prof. Clark. I am afraid I should, Senator. I am afraid that I 
 see that is a very essential condition of keeping competition alive. 
 
 Senator Newlands. Now, another thing. You say you favor a 
 limitation of capital, but that limitation must vary according to the 
 kind of business? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Newlands. That that limitation of capital would be all 
 right as applied to the yeast-cake industry, for instance, but would 
 not be all right as applied to the steel industry. 
 
 Prof. Clark. That was my meaning, sir. 
 
 Senator Newlands. Would it not be better to meet that by pre- 
 scribing not the amount of capital that should be invested in every 
 business, but the proportion of the total business in a certain industry 
 that a single corporation can engage in ? 
 
 Prof. Clark. If I may explain a little more fully than I did the 
 view which I happen to hold that point — it would not seem to me 
 wise to prescribe a fixed fraction of the total capital of the business 
 which any corporation might be allowed to have. My idea was more 
 nearly that which, as I understood, was expressed by Senator Cum- 
 mins, that the commission should use its experience as a guide. A 
 corporation having, say, a full half of all the capital there is, is still 
 not restraining competition unduly, if competition is sufficiently 
 active and adequately protects the public. Then that would be a safe 
 fraction to allow in the case of that particular industry. If, however, 
 there were a prospect in some industry where 50 per cent had proved 
 a safe limit, that one company would have 75 or 80 or 90 per cent, 
 the commission might not deem that a proper amount to allow. 
 
 Senator Newlands. If there were one corporation already in exist- 
 ence that had control of half the business of the country and another 
 corporation should come into existence that wished to capitalize to 
 an equal extent, would not your rule then compel the commission to 
 allow the new corporation to capitalize to the same extent as the old ? 
 
 Prof. Clark. Without taking any other consideration into account, 
 I should suppose that the natural conclusion of the commission would 
 be to permit it ; but if the commission has rather extensive powers in 
 the matter it might be well to consider whether the welfare of the 
 country would, in a general way, permit twice as much capital as had 
 up to a certain date been engaged in the business. That would look 
 like an increase which might have effects not favorable to the country. 
 
 Senator Newlands. Do I understand that you favor a regulating 
 commission ? 
 
 Prof. Clark. I certainly do. 
 
 Senator Newlands. Similar to the Interstate Commerce Commis- 
 sion? 
 
 Prof. Clark. Somewhat on the lines of the Interstate Commerce 
 Commission. 
 
COMMITTEE ON INTERSTATE COMMERCE. 983 
 
 Senator Newlands. And with similar powers as to trade ? 
 
 Prof. Clark. In a general way, yes, sir ; I should think so. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. I understood you, Professor, to say that you 
 think it is not proper for an individual to hold stock in two concerns 
 doing a like business. 
 
 Prof. Clark. I do not know that I have a fixed opinion that an 
 individual should not hold stock in two concerns out of a considerable 
 number. Perhaps I have not matured my views sufficiently to say 
 exactly that. But it has been my view that a sufficient amount of 
 community of interest to be a factor in the situation must in some 
 way be prevented, and if that does involve the extremely radical and 
 drastic regulation that no man shall have such ownership in two com- 
 peting corporations, then we should have that. 
 
 Senator Watson. Take the steel trade that has been referred to, 
 with practically every investor in the country to-day holding stock 
 in some steel concern. If you wanted to organize a large concern with 
 a sufficient capital it would be very difficult unless you could sell to 
 some of the present investors, would it not ? 
 
 Prof. Clark. Yes; it would be. There would be certain difficulties 
 encountered. 
 
 Senator Watsox. I understand you to favor a uniform price at the 
 factory ? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Watson. Of all manufactured articles ? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Watson. Can you apply that practically to products on 
 which the freight rate is a large factor ? 
 
 Prof. Clark. Uniform prices at the factory give delivery at the 
 places of use at different prices. 
 
 Senator Watson. Take steel rails. The freight rate on those is 
 not a factor in that product. 
 
 Prof. Clark. Not the dominant one. 
 
 Senator Watson. But in other lines of business it is, much more 
 than the price at the factory? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Watson. Would not that, in the case of a great many prod- 
 ucts, have the effect of dividing the country into zones controlled by 
 certain factories or certain districts? 
 
 Prof. Clark. When the freight rate is, as in many cases it cer- 
 tainly is, a very large item of cost to the ultimate consumer, that of 
 itself would afford a goodly degree of protection for the local factory. 
 If there were facilities in that part of the country which would en- 
 able it to produce advantageously, then giving the territory to it 
 would, as I should suppose, create an eminently desirable condition. 
 
 Senator Watson. Assuming that there are no local conditions that 
 would allow that competition? 
 
 Prof. Clark. If, for instance, a certain section of the country is not 
 a favorable place to start a certain industry on account of the lack of 
 raw material or what not, then in the nature of the case I should 
 suppose that the trust, even with its freight charges, would have an 
 advantage over the local competitor, and he would not appear. But 
 
984 
 
 HEARINGS BEFORE 
 
 if he had those facilities and could produce with a less outlay than the 
 trust, from my point of view, it would be eminently desirable that 
 he should do it. 
 
 Senator Watson. Take a natural product — limestone or coal. You 
 could not open a coal mine around Washington because there is no 
 opportunity. 
 
 Prof. Clark. jS t o, sir. 
 
 Senator Watson. Now, a uniform price at the mine would have the 
 effect of dividing or distributing the territory into zones in a case of 
 that kind, would it not? 
 
 Prof. Clark. It would, in so far as the sources of supply for dif- 
 ferent places are to be found in one place. 
 
 Senator Watson. Do you think that would be a wise condition — a 
 favorable condition to the purchaser? 
 
 Prof. Clark. That, of course, brings up the possibility of a special 
 low rate of freight for an article for which the railroad is desirous of 
 making a market which does not already exist. It is a very com- 
 plicated problem, to which I do not think a categorical answer can 
 exactly be given. But it is clear that there are certain principal rules 
 in the matter. If, with the rate which it is desirable and permissible 
 for the railroad to make, it is cheaper to carry that coal to a point 
 right beside somebody else's coal mine, then it is desirable that it 
 should be gotten in that way. But if otherwise, the local proximity 
 of the coal mine is a decisive advantage, it is in every way desirable 
 that both producers should have the right to gain the market if 
 they can. 
 
 Senator Watkins. The freight rates are now regulated by zones, 
 practically, and you would have to upset all that practice of rate 
 making if it exists. 
 
 Prof. Clark. It would not be a part of any scheme which I am 
 endeavoring to advocate to interfere with the system of freight 
 charges as they now exist. I consider that the system of freight 
 charges is working out gradually to something quite desirable. 
 
 Senator Watson. That is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. In answer to Senator Newlands, I understood 
 you to say that the commission that you would approve of creating 
 should, in a general way, have similar powers to the Interstate Com- 
 merce Commission? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Brandegee. I simply want to make it clear. Of course 
 the Interstate Commerce Commission has authority to set aside an 
 excessive rate? 
 
 Prof. Clark. Yes, sir. 
 
 Senator Brandegee. You Avould not have any similar power to that 
 existing in the commission that you want created which would result 
 in the fixing of prices? 
 
 Prof. Clark. There, of course, I shall have to recognize a dif- 
 ference, because the Interstate Commerce Commission does deal with 
 what has become a monopoly, and does require regulation; whereas 
 the commission which I have in mind would deal with what we are 
 trying our best to rescue from the condition of monopoly. 
 
 Senator Brandegee. In order to be perfectly clear in my mind, do 
 you or do you not recommend that the commission which you are 
 
COMMITTEE ON INTERSTATE COMMERCE. 985 
 
 proposing should have any authority at all in the relation of regu- 
 lating prices? 
 
 Prof. Clark. I do not propose that. There is an ultimate con- 
 tingency in which, after years of experience, I should suppose that 
 a very limited price regulating power might be given to it. I had 
 not thought of going into that now. I think I can count on the 
 fingers of one hand all the cases in which it would be necessary to 
 apply that measure. 
 
 Senator Brandegee. And the commission that you have in mind 
 would have powers as to corporations to be formed as well as cor- 
 porations already formed? 
 
 Prof. Clark. That was the plan. 
 
 Senator Brandegee. You have no exact draft of any law that you 
 would like to see put into operation, as I understand it ? 
 
 Prof. Clark. That is one thing in which I shelter myself behind 
 the fact that I am not a lawyer, and that others can do much better 
 than myself in that field. 
 
 Senator Brandegee. But you are an economist, as I understand it. 
 
 Prof. Clark. I am supposed to be, sir. 
 
 Senator Brandegee. I understand that you are a very distin- 
 guished authority, and that is what I wanted to bring out. 
 
 That is all. 
 
 The Chairman. I want to say, Prof. Clark, that we are very much 
 obliged to you for coming here. 
 
 Prof. Clark. You are very welcome, Mr. Chairman and gentle- 
 men of the committee, and I thank you for your kind attention. 
 
 The Chairman. We will take a recess until 2.30. 
 
 (Thereupon, at 1 o'clock p. m., the committee took a recess until 
 •2.30 p. m.) 
 
 AFTER RECESS. 
 
 At the conclusion of the recess, 2.30 o'clock p. m., the committee 
 reassembled. 
 
 The Chairman. The statement of Mr. A. F. Thomas will be in- 
 serted in the record. 
 
 STATEMENT OF A. F. THOMAS, OF LYNCHBURG, VA. 
 
 Mr. Thomas. Mr. Chairman and gentlemen of the committee, I 
 take the liberty of submitting to your committee the following 
 thoughts on the trust question: 
 
 This subject will be approached from two points of view: First, 
 to ascertain, if possible, the legislation necessary to furnish a modus 
 vivendi for- business ; second, to discover as well as we may the ulti- 
 mate effects of the trust development upon the future welfare of the 
 country and to provide a constructive program under which the 
 economic evolution may proceed without seriously injuring the public 
 interest. 
 
 Let us hope that the country has passed through the period of 
 violent denunciation and that the people are now ready to approach 
 the subject in a spirit of honest inquiry uninfluenced by selfish in- 
 terests or narrow prejudices. The Sherman antitrust law was drawn 
 
986 HEARINGS BEFORE 
 
 when prejudice against large aggregations of capital was the domi- 
 nating force controlling the public mind on this question. The act 
 was strongly drawn and succinctly stated. To the average mind 
 with a fair knowledge of English it clearly sets forth that there 
 shall be no combination in restraint of trade. In other words, it 
 declared the public policy of the country to be against the principle 
 of cooperation. Its object, so far as the law could compel it, was 
 to force all business to be conducted under the competitive system. 
 Instead of proving to be an effectual barrier against the practice of 
 combination and cooperation it has remained a dead letter in the 
 statute books for 20 years. An honest, efficient enforcement of it at 
 any time since its passage would have created chaos in the business 
 world and rendered impossible industrial and national development. 
 
 It is supremest folly to undertake to legislate against natural law. 
 Cooperation is the basic principle upon which all development rests, 
 and the degree of the application of the principle marks the standard 
 of civilization. As we descend toward savagery cooperation declines 
 and individualism assumes larger proportions. As we ascend toward 
 more effective civilization, greater cooperation becomes essential and 
 complexity of the social body increases. Any law designed to retard 
 cooperation, if effective, can have the result only of impeding national 
 progress. On the other hand, an act designed to furnish greater 
 facility for applying the cooperative principle, if the purpose is 
 accomplished, will have the effect of promoting public progress. This 
 is assuming that cooperation will only be permitted to accomplish 
 right purposes, for it must not be forgotten that aggregation of 
 capital and centralization of control may be wrongfully used to ac- 
 complish bad purposes. If these conclusions are sound, it follows 
 that the province of the statesman should be to construct laws that 
 would encourage combination and cooperation for right purposes 
 and, at the same time, make unlawful the misuse of these social in- 
 struments. If a thing in itself is right and one man may do it with- 
 out injury to others, there is even a stronger reason why the many 
 acting together doing the work more efficiently should be permitted 
 to do the same act without injury to others. The injury to others 
 must comprehend the public welfare, nor could we reasonably include 
 among the injured the less efficient elements which may be eliminated 
 and superseded on account of their lack of economic efficiency. In 
 every age where progress has been made, the more efficient order has 
 always rested upon the crushed remains of the less efficient which it 
 superseded., All progress is dependent upon this principle of elimina- 
 tion. Trades and occupations disappear as they are discarded for 
 more efficient means of social service. The man who made crude 
 wooden plows lost his business when the iron-plow manufacturer 
 appeared upon the scene. The business of conducting a stagecoach 
 was destroyed when the railroad got into operation. The changes 
 from one basis to the other are usually attended by misfortune to the 
 eliminated class. The public, however, is benefited by such changes, 
 and the individual is compelled to adapt himself as best he can to a 
 change in his circumstances and opportunities! 
 
 It will be noticed, too, that all improvements have been dependent 
 upon a common principle — that is to say, a broader application of 
 the principle of cooperation. To affect this, capital must be aggre- 
 gated in larger quantities, and the units for conducting business are 
 
COMMITTEE ON INTRASTATE COMMERCE. 987 
 
 increased in size and decreased in number. All of this tends to a 
 centralization of control that makes a higher order of superintendence 
 possible. It likewise eliminates the unnecessary, thereby increasing 
 the efficiency of the operation. The fact that trusts and combines 
 displace small dealers and manufacturers is prima facie an 
 economic argument in favor of their superiority over the elements 
 displaced. Of course this is assuming that such displacement has 
 taken place for purely economic reasons. If, however, the larger 
 units, by misuse of power, engage in wrongful practices and crush 
 their smaller competitors, then they become criminals and should be 
 sent to jail. This brings us to the conclusion that size of operation, 
 the amount of capital, or even the per cent of the total business done 
 should not be a deciding factor in the consideration of the case 
 against a trust. The sole question with which law should concern 
 itself is, Has the trust committed a wrongful act and, if so, what 
 punishment will be best calculated to deter it and others from again 
 committing such acts and, further, what is the best method by which 
 those who have suffered from the wrongful acts of the trusts may 
 recover from it full measure of damage? 
 
 In this connection it may be well to state that crime is personal 
 and that a corporation per se can not commit a crime. Whatever 
 of wrong it may appear to have done is the act of some individual 
 or individuals controlling this instrumentality of manufacture and 
 commerce. It would be well, therefore, in constructing a statute, to 
 make the officer or employee of such offending corporation entirely 
 responsible for all criminal acts of the corporation. The corporation, 
 however, should reasonably be held responsible for such damages 
 as may have been inflicted by the criminal and wrongful acts of its 
 officers and employees. 
 
 We are developing along economic lines more rapidly than any 
 nation under the sun and are headed for a state of monopoly such as 
 no country has ever experienced, and in so far as this monopoly is the 
 result of higher economic efficiency it is to be welcomed as the mani- 
 festation of civic and industrial progress. It may be well to say, in 
 conclusion of the economic argument^ that monopoly is the ideal form 
 for the conduct of all business, and every improvement in method or 
 elimination of waste brings us that much closer to this condition. 
 The invention of the telephone, the telegraph, and the use of steam 
 for transportation have brought the world into neighborhood rela- 
 tions and made possible industrial organization that would disappear 
 instanter if rapidity of distribution of products and the means, of 
 instantaneous communication of thought were eliminated. The point 
 to be especially impressed is that the nearer we can get the instru- 
 mentalities for manufacture and distribution of products to a state 
 of economic perfection the better it is for the public at large, and that 
 it would be unfortunate, not to say criminal^ to do anything to em- 
 barrass or retard this development ; and every business, whether large 
 or small, should have a right to do anything that is not immoral in 
 itself to make of itself a more efficient factor in social service, because 
 it must be remembered that every institution under the sun that has a 
 right to live at all predicates that right upon its power to serve 
 others. The difficult problem, then, should be how to proceed so that 
 all of these agencies might serve in their highest economic capacity 
 
988 HEARINGS BEFORE 
 
 and at the same time be compelled to have their acts conform to well- 
 defined principles of ethics. 
 
 It is clear, then, that the true function of the lawmaking power 
 is to provide constructively for the free and untrammeled exercise 
 of the economic forces and that no limitation should be placed upon 
 their expression so long as the method involved no wrongful pur- 
 pose. Service to the public should be the principal test, and so long 
 as an operation could demonstrate its power to promote the public 
 welfare, it should not only be permitted but welcomed. It must not 
 be understood, however, that an economic operation doing even 
 eminent public service should be permitted to employ methods that 
 were inethical or immoral. It is entirely possible for an industrial 
 organization doing efficient and worthy public service to engage in 
 practices affecting competitors that should not be permitted in a 
 well-regulated country. The need of the hour, then, seems to be not 
 for repressive legislation designed to prevent the worthy and proper 
 exercise of the cooperative principle and to keep the agencies of 
 manufacture and distribution split up into small factors for the 
 purpose of superinducing competition between them ; but to provide 
 for a freer economic expression and a clearly defined category of 
 acts which neither the individual nor the combination may commit, 
 [n other words, the power of government should be exerted to for- 
 bid and to make impossible the perpetration of wrongful acts. In 
 this category of wrongful acts should be included only such as are 
 wrongful in themselves and not wrongful only because the law has 
 forbidden them. Our civilization has not reached that stage of 
 development where the devotion to abstract law will insure the en- 
 forcement of penalties against offenses which the public mind does 
 not conceive to constitute a crime. For this very reason the Sherman 
 antitrust law remains a dead letter. The people at large do not 
 believe it is a crime to do business on a large scale, or to combine 
 the factors of commerce when an economic advantage can be secured 
 by doing so. 
 
 The Sherman antitrust law, as written, is an impossibility ; as con- 
 strued by the court is a farce which will go a long ways to bring 
 both law and its enforcement into public contempt. Public opinion 
 on the effect of these court opinions will not be formed from reading 
 legal abstractions in a presidential message, however ingeniously con- 
 ceived and artfully expressed, but it will finally settle down upon the 
 practical every-day application of these decisions and will justly and 
 correctly interpret their true effect upon the industrial and economic 
 conditions of the country. It will indeed be surprising if these de- 
 cisions should furnish in any measure a satisfactory solution of the 
 grave questions which now confront us. 
 
 In order to furnish a practicable plan under which the industry 
 of the country will be freed from the present uncertainty and left so 
 that it can proceed upon well-defined lines, we would suggest the 
 creation of a bureau within the Department of Commerce and Labor. 
 This bureau should be charged with the duty of supervising and regu- 
 lating the conduct of interstate and foreign commerce to the extent 
 prescribed by law. It should have power to institute hearings eitner 
 upon its own initiative or upon complaint. Its judgments and orders 
 should be appealable to the Commerce Court. Parties engaged in 
 interstate commerce, both individuals and corporations, should be 
 
COMMITTEE OS INTERSTATE COMMERCE. 989 
 
 permitted to enter into agreements as to the purchase and sale of 
 commodities and as to the prices and terms of such purchases and 
 sales, provided that the full terms of such agreements should first be 
 filed with and receive the approval of such bureau ; and, further, that 
 the bureau should make public all such agreements. These agree- 
 ments should be made subject to review and withdrawal at any time 
 upon 30 days' notice at the option of either the bureau or the parties 
 filing the same. The bureau should be empowered to regulate the 
 prices and terms of sale of the products of any firm or corporation 
 manufacturing or selling as much as 20 per cent of the entire volume 
 of such business done in this country, and this power should be ex- 
 tended to the business of such parties as might make and file agree- 
 ments touching purchases or sales, and the volume of business done 
 by the parties signing such agreements should for the purpose of 
 this act be considered as forming one business. 
 
 ' This bureau should have power to send for persons and papers and 
 all of its records, under reasonable rules, should be subject to inspec- 
 tion by interested parties. The bureau should likewise have power 
 to regulate the terms of sale and time of credit which a person, firm, 
 or corporation doing as much as 20 per cent of the business in its line 
 may desire to extend its customers in excess of one year's time from 
 the date of sale. Such regulation should not interfere with the re- 
 newal of delinquent debts or obligations, but the promise by the seller 
 to the buyer of such renewal at or before the time of the purchase of 
 the goods represented by the debt should be forbidden under penalty. 
 It should be made unlawful for anyone to do any act for the purpose 
 of injuring a competitor. It should be made unlawful to sell goods 
 for less than cost, with the purpose of getting the trade or injuring 
 the business of a competitor, and the sale of an article in one territory 
 at a lower price than was charged at approximately the same time in 
 another territory for the same or a similar article should be made 
 prima facie evidence of intention to injure a competitor. No person, 
 firm, or corporation should be allowed to compel the buyer to agree to 
 buy only the goods of the seller. It should be unlawful for a person 
 to restrict the credit or to influence others to withhold credit and 
 financial accommodation from any person, firm, or corporation for 
 the purpose of restricting or injuring the business of any such busi- 
 ness, firm, or corporation. Any competitor injured by any of the 
 practices mentioned above should be enabled to recover from the 
 offending party the full amount of such damage, and the Government 
 should prosecute the case, and, in case of conviction, the defendant 
 should be compelled to pay such damages as the injured party may 
 have suffered and, in addition, the cost of suit. In addition to recov- 
 ering damages, these acts should be made criminal and proper pun- 
 ishment meted out to the perpetrators. In addition to the above, 
 other wrongful acts might be included, but it is doubtful if it would 
 be advisable to make this law too comprehensive, for the reason that 
 we are treading on new ground, and it would be productive of better 
 results if we selected only a few of the more prominent wrongs now, 
 leaving the act to be amended and strengthened from time to time as 
 the practical experience of the bureau and the public would demon- 
 strate the wisdom of the steps we had already taken and develop the 
 need for further prohibitive legislation. 
 
990 HEAEIKGS BEFORE 
 
 Matters of legislation are analogous to the installation of new 
 machinery. It is better to leave the boxes loose until the operation 
 wears off the rough corners, when proper adjustments may be more 
 effectively made. It will be observed that an appeal from the judg- 
 ment and orders of the bureau is allowed to the Commerce Court. 
 It may be well to say in this connection that the whole theory of 
 regulation rests upon the assumption of honesty and efficiency in 
 both the bureau and the Commerce Court, and that the plan will be 
 worse than a failure if the parties to be regulated ever exercise a 
 sinister influence upon either of these agencies, and that the useful- 
 ness of both will be totally destroyed if their acts do not firmly 
 establish their integrity in the public mind. 
 
 We advise permitting trade agreements, because they have become 
 necessary to the successful application of the cooperative principle. 
 There should 1 be no inhibition against the right of anyone to agree 
 with another to do right things. It is provided that the bureau, 
 as a guardian of the public interests, shall approve of such agree- 
 ments before they can become effective. Such agreements, if reason- 
 able, are in the public interest, as they tend to produce stable con- 
 ditions which superinduce, continuity of industrial activity. The 
 industry of a country can suffer no greater misfortune than to be 
 compelled to undergo periods of upheaval with its unfailing accom- 
 panying period of stagnation. Such a condition is especially dis- 
 astrous to labor in that it first enjoys a feast and then is forced 
 to endure a famine. Labor above all things needs steady employ- 
 ment, and its interests are better subserved with regular employment 
 at fair wages than by receiving high wages during the boom and 
 no wages during depression. Not only are stable conditions in the 
 interest of the laboring man, but they are equally advantageous to the 
 consumer at large, as steady production at regular prices prevents the 
 overbuying superinduced by a speculative market. A steady con- 
 dition superinduces a lower manufacturing cost in that the overhead 
 charges are evenly distributed and the operation is more economically 
 conducted when continuous than when intermittent. The economic 
 loss in changing labor from one line of activity to another is enor- 
 mous, far greater than is generally appreciated. 
 
 We suggest that the bureau should be empowered to regulate the 
 prices and the terms of sale of a person, firm, or corporation doing as 
 much as 20 per cent of the total volume of business in its line. Only 
 a few years ago this suggestion would have been received as extremely 
 radical, not to say visionary; but to-day, with the swiftly moving 
 evolution, the better informed thinkers of the country recognize the 
 necessity of having this power vested in the hands of some impartial 
 tribunal in order to protect the public as well as the larger factors 
 of our industrial life. In this connection it must be said that we 
 are rapidly approaching a state of private monopoly. The charac- 
 teristic of monopoly is the power to levy a tax upon the people, and 
 all past history confirms the views that this unlimited power in the 
 hands of private interests has invariably lead to abuse. It is a power 
 greater than good men should want and far greater than bad men 
 should be permitted to exercise. It will be observed, too, that when 
 parties whose aggregate business is in excess of 20 per cent of the 
 total volume of the business in their lines file agreements with the 
 bureau that they, too, shall be brought under the power of regula- 
 
COMMITTEE ON INTERSTATE COMMEECE. 991 
 
 tion of price, terms, and so forth, for the very simple reason that these 
 smaller factors when united in an agreement derive the same monopo- 
 listic powers as would come to a corporation or firm doing the busi- 
 ness which they aggregately do. 
 
 We advise that the bureau be empowered to send for persons and 
 papers, which of course carries with it the power to require such 
 reports as it may deem advisable. It would be folly to expect bene- 
 ficial results from this bureau if it were denied the power to com- 
 mand the respect and obedience of the elements which it had been 
 created to regulate. Besides, its judgments and orders can only be 
 properly made upon the fullest examination of the facts. 
 
 We advise that the bureau be empowered to regulate the terms 
 of credit extending over a longer term than one year from date 
 of the sale. The reason for this suggestion is that there is already 
 evidence of the trusts using this matter of undue extension of credit 
 as a club to destroy competitors. We have heard of some cases in 
 which sales have been made giving three years in which to pay 
 for the same. It will be readily recognized that the smaller factors 
 may have every facility for doing their business upon reasonable 
 terms and be economically as efficient as the trusts, yet, owing to its 
 superior banking facilities, it can extend terms which will result 
 in driving its smaller competitor out of business. It does not occur 
 to us that this affords any economic advantage and, therefore, 
 should be contrary to public -policy. 
 
 We advise making it unlawful for anyone to do any act for the 
 purpose of injuring the business of a competitor. It is plainly wrong 
 to indulge such a motive. Everyone has a right to aspire to serve 
 the public in the broadest way possible, and to extend his business 
 as much as he legitimately can. If in doing this he, on account of his 
 economic efficiency, incidentally curtails or even eliminates the busi- 
 ness of his competitor, no criminal act has been done; but when he 
 designedly undertakes to weaken, injure, or crush his competitor 
 he has committed a crime in intention for which, upon proof, he 
 should be responsible in damages and dealt with criminally in 
 addition. 
 
 We have suggested that it should be made unlawful for any person 
 to restrict the credit or to influence others to withhold credit and 
 financial accommodation from any person, firm, or corporation for 
 the purpose of restricting, injuring, or interfering with the business 
 of such person, firm, or corporation ; and any person upon conviction 
 of such offense should receive a sentence of an appropriate term of 
 imprisonment. In addition to criminal prosecution such persons and 
 the corporations through which they act should be made liable for 
 damages. 
 
 The manipulation of credit by those having control of large finan- 
 cial institutions is at once the most far-reaching as well as the most 
 subtle danger which threatens our industrial and political life. The 
 difficulty of proof of such crime in many cases is insuperable, and 
 the widespread effect of such action, contrary to the usual rule, makes 
 the crime even more difficult to locate. In 1907, when the country 
 economically and financially was in a healthy condition, the finan- 
 cial structure, with practically no previous notice, was shaken like 
 a reed in the wind. Beginning at New York, this financial tremble- 
 ment de terre rapidly spread over the entire country, unsettling con- 
 2287T— vol I— 12 63 
 
992 
 
 HEARINGS BEFORE 
 
 fidence and seriously interfering with the orderly progress of in- 
 dustry and commerce. In vain do we seek an explanation in the 
 nature of an adequate cause for these phenomena. We do find, how- 
 ever, the pillars of finance attacking solvent institutions, undermin- 
 ing their credit, producing a condition of public distrust which is 
 the cause of all panics. Along with this acute disturbance of the 
 financial situation we found the avenues of publicity were crowded 
 with suggested remedies for the disturbed conditions, the most of 
 which seemed to have been inspired by those responsible for our ills. 
 In other words, the tide of public opinion had been running strong 
 for some time in favor of Government regulation of the railroads, 
 and the money power controlling both the banks and the railroads' 
 apparently had created the financial disturbance in order to bring 
 forth its remedy in the form of cessation of public activity in gov- 
 ernmental interference with railroad rates. That this power inci- 
 dentally seized a few trophies, such as the Tennessee Coal & Iron 
 Co., during the general disturbance is not to be regarded more seri- 
 ously than as the exercise of a prerogative incident to successful 
 warfare. 
 
 Again, something more than a year ago the money power con- 
 trolling the banks and the railroads had 25 of its roads west of the 
 Mississippi Eiver to file with the Interstate Commerce Commission 
 notice of intention to make a heavy advance in freight rates. This 
 action excited so much opposition that, the President, through the 
 Department of Justice, moved to enjoin the putting of these advance 
 rates into effect This lead to a conference between the President 
 and the officials of these roads, in which it was agreed that the Presi- 
 dent would withdraw the injunction and that the road would with- 
 draw the proposed rates pending the passage of a bill then before 
 Congress affecting the powers of the Interstate Commerce Commis- 
 sion, and, further, that the roads would then file the new rates sub- 
 ject to the determination of the commission as to their reasonable- 
 ness. This to the uninitiated would seem to have brought about a 
 truce, and the money power would be expected to lie dormant dur- 
 ing the interval. Such, however, does not seem to have been the 
 ease, for as soon as these matters had been adjusted certain disturb- 
 ing phenomena began to manifest themselves in financial quarters. 
 No Brass bands announced this performance; no glaring headlines 
 arrested the attention of the public ; but quietly, even stealthily, the 
 information was passed around in banking circles that serious finan- 
 cial complications were expected to culminate in the following Au- 
 gust and September. The effect of these intimations was to excite 
 the caution of the banks all over the country, and resulted in great 
 restriction of credit. In some cases business was brought from a 
 credit to a cash basis in a very short period of time. This condi- 
 tion of uncertainty and restricted credit continued until the Inter- 
 state Commerce Commission passed upon and rejected the applica- 
 tion for higher freight rates. The object of the money power would 
 seem to have been to create a condition of uncertainty that would tax 
 the energies of the smaller business interests to keep their own heads 
 above the water, thus placing them in a position that would be 
 against their making their influence felt with the Interstate Com- 
 merce Commission during its consideration of the applications by 
 the railroads for permission to charge higher rates for freight. As 
 
COMMITTEE ON INTERSTATE COMMERCE. 993 
 
 soon as the question was passed upon by the commission the finan- 
 cial phenomena disappeared as if by magic. While it may be im- 
 possible to produce conclusive proof of the correctness of these as- 
 sumptions ? if some hungry man who had stolen a ham were con- 
 fronted with circumstantial evidence half so strong he would stand 
 sorely in need of the services of some expert criminal lawysr to keep 
 him out of jail. 
 
 In this connection we may be permitted to say that the Government 
 regulation of railroads, trusts, and combines does not reach to the real 
 crux of the matter which is to be found in the financial control 
 exercised by a few men in Wall Street over the aggregate wealth of 
 the country, as represented by the insurance companies, the banks, 
 the railroads, street car companies, light, heat, and power companies, 
 and the larger industrial organizations of the country. And it is 
 now seriously proposed that this practical monopoly of credits shall 
 be still further strengthened by the passage of the so-called Aldrich 
 currency plan, which proposes that the United States Government 
 should even surrender its most important function of providing cur- 
 rency and regulating the money of the country and to turn over this 
 function into the hands of organized greed. It matters not that they 
 may claim that the smaller associations scattered over the country 
 aggregately have more power than Wall Street ; the fact remains that 
 the leadership will be there and that these smaller aggregations, 
 trembling for their lives, will fall in line under the direction of those 
 controlling the larger New York banks. As we see it; it is a propo- 
 sition fraught with far more danger to the liberty of our people and 
 integrity or our democratic institutions than any which has ever be- 
 fore been proposed. This plan starts out under the false claim that it 
 is opposed to a central bank, when,_ in essence, it is nothing but a cen- 
 tral bank, with the control vested in the money power. It dethrones 
 the people's sovereignty, takes over their fiscal affairs, receiving the 
 Government funds, amounting on the average to something like 
 $250,000,000, for the use of which nothing is to be paid. 
 
 We are satisfied that the banking business of this country has 
 developed to a point where private initiative is no longer capable of 
 taking care of it. but this furnishes no valid reason for permitting 
 Government funds and Government credit to be used for private 
 purposes. Clearly the thing to be done if the public interest is to be 
 guarded would be to create a central Government bank, owned and 
 controlled exclusively by the Government. This bank should con- 
 duct the fiscal operations of the Government and do business^ exclu- 
 sively with the banks and be charged with the duty of issuing all 
 currency under a plan that would permit the conversion of bank 
 credits into currency upon demand. Under the present arrangement 
 we can use our bank credits for the purchase of anything under the 
 sun except new currency. Under a plan of this kind the currency 
 would be reduced to a cash basis, avoiding all danger of inflation, 
 and under a' properly drawn law the bank credits for which currency 
 was demanded would be, at the option of the Government, redeemable 
 in gold, thus placing the burden of maintaining the gold standard 
 upon the banks of the country, where it ought to rest. But why dis- 
 cuss it further? The powers that be seem to have decreed that 
 this wrong shall be perpetrated, and the people against whom it is 
 directed know little or nothing about it, and the few who realize the 
 
994 HEARINGS BEFORE 
 
 danger and wrong of it have no million-dollar funds to sustain 
 educational movements. 
 
 The great danger attending regulation is that the powerful inter- 
 ests to be regulated may take the shortsighted view that their in- 
 terests would be subserved by controlling the instrumentalities pro- 
 vided for their regulation. If this should eventuate, it would in- 
 evitably lead to corruption in the bureau and the serpent would 
 carry its slimy trail over the legislative, judicial, and executive 
 branches of government as well. 
 
 Even conceding that regulation should prove efficient and protect 
 the public from inordinate exactions, it could not then be regarded 
 as a complete settlement of the question. The constant effect of in- 
 creased size of operation is to restrict opportunity until a condition 
 of private monopoly has been reached, when all opportunity disap- 
 pears except the opportunity of the private monopolist. This can 
 not be regarded in a democratic country as an ultimate state, because 
 private monopoly is not the highest form of economic development. 
 The continuity of its life depends upon the profit principle, and it 
 therefore lacks the power of distribution of benefits that is possessed 
 by public monopoly, whose life principle is the power to serve the 
 public and which can continuously conduct its operations upon a 
 basis of cost. It would seem, then, to be clearly indicated that the 
 final solution of the trust question will be found in the substitution 
 of public monopoly for private monopoly. When this has been done 
 the highest form of economic efficiency will have been made possible, 
 the opportunity to distribute the benefits of economic savings will 
 have been created, and the equal opportunity of every citizen will 
 have been fully restored. 
 
 It seems, then, that the thing to do is to proceed to regulate along 
 the lines indicated in this paper and, in addition, to extend the func- 
 , tions of the United States Government into the fields of manufacture 
 and distribution. We would begin this extension of functions by 
 invading the tobacco business, making a public monopoly of it, except 
 as to the manufacture of cigars. This would prove to be a source of 
 great revenue ; besides, we would have the advantage of availing our- 
 selves of the experiences of France, Italy, Spain, Austria, and Japan 
 in the conduct of their tobacco regies. We are firmly convinced 
 that unless the present political parties meet and solve the prob- 
 lems which are now pressing us for solution serious and far-reach- 
 ing party changes will become inevitable. The condition is quite 
 analogous to .that which existed in the United States between 1840 
 and 1850. The slavery question had been gradually forcing its way 
 to the front, and neither the Whig nor the Democratic Party seems 
 to have manifested sufficient constructive ability to provide "for the 
 safe birth of the new order of things. Instead of leading the evolu- 
 tion they undertook to smother it, foolishly supposing, like the 
 ostrich, that a head hidden under the sand insured absence from 
 view. The result was the birth and rapid growth of the ^Republican 
 Party, which -proceeded to seize the reins of control and guide the 
 movement to a bloody but final issue. 
 
 The Socialist Party to-day, in relation to the Democratic and Ee- 
 publican Parties, stands about on the same ground as occupied by 
 the Republican Party in 1850 in its relation to the Democratic and 
 Whig Parties. In the event that the incompetency of the old parties 
 
COMMITTEE ON INTERSTATE COMMERCE. 995 
 
 to handle this question is demonstrated, the people will transfer 
 power from their hands to those of the Socialists. So far as we can 
 see, no necessity exists for this except that superinduced by the fatal 
 blindness which sometimes attacks parties and class interests that 
 deprives them of the clear vision absolutely essential to sane leader- 
 ship. 
 
 STATEMENT OF J. LAWRENCE LAUGHLIN, PROFESSOR OF PO- 
 LITICAL ECONOMY IN THE UNIVERSITY OF CHICAGO. 
 
 Prof. Latjghijn. Mr. Chairman and gentlemen, in order to make 
 what remarks I have to present seem logical, I have laid down a 
 few general propositions in typewritten form. 
 
 The first proposition I have to make is connected with the state- 
 ment of the fundamentals that lie behind this whole question of com- 
 petition and combination. After I have finished with those general 
 propositions, I shall be glad to approach the question of detailed 
 remedies. 
 
 My first proposition is in favor of free competition. I have a 
 strong conviction that those who believe in free competition are 
 necessarily committed to the right of protection to all persons in 
 industry in the exercise of their respective degrees of industrial 
 ability. That is, under free competition without hindrance, the 
 best man in industry, or the best man in the labor field, on the basis 
 of skill, is the person who would be supposed to survive, or, hindrance 
 excepted, he would have the right to secure his survival. 
 
 Secondly, free competition means a recognition of different grades 
 of skill and managerial ability. I speak not only of the labor class, 
 but of the employing class. If you grant that proposition, superi- 
 ority of this kind necessarily brings monopoly. What I mean to 
 say is, if you had a free field and no restrictions, the fastest man 
 will win in the race ; or, in the industrial field, the strongest man, in- 
 dustrially speaking, will come to the top; the man with the best 
 managerial ability will do more business; or, if you think of it in 
 connection with the labor field, the man who has the greatest skill 
 will be the man who will command higher wages. If you have 
 absolutely free competition — that is, the right of entrance into the 
 industrial field of all labor — the man who is the most efficient and 
 most effective in the industrial world is the man who will command 
 highest wages because he renders more to his employer. 
 
 Therefore skill, either from the point of view of the employer 
 or of the employee, is only a way of spelling monopoly. That is, 
 you know that the skilled man in any handicraft is not in competi- 
 tion with the unskilled man at the bottom. There are different . 
 strata of laborers in the world, and in any industry in this country 
 the man at the bottom who is unskilled does not compete with the 
 most skilled. 
 
 In the days of Daniel Webster the untrained lawyer did not com- 
 pete with Daniel Webster. His skill and his position gave him by 
 nature a position of monopoly — not cutting out other people from 
 the practice of the law, but from directly competing with him in the 
 management of certain kinds of cases. 
 
 Thirdly, if we recognize this matter of industrial skill, which 
 is either managerial or laboring, then the best man, as I have just 
 
996 HEARINGS BEFORE 
 
 explained, will surpass the others. Bigness is the inevitable result of 
 free competition. 
 
 Moreover, I see no reason why society should have an interest in 
 preserving the inefficient producer. There are struggles between 
 successful producers and the inefficient producers. We stand on one 
 side as consumers, a part of the general body of citizens, and we are 
 not concerned necessarily with the outcome of that struggle, except 
 so far as it gives us the most efficient results. I can not see that there 
 is any reason why sentiment should support a small producer who 
 is driven to the wall by a man who is more fit to manage the indus- 
 try, and who can beat him in the processes of production because he 
 has a larger field of production. In fact, because a man is driven 
 from the competitive field is generally an evidence of his inefficiency. 
 I am speaking now under the assumption of no privileges or special 
 restraints. 
 
 The sentiment may be in favor of the " under dog " in human na- , 
 ture, so that we have the feeling that there is some injustice if the 
 small producer is driven out by the large producer. As a matter of 
 fact, I think most of the combinations to-day exist because of the 
 desire to make it possible for some producers, less efficient than others, 
 to keep on in the world of production. That is, most of the combi- 
 nations are made probably with the intent to keep a price, so that 
 some of the least efficient producers in the ring or in the combination 
 can go on producing. If you had absolutely free competition, it 
 would probably mean that the least efficient producers would go out 
 of business. 
 
 Therefore, as a general proposition, still assuming no unfair treat- 
 ment, the interest of society is not in preserving the inefficient pro- 
 ducer; consequently this reenforces what I said before that under 
 free competition you must inevitably expect to have bigness and also 
 monopoly. Of course, it depends on what you mean by monopoly. 
 I will speak of that further. 
 
 I claim that that result which is inevitable from competition would 
 be a just thing, and that monopoly would be just if it were what I 
 should call by the name " a natural monopoly," and please note that 
 I do not use the " natural " in the sense in which it has been used 
 in some cases with regard to the street-car corporations and organi- 
 zations of that sort. By speaking of a natural monopoly I mean one 
 that is based upon superior industrial capacity. In the case of the 
 law, the example I gave of Webster would be one. In the cotton 
 industry it would be that man who had the greatest skill as a man- 
 ager of a cotton mill, who knew best how to buy his cotton, who 
 knew best how to secure and invent styles and kinds of cloth that 
 would meet the public demand, who could best weld his materials, 
 his machinery, and his labor together to produce the most efficient 
 results for a given outlay, and in other ways do those things that 
 arose from superior industrial efficiency. 
 
 Consequently, size of monopoly, in the sense of natural monopoly, 
 should not be regarded as a restraint of trade. Further, bigness of 
 monopoly, if it arise under those conditions, would be unjust and 
 unfair if that bigness and that monopoly were due to an artificial 
 monopoly — that is, not a natural superior industrial capacity, but 
 if that bigness and that monopoly were due to any form of special 
 privileges, in my judgment then the fundamental test to be made of 
 
COMMITTEE ON INTERSTATE COMMERCE. 997 
 
 this whole question is the application of the question as to whether 
 the bigness of the monopoly that exists is based upon a natural mo- 
 nopoly, as I have defined it, or upon an artificial monopoly. 
 
 From this general proposition, which I purposely made very gen- 
 eral for brevity's sake, when we come to questions of protection and 
 remedy, I should say that, first, publicity is an absolute requisite, be- 
 cause it allows us to know when and where monopoly is artificial or 
 not and when and how to interfere. 
 
 Next, the burden of proof, in my opinion, is against interference 
 unless the case is clear, because it is necessary for industries to en- 
 courage free competition because that is essential to ultimate prog- 
 ress in any industrial or civic organization. Artificial control, if 
 inserted without reason, deadens invention, suggestiveness, progress, 
 and improvement. Under free competition a natural monopoly, due 
 to inherent ability and to varying degrees of capacity, would hold 
 only so long as it was superior. The moment it became decadent a 
 keen active competition would invariably bring some one else in that 
 would destroy that position of leadership. Therefore, natural mo- 
 nopoly could hold only. so long as it held its own on the basis of 
 superiority. 
 
 Then, as a more specific reco mmen dation— and I am speaking still 
 very generally in order that you may reach the points that you care 
 to ask me about — I should say it was our duty to remove everything 
 that could be called an artificial or a special privilege or special pro- 
 tection to any one interest that would thereby lead to the creation 
 of any monopoly upon an artificial basis. 
 
 Second, publicity of accounts for monopolies, whether natural or arti- 
 ficial, through something, in my judgment, very much like the English 
 Board of Trade. Next; the State should not fix prices nor attempt 
 to fix- prices, not only because that has been wholly driven out of 
 court in all past experience in economics, but directly because the 
 State would find it impossible to establish any uniformity of cost of 
 production. The State would find it impossible to fix prices if it 
 went into the practical operation; and, lastly, hitting at a particu- 
 lar form of organization is, in my judgment, not hitting at the real 
 point in the situation. Finally, the same principles that I have laid 
 down in regard to industrial corporations in the main apply to labor. 
 They have general application. A union, to be legitimate, should be 
 based upon a natural and not an artificial monopoly. A union, in 
 order to hold its own and serve as the hope of labor and in the inter- 
 est of labor unions, ought to be built upon productive skill. A union 
 of that kind is impregnable. 
 
 Lastly, or next to the last proposition, speaking in favor of the 
 general preservation of free competition, I have the belief that you 
 could not abolish competition if you tried. It is inherent in human 
 nature. We find it in our boys ; we find it in our "families ; we find 
 it in our social life; we find it in the world of business that, quite irre- 
 spective of anything else, man wishes to conquer and be superior 
 for the very satisfaction of superiority, and I think probably we also 
 find very much the same force in politics. 
 
 Lastly, if it should be said that prices are maintained at an un- 
 natural level by large production to-day, that statement would re- 
 quire some modification. A considerable combination under free com- 
 petition could not hold its own unless it preserved prices so as to pre- 
 
998 HEARINGS BEFORE 
 
 vent free competition coming in. I think the long-headed manufac- 
 turers have found out long ago that in the reduction of cost of pro- 
 duction below what they used to be that they can not afford to take 
 all of that margin which would be of service to the community. If 
 they hold it, that only offers an incentive to competition to come in. I 
 doubt, speaking generally, whether the question is so much the price 
 of the manufacturer in the main as it is of the prices paid by the 
 actual consumer at retail. I doubt, on investigation, whether prices 
 at the manufacturers' establishments have risen, or that they could 
 have been claimed to have been the cause of the higher cost of living 
 to-day. If I understand the subject correctly, I should say that the 
 higher prices in the cost of living have been much more due to the 
 margin put upon the goods between the time they leave the manufac- 
 turer's establishment and the time they reach the consumer; in other 
 words, by the high expense of our distributive methods; that is, by 
 amount of the prices that are added by the middleman and in profit. 
 The remedy for that has got to come, and I think I see evidence of 
 its coming through what you might call distributive cooperation, 
 which cuts down the expense of distributing it independent of the 
 manufacturer's price, because it would cut the price at which the 
 retailer conveyed his goods directly to the consumer. 
 
 Mr. Chairman, I have tried, for the sake of brevity, to outline a 
 few general statements indicative of what seem to have been my, ideas 
 on the subject, and I am at your pleasure with regard to questions as 
 to any part of it. 
 
 Senator Cummins. I assume that the chairman, before I came in, 
 made you familiar with resolution under which we are acting, 
 Professor ? 
 
 Prof. Lattghlin. I think I have seen that resolution. Will you 
 recall it to my memory? 
 
 Senator Cummins. It is a resolution which authorizes or directs 
 the- committee to make inquiry to ascertain what changes, if any, 
 should be made in our laws in regulating corporations or individuals 
 engaged in interstate commerce or in commerce with foreign nations. 
 That is the substance of it. Having that in view, would you apply 
 the general doctrines which you have stated to the particular subject ; 
 in other words, what, in your opinion, should be the changes, if auy, 
 in the laws of the United States relating to this subject? I do not 
 ask you to give the phraseology in which the law should be framed, 
 but its general characteristics. 
 
 Prof. Laughmn. In the main it would seem to me that we might 
 take any illustration to reach the point. Perhaps the United States 
 Steel Corporation would carry us directly to the subject. If that 
 corporation made such publicity of its accounts and showed *hat its 
 success in controlling a large percentage of the steel industry of the 
 country was based upon a natural monopoly — that is, the capacity to 
 do a large business honestly and efficiently without interfering with 
 the right of any other producer who chose to enter the field — I should 
 say then we would be able to find out whether that was an artificial 
 or natural monopoly. That would be the test, and that we should 
 make an examination for that purpose. 
 
 Therefore, the mere bigness of the Steel Corporation would not 
 trouble me. The question would be whether there was any unfair 
 competition. The form of the organization, moreover, would not 
 
COMMITTEE ON INTERSTATE COMMERCE. 999 
 
 trouble me, provided it was within legal control, of course. The 
 question, then^ would be whether they had done anything to prevent 
 anyone else entering that industry. If they had not, I do not see on 
 what ground the United States Government, through its legislation, 
 would have the right to interfere with their business. Therefore, if 
 under the present legislation it appears, or may be interpreted— and T. 
 am aware that it is very difficult for anyone to state exactly what the 
 meaning of the antitrust or Sherman law is— if it should be inter- 
 preted as a monopoly because it does 60 or 61 per cent or 85 per cent 
 of the business, I should consider that quite apart from the point. 
 
 Now, as to control and management, I should strongly suggest that 
 publicity of accounts should carry with it the organization of such a 
 branch of. the Government as to insure certainty in business and 
 fairness of treatment of every corporation ; that unless you have some 
 such organization as that you would have not have proper methods 
 of handling such corporations. They have done those things with 
 more or less success, and without the difficulties that we have, through 
 such an organization as the English board of trade., which I men- 
 tioned. I know, of course, that it would be very desirable that such 
 an organization should be divorced from politics; that there should 
 not be any play of politics in attacking an organization just because 
 it was big, and because a few people suppose that they could get votes 
 by attacking a big organization in the interests 'of the so-called 
 common people. Perhaps you have further questions in detail. 
 
 Senator Cummins. I have, and I will pursue that illustration a 
 little. The United States Steel Corporation, as you know, was or- 
 ganized some 10 years ago, for the purchase or ownership of a great 
 number of plants already in existence, and when combined with the 
 plant of which the combination was made, produced, if I remember 
 it, a little more than 50 per cent of the entire output of that particular 
 branch of the industry. Assuming that those plants were bought 
 and put under a common ownership fairly, you see no objection to 
 that combination, o[o~you? 
 
 Prof. Laughlin. I see no objection to it. On the contrary, I think 
 that, in the course of events, large prod uction i s inevitable. 
 
 Senator Cummins. Now, it has transpired here that the United 
 States Steel Corporation is producing now what is slightly less, pro- 
 portionably, than it produced when it was brought together, and 
 that now its output is about 48 per cent of the entire output. There 
 are a great many outstanding plants which are said to be in com- 
 petition with it — probably 100 or 200 in number. Would you see 
 any objection to some enterprising person or persons getting to- 
 gether and buying up all of the remaining plants engaged in that 
 general industry and combining them in a single corporation? 
 
 Prof. Laughlin. I think not, logically ; no, sir. 
 
 Senator Watson. May I correct you, Senator Cummins. You 
 meant such a percentage of the business ? 
 
 Senator Cummins. I said proportionably. I use that word. 
 
 Senator Watson. I beg your pardon. 
 
 Senator Cummins. If that were done we would have just two con- 
 cerns in the United States engaged in the production of commodities 
 of that character. Then, suppose that some other enterprising person 
 should come to the conclusion that it would buy them both and unite 
 them all in one combination, do you see any objection to that? 
 
1000 
 
 HEARINGS BEFOKE 
 
 Prof. Laugh lin. No, sir. I would like to explain further when 
 you get ready. 
 
 Senator Cummins. Feel perfectly free to make any explanation 
 that you care to. That is what we are here for. 
 
 Prof. Laughlin. At this point? 
 
 Senator Cummins. Yes. 
 
 Prof. Laughlin. If that were still based on what I tried to explain 
 as superior business skill and judgment on the basis of a natural 
 monopoly. 
 
 Senator Cummins. Yes; business skill. 
 
 Prof. Laughlin. I should say that was a perfectly legitimate cor- 
 poration. 
 
 Senator Cummins. The business skill is simply the skill in raising 
 the money that is necessary to buy the plants ? 
 
 Prof. Laughlin. Not wholly; pardon me. 
 
 Senator Cummins. What other business skill is required? 
 
 Prof. Laughlin. Suppose this second group of establishments were 
 in the hands of people who did not know how to manage the financial 
 side of the steel business, or the technical side, as well as the existing 
 United States Steel Corporation, that runs 48 per cent of the busi- 
 ness? The competition would then show that they would be at a 
 disadvantage with the old. That might be the reason, of course, 
 why some enterprising individual, as you have suggested, would try to 
 combine them both together. 
 
 Now, that brings up a point that I did not expand upon in this 
 very brief discussion of mine. A natural monopoly may be turned 
 to be used by selfish persons for the sake of gaming what you would 
 call a basis of unfair and artificial monopoly. The moment it be- 
 comes that it becomes undesirable. On that point then I intended to 
 convey the meaning that a great monopoly should be obliged to give 
 publicity to Government authority, and for the sake of showing that 
 it was not based upon unfair or artificial privilege. Human nature 
 is such that it can not be trusted, as a rule, with unlimited power. 
 Therefore, control or regulation is, in my judgment, the means of 
 preventing the improper and unjust use of such power. If publicity 
 then were required of that joint combination that held all of the 
 steel production of the country, it would be the duty of this board 
 to see that it was not obtaining undue advantages, based upon its 
 artificial position and not due to legitimate management of its 
 industry. 
 
 Senator Cummins. What have you in mind when you say undue 
 advantages ? 
 
 Prof. Laughlin. For instance, suppose that in that position, pro- 
 viding nearly the total, or practically the total supply of the product 
 of the country, they should charge a price to the community as a whole 
 that would be quite impossible to suppose was a legitimate return 
 for that industry. That moment, it seems to me, the Government 
 regulation is essential through some such organization as I employed. 
 
 Senator Cummins. And that regulation would necessarily be the 
 fixing of prices ? 
 
 Prof. Laughlin. No ; I think not. 
 
 Senator Cummins What would it be ? 
 
 Prof. Laughlin. I think it would have to be entirely through a 
 regulation of profits. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1001 
 
 Senator Cummins. Do you mean you would limit the profits of 
 such a combination so that it would have no motive to sell at higher 
 than a reasonable price, or would you allow it to make the profit and 
 put a 'surplus over a reasonable profit into the TV«asury of the 
 United States? 
 
 Prof. Laughlin. I would not be ready to say offhand what dis- 
 posal should be made of that, but if it were understood that there was 
 a regulation, where such a monopoly existed, it should be at the dis- 
 posal of the authorities representing the people of the United States 
 to say what should be done as to that. 
 
 Senator Cummins. Do you not perceive a marked distinction be- 
 tween the growth of a corporation or a partnership either, through 
 superior skill and management and the creation of a corporation of 
 such gigantic size merely through combination and consolidation? 
 
 Prof. Laughlin. It is obvious, of course, that the existence of a 
 large capital is in itself an evidence of the ability to compete, or what 
 is to compete with it. For instance, in the case you put, if there were 
 a second combination required — I mean to say requiring the capital 
 to get the second group together — it would require a very large capital 
 and would make it impracticable for many persons to resort to that 
 competition. There is, in the nature of things, a certain sort of 
 inability to compete. The control of capital is itself a difficult thing 
 to obtain. 
 
 Senator Cummins. Take again the case of the United States Steel 
 Corporation. Its principal — I would not say principal, but one 
 of its chief component parts — was the business carried on by the 
 Carnegie Steel Co., and I think no one would suggest that that 
 company was not being carried on in the most efficient way in which 
 such business could be carried on. It did not go out of business be- 
 cause of inefficiency. It went out of business because Morgan & Co. 
 were willing to furnish the money. 
 
 Prof. Laughlin. I think because Mr. Carnegie made them buy 
 him out. 
 
 Senator Cummins. He was, however, willing to furnish the money 
 or finance the arrangement, and yet Mr. Morgan was not engaged in 
 the steel business ; he did not demonstrate any superiority and wisdom 
 in the steel business. 
 
 Prof. Laughlin. That only, of course, arose from the fact that 
 industrial progress and industrial efficiency take various forms in 
 any great industry. Apart from the technical management of a 
 business, there is the managerial side, and one of the interesting 
 things in the development of industries is what you might call the 
 division of labor in the managerial element. Management of the 
 industry, as a technical proposition, is one thing. A large part of 
 the managerial ability is in managing it financially, and as the 
 industry develops more and more there comes to be a division of 
 managerial ability between the technical and financial, and even 
 the marketing — practically three different forms. Therefore mana- 
 gerial ability is quite as much connected with the financial manage- 
 ment of an institution as it is with the technical management; that 
 is, determining merely the technical process in machinery. 
 
 Senator Cummins. The only superior skill that has apparently 
 been indicated by those who did bring it together was the power to 
 
1002 HEARINGS BEFOEE 
 
 command large sums of money that may or may not have been en- 
 gaged in the business before. 
 
 Prof. Laughlin. Well, it seems to me, if you will allow me to say 
 so, that in earlier stages of the managerial business all three 6f them 
 were put together. The control of the capital, of marketing, and the 
 technical abilities were in one hand; that is, taking the Carnegie 
 establishment as the illustration, the management of the capital, get- 
 ting the capital together, the management of the financial part as 
 well as the technical, and the marketing were practically under one 
 head. Even then there were signs of a deficiency' of managerial 
 ability. When they had men like Mr. Frick and others come in, the 
 technical part of it was due to one or two men, like William Jones 
 and others, who were great inventors, and Mr. Carnegie at that time 
 had the ability to bring to his support and under his control men in 
 these different groups. But it was practically under one head. If 
 I understand the later development, it was merely the separation of 
 the technical largely from the financial management, and providing 
 in this case it is absolutely square and there is no promoting and 
 grafting, I should assume that it was quite conceivable that the 
 financial management of a much larger number of combinations 
 could be carried out on less cost and would be more desirable under 
 such management, provided it be right and honorable, than it could 
 be under a smaller control. 
 
 Senator Cummins. To put it in another way. Suppose that all 
 the people, or some of the people, I will put it, engaged in this busi- 
 ness came to the conclusion that competition was a little bit too 
 severe and profits were not sufficiently great, and that therefore it 
 was desirable to eliminate competition, and those people had access to 
 large capital and for the purpose of getting rid of the competition buy 
 or combine all the plants engaged in that business, do you think that 
 the same rule ought to apply to such growth, if you please, or such 
 a development as applies to the natural enlargement of a business 
 brought about by the sagacity and the wisdom of the men who were 
 operating that business ? 
 
 Prof. Latjghlin. It is difficult to give a precise, answer to that, 
 Senator. But in the main I should say that an organization of that 
 class, brought about to keep up prices, would bring with it its own 
 destruction ; that is, that if they kept the price at a mark where others 
 could not produce more cheaply, and if this combination had been due 
 to the desire to crush them out, that would prove a fact that there 
 were organizations that could produce more cheaply than they were 
 considering; that is, competition was so severe. We will assume, 
 therefore, that they did put up the prices so as to drive out that which 
 would be a seed bed for new competition and new organizations to 
 come in — and I think, if I am not very much mistaken, that was what 
 happened after the establishment of the Steel Corporation. 
 
 Senator Cummins. Do you think that if all these businesses were 
 combined in one corporation, and we will say, employing a capital of 
 something like $3,000,000,000, that it would be likely that a competi- 
 tor would come in in view of the amount of capital that would be 
 required to successfully compete ? 
 
 Prof. Laughlin. In my judgment, that was going on more or less 
 under the shadow of the United States Steel Corporation in its be- 
 ginnings. In my judgment, if you had the large combination you 
 
COMMITTEE ON INTERSTATE COMMERCE. 1003 
 
 speak of, you could not suppress the possibility of competition in any 
 such way. Suppose they then created a situation in which theii 
 profits were enormous ; that, then, would be a stimulus to competition. 
 You would find them springing up. Moreover, it does not seem to me 
 that it would require such an enormous amount of capital to create 
 some competition. You must remember that this country is very big- 
 arid broad and competition on a greater or less scale would arise in 
 different parts of the country. In other words, the new competitors 
 would be protected very much as people on the Atlantic seaboard are 
 now by some protective tariff. They would be protected by the cost 
 of transportation; they would be able to supply local parts of the 
 country; and you would discover after a while that they had really 
 produced, not with enormous capital but with a fair, legitimate, and 
 small capital, cheaper than the other people were selling their goods. 
 You would find competition arise in a marvelous way in all parts of 
 the country by ingenuity and persistence — and the quality of the 
 American in that respect is simply remarkable. I doubt whether any 
 business man exists to-day who would not tell you that he has to fight 
 every inch of his way every day or is left against competition that 
 arises in the shape of large established industries. 
 
 Senator Cummins. In the case I have put, those chapters would 
 already be planted all over the country but all owned by a single 
 corporation and the local needs would therefore be supplied by what 
 would be a local institution except as to its ownership and manage- 
 ment. 
 
 Prof. Laughlin. Of course, that is a supposition that looks very 
 far into the future and includes things that it seems to me are not 
 in the ordinary nature of things. 
 
 Senator Cummins. That is true now, is it not ? 
 
 Prof. Laughlin. No; of course I do not speak with regard to 
 knowledge of everything that has taken place within the United 
 States. 
 
 Senator Cummins. I mean it is generally distributed now. 
 
 Prof. Laughlin. No, sir ; it is not generally distributed. 
 
 Senator Cummins. Do not the United States Steel Corporation 
 and its rivals practically occupy all the available territory of the 
 United States ? I do not mean to say that they could be, but that they 
 are located everywhere through the United States. 
 
 Prof. Laughlin. I fancy that, of course, it could be said that they 
 do most in producing what the country requires to-day, but 10 or 
 25 years from now, with the development of new population, you 
 are going to have new sources of demand, you assuming, of course, 
 that as the country increases and develops this same organization 
 would establish its plants at every new possible place. If you add 
 that to the assumption, I think still the question would be this: 
 Would that one large octopus be enabled to maintain any excessive 
 price and obtain any excessiYe profit even then without starting 
 competition? My general proposition would be, if there was any 
 considerable margin of excessive profit between their cost, including 
 capita] cost — between that and the price to the retailer — that would 
 be the thing in itself that would stimulate competition to grow up 
 under the evils in corporations, no matter how large. 
 
 Senator Cummins. Then, without pursuing it further, for it seems 
 an interminable field, as an economist, it. is your opinion that we 
 
1004 HEARINGS BEFORE 
 
 ought not to intervene to prevent the absorption by a single manage- 
 ment of any line of industry. 
 
 Prof. Laughlin. Of course I do not assume any unerring wisdom 
 about that, but as nearly as I could express an opinion now, subject 
 to further knowledge and investigation, I should say that the burden 
 of proof is against them ; namely, that the possibility of encouraging 
 competition was too great. I am still assuming, if you please, that 
 there would be such regulation and publicity a" would enable the 
 country to know what was going on. If so, I think we would still 
 have competition. 
 
 Senator Cummins. And by that, of course, you mean, I take it, 
 that the antitrust law must be repealed or very radically modified, in 
 your judgment? 
 
 Prof. Laughlin. I quite agree with that statement. 
 
 Senator Cummins. But you reach that opinion because you believe 
 that even in the absence of these prohibitions of the antitrust law, 
 that competition will still be the regulator of prices — competition, 
 either actual or potential. 
 
 Prof. Laughlin. Yes; fundamentally; and in one form or another 
 you will find it impossible to eradicate competition. And it is only 
 a question, it seems to me, of governmental regulation, making it 
 clear that there is no unfair competition, and that, I assume, is now 
 pretty well defined by the decisions of the courts. 
 
 Senator Cummins. In one part of your statement that attracted 
 my attention, aside from the subject that I have just been inquiring 
 about, you, I think, stated that skill and monopoly were practically 
 synonymous. 
 
 Prof. Laughlin. I used that simply to put it into very brief 
 form. 
 
 Senator Cummins. Now, abstractly, competition might lead to the 
 results which you have named, but practically speaking competition 
 never does lead to these results does it ? 
 
 Prof. Laughlin. Yes; I think so. If you take the labor field as 
 an illustration. 
 
 Senator Cummins. Well, as I understand it, there is only a small 
 part of the labor field occupied by any organizations intended to fix 
 the price of labor. Comparatively few, in other words, of the labor- 
 ers of the United States are engaged in any such effort. 
 
 Prof. Laughlin. That is, you mean of all the persons engaged in 
 gainful occupations but a small percentage is included in the labor 
 unions ? 
 
 Senator Cummins. I mean that. 
 
 Prof. Laughlin. True. 
 
 Senator Cummins. Take the instance of the country retail stores 
 in my town, which has a hundred thousand people. There are now, 
 and there have been for a long time — always, I suppose, since it was 
 founded— a great many retail stores in competition with each other, 
 selling substantially the same things, and, of course, selling in the 
 same community. Now, if it is true that competition always leads 
 to monopoly, why should there not be, or why would there not be, 
 but a single retail store in a community like that ? 
 
 Prof. Laughlin. That is due to what, in the economic world, we 
 call friction. In any city like yours, in a city like Chicago, there 
 would be different classes of people selling the same thing from 
 
COMMITTEE ON INTERSTATE COMMERCE. 1005 
 
 the center of the city down to the outskirts. We do not have com- 
 petition; it does not exist. To-day there is really no competition 
 between the retail men who sell meat or groceries to different classes 
 of people. As soon as a man has a clientele established he will put 
 up his prices, quite independent of the other man who is competing 
 with him, if his buyers will stand for it. There are people who will 
 go into the shop and pay any price, provided it is asked, for it is 
 thought smart to give that evidence or wealth. As a matter of fact, 
 there is to-day, in a like line, nothing that you would call competition 
 in retail distribution. 
 
 Senator Cummins. I am not familiar with Chicago, but in my 
 city there ^are three very large stores on the three corners of two 
 streets; they are all engaged in the same business. They sell the 
 same things, and I have observed no such attachment on the part 
 of the customers to any particular store that would lead those cus- 
 tomers to trade with only one store. I have been under the im- 
 pression that there was very sharp competition among those mer- 
 chants. 
 
 Prof. Latjghi/in. If those three people remain in business under 
 those conditions, the assumption is that the management is about 
 «qual. 
 
 Senator Cummins. "Well, that is just the point to which I was 
 about to come. This is a big world, and no one man or no one con- 
 cern has a monopoly of brains or of knowledge. 
 
 Prof. Laughlin. "There are a great many men of the same grade 
 of brains. 
 
 Senator Cummins. Take the instance you put of the legal profes- 
 sion. I think it was really so in Webster's day as well, but it is 
 •certainly true now that there is no one man in the United States who 
 gets all the business of a particular class because he is the strongest 
 man of the United States. There are hundreds of men of substan- 
 tially the same capacity. 
 
 Prof. Laughlin. Eelatively speaking, he gets a great deal more 
 business and a larger field than those of smaller men in his pro- 
 fession. , ,, , ., 
 
 Senator Cummins. Undoubtedly; but, nevertheless, there are 
 enough people of substantially the same strength and capacity to 
 always create effective competition, I think. Now, the term com- 
 petition" does not involve an equality of capacity, does \t( 
 Prof. Laughlin. Not necessarily. 
 
 Senator Cummins. The man who works for a dollar a day, tor 
 instance, because his capacity is small, is really a competitor ot the 
 man who works for $4 a day because his capacity is large— that is 
 true, is it not? 
 Prof. Laughlin. Not wholly. 
 
 Senator Cummins. It is true in a measure, is it not « 
 Prof. Laughlin. I would define competition— free competition— 
 as the unrestricted right of either capital or labor to enter any held 
 
 ^sSoTcummins. And if a man who works for-if we could 
 measure it in that way-if a man who works for $4 a day a , a par- 
 ticular time could do four tames as much work as the man who works 
 for $1, because he has four tames the capacity, if he were to try to 
 
1006 HEARINGS BEFORE 
 
 charge $5 a day he would instantly come into competition with 
 the man who works for $1 a day, would he not ? 
 
 Prof. Laughlin. Of course, you are speaking now of the fact of 
 two men of different abilities working in the same occupation on the 
 same thing. That would bring up the whole question of piecework. 
 For instance, a man can be paid according to what he does. That 
 is true. What I meant was that men become differentiated in their 
 employment by their ability. For instance, a diamond cutter is not 
 in competition with the man who is picking on the street. 
 
 Senator Cummins. I agree with you entirely except in a very broad 
 sense. But he certainly is in competition in this sense, that the fel- 
 low who works in the street might become a diamond cutter if the 
 rewards were sufficiently great to induce him, or some of his class, 
 to become diamond cutters ; if the rewards were sufficiently great. 
 
 Prof. Laughlin. If you will allow me, that is just exactly what I 
 was trying to state a little time back. Natural monopoly is based 
 upon natural ability; that is, the capacity to take a training, and, 
 secondly, upon sometimes the opportunities given him to educate 
 himself. Now that man in the street picking might not have the 
 capacity to become a diamond cutter ; moreover, the question of hon- 
 esty was, again, a basis of natural monopoly. He might not be 
 trusted. So that differentiation becomes immediately a factor, and 
 you have strata all over the industrial field in which men do not com- 
 pete with others for that reason. 
 
 Senator Cummins. I do not intend to take up your time by these — 
 I was about to say — interesting suggestions, because they are really not 
 pertinent here; but the whole point of my inquiry was that in prac- 
 tical life competition does not lead to monopoly, no matter what it 
 might lead to abstractly. 
 
 Prof. Laughlin. I think it inevitably leads to what I have been 
 trying to describe as natural monopoly. I can recall, for instance, a 
 large organization of this country that was engaged in foreign trade, 
 and where shipping was the question involved; that developed the 
 business itself. There was no other organization of the kind in the 
 beginning. It built up a trade of 85 per cent, and its success drew 
 others into it. Tramp steamers were involved. That was a case 
 where it was a natural monopoly. 
 
 Senator Cummins. A very familiar illustration is that the occupa- 
 tion of agriculture or farming is probably a competitive occupation 
 now. 
 
 Prof. Laughlin. Yes, sir. 
 
 Senator Cummins. "Well, we have had farming for a great many 
 years, and it has been carried on by people of widely different capaci- 
 ties, but there is no tendency, no real tendency, toward one man own- 
 ing all the farmsof the United States because he may be stronger 
 than his fellows, is there? 
 
 Prof. Laughlin. I do not quite catch your point. 
 
 Senator Cummins. If competition leads to monopoly necessarily, 
 why does not one man own all' of the farms of the United States and 
 produce all of the agricultural products? 
 
 Prof. Laughlin. Of course, the limitation that I have generally 
 mentioned under the name " friction " — those things do not generally 
 carry out practically, but the principle is there. 
 
COMMITTEE ON INTEBSTATE COMMERCE. 1007 
 
 Senator Cummins. When applied to the practical affairs of life, 
 it does not reach that point ? 
 
 Prof. Laughlin. It is like the force of gravitation, but every book 
 that you hold in your hand does not fall to the ground. 
 
 Senator Cummins. A great many of the people of the United States 
 carry on their farms with substantially the same degree of capacitv? 
 
 Prof. Laughlin. Yet, on the other hand, you see constantly In 
 farming the difference between two farms, both in the buildings, the 
 condition of the fences, and the character of the fields, which shows you 
 that one man is a better farmer than the other. One man is making 
 more out of the thing in the same climate and with the same soil, and 
 you have the differentiation. If, therefore, it were a question of real 
 conflict of interests, the one farmer would be able to stand competi- 
 tion better than the other. He is really producing at less cost ; he is 
 getting more out of his ground, out of his stock, and out of his fields 
 than the other man. In fact, the great difficulty with our farming is 
 that the least efficient men are often left on the farms. 
 
 Senator Cummins. I have no doubt about that; but there is still 
 left enough competition among all those people to regulate the price, 
 and that is the whole point of my inquiry ? 
 
 Prof. Laughlin. Well, I do not think so, if you will allow me to 
 say so. The production in that case on all the farms of the country, 
 spread over such a great area as we have in the United States, is dif- 
 ferent to different farmers and to different communities. So that 
 their costs of production vary. The price is not set by those who 
 furnish the supply, but by the question of the demand as against the 
 supply, and it is settled in the international market. 
 
 Senator Cummins. Yes; but the volume of the supply is in the 
 Control of those men who are competing with each other on the farir 
 I take it? 
 
 Prof. Laughlin. I should not put it that way. 
 
 Senator Cummins. And the output is as much the result of compe- 
 tition as the prices, is it not? 
 
 Prof. Laughlin. I should be unable to give an answer on the 
 question in that form. It seems to me that the men can go into farm- 
 ing, if they please, but we must remember that a man who is a 
 farmer finds that other industries are open to him, and he stays in 
 the farming industry often on the assumption that he can earn 
 more there than elsewhere. The result is that the claims of the city 
 are suggested to him as offering larger returns there, and we see 
 people leaving the farm and filling up the cities. That is the com- 
 petition of other industries that farming is entering there on a 
 tremendous scale, and therefore the price is dependent on so many 
 other things. 
 
 The gain of the farms have been largely from accretion of the land, 
 not from what they have produced and sold. In Illinois, for in- 
 stance, the land that they paid $10 an acre for in the beginning can 
 be sold for $150 or $200 an acre now. If you were to buy that 
 land at the present time and pay the rates of labor required in the 
 city, you could not make very much profit on the farm. That com- 
 petition does not seem to me to appear in the form in which you 
 express it. 
 
 Senator Cummins. Whatever it is and however you express it, it 
 is the working force somewhere? 
 
1008 HEARINGS BEFORE 
 
 Prof. Laughlin. Undoubtedly; quite so. 
 
 Senator Cummins. Your proposition is that competition neces- 
 sarily leads to monopoly, and then monopoly is destroyed again by 
 competition if monopoly raises the price above a reasonable price? 
 
 Prof. Laughi,in. If you will allow me to explain my statement, 
 which I put in epigrammatic form, it was that if you allow abso- 
 lutely free action upon opportunity without restraint, you give 
 an open field for a man who is superior to do all that that superiority 
 permits. If he is above the level of the other three men you referred 
 to, with three stores on the corner, in your city; if he is a man of 
 predominant ability, he would not only be able to manage those 
 three stores, but his abilities would soon call him to the attention 
 of others, and he would be the manager or the conductor of a great 
 department store somewhere. What I contend is that if he has free 
 action, and there is nothing to prevent, he will not stay there long, 
 and he will soon become the owner or manager of a very big store. 
 
 Senator Cummins. But, however it may be, competition has, 
 throughout the history of the world, substantially regulated prices 
 when it had free play, and it has determined really the distribution 
 of wealth. 
 
 Prof. Laughlin. Where it has not been interfered with ? 
 
 Senator Cummins. Yes. 
 
 Prof. Laughlin. But in the case I mentioned a moment ago of 
 this organization, that had 85 per cent of this trade, that was an 
 open field. Competition has since come in, and it has taken away 
 part of their 85 per cent; they only do about 60 per cent, we will 
 say, now. They might lower their prices and lower them to the 
 advantage of the community, yet, as I understand it, that lowering 
 of prices would sometimes be regarded now as an attempt of a 
 monopoly to. control. I say that free competition led to that mo- 
 nopoly. And the question comes up whether we ought not in the 
 proper form regulate anything unreasonable in that form, if it 
 comes of that natural monopoly, so as to protect us. 
 
 Senator Cummins. I think that is all. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. Professor, I understood you to say that you be- 
 lieved the high cost of living was due more to distributing charges 
 than to the cost at the factory. 
 
 Prof. Laughlin. Yes, sir. 
 
 Senator Watson. Have you any remedy to suggest for that con- 
 dition ? 
 
 Prof. Laughlin. I think the remedies are now being applied, more 
 or less, in this country that have been applied in Europe. That is 
 what we call distributive cooperation. I know that in my own city 
 we are establishing cooperative establishments, marketing clubs, 
 constantly for that purpose; in fact, referring to the matter which 
 Senator Cummins brought up in the wholesale trade, there is an 
 unnecessary accumulation "of capital — that is, more capital than is 
 really necessary to carry on the work of retail distribution — that 
 could be reduced enormously and yet the same result accomplished. 
 The fact is that there is levied upon retail distribution a greater 
 expense than it ought to bear, because of the presence of capital, and 
 that is due to a certain sort of inertia and unwillingness to use the 
 remedy. You know how it is. There is a persistence of habit. Hu- 
 
COMMITTEE ON INTEESTATE COMMERCE. 1009 
 
 man nature does not always do what it ought to do. But sooner or 
 later I think that will come, and I think it will come voluntarily 
 
 Senator Watson. You do not think that we can help that situation 
 any by laws? 
 
 Prof. Laughlin. My feeling in general is that we have too many 
 laws now. I think the less of them the better. 
 
 Senator Watson. That is all. 
 
 The Chairman. Senator Lippitt, you may inquire. 
 
 Senator Lippitt. I just want to ask the gentleman in what sense 
 he uses the word " monopoly." You referred to a monopoly of 85 
 per cent and a monopoly of 50 per cent. Exactly in what sense do 
 you use that word " monopoly " ? 
 
 Prof. Laughlin. I used that in the sense that the person or com- 
 pany in position is in the position to practically escape competition. 
 That is, if you have free action, free opportunity, you will soon 
 create a system of superiority, due to superior managerial ability or 
 to skill. When you have that, that skill protects you from the com- 
 petition of people of less skill. It does not prevent you from having 
 the competition of persons of superior skill. But it results in big- 
 ness, and it results in the protection 
 
 Senator Lippitt. Would you consider that a concern that did half 
 of a certain business had a monopoly? Would that be a proper 
 term to describe that condition ? 
 
 Prof. Latjghlin. No. What I meant to say is that bigness inevi- 
 tably comes, and sometimes it brings that monopoly; but bigness is 
 not monopoly necessarily. For instance, in the case of the Steel 
 Corporation, suppose they did 48 per cent of the business ; that is not 
 a monopoly. 
 
 Senator Lippitt. You referred to this shipping case as having 85 
 per cent of the business. Would you call that a monopoly ; would 
 you consider it a monopoly? I do not exactly know in what way 
 you used the expression " monopoly." I thought you had some little 
 different definition from the ordinary. 
 
 Prof. Laughlin. No. I meant that they held that position by 
 virtue of their superior management. 
 
 Senator Lippitt. You did not mean that it is a monopoly, then ? 
 
 Prof. Laughlin. In that sense, no. They hold that position and 
 can hold it because of their superior ability, and if they chose they 
 could control prices and drive their present competitors out of busi- 
 ness and do it legitimately and to the interest of the public. In that 
 sense I mean that they could control the situation on the basis of 
 natural ability. 
 
 Senator Lippitt. You mean they are in position to obtain a mo- 
 nopoly if they saw fit? 
 
 Prof. Laughlin. Yes ; quite so. 
 
 Senator Lippitt. That is, it is a potential monopoly? 
 
 Prof. Laughlin. Quite so. And based upon a natural possession 
 of ability and skill in working up- a new industry, which others have 
 not got. 
 
 Senator Lippitt. The only suggestion you make for practical leg- 
 islation is to attain complete publicity? 
 
 Prof. Laughlin. Yes ; complete publicity, and through some gov- 
 ernmental organization to insure fairness and authority, so that it 
 would be impossible for unfairness to enter. Then, I think you Could 
 
1010 HEARINGS BEFOBE 
 
 safely leave the business to bigness if it was done more cheaply and 
 more efficiently. 
 
 Senator Lippitt. That is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Professor, you say in your paper that you 
 submit here "hitting at the form of organization is not hitting at 
 the real point." Will you elucidate what you mean by that ? 
 
 Prof. Laughlin. Why, the legal form of organization does not 
 seem to me essential to the question. For instance, take the case of 
 the dissolution of the Standard Oil Co. and of the Tobacco Trust. 
 I do not think that if that is an evitable consequence of the present 
 antitrust law that they could not go on under a certain form of 
 control, that they must change to another, that you do not change 
 the actual situation. In other words, if the Tobacco Trust or the 
 Standard Oil Co. had accumulated its big business because of any 
 superiority of skill, obliging them to divide into units, does not 
 change the price of the commodity to the consumer. It does not 
 seem to me, therefore, that that method of proceeding is the one that 
 brings about any real result. Does that explain your point ? 
 
 Senator Brandegee. It explains your statement as you would like 
 to explain it. I did not know what you meant exactly by its form 
 of organization,* whether you referred to its charter, for instance, or 
 whether you referred 
 
 Prof. Laughlin. It would not make any difference whether it was 
 in the form of a partnership or a corporation or what we call a com- 
 bination of corporations. It does not seem to me that the center of 
 the question is reached when you say that an organization shall not 
 do business in this or that particular legal form. It may be it is 
 more difficult for them to get out when we have it in the form of a 
 holding company. On the other hand ; it seems to me, in the develop 1 
 ment of an industry we have seen things going on when industries 
 were carried on by partnership, in which men did more unfair things, 
 more illegitimate things, in driving another man out or a partnership 
 out of business than we have ever seen in the days of the big busi- 
 nesses. 
 
 In other words, it seems to me that the mere creation of a large 
 business, which is so big that attention is drawn to it, brings with it 
 a natural protection against certain methods that have long been 
 used by small people, and there is less danger in big production than 
 small production. Therefore the form, whether a trust or combina- 
 tion — the mere legal technicality does not have much to do with what 
 I consider its real- importance to the consumers of the country. 
 
 Senator Brandegee. Am I to infer that, as a result of those views, 
 you take the ground that the Sherman antitrust law is not beneficial 
 to the ultimate consumer? 
 
 Prof. Laughlin. I should say that, so far as its provisions obliged 
 an organization to change its legal form without changing the actual 
 amount of business done or the prices imposed, it was not accomplish- 
 ing the purpose for which I supposed the law was passed. 
 
 Senator Brandegee. Well, let me put the question in a slightly 
 different form, then. Do you take the view that in the two instances 
 which you have named — of the Standard Oil Co and the tobacco 
 case — that no good would be accomplished by breaking them up into 
 smarter units of production ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1011 
 
 Prof. Latjghlin. It depends upon what you define as " good to be 
 accomplished." 
 
 Senator Brandegee. I will make it more precise, then. Do you 
 think that the commodities furnished by these companies would be 
 furnished of no better quality and at no lower prices if those combi- 
 nations were broken up into smaller units of production ? 
 
 Prof .. Latjghlin. On a posteriori grounds, I would assume that the 
 tendency, that the price might be higher; that you might increase 
 the cost of production by increasing the cost of management. 
 
 Senator Brandegee. I assume that if you increase the cost of pro- 
 duction by raising the cost of management, that the cost would prob- 
 ably be higher, unless they were competing with each other and sat- 
 isfied to take a less margin of profit. 
 
 Prof. Latjghlin. I do not think, to follow the case of the Northern 
 Securities Co. decision, there has been any change in the rates of 
 traffic or a change in ownership by the dissolution of the holding 
 company. 
 
 Senator Brandegee. I do not know, of course, what the market 
 price of the products of these concerns will be if they are allowed to 
 stand in the proportions in which they have been dissolved under the 
 present decisions. But assume that they are broken up into still finer 
 parts, and therefore more numerous competitors who could be brought 
 into real active competition with each other, with the earnest purpose 
 of each getting the business for itself away from the others, do you not 
 think that would be a more desirable condition of things for the 
 ultimate consumer? 
 
 Prof. Latjghlin. I doubt it. I think, economically speaking — 
 speaking generally ; not with regard to detailed cases — -that large pro? 
 duction is inevitable, because it brings greater efficiency and lower 
 cost. 
 
 Senator Brandegee. Now, then, after having answered these ques- 
 tions, come back to the other one. Believing as you do, then, you do 
 not believe that the Sherman law will accomplish any good if it is 
 enforced ? 
 
 Prof. Latjghlin. Of course that obliges me to state wholly and 
 entirely what the Sherman law is and what it means. I should 
 answer that question in this way : If it means the dissolution of such 
 a form, I should not say that it would accomplish the purpose for 
 which I had supposed Congress passed it. 
 
 Senator Brandegee. What purpose do you think Congress had in 
 view when it passed it, as you understand it ? 
 
 Prof. Latjghlin. I think that Senator Edmonds stated that very 
 effectively in the North American Review. 
 
 Senator Brandegee. Yes; I read his view. And what is your de- 
 duction from his remarks ? 
 
 Prof. Latjghlin. Well, I do not want to give any interpretation 
 to his position, of course. 
 
 Senator Brandegee. But you agree with it, and therefore you can 
 interpret it for yourself. 
 
 Prof. Latjghlin. I have interpreted it. 
 
 Senator Brandegee. What is your idea of the purpose that Con- 
 gress had in view in passing this Sherman law ? 
 
 Prof. Latjghlin. Well, of course, as it was explained, there was a 
 certain state of public mind. I fancy that politics had something to 
 
1012 HEARINGS BEFORE 
 
 do with it. But at the time it was passed the development of indus- 
 try in this country had not begun to take the shape it has to-day. 
 The formation of trusts had taken place, more or less, as against the 
 old form of pools, but the creating of the holding companies and the 
 real mania for the development of large combinations did not come 
 on until 1897 and 1898. Now, a law passed at the time the Sherman 
 law was passed naturally could not have had in mind the conditions 
 which exist to-day and which have existed since 1897 and 1898. You 
 are asking my interpretation. I can not know what was in their 
 minds, naturally, but I suppose in the main it was largely a feeling 
 that bigness was a danger. I do not think mere bigness is a danger. 
 I think you have to face the fact that large production will certainly 
 grow, and the only question is how to protect it. 
 
 Senator Brandegee. Well, then, if you think that they thought at 
 the time they passed the law that mere size was a danger, they would 
 think that the conditions to-day were much more dangerous than they 
 were at the time the law was passed ? 
 
 Prof. Latjghlin. Very possibly. 
 
 Senator Brandegee. What are the instances, if you can give a few 
 of them, of the special privileges that you would abolish ? You have 
 said that you would " remove all artificial or special privileges or spe- 
 cial protection to any interest" as one of your proposed remedies. 
 Such as what sort of things would you remove ? 
 
 Prof. Latjghlin. I think that I could go into that at length. 
 
 Senator Brandegee. I hope that you will not, as it is getting late. 
 I did not know but what you could briefly point to a few of them. 
 
 Prof. Latjghlin. I think patents are indefensible ; really, of the 
 system that we have now. I think that is an artificial privilege 
 which takes away from the consumer — that we ought not to pay, be- 
 cause there is too much in the way of the management of the thing 
 which does not go to the inventor. 
 
 Senator Brandegee. And you do not think that the public benefit 
 derived in the way of stimulus to the inventor is sufficient to war- 
 rant it? 
 
 Prof. Latjghlin. No ; I think that in actual operation here patent 
 laws do not carry out the original intent. 
 
 Senator Brandegee. What is one other? 
 
 Prof. Latjghlin. I think very often our protective duties are 
 wholly undesirable. 
 
 Senator Brandegee. You mean tariff duties ? 
 
 Prof. Latjghlin. Yes. That is, that there are duties constantly 
 in existence behind which industries are built up without competi- 
 tion, where it would be a great advantage to the country as a whole 
 if they were abolished. 
 
 Senator Brandegee. Do you mean that you are a protective-tariff 
 believer or a free trader — or what are your tariff views ? 
 
 Prof. Latjghlin. I think that would be very difficult to define. If 
 you will give me time enough I will tell you what they are. 
 
 The Chairman. Take all the time you think is necessary, Pro- 
 fessor. 
 
 Senator Brandegee. I do not want to go into that in detail, be- 
 cause it will unnecessarily prolong this hearing. You say, in gen- 
 
COMMITTEE ON INTEBSTATE COMMERCE. 1013 
 
 eral terms, as you have just stated, that wherever you think the price 
 of a thing was raised 
 
 Prof. Laughlin. By artificial privilege, I think the people of the 
 country ought to demand that it be changed — that there be an aboli- 
 tion of that special privilege. 
 
 Senator Brandegee. And wherever it is raised by any tariff rate 
 you would abolish the tariff on that article, as I understand it? 
 
 Prof. Laughlin. You ask me to answer the question in another 
 form. As an economist I think I have a right to say that I am 
 neither a protectionist nor a free trader. I hope that I am still able 
 to maintain a scientific attitude that would allow me to examine each 
 case on its merits. We must remember that we have had a protective 
 tariff system en toto since 1861, and largely since 1864; that indus- 
 tries have been built up behind these protective walls. I do not think 
 it would be very desirable, and it might be unstatesmanlike to make 
 changes that would be destructive of vested interests. But assume 
 that there was a certain industry in which the rates were lowered — I 
 will not say abolished. Assume, therefore, that the capital left that 
 industry. That itself would be a proof that the capital of an in- 
 dustry of the country had been formerly misapplied, if the capital 
 voluntarily left that industry because the duty had been lowered — • 
 voluntarily, I say. It would be a proof that it had an opportunity 
 to use its capital more effectively and at a greater profit elsewhere. 
 And if that were done gradually, the outcome would be a general 
 readjustment of our capital in our industries in a more efficient form, 
 so that the people as a whole would be more wealthy. 
 
 Senator Brandegee. In order to prove the truth of that theory, 
 you would have to experiment by lowering the duties and seeing 
 whether the capital would improve the industry. 
 
 Prof. Laughlin. I think with our enormous duties there would 
 not be very much trouble about experimentation. We could lower at 
 almost any spot. Those are cases very often of special privileges. 
 
 Senator Brandegee. Mr. Untermyer stated in his examination 
 here [reading] : 
 
 I think the steel business, while it is conducted on broad, big, generous, and 
 enlightened business lines, is the most menacing of all the trusts because of the 
 great money power behind it. * * * It is not because of the capital of the 
 company that there is any objection; it is not that. That does not make it 
 menacing. It is the concentration of the money power behind it that makes 
 every competitor, in fact, a puppet. A competitor can not get credit if the 
 powers behind the- company do not want him to get credit, because it is concen 
 trated — it is a money control. I believe that it carries a bank balance of 
 $75,000,000 in New York City, which means money power in itself. But that is 
 the least part of the story. The realty far exceeds the most vivid imagination 
 as to the ramifications of its power. 
 
 Do you agree with Mr. Untermyer about that? 
 
 Prof. Laughlin. No and yes. I do not have that superstitious 
 dread of the money power that perhaps he has there. He may know 
 more about it than I do, however. I think we have to-day, whether 
 it is connected with the Steel Trust or with any other industry, an 
 organization of what we might practically call centralization or 
 control in connection with the large banks and credit organizations. 
 I think that is very undesirable and unfortunate. We have been 
 discussing here the question of development of industrial organiza- 
 
1014 HEARINGS BEFORE 
 
 tions. The difficulty in handling that is due to the fact that it grew 
 faster than legislation ; it was on us before we realized it. 
 
 In regard to the so-called Money Trust, it seems to me that we 
 have the opportunity to deal with that before it has gotten as much 
 ahead as the case of industries. We have to-day a system in which 
 an individual bank is necessarily dependent upon its central reserve 
 bank and that central bank upon large banks in New York. When a 
 crisis or a pressure comes, the possibility of getting a rate of discount 
 or assistance to a small bank or a reserve city bank depends often 
 upon the will of the man at the top of some large central bank in 
 New York City. That is a thing, to my mind, which is unfortunate, 
 undesirable, and dangerous, and ought to be corrected. It is the 
 very thing which, in my judgment, warrants the organization that is 
 taking place at this moment among all the business men of the country 
 with the determination to prevent that; to make it possible for such 
 a reform of our bank reform currency system as would make it possi- 
 ble for an individual or small bank in any remote town to have the 
 same rate of credit that any of the big banks in New York would 
 have. That is, what we ought to have to-day is a decentralization 
 of credit rather than the present practice of centralization of credit, 
 which, in my judgment, is likely to grow stronger. 
 
 Senator Beandegee. I understand you that mere size of corpora- 
 tions does not alarm you? 
 
 Prof. Laughlin. No. And I do not think that we can judge by 
 size, because what was big 25 years ago is not big now, and we will 
 develop our wealth and industries and the production of our indus- 
 tries to an extent that we do not at the present time realize. If you 
 look forward a few years, sums that seem large now will then not 
 seem nearly as large as they do now. 
 
 Senator Beandegee. You look more to the practices of the concern 
 and its fairness in conducting its business as a danger rather than its 
 size? 
 
 Prof. Laughlin. Exactly. 
 
 Senator Beandegee. Or the capital engaged in it ? 
 
 Prof. Laughlin. Yes. I feel that very strongly. 
 
 Senator Beandegee. That is all. 
 
 The Chaibman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Professor, you believe that free competition, 
 as you call it, is desirable from all standpoints ? 
 
 Prof. Laughlin. That is, provided it is protected from unfairness, 
 
 Senator Townsend. Well, could you tell me just in a word or two 
 what you consider unfair competition, for instance ? 
 
 Prof. Laughlin. Well, I think, Senator, you will find all that 
 pretty well stated in the practice of our courts in such a little volume 
 as Bruce Windhams. 
 
 Senator Townsend. But I want your opinion of it, briefly in con- 
 nection with your testimony, rather than his. I just want to get your 
 idea. 
 
 Prof. Laughlin. My idea would be, in the main, those there. That 
 forcing the breaking of a contract, false statements that are intended 
 to injure the rival, improper use of reports in the markets, and num- 
 berless things of that sort that have taken place. 
 
 I referred a moment ago to the fact that these things were common 
 performances in the earlier days of small businesses, much more so 
 
COMMITTEE ON INTERSTATE COMMEECE. 1015 
 
 than now, and I should suppose that a man at the common law would 
 have the right to remedy in these cases in the early days. I do not 
 see why the situation is changed because there is a large corporation. 
 
 Senator Townsend. Do you think the common law is sufficient to 
 handle all these cases now? 
 
 Prof. Laughlin. That is a large question. I have an idea that the 
 equality and fairness and right, if we could get the court to get down 
 to them in time, would take care of these things. But I fancy you 
 can not bring to the courts all of the practical cases that are coming 
 up all the time. The courts would have nothing else to do but inter- 
 pret. Therefore, it seems to me, the inevitable consequences is to have 
 a proper executive "board that could construe the law quickly and 
 rapidly, so that the business interests of this country could have cer- 
 tainty and definiteness. And there may be some general legislation, 
 therefore, that would be necessary to enable such a board to interpret 
 what the desire of the public is. 
 
 Senator Townsend. Are you favorable to agreements or pooling 
 devices to which you refer? 
 
 Prof. Laughlin. I think those ought to be tested on their merits. 
 I think under proper regulation the pooling between railroads would 
 have been a great advantage in the past, provided they could have 
 been examined and understood, because in reality it meant merely 
 that some less healthy railroad— some bankrupt road — was making 
 all the trouble, and the community paid the difference. 
 
 In regard to many industries I think it is conceivable that some 
 pooling arrangement under regulation and publicity might be 
 desirable. 
 
 Senator Townsend. That is, you would not allow the spirit of 
 free competition to work out the survival of the fittest in that case ? 
 
 Prof. Laughlin. That would depend on the merits of the case. 
 Suppose you put them, then, in the case of a railroad pool. It is not 
 strictly competition. It is the bankrupt railroad that is not willing 
 to pay its fixed charges— is willing to carry at a price that would be 
 a loss to any properly managed railroad. That is a question not of 
 ordinary competition. But suppose it were permitted, and we will 
 assume that you abolished the pool, the result would be that that 
 railroad would be driven into bankruptcy, and it would be bought 
 up, and the inevitable result of that would be, as I said, monopoly. 
 The better managed road would buy up the bankrupt road. 
 
 Senator Townsend. Which would be desk able. 
 
 Prof. Laughlin. In that case, so far as it resulted in general effi- 
 ciency—that is, if it resulted in the community getting its traffic car- 
 ried at a lower rate under that system I should think that was 
 
 Senator Townsend. The reason it was bankrupt was because the 
 people were getting a rate lower than the railroad could afford to 
 give the'm ? 
 
 Prof. Laughlin. No; I think not. 
 
 Senator Townsend. I understood that that was your very reason A 
 
 Prof. Laughlin. I did not mean that; no, sir. There are rail- 
 roads all over the country, and if you are to lower the rates on all of 
 them generally you would hit some roads and \ou would not hit others. 
 The roads that have been well managed and conservatively conducted 
 
1016 HEARINGS BEFOEE 
 
 and have a surplus and have used their surplus in improving the ma- 
 chinery of the railroad as a whole, they can do the work at a less cost, 
 a less rate per ton per mile than the other railroad. Now, if there is 
 a rate war and the poorer railroad comes into competition and car- 
 ries the goods at any rate, that is not a fair competition — I mean it 
 is not a legitimate competition, because they are not counting in their 
 fixed charges. The result is that they are there because they are 
 the poorest road. If you were to pool it would be a good deal like some 
 combinations in such a case as that in which the combination fixes a 
 price so that the poorest concern can keep doing business. 
 
 As I said a while ago, if it were a pool of that nature I should 
 be inclined to say, let the poorest producer go to the wall. Society 
 is not interested in retaining the inefficient producer, either in the 
 case of a railroad or the case of an industry. And the result would 
 be that one or two or three roads or the whole combination under 
 Government regulation could do that business better for the public; 
 do it that way. And the prevention of danger, it seems to me, is 
 through regulation and publicity. 
 
 Senator Townsend. Ought .an industrial concern be allowed to 
 take advantage of every element of production which would econo- 
 mize the production? 
 
 Prof. Latjghlin. I do not see why not. 
 
 Senator Townsend. In other words, ought, for instance, the steel 
 company to be allowed to own its railroads 1. 
 
 Prof. Latjghlin. I do not see why not. That is not the same 
 question as if you put it that they be permitted to own their ore 
 beds or have a monopoly of the ore. 
 
 Senator Townsend. I was going to ask you what is the difference ? 
 
 Prof. Latjghlin. The difference is that a railroad is not neces- 
 sarily a monopoly. If, apart from your terminals, which is another 
 question, you can introduce your railroad alongside of the railroad of 
 the steel corporation 
 
 Senator Townsend. That is theoretically — but could you introduce 
 or get anybody to build a railroad from Detroit to Chicago, through 
 the State of Michigan, in competition with the Michigan Central 
 Railroad ? 
 
 Prof. Latjghlin. Yes ; I do not see why you could not. 
 
 Senator Townsend. You think they do not have a monopoly ? 
 
 Prof. Latjghlin. Are they not doing it all the time now in the 
 suburban railroads? 
 
 Senator Townsend. Oh, yes. 
 
 Prof. Latjghlin. That is going on. 
 
 Senator Townsend. Yes. 
 
 Prof. Latjghlin. Of course, you might say in that case, again, the 
 railroads will buy up these suburban roads. 
 
 Senator Townsend. And are doing it, and that ought to be per- 
 mitted to go on ? 
 
 Prof. Latjghlin. Well, that is a question. If it means eventually 
 that the railroads would be unwilling to lower its prices when it raised 
 them, and publicity accounts showed that that was true, it would be a 
 question for regulation, I think. 
 
 Senator Townsend. And the law then does have a cause in some 
 cases for regulation? 
 
COMMITTEE ON INTERSTATE COMMERCE 1017 
 
 Prof. Laughlin. It seems to me, when we face the fact that big- 
 ness is inevitable, and a certain sort of natural monopoly is inevi- 
 table, that leads us straight to Government regulation and publicity. 
 
 Senator Townsend. Mr. Gary and several others who have testi- 
 fied here seem to accept it as a fact, and in fact acknowledged it as 
 a fact, that the Government would need to regulate some of these 
 large concerns, else they would form a monopoly which would be dis- 
 astrous to the people. You do not agree with them on that ? 
 
 Prof. Laughlin. No; I do not feel a bit afraid of the American 
 people. 
 
 Senator Townsend. What have the American people got to do 
 about that, if a dozen or fifteen men can control it? Are not the 
 people pretty nearly helpless in that situation? 
 
 Prof. Laughlin. I do not think so, not if they have governmental 
 regulation. 
 
 Senator Townsend. Well, I supposed that we were not to have 
 governmental regulation according to your system. 
 
 Prof. Laughlin. I just said a moment ago that bigness and 
 monopoly were inevitable, and that led straight to regulation. 
 
 Senator Townsend. I misunderstood you on that proposition. 
 Excuse me. You have no specific recommendations to make as to 
 amending the Sherman antitrust law? 
 
 Prof. Laughlin. I should not feel safe in making that detailed 
 statement without the law before me and without more care than I 
 could at this moment give it. For the sake of brevity I have con- 
 fined myself to the principles involved and the general principle. 
 The question of putting them into an amendment is a detail. 
 
 Senator Townsend. Are you in sympathy with the interstate-com- 
 merce law, as we call it, for the regulation of railroads ? 
 
 Prof. Laughlin. I think, in the main, that has been fortunate. 
 
 Senator Townsend. You believe that the Interstate Commerce 
 Commission has done a good work and is necessary now ? 
 
 Prof. Laughlin. I think, with some exceptions, that is true. 
 
 Senator Townsend. What would you think of a commission — an 
 industrial commission — for doing similar work, with other things; 
 could that be done, in your judgment ? 
 
 Prof. Laughlin. I made the suggestion, in the main, that some- 
 thing after the fashion of the English board of trade would be 
 the practical way by which that could be done, provided the men 
 were competent and capable of trust. I think that is often the 
 greatest difficulty in these commissions. 
 
 Senator Townsend. How would we insure such a commission as 
 that? 
 
 Prof. Laughlin. By taking it out of politics. 
 
 Senator Townsend. And then we would always get them, you 
 think? 
 
 Prof. Laughlin. I think you could get as good men as you get on 
 the Supreme Court. 
 
 Senator Townsend. The question then would come up, how are you 
 going to keep it out of politics. 
 
 Prof. Laughlin. That depends upon you gentlemen. 
 
 Senator Townsend. I would like to have your suggestion as to how 
 that could be taken out of politics. 
 
1018 HEARINGS BEFORE 
 
 Prof. Latjghlin. Well, it is then only a question of the appoint- 
 ment of the men. After you have adopted a law that would make it 
 possible that certain things should be left to the judgment of certain 
 men, I think you have succeeded in creating a system in the law by 
 which we have a body of judges of the Supreme Court of the United 
 States entirely above suspicion, and trusted by the whole people of 
 this country. In that case they are appointed by the President of the 
 United States. It is a question now how you would make the appoint- 
 ment of these men. Probably you could trust to the Presidents of the 
 United States of different parties to make the practical nominations. 
 However, there might be other ways of obtaining the approval, or 
 rather the appointment, of such men. 
 
 We have in existence in Chicago one way of appointing park com- 
 missioners. They are not appointed by the city ; they are appointed 
 by a certain number of judges ; and the result of it is that we have a 
 park system that is nearly ideal, absolutely separate from Chicago 
 politics. I can conceive that you might create a committee of two 
 or three of the judges of the United States who would pass upon 
 these names; that would secure quality of men absolutely above re- 
 proach. That is the first necessity, it seems to me, if you put the 
 management of such enormous interests in their hands. They would 
 be quite as good as come up before the Supreme Court of the United 
 States. 
 
 Senator Townsend. I agree with you on that. I think that is all. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Professor, you would approve the absorption 
 of all the steel and iron industries by the United States Steel Co. 
 so as to make one vast corporation of it? 
 
 Prof. Latjghlin. I should not say that. I would approve of it in 
 the sense that I would urge it. 
 
 Senator Pomerene. Would you do anything to prevent it? 
 
 Prof. Laughlin. No ; not if I could have the publicity and regula- 
 tion that have been suggested. 
 
 Senator Pomerene. Would you repeal the Sherman anti-trust law? 
 
 Prof. Latjghlin. So far as it would interfere with that general 
 result. 
 
 Senator Pomerene. You believe in the centralization of all these 
 branches of a given industry, as, for instance, the oil industry, into 
 one combination? 
 
 Prof. Laughlin. No, I would like, to put it in another way. I 
 do not believe in the centralization ; what I do think is that, economic- 
 ally, the interest of a community is one of cheapness of production, 
 and that comes by large production, and so far as that is required 
 the community gains. On the other hand, if in the case of bigness, 
 such as you have referred to, things were done that were to the 
 injury of the community, and that more or less counterbalanced, 
 we will say, ethically and politically the economic gains that come 
 from large production, I should say cut them off. 
 
 Senator Pomerene. Do you not think that ordinarily a given com- 
 munity, say, one of our smaller cities, is better off for having 20 
 companies of a capital of $500,000 each than one company of a 
 capital of $10,000,000? 
 
 Prof. Latjghlin. Not necessarily; no, sir. 
 
 Senator Pomerene. I say, ordinarily? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1019 
 
 Prof. Latjghlin. No. 
 ' . Senator Pomerene. You believe then really in centralization ? 
 
 Prof. Latjghlin. No. I believe in division of labor, which is a 
 fundamental economic proposition. If you have 20 companies of 
 that sort, and distributed in 10 cities of your State, you could not 
 have the cheapest method of production. The people would not 
 get their returns, their products, as cheaply. 
 
 Senator Pomerene. Well, then, let us see how far you would go. 
 Assuming that it would be for the best interest of everybody to have 
 all the oil industries under one vast management, another all of 
 the iron and steel industries under one vast management, another 
 all the copper industries under one vast management, another all 
 the coal industries under one vast management; would it not be 
 better to combine these four or five different companies into one 
 company ? 
 
 Prof. Latjghlin. Well, you introduce a- great many assumptions 
 in your question to which I can not assent. For instance, you in- 
 troduce copper and oil and coal. You instance cases where there is a 
 monopoly of the sources of supply. That is what I call an artificial 
 control. 
 
 Senator Pomerene. Where is your dividing line between the com- 
 bination and separation? 
 
 Prof. Latjghlin. Wherever, in my judgment, is it traceable to the 
 quality of natural monopoly, superior business, and industrial capac- 
 ity, not including the control of natural resources. That I consider 
 another thing. 
 
 Senator Pomerene. Well, you practically subscribe to the doctrine 
 that it would be best to clip off all the little buds so as to have one 
 big American Beauty rose, would you ? 
 
 Prof. Latjghlin. No; I do not think the comparison is perfect. 
 The question is merely whether you will have 10 different rose plants. 
 
 Senator Pomerene. That is the idea. 
 
 Prof. Latjghlin. Working with less care and attention, less work- 
 ing of the soil, and less manuring, and you do not get as a result out 
 of each of those 10 as much as you would have had had you given all 
 the care and skill to one particular plant. 
 
 Senator Pomerene. Does it not occur to you that it would be of 
 some advantage to have one rose for each of 10 young ladies rather 
 than have one rose for one of them in any community? Now, you 
 speak of the efforts to secure credit. Did you have reference to Sena- 
 tor Aldrich's new banking proposition? 
 
 Prof. Latjghlin. Not entirely. I know about that plan. There 
 are some things in it that I think might be changed with advantage. 
 On the other hand, I think there are a good many good things in it. 
 And the fundamental part of it is, of course, nothing new. It did 
 not originate in the last year or two. The whole question of ac- 
 ceptancies is the old seasoned practice of Europe. Moreover, the 
 national reserve association that is suggested therein is a develop- 
 ment out of our clearing-house experience, and the general treatment 
 of credits that is involved in it is a thing that we have taught in our 
 universities for decades. But whoever brought it together deserves 
 great credit for putting it into a form where it can be discussed. 
 And I think the general proposition, I mean fundamentally, appeals 
 more to the business men of the country than it does even to the 
 
1020 HEARINGS BEFORE 
 
 bankers. If it is worked out it will undoubtedly diminish the power 
 of the New York banks to maintain their present superiority. One 
 important banker told me that if it were carried out it would prob- 
 ably result in the withdrawal of $100,000,000 or $200,000,000 from 
 New York for distribution in the country. 
 
 Senator Pomebene. Can you state briefly what your objection to 
 the Aldrich bank proposition is? 
 
 Prof. Laughlin. I really don't know what the Aldrich plan is. 
 
 Senator Pomerene. You said you did not approve of it as a whole, 
 and I thought perhaps you had something specific in mind. I will 
 not go into that now, however. 
 
 Prof. Latjghlin. You remember that this was a commission of 
 Congress, and they asked us to appear, and as public-spirited citizens 
 we felt it necessary to do everything we could to improve that bill. 
 When the later publications are included I should say scores of 
 things that were not in it a year ago have been suggested from all 
 sources. They have been amalgamated from every source. There- 
 fore it would be difficult for me to say what the Aldrich plan is in 
 that sense. 
 
 With reference to the national reserve association I have a feeling 
 that it would be possible to improve it by preventing the slightest 
 possibility of control by any sinister financial or political interest, 
 by making the election of directors quite beyond the possibility or 
 control ; that is, instead of having the votes for directors based upon 
 any share holdings I should be willing to see it based upon the one- 
 bank-one-vote principle irrespective of shareholders. But we have 
 to remember that if we get an organization of that sort it is a bank- 
 ing organization, and we want to be very sure that we have the best 
 banking judgment in control of the management of it. It would be 
 absurd to rule out banking experience from the control of such a 
 banking institution as that, nor would it be wholly desirable that the 
 choice of men should be determined solely by the opinion of a small 
 country bank of $25,000 capital. I think we may go too far in that 
 direction. What we want is the thing that will be controlled abso- 
 lutely impartially with regard to discounts. I think that can and 
 ought to be done. 
 
 Senator Pomekene. That is all. 
 
 The Chairman. Are there any other questions? 
 
 Senator Cummins. I have just one or two more. I do not think 
 that I clearly understand you. It is not necessarily true that the 
 larger a corporation is the less its cost of production ? 
 
 Prof. Lattghlin. Well, there may be slight modifications to that 
 statement; but looking at the matter historically it is safe to say, 
 assuming, now, fairness and legitimacy of management, that the 
 larger the capital the larger the business done; the larger the field 
 that it occupies the greater the opportunities of division of labor, of 
 separation of different performances, so that you get a greater skill 
 in each and a greater efficiency in each. That has been the whole 
 history of development of our modern industry. So that, gener- 
 ally speaking, I should say the larger the industry the assumption 
 is the cheaper the production, provided you get what I have assumed. 
 
 Senator Cummins. An enterprise can reach a point where you can 
 stilize every economic advantage in the selection of skill and in the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1021 
 
 full employment of its powers. Then, if it rose any larger than 
 that, it can not reduce the cost any, can it ? 
 
 Prof. Lattghlin. I should not wholly agree with that. Assum- 
 ing again what I argued there, that there is no unfairness and 
 that " 
 
 Senator Cummins. You mentioned the American Tobacco Trust, 
 or somebody did. Have you any reason to believe the Liggitt and 
 Meyers establishment could produce tobacco any cheaper after the 
 American Tobacco bought it than before? 
 
 Prof. Lattghlin. No ; I should say, speaking generally from my 
 economic knowledge, the breaking up would be to increase the cost 
 of production. 
 
 Senator Cummins. I am speaking before the American Tobacco 
 Co. took it in. 
 
 Prof. Laughlin. Yes. 
 
 Senator Cummins. I suppose you have had no real knowledge about 
 the affairs of that particular company ? 
 
 Prof. Laughlin. No ; but I can conceive that under proper business 
 management they could reduce their charges. 
 
 Senator Cummins. They were under, we will say, the best business 
 management that a very large concern can secure. What advantage 
 could it secure by going into the American Tobacco Co. ? 
 
 Prof. Laughlin. In one respect I could see — to illustrate, the whole 
 question of advertising is a very expensive one. It would be possible 
 to reduce that enormously under centralized control. 
 
 Senator Cummins. For instance, take another, the United States 
 Steel Corporation. Do you believe that it produces steel any cheaper 
 than Jones & Laughlin, of Pittsburgh ? 
 
 Prof. Laughlin. Well, I am not able to say, of course, according 
 to the facts. 
 
 Senator Cummins. Do you recognize that there is in trade a certain 
 unit in the trade which will embrace or accomplish all the economies 
 which can be utilized in the trade ? 
 
 Prof. Laughlin. Supposing " x " to represent the cost of produc- 
 tion of steel rails by Jones & Laughlin, in Pittsburgh, if they were 
 then called upon to produce all the steel rails for Japan and China 
 and three or four other countries, I am strongly of the opinion that 
 they may be able to produce the total under a larger establishment, 
 under skilled control, at a less price than they do now. 
 
 Senator Cummins. But in what way do you think they could reduce 
 that cost? 
 
 Prof. Laughlin. Because the cost is not wholly of the materials. 
 It is the cost of shop management ; it is the cost of improved methods, 
 the ability to manufacture at certain places rather than others, where 
 there are natural advantages. 
 
 Now, water power, coal, the presence of transportation, cheap 
 transportation, assisted by water transportation, often give great ad- 
 vantages. If they were located alone in Pittsburgh they could not 
 take advantage of all the possibilities of improvements in their trade 
 that they could if they were a very much larger corporation— I mean 
 in proportion to the millions of tons they could turn out — I think they 
 •could lower the cost per ton. 
 
 Senator Cummins. If the United States Steel Corporation were to 
 take in Jones & Laughlin, say, and continue it, how could it turn the 
 
1022 HEARINGS BEFORE 
 
 rails out — or whatever other product it might turn out from, that 
 establishment — any cheaper than it can be turned out now ? I realize, 
 of course, there may be other places in the country in which the manu- 
 facture could be carried on more cheaply. 
 
 Prof. Laughlin. It is quite possible that, under a greater divi- 
 sion of labor, you might have new methods and processes and ad- 
 vantages. In fact, the cheapness of production is often gotten only 
 out of the necessity of trying to devise and introduce new methods, by 
 the mere process of division of labor. 
 
 Senator Cummins. Do you not think that that establishment is 
 large enough to use all these means to reduce cost ? 
 
 Prof. Latjghlin. Not necessarily. My imagination would carry me 
 further than that. I think there are greater possibilities than We 
 know of to-day. 
 
 Senator Cummins. Of course, then, it all seems to me to be that you 
 reach this one conclusion, and that is if all the industries of the 
 world were centered in a single corporation — assuming that the cor- 
 poration would sell the entire output at a fair advance above cost — 
 that the world would be better off. 
 
 Prof. Latjghlin. If that could be done honorably and efficiently, 
 I would say yes. That is the logical thing, of course. Everybody 
 knows that such a supposition as that is impossible. 
 
 Senator Cummins. But'we are gradually approaching it. 
 
 Prof. Laughlin. Just as it may be supposed that we are approach- 
 ing an era of universal free trade. 
 
 Senator Cummins. Senator Pomerene has spoken about the banks. 
 I assume, then, that you would be in favor of having only one bank 
 in the United States. 
 
 Prof. Laughlin. If you have uniform cooperation, which shall 
 enable all the banks of the country to stand together and help the 
 weakest in times of trouble. 
 
 Senator Cummins. Why cooperation? Why not have a single 
 board of directors in charge of all the banking done in the United 
 States? 
 
 Prof. Laughlin. For the reason that banking does not stand on 
 the same level as industry. There is no such thing as cost of pro- 
 duction. 
 
 Senator Cummins. There is cost of operation, cost of management, 
 or wisdom of management, and the interest rate could be very 
 greatly reduced. 
 
 Prof. Laughlin. I think not very much. I think beyond a certain 
 limit the question of clerical hire does not change much. 
 
 I would like to say that I see what you are driving at in one re- 
 spect. I may have mentioned it at another time, or I may have 
 overlooked it. I think I mentioned it to Senator Pomerene, that 
 there may be an occasion arise when an economic advantage should 
 be foregone in the securing of greater ethical or political advantage 
 if we had a greater economic advantage of the country to get these 
 things cheaply ;■ there may be an exception arise, when the creation 
 of the very large affairs may be an ethical or a political problem 
 involving greater danger, ethical and political dangers, that it would 
 ■overbalance any gains that would come from the economic side. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1023 
 
 Senator Cummins. Yes; but do you not think that a business can 
 become so large that no one man or one body of men can efficiently 
 or economically manage that business? 
 Prof. Laughlin. It is quite possible, depending upon the man. 
 
 Senator Cummins. Well, taking the men we have, the men of 
 whom we know, and the very moment you reach that point then the 
 bigness of a corporation, instead of being an advance toward cheap- 
 ness of production, becomes a retrograde movement toward expense 
 in production? 
 
 Mr. Laughlin. Well, that depends upon the facts and the possi- 
 bility of getting the man; it is not theoretically impossible. 
 
 Senator Cummins. But I wondered whether you have examined 
 the actual combinations of this country now in existence sufficiently 
 to be able to say whether they have actually reduced the cost or 
 production or of distribution beyond the development that would 
 nave occurred if those vast combinations had not come into existence ? 
 
 Prof. Laughlin. My general impression is that the prices have 
 been reduced. That has all been stated in various forms, I think. 
 
 Senator Cummins. What prices have been reduced in recent years? 
 
 Prof. Laughlin. Why, I think the cost of production of iron and 
 steel. 
 
 Senator Cummins. The prices have not been much reduced in the 
 last 10 years, have they? 
 
 Prof. Laughlin. Well, you are speaking of the last 10 years, I 
 have not at hand the figures. 
 
 Senator Cummins. That is the period in which the large combina- 
 tion in that business has been in operation ? 
 
 Prof. Laughlin. No. I want to qualify what I was going to say 
 by another statement 
 
 Senator Cummins. The gains from the large productions have 
 not by any means all inured to the public ; that is, in the lowering 
 of costs by large production ? 
 
 Prof. Laughlin. The prices have not been lowered accordingly. 
 
 Senator Cummins. And they never will be so long as there is one 
 combination sufficient to dominate the business ? 
 
 Prof. Laughlin. I would say so long as you have no publicity and 
 no possibility of regulation. . , ox i 
 
 Senator Cummins. I think the affairs of the United States Steel 
 Corporation have been made public to a remarkable degree. 
 
 Prof. Laughlin. Quite so. 
 
 Senator Cummins. And therefore publicity has not helped us any 
 in that respect with regard to that business. 
 
 Prof. Laughlin. Yes. 
 
 Senator Cummins. And the only regulation which we could 
 effectively apply that we have not applied is that which would fix 
 the price's, compel reductions in prices. You are not in favor of 
 that? 
 
 Prof. Laughlin. Not at all, and I do not see if they have not 
 given you the publicity 
 
 Senator Cummins. What good does publicity do? We all know 
 that the company is earning more than it ought to earn. 
 
 Prof. Laughlin. That is the whole question; and who is going 
 to decide that? 
 
 22.877— vol i— 12 65 
 
1024 
 
 HEARINGS BEFORE 
 
 Senator Cummins. If there is any evil thing at all it is that it has 
 earned more than it is entitled to earn, and publicity has not regu- 
 lated the matter at all. 
 
 Prof. Laughlin. Certainly under the present law we do not seem 
 to be able to touch it. 
 
 Senator Cummins. That is our very problem here. We want to 
 find some way in which it can be, if there is any way. 
 
 Prof. Laughlin. I only want to say that the stepping into the sea 
 of regulation of prices would be impossible. 
 
 Senator Cummins. I agree with you there. 
 
 Senator Lippitt. I would like to ask the Professor if, in the course 
 of his previous testimony, he does not believe just the case that has 
 been put to him would finally be regulated by the competition that 
 would be brought about by this publicity ? 
 
 Prof. Laughlin. I think so. 
 
 Senator Lippitt. I understood from your previous testimony that 
 your belief was that the result of the information of these large 
 prices would be to stimulate smaller competition, which would ulti- 
 mately affect the prices ? 
 
 Prof. Laughlin. I think that is what has been going on. In other 
 words, I think that the officials of the United States Steel Corpora- 
 tion, to illustrate, know perfectly well that if they raised prices it 
 would only stimulate the production of many other competitors — the 
 independents — and it is that outside competition that now really 
 regulates prices. They could not put up the prices without injuring 
 the whole. 
 
 Senator Lippitt. I think Mr. Gary stated here the other day that 
 while the prices of rail had not been reduced, that the quality given 
 for the same price had been tremendously improved. 
 
 Prof. Laughlin. I think that is true. 
 
 Senator Lippitt. I have no more. 
 
 The Chairman. We are very much obliged to you, Professor. 
 
 Prof. Laughlin was thereupon excused. 
 
 The Chairman. The committee will take a recess until to-morrow 
 morning at 10.30 o'clock. 
 
 (Thereupon, at 5 o'clock p. m., the committee took recess until to- 
 morrow, Tuesday, December 12, 1911, at 10.30 o'clock a. m.) 
 
 TUESDAY, DECEMBER 12, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. G. 
 The committee met pursuant to recess at 10.30 o'clock a. m. for the 
 purpose of further considering the bill (S. 2941) entitled "A bill to 
 create an interstate trade commission, to define its powers and duties, 
 and for other purposes," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Oliver, Town- 
 send, Newlands, Nixon, Watson, Pomerene, and Lippitt. 
 The Chairman. The committee will come to order. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1025 
 
 (By direction of the chairman the following communication is 
 incorporated in the record:) 
 
 Philadelphia, December 11, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Committee on Interstate Commerce, 
 
 United States Senate, Washington" D. C. 
 
 Peak Senator : During and after my testimony I was asked by a Senator, 
 who, I think, was Mr. Biandegee, to read an address which he ga\e me (ou 
 p. 62S of part 9 of your record), by the Hon. William B. Hornblower, of New 
 York, and to state how I could reconcile it with my statement of the matter, or 
 if not, what reply there was to it? It took me oyer a day to correct the record, 
 and therefore I could not read this article until Sunday, and now reply to 
 these inquiries, through you, so that I may reach the gentleman who made them. 
 
 You will recollect that what I tried to say was that the Sherman Act was a 
 splendidly drawn statute; that the views in favor ofrthe trusts were always 
 presented to the Supreme Court by the ablest counsel, whilst those in favor of 
 the law were, from the nature of affairs, presented by men of varying ability, 
 some weak and some strong, but never permanently in the fight. That the con- 
 sequence was that the court, not receiving equal assistance from both sides, 
 had made rulings that, in my judgment, for whatever it was worth, had caused 
 the trouble, and that the act was not in fault at all. That I thought the intro- 
 duction of the word " indirect " into the statute in the Knight case, giving it 
 the breadth of meaning there given, was a first cause of trouble, and intro- 
 duced uncertainty injurious to business. That I thought the introduction of 
 the word " competition " in later cases made further difficulty and uncertainty. 
 That the introduction of the word " undue " in the Standard Oil case made 
 still additional difficulty. And that, finally, there had been a serious misap- 
 prehension of the common law as to what was meant by the peculiarly technical 
 words " reasonable restraints of trade." 
 
 Now, I think Mr. Hornblower's article is just about as strong a confirmation 
 of all I have said as one could well find, although he intended it to prove the 
 contrary. It is true that he summarizes the requirements of a good statute and 
 concludes that " this statute fails to comply with any one of these requisites." 
 But let us now examine how he establishes that position. 
 
 In the first place, he practically concedes that the Knight decision was wrong, 
 but puts the responsibility upon the attorneys for the Government. I am not so 
 sure about that being just, but if it is it proves more than a third of my case, 
 for it proves the varying ability in defense of the statute that I have spoken of, 
 and it also proves that the Knight decision was not beneficial. I am, of course, 
 speaking from memory, but you can verify from the article itself. 
 
 Passing, then, to his first real contradiction of me, he says : " If the statute 
 were to be construed literally as declaring ' every ' contract in restraint of trade 
 to be illegal, and if that phrase were to be construed as meaning that every 
 contract which actually restrains trade or competition shall be illegal, not only 
 would it run counter to the common law, but it would be practically meaning- 
 less and unenforceable." 
 
 Now you will see that he has practically given up his attack on the act and, 
 though he appears to state the contrary, has transferred his criticism to the 
 Supreme Court. In the passage I quote, the words " or competition " are not 
 the language of the act, but the language that I thought it was unfortunate 
 that the Supreme Court had practically written into the act. Of course, that 
 is conceding my whole case; for to sustain his argument that the statute was 
 wrong and to answer mine that the fault was in the decision, not the statute, 
 he writes the words of the decision into the statute, and then very justly criti- 
 cizes it. But how he can, from any such foundation, attack the act and support 
 the decision is something beyond me ; because he says, if I understand him, that 
 it was unreasonable to substitute these words for the plain and common-sense 
 ones, " restraints of trade," which the act uses, and which we must all agree 
 are things injurious to the public welfare. 
 
 On page 330 he says : " The phrase ' restraint of trade ' as used by the court 
 Is, as I understand the cases, the equivalent of 'restraint of competition'; that. 
 Is to say, if free competition be restrained, trade is restrained." And he adds, 
 further down : " In the Standard Oil case and the Tobacco case it is because 
 combinations in these cases were held to unduly restrain free competition that 
 they were held to be in undue restraint of trade." Now, of course, I may be 
 
1026 HEARINGS BEFORE 
 
 in error in saying the act is sensible and tlie interpretation unfortunate if (lie 
 interpretation is the act and the act not what you made it say. 
 
 Later he says : " Taking it as established that ' restraint of trade ' means ' re- 
 straint of competition,' the necessity of a resonable construction of the statute 
 is clearly apparent." And he continues: "Prohibition of all combinations and 
 of all restraints of trade is unwise. Civilization means cooperation. Coopera- 
 tion means combination. Combination means restraint of competition." That 
 is exactly what I said and exactly what the act says, without the additions. 
 But his attack is on the act with the additions, and not on the act's own lan- 
 guage as used by Congress. 
 
 The later passage is strikingly in support of my view. He says : " Unfor- 
 tunately, the decisions in these cases were but starting points for new uncer- 
 tainties, and furnish obiter dicta which have misled the bench and bar in 
 subsequent cases, and which remained until 1911 a source of new perplexities." 
 All of which is what I said, and yet this is in support of an argument that the 
 fault was with the act ancftnot its Interpretation. 
 
 When he comes to the word " undue," or " unduly," at page 637, he himself 
 says: "It is quite true that this word apparently interjects into the statute a 
 test which the statute itself does not apply." But for some reason he thinks 
 interjecting this language makes the statute " logical, reasonable, and enforce- 
 able." And then he continues: "It is quite true that the test of what is a due 
 or undue restraint of trade is left an open question which the court must de- 
 cide." And leaving a criminal statute open for definition after the offense, he 
 says, creates no greater uncertainty than some other difficulties that the courts 
 have in some other cases; but is it a reason for making a statute unnecessarily 
 uncertain that there are other cases where uncertainty is an element that can 
 not be avoided? 
 
 Quoting the Chief Justice, he says : " He says that the purpose of the statute 
 ' was to prevent undue restraint of every kind or nature.' " 
 
 I need not bother you with extended quotations. The whole article, as it 
 strikes me, is under the mistaken idea that he is criticizing the words of the 
 act, when what he does is to make a criticism of the words introduced Into the 
 act by the Supreme Court. If the members of your committee will read it, 
 with what I have pointed out in view, I think you ,will find that he demonstrates 
 that introducing competition as a chief and final test made a situation which 
 the act did not make and which he says is in part remedied by introducing 
 another uncertainty in the word " undue." 
 
 My argument is, that if Mr. Hornblower had been for years arguing on the 
 side of Congress with the ability that he now argues on the other side neither 
 word would have ever gotten into the statute. 
 
 I want you to grasp the situation. Mr. Hornblower, with his great ability, 
 had persuaded the court to relax the interpretation of the prior cases in favor 
 of his clients; but they had held that even with these relaxations his clients 
 were guilty ; and what his article does is to shift the responsibility for the in- 
 terpretation of the Supreme Court to the drafters of the statute, to then criti- 
 cize the statute for what was then written in, to praise the Supreme Court for 
 the relaxations which he procured from it in favor of his clients, and to find 
 fault with it for holding that, nevertheless, his clients were guilty. It is a 
 splendid piece of special pleading and an exact illustration of the danger I 
 pointed out to you in my address, and valuable for that reason. 
 
 But what I want to warn you particularly against is the notion which he 
 apparently holds, and which the court held certainly in In re Greene, and that 
 is that the common law ever permitted any restraint of trade under the artifi- 
 cial term " reasonable contracts in restraint of trade." The Supreme Court, if 
 I understand its position, treats restraints of trade as being " reasonable " and 
 '• unreasonable," and treats this as a general division of the subject matter ap- 
 plying to all cases. I defy anyone to show me an English decision that says 
 any restraint of trade can be " reasonable " or " due." There is no such de- 
 cision. What I want to get into your minds, and hope that you will get into 
 everybody else's, is that voluntary contractual restraints of trade were held 
 to be the only exception to the rule. that trade must not be restrained, and that 
 upon analysis it is found that these were only permitted where the public was 
 in no wise or to no degree duly or unduly injured, there being in such arrange- 
 ments not only no restraint, but a positive encouragement and aid to trade in 
 permitting such agreements. 
 
 This language is purely technical, lawyers' language, and is fortunately and 
 fully explained as. a term of art hv Hie lawyers who used it, as not meaning 
 
COMMITTEE ON INTEESTATE COMMEECE. 1027 
 
 anything except that, having originally said all restraints of competition were 
 restraints of trade in cases five or six centuries old, the courts pointed out 
 later that restraints of competition were not restraints of trade of necessity, 
 and that where they were not restraints of trade, to preserve the legal nomen- 
 clature, they still used the old language, but held that it did not apply unless the 
 covenant was an impediment to instead of an encouragement of trade. If you 
 get that fundamental idea once firmly fixed, you have a solution of all this mat- 
 ter. Mr. Hornblower, with all his superior ability, does not seem to have had 
 it in mind. The Supreme Court does not seem to have had it in mind, but it is 
 plainly in the common law, and in the Sherman Act, which your honorable body 
 joined in passing, to apply that common law to the condition of affairs in this 
 country. 
 
 Asking you to inform me whether I have made this clear to the satisfaction 
 of I he gentleman who interrogated me — for, if I have not, it is my fault and not 
 the fault of the law — I beg to assure you of the continuance of my respect, and 
 remain, 
 
 Your obedient servant, George H. Earle, Jr. 
 
 P. S. — Ton may put this in the record if you wish. 
 
 STATEMENT OF C. U. CARPENTER, VICE PRESIDENT AND GEN- 
 ERA! MANAGER OF THE AMERICAN STAMP AND TICKET VEND- 
 ING MACHINE CO. OF NEW YORK, ALSO CHAIRMAN OF THE 
 SHERMAN ANTITRUST COMMITTEE OF THE NEW YORK BOARD 
 OF TRADE. 
 
 Mr. Carpenter. Mr. Chairman and gentlemen of the committee, 
 I desire to make a very brief statement : 
 
 That the business of this country is in a greatly disturbed condi- 
 tion can not be denied. This applies not only to the great corpora- 
 tions known as the monopolies, but also to the smaller businesses 
 operated by the average American business man. Anyone who has 
 traveled throughout the country and observed conditions carefully 
 can not but note that this general business distress is becoming 
 alarming. 
 
 I have just come from the central West, let me say, and I find fac 
 tories in the central western part of Ohio laying off men. They ex- 
 pect a great deal of business distress this winter. It will not be long 
 before the manufacturing interests of the country begin laying off 
 their workmen in large quantities. Indeed, it is a fact that this 
 process of reducing working forces has been operating now for some 
 months, and this business situation which has been so disturbing to 
 our business men will soon affect a large portion of the American 
 men seriously. 
 
 The fact is they are doing that now. I feel that this situation is 
 really becoming serious enough to say that it will soon affect a large 
 proportion of our American workingmen. 
 
 Business men generally place the largest share of blame for this 
 condition upon the feeling of uncertainty over the Sherman anti- 
 trust law, its interpretation, and method of enforcement of the 
 Sherman Act. 
 
 In my conversation with business men throughout the country I 
 find that they have now come to believe that there is a stern neces- 
 sity for a regulating act which will control the greed of these monop- 
 olies. There is no question about it, but in my opinion much of the 
 business distress occurs through the lawsuits which have been insti- 
 tuted bv the Government against corporations, or threatened law- 
 
1028 HEABINGS BEFOEE 
 
 suits against corporations, which appear to be willing to adjust their 
 businesses to whatever Congress shall decide. 
 
 The business men of this country are as patriotic as any other 
 class of men, and their widespread opposition to the prosecutions 
 under the Sherman Act is not based upon selfishness and greed, as 
 seems to be so generally supposed. They feel that the situation 
 demands " more statesmanship and fewer lawsuits." They feel that 
 this business disturbance and industrial depression will soon become 
 a serious matter for this country, and that Congress should take some 
 wise steps to improve the situation that is becoming very serious, 
 both to the business man and his employees. 
 
 Now, gentlemen, of course it is not my province to criticize Con- 
 gress or any of the messages, but it must be admitted that there still 
 exists the greatest uncertaintj' as to where legality ends and illegality 
 begins in our industrial corporations of to-day. Now, that is the 
 feeling of business men generally. Whether it is warranted or not 
 is another question, but they certainly feel it. Mere bigness of plant, 
 no matter what the size, may not be illegal, but when this " bigness " 
 incidentally results in elimination of competition the result, appar- 
 ently, would be an illegal corporation, no matter what the intent. 
 
 I have a case in point which may prove of some interest, with re- 
 spect to six corporations, which are having a very bitter struggle. 
 They are in the throes of competition and there has been some effort 
 to make them get together. To get together, of course, would mean 
 the elimination of competition. The men in charge of those corpora- 
 tions are all fair-minded and are perfectly willing to submit to any 
 laws that Congress might want to enact in order to restrict them, 
 but they do not dare to proceed. At the present time, to my personal 
 knowledge, there are two and possibly three, of those corporations 
 that are just barely struggling along in the throes of bankruptcy. 
 Should they be able to get together according to some such plans, as 
 I beg to suggest later on, the consequence would be that that in- 
 dustry would be in much better shape, the profits would be assured 
 to the stockholders, and the wages to the workingmen would probably 
 be better. 
 
 Now, we refer to the old era of competition sometimes as very de- 
 sirable. I do not agree with that. Any set of business men who 
 have been through that era of competition know just what it means. 
 The old era of competition was fraught with unfair practices, with 
 attempts and intent to suppress competitors by any methods, no mat- 
 ter how unfair. In fact, in our " good old era of competition " the 
 big fellows were suppressing and swallowing up the little fellows by 
 using all the means at their command. As a matter of fact, many 
 of these large combinations of to-day were welcomed by the little fel- 
 low, for thus he was absorbed at a profit instead of being swallowed 
 at a loss. 
 
 There is no business corporation to-day which is in the nature of 
 monopoly now that was formed not because of the greed of the men 
 to make large profits, but because of the desire of the men to escape 
 being ruined from the effects of competition. 
 
 I consider, therefore, that the business men of the country are dis- 
 satisfied, and have a right to be dissatisfied with the Sherman law 
 as it stands and as it is being enforced. They feel that general 
 prosecutions of corporations should be withheld until some amend- 
 
COMMITTEE OK INTERSTATE COMMERCE. 1029 
 
 ment is offered that will make it possible for them to reorganize 
 their industries without any further disturbance. 
 
 There is a point that I wish to emphasize, that it is not a question 
 of the changing of the Sherman Act; it is not a question of the Sher- 
 man Act being unjust. "We need the Sherman Act, or need some- 
 thing like the Sherman Act. In my opinion, though, I think it bears 
 the aspect of unfairness to prosecute these large corporations which 
 were formed under the Sherman Act, which corporations are per- 
 fectly willing to disintegrate and reorganize according to any legal 
 method that might be denned, and there, in my opinion, is the great 
 reason for the disturbance to-day, the fact that the business men do 
 not know what to do. 
 
 Many feel that inasmuch as the Government has never really in- 
 terpreted this law for over 20 years, that the Government should 
 give due consideration to the fact that they have allowed these 
 corporate practices to exist and these corporations to grow up with- 
 out protest. Therefore, that in these widespread prosecutions there 
 is a certain element of unfairness. Hence these suggestions that 
 Congress enact a statute which will give the fair business men of 
 this' country a chance to comply with the law, and at the same time 
 protect their business interests. 
 
 If one believes in the rigorous enforcement of the present law, 
 and the suing under it, then naturally one must believe that unre- 
 stricted competition is a good thing for the country at large. Fair- 
 minded business men do not approve of unrestricted competition as 
 an economically correct condition. We can not convince ourselves 
 that the bitter costly fights, the cutting of prices too close to cost, 
 business worries and failures, and the low wages resulting from such 
 conditions represent conditions which are good for the country at 
 large. 
 
 The average business man of this country is as much opposed to 
 unrestricted competition as he is to unrestricted monopoly. 
 
 We can not but recognize the enormous advantages and economies 
 to be gained through combinations. The possibility of savings in 
 both the selling and manufacturing ends of the business are too 
 great to be neglected. This question has been so elucidated by men 
 of great prominence, such as Mr. Gary and others, that this point 
 needs no further elaboration. 
 
 The question of the enormous savings to be gained through com- 
 binations is undisputed. 
 
 It is my belief that one of the greatest mistakes has been made 
 by our large corporate interests in failing to give to the public the 
 benefit of at least a portion of the savings resulting from these large 
 combinations. The public hears much about the economies and 
 savings that can be and have been made, but they see little or no evi- 
 dence of it in the prices which they have to pay for the articles them- 
 selves, and naturally they are dissatisfied. They resent bitterly the 
 fact that most large corporations have not given them at least some 
 slight share in these savings and economies. In my opinion this 
 condition explains much of the bitter attitude of the public against 
 these large corporations. 
 
 It seems to me that the managers of the large corporations to-day 
 have expended their energies largely in "capitalizing their possi- 
 
1030 
 
 HEARINGS BEFOKE 
 
 bilities," and have failed to recognize the rights as well as the de- 
 mands of the public. 
 
 Managers of corporations of all sizes recognize now that the in- 
 sistent demand of the public for a proper and thorough degree of 
 control over their corporations is a fair demand, a just demand, and 
 one that must be complied with. 
 
 We have had the suggested remedy, first, of Federal incorpora- 
 tion for all corporations doing an interstate business. In case it is 
 desired to avoid conflict with the States, these corporations might 
 be formed under State laws, with the provision for a Federal 
 license, a Government fee, and Government supervision. The regu- 
 lar State taxes should be paid to the State. 
 
 Second. In my opinion a commission similar to the Interstate Com- 
 merce Commission should be appointed. This commission should 
 have control over the question of the issuance of the stocks and bonds 
 of such corporations, basing their calculations upon actual net assets, 
 plus an allowance of, say, 20 per cent for good will. Their work 
 should include not only the control of the primary issues of all 
 stocks, bonds, etc., but also of any such issues that might be pro- 
 posed after the company was incorporated. 
 
 It is useless for me to say to this committee that I think that we 
 all feel that much of the mischief has been caused by our watering 
 the stock — the issuing of stocks and bonds upon values that do not 
 exist, except future values, and the possibility of making dividends. 
 
 To this commission should be submitted reports from such com- 
 panies, based upon standardized methods of accounting and stand- 
 ardized methods of making reports. In my opinion, these reports 
 should be published in full, in such a manner that the public may 
 ascertain the exact facts in regard to the earnings of such corpora- 
 tions. I believe that it is safe to say that public sentiment and public 
 opinion would soon force the managers of large corporations to lower 
 their prices so that a fair return on the investment might be earned. 
 
 With stock and bond issues based upon actual assets, no other 
 course but the lowering of prices would be possible, unless the man- 
 agers cared to face an enraged public opinion and also to invite com- 
 petition to enter the field. 
 
 Personally I think it would be wise to take these steps first and 
 then stop all further legislation until the Government officials could 
 note the effect of these steps. 
 
 Now, when such eminent men as Mr. Wickersham and Mr. Gary 
 speak of Government control of prices, no American can fail to 
 recognize that we are moving very rapidly and going very far. It 
 seems to me that this is a most serious plunge. But Government 
 control of prices means that we would take some steps that we could 
 never retrace, and it is a plunge, in my belief, that would prove most 
 serious. 
 
 Now, as to the question of Government control of prices, there are 
 certain questions which occur to my mind which I think are perti- 
 nent. I think in all these considerations of the Government control 
 of prices, so far as I have seen, the question of the selling of a prod- 
 uct has not been given due consideration. The selling of steel, in 
 all of its shapes and forms, is a comparatively simple matter, but 
 the selling of a specialty is an entirely different matter. The selling 
 of a specialty often costs as much or more than it costs to produce 
 
COMMITTEE ON INTERSTATE COMMERCE. 1031 
 
 an article, and it even requires greater science, sometimes, to sell it 
 than it does to make the article. 
 
 Now, therefore, if the Government is to control and set the prices, 
 how are they going to base that — on cost ? If so, how are they going 
 to determine the cost? If they use the cost as the basis, what per- 
 centage of this cost shall they determine upon? Production cost is 
 comparatively easy to settle, but how is the selling cost and general 
 overhead expenses -to be taken into account? As I say, you take the 
 selling of a specialty, like vending machines, or cash registers, or 
 sewing machines, it is an entirely different proposition from the 
 selling of steel or some such commodity. 
 
 In most lines of manufacture there are different grades of articles 
 designed to fill the same field. I am president of another company 
 that sells a certain class of articles of higher prices than our com- 
 petitors, because the quality is different. If the Government is go- 
 ing to set prices, are you going to set the price on my high-grade 
 article or on the basis of my competitors' low-grade article? If 
 you set it on the basis of my high-grade article, my competitor is put 
 out of the business because his article is a low grade and he could 
 not get my price. If you set it on the price of my competitor's low- 
 grade article, I will be put out of business or else I would have to 
 lower my quality. 
 
 Now, again, many products in this country are sold through deal- 
 ers, who make their own prices to customers after paying fixed prices 
 to the manufacturer. In another concern in which. I am interested 
 we sell entirely through dealers. We have TOO dealers throughout 
 the country. Now, if the Government is going to control prices, 
 will the Government control prices that I make to those dealers 
 or will they control prices that the dealer makes to the customers, 
 or will it control both? It will necessarily have to control both. 
 They, furthermore, would have to take into consideration the great 
 difference between selling expenses and the difference in freights 
 and delivery charges in different parts of the country. 
 
 In my opinion, the question of the Government setting prices, 
 notwithstanding the fact that the theory has been advanced by 
 very eminent men, would be impracticable. It might do in some of 
 the necessities of life, but you will have to go beyond that if you 
 pass a law that will be general in its application — you get into 
 fields where you are wandering in a jungle. By reason of that 
 fact, as I say, you have the selling proposition to consider as well 
 as the production. 
 
 Now, then, I beg to suggest here a somewhat different plan, and 
 that is, if there has to be control, instead of the Government try- 
 ing to control prices that the Government shall control profits. 
 If there has to be a measure of Government control, I would prefer 
 to have it a measure of control of the percentage of profit rather 
 than try to have it set the prices. 
 
 You gentlemen can readily see that if it were a question of con- 
 trol of profits it would be general in its application and very much 
 simpler in its application than the application of the Government 
 setting prices. 
 
 Now, therefore, my suggestion would be, first, the Federal incor- 
 poration law; second, a controlling commission; third, stocks and 
 bonds issued to be based upon net assets, plus the 20 per cent allow- 
 
1032 * HEARINGS BEFORE 
 
 ance for good will. I mention that allowance for good will because 
 I think it very essential. In some businesses good will is not of 
 so much value, but if you take a business where a magnificent selling 
 organization has been built up, where you have salesmen all through 
 the world, and where you have gone to the expense of many hun- 
 dreds of thousands of dollars to build up that selling organization, 
 that money spent represents your good will, and represents dollars 
 spent just as much as dollars for machinery. That is one reason why 
 I say an allowance should be. made for good will. 
 
 Fourth. Allow a company to calculate their depreciation upon a 
 basis to be determined by accepted methods of accounting. Of course, 
 such items as taxes, insurance, etc., are fixed and require no ruling. 
 
 Fifth. Allow that company to make a profit of only a certain per 
 cent, that percentage to be determined upon, say, 15 per cent — that 
 is merely a suggestion — 15 per cent upon their capitalization. That 
 means 10 per cent for machinery, 5 per cent for buildings — whatever 
 the general account determines is a fair standard of depreciation. 
 The reason I suggest 15 per cent is because in a general manufac- 
 turing business there are lean years and good years, and good years 
 must make up for lean years. Just now we are experiencing lean 
 years, and we need a good year to make up for what we are suffering 
 now. 
 
 Allow a further per cent of earnings (say 10 per cent) for surplus; 
 this surplus to be built up until it equals the capital stock, and then 
 it must stop. 
 
 Sixth. It might be necessary to restrict salary allowances to a fixed 
 percentage on the capital stock, because otherwise their officials might 
 vote themselves such huge salaries as would eat up the profits, with 
 the result of higher prices. 
 
 Seventh. Any earnings over and above these amounts should be 
 turned back to the Federal Government, or, better still, to the State 
 treasury in which the company is organized. 
 
 The effect of this would be that the managers of the corporation 
 would strive to keep the prices down so that practically no funds 
 need be returned to the State; thus lower prices would result im- 
 mediately. 
 
 I think the next effect would be upon wages. I know that if I were 
 manager of a concern, and found out that I was going to make more 
 than my allowable percentages, the first thing I would do would 
 be to turn it over to my working people rather than to the State 
 treasury, and I think you would find immediately that the working 
 people would gain benefit by such a plan as this. 
 
 In my opinion, either Government control of prices or Government 
 control of percentage of earnings are to be avoided, unless it becomes 
 absolutely necessary. Once the steps are taken, they can never be 
 retraced, and these experiments should be avoided, excepting as very 
 last and most extreme steps. 
 
 That is about the extent of what I have to say, gentlemen. Boiled 
 down in a few words, it is my belief that, taking a great many busi- 
 ness men, the average business man is not opposed to the Sherman 
 antitrust law as it stands, as an act of regulation, because the average 
 business man recognizes in that act some measure of protection. But 
 I believe that a great deal of the business disturbance that we have 
 to-day results from the fact that these large corporations apparently 
 
.COMMITTEE ON INTERSTATE COMMEfiCE. 1033 
 
 find very little way out. Many of them would like to reorganize. 
 Many of them realize that they have to come within the tenets of the 
 law. Therefore, we feel that the measure of relief should be not in 
 the elimination of the Sherman law — no sensible man wants that — 
 but in the devising of some plan whereby these large corporations, 
 which mean so much to this country generally, can find some way out 
 so that they may reorganize and not go through the disturbance of 
 lawsuits. 
 
 I further do believe that a Federal incorporation act would be an 
 excellent thing. I am a firm believer in the commission idea. I think 
 we ought to have some measure of control over issues of stock and 
 bonds. I do not think that any further steps should be taken for the 
 time being. 
 
 I think Government control of prices is impracticable, because 
 when you go beyond, as 1 say, the sphere of the necessities of life you 
 get into the greatest problems that you can imagine, and I believe 
 if you have to control something it would be better to control the 
 percentage of profits, because it would simplify the problem and make 
 it easier for the manufacturer. 
 
 The Chairman. You spoke of the average man. Has the business 
 of this country so completely passed into the hands of what you call 
 large combinations that the average business man to-day is facing 
 the question of whether or not he is violating the Sherman antitrust 
 law? 
 
 Mr. Carpenter. I think so. I think that there is a whole lot of 
 average business men still left that are not in combinations. The 
 average business man himself is not so much afraid of these suits. 
 The average business man, as I say, recognizes in the Sherman law a 
 great measure of protection to himself, but he feels to-day the effect 
 of disturbance in business as against these large corporations. I 
 think myself that the suit against the Standard Oil and Tobacco 
 Trusts and the decisions therefrom were the greatest blessings that 
 ever came to this country. 
 
 The Chairman. How is the business man who is not facing the 
 question of whether or not he may possibly be violating the Sherman 
 antitrust law affected by the fact that what you call large combi- 
 nations are facing that question ? 
 
 Mr. Carpenter. Well, he feels that so far as he himself is con- 
 cerned it does not affect him excepting indirectly, and of course every 
 business man is interested in the large corporations — not financially, 
 but interested from a business standpoint. In one of my businesses 
 I use a great deal of steel. I am interested in the steel corporation, 
 and most business men feel, as I have stated, that the steel corpora- 
 tion or some other one of those corporations ought to be able to 
 go to somebody who should advise them how they can come within 
 the law without passing through these lawsuits — these dissolutions — 
 and having the business of the country disturbed, because the average 
 business man feels the effect of these disturbances very, very keenly. 
 In the Central West, in Ohio, I have an automobile company and 
 a metal furniture company, and safe companies, and other concerns, 
 and they are all going down, down, down until it has become very 
 alarming. 
 
 The Chairman. Why are they going down ? 
 
1034 HEARINGS BEFOEE 
 
 Mr. Caepentee. Because they feel that general business is dis- 
 turbed. General business is disturbed, and they are going down in 
 our opinion because the large corporations to-day do not know what 
 to do. 
 
 The Chaibman. Are they not going down because they feel there 
 is coming a lessened demand for their products ? In other words, do 
 you anticipate any action of the Government will render it impos- 
 sible for you still to obtain practically at the prices you are obtain- 
 ing to-day the steel products that you use in your business ? 
 
 Mr. Caepentee. Well, I should say this: That in my business I 
 anticipate a reduction in the business. I feel this : That I am feeling 
 to-day out there the result of this agitation in New York City. I 
 am feeling the fact that the whole business body of the United 
 States is so knit together that five or six of the larger concerns can 
 not be disturbed without disturbing the balance. Now, I am getting 
 the reflex of that. I am not feeling the effect of it directly. 
 
 The Chaibman. But you feel that from its effects, possible or 
 probable, upon the demand for your products, rather than from any 
 danger that may come to you as to securing the material that you 
 use in making the products ? 
 
 Mr. Caepentee. Oh, yes, sir. I catch your point. Absolutely. 
 For instance, I can get steel no matter what the Government does. 
 That is not my fear. I may be able to get better prices. 
 
 The Chairman. Approximately as good prices as you are getting 
 now? 
 
 Mr. Caepentee. Possibly better. 
 
 The Chairman. At least it is not imperiling your source of supply? 
 
 Mr. Carpenter. Not at all. 
 
 The Chairman. After all, this holding back of activity to the 
 average business man, who is not facing the problem of whether 
 he is violating this law or not, relates to what he anticipates may be 
 a lessened demand and not a cutting off of the supply to him? 
 
 Mr. Carpenter. Yes, sir; there is no doubt of that. 
 
 The Chairman. Now, you spoke of these half dozen concerns that 
 want to get together. Am I to understand that that is because the 
 competition between those half dozen concerns is so fierce that they 
 can not stand it? 
 
 Mr. Carpenter. That is it. The competition between those six 
 companies to-day is such that no one of them has paid a dividend 
 to their stockholders for three years, or possibly four, to my per- 
 sonal knowledge, and they have altogether an aggregate of about 
 $8,000,000 invested in their plants. 
 
 The Chairman. Would there be any objection to stating the line 
 of business engaged in that industry? 
 
 Mr. Carpenter. It is in the steel business — in the large steel manu- 
 facture^ — not in steel mills, but in large steel manufacturing business. 
 
 The Chairman. Then their object or desire in getting together is 
 to stifle the competition that exists between them now ? 
 
 Mr. Carpenter. Well, that might be one way to put it. That 
 might be the result. 
 
 The Chairman. Is not that the real, broad, candid way to put it ? 
 
 Mr. Carpenter. Allow me to say this : I know all the men in these 
 concerns personally. They are fair-minded business men. Their 
 
COMMITTEE ON INTERSTATE COMMEECE. 1035 
 
 object is to put their concern in such shape that they will not be 
 ruined. That might result in stifling competition, but these men 
 would be perfectly willing to organize these larger corporations upon 
 a basis of actual assets. They would be willing to come in under 
 any measure of control. They have often said to me, " Mr. Carpen- 
 ter, your idea of even a percentage on the profit we would be willing 
 to come together on. If we could be assured of 12 or 15 per cent 
 net, we would be satisfied. It is much better." 
 
 The Chairman. I think the committee will take judicial notice of 
 that, but primarily, after all, what is hurting them to-day, from 
 their viewpoint, is competition. 
 
 Mr. Carpenter. There is no doubt of it. 
 
 The Chairman. And they want to get together primarily to stifle 
 that competition. Now, is not that the plain English of it? 
 
 Mr. Carpenter. Yes, sir ; that word — excepting I wish to add that 
 other word to that sentence, " to stifle," because that sounds as if they 
 wanted to stifle it and then crush the public, and that is not their 
 desire. Those six concerns could get together, and without raising 
 the price, notwithstanding the low-cost basis upon which they are 
 now operating and selling at public — ^without raising a price they 
 can make 12 per cent on the capital stock through the economies that 
 they could gain. If those combinations had been formed, say 10 
 years ago, we would have got together. We would probably have 
 figured out that we could, make a very large profit, say 25 or 30 per 
 cent, but we should have watered the capital stock. It would have 
 put that burden on the public forever, just as I said a little while ago. 
 
 Now, the time has come when we do not want to do that, or rather 
 we do not dare to do it, and the fact is we do not want to because we 
 have gained some sense. There is the concrete example. 
 
 The Chairman. What economies could they practice if they had 
 been in a combination which they can not practice to-day? 
 
 Mr. Carpenter. One of their largest economies to-day is in the 
 selling organization. For instance, in one large city there are to-day 
 six concerns. There should be one. One could supply the demand 
 of the public. There are six concerns ; six sets of salesmen ; six lots 
 of advertising men. There is a tremendous expense. We figured 
 out that we could save very close to $30,000 a month in New York 
 City alone. 
 
 The Chairman. What would you anticipate those men would do 
 who are now carrying forward lor each corporation these activities 
 which one man would carry forward if they were combined? 
 
 Mr. Carpenter. The chances are that the men who are now at the 
 head of the companies would still desire to retain their individual 
 standing in the companies because of their love of the business and 
 their desire to be active. The economies would not come through 
 elimination of official position. 
 
 The Chairman. I am not speaking of official position. I used the 
 word " activities." What would become of the men ? 
 
 Mr. Carpenter. You mean the other men? 
 
 The Chairman. Well, any. 
 
 Mr. Carpenter. Well, they would be eliminated, and would have 
 to find other positions, which has been the processes of trade and: 
 commerce for many centuries. 
 
 The Chairman. More markedly during the last 20 years? 
 
1036 HEARINGS BEFORE 
 
 Mr. Carpenter. Yes, sir ; I think so. But yet, on the other hand, 
 Senator, the obverse of that picture is the factories running, as I 
 know, under great stress. Their workmen, for instance, would like 
 to have Saturday half holiday. The men can not afford to give it 
 to them. There is not one of them who would not like to give their 
 men 54 hours instead of 60, but they can not afford to do so. Their 
 wages are not on a high plane, and there is not one of those men 
 who is not liberal minded enough to want to pay his men more, but 
 they do not dare to do so. 
 
 The Chairman. Then the only gain they would get from your 
 viewpoint would be in the economies which they could put into effect 
 as one combination which they are unable now to do in a number ? 
 
 Mr. Carpenter. Yes, sir ; and without raising prices to the public, 
 and at the same time putting themselves in a better position with 
 their stockholders, with themselves, and with the workingmen. 
 
 Now, as I say. if they were to adopt the practice of the past and 
 increase capitalization all along they should not be permitted to do 
 it, but if they were held down to within reasonable limits, as I say, 
 if they were held down to a capitalization basis on their actual assets, 
 plus allowance for good will, a commission to determine that there- 
 after, and a sufficient degree of publicity to enable people to know just 
 exactly what they are doing, I think you would get exactly what 
 you want. 
 
 The Chairman, Inasmuch as the action of the Government toward 
 the so-called big combinations alarms the average business man, 
 not from the standpoint of the danger of imperiling the source of 
 supply, but as a lessening of the demand for his product, will you 
 explain why it should have that effect on the mind ? In other words, 
 take your own business — the difficulty with you is that you appreciate 
 a present and perhaps a future lessening of the demand for your 
 product: you are not at all alarmed but what you will be able to 
 get all the material you need for use in your business, no matter what 
 became of the suits of the Government. Now, why should the atti- 
 tude of the Government, in seeking to reach these large corporations, 
 affect the demand for your product? 
 
 Mr. Carpenter. Why should they affect, for instance, all of my 
 Ohio concerns? 
 
 The Chairman. Not your Ohio concerns but the people who buy 
 of your Ohio 'concerns. 
 
 Mr. Carpenter. Well, you are going back to our customers? 
 
 The Chairman. Yes. You have already stated — which is very 
 logical of course — that no business man fears that the source from 
 which he gets his material is going to be imperiled by those proceed- 
 ings, but what he is fearing is a lessened demand for what he makes. 
 Now, why — and I am asking this question in order to get your view 
 upon the matter because it is the crux of the whole situation; in my 
 judgment — why should, if I may use the word, " attack " upon the 
 big companies lessen the demand for the stuff you make ? 
 
 Mr. Carpenter. That is a very involved question, in a way — that 
 is, it requires an involved answer. This is my feeling : The financial 
 interests and the corporation interests in this country, large and 
 small, are interlocked absolutely together. If you take, for instance, 
 the large corporations of to-day, if they begin to be disturbed, the 
 immediate result is that the financial interests are disturbed, and 
 
COMMITTEE ON INTEKSTATE COMMERCE. 1037 
 
 when you disturb the financial interests of this country, that dis- 
 turbance begins to go through the western country just like a wave — 
 just as if you should throw a pebble into a pond you would see the 
 waves go out. You may follow the wave as it goes through this 
 country — any man can, and that branches out into different portions 
 of this country. 
 
 Now, this attack, as you term it, upon larger corporations means 
 an attack upon the men who are at the head of these corporations. 
 Those men who head these corporations are the most influential men 
 that we have to-day, and they are in control of resources that the 
 average business man can not touch. They become alarmed; they 
 tighten; they start new enterprises. It affects immediately the 
 railroads. The railroads will not order new cars or new equipments, 
 and these things begin to affect business generally and begin to 
 frighten the people and begin to frighten my customers. I can not 
 sell steel furniture like I could a few years ago or automobiles like 
 I did a few years ago. The vending-machine situation is the same — 
 simply because the people's minds are disturbed. They are fright- 
 ened, and the tendency is to follow the lead of the big fellows — 
 restrict, restrict, restrict. 
 
 That is about the only explanation I can give you, because I could 
 not, of course, read the minds of my customers, who I think ought to 
 buy my goods. But that is the way I feel personally. I can see 
 this disturbance, and I can feel the disturbance in the minds of those 
 men who control the situation financially, and the effect. 
 
 Take, for instance, out in the Central West. The effect of the 
 panics are immediate. Let the banks begin to restrict their com- 
 mercial loans and it is not more than four days before you begin 
 to feel it in Cincinnati, Cleveland, and through Dayton and Ham- 
 ilton and all those cities. That immediately alarms everybody. A 
 man wants ten, fifteen, twenty, or fifty thousand dollars for his 
 business to carry it along. He needs it. He goes to his bank and 
 finds out that he can not get it in Cincinnati because the Cincinnati 
 bank is feeling the effect of this disturbance in New York. It is 
 the old question of confidence again, in my opinion. 
 
 The Chairman. Now, I want to ask you a question in which I 
 may be entirely in the dark — these others I do not feel so much in 
 the dark about— but as to the sum total of loans, does the West 
 depend upon the East for its money, or does the East depend upon 
 the West, from your point of view? 
 
 Mr. Cabpenteb. I think, from my point of view, without any 
 question, the West depends upon the East. I think that was demon- 
 strated in the last financial disturbance that we had. We in the 
 West— for I am originally a western man, although I live now in 
 New York— I spent a lot of my time there— we in the West be- 
 lieved some time ago that we were independent of New York as a 
 financial center, but we learned better during the panic, and I am 
 firmly convinced that the West is much more dependent upon the 
 East, financially, than the East is dependent upon the West. 
 
 The Chaieman. Does the East carry any portion of its actual 
 money capital in the form of reserves in the West_ any where ? 
 
 Mr" Carpentee. Not to any great extent. It is the other way. 
 The West carries its reserves in the East. 
 
1038 HEARINGS BEFORE 
 
 The Chairman. Now, those reserves are in the nature of a loan, so 
 far as the resultant obligation to return them is concerned ? 
 
 Mr. Carpenter. Certainly. 
 
 The Chairman. In our country — I am not in the banking busi- 
 ness — but our bankers complained in the last so-called panic that 
 they could not get from the East that which they had sent to the 
 East. 
 
 Mr. Carpenter. There is no doubt of it. They could not. I 
 know that. The East got it and held on to it. I know an instance of 
 three little banks out West that were in such bad shape that I had 
 to send, as a favor to them, $14,000 in gold every Saturday to tide 
 them over. It had to get there every Saturday from New York City. 
 I expressed it out there. They could not get it in any other way, 
 notwithstanding the fact that they had a $100,000 deposit in New 
 York. 
 
 The Chairman. Now, is it not a fact, in the broad equation, that 
 the East borrows more from the West than the West borrows from 
 the East, taking into account the fact that the reserves are all going 
 East? 
 
 Mr. Carpenter. Taking into account the reserves, that might be 
 true in a certain sense. 
 
 The Chairman. Now, in a business condition, which would be 
 normal, the western farmer, for instance, who needed a wagon this 
 fall, as he needed one last fall, would not hesitate to buy a wagon 
 simplv because a suit was brought against the United States Steel 
 Co.? " 
 
 Mr. Carpenter. No; but he might hesitate to buy a farm next 
 to him, a few acres of land, when he found that he could not borrow 
 the money from the bank, and if it is a manufacturing concern 
 they might go out to borrow $15,000 or $20,000 from the bank to 
 tide him over the winter season and find out that he could not get 
 it, and he would have to lay off his men. 
 
 The Chairman. He would not conclude that he would not be able 
 to get it and he would not be able to get it, would he, unless in his 
 mind and in the mind of the banker there was a direct or very 
 probable future lessening of the demand for the product? 
 
 Mr. Carpenter. Yes; but you come further back to what causes 
 the lessening of the demand. 
 
 The Chairman. Ah; that is what I am getting to. Now, is a 
 business system sound or normal when the mere attack upon an 
 institution that carries with it no fear of the lessening of the source 
 of supply to meet the demand of the people for the product a 
 sound, safe business system? 
 
 Mr. Carpenter. No, sir ; it is not. 
 
 The Chairman. Then, is not the trouble to-day with our system, 
 instead of the enforcing of the law? 
 
 Mr. Carpenter. In this statement that I have made, understand 
 that I have nothing to say against the law. 
 
 The Chairman. I know; I am not speaking of you particularly. 
 
 Mr. Carpenter. Well, of course, I will admit that the business 
 system is not sound. It has grown up wrong. It is full of abuses, 
 and it has been full of abuses that ought to be corrected. But the 
 only question is, if these men come to you, for instance, and say: 
 "We recognize that we have done what is wrong; we have had this 
 
COMMITTEE ON INTERSTATE COMMERCE. 1039 
 
 institution grow up without being attacked before by the Govern- 
 ment. We realize now that we have made mistakes, and we want 
 some way out. Give it to us and we will quit, or do whatever you 
 want Us to do." 
 
 The Chairman. Is not the abuse, fundamentally, the effort to 
 anticipate the future, or to get immediate gain — I will not say 
 profit, because I do not think it is so much a matter of profit as it is 
 of gain ; there is a broad distinction between them — in present busi- 
 ness conditions to get a gain that is not consistent with a sound, 
 fair business system for the country? 
 
 Mr. Carpenter. Well, I do not believe I can agree with you there, 
 because I feel this : That if this corporation question could be solved 
 in some simpler, easier way than it has been solved by lawsuits, you 
 would find its effect upon the country very beneficent, and I firmly 
 believe that unless some way is discovered ; unless you gentlemen guide 
 us in some way out of it, there is going to be fear and disturbance in 
 business. I will admit that from the logical standpoint you are 
 right. I will admit that fundamentally the basis of ' the business 
 of these large corporations is all wrong, but it has grown up with- 
 out Government protest, and we have it. What is the best way to 
 change it ? To force them to find some reasonable way out, or attack 
 them and have the disturbance throughout the country that we will 
 feel? 
 
 The Chairman. Can there be any reasonable way found out, ex- 
 cept in the last analysis, that the business of this country should be 
 on a sound, normal basis, or upon an unsound basis sanctioned by 
 Government? Let us get right down to the fundamentals. 
 
 Mr. Carpenter. It should be on a sound, normal basis. But what 
 is a sound, normal basis? A competitive condition, of not? 
 
 The Chairman. I am at present not dealing with that. I Am 
 dealing with a situation which here confessedly frightens a person 
 who in a normal condition of business and the reasonable relation 
 of supply and demand, would no more fear a suit against the 
 Standard Oil than he would against a retail grocer in the city of 
 Washington. That is all I care to ask. 
 
 Senator Cummins. I did not hear - the early part of your state- 
 ment, and can only infer what it was 
 
 Mr. Carpenter. Senator, may I repeat it for just a moment? 
 
 Senator Cummins. And I did not hear some of the questions put 
 by the chairman. 
 
 Mr. Carpenter. My statement, in brief, was this: That as average 
 business men, We feel that the country is greatly disturbed. I know 
 that positively of my own knowledge, although possibly I may not 
 be able to convey that to your mind. Second, that we business men 
 do not oppose the Sherman Antitrust Act in the sense that it is a 
 regulative act. Any honest business man knows that we must have 
 some regulation. We do know that these corporations have grown 
 up under this Sherman Act for 20 years without any suits from the 
 Government, and we therefore feel — I know my associates on the 
 Board of Trade of New York feel, for instance, that some measure 
 should be given us, whereby we can escape possibly from the jungles 
 into which we have gotten ourselves, but we want some way out 
 rather than the question of going after us in lawsuits. 
 22877 — vol i — 12 66 
 
1040 HEARINGS BEFORE 
 
 Now, my suggestion went on further and took up the question of 
 the Federal incorporation, which I approve, and for a commission 
 to control issues of stocks and bonds, to try to show that the Gov- 
 ernment control of prices is impracticable. I suggest a Government 
 control on a percentage of profits, rather than control of prices, if 
 such a step becomes necessary. That was my whole story. 
 
 Senator Cummins. I rather inferred from one of your answers that 
 you do not believe in competition as a regulator of prices. 
 
 Mr. 'Carpenter. I do not ; no, sir. 
 
 Senator Cummins. What force do you think should regulate 
 prices ? 
 
 Mr. Carpenter. I do not believe in unrestricted competition in the 
 sense weused to have it 20 years ago, and I cited an instance of six 
 corporations which to-day were suffering from evil effects from that 
 competition. 
 
 Senator Cummins. If you do not believe in competition as a regu- 
 lator of prices, you must believe in some other force which will fix 
 prices. Now what is that other force ? 
 
 Mr. Carpenter. I believe, first, in a Federal incorporation act — 
 either Federal incorporation or a State license. I think, too, in 
 passing, that the State in which the company is organized still ought 
 to get its own taxes. Secondly, I believe in a commission to control 
 the issues of stock and bonds, with 20 per cent allowed for good will, 
 as to stock and bonds, based on actual assets. Thirdly, I believe in 
 simplicity. 
 
 Now, in my opinion, that is as far as we ought to go. That means 
 that these six companies that I am referring to could incorporate 
 under a Federal incorporation act, with their stocks and bonds based 
 upon actual assets. 
 
 I personally believe that if there has got to be some Government 
 control, the prices that are controlled should be in the nature of a 
 control of percentage of profits — 15 per cent, for instance — on the 
 net assets, rather than control on absolutely setting the prices. 
 
 Senator Cummins. I understand that proposition, but I want to 
 keep you to the former proposition. If you do not believe in com- 
 petition as a regulator of prices, you must believe in some force. 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Cummins. That is, outside of power arbitrarily, and there- 
 fore you must believe in the Government fixing the' prices, either 
 directly or indirectly, through a limitation of profit ? 
 
 Mr. Carpenter. I do. I believe in the latter. As I said, though, 
 I believe the first step should be publicity, and I would not take that 
 step toward Government control of prices unless we found it nec- 
 essary. 
 , Senator Cummins. What good would publicity do? 
 
 Mr. Carpenter. I think it would do a great deal more good than 
 you or I imagine, 
 
 , Senator Cummins. You do not know what I think it would do. 
 What do you think publicity would do in the way of regulating 
 prices? 
 
 . Mr. Carpenter. Take this concrete example — these six companies. 
 Suppose we were to organize; suppose our capitalization was to be 
 $8,000,000. Suppose we started out and the published reports of our 
 second year showed that we had made 40 or 45 per cent profit— abso- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1041 
 
 lutely exorbitant profh>— I believe public opinion would get after us, 
 and we would be fools not to reduce our profit to a reasonable amount. 
 I believe it would force us out. 
 
 Senator Cummins. Why ? 
 
 Mr. Carpenter. I will tell you. Because it would encourage com- 
 petition to enter that field immediately. 
 
 Senator Cummins. You do not believe in competition? 
 
 Mr. Carpenter. Surely, I do not ; that is why I say I would reduce 
 my percentage. If we made 45 per cent, competitors would come 
 into the field at once. 
 
 Senator Cummins. That is, you would reduce it because you feared 
 competition ? 
 
 Mr. Carpenter. That is one reason. 
 
 Senator Cummins. Well, that is competition. 
 
 Mr. Carpenter. It is fear of competition, and that is what I fear 
 all the time. 
 
 Senator Cummins. I am not distinguishing between fair and un- 
 fair competition. We all believe that there should not be any unfair 
 competition. 
 
 Mr. Carpenter. I said " fear of competition." 
 
 Senator Cummins. Well, you believe that what is called potential 
 competition ought to exist to regulate prices ? 
 
 Mr. Carpenter. Well, yes. 
 
 Senator Cummins. But you do not think in existing concerns there 
 should be any actual competition in business ? 
 
 Mr. Carpenter. I do not think you could avoid a certain measure 
 of competition. 
 
 Senator Cummins. You do not believe there ought to be two con- 
 cerns doing the same business and each trying to get its share of the 
 business ? 
 
 Mr. Carpenter. That is a pretty broad question. 
 • Senator Cummins. But we have got to come to that, If we are 
 going to eliminate competition from the business of this country, we 
 must substitute some force for it. 
 
 Mr. Carpenter. Yes. Well, I would not substitute any force that 
 would prevent the growth of other people coming into a business, 
 whether is it competitive or whether it is not. If you go on further 
 in my argument to where I got to the point where we have Govern- 
 ment control of profits, which I personally favor, there you could 
 have all the competition you choose. 
 
 Senator Cummins. I will come to that in a moment. But your 
 ideal of industrial conditions is one concern doing the entire business 
 in that field, but held in check by the fear that if undue profits were 
 realized from the business others would come into it. That is your 
 idea of ideal conditions ? 
 
 Mr. Carpenter. I would not go that far, even though I might not 
 be logical. Take the steel industry. We would not advocate several 
 independent steel companies coming under the control of the Steel 
 Trust. 
 Senator Cummins. Why not ? 
 
 Mr. Carpenter. Well, it might be unwise and might be ethically 
 wrong. 
 
 Senator Cummins. Why ethically wrong or unwise? If we want 
 to eliminate actual competition from business, why should not the 
 
1042 HEARINGS BEFORE 
 
 United States Steel Corporation now enlarge its organization so it 
 could take in every competitor that it has, and then go on and under 
 publicity confine its profits to a reasonable sum ? 
 
 Mr. Carpenter. Similar to some of the other concerns which have 
 been lately disintegrated by the Supreme Court ? 
 
 Senator Cummins. Now, if that is the ideal condition, it can be 
 brought about by a change in the law — and do you advocate a change 
 in the law that will permit that result ? 
 
 Mr. Carpenter. I do not. I do not advocate that. My first prop- 
 osition was that I did not advocate a change in the Sherman antitrust 
 law from the standpoint of there being a certain governing regulating 
 force in the Government. But I do, as a first step, in order to avoid 
 serious business disturbance, which I can see before us, favor some 
 method by which these large corporations can be disintegrated, if 
 the Government insists upon it, but disintegrated in some Way so 
 that they will not be all torn to pieces. 
 
 Senator Cummins. That is another question entirely; but when 
 you are framing a policy you must either frame it along the line of 
 competition or you must frame it along some other line. Now, you do 
 not believe, in competition — acthal competition? And therefore, it 
 seems to me, when you say you favor the retention of the antitrust 
 law and you believe in the decisions which have been announced 
 interpreting it, you are a little inconsistent. You may not be. 
 
 Mr. Carpenter. In my statement I said I did not believe in unre- 
 stricted competition any more than I believed in unrestricted mo- 
 nopoly, and I said, furthermore, that to go back to the old days of 
 old-time competition — — 
 
 Senator Cummins. What do you mean by " old-time competition "? 
 
 Mr. Carpenter. The old-time cut-throat competition, such as we 
 had an example of in these six companies that are suffering from the 
 effect of it to-day. 
 
 Senator Cummins. The world has grown up for 2,000 years under 
 the last era under that kind of competition, has it not ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Cummins. We have raised a pretty good set of men ? 
 
 Mr. Carpenter. Oh, yes, sir. 
 
 Senator Cummins. And developed not only our own country by 
 other countries? 
 
 Mr. Carpenter. And you have a full-grown child developed here, 
 but I do not know whether you can lop off some of its hands and legs 
 without hurting the child. 
 
 Senator Cummins. That is a question of what should be done with 
 those who have already violated the law. That, I agree, is a question 
 of power. But the question is what should be our policy for the 
 future? You believe that the law ought to be such that all the 
 existing enterprises in a particular line of industry could combine 
 together ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Cummins. And do business; and as a last resort you 
 would give the Government the power to limit the profit of that 
 organization ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Cummins. That is yotir view of what ought to be done? 
 
 Mr. Carpenter. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1048 
 
 Senator Cummins. Now jou have in mind five or six concerns, you 
 say, which have made no profit in recent years. What is the differ- 
 ence whether they have made profits or not as far as the public wel- 
 fare is concerned? 
 
 Mr. Carpenter. Well, the public welfare is affected in this way: 
 In the first place, here are these five or six companies with a great 
 many stockholders. That portion of the public are not getting any 
 return at all. Some of them should have returns. Iii the second 
 place, there is the effect upon the public represented by the working 
 man. I know positively that those concerns would be very glad to 
 give their men Saturday half -holiday if they dared, and they do not. 
 They have to economize. There are certain plans which I proposed 
 myself for the improvement of the working conditions— which is one 
 of my hobbies — but the men did not think they were wise, because 
 they did not have the money to put into it. 
 
 Senator Cummins. Do you believe that the Government ought to 
 become a guarantor of profits in a business ? 
 
 Mr. Carpenter. Not the guarantor ; no, sir. 
 
 Senator Cummins. Or to see that the struggle between business 
 men ceased, so that they should make a profit ? 
 
 Mr. Carpenter. I think, to put it concretely, in this particular in- 
 stance which I have described — here are six companies; they are 
 living under the old era of competition; they are fighting it tooth 
 and toenail. 
 
 Senator Cummins. They do not have to. There is no law that 
 compels them to sell below a fair profit, is there ? 
 
 Mr. Carpenter. I will tell you that in business you find when you 
 want to sell stuff you have to sell it to the public, and when you are 
 up against a competitor that is equal to you in quality you have to 
 eome down to the question of price. That is absolutely so in the con- 
 ditions of the past three years. 
 
 Senator Cummins. I know; but there is always the check that a 
 reasonable concern does not care to squander its capital by selling 
 below cost or a fair profit, and that, in the end, creates that evil, does 
 it not? 
 
 Mr. Carpenter. You would be very much surprised to see how 
 many concerns will do that in this particular case. Just follow me 
 a little bit further. Here are these six companies. There are two 
 of them that might be swallowed up by the other fellows, for we 
 claim that there is just as much swallowing up by companies as there 
 is in the big combinations. Those men are suffering; the stockholders 
 are suffering. They can not do what they want to. They are not 
 making a decent return on their investment. They would welcome 
 some plan whereby they could come under Federal supervision. 
 They would be willing to combine instead of watering their stock. 
 They would be willing to combine in any provision for actual net 
 assets, plus allowance for actual good will, and willing to adopt any 
 other further measure that the Government would think wise. That 
 is the reason I suggested a limitation of profit. It would be possible 
 to do that with the economies that would be gained from this par- 
 ticular combination which was raising prices to the public. 
 
 Senator Cummins. Now, speaking of the economies, the economies 
 could be practicable by discharges or dismissing a certain number of 
 employees ? 
 
1044 HEARINGS BEFOEE 
 
 Mr. Carpenter. Possibly a certain number, and also through 
 saving in rents, etc. 
 
 Senator Cummins. When they were dismissed they would have to 
 go into competition in order to get a new job, would they not? Why 
 should the Government not take care of them, too ? 
 
 Mr. Carpenter. That is something that we have fought up there 
 for many years. We have to economize. 
 
 Senator Cummins. We have fought along the other line, too, but I 
 do not see any more reason why the Government should make it 
 absolutely sure that capital should have a return than that all men 
 shall have employment at fair wages. 
 
 Mr. Carpenter. I was not saying that the Government should 
 guarantee 15 per cent of this investment. I was saying that the 
 Government should not allow them to go over a certain amount, and 
 if they did not make any money at all that was not the Government's 
 business. 
 
 Senator Cummins. The whole proposition is to enable capital en- 
 gaged largely at least in these six concerns to get a reward — get 
 profits. Now why should we not take care of competition between 
 workingmen and bring about such conditions that every workingman 
 would be assured of having a day's work and getting a fair day's 
 pay for it? 
 
 Mr. Carpenter. Of course, that you and I realize is out of the 
 question. 
 
 Senator Cummins. Why is it out of the question? If we become 
 socialistic to the extent of allowing capital to monopolize, why should 
 we not allow labor to monopolize? 
 
 Mr. Carpenter. But how does my plan allow capital to monop- 
 olize ? 
 
 Senator Cummins. I think it is quite evident. You are allowing 
 all the enterprises engaged in certain businesses, in order to escape 
 competition, to combine and consolidate, and therefore 
 
 Mr. Carpenter. That is what they have been doing for many years. 
 
 Senator Cummins. I am sorry to say that that is true. Therefore, 
 all should buy the commodities manufactured by such combined en- 
 terprises — they must buy of them — and at the prices fixed by that 
 combination. 
 
 Mr. Carpenter. Certainly. 
 
 Senator Cummins. That takes care of the capital absolutely, be- 
 cause, assuming that they are manufacturing something that must be 
 used, they will dispose of their products at a profit. Now, why 
 should we not compel somebody to employ these men and pay them 
 good wages? 
 
 Mr. Carpenter. Now let me answer that question as a Yankee 
 would. Here are these six concerns. It appears very desirable, from 
 their standpoint, from the standpoint of their stockholders and the 
 workingmen themselves, that they should combine. Why should 
 they not be allowed to combine ? 
 
 Senator Cummins. Well, I suppose I am really making a statement 
 as well as asking a question. I believe in the fight of life. I believe 
 that the best results will come in the end through a fair, decent 
 struggle in every department of life. I believe you hold your posi- 
 tion on the law of competition. You have got it because you are a 
 stronger and a better man for that place than others proved them- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1045 
 
 selves to be, and I think that capital should have the same fight that 
 labor has, or that men have, and that in a general way is my philos- 
 ophy of affairs. 
 
 Mr. Carpenter. In other words, you do not believe in the present 
 philosophy of business at all — the present idea of combining to effect 
 economies ; combining to get our export trade ; combining 
 
 Senator Cummins. I do. I have no objection whatever to the big- 
 ness of any corporation. 
 
 Mr. Carpenter. You have got to stop somewhere, provided it is 
 not so big as to eliminate competition. 
 
 Well, then, the question comes up, Where does that bigness begin 
 and where does it end? 
 
 Senator Cummins. I do not want to discuss that. 
 
 Mr. Carpenter. I beg your pardon. But in the early part of my 
 talk I said that "it must be admitted that there exists the greatest 
 uncertainty as to where legality ends and illegality begins in our in- 
 dustrial corporations of to-day. Mere bigness of plants, no matter 
 what the size, may not be illegal ; but when this bigness incidentally 
 results in eliminating a competition the result would be an appar- 
 ently illegal corporation, no matter what the intent." 
 
 Senator Cummins. That is my view of the antitrust law. I think 
 that is what it means. But you take, apparently, what seems to me 
 to be an illogical attitude in favor of the antitrust law, but against 
 the very object it seeks to accomplish. 
 
 Mr. Carpenter. I recognize the need of some regulating device, 
 some system of regulation. And when business men talk to me, as 
 they have in the last six or eight months, about wiping the Sherman 
 antitrust law off the books, that is mere folly ; it is politically impos^ 
 sible, and it would be unwise from our standpoint. But I believe in 
 some regulating device. I do not believe in the Sherman law in the 
 sense that it forces us back to the old era of competition and very 
 small units of doing business. 
 
 Senator Cummins. I do not want to be misunderstood. We are 
 conducting a sort of argument here. I think there are certain things 
 that are done under the name of competition which ought to be pro- 
 hibited, and which generally might be described by the phrase "un- 
 fair competition" : but I pass that. 
 
 You protect the public, after the combination that you have pro- 
 posed is effected, by limiting the profits to about 15 per cent. That 
 is, that would be a maximum ? 
 
 Mr. Carpenter. That is merely suggested. 
 
 Senator Cummins. Do you know what the average profit in the 
 manufacturing industry has been in the United States in the last 10 
 
 years ? 
 
 Mr. Carpenter. The average for the past five years has been very 
 much lower than 15 per cent. I do not know what the average is, 
 because I think it would be very hard to determine. 
 
 May I say that I think if you depend on Government reports 
 for that, you may or you may not get accurate results, because there 
 are many concerns that are making huge profits that do not disclose 
 those profits in their reports, and there are many concerns that are 
 making nothing at all that do not disclose that fact in their reports. 
 
1046 HEARINGS BEFORE 
 
 Senator Cummins. Po you not think that 15 per cent is a little 
 high for the reward of capital in anything but an extremely hazard- 
 ous or perilous business ? 
 
 Mr. Carpenter. The reason that I suggested or made tentative 
 15 per cent was that any set of business men that started a business 
 in any line, whether it is new or whether it is competitive or not, 
 must undergo fox probably the first three to five years a period of 
 stress and loss, and unless you make your interest large enough to 
 prove attractive, you will find that you would restrict new enter- 
 prises very severely. That is simply my impression, and that any 
 man who puts his money into a concern realizes that he has got to go 
 through periods of good years and bad years. 
 
 Senator Cummins. You would not want a maximum fixed which, 
 according to the experience of the business, would pay twice as much 
 as business has paid before? 
 
 Mr. Carpenter. No. That was simply an offhand suggestion, 
 because in an established industry it would be high, but in a new 
 industry it is not high at all. 
 
 Senator Cummins. I think that is all. 
 
 The Chairman. Senator Newlands, you may inquire. 
 
 Senator Newlanps. You say that you do not believe in unrestricted 
 monopoly, nor, on the other side, do you believe in unrestricted 
 competition. I presume then you do believe, to put it a little dif- 
 ferently, in beneficial cooperation on one side and on the other side 
 fair competition? 
 
 Mr. Carpenter. I think that states it fairly. When I say un- 
 restricted monopoly, if there is to be a monopoly, I believe that it 
 ought to be governed, it ought to be regulated by the Government, 
 and I do not believe in $ie old form of competition. That is what I 
 mean when I say unrestricted. 
 
 Senator Newlands. You do not believe in cutthroat competition? 
 
 Mr. Carpenter. No, sir ; I do not believe in cutthroat competition. 
 I do not think it is a good thing for this country, and I do not think 
 it has always resulted in lower prices to the public, because in the end 
 the cost of those things has to be paid by the public. The cost of patent 
 fjghts and the eost of the fights that I have been accustomed to in 
 different lines of business have always been borne by the public. I 
 used to be with the National Cash Register Co., and I want to assure 
 you that that, cost has to be added onto the cost of your article. 
 When you get unrestricted competition during the period of strife 
 you do not always get the benefit of that competition after the strife 
 is over. 
 
 I know this — I believe this — that the average business man to-day 
 in a competitive business is certainly not in the happy condition that 
 lots of people imagine. The average man throughout the country 
 has an idea that the manufacturer who is the president of a concern 
 and who rides around in his automobile to and from his business is 
 having a pretty easy time of it, when, as a matter of fact, while he 
 is riding around in his automobile he is figuring out how much his 
 next pay roll is going to be, how he is going to meet it, and how he is 
 going to meet his next bills payable. 
 
 I know of a dozen different instances where stockholders of a con- 
 cern are suffering, where the workingmen are suffering, and the men 
 at the head of the concern are suffering because of unrestricted com- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1047 
 
 petition. And, personally, I should dread to see the day when this 
 country would be drawn back into that condition. But in my opin- 
 ion it is impossible. I think we have got to a point in our growth 
 where we can not do it. 
 
 Senator Newlands. Now, in securing the benefit of cooperation or 
 combination under restrictions and regulations, to what extent would 
 you permit combinations to go, or rather to what would you limit 
 them? 
 
 Mr. Carpenter. You are getting around to Senator Cummins's 
 question exactly, and I do not know that it could be limited at all. 
 
 Senator Newlands. Would you limit the amount of capital that 
 should be employed in any particular combination, or would you 
 limit the number of plants 
 
 Mr. Carpenter. No. 
 
 Senator Newlands (continuing). Which it should secure, or would 
 you limit the area of business in which it should engage, confining 
 it to a certain proportion of the total business ? 
 
 Mr. Carpenter. It is a very pertinent and difficult question that 
 I have not given muoh consideration to, but I should say, offhand, 
 that I would not place any limits on it. 
 
 Senator Newlands. No limits whatever ? Then your theory of the 
 benefit of cooperation or combinations would would mean that the 
 participants of the particular industry could combine in such a way 
 as to absolutely monopolize the entire industry ? 
 
 Mr. Carpenter. That would be the net result, if it were carried out. 
 
 Senator Newlands. Very well. Now, then, that result being se- 
 cured — as you say that you do not believe in unrestricted monopoly — 
 wha^t restriction would you put upon it? 
 
 Mr. Carpenter. I would place the restriction of governmental 
 supervision over all these monopolies. 
 
 Senator Newlands. Supervision as to publicity? 
 
 Mr. Carpenter. I should restrict its profits. Starting first with 
 publicity, and then restricting profits if I found it necessary. 
 
 Senator Newlands. Then you would rely on public opinion in the 
 one case to prevent extortion ? 
 
 Mr. Carpenter. As a first step only- 
 Senator Newlands. Then, in the other, you would rely on a restric- 
 tion of profits? 
 
 Mr. Carpenter. If it had to come. In other words, I brought 
 forth the question of the restriction of profits in contradistinction to 
 the Government actually controlling or setting the prices. That is 
 what I mean. I think that would be much preferable. 
 
 Senator Newlands. I understand. Now, referring to public opin- 
 ion as a factor in preventing a great corporation which involved the 
 monopoly of an entire industry for the practice of extortion, you 
 would rely on two factors : One is the moral effect of public opinion 
 upon the action of men and the other is the possibility of arousing 
 competition by an exaction of high prices. You would not rely very 
 much upon the former, would you? 
 
 Mr. Carpenter. I think I would, personally ; yes, sir. I think 
 we have reached a point in this country when the business man who 
 refuses to recognize the power of public opinion is certainly a fool ; 
 and the business men I have talked to would know that if this re- 
 
1048 HEARINGS BEFOEE 
 
 suited — if this first step resulted in any practices that were unfair — 
 the next step would be much more radical. 
 
 Let me say that the business man of this country is verj' much 
 better educated on this question than he was two or three years ago, 
 and I think he is adopting a much more fair attitude than he did 
 before. 
 
 Senator Newlands. Now, referring to the second factor, potential 
 competition, do you not think that where a combination, accomplished 
 as you suggest under a capitalization involving simply a fair valua- 
 tion of the assets and a fair allowance for good will, that a competi- 
 tor would hesitate to enter into competition with so powerful an 
 organization ? Would he not realize that even if the prices, the ex- 
 isting prices, were high and even extortionate, that this powerful 
 combination, without the weakness of watered stock and with the 
 control of the entire industry, would be able to put down its prices 
 in such a way as to make his competition ineffective? Would you 
 not have difficulty in organizing a company under those conditions? 
 
 Mr. Carpenter. I do not know whether you would or not, because 
 the organization of an industry depends upon a great many things. 
 To-day you will find in the steel business, for instance, new steel 
 companies cropping out, notwithstanding the power of the United 
 States Steel Corporation. 
 
 Now, you take, for instance, the town of Middletown, Ohio. There 
 is an immense concern there — the American Rolling Mill Co., em- 
 polying over 3,000 men. Middletown is located about 40 miles from 
 Cincinnati. And they compete for all that business. The men at 
 the head of that concern are bright fellows, and they turn out an 
 excellent product of high grade, and they have cut down their over- 
 head expense to such an extent that they can meet any prices that 
 are made. 
 
 Even if you take an industry that was formed as you say, you 
 would still find men who could find a profit in organizing a similar 
 industry. 
 
 Senator Newlands. Assuming that you could find men, you would 
 have to protect them, would you not, against a brutal and destructive 
 competition by such a powerful organization? 
 
 Mr. Carpenter. Well, of course, I presume that you are getting to 
 the point that if you protect them at one end you ought to protect 
 them at the other. 
 
 Senator Newlands. You say you do not believe in unrestricted 
 competition ? 
 
 Mr. Carpenter. No. 
 
 Senator Newlands. It means, therefore, that you are going to 
 place some limitations upon competition. What condition would 
 you place upon competition? 
 
 Mr. Carpenter. I do not know of any limitations that I would 
 put upon competition except those that we have at our hand under 
 the common law, et cetera — just such a suit as has entered against 
 the cash-register company. 
 
 Senator Newlands. Your remedy, then, would be under the Sher- 
 man Act, would it? 
 
 Mr. Carpenter. I do not know that is under the Sherman Act. 
 I really have not studied that case. But I think if they have adopted 
 
COMMITTEE ON INTERSTATE COMMERCE. 1049 
 
 any unfair methods, the only recourse you have would be at the 
 common law. I do not see any way in which to protect a man from 
 controlling prices. 
 
 Senator Newlands. Do you think there is anything that could be 
 done in the way of preventing a powerful monopoly of this kind 
 from lowering the prices in the field attempted to be entered by a 
 competitor while it maintained their prices at all other places out- 
 side of that territory? 
 
 Mr. Carpenter. I think the most effective manner of doing that is 
 one brought forth by Mr. Bartels this morning. His plan was that 
 whenever a concern lowered its prices in a certain field they should 
 be compelled to make the same prices in all other parts of the country. 
 
 Senator Newlands. You regard that as a fair provision of law in 
 the way of restriction of competition ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. Now, with regard to profits. You spoke of the 
 limitation of profits to 12 or 15 per cent, and you also said that those 
 were purely tentative and may be too high. "Suppose a corporation 
 this year makes 15 per cent and next year makes nothing, and the 
 year following makes — what percentage would you allow them to 
 make the next year or the third year ? 
 
 Mr. Carpenter. I would not allow anything for the bad year. 
 That is the reason I suggested 12 or 15 per cent. 
 
 Senator Newlands. You would not average the profit ? 
 
 Mr. Carpenter. I would not. 
 _ Senator Newlands. In other words, you would not have cumula- 
 tive profits ? 
 
 Mr. Carpenter. No, sir. 
 
 Senator Newlands. Well, now, the difficulty about that would be 
 the amount of profit allowed. Supposing the profit should be put 
 at the average profit of business in this country, say 7 per cent ; say 
 somewhere between 6 and 7 per cent. Do you think that the forma- 
 tion of these manufacturing companies would be encouraged ? ' 
 
 Mr. Carpenter. At 6 or 7 per cent? 
 
 Senator Newlands. Yes. 
 
 Mr. Carpenter. I do not know. I hardly think so, because the 
 percentage is so low — it is too low to take care of the lean years. 
 
 Senator Newlands. You realize that under your plan the Steel 
 Trust, for instance, would be able to make as much profit as it does 
 now, if not a larger profit? 
 
 Mr. Carpenter. Yes, sir; I realize that. 
 
 Senator Newlands. Assuming that the plant is worth a billion dol- 
 lars and it is capitalized at a billion and a half. It is at present 
 paying only, I believe, 5 per cent on its bonds, 7 per cent on its pre- 
 ferred stock, and about 2 per cent on its common stock. 
 
 Senator Cummins. Five per cent. 
 
 Senator Newlands. On par? 
 
 Senator Cummins. Yes. 
 
 Mr. Carpenter. My answer would be then if you take it from the 
 time of the formation of the Steel Trust to the present time, that 
 would be about the average. I do not think it would be much higher 
 than you have stated. 
 
1050 HEARINGS BEFORE 
 
 Senator Newlands. I imagine that the total profits to-day of the 
 Steel Trust, after allowance for depreciation, et cetera, would hardly 
 surpass 15 per cent on a billion and a half. 
 
 Mr. Carpenter. I should not think so. I really do not know. 
 
 Senator Newlands. And that would just about furnish them the 
 interest that they are now paying on their inflated securities ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. So that the people would not get any benefit 
 from that in the way of reduced prices. I think you will have to fix 
 your limit of profit much lower than that. 
 
 Mr. Carpenter. I am merely throwing this out as a suggestion. 
 I have studied the matter very carefully, but my suggestion may be 
 full of holes. I believe this : That when Judge Gary and Mr. Wick- 
 ersham and when Mr. Perkins stand up and talk about governmental 
 control of prices we have to recognize the fact that somebody of 
 prominence thinks it is coming. I can not see, for myself, where it 
 is practicable for the Government to set a price, because I brought 
 out the fact that in the handling of such articles as cash registers and 
 sewing machines the selling cost is as great, if not greater, than the 
 production cost. And in many industries outside or the steel indus- 
 try and the sugar industry the cost of distribution is very great. 
 
 When the Government attempts to set a price, it would have, first, 
 to find out what the cost of production is; then it would have to 
 ascertain the selling cost, the distribution cost. 
 
 And again I said this, that in one of the companies in which I am 
 associated we sell to six or seven hundred dealers. I make the 
 prices to the dealers, and the dealers make the prices to the con- 
 sumers. Now, then, if the Government would fix the price to. the 
 consumers, control the price to the consumers, it would have to con- 
 trol the price that I make if a competitor produces a lower quality 
 of goods and sells for a lower price, and the Government fixes a 
 price on that product, steel files, we will say, the public has to take 
 the same quality. If the Government should reduce the price on my 
 competitor's quality, I would have to reduce my quality, which I can 
 not do. That puts me out of business. If they put the price on my 
 quality, that would put him out of business, because my goods are 
 better. 
 
 There is such an infinitude of possibilities that I could not say 
 anything. No, sir. 
 
 Senator Newlands. I think a general agreement as between the 
 two. with a limitation of profits, provided it is sufficiently low, would 
 be a more satisfactory way of adjusting prices than through a regu- 
 lating tribunal. 
 
 Now, you speak of the business conditions of the country and of 
 the curtailment of credits. Is there any curtailment of credits tak- 
 ing place in the banks of the country now ? 
 
 Mr. Carpenter. In my opinion there is ; yes. 
 
 Senator Newlands. How long has that condition been in existence? 
 
 Mr. Carpenter. Well, I think it has been growing on us for from 
 nine months to a year. 
 
 Senator Newlands. And you think the origin of that is in the 
 eastern centers? 
 
 Mr. Carpenter. I certainly do ; yes, sir. 
 
COMMITTEE ON INTERSTATE COMMENCE. 1051 
 
 Senator Newlands. These eastern centers, I presume, the banks 
 and the trust companies, etc., have large amounts of these stocks and 
 bonds of the great trusts? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. As collateral securities for their loans ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. Do you know whether there has been any cur- 
 tailment of such credits arising from the fear that the market value 
 of those stocks and securities may be affected ? 
 
 Mr. Carpenter. I think, if we guide ourselves by the reports of 
 loans and of clearing-house data, we can not get very far, because so 
 much of that is connected with the speculative business in New York 
 City— that is to say, that is all lumped together. But when it 
 comes to a question, of commercial loans, you are up against an en- 
 tirely different proposition. You go into New York or Philadelphia 
 when the statement is made that " money is easy " and " money is 
 very easy " and " you can borrow very easily." It has been my' ex- 
 perience that it has been at those particular times that it is very hard 
 to get a loan commercially to carry on your business. The money is 
 easy on Wall Street for speculative purposes, but it is not easy for 
 commercial purposes. 
 
 I think that we are very often misled by the fact that our clearing- 
 house reports indicate the total clearing-house returns, with the 
 speculative and the commercial elements combined. 
 
 Senator Newlands. Do you not think that that condition is largely 
 due to the fact that the great banks, particularly of New York, have 
 lost sight of the true function of banking — that is, to promote 
 exchange ? 
 
 Mr. Carpenter. Yes 5 sir ; I do. 
 
 Senator NeWlands. And they turn this into promotion and specu- 
 lation ? 
 
 Mr. Carpenter. I certainly do, Senator. 
 
 Senator Newlands. But you are positive that this wave of con- 
 traction, curtailment of credits, is extending over the country? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. You are apprehensive that it will increase? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Newlands. And, therefore, you wish, instead of a radical 
 and violent readjustment of these things through the courts, which 
 you fear will increase this curtailment of credits — you favor a gradual 
 adjustment of these matters through a regulating body under rules 
 fixed by law? 
 
 Mr. Carpenter. I do; most decidedly. My position, in a few 
 words, is this: Our business men have, to a large extent, learned 
 their lesson. Whether they want to or not, they recognize that they 
 must come under some regulating device, and they are ready and 
 willing to readjust themselves to any reasonable demand that may 
 be made upon them. If some way can be devised to make that change 
 without some violent disturbances, I think it would be very desirable, 
 and we would gain the same results. 
 
 Senator Newlands. What would have been the effect, for instance, 
 had the Supreme Court, instead of determining that it was the duty 
 of the court not only to disorganize these great trusts, but also to 
 
1052 HEARINGS BEEOBE 
 
 reorganize them under a plan that would not be inharmonious with 
 the law — suppose they had contented themselves with destroying the 
 existing trust — what would have been the effect ? 
 
 Mr: Carpenter. That is, adopting Judge Harlan's ideas? 
 
 Senator Newlands. Yes. • 
 
 Mr. Carpenter. I think the first result would have been a convul- 
 sion on Wall Street, and that that convulsion would have extended 
 throughout the country. In my opinion, you can not get away from 
 that, for any disturbance of those stock values is sure to be felt. 
 They are all tied up together, so that we can not get away from 
 that. I think that the greatest panic that this country has ever seen 
 was averted at the time that decision was rendered. There certainly 
 would have been a great panic if that decision had been anything 
 but the very wise decision it was, and this country would have suf- 
 fered very severely. 
 
 Senator Newlands. And that condition, you think, would have 
 largely arisen from the fact that the banks had been aiding in the 
 promotion of speculation and in the issue of these watered securities, 
 instead of attending to their real functions as instrumentalities of 
 •exchange ? 
 
 Mr. Carpenter. I think that is a very full statement. I think 
 that is very true. 
 
 Senator Newlands. Do you not think that part of this remedy 
 will be such banking laws as will prevent that kind of thing in the 
 future ? 
 
 Mr. Carpenter. Of course, I do not feel at liberty to discuss that. 
 I am not a financier, but I certainly do feel strongly that something 
 should be done. I do not think the country can get where it should 
 be without the proper banking laws. But that is another subject. 
 
 Senator Newlands. I won't go into that. That is all. 
 
 The Chairman. Senator Oliver, you may inquire. 
 
 Senator Oliver. Mr. Carpenter, in regard to these six companies 
 to which you have referred, do they cover the entire field in their 
 line, or different lines of manufacture ? 
 
 Mr. Carpenter. In some portions of it; yes, sir. They manufac- 
 ture approximately five different articles, and in three oi them they 
 would control the field ; that is, they would control from 80 to 85 per 
 cent of the field. 
 
 Senator Oliver. Then your suggestion is that in those three lines, 
 say, they would cover the entire field, and there should be some legis- 
 lation had which would enable them to do so ? 
 
 Mr. Carpenter. First, which would enable them to do so; and, 
 second, which would then prevent them from doing things which 
 they should not do afterwards. 
 
 Senator Oliver. I understand. To do that would require a repeal 
 of the second section of the Sherman law, would it not? 
 
 Mr. Carpenter. Well, it would be a question as to whether they 
 intend to monopolize or not. 
 
 Senator Oliver. But any person who monopolizes surely intends 
 to monopolize? 
 
 Mr. Carpenter. Well, when we get to the question of intent you 
 are not getting to the question of intent to monopolize, but to the 
 question of doing it unreasonably. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1053 
 
 Senator Oliver. I do not understand that there is any limitation; 
 that the word " reasonable " or " unreasonable " comes in the second 
 section regarding monopoly. And thereafter they would be re- 
 strained only by their sense of what was fair and right and by Such 
 regulations as the Government would impose ? 
 
 Mr. Carpenter. Yes, sir ; as against the present condition. 
 
 Senator Oliver. I believe I have nothing further on that line. 
 Now, with regard to your suggestion as to the limitation of proffts : 
 Do you not think that such a limitation would be restrictive of com- 
 petition in this, that it would almost absolutely bar anything in the 
 shape of individual initiative in the establishment of new industries? 
 
 Mr. Carpenter. Well, now, you take this particular industry. 
 Suppose they were organized and allowed to earn from 12 to 15 per 
 cent, whatever may be agreed upon. Your question is whether or 
 not they would not be so powerful as to stifle all attempts to start a 
 new business? 
 ( Senator Oliver. No ; that is not what I am after at all. My ques- 
 tion has no reference to the combination at all. It has reference 
 simply to your suggestion of the restriction or limitation of profits 
 to — well, you suggested a maximum of 15 per cent. 
 
 Mr. Carpenter. I see what you mean. 
 
 Senator Oliver. Now, is not this country filled with instances 
 where young men started in on nothing, or on a very small capital, 
 and through their individual energy and enterprise gradually built 
 up industries that grew to be very great ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Oliver. Carnegie, himself, is an example of that, is he 
 not — is he not the most prominent example? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Oliver. Now, would not this law limiting the profits of 
 industrial enterprises be calculated to prevent men of that kind from 
 going in and building up competitive enterprises ? 
 
 Mr. Carpenter. It might, Senator. This is what I said: In the 
 first place, that during a period of from three to five years a man 
 has to figure that he does not make very much.- If he does, he is 
 fortunate. Many concerns that have made rates of 15 per cent, as 
 you say, have built up their businesses to a great extent. 
 
 Now, to come back to concrete examples — this combination that 
 I was talking about. As the conditions of the country stand to-day, 
 no man would be encouraged to go into that business, because the 
 fruits of competition are so large that anybody who would put money 
 into that business would be very foolish. 
 
 Now, the effect might be as you say ; I can not tell. But I do not 
 believe that even a man starting in a business would have a right to 
 figure on 100 per cent profit. Because we get right back to the ques- 
 tion of protection to the public. You have to make some sort of 
 ruling somewhere. A man starting in business on a necessity — if he 
 is going to charge 100 per cent profit, so that he may make his busi- 
 ness grow, he is going to charge the public a high price for that 
 article. 
 
 Senator Oliver. Suppose that the Government was going to take 
 hold of all businesses and run them — but if -you depend on individ- 
 uals to run them, you have to look at it from a different standpoint. 
 
 Mr. Carpenter. Yes, sir. 
 
1054 HEARINGS BEFORE 
 
 Senator Oliver. I have nothing more. 
 
 The Chairman. Senator Watson, you may inquire. 
 
 Senator Watson. I believe that you said that you were chairman 
 of the antitrust committee of the Chamber of Commerce of New 
 York? 
 
 Mr. Carpenter. No, sir. Of the New York Board of Trade. 
 
 Senator Watson. What is the object of that committee? 
 
 Mr. Carpenter. The object of that committee is to consider this 
 question from the standpoint of the business man to see whether or 
 not, by 'getting together and talking together, we can not from our 
 standpoint work out some plan that would be agreeable to us and 
 educate ourselves and educate the board of trade. 
 
 As a matter of fact, Senator, I think, as I said awhile ago, that 
 the business men of to-day are just beginning to get educated to this 
 Sherman law; and we organized that committee to study the ques- 
 tion from the standpoint of the business man and see where we were 
 going to land, and to see whether or not the present attitude of the 
 Government was a wise one from our standpoint. 
 
 Senator Watson. Has your board of trade or your committee 
 reached a conclusion ? 
 
 Mr. Carpenter. Nothing that I could announce; no, sir. I would 
 hesitate to speak for the others; I am simply speaking for myself. 
 
 Senator Watson. You have spoken of the business uncertainty, or 
 rather of an unhappy business situation, in the country — the restric- 
 tion of credit. Now, take the three concerns that have been mentioned 
 here, the American Tobacco Co., the United States Steel Co., and 
 the Standard Oil Co., and you take their stock to a bank in Chicago 
 or Washington or New York. You would not find ahy difficulty in 
 securing a loan on that stock as collateral, would you ? 
 
 Mr. Carpenter. Probably not. 
 
 Senator Watson. Now, take a corporation with standard credit 
 that desires to raise an amount of money to use in its business; that 
 concern would not have any trouble discounting its note to-day in 
 Chicago or Washington or New York, would it ? 
 
 Mr. Carpenter. Its note — just an open note without security? 
 
 Senator Watson. Or commercial paper. 
 
 Mr. Carpenter. I think the commercial paper would be much more 
 difficult to handle now than it would have been nine months ago. I 
 know that. I would not say that you could not get a loan, but there 
 is more difficulty to-day. Banks will talk to you and try to get you 
 to reduce your loans. The tendency is not to encourage anything 
 that looks toward expansion. 
 
 Senator Watson. You are talking about expansion. 
 
 Mr. Carpenter. The tendency is to look toward crowding down 
 the limitations. 
 
 Senator Watson. Not a refusal to loan money to carry on the pres- 
 ent business ? 
 
 Mr. Carpenter. I do not think any reputable business concern 
 would go under, of course. But that is not saying that there is not 
 more difficulty now than there was. 
 
 Senator Watson. If you wanted to build a new factory, and would 
 go to Chicago or New York and wanted to sell to the bankers secur- 
 ities in the form of bonds or stocks to build that factory, you would 
 have difficulty in getting that money? 
 
COMMITTEE ON INTERSTATE COMMEEOE. 1055 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Watson. Now, you are, of course, familiar with the way 
 of bankers distributing securities. They do not buy your securities 
 to keep ; they buy them to sell to the investing public, and they expect 
 to make their profit through a commission— is not that the eeneral 
 form? & 
 
 Mr. Carpenter. Certainly. 
 
 Senator Watson. Does not this condition that you have spoken 
 of rest in the investing public instead of in the bankers or the large 
 business men? 
 
 Mr. Carpenter. I do not know whether it starts with the investing 
 public or not. 
 
 Senator Watson. The bankers will take your securities if they can 
 sell them at a profit ? 
 
 Mr. Carpenter. Yes ; they would be glad to do it. - 
 
 Senator Watson. They would be willing to take any securities 
 that they could sell at a profit, would they not ? 
 
 Mr. Carpenter. Oh, yes; probably. 
 
 Senator Watson. They are taking German loans to-day and dis- 
 tributing them throughout the country among our investors; taking 
 foreign loans of various kinds? 
 
 Mr. Carpenter. My opinion is that it is a very involved question. 
 You get back to the original investor. Then you must ask, What 
 is the alarm in his mind ? 
 
 Senator Watson. I wanted to locate the alarm. 
 
 Mr. Carpenter. I think it is the attitude of the banker. 
 
 Senator Watson. The banker wants to do business; he wants *'■ 
 buy and sell securities as much to-day as he ever did, doesn't he( 
 
 Mr. Carpenter. He wants to do it on only a very safe and col 
 servative basis. If he feels the slightest alarm about the industrial 
 condition of the country his tendency is to restrict. 
 
 Senator Watson. Do you not know that, as a matter of fact, there 
 are several large railroads to-day trying to sell their securities for 
 double-tracking their roads? They regard it as a safe investment, 
 and the bankers would be glad to take those securities if they could 
 distribute them. 
 
 Mr. Carpenter. If they can distribute them ; yes, sir. 
 
 Senator Watson. I want to locate this lack of confidence ; whether 
 it is the bankers, the business man, or the public. 
 
 Mr. Carpenter. I might be an investor. What would alarm me 
 as a business man ? Would I invest in these railroad securities now ? 
 No; I would not; because I feel that the banker— that his attitude 
 all the time is one of restriction, crowds you down, limits your output, 
 reduces your expenses. And I get that reflection from him every 
 time I see him. It is a general attitude. Consequently it makes me 
 begin to feel cautious. 
 
 Senator Watson. Is not that because he can not replace his se- 
 curities ? 
 
 Mr. Carpenter. My theory is that he feels the alarm coming from 
 the New York center ; the disturbance of business. That is where I 
 place it primarily. The disturbance to large enterprises disturbs the 
 banker who holds these securities, and he involuntarily disturbs the 
 very people to whom he would like to sell these securities by his action 
 in restricting everything. 
 22877 — vol i — 12 67 
 
1056 HEARINGS BEFORE 
 
 Senator Watson. Assuming that the bankers could take and dis- 
 tribute securities to-day, railroad securities, industrial securities, 
 would not business almost immediately revive and return to its nat- 
 ural condition ? Is not this disturbance caused by the bankers being 
 unable to place securities ? 
 
 Mr. Carpenter. Well, of course, in one sense it is. As I say, the 
 whole question is so involved that it is pretty hard to answer one 
 part of the question bearing on that. I think one cause of the trouble 
 is that the banker can not sell his securities to the investor. But as 
 to the reason for that disturbance in the mind of the investor, the 
 reason for the disturbance in the mind of my business friends out in 
 the Central West, is not so much the question whether they wanted 
 to buy a share of stock or did not want to buy it. It is more a mat- 
 ter that they feel this restriction coming from financial circles, and I 
 trace that restriction back to the disturbance in the larger corpora- 
 tions. For you understand and I understand these immense corpora- 
 tions are knit closely together with all our financial institutions. 
 
 Senator Watson. Is not the first thing to do to restore confidence 
 to the investor, whether that comes through the influence of the 
 banker or whether it comes through the influence of other sources? 
 Isn't that the first thing necessary? 
 
 Mr. Carpenter. I should say so. 
 
 Senator Watson. There would be no business revival in this coun- 
 try until 
 
 Mr. Carpenter. Until there is a restoration of confidence all along 
 the line, starting, you may say, with the investor. 
 
 Senator Watson. That is all. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Mr. Carpenter, I was going to ask two or 
 three questions which have already been asked, but I did not quite 
 get my idea. I understand that your position opens a great field 
 for controversy, but I do not want to enter that. I would like, how- 
 ever, to get clearly in my mind your proposition, because that is what 
 you are here for, so far as I am concerned, to get your idea. 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. Now, I understood you to say that you arf 
 in favor of the Sherman antitrust law ? 
 
 Mr. Carpenter. In favor of the Sherman antitrust law inasmuch 
 as it is a governing, a regulating law. I feel the need of a regulat- 
 ing device there. I feel the need of an absolutely regulating statute. 
 And I believe further that we have got to deal with the Sherman 
 antitrust law as it stands on our books — possibly amended as you 
 gentlemen may recommend later on. But the primary law would 
 have to stand because it would be impossible to wipe it off the books 
 or change it radically. 
 
 Senator Townsend. The regulation which you get from the Sher- 
 man antitrust law would be the decisions of the court ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. I understood you to say that you were friendly 
 and agreeable to the decisions in the Standard Oil case and the 
 tobacco case ? 
 
 Mr. Carpenter. Yes, sir. Of course, I went a little bit further 
 and asked for something else. In other words, if you pin me down 
 to my statement that I was in favor of the Sherman antitrust law 
 
COMMITTEE ON INTERSTATE COMMERCE. 1057 
 
 and do not take into consideration the further statement that I have 
 made, .you would have me assuming a very illogical position. 
 
 My statement is that the Sherman antitrust law, not as it stands 
 on the books, but the Sherman antitrust law as interpreted now, in 
 my opinion, should be amended, or relief given to the corporations, 
 giving them a chance of relief, and not pursuing them through the 
 courts. 
 
 Senator Townsend._ You are not in favor of allowing the Sherman 
 antitrust law to remain on the books without enforcing it ? 
 
 Mr. Carpenter. No ; that is impracticable. 
 
 Senator Townsend. And most of the men who have appeared 
 before us have agreed that finally, after 20 years, we have arrived at 
 an interpretation of that law which is really controlling in its nature. 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. Now you say you would like an opportunity 
 to combine the various kinds" of business or branches of a particular 
 business into one business. As I understood you, you are in favor 
 of that because of certain economies which could be practiced ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. I also understood you further to say that you 
 are not in favor of old-fashioned competition, or unrestricted com- 
 petition ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. What is the object of a business taking ad- 
 vantage of economies in manufacture? 
 
 Mr. Carpenter. To make more gain for the stockholders. 
 
 Senator Townsend. And to compete, is it not, with other concerns ? 
 
 Mr. Carpenter. Yes, sir; to compete. 
 
 Senator Townsend. If it had an unbridled monopoly it would 
 not make any difference to them. It would charge for all these extra 
 expenses and still get its returns? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. So that, after all, isn't it a fact that while you 
 are shutting off competition at one place you are seeking to increase 
 it in another? 
 
 Mr. Carpenter. I do not quite catch that argument. 
 
 Senator Townsend. Perhaps I am a little dull about that. 
 
 Mr. Carpenter. No, I will attribute that to myself. 
 
 Senator Townsend. I again state that your object in combining 
 your six different concerns is to gain through economies and to 
 compete with other concerns. 
 
 Mr. Carpenter. "Well, not in this particular concrete case that 
 we have mentioned, because in several instances the several fields 
 would be controlled. My object was to eliminate competition. Take, 
 for instance, this particular concrete case ; the object was to save the 
 distressing results of competition and give to the stockholders, give 
 to the workingmen and the men employed, a fair return on their 
 capital, and at the same time provide some restriction that would 
 make it impossible for them to inflict higher prices on the public. 
 
 Now, you state that the advantage of a combination is to economize 
 so as to enable us to sell more and wipe out competition 
 
 Senator Townsend. To compete with similar concerns? 
 
 Mr. Carpenter. Yes, sir. 
 
1058 HEARINGS BEFORE 
 
 Senator Townsend. If you carry that far enough, until you get 
 all the business of that particular kind under one head, there would 
 be no disposition to compete, because there would be nothing to com- 
 pete with except latent competition that might spring up. Isn't 
 that true ? 
 
 Mr. Carpenter. Well, yes. Your next step in your argument 
 would be that if a concern were large enough it would stop improve- 
 ments; it would be satisfied not to expend any money on improve- 
 ments. It would quit right then. Then it is a question 'whether the 
 bright young men would not see this corporation's slothfulness and 
 their inability to take advantage of their power, and they would 
 probably go into business. 
 
 Senator Townsend. I get your point on that. I just asked that 
 question for the purpose of getting your idea. I understood you 
 further to say that you condemned organized greed as it is repre- 
 sented by certain great business concerns of the country ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. You think that conditions, in a business way, 
 have grown up which are not altogether desirable ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. And one of your remedies for that is the reg- 
 ulation of the issuance of stocks and bonds? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. What are you going to do with the existing 
 or going concerns? 
 
 Mr. Carpenter. That is, of course, a problem which I have con- 
 sidered and have not been able to answer to my own satisfaction. 
 As to whether or not it would be practicable to make them scale 
 down or not I do not know; but my opinion is that they should 
 be forced to, even though it resulted in a loss to the stockholders. 
 The net result would be to the good of the country. We have to con- 
 sider not only the stockholders, but we have to consider the good 
 of the country at large, the good of the average man, and I per- 
 sonally would be in favor of applying that rule to existing corpora- 
 tions. If they had watered stock, I would make them squeeze it out. 
 
 Senator Townsend. I was wondering whether that would be nec- 
 essary, although I can not see how it could be done. But if you are 
 going to carry your theory out; if it is true that the regulation of 
 stocks and bonds to actual assets, plus 20 per cent good will for new 
 concerns going into business, would it be quite fair, if that result 
 was going to be cheaper prices to the community, to compel them 
 to compete with the concerns that have very large capital? 
 
 Mr. Carpenter. Yes. But, on the other hand, hasn't this huge 
 company, with its water in capital stock and its indebtedness — hasn't 
 this a greater burden, because of the mere fact that they have issued 
 all this ? Take a huge corporation that may be capitalized at $1,000,- 
 000,000 on $500,000,000 of capital stock. If you come along with a 
 $500,000,000 corporation of actual assets, your overhead charges 
 would be very much less as a matter of fact, and the chances are you 
 could undersell the huge corporations. 
 
 Senator Townsend. But supposing there was a combination now 
 and we adopted your theory of limiting profits. Upon what would 
 you fix your profits of that greatly watered concern— what would it 
 be entitled to earn ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1059 
 
 Mr. Carpenter. My opinion is that I would make them^-if they 
 <:ame under the Federal incorporation act — I would make them read- 
 just their stocks and issues of bonds. 
 
 Senator Townsend. So that finally your plan must necessarily 
 get down to the basis of squeezing the water out of all going con- 
 cerns, and prevent any water going into new concerns. 
 
 Mr. Carpenter. Yes, sir. But as a matter of fact, that would not 
 result in as serious a proposition as you might think. Take some of 
 those concerns that have been in existence for 10 years; their profile 
 have been such that formerly what was watered stock — those profits 
 going back into the concern have resulted in actual values. 
 
 Senator Townsend. Ought the fear of disturbing illegitimate 
 business — as I take it, you would admit that much of it has been 
 illegitimate ? 
 
 Mr. Carpenter. Yes, sir. 
 
 Senator Townsend. Ought the fear of disturbing illegitimate busi- 
 ness to prevent Congress from taking some steps, either at once or 
 ultimately, to correct the bad condition? 
 
 Mr. Carpenter. It ought to be jcorrected. There is no doubt of 
 that, and we ought to take steps to do it. But the only trouble is 
 that when you affect the illegitimate business the legitimate business 
 concerns of the country are also suffering and suffering badly. Now. 
 then, my proposition was that if we could take the managers of 
 these illegitimate businesses, as some of them are willing to recog- 
 nize the force of public opinion and the necessity for being gov- 
 erned — if we could take that group and find some means of relief, 
 it would be preferable to do it that way rather than put it through 
 the laws courts and so disturb the average business man. 
 
 Senator Townsend. But does it not finally come down to this : That 
 all this apprehension in regard to business, business conditions, arises 
 out of the fact that there has recently been an effort on the part of 
 the Government to enforce the law — a law that you regard as a good 
 law. and everybody that has been here says it is a good law? But 
 because there is an effort to enforce that law, this apprehension of 
 disturbance and of business disaster came up, and the cry is uttered 
 "let up"; "don't enforce the law"; "don't prosecute these men, but 
 get some commission or something or other that will help them 
 around the difficulty " ? 
 
 Mr. Carpenter. Yes; that is right. We do cry for it. We do 
 admit that as long as the law is on the books it ought to be enforced. 
 We do admit that there is a lot of illegitimate business that ought 
 to be controlled. We do admit that these decisions were very wise. 
 But we furthermore say that rather than hurt the average business 
 man, rather than plunge the country into business disturbance, that 
 if you can compromise, if you can shape these corporations to your 
 will, and make them do what they should do, to have these corpora- 
 tions come to a form and shape within, say six months— the same 
 form and shape that they would through suits after two years— I 
 think the average business man to-day would approve of that plan. 
 That is my proposition. 
 
 Senator Townsend. I agree with you on that proposition, if that 
 can be done. 
 
1060 HEARINGS BEFORE 
 
 Mr, Carpenter. We want the corporations forced finally to the 
 shape that they should be put into. But is there not some way of 
 doing it that will cause less disturbance? 
 
 Senator Townsend. I do not think there is anything further I 
 want to ask. 
 
 The Chairman. That will be all. The committee is very much 
 obliged to you, Mr. Carpenter. 
 
 Mr. Carpenter. Gentlemen, I thank you very much. 
 
 Mr. Carpenter was thereupon excused. 
 
 The Chairman. Mr. Bartles, will yon take the stand? 
 
 STATEMENT OF JOSEPH BARTLES, OF ST. PAUL, MINN. 
 
 The Chairman. Please state your name, residence, and occupa- 
 tion, Mr. Bartles. 
 
 Mr. Bartles. My name is Joseph Bartles ; my residence is St. Paul. 
 I am president and treasurer and owner of the Bartles Oil Co., of St. 
 Paul. I am vice president of the Bartles-Maguire Oil Co., of Mil- 
 waukee. I am not connected any more with the Bartles-Sweney Oil 
 Co., of "Waterloo. I had a half interest in that and gave it to my 
 daughter, Mrs. Shepherd. I am not connected with the Bartles Oil 
 Co. at Grand Forks ; that is my son's. I had a half interest in that, 
 but I gave it to him. I am not connected with the Bartles-Sweney 
 Oil Co., of Peoria, which I founded, as I sold my interest in that to 
 Mr. Guy Sweney for his brother's benefit. 
 
 But I founded those five oil companies in the last nine years and 
 a half. 
 
 I was with the Standard Oil Co. at St. Paul ; left them as general 
 manager a little over 10 years ago. I have been with them twice in 
 the Northwest. I have been in the oil business for myself twice at 
 St. Paul in competition. I have been there since 1882 and have been 
 in the oil business all the time. 
 
 We in the West have relied on our legislatures and on our railroad 
 commissions to get relief, so that we could compete successfully with 
 the Standard Oil Co. 
 
 Senator Townsend. On your State laws? 
 
 Mr. Bartles. Yes ; our State laws. 
 
 I applied to the Eailroad Commission of Minnesota, I think it is 
 seven years ago, and asked to have" the classification on oil in less than 
 carload lots changed from third to fourth class. I also applied to 
 the Eailroad Commission of South Dakota and to the Railroad Com- 
 mission of North Dakota. They were all present at the hearing at 
 St. Paul, and the Railroad Commissions of Minnesota and South 
 Dakota granted our petition, giving us fourth-class rates instead of 
 third-class. 
 
 The Standard Oil Co. made their prices on what it cost us to 
 deliver oil. When we could deliver oil cheaper, they would reduce 
 their prices all over these two States. Then I went to the officers 
 of the Great Northern, the Northern Pacific, and the Sault Line and 
 asked them personally whether they did not think it would be to 
 their interest to increase the shipments of oil in barrels from St. 
 Paul and Minneapolis to points in North Dakota, showing them 
 that whereas they were shipping for the Standard Oil Co. in tank 
 cars, getting 315 pounds freight on a barrel of oil, while they were 
 
COMMITTEE ON INTERSTATE COMMERCE. 1061 
 
 getting 400 pounds on every barrel of oil they carried for us, and 
 they were carrying the empty barrels back. The Standard Oil Co. 
 shipped in tank cars. They finally admitted that there was some- 
 thing in that, and they voluntarily gave us fourth-class rates into 
 North Dakota. In the meantime the Standard Oil Co. had to re- 
 duce their prices from half a cent to a cent a gallon in these three 
 States on their 30,000,000 gallons. So that it made a difference of 
 about $200,000 a year that they took out of the people of those three 
 States on oil and gasoline. It did not make any difference to us. 
 
 Now, they never got the prices back again. 
 
 Then we went to the legislature of Minnesota five years ago and 
 urged the passage of an antidiscriminating law. I think Iowa was 
 the first State that passed what is called the " antidiscrimination 
 law," which provides that the lowest price that is being made by any 
 oil company in any one part of the State must be the price all over 
 the State, except that the difference in freight may be considered. 
 
 (Copy of the Minnesota law will be found on page 807 of the 
 record.) 
 
 The legislature passed this law and provided in it that the State 
 must enforce it. They brought an action against the Standard Oil 
 Co. for discrimination, for the reason that at that time they were 
 asking 1\ cents a gallon for burning oil in St. Paul, while they were 
 asking 9 cents a gallon at Stillwater, a point 20 miles east, taking 
 the same rate of freight as St. Paul. They were asking 9 cents a 
 gallon at Hastings, or a cent and a half a gallon more where the 
 freight was the same. They were asking 9^ cents or 2 cents a gallon 
 more at Farmington, which took the same rate as St. Paul, and 
 which is about 20 miles below St. Paul. 
 
 That suit was brought, and the case was argued before Judge 
 Bund, and he decided that the law was unconstitutional. Then the 
 attorney general appealed the case to the Supreme Court, and the 
 Supreme Court decided unanimously that the law was constitutional. 
 
 (Case referred to is State ex rel. Edward T. Young v. Standard 
 Oil Co., Ill Minn., 85.) 
 
 When the Supreme Court affirmed the law, then the Standard Oil 
 Co. reduced their prices at Stillwater, Hastings, and Farmington to 
 the same price as St. Paul. 
 
 Practically the same law has been passed by North Dakota, South 
 Dakota, Nebraska, Kansas, Missouri, and Iowa. 
 
 The Chairman. Iowa was the first to pass that law ? 
 
 Mr. Bartles. I think we shall have to give Iowa the credit for 
 giving us the point, and I believe it has been confirmed by the 
 supreme courts of all these States. 
 
 Before this law was passed the Standard Oil Co. had about 90 
 per cent of the business in Minnesota. For instance, if we would sell 
 a carload of oil in the western part of the State, they would come in 
 and cut the price way down below what we had sold it for, and they 
 would say to the dealers, " You have this oil. If you will all make a 
 contract with us to buy your oil of us, we will let you sell this and 
 make a little margin on it. If you do not, the rates will probably be 
 lowered." So that shut us out. Everyone was afraid to buy of us. 
 The people were inclined to encourage competition, but they were 
 afraid. They would tell us, " We can not buy of you, because if we 
 
1062 HEARINGS BEFORE 
 
 buy a carload of you the Standard Oil Co. will cut the price all to 
 pieces." 
 
 Since this law has been passed the independent companies have 
 grown very largely, and I think we figure, or estimate, that the 
 Standard Oil Co. has about 55 per cent of the business of Minne- 
 sota, about 75 per cent of the business of North Dakota, about 75 
 per cent of the business of South Dakota, and 40 or 45 per cent of 
 the business of Iowa. Nebraska is a little farther west. I think 
 they have there probably 75 per cent of the business. Kansas and 
 Missouri, I have heard it estimated that they have 50 per cent. 
 
 I do not know that we need any action of Congress. Our State 
 laws have given us the protection that we have all needed in the 
 oil business. 
 
 There are just one or two things that Mr. Carpenter has said 
 that I want to criticize, if I may comment a little. In speaking of the 
 large corporations, and so on, he has remarked that they want to 
 do justice to their employees and pay them fitting salaries. I was 
 with the Standard Oil Co. as general manager at St. Paul the last 
 time, and was responsible for a business of a million and a quarter 
 of dollars a year, and they paid me $4,000 a year. 
 
 They would not increase my salary because they said I had too 
 many requests for having salesmen and some of the men increased 
 a little. As long as I did that I could not ask for anything for 
 myself. So I worked for ten years at $4,000 a year. They paid 
 my successor $2,400 a year, $200 a month, and held him responsible 
 for a business of a million and a quarter a year. 
 
 At that time they were paying 48 per cent dividends, and they 
 have been paying that ever since. 
 
 There is another little thing. Mr. Carpenter says that there is 
 a stringency in business. That may be so in the East, but our bank 
 clearings have shown a steady increase at St. Paul and Minneapolis 
 over a year ago. It is hard to get a man to do a day's labor around 
 your house or anything of that kind ; it is very hard to get them. 
 It is hard to get efficient, competent men ; they are all employed. 
 
 Some few years ago when the banks in New York shut down on the 
 West they had the money of the West and would not send it back 
 to help move our crops. Here was our wheat crop to move, and our 
 Minneapolis and St. Paul bankers said to the farmers and the ele- 
 vator people: "We can not get the money from Chicago to move it; 
 they won't pay us our balances, but we think we can help you out." 
 And they did. They moved that crop, and I understand that they are 
 moving the crops now, and they are not calling on Chicago for money 
 to do it. I do not think the bankers of St. Paul and Minneapolis have 
 called on the bankers of Chicago to move the crops since. 
 
 Probably while all this movement that is going on to control com- 
 petition — so far as the West is concerned I want to say that Ave are 
 heartily in favor of it. 
 
 Senator Townsend. Tn favor of what? 
 
 Mr. Bartles. We are heartily in favor of the suits that have been 
 brought against the Standard Oil Trust, the Tobacco Trust, and the 
 Steel Trust, and all these corporations, and we hope that these suits 
 wi\\ be prosecuted to the end, and that the organizations will be 
 regulated, so that everybody will have a fair opportunity to do 
 business. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1063 
 
 The Chairman. We will take a recess until 3 o'clock. 
 
 (Thereupon, at 1 o'clock p. m., the committee took a recess until 3 
 o'clock p. m.) 
 
 AFTER RECESS. 
 
 At the expiration of the recess the committee reassembled. 
 STATEMENT OF JOSEPH B ARTIES— Resumed. 
 
 The Chairman. Had you concluded your original statement? 
 
 Mr. Bartles. Well, I think so. 
 
 The Chairman. Since the passage of these State laws that you 
 have referred to in the West, beginning with Iowa and followed by 
 other States, and the decisions of the State courts, you may state 
 whether or not, so far as you know — and of course you can speak 
 from your own experience as it affects your own business — how far 
 the independent dealers in oil out there now look with apprehension 
 on the Standard Oil Co. 
 
 Mr. Bartles. Well, I do not think that they have any fears of the 
 Standard Oil Co. unless they (the Standard) want to do business at 
 a great loss. I think the independents can do business at a lower 
 cost than the Standard Oil can. 
 
 The Chairman. You spoke this morning of an incident where you 
 had quit the Standard Oil Co. and they substituted a man at about 
 half the salary. Did you have occasion to observe the continuance 
 of the business under his management? 
 
 Mr. Bartles. Yes, sir. 
 
 The Chairman. Well, the cutting down of the salary they were 
 paying you to the salary which they paid him would seem to indicate 
 economy in the business. Do you know anything about how far that 
 economy was, in fact? 
 
 Mr. Bartles. The economy was principally with the men that held 
 responsible positions. For instance, the man who had charge of the 
 accounting department left them. He was getting. I think, $2,300. 
 They offered the cashier of the office his position, and he supposed 
 that he was going to get his salary, and of course he felt very good. 
 When his pay check came it was $1,600. They had cut down that 
 position from $2,300 to $1,600. He left them and went into the oil 
 business shortly afterwards in a small way. Now he is doing a large 
 business. That is Mr. Van Tilburg, of Minneapolis. 
 
 The Chairman. In the earlier days of your effort to compete out 
 there with the Standard Oil, how did you get along with the rail- 
 roads ? 
 
 Mr. Bartles. When I started in the oil business in 1902 the rate 
 of freight on oil from Pennsylvania points to St. Paul was 39J cents 
 a hundred. That was the rate from Titusville, Oil City, Pittsburgh, 
 and all Pennsylvania refining points — 39* cents. 
 
 Now, I want to say that I was in the oil business for myself from 
 1888 to 1892, and at that time the oil rate from Pennsylvania points 
 to St. Paul was 27 cents— that is through rate. They had raised the 
 rates from 27 to 39 J cents, and when the rates were 27 cents the tank 
 cars were small ; they held about 3,500 or 4,000 gallons. They kept 
 building larger and larger tank cars until some of them now hold 
 
1064 HEARINGS BEFOBB 
 
 12,000 gallons. The roads were improved, the rolling stock was im- 
 proved, and they can handle almost as many of these large tank 
 cars as they used to handle of the 3,300 to 4,000 gallon tank car. The 
 rate now. for the last five years, I think — four or five vears — has been 
 33 cents. 
 
 Senator Townsend. A hundred ? 
 
 Mr. Bartles. A hundred, yes, sir; from Pennsylvania points. 
 
 The Chairman. In the earlier days did you have any trouble 
 in getting concessions from the railroad as to the opportunity to do 
 Business ? I do not mean now as to favored or special rates, but as 
 to opportunities, like buildings, and so forth? 
 
 Mr. Baetles. No, sir; you could get locations from them very 
 easily. There was no trouble at all from 1888 to 1892. The trouble 
 commenced after 1892, when the rates commenced to rise. The 
 Standard Oil Co. always advocated higher freight rates. One of 
 the railroad companies told me that they were always advocating a 
 higher freight rate, which I thought meant if they put the rates up 
 they could afford to give them a larger rebate. We had to pay 
 the rate. 
 
 The Chairman. When was that condition changed? 
 
 Mr. Bartles. That changed about five years ago. 
 
 The Chairman. Prior to five years ago did they afford you facili- 
 ties for trackage and building? 
 
 Mr. Bartles. Then they commenced to afford us facilities for 
 trackage and treated us very nicely after five years ago. 
 
 The Chairman. Has the tendency to afford you facilities borne 
 any relation as to time to the passage of the State laws you have 
 referred to and their given vindication by the courts? 
 
 Mr. Bartles. Well, we oil men think that Theodore Eoosevelt had 
 a good deal to do with the railroads treating us better. 
 
 The Chairman. I was not asking you so much for your conclusions 
 as to the reason, but whether there was a corelation in time between 
 the tendency of the road to accord you fair rights and the passage 
 and vindication of those State laws. 
 
 Mr. Bartles. Yes ; I think it came about that time. 
 
 The Chairman. You attribute your ability now to do business in 
 those States, in competition with the Standard Oil Co., very largely 
 to those State laws and their vindication by the courts ? 
 
 Mr. Baetles. Yes, sir. 
 
 The Chairman. I think that is all. Senator Cummins, do you de- 
 sire to ask any questions? 
 
 Senator Cummins. You made one suggestion that attracted me a 
 good deal and which I want to elaborate a little. It has been assumed 
 By nearly everybody who has appeared before our committee that 
 the larger a concern is the more cheaply it can produce, and you said 
 a few minutes ago that everything being equal — I mean distribution 
 and decency prevailing — that you can do business as cheaply as the 
 Standard Oil, per gallon or per hundred gallons ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Cummins. I want you to tell the committee why the small 
 producer or distributer can do business as cheaply as the larger 
 one 
 
 Senator Townsend. He said cheaper; that he can do it more 
 cheaply. 
 
COMMITTEE ON INTERSTATE COMMEKOE. 1065 
 
 Senator Cummins. As cheap, I thought he said. 
 
 Mr. Bartles. As cheaply, if not cheaper. Now, for instance, in 
 the Standard Oil Co.'s general office at Minneapolis I think there are 
 five bookkeepers that are in charge of their stock. The stock must 
 be balanced every day. It is balanced in the morning for the previ- 
 ous day. That is done all the time. Now those men have to be good 
 accountants. They pay them from $70 to $80 per month. The inde- 
 pendents do not do that. We all have our offices near our works and 
 have only ourselves to account to, while with the Standard Oil Co. 
 their system is a very expensive system of keeping their accounts — a 
 very expensive one. 
 
 Then they have auditors. Two auditors ; two or three will travel 
 together. They come in and nobody knows when they are coming. 
 One comes up and presents his letter of credentials and the other goes 
 down to the cashier's office and counts the money the first thing. 
 They stay from six weeks to three months. They come usually 
 about twice a year. That is very expensive. And then another 
 thing. Their men have a certain time for opening the office and a 
 certain time for closing. If the work is not done they insist upon 
 the office being closed. Now, with us independents, we try to do that. 
 I do not know that we work our men any harder than they do theirs, 
 but still, if we have a little work to be done the force seems to be wil- 
 ling to stay and do it. It is less expensive in a great many ways for 
 us to do business than it is for the Standard. 
 
 Senator Cummins. It is something like the Government of the 
 United States. It did not cost near -as much per capita to run it 
 when we had 10,000,000 of people as it does when we have 90,000,000. 
 In other words, a machine can become so large and so complicated 
 that it does not tend toward economy ? 
 
 Mr. Baktles. No, sir. The manager of the Standard, for instance, 
 can not buy a set of harness. He has to make a requisition on Chi- 
 cago and Chicago sends it out. He has no authority. Then, there 
 is the expressage on the harness. 
 
 Senator Cummins. That is all. I simply wanted to emphasize 
 that point, which I think has been a great error, and which has been 
 repeated here a great many different times. 
 
 Senator Oliver. Mr. Bartles, I did not exactly understand about 
 your business. You are strictly a merchant, are you, or are you a 
 refiner of oil? 
 
 Mr. Bartles. I am a merchant. The refineries make the oil. 
 
 Senator Oliver. I understand. 
 
 Mr. Bartles. They do not market it— that is, they sell it to the 
 oil merchants. 
 
 Senator Oliver. I was right, then. You spoke about your office 
 being near your works. 
 
 Mr. Bartles. I should have said near our warehouse, or what we 
 oil men call "plant." 
 
 Senator Oliver. That is, near your warehouse. I suppose you 
 
 mean ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Oliver. You buy from the independent refiners, I sup- 
 pose? 
 
 Mr. Bartles. Yes, sir. 
 
1066 HEARINGS BEFORE 
 
 Senator Oliver. I am merely asking this for information. Where 
 are the refiners located, as a rule, that you get your supply from ? 
 
 Mr. Bartles. We handle a great deal of Pennsylvania goods. 
 Now, that is more expensive. We handle 72-gravity gasoline, for 
 which we get 15| cents, while the Standard handles 60 gravity, which 
 is made from the Kansas crude, and sells it for 11 cents a gallon. 
 The Kansas crude is only worth 45 cents a barrel, and it will not 
 make a high-gravity gasoline nor high-gravity oil. Pennsylvania 
 crude is worth $1.30 a barrel. That will make a high-gravity oil 
 and a high-gravity gasoline. Now, we handle also 63 gravity, or 
 Illinois, gasoline. We sell that at 11 cents, which is the Standard's 
 price. We have to sell a little better gravities than they do. The 
 72 gravity is used in automobiles, gasoline lamps, and gasoline en- 
 gines. Those who watch the use of gasoline say that 15^ cents is 
 really as cheap as the other, as it goes further. 
 
 Senator Oliver. There are refiners in the Indiana and Illinois fields, 
 are there ? 
 
 Mr. Bartles. Oh, yes, sir. Now, I do not know that it is generally 
 known that Mr. John W. Gates, who died in Paris recently, was 
 building a refinery there, as well as a large one outside of Chicago, 
 and it is reported that he had $10,000,000 in the Texas Oil Co. 
 
 Senator Oliver. I know that anything that Mr. Gates ever did was 
 pretty generally known. 
 
 Mr. Bartles. Oh, yes, sir. Armour is in the refining business at 
 Independence, Kans. Cudahy has a large refinery at Coffeyville. 
 The Mellons, of Pittsburgh, are very extensively in the refining of 
 oil, too. 
 
 Senator Oliver. They are all independent of the Standard. 
 
 Mr. Bartles. All independent; yes, sir. Oh, there are plenty of 
 sources. 
 
 Senator Oliver. That is all. 
 
 Senator Lippitt. How much of this change in the volume of busi- 
 ness done by the independents in the States you have referred to as 
 having this law is due to the law or due to other causes ? 
 
 Mr. Bartles. I think a great deal of it is due to the law. 
 
 Senator Lippitt. Has there not been quite a competition with the 
 Standard Oil Co. in other States where the law has not prevailed, 
 within the last four or five years, also. 
 
 Mr. Bartles. There is nothing like the competition in other States 
 that there is in the Western States. There are great independent 
 companies — a great many more independent companies in those 
 Western States that I have enumerated than there are in any of the 
 Eastern States. 
 
 Senator Lippitt. Is that partly due to the fact of the discovery of 
 new oil fields in closer proximity to those States than to the Western 
 States? 
 
 Mr. Bartles. No ; I think it is owing to the laws. 
 
 Senator Lippitt. It is due entirely to the laws ? 
 
 Mr. Bartles. That is my opinion ; it has a great deal to do with it. 
 
 Senator Lippitt. You believe that in regard to the subject of this 
 inquiry the State legislatures can protect the people by laws they 
 pass, without any additional national laws being passed ? Is that the 
 way I understand it? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1067 
 
 Mr. Bartles. Well, I do not want to say that for business gener- 
 ally. The laws that I have referred to relate solely to oil. 
 
 Senator Lippitt. I understand. 
 
 Mr. Bartles. That is all I referred to. 
 
 Senator Lippitt. But as concerns oil, do you believe 
 
 Mr. Bartles. As concerns oil, yes; I think so. 
 
 Senator Lippitt. Your belief is that, as concerns oil and its han-' 
 dling and management, there is no need of any additional laws to 
 protect the people from any undue charges or any oppressions ? 
 
 Mr. Barti.es. No, sir ; I do not see any, unless it might be that if 
 the railroad companies get uproarious again; but they are very quiet 
 now, and I do not think they are giving the Standard Oil any re- 
 bates. "VVe do not think so. 
 
 Senator Lippitt. The sole thing that this law accomplished, as. I 
 understand it, was to equalize the price within State borders? 
 
 Mr. Bartles. Yes 3 sir. 
 
 Senator Lippitt. In every part of the State? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. So it may be impossible for any one single pro- 
 ducer to crush opposition at any single point while maintaining their 
 prices at other points? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. And the result of that has been, I suppose, that 
 the Standard Oil Co. has sold oil in those States having these laws 
 at about the equivalent price that they sold in other States ? 
 
 Mr. Bartles. Well, their prices vary very much now. 
 
 Senator Lippitt. Of course ; I am assuming that allowance is made 
 for the difference in freight rates. 
 
 Mr. Bartles. Yes; I think their price at Milwaukee is a cent a 
 gallon less than it is to St. Paul. The difference in freight between 
 Milwaukee and St. Paul is more than a cent' a gallon. 
 
 Senator Lippitt. Is it much more? 
 
 Mr. Bartles. The rate is 20 cents to St. Paul from Whiting, Ind., 
 where their large refinery is, and it is 3 cents to Milwaukee, a hun- 
 dred, while the rate from Pennsylvania points to Milwaukee is but 
 16 cents, and it is 16 cents to Chicago. 
 
 Senator Lippitt. Without assuming that the price is exactly the 
 same, would you say the price was substantially the same in those 
 States having these laws as all other Statess — near-by States — or don't 
 you know about that? 
 
 Mr. Bartles. I am not familiar with the price outside of our 
 Western States, except in Wisconsin. I am interested in Milwaukee. 
 
 Senator Lippitt. The result of these laws has been, as I under- 
 stand it, that in some particular States — which ones I do not know — 
 you said that the proportion sold by the Standard Oil Co. had been 
 reduced from the neighborhood of 90 per cent to about 50 per cent? 
 
 Mr. Bartles. That is in Minnesota, and I think in Iowa. I do not 
 think they sell 50 per cent in Kansas, and hardly 50 per cent in Mis- 
 souri. 
 
 Senator Lippitt. As to these independent companies whose oil 
 you handle — is not that oil sold largely in other States ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. It is sold largely in other States that do not 
 have these laws ? 
 
1068 HEARINGS BEFORE 
 
 Mr. Baetles. Yes, sir. 
 
 Senator Lippitt. And there is a vigorous competition being built 
 up in other States by independent parties with the Standard Oil ? 
 
 Mr. Bartles. Oh, yes, sir. 
 
 Senator Lippitt. What I am trying to get at was how much of 
 this growth of the independents was due to these particular laws, 
 er was due to the fact that independent operations have been 
 found profitable? 
 
 Mr. Baetles. There are not really so very many proportionately in- 
 dependent companies in the other States. Now, for instance, at Mil- 
 waukee, there are four companies there that are general oil dealers 
 who run tank wagons ; that is, the Standard Oil Co., Wadhams Oil Co., 
 the O'Neil Oil Co., and the Bartles-Maguire Oil Co. Now, at St. 
 Paul, I think we have 7 companies. There are 4 at Milwaukee, and 
 there are 7 at St. Paul, and there are 10 in Minneapolis. St. Paul 
 and Minneapolis have a population of about five hundred and thirty, 
 or forty, or fifty thousand, and Milwaukee has a population of 
 380,000. Now competition is a great deal keener, and there are a great 
 many more oil companies, independent companies, at St. Paul and 
 Minneapolis than any place in the country, I am told by refiners. 
 
 Senator Lippitt. When you say independent companies, do you 
 mean dealers or producers? 
 
 Mr. Baetles. Well, they are companies ; they are none of them pro- 
 ducers of crude oil. 
 
 Senator Lippitt. They are simply merchants ? 
 
 Mr. Baetles. They are merchants. 
 
 Senator Lippitt. But they are selling perhaps the oil of two or 
 three 
 
 .Mr. Baetles. Oh, selling from a dozen to twenty refiners. 
 
 Senator Lippitt. Independent refiners? 
 
 Mr. Baetles. Yes, sir. 
 
 Senator Lippitt. How old are those refineries; have they grown 
 up within the last few years? 
 
 Mr. Bartles. The most of the western refineries have grown up 
 within the last few years. 
 
 Senator Lippitt. That is, four or five years ? 
 
 Mr. Bartles. Yes, sir; most of them have grown up within the 
 last four or five years. 
 
 Senator Lippitt. They have been profitable, the refineries ? 
 
 Mr. Bartles. I think they have been fairly profitable; yes, sir. 
 
 Senator Lippitt. Do you think the refineries can produce their 
 oil as cheaply as the Standard Oil Co. can ? 
 
 Mr. Bartles. I think they can do so just as cheaply. 
 
 Senator Lippitt. That is, without regard to the size of the con 
 cern, you think some of the smaller concerns are able to produce and 
 distribute oil as cheaply as the large Standard Co. ? 
 
 Mr. Bartles. I think so. 
 
 Senator Lippitt. Would you infer from that that the small pro- 
 ducer had advantages or disadvantages in competition with the large 
 one? 
 
 Mr. Bartles. Well, we find the prices practically the same with all 
 of them. Once in a while a refinery will be a little overstocked will) 
 burning oil and they will shade the price one-eigth of a cent a gallon 
 to move it. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1069 
 
 Senator Lippitt. Well, the building up of these refineries has not 
 had anything to do particularly with the passage of those laws in 
 these particular States, has it? 
 
 Mr. Bartles. It has not been the refineries ; it has been the oilmen 
 who have been active in getting it done. 
 
 Senator Lippitt. But the oilmen, as you call them, or the merchants, 
 could only have done business provided the refiners had gone into 
 business and been compelled to produce the article that they sold ? 
 
 Mr. Bartles. Yes, sir ; that is the only way we could have done it ; 
 but there have been independent refineries for a great while. 
 
 Senator Lippitt. Exactly. 
 
 Mr. Bartles. Some of them have been in business for some while. 
 The Paragon Refining Co., of Toledo, I think, has a capital of two 
 or three million dollars. It is a very wealthy concern and very old. 
 The Craig Oil Co. and the Sun Oil Co. — those are all independent 
 concerns of Toledo. 
 
 Senator Lippitt. Then the history of that business for the last four 
 or five years has been the growth, considerable growth, of independent 
 companies competing with the Standard Oil Co. ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. So, in your particular community, as the result of 
 that growth, the business of the Standard has been, by natural causes, 
 aided perhaps by this particular law but largely through other causes, 
 reduced 33 per cent or more ; that is, from somewhere in the neighbor- 
 hood of 80 or 90 to 50. Is that it ? 
 
 Mr. Bartles. The independent business has grown very materially 
 since this law went into effect — very materially. 
 
 Senator Lippitt. I am only asking the question because I have no- 
 ticed in my own State, Rhode Island, that there has been a very large 
 increase in the competition with the Standard Oil Co. in the last two 
 or three or four years, although they had no such law, and I therefore 
 was trying to get at whether that competition was due to natural 
 causes, the equalization of competing conditions, or was absolutely 
 due to this particular law. That is all. 
 
 Senator Townsend. When was this law passed in Minnesota ? 
 
 Mr. Bartles. The chairman has that. 
 
 The Chairman. 1907. [To Senator Cummins:] When was yours 
 passed ? 
 
 Senator Cummins. 1906. 
 
 Mr. Bartles. I was under the impression it followed right after 
 you. 
 
 Senator Townsend. What was illuminating oil selling for prior to 
 the passage of this law ? 
 
 Mr. Bartles. I think when this law was passed the price was about 
 8 cents at St. Paul. The Standard's price of oil was about 8 cents. 
 
 Senator Townsend. What is it now ? 
 
 Mr. Bartles. Five and a half. 
 
 Senator Townsend. When did the reduction take place? 
 
 Mr. Bartles. Well, the reduction has been gradual. It has been 
 dropping all the time. 
 
 Senator Townsend. Beginning with 1906, or had it been dropping 
 before that? 
 
 Mr. Bartles. No; it did not drop as soon as this law was passed, 
 for it was pretty nearly two years before this law was affirmed by the 
 
1070 HEARINGS BEFORE 
 
 Supreme Court. After that time they commenced to drop the 
 price. 
 
 Senator Townsend. Just before that, or in 1906, the trouble that 
 you had up there with rebates was lessened considerably, was it not ? 
 
 Mr. Bartles. 1906 was when it was reduced from 39£ to 33. 
 
 Senator Townsend. Immediately following the Hepburn bill, as 
 we call it — the interstate-commerce law? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Townsend. That had something to do with the reduction 
 of your prices, did it not ? 
 
 Mr. Bartles. Well, that would reduce the price about one-half a 
 cent. 
 
 Senator Townsend. Now, do you have any gentlemen's agree- 
 ments — the independents — as to the price of oil ? 
 
 Mr. Bartles. We do not. 
 
 Senator Townsend. Do any of the independents reduce prices now 
 and then? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Townsend. So that prices change? 
 
 Mr. Bartles. Prices change. They reduce them without saying 
 anything about it. 
 
 Senator Townsend. What do the others do, then — reduce theirs? 
 
 Mr. Bartles. If they have got to reduce it, they reduce it to meet 
 the competition. 
 
 Senator Townsend. Does the Standard do the same thing; when 
 you reduce them, does the Standard do it? 
 
 Mr. Bartles. The Standard Oil Co. call us up when they are going 
 to reduce the prices in the afternoon, and say that the price of oil 
 and gasoline will be reduced half a cent a gallon to-morrow morn- 
 ing. They do that simply because they have to call us up when the 
 prices advance ; they expect us to advance it with them. 
 
 Senator Townsend. And you then reduce the next morning as they 
 do? 
 
 Mr. Bartles. If it is the same grade as they sell. They do not 
 sell any high-grade oil. 
 
 Senator Townsend. When they notify you in the afternoon that 
 they are going to raise the price of oil the next morning, do you raise 
 the next morning also ? 
 
 Mr. Bartles. I have not raised it much because I do not sell the 
 cheap oil at all. I sell a second-grade gasoline, and my price of that 
 has varied with the Standard's. At the present time they are alike. 
 Sometimes I have been higher, and I have even been lower. 
 
 Senator Townsend. There is an understanding then, really, be- 
 tween you and the Standard, and between the independents, as to the 
 prices — that is, you notify each other. There is a gentlemen's un- 
 derstanding when prices are going up and when they are going down ? 
 
 Mr. Bartles. On the same grade, if you choose ? 
 
 Senator Townsend. Yes. 
 
 Mr. Bartles. I do not know so much about that, because, as I say, 
 we handle but one grade of stuff that the Standard handles, and that 
 is a second-grade gasoline. They handle a little cheaper gasoline 
 than we do. Now, theirs is 60-gravity gasoline and ours is 63, and 
 we have been above them and we have been below them. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1071 
 
 Senator Town send. Why have they vacated the field for 63 grav- 
 ity oil? & 
 
 Mr. Bartles. Because theirs is made of Kansas crude. You can 
 not make 63 out of Kansas crude. 
 
 Senator Town send. Do they not have oil in the East? 
 
 Mr. Bartles. Yes, sir; but they assign certain crudes to supply 
 certain territories. Now, the oil that is sold in Minnesota and Iowa 
 is supplied from their Sugar Creek refinery, and that is Kansas 
 crude. That is a very heavy crude. It is about 30 gravity, and you 
 can not make a light burning oil out of it, or light gasoline. They 
 do not have anything else. 
 
 Senator Town send. I understood you to say that the Standard, 
 while you were with them, was declaring about a 48 per cent divi- 
 dend ? 
 
 Mr. Bartles. They are doing that right along. I am not violating 
 any confidence. That has been their dividend for a great many 
 years. 
 
 Senator Townsend. I know that, Have they kept that right up 
 ever since? 
 
 Mr. Bartles. Yes, sir ; they have kept it up ever since. Their cap- 
 ital is $100,000,000, and they declare $48,000,000 in dividends. 
 
 Senator Townsend. They are making as much money now as they 
 were when you were with them? 
 
 Mr. Bartles. I do not know what they are making. I do not know 
 that anybody knows that. 
 
 Senator Townsend. Have they increased their capital since you 
 were with them? 
 
 Mr. BaetLes. Well, under this reorganization I think there is an 
 increase of capital in some way ; yes, sir. 
 
 Senator Townsend. And they are still paying 48 per cent on that? 
 
 Mr. Bartles. The capital has just been distributed within the 
 past two weeks to stockholders under the order of the Supreme Court. 
 
 Senator Townsend. You do not know about their having increased 
 it between this and the time you left them ? 
 
 Mr. Bartles. I do not think they have. I think it has been 
 $100,000,000 for 20 years. 
 
 Senator CtrMMiNS. You mean their capital stock? 
 
 Mr. Bartles. Their capital stock; yes, sir. 
 
 Senator Ctjmmins. Their capital has been immensely increased? 
 
 Mr. Bartles. Yes, sir; they have added to their capital. Their 
 stock has been as high as 820. I think that was the highest point, and 
 it is now 635 or 630. 
 
 Senator Townsend. Do any of the independents own their re- 
 fineries — I do not know but what you answered Mr. Oliver to that 
 effect, and I did not catch it— do any of the independent dealers own 
 their refineries where -they obtain their oil ? 
 
 Mr. Bartles. The Craig Oil Co., of St. Paul, is owned by the 
 Craig Refining Co. Then, there is another company that is owned by 
 the Paragon Refining Co., of Toledo. That is called the Corn- 
 planters .Oil Co., and I think those are the only two. They are 
 organizations under the law of Minnesota, retail organizations. 
 
 Senator Townsend. I am not just clear yet in regard to your 
 answer to Senator Cummins's question as to the comparative costs of 
 
 22877— vol 1—12 68 
 
1072 ' HEARINGS BEFORE 
 
 the big and little concerns. Does the Standard Oil Co. maintain a 
 separate selling department up in St. Paul ? 
 
 Mr. Bartles. Yes, sir ; their offices are selling offices. 
 
 Senator Townsend. Well, it would depend on something more 
 than operation of the selling department to determine whether you 
 could do business as cheaply as another could, would it not? For 
 instance, it would depend on where you get your oil ? 
 
 Mr. Bartles. Oh, yes, sir ; all those things. 
 
 Senator Townsend. If the Standard Oil Co. owned its oil, refined 
 its oil, and sold it through its own department it might have an ad- 
 vantage over you, might it not ? I will say that I am anxious about 
 this, because it is a matter that I am greatly interested in. 
 
 Mr. Bartles. The Standard Oil Co. does not own all its crude. 
 They do not produce all their crude. They buy the crude, and they 
 control the price of crude by posting a price; they will take any 
 amount that is offered or tendered to them. If it is $10,000,000 they 
 will take it and pay the cash for it. In that way they have stopped 
 circulation in crude. In some territories they produce very little 
 crude. In other territories they have gone in and bought up the 
 property there that produced more crude. 
 
 Senator Townsend. But they control it practically, do they not? 
 
 Mr. Baktles. Well, I do not think they do; I do not think they 
 own 
 
 Senator Townsend. I mean they control practically 
 
 Mr. Bartles. They control the price. 
 
 Senator Townsend. And they practically control the crude oil that 
 they manufacture, do they not? 
 
 Mr. Bartles. Well, I have seen a statement that they have 100,- 
 000,000 barrels of crude above ground that they own — that they 
 bought. Now, they have to take all the crude oil that is offered them 
 in order to control the price. 
 
 Senator Townsend. I think that is all, Mr. Chairman. 
 
 Senator Lippitt. I would like to ask you one or two more ques- 
 tions. In the first place, about the question of controlling the price 
 by posting a price at which they will take all the oil offered. All 
 they control is the low price, is it not? For instance, if there is a 
 scarcity of oil, they can not prevent oil from going higher ? 
 
 Mr. Bartles. You know now the price of Kansas oil is 45 cents — 
 Kansas, Indian Territory, and Oklahoma. The price of Illinois is 
 67; the price of Ohio, North Lima— there are two grades— 85 to 80, 
 I think. I speak now just offhand. It has been the price for a year 
 or over six months. The price of Pennsylvania is $1.30 — Pennsylvania 
 and West Virginia. Now, on some oils there is a little premium — 
 on some of the crudes. In some districts the oil is better gravity and 
 has more burning oil and more gasoline in it, and there will be a 
 premium of 5 cents a barrel. 
 
 Senator Lippitt. Do you mean a premium ov.t the price the Stand- 
 ard will pay? 
 
 Mr. Bartles. The Standard will pay it, too, in a certain part of 
 the territory. 
 
 Senator Lippitt. That is strictly on account of the quality? 
 
 Mr. Bartles. On account of the quality ; yes, sir. 
 
 Senator Lippitt. But when the Standard Oil Co. sets a price, what 
 «ver it may be, that is the price at which they will buy ? 
 
COMMITTEE- ON INTERSTATE COMMERCE. 1073 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. They do not always attempt to sell at that price 
 so as to prevent the price of oil going higher ? 
 
 Mr. Bartles. No, sir ; they do not sell at all. 
 
 Senator Lippitt. And if there was a scarcity of oil, there would be 
 nothing to prevent the producer of oil from getting a higher price 
 than the Standard? 
 
 Mr. Bartles. No, sir. 
 
 Senator Lippitt. So what they actually control is the high price 
 
 prevent it going lower ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. They do not prevent it going higher ? 
 
 Mr. Bartles. No, sir. 
 
 Senator Lippitt. All they control is the high price of oil ? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Lippitt. You said a few moments ago that they only pro- 
 duce about 50 per cent in Minnesota. How do you know that ? Are 
 there statistics ? 
 
 Mr. Bartles. They sell about 50 per cent. 
 _ Senator Lippitt. Exactly; but how do you know? Are there sta- 
 tistics, or is that but guesswork ? 
 
 Mr. Bartles. They could get that from the oil inspector on the 
 amount of oil he inspects. 
 
 Senator Lippitt. Are those statistics published ? 
 
 Mr. Bartles. No ; they are open. 
 
 Senator Lippitt. They are published ? 
 
 Mr. Bartles. They are not published ; but you can go to the State 
 oil inspector and ask him how much oil has been inspected up to the 
 present time for the year, and you can ask him what he has inspected 
 or how much he has inspected for the different companies. 
 
 Senator Lippitt. Have you done that? 
 
 Mr. Bartles. No, sir; I have not done that. I only speak from 
 information. 
 
 Senator Lippitt. Is it common report? 
 
 Mr. Bartles. Observations or common report. I think it is not 
 50 per cent Minnesota. It is probably 55 or 60 per cent that they 
 are selling in Minnesota. 
 
 Senator Lippitt. You think that common report is correct from 
 your general knowledge of business ? 
 
 Mr. Bartles. I should think it was ; yes, sir. 
 
 Senator Lippitt. That 55 or 60 per cent that they sell now, is that 
 as large a volume as they sold four or five years ago — in volume, not 
 in percentage ? In other words, has the business of the State increased 
 or the business of the Standard decreased ? 
 
 Mr. Bartles. It has increased in the State. 
 
 Senator Lippitt. Has the business of the Standard Oil decreased ? 
 
 Mr. Bartles. The business of the State has increased very largely 
 in gasoline on account of the automobile trade. I do not know that 
 it has increased on burning oil. But it has increased very largely on 
 account of gasoline. 
 
 Senator Lippitt. Do you believe that the Standard Oil sells as 
 much gasoline in Minnesota to-day as it did five years ago or more ? 
 
 Mr. Bartles. Well, I do not think that they are selling any more 
 now than they sold five years ago. 
 
1074 HEARINGS BEFORE 
 
 Senator Lippitt. Do you think they sell as much ? 
 
 Mr. Baetles. Yes, sir; because five years ago they had a larger 
 percentage of business than they have now. 
 
 Senator Lippitt. In volume you think they sell as much now ? 
 
 Mr. Bartles. I think they sell as much now, because the volume 
 of business has increased very much. 
 
 Senator Lippitt. How about burning oil ? 
 
 Mr. Bartles. They do not sell as much burning oil as they did five 
 years ago on account of the electric-light system. They have put 
 electric lights in all the towns nearly in Minnesota. 
 
 Senator Lippitt. You mean there is not as much burning oil of 
 all kinds sold ? 
 
 Mr. Bartles. No, sir ; not so much. 
 
 Senator Lippitt. So the condition has been that there has been an 
 increase in gasoline and a decrease in burning oil ? 
 
 Mr. Bartles. Yes, sir; a decrease in burning oil. But I want to 
 say another little thing here. You gentlemen who have automobiles 
 would have been paying 3 or 4 cents a gallon more for gasoline if it 
 bad not been that Borneo, Sumatra, shipped to the United States 
 about 35,000,000 gallons of gasoline within the past year. Now, that 
 was bought by the Indian Refining Co., of New York, and by the 
 Union Petroleum Co. 
 
 Senator Lippitt. Who did you say shipped that? 
 
 Mr. Bartles. That was shipped from Borneo, in Sumatra, to the 
 Indian Refining Co. They went in there and made a contract for 
 about 35,000.000 gallons of gasoline, and that supply kept us from 
 running short in this country. I understand for the next year they 
 have still more bought. 
 
 Senator Lippitt. I want to ask you one more question. Senator 
 Townsend asked you about the Standard being its own distributor 
 as well as its own producer of oil. I would like to ask whether there 
 are any other refiners that distribute their oil themselves instead of 
 distributing through agencies like your own? 
 
 Mr. Baetles. There are two companies. The Craig Oil Co. have a 
 distributing plant in St. Paul, and the Paragon Refining Co. of 
 Toledo have a distributing plant in St. Paul and Minneapolis. 
 
 Senator Lippitt. Do those two companies alsoi sell to the inde- 
 pendents ? 
 
 Mr. Baetles. And the Indian Refining Co. has a distributing plant 
 in St. Paul and one in Minneapolis. Yes, sir; they sell to us. We 
 buy of them. 
 
 Senator Lippitt. Does the Texas Oil Co. sell oil in Minnesota? 
 
 Mr. Bartles. The Texas Co. does not have any distributing plants. 
 
 Senator Lippitt. In Minnesota, you mean? 
 
 Mr. Bartles. No, sir. 
 
 Senator Lippitt. Do they sell their oil? 
 
 Mr. Bartles. Yes, sir; they sell it. 
 
 Senator Lippitt. They sell it through agencies like your own, do 
 they? 
 
 Mr. Bartles. Sell it to others. We buy of them. They made a 
 contract with the Indian Refining Co. I made a contract with them 
 a short time ago for 80 tank cars — 640,000 gallons — for our own use, 
 and for Grand Forks. That is all to be delivered within the coming 
 year. No part of that will be Borneo gasoline. The supply that 
 
COMMITTEE OH INTERSTATE COMMERCE. 1075 
 
 came from Borneo during the past year was enough to take care of 
 the increased demand for gasoline in the United States. 
 
 Senator Lippitt. That is all. 
 
 The Chairman. Senator Watson, do you care to ask any questions ? 
 
 Senator Watson. I am very sorry I did not hear your first state- 
 ment. It is a very interesting subject. I understand that you favor 
 this law as it applies to oil? 
 
 Mr. Bartles. Very much. 
 
 Senator Watson. How about other commodities? 
 
 Mr. Baetles. That is all it applies to. 
 
 Senator Watson. What is your opinion as to the advisability of 
 applying this law to other commodities? 
 
 Mr. Bartles. I do not see why it could not he applied, I think 
 that would settle the whole thing. 
 
 Senator Watson. You think it would be successful if we applied 
 this law to heavy commodities where freight is a factor ? 
 
 Mr. Bartles. I should think so. 
 
 Senator Watson. In a good many commodities, would not that 
 divide the country into zones served by certain concerns? Freight 
 rates are not a factor in oil, comparatively speaking. 
 
 Mr. Bartles. Yes, they are. A 33-cent rate from Pennsylvania 
 points to St. Paul means 2.18 cents a gallon. 
 
 Senator Watson. But the difference in the freight rate from one 
 point in Minnesota to another point in the producing section is not 
 a factor in oil. The difference in freight in oil from Pennsylvania 
 to Milwaukee and St. Paul is not a factor? 
 
 Mr. Bartles. Milwaukee does not sell oil in St. Paul, you see, or 
 in Minnesota. The different oil companies have a certain sphere. 
 
 Senator Watson. Say St. Paul to some other city in Minnesota ? 
 
 Mr. Bartles. The independent oil companies are all located at St. 
 Paul, Minn. All the independent companies in Minnesota are located 
 there. Then, in North Dakota there are three independent companies 
 at Fargo and one independent company at Grand Forks. The rail- 
 roads recognize those two centers as jobbing centers, and they make 
 a rate from Fargo and they make a rate from Grand Forks — a local 
 rate — and recognize those two cities as jobbing centers. 
 
 Senator Watson. That rate practically applies to the entire State ? 
 
 Mr. Bartles. Yes, sir ; that is, in North Dakota. 
 
 Senator Watson. When you come to heavy commodities, does not 
 the rate change in zones of a few miles ? 
 
 Mr. Bartles. In Minnesota there is a rate made to St. Paul and 
 Minneapolis, and there is a rate made from Milwaukee. In shipping 
 from the East, Milwaukee takes the same rate as Chicago. And the 
 same way from Kansas points. Waterloo gets a rate of but 22 cents a 
 hundred, while at St. Paul, which is 180 miles above Waterloo, we have 
 to pay 53 cents from Kansas points. Now, that makes it favorable 
 for Waterloo to buy oil in Kansas, and those rates prevail everywhere. 
 
 Senator Watson. Milwaukee and Chicago do not take the same 
 rates on coal as they do on oil, possibly, or as is the case in other 
 heavier commodities? 
 
 Mr. Bartles. They, may not. I am speaking now of the oil situa- 
 tion. I do not know what it is as to anything else. 
 
 Senator Townsend. I understand you to say they do not take the 
 same rate on oil? 
 
1076 
 
 HEARINGS BEFORE 
 
 # Senator Watson. From the East. From Milwaukee it is 50 cents 
 higher. A ton of oil divided into gallons is a very small matter, 
 but on a ton of coal sold for 80 or 90 cents at the mine even 5 cents is a 
 factor. Do you think this law could be applied to all commodities ? 
 
 Mr. Baetles. Perhaps ; I do not know. I would not want to say 
 that. * ' 
 
 Senator Watson. You have had experience with this law, and I 
 wish you would think about that and look into this phrase that I have 
 spoken about. I would like to have your opinion of it a little later 
 on if you care to give it. Please look it up, as it is a very important 
 subject. 
 
 Mr. Baetles. That it certainly does make us all feel very inde- 
 pendent in the Northwest. We are not at all afraid of the Standard 
 Oil. They do not sell their goods below cost. The independent re- 
 finers have been able to take care of the situation, and we have the 
 business and make a little money. 
 
 Senator Watson. It applies to lubricating oils also, does it — this 
 law? 
 
 Mr. Baetles. Yes, sir ; it applies to lubricating oils as well as burn- 
 ing oils. 
 
 Senator Watson. The Standard do the large part of the lubricat- 
 ing business, do they not? 
 
 Mr. Baetles. Well, they do the largest part of it; yes. I do not 
 think they do more than 60 per cent of the lubricating business in 
 Minnesota. In some of the companies they sort of specialize on 
 lubricating oil. We have four or five companies in Minneapolis 
 that do not have burning oils at all. They just handle lubricating 
 oils, and handle a good deal of it. 
 
 Senator Watson. In the western fields are they separating gaso- 
 line from natural gas and then using the gas afterwards ? 
 
 Mr. Baetles. I think that is being done ; yes, sir. That is done in 
 West Virginia. 
 
 Senator Watson. It is a new process ? 
 
 Mr. Baetles. It is a new thing entirely, and it is very interesting. 
 It was very dangerous, but they separate and convert natural gas 
 into gasoline, as is being done. At first the gasoline made from it 
 was very dangerous. It was separated very quickly, but they have 
 gotten it now so that it is being improved all the time. 
 
 Senator Watson. I do not know that you exactly understood my 
 question. I have understood recently that they were taking the gaso- 
 line out of the gas and then utilizing the gas for burning purposes? 
 
 Mr. Baetles. Well, you know it is weathered gasoline, as it is 
 called. They are taking the gas wells in West Virginia and they 
 are condensing gas that flows from the wells, and that is being used 
 now for gasoline. That has been going on for the last year and a 
 half. There was a great deal of danger in it, but Col. Dunn, who 
 is the expert for the Government, has been meeting the different 
 oil companies and the manufacturers on this matter, and they have 
 gotten now to making a product from it that is a great deal safer. 
 The trouble with it was that it would separate very quickly. 
 
 Senator Watson. That is all. 
 
 Senator Olivee. Mr. Bartels, how could this legislation in the 
 Western States have credit for the reduced price of oil in those locali- 
 
COMMITTEE ON INTERSTATE COMMEEOE. 1077 
 
 ties? Now, I do not differ with you in regard to the importance of 
 these laws and the value of them. 
 
 Mr. Bartles. I do not know that that is owing to the legislation. 
 
 Senator Oliver. I understood you to give the legislation really a 
 part of the credit for it, and I wanted to ask you if it were not a tact 
 that, coincident with this fall in prices and with the advent of this 
 legislation as well, in the first place these large and strong competi- 
 tors have arisen, have they not, largely — the Texas Oil Co. and the 
 Gulf Oil Co.? 
 
 Mr. Bartles. Yes, sir. 
 
 Senator Oliver. And, in addition to that, is it not the case that 
 there has been a fall in the price of crude oil about equivalent to the 
 reduction in the price? 
 
 Mr. Bartles. The price of crude oil has been going up. Kansas 
 crude is worth more to-day than it ever has been worth, and Illinois 
 crude is worth more. 
 
 Senator Oliver. That is not the case in Pennsylvania, because I 
 happen to have a little interest in Pennsylvania. 
 
 Mr. Bartles. Pennsylvania has dropped from $1.50 to $1.30. 
 
 Senator Oliver. Pennsylvania crude has dropped from $1.80 to 
 $1.30. 
 
 Mr. Bartles. Yes ; and Ohio has dropped a little, and Kansas and 
 Illinois have advanced. 
 
 Senator Oliver. Well, I know that Pennsylvania crude has 
 dropped. 
 
 Mr. Bartles. Yes ; that has dropped a little. 
 
 (There being no further questions, Mr. Bartles was thereupon 
 excused.) 
 
 (By direction of the chairman, the following communication is in- 
 corporated in the record:) 
 
 Minneapolis, November 28, 1911. 
 
 Mr. Joseph Bartles, 
 
 President Bartles Oil Co., St. Paid. 
 Deab Sib: We, the undersigned, representing all of the various oil interests 
 in the Northwest, are in faTor of a uniform national oil-inspection law, the 
 Government employing oil inspectors to inspect at the refineries after it has 
 been loaded for shipment. 
 
 We are also very much in favor of a national antidiscrimination law. Our 
 State antidiscrimination law has been of great assistance to the weaker cor- 
 porations and individuals doing business in the State of Minnesota. Formerly 
 the trust organizations could go into certain localities and put its weaker 
 competitors out of business by making prices at less than cost of manufac- 
 turing goods sold. . „..„„ 
 We believe there is no one who is more familiar with the great benefit that has 
 been derived from this law than yourself ; and as to the details of the operation 
 of our law and the results obtained, we are very glad to have an opportunity to 
 present our views, through you, to the committee at Washington. 
 
 Climax Western Oil Co.; Van Tilburg Oil Co.; Pure Oil Co ; Corn- 
 planter Oil Co. : Kunz Oil Co. ; Crescent Oil Co. ; Manhattan Oil 
 & Linseed Oil Co. : Penn Oil & Supply Co. ; Reliance Oil & Supply 
 Co ■ Twin City Oil Co. : Superior Oil Co. ; Bartles-Northern Oil 
 Co ' Grand Forks, N. Dak.; Northwestern Oil Co., Superior, 
 Wis ■ Winona Oil Co., Winona, Minn.; Monarch Manufacturing 
 Co • Stahl Salter Lubricating Co. ; Rex Oil Co. : Independent Oil 
 Co.; Craig Oil Co.: Bartles Oil Co.; Home Oil Co.: Viscosity 
 Oil Co. ; W. H. Barber Agency ; Wilhelm Oil Co. 
 
1078 
 
 HEARINGS BEFORE 
 
 Grand Forks, X. Dak., November 27, 1011. 
 Hon. Moses E. Clapp, 
 
 Chairman Senate Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 Dear Sir: Learning that Mr. Joseph Bartles was to appear before your hon- 
 orable body, I take the liberty of addressing you with reference to two or 
 three matters which I consider of vital importance to the independent oil 
 industry of the United States. 
 
 I wish to state that I am heartily in favor of our antidiscrimination law. 
 which was passed by the North Dakota Legislature five years ago. This law 
 has regulated the wholesale price of gasoline and kerosene ovei' the entire 
 State of North Dakota. 
 
 I should like to submit a few facts with reference to the present classifica- 
 tion, weight, and rate governing the shipment of refined oil, gasoline, and 
 lubricating oil in bulk, as it seems to me that the present method of arbitrarily 
 fixing a billing weight of 6.6 pounds per gallon on bulk oil, by which is meant 
 either kerosene, gasoline, or lubricating oil, is very unjust to the shipper, as 
 it forces him to pay excess freight on from 4,000 to 6,000 pounds on every car of 
 gasoline, which amounts in our case to from $24 to $36 per car. 
 
 I am giving below the present billing weight, class, and rate figured in cents 
 per gallon on kerosene, gasoline, and lubricating oil from Minnesota Transfer to 
 Grand Forks ; also a proposed change, which I believe would work to the ad- 
 vantage of the railroad companies as well as the shipper. 
 
 Product. 
 
 Present 
 billing 
 weight. 
 
 Class. 
 
 Rate. 
 
 Rate per 
 gallon. 
 
 
 Pounds. 
 
 
 Cents. 
 
 Cents. 
 
 Refined oil 
 
 
 
 
 
 
 6.6 
 
 Fifth. 
 
 27 
 
 j. 782 
 
 
 
 Product. 
 
 Proposed 
 billing 
 weight. 
 
 Class. 
 
 Rate. 
 
 Rate per 
 gallon. 
 
 Gasoline 
 
 Pounds. 
 5.0 
 6.6 
 ,6 
 
 A 
 B 
 C 
 
 Cents. 
 27 
 23 
 20 
 
 Cents. 
 1.512 
 1.518 
 
 
 
 1.520 
 
 
 
 
 You will note by the above figures that the freight averages about the same 
 in cents per gallon for each product, but it gives the correct billing weight, and 
 gives the railroad company a higher rate on the more hazardous product, based 
 on the actual weight. There is a great difference between the weight of the 
 lightest gasoline and the heaviest lubricating oil ; also between the different 
 gravities of the same product v For instance, the actual weight of 85 gasoline 
 is 5.42 pounds per gallon, and the actual weight of 63 gasoline is 6.04 pounds. 
 Thus the proposed billing weight of 5.6 pounds would be an average difference 
 between higher and lower test. On burning oil of 50 gravity the weight is 6.48 
 pounds per gallon, while 42-gravity oil weighs 0.7.S pounds. Thus the proposed 
 billing weight of 6.6 pounds would be a fair average weight. Thirty-gravity 
 lubricating oil weighs 7.29 pounds per gallofi, while a 16-gravity lubricating oil 
 weighs 7.99 pounds per gallon. Thus the proposed billing weight of 7.6 pounds 
 would be a fair average weight. 
 
 Another matter which I think should be regulated is the inspection of oil and 
 gasoline. Your honorable body is no doubt aware that nearly every State has 
 a different law and a different fee. For instance, North Dakota charges one- 
 half cent per gallon for inspecting a tank car ; thus the fee for inspecting a 
 10,000-gallon tank car is $50. It has always seemed to me that a Federal 
 Inspection law could be handled through the revenue department, and the in- 
 spection made at the refinery, and a certificate issued in duplicate, one of 
 which would be given to the shipper to go with the invoice and the other 
 placed upon the car, and the fee assessed on the basis of $1 per car. This 
 
COMMITTEE ON INTERSTATE COMMEKCE. 1079 
 
 •would do away with all confusion in making local or interstate shipments 
 and remove an unjust tax from the public. 
 
 I wish to thank you for your consideration, and am, 
 
 Yours, very respectfully, Chas. Bartles, 
 
 President Bartles-Northem Oil Co. 
 
 The Chairman. Now, Mr. Richberg, the committee will be glad to 
 hear you. 
 
 STATEMENT OF DONALD R. RICHBERG, ESQ., ATTORNEY AT LAW, 
 
 CHICAGO, ILL. 
 
 The Chairman. Give your name in full, your residence and busi- 
 ness, to the reporter, to go into the record. 
 
 Mr. Richberg. My name is Donald R. Richberg ; I am an attorney 
 at law, and live in Chicago. 
 
 As I wish to present a somewhat new, and a certainly not well- 
 understood suggestion in regard to the enforcement of antitrust leg- 
 islation, I have prepared a very brief statement, so that I might be 
 perfectly clear, which I will present as an original statement. I will 
 state that it is very brief. 
 
 The suggestion which I have to make eovers purely one phase of 
 the problem, and that is the penalty for breach of whatever law 
 should be passed, or whatever laws are in existence ; and to that par- 
 ticular phase of the subject I have given several years of special 
 study and a great deal of time, and have condensed the results within 
 a very small compass. 
 
 While the suggestion that a lawbreaking corporation should be 
 imprisoned may have a somewhat radical sound, it may, on second 
 thought, appear to be more conservative than the prevailing cry of 
 the day that negligent directors and dummy officers should pay the 
 penalty of imprisonment for wrongdoing, conceived for the benefit 
 of, and worked out for the profit of, stockholders who are not legally 
 liable to punishment. 
 
 Although I shall concern myself with considering only the penalty 
 for lawbreaking, certain assumptions as to desirable legislation 
 necessarily precede this consideration. It is assumed that competi- 
 tion is necessary to business health, and that large enterprises must 
 play an important and valuable part in our commercial development, 
 but that to maintain competition, a well-defined legal limit must be 
 placed upon that proportion of a single industry which shall be sub- 
 ject to a single control. Perhaps 50 per cent is a reasonable figure. 
 It is assumed that legislation should require such reports to the 
 Bureau of Corporations as will enable that bureau to declare, pub- 
 licly, when more than 50 per cent of an industry in which competi- 
 tion must be kept alive has come under one control. It is assumed 
 that if, in the face of notification from the Bureau of Corporations, 
 those responsible for that control further expand their domination, 
 the situation will be laid before the Department of Justice to enforce 
 obedience to the law. The question then arises : What sort of penalty 
 shall the executive department of the Government be empowered to 
 demand ? 
 
 The whole tendency of modern penal legislation is toward finding 
 and imposing penalties which shall be not merely deterrent punish- 
 
1080 
 
 HEARINGS BEFORE 
 
 ments, but measures of reform. To subject a corporation to a fine has 
 proven an ineffective measure. The punishment of individual officers 
 can never be effective or satisfactory, for three reasons : 
 
 First. The exceeding difficulty of locating what officers are per- 
 sonally responsible for illegal actions. 
 
 Second. The probability, that is almost a certainty, that the only 
 legally responsible parties will be mere scapegoat underlings. 
 
 Third. Such a punishment is a purely deterrent penalty, simply 
 encouraging men of courageous unscrupulousness to grow wealthy 
 by taking a daily risk, and does not tend to the betterment of condi- 
 tions. 
 
 When it is suggested that the penalty for violations of antitrust 
 legislation should be imprisonment of the offending corporation, or 
 of all the offending corporations involved in a particular conspiracy 
 in restraint of trade, the first inquiry will naturally be: How can a 
 corporation be imprisoned? 
 
 The imprisonment of a corporation would be accomplished by a 
 process similar to a receivership. On a sentence of imprisonment 
 being pronounced, the court would place the corporation in the hands 
 of those designated by the statute; perhaps, following the receiver- 
 ship analogy, persons chosen by the court as fitted to manage the 
 business involved and made officers of the Government for that pur- 
 pose. Under the control of these receivers, whom I may designate 
 marshal receivers, to distinguish them from civil receivers, the cor- 
 porate entity would be kept alive just as an individual prisoner is fed, 
 given a habitation and permitted to labor for the benefit of his health, 
 and for the benefit of the State. The entire affairs of the corporation 
 would be subject to the scrutiny of the Federal officers; illegal con- 
 tracts, in violation of the antitrust law or the interstate-commerce 
 law, would be exposed and could be abrogated ; and, during the term 
 of imprisonment, suited, not to the offense, but to the proper amount 
 of time necessary to reform a concern, the entire organization could 
 be put on a basis of healthy business so that it might, at the end, be 
 turned back to its stockholders as a legitimate enterprise. It may be 
 assumed that they would welcome it with all the joy with which a 
 family greets the return of the wage-earning convict. To some it 
 may seem reasonable that a proportion of the legitimate earnings of 
 such a concern should be returned to the stockholders, though, in 
 accordance with the treatment of individual convicts, the entire 
 amount might be appropriated by the State. To maintain stable 
 credit, probably the interest on bonded indebtedness should be paid, 
 if earned, although the debtors of the individual convict are not per- 
 mitted to require such payments of interest on his loans from the 
 proceeds of his labor in the penitentiary. 
 
 These problems are mere matters of administration in which broad 
 investigation and practical experience will necessarily modify and 
 greatly improve upon any program which a theorist could propose in 
 advance. But the main questions, in considering such a penalty, are : 
 
 First. What harm would it do? 
 
 Second. What good would it do? 
 
 In several years of discussion of this theory with editors, lawyers, 
 publicists, and political economists, I may say that the chief objec- 
 tion urged is one which appeals to me as insecurely founded, that 
 innocent stockholders will suffer. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1081 
 
 In the first place, according to sound legal precedents affecting 
 this consideration, there are no innocent stockholders in an ille- 
 gitimate enterprise. If a number of persons combine, either to 
 furnish services or capital for an illegal undertaking, there are no 
 authoritative precedents from which they may argue that a court 
 should not confiscate their capital. And yet the imprisonment urged 
 is not confiscation, but merely temporary restraint. If one invests 
 property in a concern operating a lottery or any other gambling de- 
 vice prohibited by law, such property is liable to confiscation on a 
 theory stated by Bishop, the authority on criminal law, as follows : 
 
 When the thing which is the subject of property passes into a situation an- 
 tagonistic to the law, its owner may lose his ownership in it, whether personally 
 guilty of crime or not, because the thing has offended. 
 
 There are no innocent stockholders in the great enterprises at pres- 
 ent being subjected to dissolution, or whose dissolution is being de- 
 manded by the Government. Every adult person able to read, who 
 has invested in the stock of such corporations, invested on the assump- 
 tion that he or she was ready and willing to promote and share in 
 the profits of an enterprise of doubtful legality. If a man invests 
 money in an apparently legal enterprise and discovers that he is 
 thereby assisting in violating the law, he has the alternative of ac- 
 cepting his responsibility as a stockholder and demanding lawful 
 management, or he can put his shares up for sale to anyone who 
 wishes to assume the risk and responsibility of the situation. It 
 seems that such a responsibility upon the stockholder might have a 
 healthy effect upon the stock market, in making law-abiding as well 
 as profit-producing management a factor in determining the market 
 price of stocks. 
 
 The second answer to the objection that innocent stockholders 
 would suffer may be found when one considers, not the individual 
 stockholder, but the stockholder as representing an investing public, 
 interested in safe, sure and legitimate profits, as distinguished from 
 the gambling public interested in profits at any cost, whose interests 
 the Government is surely not called upon to protect. The investor- 
 stockholder is interested in having all business law-abiding, in re- 
 lieving it from fears of disturbance through political attack from the 
 outside, or treachery and graft from within, and the experienced in- 
 vestor-stockholder knows that the officer who is willing to violate his 
 obligations to the Government is usually not particularly sensitive 
 to his obligations to his stockholders. 
 
 Were imprisonment the penalty for violation of law by corpora- 
 tions, it would be to the interest of the investor-stockholder to point 
 out, himself, the illegal operations which might lead in time to Fed- 
 eral restraint of a particular business, and which would be sure, 
 eventually, to injure general business conditions. Should he fail to 
 expose such illegalities, his complaint on the day of reckoning should 
 receive small attention. It is unfortunately true that the average 
 investor will pocket huge dividends complacently without a twinge of 
 realization that some one must pay, and that after enough people have 
 been exploited to pay immoral, if not illegal, profits for a sufficiently 
 long time, the complacent investor himself, in common with the rest 
 of the country, will suffer a spell of hard times. During this period 
 
1082 HEAKINGS BEFOKE 
 
 he will condemn the politicians, the financiers, the political econ- 
 omists, and almost anybody else in sight except his own responsible 
 self. 
 
 Feeling confident that little harm would result from imprisoning 
 criminal corporations, the final question is, What good would it do 1 
 
 To avoid unjustifiable optimism, it must be realized that a great deal 
 of the effectiveness of such a measure would be dependent upon the 
 efficiency of its administration. Yet in many respects such highly 
 beneficial results could be accomplished that it seems that even incom- 
 petent or partially corrupt administration would produce distinct 
 benefits. There is a great clamor for publicity in corporate affairs, 
 yet anyone concerned with business must feel that a reasonable 
 privacy is essential to the profitable conduct of private enterprise. 
 Publicity should be regarded, in a way, as a penalty for failure on 
 the part of a corporation to maintain the standard of conduct which 
 would insure the public against the dangers which might arise from 
 permitting desirable privacy. A corporation could well report to the 
 Bureau of Corporations matters proper only for the scrutiny of legis- 
 lative, judicial, and executive officers of the Government. But should 
 a corporation offend against the law, the public should have the right 
 to complete knowledge of the corporation's actions and organiza- 
 tion — first, for the enlightenment of the public, and second, as a 
 penalty for the failure of the corporation to live up to its obligations. 
 
 Where a corporation should be found guilty of monopolizing more 
 than its legitimate share of trade, the marshal receivers in control 
 of the imprisoned organization could work out during the term of 
 the imprisonment the manner of reducing its trade control within 
 legal limits, carry out the project, and return the redeemed corpora- 
 tion to its stockholders as a useful, though artificial, member of the 
 community. 
 
 Every one of the great incorporated enterprises which have been 
 subjected to governmental prosecution in recent years has been 
 charged with being guilty of numerous kinds and classes of crimi- 
 nality, incidental to or in some cases overshadowing the violation of 
 the Federal antitrust law. Customs frauds, the corruption of com- 
 mon carriers, and even blackmail and extortion have been charged 
 as weapons used by illegal enterprises. The imprisonment of such 
 a corporation would place the Government in a position where the 
 investigation of its marshal receivers would speedily determine 
 whether or not the charges were true or false. If such charges have 
 been true, it is essential to the common welfare that the proof thereof 
 should be made easy of access to the officers of Government. If such 
 charges are false, they should be proven false to the satisfaction of 
 the vast number of people who feel to-day, and perhaps justly, that 
 the large business enterprises of this country are not great organi- 
 zations of commerce but merely huge exploitations of the disor- 
 ganized many, helpless to combat the well-organized few. 
 
 Lastly, one general statement should be made — since we have in our 
 modern life artificial persons created by the State, endowed, within 
 physical limits, with all the powers of natural persons, and having 
 as a fundamental idea of their creation less responsibility. Should 
 it not be the effort of all legislation dealing with corporations to 
 place them as nearly as possible on a plane of equal responsibility 
 with individuals subject to similar legal restrains and punishments? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1083 
 
 Quoting from the two leading authorities on the law of corpora- 
 tions, one may say : 
 
 The former view that a corporation, because it has no physical body, could 
 commit no criminal act and, having no soul, could not be a subject for punish- 
 ment, is now obsolete. (Purdy's Beach on Private Corporations, sec. 1016.) 
 
 There is no reason why a corporation should be included in the word " per- 
 son " for the purpose of jurisdiction and be excluded from it for the purpose 
 of being exempted from liability to penal actions for the commission of wrong 
 for which the statute law makes individuals so liable. On the contrary, such 
 an interpretation gives to an aggregated body of wrongdoers an immunity from 
 punishment which individuals do not enjoy. (Thompson. Commentaries on Cor- 
 porations, vol. 5, sec. G285.) 
 
 As long as corporations are granted, as at present, powers greater 
 than those of individuals and held to infinitely less responsibility, 
 popular outcry and condemnation of corporations just because they 
 are corporations and large corporations, just because they are large 
 corporations, will be inevitable. But corporations are necessary to 
 modern business life. They should not be hampered or restrained in 
 their operations to any greater extent than individuals. But since 
 absolute restraint within stone walls and steel bars is the penalty in- 
 voked for control of individuals who violate important community 
 obligations, it is logical and fitting that absolute restraint should be 
 the penalty invoked for the control of those aggregations of capital 
 which the State vitalizes with the name of a corporation. Before the 
 eyes of the thief is placed the prison, the taking away of his free-, 
 dom, of his right to the fruits of his labor. Before the eyes of the 
 investor in unlawful enterprises should be placed the prison, the 
 taking away of the freedom of his dollars, of his right to the income 
 which they produce. 
 
 As long as we permit at large in the community artificial persons 
 through which real persons will work out criminal acts and permit 
 our hands to be tied by ancient decisions and worn-out reasoning, 
 admitting our inability to confine these Frankensteins as we would 
 confine human criminals, we will have a constant, unsolved problem 
 on our hands. Provision for the criminal receivership, suggested as 
 a method of confinement, would only affect one phase of that problem. 
 But it may be urged logically that a long step would be taken toward 
 its final solution in the passage of such legislation as would provide 
 adequate punishment for the corporate felon 1 — the imprisonment of 
 the criminal corporation itself. 
 
 I do not wish to take the time of the committee to add anything 
 further, but I should be most delighted to have an opportunity of 
 answering any inquiries which may naturally arise. 
 
 I have been discussing this subject, I may say, for some five years, 
 and I might also mention that one of the assistant attorney generals 
 of the United States, who is specially in charge of trust prosecutions, 
 stated that to his mind it appeared as a cure-all for the difficulties 
 they are struggling with. Prof. B,oss, an eminent political economist 
 and sociologist, wrote me that he thought that he saw no defects in 
 the plan. The matter has been tested by men of wider experience and 
 better understanding of the problem than myself, and I have yet to 
 have a vital flaw shown in the reasoning. 
 
 Senator Cummins. Do you apply your doctrine to all the offenses 
 of which a corporation can be guilty? 
 
1084 
 
 HEARINGS BEFORE 
 
 Mr. Eichberg. As to whether it would be wise to apply such a 
 doctrine to all the possibilities — in other words, to involve the ques- 
 tion of receivership for a corporation, I think may be somewhat 
 doubtful. But the imprisonment and penalty is one which is imposed 
 only in supposedly flagrant cases for individual misdoing, and sup- 
 posedly would be limited in the same way in regard to corporate acts. 
 
 Senator Cummins. I was thinking about some of the less grievous 
 offenses of which a corporation may be guilty. A railroad, for in- 
 stance, that fails to keep a highway over its track in good condition 
 is, under the laws of my State, punishable through information or 
 indictment. You would hardly suggest for such a crime as that a 
 receiver should be put in charge of the railroad property ? 
 
 Mr. Eichberg. I should think that this was simply a remedy fitted 
 for the accomplishment of certain governmental purposes. 
 
 Senator Cummins. There are certain crimes for which mere fines 
 seem to be inadequate and for which the imprisonment of officers 
 seems to be unjust at times. 
 
 Mr. Eichberg. Both difficult and unjust. 
 
 Senator Cummins. I think it is a part of your suggestion that the 
 profits of the receivership shall become the property of the Govern- 
 ment? 
 
 Mr. Eichberg. It is a part put forward very tentatively on this 
 idea, that it is customary for a convict, an individual convict, to work 
 m the penitentiary, and from the proceeds of his labor, in most of our 
 States at least, the State makes a certain profit, and the surplus is 
 returned to his family. I do not know that there is ever a profit, 
 however. 
 
 Senator Cummins. If your manager, for instance, violates the law, 
 his body is taken possession of, and he is incarcerated, but the Gov- 
 ernment does not take possession of his property. 
 
 Mr. Eichberg. The reason for the analogy was this — that the deci- 
 sions of the court have gradually shaped the law to a point where 
 there is no responsible body left to a corporation except what you 
 may term its capital, which involves the control of its assets in 
 very much the same way in which a human being's body involves the 
 control of his assets. 
 
 Senator Cummins. Your analogy is between the property of a cor- 
 poration and the body of an individual ? 
 
 Mr. Eichberg. Yes, sir. 
 
 Senator Cummins. I think we can best ascertain what your view 
 is concretely by suggesting a case. As you know, the Supreme Court 
 recently condemned the American Tobacco Co. as a violator of law ? 
 
 Mr. Eichberg. Yes, sir. 
 
 Senator Cummins. Now, suppose that your plan had been the 
 policy of the country, and when the American Tobacco Co. and all 
 its parts were found criminals in the sense in which you have used it, 
 what would you do with the American Tobacco Co. and all its prop- 
 erty? 
 
 Mr. Eichberg. As I recall, that happened to be a fortunate analogy 
 for this purpose. The Government m that case applied for a re- 
 ceiver under the Sherman law, which, request was denied as unneces- 
 sary, I believe, by the court. If the court had complied with the 
 suggestion, the result would not have been the result I intend at all. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1085 
 
 In other words, under the Sherman law the appointment of a receiver 
 is for the dissolution of the trust. 
 
 On the other hand, if the corporation had been sentenced to a term 
 of imprisonment, for example, for 12 months, and put in the hands of 
 marshal receivers, the decree of the court or the sentence of the court 
 could be that the business should be, by these marshal receivers, so 
 conducted during the period of the imprisonment that at the end of 
 that time the corporation would no longer be in possession of a mo- 
 nopoly of the trade. In other words, by splitting off parts in a 
 similar way to which the parts were added on. At the end a legal 
 and lawful enterprise could have been returned to the stockholders. 
 
 Senator Cummins. Then your plan would involve not the im- 
 pounding and the operation of the property of the criminal, but the 
 disintegration and disposal of the property? 
 
 Mr. Richberg. I meant in this case to indicate only the disposal of 
 so much of the property as constituted its unlawful monopoly. 
 
 Senator Cummins. How would you determine that? 
 
 Mr. Richberg. That, I assume, would be a preliminary determina- 
 tion of the law regarding the amount of an industry which a corpora- 
 tion could legitimately control, which could be within one control. 
 I suggested merely tentatively the 50 per cent figure — I believe others 
 have suggested that — as a reasonable amount of an enterprise which 
 might be permitted within one control. Assuming such a figure, and 
 a law to base it, then the sentence could be imposed. 
 
 Senator Cummins. I would not call that imprisonment at all. 
 That is dissolution or disintegration' of the trust or the criminal cor- 
 poration. It is not withdrawing it properly from the owners for a 
 limited time in order to punish it for violation, but it is taking their 
 property and redistributing it in some fashion or other. 
 
 Mr. Richberg. I only suggested that, if I may explain, as a part 
 of what would inevitably result during the period of imprisonment. 
 In other words, the Government itself would not admittedly conduct 
 an unlawful enterprise; and that while holding the corporation in 
 restraint during that period a plan would be worked out whereby, 
 upon the corporation being returned to its stockholders, it would be 
 returned in such shape that the original stockholders would be left in 
 possession of a lawful corporation, the undesirable parts having been 
 lopped off. 
 
 Senator Cummins. Then the principle proposed would be to put 
 the property which had ,been offending against the law into lawful 
 relation rather than to punish anybody. 
 
 Mr. Richberg. That is, to my mind, the principal function of all 
 punishment, so far as possible. 
 
 Senator Cummins. But take the facts of that case. Here we have 
 four or five companies which the Supreme Court calls accessory com- 
 panies, and then the principal company, the accessory companies 
 holding the assets and stock of a great many other companies and the 
 principal company holding the majority of stock of the accessory 
 companies; would you have the manner in which such a concern 
 should be dealt with prescribed in the law, or ought it to be prescribed 
 in the judgment of the court ? 
 
 Mr. Richberg. My idea was that there should be definite legislation. 
 I think the great complaint to-day is against the indefiniteness of 
 legislation prescribing the amount of control. That being deter- 
 
1086 HEARINGS BEFORE 
 
 mined, it would simply be one of the incidental duties of the marshal 
 receivers during the term of receivership to work out a plan for 
 making this a lawful corporation at the end of the receivership. 
 
 Senator Cummins. And when the receiver returned that property 
 he could not turn it back to the same persons from whom he took it ? 
 
 Mr. Richberg. He would turn it back to its stockholders, who could 
 meet and properly reorganize the corporation. 
 
 Senator Cummins. Part of its stockholders would have been en- 
 tirely changed ; that is, a part of the property would have been dis- 
 posed of to somebody else. Then you would have the marshal re- 
 ceiver divide the proceeds of that property among the stockholders 
 of the parent company ? 
 
 Mr. Richberg. I did not suppose either doing it during the term of 
 imprisonment or at the end of the imprisonment. To my mind it 
 seems more logical to return the entire property to the stockholders, 
 with the suggestion as to how the corporation should be reorganized 
 as a legitimate enterprise. 
 
 Senator Cummins. That is what I could not understand a moment 
 ago. You would hardly give to the receiver the authority to de- 
 termine when he had prepared a plan that would be in harmony 
 with the law — somebody else would have to determine that; the 
 court would have to determine that? 
 
 Mr. Richberg. Yes, sir. 
 
 Senator Cummins. So that you would have the court really as the 
 business adjuster — that is the difficulty I see in it — a business adjuster 
 for all these big concerns that may have violated the law? 
 
 Mr. Richberg. In a way, of course, the function of the court would 
 be no more difficult under this criminal receivership than it is in the 
 case of such a receivership as the receivership of the traction com- 
 panies in Chicago, where the court found it necessary to control 
 that receivership for a long period of time, and finally turned over 
 to a new company the assets of the concern, and arranged for an 
 entirely new concern. Assuming that the court might take such 
 action, it would be no more complicated than is now done in civil 
 cases. 
 
 Senator Cummins. In the case of the Chicago Traction Co., the 
 chief object was to dispose of the property to the best advantage? 
 
 Mr. Richberg. Yes, sir. 
 
 Senator Cummins. So that the stockholders would get the most 
 out of it. But in this case the chief object is to dispose of it so 
 that it will not be in violation of law. I think those are two very 
 different things. 
 
 Mr. Richberg. Yes; I think there is no question about the differ- 
 ence in the fact. But as to the difficulty of operation, it is no more 
 difficult in one case than it is in the other. 
 
 Senator Cummins. I can see a great deal of force in your sugges- 
 tion about the impounding of a corporation and punishing it by 
 withdrawal of its operation and property for a limited time for a 
 violation of the law, if that violation does not involve anything in 
 the constitution of the corporation itself or the property which it 
 owns. It is a new suggestion. 
 
 Senator Oliver, you may inquire. 
 
 Senator Oliver. Do I understand that it is your proposition that 
 for a flagrant infraction of the law the Government should take 
 
COMMITTEE ON INTERSTATE COMMERCE. 1087 
 
 charge through a receivership of the affairs of a corporation for a 
 limited time and have it managed by its officer for the benefit of the 
 public ? 
 
 Mr. Eichbeeg. In brief, that is the proposition. The one question 
 as to what portion of its income should be devoted to the public and 
 what to the stockholders I have left entirely undiscussed 
 
 Senator Oliver. I do not think I have anything further. 
 
 Senator Cummins. The committee is very much obliged to vou for 
 appearing before it. 
 
 (Mr. Kichberg was thereupon excused.) 
 
 LETTER OF MB. CLARENCE V. TIERS, PITTSBURGH, PA. 
 
 o ± ,, ^ _ Pittsburgh, Pa., November 23, 1911. 
 
 Senator Moses E. Clapp, ' 
 
 Chairman Senate Committee on Interstate Commerce, 
 
 Washington, D. C. 
 
 My Dear Senator : With your permission I desire to call the attention of 
 your committee to a possible solution of the "trust problem" that I fully 
 believe will meet with the entire approval not only of the honest " trusts " but 
 also of a vast majority of all the people, and this I believe to be the prime 
 object sought by your committee at this time. 
 
 In lieu of entering into an extended and unnecessary discussion of what the 
 trust problem is, I wish to call the attention of your committee to the : indis- 
 putable and alarming fact that in attempting to solve this problem the Congress 
 has failed, the State legislatures have failed, the executive departments of both 
 State and National Governments have failed, the lawyers and the eourts have 
 failed, all other agents of the people, authorized and unauthorized, have failed, 
 and the problem, now vastly more important than ever before, is no nearer 
 solution than it was 20 years ago. . 
 
 It therefore seems that the problem is so difficult that it would be well for 
 the principal, the " composite citizen," who is the real sufferer, to take a hand 
 in the matter personally. 
 
 I fully believe that in the concensus of opinion of great masses of men, only, 
 will be found the wisdom that will most nearly conform to the " greatest good 
 for the greatest number." No elected man or set of men can possibly know or 
 express by legislation the will of the people so well as the people could express 
 it themselves if they had the direct and unfettered use of the ballot through 
 the initiative and referendum system of direct control of legislation. 
 
 It is a self-evident fact that no " trust " or corporation could exist without a 
 charter or permit from some division of the Government. There is not a 
 " trust " in the country that has not derived its power to prey upon the people 
 from the charter granted to it by a State government. 
 
 In theory Governments grant charters and create corporations in order that 
 the corporations may be enabled to serve the people better than individuals 
 could. No corporation or trust, therefore, can deny or escape from its obliga- 
 tion and duty to be of service to the public. When it ceases to serve and begins 
 to oppress the people it has no longer any right to exist. 
 
 Public opinion, on national questions particularly, is an unknown quantity 
 in this country, except where the initiative and referendum are in use, and 
 the representatives of the people are therefore severely handicapped in their 
 labors on behalf of the ipeople by the fact that the people — a majority of all 
 the people — have no legal, official, or accurate means of expressing their wishes 
 as to public questions. This is the principal reason for the almost criminal 
 delay in the solution of public problems. 
 
 I therefore respectfully suggest as a solution of the trust problem — 
 
 (1) That any company desiring to engage in interstate or foreign commerce 
 be required to secure a charter of incorporation from the National Government. 
 
 (2) That national charters be issued for an indefinite term or during conduct 
 satisfactory to the people; such charters to be subject to recall or repeal* -by 
 a majority vote of the people of the United States.; the- vote of the people to 
 repeal the charter of any national corporation to be taken only wHeii demanded 
 By a petition signed by not less than 1 per cent of the voters of' each State 
 taken separately, or upon the demand by resolution by a two-thirds' vote of 
 
 22877— vol 1—12 69 
 
1088 
 
 HEARINGS BEFORE 
 
 the legislatures of three or more States, or upon the passage of a resolution to 
 this effect by a two-thirds vote of Congress; such a vote of the people to be 
 taken at the first annual election after one year has elapsed from the time of 
 the filing of such a petition or of the passage of such resolution or resolutions. 
 
 It may be said that this would be a " radical " remedy. I reply that no 
 'other trust remedy has yet been found that would be satisfactory to either the 
 trusts or the people or that would in the least conform to modern economic 
 conditions. A radical wrong requires a radical remedy, and the remedy here 
 suggested is intended to meet a condition sa radically wrong that it should not 
 and can not longer be tolerated. Honest business must be let alone. The dema- 
 gogue must keep hands off. 
 
 By extending the recall system to trust charters and thus providing for 
 popular supervision of the trusts instead of Government supervision, or of 
 regulation by lawsuits, I believe that, so far as the rights and interests of the 
 people are concerned, the great trust problem would be solved. The people 
 would at all times have within easy reach a powerful weapon with which to 
 defend themselves. The trusts, with such a club as this held over them by the 
 people, would naturally be on their good behavior, and they would necessarily 
 strive to serve the public to the public's satisfaction. " The public be damned " 
 would cease to be the motto of the trusts, for the public would be their masters. 
 
 Let us now consider the " popular supervision of the trusts," as here pro- 
 posed, from the standpoint of the trusts themselves. 
 
 Not even the most enthusiastic and loyal supporter of the referendum and 
 recall would go to the length of asking the Beef Trust, the Tobacco Trust, the 
 Standard Oil Co., or any other such band of incorporated criminals to indorse 
 the popular recall of charters, for the reason that the prime object of this 
 plan is to give the people an opportunity to make short work of such legalized 
 highwaymen. There can be no doubt that such brigands would prefer to throw 
 themselves upon the mercy of the overteclmieal and mysterious courts. 
 
 Honest corporations, however, could have no surer protection from the 
 harangue of the demagogue and from the spirit of the mob than would be 
 afforded by the votes of a majority of all of the people of America, as such a 
 vote would be recorded after a year's deliberation. 
 
 Every page of American history confirms the statement that the majority of 
 all the people can not be stampeded into hasty or unwise action, that they love 
 fair play, and that they want to live and let live. 
 
 If the trusts, or any of them, really want, and are willing to give, a " square 
 deal," let them appeal directly to that most conservative, wise, and fair-minded 
 man, " the composite citizen " of the United States. 
 Respectfully, 
 
 Clarence Van Dyke Tiebs. 
 
 Senator Cummins. The committee will take a recess until 10.30 
 o'clock to-morrow morning. 
 
 (Thereupon, at 4 o'clock and 35 minutes p. m., the committee took 
 a recess until to-morrow, Wednesday, December 13, 1911, at 10.30 
 o'clock a. m.) 
 
 wednesday, december 13, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m. for 
 the purpose of further considering the bill (S. 2941) entitled "A bill 
 to create an interstate trade commission, to define its powers and 
 duties, and for other purposes," introduced by Mr. Newlands July 
 5, 1911. 
 
 'Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, 
 Oliver, Townsend, Newlands, Watson, Pomerene, and Lippitt. 
 
 The Chairman. The committee will come to order. Mr. Perkins, 
 we will now hear you. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1089 
 
 STATEMENT OF GEOEGE W. PERKINS, NEW YORK CITY. 
 
 The Chairman. You may state your name, age, residence, and 
 occupation. 
 
 Mr. Perkins. George W. Perkins; residence, New York City; age, 
 49. It is pretty difficult to describe my occupation. 
 
 I presume you have had so much information offered to your com- 
 mittee on the necessity of some legislation that perhaps you would 
 not care to have me take your time to give my reasons why legislation 
 is necessary, and perhaps 
 
 Senator Townsend. That is the very thing we do want. 
 
 Senator Cummins. Yes ; that is just what we want. 
 
 Mr. Perkins. I did not know but perhaps you had had so much 
 of that that you would rather get along to the point of what might 
 be suggested. 
 
 As to the cause for the present condition in which the business of 
 this country finds itself, it seems to me that the underlying cause, 
 the original cause, is the one to discover, if we can, very much as in 
 the case of anyone who is ill of any disease, the diagnosis is the most 
 important thing to have right before any prescription, and I have 
 felt for a long while, from rather a close study of all these questions, 
 that perhaps the people of our country did not realize that the 
 underlying cause was very largely the enormous development along 
 practical lines, of the methods of intercommunication in the last 
 quarter of a century — not only intercommunication as to commodi- 
 ties, but in my judgment more particularly intercommunication as to 
 thought and the ability of the mind to reach out and do business 
 at enormous distances, which condition did not exist prior to a very 
 few years ago. 
 
 If I were going to boil it down to who is responsible for our pres- 
 ent disturbed condition in business, some one man more than another, 
 I would name Mr. Edison as the man who is primarily responsible 
 for most of our trouble, if trouble it be. I do not believe that the 
 people who have become accustomed to the everyday use of the long- 
 distance telephone realize how it has absolutely revolutionized every 
 phase of business life. Only last week I was dining with some gen- 
 tlemen in New York and one of the gentlemen was called to the 
 telephone. He was gone perhaps 10 minutes and came back, and in 
 about an hour he was called to the telephone again. We began to 
 chaff him about his going to the telephone, etc. "Well," he said, 
 " just let me tell you what has happened in the last hour." Then he 
 recited that he had a business associate in Chicago who had called 
 him the first time and talked over a business matter that they had 
 underway, and he had replied to this man that he thought another 
 associate in Denver and another in St. Paul ought to be consulted, 
 and suggested that he do so at once in order to find out what their 
 views were, and he then called up this man in New York again, and 
 at the end of about an hour he had gone back to the telephone, and 
 the man in Chicago had talked to the man in Denver, talked to the 
 man in St. Paul, called up this man in New York and had given him 
 their views, and the New York man said they had closed this trade, 
 whatever it was. 
 
 Now, that had all been done while this man was eating his dinner 
 in New York. 
 
1090 HRAHINGS BEFOBE 
 
 Mr. Rockefeller, or any of the other of the great industrial organ- 
 izers of this country, could not possihly have accomplished what they 
 had accomplished if it had not been for such methods as those, as 
 they have grown and developed. Our fathers and grandfathers 
 might have been many times as able mentally as we are, but they 
 could not have approached any such accomplishment as we can 
 approach to-day, and I do not see that the limit to those things has 
 by any means been reached. In place of curtailing the output of such 
 inventions, we are mutiplying and expanding them all the time. 
 Every time anybody does something that annihilates distance, we 
 applaud him and. write his name in the Hall of Fame, and then the 
 minute that a business, man comes along and takes one of these in- 
 ventions and makes practical use of it, we apprehend him and put 
 him in jail, if we can. 
 
 That is the practical, striking view of it, and it seems to me 
 that that is the real point that the legislation of the country must 
 meet, and in some way handle. 
 
 Now this enormous development in intercommunication has cen- 
 tralized the world, whether we like it or whether we do not like it. 
 It has made very large undertakings possible, and in the enlargement 
 of business the opportunities have been so enormous and the de- 
 velopment has been so rapid that it could not be proceeded with 
 .along the old lines of a natural increase in a given business, like a 
 firm, or the natural growth that came in the days of our fathers 
 or grandfathers from simply such capital as a man himself might 
 add to his business. 
 
 So that has largely accounted for the combination of business, 
 as a more rapid way of getting the development that has been possible 
 through the growth of intercommunication. That has brought us 
 to a point where men are using a great deal of capital that is not 
 their capital. It is not the capital of their town, or their friends, 
 or their State, or anything that approaches their immediate environ- 
 ment, and so the merchant of to-day occupies, in my judgment, a 
 very different relationship to the people than the merchant of our 
 grandfathers' time. 
 
 I met a gentleman at dinner the other night who is 78 years old. 
 He had been a very successful merchant. He was inclined to criti- 
 cize me rather roundly for my views as to Government regulation, 
 and said, " I believe in the freedom of a man's opportunities in trade. 
 I have been successful and happy for half a century. I was success- 
 ful because I was allowed to organize my business and handle it 
 and do with it what I pleased. I did it." Then I called his atten- 
 tion to the fact that that was true entirely in his day, but at the 
 present time he was president of a company as the result of his half 
 century of business in which there was a" very large number of stock- 
 holders scattered all over the United States. Therefore, he was not 
 only a merchant, but he was the custodian for the investment of a 
 very large number of people, and in that, respect was very close in 
 relationship to those people, such as a banker has when he takes the 
 money of people on deposit in his bank, and that if men want to be 
 merchants and at the same time semibankers — for want of a better 
 term — they have got to realize that their responsibility is of a very 
 different nature to not only the business of the world put the public 
 
COMMITTEE ON INTERSTATE COMMERCE. 1091 
 
 than that which was represented by the methods of men of, say, a 
 quarter of a century ago. 
 
 Therefore, it seems to me that the cause that has led to this present- 
 day condition in business, and the responsibility that must be met 
 because of the vast interests involved in large business are the two 
 principal questions to meet, and of course in doing that it is im- 
 portant, if possible, to not do anything that will lay down a prece- 
 dent that we would be sorry for later on ourselves, or that will fob 
 our sons in the future generation of many opportunities that we have 
 enjoyed or that our fathers enjoyed. 
 
 I think, in this connection, there is another point that, perhaps, 
 has not been thoroughly thrashed out. We have moved along in this 
 country to a point where in the matter of our railroads one has to jog 
 his memory to realize now that a railroad is chartered by a given 
 State. They have come to be so thoroughly under Federal control 
 that the question of the State having anything to do with the railroad 
 is more or less lost sight of, except in the vexatious annoyance of the 
 railroad official who has to deal with so many governmental condi- 
 tions now. The railroads are fast coming under Federal control. 
 Our banks are under Federal control. The very food that we eat is 
 more and more coming under Federal regulation and inspection. So 
 that the carrier who distributes the product of business, the bank 
 that finances the business, and a great many of the things that we 
 use — the product of business — are under Federal control; but the 
 creator of all these things — business commerce — has been up to to-day 
 left to shift for itself and get on as best it could under these changing 
 ■conditions. There would not be any railroads, there would not be 
 any banks, if it were not for the producer of all these commodities 
 that are to be transported and financed, and it is very difficult for me 
 to see how it is possible for us to fail to face calmly and sensibly a 
 proper regulation of the business when it reaches a point where the 
 public more or less own it, and where it desires to reach out all over 
 the world and do business with people all over the world and serve 
 the public all over the world. 
 
 It seems to me that the developments of this last year have made 
 this pretty plain to our people, and my observation is that the time is 
 ripe to make a careful beginning at least of some sort of regulation 
 of interstate and international business, and having watched this 
 phase of the development as carefully as I have been able to, and all 
 that has been said by a great many people who are qualified to speak 
 on it, I have reduced" to a short memorandum what occurs to me might 
 possibly be a step that could be taken very promptly for relief. I 
 will read it. I have divided this into two ^arts, as follows : 
 
 IMMEDIATE RELIEF. 
 
 First. Create at once in the Department of Commerce and Labor 
 a business court or controlling commission, composed largely of expe- 
 rienced business men. _ , 
 
 Second. Give this body power to license corporations doing an 
 interstate or international business. ' 
 
 Third. Make such license depend on the ability of a corporation to 
 comply with conditions laid down by Congress when creating such 
 
1092 HEARINGS BEFOKE 
 
 commission and with such regulations as may be prescribed by the 
 commission itself. 
 
 Fourth. Make publicity, both before and after license is issued, 
 the essential feature of these rules and regulations. Require each 
 company to secure the approval of said commission of all its affairs, 
 from its capitalization to its business practices. In the beginning 
 lay down only broad principles, with a view to elaborating and per- 
 fecting them as conditions require. 
 
 Fifth. Make the violation of such rules and regulations punishable 
 by the imprisonment of individuals rather than by the revocation of 
 the license of the company, adopting in this respect the method of 
 procedure against national banks in case of wrongdoing. 
 
 PROSPECTIVE RELIEF. 
 
 First. The House and Senate to join at once in appointing a com- 
 mission to make a careful study of the Sherman law and the various 
 suggestions that have been made regarding its repeal, amendment, 
 and amplification. 
 
 Second. Said commission to study and report on the wisdom and 
 practicability of a national incorporation act. 
 
 SUMMARY. 
 
 Anyone familiar with present business conditions in this country, 
 both as to domestic and foreign trade, realizes that the brakes are on. 
 We are not expanding our domestic trade to the extent we should be. 
 New enterprises are not being undertaken as freely as they should be. 
 Capital in this country is contracting rather than expanding its op- 
 erations, while Germany, Canada, and other countries are forging 
 ahead with their industrial plans. The reason for this attitude on 
 our part arises largely from the fear engendered by the prosecutions 
 under the Sherman Act. At the present time the business man's 
 complaint is that he does not know when he is right or when he is 
 wrong ; that this apparently can not be known until he is prosecuted 
 and his case reaches the court, and that as matters now stand he does 
 not and can not know, as he proceeds with his business, whether he 
 is a good citizen or a criminal. 
 
 Serious as this phase of the situation is, it is all important that we 
 do not commit ourselves to a permanent national policy until such 
 commitment can be made in a calm, dispassionate frame of mind, the 
 people having had ample opportunity to weigh the pros and cons of 
 the case. While this is true, immediate relief is clearly desirable, if 
 such relief can be provided along conservative lines. 
 
 We are now collecting taxes from corporations, which in itself is 
 the first step in establishing the principle of publicity between corpo- 
 rations and government. It ought not to be unwise or difficult, there- 
 fore, to immediately expand the powers of the Department of Com- 
 merce and Labor, with regard to publicity and control, sufficiently to 
 create a boajd of control with power to license such interstate com- 
 panies as, in the judgment of such board, are clearly working for and 
 not against public interest. In other words, in such cases substitute 
 a board of this sort for long-drawn-out lawsuits. This would have 
 Ihe immediate effect of placing any company able to secure such a 
 
COMMITTEE ON INTERSTATE COMMEECE. 1098 
 
 license in position where it would know that it was proceeding along 
 lines not in violation of national laws or Federal authority. Such 
 concerns as could not or did not wish to meet this test would then 
 have no right to complain if they were proceeded against under the 
 bherman law. 
 
 In the above-described manner immediate relief could be provided. 
 At the same time the questions surrounding the Sherman law and 
 national incorporation for interstate industrial companies would be 
 under an investigation that would be proceeding in a calm and orderly 
 manner, with a view to reaching ultimately a permanent solution of 
 the whole question. Meanwhile, uncertainty would be dispelled- 
 yet we would only be building up our present Department of Com- 
 merce and Labor and Bureau of Corporations into a live, vital bu- 
 reau—much in the same way that we gradually built up the Interstate 
 Commerce Commission b;y extending and enlarging its powers from 
 time to time. 
 
 I do not know that I have anything more to add to that, Mr. Chair- 
 man, in the way of a general statement. 
 
 The Chairman. Were you engaged in business when the Sherman 
 antitrust law was passed ? 
 
 Mr. Perkins. Not in mercantile business ; no, sir. 
 
 The Chairman. That law was passed at the time of comparative 
 quiet, was it not ? 
 
 Mr. Perkins. I would hardly say that. I would think it was 
 passed, as we look back on it, at a time when these forces of which I 
 speak, that have done so much to centralize business, were beginning 
 to show their power. 
 
 The Chairman. Yes; otherwise attention probably would not have 
 been called to it. But you could hardly say that the Sherman anti- 
 trust law was passed in a period of excitement or hysteria; in other 
 words, that it was calmly and carefully considered ? 
 
 Mr. Perkins. I am not in position to say as to that, but I do feel 
 this, that at that very time when the Sherman law was passed, suffi- 
 cient thought and study was not given to the causes that were at 
 work, and that were destined to revolutionize business methods. 
 
 The Chairman. Do you believe, Mr. Perkins, that any amount of 
 deliberation can frame the details of a plan for regulating forces 
 where the conditions under which those forces exist are constantly 
 changing, developing, and progressing '4 
 
 Mr. Perkins. I do not believe that the world will, in any respect, 
 be a finished product for a very long time. I think each generation 
 should do in its time what it can to improve conditions, not in a 
 selfish way, but with a view to making them better and more stable, 
 having very careful regard not to lay down any practice that would 
 be detrimental to the on-coming generations. 
 
 The Chairman. That is true, but you spoke of a period of investi- 
 gation and the process of investigation and temporary relief prior 
 to the adoption of a permanent plan. Now, can any system be 
 adopted in a growing country except the system of what is best and 
 wisest, for the time being, in anticipation of change ? 
 
 Mr. Perkins. This memorandum that I have read to you is meant 
 to express just exactly what it states, of course. My own belief is 
 that we have got to come to national incorporation of large interstate 
 business enterprises. Whether you gentlemen are willing to admit 
 
1094 HEARINGS BEFORE 
 
 that and enact it now, I do not know. I have taken it for granted 
 that perhaps that could not be done this winter, but to immediately 
 expand the Bureau of Corporations by giving it power enough to 
 license these large combinations, occurred to me might be feasible and 
 might not be a very long step in advance, but was along the line that 
 we have used in other business enterprises, and certainly, Mr. Chair- 
 man, immediate relief is most desirable — I mean relief from the 
 uncertainty in which every business man who is doing anything that 
 approaches a large business finds himself. 
 
 The Chairman. Well, does that really apply to the man who is 
 approaching a large business simply because it is a large business, 
 or apply to the phase, rather, of the proposed activities of the busi- 
 ness without so much reference to its size ? 
 
 Mr. Perkins. Does anybody know that? Where can anybody go 
 to find that out? 
 
 The Chairman. If to-day you wanted to start a boot and shoe 
 factory, is there anything in this situation which would embarrass 
 you in the contemplation of the amount of capital you could put 
 into that business? 
 
 Mr. Perkins. Well, I think there are two answers to that. First, 
 yes; I think there is. 
 
 The Chairman. What ? 
 
 Mr. Perkins. The amount of percentage of the business that the 
 man might be doing if he put in more than a certain amount of 
 capital. 
 
 The Chairman. Suppose you contemplated to-day starting a boot 
 and shoe factory, is there anything in the present situation with 
 reference to the Sherman antitrust law that would embarrass you 
 the slightest in the question of whether you might invest a million 
 or $100,000,000 in that factory ? 
 
 Mr. Perkins. You are speaking now of starting an entirely new 
 business ? 
 
 The Chairman. Exactly. 
 
 Mr. Perkins. No; probably not. If the business developed until 
 it reached a point where the man might be in doubt as to what per- 
 centage of the total business he was doing. By that time he would 
 have had a very large number of small stockholders all over the 
 world. Then somebody would swoop down on him and say, " Here, 
 you are doing too much of this business," or, " You are not doing the. 
 business along proper lines." And then these small stockholders 
 would suffer. 
 
 The Chairman. Yes; but you suggest two alternatives. One is the 
 suggestion, " You are doing too much business," or the other, " You 
 are not doing it along proper lines." Now I eliminate the proper 
 lines for the moment and confine my inquiry to the extent of the 
 business. Is there anything to-day in the Sherman antitrust law, 
 in its relation to the present attitude of the Government, which would 
 embarrass you at any point in the mere question of how much capital 
 you could put into this factory in its operation? 
 
 Mr. Perkins. I think there is. 
 
 The Chairman. Please state what it is. 
 
 Mr. Perkins. I think it embarrasses business at what you might 
 call the twilight zone; that is, the man does not know how far he 
 can go, and that is particularly true of any company that gets to be 
 
COMMITTEE ON INTERSTATE COMMERCE. 1095 
 
 large enough, where it is out for foreign trade, and at the same time 
 doing a domestic business. 
 
 The Chairman. Has the suggestion ever been made that the mere 
 question of the amount of capital employed in a business— independ- 
 ent now of the manner of conducting that business with reference 
 to controlling a number of subordinate enterprises — has presented 
 itself as in possible conflict with the Sherman antitrust law ? 
 
 Mr. Perkins. I would answer that no, as to any decisions that 
 have been rendered ; but yes, as to about eight-tenths of the manner 
 in which the case has been presented to the people. 
 
 The Chairman. Yes, but in every case, Mr. Perkins, the paramount 
 and basic cause of complaint has been the manner of conducting the 
 business, its bearing upon the question of restraint of trade or mo- 
 nopoly, and the size of the business a mere incident, as proof bearing 
 upon the ultimate question of its either being in restraint of trade 
 or a monopoly. Is not that so ? 
 
 Mr. Perkins. I think that is regarded as the legal question, 
 but there are a number of great moral questions in this that I believe 
 the people, if you could line them up man by man, are more deeply 
 concerned with than they are with the legal end of it. May I 
 illustrate that ? 
 
 The Chairman. I expect to get to that in a moment 
 
 Mr. Perkins. Excuse me for interrupting you. Let me use this 
 illustration that just comes to my. mind. We have had a good many 
 important lawsuits under the Sherman act of late and some decisions. 
 Within a week after the last suit had been filed, namely, the steel 
 suit, an interest in New York announced that it was going to organize 
 a company by putting 600 stores together, as an operating company, 
 and that those stores were to be all over the United States, and 
 some abroad. They were going to organize that company with 
 $16,000,000 of preferred and $50,000,000 of common stock. Now of 
 course that was being done to expand their business and they were 
 going to get that money from the public. Everybody knew right 
 off that that was not a business that was going to be done by one 
 State or with stockholders in a neighborhood, or with customers in 
 a neighborhood. 
 
 Now, there is a great moral question involved there. That money 
 was to be gathered in from a large number of small stockholders and 
 then the company would go on and do business. It would get its 
 charter from the State, but it was doing business all over the world. 
 I believe — and I am very firm in my belief — that one of the things 
 that the people of this country are deeply concerned about is how a 
 company like that is going to' be capitalized to begin with, and how 
 it is going to conduct its business from the moral point of view after 
 it starts, and that men who undertake as large a business as that, re- 
 straint or no restraint of trade, themselves really want to be checked 
 up by some authority, as big as they are, that will say to the public 
 and those investors, "This is fair business and is being conducted 
 
 properlv." 
 
 Now," there is nothing under the Sherman law that provides thai : 
 and, after all, the people go back to the morals of the case. 
 
 The Chairman. Yes; I wish they would. 
 
 Mr. Perkins. They do ; they are all right. 
 
1096 HEARINGS BEFORE 
 
 The Chairman. We did not hear very much of this phase of dis- 
 cussion, however, until the Government began to interfere with these 
 so-called combinations. 
 
 Mr. Perkins. Well, Mr. Chairman, I think that business men in 
 this countrj' have been so engrossed in the possibilities of developing 
 trade, the growth of intercommunication has been so colossal, their 
 opportunities have been so enormous, their noses have been so mucli 
 to the grindstone, that they overlook very largely, if you please, their 
 responsibility to the public on this question. 
 
 The Chairman. I quite agree with you. 
 
 Mr. Perkins. And I think you must not lose sight — and it is ex- 
 tremely important not to lose sight — of the fact that there has been a 
 great awakening in the last four or five years on this moral question, 
 and that business generally is being conducted with far greater regard 
 to those questions than it was five years ago. We have made splendid 
 progress along those lines. 
 
 The Chairman. Now, coming back to this boot and shoe indus- 
 try that I want to establish; you start in with that, we will say, with 
 a million dollars of capital. You do a very small percentage of 
 business at first. Now, assuming that all the growth of that busi- 
 ness, independent of any reprehensible methods or methods subject 
 to criticism — you expand the business until you make 75 per cent of 
 the boots and shoes of this country. Now, is there anything in the 
 Sherman antitrust law or in the attitude of the Government — mark 
 you, independent of the method of your business — which would 
 embarrass you in the development of that business upon the sole 
 basis that you were making 75 per cent of the boots and shoes of 
 this country ? 
 
 Mr. Perkins. Well, Mr. Chairman, I do not know ; but if you are 
 
 correct, then I can not for the life of me see the difference between 
 
 . obtaining 75 per cent of the business that way and obtaining 75 per 
 
 cent of the business by consolidating, because when you once have it 
 
 you have the potential power. 
 
 The Chairman. That ma}' be; but I am dealing now with the 
 Sherman antitrust law and the attitude of the Government in rela- 
 tion to it. Now, Mr. Perkins, is there any line of production in 
 this country where there is a demand for the product for which it is 
 impossible to get capital to supply that demand, assuming that the 
 demand is fairly recognized as a business proposition ? 
 
 The Chairman. Yes ; to-day. 
 
 Mr. Perkins. That would be a very difficult question to answer. 
 I am not in touch with all branches of trade; but speaking broadly, 
 I think there is no doubt but that at the moment capital is extremely 
 timid about undertaking new enterprises. 
 
 The Chairman. I am assuming now that it is plain as a business 
 proposition that the demand exists. If we could assume that we 
 needed twice as many wagons in this country as we have to-day, do' 
 you think there would be any difficulty in getting capital to build 
 those wagons because of anything in the Sherman antitrust law ? 
 
 Mr. Perkins. I do not think that is quite the point at which busi- 
 ness 
 
 The Chairman. But that is the question I am asking, however. 
 
 Mr. Perkins. Well, you could take one particular line ; for instance, 
 wagons, where of course it is a simple question and can easily dis- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1097 
 
 pose of that, but the principle of developing American business is 
 very different, and there is nothing that is so timid as domestic capi- 
 tal, unless it be foreign capital. 
 
 The Chairman. That is true, but I press the question again. As- 
 suming that it could be met by asserting that there would be a sale 
 for twice as many wagons as we are making to-day at a fair price, 
 and that would return a good profit, would there be any difficulty 
 about getting the wagons made? 
 
 Mr. Perkins. I do not think there would, as to wagons. 
 
 The Chairman. Suppose it was pianos, and the demand was mani- 
 fest. Would there be any difficulty in getting the pianos made ? 
 
 Mr. Perkins. I think, as far as we have gone in centralization, there 
 is a large percentage of our business that is still local, but it is not 
 the difficulty with that local trade; it is with the things that more 
 naturally are taken up first for the purpose of organization, where 
 better efficiency can be secured. Therefore, the question of pianos 
 or wagons would not apply now. Twenty-five years from now it 
 may. 
 
 The Chairman. What item of product which the American people 
 use, assuming that the demand could be made manifest to capital, 
 correlated with a good return, which could hot be applied and would 
 not be applied today, notwithstanding the Sherman antitrust law 
 and the attitude of the Government in relation to it? 
 
 Mr. Perkins. Well, that does not quite meet it either, Mr. Chair- 
 man. Let me see if I can illustrate it. There might be the most 
 need of such a business, and yet it might not be wise to have the 
 money invested in the further expansion of such a business. It 
 would not be wise for the other branch of the business, or for the 
 general business. 
 
 The Chairman. Why? 
 
 Mr. Perkins. I will see if I can illustrate — ■ — 
 
 The Chairman. No ; that is plain, only get to that point. 
 
 Mr. Perkins. I take it that if to-day, we have, for instance, 25 
 telephone companies in every city, the principal objection to one 
 telephone company would be that the public would say, " Oh, if there 
 is one telephone company here we will not be properly served; the 
 service will be rank and we, can not stand for it," and it would be 
 very difficult if we had 25 telephone companies, to contemplate one 
 telephone company. Now we have practically one telephone com- 
 pany. 
 
 The Chairman. But suppose you find a city that has no telephone 
 company to-day, would there be any difficulty in getting capital to 
 put a telephone company in there? 
 
 Mr. Perkins. No, sir; but would it not be better in a particular 
 case to have one telephone company, or companies affiliated with one 
 telephone company ? 
 
 The Chairman. I will come to that later. I am speaking now of 
 this business depression, this scare of capital, and I want to make it 
 plain — and I think from my questions — that it is because of the 
 business contemplated rather than because of the mere investment 
 of capital to meet the demand. 
 
 Mr. Perkins. I think the business men of this country to-day, of 
 from 25 to 50 years of age, are keenly alive to the necessity of reach- 
 ing as speedily as possible a point of maximum efficiency in business, 
 
1098 HEARINGS BEFORE 
 
 because that is going to be the test. Every time we clip an hour off 
 of a steamer or get our method of intercommunication improved, then 
 we are in competition with more people. So everywhere you go now 
 in business you find the question of efficiency the uppermost question. 
 Now, how you would produce that with equal rights to 'all is the 
 problem, and therefore when a man starts in business now he natu- 
 rally thinks, " How can I do this in the most efficient way ? Where 
 will I land 10 years from now ? " Those are the problems. 
 
 The Chairman. Yes. Is there anything in the Sherman antitrust 
 law, or the attitude of the Government with relation to the same, 
 that would embarrass the steamship company the least in the con- 
 templation of the possibility of reducing the time an hour ? 
 
 Mr. Perkins. No, sir; I do not see that that has anything to do 
 with it. 
 
 The Chairman. Perhaps not. Is there anything in the Sherman 
 antitrust law, or the attitude of the Government in relation to it, 
 that would embarrass any business concern in contemplating the 
 efficiency or increased efficiency of its business ? 
 
 Mr. Perkins. Yes, sir; I think there is. 
 
 The Chairman. What is it ? We will now take this boot and shoe 
 factory that we have got started. You contemplate some increased 
 efficiency, the application of better machines or any other way you 
 may suggest yourself. Now, what is there in the Sherman antitrust 
 law, or the attitude of the Government in relation to it, that would 
 interfere with that? 
 
 Mr. Perkins. The principal thing that would interfere with it, as 
 I understand it — and I admit that I am not a lawyer and am not 
 qualified to speak by the card of the Sherman law — but as I under- 
 stand it, the objection would be the point to which that company 
 could have a business relation and understanding with its competitors. 
 
 The Chairman. Oh, yes. Then, in other words, the only embar- 
 rassment that confronts contemplated enterprises, or the extension 
 of present enterprises, is that embarrassment which grows out of the 
 method of the business with relation to competition. 
 
 Mr. Perkins. No ; I would not say it was the only one. 
 
 The Chairman. Well, what other one is there ? 
 
 Mr. Perkins. The one I cited here a while ago, where you said 
 that if a company were to start in a modest way and actually grew 
 to the point of having 75 per cent of the business. 
 
 The Chairman. Why, Mr. Perkins, do you seriously contend that 
 there is a suggestion in the antitrust law, or in the attitude of the 
 Government, that there would come a time of embarrassment in 
 the running of this boot and shoe factory based upon the sole question 
 of the percentage of the product which is produced in this country ? 
 
 Mr. Perkins. I do not know. I would like to have somebody tell 
 me, but I will answer it in another way. Do you think we have 
 reached a point in this country where the people, without regulation, 
 without any hand being on such a concern, would be willing that a 
 given concern should produce 75 or 85 per cent of the boots and shoes, 
 and one set of men would have the power to do that ? 
 
 The Chairman. I do not think the people would object to that 
 unless in involved an objection to the method and practice they em- 
 ployed in their business. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1099 
 
 Mr. Perkins. Who would say as to what their method of objection 
 would be ? 
 
 The Chairman. Primarily Congress, of course. 
 
 Mr. Perkins. Then we come to regulations, where we meet. I 
 agree with you. 
 
 The Chairman. You are getting on to method. I am dealing 
 not with method but the mere growth of business. 
 
 Mr. Perkins. I do not think you can separate them, Mr. Chair- 
 man. I do not think it is really possible. 
 
 The Chairman. I doubt whether it is, from the viewpoint of 
 some people. Now, is it not a fact — although I can see how it might 
 lead to suggestions along another line — that the business depression, 
 if it may be called such, relates more to a present or prospective 
 diminished demand for the product than to any interference with 
 the source of supply for the demand, either in the Sherman antitrust 
 law or the attitude of the Government with regard to it ? 
 
 Mr. Perkins. Do you mean boiled down to its natural causes — 
 that cause of depression ? 
 
 The Chairman. No; I mean, here is a corporation that is estab- 
 lished. It is hesitating to-day to go forward. You ask the head 
 of the enterprise why business is unsettled. Now, is it not a fact 
 that that hesitation is produced more by the feeling that the de- 
 mand for what that enterprise is producing is being lessened than 
 from any feeling that the source of supply from which that enter- 
 prise must draw for its material is being interfered with by any 
 proceedings of the Government ? 
 
 Mr. Perkins. I believe the cause is almost wholly traceable to 
 uncertainty. You can scarcely analyze uncertainty when it gets 
 abroad in the land, some one cause starting it; it feeds on a good 
 many other causes, and even, as much as anything, on fear and ap- 
 prehension. I think that there is a very slight difference between 
 having business very good in this country to-day and having it un- 
 satisfactory, because I do not think it is bad, and I think it lies in 
 removing uncertainty. I do not think we need to do very much to 
 make that difference, but I think, Mr. Chairman, that it is of impor- 
 tance that we devote ourselves as a people to studying what our 
 broad principle of developing commerce in the next quarter of a cen- 
 tury is going to be. Those are the two things. 
 
 The Chairman. Now, here is a factory that we will say is using 
 the product of the United States Steel Co., or products made by 
 them from other companies, which it is transforming into another 
 product for the consumer or purchaser. That enterprise to-day is 
 immediately attacked a little, is it not, as a rule ? 
 
 Mr. Perkins. Some of them are ; yes, sir. 
 
 The Chairman. Now is that because they fear that the demand 
 for their product will be lessened, or because they fear that the action 
 of the Government is going to interfere with and render it difficult 
 for them to get the product which they use in the making of their 
 reproduced product? 
 
 Mr. Perkins. Mr. Chairman, it is a fabric, and it is only as 
 strong as its weakest link. 
 
 The Chairman. Now will you state what is the weakest link? 
 
1100 HEARINGS BEFORE 
 
 Mr. Perkins. This question of uncertainty ,that has permeated 
 everywhere. You can lead a horse to water, but you can not make 
 him drink. The man says, " I do not know." It is an impression. 
 
 The Chairman. Do you think that any enterprise in this country 
 which uses, as to their business, primarily the product of the steel 
 companies, similar to the United States steel, has any apprehension 
 that the action of the Government will render it less easy for them 
 to get all the material they need for their business ? In other words, 
 supposing the Government should succeed in its suit against the 
 United States steel, it would not interfere so far as governmental 
 action goes, with the product of steel material, would it? 
 
 Mr. Perkins. No, sir; I presume that steel mills would go on 
 and run. 
 
 The Chairman. They still get all the tobacco that they need, not- 
 withstanding the assault of the Government upon the tobacco trust. 
 
 Mr. Perkins. I am not qualified to say as to that, because I do 
 not use it. 
 
 The Chairman. You have not heard people complaining that 
 they are unable to get tobacco, have you? That is all I care to ask. 
 
 Senator Cummins. You have spoken of the business trouble, and 
 you have suggested some of the causes ; will you give us a little more 
 specific symptoms of the disease in order that we might more intelli- 
 gently prescribe a remedy? What are the symptoms of this trouble; 
 what is going on; what is happening? 
 
 Mr. Perkins. I do not know that I can answer that any better 
 than to say that what has happened I have referred to perhaps in 
 my opening remarks, that centralization of affairs has come about 
 because of the inventions that have been created. Now, these came 
 so rapidly that it has opened up new and expanding opportunities to 
 the business man — more rapidly than his immediate capital or the 
 local capital he could command could keep up with, and seeing these 
 opportunities for improving the efficiency in his line of business, and 
 obtaining economies and all that sort of thing, he has resorted to 
 combination and consolidation to get to a point with his business 
 quicker than he could by the natural accretions of capital under the 
 old-fashioned ways of partnership. Now he has brought in that 
 way a vast number of partners, who are practically the public, who 
 can not know very much about the business. They have simply got 
 their money in it. I think enormous power has led to a good many 
 abuses on the part of the men who held it. The people have rebelled 
 at its abuse, but have seen no way by which it could be corrected, and 
 that has brought us, in the shortest statement I can think of making, 
 to the situation we are in. 
 
 Senator Cummins. That means, as I understand your inference, 
 that it is the desire upon the part of the business men to consolidate 
 business establishments, in order to accomplish, as you have sug- 
 gested, economies in production or distribution, and the feeling that 
 you can not lawfully do it, which is the uncertainty or is the symptom 
 of this trouble which you have mentioned. 
 
 Mr. Perkins. I think that is one of the symptoms on the business 
 man's part, but I am looking at this in perhaps a little broader way 
 than that. I think that the trouble is not so much more with the 
 business man to-day than it is with the public. I think one is just 
 as much disturbed as the other. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1101 
 
 Senator Cummins. I am speaking of the business men as the 
 public, in a broad sense. 
 
 Mr. Perkins. Yes. I think it can be divided into two complaints ; 
 the business man has complained because he can not do one thing, 
 or one group of things; the outside public is complaining because 
 they feel that the business man has great potential power that is not 
 being curbed and they have seen wherein that power has been used 
 improperly. 
 
 Senator Cummins. You referred to Mr. Edison, and men like him, 
 who have contributed discoveries and inventions to the world, as the 
 real causes for this trouble, but I assume that you do not want to 
 eliminate such men from the progress of business or the development 
 of the country ? 
 
 Mr. Perkins. Certainly not. 
 
 Senator Cummins. And the only thing, therefore', as I understand 
 you, that has contributed, or aggravated, or brought about the uncer- 
 tainty is the antitrust law — I mean the only thing that anyone would 
 either desire to remove,, modify, or change ? 
 
 Mr. Perkins. Let us see if this will meet it. If in place of passing 
 the Sherman law as it now stands, we at that time, as a people, had 
 passed a law that would permit companies the moment they began 
 to do business out of their own State, obtaining a national charter, 
 placing themselves under national regulations and control as to 
 methods and as to capitalization — if we had done that, in place of 
 what we did do, I believe we would have saved ourselves an endless 
 amount of trouble, and the country would have been much further 
 along in its commercial progress than it is. 
 
 Senator Cummins. Granting that, or not taking it up, it still 
 remains true that from your standpoint it is the antitrust law that 
 brings about the uncertainty, disagreeable and unsatisfactory uncer- 
 tainty to which you have referred J 
 
 Mr. Perkins. Yes, sir; I think largely that is it, and I think it 
 brings it about both ways. The Sherman law as it stands gives the 
 business man ample ground for complaint, and gives the public 
 ample ground for complaint. I do not think it satisfies either one. 
 
 Senator Cummins. You have said you were not a lawyer, you have 
 no professional training, and therefore I will not try to examine with 
 regard to the technical features of the antitrust law. But as you know 
 the two effective sections of the antitrust law are the first and second ; 
 the one prohibiting agreements and combinations and conspiracies in 
 restraint of trade, and the other prohibiting monopoly or the attempt 
 to create monopolies? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. Now, inasmuch as the antitrust law, which 1 
 have just summarized, is the only thing, from your standpoint, which 
 has brought uncertainty or difficulty in the business world, that can 
 be changed or removed, I wish you would tell the committee, what, in 
 your judgment, business men ought to be permitted to do which is 
 prohibited by this law, and known to be prohibited by the law or what 
 business men want to do which may be in doubt under this law. Our 
 purpose is to find out whether this law needs any amendment, supple- 
 ment, or change in order to serve the welfare of the people. Now, in 
 order to do that we want to know from men of your experience what 
 
1102 HEARINGS BEFORE 
 
 it is that business enterprises desire to do which they are now pro- 
 hibited from doing, or what they want to do concerning which there 
 is somewhat doubt and that they are unwilling to do? 
 
 Mr. Perkins. I think it is at least as important to find out what 
 ought to be done for the benefit of our people, and then business 
 ought to be reorganized to accomplish that. The rapid changes that 
 have taken place in methods — and I believe are going to be just a? 
 rapid the next 25 years — make me feel that you can not lay down 
 many very specific rules, but that we have got to have here in Wash- 
 ington a controlling commission, composed largely of business men, 
 to which a business enterprise could come and say, " Now we want to 
 do thus and so; here is our capitalization; here are the methods we 
 are going to employ; here is the manner in which we propose to treat 
 labor; here is the manner in which we are going to treat our com- 
 petitors, and here is the method of treating our consumers. Is this 
 in keeping with good public policy? " And find out whether or not 
 they can do it. 
 
 Now of course I realize the great difficulty that you gentlemen 
 are going to meet is, what is the specific thing, and in doing that 
 you perhaps address your thoughts to banks and railroads and other 
 things where regulations have been made. 
 
 Business is very different. There are hardly any two lines of 
 business, as we know, that are alike, and you can not lay down a 
 hard and fast rule that will cover them. For instance, I cited the 
 telephone business ; 80 or 90 per cent of the telephone business may be 
 considered desirable. You may not want to put 80 or 90 per cent 
 of the steel business in commerce ; in some other business 50 per cent 
 might be a potential factor in the method employed by one business, 
 and you may not want to employ it in another. It is going to be 
 an exceedingly difficult and delicate thing to adjust, and I do not 
 believe you can do very much at it with specific rules. I think you 
 have got to give to a controlling commission very broad power that 
 in practical business questions would be analagous to the power, 
 so to speak, of the Supreme Court ; that when this commission would 
 say so and so is in the public interest, or it is not, that the country 
 would accept that. I do not say that that would be our permanent 
 policy for a century, but as it stands now, in our relationship to 
 Germany and other countries, we have got to take some such step 
 as the first step and then watch it and round it out as evolution 
 goes on. 
 
 Senator Cummins. I did not intend to call so much for the methods 
 as for your opinion with regard to what the law should set up as a 
 standard for any commission or any board that might be organized 
 to administer the law. We have the antitrust law. Now do you 
 know of anything that business men, whether in large affairs or 
 small affairs, have wanted to do for the betterment of their business 
 which the antitrust law prohibits? 
 
 Mr. Perkins. Well, I may say that there is the twilight zone; 
 there is the doubt. 
 
 Senator Cummins. But there is an illuminated zone under the law 
 as well as a twilight zone, I am sure. There are some things which 
 everybody now agrees are prohibited by the law. 
 
 Mr. Perkins. That is right. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1103 
 
 Senator Cummins. Now, which are of those things, or what of 
 those things, do business men think they ought to be permitted to do ? 
 
 Mr. Perkins. What is restraint of trade and what is restraint of 
 competition? I, for instance, feel that we certainly do not want 
 restraint of trade — and by restraint of trade I mean curtailment and 
 unnatural contraction of trade — but I can easily understand, from my 
 practical experience in the world, how a certain proper restraint of 
 competition might mean expanding trade. Now, I do not believe that 
 we ought to have to go through a lawsuit and through the courts to 
 determine that. It is essentially a practical question. 
 
 Senator Cummins. There is very much force in that, but in order 
 to adjust the law to meet these necessities we must have a compre- 
 hension of what kind of things the business world wants to do that 
 it can not now do, and which it knows it can not do. I will make it 
 a little more concrete. There have been many — at least some — very 
 prominent men before us who believe, and have expressed their belief 
 to us, that business concerns engaged in a common business, the same 
 kind of business, ought to be permitted to come together, and, in order 
 to protect themselves against what is called ruinous competition, enter 
 into agreement that would fix the price at which their commodities 
 should be sold. Everybody knows that that is prohibited by the anti- 
 trust law. Now, do you believe that the law ought to be so changed, 
 no matter whether it is administered by the courts or administered by 
 a board, to permit agreements of that kind ? 
 
 Mr. Perkins. I do not think that we have reached a point in our 
 evolution where we should attempt fixing prices. I think that would 
 be going out into a realm of affairs that would be almost endless. 
 But there might be a business, almost any time, developed to a point 
 where a certain restraint on prices by such a commission as I have 
 named would be desirable. 
 
 Senator Cummins. Well, do you mean a restraint upon high prices 
 or upon low prices ? 
 
 Mr. Perkins. Kestraint rather more in the nature of a maximum 
 price. But the reverse of that would be true, if a concern was using 
 its power to fix a low price in a given community. 
 
 Senator Cummins. What the business world, I take it, is really 
 afraid of is that through the operation of the antitrust law the 
 country will be restored to what has been termed here " old-fashioned 
 
 competition." 
 Mr. Perkins. Yes; that is one thing. 
 
 Senator Cummins. And that thereby the profits of business will 
 be impaired or destroyed. Is that your view of the real difficulty < 
 
 Mr Perkins. I think it is more than that, Senator Cummins. 1 
 think that any one of us around this table can remember when m 
 almost every iine of business we were having very extreme fluctua- 
 tions in prices, resulting every once in awhile m industrial panic and 
 prostration, with certain failures in this or in the other line ot busi- 
 ness, and the throwing of labor out of employment, and a very 
 unhappy time, which came about largely through competition ot that 
 kind which was either reckless in its overproduction, bringing this 
 about, or reckless in many other ways brought about by bad man- 
 Senator Cummins. How would you propose to prevent that kind 
 of competition? 
 
 22877 — vol I — 12 70 
 
1104 HEARINGS BEFORE 
 
 Mr. Perkins. I do not think you can do it by an act that you will 
 draw that is specific, because I think the changing conditions are so 
 rapid, in the first place, and the changed conditions of one business 
 compared to another are so different, that you can not put it in a 
 statute. 
 
 For instance, I noticed the other day in reading an account of 
 how the Sherman Act was drawn at first, that there was one time 
 in the history of its discussion when a large number of things were 
 thought to be desirable to put in the act which were not put in the 
 act in the end, and they reached the point where they had to boil 
 them down to where the act is now. It seems to me we are in that 
 situation now; that the question of what can be done with each 
 specific business has got to be largely left to the integrity of the 
 man on a commission whom the countries will more or less trust, 
 at least as a beginning. We will learn pretty soon what we can do. 
 
 Senator Cummins. We have learned a good deal in the last few 
 years, and I thought you might be able to tell us what good thing, 
 or thing which, in your opinion, is good for business and good for 
 the people, is prohibited by the words " in restraint of trade " or by 
 the word " monopoly," so that if it turned out to be — that is, if we 
 thought it was — a good thing for the business and the people, we 
 could so change the law as to allow that thing to be done. We are 
 really groping somewhat in the dark here on that very question to 
 find out just what men like yourself, of wide business affairs, think 
 the law should permit to be done that are now prohibited by the 
 law. 
 
 Mr. Perkins. Speaking as directly to that as I can, I believe that 
 you can only get that which approaches efficiency in business to-day 
 by doing business on a large scale. I do not think that scale ought 
 to be so large that it will interfere with the opportunities of people 
 who come after us of being able to exercise their individual initia- 
 tive in still further improving the conditions of the world. But if 
 you are going to have large concerns you have to have the public 
 as partners, and the first thing is to protect their investments. The 
 next thing is to allow the ingenuity of the manager full swing, in 
 order that the business may grow and develop without being detri- 
 mental to the public. 
 
 Now, applying that to a specific company: In one company the 
 development might be along the line of foreign trade ; it might have 
 enormous opportunities to do business abroad, while maintaining its 
 domestic business. Now, I think the one complaint that our people 
 have made and feel rather sore about is the using of foreign markets 
 as a dumping ground. I think that is a question that a board could 
 take up and come to a conclusion about. My point of view is that 
 there is a great deal to be said on the public's side of that question, 
 because it means not only that we sell abroad cheaper than we do to 
 our own people, but we are using up our timber and our ore and all 
 that sort of thing in those ways. 
 
 But the other side of the question that is often urged is that it 
 gives better efficiency, it keeps the mills running, and gives our labor 
 steady employment. That would apply to one line of business when 
 it would not apply to another. And we can not specify unless we 
 have a concrete case that is up for decision, it seems to me, any more 
 
COMMITTEE ON INTERSTATE COMMERCE. 1105 
 
 than the Supreme Court has yet been able to specify on the questions 
 except as one suit comes up after another. 
 
 Senator Cummins. I agree that there is a twilight zone. Nobody 
 around the board here may concur with me in that, but I believe 
 there is. 
 
 Now, I want to take up the illustration put by the chairman. Sup- 
 pose this boot and shoe, factory should go on with its business until 
 it not only manufactured and sold 75 per cent of the boots and shoes 
 m the country but 100 per cent of all the boots and shoes manufac- 
 tured in the country ; there would not be much doubt then concerning 
 the illegality of such a business, would there? 
 
 Mr. Perkins. I understand from the chairman that it would be 
 legal, in his judgment. 
 
 Senator Cummins. I do not think that he meant to say that, possi- 
 bly, although I do not speak for him. But the point at which you 
 passed, even if legitimate methods are employed, in business from 
 competition to monopoly, has not been very well defined ? 
 
 Mr. Perkins. No ; it has not. 
 
 May I interrupt to say that I do not see how you can define it in 
 a statute, because one business differs so much from another. The 
 telephone business is more and more aggressive, and we realize that 
 it has got to be a monopoly, yet it is in the hands of private indi- 
 viduals. 
 
 Senator Cummins. So far as that question is concerned, I want to 
 put out of consideration those enterprises which are commonly called 
 public utilities, because I think they occupy an entirely different 
 field and are governed by different rules and principles. 
 
 Now, suppose in the case that you put, of the combination of 600 
 stores — does anybody know, does the business world know, whether 
 such a combination would be in restraint of trade? 
 
 Mr. Perkins. I do not think that there is anything in the putting 
 together of those 600 stores that is in restraint of trade. 
 
 Senator Cummins. You are not in favor of a law which will per- 
 mit all the enterprises or all the establishments in a particular in- 
 dustry to consolidate so as to constitute a complete monopoly ? 
 
 Mr. Perkins. No ; not at all. I do not believe in monopoly, and 
 I do not believe in restraint of trade, as I understand restraint of 
 trade. 
 
 Senator Cummins. You do not believe in allowing any consolida- 
 tion in any industry or business that will eliminate competition, do 
 you? 
 
 Mr. Perkins. No, sir. 
 
 Senator Cummins. But you do not always know just how large 
 the corporation must become in order to be held by the Supreme 
 Court of the United States to be in restraint of trade, because it does 
 unreasonably restrict competition? 
 
 Mr. Perkins. Exactly, sir; and not only that, but I can conceive 
 of a situation where a company might have 75 or 80 per cent of the 
 business and be doing it under such regulation that there would be 
 perfectly free competition just the same. 
 
 Senator Cummins. I take it, then, that you stand for the preser- 
 vation of competition as a regulator of price? 
 
 Mr. Perkins. With proper governmental regulation. 
 
1106 HEARINGS BEFORE 
 
 Senator Cummins. What have you in mind in regard to these 
 proper regulations? 
 
 Mr. Perkins. Personally I believe that with complete publicity it 
 would be almost self-regulating. I think that a company that had 
 to expose its capital stock, its methods, its treatment of labor, and its 
 treatment of its competitors and consumers, so that all who ran 
 might read — that you would find that would be largely corrective. 
 
 Senator Cummins. Corrective in what way? By the person or 
 corporation whose affairs were made public, or by the introduction 
 of a competitor, if the profits were found to be unduly large ? 
 
 Mr. Perkins. 1 believe that publicity would so shape the policy of 
 the management of a large business that it would not be inimical to 
 the public interests, and would preserve to the general public the op- 
 portunity to properly compete. 
 
 Senator Cummins. That is, permit the competition upon the part 
 of those already in the business, or invite others who were not in the 
 business ? 
 
 Mr. Perkins. Both. 
 
 Senator Cummins. Because you would not under any circum- 
 stances promote at least a tendency to draw within one management 
 the entire business of the field in which the establishment was con- 
 cerned ? 
 
 Mr. Perkins. No, sir; and I think that the organization of these 
 large industrial companies has done more to diffuse ownership and 
 to bring us to a point where just what you cite can be accomplished, 
 than if individuals had gone on and gradually obtained 75 per cent 
 of a business and owned it themselves. Then we would have mon- 
 opoly of the worst sort. 
 
 Senator Cummins. Then, if I gather your conclusions correctly, 
 you do not believe in legalizing agreements between competitive pro- 
 ducers as to prices? 
 
 Mr. Perkins. Not as a principle. 
 
 Senator Cummins. You do believe in always maintaining in the 
 field a substantial competition? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. But you also believe that there ought to be some 
 regulation that would prevent, so far as possible, the ruinous or the 
 destructive competition that has been called " old-fashioned competi- 
 tion"? 
 
 Mr. Perkins. Yes, sir. • 
 
 Senator Cummins. And, therefore, as it would seem to me, the 
 only question of uncertainty which remains and which is brought 
 about or may be brought about by the antitrust law, is the extent to 
 which business enterprises can come together, and the amount of 
 capital which the consolidation can employ? That is really the ele- 
 ment of uncertainty about the antitrust law, is it not? 
 
 Mr. Perkins. Well, I think that is one element. But I hope you 
 gentlemen will not lose sightof the other element, which I think is 
 quite as important, and that is the complaint that the public has on 
 this account, which is, in my judgment, from what I have seen, a 
 feeling that there has been over capitalization and improper capitali- 
 zation and improper methods entirely outside the question of re- 
 straint of trade or monopoly. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1107 
 
 Senator Cummins. Of course. 
 
 Mr. Perkins. And that, I think, is just as important to have cured 
 as the other thing. 
 
 Senator Cummins. Everybody seems to be agreed that it is wise 
 to accomplish in some way honest capitalization and complete pub- 
 licity. 
 
 Mr. Perkins. Senator Cummins, if you do that you would have 
 the problem very largely solved. 
 
 Senator Cummins. But people do not seem to be agreed as to the 
 extent to which capital ought to be permitted to consolidate, as is 
 very well known. Now, I assume that you believe that a corporation 
 ought to be permitted, either by consolidation or original growth, to 
 become large enough to utilize the economies of production, and 
 large enough to employ those agencies which look toward progress 
 and discovery and cheapening or lessening of cost for the future — 
 that I assume you believe ? 
 
 Mr. Perkins. Yes; I do. 
 
 Senator Cummins. But when we reach that point and allow a 
 corporation to become that large, there is nothing whatever to be 
 gained in permitting it to be any larger, is there ? 
 
 Mr. Perkins. Well, do you not see that that is another thing that 
 has got to depend on circumstances? The world has not stopped 
 growing. We have 100,000,000 people, we are told lately, and T 
 suppose some day or other we may have 200,000,000 people. Now, 
 what do you mean by " stopping growth ? " Do you mean stop 
 growing in population, growing in proportion to the number of 
 people, or the ability of that particular group of men to develop that 
 particular business ? A company that has $100,000,000 capital to-day 
 may be much larger in proportion to what it can do than the same 
 company with $1,000,000,000 ten years from now. 
 
 Senator Cummins. I agree with you that there can not be fixed 
 at this time by any legislative act any limitation, because it varies in 
 different kinds of business, and it will vary with different periods 
 of our future growth. But you do believe that there should be 
 reasonable and fair competition? 
 
 Mr. Perkins. I do. 
 
 Senator Cummins. And you do believe that corporations should 
 be permitted to become large enough to employ the economical in- 
 strumentalities that will reduce to a reasonable point the cost of 
 production ? 
 
 Mr. Perkins. I do. 
 
 Senator Cummins. Do you not see that if you permit a corporation 
 to grow larger than that you will at once destroy the opportunity 
 for fair and reasonable competition ? 
 
 Mr. Perkins. I believe this, in that connection, that we are going 
 to be, perhaps sooner than we realize, faced with the fact that in 
 certain lines of business the efficiency of a certain company will 
 become so great that that will be largely the controlling element in 
 the matter of competition. And what we are going to do about that 
 I do not know and nobody else knows. We will have to work it out. 
 
 Senator Cummins. You are familiar with the United States Steel 
 Corporation; that organized with a capitalization of $1,400,000,000. 
 Now, suppose it were true — I do not say that it is true, although 
 
1108 HEARINGS BEFORE 
 
 I have my opinion about it — suppose it were true that a company 
 engaged in that business, with $200,000,000 capital, could produce as 
 cheaply as a company with $1,400,000,000 capital; could employ all 
 the agencies necessary or that would be requisite to discoveries look- 
 ing toward lessened cost of production — do you not think that it 
 would be for the public welfare to limit, at the present time, no matter 
 what the future may develop, the amount of capital which any com- 
 pany engaged in that business might employ to $200,000,000? 
 
 Mr. Perkins. No, sir; I do not. 
 
 Senator Cummins. Now, why not?- 
 
 Mr. Perkins. Because I think you are striking at the wrong thing. 
 I think you want to regulate a man's potential power for evil, keep 
 the light of publicity on his acts, and then give him full swing to do 
 his level best. To limit the amount of business he does within prop- 
 erly prescribed limits is detrimental to the United States of America 
 in its quest for commerce in the coming century. 
 
 Senator Cummins. That means, then, that if a consolidation could 
 be made that it would be wise to allow it to take in the entire field ? 
 
 Mr. Perkins. No ; I do not think so at all. 
 
 Senator Cummins. Where is the dividing line ? 
 
 Mr. Perkins. You take a company with $1,000,000,000 or with 
 $200,000,000. I think we have gone far enough into the steel in- 
 quiry for everyone to realize that there is a perfectly free and ample 
 competition in the steel business, notwithstanding this large company. 
 
 Senator Cummins. It has been so stated. 
 
 Mr. Perkins. I think that will work out to be so. But we have 
 found, for instance, in that company a great many interesting devel- 
 opments. There is no better comparison than the difference between 
 a large and a small college. You get, as a rule, the best football and 
 the best baseball team at a large college, year by year, in a series of 
 years. Why? Because you have a larger number of men to select 
 from. You can maintain your efficiency in a large corporation better 
 because you have a larger number of men to select from. 
 
 The element of putting this man's son in this place, or that man's 
 son in that place must disappear in a large company, because the effi- 
 ciency has got to be maintained. And if you will study it you will 
 see in the Standard Oil Company, and all those other large com- 
 panies, very few of the positions of responsibility are passed along to 
 the sons of people, as used to be the case in partnerships. 
 
 And efficiency is more and more coming to be the test; and con- 
 tinual efficiency without breaking, year by year, is the supreme test. 
 And you can get that in a large company much better than you can 
 get it in a small company. 
 
 Another interesting development comes in these large companies, 
 and that is the esprit de corps that you are able to establish through 
 profit sharing, and there are some institutions where the thing gets 
 pretty nearly to an automatic arrangement, and the pride of a man's 
 job when connected with a large enterprise is more inspiring and 
 more potential than it is in a small company. 
 
 It is a most fascinating study of the times to watch all these new 
 elements that are at work in the development of industrial life. 
 
 Senator Cummins. I think you omit, possibly, or failed to remem- 
 ber one of the conditions of my question. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1109 
 
 Mr. Perkins. I beg your pardon. 
 
 Senator Cummins. Which was the assumption that the corpora- 
 tion of $200,000,000 would be as efficient as a corporation of 
 $1,400,000,000? 
 
 _ Mr. Perkins. I would answer that by saying that it was impos- 
 sible ; you can not do it. 
 
 Senator Cummins. I know that is your view, but I was assuming 
 it would be as efficient for all purposes of production and distribution 
 as the corporation of $1,400,000,000. If that were true— and that 
 is a question of fact upon which men may differ— then it would be 
 better if we want reasonable and fair competition to have the capital 
 restricted to some amount that would permit other companies to 
 compete on substantially even terms, would it not? 
 
 Mr. Perkins. Of course, from my point of view your " if " is what 
 throws it all out. 
 
 Senator Cummins. Then, granting your view of it for a moment, 
 for the purpose of the question— the United States Steel Corporation 
 has a great number of competitors. They do, as it is reported to us, 
 something like 52 per cent of the whole steel business, the United 
 States Steel Corporation doing 48 per cent of the business. It would 
 follow, therefore, that it would be a wise thing if all the other estab- 
 lishments were to be consolidated into another corporation, with a 
 capital of $1,000,000,000 or $1,200,000,000, and have just the two con- 
 cerns doing the business. Do you think that would be wise ? 
 
 Mr. Perkins. I think that 'would be, economically, of advantage 
 to the country as a whole, but I do not think it would be wise to take 
 any step in that direction or contemplate it now or in the immediate 
 future. 
 
 Senator Cummins. That because it would not be well received by 
 public opinion or because it would not be for the welfare of the 
 people in fact ? 
 
 Mr. Perkins. I do not think that at the point we have reached in 
 our economical development of affairs that we are ready for that, 
 from any point of view. 
 
 Senator Cummins. I do not quite understand that, because if it 
 was a wise thing in 1901 to gather plants together that produced 50. 
 per cent of the business, why it is not as wise in 1911 to gather the 
 plants together that produce the other 50 per cent of the business ? 
 
 Mr. Perkins. As I have said, I think that from the standpoint of 
 economy and the most stable and most advantageous way to handle 
 that business would be that very way, but then you will, of course, 
 have reached the point where you have these two companies, and you 
 might as well go on and say put them together and have only one. 
 
 Senator Cummins. I think that is the logical conclusion. 
 
 Mr. Perkins. Exactly. That means complete monopoly under 
 some sort of regulation. 
 
 Senator Cummins. It would be the conclusion if you assume that 
 there would not be or could not be full and effective competition be- 
 tween the two concerns. 
 
 Mr. Perkins. So that, Senator Cummins, that is why I say I think 
 we have got to take this step by step. It may be that our grandsons 
 will say that is the thing they wanted to do. 
 
 Senator Cummins. You do not think it would be wise to do it now? 
 
 Mr. Perkins. I do not. 
 
1110 HEARINGS BEFORE 
 
 Senator Cummins. Then the people, of course — speaking of the 
 people as the consumers of all these products — they are chiefly inter- 
 ested in getting a good article at a fair price ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. That is the protection that we owe to them. 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. Of course they are interested in another indirect 
 way, namely, the trying to have the business of this country carried 
 on so that independent men shall be in business whose characters 
 will be developed by the responsibility which they must bear. That 
 is the sociological view you have taken into account ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. And that is one of the things that tends toward 
 distribution, rather than centralization, I think. 
 
 Mr. Perkins. I think it does; and I think the distribution of the 
 profits of the business. 
 
 Now, take the steel business. I do not think the community at 
 large realizes a fact like this, for instance: When the steel corpora- 
 tion was formed Mr. Carnegie and a comparatively few men owned 
 the steel business. They were making large sums of money every 
 year out of their business. There were comparatively few men re- 
 ceiving salaries in the business, but there were a few partners whose 
 incomes were very large. Now, the Steel Corporation was organized, 
 and we found after a year or so — it did not take us a year — we found 
 that we had a huge aggregation of plants and business not under 
 private ownership. That was a very dangerous situation. Who 
 was going to be responsible? Who was going to direct, and who 
 was going to keep those things moving successfully? What was 
 going to prevent. men from soldiering here and there, and the whole 
 thing from gradually disintegrating? And you may remember that 
 that was one of the severe criticisms made of the undertaking. 
 
 We studied that very closely for some time and introduced what 
 has since become known as our profit-sharing plan, by which a large 
 number of the employees of that company have come gradually to 
 regard themselves as partners in the same sense that formerly Mr. 
 Carnegie and other partners did. 
 
 We have distributed under that system in the 10 years something 
 like $12,000,000 to these people over and above their wages and their 
 salaries. A very large percentage of them are permanent stock- 
 holders in the company. Now aside from the dividends that the 
 Steel Corporation has paid, that have gone all over the country— 
 those millions have been distributed among a large number of men, 
 in place of a very small number of men, as was the case before the 
 corporation was formed. 
 
 Senator Cummins. But if you had seven corporations of $200,- 
 000,000 capital each, they could do the same thing, could they not? 
 
 Mr. Perkins. They could, but they would not. 
 
 Senator Cummins. Each for its own employees? 
 
 Mr. Perkins. They could, but they would not. One of the strange 
 things about profit sharing is that it is very difficult to get a firm or 
 a small concern to do it, and the reason I have found out is that it 
 touches the pocketbook immediately of one or two or three men. 
 
 Take the harvester company, in which I am interested. We have 
 the same system there. Another implement dealer came to me about 
 
COMMITTEE ON INTERSTATE COMMERCE. 1111 
 
 a year ago and said that the harvester company had built up such an 
 esprit de corps in its organization that it was attracting the attention 
 of all the other implement men of the country. And he asked me if 
 I would tell him how we had accomplished it. I said, " Certainly." I 
 went over the whole situation with him, and he said that he wanted 
 to introduce it in his own establishment. He went away and I did 
 not hear from him for several months, when one day I met him and 
 I said: "What about that profit-sharing plan that you wanted to 
 introduce? " He said: " I can not do that." I said, "Why? " He 
 said : " Because it costs too much." It cost him too much out of his 
 own pocket. 
 
 But when Judge Gary or any of the rest of us contemplate a 
 profit-sharing plan in the steel corporation, whatever our investments 
 in the steel corporation may be, it is infinitesimal — the amount of 
 this profit-sharing plan, as it would affect our investments, does not 
 amount to anything and you get a man's disinterested judgment. 
 
 Senator Cummins. What is the capitalization of the harvester 
 company ? 
 
 Mr. Perkins. One hundred and forty million dollars. 
 
 Senator Cummins. If you can do it successfully with the harvester 
 company with $140,000,000 of capital, could you not do it success- 
 fully with a steel company with a capitalization of $200,000,000 ? 
 
 Mr. Perkins. You could do it; that is exactly the point. You 
 could not have a better illustration of what I have said here. It 
 depends on the business and the point of view. One hundred and 
 forty million dollars is a large capitalization for the harvester busi- 
 ness. It is about in proportion to the other harvester business what 
 the steel corporation is to the other steel business. And therefore 
 it is the man's point of view. 
 
 Senator Cummins. So far as the dealings with the employees are 
 concerned, I can not see any difference. That is, there are as many 
 employees, are there not, in the $200,000,000 steel company as in 
 the $140,000,000 corporation engaged in the harvester business, 
 
 Mr. Perkins. It is all a question of human nature. When you 
 come to private ownership it is very difficult to get men to take those 
 views of things that they do take if they are representing a large 
 and scattered public ownership. And I think that if we had such 
 a board as I have spoken of, .that that board would very soon come 
 to recognize the enormous advantage ,of these questions, and we 
 would come soon to incorporate them as part of the general plan that 
 must be followed by an interstate or international company. 
 
 Senator Cummins. We have had it proposed here several times, 
 Mr. Perkins, that in order to prevent that ruinous competition which 
 is carried on for the purpose of driving a rival out of business, that 
 an even price at the factory be required, so that if an establishment 
 puts down its price in one locality or to one person, it shall be re- 
 quired to sell at the same price to all localities and to all persons, 
 transportation, of course, being taken into account. What is your 
 opinion about that? 
 
 Mr. Perkins. I think some such general provision given to the 
 discretionary power of a board like I have suggested would be very 
 useful. I think we might have to introduce that more or less grad- 
 ually perhaps, in some concerns, -so as not to disturb our fabric 
 tno much. 
 
1112 HEARINGS BEFORE 
 
 Senator Cummins. In some of the larger concerns first? 
 Mr. Perkins. Yes ; and even in some of the smaller ones. 
 
 Senator Cummins. And that, in your opinion, would do a good 
 deal to restrain this destructive competition of which business is so 
 justly fearful? 
 
 Mr. Perkins. I think it would. And I think, on the other hand, 
 it would do a great deal of good in making the consuming public feel 
 that the things were on a fair basis, so to speak. 
 
 Senator Cummins. Then, may I sum up what you have said in this 
 way? You believe we ought to organize a board to which applica- 
 tion could be made for a license to do an interstate business, and that 
 the board should look over the capitalization of the company, or of 
 the proposed company, its extent, and if it was a consolidation, the 
 degree of consolidation, and determine whether an organization so 
 formed would be in restraint of trade ? 
 
 Mr. Perkins. Yes. But I think that board should have, of course, 
 broad lines within which it must operate, laid down by the Congress. 
 
 Senator Cummins. Oh, yes. And then if the organization was 
 found by the board to be a lawful one— — 
 
 Mr. Perkins. And in the public interest. 
 
 Senator Cummins. Well, a test of lawfulness is whether it is in the 
 public interest. That is, if you have no specific regulations. But 
 then, if it thereafter carried on its business in accordance with the 
 law — that is, was not guilty of injustice or oppressive practices— 
 that its legality, its validity, should not thereafter be questioned ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Cummins. That is one of the things that would help to 
 steady the nerves of business at this time ? 
 
 Mr. Perkins. Very much. 
 
 Senator Cummins. Would you give such a commission or board 
 authority also to inquire into the practices of the corporations, so 
 that it might warn the corporation that it had passed over or was 
 approaching the line of danger ? 
 
 Mr. Perkins. Most certainly, and I should have the board or com- 
 mission know the methods from capitalization to practices as thor- 
 oughly as the board of directors of a corporation would know them , 
 I do not mean by that, detailed management. 
 
 Senator Cummins. Its general guide in that respect would be the 
 language of the present antitrust law; namely, that it must not do 
 anything in restraint of trade, or must not create or attempt to create 
 a monopoly. But if the corporations should persist in disobeying the 
 interpretation put upon the law by the board or commission, then you 
 think that instead of expelling it from business or from the privilege 
 of doing interstate business, you should criminally prosecute those 
 who were responsible for these violations of the law ? 
 
 Mr. Perkins. Yes, sir ; that is exactly what we do in the matter of 
 controlling our national banks. The last thing we do is to dismember 
 the bank. 
 
 Senator Cummins. But you would not think that such a corpora- 
 tion should be permitted to go on for any great length of time in open 
 and flagrant violation of the law, waiting to imprison some one re- 
 sponsible for its doings? 
 
 Mr. Perkins. It does not take us very long to imprison a man 
 who violates our banking laws. That system seems to work out very 
 well. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1113 
 
 Senator Cummins. There are some things which if a national bank 
 persists in doing, it is put out of business and a receiver appointed 
 for its affairs. 
 
 Mr. Perkins. I would cast this law along the lines of control of 
 the national banks. In regard to the punishment of the individual, 
 of course, if it was a most flagrant case, then the question of revok- 
 ing the charter would naturally come up, but I think that ought to 
 come up on appeal, because these concerns are going to be owned by 
 the public. The injury would fall on innocent third parties, just as 
 it falls on the depositors of a bank, and I think they should be pro- 
 tected. 
 
 Senator Cummins. You would give the board or commission power 
 to say to an applicant, " Your capital is too large, and we don't think 
 you ought to be permitted to ehiploy that amount of capital in the 
 business which you propose to undertake ? " 
 
 Mr. Perkins. Yes; not only too large, but improperlv issued. 
 
 Senator Cummins. That is just what I suggested to you a few 
 moments ago, whether you would allow the Government to limit the 
 amount of capital that could be employed. 
 
 Mr. Perkins. No, I do not consider that as the same question ; to 
 say that it is too large is different from limiting it. I meant to an- 
 swer your last question that it was too large in proportion to the 
 general condition of that industry. That is a different question. 
 
 Senator Cummins. That is just what I meant; capital might be 
 altogether too large for employment in that particular industry. 
 
 Mr. Perkins. Then you would be getting down to the question of 
 monopoly, perhaps. But I believe monopoly comes more from 
 methods than it does from the percentage of business. 
 
 Senator Cummins. But you would give the proposed board some 
 such power as that ? 
 
 Mr. Perkins. I would. 
 
 Senator Cummins. What do you think about the propriety of re- 
 quiring, if it can be required, that no person shall own stock in two 
 corporations that are competing with each other? 
 
 Mr. Perkins. Well ; I think that invades the realm of. the whole 
 question of personal investment, and I do not think that that very 
 much affects this question. I think that you have got to get to the 
 point of controlling the manager of the company and the methods he 
 employs. 
 
 Senator Cummins. But you do realize that if we are to have com- 
 petition one of the great motives for competition would be separation 
 of the interests in corporations that are engaged in the same busi- 
 ness, do you not? 
 
 Mr. Perkins. Well, I think publicity would take care of that. 
 
 Senator Cummins. We have an example in the American Tobacco 
 Company. Do you think that the way in which it has been reor- 
 ganized will contribute largely to competition ? 
 
 Mr. Perkins. I am not familiar enough with that situation to say 
 as to that. But I do not believe that the dissolution of the Tobacco 
 Company is a solution of that problem. 
 
 Senator Cummins. I agree with you about that. - 
 
 Senator Pomerene. Pardon me just a moment. You mean the dis- 
 solution as effected? 
 
 Mr. Perkins. The dissolution as effected is not a solution. 
 
1114 HEARINGS BEFORE 
 
 Senator Cummins. Do you agree that one corporation ought not to 
 own the stock of another, or a controlling interest in the stock of 
 another ? 
 
 Mr. Perkins. I think a corporation ought to be an operating com- 
 pany. 
 
 Senator Cummins. That is, you do not believe in that pyramid 
 which is built up by what is known as holding companies, in which 
 one company holds the majority of the stock of another, and that one 
 holds the stock of another, and so on and so on, until a very small 
 amount of capital really controls the entire field, whatever it may be ? 
 
 Mr. Perkins. I think that in the perfectly lightning-like de- 
 velopment of the industry of this country that a great many of the 
 things that we have done had to be done in the way they were done 
 in order to keep our place in the commerce of the world ; but I think 
 it has been unfortunate that some of them have had to be done in the 
 way they have been done. I think new machinery ought to be pro- 
 vided so that they won't have to be continued and be done in the 
 future. I think the simplest and most direct method is the prefer- 
 able one, and do it out in the open, so that everybody will know just 
 what it is. I may be wrong. I may be too near the thing to be a 
 good judge; but I think if the Steel Corporation — speaking in all 
 frankness — has anything to its credit in the minds of the public, it 
 has been its rather frank and public way of doing business, which 
 has made people feel that we at least were trying as best we could 
 to serve the public interest; and therefore it has been that experi- 
 ence that has made me feel that complete publicity, required by 
 governmental authority and submitted to the people, about these con- 
 cerns would largely regulate or would be largely a corrective in itself. 
 
 Senator Cummins. I have no further questions. I am very much 
 obliged to you, Mr. Perkins. 
 
 The Chairman. Senator Newlands, have you any inquiries? 
 
 Senator Newlands. Mr. Perkins, you referred to the business con- 
 ditions of the country, the gradual tightening of business, the un- 
 willingness of men to go into new enterprises. Is there any condi- 
 tion, outside of this uncertainty to which you refer, regarding what 
 constitutes restraint of trade, that affects these business conditions? 
 In other words, have th« crops of the country diminished, or the pro- 
 duction of the country diminished in any serious way so as to produce 
 a tightening of business? 
 
 Mr. Perkins. Not that I know of. I think that underlying condi- 
 tions in this country are excellent. 
 
 Senator Newlands. You regard them as normal and heaithy? 
 
 Mr. Perkins. I do. And I might say that I do not consider, speak- 
 ing generally and broadly, that business is what we call frightfully 
 depressed, but I think it ought to be a good deal better. 
 
 Senator Newlands. And you attribute this simply to the state of 
 the mind on the part of business people ? 
 
 Mr. Perkins. A state of uncertainty. 
 
 Senator Newlands. There is no difficulty about the money volume 
 at the present time, is there? 
 
 Mr. Perkins. No, sir. 
 
 Senator Newlands. There is ample money in the country? 
 
 Mr. Perkins. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1115 
 
 Senator Newlands. Has there been any curtailment of credits in 
 the country, do you know ? 
 
 Mr. Perkins. How do you mean? 
 
 Senator Newlands. Well, a witness spoke yesterday of a general 
 curtailment of credits throughout the country, stating that it had 
 extended and was constantly increasing from New York throughout 
 the West toward the Pacific coast, and that everywhere there was a 
 caution on the part of the bankers in issuing credits, a caution on the 
 part of the business men in increasing their loans. 
 
 Mr. Perkins. I think that is true ; and that is another phase of the 
 unfortunate method that has been taken to dissolve the Standard Oil 
 Co. and the Tobacco Co. If I may take a minute, I think the follow- 
 ing may be of some value on that question. We are essentially a 
 credit country. If you go to Paris and you go shopping you take 
 your francs along in your pocket and you pay cash. If you go shop- 
 ping in New York it is charged to you and a bill is sent to you and 
 you send your check in payment. We handle very little real money 
 in this country compared to other countries. It is a great credit 
 system. Our banks loan very extensively on securities, stocks, and 
 things of that sort. 
 
 For instance, the Standard Oil Co.'s stock has for years been a 
 very liquid stock in loans at $500 or $600 or $700 a share, and has 
 been scattered all through the loans of people who own it, like the 
 tobacco stocks. Now we have taken up the shares of the Standard 
 Oil Co., and we have substituted for them 33 different stocks. No 
 banker or no man knows what any one of those 33 stocks is worth 
 to-day, and they are being moved all around in loans without what 
 we call liquid value. That is a very disturbing factor, and that ia 
 going on right now. 
 
 The same thing is going on in regard to the Tobacco Co. stocks. 
 
 If the steel corporation were dissolved it would be so to a far 
 greater extent, because those stocks are very much more broadly 
 owned, and they are everywhere. If 15 or 20 different stocks were 
 substituted for the steel stocks, without anybody knowing or being 
 able to find out for some time what their worth was, you can imag-- 
 ine how it would disturb our credit system. 
 
 Senator Newlands. And that condition of things exists with ref- 
 erence to all these big corporations that we have denominated trusts ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. Their stocks and bonds have market quota- 
 tions, and they are readily accepted as securities by the banks ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. Have they in the past been preferred as secu- 
 rities by the banks to such securities as two-name paper and indi- 
 vidual notes, etc. 
 
 Mr. Perkins. I would not say preferred, but of course a stock 
 that is listed on the New York Stock Exchange is what is known 
 as a liquid security. 
 
 Senator Newlands. You mean by that that you can get the cash 
 for it? 
 
 Mr. Perkins. You can get the cash for it any day you want to 
 
 sell it. 
 
 Senator Newlands. And the opportunity of getting cash for it on. 
 the stock exchange makes it a very acceptable security ? 
 
1116 HEARINGS BEFORE 
 
 Mr. Perkins. Yes, as to loans, and especially for these call loans. 
 
 Senator Newlands. What proportion of these loans are made upon 
 these securities of the big corporations with the view simply to aiding 
 commerce, aiding enterprise, and what proportion for speculative 
 purposes ? Can you form any idea ? 
 
 Mr. Perkins. No. 
 
 Senator Newlands. Is there any large proportion of these securi- 
 ties used in securing loans for commercial purposes, as distinguished 
 from speculative purposes? 
 
 Mr. Perkins. Largely, I think ; yes, sir. 
 
 Senator Newlands. The greater proportion, would you think ? 
 
 Mr. Perkins. Oh, yes. 
 
 Senator Newlands. How many of these big corporations are there, 
 approximately ? 
 
 Mr. Perkins. Well, I really do not know. 
 
 Senator Newlands. I have seen it stated that the total securities 
 amount to about 16 billion dollars, which would be about one-eighth 
 of the entire wealth of the country. 
 
 Mr. Perkins. I saw a statement that the corporations that Mr. 
 Edison's business inventions had made possible were to-day capital- 
 ized at $7,000,000,000. 
 
 Senator Newlands. And the total wealth of the country, I believe, 
 is put at about 125 billion dollars. So that you think this change 
 of securities that is being effected with reference to the Tobacco Trust 
 and the Standard Oil Trust, without an attendant market value of 
 new securities, has an effect in making the banks cautious? 
 
 Mr. Perkins. Yes ; and all custodians of money. 
 
 Senator Newlands. Cautious as to loans upon them ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. And you think that would be increased if the 
 further dissolution of these corporations takes place, with the con- 
 sequent readjustment of securities? 
 
 Mr. Perkins. Yes ; I think that is inevitable. 
 
 Senator Newlands. Now, the total securities issued by all the 
 banks of the country aggregate, I believe, about $10,000,000,000, which 
 are turned by those who receive those credits into deposits, against 
 which they check. Now, of the total $10,000,000,000 of such credits, 
 do you think a very large proportion are based upon securities of this 
 character ? 
 
 Mr. Perkins. Well, it would be very difficult to say, but a very 
 substantial proportion I should think were corporate securities in 
 one way or another. 
 
 Senator Newlands. So that in that way the public itself is feeling, 
 and is likely to feel in a still greater degree, the depressing effect 
 from these readjustments of securities? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. And your suggestion is that instead of that 
 being done under litigation, under the decrees of the courts, it should 
 be accomplished in a moderate way, a progressive way, without vio- 
 lence to investments, through an administrative commission ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. Now, do you not think that the outcry made 
 by the men who are in these great trusts itself has an effect in pro- 
 ducing an uncertainty in the public mind, and that the vehemence 
 
COMMITTEE ON INTERSTATE COMMERCE. 1117 
 
 of that outcry has an effect not only in this country, but in other 
 countries? Do you not realize that in 1907 the outcry of the rail- 
 roads against the supposed destructive effects of the legislation that 
 had been just passed with regard to railroads, had a most serious 
 effect upon investors abroad and induced them to sell in this country 
 and in a measure to aid in the bringing about of the panic of 1907 ? 
 Mr. Perkins. No, sir; I don't think it had anything to do with 
 bringing about the panic of 1907. But I do think that a great part 
 of the criticisms of railroad men against Federal regulation of rail- 
 roads was unfortunate. 
 
 Senator Newlands. "Well, you realize that they predicted the 
 direst disaster from the various acts which had been passed within 
 the last eight or nine years by Congress, and then later on they came 
 back to Congress and stated before committees that conditions were 
 really better as the result of this regulation and that they would 
 not have the laws that had been passed repealed. 
 
 Mr. Perkins. That is one of the strong arguments in my mind 
 why you gentlemen can move pretty promptly to giving business the 
 same sort of regulation that you are giving railroads. I think it 
 should give you great courage. 
 
 Senator Newlands. I am speaking of the outcry of the trust 
 managers themselves having the effect upon the public mind and 
 the minds of investors abroad, inducing them, perhaps, to sell these 
 securities and return them to this country and demand money, etc., 
 just as it did in 1907. Or do you contend that that was not one of 
 the causes of the panic of 1907 ? 
 
 Mr. Perkins. No, sir. I do not think that was an important 
 cause in 1907. But I agree with you that a great deal of the criti- 
 cism that you have referred to was unfortunate; but not as regards 
 to the panic of 1907 or generally. However, you must recollect that 
 the situation is very different. You were protecting the securities 
 of railroads. Then the railroad men might say, in a broad sense, 
 you were not dismembering these companies. You were not split- 
 ting up these securities and putting them in a position where a man 
 could not find out the value of them for a long time. Nothing of 
 that sort has been done with the railroads except with the possible 
 exception of the Northern Securities Co., in which there were only 
 two railroads. Those two railroads had been together only a short 
 time, and the people of the country when they got Northern Pacific 
 and Great Northern stock knew what they had. 
 
 I do not know, if the steel corporation is finally dismembered, 
 whether it would come to the point of dissolving the Carnegie 
 libraries or not. But the point is, just how far will these securities 
 be split up and what will they represent? 
 
 Senator Newlands. But you realize that one of the reasons that 
 is urged here that we should either not proceed at all against the 
 trusts or that we should proceed with great gentleness and modera- 
 tion, is the disturbance in the security market, the disturbance of 
 investors, the demand of foreign investors for cash. 
 
 Mr. Perkins. No, sir; I have not heard that advanced as an im- 
 portant factor. 
 
 Senator Newlands. You have not? 
 Mr. Perkins. No, sir. 
 
1118 HEARINGS BEFORE 
 
 Senator Newlands. Now you say that the outcry of the railroad 
 managers and those interested with them had little to do with the 
 panic of 1907. Did not the same normal conditions exist then? 
 Was not that a year of unexampled crops, of unexampled movement 
 of freight throughout the country? What was the cause of that 
 panic, unless it was a state of mind upon the part of the- public? 
 Was there anything really substantial ? 
 
 Mr. Perkins. Yes ; I think there was. You may recollect that in 
 the first place we had been expanding — for some time the business of 
 this country pretty rapidly up to 1907, and our resources were pretty 
 well expanded everywhere. The crops were late that fall, and the 
 cotton crop, particularly, had been rather held back for higher prices. 
 A great many of the Southern States wanted to extend their loans in 
 New York. 
 
 Senator Newlands. But there was an enormous crop, was there 
 not, that year ? 
 
 Mr. Perkins. Yes ; there was a big crop that year. 
 
 Senator Newlands. And the prices were good? 
 
 Mr. Perkins. Yes; the prices were good, but the crop had been 
 held back; and they did not want to sell it. And there had been 
 another large expansion in a new direction for several years prior to 
 that panic, namely, in the development of the trust companies, which 
 had done, a good many of them, more or less of what might be called 
 a general business, and a number of new causes that had not been 
 operating before converged that fall to make a money stringency. 
 But I never felt, nor do I remember hearing, that legislation in re- 
 gard to railroads particularly accelerated that. 
 
 Senator Newlands. I am not contending that legislation did it. 
 On the contrary I contend that there was no real cause for it, except 
 the state of mind; and my view was that that state of mind was 
 largely caused by the outcry of the railroad managers and their 
 insistence that disastrous results would come to the transportation 
 companies by reason of the legislation that had been passed. 
 
 Mr. Perkins. Of course, some day or other, maybe 25 or 50 years 
 from now, we may look back on the last 6 or 8 years and realize 
 that we have gone very rapidly through an enormous change in this 
 country in the method of doing business and handling business. 
 This whole development and control of railroads, while gradual in 
 one way, has come within a few years, and it has necessitated the 
 readjustment of men's views, practical men ; and a man who has been 
 brought up all his life to do business along certain lines, honest and 
 progressive as he may be, naturally objects to suddenly changing 
 his whole attitude toward a business that he thinks he knows all 
 about. 
 
 Senator Newlands. Your view is that there should be in the end a 
 national incorporation ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. But you would regard that as impracticable, 
 just now? 
 
 Mr. Perkins. It does not look to me as though we could get it 
 within a reasonably short time. 
 
 Senator Newlands. Would you have that govern all corporations 
 that were engaged in interstate commerce or only corporations of a 
 certain size? 
 
COMMITTEE ON INTERSTATE COMMEECE. 1119 
 
 Mr. Perkins. N6; I would take a company that was doing an 
 interstate or international business, or of large enough size, where 
 it has a capital that was largely provided by the public. 
 
 Senator Neavlands. You would then limit that corporation some- 
 what as to the amount of capital or to a certain control of business ? 
 
 Mr. Perkins. No, sir. 
 
 Senator Neavlands. You would apply that act regardless of 
 capital ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Newlands. What would you have as a standard? 
 
 Mr. Perkins. I would have as a standard interstate business and 
 capital provided by the public. 
 
 Senator Newlands. You realize that almost all corporations do 
 some interstate business, do you not ? 
 
 Mr. Perkins. Very largely ; yes, sir. 
 
 Senator Newlands. And in that event if there is any advantage in 
 national incorporation, they will all rush to the Nation for incorpora- 
 tion, instead of incorporating under the laws of the different States? 
 
 Mr. Perkins. They would. 
 
 Senator Newlands. Therefore unless you place some restriction 
 upon the size or the way of conducting business 
 
 Mr. Perkins. Don't you think that would be more or less self- 
 regulating ? 
 
 Senator Newlands. I simply wish your view as to that, as to what 
 standard should be adopted. 
 
 Suppose the steel company were divided to-day into 10 corpora- 
 tions of $150,000,000 each, instead of being organized into 1 cor- 
 poration having nearly a billion and a half of capital*. Do you not 
 think that each one of those units could be as efficient in business and 
 in all the economies as the total aggregation in one corporation? 
 
 Mr. Perkins. Not as efficient. If I Were asked to put my finger 
 on one disadvantage greater than the other it would be its effect on 
 the foreign trade. You take 10 such companies and go out and com- 
 pete with Germany. It is self-evident that we could hot begin to do 
 it as effectively as with one large company. 
 
 Senator Newlands. I am speaking now of efficiency in production, 
 and efficiency in securing the economies that would lead to low cost. 
 
 Mr. Perkins. No, sir ; I do not think you can. 
 
 Senator Newlands. There are how a number of corporations that 
 are in competition with the Steel Trust, are there not? 
 
 Mr. Perkins. There are. 
 
 Senator Newlands. What is the largest capitalization of any one 
 of those? 
 
 Mr. Perkins. I do riot know. 
 
 Senator Newlands. Does it exceed $200,000,000? 
 
 Mr. Perkins. I really do not know. 
 
 Senator Newlands. Do you regard any of these corporations as 
 being" as efficient in organization, in the economies, and in the produc- 
 tion of their output at a low cost as the Steel Trust is to-day ? 
 
 Mr. Perkins. No, sir ; I do not. 
 
 Senator Newlands. And you attribute that to the larger capitali- 
 zation, to' the larger area of operations of the Steel Trust 1 
 
 Mr. Perkins. If ot altogether. I attribute it to that in part, but 
 more do I attribute it to the efficiency that comes about froto theoppor- 
 
 rtrttrrrr 
 
1120 
 
 HEARINGS BEFORE 
 
 tunity to fit in here, there, and the other place the right man and 
 the right place, having a larger number of men to select from, and 
 the fact that the company is not a private ownership, that the men 
 who are managing it are looking upon it from the standpoint more 
 or less of a public service. They have been willing to enlist these 
 people in this company as stockholders and share profits with them, 
 and in that way they have substantially built up their esprit de corps. 
 
 May I just interject this remark here? We have gone on with our 
 profit-sharing plan until it has become so popular that last January, 
 under our elaborate system — although I shall not go into that — until 
 last January when we offered stock for subscription to the employees of 
 the steel company, 12,800 and some odd men applied to buy one 
 share apiece. That shows how far down we got into the ranks in 
 interesting men in partnership. And one of these men — to show 
 how effective it is in promoting efficiency — wrote in one day and said, 
 " I own one share of stock in the corporation. I notice that the cook 
 in the kitchen of the superintendent's house, when I go by some morn- 
 ings, takes wood from the corporation's woodpile for the superin- 
 tendent's cookstove. Is this right?"' 
 
 You know when you get a lot of men working like that, you are 
 going to get your cost down, and get a pretty high order of efficiency. 
 
 Senator Newlands. Your contention, then, is that the big corpora- 
 tion is more efficient than the smaller corporation, and that the 
 smaller corporation is more efficient than the individual, all other 
 things being equal ? 
 
 Mr. Perkins. More efficient and more permanent. 
 
 Senator Newlands. That will mean then that eventually all busi- 
 ness will take corporate form in order to be profitable? 
 
 Mr. Perkins. I think it will — profitable and permanent. 
 
 Senator Newlands. Therefore, in that view individualism is prac- 
 tically at an end in business ? 
 
 Mr. Perkins. Not at all. I think individualism is at a higher 
 premium to-day in the business world than it ever was. 
 
 Senator Newlands. I mean individualism in the sense that an 
 individual conducts by himself a particular business. 
 
 Mr. Perkins. Well, no. Individualism, so far as individual 
 ownership is concerned, but not in so far as he controls it. 
 
 Senator Newlands. I understand. 
 
 Mr. Perkins. What could be more interesting, and what could 
 be more inspiring to a man than the position that Judge Gary occu- 
 pies ? He is not making one-hundredth part of the money a year, or 
 at least his salary is only a very small part of what Mr. Carnegie 
 made in the steel business; but which position would you rather 
 occupy toward the world generally, if you were in that business — 
 the one that Judge Gary has to-day, aside from his liability of being 
 placed in jail, or the one Mr. Carnegie has. Those are the changes 
 that are coming about in the world. 
 
 Senator Newlands. The Chairman suggests that you depend on 
 the attitude of the Government. 
 
 Mr. Perkins. That is why I hesitated. Oh, no. Individualism 
 is at a higher premium to-day than it ever was. 
 
 The Chairman. The committee will take a recess un^il 3 o'clock. 
 
 (Thereupon at 1 o'clock p. m. the committee took a recess until 3 
 o'clock p. m.) 
 
COMMITTEE ON INTERSTATE COMMERCE. 1121 
 
 AFTER RECESS. 
 
 At the expiration of the recess, the committee reassembled. 
 STATEMENT OF GEORGE W. PERKINS— Resumed. 
 
 The Chairman. Senator Newlands was inquiring when we took 
 a recess. He is not present, and we will pass him for the present. 
 
 Senator Watson. Mr. Perkins, you spoke of the fear in the minds 
 of the public. For the purpose of illustration, I will refer to that 
 boot and shoe factory that was promoted by the chairman this morn- 
 ing. Assuming you are manager, say, with a capital of $5,000,000 
 and doing a profitable business. In the course of your business, on 
 account of bad collections and otherwise, you need some money, 
 temporarily. Do you apprehend any difficulty in getting a rea- 
 sonable amount of money from the banks at the present time to carry 
 on that business? 
 
 Mr. Perkins. No, sir. 
 
 Senator Watson. Now, assuming you conclude it is good policy 
 to install new machinery, increase the plant, and you want to double 
 your capital for that purpose, and have the demand for your goods, 
 and you go to the bankers and want to sell $5,000,000 additional 
 securities. Do you think you can do that at the present time ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Watson. You think you could? 
 
 Mr. Perkins. I think I could. It is pretty difficult to answer any 
 hypothetical question like that because I do not know the conditions 
 of the shoe business, but taking any perfectly normal business that 
 was making a good showing, and doing a moderate-sized business — 
 if it is perfectly clear that it was not doing a large enough business 
 to in any way be in danger of attack it could go on financing itself. 
 That is being done every day. 
 
 Senator. Watson. A witness stated yesterday that he found there 
 was no money for development. That was the point I wanted to 
 bring out, whether the bankers were in a position to handle the 
 increase in business ventures to-day or not. 
 
 Mr. Perkins. I think you could say that both conditions were true. 
 The first case you stated in all probability could be financed, but at 
 the same time and for the reasons developed here this morning there 
 is a hesitation on the part of capital to seek anything in the way of a 
 new enterprise or to extend present enterprises. 
 
 Senator Watson. Now, the bankers are largely jobbers of securi- 
 ties. I mean by that that they are distributors of securities. 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Watson. They would not hesitate to take those securities 
 that you mentioned if they could distribute them to the public? 
 
 Mr. Perkins. No; but there is just exactly where your trouble 
 would begin. The public is in a frame of mind where it does not 
 know what to invest in. I believe the idea is quite prevalent. For 
 instance, the statement was made a while ago that there were a hun- 
 dred or more corporations that had been picked out of a certain 
 number that were supposed to be right in line for attack. All this is 
 most disturbing. 
 
1122 HEARINGS BEFORE 
 
 Senator Watson. Then that fear is in the minds of the investing 
 public ? 
 
 Mr. PerkiNS. I think so. 
 
 Senator Watson. You spoke of the best efficiency being the test of 
 success. Do you think that under the present laws the best efficiency 
 can be reached ? 
 
 Mr. Perkins. No, sir. 
 
 Senator Watson. Then, as I understand your commission idea, you 
 would have this commission allow the 1 corporations to do practically 
 anything that did not interfere with the public interests that the 
 corporations wanted to do ? 
 
 Mr. Perkins. Broadly speaking, that is about it. I believe that 
 for a time complete publicity of the corporation's affairs, through a 
 commission, would be a sufficient guarantee of such protection, and 
 that from that, as conditions in our country and in the world de- 
 veloped, we could add further' specific regulations, to meet chairiging 
 conditions. 
 
 Senator Watson. Some of the witnesses have advocated uniform 
 prices practically. What is your opinion of that? 
 
 Mr. Perkins. I believe that is one of the things that could be 
 taken up by such a commission and probably arrived at rather 
 speedily, and I believe it would be a very proper thing to work out 
 as fast as it could be done without seriously disturbing our domestic 
 or foreign trade in any given corporation. 
 
 Senator Watson. Would you have that worked out by the commis- 
 sion or by statute? 
 
 Mr. Perkins. You might be able, in that particular case, to word 
 a statute that would substantially cover it, but I do not think that 
 we can for a moment lose sight of the fact that business is very differ- 
 ent from transportation, and that each business has to be conducted 
 somewhat differently from its brother business, and of course, as a 
 whole, it is a very delicate network. 
 
 Senator Watson. The theory Worked out by the Interstate Com- 
 merce Commission on freight rates is an average rate confined to 
 zones, as you understand? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Watson. They do not charge the same rate for the same 
 service always? 
 
 Mr. Perkins. No. 
 
 Senator Watson. They charge what we would eall an average rate, 
 for instance. They may have the same commodity for a certain 
 city — three rates? 
 
 Mr. Perkins. Yes. 
 
 Senator Watson. As to some commodities I can understand why a 
 uniform price would work very satisfactorily, but as to other's I think 
 it would mean a complete change in freight rate. 
 Mr. PerkInS. That is exactly my point. 
 
 Senator Watson. So yOu might Work that out on certain commodi- 
 ties, and as to others you would hot want the same rule ? 
 
 Mr. Perkins. That is exactly it, and that is one reason why I be- 
 lieve it is going to be extremely important to have a commission like 
 that, Composed largely of business men of experience. 
 
 If I may take your time for a moment — I have thought about this 
 for a good many years — I believe that a commission composed of 
 
COMMITTEE ON INTERSTATE COMMERCE. 1123 
 
 such men would accomplish a good many things. We have in this 
 country no goal for the business man in the way of preferment, or 
 honorable mention, so to speak, unless he eventually goes out of busi- 
 ness into public life. Now, Europe does very differently. In Ger- 
 many, for instance, a captain of industry is knighted and here he is 
 ipdicted. I believe that if we establish a business court of that sort 
 that it would gradually come to be the goal of the young man who is 
 going into business. They would say, " Some day or another I may 
 fee called to serve on this commission or court." I think it would be a 
 steadying influence on that man's whole business career, and he would 
 look forward to it like the lawyerdoes to the Supreme Court as pos- 
 sible preferment, and that man would give up almost any business 
 calling finally to be a member of such a commission. There is not a 
 lawyer, I suppose, in the country who would not give up any lucra- 
 tive practice for an appointment on the Supreme Bench, because that 
 has come to be the goal — the highest degree of honor — and if it is 
 said that it would be turning business over, or turning the Govern- 
 ment over to business, I do not think that holds, because we have not 
 found it in any respect, certainly not in regulation of our railroads. 
 Take another instance. Our Presidents select officials from corpora- 
 tion life, like Mr. Knox and Mr. Wickersham, and they gave up lucra- 
 tive businesses and went into these offices, and have stood an immense 
 amount of abuse from their old friends and colleagues and associates. 
 Yet they have discharged their oath of office as they saw it in the 
 interest of the people. I believe the business men would adopt the 
 same course. Mr. John Claflin, of New York, for instance, a man 
 who had reached the point of life where he had had broad experience, 
 called on such a commission as that would go on it and give to the 
 public the same sort of service that he had been giving to his own 
 business. 
 
 You could have a commission of that sort of seven or nine men who 
 had had that kind of experience and knew the trade conditions of 
 the world, and would work that way for the public interest. I think 
 you can easily imagine of what enormous value that would be to our 
 people in their own affairs, and more especially to us in developing 
 our foreign trade. 
 
 Now, anyone, who has been anything like a student must realize 
 the necessity of our promoting our foreign trade, especially in the 
 manufacturing line, 'it is all important that in the next 25 years 
 we do that to the greatest possible extent. Now, we can not do it 
 with little companies, and we have got some extremely important 
 problems in that connection to work out. For instance, take the 
 harvester company. It has had a long suit in Missouri. The law 
 of Missouri is that' no company with a capital of more than $10,000,000 
 can enter that State. Now, no company with. as small a capital as 
 $10,000,000 can promote the farm -implement business all over 
 the' world. The International Harvester Co.'s capital is 
 $140,000,000. It could not enter China, Argentina, and Bussia and 
 Germany, and enter Missouri; so we organized a $1,000,000 company 
 We went into Missouri. They brought suit and it has been dragging 
 through the courts. Finally, a couple of weeks ago, the Supreme 
 Court 3 decided that that million-dollar company was a subterfuge. 
 We had openly said why we had done it, and they said we had vio- 
 lated the law, and they ousted us. They gave us four months to re- 
 
1124 HEARINGS BEFORE 
 
 organize, etc. But in reviewing the case they said that the company 
 had not suppressed competition, nor had crushed competitors; that 
 they had provided a better grade of machines than had been pro- 
 vided before; there were no complaints from their consumers; that 
 the price of material had gone up more than had the prices of ma- 
 chines, and they really gave us quite a complimentary indorsement. 
 So we have applied to that court to take the case to the Supreme 
 Court, and that was granted last week. 
 
 Now there is a complication. What are you going to do? We have 
 either got to get out of Missouri or else we have got to get out of 
 our foreign business or resort to some makeshift plan in order to 
 do both. Business is under the constant harrow of these conflicting 
 laws. 
 
 Senator Watson. What was the original capitalization of the 
 steel company? 
 
 Mr. Perkins. It has never been changed. 
 
 Senator Watson. It is about $1,400,000,000? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Watson. Suppose the organizers of that concern had de 
 cided that they wanted seven corporations instead of one — if it is 
 possible to divide it into seven equally — with separate boards of di- 
 rectors, separate management, what do you think the result would 
 have been as compared with the result obtained to the public interest? 
 
 Mr. Perkins. I do not think it would have been anything like as 
 advantageous to the public interest as the result obtained. 
 
 Senator Watson. Why not? 
 
 Mr. Perkins. In the first place, I think we have been able to 
 treat labor infinitely better than the seven would have treated it. 
 I think we have been able to greatly increase the efficiency as com- 
 pared to anything that the seven could have done. I think we have 
 been able to appropriate a great deal of money for experimental 
 work, and all that goes with the improvements and the utilization 
 of waste, and much else that several companies would not have done ; 
 and we have been infinitely more successful in expanding our foreign 
 trade than the seven companies could have done, because if seven . 
 companies could have been organized they would have had to main- 
 tain seven organizations and would have competed each one against 
 the other for the foreign business — not only amongst themselves, but 
 with the foreigners. 
 
 Senator Watson. That is al. 
 
 Senator Brandegee. I have only a question or two. The commis- 
 sion that you would like to see established, I believe you called it a 
 ousiness court? 
 
 Mr. Perkins. " A rose by any other name " would suit me', just 
 as well. 
 
 Senator Brandegee. To use your own phraseology. You spoke of 
 having a business court established in the Department of Commerce 
 and Labor before whom you could make application for Government 
 license, if I recall your proposition? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Brandegee. What would you think, instead of having 
 your business courts in the Department of Commerce and Labor, of 
 having it a more independent concern removed from a department 
 and somewhat on the ]mmmAA^Jai§SSt^i^£tMliSIISS£^£ nrn mission? 
 
COMMITTEE ON INTERSTATE COMMEECE. 1125 
 
 * S Ir ;i. PBB ^ INS ' Wel1 ' T do not know that that is material. I simply 
 ielt that the corporations were now in that department and of 
 course we do not want any more machinery than is absolutely neces- 
 sary. Ihe corporations now report there. The corporations are 
 paying taxes, and there is a certain amount of publicity in that 
 department now anyway. It was simply a method, in my opinion 
 of expanding the present machinery. I do not think it is material 
 as to where it should be. 
 
 Senator Beandegee. Might it not be material in this view of it if 
 a business court or commission is to be established with power' to 
 practically legalize such companies as it does, or ought to license, 
 would it not be desirable to have it as absolutely free and independent 
 from any Cabinet officer or any political influence as it would be pos- 
 sible to make it ? 
 
 Mr. Peekins. I am inclined to think that that might be an im- 
 provement over my suggestion. It certainly would be most desirable 
 to have it as free from political influence as possible. 
 
 Senator Beandegee. Many of the questions that would come before 
 such a body would be questions upon which there would be perhaps 
 a good deal of contest, and a good deal of public feeling ? 
 Mr. Peekins. Yes, sir ; there would be. 
 
 Senator Beandegee. And it occurred to my mind that perhaps it 
 would be well to have as dignified, able, and independent a tribu- 
 nal, as far removed from any political influence as possible, which 
 might, if it thought it was right, have backbone enough to stand up 
 against public clamor, or anything of that kind ? 
 Mr. Peekins. Yes ; I think that is an improvement. 
 Senator Beandegee. Would you allow an appeal from the ruling 
 of the commission if it declined to issue a license ? 
 Mr. Perkins. I think so. I think the appeal should go either to 
 
 the Interstate Commerce Commission or some court 
 
 Senator Beandegee. You mean the Court of Commerce? 
 Mr. Peekins. The Court of Commerce, I mean. 
 Senator Beandegee. Now, I do not know that I thoroughly com- 
 prehended what you meant to give this business court in the way of 
 power. You would give it the power to license applicants engaged 
 in commerce among the States if they found what ? 
 
 Mr. Peekins. At the beginning I would give them power to license 
 such a company as in the judgment of this court was properly 
 capitalized — conservatively capitalized — and conducting its business 
 along such lines as to commend its practices to the judgment of this 
 court, and cause the court to feel that it was working in the public 
 interest rather than against the public interest, not restraining trade 
 unduly or acquiring monopolistic control, and with the understand- 
 ing that this company would submit its affairs in the most complete 
 manner possible to this court, not to be filed in the archives of this 
 court and regarded as purely personal to the President or the Attor- 
 ney General, but to be in turn made public to not only the stock- 
 holders of this company but to the public, so that competitors could 
 know the general methods of the company and the public could 
 know the methods of the company; and that is about as far as I 
 would go at the start. 
 
 As different question came up in connection with that regulation 
 and control, much as we have developed the regulations and control 
 
1126 HEARINGS BEFORE 
 
 of xailroads. we could expand from year to year; but I believe so 
 thoroughly that publicity of the right sort would be a very strong 
 deterrent on the management of any company from doing anything 
 that was not right, and would be so convincing to the public that 
 what was done was being done right, that we would find ourselves 
 relieved from the necessity of resorting to a long schedule of fixed 
 rules, which were to the effect, " Thou shalt not," " thou shalt not," 
 and " thou shalt not." 
 
 Senator Brandegee. You would put in those things that you have 
 indicated in the statute creating the business court as a rule to guide 
 the business court in determining the question of whom it should 
 license and whom it should not ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Brandegee. Of course, that would have to be carefully 
 drawn to see that it would not be in unreasonable restraint of trade. 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Brandegee. And on those questions you would allow the 
 right of appeal to some court from the judgment of the commission? 
 
 Mr. Perkins. Yes, sir. As it is now, however, whatever may be 
 said about "the interpretation of the Sherman Act by the court, the 
 plain cold-blooded fact remains that as we stand to-day, unless 
 through the steel suit, in two or three years, or some other suit we 
 find some other interpretation, we have got to apparently pass 
 through a long series of lawsuits, and each man has got to come up 
 and have his corporation passed on by a lawsuit. 
 
 Now, if we could save those two or three years by immediately 
 creating a court that could say after a corporation has come before it, 
 " Now, we will take the responsibility of saying you can go ahead so 
 long as you keep us informed about what your practices are," it 
 would help very, very much. 
 
 Senator Brandegee. Would you have this business court issue 
 these licenses for a limited period of time ? 
 
 Mr. Perkins. No, sir ; I do not think that is feasible. If the busi- 
 ness was legitimate and properly started, and an interstate and inter- 
 national business, with stockholders in large numbers everywhere, I 
 think it should be given all the elements of permanency possible. 
 
 Senator Brandegee. I inferred from your last statement that the 
 license you contemplated would be a revocable license whenever in 
 the judgment of the business court the corporation was not acting to 
 suit it? 
 
 Mr. Perkins. I certainly would give the court the right to revoke 
 the. license with the right of appeal, but I would make that almost 
 the last resort; that is, I would in that respect control the corpora- 
 tions as we do our banks. I would punish the individual and ex- 
 haust all those channels before I actually injured the existence of the 
 company itself, because we must remember that the company can 
 not do anything wrong. It is not a live thing; it is a creation of 
 man, and there is no use injuring an innocent third party and dis- 
 turbing our business because some man does something that is not 
 
 right- 
 Senator Brandegee. You would not have the license revocable 
 then, but you would rely upon punishing the individuals who indulge 
 in any unfair practices ? 
 
COMMITTEE ON INTERSTATE COMMEECE. 1127 
 
 Mr. Perkins. Yes, sir; I think the Government should always 
 keep the right, as a last resort, to revoke the license, but I think that 
 should be the last thing it should do, and should be done perhaps in 
 practice not at all, but I think you might easily have cases where 
 people would be imprisoned for having violated the laws under 
 which they were operating or the laws as laid down by this commis- 
 sion, lhat is just what we do with our banks. 
 
 Senator Brandegee. Do I understand you to say that on the ques- 
 tion of whether the license should be revoked or not you would allow 
 an appeal to some court on that question ? 
 
 Mr. Perkins. I would. These companies, you see, have come not 
 only to be merchants, but they have come to be trustees for invest- 
 ments. I think it is extremely important that the country under- 
 stood that and realized that. 
 
 Senator Brandegee. If an applicant for a license secured the 
 license, you then say until it was revoked you would have the appli- 
 cants immune from prosecution under the Sherman antitrust law ? 
 
 Mr. Perkins. Yes, sir. Now, you see, Senator, if he said, " Well, 
 I do not want this license," or " I can not get a license," then it 
 seems to me that is equivalent to the Government having notice that 
 there is something about that concern that ought to be looked into 
 under the Sherman law, and he would not have a right to complain 
 if the Government did proceed against him because he would have 
 had a way to demonstrate to the court that he was entitled to the 
 license. 
 
 Senator Brandegee. Any corporation indulging in commerce 
 among the States which had applied for a license and been denied 
 the license by this business court, would be subject to prosecution 
 or a bill being brought against them under the Sherman law ? 
 
 Mr. Perkins. Exactly. 
 
 Senator Brandegee. And all those who had been licensed would 
 be immune ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Brandegee. So that, if the business court thought that a 
 man was a proper subject for .its license and should grant it, even if 
 the Attorney General thought it was directly operating in violation 
 of the Sherman law, he and the department of the Government 
 would be powerless to have the question tested in the circuit or the 
 Supreme Court of the United States because they held a license from 
 this business court, which operated as an immunity ? 
 
 Mr. Perkins. I think that if they wanted to interpose any objec- 
 tion they ought to do it before the company had its license. I 
 think a company, once having had a license, should be immune so 
 long as it lived up to the condition under which it obtained its 
 license — that is, while the license was being issued — if the Attorney 
 General wanted to interpose an objection he ought to have the Fight 
 to be heard. 
 
 Senator Brandegee. I was just going to ask you, would you not 
 provide that it should be the duty of some Government official — the 
 Attorney General or somebody else — to appear in behalf of the Gov- 
 ernment at the time the corporation was applying for its license ? 
 
 Mr. Perkins. I look upon this court as in behalf of the Govern- 
 ment. 
 
1128 HEARINGS BEFORE 
 
 Senator Brandegee. So do I; but you would leave it a matter to 
 be determined by the court and the applicant without any other 
 department of the Government? 
 
 Mr. Perkins. I see no objection. For instance, if your course 
 was adopted of having an independent court, of allowing the Bureau 
 of Corporations to interfere or interpose by the Attorney General. 
 
 Senator Brandegee. As I understand it, it would not be your view 
 at present to make it mandatory on the Attorney General or the 
 Department of Justice to appear, but you would give them the right 
 to appear if they so desired ? 
 
 Mr. Perkins. I think I would. I had not thought of that. It is 
 a new suggestion, but I think that might not be an improper thing. 
 
 Senator Brandegee. You spoke in answering some questions that 
 were asked you about whether a concern controlling 75 per cent of 
 the business would be, in your opinion, in restraint of trade or not — 
 if I recall the question, or whether it would be contrary to any pro- 
 vision of the Sherman law or the antitrust act. Would it not, do 
 you not think, lie in the minds of the people who are contemplating 
 the acquisition of 75 per cent of the business that the Government 
 might set up the claim that the mere fact of the control of such a 
 proportion of the business was that it tended to show an intent to 
 monopolize some part of the commerce among the States, and there- 
 fore be in violation of the second section of the law ? 
 
 Mr. Perkins. Yes ; I think that is one of the disturbing conditions 
 to-day, and I think in that connection that sufficient weight has not 
 been given to this phase of it at all. Those of us who have had prac- 
 tical business experience in more than one line of business especially, 
 know that a certain group of men of the right type and ability could 
 come nearer restraining trade and monopolizing trade with 40 per 
 cent, we will say, of a given business than another group of men 
 might with 75 per cent of the business. So that it is not the per- 
 centage that does it, but it is the men. 
 
 Senator Brandegee. You have your own idea of what you mean 
 by the words " restraint of trade ? " 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Brandegee. As I understand you, it is not necessarily 
 what the courts have decided or said about restraint of trade ? 
 
 Mr. Perkins. I do not know what they have decided. 
 
 Senator Brandegee. I understand you to say that you think there 
 may be cases, and probably are, where a great deal of a certain 
 kind of competition may have been eliminated without trade having 
 been restrained at all, but on the contrary, trade having been 
 promoted ? 
 
 Mr. Perkins. Exactly. 
 
 Senator Brandegee. That is all. 
 
 Senator Newlakds. I think the ground has been covered already 
 by some of the questions that have been asked recently, but I simply 
 wish to ask you, Mr. Perkins, regarding agreements limiting produc- 
 tion and agreements between competitors as to price. What do you 
 think of those ? 
 
 Mr. Perkins. I think they are very largely a question of individual 
 settlement. Different lines of business vary so largely according to 
 locality and environment, and all that sort of thing, that I think 
 that has got to be worked out with the greatest possible care. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1129 
 
 Senator Newlands. Would you give such a business court the 
 power to approve the agreements between competitors as to limita- 
 tions of production with a view to preventing overproduction ? 
 
 Mr. Perkins. Do you mean a broad principle covering everything ? 
 
 Senator NewlAnds. Yes. 
 
 Mr. Perkins. No, sir ; not at the beginning, I would not. 
 
 Senator Newlands. How about prices; would you give them the 
 power to approve agreements as to uniform prices? 
 
 Mr. Perkins. No, sir; not at the beginning. I would let that 
 work itself out after we had licensed 50 or 500 companies who would 
 to do that then he ought not to have a icense, in my judgment, and 
 agree absolutely to make their affairs public ; if a man is not willing 
 if he does, and will play that way, I believe it will allay a great deal 
 of the difficulty. You see these questions to a great extent are re- 
 volving around what might be known as the wholesale business. 
 Now we gentlemen all remember that in our boyhood days there 
 were very few retail stores where you could not go in and horse 
 trade for what you wanted. The prices were not marked on the 
 goods, and there were all sorts of prices. Now we have moved along 
 in the retail business to a point where we can go down any street 
 to a dozen stores, and the prices are all open. There is not very 
 much trading. You know what it is, and a man down the street, 
 next door, knows what the other man's price is. If that had been 
 suggested to our fathers they would have thrown up their hands and 
 said : " Everybody knows all about our prices ; we can not make 
 anything." But we have worked that out in the retail business. It 
 is an open book as to what prices are, yet there is competition and 
 they live. But in these larger affairs which, for want of a better 
 name, you call wholesale business, there is still all that secretive way 
 of doing, and if there is anything that tends to break the command- 
 ment of " Thou shalt not bear false witness against thy neighbor," 
 it is the method by which large contracting and bidding for con- 
 tracts is done in this country, because the whole system is one of 
 deception from beginning to end. It is all built up around the idea 
 that you must lead another man on to make a lower bid, and then 
 lead somebody else on, and that is supposed to be competition. 
 
 Now, we have got in some way or another, with the enormous de- 
 velopment of our methods of intercommunication, living as close as 
 we do together in the world, to get the wholesaler, the corporation, 
 on something like a basis that will be analogous to the retail business 
 which- is done much more in the open and in a frank manner. You 
 have the competition there just the same. 
 
 Senator Newlands. Mr. Perkins, how many competitors in this 
 country has the United States Steel Company to-day? 
 
 Mr. Perkins. I really do not know ; there are a very large number. 
 
 Senator Newlands. Are there many? 
 
 Mr. Perkins. There are a large number in some lines. They have 
 a great many. 
 
 Senator Newlands. In the principal lines, such as. steel rails and 
 structural steel, are there very many establishments? 
 
 Mr. Perkins. Yes, sir; there are a good many that make rails; a 
 good many that make structural work; I really do not know how 
 many. 
 
1130 HEARINGS BEFORE 
 
 Senator Newlands. You do not know what the capitalization of 
 the largest one of your competitors is, do you? 
 
 Mr. Perkins. No, sir, I do not. I do not know whether it would 
 be the, Lackawanna or Jones $ Laughlin. They are all large com- 
 panies. 
 
 Senator Newlands. Take the Lackawanna. Do you know what 
 its capitalization is? 
 
 Mr. Perkins. No, sir. 
 
 Senator Newlands. And Jones & Laughlin? 
 
 Mr. Perkins. I do not. 
 
 Senator Newlands. Assume that a corporation should be organized 
 to-day with a view to manufacturing steel for the entire country and 
 engaging business as expensive as that of your company, in order to 
 get business they would have to under bid you, would they not ? 
 
 Mr. Perkins. I would say so necessarily; it would depend up3ii 
 the growth of the country and the use of steel. 
 
 Senator Newlands. Well, it would either have to simply cover the 
 increased market, or if it sought to get your customers it would have 
 to give some advantage in price, would it not ? 
 
 Mr. Perkins. That has not been the policy of the Steel Corpora- 
 tion. It has tried to recognize the " live and let live " principle, and 
 has not tried to do, as used to be done in the steel business, just gp 
 out and get every dollar of steel any way. The object of the corpora- 
 tion at the present time is to expend money on improvement as fast 
 as we can to improve the efficiency of the business and its organization. 
 
 Senator Newlands. During the past five years has there been any 
 overproduction of steel in this country ? 
 
 Mr. Perkins. Yes; there hare been times, you might say, when 
 there has been overproduction. 
 
 Senator Newlands. What becomes of that overproduction? 
 
 Mr. Perkins. I suppose that is one reason, perhaps, why we have 
 had the depression in prices two or three times. 
 
 Senator Newlands. Has there been any substantial change in the 
 price of steel during the past five years? 
 
 Mr. Perkins. Oh, several times since the corporation has been or- 
 ganized there has been very decided fluctuation in prices. 
 
 Senator Newlands. But as a rule prices have been pretty stable, 
 have they not ? 
 
 ' Mr. Perkins. I should say they have been more even in the last 1Q 
 years than they had been the preceding 10 years, and that has givep 
 labor much more regular employment at a much better average, wage. 
 
 Senator Newlands. You think that stable prices and prevention of 
 overproduction are good things for labor? 
 
 Mr. Perkins. I certainly do j and I think that if there is anything 
 at all to our program of conserving our natural resources it is just 
 as important to think of overproduction in that connection ag any 
 other, because overproduction means wastefulness. 
 
 Senator Newlands. Up to this time has there been any under pro- 
 duction. 
 
 Mr. Perkins. No, sir; I do not think there has been any time when 
 there has been an under production. 
 
 Senator Newlands. Have there been times when you could, if you 
 had chosen, raised the prices? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1131 
 
 Mr. Perkins. Yes, sir ; there have been times when the corpora- 
 tion could have raised the prices. 
 
 Senator Newlands. That was when the demand was greater than 
 the supply, was it not? 
 
 Mr. Perkins. Yes; but of course that ca;n come about. Perhaps 
 you never could have a condition that you produce on a day's notico 
 all that everybody should happen to want that particular day, other- 
 wise you would have to unduly expand capacity. 
 
 Senator Newlands. Have you ever increased your price as the 
 result of increased demand ? 
 
 Mr. Perkins. The corporation has been inclined to follow, I think. 
 the other producers in the matter of reducing prices, and if any prices 
 were put back, they would follow. 
 
 Senator Newlands. Simply put them back to where they had been 
 reduced ? 
 
 Mr. Perkins. Not always; I think on the whole they have not been 
 put back quite as far probably as they Were before. 
 
 Senator Newlands. Now, if your corporation — which is a com- 
 bination of many other corporations — with an aggregate capital of 
 nearly a billion and a half, is the most efficient machine for produc- 
 tion and distribution, why does it not similarly follow that it would 
 be to the advantage of the existing competitors to combine with one 
 big organization similar to your own? 
 
 Mr. Perkins. I think it would. 
 
 Senator Newlands. Then, to go a step further, it would be an ad- 
 vantage if the two combinations so effected would combine and 
 create but one corporation, would it not ? 
 
 Mr. Perkins. Speaking purely economically, I think it would, but 
 I took that up this morning, I think, and I also said I would not feel 
 that it was a desirable thing to contemplate, at least at the present 
 time. 
 
 Senator Newlands. And you think that such combinations are 
 beneficial, not only to those interested in the corporations, but would 
 tend to the public interests ? 
 
 Mr. Perkins. Yes ; I do. I know at the present time of a gentle- 
 man who is trying an experiment that will come to the public notice 
 probably some time or other, and it is very interesting. He is doing 
 it outside of his own business and as an experiment. He started a 
 few years ago to organize some grocery stores in various towns in the 
 East. He now has quite a number— 25 or 30. He is simply selling 
 dry groceries. These stores do not deal in vegetables or anything 
 that is perishable. He does not deliver any groceries. He rents a 
 store in a town puts a force of clerks in there, supplies them with 
 everything in the line of groceries that is not perishable. He buys 
 the things at wholesale and sends them to the different stores. He 
 simply adds on to the price the freight and what he considers is a 
 proper profit for him, and the goods are sold for those prices in those 
 various stores. The people can walk in any of those stores and get 
 those goods, and he never asks any questions as to what the other 
 men in the town are selling the same kind of goods for. He believes 
 that is going to be the next system in the grocery business; that 
 1 000 stores or 10,000 stores will 1 be served in that way, and the waste 
 
1132 HEARINGS BEFORE 
 
 saved in that way will be enormous. It remains to be seen whether 
 his system is a correct one. 
 
 Senator Newlands. All that tends toward monopoly? 
 
 Mr. Perkins. Yes, sir; it would if you have one grocery store to 
 furnish everybody with groceries. I suppose there is no line of busi- 
 ness in which the waste is so great as in the grocery business. Some 
 one told me there was one apartment house in New York where there 
 were 22 grocery Wagons that came around to this one building every 
 day, took orders from those people, filled those orders, and brought 
 back the goods. Just think of the overhead charge of supplying 
 that one building with groceries. 
 
 Senator Newlands. You think the general tendency of this move- 
 ment would be toward a cheaper distribution of the commodities to 
 the consumers? 
 
 Mr. Perkins. Oh, decidedly ; and I believe, Senator, further, that 
 if you could study it out it is not the large companies, like the 
 Steel Corporation or the Standard Oil Co., or any of those concerns, 
 that are making the large percentage of profit, even on proper capi- 
 talization, to-day. It is the man who is not attracting attention who 
 is making the profit. 
 
 Senator Newlands. You mean to say they expect a larger per- 
 centage on their investment? 
 
 Mr. Perkins. They get it. They are not in the limelight. 
 
 Senator Newlands. Regarding capitalization of the corporations 
 under the approval of this business court, to which you have re- 
 ferred. Your proposition is that there shall be some rule laid down 
 as to capitalization. You mean by that simply that the business 
 court shall see that the capitalization represents simply the money 
 put in or a fair value of the property and assets, or do you mean 
 that they shall control the amount of capital that shall be used by 
 each corporation ? 
 
 Mr. Perkins. I mean, first, that the capitalization should be a per- 
 fectly fair and honest and legitimate capitalization, representing 
 tangible assets, and in some cases a proper allowance for good will. 
 But as to whether it should be a $1,000,000 company or a $100,000,000 
 company is another question, and then that would depend upon its 
 restraining trade or acquiring a monopoly. A hundred million dollar 
 company in the chewing-gum business would perhaps be a monopoly, 
 whereas a $100,000^000 company in the steel business would not, as 
 you gentlemen know. 
 
 Senator Newlands. What rule would you fix as to the area of busi- 
 ness that could be covered by a single corporation ? 
 
 Mr. Perkins. I would let them go to Mars, if they would and 
 could. I would not limit American enterprise so long as it could go 
 on and do business properly. 
 
 Senator Newlands. And then, practically, you would place no 
 limit upon the amount of capitalization? I suppose that the nomi- 
 nal capital should represent the amount of money put in ? 
 
 Mr. Perkins. Yes ; and with due regard to the fact that it ought not 
 to be a monopoly, and the board would have to be given discretion 
 there. 
 
 Senator Newlands. You would not limit such a corporation as to 
 number of plants or factories that it could own? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1133 
 
 Mr. Perkins. No, sif; I do not think that is pertinent to the 
 question. 
 
 May I cite something that may be of some use to you in this 
 connection? Several years ago, as you doubtless all remember, we 
 had quite an upheaval in the life-insurance world, especially the New 
 York companies. That resulted in a law being passed in New York 
 State that no company could thereafter do a new business in excess 
 of $150,000,000 a year; they could only write business up to $150,- 
 000,000 a year. One of the companies at that time was writing over 
 $300,000,000 a year, another $220,000,000, and another about $200,- 
 000,000, and so on. Those companies had immediately to go to work 
 and tear down this structure, discharge agents, and close up offices, 
 so as to reduce the volume of business. They naturally went abroad 
 and cut that business off first, and stopped the inflow of a very sub- 
 stantial amount of money into this country in order to reduce their 
 business. 
 
 Some of us who were in the life-insurance business said that it 
 was a very great hardship to the people, because they would not be 
 able to get life insurance. Answer was made by the people who 
 were passing the law that small companies would grow up to do it. 
 that they would supply the insurance for the rest of them. 
 
 Then we waited for the result. After several years it has been dem- 
 onstrated that there has been less life insurance placed on the lives of 
 the people of this country and abroad by all of our companies put 
 together than there was before. And last winter the New York 
 Legislature repealed that condition up to the point of saying that 
 hereafter a company can each year increase its business by 15 per 
 cent of the amount of business it did the year before, whatever that 
 amount was the year before. 
 
 Now 15 per cent is about a normal increase for a live growing 
 insurance company. The result would be that about five years from 
 now the company that five years ago was writing $300,000,000 worth 
 of insurance will be again writing $300,000,000 worth of insurance. 
 Meantime the loss to these policyholders has been measured by mil- 
 lions of dollars and the deprivation of employment of all these 
 agents who had to be summarily discharged you can well imagine. 
 
 That is one experiment that has been tried. Meantime the item 
 of publicity in these companies, the kind of policy they should write, 
 the amount of money they can pay out for business, etc., has been 
 made stronger, and in my judgment very much better; and it is 
 along these lines that there should be that kind of control and not as 
 to volume. 
 
 It is the methods that we want to get after. 
 
 Senator Newlands. Now, assuming that the business court to 
 which you have referred should be organized. Assuming that ali 
 the competitors of the United States Steel Co. should conclude 
 that it was desirable for them to combine and should come before 
 that court with a plan providing for combination of them all into 
 one corporation, with a capitalization representing only the fair 
 value of their assets, would you give that court the power to sanction 
 such a combination? 
 
 Mr. Perkins. Yes, so long as the channel for other people to go 
 into the steel business was on equal terms and still open. 
 
1134 HEARINGS BEFORE 
 
 Senator Xewlands. That is all. 
 
 The Chairman. Senator Oliver, you may inquire. 
 
 Senator Oliver. Mr. Perkins, in operating your plan, I believed 
 you mentioned that it would be one of the duties of this commis- 
 sion or court to see that there was no overcapitalization; in other 
 words, no watered stock in a combination? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Oliver. What would be your plan of taking care of the 
 watered stock that now exists; that is, in existing corporations that 
 would apply for license? What would you do with that? 
 
 Mr. Perkins. I think that you will find that there is much less 
 of that now than you think for. I believe the agitation of the last 
 five or six years has been extremely hard in some respects, arid ex- 
 tremely beneficial in. others, and among' the beneficial effects of it 
 all has been to put especially the industrial managers of the coun- 
 try on guard, and that a great deal of the so-called water has oozed 
 out. I think you will find more companies able to justify their 
 capitalization than you think for. I think that in some cases you 
 would probably have to give companies one, two, or three years 
 to justify their capitalization. There would be others, perhaps, but 
 I think they would be very few, that were so flagrantly wrong that 
 they could not obtain a license. 
 
 Senator Oliver. And in that case 
 
 Mr. Perkins. But in that case they would have to take their 
 chance under the law. 
 
 Senator Oliver. Or some method of reorganization? 
 
 Mr. Perkins. Yes, sir ; or some method of reorganization. 
 
 Senator Oliver. I just wanted your ideas upon that. 
 
 Mr. Perkins. And I believe such companies would do that very 
 thing, and I think the stockholders would be willing to have a volun- 
 tary reorganization for the advantage of it. 
 
 I personally think the advantage of a license, and especially of a 
 national incorporation, would be of very great value to the concern 
 itself in the financing of its business and in its general relationship 
 to business ; and especially do I think it would be of value in all our 
 foreign trade. 
 
 Senator Oliver. Mr. Perkins, you until recently were a member 
 of the firm of J. P. Morgan & Co. ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Oliver. If I am asking impertinent questions, do not 
 answer them. But I think I read when you retired from the firm 
 and to a certain extent from business, something about either your 
 motives or your intention of employing your time in the future. 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Oliver. If you have no objection, I would like you to tell 
 the committee about that. 
 
 Mr. Perkins. I have none whatever. I have spent most of my life 
 in what you might call corporation work, such as insurance com- 
 panies, with the steel company and the harvester company and 
 others like that. I have not thought of myself at all as a banker . 
 While I was a member of the firm of J. P. Morgan & Co. it was all in 
 connection with corporation problems. Therefore I have had an 
 exceptional opportunity to look into them and become acquainted 
 with such problems, and they took me all over the world, and I saw 
 
COMMITTEE ON INTERSTATE COMMERCE. 1135 
 
 not only our problems but the other problems. And I gradually 
 came to believe they are going to be the problems of our time in our 
 country, and that they can only be solved by men who have had prac- 
 tical experience with them. As I was not especially ambitious to 
 become — I am speaking quite frankly now — to become an enormously 
 wea '.thy man, I thought I would be more interested in trying to lend 
 a hind to the solution of some of these problems than to go on just 
 simply from the standpoint of making money the rest of my life. 
 
 And so, as I said when I retired from the banking business, I did 
 it to be freer and more independent in expressing my views and 
 taking part in those questions and in carrying out plans that I had 
 already done considerable work on in connection with the relations 
 between capital and labor. 
 
 I believe very firmly, and my experience every year enhances that 
 belief, that our labor troubles, to a large extent at least, can be made 
 easier if we can introduce into our corporate methods profit-sharing 
 plans, because I do not think that the question between labor and 
 capital is so much the question of whether a man is paid a dollar and 
 fifty cents or a dollar and sixty cents a day as it is whether he thinks 
 thai he is getting his proper proportion of what is being earned. 
 
 Senator Oliver. I think you are right about that. 
 
 Air. Perkins. That being the principle, you never can satisfy the 
 man by increasing him from $1.50 to $1.60'or $1.70 or $1.80, so long 
 as there is a secretive management there, and he does not know 
 whether his proportion is right or not. 
 
 On the other hand, if he does know, I think labor— I am not 
 speaking necessarily of the leaders, but of the average laboring man — 
 is very generous in what he is willing that capital should have. And 
 I believe that in our struggle for commercial supremacy as a people 
 it is all important to carry the settlement of that question along with 
 the settlement of the other. 
 
 Senator Oliver. I have nothing further. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Mr. Perkins, in the earlier part of your dis- 
 cussion you spoke of the two classes of complaints — one based on 
 the uncertainty of the situation under the Sherman law on the part 
 of capital, and the other you spoke of as the complaints of the pub- 
 He. Do I correctly state your position, Mr. Perkins? 
 
 Mr. Perkins. Yes, sir; you do. 
 
 Senator Pomerene. What do you understand those complaints 
 
 of the public to be ? . ., T , ,. it- 
 
 Mr. Perkins. I think there are many, but primarily 1 believe the 
 public feels that in the rapid evolution of business, centralization and 
 concentration, that the public has been exploited for the enrichment 
 of a few; that corporations have been organized, have been over- 
 capitalized, and the public led into them as investors and that the 
 practices of many of such corpratins have been unfair and im- 
 proper; that they have been secretive, and have in many respects 
 inured improperly to the benefit of a few people and to the detri- 
 ment of a great many people, and that that is the sorest point m the 
 
 public mind. , . 
 
 Senator Pomerene. In your judgment, are those grounds ot com- 
 plaint well founded or not? 
 
 22877 — vol i — 12 72 
 
1136 HEARINGS BEFORE 
 
 Mr. Perkins. In many cases, yes, sir. I do not think they are well 
 founded as to the practices of the immediate past. I think there has 
 been a very great change just in the last two or three years in the 
 practices of, I would almost say, all of the corporate managers. 
 
 Senator Pomerene. You exclude the immediate past. How long 
 a period do you include in that ? 
 
 Mr. Perkins. I think there has been a very rapid improvement 
 in that respect each 'year for the last four or five years. 
 
 Senator Pomerene. But you think as long as 10 or 11 or 12 years 
 ago there was substantial ground for this complaint ? 
 
 Mr. Perkins. I do. 
 
 Senator Pomerene. Now you aided in the organization of the 
 United States Steel Co. 
 
 Mr. Perkins No, sir. 
 
 Senator Pomerene. You are familiar with its affairs? 
 
 Mr. Perkins. I am. 
 
 Senator Pomerene. In what respect, if at all, were the complaints 
 on the part of the public as to the organization of this steel company 
 justified ? 
 
 Mr. Perkins. I do not think they have been justified. I think the 
 organization of the steel corporation was an exceptional case. The 
 situation was very critical. If the steel corporation had not been or- 
 ganized, or something had not been done to correct a very serious con- 
 dition at that time, in my judgment, by this time Mr. Carnegie would 
 have personally owned the major part of the steel industry of this 
 country, and it was a question of its rapidly moving on into almost a 
 monopoly or organizing a company that could do what the steel cor- 
 poration, has done. 
 
 Now, the only charge that could have been made against the steel 
 corporation in that connection was the amount of capitalization. I 
 presume that that must always remain a question of opinion as to 
 whether it was overcapitalized, all things considered, or whether it 
 was not. From my knowledge of the situation at the time I believe 
 the organization as perfected was justified, and that it was much 
 better to have done what was done than to have left the situation 
 alone, as it was, to work out along other lines. 
 
 Senator Pomerene. What was that exceptional condition which 
 arose which gave necessity to this organization ? 
 
 Mr. Perkins. Well, about as wicked cutthroat methods of competi- 
 tion existed as you can well imagine. 
 
 Senator Pomerene. Who was responsible for that? 
 
 Mr. Perkins. I think almost everybody that was engaged in the 
 steel business at that time. You must remember our mills would be 
 closed one day and open the next. Wages were cut one day and 
 raised the next. A condition of perfect chaos existed, best illustrated, 
 perhaps, by the prince and pauper application to the business. We 
 have had nothing of that since. We have had a very uniform condi- 
 tion in labor almost constantly employed. We have had no strikes to 
 speak of, except incidental ones here and there, and no failures 
 scarcely at all in the steel business, and a very much better condition 
 through and through. 
 
 As I say, it will always remain an interesting question of discus- 
 sion as to whether the price that was paid for the companies that en- 
 tered into that steel corporation was too much or too little. 
 
COMMITTEE ON INTEESTATE COMMERCE. 1137 
 
 Senator Pomeeene. What is your judgment? 
 
 Mr. Perkins. My judgment is that it was not too much, in view of 
 all that has been worked out. 
 
 Senator Pomerene. Do you believe in overcapitalization? 
 
 Mr. Perkins. No, sir. 
 
 Senator Pomekene. Do you believe in watered stock? 
 
 Mr. Perkins. I do not. 
 
 Senator Pomerene. After the organization of this company, or 
 perhaps within a short time afterwards, its common stock sold as low 
 as $11, did it not? 
 
 Mr. Perkins. I believe it did. 
 
 Senator Pomerene. And the preferred stock sold as low as 55 or 56 ? 
 
 Mr. Perkins. I do not remember as to that — something like that. 
 
 Senator Pomerene. Would not that be evidence of overcapitaliza- 
 tion? 
 
 Mr. Perkins. Not at all. 
 
 Senator Pomerene. Do you think there was at that time sufficient 
 assets of the company of a then fair market value to have made that 
 stock worth par? 
 
 Mr. Perkins. Yes; I do; even though you would allow nothing 
 for the good will of the business of the companies, which was enor- 
 mous, and which I would say would be a mooted question always. 
 I think there are some lines of business where good will should not 
 be considered, and I think there are others where it is an extremely 
 important asset. 
 
 Senator Pomerene. Now, assuming, as you suggest, that there was 
 property enough there to make this stock worth par, what was it 
 that reduced the value of this stock to so low a point ? 
 
 Mr. Perkins. What occasions the sharp decline that comes every 
 once in awhile in the most gilt-edged securities? A desire on the 
 part of the people to realize money and to put it in something else, 
 and they sell anything they can sell. When a man is pressed for an 
 obligation he has got to sell what he can sell, and the thing he can 
 sell is a liquid thing, and steel stocks have certainly been liquid. If 
 a man had them he could sell them. 
 
 Senator Pomerene. Well, you know, do you not, that a good many 
 of these plants were taken in by the steel company at as much as 
 three times the actual cost of the plants, and more ? 
 
 Mr. Perkins. I do not know as to that. I do not see exactly what 
 that had to do with the question whether they were overcapitalized 
 or not. 
 
 Senator Pomerene. Well, if a plant was worth $100,000 and it was 
 taken into a new corporation at $300,000, and that rule generally 
 prevailed, would it not occur to you that that was one kind of over- 
 capitalization? 
 
 Mr. Perkins. If that rule generally prevailed. But because you 
 buy a thing for $100, it may be worth $80 or it may be worth $200. 
 If you buy one thing for $80 that was only worth $60, you might 
 have bought something for $80 that was worth $110. 
 
 Senator Pomerene. Well, that is possible. , 
 
 Mr. Perkins. I think, Senator, all that question and all that is 
 involved in it has got to be looked at in a very broad way for the 
 sake of the future of the country. 
 
 I was thinking the other evening that, as I remember, the commer- 
 
 ,i ni^ha n-F Hincinnati. St. Louis. Jind-Chicago, I think, went to 
 
 /-no I 
 
1138 HEARINGS BEFORE 
 
 Panama three or four years ago. They went down there to inspect 
 the canal. Well, now, supposing that a company, of that kind of 
 men 25 years ago could have taken some sort of an airship and gone 
 off to some other planet, and that they had found there the long- 
 distance telephone and the Twentieth Century Limited, and the 
 wireless telegraph, and the airship — and all that has come to us 
 within the last quarter of a century — and they had come back down 
 here and told us of those things, and had said, "These people up 
 there say that within 25 years we are going to have all that ma- 
 chinery for doing business," would they have sat down and passed 
 the Sherman law right away quick and said: "That is the way to 
 handle this;" or would they have said: "We have got to get some 
 sort of machinery that will control this new or coming method of 
 doing business?" 
 
 Senator Pomerene. That is an imaginary situation. 
 
 Mr. Perkins. I do not think it is. I think that is exactly the situa- 
 tion ; precisely the situation that has happened. 
 
 Senator Pomerene. Throughout eastern Ohio — and I am some- 
 what familiar with that — I know that many of these plants were 
 turned over to the corporation at two or three times' the amount 
 invested, and without being an expert on the subject it occurred to 
 me that that had something to do with the low valuation of these 
 stocks on the market. 
 
 Mr. Perkins. I think you are right to this extent, that people 
 were in grave doubt for three or four years as to the ultimate success 
 of the steel corporation. I think they doubted it from two or three 
 points of view. They doubted it on capitalization, and they doubted 
 it just as much from the standpoint of whether such a huge aggre- 
 gation could be administered successfully when the impelling motive 
 of individual ownership had been taken out. 
 
 Senator Pomerene. Now, to go a little further; I think I under- 
 stand your views on the United States Steel Corporation. Assume 
 that we had this industrial commission or court that you speak 
 of, and you were one of the judges sitting on that court, and an 
 application had been made to you by the promoters of the United 
 States Steel Company for a license to do business. Do you think 
 that, in view of the method in which these plants were taken in, 
 that a license should have been issued to them to organize that large 
 concern ? 
 
 Mr. Perkins. That exactly covers one of my points about a court. 
 I think that if at that time we had had such a court, that the situa- 
 tion that existed could not have existed. 
 
 Senator Pomerene. But assuming that it did exist just as it did? 
 
 Mr. Perkins. I beg your pardon, sir ; it could not have existed, 
 because those companies would already have been large enough to 
 have been under that sort of regulation for some time, and such a 
 court and such regulation would have saved us a great deal of trou- 
 ble that we have had to pass through. 
 
 Senator Pomerene. That still does not answer my question. 
 Were you sitting as a judge on that court, would you have issued 
 a license to that combination? 
 
 Mr. Perkins. That is a question that it is impossible for me to 
 answer, unless I could have all the collateral evidence pertaining to 
 the question before me and act on it. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1139 
 
 Senator Pomerene. I ask you because I regard you as one of the 
 greatest experts we have on that question. 
 
 Mr. Perkins. Thank you. But I think one of the hardest things 
 to do is to put your mind back even in the frame it was a moment 
 ago. 
 
 Senator Pomerene. You said in answer to Senator Cummins and 
 Senator Newlands that from an economic standpoint there would 
 be no objection to the consolidation of the independent companies 
 engaged in the steel business? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Pomerene. But you also said that it would not be wise 
 now to do it. Why? 
 
 Mr. Perkins. I think our people, from my observation, are clear 
 on two or three things ; that is, their attitude toward monopoly and 
 their attitude toward restraint of trade, as I interpret it, and I think 
 they would look upon that as a condition that practically meant a 
 monopoly. Now I am not saying that in 10 or 30 years from now 
 we may not have advanced to that point. 
 
 Senator Pomerene. Well, would they be any more of that opinion 
 now than they were at the time of the formation of the United States 
 Steel Corporation? 
 
 Mr. Perkins. I think our people realize, perhaps, more than we 
 think, the advantages that have come about from doing business on 
 a large scale, through big corporations. I think they feel that a 
 proper distribution of those advantages as between capital, labor, 
 and the consumer has not yet been reached. I think that the man- 
 agement of these corporations is becoming alive to that fact, and 
 that there ought to be a more equitable distribution, and that will 
 lead gradually to a change of opinion and a closer organization in 
 our business, if you please, perhaps a little nearer a monopolistic 
 situation in times to come, but it has got to be an evolution. 
 
 Senator Pomerene. Your judgment, then, is that it is right to com- 
 bine these independent companies, but out of deference to public 
 opinion it ought not now to be done ? 
 
 Mr. Perkins. Not quite. Economically, I think it would be ad- 
 vantageous. From the standpoint of public opinion and from the 
 standpoint of the point of view that actuates the managers of large 
 corporations, I do not think the time has come. In other words, I do 
 not think that the educational process in connection with managers 
 of large corporations has gone quite far enough. I think we have 
 made great progress, however. , . 
 
 Senator Pomerene. If you were sitting on this commission which 
 you have in mind would you be controlled by the economic considera- 
 tions or by the public sentiment on this subject? 
 
 Mr. Perkins. I think any man on such a commission would have 
 to give very careful consideration to both sides of the question. 
 
 Senator Pomerene. Waiving for the time being the public senti- 
 ment on the subject, I take it that if it was economically right to 
 organize these independent companies into one large combination 
 such as the United States Steel Co., there would be no objection 
 from your standpoint to having the entire steel industry absorbed 
 by one company? 
 
 Mr. Perkins. Yes ; there would. 
 
 Senator Pomerene. Why? 
 
1140 HEARINGS BEFORE 
 
 Mr. Perkins. For the reasons I have given. I do not think that 
 ■\ve have reached the point in the evolution of affairs where any of 
 us are ready for that. 
 
 Senator Pomerene. I am waiving the public sentiment now. 
 
 Mr. Perkins. It is more than public sentiment. It is the sense of 
 responsibility of the manager of this concern to his clients as much 
 as it is public opinion. I do not know that I make myself clear. 
 But we have moved at a tremendous pace. Your father and mine 
 would not have tolerated for a moment even such a discussion as we 
 have had here to-day. He would have said that we were all crazy. 
 He would have said that a man's business was his own business and 
 demand to be left alone, would he not ? 
 
 Now, to move from that point to a point where we admit that we 
 are responsible to other people for what we are doing is a tremendous 
 move. Let us clinch that — let us make sure of that before we take 
 another step. 
 
 Senator Pomerene. I think it is unfortunate that we did not have 
 these discussions 10 years ago. 
 
 Mr. Perkins. I agree with you absolutely, but, Senator, while that 
 is true, I certainly can not be wrong in the statement that even 10 
 years ago there was hardly a business man in this country that would 
 not have said, " You just keep your hands off; business is business. 
 I am going to do my business in my own way. and you let me alone." 
 
 Senator Pomerene. We have discussed to some extent the com- 
 plaints of the public. In what respects, if any, would you have these 
 large concerns mend their ways? 
 
 Mr. Perkins. As we have indicated more or less as the day has 
 gone on. 
 
 Senator Pomerene. By publicity ; you have mentioned that as one 
 way ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Pomerene. Is there anything else you have in mind ? 
 
 Mr. Perkins. In my mind that applies to so much that it seems 
 to me it is almost complete in its reach, because by publicity I mean 
 real publicity. I mean an exposition of the way a company makes 
 its money and distributes its profits. I do not mean by that to regu- 
 late the dividends or the wage or the price. 
 
 Senator Pomerene. But to test that matter a little further. I am 
 not sure that I understand what you mean by publicity. Of course, 
 T understand publicity so far as it pertains to the United States Steel 
 Corporation, and I think that in that respect they have been doing 
 the public a service. 
 
 Mr. Perkins. May I interrupt just to say — don't you see that the> 
 did that voluntarily? 
 
 Senator Pomerene. I understand that. 
 
 Mr. Perkins. That isn't right, is it? We ought to be required to 
 doit? 
 
 Senator Pomerene. Well, I think that with regard, to these large 
 corporations that is true; they ought to be required to do it. But 
 I want to know how far you would go with it. Suppose it comes to 
 the question of acquiring a new plant ; would you have publicity with 
 regard to the fact of the acquiring of that plant? 
 
 Mr. Perkins. Absolutely. 
 
 Senator Pomerene. Before it is consummated ? 
 
COMMITTEE OX INTERSTATE COMMEECE. 1141 
 
 Mr. Pekkins. Not necessarily. I think a board of management 
 should know, in a general way, about what it could do, but the minute 
 that it did it T would have it made public in every respect — what was 
 paid for it, and the object, and the whole arrangement. 
 
 Senator Pomerene. But, if the public had any objection to it, after 
 it was consummated they wouldn't have any remedy? 
 
 Mr. Perkins. Your public would be represented through this con- 
 trolling commission, and if the company had any doubt whether it 
 could acquire any other plant, it certainly would have to go to this 
 commission and the commission would represent the public in that 
 respect. 
 
 Senator Pomerene. Well, it is simply the financial management of 
 the concern, I take it, to which you would give publicity. 
 
 Mr. Perkins. No, sir ; I would give publicity to that by all means, 
 but I would give publicity to methods and to practices as well. 
 Senator Pomerene. You mean by that mechanical methods ? 
 Mr. Perkins. In such lines of business as that seemed desirable for 
 the information of the public and for labor. Of course, publicity 
 would be one thing in one concern and another thing in another con- 
 cern, according to the business. 
 
 Senator Pomerene. Now, just one other question and I am going 
 to quit. It is getting late. You have spoken of this twilight zone. 
 Of course, there are certain classes of contracts and acts which are 
 concededly legal, and there are certain other contracts and acts which 
 would be concededly illegal. It is these uncertain ones that are in 
 the twilight zone ? 
 Mr. Perkins Yes, sir. 
 
 Senator Pomerene. Now, you complain of the difficulty, as a busi- 
 ness man, vou have in ascertaining whether or not these acts which 
 are in the "twilight zone are illegal or not. Is that very different 
 from the twilight zone you have when it comes to a matter of invest- 
 ment? 
 
 Mr. Perkins. Investment in what respect? 
 
 Senator Pomerene. Why, in any of the different lines of industry ; 
 any class of securities. There are certain securities that you know 
 are absolutely good, and there are certain others that are bad, and 
 then there are certain others of uncertain value. Yet business men 
 take risks with regard to those things. Do you not think that if the 
 same attention was given to the ascertainment of the legality or the 
 illegality of most of those acts that are in the twilight zone that is 
 given to matters of pure investment, that you could pretty generally 
 keep on the safe side? 
 
 Mr. Perkins. I hardly think so, Senator. In the matter of an 
 investment, a man invests his own money at his own risk, and what- 
 ever risk he takes affects himself. One of my strongest views about 
 that is that the larger the corporation the more it is a trustee tor 
 other people. And a manager, if he has any sense of his responsi- 
 bility, becomes more and more impressed with that fact, and ought to 
 be enabled by some plain business code to find out what he can and 
 what he can not safely do— not with his money, but with other peo- 
 ple's money. , . ii.ii™ 
 Senator Pomerene. In other words, as a trustee, he ought to Know 
 
 what he is doing or not doing? 
 
1142 HEARINGS BEFORE 
 
 Mr. Perkins. Yes. He ought to give much more attention to it 
 than if he is handling his own money. 
 
 Senator Pomerene. I think that is all. 
 
 The Chairman. Senator Lippitt, you may inquire. 
 
 Senator Lippitt. I should just like to get information on one 
 point. By the way, Mr. Perkins, in answer to that last question, I 
 suppose you have known business men who have made mistakes in 
 their investments ? 
 
 Mr. Perkins. I have ; yes, sir. 
 
 Senator Lippitt. Of course, in one case they lose their money and 
 in another case they go to jail? . 
 
 Mr. Perkins. In one respect they lose their money and in another 
 respect they lose somebody else's money. 
 
 Senator Lippitt. In regard to penalties. As I understand your 
 proposition of licensing, it does not involve the question of charter; 
 that is, an organization might have a charter in a State which would 
 enable it to do business ? 
 
 Mr. Perkins. Yes, sir. 
 
 Senator Lippitt. Without taking out a Federal license? 
 
 Mr. Perkins. That is the situation now. 
 
 Senator Lippitt. Is that what you would propose? 
 
 Mr. Perkins. I would allow them to keep their present charter 
 and have a Federal license. I am in hopes we will come to it before 
 long where all interstate and international companies can have a 
 national charter. My suggestion made this morning was something 
 that could, perhaps, be put through this winter, in regard to a com- 
 mission and a license, while we are investigating the whole ques- 
 tion of national incorporation. 
 
 Senator Lippitt. What I was trying to get at was to compare 
 your views with those of one of your associates who testified here 
 the other day, Judge Gary. He testified, as I recall it, that he was 
 in favor of a Federal license, the penalty for a violation of which 
 should be revoking the license, or Federal revocation. 
 
 Mr. Perkins. I have not read his testimony. 
 
 Senator Lippitt. He favored a Federal incorporation, not a Fed- 
 eral license. You refer to a Federal license, and also talk of the 
 revocation of the license as a penalty. What I am trying to find out 
 is whether your license would prevent a corporation continuing to do 
 business or would simply reduce it to a condition where it did business 
 under a State charter. Do you go so far with your license that it is 
 equivalent to a charter, and that if it were revoked the corporation 
 could no longer do business? 
 
 Mr. Perkins. I do not believe you could do that. I do not think 
 by issuing a Federal license you could in any way affect the State 
 charter or right, and I think that if a company once had a Federal 
 license and that license was taken away it would be a very severe 
 blow to the financial standing of that company, so severe that no man- 
 ager would dare risk it. But before I took the license away I would 
 attempt to correct the evils in the company by punishing the manager. 
 
 Senator Lippitt. As I have listened to the discussion, it has gone 
 through my head whether the revocation of a charter should or could 
 be a penalty in any case. If a Federal license were equivalent to a 
 charter and the United States Steel Co. had such a charter and vio- 
 lated some of the rules under which that charter was given, it seems to 
 
COMMITTEE ON INTERSTATE COMMEECE. 1143 
 
 me it would be practically impossible to take that charter away, on 
 account of the injury it would be to the consumers of steel all over 
 the country. 
 
 Mr. Perkins. That is just the way I feel about it. I therefore 
 think that the manager of that business ought to be punished, the 
 same way that the manager of a bank is punished if they find any- 
 thing wrong with the bank. 
 
 Senator Lippitt. Should there not be some other penalty substi- 
 tuted for the one of revoking the -charter, such as some sort of 
 receivership ? 
 
 Mr. Perkins. That may be. 
 
 Senator Lippitt. If there was a violation of the principles of the 
 charter, it might be that under certain conditions it would be im- 
 possible to withdraw the charter on account of the injury to the 
 innocent consumers. 
 
 Mr. Perkins. That is my idea. 
 
 Senator Lippitt. That is entirely opposite from the position taken 
 by Judge Garj^. His penalty was a revocation of the license ? 
 
 Mr. Perkins. I think that would be very unjust to the stockholders 
 of the concern and to the consumer?, and to the general business 
 fabric of the country. 
 
 Senator Lippitt. "We could leave the stockholders out, because 
 they would be guilty parties to a certain extent. 
 
 Mr. Perkins. I think it would be more a general question of the 
 injury to the business fabric of the country. 
 
 Senator Lippitt. It would be unjust entirely to the innocent con- 
 sumers, because it would absolutely cut their supply off. 
 
 Mr. Perkins. My experience leads me to be very firm in the belief 
 that if you had the right sort of publicity, if you had the sort of a 
 board we were talking about, and you had the penalties that punish 
 individuals for wrongdoing, other troubles that threaten would all 
 fade away. 
 
 Senator Lippitt. But of course we do not want to provide a pen- 
 alty that it is impossible to inflict ? 
 
 Mr. Perkins. No. Eussia's business is largely done on licenses 
 and concessions, and they have the right to take anything back any 
 time they want to. The Government keeps that power, but they 
 seldom use it. That is. I have never known a case where a business 
 concern has been broken up. 
 
 Senator Lippitt. I just wanted to have that question of penalty — 
 your views as to the question of penalty — clear in my own mind. 
 
 Mr. Perkins. The lines along which I am thinking are largely be- 
 cause of my unusual, if I may say. experience all over the world in 
 these corporate matters. And I am very enthusiastic over the oppor- 
 tunity that America has in the next 25 years in commercial affairs. 
 I believe that we are producing an order of men now from the age of 
 25 to 50 that are the peers, from the standpoint of executive ability, 
 of any men in the world. I do not think the Germans or anybody 
 else are a match for us at all. 
 
 Now, the enormous development of intercommunication is just 
 opening up an enormous opportunity to this country for those men. 
 Now, give them the broadest possible base and let them operate. 
 Make them operate honestly and fairly, not only as between ourselves 
 here, but abroad ; but let them operate. 
 
1144 HEARINGS BEFORE 
 
 Senator Lippitt. In other words, you would give them as big 
 tools as possible? 
 
 Mr. Perkins. Exactly. 
 
 Senator Lipfitt. That is all I have to ask. 
 
 The Chairman. Senator Townsend. you may inquire. 
 
 Senator Townsend. Mr. Perkins, it is very late, and I feel that I 
 am trespassing upon your time and the time of the committee, and I 
 shall not ask you many questions. I was very much interested, to 
 start with, in your diagnosis of the present situation, and I was trying 
 to find out more definitely, if I could, the matters which were 
 actually troubling business. You said, among other things, that 
 banks were cautious. Do you regard that as something wrong, for 
 the banks to be cautious in their loans ? 
 
 Mr. Perkins. Oh, no; not at all. I do not remember using that 
 expression, that the banks were cautious. If I did, I meant to use 
 it in the sense that capital was a little overcautious, or more than 
 ordinarily cautious. 
 
 Senator Townsend. One of the troubles we have been experiencing 
 during the last few years has been the reckless disregard of 'the rules 
 of legitimate business, has it not ? 
 
 Mr. Perkins. I would hardly think that experience would show 
 that. Take the panic of 1907. Do you not think it is rather ex- 
 traordinary that we should go through such a very desperate panic 
 as that and really rehabilitate ourselves with so few serious failures? 
 Most of the financial institutions that temporarily suspended opened 
 up their doors and paid their obligations and went on again. 
 
 Senator Townsend. It was my information at that time that much 
 of that difficulty was caused by the wild investments that had been 
 made theretofore. 
 
 Mr. Perkins. If it had been so, there would have been an ultimate 
 real loss, and that did not exist. 
 
 Senator Townsend. You mean that we came out of the panic of 
 1907 without any loss ? 
 
 Mr. Perkins. I mean most banks and financial institutions, even 
 those that suspended at that time, opened up and paid up. There 
 was no such loss as we had in 1873 or 1893. 
 
 Senator Townsend. You said, among other things, that there were 
 some abuses existing because of the aggregation of capital. I under- 
 stood you to answer later, in a question put by Senator Pomerene, 
 that most of those evils existed prior to the last three or four years. 
 But what real abuses exist now ? 
 
 Mr. Perkins. Well, I think that now, speaking immediately now, 
 business managers are trying their very best, nearly all of them, to 
 square their acts with what they believe to be the latter-day public 
 opinion in regard to corporations. What actual acts now that are 
 objectionable I do not know. I do not know that I could, on the 
 moment, name them, but I am very sure that they are very small as 
 compared to ten or a dozen years ago. I do not mean to say that I 
 think those men ten or a dozen years ago purposely did what they 
 thought was wrong. I think we must always be careful to judge men 
 by the period in which they live, whether they be statesmen or busi- 
 ness men. 
 
 Take the rebate question in the time when railroad rebates were 
 rampant. Railroads did not consider that it was wrong to give or 
 to take rebates. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 1145 
 
 Senator Townsend. Is that quite true? Did they not consider 
 that it was wrong, but considered that they could escape punishment ? 
 
 Mr. Perkins. No, sir. It was part and parcel of the fabric of the 
 railroad business. I can remember in the early days of life insur- 
 ance when there was scarcely a policy ever written when a man did 
 not get some sort of a discount. That has all gone now. 
 
 Senator Townsend. Then it must be true that the people really 
 have a disregard for the letter of the law? 
 
 Mr. Perkins. No, sir. 
 
 Senator Townsend. There never was anything clearer than the 
 antirebate law, was there ? 
 
 Mr. Perkins. No ; I do not think that is quite it. We have moved 
 with such^ tremendous momentum that the law has not kept up with 
 the situation, and there have been times when men were simply put 
 to it to square the actual necessity of a new situation with an old law. 
 
 Senator Townsend. Now, this Sherman antitrust law — everybody, 
 pretty nearly, who has been before us has admitted that the law was 
 good; that they liked the law; that they thought it prohibited the 
 wrongs that existed then in the most clear manner possible. Almost 
 everybody has testified about that, even those who agree with you 
 for a commission. Do you not believe that a good many of those 
 people knew that they were violating this law ? 
 
 Mr. Perkins. The Sherman law ? 
 
 Senator Townsend. The Sherman antitrust law. 
 
 Mr. Perkins. Yes. I would not say a great many. I think there 
 have been glaring instances of that, but I think that is what has 
 largely inflamed the country. 
 
 Senator Townsend. If there was a general compliance with the 
 law, even as they understand it, do you think there would be very 
 much trouble in the country to-day ; in the industrial world to-day ? 
 
 Mr. Perkins. Yes; because I do not see as that touches on the 
 question of overcapitalization. 
 
 Senator Townsend. I want to ask you what are the objections to 
 overcapitalization ? 
 
 Mr. Perkins. Why, the objections in the minds of the public, as I 
 read it, is that the future is anticipated to the benefit of a few men 
 who make money immediately, the public having to make it up in 
 the succeeding years as the business earns it. I think, to a certain 
 extent, that is justifiable, in so far as legitimate good will is con- 
 cerned. 
 
 Senator Townsend. I do not think I will ask you any more ques- 
 tions now. There are some things that I did desire to ask you, but 
 it would take too long to go over them now. 
 
 Mr. Perkins. Perhaps I may have the pleasure of discussing them 
 with you later. 
 
 The Chairman. We are very much obliged to you, Mr. Perkins, 
 for your appearance here. 
 
 Mr. Perkins was thereupon excused. 
 
 The Chairman. The committee will take a recess until 10.30 
 o'clock to-morrow morning. 
 
 (Thereupon, at 5 o'clock and 25 minutes p. m., the committee took a 
 recess until to-morrow, Thursday, December 14, 1911, at 10.30 
 o'clock a. m.) 
 
1146 hearings before 
 
 thursday, december 14, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. C. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m., 
 for the purpose of further considering the bill (S. 2941) entitled "A 
 bill to create an interstate trade commission, to define its powers and 
 duties, and for other purposes," introduced by Mr. Newlands July 5, 
 1911. 
 
 Present: Senators Clapp (chairman), Crane, Cummins, Townsend, 
 
 Nixon, Brandegee, Oliver, Lippitt, Newlands, Gore, and Pomerene. 
 
 The Chairman. The committee will come to order. Mr. Brandeis, 
 
 please give your name, residence, and occupation to the reporter for 
 
 the record. 
 
 STATEMENT OF LOUIS D. BRANDEIS, ESQ., ATTORNEY AT IAW, 
 
 OF BOSTON, MASS. 
 
 Mr. Brandeis. My name is Louis D. Brandeis; I live in Boston, 
 and am a lawyer by profession. 
 
 The Chairman. You may proceed. 
 
 Mr. Brandeis. I desire, Mr. Chairman and gentlemen, to lay 
 before the committee reasons for enacting the provisions of the 
 La Follette bill, introduced on August 19, and certain amendments 
 or additions to that bill of which Senator La Follette gave notice of 
 yesterday. 
 
 The La Follette bill is simply a supplement to the Sherman law. 
 It changes no specific provision, it changes no word in the eight 
 sections which make up the Sherman Act, but it adds eight other 
 sections which seek to accomplish the following results: In the 
 first place, to remove, so far as that is possible, the uncertainties 
 said now to exist in respect to the application of that law to facts 
 as they arise, by declaring that restraints of trade attended by 
 certain practices are to be deemed unreasonable. To that extent, 
 therefore, the .La Follette bill seeks to make certain that which 
 business men and lawyers say is uncertain, and, therefore, injurious 
 to business. 
 
 In the next place, the La Follette bill adds provisions which will 
 make easier the proceedings instituted on behalf of the Government 
 to enforce alleged violations of the law. Of course, the provisions 
 above referred to which make more certain the application of the 
 law do that, but the bill also introduces a provision in regard to 
 the burden of proof which would make the proceedings simpler 
 and more effective on the part of the Government. 
 
 In the third place, it adds certain provisions designed to make the 
 remedy adequate and actually effective in case of a finding of illegality 
 of the combination. 
 
 Now, the La Follette bill, like the Sherman law, rests upon the fun- 
 damental proposition that it is both desirable and possible to prevent 
 monopoly and to maintain competition. And as those propositions 
 must underlie any consideration of the subject by your committee and 
 any decision which Congress makes, I want to say something on that 
 
COMMITTEE ON INTEKSTATE COMMERCE. 1147 
 
 general subject, particularly in view of the testimony which I had the 
 privilege of hearing yesterday from Mr. George W. Perkins. 
 
 Mr. Perkins has rested the claim that the trusts and eventual 
 monopoly in industry are desirable upon the contention that they 
 secure efficiency. He broadly recognizes that efficiency means not 
 only economic efficiency but social efficiency, and that we are to 
 consider, therefore, not only the effect of trusts on prices — not mere 
 costs of production and distribution— but also the effect upon the 
 community and those directly connected with the industry. 
 
 While I agree with Mr. Perkins that efficiency thus broadly defined 
 is the test to be applied, I believe that the facts disprove his con- 
 clusions. The facts demonstrate that the trusts, that monopoly, is 
 not only not more efficient than competitive business, but that 
 monopoly is inefficient as compared with competition; inefficient 
 both economically and socially. 
 
 Mr. Perkins's argument in favor of the efficiency of monopoly pro- 
 ceeds upon the assumption, in the first place, and mainly upon the 
 assumption, that with increase of size comes increase of efficiency. 
 If any general proposition could be laid down on that subject, it 
 would, in my opinion, be the opposite. It is, of course, true that a 
 business unit may be too small to be efficient, but it is equally true 
 that a unit may be too large to be efficient. And the circumstances 
 attending business to-day are such that the temptation is toward 
 the creation of too large units of efficiency rather than too small. 
 The tendency to create large units is great, not because larger units 
 tend to greater efficiency, but because the owner of a business may 
 make a great deal more money if he increases the volume of his busi- 
 ness tenfold, even if the unit profit is in the process reduced one-half. 
 It may, therefore, be for the interest of an owner of a business who 
 has capital, or who can obtain capital at a reasonable cost, to for- 
 feit efficiency to a certain degree, because the result to him, in profits, 
 may be greater by reason of the volume of the business. Now, not 
 only may that be so, but in very many cases it is so. 
 
 And the reason why the increasing the size of a business may tend 
 to inefficiency is perfectly obvious when one stops to consider. Any- 
 one who critically analyzes a business learns this: That success or 
 failure of an enterprise depends usually upon one man; upon the 
 quality of one man's judgment, and, above all things, his capacity 
 to see what is needed and his capacity to direct others. 
 
 Now, while organization has made it possible for the individual 
 man to accomplish infinitely more than he could before, aided as he 
 is by new methods of communication, by the stenographer, the tele- 
 
 fihone, and system, still there is a limit to what one man can no well; 
 or judgment must be exercised, and in order that judgment may be 
 exercised wisely, it must be exercised on facts and on a comprehen- 
 sion of the significance of the relevant facts. In other words, judg- 
 ment can be sound only if the facts on which it is based are both known 
 and carefully weighed. There must be opportunities for judgment to 
 mature. When, therefore, you increase your business to a very 
 great extent, and the multitude of problems increase with its growth, 
 you will find, in the first place, that the man at the head has a dimin- 
 ishing knowledge of the facts and, in the second place, a diminishing 
 opportunity of exercising a careful judgment upon them. Further- 
 more — an d this is one of the most important grounds of the ineffi- 
 
1148 HEARINGS BEFOEE 
 
 ciency of large institutions — there develops a centrifugal force greater 
 than the centripetal force. Demoralization sets in; a condition of 
 lessened efficiency presents itself. These manifestations are found 
 in most huge businesses — in the huge railroad systems as well as in 
 the huge industrial concerns. These are disadvantages that attend 
 bigness. 
 
 Now, that mere size does not bring efficiency, does not produce 
 success, appears very clearly when you examine the records of the 
 trusts. 
 
 In the first place, most of the trusts which did not secure a domina- 
 tion of the industry — that is, the trusts that had the quality of size, 
 but lacked the position of control of the industry, lacked the ability to 
 control prices — have either failed or have shown no marked success. 
 The record of the unsuccessful trusts is doubtless in all your minds. 
 One of the earliest of the trusts which did not secure control was the 
 WhiskyTrust. Itwasnotsuccessful. Theplight of the Cordage Trust 
 and of the Malting Trust was worse. Consider other trusts now exist- 
 ing, the Print Papers Trust (the International Paper Co.) ; the Writing- 
 Paper Trust (the American Writing Paper Co.) ; the Upper Leather 
 Trust (the American Hide & Leather Co.) ; the Union Bag Trust; the 
 Sole Leather Trust; those trusts and a great number of others which did 
 not attain a monopoly and were therefore unable to fix prices have 
 had but slight success as compared with their competitors. You 
 will find daily evidence of their lack of success in market quotations 
 of the common stock, where they are quoted at all, and the common 
 stock of some has even fallen below the horizon of a quotation. 
 
 Now take, in the second place, the trusts that have been markedly 
 successful, like the Standard Oil Trust, the Shoe Machinery Trust, 
 the Tobacco Trust. They have succeeded through their monopo- 
 listic position. They dominated the trade and were able to fix the 
 prices at which articles should be sold. To this monopolistic power, 
 in the main, and not to efficiency in management, are their great 
 profits to be ascribed. 
 
 Leaving the realm of industry for that of transportation, com- 
 pare the failure of Mr. J. P. Morgan's creation — the International 
 Mercantile Marine — and the astonishing success of the Pullman Car 
 Co. The transatlantic steamship trade was open to competition, 
 and could not, in spite of its price agreements, fix rates at an elevation 
 sufficient to be remunerative. The Pullman Co., possessing an abso- 
 lute monopoly, has made profits so large as to De deemed uncon- 
 scionable. 
 
 In the third place, take the class of cases where the trust has not 
 controlled the market alone, but exerted control only through virtue 
 of price agreements or understandings, as did the Sugar Trust and the 
 Steel Trust. Those trusts paid large dividends, because they were 
 able to fix remunerative prices for their product. But neither the 
 Sugar Trust nor the Steel Trust has been able to hold its own against 
 its competitors. 
 
 Take it in the Sugar Trust. At the time of the Knight case, a 
 little less than 20 years ago, the Sugar Trust had practically the 
 whole business of the country — I think the Supreme Court report 
 shows something like 95 per cent . The company's reports to the stock- 
 holders of 1910, as I recall it, show that the company now controls 
 only 42 per cent of the production of the country. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1149 
 
 The price agreements or understandings between the trust and its 
 competitors had maintained the price, but they could not maintain 
 for the trust its proportion of the business. The Sugar Trust's profits 
 were maintained, as you so well know, not only through the price 
 agreements, but through methods that were vulgarly criminal — 
 through false weighing; through stealing of city water; through 
 extensive railroad rebating. 
 
 Then take the Steel Trust — that is a younger trust, only half the 
 length of life of the Sugar Trust. But in the Steel Trust you have a 
 similar manifestation of ebbing prestige. In spite of all this extraor- 
 dinary power in the Steel Trust, the control of raw material, the 
 control of transportation, the control of certain trade through its 
 railroad associations, the control of other trade through its money 
 power — and the addition of the Tennessee Coal & Iron Co. — in 
 spite of all this the Steel Trust has been a steady loser in per- 
 centage of the iron and steel business of this country. And not 
 only has it been a steady loser in the percentage of business in this 
 country, but despite its ability to largely maintain prices, notably/ of 
 steel rails, throughout that period, the later years show a diminishing 
 return upon the capital invested as compared with the earlier years 
 of the trust. 
 
 What does that indicate? Does it not indicate a lessened effi- 
 ciency, either actually or relatively, to other businesses ? 
 
 Supplement those facts by a consideration of other evidence of the 
 state of efficiency reached. Efficiency is ordinarily manifested in 
 two ways: One is in respect to quality — whether there has been an 
 advance in the art as to the quality of the products — and the other is 
 whether there has been an advance in the art lessening the cost of 
 the article . 
 
 Now, what is the situation in regard to the Steel Trust? There 
 are two steel products in common use in the United States in which 
 the American people are particularly interested. One is steel rails; 
 the other is fence wire. The Steel Trust has failed in respect of both 
 of those important articles of production to keep up with the demand 
 of the community — not in quantity, but in quality. 
 
 We have had within two months a report from the Interstate Com- 
 merce Commission calling attention to the extraordinary increase 
 during this very period, which marks the life of the Steel Trust, of 
 derailments due to defective rails. In 1902 there were 72 derailments 
 due to broken rails ; in 191 1 there were 249. Now, obviously a greater 
 test, a greater demand, has been put upon those rails in recent years 
 with the increase in the size of locomotives and the weight of the cars. 
 That comes with the advance in transportation methods. But this 
 great and powerful Steel Trust, with its huge earnings, the huge 
 resources which enable it to develop the art in which it was engaged, 
 has failed to meet the needs of commerce, the needs of transportation 
 in this respect— failed so egregiously that the commumty was obliged, 
 through the Interstate Commerce Commission, to make an investi- 
 gation and call attention to the existing deficiency in the product. 
 
 A somewhat similar condition exists in respect to fence wire, lne 
 Department of Agriculture made an investigation of that subject. 
 The farmers of America found that their fence wires lasted very much 
 less time than they used to do. So numerous were those complaints 
 
1150 HEARINGS BEFORE 
 
 that the Department of Agriculture felt called upon to make an inves- 
 tigation into the subject, and it found the complaints to be well 
 founded. 
 
 Now, if it were true that this huge organization is to be justified be- 
 cause it is more efficient than a small one, partly because it can undertake 
 elaborate investigations on its own account, why did it need an 
 official investigation to disclose the defect in its product ? , Why did 
 not the corporation make such advance in the art as to give to people 
 of this country a kind of wire fence which would be better than they 
 had before instead of leaving them the users of wire fences less 
 serviceable than the iron-wire fences previously used. 
 
 Another test of efficiency to which the United States Steel Corpo- 
 ration has been subjected and which it has failed to meet is this: It 
 has shown itself unable to maintain its prestige in the world's com- 
 petition. 
 
 Now, every one of you gentlemen can remember the situation in 
 respect to the exportation of steel 10 or 11 years ago. England was 
 in, a panic; Germany and Belgium were in terror at the extraordinary 
 reductions in cost which we had made in America in the production 
 of steel. 
 
 It looked almost as if all the blast furnaces in England would have 
 to be closed and that the conditions in Belgium and Germany would 
 be similar, except so far as they might be protected in their home 
 markets by a tariff. The world market was apparently within our 
 grasp. 
 
 What is the situation in 1911 1 
 
 The world's market has grown immensely during the intervening 
 period. Outside the home markets of Germany and England there 
 is a demand for more than 10,000,000 tons a year, which is anybody's 
 trade — that is, it is open to either England, Germany, or America, 
 whoever can get it. What has been our course of events ? In the 
 last four years the capacity of the United States Steel Corporation 
 has been utilized, in the main,' to an extent varying from 55 to 75 
 per cent of its capacity. During a large part of these four years the 
 United States Steel Corporation has had 33 J per cent of unused capac- 
 ity. In spite of that fact Germany and England have acquired most 
 of the increasing world's trade. The German trade in this very period 
 in which the steel corporation has been in existence has increased 500 
 per cent. 
 
 Mr. Perkins has spoken of the American ability which, if it is given 
 fair opportunity, will attain commercial results far beyond anything 
 that may be expected of Germany, and yet there you find Germany 
 and England running away with the world's trade, while the steel 
 corporation had idle one-third of its plants, representing millions 
 annually in interest and depreciation charges. 
 
 In the 10 years during the steel corporation's life our foreign steel 
 and iron tonnage increased from 1,154,000 to 1,533,000 tons, Ger- 
 many's tonnage increased from 838,000 to 4,868,000, and the United 
 Kingdom's tonnage increased from 3,213,000 to 4,594,000. . 
 
 Now, what is the explanation ? This I submit : Owing to this Steel 
 Trust consolidation and accompanying condition our cost of manu- 
 facturing steel has risen to such a point that we can not compete 
 successfully with those countries or can compete only to a limited 
 extent. We have been losing our relative position in the great mar- 
 
COMMITTEE ON INTEBSTATE COMMERCE. 1151 
 
 kets of the world. That is a very significant fact, in view of the 
 contention always made that we need big business in order to main- 
 tain and improve our position in the world market. The figures show 
 that during the last 10 years, coincident with the existence of the 
 Steel Trust, we have been losing our prestige in the world's steel 
 market, and at the same time the Steel Trust's position in the home 
 market has been lessened by the inroads of its independent com- 
 petitors. 
 
 The facts point to the conclusion that the Steel Trust, in spite of 
 the personal ability of its managers, is disclosing relative inefficiency. 
 
 But when you pass from the economic efficiency to what — taking 
 up the other branch of Mr. Perkins's testimony — may be called social 
 efficiency, the situation is infinitely worse. 
 
 Mr. Perkins rightly dwelt upon supposed benefits which size enables 
 a business to confer upon the workingman. He told your committee 
 that the steel corporation, by reason of this, was able to introduce a 
 profit-sharing system; that this was made possible not only on account 
 of size, but on account of a management by others than its real 
 owners. As evidencing the benefits conferred by the company upon 
 its employees, he stated that $12,000,000 had been distributed during 
 the past 10 years as profit sharing among the employees. This he 
 
 [>ointed to as a method of solving the vexed question of capital and 
 abor, saying, as he did, that he believed the laboring man was more 
 desirous of fairness in the division of the fruits of industry than in 
 the mere matter of the amount of the wage he received. 
 
 Now, consider that situation just a moment. Twelve million dol- 
 lars in 10 years is $1,200,000 a year. Judge Gary tells us that the 
 number of employees in the Steel Corporation is about 200,000. If 
 that be the number of the employees, and had been the number 
 during this whole period, that profit share would amount to $6 a 
 year or to 50 cents a month for each employee, if divided equally 
 among all the employees. 
 
 In connection with the alleged fairness of that course consider 
 these facts, found upon an official investigation of that very officer 
 whom Mr. Perkins would elevate to higher power, the Commissioner 
 of Corporations. He found that the profits, the clear profits of the 
 syndicate that undertook the promotion of the United States Steel 
 Corporation were $62,500,000. Mr. Perkins's firm, J. P. Morgan & 
 Co., received, not for their participation in the syndicate, but sn 
 managers, and purely as managers of the syndicate, a commission of 
 20 per cent, or $12,500,000, for a few months' work. As members of 
 the syndicate they received another very large amount, variously 
 estimated from $7,000,000 to $13,000,000. Is that Mr. Perkins's 
 idea of justice to be attained through these great corporations by 
 applying profit sharing ? . 
 
 Mr. Perkins suggests that systems of profit sharing will be intro- 
 duced only by the great publicly owned trusts. Now, in Massachu- 
 setts, in Senator Crane's home State, we have had very different 
 ideas in this respect and can offer very different examples of profit 
 sharing as means of solving these industrial problems. Only recently 
 the Dennison Manufacturing Co., one of 'our most successful indus- 
 tries, was capitalized at $5,000,000, with preferred stock entitled to 
 8 per cent. But the idea of its owners of real industrial profit sharing 
 is this: Every cent that is earned by that corporation in excess of the 
 
 22S77 — VOL I — 12 73 
 
1152 HEAEINGS BEFOKE 
 
 dividends upon the preferred stock is distributed among those (or some 
 of those) who do the work, and in the proportion of their supposed 
 contribution to the success of the business. That is, the profits, are 
 applied in the exact proportion to the salaries paid. The Dennison 
 idea of profit sharing is to give the capital a liberal return (and as it 
 seems to me, perhaps too liberal) and after that liberal return to 
 give to those who do the work all the rest of the profit in addition to 
 their fixed salaries and wages. The Dennisons are a relatively small 
 concern as compared with this great Steel Corporation. But that 
 same principle is applied in a number of other and still smaller busi- 
 nesses, with some of which I am intimately acquainted. 
 
 Mr. Perkins referred to the grocery business. We have a grocery 
 business in our community, a successful grocery business, which has 
 applied this principle. And how do they apply it? Not in giving 
 or offering a pittance to the workingman, but it is applied in the 
 Connor business by distributing all the profits of that business, after 
 allowing 6 per cent on capital, one half among the executive officers 
 and the other half among the rest of the working force. 
 
 In the Blood business at Lynn, grocery and provision business, 
 and a very successful one, a fourth of the profits is distributed among 
 the employees other than those who are owners. Reasonable profit 
 sharing has to a limit extent been applied in one of our public-service 
 corporations. Our Boston Gas Co. gives a dividend to most of the 
 employees of exactly the same proportion on wages as it gives divi- 
 dends to stockholders. The company is now paying 9 per cent to 
 stockholders and 9 per cent to the employees as an addition to 
 wages. Still a different method is being pursued by the Filene Co. 
 
 To a greater or less extent in small businesses the owners are 
 beginning to recognize that there is but one principle by which 
 lasting success can be attained, and it is this: Those who do the 
 work shall get in some fair proportion what they produce. The 
 share to which capital as such is entitled is small. All the rest 
 should go to those, high and low, who do the work. 
 
 That is the idea which our New England people are working out in 
 their modest business concerns, and they are thus finding a way to 
 perpetuate their business and to get out of it not only satisfaction and 
 contentment on the part of the working people, but contentment 
 and success for themselves. In the Connor business when they 
 introduced that principle the managers said to the employees: 
 "We expect a greater efficiency; we feel that when we give you half 
 of all the profits earned the remaining half taken by the managers 
 will be largely increased through your increased efficiency." And 
 that expectation was fulfilled. 
 
 If we are to work out a satisfactory system of profit sharing as a 
 means of reconciling capital and labor, it can only be done by reducing 
 the return of capital and the purveyors of capital and letting the 
 people who do the work be they managers, the skilled handicraftmen, 
 or day laborers, take all that is earned above a reasonable return 
 on the capital invested. 
 
 The management of the steel corporation has not only failed to 
 work out a proper solution of this vexed problem, but its conduct has 
 ten^od in the opposite direction. . The wages in the steel industry 
 through this period of the trust, so far as made public, compared 
 unfavorably with the period before 1892. In many respects they 
 
COMMITTEE ON INTEESTATE COMMEECE. 1153 
 
 are absolutely lower than 1892. In other respects they are relatively 
 lower, if the cost of living be taken into consideration. The increase in 
 wages of day laborers from 1892 to 1907 amounted to about 18 per 
 cent, but the cost of living increased in that period 4 or 5 per cent 
 more. The wages of skilled laborers during the same period were 
 reduced from 5 to 40 per cent. 
 
 Nor is this all, or to my mind the most important consideration in 
 the trust's treatment of labor, important as it is. The most serious 
 ground for criticizing the Steel Trust is that the hours of labor have 
 been shockingly increased since 1892. 
 
 Now, on that subject, fortunately, as on most of those on which 
 I have spoken, we have the reports of responsible officials of this 
 Government. The Bureau of Corporations has investigated these 
 questions of profit earners, of promoters' fees paid, and these questions 
 of watered stock. The Commissioner of Labor investigated these 
 questions of the hours of labor, and disclosed a condition horrible in 
 itself, and confirming the description given by John Fitch in his 
 •"Steel workers" — a part of the Pittsburgh survey. 
 
 What are these conditions ? In the steel industry one-fourth of the 
 90,000 people reported on by the Commissioner of Labor work 84 
 hours a week — 12 hours a day for 7 days a week. And, what is 
 worse even, if anything worse is conceivable, note that in making 
 the shifts at the end of a week, or 2 weeks, men work not 12, but 18 
 and at times 24 hours on a stretch. 
 
 Yes ; 24 and a fraction per cent of all those 90,000 employees work 
 7 days a week, with an average of 12 hours a day. furthermore, 
 there is another large percentage of those people who work 12 hours a 
 day 6 days of the week. And note what our labor commissioner 
 finds (the report being that made in pursuance of a resolution intro- 
 duced by Senator Borah) : 
 
 The investigation further developed that the 7-day working week was not confined 
 to the blast-furnace department, where there is a metallurgical necessity for continu- 
 ous operation and in which department nine-tenths of the employees worked 7 days a 
 week; but it was also found that to a considerable extent in other departments where 
 no such metallurgical necessity can be claimed productive work was carried on on Sun- 
 days just as on other days of the week. For example, in some establishments the Bes- 
 semer converters, the open-hearth furnaces, and blooming, rail, and structural mills 
 were found operating 7 days a week for commercial reasons only. 
 
 The hardship of a 12-hour day and a 7-day week is still further accentuated by the 
 fact that every week, or two weeks, as the case may be, when the employees on the 
 day shift are transferred to the night shift, and vice versa, employees remain on duty 
 without relief either 18 or 24 consecutive hours, according to the practice adopted for 
 the change of shift. The most common plan to effect this change of shift is to work one 
 shift of employees on the day of change through the entire 24 hours, the succeeding 
 shift working the regular 12 hours when it comes on duty. In some instances the change 
 is effected by having one shift remain on duty 18 hours and the succeeding shift work 
 18 hours. 
 
 That much of the Sunday labor in the steel industry is no more necessary than in 
 other industries is shown conclusively by the fact that during the investigation made 
 in 1910 by the Bureau of Labor into the conditions of labor in the Bethlehem Steel 
 Works, the president of the Steel Corporation directed the rigid enforcement of a 
 resolution adopted three years previous; cutting out a large part of Sunday work 
 except in the blast-furnace department. Even in the blast-furnace department, 
 where there is a metallurgical necessity for continuous operation day and nigh- 
 throughout 7 days of the week, there is practically nothing except the desire to econot 
 mize in the expense of production that prevents the introduction of a system that would 
 give each employee one day of rest out of the seven. 
 
1154 HBAEINGS BEFORE 
 
 Other industries whure continuous operation is necessary have found it entirely 
 practicable to devise a system by which one day of rest out of each seven could be se- 
 cured for each employee; and since the beginning of this investigation a committee of 
 the American Iron and Steel Institute has taken up this subject and has proposed a 
 plan which gives each employee one day of rest each week and which does away with 
 the 24 or the 18 hours of consecutive work now required when changing from the day 
 shift to the night shift. The plan is now being given a test in a few plants, but it is too^ 
 early yet to state how satisfactory it will prove or to what extent it may be adopted 
 generally throughout the iron and steel industry. 
 
 Now what has been the result of this method and of this practice of 
 the great steel industry ? It has been to practically drive out of the 
 steel industry the American citizen. The managers have resorted to 
 the introduction into their employment of the most recent emigrants 
 from countries in which conditions are widely removed from those 
 which we have sought and are seeking to maintain in America. 
 Sixty per cent, as that report finds, of the workingmen in these steel 
 industries, are foreign born; 40 per cent are of the Slavic races. A 
 very large proportion of all are unable to read and write. They are 
 there practically as the slaves of this industry that claims to be 
 efficient. 
 
 How has this come about ? How is it possible that this should be 
 the condition of workingmen in the richest industry of rich America * 
 Consider what this Steel Trust has earned during this period. Accord- 
 ing to the report of the Commissioner of Corporations, there has been 
 earned on and above the returns paid upon the capital actually 
 invested, liberally estimated, about $650,000,000. Of this amount, 
 $435,000,000 has been accumulated and applied in additions to the 
 plants. And over $200,000,000 represents the dividends paid out upon 
 the common stock, which was all water, and upon that 40 per cent of 
 the preferred stock which the Commissioner of Corporations finds to 
 be water. 
 
 Now how, gentlemen, how could it happen in the United States, a 
 free country, that capital could take for itself these enormous profits, 
 and treat labor the way its labor has been treated ? 
 
 I conceive there is only one possible explanation of that situation 
 and it is this: The steel companies in their might were able in 
 the years following the Homestead strike to destroy the only protec- 
 tion which labor has, namely, the trades union. These shockingly 
 long hours have come as a result of the steel companies' ability to 
 destroy that competition, if one may so call it, which prior 
 to the destruction of the unions had succeeded in securing to the 
 employees conditions under which Americans would work, and 
 could work, without destroying the very manhood that was in them 
 as well as their fives. I ask you, gentlemen, how can any man — 
 is it not amazing that the human body should stand, even for a 
 short period of years, working 7 days, 12 hours a day, and occa- 
 sionally 18 or 24 hours a day, under the conditions prevailing in 
 the steel industry ? 
 
 Such conditions in a rich industry could not possibly have contin- 
 ued in America unless the management had succeeded in driving out 
 or silencing every human being in its employ who could raise his. 
 head, and establishing repression as bad as any conditions of peonage 
 found in the United States. 
 
 The horrible and unpardonable crimes recently disclosed at Los 
 Angeles have properly aroused our indignation; but it behooves the 
 
COMMITTEE ON INTERSTATE OOMMEEOE. 1155 
 
 statesmen of this country to look further and to determine what the 
 real cause of those terrible crimes may be, with a view to removing 
 the cause. I have no doubt that it will be found, as has been alleged, 
 that these are not isolated acts of two misguided brothers. It will 
 doubtless be found that a very much larger number of men are impli- 
 cated, including other men high in the councils of the organizations. 
 
 If such should prove to be the fact, would it not show that these 
 horrible crimes are but the unintelligent protest against the condi- 
 tions of hopelessness and despair in which these working people find 
 themselves, and is not that condition of helplessness and nopelessness 
 a by-product of this trust and of the other trusts ? For the action of 
 the Steel Trust in preventing the organization of its employees is by 
 no means exceptional. The destruction of trade-unionism appears 
 to be a cardinal principle with trust builders, and indeed with many 
 of the other powerful concerns that control our industrial life. Did 
 you ever hear of a trade-union of any kind in the Standard Oil Trust ? 
 As is known to everyone, in the Tobacco Trust, trade-unionism is 
 absolutely excluded ; so it is from the Shoe Machinery Trust, and, so 
 far as I know, from most of the other powerful organizations. 
 
 The problem of American citizenship and the problem of Ameri- 
 can industry are closely allied problems. In my opinion it is not the 
 uncertainty of the application of a construction of the Sherman law 
 which is the real thing that is the matter with business. 
 
 The real thing that "is the matter with business," Mr. Chairman 
 and gentlemen, is social unrest. And this social unrest among the 
 American people is due to the industrial injustice of which such fla- 
 grant examples are afforded by the promotion of the United States 
 Steel Trust, the conduct of the Tobacco Trust and the Standard Oil 
 Trust, and the sense of helplessness which confronts our people 
 opposed to such forces. Sociologists are working to ameliorate con- 
 ditions; but this condition in the industry, disclosed to the world 
 by the Pittsburgh survey, and confirmed in its worst aspect by the 
 Commissioner of Labor of the United States, remains substantially 
 unchanged. 
 
 You can not have true American citizenship, you can not preserve 
 political liberty, you can not secure American standards of living 
 unless some degree of industrial liberty accompanies it. And the 
 United States Steel Corporation and these other trusts have stabbed 
 industrial liberty in the back. They have crushed it out among large 
 groups of our people so completely that it will require years to restore 
 our industries to a condition of health. This social unrest is what is 
 really the matter with business. Well-founded social unrest ; reasoned 
 unrest; but the manifestations of which are often unintelligent and 
 sometimes criminal. . 
 
 Of course, the commission of violence can not bring relief. Inese 
 poor trade unionists, these McNamaras, were like miserable, stupid 
 children, undertaking to solve a difficult problem by the commission 
 of unpardonable crimes. But we should be wise enough to see. that 
 their act was the horrible criminal expression of that unrest which 
 arises from injustice, inflicted by forces so overpowering that resist- 
 ance appears impossible. . 
 
 Until we had these great trusts, or the great corporations wnicn 
 preceded them, workers could secure justice through their unions. 
 
1156 HEARINGS BEFORE 
 
 Abuses of the trade unions have been innumerable. Individuals 
 of slight education, of slight training, are elevated many times by- 
 shallow popularity to positions which can be filled adequately only 
 by men possessing great minds and great characters. No wonder, 
 then, that these leaders make mistakes; make grievous errors. 
 
 The extraordinary thing is that they have not made more mistakes. 
 It is one of the most promising symptoms in American democracy that 
 with all the difficulties attending such positions the labor leaders 
 on the whole have done so little that is wrong. And you, gentlemen, 
 Members of the Senate and Members of the House who are called 
 upon to consider questions affecting "big business," must weigh well 
 these by-products. For by their by-products shall you know the 
 trusts. 
 
 Here is another by-product. You have had brought to your 
 attention in many connections what has been popularly termed the 
 Money Trust, and which means nothing more than that a few men 
 affiliated with Wall Street are able by their control of the liquid 
 capital of the country to say practically what may or what may not 
 be done in all important financial affairs. Now, what has contributed 
 most to the extraordinary power so possessed ? 
 
 Senator Newlands yesterday said that the total wealth of this 
 country is estimated at $125,000,000,000, and that $16,000,000,000 is 
 represented by industrial securities. That is just about the same 
 amount which is represented by the railroad securities. Before the 
 advent of these trusts, the Wall Street money power was practically 
 confined to the railroad securities. This advent of trusts, the 
 mobilizing of that huge capital, was like pouring oil into the rising 
 flame of the Money Trust. All that property theretofore locally 
 owned and controlled in the different parts of the country has now 
 become subject to the money kings of Wall Street, and with the 
 advent of each new trust, with its unconservable promoters and under- 
 writers' charges, and the daily tribute of the stock exchange com- 
 missions, the power is further augmented. 
 
 If you do anything which tends to accelerate this pace toward the 
 conversion of American capital into stock-exchange securities, by 
 just so much will you increase the difficulty of solving the problem of 
 the Money Trust, which already baffles the best minds of the country. 
 
 And there are still other baneful by-products of the industrial trusts. 
 Mr. Perkins has asserted that these great corporations are not private 
 businesses, but public businesses. He has asserted that the numerous 
 stockholders are partners in the enterprise with J. P. Morgan & Co. 
 and others, as if that were "a consummation devoutly to be wished." 
 
 To my mind this is a condition to be regretted rather than to be 
 welcomed and presents features of a highly serious character. Such 
 numerous small stockholding creates in the corporation a condition of 
 irresponsible absentee landlordism; that is, the numerous small stock- 
 holders in the steel corporation, in the tobacco company, and in the 
 other trusts occupy a position which is dangerous to society. They 
 have a certain degree of wealth without responsibility. Their only 
 desire is dividends. Their demand upon the managers is at most to 
 maintain or increase the dividends. They have no power or respon- 
 sibility; they have no relations to the employees; they are remote, 
 often thousands of miles from the people who are toiling for them. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1157 
 
 Thus we have reproduced in industry the precise conditions which 
 brought all the misery upon Ireland and upon other countries where 
 absentee landlordism has prevailed. 
 
 _ Large dividends are the bribes which the managers tender the small 
 investor for the power conferred to use other people's money. 
 
 What have these trusts done for the consumer ? Until the Com- 
 missioner of Corporations made his admirable investigations into the 
 Oil Trust and the Tobacco Trust we were constantly told that they 
 were, by their efficiency, reducing the price to the consumer. That 
 C i •!?? ou & ht now to be completely exploded, as the result of this 
 skillful and elaborate investigation, conducted throughout five or six 
 years, for the facts clearly prove the contrary. The trusts have not 
 reduced prices. So far as prices have been reduced, it has been in 
 spite of the trusts. 
 
 Take the case of the Tobacco Trust. When vou gentlemen reduced 
 the Spanish War tax on tobacco in 1901 and 1902, the Tobacco Trust, 
 through its domination of that trade, was enabled to keep and did keep 
 all of the benefit, which you intended should go to the American 
 people. The trust maintained its prices and increased its profits by 
 just about the amount of the tax reduction which you made. In 
 certain branches of the tobacco industry — for instance, the snuff 
 trade, of which the trust had nearly the whole market, 96 per cent 
 of the total production of America — the percentage of profit was 80 
 per cent of the cost of every dollar of snuff which the trust manufac- 
 tured. The whole business of the trust yielded about 30 per cent 
 annually on the tangible assets and the rate of profit varied in pro- 
 portion to the degree of control exercised by the trust. In the cigar 
 trade, where the trust had only a slight control, there were no large 
 profits and there were in some years large losses. In the snuff busi- 
 ness, in the plug-tobacco business, the smoking-tobacco business, 
 and in the cigarette business the rate of profits was exceedingly high. 
 
 The same condition prevails in regard to the Standard Oil Trust. 
 The Commissioner of Corporations found that whereas seven-tenths 
 of a cent a gallon would have been a fair profit on the oil the Stand- 
 ard Oil Trust was raising its profits from year to year, so that the 
 rate of profit reached 8.4 cents a gallon — twelve times what the com- 
 missioner found to be a fair profit. 
 
 Now, I could go on endlessly illustrating the profits extorted by 
 monopolies, but I want to show what happens in a strictly competi- 
 tive business, and I will refer to a branch of business with which 
 Senator Crane is particularly familiar. 
 
 Attempts were made to control certain branches of the paper trade — 
 the paper used for newspapers and the writing paper. But in book 
 paper there has never been a trust, though occasionally rather unsuc- 
 cessful attempts were made to maintain prices by some understanding 
 among the manufacturers. But the book-paper business has been dis- 
 tinctively a competitive business. It is a business, also, which is sub- 
 ject to that criticism made by Mr. Perkins of frequently being heredi- 
 tary. There are in New England several paper businesses which have 
 remained in the same families three or four generations. 
 
 As compared with the relatively high prices and exorbitant 
 profits in the trust-controlled articles I want to call your attention to 
 the trend of prices and profits in the book-paper business, facts of par- 
 ticular significance, because the principal raw material of paper — 
 namely, wood — is, as you know, constantly advancing in cost. 
 
3158 HEARINGS BEFOEE 
 
 Now, while oil and steel and tobacco prices have been rising, or 
 have remained stationary, and while the rate of profit in oil and tobacco 
 has grown larger, here are some figures on book paper. In 1889 
 the average price of book paper in one of the large mills was a 
 trifle over 7 cents a pound — 7.06 cents a pound. From that 
 date until 1910 the price of book paper has been almost con- 
 stantly declining, in spite of the increased cost of raw material, 
 and in spite. of the increased wages. As I said, in 1889 it was 7.06 
 cents. In 1890, that one year the boom came in, and the price rose 
 to 7.1 cents. In 1891 it took its natural course under competition 
 and was down to 6.8 cents. In 1892, although that was a period of 
 expansion in industry, it was down to 6.5 cents. In 1893 it was 6.3 
 cents. Then it dropped into the 5 cents. By 1907 it got into the 
 fours. And later it got into the threes. And the average price in 
 1910, as I have here, was 3.99 — a trifle under 4 cents. 
 
 During that time the cost of manufacture in this highly competitive 
 industry was, of course, also diminishing, but not as rapidly, or not 
 nearly as rapidly, as the selling price, because competitive conditions 
 were constantly reducing the ratio of profit upon that selling price. 
 And whereas the profit started at about 20 per cent on the cost, it got 
 down in 10 years to 13 per cent on cost, and at the end of another 10 
 years it got down to 7 per cent on cost. You have there the most per- 
 fect illustration of what competition does in compelling the owner of 
 an industry to find some way of reducing costs as a condition of living. 
 
 Now I will show you what that way was. It was not by pursuing 
 the way of the steel corporations, of increasing the hours of labor, or 
 decreasing wages. It was just the opposite. Senator Crane will 
 remember that in this very period which those figures cover there 
 came a beneficent change in the conduct of this industry (which, like 
 the steel industry, and perhaps to a greater extent than the steel 
 industry) requires a continuous process; that is, paper making is a 
 24-hour process in many of its departments. Ten years ago and 
 before these mills were running their tour workers on 12-hour shifts. 
 Labor unions started the agitation for an 8-hour day. This was 
 one of the industries where, in the main, there could be no compromise 
 on a 10-hour day, because these paper machines and the incidental 
 machines had to run continuously 24 hours a day, 6 days in the 
 week. The 10-hour compromise was impossible. It was either 8 
 hours, as the men demanded, or 12 hours. The reduction of working 
 time to 8 hours was made, not only in mills where the union mani- 
 fested itself, but in other mills where there was no union labor what- 
 soever. For the unions had, in this respect, as in many other 
 respects, created a standard to which the industry had to accommo- 
 date itself. The manufacturers, therefore, in this period reduced the 
 working time of their labor, while their price of by-product was stead- 
 ily going down, and their own percentage of profit was steadily 
 going down, and while the cost of raw material was steadily going up. 
 Hours of labor in all those departments were reduced 33J per cent — 
 from 12 hours to 8 hours. And yet while the employers made that 
 reduction, instead of reducing wages proportionately, the wages 
 increased. 
 
 Take the wages in 1900. The wages of these machine tenders for 
 12 hours were $2.43; in 1910 to 1911 the wages for 8 hours were 
 $2.71. In other words, if the hourly rate of wages be considered, you 
 have an increase there of wages of about the equivalent of 66 per cent. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1159 
 
 What was done in regard to the machine tenders was done prac- 
 tically also in regard to each one of those different grades of labor 
 occupied in connection with the machines in those continuous pro- 
 cesses, which operate in the paper mill 6 days and nights a week, 
 because the normal process in a paper mill, as in a steel mill, is for 
 continuous operation. Doubtless there would have been 7 days' 
 operation instead of 6 in many New England mills, after the religious 
 scruples were overcome, but for the influence of the trade-unions. 
 
 Now, before I leave this question, I want you to consider what other 
 countries have done in the steel industry, and notably what despised 
 Great Britain has done. While the United States Steel Corporation, 
 with all its huge wealth and power, have been employing this foreign 
 labor and working it to so large an extent 7 days a week and 12 hours 
 a day, the average time in the corresponding industry in England for 
 all the employees (according to the official reports for 1908 of the 
 English Board of Trade on file with our Commissioner of Labor) was 
 55.2 hours a week. A very material portion of the work people in 
 these English mills where the trade is most prosperous work less 
 hours. In Durham and Cleveland and Cumberland and North 
 Lancashire the average time is only 51.5 hours a week. In other 
 parts of Great Britain the average time is higher; it is 61.5 hours a 
 week. But for the whole of the United Kingdom the average time 
 is 55.2 hours a week — a little more than 9 hours a day for 6 days. A 
 very appreciable portion of the people in those industries work less 
 than 50 hours a week. For the whole of Great Britain the working 
 time of 45 per cent of the employees in these industries is between 52 
 and 54 hours. 
 
 With such working hours, the British have been able, in spite of all 
 our natural resources, in spite of our ingenuity, in spite of advances 
 which America had made prior to the organization of the Steel Trust, 
 to capture, as against us, a larger portion of the foreign market of the 
 world, at a time when about one-third of the capacity of the steel 
 corporation has remained idle. 
 
 Mr. Perkins said that we had secured greater stability of labor. 
 Perhaps so, but does it seem to you that there is great stability of labor 
 in the steel industry when, during a portion of this period, 55 per cent 
 of their capacity was occupied, and at another portion 60 per cent, at 
 another portion 70 per cent, at another portion 75 per cent, and 
 now about 80 per cent? 
 
 Obviously we have not attained stability in the employment of la- 
 bor; but we have secured more nearly a static quality, so far as our 
 foreign trade is concerned; while England and Germany have been 
 enjoying the great growth in the foreign steel trade, which was any- 
 body's trade who was able to take it; and they have been able to 
 take it because of the great increase in the cost of production of 
 American steel. That increased cost in America is not due to in- 
 creased wages. The labor cost per ton is no more, and in many 
 respects it is very much less than it was in that period when we were 
 threatening the world's markets. England and Germany have 
 advanced, have been able to cut down the cost of production, in spite 
 of the increased wages, in spite of the increased cost of the raw mate- 
 rial. They have gone forward. And why ? 
 
 This Great Northern ore lea'se is a fair sample of the reason why. 
 Partly because of the extraordinary, or, as the English have called 
 
1160 HEARINGS BEFORE 
 
 it, the ridiculous royalties which we paid as the price of monopoly. 
 As the Commissioner of Corporations finds that the prevailing royalty 
 at the time that ore lease was made was 40 cents, this corporation 
 undertook to lease the Great Northern ore reserve at 85 cents, with 
 an annual increase of price of 3.4 cents — a monstrous price — which 
 raised not only their own cost of production, but raised market 
 values for the whole country. 
 
 Other alleged efficient trusts manifest the same inefficiency incident 
 to monopoly. 
 
 The United Shoe Machinery Trust, with which Senator Crane is 
 also familiar, presents another example. There is a business, a 
 monopoly, which was started under conditions the most favorable to 
 serving the public of probably any in the field of industry. In the 
 first place, the trust was managed by the men who had made the 
 greatest success of any in the shoe-machinery business. It was prac- 
 tically an acquisition of the leading shoe-machinery businesses by 
 the men who were the ablest, the hardest workers, and, in a certain 
 sense, the farthest seeing of all those engaged in the business. 
 They started out with certain perfectly admirable principles, which, 
 I understand, have been adhered to. In the first place, everybody, 
 big and little, was to be treated alike; there was to be no discounts 
 for quantity; so that the small manufacturer had the same chance 
 as the large manufacturer, both in respect to service and to royalty. 
 The company adopted a system of leasing, which gave an opportunity 
 to the small manufacturer with little capital to go into the business; 
 and the company gave them as good service as the larger manu- 
 facturer. 
 
 Now, in spite of these favorable conditions, monopoly has done in 
 that corporation the same deadly work as it has in every other capi- 
 talistic industrial monopoly. The managers endeavored to advance 
 the art; but it is a terribly difficult thing, if there is anything like 
 fair opportunity, for one body of men, however able and however far- 
 seeing, to beat the field. The possibility of invention was open still. 
 Capitalists and inventors appeared to be ready to embark in competing 
 businesses, and then the Shoe Machinery Trust, instead of welcoming 
 growing competition as an incentive to better performance, under- 
 took to suppress competition by utilizing to the full the strength of 
 their position, financial and industrial. The facts are set forth in 
 the admirable bill in equity recently filed by the Government, 
 through its efficient assistant to the Attorney General, Mr. W. S. 
 Gregg, which followed upon the indictment found some months ago. 
 Mr. Gregg's bill in equity contains a most instructive and illuminative 
 statement of the course and methods pursued by that monopoly, 
 which controls the trade in absolute subjection, not by virtue of 
 patents, not by virtue of efficiency, but by virtue of its unique position. 
 
 Now, in spite of that extraordinary position, one man in Massachu- 
 setts, a shoe manufacturer, who resented the domination of the United 
 Shoe Machinery Co., undertook the herculean task of having invented 
 and developed a complete system of shoe machinery to compete with 
 that of the trust. It was an extraordinary undertaking, because the 
 United Co. controlled not 1 machine or 10 machines, but practically 
 all the essential machinery used in the bottoming of shoes — that is, 
 lasting, welting, metallic fastening, and heeling machines. It would 
 have been useless to invent one machine, or two machines, or three 
 
COMMITTEE ON INTERSTATE COMMERCE. 1161 
 
 machines, because nobody could use them. Nobody dared to put 
 them into his factory, since the United Co. could, if he did so, take out 
 all his other machines, and that would destroy the business. 
 
 Now, this man, Thomas G. Plant, undertook to have invented a 
 whole system of machinery in 1910. The trade learned that there 
 had been created a complete competing system of shoe machinery, 
 which some of the best manufacturers of the country declared to be 
 superior to that of the Shoe Machinery Trust. Mr. II. B. Endicott, 
 one of the most successful shoe manufacturers in the country (who 
 has since become a director of the United Co.), and other leading shoe 
 manufacturers examined the Plant machines, with other experts, and 
 declared them equal to and, in some respects, better than the machines 
 of the United Co. Thus even in the ably managed Shoe Machinery 
 Trust the inefficiency which is bred of the monopoly manifested itself. 
 Thomas G. Plant, with the few people whom he gathered together, 
 overcame the difficulties incident to the multitudinous patents of the 
 United Co. and offered to the trade a complete system of shoe machin- 
 ery at a much lower cost to the shoe manufacturer. There was no 
 way of meeting the Plant competition and its better system except to 
 buy him out. That is what the United Co. did. The proceeding 
 instituted by the Government, both criminal and civil, tells the story 
 of the wrong. If there ever was a case where monopoly would have 
 been justified, where the circumstances could have developed a proper 
 industrial monopoly, it was this Shoe Machinery Trust. But the 
 events have proved again monopoly's deadly work. 
 
 These are some of the reasons why, in my opinion, this committee 
 should address itself to perfecting the Sherman law, in the light of the 
 experience of the past 21 years. We have learned much about trusts 
 and their ways in these 21 years, and this knowledge the La Follette 
 bill undertakes to use. There has been a lot of talk about the uncer- 
 tainty of the Sherman law, and of the doubt felt as to what is reason- 
 able and what unreasonable restraint. The difficulty in finding out 
 what is prohibited is, even now, far less than has been suggested. 
 
 I have been asked many times in regard to particular practices or 
 agreements as to whether they were legal or illegal under the Sherman 
 law. One gentleman said to me, "We do not know where we can go." 
 To which I replied, "I think your lawyers or anyone else can tell you 
 where a fairly safe course lies. If you are walking along a precipice 
 no human being can tell you how near you can go to that precipice 
 without falling over, because you may stumble on a loose stone, 
 you may slip, and go over; but anybody can tell you where you can 
 walk perfectly safe within convenient distance of that precipice." 
 The difficulty which men have felt generally in regard to the Sherman 
 law has been rather that they have wanted to go the limit than that 
 they have wanted to go safely. 
 
 However, the La Follette bill undertakes to tell them where they 
 should not go. It sets up perfectly definite danger signals which 
 the courts and which all persons who dispassionately have con- 
 sidered the situation have set out. 
 
 A practice like that of the Shoe Machinery Trust of denying to the 
 individual the right to lease a certain machine unless he will take 
 his other machines from the trust, so that competition is killed; that 
 is, a practice under which he who controls an indispensible article 
 of commerce uses it to kill competition in other articles is obviously 
 
1162 HEARINGS BEFOEB 
 
 unsocial, and ought to be prohibited The Whisky Trust did that 
 without great success, because it did not dominate the market. The 
 Tobacco Trust pursued it with extraordinary success, because it 
 practically dominated the market. Competitor after competitor was 
 killed by the Tobacco Trust by just such practices. If you bought 
 all of certain classes of goods from the trust you got a discount. 
 
 The condition became- so bad in Massachusetts, as Senator Crane 
 will remember, that we passed a law making it a criminal offense for 
 a person to make it a condition of a sale that the purchaser must, in 
 •order to get a discount, buy exclusively from the seller. 
 
 In like manner the La Follette bill treats other practices, which 
 to-day the fairly enlightened recognize to be unfair competition, or 
 rather not competition at all; but methods of destroying competition; 
 for instance, the cut-throat competition pursued so successfully by 
 the Standard Oil Co. and the Tobacco Trust of selling at a lower price 
 in one community than in another. 
 
 Again, the practice of espionage, bribing employees, bribing 
 Government officials, obtaining information illegally — those practices 
 are not competition. Those things are no more competition than it 
 is liberty for one man to strike another man in the head and kill him 
 or maim him simply because he has greater strength. We have 
 found it necessary to regulate liberty, so we find it necessary 
 to regulate competition. Unrestricted liberty leads necessarily to 
 absolutism or oligarchy. Unrestrained competition will lead neces- 
 sarily to monopoly. The alternative which we have presented to us, 
 of "unrestricted and destructive competition on the one hand or 
 regulated monopoly on the other" we may well reject. The real issue 
 is, "Regulate competition or regulated monopoly." And accord- 
 ingly as you want monopoly or as you want competition, your legis- 
 lation should be directed — the regulation of the one or the other. 
 The La Follette bill assumes that what we want is competition, and 
 it, therefore, sets out in one section, one after another, certain things, 
 certain practices, which, if pursued by those who are restraining trade, 
 shall be deemed by the court to be conclusive evidence of unreason- 
 ableness, and therefore of illegality. It also sets forth certain other 
 things which if appearing in connection with restraints of trade shall be 
 deemed presumptive evidence of illegality. Another provision con- 
 tained in the La Follette bill is that which shifts the burden of proof 
 Under the Supreme Court decisions in the Standard Oil and Tobacco 
 cases it is recognized that it is necessary not only to prove a restraint 
 of trade, but also to prove that that restraint is unreasonable. That 
 burden is now upon the Government, or if there is any private suit 
 for damages the burden rests upon the plaintiff to prove both 
 propositions. The La Follette bill applies to that rule of reason a 
 rule which, I think, all of you will agree is a rule of common sense. 
 If the defendants are found to be restraining trade, certainly the 
 burden ought to be upon the defendants to show that such restraint 
 is reasonable; in other words — that is, is in the interest of the public. 
 In this respect the bill borrows the suggestion which was enacted by 
 the railroad bill of last year, whereby the burden of proof in the case 
 of any attempted increase of rates rests upon the carrier, to show that 
 the increased rate is reasonable. 
 
 A third class of provisions in the La Follette bill deals with the 
 efficacy of the remedy. They undertake to make the remedy ade- 
 
COMMITTEE ON INTEBSTATE COMMEECE. 1163 
 
 quate, just, and reasonable, for the situation to-day is one which, 
 as Senator Cummins pointed out yesterday before the Senate, prac- 
 tically creates a judicial scandal. Consider the result in the tobacco 
 case. The Commissioner of Corporations, as the result of five or 
 more years of patient, skillful, and expensive investigation, dis- 
 closes a series of illegal acts practiced throughout the last 20 years 
 by the Standard Oil Co. ; acts illegal not only under the Sherman law, 
 but many of them illegal under the law regulating commerce or other 
 statutes of the United States. He shows that it was by such means 
 that wealth has been extorted from the American people so great as 
 to almost be beyond our ability to realize it. The evidence in the 
 suit brought by the Government discloses acts of ruthless destruction 
 of businesses, resulting in destruction of lives. The Supreme Court 
 renders a unanimous decision that all this was illegal. It confirmed 
 by its decision what anybody ought to have known ever since 
 Henry D. Lloyd wrote his Wealth and Commonwealth in 1894. 
 
 What follows? Assume for the moment that the decree of the 
 court entered in pursuance of the decision of the Supreme Court in 
 the Standard Oil case will be absolutely effective in preventing 
 monopolization in the future and consider the situation. You have 
 lawbreakers, declared such by the highest tribunal of our Govern- 
 ment as the result of the most patient investigation that could ever 
 have been made into any question. You have these rich breakers of 
 the laws of God and of man left in undisturbed enjoyment of all 
 their ill-gotten wealth. 
 
 We grieve over social discontent, we regret the lessened respect 
 for the law; but what can breed discontent, what can breed disre- 
 spect for the law more effectually than such a result? Why is it 
 that those persons who have been crushed, one after another, by the 
 Standard Oil Co. have found no redress? It was because it was 
 hopeless to fight them in the courts. The law offered only a paper 
 remedy — only a paper protection — against oppression. And when 
 the Government succeeds, after 21 years of wrongdoing, then all the 
 people who have suffered are left in precisely the same position of 
 injuries unredressed, since no private individual could take up anew 
 a contest on his own behalf with such a powerful adversary. The 
 expense would be prohibitive, and, furthermore, the statute of 
 limitations would have barred most or all of the claims. 
 
 The La Follette bill undertakes, so far as it is possible, to remove 
 such defects in our legal administration. It declares that when, in a 
 Government suit under the Sherman law, a combination shall have 
 been declared illegal, anyone who has suffered damages may get 
 redress by proving the amount of his damages, without entering upon 
 the question of illegality, which is to be accepted as settled. 
 
 Under the Sherman law as it stands he would get treble damages 
 and under the La Follette bill when he comes in to prove his dam- 
 ages he would get treble damages. Under the La Follette bill it is 
 also provided that the statute of limitations shall not run as against 
 any such claim after the Government files its suit. Consequently, 
 any person who is injured, either by having an extortionate P n ce 
 charged Him or having his business ruined by these methods of 
 monopoly, would recognize that if the Government (which ought, of 
 course, to protect all) succeeds in maintaining its case, it will be open to 
 
1164 HEARINGS BEFORE 
 
 him after the decree to come into court and say: "Now let me have 
 my damages for everything that I have suffered." 
 
 See what the situation would be if we had that law to-day. Would 
 the hundreds of millions that the Standard Oil Trust and that the 
 Tobacco Trust have exacted illegally from the American people be 
 theirs? No. Hundreds, thousands, perhaps hundreds of thousands 
 of people in the United States would come forward with the oppor- 
 tunity of recovering treble damages and demand damages for the 
 injury done them. In that you would have a real deterrent against 
 violations of the law. That would be a substantial liability and 
 would make the stockholders of corporations directly interested see 
 that their managers should conform to the law 
 
 Such a provision would tend to make the law effective. It would 
 tend to increase the respect of. the American people for the laws. It 
 would make them believe that legal proceedings were of real value to 
 the people. 
 
 The La Follette bill contains still other provisions designed to pro- 
 tect the public. Take this situation: The Shoe Machinery Trust is 
 in a position — preeminently, Senator Crane, in Massachusetts — to de- 
 stroy almost any shoe manufacturing business, particularly if there 
 is the slightest disposition on the part of the owner to put in a com- 
 peting machine. Many of its leases prescribe, as Mr. Gregg's bill so 
 clearly points out, that a breach of certain provisions of the lease in 
 respect to a single machine would enable the corporation to remove 
 all its machines from the factory. That is the situation generally 
 in respect to the Shoe Machinery Trust's leases throughout the country. 
 
 In Massachusetts we are a little bit worse off. Our people had the 
 effrontery to try to protect themselves by legislation and enacted a 
 law making it illegal to put in such a "tying" clause. The shoe 
 machinery corporation insisted, in spite of an opinion by the Supreme 
 Court of Massachusetts to the contrary, that the statute is uncon- 
 stitutional, but, in order to preserve their absolute control in any 
 event, changed the terms of the lease for our Massachusetts manu- 
 facturers. A rider was attached to each lease under which the 
 manufacturer was bound in effect to lease the machine during the 
 life of his concern; the corporation was left free to terminate this 
 and all leases on 30 days' notice. Consequently, every shoe man- 
 ufacturer in Massachusetts is (if these provisions are sustained by 
 the court) absolutely at the mercy of this shoe-machinery corporation, 
 and protected only by its sense of what may appear to be to its 
 interest. 
 
 Now, the La Follette bill recognizes that situation, and it under- 
 takes to afford protection. Note what the situation is. If the Shoe 
 Machinery Trust terminates the leases of any customer, he would have 
 to go out of business. There is not to-day in existence any machinery 
 which could be substituted. There are practically no patents which 
 interfere with the introduction of such other machinery. There are 
 other machines which could be built, but there is no supply in the 
 hands of any independent. The trust has nearly a hundred thousand 
 machines out under lease. It would take probably 8 or 10 
 years for independents to supply the market with that number of 
 machines, even if no obstacle were presented. So far as the shoe 
 manufacturers are concerned, they are now absolutely at the mercy 
 of this trust. This is not only because no other machines are available, 
 
COMMITTEE ON INTERSTATE COMMERCE. 1165 
 
 but also for this further reason: If a competing machine were put into 
 any factory it would be necessary to instruct the workingman how 
 to run it. In the manufacture of fine shoes (and Massachusetts 
 manufactures largely fine shoes for men and women) business would 
 be ruined in a single season if all the men were to be put on a new 
 machine at the same time. The machines are practically tools. 
 The men have to be trained to use them. They are not like auto- 
 matic machines in many concerns, and a sudden general change from 
 one class of machines to another would necessarily result in poor work- 
 manship. As a practical matter, any change from the trust's machines 
 would have to be made gradually; and if these proceedings which 
 the Government has gone into and in which Mr. Gregg has manifested 
 such a clear understanding of the shoe-manufacturing business, if 
 they should prove to be ultimately successful, and the court entered 
 the usual decree, the result will be futile, unless, pending this pro- 
 ceeding, as well as after the decree, the power exists in the court to 
 protect these manufacturers in the use of trust machinery while they 
 are graduallv working in the competitive machines. Such protec- 
 tion is absolutely necessary, because the process has got to be a 
 gradual one. If such protection is not afforded, then, when a decree 
 is entered, in a year or two years or three years or four years from 
 now, you will have just the same situation as you have to-day — the 
 manufacturers practically subject to the will of the trust. 
 
 So, the La Follette bill provides that the court if the court finds 
 that any trust has acquired such control of the market in any article 
 that it is impossible to secure an adequate substitute for the article, 
 it shall have authority by its order, pending this suit, upon reason- 
 able cause being shown, to give to the users or the consumers of the 
 trust's product a right to continue the use of that article and get 
 supplied with it at a reasonable price until a substitute can be pro- 
 vided. And that the same power is conferred upon the court for 
 exercise after a final decree. 
 
 Furthermore the La Follette bill sets forth a series of provisions 
 which are designed to remove those doubts which apparently pre- 
 vented the judges of the circuit court in the tobacco case from 
 recreating conditions essential to free competition. 
 
 The result of the Tobacco Trust case, as Senator Cummins pointed 
 out yesterday so clearly, is to leave the same people in the control of 
 the business that were before, with no material change except that 
 in respect to a large part of the business it is divided into three cor- 
 porations instead of one. . 
 
 "Now see what that situation is. The Supreme Court, after a liti- 
 gation which occupied four years, found unanimously that the trust 
 was illegal. The Commissioner of Corporations, after an investiga- 
 tion covering five years, declared that the profits of this trust were 
 due mainly to its monopolistic position. And yet, Mr. Chairman, 
 after the complete victory for the Government in the litigation, we 
 have, as the result of all the labor- and expense, that the American 
 Tobacco Co.'s stock (in a period which these gentlemen tell us is one 
 of arrested business) is worth more to-day than it has ever been 
 worth in the whole history of the company, except possibly one 
 day, when the stock was quoted at $525 a' share. But taking the 
 record furnished me covering the period from 1906 through the 
 
1166 HEARINGS BEFORE 
 
 period of greatest inflation of — to date, the quotation of the Ameri- 
 can Tobacco Co. at $518 a share is the highest quotation ever reached. 
 And when you consider not only the quotation of the common stock, 
 but the quotations of the preferred stock and of the bonds as well, 
 the aggregate market value of these securities of the trust (which, 
 according to the Commissioner of Corporations, rests for its earning 
 power so largely upon monopolistic and illegal control of the trade) 
 is greater to-day than ever before in the history of that corporation. 
 
 Practically the same thing is true of the Standard Oil securities. 
 In the case of the Oil and the Tobacco Trusts the proceedings by the 
 Government result not in punishment for illegality, but prove to be 
 a great boon to the stockholder. An illegal monopoly becomes a 
 legalized monopoly. The trusts enjoy an "immunity bath" which 
 gives to its securities in times of alleged depression a value which, 
 compared to other securities in the market, railroad or industrial, is 
 one of proud preeminence. The result of the decree in the tobacco 
 case is practically to declare "What man had illegally joined together 
 let no court put asunder." 
 
 The trust problems can never be settled right for the American 
 
 ?eople by looking at it through the spectacles of bonds and stocks, 
 "ou must study it through the spectacles of people's rights and peo- 
 ple's interests; must consider the effect upon the development of 
 the American democracy. When you do that you will realize the 
 extraordinary perils to our institutions which attend the trusts; 
 you will realize the danger of letting the people learn that our sacred 
 Constitution protects not only vested rights but vested wrongs.. 
 The situation is a very serious one ; unless wise legislation is enacted 
 we shall have as a result of that social unrest a condition which will 
 be more serious than that produced by the fall of a few points in 
 stock-exchange quotations. 
 
 The La Follette bill undertakes by the additional provision which 
 Senator La Follette presented to the Senate yesterday to make 
 possible the entry of such decrees as express the will of the American 
 people — decrees that would do much to reestablish respect for law 
 in the United States. 
 
 The Chairman. The committee will take a recess until 2.30. 
 
 (Thereupon, at 1.30 p. m., the committee took a recess until 
 2.30 p.m.) 
 
 AFTER RECESS. 
 
 STATEMENT OF LOUIS D. BRANDEIS— Resumed. 
 
 The Chairman. Mr. Brandeis, had you completed your statement 
 before recess ? 
 
 Mr. Brandeis. Yes, Mr. Chairman. I thank you very much for 
 your patience in listening to me so long. 
 
 Senator Cummins. Mr. Brandeis, you are a lawyer by profession? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Cummins. And you are familiar with the decisions of the 
 Supreme Court construing, interpreting, and applying the antitrust 
 law, I take it ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1167 
 
 Mr. Brandeis. I have read them. 
 
 Senator Cummins. Do you recognize that under those decisions 
 there may be a monopoly in violation of the second section of the act 
 that does not embrace or include all the field in which it operates ? 
 
 Mr. Brandeis. I think so. 
 
 Senator Cummins. We are coming gradually to understand that a 
 monopoly is a concern or industrial financial institution that has the 
 power to drive substantial competition out of the region in which it 
 works. That is our idea now of monopoly, is it not ? 
 
 Mr. Brandeis. I think so. 
 
 Senator Cummins. And whenever a corporation grows large enough 
 to be able to dominate and control the field, then it is exercising, or 
 may exercise, a monopolistic power even though there still remain 
 in the field concerns or establishments that are known as competitive ? 
 
 Mr. Brandeis. Certainly. 
 
 Senator Cummins. Do you believe that a corporation can be so 
 offensive to the antitrust law on account of its size, even though it 
 does not employ any of the vicious or unjust practices that have been 
 characteristic of some of the trusts of which you have spoken ? 
 
 Mr. Brandeis. I should think it certainly might if it originated 
 in combination. 
 
 Senator Cummins. Ought there not, therefore, to be some instru- 
 mentality of the law that would determine how large a corporation 
 should become or be, even before it may be finally condemned 
 through a prosecution against it under the antitrust law ? 
 
 Mr. Brandeis. I am inclined to think yes. Perhaps if I might 
 
 Senator Cummins. Do not confine yourself to categorical answers, 
 but give us your views upon the subject that may be contained in 
 the question. 
 
 Mr. Brandeis. I thank you. I have had no belief that up to 
 the present time a question had arisen in regard to any corporation 
 in that narrow form in which you put it ; that is, each one of the large 
 corporations I have had to deal with have been objectionable on 
 grounds other than size merely. I have considered and do consider 
 that the proposition that mere bigness can not be an offense against 
 society is false, because I believe that our society, which rests upon 
 democracy, can not endure under such conditions. Something 
 approaching equality is essential. You may have an organization 
 in the community which is so powerful that in a particular branch 
 of the trade it may dominate by mere size. Although its individual 
 practices may be according to rules, it may be, nevertheless, a menace 
 to the community; and I may add further that, in my opinion, it 
 was bad legislation which removed all limits to the size of corporations, 
 as we did from 10 to 20 years ago. 
 
 Senator Cummins. I will take up the concrete example that you 
 have mentioned, and a great many others are mentioned here — the 
 United States Steel Corporation. Suppose that we had had in 1901 
 a board such as has been described by various witnesses here and 
 intended in a sense to apply the antitrust law to actual affairs, and 
 you had been a member or that board and the proposers or promoters 
 of this enterprise had come to the board saying that they were about 
 to organize a corporation that would take unto itself a little more 
 than 60 per cent of the whole business in which they were to engage. 
 Now, apart from the vice of its capitalization, which everybody 
 
 22877 — vol. 1—12 74 
 
1168 HEARINGS BEFORE 
 
 recognizes I think, would you have been in favor of permitting such 
 a corporation to organize, receive a license under the Federal law, 
 and to engage in interstate commerce, and if you would not have 
 been in favor of it, give us the reasons which would have governed 
 you. 
 
 Mr. Brandeis. If, as a member of that commission, I had had the 
 legal power to deny them the right to incorporate, I should have 
 certainly refused them that right. I should have done it because I 
 believe that the creation of such a large unit was necessarily an evil 
 influence in the community. In the first place, I should have been 
 convinced that that amount of capital was not necessary for the 
 creation of the most efficient instrument of production and distri- 
 bution that could have been created, and in the second place, even if 
 it should have been true that as a mere engine of production and 
 distribution this unit would have been more efficient than a smaller 
 one, I should have been convinced that the inherent, the incidental, 
 social, and political ills which would attend the creation of that 
 huge power would bring about evils to the community which would 
 many times outweigh the advantage, the slight advantage, if any, 
 which would come from an increased efficiency. 
 
 Now take, for instance, this incidental situation. We had last 
 year in the Advanced Rate case, when the railroads of this country 
 were clamoring for an increase in rates because there had been 
 granted increases in wages — we had this situation. I asked the 
 presidents — President McRae, of the Pennsylvania, and President 
 Brown, of the New York Central — specifically, whether, when they 
 got together to consider ways and means of increasing their reve- 
 nues, they had made any effort to secure a reduction in the cost 
 of steel rails. It was perfectly obvious, according to their own 
 argument, that at lessened prices larger purchases would have been 
 not only helpful to them but helpful to the whole industry of the 
 country, and advance it in different ways — "Did you undertake in 
 any way to secure a reduction in the price of steel rails V And they 
 both said "No." 
 
 Now, what was the situation ? It was that the directors of the 
 United States Steel Corporation were directors in most of the large 
 railroad systems of this country. The railroads were directly or 
 indirectly controlled in a certain way by the same men who were the 
 directors of the Steel Corporation. Now, that is one of the powers; 
 that is one of the incidents of this big business. I say that we have 
 got to start at the very beginning with this inquiry, that if we create 
 a huge financial industrial entity, are not the dangers so great that 
 even if they were of an advantage we risk our whole system, judicial, 
 political, and industrial, by creating a power which we can not control, 
 as happened when the United States Steel Corporation was formed 
 10 years ago? 
 
 Senator Cummins. I take it tor granted that you believe in corpo- 
 rations of sufficient size to employ all reasonable advantages looking 
 toward the reduction in cost of production ? 
 
 Mr. Brandeis. Certainly. 
 
 Senator Cummins. It has been assumed here constantly by a great 
 many people who appeared before us that the larger a corporation 
 becomes the less will the cost of production be. You have already 
 addressed yourself somewhat to that subject, but I want you to be a 
 
COMMITTEE ON INTERSTATE COMMERCE. 1169 
 
 little more definite upon this. There are some things that can be 
 done by large concerns to reduce the cost of production that ought 
 not to be done looking to the welfare of society, I take it. 
 
 Mr. Brandeis. Yes; and I am very glad that your suggestion en- 
 ables me to say what I believe the function of the Government in this 
 respect to be. I said this morning that in order to preserve compe- 
 tition the Government should provide for certain regulation of com- 
 petition in order to prevent excesses which lead to monopoly. The 
 Government has besides- important affirmative duties in respect to 
 aiding competition ; a large part of our advance in agriculture during 
 the last 10 years Cand advance will come I am sure with accelerated 
 speed during the next 10 years) is due to the Government's agricul- 
 tural experiment stations. We have applied the collective ability 
 and resources of America to teach the farmer how to make profitable 
 the work he was doing. That is a very pi oper function of the Gov- 
 ernment. It was important that that should be done by the Govern- 
 ment, so that every farmer in the United States, present or prospec- 
 tive, might have the benefit of those researches and that instruction. 
 
 Now, in industry a similar step ought to be taken. It ought not to 
 happen that the United States Steel Corporation, by reason merely of 
 its ability to spend large amounts on laboratories and research, should 
 far outstrip its competitors. If an advance in industry is to be mad6 
 as a result of expensive research which is not immediately remunera- 
 tive, the Government ought to undertake the investigation/ so that 
 everybody who wishes to engage in the industry could have the ben- 
 efit of the knowledge acquired, just as we give our citizens opportu- 
 nities for education in many other ways, just as we give to the mer- 
 chants the results of expensive consular inquiries, and just as we are 
 distributing other information through the Department of Commerce 
 and Labor. Whenever industry requires for its advance investiga- 
 tions of that character which are so expensive that only a huge con- 
 cern can assume the burden, then it is the Government's function to 
 secure the information for all the people. Such a bureau of indus- 
 trial research would be a great aid to competition. Furthermore, it 
 would open up fields of advance in industry which have been closed 
 hitherto even in times of unrestricted competition. 
 
 For there are now all over this country people who are fertile of 
 ideas who are as eager to advance industry as_ the scientists are in 
 other spheres of activity. They know now that if they invent there is 
 little chance of finding anybody to develop their inventions. I can 
 speak on this subject from experience. 
 
 After I suggested last year in the advanced rate hearings that there 
 were many methods of improving the efficiency of the railroads which 
 had not been adopted I received floods of letters from all parts of the 
 country, from men here, there, and everywhere, who thought they had 
 valuable inventions or ideas leading to economies. Many of these 
 ideas were, according to such advice as I could get, very meritorious. 
 But in the absence of a Government bureau to sift them and make 
 known the valuable ones they will doubtless die unused. 
 
 There ought to be a Government bureau or experiment station 
 which would sift the presumably valuable from the valueless and 
 which could hold out to the American people — filled as they are with 
 ideas and with the desire to advance the processes of industry— the 
 certainty that if they could contribute matters of value they would 
 
1170 HEARINGS BEFORE 
 
 receive due recognition. We should then reap in the field of indus- 
 try the same profitable results which are already coming from out 
 agricultural experiment stations. 
 
 Senator Cummins. Mr. Brandeis, from your observation and expe- 
 rience, both of which have been great, do you know of any legitimate 
 process or advantage in reducing cost in the steel business that can 
 be employed by the United States Steel Corporation that could not 
 as successfully be employed by a corporation of $100,000,000 of 
 capital ? 
 
 Mr. Brandeis. I do not, and I do not believe that there is any. 
 
 Senator Cummins. And if, in 1901, we had had some governmental 
 function that would have restricted the capital that any corporation 
 engaged in it should use to $100,000,000 or $200,000,000, we would 
 have had a good many corporations engaged in the business doing it 
 upon substantially even terms, not only as to the direct process of 
 manufacture of product, but even terms in the business world, would 
 we not, necessarily ? 
 
 Mr. Brandeis. We should, if we had also buttressed that law so 
 as to prevent common ownership of stock in the several corporations. 
 
 Senator Cummins. Precisely; I was just coming to that. Health- 
 ful and reasonable and effective competition is hardly to be looked 
 for so long as there is a community of interest in so-called competing 
 corporations, I suppose. 
 
 Mr. Brandeis. I so believe. 
 
 Senator Cummins. That seems to be a deduction from what we 
 know of human nature, and therefore if we could provide that these 
 great concerns should not have common stockholders we would make 
 a very considerable advance toward reasonable competition, I assume. 
 
 Mr. Brandeis. I think so; but I think that the question of the 
 limitation of the size of the corporation, if we had an effective law 
 regulating trusts, would not become an urgent question very soon, 
 although it may be a simple way of arriving at the result. To express 
 a little more clearly what, I mean, I will say this: I believe that the 
 existing trusts have acquired the position which they hold largely 
 through methods which are in and of themselves reprehensible. I 
 mean either through methods which are abuses of competition or by 
 such methods as were pursued by the steel corporation in paying 
 ridiculous values for property for the purpose of monopolistic control. 
 
 I am so firmly convinced that the large unit is not as efficient — I 
 mean the very large unit — is not as efficient as the smaller unit, that 
 I believe if it were possible to-day to make the corporations act in 
 accordance with what doubtless all of us would agree should be the 
 rules of trade no huge corporation would be created, or, if created, 
 would be successful. I do not mean by that to say that it is not 
 good to have the limitation in the law. What I mean is that I am so 
 convinced of the economic fallacy in the huge unit that if we make 
 competition possible, if we create conditions where there could be 
 reasonable competition, that these monsters would fall to the ground, 
 that I do not consider the need of such a limitation urgent. 
 
 Senator Cummins. By that you mean, I take it, at least partially, 
 that if we had some regulation which would insure honest capitaliza- 
 tion — that is, bonds and stocks, that measure of actual value of the 
 property taken in by the corporation — there would be a greatly less 
 motive for bringing them together ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1171 
 
 Mr. Brandeis. I mean that; but I mean something more, and it is 
 this: Go back and see what the real commanding cause was of the for- 
 mation of these trusts. In the first place, I do not believe the desire 
 for greater efficiency was an important moving cause. The potent 
 causes were two things — one was to avoid what those interested 
 deemed destructive or, at least, very annoying competition; the other 
 cause, an extremely effective cause, was the desire of promoters and 
 bankers for huge commissions. The amount of Steel Trust repre- 
 senting bankers' commissions was figured by the Commissioner of 
 •Corporations as $150,000,000 in securities. 
 
 Senator Pomerene. Commissions ? 
 
 Mr. Brandeis. The commission was $150,000,000, as they figured it 
 out. I mean commissions or the syndicate's charges on $1,402,000,000 
 of securities issued and issue of other companies controlled by the 
 trust. Of course, the desire for commissions and promoters' profits 
 was a potent cause. Then there was the desire to capitalize failures; 
 that is, as many steel men saw that as against Carnegie competition 
 would be ineffective, they desired to capitalize their inability to com- 
 pete with Mr. Carnegie. As a necessary incident of that they had to 
 get Carnegie out of the way, and, as Mr. Perkins indicated, they were, 
 to accomplish this, ready to pay Mr. Carnegie not merely the value of 
 his business, measured on any proper basis, but the value of the ability 
 of Mr. Carnegie to do them harm. This was capitalized, and conse- 
 quently they paid to Mr. Carnegie many times the real value of his 
 business. 
 
 Now that paying many times the real value for that business was 
 practically bribing Mr. Carnegie to go out of business, the bribe being 
 paid by the American people; but it was a bribing of Mr. Carnegie to 
 go out of that business in order that these less efficient businesses 
 might not be destroyed. Instead, therefore — and that is an operation 
 which the Commissioner of. Corporations sets forth very clearly in his 
 report — instead of that operation being in aid of efficiency, its result 
 was to destroy efficiency, because all of these corporations were doing 
 business on an efficiency basis far below that winch Mr. Carnegie had 
 attained. 
 
 Senator Cummins. But if the capitalization had been honest, and 
 according to a rule that is pretty well accepted now by intelligent 
 people, they could not have bribed Mr. Carnegie, because they would 
 not have any place to get the money with which to bribe him, and if 
 the capitalists had been honest they could not have given away the 
 sixty or more millions of dollars that were paid out in commissions to 
 a few men for getting the corporation together, if they had been 
 limited in their stocks and bonds to the actual value of the property 
 put together ? 
 
 Mr. Brandeis. I think that is only partially true, and I want to 
 oxplain that by reference to the tobacco organization and to the 
 Standard Oil Trust. I think I appreciate and sympathize with the 
 objections to watered stock. But take the case of the tobacco com- 
 pany. There you have $40,000,000 of common stock which, according 
 to to-day's quotations, is worth over $200,000,000. All of that stock 
 happens to represent what was originally water, but it is entirely 
 immaterial whether it is or is not, because here is a share in this 
 •company which is not only, according to the present quotations, 
 worth par, but worth in the estimation of those best able to judge 
 
1172 HEARINGS BEFORE 
 
 five times par. So the Standard Oil Co. stock was worth not only- 
 par, but seven to eight times par. 
 
 Now, the real evil there was not in the watering of the stock; it was 
 in creating a condition under which those who held that stock could 
 make it valuable, namely, the monopolistic condition. On the other 
 hand, take the trusts like those I referred to as not being successful — 
 the Writing Paper Trust, the Upper Leather Trust, the Union Paper 
 Bag Trust — all of those trusts which were capitalized, so far as water- 
 ing was concerned, on just as illegitimate a basis as the Steel Corpora- 
 tion. Their common stock has dragged around $5 and $4 and $3, and 
 sometimes has gone down as low as $1 and 50 cents a share; because 
 the trust, being unable to control prices, had no prospect of earning a 
 dividend upon it. These trusts did not succeed in getting into a posi- 
 tion to control the market. 
 
 Senator Cummins. Well, I agree of course that honest capitaliza- 
 tion will not always prevent monopoly. I think it is very possible 
 with honest capitalists, but nevertheless we would be making a great 
 step toward the solution of these problems if we had honest capitalists, 
 would we not ? 
 
 Mr. Brandeis. I doubt very much whether we could make any 
 important steps from the standpoint that we are now considering. 
 I think the only real substantial reason why you should prevent 
 water is for the purpose of publicity. It is a kind of "Lest we forget," 
 that after all these four or five or six hundred millions of steel securi- 
 ties are really not entitled to anything. And, of course, there is 
 another reason, from a different standpoint. There is an advantage 
 in preventing; stock watering so that the small investor maybe better 
 
 Erotected. But from the standpoint that we are considering, the 
 road standard of protecting the public from the great aggregations 
 of capital, and the great concentration of industrial power, I do not 
 believe that the question of capitalization plays an important part. 
 The question of the amount of assets might play, I think, a more 
 important part — that is, whether you should allow a corporation 
 which, with a $100,000,000 asset, can reach the greatest conceivable 
 efficiency, to have more than a hundred million, when this extra 
 amount is sure to entail injury to the community. 
 
 Senator Cummins. When the United States Steel Corporation was 
 organized with its $1,400,000,000 of capitalization, it was, of course, a 
 very natural thing for those who managed it to want to sell the 
 product of the organization at a price that would make the entire 
 capitalization valuable. That seems to be a natural thing. 
 
 Mr. Brandeis. Yes; but it was no more natural than it was for 
 the organizers of the Tobacco Trust to want to pay 30 per cent 
 dividends instead of only 6 or 4 on their common stock. 
 
 Senator Cummins. I know, if managers occupied such a position in 
 the trade as that their competitors in the main were glad to follow 
 their prices. 
 
 Mr. Brandeis. Absolutely. 
 
 Senator Cummins. And that enabled the United States Steel Cor- 
 poration to hold up price's to a point that would make this capitalization 
 valuable? 
 
 Mr. Brandeis. Yes. 
 
 Senator Cummins. Whereas if the capitalization had been 
 $700,000,000, while of course the managers would have wanted 30 
 
COMMITTEE ON INTERSTATE COMMEECE. 1173 
 
 i>er cent or 50 per cent profit upon it, they would not have been so 
 ikely to have had the power to hold up their prices, would they ? 
 
 Mr. Brandeis. I think that there is a difference of degree, that is, 
 it is a little easier to stem the public indignation at 4 per cent on 
 $400,000,000 of watered stock than it would be if 50 or 100 per cent 
 were paid on a very much smaller amount. I think that is true. 
 
 Senator Cummins. Of course the American Tobacco Co. has had 
 quite a different history. It started in, as I remember, that is the 
 original organization, with $25,000,000 of capital, more than half of 
 which, or possibly two-thirds of which, was watered. That is, the 
 plants combined by the five original concerns were certainly not 
 worth more than $10,000,000. 
 
 Mr. Brandeis. I think we could go back further than that. I 
 think the exact figures are these: The five concerns put in nominally 
 $5,000,000, of which $1,875,000 was in notes of some of the persons, 
 so that there was really $3,125,000 put in. The trust then earned at 
 the rate of $4,000,000 a year before there was a greater capitaliza- 
 tion; that is, they earned more than 100 per cent upon the actual 
 cash capital which was put in at the start of the tobacco company. 
 
 Senator Cummins. And it then proceeded as rapidly as it could to 
 extinguish every competitor by all sorts of practices in order to get 
 complete monopoly of the business ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Cummins. Of course, then, with that power it could exact 
 any prices to accomplish any profit that its managers saw fit. 
 
 Mr. Brandeis. And defeat the purpose of Congress. 
 
 Senator Cummins. What regulations that will restrict competition 
 within reasonable limits do you suggest ? 
 
 Mr. Brandeis. I think this might be a very brief statement of 
 some of the practices which ought to be deemed in and of them- 
 selves unreasonable, and therefore illegal, if connected with the 
 restraint of trade: Selling in one locality at discriminating prices in 
 order to force out local competition; selling one grade or variety at 
 discriminating prices to force out competition; discriminating against 
 producers who will not agree not to deal with a rival; imposing 
 terms in leases that the lesees shall not buy or lease anything from 
 anyone else; spying on competitors; bribing methods; buying trade 
 secrets; establishing bogus competition. _ 
 
 I think practices of that nature, which are all what might be called 
 methods of destruction, and are not properly caUed competition at 
 all, ought to be made impossible. 
 
 Senator Cummins. We have acquired the term "m restraint of 
 trade," which we have been told many times, both here and from 
 the decisions of the Supreme Court, is based upon the common law. 
 Of course you recognize that some of those things were not known in 
 the common law as restraint of trade. Now, your idea is that we 
 ought to, say, enlarge upon the common law so as to make these 
 things which experience has shown are opposed to the public welfare 
 restraint of trade, and thereby bring them within the prohibition of 
 the antitrust law. ■ . T , 
 
 Mr. Brandeis. Yes; if it is necessary to do that, lnat is, l nave 
 no hesitation in saying that those practices are not proper practices 
 for business; and it is clear to me that if they are exercised m connec- 
 tion with any restraint of trade they ought to be conclusively accepted 
 as evidence of illegality or unreasonableness, as the court expresses it. 
 
1174 HEARINGS BEFOEB 
 
 Senator Cummins. There are some of us who hesitate — and I am 
 one — to accept the idea that there can be any reasonable restraint of 
 trade. I can easily imagine a restraint upon competition that is not 
 a restraint upon trade; but if the given thing is in restraint of trade, 
 which means of course that freedom of commerce which is necessary 
 for the public good, then it ought to be illegal, and I take it that your 
 general notion is that, viewed from the standpoint of our experience 
 in modern times, we ought to make the words "restraint of trade" 
 mean what the people of this country believe they ought to mean in 
 order to accomplish their own welfare. 
 
 Mr. Brandeis. That is my belief, decidedly. 
 
 Senator Cummins. I think that is all. 
 
 Senator Newlands. Mr. Brandeis, what limit would you place 
 upon the size of corporations ? 
 
 Mr. Brandeis. I should not think that we are in a position to-day 
 to fix a limit, stated in millions of dollars, but I think we are in a posi- 
 tion, after the experience of the last 20 years, to state two things: In 
 the first place, that a corporation may well be too large to be the most 
 efficient instrument of production and of distribution, and, in the 
 second place, whether it has exceeded the point of greatest economic 
 efficiency or not, it may be too large to be tolerated among the people 
 who desire to be free. I think, therefore, that the recognition of those 
 propositions should underlie any administration of the law. As I 
 stated before, I believe that it was a very serious mistake on the part 
 of our legislators to remove the limit of the assets and of capitalization 
 of corporations; that they did not fully consider what they were 
 doing. I believe it is historically true that that limit was removed 
 without serious consideration by the legislators of the country of 
 the probable effect of their action. 
 
 Senator Newlands. Do you think it would be in the power of the 
 United States Government, by act of Congress, to limit the size of 
 State corporations engaged in interstate commerce, either in point of 
 size, capitalization, or area of their operations? 
 
 Mr. Brandeis. I do not suppose it would be constitutional in one 
 sense to limit their size, but I suppose Congress would possess the 
 constitutional power to confine the privilege of interstate commerce 
 to corporations of a particular character. 
 
 Senator Newlands. You have no question about that power ? 
 
 Mr. Brandeis. I should think not. 
 
 Senator Newlands. It would be necessary to fix some standard, 
 would it not ? 
 
 Mr. Brandeis. I think so; yes, sir. 
 
 Senator Newlands. Upon which or by which the administrative 
 bureau or commission charged with the duty could determine whether 
 the corporation was of a size that threatened to become a monopoly 
 or that threatened, as you say, social efficiency. Now, what standard 
 would you fix ; how would you phrase it ? 
 
 Mr. Brandeis. I do not think that I am able at this time to state 
 the exact provision which I should make. I feel very clear on the 
 proposition, but I do not feel equally clear as to what machinery 
 should be invoked or the specific provision by which that proposition 
 could be enforced. 
 
 Senator Newlands. You do not think that standard should be 
 fixed in dollars; you have already stated that. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1175 
 
 Mr. Beandeis. I am very clear that the maximum limit could not 
 be properly fixed in dollars, because what would be just enough for 
 one business would be far too much for many others. 
 
 Senator Newlands. Then, if it is not fixed in dollars, would it not 
 be necessary to fix it in respect to the area of the operations, the pro- 
 portion of the business, or of the industry which the corporation 
 would be likely to absorb ? 
 
 Mr. Bkandeis. There is embodied some such suggestion in the 
 La Follette bill. It seems to me that probably this goes rather to 
 the volume of business than to capitalization, but the more I have 
 thought of the subject in connection with the tobacco disintegration, 
 in which case I acted as counsel and investigated trade facts, it 
 seems to me that there is a distinct peril in the community in having 
 one organization control a very large percentage of the market. The 
 La Follette bill provides that where there is found to be a combina- 
 tion in restraint of trade, if the combination controls 40 per cent or 
 more of the market, that creates a presumption of unreasonableness. 
 I am inclined to think that an inquiry into our experience of the last 
 20 years would justify making of that presumption irrefutable, and 
 that no corporation ought to control so large a percentage if we 
 desire to maintain competition at all. I found, for instance, in the 
 tobacco company this situation — and it was one of the many objec- 
 tions to the plan of so-called disintegration— that the American 
 Tobacco Co. in various departments were controlling about 40 per 
 cent or over of the American business. We found there that in this 
 way the American Tobacco Co. alone, and each one of the other two 
 large companies, would control a proportion of the total business of 
 the country in certain departments of the trade which was from one to 
 seven times the aggregate of the business of all of the independents. 
 Now, I believe that fair competition is not possible under those con- 
 ditions, because the mere power of endurance of the large company 
 would be sufficient to give it mastery of the field. 
 
 Senator Newlands. And yet, if you were establishing to-day a 
 standard to which corporations hereafter organized, we will say, for 
 the purpose of engaging in both interstate and State commerce, 
 should conform, you would not permit any such corporation to con- 
 trol 40 per cent of the business, would you ? 
 
 Mr. Beandeis. I do not think I should. I mean the more I have 
 thought of it the less inclined I have been to allow that. 
 
 Senator Newlands. Would you be willing to allow one-tenth in a 
 country as large as this ? 
 
 Mr. Beandeis. I am inclined to think it could control one-tenth 
 with perfect safety. 
 
 Senator Newlands. You would not go below that? 
 
 Mr. Beandeis. I would not prohibit it, and I should be perfectly 
 prepared to allow any appreciable larger percentage to be controlled 
 by one company. 
 
 Senator Newlands. You say you would be % 
 
 Mr. Beandeis. I would be prepared to allow considerably more 
 than one-tenth. The doubt I had was whether 40 was not too much, 
 and I was going down from 40. 
 
 Senator Newlands. Now, if you were to establish such a standard, 
 would you apply it only to corporations hereafter organized or endeavor 
 to apply it to corporations already organized ? 
 
1176 HEADINGS BEFORE 
 
 Mr. Brandeis. I should, in the first place, naturally apply it to 
 those corporations already organized which had been organized in 
 violation of the Sherman antitrust law. I think that is the real 
 question which confronts the country, and it is one on which there 
 ought not to be hesitation, because, as I indicated to-day in another 
 connection, it seems to me that it goes to the very foundations of 
 society. The things which have been done in defiance of law should 
 not be ratified. The danger of so doing is infinitely greater to 
 society than any danger from the fall of securities or questions of 
 credit, or anything of that kind. As I view it, we are in a position 
 that is serious because of the distrust of our laws, and of our courts, 
 and such an act as the validation of things illegal will be one of the 
 most serious steps that could be taken. We have been confronted 
 with that situation in Massachusetts. We validated on one occa- 
 sion violations of the law by a great corporation which are compa- 
 rable to the violation of the Sherman law, and I think the demor- 
 alizing effect upon the community has been great, the unrest in the 
 community increased, and also the doubt whether the law is being 
 applied equally to the rich and to the poor. I look with the greatest 
 apprehension upon any action on the part of Congress that would 
 seem to condone violations of the law, particularly those committed 
 by the rich. 
 
 Senator Newlands. You would apply, then, this standard as to 
 the percentage of the business, or the proportion of the business, 
 or the area of the operations, whatever it may be, of corporations, 
 not only to corporations that are hereafter to be organized, but also 
 to those now organized that have been condemned under the Sher- 
 man Act, and I presume you would extend it to those that may be 
 organized hereafter. 
 
 Mr. Brandeis. Yes; that should be those that have been guilty of 
 violations of the law. 
 
 Senator Newlands. Now, as applied to those great aggregations 
 of capital that now exist, whose securities are now upon the market, 
 and are in use as securities for bank loans, etc., what importance do 
 you attach to a movement that would practically retire those securi- 
 ties and result in the issue of securities of a different character, per- 
 haps very much less in amount — I am speaking now of the effect not 
 so much upon the owners of securities but upon the general prosperity 
 of the country itself ? 
 
 Mr. Brandeis. I believe it would have very slight effect upon the 
 general prosperity of the country — I mean slight evil effects — and 
 that it will have very great effect, ultimately beneficial effect, upon 
 the prosperity of the country if the people should understand that the 
 law will be enforced equally against the rich and the poor, or against 
 the capitalist or the laborer. 
 
 Senator Newlands. You would regard it as a wise thing to have a 
 gradual process of adjustment, would you not, rather than an imme- 
 diate one ? 
 
 Mr. Brandeis. I think certainly it is very desirable to have the 
 community accustom itself to the idea of change before a change is 
 made, but I think Mr. Perkins's statement yesterday in answer to a 
 somewhat similar question put to him by you, that a large amount of 
 money is borrowed on such collateral for commercial purposes, would 
 be found to be entirely unfounded. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1177 
 
 I do not believe people who are engaging in commercial business 
 are to any large extent investing in Standard Oil and Tobacco and 
 similar securities and then borrowing money on them for the benefit 
 of their business. I happen to know, from investigations which have 
 been made in connection with another trust — the Sugar Trust — that 
 its securities are held in the main by a very different class of persons 
 than business men. The women of New England seem to own the 
 great bulk of the securities of the American Sugar Refining Co., 
 and I think it willbe found so with regard to a very large number 
 of our other securities. Of course there are those who are speculating 
 in securities. 
 
 Senator Newlands. Your idea then is that they are held either for 
 investment or speculation as a rule ? 
 
 Mr. Brandeis. To a very large extent — not exclusively. 
 
 Senator Newlands. But the case you speak of in Massachusetts, 
 where the stocks are held largely by women — who never do wrong, 
 of course, and who must be innocent purchasers — what do you say 
 regarding the effect upon them of a radical readjustment m these 
 securities that would inflict a loss upon them ? 
 
 Mr. Brandeis. I think that is the effect which would be very un- 
 fortunate, but to my mind there is no such thing as an innocent 
 purchaser of stocks — I mean innocent in the sense in which we are 
 considering the purchasers of stock in the organization. It is entirely 
 contrary, not only to our laws but what ought to be our whole attitude 
 toward investments, that the person who has a chance of profit 
 where, by going into an enterprise, or the chance of getting a larger 
 return than he could get on a perfectly safe mortgage or bond, that 
 he should have the chance of gain without any responsibility. The 
 idea of such persons being innocent in the sense of not letting them 
 take the consequences of their acts is, to my mind, highly immoral, 
 and is bound to work out, if pursued, in very evil results to the com- 
 munity. When a person buys stock in the American Tobacco Co. 
 and buys stock in the Standard Oil Co., and buys stock in any of those 
 organizations of doubtful validity and of doubtful practices, they are 
 not innocent; they are guilty constructively by law, and they should 
 be deemed so by the community and held up to a responsibility; 
 precisely to the same responsibility that the English owners of Irish 
 estates should have been held up, although it was their bailiffs who 
 were guilty of nearly every oppression that attended the absentee 
 landlordism of Ireland. 
 
 Senator Newlands. How do you account for it that the stock of 
 the Sugar Trust drifted into the hands of the women of New England? 
 
 Mr. Brandeis. I think the women of New England, like other 
 investors, desire a large return and a larger return than they could 
 get upon the absolute safe investments. They were driven to that 
 larger return by peculiarly unwise tax laws in Massachusetts and 
 other New England States. So far as they did not invest in tax- 
 exempt property, they found the rate of taxation so high — for in- 
 stance, in the city of Boston it would be one and nearly seven-tenths 
 per cent on the market value of the security — that they had to go 
 into something more or less speculative in order to get satisfactory 
 returns unless they were content with a very low return which would 
 come from the tax-exempt security like municipal bonds or Massa- 
 chusetts guaranteed stock, something of that sort. With the idea 
 
1178 HEARINGS BEFORE 
 
 of getting a larger return, which was reasonably safe, they extended 
 the realm of their investments to industrials. 
 
 Senator Newlands. But men are just as desirous of large returns 
 as women, are they not ? 
 
 Mr. Brandeis. But the men are usually in a different position. 
 Women's property is apt to be held either in trust estates or in some 
 way akin to trust estates . When the men are investing they, of course, 
 invest largely in their own businesses and invest very largely also in 
 more speculative business — business in which the prospective return 
 is often larger than on preferred stocks. Then there is another rea- 
 son for this situation. Through the incidence of death a very large 
 part of our wealth in Massachusetts is really held for the benefit of 
 women. It is inherited wealth which is passing along that way and 
 is maintained in trust estates. 
 
 Senator Newlands. You referred to the unfair methods of killing 
 competition, and you gave a statement of a number of things which 
 should be forbidden. How would you make those unfair methods 
 impossible ? Would you punish the corporation, or the individual, or 
 the officials ? 
 
 Mr. Brandeis. I should punish both; I mean I think the law as it 
 stands, giving an opportunity of fine and giving an opportunity of 
 improvement, is proper; but I should give — what I .should expect 
 would be even more effective as a deterrent — the rights to the injured 
 individual to enforce through the Government action, in a practically 
 automatic way, his claim for treble damages, as set forth in the La Fol- 
 lette bill. That would prove, a very serious burden upon law-violat- 
 ing corporations. 
 
 Senator Newlands. You spoke of community of interests being a 
 factor in the prevention of competition. Take the shoe factories in 
 New England. There are a number of them, I presume, are there not ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Newlands. A very large number? 
 
 Mr. Brandeis. In Massachusetts there are over 400. 
 
 Senator Newlands. Would it be practicable there, do you think, 
 to prevent individuals from owning stock in half a dozen shoe fac- 
 tories, or otherwise ? 
 
 Mr. Brandeis. I think it would be perfectly practicable. I think 
 as a matter of fact it is very uncommon to-day. 
 
 Senator Newlands. Do you say it is very uncommon'? 
 
 Mr. Brandeis. It is very uncommon to-day. I think in the shoe 
 industry — I mean in the mere manufacture, say, of shoes — there is at 
 present the most perfect instance of competition and evidences of the 
 value of competition probably of any industry in the country. 
 
 Senator Newlands. Do you mean to say that a person seeking 
 investments in the stock of a shoe factory would always confine his 
 investment to any particular factory ? 
 
 Mr. Brandeis. Ido not mean to say they would always do so; but 
 I should feel perfectly sure that there was no appreciable number of 
 persons who invest in more than one company except in those 
 instances which I happen to know about of particular men who are 
 now practically partners in three or four or five businesses. 
 
 Senator Newlands. What I wanted to get at is, would you forbid 
 an investor in the stock of one corporation from holding stock in 
 another corporation doing the same business ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1179 
 
 Mr, Brandeis. I do not believe that the situation requires such 
 legislation. Take it in the shoe business. There are 1,918 shoe 
 manufacturers in the United States, or there were at the time of the 
 last census. The largest shoe manufacturer in the United States does 
 only a very large percentage of the total business. You have a situa- 
 tion in that business where there is not the slightest danger at the 
 present time of the suppression of competition. But when you are 
 dealing, for instance, with the tobacco case, where you are trying to 
 break up a combination, or where the control of the business has gone 
 into such few hands that it is easy for three or four or five or seven or 
 nine people to come together and control an industry, then you have 
 a situation where common ownership is absolutely destructive of com- 
 petition. 
 
 Senator Newlands. Would you meet that situation by a general 
 law that absolutely prevents such common ownership in any case, or 
 would you meet it simply in the case of the individual corporation 
 that is condemned under the Sherman Act ? 
 
 Mr. Brandeis. I would do the latter; that is, the La Follette bill, 
 in its more recent amendments, specifically meets that situation and 
 
 Erovides that in the case of an adjudication of illegality that it would 
 e in the power — as indeed I think it is now — of the court. The bill 
 makes clear a point — as to which the judges in New York seem to 
 have had doubt — makes clear the proposition that a court may, in 
 breaking up a combination, put such a limitation upon ownership in 
 the segments. 
 
 Senator Newlands. And you would have a limitation as to com- 
 munity of directorship ? 
 
 Mr. Brandeis. Absolutely. That is, there ought to be the fullest 
 power in the court to put limitations upon all segments of the trust 
 so as to make competition actual and not paper competition there- 
 after. 
 
 . Senator Newlands. You stated that labor unions were not per- 
 mitted in the steel industry ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Newlands. Are there no labor organizations of any kind 
 among the workingmen ? 
 
 Mr. Brandeis. There are a few independent shops, where the 
 amalgamated association is effective, and perhaps I may add there 
 has been the most striking instances of progress toward humanity, 
 and, to a certain extent, toward efficiency in some of those. 
 
 For instance, on this very question that I was speaking of this 
 morning, of the horrible 12-hour day, there are no trade unions. In 
 the shop of one of the small independents where the trade-unions 
 prevailed the union insisted upon an 8-hour day. A good many 
 of the workmen in that shop did not want to have an 8-hour day 
 because they thought their wages would be reduced. The manage- 
 ment thought that they could not compete with other businesses on 
 the basis of an 8-hour day, but the union insisted that they must 
 have an 8-hour day and the management consented to try it. They 
 tried it, and the 8-hour day was very successful. After it had been 
 in operation a little while there was nobody who would speak of 
 changing it. That, of course, was an independent organization and 
 not only independent but was one of the smaller industries. I think 
 it employed only about 1,200 people. 
 
1180 HEARINGS BEFORE 
 
 Senator Newlands. Do you think this movement for regulation 
 of the unions of capital will, or ought to, be followed by regulation 
 of the unions of labor ? 
 
 Mr. Brandeis. I do not believe that the conditions in America 
 are such that we are in any appreciable danger from the trade-unions, 
 except that danger of their unwisdom which is inherent in man. I 
 think the time has passed, owing to these larger aggregations, when 
 we have any reason to regard the combination of men in trade-unions 
 as a real menace. I think, on the other hand, that we should have 
 a reasonable publicity as to the organization, etc., of trade-unions. 
 
 Now, I want to state, while I believe in the instruments of trade- 
 unions, there is very much that I definitely oppose in their actions 
 as unions as well as of individual members. I am definitely opposed 
 to the closed shop; but I do not consider that the trade-union is 
 to-day a menace, and I think, with all its faults, with all the abuses 
 of the individual man, or of the individual union, we owe to it more 
 than to any other agency for the preservation of what there is that 
 is good in the condition of the American laborer — the reduction of 
 hours, the increase of wages, and very great improvement in the 
 conditions under which men work. 
 
 Senator Newlands. Do you regard the closed shop in labor as a 
 tendency toward monopoly, just as you do a combination of plants ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. You regard it as a tendency toward monopoly ? 
 
 Mr. Brandeis. I think there is no men or body of men whose 
 intelligence or whose chaiacter will stand absolute power, and I 
 should no more think of giving absolute power to unions than I 
 should of giving to capital monopoly power. 
 
 Senator Newlands. We are seeking legislation that is doing away 
 practically with the closed shop to capital, are we not ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. Does not consistency require us to extend 
 that to labor ? 
 
 Mr. Brandeis. I do not believe it does. I think that the labor 
 situation is such that we do not need any limitation upon their power. 
 That comes now from the difficulty of keeping in line those thousands 
 of men in any organization. I think the difficulty is such that we 
 do not require special prohibitions to curb the unions' power. 
 
 I believe that experience will teach the labor unions that they can 
 never succeed in a large way as long as they insist upon the closed 
 shop. 
 
 Senator Newlands. Do you think that labor troubles have had 
 anything to do with the capitalistic unions ? Do you think that the 
 creation of the labor unions led in some degree to the formation of 
 capitalistic unions as the only way of meeting them upon equal 
 terms, or that the organization of the capitalistic unions led to the 
 formation of the labor unions ? 
 
 Mr. Brandeis. No; I do not think the formation of the capital- 
 istic union led to the labor union. I think the labor union his- 
 torically would be found to have been the necessary development 
 of the factory conditions. I think, on the other hand, that the ex- 
 istence of labor unions has nothing to do appreciably with the forma- 
 tion of trusts. Of course it had a great deal to do with the formation 
 of employers' associations. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1181 
 
 Senator Newlands. Take the case of the steel industry; assume 
 that we determine that no capitalistic union in steel can absorb more 
 than one-twentieth of the entire industry, and now, on the other 
 hand, a union of the laborers employed by all the steel industries 
 to be one body capable of working as one. Would the capitalistic 
 unions hare a fair show under those conditions ? 
 
 Mr. Brandeis. The mind can conceive of that, but experience will 
 teach us that it would not be possible because the whole tendency in 
 the steel industry — indeed, in a large part of all industries — is to the 
 limitation in numbers of skilled workmen and to the rapid increase 
 of the unskilled labor. 
 
 Now, the formation of a union under all circumstances is extremely 
 difficult with unskilled labor. It becomes a matter almost of im- 
 possibility, when you are dealing as you do in the steel industry — 
 and you must in so many of the large trades, with not only foreign 
 labor but with the temporary foreign labor — the labor in which the 
 inflow and outgo each year or every few years is such as to make labor 
 practically as fluid as capital. 
 
 Now, under these conditions the formation and the control of the 
 union within the control of a large part of the working people is a 
 very difficult proposition. It is extremely difficult to hold the organi- 
 zation together. While I believe that the closed-shop idea is radically 
 wrong and is illegal, in the sense that no court could enforce it (and to 
 a certain extent the courts — our Massachusetts court — has interfered 
 by injunctions with the closed shop) yet I should not think that the 
 necessities of the situation were such as to require the same protec- 
 tion against the union which we now require against trusts. I mean 
 we are dealing here with a condition and not a theory. 
 
 Senator Newlands. In other words, you do not think that the 
 labor union constitutes the same menace to society that the capital- 
 istic union does ? 
 
 Mr. Brandeis. I do not. 
 
 Senator Newlands. But if it does you would be prepared to act 
 on that? 
 
 Mr. Brandeis. Absolutely, I think. Society must protect itself. 
 
 Senator Newlands. Now, you were saying that in the steel in- 
 dustry a large proportion of the employees are unskilled, and unskilled 
 labor is liquid. How is that with reference to the coal-industry 
 miners ? They are usually regarded as skilled laborers, are they not ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. Now right there 
 
 Mr. Brandeis. A part of them are skilled — not all, and the pro- 
 portion that are skilled is diminishing in the mining industry on 
 account of machine mining, just as in the other industries. 
 
 Senator Newlands. Assume that you have absolutely divided up 
 the capitalistic unions in such way as would create a very great 
 number of units and that you permit the labor organizations in one 
 industry to absolutely unite in one union, what do you think would 
 be the economic result under those conditions ? 
 
 Mr. Brandeis. I say in the first place you have a condition here 
 (this is a matter that was brought to the attention of another branch 
 of Congress at its last session) — the Pittsburgh district, which means 
 about 40 miles around the city of Pittsburgh, is a union district. 
 
1182 HEARINGS BEFORE 
 
 Eight next to the Pittsburgh district on the one side is the West- 
 moreland district, which is a nonunion district. On the other side of 
 the Pittsburgh district is the West Virginia, and farther along the 
 Kentucky district, which are also nonunion districts. You have 
 there, then, a region of 150 to 200 miles, the Pittsburgh district union 
 and all those other districts nonunion, and you are having there 
 developing just the same conditions that are occurring in the steel 
 industry. You have in the Westmoreland district and the West 
 Virginia district wages lower, conditions lower, very much lower than 
 they are 'in the Pittsburgh district. To show the helplessness even of a 
 rich union like the Miners' Union to deal with that situation, note that 
 in the Westmoreland a strike to which the Miners' Union contributed 
 over $1,000,000 proved to be absolutely helpless to affect the situa- 
 tion. It is a hard fight the unions have before them. Conditions 
 to-day are such that the union can maintain itself only with the 
 greatest of difficulty in most trades. That of course is due largely to 
 the liquid character of labor and to immigration. For instance, take 
 the Slavs that are in the steel industry. Down in the Westmoreland 
 coal mining district you have largely Serbs and Poles. Now those men 
 could not be talked to in English. The ordinary man of high experi- 
 ence in the union had no direct means of communication. That is 
 the situation in this steel industry to-day. A large proportion of the 
 people are wholely unable to understand the English language, and 
 are certainly unable to read our papers. 
 
 Senator Newlands. Are you familiar with the German system of 
 trusts or cartels ? 
 
 Mr. Brandeis. I am not familiar with them; I have some very 
 slight information with regard to them. 
 
 Senator Newlands. I wish to ask you whether in your judgment a 
 very large increase of the steel output of Germany, as compared with 
 the United States, was due to those combinations which seem to be 
 favored there by the Government rather than condemned ? 
 
 Mr. Brandeis. I do not believe they are, but I would like to call 
 attention to a marked difference between those combinations and the' 
 United States Steel Corporation. Whatever may be said in regard to 
 the cartel, in the main it leaves competition free — that is, you have 
 competition in production. The only things you have not freedom in 
 is the price at which you sell; and to a certain extent the quantity you 
 sell may be limited as to the proportion of the whole business you can 
 handle. 
 
 Senator Newlands. These cartels, I believe, cover the distribution 
 of the production amongst the different factories ? 
 
 Mr. Brandeis. Yes, sir; that is, the percentage. 
 
 Senator Newlands. And fix, I believe, also, a common price? 
 
 Mr. Brandeis. Yes; a common price; but they leave otherwise 
 competition free, and you have all the benefits in that respect of the 
 small businesses with the individual opportunity of increasing your 
 profits, provided you can produce cheaper than your neighbor. 
 
 Senator Newlands. You have observed, have you not, that the 
 chiefs in those great combinations resist the formation of labor 
 unions in their various industries ? 
 
 Senator Newlands. You have observed, have you not, that whilst 
 the chiefs in those great combinations resist the formation of labor 
 unions in their various industries they claim the protection of their 
 
COMMITTEE ON INTERSTATE COMMERCE. 1183 
 
 Government for the capitalistic unions; they absolutely repudiate the 
 idea of any encouragement whatever to labor unions f 
 
 Mr. Brandeis. Yes, sir; I think they show themselves human in 
 that respect. 
 
 Senator Newlands. We have also observed there that the Govern- 
 ment itself counterbalances its favoritism to the great capitalistic 
 unions by very pronounced social legislation in the interest of the 
 workmgmen. 
 
 Mr. Brandeis. It certainly does. 
 
 Senator Newlands. What is your understanding of the attitude of 
 the workingmen themselves in the country toward the great com- 
 panies of capital ? Do you not find a great many of them who believe 
 thoroughly in the big labor unions and also in the big capitalistic 
 unions, and insist that the best way of arriving at terms, both as to 
 hours and wages, is through a conference of these great unions on both 
 sides ? 
 
 Mr. Brandeis. I think that your question will have to be answered 
 in this way: So far as dealings with labor or trusts is concerned — I 
 mean by that the great corporations of monopolistic power — there is 
 no such thing as the dealing of labor with them, because those corpo- 
 rations have crushed out all collective bargaining and they have 
 insisted that their employees should not join unions. They deal with 
 the individual by prescribing the terms and conditions under which 
 he will be permitted to live and work. When it comes to a question 
 of employers' associations, that is, an organization of a large number 
 of competitive employers, the laboring men and the employers are 
 undoubtedly both very much better off when those conditions exist, 
 where they can come together, the unions on the one hand and the 
 employers' associations on the other, both strong and effective organ- 
 izations, come together and determine the basis on which men will 
 work. One of the most recent successes in this line was in connec- 
 tion with the cloak and suit maker's trade. It followed the settle- 
 ment of the great cloak and suit strike last year in New York in 1910, 
 which involved 70,000 persons and which resulted in a most admirable 
 working agreement between them, limiting the hours of labor, increas- 
 ing wages, and creating a joint board of control to secure a proper 
 condition. It eliminated the closed shop and substituted in its place 
 the preferential union shop; that is, the shop were a union man, 
 equally good, is given the preference, but where there was no such 
 thing as an obligation to employ a union man whether he was. equally 
 goad or not. 
 
 Senator Newlands. Do I understand you to say that none of the 
 trusts employ unionized labor? 
 
 Mr. Brandeis. There may be some organization which is called a 
 trust, as that term is used pretty broadly, but so far as I know none 
 of the large and successful organizations, the Tobacco Trust, Steel 
 Trust, Shoe Machinery Trust, Standard Oil Trust— none of those 
 great organizations which we think of when we talk of the power of 
 trusts — employ union men. It is almost a cardinal principle not to 
 
 do so. . 
 
 Senator Newlands. How do they reconcile their demand tor un- 
 limited capitalistic unions with their repudiation of the right of 
 American laboring men to form unions. 
 22877— vol 1—12 75 
 
1184 HEARINGS BEFORE 
 
 Mr. Brandeis. Might is right. You ask me what those men think, 
 or what some of them think. I was looking over an admirable ac- 
 count, which has stirred up a good deal of discussion, entitled "The 
 Steel Workers," by Mr. Fitch, which is part of the Pittsburgh Survey, 
 and was published by the Russell Sage Foundation. Here is what 
 Mr. Fitch stated on the spirit of the workers — speaking of the change 
 that came when the union was destroyed after the Homestead strike: 
 
 THE SPIRIT OF THE WORKERS. 
 
 Under common conditions workingmen are apt to develop common feelings with 
 respect to some of the deeper and more fundamental questions of their lives. This 
 is especially true in a crisis or a peculiarly aggravated state of affairs, when minor 
 differences are forgotten and feeling is keen! This was so at Homestead in 1892 when 
 H. C. Frick sent the armed Pinkerton guards to drive the striking workmen off the 
 company premises. It was so in Homestead again in February, 1908, when with the 
 
 Eamc at its height and the mills operating on barely one-fourth time the Carnegie 
 teel Co. cut wages 10 to 30 per cent of men who were not, during those months, earn- 
 ing enough to live on. It has been so at different times in the Monongahela Valley 
 in the last decade when men have been discharged and then blacklisted for meeting 
 in a public hall to form an organization. 
 
 Since 1892 a common feeling has been slowly making headway. The lengthening 
 of the working day, the choking of democratic institutions, and the coercive sway of 
 the employers have worked out more than a well-organized industrial machine. The 
 years from 1892 down are illuminated here and there with flashes of indignation. 
 These have died away and the public has forgotten, but each time the embers have 
 glowed a little redder, a little more surely. Among the many fine workingmen that 
 I grew to know in Pittsburgh was one whose gentleness of breeding and native cour- 
 tesy would have marked him in any company. I asked him once how far socialism 
 had progressed in the mill towns. His eye suddenly flashed as he answered, "Ninety- 
 nine per cent of the men are Socialists, if by that you mean one who hates a capitalist." 
 The steel worker sees on every side evidences of an irresistible power, baffling and 
 intangible. It fixes the conditions of his employment; it tells him what wages he may 
 expect to receive and where and when he must work. If he protests, he is either 
 ignored or rebuked. If he talks it over with his fellow workmen, he is likely to be 
 discharged. As a steel worker said to me, the same one quoted above, "The galling 
 thing about it all is the necessity of accepting in silence any treatment that the cor- 
 poration may see fit to give. We have no right to independent action, and when we 
 are wronged there is no redress." 
 
 From my own experience with workingmen in a number of dis- 
 tricts, and in a number of businesses, I think that to a greater or 
 less extent this indomitable power of the trusts is producing elsewhere 
 similar results. 
 
 Senator Newlands. My question was prompted by a labor utter- 
 ance that I read in the newspapers whilst I was in Germany this 
 summer. It is the utterance or the head of the Coal Trust, and it was 
 so intolerant regarding the whole workingmen' s movement over 
 there that I could not but believe it would have the effect of driving 
 many people into socialism. You spoke of a factory in Massachu- 
 setts which you claim was organized upon a rational and human 
 basis. The profit-sharing Dennison Co., was it ? 
 
 Mr. Brandeis. Yes, sir; the company that manufactures the 
 Dennison tag which is sold throughout the country. 
 
 Senator Newlands. You stated that there was five millions of 
 preferred stock in that company. 
 
 Mr. Brand is. Five million stock, not all preferred. 
 
 Senator Newlands. Which yielded what rate of interest 1 
 
 Mr. Brandeis. Eightper cent. 
 
 Senator Newlands. Was there any common stock there ? 
 
 Mr. Brandeis. I believe they started their organization with 
 $50,000 of common st.np.k- an d that, 9650.000 ia held bv certain of the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1185 
 
 workers in proportion to their salaries or wages. The plan is to 
 increase the stock from time to time and distribute it similarly. 
 
 Senator Newlands. And there the workers get one-half? 
 
 Mr. Brandeis. They get all the profit above 8 per cent. 
 
 Senator Newlands. How many employees has that corporation; 
 have you any idea ? 
 
 Mr. Brandeis. It is quite a large number, I do not know how many 
 will participate in this distribution. In these various concerns that 
 I mention, and a number of others, there are different rules in regard 
 to participation; in some 80 per cent and in some 75, and in some 
 only 25 or 30. 
 
 Senator Newlands. Is that system at all common in Massachu- 
 setts « 
 
 Mr. Brandeis. It is not common; but fortunately we are having 
 an increasing number of persons who are adopting it. 
 
 Senator Newlands. Does the law provide for it or facilitate it ? 
 
 Mr. Brandeis. No; it is a matter of individual action. Our peo- 
 ple have been confronted with this question: They recognize, as most 
 of us do, the shortness of human life and the great changes that 
 come. They say, "I have built up a business. Now, if that busi- 
 ness is to live, the only way it can live is by and through the people 
 who are making it live, and they are the only ones who deserve to 
 have anything out of it." I have had clients say to me, one after 
 another, "I do not feel that my family is entitled to the profits of 
 this business ; I think I am entitled to the profits of it, because I am 
 giving it my brains and I have worked it up and I ought to be able 
 to get out of it, and when I am gone the persons who are making 
 that business a success, whatever their position in that business, 
 they ought to share in it." 
 
 Now, that is a growing conviction, partly on the basis of commer- 
 cial justice and economic justice and partly on the grounds of expe^ 
 diency, because the feeling is growing so rapidly in this country of 
 resentment at being a hired man, of working for somebody else, that 
 the wise business men are seeing if they want to get the best they 
 can out of the men, the men must work for themselves. It must be 
 their own business and they must get all the fruit of what is earned 
 over a fair return on capital. Those incidents that I speak of hap- 
 pen to be mostly cases of my own clients, that profit sharing is 
 cooperative work. They found that they got out of the very same 
 men infinitely better results when the men were working for them- 
 selves than when they were merely doing work for others, and thinking 
 over it, the one man seeing what another has done, in time the idea 
 becomes contagious. Every once in a while another concern adopts 
 profit sharing and tries to devise something a little better than any 
 concern did before. Instead of such a profit-sharing system being, 
 as Mr Perkins suggested, possible only for capitalistic institutions, 
 we have found by far the finest and best fruits of the system in these 
 small concerns, some of them family concerns, or some concerns with 
 a small number of partners or stockholders, who were greatly ex- 
 panding and developing their business. 
 
 Senator Newlands. That is all I care to ask. 
 
 Senator Gore. You spoke, a few minutes ago, of competition exist- 
 ing among the shoe manufacturers of the country ? 
 
 Mr. Brandeis. Yes, sir. 
 
1186 HEARINGS BEFORE 
 
 Senator Goee. Do you not think the shoe manufacturers have been 
 rather the victims of the monopoly than the authors of the motives of 
 monopoly ? 
 
 Mr. Brandeis. I think manufacturers have suffered, and the com- 
 munity suffered, and is going to suffer a good deal more, from the shoe 
 machinery monopoly unless it is broken. 
 
 Senator Gore. That is the point I was coming to. Have you out- 
 lined — unfortunately, I have not heard all of your testimony — to some 
 extent the methods of the United Shoe Machinery Co. ? 
 
 Mr. Brandeis. I spoke this morning briefly on that subject and also 
 called attention to the provisions of the La Follette bill, proposing to 
 meet the difficulty which is presented, or certain special difficulties 
 presented, by the shoe machinery corporation's action. 
 
 Senator Gore. I have observed the provisions of that in the bill. 
 As I understand, the shoe-machinery company leases its machinery to 
 the various manufacturers of the country. Is that true ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. They do not sell? 
 
 Mr. Brandeis. They sell certain machines, but not those machines 
 of which they have the monopoly. 
 
 Senator Gore. And, in addition, they require all lessors of machin- 
 ery to buy certain wire and a good many other things ? 
 
 Mr. Brandeis. Yes, sir; and parts for the machinery, which is a 
 very large item. 
 
 Senator Gore. And those parts of those machines are not made on 
 the ordinary standard. Take bolts. I have been told by a shoe 
 manufacturer as to the ordinary bolt, the shoe machinery makes them 
 off-sizes. They do not make a standard size, so a man can not go 
 down to the ordinary hardware store and buy what he wants ? 
 
 Mr. Brandeis. It would be a breach of the terms of the lease to do 
 it anyhow. 
 
 Senator Gore. But I suppose they hedge both ways to make it 
 impossible. Do you think that the constitutional and legal monopoly 
 contemplated by a patent should embrace that sort of business 
 methods ? 
 
 Mr. Brandeis. I do not think it should and I do not think it does. 
 I think that the monopoly held to-day by the shoe-machinery com- 
 pany is not by virtue of any patents; but it is by virtue of the situa- 
 tion, and the patent is here and there an excuse merely. It is not the 
 real cause or basis of the monopoly. 
 
 Senator Gore. Do you think they could maintain this monopoly 
 without the patents ? 
 
 Mr. Brandeis. I think the monopoly is illegal, and I believe 
 that 
 
 Senator Gore. Patent or no patent ? 
 
 Mr. Brandeis. Patent or no patent, it is illegal. It is an extraor- 
 dinary strength of position the equal of which I do not know of 
 in the whole realm of industry in America. 
 
 Senator Gore. Are you familiar with the experience the company 
 has had in Canada? 
 
 Mr. Brandeis. I know in a general way of the proceedings that 
 have been taken there with a view to testing the legality or illegality 
 of their acts. 
 
 Senator Gore. The preliminary report was to the effect that they 
 were a monopoly ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1187 
 
 Mr. Brandeis. Yes, sir; and of course we now have, as you know, 
 criminal proceedings pending in Boston, and day before yesterday 
 the civil proceedings were taken by the Federal Government. 
 
 Senator Gore. Have you ever considered the propriety of enacting 
 a compulsory working clause here in connection with patents, such 
 as they have in Canada and Germany? 
 
 Mr. Brandeis. That is permitting their use upon the payment of 
 reasonable compensation ? 
 
 Senator Gore. Yes; then compel the manufacturer to make and, 
 I think, sell them, and in doing that, permit other people to do it. 
 Mr. Brandeis. I think such a provision is desirable. 
 Senator Gore. You spoke also of the Pittsburgh coal operators, 
 or laborers rather, who are organized in the Pittsburgh district. I am 
 passing to another subject now of laborers in the districts who are 
 organized, the miners. 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. In the Westmoreland and Pocahontas districts 
 they are not ? 
 
 Mr. Brandeis. They are not; they are not in the Westmoreland, 
 and in practically all West Virginia ; there are here and there unions 
 in West Virginia mimes, but in the main there are none. 
 _ Senator Gore. The laborers in the organized districts receive con- 
 siderably higher wages than in the unorganized districts ? 
 
 Mr. Brandeis. In Pittsburgh they receive very much higher 
 wages. 
 
 Senator Gore. Thirty or forty per cent higher? 
 Mr. Brandeis. Yes. 
 
 Senator Gore. Now when the output of the Pittsburgh and West- 
 moreland districts goes into the market they sell in the same market 
 to competitors? 
 
 Mr. Brandeis. Yes, they do. The situation is this: Westmoreland 
 has a double market. It has the same freight rate as Pittsburgh 
 to the Lakes, 88 cents, and it has 15 cents less rate to the Atlantic 
 seaboard. 
 
 Senator Gore. And they compete, notwithstanding the rates and 
 wages paid ? 
 
 Mr. Brandeis. They do compete, but they compete under con- 
 ditions that mining in the Pittsburgh district is unprofitable, owing 
 to the excessive rates and the competition of West Virginia and 
 Westmoreland regions. The Pittsburgh operators can not make a 
 reasonable profit, and very many of them can not any profit at all. 
 The question is now before the Interstate Commerce Commission on 
 a petition for reduction of the rates. The situation is due to the fact 
 that although Pittsburgh has the geographical position near the 
 Lakes which would entitle it to the low freight rate, the railroads 
 running to West Virginia mines have been giving West Virginia mines, 
 with a very much longer haul, a more favorable rate. That is a very 
 slight differential between the two. The high' rate to the Lakes is dis- 
 turbing the Pittsburgh district at the present time. 
 
 Senator Gore. The rate of wages and freight rates both are 
 against it ? 
 
 Mr. Brandeis. Yes; they could pay the rate of wages if they had 
 a fair and equitable freight rate, but the two together create a condi- 
 tion which the industry at Pittsburgh can not stand. 
 
1188 HEARINGS BEFORE 
 
 Senator Gore. Did you discuss this morning the alleged money 
 trust, commonly referred to ? 
 
 Mr. Beandeis. I did; I referred to it in connection with the indus- 
 trial trusts. 
 
 Senator Gore. Have you reached the conclusion that there is such 
 a trust ? 
 
 Mr. Brandeis. I have no doubt about it — that there is something 
 which may be popularly called a trust. Of course, it is not a trust, 
 strictly speaking, but merely a control exercised by a few people (and 
 those who bow to them) over a large part of the quick capital of the 
 country, and that no great enterprise, or practically no great enter- 
 prise, can be undertaken without their consent. 
 
 Senator Gore. That is the point. Do you not regard that as really 
 the most deadly and withering trust that has ever been exercised ? 
 
 Mr. Brandeis. I do; and I call attention — if the members of the 
 committee will permit me to repeat a little of what I said — I call 
 attention to the fact that, in my opinion, the formation of the industrial 
 trust, which makes mobile and liquid a large part of the capital of 
 the country, is the greatest contributor to the power of the money 
 trust, and that further extension of the industrial trust would put 
 that power far beyond the possibility of any control by Congress, or 
 anyone else in this country. 
 
 Senator Gore. Do you not think that the money trust and indus- 
 trial trust are in a sense reciprocal — caused by each other? 
 
 Mr. Brandeis. I think they are, and I thmk every new trust is 
 appreciably increasing the money power, and the moment you are 
 able to reduce the favored position of the industrial trust you will 
 have made some advance, however small, toward grappling with that 
 most difficult subject, the control of capital. I do not think the 
 reduction of the power of the industrial trust will cure the ills attend- 
 ing the money trust. It is merely one of many things that would 
 have to be done to make an appreciable advance in that direction. 
 
 Senator Gore. The Money Trust, if it had to loan its prospective 
 rival concern or finance it, do you not think it could exercise a good 
 deal of pressure to prevent other banks or other like institutions from 
 financing it ? 
 
 Mr. Brandeis. It not only could, but I am very certain that it 
 already does. 
 
 Senator Gore. Whether the other concern is part of its organiza- 
 tion or simply a weaker concern? 
 
 Mr. Brandeis. I am very certain it does. As an instance of this 
 take the Shoe Machinery Trust, which finally put an end to the open 
 competition by the Plant concern. It did not accomplish that by com- 
 mercial means. It was accomplished through their control of the 
 money market. Mr. Plant found closed to him those avenues of 
 credit which' he had previously enjoyed and which he was entitled to. 
 
 Take the situation of Mr. Plant. He was a very successful shoe 
 manufacturer — a remarkably successful man. His concern was earn- 
 ing five or six hundred thousand dollars a year. His business had 
 been built up through his own efforts and with his brother's aid. 
 With a few about him he displayed admirable business ability, govern- 
 ing a business extending throughout the country. He undertook a 
 task which was large, namely, of creating a competing shoe-machinery 
 system, and it involved the expenditure of several million dollars — 
 between three and four million dollars. Now, with Mr. Plant's shoe 
 
COMMITTEE ON INTERSTATE COMMERCE. 1180 
 
 business and with these machines which lie had developed into a 
 successful system — declared by some of the best manufacturers of 
 the country to be superior to the United 's— he was in a position 
 where he was entitled practically to any reasonable credit he might ask. 
 The amount that he required to carry him along was about $2,000,000. 
 He had property that was worth four or five million dollars. His 
 shoe business was one of the leading shoe businesses in the country, 
 and yet after he had completed his machinery system; after he had 
 demonstrated the success of it and gotten the certificate of approval 
 from some of the best manufacturers of the country, east and west, 
 his credit was cut off absolutely. Men who were disposed to give 
 him credit after a few days withdrew. 
 
 _ That was not accident. It was not the result of internal delibera- 
 tion upon the question. It was undoubtedly the result of that 
 influence exercised directly and indirectly by the powerful organiza- 
 tion to which he was opposed. As a matter of fact this shoe machin- 
 ery corporation is a financial power as much as it is an industrial 
 power. The managers of the shoe machinery corporation are prac- 
 tically the controlling influence in the First National Bank of Boston. 
 They are a very large influence in our leading trust company, and have 
 important influence in the Hanover National Bank and other banks 
 of New York. It has been the steady policy of the United Shoe 
 Machinery Corporation to keep at all times a huge cash balance which 
 was deposited m those various banks, evidently not so much for cur- 
 rent use in the business as for the financial control which they exer- 
 cised through being large depositors in important banks. 
 
 In Massachusetts the allegiance of the shoe manufacturers to the 
 United Shoe Machinery Co. is due in many cases to the financial 
 
 Eower. The United Shoe Machinery Corporation may be very helpful 
 y their influence in securing to a shoe manufacturer credit from the 
 banks — and may also cause credit to be withheld. It is only the man 
 who is independent of such influences who has so much financial ability 
 that he does not have to ask aid, and does not have to disclose his 
 situation, who can safely take a position of hostility to the United 
 Shoe Machinery Corporation's methods. 
 
 This is one of the incidents I referred to, in answering Senator 
 Cummins, when I spoke of the power which these trusts exercise, 
 wholly outside of their mere control of the industry itself. 
 
 Senator Gore. Still those bankers who want to crush a man like 
 that always have, at least, the plea that extending credit is bad 
 banking. 
 
 Mr. Brandeis. Nobody can prove conclusively why credit was 
 denied. It is a matter of judgment, and in this particular instance 
 I have very good evidence — absolutely reliable in my judgment — that 
 one of the men who refused Mr. Plant credit, thought that his credit 
 was perfectly good and was willing to give him the credit, but was 
 not willing to oppose the important financial interests that intimated 
 to him that they did not want him to have credit. 
 
 Senator Gore. What is the name and address of Mr. Plant ? Is he 
 still living ? 
 
 Mr. Brandeis. His name is Thomas G. Plant. His address is Bos- 
 ton. I do not know whether he is there at the present time. You 
 know how he happened to sell out his business to the Shoe Machinery 
 Trust. Mr. Plant was driven to the position where the next day he 
 
1190 HEARINGS BEFORE 
 
 had ■ to meet perhaps half a million dollars of obligations and he 
 simply could not get any money. He had been driven to the last 
 ditch. He had been trying to raise some money through an arrange- 
 ment with western manufacturers. They were in Boston for that 
 purpose. They were not quite ready to agree to advance the large 
 sum of money needed. It was necessary to have about a million dol- 
 lars to meet the situation. He left these western manufacturers at 
 about 8 o'clock. Failure to meet his obligations stared Mr. Plant in 
 the face. He then went to the office of the counsel of the Shoe 
 Machinery Trust to see the members of that corporation, and between 
 8 that evening and 5 o'clock the next morning the transaction was 
 completed by which this wonderful competitive machinery system 
 was turned over to the shoe machinery corporation. The officers and 
 counsel were in conference all night to complete the transaction which 
 involved something like $5,000,000, enough to enable Mr. Plant to pay 
 his debts and to remain a rich man. He was one of the ablest business 
 men of the country, and at the age of forty-six or seven or eight the 
 industrial world loses the services of a man who had done a wonderful 
 thing, perfectly marvelous achievement in business. 
 
 Senator Gore. There was a case where the freedom of contract was 
 not very serviceable ? 
 
 Mr. Brandeis. No, sir. 
 
 Senator Gore. With reference to the shoe machinery company, do 
 you think legislation is necessary to enable the courts to meet that 
 situation ? 
 
 Mr. Brandeis. I think legislation is necessary in several particulars, 
 which are covered by the La Follette bill, and which you doubtless 
 recognize as having special reference to the condition of the shoe 
 machinery trade. These are absolutely necessary, because the situ- 
 ation is this, as I indicated this morning: Even if the Government is 
 completely successful in its equity suit, and a final decree is entered 
 in that suit as prayed for, the situation will be one from which no 
 relief can be had unless it is possible in the meantime to gradually 
 develop and have introduced and built other machines and to work 
 them m. The provision in the La Follette bill, which asks for the 
 restraining order allowing the use of machines until substitutes have 
 been provided is essential; because the manufacturers fear that if 
 they put in any competing machines the trust will take out all their 
 machines. 
 
 Senator Gore. There are competing machines, are there ? 
 
 Mr. Brandeis. There are competing machines existing potentially, 
 but they are not constructed. I mean that some of them are mere 
 models or samples. There are a few here and there, 10, 15, or 
 20 machines; but the United Shoe Machinery Co. had outstand- 
 ing at the close of this last year 94,000 machines of different kinds. 
 There are perhaps 200 different kinds of machines, and the only way 
 you can break that monopoly and correct the extortionate prices 
 which are now being charged in the way of royalties, is to let other 
 machines gradually be developed and introduced into the shops. 
 
 Senator Gore. You think it would be either necessary or advisable 
 to require the sale of these machines ? 
 
 Mr. Brandeis. I do not believe that it is. I think the one thing 
 necessary, aside from the independent operation of the plant system, 
 to establish the competitive condition m the shoe machinery bus- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1191 
 
 iness, is to put out machines on the unit price basis, so that any man 
 can get any one or more machines at the same unit price. 
 
 In that way shoe manufacturers would gradually secure machines 
 that are as good as or better than the trust's. All the independents 
 need is the opportunity. The door of opportunity is closed to them 
 now. 
 
 Senator Gore. That would liberate the few manufacturers from 
 the machine side of the monopoly, leaving possibly the money 
 monopoly forever effective in some instances ? 
 
 Mr. Brandeis. Yes, sir; but I think if they were free from the 
 machine side of the monopoly, the trust's royalties would soon be 
 reduced and also its financial power. 
 
 Senator Gore. Now, if the Money Trust or, say, the New York 
 Clearing House, should insist on other companies giving their books 
 and loans to the inspectors, authorizing the clearmg house to pass 
 upon them with a view to doing business with the clearing house or 
 allowing them to clear with the clearing house, that would afford 
 them an opportunity to see what was going on ? 
 
 Mr. Brandeis. I think it would. 
 
 Senator Gore. Whether any concern in the country was being 
 financed in opposition to their wishes % 
 
 Mr. Brandeis. I think it would. 
 
 Senator Gore. That could all be done behind the curtain, in the 
 dark, could it not ? 
 
 Mr. Brandeis. Yes. And a great deal is being done now behind 
 the curtain. 
 
 Senator Gore. That could stop everything in the cradle, every 
 corporation or concern that might oppose any of the other institu- 
 tions federated with them ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. I think that is all. 
 
 The Chairman. Senator Brandegee, you may inquire. 
 
 Senator Brandegee. Mr. Brandeis, you have gone over such a 
 vast amount of ground and have been on the stand all day, that I 
 do not feel justified in asking more than a very few questions. I 
 did not hear the very opening of your statement this morning, but 
 I want to see if I understand you- correctly in this : Are you opposed 
 to the establishment of any sort of a commission or tribunal of any 
 kind whose purpose it should be to license corporations engaged in 
 interstate commerce ? 
 
 Mr. Brandeis. Yes, sir — that is, the latter part. I am opposed to 
 the licensing. I am not opposed to the establishing of a commission 
 which shall possess very broad powers of investigation and inquiry — • 
 publicity. But I do not think we are in a position to-day where we 
 can safely intrust, in the present state of our knowledge, that we can 
 safely intrust to anybody the licensing of these corporations. 
 
 Senator Brandegee. You would not favor, in fact you would 
 violently oppose, the appointment of a business court, or anything of 
 that kind as suggested by Mr. Perkins yesterday ? 
 
 Mr. Brandeis. I should oppose it. 
 
 Senator Brandegee. With power to say to any existing corpora- 
 tion that was liable to be proceeded against under the Sherman law, 
 that they might legally have a right to continue as they were in com- 
 merce among the States. 
 
1192 HEARINGS BEFORE 
 
 Mr. Brandeis. I should be opposed to that. 
 
 Senator Brandegee. And you think the proper remedy is to leave 
 the so-called Sherman law as it stands, so far as it is now a law, and 
 supplement it and strengthen it by the passage of the La Follette 
 bill, which is Senate bill 3276, with the amendments introduced by 
 Mr. LaFollette yesterday, with the announcement that he intended 
 to propose them at the time ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Brandegee. And that you think would result in a success- 
 ful prosecution of all the corporations engaged in commerce among 
 the States which at present are in restraint of trade ? 
 
 Mr. Brandeis. I think it would greatly aid in not only the prose- 
 cution, but what would be even more potent, as a deterrent against 
 acts in violation of law. It would also afford to those business men 
 who desired to know definitely what is illegal very many things that 
 they should avoid. It would have the best educational effect. 
 
 Senator Brandegee. What you have said in regard to the pros- 
 ecution of corporations applies in their dissolution ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Brandegee. Did you indicate in the course of your tes- 
 timony whether you would have this commission, which might be set 
 up, with authority to investigate, etc., have any administrative func- 
 tion in relation to the dismembering of the trusts after they had been 
 pronounced illegal by the courts ? 
 
 Mr. Brandeis. I do not think I spoke on that subject. I have an 
 opinion on it. It seems to me that such a body, that this commission 
 or court — I would rather call it a commission than a court — I think 
 the commission through its officers should have the function, so that 
 they may be properly called upon to make an investigation, because 
 I believe it is absolutely necessary that such an investigation be made. 
 The purpose of every prosecution, of every dissolution, must be to 
 determine what is necessary in order to reestablish competitive con- 
 ditions. That is a commercial question. It depends upon the facts 
 of the trade and can only be ascertained by investigation. The con- 
 ditions differ in every case. What is necessary in the tobacco case 
 would have no application whatever to the shoe-machinery case, and 
 so on as between the different kinds of trusts. Each subject ought 
 to be thoroughly investigated. As a matter of fact, there ought to 
 be a large mass of information gathered together. The court has, 
 notably in the tobacco case, shown itself absolutely unable to under- 
 stand the commercial conditions. The judges did not have the facts 
 brought to their attention. There was no opportunity of doing that. 
 I think that such a commission would afford a very valuable assist- 
 ance toward the proper solution of problems of that nature. 
 
 I should also insist upon ample publicity, and let those persons who 
 are directly interested, as competitors or possible competitors and 
 representatives of the public, have the opportunity to be heard and 
 know what is being done. I should deprecate, above everything 
 else, the kind of action which was pursued by the circuit court 
 judges in holding private conferences with the Attorney General and 
 with the counsel of the Tobacco Trust, and determining the plan that 
 should be adopted, the general lines of the plan of dismemberment, in 
 private, without any knowledge by the public, without the opportu- 
 nity of the public knowing what was being said until the plan was 
 
COMMITTEE ON INTERSTATE COMMERCE. 1193 
 
 practically agreed upon. I think that course was entirely contrary 
 to our ordinary judicial methods, and, to a large part, accounts for 
 the very unsatisfactory decision that was rendered. 
 
 Senator Brandegee. When you first started to talk about powers 
 of investigation, which you would confer upon the commission, I 
 thought you meant that you would give them powers to initiate an 
 investigation at any time into the affairs of corporations engaged in 
 interstate commerce ? 
 
 Mr. Brandeis. That was only in addition to other powers. 
 
 Senator Brandegee. What would you do with the existing 
 Bureau of Corporations, with their powers of investigation ? f^g 
 
 Mr. Brandeis. I do not think I have any opinion of value in 
 regard to mere matters of machinery, but I should suppose that that 
 bureau would be naturally merged into a new commission, with the 
 idea of avoiding any duplication, and of utilizing the very valuable 
 organization which now exists. 
 
 Senator Brandegee. If I understood you this morning, you stated 
 something like this, that after the Boston Shoe Machinery Co., with 
 the large number of shoe manufacturers which it now supplies and 
 whose plants were now equipped with their machinery, it would 
 take a period of something like eight years, if anybody started 
 now, to reequip those with different kinds of machinery 1 
 
 Mr. Brandeis. I should think, including the time that it would be 
 necessary to spend in making patterns and dies and perfecting things 
 and bringing everything together, before you could really supplant 
 94,000 machines and the additional number that would be required 
 in the meantime by the growth of business, it would hardly be possi- 
 ble to build substitutes in less time than you named. 
 
 Senator Brandegee. I did not ask the question because I doubted 
 it, but to see if my recollection was correct. 
 
 Mr. Brandeis. That is right. Mr. Plant, working in the develop- 
 ment of his system, spent 7 years in that work, and at the end of that 
 time he had 3,000 men working building machines to perfect the 
 relatively few machines that had been completed when he sold out; and 
 he had occupied, I think, 8 or 10, and sometimes 15 or 20, machine 
 shops in New England which were working on different machines and 
 different parts. 
 
 Senator Brandegee. That, then, together with the fact that they 
 are the sole persons in possession of the field and the fact that nobody 
 could acquire it for such a period of time as you have indicated, is 
 what you mean — some of the things you mean — -when you say they are 
 so strongly intrenched that the monopoly does not depend on the 
 patents at all? 
 
 Mr. Brandeis. That is one thing. And it is not merely the im- 
 portance of being able to get these machines gradually built. That 
 is, of course, a very important thing. But, in addition to getting the 
 machines gradually built, you have got to educate the shoe worker to 
 the new machine. And if you had a perfect system to-day, were able 
 to equip your factory to make 16,000 pairs of shoes on your own 
 machines, you would have the operatives — three or four or five thou- 
 sand operatives — who are working, and those you would have to teach; 
 and it would take so long to teach the men the proper use of these 
 new machines that almost any business would be ruined in the process 
 if that had to be done all at once. It could onlv be done gradually 
 
1194 HEAEINGS BEFORE 
 
 if the health and prosperity of the business is to be maintained. You 
 would have to put in one machine here and teach the operative how 
 to work it, and then put in another machine there and teach another 
 operative how to work it, and gradually train your forces. You are 
 dealing not only with securing machinery, but you are dealing with 
 the creating of the necessary skill in the men so as to make a product 
 which depends on a special finish for its reputation in the trade. 
 
 Senator Brandegee. Recurring again to the other point: If the 
 commission, if there should be such established, had jurisdiction over 
 the dissolution and the process of reorganization of a dissolved cor- 
 poration, would you be willing to leave with them the unrestricted 
 power to say into how many parts and in what proportions the illegal 
 combination should be dissolved and how its securities should De 
 reapportioned and treated, or would you have them propose a plan 
 after investigation and have the court ratify it ? 
 
 Mr. Brandeis. I should say the latter. 
 
 Senator Beandegee. That is all. 
 
 Senator Gore. Do you not think that a commission charged with 
 the power of approving a proposed organization, or disapproving an 
 existing one and reorganizing an existing one — would not that tend 
 more and more to drag this question of trusts and monopoly into the 
 political arena ? Would not large businesses have a greater desire 
 and incentive than now to elect the president and control the possible 
 action of the board ? I mean where they were charged with discre- 
 tion and power — not a board of publicity. Where they were charged 
 with the plenary power to dissolve and reorganize ? 
 
 Mr. Brandeis. You have noticed that in my answer to Senator 
 Brandegee that I thought they ought not to have full power, but 
 merely advisory power. 
 
 Senator Gore. I noticed that, and I thought there was a reason 
 for it. 
 
 Mr. Brandeis. That is a reason. 
 
 The Chairman. The committee will take a recess until 10.30 
 o'clock to-morrow. 
 
 (Thereupon, at 4 o'clock and 55 minutes p. m., the committee took 
 a recess until to-morrow, Friday, December 15, 1911, at 10.30 o'clock 
 a. m.) 
 
 FRIDAY, DECEMBER 15, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. 0. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m., 
 for the purpose of further considering the bill (S. 2941) entitled 
 "A bill to create an interstate trade commission, to define its powers 
 and duties, and for other purposes," introduced by Mr. Newlands, 
 July 5, 1911. 
 
 Present: Senators Clapp (chairman), Crane, Nixon, Cummins, 
 Brandegee, Oliver, Lippitt, Townsend, Newlands, Gore, andPomerene. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1195 
 
 By direction of the chairman the following communication is 
 incorporated in the record : 
 
 Indianapolis, Ind., December IS, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Senate Committee Interstate Commerce, 
 
 Washington, D. C. 
 
 Dear Senator: Replying to your favor of the 6th instant, in which you say you 
 would appreciate it if I will submit to the committee my views, as expressed in my 
 letter of the 4th instant, embodied in the draft of the bill, I am complying, with a 
 good deal of hesitation and reluctance; but I know that you appreciate the difficulty, 
 and what I am sending is merely a suggestion to work on. 
 
 To get my idea, perhaps a few lines of explanation will be helpful. I take it that 
 at present the Federal courts can not exercise common-law jurisdiction in criminal 
 cases, but have only such powers as are conferred by Congress; that for any act to be 
 a crime, it must be prohibited and made punishable by law. Bishop (1 Bish. Crim. 
 L., sec. 32) says: "A crime is any wrong which the Government deems injurious to 
 the public at large and punishes through a judicial proceeding in its own name." 
 Again he says: "A penal statute to be valid must be sufficiently definite, either by 
 specifying the acts that shall constitute it or describing it by some name known to the 
 common law. The description, though general, is sufficiently definite if the court, 
 by giving the words their ordinary meaning, can say what acts were intended to be 
 punished. A statute punishing a crime and describing it as 'rape,' 'arson,' 'robbery,' 
 is too indefinite." 
 
 And so I take it that by adopting the definitions and construction of the common 
 law as to offenses against trade we get the benefit of centuries of experience and con- 
 structive thought. I tried to embody this thought in section 1. I have some doubt 
 about the word "unreasonable," and indicate it; but I remember that the word 
 "unreasonable" has long been used in the common law, and is used in the Federal 
 Constitution (amendments, Art. IV) in regard to "unreasonable searches and seizures." 
 If so, why not here? 
 
 Section 3 might be regarded as superfluous, but when we consider that all the pro- 
 visions of a statute must be construed together, it may be useful in indicating the 
 intention of a legislative body; and, again, it can hardly be said that the general 
 terms in which the first two sections of the draft are drawn are limited by the specific 
 acts referred to in this section 3. 
 
 Violators could hardly excuse themselves from complying with the law on the ground 
 that the statute is too indefinite. 
 
 I know it is crude, hastily drawn, needs discussion, emendation, amendment, etc. 
 I know it does not refer to "restraint of trade" or "monopoly." It was not in my 
 thought that it should; and yet, if it seems wise, a line can make it so apply. 
 
 My thought was and is that men daily commit these crimes for the reasonthat they 
 do not regard them as crimes, and that if these crimes are not committed "restraint 
 of trade and monopoly " would be much more difficult and much more easily controlled. 
 
 To my mind, as stated in my first letter, there are some corporations and combina- 
 tions that must be supervised and put under Government control, but this bill ib 
 aside- from that. . , , 
 
 If I have helped the committee ever so little I shall be glad; if not, it is but a snort 
 distance to the wastebasket. 
 
 With kind regards, I am, very truly, yours, O. A. Aenyon. 
 
 Be it enacted, etc. . , . 
 
 Section 1 That all persons shall henceforth have the right to contract, to acquire, 
 hold, and dispose of property, and have the free- right to trade, mi any and all matters 
 relating to or connected with, interstate commerce, as freely, and in like manner, 
 and like construction, as under the common law of England; subject, however to 
 such enlargements, limitations, and restrictions as are, or may be, prescribed by tne 
 Constitution of the United States or any act or acts of Congress; and any act or series 
 of acts: or contract, understanding, or agreement, the purpose and effect or wnicn, is 
 to deprive or (unreasonably) abridge or hinder any person from the enjoyment ot any 
 or all of these rights is hereby declared to be illegal. 
 
 Sec 2 That any person, whether acting for himself or as the representative, or 
 for the benefit of any other person, firm, copartnership, corporation, or association 
 of anv kind who shall by himself alone or in combination, contract, agreement, 
 conspiracy or understanding with others, do or perform, or attempt to do or perform, 
 
1196 HEARINGS BEFOBE 
 
 any of said acts or series of acts the effect and purpose of which is to illegally or unjustly 
 deprive, take away from, or (unreasonably) obstruct or hinder another person in the 
 free and legal right to contract, to acquire, hold, and dispose of property, or the free 
 right to trade, as in the first section set out, shall be guilty of a felony, and upon con- 
 viction thereof shall be imprisoned for not less than one or more than five years. 
 
 Sec. 3. It is hereby declared that the doing of any one or more of the illegal acts 
 herein described in any particular case, which, alone or taken in connection with other 
 evidence shall constitute a violation of other sections of this act, except as to the intent 
 or purpose thereof, then the illegal acts as hereinafter described shall be construed 
 to be prima facie evidence of an intent and purpose on the part of the perpetrator 
 to violate the second section of this act. 
 
 (a) Grossly underselling a (smaller) competitor, either directly or indirectly, as by 
 the use of trading stamps or similar devices, rebates, excessive advertising, or pro- 
 moting, or by fake competition, in local and smaller markets of such competitor, 
 while maintaining higher prices, all things considered, in markets not reached or 
 within reach of such competitor: Provided, however, That it shall not be shown that 
 such local competitor engaged in the particular business complained of, for the pur- 
 pose of annoying, harassing, and forcing such larger competitor to buy him out. 
 
 (b) Injuring, or attempting to injure, the credit or standing of a competitor; or 
 preventing or attempting to prevent a competitor from retaining or obtaining credit 
 to assist in. carrying on his business. 
 
 (c) Grossly and unjustly misrepresenting, either directly or indirectly, the business, 
 wares, labor, or product of a local competitor. 
 
 STATEMENT OF LOUIS D. BKANDEIS— Resumed. 
 
 Mr. Bkandeis. Mr. Chairman, there is one correction in my testi- 
 mony that I should like to make. I stated yesterday that after the 
 Supreme Court last Monday denied the appeal of the independents 
 from the decree of the circuit judges in the so-called tobacco disin- 
 tegration, that the common stock had risen to the highest point it had 
 ever reached, with one exception. I noticed in this morning's paper 
 that while I was speaking this one exception was removed, and that 
 the stock reached yesterday 530, which is the highest point that was 
 ever reached in the history of the Tobacco Trust. That, I think, 
 bears eloquent evidence of the value to the capitalist of licensed 
 monopoly. 
 
 The Chairman. I desire to call your attention, while you are mak- 
 ing corrections, to the fact that yesterday you used the word "com- 
 munity" with reference to the effect of the decree in the Tobacco case 
 where you evidently intended to use the word "immunity." 
 
 Mr. Brandeis. I certainly did; "immunity bath" was the expres- 
 sion I intended to use. 
 
 Senator Cummins. I wish the reporter would read that last state- 
 ment made by Mr. Brandeis just before Senator Clapp asked his 
 question. I think there was one expression that I am sure he did not 
 intend to use. He said "the value of a licensed monopoly." 
 
 Mr. Bkandeis. I said "the value to the capitalist of a licensed 
 monopoly." 
 
 Senator Cummins. That is what I assumed you meant to say, and 
 I did not know whether you expressed it in that way. 
 
 Senator Pomerene. I have only a few questions that I desire to 
 ask. Mr. Brandeis, yesterday you had a table showing the wage cost 
 of book paper that was not in a combination. From what source do 
 you get those figures ? 
 
 Mr. Brandeis. That was the statement prepared by one of the 
 large book-paper mills that happened to be clients of mine, and whose 
 affairs I have been familiar with as their adviser for the past 30 years. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 1197 
 
 Senator Pomerene. You do not care to give the name of the con- 
 cern ? 
 
 Mr. Brandeis. I think it would be better not to give it. I believe, 
 however, that it is simply representative. 
 
 Senator Pomerene. You regard the figures as entirely reliable, do 
 you? 
 
 Mr. Brandeis. I am certain that they are. 
 
 Senator Pomerene. Are you willing to furnish a complete table 
 
 as part of your testimony? 
 
 Mr. Brandeis. With plea 
 
 Senator Pomerene. I wish you would do so 
 
 Mr. Brandeis. With pleasure. 
 imerene. I wish y( 
 
 Average selling price of booh paper of mill referred to. 
 
 Year. 
 
 Price. 
 
 Year. 
 
 Price. 
 
 1889 
 
 Cents. 
 7.081 
 7.109 
 6.837 
 6.513 
 6.352 
 5.797 
 5.353 
 5.236 
 4.741 
 4.350 
 4.245 
 
 1900 
 
 Cents. 
 4.502 
 4.049 
 4.027 
 4.036 
 3.974 
 4.008 
 3.846 
 3.926 
 4.070 
 3.987 
 3.993 
 
 1890 
 
 1901. , 
 
 1891 
 
 1902. 
 
 1892 
 
 1903... 
 
 1893 
 
 1904. . 
 
 1894 
 
 1905. 
 
 1895 
 
 1906 
 
 1896 
 
 1907 
 
 1897 
 
 1908 
 
 1898 
 
 1909 
 
 1899 
 
 1910 
 
 
 
 Average, wages in book-paper mill referred to. 
 
 [December 4, 1911.] 
 
 TOUE WORKERS. 
 
 
 2-tour 
 
 12-hour 
 
 day, 
 
 1900. 
 
 3-tour 
 8-hour 
 day, 
 1907. 
 
 3-tour 
 8-hour 
 day, 
 1909. 
 
 3-tour 
 
 8-hour 
 
 day, 
 
 1910-11 
 
 
 $2.43 
 1.50 
 2.00 
 1.50 
 1.60 
 1.62i 
 1.45 
 1.60 
 1.60 
 
 52.63 
 1.86 
 2.23 
 1.76 
 1.95 
 2.00 
 1.63 
 1.90 
 2.10 
 
 -$2,521 
 1.75 
 2.12 
 1.72* 
 1.85 
 1.85 
 1.57| 
 1.83J 
 2.00 
 
 $2.71 
 
 
 1.87 
 
 
 2.30 
 
 
 1.84 
 
 
 1.94 
 
 
 1.95 
 
 
 1.64 
 
 
 1.92 
 
 
 2.08 
 
 
 
 DAY WORKERS. 
 
 
 9-hour 
 day, 
 1900. 
 
 9-hour 
 day, 
 1907. 
 
 9-hour 
 day, 
 1909. 
 
 9-hour 
 
 day, 
 
 1910-11. 
 
 Finishers: 
 
 $1.65 
 
 .834 
 
 -83| 
 
 2.37* 
 
 2.37J 
 
 SI. 80 
 1.10 
 l.OO 
 2.66S 
 2.64 
 
 $1.75 
 1.10 
 1.10 
 2.52 
 2.49 
 
 $2.10 
 
 
 1.10 
 
 
 1.15 
 
 
 2.65 
 
 
 2.45 
 
 
 
 Senator Pomerene. You also gave some tables showing the pre- 
 vailing wages in the steel industries of Great Britain and in this 
 country and the hours of labor, etc. 
 
1198 HEARINGS BEFORE 
 
 Mr. Brandeis. So far as Great Britain was concerned, I stated 
 only the hours of labor. So far as America was concerned, most of 
 the figures were of hours of labor, but there was some reference also 
 to figures as to wages. * 
 
 Senator Pomerene. Are you willing to furnish those complete 
 tables as part of your testimony ? 
 
 Mr. Brandeis. Certainly. 
 
 The report covers the employees in practically all of the iron and 
 steel plants in the United States, the total number of plants included 
 being 344. 
 
 The fact that stands out most strikingly in any study of the labor 
 conditions in the iron and steel industry in the United States, is 
 the extent to which the 12-hour day and a week of 7 days still prevail 
 in this industry. 
 
 This report includes only the special iron and steel occupations 
 that are closely connected with production. Repair men are not 
 included, and the number in other occupations included which 
 necessarily require work when productive operations are shut down 
 is a very small percentage. Yet out of over 90,000 employees 
 covered in this report the customary working week of one-third 
 of them was a 7-day week, Sunday not differing from other days. 
 Approximately one-fourth of the 90,000 employees worked 84 
 hours or over per week, which, in effect, means a 12-hour day every 
 day in the week, including Sunday. 
 
 The investigation further developed that the 7-day working 
 week was not confined to the blast-furnace department where there 
 is a metallurgical necessity for continuous operation, and in which 
 department nine-tenths of the employees worked 7 days a week; 
 but it was also found that to a considerable extent in other depart- 
 ments where no such metallurgical necessity can be claimed pro- 
 ductive work was carried on on Sundays just as on other days of 
 the week. For example, in some establishments the Bessemer 
 converters, the open-hearth furnaces, and blooming, rail, and struc- 
 tural mills were found operating 7 days a week for commercial 
 reasons only. 
 
 The hardship of a 12-hour day and a 7-day week is still fur- 
 ther accentuated by the fact that every week, or two weeks, as the 
 case may be, when the employees on the day shift are transferred to 
 the night shift, and vice versa, employees remain on duty without relief 
 either 18 or 24 consecutive hours, according to the practice adopted 
 for the change of shift. The most common plan to effect this change 
 .of shift is to work one shift of employees on the day of change through 
 the entire 24 hours, the succeeding shift working the regular 12 hours 
 when it comes on duty. In some instances the change is effected by 
 having one shift remain on duty 18 hours and the succeeding shift 
 work 18 hours. 
 
 That much of the Sunday labor in the steel industry is no more 
 necessary than in other industries is shown conclusively by the fact 
 that during the investigation made in 1910 by the Bureau of Labor 
 into the conditions of labor in the Bethlehem Steel Works, the 
 president of the Steel Corporation directed the rigid enforcement of 
 a resolution adopted three years previous, cutting out a large part 
 of Sunday work except in the blast-furnace department. Even in 
 the blast-furnace department where there is a metallurgical necessity 
 
COMMITTEE OK INTERSTATE COMMEECE. 1199 
 
 for continuous operation day and night throughout 7 days of the 
 week, there is practically nothing except the desire to economize 
 in the expense of production that prevents the introduction of a 
 s yst ena that would give each employee 1 day of rest out of the 7 
 
 Other industries where continuous operation is necessary have 
 found it entirely practicable to devise a system by which one day of 
 rest out of each seven could be secured for each employee; and suace 
 the beginning of this investigation a committee of the American Iron 
 &bteei Institute has taken up this subject and has proposed a plan 
 which gives each employee one day of rest each week, and which does 
 away with the 24 or the 18 hours of consecutive work now required 
 when changing from the day shift to the night shift. The plan is 
 now being given a test in a few plants, but it is too early yet to state 
 how satisfactory it will prove or to what extent it may be adopted 
 generally throughout the iron and steel industry. 
 
 In somewhat more detail the tables of this report show that of the 
 90,599 employees covered therein, working hours were reported for 
 90,564; of this number 44,993 (49.68 per cent) had a working week 
 of 72 hours or over, which is, in effect, at least a 12-hour day for 6 
 days a week. Approximately one-third of all the employees (31.17 
 per cent) had a regular working week of more than 72 hours, which 
 practically means some work on Sunday. Over 22,000 (24.63 per 
 cent of all) had a working week of 84 or more hours, which means at 
 least 12 hours every day of the week, including Sunday. Approxi- 
 mately three-fourths of all the employees had a working week of over 
 60 hours; 10.80 per cent of all the employees had a working week 
 of just 60 hours, while only 15.81 per cent had a working week of less 
 than 60 hours. 
 
 During the investigation those in charge of plants have in their 
 discussion with representatives of the bureau frequently emphasized 
 the fact that the men working these very long hours are not kept 
 busy all the time. To some extent this is perfectly true, but the 
 employees in question during the entire period are on duty and sub- 
 ject to orders. They are not, except in rare instances, allowed, to 
 leave the plant. It can not be overlooked that it is not simply the 
 character or the continuity of the work, but the fact that in the case 
 of the 84-hour-a-week worker something over one-half of each 24 
 hours — more than three-fourths of his waking hours — is spent on 
 duty in the mills, which is of significance to the worker and his family; 
 
 An added significance attaches to the conditions of labor here 
 described as characteristic of the iron and steel industry when we 
 consider that the general tendency in other industries for years past 
 has been toward a shorter working day. Years ago the 10-hour day 
 became almost a standard; since that time further reductions have 
 brought the working day to 9 and, in many cases, to .8 hours, and this 
 reduction has been accompanied by a part holiday on Saturday. It 
 is, therefore, in striking contrast to this general tendency in other 
 industries to find in a great basic industry such as that part of the iron 
 and steel industry covered in this report that approximately only 15 
 per cent of the 90,000 employees in special iron and steel occupations 
 work less than 60 hours per week, and almost 50 per cent work 72 
 hours or over per week. 
 
 Another striking characteristic of the labor conditions in the iron 
 and steel industry is the large proportion of unskilled workmen in the 
 
 22877— vol I— 12 76 
 
1200 HEARINGS BEFORE 
 
 labor force. These unskilled workmen are very largely recruited 
 from the ranks of recent immigrants. For the industry as a whole 
 not far from one-half of the 90,599 employees in the productive iron 
 and steel occupations included within this investigation were of the 
 class of unskilled workmen. In the blast-furnace department, the 
 largest single department in the industry, more than two-thirds of the 
 24,722 employees were unskilled laborers, a large proportion of whom 
 do not yet speak or understand English; and even in the South the 
 number of immigrants employed in the industry is rapidly increasing. 
 
 Taking the employees in all occupations in. the industry, nearly 60 
 per cent are foreign born, and nearly two-thirds of the foreign born 
 are of the Slavic races. Large as is the proportion that unskilled 
 labor forms of the total labor force in the iron and steel industry, 
 steel experts have noted the fact that the tendency of recent years 
 has been steadily toward the reduction in the number of highly 
 skilled men employed and the establishment of the general wage on 
 the basis of common or unskilled labor. Nor is this tendency likely 
 to diminish, since each year sees a wider use of automatic appliances 
 which unskilled labor can easily be trained to handle. 
 
 Of the total of 90,599 employees, 8,495, or 9.38 per cent, earned less 
 than 14 cents per hour; 10,883, or 12.01 per cent, earned 14 and under 
 16 cents; and 25,535, or 28.18 per cent, earned 16 and under 18 cents. 
 Thus 44,913, or 49.57 per cent of all the employees, received less than 
 18 cents per hour. Those earning 18 and under 25 cents per hour 
 numbered 22,975, or 25.36 per cent, while 22,711, or 25.07 per cent, 
 earned 25 cents and over. A few very highly skilled employees 
 received $1.25 per hour, and those receiving 50 cents and over per 
 hour numbered 3,915, or 4.32 per cent of all employees. 
 
 In general it may be said that earnings of less than 18 cents per 
 hour represent unskilled labor. The group earning 18 and under 25 
 cents per hour represents semiskilled workmen, while those earning 
 25 cents and over per hour are skilled employees. The most common 
 rate per hour for unskilled labor in the New England district was 15 
 cents; in the Eastern district 13 and 14 cents; in the Pittsburg dis- 
 trict 16 and 17 cents; in the Great Lakes and Middle West district 
 15, 16, and 17 cents; and in the Southern district 10, 124, 13, and 
 134 cents. 
 
 Senator Pomeeene. Are you able to state what the market value 
 of the plants was which were taken into the United States Steel Co. 
 at the time of the formation of the United States Steel Co. ? 
 
 Mr. Beandeis. My statements in that respect are all taken from 
 the report of the United States Commissioner of Corporations, in 
 Part I of the Steel Inquiry, which has recently been published. 
 
 Senator Pomeeene. Have you those figures in mind ? 
 
 Mr. Brandeis. I have them here. I can give them to you. 
 
 Senator Pomeeene. "If you can do so conveniently, I would like to 
 have them. 
 
 Mr. Beandeis. On page 26 of the report, entitled "Report of the 
 Commissioner of Corporations on the Steel Industry, Part I," dated 
 July 1, 1911, appears the following: 
 
 The bureau's estimate of the tangible property of the corporations other than ore in 
 1901 are as follows: Manufacturing, including blast furnaces, $250,000,000. 
 
COMMITTEE ON INTERSTATE COMMERCE. 
 
 1201 
 
 Would you like the other figures ? 
 
 Senator Pomeeene. Yes; I wanted to get the complete value of all 
 the property which was taken over by the United States Steel Co. 
 Mr. Brandeis. Then I will put in this table. 
 Senator Brandegee. Do those figures represent the present value ? 
 Mr. Brandeis. In 1901. I will repeat: 
 
 Manufacturing, including blaat furnaces, $250,000,000; transportation, $91,500,000 ■ 
 coal and coke, $80,000,000; natural gas, $20,000,000; limestone, $4,000,000- workino 
 assets, $136,500,000; total, $582,000,000. 
 
 Senator Pomerene. Now, that does not include ores ? 
 
 Mr. Brandeis. That does not. 
 
 Senator Cummins. On page 36 I think you will find some of the 
 ores. 
 
 Mr. Brandeis. On page 36 there are the same figures; they are the 
 same figures, to which ore property is added of $100,000,000, making 
 a total of $582,000,000, as compared, as appears in the list I have just 
 stated, with $682,000,000, which is the bureau's estimate of tangible 
 values in 1901. 
 
 Senator Cummins. I would like that whole table to go in with your 
 testimony, because it shows the company's estimate of the same 
 property. 
 
 Mr. Brandeis. And the difference ? 
 
 Senator Cummins. And the difference. 
 
 (The table which appears on page 36 is as follows:) 
 
 Value of tangible assets acquired by Steel Corporation in 1901, as computed by bureau 
 compared with estimate of corporation submitted in the Hodge suit in June, 1902. 
 
 Class of property. 
 
 Bureau's 
 estimate of 
 tangible val- 
 ues in 1901. 
 
 Corporation's 
 estimate of 
 tangible val- 
 ues in 1902. 
 
 Difference. 
 
 Ore property 
 
 Manufacturing plants, including blast furnaces 
 
 Railroad, steamship, and dock property 
 
 Coal and coke property 
 
 Natural-gas property 
 
 Limestone properties 
 
 Cash and cash assets 
 
 Total 
 
 sioo, 000,000 
 
 250,000,000 
 91,500,000 
 80,000,000 
 20,000,000 
 4,000,000 
 
 136,500,000 
 
 $700,000,000 
 348,000,000 
 120,340,000 
 100,000,000 
 20,000,000 
 4,000,000 
 164,660,000 
 
 1600,000,000 
 98,000,000 
 28,840,000 
 20,000,000 
 
 28,160,000 
 
 682,000,000 
 
 1,457,000,000 
 
 775,000,000 
 
 Senator Pomerene. What was the company's estimate at that 
 time? 
 
 Mr. Brandeis. The company's estimate aggregated $1,457,000,000, 
 showing a difference between the bureau's and the company's esti- 
 mate of $775,000,000. 
 
 Senator Pomerene. So, according to their figures, the stock was 
 really worth more than par ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Pomerene. And yet it sold on the market, the common 
 stock, from 11 to 12 cents for a time? 
 
 Mr. Brandeis. Eleven to twelve dollars. 
 
 Sentaor Pomerene. Eleven to twelve dollars a share, I should 
 have said, and the preferred stock as low as $52 or $53 ? 
 
 Mr. Brandeis. Yes, sir. 
 
1202 HEARINGS BEFOBE 
 
 Senator Pomerene. Now, directing your attention to the American 
 Tobacco Co. litigation, you, I believe, represented the independent 
 tobacco companies in that case ? 
 
 Mr. Beandeis. I represented some organizations of independent 
 tobacco concerns — the leaf -tobacco associations, and the cigar manu- 
 facturers' associations, and the smaller associations of tobacco sales- 
 men. 
 
 Senator Pomerene. Your investigation of that subject covered a 
 considerable length of time, did it ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Pomerene. Are you able to state from that investigation 
 whether there was any complaint against the American Tobacco 
 Co.'s management by the holders of the bonds or the common or.pre* 
 ferred stock of that company ? 
 
 Mr. Brandeis. To what time do you refer? 
 
 Senator Pomerene. Prior to the time of the litigation? 
 
 Mr. Brandeis. I do not know of anything that could be termed 
 "complaint," in that sense. There were complaints of this character, 
 that in the organization the holders of some stocks had been induced 
 to exchange them for bonds at a time when the managers of the trust 
 had what was believed to be secret knowledge that the stock was 
 particularly valuable — that is, that the common stock was the prime 
 security of all, rather than the bonds and the preferred stock. 
 
 Senator Pomerene. Then the complaints did not extend to the 
 management of the properties ? 
 
 Mr. Brandeis. Certainly not; those who were managers were 
 using secret information for the purpose of getting stockholders who 
 did not know the value of their properties to exchange their stock 
 for what seemed to be a safer and superior investment. 
 
 Senator Pomerene. So that, generally speaking, the stockholders 
 of the company were entirely satisfied with the management by the 
 directors of the several companies ? 
 
 Mr. Brandeis. I think they were and had eminent reason to be. 
 
 Senator Pomerene. And by this so-called plan of reorganization 
 the preferred stock was given the power to vote, which it did not have 
 before ? 
 
 Mr. Brandeis. The power to vote for directors. 
 
 Senator Pomerene. For directors. In your judgment, will those 
 holders of the preferred stock be likely to act in harmony with the 
 29 defendants who were holders of the company's stock, or antag- 
 onistic to them ? 
 
 Mr. Brandeis. I should think, without question, in harmony with 
 them; giving them the fullest possible support. 
 
 Senator Pomerene. The complaints, as against the American To- 
 bacco Co., were on the part of the people and of the independent pro- 
 ducers ? 
 
 Mr. Brandeis. Precisely. 
 
 Senator Pomerene. So that, if we can believe the United States 
 Supreme Court's views, as declared in their opinion, this combination 
 in all its elements was in restraint of trade and an attempt to monop- 
 olize, or a monopoly ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Pomerene. Are you able to state the number of. com- 
 panies which were absorbed by the American Tobacco Co. ? 
 
COMMITTEE ON INTERSTATE COMMEECE. 1203 
 
 Mr. Brandeis. You mean the number of concerns that at one 
 time or another in the course of the trust were absorbed « 
 Senator Pomerene. Yes. 
 
 Mr Brandeis. They are stated by the Commissioner of Corpora- 
 tions to be 250. 
 
 Senator Pomerene. So that there were 250 separate and distinct 
 corporations and firms whose property and business were absorbed 
 by the American Tobacco Co. ? 
 Mr. Brandeis. Yes, sir. 
 
 Senator Pomerene. Each of which, as you understand by the 
 decree oi the court, were held to be in violation of the Sherman law? 
 Mr. Brandeis. Perhaps not literally, as the question indicates. A 
 large number of those concerns had been absolutely absorbed prior 
 to the time when the Supreme Court came to deal with the ques- 
 tion. They were no longer in existence, even nominally, as con- 
 trolled or independent concerns. They had been merged into the 
 other corporations. But, as I understand the decision, it was that 
 each and every one of the absorptions, or of the acquiring of control, 
 was a part of a conspiracy to monopolize the trade. 
 
 Senator Pomerene. And there were 69 of those corporations at 
 the time the suit was begun ? 
 Mr. Brandeis. Yes, sir. 
 
 Senator Cummins. Just a moment, in order to have the record 
 straight, there were 69 parties made defendants, but there were some 
 that were not made parties defendant ? 
 Mr. Brandeis. Yes; there were 84 altogether as I remember. 
 Senator Pomerene. Eighty-four all told, which included the 69 ? 
 Mr. Brandeis. Including the 69. 
 
 Senator Pomerene. And as you understand that decision, each of 
 them was doing business in violation of this act ? 
 Mr. Brandeis. It was controlled in violation of the act. 
 Senator Pomerene. And by the so-called plan of dissolution those 
 84 different firms and corporations were to continue, or were per- 
 mitted to continue, as 14 different companies ? 
 
 Mr. Brandeis. I think that there were about 14 different com- 
 panies, but one or more of those 14, in fact, quite a number of those 
 14, controlled a part of the other corporations; and there was no 
 obligation to dissolve the remaining corporations, say 70 corpora- 
 tions. They continued controlled corporations. - 
 
 Senator Pomerene. You understand, then, that by this last decree 
 of the circuit court, which meets the approval of the Attorney Gen- 
 eral, there are 14 combinations embracing 84 firms, each of which was 
 held by the Supreme Court to be doing business in violation of the 
 Sherman law ? 
 
 Mr. Brandeis. Or to be controlled in violation. The extent to 
 which individual companies controlled is shown by the fact that the 
 American Tobacco Co. itself, which is kept alive, will have, as it is 
 estimated, an income from the controlled companies, of three million 
 dollars in its capacity as a holding company. 
 
 Senator Pomerene. Could you not account, then, in part, for the 
 high quotations of the common stock of the market to-day by reason 
 of the fact that all of these elements prior to and immediately after 
 the judgment of the Supreme Court, were known to be in violation 
 
1204 HEARINGS BEFORE 
 
 of the law, and since that time the circuit court has set upon the 14 
 corporations or combinations the seal of approval? 
 
 Mr. Brandeis. I think that is so. The situation is this: The 
 Commissioner of Corporations investigated for years the question of 
 how this combination was brought about, and how its huge income 
 was to be accounted for. In hundreds of pages he set forth the evi- 
 dence which led him to the conclusion there stated, that it was the 
 monopolistic power practically which accounted for these large earn- 
 ings, which, as I have stated, amount — that is, of this common stock 
 distribution, not only the earnings, but distribution; a great deal 
 more was earned — but the distribution of a 30 per cent dividend. 
 He says that was due to the monopolistic power. If a decree had 
 been rendered in this case which destroyed that monopolistic power, 
 it would be necessary to have taken out of that stock its monopolistic 
 value. Instead of that, we see the stock rising, and it can only rise 
 by reason of the fact if it is a legitimate rise — as no one has occasion 
 to doubt — by reason of the fact that in the opinion of those who have 
 best knowledge of the tobacco securities, a position is created by 
 which that same monopolistic power can be exerted without any fear 
 of interference on behalf of the community. 
 
 And not only that, but without a well-recognized basis on the part 
 of the community that they are meeting an illegal combination. 
 
 The importance of that is this: Throughout this long and bitter 
 fight which the independents, or a few of the independents who did 
 not succumb, waged against the Tobacco Trust, the one protection 
 and support that they had was manhood in a portion of the American 
 people, and a sense of right and loyalty which stood up behind the 
 independents and said: "We are going to support you because you 
 are fighting for liberty in business and fighting against illegal exactions 
 of organized capital." 
 
 Now, that was an asset of real value on the part of the independents, 
 and it enabled quite a number of men who otherwise would have 
 succumbed to get backing in this community or that community, of 
 money, particularly, which enabled them to sell their goods, although 
 there was some trouble, perhaps, in buying — and certain disadvan- 
 tages in buying the independent goods ; there was a certain good will 
 which inhered in the independents because they were fighting a 
 trust. That was the particular value when it came to deal with the 
 labor unions. 
 
 Now, when the court set its seal on this transaction, the inde- 
 pendents were deprived of not only a great protection to them in 
 their industry, but what was really an aggressive aid in their cam- 
 paign to sell their goods. That is the reason why the position of the 
 Tobacco Trust is so much better than it practically ever has been 
 before ; because they have stripped the independents of the only strong 
 argument and only strong sword in the contest against the capital- 
 istic organization. 
 
 Senator Pomerene. I take it it is your opinion that the value of 
 the common stock of the American Tobacco Co. prior to the decree 
 of the Supreme Court was due in large part to the monopoly it con- 
 trolled and its methods of doing business ? 
 
 Mr. Brandeis. In very large part. 
 
 Senator Pomerene. I take it also that we can assume from the fact 
 that the common stock, since the plan of reorganization has been 
 
COMMITTEE ON INTERSTATE COMMERCE. 1205 
 
 approved by the circuit court, is due to the fact that the management 
 are of the opinion that this decree does not seriously interfere with 
 their former methods of doing business. Is that your judgment ? 
 
 Mr. Brandeis. I think they feel that while the decree maylimit them 
 in certain respects as to the way in which it can do business, there are 
 compensating advantages in the legalizing of their monopoly, which 
 more than counterbalance the restrictions which have been imposed 
 upon them against doing acts which are specifically immoral. 
 
 Senator Pomerene. Have you ever seen a list of the stockholders 
 of the American Tobacco Co. other than the 29 who are named as 
 defendants ? 
 
 Mr. Brandeis. Never a complete list. 
 
 Senator Pomerene. Or any substantial part of it? 
 
 Mr. Brandeis. I saw a list which purported to contain the names 
 of certain persons who were not made defendants, but who were 
 closely allied with the defendants, such as wives, partners, or associ- 
 ates of one kind or another, and who could, it was assumed, be relied 
 upon to vote with the 29 defendants to secure any action that they 
 desired. 
 
 Senator Pomerene. I believe the decree prevents interlocking 
 directories in the several companies. From your knowledge of the 
 situation do you believe that boards of directors will be elected in 
 those several companies which will be in any respect antagonistic 
 the one to the other ? 
 
 Mr. Brandeis. I think that it is absurd to suppose that they will. 
 
 Senator Pomerene. That is, it is your judgment that the men 
 who will own the stock in these several companies — and they are in 
 large part the same men — will probably not elect boards of directors 
 that would be competing with one another to the disadvantage of 
 the stockholders who had elected them ? 
 
 Mr. Brandeis. I think that it is certain that they would intend to 
 elect men who would not be of the character that you speak of. I 
 think also that it is perfectly clear that men do not compete in 
 businesses for the pleasure of competing. They compete because 
 they want to get ahead of the other person for some personal gain, 
 or gain to their concern that they represent, and there would be no 
 such motive in this instance. 
 
 Senator Pomerene. I think that is all. 
 
 The Chairman. Senator Townsend, do you care to ask any 
 questions? 
 
 Senator Townsend. I was not fortunate enough to be here to hear 
 the statement and all the questions, so I do not care to run the 
 danger of trespassing on the ground that has already been covered. 
 
 Senator Brandegee. I intended to have asked you, yesterday, 
 one or two questions, but it was so late that I did not do so. I was 
 very much interested in your whole statement, but particularly in 
 your statement as to the different hours of labor in the steel business 
 rn this country as compared with Great Britain. I wish you would 
 repeat what you said about the average hours of labor. 
 
 Mr. Brandeis. With us and Great Britain ? 
 
 Senator Brandegee. With us and in Great Britain; yes. It was 
 as to the steel business, was it not ? 
 
 Mr. Brandeis. It was confined to the iron and steel industry. 
 
1206 HEARINGS BEFORE 
 
 Senator Brandegee. It was the average. It varies in different 
 parts of the country; of course I understood that. 
 
 Mr. Brandeis. These are the figures which are given by our Com- 
 missioner of Labor as to the United States. Of the 90,599 employees, 
 covered by the report — those are the establishments as to which he 
 had reported 
 
 Senator Brandegee. In this country ? 
 
 Mr. Brandeis. In this country. The working hours were reported 
 for 90,564. Of this number, 34,993— that is, 49.68 per cent— had a 
 working week of 72 hours or over, which is, in effect, at least a 12- 
 hour day for six days of the week, approximately one-third of all 
 the employees — that is, 31.72 per cent — had a regular working week 
 of more than 72 hours, which practically means some work on Sun- 
 day. Of the 22,000 — that is, 24.63 per cent of all — had a working 
 week of 84 or more hours, which means at least 12 hours each day 
 of the week, including Sunday. 
 
 Those are the American figures. The British figures, which were 
 far 1906, I think they have been improved on the whole slightly 
 since that time— I mean they are somewhat less — but in the 1906 
 report these were the figures : 
 
 Taking the United Kingdom as a whole, 21 per cent worked from 
 54 to 56 hours; 35 per cent from 52 to 54 hours; 13 per cent from 48 
 to 50 hours. The average of all the workers in this trade for the 
 whole of the United Kingdom is 55.2 hours. 
 
 Senator Brandegee. Did you give the average in America ? I do 
 not remember in your statement just now. 
 
 Mr. Brandeis. I did not give it. 
 
 Senator Brandegee. As I recall yesterday, you said it was 72 hours 
 a week ? I am not positive as to that. 
 
 Mr. Brandeis. If I gave it, I read it from here, and I will look to see. 
 
 Senator Brandegee. I will let you leave that blank. You can put 
 it in later, handing it to the stenographer. 
 
 Mr. Brandeis. I am not certain it is in. 
 
 Senator Brandegee. You may look it up and hand it to the 
 stenographer. 
 . Mr. Brandeis. Very well. 
 
 (The statement is inserted above on p. 1198.) 
 
 Senator Brandegee. Now, what I wanted to inquire in relation to 
 that is this : Are there any laws in the various States of this country in 
 which the steel-business plants are located which control the hours of 
 labor in any way ? 
 
 Mr. Brandeis. Which limit them ? 
 
 Senator Brandegee. Yes. 
 
 Mr. Brandeis. I am not aware of any laws in any State limiting the 
 hours of labor of men in the steel industry. Outside of the public utili- 
 ties, I do not recall any laws limiting the hours of labor of men except 
 in the mining regions and in or for the public service. 
 
 Senator Brandegee. I do not mean as to any particular industry. 
 I mean are there any laws in the various States, if you know, wbi«h 
 attempt to say how many hours a day constitute a day's work ? 
 
 Mr. Brandeis. Oh, there are laws, I think, in a number of States 
 which say — when the phrase, a "day's work" is used — it means so 
 many hours; I mean it is merely a question of definition; but so far as 
 I know, there is no law in any State outside of the public utilities and 
 
COMMITTEE ON INTERSTATE COMMERCE. 1207 
 
 mining which undertakes to limit the number of hours which a man 
 may be employed in any given employment by or for private concerns. 
 
 Senator Brandegee. In other words, it leaves them free to con- 
 tract for any number of hours that they have in mind to ? 
 
 Mr. Brandeis. Yes, sir; if it may be called freedom. 
 
 Senator Brandegee. I mean legally they are free ? 
 
 Mr. Brandeis. Legally; yes. 
 
 Senator Brandegee. I understand you claim we have no unions 
 in the steel trade that really have no freedom and are compelled to 
 accept what is tendered to them ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Brandegee. Now, in relation to this discrepancy in the 
 hours of labor in the steel business in this country as compared with 
 Great Britain, you claim that in spite of the fact that the British 
 work so many less hours a day they are beating us in the foreign trade. 
 How do you account for that ? 
 
 Mr. Brandeis. I account for it in this way: Of course, in deter- 
 tnining the cost of an article, there are two elements to be considered — 
 or, I may say, three elements — one is the necessary interest which 
 must be earned on a plant, and of course I mean not only interest 
 but the depreciation charge, the interest and depreciation necessarily 
 being very large; and consequently the cost of the plant very 
 directly affects the cost of the article. That is one. The next is the 
 cost of your raw material, and the' third is the question of wage cost. 
 The fourth element is as to the efficacy or efficiency of your manu- 
 facturing process, both with respect to the use of the material and 
 with respect to the product of the particular work of the men. 
 
 Now ; in my view there is the strongest evidence that the Steel Trust 
 has by its methods of operation increased each of those costs. In 
 the first place, its cost of interest and depreciation it has increased by 
 the: huge value which it put upon the plants that it took over, and 
 which in estimating the cost of manufacture you must make allow- 
 ance for in determining the cost of the product. In the second place, 
 they have largely increased the cost of producing steel by the great 
 increase, called by the Englishman a ridiculous increase, and I think 
 we could use a more reprehensible term, in value of the ore reserve. 
 
 This case of the Great Northern ore lease that this_ steel con- 
 cern, for the purpose of controlling and monopolizing this business, 
 entered into a contract under which the initial royalty was 85 cents 
 whereas at the time of that contract 40 cents was a high royalty. 
 But not only that, that contract provides that during the term of its 
 existence to be added to the royalty charge between 3 and 4 cents— 
 exactly 3.4 cents a ton— a year, growing each year and representing, 
 no doubt, interest on the 85 cents, which was the initial royalty. 
 
 Now, see. There you have a royalty for ore, which the Steel 
 Trust undertook or bound itself to pay, which was, at the start, over 
 twice the value of ore reserves at the time the contract was made. 
 Of course there could have been no reason in the world for such a 
 proposition except to actually secure a monopoly on these great 
 reserves— and they succeeded as a result of acquiring that in connec- 
 tion with others, of getting 75 per cent of all the known ore reserve 
 in the Lake Superior district. 
 
1208 HEARINGS BEFORE 
 
 It was either to secure the monopoly or affect the stock market 
 by giving value to securities, or to act as a deterrent in this inter- 
 mediate period until the time for the option to cancel that lease 
 should have expired, to operate as a deterrent against the possible 
 creation of new competitors in the community, who would be afraid 
 to enter upon the field of steel manufacture with a knowledge that 
 the raw material was practically controlled. 
 
 Now, either one of these three, and perhaps two of them, go well 
 together — practically either one of the two reasons must have existed 
 for the making of that perfectly unconscionable lease, and of course 
 that imposed upon the American people the added cost of ore, because 
 it raised the values of ore, not only for the steel corporation, but for 
 everybody else. 
 
 Those were important causes. The other cause is this: Men have 
 not made inventions in business, men have not made economies in 
 business, to any great extent because they wanted to. They have 
 made them because they had to, and the proposition that "necessity 
 is the mother of invention" is just as true to-day in the time of the 
 trusts, in the era of the trusts, as it was hundreds of years before. 
 
 When they secured monopolistic position, the reasons for invention 
 and the reasons for efforts to reduce cost were withdrawn. It is one 
 of those chronic and inherent diseases that are found to attend 
 monopoly. 
 
 Those were the things. The other thing which I believe to be 
 infinitely important is this: The revenge is coming to them for their 
 treatment of labor, because the efficiency of the individual, though 
 he may appear to be busy, is very largely dependent upon his will. 
 They have succeeded in creating to a very large extent in their labor, 
 and not only in their labor, but with persons higher in authority and 
 higher in position than labor, the sense that the organization is con- 
 trolling slaves, and, while these men are driven as much as they can 
 be driven, you are having no better results than in the actual driving 
 ,of slaves. 
 
 I believe that these are human beings, and if they were treated as 
 human beings and treated as American citizens and have the thought 
 of development which is essential to performing the duties of American 
 citizens, their performance as workmen would be infinitely better. 
 
 Now, while our working people have been growing in subjection with 
 the growing power of the trust, there has been a rising movement in 
 the condition of the English people. There the working people have 
 been obtaining more and more their rights and more and more 
 opportunity, and more and more a future that they see for them- 
 selves, and therefore while England 10 years ago was way behind in 
 this race, England has been going forward with the march of democracy 
 in England. 
 
 Senator Brandegee. As to the efficiency of the American work- 
 man in the steel business did you hear Mr. Gary's testimony before 
 the committee ? 
 
 Mr. Brandeis. I did not hear it, but I read it; at least I read a 
 large portion of it. 
 
 Senator Brandegee. As it lies in my mind, he testified that his 
 company was able on the average to produce steel cheaper than any 
 of the independent companies. 
 
 Mr. Brandeis. Yes. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1209 
 
 Senator Brandegee. And it has been quite frequently asserted 
 that the independent companies existed merely by the suffrance of the 
 Steel Trust, but the Steel Trust by its superior efficiency and position 
 could at any time crowd them out if it wanted to, but merely main- 
 tained them as alleged competitors for the sake of protecting them- 
 selves from being accused of having a monopoly. I merely mention 
 that because it seems to me to be inconsistent with the theory that 
 labor is inefficient. 
 
 Mr. Brandeis. I would like to say here in explanation that in the 
 first place I believe that the statement of Mr. Gary in that respect is 
 incorrect. It is undoubtedly true that at the time the Steel Trust was 
 formed the Carnegie plant could manufacture steel much cheaper 
 than any other plant in the country by reason of the greater efficiency 
 of those who were managing it. It had no other advantage over peo- 
 ple all around them, but the organization and the men who were in it 
 were such that they had progressed beyond any competing concern in 
 their ability to produce. 
 
 Now, when you consider the relative control which the Steel Trust 
 has on the market to-day with what it had at the time it was organized, 
 you see that practically or actually every brancli of the steel manu- 
 ture, with the exception of steel rails, the Steel Trust has been a 
 steady loser of the percentage of the business. The reason for the 
 exception in steel rails I referred to yesterday — at least what seems 
 to me to be the reason — and it is that the Steel Trust controls the 
 railroads, and is able through that control to maintain its percentage 
 of steel-rail sales; whereas it does not control all the other users of 
 steel in the country of the other kind. Consequently the Steel Trust 
 maintains its position in respect to the sale of rails just as the 
 Standard Oil Trust was able to force the Galena Co.'s oil upon most 
 of the railroads at twice the price that other equally good oil was 
 offered by the independent refiners, and practically the only exception 
 to that ability of the Standard Oil Trust to force its Galena oil upon 
 those railroads, was in the case of the Virginian Railroad which was 
 owned by Henry H. Eogers, one of the important men in the trust, 
 who refused to pay so much for his oil, and to some extent the 
 Pennsylvania. 
 
 Now, that was the one marked exception to the case of the ability of 
 the Standard Oil Co. to compel the railroads to pay twice as much for 
 the oil as the independents were willing to furnish equal oil for. 
 
 Now, when you pass from this realm of controlled business through 
 the interlocking of corporations, and come to the business which to 
 a certain extent is open, you find a constant ebbing of the percentage 
 of the United States Steel Corporation's business, in spite of the fact 
 that during this interval of 10 years it has acquired a property as 
 large and with as great a producing capacity as the Tennessee Coal & 
 Iron Co. And you find that the further fact that the United States 
 Steel Corporation's percentage of profit on its _ business has been 
 diminishing — I mean on its capital investment ; on its tangible property 
 investment, it has been diminishing. 
 
 Now, I think those facts — facts which can not be denied — account 
 for the situation. The United States Steel Corporation during these 
 years has been immensely increasing its plant, particularly the Gary 
 plant, and what has been the result ? The result has been that the 
 United States Steel Corporation has had a surplus manufacturing 
 
1210 HEARINGS BEFORE 
 
 capacity of about 33$ per cent for years. Now, every manufacturer 
 knows what that means. You can not, in the paper business, or in 
 the shoe business, or in the cotton business, or any competitive busi- 
 ness, expect to. make money with a surplus capacity equal to one- 
 third. In the book-paper business, for instance, where there is strong 
 competition, the difference in capacity of 10 per cent may make a 
 difference whether you have a profitable or unprofitable year, and 
 what would that mean in a business with a huge plant like this busi- 
 ness has of 33$ per cent lying idle ? It does not mean only the loss of 
 interest and depreciation on the plant, but it means the loss of the 
 other overhead charges which go with it. Consequently it is perfectly 
 clear that this corporation can not hold its own unless it is in a posi- 
 tion to control business as it controls the railroad business — just as the 
 Standard Oil controls the railroad business. 
 
 Now, I may perhaps give you another illustration as to what the 
 efficiency of labor means, which is shown by an example of an 
 attempt, made under scientific management. At the time that 
 Frederick W. Taylor was in charge of the Bethlehem Steel Co., which 
 was before the present management, he had worked out a plan of 
 efficiency of labor and many other things; he had worked out plans 
 and methods by which the individual man loading pig iron could, 
 without increasing the wear upon himself, raise his production in carry- 
 ing pig iron into cars, as they did then, although by hand under those 
 conditions, from 12£ to 43 tons a day. He nearly multiplied fourfold 
 theproduction of the individual man by the use of brains. 
 
 When Pittsburgh steel operators heard of this performance and 
 they needed loaders, they went and offered those men a considerable 
 sum more than Mr. Taylor was paying them for the Bethlehem Co., 
 although he had raised their wages with increased performance 61 
 and a fraction per cent. When they went to Pittsburgh, they came 
 under entirely different treatment — treatment that did not regard, as 
 Mr. Taylor ,was regarding, the welfare of those men; and where it 
 became a question rather of drive than of saving effort, those men 
 would not do the same work, and in a very little while the men who 
 were being offered in the Pittsburgh works considerably more than 
 they had gotten came trailing back to Bethlehem and wanted to get 
 their old jobs. That is, they were treated as human beings at one 
 
 ?lace and they were treated as machines to be driven at another; 
 hat, I believe, accounts in a large measure for the failure to keep 
 down costs in America, because everybody knows that this rise in 
 cost — generally in the the cost of living — is an experience which Ger- 
 many and England have shared with us. 
 
 Senator Brandegee. What I wanted to get at was this ; and if I 
 am wrong about it I want to be corrected, because I want to under- 
 stand it. I understood you to claim — maybe I drew an incorrect 
 inference from your statement — but I understood you to claim that 
 the American labor in the steel trade, working 12 hours a day on the 
 average, was less efficient than the British labor working 9 hours 
 a day, and you accounted for that on the theory that the American 
 men in the steel business were treated as machines, as you expressed 
 it, whereas the British men had more freedom? 
 
 Mr. Brandeis. Yes, to a certain extent. 
 
 Senator Brandegee. Now, is that your claim ? 
 
COMMITTEE ON INTERSTATE COMMEEOE. 1211 
 
 Mr. Bbandeis. That is a claim; yes— one of them. I should not, 
 however, account for the lower cost in Great Britain wholly — I mean 
 the fact that costs have not risen much in Great Britain — to that 
 circumstance. Eleven years ago the British were away behind us 
 in machinery, I mean in plants. Necessity— the danger of American 
 invasion, as they expressed it at that time, filled them with convic- 
 tions— slow-moving people as they are— it filled them with the con- 
 viction that they had got to make changes and revolutionize their busi- 
 nesses if they wanted to preserve life, and they did it slowly, doubtless 
 in many respects inadequately, but that is one important element. 
 Then, of course, the English did not have excessive capitalization on 
 which to pay a return and depreciation. 
 
 Senator Brandegee. Now, with this startling difference in the 
 hours of labor between the men in the steel business in America and 
 those in Great Britain, what is the difference in Wages ? 
 
 Mr. Brandeis. I can not give you the English wages; I have no 
 doubt, although our wages are pretty low considering the work done — 
 
 I have no doubt that the English wages are lower because their whole 
 scale of wages is lower, but I think it would be found that the English 
 wage has risen relatively as much as ours. I want to say this in 
 regard to the efficiency of labor. The world has made in compara- 
 tively few years a very careful study in regard to the fatigue in labor, 
 something that was not thought of back a few A^ears ago. The most 
 advanced investigation on that subject was undertaken in Germany 
 
 ' and in Italy. They have undertaken to find out by the application 
 of scientific methods for labor to what extent length of work — length 
 of hours of labor — is economic, disregarding or wholly aside from the 
 question of social improvement. 
 
 They have established in many cases that the shortening of the 
 hours of labor increases production; that men. and women can do 
 more in the long run bv working 8 hours a day than by working 10 or 
 
 II or 12. 
 
 I do not think really it ought to have required those years of in- 
 vestigation to reach a conclusion, because every reasonable man 
 knows it in regard to himself, if he undertakes to work year in and 
 year out and week in and week out, that he gets to a point of over- 
 work where hours do not count at all, are no measure of accomplish- 
 ment. The thing to do is to keep in good trim and to keep hopeful, 
 and to feel $hat, you will do your best work. 
 
 Now, these scientific investigations which they have been pursuing, 
 and which to a large extent have been the basis of other legislation 
 abroad, and other action, have been to find out how much a man can 
 work without wearing himself out, and what he can accomplish; and 
 the evidence in these cases is conclusive that it pays to be human; 
 and we have some instances which are less scientifically developed, 
 but which have developed to show that the 8-hour in steel works 
 is more profitable to the employer than the 12. 
 
 Senator Brandegee. Did they pay those people more for 8 hours 
 than for 12 ? 
 
 Mr. Brandeis. I read some figures here with respect to our paper 
 mills in New England where they do pay them more for 8 hours than 
 they did for 12. 
 
 Senator Brandegee. Do they pay them more for 8 hours than for 
 12 because they accomplish more than they would in 12 ? 
 
1212 HEARINGS BEFORE 
 
 Mr. Brandeis. I suppose the real motive in all these cases of pay- 
 ment is that labor asserted itself. I do not suppose there was nearly 
 as much in the point of view of the justice of the employer as there 
 was in the ability of a bright man to say, "My work is worth more 
 and I want a larger share of the profits." 
 
 Senator Brandegee. I just wanted to know what the facts were. 
 You said that it was universally recognized 
 
 Mr. Brandeis. By no means universally recognized. I say it is 
 being recognized. It is by no means universal, and I think it will 
 probably take a very long time for people to find out universally. 
 
 Senator Brandegee. That is true within limits, I suppose. It 
 would not hold true that a man could do more in one hour than he 
 could in two ? 
 
 Mr. Brandeis. That is perfectly obvious. It goes to a point — 
 and only experience will teach us what that point is — where we see 
 what has been done abroad and to a certain extent here, which ha? 
 been to ascertain not only the social but the economic value of human 
 beings in labor, and that in the case of the steel business we have 
 not gone forward but we have gone backward since the Homestead 
 strike, which destroyed the union. 
 
 Senator Brandegee. What is the book which you have before 
 you ? Is that the report of the Commissioner of Corporations ? 
 
 Mr. Brandeis. I have two books here. This book is the report of 
 the steel industry of the Commissioner of Corporations. 
 
 Senator Brandegee. Does that contain the difference in wages • 
 between America and England in the steel business ? 
 
 Mr. Brandeis. No. 
 
 Senator Brandegee. Does it contain the difference in the hours of 
 work ? 
 
 Mr. Brandeis. No; not what I read from. This is the report of 
 the Commissioner of Corporations on the steel industry. What I 
 read with regard to the hours of labor and the wages was from the 
 Commissioner of Labor, not the Commissioner of Corporations. 
 
 Senator Brandegee. Do the statistics of the Commissioner of 
 Labor contain that information ? Can you refer me to any authority 
 where I can ascertain that ? 
 
 Mr. Brandeis. So far as the United States is concerned, this report 
 of which I have an abstract here is a report which was furnished to 
 the Senate in pursuance of a resolution of Senator Borah, and I under- 
 stand is now in the Printing Office ; that is, the beginning of it. It is to 
 be a long report which will take in four volumes. 
 
 Senator Brandegee. So that you do not know what it contains ? 
 
 Mr. Brandeis. I do not know what the whole of it is. The report 
 on British industry is a report made to the British Government — an 
 official report made, as those reports are, to the board of trade, 
 which you will find on file at the office of the Commissioner of Labor, 
 but I am not aware of any American publication which embodies the 
 results of those British reports. 
 
 Senator Brandegee. Was that report made in 1906 — the British 
 report ? 
 
 Mr. Brandeis. The particular one to which I referred was made in 
 1906. That undertakes to present a report, covering a period of 20 
 years. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1213 
 
 Senator Brandegee. You spoke yesterday of some investigation 
 that you have been engaged in, as I understood you, for some depart- 
 ment of the Government. Ma'vbe I misunderstood vou. What was 
 that? 
 
 Mr. Brandeis. I think what you have in mind is the investigation 
 which I made in connection with the proceedings before the Interstate 
 Commerce Commission by the railroads for an advance in rates. 
 
 Senator Brandegee. I misunderstood you, then. I thought you 
 referred to the tobacco interest in some way. I did not know but 
 you had been employed by the Commissioner of Corporations. 
 
 Mr. Brandeis. No; I acted there whoUy for the independents. 
 
 Senator Brandegee. Now, in relation to the tobacco decree and 
 this distribution of stocks of the trust in the way in which they were 
 distributed, I have seen it stated that the court considered itself to be 
 controlled in that case by the previous decisions of the Supreme Court, 
 particularly in the Northern Securities dissolution. 
 
 Mr. Brandeis. Yes. 
 
 Senator Brandegee. Was that the fact ? I have not read the 
 decree. 
 
 Mr. Brandeis. I will state just what the situation is in that re- 
 spect. The court — or at least the chief judge who gave the leading 
 opinion — did not consider that there was any decision of the Supreme 
 Court in the Northern Securities case or the Standard Oil case which 
 compelled him to so regard, but he did say that it must have been 
 the opinion of the court that the common ownership of stock was not 
 a fatal objection to the claims that you would have competition, 
 else the Supreme Court in the Standard Oil and Northern Securities 
 cases would have done differently. Now I believe that contention to 
 have been entirely unfounded, and I shall be glad to state, if you 
 desire them, the reasons. 
 
 In the Northern Securities case 3-ou had a holding company — the 
 Northern Securities Co. — which held the stock of two railroads. The 
 Union Pacific, Mr. Harriman's interest, and the Hill interests — Hill- 
 Morgan interests — had become united. When the Supreme Court 
 decided that the Northern Securities combination was illegal, the 
 directors of the Northern Securities Co. immediately ordered a dis- 
 tribution of the securities which they held, directing a distribution 
 pro rata; that is, 99 per cent of all of 'the securities to be distributed 
 pro rata among the stockholders. 
 
 Mr. Harriman, who would have gotten a real control if he could 
 have gotten back what he put in, did not like that distribution of 
 stock; it would have prevented his getting a real control of the sit- 
 uation, and he therefore brought his petition and later his bill in equity 
 to have it declared that the illegality of the Northern Securities Co. 
 entitled each one of those who transferred their stock to the Northern 
 Securities Co. to get back what they transferred— not to have a rat- 
 able distribution, but to get back, as if they had merely bailed their 
 stock, as the legal phrase is, instead of having sold it and transferred it. 
 That was his contention. 
 
 The Supreme Court refused to interfere. They said: Your trans- 
 action in selling that stock to the Northern Securities Co. was illegal; 
 it was an illegal transaction. A party to an illegal transaction can 
 never invoke the aid of the court to have him restored to his original 
 position. As the old phrase of the law is : ' The tree must lie where it 
 
1214 HEARINGS BEFORE 
 
 has fallen,' and the position of the defendant in the case of the ille- 
 gality of any contract is better than that of any plaintiff." The court 
 refused its assistance, not because it favored the defendant, but 
 because it was an illegal transaction. 
 
 The court, therefore, refused to interfere at Mr. Harriman's request, 
 and the result of that refusing to interfere was that the method 
 adopted by the directors in distributing that stock pro rata among the 
 stockholders stood. 
 
 I say that in no sense was an approval by the Supreme Court or a 
 decision by the Supreme Court, that that was the action which ought 
 to be taken in order to properly dissolve the trust. There was no 
 prayer that it ought to be done; there was nothing in the original 
 prayer in that suit of the Government for a distribution. What 
 the court decreed was that this stock, illegally held, should not be 
 voted, and that it should not receive any dividends. And that is all 
 the decree did in the Northern Securities case. 
 
 As the fact of being unable to vote and unable to get any dividends 
 out of it made that stock practically worthless in the hands of the 
 Northern Securities Co., that company, of its own motion, did this act 
 of making distribution. 
 
 Now, I say it is perfectly clear, when you read that case, that 
 there is no decision of the Supreme Court, nothing in it, which 
 indicates that the Supreme Court was going to make the preposterous 
 assumption of fact that you get real competition if you divide, a 
 corporation into two or three parts and give to the same stockholders 
 the same interest in each plant. 
 
 Now, that was the Northern Securities case. 
 
 Now, come to the Standard Oil case. 
 
 Senator Brandegee. Take up the tobacco case. 
 
 Mr. Brandeis. Those were the two cases. 
 
 Now, the Standard Oil case, which was cited also as a precedent 
 was this: That, like the Northern Securities case, was a holding 
 company. The Government asked that that holding company be 
 dissolved, that the fetters that bound the 34 corporations might be 
 broken. The court so ordered— that is, the circuit court of appeals. 
 The Government was perfectly satisfied when it ought not to have 
 been, but apparently it was perfectly satisfied with that decree, 
 because it did not appeal from it. The corporation did. The 
 Standard Oil Trust appealed, and the case came before the Supreme 
 Court on an appeal of the Standard Oil Co. alone. 
 
 Now, when the case came before the court and the court was 
 unanimously of the opinion that the Standard Oil Trust was illegal, 
 there was only one thing in the world that the Supreme Court had 
 any legal power to do, and that was to affirm the decree below, and 
 it did affirm the decree. That decree having been affirmed, the 
 decree below having been merely that the fetters be broken that 
 bound these corporations together, the officers of the Standard Oil 
 Trust, in obedience to the law, made the dissolution. 
 
 I see no ground whatever on which it can be said that the Supreme 
 Court thought that that was the proper disposition of that- case. 
 They had no more right than this committee to say that it was not 
 the proper distribution, since the Government did not appeal; and 
 the Government did not ask anything else. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1215 
 
 1 may say- that the Government ought to have asked something 
 else, but, of course, at the time that case was brought we did not 
 know — at the time it was appealed we did not know — as much about 
 trusts and the proper methods of proceeding) perhaps, as we do 
 to-day. 
 
 That was the situation in regard to these two cases. 
 
 The situation in regard to the Tobacco Trust was vitally different. 
 It was this : When the Tobacco Trust case came up before the circuit 
 court, these judges sitting, the case was conducted by an official of 
 the Government, Mr. J. C. McReynolds, who had a complete com- 
 prehension of the case and of the trade and of the necessities of 
 restoring competition, and he did a piece of work of which the 
 country can be proud. It was an admirable professional and public 
 performance. You can not get a better record; you can not find a 
 better instance of public work in the legal line than Mr. McReynolds 
 did in that case. 
 
 Now, he fought that case, and the court was very largely against 
 him — I mean the circuit judges. He fought that case and succeeded 
 in getting from the lower court, who believed themselves to be 
 bound by the earlier decisions of the Supreme Court — the Trans- 
 Missouri decision — that any combination in restraint of trade was 
 illegal. He succeeded in getting a decree which was, to a certain 
 extent, effective. He asked to have this trust dissolved; he asked to 
 have each of these five companies which were particularly potent 
 dissolved, and to have the sixty-odd companies disposed of; to have 
 the trust dispose of those companies. And he sought in that case 
 either to h#ve that disposition made or, if necessary, to have a 
 receiver appointed for the purpose of recreating a condition under 
 which competition in the tobacco trade might be restored. 
 
 He, however, in spite of the decree that went quite a long way, was 
 far from satisfied with what the circuit judges did, and it is not sur- 
 prising that they did not give the relief he asked, because they did 
 not sympathize at all with the prosecution, as the information showed. 
 
 When it came to the Supreme Court, the Supreme Court held that 
 on the undisputed facts— they held unanimously that upon the undis- 
 puted facts there was clearly a violation of the law, not only a 
 restraint of trade, but a violation of the law in regard to monopoly 
 or an attempt to secure a monopoly. The Supreme Court thought 
 that the lower court had not gone far enough; that it had not met 
 this situation growing in the understanding of the trust problem. 
 The Supreme Court no doubt saw that the question of restoring com- 
 petition is in and must be in each case that comes up, in effect, 
 really a different question. It depends upon practical considerations, 
 commercial considerations. While in the Steel Trust it may be 
 necessary to have a unit of fifty or a hundred million, or two hundred 
 million dollars in order to get fair efficiency and to get competition, m 
 the tobacco trade the situation may be such that a company of 
 $300,000 or $400,000 or $500,00 or $1,000,000 can do business as 
 efficiently as a company with $100,000,000 
 
 The court saw all those ramifications and undoubtedly reached tne 
 conclusion that the decree below, as the court had given it, was not 
 adequate— although they affirmed the decree— was not adequate, 
 and that the court itself did not possess the knowledge— there was 
 not available from the record, although it contained five printed 
 
 228T7— vol i — 12 77 
 
1216 UKAUINGS BEFOliE 
 
 volumes, knowledge of the tobacco-trade conditions adequate to 
 determine what was necessary in order to secure conditions under 
 which competition would be necessary. Also it was impossible that 
 they should know what should reasonably be done in the interests of 
 the public, the interests not only of the independents but also of the 
 security holders in order to preserve so far as was consistent the 
 interest of all parties. 
 
 Therefore the Supreme Court, instead of undertaking to frame a 
 decree itself, which its position prevented it from doing, because it 
 did not have an adequate knowledge, referred this matter back to 
 the lower court, and what is the order? It was this: Directing that 
 court act in the case in either one of three ways: Either to enjoin 
 the trust from engaging in interstate business or to appoint a 
 receiver — to do either one or the other of those — unless the company 
 submitted a plan of disintegration honestly in harmony with the law. 
 That is, it gave the trust an opportunity to do something which 
 the judges would deem to be honestly in harmony with the law. 
 
 Now, what did the court do? The court then, soon thereafter, 
 entered upon conferences, which were private and to which all coun- 
 sel were pledged to secrecy, in which the trust counsel submitted 
 their ideas, discussed in the presence of the court and in the presence 
 of the Attorney General or his representative. And then, finally, 
 when the plan was evolved winch was practically satisfactory to the 
 court and was satisfactory to the Attorney General, certainly in 
 many respects, then they gave an opportunity of discussion, and 
 that is when the independents were permitted to be heard, practically 
 after the matter had been passed upon already privately by those 
 who were interested. 
 
 Now, what happened? We presented — there were, of course, a 
 great many different interests. I represented the independent asso- 
 ciations referred to earlier, and the governor of Wisconsin. We 
 presented the objections to this court. The first and fundamental 
 objection was the one that we have already named, the objection that 
 they were creating three huge corporations — the American Tobacco 
 Co., Liggett & Myers, and the Lorillard Co., the stockholders in each 
 of which would be the same in the same proportion, and with those 
 three units which took over the greater part of all the business, the 
 other 11 companies, with one exception, being of far less impor- 
 tance; that those three units which were supposed to compete 
 would not compete in the first place because of this situation of 
 common ownership; but, in the second place, that they would not 
 compete because m the distribution of the brands and kinds of 
 tobacco manufactured the plan was in many respects so devised 
 that although each had its smoking tobacco and each company 
 had its plug tobacco and each company had its little cigars, etc., that 
 each of those companies had either in respect to territory or to the 
 particular character of the tobacco, a monopoly in itself. That is, 
 you would create in one company the monopolies of the brands that 
 practically controlled New England, which the New England smoker 
 and chewer of tobacco used. And although these other companies 
 might have smoking and plug brands, they would not actually com- 
 pete. Those were some of the objections. 
 
 And the other objections related to the size, etc., of this corporation. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1217 
 
 We therefore said in ourplan this— that is, in our modifications of 
 their plan we said this: "Whether or not we can get competition is a 
 •commercial problem. You have to examine the brands ; you have got 
 to examine the territory and the actual state of the business," and 
 we collected together and we there set forth in our brief and in our 
 objections the specific facts bearing upon that matter. We said here • 
 
 You have here set forth in your plan— you have given the Liggett & 
 Myers so many factories, 8, or 10, or 15; the American has 10 12 
 or 15, etc., down; and the various snuff factories have so many " 
 
 We said also: "You show by your plan and by your present opera- 
 tions that you are yourselves, in manufacturing, and to a large 
 extent, m distribution, having separate producing and distributing 
 units. _ Now we are not going to interfere with your business organi- 
 zation in and of itself to any appreciable extent. We are going to 
 take your factories, but we say that these factories shall be owned 
 by absolutely separate and competing concerns, so as to produce 
 competition." And that was a trade question which could be deter- 
 mined only by the knowledge of what the business of the trust was. 
 
 I endeavored to get, and did secure, the cooperation of men from 
 all over this country who are familiar with the business of the trust, 
 who are familiar with the position of the independents, and who are 
 able to advise me, and enabled me to advise the court, as to what was 
 necessary in order to restore actual conditions of competition. And 
 all this is set out in our objections and briefs. 
 
 Now, what did the court say when that was submitted or in passing 
 upon that question ? I think this is extremely instructive as to the 
 attitude of the court as to the limit of its powers. 
 
 There were various suggestions made by different independents. 
 There were a good many different counsel in the case representing 
 entirely different interests hostile to the tobacco company, other 
 than myself, and one of them, the counsel for the retail dealers, 
 asked for a receiver. We ourselves asked for a division which would 
 have created perhaps 25 to 30 companies. 
 
 The court speaks of these various suggestions and also mistakenly 
 refers to some one as having asked for upward of 60 different com- 
 panies. That is not correct. 
 
 We asked for a distribution of properties by specific allotments, 
 
 as in the case of partition of real estate. We said that was perfectly 
 
 ^possible to do, for this reason: Why should you treat this division in 
 
 anywise different than you would treat a division of real estate upon 
 
 the decease of any person intestate who had a great many heirs ? 
 
 The court said this: 
 
 No time need be given to a consideration ol any of these, since there is no suggestion 
 that the defendants will adopt them. On the contrary, counsel for the defendants 
 expressly stated on the argument that they would not undertake to carry them out. 
 Presumably they think they might better take their chances at a receiver's sale. This 
 ■court has neither authority nor power to carry out and enforce any plans of readjust- 
 ment without the cooperation of the owners of the property, the holders of these 
 stocks and bonds. It would be sheer waste of time, therefore, to consider any plan 
 radically different from the one now before us. 
 
 That was the attitude with which the court approached this 
 question. 
 
 Now, what the court did was this: In the first place it abdicated the 
 power to determine whether or not it should approve any plan, 
 
1218 HEARINGS BEFORE 
 
 because it said the Supreme Court evidently thought some plan was 
 possible else they would not have referred it back; and instead of 
 exercising discretion as to whether any plan could be devised which 
 would restore competition the court assumed an obligation that it 
 had to approve some plan. That is, the circuit judges abdicated a 
 discretion, which, to my mind, was clearly and uncontrovertibly 
 committed to them by the Supreme Court. 
 
 What was the next thing that they did ? Having reached the con- 
 clusion that they must adopt some plan, they did, with a lack of the 
 trading capacity extraordinary in man, accept that as the best plan 
 they could get, that which the counsel for the companies said was the 
 best they would give or take. 
 
 Is there any evidence whatsoever on which judges ought to have 
 acted that the American Tobacco Co. stockholders would not have 
 gladly accepted a plan which protected the people? The security 
 holders declared, No; you have not the right and you have not 
 the power to do this" when the independents presented their 
 modifications. 
 
 And there appeared before that court some of the most eminent 
 counsel in America — representing the 6 per cent bondholders and the 
 4 per cent bondholders and the preferred stockholders — and they said 
 that if this plan which the independents offer, or any important pro- 
 vision in it, were adopted they would not assent at all. They 
 thought the provisions unconstitutional, these provisions, and they 
 insisted on their rights, and instead of having this matter settled in 
 six months they would fight, and it might take six years. 
 
 Now, as a matter of fact, there was not a single one of those persons, 
 either the 6 per cents or the 4 per cents or the preferred stckholders, 
 who were in any way vitally interested in this question. Because the 
 property of the American Tobacco Trust was so vast, even the quick 
 assets on hand, that there was not a single interest of those persons in 
 peril. It would have been the easiest thing in the world to have raised 
 the amount of money necessary to pay off if need be the 6 per cent or 
 the 4 per cent bondholders and the preferred stockholders, if that had 
 been the just and proper way of dealing with the subject. 
 
 This company, after the decision of the Supreme Court last 
 May, suspended the dividends on the common stock, and the 
 mere accumulations of the earnings were so great that within the 
 period which was mentioned in the opinion, March 1, 1912, they 
 would have had a- large amount of the money on hand. And by 
 disposing of properties which they ought not to have owned at all, 
 and which could De easily disposed of at a fair value, like the foreign 
 property — the Imperial and British-American Companies' stock — 
 as well as some other of this character, they could have raised 
 enough money to pay off these bondholders and the preferred stock. 
 But they set up the contention that vast interests were imperiled. 
 And when it came to enter the decree I find the decree is very specific 
 in ordering that the fees of the various committees who represented 
 these various bondholders and of their counsel should be paid by the 
 American Tobacco Co. 
 
 Now, I say that all that was done in that decree, and the only 
 thing that was done was to enhance the value of each and every 
 security affected. These 4 per cent bonds that had been down around 
 60 and 70 rose above 90. The 6 per cent bonds rose to 116 and 
 
COMMITTEE ON INTERSTATE COMMERCE. 1219 
 
 117, and the preferred stock rose above par. Not only that is true, 
 but the stocks of the subsidiary companies were similarly affected! 
 
 Take this case of the United Cigar Stores, which is the worst of all 
 the sinners in this work of monopoly. It was suggested that the 
 United Cigar Stores' position, that its strength lay in the fact that it 
 was practically a selling agency of this huge trust. Now, what the 
 decree does is to order the stock of the United Cigar Stores divided 
 pro rata among the stockholders of this company, of course giving 
 these 29 gentlemen the same immediate control to-dav that thev 
 then had. J 
 
 You would suppose, if this decree which the Supreme Court held 
 to be effective also upon the United Cigar Stores Co. was to have any 
 effect at all, that the people who acquire the stock of the United 
 Cigar Stores, which is supposed to have been separated from this 
 trust, would get something far less valuable than it was before. 
 But instead of that, the stock of the United Cigar Stores has been 
 sharing in the general rise of American Tobacco Co. stock in this 
 period of business unrest. The stock has gone up 25 or 30 or more 
 points since the decree. The stock, of which a very large part was 
 water, is now selling, or was selling when I last looked at the quota- 
 tion, at $260 or $265 a share. 
 
 That is, the court repudiated all idea of destroying or cutting 
 down the power of this huge instrument of monopoly, which one man 
 after another, and everybody in the trade who has considered it at all, 
 has held to be the most dangerous of all the elements in the Tobacco 
 Trust. 
 
 Senator Brandegee. You did not consider it necessary to have a 
 receiver appointed? 
 
 Mr. Brandeis. I did not. 
 
 Senator Brandegee. You did not a,sk for that ? 
 
 Mr. Brandeis. I did not ask for a receiver. What I asked for was 
 an honest division of this company. Not only an honest division of 
 it, and competition, but real competition which would prevent the 
 owners of one of these companies from owning the stock in a com- 
 peting company, which would prevent any common operations be- 
 tween them. 
 
 Senator Brandegee. How many companies did your plan involve ? 
 
 Mr. Brandeis. There were certain options left open as to what 
 might be done. What we did was this: We went through each de- 
 partment of the tobacco business; that is, the smoking, the chewing, 
 the snuff, and the little cigars, fine-cut, and all the different depart- 
 ments, and then through the subsidiaries like the licorice and the tin 
 foil, et cetera. We said, in regard to each, based upon as accurate 
 investigation as we could on the state of competition in the tobacco 
 industry — we undertook to say: You want to have in this indus- 
 try — for instance, in the smoking-tobacco industry, there ought to be 
 12 concerns. In the plug-tobacco industry there ought to be 12, and 
 so on, taking the factories as they were, in order to get an organiza- 
 tion and a size which would permit independent competition. 
 
 Senator Brandegee. As a result of that plan, what was the total 
 number of companies which you suggested ? 
 
 Mr. Brandeis. The total number of units was 60, but our plan per- 
 mitted the combination of those units. For instance, we said the 
 same business could be done by the same companies — in the smoking 
 
1220 HEARINGS BEFORE 
 
 and the chewing, and other branches. Consequently, instead of 
 having 24 companies to do the smoking and the chewing business, 
 they might have 12, or that the same company could have also the 
 little-cigar business. There ought to be six, say, little-cigar busi- 
 nesses. 
 
 Senator Townsend. By little cigars do you mean cigarettes ? 
 
 Mr. Brandeis. Yes. They are all-tobacco cigarettes. They are like 
 Between the Acts and the like. There were some respects in which 
 the units could not be combined, but in others they could; and 
 working it out they made 25 or 30 companies in all. 
 
 Senator Brandegee. Who was to own the stock of those com- 
 panies ? 
 
 Mr. Brandeis. What we said was: "When you have found that 
 there are going to be 25 or 30 companies, the court should act upon 
 this situation precisely, or might act upon it, or suggest to the reor- 
 ganizes and they might act upon it, precisely in the same way in 
 which if a man had died interstate with 25 or 30 parcels of real estate." 
 It was an easier job. 
 
 They could say: "We have the value of the properties." They 
 had valued the properties themselves and we had their values. Tak- 
 ing these values, we can say that a dollar in the Liggett & Myers is- 
 worth just as much as a dollar in the snuff or in the Lorillard, assum- 
 ing the values to be secured just as you would value 29 pieces of real 
 estate. Then we said the court can by the same process, which was 
 known to be fair, say: "Stockholders A to B shall take this; other 
 stockholders shall take the other; others shall take the other. You 
 can take it by lots or by judicial decision, whichever you like." Just- 
 as has been done in a partition proceeding when the court said that 
 you might prefer to have a Wall Street house than a Fifth Avenue 
 house, but you take what the court gives you, all differences in value 
 being adjusted. 
 
 Senator Brandegee. What would have been the result ? 
 
 Mr. Brandeis. The result would not have, in my judgment, been, 
 a receiver. These people would have very much rather have sub- 
 mitted to that division. 
 
 Senator Brandegee. I mean, suppose they had submitted, and 
 supposing the court had adopted your plan and the Tobacco Trust 
 was reorganized on your plan, what would have been the result ? 
 
 Mr. Brandeis. If the court had also gone forward and given us the 
 relief which we asked — I mean in the way of restrictions 
 
 Senator Brandegee. Yes. 
 
 Mr. Brandeis. I think that we should have had an absolutely ade- 
 quate condition of fair competition. 
 
 I want to tell you what some of these restrictions were. You prob- 
 ably are familiar with some of the practices of the Tobacco Trust, 
 particularly with reference to the fake independents and to their 
 practice; that is, of doing business as an independent when it was a 
 trust concern. 
 
 You are likely also familiar with their practice of bribing the 
 employees of an independent company, and of bribing, under certain 
 circumstances, Government officials to get information about the 
 independents. 
 
 Senator Brandegee. I have heard a great deal about those 
 allegations. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1221 
 
 Mr. Brandeis. And there is very much of that in the record which 
 Mr. McReynolds brought to the Supreme Court. 
 
 We thought it was not asking too much, when we were going to 
 have these same 29 defendants which the Supreme Court held guilty 
 going on with these businesses, to ask that they should not be allowed, 
 or rather that they should be enjoined from continuing in a practice 
 of espionage by bribing either the employees of some independent or 
 of the United States Government. But the court did not think we 
 were entitled to that. They said: "Seeking information about other 
 people is common." 
 
 That was one thing which the court saw fit to deny us. 
 
 Senator Brandegee. What was your restriction that you wanted 
 to impose on that point? 
 
 Mr. Brandeis. I will read to you the exact restriction. 
 
 Senator Brandegee. That is one that is contained in the proposed 
 La Follette bill on the subject ? 
 
 Mr. Brandeis. Yes, sir. The endeavor is made in the La Follette 
 bill to set forth clearly that the court has the power which appa- 
 rently these circuit court judges assumed a lack of. This is the exact 
 provision as we asked it. We asked certain restraints upon unfair 
 competition, that they shall be imposed for a period which we limited 
 to five years. That is, we thought that in five years the connections 
 between the different corporations would be broken and that the 
 independents would then be so strong as to take care of themselves, 
 without any injunctive proceedings. 
 
 We asked restraint upon unfair competition as follows: 
 
 The plan contains no provision under which the several corporations which are 
 to carry forward the manufacturing business of the trust will be enjoined from practic- 
 ing those methods of unfair competition, by means of which the trust has in the past 
 overcome its competitors. It is clear that for a limited period the independents 
 should have more protection than would ordinarily be necessary in trade where one 
 concern has not succeeded in illegally dominating the trade. For this reason it is 
 not sufficient that the corporations carrying forward the business of the trust be 
 merely enjoined from a continuation of the illegal practices pursued by the trust; 
 they should also be prohibited for a limited period (say five years, and such further 
 time, if any, as the court may hereafter order) against other practices not necessarily 
 illegal, but which, if resorted to at the outset, would tend to stifle competition. The 
 plan should, therefore, include, among other acts to be prohibited for such limited 
 period, the following: 
 
 Each corporation which is to carry forward any part of the manufacturing business 
 of the trust should be restrained. 
 
 These are all set forth in sections 1, 2, 3, 4, and so forth. The 
 seventh section reads as follows: 
 
 From espionage on the business of any competitor, either through bribery of any 
 agent or employee of such competitor, or obtaining information from any United 
 States revenue official. 
 
 Senator Brandegee. You have substantially put all those restric- 
 tions in the La Follette bill ?. 
 
 Mr. Brandeis. The La Follette bill makes most of the acts of 
 unfair competition there referred to conclusive evidence of unreason- 
 ableness. Furthermore it would have an educational effect upon 
 courts to see that in the opinion of the legislature it is not an un- 
 warranted or extraordinary thing, on the record of illegality which 
 was here presented, to ask to have people enjoined from continuing 
 the bribery by which they had inflicted injury. That was one thing. 
 
1222 HEARINGS BEFORE 
 
 Here is another thing which we asked to have put into the tobacco 
 decree : 
 
 From giving away, selling at or below the cost of manufacture and distribution, 
 any of its products, or adopting any other method of cutthroat competition for the pur- 
 pose of destroying or acquiring the business or trade of a competitor. 
 
 That also the court refused to adopt. 
 
 Senator Brandegee. Are those in succinct form there so that, they 
 can be put into the record ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Brandegee. I wish you would mark them and hand them 
 to the stenographer so that they can go into the record. 
 
 Mr. Brandeis. You mean those two? 
 
 Senator Brandegee. All those seven. 
 
 Mr. Brandeis. I shall be very glad to. 
 
 Senator Brandegee. What provision did you make to insure the 
 absolute divorcement of the community of interests that might per- 
 vade the management of these companies after they were re-formed 
 under your plan ? 
 
 Mr. Brandeis. Perhaps, Senator, as these are rather short, I had 
 better read them and explain them as I go along. It may possibly be 
 instructive. 
 
 Senator Brandegee. I think you had better. 
 
 Mr. Brandeis. These are the restraints which we wanted to place 
 on the new corporations. [Reading:] 
 
 (1) From acquiring or holding stock or other interest in, or undertaking to exercise 
 any control over, or making loans or otherwise extending credit to, any other corpo- 
 ration carrying forward any part of the business of the trust, except as hereinafter 
 provided. 
 
 (2) From having any person act as one of its officers or directors who is also an 
 officer or director in any of the other corporations carrying forward any other part of 
 the business of the trust, except as hereinafter provided. 
 
 (3) From combining in any way with any other corporation carrying forward any 
 part of the business of the trust, either in purchasing raw material or supplies, or in 
 selling manufactured products or otherwise, or having any joint or common agents 
 or enterprises in connection with the purchase of raw materials or supplies, or the 
 sale of manufactured products or otherwise. 
 
 (4) From making any agreement or arrangement of any kind with any corporation 
 carrying forward any part of the business of the trust under which trade is appor- 
 tioned in respect either to customers or localities. 
 
 (5) From doing business directly or indirectly under any name other than its own 
 corporate name. , 
 
 (6) From holding stock in or being otherwise interested in any other corporation, 
 except as hereinafter provided. 
 
 (7) From espionage on the business of any competitor either through bribery of 
 any agent or employee of such competitor, or obtaining information from any United 
 States revenue official. 
 
 (8) From giving away, selling at or below the cost of manufacture and distribution, 
 any of its products, or adopting any other method of cutthroat competition for the 
 purpose of destroying or of acquiring the business or trade of a competitor. 
 
 (9) From refusing to sell to any jobber any brand of snuff or cigarettes or smoking 
 or chewing tobacco manufactured by it, which is indispensable in the particular 
 market. It should also be restrained from giving any rebates, allowances, or other 
 special inducements to those who use its goods exclusively or give preference to 
 them over the goods of competitors. 
 
 (10) No corporation carrying forward any part of the manufacturing business of the 
 trust should be allowed to hold any part of the stock of or any other interest in any 
 concern engaged in jobbing tobacco products; but it should be permitted, except as 
 above stated, to own the stock of another corporation organized to carry on any part 
 of its permissible business, provided such other corporation shall have a corporate 
 name and the business is done under a name substantially identical with its own. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1223 
 
 Those were the prohibitions upon the corporation. Then came (B) 
 prohibitions upon individuals, as follows: 
 
 (6) Each of the 29 individual defendants, and also the other stockholders among 
 whom distribution of the property of the trust is made, should be restrained from 
 do ^S>°r aiding in the dom S> of an y of the acts which the corporations are to be pro- 
 hibited from doing as above set forth. 
 
 (c) Every independent or other person interested, should in the event of any 
 alleged violation of the injunction, have liberty to apply to the court for protection 
 and such action as may appear to be appropriate. 
 
 The last was a provision, that seemed to us, of the utmost signifi- 
 cance. Here were those independents struggling and hoping against 
 hope during the four years or the five or six years in which the investi- 
 gation was going on by the bureau, and the four years in which this 
 litigation was going on, hoping that they could get some relief. And 
 here at the end they saw a situation where, with the litigation over, 
 they wanted to be in a position where they could go to the court in 
 this trying period that would immediately follow the change here, 
 and get protection, if this powerful trust in its various elements should 
 violate the decree, because the elements in themselves were tremend- 
 ously powerful as compared with the independents who had to grapple 
 with them. 
 
 For instance, this American Tobacco Co., according to the plan, 
 had assets of $118,000,000 and an income estimated at $15,000,000 
 in a business where the unit of efficiency was rather small and where 
 the independents, most of them, were very small, indeed. 
 
 In the earlier period,, when the effort was being made to restore 
 competitive conditions, we argued that they should be harassed, 
 that they should have leave to come to the court and get relief. 
 The court spurned that suggestion as absurd. The court said 
 that it should not be annoyed with these applications, many of 
 which doubtless would be groundless. If they nave any rights', let 
 them go to the Attorney General for protection. He will sift the 
 things out and he will come here and protect them. 
 
 Senator Brandegee. Now, as to the dissolution of the Standard 
 Oil Trust. Do you regard that as a sufficient enforcement of the 
 Sherman antitrust law for the present situation ? 
 
 Mr. Brandeis. No, I do not. But I find, as I stated before — I do 
 not in any way criticise the court for that situation. I think the 
 Government ought years ago to have recognized that such a disso- 
 lution would not be effective. But it seems to me that there was 
 nothing to do under the existing situation except to let them comply 
 with the decree, and they did do it. But I think it is really one of 
 those things that bring disgrace and discredit on the law and which 
 Congress ought to do all in its power to correct before it is too late. 
 
 Senator Brandegee. Well, you think under the proper interpreta- 
 tion of the Sherman law that the Standard Oil Co. is still violating the 
 terms of the law, do you 1 
 
 Mr. Brandeis. Well, I would not say that they are violating, but 
 I say that conditions exist under which in all probability there will be 
 a violation of it, or of the spirit of it, at least. I have no reason to 
 think that it is being actually violated. 
 
 Senator Brandegee. Recurring for a moment, and only for a 
 moment, to the steel question. What proportion of the cost of steel 
 is labor ? 
 
1224 HEARINGS BEFORE 
 
 Mr. Braxdeis. I do not think I have any data which would enable 
 me to give that. It is not a very large proportion. 
 
 Senator Brandegee. You have noted that you know that the 
 steel corporation has given notice that it was going to cancel its 
 Great Northern ore lease ' 
 
 Mr. Brandeis. Yes. It has also given another notice which is of 
 importance. This beneficent steel corporation has been charging 
 such extortionate rates on ore transportation from the mines that 
 it very seriously handicaps independents, and I understand it has 
 also now, just before the commencement of the suit, given notice 
 that they are going to reduce, and perhaps they have already reduced, 
 those excessive rates. 
 
 Senator Brandegee. Do you happen to know what proportion 
 of this ore the steel corporation has been getting from the Great 
 Northern ? 
 
 Mr. Brandeis. I haven't it in mind, but it is in this steel report, 
 and I can easily look it up and give it to the stenographer. 
 
 Senator Brandegee. You spoke yesterday about these different 
 propositions of profit sharing, and you contrasted the Steel Corpora- 
 tion's division in that respect to the Dennison Co., or some such 
 company. 
 
 Mr. Brandeis. Yes; that and quite a number of other companies. 
 
 Senator Brandegee. I have forgotten whether you gave the pro- 
 portion that the Dennison Co. divided among the help or not. 
 
 Mr. Brandeis. The plan of the Dennison is to give all of the profits 
 remaining after paying the preferred-stock dividends — to divide that 
 all up ; that is, the common stock is to be distributed wholly to the 
 workers in the business. 
 
 Senator Brandegee. Well, do you mean — is there any issue of com- 
 mon stock ? 
 
 Mr. Brandeis. Yes. They are beginning now with a nominal 
 issue, I think, of $50,000, the idea being to increase that issue, and, 
 so far as they desire, to keep in the business the accumulated profits, 
 and then they will distribute the stock. If they wish to distribute 
 the profits, they will distribute the profits on that small amount of 
 stock, which is to be distributed in definite proportions among the 
 people. 
 
 Senator Brandegee. What is the amount of preferred stock in that 
 company, do you happen to remember? 
 
 Mr. Brandeis. I do not; but the total capitalization is $5,000,000, 
 and it must be considerable. 
 
 Senator Brandegee. What composes the capitalization ? Is 
 there anything besides the preferred stock outstanding ? 
 
 Mr. Brandeis. I think there is nothing else. I will say that my 
 own idea is that the dividend is too high upon the preferred stock; 
 but the project, the plan of turning the business over to those who 
 are actively in it, is a plan which, it seems to me, is an admirable one. 
 
 In these other businesses which I referred to, the one where you 
 asked for the proportion that was divided, I had particularly in mind 
 two businesses. One is the Connor business, which is a grocery 
 business, and, by the way, that business indicates — I happen to 
 know about the different facts of that business — that Mr. Perkins 
 was not happj 7 in his suggestion of the immense cost of distribution 
 in the grocery business to which he referred. I know of no retail 
 
COMMITTEE ON INTERSTATE COMMEBOE. 1225 
 
 business in which the difference between the cost of the merchandise 
 and the selling price is so small as it happens to be in the Connor 
 business. There is a very small margin, and it is very much less 
 than usual. In the Connor business all of the profits are also divided 
 among the workers ; that is, after paying interest at 6 per cent upon 
 the capital, one half of the profits in the Connor business goes to 
 those who may be called the executive managers and the other half 
 
 foes to the clerks and lower employees in the business. In the Blood 
 usiness, which was the third business I referred to, there is no specific 
 allowance of return upon capital, but, as I recall, two-thirds or three- 
 fourths goes to the executive managers, the owners of capital, and the 
 remaining third or fourth goes to the workers. 
 
 In the gas company the proportion that is paid to the workers, which 
 comprise 75 or 80 per cent of all the employees, including the 
 unskilled day labor, is in exact proportion to the return on capital, 
 which I understand to-day is 9 per cent. 
 
 Senator Brandegee. That is all. 
 
 Mr. Brandeis. Just allow me to say one word in connection with 
 that. Mr. Perkins stated that what he believed wasthe important 
 thing that labor wanted was to see that it got a fair share of the 
 profits, and I endeavored yesterday to point out the unfairness of 
 giving labor a share, which was $12,000,000, whereas the profits 
 accumulated for or paid out to stockholders on stock that was water 
 aggregated $650,000,000; that is, the workingmen got less than 2 
 per cent, the stockholders 98 per cent in the 10 years. 
 
 Senator Brandegee. $6 a year, I think you said ? 
 
 Mr. Brandeis. It amounted to $6 a year, if there were 200,000 
 employees, as I think Judge Gary said there were. That would be 
 $6 a year, and then there were those other huge profits paid to 
 promoters, and so forth. 
 
 I happened to pick up last evening's paper and saw this: 
 
 $500,000 Christmas Gift— Mrs. Elbert H. Gary to Receive Necklace of 100 
 
 Pearls. 
 
 [Special to the Washington Post.] 
 
 New York, December 13. 
 
 Of all the Christmas presents that will gladden the hearts of women this year, it 
 is safe to say that none will be so wonderful or costly as the $500,000 pearl necklace 
 that former Judge Elbert H. Gary, chairman of the board of directors of the United 
 States Steel Corporation, has given to his wife. 
 
 It is a beautiful rope of pearls, graduating from the center one almost the size of a 
 cherry, to the small ones at the ends, which are joined by a splendid diamond and 
 emerald clasp. It is perhaps as valuable a single strand as can be found 
 
 There are a few more than 100 pearls in the string, and each one is absolutely perfect. 
 
 Senator Brandegee. Did it say that it was real pearls ? 
 / Mr Brandeis. This thinks it is. I have referred to that because 
 it seems to me an extremely serious matter in the times of our present 
 discontent Here is what would seem to me a perfect sham ol proht 
 sharing which has been paraded a great deal over this country. 
 
 A great many of these steel workers are ignorant ol the English 
 language They are foreigners, and they have very little time to 
 read the papers or anything else. But these people, sooner or later 
 do and will and have already found out what this sham, this pretended 
 division of profit, is. Just take that Christmas gift. Almost at the 
 moment when this plea is being presented to Congress through you 
 
1226 HEARINGS BEFORE 
 
 and to the American people, we find here a gift of such extraordinary 
 value that the royalty of Europe 'will hardly equal. See what that 
 means to the social unrest. Is it not just the same sort of thing 
 which brought on the French Revolution, and which must suggest to 
 everyone in this particular connection the damage which the queen's 
 necklace did in those days ? That seems to me to be one of the 
 horrible manifestations, the by-products, of this aggregation of 
 capital. And it is parading before the world the facts in regard to 
 the unearned wealth, unearned by those who are enjoying it and 
 taken out of the lives of the people who are toiling for them. 
 
 Senator Cummins. Mr. Brandeis, do you, regard the system of the 
 United States Steel Corporation as profit sharing at all ? 
 
 Mr. Brandeis. I do not think it ought to be dignified by that name. 
 
 Senator Cummins. If I understand it — I am not characterizing it 
 at all — but, as I understand it, the employees of the United States 
 Steel Corporation are given the opportunity to buy shares of stock 
 just as they might be given the opportunity to buy any other kind of 
 property. They pay their money for it at the market price, or 
 slightly below the market price. I do not understand that that is 
 profit sharing at all. 
 
 Mr. Brandeis. I have assumed from what Mr. Perkins said that 
 they were given the opportunity to apply to the purchase of stock at 
 certain prices certain amounts which were divided among them by 
 the corporation. I had supposed that those sums, which in the 10 
 years aggregated $12,000,000, were really paid out, and that there was 
 added to that the option of buying the stock. 
 
 Senator Cummins. I do not so understand it. I understand that 
 they have been given the opportunity out of their wages to buy the 
 stock of this company. 
 
 Mr. Brandeis. I have the data on that. 
 
 Senator Cummins. And that to the extent of $12,000,000 they 
 have bought the stock, but that they have either paid for it out of 
 their wages or arrangement was made through which they were to 
 pay for it, either out of their wages or out of the dividends which 
 might be declared from time to time upon it. 
 
 Mr. Brandeis. I have the papers on that. I will look at them, 
 and will be glad to present the exact facts or the papers themselves 
 to the committee. 
 
 Senator Brandegee. I understood that they were allowed to 
 have it at a reduced price. 
 
 Senator Cummins.. They are permitted to buy it at a slightly 
 reduced price. 
 
 Mr. Brandeis. If that is true, that is so much the worse. 
 
 Senator Cummins. I would not call that profit sharing in the same 
 sense that you have used that term in respect to the New England 
 companies ; for, if I understand profit sharing, it is out of the earnings 
 of the business. The men who work receive some share other than 
 their wages. 
 
 Mr. Brandeis. Of course that would be absolutely so if the facts are 
 in accordance with that. I made an assumption far more generous 
 to the Steel Corporation, I think, in what I said. 
 
 Senator Cummins. If you will examine the reports of the Steel Cor- 
 poration from year to year, you will discover, as I recall it, that the 
 system or the plan that I have, described is the plan or system which 
 
COMMITTEE ON INTERSTATE COMMERCE. 122'7 
 
 has been adopted, namely, it is simply an opportunity to purchase 
 what the company regards as good property, but the purchaser must 
 pay for it just as he must pay for his house and lot, if he were to buy a 
 house and lot. 
 
 Mr. Beandeis. I may say that in my opinion this effort to induce 
 operatives to buy stock by perhaps offering it to them at something 
 less than the then market value is an extremely dangerous thing and has 
 in it, to my mind, the elements of a bribe by which they are attempt- 
 ing to bind further to the corporation the men who are working for it 
 and who are now in subjection to it, and I think it has been one of the 
 tenets of trade-unionism to recognize and guard against that danger, 
 which is an attempt to create disloyalty by some fear of loss to them 
 if they undertook in any way to assert their rights. 
 
 Senator Cummins. I have only mentioned it because I did not want 
 it to be assumed that those around the table believed that the system 
 adopted by the United States Steel Corporation is a system of profit 
 sharing at all. If you care to look at it and see just what is being 
 done, I will be glad to have you mention it at some other time. 
 
 Mr. Beandeis. I shall be glad to. 
 
 Senator Cummins. In answer to questions put to you by Senator 
 Brandegee, you developed a very interesting phase of the labor ques- 
 tion, which may or may not be material here, but is important always. 
 You mentioned the system established by Frederick W. Taylor at 
 Bethlehem. I take it that you are familiar with that system ? 
 
 Mr. Beandeis. Yes, sir. 
 
 Senator Cummins. Mr. Taylor has sought to establish a similar 
 system in other parts of the country, I believe, since he left the 
 Bethlehem Co. ? 
 
 Mr. Beandeis. Yes, sir. 
 
 Senator Cummins. There is one thing that I would like you to 
 explain, if you can, if I am right in my assumption. In discussing 
 the Taylor system with the labor-union leaders of the country, or 
 with some of them, I find that many of them look upon Mr. Taylor 
 as an enemy of the human race; that he is attempting p enslave 
 them or reduce them to mere machines. Now, will you explain 
 why labor men look upon the Taylor system as so inimical to their 
 interests? . „ , 
 
 Mr. Beandeis. Yes, sir. I want to say, perhaps, in the first place, 
 that it ought not to be called the Taylor system. It ought to be 
 called the scientific management, because while Mr. Taylor has been 
 the most prominent advocate and, to a certain extent, the author of 
 those scientific studies which have led to the science, others and a 
 great many others, have contributed to it, and Mr. Taylor himself is 
 most anxious that the merits of others should not be obscured. 
 
 Senator CumMins. I call it the Taylor system because it has become 
 known as such throughout the country. 
 
 Mr Beandeis. I feel myself convinced that the attitude ot labor 
 upon it is largely due to unfortunate experiences of labor in other 
 connections in the past. It is of historical origin, not historically con- 
 nected with Mr. Taylor, but historically connected with a very differ- 
 ent experience. It is this : Ordinarily with a view to securing greater 
 efficiency, and perhaps greater justice, in the compensation of labor, 
 the effort' has been made in many Concerns. I see you are looking at 
 
1228 heabings beeoke 
 
 the clock, Senator. Perhaps, if you are to have a recess, you would 
 rather have me answer your question this afternoon? 
 
 Senator Cummins. I am looking at the clock simply because I have 
 an engagement later on. 
 
 Mr. Brandeis. If you prefer, I should be glad to answer your 
 question after recess. 
 
 The Chairman. The committee will now take a recess until 2.30 
 p. m. 
 
 (Thereupon, at 1 o'clock p. m., the committee took a recess until 
 2.30 o'clock p. m.) 
 
 AFTER RECESS. 
 
 STATEMENT OF IOUIS D. BRANDEIS— Resumed. 
 
 The Chairman. Senator Cummins, you may resume your exam- 
 ination. 
 
 Senator Cummins. Mr. Brandeis, do you remember my last ques- 
 tion when we took a recess, or was the answer suspended 1 
 
 Mr. Brandeis. Yes; I remember the question. You asked me 
 what the explanation was of the opposition manifested by certain 
 labor leaders and their followers to what has been called the Taylor 
 system, and which is, properly, scientific management; I said that I 
 believed that their opposition had an historical cause, and it is this : 
 The purpose of scientific management of the business is by no means 
 confined to the labor end. The whole idea of scientific management 
 is to develop in the management of a business that same predetermi- 
 nation of everything that is to happen, and how it is to happen, such, 
 for instance, as the engineer in making his steel construction, in pre- 
 paring to set up a bridge in South Africa, making it in Pittsburgh; 
 that is, everything is predetermined. Every bolt, every screw, every 
 weight — every thing he has done. 
 
 Now, the whole idea of scientific management is to have that same 
 thing in correlation as to material, as to planning and ultimately 
 working it out with regard to labor, and to apply the best science to 
 those things as to which science has never been applied heretofore, 
 and try to avoid waste — the whole idea is to avoid waste; waste of 
 effort; misdirected effort; unnecessary effort. 
 
 Now, it was by applying such things, by doing away with the 
 unnecessary motions, that the ability to lay brick was increased to 
 two and three and four fold, and even in such things as the carrier 
 loading up a car with pig iron. 
 
 Now, on its f ace ; so far as that affects labor, it represents of course 
 increased production per man which the labor leaders have associ- 
 ated with the processes of speeding up heretofore used. That is the 
 first ground. The second reason or their objection is this : That in the 
 past, in innumerable cases when piecework was introduced upon 
 the theory that it was going to bring a juster measure of compensa- 
 tion, labor and men's wages rose as result of their doing more work, 
 then soon after the cutting of the wages began. 
 
 They therefore, in many trades, have assumed that an increase of 
 production will benefit only the employer, and that the increased 
 compensation will be but temporary and will be followed later by 
 
COMMITTEE ON INTEKSTATE COMMEECE. 1229 
 
 a decrease in the rate of pay, that it will result in the injustice of 
 doing more for the same pay, that it will result in greater effort on the 
 part of the laborer, and, in the third place, that it will result in the 
 displacement of labor. 
 
 I think those three are the arguments which have prevailed. 
 
 Now, so far as this refers to thepast unjust practices of many employ- 
 ers, it is an unfortunate fact — born in many of the trades by the bitter 
 experiences of individual men who still remember, and with others 
 by tradition. They have seen also, as in the steel trade, numerous 
 instances of speeding up without improvement of method — and that 
 has been one of the_ thmgs which has been specially found since the 
 abolition of the union — speeding up without better methods, and 
 without a corresponding lessening or effort. 
 
 Now, to my mind, these labor leaders are absolutely wrong in their 
 position. The efforts of Mr. Taylor and his associates are all in aid 
 of labor, in that they are removing the unnecessary motions, the un- 
 necessary effort, and are making larger production possible with a 
 smaller amount of effort. 
 
 What labor ought to do is of course perfectly obvious. Labor ought 
 to say, "We are going to increase production by the adoption of new 
 methods, just as much as we can, and when that is done we are going 
 to have a larger share of the profits than has ever been accorded to 
 us before, and we are going to be in such position of strength that we 
 will exact from the employer what is a fair share, namely, a larger 
 share than we got when hand labor was displaced and the pro- 
 ductivity of man's labor increased to the huge profit of the capitalists 
 and employers." 
 
 Now, the labor people are simply misinformed. They are carried 
 away, the individual man, by prejudices, but mainly carried away by 
 misunderstandings. In no establishment where scientific manage- 
 ment has been introduced, and put into practice, has it been possible, 
 to create distrust except among those who do not understand what 
 scientific management means. Now, I believe that the attitude of 
 the labor . leaders is absolutely wrong toward this matter. I can 
 entirely understand it and sympathize with it, in view of their past 
 experiences and their fear that in those individual establishments 
 where unionism does not prevail, that they would not succeed in 
 getting that fair share of the profits of these new advances in in- 
 dustry which ought to be theirs, and which ought to be utilized in 
 large part for the advancement of the condition of the American 
 workingman. 
 
 Senator Cummins. I have heard the objection expressed in this way, 
 that when the scientific, or Taylor, plan is put into execution in a given 
 factory that it speedily develops the varying capacity, or the varying 
 efficiency of the men, and that the owners will take the men of the 
 highest efficiency as a standard, and give less wages to all who are 
 below that standard, and that no more than the prevailing scale of 
 wages will be given to the men of the highest efficiency. I take this 
 opportunity to ask you whether that is a fair deduction from, or is 
 involved in, the plan. 
 
 Mr. Brandeis. Quite the contrary. You have stated with great 
 accuracy what I have attempted to state, as well as a reason, namely, 
 that very fear that there would occur in the future, as there had m 
 the past, a tendency to reduce the pay per unit of production as soon 
 
1230 HEARINGS BEFORE 
 
 as it was found that some men, spurred on by effort, could get what 
 appeared to be a large wage. 
 
 Now, that is absolutely not involved in the plan, but I do believe 
 that there is great danger that in any institution if all the power is 
 one side, there will be a judgment which is partial to that one side. 
 I do not think that whether you have scientific management, or 
 whether you do not have scientific management, you can dispense 
 with the necessary requisite of a fair bargain, namely, that there should 
 be two parties to that bargain, fairly equal in power — reasonably 
 approaching one another in power — and each able to look out for his 
 interests. I do not think that justice can be obtained except by collec- 
 tive bargaining in some form. I do not mean to say that you can not 
 get justice in any of these shops without there being a union in that 
 shop ; not at all ; but there must be a union which somewhere exer- 
 cises its influence. It may be in the neighboring shop or neighboring 
 city, but it must be somewhere looking out for the interests of the 
 workingman and acting as a discourager of hesitancy or an accel- 
 erator of moral justice on the part of the employer. 
 
 Senator Cummins. Departing from that subject, which I have sug- 
 gested because I have thought there was some misapprehension with 
 respect to tue matter abroad, I call your attention to the decree in the 
 American Tobacco case in order to put in the record one phase of it, 
 which, as I remember, has not yet appeared. You remember that 
 one of these companies which formed this combination — I mean which 
 was a part of the combination — was the McAndrews & Forbes Co., 
 I think, of New Jersey, engaged in the business chiefly of producing 
 licorice paste. 
 
 We have been told, as everybody knows, that licorice paste is 
 an essential ingredient in the manufacture of plug tobacco. The 
 McAndrews & Forbes Co., as I recall it, was made up of its own 
 business and of the business of J. S. Young Co., of Baltimore, Md., 
 and it had appeared somewhere that the company as thus consti- 
 tuted has the monopoly, not only of the product itself— of which it 
 manufactures 95 per cent or more — but of the source of supply, that 
 is, the licorice root. What information have you on that point ? 
 
 Mr. Brandeis. I think that is absolutely true, and that was one of 
 the strong objections which we urged against the plan of reorganiza- 
 tion and which the court entirely ignored. 
 
 Senator Cummins. Now, in the reorganization, as I remember it, 
 the McAndrews & Forbes Co. undertook to sell to a new company to 
 be known as the J. S. Young Co. — I may not have the initials right, 
 but I think I have — the plant located at Baltimore, so that the reduc- 
 tion of this essential part of plug tobacco would be carried on both 
 at Camden, N. J., and Baltimore, Md. The point I want to ask you 
 is this : Was there any provision in that decree or plan by which the 
 J. S. Young Co. was given access to the source of supply ? 
 
 Mr. Brandeis. ?\o; neither the J. S. Young Co., as I understand 
 it, nor any other possible competitor. 
 
 Senator Cummins. I assume that because the decree does not pro- 
 vide for the distribution of the business of the McAndrews & Forbes 
 Co. to any other plant or company except the J. S. Young Co. 
 
 Mr. Brandeis. But what we asked, Senator Cummins, of the court, 
 was this : We called specific attention to the fact that the source of the 
 licorice paste monopoly lay in the control of the raw material, which is 
 
COMMITTEE ON INTERSTATE COMMERCE. 1231 
 
 controlled by the McAndrews & Forbes Co., partly through ownership 
 of land and partly through contract with owners of the land in Asia 
 and Turkey and another part of Asia — China. Now, you could not 
 get competition, of course, without liberating the raw material, and 
 without imposing upon this defendant, who was before the court, 
 the obligation to open to possible competitors the purchase of licorice 
 root at a fair price. The court apparently did not consider that 
 fundamental objection to be worthy of consideration, although 
 as a matter of fact, experience had shown that the McAndrews & 
 Forbes Co., through their monopoly, had almost killed at one time 
 the plug business by raising so much the price at which they sold 
 licorice paste, because about 14 per cent of the ingredients of many 
 plug tobaccos is licorice. It is an indispensable and important raw 
 material. 
 
 Senator Cummins. So, then, we have this situation under the plan: 
 The McAndrews & Forbes Co. and J. S. Young Co., both engaged in 
 the manufacture of licorice paste, will be controlled by the same 
 persons, those persons new being the stockholders of the American 
 Tobacco Co. 
 
 Mr. Brandeis. Yes. 
 
 Senator Cummins. And therefore not only is competition most 
 improbable, and I was about to say impossible, between them as to 
 the sale of the product, but the McAndrews & Forbes Co. are left with 
 an absolute monopoly of the licorice root, without which the J. S. 
 Young Co. can not do business at all. That is the situation, is it ? 
 
 Mr. Brandeis. That is the situation. There is another situation 
 which perhaps may be worth while to call attention to specifically, 
 and it is this : I spoke this morning of a great rise in the value of the 
 United Cigar Stores, and that the United Cigar Stores Co. was the 
 greatest engine of monopoly. 
 
 Now see what the situation is with respect to the United Cigar 
 Stores. The stock in those concerns is held by those same individuals 
 in precisely the same proportion in which they hold stocks of the 
 manufacturing companies. Those individuals, therefore, holding the 
 stocks of the various manufacturing companies all have this common 
 interest in the United Cigar Stores, and you have the direct connection 
 between the United Cigar Stores themselves, this effective instrument 
 of destruction of competition, tied up directly with the manufacturing 
 companies. 
 
 Senator Cummins. Your suggestion with regard to the mabdity of 
 the American producers to hold their own in the foreign trade with 
 respect to steel rather touches the American pride, and I want to be 
 sure that I understand your facts. Do you remember the volume of 
 exports in steel in 1901 ? . 
 
 Mr. Brandeis. I have the article here from which I was quoting, 
 and I hope I can lay my hand upon it. The figure I had was for 
 1900, not 1901. The exports for 1900 are given as 1,154,000. 
 
 Senator Lippitt. Tons ? 
 
 Mr. Brandeis. Tons. 
 
 Senator Cummins. Just state that again, please. 
 
 Mr. Brandeis. 1,154,000 tons. 
 
 Senator Cummins. That, of course, took in all the steel producers, 
 not only the plants which afterwards became a part of the United 
 States Steel Corporation, but those which are independent as well? 
 
 99877 — vor. I — 12 78 
 
1232 HEARINGS IiEFOEE 
 
 Mr. Brandeis. I understand they arc the total figures. 
 
 Senator Cummins. Mr. Gary stated the other day that the United 
 States Steel Corporation now exports 95 per cent of all the steel 
 exported from the United States to foreign countries. Does that 
 accord with your general knowledge on the subject ? 
 
 Mr. Brandeis. I have no knowledge on that specific subject except 
 what I have stated. 
 
 Senator Cummins. Have you any knowledge as to the exports 
 from those plants — exports in 1900 of those plants which afterwards 
 became part of the United States Steel Corporation ? 
 
 Mr. Brandeis. No, sir; the data that I quoted were aggregate 
 data for the United States. 
 
 Senator Cummins. Mr. Gary further stated, as I remember it, that 
 in 1901 — that being the first year of the United States Steel Corpora- 
 tion's existence — it exported about 390,000 tons of steel. You do 
 not know, I suppose, whether the exports for that year of the United 
 States Steel Corporation were greater or less than the exports of those 
 plants which came into the corporation in the year before 1 
 
 Mr. Brandeis. I do not know, but perhaps this fact may have some 
 significance or an interesting bearing upon the matter. You will 
 recall that in the year 1901 there was a great demand for steel. Also 
 that in this earlier period the capacity of the plants was not such as to 
 permit of any large exportation, and indeed, prior to the organiza- 
 tion of the steel corporation in those years when we were manufac- 
 turing so much cheaper than the foreign countries, the only reason 
 we did not have the whole foreign trade was that we did not have 
 manufacturing capacity to take it. Therefore, it would have been 
 entirely natural that in the year 1901 the exportation should have been 
 smaller because there was a home market which was so profitable that 
 the return of the steel corporation in that year on its investment, on 
 the invested property, was at the rate of 14.8 per cent; whereas, in 
 these later years, when 33 per cent of the capacity of the plant has 
 lain idle, the return on the invested property has been in 1908, 
 7.8 per cent; in 1909, 10.5; and in 1910, 10.7. That is, the incentive 
 of course did not exist for exportation at a time when they could 
 hardly supply, or could not supply, the American market. 
 
 Senator Cummins. Now, Mr. Gary also stated that the exports of 
 steel the present year by the United States Steel Corporation alone 
 would probably be 2,000,000 tons. So that upon his statement, if it 
 be correct, the United States Steel Corporation increased its exports 
 from 1901 to 1912 
 
 Senator Oliver. You mean 1911. This is 1911. 
 
 Senator Cummins. Including 1911: 1911 will soon shortly be 
 over — by including the year 1911, so increased its exports during that 
 period from 390,000 tons to 2,000,000 tons, a matter of 1,600,000 
 tons, or more ? 
 
 Mr. Brandeis. Yes. Now, perhaps this may be significant in 
 explanation of that. In 1910 the total exports from the United 
 States were 1,535,000, of which, according to Judge Gary, of course 
 5 per cent at least would have been of other concerns. This great 
 jump between 1910 and 1911, an increase in exports of nearly 33 per 
 cent, if the prediction is verified, may well be explained by the fact 
 that incident to the prosecution of the Steel Trust and the preceding 
 rumors this year, there was a very material drop in prices of steel in 
 
COMMITTEE ON INTERSTATE COMMERCE. 1233 
 
 America — not steel rails, but in other steel products, an assertion 
 having been made that it in many lines left a very slight profit 
 on steel. r 
 
 Under those circumstances it is quite possible that the Steel Trust 
 n «t finding the business in America as profitable, should have gone 
 abroad, and have sold abroad, making concessions abroad in view 
 of the break in prices which came here when the gentlemen's agree- 
 ment was abrogated. 
 
 Senator Cummins. What particularly interested me is this: In 
 1900, according to the statement you have just made, we imported 
 1,500,000 tons in round numbers. 
 
 Mr. Brandeis. Exported. No; the 1900 figures were 1,154,000 
 
 Senator Cummins. I mean 1,100,000 tons. 
 
 Mr. Brandeis. 1910 it was 1,535,000 tons. 
 
 Senator Cummins. Now, if we export in 1911 2,000,000 tons, plus 
 5 per cent, which would be 2,100,000 tons, it would have made an 
 increase as between the two years — an increase in this period — of 
 about 900,000 tons ? 
 
 Mr. Brandeis. Yes. But see what Germany's increase has been. 
 Germany's increase was from 838,000 to 4,868,000— nearly six 
 times — between five and six times. 
 
 Senator Cummins. I think it is a general complaint, Mr. Brandeis, 
 of these people that the attitude of the Government toward these 
 great concerns is such that they do not feel free to go on and take that 
 
 Eart of the foreign trade which they might take if they did not appre- 
 end some danger in the future ? 
 
 Mr. Brandeis. Well, it certainly can not be said with reference to 
 the greater part of that period from 1900 to 1910 that there was any 
 well-grounded apprehension on the part of the Steel Corporation, and 
 I can not believe for a moment that this attitude or the failure to 
 control the foreign markets was in any degree attributable to any 
 apprehension on the part of this company. Why should it be ? 
 
 Senator Cummins. Why, in your opinion, did not the independents 
 take more than 5 per cent of the foreign trade ? 
 
 Mr. Brandeis. I think probably the real explanation has been that 
 they have found it "easier pickings" to take the trade in the United 
 States, and that is the reason they have made such inroads upon the 
 steel corporation within the United States. It has been the path of 
 less resistance. 
 
 Senator Cummins. Is there any possible explanation 'found in the 
 statement that is sometimes made that the sales abroad are made at 
 a less price than the sales at home ? 
 
 Mr. Brandeis. I have no doubt but what there may be some of 
 that and that the question of using the foreign markets as a dump- 
 ing market is a matter that is constantly before the exporters. But 
 I can not doubt, in view of the figures which are presented and the 
 circumstances, that it is costing us so much more, compared with 
 10 years ago, to manufacture our steel, that the increased cost here as 
 compared with the practically stationary cost in Germany and in 
 England has enabled them to recover a position and to go ahead of 
 that position as to the maintenance of which they formerly were in 
 such a state of apprehension; in fact, bordering upon panic. 
 
 Senator Cummins. Your general conclusion touches another sub- 
 ject in which I have been interested and leads to conclusions that I 
 
1234 HEARINGS BEFORE 
 
 have not been willing to accept, namely, that the very high duties 
 which are now levied upon steel products are necessary in order to 
 keep out the cheaper products of foreign countries. 
 
 Mr. Brandeis. I have great doubt as to their necessity, because I 
 think there is a way out of the difficulty, and that is that, if our steel 
 corporations are put into the position where they must resume that 
 manly, aggressive attitude with which they had formerly struggled in 
 order to live, American ingenuity and energy and capacity to grap- 
 ple with problems will be just as effective hereafter as it was 10 
 years and more ago; but I think that the present situation, which 
 is practically a monopoly situation, is one that is demoralizing and 
 that we are having here a manifestation of that disease which attends 
 monopoly. 
 
 Senator Cummins. That is all. 
 
 Senator Lippitt. Mr. Chairman, I have to leave the hearing in a 
 few moments. May I ask the privilege to ask a few questions now ? 
 
 The Chairman. Very well. 
 
 Senator Lippitt. Mr. Brandeis, yesterday, in the course of exami- 
 nation by Senator Cummins, and subsequently by Senator Newlands, 
 on the same point, you left a little doubt in my mind as to what your 
 ideas were in regard to the question of desirability of limiting the 
 amount of business that should be done by a corporation. As I 
 understood the general drift of your answers to Senator Cummins, 
 they were that you did not favor any limitation, while in reply to 
 Senator Newlands I rather gathered the idea that you thought per- 
 haps 40 per cent would be in the neighborhood of a limitation that 
 would be wise. Would you care to explain just what your views are ? 
 
 Mr. Brandeis. Yes. My opinion is this: I regard it as an unfor- 
 tunate condition — that is, I mean unfortunate as dangerous to the 
 interests of the public and of the industry — that one concern should 
 acquire a very large proportion of the business in any one branch of 
 industry. I think that if the methods pursued in business are 
 proper, and businesses too are allowed merely to grow, as distin- 
 guished from forcibly combining a large number of businesses, there 
 is no such likelihood of any one business acquiring a control as to be 
 really dangerous, and therefore that the situation is probably one 
 where there is no immediate necessity of legislating against the con- 
 dition. I think it would not happen under ordinary circumstances, 
 or, if it does, it will be a very exceptional or temporary condition 
 so far as the control of an industry is concerned. "What I have advo- 
 cated, however, in connection with the remedy as to the Sherman 
 law and any amendment to the Sherman law, is that where a combi- 
 nation is brought about by which such control of 40 per cent or 
 more of the business is shown, then the existence of that control 
 is to be deemed presumably unreasonable, harmful, and illegal, but 
 that it should be open to the parties to show that conditions are 
 such that the presumption should not be operative in a particular 
 case. 
 
 Senator Lippitt. Then I gather from your remarks that what you 
 mean is that, while you do object to too large a proportion being held 
 by one concern, you think the remedy for it is not in specifically for- 
 bidding that but in providing other regulations which would of 
 themselves tend to prevent it ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1235 
 
 Mr. Brandeis. Yes, sir; but if anyone is found to be restraining 
 trade by combination and the condition is found that he does con- 
 trol so large a part of an industry, that has to be explained. 
 
 Senator Lippitt. Well, in other words, you think that the laws 
 as they now stand on this particular point are perhaps sufficient « 
 
 Mr. Brandeis. No; I do not think thev are because they do not 
 create a presumption. 
 
 Senator Lippitt. What you mean is that the onus of proof should 
 be thrown on the other party? 
 
 Mr. Brandeis. Yes, sir; thrown on the other party. 
 
 Senator Lippitt. That, I think, you provided for. 
 
 Mr. Brandeis. The La Follette bill provides generally for the 
 burden of proof, shifting in case restraint of trade is shown— and it 
 is provided m the La Follette bill specifically— that the mere fact 
 of ownership of so large a proportion creates a specific presumption 
 of unreasonableness. 
 
 Senator Lippitt. But you do not think that specific legislation to 
 that specific end is necessary; that it can be better taken care of in 
 other ways ? 
 
 Mr. Brandeis. I think at the present time there is not enough 
 evidence to show that it is necessary so to restrain combinations 
 to require Congress to pass any such law. 
 
 Senator Lippitt. You have talked a good deal about the effect of 
 large corporations not providing efficient management. Would 
 your general inference be from that that is a necessary tendency of 
 very large corporations, and that perhaps as a result of that the 
 outside party, the smaller corporation, would have a better chance 
 to compete in many instances, and could do the business more 
 successfully ? 
 
 Mr. Brandeis. I think so, assuming of course that the smaller 
 is not too small. There is a limit. A concern may be too small to 
 be efficient, just as it may be too large to be efficient, but what that 
 limit is in a given business can not be determined by any definite 
 rule. 
 
 Senator Lippitt. I judge from that that you believe that it is 
 doubtful whether such a large corporation as the United States 
 Steel Co. could be, over a long period of years, sufficiently efficiently 
 managed to compete with those of more moderate size. 
 
 Mr. Brandeis. I believe that to be true, and I think the data, as 
 to ebbing away of the percentage of business of the United States 
 Steel is evidence of that fact. 
 
 Senator Lippitt. And the inference to be drawn from that is 
 through natural causes these very large corporations can ultimately 
 be broken up by the natural ingenuity and efficiency of competitors ? 
 
 Mr. Brandeis. I think that is true. That would result, provided 
 no illegitimate use were made of size or power incident to size, but I 
 think it has been an extremely frequent practice of the powerful 
 corporations to utilize their power to prevent the inroads of com- 
 petition which their efficiency was not able to repel, and I think 
 the United Shoe Machinery Corporation is one of those cases. Instead 
 of merely utilizing their efficiency to overcome the competitor, they 
 use all of this artificial and illegitimate means of preventing com- 
 petition. 
 
1236 HEARINGS BEFORE 
 
 Now, of course, that can be done in that way. It can be done 
 also through having a huge amount of money to spend and having a 
 power of endurance in making low prices, for instance, even if they 
 are made everywhere, having the power of endurance which inheres 
 in large aggregations, and which nullifies the effort of the ordinary 
 competitor. 
 
 Senator Lippitt. But, granting all that — which is one of the inci- 
 dental advantages of large size — you still believe that in the end the 
 very bulk itself would prove a disadvantage and the smaller reasona- 
 bly sized competitor would take away the business or diminish it ? 
 
 Mr. Beandeis. I believe it would, provided the law efficiently 
 protects that smaller unit against ruthless destruction through 
 methods of unfair competition. 
 
 Senator Lippitt. Taking the laws exactly as they stand to-day, 
 do you believe that if there was no change in the laws, and matters 
 were allowed to go on as they are going, that the result would be the 
 survival of the moderate-sized competitor, or do you believe it would 
 be the absorption of the business by one huge organization ? 
 
 Mr. Beandeis. In many instances I think it would be the absorp- 
 tion of the business by huge organizations, because the power of 
 endurance of competitors becomes exhausted, and it has been 
 entirely overcome in a great many cases, for instance, the shoe- 
 machinery case. 
 
 Senator Lippitt. Taking all the features of it, you do not believe 
 that the medium-size competitor would be the successful one ? 
 
 Mr. Beandeis. Not without congressional aid, because I think you 
 need not only the law but enforcement of the law. 
 
 Senator Lippitt. I say take the laws as they stand. 
 
 Mr. Beandeis. And I believe, in the instance of the Tobacco 
 Trust, that the law was not enforced, and that the Attorney General 
 is probably a subject of a great deal of criticism for not having taken 
 an appeal from that decree so that a plan of reorganization could 
 have been secured under the law, which would have actually restored 
 conditions under which competition would be possible. 
 
 Senator Lippitt. I am very much obliged to you. 
 
 Senator Newlands. Mr. Brandeis, have vou indicated whether any 
 legislation can be adopted which will secure the appeal which you 
 desire in the tobacco case ? Have you indicated it at this hearing ? 
 
 Mr. Beandeis. No; I have not expressed myself on that subject. 
 
 Senator Newlands. What is your view as to that? 
 
 Mr. Beandeis. It seems to me that Congress has the constitutional 
 power to provide for such an appeal. 
 
 Senator Newlands. You would not regard that as ex post facto 
 legislation ? 
 
 Mr. Beandeis. No, sir. 
 
 Senator Newlands. Or legislation interfering with vested rights ? 
 
 Mr. Beandeis. No, sir; it seems to me that it would be entirely 
 legal to authorize an appeal. 
 
 Senator Newlands. By whom would you have that appeal taken; 
 to whom would you give that right ? 
 
 Mr. Beandeis. Of course what properly ought to be done is that 
 the executive department of our Government ought to see that the 
 
 Seople are protected. It is primarily the duty of the executive 
 epartment, and particularly of the Department of Justice, to see to 
 
COMMITTEE ON INTERSTATE COMMERCE. 1237 
 
 it that every effort should be made to secure that right under the 
 existing law. 
 
 Now, the Attorney General in this particular instance himself asked 
 before the court, for a number of provisions, which, while not going 
 nearly as far as we did, would, if granted, have gone quite a way 
 toward protecting legitimate competition. He asked, in the first 
 place, that this United Cigar Store stock instead of being distributed 
 among the same persons who held the rest of the trust's property, 
 should pass to persons in nowise connected with it. If that request 
 of the Attorney General had been granted, quite a step would have 
 been taken toward depriving the United Cigar Stores of that quality 
 of evil in destroying competition which now exists. 
 
 He also asked for another provision which would have been of very 
 great value. He stated, with an accurate perception in that respect 
 of the situation, that the court was undertaking to do something, in 
 a sense novel. Instead of passing upon a condition past or present, 
 it was undertaking to provide for the future, to forecast, in a 
 certain sense to legislate, and yet no one could foretell with accu- 
 racy what would happen under this plan that was being laid out; 
 that the court ought to have — for a period which he at first named 
 as five years and later was willing to reduce to three — the right of 
 supervision and a right that if there should appear in the course of 
 this plan some features that were inadequate to secure competition, 
 the court would have the power to amend this tentative decree. 
 That the court refused, just as it had the other request, that the 
 United Cigar Stores stock should have been sold to others. 
 
 Furthermore, there was the question on which he said he had great 
 sympathy with our contention, that you could not have competition 
 as long as there was common ownership in the stock of the three cor- 
 porations. He said he greatly sympathized with us, but he felt, like 
 the court beloW, that the fact that the Supreme Court of the United 
 States had not endeavored to prevent such a disposition in the Stand- 
 ard Oil case or in the Northern Securities case, was a tacit recognition 
 by the court that that was not an objection to the existence of com- 
 petition, as legally understood. 
 
 He recognized those positions and so stated them in his argument. 
 They were his contentions before the circuit judges decided against 
 him. Now, I say that in private practice no lawyer would think of 
 giving up claims of that character, recognizing the fallibility of a court, 
 and the reason why an appellate court is provided — would have given 
 up such important contentions in the interests of his clients. I think 
 he should have appealed the case whether he actually thought the 
 circuit judges were right in overruling his contentions, or whether he 
 thought they were wrong. In either event he ought to have said, 
 "This situation I will not accept until the Supreme Court says that 
 those judges are right." Instead of that he acquiesced in a decree 
 which with unanimity other tobacco manufacturers of this country 
 declare created a condition which was worse for them than the condi- 
 tions which had prevailed prior to the decisions of the Supreme Court 
 of the United States. 
 
 Now, I say that properly the Department of Justice ought to take 
 the appeal, and that perhaps one way of accomplishing this result 
 would be to pass a resolution directing the Attorney General to take 
 such an appeal, if he has not indeed already waived his right to do so, 
 
1238 HEARINGS BEFORE 
 
 by assenting, as there is some indication that he has assented, to the 
 decree as made. 
 
 Senator Newlands. Did the Attorney General's action take the 
 form of acquiescing in the decree, or simply of refusing to take an 
 appeal ? 
 
 Mr. Brandeis. That I do not know, as a matter of fact. He has 
 stated that he would not take an appeal. As soon practically as this 
 decree had been entered and the Attorney General appeared in the 
 public print as stating his approval of the decree, and that he would not 
 appeal , then those connected with the Tobacco Trust began with extraor- 
 dinary speed to put through a form of reorganization, doubtless wit* 
 the idea of making it futile or extremely difficult for action by Congress 
 in making the appeal later. I do not know whether the action of the 
 Attorney General precludes the Government from taking an appeal. 
 I do not know what the state of that record is at the present moment. 
 
 Senator Newlands. Did the Attorney General at the time of this 
 action regarding the appeal, make any statement of his reasons for 
 abandoning the contentions which he had made before the lower 
 court ? 
 
 Mr. Brandeis. I have never heard that he has ever done that. I 
 understand that in his report which is before Congress, to which 
 reference is made in to-day's paper, that he has stated his approval of 
 the action of the court. But what convinced him that the contentions 
 that he made before the court were unsound, I do not know. 
 
 Senator Newlands. If that decree is a consent decree, would you 
 then contend that Congress could provide for an appeal from it ? 
 
 Mr. Brandeis. Of course, Congress can not direct how a case shall 
 be decided, but there have been many instances, or at least a num- 
 ber of instances, in the Federal courts, which have been passed upon 
 by the Supreme Court, where an appeal was granted subsequent to 
 the time when the right to appeal had expired. I think, Senator, 
 I may have a reference here to cases on that subject. The latest 
 decision on this subject in the Federal courts and the Supreme Court 
 of the United States was in the case of Stephens against the Cherokee 
 Nation (174 U. S., 445). The facts in the Cherokee Nation case were 
 that an act of Congress had established a commission to determine 
 the rights of citizenship in several Indian tribes. There was a later 
 act of Congress providing that any person aggrieved by a decision of 
 the commission might appeal to the United States district court, 
 provided, however, that the appeal shall be taken within 60 days, 
 and the judgment of the court shall be final. Appeals were there- 
 upon taken to the United States district court in various cases. 
 Final decrees were rendered by that court, and that court adjourned, 
 and then Congress passed still another statute providing for appeals 
 from the decrees later in the district courts to the United States 
 Supreme Court. The court held the lights incidental, saying, at 
 pages 477 and 478: 
 
 The contention is that the act of July 1, 1898, in extending the remedy by appeal to 
 this court was invalid because retroactive, an invasion of the judicial domain, and 
 destructive of vested rights. * * * The mere fact that legislation is retroactive 
 does not necessarily render it void, and while it is undoubtedly true that legislators 
 can not set aside the judgments of courts, compel them to grant new trials and the dis- 
 charge of the defendants, or direct such steps shall be taken in the progress of judicial 
 inquiry, the granting of any remedy by way of review has been even sustained under 
 the particular circumstances. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1239 
 
 And then the court cites a number of cases. It seems to me that 
 that decision is applicable to this case. 
 
 Senator Newlands. What would be the form of legislation that 
 you would advise on this subject? 
 
 Mr. Brandeis. I have not had the opportunity of examining, par- 
 ticularly, Senator Cummins's bill. I have no doubt that that presents 
 the best form of legislation. My general thought is this 
 
 Senator Newlands (to Senator Cummins). Has your bill been 
 introduced into the record ? 
 
 Senator Cummins. No. 
 
 The Chairman. It will be introduced. 
 
 Senator Cummins. It has been introduced in the Senate and re- 
 ferred to the Committee on the Judiciary. I may say here that it is 
 drawn upon the lines that I suppose are laid down in the case just 
 mentioned by Mr. Brandeis, for that was the case I had in mind when 
 I drew the bill. 
 
 Senator Newlands. I will ask to have that bul inserted in the 
 record at this point. 
 
 (The bill is as follows:) 
 
 [S. 849, 62d Cong., 1st sess.] 
 
 Be it enacted by the Senate and House of Representatives of the United States of America 
 in Congress assembled, That section one thousand and fourteen of the Revised Statutes 
 of the United States is hereby amended by adding thereto the following: 
 
 "But when the alleged offender is a corporation, association, joint stock company, 
 or other artificial person residing and having its principal place of business without 
 the district wherein the offense is cognizable, and wherein an indictment has been 
 found, or information filed, a judge of the court of the United States in which such 
 indictment has been found, or in which such information has been filed, shall, on 
 motion, direct a summons, signed by the clerk of said court, with seal attached, to be 
 served upon the offender, which summons shall set out a copy of the indictment or 
 information and the order of the court, and shall specify the time, place, and nature 
 of the hearing, and before what court or judge the hearing shall take place. Such 
 notice shall be directed to the marshal of any district of the United States in which 
 service may be made, and when indorsed by the judge of such district shall be served 
 upon such offender agreeably to the methods prescribed by law for the service of civil 
 process upon artificial persons in the district in which such service is made, and not less 
 than twenty days before the time of such hearing. The return of service shall be made 
 by the United States marshal directed by the judge issuing the same as aforesaid, and 
 upon and after the date mentioned in such notice, when the same has been served as 
 above prescribed, the alleged offender shall be assumed to be arrested and present in 
 court at the place designated in said summons, and may be proceeded against, and all 
 orders and judgments against it may be enforced with the same force and effect as if 
 such offender had appeared personally or by attorney." 
 
 Senator Newlands. May I ask if your bill provides that the inde- 
 pendents can take an appeal ? 
 
 Senator Cummins. The bill contains, first, a preamble which recites 
 this history in outline as to which Mr. Brandeis has spoken, and then 
 provides that all of these organizations in those States which_ appear 
 either through their attorneys general or the governors, or either of 
 them, shall be given the right to intervene and appeal from this decree 
 with all the privileges and all the rights the United States would have 
 had, or could have exercised, if it had appealed from the decree. 
 
 Senator Pomerene. In that connection, will you pardon me, 
 Senator Newlands ? 
 
 Senator Newlands. Certainly. 
 
 Senator Pomerene. I have not examined this case in 174 United 
 States, but did the act or acts referred to by the court in that case 
 provide for an appeal by some one other than the parties to the 
 proceeding ? 
 
1240 HEARINGS BEFORE 
 
 Senator Cummins. It did not, as I remember it. The subsequent 
 act of Congress gave to persons who are interested in the subject 
 matter the right to appeal. 
 
 Mr. Brandeis. I may add, in view of the question asked by 
 Senator Newlands, and the suggestion now made by Senator Pome- 
 rene, that it probably would be desirable, in order to avoid any 
 question of constitutionality, to provide both by a resolution directing 
 the Attorney General to appeal, and also an independent right to 
 appeal, and a provision that if the Attorney General appealed that 
 independents would have a right to be heard or perhaps of a right to 
 petition the court to be heard. 
 
 Senator Cummins. Inasmuch as the matter is up, and I am the 
 author of the bill, I may be permitted to say that I have grave doubt 
 about the power of Congress to direct the Attorney General to take 
 an appeal. I further thought that it would be unwise to put into the 
 hands of the Attorney General the argument of the case, if it were 
 appealed, because he had expressed his approval of the plan in a 
 public waj T and because the President of the United States had in a 
 message to Congress expressed his approval of the plan, and accord- 
 ing to both of them the very best motives in the world, it seems to me 
 that the lawyer who was to argue the case before the Supreme Court 
 of the United States ought not to have behind him a record of that 
 kind. 
 
 Mr. Brandeis. I appreciate that position, but may I ask, Senator 
 Cummins, whether, as bearing upon the question of the constitu- 
 tionality of directing the Attorney General to appeal, you have con- 
 sidered the case of the United States against the Union Pacific Rail- 
 road (98 U. S., 569) ? 
 
 Senator Cummins. In a way; yes. I may say, as I have stated 
 several times to Members of the Senate, that I had occasion to exam- 
 ine that subject several years ago, when, as governor of Iowa, I was 
 directed by the legislature of that State to institute a certain suit, 
 and I then looked into the relative or separate powers of the legis- 
 lative and executive branches of the Government as they are related 
 to that question. 
 
 Mr. Brandeis. My memorandum on the Union Pacific case is this: 
 
 In 1S73 Congress passed a statute specifically requiring the Attor- 
 ney General to bring a suit against the Union Pacific Railroad and 
 certain of its stockholders. The question of the constitutionality 
 of the act was raised and the court held it constitutional, Mr. Justice 
 Miller sajnng, page 605: 
 
 The statute books of the State are full of acts directing the law officer to proceed 
 against corporations such as banks, insurance companies, and others, in order to have 
 a decree declaring their charters forfeited. 
 
 And it seemed to me that that case was at least some authority as 
 to constitutionality. 
 
 Senator Cummins. It is. I do not want to be put in the position 
 of arguing against the validity of proceeding in that way. I hope it 
 is appealed. I chose the other way because I thought it would be 
 more effective. 
 
 Senator Newlands. Apart from the question as to whether the 
 lower court, or the act of the lower court, in approving this plan 
 was pursuant to the principles laid down by the Supreme Court, I 
 presume that you regard it as exceedingly desirable to public inter- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1241 
 
 ests, with a view to questions of similar nature coming up hereafter,, 
 that the court which ordered the disintegration should finally pass 1 
 upon the plan of reorganization, do you not ? 
 
 Mr. Beandeis. Yes; it seems to me that in view of the importance' 
 of the question, and not merely for this case, but as Senator Cum- 
 mins said in his address the other day, as a precedent for other cases, 
 that it was eminently fitting and highly desirable that the Supreme, 
 Court should have expressed itself on that subject. The grounds on 
 which the various provisions — a number of the provisions — were in- 
 cluded in the La Follette bill after the action of the circuit court was to 
 remove a number of doubts which the circuit court judges seemed to 
 have as to the extent of their power and it seems to me that the' 
 expeditious and by far the best way to deal with that particular' 
 question was for Congress to enact as soon as it might those pro- 
 visions as showing not only its recognition of the power in the court, 
 but inferentially of the propriety of exercising that power when 
 cases should arise, as they are constantly arising now with increasing 
 frequency. 
 
 Senator Newlands. You were saying, Mr. Brandeis, that you did 
 not regard the trust form of organization as at present pursued con- 
 ducive to the highest degree of efficiency, and you gave a number of 
 instances where the trust form of organization has practically broken 
 down under competition. I understood you to say that most of the 
 trusts had failed of their purpose by reason of their inefficiency ? 
 
 Mr. Beandeis. I hardly meant to say that. 
 
 Senator Newlands. To what extent have those trusts been really 
 efficient in destroying or injuring the competition of others ? 
 
 Mr. Brandeis. Which trusts? 
 
 Senator Newlands. I mean to say as to the number of them. Are 
 there very many of them that have been potential in that ? 
 
 Mr. Beandeis. I think the Standard Oil was one, the Tobacco was 
 another. The Shoe-Machinery Corporation is the most striking 
 example of the destruction of competition. I am not so familiar 
 with the Harvester Company, but it has certainly been a very striking 
 instance. I do not think that I could go through the list and state 
 with accuracy, without some special investigation, the exact situation 
 with regard to most of them. . , 
 
 The trusts that I speak of as having demonstrated their inefficiency 
 were those which had never reached that position, which never were 
 able to include enough of the businesses at the start to give them the 
 dominating position; and I say that when you take those trusts which 
 started out without having the dominating position you find the 
 most striking instances, the most striking evidences, of the inability 
 of the large combinations like the Upper Leather Trust, the Union 
 Paper Trust, the Print Paper Trust, the Writing Paper Trust, the 
 Central Leather, the United States Leather Co., and the Inter- 
 national Paper Co. to do as well as their competitors. 
 
 Now in regard to some of those, I think the career of the com- 
 panies 'would have been even less glorious than they have been but 
 for the fact that they controlled the raw material. In the case of the 
 International Paper Co., they happened to control a large amount of 
 woodland which immensely increased in value. In the case ot tne 
 United States Leather Co., they held all their bark contracts, an 
 immense amount of woodland, which also became of greater value, and 
 
1242 
 
 HEARINGS BEFORE 
 
 which have enabled those companies to pay dividends on their pre- 
 ferred stock which doubtless would not have been possible if they 
 had been obliged to pay for their raw material at current values 
 instead of the values as they existed ten or a dozen years ago. 
 And then the other trusts, which are to-day among the presumably 
 successful trusts, like the United States Steel Co., and the American 
 Sugar Refining Co., I pointed to the fact as evidence of their relative 
 inefficiency that they were constantly losing the proportion of trade 
 as against their competitors. 
 
 It is very striking m the case of the sugar refining companies which 
 had, at the time of the Knight case, 20 years ago, I think, about 95 
 per cent — it was so stated in the decision; whereas the last report — 
 the last year's report of the sugar company to the stockholders, stated 
 they had only 42 per cent of the business of the country. 
 
 Senator Newlands. Have you any idea what proportion of the 
 800 or more so-called trusts or combinations have proved efficient in 
 really restraining trade? 
 
 Mr. Brandeis. No; I have no information in that respect that 
 would be worth while giving to the committee. I think it will be 
 found in such that I have in mind that the extent to which they 
 have restrained trade has been varying with respect to the individual 
 concerns as well as very much varying, one from the other. 
 
 Senator Newlands. Now, with present forces at work, would you 
 feel that the most of those trusts would be gradually broken down by 
 the competition that is now going on or is likely to arise in the future ? 
 
 Mr. Brandeis. I think with the provision in the La Follette bill 
 
 Senator Newlands. I mean without any further legislation. 
 
 Mr. Brandeis. I should be very much afraid they would not 
 because I think we need both further legislation and an enforcement 
 of the law in accordance with its terms and spirit. 
 
 Senator Newlands. You spoke of the rise in the tobacco stock. 
 In what stock did that rise take place, the old stock — the stock of 
 the old Tobacco Trust ? 
 
 Mr. Brandeis. Yes. 
 . Senator Newlands. And it has advanced to a point beyond what 
 it has been in the past ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. Do you attribute that to a healthy demand 
 of investors, or do you attribute it to an effort upon the part of the 
 insiders to hold up the stock in the market ? 
 
 Mr. Brandeis. I see no reason to suppose that there was any spe- 
 cial effort to hold it up. As a matter of fact, it has been constantly 
 rising since the day before the argument of the case; that is, the 
 stock was then 395, as I recall it. It had been somewhat lower before ; 
 but it was 395 and was yesterday 530. A very marked rise came at 
 the first time that it was announced that the Attorney General was 
 going to approve of the main provisions of the plan. Then there was 
 a large rise. There was another jump in the interval, and there was 
 another large jump when the Supreme Court handed down its deci- 
 sion denying trie appeal. It then jumped, I think in one day, $21 a 
 share. 
 
 Senator Newlands. There have been no issues of the new securities 
 as yet, have there ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1243 
 
 Mr. Brandeis. I have the quotations here. It is being sold on the 
 curb. 
 
 Senator Newlands. Do those quotations indicate the value of those 
 securities — take the aggregate of those quotations; does it equal the 
 aggregate of the old Tobacco Trust quotations ? 
 
 Mr. Brandeis. I have not made that calculation. The quotations 
 are still in the main — most of the quotations which appear in the 
 papers are of the old securities; that is, the sixes and fours, preferred 
 stock, American Tobacco common, and Liggett & Myers and Loril- 
 lard preferred, and the United Cigar Stores. 
 
 Senator Newlands. You spoke of the value of the assets of the 
 tobacco company as appearing in the proceedings. What was the 
 aggregate value ? 
 
 Mr. Brandeis. I was looking just a moment ago for their plan of 
 reorganization, which sets that out. 
 
 Senator Cummins. I have it here. 
 
 Senator Newlands. What I wanted to get at was, Did the value 
 of those assets as presented in court equal the market value of the 
 securities ? 
 
 Mr. Brandeis. No; I think not. As a matter of fact, a good part, 
 of course, of the value is in the value of the trade-marks. 
 
 Senator Newlands. Were there any large sums aside from that? 
 
 Mr. Brandeis. The value of the trade-marks ? 
 
 Senator Newlands. Yes. 
 
 Mr. Brandeis. Oh, yes, sir; and the value of the trade-marks is 
 very large. 
 
 Senator Newlands. Was there any value assigned for good will? 
 
 Mr. Brandeis. I think good will and trade-marks are included 
 together. 
 
 Senator Newlands. Was there any value assigned to patent 
 
 rights ? 
 
 Mr. Brandeis. Patent rights? There may be some, but patent 
 rights do not at the present time cut any important figure. This 
 may be of interest: I recall that the new corporation — that is, the 
 reorganized American Tobacco Co.— according to the value placed 
 upon it by the trust itself, had property of the value of $118,000,000, 
 and the two other companies together $1 15,000,000. 
 
 Senator Newlands. What I wanted to get at generaUy was as to 
 whether this inventory of assets equaled approximately in amount 
 'the amount of the securities issued by the Tobacco Trust. 
 
 Mr. Brandeis. I think they exceeded the par value. 
 
 Senator Newlands. Exceeded the par value? 
 
 Mr. Brandeis. Exceeded the par value. 
 
 Senator Newlands. But the market value of some oi these 
 securities is far in excess of the par value ? . 
 
 Mr Brandeis. Yes; that is so, as m the case of the $40,000,000 oi 
 common, which is worth $210,000,000 on the market, or more. 
 
 Senator Newlands. With reference to the future and the con- 
 ditions of certainty regarding the Sherman antitrust law, what 
 would your idea be as to the ability of four or five corporations we 
 will say in the steel trade, reasonably capitalized, say at $10,0UO,UUU 
 each to combine in one corporation ? 
 
 Mr Brandeis. As to whether they could? 
 
 Senator Newlands. Yes;. whether they could legally. 
 
1244 HEARINGS BEFORE 
 
 Mr. Brandeis. Could legally under the Sherman law? 
 
 Senator Newlands. Yes. 
 
 Mr. Brandeis. I should think the question would be one of fact 
 as to what the purpose and result of that would be, whether it would 
 become, in view of what other competitors there may be— whether 
 it really would restrain trade. I should guess that in a trade where 
 one corporation as large as the Steel Trust had only — I mean, having 
 half the business, had assets of $1,200,000,000, and there were a lot 
 of independents who together did as much business, that the joining 
 together of five units of $10,000,000 each would not be a restraint. 
 
 Senator Newlands. So that a lawyer advising his client regarding 
 such a point need be in no uncertainty as to the law? 
 
 Mr. Brandeis. Yes. And I think that a lawyer would want to do 
 this; that he would want to find out what particular department of 
 the steel business these five concerns were in, or whether it happened 
 that those five concerns controlled, while a very small part of the 
 whole business, they might control a very large part or all of a par- 
 ticular branch of the business, and, therefore, it might be in restraint 
 of trade because of the particular nature of the business of those five 
 concerns; and that any lawyer investigating the facts would probably 
 have very little reason to doubt as to the result. But, as a matter of 
 fact, I think that the clients themselves, when they had investigated 
 the facts and looked into their own hearts with a desire of finding out 
 whether they really wanted to restrain trade or not, would be able to 
 answer that question for themselves ; and I am inclined to think from 
 most questions that have been put to me as counsel that, as a rule, 
 clients have asked their counsel whether they might do what they 
 , asked about hoping they might be told they could do something that 
 they thought they did not have the right to do, and with the hope 
 that the lawyer might find some way of advising them or encourag- 
 ing them to do the thing that they had doubt as to the propriety of 
 domg. 
 
 Senator Newlands. You think that secret purpose is not always 
 disclosed to the lawyer ? 
 
 Mr. Brandeis. I think that a lawyer may infer it in a number of 
 instances. 
 
 Senator Newlands. Now, assume that the highest degree of effi- 
 ciency within a steel plant would be involved in the ownership of 
 plants aggregating in value $100,000,000. Would there be any objec- 
 tion to the union of two corporations now engaged in the steel busi- 
 ness, fairly capitalized and possessing each a capital of $50,000,000 ? 
 
 Mr. Brandeis. Under the Sherman law ? 
 
 Senator Newlands. Yes. 
 
 Mr. Brandeis. I think that, again, would depend very much upon 
 the same things that I have indicated. 
 
 Senator Newlands. You think it would depend upon the purposes 
 of the parties and upon the question as to whether or not that organi- 
 zation would control so large a portion of a particular business or a 
 particular branch of the steel industry, for instance, as to constitute 
 a restraint of trade ? 
 
 Mr. Brandeis. Yes; and as to why they did it. 
 
 Senator Newlands. Now, with reference to the ascertaining of 
 just that limit, do you not think that the opinions of both business 
 men and lawyers would largely differ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1245 
 
 Mr. Brandeis. As to what that would be, you mean ? 
 
 Senator Newlands. Yes. 
 
 Mr. Brandeis. I think they might differ. 
 
 Senator Newlands. I mean honestly differ. 
 
 Mr. Brandeis. Honestly; but I think that anybody could say- 
 
 Senator Newlands. I want to follow that up. Don't you think 
 it is really that very fact and condition that does create a condition 
 of uncertainty in the minds of men engaged in business of this kind, 
 who, perhaps, want to reach a higher degree of efficiency without any 
 injurious purpose ? 
 
 _ Mr. Brandeis. I do not believe, Senator, that there has been a 
 single instance in the history of the industry of the country in the 
 last 25 years when any firm was deterred from doing that which 
 efficiency only required by any fear of the law, or that it would be 
 to-day. I can conceive of its arising; I can conceive that the thing 
 might happen; but I do not believe that it ever has happened, and I 
 do not believe that there is a single instance of any concerns that did 
 join merely for the purpose of securing greater efficiency that would 
 be found to be in defiance of the Sherman antitrust law to-day. Of 
 course, I do not pretend to have covered the whole field, but so far 
 as I have covered the field, I know of no such instance. 
 
 Senator Newlands. Do you not think there is a feeling of that 
 kind prevalent in the country and amongst business men ? 
 
 Mr. Brandeis. I doubt whether there is very much of a feeling. 
 I think that the only industry that has been very seriously deterred, 
 the only manufacturing industry, has been the manufacture of stock 
 and bonds. I do not believe that any other industry has been very 
 seriously restricted in its operations by this doubt in regard to it. 
 Of course, I am perfectly aware that the arrest in the manufacture 
 of bonds and stocks has an incidental effect upon other things. You 
 stop the railroad development; you do not encourage new construc- 
 tion and new improvements. All of that affects things incidentally. 
 But the only industry that has been really arrested has been the 
 manufacture of bonds and stocks. 
 
 Senator Newlands. Take the case of the corporations to which I 
 have referred, the corporations with $10,000,000 of capital, whose 
 nominal capitalization fairly represents the value of their assets; and 
 we will assume that each one of those is making 15 per cent upon the 
 capital. In each one of those instances would you regard 15 per cent 
 as an extortionate profit ? 
 
 Mr. Brandeis. I do not think that question could be answered 
 categorically, but I should say this: In a business which is a com- 
 petitive business, I believe we can safely leave the percentage of 
 profit to that which the business will bear, and I think it is in the 
 interest of business and the interest of the community to let people 
 who are conducting business which is competitive understand that 
 there is no profit too great to be approved, if it is the result of 
 the exercise of brains and character, under conditions of industrial 
 liberty. I think we want to let people understand that it is not 15 
 or 20 or 30 or 100 per cent that we condemn. We ought to congratu- 
 late people in making that much, and we ought to congratulate our- 
 selves that they are making it, if it is made under conditions of natu- 
 ral competition. And it is only when conditions are constrained that 
 we have any interest in how large returns are made. 
 
1246 HEARINGS BEFORE 
 
 Senator Newlands. What is regarded in Massachusetts as a fair' 
 profit on a manufacturing enterprise ? 
 
 Mr. Brandeis. I think Senator Crane could answer that infinitely 
 better than I can. But I may say this, that I myself, if I were to 
 answer that question as to what ought to be regarded as a fair profit, 
 I should say that no particular return ought to he regarded ; and that 
 if a man were going to invest in a manufacturing concern he ought 
 to invest in men, and not bricks and mortar. Consequently the 
 tangible assets of that concern are really of little importance. 
 
 Senator Newlands. Well, then, we will assume that 10 firms hav- 
 ing an income, say, of about 15 per cent on a valuation of a million 
 dollars for their assets and good will, form themselves into a single 
 corporation. Would you expect them simply to capitalize at 
 $10,000,000, or would you, if they could issue $30,000,000, $10,000,000 
 of bonds, $10,000,000 of preferred stock, and $10,000,000 of common 
 stock, each bearing 5 per cent, the total profits yielding no more than 
 15 per cent on the $10,000,000 — would you regard that as an imposi- 
 tion upon the public ? 
 
 Mr. Brandeis. I have not any very strong feeling on that subject 
 of watered stock, although my education as a Massachusetts lawyer 
 and citizen ought to have been to regard the paying up of stock 
 at its full value as one of the cardinal things, because that has been 
 the law of Massachusetts. I do not believe that in an ordinary com- 
 
 Eetitive business — of course I am drawing a very clear distinction 
 etween utilities and all the ordinary industries — it is of much 
 concern to the public — I mean by that to anybody other than the 
 investors in that corporate security — what the capitalization was. 
 
 There is, as Senator Cummins suggested yesterday in one of his 
 questions, a certain temptation to make a piece of paper valuable, but 
 it is a temptation which is — I do not know that it is resisted, but it is 
 insufficient to accomplish the result in those cases where the corpora- 
 tion can not, either through efficiency or the control of the market, 
 put value into it, as indicated by the American Writing Paper Co. or 
 the American Hide & Leather stock, or that of many other concerns. 
 That is, it is a standing monument of the futility of attempting to 
 inject value into a manufacturing concern unless you have been 
 fortunate or are shrewd enough to secure that monopolistic position 
 by means of which you can extort money from the community. 
 
 Senator Newlands. You would apply your condemnation more to 
 the monopoly than you would to overcapitalization ? 
 
 Mr. Brandeis. Very much, when we are dealing with industrial 
 concerns. 
 
 Senator Newlands. Can it be we could overcapitalize in such a 
 case? Take the case of Mr. Carnegie, whose property, we will 
 assume, was worth, including the good will, $500,000,000, and we will 
 assume that he was earning 15 per cent upon that, which, by many, is 
 claimed to be a fair manufacturing profit. 
 
 Mr. Brandeis. I think you would prove positively that that 
 property was not worth $500,000,000 when the fact that Mr. Carnegie 
 himself had in the year before given an option to sell 'tfor$160,000,000, 
 and it probably was not worth nearly as much as his option price. 
 
 Senator Newlands. That would be an indication. I admit, in that 
 direction. But we will assume now that it was worth, including the 
 good will, $500,000,000, and that he was making 15 per cent upon it. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1247 
 
 Now, in that case, let us assume that at that time it is not incorpo- 
 rated at all, and he is about to incorporate it, and he finds one class 
 of men who will give him $500,000,000 for tha.t amount of 5 per cent 
 bonds and another class of men who will give him $500,000,000 for 
 5 per cent preferred stock, leaving to him the common stock, which 
 also bears 5 per cent. Now, you will mark that the total income of 
 15 per cent upon the valuation of $500,000,000 has not been increased 
 at all. 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Newlands. What is your view as to the morality of that 
 transaction ? 
 
 Mi\ Brandeis. I think the transaction, assuming that there was 
 no monopoly feature in it 
 
 Senator Newlands. Yes. 
 
 Mr. Brandeis. That assumes that it would have been possible 
 for him to secure that money on it in some way ; that the rest of the 
 value was not excessive, because the ability to earn 15 per cent on 
 this steel business in a year or two years or three years was absolutely 
 dependent upon the skill of the man who was running it, and upon 
 other conditions which varied from year to year. And for anybody 
 to assume that in a competitive manufacturing business, subject to 
 such fluctuations as steel was, that a return of 5 per cent — I mean 
 that the property invested in such a risky business ought to receive 
 only 5 per cent — I think would have a very rude awakening, and that 
 nobody should take those risks without a chance of making more than 
 5 per cent, and I do not think 15 per cent was an extortionate return 
 under such conditions. 
 
 Senator Newlands. But you will bear in mind that the $500,- 
 000,000 bonds was a preferred lien, of course, and that the $500,000,000 
 preferred stock is preferred to the common stock. Do you not find 
 that among the investing public people are very eager to get a 5 per 
 cent bond — 5 per cent preferred ? 
 
 Mr. Brandeis. I think a 5 per cent bond that is absolutely safe is 
 a very good thing, but it would not be without the monopoly feature. 
 
 Senator Newlands. Take the case of the Denison Co. Their 
 capital stock was $5,000,000, was it not '( 
 
 Mr. Brandeis. Yes; I think so. 
 
 Senator Newlands. And they issued preferred stock at 8 per cent ? 
 
 Mr. Brandeis. I think it was 8 per cent. I am not certain as to 
 the capitalization. It may have been four million and one million — 
 four million preferred and an authorized issue of one million of 
 common. I am not .certain. 
 
 Senator Newlands. Do you recall what the value of the tangible 
 assets was ? 
 
 Mr. Brandeis. No; I am unfamiliar with that. 
 
 Senator Newlands. Do you think they approximated $5,000,000 ? 
 
 Mr. Brandeis. I have no knowledge of the exact facts on that. 
 
 Senator Newlands. Well, in any of these other companies you 
 have referred to, do you know the exact value of the tangible assets 
 as compared with the paper amount of the securities issued ? You 
 have spoken of one or two others. 
 
 Mr. Brandeis. What experience I have had in connection with 
 these trusts., which has been very largely through clients who sold 
 their properties out to the trusts, and partly in representing the 
 
 22377 — vol I — 12 79 
 
1248 HEARINGS BEFORE 
 
 trusts themselves, I think that the capitalization of the trusts were 
 on the basis that where payment was made in bonds, preferred stock, 
 and common stock, in most of those instances the property went in 
 for nearly three times the amount in securities which the men would 
 have been willing to sell it for for cash. 
 
 Senator Newlands. In that Denison transaction, you regard that 
 as a moral transaction, do you not ? 
 
 Mr. Brandeis. I think so, absolutely. 
 
 Senator Newlands. But there the. capital stock was three times 
 the value of the tangible assets. 
 
 Mr. Brandeis. I do not know that it was. 
 
 Senator Newlands. But you assume that it was in most of these 
 cases ? 
 
 Mr. Brandeis. That is not a combination at all. 
 
 Senator Newlands. Oh, no. Understand me. I am not engaging 
 in contention with you, Mr. Brandeis. On the contrary, I am very 
 much in sympathy with your views generally. I am simply 
 addressing myself to these questions in order to bring out your views, 
 and I thmk we have already got two very important statements 
 which ought to discourage business men of certain prejudice against 
 the Sherman law, and that is, that big capital is not necessarily con- 
 demned by it and that combination is not necessarily condemned by it, 
 however extensive it may be; and yet I believe that those apprehen- 
 sions exist in the minds of almost all business men. 
 
 Now, regarding this particular company, the Denison Co., which 
 has acted in the most human way in turning over all of the profits 
 above 8 per cent to its employees, or any of the other companies simi- 
 lar to that. Your observation is that they usually issue about three 
 times 
 
 Mr. Brandeis. No; not companies similar to that. I beg your 
 pardon. 
 
 Senator Newlands. I thought you referred to those companies. 
 
 Mr. Brandeis. No. I only referred to those cases where individual 
 concerns, like individual paper mills, sold their plants to the American 
 Writing Paper Co. or to the International. Those are the cases that I 
 was referring to — cases of the trusts. 
 
 Senator Newlands. I thought you referred to the others. 
 
 Mr. Brandeis. I am very glad of the opportunity to correct that. 
 
 For instance, take some of the businesses that I could give you. In 
 this large grocery business, where the profit sharing was introduced, 
 there the capitalization was kept to the actual cash which was put in, 
 and a 6 per cent return was allowed for the actual cash, and that was all 
 that was allowed for capital as such. The division in that case — in 
 the grocery case, for instance — was a division of profits, not as divi- 
 dends on stock, but a distribution in addition to the salaries and wages. 
 
 Senator Newlands. Yes. I did not understand you. I thought 
 you referred to these beneficial organizations, profit-sharing organi- 
 zations, that you spoke of 
 
 Mr. Brandeis. No. Those were some arrangements which the 
 stockholders made. 
 
 Senator Newlands. What do you regard as preferable, so far as 
 the public interest is concerned, the form of trust organization in 
 this country, or the cartel and syndicate organizations of Germany ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1249 
 
 Mr. Brandeis. If one is to have — there are two entirely separate 
 things referred to in the trust. The form in this country, which we 
 have been discussing, of the Standard Oil Co., the Shoe Machinery 
 Trust, the Tobacco Trust, is simply a large corporation which has, 
 through combination, secured a control of the greater part of the 
 business or the larger part of the business in an industry. That, I 
 think, is the most objectionable of all conceivable forms of combina- 
 tion. Of course, I mean in that not to draw a distinction between 
 having a single corporation own everything and having a holding com- 
 pany, like the Steel Corporation, but I am drawing a distinction be- 
 tween having such an aggregation as the American Tobacco Co. or the 
 Steel Corporation own on the one hand, and having fifty or a hundred 
 or two hundred different competitors making agreements for prices and 
 for a division of the, market. I think the latter is far less objectionable 
 than the large aggregations, because it leaves, in respect to most of the 
 management — I mean in respect to management and production — 
 absolute independence, and it is limited only in respect to selling price 
 and market. 
 
 Senator Newlands. And it does not lead to some degrees of over- 
 capitalization, does it ? 
 
 Mr. Brandeis. It is not apt to lead to overcapitalization, but it 
 particularly does not lead to those evils which are attendant upon 
 large aggregations, even where there are a large number of small com- 
 panies controlled by a holding company. 
 
 Senator Newlands. Do you feel that those cartels and syndicates 
 have been instrumental in very largely advancing the prosperity and 
 the trade of Germany ? 
 
 Mr. Brandeis. I have great doubt whether they have been, in and 
 of themselves, a great factor. One has to consider in connection with 
 the German Empire that the Government has taken a part which 
 in no other country of the world has the Government done similarly 
 nor to the same extent. What it has done has been to utilize the con- 
 structive powers of the German Empire to advance trade, undoubt- 
 edly at the immediate expense of the taxpayer. Now that has 
 always got to be borne in mind. I do not suppose that any other 
 country less organized, organized, for instance, as our Eepublic is, 
 could do the same thing, even if we thought it advisable to do it. We 
 have not the machinery, we have not the attitude, and our traditions 
 would not permit it. But I think what success they have attained 
 has been due to a great many other causes, and that the kartel is an 
 incident, and I think there might be a great question whether it has 
 advanced or retarded. I do not think the evidence, so far as it has 
 reached me, is adequate on that point. But undoubtedly one very 
 great factor in the German advance has been the introduction ol 
 scientific methods, and it will be found that that has contributed infi- 
 nitely more than any other one thing to their extraordmary progress 
 and advancement. , , , ,, „„„ 
 
 Senator Newlands. Has the Government there taken hold oi these 
 scientific inquiries ? , , u 
 
 Mr. Brandeis. Yes; and I think our Government should. 
 
 Senator Newlands. As you indicated the other day ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. I judge, then, that if a commission should be 
 organized, an interstate trade commission, you would not approve of 
 
1250 HEARINGS BEFORE 
 
 a provision which would permit such a commission to give its approval 
 to trade agreements between rival companies dividing the markets 
 and fixing the prices ? 
 
 Mr. Brandeis. My opinion on that is this: You have touched the 
 particular point on which I have a doubt, and it can be resolved, 
 I think, only through facts. From my own experience, I believe that 
 we must do and should do all that we can to preserve and develop 
 competition. Now, I conceive it to be perfectly possible that a state 
 of affairs might arise under which it might be necessary, in order to 
 preserve competition, to allow some kind of trade agreements. I am 
 not satisfied that any such condition exists to-day, and I do not 
 believe anybody else who could be expected to act judicially upon 
 the subject has the adequate knowledge, but I conceive that we 
 might find that to be the situation. I should think, therefore, if we 
 had a commission such as you have suggested that that commission 
 should be equipped with the means of actually ascertaining all the 
 facts in regard to the industrj' and that perhaps at some later time, 
 in the constant following up of this investigation, we should be able 
 to furnish to the American people, through Congress, the necessary 
 knowledge; and if we found that those conditions did develop we 
 should then be able to legislate intelligently upon the subject. 
 But I do not think we are in a position to do so to-day. 
 
 Senator Newlandr. Now, regarding collective bargaining as a 
 means to securing a fair wage. Your view is, as_ I gathered it yester- 
 day, that there is no present objection to permitting the unregulated 
 unionizing of the labor in every industry, whilst there is a very great 
 reason for preventing the unregulated" unionizing of capital in an 
 industry. 
 
 Mr. Brandeis. Yes. 
 
 Senator Newlands. You realize the fact, do you not, that if you 
 divide the capital into units, more or less, in a given industry, and 
 allow all the labor in a given industry to unionize wherever employed, 
 that you add to the strength of labor and you take away from the 
 strength of capital in that bargaining, do you not ? 
 
 Mr. Brandeis. Now, I do not want to be misunderstood as to 
 what restriction I am placing upon the organization of capital. I am 
 objecting to the formation of these trusts. I do not object to the 
 formation of employers' associations, of a large number of competing 
 concerns collectively bargaining on the one side, just as labor unions 
 may collectively bargain on the other side. That is, the statement 
 that I made did ' not in any way mean to exclude the full right of 
 forming employers' associations. On the contrary, I believe them 
 to be essential to the proper adjustment of relations in any trade 
 between employers and employees. 
 
 Senator Newlands. So that you would permit them to unionize 
 in bargaining with the labor unions ? 
 
 Mr. Brandeis. Oh, yes. Not only permit them, but I should per- 
 sonally encourage them to do so. 
 
 Senator Newlands. You realize that in these contentions, there 
 being no judge or arbitrator, there will likely be serious disagree- 
 ments, resulting in paralysis of business and oftentimes in violence ? 
 Do you not think it necessary at all to provide a method of settling 
 these difficulties between the two contending forces in a lawful 
 manner ? 
 
COMMITTEE ON INTERSTATE COMMEECE. 1251 
 
 Mr. Brandeis. Of course, the States, or many of them, have 
 already provided their boards of conciliation and arbitration. First 
 in New York, and then in Massachusetts. The Erdman Act pro- 
 vides for such assistance through the Commissioner of Labor, and 
 there have been notable instances where much has been accomplished. 
 I myself believe, from my own observation and experience, that 
 most of the difficulties between employers and employees — I mean, 
 taking the employers' associations and trade unions — can be adjusted 
 by discussion rather than by arbitration, and that up to the present 
 time in the more serious disputes persons other than a State board, 
 the officially appointed individuals, have been more effective in 
 securing the proper adjustment than the constituted officials. I 
 think Senator Crane will remember that when he was governor he 
 was far more effective in doing that in his individual capacity, accom- 
 plishing much better results than his own board of arbitration. 
 
 Senator Newlands. You realize, do you not, that in so far as 
 interstate transportation is concerned, that that is likely to become 
 a very serious question in the future ? 
 
 Mr. Brandeis. Yes. The Canadians have developed what seems 
 to be a plan of dealing with this subject which is superior to our own 
 plan; that is, to any that I know of that has been adopted in the 
 United States. And I think that their act and the operations under 
 it are well worthy of study by us in America, in the States. 
 
 Senator Newlands. There is just one other question I wish to ask 
 you. Is the gross output of the Steel Trust greater to-day than it 
 was 10 years ago ? 
 
 Mr. Brandeis. I thought I had those figures here, but I see that 
 I have not. . 
 
 Senator Newlands. You spoke of its proportion having dimmished 
 from about 60 per cent to 50 per cent. May not that proportion 
 have diminished and yet its gross output increased ? 
 
 Mr. Brandeis. I am inclined to think that its gross output this last 
 year as I looked at it was less than it had been, at least in some 
 previous years, and in spite of the fact that the Steel Trust had taken 
 over in the meantime the Tennessee Coal & Iron Co. 
 
 Senator Newlands. You realize, of course, that as the independent 
 companies increase the proportion of the Steel Trust might diminish 
 and yet its gross output increase ? 
 
 Mr. Brandeis. It might. . 
 
 Senator Newlands. I wished to know what are the tacts m this 
 
 C&SG 
 
 " Mr. Brandeis. I shall be glad to get them and give them to the 
 stenographer. 
 
 Senator Newlands. I should like to have them. 
 
 Mr. Brandeis. I have them in my room, but I have not the page 
 
 Senator Newlands. With reference to the export of steel, do you 
 not think that the prevailing criticism in this country with reference 
 to their selling for less abroad than at home has something to do with 
 their energy in pushing the exports ? 
 
 Mr Brandeis. I think it is quite possible. 
 
 Senator Newlands. What is the fact with reference to Germany i 
 Does Germany encourage the sale of exports at a lower price than in 
 the domestic markets ? 
 
1252 HEADINGS BEFOBE 
 
 Mr. Beandeis. I have been told that certainly in some lines it 
 permits it or encourages it. 
 
 Senator Newlands. Then, if one country encourages and another 
 country discourages it and places it under the ban of condemnation, 
 you would expect the former rather to increase its exports over the 
 latter ? 
 
 Mr. Bkandeis. Other things being equal, I should; but in view of 
 the extraordinary position which we had in America in the steel manu- 
 facturing business before the organization of the Steel Corporation, I 
 think we had so much greater opportunities that, even regardless of 
 the aid of the Government, we should have been enabled to have 
 greatly increased our exports — that is, we had so much. All we 
 lacked at that time was furnace capacity and steel-making capacity. 
 Now, after we have those, we have a third of the capacity during a 
 large part of the time idle. 
 
 Senator Newlands. How is it with England 1 Do you know 
 whether England pursues the practice of dumping her surplus upon 
 the world rather than selling it at home ? 
 
 Mr. Beandeis. I have not understood that England had done 
 that. I do not mean that it was not done, but I had never under- 
 stood there was any such practice. As a matter of fact, a very large 
 part of the English production and a very large part of the total 
 German production is exported. They are each exporting nearly 
 5,000,000 tons, and that is a very large proportion of their total 
 production. 
 
 Senator Newlands. How much less is the international price of 
 steel rails and structural steels than our domestic price ; do you know ? 
 
 Mr. Bbandeis. I do not. I have heard it, from time to time, 
 differently stated. Kecently I heard it as to the price on some steel 
 that has been sent to Mexico, but that did not seem to me to lav down 
 the rule. 
 
 Senator Newlands. But the price is less ? 
 
 Mr. Beandeis. It has been so reported. 
 
 Senator Newlands. Do you think that that indicates lower cost 
 of production ? 
 
 Mr. Beandeis. Oh, I should think not. I should think that even 
 with the present high cost of steel rails, as compared with the cost 
 before the formation of the Steel Corporation, that the profit on steel 
 rails is altogether beyond a fair manufacturing profit. 
 
 Senator Newlands. That is all. 
 
 The Chairman. Senator Townsend, you may inquire. 
 
 Senator Townsend. Most of my questions have been asked now 
 that I had in view, especially the ones asked by Senator Lippitt, and 
 I think I can be satisfied with this, inasmuch as I was not in early: 
 Now, in the bill which you have prepared, plus this amendment of day 
 before yesterday, will we find all of your ideas as to what should be 
 done with the Sherman antitrust law at the present time ? 
 
 Mr. Beandeis. I think the La Follette bill embodies most of them. 
 I have had a question about one or two points as to which I want to 
 consider further before making any recommendations to the com- 
 mittee. 
 
 I would like, in connection with the steel-rail reference that I made 
 in answer to Senator Newlands, to say this: That as I read Judge 
 Gary's statement, I think he says that the average price of steel raus 
 
COMMITTEE ON INTERSTATE COMMERCE. 1253 
 
 for 10 years since the organization of the Steel Trust was just the same 
 that they had been in the 10 years prior thereto. I do not know 
 what he meant to give in what he calls averages — whether it is weighed 
 or whether it is merely taking the highest or lowest average price for a 
 given year. But the figures which I have, and which I think were 
 taken from the Iron Age, showed that the prices during the last 10 
 years were materially higher than the 10 years preceding. The 
 exact figures, as I recall them, being as against the $28, the prevailing 
 price now and since the Steel Corporation was organized, the price of 
 the preceding 10 years was, according to those figures given me, $25.85. 
 
 Senator Townsend. I just want to ask one more question along 
 that line and then I am through. Perhaps you have answered this 
 question: Do you regard the prices which the United States Steel Co. 
 charge or receive for their products as exorbitant ? 
 
 Mr. Brandeis. I have no means of determining at all whether the 
 
 S rices are exorbitant or not. As I have said before, in answer to 
 enator Newlands, in a competitive business, an industrial business, 
 I should not be disposed merely because the profits were very large 
 to say that a price was exorbitant, and the more a man could earn 
 the better it would suit me, because he would thereby prove himself 
 to be a very efficient agent. 
 
 Senator Townsend. You would expect if the Steel Trust were dis- 
 solved that the consumers of steel products would obtain those prod- 
 ucts at a lower price ? 
 
 Mr. Brandeis. I should; probably immediately, but at all events 
 in the course of time in which the liberated forces could operate. I 
 should think decidedly. In other words, it seems to me perfectly 
 clear that the great business ability of America, which has enabled 
 us in the competitive industries to reduce costs and to overcome in 
 many instances the rising cost of raw material, would continue to 
 operate in the steel industry in America as they have been operating 
 in Germany and England — countries which marched much less 
 rapidly than we did toward labor-saving and cost-reducing devices. 
 Now, the fact that we have had a marked upward trend in cost in 
 the steel industry, as against that lower trend of cost in the book- 
 paper industry, seems to me to require an explanation, when you 
 compare it with what has been going on in Germany and England, 
 and that explanation seems to me to be no other than the one I have 
 offered. 
 
 Senator Townsend. I understood it that way, but I was a little 
 confused from your statement that combinations, except where they 
 reach an approximate monopoly, were rather an industrial loss than 
 a benefit, and that if this Steel Trust were dissolved, which has 
 been doing business at a less profitable rate than what it might have 
 done 
 
 Mr. Brandeis. What it did do. 
 
 Senator Townsend. Yes. That the profits probably of the steel 
 company would be no less for those who were interested in it under 
 dissolution from what they are now. 
 
 Mr. Brandeis. I do not object to their profits. I wish they would 
 make 10 times as much if that were possible. What I object to is 
 that we do not get the benefit of reductions in costs. And if they 
 were in a competitive business without any price agreements, and a 
 business of sufficiently small units so that we might expect tO ( attain 
 
1254 HEARINGS BEFORE 
 
 the highest efficiency, a return of 10 per cent on its invested capital 
 would not be of such a nature as to shock anybody. 
 
 Senator Townsend. I quite agree with you there. One of the 
 results, if you could have your way — and I am quite in sympathy 
 with that notion — would be to give a little higher wage to the laborer, 
 would it not ? 
 
 Mr. Brandeis. I think it would. 
 
 Senator Townsend. Labor would get more wages ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Townsend. So that the cost in that respect would be 
 increased ? 
 
 Mr. Bkandeis. No. I think the efficiency of labor would rise 
 much more than the wages would rise. I believe not only in the 
 economy of higher wages but in the economy of shorter hours, and I 
 think that one of the greatest evils that have been- attendant upon 
 the trusts has been that arrest of a reduction of hours and of increase 
 of wages which the huge power of the trust has caused. That is, they 
 have sought efficiency by repression. I do not believe we can ever 
 get efficiency by repression. We can get efficiency only by develop- 
 ment. And it is to the individual man to whom we must ultimately 
 look for the advance of industry. 
 
 Senator Townsend. I believe that is all. 
 
 The Chairman. Senator Gore, you came in recently. Have you 
 any questions to ask ? 
 
 Senator Gore. Mr. Brandeis, two of the principal evils of the trust 
 are the fact that they arbitrarily fix prices higher than they would be 
 under a competitive system and that they shut the door of oppor- 
 tunity in the face of other citizens who are already in the business or 
 who have the right or the desire to engage in the business. Now, I 
 understood you to say that the stock of the reorganized tobacco com- 
 panies is higher than it was before the old trust was drawn and quar- 
 tered by the court ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. This advance in the price of the stock is undoubt- 
 edly based upon the supposed earning capacity of the new issues of 
 stock, is it not ? 
 
 Mr. Brandeis. Undoubtedly. 
 
 Senator Gore. That advance in the price of the stock does not give 
 very much promise of a radical reduction in prices, does it — the price 
 of tobacco ? 
 
 Mr. Brandeis. No. It rather tends to the belief that those who 
 are buying the stock think that they have the same monopolistic con- 
 trol that they formerly had, and are relieved from the dangers incident 
 to doing a business illegally. 
 
 Senator Gore. The risk is eliminated ? 
 
 Mr. Brandeis. The risk is eliminated. Not only the risk is elimi- 
 nated, but that aid to the independents which, comes from having 
 your competitor doing an illegal Dusiness is eliminated. 
 
 Senator Gore. Now, there has been no reduction, so far as you 
 know, in chewing tobacco, smoking tobacco, cigars, and snuff? 
 
 Mr. Brandeis. I know of none. 
 
 Senator Gore. And if any such reduction comes, do you not think 
 it will be due to commercial reasons rather than to this dissolution? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1255 
 
 Mr. Brandeis. I should think if it came it would be due wholly to 
 commercial reasons. 
 
 Senator Gore. Now, is the plight of the independent manufac- 
 turer of tobacco any better than it was before this dissolution ? 
 _ Mr. Brandeis. The independents believe, and I think they are 
 right in believing, that it is materially worse than it was before. 
 
 Senator Gore. The condition of those who are in the business is 
 no better, and there is no greater inducement to other people to enter 
 into the business ? 
 
 Mr. Brandeis. I think not. 
 
 Senator Gore. You do not look for any cutthroat competition 
 amongst these newly created rivals ? 
 
 Mr. Brandeis. I do not. 
 
 Senator Gore. You do not think that it will be necessary to have 
 legislation to restrain them from it ? 
 
 Mr. Brandeis. Not to restrain them, but I would like to have some 
 legislation to restrain them from cutting the throats of those few 
 independents who have been able to survive, and I may say that in 
 one branch of the business there are a great many independents who 
 have survived — that is, in the cigar industry — because it has been 
 the feature of the Tobacco Trust, and it has in some respects been 
 extremely wisely planned and administered, that they make their 
 encroachment upon the different departments of the tobacco busi- 
 ness gradually. That is, they would conquer one province of the 
 tobacco business before they entered upon another. They began 
 with cigarettes, and got 95 per cent of the whole trade. They then 
 proceeded to the chewing tobacco part of the business, and then they 
 marched on. They have not proceeded very far with the large or 
 the ordinary cigar. They control practically the little cigars, but 
 the cigar leaf tobacco dealers and the cigar manufacturers were tho >:. 
 who in this tobacco fight were most persistent in their efforts to secure 
 an adequate decree, because they felt that it was now their turn to 
 be attacked by the monster organization. 
 
 Senator Gore. Practically, then, the new dragon has sprung after 
 the blood of the old dragon. 
 
 Mr. Brandeis. Yes. 
 
 Senator Gore. Is not this decree of the court a kind of certificate 
 of good character ? 
 
 Mr. Brandeis. It is so regarded. 
 
 Senator Gore. Then the dissolution of the Tobacco Trust, so far 
 as the trust itself is concerned, is rather a painless and harmless 
 death inflicted upon it ? 
 
 Mr. Brandeis. It is not a death, but a life. 
 
 Senator Gore. Yes. 
 
 Mr. Brandeis. It is not harmful to them, but in my opinion it is 
 extremely harmful to the community. 
 
 Senator Gore. You think then that "Csesar is stronger dead than 
 alive"? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. So far as the independent producers are concerned, 
 it is a distinct and a material disappointment ? 
 Mr. Brandeis. Undoubtedly. 
 
 Senator Gore. And so far as the consumer is concerned it is a 
 fruitless victory ? 
 
1256 HEARINGS BEFORE 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Goee. As Macauley would say, it is " a worthless blessing " ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. So far as the Government is concerned, it is much 
 ado about nearly nothing ? 
 
 Mr. Brandeis. Worse than nothing, I should say. 
 
 Senator Gore. How long has this litigation been in progress ? 
 
 Mr. Brandeis. I think it began in 1907. 
 
 Senator Gore. You have no idea of the approximate cost of the 
 litigation ? 
 
 Mr. Brandeis. I have hot. 
 
 Senator Gore. Then the individual consumer of tobacco, the man 
 who chews and smokes, is no better off now than before the litigation 
 was instituted ? 
 
 Mr. Brandeis. I should think not. 
 
 Senator Gore. Is the independent producer any better off now 
 than before the litigation was started ? 
 
 Mr. Brandeis. I think he is worse off. 
 
 Senator Gore. The dissolution of the Steel Trust, alluded to by 
 Senator Townsend, would not that depend upon the character of the 
 dissolution ? 
 
 Mr. Brandeis. Absolutety, whether it was beneficial or not. 
 
 Senator Gore. Whether the competition was actual and effective ? 
 
 Mr. Brandeis. Yes. And the provisions of the La Follette bill are 
 designed to offer some adequate means of redress to those who have 
 been injured, and also some adequate means of securing competitive 
 conditions when the illegality of the trust shall have been determined 
 by the court. 
 
 Senator Gore. I understood you to say the other day that you 
 opposed any method of licensing? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Any method of licensing corporations engaged in 
 interstate commerce? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. By that do you mean a license that would consti- 
 tute a sort of passport or examination of health and one that would 
 extend immunity from prosecution? 
 
 Mr. Brandeis. Precisely; or which might be so construed by the 
 community, although it did not actually do so. 
 
 Senator Gore. I want to ask you this: Merely a requirement that 
 any company engaged in interstate commerce, without reference to 
 method or manner of organization or object, could make application 
 to some constituted authority for a license to engage in commerce, 
 say for a nominal fee of a doUar, and allowed to have no other certifi- 
 cate than merely registration — that so far would not be objection- 
 able? 
 
 Mr. Brandeis. It would only be objectionable in that it probably 
 would be put to an illegitimate use. That is, it would be used as 
 representing practically that the Government is ratifying or indorsing 
 the propriety of its acts, just as these certificates are found now upon 
 cans registered under the pure food act, etc. 
 
 Senator Gore. What I have in mind is merely a license, like a 
 saloon man gets to sell liquor — that it is purely formal and perfunctory 
 to that extent. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1257 
 
 Mr. Brandeis. I see no occasion or no advantage in having a license. 
 We have the situation now, that every corporation must make a return 
 for the purpose of taxation. 
 
 Senator Gore. I was coming to that. In case we require a license, 
 then make it a part Of any judgment against the concern, and let the 
 revocation of this license deny the right to engage in interstate com- 
 merce. 
 
 Mr. Brandeis. I do not believe that that provision, if it should be 
 made, is one of great practical value or importance. 
 
 Senator Gore. I do not think it would constitute a strong deterrent. 
 
 Mr. Brandeis. I do not think it would constitute any strong deter- 
 rent. Among other reasons for this: It is a matter of the greatest 
 simplicity and of negligible cost to dissolve a corporation and rein- 
 corporate another. The question is, What is going to be done with 
 this property? and not the question as to whether or not an individual 
 corporation has a license or is denied a license. Are we going to take 
 an appreciable part of that property as compensation for a wrong 
 that has been done individuals? That is an important question. 
 Are we going to have that property distributed under conditions 
 which prevent its being used to destroy competition or restrain com- 
 petition seriously ? That is an important question. But the question 
 whether an individual corporation can continue to do business as the 
 "A" company- of one State, when it will become the next day the 
 "A" company of Massachusetts or Rhode Island, is absolutely of no 
 practical importance. 
 
 Senator Gore. That raises this question in my mind: What do 
 you think about the criminal prosecution and punishment for directors 
 and those who engaged in these practices ? 
 
 Mr. Brandeis. I think the criminal law is an extremely important 
 adjunct, if it is enforced. It has certainly had a stimulating effect 
 in connection with violations of the interstate commerce act of a very 
 extraordinary character. Men were ready to do almost anything that 
 they knew to be wrong until the vision of a jail rose up before them. 
 And it is an extraordinary thing. I think it is perhaps a special 
 testimony to the love of liberty on the part of an American that the 
 real thought of going to jail is almost paralyzing to-day; and men 
 who violated the interstate commerce law daily and without any 
 compunction, when it really came before .them— the idea that the 
 criminal proceedings were going to be resorted to — suddenly became 
 obedient, law-abiding American citizens. _ 
 
 Senator Gore. They preferred pearl necklaces to stripes i When 
 the Government has, at great expense and after long litigation, found 
 that concerns were violating the law, you think a criminal prosecu- 
 tion will be proper in a case of that sort ? ,.,,..,, 
 
 Mr Brandeis. I think it would be highly proper ; and I think there 
 must be some examples made before we shall have adequate respect 
 
 for the law. ,. ,, , 
 
 Senator Gore. That would raise a pretty strong presumption that 
 it was a proper case to invoke the criminal law ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Now there is one other question I believe you 
 stated that Mr. Perkins said in his testimony that all that labor wanted 
 was a fair share of what labor produced. 
 
 Mr. Brandeis. Yes, sir. 
 
1258 HEAHINGS BEFORE 
 
 Senator Gore. Do you not think that the striking contrast between 
 the squalor and the splendor that you described this morning is chang- 
 ing the laborer's demands for a share of what he produces — isn't the 
 laborer coming to demand that the producer shall have all that he 
 
 Eroduces ? I allude to the socialistic demand that the laborer should 
 ave, not a fair share or any share of what he produces, but that he 
 should have all that he produces ? 
 
 Mr. Brandeis. I think that is undoubtedly driving a great many 
 men to that extreme. 
 
 Senator Gore. And that tendency is growing very rapidly in this 
 country, is it not ? 
 
 Mr. Brandeis. And I believe, in fact, that in America it has been 
 terrible in its awakening. Socialism has been developed largely by 
 the power of the individual trusts. What is more than that, they have 
 pointed the way to the Socialist, and the Socialist has gone about and 
 said to himself practically this, just as Emperor Nero is said to have 
 remarked in regard to her people that he wished that the Christians 
 had but one neck that he might cut it off by a single blow of his sword. 
 So they say here: "Let these men gather these things together; they 
 will soon have them all under one head, and by a single act we will 
 take over thewhole industry." So Socialists sayinregard to Morgan — 
 Morgan, preeminently the great organizer and great combiner. They 
 say: "He is our best friend, because he is paving the way for us, and 
 we will have only a slight amount of legislation after Mr. Morgan is 
 through with his work." 
 
 Senator Gore. The trusts have themselves largely to thank for 
 that state of mind on the part of the public ? 
 
 Mr. Brandeis. I think they have produced it in a large measure. 
 
 Senator Gore. You have spoken or the United Shoe Machinery Co. 
 as being one of the most striking instances where a concern had 
 crushed its rivals ? 
 
 Mr. Brandeis. Yes, sir; and they prevented others from arising. 
 
 Senator Gore. They put Mr. Plant out of business ? 
 
 Mr. Brandeis. Yes. 
 
 Senator Gore. Do you not think that the Shoe Machinery Co. 
 would oppose any legislation calculated to disturb business ? 
 
 Mr. Brandeis. I think they have opposed very vigorously such 
 legislation in Massachusetts and in some other States, and I think it 
 not improbable that they would be heard from in Congress. 
 
 Senator Gore. They oppose that sort of legislation that disturbs 
 their business ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Do you not think that often this talk of threatened 
 legislation is something for which they really are themselves 
 responsible ? 
 
 Mr. Brandeis. I think that is true of them and true of a very 
 great many others. It seems to me there has never been any ad- 
 vanced legislation regarding the condition of labor, regarding the con- 
 dition of the citizens, where the calamity howl has not met every 
 step. 
 
 We had it in Massachusetts, and Senator Crane will remember how 
 loud it was when we undertook to limit the hours of labor of women 
 in the seventies. Not only was it loud, but it was persisted in after 
 the legislation passed. Then Mr. Wright, afterwards the labor com- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1259 
 
 missioner, who was then the Massachusetts commissioner, undertook 
 an investigation, years after we had a limitation upon hours of labor 
 in Massachusetts, whereas our surrounding States, Rhode Island and 
 Connecticut and Maine and New Hampshire and New York, all had 
 the long hours, to see what the effect had been on the Massachusetts 
 industry, particularly in the cotton and wool industry, of this 
 limitation which our captains of industry declared would ruin the 
 prosperity of Massachusetts. An elaborate investigation was made, 
 and it was found that not only had the shortened hours not decreased 
 wages, but wages had increased on shortened hours; that our per- 
 centage of business had increased, and that our position, Massa- 
 chusetts' position, in the cotton industry was better after years of 
 restriction than it had been at the time the statute was enacted. 
 When that masterly demonstration was presented to the legislature 
 by Mr. Wright, it attracted the attention of the surrounding States 
 and of New York and there followed in the United States enact- 
 ment of laws gradually protecting women through the limitation of 
 hours of labor — Rhode Island to a much slighter extent, then Maine, 
 New Hampshire, and Connecticut, followed. And we have been since 
 then shortening our hours, not as rapidly as I think we should have 
 shortened them. And every time we undertake to do anything to 
 protect women and to protect the workers in an industry, there is 
 this terrible apprehension on the part of those who are to be affected. 
 Its passage is due to the persistence of the community and because 
 experience has proved that the apprehensions were groundless. 
 
 Senator Gore. That is the excuse but not the reason for resisting 
 this shortening of hours. That is true now in the steel industry, do 
 you not think ? 
 
 Mr. Brandeis. I have no doubt it is true. 
 
 Senator Gore. They argue that they can not do it unless their 
 rivals also do it. 
 
 Mr. -Brandeis. I have here an instance noted of just such an action 
 on the part of the steel industry. If I can turn to it, it may possibly 
 be of interest. It had reference also to proceedings in Congress. 
 
 This is from the Steel Workers by Fitch, and the extract is from 
 page 178: 
 
 In 1904, when there was a bill before Congress providing for an eight-hour day in 
 Government contract work, a representative of the Carnegie Steel Co. stated to the 
 Senate Committee on Education and Labor that an eight-hour day in open-hearth 
 furnaces would be impossible on the ground that the workman in charge has to remain 
 with his furnace through an entire heat. "If the crews were changed just at the time 
 a heat was about completed, the steel would undoubtedly be spoiled because the 
 men coming would not understand the conditions that had prevailed all the way 
 through the process." 
 
 You will remember that I referred yesterday to the fact that 
 England had in this same industry the eight-hour day, and this is 
 what that writer says about it: 
 
 The Enslish and Welsh experience renders this position untenable. But a little 
 knowledge of present-day practice in the 12-hour mills is sufficient to convince one 
 that the statement quoted is groundless. 
 
 And then it goes on and refers to the fact of what has been shown, 
 and among other things it refers to this: 
 
 The Sharon Steel Hoop Co., located at Sharon, Pa., is an independent company 
 eneaeed in the manufacture of hoop steel and cotton ties. They employ about 1,200 
 mlnm their plant, about 150 of whom are engaged on the three finishing mills. These, 
 
1260 HEARINGS BEFORE 
 
 from the time the plant was built up to 1904, had worked on the two- turn system. 
 As in other hoop mills, a day's work was 10 hours, the mill stopping three times dur- 
 ing that period for about half an hour each time, to give the men opportunity to rest. 
 The work requires such speed and agility that it was held to be impossible for men to 
 work continuously 10 hours; consequently the finishing mills were idle 5 to 7 hours 
 out of the 24. 
 
 But in 1904 a change was made. . The finishers were, for the most part, members 
 of the Amalgamated Association of Iron, Steel, and Tin Workers. As usual the com- 
 pany signed their scale, but did so with something of a protest, for they said it was 
 higher than that paid in nonuninn mills, with which they must compete. An officer 
 of the union suggested that the company secure an advantage by putting on a third 
 crew and eliminating the periods of idleness. 
 
 That was done. It was found profitable, and the application of 
 the methods insisted upon by the union, and contrary to the practice 
 of the mill itself, were found to result in a profit to both the employer 
 and the employee, and that same thing apparently has been true in 
 the English substitution of the three-tours for the two-tours in the 
 steel business. 
 
 Senator Gore. That is all. 
 
 The Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. Just two or three questions. I had under- 
 stood before, when you stated to-day, that when it came to the con- 
 ferences with the circuit court judges, that there were present two or 
 more of the judges, the attorneys for the American Tobacco Co., 
 several of their officers, and the United States Attorney General. 
 
 Mr. Brandeis. And also the attorneys for other defendants. 
 
 Senator Pomerene. No. I am referring to prior to that time — 
 oh, for other defendants? I understand that; yes. The independ- 
 ents were not admitted to those conferences ? 
 
 Mr. Brandeis. No. 
 
 Senator Pomerene. The public was not admitted to those confer- 
 ences ? 
 
 Mr. Brandeis. No, sir. 
 
 Senator Pomerene. Did I understand you correctly to say that 
 the seal of secrecy was placed upon those conferences ? 
 
 Mr. Brandeis. Yes, sir. Perhaps I ought to state just exactly 
 the facts. There was one concern, the R. P. Richardson Jr. Co., 
 which was a party defendant, but which had resisted — I mean the 
 majority of whose stock had been acquired by the tobacco company, 
 but it had attempted for many years to free itself from that control. 
 Its counsel was present. Its counsel was in entire sympathy with 
 us independents and was very friendly with us personally. He 
 stated that what occurred at those conferences was expresslv under 
 the seal of secrecy; that he had no right to tell us; and he did not, of 
 course, as a matter of fact, tell us ; but he expressed great regret that 
 he could not give us the information and the facts which had been 
 ascertained at those conferences, because he was pledged by the court 
 to secrecy. 
 
 I may, perhaps, just state this thing further in regard to the Rich- 
 ardson Co. This company was the one concern which we relied upon 
 and which was expected to enable us to appeal from the decree, which 
 we were certain would be adverse. A week before, or a few days 
 before, the argument in this case before the court, the tobacco com- 
 pany bought off the R. P. Richardson Co., so as to remove the possi- 
 bility of any independent being able to appeal to the Supreme Court. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1261 
 
 Senator Pomerene. What were the reasons for this injunction of 
 secrecy ? 
 
 Mr. Brandeis. None were ever stated to me. Counsel merely 
 said that he had given that pledge and, of course, must observe it. 
 
 Senator Pomerene. Are the courts up there in the habit of con- 
 ducting public business in secret ? 
 
 Mr. Brandeis. Not that I know of. I think that the action of 
 the court was probably based upon this phrase in the opinion of the 
 Supreme Court. The court said, in sending it back to the circuit 
 judges, that they should find upon evidence or otherwise what the 
 plan ought to be. 
 
 Senator Pomerene. Well, this was evidently otherwise. 
 
 Mr. Brandeis. Apparently. 
 
 Senator Pomerene. Mr. Brandeis, in any prosecution for an unlaw- 
 ful combination, as a lawyer, I believe you would agree with me that 
 the methods by which the combine were brought about are very 
 material in proving whether or not there has been an unlawful 
 combination ? 
 
 Mr. Brandeis. Very. 
 
 Senator Pomerene. If a suit should be brought against one of 
 these 14 companies for a violation of the law since the time that the 
 plan of reorganization was approved, what effect upon the prosecu- 
 tion would the fact of this approval by the circuit court of the organ- 
 ization have ? 
 
 Mr. Brandeis. I think it would make it far more difficult for the 
 Government. 
 
 Senator Pomerene. Assuming now that one of these 14 companies 
 .had in fact been resolved into its constituent parts, and they after- 
 wards had combined in the manner and method approved by the 
 United States circuit court, in your opinion would that have been a 
 violation of the law ? 
 
 Mr. Brandeis. I think it would in the case of many of those cor- 
 porations, and I so urged very strenuously in the argument and 
 also in the brief. For instance, take some of these corporations, 15 
 or 20 or 25 concerns were brought together. In the case of one of the 
 corporations, the R. J. Reynolds Co., which is one of the 14; they 
 had practically monopolized the southern trade. That corporation is 
 left precisely as it was, although it had itself been an instrument of 
 complete monopoly of a certain district. 
 
 Senator Pomerene. So then it follows, in your judgment, that 
 assuming that these 14 companies, or any of them, were to pursue 
 methods of business which had heretofore been condemned by the 
 United States Supreme Court, the Government would be embarrassed 
 by this decree and the offenders would be materially benefited 
 thereby ? 
 
 Mr. Brandeis. I think they would. 
 
 Senator Pomerene. In your judgment, which has rendered the 
 greater service to the American Tobacco Co., the attorneys they 
 employed or the Attorney General ? 
 
 Mr. Brandeis. I think, as I have stated before, that the decree 
 rendered in this case puts the owners of the trust in a position of 
 advantage superior to that which they enjoyed prior to the decree. 
 
 Senator Pomerene. That is all. 
 
1262 HEARINGS BEFOEE 
 
 The Chairman. Has any other Senator any questions which he 
 desires to ask? 
 
 Senator Oliver. I have not asked any questions as yet, and I 
 should just like to ask one or two. Mr. Brandeis, Judge Gary, in 
 his statement before the committee, claimed credit for the Steel Cor- 
 poration for largely increasing the volume or the proportion of the 
 export business done by — well, the American steel manufacturers. 
 I believe you take issue with his position on that ? 
 
 Mr. Brandeis. I think the figures show that the increase is so small 
 that whether it is Judge Gary's company or any other company, 
 nobody can claim any great credit for the result. 
 
 Senator Oliver. I alluded to his company as representing the 
 American manufacturers, because the far greater part of the export 
 business that was done was done by the Steel Corporation. Now, 
 your position is that that failure, from your standpoint, to largely 
 increase the export business, was due to a want of efficiency on the 
 part of the great company as compared with the efficiency that would 
 have prevailed if the business had been divided up into smaller units. 
 
 Mr. Brandeis. I believe that is true. Perhaps this statement, 
 Senator, may be instructive, and it ought to be quoted as the basis of 
 some of my conclusions : 
 
 While in Britain and Germany the actual costs of producing iron and steel goods 
 are no higher now than they were 10 or 12 years ago, in the United States they are very 
 much higher. For example, in 1899 it was calculated that steel-making pig iron was 
 produced in the United States $5 per ton cheaper than in England, and that standard 
 steel rails were manufactured $7 per ton cheaper there than in the old country. Before 
 the Steel Trust was organized the cost of producing pig iron had been got down as low 
 as $8 per ton, and American costs all along the line, from mining ore to rolling rails, 
 plates, and structural materials, were at a level which defied British competition; and 
 if America's productive capacity had been sufficiently in advance of her domestic 
 requirements she would, no doubt, have beaten our country in the exportation 
 business. 
 
 At that time United States costs were low enough, but the furnaces and mills were 
 not numerous enough to enable that country to indulge in a big export trade. Now 
 that America has any amount of furnaces and mills in excess of home demands — enough 
 idle plants to do nearly the whole of the world's export trade — she finds her manufac- 
 turing costs so far above those of her British and German rivals that she can not obtain 
 more than a very small amount of export business, and so, perforce, her costly plants 
 must stand unemployed. 
 
 This is a statement of Mr. Good entitled, "A British view of the 
 Steel Corporation," published in the December number of the Atlantic 
 Monthly. 
 
 Senator Pomerene. December, 1911? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Oliver. What I was aiming at was this : You charge the 
 increased cost of iron and steel — and steel products in the United 
 States — to the want of efficiency on the part of the manufacturers or 
 the combination. 
 
 Mr. Brandeis. Not wholly to want of efficiency. I ascribe a large 
 part of that increased cost to the fictitious values put upon the plants 
 and the increase in the value of ore reserves. They are of course a 
 very large part of the cost of the business. 
 
 Senator Oliver. Let me ask you this : In the first place you stated 
 that labor costs had not advanced since 1892. Whv did you go back 
 to 1892? 
 
 Mr. Brandeis. Because that was the year when the unions were 
 destroyed practically in the iron and steel business. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1263 
 
 Senator Oliver. Yes ; well with the exception of skilled labor the 
 labor cost as compared even with the labor pay prior to 1892 has 
 largely advanced, has it not? 
 
 Mr. Brandeis. Not largely; it has advanced, for instance, in the 
 Pittsburgh district. The advance has varied from 15 to 18 per cent. 
 I am speaking of the time— I have not the figures up to date — I am 
 speaking of figures up to 1907. It advanced from 15 to 18 per cent, 
 and the cost of living, as figured by the Bureau of Corporations, Com- 
 merce and Labor, has advanced to about 4 per cent more than the 
 wage cost. 
 
 Senator Oliver. I think, Mr. Brandeis, if you had been an employer 
 of labor in the Pittsburgh district prior to 1892 and an employer of 
 labor there now you would find that unskilled labor had advanced 
 considerably more than 15 per cent. 
 
 Mr. Brandeis. Let me give you the exact figures, if you care to 
 have them — the exact figures as reported by the United States 
 Government. They give the figures for labor in the report in response 
 to Senator Borah's resolution. He gives the exact figures of cost. 
 
 Senator Oliver. It is a fact, is it not, that the export business in 
 iron and steel prior to 1892 was practically little or nothing? 
 
 Mr. Brandeis. Oh, yes; when it came to export figures. I am 
 speaking of the period of 1899-1900. 
 
 Senator Oliver. I am speaking of another proposition. Now, the 
 cost of ore has largely advanced, has it not? I mean the actual cost of 
 mining ore, taken in connection with the fact, which is well known, 
 of the very great depreciation an the quality of the ore and the iron 
 content, making the ore cost the furnace very much more per unit 
 than it did 10 years ago. 
 
 Mr. Brandeis. Yes; but I think that these increases the steel 
 business, as conducted, is in part responsible for. In the first place, 
 the value of the ore reserve itself was increased as compared to the 
 rest of the world; doubtless, it is true, to a ridiculous extent on account 
 of the attempt to secure a monopoly. 
 
 Senator Oliver. I am not alluding to that. I am taking the value 
 of the ore reserves as being the same. 
 
 Mr. Brandeis. Yes. 
 
 Senator Oliver. I am alluding only to what it actually costs to 
 mine the amount of iron ore necessary to make a ton of pig iron. 
 
 Mr. Brandeis. And to lay it down, say, in Pittsburgh ? 
 
 Senator Oliver. To lay it down at the furnace; yes. 
 
 Mr. Brandeis. Take the facts with regard to freight rates which 
 are charged on that ore. Here is the Duluth, Missabe & Northern, 
 which has been earning 200 or 300 per cent a year. 
 
 Senator Oliver. I mean the amount that they charge per ton for 
 carrying the ore is the same? 
 
 Mr. Brandeis. The charge for carrying the ore per ton — — 
 
 Senator Oliver. Which I agree with you is highly extortionate. 
 
 Mr. Brandeis. There you see that increases the cost of the ore. 
 In the case of the Steel Corporation it comes back to them in dividends 
 from the Missabe road, but all the competitors have had to pay that — 
 the community has had to pay that increased cost. 
 
 Senator Oliver. But the comparative cost is no more than it is 
 to-day, except, of course, that it costs more to carry per ton of pig 
 iron a ton of 50 per cent ore than it does a ton of 60 per cent ? 
 22877— vol 1—12 80 
 
1264 HEARINGS BEFORE 
 
 Mr. Brandeis. That is true. That is a condition which, so far 
 as it goes, the railroad is responsible for. Of course, we expect 
 as we advance, until the advent of 10 or so years ago — we have had 
 for the longest period a reducing cost of production, and we had 
 reducing freight rates constantly. Of course, this higher price of 
 iron was reflecting itself in the entire freight rate that was paid, 
 for instance, on your ore and your coal from Pittsburgh. 
 
 Senator Oliver. They have to pay rates, too. 
 
 Mr. Brandeis. But you not only have to pay them, but in the 
 last 10 years they were raised — your rates between the Lakes and 
 Pittsburgh. 
 
 Senator Oliver. The cost of the transportation was another 
 thing that I was going to refer to. So that, taking it altogether, 
 there has been in actual cost — I do not allude to the Steel Corpora- 
 tion alone, but to all manufacturers of steel — a very large actual 
 advance in the cost of the commodity. 
 
 Mr. Brandeis. There has been an increase in cost, and what I 
 contend is that that increase ought not to have taken place; that 
 we ought to have continued our advance in methods to overcome, 
 as it has, for instance, in the paper business in America and as in 
 the steel business in Germany and England — to have overcome this 
 world rise in the cost of living and other incidental costs. 
 
 Now, for instance, when we come to freight rates, you ought, of 
 course, with the great increase in the density of traffic from your 
 Missabe mines — on the Missabe road — you ought to have had a very 
 large decrease in the rate, because in that early period when the 
 Missabe road had just been built, it was built in a wilderness 
 almost, it was perfectly natural and proper that they should charge 
 high rates, because nobody knew what the amount of the traffic was 
 going to be. 
 
 Senator Oliver. But the rate was charged, and the burden was 
 on the manufacturer to pay it. 
 
 Mr. Brandeis. It was charged, but remember the land itself, how 
 slight the value of the lands were at that time, when Mr. Rockefeller, 
 and Mr. Wetmore, and the Merritts went in and took those lands. It 
 was almost nothing, the value, as compared with what it was when 
 Mr. Rockefeller sold it out to the Steel Corporation. 
 
 The Chairman. The committee will now take a recess until to- 
 morrow morning. 
 
 Senator Cummins. I want to ask Mr. Brandeis a few questions 
 with regard to the licensing of corporations doing an interstate busi- 
 ness, but I will postpone that until to-morrow morning if it is the 
 wish of the committee. I feel sure that Mr. Brandeis's license, the 
 one he has in mind, is not the license I have in my mind. 
 
 The Chairman. Mr. Brandeis will be here to-morrow morning. 
 
 (Accordingly, at 5.30 o'clock p. m., the committee took a recess 
 until to-morrow, December 16, 1911, at 10.30 o'clock a. m.) 
 
committee on interstate commeece. 1265 
 
 saturday, december 16, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. (J. 
 The committee met, pursuant to recess, at 10.30 o'clock for the pur- 
 pose of further considering the bill (S. 2941) entitled "A bill to 
 create an interstate trade commission, to define its powers and duties, 
 and for other purposes," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Nixon, Oliver. 
 Townsend, Newlands, Gore, and Pomerene. 
 
 STATEMENT OF LOUIS D. BRANDEIS— Resumed. 
 
 The Chairman. Mr. Brandeis, you spoke yesterday to the effect 
 that in a subsequent suit against the Tobacco Trust the Government 
 would be embarrassed so far as proof of the purpose of its organi- 
 zation was concerned. Now, I want to ask you if this is not the fact, 
 that as important as the conditions are under which trusts are 
 formed, if a suit is ever brought against the Tobacco Trust, all 
 consideration and all proof and all manner in which they are asso- 
 ciated together, the Government would be absolutely barred as to 
 the introduction of in case they are now associated under judicial 
 decree ? 
 
 Mr. Brandeis. I would be afraid that 
 
 The Chairman. I mean is it not a fact ? 
 
 Mr. Brandeis. I suppose it must be so, Mr. Chairman; that is. 
 that everything up to the moment, including reorganization, is rati- 
 fied and approved by the judicial power of the country. 
 
 The Chairman. Necessarily so. 
 
 Mr. Brandeis. Mr. Chairman, before taking up Senator Cummins's 
 inquiry I should like to answer a little further the inquiry made of 
 me by Senator Townsend yesterday as to whether the La Follette 
 bill embodies all of the recommendations for legislation which I am 
 now prepared to make. I said there were a number that I had 
 under consideration that I did not feel certain about. 
 
 There are two additional provisions which are cognate to those 
 contained in the La Follette bill, and which I think it would be 
 wise for Congress to adopt now. The first is this : The question has 
 arisen from time to time, as I recall, whether the departments of 
 the Government should purchase supplies and material from those 
 organizations which were under indictment, or against which other 
 proceedings have been brought by the Government. For instance, 
 whether it should purchase oil from the Standard Oil Co., or 
 tobacco from the Tobacco Co., or beef from the beef packers. My 
 recollection is that the decision was that the pendency of such pro- 
 ceedings by the Government was not a reason for another executive 
 department refraining from patronizing the particular trust claimed 
 to be illegal by the Department of Justice, and the facts in which 
 had been developed by the Department of Commerce and Labor. 
 It seems to me that that is a very unwise practice on the part of the 
 Government, and one which is apt to throw discredit and to raise a 
 doubt as to the real sincerity of the Government in its prosecution. 
 
1266 
 
 HEARINGS BEFORE 
 
 Take the case of the Tobacco Trust. Here is the Department of 
 Commerce and Labor spending five years upon the investigation, 
 the Department of Justice carrying forward the investigation and 
 proceeding against the combination on the ground that according 
 to the judgment of those two departments there exists a combina- 
 tion in violation of law. 
 
 Now, is it not extraordinary that another department of the Gov- 
 ernment should be supplying such a combination with the means to 
 ■ any out the purpose which, upon full investigation, the Depart- 
 uent of Justice has held to be illegal, and which, in the case of the 
 Tobacco Trust and of the Standard Oil Trust, has even been held 
 to be illegal by the decision of the lower court? In striking contrast 
 with our practice here is the practice of Great Britain, of which 
 yesterday's papers have given us notice, that they have refused to 
 receive bids for the army — and the same would be expected as to the 
 action of the admiralty — from the beef packers because another 
 nation — another Government — had proceeded against the combina- 
 tion as illegal. 
 
 I believe, therefore, that it would be desirable to insert in this bill 
 an additional provision which should declare that when a proceed- 
 ing shall have been instituted under section 4, by the Government, 
 for an injunction or a dissolution of a combination alleged to be 
 illegal, no department of the Government shall purchase supplies 
 or articles from such combination if the Government can obtain 
 adequately the supplies from some other organization at a reason- 
 able price. 
 
 There is another provision which bears some relation to the one 
 just suggested. It is a matter of common knowledge that patents 
 issued by the Government, designed to create a monopoly of the limited 
 rights granted by the patent itself, have been used illegitimately for 
 the purpose of procuring a monopoly to the owner in other branches 
 of business. It seems to me that this privilege granted by the patent 
 ought not to be abused. The Government has granted this excep- 
 tional position to the patentee or his assignee. 
 
 Now, if a decree of dissolution should be entered, or a decree 
 entered declaring the defendant guilty of violating the law, and 
 resulting in injunctions of one kind or another, there ought to be 
 express power in the court to declare invalid a patent used for an 
 illegal purpose. 
 
 Of course, the law now provides a much more drastic remedy, or 
 remedy similar in character — the remedy of forfeiting all goods "used 
 in violation of law in transit from State to State. That is a provi- 
 sion which, so far as I know, has not been utilized ; at least, it has ' 
 never been enforced to any extent. There have been no forfeitures 
 that I know of actually resulting, although threats of forfeitures 
 have been made and, at least in one instance, a seizure has taken 
 place. But ought not the Government to show its sincerity and real 
 purpose in enforcing what it declares to be the law, by saying that 
 if a court, by its final decree, finds that the combination has abused 
 this privilege granted it by the government, the privilege should be 
 taken away and the patent declared void ? 
 
 Now, what we desire with respect to the whole administration of 
 the law is that the people should understand the policy of the Gov- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1267 
 
 eminent, and that there should be no doubt as to that policy estab- 
 lished will be carried out. 
 
 It seems to me, therefore, that we ought to decide at the very out- 
 set whether or not the people of the United States, represented by 
 Congress, will determine that competition is desirable. If that deci- 
 sion is made in favor of the maintenance of competition, the pro- 
 visions of the law ought to be such that everyone will have notice 
 that it is the sincere and determined purpose of the Government to 
 enforce that law. Undoubtedly, the moment that purpose is so 
 clearly declared as to remove all doubt in the minds of the people, 
 our business men will accommodate themselves to that new situation in 
 the way which, it seems to me, will greatly advance business, but at all 
 events they will accommodate themselves to that situation ; and this 
 uncertainty, which is said now to be injurious to business, will have 
 been removed. 
 
 Nothing could more effectually assure the American people of this 
 determination of its lawmaking bodies that the Sherman law shall 
 be a reality than for all the executive departments of the Govern- 
 ment to put their stamp of disapproval upon those who continue to 
 pursue a course which the Department of Justice, after deliberate 
 investigation, declares to be in violation of law. The commencement 
 of proceedings in equity by the Government under -section 4 of the 
 Sherman law is a deliberate expression of the Government's opinion 
 that the defendants are lawbreakers. The Government should not 
 deal with them unless or until the court declares that opinion of the 
 Department of Justice unfounded^ unless indeed the situation is such 
 that dealing with them is necessary because there is no other source 
 of supply, or unless existing competitors attempt to take an unfair 
 advantage of the exclusion of the trust from the market and seek to 
 charge the Government an unreasonable price. 
 
 Senator Townsend. Are vou preparing some amendment to that 
 effect? 
 
 Mr. Beandeis. I shall be very glad to do that. Of course, that is 
 a provision which would take effect pendente lite. The otheE pro- 
 vision, with regard to the cancellation of the patent used for an 
 illegitimate purpose as found by the court, is a provision which 
 would become effective only after final decree. 
 
 Senator Townsend. Would you make that provision apply to the 
 assignee of a patent? 
 
 Mr. Brandeis. Absolutely, to the owner of the patent at the 
 time the illegal use is found to exist. 
 
 Senator Townsend. Suppose they were found to be operating un- 
 der a lease of a patent, or assignment of that nature ? 
 
 Mr. Beandeis. That is, a license, for instance? 
 
 Senator Townsend. Yes. Would you annul the license or the 
 
 patent itself? , -, , j, ,, ^ . 
 
 Mr Beandeis. It seems to me we could not go further than to 
 annul the license ; but the law should be so drawn that a mere device 
 would not enable its intended purpose to be evaded. 
 
 Senator Townsend. That is all. 
 
 Senator Cummins. Mr. Brandeis, I want to take up for a little 
 while the proposal that has been suggested for licensing corporations 
 engaged in commerce among the States and with foreign nations. 
 So far as this inquiry is concerned, I assume that the ideal condition 
 
1268 HEARINGS BEFORE 
 
 would be one in which all corporations engaged in interstate com- 
 merce were in consonance, so far as organization goes and in respect 
 to their practices and methods, with the antitrust law and any amend- 
 ment that may be made to it. That is the condition we want to reach. 
 The Interstate Commerce Commission stands very high in the con- 
 fidence of the people, does it not? 
 
 Mr. Brandeis. To-day; yes, sir. 
 
 Senator Cummins. To-day. It is conclusive evidence that we can 
 establish a commission so independent in its work, so thoroughly 
 devoted to the public welfare, that its service will be wholly in the 
 interests of the people. You recognize that? 
 
 _ Mr. Brandeis. I think that is the present estimate of the commis- 
 sion. 
 
 Senator Cummins. In our system of government it would not be 
 impossible to establish a commission composed of men of the same 
 high character, intelligence, and capacity to serve the people with 
 regard to general industries? 
 
 Mr. Beandeis. Certainly not, with certain limitations, I think. If 
 I may state them now 
 
 Senator Cummins. You may state them a little later. I think we 
 will come to that point. Now, suppose a commission, which would 
 have to be of the same character generally, is established for the 
 purpose of passing on the question originally as to whether a given 
 corporation shall be permitted to engage in interstate commerce ; that 
 commission would have to be guided and directed by the rules which 
 Congress lays down for its procedure. 
 
 I call your attention first to the future, not how we shall act with 
 respect to corporations now in existence but corporations hereafter 
 organized. Now, if such corporation, desiring to engage in inter- 
 state commerce, were to apply to the commission that I have sup- 
 posed to be established for the privilege of so doing, we could, in the 
 first place require the commission to ascertain whether it was so 
 organized in form and had such potential power as to make it an 
 organization in restraint of trade, could we not? 
 
 Mr. Brandeis. That would be possible. 
 
 Senator Cummins. And in the same way, we could ascertain 
 whether a corporation organized as was proposed, by reason of its 
 poAver or extent would be a monopoly, or an attempt to create a 
 monopoly, under the second section of the antitrust law, could we 
 not? 
 
 Mr. Brandeis. That would be possible. 
 
 Senator Cummins. Now, do you not believe that a commission 
 properly organized could pass on questions of that character so that 
 the people of the country would be better protected than to await 
 the final decision of the court after years of litigation ? 
 
 Mr. Brandeis. I am not certain, Senator Cummins, that I under- 
 stand your question. But I assume that it applies or would apply 
 to practically all corporations that desire for the future to engage 
 in interstate commerce. 
 
 Senator Cummins. I am imagining now that we have a clean sheet, 
 and are simply providing against the future. I will come to the 
 other in a moment. 
 
 Mr. Brandeis. I said it was possible, and perhaps I might state — 
 showing you more clearly what I have in .mind — the difficulties of 
 
COMMITTEE ON INTERSTATE COMMERCE. 1269 
 
 such a commission. We are to-day especially to be congratulated on 
 the character of the Interstate Commerce Commission and on their 
 accomplishments. Of course, we hare got to remember that during 
 a large part of the 24 years of the organization of the commission 
 there was, for one reason or another, not that satisfaction, and that it 
 took a very large number of years and a great deal of additional 
 perfecting legislation to enable the commission to arrive at the point 
 where they could and did satisfy the public needs. Now, the great 
 difficulty which it seems to me to-day the commission still labors 
 under is the multitude of questions and the onerous character of the 
 duties which it is called upon to perform. They have to deal with 
 236,000 or 240,000 miles of railroad, and the questions which necessarily 
 arise in connection with them are numerous. We have had the situa- 
 tion with regard to some of the most important cases, for instance, 
 like the Intermountain case. Now, wholly aside from the recent 
 interference with its action by the Commerce Court, we have there 
 had a controversy in which the endeavor to adjust what was a proper 
 rate has extended over a large part of a generation. 
 
 Are have had all these difficulties, although the Interstate Com- 
 merce Commission deals only with transportation, and railroad trans- 
 portation is a business which is practically uniform in its problems 
 and in which the problems are largely the same yesterday, to-day, 
 and to-morrow. Of course, circumstances differ; but after all, the 
 problems of railroad rates, the problems of discrimination are largely 
 the same problems throughout the country. When we are dealing 
 with rates, one of the commonest methods of decision arrived at by 
 the commission is by comparison — a comparison of the service and of 
 the charges for a similar service on the same or on another railroad. 
 
 When you pass from the realm of transportation to the realm of 
 industry the problems, instead of being uniform, are widely varying, 
 and instead of being practically stable, they are ever changing. 
 
 The difficulty that I see, or one of the difficulties which I see, in 
 appointing at this time a commission with the power of granting 
 or denying permission to engage in interstate business rests in the 
 fact that the commission would be burdened with the decision of 
 questions so numerous that not only one commission but many com- 
 missions would be unable to compass the work. 
 
 Take the work of the Bureau of Corporations on these few prob- 
 lems — the Beef, Tobacco, Steel, and Oil Trusts. The inquiry neces- 
 sary to determine facts in regard to the existing business has occu- 
 pied six or seven years. 
 
 You propose, in the first instance, at all events, to deal only with 
 the future; but an investigation — a very extensive investigation — 
 would have to be made before any commission could justly say that 
 a license should be granted or denied. An investigation of that kind 
 ought to, permit the participation of those directly interested, either 
 on behalf of the community or competitors, like at hearings before 
 the Interstate Commerce Commission. That would tend to safety, 
 but also take more time of the commission. We should go exceed- 
 ingly slow in the development of any plan of control by commis- 
 sion. The first step ought to be investigation only, to enlarge very 
 much the realm and the scope of the powers of investigation. 
 
1270 
 
 HEARINGS BEFORE 
 
 At present I should feel that a decision, even though a tentative 
 decision by such a commission, resulting in the granting or denial of 
 a license might lead us into many erroneous paths. 
 
 Senator Cummins. It is of course true that the work of the com- 
 mission would, in the first place, be necessarily confined to the largest 
 corporations. There would have to be a limit of that kind in order 
 to bring the work within the scope of any commission that might be 
 created. But I put to you now this proposition: Suppose that in 
 1901 — when Mr. Morgan and his associates proposed to organize the 
 United States Steel Corporation with its capitalization of $1,400,- 
 000,000, and with its absorption of plants, which were known at the 
 time to do more than one half of all the business of the United States 
 in that field — now, if such a corporation, or the proposers of it, had 
 applied to the commission that I have indicated, it would not involve 
 the examination of years of practice and of methods to enable the 
 commission to reach a conclusion as to whether a corporation of that 
 magnitude, drawing to itself that degree of the business, even if 
 conducted in accordance with what we understand to be fair business 
 practices, was or was not a menace to society, was or was not a re- 
 straint of trade, or was or was not so near an approach to monopoly 
 that it was forbidden by the second section of the antitrust act. Now, 
 there would not be any difficulty in a commission reaching a con- 
 clusion upon such questions, would there? 
 
 Mr. Brandeis. I think there might be considerably more difficulty. 
 Of course, the investigation would have to be elaborate 
 
 Senator Cummins. I do not mean now that the question that they 
 would be called upon to decide would not be difficult, but I mean that 
 there would be no great, long investigation required in order to reach 
 a conclusion. 
 
 Mr. Brandeis. Ot course not long, as compared with what was 
 necessary in the investigation of the Standard Oil and the Tobacco 
 Co., but I think there might be quite a long inquiry in all of these 
 cases where there was a reasonable doubt as to whether the combina- 
 tion would be permissible or not permissible. That is, you never 
 could decide a question, similar to those • questions which Senator 
 Newlands asked yesterday, as to whether a particular combination 
 was or was not obnoxious to the law, without a careful inquiry into 
 the whole state of the trade. Such an inquiry would necessarily 
 occupy considerable time. It would have to be of considerable scope. 
 The moment you get to a point where men may reasonably differ — 
 and those are the only cases really that ought ever to come before that 
 court — wherever you reach a point where men may reasonably differ, 
 you have the possibilities of a very considerable inquiry. 
 
 I can well conceive this. Senator: If this commission is, as I be- 
 lieve it should be, active in securing the information in regard to 
 every branch of trade, even before a crucial question arises— I mean 
 as it will gradually acquire a very large volume of information, 
 daily added to, in respect to each of the important industries of the 
 country — I can well imagine at a later time it will be a comparatively 
 simple thing for the commission, with that great mass of informa- 
 tion at hand, to pass quickly upon a question as to whether a given 
 combination is legal or illegal. But at the present day, in our 
 ignorance, with our lack of authentic information with regard to 
 practically every branch of industry except those few which have 
 
COMMITTEE ON INTERSTATE COMMERCE. 1271 
 
 been investigated by the Bureau of Corporations, I should be afraid 
 that it should be entering upon a field beset with difficulty to give a 
 commission power to grant or deny licenses. 
 
 Senator Cummins. You have advocated here the passage of a law 
 which makes 40 per cent of the business, I think, prima facie evidence 
 of a violation of the antitrust statute? 
 
 Mr. Beandeis. Presumptive; yes; in case of a combination. 
 
 Senator Cummins. Now, if we can arrive, with the information 
 we have now, generally speaking, at the conclusion that any consoli- 
 dation or combination that proposes to take in 40 per cent of the 
 business is against public policy or against the statute, there cer- 
 tainly would not be very much difficulty in the commission arriving 
 at a similar conclusion, either increasing that percentage or diminish- 
 ing it, as the case may be. We have enough general information to 
 carry us to some conclusions upon this subject of industry. 
 
 Mr. Beandeis. Well, I think the volume of the accessible informa- 
 tion is extremely small. For instance, in connection with the inves- 
 tigation which I was obliged to make in the Tobacco Trust case, I 
 endeavored to ascertain with some exactitude the status of the inde- 
 pendents. I had the assistance of some of the ablest and best versed 
 of all of the independents who had given some thought not only to 
 their own business but the business of others. 
 
 Yet there was an extraordinary lack of knowledge on their part. 
 None of those men were able to give fully the kind of information 
 in respect to their competition — other than the trust—which you and 
 I would wish to act upon in any important affair of life. I dare say 
 if I had had open for me the avenues of the Bureau of Corpora- 
 tions — which must have investigated to a certain extent also the in- 
 dependents as well as the trusts — I could have gotten more informa- 
 tion. But whatever information the bureau had was the result of 
 a very wide inquiry, and I think if to-day you would undertake in 
 any branch of industry to ascertain accurately the trade facts you 
 would find that the inquiry would involve a considerable investiga- 
 tion the moment you reached what was termed the other day the 
 "twilight zone." 
 
 Senator Cummins. I have no doubt of that, but you, as it seems 
 to me, are not discriminating as I do at least, between the original 
 organization and its capacity for good or evil, and the things which 
 the corporation does in the course of its business. The latter, ot 
 course, could not be determined in advance. I will suggest another 
 illustration. Suppose that in 1907—1 believe that was when the 
 United States Steel Corporation proposed to take in the Tennessee 
 Coal & Iron Co.— there had been such a commission and that it 
 became necessary for that corporation before it acquired that prop- 
 erty to applv to a commission such as I have suggested. JNow, 
 entirely apart from the merit of the proposition, without attempting 
 to decide whether the consolidation or purchase was lawful or un- 
 lawful or wise or unwise, there would not be very much difficulty, 
 aside from the character of the question itself, on the pari of the com- 
 mission in deciding whether that additional power, or that addi- 
 tional part of the business to be so taken in, would be a violation ot 
 the antitrust law, would there? 
 
 Mr Beandeis. Well, I can conceive that in some such instances 
 the problem would be readily solved : that is. the facts would be such 
 
1272 HEADINGS BEEOEE 
 
 that men might not reasonably differ about them. But, on the other 
 hand, I think we have found, in connection with every trust problem 
 as it appeared before the commission and before the court, an ex- 
 traordinary difference — perhaps not extraordinary, perhaps a natural 
 difference — as to mere matters of fact between the combination and 
 the representatives of the people. I entirely sympathize with your 
 purpose to remedy what I deem to be a defect in our administrative 
 system, under which we allow to be created an organization which 
 from its nature will probably defeat the very purposes of the law. 
 I thoroughly sympathize with your purpose, but I see a practical 
 difficulty of applying the full remedy at once. 
 
 Senator Cummins. Of course there are practical difficulties, but in 
 the instance I have just put to y.ou, the Government would have — if 
 we had a commission on the one side and this business on the other — 
 two alternatives in order to prevent the accomplishment of the pur- 
 pose of the United States Steel Corporation taking in the Tennessee 
 Coal & Iron Co. We would have the injunctive or inquiring process 
 of the court on the one hand and we would have on the other hand, 
 or might have on the other hand, the immediate interposition of the 
 commission. Now it takes us years to ascertain through the courts 
 whether that can or can not be lawfully done, and in the meanwhile 
 it is done ; and if there are evil effects from it the people must suffer 
 during all these years those effects; and their injury, if they receive 
 one, can never be repaired no matter what the court may ultimately 
 do ; whereas if the commission could interpose the same effectual 
 forces in the beginning against doing the thing where the courts in- 
 terpose years after it is done, it seems to me that if the commission 
 acts as wisely and as patriotically as the courts do, that we would be 
 better off. 
 
 Mr. Beandeis. I think if the machinery can be devised that will 
 accomplish what you suggest with certainty and dispatch, it cer- 
 tainly would be desirable. My doubt comes as to the possibility of 
 providing it. It seems to me there is another alternative in addition 
 to the two you suggest. It is this, and it is the very alternative and 
 the very power which is operative in the ordinary affairs of life: 
 You talk about the doubt as' to what you can and what you can not do. 
 Is there not, in large part, in the realm of human activities, the very 
 gravest doubt as to what a man can and what he can not do ? We, as 
 lawyers, have frequent occasion to advise our clients that there is a 
 grave doubt as to what they can do ; a particular thing. Our clients 
 under those circumstances ordinarily refrain from doing the thing. 
 They keep off ; they keep back from the precipice. The law is auto- 
 matically enforced by its deterrent effect. 
 
 I believe that a very large part of the transgressions of the anti- 
 trust law have resulted from the belief in the community that the 
 Government, and perhaps the American people themselves, were 
 not sincere in the desire to prevent monopoly and to insure com- 
 petition. 
 
 The moment Congress, with the approval of the American peo- 
 ple, give the assurance that the law will be enforced, a very large 
 part of all difficulties attending it will vanish. There will be no 
 necessity for these long proceedings. Prosecutions will occur occa- 
 sionally, but there will not be many of them. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1273 
 
 Senator Cummins, I do not dispute that at all. I think thai is 
 entirely obvious to those who have observed the course of affairs 
 m the last few years. But, nevertheless, these things are done, 
 Suppose that when the Supreme Court rendered its opinion in the 
 American Tobacco Co. case a commission of this sort had been in 
 existence and that it was necessary, or became necessary, under the 
 order of the Supreme Court, that the American Tobacco Co. should 
 be so disintegrated and rearranged as to be entitled to do business 
 between the States and in accordance with the antitrust law. and 
 that such a commission as I have suggested were the arbiter of 
 its proper disintegration or re-creation; do you not think that 
 we would have had a very different condition than the one which 
 now exists ? 
 
 Mr. Beandeis. I think we should have had, if the hearings had 
 been properly conducted and if the members of the commission 
 had not held the economic views held by the circuit judges who 
 passed upon the case. I feel perfectly convinced that the decision 
 which the judges reached would never have been reached if they 
 had held the economic views more prevalent in other parts of the 
 country than, perhaps, in the city of New York. 
 
 Senator Cummins. Is there not more than that in the matter ? Do 
 you not recognize a very great difficulty, and, as I think, an insuper- 
 able difficulty, in the courts of this country attempting to rearrange 
 the business of the country s.o that it may be done in the future m 
 conformity with the law ? 
 
 Mr. Beandeis. I do, decidedly. 
 
 Senator Cummins. Whatever decisions the Government makes in 
 advance for the purpose of guiding business, it seems to me, ought 
 to be made by an administrative body rather than by a judicial body. 
 
 Mr. Beandeis. I agree with you. 
 
 Senator Cummins. Now I come to the question of the existing cor- 
 porations. Suppose we had such a commission and the matter of 
 the legality of the organization and the business of the United States 
 Steel Corporation were known — of course no one would insist that 
 in a minute the affairs of such a corporation as that could be re- 
 arranged ; but if the law were that the commission was authorized 
 to say to that corporation : 
 
 Here is the way in which you must disintegrate your business, if it is to be 
 disintegrated, and you have one year or two years or three years in order to 
 bring yourselves into harmony with this arrangement which we lay down 
 for you. 
 
 Do you not think that whatever evils, if there are any, which are 
 now suffered by the American people at the hands of that corporation 
 would be remedied, and remedied much more expeditiously and cer- 
 tainly than they can be remedied through the courts ? 
 
 Mr. Beandeis. I think that involves two considerations ; one is the 
 development of a proper plan of disintegration. 
 
 I feel, as I have stated, perfectly clear that the work of develop- 
 ing such a plan of reorganization is not work for which the courts 
 are peculiarly fitted; it depends for proper decision largely upon 
 detailed questions of fact. An administrative board, equipped with 
 all the agencies for acquiring knowledge of these facts, is better fitted 
 for the task, and it would probably have more time to perform the 
 task properly. 
 
1274 HEARINGS BEFORE 
 
 It seems to me, therefore, that even if the plan is to be ultimately 
 approved by the court, there is a very important function which 
 your proposed commission can and should perform. On the other 
 hand we must always bear in mind that an illegal condition exists 
 to-day in many trades as the result of violating the law, and that it 
 has presumedly resulted in profits, perhaps in great profits, wrong- 
 fully earned by those interested in the combination. The American 
 people can not safely condone these wrongs. Therefore, even if 
 you have an administrative board passing upon the question — pri- 
 marily as to how the concerns should disintegrate — the court itself 
 must be resorted to for the purpose of administering justice and 
 for administering such a remedy for past infractions of the law as 
 may be proper. 
 
 Senator Cummins. I have no doubt of that, and I would be the 
 last man to suggest that the administration of the law which I have 
 proposed should take the place of the remedies that might be ob- 
 tained through the courts. For instance, if we have this commis- 
 sion, and it provides a plan of reorganization, first, if those who are 
 interested refuse to accept the plan and go on according to their 
 own view, then necessarily the courts must come to the relief of the 
 people, for the commission would have no process that it could 
 enforce against the corporation violating the law, and it goes without 
 saying that if the commission should refuse to permit the corpora- 
 tion to do an interstate business and the corporation was advised 
 that it might safely violate the orders of the commission, it would 
 go on, and it could only be called to account in the courts just as they 
 are now. I would not suggest, of course, that the commission is to 
 take the place of the courts in the administration of justice. I am 
 speaking only of some way in which the people can be speedily 
 relieved of these burdens which are now pressed upon them. Take 
 the Standard Oil case as another illustration. It has been divided, 
 I think, into 33 or 34 corporations. It goes on now for a period, and 
 suppose we discover — as we will probably discover — that we have 
 accomplished little or nothing, and the Government brings another 
 suit against the 33 corporations. It must go through the long, 
 tedious processes of the law and at the end of 5 or 10 years that com- 
 bination may be adjudged to be contrary to the law, but in the mean- 
 time it is with us, and I have thought, and I ask you, whether there 
 be some reason in it, that through the intervention of a commission 
 of this sort we might not reap some relief more speedily than we can 
 get it through the courts ? 
 
 Mr. Brandeis. I am convinced that there is much reason in the 
 position which you take, and I heartily sympathize with the purpose 
 of it. The doubt I have is as to our ability to develop safely at once 
 the machinery to which can be confided the serious power of licens- 
 ing the corporations, because the effect of such licensing will be a 
 certificate of good character as would be an extremely potent force. 
 
 My doubt goes rather as to what can be done at the present time 
 than as to what we may look forward to a little later. My thought 
 is — as I undertook to express it in response to Senator Newlands's 
 questions — that the first step in the organization of such a commis- 
 sion would be to give it large and much broadened power of investi- 
 gation over any which now exist. Give it full rights to hear com- 
 plaints of those who believe themselves to be wronged. Throw open 
 
COMMITTEE ON INTERSTATE COMMEECE. 1275 
 
 the results of its inquiries to those who are directly interested in- 
 stead of making the great mass of information which is obtained 
 subject only to disclosure at the will and discretion of the President. 
 All this information, like a great mass of information obtained by 
 the Interstate Commerce Commission and by other bodies, should be 
 public information to be acted upon by the public. Gradually as the 
 machinery of the commission is perfected, and particularly as the 
 volume of available knowledge in regard to American business ac- 
 cumulates, we might more safely take the next step of giving the 
 commission important powers of decision. It is only a question of 
 the time when such powers should be granted. 
 
 Senator Cummins. I think we are all agreed upon the great value 
 of publicity. It seems to be taken for granted that whatever we can 
 do to secure publicity of the right kind we should do. 
 
 Mr. Brandeis. Not only publicity, but real knowledge in regard 
 to an industry. It is extraordinary that in our great Government, 
 with all the machinery — the census and all other bureaus — for get- 
 ting information, how little real knowledge there is available which 
 is really valuable to the man in business or the man out of business 
 who wants to know specific things in regard to American industries. 
 We ought to be able to really know those things and to know them 
 quickly. 
 
 Senator Ctjmmins. I assume that is because they really have had no 
 use for the information in former times. 
 
 Mr. Brandeis. I think so. 
 
 Senator Cummins. You have spoken of some of the disadvantages 
 which might ensue if a license — or I would hardly call it a license — 
 but if the privilege were extended to a given corporation to do busi- 
 ness among the States, it occurs to me there are some advantages. 
 The corporation, in the first place, should be honestly capitalized 
 before it was given this privilege. That is one advantage, no matter 
 whether it was organized under the laws of a city or the laws of the 
 Nation. The second advantage, as it seems to me, would be that if it 
 came to the- knowledge of the commission — and it would have oppor- 
 tunities for securing knowledge that could not possibly be had by 
 the Attorney General or by the c6urt, for the courts must get their 
 knowledge in a specified way — that the corporation was engaging in 
 practices that were in violation of the law, or which the commission 
 believed to be in violation of the law, the commission would say to 
 the corporation, "Quit, or your license or permission is revoked." 
 Now, if the permission to do interstate business should be revoked, 
 even though the corporation might go on subject to the power of the 
 court, yet the mere fact of revocation, it seems to me, would counter- 
 balance all the disadvantages of holding the permission ; and still fur- 
 ther, the fact that the permission might be revoked, and thereby the 
 corporation prima facie adjudged to be engaged in unlawful prac- 
 tices, would secure far better observance of the law than we now 
 have. 
 
 Mr. Brandeis. This difficulty exists, does it not, Senator? Take 
 this very position which you have suggested, of having that commis- 
 sion pass upon the question of the revocation of a license. Now, 
 that is a question most serious in its character — an inquiry which, 
 in the case of almost any corporation, but particularly of a large 
 corporation, would involve an investigation m which, of course, the 
 
1276 
 
 HEARINGS BEFORE 
 
 corporation must have the amplest opportunity to participate, and 
 an issue such as is tried out in the courts— I mean of the same char- 
 acter that is tried out in the courts, involving a very long period of 
 time. The revocation of that license may practically amount to a 
 taking away of half, or a greater part, of the value of all the prop- 
 erty of that corporation. 
 
 Now, such a power would have to be exercised most carefully and 
 most considerately, and surrounded really by all protection, to in- 
 sure a correct and just decision that Ave now have in the courts. 
 Consequently, the investigation would be a matter of a long time. 
 The decision of them might necessarily be postponed a long time, 
 so that they would not really have speedy redress, or a hasty de- 
 cision would be made which all would have occasion to regret. 
 
 Senator Cummins. Now, I can easily conceive that there might be 
 Mime cases in which it would involve a very long examination, and 
 I agree that such powers should be exercised only when the facts were 
 clear. But, again, take the American Tobacco Co. as an illustration. 
 Suppose that many of the practices which are not disputed and have 
 never been disputed were brought to the attention of such a commis- 
 sion, or had been brought to the attention of such a commission, do 
 you think it would require that commission very long to come to the 
 conclusion that unless the American Tobacco Co. ceases such prac- 
 tices that it must cease to do interstate business? 
 
 Mr. Brandeis. Let me call your attention, Senator, to the fact that 
 whereas this record of the Tobacco Co., so ably made up by the assist- 
 ant to the Attorney General, Mr. McEeynolds, contained what ap- 
 pears to me, and I think appears to very many, to be the most con- 
 clusive evidence of flagrant practices, yet one or more of the judges 
 of the circuit court held that there was nothing in that record which 
 indicated any wrong practices. The circuit judges actually entered 
 their original decree, not on the ground that the restraint was unrea- 
 sonable, but on the ground that under the earlier decisions of the 
 Supreme Court any restraint of trade, reasonable or unreasonable, 
 was illegal. 
 
 Senator Cummins. We can never get rid of those economic fal- 
 lacies, which some people seem to hold so persistently ; but the facts 
 were known; there was no difficulty — I do not mean to say that all 
 the facts that appeared in the record of the American Tobacco Co. 
 case were easily collected, because they were not, but the flagrant 
 outrages that were being committed by the American Tobacco Co. 
 were known not only by one person, but they were known by millions 
 of people of the United States, and there never has been any attempt 
 to deny that. Of course, the commission might hold, if it was com- 
 posed of a certain kind of men, that these were not wrongs, but we 
 have to run the risk of that, whether we appeal to the courts or to a 
 commission. 
 
 Mr. Brandeis. I think, Senator, if you read the opinions of. the 
 judge referred to you will find that he was not convinced. He did 
 refer to the fact that letters of the trust officials contained evidence 
 of the facts ; nevertheless, he was never convinced that it was a prac- 
 tice. I only point that out as showing how, when applied to a serious 
 inquiry, what some of us may think to be clear beyond peradventure 
 is often a matter on which other men hold different opinions. The 
 extraordinary thing upon the facts of the case in both the Standard 
 
COMMITTEE ON INTERSTATE COMMERCE. 1277 
 
 Oil and the Tobacco suits is that any human being should ever 
 have had a doubt that both of them were absolutely violating the law. 
 And yet here is a litigation oocupying four or five years, in which 
 some of the most able men and reputable counsel in the United States 
 were engaged in the effort to prove to the Supreme Court that their 
 clients had been absolutely innocent, and, on the contrary, had been 
 the benefactors of mankind. 
 
 Senator Cummins. Precisely. But, as some one remarked yester- 
 day, possibly yourself, we are passing through a rather rapid process 
 of education, and these views which you have just mentioned are not 
 held by so many people now as formerly. And while I do not want 
 to be understood that I think that such a commission could pass upon 
 those questions without inquiry and without great inquiry, yet I be- 
 lieve that it could get at the truth, with its unhampered sense, as it 
 would be ; of the strict and somewhat peculiar rules of evidence, much 
 more easily and quickly than could a court. 
 
 Mr. Brandeis. It undoubtedly could, and I should esteem it a great 
 privilege to examine any bill that was drafted by you in that view, 
 and see how far the obvious practical difficulties which exist were 
 overcome. 
 
 Senator Cummins. What is your opinion with regard to the prac- 
 ticability of putting the initiation of the proceedings that must 
 finally come to the courts in the hands of such a commission ? 
 
 Mr. Brandeis. That is a question on which I have not a clear 
 opinion. I think the advantages of authorizing a commission to 
 inaugurate an inquiry are great, and I am inclined to think from our 
 experience with the Interstate Commerce Commission,_ notably re- 
 cently since the act of 1910, which has so manifestly increased its 
 usefulness that it is wise to create such powers, but I should, of 
 course, by no means confine the initiative to the board. 
 
 Senator Cummins. Of course, you did hot understand me to so 
 mean, that it should be taken away from all the other departments 
 of Government, because I doubt whether it could be done. 
 
 Mr. Brandeis. You have undoubtedly assumed that also, that in- 
 dividuals interested ought to have the opportunity to initiate a 
 proceeding. 
 
 Senator Cummins. That is all that I care to ask, Mr. Brandeis. 
 
 Senator Newlands. Mr. Brandeis, when the Interstate Commerce 
 Commission was oraanized, some 21 years ago, do you think it would 
 have been better then, in place of organizing that commission, to 
 have organized simplv a Bureau of Transportation, presided over 
 by a single bureau ch'ief , with powers similar to those given to the 
 Bureau of Corporations? 
 
 Mr. Brandeis. I do not. 
 
 Senator Newlands. If, at the time the Sherman antitrust law 
 had been passed, which, I believe, was about the same year as the 
 interstate-commerce law 
 
 Mr. Brandeis. Three years later. _ . 
 
 Senator Newlands. Three years later. A commission, _ an indus- 
 trial or interstate-trade commission, had been organized with powers 
 of investigation, of correction, and of recommendation to Congress 
 similar to those enjoyed by the Interstate Commerce Commission 
 over transportation— do you think we would have made greater 
 progress in the regulation of trusts? 
 
1278 HEARINGS BEFORE 
 
 Mr. Brandeis. I think we would have made some; but I think 
 the situation in the two cases is really quite different. Prior to 1887 
 we had had a long period of suffering from the evils of railroads. 
 In 1890 we had had but a slight appreeiation of and had had prac- 
 tically little experience with the evils attendant upon trade combina- 
 tions. We have had to learn by experience. Facts are the only 
 things that can be of any significance, and we gain them only by 
 experience. Since 1890 we have learned much about trusts, and to. 
 my mind we have been learning the last few years at an accelerated 
 pace. So that I do not know that we need to regard the past in that 
 respect as unfruitful. 
 
 Senator Newlands. Assume a commission of capacity and char- 
 acter and dignity had been then appointed with these powers of in- 
 vestigation and correction and of recommendation to Congress, do 
 you think that the trust evil would have grown to such proportions 
 as it has? 
 
 Mr. Brandeis. Probably not quite. 
 
 Senator Newlands. Would it not have been checked? 
 
 Mr. Brandeis. Probably, somewhat. But, after all, no Govern- 
 ment publication, no inquiry by the Government, has great motive 
 force itself. It becomes an extremely important instrument or 
 missile when the public comes to a realization of the situation, and 
 particularly when the public reaches the conviction that the forces 
 of government are going to be utilized to an end; that they are 
 not merely a perfunctory performance. 
 
 Senator Newlands. You think such a commission at that time 
 regarding interstate trade would not have had the same stimulus to 
 act through the courts of public opinion as the railroad commission 
 has? " . 
 
 Mr. Brandeis. I do not think so, for various reasons. In the first 
 place, one of our eminent Attorneys General has considered the 
 whole act unconstitutional. The court itself, in the Knight case, 
 limited the scope of the act in such a way that it practically nullified 
 it. So that the education both of the law officers and of the court 
 itself had to proceed in this matter. 
 
 Take these practices, which to-day practically everybody agrees 
 ought to be condemned — this practice of destroying a competitor by 
 giving discounts or excluding him from a custormer's trade. They 
 appeared, as you will recall, first in the courts in the Whisky Trust's 
 attempt to secure thereby a monopoly. They were passed over as if 
 they were entirely pardonable practices. We have made progress in 
 regard to those things, just as we have made progress in respect to 
 cutthroat competition and espionage. It had been the hallowed prac- 
 tice to lie in business, as the doctrine of caveat emptor shows. It 
 was supposed that a man could not be keen in business unless he 
 lied about his goods, and he was to have the opportunity of lieing as 
 much as he wanted to: that to keep the buyer alert he must be 
 left to detect the lie from the truth. But now we have pure-food 
 laws, and we have postal fraud proceedings. Our ideas as to what is 
 proper business have advanced. And I think our ideas have also 
 advanced in regard to trusts. We understand better their fruits. 
 There used to be a certain glamor about big things. Anything big, 
 simply because it was big, seemed to be good and great. We are now 
 coming to see that big things may be very bad and mean. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1279 
 
 Senator Newlands. But you should bear in mind that the Interstate 
 Commerce Commission is entirely supplementary to the Sherman 
 antitrust law, even so far as railroads are concerned— that it did 
 not interfere at all with the execution of that act. 
 
 Mr. Brandeis. Entirely. 
 
 Senator Newlands. And that the interstate trade commission con- 
 templated will not of course, interfere with the administration of 
 the hherman antitrust law or of any law, such as you suggest, which 
 may be passed that is supplementary to it. But you realize, even in 
 the enforcement of the Sherman antitrust act, that the railroad 
 commission has been serviceable, do you not? Did it not call the 
 attention of the Government recently to the case against the Union 
 Pacific— the merger of the Union Pacific and the Southern Pacific? 
 Did not that spring from the inquiry ? 
 
 Mr. Beandeis And I think that the Supreme Court afterwards 
 held that the commission had exceeded its powers, did it not, in 
 many respects? 
 
 Senator Newlands. At all events, the prosecution was inaugurated 
 which is now pending. 
 
 Mr. Brandeis. I think that was entirely proper. It seems to me 
 that one department of the Government ought to aid another de- 
 partment. There is no occasion for the left hand not knowing what 
 the right hand doeth. and the reverse. 
 
 Senator Newlands. Now, assuming that the Sherman antitrust 
 law is to be enforced, and it is even to be strengthened, as you have 
 suggested, T would like to inquire of you regarding the bill which 
 I have introduced upon the subject of an interstate trade commis- 
 sion that is intended to cover the ground now covered with refer- 
 ence to transportation by the railroad commission, not including^ 
 however, the power to fix prices. 
 
 This bill. I will state, I had in mind, and so expressed myself 
 in Congress repeatedly, long before there was any suggestion upon' 
 the part of the trust magnates that a trade commission or an indus-' 
 trial commission was desirable. And it was not, therefore, shaped 1 
 in response to that demand from that quarter at all, but simply 
 upon the assumption that if we had, 20 years or more ago, pursued, 1 
 with reference to interstate trade, practically the same methods we> 
 have pursued with reference to interstate transportation, that we 
 would have probably prevented the formation of a great many of 
 these trusts and established a body of administrative law that would 
 have been most serviceable in correcting these evils, and that would 
 have prevented the necessity now of breaking apart the great organi- 
 zations that are connected with the finances of the country, and whose 
 disruption might seriously disturb the people who are not respon- 
 sible for their existence. 
 
 In this bill, which is Senate bill 2941, I would be very glad if you 
 would examine it and give the committee any suggestions you have 
 regarding it. 
 
 Mr; Beandeis. I shall be very glad to. 
 
 Senator Newlands. I provide, in the first instance, that the com-* 
 mission shall be known as the Interstate Trade Commission and that 
 the Bureau of Corporations shall be merged in it, with all its offi-j 
 cials functions, and powers, and that the Chief of the Bureau of 
 Corporations shall be one of the five commissioners to be selected, : 
 
 22877 — vol i — 12 81 
 
12,80 HEARINGS BEFORE 
 
 that the deputy commissioner of corporations shall be the secre- 
 tary of the commission, and the other commissioners are appointed 
 as the Interstate Commerce Commission is. 
 
 Then it provides, in section 4, that all corporations whose annual 
 gross receipts exceed $5,000,000 shall make written statements to this 
 commission, showing their financial status, the form of their organ- 
 ization, and other things that will comply with the rules and regula- 
 tions laid down by the commission. 
 
 ■. I will state right there that I was in doubt as to what to make the 
 standard. I realized that this commission would be overburdened if 
 I applied it to all organizations engaged in interstate commerce, be- 
 cause almost all State corporations are engaged in some form of 
 interstate commerce, and I was in doubt as to whether the standard 
 should be the gross receipts, the occupation, such as coal, oil, iron, 
 steel, leather industries, etc., but I finally came to the conclusion 
 that I would fix as the standard gross receipts aggregating $5,000,000, 
 assuming that corporations of less gross revenue than that would 
 hardly constitute a serious menace to the country. 
 
 I would like to ask you there what you think of that suggestion 
 of merging the Bureau of Corporations, with all its powers and func- 
 tions, if such a commission as that is created ? 
 
 Mr. Beandeis. Oh, I think that would be very wise. 
 
 Senator Newlands. Would you be able now to express any opinion 
 as to what should be the standard with regard to the class of cor- 
 porations that would come under the provisions of this act? 
 
 Mr. Brandeis. If I do, I shall have to express myself without due 
 consideration of the provision of the bill. But it seems to me that 
 the standard that you have suggested, of gross business, is a very 
 appropriate standard and one less likely to mislead than capitaliza- 
 tion or assets. 
 
 , Senator Newlands. Now, section 5 provides that the commission, 
 upon finding that the statements under oath of the corporation com- 
 ply with the regulations, then makes an order that the corporation 
 be registered — not licensed, but simply registered. 
 
 I realized the objection which you have urged to a license — that, 
 in a measure, it would appear to be a validation of everything that 
 is done, and the preliminary inquiry may not be a complete one, and 
 I was anxious to avoid any appearance of that. So this suggestion 
 of registration simply was adopted. 
 
 Then, section 6 contains a provision which perhaps is open to the 
 objection referred to. It provides : 
 
 That all corporations so admitted to registration shall be known as " United 
 States registered" companies and shall have the sole and exclusive right to 
 use, in connection with their corporate title, their securities, their operations, 
 and, by way of advertisement of their business, "United States registered." 
 
 Mr. Brandeis. I think that is open to the same objection. It seems 
 to me there is no occasion to use such a phrase or to use such lan- 
 guage. I mean such a formal recognized thing as a registered cor- 
 poration. You could say, simply, you require these corporations 
 that come within the limits which you have prescribed to make 
 returns as you require corporations to make returns under the cor- 
 poration-tax law. 
 
 Senator Newlands. It is not essential to the bill that that should 
 be in it, but I wanted to call your attention to this point : That such 
 
COMMITTER ON INTERSTATE COMMERCE. 1281 
 
 a name Ayill be, of course, a valuable asset ; it will be an indication to 
 the public that the corporation is not overcapitalized, for one thing, 
 and that its organization, at least, is not in violation of law, leaving 
 the question, of course, of future practices tending toward monopoly 
 or restraint of trade to be punished, whether it is registered or 
 unregistered. 
 
 Mr. Brandeis. I believe, Senator, that if you have this commis- 
 sion enter upon the inquiry of what is a proper capitalization, so that 
 the registration of the company may be represented as constituting 
 an assurance of proper capitalization, you will be involved in an 
 inquiry that is very wide in its extent and serious in its consequences. 
 
 Senator Newlands. If that were applied only to future corpora- 
 tions ? 
 
 Mr. Brandeis. Even if applied only to future corporations. For 
 instance, I may speak of our own experience in Massachusetts. Mas- 
 sachusetts has gone probably beyond any State in America, and 
 perhaps as far as England, in insisting upon honest capitalization. 
 It has insisted that the capitalization should represent practically the 
 value of the assets. That provision has been of benefit in certain 
 ways, but I do not think it has at all benefited the community except 
 so far as people are investors. Investors have been perhaps protected 
 somewhat from deception as to the amount paid in on capital, but 
 the law has also led them into pitfalls when relied upon. The rep- 
 resentation that $100,000 or $1,000,000 has been actually paid in has 
 often proved misleading, because the practice developed of paying in 
 the capital in cash and then turning around the next moment and 
 .buying the property for cash at considerably more than its real value. 
 
 Now, whether or not you have real value is an inquiry, which, if it 
 is to be entered into wisely, honestly, and justly to all concerned, pre- 
 sents some of the most difficult problems that can ever arise in the 
 administration of business. You see in this very instance, although 
 it seems to us entirely clear and seemed to the Commissioner of Cor- 
 porations clear, that the Steel Corporation was overcapitalized to 
 the extent of $775,000,000, which was more than 50 per cent of the 
 whole capitalization, the eminent gentlemen who represented the 
 Steel Corporation have asserted that there was no overvaluation 
 
 at all. 
 
 I believe that when you are dealing with industrial corporations, 
 from the standpoint of the public, the question of capitalization, and 
 of honest capitalization, as we understand that, is one of which the 
 importance is greatly exaggerated. While I believe in honest cap- 
 italization, it seems to me that we are apt to miss the more impor- 
 tant and crying considerations, if we seem to satisfy ourselves with 
 anything that looks like the securing of honest capitalization. 
 
 You will find, for instance, that the financiers who speak so much 
 about the needs of business and who are particularly interested m 
 the marketing of bonds and stocks, that they would gladly welcome 
 such a provision because it would aid them more than anything else 
 in finding a market for their securities and diverting attention 
 from more serious evils. 
 
 Senator Newlands. Would you, therefore, remain silent upon tne 
 subject of overcapitalization in any bill of this kind? 
 
 Mr Brandeis. At this stage I am inclined to think that I should 
 not make that question one of importance. The very first question 
 
1282 HEARINGS BEFORE 
 
 which is disclosed in any capitalization is the question of the pro- 
 moter's fees. I know of nothing which is being done in business to- 
 day in which people are securing so large a share of unearned 
 wealth as the amount taken by the bankers for putting upon the 
 market and floating the securities of an established industry. 
 
 The amounts which they take for services, which is nothing more 
 than saying, " We believe this is a good security," are such as to shock 
 the conscience, and, as a matter of fact, their belief should be in 
 most instances subject to proper suspicion, because the more haz- 
 ardous the enterprise the larger is the commission or promoter's 
 profit which they take. 
 
 In the case of many of these enterprises of a high character com- 
 mercially, we find leading banking firms who are ptitting the secur- 
 ities upon the market take as their underwriting commission some- 
 times 20 per cent or more of the securities issued. Indeed some- 
 times the amount of common stock taken by them as a bonus rises 
 as high as 60 per cent of the cash produced by sale of other securi- 
 ties (say preferred stock) which they market. Their excuse, at 
 times, is that the stock bonus represents not only their own services, 
 but the influence of others — prominent persons like bank presidents— 
 who may naturally be applied to for information and advice in 
 regard to the propriety of making that purchase and to whom a 
 part of the stock is given. They come in as beneficiaries under 
 the promoter's fees. What are you going to do with cases like that? 
 
 Senator Newlands. I will show you how this bill provides for that. 
 The question, as I understand it, between us is as to whether there 
 shall be any provision regarding overcapitalization. You fear any 
 legislation upon that subject, lest the result may be an overcapitali- 
 zation, I presume, that will escape the eye of the commission ? 
 
 Mr. Beandesis. Yes, sir. 
 
 Senator Newlands. Now, upon that head, I will state that this 
 bill, after providing in the most stringent way for reports and inves- 
 tigations and examinations and the publicity of the information thus 
 received, provides that the commission may, on its own initiative 
 or upon the complaint of anybody, revoke or cancel the registration 
 upon the ground, first, of the violation of any operative judicial 
 decree rendered under the antitrust act ; second, on the ground of the 
 use of materially unfair or oppressive methods of competition ; third, 
 on the ground of the acceptance of discriminations, rebates, and con- 
 cessions from the lawful tariff rates of common carriers ; and, fourth, 
 on the ground of refusal to allow the commission access to its records 
 or papers. 
 
 The bill then goes on to require that the commission shall carefully 
 investigate the capitalization and assets of corporations registered 
 under this act, and, after allowing a reasonable time for the adjust- 
 ment of corporate organization and security issues in any given case 
 or class of cases, may revoke the registration of any corporation on 
 the ground of overcapitalization; that is to say, upon the ground 
 that the par value of the total securities, including shares of stock 
 and all obligations running for a term of years or more of such cor- 
 porations, issued and outstanding at any time, merely exceeds the 
 true value of the property of the corporation at that time. In de- 
 termining such true values the said commission shall consider the 
 original cost of such property, its present replacement cost, its pres- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1283 
 
 ent market value, including the good will of the corporation's busi- 
 ness, and the market value of the said securities issued by the cor- 
 poration, and the fair value of the services rendered in the organi- 
 zation of such corporation, but the said commission shall also, as far 
 as possible, segregate and disallow from such determination all 
 
 considered by the commission). 
 
 _ Now, this is to be done upon notice and after hearing, and after 
 giving everybody an opportunity to be heard who are interested in 
 the subject, publicly or otherwise. Now, what do you think of that, 
 in view of the rule laid down as to the ascertainment of overcapi- 
 talization ? 
 
 Mr. Bbandeis. I think that that provision would impose upon 
 your commission obligations which it could not possibly perform 
 properly. In the first place, you are going to have come under the 
 operation of your law an extremely large number of corporations. 
 
 Senator Newlands. My estimate is that there would be about 500 
 corporations. 
 
 Mr. Bbandeis. I think that is a very great underestimate. 
 
 Senator Newlands. That is the estimate that has been made by 
 statisticians upon the subject. Of course, it may not be correct. 
 
 Mr. Brandeis. I should be greatly surprised if it was not largely 
 underestimated; that is, I am judging simply by those corporations 
 which from my own professional experience have come under my 
 observation. Of course, those are not the slightest fraction of the 
 number that would come under the law. Five million dollars is a 
 small business. Probably I could name to you relatively a very 
 large number of shoe manufacturers, cotton manufacturers, woolen 
 manufacturers, and others whose business I know a little about in 
 Massachusetts who would at once come under the operation of that 
 law, because $5,000,000 sales are not a small amount. 
 
 Understand, I am not finding fault with that limit. I am only 
 saying that the amount of duty which you would impose on that 
 commission would be a tremendous one. 
 
 Now, when it comes to the question of what is a proper valuation 
 for purposes of capitalization, because upon that the enjoyment or 
 denial of those privileges would depend, those are inquiries with 
 which we are somewhat familiar in Massachusetts, in connection 
 with the taking over by the community of businesses of a public 
 nature — water and gas and the like. These inquiries have universally 
 Occupied a long time, involving a minute investigation by experts, 
 and resulting in an extraordinary diversity of opinion between those 
 who, confessedly honest, are engaged on the one side or the other to 
 give their judgment as to value. 
 
 And I believe it would be a very dangerous inquiry to enter upon— 
 a dangerous duty to impose — and I do not see that the possible bene- 
 fit to the community is at all commensurate. The people who need 
 protection to-day from Congress are the investors. The people who 
 need protection from Congress to-day are the common people, in 
 the main, who have no particular means to invest, and the com- 
 petitors of the trusts. 
 
 Senator Newlands. But right in that connection, is it not con- 
 ceded that overcapitalization leads the managers of corporations to 
 
1284 HEARINGS BEFORE 
 
 extort money from the public with the view to paying dividends 
 upon watered capital, and in that way the public itself is oppressed? 
 Is not that one of the greatest inducements to the oppression of the 
 people ? 
 
 Mr. Beandeis. I think it is a very slight factor, with the exception 
 of public utilities. In public utilities it becomes a factor merely 
 where we have not secured a valuation of the property. Otherwise 
 I think it is an extremely small factor. It was no factor at all in 
 the unconscionable exactions of the Standard Oil Co., whose stock 
 went up to $700 and $800 a share and more. It was no factor what- 
 ever in the tobacco corporation, whose stock was at $530 a share and 
 is said to be worth to-day almost twice that much. 
 
 Eliminate the power to dominate a market, take away the mo- 
 nopoly power, and all of your overcapitalization is of no significance. 
 You will have your stocks, as the Union Bag & Paper Co., the Ameri- 
 can Writing Paper Co., and the International Paper Co., and the 
 American Hide & Leather Co., and all those stocks, whose common 
 stock is hardly quoted, or if quoted it is at a figure below 10, perhaps 
 8 or 5 or 3 or l|, and the preferred stock is at a figure so low that 
 everyone recognizes that it is a speculative and not a stable security. 
 It is only where the monopoly feature exists that the question of 
 overcapitalization becomes of importance. It becomes of impor- 
 tance then, not because it incites the management to extort more, but 
 because the community can understand a good deal better that ex- 
 tortion is being practiced when the company is paying 25 or 30 per 
 cent upon the outstanding capital than if it is 4 per cent on a grossly 
 watered capital. The only significance of water is, I think, that it 
 conceals from the community the amount of the extortion. In pur- 
 suing stock watering in this connection we are devoting our time and 
 diverting our attention to a slighter and more or less delusive evil. 
 The evil exists, but it is not of great significance relatively, and it 
 diverts our attention from the really significant thing, which is the 
 dominating control. 
 
 If we had adequate machinery and plenty of time, I should cer- 
 tainly be as desirous of placing the facts in regard to capitalization, 
 true capitalization, before the community, as we are to-day desirous 
 of placing before the community the facts in regard to pure food, 
 and as we ultimately will submit to the community the facts in regard 
 to adulteration of products other than food. 
 
 Senator Newlands. Do you not find that the investigations of the 
 Bureau of Corporations, for instance, regarding the Steel Trust, 
 that more importance is attached to that part of the investigation 
 which shows that the real value of the assets was less than one-half 
 of the nominal capitalization, than almost any other part? Is not 
 that very prominent in the public mind? 
 
 Mr. Beandeis. It is of dramatic importance, because of the very 
 hugeness of the amount involved, but to my mind the overcapitaliza- 
 tion itself is not significant. 
 
 Senator Newlands. I quite agree with you that there are other 
 things of very much more importance. It is much more important 
 to inquire into the monopolistic tendencies and practices. 
 
 Mr. Brandeis. And not only into those but, for instance, the fact 
 that the Steel Trust was willing to take over the Great Northern 
 ore land at 85 per cent plus an annual accretion of over 3.4 per cent 
 
COMMITTEE ON INTERSTATE COMMEECE. 1285 
 
 on the price, when that was so much above the going price of royal- 
 ties and was not needed as proper reserves for the company. That is 
 something that is really important, because it dealt with the question 
 of preventing competition and insuring to itself control of the market. 
 It seems to me that overcapitalization in the Steel Trust is of sig- 
 nificance mainly because of its dramatic quality. It would not be of 
 significance but for the fact that we not only have a high degree 
 of overcapitalization, but we have an overcapitalization rising into 
 such figures that it aids the imagination in realizing the extent of 
 the burden sought to be put upon the people. 
 
 Senator Newlands. Well, then, do I understand that you depre- 
 cate any legislative action, either upon the part of the Nation or ' 
 upon the part of the States, regarding this question of the regula- 
 tion of capitalization? ; 
 Mr. Brandeis. No. I think it is one of the things that may well 
 be done in aid of honesty in business. Pure-food laws, and the laws 
 requiring stamping, and laws regarding other things are all helps 
 to the individual, so that he can get along without spending too much 
 time in investigations. I think that same thing is true in regard to 
 capitalization of corporations. Those who are interested are aided ; 
 they do not have to make quite so much investigation to find out the 
 tacts after the Government has made the investigation for them, and 
 it is a very important thing to do. But I do not think it is of para- 
 mount importance. 
 
 Senator Newlands. I understand. It is simply a question of rela- 
 tive importance. 
 
 Mr. Brandeis. Yes. And we have other matters which are of very 
 much more pressing importance. 
 
 Senator Newlands. Still, you do regard it as desirable that the 
 Government, both of the Nation and of the States, should be on their 
 guard with reference to this question of overcapitalization? 
 3 Mr. Brandeis. I do. I think we ought to have honesty. 
 
 Senator Newlands. I call your attention also to the fact that if a 
 corporation grossly overcapitalized, having assets three times _ as 
 large as its securities, who was receiving on that overcapitalization 
 only 4 per cent, I do not see how you can avoid entering into the 
 question of overcapitalization as an indication that this corporation 
 is gaining an income larger than it is entitled to. 
 
 Mr Brandeis. That may be true in a specific inquiry. But to my 
 mind it is the business of Government, of our Government, to give 
 an opportunity in commerce for free play. If you do- that, it you 
 have competition, then I think we can safely rely upon free com- 
 petition to prevent a return upon capital deemed exorbitant. 1 ana 
 drawing the distinction between returns on capital being exorbitant 
 and the returns on individual effort. So far as business is com- 
 petitive—I mean if they are capitalistic businesses— the men who 
 are efficient and who possess the characteristics of efficiency, will get, 
 and will be entitled to get, a very much larger return. There is only 
 one remedy for that, and the remedy is one which is more or less 
 marked out by experience and, to a certain extent, American ex- 
 perience, and that is the method of the cooperative .society, where 
 Fhe consumer is getting the benefit of the efficiency. That is some- 
 thing which we ought to encourage, and in which we shall have the 
 proper regulator for excessive profits from competitive businesses. 
 
1286 HEABINGS BEFORE 
 
 England, of course, has gone very far in that direction. They are 
 developing what in America would be called very big businesses on a 
 purely cooperative basis, and there you are thus applying the proper 
 remedy for excessive profits in competitive businesses. Cooperation 
 on the one side, consumers coperation, and free competition on the 
 .other side will, I think, give the protection which we need in the 
 community's interest. 
 
 Senator Newlands. You will observe, however, that this bill pro- 
 vides for a cancellation of the registration upon other grounds than 
 those of overcapitalization. 
 
 Mr. Beandeis. Yes. But any such action would involve a very 
 long investigation. 
 
 Senator Neavlands. Now, the bill also provides that in case of 
 revocation the commission mav order that such corporation shall 
 not engage in interstate commerce. I put that in that shape, because 
 it might be a great injury to the public itself to absolutely cut off 
 the activities of a great corporation that is condemned under this 
 Jaw. What do you think about that? 
 
 Mr. Beandeis. Well, I think if I took the step before that I do 
 not know that I should have any specific objection. I think that 
 there would have to be some provision by which even an offending 
 corporation might continue its business in some form, through a 
 receiver or otherwise, so that the community would be supplied. 
 
 Senator Newlands. The main purpose of this bill is to offer an 
 opportunity to the corporation that is now offending against the 
 law to readjust itself. 
 
 Mr. Beandeis. I believe they have that opportunity to-day. 
 
 Senator Newlands. Well, under whose advice, or under whose ap- 
 proval—that of the Attorney General? 
 
 Mr. Beandeis. They have the opportunity to do so under pre- 
 cisely the same advice under which they combined. They were per- 
 fectly content to take or, as it may be in certain instances, to disre- 
 gard the advice of their counsel learned in the law. 
 ... Senator Newlands. Yes. 
 
 , Mr. : Beandeis. Now, I think those counsel are to-day perfectly 
 competent to advise their clients what it will be safe to do. They 
 can not advise their clients that if they go a little beyond that they 
 won't still be free from attack, but I do not believe that any real 
 difficulty for any body of men who really want to keep clearly within 
 the law. 
 
 Senator Newlands. But there is a difference in the temperament 
 of counsel. One may be overcautious and another may be overrash. 
 One will keep away from the precipice, and the other will get pretty 
 close to the edge and may go over. 
 
 Mr. Beandeis. Yes; that is absolutely true. But I think it depends 
 usually upon the kind of lawyer the client wants, and I think he 
 generally gets the kind he wants. 
 
 Senator Newlands. Well, it is hardly fair, I realize, Mr. Brandeis, 
 to .question you regarding the provisions of this bill if you have not 
 looked the bill over. 
 
 Mr. Beandeis. I think it is not fair to you, Senator. 
 
 Senator Newlands. I would be very glad if you would look over 
 this bill and indicate any suggestions you may have either to the 
 committee or to myself. 
 
COMMITTEE ON INTERSTATE COMMEKCE. 1287 
 
 Mr. Brandeis. I should be very happy to do that, Senator New- 
 lands. 
 
 Senator Newlands. There are other provisions here that are not, 
 however, matters concerning which I wish to examine you. The main 
 purpose of the bill was to apply the publicity, investigation, correc- 
 tion, and recommendation. 
 
 I just want to ask one general question, if you will permit. Your 
 general view is that the authority of such a commission should be 
 confined largely to investigation and recommendation to Congress? 
 
 Mr. Brandeis. At the present time. 
 
 Senator Newlands. You would not go much further than that ? 
 
 Mr. Brandeis. No. 
 
 Senator Newlands. Can you suggest any present powers of cor- 
 rection that you would like to see exercised by such a commission? 
 
 Mr. Brandeis. I think it should be the duty of that commission, 
 when it makes such investigations, not only to investigate but to call 
 the attention of the corporation, and, under certain circumstances, of 
 others to any assumed or presumed transgressions of the law. 
 
 Senator Newlands. Do you think it would be beneficial to give 
 that commission the initiative regarding prosecutions under the 
 Sherman law, permitting it, in conjunction with or separately from 
 the Attorney General, to commence such prosecutions? 
 
 Mr. Brandeis. I should think it would be entirely proper to au- 
 thorize the commission to institute, through its proper law officer, a 
 prosecution; I presume the Attorney General, or some one in his de- 
 partment, would be the natural law officer to carry on that effort. 
 
 Senator Newlands. But you know the interstate commerce act 
 permits the Interstate Commerce Commission to appear by its own 
 counsel in such proceedings, in all proceedings under that act. 
 
 Mr. Brandeis. I think it is quite proper that they be allowed to 
 Jo so. 
 
 Senator Newlands. You also believe, do you not, that outside 
 parties should be permitted to appear in such proceedings? 
 
 Mr. Brandeis. I think so. 
 
 Senator Newlands. Either upon the ground that they may be 
 the special subject of inquiry, or as simply being interested in the 
 general welfare? 
 
 ' Mr. Brandeis. I think that is so. I should not, however, wish by 
 anything that is done in that way to relieve the Attorney General 
 or the Department of Justice of its obligation to institute proceed- 
 ings, because I think in the case of these large corporations the con- 
 test is so largely an unequal contest between private individuals and 
 the combinations themselves that we need all the power of Govern- 
 ment to protect the individual, and that there should be that tendency 
 
 Now there was a very extraordinary situation, as it appeared in 
 the Tobacco case, that apparently these independents, who had been 
 struggling all these vears and were then struggling before the court 
 for their lives, were treated as if there was something very repre- 
 hensible in their opposing this reorganization . 
 
 Senator Newlands. And yet they were really the important vic- 
 
 1T Mr Brandeis. They were the -victims of the trust. And yet the 
 arguments and the whole attitude in that proceeding was as if they 
 
1288 HEABINGS BEFORE 
 
 had to justify themselves instead of the members of the trust, who 
 had been found guilty by the Supreme Court, after all this inquiry 
 and investigation, being treated as the ones who had to justify them- 
 selves. 
 
 Senator Newlands. You think it wise to put in the law a provi- 
 sion that persons occupying the position, say, of the independents 
 in the Tobacco case, should have a legal status in court ? 
 
 Mr. Brandeis. They ought to have a legal status. I think the ob- 
 ligation of the Government to protect them ought to be left perfectly 
 clear, or made clear. 
 
 Senator Newlands. And the Government, you think, should pay 
 the expense of the proceeding ? 
 
 Mr. Brandeis. I think it ought to. 
 
 Senator Newlands. Just one other question. You recognize, do 
 you not, the importance of having these duties, that are proposed 
 to be given to this commission by this bill, discharged by an independ- 
 ent and nonpartisan commission of a high character rather than by 
 a single official under the charge of a department or under the con- 
 trol of the Executive 2 
 
 Mr. Brandeis. I think so. Not only in order that it may be non- 
 partisan, but also in order that the position of those who perform 
 those duties may be one of proper dignity. 
 
 Senator Newlands. And independence also? 
 
 Mr. Brandeis. Dignity as well as independence. 
 
 The Acting Chairman (Senator Cummins). Does any other mem- 
 ber of the committee desire to inquire of Mr. Brandeis further ? 
 
 Senator Gore. I desire to ask just a few questions. 
 
 Mr. Brandeis, do you not think that there are two classes of of- 
 fenders against the Sherman antitrust law — the one consisting of 
 honest business men who want to obey the law and who are uncer- 
 tain as to what acts constitute a violation or not, and the other con- 
 sisting of a class who are rather indifferent as to whether the pro- 
 posed act constitutes a violation of the law or not ? 
 
 Mr. Brandeis. I think there are undoubtedly many persons who 
 have been in fear that they may be transgressing the law ; and in this 
 second class are those who are perhaps indifferent as to whether they 
 violate it, but who are very desirous of not being caught violating it. 
 
 Senator Gore. The question of violating it and getting off with it ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Before the recent decisions in the Tobacco and 
 Standard Oil cases the question that confronted the business man 
 and that confronted his legal adviser was this, as to whether the pro- 
 posed act was lawful or unlawful, primarily? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Since those decisions the primary question is 
 whether the proposed act is reasonable or unreasonable? 
 
 Mr. Brandeis. I think that is one way of stating it. 
 
 Senator Gore. I am going to state it a little more specifically. 
 That is the primary question, we will say. Now, under the former 
 conditions, in answering the question as to whether the act is legal 
 or illegal, lawful or unlawful, you would decide whether the given 
 act would restrain trade or not. Was not that the question to settle ? 
 
 Mr. Brandeis. That was the question under the trans-Missouri 
 decision. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1289 
 
 Senator Gore. If the proposed act were in restraint of trade, the 
 conclusion followed that it was unlawful ? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. If it was not in restraint of trade, the conclusion 
 followed that it was not unlawful? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Now, then, since the recent decisions, you are called 
 upon to decide, first, whether the act is in restraint of trade or not in 
 restraint of trade, and if you find that the proposed act is in restraint 
 of trade, that formerly would have concluded the inquiry there. But 
 now you are called upon to answer the further question as to whether 
 the restraint of trade is reasonable or unreasonable? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Do you not think that has simply changed the 
 phase of the problem without changing the problem or solving the 
 problem itself, so far as the business man is concerned and his legal 
 advisor is concerned? 
 
 Mr. Brandeis. I think the position of the legal advisor to-day — 
 I mean, assuming by that term " legal advisor " the duties which a 
 lawyer performs to his client, which are partly telling him what the 
 law is and partly telling him what he had better do— I think the 
 duties of the lawyer are a great deal simpler to-day than they were 
 before the Supreme Court decision. He was confronted, before the 
 Tobacco and Standard Oil decisions, with this situation, that under 
 the strict letter, as it appeared in the trans-Missouri and other deci- 
 sions, any restraint of trade would appear to be illegal. Now, he 
 knew from his experience, from his practical experience, that re- 
 straints of some kind in a community were simply innumerable; 
 that business would have to be radically changed if all restraint in 
 trade was to be put an end to. The lawyer, therefore, dealing with 
 the niatter practically and honestly stated many instances that this 
 would appear to be the legal result, but here, there, and everywhere 
 this thing is being done, with the full knowledge of the Government, 
 through its various officials, and it could not be that his client was 
 under any particular danger in doing the same. That undoubtedly 
 was the advice which the most conscientious and honest lawyers have 
 given in many cases. They were rtot merely deciding upon the law, 
 but on the probability of the law being applied to the case of their 
 particular clients. 
 
 Sure, the recent lawyer has a much easier task. Hb has a rule 
 laid down by the court which appeals to his sense of justice ; which, 
 if he accepts the doctrine that competition should be maintained, 
 renders it easy, practically, for any man who is conversant with the 
 fact to say to himself, "This is and this is not within the limits." 
 Consequently, while in a strictly legal sense there is a realm of un- 
 certainty opened which did not exist before, from the point of view 
 of the practical adviser of the client's best interests, the lawyer has 
 a comparatively simple task to-day. 
 
 The provisions of the La Follette bill seek to make that task even 
 simpler than it otherwise would be by setting out those practices 
 commonly resorted to, or which have been commonly resorted to, 
 which are, according to the experience developed in these years and 
 according to our present moral sense, inimical to society. They are 
 set out as danger lines. They are indicated by the red lights which 
 
1290 HEARINGS BEFORE 
 
 tell you that those things must not be done. And if any lawyer and 
 his client want to observe the law the difficulty of his doing so will, 
 in most instances, be relatively slight if the La Follette bill is enacted. 
 _ Senator Gore. You think those decisions have greatly clarified the 
 situation ? 
 
 Mr. Brandeis. They have greatly aided us. They have given us 
 a new platform from which the whole subject can be approached. 
 
 Senator Gore. And it is easier for the business man now to avoid 
 violating the law than it was before, both the letter and the spirit? 
 
 Mr. Brandeis. Very much. 
 
 Senator Gore. Now, the Tobacco Trust has been dissolved into 14 
 companies ? 
 
 Mr. Brandets. Yes, sir. 
 
 Senator Gore. Now, the object of that dissolution was to de- 
 centralize the trust and to restore a condition of actual competition. 
 That is the alleged purpose? 
 
 Mr. Brandeis. That is the alleged purpose. 
 
 Senator Gore. I want to ask you a hypothetical question, which 
 you need not answer unless you feel disposed to. With reference to 
 the status which these 14 companies now occupy within themselves, 
 and the relationship which they sustain one to another, if that ar- 
 rangement and that relationship had been brought about by those 
 companies — supposing that the companies had been independent, 
 distinct, and actual competing companies a year ago, and that those 
 14 companies had approached each other voluntarily and assumed 
 the status and the relationship which they now occupy toward each 
 other, would that arrangement and that relationship have been legal 
 or illegal under the Sherman antitrust law? 
 
 Mr. Brandeis. I think it would have presented a case of at least 
 the strongest presumptive evidence of violation of the law. That is, 
 it would have presented a condition where the relative position qf the 
 owners of this property in the different companies was such that it 
 would have required perhaps more than the imagination of the most 
 imaginative to suppose that there would not be some cooperation. 
 
 Senator Gore. You think the presumption that it would have been 
 illegal would have been strong enough to have induced the independ- 
 ents and others to have challenged the legality of the arrangement ? 
 
 Mr. Brandeis. I think so. Because I think it would have been 
 said : " Why in the world did you ever create this condition unless 
 it was for the very purpose of combination ? " 
 
 Senator Gore. Then you think this arrangement, if it had not had 
 the blessing of the President and the Attorney General, might have 
 been liable to prosecution? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. In answering Senator Newlands you stated that in 
 effect the condition of the consumer Avould have been just as bad if 
 the Steel Trust had declared a dividend of 28 per cent on $800,000,000 
 as if it had declared a dividend of 14 per cent on $1,400,000,000. 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Of course, that is undoubtedly true, and the burden 
 would have been identical in the two cases. 
 
 But do you not think that there is this advantage in having an 
 evil that strikes the eye and the general public and that is more easily 
 eradicated than one that is to some extent concealed? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1291 
 
 Mr. Brandeis. Yes, sir; I think so. 
 
 Senator Gore. Whereas some of the aspects of a condition of 
 things which is not legal 
 
 Mr. Beandeis. It is desirable. The only point is that there are 
 so many things desirable that we want to accomplish that we have 
 got to do things in the order of their importance, and it does not 
 seem to me that that is as nearly as important as some of the other 
 things. 
 
 Senator Gore. And I believe you also stated that the dissolution 
 of the companies for violating the conditions of these licenses would 
 be undesirable? 
 
 Mr. Brandeis, I think that would present also difficulties. 
 
 Senator Gore. You think that capital punishment would be in* 
 effective if the deceased could arise from the grave next day? 
 
 Mr. Brandeis. Yes, sir. 
 
 Senator Gore. Now, you stated that one of the evils of the present 
 condition is the charges obtained by the banks for the promotion of 
 wildcat or hazardous enterprises — speculative enterprises? 
 
 Mr. Brandeis. By the bankers, perhaps even more than the banks, 
 so called, and by no means in the promotion of hazardous enterprises. 
 
 Senator Gore. I mean speculative enterprises. 
 
 Mr. Brandets. Or, in a proper sense, speculative enterprises. I 
 think the control of the banker, of the sources of money supply, is 
 such that even the most meritorious and safe enterprises requiring 
 money are obliged to pay charges and promoter's fees or underwrit- 
 ing fees which are absolutely extortionate. 
 
 Senator Gore. And the bankers, I understood you to say, charge a 
 higher fee in proportion to the peril or unworthiness of the under- 
 taking ? 
 
 Mr. Brandeis. I think that is so. 
 
 Senator Gore. Do you think there is a hopeful sign in the fact 
 that it will sear their alleged consciences for a single moment that 
 they really charge those immense fees ? 
 
 Mr. Brandeis. No; I do not think there is any hope in that direc- 
 tion. 
 
 Senator Gore. That is all. 
 
 The Acting Chairman. Does any other member of the committee 
 desire to inquire of Mr. Brandeis further? If not, Mr. Brandeis, 
 we will not require your attendance here this afternoon. 
 
 Mr. Brandeis was thereupon excused. 
 
 The Acting Chairman. The committee will now take a recess 
 until 2 o'clock, at which time we will hear Mr. Joy. 
 
 (Thereupon, at 1 o'clock and 5 minutes p. m., the committee took 
 a recess until 2 o'clock p. m.) 
 
1292 HEAKIliaS BEFORE 
 
 AFTEK RECESS. 
 
 At the expiration of the recess, at 2 o'clock p. m., the committee 
 reassembled. 
 
 STATEMENT OF HENRY B. JOY, MANUFACTURER OF MOTOR CARS, 
 
 DETROIT, MICH. 
 
 Mr. Jot. Mr. Chairman, in coming before you at the invitation of 
 yourself, to express my views or suggestions upon the trouble of 
 interstate commerce, to-day, I feel a great deal of hesitancy, and yet 
 I think the matter is of such compelling importance that it is the 
 duty of any business man to come forward if he has any views and 
 express them, on the difficulties of the business world. 
 
 It is controverted that the business generally is at all suffering. 
 I think, therefore, I would like, simply as a preliminary word, to 
 quote from a Washington newspaper, the Washington Times, of 
 Wednesday, December 13, which contains an article under the cap- 
 tion, " Hundred Daily in Line for Bread and Coffee at Mission — 
 Without Work and Penniless, Between 90 and 100 Men and Women 
 Form a Bread Line Each Morning," etc. 
 
 Mr. Chairman. I want to make a plea for the business of the United 
 States. That is what I am here for. I have no axes to grind ; I have 
 nothing at all of that kind, but stand for the interest of the develop- 
 ment of the business and commerce of the United States. 
 
 There is some difference of opinion as to the condition of the 
 business of the United States, The article which I have referred to 
 is just a straw as to what is existant and developing throughout the 
 country, in the opinion of many business men who are trying to get 
 their feet on the ground and be able to weather any storm of condi- 
 tions which may arise. 
 
 Senator Townsend. That article refers to conditions in Wash- 
 ington ? 
 
 Mr. Jot. Yes, sir. The day I left home to come down here at 
 the chairman's invitation, I was talking with a member of the 
 National Founders' Association, who had been to New York to at- 
 tend their annual convention, and asked him what the general feel- 
 ings were with regard to the business of the country. They passed 
 some resolutions, of which he gave me a copy, which I will not read, 
 but nevertheless, as the expression of the National Founders' Asso- 
 ciation, I would like to read simply a paragraph. 
 
 Senator Pomerene. What is the National Founders' Association? 
 
 Mr. Jot. The National Founders' Association is an organization 
 to which a great many of the foundrymen of the United States 
 belong, comprising many thousands, as I understand it, of foundry- 
 men. The paper goes on to state : 
 
 In the meantime a country whose normal temperament is hopeful and opti- 
 mistic, a land of wonderful resourcefulness and boundless possibilities, of 
 remarkable energy and constructive ability, is languishing under a prolonged 
 industrial depression. 
 
 I simply put those in in the nature of a preface to my remarks. 
 
 Before I go any further I want to state that I am simply a small 
 business man. I am the president of a corporation employing about 
 -6,000 or 7,000 men. We do a business of approximately from 
 
COMMITTEE ON INTERSTATE COMMERCE. 1293 
 
 • 
 
 $12,000,000 to $14,000,000 a year, or have, and we are located in the 
 boom town of the world just now, and our conditions there are local 
 and peculiar. 
 
 I sat here this morning and listened to the last thought of Mr. 
 Brandeis, that the ability of lawyers to direct their clients was now 
 simply an easy matter and was becoming simpler, and I want to 
 say that if the business men of this country always took the advice 
 of their lawyers it would not be much of a country. Lawyers are 
 employed by corporations as pilots, but they are not the captains 
 and controlling heads of the corporations, and they can not of neces- 
 sity be. They are simply, as I say, the pilots of the ships. Now, 
 it becomes necessary quite frequently for the captain of a ship to 
 take possession of his charge and take it out of the control of the 
 pilot. He can be guided by the pilot's advice, but the ultimate course 
 -of that ship must be directed by the captain. 
 
 So exactly it is with an industry. The head of that industry is 
 the responsible man. It must be he that keeps the ship of industry 
 off the rocks. He can not get rid of the burden. It is his responsi- 
 bility. 
 
 Now, it is not an easy matter often for the captain of a ship of in- 
 dustry to decide these questions, even though he has the advice of 
 this counsel; that counsel, and other counsel. Counsel disagree very 
 many times. If he gets advice from this one, and it does not seem 
 to point a safe and wise course, he tries another, and another. He 
 tries to get a picture of the situation, and then he is obliged to de- 
 cide what course to take himself out of the maze of counsel offered, 
 and take the responsibility of it in his efforts to save his corporation 
 and his industry and the interest of his stockholders and employees, 
 and he must take the responsibility thereof. 
 
 Now, I am going to speak of that later on, because that refers to 
 the question oil jail sentences under the existing conditions in this 
 
 country. . -nr i 
 
 I want to point out the legal situation of our country. We have 
 a great many lawyers, and I have a great many friends among 
 them, too, and I think a great deal of them, but I think that the 
 lawyers as a whole are responsible for a great deal of the existing 
 dissatisfaction, in one way and another. They are responsible for 
 a ereat deal of the existing impression of lack of respect for the 
 law which they talk so much about, by reason of the tact oti their 
 protraction of ' litigation, their quibbling, and their delays. Inere 
 is not a ioint willingness to get at a decisive, quick answer m a case. 
 A lawyer sometimes knows his client's unfair schemes or ever 
 guiltiness, possibly, and he tries to hide them behind quibbles and 
 fubterfuge and gain his case by procrastination, whereas the con- 
 structor of an important enterprise is trying to honestly bring out 
 the truth all the time, that the great work of public benefit may go 
 on The situation has a thousand shades of black coloring to it. 
 
 Now those are conditions which reflect upon the law. Lawyers 
 can only make the law respected by making its practices pure. Take 
 anv answer that you want to get out of court to-day on a dispute 
 between two corporations, or two men, great or small, important or 
 unimpOTtant. /ou go to court in regard to it, and before you get 
 ^decision in the dispute the interest in the question may have long 
 since passed away, or the statutes may have been changed in the lapse 
 
1294 HEARINGS BEFORE 
 
 • 
 
 of years, or been interpreted to mean that what was not permissible 
 has become so, or vice versa. 
 
 That is a very bad condition of things, gentlemen, because it re- 
 quires business men to act according to their judgment. It is abso- 
 lutely necessary for the captain of an industry to act, if you please, 
 when he sees this aggregation of competing units being arranged 
 for or that sort of consolidation being planned and possibly fatally 
 affecting his business. The interpretation of the statute is doubtful. 
 Counsel disagree. " What shall he do ? " His competitors are join- 
 ing forces against him. They will take him in, or he can stay out and 
 face the combined competition. He can not help it. He is forced to 
 join in. What the statute will ultimately be interpreted to mean will 
 only be known after the litigation is decided — in 5, 10, or 15, or 20 
 years. It is a condition, I say, which puts the burden upon that cap- 
 tain of industry, and he has got to take his course and be responsible 
 for it. 
 
 Now, I have digressed a moment because the last words of Mr. 
 Brandeis were so fresh in my mind and possibly fresh in the minds of 
 the members of the committee. 
 
 I have made some notes in an effort not to repeat myself any more 
 than possible, and I shall read them, with your permission. 
 
 The proper control of interstate commerce is a compelling matter 
 of the utmost seriousness. 
 
 The utterly changed conditions produced in the last 30 years by 
 modern methods of manufacture and communication render it almost 
 as easy for a man to direct a broad business control over wide and 
 • remote areas and fields of industry as formerly he could over a sin- 
 gle local industry, the ramifications of which were of the simplest 
 nature by comparison. 
 
 We have to-day with regard to the existing business conditions 
 directly opposed views by the best-minded people in the country. 
 
 No man knows, even in a small business, how to move or what steps 
 to take to build up and expand his industry without going counter 
 to what the law may be interpreted to mean. 
 
 Legal counsel is no material aid, owing to differences of opinion 
 as to what can or can not be done in consonance with the law. 
 
 Transactions that were lawful and right yesterday and universally 
 practiced and advised by some of the best business and legal minds 
 of the Nation are to-day viewed as criminally restrictive of trade and 
 of the nature of conspiracy to control prices and competition. 
 
 I quote from the President's recent message on the Sherman law : 
 
 Still, as the offense becomes better understood and the committing of it par- 
 takes more of studied defiance of the law, we can be confident that juries will 
 convict individuals and that jail sentences will be imposed. 
 
 What is the crime? It must be defined, that we may not be a 
 nation of criminals. 
 
 Imagine the indefiniteness of a " crime " for which people are to- 
 day being imprisoned, which requires the chief advocate of prison 
 sentences to use the words " as the offense becomes better understood." 
 
 The business and commerce of a nation must be conducted accord- 
 ing to the laws made and provided for the mutual protection and guid- 
 ance of all conduct along lines of equitable and fair dealing. What 
 is that fair dealing ? 
 
 The rules of the game are not clearly understood. 
 
COMMITTEE ON INTEESTATE COMMERCE. 1295 
 
 Both the President and the court say that "mere size is no sin 
 against the law." All industries and commercial organizations do- 
 ing business among the States are thus unlimited in magnitude, and I 
 think properly so. 
 
 Do not, then, enforce the division of large business into smaller 
 units, except where unfair competition can not otherwise be avoided. 
 
 The President in his message uses the words "as the offense be- 
 comes better understood." Does that imply any doubt in his mind, 
 even at this date, as to what the offense really is ? Does it bring any 
 doubt into your minds ? 
 
 At any rate, Congress must define the rules if the growth of Ameri- 
 can industries and commerce is to be resumed and foreign trade is 
 to expand. 
 
 Must not a business so broadly affecting our State, interstate, and 
 foreign commerce as the steel or oil or tobacco or that of other sta- 
 ples be supervised by the Government, and thus have prices stable 
 and fair and the same to all purchasers under similar conditions ? 
 
 We have grown to know that railroad rates must be the same to 
 all ; that rebates and free passes to the specially preferred are repul- 
 sive and not fair business. 
 
 Such devices create unfair competition. It has been stopped, and 
 common mutual benefit and approval is the result. Shall one con- 
 sumer continue to be required to pay one price for steel or other ma- 
 terial and his competitor pay a different and less price ? How, then, 
 can the unfavored one survive in competitive trade in. the same 
 market ? 
 
 Can we have fair competition at all and have such conditions pre- 
 vail? Or shall the price of the same material be the same to all 
 consumers? Shall prices be regulated by the Government in the 
 effort to prevent favoritism and unfair competition? 
 
 Can unfair and cutthroat competition be prevented otherwise ? 
 
 Is it any more fair that a competitor of mine shall have a pre- 
 ferred price on tobacco or copper or steel than on railroad transpor- 
 tation ? 
 
 An independent bridge builder requires structural steel. In figur- 
 ing on contracts can he hope to compete in the same market with the 
 bridge department of a great corporation which may possibly sell 
 steel to its own bridge department at less prices than to him ? 
 
 Certainly not. 
 
 He must close down and fail. 
 
 Could a manufacturer or producer in former days survive in com- 
 petition in the same market with a competitor who had rebates or 
 preferred railroad rates? 
 
 Is not the question to-day exactly parallel ? 
 
 I urgently wish to point out the fact that in the case of the railroad 
 rates we recognized the difficulty after years of disturbance and very 
 much improved the conditions of fair competition by providing that 
 equal railroad rates should prevail to all shippers. 
 
 Is it not a matter worthy of the greatest consideration whether 
 or not it would be wise and proper to determine that similar cure 
 should be applied in the control of prices of enormous industrial 
 companies? 
 
 Mere size is no sin against the law, I grant. 
 
 2287?— vor, 1—12 82 
 
1296 HEARINGS BEFORE 
 
 We all recognize that size and volume is indispensable in these 
 times to economical production and the expansion of a foreign com- 
 merce, and natural conditions in some industries tend toward con- 
 solidation for economy's sake. 
 
 But yet is not mere size a powerful factor in creating our view- 
 point as to fair or unfair competition ? 
 
 If mere size is not an element, why then all this bluster and rant 
 about the great " trusts " and corporations having thousands of mil- 
 lions of capital? 
 
 Smaller businesses are doing as much or more " unfair " business 
 in proportion as the so-called trusts, and will continue to do so be- 
 yond a doubt. 
 
 Let me now ask you to put yourself in the place of the independ- 
 ent manufacturer who has to purchase his raw material in a market, 
 the control of which is dominated by an enormous overpowering 
 factor in the lines of material he requires. He feels he has to buy 
 his supplies from this trust ; he has to pay the price asked. He only 
 asks to know that the price is the same to his competitors. He is 
 afraid to buy of an independent small producer, even at possibly an 
 equal or better figure, because he will surely have to come back 
 some busy year and deal with the trust, when he fears he might find 
 himself not in the preferred list of the trust's patrons. 
 
 All this is the substance of conversations you or any of us can 
 hear any day anywhere in almost any business concern in America. 
 Much of it based on no foundation, in fact ; some of it well founded. 
 The effect is largely a mental one, but nevertheless exists. 
 
 Now, let me ask you, has not mere size something to do with it? 
 
 When by the mere size of a business it can afford to make sales at 
 a loss in some locality in order to destroy a competitor who is becom- 
 ing a prominent factor, and can make up the loss over the rest of the 
 country, does it not seem to you that mere size is an element ? Unfair 
 competition of this character produces a loss to the great corpora- 
 tions, which is a mere bagatelle to them. The little fellow can only 
 practice this to a minor extent. 
 
 It is not, however, my purpose to argue against size. Magnitude is 
 essentially a part of modern conditions of commerce and industrial 
 production. But unfair competition is not. 
 
 In the days past when we had a large number of separate units 
 competing against each other in the same lines of staple products, 
 conditions were even vastly worse than now. 
 
 When a man in those days made a contract to supply his require- 
 ments of his raw material over a period of time in a partly manu- 
 factured product — say, such as steel, either in billets or bars or sheets, 
 for example — he was likely to suffer great loss or possibly be ruined 
 by the fact that, due to competitive wars, prices or the material con- 
 tracted for would possibly fluctuate so violently that his competitor 
 might, by buying later, get his raw materials of the same exact 
 nature at prices so much lower as to possibly utterly ruin him. 
 
 To-day I assert without fear of contradiction that general busi- 
 ness troubles of the kind I describe are far, far less under existing 
 great aggregations of capital and present business methods than 
 ever before. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1297 
 
 Manufacturers have learned to do business on small margins by 
 reason of the comparatively steady continuity of prices of the raw 
 material of their various requirements. 
 
 It is clear to all that the dollars of this great Nation's incalculable 
 wealth are not dollars at all, no matter who owns or controls them, 
 unless under the laws of the Congress and the States, for the con- 
 duct and promotion of the business of the whole American people, 
 each dollar is enabled to work and earn something net. If the great 
 corporation is inefficient its dollars can not earn and its values will 
 shrink naturally. 
 
 But unfair competition should be controlled and stamped out so 
 far as practicable. 
 
 I wish to urge that proper Government regulation of prices and 
 publicity would tend more to do this than the splitting up of great 
 corporations. These corporations are actually being split up seem- 
 ingly for the purpose of restoring evil and expensive competitive con- 
 ditions which independents fiercely complain of. 
 
 By that I mean to say that is the inevitable result of splitting 
 them up and compelling them to compete with under conditions 
 which we seek to avoid, and which are going to be increased by the 
 dividing of them; and that is a thing that independent manufac- 
 turers justly complain of, because it is obvious that each one of the 
 corporations into which have been divided the Standard Oil Co. 
 or the Tobacco Co. are large enough and will still have the full 
 power to practice unfair competition, which is the undesirable thing, 
 and they have been deprived of the power of cooperation and the 
 economical possibilities in connection therewith, which is the de- 
 sirable thing. 
 
 I ask you, has any beneficial progress been accomplished by these 
 acts of splitting up businesses? None whatever that I can see and 
 much harm has been done. 
 
 Therefore have we not utterly failed to reach the goal of our de- 
 sires ? 
 
 Kailroads used to be regarded as private businesses. Through 
 competition, both fair and unfair, and through conditions of com- 
 merce and taxation burdens, and for other reasons, the weaker fell 
 into the control of the stronger roads. This process is still continu- 
 ing. The public is better served thereby. But railroads must not 
 only be permitted to make adequate earnings, but they must be com- 
 pelled to make proper earnings, or they can not render to the public 
 the service necessary to the commerce of the Nation. They must keep 
 ahead of the dull times with their facilities and construction in order 
 to be up to capacity in good times. This they are not now able to do. 
 
 The best interests of our Nation will not be served by the enforce- 
 ment of criminal proceedings against- the directing heads of large 
 businesses, and their confinement in prison for alleged violations of a 
 law the nature of the offenses against which in the President's recent 
 message he clearly infers are not yet well understood. 
 
 I repeat again, " Still as the offense becomes better understood," are 
 the President's written words. 
 
 I urge the controlling of these great quasi public businesses. I 
 uro-e using the brains and talent of the directing heads of these insti- 
 tutions who builded them or aided in the building of them, instead 
 of casting them into prison, to direct and divert the great forces for 
 
1298 
 
 HEARINGS BEFORE 
 
 good involved in these enormous industrial machines, into permis- 
 sible channels for the great benefits available from their preservation 
 and wise direction. 
 
 If the rules of the game have been not clear make them clear and 
 obvious by some constituted authority or bureau capable of giving 
 quick decisions and exercising powerful regulating authority. 
 
 Of what use to our people as a whole will be some of the ablest 
 minds among our whole Nation if they are imprisoned and disgraced 
 for possibly doubtful " offenses," which our President hopes will " be- 
 come better understood " ? 
 
 Some poultry dealers are in prison for controlling prices. The 
 Bathtub Trust is destroyed. The Shoe Machinery Trust is to be 
 dissolved. A thousand others are doubtless marked for slaughter, or 
 will be. The Steel Trust is at the bar of justice also,, to be judged 
 for past offenses which the President hopes will be better understood 
 in future. 
 
 Is not this all a parody on justice? 
 
 It is directly contrary to the best interests of the whole people, 
 judged according to plain common sense, as it seems to me. The 
 Sherman .law has been extensively litigated since its enactment as to 
 some of its features, which makes it seem that some of the offenses 
 under it are of a doubtful nature. 
 
 Let the law stand, however, but call off the dogs of war until we 
 can by properly constituted authority tell these corporations that it 
 means simply that unfair competition must cease and fair com- 
 petition continue. 
 
 It seems reasonable to urge the American people to consider 
 thoughtfully the whole field of industry involved and to use sound 
 common sense, a sense of fairness, business sense. 
 
 The fixing of prices has been the practice of industry and com- 
 merce since the beginning of time and it will continue to be so until 
 the last great day, but the time has come in quasi-public industries 
 for regulation and publicity. 
 
 It is up to the people and their representatives in public office to 
 provide for the intelligent and wise regulation of our great industries, 
 built up through years of incalculable effort and expense, in order 
 that we may not deprive the Nation as a whole of the great economies 
 available therefrom and one of the greatest and principal means of 
 meeting the competition of other nations in foreign markets. 
 
 The supremely intelligent workings of the industrial and com- 
 mercial policy of the German nation is indicative of what can be ac- 
 complished by wise systems of " trusts," pooling, and cooperative 
 effort under the supervision and control and direction and coopera- 
 tion with the Government. 
 
 The consular service of Germany also, I feel it is safe to say, is 
 an unparalleled business getter for the nation and which no other 
 Government has been able to approach. 
 
 If an American minister or consul should give extraordinary 
 service to the getting of business for a great American corporation 
 he would quite likely be pilloried in the public eye as a grafter in 
 the service of a " trust," at the expense of the Public Treasury. 
 
 I want to ask your devoted consideration to " conservatism " in 
 lecommending a plan, but action must be taken. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1299 
 
 A great prejudice is extant. Much of it warranted but more not. 
 Remove it by regulation and publicity. 
 
 How unfortunate it is that now in addition to many other short- 
 comings as a nation, almost unfitting us for the possibilities of 
 upbuilding our foreign commerce, orders go forth from the head of 
 the Government directing that our greatest industries shall be split 
 up into smaller segmentary institutions who are to devote their 
 energies and intelligence to fighting and competing with each other, 
 while the foreign nations persistently, intelligently, and insistently 
 continue to go after the commerce of the world. 
 
 I do not recall that any great general when confronted with the 
 enemy ever gathered his chiefs together and so planned that they 
 should each take their troops into the field and then attack and fight 
 each the other and let the enemy go free. 
 
 Yet that picture does not seem far from a parallel to the plan of 
 industrial campaign being now carried out to the great joy, doubt- 
 less, of the industrial enemy. 
 
 And yet we proudly write in the lining of our hats that we are a 
 great people. And so we are, and I am totally optimistic that wis- 
 dom will prevail. 
 
 No greater curse could come upon us as to either the commerce 
 between our States and dependencies or as to our international com- 
 merce than the success of the present effort to reestablish the cut- 
 throat competition of bygone times. Such competition is dead. It 
 should remain dead. 
 
 It can not be set up again, any more than can the great commer- 
 cial arteries — the railroads, the telephone, and the telegraph — be 
 obliterated and the " good old stage-coach days " restored. 
 
 The intelligent and proper regulation of trusts would inevitably 
 give their competitors an opportunity to grow under fair compe- 
 tition, and the conditions would ultimately, year by year under natu- 
 ral laws of fair competition, determine the comparative efficiency 
 of the competing units. It would be a warfare under fair compe- 
 tition of existing trusts with their enormous facilities and alleged 
 watered capital versus other corporations fighting for trade based on 
 price, quality, service, and efficiency. 
 
 A sudden drastic action will be a complete catastrophe. 
 
 Undertake to regulate the quasi-public corporations due to size 
 and importance at first, and proceed slowly as our way is lighted by 
 experience. ' 
 
 Remove the cause of disease and a cure will result, tty re- 
 moving the chief incentive to consolidation into larger aggrega- 
 tions which incentive has been and is the avoidance of unfair and 
 cutthroat competition, you will largely modify if not entirely 
 remove the tendency to rapid consolidation and the drawing together 
 of smaller businesses into larger units, except where the incentive is 
 more economic production. 
 
 The consolidation of business units not only would cease to be a 
 menace but should be encouraged in the hope that actual economies 
 wiU result if a bureau or department of industry and commerce 
 with complete power to give instant decision on matters were em- 
 powered to regulate and control and cooperate in the develop- 
 ment of industry and commerce. 
 
1300 HEARINGS BEFORE 
 
 Such a bureau should consist of three of the foremost business 
 men of the Nation, to be authorized and empowered as requirements 
 might warrant in accordance with the light of experience. It 
 should be authorized to conduct its affairs separate and apart from 
 politics. Its members should be appointed by the President for 
 nine-year terms, the first members' terms to be for three, six, and 
 nine years, respectively. It should be the highest honor within the 
 gift of the President, excepting only the Supreme Court justiceships, 
 and the compensations should be $100,000 per year. 
 
 The qualifications should be the same as for the President of the 
 United States, except that no member should be appointed who 
 would reach the age of 58 during his term of office. 
 
 The commerce and industry of the American people should and 
 must cease to be the football of political partisanship -and a free, 
 unbridled press if we are in any degree to save the incalculable 
 losses of causeless business depressions. 
 
 I say causeless business depression, because, in my judgement, the 
 prevailing uncertainty and lack of advancement and lack of push, 
 which characterizes the feeling of every business man with whom I 
 come in contact, is entirely causeless. It can be avoided. It is 
 unnecessary. 
 
 With the already well-adjudicated Sherman law in the records 
 and such a perpetual business tribunal to control great corporate 
 business unaffected by changes of political administrations; to en- 
 force fair competition and to prohibit unfair competition ; to require 
 the dismemberment of trusts where necessary to proper regulation 
 of industry and trade; to recommend to the Congress and to States 
 laws to provide for the furtherance of interstate and foreign com- 
 merce; to fix prices where necessary to fair competition; to enforce 
 their full knowledge of the business of any person or corporation 
 engaged in interstate or foreign commerce by examination of books, 
 records, and premises of every kind and nature; to maintain, if 
 necessary, their auditors or special representatives in the actual 
 supervision of the affairs of the great industries, if desirable; to 
 publish proper facts ; then will we have taken a long step in restoring 
 the confidence of the people in free government. 
 
 From this tribunal must be appealed to the Supreme Court, with 
 right of way for its hearings for prompt determination, on account 
 of the vast financial importance of its decisions. 
 
 I cordially favor a national incorporation act, under which the 
 broader and larger businesses can come under a single powerful and 
 intelligent regulation, which such a bureau as I have suggested 
 would afford. 
 
 Mr. Brandeis has very interestingly cited the efforts to restore 
 competition between the tobacco companies. I think, after listening 
 to the discussion of the past three days that it leads around and 
 around the circle. For example, the division of the Tobacco Trust 
 into independent organizations for the purpose of restoring com- 
 petition is simply going to still further stimulate unfair competition 
 which has been so disastrous in the past, and which has practically 
 forced the corporations, many of them, to join with each other. Yet 
 even Mr. Brandeis, of counsel for the independent tobacco companies, 
 complains as bitterly of the existing statuts as he did before the 
 separation took place. Great business economies have been accom- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1301 
 
 plished unquestionably, in my judgment, by the capacity and right to 
 consolidate, and that right is beneficial; it is natural. With unfair 
 competition eliminated and with fair competition or price control in 
 force the public would get the benefit. 
 
 There is much difficulty in deciding exactly the wisest course. New 
 precedents must be established, as must be clear to all of us, and our 
 effort to separate the wheat from the chaff and clear the right of way 
 for American business men is one of the very prime questions that is 
 before the country to-day. There can be nothing half so important 
 I do not know how many thousand business men, investors, capi- 
 talists, and people of all kinds are simply prevented from going 
 ahead by the doubts which exist. 
 
 Now, to say that it does not exist, and that there is no harm being 
 done, as Mr. Brandeis stated this morning, that there is no industry 
 that has been affected, except the industry of manufacturing stocks 
 and bonds is, gentlemen, to me exceedingly untrue. It is not the fact. 
 Business is going on unquestionably. Men are allowing their stocks 
 of goods to go down to the last limit. They buy as little as they can. 
 They live from hand to mouth, the same as you would, or I would, 
 in any business, great or small, and that condition is a condition of no 
 initiative, no progress. Schemes are constantly brought up — " will 
 you put some money into this thing ? " or, " will you undertake to do 
 that? " " will you go into a steel mill here in Detroit? " or, " will we 
 undertake this other effort in some other place? " The answer always 
 is, "nothing doing." 
 
 Now x , gentlemen, that is a condition that is petrifying the progress 
 of this country, and it ought to be relieved, and I think it is entirely 
 within the power of this Congress to take proper and wise action in 
 the premises which will enable every business man in the country 
 practically to have his feet on the ground, and know that when he 
 takes a certain course in defense of his stockholders' interests, in de- 
 fense of the interests of his employees, in an effort to save enormous 
 industry, trade, commerce, and good will which has accrued to his 
 company, that five years from now what he does to-day is not going 
 to put him in prison. 
 
 Gentlemen, I thank you very much. 
 
 The Acting Chairman. "What is the name of the fortunate " boom 
 town" that you mentioned? 
 
 Mr. Joy. Detroit. 
 
 The Acting Chairman. I take it that it is not suffering then as 
 
 otllPI* CltlGS EITG ? 
 
 Mr. Joy. No, sir ; except special industries— some of its industries. 
 The Acting Chairman. I ask that for the benefit of the two 
 Senators from Michigan, who are present.* 
 
 Senator Smith of Michigan. We concur that it does not suffer. 
 The Acting Chairman. What is the corporation of which you 
 
 are president? .,.,,- i 
 
 Mr Joy. The Packard Motor Car Co. is the industrial corpora- 
 tion that I am president of. I am connected with other corpora- 
 tions, but that is the one to which I devote my main attention. 
 
 The Acting Chairman. In the course of your statement, you 
 have referred to an attack made upon the antitrust law by Justice 
 Hughes at Youngstown. When was any such attack made? 
 
1302 HEARINGS BEFORE 
 
 Mr. Joy. I would not know that you would call it an attack, Sena- 
 tor. I refer to the speech that Gov. Hughes made in the last political 
 campaign down at Youngstown, which lent a great deal of encour- 
 agement to the business men of the country, that the whole situation 
 was not going to be disturbed ; that the law seemed to be definite — — 
 
 The Acting Chairman. My recollection of that speech is that it 
 was not directed against the antitrust law, but against certain amend- 
 ments to that law proposed by Mr. Bryan, and in the Democratic 
 platform ? 
 
 Mr. Joy. My understanding of it was — I may be entirely wrong- 
 that in discussing the percentage of business which determined an 
 unreasonable control of trade 
 
 The Acting Chairman. But the antitrust law does not establish 
 any percentage or refer to any percentage anywhere. 
 
 Mr. Joy. I am not familiar with it except generally. 
 
 The Acting Chairman. Have you any clear recollection that Mr. 
 Justice Hughes referred to the antitrust law in anywise at all dis- 
 paragingly in that speech ? 
 
 Mr. Joy. It was my impression. It is a long time since I read the 
 speech. It is a year or two ago. 
 
 The Acting Chairman. I only suggest it — it is not material now, 
 but I think you have done him an injustice, and imputed to him views 
 that he has never expressed. 
 
 Mr. Joy. Then I entirely withdraw that, Senator. I am simply 
 speaking of my impressions, gained from the newspaper reports of 
 a speech in Youngstown, at the time of the last political campaign. 
 It is farthest from my thought or desire to make any misstatements. 
 
 The Acting Chairman. He made that speech upon the issues of the 
 two political parties, in favor of the Republican Party and against the 
 Democratic Party. Now, the Republican Party had not proposed 
 in its platform to repeal the antitrust law, as I remember it, whereas 
 the Democratic Party had proposed to make certain amendments or 
 additions to the antitrust law. I think, upon reflection, upon review- 
 ing the speech, you will find that you have an erroneous impression 
 about it, and I am sure that if you have, you will be glad to correct it 
 in the record here because Justice Hughes can not appear before this 
 committee. 
 
 Mr. Joy. Most assuredly. I would be glad to be permitted to look 
 it up, or assume that you, Senator, better informed in the matter, are 
 entirely correct. 
 
 The Acting Chairman. If I understand your position aright, you 
 are in favor of repealing the antitrust law ? 
 
 Mr. Joy. No, sir ; if I understand what you mean by the antitrust 
 law— the Sherman law— is that what you mean? 
 
 The Acting Chairman. That is what I mean. It is the only thing 
 of the sort we have on our statute books. 
 
 Mr. Joy. No, sir; I am not in favor of repealing the Sherman law. 
 The indications are that that has grown to be the lighthouse by which 
 we can be guided. 
 
 The Acting Chairman. Now, then, the first section of the anti- 
 trust law prohibits and makes unlawful agreements, combinations, 
 and conspiracy in restraint of trade. Are you in favor of modifying 
 that prohibition in any way ? 
 
 Mr. Joy. No, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1303 
 
 ♦>, Jw^?-T G C ? A i EMAN - Th ? secon <l section is a prohibition against 
 the establishment of a monopoly or the attempt to create a monopoly. 
 Are you opposed to that prohibition? ^ y 
 
 Mr. Joy. Not at all. I am in favor of it. 
 
 The Acting Chairman. Therefore, I take it that you are in favor 
 the maintenance of a pohcy on the part of the General Govern- 
 ment that will prevent a restraint in trade among the States or with 
 foreign nations, and of a policy that will prevent the establishment 
 or a monopoly or an attempt to create a monopoly. 
 
 Mr. Jot. I am in sympathy with the general idea; yes, sir: but I 
 
 do not understand-from a layman's point of view-the phrase 
 
 restraint of trade." It is a little doubtful to my mind. 
 
 The Acting Chairman. You know what it means, to a degree, I 
 
 assume because the Supreme Court of the United States has said 
 
 what it means in several cases. 
 
 Mr. Joy. Yes, sir. 
 t The Acting Chairman. Are you opposed to the law as it has been 
 interpreted by the Supreme Court in any case? 
 
 Mr. Joy. I do not know anything about these things, Senator. 
 It is beyond me to pass upon these features. 
 
 The Acting Chairman. Do you know of anything that has been 
 determined to be restraint of trade, or the establishment of a mo- 
 nopoly, that in your judgment is not a restraint of trade or a mo- 
 nopoly? 
 
 Mr. Joy. No, sir; I do not. I think the decision is, unquestion- 
 ably, doubtless correct. 
 
 The Acting Chairman. Do you know of any person in your ac- 
 quaintance who believes that the Supreme Court of the United States 
 has declared something to be in restraint of trade, or something to 
 be a monopoly, that is not a restraint of trade or a monopoly ? 
 
 Mr. Joy. No. sir; I do not. I think the tendency is in the right 
 direction. 
 
 The Acting Chairman. Then, if all those things be true, your 
 view of it must be that there is difficulty in ascertaining what is a 
 restraint of trade or what is a monopoly? 
 Mr. Joy. Yes, sir. 
 
 The Acting Chairman. Has your corporation ever wanted to do 
 anything that it believed to be in restraint of trade, as construed by 
 the Supreme Court of the United States? 
 
 Mr. Joy. They never wanted to do anything. The question of 
 consolidation ' of the corporation with other corporations has been 
 discussed, but the matter has always been set aside as being one of 
 questionable economic value, and it seemed doubtful and uncertain 
 as to whether or not it might meet with the approval of the Attorney 
 General. It never came up as a vital matter requiring decisive 
 action. 
 
 The Acting Chairman. I am not, of course, suggesting that your 
 corporation ever wanted to violate the law. What I mean is, Has it 
 ever wanted to pursue a certain business course which it was com- 
 pelled to abandon because of the antitrust law ? 
 
 Mr. Joy. No, sir ; it has debated that proposition which I spoke of. 
 That is all. 
 The Acting Chairman. Did you say " evaded " ? 
 
1304 HEARINGS BEFORE 
 
 Mr. Joy. I say it has debated the proposition which I spoke of 
 before as to the possibility of consolidation. 
 
 The Acting Chairman. But it never reached a point where it 
 seemed to be necessary for your development or prosperity? 
 
 Mr. Jor. No, sir ; we did not pursue it, because we were afraid that 
 it might be contrary to the way the law was being interpreted. 
 
 The Acting Chairman. What was that thing which you debated, 
 if you feel free to speak about it ? 
 
 Mr. Joy. It was the consolidation with other companies. 
 
 The Acting Chairman. With all the other companies? 
 
 Mr. Joy. No, sir ; with some others. 
 
 The Acting Chairman. I assume you mean by " other companies," 
 companies engaged in the manufacture of automobiles ? 
 
 Mr. Joy. Yes, sir. 
 
 The Acting Chairman. So that when your company, looking 
 forward, or looking over the field, debated the question of whether it 
 would be wise economically and financially to take in or consolidate 
 with other corporations engaged in the same business, you have felt 
 in doubt as to whether what you were about to do, or what was being 
 debated, constituted a restraint of trade or not? 
 
 Mr. Joy. Yes, sir. 
 
 The Acting Chairman. And therefore you did not go further, I 
 take it? 
 
 Mr. Joy. No, sir. 
 
 The Acting Chairman. Do you think the law ought to be so 
 amended that you could have gone further and allowed your debates 
 to run into actual action ? 
 
 Mr. Joy. Yes, sir. Well, not necessarily the law to be amended. I 
 do not know what you mean by that. I mean I feel that when such 
 questions as that arise between business concerns that there is so 
 much involved in it, in case it comes to the point of severe competi- 
 tion, and the life or death of the industries, that they ought to be 
 able to go to some department, or bureau, or commission and say, 
 " Here is a proposition. Can we make that trade ? " 
 
 The Acting Chairman. But you would expect that tribunal to be 
 guided by the laws which prohibit whatever is in restraint of trade? 
 
 Mr. Joy. To be guided by the law, of course ; yes, sir. 
 
 The Acting Chairman. You would not want the guide or direc- 
 tion to be other than it is ; you would simply like to know in advance 
 whether you were right or wrong. Is that it ? 
 
 Mr. Joy. That is exactly right. As to restraint of trade, I rather 
 feel that I am groping for something when I use the expression 
 " restraint of trade." I have never had anyone able to clearly and 
 satisfactorily explain it to me. 
 
 The Acting Chairman. Your motive in looking forward tenta- 
 tively to any proposed consolidation, which you did not pursue be- 
 cause you did not know whether it would be in restraint of trade or 
 not, was, I take it, to diminish the competition which existed be- 
 tween your company and the others which you proposed to take in? 
 
 Mr. Joy. Weil, the benefits would be possibly quite varied; I 
 might illustrate by the fact that the question here was mentioned 
 about bolts for shoe machinery the other day ; that the shoe machin- 
 ery was so made that where it had a bolt in it, if you wanted to re- 
 place it you could not go to a hardware store and buy it, but would 
 
COMMITTEE ON INTERSTATE COMMERCE. 1305 
 
 be obliged to go to the Shoe Machinery Co. for it. Now, in the 
 manufacture of any intricate piece of machinery, high-duty machin- 
 ery, the nature of the material, the size of the bolts, the weight of them, 
 the number of threads per inch, and a hundred things, enter into the 
 design of an intricate piece of machinery. Now, if we could go to 
 work and have the common use of the brains of the engineers and 
 the designers and the experienced men of several companies, and 
 could draw these designs in common so that more parts could be 
 made in common, economy of production might result ; also, economy 
 in selling might result, which would result in modified prices. 
 
 The Acting Chairman. Did you ever hear it suggested that there 
 was anything in the antitrust law that would prevent shoe manu- 
 facturers having a conference and arranging for common parts in 
 .the machines that they were making, so that they could be supplied 
 from a common source, or from any hardware store? 
 
 Mr. Jot. I never heard of any such thing. There would be no legal 
 objection to that that I know of. 
 
 The Acttng Chairman. So you could accomplish that without 
 consolidation ? 
 
 Mr. Joy. We would not be very apt to do that as a natural busi- 
 ness proceeding, because the condition is one of intense competition 
 and warfare. There is very little exchange of ideas for mutual aid. 
 The Acting Chairman. After all, it follows that the chief purpose 
 anyhow was to steady the price and keep it up to what you believe 
 to be a fair and reasonable point ? 
 
 Mr. Joy. Not at all ; not in any degree, Senator. 
 The Acting Chairman. It was not to reduce the price? 
 Mr. Joy. Yes, sir ; to reduce the price. 
 The Acting Chairman. By reducing the cost ? 
 Mr. Joy. By reducing the cost and making them cheaper and re- 
 ducing the cost of selling, reducing the cost of advertising to a com- 
 mon advertising, and thus enabling the selling of vehicles for less 
 monev. Now, whv ? I can very easily explain that to you. The object 
 of that is this : That if we can keep the price of our vehicles down 
 just as low as possible, consistent with a good name for them, with 
 the best service possible, the best material possible, and we can give 
 that for a certain price, we thus prevent competition by keeping our 
 prices down. If we put our prices up, that stimulates competition. 
 You might say that promotes trade. If we put our prices down, 
 that restrains trade. It keeps other men from competing with us. 
 
 The Acting Chairman. Did you ever hear of any contemplated 
 prosecutions because a single manufacturer put the price of his stuff 
 
 Mr. Joy. Never, in the slightest degree. 
 
 The Acting Chairman. You never heard anybody allege that that 
 would be in restraint of trade? 
 
 Mr Joy. I never did ; no, sir. 
 
 The Acting Chairman. When you had advanced to the point 
 where you had any debate, to take in a certain number of automobile 
 manufacturers, of course, the same motive would lead you to take in 
 
 the rest, I assume? , , 
 
 Mr Joy It would depend upon trade conditions and the nature 
 of the vehicles, the same as it would be in any oth^r bn«n««. 
 
1306 HEARINGS BEFORE 
 
 The Acting Chairman. And then you would have not only what 
 the law denominates as restraint of trade, but you would have monop- 
 oly, which you say you oppose ? 
 
 Mr. Joy. I oppose unregulated monopoly; yes, sir. 
 
 The Acting Chairman. I did not understand you to qualify it 
 before. 
 
 Mr. Jot. Oh, I beg your pardon, Senator. I stated in my remarks 
 that the great aggregations of capital, the control of trade, ought to 
 be regulated by a Government bureau. 
 
 The Acting Chairman. You understand, do you not, that before 
 you could bring about those consolidations and reach this monopoly 
 lawfully the law must be amended, because from time immemorial 
 these things have been known to be, and decided to be, in restraint of 
 trade. That is what I want you to get at ; whether you really want 
 (.he law changed, or simply want it administered by some other tribu- 
 nal than the courts. 
 
 Mr. Joy. I want corporations to be permitted to consolidate and 
 business interests permitted to transact business under the best pos- 
 sible conditions for the promotion of commerce and trade in this 
 country. 
 
 The Acting Chairman. But you recognize that the point of view 
 that you entertain as based on consolidations and on monopoly is 
 not permitted by the law as it is ? 
 
 Mr. Joy. I can see no difference between the point of view that I 
 have and the point of view of the results obtained, if you please, by 
 the subdivision of the Tobacco Co. The smallest subdivision of the 
 Tobacco Co. is still a very large aggregation of capital. 
 
 The Acting Chairman. I quite agree with you about the results in 
 the American Tobacco Co. case. I do not think there will be any 
 more competition in the future than there has been in the past, but 
 what you want to do is to be able to make this consolidation and to 
 combine the whole industry in one corporation, if it seems to be wise, 
 in the way of reducing the cost of production, distribution, etc. 
 
 Mr. Joy. If such a combination could possibly come about, Sena- 
 tor, whereby the consolidation of the motor-car companies, or part 
 of them, or anything of that kind in any other line of business, where 
 it would be promotive of economy and productive of good results, I 
 think it ought to be provided for and permitted. 
 
 The Acting Chairman. Do you think also that in the business of 
 consolidation, legal consolidation, that manufacturers ought to be 
 permitted to come together and agree on prices, subject to the super- 
 vision of the Government? 
 
 Mr. Joy. I think it would be very beneficial in some lines of trade. 
 
 The Acting Chairman. You understand, of course, that is pro- 
 hibited by the antitrust law ; do you not ? 
 
 Mr. Joy. The intention is that that should be prohibited, where it 
 was in restraint of trade, or harmful, or something of that sort ; is 
 it not? 
 
 The Acting Chairman. Do you not understand that the courts 
 have decided that an agreement between manufacturers to establish 
 a given price is in restraint of trade, and therefore unlawful, no 
 matter what the price might be ? 
 
 Mr. Joy. I do not understand that that is unlawful, for example, 
 if it is beneficial and is a saving grace to the industry. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1307 
 
 The Acting Chairman. But the Supreme Court of the United 
 States has decided — you are not a lawyer, and therefore I may be 
 permitted to make this suggestion— definitely that an agreement be- 
 tween certain manufacturers in a given industry whereby the price 
 is established or affected is in violation of the antitrust law, no matter 
 if the price be a reasonable one. Now, that being the law, I take it 
 you are in favor of changing it ? 
 
 Mr. Joy. Well, if that is the law, I do not agree with it. Whether 
 I agree or not, however, is not going to seriously improve matters. 
 
 The Acting Chairman. Of course, your idea and mine about the 
 law is not very material after the Supreme Court has laid it down ? 
 
 Mr. Joy. No, sir; but you have the making of it, and I have not. 
 
 The Acting Chairman. Of course, if you would change the law 
 to permit these agreements to be made, I assume you would require 
 the Government to pass upon them and supervise them, so that 
 agreements that were subversive of the public interests could not be 
 made ? 
 
 Mr. Joy. Quite right ; but I think the Government ought to pro- 
 vide some such law or arrangement. For example, in the case of 
 two or three or a dozen manufacturers or producers who are cutting 
 each others throats, who are destroying their own businesses and 
 those of others, where one of them is going to fail, is going to go out 
 of business ; he is " licked," we will assume, and his scalp and hide 
 will be taken. Think of the great loss to no good purpose, and no 
 way out of it. 
 
 Now, he can not sell out; he can not combine; he must go right 
 straight to the wall, as I understand the proposition. Others can 
 make goods cheaper than he can. Others are going to sell cheaper 
 than he can, and are going to put him out of business. Now, that 
 seems to me an uneconomic and a bad policy and poor business. 
 
 The Acting Chairman. Now, in that case, you would have the 
 law so amended that those various manufacturers could come to- 
 gether and agree on price, submit that price to the Government, and 
 if approved by it through the board or commission— whatever it 
 might be— that then they might go lawfully forth and do business? 
 
 Mr. Joy. Yes, sir; that is exactly what I mean, so as to prevent 
 the destructive situation which exists of good things which could 
 be used for the economic benefit of all. 
 
 The Acting Chairman. Now, suppose that had been the law when 
 you were debating the consolidation of the motor-car companies, 
 and you had gone into an agreement— instead of consolidating 
 vou had gone into an agreement-fixing the price of the Packard 
 automobile at so much, the Buick at so much, and all the other 
 kinds that are manufactured by the concerns that went m with you, 
 and vou brought that forward to the Government for approval. 
 Then it becomes a duty of the Government to fix the price of every 
 automobile that- is made by those concerns. You see that, do you 
 
 n °Mr Joy I do not follow that theory at all, Senator. That would 
 not be a natural condition of business development of that propo- 
 sition at all, as I look at it. 
 
 The Acting Chairman. I will put it m another way. lr it does 
 not apfclv to the automobile, let us take the steel business, about 
 which we have heard so much. Suppose the independents and 
 
1308 HEABINGS BEFORE 
 
 United States Steel Corporation would all come together and agree 
 on a price of steel rails. There is a single commodity made prac- 
 tically alike by all establishments. Now, they bring that agree- 
 ment to the Government and ask its approval. That must neces- 
 sarily follow your plan? 
 
 Mr. Jot. Yes, sir ; that becomes a simpler proposition. 
 
 The Acting Chairman. Suppose they fix the price as $30 per ton, 
 and the Government is up to the task of either approving or disap- 
 proving that agreement. Now, the Government has to make an in- 
 quiry then to find out whether $30 a ton is a fair and reasonable 
 price ? 
 
 Mr. Joy. The Government would not have to make any inquiry, 
 according to my notion. It would be the proper conduct of the 
 bureau to be thoroughly informed as to the whole situation, and it 
 would be able to act wisely and at once. 
 
 The Acting Chairman. Whether it had the information or 
 whether it must proceed to get the information, it must use that in- 
 formation to fix the price ? 
 
 Mr. Joy. Yes, sir. 
 
 The Acting Chairman. Then, of course, the Government must fix 
 the price of the labor which was employed in making those steel 
 rails ? 
 
 Mr. Joy. Not necessarily, I think. 
 
 The Acting Chairman. How could you possibly rest content with 
 fixing the price of the output without fixing the price of the materials 
 and the labor that went into the output ? 
 
 Mr. Joy. I might answer that in this way. if you please. Take it 
 in case of the railroads. You regulate the price of the freight ; you 
 regulate the various features of the railway companies, but you do 
 not fix the price that they shall pay for the labor or for the materials 
 which they buy. 
 
 Now, it seems to me, for example, we will say in rail mills — leave 
 out of the discussion entirely the Steel Trust — but we will say a 
 dozen huge rail mills with $40,000,000 or $50,000,000 apiece are com- 
 peting with each other, not only for the rail business of this country, 
 but the rail business of foreign countries, and they get down to a 
 point where their business is straining itself. They have got to a 
 point where their profits are unreasonable. They have reached a 
 point where somebody has to give up the ghost or knuckle down to 
 the other or has to cut his wages. 
 
 Now, I submit that it is for the best interests of all parties and all 
 people that it is necessary and wise for those gentlemen, those com- 
 panies, to say " Here, your mill is not any good ; you can not make 
 stuff there as cheap as we can. We are going to continue our fight 
 for this world's commerce and this American commerce even if it 
 does damage you and put you out of business." Now, that mill would 
 have to fall by the wayside; but if that man could put his mill on 
 a basis where it was capable of producing at a fair cost and making 
 some money within a reasonable price limit, then I think they ought 
 to be permitted to agree upon price and market distribution, or we 
 have again the destructive and uneconomic situation. 
 
 The Acting Chairman. You first said that you were in favor of 
 the consolidation, and we have an instance of it with this same busi- 
 ness^ — the United States Steel Corporation. Now it is claimed that 
 
COMMITTEE ON INTERSTATE COMMERCE. 1309 
 
 the Steel Corporation can produce more cheaply than most of its 
 competitors. We will assume now that situation and that the Steel 
 Corporation, together with all its present rivals, makes an asree- 
 mena as to price on steel rails, which is a simple illustration," and 
 they come to the Government to ratify it. Now, the Government 
 finds that as to this poor fellow that you spoke of and who must 
 otherwise go to the wall — it costs him $28 a ton to make rails. There- 
 fore $30 a ton for him is not an unreasonable price. He could hardly 
 live at it. It costs the United States Steel Corporation $18 a ton to 
 produce those same rails, and that corporation would make then $12 
 a ton profit. Now, would the Government fix a price on the standard 
 of the cost of the poor fellow who must go to the wall or fix a price 
 on the standard of the big fellow that would make huge profits 
 out of it? 
 
 Mr. Joy. It would have to fix the price on the basis of the fair cost 
 of the manufacture of steel by the man who had a reasonably cheap 
 method of production below a certain standard scale, and the uneco- 
 nomic producers would have to fail and shut up and go out of busi- 
 ness on that prohibitive condition. The conditions of a good mill, 
 under good circumstances and good facilities, would have to be the 
 determining scale price, and the combinations that have exceptional 
 and greater advantages would be the ones which would make the 
 greater profit, and the different shades of facilities and managerial 
 talent under fair competition would determine the rest. 
 
 There is no question about that. You could not get away from 
 that line of thought at all, according to my notion, because otherwise 
 you are compelling a single sole control of the entire steel industry 
 or of any other industry, generally speaking. 
 
 The Acting Chairman. So that some one or all hope and believe 
 that the law should be so arranged that the competition in the busi- 
 ness of the United States shall be entirely eliminated and no longer 
 continued as a price regulator? 
 
 Mr. Joy. Not by any means. I failed entirely to make clear my 
 point of view of the matter, I see. 
 
 The Acting Chairman. If you are in favor of consolidation in 
 order to extinguish competition, and in favor of agreements between 
 those who still remain in the business in order to fix prices, wherein 
 can competition accomplish anything except in the amount of profit 
 which each might make out of the business ? 
 
 Mr. Joy. We have heard quite a learned explanation here on the 
 inefficiency of large corporations by Mr. Brandeis in the production 
 of material. According to his theories, if those large corporations 
 are inefficient they will fall of their own weight, if unfair competi- 
 tion is prohibited. , . 
 
 Now, the only thing that I ask for is that unfair competition 
 should be prohibited, but that fair competition should be promoted. 
 
 The Acting Chairman. But when you have advocated both con- 
 solidation and agreement to fix prices 2 there can be neither unfair 
 nor fair competition, because if the price is fixed by the agreement, 
 approved bv the Go-zernment, there is no longer any competition as 
 to price in that industry whether the producers are efficient or 
 inefficient. 
 
1310 ' HEARINGS BEFORE 
 
 Mr. Joy. The condition is one which is constantly changing, due 
 to the nature of the business itself, in which, if one man or one cor- 
 poration can make a product cheaper than the other in modern 
 circumstances, that company is bound to control the trade in that 
 line of business. It is either going to make a large profit and let 
 these other fellows go on and -do business, or else it is going to cut 
 this busniess profit down and drive them all out of the business. 
 Now, the theory of Mr. Brandeis is that corporations should not do 
 over 40 per cent of the business in any one line. 
 
 The Acting Chairman. I am not asking with regard to Mr. Bran- 
 deis's theory. I am putting the questions to you quite independently 
 of his suggestions. 
 
 Mr. Joy. I am trying to explain the total impossibility, as you no 
 doubt thoroughly well understand — better than I do — of the ability to 
 retain the fair competition if you allow the unfair competition to 
 exist. 
 
 Now, you will retain fair competition beyond any question if you 
 remove the unfair competition, which is a thing I think the busi- 
 ness men of all kinds and the people themselves complain of, even 
 down to the smallest merchants of corner stores. 
 
 The Acting Chairman. I quite agree about unfair competition. 
 
 Mr. Jot. Then we will have fair competition under those cir- 
 cumstances. 
 
 The Acting Chairman. But when you allow the different manu- 
 facturers and producers in a particular line to come together and 
 agree with each other as to the price of the product, then there is 
 no opportunity for fair or unfair competition? 
 
 Mr. Joy. But you will please pardon me. You are too compre- 
 hensive in the suggestion that you make. I did not intend, and do 
 not advocate, that everybody shall come and lay their burdens at the 
 door of the bureau that we are talking about. I contend that the 
 thing ought to be self -curing and self-conducting, practically, in the 
 agreement between the manufacturers themselves. The incentive 
 for combination will be largely taken away if you will prevent 
 unfair competition. 
 
 Now, the prevention of unfair competition will require bureau 
 regulation. If you will take away that unfair competition you will 
 allow the units to grow up throughout the country, gaining strength 
 all the time, so that the thing will come along and be a fair fight on 
 a fair basis, which everybody enjoys going into, and if you will re- 
 move unfair competition you could not drive those people into a 
 consolidation again unless their trade conditions got into such shape 
 as to compel them to do it. It is the last thing that they want to do. 
 
 The Acting Chairman. Then, if regulation can be devised which 
 will prevent unfair competition, and by which I assume you mean 
 dishonest practices and misrepresentation and selling continuously 
 at periods below cost in certain localities or to certain persons in 
 certain localities at prices lower than to other persons in other 
 localities, you will not need any of those consolidations or any of 
 those agreements to fix prices? 
 
 Mr. Joy. You will lessen the necessity for them to an enormous 
 extent. 
 
 The Acting Chairman. But whenever the law permits competitors 
 in a business to come together and fix prices, then vou have simply 
 
COMMITTEE ON INTERSTATE COMMERCE. 1311 
 
 said that when the efficient man is driving the inefficient man to the 
 wall, the inefficient man can come to the Government and say, " 1 
 want the prices lifted high enough to enable me to live"? 
 
 Mr. Joy. That will be for your bureau to say, whether that man 
 shall live or not at the price determined upon. If the thing comes 
 to that point that will be inevitably the result. You can not help it. 
 That result to-day is being administered in gentle but firm doses by 
 one manufacturer to another. Now, what is the difference ? 
 
 The Acting Chairman. I do not agree with that, because under 
 the law as it is if the inefficient man must go to the wall some other 
 efficient man will spring up who can do business as cheaply and as 
 successfully as the competitor in the field and in that way there is a 
 continuous struggle toward better men and better- conditions in 
 industry and commerce. 
 
 Mr. Joy. I assure you there is struggle enough toward better men 
 and better systems and better efficiency going on in this country 
 to-day to please the most fastidious. 
 
 The Acting Chairman. That is what we want to have. 
 
 Mr. Joy. You have got it, and it is going on. 
 
 The Acting Chairman. You do not want to destroy it ? 
 
 Mr. Joy. I do not want to destroy it. I want to promote it, and I 
 want to promote it by the elimination of unfair competition, and 
 I do not want to have any unfair competition in any business that 
 I am interested in or connected with, or in any corporation, whether 
 it is a hundred million, or four hundred million, or ten million. If 
 I purchase from a concern a supply of steel or any other thing and 
 I see something going on down in the next town, or across the 
 United States somewhere, where a man is making prices on stuff 
 bought from that concern, which from my experience I know he 
 can't make and live, that shows me that I have gotten in wrong, 
 that I have paid too much, or my competitor has had a preference 
 right out of the same mill at the same time, I ought to have some 
 redress on that proposition. 
 
 Now, that is the point that I have in mind, and I think that is 
 the cause of a great deal of the unrest and dissatisfaction which 
 exists to-day, and which could be readily eliminated, and not only 
 no harm done to anybody, but great, enormous, incalculable benefit 
 done to the American people as a whole. 
 
 The Acting Chairman. Now, I agree with you that very much 
 could be done to preserve fair competition. 
 
 Senator Townsend. Mr. Joy, if I understand your position cor- 
 rectly it is about this: You are willing to abide by the decisions of 
 the Supreme Court — that is, you will have to do it whether you are 
 willing to do it or not — but you are willing to consent that they 
 are right? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Townsend. What we want to know, when you are talking 
 about consolidation with other companies, even possibly to the extent 
 which might be considered as monopoly, you would like to have it 
 clearly stated to you, in order that you might know whether you 
 are approaching monopoly or whether you are unlawfully com- 
 bining — that is it? 
 
 Mr. Joy. Yes, sir. 
 
 22877— vol 1—12 83 
 
1312 HEABINGS BEFORE 
 
 Senator Townsend. I understood it that way. I was a little bit 
 interested in your discussion of the lawyer proposition. You say 
 you do not understand this law — that you do not understand these 
 decisions ? 
 
 Mr. Jot. No, sir ; I do not as a lawyer does. 
 
 Senator Townsend. And you have to go to some lawyer for that 
 purpose, do you not ? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Townsend. And you say, if I understand you correctly, 
 that you sometimes have to go to two or three lawyers ? 
 
 Mr. Jot. Yes, sir. 
 
 Senator Townsend. If you do hot get what you want from one 
 lawyer you have to go to some other lawyer ? 
 
 Mr. Jot. Yes, sir. 
 
 Senator Townsend. Do you know what you want when you go 
 to the lawyer? Have you some plan that you want him to advise 
 you as to whether that plan is correct ? 
 
 Mr. Jot. That depends upon the circumstances. Sometimes there 
 is a condition to be met, a bridge to be crossed, something to be done. 
 
 For example, I have in mind the negotiations of the Association of 
 Licensed Automobile Manufacturers under a patent. If we had 
 been guided by the advice of counsel in the matter, we would have 
 been great sufferers. We were obliged to take a business course of 
 action and take our chances. 
 
 Senator Townsend. That is, the lawyer advised you that you could 
 not do it according to the law ? 
 
 Mr. Jot. Absolutely could not do it according to the law. 
 
 Senator Townsend. And then do I understand that you want a 
 lawyer who will always advise you to do just what you want to do? 
 
 Mr. Jot. No ; I want to know all sides of the case, and then we can 
 decide. 
 
 Senator Townsend. Then really a lawyer ought not to be con- 
 demned because he tells you that a thing is unlawful, if he thinks 
 that that is true, ought he ? 
 
 Mr. Jot. No, sir ; in no degree. It is his duty to advise us that it 
 is unlawful if he thinks it is so. But where we come to divergence of 
 opinion between the best counsel you can get in the United States, 
 and even a half dozen of them, what is a poor business man to do if 
 he has an important business on his neck that he has got to get along 
 with somewhere? He can not lie down and die. He must act; he 
 has got to act every day. His business is a business of constant 
 activity and instant decisions of vital importance. 
 
 Senator Townsend. I can understand that situation, but I can not 
 quite understand how the lawyer is to be blamed for that situation. 
 
 Mr. Jot. I do not think the lawyer is to be blamed for the situa- 
 tion. My feeling with regard to the lawyers is that the lawyers to 
 a certain extent control and have built and made up the court prac- 
 tices, the court methods, or the methods of doing business under the 
 law in the United States. That is what I mean. I do not mean to 
 criticize the law as a profession or lawyers as individuals, except 
 as to the growth of red tape and the methods of procedure which are 
 requisite to get to a destination. 
 
 Senator Townsend. I agree with you in the proposition, as I sup- 
 posed that you were following out when you commenced, that there 
 
COMMITTEE ON INTEBSTATE COMMERCE. 1313 
 
 was a great deal of bad advice given by lawyers and a great many 
 technicalities employed, as you mentioned in one case, which ought 
 not to be employed, but I was somewhat disturbed when you made 
 the statement that you had to go to several lawyers before you got 
 the advice that you wanted. 
 
 Mr. Joy. I never get the advice that I want. 
 
 Senator Townsend. I am not condemning but rather am praising 
 the lawyer who advises you that a thing is unlawful, if it is unlawful. 
 
 Mr. Joy. That is exactly right. It is not my intention to criticize 
 the lawyer for that; no, sir; not in any degree. His most consci- 
 entious advice is what any business man of intelligence wants, who 
 is straight and square, who asks for guidance in the conduct of his 
 business. 
 
 But you know the opinions of lawyers vary. Sometimes, in con- 
 sequence of a matter of very great importance, you say: "Well, I 
 guess I will go across the street and see what that other lawyer has 
 to say on the subject. I have talked very conclusively with this 
 counsel, and I will go and talk with the other one." And when I 
 do that I often find that I am still up in the air; their advice does 
 not agree. Then I will seek the advice of another one, at a larger 
 price, possibly, and get nowhere. Now, then, what is the unfortu- 
 nate manufacturer or business man, with his years of effort and the 
 interests of his stockholders at stake and that of his employees as 
 well, going to do in a situation of that kind? He must act and as- 
 sume the burden. 
 
 Senator Townsend. It might be a good thing to have a combina- 
 tion among the lawyers, in that case, and not have so much compe- 
 tition. 
 
 The Acting Chairman. You might take the advice of the first one 
 and quit. 
 
 Mr. Joy. I think your chances would be just about even. The 
 lawyer in Ms advice does not make the law. The laws are inter- 
 preted by the courts, and they, in the last analysis, have the say as 
 to what is right according to their view of the law, and what is 
 wrong. 
 
 Senator Townsend. I am quite in sympathy with you that if there 
 is anything about the Sherman antitrust law that is not clear, if 
 there is a menace on that account to the business men, I want that 
 made clearer, if it can be made so; but I do not want, so far as I 
 am concerned, and I do not understand that you want it either, that 
 anything shall be permitted in restraint of trade or in the formation 
 of monopolies that is now prohibited by the Sherman antitrust law. 
 
 Mr. Joy. Not that I know of. 
 
 Senator Townsend. Now, you say you are interested in having the 
 factory, or the producer, sell his products at the same price to all 
 customers "under similar circumstances," you used. What do you 
 
 "Mr Joy. Well, I used that in default of a better definition. My 
 intent is that the dissatisfaction existing in the country among men 
 who feel that they are oppressed by the great trusts is because they 
 do not all get the same price ; they do not know that their price is the 
 same as the price made to their competitor across the street, or in 
 some other section. The world is very small, you know, in these days. 
 
1314 HEARINGS BEFORE 
 
 Senator Townsend. How about your case? We will take it in the 
 Packard Co. — that little company to which you referred. Are you in 
 favor of selling your product at the same price, freight taken into 
 account, in all parts of the United States, and to all customers any- 
 where in the United States? 
 
 Mr. Joy. Yes. I am not only in favor of it, but I have done it for 
 nine years. 
 
 Senator Townsend. I had no doubt about that. I did not mean 
 any inferences that you had not done it. 
 
 Mr. Jot. I presume that is restraining trade, isn't it ? 
 
 Senator Townsend. I want to get down to what you meant by the 
 " same price to all customers." That is not the general custom with 
 all lands of business, is it ? 
 
 Mr. Joy. No, sir. 
 
 Senator Townsend. And you think that would help materially if 
 we had one price to every customer, freight considered ? 
 
 Mr. Joy. I think it would ; yes, sir. 
 
 Senator Townsend. There are no other circumstances that you had 
 reference to by " similar circumstances " ? 
 
 Mr. Joy. Well, I meant particularly by "similar circumstances" 
 the same thing that I read in the bill of Senator La Follette. T can 
 not understand these legal terms very much, but I read something in 
 here which seems to refer to wholesale prices. [Reading :] 
 
 (6) As the vendor, lessor, licensor, or bailor of any article ntteiupts to pre- 
 vent or restrain competition by making in the price, rental, or royally, or other 
 terms of any such sale, lease, license, or bailment any discrimination based 
 upon whether the vendee, lessee, licensee, or bailee purchases, leases, licenses, 
 or takes on bailment from him articles of a particular quantity of aggregate 
 price. 
 
 That is, whether the price, as I take it, should be reduced or less 
 for a greater tonnage or a less tonnage. 
 
 Senator Townsend. T was going to ask you in regard t'o'that in my 
 next question. 
 
 Mr. Joy. Yes ; I referred to that. 
 
 Senator Townsend. Do you charge the same for one automobile 
 as you do for a carload? 
 
 Mr. Joy. Yes, sir. That is, for the motor vehicles called carriages. 
 Senator, because those are not sold in quantities at all ; they are sold 
 to the individual users all the world over. For commercial vehicles, 
 however, we do make a less price in quantities. 
 
 Senator Townsend. You are in favor of that, are you? 
 
 Mr. Joy. It is a custom of the trade. 
 
 Senator Townsend. What do you think of the custom ? 
 
 Mr. Joy. I think the custom of the trade in that case has developed 
 it to be a wise one; it has developed a situation which seems fair in 
 this particular case of ours, or I would not have done it. There is 
 a good deal to be said on both sides of that wholesale-price situation. 
 
 Senator Townsend. Would it be a particular hardship to your 
 company, or to any company with which you are familiar, if a level 
 price was fixed for the units, without regard to the number or amount 
 or quantity sold? 
 
 Mr. Joy. Yes ; I think it might be. 
 
 Senator Townsend. What would be the objection, in your mind? 
 
 Mr. Joy. Well, I think it would be unfair. I think you would be 
 compelling me to make more money than I need to make. Those 
 
COMMITTEE ON INTERSTATE COMMERCE. 1315 
 
 things are always controlled by business conditions. For example, 
 we were doing business selling motor trucks on the same terms that 
 we were selling touring cars — one or a dozen, the price was the same. 
 Now, the conditions went along where our dealers came to us and 
 they said : " Here, gentlemen, reduce the price on those vehicles. We 
 are willing to sell those vehicles where we can get a quantity order, 
 and can afford to sell them for a less commission than 20 per cent." 
 The dealers came to us, our agents — we called them dealers — with 
 that request. They come to us with that request because they think 
 that they can make more money by selling more vehicles — five ve- 
 hicles, we will say, for 15 per cent or 18 per cent, or something like 
 that — than they can by selling them one at a time at 20 per cent, 
 because they think it will stimulate their business and increase their 
 business. 
 
 Senator Townsend. Do your agents have the right to reduce their 
 commission ? 
 
 Mr. Joy. They do not, except as in the printed published list of 
 prices put out by the company. 
 
 Senator Townsend. Then your agent, if I understand it correctly, 
 is the man who makes the difference, if his commission is the same 
 and he has to charge the same for selling whatever number he sells 
 at the same price everywhere? 
 
 Mr. Jot. Yes, sir. He sells at the same price. 
 Senator Townsend. Then it is your agent who gets the benefit of 
 the reduction when you sell a dozen cars to one man and sell them 
 cheaper than he would sell one car to another man— the agents gets 
 the difference? 
 
 Mr. Jot. The agent gets the commission, and he sells those cars 
 at the prices fixed in the published list. 
 
 Senator Townsend. Now, I want to refer just briefly again 
 
 Mr. Jot. Senator, if you will pardon me just a moment. 
 Senator Townsend. Surely. 
 
 Mr. Joy. That is not quite correct, because some of our retail sales 
 and service establishments in the United States are dealers— what we ■ 
 call dealers — and some are branch houses, so that in some cases, the 
 branch houses being owned by us, that commission in that case would 
 come to the parent company. 
 
 Senator Townsend. Yes ; I understand that. 
 
 In reference to the Hughes incident, I think I remember about 
 that speech, although I do not remember so much about it being at 
 Youngstown. I think it was a similar speech to' the one he made 
 elsewhere in the United States in that campaign. _ My understanding 
 is that Justice Hughes, in his speech on that subject, stated that the 
 Sherman antitrust law was quite sufficient to meet the exigencies of 
 the time, and that it must be construed practically m the light of 
 reason If I am correct about it, he was one of the first to advocate 
 that doctrine, and he did refer especially to Mr Bryan's contention 
 that the tariff, for instance, should be used to moderate the evil effects 
 of the trust a' n d that it should be taken off all articles where 50 per 
 cent or more of that article was manufactured by a trust or by any 
 other combination. Does that not refresh your mind as to whether 
 I am stating that correctly or not? 
 
 Mr Jot I think it does. My recollection of that proposition has 
 been considerably upset by Senator Cummins. 
 
1316 HEARINGS BEFORE 
 
 Senator Townsend. Knowing you so well, I know that you would 
 not intentionally make a misstatement. 
 
 Mr. Joy. I would entirely defer to your better knowledge of the 
 matter. I withdraw my reference to that matter entirely, because it 
 is of no significance anyway. 
 
 Senator Townsend. I should think there would be no objection, so 
 far as I know now, if you have not the speech itself to put in 
 
 Mr. Jot. No; I have not. 
 
 Senator Townsend (continuing). For you to withdraw your state- 
 ment with reference to that particular matter, because I am sure you 
 misunderstood the fact. 
 
 Mr. Jot. Yes : it has been several years ago. 
 
 The Acting Chairman. That is a matter entirely with the com- 
 mittee, as to whether he has the right to withdraw his statement. 
 Tt seems to me that a good deal of what has been said there has been 
 so interwoven with his other testimony that to take it out would 
 mean the entire rearrangement of his testimony. 
 
 Senator Pomerene. He could either withdraw his testimony or 
 put in the justice's speech. 
 
 Mr. Jot. I will certainly correct the matter in accordance with 
 the facts, as you suggest. I should like to have my statement left 
 out until the thing can be placed right. 
 
 The Acting Chairman. The only thing I wanted to correct you 
 on was that I know it was not an attack upon the antitrust law. 
 
 Mr. Jot. Then I am wrong. 
 
 Senator Townsend. As I understood you, Mr. Joy, your concern 
 has not suffered from the hard times, the depressed conditions of 
 business ? 
 
 Mr. Jot. No; it has not, except in this respect, for example, that 
 we went on as we always have done and a-' all manufacturers do, I 
 think, and figured on a percentage of increase of trade and commer- 
 cial business, and we have gone ahead and built a lot of buildings, if 
 you please, factory capacity, hoping to occupy it for commercial 
 vehicles, etc. ; and I know that our trade has not increased in propor- 
 tion to the growth of the commerce as it should have. That is the 
 way we feel about it. That is the way I feel about it personally. 
 At the same time we have as large a number of employees in our fac- 
 tory to-day as we ever had. 
 
 Senator Townsend. You can not trace that directly to any at- 
 tempts at the enforcement of the Sherman antitrust law, can you ? 
 
 Mr. Jot. No ; but you can trace the trend of the condition of things 
 in the volume of daily orders received. The effect of a public act 
 of great importance like the rate injunction or the filing of the Steel 
 Trust suit or the recent declaration of ex-President Eoosevelt, which 
 released a great volume of business. 
 
 Senator Townsekd. Well, we have been having public speeches 
 for a good many years. 
 
 Mr. Jot. It is a curious statistical record. 
 
 Senator Townsend. I want to call your attention to this fact; you 
 cited or put into the record a clipping from a Washington paper 
 referring to the fact that 90 men or more were in the bread line. 
 That was here in the city of Washington, was it not? 
 
 Mr. Jot. Yes, sir. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1317 
 
 Senator Townsend. Do you know of any industry here in Wash- 
 ington that has been affected by the Sherman antitrust law that 
 would bring about that condition? 
 
 Mr. Joy. I do not. 
 
 Senator Townsend. The salaries of employees of the principal in- 
 dustries of this city have remained about the same ? 
 
 Mr. Joy. Yes, sir. I have no doubt. 
 
 Senator Townsend. I think that is all. 
 
 The Acting Chairman. Senator Gore, you may inquire. 
 
 Senator Gore. Mr. Joy, you stated a while ago that whenever a 
 promoter of a company should apply to a financial institution now 
 to finance a rolling mill in Detroit, to take the concrete case that you 
 cited, the answer is or would be "nothing doing "? 
 
 Mr. Joy. It has been " nothing doing. 
 
 Senator Gore. Outside of a rolling mill — you used that as an illus- 
 tration — you have no concrete case in mind of a rolling mill, have 
 you ? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. When was that? 
 
 Mr. Joy. lhat was a couple of months ago, I think. 
 
 Senator Gore. A local company wanted to put in a rolling mill in 
 Detroit? 
 
 Mr. Joy. Yes, sir; they were trying to get enough of us together 
 to take an interest in and build the mill. 
 
 Senator Gore. Do you know — or if you know, would you care to 
 state, to whom the application was made for the necessary capital? 
 You need not state it if you desire not to do so. 
 
 Mr. Joy. It was made to me and others of my acquaintance. 
 
 Senator Gore. To finance the enterprise? 
 
 Mr. Joy. No; not to finance it, but to take an interest in it. 
 
 Senator Gore. I understood you to say that if an effort was made 
 to finance a new enterprise, like a rolling mill, that those having 
 possession of the capital of the country would refuse, on the ground 
 that there was nothing doing. Did I misunderstand you? 
 
 Mr. Joy. Yes ; you misunderstood me. 
 
 Senator Gore. You mean that the stock could not be disposed of; 
 some people would not subscribe for it ? 
 
 Mr. Joy. Yes. My statement was, or my intention was to state that, 
 due to the general uncertainty and hesitation on the part of business, 
 the effort of these gentlemen to get a sufficient number of people 
 together in Detroit to add to the industries of Detroit a considerable 
 rolling mill was unsuccessful. This hesitation, this uncertainty, this 
 fear of business prevents. 
 
 Senator Gore. That is due to the general lack of confidence and 
 general business depression, isn't it? 
 
 Mr. Joy. Well, yes ; I should say that it was due to the uncertainty 
 
 W Senator Gore. It is not due at all to the Sherman antitrust law, 
 
 do you think? , 
 
 Mr Joy That creates uncertainty. All the attacks on corpora- 
 tions," and the dissolution of corporations; those things render you 
 doubtful as to what is going to happen. ... oli 
 
 Senator Gore. This law has been m effect 21 years— this bner- 
 man law. 
 
1318 
 
 HEARINGS BEFORE 
 
 Mr. Joy. It has been passed 21 years. 
 
 Senator Gore. There has been a good deal of large financing during 
 that time, I think. 
 
 Mr. Joy. Yes, sir; there has been a good deal of financing during 
 that time, supposedly legal. 
 
 Senator Gore. Do you think the uncertainty is increasing? 
 
 Mr. Joy. The uncertainty is increasing. Yes ; I think it is. 
 
 Senator Gore. This effort to finance this concern in Detroit was 
 since these decisions in the Tobacco and Standard Oil cases, was it 
 not? 
 
 Mr. Joy. No; I think it may have been between them or there- 
 abouts. 
 
 Senator Gore. I thought you said it was about two months ago. 
 
 Mr. Joy. It may have been two months ago. 
 
 Senator Gore. The decisions, I believe, were rendered in May. 
 
 Mr. Joy. That might have been. 
 
 Senator Gore. Then you do not remember whether the effort was 
 before or since those decisions? 
 
 Mr. Joy. No, sir; I can not remember whether it was before or 
 since. 
 
 Senator Gore. Whether it was before or since those decisions were 
 rendered you would be returned the same answer now? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. Exactly the same uncertainty prevails in the minds 
 of the business men now as before the decisions were rendered. 
 
 Mr. Joy. Not so much uncertainty. There is more of a certainty 
 that the splitting up of corporations and the further attacks on or 
 regulation of large corporations is going to proceed on and on and 
 on and down the line. 
 
 Senator Go.be. Then the decisions have done more harm than 
 good? 
 
 Mr. Joy. I do not think so. I think the thing had to come to a 
 day of reckoning. The country could not get along, and could not 
 live under the unfair conditions of competition prevailing; and it is 
 a wonder to me that it did not blow up before. 
 
 Senator Gore. But since then the business men can not engage in 
 any new business enterprises because of the uncertainties ? 
 
 Mr. Joy. A business man can if he wants to, but he would rather 
 wait a little while. 
 
 Senator Gore. But he does not do it. 
 
 Mr. Joy. He does not do it, not to so great an extent. 
 
 Senator Gore. Now, you think that situation would be cleared up 
 by the tribunal which you have described to the committee? 
 
 Mr. Joy. I think it would be helped very much, in my judgment, 
 if the business of the country could, so far as practicable, be kept out 
 of courts ; hence from the uncertainty and delay of forced litigation. 
 
 Senator Gore. Your idea, then, is when two or more companies de- 
 sire to merge or consolidate that they would make application to 
 your tribunal and would receive its approval or disapproval? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. Then as to the conduct of the new concern, after 
 that approval, you would subject misconduct on its part to prosecu- 
 tion? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1319 
 
 Mr. Joy. Absolutely, and jail sentences, too, if the thing was 
 clearly understood. 
 
 Senator Gore. Then your commission and your remedy simply 
 relate to the formal act of merging or consolidating two concerns? 
 
 Mr. Joy. Principally; principally to the formal act of consolidat- 
 ing; but, without regard to consolidating, my main point is that a 
 regulation which will prevent unfair competition is that which 
 business men generally seek. 
 
 Senator Gore. I will come to that a little later. If your plan was 
 to take these consolidations out of the courts, do you not think it 
 would take them into politics? In other words, would not this com- 
 mission and the appointment of this commission and the election of 
 the President to appoint the commission — would not that all be 
 dragged right into the midst of the political arena and make it the 
 very highest kind of a prize for big businesses to play for in politics 
 for the control of that commission? 
 
 Mr. Joy. "Well, this is a government of the people, and whatever 
 they say is bound to rule, and I am cordially in sympathy with the 
 government of the people and their decisions; and their decision, 
 consequently, would control such a bureau. My only idea is that 
 the people should have the facts, the truth, as to these corporations, 
 which they could get from this authorized bureau. 
 
 Senator Gore. Do you not think the worst sort of influences would 
 be brought to bear on the people by big people to influence their 
 choice of President? 
 
 Mr. Joy. I do not think that is a serious matter. 
 
 Senator Gore. Well, now, then, with reference to the absorption of 
 the Tennessee Coal & Iron Co. by the Steel Trust, do you not 
 think that is one of the most striking incidents in our industrial his- 
 tory of a big concern devouring or swallowing up its rival? 
 
 Mr. Joy. Well, Senator. I am not sufficiently informed about the 
 facts "as to what brought the Tennessee Coal & Iron Co. into such a 
 condition and its stockholders or owners into such a condition as that 
 they were willing to sell it. They might have wanted to sell it be- 
 cause they got paid for it. 
 
 Senator Gore. Undoubtedly. 
 
 Mr. Joy. Because they got the price that they were willing to take 
 
 Senator Gore. Well, then, do you think that a concern that is 
 willing to sell out and gets the price it wants ought to be allowed tp 
 
 sell out? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. Even though it be a monopoly that controls an 
 entire trade or industry? 
 
 Mr Joy The result would be, according to my notion, that by a 
 srrowth of' business an aggregation of companies coming together 
 would step over into the control of governmental supervision. 
 
 Senator Gore. Your idea is that the Steel Trust ought to be allowed 
 to buy every independent steel concern in the country if they could 
 
 5 ' g Mr Toy Y^sTtnen they will have to go to work and conduct their 
 business under the control of this department which will tell them 
 what prices they may make, just exactly as the rates for railroads 
 are now investigated and fixed and published. 
 
1320 HEARINGS BEFORE 
 
 Senator Gore. Then you would give your commission power to 
 authorize that sort of absorption and monopoly ? 
 
 Mr. Jot. Yes, sir. 
 
 Senator Gore. Then your idea is regulated monopoly ? 
 
 Mr. Joy. If it comes to that point. If a monopoly develops or 
 exists or comes about, then it must be regulated. If I bring to this 
 bureau 10 companies and say", "Here, we have been fighting and 
 quarreling and wrangling until we are all sick. We have destroyed 
 our own credit;' we have no ability to provide any more money and 
 we want to join together and go out of business individually and 
 become a monopoly under the direction of the Government." 
 
 Senator Gore. You would have your commission approve of that 
 proposition ? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. Then, as a matter of fact, your commission would 
 not have any discretion to permit or to allow or disallow the forma- 
 tion of a monopoly? 
 
 Mr. Joy. It would control monopoly and direct and regulate prices, 
 and it would regulate and prevent any unfair competition. 
 
 Senator Gore. The mere propriety, however, of a consolidation or 
 a merger would not come within their discretion? You would let 
 that go forward if the proposing companies desired it ? 
 
 Mr. Joy. Yes, sir; under the bureau's control and approval. 
 
 Senator Gore. Then the vital point in your plan is simply the 
 regulation of prices? 
 
 Mr. Joy. The prevention of unfair competition. 
 
 Senator Gore. But you have no competition at all when all your 
 companies combine. 
 
 Mr. Joy. That is, in that particular line ; but there are millions of 
 other concerns. 
 
 Senator Gore. But I am talking about that particular line. 
 
 Mr. Joy. Then that line would be a monopoly, totally directed by 
 the Government. 
 
 Senator Gore. With the Government fixing the prices? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. And that is your remedy for the present situation? 
 
 Mr. Joy. As to that particular point; yes, sir. I think that is an 
 indispensable condition of things where you get to a point where the 
 corporation is of so great a magnitude as to be a monopoly or control 
 a very large percentage of the situation; I believe it should be con- 
 trolled by the Government so as to prevent unfair competition. 
 
 Senator Gore. You mix up the two ideas. When you get a mo- 
 nopoly you have no competition. The word " monopoly " excludes 
 the idea of competition. 
 
 Mr. Joy. That is a continually changing situation. I will assume 
 that we 10 men — the 10 corporations I spoke of a moment ago — have 
 been cutting each other's throats and destroying each other's prop- 
 erty, and we go to the Government and say : " Here, we want to 
 consolidate these things — make up a monopoly. We control 100 per 
 cent of the industry and we want to become a monopoly." All right, 
 we will say that that is approved by the Government, and the com- 
 mission authorizes it, and it goes on and fixes prices, and the mo- 
 nopoly goes ahead. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1321 
 
 Now, we will assume that another concern — unfair competition hav- 
 ing been eliminated — that you and I might start up another company 
 directly in that line of business. We would be protected from unfair 
 competition, and we could begin from the drop of the hat and conduct 
 our business knowing that unfair competition could not be used to 
 stifle us, but only the fair regulated competition of a monopoly under 
 Government control. That would give us a far cleaner slate to start 
 our business under than now exists, and to which, in my judgment^ 
 there could be no serious objection. It would enable you and I, with 
 our associates that we might have gathered together, to build up an- 
 other business directly in the same line without fear of being mur- 
 dered in the night through unfair competition. 
 
 Senator Gore. Then, if your company, the one in which I am 
 interested, could sell cheaper than this chartered company under 
 Government control could sell? 
 Mr. Joy. We would beat them out. 
 
 Senator Goke. You do not think it would be fair for the commis- 
 sion to keep those prices fixed and cut their throat? It would not 
 do for the Government to hold them while we cut their throat ? 
 Mr. Joy. I did not quite understand you. 
 
 Senator Goke. I say you do not think it would do for the Govern- 
 ment to hold this chartered monopoly while we cut its throat by 
 underselling the Government prices fixed on their stuff ? 
 
 Mr. Joy. We could put our prices the same as the Government 
 prices ; maybe we could make a little better stuff. 
 
 Senator Gore. If we could make cheaper stuff and could do it at 
 a lower cost and undersell them, then what? 
 
 Mr. Joy. Take the ordinary conditions applying to any business 
 competition. All we would want to do would be to get what busi- 
 ness we could, and we would simply make the price of our product 
 according to the market. 
 
 Senator Gore. I assume that we would be able to undersell the 
 Government monopoly. 
 
 Mr. Joy. We would put our prices at par, or at enough to get what 
 business we wanted. That is the proposition. . 
 
 Senator Gore. Suppose that by reason of methods ot efficiency, 
 scientific management, etc., we can undersell them, has the consumer 
 the right to benefit by our skill? 
 
 Mr. Joy. No ; not if we can get more for our product. 
 Senator Gore. Your idea is to get all you can? 
 Mr Joy. Under the competitive conditions: 
 Senator Gore. But you would not have competitive conditions. 
 Mr Joy We would have to compete with this hitherto monopoly. 
 Senator Gore. You do not quite get the point. The Government 
 fixes a price for your monopoly. Now, we can sell under those 
 
 prices ? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. And still make a reasonable profit l 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. Ought we not to do it i 
 
 m" Joy. No, sir ; not if we can get more for it. It is a legitimate 
 competitive business, isn't it? . 
 
 Senator Gore. You think people ought to make more than a fair 
 
 profit ? 
 
1322 HEABINGS BEFORE 
 
 Mr. Joy. I think people ought to make any money they can out 
 of any business which is lawful and proper. 
 
 Senator Gore. And the consumer ought to be compelled to pay 
 our prices? 
 
 Mr. Jot. He ought to be compelled to pay our prices or get his 
 goods elsewhere. 
 
 Senator Gore. Do you not think the very object of competition is 
 to sell to these people at a reasonable profit? Isn't that the very soul 
 of competition? 
 
 Mr. Joy. What is? 
 
 Senator Gore. Isn't the very soul of competition to compel com- 
 petitors to sell to consumers at a reasonable profit and be content 
 with that? 
 
 Mr. Joy. That is the result of competition. 
 
 Senator Gore. Well, do you not think the people, the mass of the 
 people, have the right to buy things on the basis of a reasonable re- 
 turn to the producer? 
 
 Mr. Joy. They have, unquestionably, where businesses become of 
 a certain quasi public nature by reason of their magnitude and gen- 
 eral control of a product. But I feel that anybody who wants to 
 go into the business of making tables or inkstands or anything else 
 has a perfect right to sell his product for as much as he can get for 
 it and make as much profit as he can. 
 
 Senator Gore. You think the rights are all on his side and the con- 
 sumer has no rights in the premises? 
 
 Mr. Joy. If the consumer does not want his table, he can get some 
 other table. 
 
 Senator Gore. But they can not do it under your scheme. 
 
 Mr. Joy. Yes; they can. 
 
 Senator Gore. If the Government fixes the price of everybody's 
 output, all we have to do is to conform with the Government's price. 
 
 Mr. Joy. What is- to prevent somebody else starting up ? 
 
 Senator Gore. He would fix his price at the Government-fixed 
 price. Suppose he did not, and somebody else did start up a new 
 concern, and undersells the price fixed by the Government to the 
 monopoly, and undersells this price fixed by you and me; what is 
 the Government then going to do with the monopoly price ? 
 
 Mr. Joy. They could lower it, could they not ? 
 
 Senator Gore. I want to get your view on that point. 
 
 Mr. Joy. But you would get a sufficient amount of trade, neverthe- 
 less, to still warrant them in running at the price at which they can 
 •afford to make the goods, because the cost of the goods is always 
 varying — due to the skill with which they are made, the ability of the 
 salesman to sell goods to the people under different circumstances 
 and conditions — and while you and I might be in a competing busi- 
 ness and making a thing as nearly alike as possible, your price might 
 be higher than mine, yet you would get a fair share of the business, 
 due to the skill of your salesmen, the talent of your advertising de- 
 partment, the general business methods, and the efficiency with which 
 you conducted your affairs ; and those are the limits that we wish to 
 inculcate. 
 
 Senator Gore. If all producers acted on the principles that you 
 suggest you would act on, there never would be anybody who would 
 
COMMITTEE ON INTERSTATE COMMERCE. 1323 
 
 sell at anything lower than the price fixed by the Government, even 
 though he made 100 or 200 per cent. 
 
 Mr. Jot. I can imagine such a thing as a Government monopoly 
 being considerably annoyed and being beaten out in commerce and 
 being made to shut up. 
 
 Senator Gore. Not if everybody sold at the price that you sold at— 
 as high as you could get. 
 
 Mr. Joy. I would make my price to give me what business I could 
 control. Unquestionably it is the privilege of a man in business to 
 make what money he can. Competition is the thing which controls. 
 
 Senator Gore. And your idea is that the price ought to depend 
 purely on the power of the producer— how < much he can extort he 
 ought to have ? 
 
 Mr. Joy. If he has the power to extort the money from the public 
 by reason of his control of a necessary and indispensable product, 
 then it should be regulated. It is not a question of extorting money. 
 You are losing sight, I think, of the fact that— go into a thousand 
 lines of trade — it is a mere question of the worth of the article to you. 
 
 Senator Gore. That is true. A man might pay a million dollars 
 for the breath to live 10 minutes. 
 
 Mr. Jot. Or he might pay $500,000 for a necklace for his wife. 
 
 Senator Gore. But your idea is to protect these concerns against 
 overcompetition ? 
 
 Mr. Jot. No, sir; not overcompetition. 
 
 Senator Gore. I understood you to say that if one company could 
 not survive it ought to be protected and lean on some other company. 
 
 Mr. Jot. No. You do not get my idea on that proposition. I 
 will say this, that if there are three concerns in business — three large 
 concerns, if you please — one of those concerns is not up to par; its 
 facilities are not up to par; it has not been intelligently run; its 
 supplies of raw material and a thousand things render that corpora- 
 tion unable to compete with the other two. Those other two, if they 
 drive that corporation out of business, are going to supply the mar- 
 ket which was formerly divided between the three. We will assume 
 that the second corporation is not even up to the economies of the 
 third company, but its economies are practically consistent with their 
 best general methods. Yet between those two companies, in their 
 war with each other, they find that they have gotten a measure of 
 each other's strength, and they get to fighting and warring in the 
 premises, and finally they say to this department : " Gentlemen, we 
 are killing each other ; we are not making any money " — at least the 
 second one is not ; the third one is making a fair revenue—" we are 
 killing each other ; we want to consolidate and have our prices regu- 
 lated by this department, because here is an enormous concern which 
 is producing on a very fair economical basis. If we do not com- 
 bine, we will drive out this number two concern and leave a com- 
 plete monopoly of the trade. That is too expensive a proceeding. 
 We want to consolidate and have our prices regulated." 
 
 Now, I think that is a legitimate proceeding. 
 
 Senator Gore. If No. 1 can crush the other two and make more 
 money, why not let him do it ? 
 
 Mr. Jot. That is what he will do. 
 
 Senator Gore. Why not let him. If you are going to let him crush 
 the smallest, why prevent him from crushing the other one ? 
 
1324 HEARINGS BEFORE 
 
 Mr. Joy. It is only an economic condition which would result in a 
 great loss in production. 
 
 Senator Gore. Do you not think you would be appealing to the 
 laws of the " survival of the fittest" in that case? 
 
 Mr. Joy. No, sir. 
 
 Senator Gore. You do not think the inefficient concern ought to 
 go to the wall ? 
 
 Mr. Joy. I think the inefficient concern ought to go to the wall if its 
 conditions are irremediable, due to the nature of the location, etc., 
 on other basic or natural causes. 
 
 Senator Gore. If it is preserved, does that not lower the general 
 level of efficiency? 
 
 Mr. Joy. I would not say that. 
 
 Senator Gore. That would depend on the particular case, of 
 course ? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Gore. That is all. 
 
 The Acting Chairman. Senator Pomerene, you may inquire. 
 
 Senator Pomerene. I have just a few questions. Mr. Joy, you have 
 talked considerably about the uncertainty. You mean the uncer- 
 tainty due to the administration and enforcement of the Sherman 
 law? 
 
 Mr. Joy. Yes; I think that would be what I mean, and including 
 the uncertainty due to the general business unrest attendant thereon. 
 
 Senator Pomerene. Well, are you familiar with the facts in the 
 Tobacco case or the Standard Oil case ? 
 
 Mr. Joy. No, sir; I am not. 
 
 Senator Pomerene. You are not prepared to say, then, whether 
 the Government was justified in beginning those prosecutions or not, 
 are you? 
 
 Mr. Joy. As a layman, Senator, I can only state that in my judg- 
 ment the Government was entirely warranted in endeavoring to 
 rectify the crimes that are alleged to have been committed. 
 
 Senator Pomerene. What was the situation which makes you think 
 the Government was warranted in doing that? 
 
 Mr. Joy. Because of the general knowledge I have of the methods 
 pursued by the Standard Oil Co. 
 
 Senator Pomerene. That is, you understand, do you not, that they 
 were, by cutting prices or by other means, forcing competitors out of 
 business ? 
 
 Mr. Joy. Yes, sir ; that is my understanding. 
 
 Senator Pomerene. And you understand that the American To- 
 bacco Co. ; by cutthroat competition, was forcing their competitors to 
 the wall or forcing them to sell out to the trust ? 
 
 Mr. Joy. That is my understanding, but I do not know anything 
 about it, because I am not connected with it. 
 
 Senator Pomerene. Now, then, that being the situation, you say 
 you feel that the Government was justified in taking the stand that it 
 did in those prosecutions? 
 
 Mr. Joy. Yes, sir; that is my notion. 
 
 Senator Pomerene. So that the fault has been, not with the law 
 and not with the Government, but rather the unwarranted methods 
 of doing business. That is true, is it not ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1325 
 
 Mr. Joy. Yes ; to a certain extent. But let me qualify mv answer 
 in that regard, if you will please pardon me. You, I guess, recall— I 
 certainly recall — times when the business of a man was his own busi- 
 ness, where his methods of conducting it to success were just as 
 piratical and unprincipled as he chose to make them. 
 
 Senator Pomerbne. Assuming that is so, you do not mean to justify 
 that, do you? 
 
 Mr. Jot. No, sir; I do not justify that. 
 
 Senator Pomerene. You do not in good morals do it? 
 
 Mr. Jot. No ; not in the slightest degree. My point is simply this : 
 That from the old condition of piracy down to the present time, 
 where our civilization, we hope, is improving and getting a little 
 better, the education has been gradual and the transition has been 
 slow, but it has been coming. Now, the question in my mind is, 
 Where does the exact line cross over, that a man shall go to jail for 
 doing what he thought was right to protect the property of his 
 stockholders? 
 
 Senator Pomerene. Did not Congress tell the public that when it 
 passed this law in 1890? 
 
 Mr. Jot. Yes. But, Senator, I have known laws to be passed and 
 be enforced and litigated and fussed with and discussed for years 
 and then declared unconstitutional or invalid. 
 
 Senator Pomerene. Do you think the business man is safe in as- 
 suming that is going to be done, when a law of that kind is placed 
 upon the statute books? 
 
 Mr. Jot. He is not safe by any means, but the conditions which 
 surround him, I submit to your consideration, are the facts that he 
 is in a business in which there is the severest competition all the 
 time — enemies to compete with, archenemies trying to put him to 
 the wall, and he trying to put them to the wall. We will assume that 
 condition existed years ago, and the question is, What on earth is 
 there to do ? Here comes up the antitrust law. We will suppose 
 that those companies who are fighting with each other say, "Well, 
 our counsel advise us that it is possible. It seems to be a lawful way 
 of controlling trade. We will consolidate ; we will buy them out ; we 
 will stop pooling." 
 
 Senator Pomerene. What instance have you in mind when you 
 Bay that? 
 
 Mr. Jot. I haven't any particular instance in mind. 
 
 Senator Pomerene. Then, why do you cite an instance of that 
 kind if you have no particular instance in mind ? 
 
 Mr. Jot. I am speaking purely and simply of well-known facts, 
 as I understand them. 
 
 Senator Pomerene. That is, rumors circulated by those people 
 who are violating the law ? 
 
 Mr. Jot. No, sir ; I do not think so. 
 
 Senator Pomerene. Is not that the substance of it ? 
 
 Mr. Jot. I do not think so. 
 
 Senator Pomerene. The courts have no difficulty in understanding 
 this law as a rule, have they ? 
 
 Mr. Jot. As a rule. I do not know anything about it. It has 
 been litigated for a great many years — 20 years or more— with vary- 
 ing degrees of result. I think, Senator, it is perfectly fair to admit 
 
1326 HEARINGS BKFOBE 
 
 that, a company could get into a position where it would have to 
 decide whether it would stay out or not of a business consolidation 
 of that kind, where their counsel expressed a doubt as to their right 
 to go in, where the other alternative was business suicide. 
 
 Senator Pomerene. You were in that position, were you ? 
 
 Mr. Joy. No, sir ; I have never been placed in that position. 
 
 Senator Pomerene. Did you not say here a moment ago that you 
 talked about a consolidation, and that you went to your counsel, and 
 your counsel advised you that it would be of doubtful validity ? 
 
 Mr. Joy. That was within a year, you know. 
 
 Senator Pomerene. You followed their advice, didn't you ? 
 
 Mr. Joy. No ; we didn't do anything about it. 
 
 Senator Pomerene.' You didn't go into it? 
 
 Mr. Joy. We did not. We never discussed the matter, because 
 it seemed to be of a doubtful economic value as a business matter. 
 
 Senator Pomerene. You are not finding any fault with your law- 
 yers for keeping you out of trouble ? 
 
 Mr. Joy. I do not think they kept us out of trouble, because my 
 notion is that we would not have gotten into trouble if we had gone 
 into the thing. 
 
 Senator Pomerene. Do you refer to that because you find objection 
 to the Sherman law? 
 
 Mr. Joy. I refer to it because it indicates the fear that is in the 
 minds of people who are discussing this matter all the time. 
 
 Senator Pomerene. You found that you could not. As a good 
 citizen, it was your duty to comply with that advice ? 
 
 Mr. Joy. We did not find that we could not. 
 
 Senator Pomerene. You found that it was doubtful ? 
 
 Mr. Joy. We found that it was doubtful ; yes, sir. 
 
 Senator Pomerene. Being doubtful, then, it was your duty to keep 
 on the safe side, was it not? 
 
 Mr. Joy. I do not think that that would be always the case, be- 
 cause if the keeping on the safe side meant the sure death of my 
 corporation through the going ahead of its competitors, leaving 
 mine on the beach of safety and security to rot and dry up, while 
 my trade was being captured and was going to the other gentlemen 
 who went ahead and took the chances of being right in the end, 
 and then have them decided to be right and safe, would be very, very 
 wrong, and I would feel that I were a coward if such a condition 
 should arise and I didn't dare to try to save the interests of my 
 stockholders and employees. 
 
 Senator Pomerene. On the same parity of reasoning, if your com- 
 petitors stole horses, you oueht to be permitted to steal horses also ? 
 
 Mr. Joy. No ; not in the slightest degree, and I do not think the 
 comparison is a fair one. 
 
 Senator Pomerene. It carries out the illustration. 
 
 Mr. Joy. I disagree with you. 
 
 Senator Pomerene. You spoke of business conditions. Do you 
 understand there has been any less business in this country because 
 of these uncertainties than there was before? 
 
 Mr. Joy. No, sir; I do not understand that at all. I understand 
 that the business of the country has been on a general average about 
 the same, or not far from the same ? but there have been considerable 
 depressions in certain lines, especially with productions connected 
 
COMMITTEE ON INTERSTATE COMMEECE. 1327 
 
 with railroad supplies, for example, and things of that character have 
 been seriously affected, and much other business and trade generally. 
 
 Senator Pomerene. Every industry has more or less ofups and 
 downs? 
 
 Mr. Joy. Yes, sir. 
 
 Senator Pomekene. But when we speak of general conditions, the 
 general business conditions have been as good, if not better, during 
 the past year than they have been in any year in our history? 
 
 Mr. Joy. I think not ; not according to the impressions I get from 
 talking with the gentlemen whom I meet. 
 
 Senator Pomerene. Our business conditions are pretty fairly de- 
 termined by what our export trade is, are they not? 
 
 Mr. Joy. No ; I do not think that has anything to do with it. 
 
 Senator Pomerene. What is your notion about the export trade? 
 
 Mr. Joy. My notion about the export trade is that it takes all kinds 
 of shapes and conditions. 
 
 Senator Pomerene. Has it increased or decreased during the past 
 year ? 
 
 Mr. Joy. I know nothing about that, except what I have heard 
 since I have been in this room. 
 
 Senator Pomerene. And that was to the effect that during the 
 past year the exports have increased over $200,000,000? 
 
 Mr. Joy. I do not know anything about it. 
 
 Senator Pomerene. The total exports for this year will amount 
 to over $2,000,000,000 and the total imports to $1,500,000,000. 
 
 Mr. Joy. I do not think those figures amount to anything at all 
 in measuring up the principal amounts, for these exports could be 
 raised by fostering the foreign trade. 
 
 Senator Pomerene. They might be increased, that is true. 
 
 Mr. Joy. They might be doubled. Would it not be possible to 
 double them, in your opinion, by letting the business develop, guid- 
 ing it and aiding it, as far as practicable, in the capture of foreign 
 markets ? 
 
 Senator Pomerene. I want to see all lines of business developed— 
 doubled and quadrupled, if possible ; but I want to see it done along 
 legitimate lines. 
 
 Mr. Joy. Yes; along legitimate lines. 
 
 Senator Pomerene. And I do not believe that business men are 
 justified in insisting upon doing business along illegitimate lines. 
 
 Mr. Joy. Well, now, I do not think, Senator, of a single business 
 man — I do not know a single one at all anywhere that I come in 
 contact with — who has any desire, or any wish even, to do business 
 along illegitimate lines. 
 
 Senator Pomerene. I agree with you that the vast majority of them 
 are honest and want to do business along honest lines; but when it 
 comes to the men who do business as the American Tobacco Trust 
 has done and the Standard Oil Co. has done, I do not think that you 
 can mention them in the same breath as you can legitimate businesses. 
 Mr. Joy. No. sir; I do not think so; but my desire to make an 
 appeal here before this committee so that the rock that you may throw 
 at the tobacco company won't hit some little fellow across the street. 
 
 Senator Pomerene. I agree with you thoroughly. 
 Mr. Joy. That is all I am after. I think the control of the busi- 
 ness of the American Tobacco Co. could just as well have been fixed 
 
 99877 — VOL I — 12 84 
 
1328 HEARINGS BEFORE 
 
 and, determined years ago, but we were not then awakened to the 
 situation; people had not arisen to the magnitude of the subject. 
 But it has not been improved, in my opinion, by dividing it into 
 smaller companies. That does not control it. 
 
 Senator Pomerene. Just one other question. You referred to what 
 the President had said in his message about this offense being better 
 understood. Do you think you place a fair construction on the Presi- 
 dent's words? 
 
 Mr. Joy. Well, I think so. I try to be fair. 
 
 Senator Pomerene. Is not this really what that language means: 
 Not that certain conduct was understood to be an offense or not to 
 be an ofFense, but that the character of the offense, the heiniousness 
 of it, the viciousness of it was better understood now than it was 
 before — is not that a fair construction to place on the President's 
 language ? 
 
 Mr. Joy. I would hardly think so. It did not strike me so at all. 
 It did not even occur to me to take it that way. I looked at it from 
 an entirely different point of view. His text speaks for itself. The 
 words you use are not there. 
 
 Senator Pomerene. I understand the manner in which you looked 
 at it, but I hardly think it will justly bear the construction which 
 you place upon it. 
 
 Mr. Joy. That is the way it struck me. It might be taken in 
 several ways, but that is what it says. 
 
 Senator Pomerene. Just another question. You said you would 
 have this commission of yours paid $100,000 a year salary? 
 
 Mr. Joy. Or some sum that is adequate, T said. 
 
 Senator Pomerene. Would you regard that as an adequate sum? 
 
 Mr. Joy. I would state this : That I think those men, if you should 
 to carry the proposal out, ought to be men who would be taken from 
 the walks of life where their life's experience was of very great 
 intrinsic value to them, so that they would give the last 10 years or 
 the last 9 years of their practical, useful, active, and forceful and 
 fighting existence to the development of the commerce and industry 
 of the United States. 
 
 Senator Pomerene. You do not mean to say, do you, that you would 
 determine a man's qualifications to serve upon this commission by 
 the amount of money that he has heretofore obtained in his business ? 
 
 Mr. Joy. No; I would not determine his qualifications by the 
 amount of money. I would determine them largely by his experience 
 and ability and record and standing in the Nation's commercial and 
 industrial field of effort. 
 
 Senator Pomerene. Now, the present Chief Justice of the Supreme 
 Court of the United States is concededly one of the ablest men who 
 ever sat on that bench, and he serves for $15,000 a year. Do you not 
 think that the services that Mr. Chief Justice White has rendered the 
 country since he has been on that bench has been equal to the service 
 which has been rendered to this country by any one of the millionaire 
 manufacturers of the country ? 
 
 Mr. Joy. Why, I shoulH think so. I mention the amount as my 
 measure of the seriousness and importance of the duties to be 
 performed. 
 
 Senator Pomerene. I think that is all. 
 
 Mr. Joy was thereupon excused. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1329 
 
 ™!S e ^ C1 7 N £ Cl ? AIRMAN -. The commi ttee will take a recess until 
 10.60 o clock Monday morning. 
 
 [Letter from Senator Townsend embodying telegram from H. B. Joy] 
 
 „ n „ „ December 20, 1911. 
 
 u7- C j AK t Si ?nator: If the testimony of Henry B. Joy, of Detroit has not been 
 
 minted i *t T ^trT^ ^ pU " ished in'connectionVitt Ms state- 
 merit, and if it has been published, then please insert it as nearly as possible to his' 
 statement. I received a telegram from hi"m to-day stating that he had 1 forgotten hS 
 was connected with the beet-sugar factories of Mn/higan which were merged and he 
 desires now to state that he was so connected. He makes this statement in view of 
 what he said namely, that he had never been connected with a merger He was 
 
 Respectfully, 
 
 Hon. Moses E. Clapp, ° HAS - K T °™send. 
 
 Chairman Committee on Interstate. Commerce, 
 
 United States Senate. 
 
 (Thereupon, at 4 o'clock and 40 minutes p. m., the committee took 
 a recess until Monday, December 18, 1911, at 10.30 o'clock a. m.) 
 
 monday, december 18, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 The committee met, pursuant to recess, at 10.30 o'clock a. m., for 
 the purpose of further considering the bill (S. 2941) entitled "A bill to 
 create an interstate trade commission, to define its powers and duties, 
 and for other purposes," introduced by Mr. Newlands July 5, 1911. 
 Present: Senators Clapp (chairman), Cummins, Nixon, Oliver, 
 Lippitt, Townsend, Newlands, Watson, and Pomerene. 
 
 The Chairman. The following documents will be incorporated in 
 the record: 
 
 Address of Hon. Victor Morawetz, New York. 
 
 the trust problem. 
 
 During the last few years some eminent students of political economy as well as 
 some eminent business men have asserted that a radical change has taken place in 
 the economic development of the world; that the era of competition in trade has 
 gone forever, and that the time-honored maxim " competition is the life of trade" is 
 a fallacy and a delusion. Those who hold these views urge that the Sherman Antitrust 
 Act and all other laws prohibiting the monopolizing or restraining of trade should be 
 repealed. They say that these laws are in conflict with modern economic methods 
 and embody a reactionary attempt to stem natural evolution and progress in produc- 
 tion and in commerce. They say that the true solution of the problem of the trusts 
 and monopolies lies in Government regulation — a national incorporation act, the 
 licensing of corporations engaged in interstate commerce, a national commission to 
 supervise and regulate the conduct of interstate business, greater publicity in the 
 organization and affairs of corporations, and perhaps also Government regulation of 
 prices of trust-made products. 
 
 The view that a great change has taken place in the economic development of the 
 world and that the era of competition is dead I believe to be a mistake. History shows 
 that from the earliest days men have attempted, whenever opportunity offered, to- 
 monopolize industries and trade for their own profit at the expense of the community 
 at large. In the year 483 after Christ, Zeno, the Roman Emperor of the East, issued 
 an edict prohibiting under severe penalties the creation of monopolies in trade and 
 combinations to fix prices. _ In the year 1522 the diet of Nuremburg, Germany, 
 appointed a committee to investigate monopolies, which had become a source of 
 
1330 HEADINGS BEFOKE 
 
 complaint. Under the common law of England the formation of monopolies in trade 
 was illegal, and in 1602 it wae decided by an English court that royal patents or grants 
 purporting to give the right to enjoy monopolies in certain articles of trade were 
 unlawful and void. In the year 1623 Parliament passed a statute declaring that all 
 grants of monopolies were against the fundamental laws of the Kingdom. 
 
 In the last 20 years attempts have been made to create monopolies in some of the 
 large industries of the country, and, through the labor unions, in certain classes of 
 skilled labor; but monopolies in our industries still are the exception rather than the 
 rule. In the greatest of our industries — the farming industry — in the vast majority of 
 our manufacturing and industrial industries, in nearly all wholesale and retail trade, 
 in nearly all the professional pursuits, in many classes of skilled labor, and in practically 
 all classes of unskilled labor, competitive conditions still prevail. Moreover, it re- 
 mains to be seen whether the suppression of competition in trade so as to produce 
 monopolies and to enhance prices will have any enduring effect. In so far as monopo- 
 lies in the United States are made practicable by a high tariff on imports, thus exclud- 
 ing foreign competition, they are liable to be broken by a reduction of our tariff duties. 
 In so far as monopolies result in increasing prices, they are a direct incentive to the 
 creation of new competition. Moreover, lax management by paid employees often 
 puts large corporations at a disadvantage as against smaller competitors working 
 diligently in their own interest. 
 
 It has been claimed that the monopolization of the industries of the country, 
 subject to Government regulation, should be encouraged because it brings about 
 economies of production and of distribution and in the end will be for the good of 
 the whole people. No doubt it is true that in modern times the industries and the 
 commerce of the world are conducted on a greater scale than in earlier days and that 
 large aggregations of capital under corporate managements are necessary to secure 
 economy of production and economy of distribution. But, as I shall point out later 
 on, neither the common law nor the antitrust act prohibits aggregations of capital on 
 account of their magnitude, or prevents any combinations that are necessary to secure 
 economy of production or economy of distribution. These laws forbid contracts and 
 combinations among competitors only when their effect is to destroy competitive 
 conditions in some branch of commerce to such a degree as to create a monopoly con- 
 ferring the power to control prices and to obtain an undue advantage at the expense 
 of the people at large. We all know that in many cases the object of those attempting 
 to monopolize an industry is not to secure more efficient and more economical methods 
 of production or of distribution, but their real object is to destroy competition in order 
 to obtain control of prices and to profit at the cost of consumers, and sometimes also to 
 float securities on the New York Stock Exchange. 
 
 Whether or not the maxim be true that "competition is the life of trade," it cer- 
 tainly is true that in competition lives the spirit of human endeavor and that compe- 
 tition is necessary to the progress of humanity. Competition and struggle are neces- 
 sary to develop strong and resourceful men. We became enterprising and resourceful. 
 as a people and our country became rich and prosperous during the era of competition 
 and largely owing to the stimulus of competition. The monopolization of the indus- 
 tries of the country surely would result in lessening the initiative, the resourcefulness, 
 and the enterprise of our people. Monopolies have not been the cause of our indus- 
 trial progress. They have but reaped the fruits of the development and progress that 
 resulted from competition. 
 
 When the antitrust act was passed in 1890, contracts and combinations to monopo- 
 lize any branch of trade * commerce were unlawful at common law, and in some of 
 the States they were prohibited by statute. The common law also prohibited boycot- 
 ting in all its forms and it rendered illegal conspiracies by any means to destroy or 
 injure the business of competitors. There was also a rule of the common law 
 that a contract of an individual voluntarily placing an unreasonable restraint upon 
 his right to exercise his craft or trade was contrary to public policy and void, because 
 depriving the individual of his power to earn a livelihood and depriving the State 
 of the benefit of the individual 's labor. Such a restraint was held to be unreasonable 
 unless it was merely incidental to carrying out some fair and lawful transaction, such 
 as the sale of a business or good will. But subject to this exception contracts and com- 
 binations that simply diminish competition among those contracting or combining, 
 without restraining the trade or commerce of others and without monopolizing or 
 attempting to monopolize trade or commerce, were not unlawful at common law. 
 A combination was not unlawful solely by reason of its magnitude or by reason of the 
 large volume of its business. The common law did not prevent combinations so far as 
 necessary to secure economy of production and economy of distribution. 
 
 However, the common law did not furnish adequate remedies for preventing or 
 punishing the monopolizing or restraining of interstate trade or commerce, ana it 
 was doubtful whether, in the absence of national legislation, the common law rules 
 
COMMITTEE ON INTERSTATE COMMERCE. 1331 
 
 could be enforced in the United States courts bo as to prevent monopolizing or restrain- 
 ing interstate and foreign trade. Therefore, in 1890 the antitrust act was passed. It 
 is entitled "An act to protect trade and commerce against unlawful restraints and 
 monopolies." "Thejugto ry of the a ct isj tated in det ai l by ex-Se nato r Edmunds in an 
 a rticle publishedTnthlrpecember number j rf' the No rth Ame rican ] R fivipw_ Thp art 
 •was drawn x>y Senator iMmunds, who then^wSB" chairman of the Judiciary Committee 
 of the Senate. After very full discussion of the whole subject, the act was passed by 
 the Senate with but one dissenting vote, and it was passed by the House unani- 
 mously. It came to be called the Sherman Antitrust Act, although drawn by Senator 
 Edmunds, because it was a substitute for an act that had been introduced by Senator 
 Sherman. 
 The act contains two main prohibitions. It prohibits — 
 
 (1) Contracts, combinations in the form of trust or otherwise, or conspiracies, in 
 restraint of interstate trade or commerce; and 
 
 (2) Monopolizing or attempting to monopolize, or combining or conspiring to mo- 
 nopolize, any part of interstate or foreign trade or commerce. 
 
 On their face these prohibitions certainly do not seem revolutionary or in conflict 
 with sound political or economic policies. On their face, they appear to enforce 
 merely the well-established doctrines of the common law. However, great uncer- 
 tainty soon arose as to the meaning and legal effect of the act, and this uncertainty still 
 exists to a large degree. I think it fair to say that this uncertainty, in great measure, 
 was caused by a decision of the Supreme Court of the United States in the so-called 
 Knight case and conflicting dicta of judges of the Supreme Court in some of the subse- 
 quent cases . I believe that the actual decisions of the Supreme Court in all the cases 
 that came before it, except the Knight case, are sound and consistent with a harmonious 
 construction of the act which would effect its purpose without preventing any business 
 combinations or arrangements necessary to secure economy of production and of distri- 
 bution, and without interfering with any business methods that ever have been 
 regarded as lawful and proper. But the decision in the Knight case was clearly wrong, 
 and the opinions in a number of other cases contain statements as to the law that are 
 conflicting with each other and are inconsistent with a construction of the act that 
 would effect its real purpoee to protect trade and commerce. 
 
 The Knight case was the first important case arising under the antitrust act and it 
 was decided by the Supreme Court in 1895. It appeared that the American Sugar 
 Refining Co. had purchased the stock control of four independent sugar refining com- 
 panies, paying therefor with its own stock; that refined sugar was an article of inter- 
 state commerce and that all the companies were engaged m interstate commerce in 
 refined sugar. It further appeared that by such purchase the American Sugar Refining 
 Co. acquired a monopoly— 98 per cent— of the business of manufacturing and selling 
 refined sugar throughout the United States. The Supreme Court held that this trans- 
 action was not in violation of the antitrust act and the grounds upon which the court 
 based its decision were briefly as follows: (1) That commerce succeeds to manufacture 
 and is not a part of it, and, therefore, although a combination or conspiracy to control 
 the business of manufacturing an article of interstate commerce may tend to restrain 
 interstate commerce, the restraint in such case would only be an indirect result, how- 
 ever inevitable and whatever might be its extent; and (2) that, under the power to 
 regulate commerce, Congress could only prescribe the rules by which commerce should 
 be governed and could not regulate the use or the disposition of pn>|>eity or prohibit 
 monopolizing a manufacturing business merely because ultimately interstate or inter- 
 national commerce in the product of the business might be affected. The court held 
 also that, in view of these constitutional limitations, Congress did not attempt to limit 
 or restrict the rights of corporations or of citizens of the States m the acquisition, con- 
 trol or disposition of property merely because the result might be to create a monopoly 
 in a branch of interstate commerce. It is obvious that if this was the law the mam 
 purpose of the antitrust act would be defeated, for the act would not prevent the 
 monopolizing of trade by buying up the properties or the stock control of all competi- 
 
 °I S nl897 the Supreme Court decided the Trans-Missouri Freight Association case and 
 in the following year the Joint Traffic Association case. In those cases the Supreme 
 Court held that contracts or combinations among railway companies to maintain rates 
 as to competitive interstate traffic operated in restraint of interstate trade or commerce 
 and were in violation of the antitrust act. The court did not overrule or limit its 
 decision in the Knight case; but in aiwer to the argument that an agreement among 
 railway companies merely to maintain rates that were reasonable could not be held in 
 restraint of interstate trade or commerce, the court emphatically stated that the anti- 
 trust act in terms prohibited every restraint of interstate commerce whether reasonable 
 or unreasonable, and that the court could not read the word ' ' reasonable " into the act 
 
1332 HEABINGS BEFOBE 
 
 In 1899, in the case of Addyston Pipe Co. v. United States, the Supreme Court 
 decided that a contract among nearly all the manufacturers of iron pipe within 36 
 States and Territories to apportion among the members of the combination the Bales 
 of iron pipe in these States and Territories and by establishing ar community of 
 interest to destroy competition and to monopolize the trade in iron pipe for the 
 benefit of the contracting manufacturers, was in violation of the antitrust act. In 
 this case also the court did not overrule or limit its decision in the Knight case. 
 
 This was the state of the law during the period from 1900 to 1903, when the United 
 States Steel Corporation and many other great industrial combinations were formed. 
 At that time the decision of the Supreme Court in the Knight case Btood unreversed. 
 According to that decision Congress had no power to prohibit, and by the antitrust 
 act it did not undertake to prohibit, the acquisition by an industrial corporation of 
 the stocks or properties of its competitors in interstate trade or commerce, although the 
 result of such acquisition might be to monopolize the trade or commerce in the prod- 
 ucts of the combined companies. During that period,'also, the Department of Justice 
 took no steps to prevent the formation of these combinations and trusts which since 
 then have been attacked as in violation of the antitrust act. For these reasons it 
 certainly seems unjust to charge those who formed these combinations or trusts with 
 a willful violation of the law. They did only what the Supreme Court of the United 
 States had decided that they could lawfully do. 
 
 In 1904 the Supreme Court decided the Northern Securites case. In that case the 
 Supreme Court held that a combination to acquire and to vest in a holding company 
 a majority of the stocks of two railway companies operating parallel and competing 
 lines that were highways of interstate commerce was in restraint of interstate com- 
 merce within the meaning of the first section of the antitrust act. Again the court 
 did not in terms overrule or criticize its prior decision in the Knight case. The prin- 
 ciple decided in the Northern Securities case was this: It having been decided that a 
 combination among railway companies by agreement to maintain rates was in restraint 
 of interstate commerce within the meaning of the act, because the natural and direct 
 effect of the combination was to maintain rates at a higher level than otherwise would 
 prevail, it followed, as a necessary sequence, that a combination to bring about the 
 same result by uniting the ownership of two parallel and competing interstate lines 
 would likewise be unlawful, whether the combination be in the form of a corporation, 
 an unincorporated joint-stock company, an ordinary partnership, or a trust. 
 
 The precise point decided in the Knight case did not come up for review in the 
 Supreme Court of the United States until the cases of the Standard Oil Co. and of the 
 American Tobacco Co. were argued. Those cases were twice argued before the 
 Supreme Court, and the whole country looked forward to a decision that would clarify 
 the law and set at rest the prevailing uncertainty as to the meaning and effect of the 
 antitrust act. The Supreme Court rendered its decision in May, 1911. It was 
 decided that the Standard Oil Co. and the American Tobacco Co. were combinations 
 formed in violation of the antitrust act and that they should be dissolved. In the 
 American Tobacco Co. case the court directed, in substance, that the company be 
 disintegrated in such manner as to restore competitive conditions in the tobacco trade. 
 
 In the cases of the Standard Oil Co. and of the American Tobacco Co. the evidence 
 showed clearly a continued and successful endeavor to monopolize interstate com- 
 merce. Therefore, in deciding these cases the court did not find it necessary to define 
 precisely what constitutes monopolizing or restraining interstate commerce. The 
 question what constitutes monopolizing or restraining interstate commerce still 
 remains an open question, except so far as it has been determined by the actual 
 decisions in prior cases. But, although the decisions in the cases of the Standard Oil 
 Co. and the American Tobacco Co. do not furnish much new light as to the meaning of 
 the prohibitions of the antitrust act, these decisions certainly have brushed aside 
 doubts and uncertainties caused by the prior decision of the court in the Knight case 
 and by the dicta of the court expressed in the Freight Association case and in other 
 cases. The great service of these decisions is that they have cleared the way for a 
 reasonable and scientific construction of the act and for its enforcement in the future 
 according to its true intent and purpose. 
 
 According to my understanding of the opinions of the Supreme Court in these cases, 
 they establish two main points, namely: 
 
 (1) That the decision in the Knight case was not right and will not be followed. 
 Although the court did not in express terms overrule ite prior decision in the Knight 
 case, it must now be deemed settled that Congress had constitutional power to prohibit, 
 and by the antitrust act did prohibit, the monopolization of interstate trade or com- 
 merce by combining in a corporation the ownership or control of competitive businesses 
 for the purpose or with the effect of monopolizing the production of any article of 
 interstate commerce and the interstate commerce in this article; and 
 
COMMITTEE ON INTEBSTATE COMMERCE. 1333 
 
 (2) That the language of the antitrust act must be construed, not literally or tech- 
 nically, but in the light of reason so as to accomplish the purposes of the act. In order 
 to render the act applicable there must be what may fairly be described as a restraint 
 upon commerce, or an attempt to monopolize commerce and not merely a lessening of 
 competition in commerce. The act does not prohibit restraints of competition, and a 
 restraint of competition is within the prohibition of the act only if it fairly can be said 
 to constitute monopolizing or restraining interstate trade or commerce. 
 
 EFFECT OF ANTITRUST ACT. 
 
 Let me now state briefly what I believe to be the true meaning and effect of the 
 antitrust act. 
 
 . (1) The act prohibits monopolizing or attempting to monopolize any branch of 
 interstate or foreign trade or commerce. The means resorted to to accomplish the 
 prohibited results are wholly immaterial. To monopolize or attempt to monopolize 
 interstate or foreign commerce by buying up the properties of competitors or the stocks 
 of competing companies, or by contracts or combinations in any form to fix prices or 
 to limit production or to apportion territory or business among competitors, or by 
 destroying the business of competitors through the practices sometimes described as 
 unfair competition, or by any other scheme or device, would be equally within the 
 broad prohibition of the act. 
 
 The phrase "to monopolize interstate commerce" as used in the antitrust act means 
 to destroy competition in interstate commerce to such a degree as to secure to some 
 individual or group of individuals control of all or of a largely preponderating part of 
 the commerce in some article throughout the United States or in some section of the 
 United States. The phrase "to monopolize," however, does not apply to a simple 
 lessening of competition, leaving in existence reasonably competitive conditions. It 
 applies only to the act of concentrating control of the commerce in any article to such 
 a degree as to destroy reasonably competitive conditions. I can not now enter into 
 a detailed discussion as to what constitutes the destruction of reasonably competitive 
 conditions in commerce or monopolizing. I have di scussed this question more fully 
 jr| a, ™ nrtic ]p pub lished in D ecember. 1910, inTEe C olum bia La w Jo urnal. In each 
 case the question must be determined in theTTgnTof all fheTacts and circumstances. 
 In many cases the answer would not be doubtful, but in other cases there might be 
 grounds for a difference of opinion. Under nearly every rule of law there are doubtful 
 border-line cases, but I am confident that in the great majority of cases neither lawyers 
 nor business men would have much difficulty in making up their minds whether a 
 given transaction constituted monopolizing or an attempt to monopolize interstate 
 trade or commerce. 
 
 The decision in the case now pending against the United States Steel Corporation is 
 likely to clarify the meaning of the prohibitions contained in the antitrust act. I was 
 one of the counsel who organized the United States Steel Corporation. I was then of 
 the opinion that the formation of the company was not in violation of the antitrust act, 
 and I am still of that opinion. My opinion was not based upon the supposed authority 
 of the Knight case and it has not been shaken by any subsequent decision of the 
 Supreme Court. My opinion was based upon the ground that the formation of the 
 company was not in fact an attempt to monopolize commerce and did not in fact 
 monopolize or restrain commerce. The formation of the company involved a combi- 
 nation of the manufacturers of about 50 per cent of the iron and steel produced in the 
 country, but neither the effect nor the purpose of the combination was to destroy 
 competitive conditions or to create a monopoly. Although the formation of the com- 
 pany to some extent diminished competition, yet it did not destroy fairly competitive 
 conditions and it did not vest in the company the power to control the prices of iron 
 and steel products. About one-half of the iron and steel production of the United 
 States remained in the hands of the company's competitors, and these at all times 
 retained the power to compete for business and to reduce prices. Since the formation 
 of the United States Steel Corporation, as before, the prices of iron and steel products 
 have been subject to control by competition, except when the demand for these prod- 
 ucts was in excess of the aggregate supply. If, after its formation, the company, m 
 violation of the law, did individual acts that were in restraint of commerce or tnat 
 constituted attempts to monopolize commerce, those acts undoubtedly were unlawful 
 and might be restrained or punished, but they would nor render unlawful the original 
 formation of the company or its continued existence. 
 
 (2) The act prohibits contracts and combinations in restraint of interstate or foreign 
 trade or commerce. The phrase "in restraint of commerce " is an old one in the law, 
 but it has been used loosely and with varying meanings. It has been applied not only 
 to true restraints of commerce but also to restraints of competition resulting in monopo- 
 
1334 HEARINGS BEFOEE 
 
 lizing, and likewise to voluntary restraints placed by individuals upon their freedom 
 to carry on their trade or means'of livelihood. 
 
 The cases involving restraints of trade at common law and under the statute, other 
 than monopolizing, may be classified as follows: 
 
 (a) Contracts, combinations, or conspiracies by physical force or by threats of 
 damage to prevent other persons, or the public generally, from carrying on trade or 
 commerce. Such contracts, combinations, and conspiracies are in restraint of com- 
 merce and illegal at common law, and if in restraint of interstate or international 
 trade or commerce they are prohibited by the antitrust act. Such a case was the Debs 
 case, in which the Supreme Court decided that a combination or conspiracy of certain 
 railway employees to stop the operation of interstate commerce on railways was a 
 restraint of interstate commerce and prohibited by the antitrust act. It was a restraint 
 of the interstate commerce of the public on these railway lines. 
 
 (6) Attempts by means of a boycott to stop interstate trade or commerce between 
 certain manufacturers or merchants and their customers. Such boycotts are unlawful 
 at common law, and in the case of the Danbury Hatters Co. the Supreme Court decided 
 that when applied to interstate commerce they are in violation of the antitrust act. 
 The same principle and the same rule would apply to an agreement between manu- 
 facturers and certain dealers to exclude other dealers from trade in a given article. 
 This was decided by the Supreme Court in the case of Montague v. Lowery. _ The 
 same principle and the same rule would apply to combinations and conspiracies to 
 destroy or injure the business of competitors by any acts other than honest competi- 
 tion in business. 
 
 (c) Contracts and combinations of public carriers to increase or to maintain the 
 •rates or tolls payable by the public in respect of interstate commerce. Contracts 
 and combinations of this character were declared in the Trans-Missouri Freight 
 ■Association case and Joint Traffic Association case to be in restraint of interstate 
 ■commerce and in violation of the antitrust act. In these cases the contracts or combi- 
 nations were not unlawful because diminishing competition in trade, but because 
 their effect was to restrain the interstate commerce of the public by increasing the 
 rates of tolls 'to be paid upon this commerce. The railway companies themselves are 
 ■not engaged in interstate trade or commerce, but they merely furnish the transporta- 
 tion necessary to enable the public to carry on interstate trade or commerce. Con- 
 tracts and combinations among the railway companies to maintain rates restrain the 
 •commerce of the public because, as stated by the Supreme Court, their natural and 
 direet effect is to maintain at a higher level than otherwise would prevail the rates 
 payable by the public as a condition of carrying on interstate trade or commerce. 
 ■ Contracts or combinations which, without restraining the trade or commerce of 
 others and without monopolizing or attempting to monopolize trade or commerce, 
 •simply diminish competition among those contracting or combining were not unlawful 
 at common law, and such contracts or combinations are not in restraint of commerce 
 within the meaning of the antitrust act. I do not now refer to contracts of individuals 
 restraining their personal freedom to carry on their trade or occupation. Such restraints, 
 unless reasonable, were forbidden at common law, but the antitrust act was not 
 designed to deal with cases of this character. Its purpose was not to protect the 
 personal freedom of individuals; its purpose was to protect the public against the 
 injurious consequences of restraints and monopolies of interstate and international 
 commerce. The antitrust act does not purport to prohibit contracts or combinations 
 that restrain or diminish competition. The word "competition" does not appear in 
 the act. There is no actual decision of the Supreme Court holding that contracts are 
 prohibited by the antitrust act merely because in restraint of competition, and any 
 dicta to the effect that such contracts are unlawful must be deemed superseded by 
 the views expressed by the Supreme Court in the cases of the Standard Oil Co. and 
 •the American Tobacco Co. 
 
 ■■ In the discussion of the antitrust act a great deal has been said about reasonable or 
 unreasonable restraints' of commerce, and it has been urged that the act should be 
 •held applicable only to unreasonable restraints. I think there has been a good deal of 
 confusion of language and some confusion of thought upon this subject. Of course 
 reason — common sense— must be used in determining whether or not a transaction 
 really constitutes monopolizing or restraining trade or commerce, but I wholly fail 
 to see how there can be a reasonable monopoly or a reasonable attempt to monopolize, 
 or a reasonable forcible stoppage of commerce on interstate highways, or a reasonable 
 boycott of interstate commerce, or any other reasonable restraint of the trade or com- 
 merce of the public or of others than those voluntarily placing the restraint upon 
 themselves. The only case in which the reasonableness or unreasonableness of a 
 restraint is material is when the restraint is not really a restraint of commerce but is 
 only a voluntary restraint placed by an individual by contract upon his freedom to 
 exercise his craft or trade. 
 
COMMITTEE OX INTERSTATE COMMERCE. 1335 
 
 RECOMMENDATIONS. 
 
 The question remain.* whether the antitrust act should be amended and whether 
 additional legislation should be passed to effect its purposes. New social and economic 
 conditions undoubtedly may require new laws. I believe it to be true that some 
 additional legislation for the regulation of corporations and trusts is needed; but 
 before enacting new laws we should make up our minds very clearly what the real 
 evil is that should be stopped and whether the existing laws, if properly enforced, 
 would be adequate. I believe that most of the evil? of the large trusts and monopolies 
 are due to the decision of the Supreme Court in the Knight case and to the failure to 
 apply and to enforce the existing laws promptly, uniformly, and efficiently. But for 
 this decision and the failure, until the last few years, to take vigorous action to enforce 
 the antitrust act, the monopolization of industries would not have occurred and 
 industries would have been combined only so far as necessary to bring about economy 
 of production and of distribution. 
 
 I believe that the antitrust act should remain on the statute books as it stands and 
 that no attempt should be made to amend it. It has been urged that the word 
 "monopolize" should be denned by statute. In Mb recent article in the North Ameri- 
 can Review, ex-Senator Edmunds used the following language: 
 
 "After most careful and earnest consideration by the Judiciary Committee of the 
 Senate it was agreed bv every member that it was quite impracticable to include by 
 specific descriptions all the acts which should come within the meaning and purposes 
 of the words 'trade' and 'commerce' or 'trust,' or the words 'restraint' or 'monopo- 
 lize,' by precise and all-inclusive definitions; and that these were truly matters for 
 judicial consideration." 
 
 Any statutory definition probably would give rise to as much uncertainty and 
 litigation as the term "to monopolize," and judicial decisions would be necessary to 
 define the definition itself. 
 
 Mr. William J. Bryan has proposed, in effect, to define an unlawful monopoly as 
 anv combination controlling more than 50 per cent of a branch of trade or commerce. 
 I think Mr. Bryan lias the right principle in mind, namely, that in order to constitute 
 a monopoly there must be the destruction of reasonably competitive conditions in 
 some branch of commerce; but I do not believe that an arbitrary rule such as he pro- 
 poses would lead to greater certainty or would always carry out the spirit of the act. 
 The percentage of control would fluctuate and it would be, exceedingly difficult, if at 
 all practicable, to determine the percentage of an industry or branch of trade at any 
 one time concentrated under common control. 
 
 As I have already stated, there alwavs will be border-line cases, but I believe that 
 in most cases it will not be difficult to decide whether a contract or combination con- 
 stitutes monopolizing or an attempt to monopolize. A few well-reasoned decisions 
 of the Supreme Court stating clearlv the principles governing the court in reaching 
 its conclusions would go far to remove uncertainty as to what constitutes monopolizing 
 within the meaning of the statute. _ 
 
 It has been suggested that a United States incorporation act should be passed. A 
 wise and practicable national' incorporation act undoubtedly would be desirable. 
 Trade and commerce are not limited by State lines and they should be governed by 
 national laws However, I can not see how a national incorporation act would aid 
 in solving the trust problem. The corporations formed under a national incorpora- 
 tion act would be subject to the antitrust act and to all other trust laws to the same 
 extent as other corporations and individuals. Besides, a merely permissive national 
 fncorporation act would accomplish nothing. A compulsory act prohibiting S ate 
 corporations from engaging in interstate commerce I believe would be unconstitu- 
 
 tl0 Thesame applies to the proposal to provide for licensing corporations engaged in 
 interstate tode or commerce. It is doubtful whether a compulsory hcensmg law 
 woTd be constitutional, but even if it were, the antitrust act would continue to apply 
 to the licensed corporations and the present problems would remain. 
 
 Mr Roosevelt has proposed the creation of a commission having jurisdiction over 
 ™'rat?ons engaged in interstate trade or commer.ce, and this proposal was adopted 
 corporations engageu n raegsa£ re. This I believe to be a step m the right 
 
 by President T™^ ^^ to the i nter state Commerce Commission 
 Sd be creatfd wi hTrSdiction over all interstate and international trade and 
 com^ercreTcept Transportation over which the Interstate Commerce Common 
 ^uiiiu . r mmmission should have power — 
 
 ^^^^'apStiSHTany citizen, or of its own motion, to investigate, the 
 interstate ^commeTe transactions of corporations and individuals and to require all 
 contracts anTcombinations between competitors in interstate commerce to be filed 
 with the commission; 
 
1336 HEADINGS BEFORE 
 
 (6) To require reports of any corporation regularly engaged in interstate commerce; 
 and 
 
 (c) To determine, after giving a hearing to the parties in interest, whether any 
 contracts, combinations, or other acts complained of are in violation of the antitrust 
 act. Such a finding of the commission should be deemed prima facie evidence that 
 a contract, combination, or other act is or is not in violation of the act; but every such 
 finding of the commission should be subject to review in the Commerce Court upon 
 application of any- party in interest or upon application of the Government. 
 
 (d) Parties proposing to enter into a contract or combination should have the right 
 to apply to the commission for an order determining whether the proposed contract 
 or combination would be in violation of the antitrust act, and the order of the commis- 
 sion made upon such application should be effective until reversed by the Commerce 
 Court. Upon the approval of a contract or combination by the commission, acts done 
 in pursuance of such approval, prior to a reversal of the order of the commission, should 
 be deemed lawful and not in violation of the civil or criminal provisions of the 
 antitrust act. 
 
 The suggestion that Congress should vest in a commission the power to regulate prices 
 of trust-made products that are the subject of interstate commerce should be rejected 
 for two reasons. One reason is that Congress could not constitutionally confer such a 
 power. The power of Congress to regulate or to authorize the Interstate Commerce 
 Commission to regulate the rates of interstate railway carriers is based upon the ground 
 that the railway lines are highways of interstate commerce, that the railway com- 
 panies are subject to a duty to serve the public at reasonable rates, and that the enforce- 
 ment of this duty by the legislature or by a legislative commission is not in violation 
 of the constitutional provisions for the protection of the liberty and property rights of 
 the people. Power to regulate the prices of commodities can not be supported on 
 these grounds, and I am satisfied that no such power exists. 
 
 The other reason for rejecting the proposal to confer upon a commission power to 
 regulate prices of trust-made products is that the exercise of such a power by any gov- 
 ernmental commission would be productive of evils far greater than any evils result- 
 ing from trusts and monopolies. The wiser and more statesmanlike course is to enforce 
 the policy declared in the antitrust act. 
 
 Statement of W. S. Sttjyvesant, 5455 Maple Avenue, St. Louis, Mo. 
 capital: master or servant? 
 
 The equitable distribution of the products of labor is a world problem. Socialism 
 would solve it by the "public collective ownership and management of land, capital, 
 and industries." 
 
 Many movements toward the solution of the problem are in operation to-day, viz, 
 cooperative business, State and municipal ownership of public utilities, regulation 
 of corporations, old-age pensions, labor organizations, mutual insurance, etc. 
 
 The organization of capital into great trusts, thereby creating monopolies, with 
 consequent oppression, has brought attention and condemnation on them. 
 
 President Taft would break them up and get back to competition among their parts, 
 which would be a step backward. Competition results in vast material losses to the 
 people and breeds a general moral degradation, resulting in oppression of labor, poor 
 service, fraud, and crime, viz, trade lies, short weights and measures, and adultera- 
 tions to a disregard of health and life. President Gary, of the Steel Trust, and United 
 States Attorney General Wickersham would regulate them by having the Government 
 fix the selling prices of their products. 
 
 If the United States is to regulate prices so they may not be too high, it must also 
 fix them so they will not be too low. In other words, guarantee business and capital 
 a return, whether judiciously managed or not, a function clearly outside of either the 
 duty or the power of a government. 
 
 Trusts are cooperation carried to Jhe logical limit for the benefit of one side — capital — 
 and result in the most economical manufacture and distribution of products or service. 
 They should be so regulated that equitable shares of their benefits will accrue to the 
 labor which creates their products and to the people who consume them and who 
 grant them the right to exist. 
 
 There is a way of so handling the great trusts and all public-utility corporations 
 that will remedy the wrongs they inflict and at the same time leave the properties 
 in the hands of the owners and the general management of such business as it is now. 
 Some of the processes necessary to this plan are now in operation in both State and 
 
COMMITTEE ON INTERSTATE COMMERCE. 1337 
 
 Government relations to corporations. The others necessary can easily be organ- 
 ized and coordinated into a system of control that will as nearly equitably distribute 
 the products of labor as can be done. 
 
 In all business there are three interests concerned, viz: The interest of capital, 
 the interest of labor, and the interest of the consumer. The interest of capital is in 
 its dividends. Capital being easily organized and controlled, has, in its greed, been 
 merciless to the other two interests, which is the cause of a large part of the preva- 
 lent discontent, poverty, and misery. 
 
 The interest of the consumer is in the prices and quality of goods or services. 
 
 The interest of labor, which, incidentally, socialism will see all have their share 
 of, is taking care of itself in a way — by trade or organization. Its further work is 
 along that line, tempered by fairness and justice, which will be enforced by legis- 
 lation. 
 
 The problem centers on the control and regulation of capital. The basis on which 
 every share of stock in public and quasi-public corporations for generations past has 
 been sold i8 the percentage of dividends earned or claimed for it. This averages, 
 say, 6 per cent on market values. 
 
 I propose that all trusts and public-utility corporations doing an interstate busi- 
 ness be allowed by the Government to pay dividends on capital actually employed — 
 i. e., on the actual value of the plant, plus the necessary working capital — at a fixed 
 rate, say, 6 or 8 per cent, any excess of profits or earnings over this rate to accrue to 
 the people through the United States Treasury. I propose that States and munici- 
 palities apply the same ruling to local public-utility corporations, excess profits to 
 accrue to the public treasuries. Various States and cities have this principle in 
 operation and it works well. Massachusetts allows its railroads to pay 8 per cent 
 dividends, excess earnings going to its school fund. 
 
 A uniform system of account keeping should be required, with utmost publicity. 
 
 Reasonable amounts, as per regulations, to be charged off for a surplus fund, on 
 which half dividends be paid. The number and salaries of all officers of these cor- 
 porations to be regulated by public commissioners, based on capital employed or 
 volume of business. Irregularly regular examinations of these corporations to be 
 made by a corps of Government or State examiners on similar lines to those governing 
 our national-bank examinations. 
 
 It may be said that allowing dividends to be paid only on the actual capital, thus 
 driving the water out of stocks, will work hardship on the widow, orphan, and other 
 innocent holders of watered stocks. There are no such innocent holders. For a 
 half century back investors have been educating themselves as to stock watering; 
 storm mutterings have been heard for a generation back and caveat emptor has been 
 written across the face of all watered securities. 
 
 There need be no apprehension that capital will hide itself or development cease. 
 Capital is of no value except in use. That capital has increased vastly beyond the 
 utmost demands that have been made for it by our marvelous growth is evidenced 
 by the decline in 40 years of the rate of bank discount from 10 to 5 per cent. This 
 abnormal increase of capital evidences that the share of the reward of industry, 
 taken by it, has been grossly too large. . 
 
 Such regulating of capital would bring liberal treatment of employees, furnish best 
 services pure goods, full weights and measures, and lowest possible prices to con- 
 sumers, because all the incentive to capital to oppress and rob, which cause the evite 
 and sufferings of our present business regime, would vanish if its returns were not 
 to exceed a fixed rate. It is obvious that every betterment for labor or the consumer 
 would involve the use of more capital, upon which dividends could be earned, so it 
 would insure the use of the greatest amount of capital and the greatest possible devel- 
 
 ° P H e th t is°t)rin 3 cipie'of regulation of the trusts and public utility corporations were 
 adopted its great advantages to the people would be so evident and so immediate 
 thS rthe business genius of the country would extend it to all branches of industry 
 trough ^hSnation of trusts in them. Ambition and the spirit of emulation would 
 drive business brains and energy into work along this line of service to the people 
 
 XckSr and Carnegie are illustrations of the folly of the age m its pursuit of 
 wealth The highest satisfaction of living derives from service. 
 
 Thk principle of regulation of capital, so easy of application, extended to its limits 
 in connectowith cooperation, would change the monster that is devouring us into 
 a beneficent servant. W. S. Stuyvbsant, 
 
 5455 Maple Avenue, St. Louis, 
 December 7, 1911. 
 
1338 HEARINGS BEFORE 
 
 Lettbk from Hon. Samuel Untermyer, New York. 
 
 Sunday, December 17, 1911. 
 Hon. Moses E. Clapp, 
 
 Chairman Interstate Committee. 
 
 My Dear Senator: For Borne time past I have been trying to get the opportunity 
 to write to ask that my testimony before your committee be supplemented by a sug- 
 gestion which, if approved by your committee, might be made the subject of legislation 
 without awaiting the solution of the difficult and complex economic problems which 
 you are now investigating. 
 
 My suggestion has reference to the oppressive use that is being made of letters patent 
 in violation of the antitrust law. Any combination between the owners of competing 
 patents should be cause for the summary revocation of all such patents by the Commis- 
 sioner of Patents. In granting a monopoly for 17 years to the inventor, the Govern- 
 ment has the right to exact that competition in the field of invention should be kept 
 free. If there are three inventions in apparatus or process in a given field, the public 
 should have the benefit of the competition that flows from that situation. If they ' 'get 
 together," the purpose of the patent law is evaded. True it is unlawful for owners of 
 patents to combine, and their combination may be dissolved by the slow processes of 
 the courts under the Sherman law; but if such combinations were to be visited with the 
 loss of their patents, we would soon have them ended. 
 
 Many of the most vicious and oppressive of these combinations are in that form. I 
 have in mind at the moment (1) the electric-lamp manufacturers whose arrangement 
 is supposed to have been dissolved; (2) the Shoe Machinery Co., whose officers are 
 under indictment; (3) the moving-picture manufacturers. There are dozens of them. 
 If you want an illustration of the rawest' ' and most outrageous form of trust oppression 
 «ver known, I invite your attention to the inclosed form of contract which the moving- 
 picture people have required every dealer to sign. They have since revoked even 
 these agreements and put every one of them (except one whom I am about to try to 
 keep in business) out of business. 
 
 It ought not to be possible to make our patent laws a shield for such tyranny. Here 
 is a simple remedy that need not await the solution of the other questions. If you 
 desire, I will be pleased to send you the papers in the moving-picture case when com- 
 pleted. 
 
 Very respectfully, yours, Saml. Untermyer. 
 
 Exhibit A. 
 
 EXCHANGE LICENSE AGREEMENT. 
 
 "Whereas the Motion Picture Patents Co. of New York City (hereinafter referred 
 to as the "Licensor") is the owner of all the right, title, and interest in and to reissued 
 Letters Patent No. 12192, dated January 12, 1902, granted to Thomas A. Edison, 
 for kinetoscopic film, and also Letters Patent Nos. 57S185, 580749, 586953, 588916, 
 673329, 673992, 707934, 722382, 744251, 770937, 771280, 785205, and 785237, for inven- 
 tions relating to motion-picture projecting machines; and 
 
 Whereas the Licensor has licensed the American Mutoscope & Biograph Co. of 
 New York City, the Edisdn Manufacturing Co. of Orange, N. J.; the Essanay Co. 
 of Chicago; the Kalem Co. of New York City; George Kleine of Chicago; Lubin 
 Manufacturing Co. of Philadelphia; Pathe Freres of New York City; the Selig Poly- 
 scope Co. of Chicago; and the Vitagraph Co. of America, of New York City (here- 
 inafter referred to as "Licensed Manufacturers or Importers"), to manufacture or 
 import motion pictures under the said reissued letters patent and to lease licensed 
 'motion pictures (hereinafter referred to as "licensed motion pictures") for use on 
 projecting machines licensed by the Licensor; and 
 
 Whereas the undersigned (hereinafter referred to as the "Licensee") desires to 
 obtain a license under said reissued Letters Patent No. 12192, to lease from the 
 Licensed Manufacturers and Importers licensed motion pictures and to sublet the 
 said licensed motion pictures for use on projecting machines licensed by the Licensor; 
 
 Now, therefore, the parties hereto, in consideration x>i the covenants herein, have 
 agreed as follows: 
 
 (1) The Licensor hereby grants to the Licensee, for the term and subject to the con- 
 ditions expressed in the "Conditions of license" hereinafter set forth, the license, 
 under the said reissued Letters Patent No. 12192, to lease licensed motion pictures 
 from the Licensed Manufacturers and Importers and to sublease said licensed motion 
 
COMMITTEE ON INTERSTATE COMMERCE. 1339 
 
 pictures for use only on projecting machines licensed by the Licensor under letters 
 patent owned by it. 
 
 (2) The Licensee covenants and agrees to conform with and strictly adhere to and 
 be bound by all of the "Conditions of license" hereinafter set forth, and to and by 
 any and all future changes in or additions thereto, and further agrees not to do or suffer 
 any of the acts or things thereby prohibited, and that the Licensor may place and 
 publish the Licensee's name in its removal or suspended list in the event of the ter- 
 mination of this agreement by the Licensor, or in case of any violation thereof, and 
 may direct the Licensed Manufacturers and Importers not to lease licensed motion 
 pictures to the Licensee, the Licensee hereby expressly agreeing that such Licensed 
 Manufacturers and Importers shall have the right to cease such leasing when so directed 
 by the Licensor; and the Licensee further agrees that the signing of this agreement 
 constitutes a cancellation of any or all agreements for the sale of licensed motion 
 pictures made prior to this agreement by and between the Licensee and any or all 
 licensed manufacturers or importers, except as to any clause in said agreements relat- 
 ing to the return of motion-picture film to the several licensed manufacturers or 
 importers. It is further understood and agreed by the Licensee that the license 
 hereby granted is a personal one and not transferrable or assignable, and the Licensee 
 hereby recognizes and acknowledges the validity of the said reissued Letters Patent 
 No. 12192. 
 
 CONDITIONS OF LICENSE. 
 
 1. From the date of this agreement the Licensee shall not buy, lease, rent, or other- 
 wise obtain any motion pictures other than licensed motion pictures and shall dispose 
 of any motion pictures only by the subleasing thereof under the conditions herein- 
 after set forth. 
 
 2. The ownership of each licensed motion picture leased under this agreement shall 
 remain in the Licensed Manufacturer or Importer from whom it may have been leased, 
 the Licensee, by the payment of the leasing price acquiring only the license to sublet 
 such motion picture subject to the conditions of this agreement. Such license for any 
 motion picture shall terminate upon the breach of this agreement in regard thereto, 
 and the Licensed Manufacturer or Importer from whom it may have been leased Bhall 
 have the right to immediate possession of such motion picture, without liability for 
 any leasing price or other sum, which the Licensee, or the person in whose possession 
 said motion picture is found, may have paid therefor. 
 
 3 The Licensee shall not sell nor exhibit licensed motion pictures obtained from 
 any Licensed Manufacturer or Importer, either in the United States or elsewhere, but 
 shall only sublet such licensed motion pictures [and only for use in the United States 
 and its territories] 1 and only to exhibitors who shall exclusively exhibit licensed 
 motion pictures, but in no case shall the exhibitor be permitted to sell or sublet or 
 otherwise dispose of said licensed motion pictures. 
 
 4 The leasing price to be paid by the Licensee to the Licensed Manufacturers or 
 Importers, or the terms of payment for or shipment of licensed motion pictures, shall 
 in no case be less or more favorable to the Licensee than that defined in the leasing 
 schedule embodied in this agreement or any other substitute leasing schedule which 
 may be regularly adopted by the Licensor and of which notice shall be given to the 
 
 T Thermit the Licensee to take advantage of any standing order leasing price 
 mentioned in such schedule, such standing order with any Licensed Manufacturer or 
 Importer shall be for one or more prints of each and every subject regularly produced 
 and offered for lease by such manufacturer or importer as a standing order subject and 
 not advertised as special by such Licensed Manufacturer or Importer, and shall remain 
 m if ore™ Sr not less than 14 consecutive days. Any standing order may be canceled 
 or reduced by the Licensee on 14 days' notice. Extra prints m addition to a standing 
 order shall be furnished to the Licensee at the standing order leasing price. , . 
 
 6 The Licence shall not sell, rent, or otherwise dispose of eithe, : directly or indi- 
 rectly anv licensed motion pictures, however the same shall have been obtained to 
 any pei^ns tos, or corporations or agents thereof who may be engaged either directly 
 nr iTidirectlv in selling or renting motion-picture films. , 
 
 7 The Lteensee shfll not make or cause to be made or permit others to make repro- 
 ductions or Sled^^^^ of any licensed motion pictures, nor sell, rent, loan, or 
 
 ]l !^L H^nfe nf nr deal in anv reproductions or "dupes" of any motion pictures. 
 
 from any lice nced motion picture, nor permit others to do so, but m case any title is 
 "T^ords In brackets eliminated by Patents Co. by notice dated Sept. 13, 1911, effective Oct. 1, 1911. 
 
1340 HEARINGS BEFORE 
 
 made by the Licensee, the Manufacturer's name is to be placed thereon, provided that 
 in making any title by the Licensee the Manufacturer's trade-mark shall not be 
 reproduced. 
 
 9. The Licensee shall return to each Licensed Manufacturer or Importer (without 
 receiving any payment therefor, except that the said Licensed Manufacturer or 
 Importer shall pay the transportation charges incident to the return of the same) on 
 the 1st day of every month commencing seven months from the 1st day of the month 
 on which this agreement is executed an equivalent amount of positive motion-picture 
 film in running feet (not purchased or leased over 12 months before) and of the make 
 of the said Licensed Manufacturer or Importer equal to the amount of licensed motion 
 pictures that was so leased during the seventh month preceding the day of each such 
 return, with the exception, however, that where any such motion pictures are de- 
 stroyed or lost in transportation or otherwise and satisfactory proof is furnished, within 
 14 days after such destruction or loss, to the Licensed Manufacturer or Importer from 
 whom such motion picture was leased the Licensed Manufacturer or Importer shall 
 deduct the amount so destroyed or lost from the amount to be returned. 
 
 10. The Licensee shall not sell, rent, sublet, loan, or otherwise dispose of any 
 licensed motion pictures, however the same may have been obtained, to any person, 
 firm, or corporation in the exhibition business who may have violated any of the 
 terms or conditions imposed by the Licensor through any of its licensees and of which 
 violation the present Licensee may have had notice. 
 
 11. The Licensee shall not sublease licensed motion pictures to any exhibitor 
 unless a contract with said exhibitor (satisfactory in form to the Licensor) is first 
 exacted, under which the exhibitor agrees to conform to all the conditions and stipu- 
 lations of the present agreement applicable to the exhibitor ; and in the case of an exhib- 
 itor who may operate more than a single place of exhibition, a similar contract Bhall 
 be exacted in connection with each place so operated, and supplied with licensed 
 motion pictures by the Licensee. 
 
 12. After February 1, 1909, the Licensee shall not sublease any licensed motion 
 pictures to any exhibitor unless each motion-picture projecting machine on which 
 the licensed motion pictures are to be used by such exhibitor is regularly licensed by 
 the Motion Picture Patents Co., and the license fees therefor have been paid; and the 
 Licensee shall, before supplying such exhibitor with licensed motion pictures, mail to 
 the Motion Picture Patents Co., at its office in New York City, a notice, giving the 
 name of the exhibitor, the name and location of the place of exhibition (and, if re- 
 quested to do so by the Licensor, its seating capacity, hours of exhibition and price 
 of admission, and the number and make of the licensed projecting machine or ma- 
 chines), together with the date of the commencement of the subleasing, all in a form 
 approved by the Licensor. The Licensee, when properly notified by the Licensor 
 that the license fees of any exhibitor for any projecting machine have not been paid, 
 and that the license for such projecting machine is terminated, shall immediately 
 cease to supply such exhibitor with licensed motion pictures. 
 
 13. The Licensee agrees to order during each month while this agreement is in 
 force, for shipment directly to the place of business of the Licensee in the city for 
 which this agreement is signed, licensed motion pictures, the net leasing prices for 
 which shall amount to at least $2,500. 
 
 14. The Licensee shall, on each Monday during the continuance of this agreement, 
 make or mail payment to each Licensed Manufacturer and Importer for all invoices 
 for licensed motion pictures which have been received by the Licensee during the 
 preceding week. 
 
 15. This agreement shall extend only to the place of business for the subleasing 
 of motion pictures maintained by the Licensee in the city for which this agreement 
 is Bigned, and the Licensee agrees not to establish or maintain a place of business for 
 the subleasing of motion pictures, or from which motion pictures are delivered to 
 exhibitors, in any other city, unless an agreement for such other city, similar to the 
 present agreement, is first entered into by and between the Licensee and the Licensor. 
 
 16. This Licensor agrees that before licensing any person, firm, or corporation in the 
 United States (not including its insular territorial possessions and Alaska) to lease 
 licensed motion pictures from Licensed Manufacturers and importers and to sublease 
 such motion pictures, it will exact from each such licensee an agreement similar in 
 terms to the present agreement, in order that all licensees who may do business with 
 the Licensed Manufacturers and Importers will be placed in a position of exact 
 equality. 
 
 19. It is understood and specifically covenanted by the Licensee that the Licensor 
 may terminate this agreement on 14 days' written notice to the Licensee of its intention 
 so to do, and that if the Licensee shall fail to faithfully keep and perform the foregoing ' 
 terms and conditions of lease, or any of them, or shall fail to pay the leasing price for 
 
COMMITTEE ON INTERSTATE COMMERCE. 1341 
 
 any motion pictures supplied by any Licensed Manufacturer or Importer when due 
 and payable according to the terms of this agreement, the Licensor shall have the 
 right to place the Licensee's name on an appropriate suspended list, which the Licensor' 
 may publish and distribute to its other licensees and to exhibitors and to the Licensed 
 Manufacturers and Importers and to direct the Licensed Manufacturers and Importers 
 not to lease licensed motion pictures to the Licensee, and the exercise of either or both 
 of these rights by the Licensor shall not be construed as a termination of this license, 
 and the Licensor shall also have the right in such case, upon appropriate notice to the 
 Licensee, to immediately terminate the present license, if the Licensor shall so elect, 
 without prejudice to the Licensor's right to sue for and recover any damages which 
 may have been suffered by such breach or noncompliance with the terms and con- 
 ditions hereof by the Licensee, such breach or noncompliance constituting an infringe- 
 ment of said reissued letters patent. It is further agreed by the Licensee that if this 
 agreement is terminated by the Licensor for any breach of any condition hereof, the 
 right to possession of all licensed motion pictures shall revert, 20 days after notice of 
 such termination, to the respective Licensed Manufacturers and Importers from whom 
 they were obtained and shall be returned to such Licensed Manufacturers or Importers 
 at once after the expiration of that period. 
 
 20. It is understood that the terms and conditions of this license may be changed 
 at the option of the Licensor upon 14 days' written notice to the Licensee; but no 
 such change shall be effective and binding unless duly ratified by an officer of the 
 Licensor. 
 
 Leasing prices (per running foot) of licensed positive motion pictures. 
 
 Cents. 
 
 List 13 
 
 Standing order 11 
 
 Films leased between 2 and 4 months after release date 9 
 
 Films leased between 4 and 6 months after release date 7 
 
 Films leased over 6 months after release date 5 
 
 A rebate of 10 per cent will be allowed on all leases of licensed motion pictures, 
 ■except at the 7-cent and 5-cent prices, which are net; said rebates to be due and 
 payable between the 1st and 15th days of each of the months of March, May, July, 
 September, November, and January on all films leased during the two months pre- 
 ceding each said period, provided all the terms and conditions of this license agree- 
 ment have been faithfully observed. 
 
 TERMS. 
 
 All shipments are made f. o. b. lessor's office at lessee's risk. 
 All motion-picture films are to be shipped to lessee's office only. 
 The lengths at which motion-picture films are listed and leased are only approximate. 
 
 Motion Picture Patents Co., 
 By D. MacDonald, General Manager. 
 
 (Licensee's signature.) , 
 
 Greater New York Film Rental Co., 
 , Secretary. 
 
 Place of business for which this license is granted, No. 24 Union Square, New York, 
 N. Y. 
 January 20, 1909. 
 
 Statement op Dr. E. H. Coller, Battle Creek, Mich. 
 
 To the Senate Committee, Interstate Commerce. 
 
 Gentlemen: "What shall we do with the trusts?" In response to the following 
 invitation anyone with a real answer is welcome at the school which Senator Clapp 
 and his Committee on Interstate Commerce has opened in Washington. 
 
 I submit the following, and present it from the standpoint of national welfare. I 
 trust there are no fatalists on this committee and that there are but few, if any, in 
 our congressional body who believe in a fatalism that holds that as things have been 
 inthe past so they must or will be in future. A fatalism that because of facts 
 that there were trusts and monopoly among early Egyptians and m time of the Phoe- 
 nicians, or that because exploitation by monopoly has resulted m the downfall of 
 every nation in history, concludes that such things are inevitable and that all nations, 
 present and future, must go and do likewise. 
 
1342 HEABINGS BBFOBE 
 
 Wo are a common humanity, existing under material conditions that are common 
 heritage. We enjoy the same pleasures and comforts that are common to and are 
 enhanced by equitable, social and industrial relations. We suffer the same trials and 
 tribulations that are common to and are multiplied by conditions that cause inequitable 
 relations, social or industrial. "The best way to lift men is to meet them on the level 
 with a square deal." 
 
 A recent decision of the Supreme Court of Kansas says: 
 
 "The power to suppress monopoly and restore competition has never been doubted. 
 If results of unrestricted competition become so pernicious as those of monopoly, 
 the same suppressing power may be exercised to same end — the public welfare." 
 
 I submit that the question of h'igh cost of living is of national import, both economi- 
 cally and industrially, so much so as to be the fundamental basis of problems pre- 
 sented in the first message to present session of Congress. There is concern over the 
 high cost of commodities without account being taken that minimum price to consumer 
 means a minimum wage and income to labor; and if history repeats itself we know 
 that increased price to consumer will never be followed by a proportionate increase in 
 wage. 
 
 •The whole proposition hinges on these points: Monopoly controls production of 
 raw materials, the buying and prices of materials and labor; the production and 
 output, quantity and quality of products; also sales ami soiling price of both products 
 and labor. It seems there is too loose construction as to what constitutes monopoly; 
 corporation or combination, industrial or otherwise, concentrate and monopolize 
 activities of individuals to promote, produce, and profit; therefore corporations consti- 
 tute a monopoly of materials, production, and output that necessarily results in 
 monopoly of what under normal individual production would be net profit to the 
 individual. 
 
 Monopoly is a disease; industry represents the lungs and human endeavor the life- 
 blood of a nation. Monopoly to industry is what consumption is to humanity. The 
 high cost of living predicament is a result of causes leading to effect and to remedy 
 the effect we should first look to the cause. We are to-day a resourceful people, liv- 
 ing in a country teeming with inexhaustible resources, but our greatest resource is 
 represented in the individual possibility of the people. And unless the products of 
 individual effort expended in the development of resources are conserved to welfare 
 of the individual we at once confront one cause — exploitation. Our natural resources 
 are developed at labor expense of masses; if the products were naturally and legiti- 
 mately conserved to the individual the conditions making exploitation possible 
 would be eliminated. 
 
 "Modern life is pushing a man into the mud and then chiding him for materialism." 
 
 Exploitation causes inequitable distribution, resulting in two products, exploiter 
 and exploited. The exploiter concentrates products and profits and becomes respon- 
 sible for the existence of the corporations, monopolies, and trusts. The exploited 
 has no alternative but to become whatever change or environment will permit — 
 commonly one of the mass of wage laborers. 
 
 Upon looking for causes of inequitable distribution we find that all corporate 
 products are produced by labor effort of masses and at low wage, then sold to masses 
 at high prices, the profit becoming dividends. Thus corporations are selling low- 
 wage products to millions, including all low-wage producers of all corporate pro- 
 ductions. Such proposition demonstrates that a few incorporate concerns are taking 
 money from millions, giving in return only a wage that at best limits the purchasing 
 power of masses of both producing and consuming classes. 
 
 I submit to the judgment of your honorable committee if it is not a fact that cor- 
 porations, by profiting through high rates on low-wage products, produce economic 
 conditions that limits possibility of investment and control in corporate enterprises, 
 and thereby the corporations become a community of interests. 
 
 We gather from the public utterances of many prominent men that they recognize 
 the evil industrial conditions and yet desire to stick to old policies that have Deen 
 responsible for the present type of prosperity; for instance, but a short time past a 
 man prominent in the legal fraternity of Chicago, said: "There is something funda- 
 mentally wrong with our system of corporate control." "Trusts are born in avarice; 
 combinations are bred by the avarice of man;" then pardons such procedure by 
 saying, "The same cupidity inspires society in general, and those strongest in con- 
 demnation of trusts are equally ready to adopt similar methods for personal gain." 
 Truly such argument Bhould inspire popular desire for popular laws that will guar- 
 antee the greatest good to the greatest number. 
 
 In face of former statements, this man suggests enactment of a Federal incorporation 
 law; that under this law corporations be given rights, powers, and privileges in any 
 State on scale of those enjoyed by national banks, and as a consideration for such privi- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1343 
 
 leges the corporation shall pay into the United States Treasury one-fourth of its net 
 profits; in the name of anything good and proper, why not into the pocket of the labor- 
 ing man? Why should governmental authorities cooperate in a scheme to strengthen 
 and support the pernicious operations of monopoly, through corporations, and become 
 accessories to those operations by accepting a share in net profits that have been 
 exploited of the people? 
 
 Constructive laws are what we need; ones which will provide the greatest good for 
 the greatest number; and the only constructive law on the statutes of any State or 
 Nation is one that makes such provisions. The most effective way to secure popular 
 and constructive laws is to compel adoption of popular and equitable policies through 
 force of enlightened public sentiment. And to-day the greatest barrier to such pro- 
 cedure is due to partisan policy of press-in support of corporations and corporate con- 
 trol. Freedom of press should have one particular restraint, that is, they Bhould be 
 restrained from printing any article in furtherance of personal or partisan policy, except- 
 ing they receive and publish any article, questioning or rebutting the tenets of those 
 policies. 
 
 Taxing special privilege licenses monopoly. Licensed monopoly guarantees special 
 privilege to a few. Let us have a natural and legitimate conservation (distribution) 
 of resources that inherently belong to all, and you will find that a moderate and legiti- 
 mate tax upon those developed and legitimately conserved resources would provide 
 revenue to care for all expense of Government — National, State, and municipal. 
 
 We find that the wage system is one dominant factor to conditions of inequitable 
 distribution. Wage more than any one factor retards the natural progress of the 
 people. Wage system is but one step in evolution of humanity from barbarism on 
 and up through the stages of human progress in its struggle for the higher social and 
 industrial atmosphere. 
 
 Upon further investigation we find one condition, while being a direct effect of low 
 wage, is conducive to still lower wage conditions; that is, child and woman labor. 
 Surely corporations and corporate control provide an evil destructive policy of dis- 
 tribution that compels an abnormal labor effort of the household. "There is no use 
 holding up an industrial policy if you are treading on the children's toes to do it." 
 
 Modern effort to remedy evils of either monopoly and high finance or of high cost 
 of living and proverty are dealing most entirely with the effects of conditions; and 
 to-day the former evils are being fostered and protected by supreme courts and Fed- 
 eral and State legislation, while the latter evils are being only spasmodically alleviated 
 by philanthropic administration of charity. 
 
 Municipal market and "Shank potato stunts," etc., are only endeavors of a philan- 
 thropic nature and therefore afford only temporary relief. 
 
 Federal legislation has been a complication to the disease, while philanthropy is 
 only a temporary relief and but prolongs the ravages of the disease. 
 
 "Cooperation and combination are inevitable and beneficial, and the law must 
 recognize the fact and preserve good while suppressing wha tis evil and accidental in 
 combination . ' ' That is good . But law must recognize the further fact that cooperation 
 carried on by combination, through productive stage and only to point of distribution, 
 can but only work an evil, perhaps more than. accidental, to the masses of the people. 
 The industrial operation that concentrates money is that after the people have 
 cooperatively produced at a wage, corporation monopolizes the product and, by sell- 
 ing the product back to the people, at once concentrate or monopolize the money 
 paid as a low wage. If the masses producing at low wage also receive a share in net 
 profits, they could provide corporate products and still have money; thus money 
 would 'be spread and not monopolized. . 
 
 Under present industrial policies manufacturing concerns and corporations m first 
 place despoil the people by despoiling the country of natural resources; m the second 
 nlace thev despoil the masses whose labor develops the resources of what, under 
 normal individual production, would be net profit to the individual, -thus despoiling 
 commercial and professional business of good financial market. 
 
 We can reasonably conclude that high cost of living is in greatest measure due to 
 low percentage purchasing power of masses of both producing and consuming classes. 
 We mil find that neithlr increased wage, manufacturer's liability laws, working- 
 men ^compensation act, strikes, boycotts, etc., nor Government control for revenue, . 
 tariff fncome tax, inheritance tax, etc., are effective m bringing desired results. 
 And that brings us to a position from which there is but one tangible course to pursue; 
 that is to find out where the money goes, how it goes, and then figure some rational 
 method by which its flight can be impeded. 
 
 Francis Bacon said: "Money is like muck, not good except it be spread." Money 
 wa8 constitutionally provided as a medium of exchange, and any economic factors 
 
 22877— vol i—12 85 
 
1344 HEADINGS BEFORE 
 
 that through monopoly of the products of the masses concentrates the moneys ex- 
 changed by the masses for those products robs money of its constitutional prerogative 
 and makes it a commodity subject to the fluctuation of the markets, to all the vicissi- 
 tudes of trade and commerce. Cash investments remunerated upon a basis of maxi- 
 mum productive power of the laborer in industry or corporation is the greatest eco- 
 nomic factor resulting in a concentration of product of the people by corporation, and 
 precludes the possibility of laboring masses being able to cope with the prevailing 
 commercial and industrial conditions. 
 
 HOW EQUITABLE DISTRIBUTION? 
 
 A promoter is paid a certain amount for ability to promote and is paid the salary 
 for his investment of time, mental ability, and labor service according to his pecu- 
 niary value. 
 
 A producer (laborer) is paid a certain amount for ability to labor and is paid the 
 salary for his investment of time, mental ability, and labor Bervice according to his 
 pecuniary valu<\ Now, when these men have been paid these varying amounts, 
 then they have been remunerated. What for? For whatever individual effort they 
 have invested that has resulted in production of any net profit. It resolves into a 
 simple problem of ratio and proportion; if these men have been remunerated in a 
 ratio to investment of service up to and including the productive stage, they surely 
 stand in equal ratio as to responsibility for production of any net profits; therefore 
 should share equally in those products or profits. 
 
 A natural deduction is that a cash investor should receive only legitimate interest, 
 for unless he becomes one of active force he has made no other investment. 
 
 How about the consumer? He is one of that large body of producing and con- 
 suming masses of which the promoter constitutes a small proposition. 
 
 Many recommend governmental ownership as a remedy for trust evils and high cost 
 of living. Having Government ownership of public utilities will simply mean a 
 concentrating of many into one big trust, and unless Government provides a policy 
 whereby net profits of Government production go to masses, who are producing, the 
 situation — high cost of living and all — would be not at all different and help laboring 
 classes not at all, for net profits would be monopolized by governmental authorities 
 and be required to withstand many trials, whereas to-day profits are monopolized by 
 corporations, being by far the lesser of the two evils. 
 
 We should know that centralization of net products is incompatible to conditions of 
 commercial prosperity, that there can be no other conclusion than that masses of low 
 wage earners make mighty poor market for high-priced products. In fact, that under 
 present industrial conditions a bumper crop — industrial, agricultural, or otherwise — 
 means a low price for the product, perchance it get on the market at all. 
 
 We should be least concerned, whether prices vary a few cents more or less, for the 
 vital question is, Shall commercial conditions be such as to privilege masses to but at 
 any price? Or should we say butter at 36 cents is a high, at 18 cents a medium, at 9 cents 
 a low, cost of living? If such is granted, then I submit that 36 cents is too high for an 
 income that can only provide 18-cent, that 18 cents is too high for incomes that can 
 only comfortably provide 9-cent butter, and 9 cents is still too high for some. Con- 
 versely, butter at 9 cents is not too high for an income that can comfortably provide 
 18-cent butter and so on up the scale (ad infinitum). 
 
 A creamery monopolizes milk products in territory in which it does business, and 
 to illustrate power of monopoly to exploit, say when butter is 18 cents to 24 cents, 
 oleomargarine is 12 cents to 15 cents; butter at 24 to 32, oleo is 18 to 22 cents; butter 
 at 32 to 40, oleo is 22 to 30. Comparing price of oleo at 28 cents with cost of production, 
 we find that cost of production has not increased at all in proportion to increased cost 
 to consumer. Those same comparisons are applicable to many products of industry. 
 
 In an attempt to overcome evils of monopoly in manfacturing and other corporate 
 concerns, the farmers now have 2,500 to 3,000 or more buying and selling organiza- 
 tions working in interests of better prices and in the effort produce same evil results — 
 higher rates on products and decreased purchasing power of wage — equaling higher 
 cost of living. 
 
 The most essential need to free movement of products is a free and easy market, 
 produced not by forced sale, but by increased money power of the people, and it 
 behooves them to determine how to increase that power, that it may wipe out the 
 dollar down and dollar a week system that is so indicative of a financially weak and 
 unstable citizenship. 
 
 When I speak of net profits, I refer to something definite and tangible, for corpora- 
 tion and corporate control resulted from accumulation of that most real thing, net 
 profit. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1345 
 
 The masses sharing in net profits could not interfere with industrial progress, for 
 there's no net profit before promotion, production, and distribution have been accom- 
 plished; then there's no cause for concern, for promoters, producers, and consumers 
 have been provided for. 
 
 But the question is asked: "How about the man who takes so much risk, supposing 
 he loses"? Up to date this whole proposition has been run on the principle of heads 
 I win and tails you lose" policy, and invariably monopoly has flipped the coin. 
 
 To remedy the conditions leading to and involving trusts, monopoly, and high cost 
 of living the producers need only to share in net profits. Then, if for any reason 
 prices be increased or decreased all share in increased or decreased net profit. 
 
 The first result would be that billions paid for commodities and rates would be 
 reversed and circulated among the people; a second result, greed and avarice would 
 no longer be incentive to burden commercial pursuits with excessive rates, for incomes 
 to laboring and consuming masses would increase in proportion to increased price or in 
 proportion to increased cost of living, if you please. Therefore increased or decreased 
 cost of living would be equalized as between proprietors, producers, and consumers. 
 
 A third result: For first time in history that much-prattled "law of supply and 
 demand" would be free and untrammeled. 
 
 You must understand that I am in favor of corporations unlimited in number, more 
 combinations, more cooperation, larger productive forces, and greater production, and 
 last, but not least, a "square deal" that will provide those products be equitably dis- 
 tributed; therefore I favor more and larger distribution. 
 
 "The worst foe you can have is the man who would kill all your enemies." Can 
 there be a better reason in the world why this country is not sufficient in itself indus- 
 trially than that the condition of underconsumption that results from a system of 
 cooperative production and monopolistic division of products either mining, manu- 
 facturing, railroad, express, insurance, or any corporate enterprise is causing a limited 
 purchasing power of a majority of its citizens? 
 
 If I were to make any suggestions to this committee, it would be that you recommend 
 to Congress such action as might result in a constructive law that will sanction and 
 regulate corporation. Such law to provide that an equitable division of the coopera- 
 tively produced net profits be made to all actively connected with the working force of 
 the corporation; that the Government proceed by natural and legitimate methods to 
 levy a tax for support of Government that shall be equitably apportioned to all these 
 people; that corporations be unlimited in number with only one particular restric- 
 tion — that their net resources be naturally and legitimately divided with those having 
 to do with them. Such procedure and only such will eliminate the question, "Shall 
 the Government regulate prices and limit the capital of corporations?" 
 
 These ideas are first to be gotten under the hats, and then into the ballots of the 
 voting masses, that being the only evolutionary method, all other courses lead only 
 to revolution. 
 
 In my judgment it will be impossible to restore free competition, iree competition 
 can not exist under conditions that make exploitation possible, especially condi- 
 tions that license exploitation. _ 
 
 Wage system insures exploitation, which insures inequitable distribution, insuring 
 inequitable industrial relations, and inequitable industrial relations insure a wage 
 system and so on 'round. 
 
 Natural and equitable conditions, maintained as between promoters, producers, and 
 consumers, would make it impossible for any such proposition to become of national 
 import, such as has.the high cost of living. 
 Very respectfully submitted. 
 
 Dr. E. H. Colleh. 
 
 Battle Creek, Mich., December 16, 1911. 
 
 Letter from William L. Royall. 
 
 Richmond, Va., December 16, 1911. 
 
 Senator Moses E. Clapp, 
 
 Chairman Senate Committee on Interstate Commerce. 
 
 Dear Sir- When I was before your committee on November 28, 1911, I had in 
 mind to say, but overlooked it, the following: . 
 
 Amend the Sherman law so as to provide that all profits made by one party inflicting 
 a wanton injury to oppress another, so as to get the whole business al profite ; made 
 ty unreasonable restraints of trade, all profits made by monopoly, shall be forfeited 
 
1346 
 
 HEADINGS BEFORE 
 
 to the Government, one-half to go to the informer. This will cure the radical defect 
 in the law as it is. 
 
 I made a statement which the stenographer omitted to include in my colloquy 
 with Senator Brandegee. It was this: 
 
 If I understand Chief Justice White in the Standard Oil case, he means to say that 
 the general understanding of restraint of trade, when the Sherman law was passed, 
 was that the common law only forbade unreasonable restraint upon trade. That is 
 undoubtedly now the accepted view of the subject. But it was not the accepted view 
 in 1890, when the Sherman law was enacted. The House of Lords established that 
 as the true doctrine in Nordenfeldt v. Maxim, Appeal cases 1894 (p. 535), decided 
 in 1894, four years after the Sherman law was enacted, and it has been the accepted 
 doctrine since then. But it was by no means the accepted doctrine either in England 
 or America before that decision. 
 
 When that case was in the court of appeals (L. R., 1 Oh. Div., 630), the court from 
 which it came to the House of Lords, Lindley, L. J., expressed his opinion that the 
 doctrine "that the only test by which to determine the validity or invalidity of a 
 covenant in restraint of trade given for valuable consideration was its unreasonable- 
 ness for the protection of the trade or business of the covenantor" was "the doctrine 
 to which modern authorities have been gradually approximating." But he could 
 not, he said, "regard it as finally settled nor indeed as quite correct." 
 
 Lord J. Bowen expressed himself in the same case as opposed to the doctrine that 
 in cases of general restraints of trade unreasonableness was the test. 
 
 My pamphlet, The Pool and the Trust, printed as an appendix to my address to 
 your committee on the 28th, gives a full account of this matter and the history of the 
 doctrine of restraint on trade, beginning on page 590. 
 
 I would be very much obliged to you of you will read this letter to the committee 
 and have it inserted in the record. 
 Very truly, yours. 
 
 Wm. L. Royall. 
 
 Draft op Bill Submitted by Chauncey N. Dtjtton, New York. 
 
 AN ACT To amend and supplement an act entitled "An act to protect trade and commerce against 
 unlawful restraints and monopolies." 
 
 Section 1. The following are hereby declared to be legal definitions for the purposes 
 of this act and of terms used herein. 
 
 Holding corporation. — A corporation which holds or controls another corporation or 
 property thereof by ownership, lease, pledge, proxies, voting trust, or other form of 
 control of stocks, debentures, bonds, evidences of debt or securities, or by lease or 
 operating control of properties. 
 
 Sequence corporation. — A holding corporation which holds a number of corporations 
 severally adapted to do acts which collectively, but without duplication, constitute 
 the operative sequence of acts successively necessary to produce, obtain, utilize, or 
 manufacture a material and deliver the product. 
 
 Parallel corporation or combined competitives corporation. — A holding corporation 
 which holds a corporation or corporations which operate in the same territory and do 
 acts similar, like, or identical in kind, produce, make, or trade in commodities similar, 
 like, or identical in kind, and which would be competing corporations if not under 
 one ownership or control. 
 
 Sec. 2. Every sequence corporation lawful and lawfully chartered and organized 
 under the laws of the United States or of a State, Territory, District, colony, or pos- 
 session thereof is hereby declared to be a lawful organization. 
 
 Sec. 3. No parallel corporation shall be lawful except under the following condi- 
 tions: 
 
 (a) Until the 1st day of July, A. D. 1932, parallel corporations shall be permitted to 
 engage in trade and commerce among the States, Territories, colonies, and possessions 
 of the United States, the District of Columbia, and foreign nations: Provided, 
 
 (b) Every such parallel corporation shall keep its accounts as directed by the 
 Bureau of Corporations of the Department of Commerce and Labor and shall make to 
 said bureau, in forms prescribed by it, a sworn annual itemized report, setting forth 
 the actual value, as a going concern of the properties actually operated by said cor- 
 poration, and its actual gross and net earnings and expenses, income, and operating 
 income. 
 
 (c) Every such parallel corporation shall pay to the United States a graduated 
 income tax upon its net operative income as follows: When the net operative income 
 in any year shall not exceed 10 per cent of the value as a going concern of the proper- 
 
COMMITTEE ON INTERSTATE COMMEKCE. 1347 
 
 ties actually operated, the tax shall be one-tenth of 1 per cent of said value; when said 
 income shall exceed 10 and not exceed 10$ per cent of said value, the tax shall be 
 one-fourth of 1 per cent of said value; when said income shall exceed 10 J and not 
 exceed 11 per cent of said value, the tax shall be one-half per cent of said value; when 
 said income shall exceed 11 but not exceed 11^ per cent of said value, the tax shall be 
 three-fourths of 1 per cent of said value; when said income shall exceed 11J but not 
 exceed 12 per cent the tax shall be 1 per cent of said value; and when said income 
 shall exceed 12 per cent of said value, the tax shall increase one-tenth of 1 per cent for 
 each one- tenth of 1 per cent or fraction thereof of increase of said income above 12 per 
 cent. 
 
 (d) Any officer, official, or employee of any corporation who shall make, prepare, 
 utter, or sign a false report hereunder shall be deemed guilty of a misdemeanor and 
 upon conviction thereof shall be punishable by imprisonment for not less than one 
 year. 
 
 The Chairman. We will hear Mr. Kelsey this morning. 
 
 STATEMENT OF FREDERICK W. KELSEY, OF THE F. W. KELSEY 
 NURSERY CO., NEW YORK CITY ; RESIDENCE, ORANGE, N. J. 
 
 Mr. Kelsey. My name is Frederick W. Kelsey; I am president of 
 the F. W. Kelsey Nursery Co., which has offices at 150 Broadway, 
 New York. My residence is Orange, N. J. 
 
 Mr. Chairman and gentlemen of the committee, in accepting the 
 invitation of the committee to appear here, I may say at the outset 
 that I appreciate the spirit of fairness and open-mindedness which I 
 understood before I came here pervaded the deliberations of the 
 committee ; also my gratification at the patience and courtesj^ of the 
 committee extended to those who have appeared here. 
 
 I have found some difficulty in formulating a presentment to make 
 at this time; and I labor under some embarrassment, for the reason 
 that I am not accustomed to speaking. As a busy man of affairs I 
 am not accustomed to making formal presentments, and those who 
 have had experience know how difficult it is to make a clear and con- 
 cise statement without writing it out in advance — and this I have 
 avoided, for I have felt that an informal statement would be more 
 desirable and more direct. Another reason, I am not conversant 
 with what has occurred before the committee, and what questions 
 have been quite fully determined or decided, if any, and, third, I am 
 very much impressed with the colossal importance of the subject 
 before this committee and before Congress at the present time. 
 
 In what I have to sav, therefore, I shall proceed more on the lines 
 of a heart-to-heart talk, as I would wish were I in your home or you 
 in mine or I in your office or vou in mine, and in the time that 1 shall 
 occupy I shall endeavor to proceed directly; first, on the lines of what 
 have appeared to me to be the cause, or at least some of the funda- 
 mental causes, of the present condition in which the country is placed 
 and which causes and condition this committee is investigating and 
 has now under consideration; and, second, to give m concise form a 
 suggestion as to what has occurred to me, from a considerable study 
 of this question, what may be appropriate remedies— it 1 may be 
 pardoned for thus expressing this view. 
 
 I shall therefore, endeavor to deal with fundamentals, not with 
 technicalities or details. And let me also say in passing that I have 
 been through, not officially, but as a citizen, a somewhat simikr 
 experience to that which this committee is now going through. We 
 have in the Oranges, where I reside— a suburb of New York, as the 
 
1348 HEADINGS BEFOEE 
 
 committee knows — we have there a community of something like 
 80,000 or 90,000 people, largely residents of New Jersey who do busi- 
 ness in New York. It is one of the attractive suburbs of New York 
 City, as those of you will recall who have visited that section. We 
 have an organization there known as the New England Society of 
 Orange, started some 40 years ago, and similar to the New England 
 Society of New York, where some of you may have already spoken, 
 and similar also to the New England Society of Brooklyn, where the 
 President is to speak to-morrow evening. 
 
 Our Orange society is composed of — or was at the time I was presi- 
 dent, when this matter of trusts and corporation laws were under con- 
 sideration — a membership of about 400. And I refer to this because 
 we proceeded with these questions solely from the position of good 
 citizenship. Our constitution provides that the object of the society 
 is to emulate and foster " the virtues of the forefathers and cultivate 
 social relations." That we have endeavored to do; and as a result 
 religious subjects and political subjects are excluded from the delib- 
 erations of our meetings. And while, of course, our annual dinner is 
 the principal event of the year, as is the annual dinner of a great many 
 other societies, we have monthly meetings when we discuss topics of 
 local, State, National, or international interest, as the case may be. 
 
 Recently we passed a resolution commending the President and 
 expressing the appreciation of the society for his action in the inter- 
 national peace matter; and we pass other resolutions of that kind. 
 
 Any member of our organization who proposes to talk "shop," or 
 comes as an attorney to represent any special or personal interest, is 
 not heard; in fact, he is debarred from a hearing. 
 
 On my retiring from the presidency of the society in 1903, in refer- 
 ring to this question now under consideration here, 1 used these words : 
 
 A subject of great importance which this society may well thoughtfully consider 
 is the corporation laws of New Jersey. We throw around our institutions of finance — 
 the banks, insurance companies, etc. — every precaution and safeguard. Yet in the 
 formation and promotion of industrial corporations, unscrupulous promoters and vend- 
 ors are given full license to prey upon the investing public everywhere, without any 
 responsibility, accountability, or liability, unless fraud is proven — a very difficult 
 and expensive fact to establish — even where the most glaring and barefaced wrongs 
 are committed. Prom the present statutes is eliminated almost every element of 
 accountability, and the game of modern "high finance" is carried on in every part 
 of the civilized world where there are financial markets and the distribution of ficti- 
 tious paper capital is made possible. These laws not only legalize such corporations, 
 but by protecting those responsible for them place a premium upon this imposition 
 on the public. 
 
 My attention had been called previous to that time not only to the 
 formation of the trusts under our New Jersey laws, but of the innumer- 
 able, to speak plainly, fleecing, swindling operations that had been 
 carried on by companies formed there, and some of the glaring injus- 
 tices growing out of that condition had been brought to my personal 
 attention. So that in April, 1906, I delivered an address before the 
 New England Society in which,. in a very concise synopsis, I called 
 attention to just what the laws were, quoting from the acts, giving 
 specific instances of fraudulent capitalization, such as the Consoli- 
 dated Lake Superior Co., which showed an outstanding capital stock 
 in 1903 of $101,000,000, etc.; the United .States Cordage Co.— the 
 Cordage Trust— with $8,750,000 of bonds. $14,000,000 of preferred 
 stock, and $20,000,000 of common stock, a total of $42,750,000 of 
 " securities "(?) issued and largely sold to the public; the American 
 
COMMITTEE ON INTERSTATE COMMERCE. 1349 
 
 National Asphalt concern; the Globe Investment Co., by which con- 
 cern many Orange people were victimized; the Salmon Trust Co.'s 
 fate; the Straw Board Paper Trust, and other instances of glaring 
 monstrosities which were in the public mind at that time. The 
 United States Shipbuilding Co. was launched by an ingenious com- 
 bination of a few constituent companies, some of them not in prosper- 
 ous condition, and having total capitalizations of but a few millions of 
 dollars. The new-fledged corporation "under the laws of New Jer- 
 sey" at once emitted $14,500,000 of 5 per cent bonds, $18,851,000 of 
 collateral and underlying bonds, $20,000,000 of preferred and 
 $25,000,000 of common stock, or a total of $78,351,000, which the 
 captains of industry in stock watering then endeavored to unload 
 upon an unsuspecting public. 
 
 I further called attention to the fact that the public were ignorant 
 in many cases of these conditions and that they were created under 
 the laws of our own State. More than 20,000 of these charters with. 
 
 firatical conditions and possibilities have been issued by this State, 
 n 1904 there were 1,629 incorporations, paying in fees $147,659. In 
 1905 were added 1,912 paper creations, yielding license fees of $257,462. 
 I referred to the insurance developments that were under way through 
 the action of the Legislature of New York and through Gov. Hughes, 
 now one of the justices of the Supreme Court of the United States. 
 And to show to the society and to the public that I was not alone in 
 the views expressed in that address, I quoted from the special message 
 of President Roosevelt to Congress, January 30, 1905, in urging a 
 repeal of the lax corporation laws for the District of Columbia — laws 
 copied largely from the New Jersey statutes. I will read just a few 
 words from President Roosevelt's* message of that date, indicating 
 the situation from his point of view on this question at that time : 
 
 The evils growing out of the existing law were brought to my notice by a member 
 of the bar of the District, and I directed the Attorney General to make to me a report 
 upon the subject. From that report it appears that in the last two years there have 
 been incorporated under the law of the District 2,211 companies, with a total author- 
 ized capital of nearly $4,000,000,000. Many of the companies thus incorporated 
 represent no actual investment, and may be used by unscrupulous persons to perpe- 
 trate fraud upon the people and upon those who may be deluded into investing in 
 their stock. 
 
 INCREASE OF CORPORATIONS. 
 
 The increase of these corporations is going on with alarming rapidity. In one day 
 one person presented for filing articles of incorporation for 54 companies, m each of 
 which the same three persons were named as trustees. The authorized capital pro- 
 Dosed for these companies was over $200,000,000. The Attorney General closes his 
 report with the statement that: "The law governing the formation and control of cor- 
 porations in the District of Columbia is not, as it should be, a model of its kind, but, 
 on the other hand, it is hopelessly vicious." The evil growing out of these laws is 
 of such magnitude, and the necessity for action is so urgent, that I recommend to 
 Coneress the immediate consideration of the subject 
 
 The case calls for the most radical remedy. The right of incorporation ought to be 
 suspended at once until Congress can devise proper legislation for guarding its exer- 
 cise Moreover, measures ought to be taken to annul the charters which have already 
 been issued either by their direct repeal, if that be possible under the Constitution, 
 or rTyXtother legislative action may be deemed necessary. I doubt not that Con- 
 Zesi This already seen the necessity for replacing these vicious incorporation laws by 
 Sose which are governed by sounder principles, which will forbid the issuance of 
 stock ot bonds in excess of the actual investment, and permit a proper public super- 
 vision When such a law shall have been enacted all legitimate corporations which 
 have been formed under the existing law may readily be incorporated. 
 
 Theodore Roosevelt. 
 
1350 HEARINGS BEFORE 
 
 I also quoted in that address before the New England Society, 
 April, 1906, a few lines from Judge Grosscup, of the United States 
 court, whom you know, and with your permission I will read his 
 remarks : 
 
 Little by little safeguards are let down. It has come to the point where three or 
 five gentlemen can assemble in a room, lay a silver dollar on the table, call it assets, 
 capitalize at a million dqjlars, get a State seal on a charter, pocket the dollar, and go 
 on with the enterprise. Five gentlemen gather to consolidate their enterprises. 
 They place values on their properties; each is suspicious of the other and puts an 
 estimate on his property so that it will not fall below that of the other gentlemen. 
 This is called actual assets. 
 
 And in referring to remedial legislation I said: 
 
 Adequate remedies should not be difficult of application. 
 
 The simple restriction of capitalization, as formerly under the statutes of all the 
 States, to at least something like a pretense of the value against which securities 
 could be issued, would at once cut off one of the most fertile sources of corrupt practice 
 ■ now permitted under the present law. 
 
 The limitation of all charters, as formerly, to a maximum period of 50 years, 
 would be in conformity with safe, sane, and sound legislative principles, and in the 
 interest of the people, rather than for the benefit of schemers, promoters, and attorneys, 
 as are the present statutes. 
 
 Full publicity in the incorporation of a company, and in the annual reports verified 
 by affidavit and filed with the secretary of state, might also prevent much of the 
 fraud and deception now possible and largely practiced. The elimination of the 
 irresponsible dummy director, and making those responsible for the incorporation 
 sponsors for the company from the time of its organization, would remove one of the 
 most transparent of all the possibilities for corporate swindling at present in vogue. 
 
 I shall not take up the time of the committee to read further. 
 
 Some of the above recommendations I will refer to later on in my 
 statement, as they seem applicable to the present situation for action 
 by Congress. In closing I appealed to the society and to the people 
 of our State to correct those conditions by legislative enactment. 
 
 The result of that address was that a committee was formed, of 
 which I had the honor to be the chairman, appointed by the society, 
 for the purpose of investigating and reporting upon the corporation 
 laws and such remedies as, in the judgment of the committee, seemed 
 desirable. My associates on the committee were chosen to represent, 
 as I understand this committee represents, various interests and vari- 
 ous points of view. One of the members was vice president of one 
 of the trusts, another member was identified with the merchandizing 
 of fabrics in a commission house in New York — all New York men 
 living in Orange or vicinity — and I myself was a business man, so that 
 there were three business men on the committee and two lawyers. 
 "We spent eight months in investigating that subject, and, if I may 
 be permitted to say so, we went to the bottom of the whole business. 
 To be sure, we did not have authority to send for persons and papers, 
 but we had the direct advantage of representing a civic organization 
 that everyone knew was not working for party or political or personal 
 advantage; that we were acting solely for good citizenship, and what 
 we wanted were the facts. And we took such opportunities as we 
 had from the time the committee was appointed early in 1906 until 
 we made our report in January, 1907, to obtain them. 
 
 Our meetings were held at such times and places as the chairman 
 thought best. We had this advantage: In our informal hearings, 
 we could talk or write to financiers, labor leaders if you please, busi- 
 ness men, publicists, attorneys and experts, as we did, all over this 
 country and some abroad, and asked them in a personal or conn- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1351 
 
 dential way their opinion and what they thought the best remedy 
 for these conditions. 
 
 I am explicit about this situation so that you may understand 
 in what I shall say, not only the spirit that actuated the committee 
 in these investigations and the fairness with which we went into the 
 subject, but that we had a great advantage in being there in New 
 York and in Orange for getting in touch with the various interests 
 and those who were competent to judge, before making our report. 
 
 Now, I will not take up the time of the committee with this 
 report, excepting to deal with phases of it which seem to me are apro- 
 pos and have a direct bearing upon the situation here. And let me 
 read a few lines from the preface of our report showing how the bars 
 have been let down, as suggested by Judge Grosscup, in the incor- 
 poration acts of New Jersey: 
 
 As early as 1791 the liberal charters granted attracted intended incorporators from 
 New York and Pennsylvania. Compared with the liberal corporation laws of to-day, 
 these charters were extremely restrictive. It was not until 1846 that a general law 
 for the organization of business corporations was passed. In 1865 that law was 
 amended to enable any company organized under it to carry on business outside the 
 State. Special charters were, however, freely granted up to 1873. Then began the, 
 series of amendments since made to the general corporation acts. 
 
 In 1875 the provision for issuing stock for property purchased was inserted. In 
 1888 the creation of that marvelous method for controlling and manipulating other 
 people's property — the holding company — was provided for. It was not, however, 
 until the general revision of these laws, as recommended by a commission in 1896, 
 that almost the last vestige of legal restriction and supervisory State regulation was 
 removed. The wholesale "spawning of spurious corporations," which has so actively 
 continued since, was the result. Up to the revision of corporation laws in 1896 the 
 corporate privilege of every company organized under the general law was limited to 
 50 years. This limit was then removed. Different classes of stock were also author- 
 ized, with preference as to the voting privilege, which might enable the promoters, 
 or those retaining the excess promoter's capitalization, to control the company without 
 the necessity of having a dollar invested in it. 
 
 By a further revision in 1898, "dummy" incorporators or directors were given 
 additional powers. In 1902 this movement for special corporate privilege culminated 
 in the passage of the so-called promoters' liability act. It is section 27a of the New 
 Jersey statute, which is now not infrequently referred to "as a law for the protection 
 of grafters." And the enactment cf the amendment (Chap. I for 1902) for a corpora- 
 tion "To have succession by its corporate name (a) for the period limited in its charter 
 or certificate of incorporation, and when no period is limited, perpetually." 
 
 Instead of reasonable and consistent restriction of industrial or business corporations, 
 there is now no limit on capitalization, no liability of stock, no cash required to be 
 
 Eaid in no State examination or supervision, no liability or accountability unless 
 aud be proven. They may "keep office anywhere; do business anywhere ; no 
 questions asked. And yet this is all permissible by law, and the seal of approval of 
 the State is included as a part of each incorporation transaction. 
 
 It is a little tedious to go into that detail, but I have referred to it 
 for reasons which will become manifest as I continue; and because 
 that is the key that unlocks the chest of what I think many of those 
 who have investigated the subject consider the underlying cause of 
 the present situation with which the country is face to face at the 
 present time. Only by examination is it possible to realize how the 
 safeguards formerly surrounding the creation and control of corpo- 
 rations have been removed, how the great trusts have been created 
 and how one by one the bars against corporate manipulation and 
 mismanagement have been let down. 
 
 Now let me show just briefly m passing, condensed to a concise 
 paragraph in each instance, the apparent defects m the present law 
 as our committee found* after those eight months of investigation, 
 then existed and stdl exist. However, the legislature the year 
 
1352 HEARINGS BEFORE 
 
 following, from the pressure of public opinion growing out of this 
 agitation, did amend that "Section 27^4," which was the promoters' 
 liability clause, which simply provided if a fraud was not proven 
 within a period of four years it was debarred by statute. That 
 section was repealed. Otherwise the law, with the defects as we 
 viewed it then and as I view it now, may be summarized as follows: 
 
 (1) Stock may be issued for property at the promoters' or direc- 
 tors' conclusive valuation. 
 
 For instance, there might have been put into the United States 
 Steel Corporation a mill that cost $1,000,000, earning interest on 
 $5,000,000, for $20,000,000. Unless actual fraud be proven that 
 is legal "under the laws of New Jersey." 
 
 (2) Power to issue bonds and stocks without restriction or statu- 
 tory limitation. 
 
 The capitalization of hundreds or thousands of these creatures of 
 the- State has been so excessive as to make the mention of the amount, 
 compared with a fair valuation, literally a joke. Property worth 
 $1,000 put in, for instance, at $50,000, or any other amount, without 
 imit. 
 
 (3) No limit to capitalization. 
 
 (4) The loose powers given the holding company and to "dummy" 
 directors. 
 
 (5) Power to insert in charter anything the incorporators may 
 see fit. 
 
 (6) No liability unless actual fraud is proven. 
 
 (7) Lack of any State or National supervision whatever. 
 
 Is it surprising that corporations formed unders such laws should 
 exercise the greatest freedom in the management of their affairs ? 
 All of this, of course, applies to the trusts which have their home 
 and domicile in New Jersey, the same as it applies to every corpora- 
 tion, without distinction, good or bad, organized in that or other 
 States where similar laws have been and now are in force. 
 
 Other States soon vied with New Jersey in enacting these promoter- 
 made laws and the trust-creating era of the early nineties was the 
 direct result. And all this occurred 10 years after the enactment of 
 the Sherman law. 
 
 Not only has the District of Columbia similar statutes, as referred 
 to by President Roosevelt in his special message to Congress on 
 January 30, 1905, from which I have quoted, but Maine, West Vir- 
 ginia, Arizona, Delaware, and other States copied these laws in sub- 
 stance, and, in some cases, as the boys say, "went them one better." 
 
 For instance, the incorporating law of Maine and one or two 
 other States, at the time of the investigation of our committee in 
 1906, were found less restrictive and even worse in this respect than 
 the New Jersey law — if that were possible. 
 
 Now, this message of President Roosevelt, to which I have referred, 
 received no more attention from Congress than did the report of the 
 New England Society committee, as approved by the society, and 
 its recommendations to the legislature at Trenton two years after- 
 wards. Indeed, not as much. For the agitation, begun in New 
 Jersey at that time, has been going on ever since, and, as I have indi- 
 cated, resulted in the '"promoters' liability act" being repealed at 
 the session of the legislature — I think of 1908. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1353 
 
 Now, if the tariff is the mother of the trusts, the modern holding 
 company is father and mother both. 
 
 I presume it is within the knowledge of most of the members of 
 this committee that all of the great trusts, I believe without excep- 
 tion — and if I am mistaken I shall be glad to be corrected, because 
 I want to be absolutely accurate — all of the grsat trusts, about 
 which there is so much agitation at the present time, have had their 
 being and exercised their power and transacted their business as 
 holding companies 
 
 Senator Pomerene. You mean by the agency of a holding com- 
 pany ? 
 
 Mr. Kelsey. Yes; as a holding company — the United States Steel 
 Corporation, the American Tobacco Co., the Amalgamated Copper 
 Co., the Leather Trust, the Corn Products Co., the United States 
 Rubber Co., the International Harvester Co., and all the rest; hun- 
 dreds of them. There may be a few exceptions, however. I make 
 that as a tentative statement as to my understanding, because it is 
 so largely true that it is a case of general application. 
 
 Now, the peculiar and interesting thing, as applied to this .present 
 situation, is that the same freedom under the law obtains in the 
 organization of a holding company as in any other company, i. e., 
 any other industrial company organized under these laws. The pro- 
 moters set their own value on the plants they take in, they issue 
 whatever amounts of stock or bonds (or both) they wish, and in 
 whatever form they desire. They do as they please and do business 
 anywhere. Practically all that is required is to pay the State license 
 fee and to have an office for annual meetings in New Jersey. 
 
 Now the trusts are only one spoke in the large wheel of this situa- 
 tion. The wrongs from overcapitalization and flotation of indus- 
 trial corporations, besides that growing out of the action of the 
 trusts and all the resultant troubles, are enormous and widespread. 
 
 For instance, so many worthless companies have been organized 
 in our State that at the time we made our investigation five years 
 ago there were hundreds every year which, by proclamation of the 
 governor, forfeited their charter, because it was not worth while to 
 go on and pay the annual charter fees. Hundreds of thousands and 
 millions of dollars' worth of that worthless stock was sold to confiding 
 investors, and the losses thus sustained went all around the world. 
 I have learned of instances, which have come to my observation 
 while traveling in Europe, of people there who had bought "wild-cat" 
 stocks, floated under those laws, which were utterly worthless. Take 
 the Allis-Chalmers Co., which, if you will refer to any New York 
 paper to-day, you will see is reported to be now under process of 
 reorganization. Judge Gary, who appeared here recently, was 
 named as one of the sponsors of that concern when it was floated 
 in Mav 1901 That company took some manufacturing plants in 
 Chicago, Milwaukee, and Scranton, Pa.— there were three or four 
 plants-and they issued $16,250,000 of Purred ^k and 
 f9fi nnn 0(10 of common stock, which is more than $<3t>,000,0UU or 
 capitalization on that property. They sold $8,000,000 of the pre- 
 ferred stock at 105, through reputable bankers in New York, and 
 that same stock can be bought now, at least could on Saturday, tor 
 $6 per share — a loss of nearly $100 a share. 
 
1354 HEARINGS BEFORE 
 
 Senator Pomerene. Are you speaking of preferred stock? 
 
 Mr. Kelset. Of the preferred stock. There was a great deal of the 
 $20,000,000 of common stock sold at $30 to $40 a share, now worth 
 $1.50 or $2 per share; just how much I have never ascertained. 
 
 Now, the trouble in those instances, is not" in the legitimate bank- 
 ers' commission, which was referred to here the other day. I heard 
 some reference made by Mr. Brandeis that bankers' commissions of 
 10 or 15 per cent were something terrible and appeals to you to stop 
 this condition and destroy the trusts, even if, Samson-like, the whole 
 financial and industrial structure were in the process also pulled 
 down. This was, at least, as I understood the trend of the remarks 
 and suggestions by Mr. Brandeis. 
 
 Let me say that a new enterprise like a mine, a railroad, a trolley 
 line, new gas works, and other enterprises are often an experiment. 
 We all know that from practical observation or experience. Now, to 
 float a new enterprise of any magnitude requires capital. If you 
 have a mine, for instance, you can not tell its value; no man can tell 
 its value. You can not tell what a shop or factory will do, or what a 
 lumber plant or what a farm will do. When an enterprise is in the 
 experimental stage, a matter of 10 or 15 per cent for promotion and 
 bankers' commission is not, I think, the thing that makes trouble or 
 is making trouble to-day with our corporations and with the trusts ; 
 not at all. It is mainly the fabulous capitalization placed illegiti- 
 mately upon many of these properties, thus unduly burdening indus-. 
 try and cost of living; and this excessive and illegitimate capitaliza- 
 tion goes into the hands of the syndicate promoters, thus inciting 
 and accentuating the present condition of unrest. This is largely 
 responsible for the trouble. 
 
 I haven't any idea what was paid for the Allis-Chalmers plants; 
 what the option was which the promoters secured on those plants 
 when they floated that enterprise in 1901. From the developments 
 since, I should infer that a fair valuation of the plants might not have 
 exceeded $3,000,000 or $4,000,000 or possibly $5,000,000 (at good 
 value). The heavy mining machinery company that was the 
 larger asset of the company taken in at the time of organization was 
 manufacturing that kind of machinery, and at that very time the 
 change to the turbine wheel for heavy power was going on all over 
 the country, and that form of manufacturing was therefore then in 
 its decadence. This was known or should have been known to the 
 promoters and to. those who sold the constituent companies, although 
 it might not have been known to Judge Gary and some of the other men 
 on the first board of directors. But the fact remains that whatever the 
 legitimate value, there was that capitalization of $36,250,000 put on 
 the property, and it was sold to investors because the glowing pub- 
 lished estimate was that the company would pay 7 per cent on the pre- 
 ferred stock, which was "cumulative," and 10 per cent on the 
 $20,000,000 of common stock. They paid two years' dividends on 
 the preferred stock, and have never paid any dividends since ; and in 
 1907 placed a mortgage of $15,000,000 on the property. 
 
 I could sit here the rest of the week and enumerate these instances 
 of corporate wrongs where this process of overcapitalization has gone 
 forward under the laws of the States until, as I view it, these condi- 
 tions are largely responsible for our present troubles. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1355 
 
 Would not captains of piracy be a more fitting title for men ac- 
 countable for these acts than captains of industry? If we take a 
 property that is worth $5,000,000 and another property that is worth 
 $3,000,000 and another property that is worth $2,000,000 at a fair 
 valuation, and capitalize them for $50,000,000 and pocket the other 
 $40,000,000, is not that where the trouble lies ? That is the way, 
 through capitalization vast fortunes are made, and this legalized sys- 
 tem is, it seems to me, now advancing the interests of socialism 
 rapidly. 
 
 And let me say just a word more on this matter of bankers' com- 
 missions which has attracted so much attention. 
 
 In the United States Steel Corporation the banking and promoting 
 commission as reported was in round numbers $160,000,000. It is 
 referred to in various amounts, but as I recall the record it was about 
 $160,000,000. 
 
 That is only about 12 per cent of the amount of the capital. If we 
 were considering the promotion on a capital of $100,000 in a new 
 enterprise, $12,000 would not seem so much. But the trouble in the 
 capitalization of the United States Steel Co. is that they took the 
 ore deposits and other properties and turned them in at their own 
 valuation, and 12 per cent on that capitalization of nearly a billion 
 and a half of course looks large. The difficulty, it seems to me, 
 is in the difference between what might be considered fair valuation 
 for the property at the time of organization of the company and the 
 amount of Donds and of stock issued against it. 
 
 Now, let me say a few words regarding the points under con- 
 sideration as to possible legislation. In the study of this subject by 
 our New England Society in 1906 we endeavored to deal with 
 fundamentals. We found just what the laws were, and then we 
 endeavored to recommend simple, direct amendments that were 
 perfectly clear and easily understood. It has been my observation 
 that great propositions must be dealt with along simple and direct 
 lines, if we are to obtain practical results. At any rate that was our 
 view' and we made five recommendations as remedies which we 
 believed were fundamental. In making these recommendations we 
 studied not only the laws of the different States, but we had before 
 us the companies acts of Great Britain, which I think this committee 
 might find of interest, if you have not already seen them. There was, 
 as then appeared to us, the draft of an excellent national incorpora- 
 tion law, f drawn by Prof. Wilgus, of the University of Michigan 
 which attracted considerable attention at that tune, and to which I 
 saw a reference only a few days ago. 
 
 The New Jersey incorporation law provided tnen as now that a 
 certificate could be filed by three persons; they need not be even 
 residents of New Jersey or of the United States 
 
 Now we suggested that these incorporators "shall be citizens of the 
 United' States, and the 'majority of whom shall be residents of the 
 State of New Jersey." That seemed like a very simple provision, 
 and it is in some respects, but the idea of the society was that it 
 would locate the incorporators to start with. ' 
 
 Other changes which we thought desirable to bring our laws back 
 to the moorings of common honesty were intended to put a stop to 
 overcapitalization and perpetual charters. As I have said, formerly 
 
1356 HEARINGS. BEFORE 
 
 the charters of all of the States for industrial companies were limited — 
 looked upon as a chartered privilege by the State, and reverting to 
 the State after a certain time. We recommended that the law be 
 changed so that a charter should be granted for a limited time, of 
 from 30 to 50 years, with privilege of renewal. We gave in our 
 report the reasons why we made these recommendations, but I will 
 here deal only with the changes proposed. 
 
 Now the evils of over capitalization are everywhere recognized. 
 It is a difficult problem to deal with. If you make your limitations 
 too strict, you shut off the source of supply, the capital required for 
 industrial enterprises. On the other hand, if you leave them open 
 to an unlimited extent as they are now, all the evils of overcapitali- 
 zation follow. 
 
 We made the following suggestion on that subject. We proposed 
 there should be inserted in our incorporating act these few words, 
 providing for publicity and defining in the certificate of incorporation 
 the consideration for which securities might be issued: 
 
 If any part of such property is real estate, its location, area and the amount of stock 
 to be issued therefor shall be stated. If any part of such property is personalty, it 
 shall be clearly described and the amount of stock to be issued therefor shall be 
 stated. If any part of such capital stock is issued for services or expenses, it shall be 
 clearly described and the amount of stock to be issued therefor shall be stated. Said 
 certificate shall also state the total amount of capital stock, if any, previously paid 
 and reported. Said certificate shall be in such form, and the description therein 
 contained shall be in such detail as the secretary of state may from time to time 
 prescribe. 
 
 Then the provision follows that the certificate shall be not only 
 sworn to, but shall provide a penalty: 
 
 Sec. 26. Penalty for not performing duties. If any of said officers shall neglect or 
 refuse to perform the duties required of them in the preceding section for 30 days 
 after written request so to do by a creditor or stockholder of the corporation, they shall 
 be deemed guilty of a misdemeanor and jointly and severally liable for all its debts 
 •contracted before the filing of such certificate. 
 
 We inserted the words there "deemed guilty of a misdemeanor," 
 so that on the principle of publicity, of which so much is now said, 
 the incorporators would have to state at the outset all about the 
 property that was being taken into the company, and for what pur* 
 pose and in what amount securities were issued. This to be correctly 
 stated and reported by the secretary upon the request of any stock- 
 holder, and if not correctly reported the officer penalized as indicated. 
 
 In referring to these proposed changes we stated in our report: 
 
 • While the remedy now advocated may not be the panacea, we believe that with 
 the other changes providing for publicity, etc., an important step in the right direction 
 will have been taken. That official responsibility and publicity will soon correct 
 many corporate abuses may be confidently expected. 
 
 I have been interested in noticing that the hearings before this 
 committee, as I have read them casually as reported in the press, that 
 a great many of your recommendations are along the lines as to 
 publicity advocated by my committee in 1907. 
 
 The next recommendation proposed was that eliminating from the 
 statutes entirely the promoters' liability act, as it was called. I think 
 I have already stated that that clause limited the liability for fraud 
 to four years. This was for a certain purpose, as was brought out in 
 court afterwards. But there was so much agitation against it that 
 that portion of the New Jersey act was finally repealed. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1357 
 
 And then there were some minor matters in regard to cumulative 
 voting in our recommendations which are perhaps not so important 
 or worth considering here. In our report, on the matter of publicity, 
 we recommended that there must be given under the supervision of 
 the secretary of state or of the department of banking and insurance, 
 a statement of assets and liabilities of the corporation at the date of 
 the ending of its last fiscal year. To make it simple and direct, so 
 that the managers of any corporation, large or small, would know 
 exactly what kind of a public report they would have to make in 
 incorporating, as already stated, and what they would have to in- 
 clude in their annual report, we provided this form for such state- 
 ments : 
 
 A statement of the assets and liabilities of the corporation as of the date of the ending 
 of its last fiscal year to be made substantially in the following form: 
 
 Assets: Real estate, machinery, merchandise, raw materials and stock in process 
 of manufacture, cash and debts receivable, patent rights, trade-marks, good will. 
 
 Liabilities: Capital stock, funded indebtedness, all other indebtedness. 
 
 (2) Such report shall be submitted to the secretary of state, and if he finds that it 
 conforms to the requirements of this act he shall indorse bis approval thereon ; and upon 
 payment of a fee of $1 it shall be filed in the office of the secretary of state, who shall 
 receive and preserve it in book form, convenient for reference and open to public 
 inspection. 
 
 (3) Such report shall be accompanied by a written statement, under oath, by the 
 president, secretary, or treasurer, or two of them, or of tiro directors, that such report 
 is in all respects true. 
 
 You will readily see that the object sought to be accomplished was 
 not only publicity, but that publicity should be along fair and con- 
 structive fines, right and proper, to the State and to the corporation 
 and to all interests, so far as we were able to shape that recommendation. 
 
 One of the sections of the New Jersey law, which I have already 
 referred to as the corner stone and foundation of the whole basic 
 principle and practice of overcapitalization, reads as follows: 
 
 And in the absence of actual fraud in the transaction the judgment of the directors 
 as to the value of the property purchased shall be conclusive. 
 
 This we suggested should be omitted from the statute, which would 
 change its meaning entirely. 
 
 We proposed to have that paragraph struck out oi the law so that 
 the provision I have referred to, in providing for publicity as to assets, 
 might prevent the releasing of those responsible for valuation from 
 all liability therefor. 
 
 Then in regard to the penalty for false report, we suggested the 
 adding 'of the words: "And knowing such material representation to 
 be false, shall be guilty of a misdemeanor." 
 
 These proposed changes, in a few words, cover the more important 
 recommendations made in our report. . 
 
 A bill embodying those recommendations was prepared by our 
 committee After the report had been thoroughly discussed and 
 armroved by the society, the bill was introduced in the legislature. 
 Tliere was a great deal of discussion about it at the time. It was not 
 passed. The situation is very peculiar in our State. The taxes 
 derived from corporations have been so large that we have no State 
 tax in New Jersey, and have not had for years I can not give you 
 of&iand what these revenues are Perhaps Senator Martme can 
 refresh my recollection, but I thmk it [is something like $3,000,000 
 or $4,000,000, annually. 
 
1358 HEARINGS BEFORE 
 
 Senator Martine. It is over $3,000,000. 
 
 Mr. Kelsey. Over $3,000,000 a year. Now, many consider that is 
 a very nice thing. Even if a State sells its birthright for a mess of 
 pottage, it is in their opinion a good thing to have the "pottage" to 
 pay State expenses when they run up to that amount. And the 
 result has been that our governors, including Gov. Fort and our 
 present governor, have seemed averse to dealing with the subject by 
 special message to the legislature. 
 
 In the bill- prepared by our committee the corporation attorneys in 
 the society, as they did in the legislature, began at once to make 
 excuses. The situation that followed I hope will not follow in the 
 deliberations of this committee, namely, the discussion of all sorts of 
 collateral, technical, and irrevelant subjects, and the session went by 
 without action. Although the members of the assembly committee 
 on corporations, having the matter in charge, said it was a good bill 
 and should be passed," it did not pass. 
 
 Then there are our attorney friends all over New Jersey. The incor- 
 poration of the thousands of companies in the State "under the laws 
 of New Jersey" makes it very lucrative and very profitable for those 
 lawyers. On the other side were those of our committee and our 
 society, who were merely interested in this matter as citizens, and we 
 felt that we had performed our duty when we had stated the facts and 
 presented the subject to the legislature and to the people of the State, 
 and thus in a limited way to the people of the country. 
 
 The Newark Evening News, one of the leading papers, thus referred 
 editorially to the society's action and the changes recommended in 
 the bill: 
 
 All these proposed changes will undoubtedly be opposed. They strike at the very 
 means by which most of the enormously wealthy men and corporations have made 
 their money. But the people are gradually coming to understand how they have been 
 robbed and are inquiring how they can get their money back or how they can prevent 
 further robberies. The former they may never accomplish, but the calm, intelligent 
 discussion of these questions by such civic associations as the New England Society 
 tends to teach the people how to control the corporations instead of having the cor- 
 porations control them. 
 
 I merely read that as an expression of current opinion, which was 
 repeated in the leading papers m New Jersey and elsewhere, and it was 
 apparent that the principal difficulty in amending these State laws 
 was the profit to the State, as I have indicated, and to the attorneys 
 in promoting these corporations, including the huge trusts, under these 
 laws. 
 
 The other day our aggressive mayor of New York, Mayor Gaynor, 
 in addressing the western governors, used this language in referring 
 to the trusts and the corporation laws under which they were organ- 
 ized: "Why on earth do not the people of New Jersey amend these 
 laws?" 
 
 I asked Gov. Fort, when he was governor, a neighbor and friend, 
 the same thing. And I have also been over the subject with Gov. 
 Wilson. I merely asked as a citizen of the State and as a friend 
 whether it was not time for New Jersey, having set the example for 
 exploiting these laws now causing so much trouble in the United 
 States, if it was not appropriate and called for that New Jersey take 
 the initial step in amending these laws, so that we could start right 
 and begin at home. Well, they said "yes;" but thus far nothing has 
 
COMMITTEE ON INTERSTATE COMMERCE. 1359 
 
 been done. I have already gone quite at length into these trust- 
 creating laws, as they are the foundation and the corner stone of the 
 whole trust-combination structure. 
 
 Now, in dealing with the question of remedies, I desire to call the 
 attention of the committee to an address — perhaps you have read it — 
 of the president of the American Bar Association of Boston in August 
 last. He said: 
 
 If every State will purge its corporation laws of all objectionable features, then the 
 breeding places of industrial monstrosities will cease. 
 
 That is beautiful in theory, but it is like a good many other things 
 in. theory. I firmly believe it is utterly impractical and visionary 
 in practice. Mr. Frank Bergen, of Newark, the able counsel of the 
 public-service corporation, and a very clear-headed lawyer, has 
 been on the committee of the American Bar Association for codi- 
 fication of the State laws for a number of years. Mr. Bergen 
 recently delivered an address before our New England Society, 
 and told us how utterly hopeless it was in the simplest forms of law 
 to codify, so as to get the different States to agree, and how impos- 
 sible this had been, even in the simple matter of mercantile bills of 
 lading. They no sooner would enact a form of statute in one State 
 or a few States than some other State will disagree, and then another 
 State jumps clear over the traces, constantly making new condi- 
 tions and necessitating going all over the situation from year to 
 year. They tried it as to divorce; they tried it on questions where 
 only good morals were involved; and Mr. Bergen, as the result 
 of several years of careful study, stated that the attempt to codify 
 any of the laws of the different States was a hopeless undertaking. 
 
 Well, gentlemen, if you can not codify, the laws of the different 
 States on a simple proposition like bills of lading — mere receipts 
 for goods shipped — what may be expected and what are you going 
 to do in the correction of corporation-law abuses ? 
 
 I want to say in all seriousness that I do. Jiot believe you can do 
 anything whatever toward remedial conditions or as applied to 
 the trusts, in waiting for action by the States under the conflicting 
 laws and conditions between the States. Now that these trusts 
 are afloat, the game is afloat. The proceedings of this committee, 
 and of Congress, and of the courts, may be called in common par- 
 lance a "chase from behind." 
 
 The trouble began, as I view it, when the State created the cor- 
 porations and gave its official seal in approval of these undertakings. 
 
 Speaking as one of 90,000,000 of people, it seems to me the country- 
 is dealing with a sequence; trying to catch these conditions which 
 four or Ave or six or eight years that have gone before have estab- 
 lished under State authority. The business of the country, the 
 business of the trusts, the rights of the stockholders, each, one, and 
 all were established under the law, for the most part, years after 
 • the enactment of the Sherman antitrust law 
 
 Now the suggestion was made the other day that if a corporation 
 found the laws not satisfactory or something was wrong for it in one 
 State it would go to another State. Let me remind you of the Amer- 
 ican Sugar Refining Co. case. An action was begun against that com- 
 uanv * think under the laws of New York, a number of years ago, 
 and I believe under the common law. I am not quite sure of the pro- 
 2287T— vol i—12 86 
 
1360 HEARINGS BEFOBE 
 
 ceedings, but the action was begun and the company was declared an 
 illegal company — an illegal concern. What happened ? They went 
 right across the Hudson River and organized the present company, 
 and have gone right along, more recently performing some wonderful 
 operations, defrauding the Government of duties — v/ith which you 
 are all familiar — and shutting up the Siegel Sugar Refinery of Phila- 
 delphia, where, as you know, the president of the trust company, hav- 
 ing advanced the money to complete the refinery, and then finding 
 that he was in the clutches of the Sugar Trust, committed suicide. 
 One of the most interesting chapters of that trust's operations was the 
 settlement effected by Mr. George H. Earle, jr., of Philadelphia, who 
 I believe has been before j r ou here, and the way he brought the sugar 
 company to time. 
 
 You will no doubt recall the indictment a year or two ago of several 
 of the directors, including the attorney, John E. Parsons. 
 
 Now, if I may be pardoned, I would like to make another observa- 
 tion which appeals to me with much force. While we are here, 
 nearly at the close of 1911, discussing around this table this question, 
 you and I, Mr. Chairman, or any of us,- or any of you, or anyone else 
 can go right here in the District of Columbia, under the laws of 
 Congress, and get a full-fledged regularly incorporated company of 
 the New Jersey trust brand, and, unless these laws have been recently 
 changed, no one could interfere. We can incorporate the nonbraying 
 mule company, if you please, and if we can not do it here, go over 
 to New Jersey and we can do it there. We can issue, say, $10,000 
 of first mortgage bonds, $20,000 of preferred stock, and $30,000 
 of common stock on a few mules, and all under the seal of the State. 
 To be sure, somebody might later come forward, even under the 
 common law, and say that that was such a gross fraud restitution 
 should be made in that we were restraining trade in mules. Yet 'we 
 would have a lawfully launched corporation. 
 
 Another interesting case now before Chancellor Howell, Newark, 
 N. J., is the suit to ootain possession of or cancel $10,000,000 of the 
 National Sugar Co. stock, which stock was issued as alleged without 
 any consideration whatever and turned over to the late president of 
 the Sugar Trust, H. O. Havemeyer, and which stock has been paying 
 7 per cent, or $70,000, per year for many years, taken from the treasury 
 of the American Sugar Refining Co. These are only a few of the 
 cases that have come out as the facts drift to the surface and the 
 public and the stockholders find out what has been done and is being 
 accomplished under these laws. 
 
 It seems to me a travesty that such a condition should exist, yet 
 it is true. To my mind there is no sadder thing in connection with 
 our legislative history than the way that States have gone into the 
 charter-selling business, and merely for dollars selling their birthright, 
 licensing unscrupulous promoters and trusts and everybody else to 
 do mueh as they please and no questions asked, all under the law 
 of the States. 
 
 It seems absurd to talk about the incorporation of a nonbraying 
 mule company, yet in looking up this subject and going over the list 
 of the hundreds or thousands of regularly incorporated companies 
 which, by proclamation of our governors, have been declared non- 
 existent for not paying their dues, we find any number of corporations 
 as iniquitous, as unjust, as unreal, and as outrageous as it would be 
 
COMMITTEE ON INTERSTATE COMMEKCE. 1361 
 
 for us to-day to incorporate the nonbraying mule company; and this 
 applies to many of the States in the same way. 
 
 These charters are being ground out at the present time while we 
 are considering this subject here and at the rate of from 5 to 20 daily. 
 Our New Jersey papers publish every day or two a list of the incorpo- 
 rations at Trenton, and, I believe, the attention of this committee has 
 been called to an incorporation that is now under way of some great 
 trust involving $50,000,000 of capitalization, notwithstanding the 
 Tobacco case and the Standard Oil case decisions, to which I will refer 
 later. 
 
 Senator Pomerene. I did not understand that statement. Did 
 you say there was one under process of organization ? 
 
 Mr. Kelset. There was a good deal said regarding this — I am now 
 speaking of current reports, not of my own knowledge — and in glanc- 
 ing over the reports here — I think it was referred to by one of the wit- 
 nesses — a current report, that there was under consideration the for- 
 mation of a so-called trust with something like $50,000,000 of capital. 
 I am not quite sure at the moment that it was stated what company 
 it was and what concerns it was proposed to bring together. I can 
 not recall that; but I do recall the fact, and Senator Martine, or any 
 of our friends from New Jersey, or anyone who reads the papers, can 
 see for themselves the reports almost daily of all kinds of enterprises 
 now being organized under these laws. 
 
 Now, considering this question of remedies, which, after all, is the 
 important question, I have dealt at length with the causes leading 
 up to this situation, because it seems to me, and it seemed to our com- 
 mittee in our investigations, that in trying to deal with the sequence 
 it is requisite to know the fundamental causes in so far as we can 
 ascertain them. It is difficult to reach the remedies directly without 
 giving some consideration to the underlying causes. I appreciate 
 that you are in a perfect maze here of recommendations. It has been 
 my privilege to consider with congressional committees two of the 
 tariff schedules that have been under consideration heretofore, and 
 one of your colleagues said to me when the Dingley tariff was under 
 discussion: "Mr. Kelsey, nobody's head is big enough to get through 
 with this thing." As a business man, dealing with various problems 
 and having to pass upon them, I have felt a great deal of sympathy 
 and regard for anyone who has to deal with any such question as is 
 before this committee and before Congress at the present time. Like 
 the revision of railroad rates, whatever view we may take of it or what- 
 ever result is sought to accomplish, it is a colossal undertaking; and to 
 separate the chaff from the wheat, to take the mass of material here 
 and cull out of it such matter as in your judgment will meet the 
 requirements of the country upon this trust question, I think calls for 
 the generous consideration of every man, not only of those of us who 
 appear before you, but of every citizen of the country who has any 
 appreciation of what it means. 
 
 So that from this standpoint if I had to deal with the problem — if 
 you will pardon that reference — I would deal directly with the fun- 
 damentals, and first I would place the necessity of national control. 
 
 I have little patience for those who tenaciously hold an extreme 
 notion, as I believe, of State rights, in which I am a believer myself. 
 Indeed, I have not the slightest patience with those who carry that 
 doctrine so far as regards Congress dealing with this trust question, 
 
1362 HEABINGS BEFORE 
 
 as to wait any longer for action by the States, as, for instance, does 
 the Hadley commission in their recommendation relative to the 
 issuance of securities, including conditions of overcapitalization, and 
 the wrongs of railroad management. That commission in its report 
 just submitted tacitly recognizes and admits certain wrongs in over- 
 capitalization, etc., and other shortcomings permissible under State 
 laws. I disfavor the suggestion that Congress should sit idly by and 
 do nothing and let these things go on. To the consideration of this 
 subject I have given considerable thought; and the only effective 
 thing it seems to me is for Congress to act and act at once, just as 
 soon as it can determine a fair policy, in the interest of all the people. 
 Otherwise these conditions will go right on. 
 
 So, in short, I would pass that point without further consideration; 
 and I am glad to have seen in the recommendations here — even from 
 the attorneys of the trusts and others — the consensus of opinion, as 
 I have read it, favorable to that proposition. 
 
 No one claims that New Jerse}^ West Virginia, Delaware, Arizona, 
 and Maine, and all those different States with incorporating charter 
 mills, can deal with this question; or that they could, even if they 
 would, act together in these matters. 
 
 The States will not and can not control or properly deal with this 
 question under present conditions any more than could they build 
 the Panama Canal or manage the Government Post Office. I look 
 upon that as axiomatic. The report of our committee was made to 
 the legislature, and the articles from the press and editorially referred 
 to in 1907 and since gave publicity to the situation in New Jersey. 
 These facts were explained five years ago and yet we have not 
 reached the point where our governors have had the courage — or for 
 some other reason — to make the recommendation to the legislature 
 for specific remedy. In cooperation with our State senator last 
 winter I prepared a bill providing for the appointment of a commis- 
 sion by the governor to officially investigate and report on our New 
 Jersey corporation laws.- Senator Osborne, with whom I consulted, 
 as also with the governor, introduced the bill. It passed the senate 
 in the afternoon of the last day, but there was not sufficient interest 
 to pass it in the assembly. No one was going down to Trenton to 
 urge its passage, so the bill failed. 
 
 Now, if under these conditions and the selfish interests from that 
 point of view, wanting the State to retain its corporation laws, what 
 prospect is there for legislation by New Jersey or by any of the 
 States in reconstructing their industrial and trust-creating statutes 
 so as to deal with this colossal question in a way commensurate with 
 present needs ? 
 
 Another thing, international communication in commercial and 
 industrial trade affairs has completely annihilated and obliterated 
 State lines. 
 
 I have been in business in lower New York many years. We have 
 customers in various States in the West, and, now and then, abroad. 
 Do we pay any attention to State lines as to where a customer is 
 located? Not the slightest. If a customer is in California or Penn- 
 sylvania or anywhere this side of Chicago, the railroads, the mail, 
 the telegraph, and the telephone entirely disregard State boundaries. 
 Then there is the cable, under Mr. Vail's able management — the 
 
COMMITTEE ON INTEBSTATE COMMEECE. 1363 
 
 Western Union cable lines. Commercially it is now one circle of 
 communication around the world, and State lines have wholly lost 
 their former significance. 
 
 When our Senators here recommend anything distinctly local for 
 New Jersey, as, for instance, the control of utility corporations- 
 regarding which I will have something to say if time permits— any- 
 thing of that kind, anything connected with our State institutions, 
 educational institutions, or other local matters, I will favor and con- 
 tend for State rights in these matters as earnestly as anyone. 
 
 There are matters of water supply. New York City is expending 
 $160,000,000 to bring a water supply from the CatskiUs down under 
 the Hudson River, 900 feet below the surface, with tunnels 150 feet 
 deep through rock under the Bronx and upper New York, and redis- 
 tributed, as under the present system, by great tubes under the bay 
 and East Eiver to Staten Island and Brooklyn. 
 
 Now Congress has not anything to do, iii my judgment, with an 
 enterprise like that. It is a matter very properly left to the State of 
 New York and the city of New York to settle. The State of New 
 York having chartered the city of New York, the latter derives its 
 powers, its corporate existence, from the former. The State says, 
 'Yes, you may loan your credit," and legalizes the loan, and the 
 great undertaking goes forward. Those are strictly local and State 
 matters. 
 
 As to the idea of undertaking to properly deal with trade and 
 industrial corporate matters under present conditions, it seems to me 
 too impractical and too remote for* discussion. 
 
 I would like to read here a few lines from Col. Roosevelt's recent 
 article in the Outlook, which perhaps you may have read. I now 
 refer to it, as I think it concisely expresses a situation which is wholly 
 applicable and apropos to the present situation: 
 
 We need to formulate immediately and definitely a policy which, in dealing with 
 big corporations that behave themselves and which contain no menace save what 
 is necessarily potential in any corporation which is of great size and very well man- 
 aged, shall aim not at their destruction, but at their regulation and supervision, so 
 that the Government shall control them in such fashion as amply to safeguard the 
 interests of the whole public, including producers, consumers, and wage workers. 
 
 That is in substance exactly what I had noted before I saw this 
 article, in my notes here regarding Federal incorporation and regula- 
 tory control. One follows the other. If the States ar3 either power- 
 less to act or can not act, or will not act, and you are up against a 
 condition, as is the country on this trust problem, reaching across 
 the country from Maine to Texas and from Texas to California and 
 up to the British possessions; and indeed affecting the whole world 
 in industry, trade, and commerce — why, then, action by the National 
 Government follows as a necessary sequence. 
 
 Now, I will be as brief as possible in these thoughts as to remedies 
 that seem to me very direct and simple in their application. They 
 would be, I believe, if adopted by Congress, far-reaching in their 
 effect and be just alike to capital and to labor. It would immedi- 
 ately place the people of the States and the United States above the 
 position I have indicated, , of selling their birthright for a mess of 
 pottage. A great many charters are illegitimate, for the purpose of 
 creating trusts or otherwise, and I shall refer to the matter in a few 
 words. 
 
1364 HEABINGS BEFOEE 
 
 It was held up to this committee by one of the witnesses here last 
 week as something terrible — at least, I believe that was the impres- 
 sion given out — that a banker or promoter should receive .10 or 15 
 per cent for organizing and starting any corporation. Permit me to 
 say, I think the men who promote great public improvements — for 
 instance, like the tubes under the Hudson River — are entitled to liberal 
 profits and the capital a large return on the amount actually invested. 
 Such is the great public convenience of these tubes for all the people. 
 
 When you start from Washington you ride right through in elegant 
 cars to the Pennsylvania terminal, Manhattan. It is a tremendous 
 improvement. I think those men responsible for it should have 50' 
 per cent profit or commission. 
 
 So if an enterprise is legitimate and it is a new enterprise, you 
 do not know what your farm will pay, or in advance what your 
 machinery may earn, or what your mine will produce, or the profit 
 in operating a railroad, and you want additional capital, I think it 
 well worth a fair commission for organization and for procuring the 
 capital. I do not think there can be any reasonable question as to 
 that point. 
 
 When you come to deal with the remedies in this colossal trust 
 problem it does seem to me it could be confined to a comparatively 
 re statutory provisions and clearly expressed in words everyone 
 can understand, so that business men and others will know exactly 
 what to depend upon and expect. You will earn the everlasting ' 
 gratitude of all the people of the country if this can be brought about, 
 and brought about speedily. Wowld not the following provisions in 
 an act of Congress lead directly toward that result ? 
 
 (a) Keetriction be made of capitalization, as formerly under the statutes of all the 
 States, to at least something like a pretense of the value against which securities may 
 be issued. 
 
 No one can complain of that. An honest capitalist, like an honest 
 laborer, will say that is fair. If you turn in good property, you 
 turn in good service, either at a fair consideration. An efficient attor- 
 ney of ability may be worth a great deal in bringing together the 
 requisite capital and organizing a company for developing an indus- 
 try. I think it perfectly consistent to issue capitalization for both 
 service and property, but let it be legitimate — -let the law make it 
 legitimate — and the issuance of capitalization restricted somewhere 
 near or something like the actual value that it is issued for, and thus 
 authorized by law. Let Congress take this position on that point and 
 I believe you wiU have the approval of the country, because you will 
 hold to a position that no one can in fairness truthfully criticize, 
 and the following enacted into law for the whole country. 
 
 (6) The limitation of industrial corporate charters, as formerly, to a maximum period 
 of, say, 50 years, with conditions for renewal. 
 
 (c) Full publicity in the incorporation of a company and in the annual reports, veri- 
 fied' by affidavit and filed with both the Government and State authorities, where the 
 initial or principal incorporation is in a State, with severe penalty for false statement 
 or violation. 
 
 (d) Eliminate voting power of all stock owned by holding companies. 
 
 Now, that covers the four suggestions that I have in mind and in a 
 very few words. First, get the law right creating the corporations, 
 and then it seems to me will be ample time to enlarge upon the ques- 
 tion of bringing all things of the large corporation type before the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1365 
 
 courts and stop this battledore and shuttlecock operation of the law 
 between the States and the Government — the serious problem now 
 before Congress and the United States courts. 
 
 As I have indicated, the holding company is both father and mother 
 oj: the trusts, from any point of view you may look at it. It is the 
 holding company that gives the trust its control and its almost unre- 
 stricted and unlimited advantage in manipulating prices and treating 
 the whole business of the constituent companies thus controlled as 
 one unit. That is its strength. 
 
 Our New England Society committee considere'd that subject very 
 carefully both from the legal standpoint and from the layman's 
 standpoint — the business standpoint. There is some question as to 
 jurisdiction, if you want to destroy the holding company whose stock 
 has been issued, under the law, as we were advised by our legal friends 
 at that time, and I have understood the same principle applies now. 
 There are some legal and equity questions involved; also the question 
 whether it is perfectly fan in all cases to compel dissolution of the 
 holding company. Congress could do that, presumably. My com- 
 mittee probably gave that question and that of overcapitalization 
 more consideration than any other question. We came to the con- 
 clusion that perhaps there was no better way of clipping the wings of 
 the holding company and restricting its activities than by simply 
 inserting the one word in our New Jersey statute excepting before 
 the words "the right to vote." 
 
 The section. then reads: 
 
 "Sec. 51. Any corporation may hold stock and bonds of other corporations, etc. 
 Any corporation may purchase, hold, sell, assign, transfer, mortgage, pledge, or other- 
 wise dispose of the shares of the capital stock of, or any bonds, securities, or evidences 
 of indebtedness created by any other corporation or corporations cf this or any other 
 State, and while owner of such stock may exercise all the rights, powers, and privileges 
 of ownership [including] excepting the right to vote thereon." 
 
 The practical effect of that change would be, if approved by the 
 legislature or now enacted by Congress, to eliminate the power of con- 
 trol exercised by the holding company. Any of the trusts may 
 acquire and hold, as they do now, 51 per cent or more of the stock of 
 the subsidiary companies. This law would make them powerless to 
 vote on it. The voting power would be still held by the 49 per cent 
 outside, or if the holding company had acquired 90 per cent, or 95, or 
 98 per cent the other 2 per cent outstanding would control the cor- 
 poration and the holding company would be powerless. We thought 
 that that would— whether technically right or wrong— accomplish 
 the result in a great measure of eliminating the holding company 
 from the situation. , , 
 
 It is a difficult problem at best. If you should recommend and 
 Congress approve the abolition of the holding company there would, 
 in my judgment, be plenty of trouble that would follow. 
 
 In our report January, 1907, we stated: 
 
 This committee has not seen the way clear to favor a legal prohibition against 
 a o™,,Snt nr sale of the securities of other corporations, but we do emphati- 
 callv recoSSend IL abridgement of the right to voters noted in the above section 
 This restriction would permit every constituent company to retain its entity and 
 control 1 and Xe danger™ 3 power now conferred upon a holding company would be 
 reduced to its function. 
 
 The trouble with a drastic law dealing with a holding company, 
 in trying to eliminate it, is, as I have already indicated, that these 
 
1366 HBAEINGS BEFOKE 
 
 trusts are organized under the law and, it is fair to assume, under the 
 advice of able counsel that it was legal; so they have told me, and I 
 have talked with some of the ablest counsel of New York and New 
 Jersey upon that subject. Pass a law in Congress eliminating the 
 holding company, and I do not think anyone would know just where 
 they stood. It is my impression that the results would be very 
 serious. I am not prepared to say but that there may be a better 
 way devised than that suggested to reduce the power and control 
 of the trusts — in other words, the holding companies. One thing, 
 however, is certain and is so perfectly plain that everyone can under- 
 stand it. We should not have to go to the Supreme Court unless 
 upon a question of law to settle that question. Every man who is 
 a stockholder, member, or director, or on the executive committee 
 of a holding company or a trust, either in form or actively carrying on 
 its business, after the passage of such a law, would have to shape his 
 plans accordingly, because he would know exactly what could be 
 expected. That is another thing which to my mind is of transcend- 
 ant importance. 
 
 You can hardly talk with a man of affairs, a man of business, one 
 having the greatest respect for the Supreme Court, but who feels 
 that it is most unfortunate that no one knows exactly where they 
 stand to-day under the decision of the Supreme Court in the Tobacco 
 and Standard Oil cases as it has been construed. It is much the 
 same in regard to the Sherman antitrust law. If the Court had laid 
 down some specific statement relative to the act itself by which there 
 could have been no misunderstanding and in language not subject 
 to different interpretation, the claim that it was an impracticable and 
 nonenforceable statute, as quite generally understood, and as I 
 understand the attitude of the Government itself until a few years 
 ago, would have been differently settled. 
 
 Let me again refer to another statement, in three or four lines, 
 made by Col. Koosevelt, which to my mind is one of the most truth- 
 ful of the many things that that versatile publicist has said, and is 
 of universal application: 
 
 Moreover, the effort to administer a law merely by lawsuits and court decisions is 
 bound to end in signal failure, and meanwhile to be attended with delays and uncer- 
 tainties, and to put a premium upon legal sharp practice. 
 
 That statement, permit me to say, is in entire accord with the 
 experience of conservative business men everywhere who are anxious 
 to obey the law and deprecate legal controversy, with its accom- 
 panying cost and uncertainty of result. 
 
 The present uncertanity of business and partial paralysis of indus- 
 try is also occasioned largely by futile, uncertain, and unsatisfactory 
 effects of attempted remedial legislation. 
 
 The American Tobacco Co. and Standard Oil Co. cases are like- 
 wise important factors. 
 
 One of the members of this committee asked the other day whether 
 the situation at the present time regarding the Sherman law, as 
 interpreted by the Supreme Court, had or was having any serious 
 effect upon business, or any depressing effect on business, or some- 
 thing to that effect. 
 
 Well, there are two evidences that business, in the larger way, is 
 depressed and has been depressed for the past two or three years 
 
COMMITTEE ON INTERSTATE COMMERCE. 1367 
 
 since this subject has been under active discussion. One evidence 
 is the rate for call loans in New York, which, as you know, is the 
 financial barometer of the country, and which shows the condition 
 as to surplus money for the past six months. This rate has averaged 
 about 2 or 2|- per cent. That is an evidence, unerring evidence, 
 that there is a great deal of idle capital when month after month 
 loan rates continue at 2 to 2\ per cent a year. I asked the presi- 
 dent of one of the large New York trust companies at the hotel yester- 
 day morning if I was correct in my understanding that the rate for 
 call mone} 7 for the last six months would average about 2 per cent. 
 He said yes, not over 2\ per cent. A good deal of the time it has 
 been If per cent. The committee, of course, understand how that 
 call money business is arranged, and how it is so dangerous in times 
 of panic; and that the currency plans now under consideration aim 
 to avoid a repetition of what happened in 1907 — which some of us 
 witnessed — when the Tennessee Coal & Iron Co. was taken over by 
 the United States Steel Corporation and broke the panic; which has 
 already been the subject of a good deal of discussion. 
 
 That is one thing. When business is good, and capital is employed, 
 the call rates for money in New York run anywhere from -3$ to 4, 5, 
 or 6 or more per cent. Of course in abnormal times, such as dur- 
 ing what was called the silver panic in 1893 and 1S96, I saw money 
 at 3 per cent a day. That was a pretty good rate of interest. For 
 instance, a man could get a certified check of $1,000 on the best 
 bank in New York for $970 currency, a certified check, payable 
 through the clearing house the next day. In other words, you paid 
 $30 a day for the use of $1,000 over night. In the panic of 1907 
 you could not get money — i. e., currency — at any price. It was not a 
 question of rates of interest, but cash in any large amount was not 
 
 to be had. 
 
 So that there is one positive and convincing conclusion, viz, that from 
 some cause the surplus capital of the country is piled up as it should 
 not be, but as it has been for the last two years. Call rates of money 
 have been very low. For the last eight months, during the culmi- 
 nation of this decision of the Supreme Court in the Tobacco case, the 
 call-money rates have been from If to If and up to 2 or 2-h per 
 cent; in the last few days, or perhaps last few weeks, the rates have 
 
 been higher. . . „ , . . ±1 , 
 
 Another evidence of the condition of business is the depression in 
 the price of securities— bonds and stocks. That is a pretty good 
 barometer of the condition of uncertainty, especially when at the 
 same time you have cheap money. If you have cheap money and 
 good business a speculator will buy stocks for an advance if there is 
 nothing ahead for return in prospective or increased dividends. 
 This is pretty well tested by prices of the old substantial trunk lines— 
 the New York Central, for instance. Its stock to-day is 106, as 
 against 140 to 160 a few years ago. So with the St. .Paul road. 
 The stock is now 110 or 115, as against about 175 not long ago. 
 Senator Clapp, as you know^ when business is good and there is 
 no agitation ahead the St. Paul road, with its great ramifications 
 through the Northwest, does a very large and rapidly growing 
 business. Take the Atchison road. Atchison stock now sells for 
 107, formerly at from 125 to 150. And so on through the list of 
 both stocks and bonds. 
 
1368 HEARINGS BEFORE 
 
 Now, take the American Tobacco or Standard Oil stocks as illus- 
 trating this point. American Tobacco sold before the Government 
 action against it at nearly twice its recent price, and because of the 
 uncertainty and just prior to the Supreme Court decision, the stock 
 sold down to 390. Since the decision of the circuit court confirming 
 the plan which the counsel agreed upon and the circuit court affirmed, 
 they have had the common stock of the American Tobacco Co. 
 advancing from about 390 up to 529 — the price on Saturday — making 
 an advance of about 140 points per share in a few weeks. 
 
 In those two facts as to call loans and security market prices are 
 better evidences of some cause for the present uncertainty and busi- 
 ness slackening than the statements that anyone can make to you. 
 We may account for a change or difference in business conditions 
 for a few days, but when we take the average of months or years 
 it conclusively indicates something. In so far as it is discernible, 
 the main cause for present conditions has been and is the uncer- 
 tainty in regard to the attitude of the Government and the State- 
 created corporations; and with regard to the control of which cor- 
 porations I thoroughly approve, as I have indicated, of the regulatory 
 control by the United States. 
 
 The change in the position of the tobacco company and the Stand- 
 ard Oil Co. is, of course, attracting great attention, and some one has 
 said — I do not recall whom — that the trusts have merely "put on a 
 new suit of clothes." Well, I should not express it in just that way, 
 because a suit of clothes, or even a coat of mail, will wear out or get 
 rusty, or you may pierce it by some process. I should rather say, 
 with some general knowledge on the subject, that it was a serious 
 proposition, with the result thus far of a change in form, but not a 
 material change in substance. If a comedy, some might be inclined 
 to speak of it as a farce; but as a practical business proposition, 
 something of a failure. As is now, I think, generally understood, the 
 control continues practically much the same as before, even if not 
 more strongly intrenched than before. 
 
 A friend of mine had some Standard Oil stock. He said he would 
 sell it, because he did not want a fractional interest in 30 or 40 differ- 
 ent companies. He would, he said, rather be a small holder in one 
 company. If a man had some fractional shares he was helpless, 
 but if a thousand shares he could strengthen the control, and at the 
 same time, in the aggregate, have the same property as he had before. 
 
 I saw yesterday the appearance for the first time of the quotations 
 of the 33 different subsidiary Standard Oil companies. They are all 
 quoted on the curb market in New York on Saturday. 
 
 Now, that covers the most that I have to say so far as the rudi- 
 mentary points that I had intended to convey to the committee are 
 concerned. I would like to observe that you are only considering 
 one of the three points of a triangle. The railroad situation is almost 
 akin to the trust situation. The industrial situation and the public 
 utilities are the other points in the triangle, and the methods, especially 
 as to capitalization, in all three are very much the same. You 
 have noticed in the Hadley Commission report — at least, I saw a 
 quotation from it — how the New York, New Haven & Hartford 
 Railroad, for instance, had issued $13,000,000 of bonds to acquire 
 the control of the Ontario & Western, a coal road running from New 
 York up into the coal regions. They issued those bonds — I think 
 
COMMITTEE ON INTERSTATE COMMERCE. 136& 
 
 they were 40-year bonds — and acquired the stock a few years ago. 
 The New Haven company sold the same stock to the New York Cen- 
 tral road a few weeks ago, and the New York Central then issued 
 •113,000,000 more bonds for the same, Ontario road stock. Now the 
 $13,000,000 of the New York, New Haven & Hartford bonds are 
 outstanding and are a load on that property for -the 40 years. They 
 have nothmg to show for it, excepting the proceeds for current 
 debts, but the bonds of both companies— $26,000,000— are outstand- 
 ing, to pay interest on for the next 40 years. So capitalization — 
 not in that particular way, but in various ways— of our railroad 
 systems has been loaded down, and loaded down by continuous 
 bond and stock issues. In " Harrimanizing " one of the western roads 
 $3,000,000 of bonds were issued on a road that was never built, but 
 the bonds were sold, and I think there was something like twelve 
 or fifteen millions paid for control of the Union Pacific road, which 
 was soon afterwards loaded upon the Union Pacific system by the 
 issuance of bonds or stock for the amount. 
 
 So, without going into that detail, the condition of unrest is perhaps 
 as noticeable growing out of the burdensome charges loaded on the 
 transportation companies or great railroad systems — which have been 
 organized and operated under this system of issuing capital, and 
 thus saddling the charges upon the public and the manipulating 
 syndicates taking the .profits — as from the trusts and the industrial 
 corporation evils and excessive charges. 
 
 You all know what has happened in the capitalization of the 
 utility companies. In some instances, in New Jersey, I think, there 
 have been worse experiences than almost any instances of indus- 
 trial companies capitalization. We had there an instance, if I may 
 be permitted to refer to it, whereby there was a lease made of 999 
 years on a trolley line of about 9 miles of road. As consideration (?) 
 for this lease there were issued $6,400,000 4 per cent bonds and 
 $15,000,000 of stock, or a total of $21,400,000; and when the com- 
 pany was taken over by the public-service corporation May, 1903, 
 there was 6,000,000 of public-service stock certificates exchanged 
 for the 15,000,000 of the traction company stock. These certificates 
 pay 6 per cent interest indefinitely. So that the people of northern 
 New Jersey are thus loaded with this lease for 980 years, carrying 
 interest and dividend charges of $616,000 a year for nine centuries 
 to come, on property that was worth, perhaps — I think the syndicate 
 (or "skyndicate") acquired it for something like $2,000,000 or less. 
 
 Now, the handwriting on the wall has been observed by those in 
 the fore in promoting the trusts and all this kind of business, and 
 some of our friends in the trusts have been here urging, in order to 
 prevent a repetition of these conditions, prompt and comprehensive 
 action by Congress. They would make unlawful or penalize the 
 very things that they have been so successful in accomplishing. 
 This reminds us of the story of the colored man who, after he and 
 his friends had visited the hen roost and taken all the chickens they 
 wanted went out with one acclaim and favored putting up a high 
 padlocked fence for keeping off all other intruders who were belated 
 or had been less fortunate. 
 
 But really, gentlemen, speaking seriously, I wish to say from some 
 acquaintance with some of these gentlemen — for instance, Judge 
 Gary, whom I have known for a number of years — I have no doubt 
 
1370 HEADINGS BEFORE 
 
 whatever of their sincerity in what they said to this committee. 
 Those men have made so much money under these laws to which I 
 have referred that they are a good deal like the man who goes into 
 the fashionable hotel in New York, London, or Paris, or elsewhere, 
 and instead of giving a reasonable "tip," if he is flush, lavishly hands 
 the bell boy or waiter a dollar or five dollars or more, as the case 
 may be. They have seen the golden side of the trust question, 
 and they are men of good instinct, and they feel kindly toward their 
 employees. 
 
 I heard Mr. Perkins, at the Civic Federation dinner, speaking on 
 the same occasion with John Mitchell and discussing the employees 
 question very fully, outline a most commendable plan for the treat- 
 ment of all employees, including day laborers, and I think this plan 
 has not been correctly represented to this committee, although 
 simply from an error of understanding by Mr. Brandeis of the labor 
 sharing plan of the United States Steel Co. It has a pension fund 
 with a right to purchase the stock by the employees. It is not a 
 question of purchasing it at the open-market price, but it reduces 
 in price $5 a year, as 1 remember, as they hold it, so that a man who 
 holds his stock two or three years, or whatever the time may be, 
 makes a saving of $25 or $30 or more per share on his purchase. 
 In many ways the plan is admirable. 
 
 I doubt not but that some of our friends are much in the same 
 position as the insurance people in New York at the time of the expose 1 
 of the insurance situation of a few years ago. I knew something 
 about that. Gov. Hughes occupied the position at that time as 
 counsel, and his reputation acquired in that investigation was really 
 one of the principal factors in making him governor. You know 
 the circumstances, and I refer to it .as perhaps akin to the present 
 situation as to the points of view of some of the so-called financial 
 magnates. The gentlemen managing the enormous aggregation of 
 trust funds — the New York Life and Mutual Life, etc. — were keeping 
 at Albany and elsewhere, at an enormous expense of several hundred 
 thousand dollars, a paid lobby to debauch the legislature, keeping 
 open house, etc., during the legislative session. They were told, and 
 undoubtedly believed, that "others did it," and they had to do it, 
 and they did it. But when Mr. Hughes, as the attorney for the 
 investigating committee, in a very quiet sort of a way, asked the 
 head officials leading questions and drew out these facts, these men 
 viewed themselves as others saw them. It killed John McCall — 
 big-hearted and generous man naturally; and when he realized the 
 situation and the position in which he was placed as a man and as 
 citizen, he died; it killed him. One of the others who was pretty 
 thick skinned retired to Europe and remained out of sight for a, 
 number of years. When the public holds up the mirror, so that 
 responsible officials of a great trust sees, as the public sees, what he 
 has been doing, and sees himself as others see him, that changes 
 the condition. 
 
 Now, when these corporations now on view before the country 
 were formed under the laws of New Jersey, they simply followed the 
 trend of events and those laws at the time. One of the directors of 
 the United States Steel Co., and a member of the executive com- 
 mittee, told me recently a good deal of the history of that undertak- 
 ing, and he is one of the finest men in the United States, a man who 
 
COMMITTEE ON INTERSTATE COMMERCE. 1371 
 
 would not intentionally do wrong, a plain man and an unassuming 
 man, brought up on a farm — a kind and honorable man. In forming 
 that corporation they were told, as they have said publicly, and by 
 their counsel, that as they could not control nearly all of the steel 
 business it was not a company in restraint of trade as they under- 
 stood it. They were advised that it was not illegal when they 
 formed that corporation, and I think they believed it. I am not 
 justifying the situation at all. I am looking at the matter from the 
 basis of a condition, a condition in which these men were then placed 
 when the iniquitous system of rebating was going on and the Standard 
 Oil Co. had been by agreement with the railroads getting rebates, not 
 only on their own oil but the oil of their competitors. 
 
 During the era of high finance and orgy of financial legerdemain 
 the usual comment of railroad presidents, bank officials, and business 
 men generally was, "Well, that is the way business is done." 
 
 One of the witnesses here the other day was asked regarding the 
 effect on bank loans, if legislation should obtain, would it be destruc- 
 tive of the trusts, or something of that kind, and the reply was that 
 it would probably have little if any effect. I think that is a very 
 grave mistake, growing out of the fact, perhaps, that the witness 
 might not have had any conception of the amount of money loaned 
 on call on what is known as the trust stocks and bonds; and which 
 condition, as you know, produces a panic when everybody want the 
 money and call the loans at the same time. If the witness, I believe 
 Mr. Brandeis, will come over to "our little Jersey," and look over the 
 stock transfer books and see how .the ownership of those trust stocks' 
 is distributed, and how they are held not only by women investors, 
 but by business men, using bank accommodations, and look up infor- 
 mation as to the amount of loans that are made on them, there is 
 but one conclusion. And while I do not know that such legislation 
 would be wholly disastrous it would have, without any question, a 
 very serious effect. The situation with business men has been one 
 of great anxiety in regard to the decision of the Supreme Court in 
 the antitrust cases, and I know of my own knowledge that there were 
 great apprehensions felt as to the outcome of the Tobacco and Stand- 
 ard Oil cases. The president of one of the large trusts, so-called, told 
 me two years ago that if in the final decision, the Sherman antitrust 
 law was upheld in its literal interpretation, lie considered it almost 
 certain that we would have a worse cataclysm, or financial panic, than 
 the country had ever known. Whether he was right or not, that 
 opinion was not stated for the public but was expressed to me in a 
 personal and confidential way at that time. I know that there was 
 general apprehension as to the result up to the day the decision in 
 those cases was announced. 
 
 The suggestion was also made the other day by some one — I have 
 forgotten whom — in regard to the limit of size of a corporation, either 
 as to its capital or the aggregate amount of its business. The diffi- 
 culty, it seems to me, with that proposition, in dealing with it as a 
 practical one, is that what might be food for one may be poison for 
 another • and it seems to me very difficult to frame a statute so that 
 it could' accomplish that result. It might, for instance, limit the 
 earning capacity of a corporation to $5,000,000 a year. When the 
 company's earnings reached $4,000,000 or $4,500,000, or an amount 
 iust under the limit, another company would be organized, unless a, 
 
1372 HEABINGS BEFORE 
 
 radical change in the law, and the business go on under two com- 
 panies as before. The trouble with a specific law like that, like the 
 one recommended, I believe, by Judge Gary, for limiting prices, is, 
 I think, its entire impracticability. I can not conceive how you can 
 limit the price, for instance, of a product unless you limit the price 
 of labor; and if you limit the price of both product and labor then 
 it seems to me you would needs limit the cost price; and with this 
 
 Erocess carried to its logical conclusion it seems to me you would then 
 ave a condition which is practically socialism. You would have 
 made the law so broad in its scope and application, one supplementing 
 the other, that this legislation and consequent control for the benefit 
 of the whole, if not socialism, would, as I understand it, be akin to it. 
 
 Then it has also been suggested that the criminal provisions of the 
 Sherman law be enforced. A great many feel that the malefactors of 
 great wealth have been treated too generously. This undoubtedly in 
 many instances is true. But as a remedy it seems to me that the 
 action suggested, as a plan of procedure, is negative rather than con- 
 structive. If you send the violators of the Sherman antitrust law, 
 now so at variance with the State statutes, to jail, the uncertainty 
 might add fuel to the fire rather than to build up the condition of 
 industry and business, which is desirable so long as - it can be done in 
 a legitimate way. 
 
 It has also been suggested here that the British and the German 
 methods of controlling corporations had, very good features, but from 
 looking over quite carefully the British incorporation acts, while they 
 are excellent as applied to Great Britain, I doubt if they are to a great 
 extent applicable to the conditions here, and I think the same might 
 apply to the German laws governing trusts. They are situated differ- 
 ently and a different condition exists. But in the British incorpora- 
 tion acts I think you will find many valuable suggestions. 
 
 If the Sherman Act is repealed without any further legislation, as 
 some have suggested, I believe the last condition might be worse 
 than the first. I asked a prominent business man on Saturday what 
 action he would suggest for a more favorable outcome of the present 
 condition. "Why," he said, "repeal the Sherman law." I said, 
 "Yes, that is very well said. Then what would you do?" He 
 replied, "I do not know." I think the general sentiment of the 
 business men of the country is that one of the first things to be done 
 is to have the law made clear and explicit and based on the right prin- 
 ciples. I believe the great majority feel that the Sherman antitrust 
 law should remain, but that supplementing it is one of the most 
 important, if not the most important matter now before Congress and 
 the country; that we should have without delay a national incor- 
 poration law — strict, but just and equitable, provision for effective 
 corporation control — and at once put a stop to this condition where a 
 corporation is created by law under the seal of a State under the 
 conditions to which I referred. 
 
 I feel like apologizing for having taken up so much time. I will 
 refer, however, to one thing before closing that seems to me we should 
 all take into consideration, whether as citizens or dealing officially 
 with this problem, and that is the changed conditions of public sen- 
 timent regarding the trusts and in regard to all these matters. The 
 Sherman antitrust law, as I understand, was passed in 1910. Now 
 that law is on the statute books just as it was then. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1373 
 
 Senator Lippitt. What date did you say ? 
 
 Mr. Kelsey. I meant 1890. 
 
 Senator Lippitt. You said 1910. 
 
 Mr. Kelsey. Thank you for correcting me. The law remains on 
 the statute book as it was at that time. I have heard it referred to as 
 an admirably drawn statute, as to which I am not advised, as I am 
 not a lawyer. 
 
 The Chairman. I think we will have to suspend at this point, Mr. 
 Kelsey. I do. not think you can conclude before we adjourn, which 
 will be in a few minutes. The committee will now take a recess until 
 2.30 o'clock p. m. 
 
 (Accordingly the committee took a recess until 2.30 o'clock p. m.) 
 
 AFTER RECESS. 
 
 The committee reassembled at 2.30 o'clock p. m. 
 STATEMENT OF MR. FREDERICK W. KELSEY— Resumed. 
 
 The Chairman. Mr. Kelsey, you may resume your statement. 
 
 Mr. Kelsey. I stated before recess substantially the points that I 
 had in mind presenting to the committee, excepting I would refer to 
 one matter which bears upon this whole question, namely, the im- 
 portance of cordial relations between both capital and labor. 
 
 We have in New Jersey a place called Alaire — a "deserted vil- 
 lage." I visited that place this summer. It had been quite a resort 
 for people' to go until a few years ago, and was a prosperous village. 
 It had a bank and all the improvements incident to a progressive and 
 growing community. To-day it is a deserted village. That is merely 
 an illustration of the result, from whatever cause, of the falling out, 
 as it were, between the employer and the employed. 
 
 As I am forced to view this situation, it seems to me that one of the 
 most important matters that can be considered in dealing with this 
 question is to avoid, as far as possible, anything that may accentuate 
 the difference between capital and labor and, in any remedial legis- 
 lation, endeavor to harmonize those differences rather than to 
 accentuate and enlarge them. 
 
 Half the trouble in the world comes from misunderstandings, which 
 is well expressed on page 957 of the hearings here on December 1 1 and 
 12 in these words: 
 
 In the course of the long period of conflict, as always is the case, painful and harmful 
 hatred and regrettable misunderstandings have been fomented. One class has dis- 
 trusted the motives and the sincerity of the other class. The country has been 
 divided into rival camps, as harmfully hostile as though arrayed for physical warfare. 
 
 We hear a great deal about socialism. At a socialistic meeting 
 held in Newark the other night I heard something of the expressions 
 of difference from that point of view, and this sentiment of hatred 
 that I have referred to was evidenced at that time as being quite too 
 largely cultivated. Dr. Lunn, the new socialistic mayor of Schenec- 
 tady, who happens to be an acquaintance and whom I met traveling 
 in Europe a number of years ago, spoke for an hour and a half there; 
 and I think from the applause he received the sentiments he expressed 
 
1374 HEAEINGS BEFOKE 
 
 would become a fitting text for an object lesson in the direction that 
 I have indicated, viz, the desire which should be paramount in the 
 adjustment of this question, as it seems to me, to prevent the enlarge- 
 ment of the differences existing between what is unfortunately called 
 capital on one side and labor on the other. 
 
 The condition of misunderstanding regarding the trusts has been 
 brought about, I venture to say, very largely from the former attitude 
 of the Government itself in reference to the Sherman antitrust law. 
 
 The fact that the Government took no aggressive action in enf orcing 
 the law after its passage in 1890, and that it remained almost a dead 
 letter for a number of years, and until President Roosevelt took the 
 helm, is not making, of course, violations of the law either proper, 
 nor could it legalize them, I assume, in the opinion of any court or fair- 
 minded business man; but it has had this to do with the situation: 
 Business men and the public generally, and very naturally, accepted 
 the pace as set by the Government on the construction of that law. 
 I know of my own knowledge that it was a frequent remark that the 
 law was impracticable and not enforceable. . 
 
 Mr. Stetson, in his testimony here, very frankly states, on page 960, 
 in reply to an inquiry from Senator Cummins, wherein the inquiry 
 is made in these words: 
 
 But I want to take your mind away from that for a moment to the general indus- 
 trial corporations which operate everywhere, and can operate everywhere, and ask 
 you whether you believe the law prohibits the organization of a corporation or a com- 
 bination so large, and embracing so much of the business, that it will be able to 
 dominate the particular field in which it operates even though the power has not been 
 exercised? 
 
 Mr. Stetson. You ask for my belief? 
 
 Senator Cummins. Yes. 
 
 Mr. Stetson. I do not believe that it does. I have advised that it does not. That 
 is not only my belief, but my advice. 
 
 That is significant, because Mr. Stetson is recognized as being one 
 of the counsel of the bankers and others who promoted the United 
 States Steel Corporation; and it seems to me that at least a fair 
 interpretation of that position in this and other cases may have been 
 derived from the attitude of the Government in not making prosecu- 
 tions, nor calling the attention of the public to any of the provisions 
 of the antitrust law. The Attorneys General under the administra- 
 tions of both President Cleveland and President McKinley, so far 
 as I can recall, were practically silent in so far as any aggressive action 
 in endeavoring to enforce that law is concerned. What are business 
 men to expect, if an officer of the Government or of a State or of a 
 municipality when charged with the duty of prosecuting violators 
 of the law, ignores it or pays so little attention to it that no aggres- 
 sive action is taken? Why, isn't it the natural inference when he 
 and the administration he represents considers that the law is of 
 little or no effect? Was not this the situation as understood in 
 Congress and by business men and others all over the country during 
 the 8 or 10 years Messrs. Richard Olney and John W. Griggs 
 were Attorney General members of the Cabinet? They may have 
 had reasons satisfactory to themselves for the Government's position 
 of nonaction under the Sherman law all that time. Mr. Joy called 
 your attention on Saturday to the conflicting opinions regarding this 
 law, which he had received from "the best counsel" he "could 
 employ." 
 
COMMITTEE ON INTERSTATE COMMERCE. 1375 
 
 It hardly seems appropriate for me to suggest, but were I a mem- 
 ber of this committee among the first witnesses I should have favored 
 inviting here are the former Attorney Generals of whom I have spoken. 
 I believe that Congress and the public are entitled to know more as 
 to the changed attitude of the Government toward the Sherman 
 law — now on the statute books just as it was placed there more than 
 20 years ago. 
 
 In conclusion I wish to express the hope that this committee will 
 be able to agree and recommend legislation that will appeal to Con- 
 gress and to the country; that such legislation will recognize that 
 action by the Federal Government is the only possible satisfactory 
 solution of this question; that the proposed remedial legislation will 
 be simple and direct in its provisions, so that every man and every 
 schoolboy can understand just what the law means; and, finally, that 
 this legislation will be put in such form upon our statute books that 
 every man, whether he be poor or rich, or whatever his religious, 
 
 {>olitical, or other affiliations may be, can truthfully say that the 
 egislation was wise and intended, as, let us hope it will prove, for 
 the benefit of all the people. 
 
 I thank you, Mr. Chairman and Senators, for the courtesy extended 
 me and the patience with which you have listened to these extended 
 remarks. 
 
 The Chairman. Mr. Kelsey, I notice by the Trade Eeport that the 
 demand for steel products is improving. Have you seen anything 
 of that? 
 
 Mr. Kelsey. A good deal of that in the last few days, Mr. Chair- 
 
 mal1 - • T.-11 
 
 The Chairman. Have you ever gone over the various bills of com • 
 plaint which the Government has filed against these trusts ? 
 
 Mr. Kelsey. I have not in detail; no, sir. 
 
 The Chairman. Do you understand that those bills of complaint 
 are going to limit the productive activities of the plants that are 
 controlled by these trusts ? 
 
 Mr. Kelsey. Except indirectly. 
 
 The Chairman. How? 
 
 Mr. Kelsey. My understanding is that the action is brought under 
 the Sherman law as being in restraint of trade, and that they are 
 alleged illegal combinations. _ 
 
 The Chairman. If they are combinations, illegal, and m restraint 
 of trade how would the breaking of them up limit the production of 
 the mills and factories which they have been operating ? 
 
 Mr Kelsey. It might in this way: The men controlling the mills, 
 feeling that they were subject to prosecution and possibly to severe 
 punishment, might decline to,. as is frequently termed, enter into the 
 promotion of new business, which would react directly upon the pro- 
 
 ^You^e ref e'rSg now directly, for instance, to the United States 
 Steel Corporation Is an instance. The men who contro that cor- 
 poration are interested in various other enterprises that use steel 
 Products largely. Now, it is a very frequent occurrence for men 
 Stuated in that way, capital being timid, to say that they will decline 
 to buy new rails, they will decline to develop their export business, to 
 enlarge it, that they will decline to cultivate and enlarge the local 
 trade pending this uncertainty. 
 
1376 • HEARINGS BEFORE 
 
 The Chairman. I am not speaking of enlarging; I am speaking of 
 an existing demand. Would you imagine that a railroad company, 
 in order to meet the transportation demands upon its capacity, would 
 refuse to avail itself of the business that could come to it by meeting 
 the demand simply because somebody else was being prosecuted for 
 violating some law ? 
 
 Mr. Kelsey. Xo; not at all. 
 
 The Chairman. No. 
 
 Mr. Kelsey. But it would make a very great difference about the 
 demand running along in a going concern from month to month, in 
 that situation of uncertainty, as to prosecution of the men who were 
 largely interested in those products. 
 
 The Chairman. I do not want to be invidious, but suppose that 
 some one high in their relative rank in one of these great combinations 
 should, in a moment of unrestrained passion, commit some offense for 
 which he was to be prosecuted and punished, perhaps imprisoned. 
 Would you imagine that that would have any effect upon the supply- 
 ing of demand for products throughout this country? 
 
 Mr. Kelsey. Not the slightest, because that would be a personal 
 matter and not an official matter connected with his company. 
 
 The Chairman. Now what does the Government charge against 
 the officials connected with their companies which goes to the question 
 of the output of the products of the company? 
 
 Mr. Kelsey. I do not understand that it goes directly there at all, 
 and has only the effect to which I have referred, which is not an aca- 
 demic effect; it is a practical effect. 
 
 The Chairman. You say it is a practical effect, and yet when I ask 
 you to state how, it hardly seems to me that you have stated it. Now, 
 I am going to submit at the end of your testimony for the record an 
 article which shows that the steel industry is receiving a very large 
 increase of orders over its former business, and, consequently, is 
 developing increased activity. That article goes on to show that 
 some time ago there was a lessened demand for its products, which 
 has been bridged over now to a point where the demand is increasing. 
 Is it not a fact, Mr. Kelsey, that the demand for the products of a 
 mill has more to do with the activities of that mill than the mere ques- 
 tion of whether some part owner in the mill is violating some law 
 that has no earthly relation to the productive activities of the mill ? 
 
 Mr. Kelsey. It might not in that particular case, but I do not 
 think the case is quite parallel. This action of the Government is 
 brought against all the directors. 
 
 The Chairman. For doing what ? 
 
 Mr. Kelsey. For violating the law. 
 
 The Chairman. In what respect; in the production of material for 
 the American people ? 
 
 Mr. Kelsey. That is only a part of the business. 
 
 The Chairman. In the distribution of the material ? 
 
 Mr. Kelsey. They are charged with restraining trade and creating 
 or continuing to create a monopolistic condition, as I understand it. 
 
 The Chairman. Does a monopoly have the effect of enlarging or 
 limiting production ? 
 
 Mr. Kelsey. That depends on the circumstances. In the case of 
 the steel industry the falling off, the lessened demand, which has been 
 a matter of entire truth for the last year or two, has been due to the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1377 
 
 lessened demand from the railroads and other sources of demand, all of 
 which sources of demand have been affected by the uncertainty of 
 the position of the managers in connection with these enterprises. 
 
 The Chairman. Can you tell me what relation the attitude of the 
 managers of the United States Steel Corporation, with reference to 
 the Sherman law, bears to the crops of this country which the rail- 
 roads have to transport ? 
 
 Mr. Kelsey. I do not think it has anything to do with the crops 
 at all. 
 
 The Chairman. Now, isn't it a fact, getting right down to the 
 practical phase of this question, that except for the immunity baths 
 which some of these companies seem to have got, the effect of all this 
 prosecution has been not to interfere with the production of crops, 
 the building of houses, the demand for food and clothing for the 
 American people, which is the basis of the productive and distributive 
 activities, but is due to the speculative activities which in the generic 
 sense is what we call the activities of Wall Street ? 
 
 Mr. Kelsey. I think that is only partially true. 
 
 The Chairman. You spoke of the holding companies being barred 
 under your plan from the right of voting. Now, if you and I own a 
 railroad in connection with some man who has a reasonable amount 
 of experience in railroading, and we own 75 per cent of the stock, and 
 a man like Pierpont Morgan owned the other 25 per cent, we would 
 be very apt to be governed by his views, would we not ? 
 
 Mr. Kelsey. Well, that would depend on whether your views 
 would coincide as to what was for the interest of the minority stock- 
 holders. 
 
 The Chairman. Well, we are the three stockholders that own the 
 stock of that railroad, and included in our number is one who has 
 had some experience in the operation of railroads. Take a man like 
 Pierpont Morgan, and assume that he owns a small interest in the 
 railroad. 'Taking into account our relative financial strength, would 
 not we be very apt to listen to his views, although absolutely we con- 
 trol when it came to voting ? 
 
 Mr. Kelsey. It might, or it might not. Our recommendations, 
 to which I referred and to which you now refer, are not applicable to 
 railroads, but to industrial corporations — the trusts, so called. It 
 was not intended that they should apply to railroads. 
 
 The Chairman. I took the railroad as a stronger illustration m 
 
 your favor. ■.■>■* 
 
 Mr. Kelsey. The recommendations were only dealing with indus- 
 trial corporations — the trusts. 
 
 The Chairman. Then I will take a trust. You and I own 75 per 
 cent of the stock of a trust, with our present financial relations, and 
 a man like Pierpont Morgan owns only 25 per cent. Do you think 
 that we in the last analysis, would shape the policy of that trust — you 
 and I with our 75 per cent of the stock; or would we not be over- 
 shadowed by Mr. Morgan, with all his experience, and all his financial 
 connections, who owns only 25 per cent of the stock? 
 
 Mr. Kelsey. If I was a member of the board, I would direct it 
 
 The Chairman. As against the judgment of a man as able as he 
 would be to crush us through outside relations ? 
 Mr. Kelsey. I would let him try it. 
 
1378 HEARINGS BEFORE 
 
 The Chairman. With all due deference, I do not believe that you 
 would. 
 
 Mr. Kelsey. Well, I think I would. I think I know myself. I 
 have known Mr. Morgan for 20 years, and I think if I owned 75 per 
 cent, he would have to do as I said, whether it was $10,000 or 
 $10,000,000. I do not hesitate to say that, without any aggressive- 
 ness toward Mr. Morgan or anyone else. 
 
 I just want to say another word, Senator, if you will pardon me. 
 You referred to these newspaper reports. I think we all learn not 
 to pay too much attention to what we read in the newspapers. 
 
 Our worthy mayor of New York wrote me recently that he was a 
 very credulous man who would believe anything he saw in the news- 
 papers, and he has said the same thing publicly on several occasions. 
 
 These reports to which you have referred and which you have put 
 in the record here I have seen in the newspapers ever since I have 
 been in the shadow of but not in Wall Street — which has been about 
 30 years. It is one of the things, like the manipulations of a holding 
 company, that is unfortunate. That is another unfortunate part of 
 the situation. The bad times go on, and all the newspapers talk 
 about the terrible times, the steel business doing nothing — going to 
 wreck and ruin, and the railroads buying nothing; you see it all over 
 the world, in New York, Paris, London, and Berlin, and much of it 
 coming from the same source. Certain large operators or large 
 syndicates who may have sold stocks short in enormous quantities, 
 seeing them go down, and making money faster that way than they 
 can in any other way. After prices have got down low enough, 
 and they have made a great deal of money speculating on the short 
 side, all at once the Washington papers and the Chicago papers and 
 the San Francisco papers and the Texas papers and the Paris, New 
 York, and Berlin papers say that the steel business is improving. 
 Steel people tell me personally that the steel business is now in very 
 bad shape. There is no question but what there has 'been some 
 slight improvement in it, however. 
 
 The Ohairman. You would not want to be understood as saying 
 that when a paper gives a market quotation, for instance, that it 
 can not be rehed upon ? 
 
 Mr. Kelsey. Not at all. 
 
 The Chairman. You would not want to be understood that when 
 the paper says that the orders for steel will soon reach so many thou- 
 sand tons a day that it is not to be relied upon ? 
 
 Mr. Kelsey. I would say yes and no, both, because both are true. 
 There is enough truth in many statements to make them a lie. You 
 can not lie with figures ; figures won't lie, but you can do a great deal 
 of lying with figures, as the saying is. 
 
 If you see a statement in the newspapers that the United States 
 Steel Corporation has received an order for 100,000 tons of steel rails 
 from the Pennsylvania Railroad, that is probably true, undoubtedly 
 true. But the_ platitudinous statement that the steel business is 
 booming, that it has already started to boom, may or may not be 
 taken with an immense amount of salt, because for years it has been 
 perfectly well understood that those general news items may be 
 worked, and are worked, for speculative purposes. When these state- 
 ments are being circulated, you say, Are they true ? You and I are 
 managing a large corporation, we will assume. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1379 
 
 The Chairman. Oh, I think we understand that. 
 
 Mr. Kelsey. The same men who control the United States Steel 
 Co. are largely interested in the large railroad systems. They say 
 that things are blue and they make them bluer. They withhold 
 their orders, and the game goes on. Then, by and by, when they 
 think that things are a little better, or they think there is no adverse 
 action to be taken by Congress, or they get in mind some other scheme, 
 it goes out to the newspapers that everything is booming. I have 
 seen that worked over and over again. 
 
 The Chairman. Do you attribute the present strength of the United 
 States Steel stock to an effort on the part of men to hold the stock 
 up in the face of these adverse conditions, waiting for a betterment 
 of the steel situation ? 
 
 Mr. Kelsey. Well, Senator, a speculative market is past anyone's 
 finding out. When the stock sold down to 50, a few weeks ago, 
 the talk then was as pessimistic and as unfavorable to United States 
 Steel as it is favorable now when it is up to 66. What motives 
 actuate the men who are behind the scenes in pulling the strings I 
 do not know ; and I do not pretend to keep track of, although under- 
 lying conditions are always stronger than men. 
 
 The Chairman. Now, in the face of an attack by the Government, 
 if I may use that expression, would not the most natural thing be 
 for the steel people, if they were manipulating the outside panorama, 
 to have it appear that this condition was depressing rather than 
 exhilarating ? 
 
 Mr. Kelsey. Yes, provided this condition may not exist: Sup- 
 posing in this operation they have accumulated, say, 200,000 shares 
 of steel, and they want to work it up to 80 or 90 and sell it. Then 
 just exactly the reverse result would follow that you have indi- 
 cated here. 
 
 The Chairman. Do you think that would be a sufficient motive 
 now, looking at it from the viewpoint, of course, of manipulation — 
 do you think that would be the motive to lead men who are big 
 enough and strong enough to do those things, to lead them to face 
 the public approval of a proceeding against them as against their 
 natural desire to get the public sympathy ? 
 
 Mr. Kelsey. It is perfectly impossible to tell what those large 
 operators will do, or what motives they may be actuated by from 
 time to time. The large operator is to-day on one side, and next 
 week or next month he is on the other side. You notice that if 
 you follow these matters closely that they go around in regular 
 cycles. United States Steel common stock was up to about $90 a 
 share a short time ago, and it was said to be going to 120. I .have 
 heard good judges of value in New York predict that United btates 
 Steel would sell a t 1 50 within a few years . I myself have not touched 
 it at any price, not that it may not be worth its selling price, but 
 it is very speculative, because they capitalized the future at the 
 time of organization in issuing hundreds of millions of capital against 
 the ore lands and various other properties and plants taken into the 
 
 combination. .,,-,. . ± j 
 
 Thev now claim as you will notice by their statements and as 
 brought out before the Stanley committee, that this difference 
 between the fair valuation, estimated by the Commissioner of Corpo- 
 rations at $700,000,000 or $800,000,000, and the $1,400,000,000 
 
1380 HEARINGS BEFORE 
 
 capitalization has been made up by the earnings; and the earnings- 
 have been enormous under our protective tariff, by which they can 
 get $4 or $8 more for steel rails in this country than they can be 
 laid down for in foreign countries, which is a travesty on equity and 
 justice, in my judgment. 
 
 The Chairman. There was some criticism made the other day of 
 the commissions that were paid in the formation of the United States 
 Steel Corporation. I noticed this morning that you were somewhat 
 inclined to discredit those criticisms on the theory that the commis- 
 sions had to be paid to establish enterprises. Now, we all recognize, 
 that if you have a plan for an enterprise, and Smith has got the 
 money, in order to enlist Smith's money you have of course got to- 
 hold out some large inducement for him to invest his money. But if 
 there are 12 going concerns which have got along, and the plan is not 
 to start a new enterprise, untried, but to stifle competition between 
 those enterprises, so that the only possible effect of the new plan 
 would be to enhance the profits of the going enterprises, do you not 
 think that there is a vast difference in what should be paid for financ- 
 ing such a plan when it involves very largely only the taking in of 
 the old plants and the taking up of a new stock from what there 
 would be from financing a new enterprise ? 
 
 Mr. Kelsey. I do think so, decidedly. I think that 10 or 12 
 per cent for syndicating — for "skindicating," as we frequently call, 
 it — the organization of a corporation with a billion or a billion and a 
 half of dollars, a large part of which is anticipating the future and 
 may be called water, is a very large commission. I should think 
 that was excessive. I believe that $160,000,000 that went to the 
 syndicate, according to the testimony, and was so understood by 
 those posted in regard to the affairs of the Steel Corporation at the 
 time it was formed — and I happen to know a good deal about it — 
 that was, in my judgment, far in excess of any legitimate service. 
 They might perhaps have paid a lawyer $250,000 counsel fees; I don't 
 know. But things are on that scale and he may have earned not 
 over $25,000 or $50,000. The promoting commission was, I think, 
 quite excessive. 
 
 But the point that I wished to make is that it is not the 10 or 12 or 
 15 per cent, large though it may be, that may be paid as promoting 
 profits if an enterprise is properly capitalized and properly put 
 together that is so objectionable. What is making the trouble and 
 the burden of the trust and numberless other corporations to-day is 
 the payment by the public of interest and dividends on the fabulous 
 amounts of "water" that has been injected into the corporation 
 capitalizations. 
 
 The Chairman. Exactly. 
 
 Mr. Kelsey. Or extortions in operation or special privileges like 
 the rebates the Standard Oil Co. once enjoyed. The Standard Oil 
 Co., instead of being overcapitalized at $100,000,000, was vastly under- 
 capitalized, because it was earning annually 50 or 55 per cent on 
 $100,000,000. 
 
 The Chairman. If the United States Steel Corporation, when it 
 was organized, had been limited to simply taking in these properties- 
 at their real fair value it would not have involved anything except 
 the exchange of stock, and there would have been no occasion then 
 for any commissions to speak of ? 
 
COMMITTEE ON INTERSTATE COMMERCE. 1381 
 
 Mr. Kelsey. I do not think we could say that, Senator, because 
 there were new conditions. You and I, for instance, build up a manu- 
 facturing plant, say, in 5 years or 10 years, or even 50 years, as the 
 case may be. We take that over, or a company is formed to take that 
 over, and does take it over, and, as you have'illustrated, there are 9 
 or 10 others. No one, as you know, can tell what will happen under 
 new conditions. You are under a new board of directors. You may 
 have been a master mind in building up your plant, like this gentle- 
 man who sat here the other day, Mr. Barber, who has 20,000 men in 
 his employ, and ships 150,000 or 200,000 cars of freight a year. You 
 might have been, in building up your plant, an efficient and capable 
 executive business man ; that is, have made your plant at a fair val- 
 uation, we will say, worth $1,000,000. I may have been shiftless, 
 inefficient, and while my plant is taken in it might have been taken 
 in at full valuation, at say, $500,000. Now the eight other plants that 
 haA^e gone into the company are all of them under different manage- 
 ment and under different conditions, and when we go to roll them into 
 one, I care notf what your form of organization is, you inject a new 
 condition. You may have retired from the presidency. A man who 
 has erroneous ideas is chosen for president in the best judgment of the 
 directors and of the owners as the best man for the place. He may 
 be utterly incompetent. T have seen that thing done a number of 
 times, and there is a certain degree of risk in meeting the new condi- 
 tions. 
 
 The Chairman. Are not those risks counterbalanced by the elimi- 
 nation of competition ? 
 
 Mr. Kelsey. To some extent in certain cases, I think. 
 
 The Chairman. That is all. 
 
 Senator Watson. You have discussed the New Jersey laws of cor- 
 porations at some length, and spoken of the efforts of your society in 
 changing those laws. Has there been any concentrated effort to 
 change those laws outside of your society ? 
 
 Mr. Kelsey. Not that I know of. I should have known it, I think, 
 if there had been any effort other than from what we call the good 
 citizenship standpoint; but I know of no organization, civic or other- 
 wise, that has carried forward what we have endeavored to 
 accomplish. 
 
 Senator Watson. Have the governors of New Jersey made any 
 recommendations along that line ? 
 
 Mr. Kelsey. I referred to that this morning, Senator. No. Mo 
 specific recommendations. 
 
 Senator Watson. Any recommendations at all ? 
 
 Mr. Kelsey. No specific recommendations. Gov. Fort said he 
 intended to make some, and he called me on the telephone the day of 
 the opening of the Hudson tubes, where he and I were both guests, 
 and told me that perhaps I would be interested to know that he was 
 going to speak on New Jersey corporation laws that night at the 
 dinner— the dinner that was given at Sherry's in commemoration of 
 the opening of the Hudson Eiver tubes. He made his speech, but he 
 did not say anything of importance on that subject. He may have 
 forgotten it. I have had considerable correspondence with Gov. 
 Wilson. I spent a half hour last summer with him by appointment. 
 I called his attention to it by correspondence at the time of his elec- 
 tion and he has spoken favorably of it. And I am free to say— 
 -ui,nno-h T should not like to anticip ate — I have been hoping and 
 
1382 HEARINGS BEFORE 
 
 expecting and do hope now he will make reference to it in his coming 
 message. 
 
 Senator Watson. Are you familiar with the capitalization of the 
 subsidiary corporations that went into the United States Steel Cor- 
 poration ? 
 
 Mr. Kelset. Well, I was familiar only in a general way at the 
 time. I knew something about the tin-plate companies that belonged 
 to the Leeds, and some of the other properties that were turned in 
 by the Moores, and the ore properties up in Minnesota, about which 
 there has been so much discussion. 
 
 Senator Watson. Some of these corporations were capitalized in 
 about the same proportion to the United States Steel Corporation, 
 were they not ? The American Steel & Wire Co., for instance ? 
 
 Mr. Kelsey. The American Steel & Wire Co. and the American 
 Tin Plate Co. 
 
 Senator Watson. Their capitalization was $80,000,000 or 
 $90,000,000, was it not ? 
 
 Mr. Kelsey. I do not remember the capitalizations' but they were 
 generous; they were very large. But the trouble is that that has 
 been a prevailing system in pretty much everything. The Amal- 
 gamated Copper Co. is capitalized at $150,000,000 or $155,000,000. 
 There is enough to go around. 
 
 Senator Watson. The point that I wanted to bring out was 
 whether the capitalization of the steel company was out of propor- 
 tion to the capitalization of the companies that went into it ? 
 
 Mr. Kelsey. I should think that the geometrical increase of jump- 
 ing from, say, one to four was carried right along forward. Do I 
 make myself clear ? 
 
 Senator Watson. Some of these concerns were capitalized — for. 
 instance, the American Steel & Wire Co. was capitalized — for about 
 $80,000,000. That was fully in proportion to the $1,400,000,000 for 
 the present concern ? 
 
 Mr. Kelsey. Yes, sir. You may be better informed than I am 
 in regard to that. 
 
 Senator Watson. I am not defending the capitalization, but I 
 simply wanted to bring out the point whether the old capitalization 
 was not in these original companies in about the same proportion as 
 in the Steel Corporation. 
 
 Mr. Kelsey. I think so. I think the balloon was blown up right 
 along in about the same proportion of from four or five to one. I 
 think the properties were taken in at what you or I or conservative 
 experts might have considered two or three or four times the fair 
 valuation. And I never considered, without knowing about the 
 details, as to the properties of the United States Steel Corporation at 
 the time it was formed, that the common stock was then worth 
 anything, and the preferred stock hardly worth par. In fact, for 
 some of those same properties, the Carnegie plants, only a short time 
 before, Mr. Frick paid $1,000,000 to Mr. Carnegie for the option on 
 his plants, which price I believe was something like $100,000,000, if 
 my recollection is right. 
 
 Senator Watson. $150,000,000, I think. 
 
 Mr. Kelsey. Was it $150,000,000? 
 
 The Chairman. Yes. 
 
 Mr. Kelsey. I am speaking merely from recollection. Mr. Frick 
 could not carry through his d n " 1- »"■< «" ™m- ""int gn^ntn. m- 
 
COMMITTEE ON INTERSTATE COMMEECE. 1383 
 
 Mr. Frick paid Mr. Carnegie that $1,000,000 for his option, and then 
 was unable to organize his company and take up the option. 
 
 The Chairman. He could not pay for it with stock ? 
 
 Mr. Kelsey. They could Dot finance it until a year or two later, 
 when the orgie of financial legerdemain got under full sway, and 
 when it was understood that they paid Mr. Carnegie a little over 
 $300,000,000 for the same thing. I am speaking also now from 
 recollection. 
 
 Senator Watson. That is all. 
 
 Senator Townsend. Have you put into the record your recom- 
 mendations for amending the Sherman antitrust law? 
 
 Mr. Kelsey. I do not feel that I should like to express it in that 
 way. I stated the recommendation that we had made for changing 
 the corporation laws of New Jersey, and I submitted for the con- 
 sideration of this committee amendments which, based upon my 
 study of the subject, would seem to me from my point of view 
 applicable here. 
 
 Senator Townsend. You have stated in the record what your 
 recommendations were? I do not want you to state again if you 
 have? 
 
 Mr. Kelsey. Yes, sir. 
 
 Senator Townsend. You have stated in the record whom you 
 represent here ? 
 
 Mr. Kelsey. I represent myself absolutely — a citizen of the 
 United States. 
 
 Senator Watson. I have just one other question. In regard to 
 this question of the corporation taxes meeting the expenses of the 
 State of New Jersey. Did I understand that to be just the State 
 taxes ? That does not reach to the counties ? 
 
 Mr. Kelsey. No; that is the entire expense of running the State 
 government; something over $3,000,000. 
 
 Senator Watson. You have no State taxes ? 
 
 Mr. Kelsey. We have no State taxes; no, sir, not since I have 
 been a resident of the State, over 20 years. 
 
 The Chadrman. That is all, Mr. Kelsey; the committee is obliged 
 to you, and I regret that you were detained here so long, but that 
 seemed unavoidable. 
 
 Mr. Kelsey. I would like to say to the committee that 1 have, 
 perhaps not so large a fund of data upon this subject as you have, 
 but I have a box in my loft upstairs that is full, and another well- 
 filled box in my library, and if there is any matter on this subject 
 I have or any information that you would like, I should be very glad 
 to send you anything at any time you may desire. I thank you very 
 much for your courtesy. 
 
 (Mr. Kelsey was thereupon excused.) 
 
 The Chairman. I should like to have placed in the record at this 
 point the newspaper clipping to which I referred while interrogating 
 
 Mr. Kelsey. 
 
 (The newspaper article is as follows:) 
 
 [Philadelphia Press, Dec. 17, 1911.] 4 
 
 STEEL TRADE IMPROVES. 
 
 The strongest proof of this is seen in the steel industry, whose course is now definitely 
 rlprlared. First, the steel industry had a long period of unsatisfactory volume of 
 
13S4 HEARINGS BEFOKE 
 
 business, during which prices were held up by half-concealed agreement. Then 
 followed, beginning about six months ago, the period of the open market, during 
 which the attempt was made to secure tonnage at the expense of prices. 
 
 Now, at last, tonnage has been so increased that, automatically, because there is 
 no longer need to stimulate new business, the point has been reached where prices 
 have begun to rise. This is shown clearly, both in the report of the Steel Corporation, 
 revealing an addition of over 17,000 tons a day to unfilled orders on hand during the 
 month of November, in the current news of orders coming in at more than 50,000 tons 
 a day (15 per cent in excess of actual capacity), and in the advances in the quotations 
 for wire, nails, steel bars, and pig iron. In the normal order of events the volume of 
 business that has been won will be maintained, while prices will continue to rise 
 until the steel depression is an episode of the past. 
 
 The Chairman. Mr. Howland, the committee will be glad to hear 
 you now. 
 
 STATEMENT OF CHARLES P. HOWLAND, ATTORNEY AT LAW, 
 
 NEW YORK. 
 
 Mr. Howland. My name is Charles P. Howland; I am an attorney 
 at law, and live in New York. I have been here for several days, and 
 I have in that time learned the procedure. 
 
 I have heard a great many interesting things, not all of which bear 
 on the present question, which I believe to be the recommendations to 
 be made by this committee in respect to what is precisely known as the 
 trust problem, if that is the precise term. I shall try to limit myself 
 to what bears precisely on the function of Congress in dealing with 
 that problem. 
 
 Senator Townsend. For which I want to thank you personally, if 
 you will do that. 
 
 Mr. Howland. I shall try to deserve the thanks which you give me 
 in advance. And I shall therefore not enter into collateral questions 
 and shall try to deal with the subject entirely from the public point of 
 view, not going into private abuses or questions that relate to private 
 affairs, such as investments, securities, etc., except so far as they 
 illuminate the purely public question, and even in dealing with the 
 public question I shall not attempt to elaborate points which seem to 
 me to be sufficiently accepted by the public and those who have 
 studied the question. 
 
 I shall follow the narrative form, which will help me to make my 
 suggestions more concise. 
 
 At the time of the adoption of the Sherman Act several vague and 
 not necessarily related ideas were germinating in the public mind. 
 This was one of the reasons for the general language of the act; and 
 perhaps it was well that the language was so general because it has 
 permitted an analysis of the different questions involved and a sepa- 
 ration of one from the other. 
 
 For example, we know that the Sherman Act has nothing to do 
 with the aggregation of individual fortunes. The wealth that the 
 individual may amass in his lifetime is limited in amount. Its dif- 
 fusion among the population is certain to occur in the course of time, 
 provided perpetuities are not allowed; its diffusion comes from the 
 multiplication of descendants or from the spendthrift generations 
 coming along, ,as they are almost certain to come along, and it is 
 gradually distributed. We have no apprehension about that, and 
 we know that any attempt to limit an individual acquisition of wealth 
 is likely to have dangerous consequences. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1385 
 
 Another question that has been eliminated from the purely trust 
 problem is that which relates to those combinations made by indi- 
 vidual manufacturers or companies of no very great size, who form 
 pools or syndicates for the purpose of dividing territory or fixing 
 prices or something of that character. The act has proved as suc- 
 cessful as such measures can be in restraining or breaking up those 
 agreements toward loose combinations which manufacturers, jobbers, 
 and merchants tend to form without a complete fusion of their 
 respective businesses. 
 
 The special agents of the Department of Justice call those common 
 or garden trusts, and the department never has any difficulty with 
 them if they are able to establish the fact that there is such an express 
 or implied agreement among the individuals or that there exists what 
 the Supreme Court has called unified tactics. 
 
 Such practices as are involved in the Addyston Pipe case, in the 
 California Tile case, etc., are probably no longer possible on any 
 extended scale, for as soon as they come to the public attention the 
 act is effective to stop them. Such agreements were unenforceable 
 at common law as between the parties, though not actually repressed 
 by penal statutes, the law formerly relying upon the fact that there 
 would be no permanence in such arrangements and that they may be 
 expected to fall to the ground of their own weight. The practices 
 were prevalent until the enforcement of the act became general. If 
 for no other reason, the act should be continued in existence to pre- 
 vent them. 
 
 Having disposed of these preliminary considerations, there still 
 remains the trust problem. 
 
 That problem arises from the consolidation of large enterprises 
 involving the control of great amounts of money in a single hand. 
 The question it raises is partly political and partly economic. In a 
 way it raises a social question, just as all changes in the forms of 
 industrv do. But in this respect it is like the introduction of machin- 
 erv, and if it is politically harmless, and economically beneficial, it 
 can not wisely be stopped, any more than could the introduction of 
 the power loom, and society must accommodate itself to the change. 
 
 It is a mistaken approach to the subject to call this the question of 
 the money power. The money power is not a personal thing with 
 personal evil morals; it is a name for an economic tendency, lhe 
 individuals in such a tendency are only types, and the tendency itself 
 is world-wide. It seems to have gone further in this country and in 
 Germany than in France and Great Britain— probably because of the 
 underlying habits of industry in the respective countries; in this 
 country every man is keenly alert to seize on any advantage which he 
 thinks is offered "by the rules of the game." 
 
 As the tendency toward huge aggregations of capital seems to be 
 more or less prevalent outside of this country, it is likely that it can- 
 not be altogether stopped, for we are in a cycle of world-wide indus- 
 trial development which we can not control or even fully understand. 
 
 For this reason I think there is no patent medicine which will abso- 
 lutely remove such evils as are inherent in monopoly and m the 
 aggregation of huge amounts of capital— evils which I shall later 
 
 1S So far as the tariff, for example, contributes to the formation of 
 trusts, if it does so, an amendment of the tariff might somewhat ame- 
 
1386 HEABINGS BEFORE 
 
 liorate the situation; but when we look at other countries without 
 tariffs and see that they likewise have the trust problem, though in 
 a somewhat different form, we can not fall back upon an amendment 
 of the tariff as being sufficient altogether to remove the evil. 
 
 But such development should proceed gradually, so as not to dis- 
 locate industry any more than possible and especially so as to have 
 no dangerous effects either upon government or upon the life of 
 different sections and different classes of the country. 
 
 For example, the aggregations of capital that took place in this 
 country between 1889 and 1903 were too rapid to be wholesome, and 
 the difficulty with which we are now laboring and which this com- 
 mittee is considering, I believe, results largely from the overstimu- 
 lation of that period. 
 
 It is proper to attempt to remove any causes which exist in present 
 laws stimulating the tendency and also to take any legitimate meas- 
 ures to make it as slow as possible. 
 
 Measures, of this character ought to be adopted with extreme 
 caution. As Mr. Taussig says: "All economic laws are approxima- 
 tions" ; for the same reason all economic legislation should be tentative 
 and not absolute. Furthermore, it is usually a criterion of good 
 legislation that k should not disturb general and rooted habits, and 
 that is, as far as it goes, one reason against a Federal incorporation 
 law, a subject which I shall discuss later. 
 
 It does not seem possible that we should aim to restore individual 
 competition in the extent to which it existed prior to 1890. The 
 tendency toward combination is too powerful for legislation to stop 
 and, short of monopoly, there are sound arguments for permitting it. 
 Certain genuine advantages exist in the extension of corporate com- 
 binations involving amounts of capital much larger than those com- 
 monly regarded as sufficient during the larger part of the last century. 
 
 Some of the genuine advantages may be enumerated under the 
 following heads : 
 
 (1) Completeness and perfection of equipment and apparatus. 
 
 (2) Standardization of machinery, making for economy in the cost 
 of repair parts. 
 
 For example, the harvester company has a machine for making 
 poles for their harvester, reaper, and binder machine. That machine 
 alone cost the harvester company $2,500. The saving it makes in 
 the manufacture of each pole is 1 cent, so that it takes 250,000 poles 
 before they have paid for the cost of the machine. And yet they 
 find it is well worth their while to have that machine. 
 
 (3) Completeness of organization of the persons engaged and 
 employed. 
 
 (4) Distribution of the various factories so as to save cost of trans- 
 portation, both of raw material and of product. 
 
 (5) Wholesale purchasing. 
 
 (6) Concentration of office management. 
 
 (7) Certain miscellaneous advantages arising out of what is called 
 "integration" of the industry, or otherwise known as "vertical com- 
 bination," a manufacturing combination buying the various links 
 in the chain which contribute to the making of a given product; 
 it is distinguished from the lateral or horizontal combination which 
 consists in buying the competitors who are engaged in the same 
 business. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1387 
 
 So long as monopoly is not allowed or made possible these seem to 
 be legitimate benefits of combination, and if monopoly is avoided 
 the larger part of these benefits should in the course "of time and 
 through actual and potential competition be distributed among the 
 consuming public. 
 
 But the tendency to monopoly is dangerous. That seems to be 
 so generally recognized that J will not stop to analvze the sources 
 of danger, the ways in which the mere size of a combination tends to 
 prevent the operation of the usual laws of competition, actual or 
 potential, and the unhealthy effect upon an industry caused by the 
 very suddenness of a combination of formerly competing units. " 
 
 I do not know that I should follow Mr. 'Brandeis's argument as 
 far as he did, but there is something in the fact that if the entire 
 activity of the country in a single line of business can be absorbed 
 into a single hand it does tend to create political unrest and promote 
 socialism. 
 
 It is not at all certain that, waiving the advantages it may gain 
 in the way of monopoly, a combination of enormous size has genuine 
 economic advantages, and on that side alone tend to benefit the 
 public. For example, the absence of competition tends in the 
 course of time to kill the initiative of management which among 
 competitors brings about lower prices. As Senator Gore said, in 
 questioning Mr. Joy, competition makes a man fight, and whatever 
 tends to make a man fight to reduce his cost of production is a very 
 instrumental factor, and in the end the pubilc gets the benefit. 
 Besides, in enormous concerns the cost of control and of super- 
 vision, the expense of accounting and of auditing — expenses of that 
 character — seem to increase disproportionately after a combination 
 has reached a certain point; and the difficulty of installing energy 
 into all the parts, keeping out stagnation, seems also to increase. 
 
 Those are the public dangers, and then there are the private 
 ones, where the combination is formed very rapidly, of dislocating 
 society to a certain extent, managers of the business and employees 
 losing their occupations, and the whole locality being injured, as in 
 the case of the Tobacco Co., which bought up plants and then turned 
 them into the scrap heap, and a very active disturbance arose in 
 different parts of the country. Those disturbances were not of 
 great extent, but the danger of a disturbance of that kind depends 
 rather more on its intensity than upon its magnitude. These dangers 
 seem to arise all from the fact of combination, especially from the 
 suddenness of combination. They would not exist in any such 
 measure in the case of a corporation which through its natural 
 growth in serving the public has reached great size. 
 ' I shall consider briefly now the different suggestions made to 
 remedy this situation. I realize, of course, that the critical attitude 
 is very easy toward any one of them, and a constructive attitude is 
 difficult because the problem goes to the root of industrial society 
 itself; the most that legislation can do is to affect the conditions. 
 
 Certain measures are proposed, of which the most discussed are the 
 following: 
 
 (1) The German, or cartel method. This has had so far a qualified 
 success in Germany, but it would be altogether foreign to the habits 
 of thought and of business practices of our people. However sound 
 it may, therefore, be in theory, it would be harmful in application. 
 
1388 HEABINGS BEEOBE 
 
 The German Central Government is a daily factor in the lives of the 
 German people, even in minute affairs. Nothing of that kind exists 
 with us, and our national prejudices are strongly set against it. 
 Except when the cooperation of the Reichstag is necessary m raising 
 money the German people have no part in government; the govern- 
 ment is generally autocratic, proceeds from an efficient central power 
 acting on behalf of the people at large and for the preservation of the 
 existing state of things. Here everybody has a voice in government, 
 and much of our legislation is a resultant of pulling and hauling that 
 is going on in various directions. If the Government should fix prices 
 of commodities, that would, of course, as Senator Cummins pointed 
 out last week, directly or indirectly, mean the control of all the factors 
 in production, including salaries and wages, Congress would be likely 
 to become the lobby for organizations of capitalists, of laborers, and 
 of consumers. 
 
 Upon every decision of the cartel board, upon which there were 
 Government representatives, a storm of indignation and protest would 
 be directed against the Government board and against Congress also. 
 Whatever the decision might be, the unpopularity of the trusts would 
 attach to the Government itself and respect for Government would be 
 likely to decrease. 
 
 Furthermore, the cartel plan would not of itself check the tendency 
 toward fusion in a single corporation if there is anything in the econo- 
 mies alleged to exist. 
 
 Besides, the dangers and difficulties that we have in this country 
 do not arise from syndicates of large competing companies which 
 form prices. Those are the common trusts which are already broken 
 up and sufficiently disposed of by the Sherman Act. The difficulty 
 we have is with the corporation which is a close fusion of formerly 
 competing concerns, and the cartel plan does not deal with that 
 question at all, and would not check the tendency toward fusion in a 
 smgle corporation if there is anything in the economies which the 
 managers of those corporations allege to exist. 
 
 (2) The second plan proposed is that of Federal incorporation. 
 This, as I see the problem, merely shifts the difficulty to another 
 field. If we had a Federal incorporation act, the question would 
 still remain, What limitation upon size of combining corporations 
 should there be? It is evident that there would still be the same 
 disturbance over the size of the combination, and the plan might 
 even accelerate the formation of trusts. Besides, it is contrary to 
 our constitutional habits, which is quite another thing from technical 
 questions of constitutional law. It would be likely to provoke 
 sectional or local hostility, and that would be a serious objection, 
 and would not really advance the solution of the difficulty. 
 
 (3) A Federal license plan would be in substance no different from 
 a Federal corporation plan. 
 
 (4) A Federal board, fixing maximum prices or using any other 
 method. I think that while there are certain advantages inherent 
 in an administrative board, such a board with all that power would 
 be a dangerous engine. It would be a transference of the whole 
 power and policy of the Government from Congress into an admin- 
 istrative board of individuals. Such a board is not always repre- 
 sentative of the policy of the Government. It would have this 
 further peculiar difficulty that I have not seen noticed, which would 
 
COMMITTEE ON INTERSTATE COMMEECE. 1389 
 
 be more acute in the case of such an industrial commission, though 
 partially operative in the case of the Interstate Commerce Commis- 
 sion. I think the plan would have the special vice of making a 
 rigidity of prices in this way : A large . corporation generally fixes 
 that price for its commodities which by breeding business will tend 
 to bring the largest net returns. If it has a high price and does a 
 small business, its net return will be fixed at X dollars. If it has a 
 very low price and does an enormous business, its return on each 
 commodity may be very small, and then it will get Z dollars. Now, 
 it is all the time engaged in the effort to find which figure between 
 X and Z will produce the largest net return, or at what price it will 
 get Y dollars. That is what railroad managers are trying to do. 
 That is purely a tentative and experimental process. No manager 
 of a company knows exactly where that price is until he tries it. 
 
 The tendency of a Federal board would be to prevent the raising 
 of a price which had once been lowered. That is a practical matter, 
 and is almost universal with such commissions. If the people got 
 the idea that the Federal board existed for the purpose of protecting 
 them from the extortion of trusts, they would not permit, by the pres- 
 sure of public opinion, prices to be raised in a staple commodity once 
 they had once been lowered. Consequently the tendency of the exist- 
 ence of a board would be to prevent the raising of prices. Knowing 
 this in advance, the corporation would not be likely to experiment 
 in the lowering of prices. 
 
 In order to get more business and determine on this figure, this Y, 
 for if they should find the experiment prove unsuccessful they would 
 probably anticipate serious difficulty with a Federal board in raising 
 the prices again. 
 
 Furthermore, the board would be very likely to proceed on a basis 
 of capitalization of the industry which is a method altogether foreign 
 to the methods employed by business men, or even by railroad men, 
 in fixing the prices on their commodities, and great confusion and 
 division of responsibility would result. 
 
 The fifth proposal is to make certain amendments to the Sherman 
 Act. So far as I have heard amendments proposed, they alone do 
 not seem to me to produce the desired result. For example, it is 
 proposed to forbid the selling lower in one place than in another. 
 This would prevent the flexibility with which trade must accommodate 
 itself to local conditions. It might apply to the case of the United 
 States Steel Corporation, but it would also prevent certain under- 
 selling by smaller competitors. The law for the big concern applies 
 to the moderate, and the result of a statutory rule of that kind would 
 probably create a division of territory among competitors, because 
 if a corporation which does business east of the Mississippi Kiver, 
 had to sell its commodities west of the Mississippi River at the same 
 price as it sold them east, it probably would not ship them out there 
 at aU, but would content itself with the local held. 
 
 The Chairman. I do not want to interrupt you, but all the discus- 
 sion of that subject has involved taking into account the cost ot 
 transportation? , ,. ,, T , 
 
 Mr. Howland. Yes; but the cost of transportation, as the inter- 
 state Commission is finding out, is not simply a matter depending 
 upon mileage or distance, but very complicated, indeed, dependent 
 upon all conditions of the railroad business, and railroad busmess is 
 
1390 
 
 HEABINGS BEFORE 
 
 a very much simpler business than other lands of business. The 
 large business done in one city may so reduce the overhead charges 
 as to warrant a lower price than in a much smaller city. In such 
 case, the inhabitants of a larger city, by their numbers, would furnish 
 a larger business to a corporation, would get the commodity at a 
 price lower than it would sell at in another place. A corporation 
 doing business in New York and in Hartford may be able to do a 
 very much larger business in New York, where it would sell at slightly 
 lower prices than in Hartford. If it could not sell at a lower price 
 in one city than in another, the result would not be to lower the 
 Hartford price but to raise the New York price, which would not 
 benefit the consuming public. 
 
 Then there are certain provisions intended to limit cutthroat compe- 
 tition. As I understand the phrase, that is practically the same as 
 ordinary competition. 
 
 If it involve a reprehensible intent to wipe out a competitor it is 
 so difficult to prove, and is so involved with the natural elements 
 of salutary competition, that it can not be separated and proved in a 
 suit at law where precision is necessary. 
 
 The next plan, which is perhaps discarded — I have not heard it 
 recommended before the committee — involves State action. State 
 action is likeh 7 to be a vain resource. The corporations always play 
 off State against Federal regulation, and endless friction results. The 
 incomes of many corporations are larger than those of a number of 
 State governments, and substantial unanimity among the States is 
 not to be expected. The negotiable instruments law has been adopted 
 in a little over half the States after a campaign of over 25 years, and 
 yet that involves no conflicting interests. The recent announcement 
 is significant that one of the States most fertile in the "incorporation 
 of trusts, has not a dollar of debt and has $10,000,000 of assets 
 deposited among its various banks. It seems fairly clear that the 
 control of the problem should be single, and therefore national, what- 
 ever be the constitutional device employed. 
 
 The Sherman law, taken by itself, does not fully clear up the prob- 
 lem. The courts have decided many cases, but the atmosphere has 
 not been altogether clarified. As Mr. Roosevelt has remarked, it is 
 difficult to govern by court decisions, which in themselves produce 
 delay if not other difficulties. We • are told after each decision of 
 the Supreme Court, that the question is at an end, and yet the 
 ferment immediately begins again. The lawyer and the business 
 man know what has been passed upon in certain cases, but have 
 no light as to what is to come next. It is stated that the act has 
 put full power in the courts, and the courts have acted wisely. 
 True, but courts pass only on facts and do not make rules for 
 the future. The decisions have been admirable, but the rules 
 courts have attempted to formulate apply only to facts before them. 
 The recent attempt of the Chief Justice, for example, to formulate an 
 interpretation of the act is not yet fully understood, and although I 
 think that he has been unfortunately misunderstood, and that his 
 meaning is susceptible of a clear interpretation, it has not yet received 
 a public understanding. 
 
 Now, for example, to illustrate this ambiguity, the steel corpora- 
 tion declares itself guiltless of offense against the act. It declares it 
 has no evil practices. It declares that its size makes possible effi- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1391 
 
 ciency in production not possible for small concerns, and the forma- 
 tion of an international trade; yet, leaving the case of the steel cor- 
 poration, no lawyer would to-day undertake to say how large a new 
 consolidation or a new incorporation, even waiving the question of 
 the consolidation of competitors — how large a new incorporation it 
 would be safe to make. 
 
 The steel corporation, being now in existence, and having existed 
 fpr 10 years, finds itself in this absurd position: It is assailed by some 
 for controlling approximately 50 per cent of the steel business of the 
 country; it is assailed by others for not reducing prices. The 
 motive of any business man in reducing his price is to get more 
 business, and more business means more growth at the expense of 
 competitors. Yet, the steel corporation dreads nothing so much as 
 growth at the expense of competitors. Hence, it is between two fires 
 which injure alike capital and consumers, and the foreign consumer 
 is the only one who gets any benefit, because in that avenue alone 
 does the steel corporation feel itself safe to enlarge its business. In 
 the situation created by the continued existence of the steel corpora- 
 tion, therefore, in the fact that it was allowed to form and to continue 
 to the present stage, the Sherman law operates as an act in restraint 
 of trade. That, of course, is quite aside from whether the steel cor- 
 poration shall be dissolved or not, which is a question now sub judice. 
 
 It is furthermore said that the act does not forbid great size and 
 has nothing to do with the size or the efficiency consequent upon size, 
 yet if a corporation of flour mills were now being formed with a billion 
 dollars of capital, the question would come up for a lawyer to advise 
 upon and the business man to consider, if size alone might not be 
 held to offend against, often mean the act. There would be no objec- 
 tion on the score of conduct; having no record at all, not yet being 
 formed, there could be no blemishes on the record; there could be no 
 reproaches against such a corporation for the acts proved against 
 the Standard Oil and the tobacco company, and on that score they 
 could not be assailed; but in such case, what would the Government 
 do? Would it be the duty of the Attorney General to allow the 
 corporation to be formed or not 1 
 
 In my opinion size has a great deal to do with the difficulty, and 
 competition becomes "unfair" in the way in which that word is used 
 in the press only when it is the competition of the large or very large 
 against the small. 
 
 Furthermore, we are told that the opinions in the Oil and Tobacco 
 cases appear to contain sound expositions of the act. I believe that 
 is so, but what constitutes a restraint of trade is still a shifting con- 
 cept. Almost any competitive act, what we have come to recognize 
 as inherent in competition, can be called an immoral act provided it 
 be committed by a very much stronger against a very much weaker. 
 It is said that certain customary practices of competition, such as 
 underselling in order to get business, become evil in huge concerns. 
 Granted for the sake of argument— but if so, if the huge concern 
 exists, where does the competition come in for organizations of that 
 character ? Finally, it is said that the act is clear, and we can not 
 now hesitate as to its meaning. Yet it has taken 21 years and a 
 multitude of divergent opinions from bench and bar to find out 
 part of its meaning. 
 
 22877— vol 1—12 88 
 
1392 HEARINGS BEFORE 
 
 These are not criticisms upon the existence or the enforcement of 
 the act, but they are the sort of things that pass through the minds 
 of the business man whose tendency is always to be specific and 
 concrete, and who ; finds in dealing with this act something that he 
 can not understand or that even his lawyer can not explain to him. 
 
 An act susceptible of such administration can scarcely be called 
 clear, and it is noticeable that should it be enforced against the steel 
 corporation it will be the present stockholders who will lose, and not 
 the original consolidators. If the steel corporation offends against 
 the act, it would have been better it had not been formed than that 
 it should be broken up now. 
 
 1 know of no case where the application and enforcement of the 
 act have not met with the approval of disinterested thinking men. 
 It has been a deterrent to evil practices and to immoderate consoli- 
 dations. The more effective enforcement of the act succeeded in 
 putting an end to such consolidations as were created between 1897 
 and 1903 — in&ny of them monopolistic in purpose; many of them 
 stock-jobbing affairs in operation. 
 
 I believe, therefore, that the act should be continued in full force, 
 though we may hope to discover some means of better defining and 
 preventing some of the things at which the act vaguely aims. 
 
 In the first section the act clearly covers the ordinary pools or 
 price-fixing agreements. The second section attempts to prevent 
 monopoly, and that is the section which contains the vaguest terror 
 for the business man. It is with the second section that my specific 
 su gge stion deals. 
 
 We want to make the business man understand if we can. We 
 ought, if we can, to give him legislation that is simple, in dealing with 
 as few topics as possible; plain, in not immediately requiring inter- 
 pretation; concrete, in bearing on facts and not on tendencies or mo- 
 tives. All legislation ought to be of this kind. Profound economic 
 questions, like monopoly, are due to many causes and are not plain, 
 simple, and concrete. Legislation, therefore, which attempts directly 
 to accomplish an economic conclusion uses a method which should be 
 plain, simple, and concrete to accomplish something which has none 
 of these characteristics. A safer method is by analysis to attempt to 
 discover the causes of the great consolidations in business, which have 
 had for their aim the establishment of monopoly. If among these 
 there are some which can not be removed and some which can be 
 removed in a simple and effective manner, we may hope that the 
 removal of the latter will be effective to prevent, or at least to check, 
 the tendency toward unwieldy combination. 
 
 The specific suggestion that I have to make is that the holding of 
 stock in one corporation by another should be forbidden. The most 
 obnoxious form of intercorporate stockholding is the holding company, 
 pure and simple, which undertakes to hold the stock of other com- 
 panies, and is formed for that purpose. The practice is graded all 
 the way down fromthe holding company which holds all the stock of 
 subsidiary corporations and which does no business, down to the cor- 
 poration which holds only part of the stock of the affiliated companies 
 and likewise does some business — an active, legitimate, corporate 
 business. 
 
 In order to prevent the practice of which the holding company is 
 the culmination intercorporate stockholding would have to be alto- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1393 
 
 gether forbidden. Of course the power of Congress affects only inter- 
 state commerce, and therefore measures of this kind would necessarily 
 affect only the corporations engaged in interstate commerce, whether 
 they be the holders of the stock or those whose stock is held. 
 
 The evil of intercorporate stockholding, which reaches its acme in 
 the creation of a corporation to do nothing but hold the stock of 
 others, is almost identical with the so-called trust evil. It is by 
 the means of intercorporate .stockholdings that there has taken place 
 in each case the sudden absorption under a single control of all the 
 existing avenues of business enjoyed by separate competitors and of 
 the existing good will of the public. 
 
 I wish again to lay emphasis upon the difference between sudden 
 combination and the growth of corporations which serve the public 
 and reduce prices so that -they get business away from their com- 
 petitors. The latter are economically beneficial to the public, and 
 therefore to the country at large, because, while actual competition 
 may to some extent be destroyed by the process of one swallowing the 
 others, that process is competition itself. But the suddenness of the 
 operation by which competitors are combined in a single company 
 through the buying and selling of the different stocks, or the creation 
 of a company which may take them all in by holding all their stock — 
 that is not a process of competition at all. 
 
 Only by the device of stockholding, not known at large, has been 
 avoided the effective pressure of public opinion and sham competi- 
 tion been maintained. Industrial corporations, with their surplus 
 capital, have conducted a banking business, and the general result 
 has been in many cases to aid the tendency toward monopoly. 
 
 There are many situations in which corporations have used the 
 stockholding device as a legitimate method whereby more easily 
 to manage their business, but it is not necessary; it is not indis- 
 pensable to legitimate affairs, and if the tendency of it has been to 
 promote monopoly then the legitimate use of it can be abandoned 
 and some other device employed for the necessary cases. 
 
 The danger has arisen from the very rapidity of growth of combi- 
 nations made possible by the power of buying stock. The combina- 
 tion of properties is likely to be a slow matter as, of course, the 
 attainment of a great size by growth is likely to be slower still; bus 
 a holding company combines all business by processes too rapid to 
 be either wholesome or safe — and the financial experience of the 
 country between 1897, or, say, 1899 and 1903, is startling proof of 
 that fact. . . 
 
 These are the public dangers, and it is with those that legislation 
 should concern itself, yet there are many private scandals inherent 
 in corporate stock ownership which might be to some extent obviated 
 by a prohibition of intercorporate stockholding. Manipulation by 
 insiders for their own benefit at the expense of persons for whom 
 they are really trustees, would be more difficult. The crushing of 
 minority interests by the majority or by the stock majority passing 
 to the control of another corporation which has no interest in the 
 business at all, would become more difficult. The business would 
 be managed for its own sake, and not for the ulterior purpose of 
 another corporation. It would not be possible to milk it, or to close 
 its plant so as to avoid effective competition with the parent company. 
 
1394 HEARINGS BEFORE 
 
 Where the businesses are of a somewhat different character, it is 
 clear that the people who put their money into the purchase of stock 
 in corporation A, did not do so in order that corporation A might be 
 able to buy stock in corporation B of an entirely different character, 
 that the money of corporation A might be risked in the business of 
 corporation B, and the surplus of one company diverted into the 
 other. The surplus of a manufacturing corporation in which I put 
 my money should be an investment pure and simple. If it is not used 
 in the business, or accumulated against hard times, or something of 
 that kind, it should be put into something which is purely of an 
 investment character, that has the characteristics of a loan. It 
 should not be put into the stock of another corporation, for stock 
 has a speculative character. 
 
 This suggestion has really no novelty about it. It should be 
 kept in mind that the right of one company to hold stock in another 
 is a creation of statutes adopted at a time when it seemed desirable 
 to use every method to induce the consolidation of capital. 
 
 The statutes of almost all the States gave no privilege of inter- 
 corporate stockholding until along in the eighties — the period of the 
 great railroad and industrial development, when every State legisla- 
 ture felt called upon to offer every mducement to the utmost extent 
 to facilitate combinations of capital. Prior to that tim<?,, in a good 
 many of the States, there were decisions to the effect that a corpora- 
 tion had no inherent right from merely obtaining a charter to hold 
 stock in another corporation, and prohibiting it in given cases, and 
 in each of those States where I have compfled the decisions, some 
 time after such a decision there appeared a statute deliberately over- 
 throwing the decision of the court and providing specifically that 
 corporations may hold stock in others. That took place in Alabama, 
 California, Connecticut, Illinois, Maine, New Jersey, New York, 
 Ohio, and Pennsylvania. The Ohio situation is the most striking. 
 In 1888 the Circuit Court of Ohio decided that a corporation organized 
 to manufacture iron products had no inherent power, due to the fact 
 of incorporation, to buy stock in a railroad company, although it was 
 urged that its products were used in operation by the railroad com- 
 pany, and therefore that it had an active interest in the railroad 
 business. Following that, the laws of 1892 of Ohio provided that a 
 private corporation might purchase or otherwise acquire and hold 
 shares of stock in other kindred but not competing private corpora- 
 tions, whether domestic or foreign, and this, the statute provides, shall 
 not authorize the formation of any trust or combination for the 
 purpose of restricting trade or competition, as if the fulmination of a 
 statute would deter the very result which the statute had tended to 
 bring about. In Montana they passed statutes in the same year 
 allowing intercorporate stockholding to the most complete extent, 
 and forbidding the formation of trusts or monopolies. It was of inter- 
 corporate stockholding that the President said, when he was sitting 
 in the circuit court of appeals, in Marbury v. Kentucky Union Land 
 Co., in 1894: 
 
 It is usually not permitted to acquire stock in another corporation, because, unless 
 some other intent is manifest from the charter, it is presumed that in conferring the 
 charter powers the State intended them to be exercised solely through the agency of 
 the corporation upon whom they were conferred, and not by delegation to the officers 
 of another corporation. (Marble Co. v. Harvey, 92 Tean., 115, 20 S. W., 427.) Another 
 reason whv one corporation may not acquire stock in another, which is equally cogent 
 
COMMITTEE ON INTERSTATE COMMERCE. 1395 
 
 to forbid it to guarantee the obligations of another, is that the State which conferred 
 
 Indfc^V 9 "f aS ^ e stockholderB who invested their capital inTeeSS 
 and the creditors who advance money on the faith of it, have the right to relv on the 
 company's not engaging its funds or risking its property in any buXss which is not 
 expressly or impliedly permitted by its charter "usmess wnicn is not 
 
 The national bank legislation of the country is of the same character 
 and the Attorney General has only recently been alert to prevent- 
 as he saw ifr-a substantial violation of the act in the case of the 
 National City Bank. It is recognized in that legislation that inter- 
 corporate national bank stock holding would tend to create the 
 dangers which the country and Congress think exist in the trust 
 question. 
 
 _ Now, the stock-holding method is not so necessary to legitimate 
 integration or vertical combination of large industries as it Is indis- 
 pensable to the less legitimate horizontal combination of industries 
 where competitors unite or are absorbed, and it is to contrive a check 
 on the latter process that we are mostly concerned. Indeed, in his 
 opinion in the tobacco case, the Chief Justice used stock ownership 
 by corporations and company manipulation as indicia of ownership. 
 In the Standard Oil case it was regarded as presumptive evidence 
 of the intent to monopolize that the New Jersey company expanded 
 its stock issue and bought up other companies. 
 
 The inducements to capital should be as liberal as can be devised, 
 for the country needs every dollar of capital it can obtain. The worst 
 situation for the country is when banking facilities are limited and 
 no new capital will come out; but the country needs also that capital 
 should be induced to compete with itself. The inducement to capital 
 should be economic, making for efficient production and the cheapen- 
 ing of commodities, rather than strategic, making for control of one 
 business by another or the interrelation of large concerns. 
 
 We should like to have actual competition, but we must at all 
 hazards keep alive the benefits of potential competition, that effect 
 which leads the management to beheve it good policy to keep profits 
 within limits that will not tempt newcomers, which leads it in general 
 to use farsighted, temperate, and modest control of affairs. 
 
 After we have forbidden corporations to destroy competition by 
 methods of stock ownership, a method which promotes a sudden 
 fusion, we may wait and see if the trust evil is likely to continue by 
 the growth of any corporation at the expense of others. It should 
 be possible for a corporation in "integrating" an industay to buy the 
 properties themselves; it may happen that it will buy the properties 
 themselves of competing rivals, but it is much less likely to do so than 
 it would be to buy all or part of the stocks of other companies. 
 
 Every stockholder has to be consulted; every stockholder has to be 
 fairly treated. There can be no piling up of business by buying 51 
 per cent of a corporation and absolutely controlling it. If properties 
 themselves have to be purchased, every stockholder has to be notified. 
 Furthermore, the purchase of the properties would make the affair 
 notorious, and if the possibility of monopoly were involved by a cor- 
 poration doing it with all the properties in the country, the Depart- 
 ment of Justice would have ample notice of the possibility, and be able 
 to intervene under the Sherman law, and we should avoid that situa- 
 tion which is not creditable either to our legislation or to our enforce- 
 ment of the law, that huge corporations have, in a most open and con- 
 pr.iV.nmis manner, existed for 10 years, and are then being attacked. 
 
1396 HEARINGS BEFORE 
 
 It may be that they are being rightly attacked/ It may be, however, 
 that it would have been much better if they had not been allowed to 
 form, though they offend against the act. Intervention to prevent 
 is much more wholesome then intervention to destroy, if interven- 
 tion is required by law. Stock jobbing would be impossible. I think 
 it is even a fairly safe guess that intercorporate stockholding is so 
 essential to the development of a monopoly that a monopoly can not 
 arise if the intermediate stage of stockholding can not precede the 
 final fusion into a single company. 
 
 What Mr. Stimson, in his speech last week, called the introductory 
 evil leading up to monopoly might, by its elimination, prevent the 
 monopoly itself. Such a measure, if it produced the result desired, 
 would have this very distinct advantage, that the entire country 
 would appreciate it, for its language would be simple, its meaning 
 plain, and its application concrete. 
 
 As to existing concerns, the act would not interfere with the full 
 administration of the Sherman law. Furthermore, as to the concerns 
 not assailed by the Department of Justice as monopolies- within a 
 fixed future period, the act might provide that stock holdings should 
 be sold or properties- themselves absorbed before a given date. 
 
 There are some minor questions that would need consideration, 
 such as that the statutes of some States forbid foreign corporations 
 to conduct certain kinds of business. Pennsylvania, for example, 
 has, I believe, a statute permitting mining only by domestic corpo- 
 rations. These difficulties, might be avoided by genuine contracts 
 or leases, or by additional incorporation of the foreign corporation 
 under the domestic statute, or by the exercise of comity m State 
 legislation. 
 
 Possibly such an act should not at all apply to railroads. Some 
 companies have a separate railroad corporation in order to avoid the 
 effects on the industry in case of some disaster to the railroad. Pos- 
 sibly, therefore, railroads should be excluded from such an act, but I 
 see no reason why it should not apply to industries at large; It 
 must, of course, be borne in mind that the legislation to be, effective 
 must not only forbid a holding company to conduct an interstate 
 business. It may be that the holding company would content itself 
 with holding the stock, voting it, and receiving the dividends and 
 therefore would not be within the control of Congress, and legislation 
 of that character would therefore also, where the subsidiary com- 
 pany does the interstate business, prevent the subsidiary company 
 from paying dividends to the holding company or allowing its stock 
 to be voted by the holding company. That would not be difficult 
 if the managers of a subsidiary corporation conducting the meetings 
 at which the stock is voted and paying the dividends know whether 
 the stock of their corporation is held legally or in beneficial interest 
 by a holding company. Publicity provisions relating to stock own- 
 ership would also be necessary to the enforcement of such a law. 
 Eeports to the Bureau of Corporations, under oath, Would probably 
 be sufficient. It is scarcely conceivable that the responsible officers 
 of a subsidiary company should not know that the stock of their com- 
 pany was held in the interest of another corporation. 
 
 This is scarcely the place fully to go into the constitutional ques- 
 tions involved. If intercorporate stock holdings in given cases (as in 
 the Standard Oil and Tobacco cases) can be dissolved, it must be nnr>T> 
 
COMMITTEE ON INTERSTATE COMMERCE. 1397 
 
 the theory that the stock holding is a combination between the 1 Holder 
 and all the held. Such was the fact in the Northern Securities case, 
 which {(mounted to a judicial recognition of the fact that intercor- 
 porate stock holding tends to monopoly; the evil in such case is 
 undone by judicial detoree. Why, then, instead of treating it in the 
 individual cases in court proceedings, may not Congress recognize it as 
 a general cause of monopoly, and therefore a general evil, and provide 
 against it by legislative enactment ? Congress is not obliged" to shut 
 it's eyes to the facts of national experience. 
 
 The additional or auxiliary evils of the flotation of securities for 
 stock-jobbing purposes, or in order that promoters may make extor- 
 tionate commissions, would probably become more difficult, because 
 in a combination of properties where stock transactions are avoided 
 commissions would more likely be paid in cash, and the payment of 
 cash stings a good deal more the people who have to pay it than where 
 the commission is in the form of an addition to the securities that are 
 floated on the public. 
 
 Some other limitations of the same kind might be thought of, btit I 
 doubt if they Would be effectual as this one. For example, the limi- 
 tation on total capitalization. Capitalization varies in all the indus- 
 tries. We do not know where the efficient dead line of capitalization 
 comes. We can not even define a business. Formerly we used to 
 recognize the business of manufacturing screws as a defined business 
 with limits of its own, but" the business of manufacturing' screws was 
 absorbed in a larger'business, and that in turn by a larger one, and now 
 we talk about the steel business. So, in the course of the integration 
 of business, the manufacture of certain kinds of leather may be 
 absorbed in the shoe business, and in the course of developing the 
 by-product, that may expand into some larger business. In all such 
 cases there is no definition of what constitutes a particular business, 
 and that is true without the slightest tendency in any business toward 
 
 monopoly. . . . . 
 
 So it would be impossible to give any proper limitation tor capital- 
 ization; and if there were, it would not prevent the trouble, for' the 
 two concerns that have been most recently dissolved by the Supreme 
 Court— the Standard OH and Tobacco Cos., have assets far m excess 
 of their capitalization, as was recognized by the people whbse judg- 
 ment is shrewdest on those things— the men who make the market 
 prices for the securities. . . it-.- h. f 
 
 There should be extended provisions for publicity in. the case ot 
 corporations doing interstate business by the filing of reports m the 
 office of the Bureau of Corporations, in the Department of Commerce 
 and Labor. The first effect of such provision would be to prevent 
 the secret erowth of power, and that would be wholesome. Reports 
 of that kinf Sould Tinclude'total output, gross profits, etc. Measures 
 for publicity, even though they have no direct consequences, affect 
 the mind of business men. As Mr. Taussig says : 
 
 Though these still worship the money-maker, that same pervasive movement for 
 promoting the common interest which has so profoundly affected social Ration 
 End economic thought is beginning to make its' impression on their ambitions and 
 ISmIs also. More if heard ol fair profits and fair prices, legitimate methods, honest 
 crates a reasonable regard for the public-phrases used in a vague and qw^-be£ 
 ffns way, but none the less significant of a tempered attitude. * * * This change 
 STSubUc feeling works in favor of that sort of management which is both moderate 
 
 in 
 an 
 
 (Ffarsighted, is perhaps a matter of shrewd expediency as well as of higher spirit, 
 
1398 HEARINGS BEFORE 
 
 Senator Cummins. I did not hear the entire statement of Mr. How- 
 land and therefore I will not undertake to make any inquiries of him. 
 
 Senator Brandegee. I do not know that I understood you when 
 you were talking about the difference between a combination which 
 had come to its position of control by conquering its competitors 
 and a combination which would suddenly organize by purchasing 
 the plants of individual companies. If I got your idea, it was that 
 in the first case there was a potential competition always possible, 
 and therefore it was not dangerous. In the second case, that that 
 potential competition would not be impending. Do I state it cor- 
 rectly ? 
 
 Mr. Howland. No; in order not to be too extended in my state- 
 ment I think I made an elision there. The emphasis was laid on the 
 difference — the process in the one case by growth and in the other 
 by combination of the existing units. Monopoly would never be 
 achieved by competition; the competition would never get elimi- 
 nated; as fast as one concern grew its chief competitors would be 
 likely to grow also, because in competition there is no man so shrewd 
 that he has all the advantages; such advantage as one man has 
 even if not possessed by others is offset by countervailing advantages 
 possessed by the others. I do not think it is possible to achieve 
 monopoly, or what is commonly called monopoly, by which is really 
 meant control of a very large percentage in a given class of trade — 
 I do not think it is possible to attain that — unless there is a sudden 
 process of bringing a considerable number of units together. 
 
 Senator Brandegee. That is one of the things I did not under- 
 stand. You would admit that the Standard Oil Co. was a fairly 
 good size monopoly, would you not ? 
 
 Mr. Howland. Yes. 
 
 Senator Brandegee. Well, that was not a sudden thing, was it? 
 Has that not been growing for years and years, stifling competition 
 and acquiring plants ? It seems to me that would be a case in point 
 which would refute your argument. 
 
 Mr. Howland. No; I think that would be an illustration of it, 
 because as I understand the history of the company, it did originally 
 combine a number of people by a sudden process, not the growth of 
 one. Later, when competition became dangerous, they did not grow 
 at the expense of the competitor; they bought him in. 
 
 Senator Brandegee. I had supposed that the Standard Oil Co. 
 originated in a comparatively small, almost individual, effort and 
 was a gradual growth ? 
 
 Mr. Howland. Well, it was much smaller than such companies 
 that were made in 1901, for example. Originally the industry was 
 not very well established, and a comparatively small number of men 
 formed that company. But whenever competition, as it did con- 
 tinually during the whole history of the combination, came to be 
 alarming — I speak only by newspaper hearsay and reading narrative 
 accounts of the company — they bought the competitor. They did 
 not go on competing. 
 
 Senator Brandegee. As to holding companies and the authority 
 by which companies are incorporated, you might say, to do the busi- 
 ness of owning stocks of other companies, can you tell me whether the 
 general law or the incorporation act of New Jersey recognizes that 
 specifically as a legitimate object in incorporation? 
 
COMMITTEE ON' INTERSTATE COMMERCE. 1399 
 
 Mr. Howland. Yes; it does. 
 
 Senator Brandegee. For the porpuse of owning stock and doing 
 nothing else ? 
 
 Mr. Howland. Well, they have not a statute providing for the 
 incorporation of companies to hold stock and to do nothing else, but 
 the power to hold stock is one of the -powers granted in the general 
 incorporation act of 1906. 
 
 Senator Brandegee. Now — I am asking simply for information, not 
 knowing anything whatsoever about it — how was the Northern 
 Securities Co. incorporated? 
 
 Mr. Howland. In New Jersey. 
 
 Senator Brandegee. Under the general incorporation act of New 
 Jersey ? 
 
 Mr. Howland. I believe so. 
 
 Senator Brandegee. Do not corporations that are incorporated 
 under that act have a specified purpose in their existence ? 
 
 Mr. Howland. Yes; but that is not a difficult matter. 
 
 Senator Brandegee. Of course it is not difficult, but do they 
 specify when they incorporate that the concern is hereby incorporated 
 for the purpose of holding the stock and bonds of other compaines ? 
 
 Mr. Howland. That is always included as one of the purposes. 
 
 Senator Brandegee. But the general incorporation act does not 
 recognize that in terms as one of the legal purposes of incorporation? 
 
 Mr. Howland. I do not recall whether it is in terms provided by 
 the act or is included in the general language of the act as a power 
 permitted. 
 
 Senator Brandegee. Do you happen to recall whether New Jersey 
 was one of the States where the courts have decided that without a 
 statute authorizing it a corporation had no right under its general 
 power to own the securities of other corporations ? 
 
 Mr. Howland. I have not attempted to make this exclusive and 
 covered the whole country or to take all the decisions in any par- 
 ticular State. But I took certain illustrations. 
 
 Senator Brandegee. I did not know but what you happened to 
 remember. 
 
 Mr. Howland. I think there is a decision in (31 N. J. Equity, m 
 1879) which decided that one railroad company had not the inherent 
 right to subscribe to the stock of another railroad company, but the 
 act of 1893 provides that one corporation may hold the shares or any 
 bonds or securities or evidence of indebtedness of another corporation. 
 New Jersey, in these matters, was a conservative State down to a 
 comparatively recent time. . 
 
 Senator Brandegee. What other recommendations do you make 
 as a basis for legislation relating to this question, except the pro- 
 hibiting of interlocking security ownership, so to speak? 
 
 Mr. Howland. I would be glad to see that provision tor pub- 
 licity—reports through the Bureau of Incorporations somewhat 
 extended I think the wave movement toward overconsolidation 
 would be, perhaps, checked. The difficulty is that now there are 
 certain consolidations which would be perfectly harmless, and ought 
 to be allowed, but it is unsafe — or the business men feel that it is 
 unsafe — to try them, and a lawyer is not always certain that he can 
 safely advise them. Take Mr. Brandeis's figure as to the precipice. 
 If you know where the edge of the precipice is, a sound lawyer and a 
 
1400 HEARINGS BEEOKE 
 
 good citizen may walk well inside of it, but if you do not know where 
 the edge of the precipice is, you do not know how far from it you are. 
 
 Senator Bbandegee. Do you advocate the creation of a commis- 
 sion to license corporations, or anything of that kind?" 
 
 Mr. Howland. No; I think that transfers the difficulty to another 
 field, and does not relieve the situation in the least. I think the 
 criticism that is aimed against trusts would then attach to Congress 
 or the board 
 
 Senator Brandegee. That is all. 
 
 Senator Townsend. I again want to thank you for having' been 
 specific in your recommendations, but I have been thinking of a 
 possibility of this kind: Supposing the same man owned the stock 
 in competing concerns, or in a going concern, or should acquire them. 
 In other words, here is a large concern owned by certain gentlemen, 
 and they bought the stock. The stockholders — not the corporation, 
 but the stockholders — bought the stock of the other concern. Would 
 not the same thing be brought' about as the corporate ownership of 
 stock? 
 
 Mr. Howland. You mean the tiling that is alleged to exist in the 
 case of the Northern Pacific and Great Northern? 
 
 Senator Townsend. Yes, 
 
 Mr. Howland. Where Mr. Hill says they have two pieces of paper 
 where they used to have one ? 
 
 Senator Townsend. Yes. 
 
 Mr. Howland. If they did that, they would be, for the time being, 
 in a situation somewhat similar to a fusion. I do not think they 
 would ever do it in the first instance unless they did it foi> the purpose 
 of fusing; and even if they did I do not think the stock would con- 
 tinue in the same hands very long. If there is an avenue of escape 
 there, I do not think it can be altogether blocked, for so far as that 
 goes you would have just the same result as has been achieved by 
 the Department of Justice in breaking up the constituent companies 
 of the Standard Oil and Tobacco Cos. 
 
 Senator Townsend. I was going to refer to that. Are you satis- 
 fied with the dissolution of the Tobacco Trust ? 
 
 Mr. Howland. I am not concerned on the subject and not inter- 
 ested in it for clients, and as it is a very intricate matter I should 
 not assume to have a professional opinion of it without studying the 
 record and understanding the course of the industry. Mr. Smnvh 
 tells me that they have been studying the tobacco industry in the 
 Bureau of Corporations for four or five years, and it was not until 
 they had done that that they formed an opinion, an opinion which 
 was used, I believe, by the Attorney General when he gave considera- 
 tion to the plan. But it is very much of an expert matter — very 
 much more of expertness in that industry than it is even of a legal 
 matter. 
 
 Senator Townsend. You understand that is a case similar to the 
 one I have presented — the supposition that I submitted to you — • 
 and you think there will be competition between those companies 
 that have been organized out of the Tobacco Trust now ? 
 
 Mr. Howland. You can lead a horse to water,, but you can not 
 control his thirst. I do not see how you can. If they do continue 
 to hold indefinitely there is no legal process that exists or that can 
 be devised that would say to that man, "You sell your goods for a 
 
COMMITTEE ON INTERSTATE COMMERCE. 1401 
 
 price at which you do not want to sell them; ypu undersell somebody 
 else." He fixes his oWh price, but lie would make the same price 
 that he did before. But that difficulty would probably never have 
 arisen if the company had not made a close fusion in the beginning. 
 In other words, it is very much more difficult to break it up and to 
 create a real competition than it is to stop it from coming together 
 by the process of one Company holding the other's stock. 
 
 Senator Lippitt. As I understand your general proposition, the 
 purpose of forbidding holding companies is not so much that the mere 
 holding itself is inherently bad as it is for the purpose of preventing 
 some other evil which I assume to be the large size of the corpora- 
 tion. Is that your idea? As I understand you, there are certain 
 minor factors — minor disadvantages of allowing any company to 
 hold the stock of another, in that they might not in case of holding 
 their small or moderate proportion of it treat the other stockholder 
 fairly, but also it allows some secrecy in regard to who actually does 
 hold the stock. But the main purpose of this holding is to accom- 
 plish something that in the general business of the country you think 
 is not advantageous ? 
 
 Mr. Howland. I should not exactly call those minor disadvantages 
 to which you refer — that is, stockjobbing and oppressive practices 
 by the majority — because they are so frequent in occurrence and 
 often so considerable in amount as to create real evils of a major 
 character, but they are private evils. They are the evils that come 
 with fraudulent enterprises ; they are not the same as the matters of 
 public concern that are involved in the trust problem. But I think 
 the possibility of forming combinations that take in practically all 
 the competitors is due to the misuse of the holding device. The 
 holding device as an act is a colorless thing. It is not moral nor 
 immoral. We have found that it has proved an instrument in form- 
 ing monopolies in industry. If that is so and if the method can be 
 avoided, then whether it is in itself moral or immoral makes no 
 difference. I am not in the least opposed to large corporations formed 
 to do business according to modern methods. They must be very 
 large in order to have all of the economies to which I have referred 
 in the earlier part of my statement. 
 
 Senator Lippitt. That was really the point that I was getting at. 
 
 Mr. Howland. I attempted to cover that. They must be large and 
 
 they must' grow. .: ... . ,, . 
 
 Senator Lippitt. I rather infer from your general argument that 
 the object to be accomplished by preventing a holding company is 
 to prevent consolidation; to prevent large corporations being organ- 
 ized—at least, to prevent them being rapidly organized ? 
 
 Mr. Howland. I do not know whether or not you heard the early 
 
 part of my statement ? ,.■.... « , , 
 
 Senator Lippitt. I was not here at the beginning of your state- 
 
 m Mr' Howland. I attempted to eliminate that misconstruction by 
 saying that we are in a different century from the last century, which 
 W as one of smaller affairs. We must have large concerns. 
 
 Senator Lippitt. Very likely you have answered my inquiry m 
 that first part of your remark. 
 
 Mr. Howland. I think this is really the point: When competition, 
 even of the big concerns, reaches a certain point they think if they 
 
1402 HEARINGS BEFORE 
 
 can suddenly combine, they can get control of the industry and will 
 not need to be fighting each other and constantly working so hard to 
 reduce cost and sell at low prices, etc. There is a very tempting situ- 
 ation for some one to crystallize these industries into one, and the 
 method always employed is the holding company — the method of 
 the purchase of one by another. 
 
 Senator Lippitt. That would almost suggest that you are not 
 opposed to the thing itself, but the means by which it could be 
 accomplished ? 
 
 Mr. Howland. I think the means are necessary to the end. 
 
 Senator Lippitt. But you oppose the means also; you do not 
 oppose the result. You say you are not opposed to the large organi- 
 zations, but you are opposed to this method because it leads to 
 large organizations. I am just suggesting that? 
 
 Mr. Howland. I am opposed for political and economic and, to 
 some extent, social reasons to the combination of a concern so large 
 that it includes all in an industry. I think it even tends to stultify 
 progress in that industry. 
 
 Senator Lippitt. Do you think the United States Steel Corporation 
 is too large ? 
 
 Mr. Howland. The United States Steel Corporation is sub judice. 
 I would rather use hypothetical illustrations. 
 
 Senator Lippitt. I do not think that question has anything to do 
 with it. 
 
 Mr. Howland. You mean as a business matter ? 
 
 Senator Lippitt. Yes. 
 
 Mr. Howland. I thought you meant as a political or statutory 
 matter. I do not want to undertake to say whether it is against the 
 Sherman Act or not, because I was 
 
 Senator Lippitt. I do not mean from a purely legal standpoint, 
 but as a matter of purely public sentiment. Is there any reason 
 why, as a matter of public policy, the United States Steel Co. is too 
 large ? 
 
 Mr. Howland. It is pretty hard to say without knowing more 
 about the steel business than I do. I have no technical knowledge 
 of the steel business. 
 
 Senator Lippitt. I was only trying to get at your general idea as 
 to what you consider the effect of size of that company. 
 
 Mr. Howland. I do not think the existence of the Steel Corpora- 
 tion is as wholesome as if it had grown as the result of competition 
 which had reduced prices and benefited the public. 
 
 Senator Lippitt. But as regards the result that has been brought 
 about, whether the means were entirely satisfactory or not, you 
 do not care to express an opinion; that is, you do not care to say 
 whether you think a company with a capital of a billion and a 
 quarter of dollars is against public policy or not ? 
 
 Mr. Howland. Of course by capitalization you mean asset or 
 money capital, for share capital is wholly fictitious, and may be 
 greater or less than real capitalization. The question may be 
 answered in three ways : 
 
 (1) Is an asset capital of a billion dollars, achieved by combina- 
 tion of existing concerns, against public policy? Yes; for such a 
 combination reaches toward monopoly. Candor on the part of 
 those forming such a combination would compel them to acknowl- 
 edge a primary purpose to extin gnishnr_a^oi rl wmnotitiAr, — 
 
COMMITTEE ON INTEKSTATE COMMEBCE. 1403 
 
 The American Tobacco combination was of this character 
 
 (2) Is an asset capital of a billion dollars, achieved by growth of 
 an enterprise without combination, against public policy « In 
 theory, no; for such a growth could arrive only by service to the 
 public in furnishing goods of better quality or at a lower price than 
 competitors—in other words, by successful competition. In prac- 
 tice such a situation would never occur, for the experience of the 
 world m all industries shows that no competitor is ever able so 
 completely to outdistance his rivals; as one grows, so do two or more 
 
 A considerable part of the growth of the Standard Oil Co was 
 due to this sort of service, but the court found it also constantly 
 employing the method described under (1) and reaching out toward 
 monopoly; and as the two were inextricably involved, the death of 
 the corporation was decreed. 
 
 (3) Is an asset capital of a billion dollars furnished in cash for the " 
 institution of a new enterprise against public policy ? If the Roths- 
 childs should deliberately offer to this country the service of a billion 
 dollars capital for a new steel business, which they would control by 
 share ownership, we should have to balance the advantage of the use 
 of their capital against the danger of having an enterprise of that 
 magnitude controlled by a single hand, and that of a foreigner. I 
 think we should all say that it would probably be against public 
 policy. If money, fresh money, for the building of new plants, etc., 
 were offered by an American, the case would be more doubtful. It is 
 wholly unnecessary to answer such a question, for such a situation 
 never arises in industry. Great "capitalization," like that of a billion 
 dollars, arises always from combination, and not from an offering of 
 fresh-money capital. 
 
 This analysis of your question will show that my objection is to 
 monopolistic combination, and that that is really the end which I 
 discussed. "Capitalization" may or may not be the means toward 
 the end of monopoly; if huge capitalization comes from wholesome 
 and normal growth, it is not against public policy; if it comes from 
 combination of a substantial proportion of existing competitors, it is 
 against public policy. Inasmuch as intercorporate stockholding ap- 
 pears to be a necessary element in the attainment of enormous com- 
 bination, prohibition of such stockholding prevents the combination. 
 
 Senator Lippitt. I do not care to ask anything further. 
 
 (Mr. Howland was thereupon excused.) 
 
 STATEMENT OF MAXWELL EDGAR, ATTORNEY AT LAW, 
 
 CHICAGO, ILL. 
 
 Mr. Edgae. Mr. Chairman, and gentlemen, I might say I have been 
 employed by Armour & Co., Marshall Field & Co., the Illinois Central 
 Railway Co., Mr. Arthur J. Eddy, who promoted the carbon in steel 
 foundries, and I have also been assistant corporation counsel for the 
 city of Chicago in matters of taxes; also secretary of the Iroquois 
 Club, a political organization. I make this statement to show the 
 connections I have had. 
 
 I have listened with a great deal of interest to the various discus- 
 sions here in the last two or three days, and it appears to me that they 
 do not touch the real root of the evil. 
 
 I will take up what I consider the evils first and what I consider 
 the remedies and, if necessary, can elaborate further on them. 
 
1404 HEARINGS BEFORE 
 
 I consider that the tariff is responsible for three-fourths of what wo 
 call the trust evil; that is, in commercial trusts arid monopolies, and 
 the remaining one-fourth is due to other causes, such as overcapitali- 
 zation, rebates, influence on legislatures, tax evasion, and matters of 
 that kind, and the principal remedy that I would respectfully suggest 
 would be the repeal of the tariff law, the income-tax law, and the 
 inheritance-tax law, have a Federal incorporation law alpng the .lines 
 of Senator Newlands's or Senator La Follette's bill, the retention of 
 the Sherman law as it exists just now wijh supplementary legislation, 
 and a number of minor reforms, such as publicity, and also the inhi- 
 bition of any corporation owning stock in another. 
 
 Those are the important reforms that I propose to advocate. 
 
 It also appears to me, gentlemen, that this question has come up in 
 a great many different forms throughout the history of the world. 
 It appears to me it is simply the old problem with a new phase on it; 
 that it has occurred practically in every generation, and that we are 
 simply combating the evils now that have been combated before by 
 the Jews, the French, the English, and practically every nation that 
 has ever existed. 
 
 It seems to me particularly that we are somewhat in the position 
 that the English were before the corn laws were repealed. After 
 the Napoleomc wars there was a great deal of suffering in Scotland 
 and England. Mr. Carlyle sets it out in some of his books how his 
 own father and grandfather and peasants of Scotland, after the 
 Napoleon wars, were in great distress. They had enough to eat. 
 Some died of starvation, and the only thing that prevented a similar 
 uprising such as the French Revolution was the fact that the Scotch 
 peasant, as against the French peasant, was a deeply religious man, 
 and rather than shed blood suffered in silence until the corn law was 
 repealed. 
 
 Now, the corn law was simply the tariff on corn in favor of the great 
 land owners of England who raised that corn, as against our American 
 farmers here. After the corn laws were repealed the country grew 
 prosperous again. There was enough for everybody. They shipped 
 carloads of corn, and wheat came in from the American Nation and 
 Canada and the suffering ended. 
 
 The destruction of the poor is their poverty. I contend that this 
 tariff that we have had for a great many years is the cause of a great 
 deal of suffering and poverty in this country to-day, and that it mani- 
 fests itself in very peculiar ways. I hold, for example, that the out- 
 rages in Los Angeles are a natural social result of this high tariff of 
 ours, and that is manifested in a great many other ways. 
 
 Now, logicians may reason about abstraction, as Macaulay says, 
 but the great multitude of men must have images. If you will 
 permit me, I would like to offer a little parable that might explain 
 these things as I view them. As you know, parables were very 
 popular in Palestine at one time, and even Plato has used parables, 
 particularly as to the man in the cave. 
 
 It seems to me we are in this position in this country. There was 
 a certain man who had great possessions. He had a very large farm, 
 for one thing, and he had grown up, and in his youth he had worked 
 very hard on his place at the plow. He grew up to about middle age. 
 At that time he fell ill of a strange disease, called in several of his old 
 friends, and had the family physician — we may call him iDr. Per- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1405 
 
 logian, any other name would do as well. The old doctor looked 
 him over and could not suggest a remedy. What was the matter? 
 So he called in another doctor. He suggested the gold cure — you 
 remember the doctor in Chaucer who held that gold was a very 
 sovereign remedy in many cases; in fact, it was in the Middle Ages. 
 But that did not cure him. They called in one or two other doc- 
 tors — Dr. Stuanda, for example, and Dr. Plagiun. One of them 
 advocated bleeding— they used to bleed them or cut them in the old 
 days. They tried that, but it did not do any good. So they were 
 almost at their wits' ends, but there happened to come along in 
 that vicinity a nephew of the old farmer, who came from a distance, 
 and he thought he would call on his uncle and find out what was the 
 matter. So he did so. He made some suggestion that perhaps 
 there was something wrong with the diet of the old man. When that 
 was suggested the other doctors all made a great uproar and objected 
 to any examination of his diet, and the old farmer, having had these 
 old doctors around him a long time, thought the young man did not 
 know anything and refused to allow him to do anything. So the 
 young man went away and the old farmer got worse. About seven 
 or eight weeks after that the young man was again in the vicinity 
 and called to see his uncle as a matter of duty. Then the uncle was 
 in a very bad state and they were more glad to listen to the young 
 man's arguments. So he brought up the old argument that there 
 was something wrong with the old man's diet, ana went and 
 interviewed the butler. The butler would not tell him at first, but 
 afterwards he told him the old man had five bottles of wine every 
 day for dinner. That wine -came from Spain and was very rich. 
 He also found out from the cook that the old gentleman was fond 
 of too many delicacies — rich fruity pies and things like that. So he 
 went back and told the old farmer precisely what was the matter 
 with him. So the old farmer dismissed the other doctors and took 
 the advice of this young physician. He cut off the old man's wine 
 gradually to one bottle a day for five weeks, until he had reached one 
 glass at each meal, and he cut off the rich food and reduced him to 
 simply plain, wholesome food. The result was that in a few weeks 
 the old gentleman was almost as well as ever. 
 
 That is a parable that illustrates, it seems to me, this high tariff and 
 the evil effects it has on our Uncle Sam, we will say, for example. It 
 is what affects him at the present time. 
 
 With regard to the incorporation laws of our State, I will say that 
 in the State of Illinois we have had an incorporation that is much 
 inferior to most of the other States. I think ours is the only State in 
 the country that is required to pay in 50 per cent of the capital stock 
 in money or service for property, and on March 18, 1909 
 
 Senator Cummins. There is one State in the Union that requires 
 to pay in 100 per cent. 
 
 Mr Edgar. I was not aware of that. I thank you for the sugges- 
 tion. ' I read from the Second Annual Report of the Illinois lax 
 Reform Association: 
 
 On March 18, 1909, a new "business incorporation" bill was introduced in the 
 senate by Mr. Billings, affecting all corporations organized for profit m this btate and 
 in other States and doing business in Illinois. 
 
 This bill passed both louses and was signed by Gov. Deneen. Later the governor 
 vetoed the bill. A question has arisen as to whether or not the veto was within the 
 statutory time, and the matter is now in the courts for determination. 
 
1406 HEARINGS BEFORE 
 
 The peculiar thing about this bill is that while it is perhaps the most generally 
 important bill passed by the legislature at its last session, not one word or line con- 
 cerning it was published in the press. That a bill of this importance should be passed 
 through both houses and signed by the governor without a line of publicity indicates 
 the secret and dishonest methods employed by the big business interests to secure 
 favorable legislation at Springfield. 
 
 No father or godfather (except Senator Billings) has appeared for the bill, but this 
 association is advised that it was drawn by a committee of the Chicago Bar Association 
 and that the legal fight now being made for it is in the hands of ex-Attorney General 
 Hamlin and Attorney Gillespie, of Springfield. 
 
 Some explanation is due the taxpayers for the peculiar features of this bill and the 
 suspicious secrecy which has marked its alleged enactment. 
 
 Section 1 provides inter alia that it shall be lawful for a corporation to incorporate 
 for the purpose of owning and operating an office building. 
 
 Section 2, h. j., permits a corporation to transact any business and hold its meetings 
 outside of this State. 
 
 That is another radical departure — 
 
 Section 31 permits corporations to purchase the shares of other corporations doing an 
 incidental business. 
 
 That is another radical departure — 
 
 Section 133 provides inter alia that each business corporation shall pay for examining 
 and filing its annual report one-twentieth of 1 per cent of the par value of its capital 
 stock on December 31 of each year, and not less than $10 nor more than $500 for each 
 corporation. On a $1,000,000 corporation this tax would be $500. This section is evi- 
 dently an effort looking to the abolition of the capital stock tax, which the great 
 corporations would like to see wiped out. 
 
 These and other fishy features explain to a considerable extent the gum-shoe methods 
 used by the promoters of this bill. 
 
 Senator Brandegee. From what do you read? 
 
 Mr. Edgar. From the 1900 Report of the Illinois Tax Keform 
 Association. I may say that that is an association which was 
 organized and of which I am secretary. Their object is to reform 
 the tax system of Illinois, and to that end we have brought several 
 lawsuits. We have brought a lawsuit against the International 
 Harvester Co. in my name two years ago, and we compelled the 
 payment of $501,000 of back taxes by the stockholders of the Inter- 
 national Harvester Co., which was put into the public treasury. We 
 also raised the tax $75,000 per annum in addition to that. I have 
 suits pending now in Illinois against 200 or 300 corporations 
 and against as many individuals, affecting property valued at 
 about $10,000,000,000, I understand, and affecting actual taxes of 
 $150,000,000. All that has been effected by the association. 
 
 Senator Brandegee. You do not instance this as anything rele- 
 vant to this trust question, do you ? 
 
 Mr. Edgar. Yes; just to show you how the corporations in Illi- 
 nois have evaded their taxes, and have been a source of corruption 
 and disturbance along this line. That was my only object in instanc- 
 ing it. 
 
 I might say further that I was concerned in the Fish-Harriman 
 contest there, as I was secretary to Mr. Fish while he was president 
 of the Illinois Central. When that contest came up, he sent for me, 
 and I went through that with him, and on his side, you might say. 
 
 That fight was caused entirely by the action of the Union Pacific 
 forcing itself into the Illinois Central Kailroad. The result was that, 
 by virtue of the proxies held by the Union Pacific, the control of the 
 road was lost by Mr. Fish, who had held it for about 30 years. That, 
 was a case of a foreign corporation dominating a domestic corpora- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1407 
 
 tion, and taking that corporation out of the hands of the people of 
 Illinois, one might say, and turning it over to the owners of the 
 Union Pacific. 
 
 Mr. Fish at that time controlled over one-third of the capital 
 stock, one-third of it was in the hands of the Union Pacific, and 
 another third was scattered around or was controlled by the Harri- 
 man people. Without the Union Pacific proxies, Mr. Fish would have 
 controlled the Illinois Central road, but with that, and when those 
 proxies were allowed to be cast, unlawfully as we thought, at the 
 annual meeting, the control of the road was lost. 
 
 There is a case where the ownership of stock by the Union Pacific 
 in the Illinois Central Railroad changed the whole policy, you might 
 say, of that road. The result of that was that after Mr. Fish lost 
 control of it there were a great many abuses and embezzlements by 
 officers and employees of the road, amounting, as I understand, to 
 between one million and five million dollars, resulting in this litiga- 
 tion in Chicago, and a number of men were indicted and these suits 
 are now being settled. 
 
 My wife is a small stockholder in the Illinois Central Railroad, and 
 I brought a suit to try to recover some of that money, and we were 
 told at the annual meeting by the then president, Mr. Harriman, that 
 no guilty person would escape, that every one of those officers who 
 had embezzled would be brought to book and made to pay up. But 
 the newspapers show, and it is a fact, that none of these gentletiien are 
 getting prosecuted criminally, that is, actually prosecuted, and 
 that they are now all settling with the road — on what basis, we do 
 not know. 
 
 Senator Cummins. How can that be material to our present 
 inqiiirv ? 
 
 Mr. Edgar. I am trying to show you the evil effects of the present 
 system of corporation laws as they exist in Illinois. 
 
 Senator Oliver. "We have nothing to do with that at all. We are 
 considering an industrial proposition, and have very little time to spend 
 oh this, Mr. Edgar. 
 
 Senator Cummins. Our resolution requires us to inquire into the 
 wisdom of amendments to the law by Congress, regulating corpora- 
 tions doing an interstate business. We can not go into the whole 
 economic question of the States as well as the Federal Government. 
 
 Mr. Edgar. Well, in that case, then, I would simply revert to the 
 original proposition, and that is that the greater part of the evil 
 arises from the tariff system under which we are working at present, 
 and that the remainder is Caused by the nonenforccment of the law 
 and bv such evils as overcapitalization _ 
 
 Now, I was surprised, in listening to Mr. Brandeis, that he did not 
 think that was a very great evil. I rather agree with Mr. Keisey that 
 that is one of the prime evils in connection with corporations— this 
 matter of overcapitalization. . , 
 
 For example, I have a suit pe'ndmg in Chicago where the whole 
 Question of taxation depends upon that matter. The suit is agdinst 
 the National Box Co., and the whole question is what is a reasonable 
 nrofit for that box company to make. Their capital stock is $200,000 ; 
 their actual investment was $65,000, and their profit m one year was 
 140 per cent. On the father hand, the opposing parties claim that 
 22S77— vol I — 12 89 
 
1408 HEARINGS BEFORE 
 
 they have only earned 18 per cent on an average for a number of 
 years, based on the 1200,000 capital. That corporation is owned by 
 the packers of Chicago. That is a case where overcapitalization is a 
 great evil in the matter of fixing the proper taxation of a corporation, 
 and a greater evil than that is the spreading abroad of those securities 
 all over the world, where they fall into the hands of various so-called 
 innocent persons. 
 
 The question was asked here the other day, I think when Mr. Brandeis 
 was testifying, why it was that there were so many women stock- 
 holders in the Sugar Trust. I was just going to make the suggestion 
 that that occurs from the fact that these trust 'estates in New Eng- 
 land are put into the hands of trust companies. These trust com- 
 panies of New England are closely in touch with the trust magnates 
 of New York, and these securities are handed out to them and when 
 the estate is distributed, the widow or the children or the beneficiaries 
 are told that they have so many Sugar Trust certificates, and so on, 
 and that is the real reason why so many of these New England ladies 
 own this Sugar Trust stock. 
 
 I have heard considerable complaint here about this country suf- 
 fering — that business is bad. But that, gentlemen, does not seem to 
 me to be the difficulty. I think we have the most prosperous country 
 in the world; we have the greatest country in the world. We are the 
 heirs of all the ages, you might say. 
 
 I noticed in the paper the other day that $40,000,000 worth of 
 precious stones had been imported into this country this year. 
 Precious stones are a luxury. 
 
 We have the greatest and richest country the world has ever seen, 
 but the distribution of wealth of this country is very poor, and that 
 is brought about by the special privileges that have been afforded 
 through the law to certain individuals and to certain corporations. 
 
 I think that if we followed more closely the laws of the "compa- 
 nies act of England" we would not find ourselves in such difficulty 
 as we do. Then the cooperative societies over there cut a very 
 considerable figure in keeping up competition. In fact, the coopera- 
 tive societies compete with the manufacturers themselves. And I 
 think it is only a question of time when the cooperative societies will 
 do practically all of the domestic business in England and Scotland. 
 They have been very successful there and are growing and have grown 
 very fast. 
 
 It also occurs to me that we have been working in this country in 
 utter defiance of all the economic laws — that is, the natural economic 
 laws. I think the social laws, the political laws, and the economic 
 laws are all closely related, and when one is violated they are all vio- 
 lated. It seems to me that free competition is the natural tendency, 
 the natural law of the world in commerce and business, and that any- 
 thing that tends to prohibit or prevent free competition causes a 
 stoppage of business. Take the Sherman law itself. That is an act, 
 you might say, in restraint of business, because it restrains business 
 to a certain extent. The only business that is transacted where there 
 is actually no restraint of trade is between two boys who exchange a 
 marble for a jackknife. There ispure commerce or trade there with- 
 out any restraint whatever. When they enact any laws of any 
 description, they constitute a restraint. However, the government 
 
COMMITTEE ON INTERSTATE COMMERCE. 1409 
 
 of a country should be allowed to enact wholesome restraint on busi- 
 ness, and the Sherman law is one of these. We must have them. 
 
 I just want to say a few words about the shift of power in this 
 country. In the old country — for example, in England— the shift of 
 
 J tower was from the King to the barons, from the barons to the manu- 
 acturers and merchants, and now it is shifting over to the people. 
 In this country our shift was from the King of England to the farmers, 
 then from the farmers it has gone, in Illinois, to the great merchants ' 
 and manufacturers; in a word, to the plutocrat, and that is the condi- 
 tion we are in to-day, and it has become so that in Illinois we are 
 lapsing back into a semibarbarism. The result is that all our public 
 interests are controlled by the wealthy element, except the Supreme 
 Court of Illinois. That is a deplorable state of affairs, and we think 
 the only way to do is to go back and cut off all these special privileges 
 of various kinds, both the Federal and the State, and get back to a nat- 
 ural economic state of affairs, and we think that will be better for 
 the wealthy men themselves. 
 
 There is only one result to these conditions as they exist in the 
 country to-day. We can either take the French result or the British 
 result. The British Government, by virtue of giving more liberty to 
 the people all the time, making freer laws, has avoided any specially 
 great bloodshed or revolution except in former times. The French, 
 on the other hand, were confronted with a land trust, you might say, 
 and a tax exemption trust, and the result was that they finally got 
 down to the starvation point, and instead of suffering in silence, they 
 rose up, and there was a great deal of bloodshed, and it was a long 
 time before normal conditions could be restored. 
 
 I think in this country we are approaching something of the same 
 kind. We have two ways open to us. We can either gradually shape 
 our laws so that the poor people can live or we can resort to the French 
 methods and have a revolution. 
 
 Gentlemen, I think that is about all I have to say on the subject, 
 and I am indebted to you for your courtesy. 
 
 Senator Cummins. Your main suggestion for relief is to repeal the 
 tariff law ? 
 
 Mr. Edgar. Repeal the tariff law. 
 
 Senator Cummins. All the other things are incidental? 
 
 Mr. Edgar. Well, there are some of them that do not depend upon 
 the tariff law. Take the railroad situation, for instance. 
 
 Senator Cummins. We are not trying to pass a law for the further 
 regulation of railroads now. This resolution does not embrace rail- 
 roads as railroads. 
 
 I think that is all. 
 
 The Chairman. Mr. Edgar, you are excused. 
 
 (Mr. Edgar was thereupon excused.) 
 
 The Chairman. The committee will take a recess until 10.30 
 to-morrow morning. 
 
 (Thereupon, at 5 o'clock and 30 minutes p. m., the committee took 
 a recess until to-morrow, Tuesday, December 19, 1911, at 10.30 
 o'clock a. m.) 
 
1410 HEARINGS BEFORE 
 
 TUESDAY, DECEMBER 19, 1911. 
 
 United States Senate, 
 Committee on Interstate Commerce, 
 
 Washington, D. O. 
 
 The committee met, pursuant to recess, at 10.30 a. m. for the 
 purpose of further considering the bill (S. 2941) entitled "A bill to 
 create an interstate trade commission, to define its powers and duties, 
 and for other purposes," introduced by Mr. Newlands July 5, 1911. 
 
 Present: Senators Clapp (chairman), Cummins, Crane, Brandegee, 
 Watson, and Pomerene. 
 
 The Chairman. The committee will come to order. Mr. Kim- 
 brough, we will be glad to hear you this morning. 
 
 STATEMENT OF R. I. KIMBROTJGH, OF HARRISBURG, PA. 
 
 The Chairman. Give your name, address, and business to the 
 t'eporter for the record. 
 
 Mr. KiMBROtJGH. My name is K. L. Kimbrough; my address is 
 Harrisburg, Pa., at present, but my permanent address is Botenham, 
 Tenn. ; my business is stock salesman for corporations organized along 
 the .lines of my plan of work. 
 
 Mr. Chairman and gentlemen of the committee, it is with a great 
 deal of pleasure that I appear before your committee, having looked 
 forward to this opportunity for many years, in order that 1 may get 
 at the source of the laws and regulations of interstate commerce, and 
 specifically interstate industrial enterprises. 
 
 Allow me to state in a logical order my facts and plan, or remedies, 
 you might say, and then I can develop each one afterwards. 
 
 statement of facts. 
 
 Truth will be universally established, build up or crush whom it 
 
 ma y- 
 
 We can hasten or retard this universal establishment according as 
 we line up and exert our individual or united efforts. 
 
 We hasten it when we line up on the right side. We retard it when 
 we line up on the wrong side. 
 
 The world is advancing arid growing better. There is an accele- 
 rated world development manifesting itself in every nation. The 
 door of opportunity is opening in every land. Science and invention 
 and commerce are putting new life into all men. 
 
 With steam, electricity, the telegraph, the telephone, the cable, 
 the wireless, and the turbine, all backed and promoted by great 
 combinations of capital seeking every avenue of profit, the world is 
 fast becoming one great community of interests. 
 
 Since combined capital has made possible such companies as the 
 Standard Oil Co., which has opened to American commerce every 
 mart of trade in the world; since combined capital has made the 
 United States Steel Co., which supplies steel to all the known world; 
 since combined capital has made the American Tobacco Co. known 
 all over the world; since combined capital has made the United 
 States famous the world over; since combined capital has made the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1411 
 
 condition of the American labor the best in the world; since combined 
 capital has made the United States the greatest money power in the 
 world; since combined capital has produced the greatest ships and 
 one of the greatest navies in the world, and thereby the United States 
 has become the great world power; since all these things are so, and 
 have been done in the brief space of 135 years qf our national life — a 
 mere infant among the world powers — what shall we accomplish in 
 the next 2,000 years of continued combination of capital? 
 
 Po we propose to call a halt now in our national infancy? No; a 
 thousand times, No; yea, a thousand million times, No. 
 gping to go back to the old way of small, petty, cutthroat compe- 
 tition ? No. Let us arise in our combined strength to accomplish yet 
 greater national commercial victories through regulated coordination 
 
 Since combined capital has taught us how to do big things, are we 
 of all related big businesses. 
 
 Lift up your eyes, young men, and behold the great opportunities 
 beckoning across the seas. The Panama Canal is opening wide the 
 way to South America, Hawaii, Japan, China, the Philippines, and 
 the thousands of Pacific ports, with their millions of men and women 
 whose standards of living are so fast developing that they can not 
 Tjegin to develop machinery and skilled labor of their own sufficient 
 to manufacture all their commodities of commerce. 
 
 Why is it that intelligent men who are fit to be kings, who build 
 commercial kingdoms greater than a Caesar or a Napoleon ever 
 . dreamed of subduing with the sword, why will such men fear to go 
 ahead and meet the great obligations of making our nation still 
 greater and greater as the thousands of years shajl yet come and 
 pour their treasures at our national feet ? 
 
 Why did such men unthoughtfully commit commercial suicide by 
 stopping the wheels of commerce in the midst of the greatest era 
 of prosperity known in the commercial history of the world? 
 
 Why will such noble and daring men lay down on their oars and 
 clog the circulating lifeblood of commerce to that extent of letting 
 it become stagnant in the busy mart of trade ? 
 
 If captains of commerce dare do such a suicidal deed, why should 
 we American people stand idly by and complain ? 
 
 Let us be up and doing while the pulsmg lifeblood of national 
 youth surges to get into activity. 
 
 Why not take the example and the teachings of big financiers and 
 combine our savings-bank capital and throw it behind commerce and 
 
 We have the precedent and the system already established. Let 
 us use it as it is. Let us simplify it so that the wayfaring man, 
 though a fool, may not lag behind. Let us all enter the field of com- 
 bination of capital in big business and do yet even greater things 
 than the world can now imagine. Dream dreams and see visions, 
 young America! , . , 
 
 It is true that we have suffered the evils of evolutionary commercial 
 development. It is true that big business became frightened at its 
 own accomplishments. It is true that we are suffering the effects 
 of arrested commercial credit by promotion exploitation. It is 
 true that the calamity bowler has been on every corner— particularly 
 in Wall Street. 
 
1412 HEARINGS BEFOBE 
 
 It is true that laboring men have suffered shorter and fewer hours — 
 a scanty dinner pail — just because" the big captain signaled a com- 
 mercial retreat. 
 
 It is true that we have a serious social unrest begotten in idleness 
 and pinching want in many instances. 
 
 While abundance of evidence has been produced before this com- 
 mittee and much more, and more scientific evidence can be produced 
 by the Bureau of Labor and the Department of Commerce and the 
 Commissioner of Corporations to show that undesirable conditions 
 exist all over our land, yet what are we going to do about it ? Are 
 we now at the parting of the ways to that extent that we are ready 
 to accept an equitable, righteous, practical, and perpetual solution 
 for all our commercial, political, and social problems ? 
 
 Are we ready to adopt enduring and eternal basic principles and 
 move forward to greater commercial development and accomplish- 
 ments? Has this committee the authority to recommend such a 
 solution ? 
 
 FIRST CAUSES. 
 
 First. Original constitutional individual ownership has been sup- 
 planted by latter-day corporate ownership. It must continue to 
 prevail. It is the law of commercial evolution. 
 
 Second. Overcapitalization, bonus stock, together with the old 
 cutthroat, destructive, and selfish competitive and monopolistic 
 methods have robbed the great mass of American people of their' 
 constitutional, equitable, fair, and righteous opportunities for indi- 
 vidual business or their commercial freedom. 
 
 Just as we had in Washington a man through whom we secured 
 our national freedom, and our national ideal for many years was 
 centered in its successful accomplishment; just as we had in Lincoln 
 a man through whom we extended that freedom to every American 
 citizen, and our national ideal was consumed in a complete recon- 
 struction; so to-day we are looking for a leader through whom we can 
 secure the commercial freedom of all men, to be our last national 
 ideal, which will bring about the universal common good of all men. 
 
 THREE ESSENTIAL ELEMENTS. 
 
 First. The five classes whose interests are identical and related: 
 (a) The scientific American farmers. 
 (6) The efficient federated workingmen. 
 
 (c) The coordinated manufacturers under Federal regulation. 
 
 (d) The associated merchants. 
 
 (e) The professional and salaried men. 
 Second. Three instruments: 
 
 (a) The healthy, prosperous, and happy individual. 
 
 (b) The regulated corporation resulting from combined capital of 
 small individual ownership. 
 
 (c) Government separate and distinct from big business as an 
 impartial regulator. 
 
 Third. The righteous, practical, efficient, and eternal basic prin- 
 ciples of incorporation of all interstate and international business 
 enterprises. 
 
COMMITTEE ON INTESTATE COMMERCE. 1413 
 
 Now, as to the first of these principles. The world America the 
 leaders in politics; that is, political leaders of our country ' and 
 business men have feared to make this statement which I am gobi^to 
 make here m this first principle, and that is what the world is demand- 
 Tlfat X £'s 1S ' Amenca ^ particularly demanding to-day. 
 
 ^o ( t- Th f univ /j;sal establishment of the principles and teachings of 
 the kingdom of God-the golden rule in business-*, the sole recog- 
 nized standard of all business and of all government g 
 be made 18 fundamental principle on which this solution must 
 
 (b) The permanent employment of all men on the basis of a good 
 annual income and under good sanitarv conditions 
 
 (c) The organization of all new and the reorganization of all old 
 corporate, interstate, and international business enterprises on these 
 two above principles and on a profit-sharing basis guaranteed under 
 t ederal regulation. 
 
 PROCESS OF ORGANIZATION AND REGULATION. 
 
 1. A Federal law requiring all charters issued by any State to 
 require the following: 
 
 la) Capitalize at actual value and the necessary working capital 
 and surplus to successfully run the business. 
 
 (6) All stock must be paid for at par and the proceeds go into the 
 busmess, reasonable expenses of organization included. 
 
 (c) From one-third to one-half of all original stock issued be held 
 for the refusal of and sold to the employees at par, and all extension, 
 improvement, or stock-dividend issues be allowed to go to the em- 
 ployees; if any balance, to the public. 
 
 (d) Whenever any individual or holding stock shall reach the value 
 of $1,000,000 or more, such amount to be converted into 2 per cent 
 bonds, and an equal amount of new issue be offered to the public, if 
 the business will justify the increase. 
 
 (e) That all employees be guaranteed annual contracts on a good 
 income whatever the business will justify, and under sanitary con- 
 ditions. 
 
 2. All reorganization charters require the old securities to be 
 converted into the new securities at the actual value of the old corpora- 
 tion, and then completed as if a new organization. 
 
 3. A public detailed report, published in the papers and mailed to 
 the stockholders, with the power of the bureau of corporations and 
 the national-bank examiners to see and guarantee that the reports are 
 true, will be sufficient regulation after the charter requirements have 
 been fulfilled. 
 
 RESULTS. 
 
 Universal and permanent prosperity, and hence the universal happi- 
 ness and common good of all men. 
 
 Gentlemen of 'the committee, there are quite a number of questions 
 in this that need discussion, and I may not be able to think of them 
 all myself, and I should be very glad if you would ask me any ques- 
 tions, because for the last 10 years, over 38 different States, coming 
 
1414 HEADINGS BEFORE 
 
 in contact with all classes of men, talking to lawyers and bankers 
 and teachers and economists and practical business men, I have got 
 my first man yet to meet and state to him those three principles 
 of organization who does not agree with them. Let me state them 
 here, so that you can keep them in your minds. 
 
 (1) The universal establishment of the principles and teachings 
 of the Kingdom of God— the Golden Rule in business — as the sole 
 recognized standard of all business and of all government. 
 
 (2) The permanent employment of all men on the basis of a good 
 annual income and under good sanitarv conditions. 
 
 (3) The organization of all new and the reorganization of all old 
 corporate interstate and international business enterprises on these 
 two above principles and on a profit-sharing basis guaranteed under 
 Federal regulation. 
 
 Those three principles can solve and will solve the problem, and 
 the evolution of commercial business, interstate and international, 
 is being worked out along those three lines. We may not live to 
 see the day when it will be done, but it will be done, because those are 
 enduring, everlasting, eternal, and they are fair and equitable and 
 right. If they are right, to-day is the time for us to recognize those 
 three principles and embody them in our national law- 
 To-day we are working for commercial independence, through the 
 development of our Nation. That is the ideal to-day-^-ppmmercial 
 independence of every American citizen; that is, equitable oppor- 
 tunities for every American citizen to place his savings, $10 or $100, or 
 whatever it may be, where it will participate in the profits of the cor- 
 porations of to-day that are doing the business of the country, and 
 these are the great industrial corporations. People are seeking for an 
 opportunity, but why can not they get it ? They are afraid to go in 
 corporations because they are not regulated, since business has passed 
 from the individual ownership into corporate ownership, without 
 proper regulation. Then the American citizen to-day has no place 
 where he can put his savings. What doas he have to do ? He has to 
 
 f)ut it in the savings bank at 2 or 3 or 4 per cent, and be content to 
 abor and spend his time in the corporation, and that is all his profit. 
 
 We are in the midst of a new development. 
 
 Now, the other related subjects make social unrest everywhere. 
 We hear it in the pulpits every Sunday, see it in the daily papers and 
 in the magazines, and even here in the Capitol of the United States. 
 Social unrest — it is based on something. It is based on legitimate 
 causes, which w.e will get to later. 
 
 The second related subject to this is, to put it this way, as Mr. 
 Roosevelt just put it in his address last Sunday at the Temple of 
 Labor in New York, and that is the power of the church. Imagine 
 every Sunday in almost every pulpit of the United States the minis- 
 ters of the country, the spokesmen of God, praying for you men to do 
 the right thing. Now, that is an actual fact. In my rounds for 10 
 years, and over 38 different States, and in a different church every 
 Sunda3', I hear a different preacher each Sunday; and practically the 
 
 fist of his talk is in this line ; and in his opening prayer for the day 
 e prays for righteousness at Washington and at his State capital ; for 
 righteous laws. 
 
 Now, that is a power that you can not shut your eyes to. You have 
 got to consider those things. 
 
COMMITTEE ON INTERSTATE COMMEECE. 1415 
 
 Man is a creature of law. He is the only animal that has a dual 
 nature — he is either good or bad. And it is having that dual nature 
 that makes it necessary to be regulated. If he is not regulated; he 
 is going to hurt the community if he is bad. It is all right to let a 
 good man go free without regulation, but the bad one has to be 
 regulated. 
 
 Now, since God created the world and established physical and 
 spiritual laws for its government and left it to work itself out under 
 these evolutionary laws; and since Christ — I will not mention the- 
 ology; I will not take any theological subject along that line, but 
 the world and history have recognized that Christ lived. Since 
 Christ lived and established laws for the government of social man, 
 social conditions, sufficient laws for those things, we have got to con- 
 sider those great powers. 
 
 And now here comes man, making laws in hjs government for con- 
 trolling men. Now, those laws must be in accordance with the ever- 
 lasting and eternal laws under which we exist, and if they are not, 
 then harm follows. 
 
 Shall these laws be -made with reference to a special few, the 
 privileged few, or shall they be made with reference to the universal 
 common goqd of the American people? Now, for which class have 
 they been made in the past ? I will grant you that mistakes have 
 been made; I will grant you that efforts have been made to make 
 good laws in the past. But let the past forget the past; let the dead 
 past bury its own dead. Look to the future. We are in an impor- 
 tant and transitional period to-day and we must have laws for the 
 universal common good of men; and it is with your committee at 
 this opportune tune, just as Washington was the man who took the 
 opportune time to secure our national independence and Lincoln 
 was the man who topk the opportune time to extend that inde- 
 pendence to every American citizen, so to-day you, your committee, 
 stands at the opportune time to establish laws that will secure 
 the commercial freedom of every American citizen, and thereby pro- 
 duce in the end the universal common good of all men. 
 
 Now, what do we want ? 
 
 The third related subject — unselfish leaders — is the need of the day. 
 
 What has been the main cause of all this trouble ? It is because 
 of pure selfishness on the part of leaders; selfishness on the part of. 
 the j>articipants in these transactions. 
 
 just the other day I was riding on a street car and talking to a 
 salesman for one of the biggest steel companies in this country, and 
 he said that, in order to get contracts, he had actually to take business 
 men out automobiling, to wine suppers, and resort to methods of 
 that kind to get business. Now, is that right ? That is a condition 
 that ought not to exist to-day. And since business comes under the 
 interstate commerce law, if conducted under the interstate commerce 
 laws, you h^ve the constitutional powers to regulate these things and 
 find out the proper methods of doing business. 
 
 (4) Interstate law prohibiting the shipment of any article of com- 
 merce into any State or Territory where the local or State law 
 forbids it. 
 
 Now, that will be a law that will bring about good results. That 
 is a related subject to this question of industrial enterprises. 
 
1416 HEARINGS BEFORE 
 
 Let us look at the causes of present conditions. 
 
 (1) Stupendous and magic, evolutionary — miraculous evolutions — 
 overcapitalized, with all the bonus going into a few men's pockets. 
 
 That is the first main cause of all our trouble to-day. These 
 great financiers in the last 15 years have taken advantage of the 
 charter laws permitting incorporation in each State of different 
 corporations, and capitalizing the future of that corporation, giving 
 it to the promoter and the organizer as bonus stock, and permitting 
 him to convert it into cash and put it into his own pockets. That 
 is the first great fundamental cause of our unrest to-day and of .our 
 industrial trouble. 
 
 (2) The second cause is this: Such men as the Vanderbilts, Plant, 
 Harriman, Hill, Armour, Rogers, Carnegie, Schwab, Edison, Rocke- 
 feller, Morgan, and Perkins — all great and good men, men who have 
 done the world a great deal of good and have accomplished great 
 things on account of that spirit of selfishness, not looking to the 
 future, for the universal common good — capitalizing the great future, 
 converting it into cash, and putting it into their own pockets, has cre- 
 ated in this country what we term class hatred. 
 
 Now, I come in contact with the people. I talk with them every 
 day; that is my business. When I go into a city, instead of going to 
 the big hotels I go to the boarding houses, where I can come in contact 
 with the railroad people, with the miners, with the working people, 
 so that I can know what the great American common people want at 
 first hand — not read it out of any books, but know it from first hand. 
 
 The third great cause is this : The marvelous rapidity with which 
 present-day business may be done and under no regulation and the 
 ease with which the tremendous profits may be appropriated by a few. 
 
 We know that. You take the business transactions of to-day. 
 They can be completed with marvelous rapidity. One man can be in 
 Chicago, another in San Francisco, another in New York, and by 
 means of the telegraph or the telephone they can complete a transac- 
 tion that will be of immense profit to them — possibly the capitaliza- 
 tion of the future — and put it into their own pockets and go on 
 without being regulated, the people having to pay the dividends on 
 it in the future. 
 
 (4) The business man ruthlessly and selfishly appropriating an 
 undue portion of the profits of the present-day miraculous develop- 
 ments just because he happens to control banking facilities, the 
 profits not properly distributed. 
 
 (5) Government regulation has not kept pace with selfish appro- 
 priation of industrial profits. 
 
 (6) Our present-day commercial relationships differ materially 
 from our constitutional protection handed down to us by our good 
 forefathers. 
 
 Suppose that they should live in this day and time, with the prin- 
 ciples we have enunciated to-day; they certainly would be in favor of 
 the proper regulation of interstate business and of interstate com- 
 merce for the good of all the people. 
 
 7. Selfish business men do not see that our commercial and indus- 
 trial developments have made them stewards or trustees for the 
 universal common good. 
 
 8. Since our miraculous commercial and industrial evolution has 
 developed to that point so to be pratically under Federal control, the 
 
COMMITTEE ON INTERSTATE COMMERCE. 1417 
 
 time has come to put the distribution of profits under Federal con- 
 trol and leave it no longer to selfish business plutocrats and sharks — 
 "Shylocks," if you please. 
 
 9. Undue reward in the way of cash for the capitalized future of 
 interstate and international business by the few great captains of 
 business is the greatest cause of our present-day industrial conditions 
 of unrest and uncertainty of business. 
 
 IMMEDIATE RELIEF. 
 
 1. Place all interstate and international business corporations 
 under the same regulation to which the national and savings banks 
 and the insurance companies have to submit to, and regulate the 
 distribution of all stock issues so that the savings-bank people and 
 small investors may have an equitable, safe, and profitable oppor- 
 tunity of sharing the great profits. 
 
 2. Public statements of all organizations and transactions of inter- 
 state and international business. Let the' public regulate them by 
 patronage. 
 
 3. Require frequent Federal examinations, to see that all charter 
 requirements are carried out in the details of organization and dis- 
 tributions of profits according to charter requirements of all inter- 
 state and international business; and such examinations made to the 
 public. 
 
 4. Make the violation of such charter requirements of organiza- 
 tion, management, and distribution of profits, and publicity regula- 
 tions punishable by forfeiture of the individual's share of profits or 
 stock in said corporation, if he has any, or by a fine to be paid to the 
 corporation in future installments or service — according to the na- 
 tional bank laws of punishment. 
 
 Thank you, gentlemen, for this opportunity of appearing before 
 
 you. I am now open to any questions that you may want to ask me. 
 
 (There being no questions, Mr. Kimbrough was thereupon excused.) 
 
 The Chairman. The following documents will be placed in the 
 
 record : 
 
 Statement op Hon. Emerson MoMillin, 40 Wall Steeet, New York. 
 
 Shall the Sherman antitrust law be repealed, amended, or supplemented, and, if 
 amended, in what particular? 
 
 If supplemented, to what extent and for what purposes? 
 
 Incidentally, the question of Federal charters or licenses for corporations doing 
 interstate business is discussed. _ 
 
 With a view of obviating the necessity for repetitions in your record, I will say 
 that I have read, with some care, the suggestions and expressions of opinion given to 
 your committee by the Hon. Seth Low, and that I heartily indorse his views, with two 
 or three exceptions — to be noted later on. Mr. Low has exceptional facilities for 
 gauging public sentiment and, therefore, his statements are entitled to much weight. 
 
 The Sherman law should not be repealed. Before its enactment it was considered 
 for a long time by wise men and experienced statesmen. It embodies no new and 
 untried principle. Barring the fixing of penalties and naming courts that shall have 
 jurisdiction the law appears to a layman to be almost as old as trade and commerce. 
 
 Many men clamor for its amendment, because it is too drastic; many.more. because 
 it is not drastic enough. But few would vote for its repeal. This is especially true of 
 those who have read the law. Apparently, a large majority favor amending the law, 
 but there seems to be no crystallized thought as to what the amendment should be. 
 
 Judging from what I conceived to be the evil results growing out of the enforcement 
 of the law, I condemned it for many years; in fact, until a careful reading of the law, 
 in connection with decisions of courts made during the last three or four centuries; 
 
1418 HEARINGS BEFOEE 
 
 then and thereafter, I have believed it to be all right. If the courts continue to 
 enforce it, there are no good reasons, to my mind, why it should be amended. But, 
 if a trade or industrial commission is to be created, then the law should be supple- 
 mented and elaborated in the direction of the construction placed upon the law by 
 Supreme Court decisions. The law, as it stands, seems to be growing in public favor. 
 It is believed great good has been accomplished by its enforcement, though all must 
 Tecognize some individual hardships. 
 
 There is a strong feeling that neither the text of the law nor the Supreme Court's 
 decision has warranted all the suits that have been brought. As an instance, the 
 •suit against the United States Steel Corporation. A feeling prevails that this cor- 
 poration has not violated the law in letter or spirit intentionally or through a mis- 
 understanding of the law. That the Department of Justice should feel otherwise 
 indicates a necessity for a change of some kind. 
 
 Many complain of the criminal provisions of the law. I assume these will be 
 enforced only where parties have intentionally violated the law and that it is not 
 difficult for the court to determine whether such is the case, and therefore I can see 
 no reason why these provisions should be changed. 
 
 That public sentiment will approve the creation of a trade or industrial commission 
 which shall deal with questions that are believed to be affected by the terms of the 
 Sherman law seems clear to me; in fact, such a creation seems almost to be a neces- 
 sity growing out of changed economic conditions. 
 
 It also seems a necessity that such a commission be created to prevent the courts 
 from being blocked on the one hand and business hampered on the other. 
 
 A commission could adjust or remove thousands of impediments to the progress of 
 business while one case would be passing through the courts. Its acts and findings 
 would have to have the force of law and be binding on all parties until changed, 
 modified, or annulled by court. Here I record a disagreement with the views expressed 
 by Mr. Low. I do not think jurisdiction should be taken from the courts in any case 
 or under any circumstances. I would favor the continuance of any trade agreements 
 that were filed with the commission until annulled by the commission or restrained 
 by court. Should a case of violation of the law come to the knowledge of the Depart- 
 ment of Justice and that information was submitted to the commission, it would, if 
 the information warranted it, suspend or annul the agreement promptly; or, failing 
 so to act, the-Attorney General could start proceedings. It may be asked wherein 
 this would differ from present conditions. It being the duty of a body of experienced 
 men to determine questions arising under the Sherman law and its supplement, the 
 Department of Justice would be slow to start proceedings and would act only in cases 
 of flagrant neglect of duty or apparent fraud on the part of the commission. While at 
 present the Attorney General, being wholly responsible for the initiative, must be 
 vigilant and act promptly. 
 
 It is not improbable that nineteen-twentieths of the questions arising would be 
 settled by such a commission without a formal hearing. 
 
 That an industrial commission should undertake to fix prices on products of inter- 
 state commerce or trade is extremely doubtful. 
 
 But a short time ago we would all have emphatically said no to any such question. 
 That would still be my view but for the reported successful regulation of prices In 
 some of the States of the Central West. I still believe that such power should be 
 limited to extreme and unusual cases, and these only to protect the public against 
 imposition made possible through the absence of competition, and in cases where it 
 is made plain that a competitor is being crushed for the sole propose of ending fair 
 competition. 
 
 Much has been said recently concerning the advantages of having prices fixed by 
 a Government commission, some of the suggestions purporting to come from the 
 head of the United States Steel Corporation. If it could be made practicable to fix 
 prices for that concern which manufactures scores and perhaps hundreds of different 
 shapes and sizes, and all these costing different prices to manufacture, and all at 
 present selling at different prices per pound or ton, we can not rightly claim it would 
 be impracticable to regulate prices generally. I do not believe the public demands 
 it. The public is not unlike individuals. Most of us will favor laws that curb and 
 control the other* party's business, but our own needs no restrictions. Overwhelming 
 opposition would arise at the suggestion that prices generally be made adjustable by 
 a commission of Government. 
 
 FEDERAL CHARTERS. 
 
 That there should be provision for incorporating companies under Federal law, 
 I believe is the opinion of most men, who have given the question thought. I also 
 believe that business men, generally, would prefer a Federal to a State charter, where 
 any interstate business is to be done. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1419 
 
 I also believe a license law would be an essential for existing companies and for those 
 who do a local business, that will possibly not be covered by a Federal charter. 
 
 I would deem it almost disastrous, however, to enforce compulsory incorporation 
 under Federal law, or to undertake to blacklist companies how in existence, which, 
 from any cause, find it inexpedient to take out a Federal charter, as has been suggested 
 to your committee. 
 
 Excepting only the question of capitalization, the company doing an interstate 
 business can be about as completely controlled through a Federal license as through a 
 Federal charter. 
 
 Again, to compel a company to take out a Federal charter, or cease to do an inter- 
 state business, is to possibly punish a company before it has been convicted. 
 
 The question of trade agreements is so lucidly and dispassionately discussed in the 
 letter of Henry li. Towne, published in your proceedings, that I do not feel I can add 
 a word which would be of value to the committee. 1 do venture, however, to suggest 
 that if trade agreements are permitted, a trade commission, for their regulation, will 
 be absolutely essential. The failure to file a trade agreement should be made a crime. 
 
 The filing of an apparently desirable trade agreement should be regarded as prima 
 facie evidence of honest intention, and the agreement should stand until annulled by 
 the commission or restrained by court. But this should not shield the parties from 
 the provisions of the law where investigation discloses a violation. I do not believe 
 that business interest, honestly conducted, would have any occasion to fear annoy- 
 ance from prosecuting officers. But I can not agree with Mr. Low's suggestion, that 
 the commission should have power, even temporarily, to validate any agreement or 
 act, that is in violation of any of the provisions of the Sherman law, or any other law. 
 If an apparent necessity for this exists, it will be better to remove the necessity by 
 changing the law. 
 
 The question of control and limiting amount of capital of companies chartered 
 under Federal law has been discussed before your committee and the inquiry made 
 as to its necessity. It is a big question. Were all of our large corporations forced to 
 disintegrate, and do business on less capital and on a smaller scale, it would not be a 
 aerious matter, so far as domestic trade is concerned. But at the time many of our 
 great combinations and mergers were made it was apparent that if the business of 
 the country was to continue to grow in the future as in the past, the exporting portion 
 of pur manufactures must be greatly increased. A small company may compete all 
 right with one of same proportions in domestic business, but the small company can 
 not compete with the great companies of other countries in the foreign trade. It is 
 not enough that we make goods of equal quality, or that we are able to sell at equal 
 prices. When you are building up a new trade, or, in other words, taking trade away 
 from others, you must be able to sell better goods at the same price, or to sell goods of 
 equal quality at a less price. These conditions necessitated economy in manufac- 
 ture and the economy could be best obtained by doing business on a larger scale 
 than heretofore. Enterprising men, acting- upon this idea, have built up a great 
 foreign trade which, if destroyed now, would bring hardships upon our workmen, 
 and incidentally, upon all others. Have these large capitals resulted disadvantage- 
 ous^ upon domestic business? I have not heard of a case. 
 
 Let us consider the case of the largest and most excessive capitalization I ques- 
 tion if there has ever been a company organized in America that has been so beneficial, 
 Generally as has been that of the United States Steel Corporation I speak from 
 personal experience in the same line of business years ago, and from close observation 
 
 la During the last half century, it has been a prevailing notion that the iron (formerly) 
 and steel (now) trade was the barometer that indicated the condition of the business 
 
 6i T^ehtr^iiT!oril y 'ye^s ago the prices for iron ware continually fluctuating; 
 ™X there prevailed either a boom or a panic m prices Then, there were no 
 ververeat corporations in the business, but many small and independent co-pa- 
 rties g There was strong competition, so far as number of competitors counts. There 
 /j: : JrrppmPTits bein& continually made, only to be broken. It was often a 
 Wer6 ri^ nf fcoZanv breaking an agreement or itself going to the wall. In pros- 
 question of a company breaKing S k resources in adding to their capacity 
 
 perous years the ^™oTS customers. In years of depression they must con- 
 fer meeting the demands <JI meir <•" ^ ^ . ^ j k ave in mind faow 
 
 tinU6 ^n&T feM'v Ten loca fed' whfch pSed its property about as continuously 
 
 ° n n t he« P anSvSrperiod of 40 Je£* never paid a cash^dividend, though it earned 
 
 * ™ertme f£ffi as ^SObeTcent per annum. The earnings had to be used to pay losses 
 
 ^Ssye h arr a Thes P e^ 
 
 of P the so-called trusts and great combinations of capital. No one with experience 
 
 desires their return. 
 
1420 HEARINGS BEFORE 
 
 The United States Steel Corporation has a sufficient capital to enable its officers 
 to manage its business intelligently. If orders decline it can close down part of its 
 capacity. It can and does give stability to the market, and thereby enables inde- 
 pendent companies to continue in the business, many of which would long ago have 
 gone to the wall had fluctuating prices continued. 
 
 I question if any of the competitors of the Steel Corporation would like to see it 
 disintegrated. 
 
 If steel is_ still the barometer of busiuess, fluctuations in its prices will incidentally 
 fluctuate prices in other classes of business. 
 
 Organizations of strong companies, with great resources, should be encouraged, 
 not discouraged. The greater their resources the greater their interest in the stability 
 of business and the prosperity, contentment, and comforts incident thereto. The 
 men controlling large corporations are not different from men controlling other classes 
 of business, or, if different, it should at least not be to their discredit that they have 
 been able to attain to a business altitude to which most of us would willingly climb. 
 To attempt to prohibit or discourage the cooperation of -the capital essential to exploit 
 gigantic business enterprises is to combat the principle upon which the Union itself 
 is formed. The encouragement of the aggregation of capital and facilities and the 
 legal protection of competition will distinguish the wise from the unwise, the strong 
 from the weak government, and the advanced from the backward civilization. The 
 acme of economic conditions will have been attained when capabilities resulting 
 from authoritative combinations or cooperations of capital and enterprise shall be 
 counterbalanced by the freedom of trade resulting from legally protected competition. 
 
 The suggestion has been made that a law authorizing Federal charters should pro- 
 vide for stockholders' double liability. If that principle is right, then why not make 
 the stockholders liable for all the company's obligations? Such a law would greatly 
 retard the exploitation of new business enterprises. But a limited number of stock- 
 holders in the average incorporated company can have anything to do with the 
 direct management of the company. Many men are willing to invest a specific amount 
 of their means in an undertaking, in which they have no part in the management, 
 but are wholly unwilling to risk all their means. The people of Ohio abandoned the 
 double liability after a trial of about (I believe) a half century. The trial would 
 have been much shorter had the law not been a constitutional provision. 
 
 It has also been suggested that a Federal charter should prohibit one corporation 
 holding stock of another corporation. Such a law was also one of Ohio's very few 
 mistakes, and which the State finally corrected. In many instances the holding 
 company is the only practicable mode of securing desirable and beneficial results. 
 That its power has been greatly abused can not be questioned. But it is not neces- 
 sary that a convenient and very useful vehicle for accomplishing difficult problems 
 should be destroyed in order to eliminate the evils sometimes resulting from its use. 
 
 Emerson McMiixin. 
 
 Plan op Bill Proposed by Hon. George H. Earle, Jr., Philadelphia. 
 
 AN ACT To protect trade and commerce among the States and with foreign nations, the freedom to par- 
 ticipate therein, and the free flow thereof, from all restraints, monopolies, dangerous powers, and other 
 obstructions, and to define, declare, and enact the national law and governmental policy in relation 
 thereto. 
 
 Whereas serious differences of judicial and other opinion have arisen both as to the 
 policy and proper interpretation of an act of Congress of July second, eighteen hun- 
 dred and ninety (chapter six hundred and forty -seven), relating to restraints of 
 trade, and so forth, resulting in grave uncertainty detrimental to the public welfare; 
 and 
 
 Whereas the Constitution having vested Congress with the power and discretion 
 as to means of regulating trade and commerce among the States and with foreign 
 nations, and constituting its laws, constitutionally adopted, relating thereto the 
 supreme law of the land; and 
 
 Whereas the power and discretion as to means are plenary (McCulloch v. Mary- 
 land, 4 Wheat., 423-424), and no trace is to be found in the Constitution of an 
 intention to create a dependence of the Government of the Union on those of the 
 States for the execution of the great powers assigned to it (In re Debs, 158 U. S., 
 578), 'its means having been made by the Constitution completely adequate to its 
 ends, it being entitled to rely upon its own means alone for the full accomplishment 
 of its constitutional ends; and 
 
COMMITTEE ON INTERSTATE COMMERCE. 1421 
 
 W ^ er eas when concurrent powers of the States conflict with those of the Nation 
 (McCulloch v. Maryland, 4 Wheat., 421, etc.), such is the paramount power of the 
 Constitution that wherever repugnancy appears in the exercise of such powers the 
 powers of the States, not those of the Nation, must yield; it being axiomatic that the 
 Constitution and the laws made in pursuance thereof are so supreme that they con- 
 trol the laws of the respective States and can not be controlled by them, and where 
 repugnancy appears, that authority which is supreme must control, not yield to that 
 over which it is supreme ; and 
 
 Whereas the States have no power, in any manner or by any means to retard 
 impede, burden, or in any manner control (id., 436) the operation of constitutional 
 laws enacted by Congress to cany into execution the powers vested in the General 
 Government; and 
 
 Whereas by the Constitution of the Nation the Government thereof is divided into 
 three distinct and independent branches (Hayburn's case, 2 Dall., 409 u.), and 
 it is the duty of each to abstain from and to oppose encroachments on either: Now 
 therefore 
 Be it enacted by the Senate and House of Representatives in Congress assembled: 
 
 DECLARATION OF PUBLIC POLICY. 
 
 Section 1. That it is and shall be the public policy of the United States to prevent 
 and prohibit every combination whatever to secure action which essentially obstructs 
 the free flow of commerce among the States or with foreign nations (Loewe v. Lalor, 
 208 U. S., 274), or restricts, in that regard, the liberty to enter into or engage in busi- 
 ness (Harriman v. Northern Securities case, 197 IT. S., 291); or to secure such powers, 
 as, in view of natural temptation to acquire gain, if exercised, tend to so prevent com- 
 petition as to restrain such commerce. 
 
 It being now declared to accord with said policy to keep such trade free from all 
 obstruction, or dangerous probability of obstruction, whether it be physical or eco- 
 nomic, denominated "reasonable" or "unreasonable," "due" or "undue," "direct" 
 or "indirect." > 
 
 It being further expressly declared that all things that tend to, or actually obstruct, 
 limit, or diminish such trade or commerce, in any degree, and whether for private 
 benefit or not, are injurious, unreasonable, and harmful to the public, and illegal. 
 
 It being further declared to be part of such policy to regard all monopolies, or 
 attempts to monopolize, whether of transportation, or the buying, selling, or making 
 of commodities that, in whole or part, usually pass into national commerce; or of 
 establishing power of applying unified tactics as to prices, as tending to such advance 
 of prices as to naturally and directly restrain and limit the flow of interstate, as well as 
 that of intrastate trade. 
 
 It being further declared to be the national policy to regard all monopolies of com- 
 modities as but the creation of an unlawful power of irregularly imposing taxation 
 upon trade among the States and with foreign nations, and thus directly tending to 
 restrain it. 
 
 It is hereby declared not to be part of said public policy, to regard all cooperation as 
 necessarily injurious, nor all competition as necessarily beneficial; it being a chief 
 purpose of national policy now declared to so safeguard both that whilst all beneficial 
 cooperation may be permitted and encouraged, competition Bhall never be so restrained 
 or limited as to create natural tendency to, or dangerous probability of , injury of power 
 to injure the public; or to substitute an arbitrary fixing of prices through contracts, 
 unified tactics, or other means or methods, for the natural results following from free 
 competition. 
 
 DEFINITIONS, ETC. 
 
 Sec. 2. For the purposes of this act: . . 
 
 (a) The expressions "trade" and "commerce," unlesB otherwise determined by 
 the context, shall relate to trade and commerce among the States and with foreign 
 
 (6) The expression "combination in the form of trust or otherwise in restraint of 
 trade or commerce" is used to cover, include, and mean combinations of two or more 
 persons, to do or accomplish any of the things declared to be in contravention of 
 the public policy of the United States, as in this act declared; or to, in any wise„ 
 accomplish any purpose that will restrain, or tend to restrain, trade or commerce; 
 and which would not have been criminal but for the provisions of this act, though 
 unenforceable at common law; and no such combination is to be deemed reason- 
 able," "due," or lawful. 
 
1422 HEARINGS BEFORE 
 
 (c) The expression "conspiracy in restraint of trade among the States or with for- 
 eign nations " is used to cover, include, and mean all combinations that actually do, 
 or naturally tend to, restrain trade or commerce, where there is either means of end 
 that would make such conspiracy action giving, to a party injured, or criminal, at 
 common law. And no such conspiracy is deemed to be "reasonable," of "due," or 
 lawful. 
 
 (d) The expression "contracts in restraint Of trade or commerce among the States 
 or with foreign nations " is used to include, cover, and mean voluntary contractual 
 contracts whereby one or more agree voluntarily to limit his or their right and free- 
 dom to engage in such trade or commerce. Such contracts are declared to be prima 
 facie unlawful; but to become lawful only upon it being established that they do 
 not actually and naturally tend to restrain such trade or commerce; rfeally tending 
 to aid and benefit it, without injuring the public, and with no purpose or dangerous; 
 probability or tendency of injufing it, by creating the power of or establishing monop- 
 olies and fixing trade prices by unified tactics in relation thereto. 
 
 (e) The expression, 'monopolize or attempt to monopolize ' ' is used to cover, include, 
 and mean not only all completed monopolies, but all efforts' of arrangements naturally 
 tending thereto, and especially all cases where power is sought or obtained to so fix 
 the cost of producing, delivering, buying, or selling anything that naturally flows in 
 or involves trade or commerce among the States or with foreign nations, by unified 
 tactics, as distinguished from such prices fixed and controlled by natural law where 
 free and effective competition exists, it being the opinion of Congress that all such 
 attempts to monopolize, whether completed or not, naturally and directly restrain 
 trade and commerce among the States and with foreign nations by increasing prices 
 and decreasing consumption more injuriously and odiously than in any other way or 
 by any other means, such attempts, when successful, in the opinion of Congress,, 
 placing in private hands, whether authorized by State action or not; a power of arbi- 
 trary taxation of national commerce not even possessed by the sovereign States them- 
 selves. 
 
 DECLARATION OF PURPOSE. 
 
 Sec 3. The purpose and object of this act, to be considered in its interpretation, 
 being to preserve the liberty of all to freely enter into and continue in a free flow of 
 national trade; to constitute all monopolies of commodities, as well as all things 
 actually tending to restrain such trade, prima facie evidence of an intent to restrain; to 
 encourage and make lawful everything that may aid and foster it, and to prohibit and 
 punish all things that either tend to or do limit, obstruct, burden, or destroy it, and to 
 regard and be governed by actualities and not mere appearances or nomenclature. 
 
 Sec. 4. Every contract, combination in the form of trust or otherwise, or conspiracy, 
 in restraint of trade or commerce among the several States, or with foreign nations, is 
 hereby declared to be illegal. Every person who shall make any such contract or 
 engage in any such combination or conspiracy shall be deemed guilty of a misdemeanor, 
 and, on conviction thereof, shall be punished by a fine not exceeding five thousand 
 dollars or by imprisonment not exceeding one year, or by both said punishments, in 
 the discretion of the court. 
 
 Sec 5. Every person who shall monopolize, or attempt to monopolize, or combine 
 or conspire with any other person or persons to monopolize, any part of the trade or 
 commerce among the several States, or with foreign nations, shall be deemed guilty of 
 a misdemeanor, and, on conviction thereof, shall be punished by a fine not exceeding 
 five thousand dollars or by imprisonment not exceeding one year, or by both said 
 punishments, in the discretion of the court. 
 
 Sec 6. Every contract, combination in form of trust or otherwise, or conspiracy, in 
 restraint of trade or commerce in any Territory of the United States or of the District 
 of Columbia, or in restraint of trade or commerce between any such Territory and 
 another, or between any such Territory or Territories and any State of States or the 
 District of Columbia, or with foreign nations, or between the District Of Columbia and 
 any State or States or foreign nations, is hereby declared illegal. Every pefson who 
 shall make any such contract or engage in any such combination or conspiracy shall 
 be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by 
 a fine not exceeding five thousand dollars or by imprisonment not exceeding one year 
 or by both said punishments, in the discretion of the court. 
 
 *Sec. 7. The several circuit courts of the United States are' hereby invested with 
 jurisdiction to prevent and restrain violations of this act; and it shall be the duty of 
 the several district attorneys of the United States, in their respective districts, under 
 the direction of the Attorney General, to institute proceedings in equity to prevent 
 and restrain such violations. Such proceedings may be by way of petition setting 
 f orth the case and praying that such violation shall be enjoined or otherwise pro- 
 
COMMITTEE ON INTERSTATE COMMERCE. 1423 
 
 hibited. When the parties complained of shall have been duly notified of such 
 petition the court shall proceed, as soon as may be, to the hearing and determination 
 of the case; and pending such petition and before final decree the court may at any 
 time make such temporary restraining order or prohibition as shall be deemed just 
 in the premises. 
 
 Sec. 8. Whenever it shall appear to the court before which any proceeding under 
 section four of this act may be pending that the ends of justice require that Other 
 parties should be brought before the court, the court may cause them to be summoned, 
 whether they reside in the district in which the court is held or not, and subpoenas 
 to that end may be served in any district by the marshal thereof. 
 
 Sec. 9. Any property owned under any contract or by any combination, or pursuant 
 to any conspiracy (and being the subject thereof) mentioned in section one of this 
 act, and being in the course of transportation from one State to another, or to a foreign 
 country, shall be forfeited to the United States, and may be seized and condemned 
 by like proceedings as those provided by law for the forfeiture, seizure, and con- 
 demnation of property imported into the United States contrary to law. 
 
 Sec. 10. Any person who shall be injured in his business or property by any other 
 person or corporation by reason of anything forbidden or declared to be unlawful by 
 this act may sue therefor in any circuit court of the United States in the district in 
 which the defendant resides or is found, or in any district where the "injury" for 
 which suit is brought is alleged to have been in whole or part inflicted, without respect 
 to the amount in controversy, and shall recover threefold the damages by him sus- 
 tained and the costs of suit, including a reasonable attorney's fee. And damages may 
 be proved in any legal way, including proof of prior earnings of the plaintiff in a 
 business unlawfully interfered with or by the earnings of the defendant or defendants 
 in the most profitable part of their business, not exceeding in amount the amount of 
 business which could and would probably have been done but for the wrongB com- 
 plained of. No action, however, to be sustainable where the plaintiff's case does not 
 exceed a mere unacted upon desire or intent to so engage in such trade. 
 
 Sec. 11. This act is declared to be severable in every word, phrase, and part, and it 
 is the intention that all or any of its provisions that can be lawfully enforced shall be, 
 notwithstanding deficiencies in any other part. 
 
 Sec. 12. That the word "person" or "persons," wherever used in this act, shall be 
 deemed to include corporations and associations existing under or authorized by the 
 laws of either the United States, the laws of any of the Territories, the laws of any 
 State, or the laws of any foreign country. 
 
 Letter op A. G. Magtjire, Milwaukee, Wis. 
 
 The Bartles-Maguire Oil Co., 
 
 Milwaukee, Wis., December 20, 1911. 
 
 Hon. Moses E. Clafp, 
 
 Clmirman Senate Committee on Interstate Commerce, Washington, D. C. 
 Dear Sir: There has been a great deal written and published about proper regu- 
 lation of "big business," but I am of the opinion that none of the remedies offered 
 thus far have as adequate a basic principle of proper regulation as a national anti- 
 discrimination law as suggested to your committee recently by Mr. Joseph Bartles, 
 
 ° I received by mail a copy of the Senate publication giving the stenographic record, 
 j - t occurr ed to me that Mr. Bartles had given the committee something of interest 
 
 to consider and especially so when I noted the New York Herald editorial on the 
 iihiprt If such is the case, I would like to express my views on the same subject. 
 The erowth of the so-called "trusts" of this country has been accomplished by 
 
 rombinations of great capital in order that competition may be stifled or diminished. 
 
 This competition has been called "ruinous competition," and we have been taught 
 
 that ruinous competition is not to be tolerated. _ 
 
 This ruinous competition has been brought about by jealousy, ambition, greed, 
 
 keen business ability, and a few unpleasant attributes to which the flesh is heir. 
 
 Tanital looked for dividends only and the control was taken out of the old hands 
 
 and was represented by force of ownership. Thus ruinous and wasteful competition 
 
 was discontinued, not because the people were to benefit, but because capital saw 
 
 greater profits. And in most cases "ruinous competition" was called good will 
 
 frtd was duly capitalized. 
 
 22877— vol 1—12 90 
 
1424 HEARINGS BEFORE 
 
 Then we were made to feel the absence of competition. We were not consulted 
 when the change was made, but we soon found out that great combinations were most 
 successful. Of course "ruinous" competition was stopped and dividends became 
 more regular and increased in size, the additional dividends being paid by the people. 
 So the combinations became greedy and eternally sought more profit, and in a few 
 years a score of trusts dominated almost entirely their individual lines of production. 
 Thie was of course accompanied by the most relentless use of great capital. Control 
 of market conditions was essential, and individual competitive marketers were 
 made to feel the lash of the powers who had to eliminate "ruinous competition." 
 Thus real "ruinous competition" was used as the most deft weapon to eliminate 
 imaginary "ruinous competition," and too often the 1 tactics used seemed to be 
 prompted by the same sort of ethics adopted by the highwayman who killed to rob 
 because it took less effort. 
 
 I take it that ideal trust regulation controls the acts of a great business concern 
 when by great capital or relentless effort (usually both) a certain pinnacle is reached r 
 when its power becomes a public menace. To my mind there need be no restriction, 
 other than a moral one, up to that point. Until that pinnacle is reached, competi- 
 tion should be allowed to have fair free rein, but when by any means or methods a 
 menacing dominating point is reached some law should step in and regulate. Big 
 business should not be allowed to become a public menace, and decent competition 
 which is good for all of us should be absolutely insisted upon. 
 
 Now, the problem has been to find a remedy which will act in such a crisis. The 
 dividing up o£ capital does not necessarily accomplish much unless separate ownership 
 is insisted upon. To my mind there is but one way, and that method, if embodied in 
 a law and read in conjunction with the present law, would eternally operate just at 
 the point when big business unconsciously or otherwise turns into a public menace 
 on account of its power to control. I refer to a national antidiscrimination law. 
 
 I inclose a draft of the law, which almost passed in the Wisconsin Legislature during 
 the last session. It was killed on the floor of the senate by two votes and was not 
 allowed to go to a committee. It was a close call for the big interests, who showed 
 their teeth a little too openly. They almost forgot themselves. The intent of the law 
 was misrepresented and doubtless always will be, but there is absolutely nothing in 
 the law that any decent corporation need feel in the least afraid of, provided the 
 business is carried on in accordance with the intent of the laws now in the statutes. 
 It is entirely inoperative unless a big business seeks to control the market or destroy 
 the business of a competitor. Then, and then only, does the law step in and demand 
 protection to other communities much as the Interstate Commerce Commission insists 
 that rates be not unreasonably discriminatory between contiguous localities. The 
 recent action of Congress in relation to the "long-and -short haul" clause also proves 
 this basic principle of fairness, and I contend that no perfect regulation of big business 
 can be possible without the adoption of this principle. 
 
 If a law such as this is made national, I am sure you will see the "trust question" 
 speedily dissolve. It will force the trusts to self-regulation or speedy ruin. It will 
 assure fair, healthy competition, and no honest man need fear the restriction. A 
 small busine33 properly conducted can serve as cheaply as a large business. The small 
 man must always compete in price, quality, or salesmanship, and there is nothing in 
 this law which prevents a trust competing with a small business in any locality, pro- 
 vided the effort were made honestly to compete and not to control the market or to 
 spread ruin and to run things with a high hand generally. When such an attempt is 
 made and prices are reduced in a single community to kill off competition or to 
 control, let all the people everywhere benefit. Such would be the very acme of com- 
 petition. 
 
 The Standard Oil Co. has been built up on monopolistic principles. It invariably 
 controls all markets if it can. Even when it can not for the time being, it controls in 
 the end and the punishment always follows. It knows nothing more thoroughly than 
 its self-isolated policy to always control. It was erected to control and it must control 
 or change completely. It is violating the spirit of the Sherman law to-day in every 
 State in the Union. It ia giving better prices and quality in Milwaukee than at many 
 points within the State. It is not doing this to meet competition, it is to control the 
 market — to force acknowledgment of control. It is also punishing for past rebellion 
 probably. It is selling kerosene in Milwaukee at 2 cents per gallon less than at Mari- 
 nette, Wis. — the same oil made at the same refinery — while the difference in the freight 
 rate is less than half a cent per gallon. If 7 cents is a fair price at Marinette why is 
 not 6$ cents a fair price in Milwaukee? Is it because there is strong competition at 
 Milwaukee and none at Marinette that the good people at the latter-named point 
 should be taxed additionally? The market at Milwaukee was made voluntarily by 
 the Standard Oil Co. Possibly the people of Marinette are being imposed upon. If 
 so, this law would save them considerable money. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1425 
 
 A national law of this nature would restrict only wrongful competition. Decent 
 and fair competition stands for success. It keeps one alive and puts a premium on 
 industry. Solicitation and advertising f or. business makes new business the world 
 over, and if you adopt a commission form of industrial regulation you will tend toward 
 socialism, and what have we to remember from the old days except " ruinous compe- 
 tition" which warrants any such procedure? Small business can not compete in 
 court against big business, not on account of any unfair treatment, but because of 
 the expense and delay. This is not the fault of the law, it is rather a sign of weakness 
 on the part of the one injured too generally brought about by relentless oppression 
 on the part of the big fellow. A commission could never make competition; the 
 incentive of the competitor must be there and incentive must be self-acquired and 
 not borrowed. Commission form of industrial regulation, to my mind, means monopoly 
 under restricted prices for the present trust owners, and pay envelopes for the present 
 competitors. 
 
 If you will consider the actual scope and power of the inclosed bill taken into con- 
 sideration with the modern methods of business as followed by big business, I am sure 
 you will see a remedy which will greatly strengthen the Sherman law, and if you 
 will kindly read the Government's prayer in the case against the National Cash Reg- 
 ister Co., you will see, I am quite sure, that the Government is trying to convict 
 entirely on what this antidiscrimination law precisely prevents rather than the 
 unspoken word of the Sherman law. 
 
 If I can be of any further service, please advise. Thanking you and your com- 
 mittee, I remain, 
 
 Yours, respectfully, A. G. Maguire. 
 
 [State of Wisconsin. In assembly. Substitute amendment No. 1, A., to bill No. 245, A. June 3, 1911. 
 Introduced by committee on judiciary.] 
 
 A BILL To amend section 1791 n-1 of the statutes relating to discrimination and unfair competition in the 
 
 buying of commodities. 
 
 The people of the State of Wisconsin, represented in senate and assembly, do enact as 
 follows: 
 
 Section 1. Section 1791 n-1 of the statutes is amended to read: 
 "Section 1791 n-1. Any person, firm, association, or corporation, foreign or domes- 
 tic engaged in the business of buying or selling any product or commodity in this 
 State that shall intentionally, for the purpose of establishing control of the market, or of 
 destroying the business of a competitor, in any locality, discriminate between different 
 sections communities, towns, villages, or cities of this State, by buying or selling such 
 product or commodity at a higher price or rate in one section community, town, 
 village or city, than is paid for the same product or commodity by said person, firm, 
 association or corporation in another section, community, town, village or city, after 
 mSf due allowance for the difference, if any, in the grade or quality of the product 
 ^commodity and in the actual cost of transportation from the point of purchase to the 
 Sace 5 manufacture, storage, or market of such product or commodity shall be 
 leemed guilty of unfair discrimination, which is hereby prohibited and declared 
 
 UI SEC f 2 1 ' This act shall take effect and be in force from and after its passage and pub- 
 lication. 
 
 Statements of Harry Ellwood Bellis, Philad'elphia. 
 
 REGULATION OP RATES-ITS EFFECT UPON NATIONAL DEVELOPMENT. 
 
 * ,ri+ a l force affecting the trade relations of the country is transportation. 
 
 The most vital f^eattecnnz the railroadS] they belng the 
 
 Commerce and. industry -have aepe Q ^ £ atributin center8 to. consuming 
 
 principal arteries of accessibility tro re ssive policy of. national devel- 
 
 locahties, t° /evelop the resource^ avaUable Medium of rapid distribution they 
 opment Also ^^^JX^iiity for the promotion of these resources which 
 naturally assume the larger responsiuii v r 
 
 have eventuated ^ a more ^gorou^ s n ational m^ ^ ris t the 
 
 From the stage coach and J a | on f t0 ^ have made> and where comparatively a 
 strides that advances in ton. mode ^^F 13 ^ > have weU^ulti- 
 
1426 HEARINGS BEFORE 
 
 marks of progress of an advanced civilisation wrought by steel bands and steam. Blaz- 
 ing the trail of internal expansion and the development of industry, they have built 
 up progressive localities and facilitated communication between widely diffused 
 sections; in effect, they have been the real progenitors of a new era of progress. They 
 have not stopped nor will they. Their forward march is continued and ere any new 
 method of carriage to assume its place has been developed, if ever, they will have inau- 
 gurated greater wonders than can be foreseen. 
 
 Progress, however, has been natural, the evolution fostered by the railroad. Its- 
 power to advance National development has been wonderful, but there has existed 
 even a greater power by these railways— 'the power to destroy. With all their power 
 for good they have possessed a greater power for evil, were they permitted to exer- 
 cise it. The life of trade, upon which rests future advancement, is competition, the 
 suppression of which tends to limit such trade, depresses industry, and arrests progress, 
 eventually culminating in destruction or disaster. The controlling force of competi- 
 tion is the rate and if rates from points of distribution to those of consumption are 
 unequal — noncompetitive — the scope of a competitive circumstance becomes lim- 
 ited, possibly destroyed. 
 
 , Power to measure the standard of legitimate competition between localities by an 
 arrangement of rate schedules so as to shift trade from one .to another and maintain 
 such a structure for any considerable length of time would operate to destroy the- 
 progress and development of one, compelling it to lie dormant, whereas another hav- 
 ing an advantage by such an arrangement, would grow rich and soon be languishing 
 in the lap of a lavish development. Failure to construct and maintain equitable 
 rate conditions between highly competitive localities, primed to construct or destroy, 
 or that could determine the growth and expansion by permitting and promoting a 
 flourishing condition for one and providing a poverty stricken circumstance for 
 another or number of others, have not been uncommon. 
 Intense competitive conditions between the transporters in the early stages of their 
 development is partly the excuse for this, if any can reasonably be offered, but a 
 measure of the responsibility must devolve upon the traffic official whose interest 
 in the public welfare and that of the owners of the property — the stock and bond 
 holders — was counterbalanced by selfish desire and dishonest motive and intent 
 prompted by rival interests who sought concessions, favors, rebates, etc., from them 
 that their competitors might be crushed. The evil effects of this past bitterness and 
 rivalry are still manifest, but with the reconstruction, compulsory through regulation 
 of commerce by statute, came a new order of things, and it is a matter of but little time 
 when the absolute freedom of this trade relation will become established. 
 
 Therefore the rate, the principal medium of return that provides the basis of main- 
 tenance, operation, improvement, and development of railway property, constitutes 
 a very powerful force that can operate for good or evil, construction or obstruction, 
 development or decay. 
 
 Upon the manifestation of the abuse of their power and in order to prevent a con- 
 tinuance, Congress in 1887 enacted a law designed to regulate interstate commerce, 
 and instituted the Interstate Commerce Commission to supervise such regulation. The 
 power conferred upon this tribunal was subsequently increased, and at this timegoverns 
 well-nigh the entire scope of common carriage between the States. This Commission, 
 possessing almost unlimited powers over the interstate relations of the common car- 
 riers, except those engaged in transportation by water, is much abused, but the insti- 
 tution of some regulative force became essential in order to enforce an observance of 
 equity and justice. 
 
 Most of the States have likewise enacted laws prescribing the limitations of the rights 
 of the carriers within their respective commonwealths. Power over rates has been 
 granted most of the bodies supervising such observances, as well as the Federal board, 
 and dissimilarity of rate conditions and irregularities are rapidly becoming nullified. 
 Regulation of rates has been much abused by some of the State commissions, pri- 
 marily owing to the radical tendency of the interpretation and not of the law itself. 
 A common carrier is justly entitled to a remunerative return for a service rendered, 
 providing the character of service is commensurate with same, and if their revenues 
 be affected by abnormally low charges, compulsory or otherwise, the development 
 of the property and contiguous territory depending upon such development becomes 
 affected and natural growth prevented. The investor would likewise suffer and the 
 convenience of the public be imperiled. 
 
 Common sense should 'be applied to judicial interpretation and construction of the 
 law, and regulation that affects the principal arm of commercial development and 
 progress ought not to be tolerated when it does not afford equal justice to the carrier 
 and the public. Failure in such observance creates an obstruction detrimental to the 
 absolute freedom of trade and commerce. The intent and purpose of the construction 
 should be to restrain or remove obstacles to such freedom, not to provide them. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1427 
 
 Arbitrary reductions in rates by State commissions upon traffic confined wholly 
 within their scope — that is, rates that apply only within the State — are becoming a 
 source of concern to the Federal Government, as long-established Competitive condi- 
 tions between localities have been affected, and for the Interstate Commerce Commis- 
 sion to effect reductions in order to meet this condition would amount to a confisca- 
 tion of the property of the carrier without due process of law. 
 
 The line of separation between Federal and State power of regulation is so indefi- 
 nite and its final determination so problematical that it may eventually result in 
 Federal regulation eittire, a pursuance that would in effect deprive the States of their 
 traditional right to regulate commerce within their respective jurisdictions, but would 
 afford a possible solution to the problem of a maintenance of legitimate, competitive 
 trade and commercial relations rather than a menace to their advancement. 
 
 Interchange of traffic and the establishment of through routes and rates and partici- 
 pation in joint schedules have been rendered subject to commerce law, as joint action 
 in this respect is essential to enable the traffic to move with any degree of freedom. 
 Also where there exists a number of competitive lines serving contiguous territory 
 joint action is necessary in order to pfevent violent fluctuations or rapid changes in 
 rates. Uniformity is essential to maintain the standard of competition between 
 carriers, but pooling of tonnage and earnings has been rendered subject to the laws of 
 commerce. Filing and posting of the tariff schedules was the first step toward such 
 supervision over rates with the power to provide the maximum of what such rate or 
 rates should be. Congress within the last few years has amended the statute and 
 greatly increased the original powers conferred upon the Federal commission. They 
 have also instituted a new court, known as the Commerce Court, and all appeals from 
 decisions and orders of the Interstate Commerce Commission are subject to the juris- 
 diction of the new court instead of the former method of appealing to a circuit court 
 of the United States. 
 
 They also provided that the burden of proof to justify an advance in rates should 
 be upon the carrier, thereby following the precedent established by the English 
 statute. 
 
 The long and short haul clause of the commerce act of the United States has aroused 
 considerable discussion during the past year owing to the fact of the commission hav- 
 ing the power to determine as to the reasonableness of the enforcement of the abso- 
 lute provisions of this clause. It has been contended that this is a delegation of legis- 
 lative authority by Congress to the commission, but the intent and purpose of the 
 framers of the section was riot in this direction, and any final decision upon the uncon- 
 stitutionality of the clause will have to give consideration to this intent. While it 
 may be a conference of considerable power upon any judicial body, it nevertheless 
 was not advisable to make the section an absolute long and short haul provision, as it 
 would upset in a very short time the economic condition of the country and have a 
 tendency to localize competitive circumstances, and thereby retard development. 
 
 While many circumstances surrounding the regulation of the rate structures of the 
 common camel's of the country may seem at first glance radical and unjust toward 
 the carriers, it can not be denied that a vast amount of good has materialized from 
 such regulation, and its manifest tendencies are toward a greater good and will eventu- 
 ally result in a policy of mutual beneficence between the railway interests and the 
 public. 
 
 Physical Valuation of Railways. 
 
 A growing tendency toward the physical valuation of railroad properties in the 
 Urdtld States manifests itself, in the past few years particularly. Further compli- 
 cation of the rate situation, the final determination of the reasonableness or unrea- 
 sonableness of rates, and a restless public mind lend force to the contentions of its 
 Idvocates Thev assert that in order to procure an equitable basis for the adjust- 
 ment of rates thlt we reasonable the investment and actual value of the property 
 
 m T t fi enorm% t T?he ed task in ascertaining the physical value of properties, repre- 
 sentog Z KtmeS Estimated to be in Ixcess of $20,000,000,000, is inconceivable 
 
 ^IhrtremSt'volumeof intricate detail, principally technical .j^ved, the 
 cost that would devolve upon the Government to carry out sue * »P»»te wqecj, 
 the months of irksome labor by the most competent and skilled I engineers and ^ expert 
 accountants that would entail, and the final determination of the method that would 
 bestconduce to the ascertaining of an actual value of the agencies of transportation, 
 
1428 HEARINGS BEFOKE 
 
 and careful consideration of the vitally important potentialities that add to or detract 
 from that value can merely be conjectured. 
 
 Decisions of the United States Supreme Court have not been a source of enlight- 
 enment, nor have they been sufficiently broad to determine a basis that can be 
 employed in the ascertainment of an actual value. 
 
 Theories innumerable have been advanced, some of them tested, but the fact still 
 remains that sufficient light has not been turned upon it, and groping in the dark 
 will not materialize into anything substantial until general thought be given to a 
 subject matter that can and eventually will bring forth order out of chaos and right 
 the wrongs of half a century of gradual oppression of the masses. 
 
 Still the groundwork of physical valuation is tangible, its foundation concrete, and 
 its structure of material benefit to carrier, consumer, and investor. 
 
 Deterrent influences argue that it is impractical, as it disregards the fundamental 
 principles of justice, and while it may benefit certain transportation interests it 
 would work a rank injustice upon others. 
 
 This is not credited as in the past, however, and its impracticability can only be 
 determined upon the result of an actual finding of fact. The probability is that it 
 would be found practical and fraught with manifold good, not only for the investor, 
 as an assurance of the value of his holdings, but would provide a more substantial 
 basis for determining a reasonable return for a service rendered, based upon an actual 
 value rather than upon an illegitimate indebtedness. 
 
 It would protect the public by the prevention of the payment of a high dividend 
 rate of interest upon watered stock. 
 
 It would insure a reasonable return to the carrier, commensurate with the services 
 rendered, thereby enabling it to meet the requirements upon its property. 
 
 It would provide for the maintenance of a property at a very high point of efficiency 
 by permitting substantial provisions for betterments and improvements, as the rate of 
 return would be materially increased by. the increased efficiency and decreased fixed 
 charges that would result by the capitalization of an actual value. 
 
 It would enable a property to realize a substantial profit for its stockholders after 
 providing for sufficient surplus to meet requirements during lean years. 
 
 It would elevate to a plane unforeseen the credit of securities issued by a carrier and 
 prevent their further depreciation in the markets of the world, as their value would 
 then be determined by something substantial rather than by a mere fixed paper value. 
 
 It would sound the death knell of stock watering and the absorption of enormous 
 surpluses by the creation of heavy fixed charges, policies that have bled an American 
 public of millions of dollars. 
 
 It would not check the triumphal march of progress of the vast transportation 
 interests, but in a measure would mo3t ably assist them toward an economic manage- 
 ment of their properties, thereby enabling them to more efficiently conduct them for 
 the best interests of the public, the shipper, and the investor. 
 
 Such an array of facts whereby physical valuation benefits, facts that are indis- 
 putable evidence of good in themselves, leaves consideration only for those features 
 that are essential to the actual finding of fact upon a basis of equity. 
 
 In an address before the Minnesota Academy of Social Science in December, 1907: 
 the Hon. Robert H. Shields, chairman of the Michigan tax commission, said in part, 
 
 "No hard and fast rule or theory can be employed in the valuation of corporate 
 property. In determining the true cash value of a railroad property it is proper to 
 take into consideration the cost of reproduction, its value after allowing for deprecia- 
 tion, its location, its gross and net earnings, or the fact that it is not earning a fair 
 profit, the permanency and general character of its business, the par and market value 
 of its stocks and bonds, its connections and terminals, and, in short, every element 
 and condition that adds to or detracts from its supposed value. 
 
 ''But each railroad stands alone. And no theory yet advanced can be arbitrarily 
 employed in fixing the value of each and every road without working the rankest 
 kind of injustice on some of them." 
 
 However, actual value can not be ascertained by considering either first cost, cost 
 of reproduction, or cost of reproduction minus normal depreciation, without a broad 
 conception of the potential elements that tend to increase or decrease the value of a 
 transporter's property. 
 
 An important consideration in fixing value, that applies principally to the lines 
 west of the Mississippi River, is how to apply a value upon a right of way, the principal 
 part of which came into possession by a grant from the Government. Not that they 
 should not have a value placed upon them, as they have increased in value many 
 times and adjacent lands became enhanced in value also by the development of 
 arid land into a territory of progressive development through the agency of the carriers. 
 
COMMITTEE ON INTERSTATE COMMERCE. 1429 
 
 But the right of way of some of these lines are several hundred feet wide, and the 
 fact of their being single track and without the possibility of their utilizing this prop- 
 erty entirely for a number of years, it would not, without injustice, be fair to deter- 
 mine a value upon such property as could not be utilized within a fixed time. 
 
 The State of Washington, in their findings, used this basis in determining an actual 
 value of the property adjoining the right of way of the lines in the State, and a basis 
 of computing value such as this should receive marked attention should an actual 
 value of a property be determined. 
 
 Also, where millions have been spent in improving a property, improvements that 
 are nonrevenue bearing should ako receive full consideration, as it enhances value 
 and should be subject to capitalization. Elevations of lines to eliminate grade cross- 
 ings, terminal facilities, etc. , are among the most important of these. But, too, especial 
 consideration must also be given permanent improvements of this character that have 
 been paid for out of income. What a public has paid for in the past they should not 
 be charged for again in the future by a succession of payments, by way of dividend 
 equirements, that would become essential if these improvements are to be given a 
 permanent value, minus depreciation, and capitalized. Then a carrier serving a 
 densely populated territory, the density of its traffic enormous, and favorably situated 
 as to enable its traffic and revenue to appreciate from year to year, when industrial 
 conditions are not depressed, but constructed and maintained at a lesser cost, would 
 possess a greater actual value than another not so favorably situated and endowed, 
 though the cost of its reproduction would exceed or even equal, either entire or per 
 unit. 
 
 Again, the carrier serving a territory contiguous to another with the probability of 
 handling as great a volume of traffic, but who carries the burden of a heavy fixed 
 charge, entailed by the incurring of enormous liabilities, that it be unable to protect 
 the dividend interests of its stockholders in a substantially reasonable manner, can 
 not be as valuable, from any standpoint, as is a property free from such a burden. 
 
 Real-estate holdings having no direct influence upon the value of the property of a 
 transporter — that is, holdings that do not add to or detract from its value as an agency 
 of transportation, regardless of their extent or value — are not material in determining 
 an actual value to provide for a structure of rates based upon the return upon an actual 
 value. 
 
 Actual value must consider only those elements that contribute to the worth of the 
 property directly bearing upon services rendered through the medium of transportation. 
 
 Investments in real estate that are not required for this purpose must thereby be 
 excluded, providing such holdings are not a medium of protection to that part of a 
 property that has a direct influence upon its value as a transporter. _ 
 
 Texas, the pioneer of the States in an appraisal of the railroads within its jurisdiction, 
 can not offer other than an example of misapplication of the theory of actual value. 
 Primarily the appraisal was made to regulate the issuing of stocks and bonds, thus 
 preventing stock waterings. Later, when endeavoring to apply this valuation as a 
 basis for determining a reasonable return and fixing rates accordingly, the Supreme 
 Court declared it invalid. . 
 
 Michigan, in 1900, and Wisconsin, in 1903, made elaborate appraisals, especially the 
 former, at great cost. These for the purpose of taxation; but whilethe cost of repro- 
 duction, less depreciation for wear and tear, was the basis upon which the value was 
 to be determined, it was finally a comparatively small factor in the determining of 
 taxable values upon railroad properties. . 
 
 Minnesota, South Dakota, and Washington have also made a physical value of the 
 carriers operating in their Commonwealths, endeavoring to ascertain the investment 
 upon which the carrier was entitled to earn a return, to be considered m the deter- 
 mination of reasonable, equitable rates. 
 
 Washington in utilizing the unit system of fixing a value has possibly provided a 
 nractical basis upon which to determine a value that can reasonably withstand a test. 
 
 Elaborate and at great cost was this appraisal, and its advantages are already mani- 
 fest, though but completed a few years ago. . 
 
 Cooperation between the carriers and the Government is essential and most desir- 
 able if physical valuation is to materialize, as it will facilitate the work, thereby 
 rendering the task of engineers less burdensome and permit the final determination 
 of the method of application to be more readily adjudicated. 
 
 Some idea of the gigantic task may be conceived when one familiarizes himself with 
 the vast amount of capital invested in railroad properties. 
 
 On June 30 1909, the total combined issued and outstanding capital stock and 
 funded debt of the railways in the United States, exclusive of terminal companies, 
 wS $17 487 868,935, approximately $73,000 per mile. Of this, $13,914,302,363 is held 
 by the public; and if the capital assigned to other than railway properties is excluded 
 the equivalent will average $59,259 per mile of line. 
 
1430 HEARINGS BEFORE COMMITTEE OX INTERSTATE COMMERCE. 
 
 This has materially increased, and at the present time, if the capital assigned to 
 terminal companies is included, will approximate $20,000,000,000. 
 
 It is beyond questionable doubt that the actual value of the properties of the carriers 
 exceeds this. However, many of these properties are capitalized in excess of their 
 actual value, becoming thereby detrimental to the interests of the public and the 
 investor. 
 
 A marked, illustration of the latter presents itself in the Erie as compared to the 
 Pennsylvania. 
 
 The par value of the total capital liabilities of the Pennsylvania Railroad Co. June 
 30, 1909, aggregated $689,303,680, an average of $326,672 per mile, whereas that of 
 the Erie was $401,036,587, or an average of $330,343 per mile. 
 
 There can be no comparison between the properties in so far as physical advan- 
 tages are concerned; but the character of the roadway, the equipment, and terminal 
 facilities of the Pennsylvania are more valuable and more extensive, nevertheless the 
 capitalization per mile is exceeded by that of the Erie by $3,671. This is due, prin- 
 cipally, to -the notorious stock jobbing in the Erie property for a long period, of years. 
 
 A. recent appraisal of the New York, New Haven & Hartford by the State of Mas- 
 sachusetts presents the other side, sustaining the fact wherein an actual value exceeds 
 the capitalization. 
 
 The findings in this case by the New Haven Commission valued the property at 
 $496,280,081, and. the "validated" liabilities are fixed at $394,147,563. 
 
 Results such as this eventuate in the gathering of valuable data, create precedents 
 that simplify adjudication, and bear the fruit that advocates of physical valuation 
 contend that it does not seek to underestimate the value of a carrier by way of com- 
 pelling regulation of rates and charges; but it enables the final determination of 
 reasonable or unreasonable rates based upon the return upon an actual value to 
 become adjusted: by the most practical means in the most equitable manner. 
 
 The Chairman. Unless it is objected to by the committee, the 
 committee will take a recess until January 5, 1912, at 10.30 a. m. 
 
 (Thereupon, at 11 o'clock and 15 minutes, the committee took a 
 recess until Friday, January 5, 1912, at 10.30 o'clock a. m.1 
 
INDEX. 
 
 Page. 
 
 Addystone pipe case (175 U. S., 211) 779 959 
 
 Aldrich, Hon. Nelson G., plan of. '.'.'.'.'.'.'.'.'.'.'.'.'... '608 
 
 American-Hawaiian Steamship Co., letters to Senator Clapp."....... ...... 497 498 
 
 American Steel & Wire Co ' 724 
 
 American Tobacco Co., petition of Anti-trust League 145 
 
 Argument in support of brief '.'.'.'.'.'.'.".'. 340 
 
 Brief and objections of independent companies 315 
 
 Decree in case of United States against 290 
 
 Decree, reference to. 1215 
 
 Dissenting opinion of Judge Harlan 691 
 
 Number of firms absorbed by 1203 
 
 Profits 1157 
 
 Request for leave to file objections 356 
 
 United States v. American Tobacco Co., opinion of United States Supreme 
 
 Court 672 
 
 Antitrust league, petition of 145 
 
 Atlantic & Pacific Transport Co.: 
 
 Certificate of incorporation of 248 
 
 Stock of 245 
 
 Baker, Bernard N., Baltimore, Md.: 
 Atlantic & Pacific Transport Co. — 
 
 Certificate of incorporation of 248 
 
 Stock of 245 
 
 Extracts from Postmaster General's "Instructions to bidders" 247 
 
 Ocean mail service^ , 
 
 General advertisement 248 
 
 Opinion of Attorney General Wickersham 252 
 
 Statement of 241 
 
 Barbour v. Minnesota (136 U. S.) 775 
 
 Barker, Wharton, banker, Philadelphia: 
 
 Aldrich plan 608 
 
 Anthracite coal situation, paper by 617 
 
 Bond of United States 608 
 
 Panic of 1907 606 
 
 Pettigrew amendment 611 
 
 Roosevelt, Theodore, election of 610 
 
 Statement of 605 
 
 Written statement of --* ------- 6^ 
 
 Bartles , Charles N . , Grand Porks, N . Dak. , letter to Senator Clapp 1078 
 
 Bartles, Joseph, Bartles Oil Co., St. Paul, Minn.: 
 
 Freight rates in oil w '° 
 
 Letters: irvza 
 
 Chas. N. Bartles to Senator Clapp jj»° 
 
 Oil men to Mr. Bartles x "'' 
 
 Minnesota petroleum law - .--;;: ." infi9 
 
 Standard Oil Co. percentage of business m Minnesota low 
 
 States having similar laws 1060 
 
 Statement of.- - - - - - ■ - - - - - - ; • ■- 1 nQ 
 
 Beaman, George Herbert, Washington, D. C, statement of iu» 
 
 Bellis, Harry E., Philadelphia, Pa., statements of ^ D 
 
 Bills : 1239 
 
 Cummins bill (S. 849) ; ; ; • j ^ jj^g 1420 
 
 Draft of -, iftR qv7 
 
 La Follette antitrust bill (S. 3276) - ibb ' yi> { 
 
 Newlands bill (S. 2941) -. m 
 
 To create the Department of Transportation 
 
 To create Interstate Trade Commission. .- - .- 
 
 To create a nonpartisan Revenue and Industrial Commission ii» 
 
 To create a United States Mining Commission <± 
 
 WilKams bill (S. 1377) *'* 
 
 1 
 
n INDEX. 
 
 Page. 
 Brandegee, Hon. Frank B., United States Senator from Connecticut: 
 
 Appearance 1, 24, 26, 109, 181, 241, 
 
 287, 424, 486, 498, 693, 752, 768, 811, 912, 956, 1024, 1088, 1146, 1194, 1410 
 
 Letter from National Civic Federation 99 
 
 Brandeis, Louis D., attorney, Boston, Mass.: 
 
 American Tobacco Co. profits 1157 
 
 Number of firms absorbed by 1203 
 
 Decree, reference to 1215 
 
 British View of Steel Trust (Mr. Good in Atlantic Monthly, December, 
 
 1911) 1262 
 
 " Cummins bill (S. 849) 1239 
 
 Great Northern ore lease 1159 
 
 La Follette bill (S. 3276) 1146, 1162, 1221 
 
 Paper, cost of book paper 1157 
 
 Standard Oil Co. profits 1157 
 
 Statement of 1146 
 
 Taylor system _, ; 1210, 1227 
 
 United Kingdom, hours of labor T 1159, 1206 
 
 United Shoe Machinery Trust , 1160 
 
 United States Steel Corporation: 
 
 Hours of labor 1153, 1198, 1206 
 
 Quality of product 1149 
 
 Report of Commissioner of Labor 1153 
 
 Tangible assets acquired in 1901 1201 
 
 Washington Post, clipping from 1225 
 
 Bureau of Corporations: 
 
 Snuff, report on 353 
 
 Steel Trust, part of report on. '. 364 
 
 Carpenter, C. U., chairman antitrust committee of New York Board of Trade, 
 statement of 1027 
 
 Addystone Pipe case (175 U. S., 211) 779,969 
 
 Barbour v. Minnesota (136 U. S.) 775 
 
 Decided under Sherman law or relating thereto 951 
 
 Dr. Miles v. Park Med. Co. (221 U. S.) 790 
 
 Green case (52 Fed.) 776 
 
 Jacobson v. Massachusetts (197 U. S.) 784 
 
 Mallan v. May, decision of Baron Parke (11 M. & W., 665) 778 
 
 Marbury v. Kentucky Union Land Co 1394 
 
 Mogul Steamship Co. v. McGregor. Gow & Co. (23 Q. B. D., 598). . 652, 799, 969, 971 
 
 National v. Texas (197 U. S., 129) 785 
 
 Standard Oil Co. of New Jersey v. United States 642 
 
 Dissenting opinion of Justice Harlan 662 
 
 United States v. American'Tobacco Co. et al 145 
 
 Decree in Circuit Court of New York 290 
 
 Dissenting opinion of Justice Harlan 672, 691 
 
 United States v. E. C. Knight Co. (156 U. S.) 60, 774 
 
 United States v. Joint Traffic Association (171 U. S.) 563, 566, 633, 666, 692 
 
 United States v. Northern Securities Co. (193 U. S.) 634, 955, 1213 
 
 United States v. Trans-Missouri Association (166 U. S., 290) \. 564, 777 
 
 United States v. United States Steel Corporation 864 
 
 Clapp, Hon. Moses E., United States Senator from Minnesota: 
 
 Appearance 1, 24, 26, 109, 181, 424, 486, 498, 693, 752, 768, 
 
 811, 912, 956, 1024, 1088, 1146, 1194, 1265, 1329, 1410 
 Letters from — 
 
 American-Hawaiian S. S. Co., New York 497-498 
 
 Bartles, Charles N., Grand Forks, N. Dak 1078 
 
 Kenyon, C. A., Indianapolis, Ind " 768, 1195 
 
 Maguire, A. G., Milwaukee, Wis '..'..'.'.'.... ' 1423 
 
 Reading, A. B., Auburn, Cal '.'.'.'.'.'.'.'.'.'.. 476 
 
 Reed, Robert R., New York " [ 485 
 
 Taylor, F. C, St. Louis, Mo 752 
 
 Tiers, Clarence V., Pittsburgh, Pa -. '.'.'.'.'.'.'.'."..'.. 1087 
 
 Towne, Henry H., New York 498 
 
 Townsend, Hon. C. E " 1329 
 
 Untermyer, Hon. Samuel 1338 
 
INDEX. m 
 
 Clark, Hon. Champ, Speaker of the House, letter from Senator Newlands to 
 
 March 15, 1911 ' 6 
 
 C1 ark, Prof. John Bates, professor of political economy, Columbia University 
 
 New York, statement of J ' gyj 
 
 Clarke, Hon. James P.. United States Senator fromArkansasi appearance 1 
 
 Cleveland, President Grover, suits under Sherman law in administration of 943 
 
 Coller, Dr. E. H., Battle Creek, Mich., statement of " " 1341 
 
 Commission: 
 
 Interstate trade, bill to create i 
 
 Plan for regulation of industrial commissions 234 487* i(>91 1122 
 
 Nonpartisan revenue and industrial commission '....'. ' 119 
 
 United States Mining Commission '..".'. 72 
 
 Crane, Hon. W. M., United States Senator from Massachusetts, appearance 1 24 
 
 n tt a ,,. . t> tt .. , „ „ 7 & 2 ' 768 > 811 > 1088 > al4 6> 1194, 1410 
 
 Cummins, Hon. Albert B., United States Senator from Iowa: 
 
 Acting chairman 241, 287, 1288 
 
 Appearance 1,24,26,109,181,241,287,424,486, 
 
 „ 498, 693, 752, 768, 811, 956, 1024, 1088, 1146, 1194, 1265, 1329, 1410 
 
 Bill introduced by 1239 
 
 Resolution, mode of procedure 24 
 
 Department of transportation, proposed plan for 11 3 
 
 Dr. Mills v. Park Medical Co. (221 U. S.) .'..'.'./.'.'.'..'. 790 
 
 Dutton, Chauncey N., draft of bill 1346 
 
 Dwinnell, Hon. W. S., lawyer and State senator of Minnesota, Minneapolis, 
 
 Minn., statement of 90 
 
 Earle, Hon. George H., jr., Real Estate Trust Co., Philadelphia, Pa.: 
 
 Addystone case 779 
 
 Barbour v. Minnesota 775 
 
 Dr. Miles v. Park Medical Co 790 
 
 Harlan, Mr. Justice, reference to opinions of 773 
 
 Jackson, Mr. Justice, reference (Green case) 776 
 
 Jacobson v. Massachusetts 784 
 
 Knight case, reference 774 
 
 Mallan v. May, decision of Baron Parke 778 
 
 Mill, John Stewart 794 
 
 National v. Texas 785 
 
 Peckham, Mr. Justice, opinion of, in Knight case 774 
 
 Plan of bill proposed 1420 
 
 Statement of 770 
 
 Statement of (written), regarding Hornb lower address 1025 
 
 Trans-Missouri case 777 
 
 Easley, Hon. Ralph M s , secretary National Civic Federation, letter from 99 
 
 Edgar, Maxwell, attorney, Chicago, 111., statement of 1403 
 
 Edison, Thomas A., reference to 1089 
 
 Farrar, Hon. Edgar H., ex-president American Bar Association, extract from 
 
 report of - - 426 
 
 Federal license °20, °" 
 
 Federal tax of corporations, plan of - - ■ - 852 
 
 Gary, Hon. Elbert H., United States Steel Corporation, New York: 
 
 American Steel & Wire Co 724 
 
 Hill lease «® 
 
 Reference to • *■%*> 
 
 Statement of fa9d - bu 
 
 United States Steel Corporation: 
 
 Companies and capitalization °H- 
 
 Concerns in competition with °™ 
 
 Formation of ™ 
 
 Railroads controlled by °" 
 
 German consular service, reference to ^a 
 
 German potash law, translation of - *°* 
 
 Gore, Prof. James H., Washington, D. C, statement of . '06 
 
 Gore, Hon. Thomas P., United States Senator from Oklahoma, a PP^™ n ^"^g 4 ^ 
 
 Gray, Prof. John H., University of Minnesota, Minneapolis, Minn., statement 
 
 f < Ai 
 
 Great Northern ore lease llj?jr 
 
 Grosscup, Judge, reference to address of - ISbli 
 
IV INDEX. 
 
 Harlan, Mr. Justice: Pa 8 e - 
 
 U. S. v. American Tobacco Co. , dissenting opinion 691 
 
 Standard Oil Co. v. United States, dissenting opinion 662 
 
 Harris, Hon. George W., Cincinnati, Ohio: 
 
 Federal license , 857 
 
 Federal tax of corporations) plan of 882 
 
 Retail grocery trade 850 
 
 Statement of 850 
 
 Tennessee Coal & Iron Co., reference to 863 
 
 Harris, William R., letters of 399 
 
 Harrison, President W. H. H., administration of trust law under 428 
 
 Hay, Hon. Eugene G., member board United States General Appraisers, Sum- 
 mit, N. J.: 
 
 Farrar, Hon. Edgar H., extract from report of 426 
 
 Harrison, President W. H. H., administration of trust law under 428 
 
 Statement of 424 
 
 Hilles, Hon. Charles D., Secretary to the President, Independent Tobacco 
 
 Association, letter to 363 
 
 Hornblower, Hon. William B., address before American Bar Association 628 
 
 Earle, Hon; George H., jr., reference to address 1025 
 
 Howland, Hon. Charles P., attorney, New York: 
 
 Advantages in corporate combinations r. . . 1386 
 
 Holding of stock by corporations 1392 
 
 Marbury v. Kentucky Union Land Go. 1394 
 
 Proposed measures 1387 
 
 Statement of 1384 
 
 Taussig, A., extracts from remarks of 1386, 1397 
 
 View of capitalization 1402 
 
 Hughes, Hon. Charles E., reference to address of 1302, 1315 
 
 Independent Tobacco Association: 
 
 Letter from Charles D. Hilles 363 
 
 Telegrams to President Taft 362, 363 
 
 Industrial Commission, proposed plan of 119, 234, 487, 1091, 1122 
 
 International Harvester Co., reference to 1123 
 
 Interstate Trade Commission 1, 520 
 
 Jacobson v. Massachusetts (197 U. S. ) 784 
 
 Jaritz, Andrew, student, Washington-, D. C, statement of 174 
 
 Joy, Henry B., manufacturer of motor cars, Detroit, Mich.: 
 
 German consular service 1298 
 
 Hughes, Hon. Charles E., speech of 1302-1315 
 
 Letter of Senator Townsend 1329 
 
 Statement of 1292 
 
 Views as to selling at different prices 1307 
 
 Washington Times, bread-line article 1292 
 
 Kelsey, Frederick W., New York: 
 
 Commissions paid by United States Steel Corporation 1380 
 
 Extract from Roosevelt article in Outlook 1363 
 
 Grosscup, Judge, reference to address 1350 
 
 Philadelphia Press, clipping from 1383 
 
 President Roosevelt's message, January 30, 1905, reference to 1349 
 
 Report on trust question '. 1351 
 
 Statement of 1347 
 
 Kenyon, C. A., Indianapolis, Ind.: 
 
 Draft of bill 1195 
 
 Letters to Senator Clapp 768, 1195 
 
 Kimbrough, R. L., Harrisburg, Pa., statement of 1410 
 
 La Follette, Hon. Robert M., United States Senator from Wisconsin, reference 
 to bill introduced by 166; 957, 1146, 1162 
 
 Laughlin, J. Lawrence, professor of political economy, University of Chicago, 
 
 Chicago, 111., statement of 995 
 
 Levy, Felix H., lawyer, New York City: 
 
 Argument in support of brief 340 
 
 Brief and objections of independent companies 315 
 
 Bureau of Corporations: 
 
 Snuff, report on 353 
 
 Steel Trust, report on (part of) 364 
 
 Decree in tobacco case 290 
 
 HarriB, William R., letters of 399 
 
INDEX. v 
 
 Levy, Felix H., lawyer, New York City— Continued. Page 
 
 New York Sun, article from ocq 
 
 Recent antitrust decisions, by Prof. H. R. Seager 410 
 
 Request for leave to file objections o£c 
 
 Statementof ™° 
 
 Telegrams to President Taft '" " o fi o ,», 
 
 Lippitt, T3on. Henry P., United States Senator from Rhode 'island,' appear- ' 
 
 T ,? nC w " " ■ "a W • \V " • -v ■ ,■ -V • " l > 768 ' 811 ' 912 ' 956 ' 1024 > 1088 > H46, 1194, 1329 
 
 Low Hon. Seth, New York, president National Civic Federation- 
 
 Answers to questionnaire submitted by 499 
 
 Holding companies, reference to c?o 
 
 Letter of...... 5 i° 
 
 Remedy of .".".\" ".".'!".".".".' .'.".' 519 
 
 Statementof 49 q 
 
 H C K-I^ ey ' Resident William, suite under Sherman law "in admintetration of ' 944 
 McMillin, Hon. Emerson, New York, statement of 1417 
 
 Maguire, A. G., Milwaukee, Wis., letter of [ 1423 
 
 Mallan v. May, decision of Baron Parka " 773 
 
 Martin, Henry B., New York, secretary American Antitrust League; also in 
 
 mining business, statement of 102 ill 151 
 
 Mining commission, proposed plan for ".*".. '. ' 72 
 
 Minnesota general laws of 1907 ..'.....,..".. 807 
 
 Mogul Steamship Co. v. McGregor, Gow & Co. (23 Q. B.D., 598).... 652, 799,969,971 
 Moorehead, J. R., secretary National Federation of Retail Merchants, Lexing- 
 ton, Mo.: 
 
 Dolliver, Senator J. P., on parcels post 919 
 
 Government agents, reference to 918 
 
 National Federation of Retail Merchants 913 
 
 Parcels post 916 
 
 Retail Lumber Dealers' Association 926 
 
 Statement of 912 
 
 Morawetz, Victor, attorney, New York, address of 1329 
 
 National Civic Federation 99 
 
 List of men who gave views at length 514 
 
 List to whom questionnaire was sent 500 
 
 Scope of 225 
 
 Total of first eight sheets of questionnaire 499 
 
 National v. Texas 785 
 
 Newlands, Hon. Francis G., United States Senator from Nevada: 
 
 Appearance 1, 24, 
 
 26, 109, 181, 241, 287, 424, 752, 912, 956, 1024, 1088, 1146, 1194, 1265, 1329 
 
 Bill (S. 2941) introduced by 1 
 
 Clark, Hon. Champ, letter to , 5 
 
 Proposed board of interstate trade 10 
 
 Smith, Hon. Herbert'Knox, extracts from letter of 20 
 
 Statement of 4, 24, 481 
 
 Wickersham, Hon. George W., quotations from address of 20 
 
 Nixon, George S., United States Senator from Nevada, appearance 811, 
 
 1024, 1146, 1194, 1265, 1329 
 Oliver, Hon. George T., United States Senator from Pennsylvania, appear- 
 ance 1,24,26,109,181, 
 
 241, 287, 424, 498, 693, 752, 768, 811, 956, 1024, 1088, 1146, 1194, 1265, 1329 
 
 Paper, cost of book paper H 57 
 
 Perkins, George W., New York: 
 
 Commission, business j-^ 
 
 Commission , plan of |J™J 
 
 Edison, Thomas A., reference to ^°» 
 
 Gary, Hon. E. H., reference to J^« 
 
 International Harvester Co., reference to ^g 
 
 Life work ■" ' , ftSQ 
 
 Statement of ™fZ 
 
 United States Steel Corporation, capitalization of J-"" 
 
 Pomerene, Hon. Atlee, United States Senator from Ohio, aj^«^c«.......... 1, J4, 
 
 26,109, 181, 287, 424, 846, 498, 693, 752, 768,811, 956, 1024, 1088, 1146, 1194, 1265 
 Postmaster General: 9 ._ 
 
 Extracts from " instructions to bidders " ^jL 
 
 Ocean mail service, general advertisement ^ 4 ° 
 
VI INDEX. 
 
 Questionnaire. See National Civic Federation. Pa S e - 
 
 Reading, A. B., Auburn, Cal., letter to Senator Clapp, and memorial 476 
 
 Reed, Robert R., attorney, 100 Broadway, New York: 
 
 Letter to Senator Clapp 485 
 
 Statement of 446 
 
 Williams bill (S. 1377) 472 
 
 Resolutions: 
 
 Authority for hearings (S. 98), Sixty-second Congress, 'first session 1 
 
 Mode of procedure, Senator Cummins 24 
 
 Retail Lumber Dealers' Association 926 
 
 Retail Merchants, National Federation of 913 
 
 Richberg, Donald R., lawyer, Chicago, 111., statement of 1079 
 
 Roosevelt, President Theodore: 
 
 Election of 610 
 
 Extract from article in Outlook 1363 
 
 Reference to message of January 30, 1905 1349 
 
 Suits under Sherman law in administration of 944 
 
 Royall, William L., Richmond, Va., statement of 557 
 
 Letter from 1345 
 
 The Pool and Trusts by 
 
 Seager, Prof. H. R., article on "The Recent Antitrust Decisions" 410 
 
 Sherman Antitrust Law and amendments 938 
 
 Cases decided under 951 
 
 Relation to trade organizations, H. R. Towne 525 
 
 Suits brought under 942 
 
 Smith, Hon. Herbert Knox, chief, Bureau of Corporations, extracts from letter 
 
 of, dated 20 
 
 Smith, Hon. William A., United States Senator from Michigan 1301 
 
 Standard Oil Co.: 
 
 Percentage of business in Minnesota 1062 
 
 Profits 1157 
 
 Standard Oil Co. v. United States 642 
 
 Dissenting opinion of Justice Harlan ... 662 
 
 Stetson, Hon. Francis Lynde, lawyer, New York: 
 
 Addyston Pipe case 969 
 
 La Follette bill, reference to 957 
 
 Mogul Steamship case, reference to 969-971 
 
 Statement of 956 
 
 Towne statement, reference to 963 
 
 Stuyvesant, W. S., St. Louis, Mo., statement of (written) '1336 
 
 Taft, President, W. H.: 
 
 Letter from Independent Tobacco Association 363 
 
 Part of opinion in Addystone Pipe case 969 
 
 Part of opinion in Marbury case 1394 
 
 Suits under Sherman Law in administration of 949 
 
 Taylor, F. C. , letter to Senator Clapp 752 
 
 Taylor systeto 1210, 1227 
 
 Taussig, A. , extracts from remarks of 1386, 1397 
 
 Tennessee Coal & Iron Co., reference to 863 
 
 Thomas, A. F. , Lynchburg, Va. , statement of 985 
 
 Tiers, Clarence V., Pittsburgh, Pa., letter from 1087 
 
 Towne, Henry R., Yale Towne Manufacturing Co., New York: 
 
 Letter to Senator Clapp 498 
 
 Reference to 963 
 
 Statement of, regarding Sherman act 525 
 
 Townsend, Hon. Charles E., United States Senator from Michigan: 
 
 Appearance 1,24,26,109,181,241,287,424, 
 
 496, 498, 693, 752, 768, 811, 912, 956, 1024, 1088, 1146, 1194, 1265, 1329 
 
 Letter to Senator Clapp 1329 
 
 United Kingdom, hours of labor in .' 1159 ; 1206 
 
 United Shoe Machinery Trust 1160 
 
 United States v. American Tobacco Co. et al 145, 672 
 
 Dissenting opinion of Justice Harlan 691 
 
 Final decree in circuit court of New York 290 
 
 United States v. E. C. Knight Co 60,774 
 
 United States Steel Corporation: 
 
 Bureau of Corporations report on (in part) 364 
 
 Capital stock of 202 
 
INDEX. VII 
 
 United States Steel Corporation — Continued. Page. 
 
 Companies and capitalization of 811, 1107 
 
 Commissions paid t>y 1380 
 
 Concerns in competition with 840 
 
 Formation of 826 
 
 Hours of labor ". ' 1153, 1206 
 
 List of directors 9O4 
 
 Petition of United States under Sherman law 863 
 
 Quality of product ." 1149 
 
 Railroads controlled by 831 
 
 Report of Commissioner of Labor .' 1153 
 
 Securities of companies acquired by 811 
 
 Stockholders, number of 847 
 
 Stockholders, who are employees 848 
 
 Tangible assets acquired in 1901 1201 
 
 United States v. Joint Traffic Association (171 U. S.) 563, 566, 633, 666, 692 
 
 United States v. Northern Securities Co. (193 U. S.) 634, 955, 1213 
 
 United States v. United States Steel Corporation 864 
 
 United States v. Trans-Missouri Association (166 U.S., 290) 564, 777 
 
 Untermyer, Hon. Samuel, lawyer, New York: 
 
 Article of, North American Review, July 217 
 
 Letter to Senator Clapp 1338 
 
 Plan for regulation of industrial commissions 234, 487 
 
 Scope of National Civic Federation 225 
 
 Statement of 181 
 
 Statement of capital stock of United States Steel Corporation 202 
 
 Translation of German potash law 489 
 
 Vinson, Z. Taylor, attorney, also in coal business, Huntington, W. Va.: 
 
 Bill to create United States Mining Commission 72 
 
 Knight case (U. S. v. E. C. Knight Co.) 60 
 
 • Statement of 26 
 
 Watson, Hon. Clarence W., United States Senator from West Virginia, appear- 
 ance 1, 24, 26, 109, 181, 287, 498, 693, 752, 768, 811, 912, 956, 1024, 1088, 1329, 1410 
 
 Wickersham, Hon. George W., Attorney General: 
 
 Opinion of, re ocean mail service 252 
 
 Quotations from Duluth address, July 19, 1911 20 
 
 Williams, Hon. John Sharp, United States Senator from Mississippi, bill intro- 
 duced by 472 
 
 o