CORNELL UNIVERSITY LIBRARY GIFT OF Economics Department Comall University Library HD 2731.J53 1920 Trust problem, The original of tliis book is in tlie Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924024785838 THE TRUST PROBLEM THE TRUST PROBLEM BY JEREMIAH WHIPPLE JENKS, Ph.D., LL.D. RESEARCH PBOFESSOS OP GOVERNMENT AND BUBINESB, NEW YORK UNIVERSITY; FORMER EXPERT AGENT OF THE UNITED BTATES INDUSTRIAL COMMISSION; MEMBER UNITED STATES IMMIGRATION COMMISSION; MEMBER UNITED STATES COMMISSION ON FOREIGN EXCHANGE, ETC. Fourth Edition^ Enlarged and Completely Revised WITH THE COLLABORATION OF WALTER E. CLARK, Ph.D. PROFESSOR OF ECONOMICS, COLLEGE OF THE CXTY OF NEW YORK TBSSIDEtrr OF TBK UNIVEBSITT OF NEVADA REVISED EDITION Gahden Cnr New York DOUBLEDAY, PAGE & COMPANY 1920 f\5^0"j53 Copyright, 1917, hy Jeremiah Whipple Jenks and Walter E. Clark AU rights reserved, including that of translation into foreign languages, including the Scandinarian To G. B. J. KEENEST, ABLEST, KINDKST CRITIC PREFACE TO FOURTH EDITION This edition of the Trust Problem is much more than merely a reprint of the old edition. It is practi- cally a new book. Some new chapters have been added. Chapter 1 on the Evolution of Business, the very large additions made to Chapter 9 on Prices, Chapter 10 on Trusts and the Working Man, with the new facts that they contain, aid materially in the discussion of the economic principles involved. Chapter 12 on Industrial Com- binations in Europe gives ug a basis of wide experience. The new chapters on State and Federal Trust Legisla- tion in the United States, and the one on Trusts and the Federal Court, showing the development of legis- lation during the last few years, likewise serve to strengthen the economic foundation of the discussions, since the course of legislation has, to a considerable degree, clearly been based upon the principles brought out in the theoretical discussions. In any book that is to serve as a text book it is de- sirable to furnish material as a basis for original study and judgment on the part of the student. The same material is desirable for business men and scholars who wish to be certain of the facts on which they are to base their judgment in business matters. In. conse- quence, it has been thought best in the appendices to include much new material. Appendices A, B, and C viii PREFACE TO FOURTH EDITION show remedies for the evils of industrial combinations that have been proposed by those who have given very- careful study to the subject. Appendix D, in giving outline histories of representative industrial combina- tions, shows, not only economic results springing from these great business organizations, but also the influ- ence of Governmental action upon them. In the succeeding appendices are given in suflScient detail the laws of the United States and foreign countries, so that the reader can make a reasonably accurate comparison of the attitude toward these combinations of various Governments under difiPerent economic conditions. It is believed that enough of this material has been given to form the basis for an excellent course for any group of university students without going outside of the volume itself. Although, of course, the advan- tage of wide reading in the libraries is not to be over- looked. The history of the years since the publication of the preceding edition, though fruitful in experience and in legislation, shows no need of change in the judgment of fundamental principles. Slight changes in emphasis may be noted. The degree of monopoly power that can be exercised by the capitalistic combinations, for example, is apparently somewhat less than we earlier thought, while the regulative power of competition and of public opinion is somewhat more. New York, July, 1917. THE TRUST PROBLEM TABLE OF CONTENTS CHAPTER I THE EVOLtTTION OF BUSINESS rOHC PAGE Introduction 3 1 . Concentration Characteristic of Modern Life ... 12 2 . Increased Size of Average U. S. Manufacturing Plant Since 1800 15 3 . Preponderance of the Large Plant in Present U. S. . 18 4 . Summary and Bearing on the Trust Problem ... 21 CHAPTER n competition: its natitre 1. The Assumption of "Free Competition" .... 23 2. "Friction" of Competition in Retail Trade. ... 23 3 . Competition Among Wholesalers and Manufacturers . 26 4 . Competitive Conditions When Large Capital Is Need- ful 28 CHAPTER III THE WASTES OF COMPETITION 1 . Competitive Prices Not Necessarily Low Prices . . 31 2. Advantages of Large Scale Production and of Com- bination: (1) Saving in Selling Expense 32 (2) Elimination of Bad Debts 38 (3) Can Supply All Leading Qualities of Goods . 38 (4) Can Fill All Orders Promptly 39 ix X TABLE OF CONTENTS TOPICS ^^°^ (5) Elimination of Cross Preight Charges ... 40 (6) Can Run Plants Steadily at Full Capacity . . 41 (7) Can Specialize Whole Plants 44 (8) Control of Many Patents, Trade Marks and Secret Devices 45 (9) Can Command "Brains" 45 (10) Can Specialize the Labor Force . . • • - 46 (11) Combination Makes Comparative Accounting Available 48 (12) Gains Through UtiUzation of By-Products. . 49 (13) Combination May Command Raw Materials . 49 CHAPTER IV FAVOKS TO INDUSTRIAL COMBINATIONS 1. The Protective Tariff 51 .2. Freight Discriminations 55 CHAPTER V COMBINATION AND MONOPOLY 1 . Legal Monopolies 61 2. Natural Monopolies 61 3. Capitalistic Monopolies 62 4 . Great Capital May Gain Monopolistic Powers Through Cost Savings and Through Competitor's Fear 67 5. Market Leadership Now Preferred to Complete Monopoly 72 6. Combination More Effective in Securing Foreign Markets 76 CHAPTER VI PROMOTER AND FINANCIER 1. Definition and Explanations: Promoter, Stocks and Bonds 79 2. The Pay of the Promoter 87 3 . Underwriting Methods 89 TABLE OF CONTENTS xi CHAPTER VII THE BASIS OF CAPITALIZATION TOPIC PACE 1 . Capitalization at Reproduction Cost ...... 95 2 . Capitalization at Earning Capacity 96 3 . Argument Favoring Earning Capacity Capitalization . 97 4 . Dangers of Earning Capacity Capitalization ... 99 5 . A Method of Avoiding Evils of Capitalization . 101 CHAPTER VIII METHODS OF ORGANIZATION AND MANAGEMENT 1 . Pooling Agreements ... ... .104 2 . Price Fixing Agreements 105 3 . Trusts Proper and Their Dissolution Forms . . . 107 4. Voting Trusts 109 5. The Single Great Corporation Ill 6. Holding Companies Ill 7. Horizontal and Vertical Combinations ... .114 8 . Dangers due to Power of Directors of Great Corpora- tions ... 118 CHAPTER IX PRICES 1. Need of Scientific Study of Prices for Trust Products . 122; 2. Study of Sugar Prices 125 3. Study of Whiskey Prices 141 4 . Study of Petroleum Prices . 149 5. Study of Tin Plate Prices 157 6. Studyvof Iron and Steel Prices^ 160 7. General Conclusions Regarding Effect of Large In- lders fro rata. This may have satisfied the law, Lut Trie community of interests secured common actiop as before. As one observer expressed it, "under the Securities Company the management and rates were fixed by the direction of the Board of Directors, now they are fixed by the direction of Jim Hill." The principle of United Action holds under all these forms. The acts of legislation and courts have simply tended to drive the form of or- ganization into a more closely merged amity of control, as the great companies more and more have the parent company build and buy separate plants instead of con- trolling them by agreements, trusts or common stock- holding. It should be noted that among these various forms of combinations there are two kinds, as was indicated earlier in Chapter H, essentially different in nature. The first is made up of companies that have been active competitors before the combination was made, as in the case of the original Sugar Trust and Whiskey Trust. In these cases the combination was sought for the special purpose of lessening competition, together with the elimination of the competitive wastes. The com- bination simply took different competitors out of the market and enabled the price of the product to be fixed by the central organization. ORGANIZATION AND MANAGEMENT 115 In the second kind of combination, the so-called "vertical combination," or "integrating combination," or corporation, the constituent members have often not been competitors in the same line of work before the combination was made, though they each seek a share of the value of the final product. Instead of being com- petitors in the Mme line of business, they have been producers of different products at different stages in the same industry. For example, the Federal Steel Com- pany was a combination of several companies that were not competitors. The Minnesota Iron Company owns iron ore property, also the Duluth and Iron Range Rail- road Company, which connects its mines with Lake Superior at two points. It owns ore docks and also twenty-two steel lake vessels that can carry a large proportion of its products each year. The Federal Steel Company bought all its stock. It also bought all of the stock of the Lorain Steel Company, which manu- factures chiefly steel rails for street railways, although some steel biUets. It bought all the stock of the Johnson Company, which is engaged chiefly in manufacturing frog switches and crossings for street railroads, as well as electric motors. Another company, all the stock of which it purchased, is the Illinois Steel Company with several plants, which produce pig iron, steel rails, steel billets, steel plates, etc. This company is also the owner of the stock of the Chicago, Lake Shore and Eastern Railway, which connects its plants in the neigh- borhood of Chicago, and also gives these plants an out- let to the general market over all of the railroads in the country. It also owns large tracts of coal property on which it manufactures coke used in its plants. 116 THE TRUST PROBLEM From this statement it will be seen that the Federal Steel Company by its formation lessened only to a very slight extent, if at all, the competition in the same lines which had existed before. Its purpose was different. Through the combination the mines are furnished with a sure customer, provided they need one, for a large part at least of their output; while, ot the other hand, the Illinois Steel Company, in its manufacture of steel rails, biUets, etc., is assured of a steady supply of ore for the carrying on of its manufacture. In this way contracts can be taken for a long period of time in ad- vance with perfect certainty of their being carried out on time without any excessive losses that might other- wise come from possible changes in the price of ore. Before the organization, of course, each of these separate companies tried to get the largest share possible of the value of the finished product. Now, while the contest may be the same, the motive has been weakened. The profit which the mine foregoes, may be made by the rolling mill or the fleet of transports. It is, of course, true that the business of each one of these separate com- panies is managed independently; it is still further true that at times the mining company can sell its ore to better advantage to outside manufacturers than to the other constituent members of the Federal Steel Com- pany, they in turn buying their ore to better advantage from some other mine. But, while the work can be ordinarily and is ordinarily carried on independently, and while at times each of the separate constituent compan- ies deals largely with outsiders, this perfect union in management enables them to be secure at all times as regards the supply of raw material on the one ORGANIZATION AND MANAGEMENT 117 hand, and a proper sale of the raw product on the other, advantages that can by no means be lost sight of. Some other companies without any formal organiza- tion were managed in largely the same way. For ex- ample, the American Tin Plate Company, the National Steel Company, and the American Steel Hoop Company in their earlier days while entirely independent in their organization, had nevertheless to a considerable extent the same men as large stockholders and as directors. Here, as in the case of the various Standard Oil Com- panies, while there was a difiFerence in formal organiza- tion there was a real "community of interest." While each one could thus work independently, and while legally each one did so work, there was to a considerable extent the same knowledge and the same harmonious working that was found among the constituent com- panies of the Federal Steel Company, of the Distilling Company of America, and of others that united through the holding of the stock of the constituent companies by one parent company. Of course, in 1917, the largest and most complete example of the "integrating company," is the United States Steel Corporation, of which the Federal Steel Company and the other steel companies mentioned together with many more have become subsidiary mem- bers. But the integrating idea still remains, each com- pany having largely its separate field, whether it be the steel rails, or tin plate or wire or ships, and each is rather supplemental than competitive in nature. Of course the idea of a community of interests through common stockholders is widely extended and often in- 118 THE TRUST PROBLEM eludes institutions as widely separated as banks and ships and mines and factories. Whatever the form of organization, however, the 'one essential requirement is efficiency and an opportunity for saving any of the waste that might come if the differ- ent corporations or companies were working independ- ently. It is desirable, of course, from the one point of view that this efficiency be used to serve the public in the way of better goods and lower prices. On the other hand, from the standpoint of the combination itself, the efficiency points simply to the cheaper cost of production and the more efficient control of the processes of manufacture and sale, whereas the service to the public in the way of cheaper prices is of course a secondary consideration, and is sometimes even con- trary to the wish of the corporation. The form of organization will naturally determine to a considerable extent the method of management of one of these combinations. Ordinarily there is no differ- ence in appearance between the management of a large corporation called a Trust and any ordinary corpora- tion. Any student of corporation law, upon reading the charter and by-laws, can readily tell from the power that is put into the hands of the directors whether they are in a position to manage the corporation in their own interests as against those of the stockholders, or whether the stockholders are given not only final but active power of control. If one may judge from the fluctuations of the shares of several of these larger corporations on the Stock Exchange, it would seem that the power at any rate is given to the directors so to manipulate the stock that ORGANIZATION AND MANAGEMENT 119 they as individuals, by buying and selling at suitable times, may make large individual profits at the expense of the majority of the stockholders — a most dangerous power. In many cases the stockholders are prevented by the by-laws from having access to the books of the corpora- tions, except under the most extreme circumstances. The directors make no reports to the stockholders that give them any clear insight into the methods of man- agement of the business, and the public who may be intending to invest in the stock have no means of judg- ing what the financial condition of the corporation is. When the charter and by-laws thus enable a board of directors to conceal absolutely from the stockholders the condition of the business, one may at least be justi- fied in the opinion that if the affairs of the corporation are not managed for speculative purposes by the direc- tors, it is because they are men above temptation of that kind. In some instances, also, the Boards of Directors are so classified and the terms of their office so arranged that those who are first put into control as directors by the organizers of the company may keep that control for a period of years without any possibility of being ousted by the shareholders, unless their methods of manage- ment are so palpably fraudulent that the courts will order their removal. Under those circumstances the directors and officers are in a position of strong tempta- tion to manage business in their own interests with comparatively little danger of being found out for a considerable length of time. Here, again, an investor who sees in the articles of incorporation apd by-laws 120 THE TRUST PROBLEM provisions which deprive him and his fellow sharehold- ers of all effective power over the directors for a period of years, buys the stock knowing his own risk. It is not intended, of course, to overlook the fact that too great power given to the shareholders, or too close a knowledge of the interior management of a corporation by the shareholders, may easily result in injury to the interests of the great majority of them. It is not de- sirable for a corporation to have its competitors know the details of its management. If any shareholder were at liberty to examine the books of the corporation at any time, or if the directors were compelled to give to the shareholders the privilege of examining closely the details of their management, it would be a com- paratively easy matter for the manager of a rival company to buy a few shares of stock in order that the lawful and proper secrets of the corporation might be- come his. It would also be possible for an individual shareholder practically to levy blackmail upon the cor- poration, which it will promptly, however unwillingly pay, in order to prevent proper secrets of management from becoming public property. While one may read- ily grant that these dangers to the real weKare of a cor- poration exist if too great power is given to the share- holder, one must not overlook the fact that the other extreme is no less dangerous. It would be very desirable if more careful study were made of the forms of organization, as shown in the char- ter and by-laws of corporations. Intending investors would in many cases by such study be prevented from putting their money into corporations organized evi- dently for the purposes of speculation, or for the special ORGANIZATION AND MANAGEMENT 121 advantage of the directors and officers against the inter- ests of the shareholders. So, too, if more attention were paid to this feature of corporation organization and management, there would soon be some decided improvement in our corporation laws. Although many improvements have been made in several of our states within the last decade much that is desirable still remains to be done. Of course these statements regarding Trusts apply to all large corporations, but the opportunities for speculation against the interests of the shareholders and of the public are so much greater in the case of the very large corporations, which have some monopolistic power, that the offense becomes almost a different kind. Consideration of the dangers to the industrial com- munity from the great corporations when improperly organized or controlled ought not, of course, to lead us to overlook the fact that modern industrial develop- ment has been largely dependent upon the corporate form of industrial organization with limited liability of stockholders. Moreover, there seems no reason to doubt that the great combination is another normal step in industrial progress akin to the invention of the steam engine or the electric telegraph. As in the early days accidents from the new machines were more com- mon than now while the efficiency was vastly less, so we may all anticipate in the near future a rapid lessen- ing of the evils connected with the great corporations and a decided increase in their efficiency. Indeed this stage of development has already been reached. Evils are lessening, benefits increasing. CHAPTER IX PEICES IF IN any industrial combination the economies which are made by saving the wastes of competition can be secured, it is evident that, it is possible, without the profits being lessened, to put prices of the finished product below former competitive rates; or, on the other hand, to put prices for raw material above those common before. Or again, if, as a result of the combination, there comes an increased output from the demands of the export trade or from an added demand that might come from lowered cost, the price paid for raw material might through either of these influences be raised somewhat. What may be done if a certain degree of monopoly can be held, has already been dis- cussed at considerable length in the chapter on Mon- opoly. What may be done is, however, but one con- sideration. It is, perhaps, of more importance to show what has been done, in order that we may be better able to judge the present industrial situation, to note the ways in which the leaders of the industrial combinations have really used their power, to see whether experience has in any respect changed their earlier policies, and to consider what changes in legisla- tion or what new measures of legislation, if any, may be needed in order to adapt these combinations to our pres- ent industrial conditions. It will, perhaps, be best to 122 PRICES 123 give as careful a statistical representation as possible of the prices over a series of years in several lines of in- dustry where the statistics can be gathered, and thus to test the effects of the industrial combinations upon prices. While the effects can thus be shown here upon only a few articles, it is believed that they are suffi- ciently typical, so that they represent fairly well the actual effects of combination up to date. Similar studies of many other articles show, in the main, the same general results. From a theoretical discussion we can judge, perhaps, somewhat more accurately what the effect is likely to be in the future. The actual effects of the industrial combinations upon prices form certainly one of the best tests of their use- fulness or disadvantage to society. The popular im- pression seems to have been earlier that these combina- tions very greatly increase prices to the consumers. On the other hand, the Trust managers and their advo- cates are in the habit of claiming that, owing to econo- mies of management, the Trusts lower prices to con- sumers, while at the same time they increase the wages of their employees. It is, of course, comparatively easy by the selection of statistics at certain chosen periods to show either of these results. It has, in consequence, seemed wisest to secure as far as possible average monthly or yearly prices of the leading raw materials and finished products of several of the larger combinations for a series of years, and to plat these on charts in such a way that the relations at all times between the two can be most readily seen. In some cases it has been practicable to compare European prices with American, in order that 124 THE TRUST PROBLEM the influence of the Trust itself might more clearly be brought out. In certain cases there are combinations both in this country and in Europe. In that event it is no less instructive to make the comparison. The differential or "margin" between the price of the raw materials and that of the finished product should show, other things equal, the cost of manufacture plus the profit. Unless one is somewhat guarded, however, one is likely to reach false conclusions, if this assumption is made without qualification. In nearly all processes of manufacture there is a considerable ele- ment of waste raw material. As the price of the raw material increases, the value of this waste is also corres- pondingly increased. In consequence, in order that the profits may be the same, the margin between the price of the raw material and that of the finished product should generally increase slightly with the in- crease in price of the raw material. Again, when the raw material has to be held in large quantities, so that it involves the investment of considerable capital, it can be readily seen that the interest charge for carrying this raw material is not a little increased as the price of the raw material rises. This, of course, is a factor of less importance than the other, but nevertheless is worthy of consideration. Moreover, in some cases the complexity of the processes of manufacture and the number of materials to be considered are so great that it is not possible to calculate this margin with accur- acy. In all the cases noted, however, it is believed that the method followed has real significance and that the conclusions reached are valid within the limits indicated. On most of the charts, in order to show the direct CHART I PRICE OF SUGAR !A= Refined sugar B=Raw sugar C= Difference between A and B. !D= Refined sugar E=Raw sugar F= Difference between D and E. !H= Refined sugar K=Raw sugar L= Difference between H and K. (1) Sugar Trust begins operation (2) Duty reduced about 2 cents per pound. American Sugar Refining Company organized (3) Duty 40% from August 28, 1894 (4) Duty, 1.685 cents per pound from July 24, 1897 (5) Arbuckle Bros, open refinery (6) National Sugar Refining Company organized (7) International Sugar Union formed, March 6, 1902 (8) International Sugar Union Convention operative. German control dissolved (9) Outbreak of the European War PRICES 125 influence of an individual combination over a period of years, money prices have been used. Inasmuch., how- ever, as the value of gold in terms of commodities has changed not a little in later years, it has seemed best in certain cases to make a comparison also between the price of the article under consideration and the price of commodities in general as shown by an index number. This method of illustration, while not perfectly exact as will be explained later, still has some advantages over the mere comparison of money prices. In Charts II, III, IV, VII will be seen, therefore, the power that the article under discussion has to purchase other com- modities used for consumption. SUGAB* The lines on Chart I represent standard refined and raw sugars in the United States, Germany, and Eng- land. For America the refined sugar considered (black fine A) is the granulated; the raw sugar (black line B), the 96 degree centrifugal. The German sugars are: for the refined, the granulated f. o. b. at Hamburg (green line H) ; the raw sugar, the German beet root 88 per cent. f. o. b. Hamburg (green line K). The English raw sugar represented (red line E) is the English Java afloat, a 96 per cent, test, United Kingdom terms. This English raw sugar corresponds closely with the American 96 degree centrifugal. The Enghsh refined sugar (red line D) is Tate's cubes, a special grade which normally brings somewhat more than the regular price of the American granulated sugar, prob- ably at times nearly one-half cent more. *Fr'3m Willett and Gray's Weekly Statistical Trade Journal, various dates. 126 THE TRUST PROBLEM The German sugars, both raw and refined, are of somewhat poorer quahty than the American sugars. In a few establishments in Germany the refined beet sugars are made directly by a single process from the beet roots themselves. The refined beet sugar, even in the United States, is not considered quite up to the grade of the cane sugars produced in the refineries in the East. It sells even in the Chicago markets some- what lower than the refined sugars from the cane which are produced in the eastern refineries. The line C on the chart represents in its distance from the bottom of the chart the perpendicular dis- tance between A and B. It measures, therefore, the cost of refining the sugar plus the profit to the refiner. The cost of refining sugar varies materially from month to month or from year to year, as improved processes tend to lower somewhat the cost of refining, or as increased cost of new sugar gives added cost to the waste and thus increases the cost. Again, any increase in wages, or any increase in the cost of boneblack, one of the chief costs in refining, or any increase in the rate of interest upon capital invested, or any increase in the cost of the raw material used in building refineries, necessitating the investment of a larger amount of capital, would tend to increase slightly the cost of refining. In the main, however, the fluctua- tions in this line C would show fluctuationsin the profit, es- pecially where these fluctuations are simply from month to month or from year to year. The line L represents in similar manner the per- pendicular distance between lines H and K, and is thus the margin showing the cost of refining plus the profit PRICES 127 of the German refiners. It will be noted that this line is regularly considerably lower than the line C. There are probably two reasons for this. The first is that the German beet sugars in some factories are made by a single process, the same as the raw sugars, so that the cost of refining is considerably less, and as has already been indicated, the quality of the refined sugar is also not quite so good. Moreover, the cost of their material is somewhat less, and German wages are distinctly lower. We should expect this margin, therefore, to be somewhat lower than that in America. In addition to that, as the rate of interest in Germany rules some- what lower than in the United States, the Germans are probably content with a somewhat less rate of profit. Furthermore, during a considerable time preceding the International Sugar Union Convention there was a bounty on sugar exported from Germany. This bounty it would seem would tend to lessen somewhat the price of the refined sugar, as compared with the raw. That, however, does not appear in this margin. Let us note now particularly the fluctuations in line C, representing in rough outline the history of the profits of American refineries. The actual cost of re- fining, of course, varies somewhat, but, according to the testimony given by the refiners at the time of the In- dustrial Commission investigation in 1899, the prob- ability is that the actual cost was not far from 50 cents a hundred, although the former president of the American Sugar Refining Company, Henry O. Have- meyer, declared that, while that might be considered the bare cost of refining, at least 24 cents more ought to be added, on account of the waste in raising sugar from 128 THE TRUST PROBLEM 96 degrees to 100 degrees, the polariscope test of the refined. He thus thought that the margin necessary for profit should be put at some 75 cents a hundred, instead of from 50 to 60 cents. He apparently reck- oned in some interest on the investment with the cost, whereas some of the other witnesses apparently did not do this. Mr. Jarvie, for example, of Arbuckle Brothers, testified that, with a margin of from 50 to 60 cents at that time, sugar could be refined without loss; while Clans Doscher was willing to state that refining could be done without loss on a margin of 50 cents. Mr. Post, at that time a commission merchant in sugar and molasses, selling agent of the MoUenhauer and National sugar refining companies (independent), was inclined to put the necessary margin somewhat higher than Mr. Doscher, about 60 cents, but he, although in a rival company, conceded that a great establishment like the American Refining Company's establishments ought to have an advantage of from 3 to 5 cents a hun- dred in refining. Since this testimony was given more than fifteen years ago, costs of refining have doubtless increased, especially since the outbreak of the European war, for the reasons previously indicated. Another point which should be kept in mind when judging this margin, although the influence is often scarcely noticeable on the chart, is that, in order to se- cure the same profit, the margin between the raw and the refined sugars must be slightly greater when the price of raw sugar is high, inasmuch as the loss of weight is a more expensive waste. If, for example, with raw sugar at say $3 a hundred, there were a 7 per cent, waste in refining, this loss would amount to 21 cents a hundred PRICES 129 wLile if at the same 7 per cent, waste the price of raw sugar were $4 a hundred, the waste would amount to 28 cents. It is clear, therefore, that in order to make the same profit the margin should be 7 cents a hundred more with raw sugar at $4 a hundred than at $3 a hundred. Frequently, too, it happens that there is unusually vigorous competition and a consequent low margin each year from December to March, while the Louisiana crop is being refined and marketed and when consump- tion is smaller than at any other period of the year. This, however, does not appear with any regularity. Likewise, the influence of vigorous competition upon the price of raw sugar should be noted at times. Whenever the crop is somewhat short, this not merely has the tendency to increase the price on account of the normal scarcity, but it is just at those times that competition is most vigorous. Beginning with the year 1885, we see that during the years 1885, 1886, and 1887 — and substantially the same conditions had existed before — there was a low margin, averaging not very much above .5 or .6 of a cent a pound part of the time, as near the end of 1885 — a fall distinctly below the margin that had existed for several years before. This decidedly low margin was due, of course, to vigorous competition among the independent refiners, with at the same time, a sharp rise in raw sugar. From the testimony given by witnesses before the Industrial Commission, this com- petition was so destructive in its nature that a large percentage of the American refineries, 18 out of about 40, went into bankruptcy. 130 THE TRUST PROBLEM In the latter part of 1887 the Sugar Trust was formed. The margin was immediately raised more than J cent a pound, at times fully one cent. During the year 1888 and most of 1889 it will be noted that the margin was at no time less than one cent a pound, at times it was more than 1| cents, and it probably averaged not far from Ij cents. When one takes into account the les- sened cost of refining and of distribution that come from the organization of the combination, it is fair to judge that the Trust made enormous profits. In the latter part of 1889 a large competing refinery built by Claus Spreckels at Philadelphia, entered the field, and vigorous competition began. The mar- gin fell immediately to about the point where it had stood before the organization of the Trust, from .6 to f of a cent a pound. This vigorous competition continued for rather more than two years, until in February, 1892, the Trust bought up the competing refineries, when the margin at once went back to more than 1 cent a pound, substantially at the same point that it had been held during the noncompetitive pe- riod, 1888 and 1889. From 1892 to 1899 the margin remained on the whole high, with a gradual lessening toward the latter part of this period. Presumably this lessening was due in part to improvements in methods of refining and distribution and, in part, probably, also to a growing realization of the danger of inducing new capital to enter the business, tempted by the great profits that the combination was making. It will be noted that during this period there were various changes in the duty on sugar, but that these changes seem to have had apparently only a slight PRICES 131 'temporary effect upon the margin, although the les- sening of the duty on raw sugar by the McKinley tariff affected very decidedly the price of both raw and re- fined sugar to consumers. Early in 1891 a fall of about 2 cents a pound is noticed in the price of both raw and refined sugars, due, of course, to this removal of the duties. It happens that just at that time there is something of an increase in the margin. In fact, it will be quite generally observed that whenever there is an increase in the price of raw sugar, followed by a decline there is likely on the whole to be something of an increase in the margin. The refiners push up the price of their refined sugar as soon as there is an increase in the price of the raw sugar; but when the fall in raw sugar comes, they are likely to delay slightly the time of low- ering the price of refined sugar, thus getting an increased profit for the time being. Such increases in profit, ow- ing to the more rapid fall in the raw sugar than in the refined, may be noticed in a number of instances, for example, in 1893, 1896, 1901, and 1905. In 1898, after a period of some six years during which the sugar combination had had little effective competition, Arbuckle Brothers, Claus Doscher, and some others entered the field in a vigorous competition against the American Sugar Refining Company. Prices were immediately cut, as will be noticed on the chart, so that the margin between raw and refined sugar was even less than | cent a pound, probably all refineries running at a loss for a brief period. Eventually in 1900 the bitter struggle ceased, and without any formal combination, the American Sugar Refining Company apparently gave up the attempt 132 THE TRUST PROBLEM to drive its rivals out of the market. From that time to the present there has been competition, new rivals having come into the field from time to time, although even to-day the great company takes the lead in the market. Its percentage of the total output, however, gradually diminished until in 1907 it fell below 50 per cent. Its percentage of the output for the last few years has been diminishing until in 1916 it was only 33.64 per cent. From the middle of the year 1900 on to the outbreak of the European war the margin has clearly been kept high enough so as to yield reasonable profits at least, and during most of the time very good, not to say large, profits. It will be noted that during the last few years, when general prices have been increasing very rapidly, the price of sugar on the whole has not increased materially, although there have been two or three periods when for a brief time the price has gone up. When this has been the case, the reason has been clearly due to some tem- porary influence in no way immediately connected with the corporations. For example, in 1900 there was a decided increase in the price of raw sugar, as well as in that of refined. The influence was perhaps slightly due to the fact that in May, 1900, the German syndi- cate was completed, with the understanding that this syndicate was to last until 1904. That may possibly have influenced somewhat the price of the German beet sugar, one of the raw sugars used in the United States. Doubtless a much greater influence, however, was that the American supplies during that season ran short. In July, just about the time when the increase came, it was necessary for the Americans to do an un- PRICES 133 usual amount of buying. About 100,000 tons more than was usually bought in Europe in one season was bought at that time, and this additional rather sudden demand doubtless accounts for most of that increase in price. Agam, in the latter part of 1904 and the early part of 1905 there is a large increase in the price. It will be noted that at the beginning of this increase the margin fell, showing that it was not possible to put up the price of refined sugar quite so rapidly as the price of the raw increased; although when the fall in the price of raw sugar came, in 1905, it was possible to check the fall in refined, so that the margin increased for a brief time to about 1 J cents a pound. The cause of that increase was a short beet crop in Europe. There was a falling oflF of more than 1,000,000 tons in our imports, as compared with the regular im- port, and this short beet crop in itself is sufficient to account for the increase in price. Again, in 1908 the increased price came from a drought in Cuba, which resulted in a short crop in the Cuban cane sugar. It will be noted that during the years 1907, 1908, 1909, and 1910, the margin was on the whole less than before, so that there can be none of the increased cost of living during the last few years ascribed to the influence of the sugar combination. Likewise, the decided sudden Increase in prices in 1911 was due to a drought in Germany which lessened the beet sugar crop by some 2,000,000 tons. This decided increase in price seemed to have very little if any effect upon the margin. There had been a slight increase in the margin shortly before the large increase 134 THE TRUST PROBLEM in prices. This continued through the period of high prices. It was fully justified by the increased price of the raw sugar, which on account of the waste in refin- ing justified a larger margin. A study of the chart, especially when we compare the American with the German margin, seems to show clearly that the sugar combination at the height of its power had the power of determining for itself within considerable limits what the price of sugar should be, low or high, with or without competitors; although during two or three periods when there was the most vigorous competition It chose to cut prices in order to enable it to buy out its rivals rather than run the risk of letting them gradually take Its market on account of its high prices. At the time of the Spreckles competi- tion this policy was directly successful, and the com- bination succeeded in buying up its competitors and then again raising its margin so that it could make enormous profits. On the other hand, the same policy followed In 1898, at the time of the Arbuckle-Doscher competition, did not have directly the same result. It seems evident enough that, even though its rivals may not have sold out to the combination, there was more or less of an understanding that the competition should be checked. The price was regularly announced every day by the American Sugar Refining Company, and the prices as announced by that company were understood to be the regular market prices followed by all of the refiners. From the time of the organization of the Trust, in 1887, for twelve or thirteen years the Trust kept the margin high for more than three-quarters of the time. Since PRICES 135 that period the margin, it will be noted, has steadily remained considerably higher than during the period of most vigorous competition in the few years preceding the organization of the Trust, and during the two periods of vigorous competition since that time. It wiU be noted that line F, representing the margin between the prices of refined and raw sugar in Great Britain in the earlier part of the year 1901, suddenly increases from somewhat less than a cent a pound to almost or quite two cents a poimd, that it continues at about this price until 1908 when it drops to a little more than a cent and one-half, continuing at that price until the sudden changes caused by the European war. Before this sudden rise, the margin had been in Great Britain much the same as in the United States with the various modifications in the United States al- ready discussed. This change in the English margin in 1901 was caused by an excise tax with an equal import duty of from Is lOd per hundredweight on low grade raw sugar to 4s 2d on refined sugar. The refiners being com- pelled to pay this tax naturally added it to the price. The lowering of the margin in 1909 was caused by the re- duction of the excise tax to Is 4d for the maximum. This furnishes another excellent illustration of the way in which various economic influences are brought out on the charts. The outbreak of the European war, of course, com- pletely demoralized the market and since its beginning prices, both here and abroad, have been determined by war conditions in such a way that they afford no criterion for judgment regarding conditions in times of 136 THE TRUST PROBLEM peace. In Germany since the outbreak of the war, the sugar has been controlled by the Government entirely as regards both output and consumption. The ship- ments either way being completely cut off, there has been no information given out, so that nothing trust- worthy is known here regarding the German market since August, 1914. France and Italy have placed the management of both the purchase and distribution of their sugar, raw and refined, in the hands of the English Royal Commis- sion. Through its monopoly of purchases of the three countries named and its control of ships, England has influenced profoundly conditions in this country as well as elsewhere. Under ordinary conditions, the United States imports the raw material for three-fourths of the sugar that it refines. One-half of its supply comes from foreign sources. At the present time (February, 1917), speaking roundly, two-thirds of the sugar supply dis- tricts of Europe are in the war territory, a territory which before the war had supplied practically one-half of the world's supply. When, therefore, we consider that the war has cut ofif from the world market one-third of the world's production, we see the reason why Great Britain acting for herself and her allies has been com- pelled to import from Cuba large quantities, more than 730,000 tons in 1916. This has, of course, greatly restricted the United States buying market for raw sugar. Before the war the United Kingdom imported large quan- tities from Germany. During 1916 the United States ex- ported to Europe more than 700,000 tons of refined sugar, part of the output from the raw sugar imported by us from Cuba, amounting to more than two million tons. I a s c i: a c k, s f( s; t o L o I p 7 Ti I t P P ft PRICES 137 This prompt response to a sudden demand shows how great is the refining capacity of the United States. It seems probable that it could supply on short notice 1,000,000 tons more than its average output, if the de- mand were made. In spite of these various war influences, all of which tend toward a greatly increased price of sugar, the price of refined sugar in the United States has remained lower than that established by the government commissions in the war zone or by refiners in other foreign countries under private competition. This fact seems to indicate that the system in the United States of the great com- bination and its other powerful competitors working in large units has secured better results for consumers as well as for producers than would have been possible xmder a system of competition working in small units. Perhaps the most accurate way to estimate the in- fluence of any industrial combination upon prices, es- pecially if the combination to a considerable extent leads the market, is to examine the purchasing power of a unit of that commodity in terms of general commodities. The iAdex numbers compiled by the United States Bureau of Labor and similar numbers compiled in other countries give one as accurately as may be a general average price for commodities. In Chart II is represented the course of prices of refined sugar from 1900 to 1914, referred to a base of an average price for the years 1895 to 1900 inclusive. This rela- tive price is represented by the line A on the chart. Line B represents the course of prices of general commod- ities as indicated by the American index number. By dividing the index number by the relative price of 138 THE TRUST PROBLEM sugar we obtain in general terms the amount of com- modities that can be bought by a unit of sugar. Line C then represents this purchasing power. In a similar way is indicated in the lines D, E, and F the price of sugar, index number and purchasing power of sugar in Great Britain; while lines H, K, and L represent simi- larly sugar in Germany. Line C shows that the pur- chasing power of sugar in the United States has declined in the years 1900 to 1914 inclusive, about thirty-two points. The line F shows that the purchasing power of sugar in Great Britain has declined only twenty-three points. If we exclude definitely the influence of the war by making the comparison only through the year 1913, we find that the purchasing power decreased twenty-eight points. It is not possible to get the index number for Ger- many beyond the year 1912, but from the beginning of 1900 through the year 1912 the purchasing power of sugar in Germany decreased some fifteen points. The total result seems to indicate that if the sugar combination in the United States has had any direct influence upon the price of suga"r, it has been rather to reduce that price than to increase it, inasmuch as this comparison of the price of sugar with the prices of other commodities in the same country indicates that in every year since 1900 a pound of sugar in the United States purchased less of other commodities than it would purchase in 1900. In both Germany and Great Britain, the purchasing power of sugar has decreased since 1900, to a much smaller extent. The charts seem to show that the sugar combination has had little if any effect toward steadying priceSr PRICES 139 The fluctuations in the price of sugar and in the margin seem to be as frequent and as great on the whole since the formation of the combination as before. These fluctuations are clearly greater than those in the Ger- man market, and it may be said that they are also some- what greater than those in the English market. At the times when the sugar combination has been in- vestigated by the Industrial Commission and other gov- ernmental agents, the assertion has been frequently made by its defenders that the price of sugar would have been higher if it had not been for the formation of the Trust. This assertion seems to have a partial justification in the figures printed and in the chart. The chart does make it perfectly clear that during the periods of the most vigorous competition the sugar refineries did their work on a very low margin. Moreover, when we consider that during the years irmnediately preceding the organization of the Trust, eighteen out of some forty refineries failed, the implication seems clear that the margin was ruin- ously low, and that, although the weakest competitors were forced out of business, the presumption is that so much good capital was wasted that there was a decided injury to the country. "When an industry is of the nature of sugar refining, one requiring the investment of large capital in order that production may be carried on economically — a capital of perhaps $2,000,000 or $3,000,000 for a single refinery of the best type — ^we can see that it is possible for competitors of substantially equal strength to carry on their fight until all of them are running at a loss for a considerable period before finally several of them fail. If business is carried on under such circumstances, it is certain that whenever 140 THE TRUST PROBLEM there comes a failure of several of the competitors, or whenever instead of failure there comes a combination of rivals, prices will be put back to a figure decidedly- above the competitive rates, in order that the great losses may be recouped. Unrestricted competition among powerful rivals in an industry of this char- acter would thus lead, it would seem, to very great fluctuations in prices as the years go by, from those ab- normally not to say ruinously low, to those abnormally high. If, on the other hand, there should be more or less of an understanding among the refiners, it is probable that prices would be somewhat steadier, and the mar- gin a medium one, between the lowest and the highest. There can be no doubt that the sugar combination has at various times been able to influence prices with, rela- tively speaking, little reference to the cost of refining; but it seems also clear that, although they have made excellent profits during the last few years, the margin certainly during the last three or four years can hardly be said to be abnormal. It should be remembered that, with this decreasing margin, there can be no doubt that the cost of refining during the last few years has quite materially increased. The cost of materials used in building refineries and the cost of boneblack have both increased. There has also been a tendency for wages to increase, and it is probable that the cost of refining is as much as 8 or 10 cents a hundred more than it was during the period of low prices in the late 90's or in the first three or four years of the present century. During the war period the cost has increased much more, justifying in good part, if not indeed entirely, the increased margin. CHART III PRICE OF SPIRITS AND CORN Cents Centf / ^ 175 130 125 100 • 75 .50 53 « / \ / \ ^' \ in e / s ^ / J r -\ r \ — 1 / P 1 A re F ' n /I* 1 r 3 n 7„ 9 10 I / 1 »>^ I V "L l/ 1 L^ 13 ^ J ■y\ / / V J '(" r /^ \ r 11 r J 12 ~\j \ f ^ J u Aa V Al /\A' B- A n.r^ A V ^ \J I ^ . J /u J \J i fl\ r^ /^ "V a/ / c^ V \ J J ^ iJ ^ y5 ^ l) e e % r ^ 1 -vA 4< n M ^ vJ' V \^ ^ 'w ^ ^ -^ n^ >^ s^^ ^y \7 K r V if V t^ \ ly V v - 1 f u -Ot 7^ / V ^ J V 1881 1882 1883 18 S4 1883 1886 1887 1888 1889 1890 1891 1892 1893 1894 1 1895 ise& 1897 1898 1899 1900 1901 1902 1903 1904 1903 1906 1907 1908 1909 191(9 IQll 1912 1913 1914 1915 1 A = Price of spirits derived from one bushel of com, obtained by multiplying the price per gallon, less the tax and rebates; by the yield in gallons from one bushel of com. Dotted line is same without deducting rebates B=Price of com per bushel at Chic^o C= Difference between A and B ' D=Purchasing power of spirits [Base 1895-1900 = 100] (1) Formation of pool (2) Suspension of pool (3) Reorgaiuzation of ixx}I (4) Reorganization of pool (5) Formation of Trust (6) Reorganization as single company (7) Purchase of Shofeldt distillery ( 8) Change of Tax Committee appointed to secure rebates ( 9) Greenhut appointed receiver McNulta appointed receiver (10) American Spirits Manufacturing Co., incorporated (11) Distilling Company of America, organized (12) Distilling Security Co., organized (13) Outbreak of European War PRICES 141 WHISKEY* A study of line C in Chart III, showing the difference between the price of the raw material, corn, per bushel, and the price less the revenue tax of the amount of the finished product, spirits, derived from one bushel of corn, shows nothing more clearly than the very great fluctuations in this marginal difference. The price- *)f corn, owing to variations of the crops and to various factors which determine demand, fluctuates greatly from season to season. For a good many years dur- ing the time that the Distilling and Cattle Feeding Com- pany, the successor of the earlier whiskey Trust, was in the hands of the receiver. General McNulta, the price of spirits was based directly upon that of corn, and fluc- tuated with it; but whether the price is directly based upon corn, or not, it is hkely to be affected largely by that price. During the years 1881-1887 various pools were formed among distillers, most of which lasted but a short time, generally less than a year. The distillers entering into these pools as a rule agreed to limit their output to a certain per cent, of the normal output of their distilleries, sometimes to not more than 50 or 60 per cent. Usually also there were certain agreements regarding price. The chart shows clearly that during the existence of each pool the prices of alcohol were kept up, and the profits as shown by line C were cor- respondingly large. When, however, some untrust- worthy distiller began to sell secretly at cut prices or to *For earlier years, the prices of com are those o( the Chicago Board of Trade, the prices of spirits those reported by the Combination. Both series were taken mostly from the Peoria Board of Trade. For later years prices computed from Dun's Review. 142 THE TRUST PROBLEM increase his output beyond the per cent, agreed upon, and in consequence the pool suspended, profits fell to a minimum, doubtless at times below the cost of distil- ling. Immediately after the formation of the Whiskey Trust, m 1887, prices were cut for a time, in order, as the or- ganizers of the Trust did not hesitate to say, to force their competitors into the organization; but within a few months, the rivals having been largely bought up or destroyed, the profits, as shown in 1888, became very large. These profits stimulating competition, however, it became necessary at the beginning of 1889 to cut prices again very decidedly, in order to force rivals into the combination. It was during this period also that the decisions of the courts rendered the legal form of the Whiskey Trust doubtful, and early in 1890 it was reorganized as a single corporation. For some two or three years after this change the price and profits were kept on the whole fairly high; but in 1892 a period of speculation led to startling sudden changes in prices and corresponding changes in profits, so far as any sales were actually made. At times, of course, with these very high prices sales were very small. From the years 1890-95 certain rebates were paid to whole- salers. The chart attempts to show the prices with these rebates deducted, instead of giving during this period the quoted market prices; but one cannot be entirely sure of the accuracy of the chart in regard to this, since it has been impossible to secure with abso- lute certainty the dates of the various rebates. The chart is, however, doubtless substantially accurate. In 1894, owing apparently in part to speculation, in PRICES 143 part, to competition or bad management, the conditions of the industry became bad; the prices of spirits were cut very low; the margin of profits entirely disap- peared, and the Distilling and Cattle Feeding Company, the so-caUed Trust, went into the hands of a receiver. After the formation of the American Spirits Manufac- turing Company, in 1895, the business seemed on the whole to have been considerably more stable than at any preceding period, even during the best years of the Distilling and Cattle Feeding Company. From the time of the reorganization of the company, after it had been in the hands of the receiver, in the various forms which united the interests of the different establishments which were formerly rivals or which supplemented in a single organization the work of one another by controlling different parts of the busi- ness, there seems to have been a steady improvement in conditions. Although there was a fairly regular in- crease in the price of corn from 1897 to 1901, the price of spirits increased even more rapidly on the whole, so that the profits were, with here and there an exception, maintained. The general condition of the business is well indicated in a circular of April 30, 1903, issued by President Curley of the Distillers' Securities Corpor- ation, the new organization that had taken the place of the Distilling Company of America. He said that the earnings for the fiscal year ending June 30, 1903, showed a substantial surplus; that the demand for their products was steadily increasing, the condition of the business fully justifying the expectation that the net profits would continue to show satisfactory annual increases. The assets of the company included not 144 THE TRUST PROBLEM only valuable real estate and excellent manufacturing plants, but in addition to these properties there were extremely valuable trade marks also represented by stock. Mr. Curley claimed that this great enterprise differed from many of the other consolidations of in- dustrial enterprises, including the earlier whiskey com- bination, in not seeking a practical monopoly which would invariably lead to the establishment of new com- petitive plants. He claimed that these constituent companies had already gone through this phase of monopoly, and since 1899, the time of the organization of the Distilling Company of America, had conducted a business in open competition, free from artificial com- binations to control prices, so that the progress which they had made was sound and substantial. He thought that through the large volume of their business and their financial resources they could purchase sup- plies more advantageously than could individual com- petitors, and they could likewise distribute their products at minimum cost. All of these advantages combined to increase their profits, thus enabling their companies to make larger returns, while maintaining a low market price for their output. Soon after the middle of the year 1903, however, came a very decided cut in the price of their product, although there was no corresponding fall in the price of corn. In his annual report for the year ending June 30, 1904, the president called attention to the fact that from the outset of the fiscal year trade conditions in all manufacturing branches were unsettled, and a feeling of apprehension prevailed. The large demand for manufactured products had not been maintained. PRICES 145 He added that, while conditions in the whiskey in- dustry had been in the main satisfactory, this company, the Distillers' Securities Corporation, had not escaped entirely from the general reaction; and they had there- fore thought it advisable to pursue a conservative policy respecting output by curtailing to some extent the pro- duction of cheaper grades of goods on which the profit is very small, and devoting the bulk of operations to the higher grades. While the total sales were somewhat less than those of the preceding year, the percentage of gross earnings, he said, had been practically main- tained. The cut in prices near the middle of the year was followed by a sharp recovery later in the year and in the early part of 1904; but later in 1904 occurred another sharp decline. Apparently there was a break between the Securities Corporation's subsidiary com- pany (the Standard Distilling and Distributing Com- pany) and the independent distillers, which occurred late in September. This resulted in another decided fall in the price of domestic spirits. The cut in price was openly announced and confirmed by an official circular, stating that the lower price would be main- tained untU further notice. These cuts in prices and the presence of vigorous competition was announced in somewhat guarded terms in the report of President Curley, at the close of the fiscal year ending June 30, 1905. He claimed that, with the exception of the spirit branch of their business, the one here considered, all the other departments had shown an increase in net profits. The condition of the spirit market, however, accounted for a noteworthy difference in gross receipts for the year, compared with 146 THE TRUST PROBLEM those of the year preceding, and also for the decrease in net profits. He adds : "The management some time since determined upor a course which would lead outside spirit distillers to realize that certain well-considered business methods should be pursued by all engaged in that branch. Ac- cordingly, this company has so conducted its spirit de- partment as to result in the adoption of a businesslike and conservative course by distillers. The fact that this company has other avenues of income from these various other branches — an advantage possessed by no other concern — ^has been a potent factor in this con- nection. Since May of this year the profits of the spirit department have again become normal, and if they con- tinue as they are — ^and it is believed they will during the current year — the net profits will show a considerable advance over the figures for the year just closed." This apparently meant that they had induced their competitors to maintain prices. In order to carry out this policy, and reduce expenses, one of the subsidiary companies, the Standard Distilling and Distributing Company, was dissolved. The improvement in the conditions noted following May, 1905, appears clearly in the chart in the line il- lustrating the increase in the price of spirits, and no less notably in that illustrating the margin of profits. From this time on the general policy of the company seems to have been maintained. We note in the year 1906, again in 1908 and thereafter a steadiness of price covering a period of some months, which seems to indi- cate substantial control of market conditions. The re- ports of the company showed an increase in profits, PRICES 147 and a sliglit increase in dividends, and apparently a somewhat stable dividend-paying policy. Between January, 1908, and October, 1912, the divi- dends were lowered to 2 per cent, per annum. After that none were paid until July 5, 1916, when a quarterly dividend of ^ per cent, was declared. Apparently the financial condition has been improved somewhat further from the fact that in May, 1916, there was enough ac- cumulated cash so that $2,000,000 worth of bonds was paid out of a total of $14,093,236.06 issued in 1902. The appearance of the chart since 1906 seems to indicate clearly an increasing influence on the mar- ket situation, certainly until 1914, about the time of the outbreak of the European war. The sudden- ness and extent of the changes in prices and the period during which the prices are held absolutely without change in spite of the variations in the price of corn, are quite similar to those that obtained during the days of the pools before the organization of the old Distillers' and Cattle Feeders' Trust in 1887. The reports of the Distillers' Securities Corporation for 1915 and 1916 seem to confirm the more secure con- dition of the company thus indicated. In 1915 the secretary in his report called attention to the change in the conditions after the present management took charge in October, 1913. During the years from 1912-1913, in- clusive, the cost of administration had decidedly decreased from more than $310,000 to slightly less than $100,000. The interest charges had decreased to a little more than $331,000, a decrease of more than one-half. The net profit had nearly doubled in the year 1913-1914 and 148 THE TRUST PROBLEM had again doubled in 1914-1915. In 1916 again the net profit more than doubled. In a similar fashion there has been a steady increase in net quick assets, and the total surplus increased from slightly less than $4,000,000 in 1912-1913 to almost $8,500,000 in 1915- 1916. Besides this excellent showing in the surplus, $2,000,000 outstanding bonds have been paid off as already indicated. It will be noted by following line C on the chart that in spite of the decided fluctuations the margin remained high until the cut in prices which occurred just before the outbreak of the European war, while there was a steadily increasing price of corn. The profits dropped to a very low point, lower than any since 1898, but they have again recovered until (in November, 1915) the profits were back to their former high level. The com- bination seems to hold its influence and careful busi- ness methods, and to be able to maintain the prices at profitable rates. Although this general conclusion regarding profits seems to be certain, a study of the red line D, showing the purchasing power of spirits from 1900 to the close of 1914, indicates that since 1907 there has been a tend- ency similar to that shown in most of the other charts for the purchasing power to decrease when expressed in terms not of money, but of commodities. This tend- ency, however, is not so marked as in some other cases and does not apply at all during the earlier years. From 1900 through 1901 there was a slight increase in the purchasing power followed by a decrease through 1902- 1903 and 1904, another increase to the highest point in 1907, thereafter a decrease of some 40 points until CHART IV PRICE OF CRUDE AND REFINED OIL (Base 1895-1900 = 100) «! i h 'I ^ L ' - • ^ 1 IV \ i ,^ \ A ^ / 4 8 1 \ ^ \ 11 1 ■ 1 \^ A ^ i. ^ P s ^ 6 7 e V v A / ,^ A 10 % A r l; Ai\ \ V. V" / ^ ^ A ^ l-l A -v,/ ^ c ===^ =^ :::> 7^ :^ y V , =< ^ :=>^ =^ /2 !S» =; ^ V jZ N^ --^. •VC V^l "^ -:^ v 9 1866 W- ites iSSa" 1870 a7i )672 1073 IBM" 1875 W" isr 1B7B- 1870- iS80 lasi laez teas nl^ IB8S IBK toai laee en 1B90 1891 legz 1893 ISM 1893 1896 1697 IB9S 1KB BOO 1901 1902 1905 lOO* "-iaor K»8 i9or i9oa 1009 1910 1911 1011 1913 19H L^;? W A = Price of refined oil for export in barrels at New York B = Price of crude oil in bulk at Oil City C= Difference between A and B D = Purchasing power (1) Rockefeller, Flagler and Andrews organized (2) Standard Oil Company of Ohio organized (3) Standard Oil Company of Ohio absorbs many competitors (4) Standard Oil Company had secured dominant position (5) Standard Oil Trust formed (6) Trust dissolved (7) Pure Oil Company of New York organized (8) Standard Oil Company of New Jersey organized June 16, 1899 (9) Standard Oil Company dissolved, September 1, 1911 (10) Outbreak of European War, August, 1914 14^ ha( net the an( $4, 19] $2, aln ] in s hig the ste, to; haA pre bin nes pro i see the of] enc for int enc anc 19C pur 190 in PRICES 149 1914 with various fluctuations. On the whole, the ex- perience of this combination seems to be much the same as that of the others, that as compared with general commodities the prices of their finished product show a decrease. PETROLEUM* In considering Chart IV, showing the prices of crude and refined petroleum and the margin of difference between these, indicating the cost of refining plus the profit, it should be noticed that the figures for crude oil are given in bulk per gallon, the package not being included in the price, whereas those for refined oil are given per gallon, including the cost per barrel, which is usually reckoned at 2| cents per gallon. The cost of the barrel to the company would, of course, vary slightly, but 2^ cents per gallon is the amount regularly reckoned in the "Handbook of Petroleum," and is probably a fair general average. This is in accordance with the usual system of quoting these prices. Taking the chart as a whole, and noting the prices of both crude and refined oils as well as the margin, it is seen that this margin shown by line C represents the perpendicular distance between line B showing the price of crude petroleum, and line A showing the price of refined petroleum. This margin dropped much more rapidly during the early years of the industry than in the last twenty-five years. This is of course to be expected. During the early years of the industry the methods of production naturally improved very rapidly, so that the *From report of the United States Industrial Commission, Volume I, until 1899; thereafter prices furnished through the kindness of H. C. Folger, Jr., President of the Standard Oil Company of New York. 150 THE TRUST PROBLEM cost of production was lowered. The general process of refining may be considered to have been thoroughly- established in, say, 1877, 1878, and 1879, so that since that time the improvements have not so much lessened the cost as established the quality and lessened the cost of distribution. Many other improvements have of course been made, but these have been mostly in se- curing a better use of the materials formerly wasted, which now have become by-products whose manu- facture is often very profitable. It would doubtless be practicable, if there were vigorous competition, to consider the cost of refining as much less than at an earlier period, on account of the profit from these by-products, even though the actual cost of refining itself had not materially lessened. The chart and the figures, however, take no account of the by-products, that not being practicable, but show merely the prices of crude and refined oil. There has been since about 1872 more or less of an association among the oil refiners who have made the Standard Oil Company. Mr. Rockefeller and some of his associates who afterward became the Standard Oil Company, had indeed started cooperative work as early as 1867 and had organized the Standard Oil Company in 1870; but it was not until 1872 that there had devel- oped any powerful association, and, indeed, it was not until the latter part of the 70's or early in the 80's that the Standard Oil Company had really secured control of a large portion of its competitors. This early associ- ation did not affect the margin so much as did the im- proved methods of production, and the margin kept steadily decreasing until about 1879 or 1880. The PRICES 151 'Standard Oil Trust was formed in 1882. From that time on for a period of eight or nine years there was only a slight decrease in the margin. For one or two years, about 1893 and 1894, the margin was considerably lower, the smallest margin having been in the year 1894, shortly after the dissolution, as a result of a court decision, of the Standard Oil Trust. After the organization of the Pure Oil Company in 1895 there was a decided decrease in the price of refined oil, which continued xmtil 1898, but there was little decrease in the margin. The Pure Oil Company claims that the decisive fall of the price of refined oil in New York in 1896 was due to its competition. In March of that year it put some wagons on the streets in New York, selling oil. The prices dropped very rapidly, until Mr. Lee, the active man in the Pure Oil Com- pany, says that they were really below cost. Mr. Archbold of the Standard Oil Company hardly agreed with that, but did recognize the fact that there was active competition at that time. It will be noted that during the years after 1899 until 1900 the margin seems on the whole to have lessened gradually, reaching in 1907-1908 a point lower than at any other time except- ing 1894, while the price of crude oil has most of the time ruled high. It is quite probable, too, that there has been an added cost of refining, coming from the increased cost of supplies. Refineries are constructed largely of iron, and deterioration in them is rapid. Since 1899 there has been a decided increase in the price of iron for a considerable part of the time, the price at times being more than double what it was for some years pr'^ceding 152 THE TRUST PROBLEM that period, although for several years lower than in 1899-1900. Moreover, during the years 1899-1900 there was an increase amounting perhaps at times to as much as f cent a gallon in the cost of the packages in which the refined oil is carried, and the price of acids was also increased. Some of these prices have since then lowered. Again, as is well known, the cost of labor for several years in the past has been higher. We should not forget, also, that an increased price of crude oil would in itself justify some increase in the margin. As was explained in connection with sugar refining, any waste of raw material from refining is more expen- sive as the price of that material increases, and in addi- tion to this the amount of circulating capital invested in the raw material increases with the price of that material, so that the added loss of interest must likewise be taken into consideration. Taking all these things into account, there can be little doubt that part of this decrease in the margin during the years 1905-1910 may properly be ascribed to an increased cost of refining, thus lessening somewhat the profits. As an offset to this of course should be noted, what has been mentioned before, an increase in the value of the by-products, which would permit a lowering of the price of oil without loss, although it is doubtless for the interests of the company, and naturally, that the two should be divorced as far as possible. The independent oil producers have said much about the arbitrary acts of the Standard Oil Company in fixing the prices of crude oil. The charge of arbitrary action by the Standard Oil Company was conceded by its witnesses before the Industrial Commission to be PRICES 153 true in special cases. That organization in special localities at times raised the prices of crude oil, un- til it ruined a rival pipe line for the transportation of the crude oil which was also a buyer of that oil. Then, on the absorption of this line the price was again lowered, to the great disadvantage of the oil well owners. Again, at times when the Standard was al- most the sole buyer of crude oil, it kept prices so low that well owners were practically compelled to sell out to it before the price was raised. Most of these in- stances, however, had to do with special localities, and produced no great effect on the entire market, though they were doubtless enough to add decidedly to the profits of the Standard Oil Company. The greater general changes in the price of crude oil, which affected also the prices of refined oil, have been brought about by other causes. The discovery of the very productive fourth sand oil wells in Butler County, Pennsylvania, only about 80 feet below the third sand levels, led to a great increase in production and to the consequent rapid fall in price noted on the chart in 1873 and 1874. It was claimed by Mr. Lee that the fall of the two preceding years was brought about by the general demoralization in the oil business caused by the relations of the railroads with the South Improve- ment Company, one of the predecessors of the Standard Oil Company and its successors. Moreover, the year 1873, it will be recalled, was a panic year. The check- ing of the flow of oil during the next three years raised the price in 1875 and 1876, as is noted on the chart, though the refined increased much more than the crude. Then the discovery of the famous Bradford oil fields in 154 THE TRUST PROBLEM 1876 led to the great decline of 1877 and 1878. The de- pression noticed in 1890-1892 in the price of crude oil was caused by the discovery of the MacDonald field , in Allegheny County, Pennsylvania, with some of the largest wells ever known in the country. The sudden rise in 1895 seems to have been due to the discovery of the fact that the amount of oil on hand and the produc- tion were declining very rapidly, as compared with the demand and to the desire to get stocks ahead. It is probable that some of the refineries had sold ahead beyond their capacity to supply from any stock which they had on hand. The advance in crude oil was largely thought to be arbitrary, and intended perhaps to squeeze these independent refineries. Whatever the exact cause, there is no doubt that there was an urgent demand on a short supply, and that the market was largely speculative for a time. The rise in 1898 and 1899 is doubtless due to another check in the output. It is probable that the price would have continued high from that time on, had it not been for the still further new discoveries of the oil fields of Kansas, Texas, and California. In 1904, for the first time, more petroleum was produced in the United States west than east of the Mississippi River. It is interesting to note the changes in the price of oil after the decision of the United States Supreme Court dissolving the Standard Oil Company, as explained in some detail in Appendix D. The decree of the court ordered that the transfers of the stock of the central company be made to the various independent com- panies into which it was to be divided. Such a process took some time naturally. The order was of September PEICES 155 1, 1911, when the books were closed. The distribution was made December 1, 1911. From the year 1908 on until 1911, as will be noted by following the course of line B, there had been a de- cline in the price of crude oil, due mainly to the discov- eries of the oil fields west of the Mississippi River. The price of refined oil was, however, not only maintained but increased so that the margin shows a decided rise in the latter part of 1909, which was maintained and somewhat increased in 1910, 1911, and 1912. During the year 1912 and the early part of 1913, the sudden rise in the price of crude oil, far more than enough to outweigh the slight increase in the price of refined, reduced the margin very materially from 4.33 to 2.80. This oil margin was maintained for more than a year until the excessive output of crude oil in 1914 caused a sudden drop in price, enabling the company to raise the margin to that obtained before the decline. It is probable that the lessened demand from Europe on account of the outbreak of the war also had a material effect on the fall in price of crude petroleum, which, although it enabled the company to increase the profit per gallon, probably lessened the total profit. As a result of the overload put on the transporting and refining branches of the petroleum industry by the excessive output of crude oil in 1914, the year 1915 may be characterized as a period of readjustment in which activity in production was purposely retarded. The Gushing Pool, in eastern Oklahoma, which had completely dominated the industry since June, 1914, attained its maximum production, estimated at 300,000 barrels a day, in April, 1915, and entered a stage of^ 156 THE TRUST PROBLEM rather abrupt decline, which, with the passing of millions of barrels of storage oil in that area into the control of a few strong companies, resulted in an in- crease"d demand for oil produced in other parts of the country. This demand was accompanied by advancing prices, which still remain high. The heavy red line D shows the purchasing power of petroleum as contrasted with commodities in general as indicated by the index number. The line marked $1 on the scale is taken as the base from which this line representing the purchasing power is calculated. This line representing 100 gives the average purchasing power of petroleum for the five years 1895 to 1900. The course of the line from that date (1900) to 1914 shows a decided decrease in the purchasing power of the gallon or barrel of oil since that date. The line representing the purchasing power is drawn on a larger percentage scale than that representing the mere prices of oil, so that the fluctuations seem much more marked although the trend is accurate. The very decided decrease in purchasing power in the years 1900 and 1901 is caused primarily by a decrease in the price of oil, although in 1901 there was also a slight increase in prices of general commodities which would in itself, of course, lessen the purchasing power of oil. The sudden rise during 1902 is due to the increase in the price of oil in the latter part of that year. In the years following, from 1903 to 1910 inclusive, there was a decided decrease. This is caused primarily by the steadily increased price of general commodities which was offset through the year 1907 by the decided drop in commodity prices, following the panic, not offset by a corresponding drop in oil. The CHART V PRICES OF TIN PLATE A = Price of American coke tin plate per full weight box, at Kttsburg B=Cost of steel, plus tin, plus labor, for one full weight box of tin plate C= Difference between A and B, indicating course of profits D=Cost of 105J lbs. steel biUets at Pittsburg, plus 2| lbs. tin at New York, the material for one full weight box of tin plate (1) Tariff 1 cent (2) McKinley Tariff 2.2 cents (3) Wilson Tariff 1.2 cents (4) Dingley Tariff 1.5 cents (5) American Tin Plate Co, organized (6) Payne- Aldrich Tariff 1.2 cents (7) Underwood Tariff PRICES 157 recovery in general prices in 1908 and 1909 is shown by the decrease in this purchasing power. Again, the large increase during the years 1911 and 1912 is caused by the increase in the price of petroleum not offset by so great an increase in the price of general commodities, although' they were slightly increasing, while the de- crease again in 1913 and 1914 is due in part to the de- crease in the price of oil, in part to the increase in the price of commodities. Taking the period as a whole, however, from 1900 to date it will be seen that this great combination, as practically all of the others, seems not to have raised the price of its chief product to an amount that corres- ponds to the rise in the price of general commodities. TIN PLATE* Chart V, representing the changes in price in the tin plate industry, shows certain important changes in the course of prices that are noteworthy. The tendency toward high prices and profits is not so noticeable as that toward steadiness of price and toward increased profits, especially at times when the raw material is falling. The standard unit taken for the price of the finished material is one box of tin plate, 14 by 20, full weight 108 pounds. The raw material used for this is 105^ pounds of steel plus 2J pounds of tin. Although it is not quite accurate, it has been thought best to take for the basic price of steel that of steel billets. The line A on the chart therefore represents the price of the box of tin plate. The line D represents the price of the *Froin the report of the Industrial Commission, Volume I, until 1899, thereafter by United States Steel Products Company. Labor cost furnished by Mr. W. J. Filbert, Comptroller of the United States Steel Corporation, 158 THE TRUST PROBLEM raw material by weight contained in such a box, al- though the steel is the unrolled steel billets. The line B represents this same amount of steel and tin plus the amount of labor required to manufacture the tin from the black plates, or the bars, not, of course, including the earliest operations. The cost of labor represents the average of a number of tin plate mills, and is authoritative. Although there has been no lessening of the wages of labor, although in fact the wages have been increasing, the labor cost per box, which in 1893 was $1.60, had decreased in 1897 to $1; in 1901, a year or two after the organization of the American Tin Plate Company, to 93 cents; in 1906, to 82 cents. After that there was a slight increase; in 1909 it stood at 84 cents, in 1910 at 89 cents, then declined somewhat, standing at 81 cents in 1915. It will be noted that since 1893 this labor cost per box has decreased by nearly one-half. The line C on the chart represents the margin between this cost of raw material plus the labor and the price of the box of tin plate, indicating the course of profits. It will be noted that from 1894 until the niiddle of 1897, in spite of a decided drop in 1894, with a rapid recovery and another decline in the latter part of 1896, this margin between the cost of material and labor and the selling price of tin plate remained at considerably above $1 a box, sometimes amounting to $1.50, and averaging perhaps $1.30. During 1897 there was a decided decline in the price of tin plate, with a corres- ponding or greater decline in the margin, which con- tinued steadily down until October, 1898, when it reached a point distinctly below $1, as low as 74 cents. Somewhat before the organization of the American PRICES 159 Tin Plate Company, in December, 1898, there had been a decided increase in the price of tin plate, and this increase had been more than proportionate to the in- crease in the price of raw material, although that had advanced somewhat as early as June. It was of course known to most of the tin plate manufacturers that the combination would probably be formed, and presumably on that account the diflferent establish- ments had already stopped their most vigorous compe- tition. This increase in the margin between cost and selling price was fixed first at $4,215 a box and then at $5, where it remained until the end of the year. Although the figures from January, 1900, are on a different base, the chart represents accurately the con- ditions. In January, 1900, we note a decrease in price to $4.65 a box, a price maintained for eight months until September, 1900, when with one interval the price was cut to $4. This price was maintained without change until November, 1902, a period of more than two years, although a decided increase in the cost of raw material and labor had very decidedly lessened the profits. In November, 1902, there was another cut in the price. From 1902 until the present it will be noted that the prices of tin plates have in the main followed the prices of the raw material, although the changes have not been so rapid, the prices, when once fixed, remaining usually imchanged for a period of nearly a year, while the price of raw material shifts continually. It is noteworthy, however, that the margin of difference since the formation of the Tin Plate Company, and es- pecially since its absorption by the United States Steel Corporation, in 1901, has been steadily decidedly lower 160 THE TRUST PROBLEM than it was for the three or four years preceding the organization of the American Tin Plate Company; although it was at that time asserted, with perhaps no good ground for doubting the truth of the assertion, that it was chiefly the fierce competition among the tin plate manufacturers that led to the organization of the American Tin Plate Company. The price of tin plate seems to illustrate the influence of a great corporation, and at the same time the readiness of the corporation not to take advantage of its influence at every opportunity, but to maintain on the whole steadiness of price at rates that do not seem un- reasonable, if they are compared with those preceding the organization of the corporation. Of course the improved facilities for production coming from the magnificent organization of the Steel Corporation and its plentiful capital have decidedly lessened cost, so that a lessening of the price of the finished product might be expected without any lessening of wages or of profits. EBON AND STEEL* The charts representing the iron and steel prices show in a very striking way the various fluctuations during the period of pools and industrial combinations, the influence sometimes, especially in the days of the early pools, seeming apparently very unfavorable to the consuming public, at other times favorable. There is *Prices from the United States Industrial Commission to 1898, thereafter, from Iran Age, the American Iron and Steel Association, and from Mr. W. J. Filbert, Comptroller of the United States Steel Corporation. These figures to 1912 are those used in the Government suit against the United States Steel Corporation by the Government and accepted by the Steel Corporation. CHART VI PRICES OF STEEL AND WIRE (Base 1895-1900 = 100) A = Price of barb wire B= Price of smooth wire C= Price of wire nails D= Price of steel billets (1) (a) Price of American coke tin plate per full weight box at Pittsburg (b) Cost of steel, plus tin, plus labor, for one full weight box of tin plate (c) Difference between A and B (d) Cost of 105| lbs. steel billets at Pittsburg plus 2^ lbs. tin at N. Y. the materials for one full weight box of tin plate (2) Nails pool broken. Change of bases (3) American Steel and Wire Company organized E= Difference between A and D F = Difference between B and D H = Difference between C and D L= Price of steel rails (4) Wire change of base (5) The Carnegie Company organised • (6) United States Steel Corporation organized Feb. 25, 1901 (7) Panic in Wall Street, Nov. 1907 (8) Feb. 19, 1909 (Steel Corporation declared open market) (9) Outbreak of European War PRICES 161 perhaps nothing in the charts to indicate that the com- binations have had any material effect during the last few years. Nails and Wire. On Chart VI we find illustrated the price of steel billets, line D, which, for our purposes, may be considered the raw material, together with the price of wire nails, line C, that of smooth wire, line B, and that of galvanized barb wire, line A. The line H represents the margin between steel biUets and wire nails. If we note this line H carefuUy, we shall see that dur- ing the earlier period presented, especially from the years 1890 to 1895, there was a steady decline in the margin as well as in the price of both steel billets and wire nails, the fall in the price of nails being more rapid than in that of steel billets, until, in 1894 and the early part of 1895, the cost of production plus the profit of the nails if figured on this basis amounted to not much more than 25 cents a hundred pounds. During the latter part of 1895 there was a very sud- den and rapid rise not merely in the price of wire nails but also in the margin, showing a very decided increase in profits. A second rise, although not so great, was made in the earlier part of 1896, the margin also in- creasing almost proportionately. It will be seen also that there was a slight increase in the price of steel bil- lets, but no large increase — ^nothing that in any way corresponded to the very rapid increase in the price of wire nails, and this price soon lessened. This great increase in the price as well as in the profit was caused by the formation of the wire nail pool. It seems clear that the makers of this pool did not expect to be able 162 THE TRUST PROBLEM to hold their monopoly for any great length of time, and that in consequence they thought it best to push their advantage as hard as possible for the time being, feeling certain that in the not distant future competitors would come into the field, so that their prices would again need to fall. It takes time, of course, to build new competing plants; and in the case of industries such as those of steel, a well-organized pool can, if it wishes, practi- cally control the market for a considerable length of time. Their prices increased rapidly from $1.45 a hundred to $1.68, to $2.25, to $2.55, where it held for six months, before the break came. At the end of that time, after some eighteen months of practical monopoly, competitors had succeeded in providing facilities for manufacture, so that the pool was broken and prices fell back to a competitive rate, though not so low as they had been before the organization of the pool. It seems probable that the boldness of the pool man- agers in pushing prices so high even extended the time of the monopoly. Competitors enough to break the pool would have arisen sooner, had not each one anti- cipated its speedy collapse on account of its high prices promising enormous profits. Each believed that some one else must very soon enter the field. Even after the break in the wire nail pool, the margin during the years 1897 and 1898 remained considerably higher than it had been for three years before the for- mation of the pool, with, however, a slight decline. It seems probable that the margin during the years before the formation of the pool had been so low that the busi- ness was really unprofitable. In January, 1899, the American Steel and Wire PRICES 163 Company, which controlled from 65 per cent, to at times even as high as 95 per cent, of the output of wire nails, was formed. Moreover, at the beginning of 1899 there came a very strong and rapidly increasing demand for steel products of all kinds. The price of steel billets and pig iron as the raw material and the price of all kinds of steel manufactures rose very rapidly in conse- quence. Even then it was not possible for mantof actur- ers to meet fully the demand. It will be noted that the margin of profit on steel nails increased also readily, although not quite so rapidly as did the price of steel billets. Besides the increase in profit which doubtless was made by the American Steel and Wire Company, there was also an increase in the cost of production of nails that explains part of this increase in the margin. First, there had been a decided increase in the wages of laborers engaged in the manufacture of wire and wire nails. From testimony given before the Industrial Conmiission, this increase in wages among workers in this class was greater than that among the laborers en- gaged in the manufacture of steel billets, so that this would normally bring about more increase in the margin. Another reason for the increase in the margin is the additional cost of waste. There is always, of course, a considerable waste in turning the raw material, steel billets, into wire and wire nails. If, for example, the loss were 5 per cent, in the case of steel valued at $15 a ton, it would amount to 75 cents; whereas, if steel were $30 a ton, the loss would be $1.50. During this period of increased prices steel more than doubled in price. In consequence, with the same profits, the margin should 164 THE TRUST PROBLEM have increased quite noticeably. On the whole, how- ever, both from the chart and from outside testimony, there can be no doubt that the wire company decidedly increased its profits during this period of the rise in price. In October, 1899, occurred a fall in the price of steel billets; but, while the price of nails was put down a little, shortly afterward another increase followed, so that during the early part of 1900 the profits again increased. It is fair to say that, even without any combination on the part of the manufacturers, there would in all probability have been a decided increase not merely in the price of the finished product, but also in the mar- gin between the crude and the finished product, on ac- count of the enormous demand. The testimony seemed to be uniform that none of the manufacturers in any of these finished products of steel were able to meet the demand. It seems likely, however, that the combina- tion was able to take rather better advantage of the opportunity than the individual manufacturers could have done. While the chart represents the general market' con- ditions as they were furnished to the Iron Age, it is probable that they do not represent with entire accur- acy the actual conditions in the steel trade. Each man- ufacturer made his sales independently, and these sales were frequently made by contracts extending over a period of some months. In the case of some contracts, such as those for rails or beams, the period was sometimes as long as from one to two years. In consequence of that business custom, the majority of the manufacturers of steel might well have been fur- PRICES 1C5 nishing their output on a contract price fixed six months before, while a few manufacturers making late sales might have been obtaining a price 50 per cent, higher. On the other hand, during the first half of the year 1899 probably the market prices were considerably higher than those actually realized by the manufacturers. When the sharp fall in prices came, early in 1900, of course the situation was reversed, and some manufac- turers were delivering output at a price decidedly above that quoted in the market. Taking all of these cir- cumstances into account, it seems nevertheless true that the chart throughout represents fairly well the chang- ing conditions of business during the period covered. The very high prices of 1899 led to the usual result. The very great demand followed by the high prices gradually slackened, while the production continued until there were large stocks in many instances on the market. The awakening to the new situation came very suddenly. In April the chairman of the American Steel and Wire Co. suddenly ordered a shutdown of a number of mills of that company, and, in addition to that, gave expression to a number of pessimistic opinions regarding the state of the steel trade, saying that he thought the trade was in a very dangerous condition. Naturally, sharp declines in prices followed not merely in nails, but in smooth wire, barb wire, and in all other lines of products. The de- clines were followed promptly by others, and yet there was a decided stagnation in the market. The decline in steel billets, that had begun in the latter part of 1899, continued through most of the year 1900. The large profits shown in wire nails declined promptly; but, as the price of steel billets continued to go down after 166 THE TRUST PROBLEM the fall in the price of nails was checked, the margin rose again and continued high until the increasing price of steel billets in 1901 and 1902 brought the margin back again to about the position where it had been after the breaking of the nail pool in 1896, and before the formation of the steel and wire company in 1899. With more or less fluctuations, the margin has re- mained through the changing prices of steel billets and nails much the same from 1902 and 1903 until the out- break of the European war, with a tendency toward a slow decline. After that came a large increase in the margin. The Carnegie Company was organized in 1900, and its new organization was followed in the early part of 1901 by the organization of the United States Steel Corporation, an organization which took over not only the Carnegie Company and the American Steel and Wire Company, but also a number of other leading manufacturers of finished steel of various kinds. The policy of the United States Steel Corporation appears in the prices not merely of steel nails, but perhaps even in a more striking way, as is shown on the chart, in the prices of barb wire and smooth wire. It will be noted that the prices of both barb wire (line A) and smooth wire (line B), the second line beginning only in 1895, have since 1895 followed very steadily the prices of steel billets. Before that date the price of barb wire, as in the case of wire nails, was falling more rapidly than that of steel billets. In very many cases the fluc- tuations seem to go almost regularly with the price of the billets. Since the organization of the Steel and Wire Company, in 1899, followed by that of the Car- PRICES 167 negie Company and then that of the United States Steel Corporation, there comes a decided change in the appearance of these Hnes on the chart. It will be noted that the price once established is likely to be maintained for a period of some months without any change; that there comes then a change, either up or down, and the price is again maintained in some instances for nearly two years. Although these prices correspond in a gen- eral way to the prices of steel billets, those prices vary almost from month to month, while the prices of these finished products change much less often, giving a marked steadiness of prices. It will be seen that the price of neither smooth wire nor of barb wire followed regularly the price of wire nails at the time of the wire nail pool, in 1895-1896, al- though there was a sudden increase in the price of barb wire, followed by an immediate decline. Through the ownership of patents, the American Steel and Wire Company, now owned by the United States Steel Corporation, has a legal monopoly in barb wire, quite regardless of any effect of combination so that we should expect a wide margin between the price of steel billets and of barb wire. It is possible that this margin, which is so much wider than that between the billets and either smooth wire or wire nails, is due in part to an increased cost of manufacture; but it is probably due also to this legal monopoly, coming from the owner- ship of the different patents. Although the difference between the price of barb wire and of steel billets in- creased very rapidly during 1899 and the earlier part of 1900, its increase was not much more rapid than that in the price of wire nails and of smooth wire. There can 168 THE TRUST PROBLEM be little doubt that the great increase in the price of all these products was at that time due chiefly to the in- crease in the price of raw material and the strong de- mand. The leadership of the market, however, seems to have enabled its managers to make the best use of its opportunities, for the margin as well as the price in- creased rapidly from the date of the combination. After the formation of the United States Steel Corpora- tion, however, a new policy seems to have been adopted — that of seeking good profits, but not extraordinary ones. The steadiness of the margin, as shown in line E after the formation of the Steel Corporation, is quite noteworthy, as compared with the enormous fluctuations for the six or eight years preceding. The organization of the new Carnegie Steel Company was effected about the middle of 1900, but this appar- ently produced little if any effect upon prices. Early in 1901, with an increase in the price of steel billets and of pig iron, came also a slight recovery in the price of steel rails and of steel beams. Rails had fallen in the latter part of 1899 and through the first part of 1900 from $35 a ton, where, with the exception of one month, they had been maintained for nearly a year, to $26. About the time of the organization of the United States Steel Corporation, in February, 1901, the price was raised to $28. From that time until almost two years after the outbreak of the European war there was no variation. Then there was a rise from $28 a tori, first to $33 and shortly after to $38. This absolute maintenance of an unvarying price for steel rails, through a period which lasted fifteen full years regardless of fluctuations in the price of pig iron. PRICES 169 of coal, of ore, of wages, is perhaps the most striking manifestation of the steadiness of price that our history affords. During the brief period of strong demand and of increased prices in 1902 and the earUer part of 1903, when it would have been easily possible to increase the price of rails by several dollars a ton, no change was made; on the other hand, during the years 1903 and 1904, in the period of depression, when the demand was relatively small and the prices of other grades of iron and steel were falling, the price of steel rails remained imchanged. During the succeeding years of 1905, 1906, and the early part of 1907, with prices in all lines rapidly increasing, with the demand for not merely other kinds of steel but also for steel rails rapidly on the increase, in some instances the demand being greater than could be met for prompt delivery, the corporation still refused to increase the price, although its smaller rivals would have been glad of the opportimity; and again, after the crisis of 1907, throughout the period of depression of 1908 and further throughout the period of recovery of 1909, although the demand fell off to almost nothing after the crisis, and finally with a strong demand through 1909, the price was maintained at the unvarying rate. Again, after the war broke out in 1914 and prices of all kinds of steel were promptly raised with prices higher than any since 1900, the price of steel rails was still held steadily down for a period of some year and a half when at length, following the tremendous increase in the prices of raw materials, the price of rails increased though not proportionately. If one were to compare the margin between the pricf 170 THE TRUST PROBLEM of steel rails and of its normal raw material, pig iror or steel biUets, it would appear tliat the marginal cost of manufacture plus the profits had at times increased with the fall in the price of raw material, and at other times had decreased rapidly, as the price of the material, iron and steel, had increased. However, it appears further that the producers were determined to allow the railroads to rely absolutely upon one fixed price, which it considered reasonable, regardless of demand or of other influences which might normally be expected to aflFect the prices. Indeed, it is generally asserted that the suggestion of a fixed price known long in advance came from the railroads themselves. Inasmuch as the prices of rails are an extremely important factor in the construc- tion and maintenance of way, it is very important that the railroads know what they can count upon as regards the price of rails. After careful consideration long- term contracts were made between the railroads and the different rail manufacturers of whom the Steel Corpora- tion is the leader. Then, some time before these con- tracts ran out, they were renewed for another long period. The agreements were not then, as has been so often supposed, between the different manufacturers to maintain prices, but between separate manufacturers and the railroads. It was natural enough that the Steel Corporation should take the lead in these con- tracts. It was equally natural that the other manufac- turers supplying the railroads should adopt the same price. They could not well increase the price and it would not pay them to lower it enough, at any rate, to start a trade war. The railroads then are perhaps PRICES 171 equally responsible with the manufacturers for the in- variability in the price of rails for so long a period. On the other hand, when one notes carefully the exact conditions under which steel rails have been pro- duced since the organization of the Steel Corporation, it is seen that ordinary changes in price of iron and steel as a matter of fact need not affect materially the prices of steel rails. The United States Steel Corporation and practically all the other producers of steel rails own their mines, produce their own ore, furnish their own coal and coke, own ships and in one or two cases railways and, in fact, supply everything needed for the production of steel rails. Excepting, there- fore, changes in wages or possibly in the price of some of the implements or means of production or transportation, such as railways and steamships, it can hardly be said that the cost of their material varies with the market prices of iron or steel. If they were to determine their prices of steel rails by the market price of pig iron or steel billets, such prices would not reflect changes really brought about by the conditions of production under which they are worldng. The policy which the Steel Corporation has openly announced and which these charts show it has rigidly maintained — of a steady price which it considers reason- able — is, it will be noted, to a very considerable ex- tent dependent upon this most important fact — that it controls also the mines which furnish it with practically all of its raw material. After the panic of 1907 and during practically all of the year 1908, the United States Steel Corporation and the other large steel interests worked closely in har- 172 THE TRUST PROBLEM mony, in order to prevent absolute demoralization in prices. During the last few months, however, of 1908 and the beginning of 1909 it was clear that the consum- ers of iron and steel were placing orders only for such material as they actually needed for immediate use, believing that the conditions existing were artificial, that the prices were being maintained unnaturally, and that they might break at any time. Beyond ques- tion many of the smaller manufacturers and quite possibly the Steel Corporation also, although they were openly maintaining prices, had been shading these prices in special instances. On February 18, 1909, a meeting of practically all the leading steel interests was held in New York City. After a careful discussion of the market conditions, it was decided to abandon all further attempts to hold prices. The next day Chairman Gary, speaking for the Steel Corporation and practically for the other interests as well, declared an open market. A scramble for orders began, all competing vigorously for new business. All the large steel interests with their magnificent selling organizations searched the country for orders. Structural materials of all kinds were re- duced $6 to $7 a ton, steel bars $4 to $5, pipe $10 to $12, and other finished material in like proportion. The price of steel beams dropped to $32.03. The results showed no special advantage of the United States Steel Corporation. In spite of its efforts its percentage of output remained practically the same with on the whole a tendency to lessen. The lower prices at once started orders, many of them of large size. This started immediately the iron mills. Prices began to increase; heavy orders were PRICES 173 taken, although until the prices improved consumers as a rule were not allowed to book orders for a long period ahead. In May and June, as the order books filled, the larger companies became more independent of the consumers' demands. This increased the orders still more, so that by October many of the plants had their full capacity in demand for the rest of the year and for the first quarter of 1910. During the last three months of 1909 the largest establishments were accept- ing business only for shipment at the convenience of the mill. The last half of 1909 was very satisfactory to the steel trade. The effect of the United States Steel Corporation seems to have been primarily to steady prices and to maintain more nearly a rate of prices of the finished product dependent upon the costs of the leading raw materials so far as that can be readily determined. During its earlier years from 1901 to 1907 in many of the leading finished products the same price was main- tained absolutely for a period of months, sometimes even of years, and the other producers in the market generally followed substantially the lead of the Corpora- tion. Since 1909 this policy does not seem to have been quite so rigidly adhered to, with the exception of the price of steel rails. It is to be noted, however, that the margin between raw materials— steel billets on the chart — and the finished product, such as wire nails and similar products, has been much more nearly uni- form than before 1909 and has been much steadier than during the earlier periods before the Corporation was organized. If now, in order to measure as nearly as possible the 174 THE TRUST PROBLEM influence of combinations on prices, we study the pur- chasing power of steel as compared with general com- modities, we obtain interesting results. Inasmuch as the United States Steel Corporation is the largest in- dustrial combination and as it has been the subject of prosecution by the United States Government, it has seemed best to give special attention to steel prices. Chart VII illustrates the purchasing power of a unit of seven different steel commodities. These were se- lected so as to illustrate the various kinds of steel prod- ucts (Bessemer pig iron, No. 2 foundry pig iron, Bes- semer steel billets, steel rails, beams, tank plate, black sheets) and to make a comparison of prices here, in England, and in Germany. The prices shown on the chart are the relative prices from year to year compared with the prices from the years 1895 to 1900, averaged as a base. On the chart this base is shown by the line marked 100 and the other lines are represented in their variations from this base. The purchasing power of a unit of these seven sta:;l commodities in terms of general commodities is indi- cated. Steel in the United States is compared with the index number of the United States, steel in England with the index number of that country, and steel in Germany with the index number of Germany. On the chart then we see line L, which represents the purchasing power of these seven commodities in Germany starting somewhat above the base in 1900. It soon fell to the base. In 1901-1902 and part of 1903 it remained be- low. Then, going first above, then below, returning above again in 1907, it remained above the base until in 1911, the last point at which we can secure the CHART VII PURCHASING POWER OF IRON AND STEEL (7 Commodities) (Base 1895-1900=100) 'A=Rdative price of 7 iron and steel commodities JB = Relative price of commodities (Index United States^ jjg ) Black ^C=Purchasing power of 7 iron and steel commodities D= Relative price of 7 iron and steel commodities Great Britain/ ^~^^'^*'^^ price of commodities (Index Red ) No-) fF=Purchasing power of 7 iron and steel commodities /^H = Relative price of 7 iron and steel com- \ modities p yK = Relative price of commodities (Index GrTen"^^ No.) /L = Purchasmg power of 7 iron and steel f commodities PRICES 175 index number, it was standing some 20 points above the purchasing price of the years 1895 to 1900. Tracing now the red line F, showing the purchasing power of these steel commodities in Great Britain, we find that at the end of 1914 with certain fluctuations above and below the base line, mostly above it, it stood at the end of 1914 some 35 points above the base line. On the whole, then, in both Germany and England, the prices of steel averaged higher than the price of commodities in gen- eral and a ton of steel would during most of this period buy more commodities after 1900 than during the five years preceding. Quite dififerent, however, is the course of prices in the United States. In the first place, noting the black line B, which represents the index number showing prices of general commodities in the United States, we find that starting in 1900, some 12 or 15 points above the average of the prices from 1895 to 1900, it steadily increased until at the end of 1914, the last date when the figures can be secured, it stood at about 140. On the other hand, the average price of these seven steel commodities started in 1900 two and one-half points be- low the average price from 1895 to 1900. Since that time it has never reached the base. After the formation of the Steel Corporation in 1901, the prices averaged lower than before, and while there have been slight increases from time to time, on the whole prices have been stead- ily downward. In 1912 the average of these prices was some 30 points below the base, and at the end of 1914, the last date at which we can secure the index number for commodities, the purchasing power of steel still remained some 20 points below the basft line. 176 THE TRUST PROBLEM If then we were to assume that the United States Steel Corporation determined prices of steel in the United States, we should be led to the conclusion that it had willed that the prices of steel should be steadily main- tained at a price lower than most other commodities and that its effect could be nothing less than beneficial. That, however, is probably too optimistic a conclu- sion. The index number in the United States is made up of a large number of commodities (252), food prod- ucts and many other raw materials, of which the nat- ural tendency is to increase in price as population increases in accordance with the principle of diminish- ing returns in agriculture. We should expect, there- fore, that manufactured commodities, especially those highly manufactured, would not on the whole show an increase in prices through a course of years quite so great as that shown by the index number representing general commodities. As nearly as we can judge, then, the Steel Corporation has simply fqllowed the normal economic course of its influence upon prices. As has been indicated, however, perhaps the power to deter- mine for short periods prices in the market, has had some effect. In the long run, however, it is dominated by economic forces as are other producers. It is a strik- ing fact that its purchasing power has steadily decreased while the purchasing power of steel in Great Britain and Germany have both increased as compared with general commodities. This certainly seems to show almost beyond doubt that the corporation has not con- trolled prices to the detriment of the community. In Germany there is a large steel syndicate and in Great Britain steel manufacture is in few hands. They cer- PRICES 177 tainly have seemed to dominate the market more than has the Steel Corporation. In this case, again, however, we should not forget that the index numbers in Great Britain and in Germany do not represent exactly the same commodities as does the index number of the United States, nor are the commodities which they do include valued in just the same way. In Great Britain 56 have been considered, in Germany 157. While, therefore, the indications are clear, they are not probably abso- lutely exact. GENERAL CONCLUSIONS This study of prices covering a number of different industries and a series of years is a sufficient basis for certain general conclusions regarding the effect of large industrial combinations on prices. An industrial com- bination controlling so large a percentage of the entire output that consumers are compelled to buy at least a considerable portion of their supply from the combina- tion is able for a period of time to affect materially prices in the market. If it reduces its prices, practically all of its competitors must meet its rates. If it increases its prices, under ordinary conditions its competitors will raise their prices to substantially the same rate, al- though they may shade their prices somewhat to make certain their sales. In case there is an oversupply of goods on the market, an effort of the combination to maintain its prices will result in a gradual loss of its customers to its competitors. The experiences of the United States Steel Corporation, of the American Sugar Refining Company, and of other combinations justify this conclusion. 178 THE TRUST PROBLEM In the earlier days of the combinations there was ap- parently an attempt on the part of some of them to se- cure a monopoly of the market. At times they cut prices to force their competitors either to go out of busi- ness or to join the combination. After they had thus strengthened their hold on the market, they attempted to recoup their temporary losses to a considerable de- gree. The invariable result of this course seemed to have been to call again into the market within a relatively short time strong competitors who then in turn forced them to repeat the process. The result has been to es- tablish fairly generally the business policy of not at- tempting to secure anything like a complete monopoly of the market, but rather for the combination to fix its prices at such a rate that it may secure under normal conditions substantial profits while its competitors are still able to live and prosper. Although the compe- tition is a real competition in certain instances, at any rate, it is no longer the cutthroat competition of the early days of the combination. In the cases of the United States Steel Corporation and the American Sugar Refining Company their per- centage of the entire output of the country has, as we have seen, steadily diminished for the last fifteen years, although they still maintain their position as the lead- ing factors in the market. They do not, however, main- tain a compfete monopoly. Contrary to a popular opinion, a careful study of the charts indicates that the effect of these combinations, taking their history as a whole, has not been to increase prices to the consumers, although at certain times for rel- atively short periods they have doubtless increased prices. PRICES 179 The last few years has been a peviod of rapidly in- creasing prices in most lines of production, especially perhaps in food products. If we follow the course of prices of the products of these great combinations represented on these charts and compare them with general prices as shown by the index numbers, it is an interesting fact that the purchasing power of a unit of steel or of sugar or of refined petroleum^has, on the whole, decreased during this period of rising prices. This fact seems to bear out the contention that on the whole the combinations have it in their power through their savings to lower prices and actually do in the long run at times attain that result. One should not, however, reach too positive an opin- ion. The index number is made up by combining the prices of very many products, and the conditions ap- plying to any one product may be so exceptional that conclusions regarding it, if based on the index number, might not apply. Nevertheless, the study of the effect of the combinations on prices when the price of the special product is compared with the index number is doubtless far more nearly accurate than when merely money prices are considered. The fact, then, that the prices of the great necessities, steel, sugar, and oil, one a highly manufactured product, the second largely an agricultural product, although in part manufac- tured, and the third substantially a mineral product, all show the same tendency as compared with general prices, furnishes a pretty strong indication as to the probable effects of industrial combinations in general. The further fact that the conclusions drawn from the chart are those that had been reached twenty years 180 THE TRUST PROBLEM ago by reasoning from general economic principles gives added weight to the conclusions. The total result seems to be that these great combina- tions do not, in most instances at any rate, attain any- thing like a complete monopoly in any line of work unless they have the protection of patents or some special natural monopoly advantage. They do, how- ever, maintain a leading position in the market which enables them if they so desire, as they quite generally do, to steady market conditions. It seems probable that in lines of industry which do not require special individual skill in many processes of manufacture, they could probably secure a substan- tial monopoly, as they doubtless do have, in certain opportunities, economic advantages. To secure such monopoly, however, would mean that they must hold their prices steadily so low that their competitors could not live, while they could survive. Their advantage, however, is on the whole so little that they will normally prefer to follow the old competitive policy of "live and let live" and content themselves with a mere leadership in the market. This gives to the public probably a sufficient protection against extortionate monopoly prac- tices with the benefits at the same time of large scale production. It is fair to add that this tendency in the United States has probably been strengthened somewhat by anti-monopoly legislation, which has in some cases gone so far as to be injurious to the public, and also by public sentiment and apprehension regarding future leg- islation. Economic principles, however, would have been sufiicient without special legislation to produce the same general results outside of legal and natural monopolies. CHAPTER X THE TRUSTS AND THE WORKINGMEN IF THE statements made in the preceding chap- ters regarding the savings of the wastes of competi- tion are true, it is evident that industrial combina- tions, through these savings, create a fund from which the wages of laborers could be raised, provided it seemed wise to the managers to raise wages instead of increasing their own profits or lowering prices, or pro- vided the laborers were able to enforce a demand upon their employers for higher wages. Experience also seems to show that, when Trusts were first formed at any rate, the wages of their employees, in a good many cases, were raised, although later at times men have been apparently thrown out of employ- ment arbitrarily by the sudden closing of plants. When the Whiskey Trust was first organized in 1887, the wages of several classes of employees were compara- tively soon raised. Mr. Greenhut, the president of the Trust, in his testimony before the Committee of Manufacturers of Congress, testified to this effect.* He expressed the opinion that it was but just to give to the employees part of the benefits which were to come from the new form of organization. He stated further in conversation that public opinion was strongly directed against the Trusts on the whole, and that it *50th Congress,_Second Session, H. R. No. 4,165 pp. 66, 67. 181 182 THE TRUST PROBLEM was perhaps wise to show that the managers of these organizations did not intend to conduct them selfishly for their own benefit solely, but that they wished to distribute the advantages fairly among those engaged in production. It is also in evidence that the employees of the Amer- ican Sugar Refining Company early had their wages increased somewhat, although as their labor is largely unskilled the increase was not at all great. Since the outbreak of the European war there has been a large increase, almost 50 per cent. According to testimony from both the managers of the Standard Oil Company and from its opponents, that company has been in the habit of paying to all its employees regular standard wages, and in many cases of paying to those who showed exceptional diligence or skill in their work very high wages. It is certainly a fact that they often keep their employees for a series of years, and that in the case of superintendents or man- agers or those acquiring special skill the ablest men are usually chosen, and the wages or salaries paid are high. The company has at times increased wages voluntarily. Of late years, however, there have been a number of strikes accompanied by violence at Bayonne and elsewhere. It is evident that their wages have not been put up materially above usual rates. One may note that dividends were more than 40 per cent, in early years and that the Government prosecutions with forced changes in the form of organization of the company have apparently not lowered profits. The combinations in the iron and steel and tin plate industries particularly have all of them in various in- THE TRUSTS AND THE WORKINGMEN 183 stances increased the rates of wages; in 1916 three, times to various groups of employees by 10 per cent, each time. At times some of these companies have also closed plants without warning. The president of the Tin Plate Company testified shortly after its organization that the average increase in wages in that industry had probably been 15 per cent. The Ameri- can Steel and Wire Company had increased its wages in many cases as much as 40 per cent., and in the other related industries the wages had been increased all along the line. It is, however, just to the managers themselves to state that they did not ascribe this in- crease entirely, if at all, to the formation of the combina- tion. They said rather that it was due to the pros- perous condition of the business, to the facts that owing to the heavy demand, prices were high, and that the employees demanded higher wages. It seemed to them wiser to make arrangements with their employees for an increase of wages than to have trouble with them, especially in so prosperous times. In consequence, terms were made, though, in some instances at least, the demands of the workingmen were not fully granted, the increase being rather a compromise than a surren- der. Some of the employers said distinctly that these increases in wages had not been given excepting as the result of demands on the part of the workingmen themselves; that the combinations made no pretences toward generosity. Shortly after the organization of the United States Steel Corporation there was a strike in many of its mills. An effort was made to compromise which had the approval of many of the labor leaders, such as Mr. Gompers, Mr. Mitchell, Mr. Keefe; but 184 THE TRUST PROBLEM the local leaders refused to compromise and later settled on worse terms than had been offered. The corporation from the beginning has not as a whole been favorable to trade unions, though as we have seen they were recognized in some of its subsidiary companies. Strong efforts have been made to secure the good-win and continued service of its workingmen in other ways. To certain classes an opportunity is offered to buy preferred stock in the company at especially favorable rates. (In 1915 about 50,000 workmen out of some 240,000 were stockholders.) Bonuses are offered to many of the men in charge of plants and holding responsible positions, together with pensions for old or injured workmen. Great pains are taken in most of the plants to provide for the safety of the men; emergency hospitals are maintained in many of the plants; playgrounds for children of employees, and district nurses for the sick; sanitary water supplies and toilet arrangements are furnished; lunch rooms have been established with good inexpensive food, and every effort is exerted to see that all is done to promote the safety and weffare of the employees that can be thought of by a department whose business it is to make a study of the question, and by committees of employ- ers and workingmen who work together to develop the general health and welfare of the men. As a result of a threatened strike some time ago in which the workmen seemed to the management un- reasonable, it was finally adopted as a policy of the corporation that it would not deal with unions as repre- senting the men. Many of the men, the officers of the corporation say, prefer not to belong to unions, as they THE TRUSTS AND THE WORKINGMEN 185 are satisfied fully with their treatment, and think they are now deriving all the benefits that could come from a union. The combination avers that it intends to give freely aU or more than unions can secure by organiza- tion. It is probably true that in most cases the relations between the combinations and their einployees have been and will remain substantially the same as those between the officers of any large corporation and their workingmen. In individual instances wages may be increased without special demands being made, but that will probably rarely be the case. The year 1916 has seen a number of instances of this kind like that of the United States Steel Corporation mentioned above. In other cases, while not acting till requests have been made by the men, the combinations have promptly granted the requests as did, for example, the Ameri- can Smelting and Refining Company and the American Sugar Refining Company. The year 1916 is, however, so exceptional that one cannot safely draw general conclusions from its experiences. The increased wages, so easily won, have sometimes resulted, the employers state, in decreased efficiency of the men by 10 to 20 per cent. Such a result is by no means desirable. As the combination has secured additional power in many instances over the producers of raw material, it is fair to ask whether this power will not extend also over the workingmen, so that in the event of a disinclination to meet their demands for higher wages or an inclination to lower their actual wages, the combination would not have more power in carrying out its wishes than would com- peting corporations. There seems to be little doubt "^bat. 186 THE TRUST PROBLEM speaking generally, other things being equal, this would be the case. If the combination is substantially the only employer of labor in its special line of industry, men trained in that line of work and untrained in others would find practically only the one employer to work for. This would to a considerable extent put them in the power of that employer in the same way that the consumer is to a considerable extent within the power of the combination which controls 80 per cent, or up- ward of the output of any industry of which he must buy the product. So far as can be gathered from information as yet accessible, while there are exceptions, as we have just seen, nearly all of the combinations have assumed no hos- tile attitude toward trade unions, but have rather dealt with them in accordance with the wishes of their man- agers. Chairman Gates of the American Steel and Wire Company insisted positively that his organization did not recognize trade unions and would not recognize them. It would deal with its employees as individuals and not with representatives of the union. On the other hand, nearly all of the other iron and steel combinations early treated willingly and readily with the representa- tives of organized labor. This was true of the American Tin Plate Company, of the National Steel Company, of the American Steel Hoop Company, of the Federal Steel Company, and perhaps of others, there being ap- parently on the part of the managers of all of these com- panies no hostility whatever to labor organizations, but a perfect readiness to meet them and to deal with them, as do most smaller corporations or individual employers. Later, as has just been noted, the policy changed. THE TRUSTS AND THE WORKINGMEN 187 In case of a contest arising between the trade unions and one of the greater combinations, it seems evident that, unless the unions have greater power than is usual, the combination, having under its management a num- ber of manufacturing plants, perhaps from twenty to forty, will have a decided advantage over the individual corporation with only one or two plants. If a strike were threatened in one of the plants of the com- bination, it could, with comparatively little difficulty, transfer its orders to its other establishments and close temporarily the one involved without a loss which would in any degree approximate the proportionate loss of a single corporation closing its one plant in case of a strike. This threat is said to have been made in the case of the smelters' strike in Colorado some years ago. The strikers were told that if they persisted in their de- mands the organization would close the establishment in which the strike was threatened and transfer the orders to other plants. In the case of the steel strike in 1901 the company was able by shifting its orders to carry on its work with relatively little loss. In another later instance where the imions were unusually persistent and, as the corporation thought, unjust, it eventually removed the machinery and dismantled the plant rather than yield. As the plant was only one of many, it was able to do this without serious embarrassment. When trade is dull, too, the combination in like man- ner is likely, rather ruthlessly it seems at times, to close part of its plants with practically no warning. In- dividual employers with only one plant are likely to hesitate somewhat longer. The effect on the laboring class as a whole of a checking of production in many 188 THE TRUST PROBLEM independent plants is probably as great as in the effect of closing entirely one or two plants by a Trust. It does not attract so much attention. If the trade, unions were to extend their membership until the one union or federation of unions had in its membership practically all of the workers in the coun- try in one line of industry, the situation would be en- tirely changed. Under those circumstances a strike in one establishment would be immediately followed, if need arose, by a strike in all of the establishments of the combination, so that not merely would the work stop in the one place, but in all, and the effect upon the employer would be as great, or even to a consider- able extent greater, than in the case of a strike against a single corporation which possesses but one manufac- turing plant. Many of the leaders of the trade unions, such as Samuel Gompers, the president of the American Feder- ation of Labor, seem to think that it will be by no means impossible for the trade unions to perfect their organization as satisfactorily as can the organizers of capital improve theirs, so that they will be able to resist the encroachments of capital without difficulty. And, again, if the organization of capital by means of its savings creates a fund from which the laborers could draw if they had the power, these union leaders are in- clined to believe that they can secure their full share of the funds thus brought about by the increased savings. They, therefore, assume no especially hostile attitude toward the combinations, which they consider inevitable, but are, on the whole, rather inclined to favbr them, thinking that the laborers have the power to secure THE TRUSTS AND THE WORKINGMEN 189 their proper share of any savings which may accrue to the community from combination. In 1916 the de- mands of the railroad employees seem to have met with the full approval of the American Federation of Labor. The union of the great railroad brotherhoods with the Federation would give to the labor combina- tion a power in many ways more extensive in its range than that of any capitalistic combination yet organ- ized. It will be noted, of course, that if wages are thus in- creased to the wage earners, the result must inevitably be a checking either of the profits of the employer, or, what is perhaps more likely, of the lowering of the price to the consumer. The real contest in many cases when laborers press their employers for higher wages is with the consumers. Wages can be increased if prices rise; and employers not infrequently find the consumer more docile than the laborer. Under such circumstances the workman at times, as consumer, gives back to his employer a good part of what he has received from him as an increase of wages; but even in this case the new distribution proves to the advantage of the laborers as a class. Not all is paid back, for there are other consumers. If by combination of capital with its saving of en- ergy a new fund of wealth has been created, the capi- talist and employer will try first to take it, and will claim that it is theirs justly, for they have by their intelligent action created this fund. The workmen will strive to secure it in the form of higher wages, and claim that it is justly theirs, for some of them have been thrown out of employment to make it, and theirs is the 190 , THE TRUST PROBLEM labor that is used to better advantage. The consum- ers will try to secure it through demanding lower prices, and they, too, will try to justify their claim. These savings, they say, would not have been possible save under modern social and economic conditions and laws, for which society as a whole, and no one special class, should have the credit. The actual disposition of the fund will be arranged by struggle. If the combination does not succeed in holding competition down, the largest part will prob- ably in the long run get to the consumers in lower prices, though, at times, as indicated in the last chapter, the employer wUl take it and probably be forced to divide with his workmen. If competition is kept down, the employer will take the larger part at first; but he will be compelled soon to give part to the wage earners, if they are well organized and insistent, while the con- sumer, too, will probably eventually get part under the influence of a threatened competition. In the report of 1915 of the United States Steel Corporation, Chair- man Gary in explaining the reason for not paying a dividend on the common stock said that if that dividend had been paid, it would have been necessary to lower wages and that the Board decided it was better and wiser that the holders of common stock forego their dividends rather than that wages be lowered. The stockholders present agreed with him. In many of his reports he emphasizes the desire to work with and for the workingmen and in many instances the working- men respond with the assertion that the Corporation is an employer of the very best type. It will probably be true that, in the case of a contest THE TRUSTS AND THE WORKINGMEN 191 between organized capital and organized labor, the sympathy of the public will be on the side of labor; so that whatever benefit comes to either side from the pres- sure of public opinion is Ukely to accrue to the laborer. There is, to be sure, on the part of a good many a prejudice against labor unions, and particularly against those that have assumed great proportions and ac- quired great strength. It is possible that public opinion might even turn against them, provided they were to control substantially all of the workingmen in any line of industry. But it is much more likely that, for a long time to come, the aggressions of capital will arouse much more hostility on the part of the public than those of labor. In this contest, then, between the Trusts and the laborers, the advantage of public opinion wiU remain chiefly with the laborer. Contests between the Trusts and their employees have rarely arisen on a large scale in spite of the cases named, if we except the great coal strike of 1902, and the strikes against the Standard Oil Company. The great strikes in the cotton industry at Lawrence, Mass., and in the silk mills at Paterson, N. J., were not against an industrial com- bination and the railroad controversies are not to be considered here. Attention has already been called to the fact that certain classes of workingmen, such as commercial travel- lers, are no longer needed in so great numbers by the combinations as by the separate competing estab- lishments. It will be recalled that the Whiskey Com- bination was able to dispense with the services of some three hundred travelling men upon its organization; that the American Steel and Wire Company was able 192 THE TRUST PROBLEM to discharge some two hundred travelling men; and many other similar instances have been found. Naturally the travelling men themselves, and in many cases others, are inclined to think th^t this dis- charge of travelling men is in itself a serious industrial evil. Reflection, however, will show that if the work is really rendered no longer necessary in order to supply the needs of consumers, or if the work can be equally well done by fewer men, the saving of this labor is a distinct industrial gain similar to that which is found upon the introduction of a new machine. It is true, of course, that suffering is likely to be the lot of those discharged; as, in earlier days, upon the introduction of the power loom, many of the weavers were reduced to poverty, even to starvation. If, however, as seems to be the case, a real saving is effected by combination, though individuals may suffer, the working classes as a whole will be benefited, not merely by the reduced price of the article itself (if the Trust permits it to be reduced), so far as they are consumers, but also, within a comparatively short time, by the increased demand that will come for their services through the increased demand for the goods brought about by lowered prices. The advocates of the combinations do not hesitate to claim that this will be the effect, and any careful thinker will be inclined to agree that if the saving is a real one this must be the case, unless the Trust itself absorbs all the savings. Aside from the commercial travellers, however, the class of employees that seems to be injured most is that of the superintendents or of the higher officers of the corporations which enter into the combination. THE TRUSTS AND THE WORKINGMEN 193 In not a few instances, many of the officers have been removed. Judge Gary, formerly president of the Federal Steel Company, testified before the Industrial Commission that large savings had been effected through the dis- placement of unnecessary officers in the companies which entered the Federal Steel Company, and that some gain had also been made by the reduction of the salaries of officers that remained, inasmuch as they were given less responsible positions. He submitted a table showing the number of employees of all classes during the years 1898 and 1899, with their comparative wages. This showed an increase of 4.76 per cent, in the number of officers and clerks, but a decrease of 6.26 per cent, in their average daily pay, making a slight decrease in the total expenditures. Considering the de- cided increase in the number of laborers and the large increase also in the amount of business done, that seems to be a noticeable saving. Mr. Gates, Chairman of the American Steel and Wire Company, testified also to the same effect. The official organizations of the separate plants that are in the American Steel and Wire combination had been to a considerable extent done away with. Each plant formerly had its president, vice-president, manager, and other offic rs, most of whom had been discharged, the business being put in the charge of the men in the central offices in New York and Chicago and the plants being operated under the direction of district superin- tendents. He was of the opinion that perhaps 50 per cent, of the high-priced officers had been dispensed with, as well as the two himdred travelling men mentioned before. 194 THE TRUST PROBLEM The fact that the laborers discharged by the combina- tions are to a considerable extent superintendents and travelling men, two classes of high-priced laborers, is likely to promote less hostility on the part of the labor- ing classes than if it were the ordinary workingmen who were discharged. In either case, however, the indus- trial effect depends, of course, on the use that is made of these savings. If they go entirely to increase the salaries of the officers that remain, or perhaps even in dividends to the stockholders, the savings will be con- sidered of less general industrial benefit than if they go, to a considerable degree, at least, to the public in the way of reduced prices or to the common laborers in increased wages. The experience so far would seem to show that labor has been made more efficient by combinations of capi- tal; that, owing to the better organization, there is a larger average output per workman; and that the bene- fits of this increased efficiency for a time at least have been divided between employers and workmen. The price charts seem on the whole to indicate that probably eventually the consumers also have gained in lower prices while competitors — at any rate the strong ones — have not been destroyed. Speaking generally, at any rate, no damage to the laborers as a class seems to have resulted, either in the way of decreased wages, in spite of the classes mentioned before that have clearly been injured, or in the way of less steadiness of employ- ment. In fact, it is probable, as regards the latter fea- ture, that employment may be made, and probably has been made, somewhat more steady, in spite of the fact that in some instances individual plants have been THE TRUSTS AND THE WORKINGMEN 195 closed, apparently with no good reason, excepting to shorten the output in order that prices may be kept up, or, worse yet, to affect the stock market. Such acts cannot be too severely condemned. Happily they are not common, and the evil can apparently be reached by legislation. Numerous charges to the effect that the combinations have shortened the output in different in- dustries for the sake of putting up prices have, of course, been made, but a careful study of aU the evidence pre- sented in different investigations along this line seems to show that this contention is often not justified. It is doubtless true that in individual cases plants have been closed for the sake of cutting off some one rival; but, generally speaking, plants closed are either unfor- tunately situated or have not been skilfully managed. The former total output has usually been maintained or even increased though the number of plants has less- ened. If the power of the labor organizations keeps itself commensurate with that of the combinations of capital, it is probable that the tendency toward the combination of these two at the expense of the consumer will, for a time at least, increase. The plan suggested by Mr. E. J. Smith, of Birmingham, England, to avoid strikes and other difficulties between employers and their em- ployees, was of this nature. His suggestion was that combinations complete enough to control in good part an entire industry be made among employers on the one hand and trade unions on the other ; that a committee representing both classes fix the relations between them as regards wages, and to a considerable extent also as regards prices, it being understood that wages shall 196 THE TRUST PROBLEM be fairly high and profits fairly large. In case, then, any new competitor of the capitalistic class comes into the business, by agreement of both parties, prices would be cut to his customers, if necessary, and laborers in that line of industry would refuse to enter into his employ. On the other hand, if laborers in that in- dustry" were to increase beyond the normal demand of those in the combination, they would be opposed by the laborers already employed, and the employers in the or- ganization would refuse to give them work. This plan to regulate competition, known as the "Birming- ham Alliances," seemed to work successfully for some time. But in 1900, owing to strikes and independent manufacturers, the alliance was dissolved, and later efforts to make such a combination have failed. While this plan has been proposed, and in the judgment of many justified, both in theory and in practice, most eflflciently by Mr. Smith, it is nevertheless true that in this country, in Chicago at any rate, similar combina- tions in one or two lines of industry have been effected, though not complete in form. Some trade agreements continued from year to year between large companies and the trade unions have in part the same effect. The "forgotten man" in this case seems to be the con- sumer, inasmuch as the rate of profits and the rate of wages being both fixed by interested parties, although called fair, are likely to be higher than in many cases would be considered fair by the consumer. An attorney of one of the prominent Trusts said some little time ago that, in his judgment, the ultimate outcome of the combinations of capital would be that their profits would be restricted* either by governmental THE TRUSTS AND THE WOREINGMEN 197 action or otherwise, to a normal [rate of 5 or 6 per cent., and that after this profit was paid the surplus arising from the savings of the combination would be divided between the laborer in high rates of wages and the consumer in low prices. He was not at all clear as to the forces which would bring about this result, be- yond the fact that in some way public opinion would restrict closely the profits of the employer to what most people beUeved to be a fair rate. It, however, seems to be an easier step to secure a combination of employer and employee at the expense of the consumer than of the employee and the consumer at the expense of the employer. If the employer is to be closely restricted, it must doubtless be through legislation. The late legislation by Congress in the Adamson Act (1916) upheld by the courts (1917) seems to indicate an inclination on the part of the trade unions to exert a more direct influence upon the Government to in- tervene in their behalf than has been noted heretofore. The statements of the leaders of the unions, however, that President Wilson practically forced this law upon them, and their agreement with the railroad companies in opposition to President Wilson's advocacy of com- pulsory arbitration of labor disputes, seem to indicate that such legislation will not be common, but that the great combinations of labor and those of capital will in the main settle their relations by mutual bargain- ing and agreement. CHAPTER XI POLITICAL AND SOCIAL EFFECTS WHATEVER may be the efifects of industrial combinations upon prices, or wages, or profits, or investors in stocks, it is thought by many that they have a more subtle, and perhaps on that ac- count more dangerous, effect upon our political and social organization and upon the morals of individuals. It is a matter of common rumor and almost of com- mon belief that the railroads and the large industrial combinations are able to influence to a material extent the acts of our legislatures and even the decisions of our courts, although these charges now are less common than they were ten years ago. This influence is thought by many to constitute their chief menace to the integrity of our institutions and the welfare of the country. It is doubtless true that in many cases large sums have been paid by corporations to affect in some way or other the actions of legislatures. The officers of the corporations or their friends, if they speak at all on the subject, are likely to say that "strike" bills have been frequently introduced in the legislatures for the especial purpose of threatening their interests, in order that certain of the members may be paid to withdraw the hostile bill; and that it has been found both cheaper and much more effective to pay the very few people who employ this blackmailing plan than to attempt to 198 POLITICAL AND SOCIAL EFFECTS 199 defeat the hostile bill by fair argument. It seems also to be true at times that a bill which may be entirely proper and even beneficial to the public in its nature, but which also favors particularly the interests of some of the larger corporations, may be opposed by the party leaders or byindividual representatives, until an amount of money has been paid either to party managers or to enough individual members of the legislature to secure the passage of the biU. A few years since, a bill which was said to be entirely in the public interest, as well as in thatof oneof thelargecorporations, could be passed in the legislature of one of our larger states, it was reported, only by the payment of $150,000 to the leader of the party in power. Some of the larger corporations, busi- ness men say, expected a few years ago to set aside for such uses a considerable sum to be charged to busi- ness expenses. It is encouraging to believe that the public investigations made by several state legislatures, notably, perhaps, the insurance and municipal govern- ment investigations in New York together with the pres- sure of public opinion, have greatly lessened this evil of bribery and undue interference in politics; but that it still exists is hardly to be denied. Before a committee of Congress, Mr. Havemeyer a decade or two ago testified that the American Sugar Refining Company contributed in some states to the campaign fund of the Republican party, in others to that of the Democratic party, the intention being to stand well with the dominant party in each state. It was presumed that this custom was followed in order that, through the influence of the dominant party, both hostile legislation might be warded off in case of need, 200 THE TRUST PROBLEM and measures, which, on the whole, were favorable to the interests of the company, might be more care- fully considered perhaps than would otherwise be the case. While it is probable that many individual cases of this kind occur, and that corporations, both in self- defence and for the sake of furthering their own inter- ests, do at times buy members of legislatures, it is like- wise probable that the prevalence of this custom is not a little exaggerated by many people, and especially by certain sections of the press. It is certainly true that the character of individual legislators and their faithfulness to their trust are considerably better than is commonly assumed in popular discussion in the news- papers. Again, direct frauds in weighing sugar subject to customs duties were proved against the American Sugar Refining Company. This fact, however, does not weigh especially against the great combinations as such, however severe it may be against the former ofiicers of this company. Similar frauds are doubtless even more numerous in the case of individual smugglers or of small companies. That is a matter of personal character — ^not of business organization. But if we grant that corruption of the legislatures and even of the courts on the part of the large corporations is not infrequent, does it follow that the corporations should themselves be destroyed, or that they are chiefly to blame? Certainly no distinction can be made in this regard (although in other respects, as Mr. Bryan properly showed at Chicago, differences are clearly to be noted) between the capitalistic combinations POLITICAL AND SOCIAL EFFECTS 201 called Trusts, and railroads or partnerships or wealthy individuals, and the evil seems to be common to all. The fault seems to be rather with the legislatures and the character of the men whom we, the public, send to them, or with our ethical and social standards, than with corporations as such. If the combinations have good features about them, it would certainly be unwise to attempt to destroy them because our legislators were dishonorable men. A much wiser as well as a much more certain and probably an equally practical measure, would be to endeavor in some way to improve the character of our legislators by better methods of election, or by general education, or to lessen the oppor- tunities, through rules of our legislatures or otherwise, of those who are unscrupulous enough either to black- mail a well-meaning corporation, or to take dishonest pay from a dishonorable corporation. That the polit- ical evil exists, is beyond question. That its cause is mainly the Trust and its only remedy the destruction of the Trust by no means follows, although that seems to be a normal presumption by very many. Of much greater significance on the whole is the eflfect of industrial combination upon our social organ- ization. The democratic social systems of the United States and of many of the newer English colonies seem to have developed a power of self-control and of self- direction in the individual citizen which can rarely be found elsewhere in the world. This power of self- direction is found to a remarkable extent often in local governments, and in individuals, especially in business men. The chief purpose even of our school systems, in the judgment of many of our ablest and most high- 202 THE TRUST PROBLEM minded teachers, is to develop among our rising citizens this power of seK-control. In fact, M. Demohns, in his most interesting book, "Anglo-Saxon Superiority," ascribes the success of the English-speaking peoples in self-government and in the establishment of colonial systems largely to this independent spirit, which he thinks has been developed in our systems of education, both that of the schools and that of the home, in the inclination of parents and teachers to compel children, especially the boys, to rely upon themselves in all the ordinary emergencies of life. It is thought by many that competition in industry develops this power of individual seK-direction, while the Trust system destroys it. Under the competitive system, each cares for his own. The one who shows on the whole the greatest power of self-reliance, self- direction, and skill — the fittest — is the one who, in the competitive struggle, survives. As his weaker rivals fall out, the plane of efficiency is elevated and the whole industrial structure is raised. This competitive strug- gle among individuals may be cruel in its effects upon those who lose, but from the strictly economic point of view it, so far at least, has generally seemed best for society, inasmuch as it has resulted in the success of the one most fit whenever the competition has been legal and just. When, on the other hand, combinations among com- petitors are first made, the weaker instead of being forced to the wall, are saved, although their establish- ments may be closed by the combinations, and al- though they may have been taken into the combination on terms, relatively speaking, unfavorable. When the POLITICAL AND SOCIAL EFFECTS 203 whiskey combination was organized with its eighty separate distilleries, of which nearly seventy were almost immediately closed or dismantled, unless in fact they had been closed before, dividends were paid equally upon all the property, although the absolute amounts paid to the stockholders who had put in their plants at low prices were, of course, comparatively small. When, in 1887, the Sugar Trust was organized, the weaker competitors were not forced to the wall, but were taken into the combination, although, doubt- less, at a low valuation. Aside from the effect upon individual character, con- sider first whether the community loses or gains eco- nomically by this apparent preference of the combina- tion to buy up weaker establishments rather than to force them out of existence by a more determined com- petitive struggle. From the standpoint of the creditors it is probable that there is comparatively little difference in the methods employed. If competition should con- tinue, and the weaker producer be forced into bank- ruptcy, so that his creditors would receive but fifty cents on a dollar, they would lose by so much. If, on the other hand, with the man's business in the same low condition, the establishment is bought up at fifty cents on the cost price, if the man is honestly eager to pay his debts, the situation is probably not materially different. A man who is compelled to sell to a combination at what he believes to be less than the value of his establish- ment under the competitive system, may, of course, have feelings of bitterness toward the combination that the bankrupt would not have toward any of his com- petitors; but the economic result to him and to his cred- 204 THE TRUST PROBLEM itors would not be materially difTerent. Both lose in either case. During the continuance of the competitive struggle between rivals who eventually enter a Trust, or be- tween a large combination and its outside rivals who are being gradually forced out of business, prices to consumers are likely to range low for a considerable period. Under those circumstances, it would seem that the consumers, for the time being at least, gain more than they would if the combination were earlier effected, without any of the competitors being driven into bank- ruptcy. On the other hand, it must not be forgotten that the most vigorous competition is almost of neces- sity wasteful. While on the one hand the ablest com- petitors rely upon excellence for their success, many others, especially in the last stages before they yield, resort to questionable practices. Cheap devices are sometimes employed which are likely to result in im- perfect goods. The manufacture of shoddy instead of genuine goods is sometimes encouraged. Desperate means to secure unwarranted credits are often resorted to; and the loss from these sources, as well as the direct loss to the competitors themselves, is likely to more than offset the gain to the consumers from the tempo- rary lowering of price until the producers are, many of them, driven into bankruptcy. Besides this, the com- bination or the surviving competitor is likely, when the fight is won, to recoup his losses by demanding an in- demnity, not from the vanquished as 'does a victorious nation, for that would be a vain attempt, but from the onlookers, the consumers. The victor will ask, too, why the consumers ought not to pay the indemnity. POLITICAL AND SOCIAL EFFECTS 205 They have been, through low prices, the beneficiaries of the conflict. A reasonable competition, which may indeed force out one by one individual producers, is clearly a health- ful influence in the industrial community, stimulating the better ones to their best eflforts and raising the plane of eflSciency. A competition of this nature where, one by one, the weaker competitors drop out and more eflScient ones come into the industry from time to time, produces no crisis in that industry. On the other hand, fierce competition among rivals nearly equal, especially when large amounts of fixed capital are involved, not only leads to the wastes already mentioned of ill- advised methods and measures, and losses to practically all of the competitors themselves, but, further, leads to general depression in the line of industry involved. This depression will lead to shifting of capital from that industry into other lines for which, imder normal con- ditions, there is not so great need in the community, and this, in itself, involves another industrial loss. For these reasons it is probable that, when competition is of this nature, the community will gain from the economic viewpoint by a combination which stops the competition before it has reached the ruinous stage, even though it does involve for the time being the tak- ing of some plants that are comparatively useless. The value of those plants will, in part at least, be saved by employing them in other lines of industry; but even where the loss is temporarily a total one, it is likely to be less to the commimity as a whole as well as to the combination itself than would result from a continu- ance of the competition to the ruin of a large proportion 206 THE TRUST PROBLEM of the competitors. When unfair and illegal methods of competition are employed, such as the use of dis- criminating rates on railroads, or any dishonorable practices, the above discussion does not apply. Such unfair and illegal methods put the question rather into the field of criminal law or social ethics. Such practices are under no circumstances to be justified or defended. But aside from the effect of the avoidance of bank- ruptcy on the part of numbers in the community, it is often urged, and that with much reason, that under the present system of production on a large scale, an individual cannot start independently in business, unless he has large capital or is in some way personally in favor with the managers of the larger combinations. We have, therefore, in the community, it is said, a few magnates in productive activity, together with multi- tudes of men of sound judgment, capable of managing large enterprises independently, who are reduced to the position of employees — their individuality dwarfed, the development of their manhood checked — all this, of course, to the detriment of the State and of society. So far as this contention is true (and there is much truth in it), it is perhaps the most serious objection that can be made to the present system of industrial combinatio . It is a well-known fact that the high ofl&cials in our large insurance companies, in our rail- road systems, in our banks, and in other great industrial enterprises, do give opportunities at times to their chil- dren and their friends for advancement in the direction of industrial enterprises which could not so readily at least be secured by others. On the other hand, it is doubtless true that if these scions of the industrial POLITICAL AND SOCIAL EFFECTS 207 magnates show themselves incompetent, they often will be soon removed from their positions, or dropped into others of less responsibility, or held permanently in positions involving little power of final decision, while the more capable men who have earned their positions take their places. If such a course is not taken, the rivalry of old or new capital will soon make itself felt. The savings of combination before men- tioned will be more than offset by the losses arising from incompetent management, and the combination wiU fall before its smaller rivals. That this tendency in great corporations toward nepotism is strong cannot be doubted. There is reason to believe, however, that the variety of interests and the pressure of opinion within the combination have been and will be sufficient to hold such a tendency within safe limits. Moreover, the same evil is found, possibly to an even greater de- gree, in the small institutions. Again, the late popular demand for efficiency in business methods has led in very many cases to a much closer study of costs of production in many fields and has thus so clearly pointed out the inefficient man, whoever he may be, that his position has become less secure. On the other side, however, of this vital question, there are one or two matters for consideration. Many men are now trying to work independently who are industrially fit only to work under direction. Any careful business man or observer of business conditions can probably name among his acquaintances men who, good workmen perhaps, are fit to be carpenters or ma- chinists or tailors while working under the direction of 208 THE TRUST PROBLEM others, but who wish to become and at times do become contractors, or who open stores of their own where they are in positions of financial responsibiUty as heads of estabHshments, and who, whenever they secure such independent positions, invariably bring disaster upon themselves and consequent discomfort to their families and loss to their creditors. There can be no question that, from the strictly economic point of view at least, the endeavor of these men to manage a busi- ness independently, when they are fit only to be work- men imder the direction of others, is a distinct evil. Unless the waste is needed to enable society to select the business leaders, or unless men who work under the supervision of others are deprived of their individuality, the loss is probably great enough to overbalance any gain which society derives from their attempts at man- aging a business for which they are not fit. The fact should not be overlooked that persons holding subordinate positions are usually granted much more independence in work than is often thought. In a large mercantile or manufacturing establishment the heads of departments ordinarily have full discretion in the management of their departments as long as they prove successful. Their employers look for results. They are given general directions in order that they may fit properly into their places in the great organization, but they have full discretion as regards the details of management, and in most cases have as great opportu- nities for showing their originality and for testing their powers of combination and organization as it would be possible for them to have in managing with entire inde- pendence a much smaller business. POLITICAL AND SOCIAL EFFECTS 209 WTien a number of small railroads are brought to- gether into a large system, a number of presidents of railroads lose their positions as presidents to be sure, but most of them are retained as division superintend- ents, managing the same lines of road which before they managed as presidents, employing for the most part the same men, receiving as good pay, and being given almost if not quite as much discretion as before in the general management of their roads. It is true that they must report to a superior, but it must not be forgotten that as presidents of the roads they also reported to their directors, and that their work was sub- ject to criticism even before the combination was made. Indeed, comparatively few men in important posi- tions at the present time are entirely without responsi- bility to others. The president of a railroad reports to his directors; presidents and professors in universities, superintendents of schools, heads of practically all gov- ernmental departments, are subject to control, and more or less subject to direction. The art of managing one's superiors by tact, honesty, and excellence in serv- ice is also an art which develops individuality, perhaps to even as great an extent as the power of acting with entire independence, owing responsibility to none, ex- cepting perhaps to one's creditors through the action of a court. A wise superintendent of schools, to show his power over his trustees, said to a friend some time ago that they had never refused any request that he had made. His thoughtful friend replied, "Then you have been exceedingly wise in making your requests." The wise executive officer has little difficulty with his supe- riors, and one cannot say that his individuality is in any 210 THE TRUST PROBLEM way weakened by the fact that he is held responsible by those superiors. The weakness of most employees is, that they do not attempt to think independently in their work, and that they make no effort to exercise original power in the performance of their duties. There are few posi- tions in which independent thought (not, of course, independent action without consultation) will not count. The employer is rare who will not trust to the fullest extent any employee who shows himself fully worthy of confidence, and who will not give him every opportunity to develop original independent power. Of course the fact is not overlooked that much work is largely routine, but the statements are not too strong when one speaks of opportunities for independent thought under the competitive system as compared with those under the combinations. Under both, the great majority are not expected to do much planning. The advantages coming to the combination and to the individual manager of a plant from comparative accounting that shows the results of each plant's work in comparison with those of all the other plants are very great. When the central office from its tabulated weekly returns sees that plant Number 1 is falling be- hind in labor costs, that plant Number 2 is improving its by-products per ton, that plant Number 3 is falling behind in quantity of finished product per ton of raw material, etc., the president and board of directors are able to point out to the managers of the respective plants their strong and weak points with a precision and a degree of effectiveness that cannot well be matched in general competition. Such detailed com- POLITICAL AND SOCIAL EFFECTS 211 parative statements of results are as helpful to the in- dividual managers of the separate plants and as much contributing factors to their personal success and de- velopment as they are to the profits of the combination. As the system of industrial combination develops, it seems now that there will be many of these positions to be held by subordinate superintendents, which will be equally satisfactory from the financial point of view as the headship of small establishments, and which in most cases will afford an opportunity for enterprise and independent judgment not materially less satisfac- tory, while, on the other hand, there will be created some positions which are far greater prizes in the industrial world than could ever be found under the former system of competition; and yet experience has not so far shown whether or not favoritism instead of excellent work may fill many of these places. Eventually, under the pressure of comparative accounting and publicity, there seems Kttle doubt that merit will win most if not all of them. To those, again, who are of the opinion that the large corporations often compel their employees to engage in practices which are not in accordance with the strict- est morals — ^for this complaint is sometimes made — ^it may be said that one is as seldom urged to do wrong by his employers as by the system under which he works. The pressure of competition against the individual pro- ducer not infrequently leads to misrepresentation re- garding credit and to dishonorable practices in methods of manufacture and sale of goods. How many of our taxpayers deal fairly and openly by the State? The system of combination may. and does indeed in many 212 THE TRUST PROBLEM cases, lead to wrong acts on the part of individuals. If our eyes are open, we may see that it is questionable whether the competitive system leads to fewer. There is much to be done in the way of improving our stand- ards of business morals; and yet it is probably not too much to say that on the whole, whatever the form of our present industrial system, they are improving, in spite of the many evil practices which we see. A high standard of business character probably never before counted for so much as it does to-day. In estimating the extent of both the economic and social effects of industrial combinations it is essential to note that their activity is limited now to only a part of the industrial field, not more than 25 per cent, at most; and there seems no likelihood that they will in this era, if ever, cover it entirely. So far, at least, they have proved to be most successful, with apparently a degree of permanence, only in those industries which require much capital for successful prosecution; in which the product is uniform in its nature and the pro- ductive work of a routine character; those in which the product is bulky and there is a wide distribution of freight; or those in which other somewhat similar char- acteristics of a special nature, such as very expensive advertising, patents, etc., serve to encourage the com- bination of capital. On the other hand, there have been few combinations, as yet, in agriculture with the exception of those en- gaged in the distribution of the product, such as the California Fruit Growers' Association, cooperative cheese and butter associations, and others of that type. It is true that there has been an occasional corner of wheat POLITICAL AND SOCIAL EFFECTS 213 in some one market. In some of our larger cities there have been combinations which to a considerable extent have controlled the supply of milk in their particular vicinities. There is a large combination in the manufac- ture of flour, but that controls only a small proportion of the market. Speaking generally, food products of all kinds that come from the farm and from the small producer are largely beyond the control of the combina- tions, though the production of dressed beef seems to form an exception in the opinion of some observers. So, again, in lines of manufacture in which little capi- tal is needed to start a successful establishment, al- though there may be large combinations, competition against them is so easy that they comparatively seldom secure control of a very large proportion of the market, and the evils from them to the commvmity can be only comparatively small. The great mercantile establishments known as de- partment stores have been considered by some as anal- ogous to the great manufacturing combinations. In the main, however, they are quite different. Their chief advantage is that they bring goods of various kinds into convenient proximity to meet the needs of the purchaser. In some instances they have doubtless driven out of business many small retailers. On the other hand, their overhead charges are high; it is diffi- cult for them to give the most careful supervision to their clerks and from the nature of the business they cater to the great mass of the general public. Specialists in diflFerent fields will usually serve better the needs of individual buyers who are themselves experts and wish the best service . Many of the great department stores— 214 THE TRUST PROBLEM in spite of noteworthy exceptions — ^have not been finan- cially successful, and there need be no fear that they will secure a monopoly of general trade, convenient as they often are, nor that the small man of ability who really knows his field cannot compete against them. Similar observations can be made regarding the chain stores, especially those dealing in drugs and tobacco. They have the advantage in large working capital which enables them to secure good locations and to buy in large quantities. They are doubtless man- aged with more skill than are many of the small com- petitors. But in this case also an individual who is really expert in the field, by his greater interest in his work and the more clearly personal touch in dealing with others, if he has a reasonable amount of capital will find that his advantages will often fully offset those of the chain store. When goods produced are of such a nature that a person can stamp his individuality upon them — as in all work that is essentially artistic, including even mil- linery and fashionable tailoring — or when individual work is required in production, it seems clear as yet that there can be no monopoly that will be dangerous to the community, or any monopoly at all, without government aid and support, which can materially affect the life of the community. The monopoly of genius is individual, and cannot be affected by a com- bination. Experience only can show the limit of the field of com- bination. There can, however, be little doubt, on the basis even of our present experience, that its field is considerably more limited than has been thought by POLITICAL AND SOCIAL EFFECTS 215 many during the past decade, and that there still re- mains opportunity to find his place for each one who is capable of independent work. On the other hand, it seems equally true that, whenever the nature of the in- dustry is one which is pecuharly adapted for organiza- tion on a large scale, these peculiarities will so strengthen the tendency toward a virtual monopoly that, without legal aid and without special discriminations or ad- vantages being granted by either the State or any other influence, a combination will be made, and, if shrewdly managed, can and, after more experience in this line . has been gained, probably will practically control per- manently the market, unless special legal efforts better directed than any so far attempted shall prevent. Even when the combinations exist, however, the social effect, while in certain directions exceedingly unpleas- ant, especially to those who are in competition when the organization begins its work, is yet not all evil. The great corporations afford greater scope for individual power and independent management than has been ordinarily supposed, although they are practically certain to bring most positive injuries to society, unless they can be kept under social control. Despite the fact that the public control has been greatly strengthened of late years, there still remains much to be done both in the way of defining more clearly the field and methods of action of the combinations, and in freeing them from unjust and unwise restriction where these have been carried too far. Although, as has been shown, their power is much more limited in the long run by business condi- tions than has been supposed by many, and although, as their methods become better known, their influence 216 THE TRUST PROBLEM will be still more restricted without positive action against them, their power over prices and wages and social and business conditions is still too great to be left in the hands of interested parties without legislative check. One of the leaders of a great combination said of their industry some months ago: "We control con- ditions." Such power should at least be put and kept under supervision of those who represent society. CHAPTER XII INDUSTKIAL COMBINATIONS IN EUROPE THE study of industrial combinations under the differing conditions in Europe serves to con- firm to a material extent the conclusions reached in preceding chapters. It is probable that in Germany and Austria, if not even in England, industrial combina- tions cover as many different industries, and control as large a portion of the manufactures in each industry as is the case in the United States. On the other hand, in England only is the form of combination generally that of a single corporation owning many separate establishments. In all of these countries are found numerous combinations of the primitive form mentioned in the earlier chapters, which are merely agreements — often local in their nature — among different manufacturers or dealers to limit the amount of their output or to maintain prices at a rate agreed upon. But in all of the countries also, aside from this loose and often merely local arrange- ment, there are large combinations controlling 90 per cent, or more of the entire output of a single product within the country named, in many cases having an international influence. The causes of combinations when they were first developing on a large scale in the late nineties and the first decade of the twentieth century as given by those tl7 218 THE TRUST PROBLEM who have been most active in forming them and in managing their afifairs are substantially the same every- where as in the United States, showing that the princi- ple of combination itself is one which seems normally fitted to our present stage of industrial development and one which is not dependent upon mere local conditions or legislation. The desire to avoid ruinous competition was prac- tically always mentioned as the chief cause. In later years in this country, owing to adverse legislation, not only is the cause seldom mentioned, but the form of the combination is adapted to other aims. In Ger- many, however, where agreements on prices or output are not illegal, this cause is more frequently put in the foreground. With that are associated the various savings spoken of in Chapter III, although naturally some of these savings are dependent to a considerable extent upon the form of combination itself, and there- fore in many individual cases are not found. Speaking generally, however, the opportunity of avoiding cross freights, of running plants to full capacity and on full time, of special adaptation of machinery, and specializa- tion of different plants upon special products, with the corresponding specialization of individual skill on the part of the managers and workmen, the common use of patents, brands, etc., the savings in advertising, the lessening of the cost of superintendence, the possibility at times of saving of labor, particularly of travelling men, and the other savings enumerated, are some of them found practically everywhere, and practically all of them are found somewhere in studying the different combinations. Naturally the savings mentioned are COMBINATIONS IN EUROPE 219 not all of them applicable in every case. Wliere the agreements cover only seUing arrangements, special advantages applying to manufacturing would many of them not accrue. Certain local circumstances in Europe, rarely found in the United States, are met with which tend somewhat to check combination growth. For example, in most of the older countries, a manufacturing firm is frequently found which has been established for several genera- tions, possibly even for centuries. The members of the family naturally take great pride in their business, and the business itself becomes to a considerable ex- tent hereditary. Often, beyond doubt, through this business inbreeding, careless habits and wasteful meth- ods creep in, and at times the sons or lineal descendants of the able founders of the business prove to have much less business skill than their predecessors. In more than one instance men have hesitated to enter combina- tions, because, as they said, they had hoped to hand their business down to their sons, but they knew that if a great combination was formed, the officers of which must be selected on the ground of business capacity, their sons must either withdraw or take a subordinate place. From the point of view of economic efficiency, it is doubtless desirable in many of these cases for the firm to be replaced by the combination. Some of these same influences too, taken with others, such as the corporation laws, the attitude of the courts, and the state of public opinion, while not lessening ma- terially the drift toward combination, have nevertheless affected decidedly the form which the combinations have assumed. Not having yet felt the pressure of competi- 220 THE TRUST PROBLEM tion to quite so great a degree perhaps as have manu- facturers in the United States in many instances, and not having so often the habit of conducting various kinds of enterprises jointly, and, in consequence, of submitting one's individual will in many matters to what seems to be the joint interest of a groups the in- dividual manufacturers in nearly all of Europe seem to struggle more vigorously against selling out or against subordinating themselves to the direction of a single managing head than do the independent manufacturers in the United States. One can hardly ascribe this dif- ference to a greater spirit of independence, in the proper sense of that word, than exists in the United States, as is so often claimed by the foreigners themselves; but a less degree of willingness to abide by the decision of a majority and to cast one's own lot in with that of others seems to be clearly noticeable. The law has apparently also in all of the countries, although, as will be seen later, there are some apparent exceptions, been ready to uphold contracts to limit the amount of the output, or even to sell goods at a certain fixed rate — contracts which in the United States would be held contrary to many of our anti-Trust laws, and which even would, in certain instances at least, come under the common law principle forbidding contracts in restraint of trade. It has not been necessary, there- fore, in order to bring about a uniform management, that the separate establishments sell out completely; it suf- fices often if they agree one with the other upon the percentage of the entire output that will be produced by each member of the combination, and then put into the hands of a common selling bureau organized in the COMBINATIONS IN EUROPE 221' interests of aU and with its managers elected by them all, the selling of their entire product, as well as the allotm«it to each of his quota of production whenever a change in circumstances arises. This is the form of combination most generally found in continental Europe — ^a central selling bureau, to which is given the power also of fixing the output, while in the organization agreement itself the proportional share of each member in the entire output is laid down. Often with this general agreement, there are certain local peculiarities or variations dependent upon the nature of the combination itself. For example, in the case of the coal and iron syndicates of Germany, Austria, and France, ordinarily, while the entire product offered for sale within the home country must go through the hands of the bureau, reservation to the producer is regularly made of the material or fuel used within the establishment itself. In the Austrian iron combination each member sells his own product. In the case of the powerful sugar combinations of Austria and Germany, the refiners of sugar guaranteed to the producers of the raw sugar a certain fixed mini- mum price. In case the price fixed in the world's mar- ket, as represented by the market at Magdeburg in Germany, or Vienna in Austria, went below this mini- mum price, the refiners made up the difference, and recouped themselves by higher prices to the consumers for the refined product. Such a plan of working for many years proved eminently successful in Austria, and somewhat later similar results were reached in Germany. Speaking generally, even in the case of the greater 222 THE TRUST PROBLEM combinations in England, which have assumed the cor- porate form, it is probable that to the managers of the individual plants a somewhat greater degree of inde- pendence is permitted than is the case in the United States. The managing directors of the Bradford Dyers' Association found that in that business, where individual taste is of so great importance, it was wiser to encourage each individual superintendent to increase his sales as much as possible by exercising his inventive skill in producing a special quality of goods. They stimulated him still further to good work by pay- ing only a small fixed salary and then making a large percentage of his income dependent upon the profits of his separate plant. A rigid system of comparative book-keeping among the different establishments was maintained, so that the managing directors and the in- dividual superintendents were able to affect work, to a material extent through this stimulus of rivalry. In some cases, such as the Calico Printers' Association, Ltd., it was found that the separate members clearly kept too much individual control to secure the best results. A report was made and a reorganization brought about which gave a much greater degree of centrahzation of directive power with improved results. In Austria and Germany there are several combina- tions, although they are not among the largest, which took the form of corporations, such as the brush manu- facturers of Niirnberg and the soda water manufactur- ers of Vienna, but these are exceptional. In England, on the other hand, the greatest of the combinations have taken this form, and their reasons for doing so are substantially those given in the United States — COMBINATIONS IN EUROPE 223 that thereby they can make more savings, and they can enter thus more effectively into the world's markets. Very peculiar in its form, and for the time being ex- ceptional in its methods and results, was the brass bed- stead combination in Birmingham, England, organized and largely managed by Mr. E. J. Smith. As a result of much observation, Mr. Smith had reached the con- clusion that ruinous competition was often the result of ignorance and careless management on the part of some competing establishments, they never having taken the pains to figure accurately their exact costs of production. He believed that it is not merely good business policy to get fair profits, but that it is also im- moral under ordinary circumstances for a manufacturer to seU his goods below cost with the certainty of ultimate ruin before him if he continues the practice. He like- wise was of the opinion that the laborers should have an active interest in the business and should prosper with the prosperity of their employer. Acting on these principles, he organized several combinations on sub- stantially the following plan: In the first place, the laborers of all the plants enter- ing the combination must be organized into a union so that they can act as a unit as well as do their em- ployers. In the second place, each establishment must make a very accurate statement of its actual cost of production, including interest on capital invested, a fair salary to the manager, even though he be the owner, a reasonable amount for depreciation of plant, and even at times a certain allowance to the employer above his actual salary for the added expense to which he is put by virtue of his higher social station. On the basis of 224 THE TRUST PROBLEM these returns, then, a minimum cost for tjie product was fixed for all of the establishments, and no one was per- mitted to sell below a certain percentage above that rate. Each employer managed his own establishment, sold his own goods, acted entirely independently in every way, with the exception that he must not cut his price below a certain percentage of profit on this agreed- upon minimum cost. If, with the market rate thus fixed substantially by the cost of production in the poorer plants, one could make his products cheaper, owing to greater skill, his profits were naturally larger. The laborers were to benefit also from the combina- tion in like proportion, inasmuch as starting with agreed upon normal wages on the basis of a minimum price and normal profits, they received a bonus of an increase of wages in proportion to every increase in profits made by their employer. The workmen agreed to work for no one excepting employers belonging to the association, whereas the employers, on their part, agreed to hire no one excepting men belonging to this union. It was thus a coalition between employers and employees to secure high wages, and at any rate reasonable profits, although this might well be at the expense of the gen- eral consumer. Mr. Smith did not consider one of his combinations a success until it had shown itself able to increase prices. He did not think that the consum- ing public ought to be aggrieved at any normal increase in price thus made, because he believed that laborers and capitalists are worthy of their hire, and that con- sumers ought to be willing to pay not merely cut- throat prices, but what he calls "reasonable prices." He acknowledged that the average profit agreed COMBINATIONS IN EUROPE 225 upon for the bedstead combination was about 10 per cent, on the entire cost of production, and that in the industry in question a turnover of the capital was ex- pected from two to three times each year, making cer- tainly a profit that would, by most consumers, at any rate, if not by others, be considered plenty high enough. This plan of Mr. Smith's seemed to have worked very successfully for some ten years in the bedstead trade, and to have spread successfully in other lines; but later difficulties arose and eventually the combination was discontinued. The chief difficulties came first from the attempt to prevent the public from getting the benefit of the best methods of production, since prices were fixed really upon the highest costs; and second, that the alliance with the unions was also an attempt to exploit the public by cutting off the normal efforts of the workmen to get their full share of the improve- ments in the best plants. The high and secure profits eventually called in so many outside competitors whom the alliance could not afford to buy up that it went to pieces leaving the trade in bad condition. It is probable that in Europe capitalization is, rela- tively speaking, not so high as in the United States. This is due in part to business habits — ^more particularly probably to the greater degree of publicity required for corporations as well as for most other forms of business enterprises. In England, when one of the large cor- porations has been formed, there has been made pretty regularly a careful appraisal of the value of the separate plants as going concerns with a capitalization at a mod- erate rate of the earnings of the separate plants for several years preceding the combination. It is doubt- 226 THE TRUST PROBLEM less true that in a good many instances these appraisals have been made high; but so far as one can learn, it has been only in the rarest cases that there has been issued watered stock to double or treble or quadruple the value of the tangible assets, and rarely also has the stock been issued beyond an amount upon which there might be reasonable hope of paying dividends. In Germany, Austria, and France, whenever the combinations have assumed the form of a stock corpora- tion, the rigid laws have practically held capitalization down to the actual cash value of the assets, estimating the establishment as a going concern, the promoter re- ceiving his pay, if he receives it at all, either in some fixed sum for his trouble or in the profit that would come from selling shares at a premium. The eflPect of the combinations in Europe on prices of the product seems to have been, on the whole, sub- stantially that which has been indicated in Chapter IX as the ejBfects of the United States combinations, al- though the latest price investigations into the purchas- ing power of the products of the combinations in terms of index numbers indicates that in sugar and steel at any rate the prices have been held higher in both Eng- land and Germany than in the United States. Their combinations seem to have had in some cases at any rate more influence than ours. Managers there as here call attention to the savings of combination, and to the fact that at times prices are lowered; but perhaps more frequently, when one considers the matter with them dispassionately, they acknowledge that they be- lieve the former profits were too low, and that their prices have, on the whole, been slightly increased as a COMBINATIONS IN EUROPE 227 result of the combination. Almost invariably when they began they added that they hoped ultimately to be able to reduce the absolute prices more rapidly than they could have done without the combination; but they expected practically in all cases to maintain the margin between the cost of the raw material and the price of the finished product at a somewhat higher rate than existed before. Practically, however, in every case, from the beginning, they have believed that by their adaptation of the supply of the product to the market demand they would be able to keep prices much steadier than before, and to keep their labor more regularly employed, thus not merely insuring some- what more secure profits for themselves, but also pro- tecting to a very material extent both the laborers and the consuming public against the ill effects of com- mercial crises brought on often by unregulated and ignorant over-production. The experience of the past fifteen years seems to have justified this belief; and the readiness with which the great combinations adjusted themselves in Germany and Austria as well as in Great Britain to the exigencies of the great war by either in- creasing promptly or lessening decidedly their output emphasizes this important phase of the combination question. More interesting in certain ways than the mere study of domestic prices is the subject of export prices and the relation of the tariflF to prices. Of course it has been the custom in most countries, not merely in the export but also in the domestic trade, when custom- ers are somewhat widely removed from the manufactur- ing establishment and it is somewhat difficult to secure 228 THE TRUST PROBLEM their patronage, to make particularly low prices in order to get rid of a surplus stock. It has regularly been ex- plained, and doubtless with much reason, that this dis- posal of a surplus stock at low rates, even indeed be- low cost, does not increase the price of the product to home consumers, inasmuch as by exporting the surplus the plant can be run to its full capacity when otherwise it is necessary to close it down at intervals in order to prevent an accumulation of surplus stock. The cheaper production coming from running the plant all of the time at full capacity may thus so lessen the cost of man- ufacture that the domestic product may on the whole sell lower, even though the profit on it is paying for the loss of the export goods, than would have been possible had a much smaller product been manufactured at the increased cost brought about by only a partial use of the producing capacity. Many persons, however, have been inclined to criti- cize the combinations by asserting that owing to their monopolistic power they were able to secure abnormally high prices from consumers at home, and that when they sold abroad at somewhat lower rates, they were still not selling at a loss, but were thus showing merely the degree of oppression which they were exercising upon the home consumer. This argument has frequently been combined with that made in connection with a protective tariff. When in a protected industry relieved of foreign competition domestic prices are kept materially higher than export prices, it is a not unnatural conclusion that the tariff is fostering monopoly, and that the monopoly is making huge profits at the expense of the domestic consumer. COMBINATIONS IN EUROPE 229 Doubtless in certain cases there is a very considerable element of truth in the charge, but the reply is ordinarily given as above. Herr Wittgenstein, the founder of the great iron combination in Austria, explained years ago that the protective tarifiF was needed for the sake of the industry, and had been levied by the government because it was wise. Ought not, therefore, the manufacturer to meet the expectations of the law-givers by adding to the price at which foreign goods might without the protective tariff be sold in the country the amount of the tariff itself? In case this were unreasonable, why was the tariff levied.? If it proved unreasonable, let it be lowered. So far as selling the goods in foreign markets at lower rates is concerned, not merely do the iron manufacturers, but many others, say that, as has been intimated above, only by such low prices can they enter the foreign markets at all and dispose of a surplus which, if it had to be sold in the home country, would compel the partial closing of the plants to the great detriment of numbers of laborers, and with the result of increasing decidedly the cost of produc- tion. In the years 1912 to 1916 and especially since the outbreak of the European war in 1914 the business men of the United States have been studying export prob- lems as never before. In consequence they seem to have reached the conclusion that to force their way on a large scale into foreign markets such as those of South America or China, large capital is needed and an ex- porting organization must be skilfully handled. More than almost anything else this fact seems to have modi- 230 THE TRUST PROBLEM fied the popular attitude toward the great combinations, until in 1916, the need of combinations, even those of great size and power, seems to be generally recognized as essential to develop the export trade. The iron manufacturers in Austria and Germany and France have not hesitated at all to say that in fixing their prices they practically take the price of the chief competing foreign country and add to that the costs of freight and their own home tariff. They believe that they are justified in so doing. In individual cases, as, for example, that of the iron combinations in Germany, the combination has even found it wise at times, as did the distillers in the United States under the old Whiskey Pool, to assess themselves in order to pay export pre- miums to those of their numbers who were selling their surplus stock in the foreign market at a loss. Beyond much question, in two or three of the Euro- pean countries at least, the desire to secure somewhat greater power in contests with the labor unions exerted a noticeable influence toward forming the combinations. Nevertheless, speaking generally, the combinations have seemed to be ready to recognize trade unions and to deal with them on reasonable terms. In the case of the coal syndicate of Germany, the manager has said that in his judgment the leaders of the union be- lieve that the combination has been to their advantage; that it has been so managed as to give the men steady employment at, on the whole, steadily increasing wages; and that it is likely in the future to prevent industrial crises which will lead to more unfavorable conditions for them. They, therefore, are, on the whole, inclined to favor the syndicate. In the case of the Bradford COMBINATIONS IN EUROPE 231 Dyers in England, the workingmen and employers have a joint bureau for the settlement of disputes which may arise, with a fund on both sides to pay damages in case of dispute, and the two classes seem to be working together with mutual respect, and, on the whole, in harmony. It has already been noted that the E. J. Smith com- binations were founded upon an alliance between the workingmen and the employers which seems to have failed because they tried on the whole to exploit the consumer too far. Generally speaking, throughout Europe, so far as one can gather, there seems to be Uttle hostility on the part of the laborers toward the combinations, and so far, indeed, as one can see, there is not in Europe the same degree of hostility on the part of the public toward the concentration of capital that exists in the United States. It is true that the people in England complain at times of the number of members of Parliament who hold directorships in corporations, but they evidently con- sider this rather a hint toward political corruption than an attack upon combinations as such; and they do not have any especial fear of the power of monopoly. In France some of the leaders of the Radicals earlier seemed to believe that the Government ought to take cer- tain active measures toward investigating the question of combination with the possible thought of protecting the people; but here again those of socialistic tendencies are rather inclined to welcome the drift toward combina- tion as a first step toward State socialism, and do not apparently have any fear of losing personal liberty through such influence. The strength of the Socialistic 232 THE TRUST PROBLEM party, at times even dominant, does not alter this general conclusion. Similar are the conditions in Austria and Germany. In Austria there has apparently been a somewhat greater feeling of dread and of hostility toward the combinations than in any other European country. It is possible that here the movement may have been almost as active at times as in the United States. The opponents, however, have found it much more diflScult to bring about legislation than in the United States, so that comparatively little has been done, and what- ever agitation there may have been has been limited largely to editorials and speeches without any very ef- fective results, except somewhat more rigid court deci- sions and the refusal to favor the combinations as in Germany. In Germany the high price of coal at times during the last few years has, by many, been ascribed to the coal syndicate, and there has been much bitter com- plaint. On the other hand, however, those who have looked most closely into the matter — chambers of com- merce, members of the government, and others — seem to have reached the conclusion that the increased price of coal at such times has been due rather to the extraor- dinary demand. Moreover, they note that the syndicate has at times opened new mines, and has increased its output to a greater extent than have the independent coal producers. On the whole, they are rather inclined to give the syndicate the credit of checking an abnormal tendency toward overproduction and speculation, with the danger of a consequent crisis, than to blame it for the course that it has followed. COMBINATIONS IN EUROPE 233 Questions in the House of Representatives of Prussia and in the Imperial Reichstag have called from the Minister of Commerce words of defence and even of commendation for the syndicate. With the exception of the coal syndicate, there seems to have been relatively little complaint made in Germany against the combinations. This, of course, does not overlook the political in- fluence of the labor organizations or the intent of the Socialist parties to assume control of capital through the State if that can be brought about. We must not forget, however, that in Germany, especially, the Social- ist movement is not only economic but also largely political and that it is in many places merely a demo- cratic movement, not all the leaders of which believe in the economic doctrines of Marx or the other Socialis- tic writers. So far as actual or contemplated legislation is con- cerned, a little more may perhaps be said. In England, the amendments of the year 1900 to the stock corpora- tion law have been in the direction of enforced publicity to a much greater degree. The earnings of promoters must be laid bare; and the regular profits or losses of the business, if the law is enforced with a reasonable degree of care, may certainly be known to the stockhold- ers and to the general public. Legislation against com- binations as such has not been made, but under the old common law monopolies and contracts in restraint of trade are, of course, forbidden or declared invalid. Nevertheless, the English courts have taken a position somewhat different from that followed by the courts of the United States. They seem rather to be of the 234 THE TRUST PROBLEM opinion that an agreement for the protection of one's own business, even though it may seriously injure com- petitors, is not to be looked upon as a combination in unreasonable restraint of trade, but rather as a justi- fiable measure of protection and one that should be con- sidered valid. Unfair methods of competition, es- pecially if they involve deception or fraud, are invalid under the Common Law. In France, the provision of the French Penal Code, which forbids coalitions to raise prices, especially if fraudulent representations are used, has, beyond doubt, had a very deterrent effect toward open agreements on prices. Combinations have either taken the form of single corporations, or, like the Comptoir Metallurgique de Longwy, have organized a selling bureau as an inde- pendent establishment which buys and sells the prod- ucts of the different members, or else, like the sugar com- bination, they take the form of an agreement regarding output and allow the prices to be regulated thereby without any formal contract on that subject being made. The drift toward combination in France is un- mistakable, but it is very evident that this law has checked the open movement, and has also affected to a considerable degree the form which combinations as- sume. In Germany, the courts have upheld, in one or two very striking decisions, the principle that agreements to prevent ruinous competition, and to maintain prices so that there shall be a reasonable return upon capital, are to be considered valid, and that penalties in such agreements in the nature of fines upon those who violate them may be enforced by law. The court in one de- COMBINATIONS IN EUROPE 235 cision says: "When in a branch of industry the prices of the product fall too low, and the successful conduct of the industry is endangered or made impossible, the crisis setting in as the result of such a state of affairs is detrimental not only to individuals, but also to so- ciety as a whole, and it is therefore in the interests of the community that improperly low prices should not exist in a certain branch of industry for a long time. Therefore, it cannot be simply and generally considered as contrary to the interests of the community when entrepreneurs interested in a certain branch of industry unite with the object of preventing or moderating the mutual underselling, and as a result of the latter, the fall of the prices of their products. On the contrary, when prices are for a long time actually so low that financial ruin threatens the entrepreneurs, their combi- nation appears to be not merely a legitimate means of self-preservation, but also a measure serving the inter- ests of the community." As has been said before, the German Government has openly defended the Coal Syndicate. Laws have been passed favoring the Potash Syndicate. So long as the public interest is not harmed by unfair practices or fraud, combination is not forbidden but is rather en- couraged in many fields. A matter of special interest is the government bill introduced shortly before the outbreak of the war providing for a company of which the Government should have the controlling share, to control the wholesale trade in petroleum. This was clearly intended as an attack upon the Standard Oil Co., which, through its German subsidiaries, had secured largely the control of the German market. It was 236 THE TRUST PROBLEM felt to be contrary to public policy for a foreign company to control the market of so important a necessity. In Austria, as has been intimated, the feeling against combinations has been considerably stronger. In 1897 the combinations among brewers, sugar refiners, and others seemed to the Government to threaten somewhat the interests of the treasury, inasmuch as if prices should be increased and, in consequence, the consump- tion should fall off, the tax levied upon those products would be materially lessened. With this thought in mind, the Finance Department proposed a bill placing these combinations whose goods were subject to the consumption tax under the somewhat rigid supervision of the Government, and providing that in case unrea- sonable measures were taken, the Government might forbid a contract or might give the fullest degree of publicity to all of the business .of the combination. Owing in part to the political condition of Austria, in part also, perhaps, to the fact that the law was not more general in its application, nothing further has come of this. About the same time the Department of Trade and Industry appointed a special committee to consider the subject of the regulation of the combina- tions. This committee, after careful discussion of the whole question, handed in its report to the Section for Industry, Manufactures and Trade, and made the fol- lowing recommendations: "(1) That the combinations be recognized as legal organizations, and be put in consequence into legal form. "(2) That every combination be obliged to record COMBINATIONS IN EUROPE 237 its founding with a combination bureau or court, which shall be given certain judicial powers. "(3) This combination court should have also the powers of a court of the first instance to settle primarily all controversies at private law arising in the course of the business of the combination. " (4) For the checking of any tendency toward monopolistic prices on the part of the combination through its limitation of free competition, measures in the direction of the modification of import duties, and of freight rates on the State railroads, should be taken, as well as measures looking toward the further- ance of unions to oppose the combinations. (Presum- ably organizations among dealers and others.) " (5) For the purpose of deliberating and of deciding regarding the measures to be taken by the administra- tion, there should be created a Monopoly and Combina- tion Council, which should be a consultative organ of the Ministry of Trade and Commerce. " (6) Finally, the government was formally requested on the basis of this report to prepare a bill for a law on combinations to be laid before the Committee on Com- binations for consideration." This seemed at the time to be the most advanced step taken in any European country regarding restrictive legislation. It seemed not at all improbable that, as the result of this careful study on the part of the Govern- ment, some legislative measures might be passed. It should be noted that the result of this study — and one may say that similar opinions seem to be prevalent also elsewhere in Europe — was that the combinations ought not to be set aside, but to be recognized as nor- mal institutions in modern industry, and to be restricted only by certain measures on the part of the Govern- 238 THE TRUST PROBLEM ment, which would prevent abuse of the power which they undoubtedly possess. The recommendations, however, were not enacted into law, and the only laws against the combinations are those of the civil law and some special provisions of earlier laws of 1852 and 1870. Under these laws agreements of manufacturers for the purpose of raising the price of a commodity to the disadvantage of the public are unlawful. The courts have in several cases upheld the law and declared agreements invalid even though prices had not in fact been advanced, the intent as it appeared from the agreement being sufficient. Austria thus appears to come nearer the spirit of the Sherman law than either Great Britain or Germany. Both Austria and Germany are rigid in the enforce- ment of laws against unfair competition, especially if the element of fraud appears. The laws given in Appendix G show that Euro- pean combinations, speaking generally, are not looked at askance in any of their countries to so great a degree as in many of our states. European countries, especially Germany, are inclined to welcome their ad- vantages while protecting the public against unfair prac- tices. The rule of reason applies in all countries. War conditions in Europe after 1914 profoundly, influenced all industrial conditions. The governments of all the warring powers at once passed laws affecting credits. In most instances they took complete control of the railways; and soon all industrial plants affecting munitions or war supplies or that needed control for war purposes were put under the supervision of govern- ment. Commissions were appointed to purchase and COMBINATIONS IN EUROPE 239 distribute foods, to control factories, to direct work in whatever way seemed wisest, either directly or under their former management. In Germany it has been the opinion of some observers that their Kartell organization has been advantageous while it has been deemed necessary to legislate against abuses. On August 4, 1914, a law was passed punishing with imprisonment and fine those who sold goods at a price beyond a maximum price fixed. Under the corpora- tion laws of Germany, agreements to maintain prices are legal and enforceable by courts unless they are con- sidered directly contrary to public policy. In case, however, the Kartell agreements come in conflict with the new law fixing a new price, the latter takes prece- dence and a member of the Kartell could not be punished for refusing to abide by the price agreed upon when that conflicted with the war law.* At the outbreak of the war the thorough organiza- tion of German industries in many lines under their Kartell agreements proved of great advantage in adjust- ing the industry to the new conditions created by the war. In many cases, for example, the great disadvan- tages coming from the moratorium were much les- sened by the fact that these great monopolistic organi- zations were able without serious injury to extend the credit of their customers as it would not have been pos- sible for smaller sellers to do. Moreover, in many instances the best organized Kar- tells with their centralized selling syndicates had for several years attempted within broad lines to adjust *KarteU Rundschau, 1915, page 453ff. 240 THE TRUST PROBLEM the supply to the demand. This had already proved in many cases of decided advantage in tiding over the evils of threatening crises. At the outbreak of the war, therefore, they found themselves in a condition without serious difficulty still further to shorten the production or on the other hand, in case of industries stimulated by war conditions, promptly to take measures to increase the output. During the war the Kartells have been able to carry out a regular policy of steadily increasing prices while the unorganized industries have in many cases been subjected to any irregular, often extraordinary, con- tradictory price pohcy sometimes dictated by a few important firms. There will doubtless come a time after the war, Mr. Derblich thinks, and he believes it is very desirable that the time be not too long delayed but that it be prepared for as soon as possible, when both the State and the consumer will prefer to deal with firmly organized combinations rather than to treat with industries that exist without statistics, without any price regulations, in a word, without order and without representation.* Many believe that the rigid government control during the war will inevitably lead to a great movement toward Socialism. Inasmuch, however, as the gov- ernment management in war time has been carried on with little regard to expense, and as many will feel un- willing in time of peace to submit to government dicta- tion readily accepted in time of war, it is quite possible that a reaction may be felt leading to the opposite result. *J. Derblich, Article in the Kartell Rundschau, 1915, on the Austro-Hungarian Combinations and the War. CHAPTER XIII STATE TRUST LEGISLATION IN THE UNITED STATES FREEDOM has been the American watchword from the founding of the first colonies. Ap- phed to business, it led to the protests against arbitrary royal interferences with trade common to the declarations of the Revolutionary period. It led also to solemn constitutional enactments in the earliest State Constitutions against "perpetuities and monopo- lies" which had been feared and fought by the English forefathers since the days of dire oppression by the many monopolies granted by Queen Elizabeth. Mary- land wrote into the Bill of Rights division of her Con- stitution in 1776, as Section XXXIX, "that monopolies are odious, contrary to the spirit of free government and the principles of commerce, and ought not to be suf- fered."* Substantially the same section is found in the earliest Constitutions of North Carolina, Florida, Tennessee, and Texas. This hereditary anti-monopoly attitude so solemnly recorded in these early documents has been firmly maintained by the American mind generally all through the Republic's history. The pages of Congressional and Assembly journals are filled with anti-monopoly eloquence. With reference to the public lands, to the *F. N. Thorpe "American Charters, Constitutions, and Oiganic Laws," Vol. 3, pp. 1690. 241 242 THE TRUST PROBLEM National Bank, to the issue of money, to the control of railways, the anti-monopoly spirit was invoked over and again. Imbued, then, with the certitude that came from the consistent generations of popular opposition to monopolies and flushed with the success of the last great fight against the railway monopoly which had culmi- nated in the Inter-State Commerce Law, it is not sur- prising that the American legislator was ready to hit any monopoly head which showed. The flood of anti- trust legislation. State and National, was the perfectly normal reaction of the American lawmaker as soon as he became aware of the monopolistic tendency of manufacturing concentration. As was shown in Chapter I, industrial concentration had been steadily taking place, perhaps from the very first years of the Republic, but the earlier steps were short and halting. Average individual manufacturing plants had not become large until after 1870. It was not until the late seventies and early eighties that the combination movement began in the manufacturing world. By the end of the eighties individual plants, averaged for whole industries in the United States, had grown toward giant stature. For examples: the nearly 700 manufacturing plants in the iron and steel business had attained an average capital of above half a million dollars each, and the 900 plants manufacturing cotton goods averaged above a third of a million dollars capital each. The large plants in such industries were already listing their capitals in the millions. Thus the mere size of individual plants began to attract general public attention. It needed only that the new Trust STATE TRUST LEGISLATION 243 plan, uniting many large plants into the Standard Oil Trust in 1882, should be followed by like combinations in other lines to conjure again the anti-trust genii out of the American legislative bottle. The formations of the so-called "whiskey" and "sugar" Trusts in 1887 and the rumored plans for like combinations in other industries started the monopoly cry against manufac- turing enterprises. The party platforms of presidential years had vari- ously and vigorously attacked banking, land, and rail- road monopolies for two generations prior to 1890. The Democratic platform of 1848 pledged that party to the task of "continuing to resist all monopolies and exclusive legislation for the benefit of the few and at the expense of the many"; the Prohibition platform of 1872 declared "We are opposed to all discrimination in favor of capital and against labor as well as all monopoly and class legislation"; the Greenback plat- form of 1880 declared against "gigantic land, railroad, and money corporations and monopolies." There was even formed an anti-monopoly party, in 1884, which supported Benjamin Butler for President of the United States. It is notable, however, that this Anti-Monopoly Organization of the United States, as it styled itself, denounced the tarifiF as largely in the interest of monop- oly and declared in favor of effective government regula- tion of "transportation, money, and the transmission of intelligence . . . now mercilessly controlled by giant monopolies," but this national organization, dedicating itself especially to a crusade against monopo- lies, failed even to mention Trusts or industrial combina- tions. 244 THE TRUST PROBLEM The first declarations against Trusts and industrial combinations came in 1888, the year after the formation of the whiskey and the sugar Trusts. The platforms of each of the seven parties in this presidential campaign declared against monopolies, and the platforms of the four leading parties had each a specific declaration against the new business organizations. Following are these four declarations of the leading parties of 1888 : Republican Platform*: "We declare our opposition to all combinations of capital, organized in Trusts or otherwise, to control arbitrarily the condition of trade among our citizens, and we recommend to Congress and the State legislatures, in their respective jurisdictions, such legislation as will prevent the execution of all schemes to oppress the people by undue rates for the transportation of their products to market." Democratic Platform: "Judged by Democratic prin- ciples, the interests of the people are betrayed, when, by unnecessary taxation, Trusts and combinations are permitted to exist which, while unduly enriching the few that combine, rob the body of our citizens by depriving them of the benefits of natural competition." Prohibition Platform: "Declare for prohibiting all combinations of capital to control and to increase the cost of products for popular consumption." Union Labor Platform: "The paramount issues to be solved in the interests of humanity are the abolition of usury, monopoly, and Trusts and we denounce the Democratic and Republican parties for creating and perpetuating these monstrous evils." ,It is evident, then, that by the middle of the year 1888 the general public had been thoroughly aroused *For all references here to party platforms, see McKee's "National Conventions and Platforms." STATE TRUST LEGISLATION 245 against the new form of monopoly, and anti-trust legislation, state and national, was a swift conse- quence. During 1888 bills against Trusts were introduced both in Congress and in many state legislatures. The state debates resulted earlier in laws, so that before the first Federal anti-trust statute was passed, July 2, 1890, no less than eight of the states had written anti- trust laws on their books. This began the first import- ant wave of state anti-trust legislation. Kansas, which even in 1887 had passed a law against monopolies in grain, led the procession, passing its general anti-trust act March 2, 1889. In order fol- lowed Maine, North Carolina, Tennessee, and Michigan, all in 1889, and South Dakota, Kentucky, and Missis- sippi in 1890, before the passage of the Federal Act. By the end of 1891 North Dakota, Oklahoma, Mon- tana, Louisiana, Illinois, Minnesota, Missouri and New Mexico had all joined the trust-destroying procession. Wisconsin did not legislate against Trusts until 1893, but should be classed as a laggard in the first series. As evidence that the campaign was meant to give permanent results and that the people resolved most positively to leave no legal weapon unused, a number of the states even added anti-trust amendments to their constitutions in these earliest days of attack. Idaho, Montana, North Dakota, and Washington all made such constitutional amendments in 1889, and by 1893 Kentucky and Mississippi had followed their exam- ple. In summary, then, the first great wave of state anti- trust legislation resulted in amendments to the consti- 246 THE TRUST PROBLEM tutions of six states and resulted In statutes in seventeen states. After the worst years in the terrible business depres- sion, following the panic of 1893, activity in combina- tions of manufacturing plants began again with increas- ing vigor. By Mr. Moody's list, there were less than a hundred industrial combinations of consequence, prior to 1898, and more than three hundred by 1904. This renewed development toward manufacturing monopoly brought other states to the rescue. Alabama, Arkansas, Georgia, Indiana, Iowa, Nebraska, New York, Ohio, South Carolina, Texas, and Utah, all passed anti-trust statutes in the years 1895 to 1898 inclusive. This made a total number of twenty-nine states which legis- lated against Trusts in the first decade of the agitation against industrial monopolies. This registration of the American attitude toward business combination has been endorsed and reinforced since 1900. Nine more states have legislated against Trusts, and many of the states have amended their statutes to make them more effective. Notably, after the presidential campaign of 1912, during which dis- criminating tactics by big business organizations against their rivals were condemned widely many states added sections to their anti-trust laws forbidding specifically "unfair competition and discrimination." In 1912 and 1913 no less than twelve states strength- ened their Trust laws in this way. Most notable among these was New Jersey. This state deliberately re- mained an open state for Trust formation, during all of the first twenty-five years of general war on Trusts by most of her sister states and then, in 1913, under the STATE TRUST LEGISLATION 247 leadership of Governor Woodrow Wilson, she passed some of the most stringent of anti-trust statutes, those familiarly known as the "Seven Sisters."* As an example of the more radical anti-trust legislation of the states, the Statute of Texas may be outlined, f This statute first defines elaborately Trust, Monop- oly, and Conspiracy in Restraint of Trade. As so defined, aU Trusts, monopolies and conspiracies in re- straint of trade are declared to be illegal and are pro- hibited. Foreign corporations violating the act are to be denied right to do business within the state. A do- mestic corporation violating the act is subject to fines ranging from $50 to $1,500 for each day of violation, and an individual person taking part in any violation of the act is subject to imprisonment for from two to ten years. All contracts and agreements in violation of provisions of the act are declared to be null and void and are not enforceable either in law or in equity. County and district attorneys may begin prosecutions under the act and must notify the attorney-general, who is thereupon bound to join in the prosecution and to do all in his power to enforce the act. Any witness having knowledge of a violation of the act may be compelled to testify, but is exempted from indictment or prosecu- tion for any transaction, matter, or thing concerning which he shall give evidence. All actions brought vmder the act are given precedence, on motion of the prosecuting attorney, or the attorney-general, over all other business before the court save only criminal cases, the defendants of which are in jail. *See Appendix E-2, p. 396, for full text of these New Jersey laws. fThis Statute is given in full in Appendix E-1 p. 384. 248 THE TRUST PROBLEM In sUmmary of the whole state anti-trust legislation as to laws and constitutional amendments in force in the year 1914, these are the facts : Of the forty-eight states : Seven, Delaware, Nevada, New Hampshire, Oregon, Pennsylvania, Rhode Island, and West Virginia, had neither law nor constitutional provision against Trusts. Three, Maryland, Virginia, and Washington, had constitutional provision, but no statutes against Trusts. Twenty, Arizona, California, Connecticut, Colorado, Florida, Illinois, Indiana, Iowa, Kansas, Maine, Massa- chusetts, Michigan, Missouri, Nebraska, New Jersey, New Mexico, New York, Ohio, Vermont, and Wisconsin, have" statutes but no anti-trust constitutional provision. Six of these states have constitutional provisions re- lating only to railway consolidations or to railway and telegraph company consolidations. The remaining eighteen states have both constitu- tional provisions and statutes against Trusts, On the whole, it is a quarter-century record of con- sistent legislative battling against Trusts, with a growing determination amongst the states that Trusts shall be destroyed. The acts have been steadily strengthened and more and more states have legislated as the years have passed. If the state legislation be taken as the indicator of the American attitude toward Trusts, then it must be said that the overwhelming majority senti- ment of the people is against the existence of these large industrial combinations. Over against this majority stands the small number of states, such as New Jersey, Delaware, and West Virginia, which have not legislated against this new form of business organization. Until her defection STATE TRUST LEGISLATION 249 from this minority, in 1913, New Jersey was the most conspicuous of these Trust tolerating states. New Jersey had a long record of open-mindedness in dealing with corporations generally. Her first general corporations act was passed in 1846, and this declared that the business to be done by such corporations must be done within the state. In 1865 this limitation was removed. In 1875 New Jersey amended its constitu- tion so that it forbade the grant of special charters and directed the legislature to pass general laws under which alone corporations might be organized. The liberal act of 1873 did not require annual public state- ments of the amount of paid-in capital stock and of the existing debts and assets of corporations. Many states required such statements. New Jersey legisla- tors deliberately omitted these requirements because such statements might react disastrously against the corporations. The position was taken that corpora- tions should be treated as individuals were treated. Corporations were dealt with on the theory that they were legitimate forms of business enterprise and the regulations written in the Corporation Act were meant primarily to protect thepersonsinterestedinthecompany. The act of 1875 set no limit to the amount of capital stock. It provided that directors might hold their annual meetings, have offices and keep all books, except stock and transfer books, outside the state. They were, however, to maintain a principal office in New Jersey, and all books might be ordered brought within the state by duly-empowered state officers. All meet- ings of stockholders and elections of officers were to be held within the state. 250 THE TRUST PROBLEM In 1883 and 1884 this general corporations act was amended by the addition of provisions for the payment of taxes for incorporation once and for all and for the payment of annual franchise taxes. The rates set in these acts are among the lowest set in any states, and have not been changed. The organization tax is 20 cents for each $1,000 of capital stock, but never less than $25. The annual franchise tax is 1-10 of one per cent, of the par value of issued capital stock up to $3,000,000, 1-20 of one per cent, from $3,000,000 to $5,000,000, and $5 for every $100,000 or part thereof in excess of $5,000,000. Nothing is left to the discretion of the tax gatherer since the tax is determined by the amount of the outstanding capital stock. It was deliberately declared that no chance would be left to officials to blackmail the great corporations by threatening to overcharge them. In 1888 the New Jersey legislature made provision that corporations might hold and dispose of the stock of other companies, and in 1893 some doubtful passages in this enactment were cleared by express enactment that it should be lawful for any corporation in New Jersey "to purchase, hold, and sell stock and bonds of any other corporation in the same manner that an in- dividual could," In 1892 the act relating to conspiracy in New Jersey was amended to omit all mention of injuries to trade and commerce. The acts of 1897, 1898, and 1899 further protected stockholders and corporations and facilitated combina- tions. AH through this history the policy of the state of STATE TRUST LEGISLATION 251 New Jersey had been clearly one of treating corpora- tions just as it did individuals, on the assumption that it was desirable to aid the development of business in the state. This policy deliberately encouraged the growth of large companies and combinations. It is worthy of note that the whole corporation law of New Jersey, favorable as it has been to the formation of Trusts, was worked out completely by 1888. It was not a law, hungrily or obsequiously passed by a state in intent to take advantage when other states were driving out Trusts. The whole free fabric of New Jersey corporation law was complete before a single anti-trust statute was passed by any state in the Union. New Jersey simply "stood pat" on that law after the fever of anti-trust legislation had attacked most of the states. Its law was different and it believed its law to be wise and right. The event seems to prove again the social helpful- ness of our Federal system of government. While most of the states raged against Trusts and drove them out. New Jersey and a few others allowed open opportunity for the organization of these great industrial combina- tions. The result has been that twenty-five years of unbroken concentration of business capital has con- tinued with effects which seem now to be changing the public mind. It is not at all impossible that another decade will see the majority opinion in America con- verted to the idea that Trusts should be not only toler- ated, but encouraged, provided only that they conduct their business with fair dealings respecting their com- petitors, their investors, their employees, and those who buy their goods. If such complete reversal of the Trust smashing program of majority America to date should ^5% THE TRUST PHOBLEM occur, it will be proven that New Jersey served the whole business of the nation well in standing staunchly true to her conviction that legislation should aim to help and not to hinder business development under the corporate form. When the trust baiting by the states was well under way, such combinations as were driven into exile and such as desired to form anew came to the liberal states, and mainly to New Jersey. Because of her stable policy of a square deal for corporations, the fair range of powers she allowed them, the low and certain taxa- tion and the ample protection of the rights of stock- holders, New Jersey, after 1898, became the home of the Trusts. The record of corporation development in New Jersey as shown by the corporation tax returns from 1885 on is significant. In the year 1885, the first full year after the introduction of the present taxation features into the New Jersey law, the state's receipts from miscellane- ous corporations for both annual and incorporation taxes was $151,782.23. There were only twenty-three corporations which paid $1 ,000 or more taxes each in that year and only one, the Mutual Benefit Insurance Com- pany, which paid above $5,000 annual tax. Of the twenty- two corporations paying between $1,000 and $5,000, all were transportation, public utility, or insurance corpora- tions except two, the Allen Paper Car Wheel Company (tax $1,250) and the Union Phosphate Mining and Land Company (tax $1,000). In 1913* New Jersey received in current and back taxes from miscellaneous corpora- tions $2,650,694.23, or more than seventeen times the *1913 is the last year in which the report of the Treasurer of New Jersey gives in detail the receipts from corporations. STATE TRUST LEGISLATION 253 aggregate tax from such corjiorations received twenty- eight years before. In this year of 1913 no less than 432 corporations paid New Jersey $1,000 or more each, in taxes, and sixty-three of these paid each more than $5 ,000 . Contrasting sharply with conditions in 1 885 , it is notable that only ten of these sixty-three larger corpora- tions were transportation, public utility, or insurance corporations, while fifty-three of them were industrial corporations. Ranging from the Eastman Kodak Com- pany (tax $5,034.42) and the Bethlehem Steel Company (tax $5,250), among the lowest tax payers of these multi- milhon dollar corporations, through such tax payers as the United States Rubber Company (tax $8,221.97), the American Sugar Refining Company (tax $8,176.71), and the International Harvester Company (tax $10,750), up to the United States Steel Corporation (tax $47,179.18) this group of fifty-three industrial corporations, now organized under New Jersey law, includes nearly all of the notable combinations in the United States. In February, 1917, a New Jersey legislative commis- sion reported in favor of repealing all of the "Seven Sisters" anti-trust laws except the one containing the anti-discriminatory legislation (ch. 15). The full text of the Acts appeared March 28, 1917, after the New Jersey legislatm-e had considered the report of this commission, and is given in the Appendix, pp. 404 to 407. This 1917 legislation somewhat restores the old New Jersey attitude of liberality toward industrial combinations. CHAPTER XIV FEDERAL TRUST LEGISLA-TION IN THE UNITED STATES THE general industrial conditions which stim- ulated an American reaction in anti-trust legis- lation, a reaction which simply gave a new ex- pression of the traditional anti-monopoly creed, are outlined at the beginning of the preceding chapter. The Federal law-making body moved more deliber- ately than some of the state legislatures and it was not until July 2, 1890, that the first Federal anti-trust act finally became law. A few bills against Trusts had been introduced in both the House and the Senate early in 1888, before the presi- dential nominating conventions had issued the anti- trust planks* of their platforms. In the summer and fall following these platform declarations, many anti-trust bills were introduced in both houses of Con- gress. Among these. Senator John Sherman intro- duced, August 14th, his first anti-trust bill. This bill, wholly amended, was reported back to the Senate from the Committee on Finance in January, 1889, and was debated in January and February. President Harrison, in his first message to Congress, December 3, 1889, reenforcing the platform mandate of his party in 1888, said: ''Earnest attention should 1)6 given by Congress to a consideration of the question *See p. 244 for these planks. 254 FEDERAL TRUST LEGISLATION 255 how far the restraint of those combinations of capital commonly called 'Trusts' is a matter of federal jurisdic- tion. When organized, as they often are, to crush out all healthy competition and to monopolize the produc- tion or sale of one article of commerce and general necessity, they are dangerous conspiracies against the public good and should be made the subject of pro- hibitory and even penal legislation." Senator Sherman, alert to urge action in accord with this presidential advice, again introduced his anti-trust bill on December 4, 1889, this time as Senate Bill No. 1, by title "A bill to declare unlawful Trusts and combina- tions in restraint of trade and production." Amend- ments followed amendments as a result of lengthy de- bates on this measure during the next four months. On March 27, 1890, the bill, with its proposed amend- ments, was referred to the Senate Judiciary Committee. This committee, on April 22d, reported back the amended biU in the very form in which it was finally adopted. The title of the bill was changed to read "A bill to protect trade and commerce against unlawful restraints and monopolies." This bill passed the Senate, with but one dissenting vote, April 8, 1890, and on May 1st, in amended form, it passed the House. In accord with the Conference Committee's recommendation, the House, after several days of further debate, receded from its amendments, and passed the bill as it had come from the Senate. July 2, 1890, after more than two years of congressional consideration of the Trust ques- tion, this first Federal anti-trust statute became law of the land. It has since been known familiarly as the Sherman Anti-Trust Act, although in its final form 256 THE TRUST PROBLEM it had been drawn by others and it had been wholly altered from the original bill as proposed by the senator from Ohio. Senator Sherman took a leading part throughout the two years of senatorial debate on this Trust subject. A few excerpts from one of his addresses, as the long debate drew to a close, will show the purposes actuating Congress, its full sense of the giant power it was trying to curb, its recognition of the limits to Federal action, and its full realization of the importance of the tariff and the transportation factors in the growth of the American Trusts. In the course of an able argument for anti-trust legislation Senator Sherman said: "Each state can and does prevent and control combinations within the limit of the state. This we do not propose to interfere with. , . . Unlawful combinations, unlawful at common law, now extend to all the states and interfere with our foreign and domestic commerce and with importation and sale of goods subject to duty under the laws of the United States, against which only the general government can secure relief. They not only affect our commerce with foreign nations, but trade and transportation among the several states. The purpose of this bill is to enable the courts of the United States to apply the same remedies against combinations which injuriously affect the interests of the United States, that have been applied in the several states to protect local interests. . . . It is to arm the Federal courts within the limits of their constitu- tional power, that they may cooperate with, the state courts in checking, curbing, and controlling the most dangerous combinations that now threaten the business FEDERAL TRUST LEGISLATION 257 property and trade of the people of the United States" . . . " But associated enterprise and capital are not satisfied with partnerships and corporations competing with each other and have invented a new form of com- bination commonly called 'Trusts,' that seeks to avoid competition by combining the controlling corporations, partnerships, and individuals engaged in the same business and placing the power and property of the combination imder the government of a few individuals, and often under the control of a single man called a "trustee," a "chairman" or a "president." "The sole object of such a combination is to make competition impossible. . . . Such a combination is far more dangerous than any heretofore invented, and when it embraces the great body of all the corpora- tions engaged in a particular industry in all the states of the Union it tends to advance the price to the consumer of any article produced, it is a substantial monopoly injurious to the public and by the rule of both the common and the civil law, is null and void and the just subject of restraint by the courts, of forfeiture of corporate rights and privileges and in some cases should be denounced as a crime, and the individuals engaged in it should be punished as criminals. It is this kind of a combination we have to deal with now . . . we should not submit to an autocrat of trade, with power to prevent competition and to fix the price of any commodity. If the combination is confined to a state, the state should apply the remedy; if it is interstate and controls any production in many states. Congress must apply the remedy. If the combination is aided by our tariff laws, they should be promptly changed, and if 258 THE TRUST PROBLEM necessary equal competition with the world should be invited in the monopolized article. If the combination affects interstate transportation or is aided in any way by a transportation company, it falls clearly within the power of Congress, and the remedy should be aimed at the corporations embraced in it and should be swift and sure."* As this address of Senator Sherman evidences, the issues involved in the Trust movement were set forth as directly, in the congressional debates of 1888 to 1890, as they have been set forth at any time since. Few and young as were the Trusts, their great import was realized and the statute which summarized the convic- tion of Congress in 1890, has stood, in its main proposi- tions, for twenty-six years, as the well-nigh unchallenged expression of the American will. Later legislation to date seeks only to amplify its reach, to strengthen its means of enforcement, and to reenforce its central proposition that Trusts are bad and should be prevented or abolished. The occasional challenging voices have seemed to be crying in a wilderness. Before outlining the content of this leading Federal anti-trust law, mention should be made of one amend- ment, proposed during the debates. This amendment is of interest both because of its later citation before the Federal courts and because it was the shadow cast before section six of the Clayton Act. This amendment proposed to exempt from the opera- tion of the law agreements or combinations made by laboring men or by persons engaged in agriculture or horticulture. Organized labor had largely influenced *See 21, Congressional Record, pp. 2456 and 2457. FEDERAL TRUST LEGISLATION 259 congressional action during the 'eighties in passing the contract labor sections of the immigration laws, and in establishing the national Bureau of Labor and the Inter-State Commerce Commission. Friends of the waxing American Federation of Labor and of the wan- ing Knights of Labor foresaw the possibility that this great Federal legal weapon being forged for use against combined capital might readily be turned against com- bined labor. Therefore came this proposal specifically to safeguard organized labor against such a fate. The amendment, after debate, was lost and its failure to pass gave grounds for later court decisions that the statute was applicable to monopolies and trade restraints due to combinations of labor as well as to combinations of capital. Twenty-four years after the defeat of this amendment the friends and representatives of organ- ized labor succeeded in getting a labor exemption clause written into the Clayton Act. Turning now to consideration of the content of the Sherman Anti-Trust Act, it seems needful here merely to outline that content since the full text of the law is given as Appendix F-1 : The law contains only eight brief sections. The first three of these define the offences and state the penalties. The law aims to prevent or to destroy any combinations in the United States operating beyond the limits of a single state or territory, which restrain or monopolize trade or which even attempt to monopolize it. Penal- ties are made severe and applicable to individuals as well as to corporations. The court may assess fines up to $5,000 or jail sentences up to one year or both. Truly, the anti-monopoly spirit was safely enthroned. 260 THE TRUST PROBLEM The next four sections of this, law give jurisdiction to the circuit courts,* make it the duty of Federal dis- trict attorneys to prosecute violators of this law, em- power the courts to summon witnesses and to make forfeit certain property of any combination being tried, and provide for recovery of liberal three-fold damages by any person who can prove damage done to him by an unlawful combination. The closing section defines person as used in the act so that it covers corporations and associations as well as individuals. Brief, but direct and broad of application, this Federal law, had it succeeded in doing what its makers intended, would have notably checked the industrial advance of the United States of America during the past twenty- five years. Between 1890 and 1903 many bills concerned with trusts were proposed in Congress, a score in the Senate and more than a hundred in the House, but none passed except the anti-trust sections attached to the Wilson Tariff Act of 1894. Those sections declare unlawful any combinations engaged in importation of goods into the United States whenever these combinations seek to restrain trade or competition or to increase prices of their imported goods or of wares made from these.f Of the many other anti-trust bills, all of which failed to pass during this thirteen years, some aimed to over- come weaknesses of the Sherman Act shown by the Knight case; others proposed to remove tariff protec- *Jurisdictiou is now lodged in the District Courts since the abolition of the Circuit Courts. See Appendix F-7. fThe full text of these sections of the Wilson Act as retained in" the Dingley Act and as slightly amended in the Act of February 12, 1913, is given as Appendix F-2. FEDERAL TRUST LEGISLATION 261 tion from trust-made goods; all evidenced unabated Congressional zeal for Trust destruction. It became apparent in the early attempts to adminis- ter the Sherman Law that there was need of a perma- nent Federal administrative agency with ample powers to secure information from the greater corporations and to give pubUcity to their modes of conducting business. Justice Harlan urged in 1893* the necessity for establishing "an administrative body representing the whole country, always watchful of the general inter- ests and charged with the duty, not only of obtaining the required information, but of compelling, by all lawful methods, obedience to such rules." He further urged that such a body was needed both to secure in- formation necessary as a basis for further intelligent legislation relative to great corporations and to enforce such laws as might be passed. In 1902 the Industrial Commission made official recommendation, in its final report, that a permanent bureau should be created with the duties of registering aU state corporations doing an interstate business, of getting from such corporations full reports needed for levying a franchise tax, of inspecting the business of such corporations to determine that they obey the law, and of making investigations to furnish Congress with information for future legislation. Early in 1903 Attorney General Elnox recommended to the Senate Committee on the Judiciary that "a com- mission should be created to aid in carrying out the pro- visions of the Act of July 2, 1890, and any further legis- lation relating to commerce." *See Interstate Commerce Commission v. Brimson, 154 U. S. 474. 262 THE TRUST PROBLEM In accord with these various suggestions. Congress Feb- ruary 14, 1903, established the Department of Commerce and Labor and provided for a Bureau of Corporations* in this Department. The chief functions of this Bureau were those of investigation and pubhcity. It was gen- erally felt that more light was needed on the interstate corporation before Congress should further legislate. The principal work of this Bureau of Corporations has been to investigate Trusts and combinations in restraint of trade. It has also advised the Department of Justice in cases involving enforcement of the anti-trust laws. The Bureau, between 1905 and 1915, when it was absorbed by the new Federal Trade Commission, published twenty-nine special volumes giving detailed information concerning the Beef, Petroleum, Tobacco, Steel and Lumber industries, the Cotton Exchanges, Taxation of Corporations, and Water Transportation in the United States. The other Trust laws, passed in 1903, provided for expediting Trust suits in which the United States was a complainant,! and for making immediately available for furthering prosecutions under the Inter-State Com- merce and the anti-trust acts the sum of half a mil- lion dollars.J A proviso of this latter act granted im- munity to persons testifying in suits under the Trust and commerce acts. In 1906 this immunity was lim- ited to natural persons only.§ For a decade after 1903 attention was given to gather- *See Appendix F-4. Act of February 14, 1903, section 6. tSee Appendix F-3. Act of February 11, 1903, amended by act of June 25, 1910. jSee Appendix P-5. Act of February 25, 1903. §See Appendix F-6. Act of June 30, 1906. FEDERAL TRUST LEGISLATION 263 ing elaborate information concerning Trusts through the Bureau of Corporations and to active prosecution, under the attorney-general, of alleged violators of the Federal anti-trust laws. No additions to the national anti-trust laws were made during this decade except the slight modification of the immunity provision noted above and the single paragraph in the Panama Canal Act,* which forbids the use of the Canal by vessels be- longing to violators of the anti-trust statutes. The elaborate reports on various Trusts made by the Bureau of Corporations and the findings of fact in the many prosecutions of Trusts, notably in the Oil and Tobacco cases of 1911, emphasized the high value of knowing the facts, and focussed public attention upon questionable practices of great combinations. Thus the way was prepared for the most important additions to the Federal anti-trust laws which have been made since 1890, the Federal Trade Commission Act and the Clayton Act, both passed in the fall of 1914<. In 1908 the platform of the Democratic party reiter- ated its ancient slogan "a private monopoly is indefen- sible and intolerable" and called for criminal prosecu- tion of "guilty Trust magnates" and for law "to make it impossible for a private monopoly to exist in the United States." Three special remedies were proposed by Democracy: (1) a law against interlocking directo- rates; (2) a federal license system requiring each corpora- tion doing inter-state business to have a federal license before it should be permitted to control 25 per cent, of its kind of business in the United States, and forbidding it in any case to control above 50 per cent, of such busi- *See Appendix F-8. Section 11 of Act of March 4, 1913. 264 THE TRUST PROBLEM ness; and (3) a law compelling all licensed corporations to sell to all purchasers in the United States on the same terms, making due allowance for cost of transportation. The Republican party, in its 1908 platform, dis- missed the Trust issue in three sentences, declaring the Sherman anti-trust law, passed and enforced by Re- publicans, to be "a wholesome instrument for good in the hands of a wise and a fearless administration," but admitting that amendments were needed to give the Federal Government greater control over inter-state corporations tending to monopoly. The Republicans won the election and remained con- tent with another four years of "fearless administra- tion" using the same "wholesome instrument for good," unchanged by any amendments giving greater control over Trusts. In 1912 the Democratic platform again declared private monopoly indefensible and intolerable, asked for added legislation to make such monopolies impossible in the United States, favored express declaration of the conditions under which corporations should be per- mitted to engage in inter-state trade, including "pre- vention of holding companies, of interlocking direc- torates, of stock watering, of discrimination in price and of control by any one corporation of so large a pro- portion of any industry as to make it a menace to com- petitive conditions." It charged the Republican ad- ministration with compromising with the Standard Oil and the Tobacco companies. This platform Trust plank closed with the following fervent declaration in favor of the most rigid return to the traditional American anti-monopoly doctrine: "We regret that the Sherman FEDERAL TRUST LEGISLATION 265 anti-trust law has received a judicial construction depriv- ing it of much of its eflScacy ahd we favor the enactment of legislation which will restore to the statute the strength of which it has been deprived by such interpretation." The Republican plank, after restating the 1908 ideas, declared for provisions that "no part of the field of business opportunity may be restricted by monopoly or combination." The Progressive platform, alone of all party plat- forms since the Trust question became a theme for plat- form rhetoricals, declared for a distinction between good and bad trusts, with adequate administrative machinery to enforce fair dealing by the tolerated great combina- tions. It was a new campaign doctrine to declare: " We do not fear commercial power, but we insist that it shall be exercised openly, under publicity, supervision, and regulation of the most efficient sort, which will pre- serve its good while eradicating and preventing its evils." The Democrats, restored to power in the election which followed, passed the Federal Trade Commission Act and the Clayton Act. The Trade Commission Act provided for the supervising and investigating machin- ery, need for which had prompted the establishment of the Bureau of Corporations in 1903 and declarations for which had been made both in 1908 and in 1912 by Republicans and Democrats ahke and in 1912 also by Progressives. The Clayton Act enacted into law the Democratic demands of 1912 for abolishing certain ques- tionable practices of combinations and for making pri- vate monopoly impossible in the United States. These two important acts are given in full in the Appendices. 266 THE TRUST PROBLEM A brief summary of the leading anti-trust provisions of the Federal Trade Commission Act follows : THE TEDERAL TRADE COMMISSION" ACT* By Act of Congress approved September 26, 1914, a non-partisan Federal commission was created, which is directed to "prevent persons, partnerships, or corpora- tions, excepting banks and common carriers subject to the acts to regulate commerce, from using unfair meth- ods of competition in commerce." To carry out the provisions of the act, the Federal Trade Commission, composed of five members appointed by the President, is empowered to conduct hearings in any city of the United States. If unfair methods are shown, the Com- mission shall direct the offenders to desist therefrom, and may apply to the U. S. Circuit Court of Appeals for the enforcement of its orders. The Commission is also empowered to enforce compliance with certain sections of the Clayton Act; to conduct investigations into business practices and management; to investigate the enforcement of decrees under the Sherman Act; and to investigate and report to Congress on foreign trade combinations. Maximum penalties of imprisonment for six months, a fine of $1,000 or both, are provided for refusal to testify before the Commission, falsification of evidence, and failure to submit required reports. The Federal Trade Commission, as established by this act of September, 1914, has not only the functions of investigation and publicity exercised from 1903 to 1914 by the Bureau of Corporations, but it has addi- tional functions of investigation, publicity, and recom- *See Appendix F-9. Act of September 26, 1914. FEDERAL TRUST LEGISLATION 267 mendation, and further, it has powers of a quasi- judicial character. Among the new powers of investi- gation, pubUcity, and recommendation are notable: Authority to require corporations to make annual or special reports in such form as the Commission may prescribe; general power to investigate corporations; authority, under direction of the President or of either House of Congress to investigate and report conoerning any alleged violations of the anti-trust acts by any corporation; authority to investigate trade conditions in other countries with reference to combinations or other conditions afifecting foreign trade of the United States; authority to make recommendations to the at- torney-general for readjustment of any corporation found to be violating the anti-trust acts; authority to investigate the manner in which any court decrees, restraining corporations from violating the anti-trust laws, are being carried out; and authority to make public such portions of the information obtained in its investigations as it shall deem expedient, except trade secrets and names of customers. The quasi-judicial functions of the Commission may be thus summarized: It has authority to enforce the provisions of the Federal Trade Commission Act rela- tive to unfair competition, and the provisions of the Clayton Act, notably those relative to price discrimina- tion, tying contracts, holding companies, and interlock- ing directorates, as to all corporations which come under its jurisdiction. There has thus been created and broadly empowered a Federal administrative agent to deal with great in- dustrial corporations which do business beyond the 268 THE TRUST PROBLEM borders of a single state. Such an agent is indispens- able if the diflScult trust problem of the United States is to be solved scientifically. Men of vision, such men as Justice Harlan, began to point out the need for such an administrative body as soon as the Sherman Law began to be applied. The Bureau of Corporations was a forerunner, which demonstrated the high value of official expert determination of the facts about Trusts. The Federal Trade Commission is the fully developed, fact-finding, and administrative body, all too slowly evolved through the urgent necessities of the situation. The Federal Trade Commission was organized in ac- cord with the law on March 16, 1915. While it has been conducting an elaborate study of the entire petroleum industry and has, incidental to this study, made investigation of the gasolene situation to aid the Department of Justice in dealing with numerous com- plaints of discrimination, its activities during its first two years emphasize its powers of service to industry rather than its trust-detecting and trust-smashing powers. Absorbing the Bureau of Corporations, it fell heir to an investigation of the fertilizer industry already under way. This report was completed and printed August 16, 1916. The friendly attitude is indicated in the record that the Commission had held conferences with various fertilizer companies as a result of which these companies have voluntarily agreed to abandon their prevalent custom of operating many controlled companies as apparent independents. The friendly attitude appears, too, in the published sugges- tions of the Commission to retail merchants and to manufacturers, relative to accounting systems suitable FEDERAL TRUST LEGISLATION 269 for adoption by such mercliaiits and manufacturers. Tlie Commission has found that unrehable knowledge of costs of production and of distribution cause a great deal of unfair competition. Instead of applying imme- diately pounds of investigation to the end of punishing, the Commission has chosen to issue ounces of preven- tion in the form of these helpful simple manuals which may induce merchants and manufacturers to give the subject of accurate costs the attention it deserves and, learning their true costs, to lessen predatory price- cutting responsible for so heavy a death rate in business enterprises. The Commission is extending especial assistance toward the permanent expansion of. American foreign trade. Its report of June 30, 1916, on trade and tariffs in six South American countries, is probably but an indication of large service it may render to American importers and exporters. The report aims not only to show the obstacles to be encountered in the trade conditions and in the customs laws and practices of Latin America, but also to indicate both to business men and to the governments of North and South America how these obstacles may be overcome. The two-volume "Report on Cooperation in American Ex- port Trade, " published at the close of 1916, is a detailed investigation of the "competitive conditions affecting Americans in international trade." The Commission reaches a convincing conclusion in this report that legislation should be enacted permitting the formation of combinations to carry on foreign trade. The sum- mary of the Commission recommendations in this re- port gives high official sanction for abandoning the 270 THE TRUST PROBLEM hard-and-fast anti-combination attitude of American Federal legislation for the past quarter century: "By its investigation the Commission has established the fact that doubt as to the application of the anti-trust laws to export trade generally prevents concerted action by American business men in export trade, even among producers of non-competing goods. In view of this fact and of the conviction that cooperation should be encouraged in export trade among competitors as well as non-competitors, the Commission respectfully recommends the enactment of declaratory and permis- sive legislation to remove this doubt. This recommen- dation is made subject to the condition that the legis- lation shall be carefully safeguarded and shall make absolutely clear that the combinations for export busi- ness are subject to all the rigors of the Sherman Law if they are used to restrain trade in the United States." "The commission does not believe that Congress intended by the anti-trust laws to prevent Americans from cooperating in export trade for the purpose of competing effectively with foreigners, where such co- operation does not restrain trade within the United States and where no attempt is made to hinder Ameri- can competitors from securing their due share of the trade. It is not reasonable to suppose that Congress meant to obstruct the development of foreign com- merce by forbidding the use in export trade of methods of organization which do not operate to the prejudice of the American public, are lawful in the countries where the trade is to be carried on, and are necessary if Ameri- cans are to meet competitors there on more nearly equal terms." FEDERAL TRUST LEGISLATION 271 THE CLAYTON ANTI-TRUST ACT* The Clayton Law which was approved October 15, 1914, is further entitled: "An Act to supplement exist- ing laws against unlawful restraints and monopolies, and for other purposes." The provisions of the law that apply to Trusts may be summarized as follows: It shall be unlawful for any person to discriminate in price between different purchasers of commodities, except where such discrimination merely allows for dif- ferences in quality, in quantity sold, or in selling and transportation costs, or is made in good faith to meet competition (sec. 2). No corporation shall acquire the whole or part of the stock or other share capital of any other corporation "where the effect of such acquisition may be to sub- stantially lessen competition" between the two corpora- tions, "or to restrain such commerce in any section or community," or tend to create a monopoly. This shall not prevent corporations from holding such stock simply for investment, its voting power not being used to lessen competition, or from forming legitimate sub- sidiary corporations (sec. 7). After two years from the approval of this Act, no person shall at the same time be a director or employee of more than one bank or trust company which has deposits, capital, surplus, and undivided profits aggre- gating more than $5,000,000; and no person at the same time shall be a director in any two or more corporations engaged in commerce, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000 (sec. 8). After two years from the approval of this Act, no common carrier shall deal in the securities or supplies, *See Appendix P-10. Act of October 15, 1914. 272 THE TRUST PROBLEM or make any construction or maintenance contracts to the amount of more than $50,000 in any one year, with any other corporation, when the common carrier has as one of its officials, or its agent in the particular transaction, any person who is an officer or agent or has a substantial interest in the corporation with which the business is done — unless the contract is awarded through competitive bidding, under the rules of the Interstate Commerce Commission (sec. 10). Any person who shall be injured in his business or property hy reason of anything forbidden in the anti-trust laws may sue in a district court of the United States, and may recover threefold the damages sustained by him, and the cost of the suit (sec. 4). A decree rendered against the defendant in a suit brought by the United States under the anti-trust laws shall be 'prima facie evidence in any suit brought by any other party against the defendant; and the statute of limitations shall not run against any private right of action under the anti-trust laws during the pendency of a Federal suit under these laws based in whole or in part upon any matter essential to the private suit (sec. 5). Whenever a corporation violates any of the penal provisions of the anti-trust laws, such violation shall be deemed to be that of the individual directors, officers, or agents who have authorized or done the violating acts, under penalty of fine up to $5,000, and imprison- ment up to one year, or both (sec. 14). Any person shall be entitled to sue in a Federal court for injunctive relief against threatened immediate and irreparable loss or damage by a violation of the anti- trust laws (sec. 16). No injunction shall be granted by Federal judges in any labor dispute, unless necessary to prevent irrepar- able injury to property; and no injunction shall pro- hibit any person from quitting work, or from peacefully FEDERAL TRUST LEGISLATION 273 advising or persuading others to quit. No injunction shall forbid any person to cease to patronize or to em- ploy any party to a labor dispute, or by peaceful and lawful means to recommend, advise, or persuade others so to do. No injunction shall forbid persons to assem- ble peaceably in a lawful manner, and for lawful pur- poses, or from doing anything which might lawfully be done in the absence of the dispute, by any party to the dispute (sec. 20). In general as to anti-trust legislation, it is obvious that these two acts of 1914 write into law of the land the 1912 platform pledges of the Democratic party. The Clayton Law prohibits specifically new holding company operations, interlocking directorates and price discriminations, while the Federal Trade Commission Act declares unfair methods of competition to be un- lawful. The whole tenor of both acts is toward prevent- ing control of so large a proportion of an industry by any combination that it becomes a menace to competi- tive conditions. Clearly the anti-monopoly mind of the American people is here expressed in large capitals. The legislation, deliberately passed, after nearly a quarter of a century of discussion concerning the Sher- man Act, and of interpretation and enforcement of thg-t act, registers the fact that majority opinion in America at the present time not only is not desirous of yielding its anti-monopoly tradition, but that it believes very definitely, in terms of the Democratic platforms of 1912, that legislation should be passed "which will restore to the Statute (the Sherman Law) the strength of which it has been deprived" (by judicial construc- tion). 274 THE TRUST PROBLEM The key section which emphasizes the anti-monopoly spirit is Section 7 of the Clayton Act : " That no corpora- tion engaged in commerce shall acquire, directly or indirectly, the whole or part of the stock or other share capital of another corporation also engaged in commerce where the effect of such acquisition may be to substan- tially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce." This excerpt from that sec- tion records the extreme legislation against corporate combination. No horizontal combination, big or little, is possible under this act for it is inconceivable that one of two competitors should acquire the other's stock and yet not disturb the competition between them. Strict construction of this Section 7 would prevent any further corporate combinations in the United States. It was an act of grace that closed the section with the saving clause that "nothing contained in" this section shall be held to affect or impair any right heretofore legally ac- quired." This seems to say that such Trusts as have before September-October, 1914, succeeded in getting past the previous anti-trust barriers are to be tolerated as they are, but this act creates a stone wall barrier to stop them from any further combination growth and to prevent altogether the advance of any new combina- tions. It will be interesting to observe once more the penetrability of an impenetrable legislative wall if the evolutionary strength of the combination move- ment in the United States is not yet spent. Sections 6 and 20 of the Clayton Act make of it an FEDERAL TRUST LEGISLATION 275 American Magna Charta for organized labor in' the thought of labor leaders. Section 6 exempts labor, agricultural, and horticultural organizations from being "held or construed to be illegal combinations or con- spiracies in restraint of trade, under the anti-trust laws." Section 20 apparently sets limits to the use of the injunction against labor organizations. The fre- quent salting of the phraseology of the latter section with such ambiguous terms as "peaceful," "peaceably," "peacefully," "lawfully," "lawful means," "lawful manner" and "lawful purposes" raises question in the mind of the lay reader whether the limits set are not far more apparent than real. None the less organized labor sees its will written into an anti-trust statute of 1914 in clear contrast to the defeat of the proposed amendment similar to Section 6 of the Clay- ton Act during the original debates on the Sherman Act. A sound program for national treatment of Trusts can be outlined from the viewpoint of economics. In many industrial lines cost-cheapening is an outcome of combination. No one can say what is the perfect cost- cheapening size for the productive unit in any given industry. Conditions should be made right for careful experi- ment to learn this size, for so far speculative promotions and predatory modes of competition have all too often fogged the experiment. Law and administration, rightly to condition this experiment, must be national in scope, for the producing units are coming to be nation-wide, even world-wide, industrial combinations. There must be maintained a fair and open field for 276 THE TRUST PROBLEM industrial competition to do its full work. That the field be fair, cunning promotions, local price-cutting, personal and local rebates, factors' agreements, and the like must cease. That the field be open, anti-pooling clauses for railways and anti-monopoly clauses for in- dustrials must go, too. In the fair field, no competitor's growth must be checked even though complete monopoly come. In the national field kept thus, both fair and open, full monopoly may not win out in many lines of indus- try. It may not win out in any line. If full monopoly does win out in any line, that will be proof that it is the sought-for cost-cheapening unit. Whenever and in whatever industry this may be proved, the public mind then and there may see that competition is dead and should be buried to the music of suitable praise for its past service to man. To fight monopoly, then, to try to quicken dead competition, then, would mean that democracy was listing itself with the weavers who vainly strove against the new loom, the stage drivers who threw themselves before the locomotive, and all others who have futilely sought to stop the march of cost-cheap- eners. Honest cost-cheapeners come to stay. This is a lesson of economic history which democracy needs to know and to apply. "Monopoly" and "monopolist" must not be al- lowed to frighten great, maturing democracy. Rather in the fair field, kept deliberately open, let the honest cost-cheapening monopoly be welcomed, if it come. It will be gigantic — ^nation wide in its power and in its service. Its public character will be beyond dispute. .Control by the nation, therefore, will be as natural as FEDERAL TRUST LEGISLATION 277 lit will be necessai^'^. Shall this be effective Federal control or outright government ownership? Evolution admits little doubt here — effective control has first place. Such social control in addition to insuring fair treat- ment of all competitors as the monopoly is developing, and fair opportunity" always for new competitors to enter the field against the once attained monopoly, must go further. It must extend to workmen in these quasi-public businesses living chances now offered in full public enterprises — treasonable hours, living wages, safe and healthful factory conditions, accident compen- sations, and service pensions. It must protect buyers of the monopoly's stocks and bonds against gambling issues. It must safeguard buyers of the monopoly's goods against the natural bent of monopoly to set those prices which will yield it greatest pure profit. Price control must be at once friendly to the business and just to the public. Friendly — ^in that it allows such gain as will spur the industrial captains to do their best; just to all — ^in that it sets a fair maximum margin above actual cost. In summary, this program is that the nation shall keep a fair, open industrial field everywhere. No more than this is needed, unless, through fair contest, mo- nopoly shall come. If and when it comes, the fact must be accepted. EJnowing neither costly distrust nor foolish fear, the master nation may then write and en- force that law of control which will make huge mo- nopoly its giant servant. Our national Trust legislation to date has attempted to secure the fair field by law against unfair competitive imethods. It has created a commission with wide powers 278 THE TRUST PROBLEM of investigation, publicity, and control — a commission whose powers could readily be widened to cover the whole needful field of social industrial control if national monopoly came and was acknowledged and accepted. The serious error in the national legislation, to date, if the economic program outlined above be sound, is due to traditional blind fear of monopoly. This has led to attempts to legislate out of existence and to pre- vent centralizations of industrial control where they even tend to monopoly or to restrain competition. The fair industrial field America's Trust legislation has sought to secure from the days of the Sherman Act and has fairly eflfectively insured through the acts of 1914; but the open industrial field is thus far bluntly opposed by this same series of national Trust laws. They are properly called anti-trust laws since the very essence of them is hostility to any growth or combination in the industrial world which even suggests possible monopoly. This persistent monopoly fear and attempt at monopoly prevention or destruction is the source of much of the difficulty in dealing with great industry. The normal development of much of manufacturing industry seems to be unmistakably in the direction of giant industry, if not of complete monopoly. To legis- late in opposition to a normal tendency of industry is sure to make that legislation difficult, if not impossible, to enforce. If the nation would take the further step of creating an open field for full industrial development, as it has made ready to secure a fair field, if it would do this both as to railways and as to industrial Trusts, the whole great matters of control of the nation's mightier productive energies would be greatly simplified. The FEDERAL TRUST LEGISLATION 279 Federal Trade Commission is seeking to help rather than to hinder, threaten, or punish business develop- ment, but it is hampered by the anti-monopoly man- dates of the law. If these were elided from the law then lawmakers, courts, and administrative commissions at present engaged in the uninspiring and costly busi- ness of trying to thwart or defeat great industrial growth would all be thereby set free to do the stimulating, pro- gressive work of guiding and directing the nation's great energies to their utmost achievements. CHAPTER XV TRUSTS AND THE TEDERAL COURTS FROM October 13, 1890, when suit against the members of the Nashville Coal Exchange was begun in the Circuit Court at Nashville, Ten- nessee, down to October 27, 1916, when indictment was returned in the Oregon District Court, charging certain oflScers and agents of nine cement companies with en- gaging in a combination to restrain and to monopolize trade and commerce in cement on the Pacific coast, one hundred and seventy-four suits have been filed in the Federal courts of the United States alleging viola- tion of the anti-trust statutes. These cases were in- stituted under the respective presidential administra- tions as follows: During Harrison's four years, seven cases; during Cleveland's four years, eight; during McKinley's four and a half years, only three; during Roosevelt's seven and a haK years, forty-four; during Taft's four years, eighty, and during the first three and two-thirds years of Wilson's first administration, thirty- two. The subject matters of these suits cover a wide range and indicate both the reach of Trust development and the extension given to the anti-trust law. A score of the suits were against organized laborers. These labor suits begin with the notable injunction cases against the draymen of New Orleans in 1893 and against members of the American Railway Union during the 280 TRUSTS AND THE FEDERAL COURTS 281 Pullman Strike of 1894 and continue to appear occa- sionally on the calendar down to the filing of indict- ments April 27, 1915, charging a conspiracy amongst labor unions in Chicago to prevent the installation of certain lighting fixtures. A number of these labor cases were dismissed. In others injunctions were granted. Merely nominal penalties were assessed in two of the cases, fines aggregating only $110 in a Louisiana case against seventy-two laborers, and sentences of four hours' confinement each against members of a Florida longshoremen's association who entered pleas of guilty to a charge of combining, conspiring, and agreeing upon rules for employment of workmen loading lumber vessels. There were a number of suits against railway, wharf, and ocean shipping consolidations, including two of the leading cases in the interpretation of the Sherman Act, the Joint Traffic Association case, and the Northern Securities case. There are many cases against combinations to con- trol (1) Food supplies: sugar, meat, salt, groceries gen- erally, butter, eggs, milk, ice, coffee, fruit, vegetables, canteloupes', breakfast foods, corn and corn products, wheat, oats, rye, and fresh fish; (2) Fuels, such as coal, oil, and kindhng wood; (3) Household and manufactur- ing supplies, such as enamelware, plumbers' supplies, aluminum wares, incandescent lamps, thread, clothes- wringers, school and church furniture, umbrella ma- terial, magazines, stationery, paper and paper boards, cash registers, lumber, stone, gunpowder and other explosives, tallow, fertilizers, paving bricks, wires and cables, shoe machinery, boot and shoe lasts, iron and 282 THE TRUST PROBLEM steel and other products, harvesting and agricultural machinery, posters, licorice paste, elevators, drugs and patent medicines, turpentine and resins, coal tar prod- ucts, photographic supplies, telephones, gasolene tanks, gasolene pumps, and horseshoes. Even such sources of more or less innocent amusement as bicycles, motion picture machines, tobacco, whiskey, and tin cans have been compelled to answer the call of the court on anti- trust grounds ! The net result of all this quarter century of Trust pros- ecution has been the collection of less than $600,000 in fines, a few mild confinement sentences, occasional grants of injunction and, particularly since 1911, some actual dissolutions of giant combinations. More im- portant than these particular penalties has been the development of a general understanding in the business world that the Government will prosecute and that the courts will penalize if the anti-trust law is violated. This understanding has doubtless prevented the forma- tion of combinations which would have been in peril of the law, and it has certainly aided in lessening the use of predatory competitive methods by big business. The course of the court interpretation of Ihe Sherman Act has not rim entirely smoothly. Its earlier interpre- tations well nigh nulhfied the law. This accounts, in no small part, for the infrequent prosecutions of Trusts before 1905. Although one hundred and seventy-four cases were instituted imder the Sherman Act during its first twenty-six years, only twenty-three of these cases were begun during the first fourteen years under that act. By 1904 and 1905, notably in the Addyston Pipe TRUSTS AND THE FEDERAL COURTS 283 Company case and the Northern Securities case, the court had made clear the way for effective and sweeping application of the law. The deluge of prosecutions followed, more than a hundred cases being filed in the Federal Courts in the eight years beginning 1905. In May, 1911, came the famous decisions of the Federal Supreme Court in the Oil and the Tobacco cases. These established definitely the interpretative doctrine of the "rule of reason." This doctrine had been used in application of the common law against monopolies and combinations in restraint of trade before the Sher- man Act was passed. It had been invoked in dissent- ing opinions in the leading cases in 1904 and 1905 under the Sherman Act. It required, however, the almost unanimous decision of the Supreme Court in these elab- orately prepared 1911 cases to give to the Sherman Act, authoritatively, its present meaning. A brief review of eight leading cases under the Sher- man Act wiU show the evolution of the court's inter- pretation of this law. The Knight case,* instituted in the Circuit Coiu-t in Pennsylvania in January, 1894, and finally decided by the Supreme Court January 21, 1895, was the first case in which the law was given full consideration by the Supreme Court. The bill in the Ejiight case charged that the American Sugar Refining Company, a New Jersey corporation, prior to March, 1892, had obtained control of all the sugar refineries in the United States with the exception of the Revere, of Boston, and four refineries in Phila- delphia owned respectively by the E. C. Knight Com- *United States v, E. C. Knight Co., et al. 60 Fed. 306 and 934; 156 U. S., 1. 284 THE TRUST PROBLEM pany, Spreckels' Sugar Refining Company, Franklin Sugar Refining Company, and the Delaware Sugar House; that these five refineries were competitors of the American and of one another, independently engaged in the manufacture and sale of refined sugar and in trade with the several states and with foreign nations; that the Revere refined annually about 2 per cent., and the four Philadelphia refineries, about 33 per cent, of the total sugar refined in the United States; that in March, 1892, the American Sugar Refining Company, by exchanging shares of its own stock for the stock of the four Philadelphia refineries, came into control of these four refineries and thus became the refiner of 98 per cent, of all the sugar refined in the United States; that to get this control the American Sugar Refining Company had entered into an unlawful scheme to purchase the stock of these competing companies for the purpose of re- straining trade and that it monopolized the manufacture and sale of refined sugar in the United States and con- trolled the price of sugar. The bill asked that the unlawful agreements be de- clared void, that the stock of the four companies be returned, and that injunctions be issued preventing the further carrying out of the unlawful contractual agreement and the further violations of the Sherman Act. ' In final decision of this case, January 21, 1895, the Supreme Court held that the result of the action of the American Sugar Refining Company in purchasing the four Philadelphia refineries was the creation of a mo- nopoly in the manufacture of a necessary of life which could not be suppressed under the provisions of the TRUSTS AND THE FEDERAL COURTS 285 Sherman Act, in the mode attempted in this suit, and that the acquisition of Philadelphia refineries by a New Jersey corporation, and the business of sugar refining in Pennsylvania, bore no direct relation to commerce between the states or with foreign nations. In stating the opinion of the court, Mr. Chief Justice Fuller said in part: "The relief of the citizens of each state from the bur- den of monopoly and the evils resulting from the re- straint of trade among such citizens was left with the states to deal with. . . . On the other hand, the power of Congress to regulate commerce among the several states is also exclusive. . . . Com- merce succeeds to manufacture, and is not part of it. The power to regulate commerce is the power to pre- scribe the rule by which commerce shall be governed, and is a power independent of the power to suppress monopoly. . . . The fact that an article is manu- factured for export to another state does not of itself make it an article of interstate commerce, and the in- tent of the manufacturer does not determine the time when the article passes from the control of the state and belongs to commerce ... 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. . . . There was nothing in the proofs to indicate any inten- tion 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 the com- plainants to a decree."* *X56 U. S. 11, 12, 13, 16, 17. 286 THE TRUST PROBLEM Justice Harlan alone dissented, holding that "the object in purchasing the Philadelphia refineries was to obtain a greater influence or more perfect control over the business of refining and selling sugar in this coun- try,"* and that Federal authority should therefore be asserted over it since its monopoly, achieved by these purchases, gave it power to control, throughout the country, the price of a life necessity. The effect of the Kiiight decision was to shatter the popular belief that the great industrial combinations were to be destroyed or controlled under the Sherman Act. The decision seemed to leave all control of manu- facturing enterprises to the individual states. The next important decision by the Supreme Court, under the Sherman Act, was in the Trans-Missouri Freight Association case,t in which the Government filed suit to enjoin certain railroads on the ground that their rate-fixing agreement violated the Trust Act. Eighteen railroads had contracted to fix rates, by agree- ment, for all traflic west of the Missouri River. The original bill, filed in the Circuit Court of the District of Kansas, November 28, 1892, asked for the dissolu- tion of the association and for an injunction to restrain the several companies from carrying into efiPect the agreement. This bill was dismissed by the Circuit Court, whose ruling was aflBrmed by the Circuit Court of Appeals, but was reversed by the Supreme Court. The railroads claimed: (1) That Congress did not intend the Trust Act to apply to railroads because the *156 U. S. 18. tUnited States v. Trans-Missouri Freight Association. S3 Fed, 440; 58 Fed. 58; 166 U.S. 290. TRUSTS AND THE FEDERAL COURTS 287 Inter-State Commerce Act Impliedly gave railroads the right to fix rates. (2) That the Trust Act did not apply to reasonable restraint of trade and that their rate-agreement provided for reasonable restraint of trade. Mr. Justice Peckham delivered the opinion of the divided court, representing five justices. This majority opinion held: (1) That the Commerce Act and the Trust Act are consistent with each other and therefore the Trust Act applies to railroads just as if there were no Commerce Act. (2) That the Trust Act says every contract is in restraint of trade. Therefore, the courts have no right to confine the scope of the Act to con- tracts in unreasonable restraint of trade. It includes all contracts in restraint of trade whether reasonable or unreasonable. (3) That the agreement, therefore, violated the Trust Act and an injunction was proper, and that the case should be remanded to the Circuit Court for further proceedings in conformity with this opinion. Covering the first of the above points in the opinion, and relating this case to the Knight case. Justice Peck- ham said, in part: "An Act which prohibits the making of every con- tract, etc., in restraint of trade or commerce among the several states, would seem to cover by such lan- guage a contract between competing railroads, and relating to traflSc rates for the transportation of articles of commerce between the states, provided such contract by its direct effect produces a restraint of trade and commerce. What amounts to a restraint within the meaning of the act, if thus construed, need not now be discussed. 288 THE TRUST PROBLEM "We have held that the Trust Act did not apply to a company engaged in one state in the refining of sugar under the circumstances detailed in the case of the United States v. E. C. Knight Company, 156 U. S. 1, because the refining of sugar under those circumstances bore no distinct relation to commerce between the states and with foreign nations. To exclude agreements as to rates by competing railroads for the transporta- tion of articles of commerce between the states would leave little for the Act to take effect upon. . . . We think, after careful examination, that the Statute covers, and intended to cover, common carriers by railroad."* The railroads further contended, that, since the Sher- man Act was entitled "an Act to protect trade and commerce against unlawful restraints and monopolies," it meant those restraints which the common law re- garded as unlawful, that is, only unreasonable restraints of trade. In reply to this Justice Peckham said: "We are of the opinion that the language used in the title refers to and includes and was intended to include those restraints and monopolies which are made unlawful in the body of the statute. It is to the statute itself that resort must be had to learn the meaning thereof . . . 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 excep- tion or limitation can be added without placing in the act that which has been omitted by Congress. . . . If the act ought to read as contended for by the defend- ants. Congress is the body to amend it and not this *166 TJ. S. 313, 326, 327, TRUSTS AND THE FEDERAL COURTS 289 court, by a process of judicial legislation, wholly un- justifiable."* Justices White, Field, Gray, and Shiras dissented from this opiaion, holding as the leading theme of an elaborate argument that Congress must have meant to forbid only such agreements as were in unreasonable restraint of interstate trade. This part of the dissent- ing opiaion was destined, fourteen years later, to be- come the central proposition of the court opiaion in the famous Oil and Tobacco cases. But for the time being, although the court was nearly evenly divided, the majority opiaion determined the meaniag of the anti-trust law for the nation and this majority opinion reaflBrmed the Knight case distinction, asserted the apphcation of the Trust Act to railways, and held that the act forbade all agreements, reasonable or unreason- able, which restraia interstate trade. In the Joiat Traffic Association case* the decision by the Supreme Court, October 24, 1898, again by a divided vote, reaffirmed the Trans-Missouri case deci- sion and held that this agreement of thirty-one rail- roads engaged in transportation between Chicago and the Atlantic coast to determine what rates should be charged and what portion of the business each com- pany should do, was in violation of the Sherman Act because it affected interstate commerce by destroying competition. The constitutionality of the Sherman Act as con- strued in the Trans-Missouri case was attacked in this case, the railroads alleging that it deprived the *166 U. S. 327, 328, 340. tUnited States v. Joint Traffic Association;76 Fed . 895; 89 Fed. 1020; 171 U. S. 605. 290 THE TRUST PROBLEM citizen of the liberty guaranteed him by the fifth amend- ment to the Constitution. Summarizing the court's opin- ion as to the constitutional issue. Justice Peckham said : "Notwithstanding the general liberty of contract which is possessed by the citizen under the Constitu- tion, we find that there are many kinds of contracts which, while not in themselves immoral or mala in se, may yet be prohibited by legislation of the states, or, in certain cases, by Congress. The question comes back whether the statute under review is a legitimate exercise of the power of Congress over interstate com- merce and a valid regulation thereof. The question is, for us, one of power only, and not one of policy. We think the power exists in Congress, and that the statute is therefore valid."* The Addyston Pipe case,f decided by the Supreme Court, December 4, 1899, further affirmed the Knight case by emphasis of the contrast between the two. In this Pipe case the defendants were six corporations manufactm-ing cast iron pipe which they sold through- out thirty-six states. They formed an association whereby they agreed not to compete with one another. The plan was that a committee, consisting of a repre- sentative from each corporation, set the price for each job. The corporation which would give the largest bonus for the job got it, the others putting in higher bids to make an apparent competition. The undivided opinion of the court in this case was that the arrangement eliminated all competition and was therefore clearly in violation of the anti-trust *171 U. S., 572, 573. fAddyston Pipe and Steel Company v. United States. 175 U. S. 211, see also 78 Fed. 712, 85 Fed. 271. TRUSTS AND THE FEDERAL COURTS 291 act of Congress, so far as it applied to sales for delivery beyond the state in which the sale was made. Contrasting in the court's opinion this case with the Ejiight case, Mr. Justice Peckham said, in part: "The direct purpose of the combination in the Knight case was control of the manufacture of sugar. There was no combination or agreement, in terms, regarding the future disposition of the manufactured article; nothing looking to a transaction in the nature of in- ter-state conunerce. The probable intention on the part of the manufacturer of the sugar to thereafter dis- pose of it by sending it to some market in another state was held to be immaterial and not to alter the character of the combination. . . . The combination (of the pipe manufacturers) thus had a direct, immediate, and intended relation to and effect upon the subsequent contract to sell and deliver pipe. It was to obtain that particular and specific result that the combination was formed, and, but for the restriction, the resulting high prices would not have been obtained."* The attorneys for the pipe manufacturers refined the constitutional question, raised in the Traffic Association ease, by arguing that although Congress might have constitutional right to deal with contracts of such quasi-public corporations as common carriers, elevators, gas and water companies, it has no constitutional right to interfere with or prohibit private contracts between citizens even though such contracts have interstate commerce for their object and result in a substantial obstruction of that commerce. An essential part of the court's answer to this argument, in Justice Peck- ham's words was: "Congress, in our judgment, may en- *175U.S. 240, 243. 292 THE TRUST PROBLEM act such legislation as shall declare void and prohibit the performance of any contract between individuals or corporations where the natural and direct effect of such a contract will be, when carried out, to directly, and not as a mere incident to other and innocent purposes, regu- late to any substantial extent interstate commerce."* The Northern Securities case,t decided in March, 1904, was of importance because it put aside arguments based on the decision in the Knight case and applied the Sherman Act effectively to dissolve a masterful holding company device ia the railway world. The Northern Securities Company had been organ- ized in New Jersey in November, 1901, with a capital stock of $400,000,000 as a holding company to unite the railway interests of the Great Northern and the Northern Pacific railways. It exchanged its stock at par for Great Northern stock at $180 a share, and for Northern Pacific stock at $115. By the time the suit was brought in the Circuit Court (April, 1903) the Northern Securities Company was the owner of some 96 per cent, of all the stock of the Northern Pacific Company and some 76 per cent, of all the stock of the Great Northern Company. These two companies had already in the spring of 1901 purchased about 98 per cent, of the stock of the Chicago, Burlington and Quincy Railway Company. The Northern Securities Company thus became owner of aU the leading railway lines in the northwestern part of the United States. The court divided again, five to four. Mr. Justice *175 U. S. 228. tUnited States v. Northern Securities Company et al, 120 Fed, 721, 193 U. S. J97. TRUSTS AND THE FEDERAL COURTS 293 Harlan delivered the opinion of the majority. To the plea that the holding company had simply purchased stocks of other companies, a parallel to the operations of the American Sugar Refining Company as presented in the Knight case, and that this was not an act in restraint of interstate commerce, the court responded by looking past the form of the business deal to its natural consequences. In part, on this holding com- pany issue, Justice Harlan said: "No scheme or device could more certainly come within the words of the act — 'combination in the form of trust or otherwise ... in restraint of commerce among the several states and with foreign nations' . . . or could more effectively and certainly sup- press free competition between the constituent com- panies, this combination is, within the meaning of the act, a 'Trust'; but if not, it is a combination in restraimt of inter-state and inter-national commerce; and that is enough to bring it imder the condemnation of the act. The mere existence of such a combination and the power acquired by the holding company, as its trustee, con- stitute a menace to, and a restraint upon, that freedom of commerce which Congress intended to recognize and protect, and which the public is entitled to have pro- tected. If such combination be not destroyed all the advantages which would naturally come to the public under the operation of the general laws of competition, as between the Great Northern and the Northern Pa- cific Railway companies, will be lost, and the entire commerce of the immense territory in the northern part of the United States between the Great Lakes and the Pacific at Puget Sound will be at the mercy of a single holding corporation, organized in a state distant from the people of that territory."* *193 U. S. 327. 328. 294 THE TRUST PROBLEM As a basis for affirmation of the decree of the Circuit Court that the Northern Securities Company should be enjoined from exercising any control whatsoever over the two great railway systems whose stock it had ac- quired. Justice Harlan gave a clear simimary of the decisions of the court in leading anti-trust cases up to that date, March, 1904. That summary deserves presentation here since it is the official statement of the court status of Federal anti-trust legislation after nearly fourteen years of elaborate consideration: "We will not encumber this opinion by extended extracts from the former opinions of this court. It is sufficient to say that from the decisions in the above cases certain propositions are plainly deducible and embrace the present case. Those propositions are: "That although the act of Congress known as the Anti-Trust Act has no reference to the mere manufac- ture or production of articles or commodities within the limits of the several states, it does embrace and declare to be illegal every contract, combination, or con- spiracy, in whatever form, of whatever nature, and whoever may be parties to it, which directly or neces- sarily operates in restraint of trade or commerce among the several states or with foreign nations; "That the act is not limited to restraints of interstate and international trade or commerce that are unrea- sonable in their nature, but embraces all direct re- straints imposed by any combination, conspiracy, or monopoly upon such trade or commerce; "That combinations even among 'private manufactur- ers or dealers whereby interstate or international com- merce is restrained are equally embraced by the act; "That Congress has the power to estabUsh rules by which interstate and international coromerce shall be governed, and, by the Anti-Trust Act, has prescribed TRUSTS AND THE FEDERAL COURTS 295 the rule of free competition among those engaged in such commerce; "That every combination or conspiracy which would extinguish competition between otherwise competing raihoads engaged in interstate trade or commerce, and which would in that way restrain such trade or commerce is made illegal by the act; "That the natural effect of competition is to in- crease commerce, and an agreement whose direct ef- fect is to prevent this play of competition restrains instead of promotes trade and commerce; "That to vitiate a combination, such as the act of Congress condemns, it need not be shown that the combination, in fact, results or wUl result in a total suppression of trade or in a complete monopoly, but it is only essential to show that by its necessary opera- tion it tends to restrain interstate or international trade or conunerce or tends to create a monopoly in such trade or commerce and to deprive the public of the advantages that flow from free competition: "That the constitutional guarantee of liberty of con- tract does not prevent Congress from prescribing the rule of free competition for those engaged in interstate and international commerce; and, "That under its power to regulate commerce among the several states and with foreign nations. Congress had authority to enact the statute in question."* Mr. Justice Brewer, in a concurring opinion, stated that he regarded the contracts presented as "unreason- able restraints of interstate trade and, as such, within the scope of the Act."t The dissenting opinion, held by Chief Justice Fuller, and Justices White, Peckham, and Holmes emphasized *193 U. S. 331, 332. tl93 U. S. 361. 296 THE TRUST PROBLEM the parallel to the Knight case, arguing that "ownership of stock in railroads" was "not commerce at aU." Other anti-trust cases of much interest, both before and after this Northern Securities case might be cited, but the substantial position of the majority of the court, as summarized by Mr. Justice Harlan in this Northern Securities case, stood until the Oil and Tobacco cases of 1911 made the ruling which distinguished between reasonable and unreasonable restraints of trade. This is the one essential change in the court interpretation made during the past decade. The Oil and Tobacco cases were spectacular by mere reason of the size of the Industrial Combinations at the bar. The combinations were leaders in the great Trust army. Their history reached back to the begin- nings of Trusts in the country. Their growth, marked by many questionable competitive practices, had gone on steadily until each was not only in substantial na- tional control of its kind of business, but had passed beyond the national boundaries into world trade relationships of such significance as to presage the pos- sible development of world-wide monopolies. The government challenge of these giants was therefore viewed as a marked challenge to the whole great in- dustrial combination movement. The more notable earlier suits had been against railway associations oi minor selling combinations. These two suits sought court order of dissolution of two of the greatest manu- facturing and selling combinations that had ever been formed. The decisions rendered probably determine the interpretation of the Sherman Act that will stand for the life of that act and the decrees of dissolution TRUSTS AND THE FEDERAL COURTS 297 make precedents likely to be followed if other great combinations are later adjudged violators of the Sher- man Act. The Oil case* was brought in a Missouri Circuit Court in November, 1 906 . The court decided in March, 1907, that aU the non-resident corporations making up the Standard Oil combination might be made parties to the suits along with the Waters-Pierce Oil Company, a resident of the State of Missouri. In November, 1909, the suit was prosecuted in this Missouri Circuit Court, the entire set of Standard Oil companies being brought to trial. Decision was rendered against the Trust. Appeal was taken to the Supreme Court of the United States, where the case was argued in March 1910, reargued in January, 1911, and decision rendereid May 15, 1911. The original biU charged that the Standard Oil com- panies of New Jersey, California, Indiana, Iowa, Kan- sas, Kentucky, Nebraska, New York, and Ohio and sixty-two other corporations and partnerships together with seven individuals had conspired to restrain and to monopolize interstate trade and commerce in crude oil, refined oil, and other products of petroleum. It asked that the Standard Oil Company of New Jersey, which had, in 1899, become a holding company for all the other members of the combination, be declared to be a combination in restraint of trade and a monopoly, and be enjoined from exercising control in any manner over its constituent members. The Circuit Court had dismissed the case against thirty-three of the defend- *Uiiited States v. Standard Oil Company of New Jersey et al. 1S2 Fed. Kep., 290; 173 Fed. Rep. 177; 221 U. S. 1. 298 THE TRUST PROBLEM ant corporations. So the Standard Oil Company of New Jersey, thirty-seven subsidiary companies, and the seven individuals were the appellants before the Su- preme Court. This court, Mr. Justice Harlan alone dissenting, af- firmed the decree of the lower court with slight modifica- tions. In substance its decree held the Standard Oil Company of New Jersey to be a combination in restraint of trade and commerce, and a monopoly in violation of the Sherman Act, that it should be dis- solved by the transfer back to the stockholders of the subsidiary corporations all stock that had been given to the New Jersey corporation in exchange for its stock; that the New Jersey corporation and the subsidiary corporations should be enjoined from doing anything which would give effect to further ownership by the New Jersey corporation of the stocks which had been trans- ferred. The thirty days allowed by the Circuit Court for carrying the decree into execution was extended to six months, and that part of the lower court decree which enjoined the carrying on of interstate commerce by any of the corporations in the combination until dissolution had been effected, was annulled. The lower court was ordered to retain jurisdiction to the extent necessary to compel compliance in every respect with its decree. In giving the decision of the Supreme Court, Mr. Chief Justice White, after stating the case, endorsing the inclusion of the non-resident defendants by the Circuit Court, and noting the numerous and seemingly irreconcilable issues of law and of fact, passed on to consider the correct interpretation of sections one and two of the Sherman Act. All parties agreed that the TRUSTS AND THE FEDERAL COURTS 299 controversy in every aspect was controlled by a correct conception of the meaning of these two sections. After he had reviewed common law and the law of the United States in restraint of trade, the Chief Justice said, in part: "The statute under this view evidenced 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 com- merce, but to protect that commerce from being re- strained by methods whether old or new, which would constitute an interference that is an undue restraint. . . . Thus not specifying but indubitably contem- plating and requiring a standard, it follows that it was intended that the standard of reason which had been applied at the common law and in this country in deal- ing 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 par- ticular act had or had not brought about the wrong against which the statute provided. . . . The statute by the comprehensiveness of the enumerations embodied in both the first and the second sections makes it certain that its purpose was to prevent undue restraints of every kind and nature."* Mr. Justice Harlan, concurring in part, dissented strongly against reading "undue" and "standard of reason " into the act. He cited the majority opinions of the Supreme Court in the Trans-Missouri Freight and the Joint Traffic cases, commenting: "It thus appears that fifteen years ago, when the pur- pose of Congress in passing the Anti-Trust Act was fresh *221 U. S. 60, 62. 300 THE TRUST PROBLEM in the minds of courts, lawyers, statesmen and the gen- eral 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."* The Tobacco casef decision by the Supreme Court of May 29, 1911, held that the American Tobacco Com- pany combination and aU of its constituent elements were illegal, and ordered the Circuit Court to hear the parties and determine upon a method of dissolution of the combination within eight months, and, if neces- sary, to effect this result either by injunction or by re- ceivership. The construction of the Sherman Act as given in the Standard Oil case, reading in such terms as "unduly" and resorting to the "rule of reason" was affirmed, and, as before, Mr. Justice Harlan alone dissented and dis- sented against this "judicial legislation" only. These two epochal decisions on the Sherman Act gave the new meaning to that act in ohiter dicta, but these ohiter dicta were elaborately argued and fully concurred in by aU but one member of the court, so that they would seem to have the binding force of ulti- mate decision. The Sherman Act to-day, by official interpretation of the highest court, seems to stand as it was summarized by Mr. Justice Harlan in the North- ern Securities case| modified only to allow for the ap- plication of the "rule of reason" as set forth in these great decisions in the Oil and Tobacco cases. *221 TJ. S. 90. tUnited States v. American Tobacco Company at al. 164 Fed. Rep. 700; 221 U. S. 106. |See page 294. TRUSTS AND THE FEDERAL COURTS 301 The actual forms taken under enforced dissolutions, guided by the Lower Courts, in these cases, are stated in the appendix outline stories* of the Oil and the Tobacco Trusts. The same interpretations of the law are being made and the same general forms of relief are being proposed in the other great Trust cases now before the Federal Courts, such as those against the Steel, the Harvester, and the Corn Products combinations. In the District Court decree of November 13, 1916, against the Corn Products Refining Company, the Federal Trade Com- mission is delegated, as master in chancery, to consider the plan proposed by the company for its own dissolu- tion, to hear all the parties and "report to the court a plan which wiU eflfectually dissolve the combination and restore a condition in harmony with the law." Only eleven anti-trust cases have been filed in the Federal Courts since the Clayton and the Federal Trade Commission acts were passed in 1914, and none of these has yet been decided by the Supreme Court. There are thus no definitive court interpretations of the modifications of the Sherman Act embodied in this 1914 legislation. Only one of these eleven recent cases filed obviously turns upon the new laws. This is the United Shoe Machinery Company case filed in a Mis- souri District Court in October, 1915, in which this cor- poration is charged with violation of the Clayton Act through the tying clauses in its series of leases. *See Appendix D-1 and S. APPENDIX A APPENDIX A FORMULATION OF SUGGESTED METHODS FOR THE SOLUTION OF THE TRUST PROBLEM By Wiluam Wirt Howe Permanent Chairman of the Chicago Conference on Trusts* In what are called courts of conciliation, in some jurisdic- tions, the constant aim of the presiding magistrate is to note those admissions and concessions of the contending parties themselves which may be found even in apparently hopeless disputes, and to make those admissions and concessions a £asis for a judgment substantially just. Now, following this sensible idea, where do we stand after four days of discussion, always interesting, often profoundly scientific, and sometimes passing into the brilliant sphere of oratory? It seems to me — ^simply as an individual, of course — ^that almost every paper or address we have heard has made some admissions or concessions which may form a basis for some conclusions, and if you will allow me I will formulate some of them only, as follows: 1. Combinations and conspiracies in the form of Trusts or otherwise in restraint of trade or manufacture, which by the consensus of judicial opinion are unlawful, should so be declared by legislation, with suitable sanctions, and, if pos- sible, by a statute imiform in all jurisdictions, and also uni- form as to all persons, and such a statute should bethor- •Their statement made in 1900 _ at the conference called by the National Civic Federation is of value as showing that at that date the crystallized opinion of sensible men with no parties or special interests to serve was far in advance of legislation, and was sufficient, if prompt action could have been taken in accor- dance therewith. 305 306 APPENDIX A i, oughly enforced, so that those who respect it shall not be at a disadvantage as compared with those who disregard it. 2. That the organization of trading and industrial cor- porations, whether under general or special laws, be permitted only imder a system of careful governmental control, also uniform, if possible, in all jurisdictions, whereby many of the evils of which complaint is now made may be avoided. 3. The objects of the corporation should be confined within limits definite and certain. The issue of stock and bonds, which has been a matter of so much just criticism and complaint, should be guarded with great strictness. If mortgage bonds seem to be required, they should be allowed only for a moderate fraction of the true cash value of the property that secures them. As for issues of stock, they should be safeguarded in every possible way. They should only be allowed either for the money or for property actually received by the company, and dollar for dollar, and when the property is so conveyed it should be on an honest_appraise- ment of actual value, so that there may be no watering of stock. 4. And finally, there should be a thorough system of reports and governmental inspection, especially as to issues of bonds and stock and the status and value of property, whether corporeal or incorporeal. Yet, at the same time, in the matter of trading and industrial companies, there are legitimate business secrets which must be respected by the general public. In short, we need to frankly recognize the fact that trading and industrial corporations are needed to organize the activities of our country, and that they are not to be scolded or belied, but controlled, as we control steam and electricity, which are also dangerous if not carefully managed, but of wonderful usefulness if rightly harnessed to the car of progress. APPENDIX B FINAL REPORT OF THE INDUSTRIAL COMMISSION 1902* Recommendations of the Commission. Early in the year 1900 tins Commission submitted to the Congress a preliminary report of findings and recommenda- tions on the subject of industrial combinations. Said re- port was in part as follows : To prevent the organizers of corporations or industrial combinations from deceiving investors and the public, either through suppression of material facts or by making mislead- ing statements, your Commission recommend — (a) That the promoters and organizers of corporations or industrial combinations which look to the public to purchase or deal in their stocks or securities should be required to furnish full details regarding the organization, the property or services for which stocks or securities are to be issued, amount and kind of same, and all other material information necessary for safe and intelligent investment; (b) That any prospectus or announcement of any kind soliciting subscriptions, which fails to make full disclosures as aforesaid, or which is false, should be deemed fraudulent, and the promoters, with their associates, held legally respon- sible; (c) That the nature of the business of the corporation or industrial combination, all powers granted to directors and officers thereof, and all limitations upon them or upon the *Vol. XIX, p. 649. This report is of historic value. Some of the recommenda- tions have already become law. Others should be enacted into law. It shows that the opinions of experts were distinctly in advance of legislation. 307 308 APPENDIX B rights or powers of the members, should be required to be expressed in the certificate of incorporation, which instru- ment should be open to inspection by any investor. The affairs of a corporation or industrial combination should be carried on, without detriment to the public, in the interest of its members and under their lawful control. To this end the directors or trustees should be required — (a) To report to the members thereof its financial condi- tion in reasonable detail, verified, by a competent auditor at least once each year; (b) To inform members regarding the method and conduct of business by granting them, under proper restrictions, ac- cess to records of directors' meetings, or otherwise. (c) To provide for the use of members, before the annual meetings, lists of members, with their addresses and their several holdings; and (d) To provide, in whatever other ways may be named in the certificate of incorporation, means whereby the mem- bers may prevent the misuse of their property by directors or trustees. The larger corporations — the so-called trusts — should be required to publish annually a properly audited report, showing in reasonable detail their assets and liabiHties, with profit or loss; such report and audit under oath to be subject to Government inspection. The pm-pose of such publicity is to encourage competition when profits become excessive, thus protecting consimaers against too high prices and to guard the interests of employees by a knowledge of the financial condition of the business in which they are em- ployed. , The further consideration given to the subject by the Commission has justified in nearly all particulars our former conclusions and recommendations. Since that report was made, combinations and their methods, both here and in APPENDIX B 309 Europe, have been more thoroughly studied. The influence of combinations in the United States in extending our for- eign trade and the methods and influence of foreign combina- tions in competition with them have been observed. These matters are presented in accompanying volumes. We now further recommend — 1. That district attorneys of the United States be author- ized and directed to institute proceedings for violations of the Federal anti-trust laws. 2. That combinations and conspiracies, in the form of trusts or otherwise in restraint of trade or production, which by the consensus of judicial opinion are unlawful, should be so declared by legislation uniform in all jurisdictions, and as to all persons, and such statutes should be thoroughly en- forced. 3. That stringent laws be enacted by the Congress and the several State legislatures, making both penal and criminal the vicious practice of discriminating between customers, and cutting rates or prices in one locaUty below those which prevail generally, for the purpose of destroying local compe- tition; and that such laws should give to any person damaged the right to sue for and recover prescribed penalties, and make it the duty of prosecuting officers to proceed against the offenders. 4. That to prevent overcapitalization, the several State legislatures enact laws similar to the anti-stock-watering laws of Massachusetts; also to provide for State supervision of all public-service corporations, with power to recommend or regulate rates for service and to pass upon the public need, desirability, or exigency of any proposed new service. 5. That Plan Three — Federal taxation and supervision — theretofore outlined, be adopted, and to accomplish its purposes — (a) That an annual franchise tax be imposed upon all 310 APPENDIX B State corporations engaged in interstate commerce, calcu- lated 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. (b) That there be created in the Treasury Department a permanent bureau, the duties of which shall be to register all State corporations engaged in interstate or foreign commerce; to secure from such corporations all reports needed to en- able 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 corpo- rations as will guarantee the completeness and accuracy of the information needed to ascertain whether such corpora- tions 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 infor- mation regarding special privileges or discriminations, of whatever nature, by which industrial combinations secure monopoly or become dangerous to the public welfare. It is probable that the provisions herein recommended wiU be sufficient to remove most of the abuses which have arisen in coimection with industrial combinations. The remedies suggested may be employed with little or no danger to indus- trial prosperity and with the certainty of securing informa- tion which should enable the Congress to protect the public by further legislation if necessary. APPENDIX B 311 6. That, if a department of commerce and industry shall be established, one of its functions should be to call attention from time to time to such economic changes in the world's progress as may suggest tariff modifications, and also to such commercial opportunities as may suggest reciprocal legisla- tion or arrangements, and furthermore to any evils incident to combinations which changes in the tariff will correct. 7. That in view of the extent and perfection of our man- ufactures, of our growing export trade and the sharp compe- tition it encounters in foreign markets, of the practice by some exporters of making lower prices abroad than at home, and of the desirability of protecting the consumer as well as the producer, without awaiting other legislation, the Con- gress provide for a commission to investigate and study the subject, and to report as soon as possible what concessions in duties may be made without endangering wages or employ- ment at home, what advantages abroad may be obtained therefor, and also to suggest measures best suited to gain the ends desired. If experience shall prove that these remedies are not suf- ficient to properly control the great corporations and com- binations, it may be wise for the Congress to enact a Federal incorporation law. Should such a law be enacted, it would then be possible to increase the franchise tax upon State cor- porations engaged in interstate commerce so as to compel them to reorganize under the Federal law. When organ- ized imder a Federal law, it would be possible, as has been pointed out, to apply to corporations any degree of pub- licity or restriction that might be authorized. In the mean- time the separate states should amend their corporation laws so as to require greater publicity, as outlined in our pre- liminary report. The evils of discriminations in freight rates and their in- fluence in aiding and promoting monopolies have been 312 APPENDIX B clearly shown. The recommendations of the Commission relative thereto will be found mider "Transportation." Albert Ciabke, Chairman Boies Penrose Thomas R. Bard John J. Gardner Jno. C. Bell Theo. Otjen Wm. Lorimer Andrew L. Harris John M. Farquhar Thos. W. Phillips Eugene D. Conger C. J. Harris J. L. Kennedy Chas. H. Litchman D. A. Tompkins APPENDIX C PROPOSED NEW YORK BUSINESS COMPANIES' ACT* Powers and Purposes Under the title. Powers and Purposes, the usual provi- sions regarding legal standing and acts are made, and special ones are added giving powers ... to the same extent and in the same manner that a natural person might do.f *This bill, which was framed to carry out the suggestions in Governor Roosevelt's annual message sent to the Legislature, January, 1900, was in form a complete Business Corporation Law. It was intended not to repeal the present law, but to provide an alternative law imder which corporations that wished to do so might organize and act; others might act under the present law. As will be seen, the proposed act gives much greater privileges to corporations in many particulars than does the present law. In other respects, especially as re- gards publicity of accounts and of business methods, the responsibiUty of directors, etc., it is much more rigid. Corporations of the highest type as regards financial stability and management, having nothing to conceal for which the bill calls, might well wish to organize under it to give them standing as well as to secure its privileges. Speculative corporations could not well do so. The line would thus be drawn between the two classes, to the manifest advantages of investors and of the pubhc. The provisions giving privileges to sound corporations under proper restrictions were largely suggested by the late James B. Dill, Esq., of the New York Bar, author of " Dill on New Jersey Corporations," and they are to a considerable extent modelled after the New Jersey laws with additional safeguards for the public inter- ests. The provisions regarding Promotion, Auditing, and the Annual Report are taken largely from the Corporation Laws of Victoria, modelled after those of England. All the provisions of the bill were submitted to many persons qualified to criticise them — corporation lawyers, professors of corporation law, lawyers with no interest in corporations, prominent business men, chartered accountants, and others — and valuable suggestions were received from all, the effort being made to make the act as rigid regarding publicity as it could be made without endangering the interests of sound business. It is believed that the enforcement of such a law would gradually do away with a large part of the evils of the Trusts. fAs one of the authors of this book, Mr. Jenks, took the final responsibility of the acceptance or rejection of all suggestions made in its preparation, he has felt at liberty to make changes in the parts here reprinted and to add some brief explana- tory notes. The only parts of the bill printed are those that are not fourd in the Corporation Laws of New York, or those that are needed to show the spirit of the act. The most important provisions are printed in full. 313 314 APPENDIX C It may exercise the same powers outside the State of its origin as within it, subject always to the laws of the State in which it is doing business, but no corporation shall possess or exercise the above mentioned or any other corporate pow- ers, except such incidental powers as shall be necessary to the exercise of its powers above mentioned, unless they are contained in the certificate of incorporation. . , . Registered Office and Agents* Every corporation organized under this act shall have and keep continuously a registered ofl5ce in this State, and an agent in charge thereof , which agent must sign the certificate of incorporation. Every registered agent shall, during the month of April of each year, file a statementf as of the first of April, under oath, with the Secretary of State of New York, which shall specify: 1. The names of the corporations for which he is the reg- istered agent. 2. Whether such corporations have or have not made their annual report. 3. Whether the names of these corporations have been at all times displayed before their registered office. 4. Whether the provisions regarding the keeping and inspection of stock and transfer books have been fully com- plied with. . . . It will be observed that large powers are conferred; but these powers must be fully declared in the certificate of incorporation, and very rigid provisions to prevent abuses are made. *This provision is entirely new, and is intended to aid in securing proper annual reports. fThe provisions regarding a registration office and agent will enable any person who has a right to know, to secure regularly and easily any information needed, and will enable the State much more readily to enforce its restrictive regulations. This provision is from the New Jersey law, with additional regulations. APPENDIX C S15 Certificate of Incorporation* The certificate of incorporation shall be signed in person by all the subscribers to the capital stock named therein and by the registered agent. The certificate of incorporation shall contain the usual provisions in detail and, may contain any provision not inconsistent with this act, which the incorporators may choose to insert for the regulation of the business and for the conduct of the affairs of the corporation, and must contain all the provisions creating, defining, limiting, and regulating the powers of the company, the directors, and stockholders, and of any class or classes of stockholders, or any right or rights of specific stockholders. No provision creating, defining, differentiating, limiting and regulating the powers of the corporation, the directors, the stockholders, or any class or classes of stockholders, shall be valid unless inserted in the certificate of incorporation or in an amend- ment thereof. • . . The certificate of incorporation shall be proved or ac- knowledged as required for deeds of real estate, and filed in the office of the Secretary of State. Said certificate or a copy thereof duly certified by the Secretary of State shall be evi- dence in all courts and places. A copy of the certificate must also be kept in the registered office of the company, and a copy must be furnished by the registered agent to any person demanding the same, on payment of a charge of not more than one dollar. *It was thought wise to encourage the formation of corporations wishing to do a sound conservative business, and through publicity to discourage the purely specula- tive ones. The full statements required in the certificate of incorporation, which is accessible to any person, would in very many cases make clear to investors and the public the nature of the business and the protection afforded shareholders, and would warn careful people against risks. 316 APPENDIX C Incorporation Fees* Amendment of Certificate^ Every corporation organized under this act may change the nature of its business, change its name, increase its capital stock, decrease its capital stock, change the par value of the shares of its capital stock, change the location of its registered oflBce in this State, extend its corporate existence, create one or more classes of preferred stock, and make such other amendment, change, or alteration as may be desired, in the general manner provided in the New Jersey law, except that it is provided, that such certificate of amendment, change, or alteration shall contain only such provision as it would be lawful and proper to insert in an original certificate of in- corporation made at the time of making such amendment; and provided further that in case the corporation by such amendment proposes to undertake business which is not of the same general character as that provided in the original certificate, or creates one or more new classes of stock, or gives to certain classes of stock or bonds new privileges, or increases the amount of the capital stock, a vote of four- fifths of each class shall be required, and any dissenting stockholder may declare his dissent in writing at the meeting called for the purpose of amendment, and may sell to the company and the company shall buy for cash his holdings of stock at a valuation appraised in the manner provided for dissenting stockholders in case of merger or consolidation of companies. If such dissent is declared in writing at the meeting, the subsequent proceedings for appraisement and *These fees are placed at the rates now paid in New Jersey. fAVhile the interests of minority stockholders have been fully protected by re- quiring a four-fifths vote and the purchase for cash at an appraised valuation of the stock of dissenting stockholders, it is recognized that a few ought not to be permitted to block the plans of a large majority. APPENDIX C 317 purchase may be enforced at the instance of either party. . . . Reincorporation Under Act* Act Optional] All companies existing at the coming into force of this act, and all companies hereafter organized under the present business corporation laws, vmless they elect to put them- selves under the provisions of this act in the manner pre- scribed in the preceding sections, shall remain subject to the other corporation laws relating to them, as if this act had not been passed. Directors No by-laws adopted by the board of directors regulating the election of directors or officers shall be valid, unless a copy thereof shall be deUvered or mailed to each stockholder of record at least thirty days before such election. Every stockholder shall be entitled to receive, and every corporation by its officers and board of directors shall be bound to furnish, any stockholder upon request, at the ex- pense of the corporation, a copy of the certificate of incorpo- ration and of the by-laws. Any corporation organized mider this act may classify its directors in respect to the time for which they may hold office, the several classes, however, to be, as nearly as is numerically possible, equal in number and elected for diflFer- ent terms. Provided, *The intention was to encourage foreign corporations, wishing to do a conserva- tive business, and domestic corporations of like character, to reincorporate under this act. This section would make the process a very simple one. fThe act was to be an optional one. A radical revision of a general corporation act, without due warning, could not fail to work injustice in many cases. A good law which should encourage sound business would throw discredit upon unsound methods. Later, other acts might, with due warning, be repealed. 318 APPENDIX C 1. That no class shall be elected for a period shorter than one year except at the first election, for the first year, or for more than five years, and 2. That the term of office of at least one class shall expire each year. Any corporation which shall have more than one kind of stock, by making suitable provision in its certificate of incor- poration, may confer the right to choose the directors upon the stockholders of any class or classes, or upon the bond- holders, to the exclusion of others, subject, in case this power is granted by amendment, to the right of minority stockhold- ers provided in the previous section regarding amendments to the certificate of incorporation.* Duties of Directors Regarding Elections The directors of every company organized under this act shall cause the registered agent, or other transfer agent designated by them as having charge of the said books, to make, at least ten days before every election after the first election, a full, true, and complete list, arranged in alphabet- ical order, of all the stockholders entitled to vote at the en- suing election, with the post-office addresses, not the regis- tered office of the corporation, of each, and the number of shares of each kind of stock held by each, which Ust shall, at all times during the usual business hours, be kept at such registered office open to examination by any stockholder. The board of directors shall produce at the time and place of every election of directors, such books and such list, there to remain during the election. A copy of such list shall be maUed to any stockholder within five days after his request is received, upon payment in advance of cost of copying at not more than ten cents per folio of one hundred words. "Through the classification of directca'S, incorporators at times ertend their power through a long series of years. These provisions, it is thought, would prevent many such abuses, while retaining the benefits of classification. APPENDIX C 319 The neglect or failure of the said directors of a corporation with a capital stock of five hundred thousand dollars or up- ward to cause the said books so to be kept, or to cause the said list to be so made and filed, or to produce the said books or said list at the time of any election, shall render them in- eligible to hold office as directors, or any other office in the company for the period of one year thereafter.* In addition to the penalty above named for failure the sum of one hundred dollars each may be collected from any or all of the directors at the suit of any stockholder, for his own use. Delinquent directors of corporations with a capital stock of less than five himdred thousand doUars shall be subject to the last named penalty only. Officers^ Besides the usual officers an auditor or auditors shall be chosen by ballot by the stockholders at their annual meeting, and no person or firm or corporation, a member, director, or officer of which is a director of the company to be audited shall be eHgible. Corporations organized imder this act with a capital stock of one hundred thousand dollars or up- ward, must select as auditor or auditors a person, firm, or corporation duly qualffied and engaged in the practice of pubhc accounting and auditing in this state. And the auditor or auditors selected by a corporation whose capital stock amounts in all to one million dollars or more must have his or their financial responsibility secured by a bond of fifty thousand dollars of some surety company authorized *This penalty was introduced in 1900 into the Corporation Law of New Jersey, and has already proved very effective in preventing negligence in carrying out the provisions of that law. fThe provisions regarding auditors are intended to protect shareholders against .misuse of power by directors. Every effort is made to identify the interests of auditors and shareholders. The provisions regarding bonds of auditors will make their responsibility a real one. The further provisions regarding officers are like- wise needed to hold them responsible to shareholders. 320 APPENDIX C to do business tinder the insurance laws of this state. . . . Corporations with five hundred thousand dollars capital stock or upward must appoint a general counsel, who shall be counted in the list of officers. Any stockholder shall be entitled upon payment of cost of copying at not more than ten cents a folio of one hundred words, to a statement at any time of all salaries paid to any officer or officers of the corporation, together with a state- ment of all contracts or agreements in which any officer of the corporation may be interested either as a contracting party with the corporation or as an officer or stockholder in any other corporation contracting with the company. . . If any certificate made, or any public notice given by the officers or directors of any corporation in pursuance of the provisions of this act shall be false in any material repre- sentation, all the officers or directors who shall have signed the same, knowing it to be false, shall be jointly and severally liable for all the debts of the corporation contracted while they were directors or officers thereof, as a penalty enforce- able in the courts of this state only. Meetings The first meeting and the annual meetings of stockholders must be held at the registered office; directors' meetings may be held elsewhere. At the regular annual meeting, for which provision must be made in the certificate of incorporation or in the by-laws, the shareholders' balance-sheet prepared and certified by the auditors as provided later must be presented to the share- holders. If the directors or other officers of any corporation organized under this act shall fail or neglect to call in the manner provided by law the annual stockholders' meeting at the time appointed in the certificate of incorporation or in the by-laws and shall not hold the same accordingly there- APPENDIX C 321 upon, from the time when said meeting was appointed to be held imtil the meeting shall actually be held thereafter, all salaries of president, vice-presidents, secretary, treasurer, and directors shall cease and determine, and it shall be un- lawful for any corporation or its officers or directors to pay directly or indirectly any salary or compensation to any of the above-named officers or to any director for services ren- dered in the interim. At the aimual meeting any shareholder shall be entitled to require from the company, and the directors shall be bound to furnish him with a copy of all or any parts of the directors' records of meetings. Stock and Certificates If provided in the articles of incorporation, preferred and common stock may be issued; but liabihty of holders of all classes is limited to the payment for the stock itself at par value. Bondholders may be given voting powers equal to those of stockholders. Every stockholder shall be entitled to receive a certificate of stock signed by two officers of the corporation. Every certificate of stock and every bond shall specify the amount of capital stock authorized to be issued by said corporation, the amount of each class, if there is more than one class, also the amount of each class issued for cash and for other consid- eration, the par value of each share, and the location of the registered office of the company, and shall disclose fully and fairly any qualification or restriction contained in the certificate of incorporation affecting the right of the stock- holder, or in case of bonds of the bondholder, by way of voting power or otherwise.* Any corporation or individual countersigning the said *A new provision. It will be noted that the certificate gives each investor full information regarding his rights. / 322 APPENDIX C stock or bonds, either as transfer agent or as registrar of the stock, shall be deemed to guarantee the legality and regular- ity in all particulars of the transfer, Tinless the countersign itself shall give notice in clearly legible characters that said countersigning agent Hmits or refuses responsibility. Every share of stock shall be deemed to be issued and shall be held subject to the payment of its par value in cash, unless before the issuance of said stock a contract shall be filed in the registered office of the company which shall truly and fully disclose ia detail the consideration for which the said stock is issued, whether the same be for property, services, or other- wise. In case any stock is issued for consideration other than cash, every share of stock shall have stamped across its face a statement that stock has been issued in accordance with a contract filed in the registered office and the proportion of shares of each class so issued. Every such contract so ffied in the registered office shall truly and fully disclose the consideration for which said stock is issued, the parties to whom such stock is issued, and the real parties in interest. Such contract shall be open during regular office hours to the inspection of any one and a copy thereof shall be furnished by the registered agent of the cor- poration to any one requesting it and advancing the cost of making a copy thereof, which cost shall not exceed the sum of ten cents per folio of one hundred words. In every annual report made by the company, the amount of capital paid in cash and the amoimt otherwise issued in pm^suance of the provisions of the foregoing sections shall be stated, together with the specific amounts issued during the two years next preceding.* The judgment of the board of directors as to the value of *This provision is substantially that of the law of Victoria and in substance has been adopted by the new amendment of 1900 to the English Act. If even fairly enforced, it will largely destroy the power of the dishonest promoter and director. APPENDIX C 323 the consideration other than cash thus received by the com- pany shall be final and conclusive upon all parties, provided that all the provisions of this act relating thereto be fully carried out, and that the contracts fairly and fully disclose the real natiu-e of the bargain thus recorded.* Where the whole capital of the corporation shall not have been paid in, and the capital paid shall be insufficient to sat- isfy its debts and obhgations, each stockholder shall be bound to pay on each share held by him the sum necessary to com- plete the amount of such share, as fixed by the charter of the corporation, or such proportion of that sum as shall be re- quired to satisfy such debts and obligations. No loan of money shall be made to any stockholder to enable such stockholder to withdraw in effect any part of the money paid in by him on his stockf; and if any such loan be made, the officers who make it or assent to it shall be jointly and severally liable to the extent of such loan and interest for all the debts of the corporation until the repay- ment with interest of the sum so loaned. Penalty for Delinquent Officials The president and secretary, or treasurer, upon the pay- ment of the amount of capital subscribed in the certfficate of incorporation, whether up to the amount authorized by its certificate or in addition thereto, if increased in the man- ner provided by this act, shall make a certificate stating, in addition to the requirements of section eighteen of this act, *The limitation of liability of shareholders and the acceptance of the judgment of directors as to values of property are very liberal provisions. Under present laws the practice is much the same as it would seem to be under this bill so far as stock-watering goes, but the provisions of this bill regarding publicity would largely remove the temptation to water stock and would render the practice innocu- ous if it were continued. Moreover, when there is danger arising from a failure of judgment or a misunderstanding on the part of directors, the more conservative and conscientious men often refuse such positions, thus putting the management of our corporations into the hands of the reckless and unscrupulous. This bill tries to recognize actual business conditions, and not to put penalties upon honesty. t A not uncommon practice now. 324 APPENDIX C the amount of capital so paid, whether paid in cash or other- wise; the total amount of capital, if any, previously paid in and reported, with the date of such report, and also stating with regard to any such additional stock thus issued for con- sideration otherwise than cash, the date of filing the contract determining such issue. This certificate shall be signed and sworn to by the president and secretary or treasurer, and the directors shall, within ten days, cause the certificate to be filed in the office of the Secretary of State and a copy thereof in the registered office of the company. In case of their failure so to do, the directors of the company whose terms shall expire at the next annual election shall each and all be disqualified for a period of one year from being elected or serving as directors or officers of the corporatioh; but a di- rector may avoid the penalty by showing his eflForts to have the certificate filed and furnishing the information. If any of the said officers or directors shall neglect or re- fuse to perform the duties required of them in section seventy- five for ten days after being requested ia writing so to do by any creditor or stockholder of the corporation, the directors so neglecting or refusing shall be jointly or severally liable for all the debts of the company contracted before the filiug of such certfficate and until the same shall be filed. Powers of Corporation to Buy and Sell Stock Any corporation, if proper provision is made in the cer- tificate of corporation, shall have the power to purchase, hold, seh, assign, transfer, mortgage, pledge, or otherwise dispose of the stock or securities of other corporations, and, while the owner thereof, to vote upon them to the same extent as nat- ural persons might or could do. Every corporation shall have the power to purchase or otherwise acquire its own capital stodc, but only out of its smplus earnings or in payment or satisfaction of any debt APPENDIX C 325 due the company to such extent and manner and upon such terms as the board of du-ectors by two-thirds vote shall determine, and to reissue the said stock so acquired. Any such purchase or reissue of stock together with price and consideration paid and for which the reissued stock is sold shall be noted in the annual report.* Promotion^ Every prospectus, announcement, or advertisement of whatever kind, howsoever published, printed, circulated, or issued after the commencement of this act, provided the same is published or issued with a view of obtaining subscrip- tions for shares or bonds in a company organized under this act, or directly or indirectly inviting persons to subscribe for shares or bonds in a company so organized shall specify: 1. The names and addresses of the promoters and direc- tors and the number of shares held or agreed to be taken up by them respectively and whether wholly paid up or partly paid up and the consideration, remuneration, or reward, if any, to the incorporators, directors, promoters, underwriters or others respectively for becoming incorporators, directors, promoters, underwriters, or members of the company; 2. The date and the names of the parties to any contract directly or indirectly relating to the company or to the pro- motion thereof entered into by the company or the pro- moters, directors, or trustees thereof or any person acting as a *These provisions have been thought dangerous. They might be so, if it were not for other provisions of the act regarding publicity and the power of stockholders to know and control the acts of directors. With those provisions the danger is removed, and these provisions become a safeguard against speculative or ill-dia- posed stockholders. fThese rigid provisions regarding promotion and auditing are no more than are required in some other countries. The forms for reports have been passed upon by competent auditors, and all agree that no conservative, well-managed company can properly object to such reports going to stockholders. _ No proper business secrets are disclosed. A sound company, and a promoter who is not primarily a speculator, will rarely be injured by any of these provisions, while the provisions are needed to block evil practices which are now worldng grave injury to sound busiiiflss. 326 APPENDIX C trustee or agent for or on behalf of them or any of, them, and whether such contract be entered into with the promoters or directors or any of them or any other person whomsoever within two years before the issue of such prospectus whether subject to adoption by the directors of the company or other- wise, and shall also state a place where such contract if in writing may be inspected, which place must be the registered oflSce of the company, if that is yet organized, provided that this subdivision of this section shall not apply to a contract entered into by the company after its incorporation in the or- dinary course of the business carried on by the company, unless stock or bonds are issued or to be issued as a considera- tion; 3. The contents of the articles of incorporation, if any, with the names and addresses of the subscribers thereto and the number of shares subscribed for by them respectively, together with the number of shares fixed as the qualification of a director; 4. The consideration paid or to be paid, and if so, how and when, for any property purchased or acquired or to be purchased or acquired by the company and from whom and when purchased or acquired, with a brief description of the natiu-e of the property and its location if physical property, and whether any part and if so, how much of such considera- tion money is for good will; 5. The amount, if any, payable as commission, bonus, or reward for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for or for underwriting or guaranteeing the sale of any shares in the company or the rate of any such commission; 6. The minimum subscription upon which the directors will allot the shares subscribed, and begin business; 7. The minimiun amount payable on application and allotment on each share; APPENDIX C 327 8. The number and amoxint of shares issued or agreed to be issued as fully or partly paid up otherwise than in money, and in the latter case the extent to which they are so paid up, and in either case the consideration for which and the person or persons to whom such shares have been issued or are pro- posed or intended to be issued; 9. The names and addresses of the vendors of any prop- erty purchased or acquired by the company or to be so pur- chased or acquired, which is to be paid for wholly or partly out of the proceeds of the issue offered for subscription by the prospectus or the purchase or acquisition of which has not been completed at the date of publication of the pros- pectus and where there is more than one vendor or the com- pany is a sub-purchaser, the amount payable in money or shares to each vendor; 10. The amount or estimated amount of preliminary expenses; 11. The amoimt paid or intended to be paid in cash or shares or otherwise, to or for any promoter and the consider- ation therefor; 12. The amount intended to be reserved for working capital ; 13. The proposed application of the proceeds of the issue of the shares; and 14. The names and addresses of the auditors or intended auditors, if any, of the company. A prospectus which does not comply with the preceding section shall be deemed to be fraudulent on the part of the responsible parties knowingly issuing the same.* Every person taking shares on the faith of such prospectus unless he had actual notice of the particulars omitted from the prospectus shall, in addition to any other remedy he may have, be entitled to sue for rescission of his contract to take shares. ♦Parties are fully defined in bill. S28 APPENDIX C In the event of non-compliance with any of the require- ments of this act with respect to a prospectus, any person aggrieved shall be entitled to compensation from any person knowingly issuing the same, unless in ways enumerated in the act he can fully exonerate himself. Provisions are fully made also to prevent fraud through the acts of irresponsible persons acting as virtual agents. For the purpose of this act every contract and fact is ma- terial which would influence the judgment of a prudent in- vestor in determining whether he would subscribe for the shares offered by the prospectus. Any condition requiring an applicant for shares to waive, and any agreement to waive, due compliance with this act or purporting to affect him with notice of any document or mat- ter not specifically referred to in the prospectus shall be void. Every promoter is in a fiduciary relation toward a com- pany which he is engaged in promoting, and consequently he must make full disclosure as provided in the bill of his relations to and dealings with the company. Balance-Sheet* Every company and the directors and managers thereof — 1. Shall cause to be kept proper books of account in which shall be kept full, true, and complete accounts of the affairs and transactions of the company, and 2. Shall once at least in each year cause the accounts of the company to be balanced and a balance-sheet in this act referred to as the shareholders' balance-sheet to be pre- pared, which balance-sheet after being duly audited shall be *It will be observed that this balance-sheet is not published, but is given to the shareholders. Of course, in the case of large companies whose stocks are on the stock market, this is equivalent to publication; while a small private corporation with but few members would be able to confine knowledge of its affairs to its few stockholders and the proper oflBeers of the state. APPENDIX C 329 laid before the members of the company in next general meeting; and 3. Shall cause a copy of such shareholders' balance-sheet so audited to be sent to the registered address of every mem- ber of the company at least seven days before the meeting at which it is to be laid before the members of the company and a copy to be deposited at the registered office of the company for the inspection of the members of the company during a period of at least seven days before that meeting, and every shareholder in the company or any person acting in his be- half shall be entitled to other copies thereof on payment of twenty-five cents each. The shareholders' balance-sheet shall be in such form as is directed by the certificate of incorporation or the by-laws or by a resolution of the company and shall show in every case — 1. The amount of share capital authorized, the amount issued, and the amount paid up thereon, distinguishing the amount of share capital paid up in money and the amount paid otherwise than in money, with statement of nature of the consideration and the arrears of calls due, and the specific amounts issued during the two years next preceding; 2. The amount of debts due by the company, specifying the security if any, allocated for each debt and distinguishing the amount of mortgages, debentures, and floating charges against the general assets of the company, the amount of the reserve fund, if any, and the amount of any contingent liabilities; 3. The amount of all current assets, after making a proper deduction for debts considered to be bad or doubtful; any debts due from directors or other officers to be separately stated; 4. Whether the assets other than debts due to the com- pany are taken at cost price or by valuation, or on what other 330 APPENDIX C basis they are reckoned, and whether any and if so what amount of percentage has been written off and what other provision, if any, has been made for depreciation; 5. The gross amoimt of the year's earnings, the deduc- tions made from the same for fixed charges of interest and taxes and the siu-plus, if any, available for dividends; 6. The amount by which the gross value of the assets of the company has been increased since the last balance-sheet in consequence of any increase in the valuation of real or personal property belonging to the company; 7. The amount of property, if any, for which shares were issued, which has been sold since the last report with a full disclosure of the consideration therefor in detail, the parties to the contract, and the real parties in interest. The shareholders' balance-sheet shall be accompanied by a certificate signed by two or more of the directors on behalf of the board stating that in their opinion the balance-sheet is drawn up so as to exhibit a correct view of the state of the company's affairs and that in their opinion the statement is correct. A copy of the balance-sheet shall be sent to each director at least ten days before the annual meeting, and unless he formally at or before the meeting makes statement to the contrary, he shall be held to have also signed the report. Duties of Auditors The auditors of every company are to give detailed reports prescribed in the Act. . . . If the auditors or any one of them think there is just cause to disapprove of any part of the said accounts presented to the members of the company, they or any one of them may disallow any part of the said accounts so disapproved of and shall report their or his disapproval in writing on the accounts and balance-sheet. APPENDIX C 331 Every such report and balance-sheet shall be read before the company at the next general meeting. Any auditor who shall wilfully or through gross negligence certify that any false or fraudulent balance-sheet or account is correct, shall be civilly responsible to any party injured. Private Balance-sheet The auditors of every company before making a report pursuant to the last preceding section shall require, and the directors and president of the company shall without un- necessary delay supply to the auditors, a [balance-sheet, in this act referred to as the private balance-sheet, giving the details on which the shareholders' balance-sheet is founded and showing amongst other things the amount of deduction, if any, for debts considered to be bad or doubtful. The private balance-sheet must be signed by the president, treasurer, and by at least two of the directors of the company when there are not more than three directors, and by three at least when there are more than three directors. The auditors may require the directors, treasurer, and pres- ident of the company to supply in writing, signed as herein- before provided, any further details or information affecting the balance-sheet or any particular item comprised therein, and shall sign a certificate at the foot of the private balance- sheet stating whether or not all their requisitions as auditors have been complied with. The private balance-sheet shall not be issued to the mem- bers of the company, but shall together with all such fm-ther details and information as aforesaid be kept by the directors as part of the records of the company. Annual Report Every corporation organized imder this act shall annually file in the office of the Secretary of State for use of the 332 APPENDIX C Comptroller and other state officials acting in their official capacity, but not for public inspection, and also in the regis- tered office of the company, a report, which said report shall be at all times open to the inspection of the stockholders, upon request, and a copy of such report shall be furnished to any stockholder by the corporation upon the pre-payment of a reasonable charge for making the same, which charge shall not exceed the sum of ten cents per folio of one hun- dred words. Said report shall be filed within three months after the first of January in each year; shall be authenticated by the signa- tures of the president and one other officer of the company, or by any two directors and shall contain more than the usual report including the balance-sheet in detail. . . . For failure to file the annual report the corporation shall forfeit $300, and — ^besides what is far more important — If such report be not so made and filed before the time appointed for the holding of the next annual election by the stockholders, all of the directors of any such domestic corpora- tion in office during the default shall at the time appointed for the next election, and for a period of one year thereafter, be thereby rendered ineligible for election or appointment to any office in the company as directors or otherwise. But provision is made to exempt a director who is not at fault, and who makes personally, so far as possible, such a report. The Secretary of State shall upon application furnish blanks in proper form and shall safely keep in his office all such statements, and issue to the corporations filing the same his certificate therefor. Merger and Dissolution Corporations may be merged; but only on vote of two- thirds of the stock of each corporation, and any dissenting APPENDIX C 333 stockholder is to have his stock taken for cash at an ap- praised valuation. Provision is made for voluntary dissolution of corporations. Monopoly Ad Not Repealed Nothing in this act shall be construed to repeal any of the provisions of the existing laws of this State regarding mo- nopoly or the formation of monopolies. APPENDIX D OUTLINE HISTORIES OF REPRESENTATIVE TRUSTS IN THE UNITED STATES 1. Standard Oil Company 2. American Sugar Repining Company 3. American Tobacco Company 4. United States Steel Corporation 5. International Harvester Company 1. STANDARD OIL COMPANY* The outline history of the American oil combination falls naturally into three periods: 1872 to 1882; 1882 to 1899; 1899 to the present. In 1870 John D. Rockefeller, William Rockefeller, and several others who, prior to 1870 and under three separate partnerships had been engaged in refining and shipping oil, organized a corporation known as the Standard Oil Company of Ohio. The business of the three partnerships was trans- ferred to this corporation. Other like businesses were ac- quired so that by 1872 the combination had acquired nearly all of the two score of oil refineries located in Cleveland, Ohio. Preferential railway rates were secured by this cor- poration and by means of this advantage, competitors were virtually forced to join or to quit business. The cor- poration acquired from time to time a large number of other refineries in New York, Pennsylvania, Ohio, and elsewhere. *Thi3 story is compiled from the opinion of the U. S. Supreme Court in the Standard Oil Company of New Jersey et al. v. the United States (221 U. S. 1.), from the TJ. S. Bureau of Corporations Report on the Petrolemn Industry, from Moody's »nd Poor's Manuals of Industrials, and from Stevens' Industrial Combinations and Trusts. See p. 182 for treatment of employees by The Standard Oil Company. 334 APPENDIX D-1 335 Some refineries acquired were dismantled. Many of the properties acquired were kept as apparent competitors of the Standard. Control of pipe lines for transport of oil from the oil fields to the refineries in Cleveland, Pittsburg, Titusville, Phila- delphia, New York, and New Jersey was obtained by the oil combination after hard battling in the hot competitive style of the American late seventies and early eighties. By 1882 the combination had won control of about 90 per cent, of the business of producing, shipping, refining, and selling petroleum and its products. The second period begins with the drafting of the trust agreement in 1882. Nine trustees issued Standard Oil Trust certificates to represent the interest in the forty corporations and the various other properties held for the benefit of the combination. Under the trust agreement these nine trustees managed the entire business. They were empowered to form additional corporations in various states. Soon after they organized the Standard Oil Company of New Jersey and the Standard Oil Company of New York with capital stocks of $3,000,000 and $5,000,000 respectively, subse- quently raised to $10,000,000 and $15,000,000. By 1888 the trust had interests in the following oil corporations : BTANDABD Oil. capital teu8t stock ownebship Hew Yohk State: Acme Oa Company, manufacturers of petroleum products $ 300,000 Entire ■ AlJas Refining Company, manufacturers of petro- leum products 200,000 Entire American Wick Manufacturing Company, manu- facturers of lamp wicks 25,000 Entire Bush & Denslow Manufacturing Company, manu- facturers of petroleum products 300,000 50% Chesebrough Manufacturing Company, manufac- turers of petroleum 500,000 2661-5000 Central Refining Company (Limited), manufac- turers of petroleum products 200,000 1-67.2% Devoe Manufacturing Company, packers, manu- facturers of petroleum . . - 300,000 Entire 336 APPENDIX D-1 Empire Refining Company (Limited), manufac- turers of petroleum products ...... $100,000 80% Oswego Manufacturing Company, manufacturers of wood cases 100,000 Entire Pratt Manufacturing Company, manufacturers of petroleum products 500,000 Entire Standard Oil Company of New York, manufactur- ers of petroleum products 5,000,000 Entire Sone & Fleming Manufacturing Company (Limited) manufacturers of petroleum products . . . 260,000 Entire Thompson & Bedford Company (Limited), manu- facturers of petroleum products 250,000 80% Vacuum Oil Company, manufacturers of petroleum products 25,000 75% New Jersey: Eagle Oil Company, manufacturers of petroleum products 350,000 Entire McKirgan Oil Company, jobbers of petroleum products 75,000 Entire Standard Oil Company of New Jersey, manufac- turers of petroleum products 3,000,000 Entire Pennsylvania: Acme Oil Company, manufacturers of petroleimi products 300,000 Entire Atlantic Refining Company, manufacturers of petroleum products 400,000 Entire Galena Oil Works (Limited), manufacturers of petroleum products. . . . . . . . . 150,000 86 J% Imperial Refining Company (Limited), manufac- turers of petroleum products 300,000 Entire Producers' Consolidated Land and Petroleum Company, producers of crude oil 1,000,000 65/132 National Transit Company, transporters of crude oU . 25,455,200 94% Standard Oil Company, manufacturers of petro- leum products 400,000 Entire Signal Oil Works (Limited), manufacturers of petroleum products 100,000 38|% Ohio: Consolidated Tank-Line Company, jobbers of petroleum products 1,000,000 57% Inland Oil Company, jobbers of petroleum products 50,000 50% Standard Oil Company, manufacturers of petro- leum products 3,500,000 Entire Solar Refining Company, manufacturers of petro- leum products 500,000 Entire Kentucky: Standard OU Company,"^ jobbers of petroleum products 600,000 Entire Mabyland: Baltimore United Oil Company, manufacturers of petroleum products 600,000 6,059-^000 West Vibgdjia: 'j Camden Consolidated Oil Company, manufactur- ers of petroleum products < 200,000 61% APPENDIX D-1 Minnesota: Standard Oil Company, jobbers of petroleum products $ 100,000 Entire Missotrm: Waters-Pierce Oil Company, jobbers of petroleum products 400,000 50% Massachusetts: Beacon Oil Company, jobbers of petroleum prod- ucts . 100,000 Entire Maverick Oil Company, jobbers of petroleum products 100,000 Entire Maine: Portland Kerosene Oil Company, jobbers of petro- leum products 200,000 Entire Iowa: Standard Oil Company, jobbers of petroleum products 600,000 60% Continental Oil Company, jobbers of petroleum products 300,000 62j% 337 It is to be noted that many of those corporations were combinations of several business enterprises, just as it was shown above that the Standard Oil Company -of Ohio, within two years of its organization, was in control of some forty different plants, previously competitors. In 1892 the Supreme Court of Ohio declared this trust agreement void. Apparent dissolution of the trust fol- lowed, but the dissolution amounted to transfer of stock held in some sixty-f oiu" companies controlled by the trust to the re- maining twenty companies. The nine trustees and immediate members of their families still owned together enough stock to maintan control as effectively as before this "dissolu- tion." Contempt proceedings were instituted in 1897 by the attorney-general of Ohio — on the claim that the trust had not been dissolved according to the court decree, and pro- ceedings were also begun to forfeit the charter of the Buckeye Pipe Line Company on the ground that it was connected with the illegal trust. The complicated situation, developed by the partial dissolution, and these further attacks led to a new form of organization whch opens the third and last period of the story. 338 APPENDIX D-1 In January, 1899, the charter of the Standard Oil Com- pany of New Jersey was so amended as to give it sweeping powers of a holding company The capital stock of this company which had been since 1892 $10,000,000, was raised to $110,000,000 and the trustees of the Ohio trust continued to be a majority of the board of directors. The stock of the various corporations controlled by the trust was transferred to this Standard Oil Company of New Jersey, in return for certificates of its common stock to the amount of $97,250,000. Ten million dollars of the $110,000,000 was preferred stock which was subsequently retired leaving the capitalization $100,000,000.* In the new oil fields developed in California, southeastern Kansas, northern Indian Territory, and northern Oklahoma, the Standard built or acquired refineries and pipe lines which extended its control over the oil business of these fields. When, in November, 1906, suit was filed in the Circuit Court of Missouri against the oil combination, the bill set forth that the Standard Oil Company of New Jersey, about seventy subsidiary corporations and seven individuals were engaged in a conspiracy to restrain and to monopolize com- merce in petroleum and its products. In the Supreme Court decision of this case, in May, 1911, Mr. Chief Justice White thus summarized the charges of the bill as to various means employed by the Standard Oil Trust from 1882 to 1899 and by the Standard Oil Company of New Jersey since 1899, by which the combination sought to maintain its monopoly: "Rebates, preferences, and other discriminatory practices *The actual outstanding capital stock of the Oil Combination ranged from $71,000,000 to $73,400,000 from 1882 to 1887; rose to $90,000,000 from 1887 to 1890; rose to $96,900,000 in 1890, and from 1891 to 1900 was $97,250,000. It rose slightly until 1904 since when it has remained to date $98,338,300. On the outstanding stock at the respective dates the following dividends were paid: 1882, 4i %; 1883-84, 6%; 1885-87, 10%; 1888, 11^%; 1889 to 1894. 12%; 1895, 17%; 1896, 31%; 1897. 33%; 1898, 30%; 1899, 33%; 1900-01. 48%; 1902, 45%; 1903, 44%; 1904, 46%; 1905 to 1910, 40%; 1911, 37%; 1912 to 1915 mclusive 20%- APPENDIX D-1 339 in favor of the combination by railroad companies; restraint and monopolization by control of pipe lines; contracts with competitors in restraint of trade; imfair methods of com- petition, such as local price-cutting at the points where neces- sary to suppress competition; espionage of the business of competitors, the operation of bogus independent companies, and payment of rebates on oil, with the like intent; the divi- sion 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 Company as a result of the alleged monopoly; which presumably was averred as a means of reflexly inferring the scooe and power acquired by the alleged combination."* The decreet ordering the dissolution of the company was followed by the Standard Oil Company of New Jersey, which, in a letter of July 28, 1911, to its stockholders notified them that it was required "to distribute or cause to be distributedf, ratably, to its stockholders the shares of stock of the follow- ing corporations, which it owns directly or through its owner- ship of stock of the National Transit Company, to wit: Anglo-American Oil Company, Limited; The Atlantic Re- fining Company; Borne-Scrymser Company; The Buckeye Pipe Line Company; Chesebrough Manufacturing Com- pany, Consolidated; Colonial Oil Company; Continental *221 U. S. 42, 43. tSee pp. 297 for statement of this case and decision. Jin the process of ihe dissolution the stocks of thirty-three subsidiary companies were distributed to the shareholders of the Standard Oil Company of New Jersey on December 1, 1911. This resulted in some complicated applications of arithmetic fractions. For example -rii^fj of a share in the Swan and Finch Company (with a face value of ten cents) and f HfH "^ ^ share in the Ohio Oil Company (face value $15.25) were distributed to each share in the Standard Oil Co. of New Jersey. 340 APPENDIX D-1 Oil Company; The Crescent Pipe Line Company; Cumber- land Pipe Line Company, Incorporated; The Eureka Pipe Line Company; Galena-Signal Oil Company; Indiana Pipe Line Company; National Transit Company; New York Transit Company; Northern Pipe Line Company; The Ohio Oil Company; The Prairie Oil and Gas Company; The Solar Refining Company; Southern Pipe Line Company; South Penn Oil Company; South West Pennsylvania Pipe Lines; Standard Oil Company (California); Standard Oil Company (Indiana); The Standard Oil Company (Kansas); Standard Oil Company (Kentucky) ; Standard Oil Company (Nebraska) ; Standard Oil Company of New York; The Stand- ard Oil Company (Ohio); Swan & Finch Company; Union Tank Line Company; Vacuum Oil Company; Washington Oil Company; Waters-Pierce Oil Company. "Such distribution will be made to the stockholders of the Standard Oil Company (of New Jersey) of record on the 1st day of September, 1911; and, for that purpose, the transfer books of the Company will be closed on the 31st day of August, 1911, at 3 o'clock p. m., and kept closed until the date when said stocks are ready for distribution, which it is expected will be about December 1, 1911. "Notice of the date when said stocks are to be distributed and of the reopening of the books will be duly given."* In accordance with this court decree, the combination was separated into thirty-eight companies which are not to have common officers or directors. There is much common owner- ship of the shares of these companies, making possible a work- ing understanding to common ends. The actual monopolistic power achieved by the Oil Com- bination is stated in the reports of the Bureau of Corpora- tions on the Petroleum Industry ,t covering data for 1904 *Stevens, W. S., Industrial Combinations and Trusts, pp. 462-483. fReport of the Commissioner of Corporations on the Petroleum Industry, 1907. APPENDIX D-1 341 and 1905 before this monopoly power had been attacked in the Federal courts. Only about a sixth of the crude oil came in 1905 from wells owned by the Standard Oil Com- pany, but this company had an almost complete monopoly of the pipe lines. In the Appalachian, the Lima-Indiana, the IlUnois and the Mid-Continent fields, rich in oil for il- luminants, the Standard Company handled from 84 per cent, to 96 per cent, of the pipe line business. Railway rates are higher than pipe line rates, so that control of the pipe lines gave control of the crude oil supply to refineries. In 1904 the Standard Company refined almost 87 per cent, of the il- luminatiug oil of the United States and handled the same high percentage of oil exported. The Standard's system of highly efficient distribution gives it great marketing advantages. Not only has it pipe lines and tank cars and local storage plants, but its tank wagons do away with even the jobber and deal directly with the re- tailer and the final consumer. About 5,000 of the tank wagons carried the oil to the country stores. Nearly nine- tenths of the illuminating oil marketed in the United States was sold in 1904 and 1905 by the Standard Oil Company. While such questionable practices as cited above from the court bill enabled the oil combination, particularly in its earlier days, to secure and to maintain its monopoly position, the high efficiency of organization, both on the manufactur- / ing and the marketing sides of the business, the perfected utilization of by-products, the general cost-cheapening ad- vantages that come to large scale production, and the courageous and masterful handling of the great problems of foreign trade in petroleum and its products are leading fac- tors which accoimt for the power of this combination. The Biu-eau of Corporations thus summarized its findings as to prices* and profits of the Standard Oil Company: " (1) There has been a very marked increase in the margin * For detaUed treatement of oil prices see pp. 149 to 157. 342 APPENDIX D-1 between the price of crude oil and the prices of its leading finished products in the United States during the past ten years. This iacrease in margin is only in small part attribut- able to increase in costs of conducting the business. Al- though since the time when the Standard Oil Company first secured a large proportion of the business, about 1874, there has been a material decrease in the margin between the price of crude oil and the price of illuminating oil, the Stand- ard Oil Company can claim no credit for this decrease. The margin of the domestic trade is greater to-day than it would be under free competition, "(2) The Standard has sold illuminating oil and other petroleum products in the foreign trade much cheaper than in the domestic trade, the difference having been inordi- nately great since 1902, The American consumer has been taxed in order to maintain the supremacy of the company in foreign trade. " (3) The Standard discriminates greatly in fixing prices in different sections and in different towns, charging extor- tionate prices where there is no competition and cutting prices sharply where competition is active. In some cases net prices in one locality in a single state, after deducting freight, have been almost double the net prices in another lo- cality in that state. " (4) The profits of the Standard Oil Company, particu- larly on its domestic business, are altogether excessive, and they have been higher during recent years than formerly. " (5) The real source of the Standard's power is not found in the rendering of superior service to the public, but in the long-continued use of unfair methods of competition. It has, indeed, superior industrial efficiency, but it does not share with the public the benefits thereof. " (6) The Standard, by reason of its influence as a large shipper, as well as by its general financial power, is able to APPENDIX D-2 343 secure excessive prices for lubricating oils from most of the railroads of the country, and maintains a practical monopoly in the sale of such lubricants."* 2. AMERICAN SUGAR REFINING COMPANYf Competition in the refining of sugar in the United States was very severe from 1884 to 1887. The margin between the prices of refined and of raw sugar was only .923 cent in 1884, .712 in 1885, .781 in 1886, and .768 in 1887. Eighteen out of forty refineries failed. In 1887 seventeen refineries were imited into a trust known as the Sugar Refineries Com- pany. A number of the refineries which entered the trust were closed. The margin was raised to 1.258 in 1888 and 1.207 in 1889. Testimony before the Industrial Commission indicates that a margin of about .60 would cover the cost of refining, including the loss in weight. Experienced sugar manufacturers estimated that the trust by economies, es- pecially those of continuously operated plants, could refine sugar at from three to five cents a hundred pounds more cheaply than could independent refineries. Margins of .70 to .80 would be profitable for refiners. So the margins of 1888 and 1889 were hugely profitable and the result was that the great Spreckles refinery entered the business in 1889, followed by the MoUenhauer refinery in 1890. Price-cutting followed reducing the margins to .72 in 1890 and .828 in 1891. In the latter part of 1891 this competition was ended by the trust buying up the Spreckles refinery. The margin was raised to 1.10, which, as Mr. Havemeyer testified, "is the usual margin we had laid out as necessary for the benefit of the stockholders and proper conduct of the business. *Keport on the Petroleum Industiy, Part 11, pp. 1 and 2 (1907.) tThis story of the American Sugar Refining Company has been compiled from Volume I of the Industrial Commission Report, from Moody's and Poor's Manual of Industrials and from Willett and Gray's Trade Journal. See pp. 125 to 141, of this volume for detailed treatment of price making by the Sugar 'Trust. 344 APPENDIX D-2 The New York State Courts attacked the trust in 1890 with the result that a I^ew Jersey corporation, the American Sugar Refining Company, with a capital of $50,000,000, was organized in 1891 to take over the trust plaftts. At the time of organization the corporation controlled about 75 per cent, of the cane sugar refining in the United States. Shortly after its organization the Sprecldes refinery was purchased and the combination then controlled about 90 per cent, of the cane sugar refining. There was no further serious competition in price-making until the establishment of the Arbuckle and Doscher refiner- ies in 1898. Between 1892 and 1898 the margin had rmi between 1.153 in 1893 as high, and .882 in 1895 as low. The two new refineries entered into a bitterly fought competition with the trust, meeting its price cuts and even cutting under its prices. The margins ran as low as .32, far below the cost of refining. The Arbuckle firm took the position that if the trust, supplying nearly 90 per cent, of the sugar to the United States market, could stand the losses on their huge output, the smaller new companies should be able to stand their smaller losses. The war was continued with more or less violence until 1901, since when a truce has obtained. After the Arbuckle war was ended the margin between re- fined and raw sugar prices was moved up to about 1.00 until 1905, since when it has declined. Since 1905 the following are the margins: 1906— .829; 1907— .983; 1908— .884; 1909— .758; 1910— .784; 1911— .892; 1912— .879; 1913— .772; 1914 — .869; 1915 — .917. It is notable that aside from the war year 1915, the margin has been appreciably below .90 ever since 1905, the average for the nine years 1906 to 1913 inclu- sive being about .84. The two periods of prolonged costly price-cutting due to the Spreckles and the Arbuckle-Doscher conflicts, seem to have taught this combination the wisdom of producing at a moderate margin, low enough to offer scant APPENDIX D-2 345 inducement to new fighting rivals and yet high enough to afford goodly profits. The dividends paid since the organization of the American Sugar Refining Company evidence the profitableness of the average business. Since the year of organization the 7 per cent, dividend has been regularly paid on the preferred stock. The common stock dividends have been: 1891, 8 per cent.; 1892, 9 per cent.; 1893, 22 per cent.; 1894 to 1899 inclusive, 12 per cent; 1900, 6| per cent., and 1901 to 1916 inclusive, 7 per cent. Earnings on common stock have, however, varied greatly, as will appear in the figures since 1908. Common stock earnings are recorded: 1909, 14.2 per cent.; 1910, 5.38 per cent.; 1911, 18.92 per cent.; 1912, 5.34 per cent.; 1913, nil; 1914, 4.82 per cent., and 1915, 4.99 per cent. During the lean years the dividends on common stock have been kept up by drawing steadily upon the surplus, which had been reduced by December 31, 1915, to $16,328,802. The capitalization of the company since 1901 has been $90,000,000, $45,000,000 of 7 per cent, cumulative preferred stock and $45,000,000 of common stock. The corporation has no outstanding bonds. In 1915, of twenty-one cane sugar refineries in the United States, the trust owned seven with six of these in active oper- ation. Of sixty-four beet sugar factories in the United States with a daily shcing capacity of 65,000 tons of beets, the trust has interest in twenty-three factories with a daily slicing capacity of 29,000 tons. In 1914 it sold out its entire hold- ings in the Utah, the Idaho, the Amalgamated and the Lewiston Sugar companies. During the earlier years of this combination's history, it refined from 80 to 90 per cent, of the sugar refined in the United States, but since the advent of the beet sugar companies, and particularly since the more rigid prosecutions under the anti-trust laws, the proportion has lessened until it was estimated to be not appreciably 346 APPENDIX D-2 more than 60 per cent, in 1910, including fair allowance for its shareholding in the smaller companies. According to the Sugar Trade Journal its proportion of the entire output has been since 1906 as follows: TBAB PEKCBNTAGB TEAK PERCENTAGE 1906 61.03 19158 38.48 1907 49.27 1913 36.27 1908 45.14 1914 33.47 1909 43.14 1915 34.06 1910 42.14 1916 33.64 1911 42.12 A notable subsidiary of the American Sugar Refining Com- pany is the Brooklyn Cooperage Company, a New York corporation, with cooper shops and storehouses in Boston, Brooklyn, Philadelphia, New Orleans, and Port Chahnette, La. This cooperage company, to insure needful supply of raw material, owned in 1915, 50,000 acres of timber land in New York State, with stimipage rights on 115,000 acres more. It owned 70,000 acres of timber in Arkansas and 90,000 acres in Missouri and controlled 60,000 acres in Pennsylvania. It also owned and operated seven stave and heading mills and 130 miles of logging railroads, November 28, 1910, a petition was filed in the Circuit Court, S. D. of New York against this sugar combination, alleging that it was a combination in restraint of trade in the manufacture and sale of sugar and praying for its dissolution. Three years were given to the taking of testimony and the case was ready for trial when the court ordered that the hear- ing be postponed awaiting the decisions of the Supreme Court in the Harvester and Steel cases. In the Louisiana district courts there are some 200 suits which were filed against the Sugar Combination in 1914 by planters and sugar manufacturers. These cases demand in total sum more than $150,000,000 damages for alleged viola- tions of the Sherman Act. In 1916 these cases had not ad- vanced beyond the preliminary hearings. APPENDIX D-3 347 In May, 1915, the Supreme Court of Louisiana decided in favor of the Sugar Combination a suit brought, in the name of the state, asking that the company be ousted from the state. A second ouster suit brought by the state is pend- ing. In 1915 a special session of the Louisiana Legislature passed a statute to constitute the busiuess of refining sugar a public utility and to compel the payment of an arbitrary price, above the price prevailing in the Louisiana open market, to Louisiana planters for their raw sugar. This statute was imanimously declared unconstitutional by three judges of the Federal District Court in January, 1916, and their deci- sion was confirmed April 20, 1916, by the United States Supreme Court. These citations serve to show that the way of the trust before the courts and imder the laws of this goodly land is hard. The American Sugar Refining Company has paid heavy fines for securing, through collusion of officers of the com- pany with Federal customs employees, short weights as basis for paying duties on imported sugar and for receiving exces- sive drawbacks on exported syrup. The recovery by the govermnent on the former item was above $1,800,000, and in the drawback case it was $700,000. The company has also been convicted and fined for taking rebates from rail- ways. 3. AMERICAN TOBACCO COMPANY* The outline story of this trust falls naturally into four periods: (1) The period of beginnings of combination cul- minating in 1890 with the formation of the old American *Thi3 story is compiled from the opinion of the U. S. Supreme Com't in the United States v. American Tobacco Company (221 U. S. 106), from the Report of the Bureau of Corporations on the Tobacco Industry, and from Moody's and Poor's Manu- als of Iridustrials, 348 APPENDIX D-3 Tobacco Company; (2) From 1890 to the formation of the Continental Company in 1898; (3) From 1898 to 1904, when the new American Tobacco Company was launched; (4) From 1904 to the present. Prior to the forming of the first consolidation in the to- bacco business of America, competition had been very ac- tive. Tobacco was grown in many sections of the country, and because of variant climate, soil, and seasonal conditions, it varied greatly in quality. The wide diversity of uses of tobacco in manufacture created demand for all qualities of it grown, a demand that was not confined to the growing districts, but was national and even international. With many scattered manufacturers and traders in this field, the competitive conditions were unusually alive and made a war- fare characterized by those who were taking part in it as fierce and abnormal. Largely moved by desire to avoid the fighting costs of their cutthroat competition, five of the largest concerns in the business, which together were manu- facturing and distributing in the United States and abroad 95 per cent, of all the domestic cigarettes but less than 8 per cent, of the smoking tobacco produced in the United States, combined. In January, 1890, the American Tobacco Com- pany, with a capital stock of $25,000,000, came into posses- sion of all of the assets, including the good-will and right to use the names of the combining firms, of Allen and Ginter, with factory at Richmond, Va.; W. Duke, Sons & Co., with factories at Durham, North Carolina, and New York City; Kinney Tobacco Co., with factory at New York City; W. S. Kimball and Company, with a factory at Rochester, N. Y. ; and Goodwin and Company, with a factory at Brooklyn, N. Y. The $25,000,000 capitalization allotted by agreement among these five companies was considerably in excess of the summed market values of the respective companies before consolidation. APPENDIX D-3 349 Soon after the consolidation the old Goodwin and Com- pany Brooklyn factory was closed and all manufacture of tobacco and cigarettes was concentrated at Richmond. In the first year of its operation this new corporation manufactured nearly 97 per cent, of the domestic cigarettes, about two and a half billion cigarettes in all, and manufac- tured about 5,500,000 pounds of smoking tobacco out of a total domestic product of nearly 70,000,000 pounds. During the next eight years the new combination widened its control over the tobacco business by establishing, or ,buy- ing in, plants manufacturing httle cigars, fine cut and plug tobacco, and snuff. The general methods are indicated by the activities in the year 1891. The capital stock of the company was first increased by $10,000,000, evidently to give treasury stock for use in ex- tending control over other plants. In February, 1891, the National Tobacco Works, a Kentucky corporation which had been formed in January 1891, to carry on the business of Pfingsts, Doerhoefers and Company, experienced and suc- cessful manufacturers and dealers in plug tobacco, was taken over by the American Tobacco Company. For the $400,000 capital stock of this company, the American company paid $600,000 cash and $1,200,000 in stock of the American Tobacco Company. The members of the previously exist- ing firm contracted to enter the service of the American Tobacco Company, and each member of the old firm bound himself not to engage, for a period of ten years, directly or indirectly, in any form, in the tobacco business as a com- petitor of the American Tobacco Company, nor even to per- mit the use of his name in any such connection. In April, 1891, the business of Philip Whitlock of Rich- mond, Virginia, a manufacturer of cheroots and cigars, was bought, with exclusive right to use the name of Whitlock. Whitlock became an employee of the American and agreed 350 APPENDIX D-3 not to engage, independently, in the tobacco business for twenty years. In this same month a Baltimore firm, Marburg Brothers, manufacturing and selling principally smoking tobacco and snuff, was bought for cash and stock in the American Com- pany, and the members of this firm also boimd themselves not to compete for many years. Also in this same month another old Baltimore firm, G. W. Gail and Ax, engaged principally in making and selling smoking tobacco, was bought imder agreements similar' to those stated above. Seventy-seven thousand five hundred and eighty-two dollars and sixty-six cents cash and stock in the American Company amounting to $1,760,000 was paid for this company, and its plant was very soon abandoned. By such purchases the American Company, by the end of 1891, had become a factor in all branches of the Tobacco busi- ness, though its share as yet, in smoking tobacco, was not large, and in the fine cut and plug tobacco and in the snuff lines its share was very small, when the whole business in the United States is considered. The following table shows this: THE OUTPUT OF THE AMEBICAN TOBACCO COMPANY FOH 1891 NUMBER POUNDS Cigarettes 2,788,778,000 Cheroots and little cigars 40,009,000 Smoking 13,813,355 Finecut 560,633 Snuff 383,162 Plug 4,442,774 TOTAL OUTPUT FOB THE UNITED STATES, 1891 Cigarettes 3,137,318,596 Smoking 76,708,300 Finecut 16,968,870 Plug and twist 166,177,915 Snuff 10,674,241 Including the above purchases, the American Company, between February, 1891, and October, 1898, acquired fifteen APPENDIX D-3 351 going concerns in the tobacco business in the States of Ken- tucky, Louisiana, Maryland, Michigan, Missouri, New York, North Carolina, and Virginia. For ten of these plants the consideration was all cash, totalling $6,410,235.26. For the remaining five, payments totalled $1,115,100.95 in cash and $4,123,000 in stock. The last of these firms purchased was the Drummond Tobacco Company of Missouri, dealers in plug tobacco principally. This purchase, for a cash consideration of $3,457,000 fairly completed the campaign of the American Company for control of the plug tobacco business of the United States. Purchases of plug tobacco firms began ia 1891. In 1893 the American Tobacco Company tried to bring about a combination of the leading manufacturers of plug tobacco. When this plan failed cutthroat competition followed in the plug tobacco field, lowering the price below cost of production. This ugly warfare was won by the trust through its superior financial strength and the wider range of its business although by the end of the war, in 1898, the losses entailed on the American Company totalled more than $4,000,000. Through this warfare the American Company gained control of important plug tobacco companies and brought the others to terms. As a conclusion of this war the American Tobacco Com- pany organized ia connection with several leading plug manu- facturers a New Jersey corporation, the Continental Tobacco Company, with a capital of $75,000,000, afterward raised to $100,000,000. Five large and successful plug tobacco manufactm-ers, P. J. Sorg and Co., John Finger and Bros., Daniel Scotten and Co., P. H. Mayo and Bros., and John Wright Co. tiu^ed over their plants and assets to the Conti- nental Company in exchange for cash and stock. The Ameri- can Tobacco Company also turned over to this new corpora- tion, at large valuations, all of its plug tobacco business. 352 APPENDIX D-3 including the National Tobacco Works, the James G. Butler Tobacco Co., the Drummond Tobacco Co., and the Brown Tobacco Co. As a consideration it received more than $1,100,000 in cash and $30,274,200 of stock in the Con- tinental Company. Mr, Duke, president of the American Company, became president of the Continental Company. As an example of method in this consolidation, the P. Lorillard Company was acquired by the Continental Com- pany by payment of $6,000,000 stock for the $3,000,000 common stock of the Lorillard Company and by taking over $1,581,300 of the $2,000,000 preferred stock of the Lorillard Company in return for notes to a larger amoimt. Though the Lorillard Company thus passed virtually under control of the American Tobacco Company, through the latter's ownership of stock in the Continental Company, the Lorillard Company continued to do business under its own name and with its ovni old brands, just as if it were an inde- pendent concern. As a further step in piling the capitalizations, the American Tobacco Company, after the organization of the Continental Company, increased its own capital from $35,000,000 to $70,000,000. As a result of all these purchases and consolidations, the American Company in 1898 was manufacturing 86 per cent, of all the domestic cigarettes, 26 per cent, of all the smoking tobacco, 22 per cent, of all the plug tobacco, 51 per cent, of all the little cigars, 6 per cent, of all snufif and fine cut to- bacco, and more than 2 per cent, of all cigars and cheroots. In the third period from 1898 to 1904 either the American Company or the Continental Company bought and closed up some thirty competing corporations and partnerships en- gaged in the tobacco business, requiring in each case that the firm members bind themselves not again to compete for years. Control of many more going tobacco concerns with plants APPENDIX D-3 353 scattered over the United States and Porto Rico was pur- chased under conditions similar to those used in the eariier acquisitions. Many of the concerns acquired had control, through stock ownership, of subsidiaries, and in many in- stances the acquired corporations and their subsidiaries were carried on as apparently independent competitors of the American Company although they were controlled or owned by it. Large sums of money, too, were paid in many in- stances for plants which were immediately closed. During this period the American Tobacco Company still further widened its control by purchasing concerns auxiliary to the tobacco business, for examples, concerns engaged in the manufacture of packing boxes, of tin foil, and of licorice. During this period the machinery of control was perfected by organizing five important corporations, later known in the Federal suit as "accessory defendants," viz., The American Snuflf Company, the Conley Foil Company, the American Cigar Company, the MacAndrews and Forbes Company, and the American Stogie Company. The American Snuff Company, a New Jersey corporation of 1900 with a capital of $25,000,000, united important snuff plants and gave the American Company dominance in this line in which it had only slight share even in 1898. The Conley Foil Company produced for the American Company all of its foil which constituted the majority prod- uct of the United States. The MacAndrews and Forbes Company consolidated the licorice business so thoroughly that they came to use more than 95 per cent, of the Ucorice root used in the United States. The American Cigar and the American Stogie companies centralized these branches of manufacture so far as they were imder control of the American Company. The retail field was entered through control by the Ameri- can Company of the United Cigar Stores Company, 354 APPENDIX D-3 Another of the important developments of this third pe- riod was the division of the Tobacco trade of the world by agreements with the great English combination, the Imperial Tobacco Company of Great Britain and Ireland. This great British consolidation had been formed in attempt to meet the competition of the American Company which had entered the British territory and was prosecuting its business there in its usual aggressive way. In September, 1902, the Imperial and American companies contracted that the Im- perial Company should limit its business to the United King- dom, except purchasing leaf tobacco in the United States, that the American Company should limit its business to the United States, its dependencies and Cuba, and that the British-American Company with a capital of 6,000,000 pounds sterling should be organized to take over the export business of both of these companies. The Imperial Com- pany held one-third and the American Company two-thirds of the stock of the British-American Tobacco Company. In Jime, 1901, the Consolidated Tobacco Company was organized as a holding company. Largely in exchange for bonds of this company substantially aU the shares of com- mon stock of the American and the Continental companies was secured. After the Northern Secm-ities case decision had endangered all holding companies, the tobacco interests in October, 1904, organized in New Jersey the new American Tobacco Com- pany, with perpetual existence, capitalized at $180,000,000. Of this capital, $80,000,000 was in preferred stock, mainly without voting rights. The new company merged all the preceding constituents. By the method of stock distribu- tion in effecting this merger, the same six men who had con- trolled the Consolidated holding company remained in con- trol of the new sohdifying corporation. The assets of all of the old companies passed to the American Tobacco Company APPENDIX D-3 355 which continued to carry on the business until its dissolution was effected in conformity to the decree of the Supreme Court in 1911. In this fourth period, after the formation of the merger company, the same methods were continued in furthering the monopoUzation of the tobacco business. Plants were bought only to be dismantled, their former operators cove- nanting not to enter the field again as competitors, and control of other plants was secured although they were afterward operated ostensibly as competitors. That the combination held a monopolistic position in every branch of the tobacco manufacturing industry except that of cigars in 1904, and that it still finisher extended its monopolistic control after the formation of the merger cor- poration in 1904 is in clear evidence from the following table: AMERICAN TOBACCO COMPANY'S PROPORTIONATE HOLDINGS IN THE UNITED STATES* TF.AR PLro SUOKINQ FINE CUT SNUTP CIGAKETTES LITTLE CIGAKS CIOABS Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. Per cent. 1904 78.2 69.2 80.4 90.6 87.7 79.2 13.9 1905 80.7 68.7 81.7 93.8 84.7 78.3 13.3 1906 81.8 70.6 80.9 96.0 82.5 81.3 14.7 1907 80.5 72.4 81.4 95.7 81.7 90.8 14.5 1908 81.9 73.6 79.2 95.7 81.8 88.7 13.0 1909 83.3 75.3 80.1 96.1 83.6 89.0 13.1 1910 84.9 76.2 79.7 96.5 86.1 91.4 14.4 Dividends since the formation of the American Tobacco Company foUow: From 1905 to date regular 1| per cent, quarterly on pre- ferred stock. From 1905 to June, 1911, regulars^ per cent, quarterly on common stock. Owing to the decree of disintegration no divi- dends on common stock September and December, 1911, ♦Report of Commission of Corporations on the Tobacco Industry, part III, p. 2. 356 APPENDIX D-3 and March, 1912. June, September, and December, 1912, 1\ per cent, each and since March, 1913, 5 per cent, quarterly. Extra dividends on common stock: 1905, 10 per cent.; 1906, 12| per cent.; 1907, 15 per cent.; 1908, %1\ per cent.; 1909, 25 per cent.; 1910, 30 per cent.; March and June, 1911, 7| per cent. each. In May, 1911, the American Tobacco combination was de- clared imlawful by the Supreme Court. The case was re- manded to the Circuit Court to work out a plan for dissolu- tion which was put into effect from December, 1911. Under this dissolution plan the manufacturing business of the combination was divided substantially as follows: The American Snuflf Company was separated from the control of the combination and its business was divided into three parts, one remaining with the American Snuff Company, the other two parts being transferred to two new companies organized for this purpose, the Weyman-Bouton Co. and the George "W. Helme Co. The R. J. Reynolds Tobacco Com- pany, chiefly a manufacturer of plug tobacco, was re- established as an independent company. Most of the re- maining business of the combination relating to tobacco manufacture in the United States was divided among three large companies, the American Tobacco Company and two new corporations, the P. Lorillard Co. and the Liggett and Myers Tobacco Company. The business in tobacco and related products controlled, before the dissolution, by the American Tobacco Company is now separated into fourteen separate and independent companies, no one of them having any control over or interest in any other. The ownership of the stock of the new companies was placed in the hands of the owners of the combination stock but preferred stock was given voting rights. This reduced the voting power of the twenty-nine chief stockholders from 9,bout 5^ per cent, in the combination to about 35 per cent, in APPENDIX D-3 357 the new companies, on the average, when the dissolution went into effect. The leading propositions of the summary of results given by the Commissioner of Corporations report in 1915, as to Prices, Costs, and Profits in the Tobacco Industry, are so sig- nificant a statement of the policy and power of the tobacco combination before its dissolution, of the effects of the dis- solution upon the business of the companies into which the combination was divided, and upon the business of other tobacco firms, that its inclusion here is justified. Lack of space forbids the inclusion of illustrations and tables, but the reader interested in the present status of trusts in the United States, the effects of the dissolution policy of the courts, the price and cost of production effects of combination is referred to this third volmne of the Report of Commissioner of Cor- porations in the Tobacco Industry. Following are the thirty-nine sinnmarizing propositions* of this, one of the most enlightening documents in recent trust literature: "(1) That the Combination from 1902 to 1910 had a monopolistic position in each of the chief branches of the tobacco business, except in cigars, the minimum proportion of the annual output in the several branches ranging from two-thirds to more than five-sixths of the total output of the country, while in cigars the maximum proportion in any year was only one-sixth of the total. " (2) That for the Combination high rates of profit have followed monopolistic control, the greater the degree of con- trol the greater the rate. "(3) That for most types of manufactured tobacco the Combination's rates of profit were ordinarily more than double those of its competitors, though for a few types it had no advantage. *Report of the Commissioner of Corporations on the Tobacco Industry, Part in (1915) pp, 2-29, fosdm. 358 APPENDIX D-3 "(4) That selling costs were materially reduced as the volume of the Combination's business increased. " (5) That generally there were material decreases in ad- vertising expenditures of the Combination after a controlling proportion of the total production had been secured. "(6) That there was a large advance in the cost of leaf tobacco for the Combination from 1901 to 1910. " (7) That during 1901 and 1902 the internal-revenue tax was reduced 6 cents per poimd on manufactured tobacco, 42 cents per thousand on cigarettes, and 46 cents per thou- sand on little cigars, but the Combination made practically no change in the prices to the jobber, while the prices to the consumer also remained unchanged, so that the Combination profited by substantially the whole extent of the tax reduc- tion, though it was presumably intended for the benefit of the consumer. " (8) That in 1910 when the internal-revenue tax on manu- factured tobacco was increased from six cents to eight cents per poimd, on cigarettes from $1.08 to $1.25 per thousand,and on little cigars from $0.54 to $0.75 per thousand, the prices of certain products of the Combination were increased as much as the tax both to the jobber and the consumer, so that the burden was shifted to the consumer while for other products the prices to jobbers and consiuners were not increased, so that the burden rested on the Combination. "(9) That there were practically no changes in prices to the consumer for the Combination's principal brands of manufactured tobacco, cigarettes, and little cigars from 1901 to July, 1910, "(10) That, while there were practically no changes in prices to the consumer from 1901 to July, 1910, for the Com- bination's principal brands, there were substantial increases in prices to jobbers, thus reducing the margins between these prices. APPENDIX D-3 359 " (11) That the most profitable years of the Combina- tion's existence were from 1903 to 1908 — the period of low tax, moderate leaf costs, decreased advertising expenditures, and highly monopolistic control. "(12) That the Combination for various types of classes of tobacco products developed one or two predominating brands, a policy which tended to promote concentration and economy in manuf actiure and afforded a greater protection against competition than a multiplicity of brands, but which, at the time of dissolution, presented difficulties in dividing the business. " (13) That the several successor companies estabUshed in accordance with the plan of dissolution were much larger pro- ducers of tobacco products than any of the other companies. " (14) That a comparison of the successor companies' com- bined proportion of the total output of the country in the various branches of the tobacco business in 1913 with those of the Combination in 1910 shows that the combined propor- tion of the successor companies was less in smoking and in fine cut; more in cigarettes and in snuff, and about the same in plug and little cigars. " (15) That in most branches there was a more equal dis- tribution of business among the successor companies in 1912 and 1913 than there was directly after the dissolution. " (16) That, although there were no important changes in prices, the results for certain branches, particularly smoking and cigarettes, tend to show competition for business in 1912 and 1913 and an effort on the part of the several successor companies to fill in gaps in types of their business in which they were weak, though for certain other branches, particu- larly snuff, such competition had not been apparent. " (17) That in the snuff branch each of the three successor companies has practically a monopoly in its respective type and to a large extent a distinct sales territory; that the branch 360 APPENDIX D-3 is characterized by unusually high profits and small adver- tising and selling costs. " (18) That the cost of leaf tobacco used by the successor companies in 1912 and 1913 in the plug, fine-cut, and ciga- rette branches was less, while in the smoking, snuflF, and little- cigar branches it was more, than the cost of that used by the Combination in 1900 and 1910. " (19) That the factory costs, other than leaf, of the suc- cessor companies in 1912 and 1913 and of the Combination in 1909 and 1910 were not materially diflferent. "(20) That almost invariably marked increases or de- creases in the volume of particular brands decidedly reduced or increased, respectively, factory costs other than leaf. "(21) That increases in selling cost after the dissolution were general, resulting from the duplication of selling organi- zation and increased overhead expense, due to the division of the business. " (22) That there was a marked increase in the advertis- ing expenditure of the successor companies as compared with that of the Combination. " (23) That the aggregate amount of profit of the successor companies in 1913 was slightly less than that of the Combina- tion in 1910 in spite of a larger volume of sales. " (24) That the ratios of profit to net receipts less tax for the successor companies in 1913 were, in general, compara- tively low in those branches or types in which competition for business was most pronoimced, e. g., plug-cut smoking and domestic and blended cigarettes, and very high in those in which competition was slight, e. g., snuff. "(25) That on the book value of the total investment, the earnings of the successor companies averaged 12.1 per cent, in 1912 and 11.3 per cent, in 1913, while the profit ac- cruing to the holders of the common stock in respect to their interest was at a much higher rate. APPENDIX D-3 361 " (26) That on the total cost of investment, assuming that the cost of investment of the successor companies at the date of dissolution was the same as that of the Combination in the corresponding branches of the business, the earnings of the successor companies averaged 14.6 in 1913. The earnings of the Combination for the corresponding business in 1908 were 17.9 per cent, and in 1910 about 17 per cent. " (27) That there have been no material changes in prices to the jobbers since the dissolution of the Combination. " (28) That for all principal brands of the successor com- panies there have been practically no changes in prices to the consiuner since the dissolution of the Combination. " (29) That the high profits taken in conjunction with the practically unchanged wholesale and retail prices of tobacco indicate that there has been but little competition in price, but this is explained in large part by the customary retail prices and other pectdiar price-making conditions of the tobacco trade, including statutory provisions, which make it impracticable in most cases to increase the quantity sold at the customary price. " (30) That for the principal brands of plug tobacco, the manufacturer's cost in 1913 was approximately 50 per cent, of the consimier's price, the internal-revenue tax 15 per cent., the manufacturer's profit 10 per cent., and the jobber's and retailer's margin 25 per cent. ; that for the principal smoking and cigarette brands the manufacturer's cost in 1913 was approximately 45 per cent, of the consumer's price, the inter- nal-revenue tax 20 per cent., the manufacturer's profits 10 per cent., and the jobber's and retailer's margin 25 per cent.; and that for a niunber of the snuff brands the manufactur- er's cost in 1913 was approximately 35 per cent, of the con- sumer's price, the internal-revenue tax 15 per cent, the man- ufacturer's profit 20 per cent., and the jobber's and retailer's margin 30 per cent. 362 APPENDIX D-3 " (31) That for companies other than the Combination and successor companies there were marked decreases in the pro- portions of their collective output in the plug, smoking, snuff, cigarette, and little-cigar branches, from 1905 to 1913. " (32) That compared with both the Combination and suc- cessor companies the manufacturing costs of the other com- panies covered by the investigation were extremely high in practically all branches. " (33) That compared with either the Combination or the successor companies the selling costs per unit of product of other companies investigated were extremely high in all branches. , " (34) That the larger margins above manufacturing and selling costs of the Combination and successor companies enabled them in most branches to spend from three to five times as much per unit of product for advertising or competi- tive purposes as the other companies investigated and at the same time to obtain practically the same or even greater rates of profit. " (35) That compared with the Combination and successor companies the other companies investigated made an ex- ceedingly poor showing of profits and that there was a marked decrease in profits of these companies in navy plug and Turkish cigarettes since the dissolution of the Combination. " (36) That among companies investigated other than the Combination and successor companies the operations of the larger ones were, as a rule, the most profitable; and, in the manufactured tobacco business, those doing a general to- bacco manufacturing business usually were more prosperous than those manufacturing exclusively one class of product. The operations of certain small companies, however, having especially popular brands were also profitable. "(37) That the companies other than the Combination and successor companies which were the most successful in APPENDIX D-4 363 increasing their output were the ones that adopted the cou- pon advertising system, i. e., the method of giving coupons, which are redeemable in either cash or articles of merchan- dise, as an inducement for trade. " (38) That the independent companies, like the Combina- tion, did not generally reduce prices in 1901 and 1902, during which time the revenue tax was materially reduced. " (39) That the independent companies, like the Combina- tion, generally increased prices on smoking tobacco in 1910 to meet the increase in tax rate, and that the increase in price in most cases exceeded the increase in tax, but, like the Combination, they did not increase prices on plug, cigarettes, or cigars." 4. UNITED STATES STEEL CORPORATION* This is by far the largest and in many ways the most im- portant industrial combination yet formed. It was organized February 23, 1901, in the first place with the nominal capital of $3,100, which was shortly thereafter increased to $1,100,000,000, of which authorized capital stock $550,000,000 was preferred and $550,000,000 common stock. The charter is drawn in the broad terms of the New Jersey charters, the special purpose named being the manu- facture of iron, steel, and other materials, with the right to do practically everything else which can be brought into connection with that work. To avoid some of the diflBculties met with by earlier large corporations, it is provided that whenever all quarterly dividends accrued upon the preferred stock for previous quarters shall have been paid, the board of directors may declare dividends on the common stock out of any remaining surplus of net profits. An act of the legislature of the State of New Jersey passed *See pp. 157 to 180 for detailed treatment of prices under the United States Steel Corporation. See Chapter X, especially pp. 182 to 186, for treatment of employees by this Corporation. 364 APPENDIX D-4 Marcli 22, 1901, was, it was supposed, passed at the instance of the promoters of this corporation, in order to enable them to manage the affairs of so great a body without being ham- pered by the possible difficulties of getting a large meeting of stockholders. The new provision of the law provides that "any action which theretofore required the consent of the holders of two-thirds of the stock, at any meeting after notice to them given, or required their consent in writing, to be filed, may be taken upon the consent of, 3,nd the consent given and filed by, the holders of two-thirds of the stock of each class represented at such meeting in person or by proxy." Whether such a liberalizing provision would be safe in case of all corporations may perhaps be questioned. In form this corporation resembles that of the Federal Steel Company already explained in Chapter VII. The United States Steel Corporation has bought the stock of its •JAMS OF COMPANY AND CLASS OP STOCK ACQTOBED Federal Steel Co., Pfd. stock Federal Steel Co., Com. stock National Tube Co., Pfd. stock National Tube Co., Com. stock Amer. Steel & Wire Co., N. J., Pfd. stock Amer. Steel & Wire Co., N. J. Com. stock National Steel Co., Pfd. stock National Steel Co., Com. stock American Tin Plate Co., Pfd. stock American Tin Plate Co., Com. stock American Steel Hoop Co., Pfd. stock American Steel Hoop Co., Com. stock American Sheet Steel Co., Pfd. stock American Sheet Steel Co., Com. stock American Bridge Co., Pfd. stock American Bridge Co., Com. stock Lake Superior Consolidated Iron Mines Co, Shelby Steel Tube Co., Pfd. stock Shelby Steel Tube Co., Com. stock Carnegie Co., viz: For $64,000,000 of stock For $96,000,000 of stock there was is Steel collateral trust bonds. TOTAl STOCK $ 53,260,900 46,484,300 40,000,000 40,000,000 40,000,000 50,000,000 27,000,000 32,000,000 18,325,000 28,000,000 14,000,000 19,000.000 24,500,000 24,500,000 30,527,800 30,527,800 29,425,940 5,000,000 8,151,500 sued $144,000 tr. S. STEEL STOCK EE- CEIVED PER SHABE PFD. STOCK COM. STOCK $110.00 4.00 125.00 8.80 117.50 125.00 125! 66 20.00 100.00 166.66 ii6!66 135! 66 37.50 153.55 ,000 of Un $107.50 125.66 ioi'.so i25!66 i25.66 166! 66 i66!66 105.00 135.00 25.66 141.06 ited States APPENDIX D-4 365 different constituent companies, and controls these com- panies by virtue of being practically the single stockholder in each case. The rates at which the stock of the various con- stituent companies was exchanged for that of the United States Steel Corporation, together with the amounts of both kinds, appear in the accompanying table, p. 364. In addition to the stocks named above, the corporation acquired a smaller interest in many other companies, parts of which had been owned by other companies, usually one of the steel corporation subsidiaries. Later, the corpora- tion purchased a number of other companies of importance, such as the Clairton Steel Company, purchased in 1904, the Risdon Iron and Locomotive Works, San Francisco, pur- chased in 1911, and particularly the Tennessee Coal, Iron and Railroad Company, in which it secured a controlhng interest in November, 1907. In order that it may be certain of securing a proper supply of coal and coke, the corporation has likewise acquired large properties of this nature, especially the H. C. Frick Coke Company, and other large coal companies. Aside from this, the company is the owner, either directly or through its subsidiaries, of very important iron ore mines in the Lake Superior ore region, as well as elsewhere. As an illustration of the way in which it has been found desirable to extend its work into other fields, it may be men- tioned that in 1906 the Universal Portland Cement Company was organized with a $1,000,000 authorized stock to develop the cement business of the corporation. The productive capacity of these plants at the present time amoimts to be- tween thirteen and fourteen million barrels per year. It likewise owns or controls some thirty railroads, those which mostly contribute directly to its own work by carry- ing ore, coal, or other material between the different plants, or from the plants to the ship companies. 366 APPENDIX D-4 en < CO o ■«i OS OS "so^ eo us 00 CO OS 01 CO -^ 0» « "O i-i >* "O . 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Q) 00"0" M O CD ■* XJ 60 to t-rH ^ 1-1 0& i-i ,-1 60 i s «& 1 " og o» i>>o.«i « i-l i-l «5 OS i-< 60 O 0 p r1 O OS OS OS «5 CO CO * O pH »0 t- oo" oococoGo m'6oaf t-T co" 2 'S. S-tf "'S-^'S 1> o s FH ll § O) rH >0 rH lO I-l 1 O O 0» !S lO 00 lO ^ J- O ** OS OS -MS o .* o «» 60 S3 O O -^ ,-1 O CO t^ c I-l O pH I-H -O O I-t o t- '"."i t^ °i ■ ""i o. "*. *. ■*. 2 s ilO i-H^ O ^-^GO OS OS c GO "*. ofi-7 osio'cot.^o 5C " o OS»» O"-.* '60 Of.Hcf ffl B I— 1 OS O 00 00 -^ OS O OS COS xso^i-ioseo 00 o i> «o i^ OS OS O t- O l> OOO o »f cs OS CO IN CO ; 00 O CO o o» oo" oo" co" • CO lo" co" 60 ? O ■* O OS OS OOiJI OSrHOOO OO^p &t rHOS OS^O51>G0 OOOO 60 CD 8 o I.H *>t.:.'^^^ ^ . '*. «i ofi-T J>(NCDCOC0 »c ^ Ofo" l.^'^606O 00»0 «5 OS 60 00 O us CM O 04 O (N r-t ^ i O 00 CO GO 60 J> CO »c * 1— 1 CS 00 O CD ■ «■ 1» il55 60_l» o^ooio 0 60 CO i1 3 . ^■' •A rH 99- CO m og O O ®» i> J> CO • 11 CO OS in OS OOO co •O II O O •«*i (N 60 -.?< ,-1 «- 60 1^ COi-il>»0 o>co »-t E; 00CO s w^ I-T Oi^osco O'^o o i> =3 ™ O 00 O t- ^ -.Ji GO S b- wsO-'fci© Ot-O eg -(CO(»CO OOSO GO O 60" 31 I-H O CD O Ol ■<* 2 <0 CO CO GO o '^1 «3- ^-^ of C3 99- Common stock Preferred stock Stocks of subsidiary cos. not owned Bonded & Debenture Debt Mortgages of sub. cos. Sub. cos. pur. money obligations Minine rovaltv notes of sub. cos. 1 s 1 1 1 i i 1 11 Current accts. payable and pay- rolls Bills Davable 1 1 Accrued taxes not due Accrued int. & unpresented coupons Pfd. dividend payable Com. dividend payable Conting. & miscellaneous funds Approp. for addns. & construc- tion Insurance funds Pension fund Undivided surplus of U. S. Steel Corporation & subsidiary cos. .S 1 II 3i .9 368 APPENDIX D-4 Out of its funds it has also built large new steel manufac- tiu*ing plants, especially at Gary, Indiana, the largest steel plant in the world. The tract contains about 9,000 acres, with some ten miles' frontage on Lake Michigan, and is im- mediately adjacent to five front lines of railways. The best idea, perhaps, that one can obtain easily of the size and importance of the Steel Corporation's work is shown by giving the consolidated general balance-sheet of the Cor- poration and subsidiary companies of December 31, 1916. The causes of the consolidation of the Steel Corporation were probably much the same as those of the other great consolidations. The Carnegie Company, besides making steel rails and the heavier kinds of steel, was planning to extend its field of operations into the manufacture of wire nails and similar products; while, on the other hand, the American Steel and Wire Company, the National Tube Company, and others, were finding it necessary to build their own furnaces for the production of iron ore and the basic steel for their more highly finished products. Moreover, several of these larger establishments had already purchased ore and coal properties and lake ore vessels so that they were rapidly becoming integrated companies which would no longer ap- pear as purchasers of one another's products. Again, from the financial viewpoint there were several important groups interested not only in these various manu- facturing corporations, but also in the railroads, and a trade war among these large corporations would be certain to result in a depreciation of many of the securities and ulti- mately, quite probably, in the bankruptcy of some of them. The movement toward consolidation in the years immedi- ately preceding had been very rapid, and had been also ap- parently successful both as regards the profits that the com- panies were making and, what was perhaps of greater im- portance, as regards the real savings effected. Savings in APPENDIX D-4 369 freight, in the better use of skilled executives, in the division of labor among the diflFerent plants, in the ability to close the more poorly situated plants concentrating the work to better advantage in those best situated — all these and other advantages were so apparent that consolidation of these many companies seemed a natural further step to take. By bringing together all of these companies there was doubtless more or less of a lessening of competition in some branches of the industry, although in no field did competition cease. Where it was least the Corporation controlled patents, giv- ing it a legal monopoly. But probably of distinctly greater importance was the fact that through the integration of the various kinds of industries from the ore and coal mines to the highly finished products there was a greater opportunity of making savings than would otherwise have been possible. At the beginning there was a large increase in stockhold- ings, and much was said with reference to the large amount of watered stock issued. In later years, it seems to be gener- ally agreed that, owing in part to the increased demand for steel, which has aflFected vitally the value of the properties, but stiU more to the fact that the large amounts of ore and coal properties that had been secured have increased enor- mously in value, the actual cash value of the properties now held probably is equal to, or exceeds the value of the total capitalization. The United States Government brought suit against the Steel Corporation in 1911. The case was tried in the dis- trict court of the United States for the district of New Jersey; and after the taking of voluminous evidence on both sides, and arguments by the ablest counsel, a decision was rendered (Jxme 3, 1915) in favor of the Corporation. The most im- portant point in the decision has to do with the question whether the size of a corporation or the percentage of its output in the market renders the combination illegal; or 370 APPENDIX D-4 whether the acts of the corporation itself as promotive of the public welfare, or antagonistic thereto, is to be considered the decisive point. On this point, the court, referring to the Standard Oil and Tobacco Companies cases previously de- cided, said: "These cases may be taken to have established that only such combinations are within the Act (the Sherman Anti- Trust Act) as by reason of intent or the inherent nature of the contemplated acts prejudice the pubUc interests by imduly restricting competition or unduly obstructing the course of trade." And again: "It will be seen that this case is prac- tically one of business facts. ... It will be seen that in location, facilities, capital, and basic supplies they show such past, present, and prospective competition as affords just grounds for concluding that the steel and iron business of this country is not being, and indeed, cannot be monopolized, that the real test of monopoly is not the size of that which is acquired, but the trade power of that which is not acquired." And further: "We dismiss once and for all the question of the mere volume or bigness of business. The question be- fore us is not how much business was done, or how large the company that did it, the vital question is: 'How was the business, whether big or little, done? Was it, in the test of the Supreme Court, done without prejudicing the public interests, by unduly restricting or imduly obstructing trade? The question is one of undue restriction or obstruction, and not one of undue volume of trade." These statements put the case squarely on the issues, not of verbal quibbles, or of legal technicaKties, but of the public interest as shown by the actual facts. The case was appealed by the government, andisnowpend- ing in the United States Supreme Court. Upon its decision depends not merely to a considerable degree the welfare of the Corporation itself, but what is of far greater importance. APPENDIX D-5 371 the status of large industrial companies in the United States, presumably for many years to come. This case and that of the International Harvester Company seem to contain the necessary elements for settUng definitely the position of the United States Supreme Court regarding the great cor- porations. When that issue is settled, the law will be known. If the Supreme Court sustains this decision of the lower court, business men may foUow their consciences and fear no iU if they do not harm the commimity, competitors, dealers, or the public; and not only the courts, but public opinion will approve. 5. INTERNATIONAL HARVESTER COMPANY* A PETITION was filed, April 30, 1912, in the District Court of Minnesota, against the International Harvester Company, alleging that it had acquired and maintained a monopoly, contrary to the Sherman Act, in harvesting and agricultural machinery and implements and twine. August 15, 1914, the court sustained the contentions of the government and decreed the dissolution of the combination. The case was appealed to the Supreme Court, where it has been argued and reargued and decision is now awaited. This case is of particular interest because in the course of this trial as well as through the report of the Bureau of Corporations on the International Harvester Company, this combination is shown to be a "good" trust. The facts in- dicate that it is not over-capitahzed, does not use clearly predatory methods of competition, does not sell abroad more cheaply than at home, is not in monopolistic control of basic patents, does not make exorbitant profits and does not charge excessive prices. Yet the District Court decreed its *This story of the International Harvester Company has been compiled from the government and the Company briefs in hearings before the U. S. Supreme Court in October, 1914, from the U. S. Bureau of Corporations Report on The International Tfarvester Co. (1913) and from Moody's and Poor's Manuals of Industrials. 372 APPENDIX D-5 dissolution. Mere extent of control in an industry, if, in the court's judgment, it approximates monopoly, seems to insiu-e dissolution decree under the Federal Anti-Trust Acts. If the Harvester combination be dissolved by the decree of the Supreme Court it will be clear, that as the law will then stand interpreted, approach toward monopoly will not be permitted in industry of the United States, regardless of the fair methods by which the monopoly may be approached and regardless of any advantages, such as cost-cheapening or bettered development of foreign trade, that may flow from the more centralized control. At least the central issue of the anti-trust fight in the United States will then be made clear. A brief outUne statement of the history of the Harvester combination is given by the United States Commissioner of Corporations, Luther Conant, Jr., in transmitting to the Secretary of the Department of Labor his report on "The International Harvester Co." That statement, which sum- marized the findings of this detailed 250-page report, is here given in full :* "The International Harvester Company was organized in 1902 as a consolidation of the five principal manufactm-ers of harvesting machines in the United States, namely, the McCormick Harvesting Machine Co., Deering Harvester Co., Piano Manufacturing Co., the Warder, Bushnell & Glessner Co., and the Milwaukee Harvester Co. The com- panies thus consolidated had in 1902 about 90 per cent, of the total production of grain binders in the United States, and about 80. per cent, of the total production of mowers, the two chief kinds of harvesting machines. The principal outside makers of harvesting machines were located in New *U. S. Bureau of Corporations Report on The International Harvester Co., (llai a 3, 1913) pp. XVII to XXIII inclusive. APPENDIX D-5 373 York State, and their market was chiefly confined to the North Atlantic States and to the export trade. "The interests included in the combination had previously been in keen competition. An attempt made in 1890 to establish a general consolidation of makers of harvesting machines was a failure, and from that time until the merger, competition was severe. In fact, it has been asserted that the combination was virtually forced by such competition. However, the two most important concerns, namely, the McCormick and Deerrag companies, were making large profits just prior to the merger, and two of the other com- panies merged were making at least fair profits. Obviously, therefore, it cannot be contended that this competition was destructive. "It has been represented in formal testimony by officers of the company and its financial promoter, G. W. Perkins, then of the firm of J. P. Morgan & Co., that its organization was not the result of concerted action by the former compet- ing owners, but merely of the purchase of their properties by new and outside interests. Documentary evidence gath- ered by the Bureau completely disposes of this contention and shows that the principal competing interests considered and discussed among themselves the formation of this com- bination and were active in bringing it about. "The chief features of the International Harvester Co.'s operations are the substantial maintenance of its monopolis- tic position in the harvesting-machine business, originally acquired through combination, and its extensions on a large scale into new lines of the farm-machinery industry. The company has been able to do this in part through the acquisi- tion of some of its chief rivals in the harvesting-machine business; in part by using its monopolistic advantage in these harvesting-machine lines to force the sale of its new lines; in part by certain objectionable competitive methods; and 374 APPENDIX D-5 especially through its exceptional command of capital, itself the result of combination. Acquisitions of Competing Concerns "Almost immediately after its organization the Interna- tional Harvester Co. commenced the acquisition of compet- ing makers of harvesting machines. In January, 1903, it secretly acquired control of D. M. Osborne & Co., of Auburn, N. Y., its chief competitor. This secret control was main- tained for nearly two years, during which the Osborne Company was operated and advertised as an independent concern. Two of the chief stockholders of the Osborne com- pany agreed to refrain from engaging independently in the same lines of business for a period of ten years. Again, the combination, between 1903 and 1904, acquired and secretly operated several other competing harvesting-machine con- cerns, namely, the Minnie Harvester Co., the Aultman- Miller Co., and the Keystone Co. In some cases it was con- tended that the concealment of ownership was employed to facilitate liquidation of certain accounts of the purchased concerns. "Negotiations for the acquisition of several other harvest- ing-machine concerns were not consmnmated; in some cases the initiative came from the competitors. Extensions into New Lines "The company's acquisition of competitors in harvesting machines was followed by extension of its manufacture into numerous new lines, partly by the purchase of established concerns. Among the most important of such lines were till- age implements, manure spreaders, farm wagons, gasoline engines, tractors, and cream separators. The extension of the company into these lines was directly furthered by its substantially monopolistic control of the harvesting-machine APPENDIX D-5 375 business. It is obvious that the possession of a monopolistic position in that important branch of the business afforded a powerful lever for forcrag the sale of its new lines. Competitive Methods "The competitive methods employed by the company have been the subject of much complaint. Some of these complaints relate to practices which, like the use of the ex- clusive clause in agency contracts and the operation of pur- chased companies as independent, were at one time exten- sively practised, but which have since been abandoned. As above noted, some of these acquired concerns were openly advertised as independent. "Among the most important complaints charged against the company in recent years is an effort to secure an undue proportion of local dealers in farm machinery by allotting, as a rule, only a single brand to any one dealer in the same place, thus tending to restrict the outlet for competitors' goods. The company's own records show that this was one purpose at least in making this distribution of its brands, and it appears to have had some practical effect in handicap- ping competition. "Compulsion of dealers to take the company's 'new' lines by reason of its monopolistic control of harvesting machines ('full-line forcing') has been attempted with more or less success by the company's representatives. Attempts to secure the exclusive handling of certain lines of the company by similar methods were also reported to the Bureau. "Special discriminatory prices and terms have been re- ported in a number of instances, but the general policy of the company is to maintain high prices in the monopolized lines; in the principal new lines, however, where consider- able competition is encountered, unusually low prices and long terms have been generally employed. 376 APPENDIX D-5 "Another rather general complaint is that salesmen of the International Harvester Co. represent that purchasers of competing lines of harvesting machines will be unable to secure repair parts, a matter of much practical importance. Officers of the International Harvester Co. admit that this was at one time a common characteristic of competition in the harvesting-machine industry, but that the company is opposed to the practice and has used active efforts to elimi- nate it. The Biu-eau, however, received rather numerous complaints of this character. "The company at one time openly attempted, through a clause in its commission contracts, to control the price paid for its machines by the farmer to the retail dealer. Since the elimination of this clause, 'suggested' retail price lists have been rather generally circulated by some of its branch offices, apparently for the purpose of indirectly maintaining the retail price, although the company contends that these lists are intended for the use of its employees in furnishing information to purchasers and professes to discourage their issuance to dealers. It is evident, however, that it could completely stop this practice if it really wished to. Superior Resources " The company's exceptional financial resources, including its connections with J. P. Morgan & Co. and John D. Rocke- feller, constitute one of the chief sources of its power. They not only enable it to secure the economies of large-scale oper- ations, which, as a rule, give it marked advantages in manu- facturing costs, but also enable it to maintain a very elabo- rate selling organization, by virtue of the variety and extent of its business. Furthermore, they give it a great advantage in extending credits to purchasers, an exceedingly important feature of the farm-machinery industry. While apparently any such use of credits has not been a controlling factor in APPENDIX D-5 S77 restricting competition, it appears to have been felt to some extent in certain lines, and is one of the chief sources of com- plaint from manufacturers as distinct from dealers in farm machinery. Present Position "As a result of the developments and practices above de- scribed, the position of the combination has changed from that of a maker of harvesting machines only, until it is now an im- portant factor in several other branches of the farm-machin- ery business. In maniu-e spreaders it appears to have more than one-half of the business, and in disk harrows approxi- mately 40 per cent.; and it is increasing its proportion in several other new lines, such as wagons and gasoline engines. "New competition has, however, begim to appear, es- pecially from certain large plow and tillage implement mak- ers, whose fields have been invaded by the combination, and who likewise have arranged to establish a 'full line,' that is, a large assortment of the chief kinds of farm implements. This new competition is apparently of great significance. However, in 1911 the company still had about 86 per cent, of the production of binders, 78 per cent, of the production of mowers, and 72 per cent, of the production of rakes."* *In its Beply Brief, p. 74a, before the TJ. S. Supreme Court, October 6, 1914, the Harvester Company gives the following percentages of its sales compared with total sales in the United States: GRAIN BINDEBS MOWERS RAKES 1905 93.12 86.49 77.85 1906 90.61 82.26 75.71 1907 92.12 84.53 77.86 1908 91.09 82.98 74.21 1909 90.40 78.70 69.33 1910 88.37 76.05 68.45 1911 87.20 73.90 67.79 1912 85.04 72.98 Figures not completed It is to be noted that these figures show the considerable growth of competing busi- ness even in these three leading lines of Harvester Company goods. The Reply Brief further shows that in Binder Twine tie Harvester Company 378 APPENDIX D-5 Investment and Capitalization* "The extraordinary over-capitalization which character- ized most of the large industrial consolidations of the period 1898 to 1901 was absent in the case of the International Har- vester Co. The original capital stock was $120,000,000. The 'cash stock' of $60,000,000 appears to have been paid up in fjill. The appraisal value of the plants, inventories, etc., for which the remaining $60,000,000 of stock was issued was $67,000,000; the Bureau places the value of these physical properties at, roughly, $49,000,000. The bankers and pro- moters received $3,700,000 stock for their expenses and ser- vices. "It is worth noting that certain ore leaseholds acquired by the Deerings about seven months before the merger for $675,000, of which $500,000 was paid in notes, were valued for purposes of consolidation, after deduction of this indebt- edness, at no less than $7,963,000. The price paid by the Deerings was rather more than the current average value of Mesabi leases at the time. It is claimed that during the period that the Deerings had owned these leases there had been some increase in the estimated tonnage of these ore properties, but no evidence was produced to indicate any great increase in their value. However, in order not to under- value them, the Bureau arbitrarily allowed an increase of $500,000, and also added about $100,000 expended for un- provements, etc. This is probably too liberal, but the re- sulting net valuation is more than $7,000,000 less than that claimed by the International Harvester Co. The high valu- had from 42% to 54% of the domestic trade; in wagons it had but 15% of the do- mestic trade; in cream separators, only 16f %; in gasoUne farm engines from 15% to 20%; and in manure spreaders about 50% of the domestic trade (pp. 74 to 77). *In the Reply Brief (U. S. Supreme Court, October, 1914) the Harvester com- bination showed that, since its organization, $181,000,000 of new capital had come into the agricultural implement business in the United States, more than $76,000,000 of which was capital of corporations manufacturing and selling har verging machir'i? in competition with the International (p. 81). APPENDIX D-5 379 ations placed on these ore properties caused much dissatis- faction among the combining interests themselves, especially on the part of the McCormicks. The banking interests back of the International Harvester Co., however, had only a few weeks earlier claimed an extravagant value for ore, in defend- ing the capitalization of the United States Steel Corporation in important litigation then pending, and they were therefore in no position to deny excessive valuations for this Deering ore. "In several other respects the appraisal valuations were clearly excessive. However, after deducting such excesses, the Bureau, as indicated, found that the value of the physical properties plus the working capital covered substantially 90 per cent, of the capital stock issued. The company claimed a large value for good- will, but has not entered any good- will value in its accounts. It is not imlikely that a fair valuation for good-will would have covered the difference between the original capitalization and the tangible assets. "A much larger capitalization was at one time contem- plated. For purposes of consolidation, the fixed properties, good-will, and inventories, exclusive of working capital, were nominally valued in the first instance at $132,000,000. This figure, however, was grossly excessive. Furthermore, the subsequent appraisal value of the physical properties (ex- cluding good-will) of $67,000,000, above noted, was later written down to $60,000,000. In this connection it may be noted that inventories which were appraised at $25,550,000 were later reduced for 'trading pm-poses' to $18,155,000. "In 1907 the capital stock was rearranged by making $60,000,000 a 7 per cent, preferred issue, leaving the com- mon stock at $60,000,000. In 1910, $20,000,000 additional common stock was issued as a stock dividend, making the total capitalization $140,000,000. "The stock of the company has been closely held by the 380 APPENDIX T>-5 former interests. The McCormick and Deering families have throughout held a large majority of the total stock, while considerable amounts have also been retained by a few other stockholders. This fact assumes especial importance in view of the pending dissolution suit of the Government against the company. "Recently, on account of this suit, the company has been split into two corporations, one of which, the International Harvester Co. of New Jersey, retains the old harvesting- machine plants and related business; the other, the Interna- tional Harvester Corporation, takes over the new lines and foreign business. Each of these concerns is capitalized at $70,000,000. If this is intended as part of a plan for ultimate disintegration of the combination, in the opinion of the Bureau it is unsatisfactory. Profits " There has been a marked increase in the earnings of the International Harvester Co. From a distinctly low rate early in its organization they have risen to a rather high rate in recent years. For the entire period, 1902 to 1911, the average rate of net earnings on net assets, as computed by the Bureau (exclusive of good- will), is 8^ per cent. However, for the three years 1909 to 1911 the average was 12| per cent. As computed by the company on capital stock and surplus, the average for the entire period is 7| per cent., and for the years 1909 to 1911, lOf per cent. The rate in 1911 was somewhat less than in 1909. Returns for 1912 are not yet available.* "The increase in recent years is more significant because in certain of the new lines, which the company has been pushing aggressively, the rate of return is comparatively low. This me ans that the rate of return on some of the older mo- *In connection with this report of the Bureau as to profits, it is interesting to note the dividends actually paid. In dividends this Harvester combination paid APPENDIX D-5 381 nopolized lines has been very high. Thus, the rate of profit for grain and grass harvesting machines is very much higher than the rates for such lines as wagons, manure spreaders, and twine, where the company encoimters a greater degree of competition. The rate of some of the new lines, however, has been liberal. "Generally speaking, the prices obtained by the company on foreign sales are relatively higher than those in the do- mestic market, but claims made by the company that the net return is invariably greater were not sustained by its records; in some important instances at least the foreign nettings were lower than the domestic. Conclusion "It appears, therefore, that the International Harvester Co.'s position in the industry is chiefly attributable to a monopolistic combination in the harvesting-machine busi- ness, certain imfair competitive methods, and superior com- mand of capital." This summarization emphasizes in its very closing para- graph that "certain unfair competitive methods" are one of the chief reasons why the Harvester combination is dominant in its type of industry. This would seem to deny to it the appellation of a "good trust." Let it be noted, however: (1) That the more detailed summary which follows this let- ter of transmittal closes thus: "While its financial advantage has been supplemented by the adoption of certain objectionable competitive methods, the mainspring of its power was the consolidation of the lead- ing competitive factors in the industry."* 3 per cent, on its $120,000,000 common stock in its first year and 4 per cent, the next three years. The preferred stock, introduced in 1907, has paid 7 per cent, annually ever since and the common stock 4 per cent, annually until April, 1911, and 5 per cent, since that time. Dividends are payable quarterly. *U. S. Bureau of Corporations Report on the International Harvester Co., p. 87. 382 APPENDIX D-5 This fuller summary seems clearly to give a merely supple- mentary weight, at most, to the "objectionable competitive methods." (2) That the main report shows that some of the alleged practices listed as "imfair competitive methods," notably the maintenance of pretended competitors, the contracts for exclusive handling of this corporation's goods, and the dicta- tion of the retailers' selling prices, were merely historic and have not been policies of the corporation since its early years. (3) Others of these listed "unfair competitive methods" were disavowed by the corporation's officials and character- ized by them as mistaken methods used by unwise field agents of the corporation. For example, an assistant general manager of the Harvester Company is quoted at length as opposed to "full-line forcing." Among other things he states: "It is wrong in principle . . . we have repeatedly called in men and pointed out the absolute folly of trying to do business along that line. . . ."* (4) Still other of the charges may fairly be questioned as "objectionable." For example, many complaints are re- corded against the common practice, by the Harvester com- bination, of extending long-time credits. Quoting the Re- port: "One competitor alleges that in some cases the Inter- national Harvester Co., in selling its engines takes payment in rates maturing in the fall of four consecutive years, com- pared with 6, 9, and 12 months at longest for his concern. He said his own company cannot tie up its capital by allowing such long terms. . . . He stated that the prices of the International Harvester Company are pretty well main- tained, but that the long credit extended by the company is attractive to some purchasers and gives it a great advan- tage."t *U. S. Bureau of Corporations Report on the International Harvester Co., p. 309. tibid., p. 323. APPENDIX D-5 383 That is, the combination is here condemned by a competi- tor because it shares somewhat with final consumers its ad- vantages over small competitors by reason of its great finan- cial resources. This stands as a complaint, but, impartially considered, it surely cannot stand as an objectionable prac- tice. When allowance is made for these four points, presented in this very report, the weight of the charge of clearly un- fair competitive methods as a charge for the past decade against this Harvester combination, approximates the neghgible, and this Trust appears to have an almost perfectly clean record of conduct toward the pubhc generally, its competitors and its stockholders. In the Tobacco Trust case the court gave weight to the unfair competitive practices established against this Trust; in the Oil case, the court noted the full charges of unfair competitive practices and noted also the denials or ex- planations on the part of the trust representatives, but passed judgment without giving any weight to these accusa- tions of bad competitive practice. In the Harvester case the industrial eflfectiveness of combination is in evidence, and almost no objectionable competitive practices stand against the combination. This case, if decree is given against the combination, will still more clearly than did the Oil de- cision, serve notice on the great industrial combinations of the United States that they are illegal and subject to dissolu- tion by the court on the sole ground of their dominance in their industrial field and regardless of established records possibly wholly free from bad practices of any kind and possibly well filled with worthy service in terms of industrial progress. APPENDIX E STATE ANTI-TRUST LAWS IN THE UNITED STATES* 1. Texas 2. New Jekset 1. TEXAS Constitution Art. I, Sec. 26. Perpetuities and monopolies are contrary to the genius of a free government and shall never be al- lowed. Art. X, Sec. 5. No railroad or other corporation, or the lessees, purchasers, or managers of any railroad corporation, shall consolidate the stock, property, or franchises of such cor- poration with, or lease or purchase the works or franchises of or in any way control any railroad corporation owning or having im.der its control a parallel or competing line; nor shall any officer of such railroad corporation act as an officer of any other railroad corporation owning or having the control of a parallel or competing line. Sec. 6. No railroad company organized under the laws of this state shall consolidate by private or judicial sale or otherwise with any railroad company organized under the laws of any other state or of the United States. (Adopted, November 24, 1875.) *For full text of all State Anti-Trust Laws and Constitutional Amendments, in force in 1914, the reader is referred to a government publication. Laws on Trusts and Monopolies, revised edition, 1914. 384 APPENDIX E-1 385 Statutes That a trust is a combination of capital, skill or acts by two or more persons, firms, corporations, or associations of persons, or either two or more of them, for either, any or all of the following purposes : 1. To create or which may tend to create or carry out restrictions in trade or commerce or aids to commerce or in the preparation of any product for market or transportation, or to create or carry out restrictions in the free pursuit of any business authorized or permitted by the laws of this state. 2. To fix, maintain, increase, or reduce the price of mer- chandise, produce, or commodities, or the cost of insurance, or of the preparation of any product for market or transpor- tation. 3. To prevent or lessen competition in the manufacture, making, transportation, sale or purchase of merchandise, produce, or commodities or the business of insurance, or to prevent or lessen competition in aids to commerce, or in the preparation of any product for market or transportation. 4. To fix or maintain any standard or figure whereby the price of any article or commodity of merchandise, produce, or commerce, or the cost of transportation, or insurance, or the preparation of any product for market or transportation, shall be in any manner aflfected, controlled, or estabhshed. 5. To make, enter into, maintain, execute or carry out any contract, obligation, or agreement by which the parties thereto bind, or have bound themselves not to sell, dispose of, transport, or to prepare for market, or transportation any article or commodity, or to make any contract of insurance at a price below a common standard or figure, or by which they shall agree in any manner to keep the price of such article or commodity or charge for transportation or insur- ance, or the cost of the preparation of any product for market 386 APPENDIX E-1 or transportation at a fixed or graded figure, or by which they shall in any manner affect or maintain the price of any conimodity or article or the cost of transportation or insur- ance or the cost of the preparation of any product for market or transportation between them or themselves and others, to preclude a free and unrestricted competition among them- selves or others in the sale or transportation of any such article or commodity or business of transportation or insur- ance or the preparation of any product for market or trans- portationj or by which they shall agree to pool, combine, or unite any interest they may have in connection with the sale or purchase of any article or commodity or charge for trans- portation or insurance or charge for the preparation of any product for market or transportation whereby its price or such charge might be in any manner affected. 6. To regulate, fix, or limit the output of any article, or commodity which may be manufactured, mined, produced, or sold, or the amount of insurance which may be imdertaken, or the amount of work that may be done in the preparation of any product for market or transportation. 7. To abstain from engaging in or continuing business or from the purchase or sale of merchandise, produce, or com- modities partially or entirely within the State of Texas, or any portion thereof. Sec. 2. That a monopoly is a combination or consolida- tion of two or more corporations when affected in either of the following methods : 1. When the direction of the affairs of two or more cor- porations is in any manner brought under the same manage- ment or control for the purpose of producing, or where such common management or control tends to create a trust as defined in the first section of this act. 2. Where any corporation acquires the shares or certi- ficates of stock or bonds, franchise or other rights, or the APPENDIX E-1 387 physical properties, or any part thereof, of any other corpo- ration or corporations, for the purpose of preventing or les- sening, or where the effect of such acquisition tends to affect or lessen competition, whether such acquisition is accom- plished directly or through the instrumentality of trustees or otherwise. Sec. 3. That either or any of the following acts shall constitute a conspiracy in restraint of trade: 1. Where any two or more persons, firms, corporations, or associations of persons who are engaged in buying or selling any article of merchandise, produce, or any commodity^ enter into an agreement or understanding to refuse to buy from or sell to any other person, firm, corporation, or associa- tion of persons any article of merchandise, produce, or commodity. 2. Where any two or more persons, firms, corporations, or associations of persons shall agree to boycott or threaten to refuse to buy from or sell to any person, firm, corporation, or association of persons for buying from or selling to any other person, firm, corporation, or association of persons. Sec. 4. Any and all trusts, monopolies, and conspiracies in restraint of trade as herein defined, are hereby prohibited and declared to be illegal. Sec. 5. Any corporation holding a charter imder the laws of the State of Texas, which shall violate any of the provi- sions of this act, shall thereby forfeit its charter and franchise, and its corporate existence shall cease and determine. Sec. 6. For a violation of any of the provisions of this Act, or any anti-trust laws of this state, by any corporation, it shall be the duty of any judge or court to institute suit or quo warranto proceedings in Travis County or at the county seat of any county in the state which the attorney- general may select, for the forfeiture of its charter rights and franchises, and the dissolution of its corporate existence. 388 APPENDIX E-1 and for such purposes, venue is hereby given to each district court in the State of Texas. (As amended by Acts of 1909, p. 281.) Sec. 7. When a corporation organized under the laws of this state shall have been convicted of a violation of any of the provisions of this act, and its charter and franchise has been forfeited, as provided in Section 5, no other corporation to which the defaulting corporation may have transferred its properties and business or which has assumed the pay- ment of its obligations, shall be permitted to incorporate or do business in Texas. Sec. 8. Every foreign corporation violating any of the provisions of this act is hereby denied the right, and is prohibited from doing any business within this state, and it shall be the duty of the attorney-general to enforce this provision by injunction or other proceedings in the district court of Travis County, in the name of the State of Texas. Sec 9. The provision of Chapter 92 of the Revised Stat- utes of this state of 1895, to prescribe the remedy and regu- late the proceedings by quo warranto, etc., shall, except in so far as they conflict herewith, govern and control the pro- ceedings when instituted to forfeit any charter under this act. Sec. 10. When any foreign corporation has been con- victed of a violation of any of the provisions of this act, and its right to do business in this state has been forfeited, as provided in Section 8 of this act, no other corporation to which the defaulting corporation may have transferred its properties and business, or which has assumed the payment of its obligations, shall be permitted to incorporate or do business in Texas. Sec. 11. Each and every firm, person, corporation, or as- sociation of persons, who shall m any manner violate the APPENDIX E-1 38& provisions of this Act shall for each and every day that such violation shall be committed or continued, forfeit and pay a sum of not less than fifty nor more than fifteen hundred dol- lars, which may be recovered in the name of the State of Texas, in the district court of any county in the State of Texas, and venue is hereby given to such district courts; provided, that when any such suit shall have been filed in any county and jurisdiction thereof acquired, it shall not be transferred to any other coimty except upon change of venue allowed by the court, and it shall be the duty of the attorney- general, or the district or county attorney, under the direc- tion of the attorney-general, to prosecute for the recovery of the same, and the fees of the district or county attorney for representing the state in all anti-trust proceedings, or for the collection of penalties for the violation of the anti- trust laws of this state, shall be 10 per cent, of the amount collected up to and including the sum of fifty thousand dollars, to be retained by him when collected, and all such fees which he may collect shall be over and above the fees allowed under the general fee bill; provided, that the provi- sions of this act as to the fees allowed the prosecuting attor- ney shall not apply to any case in which judgment has here- tofore been rendered in any court nor to any moneys to be hereafter collected upon any such judgment heretofore rend- ered in any coiu"t, whether such judgment or judgments are pending upon appeal or otherwise; and provided, further, that the district or county attorney who joins in the institu- tion or prosecution of any suit for the recovery of penalties for a violation of any of the anti-trust laws of this state, who shall, previous to the collection of such penalties, cease to hold office, he shall be entitled to an equal division with his successor of the fee collected in said cause, and in case of the employment of special counsel by any such district or coimty attorney, the contract so made shall be binding upon such 390 APPENDIX E-1 prosecuting officer making such contract and thereafter retiring from office; provided, further, that in case any suit is compromised any final judgment in the trial court is had, then the fees herein provided for shall be reduced one-half. (As amended by Acts of 1909, pp. 281-2.) Sec. 12. Any contract or agreement in violation of the provisions of this act shall be absolutely void and not enforce- able either in law or equity. Sec. 13. And in addition to all other penalties and for- feitures herein provided for, every person violating the pro- visions of this act shall be further punished by imprisonment in the penitentiary not less than two nor more than ten years. Sec. 14. In prosecutions for the violation of any of the provisions of this act, evidence that any person has acted as the agent of a corporation in the transaction of its business in this state shall be received as prima facie proof that his act in the name, behalf, or interest of the corporation of which he was acting as the agent, was the act of the corporation. Sec. 15. Upon the application of the attorney-general or of any of his assistants, or of any district or coimty attorney, acting under the direction of the attorney-general, made to any county judge, or any justice of the peace, in this state, stating that he has reason to believe that a wit- ness, who is to be found in the county in which such county judge or justice of the peace is an officer, knows of a violation of any of the provisions of this act, it shall be the duty of the county judge, or of the justice of the peace, as the case may be, before whom such application is made, to have summoned and to have examined such witness in relation to violations of any of the provisions of this act, said witness to be sum- moned as provided for in criminal cases. The said witness shall be duly sworn, and the county judge, or justice of the peace, as the case may be, shall cause the statements of the APPENDIX E-1 391 witness to be reduced to writing and signed and sworn to before him, such sworn statement shall be delivered to the attorney-general, his assistants, or the district or county at- torney, upon whose application the witness was summoned. Should the witness summoned as aforesaid fail to appear, or to make statements of the facts within his knowledge, under oath, or to sign the same after it has been reduced to writing, he shall be guilty of contempt of court, and may be fined not exceeding one hundred dollars, and may be attached and imprisoned in the county jail until he shall make a full state- ment of all the facts within his knowledge with reference to the matter inquired about. Any person who shall testify before any coimty judge, or justice of the peace, as provided for in this act, or who shall testify as a witness for the state in the course of any statutory proceedings to seciu-e testi- mony for the enforcement of this act, or in the course of any judicial proceeding to enforce the provisions of this act, shall not be subject to indictment or prosecution for any transaction, matter, or thing concerning which he shall so give evidence, docmnentary or otherwise. Sec. 16. All actions authorized and brought under this act shall have precedence, on motion of the prosecuting at- torney or the attorney-general, of all other business, civil and criminal, except criminal cases where the defendants are in jail. Sec. 17. That all laws and parts of laws in conflict with this act be and the same are hereby repealed, and that Title CVTTT of the Revised CivU Statutes of the State of Texas of 1895, and Arts. 5313, 5314, 5315, 5316, 5317, 5318, 5319, 5320, 5321, and 5321a thereof, be and the same are hereby expressly repealed; and that Arts. 976,977,978,979,980,981, 982, 983, 984, 985, 986, 987, 988, 988a, 988b, 988c, 988d, of c. 7, in Title XVIII, of the Penal Code of the State of Texas of 1895, be and the same are hereby expressly repealed; and 392 APPENDIX E-1 that an act entitled "An act to define trusts, provide for penalties and punishment of corporations, persons, firms, and associations of persons connected with them, and pro- mote free competition in the State of Texas, and to repeal all laws and parts of laws in conflict with this act," approved April 30, 1895, and known and published as c. 83 of the General Laws of the Twenty-fourth Legislature, be and the same is hereby expressly repealed; and that an act entitled "An act to prohibit pools, trusts, monopolies, and conspir- acies to control business and prices of articles, to prevent the formation or operation of pools, trusts, monopolies and com- binations of charters of corporations that violate the terms of this act, and to authorize the institution and prosecution of suits therefor," approved May 25, 1899, and pub- lished and known as Chapter CXLVI of the General Laws of the Twenty-sixth Legislature, be and the same are hereby expressly repealed; and that an act entitled "An act to amend Art. 5318, Title 108, of the Revised Civil Statutes of the State of Texas, prescribing penalties against trusts and con- spiracies against trade," approved June 5, 1899, and known as Chapter CLXXII of the General Laws of the Twenty- sixth Legislature, be and the same is hereby expressly re- pealed; provided nothing in this act shall be held or construed to affect or destroy any rights of the State of Texas to recover penalties or forfeit charters of domestic corporations, or pro- hibit foreign corporations from doing business in this state, for acts committed before this act takes effect. Sec. 18.* If any person shall enter into an agreement or understanding of any character to form a trust, or to form a monopoly or to form a conspiracy in restraint of trade as these offences are defined by Chapter XCIV of the Acts of *This Act from Section 18 to the end has been slightly edited to avoid the duplicate Section numbering and repetition of content, given in the law as printed both in the Federal compilation of State Anti-Trust Laws and in the General Laws as published by the Texas Legislature. APPENDIX E-1 393 the Twenty-eighth Legislature, or shall form a trust, mo- nopoly, or conspiracy in restraint of trade, or shall be a party to the formation of a trust, or monopoly, or conspiracy in restraint of trade, or shall become a party to a trust, or monopoly, or conspiracy in restraint of trade, or shall do any act in furtherance of, or aid to, such trust or monopoly or conspiracy in restraint of trade, he shall be pimished by im- prisonment in the penitentiary for a period of not less than two years, nor more than ten years. If any person shall, as a member, agent, employee, oflScer, director, or stockholder of any business, firm, corporation, or association of persons, form, in violation of the provisions of Chapter XCIV of the Acts of the Twenty-eighth Legislature, or shall operate in violation of the provisions of this act any such business, firm, corporation, or association formed in violation of Chapter XCIV of the Acts of the Twenty-eighth Legislature, or shall make any sale, or purchase, or any other contract, or do business for such business, firm, corporation or association, or shall do any other act which has the effect of violating or aiding in the violation of the provisions of Chapter XCIV of the Acts of the Twenty-eighth Legislature, or shall with the intent or purpose of driving out competition or for the piupose of financially iajiu-ing competitors sell within this state at less than cost of manufacture or production or sell in such a way or give away within this state products for the purpose of driving out competition or financially injur- ing competitors engaged in a similar business, or give secret rebates on such purchase for the purpose aforesaid, he shall be punished by confinement in the penitentiary for a period of not less than two years nor more than ten years. If any person shall outside of this state do anything which, if done within this state, would constitute the formation of a trust or monopoly or conspiracy in the restraint of trade as 394 APPENDIX E-1 defined by Chapter XCIV, p. 119, of the Acts of the Twenty- eighth Legislature, and shall cause or permit the trust or monopoly so formed by him to do business within this state, or shall cause or permit such trust, monopoly, or conspiracy in restraint of trade to have any operation or effect within this state, or if such trust, monopoly, or conspiracy in restraint of trade having been formed outside of said state, any person shall give effect to such trust, monopoly, or conspiracy in this state, or he shall do anything to help or aid it doing business in this state, or otherwise violate the anti-trust laws of this state, or if any person shall buy or sell or otherwise make contracts for or aid any business, firm, corporation, or asso- ciation of persons, formed or operated in violation of the provisions of Chapter XCIV, p. 119, of the Acts of the Twenty-eighth Legislature, or so formed or operated as would be in violation of the laws of this state if it had been formed within this state, shall be punished by confinement in the penitentiary for a period of not less than two years nor more than ten years. If any person or employee or employees, or agent or agents, stockholder or stockholders, officer or officers of any person, firm, association of persons or corporation now doing busi- ness in this state, who have formed a trust as defined in Chapter XCIV, p. 119, of the Acts of the Twenty-eighth Leg- islature, or formed a monopoly as defined in Chapter XCIV, p. 119, of the Acts of the Twenty-eighth Legislature, or has formed a conspiracy in restraint of trade, as defined in Chap- ter XCIV, p. 119, of the Acts of the Twenty-eighth Legisla- ture, or shall do or perform any act of any character to carry out such trust, monopoly, or conspiracy in restraint of trade, such person, employee or employees, agent or agents, stockholder or stockholders, officer or officers shall be pun- ished by confinement in the penitentiary for not less than two years nor more than ten years. APPENDIX E-1 395 Sec. 19. Criminal prosecutions under this act may be conducted in Travis County, Texas, or in any county in this state wherein a trust, monopoly, or conspiracy in restraint of trade is being carried on, a recovery or prosecution against any person for any violation of this act shall not bar a prose- cution of or recovery against any other person or persons for the same offence. Sec. 20. Prosecutions imder this act may be instituted and prosecuted by any county or district attorney of this state, and when any such prosecutions have been instituted by any county or district attorney, such officer shall forth- with notify the attorney-general of such fact, and it is hereby made the duty of the attorney-general, when he shall re- ceive such notice, to join such officer in such prosecution and do all in his power to secure the enforcement of this act. Sec. 21. For every conviction obtained under the provi- sion of this act, the state shall pay to the coimty or district attorney in such prosecution the sum of $250, and if both the county and district attorney shall serve together in such prosecutions, such fee shall be divided between them as follows: $100 to the county attorney and $150 to the district attorney. Sec. 22. That this act shall not repeal, modify, or in any manner affect said Chapter XCIV, p. 119, of the Acts of the Twenty-eighth Legislature, or any section or provisions thereof, and this act is and is intended to be cumulative of said Chapter XCIV of the Acts of the Twenty-eighth Legis- lature of Texas. (G. L. of 1903, 28th Legislature, Chapter XCIV, p. 119, as amended by G. L. of 1907, amending Sec. 13, p. 194; Sees. 15, 221; Sees. 18, 19, 20 and 21 added by G. L. of 1907, p. 322, and as amended by G. L. of 1907, p. 456; G. L. of 1909, p. 281.) 396 APPENDIX E-2 2. NEW JERSEY Statutes [Chapter 13, Laws of 1913]* An Act to define trusts, and to provide for criminal penalties and punishment of corporations, jSrms, and persons, and to promote free com- petition in commerce and all classes of business, both intrastate business and interstate business, engaged in and carried on by or through any cor- poration, firm, or person. 1. A trust is a combination or agreement between corpor- ations, firms or persons, any two or more of them, for the following purposes, and such trust is hereby declared to be illegal and indictable : (1) To create or carry out restrictions in trade or to ac- quire a monopoly, either in intrastate or interstate business or commerce. (2) To hmit or reduce the production or increase the price of merchandise or of any commodity. (3) To prevent competition in manufacturing, making, transporting, selling, and purchasing of merchandise, prod- uce, or any commodity. (4) To fix at any standard or figure, whereby its price to the public or consumer shall in any manner be controlled, any article or commodity or merchandise, produce, or com- merce intended for sale, use, or consumption in this State or elsewhere. *TIiis and the following six other New Jersey acts which follow are known as "The Seven Sisters." They constitute the body of stringent anti-trust legislation passed by New Jersey during Governor Wilson's administration. They reverse the long-estabh'shed policy of this state to treat corporations as if they were in- dividuals and to encourage their high development. February 26, 1917, the New Jersey Legislative Commission reported in favor of the repeal of aU but one of these "Seven Sisters'Maw. The leading reason given for this proposed repeal was that the Federal Clayton act embodies for all the states substantially the contents of these six New Jersey acts, which are therefore un- necessary. For the full text of the Acts passed and approved March 28, 1917, as a result of this Commission's report, see pp. 404 to 407. APPENDIX E-2 397 (5) To make any agreement by which they directly or indirectly preclude a free and mirestricted competition among themselves, or any purchaser or consumers, in the sale or transportation of any article or commodity, either by pooling, withholding from the market, or selling at a fixed price, or in any other manner by which the price might be affected. (6) To make any secret oral agreement or arrive at an understanding without express agreement by which they directly or indirectly preclude a free and unrestricted com- petition among themselves, or any purchaser or consumer, in the sale or transportation of any article, either by pooling, withholding from the market, or selling at a fixed price, or in any other manner by which the price might be affected. 2. Any person or corporation guilty of violating any of the provisions of this act shall be adjudged guilty of a mis- demeanor, and punished accordingly on conviction. 3. Whenever an incorporated company shall be guilty of the violation of any of the provisions of this act, the offence shall be deemed to be also that of the individual directors, of such corporation, ordering or doing any of such prohibited acts and on conviction thereof they shall be pimished ac- cordingly. 4. In addition to the punishment which may be imposed for the misdemeanor the charter of the offending corporation may be revoked in appropriate proceedings by the Attorney- General of this State. 5. Nothing in this act contained shall operate to deprive any corporation of any right or power given or granted by Sec- tion forty-nine of the act entitled "An Act concerning cor- porations (Revision of 1896)," and the words "article" and " commodities " in this act are to be construed as synonymous with natm-al products, manufactured products, and goods, wares, and merchandise. 6. If any part or parts of this act shall be held to be in- 398 APPENDIX E-2 valid or unconstitutional the validity of the other parts hereof shall not thereby be aflfected or impaired. Approved February 19, 1913. [Chapter 14, Laws of 1913.] A Further Supplement To an act entitled "An act coneeming corpo- rations (Revision of 1896)," approved April twenty-first, one thousand eight hundred and ninety-six, for the purpose of amending Section forty- niae thereof. 1. Section forty-nine of the act entitled "An act concern- ing corporations (Revision of 1896)," be and the same is hereby amended so as to read as follows: 49. (1) Any corporation formed under this act may pur- chase property, real and personal, and the stock of any cor- poration, necessary for its business, and issue stock to the amount of the value thereof in payment therefor, subject to the provisions hereinafter set forth, and the stock so issued shall be full paid stock, and not liable to any further call; and said corporation may also issue stock for the amount it actually pays for labor performed. Provided, that when property is purchased the purchasing corporation must receive in property or stock what the same is reasonably worth in money at a fair, bona fide valuation; and provided further, that no fictitious stock shall be issued; that no stock shall be issued for profits not yet earned, but only anticipated; and provided further, that when stock is issued on the basis of the stock of any other corporation it may purchase, no stock shall be issued thereon for an amount greater than the sum it actually pays for such stock in cash or its equivalent; and provided further, that the property purchased or the property owned by the corporation whose stock is purchased shall be cognate in character and use to the property used or contemplated to be used by the pur- chasing corporation in the direct conduct of its own proper business; and in all cases when stock is to be issued for prop- erty purchased, or for the stock of other corporations pur- chased, a statement in writing, signed by the directors of APPENDIX E-« 399 the purchasing company or by a majority of them, shall be filed in the office of the Secretary of State, showing what property has been purchased, and what stock of any other corporation has been purchased, and the amount actually paid therefor. (2) That if any certificate made in pursuance of this act shall be false in any material representation, all the offi- cers who sign the same, knowing it to be false, shall be guilty of misdemeanor, and the directors, officers, and agents of the corporation, who wilfully participate in making it, shall be guilty of misdemeanor. And provided, further, that any corporation which shall purchase the stock of any other cor- poration, or any property, for the purpose of restraining trade or commerce, or acquiring a monopoly, and the direc- tors thereof participating therein, shall be guilty of a mis- demeanor. 2. This act shall take effect immediately. Approved February 19, 1913. [Chapter 15, Laws of 1913.] A FURTHER SUPPLEMENT To the act entitled "An act for the punishment of crimes (Revision of 1898)." 1. It shall be imlawful for any person, firm, corporation, or association, engaged in the production, manufacture, distribution, or sale of any commodity of general use, or ren- dering any service to the public, to discriminate between different persons, firms, associations or corporations, or different sections, commimities, or cities of the State, by selling such commodity or rendering such service at a lower rate in one section, community, or city than another, or at a different rate or price at a point away from that of produc- tion or manufacture as at the place of production or manufac- ture, after making due allowance for the difference, ff any, in the grade, quality, or quantity, and in the actual cost of transportation from the point of production or manufacture, if the effect or intent thereof is to establish or maintain a 400 APPENDIX E-2 virtual monopoly, hindering competition, or restriction of trade. 2. Any person or corporation violating this act shall be guilty of a misdemeanor and on conviction thereof shall be punished accordingly. 3. This act shall take effect immediately. Approved February 19, 1913. [Chapter 16, Laws of 1913.] AN ACT To amend an act entitled "A further supplement to the act en- titled 'An act for the punishment of crimes,' approved June fourteenth, one thousand eight hundred and ninety-eight (Revision of 1898)," which supplement wa- approved June second, one thousand nine hun- dred and five. 1. Section one of the act entitled "A further supplement to the act entitled 'An act for the punishment of crimes,' approved June fourteenth, one thousand eight hundred and ninety-eight (Revision of 1898)," which supplement was approved June second, one thousand nine hundred and five, be and the same is hereby amended so as to read as follows: (1.) Any person or persons, who shall organize, or incor- porate, or procure to be organized, or incorporated, any cor- poration or body politic, under the laws of this State, with intent thereby to further, promote, or conduct any object which is fraudulent or unlawful under the laws of this State, or which is intended to be used in restraint of trade or in acquiring a monopoly, when such corporation or body politic engages in interstate or intrastate commerce, shall be guilty of a misdemeanor. 2. Section two of the said supplement shall be and the same is hereby amended so as to read as follows : (2.) Any person, or persons, being officers, directors, man- agers, or employees of any corporation or body politic, in- corporated under the laws of this State, who shall wilfully APPENDIX E-2 401 use, operate, or control said corporation or body politic, or suffer the same to be used for the furtherance or promotion of any object fraudulent or imlawful under the laws of this State, or who shall use the same directly or indirectly in restraint of trade or in acquiring a monopoly, when such corporation or body politic engages in interstate or intrastate commerce, shall be guilty of a misdemeanor. 3. If any part or parts of this act shall be declared to be invalid or unconstitutional, the other parts hereof shall not thereby be affected or impaired. 4. This act shall take effect immediately. Approved, February 19, 1913. [Chapter 17, Laws of 1913.] AN ACT To amend section one hundred and nine of an act entitled "An act concerning corporations (Revision of 1896)," approved April twenty- first, one thousand eight hundred and ninety-six. 1. Section one himdred and nine of the act entitled "An act concerning corporations (Revision of 1896)," be and the same is hereby amended so as to read as foUows: 109. When two or more corporations are merged or con- solidated the consolidated corporation shall have power and authority to issue bonds or other obligations, negotiable or otherwise, and with or without coupons or interest certifi- cates thereto attached, to an amount sufficient with its capital stock to provide for all the payments it will be re- qtdred to make or obligations it will be required to assume, in order to effect such merger or consolidation; to secure the payment of which bonds or obligations it shall be lawful to mortgage its corporate franchises, rights, privileges, and property, real, personal and mixed; provided, such bonds shall not bear a greater rate of interest than six per centum per annum; the consolidated corporation may issue capital stock, either common or preferred, or both, to such an amount as may be necessary, to the stockholders of such merging or consolidating corporation in exchange or payment for their original shares, in the manner and on the terms speci- 402 APPENDIX E-2 fied in the agreement of merger, or consolidation, which may fix the amoimt and provide for the issue of preferred stock based on the property or stock of the merging or consolidating corporation conveyed to the consolidated corporations as well as upon money capital paid in. 2. This act shall take effect immediately. Approved, February 19, 1913. [Chapter 18, Laws 1913.] 1. Section fifty-one of the act referred to in the title of this act is hereby amended to read as follows : 51. No corporation heretofore organized or hereafter to be organized under the provisions of this act to which this is an amendment, or the amendments thereof or supplements thereto, except as otherwise provided therein or thereby, shall hereafter purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of the shares of the corporate stock of any other corporation or corporations of this or any other State, or of any bonds, securities, or other evidences of indebtedness created by any other corporation or corpora- tions of this or any other State, nor as owner of such stock exercise any of the rights, powers, and privileges of ownership, including the right to vote thereon. Provided, that nothing herein contained shall operate to prevent any corporation or corporations from acquiring the bonds, seciu-ities, or other evidences of indebtedness created by any non-competing corporation in payment of any debt or debts due from any such non-competing corporation; nor to prevent any corpora- tion or corporations created under the laws of this State from purchasing as a temporary investment out of its siuplus earnings, reserved under the provisions of this act, as a work- ing capital, bonds, securities, or evidences of indebtedness created by any non-competing corporation or corporations of this or any other State, or from investing in like securities any funds held by it for the benefit of its employees or any funds held for insurance, any such non-competing corpora- tion; nor to prevent any corporation or corporations created APPENDIX E-2 403 under the laws of this State from purchasing the bonds, securities, or other evidences of indebtedness created by any corporation the stock of which may lawfully be purchased tmder the authority given by Section forty-nine of the act entitled "An act concerning corporations (Revision of 1896)" provided, also, that nothing herein contained shall be held to aflFect or impair any right heretofore acquired in pursuance of the section hereby amended, by any corporation created under the laws of this State. 2. All acts and parts of acts inconsistent herewith are hereby repealed, and this act shall take effect immediately. Approved, February 19, 1913. [Chapter 19, Laws 1913.] A FURTHER SUPPLEMENT To an act entitled "An act concerning corporations (Revision of 1896)," approved April twenty-first, one thou- sand eight hundred and ninety-six. 1. A merger of corporations made under the provisions of the act to which this act is a supplement, shall not in any manner impair the rights of any creditor of either of the merged corporations. 2. Before any merger of corporations can be made, the approval thereof in writing by the Board of Public UtUity Commissioners of this State shall be obtained by said corpo- rations and filed ia the oflSce of the Secretary of State, with the names of the directors of each of said corporations which assent to the merger. 3. Every corporation, and the directors thereof, procur- ing or assenting to such merger without complying with the provisions hereinbefore contaiaed, shall be guilty of a misde- meanor and pimishable accordingly. 4. This act shall take effect immediately. Approved, February 19, 1913. 404 APPENDIX E-2 LAWS OF NEW JERSEY. 1917 pp. 565-568 CHAPTER 194. An Act to amend an act entitled "A further supplement to the act entitled 'An act for punishment of crimes (Re- vision of 1898),'" approved February nineteenth, nineteen hundred and thirteen. BE IT ENACTED by the Senate and General Assembly of the State of New Jersey : 1. The act entitled "A further supplement to the act entitled 'An act for the punishment of crimes (Revision of 1898),'" is hereby amended to read as follows: It shall be unlawful for any person, firm, corporation or association engaged in commerce or trade, in the course of such commerce or trade, either directly or indirectly, to discriminate in price between different purchasers of com- modities, which commodities are sold for use, consumption or resale within this State, where the effect of such discrimin- ation is to substantially lessen competition or tend to create a monopoly in any line of commerce or trade; provided, that nothing herein contained shall prevent discrimination in price between purchasers of commodities on account of differences in the grade, quality or quantity of the commodi- ties sold, or that makes only due allowance for difference in the cost of selling or transportation, or discrimination in price in the same or different communities made in good faith to meet competition; and provided, further, that nothing herein contained shall prevent persons engaged in selling goods, wares or merchandise in commerce or trade from selecting their own customers in bona fide transactions and not in restraint of trade. 2. Any person, firm, or corporation or association violat- APPENDIX E-2 405 ing this act shall be guilty of a misdemeanor, and on con- viction thereof shall be punished accordingly, 3. All acts and parts of acts inconsistent herewith are hereby repealed. 4. This act shall take effect immediately. Approved March 28, 1917. CHAPTER 195. An Act concerning the corporations of this State. BE IT ENACTED by the Senate and General Assembly of the State of New Jersey: 1. Any corporation formed under any law of this State may purchase property, real and personal, and, except as hereinafter is prohibited, the stock of any other corporation necessary or desirable for its business, and pay therefor in cash or its equivalent, or in the capital stock of the purchas- ing corporation to the amount of the value thereof, and the stock so issued shall be full paid stock and not liable to any further caU; and any such corporation may also issue stock for the amount it actually pays for labor performed; pro- vided, that when property or stock is purchased the pur- chasing corporation shall receive in property or stock what the same is reasonably worth in money at a fair bona fide valuation; and provided, further, that no fictitious stock shaU be issued. 2. No such corporation engaged in trade or commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation also engaged in trade or commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such trade or commerce in any section or community, or tend to create a monopoly of any line of trade or commerce. 406 APPENDIX E-2 No such corporation shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of two or more corporations engaged in trade or commerce where the effect of such acquisition, or the use of such stock by the voting or granting of proxies or otherwise may be to substantially lessen competition between such corporations, or any of them, whose stock or other share capital is so acquired, or to restrain trade or commerce in any section or community, or tend to create a monopoly of any line of trade or commerce. Nothing in this section contained shall apply to corpora- tions subject to the jurisdiction of the Public Utilities act, approved April twenty-first, one thousand nine himdred and eleven, and the acts passed supplemental thereto, nor to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything contained in this section prevent a corporation engaged in trade or commerce from causing the formation of subsidiary cor- porations for the actual carrying on of their immediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary corporations, when the effect of such formation is not to substantially lessen com- petition. 3. Subject to the foregoing provisions of this act: Any corporation may purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock or, any bonds, securities or evidences of in- debtedness created by any other corporation or corporations of this or any other State or any foreign country, and while owner of such stock may exercise all the rights, powers and privileges of ownership, including the right to vote thereon. APPENDIX E-2 407 4. Nothing contained in this act shall be held to aflFect or impair any right heretofore legally acquired. 5. If any part or parts of this act shall be declared to be invalid or unconstitutional, the other parts thereof shall not thereby be affected or impaired. 6. Section forty-nine of the act entitled "An act con- cerning corporations (Revision of 1896)," as amended by an act entitled "A further supplement to an act entitled 'An Act concerning corporations (Revision of 1896),' ap- proved April twenty-first, one thousand eight hundred and ninety-six," for the purpose of amending section forty-nine thereof, which amendment was approved February nine- teenth, one thousand nine himdred and thirteen, and section fifty-one of the act entitled "An act concerning corporations (Revision of 1896)," as amended by an act entitled "An act to amend an act entitled 'An act concerning corporations (Revision of 1896),' approved April twenty-first, eighteen hundred and ninety-six, which amendment was approved February nineteenth, one thousand nine hundred and thirteen," and as ftirther amended by chapter 114 of the Laws of 1915, and all other acts and parts of acts inconsistent herewith be and the same are hereby repealed. 7. This act shall take effect immediately. Approved March 28, 1917. APPENDIX P FEDERAL TRUST LEGISLATION IN THE UNITED STATES 1 . The Federal Anti-Trust Law. 2. Anti-Trust Provisions of the Wilson Act. 3. The Expediting Act. 4. Act Creating the Bureau of Corporations. 5. Immunity Provision of 1903. 6. Immunity Provision of 1906. 7. The Judicial Code. 8. The Panama Canal Act. 9. The Federal Trade Commission Act. 10. The Clayton Act. 11. Sundry Civil Act — 1916,. 12." The Webb Bill. 1. THE FEDERAL ANTI-TRUST 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. Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or com- merce 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 con- spiracy, shall be deemed guilty of a misdemeanor, and, on 408 APPENDIX F-l 409 conviction thereof, shall be pimished 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 of Columbia, or with foreign nations, or between the District of Coliunbia 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 con- spiracy, 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 set- 410 APPENDIX F-1 ting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the parties com- plained 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 tem- porary 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 imder Section four of this act may be pend- ing, 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 imder 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 forfeitiu-e, seizure, and condemnation 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, with- out 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 APPENDIX F-2 411 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. 2. ANTI-TRUST PROVISIONS OF WILSON TARIFF ACT OF AUGUST 27, 1894, AS AMENDED BY THE ACT OF FEBRUARY 12, 1913. [£8 Stat., 570; 37 Stat., 667.] Sec. 73. That every combination, conspiracy, trust, agree- ment, or contract, is hereby declared to be contrary to public policy, niegal, and void when the same is made by or between two or more persons or corporations either of whom, as agent or principal, is engaged in importing any article from any foreign country into the United States, and when such com- bination, conspiracy, trust, agreement, or contract is in- tended to operate in restraint of lawful trade, or free com- petition 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 pimished by imprisonment, in the discretion of the court, for a term not less than three months nor exceed- ing 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 412 APPENDIX P-2 shall be the duty of the several district attorneys of the United States, in their respective districts, under the direc- tion of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. Such pro- ceedings may be by way of petitions setting forth the case and praying that such violations shall be enjoined or other- wise 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 proceedings 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, imported into and being within the United States or being in the course of transportation from one State to another, or to or from a Territory or the District of Colum- bia, 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 condemnation of property imported into the United States contrary to law. Sec. 77. That any person who shall be injured in his busi- ness or property by any other person or corporation by rea- son 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 APPENDIX F-3 413 found, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. 3. EXPEDITING ACT OF FEBRUARY 11, 1903, AS AMENDED BY THE ACT OF JUNE 25, 1910. [32 Stet., 823; 36 Stat., 854.] Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That Section one of the act entitled: "An act to expedite the hear- ing and determination of suits in equity pending or here- after brought imder 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 hundred and eighty-seven, or any other acts having a like purpose that may be hereafter enacted," approved February eleventh, nineteen himdred and three, be, and the same is hereby, amended so as to read as follows: " That in any suit in equity pending or hereafter brought in any circuit court of the United States under the act en- titled 'An act to protect trade and commerce against unlaw- ful restraints and monopoUes,' approved July second, eight- teen himdred and ninety, 'An act to regulate commerce,' approved February fourth, eighteen hundred and eighty- seven, or any other acts having a like purpose that hereafter 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 fiu-nished by such clerk to each of the circuit judges of the circuit in which the case is pending. Thereupon such case shall be given precedence over others and in every way expedited, and be assigned for hearing at the earliest practicable day, before 414 APPENDIX F-3 not less than three of the circuit judges of said court, 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; or, in case the full court shall not at any time be made up by reason of the necessary absence or disqualification of one or more of the said circuit judges, the Justice of the Su- preme Court assigned to that circuit or the other circuit judge or judges may designate a district judge or judges within the circuit who shall be competent to sit in said court at the hear- ing of said suit. In the event the judges sitting in such case shall be equally divided in opinion as to the decision or dis- position of said cause, or in the event that a majority of said judges shall be unable to agree upon the judgment, order, or decree finally disposing of said case in said court which should be entered in said cause, then they shall immediately certify that fact to the Chief Justice of the United States, who shall at once designate and appoint some circuit judge to sit with said judges and to assist in determining said cause. Such order of the Chief Justice shall be immediately trans- mitted to the clerk of the circuit coxu-t in which said cause is pending, and shall be entered upon the minutes of said court. Thereupon said cause shall at once be set down for reargu- ment and the parties thereto notified in writing by the clerk of said court of the action of the court and the date fixed for the reargument thereof. The provisions of this section shall apply to all causes and proceedings in all courts now pend- ing, or which may hereafter be brought." 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 United States is complainant, 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 sixty days from the entry thereof: Provided, That in any case where an APPENDIX F-4 415 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 provided by law. 4. ACT OF CONGRESS CREATING BUREAU OF CORPORATIONS [Approved, February 14, 1903 (32 Stat. 827).] Sec. 6. That there shall be in the Department of Com- merce and Labor a bureau to be called the Bureau of Cor- porations, and a Commissioner of Corporations who shall be the head of said bureau, to be appointed by the Presi- dent, who shall receive a salary of five thousand dollars per annum. There shall also be in said Biu-eau a deputy com- missioner who shaU receive a salary of three thousand five hundred doUars 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 Secre- tary of Commerce and Labor or by the said Commissioner. There shall also be in the said bureau a chief clerk and such special agents, clerks, and other employees as may be au- thorized by law. The said Commissioner shall have power and authority to make, under the direction and control of the Secretary of Commerce and Labor, dihgent investigation into the organ- ization, conduct, and management of the business of any corporation, joint stock company, or corporate combination engaged in commerce among the several States and with for- eign nations excepting common carriers subject to "An Act to regulate 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 416 APPENDIX F-4 to make recommendations to Congress for legislation for the regulation of such commerce, and to report such data to the President from time to time as he shall require; and the in- formation so obtained or as much thereof as the President may direct shall be made public. In order to accomplish the purposes declared in the fore- going part of this section, the said Commissioner shall have and exercise the same power and authority in respect to corporations, joint stock companies, and combinations sub- ject 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 wit- nesses and the production of documentary evidence and to administer oaths. All the requirements, obligations, liabil- ities, 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 February eleventh, eighteen hundred and ninety-three, supplemental to said "Act to regulate commerce," shall also apply to all persons who may be sub- poenaed to testify as witnesses or to produce documentary evidence in pursuance of the authority conferred 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 the United 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. appendix; F-5 417 5. IMMUNITY PROVISION OF 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 un- lawful restraints and monopolies," approved July second, eighteen hundred and ninety, and all acts amendatory thereof or supplemental thereto, and sections seventy-three seventy-foiu", seventy-five, and seventy-six of the act en- titled "An act to reduce taxation, to provide revenue for the Government, and other purposes," approved August twenty- seventh, eighteen hundred and ninety-four, the sum of five hundred thousand doUars, to be immediately available, is hereby appropriated, out of any money ia the Treasury not heretofore appropriated, to be expended imder the direc- tion of the Attorney-General in the employment of special counsel and agents of the Department of Justice to conduct proceedings, suits, and prosecutions imder 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 of any transaction, matter, or thing con- cerning which he may testify or produce evidence, docu- mentary or otherwise, in any proceeding, suit, or prosecu- tion 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. 418 APPENDIX F-6 6. ACT DEFINING RIGHT OF IMMUNITY [34 Stat., 798.] AN ACT Defining the right of immunity of witnesses under the act entitled " An act in relation to testimony 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 February four- teenth, nineteen hundred and three, and an act entitled "An act to further 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, executive, and judicial expenses of the Government for the fiscal year ending June thirtieth, nineteen hundred and four, and for other piuposes," approved February twenty-fifth, nineteen hundred and thre;e. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That under the immunity provisions in the act entitled "An act in relation to testimony 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, nineteen hun- dred and three, and in the act entitled "An act to further regulate commerce with foreign nations and among the States," approved February nineteenth, nineteen hundred and three, and in the act entitled "An act making appropri- ations 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," 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 pro- duces evidence, documentary or otherwise, under oath. Approved, June 30, 1906. APPENDIX r-7 & 8 419 7. THE JUDICIAL CODE "AN ACT To codify, revise, and amend the laws relating to the judi- ciary." (Approved March 3, 1911; in effect January 1, 1912, 36 Sut.. 1087.) Sec. 289. The circuit courts of the United States, upon the taking effect of this act, shall be and hereby are abol- ished. , . . Sec. 290. All suits and proceedings pending in said cir- cuit courts on the date of the taking effect of this act, whether originally brought thereiu or certified thereto from the district courts, shall thereupon and thereafter be pro- ceeded with and disposed of in the district courts in the same manner and with the same effect as if originally begun therein. . . . Sec. 291. Wherever, iu any law not embraced within this act, any reference is made to, or any power or duty is con- ferred or imposed upon, the circuit courts, such reference shall, upon the taking effect of this act, be deemed and held to refer to, and to confer such power and impose such duty upon, the district coxurts. 8. PANAMA CANAL ACT [Act of Mar. 4, 1913 (37 Stat., 560).] AN ACT To provide for the opening, maiatenance, protection, and operation of the Panama Canal, and the sanitation and government of the Canal Zone. Sec. 11. That Section five of the act to regulate com- merce, approved February fomi;h, eighteen hundred arid eighty-seven, as heretofore amended, is hereby amended by adding thereto a new paragraph at the end thereof, as fol- lows: 420 APPENDIX F-8 "From and after the first day of July, nineteen hundred and fourteen, it shall be unlawful for any railroad company or other common carrier subject to the act to regulate com- merce to own, lease, operate, control, or have any interest whatsoever (by stock ownership or otherwise, either directly, indirectly, through any holding company, or by stockholders or directors in common, or in any other manner) in any com- mon carrier by water operated through the Panama Canal or elsewhere with which said railroad or other carrier afore- said does or may compete for traffic or any vessel carrying freight or passengers upon said water route or elsewhere with which said railroad or other carrier aforesaid does or may compete for traffic; and in case of the violation of this provision each day in which such violation continues shall be deemed a separate offence." Jurisdiction is hereby conferred on the Interstate Com- merce Commission to determine questions of fact as to the competition or possibility of competition, after full hearing, on the application of any railroad company or other carrier. Such application may be filed for the purpose of determining whether any existing service is in violation of this section and pray for an order permitting the continuance of any vessel or vessels already in operation, or for the purpose of asking an order to install new service not in conflict with the provisions of this paragraph. The commission may on its own motion or the application of any shipper institute proceedings to inquire into the operation of any vessel in use by any railroad or other carrier which has not applied to the commission and had the question of competition or the possibility of competition determined as herein provided. In all such cases the order of said commission shall be final. If the Interstate Commerce Commission shall be of the opinion that any such existing specified service by water pther than through the Panama Canal is being operated in APPENDIX F-8 421 the interest of the public and is of advantage to the con- venience and commerce of the people and that such extension will neither exclude, prevent, nor reduce competition on the route by water under consideration, the Interstate Commerce Commission may, by order, extend the time during which such service by water may continue to be operated beyond July first, nineteen hundred and fourteen. In every case of such extension the rates, schedules, and practices of such water carrier shall be filed with the Interstate Commerce Commission and shall be subject to the act to regulate com- merce and aU amendments thereto in the same manner and to the same extent as is the raihoad or other common carrier controlling such water carrier or interested in any manner in its operation: Provided, Any application for extension under the terms of this provision filed with the Interstate Com- merce Commission prior to July first, nineteen hundred and fourteen, but for any reason not heard and disposed of before said date, may be considered and granted thereafter. No vessel permitted to engage in the coastwise or foreign trade of the United States shall be permitted to enter or pass through said canal if such ship is owned, chartered, operated, or controlled by any person or company which is doing business in violation of the provisions of the act of Congress approved July second, eighteen hundred and ninety, entitled "An act to protect trade and commerce against unlawful restraints and monopolies," or the provisions of sections seventy-three to seventy-seven, both inclusive, of an act approved August twenty-seventh, eighteen hundred and ninety-four, entitled "An act to reduce taxation, to provide revenue for the Government, and for other purposes," or the provisions of any other act of Congress amending or supplementing the said act of July second, eighteen hundred and ninety, commonly known as the Sherman Anti-Trust Act, and amendments thereto, or said sections of the act of 422 APPENDIX F-9 August twenty-seventh, eighteen hundred and ninety-four. The question of fact may be determined by the judgment of any court of the United States of competent jurisdiction in any cause pending before it to which the owners or operators of such ships are parties. Suit may be brought by any shipper or by the Attorney-General of the United States. 9. THE FEDERAL TRADE COMMISSION ACT [Act of September 56, 1914 (38 Stat., 717).] AN ACT To create a Federal 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 assembled. That a commission is hereby created and estabhshed, to be known as the Federal Trade Commission (hereinafter referred to as the commission), which shaU be composed of five commis- sioners, who shall be appointed by the President, by and with the advice and consent of the Senate. Not more than three of the commissioners shall be members of the same political party. The first commissioners appointed shall continue in office for terms of three, four, five, six, and seven years, respectively, from the date of the taking effect of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of seven years, except that any person chosen to fill a vacancy shall be ap- pointed only for the unexpired term of the commissioner whom he shall succeed. The commission shall choose a chairman from its own membership. No commissioner shall engage in any other business, vocation, or employment. Any commissioner may be removed by the President for in- efficiency, neglect of duty, or malfeasance in office. A va- cancy in the commission shall not impair the right of the APPENDIX F-9 423 remaining commissioners to exercise all the powers of the commission. The commission shall have an official seal, which shall be judicially noticed. Sec. 2. That each commissioner shall receive a salary of $10,000 a year, payable in the same manner as the salaries of the judges of the courts of the United States. The com- mission shall appoint a secretary, who shall receive a salary of $5,000 a year, payable in like manner, and it shall have authority to employ and fix the compensation of such attor- neys, special experts, examiners, clerks, and other employees as it may from time to time find necessary for the proper performance of its duties and as may be from time to time appropriated for by Congress. With the exception of the secretary, a clerk to each com- missioner, the attorneys, and such special experts and exam- iners as the commission may from time to time find necessary for the conduct of its work, all employees of the com- mission shall be a part of the classified civil service, and shall enter the service under such rules and regulations as may be prescribed by the commission and by the Civil Service Com- mission. AU of the expenses of the commission, including all neces- sary expenses for transportation incurred by the commis- sioners or by their employees under their orders, in making any investigation, or upon official business in any other places than in the city of Washington, shall be allowed and paid on the presentation of itemized vouchers therefor ap- proved by the commission. Until otherwise provided by law, the commission may rent suitable offices for its use. The Auditor for the State and Other Departments shall receive and examine all accounts of expenditures of the commission. 424 APPENDIX F-9 Sec. 3. That upon the organization of the commission and election of its chairman, the Bureau of Corporations and the offices of Commissioner and Deputy Commissioner of Corporations shall cease to ejdst; and all pending investi- gations and proceedings of the Bureau of Corporations shall be continued by the commission. All clerks and employees of the said bureau shall be trans- ferred to and become clerks and employees of the commission at their present grades and salaries. All records, papers, and property of the said bureau shall become records, papers, and property of the commission, and all unexpended funds and appropriations for the use and maintenance of the said bureau, including any allotment aheady made to it by the Secretary of Commerce from the contingent appropriation for the Department of Commerce for the fiscal year nine- teen hundred and fifteen, or from the departmental printing fund for the fiscal year nineteen hundred and fifteen, shall become funds and appropriations available to be expended by the commission in the exercise of the powers, authority, and duties conferred on it by this Act. The principal office of the commission shall be in the city of Washington, but it may meet and exercise all its powers at any other place. The commission may, by one or more of its members, or by such examiners as it may designate, pros- ecute any inquiry necessary to its duties in any part of the United States. Sec. 4. That the words defined in this section shall have the following meaning when found in this Act, to wit: "Commerce" means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation, or between the District of Col- umbia and any State or Territory or foreign nation. APPENDIX F-9 425 "Corporation" means any company or association incor- porated or unincorporated, which is organized to carry on business for profit and has shares of capital or capital stock, and any company or association, incorporated or unincorpo- rated, without shares of capital or capital stock, except part- nerships, which is organized to carry on business for its own profit or that of its members. "Documentary evidence" means all documents, papers, and correspondence in existence at and after the passage of this Act. "Acts to regulate commerce" means the Act entitled "An Act to regulate commerce," approved February fourteenth, eighteen hundred and eighty-seven, and all Acts amendatory thereof and supplementary thereto. "Anti-trust acts" means the Act entitled "An Act to pro- tect trade and commerce against unlawful restraints and monopohes," approved July second, eighteen hundred and ninety; also the sections seventy-three to seventy-seven, in- clusive, of an Act entitled "An Act to reduce taxation, to provide revenue for the Government, and for other pur- poses," approved August twenty-seventh, eighteen hundred and ninety-four; and also the Act entitled "An Act to amend sections seventy-three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninety-four, entitled 'An Act to reduce taxation, to provide revenue for the Gov- ernment, and for other purposes,'" approved February twelfth, nineteen hundred and thirteen. Sec. 5. That unfair methods of competition in commerce are hereby declared unlawful. The commission is hereby empowered and directed to pre- vent persons, partnerships, or corporations, except banks and common carriers subject to the Acts to regulate com- merce, from using unfair methods of competition in com- merce. 426 APPENDIX F-9 Whenever the commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition in commerce, and if it shall appear to the commission that a proceeding by it in respect thereof would be to the interest of the pubUc, it shall issue and serve upon such person, partnership, or cor- poration a complaint stating its charges in that respect, and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said com- plaint. The person, partnership, or corporation so com- plained of shall have the right to appear at the place and time so fixed and show cause why an order should not be entered by the commission requiring such person, partnership, or corporation to cease and desist from the violation of the law so charged in said complaint. Any person, partnership, or corporation may make appUcation, and upon good cause shown may be allowed by the commission to intervene and appear in said proceeding by counsel or in person. The testi- mony in any such proceeding shall be reduced to writing and filed in the office of the commission. If upon such hearing the commission shall be of the opinion that the method of competition in question is prohibited by this Act it shall make a report in writing in which it shall state its findings as to the facts, and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition. Until a transcript of the rec- ord in such hearing shall have been filed in a circuit court of appeals of the United States, as hereinafter provided, the commission may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. If such person, partnership, or corporation fails or neglects APPENDIX F-9 427 to obey such order of the coinmission while the same is ia effect, the commiGsion may apply to the circuit court of ap- peals of the United States, within any circuit where the method of competition in question was used or where such person, partnership, or corporation resides or carries on business, for the enforcement of its order, and shall certify and file with its apphcation a transcript of the entire record in the proceeding including all the testimony taken and the report and order of the commission. Upon such filing of the application and transcript the court shall cause notice thereof to be served upon such person, partnership, or corporation and thereupon shall have jurisdiction of the proceeding and of the question determined therein, and shall have power to make and enter upon the pleadings, testimony, and pro- ceedings set forth in such transcript a decree affirming, modi- fying, or setting aside the order of the commission. The findings of the commission as to the facts, if supported by testimony, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such addi- tional evidence is material and that there were reasonable groimds for the failure to adduce such evidence in the pro- ceeding before the commission, the court may order such additional evidence to be taken before the commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The commission may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by testimony, shall be conclusive, and its recom- mendation, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme 428 APPENDIX F-9 Court upon certiorari as provided in Section two hundred and forty of the Judicial Code. Any party required by such order of the commission to cease and desist from using such method of competition may obtain a review of such order in said circuit court of appeals by filing in the court a written petition praying that the order of the commission be set aside. A copy of such petition shall be forthwith served upon the commission, and there- upon the commission forthwith shall certify and file in the court a transcript of the record as hereinbefore provided. Upon the filing of the transcript the court shall have the same jurisdiction to aflBrm, set aside, or modify the order of the commission as in the case of an application by the commission for the enforcement of its order, and the findings of the commission as to the facts, if supported by testimony, shall in like manner be conclusive. The jurisdiction of the circuit coiurt of appeals of the United States to enforce, set aside, or modify orders of the commission shall be exclusive. Such proceedings in the circuit court of appeals shall be given precedence over other cases pending therein, and shall be in every way expedited. No order of the commis- son or judgment of the court to enforce the same shall in any wise relieve or absolve any person, partnership, or cor- poration from any liability under the anti-trust acts. Complaints, orders, and other processes of the commission under this section may be served by any one duly authorized by the commission, either (a) by delivering a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive oflScer or a director of the corporation to be served; or (b) by leaving a copy thereof at the principal office or place of business of such person, partnership, or corporation; or (c) by registering and mailing a copy thereof addressed to such APPENDIX F-9 429 person, partnership, or corporation at his or its principal oflBce or place of business. The verified return by the person so serving said complaint, order, or other process setting forth the manner of said service shall be proof of the same, and the return post-office receipt for said complaint, order, or other process registered and mailed as aforesaid shall be proof of the service of the same. Sec. 6. That the commission shall also have power — (a) To gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any corporation en- gaged in commerce, excepting banks and common carriers subject to the Act to regulate commerce, and its relation to other corporations and to individuals, associations, and partnerships. (b) To require, by general or special orders, corporations engaged in commerce, excepting banks, and common carriers subject to the Act to regulate commerce, or any class of them, or any of them, respectively, to file with the commission in such form as the commission may prescribe annual or special, or both aimual and special, reports or answers in writing to specific questions, fiu-nishing to the commission such informa- tion as it may require as to the organization, business, con- duct, practices, management, and relation to other corpora- tions, partnerships, and individuals of the respective corpora- tions filing such reports or answers in writing. Such reports and answers shall be made under oath, or otherwise, as the commission may prescribe, and shall be filed with the com- mission within such reasonable period as the commission may prescribe, imless additional time be granted in any case by the commission. (c) Whenever a final decree has been entered against any defendant corporation in any suit brought by the United States to prevent and restrain any violation of the anti-trust 430 APPENDIX F-9 Acts, to make investigation, upon its own initiative, of the manner in which the decree has been or is being carried out, and upon the application of the Attorney-General it shall be its duty to make such investigation. It shall transmit to the Attorney-General a report embodying its findings and recommendations as a result of any such investigation, and the report shall be made public in the discretion of the com- mission. (d) Upon the direction of the President or either House of Congress to investigate and report the facts relating to any alleged violations of the anti-trust Acts by any corporation. (e) Upon the application of the Attorney-General to in- vestigate and make recommendations for the readjustment of the business of any corporation alleged to be violating the anti-trust Acts in order that the corporation may there- after maintain its organization, management, and conduct of business in accordance with law. (f) To make public from time to time such portions of the information obtained by it hereunder, except trade secrets and names of customers, as it shall deem expedient in the public interest; and to make annual and special reports to the Congress and to submit therewith recommendations for additional legislation; and to provide for the publication of its reports and decisions in such form and manner as may be best adapted for public information and use. (g) From time to time to classify corporations and to make rules and regulations for the purpose of carrying out the pro- visions of this Act. (h) To investigate, from time to time, trade conditions in and with foreign countries where associations, combina- tions, or practices of manufacturers, merchants, or traders or other conditions, may affect the foreign trade of the United States, and to report to Congress thereon, with such recom- mendations as it deems advisable. APPENDIX F-9 431 Sec. 7. Ttat in any suit in equity brought by or under the direction of the Attorney-General as provided in the anti-trust Acts, the court may, upon the conclusion of the testimony therein, if it shall be then of opinion that the complainant is entitled to rehef, refer said suit to the com- mission, as a master in chancery, to ascertain and report an appropriate form of decree therein. The commission shall proceed upon such notice to the parties and under such rules of procedure as the court may prescribe, and upon the com- ing in of such report such exceptions may be filed and such proceedings had in relation thereto as upon the report of a master in other equity causes, but the court may adopt or reject such report, in whole or in part, and enter such decree as the nature of the case may in its judgment require. Sec. 8. That the several departments and bureaus of the Government when directed by the President shall furnish the commission, upon its request, all records, papers, and infor- mation in their possession relating to any corporation subject to any of the provisions of this Act, and shall detail from time to time such oflBcials and employees to the commission as he may direct. Sec. 9. That for the purposes of this Act, the commission or its duly authorized agent or agents, shall at all reasonable times have access to, for the purpose of examination, and the right to copy any documentary evidence of any corpora- tion being investigated or proceeded against; and the com- mission shaU have power to require by subpoena the attend- ance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation. Any member of the commission may sign subpoenas, and members and examiners of the commission may administer oaths and affirmations, examine witnesses, and receive evidence. Such attendance of witnesses, and the production of such 432 APPENDIX F-9 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 may invoke the aid of any court of the United States in requiring the attendance and testimony of witnesses and the produc- tion of documentary evidence. Any of the district 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 or other person, issue an order requiring such corporation or other person to appear before the commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the coiu-t may be punished by such court as a contempt thereof. Upon the apphcation of the Attorney-General of the United States, at the request of the commission, the district courts of the United States shall have jurisdiction to issue writs of mandamus commanding any person or corporation to comply with the provisions of this Act or any order of the commission made in pursuance thereof. The commission may order testimony to be taken by de- position in any proceeding or investigation pending under this Act at any stage of such proceeding or investigation. Such depositions may be taken before any person designated by the commission and having power to administer oaths. Such testimony shall be reduced to writing by the person taking the deposition, or under his direction, and shall then be subscribed by the deponent. Any person may be com- pelled to appear and depose and to produce documentary evidence in the same manner as witnesses may be compelled to appear and testify and produce documentary evidence before the commission as hereinbefore provided. Witnesses summoned before the commission shall be paid APPENDIX F-9 433 the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depositions are taken and the persons taking the same shall severally be entitled to the same fees as are paid for like services in the courts of the United States. No person shall be excused from attending and testifying or from producing documentary evidence before the com- mission or in obedience to the subpoena of the commission on the ground or for the reason that the testimony or evidence docimientary 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, or produce evidence, documentary or otherwise, before the comimission in obedience to a subpoena issued by it; Provided, That no natural person so testifying shall be exempt from prosecution and punishment for perjury committed in so testifying. Sec. 10. That any person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry, or to produce documentary evidence, if in his power to do so, in obedience to the subpoena or lawful requirement of the com- mission, shall be guilty of an offense and upon conviction thereof by a court of competent jurisdiction shall be pun- ished by a fine of not less than $1,000 nor more than $5,000, or by imprisonment for not more than one year, or by both such fine and imprisonment. Any person who shall willfully make, or cause to be made, any false entry or statement of fact in any report required to be made under this Act, or who shall willfully make, or cause to be made, any false entry in any account, record, or memorandum kept by any corporation subject to this Act, or who shall willfully neglect or fail to make, or to cause to be made, full, true, and correct entries in such accounts, records. 434 APPENDIX F-9 or memoranda of all facts and transactions appertaining to the business of such corporation, or who shall willfully re- move out of the jurisdiction of the United States, or willfully mutilate, alter, or by any other means falsify any documen- tary evidence of such corporation, or who shall willfuUy re- fuse to submit to the commission or to any of its authorized agents, for the purpose of inspection and taking copies, any documentary evidence of such corporation in his possession or within his control, shall be deemed guilty of an offence against the United States, and shall be subject, upon con- viction ui any court of the United States of competent juris- diction, to a fine of not less than $1,000 nor more than $5,000, or to imprisonment for a term of not more than three years, or to both such fine and imprisonment. If any corporation required by this Act to file any annual or special report shall fail so to do within the time fixed by the commission for filing the same, and such failure shall continue for thirty days after notice of such default, the cor- poration shall forfeit to the United States the sum of $100 for each and every day of the continuance of such failure, which forfeiture shall be payable into the Treasury of the United States, and shall be recoverable iu a civil suit in. the name of the United States brought in the district where the corporation has its principal office or iu any district in which it shall do business. It shall be the duty of the various dis- trict attorneys, under the direction of the Attorney-General of the United States, to prosecute for the recovery of for- feitures. The costs and expenses of such prosecution shall be paid out of the appropriation for the expenses of the courts of the United States. Any officer or employee of the commission who shall make public any information obtained by the commission without its authority, unless directed by a court, shall be deemed guilty of a misdemeanor, and, upon conviction thereof, f APPENDIX F-10 435 shall be punished by a fine not exceeding $5,000, or by im- prisonment not exceeding one year, or by fine and imprison- ment, in the discretion of the court. Sec. 11. Nothing contained in this Act shall be construed to prevent or interfere with the enforcement of the provisions of the anti-trust Acts or the Acts to regulate commerce, nor shall anything contained in the Act be construed to alter, modify, or repeal the said anti-trust Acts or the Acts to regu- late commerce or any part or parts thereof. Approved, September 26, 1914. 10. THE CLAYTON ACT [Act of October 15, 1914 (38 Stat. 730).] AN ACT To supplement existing laws against unlawful restraints and monopolies, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That "anti-trust laws," as used herein, includes the Act entitled "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety; sections seventy-three to seventy-seven, inclusive, of an Act entitled "An Act to reduce taxation, to provide revenue for the Government, and for other purposes," of August twenty-seventh, eighteen hundred and ninety- four; an Act entitled "An Act to amend sections seventy- three and seventy-six of the Act of August twenty-seventh, eighteen hundred and ninety-four, entitled 'An Act to reduce taxation, to provide revenue for the Government and for other purposes,' " approved February twelfth, nine- teen hundred and thirteen; and also this Act. "Commerce," as used herein, means trade or commerce among the several States and with foreign nations, or be- tween the District of Columbia or any Territory of the 436 APPENDIX F-10 United States and any State, Territory, or foreign nation, or between any insular possessions or other places under the jurisdiction of the United States, or between any such posses- sion or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdictioij of the United States: Provided, That nothing in this Act contained shall apply to the Philippine Islands. 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. Sec. 2. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly to discriminate in price between different pur- chasers of commodities, which commodities are sold for use, consumption, or resale within the United States or any Terri- tory thereof or the District of Columbia or any insular posses- sion or other place under the jurisdiction of the United States, where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in any line of commerce; Provided, That nothing herein contained shall prevent discrimination in price between purchasers of commodities on account of differences in the grade, quality, or quantity of the commodity sold, or that makes only due allowance for difference in the cost of selling or transportation, or discrimination in price in the same or different communities made in good faith to meet competi- tion: And provided further. That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade. APPENDIX F-10 437 Sec. 3. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented, for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place imder the jurisdiction of the United States, or fix a price charged therefor, or discoimt from, or rebate upon, such price, on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal ia the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the eflFect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to oreate a monopoly in any line of com- merce. Sec. 4. That any person who shall be injured in his busi- ness or property by reason of anything forbidden in the anti- trust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. Sec. 5. That a final judgment or decree hereafter ren- dered in any criminal prosecution or in any suit or proceeding in equity brought by or on behalf of the United States under the anti-trust laws to the effect that a defendant has violated said laws shall be prima facie evidence against such defendant in any suit or proceeding brought by any other party against such defendant under said laws as to all matters respecting which said judgment or decree would be an estoppel as be- tween the parties thereto: Provided, This section shall not 438 APPENDIX F-10 apply to consent judgments or decrees entered before any testimony has been taken: Provided further. This section shall not apply to consent judgments or decrees rendered in criminal proceedings or suits in equity, now pending, in which the taking of testimony has been commenced but has not been concluded, provided such judgments or decrees are rendered before any further testimony is taken. Whenever any suit or proceeding in equity or criminal prosecution is instituted by the United States to prevent, restrain, or punish violations of any of the anti-trust laws, the running of the statute of limitations in respect of each and every private right of action arising under said laws and based in whole or in part on any matter complained of in said suit or proceeding shall be suspended during the pendency thereof . Sec. 6. That the labor of a human being is not a com- modity or article of commerce. Nothing contained in the anti-trust laws shall be construed to forbid the existence and operation of labor, agricultural, or horticultural organiza- tions, instituted for the purposes of mutual help, and not having capital stock or conducted for profit, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be Ulegal combinations or conspiracies in re- straint of trade, under the anti-trust laws. Sec. 7. That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce, APPENDIX F-10 439 No corporation shall acquire, directly or indirectly, the whole or any part of the stock, or other share capital of two or more corporations engaged in commerce where the effect of such acquisition, or the use of such stock by the voting or granting of proxies or otherwise, may be to substantially lessen competition between such corporations, or any of them, whose stock or other share capital is so acquired, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce. This section shall not apply to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything contained in this section prevent a corporation engaged in commerce from causing the formation of sub- sidiary corporations for the actual carrying on of their im- mediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or apart of the stock of such subsidiary corporations, when the effect of such formation is not to substantially lessen competition. Nor shall anything herein contained be construed to pro- hibit any common carrier subject to the laws to regulate commerce from aiding in the construction of branches or short lines so located as to become feeders to the main line of the company so aiding in such construction or from acquir- ing or owning aU or any part of the stock of such branch lines, nor to prevent any such common carrier from acquiring and owning all or any part of the stock of a branch or short line constructed by an independent company where there is no substantial competition between the company owning the branch line so constructed and the company owning the main line acquiring the property or an interest therein, nor to prevent such common carrier from extending any of its lines through the medium of the acquisition of stock or other- 440 APPENDIX F-10 wise of any other such common carrier where there is no sub- stantial competition between the company extending its lines and the company whose stock, property, or an interest therein is so acquired. Nothing contained in this section shall be held to aflfect or impair any right heretofore legally acquired: Provided, That nothing in this section shall be held or construed to authorize or make lawful anything heretofore prohibited or made illegal by the anti-trust laws, nor to exempt any per- son from the penal provisions thereof or the civil remedies therein provided. Sec. 8. That from and after two years from the date of the approval of this Act no person shall at the same time be a director or other officer or employee of more than one bank, banking association, or trust company, organized or operat- ing under the laws of the United States, either of which has deposits, capital, surplus, and undivided profits aggregating more than $5,000,000; and no private banker or person who is a director in any bank or trust company, organized and operating under the laws of a State, having deposits, capital, surplus, and undivided profits aggregating more than $5,000,000, shall be eHgible to be a director in any bank or banking association organized or operating under the laws of the United States. The eligibility of a director, officer, or employee under the foregoing provisions shall be deter- mined by the average amount of deposits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association, or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a direc- tor, officer, or employee has been elected or selected in ac- cordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter under said election or employment. APPENDIX F-10 441 No bank, banking association, or trust company, organized or operating under the laws of the United States, in any city or incorporated town or village of more than two hundred thousand inhabitants, as shown by the last preceding de- cennial census of the United States, shall have as a director or other officer or employee any private banker or any di- rector or other officer or employee of any other bank, bank- ing association, or trust company located in the same place : Provided, That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares: Provided further. That a director or other officer or employee of such bank, banking association, or trust com- pany may be a director or other officer or employee of not more than one other bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by stockholders in the other: And -provided further. That nothing contained in this section shall forbid a director of class A of a Federal reserve bank, as defined in the Federal Reserve Act from being an officer or director or both an officer and director in one member bank. That from and after two years from the date of the ap- proval of this Act no person at the same time shall be a direc- tor in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce, other than banks, banking associations, trust companies, and common carriers subject to the Act to regulate com- merce, approved February fourth, eighteen hundred and eighty-seven, if such corporations are or shall have been theretofore, by virtue of their business and location of opera- tion, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the anti-trust laws. The eligibility of a director under the foregoing provision shall be 442 APPENDIX F-10 determined by the aggregate amount of the capital, surplus, and undivided profits, exclusive of dividends declared but not paid to stockholders, at the end of the fiscal year of said corporation next preceding the election of directors, and when a director has been elected in accordance with the pro- Adsions of this Act it shall be lawful for him to continue as such for one year thereafter. When any person elected or chosen as a director or officer selected as an employee of any bank or other corporation subject to the provisions of this Act is eligible at the time of his election or selection to act for such bank or other cor- poration in such capacity his eligibihty to act in such capac- ity shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change in the affairs of such bank or other corpora- tion from whatsoever cause, whether specifically excepted by any of the provisions hereof or not, until the expiration of one year from the date of his election or employment. Sec. 9. Every president, director, officer, or manager of any firm, association, or corporation engaged in commerce as a common carrier, who embezzles, steals, abstracts, or willfully misapplies, or willfully permits to be misapplied, any of the moneys, funds, credits, securities, property, or assets of such firm, association, or corporation, arising or accruing from, or used in, such commerce, in whole or in part, or willfully or knowingly converts the same to his own use or to the use of another, shall be deemed guilty of a fel- ony and upon conviction shall be fined not less than $500 or confined in the penitentiary not less than one year nor more than ten years, or both, in the discretion of the court. Prosecutions hereunder may be in the district court of the United States for the district wherein the offence may have been committed. Tha^ nothing in this section shall be held to take away or APPENDIX F-10 443 impair the jurisdiction of the courts of the several States under the laws thereof; and a judgment of conviction or acquittal on the merits under the laws of any State shall be a bar to any prosecution hereunder for the same act or acts. Sec. 10. That after two years from the approval of this Act no common carrier engaged in commerce shall have any dealings in securities, supplies, or other articles of com- merce, or shall make or have any contracts for construction or maintenance of any kind, to the amount of more than $50,000, in the aggregate, in any one year, with another corporation, firm, partnership or association when the said common carrier shall have upon its board of directors or as its president, manager or as its purchasing or selling oflScer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, firm, partnership, or association, unless and ex- cept such pm-chases shall be made from, or such deaUngs shall be with, the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bid- ding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission. No bid shall be received unless the name and address of the bidder or the names and addresses of the ofloicers, directors, and general managers thereof, if the bidder be a corporation, or of the members, if it be a partnership or firm, be given with the bid. Any person who shall, directly or indirectly, do or attempt to do anything to prevent any one from bidding or shall do any act to prevent free and fair competition among the bid- ders or those desiring to bid shall be punished as prescribed in this section in the case of an officer or director. Every such common carrier having any such transactions or making any such purchases shall within thirty days after making the same file with the Interstate Commerce Commis- 444 APPENDIX F-10 sion a full and detailed statement of the transaction showing the manner of the competitive bidding, who were the bidders, and the names and addresses of the directors and oflGicers of the corporations and the members of the firm or partnership bidding; and whenever the said commission shall, after in- vestigation or hearing, have reason to believe that the law has been violated in and about the said purchases or trans- actions it shall transmit all papers and documents and its own views or findings regarding the transaction to the Attorney-General. If any common carrier shall violate this section it shall be fined not exceeding $25,000; and every such director, agent, manager, or oflBcer thereof who shall have knowingly voted for or directed the act constituting such violation or who shall have aided or abetted in such violation shall be deemed guilty of a misdemeanor and shall be fined not ex- ceeding $5,000, or confined in jail not exceeding one year, or both, in the discretion of the cotu-t. Sec. 11. That authority to enforce compliance with sec- tions two, three, seven, and eight of this Act by the persons respectively subject thereto is hereby vested: in the Inter- state Commerce Commission where applicable to common carriers, in the Federal Reserve Board where applicable to banks, banking associations and trust companies, and in the Federal Trade Commission where applicable to all other character of commerce, to be exercised as follows: Whenever the commission or board vested with jurisdiction thereof shall have reason to believe that any person is vi- olating or has violated any of the provisions of sections two, three, seven, and eight of this Act, it shall issue and serve upon such person a complaint stating its charges in that re- spect, and containing a notice of a hearing upon a day and at a place therein fixed at least thirty days after the service of said complaint. The person so complained of shall have APPENDIX F-10 445 the right to appear at the place and time so fixed and show cause why an order should not be entered by the commission or board requiring such person to cease and desist from the violation of the law so charged in said complaint. Any per- son may make application, and upon good cause shown may be allowed by the commission or board, to intervene and ap- pear in said proceeding by counsel or in person. The testi- mony in any such proceeding shall be reduced to writing and filed in the office of the commission or board. If upon such hearing the commission or board, as the case may be, shall be of the opinion that any of the provisions of said sections have been or are being violated, it shall make a report in writing in which it shall state its findings as to the facts, and shall issue and cause to be served on such person an order requiring such person to cease and desist from such viola- tions, and divest itself of the stock held or rid itself of the directors chosen contrary to the provisions of sections seven and eight of this Act, if any there be, in the manner and within the time fixed by said order. Until a transcript of the record in such hearing shall have been filed in a circuit court of appeals of the United States, as hereinafter provided, the commission or board may at any time, upon such notice and in such maimer as it shall deem proper, modify or set aside, in whole or in part, any report or any order made or issued by it under this section. If such person fails or neglects to obey such order of the commission or board while the same is in effect, the commis- sion or board may apply to the circuit court of appeals of the United States, within any circuit where the violation complained of was or is being committed or where such per- son resides or carries on business, for the enforcement of its order, and shall certify and file with its application a trans- cript of the entire record in the proceeding, including all the testimony taken and the report and order of the commission 446 APPENDIX F-10 or board. Upon such filing, of the application and trans- cript the court shall cause notice thereof to be served upon such person and thereupon shall have jurisdiction of the proceeding and of the question determined therein, and shall have power to make and enter upon the pleadings, testimony, and proceedings set forth in such transcript a decree afcming, modifying, or setting aside the order of the commission or board. The findings of the commission or board as to the facts, if supported by testimony, shall be conclusive. If either party shall apply to the court for leave to adduce addi- tional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for the failure to adduce such evidence in the proceeding before the commission or board, the court may order such additional evidence to be taken before the commission or board and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The commission or board may modify its findings as to the facts, or make new findings, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by testimony, shall be conclusive, and its recommendation, if any, for the modification or setting aside of its original order, with the return of such additional evidence. The judgment and decree of the court shall be final, except that the same shall be subject to review by the Supreme Court upon certiorari as provided in Section two hundred and forty of the Judicial Code. Any party required by such order of the commission or board to cease and desist from a violation charged may ob- tain a review of such order in said circuit court of appeals by filing in the court a written petition praying that the order of the commission or board be set aside. A copy of such petition shall be forthwith served upon the commission APPENDIX r-10 447 or board, and thereupon the commission or board forthwith shall certify and file in the court a transcript of the record as hereinbefore provided. Upon the filing of the transcript the court shall have the same jurisdiction to aflSrm, set aside, or modify the order of the commission or board as in the case of an appKcation by the commission or board for the enforce- ment of its order, and the findings of the commission or board as to the facts, if supported by testimony, shall in like manner be conclusive. The jurisdiction of the circuit court of appeals of the United States to enforce, set aside, or modify orders of the commission or board shall be exclusive. Such proceedings in the circuit court of appeals shall be given precedence over other cases pending therein, and shall be in every way expedited. No order of the commission or board or the judgment of the court to enforce the same shall in any wise reheve or absolve any person from any liabihty under the anti-trust Acts. Complaints, orders, and other processes of the commission or board under this section may be served by any one duly authorized by the commission or board either (a) by de- Uvering a copy thereof to the person to be served, or to a member of the partnership to be served, or to the president, secretary, or other executive officer or a director of the cor- poration to be served; or (b) by leaving a copy thereof at the principal office or place of business of such person; or (c) by registering and maiUng a copy thereof addressed to such person at his principal office or place of business. The verified return by the person so serving said complaint, or- der, or other process setting forth the manner of said service shall be proof of the same, and the return post-office re- ceipt for said complaint, order, or other process registered and mailed as aforesaid shall be proof of the service of the same. 448 APPENDIX F-10 Sec. 12. That any suit, action, or proceeding under the anti-trust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found. Sec. 13. That in any suit, action, or proceeding brought by or on behalf of the United States subpoenas for mtnesses who are required to attend a court of the United States in any judicial district in any case, civil or criminal, arising under the anti-trust laws may run into any other district: Provided, That in civil cases no writ of subpoena shall issue for witnesses living out of the district in which the court is held at a greater distance than one hundred miles from the place of holding the same without the permission of the trial court being first had upon proper application and cause shown. Sec. 14. That whenever a corporation shall violate any of the penal provisions of the anti-trust laws, such violation shall be deemed to be also that of the individual directors, officers, or agents of such corporation who shall have au- thorized, ordered, or done any of the acts constituting in whole or in part such violation, and such violation shall be deemed a misdemeanor, and upon conviction therefor of any such director, officer, or agent he shall be punished by a fine of not exceeding $5,000 or by imprisonment for not ex- ceeding one year, or by both, in the discretion of the court. Sec. 15. That the several district 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 respec- tive districts, tinder the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain APPENDIX F-10 449 such violations. Such proceedings may be by way of peti- tion setting forth the case and praying that such violation shall be enjoined or otherwise prohibited. When the par- ties 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 pe- tition, 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. "Whenever it shall appear to the court before which any such proceeding 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 ia 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. 16. That any person, firm, corporation, or associa- tion shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the anti-trust laws, including sections two, three, seven and eight of this Act, when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, imder the rules governing such proceedings, and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of ir- reparable loss or damage is immediate, a preliminary in- jimction may issue: Provided, That nothing herein contained shall be construed to entitle any person, firm, corporation, or association, except the United States, to bring suit in equity for injimctive relief against any common carrier sub- ject to the provisions of the Act to regulate commerce, ap- proved February fourth, eighteen hundred and eighty-seven, in respect of any matter subject to the regulation, supervi- 450 APPENDIX P-IO sion, or other jurisdiction of the Interstate Commerce Com- mission. Sec. 17. That no preliminary injunction shall be issued without notice to the opposite party. No temporary restraining order shall be granted without notice to the opposite party unless it shall clearly appear from specific facts shown by affidavit or by the verified bill that immediate and irreparable injury, loss, or damage will result to the applicant before notice can be served and a hearing had thereon. Every such temporary restraining order shall be indorsed with the date and hour of issuance, shall be forthwith filed in the clerk's office and entered of record, shall define the injury and state why it is irreparable and why the order was granted without notice, and shall by its terms expire within such time after entry, not to exceed ten days, as the court or judge riiay fix, unless within the time so fixed the order is extended for a like period for good cause shown, and the reasons for such extension shall be entered of record. In case a temporary restraining order shall be granted without notice in the contingency specified, the matter of the issuance of a preliminary injunction shall be set down for a hearing at the earliest possible time and shall take precedence of all matters except older matters of the same character; and when the same comes up for hearing the party obtaining the temporary restraining order shall proceed with the appUcation for a preliminary injunction, and if he does not do so the court shall dissolve the temporary restraining order. Upon two days' notice to the party ob- taining such temporary restraining order the opposite party may appear and move the dissolution or modification of the order, and in that event the court or judge shall proceed to hear and determine the motion as expeditiously as the ends of justice may require. Section two hundred and sixty-three of an Act entitled APPENDIX F-10 451 "An Act to codify, revise, and amend the laws relating to the judiciary," approved March third, nineteen hundred and eleven, is hereby repealed. Nothing in this section contained shall be deemed to alter, repeal, or amend Section two hundred and sixty-six of an Act entitled "An Act to codify, revise, and amend the laws relating to the judiciary," approved March third, nineteen hundred and eleven. Sec. 18. That, except as otherwise provided iu Section sixteen of this Act, no restraining order or interlocutory order of injunction shall issue, except upon the giving of security by the applicant in such sum as the court or judge may deem proper, conditioned upon the payment of such costs and damages as may be incurred or suffered by any party who may be foxind to have been wrongfully enjoined or restrained thereby. Sec. 19. That every order of injunction or restraining order shall set forth the reasons for the issuance of the same, shall be specific in terms, and shall describe in reasonable detail, and not by reference to the bill of complaint or other document, the act or acts sought to be restrained, and shall be binding only upon the parties to the suit, their officers, agents, servants, employees, and attorneys, or those in active concert or participating with them, and who shall, by personal service or otherwise, have received actual notice of the same. Sec. 20. Tbat no restraining order or injunction shall be granted by any court of the United States, or a judge or the judges thereof, in any case between an employer and em- ployees, or between employers and employees or between employees, or between persons employed and persons seeking employment, involving, or growing out of, a dispute concern- ing terms or conditions of employment, unless necessary to prevent irreparable injury to property, or to a property right. 452 APPENDIX F-10 of the party making the application, for which injury there is no adequate remedy at law, and such property or property right must be described with particularity in the application, which must be in writing and sworn to by the appKcant or by his agent or attorney. And no such restraining order or injunction shall prohibit any person or persons, whether singly or in concert, from terminating any relation of employment, or from ceasing to perform any work or labor, or from recommending, ad- vising, or persuading others by peaceful means so to do; or from attending at any place where any such person or per- sons may lawfully be, for the purpose of peacefully obtaining or communicating information, or from peacefully persuad- ing any person to work or to abstain from working; or from ceasing to patronize or to employ any party to such dispute, or from recommending, advising, or persuading others by peaceful and lawful means so to do; or from paying or giving to, or withholding from, any person engaged in such dispute, any strike benefits or other moneys or things of value; or from peaceably assembling in a lawful manner, and for law- ful purposes; or from doing any act or thing which might lawfully be done in the absence of such dispute by any party thereto; nor shall any of the acts specified in this paragraph be considered or held to be violations of any law of the United States. Sec. 21. That any person who shall willfully disobey any lawful writ, process, order, rule, decree, or command of any district coiu"t of the United States or any court of the Dis- trict of Columbia by doing any act or thing therein, or thereby forbidden to be done by him, if the act or things so don^e by him be of such character as to constitute also a criminal of- fense under any statute of the United States, or under the laws of any State in which the act was committed, shall be pro- ceeded against for his said contempt as hereinafter provided. APPENDIX F-10 453 Sec. 22. That whenever it shall be made to appear to any district court or judge thereof, or to any judge therein sitting, by the return of a proper oflScer on lawful process, or upon the affidavit of some credible person, or by informa- tion filed by any district attorney, that there is reasonable ground to believe that any person has been guilty of such contempt, the court or judge thereof, or any judge therein sitting, may issue a rule requiring the said person so charged to show cause upon a day certain why he should not be pun- ished therefor, which rule, together with a copy of the affi- davit or information, shall be served upon the person charged with sufficient promptness to enable him to prepare for and make return to the order at the time fixed therein. If upon or by such return, in the judgment of the court, the alleged contempt be not sufficiently purged, a trial shall be directed at a time and place fixed by the court: Provided, however. That if the accused, being a natural person, fail or refuse to make retina to the rule to show cause, an attachment may issue against his person to compel an answer, and in case of his continued failure or refusal, or if for any reason it be im- practicable to dispose of the matter on the return day, he may be required to give reasonable bail for his attendance at the trial and his submission to the final judgment of the court. Where the accused is a body corporate, an attach- ment for the sequestration of its property may be issued upon like refusal or failure to answer. In all cases within the purview of this Act such trial may be by the court, or, upon demand of the accused, by a jury; in which latter event the court may impanel a jury from the jurors then in attendance, or the court or the judge thereof in chambers may cause a sufficient number of jurors to be selected and summoned, as provided by law, to attend at the time and place of trial, at which time a jury shall be selected and impaneled as upon a trial for misdemeanor; and 454 APPENDIX F-10 such trial shall conform, as near as may be, to the practice In criminal cases prosecuted by indictment or upon informa- tion. If the accused be found guilty, judgment shall be entered accordingly, prescribing the punishment, either by fine or imprisonment, or both, in the discretion of the court. Such fine shall be paid to the United States or to the complainant or other party injured by the act constituting the contempt, or may, where more than one is so damaged, be divided or apportioned among them as the court may direct, but in no case shall the fine to be paid to the United States exceed, in case the accused is a natural person, the sum of $1,000, nor shall such imprisonment exceed the term of six months: Provided, That in any case the court or a judge thereof may, for good cause shown, by affidavit or proof taken in open court or before such judge and filed with the papers in the case, dispense with the rule to show cause, and may issue an attachment for the arrest of the person charged with contempt; in which event such person, when arrested, shall be brought before such com-t or a judge thereof without unnecessary delay and shall be admitted to bail in a reason- able penalty for his appearance to answer to the charge or for trial for the contempt; and thereafter the proceedings shall be the same as provided herein in case the rule had issued in the first instance. Sec. 23. That the evidence taken upon the trial of any persons so accused may be preserved by bill of exceptions, and any judgment of conviction may be reviewed upon writ of error in all respects as now provided by law in criminal cases, and may be affirmed, reversed, or modified as justice may require. Upon the granting of such writ of error execution of judgment shall be stayed, and the accused, if thereby sentenced to imprisonment, shall be admitted to bail in such reasonable sum as may be required by the court, APPENDIX F-11 455 or by any justice, or any judge of any district court of the United States or any court of the District of Columbia. Sec. 24. That nothing herein contained shall be con- strued to relate to contempts committed in the presence of the court, or so near thereto as to obstruct the administra- tion of justice, nor to contempts committed in disobedience of any lawful writ, process, order, rule, decree, or command entered in any suit or action brought or prosecuted in the name of, or on behaK of, the United States, but the same, and all other cases of contempt not specifically embraced within Section twenty-one of this Act, may be punished in conformity to the usages at law and in equity now pre- vailing. Sec. 25. That no proceeding for contempt shall be iasti- tuted against any person unless begun withiu one year from the date of the act complained of; nor shall any such pro- ceeding be a bar to any crimiaal prosecution for the same act or acts; but nothing herein contained shall aflFect any proceedings in contempt pending at the time of the passage of this Act. Sec. 26. If any clause, sentence, paragraph, or part of this Act shaU, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder thereof, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the contro- versy in which such judgment shall have been rendered. Approved, October 15, 1914. 11. SUNDRY CIVIL ACT— 1916 [June, 1916.] AN ACT Making appropriations for sundry civil expenses of the Gov- ernment for the fiscal year ending June thirtieth, nineteen hundred and seventeen, and for other purposes. 456 APPENDIX F-12 Enforcement of anti-trust laws, including not exceeding $15,000 for salaries of necessary employees at the seat of government, $250,000: Provided, however. That no part of this money shall be spent in the prosecution of any organ- ization or individual for entering into any combination or agreement having in view the increasing of wages, shorten- ing of hours, or bettering the conditions of labor, or for any act done in furtherance thereof not in itself unlawful: Pro- vided further. That no part of this appropriation shall be expended for the prosecution of producers of farm pro- ducts and associations of farmers who cooperate and or- ganize in an effort to and for the purpose to obtain and main- tain a fair and reasonable price for their products. . . . 12. THE WEBB BILL* 64th Congress H. R. 16707 1st Session IN THE HOUSE OF REPRESENTATIVES [June 28, 1916] Mr. Webb introduced the following bUl; which was referred to the Com- mittee on the Judiciary and ordered to be printed. A BILL To promote export trade, and for other purposes. Be it enacted by the Senate and House of Representa- tives of the United States of America in Congress assembled. That the words "export trade" wherever used in this Act mean solely trade or commerce in goods, wares, or mer- chandise exported, or in the course of being exported from the United States or any Territory thereof to any foreign *This bin, pending in Congress (May, 1917), seems likely soon to be enacted in- to law and is therefore included with this list. If this bill becomes law it will be the first break in Federal Anti-Trust legislation. APPENDIX F-12 457 nation; but the words "export trade" shall not be deemed to include the production or manufacture of such goods, wares, or merchandise, or any act in the course of produc- tion or manufacture. That the words "trade within the United States" wherever used in this Act mean trade or commerce among the several States or in any Territory of the United States, or of the District of Columbia, or between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or between the District of Columbia and any State or States. That the word "association" wherever used in this Act means any corporation or combination by contract or otherwise of two or more persons. Sec. 2. That nothing contained in the Act entitled "An Act to protect trade and commerce against unlawful re- straints and monopolies," approved July second, eighteen hundred and ninety, shall be construed as declaring to be illegal an association entered into for the sole purpose of engaging in export trade and actually engaged solely in such trade, or an agreement made or act done in the course of export trade by such association, provided such agree- ment or act is not in restraint of trade within the United States. Sec. 3. That nothing contained in section seven of the Act entitled "An Act to supplement existing laws against imlawful restraints and monopolies, and for other purposes," approved October fifteenth, nineteen hundred and fourteen, shall be construed to forbid the acquisition or ownership by any corporation of the whole or any part of the stock or other capital of any corporation organized solely for the purpose of engaging in export trade, and actually engaged solely in such export trade. 458 APPENDIX F-12 Sec. 4. That the words "unfair methods of competition" wherever used in the Act entitled "An Act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," approved September twenty- sixth, nineteen hundred and fourteen, shall be construed as extending to unfair methods of competition used in export trade, even though the acts constituting such unfair methods are done without the territorial jurisdiction of the United States. Sec. 5. That every association now engaged solely in export trade, within sixty days after the passage of this Act, and every association entered into hereafter for the sole purpose of engaging in export trade, within thirty days after its creation, shall file with the Federal Trade Com- mission a written statement setting forth the location of its offices or places of business, and the names and ad- dresses of all its officers, and of all its stoclcholders, or members, and if a corporation, a copy of its certificate or articles of incorporation and by-laws, and if unincorporated, a copy of its articles or contract of association. Any asso- ciation which shall fail so to do shall not have the benefit of the provisions of section two and section three of this Act, and it shall also forfeit to the United States the sum of $100 for each and every day of the continuance of such failure, which forfeiture shall be payable into the Treasury of the United States, and shall be recoverable in a civil suit in the name of the United States brought in the district where the association has its principal office, or in any dis- trict in which it shall do business. It shall be the duty of the various district attorneys, under the direction of the Attorney General of the United States, to prosecute for the recovery of the forfeiture. The costs and expenses of such prosecution shall be paid out of the appropriation for the expenses of the courts of the United States. APPENDIX G FOREIGN LEGISLATION ON INDUSTRLAL COMBINATIONS* 1. Great Britain 4. Canada 2. AUSTRAMA 5. Russia 3. New Zealand 6. Germany 1. GREAT BRITAIN The law of Great Britain regarding industrial com- binations is included in its general corporation law which after several years of special investigation was revised and consolidated in 1900. The provisions of the common law regarding monopohes and restraints of trade remain imchanged. However, in order to prevent fraud of any nature and to keep the public fully informed of their investments in case they take pains to investigate them, special provisions have been made for the promotion of new enterprises and the special reports that should be made by all public companies. Regarding promotions the following paragraph is of interest: The law now provides that a prospectus, which it defines as any notice, circular, advertisement, or other invitation, offering to the public for subscription or purchase any shares or debentures of a company, must be filed with the registrar of companies, and must show (1) the names and addresses of the vendors, and where there is more than one separate *For the full text and further information regarding the legislation cited in Ap- pendix G and for legislation in other countries see "Laws on Trusts and Monopolies, Domestic and Foreign" (1914) and "Trust Laws and Unfair Competition" (1915) as cited under U. S. Government publications, Appendix H. 459 460 APPENDIX G-2 vendor, or the company is a subpurchaser, the amount payable to each vendor; (2) the particulars and the nature and extent of the interest of every director in the promotion of, or property to be acquired by, the company; (3) the dates of and parties to every material contract, and a reasonable time and place for the inspection of such contracts; and further, that a company which does not issue a prospectus shall not allot any shares or debentures until a statement in lieu of a prospectus has been filed. A person is deemed a vendor who has entered into any contract, absolute or con- ditional, for the sale or purchase, or for any option of pur- chase, of any property to be acquired by the company. The pm-pose of the legislation is to disclose the real ven- dor, the real purchase price, and who is profiting by the pro- motion. 2. AUSTRALIA The British colonies have gone further than Great Bri- tain in direct attacks upon monopolies. Austraha and New Zealand seem to have attacked these combinations quite in the spirit of many of the American states. The Australian Industries Preservation Act of 1906 as amended in 1907, 1909, and 1910, in its title provides "for the preser- vation of Australian industries, for the repression of destruc- tive monopolies." The following extracts contain the most important provisions of the Act : PART II. REPRESSION OF MONOPOLIES 4. (1) Any person who, either as principal or as agent, makes or enters into any contract, or is or continues to be a member of or engages in any combination in relation to trade or commerce with other countries or among the States — (a) in restraint of or with intent to restrain trade or commerce; or (b) to the destruction or injury of or with intent to destroy or injure by means of unfair competition APPENDIX G-2 461 any Australian industry the preservation of which is ad- vantageous to the Commonwealth, having due regard to the interests of producers, workers, and consumers, is guilty of an offense. Penalty, £500, or, in the case of a continuing offense, £500 for each day during which the offense continues. (2) Every contract made or entered into in contravention of this section shall be absolutely illegal and void. (3) It shall be a defense to a proceeding for an offense under paragraph (a) of subsection (1) of this section, and an answer to an allegation that a contract was made or entered into in restraint of, or with intent to restrain, trade or com- merce, if the party alleged to have contravened this section proves (a) that the matter or thing alleged to have been done in restraint of, or with intent to restrain, trade or com- merce was not to the detriment of the public; and (b) that the restraint of trade or commerce effected or intended was not imreasonable. (Section 5 repealed.) 6. (1) For the purposes of section 4 and section 10 of this act, unfair competition means competition which is un- fair in the circumstances; and in the following cases the com- petition shall be deemed to be unfair unless the contrary is proved: (a) If the defendant is a commercial trust. (b) If the competition would probably or does in fact result in an inadequate remuneration for labor in the Aus- traKan industry. (c) If the competition would probably or does in fact result in an inadequate remuneration for labor in the Aus- tralian industry or throwing workers out of employment. (d) If the defendant, with respect to any goods or ser- vices which are the subject of the competition, gives, offers, or promises to any person any rebate, refund, discount, or 462 APPENDIX G-^2 reward upon condition that that person deals, or in consid- eration of that person having dealt, with the defendant to the exclusion of other persons dealing in similar goods or services. (2) In determining whether the competition is unfair, regard shall be had to the management, the processes, the plant, and the machinery employed or adopted in the Aus- traUan industry affected by the competition being reasonably efficient, effective, and up to date. 7. (1) Any person who monopolizes or attempts to mo- nopoUze, or combines or conspires with any other person to monopolize, any part of the trade or commerce with other countries or among the states, is guilty of an indictable offense. Penalty, £500 for each day during which the offense con- tinues, or one year's imprisonment, or both; or, in the case of a corporation, £1,000 for each day during which the offense continues. (2) Every contract made or entered into in contraven- tion of this section shall be absolutely illegal and void. (3) The attorney-general may elect, instead of proceeding by indictment for an offense against this section, to institute proceedings in the high court by way of civil action for the recovery of the pecuniary penalties for the offense; in which case the action shall be tried before a justice of that court without a jury. 7A. (1) Any person who, in relation to trade or com- merce with other countries or among the states, either as principal or agent, in respect of dealings in any goods or ser- vices gives, offers, or promises to any other person any rebate, refund, discount, concession, or reward for the reason, or upon the condition, express or implied, that the latter person (a) deals, or has dealt, or wiU deal, or intends to deal exclusively with any person, either in relation to any APPENDIX G-2 463 particular goods or services or generally; or (b) deals, or has dealt, or will deal, or intends to deal exclusively with mem- bers of a commercial trust, either ia relation to any particu- lar goods or services or generally; or (c) does not deal, or has not dealt, or will not deal, or does not intend to deal with certain persons, either in relation to any particular goods or services or generally; or (d) is or becomes a member of a commercial trust; is guilty of an offense. Penalty, £500. (2) Every contract made or entered into in contravention of this section shall be absolutely illegal and void, (3) It shall be a defense to a prosecution under this sec- tion, and an answer to an allegation that a contract was made or entered into in contravention of this section, if the party alleged to have contravened this section proves that the matter or thing alleged to have been done in contravention of this section was not to the detriment of the public, and did not constitute competition which was unfair in the cir- cumstances, and was not destructive of or injurious to any Australian industry. 7B. Any person who, in relation to trade and commerce with any other countries or among the states, either as principal or agent, refuses either absolutely or except upon disadvantageous conditions to sell or supply to any other person any goods or services for the reason that the latter person (a) deals, or has dealt, or will deal, or intends to deal with any person; or (b) deals, or has dealt, or will deal, or intends to deal with persons who are not members of a com- mercial trust; or (c) is not a member of a commercial trust; is guilty of an offense. Penalty, £500. 11. (1) Any person who is injiu-ed in his person or prop- erty by any other person, by reason of any act or thing done by that other person in contravention of this part of this 464 APPENDIX G-2 act, or by reason of any act or thing done in contravention of any injunction granted under this part of this act, may, in the high court, before a justice, without a jury, sue for and recover treble damages for the injury. (2) No person shall, in any proceeding under this section, be excused from answering any question put either viva voce or by interrogatory, or from making any discovery of documents, on the ground that the answer or discovery may criminate or tend to criminate him; but his answer shall not be admissible in evidence against him in any criminal pro- ceeding other than a prosecution for perjury. 17. Unfair competition has in all cases reference to com- petition with those Australian industries, the preservation of which, in the opinion of the comptroller general or a jus- tice as the case may be, is advantageous to the Common- wealth, having due regard to the interests of producers, work- ers, and consumers. 22. (1) Upon the receipt of the determination of the justice the minister shall forthwith cause it to be published in the Gazette. (2) If the justice determines that the imported goods are being imported with the intent alleged, and that their im- portation should be prohibited either absolutely or subject to any specified conditions or restrictions or limitations of any kind whatsoever (a) the determination when so pub- lished shall have the effect of a proclamation under the cus- toms act, 1901, prohibiting the importation of the goods either absolutely or subject to those conditions or restric- tions or Hmitations as the case may be; and in that case the provisions of that act shall apply to goods so prohibited; and (b) the justice may by order reduce the amount recov- erable under any bond given in pursuance of this part of this APPENDIX G-3 465 act to such sum as the importer satisfies him is reasonable and just in the circumstances. 2S. The governor general may at any time, by proclama- tion simultaneously with or subsequently to any prohibition imder this part of this act, rescind in whole or in part the prohibition or any condition or restriction or limitation on importation imposed thereby. 24. In all cases of prohibition the determination of the justice, and any proclamation affecting the same, shall be laid before both houses of the Parliament within seven days after the publication in the Ga7ette, or, if the Parliament is not then sitting, within seven days after the next meeting of Parliament. 3. NEW ZEALAND The New Zealand Act for the repression of monopolies in trade or commerce of 1910 goes quite into detail as regards restraints of business. The following quotations illustrate fully its spirit: 2. (1) In this act, unless the contrary intention ap- pears, "commercial trust," means any association or com- bination (whether incorporated or not) of any number of persons, established either before or after the commence- ment of this act, and either in New Zealand or elsewhere, and (a) having as its object, or as one of its objects, that of (1) controlling, determining, or influencing the supply or de- mand or price of any goods in New Zealand or any part thereof or elsewhere, or that of (2) creating or maintaining in New Zealand or any part thereof or elsewhere a monopoly, whether complete or partial, in the supply or demand of any goods; or (b) acting in New Zealand or elsewhere with any such object as aforesaid; and includes any firm or incorpo- rated company having any such object, or acting as aforesaid. 3 . Every person commits an offense who, either as principal 466 APPENDIX G-3 or agent, in respect of dealings in any goods, gives, offers, or agrees to give to any other person any rebate, refund, dis- count, concession, allowance, reward, or other valuable con- sideration for the reason or upon the express or implied condition that the latter person — (a) Deals or has dealt or will deal, or intends or under- takes or has undertaken or will undertake to deal, exclu- sively or principally, or to such an extent as amounts to exclusive or principal deahng, with any person or class of persons, either in relation to any particular goods or gener- ally; or (b) Does not deal or has not dealt or will not deal, or intends or undertakes or has undertaken or will undertake not to deal, with any person or class of persons, either in re- lation to any particular goods or generally; or (c) restricts or has restricted or will restrict, or intends or undertakes or has undertaken or will undertake to restrict, his dealing with any person or class of persons, either in relation to any par- ticular goods or generally; or (d) Is or becomes or has been, or has undertaken or will undertake to become, a member of a commercial trust; or (e) Acts or has acted or will act, or intends or imdertakes or has undertaken or will undertake to act, in obedience to or in conformity with the determinations, directions, sug- gestions, or requests of any commercial trust with respect to the sale, purchase, or supply of any goods. 4. Every person commits an offense who, either as prin- cipal or agent, refuses, either absolutely or except upon dis- advantageous or relatively disadvantageous conditions, to sell or supply to any other person, or to purchase from any other person, any goods for the reason that the latter per- son — (a) Deals or has dealt or will deal, or intends to deal, APPENDIX G-3 467 or has not undertaken or will not undertake not to deal, with any person or class of persons, either in relation to any particular goods or generally; or (b) Is not or has not been, or will not become or under- take to become or has not undertaken to become, a member of a commercial trust; or (c) Does not act or has not acted or will not act, or does not intend to act, or has not undertaken or will not under- take to act, in obedience to or in conformity with the deter- minations, directions, suggestions, or requests of any com- mercial trust with respect to the sale, purchase, or supply of any goods. 5. Any person who conspires with any other person to monopolize wholly or partially the demand or supply in New Zealand or any part thereof of any goods, or to control wholly or partially the demand or supply or price in New Zealand or any part thereof of any goods, is guilty of an offense if such monopoly or control is of such a nature as to be contrary to the public interest. 6. (1) Every person commits an offense who, either as principal or agent, sells or suppUes, or offers for sale or supply, any goods at a price which is unreasonably high, if that price has been in any manner directly or indirectly determined, controlled, or influenced by any commercial trust of which that person or his principal (if any) is or has been a member. (2) Every person commits an offense who, in obedience to or in consequence of or in conformity with any determina- tion, direction, suggestion, or request of any commercial trust, whether he is a member of that trust or not, sells or supplies, or offers for sale or supply, any goods, whether as principal or agent, at a price which is unreasonably high. 7. (1) If any commercial trust, whether as principal or agent, sells or supphes, or offers for sale or supply, any 468 APPENDIX G-3 goods at a price which is unreasonably high, every person who is then a member of that trust shall be deemed to have committed an offense against this act. (2) If in any such case the commercial trust is a corpora- tion, it shall itself be guilty of an offense against this act; but the liability of the trust shall not exclude or affect the liabil- ity of its members under the last preceding subsection. 8. For the purposes of this act the price of any goods shall be deemed to be unreasonably high if it produces or is calcu- lated to produce more than a fair and reasonable rate of commercial profit to the person selling or supplying, or offer- ing to sell or supply, those goods, or to his principal, or to any commercial trust of which that person or his principal is a member, or to any member of any such commercial trust. 9. Every person who aids, abets, counsels, or procures, or is in any way knowingly concerned in the commission of, an offense against this act, or the doing of any act outside New Zealand which would if done in New Zealand be an offense against this act, shall be deemed to have committed that offense. 10. (1) Every person who commits an offense against this act shall be liable to a penalty of £500. (2) If two or more persons are responsible for the same offense against this act, each of those persons shall be sever- ally liable to a penalty of £500, and the HabiHty of each of them shall be independent of the liability of the others. SCHEDULE GOODS TO WHICH THIS ACT APPLIES Agricultural implements. Coal. Meat. Fish. APPENDIX G-4 469 Flour, oatmeal, and the other products or by-products of the milling of wheat or oats. Petroleum or other mineral oil (including kerosene, naphtha, and the other products or by-products of any such oil). Sugar. Tobacco (including cigars and cigarettes). 4. CANADA The spirit of the Canadian law is quite difiFerent from that found in the other colonies and is entirely in accordance with other late laws of the Dominion which seem to be conservative and to desire to regulate rather than to destroy. The Canadian Combines Investigation Act of 1910 is so unique and suggestive in its provisions that it is included in fuU. CANADIAN COMBINES INVESTIGATION ACT, 1910 AN ACT to Provide for the Investigation of Combines, Monopolies, Trusts, and Mergers. • 1. This Act may be cited as " The Combines Investigation Act." 2. (c) " Combine" means any contract, agreement, arrange- ment or combination which has, or is designed to have, the effect of increasing or fixing the price or rental of any article of trade or commerce for the cost of the storage or transpor- tation thereof, or of the restricting competition in or of controlling the production, manufacture, transportation, stor- age, sale, or supply thereof, to the detriment of consumers or producers of such article of trade or commerce, and includes the acquisition, leasing, or otherwise taking over, or obtain- ing by any person to the end aforesaid, of any control over or interest in the business, or any portion of the business, 470 APPENDIX G-4 of any other person, and also includes what is known as a trust, monopoly, or merger; (d) "Department" means the Department of Labour; ADMINISTRATION 3. The Minister shall have the general administration of this Act. 4. The Governor in Council shall appoint a Registrar of Boards of Investigation, who shall have the powers and per- form the duties prescribed. ORDER FOR INVESTIGATION 5. Where six or more persons, British subjects resident in Canada and of full age, are of opinion that a combine exists, and that prices have been enhanced or competition restricted by reason of such combine, to the detriment of consumers or producers, such persons may make an application to a judge for an order directing an investigation into such alleged combine. (2) Such application shall be in writing addressed to the judge, and shall ask for an order directing an investigation into the alleged combine, and shall also ask the judge to fix a time and place for the hearing of the applicants or their representative. (3) The application shall be accompanied by a statement setting forth — (a) The nature of the alleged combine and the persons believed to be concerned therein; (b) The manner in which the alleged combine affects prices or restricts competition, and the extent to which the alleged combine is believed to operate to the detriment of consumers or producers; (c) The names and addresses of the parties making the application and the name and address of one of their number APPENDIX G-4 471 or of some other person whom they authorize to act as their representative for the purposes of this Act and to receive communications and conduct negotiations on their behalf. (4) The application shall also be accompanied by a statutory declaration from each appKcant declaring that the alleged combine operates to the detriment of the declarant as a consumer or producer, and that to the best of his knowledge and belief the combine alleged in the statement exists and that such combine is injurious to trade or has operated to the detriment of consumers or producers in the manner and to the extent described, and that it is in the public interest that an investigation should be had into such combine. 6. Within thirty days after the judge receives the applica- tion he shall fix a time and place for hearing the applicants and shall send due notice, by registered letter, to the repre- sentative authorized by the statemenit to receive communica- tions on behalf of the applicants. At such hearing the appli- cants may appear in person or by their representative or by coimsel. 7. If upon such hearing the judge is satisfied that there is reasonable ground for believing that a combine exists which is injurious to trade or which has operated to the detriment of consumers or producers, and that it is in the pubKc interest that an investigation should be held, the judge shall direct an investigation under the provisions of this Act; or if not so satisfied, and the judge is of opinion that in the circumstances an adjournment should be ordered, the judge may adjourn such hearing until further evidence in support of the appli- cation is given, or he may refuse to make an order for an inves- tigation. (2) The judge shall have all the powers vested in the court of which he is a judge to summon before him and en- force the attendance of witnesses, to administer oaths, and 472 APPENDIX G-4 to require witnesses to give evidence on oath or on solemn affirmation (if they are persons entitled to affirm in civil matters), and to produce Such books, papers, or other docu- ments or things as the judge deems requisite. 8. The order of the judge directing an investigation shall be transmitted by him to the Registrar by registered letter, and shall be accompanied by the application, the statement, a certified copy of any evidence taken before the judge, and the statutory declarations. The order shall state the mat- ters" to be investigated, the names of the persons alleged to be concerned in the combine, and the names and addresses of one or more of their number with whom, in the opinion of the judge, the Minister should communicate in order to obtain the recommendation for the appointment of a person as a member of the Board as hereinafter provided. APPOINTMENT OF BOARDS 9. Upon receipt by the Registrar of the order directing an investigation the Minister shall forthwith proceed to ap- point a Board. 10. Every Board shall consist of three members, who shall be appointed by the Minister under his hand and seal of office. 11. Of the three members of the Board one shall be ap- pointed on the recommendation of the persons upon whose application the order has been granted, one on the recom- mendation of the persons named in the order as being con- cerned in the alleged combine, and the third on the recom- mendation of the two members so chosen. 12. The persons upon whose application the order has been granted and the persons named in the orderas being con- cerned in the alleged combine, within seven days after being requested so to do by the Registrar, may each respectively recommend the name of a person who is wilhng and ready APPENDIX G-4 473 to act as a member of the Board, and the Minister shall ap- point such persons members of the Board. (3) If the parties, or either of them, fail or neglect to make any recommendation within the said period, or such ex- tension thereof as the Minister, on cause shown grants, the Minister shall, as soon thereafter as possible, select and ap- point a fit person or persons to be a member or members of the Board. (4) The two members so appointed may, within seven days after their appointment, recommend the name of a judge of any court of record in Canada who is willing and ready to act as a third member of the Board, and the Min- ister shall appoint such judge as a member of the Board, and if they fail or neglect to make a recommendation within the said period, or such extension thereof as the Minister on cause shown grants, the Minister shall, as soon there- after as possible, select and appoint a judge of any court of record in Canada to be the third member of the Board. (5) The third member of the Board shall be its chair- man. (6) A vacancy in the membership of a Board shall be filled in the same manner as an original appointment is made. 13. No person shall act as a member of the Board who is one of the applicants for the Board or who has any direct pecuniary interest in the alleged combine that is the subject of investigation by such Board, or who is not a British sub- ject. 14. As soon as possible after all the members of the Board have been appointed by i^f Minister, the Registrar shall no- tify the parties of the names of the chairman and other members of the Board. 15. Before entering upon the exercise of the functions of their office the members of the Board shall take the following oath: 474 APPENDIX G^4 I, , do solemnly swear That I will truly, faithfully, and impartially perform my duties as a member of the Board appointed to investi- gate . That I am a British subject. That I have no direct pecuniary interest in the alleged combiae that is to be the subject of investigation. That I have not received nor will I accept either directly or indirectly any perquisite, gift, fee, or gratuity from any person in any way interested in any matter or thing to be investigated by the Board. That I am not immediately connected in business with any of the parties applying for this investigation, and am not acting in collusion with any person herein. INQUIRY AND REPORT 18. The Board shall expeditiously, fully, and carefully in- quire into the matters referred to it and all matters affecting the merits thereof, including the question of whether or not the price or rental of any article concerned has been unrea- sonably enhanced, or competition in the supply thereof unduly restricted, in consequence of a combine, and shall make a full and detailed report thereon to the Minister, which report shall set forth the various proceedings and steps taken by the Board for the purpose of fuUy and carefully ascertaining all the facts and circumstances connected with the alleged combine, including such findings and recom- mendations as, in the opinion of the Board, are in accord- ance with the merits and requirements of the case. (2) In deciding any question that may affect the scope or extent of the investigation, the Board shall consider what is required to make the investigation as thorough and com- plete as the public interest demands. 19. The Board's report shall be in writing, and shall be APPENDIX G-4 47S signed by at least two of the members of the Board. The report shall be transmitted by the chairman to the Registrar, together with the evidence taken at such investigation certi- fied by the chairman, and any documents and Piapers remain- ing in the custody of the Board. A minority report may be made and transmitted to the Registrar by any dissenting member of the Board. 21. Whenever, from or as a result of an investigation under the provisions of this Act, or from or as a result of a judgment of the Supreme Court or Exchequer Coiu-t of Canada or of any superior court or circuit, district or county court in Can- ada, it appears to the satisfaction of the Governor in Coun- cil that with regard to any article there exists any combine to promote unduly the advantage of the manufacturers or dealers at the expense of the consumers, and if it appears to the Governor in Council that such disadvantage to the consumer is facilitated by the duties of customs imposed on the article, or on any like article, the Governor in Council may direct either that such article be admitted into Canada free of duty or that the duty thereon be reduced to such amount or rate as will, in the opinion of the Governor in Council, give the public the benefit of reasonable competi- tion. 22. In case the owner or holder of any patent issued under the Patent Act has made use of the exclusive rights and privileges which, as such owner or holder he controls, so as unduly 'to limit the f acihties for transporting, producing, manufacturing, supplying, storing, or dealing in any article which may be a subject of trade or commerce, or so as to restrain or injure trade or commerce in relation to any such article, or unduly to prevent, limit, or lessen the manufacture or production of any article or imreasonably to enhance the price thereof, or unduly to prevent or lessen competition in the production, manufacture, purchase, barter, sale, trans- 476 APPENDIX G-4 portation, storage, or supply of any article, such patent shall be liable to be revoked. And, if a Board reports that a patent has been so made use of, the Minister of Justice may exhibit an information in the Exchequer Court of Canada praying for a judgment revoking such patent, and the court shall thereupon have jurisdiction to hear and decide the matter and to give judgment revoking the patent or other- wise as the evidence before the court may require. 23. Any person reported by a Board to have been guilty of unduly Umiting the faciUties for transporting, producing, manufacturing, supplying, storing, or deahng in any article which may be a subject of trade or commerce; or of re- straining or injuring trade or commerce in relation to any such article; or of unduly preventing, limiting, or lessening the manufacture or production of any such article; or of unreasonably enhancing the price thereof; or of unduly pre- venting or lessening competition in the production, manufac- ture, purchase, barter, sale, transportation, storage, or sup- ply of any such article, and who thereafter continues so to offend, is guilty of an indictable offence and shall be liable to a penalty not exceeding one thousand dollars and costs for each day after the expiration of 10 days, or such further extension of time as in the opinion of the Board may be necessary, from the date of the publication of the report of the Board in the Canada Gazette during which such person so continues to offend. SITTINGS OF BOARD 25. The proceedings of the Board shall be conducted in public, but the Board may order that any portion of the pro- ceedings shall be conducted in private. 26. The decision of any two of the members present at a sitting of the Board shall be the decision of the Board. 27. The presence of the chairman and at least one other APPENDIX G-4 477 member of the Board shall be necessary to constitute a sit- ting of the Board. 28. In case of the absence of any one member from a meeting of the Board the other two members shall not pro- ceed, unless it is shown that the absent member has been notified of the meeting in ample time to admit of his attendance. REMUNERATION AND EXl»ENSES OF BOARD 40. No member of the Board shall accept, in addition to his travelling expenses and allowances as a member of the Board, any perquisite, gift, fee, or gratuity of any kind from any person in any way interested ia any matter or thing that is being investigated by the Board. The acceptance of any such perquisite, gift, fee, or gratuity by any member of the Board shall be an offence, and shall render such member hable upon summary conviction to a fine not exceeding one thousand dollars, and he shall thereafter be disqualified to act as a member of any Board. MISCELLANEOUS 42. No proceedings under this Act shall be deemed invaUd by reason of any defect of form or any technical irregularity. 43. Evidence of a report of a Board may be given in any court by the production of a copy of the Canada Gazette purporting to contain a copy of such report, or by the pro- duction of a copy of the report purporting to be certified by the Registrar to be a true copy. 44. The Minister shall determine the allowance or amounts to be paid to all persons, other than the members of a Board employed by the Government or any Board, including the secretaries, clerks, experts, stenographers, or other persons performing any services under the provisions of this Act. 45. The Governor in Council may make such regulations, not inconsistent with this Act, as to him seem necessary tot 478 APPENDIX G-5 carrying out the provisions of this Act and for the eflBcient administration thereof. (2) Such regulations shall be published in the Canada Gazette, and upon being so published they shall have the same force as if they formed part of this Act. (3) The regulations shall be laid before both Houses of Parliament within fifteen days after such publication if Parliament is then sitting, and if Parliament is not then sitting then within fifteen days after the opening of the next session thereof. 46. The Minister shall lay before Parliament, within the first fifteen days of the then next session, an annual report of the proceedings imder this Act. 5. RUSSIA The chief provisions of the law affecting industrial com- binations in Russia are found in Section 242 of the new Criminal Code, which received imperial sanction on March 22, 1903, namely: Sec. 242. A merchant or manufacturer who increases the prices of victuals or other articles of prime necessity in an extraordinary degree in accord with other merchants or manufacturers dealing in the same articles shall be punished with imprisonment. If the culprit took advantage of the extreme need of the local population caused by the scarcity of these articles, he shall be pvmished with imprisonment of not less than three months. A merchant or a manufacturer who increases the prices of victuals or other articles of prime necessity in an extraor- dinary degree to take advantage of the extreme need of the local population caused by the scarcity of such articles, is subject to the punishment fixed in paragraph one of this section. APPENDIX G-6 479 The chief sections of the Penal Code of 1885 relating to combinations are likewise given here. Sec. 913. For a conspiracy, an understanding, or other agreement among dealers for the purpose of increasing prices of articles of consumption the culprits shall be subject to punishments and fines provided by Section 1180 of the pres- ent Code. Sec. 1180. In case of a conspiracy among merchants or manufactm-ers for the purpose of increasing not only the prices of victuals but also of other articles necessary for con- sumption or for an undue decreasing of the price with a view to impeding those who transport or supply these articles and thereby preventing also their further and larger supply the ringleaders of such imlawful agreements shall be subject to imprisonment for a term of from four to eight months; and the rest of them who only participated therein shall be pimished, in accordance with the degree of their participa- tion either by imprisonment of from three weeks to three months; or by a fine not exceeding two hundred roubles. If, however, such a conspiracy caused an actual scarcity of articles of prime necessity and this led to a disturbance of social peace, then the ringleaders shall be punished by the deprivation of certain special rights and privileges, ia ac- cordance with Section 50 of this Code, and by imprisonment for a term of from one year and foiu* months to two years; and the rest of the culprits by imprisonment for a term of from four to eight months. 6. GERMANY In Chapter XII the general tendency of the laws in the leading European countries has been considered. How- ever, inasmuch as the tendency of legislation in the United States at the present time seems to be directed especially against unfair competition it has been thought best to in- 480 APPENDIX G-6 elude here the detailed German law against unfair competi- tion of June 7, 1909, as follows: 6. GERMAN LAW AGAINST UNFAIR COMPETITION OF JUNE 7, 1909 We, William, by the Grace of God, German Emperor, King of Prussia, etc., decree in the name of the Kingdom, with the consent of the Federal Council and of the Imperial Diet, as follows : Sec. 1. Whoever in business affairs, for the purpose of competition, commits acts which are repugnant to good mor- als may be subject to an action to desist therefrom and to pay damages. Sec. 2. Under goods, within the meaning of this law, agri- cultural products are also to be understood, under industrial services and interests, agricultural services and interests also. Sec. 3. Whoever in public advertisements or in com- munications intended for an extensive group of persons, makes incorrect statements regarding business relations, especially regarding the quality, the origin, the method of production, or the scale of prices of goods or industrial ser- vices, regarding the kind of supply or the source of supply of goods, regarding the possession of marks of distraction, re- garding the cause or the purpose of the sale, or regarding the quantity of the stocks, which are adapted to create the im- pression of an especially favorable offer, is subject to an ac- tion to desist from such incorrect statements. Sec. 4. Whoever, with the intention to create the impres- sion of an especially favorable offer, knowingly makes untrue statements and statements adapted to mislead, in public advertisements or in communications intended for an exten- sive group of persons, regarding business relations, espe- cially regarding the quality, the origin, the method of produc- APPENDIX G-6 481 tion or the scale of prices of goods or industrial services, re- garding the kind of supply or the source of supply of goods, regarding the possession of marks of distinction, regarding the cause or the purpose of the sale, or regarding the quantity of the stock, is punished with imprisonment up to one year and with a fine up to 5,000 marks, or with one of these pen- alties. If the incorrect statements specified in paragraph 1 were made in a busiaess estabhshment by an employee or repre- sentative, then the proprietor or manager of the concern is punishable besides the employee or representative, if the action happened with his knowledge. Sec. 5. The use of names which in business dealings serve to specify certain goods or industrial services, without in- tending to specify their provenance, is not included under the provisions of Sections 3 and 4. In the sense of the provisions of Sections 3 and 4, pictorial pre^ntaltions and other contrivances which are calculated and adapted to replace such statements are to be regarded in the same way as the specified statements. Sec. 6. If in public advertisements or in communications intended for an extensive group of persons, the sale of goods is announced, which came from a bankrupt stock, but no longer belong to such bankrupt stock, it is forbidden to make any reference to the origin of the goods from a bank- rupt stock. Violations of this provision will be punished with a fine up to 150 marks or with arrest. Sec. 7. Whoever in pubKc advertisements or in com- munications which are intended for an extensive group of persons announces the sale of goods under the designation of a closing out sale is obhged in the announcement to give the reason which has given occasion to the closing out sale. Through the superior administrative authorities, after 482 APPENDIX G-6 hearing given to the proper legal representatives of industry and trade, regulations may be made for the announcement of certain kinds of closing out sales, to the effect that no- tices regarding the reason of the closing out sale and the time of its beginning be provided at a place to be designed by them, as well as a list furnished of the goods to be sold out. The inspection of the list is permitted to every one. Sec. 8. Whoever in case of the announcement of a closing out sale places goods for sale, which have been procured merely for the purpose of a closing out sale (so-called re- plenishment of goods), is punished with imprisonment up to one year and with a fine up to 5,000 marks, or with one of these penalties. Sec. 9. The announcement of a closing out sale within the meaning of Section 7, paragraph 2, and of Section 8, applies also to every other announcement which relates to the sale of goods on account of winding up business, giving up a particular kind of goods, or getting rid of a specific stock of goods from the existing supply. With respect to season and inventory sales, which in the announcement are specified as such and are customary in regular business, the provisions of Sections 7 and 8 have no application. Concerning the number, time, and duration of the customary season and inventory sales, the superior administrative authorities may make regulations after hear- ing the proper legal representatives of industry and trade. Sec. 10. With fines up to 150 marks or with arrest is punished — (1) Whoever, contrary to the provisions of Section 7, paragraph 1, neglects, in the announcement of a closing out sale, to give the reason which has given occasion to the clos- ing out sale: (2) Whoever violates the regulations issued on the basis APPENDIX G-6 483 of Section 7, paragraph 2, or in complying with these regu- lations makes incorrect statements; (3) Whoever violates the regulations provided by the superior administrative authorities on the basis of Section 9, paragraph 2, and sentence 2. Sec. 11. By decision of the Federal Council it may be determined that certlaia goods in retail trade may be sold or offered for sale only in prescribed units of number, volume, or weight, or with a description upon the article or its cover- ing concerning the number, measure, weight, place of pro- duction, or place of origia of the article. For the retail trade in beer in bottles or jugs, the descrip- tion of the content can be prescribed with provision of suit- able Umits of toleration for error. The regulations prescribed by the Federal Council are to be pubUshed in the Imperial Gazette and laid before the Imperial Diet immediately or at its next meeting. Conduct contrary to the regulations of the Federal Coim- cil is punished with a fine up to 150 marks or with arrest. Sec. 12. Whoever in business dealings for the purpose of competition offers, promises, or grants presents or other advantages to the employee or representative of a business, in order to obtain through improper conduct of the employee or representative an advantage for himself or a third person in the supply of goods or industrial services, is punished with imprisonment up to one year and with fine up to 5,000 marks or with one of these penalties, unless a heavier penalty is incurred imder other legal provisions. The same punishment applies to an employee or repre- sentative of a business establishment who in business deal- ings demands, allows to be promised, or accepts presents or other advantages in order that he through improper conduct may give another a preference in the supply of goods or in- dustrial services. 484 APPENDIX G-6 In the judgment, the thing received or its value is to be declared forfeited to the state. Sec. 13. In the cases of Sections 1 and 3 the action to desist can be brought by every manufacturer who produces goods or services of a like or related kind, or handles them in trade, or by associations for the promotion of industrial interests, in so far as the associations as such can sue in civil litigation. These manufacturers and associations can also bring an action to desist q,gainst those who violate Sections 6, 8, 10, 11, and 12. For compensation of the damage arising from the violation is responsible: (1) Whoever in case of Section 3 knew or should have known the incorrectness of the statements made by him. Against editors, publishers, printers, or distributors of printed periodicals, the claim for compensation of damage can be made effective only if they knew the incorrectness of the statements. (2) Whoever intentionally or negligently violates Sec- tions 6, 8, 10, 11, and 12. If acts which are not permitted according to Sections 1, 3, 6, 8, 10, 11, and 12, are committed in a business es- tablishment by an employee or representative, the action to desist therefrom may also be brought against the owner of the estabUshment. Sec. 14. Whoever for the purpose of competition asserts or circulates facts concerning the business of another, con- cerning the personality of the owner or manager of the busi- ness, concerning the goods or industrial services of another, which are adapted to injure the operation of the business or the credit of the owner, is bound, in so far as the facts are not demonstrably true, to make compensation for the dam- age arising therefrom. The injured party may also demand that the assertion or circulation of the facts cease. APPENDIX G-6 485 If it relates to confidential communications and if the communicant or the recipient of the communication has a rightfiJ interest therein, then the action to desist is only permissible when the facts are asserted or circulated contrary to the truth. The claim for compensation of damages can be made only if the communicant knew or should know the incorrectness of the facts. The provisions of Section 13, paragraph 3, have corres- ponding application. Sec. 15. Whoever against better knowledge asserts or circulates facts contrary to the truth concerning the business of another, concerning the personahty of the owner or man- ager of the business, concerning the goods or industrial ser- vices of another, which are adapted to injure the operation of the business is punished with imprisonment up to one year and with a fine up to 5,000 marks, or with one of these penalties. If the facts specified in paragraph 1 are asserted or cir- culated by an employee or representative in a business es- tablishment, then the owner of the estabUshment, besides the employee or representative, is pimishable, if the act hap- pened with his knowledge. Sec. 16. Whoever in business dealings uses a name of a person, a firm name, or the special designation of a business establishment, of an industrial undertaking or of printed matter in a manner which is adapted to produce confusion with the name, firm name, or special designation, which an- other properly uses, may be made subject by the latter to an action to desist from such use. The user is bound to compensate the injured party for damages if he knew or ought to know that the improper kind of use was adapted to produce confusion. Equivalent to the special designation of a business estab- lishment are such business insignia and other distinctive 486 APPENDIX G-6 fittings for distinguishing the establishment from other es- tablishments, which are used within the business circles affected as marks of distinction of a business establishment. For the protection of trade marks and the dress of goods (Sections 1 and 15 of the Law for the Protection of Trade Marks of May 12, 1894, Imperial Gazette, p. 441), these pro- visions have no application. The provisions of Section 13, paragraph 3, have corres- ponding application. Sec. 17. Whoever as employee, laborer, or apprentice of a business establishment, for the purpose of competition or with the intention to do injury to the owner of the business establishment, imparts to others without authority commer- cial or manufacturing secrets, which are confided to him on account of his employment or otherwise have become acces- sible to him during the period of employment, is punished with imprisonment up to one year and with a fine up to five thousand marks or with one of these penalties. Like penalties affect him who, without authority, for the purpose of competition makes a profit from or imparts to another commercial or manufacturing secrets, the knowledge of which he acquired through one of the means of com- munication specified in paragraph 1, or through his own act, contrary to law or in a manner repugnant to good morals. Sec. 18. Whoever witiiout authority, for the purpose of competition, makes a profit from or imparts to another plans or rules of a technical character, especially drawings, models, patterns, dress patterns, or recipes, which are confided to him in business dealings, is punished with imprisonment up to one year and with a fine up to five thousand marks or with one of these penalties. Sec. 19. Acts contrary to the provisions of Sections 17 and 18 obUgate furthermore compensation for the injury APPENDIX G-6 487 arising therefrom. Several obligors are responsible as joint debtors. Sec. 20. Whoever for the purpose of competition under- takes to induce another to do an act contrary to the provi- sions of Section 17, paragraph 1, and Section 18, is punished with imprisonment up to nine months and with a fine up to 2,000 marks or with one of these penalties. Sec. 21. The action to desist or for compensation for injury specified in this law is outlawed within six months from the time in which the person entitled to the action ac- quires knowledge of the act and of the person liable, and, without regard to this knowledge, within three years from the committing of the act. For the claims to compensation for injury the period of prescription does not begin before the time in which an in- jiu-y arose. Sec. 22. Criminal prosecution takes place, with the ex- ception of the cases specified in Sections 6, 10, and 11, only upon complaint. In the cases of sections 4, 8, and 12 every manufacturer and association specified in Section 13, para- graph 1, has the right to make the complaint. The withdrawal of the complaint is permissible. Punishable acts, whose prosecution occurs only upon com- plaint, can be prosecuted by way of private suit by those qualified to make the complaint, without requiring a previ- ous complaint to the State prosecuting oflBcers. Public com- plaint is made by the State prosecuting officers only if this is in the pubKc interest. If prosecution occurs by way of private suit, then the "Schoffen" courts* have jurisdiction. Sec. 23. If in the cases of Sections 4, 6, 8, and 12, a pen- alty is adjudged, then it may be ordered that the condemna- tion be made publicly known at the cost of the culprit. *Cojirta of inferior jurisdiction haviog one professional and two lay judges or assessors. 488 APPENDIX G-6 If in the cases of Section 15 a penalty is adjudged, then the injured party is allowed the right to have the condemnation made publicly known within a definite time at the cost of the condemned person. Upon the request of the accused who has been acquitted, the Court may order the public announcement of the acquit- tal; the State treasury bears the cost in so far as the same is not imposed on the accuser or the private complainant. If upon the basis of one of the provisions of this law an action to desist is brought, then the successful party may be granted in the judgment the right to have the decree part of the judgment made publicly known within a definite period at the cost of the defeated party. The manner of the announcement is to be determined in the judgment. Sec. 24. For complaints upon the basis of this law the court in whose district the defendant has his business estab- lishment, or in absence of that, his domicile, has exclusive jurisdiction. For persons who have neither a business es- tablishment nor domicile within the country, the court of the place of sojourn within the country, or when such is not known, the court in the district in which the act occurred, has exclusive jurisdiction. Sec. 25. For enforcing the actions to desist specified in this law temporary orders may be made, even if the pre- requisites specified in Sections 935 and 940 of the Code of Civil Procedure do not apply. The District Court also has jurisdiction within whose district the dealings occurred upon which the action is based; besides the provisions of Section 942 of the Code of Civil Procedure apply. Sec. 26. Besides a penalty inflicted in accordance with this law, upon demand of the injured party, a money fine, to be paid to him, may be adjudged up to the amount of ten thousand marks. For this fine those condemned thereto APPENDIX G-6 489 are responsible as joint debtors. An adjudged fine excludes the right to make further claims for compensation for dam- ages. Sec. 27. Civil suits, in which, by complaint, an action is brought on the basis of this law, in so far as the State courts have original jurisdiction, belong before the chambers for business cases. In civil suits, in which, by complaint or counter com- plaint, an action is brought on the basis of this law, the pro- ceedings and decision in the last instance, according to Sec- tion 8 of the introductory law to the law for the organization of the courts, are referred to the Imperial Court. Sec. 28. Whoever does not possess a principal place of business within the country has a claim to the protection of this law only in so far as, in the State in which his principal place of business is found, German manufacturers enjoy a corresponding protection, according to an annoimcement contained in the Imperial Gazette. Sec. 29. What authorities in each federal State are to be imderstood under the designation of superior administrative authorities in the meaning of this law is determined by the central authorities of the federal States, Sec. 30. This law takes effect October 1, 1909. At that time the Law for Preventing Unfair Competition of May 27, 1896 {Imperial Gazette, p. 145), ceases to have force. Authenticated under our own august signature and aflSxed .imperial seal. Issued at New Palace, June 7, 1909. Seal William. VON Bethmann-Hollweg. APPENDIX H SELECTED READING REFERENCES ON TRUSTS Annals of Academy of Political and Social Science. "Industrial Competition and Combination" (1912). Carter, George R. "The Tendency Toward Industrial Combination" (1913). A study of industrial combinations in Great Britain. Cook, William W. "A Treatise on the Law of Corpora- tions" (7th edition, 1913). Dewing, A. S. "Corporate Promotion and Reorganiza- tions" (1914). Haney, Lewis H. "Business Organization and Combina- tion" (1913). Harvey, R. S. and Bradford, E. W. "A Manual of the Federal Trade Commission" (1916). Treats origin, development, and construction of anti- trust laws of the United States — ^with selected Deci- sions, Rules of Practice, Forms, etc. Levy, H. " Monopoly and Competition " (1911) . A study of conditions in Great Britain. Macrosty, H. W. "The Trust Movement in British In- dustry" (1907). Mead, E. S. "Trust Finance "(1903). National Civic Federation. "The Trust Problem" (1912). A symposium on the Trust situation. Pierce, Franklin. " The Tariff and the Trusts " (1907) . Stevens, W. A. — (Ed). "Industrial Combinations and Trusts" (1913). Useful collection of documentary and other material 490 APPENDIX H 491 illustrative of the development of Trusts and of the con- trol of Trusts. Tait, W. H. " The Anti-Trust Act and the Supreme Court " (1914). Taebell, Ida M. "The History of. the Standard Oil Company" (1904). Thornton, W. W. "A Treatise on the Sherman Anti- Trust Act" (1913). Covers history and interpretation of the Sherman Act. Has table of nearly 1,200 case citations in State and Fed- eral Courts. Van Hise, C. R. " Concentration and Control " (1912) . Wyman, B. "The Control of the Market " (1911) . TJNITED STATES GOVERNMENT PUBLICATIONS: "Federal Anti-Trust Decisions" (4 vols.) (1912). Contains Circuit, District, and Supreme Court decisions in Federal Anti-Trust cases from 1890 to 1912. In some cases gives excerpts from briefs for the government or the corporations. "The Federal Anti-Trust Laws with Amendments " (1916). Contains full text of all Federal Anti-Trust Laws, to- gether with a list of aU cases instituted thereunder by the United States and citations of these cases. Last edition, July 1, 1916. "Laws on Trusts and Monopolies Domestic and Foreign" (1914). Compiled by Nathan B. Williams for the use of the Committee on the Judiciary, House of Representatives. Contains text of all Federal and of all State Anti-Trust laws, with selected case citations thereunder and texts of Anti-Trust laws of the following nations: Australia, Canada, Cape of Good Hope, Great Britain (with ab- stract and citation of selected British cases from 1415 to 1894), Japan and New Zealand. 492 APPENDIX H "Trust Laws and Unfair Competition" (1915). Compiled by the Bureau of Corporations of the Depart- ment of Commerce and gives in full laws regarding Trusts and unfair competition in force in the U. S., in various states, and in foreign countries. A complete source book. EEPOBTS OP THE ATTOENET-GENEHAL OF THE TJNITED STATES AND GOVERNMENT BRIEFS OP LEADING TRUST CASES "Reports of the Bureau of Corporations — 1904 to present." Especially the special reports of investigations of par- ticular industries — ^the Beef Industry (1905), the Pe- troleum Industry (1906, 1907), the Tobacco Industry (1909, 1911, and 1915), the Steel Industry (1911, 1912, and 1913), the Lumber Industry (1913 and 1914) and the International Harvester Company (1913). "Reports of the Federal Trade Commission" — 1915 to present. This Commission has already published several special reports: Cooperation on American Trade (2 vols.). Trade and Tariffs in South America, Pipe Line Transporta- tion of Petroleum, the Fertilizer Industry, Gasoline Prices, the Beet Sugar Industry, and Mexican Sisal Hemp. It is now making general investigations of the Petroleum Industry, the Anthracite Coal Industry, the Bituminous Coal Industry, and the Paper Industry. "Reports of the Industrial Commission" — 1900-1902. Vols. I, II, Xni, XVIII, and XIX deal with Trusts. For current facts about industrial combinations consult the Annual Volumes of either Moody's or Poor's Manuals on Industrials. For an exhaustive bibliography on Trusts up to 1907, consult the U. S. Library of Congress — A list of books relating to trusts (with references to periodicals) by A. P. C. Griffin— 3d edition, 1907. INDEX Accounting, Comparative, 48, 101; Bradford Dyers' Association, 222 Adamson Act, 197 Addyston Pipe Company, Price fijdng, 105; Federal Court case, 290-92 Advertising, Combinations curtail cost of, 27; Magazine and newspaper, 36 American Federation of Labor, Power of, 15, 188-89 American Spirits Manufacturing Com- pany, 143 American Steel and Wire Company, Salesmen dispensed with, 33; Controls barb wire, 61, 75; Formation of, 162-63; Prices and margin, 163-75; Shutdown. 165; Corijoration takes over, 166; Monopoly in barb wire, 167 American Steel Hoop Company, Wastes avoided, 44; Management, 117 Americran Sugar Refining Company, Early study of, 4; Large stocks an advan- tage, 39; Combination profitable, 42-43; Competitors' prices, 66, 67, 70, 73; Havemeyer's ambition, 75; Prices, 127, 128, 131, 134; Corrupt politics, 199-200; History outlined. 343-47 American Tin Plate Company, Plan of organization, 87-89, 111, 160; Management. 117; Prices. 157-59; Labor costs, 158 American Tobacuso Company, Prices unaffected by di^lution. 38; Markets secured by successor, 77 Federal Court decisions, 296, 300; History outlined, 347-63 Anti-Monopoly Organization, 243 Anti-Trust Laws, State, Texas, 384-95; New Jersey, 396-407 See also State Anti-Trust Legislation "Anti-Trust Act and the Supreme Court, The" by W. H. Taf t, 491 Australia, Industrial leraslation, 460-65; Australian Industries Preservation Act, 460-65 Austria, Coal and iron syndicates, 221; Sugar re- fineries and prices, 221; Corporations, 222; Capitalization, 226; Protective tariff 229; Iron prices, 230; Hostility toward combinations, 232, 236-38; Recommen- dations of Department of Trade and Industry. 236-37 Banking Syndicate, Monopolistic control, 55 Barb Wire, See Iron and Steel Bibliography, 492 Birmingham Alliances, Avoidmg strikes, 195-96 Bonds, Definition, 79; Replaced by stocks, 84-86; Bonded railways, 83; Underwriting, 90 Bradford Dyers' Association, 222. 231 British-American Tobacco Company, Foreign markets, 55, 77 Bureau of Corporations, 262, 263, 268, 415-17 "Bureau of Corporations, Reports of the," reviewed, 492 Bureau of Labor, 259 "Business Organization and Combina- tion," by Lewis H. Haney, 490 By-Products, Profit from, 49, 150; Oil refineries, 150, 152 Canada, Combines Investigation Act, 469-78 Capital, Capitalistic monopoly, 5, 10; Proposed N. Y. Business Companies' Act, 9; National wealth, 12, 13; Centralization and control of, 13, 15-21; Manufactures in U. S., 16-20; and Cost of production, 21-22; In competition, 28-30; Monopol- istic power of, 63-78; Price control, 68-73; Secures special favors, 74-75; Trade extension through, 76-78; Promot- ing an organization, 79 et seq.; And labor umons, 188, 189-90; Manufacturing plants, growth of, 242 Capitalistic Monopoly, Early use of term, 5. 10; Advantages and limitations, 61-78 Capitalization, Basis of, 95-103; Issuance of stock, 95; Massachusetts law, 95-96; Puerto Rico, 95; Earning capacity determines value, 96, 97; Conditions affect profits, 96-98; Bryan on, 96; Monopolistic franchises, 97-98; Advantage of large, 98-99 Speculation, 99; Stock watering, 99: Reproduction values, 100; Illegal divi- dends, 100-01; Remedying evils, 101-02 In Europe, 225-26 Carnegie Company, Organization, 166, 168 Charts, Price, Sugar, 125, 137; Whiskey, 141; Petroleum, 149; Tin plate, 157; Iron and steel, 160, 174 Clajrton Act, Labor clause, 259; Passage of. 263, 265; Provisions, 271-75. 435-55 Coal, Regulations for. 105, 106; Selling bureau, 221; German syndicate, 230, 232, 235; Federal Commission reports, 492 Combination, Review of industrial, 3-11; Phases of, 12-13; Cheapens cost of production, 21-22; Economics of. 23-30, 50; Sugar Trust. 28, 42; Prevents waste. 31 et seq.; Eliminating salesmen, 33-36; Freight expenses, 41; Whiskey Trust, 41-42, 108; Leather, 45; Patents and monopoly, 45; System of accounting, 48; Raw material. 493 494 INDEX Combination^Con/l»ue(f control of, 49-50; Favors to industrial, 51-60; International, with Germany, 53-54; And monopoly, 61-78; Price con- trol, 63-74; Prices and economies, 122-80; Savings, and wages, 181-197; Political and social effects of, 198-216; European industries, 217-40; Begiiming of, in manufactures, 242; International Harvester Co., 374 See also Concentration See also Monopoly Combines Investigation Act, 469-78 Competition, Retail trade, 23-26; Dealers' associations, 24-25; Price cutting, 25, 26, 27; Testing goods, 26-27; Early combinations, 27; Fixed capital, 28-30; Sugar Trust, 28, 42; Wastes of, 31-50; Monopoly prices, 31-32; Travelling Salesmen, 33-35; Competitive advertising, 36-38; Losses through cred- its, 38; Large stocks advantageous, 39; Cross freights, 40-41; Restricting output, 41-43; Diversity of manufacture, 44-45; Patents, 45; Skilful organization, 45-50; Monopolistic control, 61-78; And prices, 122-80; Sugar refineries, 129-37; Spreckels, 134; Arbuckle-Doscher, 134; Distillers, 141-46; Oil refineries, 150-55; Tin plate, 160; Wire nail pool, 162; Pro- tection against monopoly, 178, 180; Power developed by, 202; Weak com- petitors, 202-04; Ruinous, 205; Nepo- tism, 206-07; International Harvester Co., 375 See also Monopoly Concentration, Industrial inventions bring about, 12, 13- 21; How evidenced, 12-13; Census data on manufactures, 15-21; Centralized capital, 12, 13, 16-21; Populations, 12-13; American Federation of Labor, 15 "Concentration and Control," by C. R. Van Hise, 491 "Control of the Market, The," by B. Wyman, 491 "Corporate Promotion and Reorganiza- tion," by A. S. Dewing, 490 Corporation Laws, Massachusetts, 95-96; Improvements needed, 121; European, 233-39, 459; Anti-trust legislation, 241-48; Statute of Texas, 247; New Jersey corporation acts, 249-52; Texas, 384-95; New Jersey statutes, 396-407; Treatise on, 490 Corporations, Influence of, 160; U. S. Steel, 166-76; Unfavorable to trade unions, 184, 363; Bureau of, 262, 415; DUl on, 313; Oil. 335-37 See also Combinations See also Trusts Credits, Combination prevents losses, 38 Decisions, Government publication on, 491 See also Federal Court Cases Demolins, M., "Anglo-Saxon Superiority," 202 Department of Commerce and Labor, Established in 1903, 262 Department of Trade and Industry, Regulates combinatiaas, 238-37 DistiUeries, Competitive waste, 35-36, 39, 41-42; Pools, 104-05, 107, 141-42; Profits and prices, 141-49; Distilling and Cattle Feeding Co., 141, 143, 147, American Spirits Mfg. Co., M3; Distillers' Se- curities Corporation,-'143, 145, 147; Dis- tilling Company of America, 143-44 Distillers* Securities Corporation, Business conditions, 145; Reports of, 147 Distilling and Cattle Feeding Company, Prices of material, 141; In receiver's hands, 143 Distilling Company of America, Methods of securing trade, 39; Manage- ment, 91, 117, 143, 144 Duluth and Iron Range Railroad Com- pany, Stock to Federal Steel Co., 115 England Form of combination, and causes, 217-18; Bradford Dyers' Association, 222, 231, Brass bedstead combination, 223-25; 231; Stock corporation law, 233; Indus- trial legislation in Great Britain, 459-60; British industry, publication on, 490 European Industrial Combinations, Extent of control, 217, 240; Single corpora- tions of England, 217; Prevent ruinous competition, 218; Influences restrain growth of, 219-20; Limiting output, 220; Form of, 221 ; Coal and iron syndicates, 221; Sugar combinations, 221; Bradford Dyers' Association, 222; 231, Compara- tive accounting, 222; Calico Printers' Association, Ltd., 222; Corporations, 222; Brass bedstead combination, 223-25; Capitalization, 225-26; Prices and mar- gin, 226-30, 232; Tariff, 227-30; Opposi- tion to labor unions, 230; Public attitude toward, 231-32; German coal syndicate, 232-33, 235; Socialist movement, 233, 240; Legislation, 233-38; Potash Syndi- cate, 235; German control of petroleum, 235; Austrian opposition, 236-38; De- partment of Trade and Industry, recommendations, 236-38; War's influ- ence, 238-40; Kartells, 239 See also Foreign Legislation European War, Sugar market at outbreak of, 135-37; Price variations in com, 147-48, Petro- leum prices, 155; Steel prices maintained, 168-69; Export problems, 229 Expediting Act, 413-15 Federal Anti-Trust Law, 408-11 "Federal Anti-Trust Decisions," reviewed, 491 "Federal Anti-Trust Laws with Amend- ments," reviewed, 491 Federal Court Cases, Northern Securities Co. decision, 113; Suits filed since 1890, 280; Labor cases, 280-81; Shipping, 281; Anti-trust, 281-82; Infrequent prosecutions, 282-83; Knight case reviewed, 283-86; Trans-Missouri Freight Association case, 286^9; Joint Traffic Association Case, 289-90; Addys- ton Pipe case, 290-92; Northern Securities Company, 292-96; Oil and Tobacco cases, 296; Standard Oil Company, 297- 800; Tobacco case decision, 300; Suit* INDEX 495 Federal Court Casea—Coniimied pending, 301; United Shoe Machinery *-ompany case, 301; Government reports on, 491-92 Federal Steel Company, ,'?™*'"^t>on. U5; Stock purchased by, 115; Management, 116; Mines and ore, _ . 11&-17; Integrating plan, 117 A? Trade CommUsion, Absorbs Bureau of Corporations, 262; Act passed, 263, 265; Svunmary of provisions. 266-70. 2ra; Object of, 279; Act to SI ^_ 422-35; Manuals and reports, 490, 492 Federal Trade Commission, Manual of the, by R. S. Harvey and E. W. Brad- ford, 490 "Federal Trade Commission, Reports of the, reviewed, 492 Federal Trust Legislation, Sherman Anti-Trust Act, 254-58. 259-60; Excerpts from Sherman address, 256-58; Clayton Act, 258-59, 263, 265, 267, 271- 75; Wilson Tariff Act, 260; Harlan recommendation, 261; Industrial Com- m^ion, 261; Knox recommendation, 261; Department of Conunerce and Labor, 262; Bureau of Corporations. 262, 263, 268; Federal Trade Commission, 262, 263, 265, 26&-70, 273, 279, 422-35; Panama Canal Act, 263. 419-22; Plat- forms, 264-65, 273; Economic survey of, 275-79; 'Fields of development, 276-78; Federal Anti-Trust Law, 408-11; Wilson Tariff Act. 411-13; Expediting Act, 413- 15; Bureau of Corporations. 415-16; Immunity provisions, 417-18; Judicial Code, 419; Federal Trade Commission Act, 422-35; Clayton Act, 435-55; Sun- dry Civil Act, 455-56; Webb Bill, 456-58 Financiers, Identified with promoters, 89, 91, 92; Evils of promotion, 92, 93-94 Foreigfn Legislation, Great Britain, 459-60; Australia, 460-65; New Zealand, 465-69; Canada, 469-78; Russia, 478-79; Germany, 479-89; Com- pilation of laws, by N. B. Williams, 491 See also European Industrial Combinations France, Coal and iron syndicates, 221, 230; Capital- ization, 226; French Penal Code, and combinations, 234 Freigfht Rates, Saving in cross, 40; Standard Oil Co. and discrimination, 40, 41, 43, 55, 58, 74; Rebates, 55-56; Shippers render service, 57; Combinations, 68, 74 Germany, Industrial combinations, 217; Coal and iron syndicates, 221, 230, 235; Sugar refineries, 221: Corporations, 222; Capi- talization. 226; Index numbers, 226; Iron combinations, 230; Coal prices, 232-33; Court decisions, 234-35; Potash Syndical-e, 235; Bill to control petroleum, 235; Favors combinations, 238, 240; Kartells, 239-40; Law against unfair competition, 480-89 GovernmenV: Publications, Reviews of, 491-92 Havemeyer, Henry O., Note§ waate of competition, 42; On high Havemeyer, Henry O. — Continued tariffs, 51; And sugar refining, 75, 127; Congressional testimony by, 199 "History of the Standard Oil Company, The," by Ida M. Tarbell, 491 History, Standard Oil Co., 334-43; American Sugar Refining Co., 343-47; American Tobacco Co., 347-63; U. S. Steel Corporation, 363-71; International Harvester Co. 371-83; Tarbell on Standard Oil Co., 491 Holding Companies, Trust form of, 109, 112; Northern Securi- ties case, 113; Standard Oil Co., 338 Howe, William Wirt, Trust problems, methods for solving, 305-06 Illinois Steel Company, Stock sold to Federal Steel Co., 115; Ore supplied for manufacture, 116 Immunity, Provision of 1903, 417; Act defining right of, 418 Index Numbers, Prices shown by, 125, 137-38; Steel prices, 174-76; Accuracy of, 179; Prices in Europe, 226 , "Industrial Combinations and Trusts,*' by W. A. Stevens. 490 Industrial Commission, Recommendations in final report of, 307-12 "Industrial Commission, Reports of the," 492 _ , "Industrial Competition and Combina- tioti," Publication on, 490 Industries, Report of U. S. Industrial Commission, 7, 8; Evolution of business, 12 et seq.; In- ventions, 13, 14, 21; Census data, 15-20; Leading lines of, 16-17; Manufacturing plants of U. S., 16-21; Averages of re- turns from, 17-18; Golden age of small, 18; Large scale production, 18-20; Sugar refineries and competition, 28-30: Combinations prevent waste, 31-50; Skilful mana^ment, 46-49; Combina- tions favored, 51-60; Protective tariff, 51-54; International combination, 53-54; Freight discriminations, 55-60; Rebates, 55-56; Special rates by railways, 56-60; Effects of combinations upon prices, 122-80; Sugar, 122-40; Whiskey, 141-49 Petroleum, 149-57; Tin plate, 157-60; Iron and steel, 160-77; Foreign legisla- tion on combiiiations, 459-89 See also Manufactures Industries Preservation Act, 460-65 International Harvester Company, Investigation of, 4, 7; Prevents waste, 49; Assists competitors, 72; Foreign markets, 77; Federal Court case, 371-72, 383; Outline history of, 372-83; Firms ac- quired, 374; Extension, 374; Competitive methods, 375-76, 381-83; Resources, 376; Growth, 377; Capitalization, 378-80; Profits, 380-81 Interstate Commerce Commission, 259, 262, 272 Interstate Commerce Law, 242 Inventors, Business evolution, 13-14; Cheapen cost of production, 21; Prevent waste, 49 Iron and Steel, Prices, 160- 77; Charts, 160,174; Nails and 496 INDEX Iron and Steel — Continued wire, 161-68; Margin, 161-63; Pools, 161-62; American Steel and Wire Co., 162, 165-67; Labor costs, 163; Manufac- tures, 164-65, 172; Trade decline, 165; Carnegie Company, 166, 168: U. S. Steel Corporation, 166-76; Rail prices, 168«9; Purchasing power, 174-75; Index numbers, 175-76; Growth of plants, 242 Johnson Company, Stock sold to Federal Steel Co., 115 Joint Traffic Association, Review of case, 289-90 Judicial Code, 419 Kartells, 239-40 Knight, E. C, Company, Anti-trust case, 260; Review of suit^ 283-86 Labor, Organization, 13; Industrial cities, 14; American Federation of Labor, 15, 188; Census of wage earners, 16-19; Tin plate, 158; Wages and the Trusts, 181-97; Capital and efficiency, 194; Birmingham Alliances, 195-96; Federal court suits, 280 See also Wages Labor Unions, Modem organization, 13, 15; Corporations oppose, 184-86; Strikes, 187-88; Compels' opinion on, 188; American Federation of Labor, 188, 189; And the Trusts, 191; Influence on Government, 197; Federal suits, 280-81 Large Scale Production, Census on manufactures, 18-20; Centraliza- tion and the Trusts, 20-22; Competition and losses, 28-30; And monopoly, 31; Advantaees of combination, 32, 39 et seq.; Lessens cost, 50; Price monoix>lies, 63-74 "Laws on Trusts and Monopolies," Gov- ernment publication, 384 Legislatures, See Political Evils Lorain Steel Company, Stock sold to Federal Steel Co., 115 Management, Osporation control, '104-21; Coal dealers' combination, 105-06; Sugar and Whiskey Trusts, 108; Standard Oil Trust, 108-09; Pure Oil Co., 110-11; Holding Companies, 111-14; Federal Steel Company, 115-16; Corporation law, 118, 121; Share holders' power, 119-20; Independent, 202, 207-15 Manuals, Federal Trade Commission, 490; On current facts, 492 Manufactures, Industrial concentration, 12, 13-21; In- ventors, 13, 14, 21; Census data, 15-20; Size of plants in U. S., 16-20; Value of output, 16-20; Increased capital, 17-20; Small industries, IS; Large scale pro- duction, 18-21, 32, 50; Competition, 23 et seq.; Competitive waste, 31-50; Pro- duction and monopoly, 31-32; Securing a market, 32-37; Benehts of combination, 32, 38-45, 48-50; Travelling salesmen, 33-36; Advertising costs, 36-38; Securing trade, 39; Flight expenses, 40-41; Dis- tilleries, 41-42; Refineries, 42-43; Com- binaiuon advantaseous, 43-45; Skilful Manufactitee*— Confinueif executives, 45-48; Comparative accoimt- ing, 48; By-products, 49; Raw material, 49-50; Monopoly prices, 63-70; Margin, 124; Prices of steel, 164^5, 170; Growth and capital, 242 See also Industries Margins, And increase in pcvx, 124; Sugar profits, 128, 129, 130; Increase in, 131, 133-35; American and German, 134; Change in English, 135; Petroleum, 149-55; Tin ?late, 158-59; Iron and steel, 161, 162, 67, 173 Michigan Salt Association, Early study of, 3; Prevents freight waste, 40 Minnesota Iron Company, 115 Monopoly, Capitalistic, 5, 10; 61,78; Production under, 31-32, 45; Competitive waste, 42-45; Pro- tective tariffs, 51-54; Banking syndicate, 55; "Natural," 61-62; Legal, €2, 63; Con- tradictory terms, 63; Temporary, exam- ple of, 64, 65; Large business versus capitalistic, 70-72; Prices, 72-74; Fosters ambition 75-76; Power of capital, 76-78; Advantages of, 78; Capitalization, 95- 102; Bryan on, 96; Addyston Pipe Co., 105; Intention to secure. 111; Combina- tions, and prices, 122, 178-80; American Steel and Wire Co., 167; Anti-trust legislation in U. S., 241-48; And State Constitutions, 241; Party platforms oppose, 243-44 "Monopoly and Competition," study by H. Levy, 490 See also Combinations National Steel Company, 117 New Jersey, Advocates Thists, 246, 248-53; Corporation acts, 249-51; Franchise and corporation taxes, 250, 252-53; Efifect of policies, 251-52; Statutes, 396-403; "Seven Sis- ters" law, 396; Anti-trust laws, 404-07 New York Business Companies' Act, Proposed, Review of, 9-11; Powers and purposes, 313-14; Office and agents, 314; Certificate of incorporation, 315; Amendment of certificate, 316; Act optional, 317; Directois, 317-18; Elections, 318-19; Officers, 319-20; Meetings, 320-21; Stock and certificates, 321-23; Delinquent officials, 323-24; Buy and sell stock, 324- 25; Promotion, 325-28; Balance Sheet, 328-30, 431; Auditors, 330-31; Annual report, 331-32; Merger and dissolution, 332-33; Monopoly, 333 New Zealand Act, 465-469 Northern Securities Company, Review of case, 113, 292-96 Oil Fields, Arbitrary prices affect, 152-57; Discovery of wells, 153-55 Organization, Studies, 3-4; Promoters, 79, 82, 87-89, 91; Technical terms, 79-80; Certificates of stock, 80-87; Partnerships and corpora- tions, 82; Stocks replace bond issues, 84- 86; "Water," 84, 86, 94; Plan of Ameri- can Tm Plate Co., 87-89, 111; Financiers 89,91, 92; Evil methods, 93-94; Inform- INDEX 497 Orsanization — Conlinued mg investors, 101-02; Methods of 104- 21: Sugar Trust's form of, 107-08; WhBkey Trust, 108; Standard OU Trust, 108-09; Pure OU Co., 110-11; NaUonal Steel Co., Ill, 117; Holding corpora- tions. 111-12. 113; Northern Securities Co., 113-14; Federal Steel Co.. 115-lG, 117; Efficiency in, 118, 121; Corpora- tion laws, 120, 121 See also History Panama Canal Act, 263, 419-22 Partnership, Capital contribution, 82 Patent Act, 475-76 Patents, Combinations faster monopoly, 45. 61; U. S. Steel Corporaticm's monopoly. 167; Protection of. 180; Canadian Act. 475-76 Petroleum, Prices. 149-57; "Handbook of Petroleum," 149; Chart, 149; Process of refining. 150; Standard Oil Co., 150, 152. 154; Pure Oa Co., 151; Cost of refining, 151-52; By-products, 152; Oil fields discovered, 153-54; Crude oU prices, 153-54; Margin; 155; Cushing pool, 155; Purchasing power of, 156; Bill to control, in Ger- many, 235 Political Evils, And industrial combinations. 198-202; Strike bills. 198-99; American Sugar Refining Co.. 199-200 Political Platforms, Declarations against Trusts. 243-44; "Na- tional Conventions and Platforms." 244 Pools, Wire nail pod. 65, 161; Methods. 104; Whiskey Trust, 104-05; Cushing pool 155; Steel fluctuation, 160 Population, National. 12; Growth of cities, 13, 14 Potash Syiidicate, 235 Prices, Course of, and the Whiskey Trust, 6; Steel Corporation case, 6; Fixing com- petitive, 24-29. 31; Competitive waste. 31-50; Competition versus monopoly. 31-32; Salesmen's salaries. 33-36; Ad- vertising. 36-38; V^erican Tobacco Co.. 38; Aclvantages of big business. 39; Cross freights. 40-41; Distillery expenses, 41-42; Refineries. 42-43; High-salaried executives. 46; Fixing monopoly. 63-74; Addyston Pipe Company agreements. 105; Coal dealers'. 106; Study of indus- trial, 122-80; Economic survey, 122-25, 177-80; Charts illustrate, 123, 125-78; Sugar, 125-40; Refinery competition, 129-34, 140; Importations affect, 133, 136; War's influence on sugar, 135-37; Index numbers, and course of, 137-38, 176-79; Sugar combinations, 139-40; Whiskey, 141-49; Purchasing power of spirits, 148-49; Petroleum, 149-57; Oil refineries, 151-53; Purchasing power of petroleum, 156-57; Tin plate, 157-60; Iron and steel, 160-77; Nails and wire, 161-68; Steadiness of steel rail, 168-69, 171, 173; Influence of combinations on, 173-80; Food products, 179 See also Charts Production, See Large Scale Production Promoters, ' ^ Functions of, 79, 80; Stock for services, 82, 87-89; Profits available to, 89; Financiers work with, 89, 91, 92; Evils, 101-02 Purchasing Power, Industrial combinations* methods, 122 et seq.; Sugar, 138; Spirits, 148; Petroleum, 156; Steel, 174 Pure Oil Company, Trustee stockholdeis, 110; Voting Trust, 111; Prices, 151 Railroads, Duluth and Iron Range, 115; Chicago, Lake Shore and Eastern, 115; Rail prices, 170-71; Influence legislatures, 198; Fed- eral suits, 281; Trans-Missouri Freight Association case, 286-89; Joint Traffic Association case. 289-90 See also Freight Rates Reading References, 490-92 Rebates, Freight discriminations, 55-56; Sugar com- bination fined for receiving, 74rwhiskey Trust, 142 Refineries, Sugar test, 26, 27; Competition and the Trust, 28, 39, 42-43; Tariff and monopo- lies, 51-53; American Sugar Refining Co. controls prices, 66, 70, 73; Costs of re- fining, 126-40; Process established, 150; Standard Oil Co., 150-53; Pure Oil Co., 151; Increased expenses, 151-52; Crude oil prices, 152-57; Oil fields, 153-55; Cushing pool, 155; Purchasing power of petroleum, 156-57 Reports, Industrial Commission, 307-12; Reviews of Government, 492 Russia, Provisioas of industrial law, 478-79 Salesmen, Competition and waste, 32-36; Skilful, 45; Elimination of, 191-92, 193-94 "Seven Sisters" Act, New Jersey statutes, 247; Reverse state policy, 396 Sherman Anti-Trust Act, Activities of Senator Sherman, 254-56; Excerpts, 256-58; Content outlined, 259- 60; Treatise on, 491 "Sherman Anti-Trust Act, A Treatise on the," by W. W. Thornton, 491 Smith, E. J., Plan to regulate competition, 195-96; Brass bedstead combination, ^3-25 Sovereignties, National evolution of, 12, 14 Standard Distilling and Distributing Company, Organization costs, 87, 90; Breaks with distillers, 145; Dissolved, 146 Standard Oil Company, Early study of, 3; Advantages secured by, 40-41, 43; Experts prevent waste, 49; Railway discrimination, 58-59; Legal monopoly, 62; Favors from railroads, 74; Foreign markets, 77; Standard Oil Trust, 107, 108-09: Competitors, 110-11; Organization, 150; Arbitrary action, 152-53; Dissolved, 154; Federal Court decisions, 297-300; Outline history of. 498 INDEX Standard Oil Company — Continued 334-43; Affiliated corporations, 335-37, 339-40; Prices and profits, 341-43; Tar- bell on, 491 Standard Oil Trust, Organization, 107, 151; Trustees' certifi- cates, 108; Dissolution, 109, 154 State Anti,-Trust Legislation Federal statute, 245; Attitude of states, 245-49; New Jersey, 246-47, 249 State Constitutions, Anti-trust legislation, 241-48; Thorpe, F. N., 241; Statute of Texas, 247, 385-95; New Jersey corporatioii acts, 249-52, 396-407 Statute of Texas, 247, 385-95 Stock, Definitions, 79; Certificate of, 80; Issued for property, 80-83; Watered, 84, 86, 94, 95, 112; Preferred, 84-86; Promoter's profit, 87, 89; Overcapitalization, evils of, 101-02; Holding corporations, 112-13; Directors manipulate, 118-20 Stock Watering, 84, 86, 94, 99 Strikes, Unreasonable, 184, 187; Steel strike, 187; Trusts and employees, 191; Plan to avoid, 195-96 "Strike" Bills, 198-99 Studies, Early history of Trusts, 3-10; Purpose of book, 5-11; Prices, 122-25 Sugar, Refined and raw, 125-26; Charts, 125, 137; Beet, 126, 127, 133; Refining costs, 126- 30; American Sugar Refining Co., 127- 34, 199, 343-47; Margins, 128, 129-40; Competition, 129-40; Sugar Trust formed, 130; Duty on, 130, 131; Prices, 132-35, 137-40; German syndicate, 132; German market, 136; France and Italy, 136; Foreign supply of, 136; Exports, 136; Refining capacity of U. S., 137; Index numbers, 137-38 Sugar Trust, And competition, 28; Waste eliminated by, 42-43; The tariff, 51-53; Favors from rail- roads, 73-74; Decision against, 107-08; Organizations, 108; Combinations, 114; Margin, 130 Sundry Civil Act, 455-56 Tariff, Monopolies, 51-53; Sugar industry and the Trusts, 52-53; International combina- tion, 53-55; McKinley, and duty on sugar, 131; Relation to prices in Europe, 227-30; Anti-Monopoly Organization denounces, 243 "Tariff and the Trusts, The," by Franklin Pierce, 490 Taxes, New Jersey franchise, 250; Organization tax, 250: Corporation returns, 252-53 "Tendency Toward Industrial Combina- tion, 'The," Study by George R. Carter, 490 Statute of, 247, 385-95; Anti-trust laws, 384-85 Tin Plate, Prices, 157-60; Chart, 157; Standard unit, 157; Labor, 158; American Tin Plate Co., 158-60; Corporation's influence, 160 Trans-Missouri Freight Association, Review of case, 286-89 "Treatise on the Law of Corporations, A," by Wm. W. Cook, 490 Trusteeship, EMls of speculation, 93-94; Standard Oil Trust, 107, 108; Sugar Trust, 107 Trust Problem, Methods for solution of, 305-06 "Trust Problem, The," a symposium, 490 Trusts, Early studies and decisions, 3-10; Capitalis- tic monopoly, 5, 10; Defindtion, 10; Product of industrial evolution, 15-22; Economics of, 20-22; Importance, 22; Sugar, 28, 42; Competitive wastes, 31-50; Influence of, and Industrial Commission, 35-36; Bad debts, and losses, 38; Amer- ican Tobacco Co. dissolution, 38; Freight economies, 40-41 ; Distilleries, 41-42, 104; Capitalistic monopoly, 61-78; Promoters, 79-94; Organization and management, 104-21; Pools, 104-05; Sugar Trust plan of organization, 107-08; Standard Oil, 108-09, 110, 111; Voting, 109-10; Dis- solution of old. 111; Holding companies, 109, 111-12; Northern Securities Co., case 113-14; Two kinds, 114-15; Federal Steel Co., 115-17; Integrating idea, 117; Directors' power, 118-19; Effect on prices, 122-25; Margins, and sugar prices, 134, 139; Whiskey Trust, and prices, 142; Standard Oil, and decrease in margin, 151; Steel prices, 166-76; And workingmen, 181-97; PoUtical and social effects of, 198-216; State legislation against, 241-48; New Jersey favors, 246, 248-53; History of, 334-83, 491 "Trusts and Monopohes Domestic and |teipign. Laws on," compiled by Nathan jP^nUliams, 491 "ly^PFinance," by E. S. Mead, 490 '"wast Laws and Unfair Competition," reviewed, 492 "Trust Movement In British Industry, The," by H. W. Macrosty, 490 Underwriting, Sales agreement, 90 United Shoe Machinery Company, Fed- eral Court case, 301 United States Industrial Commission, Investigation and studies, 4, 7, 8; Wastes of competition, 35, 36; Reports of, 492 United States Steel Corporation, Studies and court testimony, 4, 7; Markets, and freight rates, 41, 44, 49; Helps com- petitors, 72; Foreign expansion, 77; Integrating company, 117; Organization, 166; Policy, 166-69; Prices, 166-75; Monopoly, 167, 178, 180; Purchasing power steel, 174; Index numbers, 175- 77, 179; Conclusions on, 177-80; History outlined, 363-71; Companies and stock acquired, 364-65; Assets and liabilities, 366, 367 Voting Trust, Management, 109-10; Purpose of, 110 Wage Earners, Concentration of, 13, 15; Census on, 16-20; Increase of, 17; High salaried, 45-46; Wage adjustment, 181-97 See also Labor INDEX 499 Wages, And organization, 15; Salesmen,' 33-36; Price of brains, 45-46; Trusts increase, 123. 163, 181-82, 185; Tin plate mills, 158, 183; Steel mills. 163. 183, 193; Industrial combinations' attitude, 181- 97; Increase smce war, 182; Result to consimier of high, 189; Brimingham Alliances, 195-96 Waste, Competitive, 31-50; Combination elimin- ates, 32-36, 40-45. 48-50; Saving, 122, 128,150 Wealth, National, 12, 13, 14-21; Industrial census, 15-20 Webb Bill. 456-58 Welfare, For workingmen, 184 Whiskey, Prices raw material, 141; Pools, 141; Triist formed, 142; Rebates, 142; Distilling companies, 143, 145; Chart, 144; Reports on business, 144-48; Cuts in prices, 145; Profits, 147-48 Whiskey Trust, Early study of, 3; Price system, 6; Dis- tillers restrict output, 41-42; Pools, 104, 107; Organization, 108 Wilson Tariff Act, 260, 411-13 Wire Nail Pool, Temporary monopoly, 65; Prices and mar- gin, 162, 167 Workingmen, And ttie Trusts, 181-97; Safety and wel- : fare, 184 THE COTWTBT MFB PRESS GABDEN CITY, N. T.