't sx *V:.:'^' 5 it ^^: \^ % -^<.X? ■^^ Ob THE GIFT OF .Hcrn...-W.-"S>..Qjckx^ryO«rn. /^..^■(^.■SM-.58 .^/nr/g. 2041 Date Due ■JkN $ - 1 m MAR \ \ 1959 A T ■jr ,-.r^ . ^■ttBp^Yf* w ^ f.R! UA^ .ApW fi, in-^fY Try ™^ 1 \i rv tI-. wB^af^ .„ . Cornell University Library HF105.A45 T76 1914 Interstate Trade Comm ssion 3 1924 030 130 557 I Cornell University fl Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924030130557 t«f^INTER STATE TRADE COMMISSION HEARINGS BErOEE THE COMMITTEE ON , INTERSTATE AND FOREM COMMERCE HOUSE OF REPRESENTATIVES SIXTY-THIRD CONGRESS Second Session JANUARY 30 to FEBRUARY 16, 1914 WASHINGTON GOVEBNMBiJT PKQJTINQ oVfIOE 1914 INTERSTATE TRADE COMMISSION HEARINGS BEFOEE THE COMMITTEE ON - INTERSTATE AND FOREIGN COMMERCE HOUSE OF KEPRESENTATIVES SIXTY-THIRD CONGRESS Second Session JANUARY 30 to FEBRUARY 16, 1914 ^, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE. House of Rbpeesentatives, Sixty-Third Congeess. WILLIAM C. ADAMSON, Georgia, Chairman. THETUS W. SIMS, Tennessee. J. HAERY COVINGTON, Maryland. WILLIAM A. CULLOP, Indiana. FEANK E. DOEEMUS, Michigan. J. HENRY GOEKE, OMo. GEORGE F. O'SHAUNESSY, Rhode Island. CHARLES A. TALCOTT, New York. DAN V. STEPHENS, Nebraska. RAYMOND B. STEVENS, New Hampshire. ALBEN W. BARKLEY, Kentucky. SAM RAYBURN, Texas. ANDREW J. MONTAGUE, Virginia. PERL D. DECKER, Missouri. FREDERICK C. STEVENS, Minnesota JOHN J. ESCH, Wisconsin. JOSEPH R. KNOWLAND, California. EDWARD L. HAMILTON, Michigan. EBEN W. MARTIN, South Dakota. FRANK B. WILLIS, Ohio. A. W. LAFFERTY, Oregon. Willis J. Davis, CkTk. CONTENTS. / - . Statement of- /' "'Vl, ^OjU .|f^ ^^^^^3^ "^ ^ ^ ^ ' i"»s«- ^-TheGhairma,6....f:. .77.7.. 1 V L. D. BrandeiBf. 1 Waddill Caftchings 21 Seth LoV. 60 ^^L. D. BrandeiB 89 WilliamP. Borland, M. C 109 J. R. Moorhead 110 John A. Green 124 JohnTrainor 134 A. H. Stewart 137 James F. Finneran 138 C. F. Nixon... 147 V'^ickT. Morgan, M. 162 James E. Bennet 194 William H. Childs 225 William D. Lewis 241 D. R. Richberg , , 260 1^ Herbert Knox Smith. . . it^vrryr. . .QfV^.^rr^V'i-.';--. . .'•4. .<;<:.>-<■■■'-•)■' i'V^-- 264 Henry R. Towne : 301 Robert R. Reed 331 ^Charles R. Van Hiae 345 Robert R. Reed — Additional statement 368 Henry B.Joy 393 L. C. Boyle 425 Charles S. Keith 426 L. C. Boyle 441 J.B.White .---. 444 J. F. Callbreath 455 P. B. Noyes : 461 Letter of — New York Wholesale Grocers Association 475 Chamber of Commerce of tiie State of New York 475 Victor K. McElheny, jr 476 Robert R. Reed 478 R. J. Frockelton 479 E.H. Outerbridge 480 Philadelphia Bourse 482 The Chamber of Commerce of Dallas, Tex 484 I INTERSTATE TRADE COMMISSION. Committee on Interstate and Foreign Commerce, House op Kepresentatives, Washington, D. C, January SO, 1914. The committee met at 10 o'clock, Hon. William C. Adamson (chair- man) presiding. Mr. Adamson. The committee will come to order. Gentlemen of the committee, pm^uant to the action of the com- inittee heretofore taken fixing certain measures as special orders and directing the chairman to arrange for hearings thereon, the Chair has mvited certain witnesses to be present and lays before the committee H. R. 12120, a bill to create an interstate trade commission, to defiae its powers and duties, and for other purposes, as a basis for the hear- ings. There are before the committee a number of other bills on the same and kindred subjects. The Chair thinks that witnesses may, with propriety, discuss any of these bills or any features thereof, either in support or in opposition, by comparison or by suggestions of amendments or substitutes for the biU laid before you. The com- mittee can give direction to the whole subject when we go into the final consideration of the matter. Individually, the Qhairman has promised to adhere to the authorship of the billlaid before you, even though it may be modified more or less by the committee. The Chair has pleasure in introducing to the committee Mr. Louis D. Brandeis, of Boston, and he may proceed to discuss the subject in such manner as he may deem proper. STATEMENT OF MR. lOUIS D. BRANDEIS, OF BOSTON, MASS. Mr. Brandeis. Mr. Chairman and gentlemen of the committee, I am extremely, sorry that the shortness of the notice from your chair- man to appear here has prevented my making such a careful study of the hill as to justify me in discussing its details. Mr. Covington. You may be perfectly free to criticise the par- ticular bill now under consideration, because this committee does not bind itself to that biU exclusively. Mr. Brandeis. I understand this, and I hope you mil allow me to make such suggestions later. I want to say at the outset that I unqualifiedly approve the general purpose of the trade-commission bill as recommended by the Presi- dent. It seems to me that the scope of such a bill is broader than has been indicated by some of the questions put to the last witness. The purpose of a trade-commission bill is in part to correct the wrong- doing incident to restraints of trade or monopolies; but it has seemed to me tha t the purpose of all trust legislation should rather be to pre- vent than to punish; m other words, to create conditions which will 8 4 INTERSTATE TRADE COMMISSION. render less likely the existence of restraints of trade and monopolies rather than to merely correct them when they are discovered. The establishment of a trade commission has a purpose far broader than merely aiding the Department of Justice in the pursmt ot it s"work. The functions of government should not be lioirtea to tn"eehactment of wise rules of action, and the providing of efficient judicial ma- chinery, by which those guilty of breaking the law may be punished, and those injured, secure compensation. The Government, at least where the general public is concerned, is charged with securing, also, compliance with the law. We need the inspector and the policeman even more than we need the prosecuting attorney, and we need for the enforcement of the Sherman law and regulation of competition an administrative board with broad powers. What the precise powers of such a board should be is a subject which will require the most careful consideration of Congress. It is clear that the scope of the duties of any board that may be created, should be broad, and it is probable that whatever powers are conferred upon the board at the outset, will be increased from time to time as we learn from ex- perience what powers may be safely conferred upon the board. There is, however, little room for difference -of opinion on the fol- lowing: 1. T he board should have ample powers of investigation , not only or mainly for the purpose ot detectmg and exposing lawless business, but in order to foster and build up law-abiding business. Tn the complicated questions involved in dealing with "big busmess," the first requisite is knowledge— comprehensive, accurate, and up-to- date— of the details of business operations. The Bureau of Corporations has, to a slight extent, collected such information in the past, and a part of it has been published with much benefit to the public. The current collection and prompt publication of such information concerning the various branches of business would prove of great value in preserving competition. The method s of destructive competition will not bear the li^ht of day. The mer e s ubstitution'of Kowledg e for ignorance-- (^^puKTici^v for secrecy- will £ ^0 far toward preventing; monqpolv . But aside from the ques- tions Deariiig specifically upon the Sherman law, the collection of this data would prove of inestimable advantage to business. 2. The board should cooperate with the Department of Justice in s ecuring compliance with the Sherman law. The comprehensive knowledge of the different branches of business systematically acquired by the board would greatly facilitate and expedite the work of the Department of Justice and would enable it to supply the court with that detailed and expert knowledge required to deal intelligently with the intricate commercial problems involved in administering the Sherman law. 3. The board should be empowered to aid in this way in securing compliance with the law, not only in the interestg of the general public, but at the request'and for the beneHFo? tT iose^"pSticular i ndividuals or concerns w£a.;have""been in£^ o^np.f^.v niJnTy by infractions oftnelaw by others. The inequality between the great corporations, with hugh resources, and the small competitor and others is such that equality before the law will no longer be secured merely by supplying adequate machinery for enforcing the law. T o prevent oppression and inmstice. t he Gny- ernment must be prepai^pd ' to lend jtTaid. ~ INTEESTATB TBADE COMMISSION. 5 A mong the important subjects on which the trade commission should seciu-e i5formation"1i~EE at of tradFapeements ; While we have acquired much information concerning the great monopoHstic trusts, hke the Oil, Tobacco, Steel, Sugar, and. Beef Trusts, which have been investigated by the Bureau of Corporations or con- gressional committees, httle data have been collected and made pubhc concerning the many competitive concerns engaged in many different Hues of business, and which have entered into some sort of agreement with one another to hmit prices or output, or concerning trade rules and practices. Some of these agreements are doubtless reasonable and beneficent restraints upon trade and should be per- mitted — others are doubtless vicious and should be abrogated. But in the absence of comprehensive and detailed knowledge of the sub- jects we are not in a position to lay down general rules or to legislate intelligently concerning them. This would not involve giving immunity for any civil liabUity that may exist, nor the making of any decision by the commission or the Department of Justice as to whether a UabiHty, criminal or civil, existed. But the collection of this data would afford a means of seeming, in aid of justice, and of further necessary legislation, fuU^ comprehensive, and detailed information concerning existing trade agreements relating to competitive business, knowledge of which is essential to wise and just action by Congress, the Department of Justice, and the proposed trade commission. When aU this information shall have been collected, pubhshed, and opportimity for its due consideration shall have been presented, we shall be able to deal inteUi gentlY with the problem of the extent to wtocfi trade agreements" among "fflin mititors should^b^^ permitted . We can not do"it now. CFSFpresenTouly is "£o^ut ourselves into a position to deal with it wisely hereafter. And what is true of trade agreements is true also of many business practices. The first essential of wise and just action is knowledge. And as a mean s of obtaining this knowlecige, we should secure , uniform accounlLn g. Tr"wasr''as~'I"°ra5iemDerr"We~"great Colbert who said : '^'^ Accountancy- — that is government ." CertainlyTHose who have undertaken to deal in any way witJi uiese business prob- lems have generally found that it was impossible to deal with them adequately in the absence of a proper system of account- ing, orj)racticaUy a standard of accountiag. The Interstate Com- merce Commission for a period of 20 years, from 1887 to 1907, undertook to grapple, and did grapple most unsuccessfully, with the problems incidental to the regulation of railroads, and an important reason for its lack of success was the extraordinary diversity in the methods pursued by railroads in their accountiag. This was true not merely as has been suggested, when engaged in fixing rates, but when deahng with infractions of the law, with the gravest of transportation evils, unjust discrimination between man and man. The Chairman. Practices as well as rates ? Mr. Brandeis. It was practices more than rates from which the people suffered. Mr. Montague. I did not mean to^ suggest a while ago that the rates alone controlled, but I wanted to emphasize the question of rates. G INTEBSTATE TRADE COMMISSION. Mi". Brandeis. I think that rates are important, but I think that those who have had to deal with these questions before the com- mission Mr. Montague (interposing). Rates themselves are practices? Mr. Brandeis. They are practices; but the most harmful prac- tices in a democracy are unjust and discriminatory rates, and wherever the commission undertook to deal, and now wherever it is dealing, with any of these problems, these questions of accounting are coming up; and, although the commission put iuto operation under date of July 1, 1907, a system of imiform accounting, it has aU the time been obhged to take step after step further in its effort to get at actual facte. Take the facts disclosed by the report made to Congress only two or three days ago concerning the 'Frisco. One of the things ia regard to which the commission had refrained from la3riag down any rule of accounting was the rate of depreciation to be charged on equipment. The commission provided that there must be a depreciation charge, but it hesitated to provide what the amount of that charge should be or to fix any basis for determiniag it, preferring to leave it to the discretion of the individual carrier, and note the results as these which appear in the 'Frisco reports. Mr. F. C. Stevens. Is that not necessary in the very great diver- sity of climatic and business circumstances in this country ? Mr. Brandeis. I think from what the commission foimd in the 'Frisco case that it is not necessary or safe to leave the rate wholly to the carrier's discretion. The 'Frisco, in order to comply literally with the rule that there shall be an equipment depreciation charge, made a depreciation charge on the 'Frisco and on the Chicago Eastern Illinois of onerfourtn of 1 per cent. The result of this would be, as the commission pointed out, that a freight car would have to last 400 years if that depreciation charge is to be deemed adequate. Mr. F. C. Stevens. That would be a fraudulent charge, then? Mr. Brandeis. Of course, when you take such an extreme case, it may be fraudulent. In the case of the New Haven we had a some- what very similar situation to deal with. The point that is important is this : In dealing with those questions, in order to determine resulte you must be able not only to get at facts, but to get at facts com- paratively, and you can not get at any possible basis of compariso n without a most enormous investigation in each individual case unle'ss you establish a standard oT^ccounting. Mr. liOEKE. Un that question ot uniformity in accounting, do you think it is practicable for the trade commission to prescribe the maximum and minimum that may be charged to depreciation in an industrial plant ? Mr. Brandeis. I do not think that it would probably be necessary. Of course, the same rules would not be applied to carriers and to other business. No commission could to-day, and probably never would undertake to deal with aU the 305,000 corporations now doing busi- ness in the United States which are required to make reports under the corporation-tax law. But Mr. McChntock has in no sense exagP'erated the difSculty of doing the necessary work of the Bureau of Corpora- tions, such as resulted in the Tobacco investigation, in the Staiidard Oil investigation, and in similar investigations, by reason of the inadequacy or diversity of the accounting of the several concerns INTERSTATE TEADB COMMISSION. 7 It seems to me that it would be perfectly feasible to provide for power in the commission to determine a uniform method of accounting. Now, it has been said you would have to employ an army of inspec- tors to go about and see whether each corporation has adopted the prescribed method. It does not follow that every one would have to be inspected. Over 305,000 corporations have to make returns under our corporation-tax law. The Commissioner of Internal Kevenue may have to investigate any one of those 305,000 corporations to determine whether the tax return has been properly made out, but it does not follow that he wiU investigate every one of the 305,000. On the contrary, he investigates very few. Besides, only a few of those 305,000 would probably fall into the classes for which the com- mission would prescribe uniform accounting. Mr. Montague. Would you not think that is a matter of adminis- trative detail rather than of legislation ? Mr. BranDeis. I should think that it would be perfectly possible to make a classification, or leave the power of making a classification to the trade commission itself, because Mr. Montague (interposing). Does not this bill give the trade commission ample power relating to the business of any intestate commerce, allowing them to go over all minutes and accounts, to go over them from top to bottom ? Mr. Brandeis. Yes, sir; but it does not give them any power at all to prescribe a system of accounts for any class of corporations. Mr. Covington. Eight there let me ask you one question. Would you not differentiate between a uniform system of accounting and a uniform method of establishing rates and charges? Mr. Brandeis. I do not think we have anything to do with rates and charges. We have not anything to do with it under this bill, and we ought never to have anything to do with it. Mr. Covington. For example, would you prescribe what great industrial corporations should be Mr. Brandeis (interposing). Not at aU. I do not think we have anything to do with the rates and charges in detail, but a certain method of keeping the accounts has got to be adopted in order that we may see, if occasion arises, what a corporation has done. It is like determining the language in which the books are to be kept. Mr. O'Shaunessy. Then you look upon that as a help to the Government and a help to the corporation itself ? Mr. Brandeis. Yes, sir; and it is the greatest help to the corpora- tion. Mr. GoEKE. Would it not lessen the necessity of accounting? Mr. Brandeis. Yes, as a matter of economy. There is an effort throughout the country to-day for greater efficiency in municipal administration. You can not make a single step forward of impor- tance in that field without feeling the need of cities adopting a uni- form system of accounting; without it we lack the basis for com- parison, and the ability to compare is essential to advance. Mr. GoEKE. Have n6t some of the States in the Union adopted a uniform system of accounting in their municipalities, townships, and so forth? Mr. Brandeis. Oh, yes ; we have done a great deal in Massachusetts. The Chairman. There can be no such thing in the world as a good man or a pretty woman, except by comparison ? 8 INTERSTATE TBADE COMMISSION. Mr. Brandeis. I do not think you could tell except by comparison We have been educated to know. . Mr. Montague. The instances you give, however, relate" to govern- mental business. When you come to cities and towns I appreciate the instances you gave, and you put it very strongly; but how could we apply uniform accounting to industrial enterprises ? Mr. Brandeis. Let me put to you the exact problem with which the Secretary of Commerce is now grappling, and which I think is an extremely important problem. The Secretary of Commerce has undertaken an investigation to determine the relative eflBiciency of large and small plants. Now the moment the Secretary grapples witk that subject he finds probably that every one of these establish- ments has adopted a different method of keeping its books. There may be five ways that are equally good, or eight, or ten that are equally good, and the particular predeliction of one concern for one or the other may be accidental. But in and of itself the diversity of method really frustrates the investigation to a great extent, because you have almost to rewrite the books. You must often, go to the vouchers, the data on which the entries in the books are based, in order to get an absolutely reliable basis for comparison. There is, of course, in some respects a wide difference, as you have suggested, between public and private corporations; but I believe that there is a constantly growing recognition of the fact that in their essentials there is much similarity. Many of the things ia business, which the people in the past thought it was absolutely necessary to keep secret, people have found may profitably be made public. People who want to do business fairly, as the great mass of Americans do, and as the community wants them to do, could usually play their business game with the cards face up on the table. The danger from disclosure so greatly apprehended has largely vanished, and after all the large private businesses affect the public so much that they are, in substance, public. If they were not we should not be here attempting to legislate in regard to them. Mr. GoEKE. What effect do you think it would have upon the credits of the several industries to make such an investigation? Mr. Brandeis. I think it would vastly improve the credit of every concern. Mr. GoEKE. Might it not have the effect in the first instance, at least, to destroy the financial responsibility of an industry which was a little bit shaky, but which, if left alone, would work itseK out ? Mr. Brandeis. My experience, and I have had some as counsel for commercial concerns Mr. GoEKE (interposing). I mean perfectly legitimate busijiesses. Mr. Brandeis. I have had some experience, and I have found the effect of proper publicity to be exactly opposite. The one thing that causes banks and others giving credit to withhold credit is suspicion and doubt; in other words, lack of knowledge. I beheve that it is entirely a mistake to suppose that th e revealment of knowledg e in regar d to business is ordinaril y Bad TOTlKe T«ismess''^TT)ad for the standing of it. " ■°"" — ~~"- Mr. Sims. Do you not think it makes for efficiency ? Ml-. Brandeis. It not only makes for efficiency, but for confidence. the Chairman. It is secrecy that generates suspicion? Mr. Brandeis. Yes; it is secre^'^ that generates suspicion. INTEBSTATE TRADE COMMISSION. 9 Mr. Montague. You think the standardization of accounts will induce banks to make loans ? Mr. Brandeis. It will give some banks greater coniidence in making loans. Mr. Montague. Do you not think the loans made by banks are based upon their own investigations ? Mr. Beandeis. I think, as a matter of fact, that the bankers do not, as a rule, make independent, careful investigation. I think that the more they investigate, as a rule, the more ready they are to take the risks necessarily incidental to the conduct of business — where the borrower is worthy of credit. Mr. GoEKE. Banks frequently loan upon the character of the management, do they not ? ' Mr. Beandeis. They do so; but ' knowledge of the condition of business is a great aid. Sometimes banks will send their own ac- countants in, in order to be fully advised; but knowledge, openness, frankness, in dealing with banks, as in deahng with individuals, is the greatest asset, Mr. F. C. Stevens. The requirements must be made gradually? Mr. Beandeis. It must, and I think a large part of the work of this commission must be done very graduaUy. Mr. F. C. Stevens. Being in sympathy with this and desiring to effect it in the best way, I will ask you in what way are we allowed under the Constitution to approach this subject by way of prohibi- tion of corporations which do not foUow these rules, to engage in commerce ? Mr. Beandeis. I think we have Mr. F. C. Stevens (interposiug). Have we the power to lay down the rule directly? Mr. Beandeis. I think w e have the r ight to lay down the rules under which the instrumentalities bf~mfeTstate~ commerc e "sfiTO M operate : and Tsee"nTVonstitu1]^aT inhibition which would prevent. Mr. Montague . Do you tmnF TT should "Be by regulation or pro- hibition ? Mr. Beandeis. J think regulation .would be just as effective as prohibition, and in my own mind we should approach this subject from the point of view of regulation rather than prohibition; of aid rather than of restriction; because industrial crime is not a cause, it is an effect; the effect of a bad system. If we adopt a good sys- tem, we are very apt not to have much of industrial criminality. The Chairman. Is it your idea that if prescribed uniform methods of accounting were carried out that no expensive or complicated plan should be adopted ? Mr. Beandeis. Certainly. The Chairman. Would you mind outlining just about what the features would be ? Mr. Beandeis. I should say, in the first place, that uniform accounting should be applied only to the large corporations. That would have an advantageous effect for two reasons. Mr. Covington. Right at that point, not interrupting the conti- nuity of your thought, do you think that should necessarily be left to the judgment of the commission at first, rather than to fix it arbi- trarily in the bill ? Mr. Beandeis. Yes. 10 INTEESTATB TBADE COMMISSION. The Chairman. Whether you are conferring power arbitrarily to compel this or whether you are making suggestions and advising it, what I want to know is what your plan would be ? Mr. Brandeis. My plan would be to give the power The Chairman (interposing). I am not talking about that. I am asking about what the rules ought to be. mi ^ i. ■ t Mr. Brandeis. That is what I am about to state. The first thmg I would say, therefore, is that if we apply it only to the large corpora- tions, we must determine whether it shall be to those with a $5,000,000 annual business or $1,000,000 annual business; or if we classify by capitalization, whether the limit shall be $1,000,000 or greater. The methods of classification seem to me relatively unimportant, because it will be merely a tentative classification, subject to change as we progress. Mr. Montague. Would you apply it to the small corporations ? Mr. Brandeis. I would not to-day, except in certain cases. Mr. Montague. You would start with the large corporations? Mr. Brandeis. We would start with the largest, in the first place, because there are few of them. In the second place, for there is another reason The Chairman (interposing). Whatever may be the power in an advisory capacity, I want to know what your suggestions would be as to what these accounts should show. Mr. Brandeis. I want to state the second reason, which has a bearing on your question. The second reason is that, in all proba- bility, you will find the best accounting to-day in the largest corpo- rations. They have to develop better accounting in order to keep any track at all of what they are doing, and they generally have expert accountants at work for them. The accounts are not always what they should be, but taking them as a whole the largest corpo- rations have the best accounting. What I suggest this trade commission should do, if given the power, is to prescribe a uniform system for a relatively small number of large corporations The Chairman (interposing). But you do that in the act itself ? Mr. Brandeis. The discretionary power should be vested in the commission. Congress can exercise its control by limiting the appropriation. Mr. Hamilton. In the act itself you would give the commission power to investigate the corporations ? Mr. Brandeis. Yes; and I would express in the act, as showing the understanding of Congress, that the commission may from time to time prescribe these methods applicable to particular classes of corporations and may classify the corporations for this purpose. That is what I would indicate in the act — the thought of Congress, the expectation of Congress, that the introduction of a uniform system of accounting would be done gradually. Mr. Hamilton. What construction would you put upon that then ? Are you going to Umit the power of the commission at the outset ! Mr. Brandeis. I am putting it in such form that th'e whole field IS to be within the scope of the commission; but the language should mdicate an expectation on the part of Congress which will be reflected and enforced by the size of the appropriation, that those powers INTEBSTATE TBADE COMMISSIOM'. H which the commission ultimately is to exercise, are not to be exercised at one time, but gradually ; that they would not have to apply a uni- form system at once, to all classes of corporations. Mr. Hamilton. I am interested in that connection, to know how you would frame your law ? The Chairman. I do not understand your proposition yet. I want to ascertain your suggestion as to the features of this uniform account- ing ? Mr. GoEKE. Would you favor a limitation of the power of the com- mission and prescribe uniform accounting for corporations with a million dollars resources, and fix that by the statute ? Mr. Brandeis. No. Mr. GoEKE. You would not? Mr. Brandeis. No. The reason I do not is simply this: I. do not feel it to be a matter of perhaps fundamental importance, but I do not believe that we, sitting here, can determine as well as the commis- sion can determine, when it gets to wor^, to whait extent and how rapidly it may be desirable to introduce uniform accounting. The change can be made only gradually. Assuming that to-day we were all agreed that it is desirable that the 305,000 corporations should all come under this act; still the commission could not physically intro- duce uniform accounting for many, many years. It ought to go at the matter gradually. The commission will have to learn by ex- perience what it is most desirable to do. It must investigate care- fully the various conditions existing. Mr. Hamilton. Assuming that a corporation, small at this time, is to grow in the future, it might be desirable for your commission to investigate that corporation befoxe it gets too big. Mr. Brandeis. Yes, absolutely so. Mr. Gdeke. In connection with that matter and regarding the practical side of it, do you think it would be more difficult to prescribe the untform system or accounting for the telephone business than it would for the steel business ? Mr. Brandeis. No ; I suppose it would be easier for the telephone business. Mr. Goeke. Is it not a fact that the independent telephone com- panies have perhaps a thousand different ways of keeping their ac- counts and the Bell Telephone Co. has one uniform system ? Mr. Brandeis. That, I presume, within limits, is true. The Chairman. If the authority and jurisdiction of this commis- sion is only advisory, then business concerns may adopt their sugges- tions as to uniformity of accounting if they wish to do so. If it is compulsory only as to part, the smaller ones ma;y adopt it volunta- rily if they wish. Some busiaess institutions are evidently opposed to this scheme. You seem to place vast importance upon u niform- ity of accounts ? Mr. Brandeis. I do. The ChAirMajst. Theref ore, it is important that I shall get an answer to my questio-n, and I am going to get it if I have to go home with you. I want to know what the features would be of that uniform system of accounting, or one form of accounting, which you think we should have? ■ i i v jr Mr. Brandeis. I am most happy to tell you what the leading fea- tures are, as I conceive them. 12 INTERSTATE TBADB COMMISSION-. Mr. DOBEMUS. If the members of the ««7'"j"r,Wman^''^shes Mr. Bkandeis. I am sure they wiU bow to t^« .f ™^J^A ~^'; The Chairman. I am going to stay with you until I get that answer ^"m^SrIndms. I shaU endeavor to comply with your suggestion, Mr. Chairman. , . , , „ j.- To my mind what we want to know in regard to every corporation is broadly two classes of things. We want to know absolutely the assets and the liabihties. We must know the assets and liabilities, not in a lump, but in a perfectly definite classification, so there can not be a real concealment of the exact situation by the use of some comprehensive term that does not teU anything. Mr. Stephens of Nebraska. And also provide what shall be assets and what shall not be assets ? Mr. Bkandeis. If you provide what the classification is and set out the different accounts of assets and the different accounts of liabilities, you will have covered that matter fully. When you come to the liabilities, I want particularly to turn your attention to the so- called contingent liabilities, which are frequently as actual as any other liabilities — ^ — Mr. Montague (interposing). You would distinguish between lia- bilities and betterments ? Mr. Bkandeis. Yes. You should go through that carefully and specify the classifications. In Massachusetts and probably in other States, under the laws concerning private corporations, this is already specific in forms of reports, not, perhaps, with sufficient detail; but we undertake to specify that a corporation may not inake a return except in a certain way, but we do not prescribe how the books shall be kept. We do specify in Massachusetts that every corporation with a capital of $100,000 or over must have the return certified by an independent auditor, selected by three stockholders — if there are more than three stockholders — and not by the directors. That is the law in Massachusetts; but that law is not very effective, for the reason that we have not any law prescribing the form in which the books shall be kept. As I said, we should know with exactness the assets and the liabihties. Then we should know what is perhaps even more important for many purposes — the actual operating cost and the actual income. Mr. Montague. Net income ? Air. Bkandeis. Gross income and net income, depreciation, and the various charges; whether you are properly charging amounts to insur- ance fund and guaranty fund and replacement fund, and whether there are funds — "yeUow-dog" funds, such as we heard a good deal about a few years ago in the insurance investigation. The Chairman. You would not make a general prescription of items that could be applied to all businesses ? Mr. Bkandeis. Certainly not. There are a great many thiogs which would be applicable, for instance, to a great merchandising business which would have no place in a manufacturing business Things apphcable to one manufacturing business would have no proper place in the accounts of another, and therefore I conceive that this work of providing a system of aGCOunting is a work which, if you bemn it to-day could not conceivably be finished in a decade. It will not be finished withm 20 years so as to apply to all the corporations that will INTERSTATE TEADE COMMISSION. 13 ultimately come under it. In the Interstate Commerce Commission a defimte system of accounting was put into operation, July 1, 1907; but the commission's accountants have been working almost as hard since 1907 as before to perfect that system of accounting. The defects in a system can be developed fully only bv experience, even in the single business of railroading. Mr. Montague. In the same business ? Mr. Bkandeis. The same business — a business uniform over this country. The commission develops its system in a most intelligent way, upon conference with representative accountants of the rail- roads, and yet the difficulties of establishing an adequate system are extremely great, although the task is simply that of telling the facts. Establishing a system of uniform accounting for any class of business is merely finding the language in which the business facts are to be expressed. The Chairman. In business where general blank statements are prepared and sent out for returns, are not these divers exceptional cases always provided for by blanks intended for statements of other things that are exceptional to particular business ? Mr. Brandeis. That is very common; and yet experience has shown that if accuracy is to be secured, too much should not be left to the discretion of the individual concern. The Chairman. There would be no reason for refusing to apply a general system that would be common and applicable to the great bulk of the business, because there were exceptional cases which did not fit exactly the blank. Mr. Brandeis. That is true; but I think it will require, on the Eart of the commission, patient and lengthy study to determine ow far to apply the system at any time. It may be a year, or two years, or three years after this act goes into effect before any class of corporations is told how it must keep its books. Mr. Talcott. It goes much deeper than a mere report? Mr. Brandeis. It does. It goes into the things out of which the report is made. The Chairman. That report will have reflected the truth of the books? Mr. Brandeis. That is it. J refer to the Interstate Commerce Commission so often, but jt is jS y that commission that the se prob- lems have been workeTout T'^Bul^ even to-day ihe" commission fiiids it necessary, in order lo know certain facts that are vital to the railroads and vital to the public, to undertake through its own and the carriers' accountants very expensive inquiry, going back to the original vouchers, because the books as kept do not provide very important information. It would be a perfectly simple matter to get this information if a few years ago the need had been recog^ nized and accounting of this respect had been required. It would have been a matter then of copying a few entries; but now it is a work of investigation that takes months. Mr. Covington. Does not the act to regulate commerce give to the Interstate Commerce Commission power, in its discretion, to prescribe a uniform system of accounting for the common carriers to foUow ? Mr. Brandeis. It does. 14 INTEESTATE IKADE COMMISSION. Mr. Covington. If that system is to be established by the Inter- state Trade Commission, I presume the same discretionary power should be conferred upon the Interstate Trade Comnussion ? Mr. Brandeis. It must work itself out gradually if it is to be done without violence to business and with due protection to the community. Mr. Montague. That is the question I asked in the begirming — if you thought that the system of the accounting should be a matter of legislative prescription or of administrative detail. Mr. Bkandeis. Administrative detail, absolutely. Mr. Montague. Do you, or not, think that the present bill gives this trade commission the right to prescribe such accounting? Mr. Bkandeis. I can not speak with much authority, because I have not examined the bill with that care that I intend to do, but I did not tliink it did give that power. Mr. Montague. Will you read page 4 of the bill and see whether or not it does, because we want to get at something we can deal with before we get through. Mr. Brandeis. May I ask to what particular passage you refer ? Mr. Montague. This language is very involved, Mr. Brandeis, but perhaps I can better bring it to your attention by reading my inter- pretation of it. The Chairman. The Chair will suggest to the gentleman from Vir- ginia that the witness just stated that he had not had much oppor- tunity to examine the terms of the bill. Mr. Montague. But Mr. Brandeis has a very keen mind and can grasp it very quickly. The Chairman. He has indicated his willingness further to exam- ine it, and I suggest that he be allowed to continue his statement. Mr. Brandeis. It wiU only take a moment to answer this question, Mr. Chairman, and I shall be very glad to do it. Mr. Montague. I will adopt the chairman's suggestion, Mr. Bran- deis, and will not interfere with your statement at thig time. The Chairman. If you are rea^y to answer that question, you may proceed. Mr. Brandeis. I shall be very glad, indeed. The Chairman. The Chair remembers what you said about your willingness to come back after examining the bill. Mr. Brandeis. I shall be very glad to give you the best answers I can give at this time. Mr. Montague. Go ahead, Mr. Brandeis, and pardon the inter- ruption. Mr. Brandeis. There is one other subject that is not specifically treated in this biU, but which I should like to Mr. MbNTAGUE (interposing). Are you leaving the system of accounting ? Mr. Brandeis. I am, yes. The Chairman. Did you get through with that ? You mentioned one feature; what was the other? You said there were two Mr. Brandeis. The point I was going into on that question was the operating cost and the expenses and the income If you take any one of a dozen corporations to-day, engaged in the same line of busmess, you can not determme by looking at their books this ques- tion on which the Secretary of Commerce is making an investigatidn INTERSTATE TRADE COMMISSION. 15 at this time, because they keep their costs in entirely different ways. The Tery basis of all business is to determine the cost of doing the business. That is what men ought to know. Every man needs that information for the purpose of efficient administration of his business. He needs it for the purpose also of telling the truth in regard to the condition of his business. But men keep their books so differently that this investigation of the Department of Com- merce is going to be blocked at every stage by reason of that very fact, and the only way they can find out what they are trying to find out now is to go in and make their probe here and make it there, and then ultimately draw their conclusions. The Bureau of Corpo- rations had that difficulty when it undertook to deal with the cost of making steel. When you read their report on the cost of making steel of different sized concerns engaged iq the manufacture of steel, you are confronted at every point by certian limitations as to the accuracy of report. The different methods adopted by these different con- cerns in keeping their books prevent the making of just and fair coinparisons. Mr. GoEKE. Would not the system of uniform accounting of the character you have in mind be an aid to the administration as well as the corporations in connection with the administration of the income-tax law 1 Mr. Brandeis. It would be an aid to the corporation and an aid to the Government — an aid to the industry itself, perhaps, more than anything else — to know the facts. That stands at the very basis of efficiency — to know what an operation costs, to know 'why it costs that amount, and why it does not cost less and why it is not pos- sible for somebody else to do it for less. As business develops men will talk as freely about the details of advances in business efficiency as physicians now talk about their new discoveries in aid of health. The fact that medical knowledge is open to all does not prevent different physicians from advancing in competition with one another — competition in the larger sense. The fact that the law and the de- cisions of the courts are public and that we lawyers or any one of us have all the opportunity possible of knowing all that has been de- cided does not prevent an honorable conapetition among lawyers. AH business is tending to-day more and more to the recognition of the fact that what we want and what every man should know are the facts of business. No one concern can alone find out the facts which should be known. The Government should aid in advancing that knowledge. Mr. Stephens of Nebraska. Before you leave that subject I would like to ask a question to get your view. I find that section 20 of the accounting section of the interstate commerce act has two punitive provisions. Could those or similar provisions be applicable to the system you desire to be devised concerning industrial corporations ? I am speaking from a constitutional standpoint. Mr. Brandeis. I see no reason why they can not. I mean I see no reason why industrial business, engaged in interstate commerce, stands in any different position from a common carrier engaged in interstate commerce. Mr. Stephens of Nebraska. But that is very different from maMng a section of that kind Mr. Brandeis (interposing). It seems to me from that point of view they are on the same basis. 34082—14 2 16 INTERSTATE TRADE COMMISSION. The Chairman. If Congress clearly defines it purpose, and the power is delegated, and establishes the limits, then within those hmits. Congress having already legislated,the commission may make the regulations? . . . Mr. Bkandeis. Precisely. That is the precise position. Mr. Stephens of Nebraska. Section 4 provides something with reference to publicity of those records. How far would it be ex- pedient for us to legislate as to requiring those records to be public, and how far should we allow them to be kept under the control of the Cornmission ? Mr. Brandeis. It seems to me Congress must, reserve the full right to knowledge for its own purposes; I mean I am not at all in sympathy with me provision which exists. I think, in the present Bureau of Corporations act, that it is the President only by whom communications can be made. Congress should algo entrust to the commission the power to make public the facts it collects. The Chairman. Mr. Stephens wants to know what is advisable. Mr. Brandeis. Congress should h ave the ri ght to require a ny i nformation which the commission has . Mr. Stephens of Nebraska. Oongress amended it. We can change the law any minute. Mr. Brandeis. I mean in the present law I would recognize that and change the existing law. Mr. Stephens of Nebraska. I want to laiow what can be worked but for the best advantage of the public. Mr. Brandeis. That is the thing for Congress to do. The Chairman. Congress is like St. Paul in one respect, if not in another, that "all things are lawful unto me, but aU things are not expedient." Mr. Brandeis. Yes. As to publicity other than that — subject at any time to the resolution of Congress and the President, of course — I think that a very broad discretion must be committed to the com- mission itself. My own inclination, in the exercise of that discre- tion, would be gradually to make more and more things public. Mr. Stephens of Nebraska. That would be necessarily true. Mr. Brandeis. That should be true. It seems to me the commis- sion to which we intrust so much must have also the discretion to determine certain things that shall not be made public. The Chairman. Ought they to make anything public unless it appears there is some wrongdoing ? Mr. Bkandeis. Yes; because, as I said before, my idea is that ri,lthough we are putting in this machinery — and it is most valuable machinery — to aid in the correcting of wrongdoing, the most impor- tant thing of aU is to aid before there is wrongdoing The Chairman (interposing). Do you want to supply a certificate of character to those who are found doing right ? Mr. Brandeis. I am not so much desirous of furnishing anybody a certificate of character as to create a system which will make a man deserve that certificate. The Chairman. You think that can be brought about by the printing of their r&ports? Mr. Brandeis. Yes; in a way. I have always felt in regard to breaches of trust that there was nothing so effective m preventme them as to create a good habit in regard to the keeping of books and bank accounts. INTEESTATE TRADE COMMISSION. 17 The Chairman. I assume you would not advocate publicity that might aflEect prosecutions that were going to be advised ? Mr. Brandeis. Certainly not. I would not disclose what may properly be deemed to be private matters as distinguished from matters of public interest. Mr. EscH. In section 3 of this bill corporations are required to give a statement of their organization, busiaess, financial condition, conduct, management, and relation to other companies, and the commission through its agents is given the right to examine and have complete access to all records, accounts, minutes, books, and papers of such corporations, including the records of any of their executives or other committees; and section 4 makes all this information public information. Here is a corporation -that is founded upon a secret formula. Its success is based on that secret formula. Another corporation is foimded upon a secret process in manufacture. An- other corporation gets its success because of its lists of customers. Would not these powers be sufficiently broad and comprehensive to make all that information public ? Mr. Brandeis. I should be afraid the language was too compre- hensive. Mr. EscH. And you would not, therefore, advocate such publicity ? Mr. Brandeis. I would not. I feet perfectly clear that the things that should be made public are only those in which the public has a legitimate . interest. The Chairman. Would your idea of uniform accounting involve the necessity for doing these things ? Mr. Brandeis. There is not anything required by uniform account- ing which properly could not be made pubUc without injury to a business. The Chairman. Could not you carry out your idea of requiring the uniform accounting without going into the formula of creating the compound in which they deal, or the hst of customers ? Mr. Brandeis. Most certainly. But there may be the greatest reason why the commission should have authority to see everything in the way of books and papers; for it can not get full knowledge without that power, and we must trust to that body discretion to deal properly with this highly dehcate instrument of business. Mr. DoBEMUS. Does not this qualification hmit it, that they may make it pubUc as they may deem necessary ? Mr. Brandeis. Yes; as it may be necessary or advisable. Mr. Talcott. Section 9 seems to be almost fundamental. It gives a corporation subject to this act a right to demand that the interstate trade commission shall conduct an investigation, practically at the Eleasure of the corporation, to determine whether or not it has not een guilty of a violation of the act of July 2, 1890. In other words, it confers upon the corporation the right at its own pleasure to ask the interstate trade commission to say whether or not it has been guilty of a violation of the Sherman antitrust law. Mr. Brandeis. I feel very clear that the commission should not be under such an obligation to make a decision or report. Mr. Talcott. Would not that be tantamount to enabling the cor- poration, at its own time, after it adjusted its business in its own way, to get a certificate of character ? 20 INTEESTATE TRADE COMMISSION. and we come right back to the proposition that " accounting is gov- ernment." Mr. Montague. That is what Colbert said. Mr. Beandeis. Yes. The moment you enter upon the reahn of regulating business, you find exactly the same thing. Mr. Montague. Was not Colbert's famous saying directed to the system of Government accounting which resulted in great wrong to the French people ? Mr. Beandeis. He undoubtedly found a great deal of fraud. But it is a fundamental truth which is all pervading. Whenever the Government, whether it be city, or State, or a nation, undertake to deal with any specific human facts, whatever the business may be, you must know the language of the business in order to express ac- curately the facts. That is what accounting is. It is merely the language through which we convey the ideas or which should be used to convey the ideas of business. Mr. Montague. With the consent of the chairman, may I suggest that Mr. Brandeis submit to us his idea of what would be a propef section of this biU with reference to accounting ? Mr. Beandeis. I shall be very glad to do that. Mr. Covington. I understand, Mr. Brandeis, that you want to come before us at a future date for further discussion of this subject? Mr. Beandeis. Yes. Mr. Covington. Prof. Van Hise, of the Universitv of Wis consin, i n his book, laid a g reat deal of stress on the necessity for some uniform system of accounting. " ' :— r».,.^,^,..x.»„. .m^.,.,^.,^^... Mr. Stephens of Nebraska. It is very important for us to have Mr. Brandeis's advice and suggestions with reference to sections 8, 9, and 10. The Chaieman. I will state to the gentlemen from Virginia and Minnesota, that it is the expectation of the Chairman that Mr. Bran- deis will proceed with his remarks to-morrow morning. Mr. Beandeis. I am very sorry that I am obliged to leave the city to-day, but if I may come at some later time, I shall be very glad to. do so. The Chaieman. When could you return, Mr. Brandeis ? Mr. Beandeis. I am expecting to return early next week. I have to go back to Boston to-day. I will comnaunicate with you as soon as I do return. I am to appear before the Interstate Commerce Commission on Tuesday next, and shall communicate with you, Mr. Chairman, as soon as I return to the city. Mr. Laffeett. May I ask, Mr. Chairman, that Mr. Brandeis will consider H. K. 4384, a bill introduced by myself on the 28th of April, 1913, and referred to this committee, so we may get his idea about that matter ? Mr. Beandeis. Would you have the kindness to give me a copy of that bUl ? I should be glad to take these bills with me and give them some thought in connection with this matter. The Chaieman. The clerk will supply you at once with copies of all these bills. Mr. Baekley. There are other features of that trade commission biU which I should like to have discussed at the next meeting by Mr Brandeis. ^ INTEBSTATE TEADE COMMISSION. 2,1 Mr. Brandeis. Will you mention those features in which any of you are especially interested? I will then endeavor to give them attention. Mr. Baekley. The definite powers and authority of this trade com- mission and what its relation shall he to the other departments of the Government. Mr. Beandeis. Very well. Mr. GoEKE. In that connection I would like to suggest that this question be discussed: Eextending the right to this commission or empowering this Interstate Trades Commission to regulate and fix prices in event that any corporation shall be shown to have monopor lized any part or whole of the natural resources of this country, as distinguished from industrial corporations. Mr. Beandeis. Very well. ' (Thereupon, at 12 o'clock noon, the committee arose and adjourned subject to the call of the chairman.) Committee on Interstate and Foreign Commerce, House oe Representatives, Washington, D. C, February 2, 1914. The committee met at 10 o'clock a. m., Hon. William C. Adamson (chairman) presiding. The Chairman. The committee will come to order. The witness will give the stenographer his name, residence, and occupation. STATEMENT OF ME. WADDILL CATCHINGS, 84 DAVIS AVENUE, WEST NEW BEIGHTON, N. Y. Mr. Catchings. My residence is West New Brighton, N. Y.; that is a part of New York City. I am president of the Central Foundry Co. and of its subsidiary, the Central Iron & Coal Co.; and also president of the Piatt Iron Works Co. The Chairman. How long have you been in commercial business ? Mr. Catchings. Seven years, sir. The Chairman. Are you conducting a manufacturing as well as a mercantile business ? Mr. Catchings. Yes, sir; it is a manufacturing business. We manufacture our products and we distribute them. The Chairman. The distributing, I suppose, comprises the coin- mercial'aspect of your business ? Mr. Catchings. Yes, sir. The Chairman. The bill under consideration is H. R. 12120. Mr. Covington. Suppose you state that the matter under consid- eration is necessary legislation to create an interstate trade com- mission ? The Chairman. That is substantially the way I understand it. But we have been talking especially with reference to this one bill. You may talk for or against the bill, as you choose. Mr. Catchings. May I state, sir, that when I say I have been in commercial business for seven years that it has not been entirely in connection with the work I have mentioned ? Possibly I had better tell you about my other work, j 22 INTBESTATE TEADE COMMISSION. The Chaikman. Give us, if you wish, the full Hne of your ante- Mr. Catchings. I started in New York in 1904 as a lawer. I had been through the Harvard law school and Harvard CoUege. While at coUege I specialized particularly in economics and subjects connected with economics. I very rapidly drifted out of the prac- tice of law and into business. Since 1906 I have not practiced law, and have given my entire time and attention to managing business enterprises. Inbankruptcy I looked after the operation of several con- cerns in New York City, and finally had entire charge of the operation during its bankruptcy, of MiUiken Bros., a large structural steel con- cern doing business in aU parts of this country and in many foreign countries. I was connected with Wolf Manufacturing Co., manufac- turers of flour-milling machinery, at Chambersburg, Pa., during its bankruptcy. In 1910 I was appointed by Judge Hough as receiver of the Central Foundry Co., and after its reorganization, in 1911, I became president of the company. Later I became president of the Piatt Iron Works Co. During the last seven years, therefore, I have had intimate acquaintance with the detail operation of a number of business concerns in different lines of business and covering different fields. I was in these companies as a business man and viewed their operations purely from the business standpoint, and I had to do solely with their executive and detail management. Mr. Covington. Are these companies largely engaged in manufac- tured products which go into interstate commerce? Ml . Catchings. Entirely so. I have never been in a company not engaged in interstate commerce, sir. The Chairman. You may proceed in your own way with any statement you may wish to make in discussing the subject. Mr. Catchings. As I understand it, the bill before you for con- sideration is the one constituting an inteistate trades commission. The point about that which is the most interesting to me as a busi- ness man is the possibility that it offers for publicity. My own feel- ing is that most of the difficulties that have arisen with business which you are trying to overcome, and properly to overcome, have come from seciet methods and secret practices, and I believe myself that the great opportunity of immediate and lasting correction is in the possibilities of publicity that are offered in the formation of this com- mission. I do not understand clearly from the language of the bill whether it is the purpose of the commission to have full publicity with regard to business affairs, but if it is, that seems to me to be the most important step. The Chairman. The intentions of the commission have not yet been formed. We are going to form their intentions for them. Ml. Covington. Do you mind giving your views as to what extent there ought to be compulsory publicity of the acts of corporations engaged in interstate commerce? Mr. Catchings. I think there should be the fullest and most com- plete publicity. I think there should be absolute publicity of every sort and description; publicity of every act; every taansaction; every agreement; publicity of records and minutes, and of everything that is done in and by the corporation. The situation that exists in busi- ness to-day seems to me to present very extreme difficulties from the standpoint of the business man. We are competing, and competing INTERSTATE TRADE COMMISSION. 23 absolutely in the dark; that is, we have no knowledge as to supply or demand; we have no knowledge as to business conditions in the country; we have only supposition. Individually our principal source of information is what our customers tell us as to what our competitors are doing, and this is most unreliable. I could give you illustrations of false statements which I know positively to have been made recently; similar ones have been made at all times by customers as to what competitors were doing. Full knowledge of actual facts is absolutely essential to the effective management of any industry. If you are going to devote yourself to costs and not to selling prices, it is essential to know what the con- ditions in the trade are. I personally believe that one of the princi- pal reasons for the very extensive efforts of recent years to make trade agreements has been the necessity of overcoming the impos- sible situation which exists in business of not knowing what funda- mental conditions in business are. Certainly one reason for the efforts made toward controlling prices by agreement has been the great difl&culty in getting information as to what business conditions are; the supply, the demand, the development, the trend of a busi- ness. It has been necessary to do something and the only possibility has been the trade agreement. Mr. O'Shaunesst. Would you have the selling price and the cost price of manufactures made public ? Mr. Catchings. Yes, sir. I do not see how you can possibly draw the line anywhere. You must have full publicity. The Chairman. The wages paid and the amount of labor ? Mr. Catchings. Yes, sir. I think that the only possible way is to go the full length. Mr. Covington. You would extend that to the formula, for ex- ample, of a given product of a manufacturing concern ? Mr. Catchings. No, I should not. Mr. Covington. Suppose, for example, that a particular concern is engaged in a business where a certain restricted Hne of customers is peculiarly the asset which this corporation had Mr. Catching (interposing) . Yes, I should make that pubhc, sir. Mr. Covington. You would? Mr. Catchings. Yes, I do not see how you can avoid that. But so far as trade secrets are concerned, it seems to me that the only way to attack the problem involved in them would be to put com- panies depending upon them in the position of pubHc service com- panies, and to regulate their profits rather than leave them subject to regulation by competitive conditions. They present a monopoly and it seems to me we should have to recognize this and to regmate the monopoly. Mr. Covington. That is, you refer to those concerns which have the benefit of one form or another of patent laws ? Mr. Catchings. Yes, sir. I would treat companies depending upon secret processes exactly the same as corporations owning pat- ents, and it would be my idea to regulate their earnings rather tnan leave them to be regulated by competition. Mr. D. V. Stephens. I am very curious on that patent law busi- ness. I should Hke to know what your opinions are with regard to the benefits of the patent law business. Is it your opinion that patent laws are detnmential to general business ? 24 INTBESTATE TRADE COMMISSION. Mr. Catchings. I have not had very much actual experience in patent laws. We have only one or two patents that we use. I have a very clear personal feeling that our patent laws, in their present unhmited condition, are very detrimental. I think there should be restrictions upon the exercise of the right of monopoly which is given under the patent law. Mr. EscH. The National Cash Register Co., or an officer of that company, was indicted about a year and a half ago ? Mr. Catchings. Yes, sir. Mr. EscH. One of the counts was that they would send out their spies and get at the secrets of rival companies and then spread rumors or reports against the efficiency of their rivals 1 Mr. Catchings. Yes, sir. Mr. EscH. Would this bill prevent a procedure of that kind ? Mr. Catchings. Yes; in my judgment it would, sir; because you would have all the actual facts as to what was being done. It is the false report made; it is the misrepresentation that produces the diffi- culty. The cash-register company took full advantage of an unlim- ited opportunity for misrepresentation. Mr. O'Shaunesst. How would these facts be made pubjic by this trades commission? You could not pubUsh aU facts in regard to a business. How would you get them ? Mr. Catchings. I would have reports filed with the commissiop. which would be open to examination by anyone, regardless of hia connection or his purposes, and it is my judgment that you would have bureaus of trade information, trade journals, etc., that would tabulate and collect the information so that it would be available. Take to-day in the pig-iron business, the Iron Age and one or two other leading papers collect all the data they can get in regard to the production of pig iron and give you weekly as much information as Eossible as to the business conditions. This is a very material help, ut a condition, unfortunately, which exists only in one or two busi- nesses. The Iron Age sends to us at the first of every month blanks, on which to tell them how much pig iron wfe have made the precediQg month, which we fill out and send hack to them. Of course there is no assurance that the data given the Iron Age and tabulated by them is accurate. The Chairman. In order to make that publicity practical and val- uable, would it not be necessary that the books be subject to inspec- tion by anybody at any time ? Mr. Catchings. I do not believe so, sir, because it seems to me that- The Chairman (interposing). Just as is the case with public records ? Mr. Catchings. It seems to me that if you had a provision that reports had to be filed in a certain definite form with your commis- sion, that you need not harass your companies with individual investigation from time to time, except upon evidence The Chairman (interposing). I did not say individual investiga- tion. I say, let the books be subject to investigation by any man who wants to go there and look at them. Mr. Catchings. Yes. I think you would find that the companies would be very materially harassed. If they filed their reports in INTERSTATE TRADE COMMISSION. 25 accordance with account forms, prescribed by your commission, it- seems to me that would be enough. The Chairman. Their reports may be filed after the rascality i& done, and it would be like locking the stable door after the horse has. been stolen ? Mr. Catchings. My own feeling, sir, is that if you had a condition of publicity in business, you would not have much rascality. I do not think men would do questionable things in business if they knew that what they were doing was to be made public. The Chairman. Is not the only practical and needed benefit of pubhcity to be derived from this; having anybody who desires tO' go there and look through their books at any time he wants to look at them ? Mr. Catchings. If I could not get full pubhcity any other way, I would say yes, to get it that way. The Chairman. Is not that the best and most practical way? Mr. Catchings. I do not believe so, sir. The Chairman. That is what public records are — available and open to the public at all times ? Mr. Catchings. You see, the books of the company are scattered. The books of any large company are not all in one place. You have your ledgers and your general books at your principal office, your books of daily record at your plants, and you can not get the infor- mation desired until you have closed your books and have your invoices and records complete. The Chairman. I do not suppose the company can make a report until it refers to all of them, can it ? Mr. Catchings. We find it possible in our practice to get our records out about the 15th of the month following, and it is quite a simple matter to have a form of exhibit made up at that time which is readily intelhgible, showing the results of the business. This exhibit can be made up regardless of the particular manner in which the books are kept. It would show the gross volume of the business^ the earnings, and the various charges against them; it would show, in detail, the various selling and operating expenses analyzed so that you could discover from month to month any change. The Chairman. That would depend upon whether the report was a true exposition of all those books or not, and contained that very thing you might want to know ? Mr. Catchings. I should say that it would be highly advisable to reqiiire that statements be authenticated by public accountants^ and that if a corporation filed The Chairman (interposing). How could a pubhc accountant get it, if those books were scattered in hidden corners, as you hav& described ? Mr. Catchings. Whenever we have had accountants examine books- I have found that they very readily discovered whether the books- were kept in an open and clear manner or whether there were any secret or underhand mthods in keeping the books. The Chairman. If you had a rival whose business you wanted to know something about, and the Government had decided you should have the benefit of pubhcity, and you wanted to go and look at that particular transaction, do you not suppose you could make the man- 26 INTERSTATE TKADE COMMISSION. ager understand what book you wanted to see so he could find it and show it to you? Mr. Catohings. Yes, sir. The Chaieman. That is my idea. Mr. Catchings. My own feeling is that it would be quite possible for your commission to lay down forms of exhibits of expenses and forms of reports which would give you regularly aU the information which you wanted, and it seems to me that it would be desirable if those reports were filed in the form prescribed and authenticated The Chairman (interposing). Would it not be well for us to have a general law that any books should be subject to inspection by any interested party ? _ - Mr. Catchings. I should say, sir, if those regulations were formed, unless there was some evidence that there had been some misrepre- sentation or that the facts had been covered up, that it would not be wise to give the opportunity to have a business concern harrassed by individuals who wanted to make trouble. The Chairman. How would you get any evidence that there was something wrong unless you could go and look at the books and see ? Mr. Catchings. It seems to me that it would be very well to clothe your commission with power to examine the books of a cor- poration at any time. The Chairman. There are many hundreds, and even thousands, of these concerns, and our commission is going to be pretty well loaded, and you have your rival in your immediate vicinity. How is it going to interfere with other orders of the commission if you have power to go there and see his books ? Mr. Catchings. I do not feel that we should not give the infor- mation. Any information, it seems to me, should be open and public. But I do say that it would be unjustly harassing to business concerns to have people coming into their offices and interrupting the regular and routine operation of the business by looking at the Dooks. The books of a business are in use daily, and if some one is coming in and examining them you are going to be unable to use the books for the regular purposes of the business. The Chairman. If you have the right imder the general policy to know what your rival is doing, it seems to me you should have the right to get that in a practical and quick way. Mr. Catchings. The one point I want to bring out, sir, is not the examination, but that you should cover that examination with such restrictions that it could not be used improperly to harass a business concern. Mr. D. V. Stephens. It is your view that it ought not to be used by prejudiced persons ? Mr. Catchings. No, sir; I would let prejudiced persons Mr. D. V. Stephens (interposing). Nor to his disadvantage by competition ? Mr. Catchings. Let him get the information and use it for what purj^ose he sees fit. I do not believe you can afford to bring up the delicate questions as to what a man's motives are in an investigation. My only thought is that if you are going to give to the public generally the right to examine the books of corporations at any time, you are going to have your corporations constantly held up by ' The Chairman (interposing). Then you are willing to submit to the general scheme of harassing them through the commission INTERSTATE TRADE COMMISSION. 27 secondhanded, but think there would be too much harassing to let the persons interested in getting the information go there to get the books to see if they were doing right ? Mr. Catchings. No, sir; I do not regard it as harassing a concern at all to have it file regular reports. Such reports are prepared regu- larly and in a routine manner, and any company, properly run, has those reports prepared anyhow. It is no hardship to have to file reports. But when you allow anyone to' go into a company at any time during the month, regardless of whether the books are closed and regardless of the routine conditions in the business, to examine the books, you create a condition in business under which the suc- cessful running of the business would be practically impossible. Mr. Covington. Going back to what you stated a few minutes ago, when you were talking in regard to publicity. You said the trade journals now in the pig-iron business were giving as full dis- closures as possible in regard to the activities in that business ? Mr. Catchings. Yes, sir. Mr. Covington. Is it your idea that if the interstate trades com^ mission had filed with it reports containing in the fullest form the activities of each particular business, that the trades themselves would, in a very large manner, make that public ? Mr. Catchings. Yes, sir; I am quite confident they would. Mr. Covington. Following that up, would or would it not be true that whenever any report of a given corporation was manifestly con- cerning something on its face that the other competitors in the trade might not be trusted to get, the interstate trades commission after hearing that sort of investigation through the instrumentality .of the commission, would disclose just what the weakness or the falsity in the business was? Mr. Catchings. That is exactly the idea. Mr. Covington. That is the thought I had. Mr. Catchings. I think you will find that competitors in the trades and customers wOl regulate pretty vigorously if they have knowl- edge of the facts. Mr. Covington. If publicity is given of the ordinary activities of the corporation upon' certain standard forms, and that publicity dis- closed to competitors that some given corporation is engaging in practices that are contrary to law, may the competitors themselves be trusted to use the publicity of the commission as the basis of ap- propriate action to arrive at a rectification of the practice ? Mr. Catchings. Yes, sir. I think I can show you that that is just what would happen. I think I could show you how you could get the information, too. Mr. Covington. Mr. Brandeis last week stated before this com- mittee a novel but rather captivating idea, and that is, that uniform systems of accounting ought to be established in the discretion of the commission for those corporations largely enough engaged in in- dustrial business to make their accountmg so complex that unless it is uniform intelligent comparisons could not be drawii from investi- gations of them. What do you say as to that proposition ? Mr. Catchings. I think that is quite an impossibility, sir. Mr. Covington. You are on the practical side of that question^' and I want to get your views. 28 INTERSTATE TRADE COMMISSION. Mr. Catchings. I want to get exactly the same results that Mr. Brandeis does, but I do not believe that they can be secured by uni- form accounting. It seems to me that Mr. Brandeis has fallen into the error often made by men not familiar with the actual detail of business operations. You can not have uniform accounting in dif- ferent businesses, because the businesses are different; and even in businesses in the same line you can not have uniform accounting be- cause the methods are different. Any; accounting sj^stem to be ef- fective, has to reflect the actual conditions in the business, the man- ner in which the business is transacted. You can not make your business fit the accounting system; you must make your accounting system fit the business, it has been tried time and time again to lay out accounting methods and efliciency methods and make busi- ness conform to them. But it can not be done. The actual condi- tions in the business and the personal equation of the men in it will confront you every time. If you want to get results from an account- ing system, it seems to me that you must have your accounting system reflect the actual conditions that exist in the particular business. Mr. F. C. Stevens. And if you did not have the accounting system reflect the individuality, then what? Mr. Catchings. Then you have not the facts in regard to your business. I look upon accounting, sir, as the eyes, the ears, and the senses of business. Mr. F. C. Stevens. The recording of the affairs of the business? Mr. Catchings. It is a good deal more than that. I have had the opportunity of examining a number of companies that have failed, and it has been true in every case that the failure was due not so much to lack of ability on the part of the men in the companies, as to lack of knowledge of actual conditions in the business. Mr. F. C. Stevens. Then, your theory would be that a rigid and standard system of accounting would do two things; first, it would not reflect the real facts which make a business successful or un- successful ? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. And secondly, it would not tend to economy? Mr. Catchings. Yes; it would be largely impracticable. I mean, if you create your accounting system and then say to your business, "You have got to conform to that accounting system," you are going to have records made up of transactions which have not taken place in exactly the manner reported, or you are going to have your conditions, your actual manner of running the business, devised to meet an artificial situation. In my judgment, the fundamental feature of all accounting is to show facts as they actually are, not as you would like them to be. After you have your accounting system, then I think you should have your distribution and your exhibits made up to show the same facts for all businesses. My idea would not be to have a uniform accounting system, because I do not think you can do that, but I would have uniform reports. That is, I would have drawn off from the accounting system of the different businesses certain reports whip' would show the same facts in the same way in regard to all business. That is not based upon the detail of your accounting system. Your accounting system is to get the facts as INTEKSTATB TBADE COMMISSION. 29 tkey actually are. You can then distribute, arrange, and exhibit these facts as may seem best. Mr. CoviNGTOJiT. Do you consider it feasible to create a uniform sys- tem of reporting to the interstate trade commission that will be full enough, in the absence of a uniform system of accounting, to disclose to the public whether or not there were false statements in any reports ? Mr. Catchings. Yes, sir. Mr. Covington. Explain that, please. Mr. Catchings. When I say I would not prescribe a uniform system of accounting, I do not mean I would not prescribe the keep- ing of accounts. Accounts must be kept, and a full record made of all necessary facts. Take one thing in business to-day in regard to which reports vary materially, and that is what is regarded as cost. Do you take profit on your raw material, or do you take all raw ma- terial at cost ? Take this situation, for example : You are manufac- turing pig iron; you have your own coal, coke, and ore. Are you charging into your pig iron at cost, or at the market value, the coal, the coke, and the ore ? One man may say to me the cost of pig iron is $9.60. I am speaking of the Birmingham district, of course. One man may say it costs $9. .50 to make a ton of pig ^ron; another $8.50; or another $7.50. All three may have exactly ike same cost if they follow different methods of calculating cost on raw material. In figuring cost was the ore taken in at cost, or was profit included ? If the facts appear, it is immaterial which method is used. Your ex- hibit can be made equally well, whichever method is used. In figur- ing profits on your business for a year, are you taking your inventory In at its cost or taking your inventory in at market value? One concern may carry their product in inventory at the actual cost; other concerns.may carry their inventory at the market value. The wisest way, in my judgment, in accounting is to carry it at cost, or market value, whichever is lowest. In other words, if your cost is above your market value, you are inflating your assets if you carry it at cost. I have always regarded that fundamental of accounting as very necessary, and carry an inventory at cost or market value, whichever is the lowest. It is quite immaterial; however, which method is followed so long as the facts appear. Mr. Covington. You do not believe it would be possible to specify those details of uniform reporting by corporations in the piece of legislation itself ? Mr. Catchings. No, sir. Mr. Covington. That must be left to the regulations to be estab- lished by the commission and their accountants ? - Mr. Catchings. Yes, sir. The Chairman. But in prescribing a form, as I understand you, after propounding such questions and leaving blanks for the answers as wifi cover all the fundamental features, then you would leave a large residuum or general welfare clause to answer the business ? Mr. Catchings. Yes, sir. Mr. EscH. Supposing as an illustration: You say you are manu- facturing pig iron. Supposing one plant owned the coal and coke and the iron ore and made pig iron, and ano'ther did not own the raw material but purchased everything, and both made their reports; what information would that give to the third party, as to the actual cost ? 30 INTBESTATB TEADE COMMISSION. Mr. Catchings. You have to have the actual facts before you know what cost means. The man who purchased his raw material on the outside is adding to his cost of pig iron the profit on the raw material made by the outside concern; whereas the man who mines his own coal or makes his own coke, or who mines his ore, he is charging these materials in at cost and not taking the profit on the raw material. You have no comparison between the cost of pig iron in the one case with the other. The Chairman. That information would be of Httle value? ^ir. Catchings. You have the facts, sir, and my idea would be ia a statement to show the cost of pig iron in both cases on the same basis. After you have your facts it is simple to arrange your exhibit or com- parison. Mr. F. C. Stevens. Must you not have one other additional factor in there, that being all true thatyou have stated, yet the facts are not disclosed to the competitor. For example, the United States Steel Co., through its subsidiaries, owns all the material, and it could state just the exact facts that you have just named to the committee, yet the truth would not be told to the competitors at aU ? Mr. Catchings. Why not, sir? Mr. F. C. Stevens. Because the profit would be absorbed by its subsidiaries. Mr. Catchings. But you would have appear right on the state- ment that there had been that profit to subsidiaries. I regard the absence of this knowledge to-day as one of the great difficulties with the United States Steel Corporation, and will give an example since you have brought it up. Take the American Bridge Co., which is a subsidiary of the United States Steel Corporation, engaged in th fabrication and erection of structm-al steel buildings. I have worked in close competition with this company for two and, one-half years; have been right up against them on all large buildings in New York City and in the country generally, from 1907 to 1909. The great difficulty there was that the American Bridge Co. could take business at a loss because the Carnegie Steel Co., another subsidiary, sold the Aiherican Bridge Co. its structural shapes. All the profits could go to the Carnegie Steel Co., and the American Bridge Co. could be run at a loss year in and year out and stUl the steel company make a profit. Mr. F. C. Stevens. That is exactly what I had in mind. I should fike to have you show how. you would overcome that condition of things. Mr. Catchings. I would show it up. My point would be, sir, that if what was done was fair Mr. F. C. Stevens. The American Bridge Co. makes its report and the Carnegie Steel Co. and the Pittsburg Steel Co. makes its report, and the Bessemer Steel Co. makes its report, all similar and all belonging to the United States Steel Co. ? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. How would you compel them to make that statement so that the public would honestly know what was going on ? Mr. Catchings. My point would be that the Carnegie Steel Co. would have to disclose the cost of structurals and would have to dis- close the selling price to the American Bridge Co., and by knowing the cost and knowing the selling price you would know the profit to the Carnegie on the structurals. INTEESTATB TRADE COMMISSION. 31 Mr. F. C. Stevens. No; you would not know at all, because you would not know the profit the Oliver Mining do. made, or the Pitts- burgh Steel Co. made. Mr. Catohings. I would go right back to that. I would follow back step by step. I would know what profit they made because I would not stop at the Carnegie Steel Co., out I would go right back over the ground, following step by step the profit in each subsidiary. It is important to-day to know whether the American Bridge Co. is being operated at a loss or at a profit, and if at a loss what profit- the Carnegie Steel Co., etc., makes. To-day you make a quotation on a buildmg. You find a lower quotation by the Anierican Bridge Co.; you do not know whether that is due to very low cost in the American Bridge Co. or not. The American Bridge Co. has very wonderful shops. The Ambridge shop of the American Bridge Co. i9 a tremendous plant, but no one knows whether the cost in that plant is lower because of its size or higher. You can not tell whether or not the American Bridge Co.'s Ambridge plant is run more efficiently, say, than the McClintic-Marshall plants, which are much smaller. It is my idea that the McClintic-Marshall plants with their smaller units are better than the enormous Ambridge plant. Can the American Bridge Co. keep up the output to the point necessary to carry the overhead ? Can a manager efficiently handle so large a proposition? We do not know; but these are vital facts which everyone in the structural-steel business should know. Mr. F. C. Stevens. Would it not result in the course of time, in the course of not a very long time, with that situation fuUy developed, that a small plant like the McCUntock-Marshal plant that the American Bridge Co. would find out your cost and you would know their cost, but if your cost was higher than theirs that they could drive you out of business ? Mr. Catghings. They could do that anyway. Mr. O'Shatjnesst. What good comes then from what you propose ? Mr. Catghings. It seems to me that you are depending to-day upon competition as the regulator of your business conditions, and very properly so, I think; but competition in the dark is whoUy impossible — eflFective competition in the dark. You have to-day either very low or very high prices; business goes on in fits and starts. You are constantly being imposed upon by the customer. You have no knowledge as to what you are doing. The situation is reaUy impossible. Let me give you just one actual case which occurred, the other day. Business has been very duU, of course, and we have had neces- sarily to meet the prices made by our large competitors. If we did not they would take what httle business there was and we would simply have to shut up our shops. The question to us was. What prices were our competitors, our larger and sounder competitors, making? Whatever they were we had to meet them. A very large buyer in New York State recently got a quotation from the South, This he could not use for pipe can not be shipped from the South to New York. But he drew up a very adroit letter stating the price, and intimating to me that it was made by our largest competitor in the East. He said that if we wanted a share of his business we had to meet this price. He drew up a similar letter to our largest com- petitor in the East, intimating that he had this price from us and 34082—14 8 32 INTERSTATE TRADE COMMISSION. telling him that he would have to meet this price if he was going to get the business. But his mailing clerk made a mistake, mailing my fetter to my competitor and his letter to me. Of course, I went right back after him. He disclosed all the facts and admitted that he could not use the quotation from the South. In his defense he said that he was simply legitimately using the power of the buyer to discover weak points in the market. Business was already being done at an actual loss and great harm would doubtless have been done to business conditions had the trick worked. Take another illustration: On Friday of last week a statement was made in regard to our policy, to the effect that we were offering to sell at present prices for four months ahead. Such a policy would prostrate our busmess, because our competitors would have to foUbw such a course, and as the business is being conducted at a very sub- stantial loss to everyone, this loss would be extended over a long period of time. If a large producer should start a policy of making prices for a long period of time ahead based on the present low price there would be a tremendous loss to all in the business. The state- ment which was positively made was an absolute untruth Our quotations are for immediate acceptance and are merely to move paaterial during this depression. We are very optimistic as to the future. I think business conditions are going to be a great deal better, and we are not going to sell ahead at the present terribly low prices. This is merely as an illustration of the false statements which are made. To-day there is no way of preventing such statements or of proving that they are false. Mr. Covington. As a practical proposition, you are willing to lay all your cards on the table, if your competitors are compelled to do likewise? Mr. Catchings. It is a very extreme measure, I admit; but I have thought a great deal about it and I do not think there is any- thing else to do. Certainly something must be done. The existing situation is impossible. The Chairman. Going back to the Carnegie Steel Co. and its sub- sidiary, the American Bridge Co., I want to get the matter clearly stated on that. I understand the Steel Co. in order not to be com- pelled to reduce its own prices simply owns the stock of the company and lets that Bridge Co. work for nothing, so it will not have to sell other people steel at a low price ? Mr. Catchings. I do not know as to that, sir. The Chairman. Is not that the theory ? Mr. Catchings. My point is it is quite possible. I do not know whafthe tacts are; none of us do. I say it is quite possible for the Carnegie Steel Co. to be making a profit on structurals and for the American Bridge Co. to be runnmg at a loss. The Chairman. On what other theory can you account for that? Mr. Catchings. Here is what har ' " The Chairman (interposing). You have a theory on which to accoimt for that ? Mr. Catchings. As I say they may have a lower cost The Chairman. In order for the American Bridge Co to make a profit, the Steel Co. would have to seU to them cheaper: 'if thev sold to them cheaper they could have to seU cheaper to other people « INTERSTATE TRADE COMMISSION. 33 - Mr. Catohings. I want to show what really happens, that you may know what the situation is. The United States Steel Corporation has not the whole steel business, not by a great deal. They have tremendous and most eflfective competition. In my own judgment, the Jones & Laughlua, Co., so far as strength in the steel business is concerned, is a very powerful company. Say a concern like MUliken Bros, goes to Jones & Laughlin and says: "Here is what the Steel Corporation is doing; they are putting all the profits back in the Carnegie Co. In competition with the American Bridge Co., we can not do any business; we can not put your steel into buildings if you are going to insist upon this price on steel. You have got to • meet the condition established by your competitors, if you wish, to move your product. " All the time I was at Milliken Bros. I used to go through this course of reasoning with Jones & Laughlin, but it was aU on assumption and on guesses as to what actually was happening. On large buildings that we lost in New York City I used to take our estimated costs out to Pittsburgh and figure it out and show that it was utterly impossible for the American Bridge Co. to take the busi- ness at the prices made, pay the market price for shapes, and make money; and I was successful very often in getting tonnage from Jones & Laughlin at reduced prices for the sake of meeting this competi- tion of the American Bridge Co. Their proposition was: "If we are going to stay in the steel business we have to secure our share of the output, and we can not have our share of the output unless we let our customers secure business." Jones & Laughlin's costs are so low that they can meet any competition. The Chairman (interposing). If the Carnegie Co. was in fact maintaining this subsidiary company at a loss in order to reduce its own prices to them and to other people, is not that one of the very things we want to reach and expose and explode ? Mr. Catchings. I think publicity will do this. Of course I share the opinion of almost every business man I know, that the Steel Corporation is a tremendous benefit to our country. I feel that the evils of the Steel Corporation ought to be cured and the Steel Cor- E oration continued in existence, because the foreign business they ave built up could not have been built up otherwise and could not be handled except hj such a large company. The Chairman. You would like to tame it, and train it, and use it ? Mr. Catchings. I thiak your publicity proposition would do it. I can not conceive of men doing things that I know men have done in business, if those acts are going to be made public. I have seen practice after practice indulged in in business, abandoned after public discussion and the resulting clear understanding of the true nature of the practice. The Chairman. But you know the "young lady of the Niger, who with a smile went to He by the tiger, lost control of the tiger, came back inside the tiger, with the smile on the face of the tiger? Mr. Catchings. I do not beheve that with the tremendous inde- pendent concerns existing in the steel business to-day, there is any chance of their beuig swallowed by the corporation. But I do beUeve that the secret power possessed by the men in control of the Steel Corporation is too great and that this power should not be 34 INTEESTATE TEABB COMMISSION. exercised in secret. If it were perfectly clear what these men werer doings — Mr. Covington (interposing). You spoke of the export trade developed by the United States Steel Corporation ? Mr. Catchings. Yes, sir. Mr. Covington. Would your knowledge of that enable you to state what effect you think this would have on the foreign competitors of your industry? Mr. Catchings. Abroad, sir? Mr. Covington. Yes. Mr. Catchings. I do not think it would have any bad effect at all, sir.. Mr. F. C. Stevens. Why not, if the Germans and the English and the Belgians could know exactly what it cost to the American ex- porters — exactly what their items of cost were; exactly how the cost fluctuates; could they not meet and get on the inside of a great many foreign deals where we could not protect ourselves ? Mr. Catchings. I do not see how they could do any more than what they do when they know what the price is, and they have got to know what that is. It seems to me that for them the important business question is to know the price rather than the cost. Mr. Hamilton. Perhaps I do not quite understand. I did not hear all you stated, but in a general way I get the impression that you think this commission would be, and properly should be, a sort of central agency from which business competitors can derive in- formation as to the profits of all competitors and their methods of doing business ? Mr. Catchings. All of the facts of business. Mr. Hamilton. If that is true, would or would not the result be the centralization of business in the hands of the strongest ? Mr. Catchings. I do not believe so, sir, because it seems to me that to-day the larger company has the advantage of knowledge of facts which the smaller company can not have. Mr. Hamilton. It would have the additional knowledge, of course, that would grow out of this system, and of course would be apt to take advantage of that knowledge, would it not ? Mr. Catchings. In the condition which we have been considering it would be entirely fair for a man to know aU the facts and to use his knowledge of the facts. Mr. Hamilton. Then would it not result in the survival of the strongest ? Mr. Catchings. Of course that is what competitive business is. I think, however, that you wiU find your smallest concerns are just as strong as the large ones and perhaps stronger. Mr. Hamilton. Would you put in the possession of the strong concerns all the knowledge they might want as to the conditions of the weaker concerns ? Mr. Catchings. Yes, sir; but I would put into the possession of your weaker concerns all the knowledge they might want of the stronger concerns. Mr. Hamilton. Yes; but the weaker concerns would be limited in their power of operation upon the stronger concerns. The larger the sales possibly the lower the cost of production ? Mr. Catchings That is not always true. INTERSTATE TRADE COMMISSION. 35 Mr. Hamilton. Possibly not, but thera is economy in the operation of the larger concern, is there not? Mr. Catchings. No, sir; not always. Mr. Hamilton. Why not. Mr._ Catchings. Because in a small establishment the personal equation enters into all of the operations. There the man is on the job; he knows all the customers; he has a small selling expense and small overhead expenses. Mr. Hamilton. If you have a concern running at full time, at full capacity, night and day, it is supposed to produce each unit of pro- duction more cheaply than is the small concern running haltingly, to supply a more or less halting demand. That is true, is it not ? Mr. Catchings. It is perfectly true. You must consider, however, more than the manufacturing ^cost; there are the overhead costs, the selling and general expenses. You take the large concern that is distributing products all over the country; it requires an elaborate and expensive selling organization, a very large executive force, and a very large accounting force. I do loiow that this is the actual fact, that manufacturers in small plants very frequently have lower costs than thog- in larger plants, because of the fact they can give closer attention to management and have not the overhead expenses. Although their tonnage is smaller and their material cost slightly higher, their actual final cost is not higher. You take the large corporation, and when you add all the cost of depreciation and main- tenance, bond and interest charges, all the items of selling, executive, and accounting expense, the costs mount up, and although you may have a very low manufacturing cost, your final cost may not be so very low. Mr. Hamilton. Assuming that to be true, how does it happen that the big institutions are said to be running away with the little institu- tions ? Mr. Catchings. That, of course, opens up a very big subject. I am very glad to have an opportunity of telling you why I think so. Mr. HjSiilton. In doing so, take into consideration conditions in Germany. Mr. Catchings. Of course, I think that is a very mistaken policy; there a man can not go into business except upon permission; there his whole conduct is regulated. Mr. Hamilton. That is, you think the German system is wrong ? Mr. Catchings. I do; yes. In that, of course, I differ from' a great many men for whose judgment I have a great deal of respect. My own feeling is that you will never get an effective or satisfactory business condition through regulation and combination. I will tell you in a word my principal reason for this statement. In the foundry business we use a great deal of pig iron. I would rather pay $50 a ton for pig iron than I would to pay $15 a ton; the larger the volume the larger the profit. Competition is all that induces us to try to buy pig iron cheaply. Mr. Hamilton. What effect would that have on your customers ? Mr. Catchings. That is just the point. The only protection the consumer has is competition. If you do not have competition in business, you have no one trying to lower the final cost. As manu- facturers, the only thing each of us is interested in is that every other manufacturer has the same cost of material that we have. If 36 INTERSTATE TBADE COMMISSION. it were established that pig iron was be^ng sold to every one of our competitors at $50 per ton, I would gladly pay $50 a ton for it; but if any of our competitors has a price of $49 a ton, I can not pay $50. It is this situation which is the only protection the ultimate con- sumer has in getting the lower cost. Take the question of workman's compensation; this is entirely a question for the consumer. It is immaterial to the manufacturer what the rates of compensation are as long as they are the same for other manufacturers. The Chairman. Is it agreeable to you to continue to answer questions ? Mr. Catchings. Yes, si^; I am dehghted. The Chairman. Go ahead. If the witness is willing, I am. Mr. Sims. He is endeavoring to make a statement, and we are breaking into the middle of it; we are losing the other part of it. Mr. Hamilton. I beg your pardon. Proceed. Mr. Catchings. If you are not going to have effective competition, you must have something else. If you abandon competition as your method of regulation and adopt statutory regulation, you will have here the German situation. Tne reason the Germans are able to sell abroad cheaply is that they make a large profit at home. If you make a large profit at home, you can sell abroad below full cost. If you can carry aU your overhead and executive expenses, your bond and interest charges, and still secure a substantial profit on "what you sell at home, then you can sell your surplus product abroad at a very much lower price and very profitably, because it does not affect your home market. The Chairman. You can afford to treat the foreigner liberally if you are able to recoup by skinning your neighbor ? Mr. Catchings. May I take exception to that word "Kberal?" I do not beheve_ anything is liberal in business which is sold below the cost of production, and I do not believe any consumer has the right to buy anything at any place below the cost of production. If he is buying something lower than it can be manufactured for, he is not dealiag fairly with the manufacturer. Mr. Covington. Has not the German plan of operation in the steel trade gone to the extent now of having prescribed what the precise proportion of the total foreign output shall be sold by each one of the concerns? Mr. Catchings. Tney work purely on a tonnage basis all through. Mr. Covington. That is, I understand they divide the foreign business on that basis'? Mr. Catchings. That i? one of the greatest protections the Steel Corporation gives in the United States to-day, and if it were not for the Steel Corporation we would have a great deal more dumping here from abroad than we have at the present time. It is the fear of the Steel Corporation's dumping abroad and in dumping in foreign competitive markets which prevents much of the foreign competition which we would otherwise have here at the present time. The Chairman. The gentleman from Michigan now has the right to have his questions answered. Mr. Hamilton. There is just one more question which your answer suggests. I understood you to say you would like to have an absolute umlormity of cost of material? INTBKSTATB TEADE COMMISSION. 37 Mr. Catchings. No; you misunderstood me. You can not get that, sir. Mr. Hamilton. You would like to have all your competitors to have to pay $50 a ton for pig iron ? Mr. Catchings. No, sir Mr. Hamilton (interposing). In that respect you would like to have uniformity? Mr. Catchings. No, sir; I would rather have full play for individ- ual effort. My reference for $50 pig iron was merely to show that manufacturers have no incentive to purchase raw materials at the lowest figures except competition. Mr. Hamilton. If I understood you correctly, that meant uni- formity — that is, you would Ifave some substantial fact, some settled fact, from which you could always figure ? Mr. Catchings. No, sir; I want the fullest play for fair individual effort and judgment. Mr. Hamilton. Assuming you could have such a condition as that, then you think you would have competition, but the competition would depend entirely upon the ability of each producer to stay in, would it not ? And, finally, since trade depends upon the strongest, since the ability of a man to stay in dej)enas upon his strength in the business, it would be a case of the survival of the strongest and would result in centralization, would it not ? Mr. Catchings. I do not believe that, because I do not believe there is any business in the world (except a natural monopoly) that can be monopolized by anyone except by underhand influence or control. I think there is enough capital and enough capable men in the world to go into any line of business where the profits are sufficiently high to be attractive, and I think the spectacle you have to-day of a highly prosperous concern in the steel business, the Jones & Laughlin Co., successfully working alongside the Steel Corporation is clearly indica- tive of that fact; and it seems to me, sir, that if you had all the facts all the time you would have plenty of capital in business flowing to points where needed. And the survival of the fittest is not Mr. Hamilton (interposing). The strongest; I did not say fittest. Mr. Catchings. Well, the strongest. The survival of the strong- est is not in my judgment a mistaken doctrine. Strong companies and strong men are coming to the front every day. Business is all a matter of personality; of individual effort. The success of any business is a matter of individual personality in the business at the time. You can not take any business, start it, give it a push, and expect it to run along indefinitely. You have to watch it every day; you have to exercise judgment on every problem that comes up. Business is not a matter of generality; it is a matter of detail It is a question of, "Shall I buy to-day at this price ? Shall I sell at that pnce? Shall I employ this man and give him this duty? Shall I allow this claim ? How shall I get the best work from the organization ? What kind of spirit have I among my men ? What cooperation?" . » ■ js i. Any one man has only a certain period of time for active effort. He is going to give up Ms work in tune, or, even if he does not, he is goiQg to pass the period of his greatest vigor, and you have other men coming on all the time. There is some one pushing you all the 38 INTERSTATE TEADE COMMISSION. time. You can not have a man run a lOO-yard dash at 40 as fast as he can at 20. Mr. Hamilton. The corporation takes care of that, does it not ? Mr. Catchings. No, sir; that is where you make a mistake, in my judgment. May I speak of that particularly ? There is nothing pecuMar or mysterious about a corporation. A business has to be run by some man, and if it is not it will not be successful. This is quite true of a corporation; it is successful according to the ability of the man who manages its aflFairs. Mr. Hamilton. I simply mean that a corporation continues year after year and adds men to its force from time to time. Mr. Catchings. You can not hold success unless you have the men to hold it. You have to have jSut organization; you have to have some man at the head of it; you have to have some man recog- nizing the ability of other men; some man to build the organization and to hold it. All depends upon his judgment. Your men change; you are constantly developing; each individual is changing; they are more capable to-day or less capable to-day than yesterday. You have to have a man on the job who is watching everything in the com- pany; who is in touch with its aflFairs. He must have executive oflScers under him and must be working with them, and they with other men. Of course, no man can go into each detail himself. Mr. Covington. Let us get more particularly to this proposed legislation. In addition to the reports you think there oumt to be filed by corporations engaged in interstate commerce with the inter- state-trades commission, to what extent do you think the commission ought to have powers of investigation of the entire activities of these corporations ? Mr. Catchings. I think it should have the fullest power. Mx. Covington. You think they ought to have them of their own motion ? Mr. Catchings. Yes, sir. Mr. Covington. Any time a condition comes up which they think warrants thorough examination ? Mr. Catchings. I do; yes, sir. Mr. Covington. You think that power of investigation ought to be as broad as the power existing in the Interstate Conomerce Com- mission in regard to common carriers Mr. Catchings. I do; yes, sir. Mr. Covington. In addition to the power of the commission on its own motion to make such an examination, what do you say of power conferred upon the corporation itself to request the interstate-trades commission to make an examination of its activities ? What effect do you think that would have on it if it were permitted, practically speaking, to choose its own time and place for examination « Mr. Catchings. I would be rather keen for that because I feel that at the present tune one of the prmcipal disadvantages of doing busi- ness as we do It to-day is that there is no distinction drawn between wholly speculative business and business which is sound and carefully and conservatively run. There is no way to tell whether stocks issued are issued merely for the sake of sellmg them or issued for the legitimate conduct of busmess, and I feel that one reason for the very high price which has to-day to be paid by industrial concerns for money is that they have to oflFer a price to investors to take care of INTERSTATE TRADE COMMISSION. 39 losses from wholly speculative concerns. I believe that if there was a distinction drawn based on actual knowledge of facts between the speculative concerns and conservative busmess enterprises, there would be a highly beneficial effect upon general investment con- ditions, and this suggestion of yours might very well work to that end. Mr. Covington. You do not think, though, that any corporation engaged in interstate commerce ought to have the right to ask the interstate trades commission to make an investigation of its business at such time as it is best fitted to have that examination? What would be the effect of that sort of examination when a corporation was just about to be proceeded against by the Department of Justice for violation of the Snerman antitrust law ? Mr. Catchings. Do you mean as a legal matter ? Mr. Covington. No; I mean what would be the practical effect on the business. Mr. Catchings. I should think it would serve to cure right away the evils that you were going to proceed against. Mr. Covington. But, in the long run, do you not believe that the reports made by the corporations under the provisions the law will probably carry, and the power of the commission to make a thor- ough investigation of corporations whenever it feels that the reports disclose conditions of business that are contrary to the law, or dis-. close conditions of business that ought to have more publicity than the ordinary form of report, will be a material safeguarding of the interests of all competitors in the business ? Mr. Catchings. I do; yes. I would not deny the corporation the right to appeal to the commission, and the commission should then have the discretion as to whether or not to make the examina- tion. I should certainly leave the discretion with the commission. Mr. Covington. I was trying to get your view. Mr. Catchings. Certainly I would leave the discretion with the commission. There is no use in having a commission unless you are going to have a commission with power to determine its own acts. Mt. F. C. Stevens. You would provide that all reports should be public and that all the work and the business of the corporations should be disclosed. I think, if press reports are true, that another committee is framing a provision to the Sherman antitrust law providing that prices shall be made substantially similar to all customers scattered throughout the country, considering conditions of transportation, and so forth. Mr. Catchings. Yes, sir. Mr. F. C. Stevens. Go back to the Steel_ Co. and see how they could manipulate these various laws to their advantage. Suppose they were obliged to give you exactly the same price 105 iron they did themselves, and the same price for transportation they did them- selves, both on ship and rail, and the same price for coal that they have for themselves, etc. Now, would it not be easy enough to put the profit entirely in one of their subsidiaries? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. And buy themselves from that subsidiary as long as that price were maintained ? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. They will drop their price for two or three days and put in their orders ahead far enough? Mr. Catchings. Yes, sir. 40 INTERSTATE TKADE COMMISSION. Mr. F. C. Stevens. So that they could take the whole output for quite a long time to come at the same price they would make you and the same price they would be obliged to make by law, but they could not furnish you fuel. The result would be that though they should make reports, apparently full reports, and they could comply with the laAV, yet you, as competitors, could not get any advantage out of this publicity. How would you overcome that ? _ _ Mr. Catchings. Of course you start with a proposition which seems to me thoroughly impossible ; that is, this regulation of prices. I do not believe you are ever going to be able to do that at all; I mean as a matter of actual practical fact. Mr. F. C. Stevens. Actual conditions ? Mr. Catchings. I think that it is an utter impossibility. It seems to me so impracticable in business as it is done that you would have to change the whole theory of business to conform to that. My reh- ance upon pubUcity is simply this, that I believe business men are as upright and honorable as any men in the community. I beheve they have done things in business in the past largely because the nature of the acts was not appreciated; largely because standards of conduct had not been adopted; largely because there had not been a recognition of actual facts. I have only been in business a few years, but I have seen conditions change very fundamentally during that time, and practices to-day are wholly different even from what they were 10 years ago. I attribute this very largely to clarifying the nature of acts by pubHc discussion. Men I have known to be wholly honorable in personal conduct have done things in business that they would not think of doing outside of business, and I think those things have been done largely because of a mistaken idea that existed that business was business and that certain things had to be done in business. Different standards were apphed to business conduct than those which were applied to private me. I think the public discussion we have had in the last few years has been whoUy beneficial. There are a number of practices in business which were freely indulged in a few years ago that no honorable man would think of doing now, largely because now the nature of these acts is better understood. Mr. F. C. Stevens. Bearing in mind the basis that I have just stated to you, does your plan contemplate, for example, that the Carnegie Steel Co. should be obligated to report the details of its cost, for example; how much they paid for their ore? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. And how much for the transportation ? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. Do you think if those various facts were com- pelled to be disclosed that they would then show whether or not the mining company and the steamship company and the rail and the coke company were discriminating against you ? Mr. Catchings. Yes, sir; if you got those fkcts. May I develop a little more this point ? Mr. F. C. Stevens. Yes, sir. Mr. Catchings. And if you will bear with me for just a few minutes I should like to get that before you. Mr. Covington. Make that statement just as fully as you care to. Mr. Sims. Would you not rather make that statement when you have completed this examination? INTEESTATE TRADE COMMISSION. 41 Mr. Catchings. Hes, I can. It will take just about 10 minutes to tell you just what I have in mind, to tell you just what I think pub- licity will do. Let me illustrate what I was developing a moment ago about the application of standards of conduct in business. When I first went in business, only seven years ago, we were very freely asked to give commissions to people in the employ of other persons for the sake of getting contracts. It was a current method of doing business. A contract was got and a contract was let by reason of influence that was brought to bear upon some one em-ployed by the other party, by paying him a commission upon the contract. Busi- ness men never discussed that; they never faced the issue; they just dodged around it, and would simply say, "That is the way in which it is done; you can not get business unless you do that." That was the current practice. No one would dare use plain English in regard to it. Public discussion has made it clear that such a practice was in reality bribery. As a consequence it is not done to-day — at least not to anything like the extent that it was done before. When it is done to-day, it is done as a rotten piece of business and is done by rotten men. No honorable business man to-day is guilty of such practices. This change I attribute largely to the fact that the dis- cussion and the examination of the matter by business men and by those outside of business has made clear that the ordinary standards of moral conduct apply to business in that respect just as well as they do to the affairs of daily hfe. Take another case: Here is this matter of interlocking directorates. It has been considered right along to be a matter of entire justice for a man to be on a board of directors of two companies, one dealing with the other. The fundamental doctrine that you should not be on both sides of a bargain was never applied to that condition of facts; it was never analyzed; it was never fully discussed and understood. There was a new condition, new problems and people went into them without stepping off to get a prospective or to discuss it. Men freely acted on both sides on some kind of an assumption that some- one along the line would look out for the companies' interests. They never stopped to analyze the situation fully. You have had this discussion recently, and there is undoubtedly to-day a very clear sense on the part of business men that it is not proper for business men to be on both sides of a bargain, even in corporations, and I think that change has come from your public discussion. In my judgment legislation regarding interlocking directorates is most unfortunate. It is the substance, not the form, that is important. Many important and far-reaching advantages come from having men of affairs on boards of directors. If you know what directors are doing you have, in my judgment, nothing to fear from inter- locking directorates. I think the freer discussion you get of acts in business, the better it will be. As it has been heretofore, a man who was desirous of pur- suing a proper course of action has not had proper support; there was nobody to uphold him; he was in competition with men who were pursuing other methods; they received just as much credit as he in the community and among his associates. There was no in- quiry or criticism of methods. There was only one standard — that of making money. The question was, Were you or were you not successful? We admired the men of means and success, not on 42 INTEESTATE TEADE COMMISSION. account of the manner or process of their succes^but because of the mere fact that they were able to be successful and to acquire money. And, young as I am and even in the few years I have been in business, I can see a different attitude on the part of the public toward men of success. They inquire: "How did you get it?" They draw a distinction between the man who applies proper methods and the man who has not done so. Men hesitate to do things that are going to leave them open to criticism. I think this will be developed by the pubhcity afforded by the commission. And another thing, I think that of itself pubhcity would result in reducing the abnormal profits to corporations. I do not think it is good business to offer mducements to competition, _ and I do not think business concerns would estabhsh prices so high as to earn large profits if they had no protection from competition and if they would' thereby induce others to come into their line of business. Let me illustrate what I mean by an actual happening. We were pretty dull in the last two or three months in our foundry business and looked around to get some additional tonnage for our shop. We found an advertisement of the city of Brooklyn for some castmgs we could make, so we put in a bid. We did not know anything about these castings, we had no experience in making them, and had no equipment. We had to estimate the cost pretty roughly and had to put all the equipment into the cost ; as we did not know how much business of that sort there might be in the future, we had to be pretty safe and conservative in the bid. We put in our bid, and to our amazement we got the order. Just as soon as we got the order a man we had never heard of came rush- ing down to the office and said : "I will give you $1,000 for that order." He said: "I have had that business for 14 years, I have been grad- ually raising my price year after year thinking I was safe. Now, you come butting in and take it away. As a matter of fact I have got a lot of that work done because I was sure to get it. If you will give me the contract I will give you a bond to protect you and pay you $1,000 for giving me the contract." My point is, that man, if he had known his profit was going to be made pubhc and be an in- ducement for us to go into that line of business, would not have made his prices so high. The profit was above the average, for otherwise he could not afford to pay us $1,000. "We, of course, refused to turn over the order. We wanted experience in a soft business Hke that. Another letting of that same kind of work has come up, and, of course, he has put in a much lower price than we have. We lost the second order, because with his experience and facilities he was able to do it cheaper than we. We do not know yet what the first order is going to cost us; after we have some experience and have finished the order, we may be able to find it profitable to do that business cheaper still. I speak of this as indicative of a normal condition of business. No one is going to offer a great premium, to someone else to come into his own fine of business if the other person is sure to know about it. That is one reason for the very careful effort that is made in many corporations to disguise profits ; so to distribute expenses and charges as to prevent any one product from appearing very profitable. If you have got a very highly profitable side line in your business, the tendency is to prorate your expenses to that line from other lines so INTEBSTATE TRADE COMMISSION. 43 as to disguise the fact that there is a large profit in it, and make it impossible for other people to find out, so they will not be tempted to come in and compete on the profitable line. AU that your pub- licity, in my opinion, will overcome most effectively. IVfr. F. C. Stevens. How will this publicity you speak of affect your dealings with your labor ? Mr. Catchings. I do not think it would affect it at all, sir, except it seems to me it would affect it beneficially. I would put in just what you are paying labor, what you are paying your employees all along the line, and have it open to the pubhc, Mr. F. 0. Stevens. The point is that labor ought to have its fair share of the proceeds of the business ? Mr. Catchings. Yes, sir. Mr. F. C. Stevens. Would this tend to encourage that? Mr. Catchings. No, sir. I do not think you can ever do that until you recognize that the organization in the business is as much entitled to the surplus profits in the business as the capital. But that is a very big question. I think the surplus profits m the busi- ness come fiom the effoit of capital and labor jointly, and until you recognize that proposition, and do not regard all increases in values above normal as belonging to capital you will not have peaceful rela- tions between capital and labor. You can build the most splendid plant in the world and you can not make a success of it unless you have the men there to run it. But no matter how successful it may be, no matter how much per- sonal effort is made, no matter, whether you work 24 hours a day, aU of the surplus earnings go to capital. All good will and earning capacity is capitalized. I think that is the real basis of aU your trouble between capital and labor to-day. Capital has grabbed all the surplus earnings of the business. They treat with labor, so far as the work is concerned, on the basis of the liuman element and urge them to work loyally and hard, and the moment it comes to paying them they pay them on the basis of bargain and sale without regard to earnings. This creates the existing situation between capital and labor. I do not think the publicity statute would have any effect on that at all. Mr. Hamilton. Of course you must assume that the heads of labor- organizations are just as able to understand profits as the industries ? Mr. Catchings. Yes, sir. Mr. Hamilton. And they might very properly insist that you give labor its propei- share ? Mr. Catchings. You mean if the facts were disclosed ? Mr. Hamilton. Yes. Mr. Catchings. In that respect it might; yes. But I think except in disclosing the facts it would not have any effect at all. Mr. Hamilton. May I ask just one other question; then I am going to stop. It is whether you have considered whether there could be such a thing as a joint agreement among gentlemen as to disclosures that would not disclose undue profits? Assuming now that this report is to be made to a central, agency The Chairman. And just assuming that they are gentlemen also. Mr. Catchings. I do not take much stock in these gentlemen's agreement, but I understand what you mean. I want to say this^^ — ;- Mr. Hamilton (interposing). I was simply using the term as it is commonly used. 44 INTERSTATE TRADE COMMISSION, Mr. Catohings. It is a physical impossibility in business to hide a situation from a trained accountant, if you have an accounting system in the business; and if you insist that business men have accounting systems in their business, it will be a physical impossibihty to- hide anything from the accountants. Mr. Hamilton. This matter involves more, does it not, than a combination of trained accountants ? Mr. Covington. Has not that hypothesis, based on the condition you have just stated, practically been eliminated from the business world ? Mr. Catchings. No; please do not misunderstand me that it has been eliminated. I think that some of the more gross conditions have been eliminated, but I think there is a great deal to be done. Mr. Covington. Take the large industries. Take, for instance, the one you are in, would it be possible to get together all heads of the large concerns and find each one still so unappreciative of the advance of pubhc sentiment that they would be wilHng, each one, to enter into a gentleman's agreement to dehberately falsify reports to the interstate trades commission? Mr. Catchings. No, sir; I firmly beheve that men have entered into agreements in the past largely in the behef that the agreements were legal, and largely as the result of counsel of their legal advisers, and my experience right along with business men has been that they have diesired to do what was legal. They wanted to do all that the law allowed them. That is the theory of competitive business, but I do not believe you could get any number of business men, however small, to undertake any conspiracy to falsify reports. I do not beheve it is possible. Mr. Covington. Especially when in each case it would involve the act of perjury ? Mr. Catchings. No; but I do not beheve you would find that the spirit to-day is anything hke that. My acquaintance with business men leads me to the conclusion that they are desirous all along the line to do what is proper. But the thing you do not reahze in Wash- ington is that you have an impossible situation existing in business to-day. We can not run busmess under the conditions that exist to-day. We can not effectively compete in the dark. We have not the facts. I should like for everyone here to sit at my desk for a week and tell me whether I should produce ten thousand or fifteen hundred tons of pipe. Mr. Covington. Would you like to develop that proposition a Httle more now without being interrupted ? Mr. Catchings. Yes, sir; I should be very glad to do so. Mr. Covington. Go ahead along that line. Mr. Catchings. This is the point. We do not have the benefit of the basic economic principles upon which competition is to be based. I sit at my desk in New York and have to decide whether we will run full or part time; whether we shall sell far ahead or only for immediate dehvery. Such are the problems of business which we have to meet. But I do not know anything about the conditions in our business. I do not know how much our competitors manufac- ture, even in the aggregate. There is not a man to-day can tell you how much cast-iron pipe is made or sold in the United States. I suppose I know more about it than anyone else, and I could not INTEESTATB TRADE COMMISSION. 45 five you more than the roughest estimate as to how much is pro- uced or sold in the United States. I do not know the normal demand. Nobody does. That is the fundamental fact. If you want to develop a plant, if you want to develop capacity intelhgently, you must know wnat the growth of the business has been for the past few years. How much has the country taken; what is the demand. We have not these facts, and we can not /get them except through some plan of general pubhcity. Without such knowledge business can not be fun intelhgently. Just as I said before, it seems to me that one reason that such vigorous effort has been put forth in the past to fix the price has been to increase the spread between cost and selling price to such an extent that a profit could be made regardless of the lack of fundamental knowledge of basic conditiono. In order to determine intelhgently a pohcy m business, you ought to know what is the production of the country; you ought to know what it has been for a period of years. You should have similar informa- tion regarding demand. Unless you know these facts you can not intelhgently determuie a policy of development. What is happening is that plants are bemg built iT-nii£h_j,h^'nperati, pn of iust suchajsommissionas iMs. Mr F. C. Stevens. That would have to be practically the same thing as this, would it not ? You would have to lay down a rule that would be applicable ? "76 INTERSTATE TBADE COMMISSION. Mr. Low. Yes; I think there would have to be that. Let me give you another illustration, and that relates to lumber . A very promi- nent public man told me some years ago that he had been asked by a great many lumber dealers this question — they came to him and said: "We own a great deal of foresiHand. We want to administer - that land "ac cordi ng to th e most ajjproved methods of forestry -TuJ if we dolt means umitations on "EEe cut. ■TK'at"may"aBfecl~fEe pncej aiiXsanwB^oTEaf in'cbmbtnatioff man law? None of usjcaji^do it alone^^rogfiajaL^gfi.fian untrftduce modern forestry in tj) a great many oT the forests of theUnited^Sj^tes." The gentleman' that they asked said :"^' I do not know; no living man can teU you. You can do it if you like; and if you do do it, you do it at your own risk, and in 10 years from now you may be thrown into jail for having made a mistake. I can not help you." Mr. Covington. That in reality is a conservation problem. It would have some effect on the immediate price; but you would look to posterity, however. Mr. Low. That is it exactly. Our poHcy of shutting our eyes to those problems is benefiting the moment at the expense of the future. I should like to develop that forestry question by two other incidents. Several years ago, when I was in Germany, I talked with an American lady who was the widow of a Prussian who owned a great estate in Silesia. She said that in that part of Prussia the estates are very large. They had 40,000 acres. She said on an estate of 40,000 acres there would be 4,000 acres given up to timber, and that 4,000 acres would be di-vided up into 100 parcels of 40 acres each. Every year one plot is cut down and one plot is planted, and every five years the whole forest is thinned out. She said: "I have cut down my plot this year and I have planted my 40 acres, and I know as well as I know anything in the future that the trees that are put in the ground to-day will grow there for 100 years without being cut down, and all the trees that are standing there will be thinned out every five years." That wood owners are obUged to do. Th at involve s a regulation of the cutting. It involves the raising of the pric fi.;t'Qr t^day, but it preserves the timbg rfOT The Chairman. The c^oriHiHQii'Yo u woufl ^1^ to securaiwould-ba. that when the coal vein is workec^^ woiildjbe^ taken oj^Land utilized ?"" —f..--- — .— - Mr. Low. Yes. The Chairman. And that when the timber is worked all the timber that ought to be removed from that forest is utilized ? Mr. Low. Shall be utilized, but none wasted. In Germany they do not do that. In Europe they had to do those things on account of their necessities. We have never yet had to do that. Therefore we • have followed this very wasteful process. I was at Baden-Baden a few years ago, and I asked the manager of the hotel there about the forests in the neighborhood of Baden-Baden. He said: "Some of them are owned by the State of Baden; many of them are owned by 4he city of Baden-Baden; and some are owned by private persons; but they are all controlled by State law." He said no man, no matter how much he owned, can cut down a tree except in accordance with the laws laid down by the Government. Because if he cuts down a tree it ma,kes a hole in the forest and the wind comes along and blows down other trees. INTERSTATE TEADE COMMISSION. 77 Mr. Hamilton. Does not the law require them to replant the trees again? Mr. Low. Yes; absolutely. What I mean, Mr. Chairman, is to call attention to the fact that those are great problems; and we do not escape them by shutting our eyes to the fact of the aiyfut Ayasie..Qf natural products going on in.thia_cauo.try, T think we ought to face that problemTajia my remedy is that which they adopt in Europe. In the potash industries, as perhaps Vou know, in Germany, they not only fix the amount of potash whfch may be taken out of the ground, but fix the rates labor shall be paid. Everything is done under Government control. I am not' asking that our Governm.ent should become so paternal as that; I' am only asking that we sha ll not shut our eyes to the existe nce of that problem, which this b ill does not approach m any way at all. Mr. t> . u. STEVENS. Li'et us see what is proposed to be considered in connection with this biU. I suggested to you that you might have had in mind the question of trade agreement, or to give this commis- sion the power to make rules and regulations which might be appli- cable to transportation in interstate commerce. What other methods have you in mind which might be applicable to this legislation ? Mr. Low. I do not know of any other. It seems to me that neither our Government, nor anyone else, has enough information on the subject to embody every detail in the law. I see no way of getting good results except through general directions to the com- mission in the bill and by letting the commission finally perfect the system. Mr. Talcott. You think that in time this commission must have jurisdiction of corporations ? Mr. Low. I do. I think, in time, this com missio n wiH lifl.ve t n have j urisdiction oygr some trade a gregments,^^ I am perfectly sure someTfade agfe"emeht's7arTir^^ ' Mr." I'ALCOTT. Inat is, so long as they do not lead to monopoly? Mr. Low. So long as they do not lead to monopoly. When the object of them is conservation of natural resources it is a very differ- ent proposition. Mr. Hamilton. Under our form of government — that is, the States within the Union — just how are you going to work out practically the restriction in the cutting of forests, which I take it is a highly important question ? Mr. Low. I suppose the Congress would have to legislate as to the areas directly under national control. That would become, as the pure food and drug laws have become, very largely the model for the States to follow. But when the Congress pays no heed to those problems the States pay no heed to them, either. The States by themselves could hardly do it; certainly not in the face of congres- sional laws which forbid agreements. Then, so far as timber which enters into interstate commerce is concerned, I think that congres- sional action might go very far, though how far is a legal question. Mr. Talcott. The chief fortstei now has practical control over the national forests and I think he has devised a scientific method of national forests? Mr. Low. I think that may be so, sir; but have we at all applied the rule of permitting the owners of private forests, or of compelling them— for that is the attitude I should take — of compelling private 78 ISTTEBSTATE ^EADE COMMISSION. owners to administer mines and forests in accordance with a policy that considers the future as well as the present. Mr. F. C. Stevens. There is a very good reason why we can not do that, Mr. Low. Mr. Low. Is there ? Mr. F. C. Stevens. Yes; our constitutional limitations. Mr. Low. At the Conservation Congress, which was held at the White House under President Roosevelt, it was reported that a question had been submitted by the Legislature of Maine to their supreme court as to whether the Lagislature of Maine could require the private owners of forests to follow certain forestry regulations. That I believe can be done. Mr. F. C. Stevens. I recall that decision very well, also some decisions of the court ; but that is the very thing I had in mind, that that would ap2)ly to the power of the States. That is quite a different thing from the power of the United States to do. Mr. Low. My previous answer to that question, Mr. Stevens, was that the Nation could do it as to everythmg it owned itself. That is unquestionable. Mr. F. C. Stevens. We are doing it now just as Mr. Talcott sug- gested. I think if you examine the rules of the Forestry Service you will find they are endeavoring to do that very thing. Mr. Low. I think there is very little forestry that does not enter into interstate commerce — that is, the products of forestry — and it seems to me that under that head you could permit trade agreements under Government supervision and control. The Chairman. If you foUow that far enough you can give Con- gress jurisdiction of everything. If you are to give us jurisdiction of State cutting, because a plank mill is crossing the State line, you can give us jurisdiction of marriage, divorce, and adoption, because the children begotten cross the line into other States. .Mr. Low. I think we must find out some way, even if we have to amend the Constitution, how to protect the interests of posterity. The Chairman. My recollection is that such a great and distin- guished arborculturiSt as Lord Bacon had such ideas, but the idea has been that the American Congess did not have to do everything; that men ought to have sense enough to do something without com- pulsion of Congress. Mr. Low. The point is that Congress forbids them doing that. Those gentlemen I spoke of would have formed an agreement to administer their forests according to the laws of forestry if they had not been prevented by fear of the Sherman law. The fear of the Sherman law came in, because in order to apply the principles of forestry you must limit the cut, and if you limit the cut you limit production; consequently you affect the price. The Chairman. Can not the doctrine be applied without violating the Sherman law ? You can act sensibly about the preservation o1 forests, can you not ? Mr. Low. Yes. But I do not know whether you can in combina- tion with others if it affects the price. The Chairman. You would have to abohsh all measures if that is true. Mr. Low. If it affects the price, I say. INTEBSTATE TBADE COMMISSION. 79 Mr. Talcott. Men, doing business, taking timber out of forests are looking only to the present, but your idea is there should be also the idea of conservation ? Mr. Low. I should not permit anybody, if I could prevent it, to act thinking only of the present as to any natural resources. It is more serious in regard to the coal than in regard to the forests,- because trees can be planted, but we have not yet learned how to replace coal. Mr. GoEKE. What is your opinion as to the advisability of giving this interstate trade commission power to fix and regulate the price when a corporation monopolizes any part of the natural resources of this country ? Mr. Low. I think the question of regulating the price of natural resources is rather independent of the question of monopoly. Mr. GoEKB. I hmited it to monopohes ? Mr. Low. I should approach the question of fixing prices in busi- ness very reluctantly. I hope the necessity for that is a very great distance off. There are certainly a great many things we Could try before we have to comtemplate that. Mr. GoEKE. The purpose, of course, of this legislation is perhaps t© restore or to regulate the prices by restoring effectual com;petition. How can competition be restored if a corporation monopolizes any part of the natural resources, any definite part of the natural resources ? Mr. Low. I suppose it is pretty well established, is it not, under the Sherman law, thut if there is a monopoly it is contrary to the law of the land? It can be broken up. Mr. GoEKE. Take, for instance, the Standard Oil Co. Mr. Low. Has not that been broken up ? Mr. GoEKE. It has had the contrary effect, if it has been. The prices of all kinds of oil have gone up rather than gone doWn. Mr. Low. I do not know that you can prevent the movement of prices. Of course, if concerns have to operate independently their expenses are larger. I am not able to follow the actual results as to what happened, because I know nothing about them. Mr. GoEKE. Is it your opinion that competition has been restored in the oil business since the Standard Oil Co. has been dissolved ? Mr. Low. I am unable to express an opinion based on any knowl- edge. It would be an impression only, anything I might say. Mr. R. B. Stevens. If Governments could allow trade agreements in regard to natural resources, and allow the owners to limit the cut of the forests, or limit the amount taken out of the mines, would not they at the same time in some way limit the prices to be charged ? Mr. Low. Yes, I think so. Mr. R. B. Stevens. Because then they would have great power of overchargiQg ? Mr. Low. Yes, I think the two things go together. If the Govern- ment permits the limitation as to the quantity, I think it must also limit tne price; but I think, as it applies to natural resources, that is the better horn of the dilemma. Mr. R. B. Stevens. Do you n ot think the law ou ght to distmguish hetwppn rnnnnpoly of natural products, ' grbwiiig'~oirP of Hfeli'ui-al ,.oo»..T-,>A« and rnnnopories Tharafrthrrrsult of ^rtfficial organiza- t inns an d combinations ? 34082—14 6 80 INTERSTATE TRADE COMMISSION. Mr. Low. I do not know how far you could do that. There is a considerable difference. Mr. E. B. Stevens. Is there not an actual diflference in distribution between the two ? Mr. Low. I think there is cer tainly a basis for legislation in rega rd to natural resources that does not exist a s to ordinar y business. ""~Mx. SiMsT^WitEnFiferencOo coal, does not a lar^amounFoT the waste that you have been describing now follow as a result of paying for mining of coal per ton, per quantity mined, rather than for the day's work in the mine? Mr. Low. I am unable to say, because I am not an expert in the business. Mr. Sims. Would not that be a natural tendency of mining? Does not the man, the actual miner, want to get out that which is the easiest to be gotten out in order that he can increase his day's wages by being able to get out more than he could if he had to take it clean ? Then, if he had to take it all out, it might result in the present price per ton becoming a starvation wage to him? Mr. Low. It might very easily result in that. The only point I had in mind when I referred to the question at all was that there is a great branch of public concern, where there is a difference between the interests of to-day, and the large interests of the country through a series of decades or centuries, and this difference ought to be taken into account in legislation. Mr. Covington. That would lead to the same sort of control of an industrial corporation deahng in natural resources now exercised by the Interstate Commerce Commission over the common carriers of the country, would it not ? Mr. Low. I think, personally, that there is an absolutely sound basis for that sort of control. Mr. O'Shaunesst. It is a great necessity ? Mr. Low. I think so, as applied to natural resources, I think the question of prices would have to be regulated. Mr. Covington. How would you differentiate between lumber and coal, for example? Mr. Low. I think it would apply in the same way to all. I do not think it would apply to crops that are annual, that can be re- placed ; but it would apply to anything that either can not be replaced at all, like coal or iron, or to forests, that can only be replaced in a long term of years ; to such things I think it does apply. Mr. Covington. And as it would apply to the natural resources in their first state, it would inevitably lead to the application of it to the product of natural resources in their final manufactured con- dition, would it not ? Mr. Low. Not necessarily, if everybody was beginning to manu- facture it from the raw material at the same price; I do not think you would have to carry the thing further, unless it became more apparent than is apparent yet. Mr. Covington. That would only apply to the raw material ? Mr. Low. It would seem so to me. Mr. O'Shaunesst. Without the prohibitive provisions similar to the ones that in interstate commerce govern the Interstate Com- merce Commission — ^that is what makes you say this is essentially a negative proposition ? INTERSTATE TBADB COMMISSION. 81 Mr. Low. Yes; there is nothing given to the trade commission to administer. It is simply a new machine for enforcing the law as it stands. Mr. O'Shaunessy. Do you think that is of sufficient moment now to go ahead with in order to prevent waste, or do you think now is the time to do something more ? Mr. Low. K you ask my personal opinion, I think that now is the time to do something more, most decidedly. Mr. EscH. In that particular did I underataTid ymi, to say thai you t hought tms trade commission should be given pow er to termmate uniair practices '< ' ~~ Mr. Low. 1 did; not to d etermine,, but to call the attention of the Attorney General. 1 have taken the scheme of this biirand have tneo to apply it to unfair practices in business. Mr. EscH. Then the commission must have some standards as to what are unfair practices 'f Mr. l-iQw. I'Jiey have got the same standard t h at the Interstate C oinmerce Co mmission has, have theyji^QjiXT ' ~~" mIt. Esoh. Only^as to rates and practices on interstate carriers. Mr. Low. I mean you take such a question as that I referred to, where the Interstate Commerce Commission reports on the use oi sidings or internal raihoads in connection with great industrial plants. Mr. EscH. But in that case one decision would apply to the entire United States. But industrial corporations each has a stated indi- viduahty of its own, and possibly a practice of its own ? Mr. Liow. I still think it is a legitimate object to try to prevent unfair practices in doing this; and the fact that they are not every- where the same I do not think is any argument why we should not try to stop them wherever they are found. May I say one word on theguestion of a F ed eral license. M r. Chairman? TES~CHArRMAN".'*^OTrEave' the flobi^ Mr. Low. I do not want to impose upon the good nature of the committee. They have been very generous. I do not propose this for action now; but I would like to call atteotion to what seems to me the unportance of it, because it relates itself to an aspect of this q[uestion that I think can be reached in no other wa y. At the present t une, if I understand the law of the land, we have no Government at a u that controlF15oEE~ tn "e agea^t t'Ea t "does"int"ersFale commerce" and t he interst ate cnmm(;-Tce that it does. I wish you would think of that a moment. The States create the corporatioEL to jda-in±eEs.ta±e c ommerce, and the States therefore control those cor porations. The Chairman. We have a control over both of them when they get across the State line. Mr. Low. You certainly have, but vou have not control of the c orporat ion as such. You have .control nvPT- (bp conduct of the b usiness that they d o. but not of the corporation that does i t. The State has the control over the corporation that does it, and has no control whatever over the thing it does. That has led to what I call governmental chaos. The States, more than one of them, have tried to give powers to these corporations that, after 25 years, the Supreme Court has decided that they had not any right to give. The Chairman. That is because you lose sight at the outset of the fundamental provision of the Constitution of the relations of persons 82 INTEESTATE TBADE COMMISSION. artificially begotten by the State. They are permitted tp do business anywhere in the United States if they do not discriminate and do wrong. That is the proposition. Mr. Lo-w. I understand that perfectly, Mr. Chairman, but my point is The Chairman (interposing). The Federal Government has juris- diction only, and their sole purpose is to prevent discrimination and unfair dealing. Mr. Low. I know; but I^do not th ink the Government can do that successfully in all its aspects when i t does not control the agency tjiaj- d oes th e business. The Chairman. It controls the man and the thing done when it gets across the hne. Mr. Low. Does it control the corporation? So long as business is done by natural persons it is very different. The Chairman. It is no more necessary for the Government hav- ing jurisdiction over its conduct to go into a State and look over the details of its organization than it is for the Federal Government, in order to convict a man for violating the law in interstate commerce, to go and supervise his education, Mr. Low. It seems to me the situation as to interstate commerce has very greatly changed. Although I am not a lawyer, I think I understand the theory; but the fact is that when the Government began, all interstate commerce was carried on by natural persons and on a snaall scale, but as time has gone on the management of commerce has passed out of the hands of natural persons into the hands of artificial persons created by the States, and the States create corporations that draw money not only from their own bor- ders and from all other States, but also from foreign lands, yet the State creating the corporation is the only government that can con- trol that corporation as such. If I might give an illustration, Mr. Chairman, as you have given yours. Take a fire engine. It is very easy to control the stream if you can control the engine, but it is veiy hard to control the stream if you can not control the engine. And it would be hard enough if the engine threw out two streams, one of intrastate and one of inter- state water; but when it is all one stream, and you are only concerned with the drops that pass beyond the State line, I submit that it is very difficult to get perfect control unless you can control the a.ge nt t hat does the business. All this trouble about the Sherman C&w , i n my judgment, lias come" from the fact that Uongress wnicJi con- trollecTthe business did not control the agents t'ha,l!"'did"tt^ The States, therefore, have. created~agents and mterrns have given them powers which passed at their face value for a good many years, until the Supreme Court said the States had not any right to give such powers, and so we have gotten into all this confusion, instead of pre- venting the thing being done at the outset, as it could have been prevented if Congress had controlled the agents. That is why I think there will have to be, before we get complete control of th e si tuation, a Federal license for, at a ny rate, ^the v er y large orj gaiuz a r ti ons that are ^e»'l|y nation^de mTtheir activity r wEy'shouId it be I the fac¥ that the State ofJNew Jersey, for example, should be the lonly governmental authority in the world that can legislate directly \as to the United States Steel Corporation? It gets its money from ISTTEESTATE TRADE COMMISSIOK. 83 every §tate in the Union, and probably from every civilized land, yet the State of Nevf Jersey is the only governmental power that can touch that corporation. The Chairman. We can stop every bit of their bnsiaess at the line of New Jersey if we want to, unless it conforms to what we require m its transactions. Mr. Low. That is precisely it; that is why I should Hke you to adopt a Federal hcense The Chairman. How would a Federal hcense enlarge its powers or govern it? It already has the right, under the Constitution, to do business in any State of the Union if it comphes with the laws that regulate interstate commerce. Mr. Low. Because I think you know what you can do under the Sherman law perhaps The Chairman (interposing) . We have the right to make a law now to regulate everything these folks do. Mr. Low. What I wanted to say, Mr. Chairman, is this : You prob- ably know that a nu mber of our States have competed with e ach other in making ver y Iax~corporation laws. They have passed "laws 'that have constantly~3immIs1ie^ the seciii^ty of their stockholders and reKeved the directors and their officers from proper habihty. I do not certainly know, I have been told, I speak from information ; but I think that my information is correct, that after Lawson's pubhca- tions some years ago on "Frenzied Fin^ce," concerning the Amalga- mated Copper Co., the State of New Jprsey passed a law restricting to six months the statute of hmitations as it affected the managers of certain corporations, including that ojne. Nobody concerned knew anything about it imtU the time haql expired. I have heard of another instance, in which a, lawyer wis called upon to incorporate some new enterprises, and he happened! to speak of it to a friend in one State, saying that they were going to incorporate in another State. His friend said: "Why do yoifdo that?" He said: "Be- cause the laws of that State are more falvorable; we would rather go there." He said: "Give our State twoiweeks and we will pass any law you want," which they did. Now, y ou can not con trol the com- p etition of one_State with another in making p^ qr , cor poratioii raws l ihless you" do so by T'Federal license; or unless you do it, as you have done it m the currency bill, where you define the terms upon which a State bank can come into the national bank system. The Chairman. By Federal hcense you mean to say a State shall not have the authority to charter a corporation ? Mr. Low. No ; I mean nothing of the sort. The Chairman. Then what w3l your license amount to more than a directory of corporations that did business with you ? Mr. Low. You can make it amount to a great deal more than that. I think y ou could provide in a Federal license that no corporation char tered by a ivv~State^ouI3"" be permJtSdls 2o~ip9i:§iate^^ ness unless it came up to" t he requirements of your Taw as^ defined e ither ui a ji'eclera l license or inl hp Federal I'aw .^' Thafls what you do as "to t£ eStete"t)an ks. You say they can come under your currency system, it they cohfofm to the same conditions that apply to national hanks. That is the point I make. It is because of that very real evil in the situation, that nothing proposed here has any bearing on, that I called attention to that. I am not asking you to put that in 84 INTERSTATE TRADE COMMISSION. this law. I think that will come, but slowly; but I think we shall have to come to it. Mr. Sims. Let me call your attention to the conditions actually existing at the time. All the mileage of all the railroads is prac- tically m some State ? Mr. Low. Yes, sir. Mr. Sims. The State is sovereign, or supposed to be, as to iatrar state business, as done by our State railroads ? Mr. Low. Yes. Mr. Sims. The percentage of intrastate business of aU railroads we will call roughly 20 per cent. Now the Interstate Commerce Com- mission wUl always find it difficult to regulate a rate when it has only the power to regulate 80 per cent of the rate, because the States have the power to regulate intrastate business, which makes it, perhaps, a possible conflict of jurisdiction, as it is right now in Texas, which is an almost imperial domain, having 15,000 miles of railroads in the intrastate business; therefore the intrastate business in Texas affects their entire business a great deal more than the intra- state business of an interstate railroad in Tennessee, where they run across it, or in any small State, so it is nearly impossible, by reason of this power of the States to control within their boundaries. Mr. Low. I understand. Mr. Sims. To have free hand to regulate interstate percentage ? Mr. Low. If I understood the last decision of the Supreme Court on these rate cases, it was that the Congress had power to legislate upon that subject, but that it h'^d not done it. When it does legislate, it will be the law of the land. Mr. Sims. The Shreveport case, now before the Supreme Court, which has been argued, but has not yet been determined, I hope will settle the very question we are talking about. Mr. Low. I quite understand that. The Chairman. There is not a particle of trouble about the power of Congress, if we can just decide what is the wise poHcy for us to adopt in exercising that power. That is all we need, and it is not necessary for us to discount the ability or foresight of our forefathers. They were pretty smart old feUows, if we wiU.- learn from them and adopt and conform to their lessons. Mr. Low. That is just what I think; but I do not think we have reahzed their wisdom yet. I do not know, but I have this theory. You remember that the Constitution itself grew out of a convention that was called nominally to consider trade conditions. The Chairman. You will also admit that it was constituted of States which were at that time all sovereign, and all agreed on the Constitution. Mr. Low. Yes, exactly. I am not raising any debatable question; but one of the great troubles, you wiU remember, during the period between the end of the Revolutionary War and the adoption of our present Federal Constitution, was that the States put duties on things coming from other States. The Chairman. They discriminated against one another ? Mr. Low. Yes; they discriminated the one against the other. The Chairman. The purpose of the clause to regulate commerce .was to prevent that discrimination? Mr. Low. That is it exactly. Now, my theory is that those wise men — for they certainly were wise — said, in so many words, no State INTERSTATE TEADE COMMISSION". 85 shall levy a duty on anything coming out of another State; but I think they also said that what any State could dp directly,- it could also do indirectly; therefore, they said that any commerce involving business between the States should be under the Government that represented them all. The trouble is that the Federal Government has not assumed all the authority which they gave it, and I think, personally, that most of these troubles we have had dtuing the last 20 or 25 years have come out of just that failure. Historically, it is, of course, very easy to understand; but what I am pleading for to-day is the necessity of taking the few remaining steps, and I think that through a Federal license you can secure a uniform form of incorporar- tions for interstate business. I do not say that the States could not add to that anything they wanted to for iatrastate business; but you could enact a law reqmring them to put into the charter whatever Congress said was essential to protect the pubhc in interstate business. The Chairman. There is a declaration in the Constitution now that the citizen of any State is a citizen of the United States ? Mr. IjOW. Certainly. The Chairman. What does that mean if it does not mean that he has the same light in any part of the Union as he has at home to do legitimate business? Mr. Low. I am not questioning that in the slightest degree. What I am trying to suggest is some protection as to the effect which their legislation has upon people outside of their borders. The Chairman. There is not any trouble about that if you will study the operation of these persons laiown as artificial, and make laws to govern their operations in intei'state commerce. Mr. Low. That is ^jrecisely what I am suggesting; that one of the laws you ought to make is to provide for a Federal Mcense which, among other things, wiU lay down the form of a charter to be re- quired for interstate business. Mr. Covington. You stated, I believe, that your objection to the tentative measure is that it is negative in its character ? Mr. IjOW. Yes, sir. Mr. Covington. Conceding that for a moment, and assuming the view expressed in the message of the President of the United States that the interstate trade commission proposed at this time ought merely to be, as he said, a clearing house for facts, do you not think that the additional pubhcity given by such a measure as this, and the additional facihties afforded to the Department of Justice in the enforcement of the Antitrust Law would, of themselves, go a long way toward correcting a great many abuses now practiced b}* the larger corporations in interstate commerce ? Mr. Low. Yes; I do. I think that the bill, with suitable amend- ments as to the question of pubhcity, might be a very useful bill. Mr. Covington. And although tms commission, as it is proposed to constitute it, will not have any af&rmative administrative powers in regard to corporations engaged in interstate commerce, the functions embraced in the plan of legislation will act most beneficially on inter- state commerce as it is now conducted by the great corporations ? Mr. Low. I think so, decidedly; and I think also some of these other things will come in time, if experience shows they are wise. Mr. Covington. You recall that the Interstate Commerce Com- mission, as it was originally created by the act of June 29, 1887, was 86 IKTEBSTAXE TRADE COMMISSIOlSr. practically an advisory body, and that until 1906 it did not have, in the language of the street, any teeth in it ? Mr. Low. I recognize that, perfectly. Mr. Covington. In the meantinae it had worked a great revolution in the economic situation of the railroads in this country, had it not ? Mr. Low. I think it is very wise to go ahead slowly on a question involving so many interests. Mr. F. C. Stevens. You have made two suggestions involving affirmative legislation. First, some suggestion as to_ trade agree- ments as to natural products; and, second, license for fixing a standard of corporations doing interstate business. What other affirmative position could you suggest that might be desirable in connection with regulations of this commission 1 Mr. Low. At the present time I have no other suggestions. I" think that when those subjects are all dealt with adequately the field will be pretty well covered. Mr. O'Shaunessy. Do you suggest the regulation of the issue of stocks and bonds by these corporations other than railroads ? Mr. Low. I beheve in that; but I have not said anything about it. Mr. O'Shaunessy. Is not that a crying necessity to-day ? Mr. Low. I think so. Mr. O'Shaunessy. One of the great evils ? Mr. Low. I think so. Mr. O'Shaunessy. That the people are robbed through the ex- ploitation of fake securities, you might say ? Mr. Low. I am very much in favor of the idea. Of course I have not examined the bill carefully. In fact, I do not think it has been presented, has it, yet ? Mr. R. B. Stevens. If the Government establishes a commission to regulate corporations doing interstate business, it might regulate securities under their license ? Mr. Low. Yes, it might, absolutely. Mr. Talcott. Axe your suggestions as to license confined to corpo- rations ? Mr. Low. Oh, yes, entirely. I would begin only with the very large ones. Mr. "Talcott. Is it your opinion that the suggestions in regard to conservation and in regard to licenses should be incorporated in the bill now pending ? Mr. Low. Of course, if I could do what I wanted to, I think I should say yes; but if you ask me whether I make that definite sug- gestion, I have to say no. I am here to speak in regard to this pend- ing bill, and it is only through your courtesy that you have let me open up the other parts of the large questions which this biU does not pretend to deal with. The Chairman. I have thought that whatever form this legisla- tion takes, in order to be of value to the trading public, that either the Department of Commerce or the Bureau of Corporations or through this trades commission, as now proposed, there would be some information as to the assets and liabilities, the standing in business of every one of these corporations, and that that informa- tion should be available in some form to the public. But I have noticed in the press that a great many business men object to that as entirely too drastic. Some trade boards in some of the towns have said so. What do you say as to a feature like that? INTERSTATE TRADE COMMISSION. 87 Mr. Low. I think ttuat is one of the suggestions we made in our bill. The Chairman. I wanted to get your expression in my favor on that, if you can give it, if you do not think it too drastic, or think it valuable or desirable. Mr. Low. Of copse, aU these questions are so far-reaching that a man, without having studied them, can not speak safely. Some of these things I speak on with considerable assurance, because I have studied them for years — as to how far publicity should go, for example. The Chairman. Does that not go to the essence of the thing — to let the public know whether the institutions are rehable or not ? Mr. Low. I think so. That is what I intended to imply when I said I thought the right of incorporation, which hmits personal respon- sibility, carries with it the right of the Government to make the financial standing of every concern known to the pubUc. Everybody who deals with a corporation carried on under limited liability, I think, is entitled to know all about the financial standing of that corporation. Mr. Covington. It is hard to think of any scheme of report to be made by any corporation to the trade commission which will not, as its basis, have the thorough financial standing of the corporation, is it not « Mr. Low. I should think so. I should think that is the beginning of it. Mr. Covington. The assets and liabilities so classifies as will ^ve the commercial world an accurate understanding as to precisely what its methods of financial operations are, is almost a necessity, is it not ? Mr. Low. It would seem so to' me. I am thoroughly in sympathy with that line of thought. Mr. Covington. There would be no objection to that amount of publicity, no matter how much objection to some of the broad powers that seem to be included in sections 4 and 5 ? Mr. Low. I think no legitimate objection. Mr. Covington. That is what I meant; that there could be no proper objection. Mr. Low. No. Does not every corporation have to report to its own State substantially all of that ? Mr. Laffertt. If I understood you correctly some time back in your statement, you said that you understood that any corporation that was a monopoly was necessarily existing in violation of law. You did not mean to make that statement, I presume, as to a cor- poration that has acquired by lawful methods a majority of the natu- ral resources in lumber or timber, like the Weyerhaeuser Timber Co. ? Mr. Low. I do not think I applied the thought in any such way. I said that my understanding of the Sherman law was that everything that was found to be a monopoly, or any corporation that was found to be monopolizing, would be either reorganized under that law or would be compelled to cease its practices. Mr. Laffertt. That is the very point I wanted to bring out. My understanding of the law is not in accord with that — that any monop- oly that has come into being through combinations or contracts m restraint of trade is in violation of the Sherman law. But suppose Frederick Weyerhaeuser started out in the buying of timber lands 88 INTEKSTATE TRADE COMMISSION. and has accumulated a great fortune, and has, without any combina- tion with other companies, bought up the majority of the standing mercantile timber oi the Unitea States, which I understand to be a fact. Mr. F. C. Stevens. I understand it not to be a fact. Mr. Laffeett. That is, out in our country. That is not in viola- tion of the Sherman antitrust law ? Mr. Low. I do not think I can constitute myself a supreme court to answer that question. Mr. Talcott. Is that so in your country as to national forests ? Mr. Laffbrty. That Weyerhaeuser dominates the market at the present time. Mr. Low. But I do say this, Mr. Laflferty, that the question of natural recources is in a class by itself. I think there is a basis for the Government control of everything deahng with natural resources that does not exist as to ordinary mercantile interests. Mr. Laffbktt. I agree with you for the Government to have power to either fix prices in a case of that kind or require a Federal hcense and not permit any corporation to engage in interstate trade — any corporation having a capitalization beyond a certain figure — and let that figure be of such an amount that no one could have a monopoly of any one particular product. Mr. Low. Of course, that sounds Uke a cure; but it probably would not be, because there would probably be a good many com- panies to take the place of the one; that is all. But they would be separate persons in the eyes of the law, and I think it is not very easy to control in that way. I think you could probably controHt thr ough the operation of a commission to permit trade agreements ancTfeg u- l aliemein i . The Chairman. Have you sufficiently completed your statement that you can extend your notes and correct them? Mr. Low. Yes, Mr. Chairman. Mr. F. C. Stevens. The statement of Mr. Low should be corrected, because the law before us says that everyone who shall monopolize 01 attempt to monopolize. If any man in the United States mono- polizes or attempts to monopolize anything, he is violating the law. Mr. Lafferty. The Attorney General does not agree with the gentleman from Minnesota. The Attorney General says that if a man goes out and acquires, by himself, buys and pays the market value of any property, he owns it by law and no power- on earth can control it. Mr. F. C. Stevens. In the Standard Oil case it was decided to the contrary. The Chairman. Mr. Low, will you kindly, when you receive the extension of your notes, take as much time as you think necessary, but as little as consistent with expedition, and correct and revise your statement as you think proper, and return it with your revision ? Mr. Low. I thank you very much, and through you I desiie to thank the committee for their very great courtesy and for the patience with which they have listened. The Chairman. Our obhgation is to you for your lucid and splendid statement. (Thereupon, at 12 o'clock m., the committee adjourned to 10 o'clock, a. m., Thursday, February 5, 1914.) interstate trade commission. 89 Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D..C., February 4, 1914- The committee met at 11 o'clock a; m., Hon. William C. Adamson (chairman) presiding. The Chairman. The committee wiU come to order. Mr. Brandeis ■will continue his statement. STATEMENT OF HON. LOUIS D. BRANDEIS. Mr. Brandeis. Mr. Chairman and gentlemen, when we were dis- cussing last week the subject of vesting in the commission the power to require uniform accounting I stated that I would submit a sec- tion or paragraph covering that subject. I suggest the following: Insert at the end of section 7 the following: For the purpose of enabling it the better to carry out the purposes of this act, the commiflsion may, from time to time, classify the corporations subject to its jurisdic- tion, and may prescribe a period of time within which any class of such corporations shall adopt, as nearly as may be, a uniform system of accounts and the forms of such accounts. After the expiration of the prescribed period the corporations included in such class shall keep uniform accountfi in the manner prescribed by the commis- ion. In case of failure or refusal of any such corporation to keep accounts in the manner prescribed by the commission, such corporation shall forfeit to the United States the sum of | for each and every day of the continuance of such failure or refusal, 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 corporation has its principal ofHce or in any district in which it shall do busittess. It shall be the duty of- tiae various district attorneys, under the direction of the Attorney General of the United States, to prosecute for the recovery of forfeitures. The coste and expenses of such-prosecution shall be paid out of the appropriation for the expenses of the courts of the United States. Any person who shall willfully make any false entry in the accounts of any book of accounts or in any record or memorandum kept by a corporation, subject to the juris- diction of the commission, or who shall willfully destroy, mutilate, alter, or by any other means or device, falsify the record of any such account, record, or memorandum, or who shall willfully neglect or faU to make full, true, and correct entries in such accounts, records, or memoranda, of all facts and transactions pertaining to the cor- poration's business, shall be deemed guilty of a misdemeanor, and shall be subject, upon conviction in any com^ of the United States of competent jurisdiction, to a fine of not less than $1,000 nor more than $5,000, or imprisonment for a term of not less than one year nor more than five years, or to both such fine and imprisonment: Pro- vided, That the commission may in its discretion, from time to time issue orders specify- ing such accoimting or financial papers, records, or docurnente of corporations or of any class of corporations as may be destroyed after the expiration of a period of time prescribed in such order. The Chairman. Do you not think it would be better to punish the culprit ofScer than it would be to weaken the corporation by depriving it of part of its income ? Mr. Brandeis. I wish to say that this is in the same form in which the uniform accounting provision was incorporated in the interstate commerce act. The Chairman. Lots of us have been thinking we ought to put the men in jail rather than weaken the corporation or the public by taking their money away from them. Mr. Brandeis. I think, Mr. Chairman, the important thing to do in all of our legislation relating to business is to prescribe systems and rules which wul prevent breaches of the law and not punish breaches of the law. Our aim should be, in aid of business and in aid of the 90 IKTEESTATE TRADE COMMISSION, ■community, to make resort to the crimmal law as infrequent as possible; and I believe that by the adoption of a proper system of accounting, supplemented by proper publicity, we shall redxice to a great extent the number of breaches of law. The Chairman. Take an officer who has one share of stock in a corporation and is president of it, and he commits a breach of duty that reqmres punisnment either by fining the corporation or him, it does not hurt him a particle to take $1,000 out of that corporation's treasury? He is the fellow who ought to go to jail and let another man be president of the corporation for awhile. Mr. Brandeis. There are certain instances where you have got to reach the individual. You have got to reach him in any case of false accounting, and it may be that we shall need to strengthen by addi- tional penal provisions the requirement of uniform accounting; but our efforts should be directed toward prevention of wrongdoing rather than to punishment of wrongdoing, for our commercial crimes are an effect and not a cause of our maladjustment. The Chairman. Blackstone said the object of criminal punishment was, first, to deter future action; second, to punish the criminal; and, third, to reform him. Mr. Brandeis. Yes; but I think we have got something that is much better than deterring, and that is preventing the conditions which lead to the criminal tendency. Our aim should not be to instill fear, but to so develop the commercial conditions that crime becomes unnatural. Some of the men in this country whose powers are greatest and who could by exercising the powers in the right direction aid the community mightily are led by a bad system to do the things that are harmful to the community. The C&AiRMAN. If the officer knew the penalty would fall on him, he would behave himseK. If you put the $5,000 fine on hun, it wiU be better than putting it on the corporation which hfe manages., Mr. Brandeis. I am quite prepared under certain circumstances to enforce provisions concerning corporations by making the indi- vidual who omits to obey the law liable; but I do feel that our thought should not be on punishment, but in the direction of creating systems and methods which will keep people from falling into bad habits. Mr. Dan V. Stephens. Still you do provide for fining the cor- poration, do you not ? That is a punishment. Mr. Brandeis. Merely as a safety appliance. When you are dealing with railroads, you want to make it cheaper for them to obey the law than to omit to obey the law. So it should be in respect to adopting a uniform system of accounting. These are offenses in whicli there is a very great moral taint; but you want to provide a sanction which will make it clear to the corporation that the law must be obeyed. Mr. Dan V. Stephens. Still the offense is committed by the official. The official in charge of the corporation commits the offense. Why not put the fime on the official instead of the corpora- tion? Because the corporation can not help itself when it acts through the officer. Mr. Brandeis. Who is the official on whom you would put this fine for not adopting the proper system of accounting ? INTERSTATE TEADE COMMISSIOK. 91 Mr. Dan V. Stephens. I would say the man who is in authority; the man who has charge of the company. Mr. Beandeis. Who is in authority ? Mr. Dan V. Stephens. The president, or manager, whatever his title is. Mr. BnANDEis. I do not think the president would have the authority to adopt the system. If you want to ma,ke the president and board of directors liable I am quite con-tent to make them liable. Mr. Dan V. Stephens. It is your idea that you can not specify the party in authority ? Mr. Beandeis. As a matter of fact, I have simply adopted for con- formity the clause which exists in this respect in the interstate com- merce act; and which seems to work satisfactorily. Mr. Dan V. Stephens. I see. Mr. Beandeis. While I think there is very great force in the argu- inent for undertaking to get at the individual, yet in this particular case, where you are not dealing with any offense that involves a moral taint, but merely an omission to comply with certain requirements of the law, it seems to me that primarily it is the corporation which has failed in duty rather than an individual. It is not like those cases where the offense involves a moral taint in the individual. The Chaeeman. If that commission is going to manage these cor- porations there will be no trouble about finding out and identifying the managers of those corporations and reaching them by any statute we want to pass. St. Paul said that sin is a transgression of the law, and sins are malum prohibitum and mala per se, and if the law says a man shall do a thing and he does not do it, if the law says he shall be put in jail for that, it is very wholesome sometimes. Mr. Beandeis. That proposition is an entirely correct one, Mr. Chairman, but I think it should be accepted subject to this qualifica- tion: It is very important that respect for the law should be pre- served, but the law necessarily comes into great disrepute when we undertake to prosecute upon what seems to be conclusive evidence, but the jury will not convict. The jury will not convict unless there is in the legal violation some moral taint. We have not been able in the trust prosecutions aU of these years to put anybody into jail for the violation of the Sherman law, and the reason is that the com- munity has felt that the acts complained of were probably done out of an excess of zeal, in advancing their business interests. The Chaieman. If it is not immoral for a lot of conspirators to club together and consolidate the corporate properties and starve a lot of pfeopie, we might as well abolish the Ten Commandments. Mr. Beandeis. What I say is that the American people have been Called upon to deal with these prosecutions. There have been num- erous proceedings, but the defendants have not been punished. Mr. F. C. Stevens. And when we did convict them they would not allow them to go to jail. Mr. Beandeis. Exactly. We are making laws for the community. We can not make the community fit the laws; and we have got to recognize that fact. The Chaieman. I would have regard to the heinousness of the offense in fixing the degree of punishment. I would not hang a man for a 15-cent theft, but he ought to be punished in a measure com- mensurate with the crime. 92 INTEESTATB TRADE COMMISSION. Mr. Hamilton. Your measure provides a penalty for each day, as I understand it, that the corporation fails to make proper accounting ? Mr. Brandeis. That is it absolutely. Mr. Hamilton. It is hardly conceivable that a corporation would run on with a heavy penalty running against it pursuing a system of accounting contrary to law. That would act as a powerful deterrent and cause a speedy change. The Chairman. The operation of that would be that you would crush that corporation and drive it out of business, and the same scoundrels that did it would start another one, and so on ad infinitum. Mr. Brandeis. I think the result would be that the corporation would find it much cheaper, much more profitable, to observe the regulation of the commission, to adopt a uniform system of accounting than otherwise. Of course when it comes to another thing, not the adoption of a uniform system of accounting, but a false accounting, then we come to a situation entirely different, and the Interstate Commerce Commission has found, when we have dealt with false accounting, that you have a moral delinquency which people can weU appreciate. Mr. F. C. Stevens. The point is that so far there has been no difl&culty in enforcing that sort of a provision in our interstate commerce law ? Mr. Brandeis. Precisely. The carriers obey the law. Of course the Interstate Commerce Commission as a practical matter through its own officers aids in securing compliance; or as they express it, the commission pohces the work at times. Mr. F. C. Stevens. And that provision has been enforced? Mr. Brandeis. Yes. Mr. F. C. Stevens. And they have not enforced that other provision in many cases 1 Mr. Brandeis. Yes; that is right. The Chairman. That is, where it is general, but not as to a specific requirement. Mr. Brandeis. Where there is a specific moral taint in any violation of law, it should be enforced by penaUzing the individual. But the Uabihty of the corporation is not a negligible quantity; because after all there are two forces which must be used to secure comphance by corporations with the law. One is the power exer- cised directly by the community; the other is the power to be exercised through the stockholders. And so long as we have corporar tions with stockholders we must let stockholders suffer if suffermg is a natural result of wrongdoing on the part of their representatives, the officers. Otherwise we create a situation where the stockholder may gain but can not lose through violations of the laws made for their government. Mr. Sims. It is hardly conceivable to me that a corporation large enough to come under this law would refuse to adopt a system pre- scribed by law. Mr. Brandeis. I do not think it probable. Mr. Sims. While an individual might falsify the books and become liable as an individual for violating the provisions of the law, but the system itself would be the corporate act, and therefore punishable as such. INTERSTATE TEADE COMMISSIOH. 93 Mr. Brandeis. I. think it is highly improbable, and besides that, we should expect this commission to do just what the Interstate Commerce Commission does — it engages to a certain extent in polic- ing. It sends its inspectors out here or there where it has reason to beheve that something is wrong; they make an examination to see whether it is wrong. Of course, they do not go everywhere. Mr. Willis. Mr. Brandeis, before you leave that part of your state- ment, I understand from the proposed amendment which you read that the commission shall have authority to classify these corpora- tions, and then it shall have authority to prescribe that all withia a particular class shall adopt a uniform system of accounting? Mr. Brandeis. Yes. Mr. Willis. I understood you to read that it shall be unlawful for any of the corporations in the designated class to have other accounting systems than those prescribed? Is that correct? Mr. Brandeis. The paraOTaph was so written, but I changed it as I read. It seems to me that a corporation, in addition to the sys- tem which is prescribed should have a right to keep also other ac- counts; to supply itself with such information as it may want. Mr. Willis. That is precisely what I want to get at. It is desirable that there should be the uniform system for the purposes of govern- ment; but it seems to me a corporation ought to have the right to keep any other accounts for its own use and purposes that it wants to. Mr. Brandeis. Precisely; but the accounts which it keeps for the Government must include all transactions. There must not be any transactions which are not included. Mr., Willis. You read the language in such form that it prohibited the keeping of any other accounts they may desire to keep. Mr. Brandeis. I think it ought to be made perfectly clear that the provision does not have that effect. I agree entirely with you about that. Mr. Talcott. Mr! Brandeis, have you any doubt of the power of Con- gress over corporations that are not charged with a pubHc interest, such as private monopolies ? Mr. Brandeis. I have no doubt as to the power of Congress to deal with any corporations which are instrumentalities of interstate com- merce. Mr. Talcott. Do you think that extends to a broad visitorial power ? Mr. Brandeis. I think the power must be exercised for a proper purpose. I dare say you possibly have in mind certain expressions in the opinion of the United States Supreme Court in the Harriman case, where a doubt is expressed as to the extent of the power of Congress. It has seemed to me, in order to allay any possible doubts as to the constitutional power, that there ou^ht to be mserted in the biU state- ment of the purposes of this commission, and for this reason I would suggest that at the end of section 1 of the bill the following provision be inserted : It shall be the duty of the commission to exercise the powers hereby conferred upon it in aid of the enforcement of the act approved July second, eighteen hundred and ninety, entitled "An act to protect trade and commerce from unlawful restrajnts and monopolies," and of any existing or future amendments thereof, and in gathering facts and data for the information and use of the Congress in the consideration and enactment of further legislation for the regulation of commerce among the several States or with foreign nations. 94 INTERSTATE TRADE COMMISSION. The commission shall have authority to inquire into the organization of all corpo- rations subject to its jurisdiction and into the management of their business, and shall keep itself informed as to the manner and method in which the same are con- ducted, and shall have the right to obtain from such corporations full and complete information necessary to enable the commission to perform its duties. Mr. Hamilton. These corporations are organized under the laws of the various States ? Mr. Bkandeis. Yes. Mr. Hamilton. In that case the commission, having power to inquire into the organization of a corporation, might make in that connection suggestions or orders that might induce, I take it. States to change their laws under which corporations are organized ? Mr. Brandeis. If I understand the question, I should not think that the commission Mr. Hamilton. I refer to the organization of the corporation under the law of the States. For illustration, there are a great many cor- porations organized under the laws of the State of New Jersey, and the commission might find fault with the organization of certain of these corporations. I take it that this would have a reformatory effect upon the laws of the State of New Jersey under which these corporations are organized. Mr. Brandeis. It might be persuasive — I mean it might educa- tionally have that result. Mr. Hamilton. Is that the purpose of it ? Mr. Brandeis. That had not been the purpose I had in mind. I mean if you find an existing abuse anywhere it will be undoubtedly the effort and the duty of those who discover the abuse to find out what the cause is. You may find that there is some laxity in the law of New Jersey or some other State which has led to the existing abuse; but, of course, there would be no power in the commission to correct this. Mr. Hamilton. Exactly. It would be an advisory operation, a process of suggestion, in that case ? Mr. Brandeis. It would be suggestive to the whole country. Mr. Hamilton. And suggestive to any State ? Mr. Brandeis. To each and every one in the country as to what may be the c^use of an existing condition. Mr. Hamilton. There would be no power ? Mr. Brandeis. The commission would have no power of any land, except the great power to find out the reason why things are as they are. Mr. Hamilton. Then it might transpire, Mr. Brandeis, that this commission might bring about reformation in the organization of the corporations of the various States ? Mr. Brandeis. Undoubtedly; and it is to be hoped that it would. "Whatever it discovers would be utiHzed very fully not only by the Federal Government but by every State government in the iJmted States; as they now get information from the Bureau of Corporations. For instance, we are making investigations through the Bureau of Labor which have led and are leading to legislation in the various States in regard to child labor and woman labor, sanitation and industrial diseases, and th« like. Mr. Hamilton. Exactly, but it seems to me that might be a very useful function. INTEBSTATE TKADE COMMISSION. 95 Mx. Brandeis. I should hope it would be; and I am quite con- vinced it would prove of the very greatest use educationally to the whole country. Mr. Hamilton. And it might lead to uniformity ? Mr. Brandeis. It would tend to that, certainly. Mr. Decker. Mr. Brandeis, I do not know whether you covered it in your former testimony or not, but on page 4, section 4, what is your opinion of that section with relation to this information gained as to the result of this system of bookkeeping, and so forth, as to whether that should be made public." Mr. Brandeis. This is what I should suggest as an amendment of section 4, "that the commission shall from time to time make public the information so obtained, except trade secrets and lists of cus- tomers, in such form and to such extent as it may deem advisable in the public interest" Mr. Willis. Would you let that language stand as it reads in that section, "that the information so obtained shall be public records," or do you think it would be better to strike it out ? Mr. Brandeis. I had thought it would be better to strike it out and put it in the form "that the commission shall from time to time make public the information so obtained except trade secrets," and so forth. Mr. Talcott. Yesterday Mj-. Low suggested as an amendment the provision which is found at the bottom of page 8, at the end of section 9, in relation to the finding. It reads: Said finding sha ll become a p'ublic record of the commission, as providecfin section 4, o nly upon the direction oTthe Aiiornev.(jenerial or t^e Residents He thought that this provision should relate to the provSons of section 4, page 4. Mr. Brandeis. I think th at youldbe a verv preat mia.ta.k e. Mr. Dan V. Stephens. Taking it out of the hands of the people of the commission, who know, and putting it into the hands of those who do not. Mr. Brandeis. It comes back to what I was stating a little while ago. That would be treating this subject as if all you were dealing with was the question of crime or the punishment of crime. What we are going to do is to helppeople do busmQss in the rig ht_W-fljL;_nQi to pu nish the m"^rldji)mgTtin^e wrong^jo^ Mr. Decker" The reason I asked you that question was that since you have been here we have had another man from New York, Mr. Catchings, who laid great stress, and it seemed to me very intelli- gently so, on the good that would come from the fact that this infor- mation would be public and accessible to aU; although not depend- ing on the judgment, it seemed to be, of anybody else. I would like for you to dwell on that. Mr. Brandeis. There is nothing that I have more sympathy with than making public information generally and specifically in regard to business, and, as I have said, I believe it to be a great mistake to suppose that ordinarily secrecy is desirable. I think that ordinarily it IS pubHcity which benefits everybody in trade; and I think a great deal of this information which would be obtained in regard to the conditions in business, and can be obtained only through such a trade commission, ought to become a part of the common knowledge of business men. But while it seems to me that one of the greatest 34082—14 7 96 INTERSTATE TRADE COMMISSION. advantages and one of the greatest works that this commission will ultimately do will be the gathering together of important trade information, which will be accessible to everybody in a particular branch of business, there must be vested in the commission the dis- cretion to decide what part of the information collected can, in the interest of the public, be given generally to the public, and what part is of such a nature that it must be treated as private to the corpora- tion. To provide inflexibly that all of the information that the com- mission gets is to be a pubhc record would seem to me to be going altogether too fast. Mr. O'Shaunessy. Is it probable that this commission will ever ask for such information in these reports as trade secrets ? Mr. Brandeis. I might ask for a list of customers. That might become a very important question. I can conceive readily where the list of customers might become important as bearing on the very question of combinations in restraint of trade — those who are cus- tomers of particular concerns — who is the customer of concern A, who of B, who of C, might be one of the most vital facts in determining as to whether there was restraint of trade, and what ought to be done to prevent it. I can conceive also that the commission might find it necessary to look into what are commonly called trade secrets, but it would have to be for a very definite purpose, and I should think the term "trade secrets" ought to be given a very broad interpretation. I might say, in answer to the question that has been put, that, as I view it, the gathering of information which should be a part of the common knomedge oi men in business is going to be, perhaps, the most useful function of this commission, and, as I see it, the Govern- ment will ultimately take this position. It will help the small man in business by doing for business what it is now doing for farming. There are not any secrets in farming. The Government is doing m it can to find the best way of doing everything so far as it relates to farming and bringing that information home to every farmer who is willing to take and adopt that information. And I should think that ultimately we have got to do the same thing for business. Mr. Montague. Do you think it would help the small man in business if his list of customers were to be known to the big man in business ? Mr. Brandeis. I say I have excluded expressly lists of customers and trade secrets from the information to be made public. Mr. Montague. I thought you said that lists of customers might become very important ? Mr. Brandeis. No ; that was in answer to a question as to whether the commission ought ever to examine lists of customers. .1 think the commission should have that power, but the list of customers ought not to be made public. Sir. Montague. In your amendment do you fix any classification of what corporations the commission shall make under your amend- ment ? Mr. Brandeis. I provide that the commission may from time to time classify the corporations, and in respect Mr. Montague (interposing). You say "may." You do not say "in its discretion." You use the word may" ? Mr. Brandeis. I use the word "may." INTERSTATE TRADE COMMISSION. 97 Mr. Montague. Do you think it advisable to insert "in its dis- cretion," or might not "may" be interpreted to be "shall" ? Mr. Brandeis. As a matter of fact, m the draft I have before me the words "in its discretion" were inserted, and they seemed to me to be really tautological. Mr. Montague. Could' not the word "may" there be judicially construed "shall"? You know there is a j)retty narrow margin between "may" and "shall" in judicial decisions? Mr. Brandeis. Yes ; I had not supposed there cou)d be any doubt as to the meaning of this provision. If there is any such doubt, why by all means insert the words "in its discretion," which would show that it was not compulsory; because my purpose is to enable the commission to cover the ground gradually. Mr. Montague. Have you in your mind at aU what should be the size of the corporation which should be embraced within the classification subject to the commission's inquiry? Mr. Brandeis. My thought has been that the question of size ought not to be the one to be determined by Congress. It ought to be determined by the commission. For instance, take the example which was presented the other day. Take the great investigation which the bureau made into the Tobacco Trust. The commissioner found it relatively easy to find out the costs of the large tobacco concerns, and very difficult to determine the costs of the small con- cerns; yet it was very important to find out the costs of the small concerns. It might be that the first step in classification would be to ask for uniform accounting in all tobacco concerns, and in them only. The next step might be for the commission to ask for uniform accounting in aU corporations which have resources of over $5,000,000. Mr. Montague (interposing). You would not classify in regard to the volume of business at all ? You would lea^"e that wholly to the discretion of the commission, would you? Mr. Brandeis. I would leave that whoUy to the discretion of the commission, because we can not tell which are going to be the first and most important problems which the commission wiU be called upon to solve. Mr. Montagui;. You say it would immediately, an^ not ultimately, have an effect upon the small businesses of the country to know that they would be inquired into by this commission? Mr. Brandeis. I think putting your question a little differently; that is, what effect upon the smaller business of the country would it have for them to know that there was a trade commission established with broad powers? I think, that aauMjSft»e,a^._%j£gmSfl,dbEUlS^Ji- com-agement to small busines s: because it would show the small business men tfiat there had been established an arm of the Govern- ment which could protect them where they would otherwise be abso- lutely without protection. Then they could say, " Now we have got some" powci" to protect us that is intelligent; that knows about busi- ness; to whom we can go; before whom we can lay our complaint, and who will look into our grievances; whereas now they are abso- lutely helpless as opposed to the large interests. 98 INTBBSTATE TEADE COMMISSION. Mr. Montague. That takes the viewpoint that the small business man wants to know what the big business man is doing, but is it not vice versa? Mr. BfiANDEis. I do not think the small business man- wants so much to know what the big business man is doing as he wants to be protected from being harmed by the bi^ business man. The big business man undoubtedly wants to know what the small business man is doing; and he generally succeeds i)retty well in gaining that knowledge. The Chairman. Dqcs that not proceed on the assumption t hat all the small ones are honest, and all tl^ey n^^ TlF'f or l;he strong" ariiTjp) hold the big ones off ? T3frrTiRANDEisT"5ro ; I do not think it does. And I do not think it a fact. I do not think the smaJl size of the business is a badge of virtue , or the bigness of it of vice. But it is a" fact, that the smaH" business man is absolutely helpless in dealing with a great power. Mr. Hamilton. I submitt ed an inquiry to M r. Catchings upon this question of publicity; aj^to whether this sysTem of publicity might not possibly result iii'cerfEraliS'airoh of Tjusiness, or contriFute to it in oris r^pecT: That is, whether information being available to the large business interests they might not use that information to impose heavier conditions upon the smaller industries; whether it might not be prepared — might not prepare itself from the information which it might derive, to enter upon an industrial campaign, so to , speak, against that smaller competitor, which might drive it out of bus iness . A^JiOiiag -RP^m JihaL,passibly . .the . sma 1 ler. induatig^i^ists iiLS.Qm.e injl§M§3..Pa. 8UJff-Wa|ifiet flf „tll&.iarger industry. Do Iiitake myself clear? Mr. Bkandeis. I think you do, entirely. I should answer tha t the result would be exactly the opposite. I do not believe that th^ larger interests have had, as business has been conducted in the past, any very great difficulty in finding out what the small ones have been doing. They have an extraordinarily effective organization; and it has, of course, been one of the grave charges against the Tobacco Trust and the Standard Oil, and against others, that they have main- tained bureaus of information which give them actual knowledge of what their competitors were doing; while their competitors did not know what they were doing. I think when you have the large entity which has large resources at its disposal, that they have no very great difficulty in fiiiding out facts, directly or indirectly, openly or through methods which are subject to criticism. They find them out. And they find out many things, perfectly, legitimate that they should properly find out. They know conditions in trade ; they know as to possible markets ; they kiiow, in a general way, what is being devel- oped in a particular line, and what the output is ; and a great many other things they keep track of which the small man can not keep track of; simply because it means an expenditure of money and the development of an extensive organization which is impossible with small means. Mr. Hamilton. Might not this have the effect of trade cen- tralization ? Mr. Brandeis. I think it would tend to_dec_entralization. Mr. Hamilton. I should be gladj^if you'Eaveit iri mind, to have you particularize on that point. INTERSTATE TRADE COMMISSION. 99 Mr. Brandeis. I will tell you this: To my mind one has tojook at the large busines s and see what are the advantages anTwEat are tK e disadvantages of a largel^ siness. 'TEe* adyantages~of alar ge Busi - ness have been tremendousiy^xaggerat eHT T Ee prfediclions in reg ard t o theTfficiency o l big biisin^s~h ^ TOliol; ,^^^ ^ ^ But, on the > right file in the interstate trade commia- fiion a statement showing the prices at which any article covered by the patent, trade- mark, or copyright is to be offered for sale. Such statement shall show the retail price of each such article, together with a hat showing all prices and rebates, com- missions, or discounts of every nature whatsoever at which said article shall be &M or offered to dealers for the sale of, or for the handling of such articles, and such lipt shall be registered under such rules and regulations as the interstate trade commis- sion may prescribe. A new price list may at any time be substituted for a re^- tered price list and reregistered and a fee of shall be paid on each list registered or reregistered. Sec. 2. All such articles covered by the registered price list shall be plainly marked with the retail price at which the same are to be offered for sale, and the words "Price JRegistered" followed by the date of such registration. Such marking shall be made INTERSTATE TEADE COMMISSIOST. 141 under such rules and regulations as the Interstate Trade Commission mayprescribe, and may be on thfi article itself, on flie label, lie container, or the wrapper. Sec. 3. It shall be unlawful to sell, or to offer for sale any article covered by such legistered price list at a price different from that named in said list. It shall be •unlawful to give or to receive, or to offer or demand any rebate, commission, or discount of any nature whatever for the sale of any article covered by such registered price list other than the rebate, discount or commission prescribed in the price list registered in connection with such article: Provided, however, _ That this section shall not apply to legal public sales made in pursuance to judicial executions: And provided, furfher, That all articles purchased at such judicial sales shall, in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Sec. 4. Any person violating the provisions of this section shall upon conviction thereof be fined not less than |lOO nor more liiaa |1,000 for each and every offense. Any person falsely marking an article as having a registered price or who marks any registered article at other than a price registered shall upon conviction be fined not less than $200 nor more than $2,000 for each and every offense. That is the gist of it. The Chairman. It is said if you let a camel get his nose under the edge of a tent he will just keep fudging until he has got his whole hody under the tent. The Federal Government, in order to encourage men of genius who have invented a useful article, have arranged that the inventor shall have the exclusive sale, and nobody else may make or sell it except by his permission and upon payment of a roy- alty to him. Having secured that exemption, that exclusive use of it, now the manufacturers propose to go further and demand that the Governnaent fix the price of that. Do you think that is exactly fair to the balance of the world ? Mr. FiNNEEAN. That is not exactly the way we propose to do it in our proposed amendment. The Chaieman. That is exactly what your statement amounts to. In addition to the protection in the use of your invention you now ask to be permitted to fix the price on it through every State of its transfer of title. Mr. FiNNERAN. We agree to that proposition. I think it is a good thing for the public. The Chairman. I do not think the other ninety mUHons will agree with you. • Mr. FiNNERAN. I do not know. I think when they wake up — I think that more than the ninety millions will be affected by this; I think all the citizens of the United States, the whole hundred millions, are affected by it and will agree with us. Mr. Sims. You do not propose to give the commission any power; you require the manufacturer to register with them for public use the prices at which it is. to be sold? The Chairman. But the gentleman carries with it this idea, that the man who buys it from him sliaU not sell it at any lower price than the price fixed. Mr. Sims. But you do not expect the commission to make an order of that kind ? i » • Mr. FiNNERAN. No; we do not; we only want to make a law of it, and expect that the trade commission shall see that such law is Uved up to and secret rebating shall not continue. The Chairman. It is worse than a trust. He wants to make it a law of Congress. Mr. Sims. I am neither approving or disapproving. I want to see what he wants. 142 INTEKSTATE TRADE COMMISSION. Mr. FiNNERAN. We want the commission to have full control of these prices after they are issued, so that the commission may know whether the conditions under which the goods are sold are true to the price hst, and this condition exists to-day that articles are not sold as they are advertised at all. Mr. Sims. The tentative draft of the bill, the draft of the bill intro- duced, does not give the commission any power to do anything of that kind. Mr. FiNNERAN. As I say, Judge Sims, it is really tentative, and we hope to be able to suggest someming perhaps a little better. Mr. Sims. You know the Supreme Court recently rendered a deci- sion with reference to patents as to whether or not the patentee could Erovide against the sale of his article, I mean provide against its sale elow a price he himself established. My recollection is, although I never read the opinion, only saw the newspaper account, that the court held that the issuance of a patent did not authorize or did not give authority to the patentee to pre- scribe the prices of the article after the manufacturer had sold it and parted with the title. Was that not the substance of the decision? Mr. FiNNERAN. Judge Sims, my understanding of the decision is that the Supreme Court ruled — and again I say I am not a lawyer — the Supreme Court ruled that the Congress of the United States had not given to the patentee that right, and the Congress not having given that right to him that the patentee did not have it. But they do not say that the Congress of the United States did not have the right to give it to him. Mr. Sims. Did not have the power ? Mr. FiNNERAN. They do not say, as I understand it, that they did not have the power. They say they did not give it to him, and not having given it to him he did not have it. Mr. Sims. You want legislation giving this commission the power the court said the patentee did not have ? Mr. FiNNERAN. Yes; because all those patented trade-marked and copyrighted articles are all sold under these same conditions to-day. Mr. Montague. I am a little troubled about the practicar working out of your bill in one respect. You say the owner of every patent, etc., should file a statement showing the prices which any article covered by the patent shall be offered for sale; shall also show the retail price. Now, the owner may be the manufacturer. Mr. FiNNERAN. Yes, sir. Mr. Montague. How could he fix the prices all along down the hne? Mr. FiNNERAN. He could not, only with the consent of Congress. Mr. Montague. Suppose Congress did consent to it, could the manufacturer fix the price to all people handling his goods subsequent to his sale ? Mr. FiNNERAN. It seems to me so. Mr. Montague. I just wanted your idea about it. Mr. FiNNERAN. It seems to me so. Mr. Montague. If I am a manufacturer, for instance, of a patent plow, that I can fix the price to the jobber and then to the retail dealer as well ? Mr. FiNNERAN. Yes, sir. That works out in this way INTERSTATE TRADE COMMISSION. 143 Mr. Montague (interposing). Suppose in that situation I fix the price, and day after somebody else invents a plow, out-patents me, so to speak, and makes my plow useless. How am I going to fix the price then ? Mr. Finneran. You have the right, under the proposed bill, to change the price hst. Mr. Montague. To change it every week, every day, every time I wished ? Mr. FiNNERAN. I think that matter could easily be settled. Mr. Montague. How could yoy settle it? Suppose you had a surplus on hand at any time; how are you going to settle it ? Mr. FiNNERAN. Leave it to the trade commission how it shall be done. Mr. Montague. Can you imagine a man of sufficient competency to deal with a question of that sort ? Mr. FiNNERAN. In the first place I can not just conceive of the fact that there would be any necessity in a change in the price of plows every day, week, or month. Mr. Montague. No; I just took that as an example. Mr. FiNNERAN. I can not conceive of that, or even a, change per- haps in a year. Mr. Montague. But we know that the rule of supply and demand fixes the price of articles. Mr. FiNNERAN. It does in some cases. , Mr. Montague. It should, if it had legitimate fair play. Mr. FiNNERAN. But it does not have fair play. Mr. Montague. Take the question of flour. How could the man- ufacturer fix the price of flour to the retailer ? Mr. FiNNERAN. The supreme court of the State of Washington says he can by a decision given within six weeks. Mi;. Montague.' Can fix what ? Mr. FiNNERAN. The price of flour. Mr. Montague. How long does it last, the price which has been fiaced? Mr. FiNNERAN. Indefinitely; as long as the manufacturer states what that price is. He can change it when he pleases. Mr. Sims. Does that mean the maximum or the minimum price, or both? Mr. FiNNERAN. Just the one price. If you will pardon me, he con- trols prices all along the line in the State of Washington by this supreme court decision. The manufacturers of the flour there sell it to the retailers in Washington. Mr. Montague. And he fixes the price to the retailer? Mr. FiNNERAN. He flxes the price at which it must be sold by the retailer. Mr. Montague. Suppose the retailer finds he has on hand 1,000 barrels, we will assume, and he finds that that flour wiU not keep sufficiently long for him to get rid of it in the ordinary course of his business. How are you going to do about changing the price on that ? Mr. FiNNERAN. Is that not an unfair proposition ? Will such a condition as that ever exist ? Mr. Montague. Does it not frequently exist in business, that men find their goods will not keep for a length of time and they make 34082—14 10 144 INTERSTATE TRADE COMMISSION. large reductions in price to get rid of them before they spoil or deteriorate ? Mr. FiNNEEAN. Those are not patented or trade-marked articles. Mr. F. C. Stevens. They may be trade-marked articles. The Chairman. A patent gives you the exclusive right to manufac- ture and sell the article patented. Stop right there. An ordinary manufacturer has got no patent, but after the patentee has got his patent, then, so far as the manufacturer and competition of the world is concerned, it stands exactly on the basis of any other manufactured article; so why should not a manufacturer of flour or clothing, or any- thing else, have the same right to prescribe future prices that the patentee would have ? The only difference is you have got one pro- tection and you want another, whereas the other man has got no pro- tection, and you do not want him to have any. Mr. Finneean. Yes; we do. I think, gentlemen, if at your leisure you would get the decision of the Supreme Court of the State of Washington, Mitchell Flour Mills v. C. A. Swanson, that perhaps it woidd enlighten you on this subject. Mr. EscH. How many pages are there in that decision ? IVIr. Finneean. Eleven. The Chairman. These various propositions have been put for- ward as contentions of various interests; they are not new to us, not discreditable to anybody, but they have been thrashed out for years and years, these different things, and we would thank you, instead of reopening them and consuming time on propositions of this sort, that you would go on and discuss the trade commission and tell us how it is going to help trade. Mr. Covington. Euminate in your discussion any idea that there is a possibUity that this Congress will enact in law any biU that will regulate prices. The Chairman. You can go further than that. You may accept the proposition that we are not here to discuss and thrash out fads and fancies; we are here to talk about the estabhshment of an im- Sartial trade commission, to see if it wiU help general trade methods, ow, if you can enhghten us on that, either for or against it, we do not care which you do. Mr. Finneean. I am trying to say to you The Chaieman (interposing). Your proposition has nothing to do with the trade commission. That is a question of- a law that could be passed by Congress, and could be passed with or without a trade com- mission. It is not connected with it at all. Mr. Finneean. We were of the opinion it might be advisable to put in our suggestion in the proposed bill. The Chairman. There are a thousand folks who think it advisable to slip in something for their selfish interest, into anything, no matter what it is. Mr. FiNNERAN. We want to put it in with everybody's perfect knowledge. We do not want to slip it in quietly. The Chairman. There has never been a project here of any great purport that somebody did not want to saddle it with some other thing. Please advise us how a trade commission would benefit the general interest of trade, or work against it. Mr. FiNNERAN. The trade commission, as I have tried to say, will benefit if it can have something to do with trade. I presume that is INTERSTATE TEADE COMMISSION. 145 what it is intended for. I was trying to suggest some of the evils which exist in our business which the trade commission might be able to help correct, and for the benefit, in my opinion, of the great mass of the public of the United States, and I assume that is what Members of Congress are here to legislate for; not for any particular body of men, like the druggists, grocerymen, or anybody else, but all of the citizens. Incidentially, we are part of those citizens. We are citi- zens of the United States, and we are vitally interested in it, and, as I said before, this matter of cut prices having started in the drug store has gone all over the country into every branch of trade. Now, the the trade commission can, in one way we suggest, help that proposi- tion. We say that our proposition is only tentative ; we say that it ca,n, in all probability, be corrected in such a way so that the public will be benefited. How are they injured, the question may naturally be asked at the present time, by the cutting of prices ? Mr. Covington. Has the business of cutting prices gone to the length as yet to create any real combinations m restraint of trade; combinations that are in violation of existing law ? Mr. FiNNEKAN. I wish I could prove that. Mr. Covington. In the absence of proof of that fact how is it possible to legislate simply against price cutting in this country with- out violating the constitutional rights of the citizens ? Mr. FiNNEKAN. Mr. Congressman, I wUl tell you of a condition that exists in the retail drug business and in the cigar business. Mr. Covington. I want you to explain to us, if you can, how it is possible if the people who are fixing various prices on their articles and are doing it without effecting any combinations in restraint of trade or creatmg any monopoly, legally to prevent them from having all sorts of prices for their articles ? Mr. FiNNEKAN. I want to say there is a chain of retail cigar stores. The United States Supreme Court said that so far as the United- Cigar Stores were concerned they were a part of the American To- bacco Co. monopoly. That same United Cigar Stores proposition recently bought in 50 per cent or more of the shares of the Riker- Hegeman Co. in New York, Boston, and other places, and they advertise they own 91 stores. I think it is a fair proposition that we need not have positive knowledge whether they are a trust or not, but that it is probably a pretty fair proposition, knowing what their plan is, that they are cutting prices so that, for instance, articles which cost S8 a dozen wholesale are sold at retail as low as 69 cents each. Now, there is no reason in such a transaction taking it alone. They can not be expecting to make a legitimate profit in seUiag that par- ticular article at 59 cents that cost them $8 a dozen, except in so far that they get a secret rebate. You can take your newspapers, and we will be glad to bring ia price lists and show you what the articles cost at wholesale and what they are sold for at retail. What is the object of this sort of sale at retail if it is not to destroy competition? Mr. Covington. On the question of secret rebating how far do you think publicity of prices would prevent the continuance of that practice, so that each retailer would know if he dealt with a whole- saler that he was dealing with a man who was discriminating against him? Mr. Finneran. I do not think I get your question quite plainly. 146 INTBESTATE TRADE COMMISSION. Mr. Covington. I say, how far would the publicity oi the fact that the wholesaler or manufacturer was giving rebates to various large consumers, department stores and concerns of that kind — the United Cigar Stores, for example — how far would the publicity of that fact through the agency of an interstate trade commission, authorized to elicit facts and to collect information by reports filed, prevent the continuance of the rebating ? ' Mr. FiNNERAN. I should want to go farther than just- the mere act of publicity. I should want some penalty attached. The Chairman It is not, as I understand you, so much the treatment your goods receive after you sell them as it is the conduct of other people; that the other people sell goods and make rebates and enable meir goods to be sold at cut prices that interfere with the sale of your productions ? Mr. Finneran. No; not at all. We are simply retailers, selling the products of others. The Chairman. Is it that the people who buy your goods sell to the general public too cheap, or is it the people to whom you sell reduce prices and turn the money over fast and make lots of sales? Which are you complaining of ? Mr. Finneran. We are j«st an association of retail druggists. We just sell goods to you or anybody else who comes into our store, and those goods we purchase in the open market'. In very few cases do we manufacture. Mr. Covington. You have just stated that the United Cigar Stores, having absorbed Riker-Hegeman Co., buy the specific article that is sold to you people at $8 a dozen, and they sell them at 59 cents for the single article, and you say at the same time it is not the class of article that brings them any other business. Mr. Finneran. No; I did not say that. Mr. Covington. I misunderstood you then. What is their purpose in selling it at 59 cents if it costs them $8 a dozen ? Mr. Finneran. To get you or me or anybody else into their store in order to sell them something else, thereby destroying the advertis- ing that the producer may have put into his article. Destroying his rights under the trade-mark or copyright law. Mr. Covington. Do you think, if I am engaged in business and sell a hundred different articles and, for the purpose of attracting the trade I care to sell one of those articles at very much less than it costs me in order that the public may come to my place of business and buy other articles, that I have not the right to sell at any price I please ? Mr. Finneran. That might be true enough providing you were the class of merchant you set yourself out to be; that is, that you would sell them that article if they ask for it. But the ordinary cut-price proposition is that they do not get what they come for at all. They have to fight to get it. It is really a row to get the particular 59-cent article you want and for which you were attracted to the store to buy. Mr. Covington. If they come there for the purpose of buying the 59-cent article and do not get it, then the practice you are complain- ing of is a misrepresentation of advertising only ? Mr. Finneran. They get it if they have courage enough to insist that they have it. Mr. Covington. Do you mean to say they get it only if they go into the store and Iiave a row with the clerk ? . INTEBSTATE TRADE COMMISSION. 147 Mr. FiNNERAN. Practically so in many, many cases. Not only that, but they will advertise, for instance, certain articles on sale all next week. You go into the store — this is not always true of a drug store — this is true of department stores — they advertise something for sale all next week and they absolutely have not got enough to last until 10 o'clock Monday morning. Mr. Covington. Would that not carry the interstate-trade com- mission to the ridiculous exteni of requiring it to regulate the advertis- ing prices of every establishment in the United States which pre- sumed to cut the price on one article out of a hundred on its shelves ioT sale ? Mr. FiNNERAN. That would not make the trade commission ridiculous at all, because those conditions would not exist if our proposed law went into effect. Mr. Covington. It would be in effect on all proprietary articles ? Mr. FiNNERAN. Yes, sir. Mr. Covington. Without regard to whether the article was pro- duced by a combination or a monopoly in restraint of trade under the Sherman law, you would have the article have its fixed price through a trade commission? Mr. FiNNERAN. I do not want anyone to have the right of monopoly of any business in the United States. The Chairman. You will consume the entire morning session. Mr. FiNNERAN. No; I was going to say I .would like to talk as long as you wanted to ask me questions, but I think it is perhaps unfair to Prof. Nixon. The Chairman. We shall be glad to hear from anyone you have here on this trade commission question. STATEMENT OF MR. C. F. NIXOliT, LEOMINSTER, MASS. Mr. Nixon. Mr. Chairman and gentlemen, I am a retail pharmacist. It seems to me that we are not asking for anything that is revolution- ary. It was beMeved, until the Supreme Court Sanatogen decision that has been referred to, that a patentee had control of his price. It was believed to be a matter of fact by at least half of the lawyers on the case. The Chairman. Is it your purpose to pursue the same argument as the other gentlemen ? Mr. Nixon. I am prepared to show you the conditions, why we ask for an amendment to the bill under discussion. The Chairman. We shall be glad to hear you discuss the creation of a trade commission; how it would help trade; not the enactment of general laws, whether they are wise or whether they are practical or not. Mr. Nixon. May I teU you briefly why we believe a great monopoly is being estabhshed ? May I tell you that in a very few words ? The Chairman. Yes, sir; if you think you can show us how a trade commission will help you to repeal the monopoly. Mr. Nixon. That is exactly what we want to do. We have the United Cigar Stores. We believe they are establishing a monopoly throughout the United States on exactly the same lines as did the Standard Oil Co., creating a monopoly by the ruinous cutting of price on established goods. You know the system adopted by the 148 INTEBSTATE TEADE COMMISSION. Standard Oil Co., going into sections where an independent was doing business and selling oil for less than cost; driving those people out of the market. I come from Massachusetts, from near Boston. What is the condition of our cigar business ? Ten years ago we had cigar stores all through Boston. To-day there is not a cigar store, to my knowledge, except in the very outskirts of Boston, except the United Cigar Stores. Why ? Because the United Stores came in there and cut the price on every recognized cigar to a price where there was absolutely no profit. These cigars are kept under the counter; kept in a dry unsalable condition by these stores. People will not buy them in that condition and then they sell them goods of their own make on which they make a good profit. They certainly make a profit, because the returns show that they pay a dividend of 20 per cent. The Chairman. All that is familiar. Tell us how a trade commis- sion would remedy that ? People want to put a whole code of laws on the trade commission bill. Mr. Nixon. They have not that power now. We recognize that and we propose scmi.thing which we think will give them the power. This amendment, briefly, is a proposition whereby the Government, issuing a patent or trade-mark or copyright, may, as a condition of such patent, allow the patentee the right to require that his goods be sold at a uniform wholesale and retail price. The Chairman. Not only to protect him in his patent, but to pro- tect him in holding up ids price through all generations ? Mr. Nixon. What we want is that where a man has received a special privilege from the Government in the shape of a trade-mark, copyright, or patent, that he shall sell his goods at a uniform price to aU consumers alike and play no favorit:s, and in order that the consumers may know just what the price is foi difleient qualities the price list should be registered and made public. We, as a body of druggists, are fighting for an existence. In Boston there are 20 great chain drug stores. The same condition is taking place in the drug trade that has taken place in the cigar trade, and when I say Boston I may also say New England and the greater part of New York State. We have 20 of these chain drug stores in Boston. Go through the business streets of Boston and you will find but very few drug stoies in the trade district anywhere, except the chain stoies. Mr. Raymond B. Stevens. Retail stores ? Mr. Nixon. Retail stores. They are doing a business of $17,000,000 a year. Mr. Raymond B. Stevens. Are they doing business outside of Massachusetts ? Mr. Nixon. The headquarters is in New York. It is known in New York as the Riker-Hegeman Co. ; in Massachusetts, as the Riker- Jaynes Co.; and in one or two other States by other names. Mr. Covington. I am somewhat familiar with that concern. Is it not a fact that there is plenty of conipetition in both Massachusetts and New York? Go into the city of Worcester, for example. There are at least one or two Riker-Hegeman drug stores, but are there not plenty of other stores also ? Mr. NrxoN. But they are of the same kind. There are two or three of these chains of stores. INTEESTATE TEADE COMMISSION. 149 Mr. Covington. But they do not belong to the chain of Riker- Hegeman drug stores, do they ? Mr. Nixon. There are two or three chains getting control of the whole trade. Mr. Covington. I am getting down to particular concerns, as to whether they are creating a monopoly in the drug-store business in the United States. Mr. Nixon. We believe the time to stop a monopoly is before it is complete. It is being established; there is no question about that. Retail drug stores are being driven out of business by every practical means. They come to my place and put a man in front of my store; if I am doing a successful business, they count my customers, and if I am doing business enough they go to my landlord and say, " What is the rent for this place?" Mr. Covington. We should like to hear whether you have any valuable amendment to this bill for an interstate trade commission, as to what specific powers you would propose to give the commis- sion; whether simQar, for example, to the powers conferred on the Interstate Commerce Conamission; as to the control over manufac- turers or wholesalers, to the end that no monopoly shall be permitted to exist. Mr. Nixon. All I have got to propose is this amendment. Mr. Covington. Offered by your predecessor ? Mr. NrxoN. Offered by my predecessor. Mr. Sims; As I understand it, they proposed that this comm,ission shall have certain powers, to the end that the exercise of that power will prevent a monopoly. The Chairman. But this proposition is misnamed. It is based on the proposition that you pass 'a Federal law empowering the pat- entee to govern prices. Mr. Nixon. Has not the Federal law already done nearly the same thing with the railroads ? The Chairman. That is a different proposition. Mr. NrxoN. Because the radrbads are not drug stores ? The Chairman. We did not pass the Sherman Act in connection with proposing a trade commission, though. Mr. Nixon. I was laboring under a misapprehension, probably. We appeared before a committee yesterday and had the latitude to discuss three or four bills. The Chairman. Have you made this statement already to another committee ? Mr. Nixon. These bills have been assigned to two committees, as we understand it. The Chairman. Have you said aU this to another committee of Congress ? MX. Nixon. We have said something similar. The Chairman. What, then, is the use of repeating it? Mr. Nixon. Simply because these bills have been assigned to your committee, and I have an amendment to offer to this bill. 1 am talking about a proposed amendment to H. R. 12120. Mr. . Hamilton. I understand that this particular amendment which this gentleman desires to submit has never been submitted to another committee ? 150 INTEESTATE TRADE COMMISSION. The Chairman. We should like to hear that. We should like to hear anything which has not been said to another committee. Mr. Nixon. Do you wish it read ? Mr. Hamilton. Either that, or submit the substance of it. Mr. Barklet. I suggest that the gentleman read this amendment. AMENDMENT. Section 1. That the owner of any patent, trade-mark or copyright may, as a con- dition of such patent, trade-mark or copyright, file in the interstate trade commission a statement showing the prices at which any article covered by the patent, trade- mark or copyright is to be offered for sale. Such statement shall show the retail price of each such article, together with a list showing all prices and rebates, commissions or discounts of every nature whatsoever at which said article shall be sold or ofiered to dealers for the sale of, or for the handling of such articles, and such list shall be regis- tered under such rules and regulations as the interstate trade commission may pre- scribe. A new price-list may at any time be substituted for a registered price list and reregistered, and a fee of — shall be paid on each list registered or reregistered. Sec. 2. All such articles covered by the registered price list shall be plainly marked with the retail price at which the same are to be ofiered for sale, and the words " Price registered" followed by the date of such registration. Such marking shall be made under such rules and regulations as the interstate trade commission may prescribe, and may be on the article itself, on the label, the container, or the wrapper. Sec 3. It shall be unlawful to sell or to offer for sale any article covered by such registered price list at a price different from that named in said list. It shall be unlawful to give or to receive, or to offer or demand, any rebate, commission, ordiscoimt of any nature whatever for the sale of any article covered by such registered price list other than the rebate, discount, or commission prescribed in the price list registered in connection with such article: Provided, however, That this section shall not apply to legal public sales made in pursuance to judicial executions: And provided further. That all articles purchased at such judicial sales shall, in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Sec. 4. Any person violating the provisions of this section shall upon conviction thereof be fined not less than $100 nor more than $1,000 for each and every offense. Any person falsely marking an article as having a registered price, or who marks any registered article at other than a price registered, shall, upon conviction, be fined not less than $200 nor more than $2,000 for each and every offense. Mr. Nixon. There is anothar thing we wanted to do, to stop secret rebating, just the same as secret rebating on railroads. I uncferstand that is a somewhat different proposition, but here my friend Finneran, for instance, who does a large metropoMtan business in Boston. I am in a country town. If I go to a manufacturer to buy 10 gross of a cer- tain proprietary article, I am given a certain discount; I am given a less discount than he in Boston, because he is a larger dealer, and the prospects of future sales are greater with him, just the same as in the matter of shipping, and he is given a discount which I know nothing about. This would cover aU that sort of thing. This Riker-Hegeman combination buys goods cheaper than we can, on the same grounds and for the same reason that a big shipper gets a lower rate than a little shipper. The Chairman. Is publicity all you ask ? Mr. Nixon. We ask more. We ask definite discounts, for one thing. In other words, the price shall be the same for the same quan- tity to any person, whether a big dealer or small dealir. The Chairman. I mean, you do not attach any penalty or punish- ment for not complying ? Mr. Nixon. Certainly. Section 4 reads: Any person violating the provisions of this section shall upon conviction thereof be fined not less than $100 nor more than $1,000 for each and every offense. INTERSTATE TRADE COMMISSION. 151 We followed the suggestion of the President that violators of this class of laws should receive personal punishment. Mr. Covington. What method do you prescribe by which the inter- state trade commission shall be able to determine whether those prac- tices absolutely exist or not? Mr. Nixon. Section 2 covers that, it seems to me. Perhaps it is not definite enough. Mr. Covington. That is all right with regard to the retail price, but the practice you complain of is that the manufacturer or wholesaler sells to the big feUow, to the department store man, or the chain of stores, such as the Riker- Hegeman Co., at a less price than he sells to you. You also complain that he gives you less discount than he gives the other fellow. Now, what method do you propose that the interstate trade commission shall follow to find out the difference in the prices these people are fixing ? Mr. Nixon. The first section covers prices, rebates, and discounts. Mr. Covington. I want to find out what methods of publicity, what methods of inquiry, what methods of investigation you propose the interstate trade commission shall follow to determine whether or not the manufacturer or wholesaler, who is not violating the anti- trust laws, is giving excessive rebates or excessive discounts to your larger competitor? Mr. Nixon. As I understand, I could make complaint to this same commission that my friend Finneran was obtaining such rebates. Mr. Covington. Do you think each retailer ought to have the right to file with the interstate trade commission a form of complaint such as a shipper now files with the Interstate Commerce Commission ? Mr. Nixon. It amounts to ihe same thing. Mr. Covington. You would provide that the manufacturer or the wholesaler of an article selling it to your larger competitor at a greater discount than you are now getting, although the retail price is plainly marked thereon, is violating the law? Mr. Nixon. Yes, sir. The Chairman. I asked you just now if publicity was all you were aiming at, or if you desired to incorporate legislation that would compel adherence to the prices published? The duty that has been before us for that commission to perfoim is to prevent violations of the antitrust law. There is nothing included in it requiring it to look for violations of any fixed-piice sale agreements. Mr. Nixon. If we get in this amendment it would, would it not? Mr. Willis. Let the gentleman read his amendment through. Mr. Nixon (reading) : Sec. 3. It shall be unlawful to sell, or to offer for sale any article covered by such registered price list at a price difierent from that named in said list. It shall be unlawful to give or to receive, or to offer or demand any rebate, commission, or dis- count of any nature whatever for the sale of any article covered by such registered price list other than the rebate, discount, or commission prescribed in the price list registered in connection with such article: Provided, however, That this section shall not apply to legal public sales made in pursuance to judicial executions: And 'pro- vided further, That all articles purchased at such judicial sales shall, in case they are again offered for sale, be subject to all the provisions of this act as if no judicial sale had taken place. Mr. Covington. Then it is your purpose, as I understand it, to proceed in the courts to enforce the prohibition you have' set out, 152 INTEESTATE TRADE COMMISSION. rather than to confer on the interstate trade commission the power that the Interstate Commerce Commission now has to prescribe such regulations as shall compel adherence to its oiders? Mr. Nixon. This, I assimie, would refer it to the courts. You understand I am not a lawyer. Mr. Covington. I understand. I was trying to get your ideas regarding this. Mr. EscH. WoTild a provision something like this meet some of your complaint? That it shall be unlawful for any manufacturing or trading corporation engaged in interstate commerce to discrimi- nate against persons or localities by selling the same commodities at certain prices to certain persons and localities except in so far as may be affected by distance and cost of transportation ? Mr. Nixon. That helps very much. Mr. EscH. You can talk to that, because that is a part of section 8 of the bill introduced by the chairman. Mr. Nixon. That would help very much. Mr. Sims. If I understand the position of those you represent, it is, that with such a law the practices that now obtain would not obtain ? Mr. Nixon. They would not obtain. Mr. Sims. And consequently the importance of how they are to be prosecuted, or whether any court has jurisdiction, or what court, or what penalty are minor in importance to preventing the practices by making it possible to make them public. Is that flie idea? Mr. Nixon. That is exactly as I understand it. Mr. Sims. That is the remedy or beneficial effect of the regulation you propose ? Mr. Nixon. Yes, sir. Briefly, we favor this bill and would like to have this amendment added, because we believe conditions exist whereby we are being driven out of business. Mr. Montague. Do you favor the same price everywhere ? Mr. Nixon. Yes, sir. Mr. Montague. Of course, I imagine minus freight rates, and so forth. I will put it in different form. You spoke of the gentleman back of you [Mr. Finneran] buying drugs, so many gross at one price and you buying the same drugs and paying a different price ? Mr. Nixon. Yes, sir. Mr. Montague. You say he bought much larger quantities than you? Mr. Nixon. Yes. Mr. Montague. Did I understand you correctly ? Mr. Nixon. Yes, sir. And further than that, I say that if I buy the same quantity; say, I buy 5 gross and he buys 5 gross, he gets a rebate that I do not because he is a prospectively larger customer. I think it is perfectly proper, if a man buys a carload, that he should fet a greater discount than if he buys a dozen, but I believe if I uy a carload, although I may be a small dealer, I should have the same price and rebates as he. Mr. Covington. How would you cover this proposition ? Take a standard article, such as the Oliver chilled plow. A consumer in Indiana, within 100 miles of the place of its manufacture, buys a carload of those plows, and pays the ordinary freight rate of a ship- ment from the factory to a location 100 miles away. A consumer on the plains of Texas buys a carload of those plows and he pays INTEESTATE TRADE COMMISSION. 158 the freight, approximately, we will say, for 1,500 miles of shipment. What method would you devise to regulate the sale of those patented articles at the same price in Texas that they are sold for in Indiana? Mr. Nixon. I am frank to say that we have not taken up that phase of the question. Mr. Covington. Of coin"se we understand that you gentlemen happen to be engaged in commerce where the packages are quite small. However, there would be many classes of commerce where, if we did regulate along the lines you suggest, the bulk would be very large. I wondered whether you had fliought how it would work out if we attempted to fix an arbitrary price for the disposition of articles aU over the United States, without taking iato considera- tion the varying freight rates on articles of considerable bulk. Mr. Nixon. The section read by this gentleman on my left [indi- catiag], as I understand it of a proposed measure, covers that We have not covered it. I am frank to say we have not covered it at all. Mr. Covington. Have you any suggestions in regard to that phase of it? Mr. Nixon. No, sir; but the section read by the gentleman would cover it. Mr. Sims. You limi t this legislation, as I understand it, first, to patented articles, second, to copyrighted articles, and third, to trade-mark articles? Mr. Nixon. Yes, sir. Mr. Sims. This legislation I suppose apphes to all articles? Mr. Nixon. To all such articles. Mr. Covington. Have you gone into the business of yotir asso- ciation thoroughly enough to be able to state whether or not on the class of articles with which you are concerned — articles of small bulk, shipped in small packages — the freight rates ia the United States would have any effect on the price of the article sold to a consumer ? Mr. Nixon. I think that our articles are so small it would have no effect. Mr. Covington. The freight rate would be an element so negligi- ble that it would have practically no effect? Mr. Nixon. No; because our articles in the drug trade are all so small. We are asking legislation solely on this fine of goods, because this line of goods is used as a bait for breaking up aU of our business. Mr. Covington. Is it your theory that the Government ought to proceed upon the idea that having given the manufacturer of a patented or proprietary article a speciEd pnvilege, that it ought to go further and exercise the control of the price of that article ? Mr. Nixon. I think it should, and I think the law was so under- stood untU the Sanatogen decision. Mr. Covington. That is what I was getting at. Mr. Nixon. In fact, a decision of the Supreme Court two or three years ago was practically along the Mne that they did have that power. Mr. Covington. In your trade various prices are fixed, based upon the size of the drug store, and whether it is what we caU a cut-rate drug store or not. Mr. Nixon. Yes. 154 INTEESTATE TEADE COMMISSION. Mr. Covington. Does your plan embrace any scheme at all by which the control of the prices of nonpatented or nonproprietary articles can be reached in any manner? Mr. Nixon. Not in any sense at all. Mr. CoviNGiON. Your proposition is only to give this commission the power to control the prices of articles that the Congress has already practically given the producer a monopoly on by the patent or copyright laws of the United States ? Mr. Nixon. Yes; we ask that because we thought it could be done in that particular. We do not ask it in any other particular. And we ask it because these goods are being used as a means to drive us out of business, and it is doing that. Mr. Covington. You simply propose an amendment to the bill to create a trade commission along the lines your immediate prede- cessor read in full, and which you believe would accomplish that piirpose. Mr. Nixon. Yes, sir. Mr. Covington. Is there anything else you desire to say ? Mr. Nixon. I think I have covered practically all I wish to say except that I should have gone into detail a httle more, perhaps. I should like to have shown you a little more of the effect this monopoly is having on us, but if you do not care to hear it, I will not go into tnat. Mr. Covington. We would hke to hear anything you desire to say. Mr. Nixon. I understood from your chairman that I was to confine myself very closely, but if given a httle more latitude, I will not take over 10 or 15 miuutes of your time. Mr. Sims. We understand you are here to give us information which you think is important, and the question as to its importance I think ought to be left to you. Mr. Nixon. I thank you very much. Mr. Montague. I agree with that statement. Mr. Nixon. This may not interest you a particle, but it interests us. Take the combination of the Riker-Hegeman chain of drug stores with the United Cigar Stores which was and some people thmk still is a part of the Tobacco Trust. This came after the bitterest kind of a cut-price war in certain trade-mark brands of cigarettes and sim- ilar articles. It was reported that the United Cigar Stores Co. had purchased the majority of stock of the Riker-Hegeman Co. Inquiry made of the secretary of state of Delaware discloses that a holding company was organized to control stock of the Riker- Hegeman Co. Here is the letter giving all the information I could gather on this subject from Dover, Del.: Office of Secretary of State, Dover, Del. Alonzo Hopkins Stewart, Esq., Washington, D. C. Dear Sir: In reply to your favor of the 9th instant, I beg to advise, according to the annual report filed in this office by the corporation for R. & H. Stock, January 6, 1914, the following are the names of the officers and directors: President, "William J. Maloney, care of Corporation Trust Co. of America, Du Pont Building, Wilmingtom, Del. ; treasurer, Julian Wattley, Wilmington, Del.; secretary, Herbert E. Latter, Wilmington Del.; directors, William J. Maloney, John F. Meaney, M. Monae-Lesser, Charles H. Dubois, Julian Wattley, Carl Schmidlap, Herbert S. Collins, Sidney S. Whelan, Frederick L. Becton, Wilmington, Del. Very truly yours, Thomas W. Miller, Secretary of State. INTEBSTATE TRADE COMMISSIOM-. 155 I have been able to learn something of the personnel of the officers and directors. William J. Maloney, the president, is an officer of the Corporation Trust Co. of America, which company incorporated this holding com- pany, and is the resident director required oy the laws of Delaware. Julian Wattley, the treasurer of the company, is a young man, between 22 and 25 years of age; is a bookkeeper or office man, on salary. No financial standing commercially, ho knowledge of drugs. Formerly lived in St. Kitts, West Indies. Brother of Ralph Wattley, auditor of United Cigar Stores Co. Worked in secretary's office of United Cigar Stores Co. Probably acting as treasurer to sign checks and as dummy director. Charles H. Dubois, director, is a man about 40 years of age, who used to live in Bogota, N. J. Bookkeeper or office man, on salary. No financial standing commercially. No knowledge of drugs. Worked in secretary's office of United Cigar Stores Co. No execu- tive ability. Probably a dummy director. Herbert S. Collins, director, is a man about 40 years of age; is a retail chain-store specialist. Protege o.f George Whelan, president of United Cigar Stores Co. Was once vice president of United Cigar Stores Co. Formerly lived in Syracuse, N. Y., where followed tobacco business for years. Has no knowledge of drugs. Sidney S. Whelan, director, is a boy about 21, son of George Wlaelan, E resident of United Cigar Stores Co. Must be his first experience in usiness. Frederick L. Becton, director, is a young man about 25 years of age. Bookkeeper or office man, on a salary. No financial standing. No knowledge of drugs. Formerly lived in State of North Carolina. He was at one time assistant auditor of United Cigar Stores Co., and may be now. Has two brothers working for the United Cigar Stores Co. Is probably merely a dummy. Of the secretary, Herbert E. Latter, and of Directors John F. Meaney, M. Monae-Lesser, and Carl Schmidlap no definite informa- tion has yet reached me. But I have some reasons to believe that the first two are merely figureheads, connected with a corporation trust company located in the State of Delaware, the State of incorporation. Take this Riker-Hegeman proposition as it is in Massachusetts, New England, and in New York. We have in Boston 20 of these chain drug stores. As I told you in the first place, they have driven every drug store off the principal streets in Boston. They are opening stores in every town in Massachusetts of a population of 30,000 or 40,000, and are driving other drug stores into bankruptcy or where they simply live, and it is done by the cutting prices on goods that we are asking for the price protection on. There are 94 of these drug stores in New England and New York principally. Their intent is to cover the whole United States. They are doing at present a business of $17,000,000 a year, which makes an average of $180,000 per store annual retail sales. Now, the average business of retail drug stores is from $15,000 to $25,000 a year. Of course, there are some larger and very many smaller, but that is a fair statement. You, of course, are all familiar with the cigar store methods. We believe that a monopoly is being formed, and we hope, by some legis- lation of this kind, to stop the monopoly before the whole country is involved in the way we are in Massachusetts. 156 INTEESTATE TRADE COMMISSION. Mr. EscH. In starting such a monopoly the evils are the greatest, are they not ? Mr. Nixon. They certainly are. Mr. EscH. Because the price cutting comes at a time when they are trying to capture the field ? Mr. Nixon. Yes; exactly. Mr. EscH. When they have captured the field, is there a complaint in regard to the prices they charge ? Mr. Nixon. I want to cite one instance in a single city of the methods that were employed. In the city of Lowell, Mass., the Eiker-Hegeman people went in and found a store that had heen long estabhshed; father and son had probably been in business for 50 or 60 years, and the son is older, about my age. He had the largest drug business in Lowell. The Riker-Jaynes people went to the owner of the buUding and leased the drug store from under him. The owner of the building did not give his old customer an oppor- tunity to meet the advance in rent, and he was obliged to move out of the buildmg on a month's notice onto a side street. His business was practically ruined. They go to another man down another street. In this particular case it was the United Cigar Co., where the rent was comparatively small, and they offered to double the rent and drive this man out of business. They did not succeed in driviag this man out of business, but the man pays twice as much rent as before. If they can not get a man's position they will bankrupt him by his rents. Over in Cambridge, I might say incidentally, I know of another case where a man's rent was raised from $7,000 to $12,000 a year by these same means. Here are two more instances from Lawrence, Mass., and the gen- tlemen who wrote these letters have been suffering from the unfair competition of this retail drug trust which uses the weapon of price- cutting on proprietary goods, together with the secret rebate, as well as the unfair practices recited by them. Here are the letters: Lawrence, Mass., February 4, 1914. Mr. Nixon, Leominster, Mass. Deak Sir: At the request of Mr. Campbell, of Lowell, Mass., to furnish you with some facts in regard to the mode of conducting drug business, as carried out by the chain stores, I will submit the following: When they first opened up they sold cigars at retail for less than we could buy at wholesale, also patent medicines and articles that the public knew the price of. Every week they inaugurated sales, and we found that on the articles such asrubber foods, where no regular stamp was on the article, that their price was a great deal igher than ours, but on rubber goods that the retail price was printed on they would sell at cost or below cost to us, and in their ads they would mention the fact that no goods would be sold to retail druggists. Many of the druggists would send their friends to purchase the articles for them, when they could buy for less than the wholesaler would charge. Now that they have established a trade and have got the people coming, we have noticed that they are getting prices on many articles better than us. You are no doubt familiar with the 1-cent sale, where they charge 25 cents for a patent medicine and for 1 cent they will sell you another bottle, or in other words, for 26 cents you can purchase two of a 25-cent article. We can not meet their prices. We have tried to purchase from wholesale dealers the articles they advertise, but the wholesalers tell us that they can not buy articles in many cases from the manufacturers at the prices the chain stores retail them for. I personally have arrived at the conclusion that, they being large distributors, are favored by the manufacturers by receiving larger discounts than me wholesalers ate allowed. INTEKSTATE TRADE COMMISSION. 157 You are no doubt aware of their methods of leasing out drug stores to get rid of a competitor, as per their action in Haverhill in leasing out Mr. Norton, and subletting the store for a meat market. Trusting the few pointers I have given you may be of some help, and wishing you every success in your fight against chain stores, I remain, Very respectfully, yours, John J. Forrest. Lawrence, Mass., February 3, 1914. Mr. F. C. Nixon, Leominster. Dear Sir: My experience with the chain stores was this: After being in my store for over 30 years and gradually building up a nice business, my five years' lease expired, and I could not get a renewal, and finally, after receiving word from a num- ber of druggists that they heard, from what they considered a reliable source, that the chain of stores had secured a long lease over my head, knowing the experience of other druggists, and also recalling that I had been told by one of their managers in a New York branch that they considered my store the best location in Lawrence, and also knowing that the trust was dissatisfied with one of their store locations in this place, and that they had made several unsuccessful attempts to get other loca- tions, I decided to try and have a talk with the store owners. I journeyed to their town and, securing an audience, said I would like to talk oyer the renewal of my lease, but was iriformed that they were not ready to con- sider renewal of any store leases in my immediate neighborhood, as they were consid- ering a proposition to develop the property, and not until I admitted that I would be willing to consider such a proposition would they talk with me. The outcome was that I had to take a long lease of the property and build a handsome brick block upon it, which reverts to the owners at tiie expiration of my lease. This had been a great hardship to me, as I am a man of only moderate means, and not what you ■would call (after my 35 years in the retail drug business) a young man, but for my own interests and the interest of my family was obliged to accept the proposition, and hope to be spared and have good health long enough to put it on a paying basis for those I know I must leave behind me. Trusting that you, Mr. Nixon, may be given courage and strength to fight for the cause, and hoping that some good may come in the way of legislation to help the present wrong condition, I am, Yours, very respectfully, A. F. Ryder. Washington, D. C, February 5, 1914. Mr. Alonzo H. Stewart, Washington. My Dear Mr. Stewart: Somewhat in amplification of the attached letter to Mr. A. F. Ryder, I will say that the different chain-store systems of both drugs and to- baccos, now openly controlled by the same interests, each has an architectural and building department of its own. I personally know that in the early days at least the United Cigar Stores Co. had, and may yet have, a dummy real estate company. With these departments and company the custom was, possibly still is, to have the real estate owner approached by a representative of the seeming separate real estate company, and propose the making of a lease by the trust, under wliich the said trust would agree to at least put a new front in the building, and of ten time do much more . Having thus secured a long lease at little more than a fair ground rental, presumably for its own occupancy, the trust would reconstruct, but where there had been but one store room it would make two or more, occupy only a very small room itself and rent the others for more than a good interest on all rentals, reconstruction expenses and every other calculable item. Furthermore, the owner of the real estate would oftentimes bind himself to have the supposedly independent agent, but who was really an employee of the trust, col- lect all his rents, place his insurance and in other ways secure a com mi ssion on all things for all the me of the lease. _ . Evidently Mr. Ryder found himself "up against" some such sort of competition as the above-suggests. Sincerely yours, J. Lbyden White, 158 INTERSTATE TBADB COMMISSION. What did they do in Lowell? They came into Lowell and adver- tised cut prices . The ordinary wholesale prices of proprietary goods as they come into the drug store are practically the same as the same priced goods in other trades. They are from $8 to $9 per dozen. That is the average price in a hardware store, dry goods store, etc. It costs 25 to 30 per cent in any retail business to do business. These goods cost $8 to $9 per dozen. They advertise them at 49 cents and 59 cents all over the country, not in the city of Ijowell alone, but within a radius of 40 miles to bring people to that store. Now the people are impressed with the beHef that if these people are selling goods for 49 cents that they have formerly paid 90 cents or .$1 for, that the old dealei's have, in popular terms, been roasting them. They do not beheve for one moment that these stores are selling goods at cost or below cost. They do not know the fact. The Riker-Hegeman people, and all these kind of people arc simply using that as a bait. The chain drug stores match up proprietary articles that are adver- tised at cut rates mth articles of their own make, on which they make a big profit, and for which they get the full price. Mr. Montague. They match up goods? Explain that, please. Mr. Nixon. Suppose a person goes in for a popular hair preparation, the price is advertised at 49 cents, and they wiU say, "Here is some- thing a great deal better, lady; something very much superior; something we can guarantee; something we make ourselves, it is an article even better, and the price is $1," and customers in a very large proportion of cases get that class of goods and pay the full $1. Mr. Covington. That particular practice is very largely a fraud in advertising, is it not ? Mr. Nixon. Yes. We think we could cover that if we could remove this bait from them. Mr. Covington. I should like to have you explain how you would f)fevent the sale of an article, not a patented or proprietary one, at a ow price ? Mr. Nixon. There is not an article in the whole drug store, or any other business, that can accomplish the work that a patented article with the price on it can, for the purpose of cutting prices. Let me tell you the reason why. We had a cut-rate war in my own town one time on this patent-medicine proposition. A grocer put in patent medicines, using them as a bait for drawing business into his grocery store. One of my druggist friends and myself said we would try to meet this, so we undertook to seU groceries at cost, or at a very small profit. We first advertised teas and coffees. Teas that they sold for 70 cents we bought at 43 cents. We advertised these all over town at 48 cents; we were making 5 cents a pound. We sold a lot of that tea, but that did not accomplish our purpose, because there are so many kinds of tea; nobody knows the price of tea, and very few people know the quality of tea. We continued this for a while. I said to my druggist friend, "The only way to beat this man is to sell sugar." Sugar is on a par, you might say, with patent medicine. There is pretty nearly a fixed price on sugar. People have an idea there is not very much margin of profit on sugar, but we sold si^ar at cost and by selling sugar stopped the cutting of our goods. We sold 250 tons of sugar m two drug stores in a short time. We could not accomplish much with the tea. I think that answers your question on pro- prietary medicine. On other things it cuts no figure at all. You INTERSTATE TRADE COMMISSION. 159 could not do it with Epsom salts, or rhubarb, or anything of that kind, because it has no advertised price as do proprietary articles. Mr. Covington. Let me see if I get your idea about how the sug- gestion you have made would prevent this practice. You say that these people advertise proprietary articles at, for example, 49 cents, when that is a cut price, and then when you go to their stores they offer you another article that is not a proprietary article, and which of course the regulation of the price on the proprietary article can have nothing to do with, you thmk that when the retail price of the proprietary article is fixed and they are prohibited from selling, and consequently from advertising it at the cut-rate price, that they will not be in a position to offer the customer their substituted article, because there will be no advertising inducement for him to go there? Mr. Nixon. He would be no more liable to go there then than to any other store. Mr. Covington. That is your idea ? Mr. Nixon. Yes. Mr. Covington. That the cut-price advertising wiU be destroyed by the fixing of an arbitrary fixed price ? Mr. Nixon. Yes, sir. Mr. Nixon. Here is an advertisement on this subject. I have quoted you the prices that they use when they open these drug stores. Here are some prices they are advertising at the present time, articles on the basis of perhaps 79 cents. You see, they are gradually going up. They started at 49 cents to appeal to the people. Now they have got them up to 79 cents on the great majority of dollar articles. Mr. Covington. That was how long after they were estabhshed ? Mr. Nixon. I should say it was two years. Here is an article, " Jaynes Balsam Fir." Tms is one of their substitute products. It is cough remedy, priced at 50 cents and $1, and they charge the fuU price. They are not doing business for philanthropy. They are using these things to kiU off us small dealers in the counry and in the cities, and selling substitutes at full prices. Mr. Covington. As they kill you off, then they raise the price? Mr. Nixon. Yes; then they raise the price. You see, they have got up from 49 cents to 79 cents now. Mr. Covington. After they kill you off then they can afford to be philanthropists ? Mr. Nixon. Yes. They get better prices for other goods than we can. Go into these same stores in Boston, look in their windows, look at their water bottles, and rubber syringes, and aU that sort of thing, and you will find those bottles that we are selhng for 11.50 apiece marked $1.98. They are making a larger profit than we do on these goods, and they fool the people with the idea that because they are buying one thing for 49 cents or 69 cents, that should be $1, that everything is on the same basis. Mr. Sims. After they destroy existing competition, then they get the fruits of monopoly, and do not hesitate to look for them? Mr. Nixon. That is it. I believe that a monopoly is being estab- lished and we are the under dog, and we are trying to have the inves- tigations made to benefit ourselves, if we can. If we can not, we have got to take our medicine. I have made this appeal to you representing 40,000 druggists, the greater part of whom are in the same position that I am. 34082—14 ^11 160 INTERSTATE TRADE COMMISSION. Mr. EscH. Do you think it would be wise to give this trade com- mission the power to investigate unfair trade practices ? Mr. Nixon. I do; yes, sir. Whether that would appeal to a com- mission as an imf air practice I do not know, but it seems to me unless they have some specific reason for not doing it, that it ought to be done. Now referring again to the cut-price war in Boston between the Kiker-Hegeman Drug Stores and the United Cigar Stores Co. Besides creating a monopoly, that war injured the independent retailer, the manufacturers of those specially branded articles, the prices of which were cut, and. also the consumer as well. The independent retailer was first injured because the price on these articles was cut so low that he could not meet the cut and at the same time make a profit, consequently he lost the trade of the cus- tomer not only in these articles but also lost the general trade of these customers, for where a man buys cigars and cigarettes he gen- erally buys other articles. Then the retailer finally has to give up handling these goods. When the price is restored to the normal he has no trade in this line of goods whatever. The manufacturer was injured because he lost the trade of the independent retailers and then was at the mercy of the trust, because the trust was his only customer and could demand any discount it desired or could even refuse to handle the specially branded articles. The consuming public was injured because even during the cut- price war all customers were not treated alike, one consumer getting one price and another consumer a different price, depending when and where the article was purchased. After the war was over the con- sumer was compelled to purchase these articles at the trust stores and could be made to pay even a higher price than was charged in near-by cities where there were independent retailers. And this higher price could be charged in spite of anything the manufacturer could do to prevent it, although the increased price might make the article itself unpopular. Mr. EscH. If these companies Hke Riker & Hegeman's stores, and so on, knew that the Government had the power to investigate trade practices and make pubhc unfair trade practices, it would have a good effect. Mr. Nixon. It certainly would (but we need more, as proposed by our amendment). This is a great big game. It is worth lots of money. Suppose the Kiker & Hegeman Co. find that they are under the control of a Federal commission, what is to hinder the New York stores forming a company by itself and the Massachusetts stores by itself, and then they have got from under the control, have they not ? It would no longer be interstate business. There is not the slightest doubt that those companies would do that, because there are millions of dollars invested in this proposition. Mr. Decker. Do these companies advertise extensively? . Mr. Nixon. Yes. Mr. Decker. Do your people advertise, too ? Mr. Nixon. We can not. Mr. Decker. Why? Mr. Nixon. Can we pay $1,000 a page, or whatever the price is, a Boston retailer that is doing $15,000 or $20,000 business a year? Can he pay the price that is necessary in the metropolitan newspaper? INTEESTATE TKADE COMMISSION. 161 They have 12 stores, and another corporation has eight stores — great stores. The biggest rental that is paid in Boston to-day per square foot is paid by these people. They have money for full page ad- vertising. Mr. Decker. Getting down to it, is not the main trouble that these advertisements are misleading and untrue? Mr. Nixon. They are misleading to the extent that the public gets the idea that all goods are being sold at a cut rate. Mr. Decker. Would not the law in your State requiring honest advertising, hke they have in some States, come nearer remedying this than anything else 1 Mr. Nixon. It is not dishonest to advertise a cut price; it is mis- leading. Mr. Decker. What right have we to stop it if it is not dishonest ? Mr. Nixon. It is not dishonest; it is misleading; it is a matter of poUcy. Mr. Sims. He does not ask us to pass any law affecting advertising. He wants these prices regulated by a Federal commission, as are like products now covered by the Government — ^patents and trade-marks. Mr. Nixon. And copyrights. Mr. Sims. And copyrights. Mr. Laffertt. They have a State law in Massachusetts now pro- hibiting false advertising, but here they advertise truthfully that they will sell a certain remedy at 49 cents, but they use that as a bait to get the customer in the store, and after he gets in there they sell him other articles at a higher price. Mr. Covington. You speak of the possibihty of these concerns organizing under the State law, and thereby excluding themselves from the control of Congress. You were referring to the local com- binations of retailers who use these cut-rate stores ? Mr. Nixon. I am referring to these great corporations hke Riker & Hegeman's especially. Mr. Covington. Who is the final distributor of these products ? Do you not believe that the manufacturer of these products has to have a large interstate trade if he is to exist; he does not limit his sale to Riker & Hegeman, does he? He sells to you. He sells to people in California; he seUs to people in Texas. The control that you advocate over him would be quite effective by a regulation in interstate coriimerce, would it not ? Mr. Nixon. It does not appeal to me that that would cover it. Possibly it would. If I buy goods that are made in California, accord- ing to statements that have been made here, they are my goods and I can sell them at any price I wish unless they are controlled by some price regulation. It is not interstate commerce if I sell anything in my own town, is it ? Mr. Covington. I understood you to advocate that the manufac- turer should be compelled to fix a price on them. Mr. Nixon. I do not see how any other interstate law could affect Riker & Hegeman if they split it up into State organizations. The Chairman. If they all file their prices with the trade commis- sion, in order to make them valuable, distribute it to the people, there would have to be a large additional number of bulletins printed and distributed, would there not ? 162 INTBESTATE TRADE COMMISSION. Mr. Nixon. It might be so. The Chairman. It would be pretty expensive publication, would it not, to make available to aU the people ? Would it not take a large book to contain all the prices ? Mr. Nixon. I do not think that any such book would be necessary. The Chairman. Then how would you make it available to the peo- ple if you did not pubhsh bulletins ? Mr. Nixon. It would be on the package. The price is on the package. The Chairman. On the package itself ? Mr. Nixon. It would have a registered price on the package. The Chairman. Then you would not want the list filed ? Mr. Nixon. I do not see any necessity for that. The Chairman. It will require the people to print it on the pack- age? Mr. Nixon. Yes, print it on the package as they do now, only it would be stated as a registered price, and that price would be maia- tained. I thank you very much for the attention I have received. The Chairman. The committee is very much obliged to you. Professor, for your appearance and testimony, and you will be allowed to revise and extend your testimony and insert anything you think of value on the subject. Mr. Nixon. Will be be allowed to file a brief later? The Chairman. Your notes will be furnished to you for revision. When you revise those notes you may add anything else that will help the committee in the solution of this problem. (Thereupon, the committee adjourned until tomorrow, Saturday, February 7, 1914, at 10 o'clock a. m.) Committee on Interstate and Foreign Commerce, House of Representatives, Washington, B. C, Saturday, February. 7, 1914. The committee met at 10 o'clock a. m., Hon. William G. Adamson (chairman) presiding. STATEMENT OF HON. DICK T. MOEGAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OKLAHOMA. The Chairman. I have the pleasure of introducing Representative Dick T. Morgan, of Oklahoma. No doubt he can enlighten us as to why we ought to have a trade commission to help us enforce the com- merce laws. Mr. Morgan. Mr. Chairman of the committee, I assure you I es- teem it an honor and privilege to address this great committee. No doubt most of you, if not all, have given this question more study and investigation than I have, and it may be difficult for me to enlighten the committee very much, and yet 1 am somewhat of an enthusiast in favor of an interstate trade commission. In the Sixty-second Congress, on the 25th day of January, 1912, now more than two years ago, I introduced in the House H. R. 18711, which was referred to this committee. The biU was entitled "A bill to JNTEESTATE TRADE COMMISSION. 163 regulate the commerce of certain corporations, and for other purposes." On the 25th of February following 1 delivered a speech in the House in favor of that biU. That biU provided for the creation of an "inter- state corporation commission"; that is the name which I gave the commission. More recently we usually refer to the commission as an "interstate trade commission." I introduced that same bill, word for word, at the beginning of this Congress. It is H. E. 1890. It was referred to the Judiciary Committee. In order to follow what seemed to be the instructions of the House and without taking, the trouble to withdraw the bill from the Judiciary Committee, I reintroduced the same bill on February 4, 1914, as H. E. 12931 (see Appendix "A"), which was referred to this committee and is now pending before you. The Republican platform of 1912 contains this provision, or declaration: The Republican Party favors the enactment of legislation supplementary to the existing antitrust act, which will, define as criminal offenses those specific acts that uniformly mark attempts to restrain and to monopolize trade, to the end that those who honestly intend to obey the law may have a guide for therr action and that those who aim to violate the law may the more surely be punished. In the enforcement and administration of Federal laws governing interstate com- merce, and enterprises impressed with a public use engaged therein, there is much that may be committed to a Federal trade commission, Qius placing in the hands of an administrative board many of the functions now necessarily exercised by the courts. This will promote promptness in the administration of the law and avoid delays and technicalities incident to court procedure. That declaration was made in June. In September following the Progressive Party included in its platform the following declaration : We therefore demand a strong national regulation of interstate corporations. * * * To that end we urge the establishment of a strong Federal administrative commis- -sion of high standing which shall maintain permanent active supervision over indus- trial corporations engaged in interstate commerce or such of them as are of public importance, doing, for them what the Government now does for the national banks and what is now done for the railroads by the Interstate Commerce Commission. * * * Only a few days ago the President presented to Congress a message, making certain recommendations relative to antitrust legislation, and among those recommendations was one in favor of the creation of a Federal trade commission. So that it now appears that all the great political parties are in favor of such a commission. It would not seem necessary, therefore, to show why such a commission should be created. But I have epitomized in a few propositions what I regard as the leading uses to which such a commission could be put. A Federal trade commission is needed: 1. To aid the courts in the dissolution, disintegration, and reor- ganization of unlawful corporations. 2. To aid in the enforcement of antitrust laws. 3. To do the work of investigation, recommendation, and pub- licity now assigned to the Bureau of Corporations. 4. To aid without legal proceedings, but with legal authority, through' conference, negotiation, and mediation in the readjustment of business in harmony with the law. 5. To control the practices and business methods of large indus- trial corporations. 6. To reinforce, restore, and maintain competition as the chief price regulator, and if necessary for the public welfare to exercise a limited direct control over prices. 164 INTEEgTATE TRADE COMMISSION, 7. To minimize the power of the large industrial corporation to con- centrate wealth, and to maximize its power as an agency for the eqmtable distribution of wealth. 8. To enable us to secure all the benefits and advantages of the large industrial unit and escape the evils and dangers thereof. 9. To relieve doubt and uncertainty in business, develop trade, encourage commerce, and promote enterprise. 10. To secure labor the highest wage, the largest amount of employ- ment, under the most favorable conditions and circumstances. 11. To allay public suspicion and distrust, remove prejudice, and secure the people from unjust tribute levied by monopolistic cor- porations. 12. To promote industrial peace and thereby contribute to social justice, industrial strength, commercial power, and business prosperity. The Chaikman. Would it disturb you if I should ask you a quesr tion there 1 Mr. Morgan. Not at all; and I hope you will all he free to ask me questions at any time. The Chairman. While you are enumerating the beneficial uses to which you think this commission could be put, limiting its jurisdic- tion as to investigations of violations of the antitrust law, carries with it the impression that only the large concerns ever do evil. Would it not be well in their investigations to also authorize them to investigate any cases of wrongdoing, no matter what the size of the corporation may be ? In other words, to help enforce any of the laws to help commerce ? Mr. Morgan. That is the first proposition I intended to discuss. The Chairman. I should like to hear you. Why limit their aid in enforcing law to one law ? Why not aid in all laws ? Mr. Morgan. That is one of the propositions I will discuss, because I do not just approve the bill introduced by Representative Henry D. Clayton, the distinguished chairman of the Judiciary Committee, H. R. 12120, which gives the commission jurisdiction over all corpora- tions engaged in interstate commerce business, except common car- riers. That is my first proposition. The Chairman. We should like to hear your views as to what this committee ought to do and how it ought to do it. CORPORATIONS SUBJECT TO THE COMMISSION. Mr. Morgan. The first question I wish to discuss is what corpora- tions shall be made subject to the jurisdiction of the bill. The first section of H. R. 12931 provides as follows: That every corporation engaged in commerce among the several States, or with for- eign nations, not subject to the provisions of the act approved February fourth, eight- een hundred and eighty-seven, entitled "An act to regulate commerce," and acts supplementary and amendatory thereof, and whose gross annual receipts or the total annual gross receipts of whose subsidiary companies for the calendar year nineteen hundred and eleven were, or for any calendar year thereafter shall be, in excess of $5,000,000 shall be subject to the provisions of this act. Since writing that section, more than two years ago, I have con- cluded that it would be wise to take in consideration other things than the value of products. My conclusion is now that in deter-. INTEBSTATE TEADE COMMISSION. 165 mming what corporations should be placed imder the supervision of the commission, we might take in consideration: 1. The value of the output of a corporation. 2. The capital of the corporation. 3. The percentage of the business in its line it controls, and, 4. The nature and character of the bustaess. H. E. 12120. This brings me to the consideration of section 3 of H. R. 12120, introduced by Judge Clayton, the chairman of the Committee on the Judiciary, which is now pending before this committee, and, as I understand it, is now under consideration by the committee. Section 3 of H. R. 12120 in part is as follows: Sec. 3. That all corporations engaged in commerce among the several States or with foreign nations, excepting common carriers, whether required by general rules and regulations for regular information or information specially asked m special instances, shall, from time to time, furnish to the commission such information, statements, and records of their organizations, business, financial condition, conduct, management, and relation to other companies, at such time, to such degree and extent, and in such form, as may be prescribed by the commission. Under this section all corporations, except common carriers, engaged in interstate commerce are made subject to the conunission. My judgment is that the Federal Government should assume control and supervision over private business only so far as is necessary for the public good, and that there is no pubKc interest that demands that the Federal Government should assume control over only those corporations which by reason of their capital or the amount of their products or the percentage of the business in their line which they control or by reason of the special nature and character of their business, become of great concern to the general public. Under the provisions of H. R. 12120 all pf the 288,352 corpora- tions, except common carriers, existing January 30, 1912 (see Report of Commissioner of Internal Revenue, 1912), would come imder the provisions of the act. Under the provisions of my bill (H. R. 12931) probably not to exceed 250 corporations would come under the supervision of the commission. This conclusion is reached from tables found on pages 464 and 468 of Abstract of the Thirteenth Census. This table shows that in 1909 there were 268,491 manufacturing estabUshments in the United States. Only3,060,or 1.1 per cent of the entire number, had annual products valued in excess of $1,000,000. The table on page 468 shows that only 540, or 0.2 per cent of these estabhshments, employ over 1,000 wage earners. A concern that employs less than 1,000 persons can not, as a rule, be of any great consequence to the general public of the United States. Agam, according to the report of the Commissioner of Internal Revenue for the year ending June 30, 1912, there were only 18,995 corporations that reported net profits in excess of $5,000. Three per cent of this number, or 569, would include all corporations which have an annual output in excess of $1,000,000. Mr. EscH. Why do you make 1911 your starting point? Mr. Morgan. As I say, I reintroduced this bUl exactly as it was introduced in January 25, 1912. Of course, if I were rewriting it 156 INTERSTATE TEADB COMMISSION. now, there a number of minor changes I would make, and of course 1911 should be changed to 1913. ■ . , n In that section I have provided what corporations shaU go under the iurisdiction of this commisiion. I use only the value, or gross receipts; but after subsequent study I think it would be wise to take into consideration other things. For instance, in addition to takmg into consideration the value of the annual gross receipts, I think we should also take into consideration the capital of the corporation, the percentage of the business controlled, and we might also consider the nature and character of the business. ,. • • Mr. Willis. What suggestion do you make or limitations do you indicate as to the percentage of the business ? Mr. Morgan. Of course that is a matter to be discussed and worked out in detail after obtaining the best information possible. My idea would be that any business which controls 40 per cent of the output needs supervision. That, of course, is guesswork to some extent, but no serious mistake would be made in fixing the percentage. Mr. Willis. In other words, in a given case, even though the total net or gross receipts were not S5,000,000, and in case the capital stock was not as large as indicated in the limitation, yet if shown that this concern controlled 40 per cent of that kind of business, it should come under the operation of this law? Mr. Morgan. Yes, and possibly in addition to that you might take into consideration the nature and character of the business. For instance, now you take the cold-storage business. There is a general beUef that the cold-storage business by its nature is a substantial monopoly. Mr. Hamilton. Is it not just exactly what you would caU a natural monopoly ? Mr. Morgan. No; but in another sense. Mr. Hamilton. But a monopoly ? Mr. Morgan. Yes, sir. The Chairman. You are talking now about the basis for the general jurisdiction and routine work of the commission. I admit that to let down the bars and require them to pass upon every con- cern in the United States would put upon them a Herculean task, but is ib inconsistent with your theory to say that in case of appeal to the commission that some smaller concern is doing wrong to the com- munity, that they may go and investigate that smaller concern ? Mr. Morgan. The hne of argument that I would make against that is this: Up to the present time the National Government has not undertaken to exercise any regulation or control or supervision over industrial concerns; in other words, over private business except through the Sherman antitrust law. The States have not done so as a rule. The Chairman (interposing). You misunderstand me. My prop- osition is wherever there is a law that they are accused of violating, there may be other laws In the statute books; if not there now, they may be placed there, affecting the regulation of commerce? Mr. Morgan. Yes, sir. The Chairman. Would it not be proper in case anybody thinks there is a Uttle concern doing mischief and liable to go into a trust, to appeal to the trade commission and ascertain whether it is violate ing some law in the regulation of commerce ? liTTBESTATB TRADE COMMISSION. 167 Mr. Morgan. Of course, I am going to answer that question. As I say, heretofore the National Government, except through enacting the Sherman antitrust law, has not undertaken to exercise any con- trol over what is regarded as private business, and for 24 years since the enactment of this law there has been no legislation along this line. The right of freedom of contract in private business is a principle which has always been recognized as very important for the growth and development of business as well as for the develop- ment of our citizenship. Therefore if you give this commission, or if the Government takes jurisdiction over every kind and character of business down to the very smallest, the National Government then assmnes control over business of the entire United States, over the private business of all of the people of the United States. To illustrate, I live in the little city of Woodward, in Oklahoma. Sixty miles, about, northeast along the railroad is the Kansas Une ; 40 miles southwest is the Texas line. We have a number of small cor- porations there that do business more or less both in Texas and Kansas. Now, if you give this trade commission supervision over all corporations that engage at all in interstate business, then the National Government, through whatever board or power it undeiv takes to do this work, must supervise and control these small cor- porations and at any time those men are liable to be investigated, indicted, and prosecuted, punished by the National Government. The Chairman. They have all the evils now to which any honest Irishman ever could have suggested in inquisitorial meddUng in the pure-food laws, do they not ? Mr. Morgan. That only includes a certain class of business, and I do not think we ought to extend that any further than is necessary to protect the health of our people. Here is another argument, Mr. Chairman. I beheve there is a demand for antitrust legislation. I believe the people in this country believe that the large business con- cerns do possess an undue amount of monopoMstic power; that they possess such monopoUstic power that they can manipulate and arbi- trarily control prices, and this legislation is in response to that pubUc opinion. But what is the evil this legislation is designed to cure? What legislation does the public sentiment demand ? It is not legis- lation against the small concerns, but legislation against the big con- cerns, against the trusts, and we will do well, it seems to me, and the National Government will do well to simply move in this legislation along the line that is demanded by the people, and let the smaller concerns, which are not national in any sense Mr. F. C. Stevens (interposing). Allow me to ask you this ques- tion: I agree with you that the evil, as a rule, does not exist in the small concerns, and they should be left to the States to control. But does not your theory as to the control of the large concerns run you into exactly the same objection; if we lay down legislative rules as to what shall be done, and aflBrmative rules as to the course of action of the large corporations, do we not to that extent prevent the State legislating along those lines at all ? * In other words, the power of Congress under the commerce clause is supreme, and where- ever we assume jurisdiction under this act, under the rulesthat you lay down in the act, to that extent the States are prohibited from legislating and protecting themselves from local evils, are they not ? 168 INTERSTATE TBADB COMMISSION. Mr. MoKGAN. That would be so; so far as interstate commerce is concerned, but my answer to that would be that the States are not equipped in the extent of their jurisdiction to control these large cor- porations. The Federal Government has hesitated, it has waited. Delay has been going on simply because the Federal Government disliked to assume control of private business. But I think we haye reached the conclusion that the States can not adequately protect the general public from these large corporations and hence it is the duty of the Federal Government to do so. Mr. F. C. Stevens. You do not quite catch what I am driving at. My assumption is this : Granting that the Federal Government alone is powerful enough to deal with the large corporations; granting that local conditions must exist that the States can best cope with. Now, if you lay down too rigid legislative rules in the bill which Congress enacts, that prevents the States from acting along those lines even to protect itself against the large corporations where it can best do so. But if you give a large general jurisdiction to the trade commission, giving it a large discretion, not restricted by leg- islative provisions, in such cases the commission by proper rules and regulations can allow the States to best handle what they can, and, at the same time, control through the national authority where necessary. That is what I wished to direct your attention to. Mr. Morgan. There is, of course, something in that suggestion, but it seems to me that if the Federal Government imdertakes tnrough its commission to supervise every corporation, individual, or con- cern or association that is engaged in interstate commerce, that the jurisdiction is so large that the work of the commission must neces- sarily be imperfect. The evil to be eradicated is the evil of the large concern that has such power and such control over the manu- facture, sale, and distribution of products in common use, reaching every home in the entire country, that it affects the public welfare of the country, and for this reason the National Government should control it. We can safely say that the small corporation is not a public menace. Therefore we should leave it the greatest freedom possible. The Chairman. My question did not involve original entry into any new field, nor infringement upon the prerogative of any local authority. The passing of a law by Congress is the entry upon the field. Here is a proposition to establish a trade commission to aid in the enforcement of law and detect and investigate violations thereof to the detriment of commerce. My proposition is not to make a new law, to enter on a new field, but instead of limiting it to investigations of violations of any one law, why not say that when called upon with an allegation that any Federal law regulating commerce is violated that it may investigate that violation ? That is my question. Mr. Hamilton. The chairman's suggestion is exactly in line with what I was going to inquire of you, Mr. Morgan. As I understand the power and jurisdiction of the commission would not be invoked except where there was some violation of conditions which were to the injury of commerce generally, and that ordinarily the jurisdiction of the coinmission would be quiescent; that they would take no action in relation to the small corporations, to which you refer, except where complaint was made; but the commission would still have the power INTEBSTATB TBADE COMMISSION, 169 where complaint was made; therefore their jurisdiction need not be invoked in those cases. Why not leave it in that condition ? Mr. Morgan. My idea is that Congress should, in this legislation, take into consideration the great national evil that exists and which the people want eradicated. Now, then, I am sure, for instance, that up to the time of the enactment of the Sherman antitrust law there were no laws, so far as the National Government was concerned, restricting or controlling private business Mr. Hamilton (interposing). I beg pardon; up to what time did you say ? Mr. Morgan. Up to the Sherman antitrust law that the Federal Government did not undertake to control private business, except through the principles of the common law. The Chairman. There may never be another one, but if Congress sees proper to pass some law, should not this commission be allowed to investigate violations of it if alleged ? Mr. Morgan. My idea is this, that Government supervision shotild only go where it is necessary to protect the pubhc interest. The Chairman. We are diccussing whether Congress will pass these laws or not. Mr. Morgan. I understand that, but I am discussing what I think Congress should pass and what this committee should recommend, giving my views, of course. As I said, we went .along 100 years without any national statute giving to the National Government any power, especially over private business. Conditions came about so that it was believed that business concerns were entering into conspiracies and contracts and agreements whereby they were monopolizing the commerce of the country to such an estent that it became a great public evil, a great national danger, and it was only on account of that that the Sherman antitrust law was enacted. Now, then, imder that law most of our combinations have been formed. The law has not been as effective as its friends anticipated it would be. The Chairman. If you stop the cat holes and shut out the cats and leave the kittens to come in through' the kitten holes, they will grow into cats, and the first thing you know, you will have the cats in ? Mr. Morgan. That is all true, but I believe the American people would be Mr. Barkley (interposing). When they get to be cats, they can not get through the kitten holes. The Chairman, They will come in and grow in there. Mr. Morgan. I believe the Government will have its hands full to take care of the cats, and the American people are perfectly satis- fied to take care of the kittens. The Chairman. I believe we have power to do it if we just agree on a plan. Mr. Rayburn. Is it your idea then that the corporations, of which this commission is to have control, shall have some fixed rules by which they shall go, and that they shall not have anything to do with, or not issue any orders or investigate any of these smaller corporations ? I mean this : That in these corporations you put under the jurisdiction of this commission, they shall have some fixed rules to regulate them in their business, uniform accounting, and such as that — some uniform rules ? 170 INTEESTATE O^ADE COMMISSION. Mr. Morgan. Yes, just a little further on I will come to that point. Mr. Montague. You limit the activities of this commission to corporations of $5,000,000 receipts and above that? Mr. Morgan. Yes, sir. Mr. Montague. Below that jon think the evil is too small to engage the Government's activities? Mr. Morgan. Yes, sir, or too small to become a pubUc danger to the country generally. Mr. Montague. You used the word "trust" just now. Did you use the words "trust" and "monopoly" as synonymous, or is there a distinction in your mind ? Mr. Morgan. I use the word "trust" in the common way of using, that it means the large corporations generally. Mr. Montague. Whether it is a monopoly or not? Mr. Morgan. Yes, sir. Of course, I believe Mr. Montague (interposing). Would you prohibit the size of the corporation that did not exercise monopolistic power ? Mr. Morgan. Would I ? Mr. Montague. Yes. Mr. Morgan. No; but I would prohibit the size of it unless I put it under the control of the commission, because I believe that the capital and wealth and the control of a large percentage of business in a certain line necessarily gives monopolistic power, and there is no escape from it, and hence if you do not limit it in size, then I would put a certain control over it by Government supervision. Mr. Montague. That is, whether they exercise monopolistic power or not, they have that power ? Mr. Morgan. They have that power, and that power is dangerous. Mr. Montague. In this country, due to the facts that the people believe there is a power existing that can exact from them unjust profits, and that tms commission, given large power over these large corporations, will satisfy the public mind that there is no power the Government exercises such control upon this evil power that it can not be exercised to injure them? . Mr. Morgan. Just along this hne. I want to leave this point. I am detaining you too long. The Chairman. I want to help out the gentleman from Virginia in his question about trusts, if I get his intention. In this day of anxiety for exact definitions, which some people think impossible, I can give you two authentical definitions of the word "trust." You can take your choice, or discard both, or make better ones. You may call them trusts because they get so big you can not trust them. The other definition grows out of the equitable doctrine that when a party is in possession of property that of right belongs to another, he holds it in trust. Mr. Morgan. But I want to go just this far. How many corpora- tions probably come imder the supervision of this commission ? We can not, of course, say definitely, but I have here an abstract of the Thirteenth Census, pages 434, 408, which contains two tables. One of these tables shows there are something like 268,490 manufacturing establishments, and that only 3,060 of this number, or one and one- tenth per cent of the entire number had annual productions valued in excess of $1,000,000. So that this bill would, if the limit were put INTEESTATB TRADE COMMISSION. 171 down to $1,000,000, instead of $5,000,000, we would have something like 3,000 corporations under the control of the commission, but at $5,000,000 there would be a much less number. The table on page 468 shows that out of 268,000 industrial concerns, there are only 540, or two-tenths of one per cent of the entire number that employ- more than 1,000 wage earners. So that my conception is, that a concern that employs less than 1,000 persons would not be a trust or a monopoly, such as would be any great pubhc menace; a menace to the public generally, and that, therefore Mr. Hamilton (interposing): Where did you say you got that analysis ? Mr. Morgan. That is in the abstract of the Thirteenth Census, on giges 464 and 468. The report of the Commissioner of Internal evenue for 1912, Jime 30th, shows there were 18,000 corporations that reported net profits in excess of $5,000 that come under the corporation tax. Three per cent of that number would be 569, and I have no doubt that under the provisions of my bill, there would be considerably less than 500, probably not to exceed 250 corporations that would come within the jurisdiction of the Commissioners, and I think that would include all the corporations in the country which exercise such monoplistic power as to be a menace to the public interest. TRUSTS QUASI-PUBLIC CORPORATIONS. My second proposition is this, that Congress should, by statute, declare all corporations engaged in interstate or foreign commerce, which are made subject to the commission, are public agencies, or public institutions, or quasi-pubUc corporations. This I have assumed to do in section 2 of my bill. It is as follows : Sec. 2. That every corporation subject to the provisions of this act, or that may hereafter become subject to the provisions of this act, is hereby declared to be a quasi- public agency. Many of our industrial corporations have become impressed with a public use. They are public agencies. They are in every legiti- mate sense of the word quasi-public corporations, and we should by law declare them to be such. By statutory enactment they should be placed in a class with our railways, telegraph, and telephone com- panies, and with all othqr public-service and public-utihty corpora- tions. We must in some way make a distinction between the gigan- tic corporations, possessing large monopoUstic power and controlling the manufacture, sale, and distribution of the necessities of hfe, and the smaller corporations, which possess little, if any, monopolistic Eower, and which are in no way in a position to impose any great urden upon the people through excessive prices. Out of nearly 300,000 industrial corporations in the United States perhaps 300 to 500 would cover all the industrial corporations which really possess such monopoUstic power as to be able to injure any great part of the public through the possession of monopolistic power. Let us separate the sheep from the goats. The sheep may be permitted to gambol unmolested upon the public industrial commons, but the goats must be placed in a corral under the surveillance of represen- tatives of the Federal Government. 172 INTERSTATE TUADJii (JOMMlSSiUJN . The great corporations largely control the productive forces of our country. The wealth produced naturally flows into the corporations. Measured by their stocks and bonds, our corporations own $92,000,- 000,000 of our national wealth. Upon this vast sum they make an armual net profit of nearly 4 per cent. All our farms and farm prop- erty are valued at OAly $41,000,000,000. Industrial and manufac- turing corporations have stocks and bonds outstanding of about $37,000,000,000 — almost equal to the value of all the property pos- sessed by all our 6,500,000 farmers. Mr. EscH. When you put the provision in section 2, declaring these corporations to be quasi-public agencies, was that in order to strengthen our jurisdiction over them ? Mr. Morgan. No, sir. Mr. EscH. Have we not full jurisdiction, under section 1, because they are engaged in interstate commerce ? Mr. Morgan. Yes, sir; but my idea is that in creating a commis- sion with jurisdiction over business which has hitherto been regarded as strictly private business, we should make it clear why the step was taken. Mr. Montague. You therefore think, in order for the commission to exercise control over these corporations, we must first conclude that they are quasi-public corporations? Mr. Morgan. Yes, sir. We must do it on that theory. Mr. Montague. You think it necessary ? Mr. Morgan. Oh, no ; not necessary. Mr. Montague. To exercise interstate jurisdiction that these concerns shall be quasi-public corporations, as a matter of fact ? Mr. Morgan. No, I do not thiiik that exactly, but I think this: You take our States. Our States do not control private business. They do not pretend to do that. It is only such businesses as are regarded as quasi-pubHc corporations. Oklahoma is one of the States that has declared by statute that when a business or corporation ob- tains a certain degree of control over business, that it becomes thereby a public corporation, and the corporation commission has jurisdic- tion over it. Mr. Montague. Who determines that fact in Oklahoma ? Mr. Hamilton. As I understand him, the declaration of the law determines it. Mr. Morgan. I will say this: That the Oklahoma statute is some- what general; it has not been applied, although the corporation commission did, within the last month or so, fix the prices at which oil refineries should sell oil throughout the various localities of the State. But I say the States do not place private business under the control of commissions. If we are to enter upon the control of these industrial concerns, we must do it on the theory Mr. Montague (interposing). Do you not recogijize that the power of the State and the Nation is very different ? The State has all the power not prohibited by the Constitution, and the Nation has all the power given by the Constitution. Mr. Morgan. I am not questioning the power, but I am saying that we ought to do it on a certain theory, and one that would mark a line of division in the future. I think it would be wise public policy for the National Government to leave private business, the INTEBSTATB TRADE COMMISSION. 173 field for private enterprises, as free from Government restriction as the States do. I would declare by law that industrial corporations of a certain character and with annual output valued at a fixed amoxmt have become- impressed with a public use and are thereby quasi public corporations. The Chairman. But, Mr. Morgan, the Constitution provides that Congress has power to regulate commerce between the States, among the States. The Supreme Court has repeatedly declared that that is plenary; nothing can stand in the way of it except local police regulation as to health and gentlemanly conduct, and such as that. Do you think you can strengthen our jurisdiction over them and give us any more plenary and absolute power by any of those restrictions you put in there ? Mr. Morgan. No, sir; not at all. The Chairman. That is only a matter of quantity as to how many you regulate ? Mr. MoNGAN. Certainly. The Chairman. An old woman who keeps a hen house on one side of the State line and totes eggs in a basket to the other side is just as much in interstate commerce as the Standard Oil Co. ? Mr. Morgan. Certainly. . This committee is familiar with the his- tory of control of prices in England, which continued for centuries. Finally the policy was abandoned. Individual initiative, private en- terprise, was given the greatest freedom possible. Such has been the Eolicy of this Nation, and I think it is the right policy and should not e encroached upon, only so far as Congress concludes it is necessary to protect the public interest. The Chairman. The greatest trouble you present to me is the old one. You know it has always been said that small criminals have been punished, while those who steal enough to make them respect- able have escaped. It looks Uke your idea is apt to give one class legislation and make it a crime by directing our entire attention to big criminals. Mr. Morgan. This bill does not propose to change the Sherman antitrust law or legahze monopoly in any way. That law would con- tinue in force, the Executive power of the Nation, the Attorney General, through the United States attorneys, could prosecute men for any violation of that law. The Chairman. But if you are going to make it one of the duties of this trade commission to act as the preliminary court, the court of inquiry and the grand jury to help the courts of justice, why specify the Sherman law, or any other particular law? Why not say they may investigate any charge or violation of any United States law affecting commerce ? Make it general. Mr. Morgan. I am afraid I am tiring the committee. The Chairman. I do not mean to keep a roster directory to look into the concerns of aU of them, into their routine work; but when a crime is alleged, why not authorize it to investigate any violation of statute ? Mr. Morgan. Of course, all individuals and corporations must obey the Sherman antitrust law and all other laws, but the interstate trade commission should not be given control only over the large corporations. The Chairman. Congress will control it. It shall be enforced 174 INTERSTATE TRADE COMMISSION. , Mr. Morgan (interposing) . Of course, I tried to make my view of it plain. Now, I am afraid I will tire the committee, and there is another matter I want to discuss. The Chairman. I think I have made myself plain. You can go ahead. Mr. Eatmond B. Stevens. Before we leave this section 2, as I understand it, the statement in section 2 is not a statement made in order to give Congress jurisdiction, not a statement of theory at all, but a statement of what you conceive to be the facts ? Mr. Morgan. Yes. Mr. Raymond B. Stevens. That a corporation engaged in inter- state commerce, when it gets to a certain size is, as a matter of fact, a public concern and should be treated from there on as a public service corporation? Mr. Morgan. That is exactly my view. Mr. Hamilton. But that is an arbitrary definition, is it not ? Mr. Morgan. I think not. Mr. Hamilton. That is not the common-law definition. The com- mon-law distinction was a distinction between corporations "af- fected with a public interest," to use the language of the courts, and a busiiress not " affected by the pubhc interest." That is the com- mon-law distinction. Now, you wipe out the common-law distinc- tion and say that corporations doing a certain business shall be cor- porations affected AVith a public interest. Mr. Montague. Whether it is affecting the public interest or not? Mr. Morgan. Yes* Congress has the power, but, as I understand the object of all legislation, it is remedial; it is to cure evil, to protect the public. Mr. Hamilton. Will you state,. if you please, right at this point, because it is quite important in considenng your theory, state just why you think that is so ? Why should it be necessary to cumber your bill with that arbitrary declaration and distinction ? It seems to me your biU would be stronger without undertaking to go into that. Mr. F. C. Stevens. If you will aUow the gentleman to proceed, I think I see his theory. He wiU develop it in a moment in his next point better than by answering this question. Mr. HAMII.TON. I have been waiting for it, Mr. Stevens. Mr. Morgan. Now, the great question, and I understand the great controversy, in this legislation probably will be over what power or jurisdiction shall be given to this commission. The Chairman. In other words, what general laws shall be passed by Congress ? Mr. Morgan. Yes, sir. The Chairman. Do you think it necessary to mix them up with the commission at all ? Why not authorize the commission to help enforce the laws in this bill, then let Congress pass any other laws it wants to ? Mr. Morgan. My theory of this is that there are two ways of con- trolUng the practices and methods of business concerns. One way is to prohibit certain specific definite things, and the other is to pro- hibit certain kinds of acts. The Chairman. Do you have to do it in this bill ? If you think you have to, there are 10,000 propositions, and we would never get the bill through in the world. INTERSTATE TRADE COMMISSION. 175 Mr. Morgan; My theory is that my method simpUfies the proposi- tion, makes it easier. I say there are two ways to do this, one to prohibit a specific direct evil, such as interlocking directories, and the other way to lay down general rules. The Chairman. Then you would be doing the very thing you just now said Congress never did and would not like to pass any law but the antitrust law ? Mr. Morgan. The Chairman misunderstood me. The Chairman. The idea I am trying to get you to discuss is this: That there are thousands of men who have ideas about some general law which ought to be passed, and each one thinks it ought to be put into this trade commission bill. Would it not be better generally to authorize this trade commission to help enforce all laws, and then let every man introduce his proposition in a separate bill, and pass it • in a law in Congress ? Mr. Morgan. There comes the question of what power the com- mission shall be given. The Chairman. You did not start talking about their power to enforce. You started talking about making new laws. About inter- locking directorates. Mr. Morgan. 1 think if the chairman had waited he would have found 1 was going to talk to the question, and am not out of order. The Chairman. I do not say you are out of order at all. Mr. Morgan. 1 was joking, of course. But I had not gone far enough to develop my idea. I say there are two ways, one to prohibit a certain specific thing, and that is the general way. You take most of these bills before the Judiciary Committee and others here; they prohibit certain things and try by those sjpecific provisions to cure all the evils. My conception is that we ought to use the other method, in other words, prohibit by general rules and declarations. 1 develop that in sections 4 and 5 of my bill. Mr. Montague. Do not sections 3, 4, 5, and 6 really form a part of the same part of the bill ? control of PRACTICES. The third proposition for discussion is the question of what power or jurisdiction should be given the commission. Mr. Morgan. Yes, sir. Mr. Montague. That is the distinctive part of this bill? So you are discussing them together ? Mr. Morgan. Yes, sir. Mr. Montague. And in the discussion you will answer Mr. Hamil- ton's question? Mr. Morgan. Yes, sir. Mr. Montague. And, Mr. Morgan, are not these four sections drafted similarly to the provisions of the interstate commerce law ? Mr. Morgan. Yes, sir. That is just the point. Mr. Montague. That answers Mr. Hamilton. Mr. Morgan. We need a commission to act as an administrative board to control the practices and business methods of large industrial corporations. The primary object of all prohibitory, restrictive, and regulative statutes pertaining to industrial corporations is to control the prac- 34082—14 12 176 INTERSTATE TKADE COMMISSION. tices and business methods of such corporations. The object of controlling practices and business methods is to secure reasonable prices and charges and prevent unjust discriminations as to indi- viduals or localities. Statutes of this kind may be divided into two classes. First, those which prohibit some specific thing, act, or practice; and second, those which promulgate a general rule prohibiting or making imlawful cer- tain kinds of classes of acts or practices. We may wisely specifically prohibit certain well-known practices of industrial corporations which ^re notoriously injurious to the pubUc and are under condemnation ■of the pubhc. But we should also promulgate some general rules of •conduct for our big industrial corporations and thereby place all acts •or practices of a certain kind or character imder the condemnation of 'the law. This is what Congress did when, 27 years ago, it first as- sumed the gigantic task of regulating and controlling the acts and practices of common carriers. The first section of the "Act to regu- late commerce," approved February 4, 1887, and which created the Interstate Commerce Commission, fixed a general standard by which ^11 charges of common carriers should be measured by declaring that "all charges * * * shall be reasonable and just." Section 2 prohibits and makes imlawful "unjust discrimination." Section 3 makes it unlawful for a common carrier " to make or give any undue or unreasonable preference or advantage to any particular person, firm, corporation, or locaUty." The act clothes the Interstate Commerce Commission with power and jurisdiction to determine what are "just and reasonable charges," . what "device" other than a "special rate, rebate, or drawback," shall be "unjust discriniination," and what act, practice, or method shall ■constitute "undue or unreasonable preference or advantage to any [particular person, company,' firm, corporation, or locahty. These provisions have worked well in controlling the practices and -charges of railways and other common carriers, and I beheve, similar {)rovisions would prove eq^ually effective and satisfactory in control- ing the charges and practices of industrial corporations. By sections 4 and 5 of my bill (H. K. 1890) I fix a standard by which the acts and practices of industrial corporations subject to the act shall be measured. By a clause in section 9 I have empowered the commission to prohibit by rule, order, or regulation, any act, practice, or method which shall be contrary to the general rules laid down in sections 4 and 5. Sections 4 and 5 and part of section 9 are as follows : Sec. 4. That every practice, method, means, system, policy, device, scheme, oi ■contrivance used by any corporation subject to the provisions of this act in conducting its business, or in the management, control, regulation, promotion, or extension thereof, shall be just, fair, and reasonable and not contrary to public policy or dan- gerous to the public welfare, and every corporation subject to the provisions of this act in the cond\ict of its business is hereby prohibited from engaging in any practice, or from using any means, method, or system, or from pursuing any policy, or from lesorting to any device, scheme, or contrivance -whatsoever that is unjust, unfair, or unreasonable, or that is contrary to public policy or dangerous to the public welfare, -and every act or thing in this section prohibited is hereby declared to be unlawful. Sec. 5. That every corporation subject to the provisions of this act shall deal justly and fairly with competitors and the public, and it shall be unlawful for any such corporation to grant to any person or persons any special privilege or advantage which shall be unjust and unfair to others, or unjustly and unreasonably discriminatory against others, or to enter into any special contract, agreement, or arrai^ement with «ny person or persons which shall be unjustly and um'easonably discriminatory INTEESTATE TBADE COMMISSION. 177 against others, or which shall give to such person or persons an unfair and unjust advantage over others, or that shall give to the people of any locality or section of the country any unfair, unjust, or unreasonable advantage over the people of any other locality or section of the country, or that shall be contrary to public poUcy or dangerous to the public welfare, and any and all the acts or things in this section declared to be unlawful are hereby prohibited. Paragraph of section 9 : The commission is hereby authorized and empowered to make and establish rules and regulations not in conflict with the Constitution and laws of the United States to aid in the administration and enforcement of the provisions of this act, and may. by such rules and regulations, prohibit any particular or specific act or acta, practice, method, system, policy, device, scheme, or contrivance that is contrary to any of the provisions of this act. The rules of conduct promulgated in these sections if enacted into law would blaze a pathway for the guidance of our business now groping in darkness through a trackless wilderness of doubt and un- certainty. The principles of business honestly enunciated in these sections are in harmony with existing public sentiment and would be approved by the conscience of the Nation. We should crystaUize this sentiment and conscience into law. We will thereby aid all legitimate industry, promote peace in the social and industrial world, encourage the growtn and expansion of business along lines which are morally sound, and inaugurate a policy that will bring blessings to all our people and higher glory to the Republic. Mr. Montague. May I ask you a question? Mr. Morgan. Yes, sir. Mr. Montague. You contend, as I understand it, comprehensively, you contend that this commission shall have the power to declare whether any business conducted is contrary to the public policy or dangerous to the public welfare, do you not ? w: Morgan. That power is given to the commission; yes, sir. Mr. Montague. You would then give to the commission of this Government the right to determine whether a thing was contrary to the. public welfare, or dangerous, or contrary to public pohcy ? Mr. Morgan. I concede, Mr. Montague, that that is a pretty large and general power, and yet I think that our courts more or less do that in rendering decisions. They say: "Things contrary to pubhc policy." Mr. Montague. When you come to that, is it not well established, and only those things are contrary to public policy which have been determined after years and years ? Mr. Morgan. Yes, I admit that. And it might be well to strike out those particular phrases. I put them in after some study, as a basis for expressing an idea. Mr. Montague. There were only three or four things by common law regarded as contrary to public policy. Mr. Montague. With all respect, do you not think that would pul within the hands of government the most extraordinary power now exercised by any civiuzed government in the world ? Mr. Morgan. We are exercising exactly that same power over common carriers, over all pubhc corporations. liast spring Congress enacted a public utihties act for the government of this District and gave it sweeping power. The Chairman. The trouble of your whole theory is that you are building on the fallacy that by declaration of Congress you can give to 178 INTERSTATE TEADE COMMISSION. domestic commerce the same status that carriers occupy, whereas the status of carriers has been built up and recognized through those ages by custom and judicial decisions, because they exercise a monopoly of transportation and are, by their nature, quasi public associations. Mr. Morgan. I should like to have you hear me right on that point. The Chairman. You hare already made a strong argument to show this other is private business which the Government ought to be very chary about meddling with at all. Mr. Morgan. My argument is that certain corporations have added to their power until they are in fact The Chairman (interposing). It looks to me as though your bill seeks to make them so by declaration of Congress, which is inipossible. Mr. Morgan. I do not know about that. I think Congress could — — Mr. Montague. This is the key of the whole situation. Mr. Morgan. By section 3 I declare that the practices of these corporations shall be reasonable and just, and by section 4 I say • Mr. Hamilton (interposing). By what standard ? I think perhaps the best way to get along with this, if you will permit us, is perhaps to question you as you go along. By what standard would you determine, just for illustration, what standard have you in your mind by which you would determine whether the charges of a corporation are just ? IVfr. Morgan. I will ask what standard does the Interstate Com- merce Commission or the United States courts use in determining whether the charges of a common carrier are reasonable or just? Now, I would have the commission .apply the same rules. You search the decisions of the courts since tne act of 1887 was passed; search the decisions of the Interstate Commerce Commisssion, and the great question in controversy, the fact in issue, so to speak, has been whether certain rates are reasonable and just or not. Mr. Hamilton. There is no doubt about that, as to interstate commerce. Mr. Morgan. Now, if we can apply that principle in controlling ■ The Chairman (interposing). You had better make your whole speech on that point. If you can get past that you have got us; if you do not, you are gone. Mr. Morgan. That is my theory, that we can apply that principle with the same degree of certainty to these large mdustrial corpora- tions that we.can apply it to our public utility companies, and to our quasi public corporations, including common carriers, the telephone, and the telegraph companies. Mr. Hamilton. For illustration, in your small town you men- tioned, here is a corporation of moderate size and wages are such ui that vicinity that perhaps it cost more to produce each item of pro- duction there than it does in another place. Suppose the commission is empowered to investigate whether the prices charged are reasonable. The commission in that case would have to take into consideration all facts and circumstances surrounding the production of commodities by the corporation in your town, and it would have to take into con- sideration all the facts and circumstances in connection with pro- duction of commodities by a corporation in another part of the coun- try far removed from that. You could hardly fix an arbitrary INTEESTATE TRADE COMMISSION. 179 standard, could you? You would have to consider all the circum- stances surrounding production in each separate case, would you not ? Mr. Morgan. Yes, sir. Mr. Hamilton. Whereas you do have a standard of measurement, I take it, in commerce ? Mr. Morgan. You have to take into consideration the expenses, the cost of maintainence, the cost of the plant, and everything con- nected with the business of that concern you have to take into con- sideration. Mr. Hamilton. I was trying to get a working standard. Mr. EscH. You reahze we felt it necessary, in order to give the Interstate Commerce Commission power to determine what a rea- sonable rate was, to give it power- to determine physical valuation. Would that power be involved in your bill ? Mr. Morgan. So far they have made no physical valuation. Mr. EscH. They are making it now, and several States have al- ready done it. Mr. Morgan. Many people claim that the physical valuation cuts no figure ? Here is the point. I would limit the extent, the number of corporations to the lowest amount consistent with the public good oyer which the commission should have jurisdiction; then I would give it the greatest power, the largest jurisdiction that is consistent with the public good. Instead of prohibiting, trying to prohibit certain specific acts, I would lay down general rules, because, gentle- men of this committee, Congress may to-day prohibit interlocking directorates; prohibit the holding companies; prohibit this thing and that thing, but to-morrow those concerns invent some other pro- cess, some other method, some other device, some other scheme or contrivance, and then it is another quarter of a century before Congress will enact another law. The Chairman. I think you are avoiding the proposition, though, Brother Morgan. You stated the proposition on which you were going to satisfy this committee, and Brother Stevens told you your case hinged on that. We can transfer the whole power of Congress over domestic commerce by this trade commission, by merely a declaration that it is on a footing with the situation of common carriers. That is the trouble with your proposition. You have built your whole superstructure on that. Mr. Morgan. Not at all, because my bill would be just the same if you should strike out that section. You could leave that blank. My idea was that declaring a policy, and a policy is just as important in all kinds of government as anything else; it is very important. In my judgment sections 3 and 4 include everything in the so- called Sherman Antitrust Act, and I hope it is nothing sacrilege for me to say that. You may repeal the Sherman Antitrust Act, create this commission, enact these general declarations, and give this com- mission the power -to enforce it, and it will protect the people from every monopoly existing in this country. The Chairman. That looks to me like trying to delegate to a com- mission the arbitrary power of Congress, and it would be unconsti- tutional to do it with the defining declaration. Mr. Morgan. I think not. We all know that conditions are dif- ferent from what they were in the past in this country. The devel- 180 INTEESTATE TKADE COMMISSION. opment of commerce, the building of railroads, the telephone and the telegraph, and the building up of our great cities has developed the business of this Nation in a way that our courts are overbur- dened with business, so overburdened that it amounts to almost a denial of justice to the people of this country. It has taken 25 years to secure a construction' of the Sherman Antitrust Act, and we are still in doubt about its meaning. What this Government needs more is more administrative power. I read a very interesting article in the Columbia Law Journal along this line, showing that on account of the growth and development of business litigation has so multi- plied that the people have become impatient with the courts. It is a fact that the courts are powerless to enforce the laws of this Nation because of overcrowding of business. Administrative commissions to expedite the administration of the laws have become a necessity. I concede that under this bill this commission is given what we would call judicial, executive, and le^slative power. This article in the Columbia Law Journal, to which I refer, states that prior to 1880 the courts were very jealous about the power given to commissions, and the tendency was to restrict commissions to the exercise of strictly executive or legislative power. But the article goes on to point out that since 1880 the courts have drifted the other way and are now upholding statutes which confer upon commissions power that is semijudicial. The Chairman. You do not hope that the enactment of such provisions there as you suggest would get by without a great volume of litigation in the courts, do you? Mr. Morgan. There is a question. You take the Interstate Commerce Commission, and the great bulk of the litigation that comes from common carriers of all kinds is settled by that com- mission and does not go to the court. The Chairman. The courts have been full of litigation for 25 years in regard to the commission, and it is hardly all settled yet. Mr. Morgan. But the great bulk of the cases have been settled by the commission and would be Mr. Montague (interposing). This is a discussion of the greatest consequence. Is not the situation rightly this: That your bill proceeds on the theory, practically, that the division of this Govern- ment into three branches — executive, legislative, and judicial— should be practically abolished so far as this kind of business is concerned, and that there should be a central, sovereign power, which in the old days was called the "sovereign dispensing power," to exercise this vast authority, and within that authority the rights of the individual should not be considered, as against the theory that this Government has proceeded on up to this time that the rights of the individual should be paramount and that the Government should be only exercised to protect the rights of the individual « Does not your bill draw that clean distinction, and you go back 400 or 500 years to the old days of tyranny? Mr. Morgan. Not at all. The provisions of my biU are absolutely m harmony with the development of legislation in the last quarter of. a century. Mr. Montague. Is it not more in harmony with what existed about 400 years ago ? INTEBSTATE TEADE COMMISSION. 181 Mr. MoEGAN. It is true th^t in those days the tendency was to. control business, and they fixed prices by law in those days. But the English people never hesitated to assert and exercise that pow0r for the pubhc good. If conditions now demand it, why should not we exercise the same power ? Mr. Hamilton. May I ask you whether you have considered] whether this proposition of yours is in contravention of the consti- tional provision that Congress — I can not remember the exact language — but that the Federal Government shall guarantee to the several States a republican form of Government ? Now, a repub- lican form of government, I believe, has been determined to be ai representative form of Government, such as was in existence in the thirteen States at the time the Constitution was adopted. A rep- resentative form of Government, then, has the executive, legislative, and judicial branches. Suppose that by this act you abolish the- distinction between executive, legislative, and judicial branches, are you not in danger of having an unconstitutional provision ? I desire to direct your attention to that. Mr. Morgan. Now, then, the power that the States and the Nation have assumed over public utility companies and over quasi pubhc corporations is exactly along this same hue. For instance^ out in Dakota they had a law that an elevator company Mr. Hamilton (interposing) . That is one case ? ; Mr. Morgan (continuing) . Should be controlled in a certain way. Control their charges and practices. . That case went to the State court, to the supreme court, and the Supreme Court of the United States, which held that under the pohce power of the State, the State had the right to regulate elevator companies. Mr. Hamilton. Pardon me, you referred to a certain case ? Mr. Morgan. I think it was the Munn case. Mr. Hamilton. That was decided on the theory that an elevator was a link in a line of transportation, and the reason for that runs back to the doctrine laid down by Lord Hale, about business "af- fected with a public interest" — wharfingers, innkeepers, and, finally, elevators. That is the distinction there. Mr. Morgan. But, mind you, here is the point. The decision of the case placed it on the ground that the elevator was a public agency or a public business to a certain extent, but the real question involved was the power of a State under the Constitution to exercise that right over private property. Mr. Hamilton. No; the power at common law to regulate a business "affected by a public interests ?" CONTROL OF PRICES. Mr. Morgan. If necessary for the public welfare, we should author- ize the commission to regulate the prices at which large industrial corporations shall dispose of their products. Section 3 of my bill H. R. 1890 promulgates a standard for the control of the prices at which industrial corporations subject to the act shall dispose of their products. . It provides as follows: Sec. 3. That the price or prices at which any corporation subject to the provisions of this act shall sell or dispose of any article of merchandise, or any product whatso- 182 INTEESTATE TRADE COMMISSION. ever, shall be just, fair, and reasonable, and it shall be unlawful for any such corpora- tion to sell or dispose of any article of merchandise, or any product whatsoever, at a price or at prices that are unjust, unfair, or unreasonable, and everj^ corporation subject to the provisions of this act is hereby prohibited from so doing. In support of tliis provision I will say : 1 . The Federal Government long ago assumed the right to control the prices of products sold through the instrumentalities of interstate commerce. This it did when the Sherman law was approved, July 2, 1890. Prices may be controlled either directly or indirectly. "When by law we declared that certain acts, contracts, agreements, combinations, and conspiracies relating to trade and comnierce were unlawful we thereby entered upon the policy of controlling prices indirectly. It can not be denied that tne very object of this law was to prevent monopolistic prices. If the Congress may control prices by indirect methods, we certainly have the power to do the same thing by direct methods. Otherwise the Sherman antitrust law is a sham and stibterfuge and should be held invalid as against the legal principle that one can not do indirectly what he is forbidden to do directly. All antitrust laws now in force, or which may hereafter be enacted, which control the practices, methods, or in any way regulate, restrict, or limit the acts of corporations engaged in interstate commerce are primarily for the purpose of controlling the prices and charges of such corporations. 2. The Federal, State, and municipal governments have long ago entered upon the policy of the direct control of the prices and charges of transportation and communication corporations and of practically all public-service and public-utility corporations. This is done upon the theory that such corporations in their nature have large monop- olistic power. If we control the charges of such corporations on the ground that they naturally possess monopolistic power, we are incon- sistent unless we control the charges of industrial corporations which have acquired large monopolistic power. In its effect upon the peo- ple acquired monopoly is as dangerous as ' natural monopoly. If public policy demands the direct control of natural monopolies, it also requires the direct control of acquired monopoUes. 3. At present there is no law which in the least controls the prices at which our great industrial corporations dispose of their products. It matters not how large the corporation may be or what monopolis- tic power it may have or how avaricious its manager and owners may be, in the matter of prices it is a law unto itself. I believe it would be wise public policy to declare, as I have done in section 3 of House bill 1890, that these great industrial corporations, com- monly called trusts, shall dispose of their products at prices which shall be "just, fair, and reasonable." We will be doing just what Congress did when it passed the act of February 4, 1887, "to regulate commerce," which declared that — All charges made for any service rendered or to be rendered in the transportation of passengers or property, as aforesaid, or in connection therewith, or for the receiving, delivering, storage, or handUng of such property, shall be reasonable and just; and every unjust and unreasonable charge for such service is prohibited and declared to be unlawful. My conclusion is this: That, so far as is consistent with the public good, we should continue to use only indirect methods to regulate INTBESTATE TRADE COMMISSION. 183 # prices; we should rely, as far as possible, upon competition and sup- ply and demand as price regulators; that natural economic forces are the safest for the control of our trade, commerce, and business; and that we should leave to the individual, so far as possible, the freedom of contract, and encourage individual initiative, effort, and ambition in every legitimate line of business endeavor. But there is a limit to the power that can be safely intrusted to an industrial corporation, and we must restrict this power, or exercise govern- mental control over their charges and prices. Mr. Decker. I should like to ask you just one question. Admitting that this kind of a bill would be constitutional, and admitting the change in form of government, is it not a fact that this commission — for instance, take the case of sugar — it would gradually come to fix the price of sugar; in the flour business it would fix the price of flour; in. the coal business it would fix the price of coal; and in the grain business it would fix the price of grain, and this commission that fixed the prices at which the people bought their commodities would be appointed by the President. And suppose one commission should fix the price of beef and coal and these other commodities at one figure and you or I wanted to run for President and we would promise the people that, if we were elected, we would reduce the price on all ihese commodities. Whom do you think would be elected— the man that would make the biggest bid for the cheap prices — and would not that get back a good deal to the days of Rome, when they fed them corn just before election? Mr. MoK&AN. I understand now that you draw what I would regard as an extreme case. My bill is worded along a certain theory and develops a scheme. I provide there that this comm^ission mav control prices. I think that is what we are coming to. But I believe, for the present purpose, it would perhaps be wiser to undertake to control their practices. When you control practices, you are, indi- rectly, controlling prices. There is no object in regulating these con- cerns except for the purpose of controlling their charges and prices; so that when you enter upon any regulation or control or dominion over private business you are indirectly controlling prices. If we can do that indirectly I believe that, under the Constitution, we can do it directly, because the general proposition is that you can not do indirectly something that you are prohibited from doing directly. What is the object of all this legislation? Why are we talking about creating this commission and giving it inquisitorial power, sweeping power to go into the business and the booKs, and as it were, into the home of every businessman engaged in interstate business? It is because there is a great public evU existing, and that public evil is monopoly. Now, then, the Government has assumed control of public utility corporations. Why? Because of the fact that they are to some extent, I will say, a natural monopoly. But it is ju,=t as important to control an acquired monopoly, so far as the people are concerned, as to control a natural monopoly. An acquired monopoly is just as dangerous to the public interest as a natural monopoly. Mr. Hamilton. They are not natural monopolies, they are arti- ficial. Mr. Morgan. What ? Mr. Hamilton. The businesses you refer to. 184 INTEESTATE TEADB COMMISSION. Mr. MoKGAN, No; I say those are acquired monopolies, artificial monopolies, but we say the railway is naturally a monopoly. The Eublic utility we say is a natural monopoly — that is, the nature of its usiness is such that it becomes a monopoly. But if we are to control a so-called natural monopoly because it is a public menace and because it has power to exact unjust profits from the people, then an acquired monopoly or artificial monopoly is just as dangerous and it becomes just as much the duty of the Nation or the State to stop it, to protect the people from acquired monopolies as it is to protect it against the natural monopoly of the railways or the public utility corporations. Mr. Hamilton. Just so we get our terms straight. Possibly I am in error. I supposed a, natural monopoly was such a monopoly as illustrated by the production of a coal mine. Mr. Morgan. That is true. The Chairman. The difference existing between us is that you and others seem to think it can not be done without disregarding and destroying our form of government. I think Congress has absolute and plenary power to do it in a constitutional and regular manner. I would not show disrespect to your bill; it is the best one which has been produced here on this subject; but I think Mr. Stevens and the gentleman from Missouri, Mr. Decker, have failed to do justice to some of the great men of antiquity when they carry this back into the past; I think they should carry it back to tJrias and Sennacherib; I think they ought to be credited with some of these ideas. Mr. Dan V. Stephens. Section 3, Mr. Morgan, is the one that regu- lates prices ? Mr. Morgan. Yes, sir. Mr. Dan V. Stephens. If you eUminate sections 3 and 5, 1 think it would simply control the discrimination of prices. Mr. Morgan. You mean to eliminate section 3? Mr. Dan V. Stephens. If you ehrainate section 3, the object of fixing prices is entirely cut out of your biU. Mr.MoRGAN. Yes, sir; as I say, the bill, all that refers to the control of prices, can be struck out and not affect another provision in it, so to speak. Mr. Dan V. Stephens. But section 5, I think, should remain, as it provides for the matter of discrimination. I think this commission undoubtedly should have the power to prevent discrimination in prices, unfair competition. Mr. Morgan. Yes, sir. Mr. Barkley. In speaking awhile ago you said you thought we were coming to the time, if I understood you, when the Government, through some agency, would be compelled to fix prices ? Mr. Morgan. That is, to a limited extent. Mr. Barkley. If we start in that field to a limited extent, will that not be the opening wedge toward the final adoption of a poUcy which will make the Government, not only to a limited extent, but wholly and absolutely— will that not also bring with it the necessity for controlHng not only the price of production but the price of labor, and will that not, if carried to its logical conclusion, finally re;sult in making every man, woman, and child who is engaged in labor an employee of the Government and subject to the supervision of the Government, if carried to its logical conclusion, in tlie years to come? INTEESTATE TEADE COMMISSION. 185 The Chairman. In other words, how are you going to produce the things to sell at fixed prices ? Mr. lifoKG'AN. As I say, we are controlling the charges of all public utility corporations now. Mr. Montague. Let me ask you, if you will pardon me; you jump arbitrarily from public utilities to private utilities, and you fasten upon the latter what has been the accepted doctrme applicable to the former for generations and generations. Have you the right to ma;ke such an arbitrary leap as that ? How can you, by law, say that the private business shall be public business, any more than yon can say a horse shall be a mule ? Mr. Morgan. My idea is that as it develops we must meet condi- tions as they are, and of course my conception is, you take a cor- poration like the International Harvester Co. — the most common illustration, and the United States Steel Corporation, or you take the great packing companies. Now, take the packing companies. I think we all know that these large packing companies possess large monopolistic power. They buy from the farmer and they distribute a very large percentage of all the meat product tha,t is consumed by the people of the United States. I assume that necessarily they have large monopolistic power, and that their products practically go into every home in the United States. Assuming that you are going to aUow them to exist, then I say that those men have no right to possess a power that is dangerous to the public welfare. Mr. Montague. I agree with you. Mr. Morgan. There is only one way to do it. These corporations are artificial persons, created by law. The corporative form of doing business does multiply 10,000-fold the power of one man. That no one can deny. That power multiplies and multiplies until corpora- tions become stronger than the Government itself, if they are locked -together. That is a power and advantage over the individual form of business that should not be carried to such an extreme unless we put some effective control over that power that wUl assure the people that their interests and their welfare wUl not be imposed upon. We need a commission to maximize the power of our industrial corporations as agencies for the equitable distribution of wealth and to minimize their power as instruments for the concentration of wealth. The census of 1910 shows that one-third of our manufacturing establishments employ 90 per cent of the 7,000,000 wage earners in these establishments and produce 95 per cent of all our manu- factured products. In round numbers, 10 per cent of our manu- facturing establishments employ three-fourths of the labor in such establismnents and produce four-fifths of the product. One per cent of our manufacturing establishments employ one- third or the labor and produce nearly one-half of our manufactured products. We have had a revolution in the nature and character of our indus- trial concerns. Our business methods have changed. The instru- mentalities used in commerce and trade have changed. But our laws have not changed. Interstate business is largely under control of the gigantic busmess concerns — great corporations— mammoth industrial organizations, wielding incomprehensible power in the business and commercial world. This power may be used for the 186 INTEESTATE TRADE COMMISSION. glory of our country, or it may be used for the exploitation of the public and oppression of the people. We do not realize to what extent the corporations control the business of this country. We do not comprehend how these corpora- tions now touch every avenue of trade, commerce, and busmess, receive tribute from every avocation, calling, and profession of life, and draw support and sustenance from every home and fireside in the land. The corporations of the country in 1912 made an annual net profit of $3,213,247,000. Industrial manufacturing corporations alone made an annual net profit of $1,309,819,000. They employ 7,000,000 ?ersons, and their annual products are wortn $21,000,000,000. he corporations of the country, by a conservative estimate, own one- half of the wealth of the Nation. Probably not one-tenth of the people have any interest in these corporations. The corporations are modern inventions which have contributed largely to the production of the wealth of this country. They have likewise been great engines for the concentration of wealth. The people know this. They wiU not be satisfied until Congress shall use all its constitutional power, if necessary, to make these corpora- tions instruments for the distribution of wealth, because upon the equitable distribution of the wealth produced depends the very perpetuity of this Republic. Finally, I plead for a great commission to stand like an armed sentinel to jealously guard the mighty hosts of interveiiing corpora- tions plying between the producer and the consumer and see that these corporations do not exact excessive, exorbitant, or unrighteous charges for the service they render to the public. Mr. Willis. You think, in the last analysis, that the only thing to do is to regulate prices? Do you think that is what it comes to? Mr. Morgan. No ; I am not certain how it will work out about that. My idea is that finally the government over these large corporations will, to some extent, control their prices, and I do not think that impracticable; but perhaps at the present time, as I say, it is better to control their prices by controlling their practices and methods of doing business. Mr. Willis. You spoke a httle while ago, Mr. Morgan, in your very entertaining remarks, something about repeaHng the Sherman antitrust law, saying that if these sections 3, 4, 5, and 6 were enacted, that it would be entirely practicable to repeal the Sherman law. We are not to infer from that, are we, that you think the Sherman law ought to be repealed ? Mr. Morgan. Certainly not; l)ut I beheve those provisions would cover the things which are prohibited in the Sherman act. Mr. Willis. In the application of the Sherman law there has been a great deal of discussion about the twilight zone. If we enact this bill in the form it now stands will it tend to broaden or to narrow that twilight zone, or does it not all become twilight zone then ? Mr. Morgan. It all becomes noonday, I think. Mr. Willis. It seems to me it all becomes twihght. You put it all un to the discretion of somebody. There is not anything definite at all. It is all made discretionary with this trade commission, and the objection has been made that it is too discretionary now. INTEESTATB TEADB COMMISSION. 187 Mr. Bakkley. I think instead of that becoming twilight; it would become dusk. Mr. Montague. Does yotir bill provide a certain number of these commissioners ? Mr. Morgan. I believe seven. Mr. Montague. What is your best judgment as to which would be the appropriate number, three, five or seven ? Mr. Morgan. My judgment would be that five would be sufficient for the present. Mr. Montague. What salaries do you give them ? Mr. Morgan. My bill provides $7,500. Mr. Baekley. Do you think that sufticient ? Mr. Morgan. I thought it was. Mr. Montague. The so-called Clayton bill, I think, fixes it at $10,000. Which do you think would be the better, $10,000 or $7,500 ? Mr. Morgan. I thought that $7,500 would secure the right ser- vices. Mr. Montague. Do you think five will be the better number? Mr. Morgan. I think five would be the better number. I think it would be enough to start on. Mr. Montagu:e. You agree with me in this, that it is easier to give power than it is to take it away after you once give it ? Mr. Morgan. Yes, sir. Mx. Montague. Do you not think it would bo wise for us to start not so radically in a performance of this character and enlarge it as necessities subsequently develop ? Mr. Morgan. There is no question there is much force in that sug- gestion. Mr. Montague. If there be force in that suggestion, would it apply at all as to the number of this commission ? Mr. Morgan. Yes, sir. Mr. Montague. Do you think three could attend to the business or not? Mr. Morgan. I do not think three would command the respect of the country as five would. Mr. Montague. You think five members would be more dignified and give the commission more prestige? Mr. Morgan. It would give it more prestige, and the work ought to be divided; and it would give more variety, more chance for expert work. Mr. EscH. Your bill specifies corporations. Supposing we have a copartnership whose gross receipts attain $5,000,000 per annum, and supposing it even became a very aggravated form of monopoly? Your bill would not reach that, would it ? Mr. Morgan. That is a good suggestion. Of course, when I drew it, I just had in mind the corporations, but I think that ought to be amended so as to include any person, association, or firm. Mr. EscH. You could not justify a discrimination if you make ■$5,000,000 a basis of gross receipts ? Mr. Morgan. I think you are right about that. Mr. F. C. Stevens. Mr. Morgan, you have discussed practically 6 sections, and there are 17 in the bill. Allow me to ask as to the other 11 sections ? They treat of three different propositions: First, 188 INTERSTATE TBADE COMMISSION. the organization of the commission, its number, and the salary, anti the way of doing business, etc.; second, the power of investigation by the commission and the results of such investigation; and, third, the general penalty clauses. Is there any other subject in these 11 sections that you wish to bring to the attention of the committee ? Mr. Morgan. I believe not, this morning. I think I concentrated my talk on what I considered the leading features of the bill. One provision I have in tliere which I have not spoken of especially. It IS section 9 of the bill, a provision which gives the commission the power to make rules and regulations to cairy out these laws, and it also gives it the power to prohibit any specific act that is prohibited by these general provisions. Now, I do not know whether we could confer that power or not, but it would be an excellent provision if we could, and then if the corporations invented some new method of discrimination the com- mission might, by making a rule, notify the corporations that such action thereafter would be prohibited. The Chaieman. Mr. Morgan, I think we thoroughly discussed that a few minutes ago. You have been interrupted so much and have entertained us so well that you will be allowed all latitude in revising your statement so as to extend it and make it connected. Will you allow me to ask you a few questions ? Mr. Morgan. I shall be glad to do so. The Chairman. As to the size of the commission, do you think that it should be a large or a small one in number ? Mr. Morgan. My biU provides for seven members, but I think that number should be reduced to five. The Chairman. What do you think about three members ? Mr. Morgan. I do not think that three members would carry weight with the pubUc. Mr. Montague. I asked Mr. Morgan those specific questions. The Chairman. I beg your pardon. Did you also ask tim con- cerning the character of the men and the salaries ? Mr. Montague. I asked htm about the salaries, but not about the character of the men. Mr. Frederick C. Stevens. Whether the salaries should be on the same basis as those paid members of the Interstate Commerce Commission. The Chairman. Unfortunately, somebody was talking to me, and I failed to observe the questions. Mr. Morgan. I should think the same salaries. I do not know what the salaries are now. Mr. Frederick C. Stevens. $10,000. The Chairman. In order to give the commission that influence and respect that it should necessarily have, it should be composed of men of the very highest character of ability ? Mr. Morgan. Yes, sir. The Chairman. And probity ? Mr. Morgan. Yes, sir. The Chairman. And, therefore, it would require good salaries to secure the character of men that we need ? Mr. Morgan. Yes, sir. The Chairman. If that be true, would not three members of that character be sufficient ? INTEKSTATE TEADE COMMISSION. 189 Mr. MoKGAN. No; I think that five members would be better. The expense of the work of this commission, of course, will not be much larger on account of the salaries of the commissioners, and I think that the two additional members would more than compensate by the work they would do in the study of these great questions with which they must familiarize themselves. The Chaikman. Would the secretary of the commission do the most of the work? Mr. Morgan. Well, if he did I would want to dismiss the com- missioners. The Chairman. He would do most of the ministerial part of it? Mr. Morgan. Yes, sir. Mr. Dan V. Stephens. I should think that the position was very essential, because the commission would have to examine an immense amount of data, and I do not see how three men could cover the desired field. The Chairman. Would the position of secretary be very important ? Mr. Morgan. Well, I think the secretary would simply carry out the clerical work and the directions of the commission. The Chairman. Would he be entitled to any greater salary than the secretary of the Interstate Commerce Commission ? Mr. Morgan. I should think not. The Chairman. Would his work justify any greater compensation ? Mr. Morgan. I think not. The Chairman. And you think, Mr. Morgan, that the salaries of the commissioners should be as large as the salaries of the members of the Interstate Commerce Commission ? Mr. Morgan. Yes, sir; I think so. Mr. Frederick C. Stevens. Mr. Morgan, you are a member of the Committee on the Judiciary ? Mr. Morgan. Yes, sir. Mr. Frederick C. Stevens. You made a statement that there was complaint that the courts were overburdened and that the laws were being loosely enforced. That is true. Is it not a fact that that is due to the unfortunate legislation which has not provided the right sort of rules for the courts and the proper sort of conduct for its business ? Is not the trouble with the le^slation instead of with the courts ? Mr. Morgan. I do not think that by any legislation that our pres- ent courts can do the business. The Congress and the State legisla- tures are multiplying laws, all of the States are developing litigation, corporations of all kinds are developing litigation, there is a vast field of litigation, and the courts are overburdened, and instead of being bureau-ridden we have become court-ridden. Mr. Frederick C. Stevens. The great mercantile nations of the world like England, Germany, and France have an immense amount of business that is all done through the courts, and they have no such complaint; England especially, whose system of jurisprudence is practically the same as ours, no complaint at all about the evils that we have just mentioned. They have a system for the conduct of business in the courts and take care of the business and they have to do business for the whole world and we are only trying to do business for ninety-odd million people. Is not the difficulty actually with the regulation of the courts thiiough sufficient legislation, and has not that been pointed out many times ? 190 INTERSTATE TEADE COMMISSION. Mr. Morgan. There has been much said about it, but I think you would have to altogether change our idea of the trial of lawsuits before you could bring about the desired situation. Mr. Fkbderick C. Stevens. Is it not time that we changed our idea of the trial of lawsuits, rather than change the whole question of our system of jurisprudence ? Mr. Sims. In England the acts of Parliament can not be held void by the courts, there is no question of constitutional power or the power of any legislative body, and there are not 48 sovereign States, and naturally litigation in England must be less under those circum- stances, even though they involve the same principles as here, with 48 sovereign States and with the limited powers of Congress to legislate. Mr. Montague. The question of jurisdiction is never raised in Eng- land ? Mr. Sims. It can not be raised there. The lawmaking power is absolutely sovereign, and no court can declare any act of Parliament void. Mr. Morgan. In France while they have the executive, legislative, and judicial departments, the legislative department assumes that whatever the judicial department does is right, the judicial depart- ment assumes that whatever the legislative department does is right, and the judicial department assumes that wfiatever the executive department does is right. The Chairman. That is a very polite country. Mr. Talcott. Do you not think that the division of the courts in England has a great effect? For instance, there is the chancery division, the admiralty division, the Crown division, and the probate division, and the result is that those divisions develop experts, both on the bench and as members of the bar, and it has a tendency to expedite business. Mr. Frederick C. Stevens. That is exactly the point which I made, that our whole system is wrong. Mr. Lafferty. Mr. Morgan, a question was asked you about your bill covering only corporations. You and I have had some confer- ences in regard to this subject, I think ? Mr. Morgan. Yes, sir. Mr. Lafferty. My biU, H. R. 4384', section 1, provides: "That it shall be unlawful for any person, company, corporation, or association engaged in commerce among the several States" — that would cover the objection suggested a moment ago ? Mr. Morgan. Yes, sir. Mr. Lafferty. It has been suggested here that monopolies do not affect the business in Europe. Have you had any information or do you have any information whether the International Ilarvester Com- paiiy is controlling the sale and output of harvesting machinery and agricultural machmery in eveiy country of Europe and South Amer- ica, just the same as in this country ? I know that to be true. Mr. Morgan. Yes, sir. Mr. Willis. Who said that monopolies do not affect the business in Europe? Mr. Lafferty. The gentleman from Minnesota, Mr. Stevens. Mr. Frederick C. Stevens. The gentleman was not hstening, or else he misunderstood me. INTBBSTATB TRADE COMMISSION. 191 Mr. IjAffekty. I beg the gentleman's pardon. The Chairman. Mr. Morgan, we are very grateful to you for your very valuable discussion. Mr. Morgan. I thank you/ Mr. Chairman, and gentlemen of the committee. (Thereupon the committee took a recess until Monday, February 9, 1914, at 10 o'clock a. m.) (Appendix A.) [H. R. 12931, Sixty-third Congress, second session.] A BILL To regulate the commerce ol certain corporations, and for other purposes. Be it enacted by the Senate and Mouse of Representatives of the United States of America in Congress assembled, That every corporation engaged in commerce among the sev- eral States, or with foreign nations, not subject to the provisions of the act approved February fourth, eighteen hundred and eighty-seven, entitled "An act to regulate commerce," and acts s'jpplementary and amendatory thereof, and whose gross an- nual receipts or the total annual gross receipts of whose subsidiary companies for the calendar year nineteen hundred and eleven were, or for any calendar year thereafter shall be, m excess of $5,000,000 shall be subject to the provisions of this act. Sec. 2. That every corporation subject to the provisions of this act, or that may hereafter become subject to the provisions of this act, is hereby declared to be a quasi public agency. Sec. 3. That the price or prices at which any corporation subject to the provisions of this Act shall sell or dispose of any article of merchandise, or any product what- soever, shall be just, fair, and reasonable, and it shall be unlawful for any such cor- poration to sell or dispose of any article of merchandise, or any product whatsoever, at a price or at prices that are unjust, unfair, or unreasonable, and every corporation subject to the provisions of this act is hereby prohibited from so doing. Sec. 4. That every practice, method, means, system, policy, device, scheme, of contrivance used by any corporation subject to the provisions of this act in conducting its business, or in the management, control, regulation, promotion, or extension thereof, shall be just, fair, and reasonable and not contrary to public policy or dan- gerous to the public welfare, and every corporation subject to the provisions of this act in the conduct of its business is hereby prohibited from engaging in any practice, or from using any means, method, or system, or from pursuing any policy, or frOin resorting to any device, scheme, or contrivance whatsoever that is unjust, unfair, or unreasonable, or that is contrary to public policy or dangerous to the public welfare, and every act or thing in this section prohibited is hereby declared to be unlawful. Sec. 5. That every corporation subject to the provisions of this act shall deal justly and fairly with competitors and the public, and it shall be unlawful for any such cor- poration to grant to any person or persons any special privilege or advantage which shall be unjust and unfair to others, or unjustly and unrfeasonably discriminatory against others, or to enter into any special contract, agreement, or arrangement with, any person or persons which shall be unjustly and unreasonably discriminatory against others, or which shall give to such person or persons an unfair and unjust advantage over others, or that shall give to the people of any locality or section of the country any unfair, unjust, or unreasonable advantage over the people of any other locality or section of the country, or that shall be contrary to public policy or dangerous to the public welfare, and any and all the acts or things in this section declared to be unlaw- ful are hereby prohibited. Sec. 6. That whenever, after full hearing upon a complaint made to the commissiijn hereinafter created, or after full hearing under an order for investigation and hearLhg made by the said commission on its own initiative, the commission shall be of opinion that any price or prices whatsoever demanded, charged, or collected by any corpora- tion subject to the provisions of this act for any article of merchandise or product, or that any practice, method, means, system, policy, device, scheme, or contrivance used by any such corporation in conducting its business, or in the management, control, regulation, promotion, or extension thereof, is unjust or unreasonable or unjustly dis- criminatory, or unduly preferential or prejudicial or contrary to public policy or dangerous to the public welfare, or otherwise in violation of any of the provisioHB of this act, the commission is hereby authorized and empowered to determine and pre- scribe what shall be a just, fair, and reasonable price to be charged for such article of merchandise or product, to be thereafter observed in such case as the maximum to be charged until further order of the commission and to determine and prescribe what 34082—14 ^13 192 INTEBSTATE TEADB COMMISSION. practice, method, means, or system, policy, device, scheme, or contrivance is just, fair, and reasonable, and not contrary to public policy or dangerous to the public welfare, to be thereafter followed, and to make an order that such corporation shall cease and desist from such violation to the extent to which the commission finds the same to exist, and such corporation shall not thereafter charge or collect or accept for such article of merchandise or product a price in excess of the maximum price so pre- scribed, and shall adopt, conform to, and observe the practice, method, means, pohcy, and system so prescribed, and cease to use any device, scheme, or contrivance pro- hibited by the order of the commission. All orders of the said commission, except orders for the payment of money, shall take effect within such reasonable time, not less than thirty days, and shall continue in force for such period of time, not exceeding two years, as shall be prescribed ia the order of the commission, unless the same shall be suspended or modified orset aside by the commission, or be suspended or set aside by a court of competent jurisdiction. Sec. 7. That a commission is hereby created and established, to be known as the Interstate Corporation Commission, which shall be composed of seven commissioners, and the said Interstate Corporation Commission is referred to hereinafter as "the commission." Sec. 8. That on the taking effect of this Act the Bureau of Corporations shall cease to exist and shall be merged into and become a part of the commission, and the person who at that time shall be the Commissioner of Corporations shall become a member of the commission and continue as such for a period of two years, and said person shall also for a period of one year be the chairman of the commission, at the expiration of which time, and annually thereafter, the commission shall elect a chairman; and the Deputy Commissioner of Corporations shall become one of said commission, and shall hold his ofllce for a period of one year. The commission shall appoint a secretary of the commission, who shall hold his oflSce at the pleasure of the commission, and all •the clerks and employees in the Bureau of Corporations shall become clerks and employees of the commission, and all the duties and powers of the Bureau of Coroorar tions are hereby transferred to, granted, and bestowed upon the commission, and any funds belonging to said Bureau of Corporations which by law are authorized to be expended by said bureau are hereby transferred to the commission, which is hereby authorized and empowered to expend the same. Sec. 9. That the commission shall consist of seven members, not more than four of whom shall be of the same political party. Except as hereinbefore provided, the members of the commission shall be appointed by the President, by and with the advice and consent of the Senate, and the first appointees shall hold their positions for periods of three, four, five, six, and seven years, respectively; and in making such appointments the President shall designate the length of terms of such appointees, and thereafter the members of said commission shall be appointed for a term of seven years. The members of the commission shall each receive a salary of $7,500 per annum, and the secretary of the commission shall receive a salary of $5,000 per annum. In case of vacancy the appointment shall be for the unexpired term of the member whose retirement from the commission caused the vacancy. Any commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. No person in the employ of or holding any official relation to any corporation subject to the provisions of this act, or owning stocks or , bonds thereof, or who is in any manner pecuniarily interested therein, shall enter upon the duties of or hold such office. Said commissioner shall not engage in any ether business, vocation, or employment. No vacancy in the commission shall impair the right of the remaining commissioners lo exercise all the powers of the commission. The commission is hereby authorized and empowered to make and establish rules and regulations not in conflict with the Constitution and laws of the United States to aid in the administration and enforcement of the provisions of this act, and may, by such rules and regulations, prohibit any particular or specific act or acts, practice, method, system, policy, device, scheme, or contrivance that is contrary to any of the . provisions of this act. That the decisions of the commission shall be final as to the facts, and in all cases of appeal from any decision of the commission the court shall have jurisdiction to pass ©nlv upon questions of law and to determiae whether or not the commissiop acted within the scope of its authority, or whether or not the decision in effect confiscates property or takes the same without due process of law. / Sec. 10. That in case any corporation subject to the provisions of this act shall do, cause to be done, or permit to be done, any act, matter, or thing in this act prohibited or declared to be unlawful, or shall omit to do any act, matter, or thing in this act re- quired to be done, such corporation shall be liable to the person or persons injured INTERSTATE TRADE COMMISSION, 193 thereby for double the amount of damages sustained in consequence of any such violation of the provisions of this act, together with a reasonable counsel or attorney's fee, to be fixed by the court in every case of recovery, which attorney's fee should be taxed and collected as a part of the costs in the case. Sec. 11. That any person or persons claiming to be damaged by any corporation subject to the provisions of this act may either make complaint to the commission, as provided in this act, or may bring suit in his or their own behalf for the recovery of the damages for which such corporation shall be liable under tae provisions of this act in the Commerce Court; but such person or persons shall not have the right to pursue both of said remedies and must in each case elect which one of the two methods of procedure herein pro^^.ded for he or they will adopt. In any such action brought for the recovery of damages the court before which the same shall be pending may compel any director, ofloicer, receiver, trustee, or agent of such corporation defendant in such suit to attend, appear, and testify in such case, and may compel the jiroduction of the books and papers of such corporation. The claim that any such testimony or evidence may tend to criminate the person giving such evi- dence shall not excuse such witness from testifying, but such evidence or testimony shall not be used against such person on the trial of any criminal proceeding. Sec. 12. That any corporation subject to the provisions of this act, or any director or officer thereof, or any receiver, trustee, lessee, agent, or person acting for or employed by such corporation, who, alone or with any other corporation, company, person, or party, shall willfully do or cause to be done, or shall willingly suffer or per- mit to be done, any act, matter, or thing in this act prohibited or declared to be unlawful, or shall aid or abet therein, or shall willfully omit or fail to do any act, matter, or thing in this act required to be done, or shall cause or willingly suffer or per- mit any act, matter, or thing So directed or required by this act to be done not to be so done, or shall aid or abet therein, shall be deemed guilty of a misdemeanor, ajid shall, upon conviction thereof in any court of the United States, be subject to a fiqe . not to exceed 15,000 for each offense, and, in the discretion of the court, may ;be imprisoned in the penitentiary for a term not exceeding two years. Sec. 13. That the commission hereby created shall have authority to inquire into the management of any corporation subject to the provisions of this act, and shall keep itself informed as to the manner arjd method in which the same is conducted and shaU have the right to obtain from such corporation full and complete information necessary to enable the commission to perform the duties and carry out the object for which it was created; and the commission is hereby authorized and required to execute and enforce the provisions of this act. And upon the request of the commission, it shall be the duty of any district attorney of the United States to whom the commission may apply, to institute in the proper court and prosecute under the direction of the Attorney General of the United States all necessary proceedings for the enforcement of the provisions of this act, and for the punishment of all violations thereof, and the costs and expenses of such prosecutions shall be paid out of the appropriation for the expenses of the courts of the United Sec. 14. That any person, firm, corporation, company, or association, or any mer- cantile, agricultural, or manufacturing society or other organization, or any body politic or municipal corporation, complaining of any act done or omitted to be done by any corporation subject to the provisions of this act, in contravention of the pro- visions of this act, may apply to the commission by petition, which shall briefly state the facts; whereupon a statement of the complaint thus made shall be forwarded by the commission to such corporation, who shall be called upon to satisfy the complaint, or to answer the same in writing, within a reasonable time, to be specified by the com- mission. If such corporation, within the time specified, shall make reparation for the injury alleged to have been done, it shall be relieved of liability to the complainant only for the particular violation of the law Mr. RicHBEEG. No ; if I may suggest to the chairman, the theory behind this is the same theory which has been adopted in the Inter- state Commerce Commission legislation of fixing the standards by legislation. The Chairman. I will withdraw that question. I am informed that in my absence it was agreed that you should proceed without interruption. Mr. EiCHBERG. I am delighted that the chairman has asked it, be- cause I wanted to make my point plain, that by prescribing the prac- tice, not the form, but the wrong to be prevented and leaving the detailed description of that wrong to an administrative body, you create an effective law, as is done in certain provisions of the inter- state commerce law. And therefore this bill provides for the ter- mination of practices of unfair or oppressive competition, including a statement of certain ones which are well defined, recognizes prac- tices at the present time, and concludes with " any other business practices involving unfair or oppressive competition." It is of course understood by this committee that the courts have constantly been developing a case law on unfair competition. This is not a mere leap into an unexplored field ; the case law has constantly been developing, but very slowly developing, a law of unfair compe- tition, as courts move slowly in meeting new business practices. It is simply intended in this bill that the trade commission shall have the power to define by regulation those acts which are prohibited by the broad terms of the bill. Passing to the third bill, to protect commerce against monopoly, I think Dean Lewis has explained it in detail ; therefore there is no use for my going into it any further. The intention is to make a clear-cut distinction which seems to me to be necessary to effective legislation between the bases of monopoly. In other words, it is the intention of this legislation to get away from the form and the method to the fundamental thing, to the power, and to attack the bases of the power. A power does not grow on the mere existence of John Brown or William Smith. It does not grow on the fact of the organization of this corporation or that corporation, and their combination. It must be based upon some economic factor or some practice. If the monopolistic power which we are endeavoring to reach by these three bills is based upon unfair competitive practices, the remedies are provided in the second bill for the termination of unfair competitive practices. If it is based on natural bases, in other words, on control of natural resources, or any other economic condi- tion inherent in the nature of the industry, then it is necessary to deal with each combination as an individual problem to find the way in which that factor enters into and gives monopolistic power to a certain organization. This can not be described in a general law, unless you take up each and every combination of monopolistic tendency in the country and endeavor to point out by statute in each case the particular factor that is unfair; yet the general principle is plain; that is, if you can eliminate the one factor which grants to 264 INTERSTATE TRADE COMMISSION. that concern the power to destroy competitive conditions you restore natural competitive conditions. I wish to leave just as much time as possible for Mr. Smith, and I am sure that your questions to him will be productive of far more information than I could give. The Chairman. We thank the witness for his testimony, his brev- ity, and his lucid and comprehensive statement. STATEMENT OF MR. HERBERT KNOX SMITH, HARTFORD, CONIT. The Chairman. Please state your residence and occupation to the stenographer. Mr. Smith. I am a lawyer. I was formerly Commissioner of Cor- porations. I will devote myself almost entirely to the administrative mecha- nism feature, simply premising this, as Dr. Lewis has already said, that the theory behind the administration should be first, I think, the establishment of the policy that we will distinguish in concentra- tion of commercial power between that concentration which consti- tutes efficiency and economy and that concentration which goes be- yond that point and produces oppressive simply. Of course we can not throw the business of the country back to the conditions of 1650, to the blacksmith's forge, the grist mill, and the cobbler's bench. We have got to have some concentration of commercial power to-day in order to do the country's business. First, therefore, we must have some way of getting the utmost good out of concentration, then seeing that we do not get evil out of it. That is one of the bases of the theory behind the machinery of a trade commission. Second, in order to prevent monopoly, or destroy monopoly, if it is already established, is to get at the factor, the real economic busi- ness factor of that monopoly, find what that is by an expert admin- istrative board, then by administrative processes abolish or modify that factor. You do not get that result by mere dissolution. You have first to get at the real economic factor on which the monopoly is based and then change that factor. That is the theory behind all the mechanism ; in my opinion, the only correct and workable theory. Now, as to the mechanism itself. My experience in the Bureau of Corporations convinces me very strongly that Ave must have an ad- ministrative system of regulation, not a system operated primarily through the courts. Take the case of the Standard Oil Co.'s disso- lution. I helped to make that case to a certain extent, in a very small way. It took us four years to get a final decree from the United States Supreme Court, and we took about 10,000 pages of testimony, and after the decree was issued we got a dissolution that did not restore competition, because it was aimed simply at the legal form of the combination and not at the economic factors of its monopoly. Of course, the real business factor behind the oil business was not dissipated, because the oil business had always been based on rail rebates or preferential railroad favors or control of pipe lines. That is the economic factor, and if you are going after the real monopoly of the Standard Oil, you must go after that factor. That is what a commission Avould do which knew the situation. The dissolution INTERSTATE TRADE COMMISSIOJST. 265 simply split the Standard into 34 companies. It did not restore competition, because the dissolution merely divided the business along formal lines, for example, a division into a pipe line, a refinery, and a tank station. Those three do not compete. As Bismarck said about v^ar between England and Germany, there could not be any, because a whale and an elephant can not fight, and a pipe line and a refinery do not compete, and when you separate an oil com- bine into such factors you do not get competition. We got also some other curious results out of that dissolution, as anybody knows who followed the history of it. Further, the administrative form has this advantage of giving directly to the court the expert knowledge of the real factors in the situation. Also, it carries the possibilities of cooperation. We found it so in the Bureau of Corporations.. We would be about to make a report on a corporation and we would summon the managers in and say, " Here are our criticisms on your way of doing business. What have you to say in reply to them? " Sometimes tney would convince us we were wrong. We had, perhaps, not understood the situation. It was a real advantage to talk right across the table to them and learn the facts. We were not omniscient. We got cooperation, and the results were often surprisingly good. Take the case of the N'ew Orleans Cotton Exchange, which we had criti- cized in a report. I went down with one of our experts and we spent three days in consultation, at their request, with a special committee which they appointed, and the result was that within two months later they passed, by a vote of 250 to 1, I think, every change in the regulations we suggested. It was purely coopera- tion; there was not a bit of coercion at all, and we got the result inside of two months; whereas, even had we any legal power, we would have had a fight to the Supreme Court and would never have got anywhere had we not had the voluntary cooperation be- hind it. Then you get publicity out of the administrative form that you can not get out of the courts. I will give an example of that. I am obliged to talk in rather an egotistical way, but I want to say that the results were not due to me, but were due to the men under me. In 1906 we issued a report setting forth a great system of rail- road rebates enjoyed by the Standard Oil Co. That was in June, 1906. Inside of six mOnths every railroad concerned in the rates we criticized — and those rates covered practically every section of the country except Xew England — had canceled every rate, not only the ones we said were illegal, but almost every one we said was un- fair. They wiped them out inside of six months. The railroads themselves did it. Contrast this with the prosecutions we started at the same time, the indictments under the Elkins Act for railway rebates. I think we got about a dozen indictments. That was in 1906. It is now 1914, eight years later, and not more than half, I think, have been even tried yet. We got licked in at least one out of two; and if we depended on prosecution rather than upon pub- licity that railway-rebate system would be in substantial effect to- day; but the publicity being specific, going directly to the time, place, person, and amount, laying the open statement of the facts before the public, the railroads just threw it all overboard. In fact, 266 INTERSTATE TEADB COMMISSION. all our power in such work as we did was done through publicity. We had no other power at all. The Chairman. I would suggest to you that you need not hurry so much. I think it is important that this committee should hear from you at length, and I am going to suggest to the committee that after we go to the House, that we ask you to come back here at 2 o'clock and make your remarks as full as you choose. Mr. Smith. I have been going at rather a headlong speed. I do not want to bore you gentlemen. I will be very brief in my own remarks, and then submit myself to questions. The Chaikman. The membets of the committee will probably want to question you. Mr. Smith. I think they will. The Chaikman. You may talk for five minutes, and then, if the committee does not object, we will adjourn until 2 o'clock. Mr. Sims. The analysis of these bills, as you have been givmg it, it seems to me will help us all, and I hope you will be permitted to finish it, at least briefly. Mr. Smith. I will be very glad to do that. You have m the ad- ministrative form, as opposed to the court procedure, it seems to me, this very important distinction. You get a body of experts. Now, you, of course, have heard the phrase " liars, damned liars, and ex- perts," but that is an exceedingly foolish piece of cheap, smart ta'lk. We all of us employ experts. I do in my business. I am interested in a mechanical concern, and I call in the mining engineer and the chemical engineer. We all call in the doctor, the lawyer, the ac- countant ; we all have to deal with experts. If you get a commission, either under the Clayton bill or under the Murdock bill, you get a body of men who are permanent and quite analogous to the Interstate Commerce Commission, with a permanent force under them who are constantly studying on one particular line — that is, the operations of large industries. They will get a series of records and a series of experiences that will be cumulative ; that will aUow them to say, " Here is the tendency in a given trade; here are the broad facts about it; here is the real factor of competition, or the real factor of monopoly. You have got in the records knowledge that no court could possibly equal. The court's main business, of course, is merely to determine issues be- tween two private parties. The courts are not business experts ; they can not handle statistics. The bureau's statistical force was com- posed of 40 or 50 men handling vast amounts of figures. For in- stance, in maldng our report on the United States Steel Corpora- tion, it took us, I think, a year arid a half or two years, with the work of 20 men simply to get the cost of making the cruder forms of steel. Those figures, the original figures, I think, would have filled a space as large as behind that desk [indicating] and 10 feet high, possibly; an enormous mass of figures, yet we had to have them if we were going to get any conclusions as to the cost of mak- ing steel in this country. I might add just one word on the question of uniform accounting in industrial business. We did succeed there in establishing uni- form accounting in one line. We wanted to get at the cost of the larger and more crude products of steel, and we got 95 per cent of INTEHSTATB TBADE COMMISSION. 267 the producers of steel in this country to give us those cost figures in substantially uniform shape. So you see you can impose' uni- form accounting, even the way we had it with our small force. You can get a good start at it. We did get uniform accounting from corporations producing 95 per cent of the steel. The Chairman. If you can stop right there, we will take a recess until 2 o'clock. AFTER RECESS. The committee reassembled at the conclusion of the recess, the chairman (Mr. Adamson) presiding. STATEMENT OF HERBERT KNOX SMITH— Resumed. Mr. Smith. Mr. Chairman, I was speaking of the Bureau of Cor- porations. In order to give my background, and I understand I have a little more time now, I will say that I was for nine years either assistant head or head of that bureau, so I had quite an experience along this line that you gentlemen are considering. Both of the bills, the Clayton bill and the Murdock bill, propose to take over the Bureau of Corporations and make it the nucleus of this commission. That seems to be an eminently wise thing to do. Possibly I may be pardoned if I go into the organization of the Bureau of Corporations. It has, as its head, a commissioner and deputy commissioner. It had, at least, at the time I was connected with it, a force of about 125 men. Its sole duty is to investigate corporations engaged in interstate commerce, and to report the result to the President and to Congress, simply for publicity. It was or- ganized in this way: Under the two heads there was a division on steel and a division on oil, for instance, and a division on lumber and one on tobacco, according to the various industries. At the head of each of those divisions we had a man of high economic training, and under him would be some accountants, lawyers, possibly field men, and a certain number of general agents. It would be his busi- ness to go to a given corporation and secure access to all of its records. And I will say that in only one case was the bureau ever refused ac- cess to the complete records of a corporation. We never had to use a compulsory process, though we had the power to do so. In the case of the United States Steel Corporation, our accountants spent possibly six or eight months in the offices of the corporation gathering infor- mation, and also in the offices of other large steel corporations. All the data were then brought together in Washington, and these statis- tics, enormous in amount, secured from the corporations, and from all other sources, were digested into the shape of a report that was published. The same general method was also applied to various other investigations — oil, tobacco, lumber, etc. You will see thereby that we were training all the time a perma- nent expert force of men who understood corporate accounts and corporate transactions and who became, in a way, industrial experts. The force was quite permanent, except for the fact, that under the small salaries that we could pay we, of course, lost many men to the large corporations. They frequently took them away from us 268 INTEBSTATE TRADE COMMISSION. at higher salaries because they heeded them for their own work. I want to say that some of the men stayed in the office, notwithstanding the increased inducements offered them outside. The force was fairly Ijermanent. It will make a good force for a commission such as you propose in either of the two bills, an absolutely necessary nucleus of trained men, men who are familiar with the modus operandi of great corporations, men who, with these statistics, have acctunu- lated also a wealth of knowledge, and a knowledge as to how to get at things, to say nothing of the records that they have on hand. I think it is extremely important, if this commission is formed, it should, as to both of these propositions, take over the Bureau of Cor- porations and the personnel right straight through and these records, because you have an invaluable nucleus there, a force that it took Mr. Garfield and myself at least four or five years to make it what it was when I resigned. Now, to refer to the question of administration and then I am going on to this matter of machanism — the administration by an administrative body rather than by the courts. I want to go a little further into that Standard Oil case. There we tried dissolu- tion under the Sherman law of the Standard Oil Co. After four years we got the decree from the Supreme Court. Then that cor- poration was dissolved under that decreee into 34 corporations, as I recollect the number; that is, before we started the suit there was simply the great holding company, the Standard Oil Co. of New Jersey, which held the capital stock of the subsidiaries. The cor- poration was by that decree dissolved into those subsidiaries, 34.in number. The stock of the new subsidiaries was then issued to the holders of the old Standard Oil stock in place of the old stock of the Standard Oil Co. For instance, if you held one share of stock in the Standard Oil Co., the old company you would now get a fractional share of stock in each of the 34 companies — the Acme Oil Co.; the Vacuum Oil Co.; the National Transit Co., which was a pipe line; the Standard Oil Co. of Indiana, of Tennessee, of Kentucky, of New Jersey,. of New York, and of California — ^lots of companies that no one outside of the trade had ever heard of, and that a great many in the trade never heard of. Take the position of the stockholder who had held one share in the old standard. It is worth noticing. I do not exaggerate these figures. I can not state them exactly, but I will give the essence of them. Instead of having his one original share of the stock of the Standard Oil Co. he now got a new certificate that he held iii, say for instance, the Acme Oil Co., 3|||^| of one share of the stock of the Acme Oil Co. Well you can imagine his emotions; six figures in the enumerator and denominator. He at once said to himself, " This is beyond me; I will sell it." So he went to his broker and his broker said he would sell it for him. But the broker also said, " I do not know what the Acme Oil Co. is worth, and you do not know, and there is only one little crowd of men in this country that does know." " Nevertheless, sell it," says the owner. So the broker sold. Now, these stocks fluctuated wildly on the market for the few months after the dissolution — I am not sure as to those figures, but my im- pression is that one of those companies fluctuated a thousand points on a par value of $100. No one, except a very few, knew the real INTERSTATE TRADE COMMISSION, 269 values. But there was just one crowd of men who knew exactly what those companies were worth — of course, the inside men of the Standard Oil Co., such men as the Flaglers, the Rockefellers, and the rest of that little group that has always controlled the Standard. And naturally they cashed in that knowledge just at that point, just as anybody else would. They knew what the Acme Oil Co. was worth, for instances, what it paid and what its assets were, and its earning power. They knew exactly, because they were the directors of this corporation and of all the others. So they bought up the wheat and sold the chaff and the result of that dissolution, under the Supreme Court decree, really was that in about six months the control of the real essence of the Standard Oil Co. was more closely concentrated in the same group of men than it was before the decree was issued. That was one curious result of the dissolution, through a court, which could not take any cognizance of the real economic business questions involved. The court simply dissolved it along the lines of its legal form, with no reference to its business relationships. The Chairman. A community of interests is just as bad as a common directorate? Mr. Smith. Certainly. The proportion of stock controlled was not changed substantially except that the original control was in- creased by this purchase of new stock thrown on the market which the general public knew nothing about. I had from scores the query, " What is this or that company worth ? " I did not know, and could_ not state, and they simply gave up and threw the stocks on the market. It shows the result of getting at the thing through the courts in this absurdly artificial and crude way of breaking it up along the mere legal form instead of going at the essence of the problem. Now, had that been handled through an administrative board, I think that board would have said, " The monopoly feature of the oil business has always been transportation." If you want to strike at the monopoly feature, require that the Standard Oil Co. pipe lines actually act as common carriers, and you would have gotten some results then. You certainly would if that board had been on the job long enough — the Bureau of Corporations, for instance. They would have known the facts in the situation, and they would Have gone right to the point. Take the International Harvester Co. We had an interesting ex- perience there. Before the suit was brought for the dissolution of that company the Attorney General called on myself and some of my assistants. We had been investigating that company for about two years. The Attorney Greneral said that he had on hand negotiations with the company itself for a voluntary dissolution, and wanted to be advised as to the form that dissolution should take in order to produce competition. We told him at once that to bring about com- petition and real disintegration of the combination from the economic standpoint could not be done by dissolving it into its legal units. What he would have to do would be this : We laid down a plan of three companies, each one having what we called a " full line " of manu- facture, harvesting implements of all sorts, because, in order to stay in the trade, the harvester company has a very expensive distributing and selling system. It has to have all kinds of farm implements, 270 INTERSTATE TRADE COMMISSION. otherwise the other company that has all kinds will beat it every time. In order to make this company split up into different concerns that were really competing he would have to see that the parts of the old company are so segregated as to give to each of these three new . companies a " full line" of business. We had arrived at that conclusion only after two years' study of the business, and only with such expert study could a,nyone take that corporation and break it up so as to bring about competition; whereas if we had gone about it without any knowledge we would have repeated the Standard Oil fiasco. As a matter of fact, the dissolution did not go through, because when that was put up to the very able attorneys of the International Harvester Co. and they saw that that plan meant business, real competition, real economic divi- sion, they said : "Oh, no ; we do not accept anything of that sort." The Chairman. How would you have arranged the proper allot- ment of stock in each of those separate parts to have a dissolution without the consent of the other parties ? Mr. Smith. That is what we hoped to get, the consent. I did not see a way constitutionally to separate the stock interests without consent. Our whole operation was on the theory of the consent plan- The Chairman. The difficulty you cited about that Standard Oil dissolution could have been met by consent, if the different stock- holders had agreed to take in the original companies. Mr. Smith. Precisely, and in the dissolution of the American Tobacco Co. — and you will remember that the decree was issued after the Bureau of Corporations had issued a very elaborate report on it — they did bring about, in a certain degree, some such separation of stock interests, because they had our report right there before them, and they saw where the real factors lay. But xinless you actually separate stock holdings you do not get the separation of community interest. All of that goes to show the advantage of an administrative board that can handle the matter as an administra- tive operation and not through the courts. Of course, the courts can not undertake any such statistical operation. Mr. F. C. Stevens. But they could do it. Mr. Smith. They could do it, of course. Mr. F. C. Stevens. I mean it has the power to do it. Mr. Smith. It might be referred to a master of chancery. But just see what it would have to do. It would have to have a large correspondence and a force of 15 or 20 men working. Mr. F. C. Stevens. It is not practicable. Mr. Smith. No ; it is not ; and no court would go into it. Mr. Decker. "What suggestions would you make as to the advan- tage such a board as this would have been in the Tobacco case ? Mr. Smith. I will illustrate that very clearly, I think. In the Tcybacco case, after the decree of the Supreme Court had been handed down, it was then up to the district court in New York to split up the corporation practically and issue a decree, the real decree. Then Mr. Wickersham, the Attorney General, called over two or three men under me, who had been handling our report on the Tobacco case, and those men spent, I think, two or three weeks in New York, pointing out to Mr. Wickersham and his assistants the real business situation in the tobacco industry, and in that way they were able to frame a decree that did tend, to a certain extent, to increase competition. IHTEESTATE TBADE COMMISSION. ' 271 In other words, if you can have in any such decree the assistance of an expert board that knows the situation you may get a decree that will really amount to something. Does that answer the question you had in mind, or were you asking as to the monopolistic features? Mr. Decker. Yes. What further could have been done by a trade commission than was done by you? That is what I want to know. What improvements would you suggest ? Mr. Smith. I think if a trade commission Mr. Decker. You may take your time on that and give us an illus- tration which will convey to us a better idea of it. Mr. Smith. Every great business has its keystone of monopoly, if it has a monopoly. The keystone of the tobacco arch is the tobacco brand, the name of the tobacco. It is a peculiar business. You will buy your smoking, tobacco, if you smoke tobacco, of one brand, and you won't have anything else, practically. The man who chews buys the same brand. It does not apply so much with cigars. If I remember correctly, Mr. Duke, the head of the American Tobacco Co., told me on one occasion that the name, " Bull Durham," I believe, was worth, he thought, anywhere from $10,000,000 to $15,- 000,000— possibly $20,000,000— that is, just the name. You can sell that tobacco at a higher price to a man who has used Bull Durham. So monopoly in that case hangs upon the name. Suppose you wanted to split up the American Tobacco Co. into three companies that would actually compete. In the first place, you would consider the market and the brands and give each company a nearly fairly equal division of the various brands, according to the strength of those brands. Take the brands of the American Tobacco Co. The American To- bacco Co. can go to a retail seller of tobacco and say to him : " If you do not take all our brands, and nobody else's, we will not give you any 'Bull Durham.'" He has to have "Bull Durham," prac- tically, if he is to stay in business. You see the situation. If you divide that company up into one concern that has all the powerful brands, although representing only one-third of the business, and another with none of the powerful brands, the first company would eat the other two up. If you are going to establish competition, you have got to break up the brands so that each of the competing con- cerns, new ones, will have an equal amount of those powerful brands distributed over various parts of the country. For one kind of tobacco will be powerful in one section, and another brand in another section, and you must take account of this market peculiarity also. Following these vital trade factors one could outline a division of that company on such lines as to give three strong competing com- panies. But one could do it only with expert knowledge of the trade. Mr. EsoH. The power of the brand in the case of tobacco would depend on the excellence of the product and the amount of advertis- ing to back it. Would not that give it an ultimate and honest power? Mr. Smith. The power is honest enough. May I, however, make one qualification? Curiously enough, I think it depends very little upon excellence. It depends more upon advertising. Mr. Duke said to me on one occasion : " If I could dictate to the American people what they shall smoke and chew for three months, I will guarantee after that that they will smoke and chew whatever I want them to." He said : " We made a brand at one time of chewing plug, and it got * 34082—14 18 272 INTERSTATE TEADE COMMISSION. wet and molded, and we have had to make it that way ever since. People insist on that defective tobacco." I am a smoker, but I am inclined to think that there is, broadly speaking, no such thing as " good " tobacco — I mean by that, tobacco that is good apart from the question of taste. Of course, there are certain qualities of " burn," etc., which you have got to have good in cigars. But, apart from that, it is merely a personal education that is really back of the brand. The Chairman. The man who is fool enough to like tobacco at all is liable to take up with any particular brand. Mr. Smith. Yes, sir. The Chairman. I used to be the biggest fool about Bull Durham in the world. I have smoked a hundred tons of it, more or less. Mr. Smith. And you would not have taken anything else at the time. . The Chairman. No, sir ; I smoked it all the time for 20 years. Mr. Martin. You spoke of the Standard Oil Co.; that its chief source of power, of monopoly, was control of transportation. Mr. Smith. Yes, sir. Mr. Martin. How could a Federal commission change the trans- portation ? How could it make a pipe line a common carrier, or how could it change the rates on the railroad ? Mr. SsiiTH. Well, the railroad question is now out of it, more or less, because most of the oil, the crude oil, which is the important thing, is transported by pipe line. The cost of transportation by pipe line is about one-seventh of what it is by rail. Under the inter- state-commerce law now it is required that a pipe line shall become a common carrier, but, as a matter of fact, the Interstate Commerce Commission has had so much to do that it has not been able to enforce that law. Mr. Talcott. The case is now pending before the Supreme Court. It was argued and is now pending decision. Mr. Sims. There are a number of pipe-line companies claiming they were not common carriers and holding themselves out to do busi- ness as such. Mr. Covington. Mr. Smith, are you now going to another branch of the subject? Mr. Smith. Yes, sir. Mr. Covington. Before you leave that I want to ask you a question or two. The Standard Oil investigation, that you spoke of as having been made by the Bureau of Corporations, was made at whose in- stance — I do not mean individual instance? Mr. Smith. That started when I was deputy commissioner and Mr. Garfield was commissioner. I think it was Mr. Garfield's own initiative, but right at that time there came one or two resolutions of Congress asking for it, and I am not sure whose instance it was. Mr. Covington. It was not the result of any judicial proceeding pending at that time to dissolve the corporation? Mr. Smith. No, sir; it was long before. Mr. Covington. And it was merely an investigation conducted under the supposed power of the Bureau of Corporations to make investigations of a most exhaustive character ? Mr. Smith. That was it. Mr. Covington. As a matter of fact, the Standard Oil Co., did not combat that investigation at all because of the investigation going into any unwarranted facts, did it? INTERSTATE TRADE COMMISSION. 273 Mr Smith. The Standard Oil Co. was the one concern that really retused to furnish us information, although we had compulsory power to get it. We began that work about the first year of the bureau s existence, and we came to the conclusion, as a matter of ex- pediency, that we had best not try the matter out in court. We knew they would take us to the Supreme Court as to our power to investi- gate. So we simply went ahead and got our information without their help. Mr. Covington. Now, as to the American tobacco investigation that was made, when was that started, if you recall ? Mr. Smith. As I remember, that was started in about 1905. Mr. Covington. Was that prior to the original institution of the proceedings by the Department of Justice for dissolving the Ameri- ■ can Tobacco Co.? Mr. Smith. Yes, sir. Mr. Covington. That investigation was pursued to the extent that subsequently when the Supreme Court decided the case against the company, and remanded it to the United States District Court in New York to formulate a decree of dissolution, that court actually used the facts thut you had elicited as the basis of its decree, did it not? Mr. Smith. Strictly speaking, the court did not. The Attorney General did. Mr. Covington. Well, the Attorney General who, in conjunction with the court, was formulating a constructive economic decree of dis- solution, used those facts. Mr. Smith. Used the facts or some of them. It came up in rather a hurry, and for one reason or another he did not use all of them. At least I had different views from what he had on the subject. Mr. Covington. That brings us to the matter that I wanted to ask you about. Those two investigations admittedly were conducted in pursuance not of any authority conferred upon the commission as an ancillary commission to the Department of Justice, but they were started as independent investigations by virtue of the powers con- ferred under the act of Congress upon the Bureau of Corporations? Mr. Smith. They were. Mr. Covington. Have you given any views as to the extent to which those powers could constitutionally be exercised ? Mr. Smith. Of investigation ? Mr. Covington. Of investigation, as in accord with the constitu- tional guaranty in the fourth amendment to the Constitution that there shall not be any unwarranted seizures, searches, and taking possession of papers of persons ? Mr. Smith. You see the investigatory power of the bureau was, in the act creating the bureau, expressly based on the Interstate Commerce Commission's powers. In fact, the act says that for the purpose of this investigation — it does not say that in that exact language, but in essence — the bureau shall have the same powers as those granted to the Interstate Commerce Commission of investi- gation. So that the cases supporting the Interstate Commerce Com- mission's powers are equally applicable to the bureau's powers. There were three cases ; I can not remember the names of them, but one was the case of the United States v. Brimson. In that case the 274 INTEBSTATE TRADE COMMISSION. question of the right to investigate the affairs of a private person were brought to issue, and the Supreme .Court upheld the power of Congress to grant such a right, saying that if Congress had power over interstate commerce it certainly had authority to get the in- formation necessary on that subject from any source whatsoever. Mr Covington. But at the time the Brimson case came up, was it not actually a fact that there was then a judicial proceeding "DBndiiifif ? Mr. Smith. Yes, sir; there was a judicial proceeding— no ; I beg your pardon. My recollection is entirely at sea. I am not sure whether there was or not. ..-,.■. Mr. Covington. My recollection is that there was at the time of the Brimson case. Mr. Smith. There may have been. But there was the case of Interstate Commerce Commission v. Baird that came later. I do not think any judicial proceeding was then pending. That was an examination of coal rates by the Interstate Commerce Commission. Mr. Covington. That was after the passage of the Hepburn Act. Mr. Smith. Yes, sir. The Chairman. That was a bill relating to the transportation by common carriers, not by private persons. Mr. Covington. You do not concede that there is any distinction between common carriers and other persons so far as the commerce clause of the Constitution is concerned. The Chairman. There is no distinction as to power, but there is a distinction as to the character of business carried on. Mr. Smith. In the Bremson case my impression is they investi- gated the private affairs of an individual as related to interstate commerce. The Chairman. As related to transportation. Mr. Smith. To transportation ; but I do not think there is any dis- tinction. The Chairman. You will find, when they thrashed it out, that the Supreme Court held that there is a difference between the business of common carriers and other business in interstate commerce. The power of the Government is plenary in both cases, but the character of business and the parties concerned are entirely different, and when ' you go to administer a law you administer it according to circum- stances. Mr. Smith. I would not agree with you on that point. Mr. Talcott. There is a distinction, Mr. Smith ; do you not think there is ? Mr. Smith. No; it does not seem to me that there is any distinc- tion. Congress has the right to legislate for interstate commerce. The Supreme Court said in the Bremson case that it has a right to get necessary information. If that is so, it does not seem to me it makes any difference whether that interstate commerce is interstate commerce over railroads or commercial dealings over a State line, or what it is. Mr. Talcott. The dealing makes it interstate commerce. Mr. Smith. That is true, and dealing in the sale of tobacco over the State line is dealing in interstate commerce also. The Chairman. But in dealing with railroads it is dealing with public officials. INTERSTATE TRADE COMMISSION. 276 Mr. Smith. I do not think that affects the power of Congress. _ The Chairman. You will have to start over again in your educa- tion. There is a fundamental difference. Mr. Smith. I do not think so. Mr. Covington. I will say that some of us are inclined to agree with you, Mr. Smith, that there is no distinction in principle as be- tween one class of business and another. Mr. Sims. Interstate commerce does not become such means of the instrumentality used. Mr. Smith. No. Mr. Baekley. There is no distinction, is there, in the power to regulate? Mr. Smith. No ; not as far as I know. The Chairman. They regulate each according to its character. Mr. Smith. The regulation might be different, but the power is the same. Mr. Sims. A common carrier may be a private individual. Mr. Smith. Certainly. Mr. Covington. Do you think there are likely to be any investiga- tions that would really be violative of the constitutional provision regarding searches and seizures, normal investigations made into the affairs of a corporation for the purpose of bringing the fullest facts concerning it to the knowledge of the public ? Mr. Smith. I have never felt, in carrying out work of that sort in the bureau, that we would run up against that particular trouble, because it seemed to me the essence of that fourth amendment referred to private seizure, particularly an arbitrary seizure of papers. Mr. Covington. At the time it was placed in the Constitution there was no doubt about what was really meant. Mr. Smith. Yes ; it would not prevent getting information by due process of law. Mr. Covington. The reason I called your attention to it is that Mr. Wickersham, the former Attorney General of the United States, a few days ago, in the newspapers, was quoted as saying that legis- lation of this sort might be violative of the fourth amendment to the Constitution. Mr. Smith. I do not quite see how he can sustain that position. The Chairman. Mr. Wickersham may possibly be right upon that question. Mr. Covington. Taking the second branch of the investigation that is prescribed in this tentative bill, that branch of it that relates entirely to the reference after the institution of a judicial proceed- ing to the proposed trade commission. You do not concede that there is any limit to the power the commission would have to make an investigation into all of the operations of the corporation — all the facts that might be elicited from the corporation— for the purpose of aiding the court in formulating a proper decree of dissolution, do you ? Mr; Smith. Certainly not. I do not see any at all. Mr. Covington. That is all I wanted to ask you on that branch of the subject. Mr. Smith. There is this further very important human fact about the advantage of an administrative system as against regulation 276 INTERSTATE TRADE COMMISSION. through the courts, and you gentlemen all know it. You can do a great deal more with molasses than with vinegar. If your commis- sion goes to the corporation manager and says, " We have this criti- cism of your concern," he says, " Very well ; I will send our man down and talk it over," and one may convince the other, as in the case of the New York Cotton Exchange, as was cited this morning. The commission may be convinced that the corporate manager is wrong. My experience is that the average business man usually wants to do right. If you approach him properly you will get results, whereas if you take that man and serve an injunction against him you Jiave him in opposition irrevocably. He has got to fight. That is a very important distinction in practical administration. The Chaieman. You have spoken of the New York Cotton Ex- change as an illustration of reformation. Mr. Smith. No ; I said the New Orleans Cotton Exchange. The Chaieman. You do not claim that the New York exchange has been entirely saved yet? Mr. Smith. I do not, most emphatically. The Chairman. I wanted to get that straight. Mr. Montague. If I do not interrupt you on that particular line, I want to say that I appreciate what you say, that the administra- tive officials are men of great character, but there is one element that I would like to ask you about. Is there not something to be said in the way of criticism of that particular method of investigation in that it is secret instead of public? Is it wise to have the Govern- ment working through secret processes? Mr. Smith. It ought not to be any more secret than could be helped. Mr. Montague. Can you help that? Mr. Smith. No ; you probably can not avoid a certain degree of secrecy if you want to get the best results. Mr. Montague. Is it or not your idea that the best results to be obtained are by secret processes? Mr. Smith. Secret processes are sometimes necessary. But take this distinction : May I illustrate my opinion by calling attention to the New York, New Haven & Hartford Railroad, which is in more or less trouble, and against which there is a suit proposed under the Sherman law? Mr. Elliott, the president of the road, came down here about a month ago and had a conference with the Attorney General to see if he could not reach a compromise, and he has reached the compromise that the road is to divest itself of its water lines — ^most of them — and the Boston & Maine road, which is the northern connection, and its trolley lines. I do not criticize the men who made that compromise; it is the system I object to. Here is the situation: That compromise, which settled transportation for the 7,000,000 people in New England, was made in secret conference between Mr. Elliott and Mr. McReynolds— — Mr. Montague. In view of the administrative features will you just state if you approve them to a more or less degree? Mr. Smith. To a very much less degree. The Chairman. That proposition was more or less tentative. It was followed by another. Mr. Smith. Yes; but afterwards the situation was settled, and they demanded a hearing. INTERSTATE TRADE COMMISSION. 277 Mr. Decker. But that is not final. Mr. Smith. Why is it not? Mr. Decker. If the settlement is illegal, if it is not according to law, the difference between that and what you propose is that the finding of the commission here is to be final — at least under the Murdock bill — ^if that is not final, if that compromise that you speak of between the Attorney General and Mr. Elliott is not according to law Mr. Smith. But it is according to law. Mr. Decker. If it is according to law, then there is no objection to the way it was obtained. Mr. Smith. That is the objection that the Congressman here raised. The Chairman. What is the use to blow the horn and beat the drum if there is no diflSculty. Mr. Smith. I am not beating the drum or blowing the horn. I was asked whether it was objectionable to have this commission handle this question in its office. Mr. Decker. Is there not another more important difference be- tween that settlement, as you call it, or agreement, and the one con- templated in these bills introduced by Mr. Murdock ; in other words, the Attorney General has no discretion in that matter except to enforce the law. If he was able to convince Mr. Elliott what was a compliance with the law without a lengthy litigation, that is one thing, but what is proposed here is to turn it over to the commission and let them decide what the law is and make the law to regulate it, and not only to decide what the law is but they are judicial, legisla- tive, and executive, all in one. You do not mean to say that that kind of an agreement reached by the Department of Justice and Mr. Elliott is analogous to an agreement or settlement reached by a com- mission like this? Mr. Smith. You have quite a question there. As to secrecy, that necessarily comes now in any compromise settlement of any sort — a settlement under the law. With regard to that compromise, you ask me whether it was made according to law. Yes ; I suppose it was ; because I suppose the Attorney General has the right to say: "I won't prosecute." But if you are going to enforce the Sherman law to its limit, that dissolution of the New York, New Haven & Hart- ford Railroad Co. is not complete. You have to go a long way beyond that. Mr. Decker. When the next Attorney General comes in there is nothing to stop him from going the limit, is there ? Or, if this At- torney General has failed to do his duty, there is nothing to stop impeachment proceedings, is there ? Mr. Smith. No, sir. Mr. Decker. What would be the method if we passed this law here as advocated by these gentlemen ? The point I am getting at, and it is for information, I have not made up my mind— is this: Suppose this commission made a mistake in settling the question that would affect the interests, as you say, of 7,000,000 people, what chance would there be to remedy that wrong? Mr. Smith. Just as much chance as there is now, and a good deal more. • . . Mr. Decker. This commission's showing is final ? 278 INTERSTATE TBADE COMMISSION. Mr. Smith. Yes; but before they make their showing they have got to have a hearing. New England was not represented in that settlement. Mr. Deokeh. Yes ; they were represented by the Attorney General. Mr. Talcott. Under this bill that you are discussing, after the finding of the commission is made and the report of the finding is made to the court, the commission may alter its finding the next day if they chose, on further hearing. Mr. Laffertt. Referring to the suggestion of the chairman in regard to the turning over all the power of Congress to the interstate trade commission, do you not think that would be very much more ridiculous than failing to exercise those powers at all, as we do ? Mr. Smith. You are getting into a question of statesmanship that is too deep for me. Mr. Covington. You were about to start to develop another line, and I have been wondering if you would not prefer to go along on that. Mr. Smith. I am entirely at your service. Mr. Sims. Before we get away from it, in connection with the New York, New Haven & Hartford proposed compromise, let me ask if the Attorney General, through a compromise, got all he could by a successful suit ; that is, as far as he is required to act, or could act, if he brought suit ? Mr. Smith. Yes, sir ; it seems to me so. Mr. Sims. But an administrative board or commission might sug- gest practical things which if the railroad company — ^the New York, New Haven & Hartford — would agree to would be of vast benefit, that a suit carried to its ultimate end would not accomplish for lack of power. Mr. Smith. Precisely, and the compromise, instead of being made between two gentlemen, both of absolutely high motives, and all that, which was made privately, would be made in this case before an expert board after hearing the parties interested. So I think it would be a fairer proceeding. Mr. F. C. Stevens. And that would have to be reported ? Mr. Smith. Yes, sir. Mr. Sims. An administrative board like this, having expert knowl- edge, would do more general good than successfully prosecuting a lawsuit ? Mr. Smith. Yes, sir. Most of us are not lawyers, but we do know economics. Mr. Montague. I did not mean to say that they would not be bene- ficial. I mention it for this reason : Should we not use caution when we undertake to confer powers upon any administrative agency of the Government which appear here to be working in secret ? Mr. Smith. That should be cautiously handled. Mr. Montagtie. Is not that one of the criticisms ? Mr. Smith. Yes, sir ; that is true. I think the matter ought to be dealt with with some caution. Mr. Laffeety. These bills provide expressly that no part of the Sherman antitrust laAv or amendments thereto shall be repealed. Mr. Smith. No ; you have that still. INTEESTATE TRADE COMMISSION. 279 Mr. Laffertt. The trade commissian could not give any right to a corporation to do anything that is prohibited by the Sherman anti- trust law. Mr. Smith. Not at all. Now, Mr. Chairman, I am through with what I wish to say. I do, however, want to revert, with the permis- sion of the committee, to the theory at the bottom of this matter just for a moment, because it seems to me to be important. We are rather apt, I think, to regard only two points, either that you have individual competition or that you have a monopoly. Now, assume for a moment that a certain area of space represents the entire area of business in the country. One small part of that area of business is covered by the individual competing with other individuals — ^the carpenter and the gristmill. One other small part is covered by monopoly. But the vast majority of that area, I should say, roughly speaking, is occupied, not by monopoly or by individuals competing, but by corporate business of one kind or another, of higher or lower degree of concentration, but not monopoly. It is a small corporation or a larger corporation, or a combination of corporations, but it is not monopoly until you put it near the end of the area. It is this big area of business, between the individual and monopoly [indicat- ing on paper], that you really have got to take care of, and I think anybody on a moment's thought will recognize that we can not carry on business in this country under the old individual system of compe- tition — ^the blacksmith's forge and the cobbler's bench. That is all out of the question. It throws us back to 1650. We have got to allow a certain degree of concentration. We have got to allow some concentration of power, because it is the only way we can carry on business. Mr. Montague. You would not destroy competition altogether? Mr. Smith. No, sir ; not by any means. My idea is to use competi- tion as an automatic regulator as far as possible. The second Mur- dock bill provides that the commission's duty shall be to keep the highways of commerce open ; not to compel competition, but to elimi- nate all unfair competition and give every man a fair chance to com- pete. I do not object to voluntary competition, but I would not at- tempt to make a man compete against his will. That is the differ- ence. I have seen it tried, and it will not work. We tried it with the Standard Oil. You can not make a man compete against his will. Mr. Decker. When they do reach the point where you can not make them compete, then what would you do with them, let them fix prices ? Mr. Smith. No; if they have a monopoly, that monopoly is one of two things, either unfair competition or control of natural re- sources. Mr. Decker. Then what would you do? Mr. Smith. As was illustrated this morning- Mr. Decker. Take away the natural resources? Mr. Smith. Either take away the natural resources or see to it that it would not longer be a factor of monopoly. Mr. Decker. You have used that merely to illustrate. Mr. Smith. I have. I would take the pipe lines and make them common carriers. Mr. Decker. Is not that the law now? 280 INTERSTATE TBAPE COMMISSION. Mr. Smith. It is the law now, but it is not practiced. Mr. C!oviNGTON. It has not been enforced to any considerable extent. Mr. Smith. It could not be. Mr. Laffektt. Suppose we do have the pipe lines as common car- riers after this decision, if it should be favorable, and still any cor- poration would own enough of the oil wells to practically control the prices, how would you bring about competition or bring the price down to a competitive price? ' Mr. Smith. As a matter of fact, the monopoly is not based on con- centrated control of oil wells. The private individual owns the oil well, as a rule. It is not necessary for the pipe line company to own the well, because it owns the only way in which they can get the oil away from the well. Mr. Laffeett. They do not own enough oil areas to give them a monopoly. Mr. Smith. Not when I had charge of the bureau. Mr. Lafferty. Suppose you are wrong about that, how would you remedy it? Mr. Smith. Simply by making their oil-producing territory a public-service corporation; that is, subject to an obligation to sell at an equal price, under equal conditions, to all who came. Mr. Laffeety. Suppose the pri^e to all comers was too high, what would you do then ? Suppose they are equal prices ; suppose they all had equal prices in all territories to all comers, and that price was too high, and they still owned a majority of the area of the United States — that is, the oil area ; or, suppose, for example — I do not know whether it would come about practically — ^that all the wells should dry up except those owned by one corporation and they were selling their oil at an equal price to all purchasers, but that price was ex- orbitant, considering the cost of production? Mr. Smith. Then you have got down to the question where prac- tically the life of the Government is involved and that of the people. You have practically to take over the oil, just as we would have had to do in 1902 with the anthracite coal mines if the deadlock had con- tinued; as we would have to do where any private corporation has control of the necessaries of life or the essential natural resources. Mr. Covington. But that condition is so remote that it is hardly necessary to deal with it as a practical question. Mr. Smith. It is really, not dangerous at present. Mr. Montague. As to the proposition that you enunciated a while ago, you seemed to think that the vital factor of monopoly of tobacco was the brand. Mr. Smith. Yes, sir. Mr. Montague. Suppose, however, that you and I control the tobacco of the country Mr. Smith. You mean the raw tobacco ? Mr. Montague. The manufactured tobacco. You and I were the only buyers of tobacco — say a dozen of us were the only buyers of tobacco, or the only manufacturers — ^what difference would it make to us what brands we should have ? Mr. Smith. How could you get to be the only buyers? I do not quite see how you could get in that position unless we had control of the selling end through the brand — if you and I do not have brands ISrJiBSTATE TRADE COMMISSION. 281 that people want, in some special way, or make the people buy of u& rather than somebody else. Mr. Montague. There would be nobody else to buy if you and I owned the monopoly. Did not the American Tobacco Co. at one time practically monopolize the tobacco interest of America and fix the price of everything sold? Mr. Smith. I think it is fair to say that that is true of the manu- factured product, excepting cigars. Mr. Montague. Whom Sse are producers to sell to ? Mr. Smith. But the reason that they were the only buyers of cer- tain kinds of tobacco was that they had all of the trade of the tobacco consumer. They had the brands that the tobacco consumer wanted. Mr. Montague. They had the product; they bought the product. That is no brand. That is raw, natural leaf ; and they have been on the markets throughout the country in North Carolina and Virginia' and buy leaf tobacco. They had their great manufacturers elsewhere. Now, I am just assuming for the argument that they are practically the controlling owners of that tobacco; then you and I, we assume, are the whole consumers, the only purchasers. What difference does it make to this manufacturer about the brand ? Mr. Smith. It makes this difference Mr. Montague. So far as special monopoly is concerned? The monopoly has already occurred. Mr. Smith. It makes this difference : If we do not care what brand we want, it does not make any difference. We will go down into Virginia and buy some tobacco ourselves. Mr. Laffeety. They have already bought up that year's crop^ though. Mr. Smith. Why should we not go down there and buy at the same time they did? Mr. Lafteett. But they have already bought it. Mr. Smith. But the next year's crop. They can not buy unless they have something to buy with. Mr. Montague. I believe that the brand is a great factor when there is competition, but the brand of tobacco is not the controlling factor where you have monopoly in the actual ownership, the making and manufacturing of tobacco. Mr. Smith. It seems to me that you have assumed a fact there that you have no right to assume. Mr. Montague. I may have done that. Mr. Smith. That is, they would not have a monopoly of buying unless they had a monopoly of selling. They would not have any money to buy it with unless they have a monopoly on the purchasing public in some way. ti n t^ Mr. Montague. Do you think that if you could destroy Bull i/ur- ham tobacco— assuming that the Bull Durham brand has gone into the limbo of the lost Mr. Smith. Do you smoke it ? Mr. Montague. I do not. Do you think that would stop people from smoking tobacco? „ , , i o Mr. Smith. Do you mean wipe out all the brands « Mr! Montague. It would not interfere with the consumption of it at all. 282 INTERSTATE TRADE COMMISSION. Mr. Smith. It would not interfere with the consumption of to- bacco. Mr. Montague. Some people would buy a little more here or a little more there, but do you think it would interfere with the total consumption of tobacco ? Mr. Smith. No; but if we wiped this brand out, I would go and buy my tobacco from somebody else — start a company down there. Mr. Sims. If you wiped out all the brands, then, you would have nowhere to go to, and you would have to take anything that was offered to you. Mr. Smith. In order to have a monopoly of purchasing the raw product, you have to have some monopoly of selling it to the public. Mr. Sims. Now, is that not a case that has occurred, in fact, with the pipe line ? For instance, we will say that the Standard Oil Co. "does not own a well in Oklahoma, but they own the only pipe line in Oklahoma, not to transport any oil from any well that they have, but they are the purchasers of the oil, and the only purchasers, be- cause nobody else can be purchasers, therefore they have a monopoly of buying by reason of having this line of transportation. Mr. Smith. Yes, sir ; the means of transportation. Mr. Covington. You did state that the policy of competitive busi- ness in this country ought to be preserved. Mr. Smith. Yes, sir; voluntary competition. Mr. Covington. No matter what the form of the trade commission? Mr. Smith. Yes; voluntary competition, not enforced competi- tion. Mr. Covington. That is right; not enforced competition, but vol- untary. And when you refer to unfair competition as being elimi- nated, I presume you refer to what is commonly called unfair prac- tices? Mr. Smith. Various kinds ; yes, sir. Mr. Covington. Those unfair methods of business by which the business of the competitor is unfairly destroyed, and not mere competition as an ordinary incident of trade? Mr. Smith. No, sir. Mr. Covington. Now, the proposed bill is going to affect a vast number of corporations. There are about 300,000 of them, I believe, that make reports to the Treasury Department at the present time under the existing corporation-tax law. What do you say as to the uselessness of making the law applicable to all corporations engaged in interstate commerce? Mr. Smith. That question I considered very seriously some years ago. I am very strongly of the opinion that it is better to limit the jurisdiction of the commission to only large corporations. The Mur- dock bill limits it to corporations that have a gross annual return of over $3,000,000. I think that limitation would bring in — ^we roughly calculated in the bureau — anywhere from 300 to 700 cor- porations. Now, it seems to me this includes 300 to YOO corporations, and, of course, railroads are not included. You would have prac- tically all the great corporations that are matters of public interest, and it is a thing that a bureau or commission can handle. These are the businesses that the public are interested in, whereas, if you take in every little corporation engaged in interstate commerce, you get two results — ^you will swamp- the commission absolutely, and you INTEESTATE TRADE COMMISSION. 283 raise a storm of indignant protest from every little man who does some insignificant business over the State liiie all over the United States. Mr. Covington. Now, as against the idea of fixing an arbitrary- figure as determining the size of the; corporation, have you thought about giving the commission itself the discretionary power to de- termine the classes of corporations whose activities might be such as it was wise to have reports from as an endeavor to regulate by publicity ? Mr. Smith. Do you mean to permit the commission to distinguish on the basis of industry or trade, or giving it broad discretion? _ Mr. Covington. Giving them a broad discretion, but the legal limit in their discretion would cause them to classify by industries, perhaps. Mr. Smith. I had not thought of that Mr. Covington. There might be some corporations, for example, that are doing a business of only a million dollars a year each by reason of the class of business they are doing, and which might be creating the incipient basis of a great monopoly among them. Mr. Smith. That is very true. Mr. Covington. It might be very wise to have those corporation activities made public. Mr. Smith. I had this idea, if I might suggest it: In the first place, make the limit something like the Murdock bill, $3,000,000 — a broad limit. Then give the commission the power to bring in or not, as it likes, corporations whose annual returns are over $100,000 or over $500,000 — ^not to give them the discretion to bring them all in. If you allow the commission the discretion to bring all in you secure an enormous amount of small opposition, which would be a serious matter in a bill like this. Mr. Covington. It is like the income-tax law. Mr. Smith. Exactly; as under the corporate income tax, where they examine a great number of retailers. It lets the Government out of a good deal of trouble. Mr. F. C. Stevens. Will you not give them the further discretion as to the class of business, just such as I described, some drug busi- ness that needs to be investigated, some particular business that some particular concern might have, or some patent that some concern is using oppressively? And yet the business might not amount to more than a million dollars a year and still might affect many mil- lions of people. Might there not be some discretion exercised in a case like that? Mr. Smith. My suggestion was to give them also a descretionary power over all corporations whose gross annual return is $100,000, say. I do not believe any corporation under that would involve a serious question. But that, you see, would cause an enormous politi- cal objection to the bill. Mr. Covington. Have you thought about whether there are any constitutional difficulties in classitying corporations, in denying to the people the equal protection of the laws, and otherwise invading their constitutional rights? Mr. Smith. As I understand the constitutional provision as inter- preted by the Supreme Court, it is this: There is nothing unconstitu^ tional in classifying corporations — one class to be under the regula- 284 INTERSTATE TRADE COMMISSION. tion of a given law and one class to be outside of it — «o long as the basis of classification has a real, substantial relation to the substance of the regulation. In this case, for instance, jou classify a corpora- tions under the Murdock bill, only corporations which have over $3,000,000 gross returns. That means where a corporation is of sufficient size that it ought to be regulated it is of interest to the public. There is a classification based on the real reason for regu- lating. The Supreme Court, I think, has held that a classification of that sort based on a real reason, would be constitutional, because we do classify all the time in legislation, and as long as a classifica- tion is based on a real reason which is applicable to the regulation, and you are going to apply this, I think you have a constitutional proposition. Mr. Covington. It would have to be based on something direct, and not a mere arbitrary reason. Mr. Smith. Yes, sir. You can not, for instance, say that all red- headed men shall pay a tax and that others shall not. Gentlemen, I have finished. Mr. Covington. I would like to ask you one more question. You said this morning that even if there was nothing in the proposed bill except the provisions for investigation powers, with the inci- dent of publicity growing therefrom, and the further investigation powers ancilliary to work of the Department of Justice in trust prosecutions, that by reason of what we may term an awakened public conscience the publicity resulting from these powers would cause a much better moral tone in trade conditions of this country; is that true? Mr. Smith. I do not know now what I did say, but I wUl say in reply to this question that I do believe that if you can establish an acininistrative system of handling the matter, taking it out of the courts as far as possible, and establishing an administrative system and a good efficient publicity, and have a permanent commission of experts, you will have made a great step in advance. I know in what I am stating I will run into opinions that differ widely from my own, but when you come back to the proposition contained, I think, in sections 9 and 10 of the Clayton Act, which provide that the work of that commission shall be the enforcing of the Sherman law, then I am not sure whether you have not gone bagk as much as you have gone ahead. The Sherman law seems to me to have led us a long way astray in our handling of the corporation question. In other words, it led us to the proposition, and we have stood on it now for 24 years, that the only way to regulate corporations is to split them up into their legal units. We have been relying on that proposition; and if this Congress adheres to that, that is the way to regulate corpora- tions, it seems to me Mr. Laffertt (interposing). Eight there, Mr. Smith, has not the Sherman law been the Jaw for a thousand years, or for 300 years, at least? You said for the last 24 years. Has it not been the law for the last 300 years that it is unlawful to enter into an unreasonable restraint of trade? Mr. Smith. Yes, it has; but the Sherman law, when first inter- preted, did not have the word " unreasonable " in it. INTERSTATE TEADE COMMISSION. 285 Mr. Laffektt. Then your proposition is that the Sherman law is nothing but the common law put into the statute, and it is not sufficient to meet present-day conditions? Mr. Smith. Oh, no. Mr. Covington. There has been a great deal said here and at former hearings about a uniform system of accounting. As a former commissioner of corporations, can you give us the result of that experience? What would you say as to the feasibility, considering the great variety of the industrial corporations of this country, of having established for them any uniform system of accounting ? Mr. Smith. I think I illustrated that this morning. We did prac- tically enforce upon 95 per cent of the steel production of the country — some 50 corporations engaged in steel production — a uni- form system of accounting to the extent that they gave us their costs in uniform shape on about 20 steel products. We did that without any trouble at all. We simply wrote out the forms we wanted the reports in, and they took it out of their accounts, and as a matter of fact I will say that several of those corporations changed their sys- tem of accounting of their own accord, because they saw it was a better way to get their costs. Of course in applying a uniform accounting system it will have to be classified to a considerable degree. You could not, for instance, make a uniform system for a water company include a steel company ; the two things are economically very different. Mr. Montague. Could you classify tobacco and steel together? Mr. Smith. I should hardly think so, because there is this thing to take into consideration : The good will of the company in the to- bacco business is of enormous value. A large part of the value of the American Tobacco Co. is in good will. There would have to be a different classification of accounting there altogether. But I think you could go a long ways by a gradual process toward uniform ac- counting, and that would be an enormous advantage to the country. Mr. Covington. Witnesses have testified before this committee that ihe system of uniform accounting might mean very much or very little ; but, on the other hand, there was an analysis of the system of a,ccounting of each corporation which followed up by requiring re- ports to be uniform, and the analysis of each report to be full enough to enable the Bureau of Corporations, or anybody else that might look at the report, to draw their own conclusions as to the prices, processes, and results of the business. Is that a correct statement I Mr. Smith. I should think so. Evidently we are using the word " accounting " in two senses. I do not mean to say that I think you could ever take these thousand corporations and make their office books all uniform, but you could make them uniform to this extent, that they could be condensed into an annual analysis in uhiform shape. Mr. Laffertt. Then you are not very far away from Mr. I dock's idea. Mr. Smith. A uniform system of reporting is a good deal of de- tail, and that detail should be sufficiently uniform to draw the results of the corporation's financial operations, for instance, so that its real assets and liabilities and prices, cost of production, and all that sort of thing, might be drawn from the reports that are filed, and not so 286 INTERSTATE TKADB COMMISSION. much a uniform system of bookkeeping that was to be in vogue in each corporation's office. Mr. Baeilley. The theory of advocating a uniform system of book- iieeping is that it would facilitate the examination of the books; that they would have the same system to investigate in each case. What have you to say as to that? Mr. Smith. It would help, but my opinion is this, that if you made them keep their accounts simply in such shape that they could give a uniform analysis yearly, the result would be that their bookkeeping itself would be sufficiently alike that you could readily understand it. Mr. Baeklet. With reference to the authority of the commission to inaugurate a uniform system of accounting, would you in general terms authorize this commission to do that, in their discretion, or would you in the law specifically affirm that it shall classify dif- ferent corporations to do this if you found it was expedient to do it, and leave it to their discretion as to whether or not it was to be done, or would you simply tell them to do it ? Mr. Smith. I am inclined to think I would simply give the com- mission power to require it. I am pretty sure the commission would exercise that power. If they were ordered to do it the order. might make them do more than really was possible under certain circum- stances. I think I would give them discretion. Mr. -Baeklet. As I understand you now, Mr. Smith, you would go so far as to require uniform reports, but you would not go so far as to require a uniform system of bookkeeping? Mr. Smith. No, sir ; I would not require a uniform system of book- keeping, but I would require quite detailed reports. Mr. Baeklet. Have you inquired into these systems of these va- rious concerns ? Mr. Smith. In this matter of publicity, we simply make public the things the public are possibly interested in. In the Bureau of Cor- porations we are always careful not to give away any business screts in any way. Mr. Bakklet. Is it not now the view of every one of these con-- cems that when these examinations are made and you obtain these facts that one man's business would be known to another, and would not that work a very great hardship on some of these corporations? Mr. Smith. We lately had a little difficulty in that regard in the Bureau of Corporations. They found after a few years what our motives were and the way we handled it, and we have intimate busi- ness secrets of corporations that you would be surprised men should give, to us. Mr. Montague. Have you thought of how many members there should be on this commission? Mr. Smith. My preference would be seven. I think five is a little too small for the job we would have, I think. You would have to organize that commission, to first sit en banc, and then you would have to organize it so that one man would have one form of industry and another another form of industry. I think seven would be none too many for a proposition of that sort. Then it makes a longer term. Mr. F. C. Stevens. Mr. Smith, section 8 of the so-called Clayton bill provides that this commission is given authority to make specific investigation of alleged violations of the so-called Sherman law. IjSTTEJKSTATB TBAJ>E COJVfMJg^ipN. 2§7 The authority of the Bureau of Corporations did not, however, specify that authority. _ Mr. Smith. No, sir; we simply reported to the President. Th^t IS all we did. Mr. F. C. Stevens. And you would advise against the including in the terms of any bill of investigation with reference to violations of any specific statute, would you not? Mr. Smith. I am inclined to think so. I may be prejudiced in the matter, Mr. Congressman, but I do think that the Sherman law theory has led us po far astray that I would like to keep the operation of this commission out of that business and let the Attorney Gen- eral enforce the Sherman law. If it does not come under the pro- visions of the Sherman l^w, then let it come to the Bureau of Cor- porations or the commission. Mr. F. C. SinEVENS. Yes. Is there not another reason^ There are other antitrust laws that the terms of the Clp,yton bill would not cover now existing on the statute books. Mr. Smith. Yes; there are. Mr. F. C. Stevens. So that if such a provision were included in any act it would omit any power in this commission to investigate concerning the operation of some other antitrust laws? Mr. Smith. Yps, sir. There are other antitrust laws; for instance, the Wilson law and several others. Mr. F. C. Stteven.8. And the Underwood law, of course, would ,be very important. Mr. Smith. Yes Mr. F. C. Stevens. So that it would be in the interest of the public that this commission ought to have plenary power and not be tied to any one statute. Mr. Smith. That is a fact. • The Chairman. We might pass some more laws. Mr. Smith. Of course you may. The Chairman. Ought there not to be a general authority to in- vestigate violations of all laws affecting commerce ? Mr. Smith. There was a continual, unconscious tendency while I was in office for the Department of Justice to make the Bureau of Corporations a detective agency for that office — perfectly uncon- scious, perfectly, and we had a very effectual force of men. The Chairman. Do they not need that? Mr. Smith. Let them have it in their own office. Do not let them use the commission that is to investigate these corporations. Do not let them be a police or detective or secret-service force of the Attorney General's office. Mr. Laffeett. That would make the provision obnoxious? Mr. Smith. You would destroy the usefulness of this commission. Were the corporations to understand that we were the secret-service agents of the prosecuting office we would not get any information at all. The Chairman. It is more dignified to use you than to take it to the grand jury. Mr. Smith. We are not looking for crime ; we are looking for com- mercial conditions. The Chairman. You would really rather find good conditions? 34082—14 19 288 INTERSTATE TKADE COMMISSION. •Mr. Smith. I would rather find good conditions. Mr. Montague. The business of the commission would be more to point out conditions that would be condemned ? Mr. Smith. Yes ; although we have got to come down, sometimes, to criminal prosecutions. Mr. Montague. But the thing you are attempting to provide by this legislation is prevention of the criminal law and not an adjunct to it? Mr. Sjiith. Yes. It ought to be kept separate from the criminal side. You will get better results. For instance, they tried to get a conviction of the officers of the McAndrews & Forbes Tobacco Co. They got a conviction by the jury of the corporation on a certain state of facts, and the same jury, on the same state of facts, refused to convict the officers who did the job, simply because they were will- ing to fine the corporation but they were not willing to send men to jail. They do not like to apply a criminal action to an industrial crime. Mr. F. C. Stevens. There is another subject I would like to in- quire about. Mr. Smith. I am entirely through. Mr. F. C. Stevens. Some of the witnesses who have come before this committee — and I know this extends to business _ concerns throughout the country — expressed a strong desire to have this com- mission used, as far as possible, to advise these business concerns wherein they can safely proceed and not violate any law, and I think we all appreciate that that is a legitimate demand of the business interests of this country. In what way can a commission be legitimately used, without act- ing as counsel, to properly inform business concerns throughout the country how they can proceed without a violation of the law ? Mr. Smith. That is a very important question. I think you would have to have a commission built along the lines of the Murdock bill, for this reason, that if the commission is going to give to anybody any advice that is worth anything it has got to be the advice of the authority that is going to enforce the law, because if the commission gives the advice and the Attorney General enforces the law, the advice is not worth anything. The Attorney General might bring a suit, regardless of what the commission had advised. The Chairman. In other words, it must carry with it immunity. Mr. Laffertt. There must be no conflict, but there must not be immunity. The Chairman. The least that the fellow might expect is insurance against harm if he follows the advice of the commission. Mr. Smith. Sure. The Chairjian. If that is not immunity, then I do not know what immunity is. Mr. Talcott. I want to ask, Mr. Smith, whether you mean that they shall be assured against prosecution until there is no confusion between the commission and the Attorney General? Mr. Smith. I mean that if the commission advises, its advice must mean something. The Chairman. Insured against violation of the statutes. Mr. Smitti. Insured against confusion. If you have a commission l'>o the Murdock commission, which has a right to say whether or INTERSTATE TRADE COMMISSION. 289 not a certain practice is unfair, whether or not that can be done with- out violation of law — if you have a commission to which a man can come and say, "This is what I am doing; is that fair or not fair?" and the commission says it is fair, he is sure he is not going to be prosecuted by that commission. Mr. TALOOTT.The commission might say this practice is fair or unfair, and suppose that man said, " We wish to purchase this other corporation." Mr. Smith. Yes. Mr. Talcott. Would you give this commission power to say whether they could purchase it ? Mr. Smith. Whether it was a violation of the Sherman law or not? Mr. Talcott. Yes. Mr. Smith. No; I would not. As long as we have the Sherman law in force, my theory is to keep this commission away from the enforcement of that law, when the enforcement of that law has got to lay with the Attorney General, and the commission ought not to have power to give advice on that. Mr. Talcott. That would be giving advice without any insurance of immunity. Mr. Smith. Let them give advice only concerning the things over which the commission has jurisdiction. Mr. Decker. Why not set down in these bills some certain prac- tices, and so on, that ought to be prohibited? I am just asking for information. Why would it not be a good thing to put right in the statute the things that are prohibited ? Why would it not be a wise thing to say in the statutes what practices are prohibited and let the Department of Justice enforce them, the same as we do the ordi- nary cases? Mr. Smith. Simply because an industrial crime is a thing that is almost impossible to define when you have got to prosecute it and try it out through the courts. I will guarantee you can take all the time you wa,nt in the next month and draw up a law prohibiting railway rebates and railway discriminations, and I will guarantee the next day to organize a system of railway discrimination that will not come within your statute. Mr. Decker. In other words, then, this commission, you think, should have power to make continually changing laws ? Mr. Smith. As it is done in the Murdock bill; of course, stating the broad principles that constitute an unfair act, and then let the commission make regulations under these broad powers. Mr. Decker. Ten years from now would you not have a great deal of trouble in recognizing between their regulations and the broad powers we had passed ? Mr. Smith. As soon as they got beyond the broad powers the courts would say the commission had no authority. The Chairman. In distinction you make between what you call an industrial crime, a violation of a statute by the corporations, and those affected by moral turpitude, do you differ at all from the old distinction between mala prohibita and mala se ? Mr. Smith. I do not know what that distinction meant exactly, sir. 2.90 INTERSTATE TEADE COMMISSION. The Chairman. Mala se meant things that were morally eibjee- tionable, objectionable in themselves, and mala prohibita meant things that might properly be done by decent people, but the statute had prohibited them. Mr. Smith. Then, is that the distinction we are trying to ma'ke here? The Chairman. I think the way you and others have stated it here it is very similar. You say the jury will not convict anyone where there is no question of morals involved; they will .convigt a corporation for merely violating such a law, but will not put a man in jail because there is nothing moral involved — sirnply proMbitecl. Mr. SMim. This was the reason for their action in these casas recently ; they had no objection to fining a corporation, because it did not hurt anybody very much, but they did not like to send a roan to jail. Mr. Decker. In other words, the jury did not think it was a very good law? Mr. Smith. That may be. Mr. Decker. In other words, is it not your experience as a lawyer that any law that a majority of the people believe in can be enforced? Mr. Smith. Yes ; and one that is not believed in by a majority of the people can not be enforced. Mr. Decker. Can not be enforced, and the point you made 'here is not that there is any trouble with our administration of the law. or the justice of it, but you do not believe in the law we have on the ■statute books ? Mr. Smith. I do not believe in it as a general policy of regulation. Mr. Decker. That is what I am getting at. What you would like to see done is the Sherman law repealed ? Mr. Smith. No. Mr. Decker. Why would not the people enforce it if it is a good law? Mr. Smith. I do not pretend to say whether it is a good law. I can not look forward into the future now and say whether the Gov- ernment ought to give up the Sherman law or not. Mr. Decker. The reason juries do not enforce the law is because they do not believe in it ? Mr. Smith. It may be. Mr. Decker. You can not enforce any law that the people do not believe is a good law ? Mr. Smith. I think the majority of the people do believe the Sherman law is a good law. That is my impression. Mr. Esch. Mr. Smith, in the Murdock bill, No. 9300, in section 3_, it seeks to define what are some of the instances of unfair or oppressive competition, and subdivision A says: The .•■cc(i)t,iiice or procurement of rates or terms of service from common carriers not granted to other shippers under like conditions. (6) The acceptance nr iirocurement of rates or terms of service from common carriers declared unlawful by the act entitled "An act to further regulate cojn- merce with foreign nations and among the States," etc. Will that net lead to a duplication of powers? Is that authority not now vested in the Interstate Commerce Commission? Why should we vest it in a separate commission and thus cause confusion or perhaps a conflict of authority ? INTBESTATE TEADE COMMISSION. 291 Mr. Smith. The reason is this : It is vested in the Interstate Com- merce Commission as a criminal act or criminal proposition. That is the only way they have of getting at it. And that, as I think I have indicated, is a very unsatisfactory method of stopping rebates or any other industrial sin. I illustrated the point, I think, a little while ago when I spoke of the Standard Oil Co. rebates, which were published and destroyed by publicity in six months, and by prose- cution we only won two cases out of four in seven years, and we have not tried them all yet. In other words, I would like to have the rebate business attacked by the commission as an economic un- fairness; not so much as a crime as an economic unfairness. That is the real essence of the thing. Mr. EsoH. Then you believe that under the trade commission they might be able to discover instances of rebates and discrimina- tions which the Interstate Commerce Commission, with its ma- chinery, would not be able to discover ? Mr. Smith. No; I hate to seem conceited, but those rebates we discovered in the Standard Oil Co. were, most of them, in the Inter- state Commerce Commission's records ; but they have a million tariffs there and could not dig them up. Mr. EscH. That was in 1906 ? Mr. Smith. Yes. Mr. EscH. That was at the time the Hepburn bill was passed ; the very year it was passed. Mr. Smith. They had the powers of the Elkins law, passed in 1903, which gave them all the powers as to rebates that ever existed. The Chairman. It looks to me like some strange love here, when you talk about managing commerce alone by love and candy instead of putting somebody in jail. Mr. Smith. Manage them how ? The Chairman. With love and candy. Mr. Smith. Have I talked loTe and candy ? Mr. Lafferty. He said molasses was better argument than vinegar. The Chairman. You do not believe in putting anybody in jail for violating the laws against commerce. I believe in the old conten- tion that the fellow who manages to accumulate $1,000,000 while the other fellows who earned it are going to the poorhouse will surely go to hell, and there is no doubt about it. I believe that the only way you will ever be able to enforce the commerce laws is to put the rascals in jail, instead of weakening the corporation by taking their money away from them. They need all the money they can get. Mr. Smith. I would Mke to answer that question. The Chairman. I would like to hear it. Mr. Smith. I did not say, in the first place, I do not believe in putting a criminal in jail. The Chairman. I didn't say you said it. Mr. Smith. I am th© man that is talking, and I thought it was directed to me. The Chairman. No ; I didn't say that. Mr. Smith. I would say, in answer to tbat theory you have just eaunciated, that we did our best in our recent investigations under strict orders to get the men higher up. We did that — both the De- partment of Justice and- our own men — and we worked on the thing ior two years, and in the great Chicago & Alton rebate case, the 292 INTERSTATE TEADE COMMISSION. $29,000,000 j&ne case, and the highest man we could place any re- sponsibility on for that rebate system was a $1,200 clerk. Why? Because the man that had that $1,200 clerk simply said to that $1,200 clerk, " I want to get this oil to East St. Louis (where it is shipped) at a low rate." There was nothing illegal in his saying that. But the $1,200 clerk knew right well what he meant. He knew if he did not go over to the Chicago & Alton and get that rate he would lose his job and another $1,200 clerk would take his place. You can not get the man higher up. The Chairman. If you applied the same laws about circumstan- tial evidence to him that you do to ordinary cases you could get him. Mr. Smith. I would like to see you convict a man who says to his clerk, " I would like to get a low rate on my oil," or " a low rate on anything else." That is not a criminal act. The Chairman. If that caused the clerk to go and get it, he is guilty of a violation of the law. Mr. Smith. You can not convict a man of it. The Chairman. I would like to be a juror in a case of that kind; I'll bet the man higher up would be convicted. Mr. Lafferty. It would never get to the jury. Mr. Smith. The judge would throw that kind of a case out of court. Nobody that has been in business here but has said to his traffic clerk, " I want to get my goods to that town as low as I can." Mr. Lapferty. Unless he could show he gave the clerk some bribe money. Mr. Smith. He might not even say that. He might wink at him, and he would know what that meant. The Chairman. How would the clerk get this special rate unless he gave some bribe money ? Mr.. Smith. There were other railroads. He went over to each one of these railroad offices and said, "We ship out 100,000,000 pounds of oil yearly to St. Louis." He said that to each one of them. " The road that is giving us the lowest rate is going to get that oil." And they got the preferential rate. The Chairman. Of course if you can not prove that the fellow did it you can not get him, but if you can prove he did it he is an accessory to the man that did it, and, I say, he ought to be put in jail. Mr. Smith. Would you put that $1,200 clerk in jail? The Chairman. If he did it I would put him in jail. It might serve as an example to stop the other fellows from doing it. Mr. Smith. They can get another $1,200 clerk. They have done it for 25 years. Meantime the rebate system is going on and competition is being killed off all over the country and all you have got is a $1,200 clerk in jail. The Chairman. They will soon get tired of it. Mr. Smith. They did not get tired of it during 25 years. They have all been taking their chances, these $1,200 clerks. The Chairman. You have satisfied me of a thing I have repeated in this hearing a great many times, that in litigation, the same as in legislation, you ought to put some more lawyers at the head of you on these things that you can not do by yourselves. Mr. Smith. We had a very good force and good lawyers on it. INTERSTATE TEADE COMMISSION. 293 _ Mr. F. C. Stevens. I would like to pursue that subject I started ]ust one step further. The business world is asking if possible that this commission may be used to give them information and assistance in conducting their operations within the law and at the same time protect legitimate business. This committee, under the rules of the House, is confronted with a situation so that we are not expected to legislate upon some of the substantive propositions of legislation which you and others have been discussing to-day, and I presume there would be very serious objection in the House if we did attempt to legislate. Is there not some way that this commission, created with the framework that you and the others have outlined, with the largest power of investigation and making reports, general and special, and such powers to enforce its regulations along these lines as being necessary, may be of advantage to the business world in • the line of making investigations and reports and acx'cmplish some- thing ? Now, what would you say about that ? Mr. Smith. I think, sir, it would be of advantage. Mr. F. C. Stevens. In what way? Mr. Smith. Well, judging from the experience of the Bureau of Corporations, in this way. For example, it found that many of the smaller business men in competition with the large combinations were working in the dark. They did not know what they were up against. In the railway rebate cases, to get back to that again, we found small refineries in northern New York and northern Pennsyl- vania unable to get their oil sold in northern New England, but they were perfectly unconscious -of the reason why. When we issued our report they came back down to my office and said, " Is that the rea- son we can not get our oil up there, because the Standard Oil Co. has get a special rate on tank cars ? " I said, " Yes. " That was how they got that rate. It Avas not always an illegal rate. In that case, when they found out what the trouble was they went to work on it. A great many people need to be shown what are the essential economic factors in the industry. Now, when it comes down to giving business advice Mr. F. C. Stevens (interposing). Let us just pursue that further and analyze it a little before we go to the point of advice. First, if you can show transportation conditions or economic con- ditions that prevail, that information may be valuable to the busi- ness man ? Mr. Smith. Extremely so. Then suppose we show, as we did in the steel report, the relative power and economic importance of the various ore measures. I have known men v^ho are in business who do not know that the crucial point in the steel business is the meeting point of coke and ore. The coke comes from Pennsylvania and West Virginia, say, and the ore comes from the upper peninsula. The crucial point in that particular industry is the meeting point of those two things. That is, some men in the steel business did not know that one of the dominant- economical factors is the question where you can get your coke and your ore together to a given point cheap- est. That is a thing that is of prime importance. Mr. F. C. Stevens. Together with the nearness to market? Mr. Smith. That is right, Mr. F. C. Stevens. Then first there would be an investigation con- cerning economic conditions at home and abroad ? 294 INTERSTATE TEADE COMMISSION. Mr. Smith. Yes. Mr. F. C. Stevens. Second, you would also develop what would be Unfair and evil practices in business, would you not? Mr. SariTH. Yes, sir ; that is true. Mr. F. C. Stevens. And those reports and that information would indicate to these business concerns after a little while what can be fairly and safely done and what can net be fairly and safely done,' would they not? Mr. Smith. They certainly would. Mr. F. C. Steven s."If those business concerns would then write, as you say they did write, to your bureau, asking information about these, practices and about the history of this certain business, your letter in reply would indicate to them what has been the policy of the Government ? Mr. Smith. Precisely. Mr. F. C. Stevens. So that in a practical way the desires of these gentlemen, in large pari, could be met by the legislation that I have just outlined? Mr. Sjiith. I think it could, sir. I think gradually you might develop even a mqre detailed system of information. I would not undertake that too much at first, because that would be simply in- cidental to the regulative character of the legislation, but I think it wpuld develop gradually until we would have a very valuable source of business information. Here is the unifoiiu accoimting of the railroads; you can compare two railroads together and you can get an idea of what their stocks are worth, and you have get something there that the public can use. Mr. Decker. Along the lines of publicity now, even without the power in this commission to stop practices, I want to ask you this question: What would have been the effect, good or bad, or what would be the effect, good or bad, if, with relation to all of the big corporations of this country, a commission heretofore had made public the following facts- as to the acceptance or procurement of rates or terms of service from common carriers not granted to other shippers under like conditions ? Would not that have had the tend- ency to stop that, just the publicity of it, if your commission had been able to do that ? Mr. Smith. It would have. We did it in one case. Mr. Decker. You did it in one case without any power in your bureau to stop it, and stopped it when you made it public ? Mr. Smith. It was very effective, indeed. Mr. Decker. Take subsection (b)," The acceptance or procurement of rates or terms of service from common carriers declared unlawful by the act entitled 'An act to further regulate commerce with foreign nations and among the States,' " etc. Mr. Smith. That is the same thing, practically; there is only a little legal distinction in regard to that. Mr. Decker. What would publicity have done to subsection (c) ? Mr. Smith. Discrimination in selling prices? Mr. Decker. Yes. Mr. Smith. It would not help so much there, but it would help a good bit. I know, for instance, we showed one article — I will not say what it was — was selling for 16 cents in Missouri and 7 cents in Springfield, Mass., taking on the difference of transportation. These INTERSTATE TKAiyE COMMISSION. 29& Missouri people were getting the worst of it by 9 cents a pound. The result was a lot of independent competitors came down and began doing business in Missouri. Mr. Decker. And stopped it? Mr. Smith. They started a lot of competition, and that, of course, had its effect. Mr. Decker. Take subsection (d), " Procuring, by bribery or any illegal means, information as to the secrets of conipetitorsj or pro- curing conduct on the part of employees of competitors inconsistent with their duties to their employers." How long do you think that would last in the light of publicity ? Mr. Smith. It would stop it no doubt. That sort of thing has been made public to a certain extent. The trouble is it starts up over again; it is like railway rebates. Mr._ Decker. Is it not true as to this whole section, then, if your commission had been in existence, and it had had a sufficient force and sufficient power to throw the light of publicity upon all those things, it would have practically stopped them? Mr. Smith. I am afraid that is saying too much. It would have gone a long ways. Mr. Decker. It would have gone a long ways ? Mr. Smith. It would have gone a long ways; but it would not have gone far enough. Mr. Decker. Do you not think it would be unwise to have a com- mission that had legislative and judicial functions? Mr. Smith. I do not think so. I do not think publicity would do the whole thing. Mr. Decker. Publicity, in connection with the judicial and legal departments of the Government, which are not entirely extinct at this time. Mr. Smith. I do not think I have so testified. I do not want to cast any aspersion upon them at all. They are up against a difficult question, that is all. Mr. Decker. You will get the publicity by this commission, and you can place the facts before the Attorney General, and if Con- gress is willing to give yon enough lawyers to help you, it seems to me that most of these things could be worked out without concentrating all these things in the hands of one commission. Mr. Smith. There you have got that question of a prosecution of a criminal action again. Mr. Decker. Make it a civil prosecution. Change your law, if that is all that is lacking. Mr. Smiith. Any court prosecution is bound to be a slow proposi- tion, at best. Take these rebate cases. We have had those indict- ments there for six years, and they have not been tried yet. Mr. Decker. Let me ask you another question: Is it not a fact that the slowness in these legal proceedings is due to the fact not only of your difficulty in the way of getting information, but the courts have been blazing new trails along that line ? Mr. Smith. Partly that, but just think what you are up against in a legal procedure. You have got a pleading, time for pleading, another pleading and time for pleading, and then a demurrer, and then the trial, and then you have got an appeal, and then another trial, and the best you can do it is a very slow process. 296 INTERSTATE TRADE COMMISSION. The Chairman. Can you accomplish anything of that sort without litigation ? Mr. Smith. I did not catch your question. The Chairman. Can you conceive of any summary means by which that can be done without a little bit of litigation ? Mr. Smith. There is bound to be some litigation, undoubtedly. Mr. Decker. Would not the correct remedy for this question be to change the legal procedure, then? Mr. Smith. You are getting pretty deep there. I think it would help a little. But I say that legal procedure is all aimed at one proposition, and that is to settle legal questions between two private parties and is not aimed at the proposition of promoting the public welfare, and when you have got the rights of two private parties in- volved you are going to have delay, and you can not get away from it. I am a lawyer and have had some experience along that line. Mr. Decker. I know you are a lawyer. Isn't this a contest be- tween individuals and the public? Mr. Smith. And the public; yes. Mr. Decker. And is not the public represented by the Depart- ment of Justice? Mr. Smith. Yes ; it is. Mr. Decker. And when you take it away from the Department of Justice and the courts and put it before the commission does it not then become a contest still between a private individual or a private corporation and the public? Mr. Smith. That is very true. Mr. Decker. And if you are going to try the matter properly be- tween the public and the individual or corporation it is going to take you some time, too, is it not? Mr. Smith. It will. ■ ]\fr. Decker. The only thing you suggest is you will do it quicker? Mr. S:mith. We certainly will. Mr. Decker. Now. then, is it not a fact that that is not an argu- ment that we need to intrust this all to one body, but we need to change the procedure and make the courts do it quicker, according to their own fimctions? Mr. Smith. The main function of the court is trying private rights and it will always be adapted to that one thing. Without the Inter- state Commerce Commission would you make it the duty of the courts to establish railway rates ? Of course not. They could not do it. Mr. Deckee. They are not going to fix rates and prices. The Chairman. That has been the subject of twenty-odd years of litigation. Mr. Smith. You would never think of taking away from the In- terstate Commerce Commif sion and giving to the courts that power. Mr. Decker. That is what I am trying to get at. Unless there is something radically wrong with the courts, either that. we have not enough of them or we have a wrong procedure, I can not see how one commission is going to do all this work. Mr. Smith. That is a very fair question. Mr. Decker. And do it right. Mr. Smith. That is a very fair question, indeed. Mr. Dkckkr. You take a question of discrimination, and they have got to judge, have they net. in every case? INTEKSTATE TEADE COMMISSION. 297 Mr. Smith. Yes. Mr. Decker. You have got that particular discrimination, and they have got to settle a multitude of questions now ? Mr. Smith. Yes. Mr. Decker. How they are going to do it right and still do it faster than the courts are doing it, unless there is something wrong with the courts, I do not see. The Chairman. You might just add to that before you answer it, admitting the courts are wrong, no matter how bad, whenever you attempt by legislation to provide this kind of a remedy you are sim- ply going to hinder the courts more^ and put more litigation on the courts, and the people will not submit to that litigation. Mr. Smith. You get right down to the essence of the thing, I think. It seems to me — and this is purely an opinion — you have got to recog- nize that this is a totally different thing, at least in weapons, in means. You would not attempt, for instance, to repair a watch with a crowbar, and you would not attempt to chop down a tree with a pair of pincers. The courts through centuries have been adapted to trying out private rights and not questions involving statistics, in the way of economics, in the way of accounts. They have dealt with, mostly, questions of private rights between individuals, and our whole procedure and our bench and bar are educated along that line. It is like the crowbar and the watch when you apply it to the question of whether the prices of steel, for instance, or whether the methods of competition in the steel industry are fair or not. It is an enor- mous, complex statistical question not involving any individual par- ticularly but involving the whole public, involving vast railways and tremendous transactions. In order to handle that you have got to have a weapon to handle it ; you have got to have expert men, trained in that line, and expert accountants. There is no fault found with the courts as courts, as to what they are fitted for, but they are not adapted to this kind of a question. Is that not what you wanted to get at? Mr. Decker. I see your argument. The Chairman. In other words, in order to pass upon a Steel Corporation case the judge has got to be an expert in Steel Corpora- tion matters, and in order to pass upon Standard Oil matters he has got to be an expert Standard Oil magnate, and all that sort of thing. The truth is, a judge of a court is presumed to be a man of ability and capacity; he is presumed to be acquainted with the law, and lawyers are expected to have intelligence enough to get up the facts and put them before the court. That is law. Mr. Baekley. What difference would you make between that sort of publicity that is eniployed in the ability to obtain information from the bureau by a person who would go there and that sort or form of publicity that would be employed in the publication of an- nual reports and periodical bulletins ? Mr. Smith. I should think there would be this great distinction : The periodical bulletins, of course — not periodical but frequent bulle- tins of a formal sort — wduld state the broad, prominent tendencies or trend of a given industry; the broad effects on competition, on the public, or on prices, whereas the question that would be of interest to the individual would be, " How does that condition affect 298 INtBESTrATB TEADE COMMISSION. my particular industry ? What transportation condition is there that atfects my shipping of goods?" Does that answer the question? Mr. Baekley. Yes. Mr. Smith. May I just be permitted to back up On something I said a moment ago in answer to you ? You asked me what the puflic thought about the Sherman law, and I said I thought the majority of the public thought it was a good statute. I have been thinking of that in the interim, and I am rather inclined to draw that back. After these recent decisions — in the Standard Oil case and the Ameri- can Tobacco Co. case. — I very much doubt if the public generally is in favor of the Sherman law! I am not sure, but I certainly would not want to make that statement as strong as I did. Mr. Decker. What do you think would have been the result if there had been a commission like we are trying to get up here that could have cooperated fully and freely with the court in making its decree ? Mr. Smith. It would help som.e; but I do not think you will ever solve the problem of regulation of corporations by simply trying to enforce competition by dividing corporations up into their legal entities. Mr. Decker. What are you trying to do with them, then, if you are ilot going to enforce competition? You don't want just to harass them temporarily? Mr. Smith. You are trying, to make competition possible. Mr. Decker. We have got to have competition and we have got to have regulation. Mr. Smith. I said enforce competition. What you want to do is to make competition possible. Mr. Decker. That means the same thing. Mr. Smith. There is a vast difference. Mr. Decker. There is no vast difference. If it is a legitimate field dnd an inviting field there will be competition where competition is possible. Mr. Smith. If somebody has not corralled the natural resources or the transportation facilities, yes. Mr. Decker. Well, that is true ; but your object — for instance, now, you spoke a while ago about sometimes finding that the keynote of the monopoly was the control of the natural resources. Mr. Smith. Yes. Mr. Decker. You would take aWay that natural fesOurce,- wotild foil not ? Mr. Smith. I would either take it away or I would regulate it so that it would be handled so that parties could get at it equally. Mr. Decker. What for ? Mr. Smith. For competition. Mr. Decker. To get competition ? Mr. Smith. So as to allow people to go into'competition. _ Mr. Decker. I understand. In other words, it is a sort of distinc- tion without a difference. Mr. Smith. It is a distinction with the most basic difference foM «ah get. Mr. Decker. Make that clear. Mr. Smith. You can not make men compete if they do not want to. Mr. Decker. Unless there is some reason for them to compete. IIsTTEESTATiE TEARS COMMISSION. 299 Mr. Smith. Then they won't compete if they don't want to. You can not make them compete. Mr. Deckee. Is that tiie only reason? Mr. Smith. Give them a chance to compfite. Otherwise the Gov- ernment is going to be in the position of superintencJiug a dog fight and seeing that no dog gets on top. Mr. Decker. Is that your understanding of what the Sherman law means ? Mr. Smith. It comes pretty dose to it, by George. Gomp.eitition means a fight, and a fight means that somebody is going to wiji. The Government says, " You have got to keepi on fighting," and when one dog gets on top you take it .down. That is what it meang. Mr. Decker. I agree on that. Mr. EscH. What are your views, Mr. Smith, with ref ere^ice to the personnel of this commission, as to the number and as to fche salary? Mr. Smith. The Murdock bill. Mr. Esch. Does that embody your ideas ? Mr. Smith. It embodies my ideas exactly, sir. That is a question largely of discretion. I should have seven on there. I think the Clayton bill says five. I would have seven, because I think each inember would probably be assigned to look after more or less one line of industry. I think there should be seven for the job. They would go out one every year, and that would give each one a seven- year term. That has worked very well with the Interstate Commerce Commission. The salary should be $10,000 a year. They ought to have at least that, I think, for the type of men you want. To live here in Washington, you would have to pay them that. Mr. Esch. The Interstate Commerce Commission was originally composed of five men. Mr. Smith. Yes. Mr. EscH. For that period I think they only got a salary of $7,000 or $8,000. Mr. Smith. $5,000 they got. Mr. EscH. Of course, it was increased later. Mr. Smith. You have got practically to start where it left off. It costs more to live now than it did then. Mr. Esch. Do you think that the work of the commission in the beginning will be as large at any time subsequently, or will the work ease up after they get their organization completed, and their plans, etc. ? Mr. Smith. It will ease up unless Congress puts some more work on it. But under the bill, suppose the bill stays just as it is, my im- pression is the first two or three years will be the hardest. They have got to organize their force and get their force of men; I think that will be the hardest year. The Chairman. Will not the secretary constitute the chief value of that commission ? Mr. Smith. Not the chief value, but he will be very important. The Chairman. Ought there not to be an able secretary ? Mr. Smith. A first-class man. The Chairman. How much could you get a man for for that job? Mr. Smith. Unless he comes for love, as some people do down there, you can not get him for less than six or seven thousand dollars. 300 INTERSTATE TEADB COMMISSION. The Chairman. The salary of the secretary to the Interstate Com- merce Commission is only $5,000, is it not ? Mr. Smith. I thought it was more than that* For instance, one of the best men I had under me was getting $3,000 a year, and he was offered by a large corporation $9,000, and he stayed with us, because he thought it was more interesting work and he wanted to serve the Government. . ^ j_a The Chairman. The secretary would be very important^ Mr. Smith. Very, very important, indeed. I think you are right. We have got to have a pretty good man. The Chaieman. You would not pay less than $5,000? Mr. Smith. No; I would not. He has got practically to be a crackajack, and $5,000 would not be too much. The Chairman. Is there any other member who desires to ask the witness any questions? » , ^i Mr. Baek^ey. What is your idea of section 10 ot the Clayton bill? Mr. Smith. I had not thought very much of it. Always setting aside my objection to having the commission to do very much about the Sherman law in any way, and assuming that is out of the ques- tion, I think it is a very good plan to have the commission that is going to help enforce the Sherman law constituted so that it can be used by the court; yes. Mr. Baekley. That is all right; I think it would be all right to have the court have access to the facts the commission may have in its possession, but what do you think about the aspect of the trial of a case of this kind, in which the evidence is partially heard or the evidence is wholly heard, and the court stops that case then for a month or two months or six months and refers certain aspects of the case or the decree which it proposes to render to the commission and let it go over the matter and make some investigation and come back and report findings and the court takes those findings and passes on the case? Mr. Smith. It would depend on how it was handled. It might be handled to work great injustice. Mr. Baekley. In taking evidence of the kind the commission might take, what would you say about the parties having a right to appear ? Mr. Smith. They ought to if it involves simply private rights; yes. They ought to do that in so far as they can. In a certain class of cases you can not do that, because they have got to go over the ac- counts of a great corporation and you can not do it. I think I see your point. I think it could be handled so as not to have the ob- jectionableness of a star-chamber proceeding. Mr. Barkley. That is the point I had in mind; it would be an ex parte statement. Mr. Smith. It would just depend on how the thing was admin- istered. The Chairman. Are there any other questions, gentlemen? Mr. Baekley. You do not think it likely that this commission would ever investigate a question without being fair to both sides? Mr. Smith. Certainly not. Mr. Barklet. No commission would. INTERSTATE TEADE COMMISSION. 301 The Chairman. We are very much obliged to you, Mr. Smith. We hope you will be at liberty in revising- your remarks to make such revision as you think will be beneficial to the committee and the public. The committee will take a recess until 10 o'clock to-morrow morning. (The committee thereupon adjourned to 10 o'clock a. m., Thurs- day, February 12, 1914.) Committee on Interstate and Foreign Commeeoe, House of Representatives, Washington, D. C, Thursday, Fehruary 12, 1914- The committee met at 10 o'clock a. m., Hon. William C. Adamson (chairman) presiding. The Chairman. The committee will come to order. Mr. Towne will speak first. STATEMENT OF MR. HENRY R. TOWNE, PRESIDENT OF THE YALE & TOWNE MANUFACTURING CO., NEW YORK CITY. Mr. Chairman, I am a resident of the city" of New York ; I am in business — ^the president of the Yale & Towne Manufacturing Co. I appear here with my colleagues as a committee of the Merchants' As- sociation of New York. The latter body, Mr. Chairman, is repre- sentative of the business men of the city of New York, its member- ship consisting of firms, corporations, and individuals, exceeds 3,500 in number, taking in all kinds of industries and commerce, and it is the most representative body of that great city. As such its members are keenly interested in the subject of these bills that are pending before Congress, and the most important of which, in our opinion The Chairman. This committee is considering only the bill for creating an interstate trade commission at the present time. If you will address your remarks to that bill, we will be very glad to hear you. Mr. TowNB. With regard to those four bills, the one that is before the committee — for the creation of a trade commission — is vastly the most important, and it is on that that I am ready to talk this morning. In the first place we are unqualifiedly in favor of a trade commis- sion. We believe that Congress, and especially the dominant party in Congress, is sincerely desirous of benefiting the business interests of this country, and that this particular bill is designed for that especial purpose. We believe that it can have a very far-reaching and important effect in that respect ; that it will furnish a mediuna— a tribunal — for dealing with a vast number of the problems which affect business and which in many ways are perplexing, and that it will greatly tend to clarify the situation. The Chairman. Have you found the Bureau of Corporations val- uable during the 10 years of its operations ? 302 INTEESTATE TEAPE COMMISSION. Mr. TowNE. We have not, to any measurable degree. We respect the purposes of it and the skill and intelligence both of the preped- ing commissioner, Mr. Smith, who, I believe, was testifying before you yesterday, and the present incumbent, Mr. Davies, whom I knQ^y well, and whom I regard as having one of the clearest minds that bias taken up this subject. The ChaiexMan. Do you think they would be more influential and more beneficial if they occupied the position of a commission ^s con- templated in this pending bill ? Mr. Tov.NE. I do, and we all do ; that what is needed is to lift that bureau into a much mere serious and authoritative body, and to give it primary jurisdiction of many of these matters, especially of minor matters, Avhich are enormous in their aggregate, and which in the aggregate have a very far-reaching effect upon business, particularly business of the smaller kinds, thereby providing a tribunal where they can be dealt with speedily and directly. The Chairman. Do you think they ought to have authority to look into the troubles and practices of small businesses as well as large businesses ? Mr. TowNE. We do. We think that small business is not only equally entitled to consideration with large business, but, in a certain sense, more so. And for two reasons : First, that it is less able to care for itself; and, second, that what may properly be called small busi- ness, in the aggregate of its transg-ctions and in the aggregate of the number of those engaged in it, vastly exceeds the aggregate of the so-called trusts and great corporations. The Chairman. The proposition here is to wtak this commission up into being a top story above corporations doing a business an- "'"ally above a certain amount. Mr. TowNB. We are not in sympathy with that except in the mattei' of certain requirements. In the matter of publicity we think it may be feasible and expedient to draw the line as to how far doyn in the scale of corporations it is expedient to demand complete publicity; and we say, in substance, by all means let us have the trade commission, and let us organize it as well as possible and launch it on its way, and expect to perfect it by experience as has been done in the case of the Interstate Commerce Commission. As pertinent to that subject there is one fact that we wish to refer to at the outset, namely, that the Sherman law f>f 1890 forbids monopoly and restraint of trade in terms so broad and yet so clear that it is im- r^ossible to mistake their intent. Their application to individual cases must always involve the- exercise of judgment and of reason, rherefore the final decision in each case must always rest with the Federal courts. What is most needed is a common or universal court of first instance, to unify and consolidate practice in all primary or trial cases, as contrasted with the conditions which prevail at the present time, in which these primary cases are brought in the first instance into a Federal court. If I am not mistaken, there are some 27 district courts, and that means 27 different kinds of law in the trials of first instance, which can only be unified and clarified by the slow process of passing through the circuit courts, through the court of appeals, and finally to the Supreme Court, a process almost in- terminable in lapse of time. If, instead of that, all of these dis- INTEKSTATE TEADE COMMISSION. 303 puted cases, and especially the minor cases, could be consolidated into a single tribunal, such as you are trying to create, it seems to us that, in the first place, you would get a unity of practice The Chairman.-You do not really mean by those remarks that you want that commission to exercise judicial functions in the trial of cases? Mr. TowNE. We would advise that the commission should have — yes, quasi- judicial powers, just as we understand the Interstate Com- merce Commission has quasi-judical powers. The Chairman. You. want them to have advisory powers and in- vestigatory powers? Mr. TowNE. Do you not think it would be better if they had some- what the powers of a grand jury? The Chairman. That is what we give them. Mr. TowNE. To pass, in the first instance, on a question presented as to whether it should go into court or not? The Chairman. Understand that that is the leading idea there, that they investigate the facts and report them to the court, in the nature of an indictment or presentment. Mr. TowNE. And that implies, in turn, that after reviewing a given case, if the commission finds it involves no violation of law the case is dismissed. If that can be done by a common tribunal, common to the whole country, and to all trades and industries, it seems to us you will at once have accomplished a great improvement over the present process, where there are 27 tribunals to pass on each single kind of case. Mr. Laeeertt. Right there, Mr. Towne, would you limit the trade commission's powers to merely making presentments or indictments, so to speak, to the Attorney General, or would you give them admin- istrative powers; that is, prescribe what business should do in order to comply with the commission's idea of fair practice ? Mr. TowNE. By all means the latter, as you will see before I finish my statement. . Mr. Laefertt. That is my opinion, I will state, but I understand that the chairman vigorously opposes giving the commission any administrative powers. The Chairman. I do not know what warrant the gentleman has for making that statement. Mr. LArFERTr. That is the statement I have understood the chair- man to make here several times. The Chairman. The chairman has been very diligently trying to find out what he does want, from these witnesses. Mr; Lafeeety. I have understood from several statements the chairman has made that he is vigorously opposed to giving the com- mission any power except the power of making complaints to the Attorney General. The Chairman. The chairman is not responsible for the under- standing of the gentleman from Oregon. The chairman is trying to learn what he and the committee should do. Mr. Laffertt. The gentleman from Oregon understood the chair- man to say that this was merely dressing the Bureau of Corporations up in a new suit of clothing. The Chairman. The chairman said that about one bill, but not about what the committee would do with this bill. 34082—14 20 304 INTERSTATE TRADE COMMISSION. Mr. Laffertt. If that is all the bill does it is doing very little, I believe. The Chairman. The child is growing a good deal, but the propo- sition is to give it a higher and more dignified standing that way, and to give it more influence and usefulness. Mr. Laffeety. It is just as well to have this gentleman know where he stands. He favors giving this commission administrative powers; so do I, and so do other members of the committee. The CiTAiEJiAN. The chair thinks this witness will be able to tell what he needs, and the chair is going to try to find out what this witness and from others what the committee wants. Mr. Montague. Before you leave that subject, if it does not break the continuity of your thought, would you have the commission act on its own initiative, or Avould you have it only act after appro- priate application had been made to it ? Mr. TowNE. We would have it do both, and I am coming to those details that follow logically. Let me say here, Mr. Chairman, that the very influential body that I have the honor of representing and speaking for, and which I sin- cerely believe is truly representative of the general business sense of our community in New York, are all of us sincerely desirous of help- ing this committee, if we may, to arrive at some conclusion which will be beneficial to the whole country. I believe that you are work- ing in that same spirit; that you recognize that business needs relief from the uncertainties which have enveloped it increasingly, as the Sherman law has come to be interpreted by the courts, and that what you are seeking to do here is to provide a piece of mechanism which, at least in part, will help to remove those uncertainties and furnish a tribunal whereby, in the future, business may easily and proihptly get the information it needs to guide it in its desire to respect the law. Whatever action this commission, if created, may take, it seems to us should in all cases be subject to the revision of the Federal courts, and to the right of appeal to the Federal courts, and I mention that here because it will come up in connection with other recommenda- tions that we offer for your consideration. We believe that the bill is admirable in its proposition that the proposed trade commission shall take over the functions of the present Bureau of Corporations, in order to utilize its facilities and its reports and its past work in its own further work, and that the proposed commission should con- tinue the work of compiling statistics of proper character for publi- cation, and of furnishing information to the business community regarding the matters that are under its control. Therefore we are in favor of the pending bill, H. R. 12120, so far as it provides for these results. We approve without comment or qualification sections 1, 2, and 3 of the bill. Mr. Montague. Which bill are you speaking of now — ^the so-called Clayton bill? Mr. TowNE. I am speaking now of the bill H. R. 12120. Mr. Montague. You approve of what sections of that bill, did you say ? Mr. TowNE. Sections 1, 2, and 3; we think, are right and excellent as they stand, with one comment, however, that we venture to call INTBESTATE TRADE COMMISSION. 305 the attention of the committee to. No reference is made in those sections to national banks, and yet it refers to " all corporations." Now, a bank is a corporation, and we assume that it is not the intent of this bill to make it operative upon the national banks, as they come under a separate statute. If that is a pertinent suggestion, it implies that it might be well to incorporate something there with reference to the fact that the bill does not relate to national banks. That, however, is a matter that you are much better advised about; than I am. Section 4 is very brief, and I will read it into the record. It reads : . That the information so obtained shall be public records, and the commission shall from time to time make public such Information in such form and to such extent as it may deem necessary. Now, we regard that section, Mr. Chairman, as objectionable be- cause implying unlimited publicity to any and all corporate records, regardless of the damage inflicted thereby. We advise that such •publicity should be carefully guarded and be restricted absolutely to what is essential to the public welfare. We see no objection to the publication of aggregate matters of information, statistical as to a group of manufacturers or to a par- ticular industry, or to the whole of the country, but we see every objec- tion to giving publicity in this manner to information concerning individual corporations. We believe that that section should be so amended as to forbid the publication in the manner provided in this particular section of information gathered by the com- mission relating to a single or individual corporation. And this is especially desirable as to small corporations — the little corporation of a few hundred thousand dollars — some of $50,000, some of $20,000. To have their private affairs, the lists of their customers, the amount of their business, the transactions with each customer possibly dis- closed and made public would in some cases work irreparable injury. Mr. Montague. It would stir up this whole country from top to bottom, would it not? Mr. TowNE. No; I think it would hardly apply so strongly, espe- cially in the case of a great corporation whose affairs are made more or less public. Mr. Montague. I am speaking of all the business men. If they thought their lists of customers might be given out, or anything might indirectly lead to their trade secrets and their methods Mr. TowNE. Yes ; or even their methods ; especially the small con- cern that is just struggling for existence. Mr. Montague. If that came to the public, and to their competi- tors, do you not think it would be very disastrous to the business men? Mr. TowNE. I do. I think it would be very unfair and unjust to the small business men. Let me point out another way, Mr. Chairman, in which it would operate unfairly, not in the sense that the gentleman has just re- ferred to by giving information to a competitor, but in the matter of credit. We will say that a small concern has started honestly and earnestly to build up a business with a little capital, and has $50,000, which it augments by the legitimate use of its credit. Its operations 306 INTERSTATE TEADE COMMISSION. for the first year, and sometimes for the first two years, which is an old, old story, are unprofitable and result in losses, which are almost inevitable in the beginning of a new corporation, and yet may be all right and justified, and the business may be progressing favor- ably, and on the way to permanent success. The mere publication of the fact and the extent of those losses in the local community m.a.f be destructive of the credit of that concern, and cause curtailment of its credit in a manner which will result in its bankruptcy and destruction, whereas the actual parties chiefly concerned in making the loans to that concern may know all about it, be satisfied with the conditions, and be willing to continue the credit while the concern is working out its solution. There are many ways in which the publicity of the affairs of small business would operate unjustly and be frequently destructive. Mr. EsoH. Mr. Towne, would you then suggest a limitation ? You have commended sections 1, 2, and 3. Would you not make a limi- tation ? Mr. TowNE. We suggest that there should be a very carefully framed limitation on the publicity given to the private affairs of an individual corporation. Give unlimited publicity, if you please', to the aggregate reports, to the facts concerning an industry— the boot and shoe industry, the steel-rail industry, or anything you please- but do not pick out individual concerns, and especially small con- cerns, and make public to the world their private affairs. There is no necessity for doing that. It would be a great injustice to the individual. Mr. Montague. How could that section be made to read? It says that the information so published shall be public records. Mr. Towne. I will touch on that later. Mr. Montague. In this particular section on which you are now speaking, the fourth, could you not substitute the word " official " for the word "public"? I am simply trying to develop your idea. Mr. TowNE. One thing we would certainly advise^ which we think the committee will concur in, and that is that ample protection should be assured against the unauthorized disclosure of this infor- mation by public servants, and for that reason this law ought to have incorporated with it the same provisions or the same kind of provi- sions as in the law of 1903, which created the Bureau of Corpora- tions, and as in the recently passed income tax law, in both of which you will find very clear and very drastic penalties affixed against acts by Government servants tendmg to disclose the private archives and records of the body concerned, which here would be the trade com- mission. Mr. Talcott. What do you think of making the provisions of the bill applicable to corporations doing a certain amount of business, say doing a business of a volume of $3,000,000 or $4,000,000 annu- ally? Mr. Montague. And above that. Mr. Talcott. And above. •^Mr. Towne. We have discussed that subject. We appreciate fully the purpose. We are in sympathy with the purposefand yet we see an almost insuperable difficulty in determining where the line shall lie, and where justice shall consist in saying to a corporation INTERSTATE TEADE COMMISSIOM". 301 on one side of that line you may do certain things, or certain things shall not be done toward you, and 6n the other side of the line, to- ward another corporation, the contrary. Mr. Talcott. You give no warrant, no permission, to the smaller corporation to do illegal acts, but you confine these investigations, under the bill, to the larger corporations. The Chairman. If he exempts them on one side, and gets after them on the other side, that makes a different provision. It is nec- essary to have a line. Mr. TowNE. You are trying to divide business into sheep and goats, and it is not easy to do it. The question- of size is not an absolute one. You take a small merchandizing corporation doing a retail business, for example, in one of the cities — $1,000,000 is a very large capital, but you take the steel industry, for the making of steel ingots, for example, and a million of dollars goes nowhere. You have got to have many millions, before you can start an eco- nomical plant. The question of size, it seems to me, is one you can not define arbitrarily. The Ghaieman. And if you try to measure by the volume of busi- ness, that fluctuates from year to year-? Mr. TowNE. It does. Mr. Chairman, that is a very pertinent point that had not occurred to any of us, namely, that if you do draw that arbitrary line, the corporation may be under the line this year and step over it next year, or vice versa. Mr. Montague. And if you fix it by its capital that is likewise fluctuating. Mr. TowNE. The capital is not fluctuating in the sense you imply. Mr. Montague. It is more difficult to determine. Mr. TowNE. The capital may be increased, but if so it requires deliberate action and it is of very infrequent occurrence. Mr. Montague. It may have a very large capital stock, and yet the real stock not be very valuable. Mr. Town E. There again you need a definition of what you mean by capital. Is it stock capital or is it the actual working capital, which is very different? Mr. Covington. Do you think any arbitrary classification of cor- porations, even by the volume of business or by the amount of capital stock, is possible in determining the corporations that ought to make reports and be investigated and the corporations that ought not to make reports or be investigated by the commission? Mr. TowNE. That is a very broad question, and one that it is very difficult to answer. On the one hand we see clearly that a great corporation, having a capital of many millions, and its stock dis- tributed among many owners and changing hands through the ex- changes of the different cities, that such a corporation must properly, and should, be required to exercise a great deal of _ publicity as to its doings, that it should certainly publish annual reports showing its financial transactions, its profits and losses, and so on. Whereas, on the other hand, when you go to the other end of the scale, the little fellow— the two or three young men who are struggling to establish themselves in business, and who have organied as a cor- poration for the obvious and intended advantages of the law in that respect— or even the individual, as happens in thousands of 308 INTEKSTATE TEADE COMMISSION. cases every year, who starts imder like conditions, and who desires to have the benefit of the corporate law, and who transfers a few shares in his young corporation to his wife or a cousin or some other relative or friend in order to have the requisite three, but who, in fact, is a private individual trying to build up and establish a business — to impose upon parties of that character, and of relatively minute interest or size, in volume of business done or in capital in- vested, the same obligations of publicity that you do on a great cor- poration would surely be xmfair, unjust, and very undesirable. Now, gentlemen, we realize the difficulty of the problem which confronts you. Mr. Montague. Can you help us on that? Can you help us to make that distinction? Can you make any suggestions that will enable us to know what will be a wise distinction, a line of demarka- tion, if there can be one? Mr. TowNE. So far as we have been able, in the very short time we have had to consider this bill, we are not prepared to formu- late any very definite rule on the subject. We question whether the result you seek would be obtained, or should be sought, by trying to draw an arbitrary line and to divide business into two groups, one favored and the other less favored in these matters.' We think the result you are after may be accomplished through another means. Mr. Talcott. You think a classification can be made? Mr. TowNE. I think it is absolutely impossible that it can be made with justice. You can make it arbitrarily, of course. The Chairman. So far as investigations are concerned, I suppose you could judge that by simply providing that the commission shall investigate where complaint is made or where they see reason to investigate a case; but you are seeking after requiring an account- ing as to where you shall draw the line as to what concern shall be required to make actual reports and accounts? Mr. TowNE. No, Mr. Chairman, we see no objection if you are willing to accept the enormous amount of work which it entails, not only upon this new commission, but upon the business of the country. We see no objection to compelling even these little fellows that I am kicking about to make an annual report to the commission. The Chairman. But all the world would not hold the books? Mr. TowNE. To open his books to the commission in confidence. But what we do say would be wrong would be to publish that infor- mation about him, personally, to the world. The Chairman. That would require this commission to have con- stant acquaintance with the books and the concerns of all these little fellows in the United States, and the returns and reports from aU of them would be such a stupendous amount of work that if it could be handled at all it would do nobody any good, nobody could learn anything by it. . Mr. TowNE. That is just exactly what we think, and let me illus- trate what it would inevitably bring you to. The Chairman. Can you help us as to a line as. to where we shall stop? Mr. TowNE. I am going to try to, if you will permit me to follow my argument to this point in order. I was told by a gentleman yes- terday who had just been conversing with one of the members of the Interstate Commerce Commission, one of the officers of the commis- INTEESTATE TBADE COMMISSION. 309 §ion, that the amount of testimony taken by proxy for them in differ- ent parts of the country and waiting for adjudication by the commis- sion, that if the members of the commission undertook to read that evidence it would require that each member would have to read some 600 pages of testimony every day for many months to catch up with the matter that is at the present time before them. That is a physical impossibility. But I venture to suggest that in constructing this pro- posed trade commission, which can be made as valuable to the coun- try in its field as the Interstate Commerce Commission is already in its field, that care be taken not to overload the conmiission, especially in the beginning, with such a vast amount of detail work that it will be smothered and curbed. If the work is necessary, it can be added, afterwards, but our suggestion is to start with the things that are clearly essential and desirable, and not too voluminoijs, and get the commission organized and at work, and then, if necessary, if it proves competent to deal with that, add to its duties later. Mr. Talcott. Th-e violations of the Sherman law so far have been coniined to pretty large corporations, have they not ? Mr. TowNE. Those which have become public, those which have been litigated, but I fancy that in point of numbers the violations of the Sherman law have been vastly greater by the smaller infringers of the law, many of them absolutely innocent and unconscious of their wrongdoing; but those have not had publicity, and they have not come to light as the big ones have. We approve also of the bill as it stands in regard to sections 5, 6, and 7. All seem to us admirable for their purpose, and we have no adverse comment to make. Coming to section 8 — section 8 gives the commission authority Mr. Montague. You leave section 4, then, and go to section 8? Mr. TowNE. Yes; because I think some of your questions in re- gard to section 4 will be answered by what I am coming to later. Section 8 is the one which gives the commission authority, upon complaint hr upon its own initiative, to institute and conduct investi- gations. We think this is sound and expedient, except that investigations made not on the initiative of the commission but, as stated here, upon complaint, should be limited to cases where the complaint is proved to be justified by the evidence submitted. In other words, that the complainant must show due cause for investigation. Mr. Montague. You mean that with the complaint must be cou- pled evidence corroborating the allegations contained in the com- plaint? 1 . T J. Mr. Towne. Precisely. In other words, the same kind of evidence as would be submitted to a grand jury on the question of finding an indictment or not; that merely because I go to the commission and say, " Here is one of my competitors ; I should like to unearth what he IS doing ; I should like you to investigate him," that the commis- sion would not respond to a request of that kind. Mr. Montague. Your idea is that the complainant must make some definite charge and support it by evidence? Mr. ToAVNE. Precisely; arid that even then the investigation does not occur unless the evidence so submitted is satisfactory in the judgment of the commission. 310 INTERSTATE TRADE COMMISSION. Mr. Willis. Mr. Towne, just there, if I may interrupt you at that, point : Suppose that the commission in some way gets information that leads it to believe that there ought to be such an investigation as indicated in section 8. Why do you object to such proceedings on the initiative of the commission itself? Why the necessity? Mr. Towne. I do not. Mr. Willis. Perhaps I misunderstood you, then. Mr. Towne. My whole objection, as I have just stated, is not to action on the initiative of the commission, but on a request for action by the commission made by some outsider. Mr. Willis. You do not object to its acting on its own initiative, •then? Mr. Towne. Not at all ; because it is inconceivable that a body of the high character of that which is implied by the bill would do things that were inquisitorial and unjust from wrong motives. Mr. EscH. And yet, Mr. Towne, under the law establishing the Interstate Commerce Commission they can investigate upon informal complaints. A great deal of its business is on informal complaints. Mr. Towne. Yes; and I am not objecting to action on informal complaints here, if due cause is shown, but we think that the bill should not permit investigations without cause. ,Mr. Bakkley. Do you mean in your suggestion that the complain- ant ought to file affidavits stating his complaint, or merely setting up a state of facts, which, if proved, would be just ground for justify- ing the commission in making the investigation requested ? You do not mean that the complainant ought to submit testimony or eyi- dence in support of his complaint before the investigation is made, do you? Mr. Towne. Our view is this, if I may state it, that as to what shall be satisfactory the commission will be the competent judge. Mr. Lafferty. Is not that the effect of the law now — that this merely gives the commission the authority, but does not require it? Suppose I should come along and make a complaint which appeared on its face to be insufficient or not to show any serious condition of affairs, under this section 8 as it reads now, they would 'not be re- quired to give any cognizance to the complaint? Mr. Towne. With the character of the men who will pre- sumably fill the positions, you are quite right that the matter will probably be safe, but we are so interested in aiding you to get a bill of this kind framed which will command public acceptance that we advise putting into the body of the bill answers, so to speak, to ob- jections. It may A^ery reasonably be objected by anyone reading the bill as it stands that here is the door left open for inquisitorial ]n'0- ceedings, prompted by personal motives or malice or some other wrong motive. Mr. Covington. Does not this, after all, come to the question of the expediency of having this commission investigate the corporations to ascertain whether they are violating any of the existing laws against restraint of trade and monopolies upon the mere complaint of persons and not upon the initiative of the Department of Justice? Mr. Towne. Yes ; but how would it injure the bill if, instead of reading as it does now, it shall read " that the commission is hereby given authority, upon complaint and due cavse shown, to investi- gate," and so forth; to add those four words. Not that they will INTEBSTATB TKADE COMMISSION. 311 probably ever be really material in the conduct of the business of the commission, but to satisfy public sentiment in advance iliat tiie bill is clean and sound. Mr. Covington. You would have no objection to the commission making the investigation, upon due cause shown, with a statement, perhaps, setting forth facts in such detail to put them uptni prima facie notice that the law is being violated ? Mr. TowNE. No. Mr. O'Shaumessy. You are anticipating a weak personnel of the proposed commission? Mr. TowxE. I am not anticipating a weak personnel, but the uncertainty of what the commission shall do. We say that you remove that uncertainty if you put the four words in there " on due cause shown." Mr. Laffeety. Would it not answer the same purpose to put in the words " authorized in its discretion " ? Mr. TowNE. Yes,"^ but that still leaves public sentiment in doubt whether that is fair or not. Whereas if you say " on due cause shown," that is something definite; that a man is not going to be held . up without proper cause. Mr. LArrEETT. If you say " in its discretion," that would mean a complaint for sufficient cause? Mr. TowNE. Yes ; but I think the other language is better. Mr. Baeklet. Is not that what the present language is, that the commission be given authority? Would not that presuppose that the complaint is sufficient to make an investigation ? Mr. TowNE. Precisely. Mr. Laffeety. He is spealdng for the public benefit. Mr. TowNE. The thing I am speaking of at the moment is not of the essence of this act, but I recommend it as a means of commend- ing the act to the public who have not the benefit of the information you have. Mr. Covington. Taking sections 8 and 9 together, I wish to know whether you propose to discuss the expediency of having the com- mission investigate upon complaint any corporation engaged in interstate commerce with a view to determining whether it is vio- lating any of the existing laws ? Mr. TowNE. We do recommend that, and I will discuss that a little later. Mr. Covington. I presume you will discuss that in your own way. Mr. TowNE. Yes. That is section 8. I have discussed one phase of that and explained that it ought to be qualified by the words "on due cause shown." And we also criticize the last sentence of that section, and suggest that it be modified so that provision shall be made whereby the commission, on the submission of satisfactory assurance that the- violation of law found to have occurred in any case, especially if unwitting, was without intent, may suspend the reference of the mat- ter to the Attorney General at and during its discretion. There, gentlemen, it seems to me is the opportunity to give great usefulness to this new commission, and especially as affecting the business of small industries, and small traders, small corporations, the aggregate of which, as I have said before, in the number and 312 INTERSTATE TRADE COMMISSION. volume of their transactions is greater than that of the big trusts, although they are less spectacular and less in the public eye. It seems to me that if the commission has had brought- to its atten- tion, or on its own initiative has investigated, a case which appeared to involve some violation of the law, and finds that such violation has actually occurred, and yet the offense was an unwitting violation, that the party acted in good faith and was entirely intending to respect the law, and now that the error of his past transaction has been pointed out, will respect it; that in such a case, instead of re- ferring the matter to the Attorney General, the law department of the Government, for further action, the commission should have power to hold the matter in abeyance, to suspend it at its own dis- cretion, and not to bring the matter to the attention of the Attorney General unless some future violation by the same party and in the same manner shall occur. We think that such a provision would make a kind of clearing house of this new commission, which would be very beneficial. Mr. Montague. To report or not report as the commission may see fit. Is that your idea ? Mr. TowNE. Yes; but please have in mind the qualifications as I read them, that the commission, on the submission of satisfactory assurance that the violation of law found to have occurred in any case, especially if unwitting, was without intent, may suspend ref- erence of the matter to the Attorney General at and during its dis- cretion. Mr. O'Shattnessy. The amendment would come in there at line 26 ? Mr. TowNE. It would come in at the very end of section 8, which reads now : If the commission shall find any such violation the matter shall be submitted to the Attorney General. That is mandatory. Mr. O'Shaunessy. That would be like suspending sentence on a first offender in a criminal court ? Mr. TowNE. Yes. Mr. Hamilton. Where do you propose to insert that amendment? Mr. TowNE. It would be at the beginning of the last sentence of section 8, which reads now : If the commission shall find any such violation. I would reconstruct that short sentence to incorporate this addi- tional matter with it. Mr. Willis. Is there not this objection to that amendment, that it would tend to bring the acts of the commission in question? Would it not tend to loose public confidence with any such discre- tion as that ? Would it not be said that they were acting improperly in refusing to refer cases to the Attorney General? Have you con- ' sidered that phase of it ? Mr. TowNE. I think the danger there would be about the same as in the case of a judge in a criminal court; when he finds a man has been guilty of theft or murder he does not commend himself to the favorable judgment of the criminal community; but I think that the action of the commission in this matter, with the character of IN-TEESTAa?B TBADE COMMISSION. 313 the men that will undoubtedly compose it, would on the contrary tend to build up public confidence in the value of this tribunal, especially in view of the multitude of the minor offenses. Mr. O'Shaunessy. You think that warning would be as effective as a prosecution? Mr. TowNE. I think it would be better. Mr. Talcott. Is it your idea, Mr. Towne, that in a great many cases the very investigation itself, the publicity which it gives, will cause the corporation in question to change its methods? Mr. Towne. I think it will do a great deal more than that. In fact, I know from observation, from things that have come to my personal knowledge in recent years since these matters have been so actively under -discussion, that a great many violations, of a trivial character, of the Sherman Act have occurred, and are being corrected voluntarily now, as men learn what the courts are cohi- , struing to be the meaning of that act. If these could come before a tribunal of this kind it would be a useless expense to the Govem' ment and the public to take them into court, and often a severe hardship on the individual concerned, both in the expenses incurred and in the publicity. Whereas the act itself may have been, in many cases, an unintentional encroachment on the law, largely based on ignorance. Mr. Talcott. Suppose they are not trivial ? Suppose they are sub- stantial and they are cured — the object is secured which ths commis- sion has in view ; would that be sufficient in your opinion ? Mr. TowNE. It seems to me, and I think to my colleagues on this committee, that that would probably be true, but the question is so far-reaching in its possibilities that we would prefer to have more time to consider the subject, and especially to consider the precise words in which this suggestion may be embodied. But I agree with you in general on this point, that under a preliminary investigation: of this kind by a competent tribunal, especially a tribunal that would so rapidly build up a great volume of facts and of knowledge of busi- ness conditions and usages, when it was found that a given transgres- sion was minor and relatively unimportant, and especially if it was unconscious and unintentional, that the commission would have power to suspend any prosecution, just as a grand jury would have ; whereas, if the transgression was serious and deliberate it would let the case go to the courts. How to define that power, and whether it is necessary br possible to define it, seems to me at the moment very debatable. Why not make the broad provision, and give discretion to the commission to determine whether the case lies on one side or the other of the line ? Mr. Montague. Mr. Towne, I understood you, if I understood you correctly, in the action of the commission in the respect which you are now discussing, that if in the end they conclude not to make any recommendation for prosecution, while it would be an official act, yet it would be a secret act and it would not be known to the public that they have done such a thing ? Mr. Towne. I think so. Mr. Montague. Do you think it should be made known to the public? Mr. Towne. No ; I do not, with one qualification, if you will per- mit me. If the party investigated has been found to be violating the 814 INTERSTATE TRADE COMMISSION. laAV, then I think discretion should rest with the commission whether or not to make the knowledge public, because the publication of that knowledge would enlighten others as to what they should not do, and would thereby help to enforce the law. On the other hand, the publication of that knowledge might in some ca^es work such severe hardships on the corporation concerned that I think discretion should be left to the commission whether or not to publish it. Whereas if the commission finds that the party has done nothing wrong, then clearly the information should not be made public. A party who is accused of a crime and found innocent should not be punished by having the unsustained charge made public. Mr. O'Shaunessy. You think the offense should be made public, but not the offender ? , Mr. TowNE. Yes; that would be all right; published for the in- formation of the public and its guidance in a like case, but without any indication as to the individual corporation. Mr. Covington. The tentative bill that is before us for considera- tion provides not merely that the commission of its own motion or upon complaint under some circumstances shall make an investiga- tion to determine whether that is a violation of the law, but the Attorney General may report to the commission for investigation such specific complaints and such information as he may have and demand of the commission an investigation. What do you say of the right of the commission to investigate and recommend to the At- torney General that a prosecution shall not take, place when he has referred to them specific facts upon which he wants an investigation made ? Mr. TowNE. That seems to me a logical sequence of the propo- sition. Mr. Covington. That it also ought to take place under those cir- cumstances? Mr. TowNE. We think so. We think that the provision that the Attorney General may refer to the commission or to the courts a case for investigation, as a case is referred to a master in chancery — we think that that is an admirable provision. Granting that, why should not the commission, being competent to pass upon these things and habitually passing upon them, in its report make a recommendation whether the case should be prosecuted or dis- missed ? Mr. Covington. I think that leads to this, that in both classes of investigations, those made independently and those made through the intervention of the Department of justice, that finally to have the commission determine whether a prosecution should or should not take place would leave the Department of Justice, the Attorney General, in the situation where he was not the final law officer to determine whether or not a given corporation should be prosecuted by the Government. Mr. TowNE. I will come to that later in my remarks. Mr. Covington. You will_ develop that at a little later period? Mr. ToAVNE. Yes. We think there are certain matters charged to the Attorney General to deal with that ought to be transferred to the custody of the proposed commission. Mr. Covington. That is what I am asking about, whether you think it wise to take out of the hands of the Attorney General the INTERSTATE TRADE COMMISSION. 315 final adjustment of those controversies between the Government ancj. corporations accused of violating the law. Mr. TowNE. Under certain conditions, we do. Mr. LArFEETT. I want to get your idea a little bit clearer, if I can. After the commission has investigated on its own initiative, or on complaint of the Attorney General has found certain violations of law, as I understand, you recommend that in certain cases it have the discretion to recommend prosecution or not, as it may deem for the best interests of the public. Tha is one of your recommenda- tions ? . Mr. TowNE. That is right. Mr. Lapfeety. Do you have any recommendation as to giving this commission power to prescribe affirmative rules of conduct for the corporations and for others engaged in the same line of business which will relate to the future, or shall they just remain inactive and silent and give a secret warning? Mr. TowNE. That is a very leading question, and one hardly ad- mitting of a categorical answer. We do favor this strongly, that this commission should be made a clearing house for as many as pos* sible of these business problems, especially those of minor importance and relating to minor interests, and that therefore it is desirable that a business corporation honestly in doubt as to whether it is permissi- ble for it to do a certain thing, and being advised by its counsel, if you please, that the question has not been decided yet by any official authority, that such a corporation with such a proposition should be at liberty to go to the trade commission and present the problem and ask for a ruling on it, and that that ruling, if adverse, implies that the parties must not do this thing, or if they do it it is on their own hazard. But if the ruling is in the affirmative, " Yes ; you can do this thing, as we understand the law," that then the party shall be at liberty to proceed accordingly, and if he does not slop over and transgress the implied authority or permission given by the ruling he shall not be subject to a penalty thereafter until a contrary ruling or a contrary decision of the court shall have been made, and that there shall be no retroactive punishment under such a state of affairs. If such a provision could be made in this bill — and we believe it can — ^it would give immense benefit to the business interests of the country. It would give us a tribunal to which we could go with con- fidence that it had the knowledge, the experience, and the authority to make rules upon a great number of business questions which came up, which, under the broad terms of the Sherman Act, leave us in doubt as to whether we may or may not do them. If they are per- mitted we want to do them. If the law forbids them we equally, or more, desire not to do those things, as we want to respect the law. But we have no means at the present time of finding exactly what the law means in such matters except by the endless process of going from the district court to the circuit court of appeals, and from the court of appeals to the Supreme Court of the United States. The Chairman. At the present time I do not see how you could invest the commission with the power of a court without amending the antitrust law, but I should like to call your attention to this, if no other member has done it in my absence : One of the most valu- able performances of the Interstate Commerce Commission is to 816 INTERSTATE TRADE COMMISSION. mediate and adjust differences that never have had any formal investi- gation or court trial or commission trial at all. Two-thirds of the communications, so far ^.s I know, that I or my constituents or my clients, when I practiced law, have had with them were simply ad- dressed to them about something that appeared to be wrong, and they were told to write to the railroads and have them adjusted without investigation or trial. I will ask you if you did not have in mind some function of that sort that the interstate trade commission would prove valuable in per- forming ? Mr. TowNE. Yes, Mr. Chairman, we see many ways in which the trade commission can render service as valuable in its field as the interstate Commerce Commission does in its field, although the In- terstate Commerce Commission has to deal with certain executive problems which would not be involved in this case. The Chairman. That is not what I am speaking of. I am calling your attention to the fact that in hundreds of these cases there are only these informal complaints, some people that merely write a let- ter to call attention to the matter and which result in adjustirien't without formal trial or complaint. Mr. TowNE. That is what we would like to have done here as to minor matters; that the trade commission shall have the power to say, " We will dispose of them except when a serious violation of the law exists. Then it goes to the law department of the Government." Mr. O'Shatjnessy. You want to go to the commission instead of going to lawyers ? Mr. TowNE. That is it. Mr. LAiTERnr. Is it true or not you would like to see a trade com- mission created, following the line exactly of the Interstate Com- irierce Commission, except that it shall apply to industrial corpora- tions rather than carrier corporations ? Mr. TowNE. Substantially, yes; we are most heartily in favor of this trade commission. We. are intensely interested in it. We think if you create it, you will do the best piece of constructive legislation, barring the currency act and the tariff, that this Congress can do. Mr. Laiterty. Is it your idea that it should be as nearly analo- gous to the Interstate Commerce Commission, except covering a dif- ferent field, if possible ? Mr. TowNE. Absolutely analogous ; but adapted to the other field of affairs. Mr. Covington. Do you mean by tha,t that you think that con- cerns like the United States Steel Corporation, for example, con- cerns like the Standard Oil Co., concerns like the recently dissolved American Tobacco Co., should be under such regulations and control by a commission paralleling the powers of the Interstate Commerce Commission; that even to the extent of requiring what reasonable regulations and practices with regard to prices for the service ren- dered should be made ? Mr. TowNE. No ; not prices. ^ Mr. Covington. That is what the Interstate Commerce Commis- sion does. Mr. TowNE. I am coming to that later. Mr. Covington. That commission has the power to enforce its orders on the railroads as to what prices they shall charge, and these INTEKSTATB TRADE COMMISSION. 317 orders are final unless they are proved to be confiscatorJ^ You do not think we should create such a commission that shall have such power over industrial corporations ? Mr. TowNE. No. Mr. Covington. I did not believe you did. Mr. TowNE. The Interstate Commerce Commission is dealing with corporations which are in the enjoyment of a public — well, not a franchise, but a public monopoly — a monopoly created by the State. That gives the State the right to interpose between the corporation and the people, to see that the operations of that corporation are just and fair to the interests of the people. When you come to deal with private corporations, you have no such condition at all. The Chairman. When you are making haste to clarify the situa- tion, or asking us to provide something that would hasten to clarify the situation, and enable you to conduct business without litigation, you would like for us to do something that we know is sound and will stand the test in the courts and not involve you in another generation of litigation to say what it is ? You want to be on safe ground ? Mr. TowNE. Yes. Mr. F. C. Stevens. Let me call your attention to an inadvertent statement I think you made in a distinction between the public serv- ice corporations, that they enjoy a natural monopoly, and the indus- trial corporations, which you stated did not enjoy a monopoly at all. Is it not true that many of the industrial corporations do enjoy a monopoly in various ways? Mr. TowNE. Not a natural monopoly. They enjoy an artificial one. Mr. F. C. Stevens. Granted that, but do they not enjoy some nat- ural monopoly either created by law or by the ownership of natural products ? Mr. Towne. I get that point now, and I concede there are some cases of that kind, although they are relatively small in numbers as compared with the others. Mr. F. C. Stevens. Are they not of very great public importance ? Mr. Towne. Very well. Proyide in the act to deal with them differently. Mr. Lafterty. Define them in the act ? Mr. TowNE. Yes; define these cases that do enjoy the advantage of any natural monopoly and deal with them as those conditions may imply, whereas the vast majority of corporations, in number and volume, enjoy no natural, and most of them no artificial, monopoly. They are simply doing business as individuals have conducted it from the beginning of civilization. You have a different proposi- tion there from what you have in the interstate commerce jurisdic- tion, which deals with the •corpara.tion which has a natural monopoly entrusted to it. ■,-,■,.. ^ ... l i. Mr. F. C. Stevens. Then you would advise that we attempt to differentiate between all these different classes of business in this act? : Mr. Towne. I see oidy two classes in the matter we are discussing at the moment. ,,„,,, ,,• Mr. F. C. Stevens. We have alrea,dy defined the public service corporations which have a sort of natural monopoly created by the kind of business they do and by the law under which they operate. 318 INTERSTATE TEADE COMMISSION. and industrial corporations, some of which have a sort of artificial monopoly which they are able to exercise ; others which have a nat- ural monopoly; others which have no particular right at all any more than any other individual. Now, do you think it would be wise, or that it would be of any assistance to the business world if this committee, in cooperation with another committee of the Senate, which has about the same amount of experience we have, to attempt to lay down hard and fast rules to govern the business of this country in that way, with our limited experience? Mr. TowNE. No, sir. Mr. F. C. Stevens. If we did that, what would happen ? Mr. TowNE. I have not proposed anything of that kind. Mr. F. C. Stevens. Your argument is tending to that. Mr. TowNE. No, sir. If that is the impression I have left, I have failed to express myself clearly. What we are appealing for, Mr. Chairman and gentlemen, is the working out of this problem which you have undertaken in your committee, and which we believe the right solution of would be a great boon to the coimtry, on such lines as would create a tribunal authorized to deal with these problems under certain conditions which you will set forth in the law, and that that tribunal will in time clarify the situation by its action, rulings, and decisions. Mr. F. C. Stevens. But if we should start right now and attempt to clear up the whole situation, what would happen? Mr. TowNE. We would never get there. The Chairman. If we put into this bill all the suggestions which have been made here this week there would be a saturnalia of litiga- tion for the next 25 years, and business would be paralyzed ? . ■ , Mr. Towne. That is right. And, Mr. Chairman, may I interrupt the argument here for a moment to mention one thing which seems to me to be very material. We understand that your committee, and also the Judiciary Committee of the House, which has some other bills relating to this matter under consideration, is surprised and disappointed and perhaps aggrieved at the small response of busi- ness men to the invitation to appear here. The Chairman. That is a mistake, so far as we are concerned. We do not edit the newspapers. You read the newspapers. Mr. Covington. We have been very well satisfied with both the class and the number of those who have responded. Mr. Towne. Let me point out to you the fact that the business men in the Country are not in possession of and can not get possessioii of copies of your proposed bills. I have a copy here that was printed at private expense and by a private party in New York. The Chairman. There is a document room down here which has the authority of law to reprint just as often as the supply is ex- hausted. Mr. Covington. I will say to you that there are no secret or private biHs before this committee. The Chairman. And I am sure I answer from 12 to 25 letters each day, and the clerk of this committee responds to perhaps 50 a day, and sends out bills, in addition to the number sent out from the document room? Mr. Towne. Has the bill been out of print? INTEBSTATE TRADE COMMISSION. 319 Mr. Covington. I think that difficulty has been due to the fact that business men generally did not know that they were privileged to secure documents from the document room. Mr. Montague. That is no reflection on business men. It takes a new Congressman several weeks to learn it. Mr. Laffektt. Yes ; longer than that. The Chairman. There are a good many things which some of us older men do not know yet. Mr. TowNE. Just one more word on that same point. Granted that the business men have got this morning, or yesterday morning, copies of this bill, I know business men well enough — I have been one of them for 45 years — to say that not one in a hundred is ready to take the first train and come down here to Washington to talk about such a serious and complex matter. He wan,ts time to under- stand it. Mr. Montague. Let me make one suggestion in the form of an incjuiry. You stated you had been troubled because your business friends and associates have not been able yet to get hold of the pro- posed bill. I assume you can get copies ? Mr. TowNE. We have got 1,000 coming down here this morning from New York. Mr. Montague. I suggest there is no proposed biU by this commit- tee. We are considering all the bills here. We can not send you a bill and say that it is the tentative bill before the committee. Mr. Towne. Is there any objection to our taking this bill which has been referred to your committee and using this as a sort of thread on which to hang our argument? Because here somebody has tried to get together a scheme. Mr. Covington. You might do that, but at the same time you may be very free in your criticism of that bill, because I think the state- ment of the gentleman from Virginia, Mr. Montague, is in the main quite accurate, that this committee has no bill. It has the mere shell of a bUl. Mr. TowNE. I understand this bill is not proposed upon the initia- tive of any member of this committee? Mr. Covington. That is very true. We are trying to get an idea as to the scope of the powers of an interstate trade commission ac- cording to the views of business men. Mr. Hamilton. I might also suggest that the gentleman may be very free in his criticism of any other bill, I take it. Mr. F. C. Stevens. I will also say that we sympathize with the criticisms on all these bills. Not only are we not responsible for them, but our opinion coincides with the opinion which has been ex- pressed here as to the undesirability of many statements here. The Chairman. We are free to confess that when we act on it we are going to make a better bill than any of them. ]\&. TowNE. We are going to try to help you do it. Nevertheless we find in this bill a number of points Mr. O'Shaunesst (interposing). We had a witness here yesterday, and as I recall his testimony he said that sections 8 and 9 were abso- lute nonsense, as I recall his words, and I think he based that on the fact that this limited the investigation of corporations. That was one of the reasons, I think. 34082—14 ^21 320 INTERSTATE TRADE COMMISSION. Mr. TowNE. I have already discussed section 8. I am coming now to section 9. We think that section 9 is excellent. Mr. O'Shaunesst. I think he based his statement on the fact that it did not include certain forms of business enterprises that had interstate business. Mr. TowNE. See if this meets your point. We approve of section 9 as an excellent provision, if amended so as to require the investiga- tion of one corporation at the request of another corporation only upon due cause shown. That clause as it stands is very objectionable, because it would permit unlimited blackmailing. Any corporation which wanted to harry a competitor or inquire into his private affairs only has to ask for the investigation and it shall be made and he will get the benefit of it. Mr. CuiLOF. You would not limit the investigation to a demand of some corporation upon cause shown only, would you? Mr. TowNE. No; because it rests also upon the initiative of the commission. But I will say that if investigation is made by the commission on the request of another corporation it should naturally be only upon due cause shown. Mr. CuLLOP. The corporations might join together and confer so as to have no investigation, or to make no demand for it, or to show the cause for it? Mr. TowNE. Then, the initiative rests with the commission. The Chaikman. The same principle will apply. It is not to be assumed that the commission will undertake an investigation unless it has some reason for it. Mr. TbwNE. Precisely. And this is more to forestall public criti^ cism than a practical matter of necessity in the bill, in our judgment. Mr. Covington. You want to preclude the commission from mak- ing an investigation upon complaint filed with the commission by an independent party? Mr. TowNE. No; but we say the injured party must show cause. He can not simply say, " I waijit you to investigate such and such a corporation." He must say why he wants it, and he must answer that inquiry to the satisfaction of the commission or else the commis- sion will not act. Mr. Talcott. It might not be an injured party. It may be a hostile or rival party? Mr. TowNE. Exactly, and it is that we think should be safe- guarded. Mr. Montague. Mr. Towne has discussed that feature very thoroughly in his opening remarks. Mr. Towne. Yes ; and in connection with section 9, I also repeat the suggestion that where there is no violation of the Sherman law the proceedings should not be made public, to the injury of an innocent party. Mr. Laffertt. The last sentence of this section 9 provides: " Said finding shall become a public record of the' commission, as provided in section 4, only upon the direction of the Attorney General or President." Mr. Towne. Now, section 4 probably will cover my present objec- tion. Mr. Laffertt. Do you suggest an amendment to section 4? Mr. Towne. Yes, sir. INTERSTATE TRADE COMMISSION. 321 Mr. O'Shaunessy. The same suggestion offered by ex-Mayor Low, of New York City? Mr. TowNE. Yes, sir. As to section 10, we approve it; also sec- tion 11, provided the reports are restricted as above in regard to in- fomjation concerning individual corporations. That is, provided that information concerning the individual or single corporation shall not be made public except upon order of the court or of the* President or of Congress. We approve of section 12. Mr. Covington. That merely provides for the classes of em- ployees ? Mr. TowNEr As to section 13, we advise that it be amended to abolish the jurisdiction of the Attorney General's office so far as it conflicts with or duplicates the jurisdiction of the commission in its investigations of corporations. Otherwise there might be two prose- cutions of the same party and on the same complaint proceeding at the same time. Mr. CtJULOP. As to that the law provides a safeguard already". You can not proceed with two prosecutions on the same matter, if one has been tried and disposed of, it is barred by the other. Mr. TowNE. Not in the Federal courts. But here is a new tribunal created, not governed by the law applicable to the Federal jurisdic- tion. I am not a lawyer and I may be talking wide of the mark, but it seems to us that there should be some provision against conflict there. Mr. CuLLOP. I am not aware of any proposition possible to make a court out of this body. Mr. TowNE. No ; not probably in the legal sense of the word. Mr. Covington. Suppose the commission were given the powers you suggest, regarding an investigation independently of the Depart- inent of Justice, and it were making an investigation regarding a limited class of practices upon the complaint of an injured party and in the meantime the Attorney General became possessed of in- formation in a regular or formal way, showing that the same corpo- ration was, as a matter of fact, engaged in a general form of prac- tices that constitute a violation of the existing antitrust laws. You w-ould not then have the fact that the first investigation was going on preclude the right of the Department of Justice to have such an investigation as would determine the fact that the corporation was engaged in violating the law, would you ? My TowNE. By no means. All we suggest is that there be soine recognition here of the possibility of a clash or conflict or duplication and a provision preventing it. Mr. Covington. Of course, there should be some proper check on futlie trivial investigations in many cases to prevent the harassing of hiisinps^ conccrxis. Mr. TowNE, Yes, sir; and the Attorney General should be in- formed about cases that are already being investigated or act^d upon by the commission before he starts, de novo, actions in the courts, ignorant of what is going on here. ., , Mr. Laffebty. It would seem to me it would be impossible to pro- vide that the Attorney General should not have the power to prose- cute if he wants to. ' Mr. Towne. Yes, sir. < ■ 322 INTERSTATE TRADE COMMISSION. Mr. Lafteett. He is the arm of the President to execute the law. Mr! TowNE. I think that what I refer to here could probably be accomplished by the simple requirement that the commission shall notify the Attorney General of every action taken by it. Mr. Lafteety. That mi^ht cover the case. Mr. Talcott. Do you think this commission, which is supposed to be created, after it has investigated any given corporation, or any given business situation in general, as applied not to one but to more corporations, that it be given not only power to make an order direct- ing the parties concerned to cease conduct which the commission has discovered to have been wrong, and then if the corporation or indi- viduals did not obey that order, then the courts would have the right to enforce it? Mr. TowNE. That is precisely what I attempted to outline some time ago. Naturally I called it a ruling ; but your word may be better, an order by the commission to indicate to the parties under investigation the things they have done, if any, which are wrong in the judgment of the commission, and forbidding their continuance; and that if they are discontinued, then no further action will follow. Mr. Talcott. That ought not to be a proposition involving merely a violation of law, but if they were engaged in some practice that, in itself, was not illegal, but which, if continued, might develop into a violation of law, they might have the power to order the discontinu- ance of that practice. Mr. TowNE. I think that their power should be limited to one Mr. Talcott (interposing). It would be advisable in that case? Mr. TowNE. Yes; I think that would be good; and I think every- body concerned would welcome it. It is what we business men want, some kind of tribunal to which we can go and get prompt decisions on the multitude of minor matters that arise in different affairs that are on the border line ; these things are technical matters. Mr. Sims. If the commission investigated a case and found there was perhaps not a technical violation of law, but an evasion of law, having the same effect as a violation, then the warning would have. the effect to stop that evasion which might not sustain an indictment ? Mr. TowNB. Yes. Mr. Sims. Yet in business it would have the same effect as if it was subject to indictment? Mr. TowNE. Precisely ; and I feel that I am speaking with author- ity for the great majority of business men in saying that that is precisely what we want to do. We not only want to respect and obey the law, but if we are doing things which are not exactly illegal, but still are an evasion of the law, we want to be told so frankly and be given an opportunity to correct our practice. Mr. Sims. You want to correct the evasions as well as the viola- tions ? Mr. TowNE. Yes ; but what we want is a tribunal which can give us this information quickly. Mr. Sims. A commission which would be friendly and not hostile? Mr. TowNE. Friendly in the sense that it is acting fairly and intel- ligently. Even if the district courts of the United States had the authority to do these things, they have not the knowledge, gentle- INTEKSTATE TBADE COMMISSION. 323 men, and they never can get it. Not one judge in one thousand is a business man, to begin with. Necessarily he has specialized in an- other held, and he can not specialize in this field, whereas your pro- Eosed trade commission would specialize in this one direction; it will ecome expert in knowledge of the conduct of business under modem Gonditions, and of the application of the laws relating to business. It will.give us an interpreter of those laws which we never have had and which we most urgently need. The Chairman. No people or nation on the face of the earth has ever had it in the law, human or divine, and never will. _ Mr. TowNE. It seems to us that we have it to-day in other direc- tions. The Chairman. No, sir; you do not have it. The law, human and divine, lays down precepts and you must regard them at your nsk and answer for them in your actions. Mr. TowNE. Exactly. The Chahiman. And if any tribunal tells you in advance that you can do a thing and it is afterwards found out to be unfair, they have ^ven you immunity from the consequences of that act, or have exer- cised the pardoning power in advance of your conduct. That is something new in this Government. Mr. TowNE. That is a thing possible under another Anglo-Saxon jurisprudence and is being pra;cticed successfully in Canada, and that leads nie to my next point. The Chairman. We are not operating under the Canadian con- stitution, but we should like to have the analogy. Mr. TowNE. We strongly favor including in the functions of the commission powers and duties such as those implied in the bill introduced by Mr. Levy January 22, 1914, being H. R. 12106, which is similar in purpose to the Canadian " Combines investiga- tion act." That is the official title of it. Mr. Montague. Have you compared the Levy bill with the Cana- dian act? Mr. TowNE. I have; I am very familiar with the Canadian act. Mr. Montague. Is it the same? Mr. Towne. It is the same in spirit and purpose, modified to suit our conditions. I think it is better. But the Levy bill, as drawn, vests the conduct of the processes which it authorizes in the De- partment of Commerce. Our suggestion is that there might wisely be incorporated in the bill which we hope you are going to frame for the interstate trade commission authority to do these things; or if not, and if it is deemed better to embody those provisions in a separate bill, that the power to execute the provisions of that bill shall be vested primarily in the trade commission instead of in the Department of Commerce, as these tentative bills contemplate. Mr. Sims. Will you not state, so we can understand easily, just what you would like to have in this bill along that line? Not in technical language. Mr. Towne. I will state it in plain language. I am very familiar with it. I think it is one of the wisest acts which has been executed by any legislature in recent years. Mr. Sims. What is it? Mr. Towne. It is very simple. The Canadian combines investiga- tion act, which was passed about four years ago, and which has not 824 INTERSTATE TRADE COMMISSION. been questioned under Canadian jurisprudence, provides in effect that these questions involving the issue of monopoly and restrain^; of trade shall be adjudicated primarily by a tribunal which the act creates. In brief the provision, is this: That, so long as nobod^ objects, a man or a corporation or a firm proceeds to do what hg thinks is right and legal. Tf I object, nothing happens unless I cap find four other citizens who are of like mind with me and whp will unite with me in a petition, bearing not less than five signatures^ to the court of proper jurisdiction praying for an investigation. That thereupon the court looks at the, facts submitted and, if it feels justi- fied that upon the allegations made there is presumption of s^,- ca,^ for action or investigation,- the court issues an order creating a board ,bf investigation. ; ^ ..■ Mr. Talcott. The minister of labor appoints the board. Mr. TowNE. In the Canadian act? Mr. Talcott. I think so; yes. • ' - :■ - - Mr. TowNE. Possibly so. I think it is the court. But that is immaterial^ because in our case it would come, under this bill, before the Department of Commerce with the recommendation of the pro posed trade commission. That is immaterial to the principle of the actj however. The board of investigation consists of three parties-^ one man nominated by the complainant^ another nominated by the party complained against, and the third, in this act, nominated by those two; in the Canadian act the third is nominated by the court. Now, these three proceed on the ground to make an investigatioh ; aiid these three presumably are business men somewhat versed in the specialty — -in the business, in the field of operations — under investi- gation, and are experts in that sense. They make their investiga^- tipns with all the powers of a master to compel evidence, and so on. They make their report to the court. If it is to the eifect that no vio- lation of law has occurred, the: court reviews the evidence and, if satisfied with it, dismisses the charge. If the contrary, and if the court on a review of the evidence believes there is a violation of the law, the court then issues an order which brings the matter into court for adjudication by due process of law. ■ Now comes the beauty of this simple plan. The law provides, fur- ther, that if the decision is that a violation of law has occurred, such and such penalties accrue ; if that violation is continued after the finding, there is no penalty up to the time of finding. There is no retroactive penalty. A business honestly conducted in ignorance of the application of the law to its peculiar conditions now has a sort of Damocles sword hanging over its head ; and under our pres- ent practice it is unable in any way to determine whether or not it is incurring liabilities under the law. The Chaiebian. They might do wrong and nobody object. A party may violate the law by unanimous consent. Mr. TowNE. So long as nobody objects nothing happens. The Chairjian. That is the trouble in this country. By unani- mous consent the laws get violated. Mr. TowNE. The unanimous consent implied in that case is that somebody does wrong and that the community likes to be mulcted or deceived. INTERSTATE TRADE COMMISSION. 325 The Chairman. The board of arbitration reports to the court that there is a violation and the court proceeds against him. From that time on the law is to be observed. There has certainly been im-' munity permitted by common consent prior to that time? Mr. TowNE. I think the answer to that very fair criticism by the chairman is this : That the criticism follows naturally and logically from our conception of the law in its older phase, and as it has aK ways and properly existed, namely, that the citizen is presumed to have knowledge of the law, and the plea of ignorance of the law does not exempt hiin from its penalties. The Chaiemax. The essential difficulty in your proposition that I have been trying to accentuate is that to carry out your suggestion involves necessary amendments of the Sherman antitrust law. r Mr. TowNE. We think not, Mr. Chairman. Mr. Laeferty. I Jiave investigated that Canadian law. Mr. MoNTAGtJE. Perhaps we had better let the gentleman complete his statement. ' , Mr. Lafferty. I have investigated it to some extent and was go- ing to make this observation— — Mr. Towne (interposing). I am only half through with my state- ment, if you will permit me to finisli it. It seems to me that what I just referred to and what the chairman has just brought up applies absolutely to all the laws governing what we do as to all the natural relations of humanity, of man to man. Here, however, we are deal- ing with new conditions. Not merely with the moral conditions that have always inhered in business, from the dawn of civilization to the present, and will forever, but with a multitude of artificial creations which apply to modern conditions of industry and com- merce, conditions which have never before existed in the world. We have, as relating to these things, simply the broad terms of the Sherman Act, that thou, shalt not do certain things, but we have no such clear moral rule as to what those things consist of, and they are being interpreted to-day by the courts by the slow process of litigation and appeal, which is not settled until they get to the Supreme Court; and even there the decisions are not always in harmony, whereas the multitude of these' problems is enormous. They are greater than you realize, unless you have been in the con- duct of business in the last 10 or 20 years, and the business interests of the country, and that means the interests of the people as a whole, call for some new provision to deal with these conditions whereby they can be dealt with quickly and sensibly and justly and the multitude of things that are trivial can be cleared away and not obstruct the wheels of commerce and industry, and whereby those which involve serious questions of law may be promptly put on their way through the courts to decisions reached by that process. That is what we are asking for, and it seems to me that we are con^ fronted by new conditions very different from Avhat the chairman rightly refers to as the moral law, and that, therefore, this new trade commission which you are considering here is, I might almost say, imperatively called for by the conditions that now exist in in- dustry and commerce. Mr. O'Shaunessy. You are drawing a distinction between a gen- eral inhibition and a specific command, and this here is a general inhibition ? 326 XNTEKSTATE TRADE COMMISSIOX. Mr. TowNE. That is right. The chairman gave the general pro- hibition and a general definition of the modern law of business, if you please. But now we want guidance on the application of that law, m the multitude of cases that arise inits application to individual business, in all its complexity. Mr. LLvffektt. Now, if the gentleman is through, I should like to make that observation as to conflict. I have investigated that Cana- dian law, and where a conflict of opinion arises between the chairman and the witness, as I see it, is this, that no penalties are incurred by the defendant in a litigation started by a private citizen prior to a decree of this arbitration board, appointed by the court, and none then if the decree is complied with, but that does not prohibit the Attorney General from instituting criminal proceedings for viola- tion of law against the defendant in that same proceeding. It would not be permitting the Canadian to violate the law by unanimous consent and would not relieve the litigant from the penalties. The Chairman. Then the relief sought by Mr. Towne would not be secured? Mr. LAFFEKTy. No ; the Canadian law is a general remedy. The Chairman. In addition to the public remedy? Mr. LArFEETT. That is right. Mr. Covington. Are there any other branches of this subject you would like to develop in your own way ? Mr. TowNE. There are. Mr. Covington. I suggest that you be allowed to develop them. Mr. TowNE. We are concerned with this whole problem before Congress at the present time ; what is known as antitrust legislation. We recognize not only the need of it, the demand of the country for it, the demand which the last elections implied, but . we believe thoroughly in the expediency of it, that new legislation is needed to clarify the situation, and that that need is the chief remaining cause hanging over business and preventing an entire resumption of pros- perity and activity. This Congress has done great constructive work in the tariff act and equally in the currency or banking act. There are three prob- lems which were discussed during the last election which this Con- gress has undertaken to solve, of which I have mentioned two. The third is the question of antitrust legislation. The bill I have been discussing so far before your committee it seems to us is the crux of the whole situation. There is more im- portance and more possibility of value in that bill, it seems to us, than in all the others combined. And the things that are good in ,the other three bills of the four, so far presented to the public, as representing what the administration stands for in this field; and the other three, it seems to us, so far as they are good, and they have good features, although they have some very bad ones, should be incorporated in a great degree, if not bodily, in the bill creating the trade commission. For example, the one relating to interlocking directorates; in re- gard to that we fully concede the need of new legislation to remedy the evil implied in this matter, and we favor a law for this purpose, but we urge that there should be intelligent distinction between bad cases on the one hand and those which are harmless and those which are good, and many which are absolutely necessary, as I should be INTEESTATE TRADE COMMISSION. 327 glad to explain if this subject interests your conunittee. Now we suggest that the exercise of the powers of investigation and decision thus implied should be vested in the trade commission, with the right of review and appeal to the Federal courts. That is the second of the " four brothers " that are so far before you. The third one we will call " Definitions under the Sherman law." While in sympathy with the purpose sought in this bill, we believe it would tend to confuse rather than to clarify the situation, and we advise that the powers it implies should be vested in the trade com- mission with the right of review and appeal to the Federal courts. We have had more than 20 years since the passage of the Sher- man law, during which the courts have slowly and laboriously been building up definitions under that law. If we draft a new bill now saying what the Sherman law means, we obliterate and wipe out all the definitions that have been accumulated by that laborious proc- ess and start over again where we were 24 years ago. It seems to us that it would be a great misfortune and utterly inexpedient and un- necessary. But we advise, if any new powers are created for the in- terpretation of that law, that those powers should be vested pri- marily in the trade commission with the right of appeal to the Fed- eral courts. And as for number four, the bill known under the name of " Trade relations," while we favor the purpose and some of the provisions of that bill, we believe strongly that all of the duties it implies could best be vested in the trade commission, because so closely related to its other functions and because all of those related and overlapping matters could best be studied, decided, and regulated by a single authority (as in the analogous case of the commerce commission), thus assuring unity of practice throughout the country, expedition in decisions, and the building up of a body of decisions which, within a few years, would furnish business of all kinds with a clean chart by which to understand and obey the law. So, gentlemen, the more we study this old problem and all the phases of it which are pending before your representative body, the more we are inclined to believe that the best results will accrue from combining all these functions in this proposed new tribunal and in giving it broad powers, equal ultimately to those of the Commerce Commission, and that the proposed trade commission, with those powers, with the right authority, with a simple organization, leaving the details to be largely worked out by the experience and -by the judgment of the men who will be elected to fill those positions, will bring into existence one of the most helpful agencies for the develop- ment and aid of our vast business interests of all kinds and all over the country that could possibly be created. The Chairman. Are you through with your statement ? Mr. TowNE. I am through. The Chairman. We thank you; and the Chair, on behalf of the committee, will express our profound appreciation. Mr. Covington. I should like to ask a question. It has been stated here by witnesses who presumed to speak for business people and with a knowledge of business activities that it would be quite possi- ble, even quite desirable, through this commission to have established a uniform system of accounting in industrial corporations in this ^28 XI.TEBSTATE TKi^bfi COMMISSION. 1 ti,«t the real facts migbt be elicited aiid that 6ii4 country *« the end^f^at^^^^risons drawn from tkem.. What do you thW?o^\he proposal to establish suc\i a uniform system of accounting ™M^"TowNE°May'l ask whether you happen to know .that I am somewhat of an expert in that particular svibject? Mr. Covington. I did not know that, but I am very glad you are because that makes it all the more desirable that you should express pome opinion on that subject. Mr. TowxE. For nearly 50 years I have been more or less a student of that subject— industrial accounting and cost accounting I have written a good deal on it, and I happen at the present time to be participating m the efforts of two different groups of manufacturetfe to see if they can get together to do exactly thi^devise and adopt a^ umform system of accounting. I also had the honor of assisting the late and lamented Tariff Board m organizing its system of account ing designed to give umform.cOsts, because they found at the begin^ ning there was no such thing existing.. The only way they could gel comparable information from different plants was to adopt their own system of accounting, then get the fundamental facts in each case and apply them under that system. If such a thing were possible as the question implies, it would be one of the greatest boons to organized industry which possibly could occur. Ignorance of costs IS the besetting fault of the majority of manufacturers, and especially the small ones, who are most in need of guidance and knowledge a^nd it is not intentional, it is not conscious, in most cases. It is simply based on ignorance and on the fact that the cost of production under modern conditions of manufacture has become such a complex broblem that the little man has not the knowledge, has not the time, has not the mental capacity, to solve that problem for himself. If a system could be devised which would be universal in its apphcation, the publication of that system would be an immense boon and benefit tp the small manufacturers, and undoubtedly to a great many of the large ones, too. "Whether it is possible I am not prepared to say ofln hand. I wish it were. Mr. Covington. I think it is possible. Mr. TowNE. I am not prepared to say that it is impossible. Mr. CuLLOP. You say it would be a great boon to organized in- dustry? What do you mean by that — organized industry? Mr. To^\'NE. I mean manufacturers. Mr. CuLLOp. Organized in one body, or simply business of each individual organized? Do you mean collectively or individually? ^^^- To^vxE. I mean the difference between the case of a carpenter or a shoemaker Avorking at his individual bench, and making in the dow ^ T^^ 1" individual pair of shoes, or the case where two men sit- aown together to make shoes, and one performs certain functions Mr P '^^'^•'''•i" others. There you begin to organize, in thP ^nm'f r""- ^^^"^ yo" ^° not mean that a number of industries Mr TowNr^Oh! ^r '''""' '"' organized as one ? thSn?form^sTiemTf ^/io^''".-^"°*^^'' question. What effect would Mr. TowN.!-lt woifld be te ^y^ °° competition? concerned. ouid be helpful in many ways, to all parties INTERSTATE TEADB 'COMMISSION. 32d IVfr. CTJLiiOP. How? ''-Mr. TbwNE; It would help the producers by ^gl.viiig- them, in the first place, that which all of them, need, but.that which yery f ew have to-day, a real, accurate, knowledge of what their product, costsj and thereby guide them in their selling policy more intelligently, although i^^^^^l ,^B COMWSSIOlir. 337 This bill accepts the idea that only "national monopolies" are within the purview oi the act. Every incipient restraint of trade should be taken care of where it arises and begins to be felt. The exclusive power of investigation and prosecution now vested in Wash- ington has been and will continue to be an effectual license of mo- nopoly to the extent that the central power is unable or unwilling to deal with the initial steps in the formation of monopolies or with incipient restraints of trade. I c^ your attention to the fact that if these four bills all went through it is inconceivable that any trade commission sitting here in Washington could punish violations of the law in all parts of the United States. Mr. MoNTAGTiE. Who would punish them? Mf. B^ED, If it were in the power of the local district attorneys, they could act upon information of local parties who were injured and punish them, but to send them all to Wadiington- ■ Mr. Montague. Leave it, then, to local authorities? Mr. B,EEn. Of Federal law; to leave it to the local Federal au- thorities, Mr. Montague. That is, local authorities ? Mr. Hamilton. Should not these prosecutions be set in motion by the Pepartmeut of Justice ? Mr. Keed. Not any more than machinery of other kinds is set in motion in Wjashingtpn- Mr. HUmilton. Then, permit the district attorney to exercise his own discretion u,pon complaint ? Mr. Reed. Absolutely, sir; just as every other district attorney in the land does and in the States. Mr. Hamilton, You would make the crime punishable upon com- plaint of any sufferer? Mr. Keed. Yes, sir. Mr. Hamilton. Now, is your crime so clearly stated in the law that titere can be an indictment, as in the case of other misdemeanors and crimes? . Mr. Beed. It would be a very monstrous injustice on the indi- viduals of the country if they were not so, sir, if a thing does not become a crime until the Attorney General decides it is. Mr. Hamilton. I am asking for information. Mr. Eeed. Yes; I thing it should be clear and its application should be for the court and jury. Mr. Hamilton. Do you think it can be made so clear ? Mr. Eeed. I think it is clear enough at the present time, under the present law. . « ^ ^ ■ ^.^ j.v. Mr. Hamilton. Will you give an illustration of that right there at this point in your testimony, of an offense that could be reached in the way you describe? Mr. Eeed. If through court machinery, or other means, a group o± individuals effected a substantial restraint of trade in any interstate business in any part of the United States and the party injured thereby complained through the Federal district attorney, he could brinff the matter to the attention of the grand ]ury on the criminal side and indict the guilty parties, bring it regularly to trial before 338 INTEESTATE TEADE COMMISSION. a Federal court and jury, and the court would instruct the jury as to the law and the jury would pass upon the guilt of the accused. Mr. Hamilton. These guilty parties might be widely separated, some in New York, some in San Francisco, and some midway. Mr. Eeed. That is so in the commission of any crime, sir. A State does not hesitate to prosecute crimes because some of the par- ties are out of the State. Mr. Hamilton. The place where the combination is felt by this particular complainant, we will say, is Oklahoma. You would have proceedings commenced there? Mr. Eeed. To enforce the law; yes, sir. My fourth specific ob- jection to this bill is, that it is, in my opinion, paternalistic and revolutionary in its spirit, purpose, and effect. Meaningless other- wise, it has a practical, intelligent, purpose only as a departure along the luies of cooperative regulation apparently desired by publicists such as Louis D. Brandeis, Samuel tJntermyer, George W. Perkins, Judge Gary, and others. This purpose is emphasized by the other proposals advanced in connection with this bill, the trend of which is distinctly toward the recognition of industrial combinations and near monopolies, and the regulation of their activities by act of Congress and by a trade commission. Monopoly is essentially an institution. It exists by act cf gov- ernment, and not otherwise. It arises to-day from the corporation laws of the State, a fact which has been repeatedly recognized in recent years by all who studied the subject. Mr. Hamilton. You say monopoly exists by permission of the State, or Tinder direction of the State? Mr. Eeed. Yes ; that was the first part of my address, as in insti- tution. That fact has been asserted time and time again by such authorities as Attorney General Wickersham, Judge Farrar, of New Orleans, in his address as president of the American Bar Association, 1911, and neither any member of that body, nor any other reputable lawyer in the United States was ever heard to dispute the proposi- tion. • I dispute the alleged fact that the business interests of the country demand a trade commission. I dispute also that the sentiment of the business interests of the country can be tested by expressions ob- tained from the hand-picked members of various associations. I be- lieve the business interests of the country, as well as the people of the country, can be represented only through Members of Congress; and, moreover, that there is a strong presumption that the Demo- cratic platform on this vital matter received their approval at the last election. This platform called for the removal of monopoly as an institution, not for regulative laws dealing with its methods and effects. Mr. F. C. Stevens. Our experience has been rather contrary. Mr. Reed. I realize that some business men have interested them- selves to convey the other impression to Congress. Mr. Covington. They were speaking as representatives of great business organizations. Mr. Eeed. They are speaking as representatives of great business organizations ; they are not speaking as representatives of the average business organizations through this country or the independent busi- ness man who wants an opportunity. The big business organiza- INTEESTATE TEADE COMMTPSTOTST. 339 tion wants to be regulated. That fact is patent, I think, to every- body. Mr. Covington. We have had the retail grocers and the retail druggists and the retail jewelry dealers here already advocating a trade commission in a much more drastic form than this proposal. Mr. Reed. I dispute the proposition that those gentlemen do repre- sent the actual feeling of the business men who are in those businesses. If you go out and, ask the average business man in your own home territory, I think you will find that is so. Mr. O'Shatjnesst. Do you think it is a case of a few men in that organization getting together and having themselves appointed to come down here and represent the organization and the average mem- ber not knowing or caring what they do ? Mr. Reed. I think it is very largely that. I know something of organizations, and I think it is very largely that. Mr. Bakkley. What character of men belong to these associations as compared with the whole body in that particular organization? Mr. Reed. They, of course, diner in different organizations. Mr. Barklet. Are the representatives of these organizations fairly representative of the trade? Mr. Reed. Sometimes they are and sometimes they are not. Mr. O'Shatjnesst. Like in any body or organization, there are a few men active? Mr. Reed. Yes, sir. Mr. O'Shaunessy. And the large majority lethargic? Mr. Reed. Yes; but the fundamental proposition is that the busi- ness interests of this country are represented in Congress, and that the people of this country are represented in Confess, and that there is a very strong presumption that the Democratic platform on this vital matter received their approval at the last election. I think some of you gentlemen wiU probably bear me out on the proposition that a trade commission was actually urged upon the Baltimore convention and rejected; that the Democratic Party did not want to go to the electorate on that proposition. The Republi- can Party and the Progressive Party did, although I think a great many Republicans did not wish to. Mr. Covington. Was not that a trade commission which had for its avowed object the direct control of corporations engaged in interstate commerce to the extent of regulating prices ? Mr. Reed. The trade commission, sir, embodied in the Republican platform and adopted by small pluralities by the people of Utah and Vermont, was word for word the proposition you have here. Mr. Covington. And the Progressives? Mr. Reed. I said the Progressives went further. The Republicans stood in the middle ; the Democrats took the straight position of de- stroying monopoly at its source and the people Mr. Hamilton. Where did the Progressives stand? I have for- gotten. Mr. Reed. I could not quote from memory the words of their platform, but it was pretty far along the line. Mr. Hamilton. The combination of Rejpublicans and Progres- sives, then, were in the majority on this subject, were they not? Mr: Reed. That all depends upon the way you look at it. 340 INTERSTATE TRADE COMMISSION. Mr. Hamilton. If you add the Progressive and the Eepublican vote together, the Democratic vote was in the minority on this (ques- tion, was it not ? Mr. Reed. If you look at it that way it certainly was--the total vote. Mr. Hamilton. How would you put it? Mr. Eeed. I would put it this way : That the three positions were distinctly different. Mr. Hamilton. Was there a difference between the Republican and the Progressives ? Mr. Reed. A great difference. The Republican proposition was essentially a stand-pat proposition. Mr. Hajiilton. I am talking about what the platform said. Mr. Reed. I said the Republican platform was recognized by the people as being very largely stand pat. Mr. Hamilton. Did it favor the trade commission ? Mr. Reed. No ; not a regulative trade commission. Mr. Hamilton. What was it in favor of? Mr. Reed. This trade commission here? Yes; it was. Mr. Hamilton. Where did the Progressive j)latform stand? - Mr. Reed. The Progressive platform went to the other extreme, and I say frankly the Democratic platform declared something and the Progressive platform declared something, but the RepuJblican platform meant nothing. Mr. Hamilton. But you just stated the Republican platform did mean something. Mr. Reed. It means this ineffective legislation. Mr. Hamilton. You just stated that the Progressive platform agreed with the Republican platform. Mr. Reed. I beg your pardon. Mr. EscH. Mr. Chairman, let us get back to the subject. Mr. O'Shatjnessy. May I ask the witness at this point, so as to get back to the proposition : There was a witness here yesterday who seemed, in my opinion, to think this bill without amendment would not mean muchj bnt what he was after was to give power to the com- mission to advise business men throughout the country before they Jindertook certain operations, so that they would not violate any law. That seems to me to be the trend of the argument here by people who favor this bill, that they want some governmental body to advise them. Mr. Reed. Absolutely, and that is just what I was trying to come to before this gentleman's remarks. Mr. O'Shatjnessy. The question I want to ask is this : If that can be made to conform to those wishes and to those arguments, what would you think of the bill then? Mr. Reed. If it went along the progressive lines ? Mr. O'Shaunessy. I presume that is it. Mr. Reed. That is where it goes. I would think that the real pur- pose back of the bill was being carried out, but the underlying pur- pose of this legislation is going even further. Mr. O'Shaunessy. If it goes further, would you favor it then? Mr. Reed. Absolutely not at all. It changes our w^hole system of Government. It makes a man-made government instead of a gov- INTEESTATE TBADB COMMISSION. 341 ernment by law, and this legislation is meaningless otherwise unless it is intended to pave the way for that. That is why I oppose it. Mr. Sims. To what bill is it you refer when you say it comes within the provision of the Republican or standpat platform ? Mr. Reed. The trade commission bill and the unfair competition bill. Mr. Sims. I mean under what bill here ? Mr. Reed. The trade commission bill. Mr. Sims. But there is, more than one trade commission bill. Mr. Reed. The one that was introduced by Judge Clayton. Mr. Sims. You think, then, that this is an ideal representation of the desire of the Republican Party? Mr. Covington. Then, what is your argument, or, if created, what are your objections to it, without presuming that any of the bills now before this committee are actually the bills to be written in the law ? Mr. Reed. I can not go very far or be of much value in saying what I think a trade commission bill could do. I have had some experience in legislation all through this country^ but I have not any aptitude for that kind of legislation, for legislation which will con- ' trol the business affairs of the country. Mr. Montague. I understood you oppbsed the trade commission out-and-out ? Mr. Reed. Out-and-out I am opposed to it. Mr. Montague. Therefore, you are in no position to state what trade commission jurisdiction should be? Mr. Reed. I am not, and I would not wish to be in that position. I would not trust myself and I would not trust this committee and I would not trust a trade commission to tell the individuals of this entire land what is right and what is wrong, what is fair and what is unfair in business practices. Mr. Montague. That is not the point I asked you. Mr. Reed. I know, but that is what it comes down to when you work along paternalistic lines in legislation. Mr. Covington. I want to point 6ut, if you please, what the eventual thing would be that would result from the creation of any form of trade commission. I understand you are opposed to the theory of controlling or regulating interstate commerce in any man- ner through the act of a trade commission ? Mr. Reed. I am, but what I should like to have Mr. Covington. I wish to get at your groxinds of opposition of a proposition for any form of trade commission. Mr. Reed. Those grownds I have summarized and there is only this to say, that I oppose a trade commission, not only because it is unnecessary and revolutionary, but because the alternative remedy represented by bills before this committee would destroy the evil that the trade commission is to be created to regulate. I do not mean to Stand in a negative position. My time is so short that I seem to take it all up with criticizing and opposing legislation, but I have a strong affirmative mission; in fact, my afnrmative mission is stronger than thy negative. My opposition to the trade commis- sion proposition is based very largely on the fact that I think this committee has jurisdiction of the "bills that are before it and that those bills rest absolutely on the party platform, and will, if adopted. 342 IlTTEESTArB TEADE COMMISSION. - remedy the evil so that there will be nothing left, practically, for regulation. The Chairman. Do you prefer that you shall be allowed to use the remaining 15 minutes without interruption? Mr. Eeed. I would ; yes. The Democratic platform contains this, its only affirmative propo- sition on the trust question : We favor the declaration by law of the conditions upon which corporations shall be permitted to engage in interstate trade, including, among others, the prevention of holding companies, of interlocking directors, of stock watering, of cliscrimination in price, and the control by one corporation of so large a pro- portion of any industry as to make it a menace to competitive conditions. That is the proposition that was made in 1909 and has been ad- vocated by Judge Farrar ; that was conceded to be the correct propo- sition from the restrictive side by Mr. Wickersham and has had the strong support of Senator Williams and many others. It was in effect included in the recent report of the Secretary of Commerce. I will call your attention to what I said about the corporation in the earlier part of my statement; and I ask you to consider, to assume for an instant, that the corporations now created by New Jersey were created under laws of Brazil or France and were coming into this country and were throttling its commerce. What power have you to protect our commerce against those corporations ? You all know every country has the right to exclude foreign corporations from its territory, that a corporation has no being outside of the State or country that creates it, except by the comity of other States and countries. If Brazil or France were sending into this country gentlemen with corporate powers granted by those countries it would be the duty of Congress to protect the -commerce of our coun- try against those corporations of Brazil and France. My proposi- tion is that it is the duty of Congress to protect the commerce of the country, to protect the country itself, against corporations created by New Jersey; to protect it in just the same way as it would against corporations created by Brazil or France — ^to exclude them from commerce. Of course, Congress can do it by special law, but we want to proceed by general laws. We want to proceed just as if proceeding against a corporation created under the laws of for- eign countries, and, in fact, that is what we are doing under this bill. The Chairman. You say a State can exclude any. other State cor- poration from its borders? Mr. Keed. Yes, sir. The Chairbian. You exclude those now under the power of Con- gress to regulate commerce, then how would you presume to pro- hibit from any other State commerce of a corporation which that State had legalized to do business? Mr. Reed. If you please, Mr. Chairman, I do, and I think the assertion of that power is the most essential legislative function resting in the Federal Government. The corporation is an act of government. It is a representative of special privileges and im- munities inherent in it. A corporation is an ideal agency of the Government in the conduct of railroads, public utilities, banks, and so forth, and was in the first instance extended to those railroads The Chairman (interposing) . I do not think you would find any- thing in the Democratic platform to prohibit a corporation created in a State from commerce in the United States. INTERSTATE TEADE eOMMIS'SIOST. 343 Mr. Reed. The Democratic platform says: We favor tbe enforcement by law of the conditions upon whicli corporations may engage in interstate trade. The Chaieman. But it does not say to exclude a lawful corpora- tion authorized by a State? Mr. Reed. Of course, if you declare by law the conditions neces- sary to engage in interstate trade, it follows if they do not meet those conditions that the corporations are excluded from commerce; and, as I say, that power is necessary to Congress to protect itself from corporations coming from any other sovereignty, and if — '— The Chairman. You have alluded to the platform a great deal, but you have also referred to Mr. Wackersham several' times. I do not think the Democratic conditions or principles will deny that a corporation organized in a State may go anywhere in this United States and do business, if it observes the law. Mr. F. C. Stevens. The chairman has laid down the rule not to interrupt the witness. The Chairman. The chairman is trying to understand the witness. Mr. Reed. The law on that is clear and I should like to meet you fully on it, because I am quite sure the more you study it the more you will appreciate the fact that it is essentially democratic to pre- scribe those conditions, enabling the corporation to meet them, than- it is to undertake to govern by Federal law and control the corporate rights of all persons engaged in interstate commerce. The act of Congress meets the monopolistic corporation when it crosses the State line. The Chairman. To regulate it, not to destroy it. Mr. Reed. To regulate it, not to destroy it, absolutely. A corpor- ation is essentially a means which individuals use to engage in inter- state commerce. It may be a safe or an unsafe means. Mr. Wicker- sham, Mr. Chairman, favors a Federal incorporation bill, but he says that this remedy is the specific Democratic remedy on the other side. It is the Democratic alternative to a Federal incorporation bill, and meets every intention of that bill. This is the language in Judge Smith's bill, which is similar to the bill of Mr. Stanley. It is limited to industrial and trading corporations: No corporation shall engage in commerce between the States " unless it is organized under laws or with a charter that — provide — that no person shall be or act as a stockholder or member thereof — who is engaged in any sub- stantially competitive business — or is a stockholder or director of any corpo- ration engaged! in any such business." * * * If its authorized capitalization, including stock, if any, without par value, at $100 per share, exceeds $200,000,000, unless a larger capitalization shall be per- mitted by special act of Congress, subject also to any lower limitation of capital which Congress may at any time prescribe for corporations engaged in any particular industry. And when that has done that the corporation has become an inde- pendent business unit, and if Congress by this method, or any other method, will so legislate that every industrial and trading corporation engaged in interstate commerce shall be an independent business unit, safeguarded against acquisition or control by competitive inter- ests, with all the efficiency of the corporation for its business, but in other respects in the same position as an individual or partnership and not lending itself readily monopolistic devices and uses, then I 344 INTERSTATE TRADE COMMISSIOII. believe you will solve this probbm; monopoly will be impossible in the United States ; you will have the corporation back where the in- dividual was, and monopoly will not arise through unfair competi- tion or business methods. The laws of trade remain free. Mr. O'Shaunessy. Will you read that again, please? Mr. Eeed (reading) : There is a lot of detail, but you can make it general and even brief, 1 think, if you simply say no corporation shall engage in interstate commerce if it permits the transfer of stock to any person, unless the transfer is accompanied by proof that the person is not a repre- sentative of a competitive interest. Mr. Chairman, if you prefer a law that deals directly with the cor- poration engaged in interstate commerce The Chairman (interposing) . If you address that question to me I will answer it. Mr. Eeed. I have not finished. I am not making a question. The Chairman. You ought to prohibit these acts and punish the officials who do it instead of putting the burden on the corporation. Mr. Reed. Then provide that no officer of a corporation shall per- mit the transfer of anj^ stock of any person unless accompanied by proof that that person is not a representative of any competitive in- terest. There will be no use for a holding company if that provision is enacted, because the holding company is only formed to control or combine competing corporations. There would be no real need for. prohibiting interlocking directorates, because they only represent interlocking interests, and if you make the control of the corporation itself absolutely divorced from every competitive interest, you will have destroyed monopoly at its source. You may go into details on that proposition, or you may make it by simple, short law." This particular proposition of the simple short law is practically new in the evolution of this proposition. We have these long bills, which I think cover the thing effectively, but I have become convinced that if you strike right at the root of them, strike at the ownership of stock, in accordance with the President's message, you will evolve a bill that will meet this evil and not play with it. I ask your leave to insert at this point a short bill which I am now putting into form. (The following is the bill referred to by Mr. Eeed:) FEDERAL BILL TO PREVENT INTERCORPORATE CONTROL EVERY INDUSTRIAL CORPORA- TION SHOULD BE AN INDEPENDENT BUSINESS UNIT. (The words italicized may be omitted and the words in parentheses substituted.) 1. That no industrial or commercial corporation engaged (shall engage) in interstate or foreign commerce shall after one year from the passage ot this act (if it shall) permit the transfer of any stock unless such transfer shall be accompanied by a statement signed by the transferee stating that he does not represent any undisclosed owner of said stock or any competitive interest, either as a director, officer, employee, agent, or stockholder of any competitive corporation, or as the owner of or a partner in any competitive business, or otherwise directly or indirectly. 2. That no such corporation shall (engage in interstate or foreign commerce) after two years from the passage of this act (if it shall) permit the voting of any stock, by proxy or otherwise, unless a statement Shall be signed by the holder thereof, stating that he does not represent any undisclosed owner of said stock or any competitive interest, either as a director, officer, employee, agent, or stockholder of any competitive corporation, or as the owner Of or a partner In any competitive business, or otherwise directly or indirectly, nor, if INl^KSTATE TBADE COMMISSION. 345 sucli stock is voted by proxy, unless a similar statement shall also be signed by such proxy. 3. That any person who shall attempt to transfer or vote any stock in viola- tion of the foregoing sections of this act, or sign any statement required thereby which shall be false, shall, upon conviction thereof, be subject to a flue Hot exceeding $1,000, or if such act be done or if such false statement be made with Intent to exercise or to conceal a control of one or more corporations for the purpose or with the effect of preventing free competition to a fine not exceeding twice the par value of any such stock aiid to imprisonment not exceeding five years. ' Mr. Reed. This bill will be based directly on the party platform; will carry out the pledge to the people and in the words of the party platform make it impossible for a monopoly to exist in the United States. When you have done that and gotten back to natural condi- tions; when you have gotten trade back to natural conditions, then we can see how much evolution there is in cooperation and monopoly if it evolves naturally. It has not evolved naturally in this country. The gieat monopolies of Germanj'^ have not evolved naturally. The whole German Government is a machine, and the monopolies are a part of it. It is suited to their form of government, and if we re- tain it in this country our form of government has got to be suited to it. This is not a question we can trifle Avith. "We may feel in- dividually free in many things, but when we go back to our homes we find the monopoly interests are grinding there to-day just as well as a year ago or five years ago, and even more so. The people of this land are actually suffering. Mr. O'Shaunessy. How about England? You spoke about cor- porations there? Mr. Reed. I am not familiar, in detail, with the situation, but I have seen it stated on authority, and I think it is a fact, that there are no real monopolies in England, nor real monopolies in Australia. I do not believe there can be any real monopolies in any English- speaking coimtry with English ideals and democratic ideals if it retains proper control over the creation of its corporations. Our condition here is anomalous. It has arisen out of our dual system of government, but only because we have failed to exercise an existing power to prevent it. If we exercise that power we will be in 8 more fortunate position than the country that creates its own cor- poration, because we shall have the Federal power and the Federal Government exercising its essentially democratic functions", the duty of protecting the individual against the abuse of powers by the state. The Federal Government can only act restrictively— — The Chairman. Your time has expired; but if the committee is willing, you can come back and get on the grill at 2 o'clock again. Mr. Van Hise will take the stand. STATEMENT OF MR. CHARLES R. VAN HISE, PRESIDENT UNI- VERSITY OF WISCONSIN, MADISON, WIS. The Chairman. You will proceed without interruption for a while. Mr. Van Hise. If satisfactory to the committee I shall be glad to do so, but, of course, I do not wish to pass over questions which members of the committee may wish to ask; but if I may present the general aspect of the matter, make a general statement for half an hour, and then take the second half hour for questioning, this would be agreeable to me. 846 INTEESTATE TRADE COMMISSION. The Chairman. Unless there is objection the witness will be al- lowed to proceed for SjO minutes, and then be subject to cross-exami- nation. The Chair hears no objection. Mr. Van Hise. In regard to my qualifications to consider the ques- tion of an interstate trade commission proposed in House bill 12120, 1 have to say I am the author of two books, one upon the " Conserva- tion of natural resources of the United States, and another book closely related to the subject before the committee upon " Concentra- tion and control, a solution of the trust problem in the United States." The subject of centration in industry is one to which I have been giving special study for a number of years. At the outset it seemed to me that it should be clear that the question is not one which re- lates to monopoly alone, as has been indicated by the gentleman who just spoke. There are relatively few monopolies in this country , in the strict legal sense of the term. There are very few, if any, organizations now existing, a single one of which controls the busi- ness of the country or controls the^jnarket. However, in this twentieth century an entirely new factor has arisen which puts a different aspect upon trade, and that is cooperation of organizations which have not reagKe3."tRe stage of monopoly ! rrthe problem were one simply of control of monopoly, it would be a relatively simple one. We could all agree, probably, upon the principle that monopoly should be prohibited; but the principle of competition upon which we have relied to control business in the past has broken down under these new conditions. Business men and business interests have found it so much more profitable to cooperate than to compete that tiiere Js coogM^/tJOTieyerywhere a nd the market is controlled, whethe r or^ not the orgaiii zaHons are of la rge size! 'I'here is just as com- plete or perfect coopCTalion" between th6""two icemen or the three anthracite dealers at the country crossroads to control the market that there is between the five great organizations which control steel. In other words, cooperation has extended throughout the country in aU lines of business from the great centers like New York, Chicago, and Philadelphia, to the village. I have met business men all over the country; I have asked them the question whether or not in their business they are cooperating — not for publication, but for private information — and I have been asking this question for five years^ and I have not found a single man who, talking to me as an individual, and not to use the informa- tion, who has pretended to deny that cooperation exists in his busi- ness. Only yesterday I spoke to the Chamber of Commerce of the United States upon this question. Many men have come to me from various lines of business since that time in regard to my address. I took occasion in a number of instances, when opportunity offered, to ask them: " I do not know what your business is, but am I wrong in believing that cooperation exists in your business? " and I have not received a single negative answer. They all agreed that coopera- tion exists everywhere; therefore we have not the problem before us simply of a few monopolies, but we. have before us the general irre - sistible impulse of c ooperation in every line of business eyerywhere all over t he country7 ~and tKatlTthe new situation wfai^justifi es INTBESTATE TEABE COMMISSION. 347 pu blic control . It appears to me that our experience in this country in relation to other lines of business shows the direction of progress. For a long time we held that in the case of public utilities, illustrated by the railroads, that they should compete; and we did depend upon competition to control rates. The result you all know. One day you could ride from Washington to Chicago for $1 and another day it would be $30. One day your freight rates would be high, abnor- mally high, another day they would be abnormally low. There was an intolerable situation. No business man could foresee the cost of his transportation; he could not plan his business in advance. The great combinations, through unfair practices, gained advantages through rebates in many cases and drawbacks in some instances. It was an intolerable situation. It was found to be more important for the country to have fair rates all the time, uniform, and maintained, rather than fluctuating rates, unreasonably high to-day, unreasonably low to-morrow. This situation led to tljie creation of the Interstate Commerce Commission, with small powers at first, really those of inquiry ; later the powers of the commission were gradually extended step by step until they now include those of suspending proposed advances of rates pending inquiry into their reasonableness. But what are the existing conditions? Why, we have just com- plete and continuous cooperation among the railroads as we have among the manufacturers. Does it make any difference over which road one rides from Washington to New York, provided he goes in the standard time? Is there any difference in the freight rates? There is cooperation everywhere. It is not by act of Divine Provi- dence that freight rates ]?etween New York and Chicago, for any line of business, are absolutely the same on all roads. It is because therei is mutual understanding and agreement between these railroads.' They are just as much violators of the Sherman Act as any great corporation ; however, nobody proposes to prosecute them because of this. Why? Because we have no longer any interest in their co- operation in fixing rates, because the public is protected through its Interstate Commerce Commission. If the railroad charges unreason- able rates -or engages in unfair practices or discriminates, the remedy of the people, of the individual, is through the Interstate Commerce Conmaission. Thus we now recognize for the great public utilities th at compe- tition has broke n down absolutely to control rates, to conCror service , and we ad mit cwperation, giving it full sway. We protect t°&e public ~ l^oiigjr^comLmissions: If thSe "grSat* organizations are allowed to cooperate, the public is helpless unless it is protected t hrough a commission. I'recisely a similar situation has arisen regarding pure food. It used to be believed that competition was sufficient to give us pure food ; but we had articles called " pure strained honey," that were innocent of the bee; articles called ^' maple sugar," that had no re- lation to a maple tree; and innumerable adulterations and frauds, every one of them contrary to law. Anyone guilty of these practices, if convicted in the courts, could be punished. If I were sold an article as pure maple sirup that had never anything to do with the maple tree, I had a remedy in the law; I had been fraudently dealt with. Theoretically, I could go into the courts. Did I do it? Did any 348 INTERSTATE TRADE COMMISSION. laan thus protect himself from these frauds? It was im,practicable. The expense of the remedy so far outran the damage that while having theoretically a remedy in law, the wronged individual was as help- less as a baby in front of a locomotive. What then is the remedy? We followed t he same step in regar d to pure food that we fol lowed in coiuaection wxtU tJie public utilities. We enacted pure-foo S~laws," State and ^ationg lr; " arot" w jjut Ih fi e nforcement of those liTEKeTiands o f administrativ e commissions.' it became the duty "STEEe commissions to protect thelHtlMd.'ilBJhagainst wrongs concerning which he was helpless. As showing the principle involved, I shall narrate a personal in- cident. I shipped a canoe from Superior to Madison, Wis, It was delivered in my back yard in my absence with a great hole in the bow. The family paid the expressage, I informed the express conj- paAy that I should have the canoe repaired and send them the bill, I did so. After a time I had an answer, asking me to give them my bUl of lading, and do this and that. Correspondence went back and forth under the practices which frequently prevail in matters of this kind. Finally, I said: " Gentlemen, I have finished writing in regard to this matter. If my claim is not settled I shall present the matter to the State railroad commission." I had a check by return mail. "' ■ -^--^-^---^ ^ ' ' ■■'•■■ to protected m small matters m regard utilities, and in relation to pure food there is no w a si tuation in th is country in which t he individual i s just as he lpl ess agamst the gr eat industna r Qr^anizatlms~a's"ire~w"as in the past in regard to'pubK c utTir ties and with reference to pu re food. • Why, gentlemen, what diflerence is there between the United StaEes Steel Corporation and the Pennsylvania Railroad so far as their importance to the country is concerned, except that one^as been declared to be a public utili ty a nd the other has not ? Ifis welt settled law that businesSj__aft^it rea ches a certain magnitu de, becomes v ested with a' public interes t. TMslhas been carried thro ugh tHe Courts in the warehouse cases , and it is settled law that a business may become so large, even it not a monopoly, as to be vested with a public interest. Similarly, wherever the market is controlled through the coopera- tion of a number of small interests that business becomes vested with a public interest. It has sometimes been proposed that we remedy the matter by dividing the big corporations up so that one shall have more than a certain proportion of a business. It has been proposed that the pre- sumption is against any business that has more than 30 per cent. I assert i t makes little difference wh ether a business is so divid ed as to make two cbn^rns'with do peFcent oFIEve wit*B~25"per cent, or ITjU' with 1 per cent ; for in each ca^ they ca n cooperate psi- fec tlv to control the marl^et. lhans~dem,onstrated by selling agen- agencies which now exist amoW the farmer. The cranberries of this country are grown in three States — in Wisconsin, in New Jersey, and at Cape Cod, Mass. Three widely-dispersed States produce nearly all the cranberries that go on the market. Within each State are hundreds of producers; an& yet more than 90 per cent of the cranberries in the country are sold through one selling agency down in Hudson Street, New York. Through selling agencies, subdivision, INTBBSajA.TB TBADE OOliIMISSION. 349 however small, may result in perfect cooperation to contiiol. the ma-rket. ™~ ^It appears to me that when there has arisen a situation i n this c ountry in which the market i s controlled ^everywhere fo r every- t h\T}g, pithey by nia gnitT^ide or hyToopgratioj_,^thjR re^i^^ vention of the Government . If this is true, what is the line of progress ? It seems to me our experience with the pure food laws, our experience with the public utilities, point the way. The courts have been wholly inadequat e to meet the situation. They have failed utterly. JNot that the cases have not been fairly dealt with which .have gone into the courts, but because the machinery is ^o slow and so expensive that it is im.pQssible for the couxts to hajidle the ^.ffairs of cooperation. There must be an administrative body in this relation precisely as there is an administrative body to handle the public utilities. There s hould be created an interstate trade commission to control, to regu- late, businesses which eftopiratr to"TDtrtTDl'ttre~ai aTk tit and ■ in llii s majinjer to protect the public. Suppose that in 1900 we had had an interstate trade commission, do you believe the United States Steel Corporation would have so conducted its business that during 10 years in addition to paying dividends on its stock and on its boinds, and even including its common stock, which was aqua pura, it put $&OO,OOO,Q0O back into the business to make that aqna pura suhsta/nce. The commission would have intervened ; th«y would have said that this gigantic business which controlled hiti-f, of th« steel production of the country must be conducted in such a way th a-t the public shall b e considered as a third int^erested party. In ajl great manufactories there are three interests concernecf — tJie laborers who are concerned in the production of the article, the capitalists who conduct the business, and the pubiic who buy the goods. Frequently those who have been producing the goods have neglected two of the three parties concerned, Who can deny that the wage conditions, the con- oitions of sanitation and safety, have often been those we can not defend ? Too frequently there has been exacted from the public huge sums through unreasonable prices. Those conditions must continue if we are to have the efficiency which goes with magnitude and do not have public control. This brings us to another angle of the problem. It is necegsary , it is advantageous to hav e a degree of magnitude which results m efficiancv. There is a differinceoFopinion regar3j^T;he extent of that magnitude. Secretary Kedfield and Mr. Brandeis think that very often already organizations have gone beyond the magnitude which gives the highest efficiency. Others hold that the contrary is the case. I would say that relatively fe w organizati ons, so far as I can see, have gone beyond the mamituHe'wIi^r produces' e ffiSianc^ But those are opinions, opinions ot the honorable Secretary' and Mr. Brandeis, and the opinion of Mr. Van Hise, and neither side can prove his case because investigations have not been made to determine the facts. In only a single case has the Commissioner of Corporations ascer- tained th« facts by an exact investigation. One investigation ha^ been made by the former Commissioner of. Corporations, Mr. Herb^t 350 INTKBSTATE IRAOB COMMISSION. EJlox Smith, in regard to the magnitude and efficiency with relation to steel. This investigation, of a very elaborate character, proved beyond question that in the case of steel the big five produce pig iron and steel $2.50 to $5 a ton cheaper than the smaller organiza- tions. Therefore we know that a $100,000,000 combination in steel is more efficient than a $10,000,000 combination. We do not know whether a $1,000,000,000 combination is more effective than a $100,- 000,000 combination, because the commissioner, unfortunately, did not carry his investigation to the end and determine the relative efficiency of the United States Steel Corporation as compared with the other big four. What we need in regard to the relations of magnit ud e and effi- ciency, is not opinions, out facts. We~neecrTffyesSganonsTo"3eEer- mine tTie"actual cost of various products all over the country with relation to efficiency, with relatiW to conditions of labor, with rela- tion to reasonable prices; and i jiose powers you are proposing to g ive to this in terstate trade commission, it may be said tnat tiie (Jom- missioner ol Uorporati'OT[s'''Eas"£his power at present, but the task is too big to assign to any one man. It should be assigned to several men, each to have direction of a different part of it. The gigantic character of the task leads to another suggestion. We should maintain that degree of magnitude which gives highest efficiency. If corporations have surpassed the extent which gives efficiency ; if they have grown, as some have said, so large that they are inefficient, then it may be well to destroy them. But if it should prove to be the case that the greater number of these orgaSizaS5B 5 are such as to gi'VB high efficiency , th en thelpfoblem is a ralr distri - butioii of JEe proMfs '6i"ffi 'e"'Business tivbhe producers, the wageworJi- ers. and the public. "' - ~ -"■ What organizailon can possibly accmnulate the facts to determiae this point, except an administrative commission with power of initia- tive in investigation, with power to look into a business from aU points of view, with power to require reasonable and fair practices in a business such as we insist shall be enforced for the railroads. There is n o other governmental organism to accomplish this work except the admi nistrative commission. The principles of adminis- trative law"wliich "we'Took at, some o:f us, with fearful eyes because their application is new in this country is common in some other countries. In the continental countries administrative law is well developed. Therefore in creating an administrative commission you are simply doing in this country what is done in other countries and what we know we can safely do because of our experience with the public utilities and the pure-food cases. The creation of an inter- state trade commission is an application of well-tried principleslo analogous condition s. . 1 wish, liowever, fo'make one suggestion concerning the biU before the committee. I can not within my hour discuss the items of the bill in detail. I can only put before you the prmciples. It seems to me it would be wise in this bill to indicate in one section, section 9 the purposes of the proposed investigations. I would not propose to limit the scope of the investigations, but it would not be wise- it would not be advisable— to put upon this interstate ttade commis- sion the burden of investigating every business everywhere of every INTERSTATE TRADE COMMISSION. - 351 kind which is engaged in interstate commerce. If there be added to section 9 some clause which says that it is the purpose of this section to investigate those lines of business which are so large as to be affected with a public interest or which by cooperation control the market, then you limit the work of the commission to those cases where they think they should act as the result of complaint or on their own initiative. Where the commission think the magnitude of a business is so great as to be vested with a public interest, or they believe that through cooperation it controls the market, you give them a principle which will make the work of the commission possible. The interstate trade conuriission, even if granted almost unlim- ited funds and allowed to eilgage a great group of experts, would find it physically impossible to investigate every small business in the country. Therefore it is wise, especially at the start, to go for- ward cautiously. There are those who would give the interstate trade commission power to fix prices, etc. I am not in favor of this at the present tin:e. I am in favor of giving powers conservatively to an interstate trade commission at the outset. Then, if from time to time we find that these powers are not ade- quate, they can be extended by amendment as they have been for the interstate commerce commission. If you limit section 9 so as to confine the investigations to the class of business named, you take out a large part of the business which is to be investigated, and you assign the trade commission a possible task. I myself am a firm advocate of the interstate trade commission; but I would be rather conservative in the powers I gave it first, because I feel if I overshot the mark there would likely be a reaction, whereas if their powers are made so reasonable and so circumscribed as to be safely within the principles applied to the interstate commerce commission, and the pure- food commissions; then we shall be prac- tically certain that this commission will be successful. If the situa- tion so develops that they have inadequate powers these powers may be enlarged. I see that my half hour is gone; and I think I have covered the essential points of the argument on the broad principles. I shall therefore be very glad to take the second half hour in answering questions which the' members of the committee may desire to ask me. Mr. Covington. I suggest that the doctor proceed in his own way as long as he cares to. The Chairman. Do you wish further immunity from interruption ? Mr. Hamilton. I do not want to interrupt except to ask Mr. Van Hise, for the benefit of tiie committee, if he could not take up, for instance, the bill that he has under consideration now and incorporate as a part of his remarks that bill with the practical suggestions that he desires to make. Such suggestions would be valuable to the committee. Mr. Van Hise. I shall be very glad to do that, if I can take the bill home and work on it. Mr. Hamilton. You have the right to do that in extending your remarks. Mr. F. C. Stevens. That bill has repudiated in every section and every line. I think the committee realizes it is unconstitutional in at least two provisions in about every section. 34082—14 23 352 INTEBSTATE TRADE OOMMISSION. The Chairman. "What bill— the Clayton bill? Mr. F. C. Stevens. Yes ; the Clayton bill. ... The Chairman. Mr. Van Hise, you will have permission m revis- ing your testimony to extend in any way you wish. Mr. Hamilton. We should be very glad to have you go so tar as to incorporate as a part of your remarks an original bill. That would be very useful to this committee. Mr. Sims. You mean a bill drawn by himself? Mr. Hamh/ton. Yes. The Chairman. He can send in a draft of any bill he proposes. Mr. Van Hise. I think if you will give me two or three minutes I can tell you what I regard as the fundamental principles which should go into that bill. Mr. Covington. That is what we want. The Chairman. There is only one thing I want to suggest to you before you do that. I see you have a very analytical mind. I want you to do what some of the witnesses have failed to do, differentiate between the powers conferred upon this commission to discharge: its duty, and the general laws that Congress may pass, violations of which may be investigated. Mr. Van Hise. If I start in on that subject, I would want an hour more. The Chairman. It will cut off all talk on that subject if you will just differentiate the general powers of the commission, and its powers to investigate. Mr. Van Hise. Precisely. The Chairman. Other witnesses have confused with that the necessity of enacting about one hundred different laws. Mr. Van Hise. I have confined my remarks chiefly to the admin- istrative bill. The Chairjian. That is right. Mr. Van Hise. And whatever the laws are it will be the duty of the interstate trade commission to administer the laws, as they are now, or as they may be when amended. I have ideas in regard to certain supplementary acts. These do not concern the particular bill now under consideration. In the ^^^^ of the tr ade j^OTnmission I have covered one poin t : First.J p' limit_its_authority — ^maK^the purpose of its powefof investigation t o those lines otlS usiness which^ecause of their m agnTEuct 'e are vested w ith a public interest, or which by^^coopefation control the market. In the second place, give coihptete authori ty tf) f>^p"f'^m- m ission to investigate upon its own initiative or upon complain t- It IS no t necessary to havea lawsuit taken up. Inat i&a second fundamental point. (t) The third fundamental poi nt w-hich is vital, to ma ke the finding s ^-^ of_ttie^orrunissionlinaT a's to the_f acts" when the jase go es on appea l to the courts. Otherwise, what wHl'Tiappen 1 "A bigDusmess will come in and put its case before the commission and hold back part of the facts. The Chairman. I can teU you a worse thing than that which will happen. The Supreme Court will knock the bill helter-skelter as unconstitutional. Mr. Van Hise. If this other happens ? The Chairman. Yes. (*> INTERSTATE TRADE COMMISSION. 353 Mr. Van Hise. In regard to the facts? The Chairman. Yes. Mr. Van Hise. I believe, Mr. Chairman, that a bill can be so framed that it will be within the law in this respect, because the very same question has been up in the State of Wisconsin and has gone through our courts — ^the highest courts. I shall modify my statement in this way : I shall say that findings of fact shall be final except that when it goes to the court, if new facts are introduced, then the court must send the matter back to the commission to consider those new facts to see if the commission would wish to modify or change its recom- mendation. This being the procedure, the big organization has no interest in holding back the facts. The corporation would present its full case to the commission and the case would be tried in the courts on the basis of the facts before the commission. If, under these con- ditions, some new circumstances arise, some riew facts appeared in court which had never gotten before the commission, and either side regard them as material and an attempt was made to introduce them the court would say, " You wish to introduce new facts. Under the law, we must send this case back to the commission." In this way we escape altogether the constitutional diffculty which, it seems to me, is probably in the chairman's mind. The Chairman. Would you base criminal prosecutions under a proceeding of that sort? Mr. Van Hise. Criminal prosecutions are under the court. I have not said anything about criminal prosecutions because I am far more interested in getting a sound system developed for the control of all business than I am in punishing past offenders. I know very well that I differ from some men in this respect. Some men are very anxious to punish the men who have violated the Sherman law ; but it should be remembered that the Supreme Court has actually turned about-face in their interpretation. In the Knight case they gave a decision that manufacturers, even in separate States, could cooper- ate perfectly and they were not under the ban of the Sherman law. That was supposed to be the law for many years, and under these conditions many consolidations took place. Later the Supreme Court took an entirely different attitude and held that all manufacturing combinations were under the ban of the Sherman law. It does not seem right to bring criminal prosecutions against the men who had reason to believe, based upon a decision of the court, that their acts were lawful. I have found it to be generally true that business men at the present time, if they can find out what the law is, desire to act in accordance with it. President Benjamin Ide Wheeler, of the University of California,- said in his first address as exchange professor at the University of Berlin that the ultimate source of authority in America is public opinion. Before a public opinion had developed in regard to the Sherman law there is no question that many of our business men were very careless. That situation no longer exists. They for the most part as I know of them, are trying to get a clear, definite law, and a reasonable working basis so that they can act in accordance with it. Therefore, I am more interested in that side, in the civil eide of obtaining an administrative commission which will enable 354 INTERSTATE TRADE COMMISSION. them thus to act, than I am of punishing somebody. If you wish CO find ways to punish somebody, you will have to ask sonie other witness, because I am not interested in that side of the question. The Chairman. I never heard of a man who wanted to punish anybody. They just wanted to let them know they would be pun- ished, to persuade them to do right. Mr. Van Hise. I have no objection whatever to the penalties you may prescribe for violations of these laws, because if we can get an interstate trade commission with perfectly clear powers, and a cor- poration can say to the commission we are proposing to do so and so, and' the interstate. trade commission has authority to say, "Gen- tlemen, you may do so and so " . ■ The Chairman. If you abolish all ideas of a hell, either sulphur- ous or allegorical, the whole church will adapt itself to the world, and everybody can be a member of the church. Mr. Van Hise. If anyone desires that the religious side of the sub- ject be considered, I shall have to admit my inability to handle it. Mr. F. 0. Sttsvens. I think you should also elucidate just a little bit further the situation which you said was of most importance. That is, the orders of the commission should not be questioned as to the facts. Mr. Van Hise. Yes ; it should not be reviewable as to the facts. Mr. F. C. Stevens. What would you have the commission given power to order? That is, the substance of it? Mr Van Hise. I can best answer that by describing the practice before our railroad commission in Wisconsin. Many cases are set- tled informally. A large number of cases are settled directly by the commission, without investigation and without the appearance of either of the parties concerned. In many other cases the parties get together with the commission about a table. The matter will be informally discussed and the commission will suggest what they regard as fair and right. Uusually this is accepted by both parties. The majority of the above class of cases do not even get into the records. It is surprising the number of cases that are thus settled. It is curious to see how often diverse interests, ready to knife each other in the presence of a disinterested third party, representing the public, may be brought to see the light of reason. In a third class of cases there are formal presentations of facts and arguments as in a court. Each side puts in all the testimony it desires to do, and then the attorneys present briefs and arguments exactly as in a law case. The chief difference between a commission and law case is this: That the commission is not limited in its power of investiga- tion to the facts presented. It may take into account other facts. Sometimes— not only sometimes, but very often — it so happens that one side presents only the facts which it thinks will bear in its direc- tion, and the other side presents facts which bear in the opposite direction. That is the common method of handling a law case. There may be other facts which neither side will present that may have an important bearings on this case. Mr. F. C. Stevens. After the facts h^ye alLbegr) preseoigfiUjEhat would y ou have this commission do ? Mr. VanTIise. THen this TOmmission issues an order. INTERSTATE TBADE COMMISSION. 355 Mr. F. C. Stevens. To do what? Mr. Van Hise. Issues an order saying that this proposed co- operation of these two manufacturers is within the law. Mr, F. C. Stevens. That is a construction of th*e existing statute ? Mr. Van Hise. Yes; within the law. Or they will give an ordet that it is not within the law. The Chaibman. You say the proposed cooperation, or the one that is tried ? Mr. Van Hise. It works both ways. I can illustrate by a case where, in my opinion, cooperation should be allowed. The Chairman. _Thfiy are advise d theiijis_to_fiitu re conduc t ? Mr. Van Hise. Yes. "~~ The Chairman. Do they do that in Wisconsin ? Mr. Van Hise. In regard to public utilities ? The Chairman. Advise them what they should do in the future. Mr. Van Hise. If the particular thing is not covered by the law ? The Chairman. Do you know any ottier case where such a thing has been allowed ? Mr. Van Hise. I will explain to you the necessity, as I see it, for the granting of this power to the commission. At the present time the bituminous coal miners of the United States could produce 200,000,000 tons more of coal than is demanded by the markets. The result is that they are handling that material on the basis of extreme cutthroat competition. The result is that the big seams are being very wastefuUy mined, and the poor seams being left behind, thus leaving from 50 to 60 per cent of the material in the ground. That is because they can not limit the output and divide the market. If it were lawful to divide territory and limit output under proper restrictions, the miners could place before the commission the prob- lem. Can we cooperate in this way ? If they did legitimately cooperate, there is no doubt that it would be a great advanta'ge to the Nation, for we are unquestionably wasting the natural resources of the Na- tion, to the detriment of future generations — skimming the cream of a continent. Why, gentlemen, it took the building of a world to make the banks of coal. The Chairman. Why not introduce a bill that everybody who operates a coal mine shall get out everything there is in it ? Mr. Van Hise. It is impossible to obtain all the coal. The Chairman. Whatever part of it you want to get — I do not know what it is — whatever it is, there would have to be a law passed before the commission could do it. In other words, the enactment of such a law has nothing to do with the interstate trade commission. Mr. Van Hise. Well, I will illustrate by the existing law. The Chairman. If .such a law is passed, the interstate trade com- mission may have to enforce it. Mr. Van Hise. I will illustrate by the existing law. At the present time the United States Supreme Court has held that cooperation may be reasonable. Now, then, these men come before the commission and present their plan of cooperation. They do not now know the extent that they may cooperate under the decisions of the court. They would like to cooperate along lines that would be a benefit to the public. Suppose this committee were the commission, and I came in here representing the^coal miners of Illinois and said we wish to 356 INTERSTATE TEADE COMMISSION. cooperate along these lines. Xow, then, is this cooperation reason- able under the existing statutes and the interpretations of the courts? You, as commissioners, take up that question as a disinterested party representing the public. You make an investigation to find out whether the proposed cooperation is detrimental or not to the public welfare. You reach the conclusion that that cooperation which we propose is not detrimental to the public welfare. It is therefore reasonable. Then you permit us to enter into the proposed relation. The Chairman. That involves the full amendment of the Sherman law, does it not ? Mr. Van Hise, No; no amendment of the Sherman law is pro- posed to the committee. The Chairman. It does. You can not get around it at all. Mr. Van Hise. I am starting with the Sherman law as it now is. The Chairman. That renders necessary the most radical amend- ment to that that anybody has suggested. Mr. Van Hise. I am not proposing any amendment of the Sher- man law in this illustration. The Chairman. You are doing it in a roundabout way. Mr. Van Hise. I am not proposing an amendment to the Sherman law, nor am I suggesting that it is not advisable to supplement the Sherman law by another act. I think this should be done. But my ipoint is, whether the Sherman law stands as it is or is supplemented by additional action, the coimnission should be given power to , s^n t permission to cooperate under the law. Action under such perims- sion should be regarded as lawful until a new order is issued by the commission or until it is reversed by the court. The Chairman. That is, either granting a dispensation in advance to do something that might be prohibited, or it is extending the par- doning power. In either event it is a most radical thing. Mr. O'Shaunessy. Suppose the commission, when the case was presented, would say, " This is in contravention of the law " ? Mr. Van Hise. Very well, then any man that went ahead would do so at his own risk. Mr. O'Shaunessy. Do you think it would give a stimulus to the amendment of existing law, so as to Mr. Van Hise. I am holding it wholly independent of that. Mr. O'Shaunessy. Suppose what you want to do is a good thing, but the law does not allow it to be done. Do you think the decision of the commission would stimulate an amendment to the law ? Mr. Van Hise. No ; that is not my idea at all. In that case it would be the duty of the commission to deny the request. If the thing pro- posed was contrary to existing law in the opinion of the commission the commission would not permit it. Mr. Talcott. Your idea is simply to introduc e .a certainty? Mr. Van Hise. Yes. ^ _ Mr. _F. C. Stevens. If you will allow me to ask the doctor a ques- tion right there — there are two features in the administration of these trust laws— one, the penal, the criminal feature, and the other the civil injunctive or mandatory feature. Mr. Van Hise. Yes. Mr. F. C. Stevens. You would let the criminal feature alone? Mr. Van Hise. Yes. INTERSTATE TEADE COMMISSION. 357 Mr. F. C. Stevens. The penal provisions would apply just as they do now ? Mr. Van Hise. Yes. Mr. F. C. Stevens. The injunctive feature, however, would give the commission authority to stay, that is to say, if they found out that a certain practice was not injurious to the public welfare Mr. Van Hise. And not contrary to law. In their opinion not con- trary to law. Mr. F. C. Stevens. In their opinion not contrary to law, you would then provide that the injunctive feature or the civil feature of the existing law should not be applied to them while their order should be in force ? Mr, Van Hise. Precisely. Mr. F. C. Stevens. That is what you would do ? Mr. Van Hise. Yes ; while the order is in force. Mr. F. C. Stevens. That, of course, would deprive the Department of Justice and the law officers of the Government of their existing authority to that extent ? Mr. Van Hise. No ; because if the Attorney General did not agree with the commission he could carry the case through the courts. If the commission were found to he wrong, then the order of the court would take precedence. But I would remit all penalties from ap- proved cooperation during the time the men were acting, in n-ccQva- ance — — Mr. F. C. Stevens. Do you mean the criminal penalties ? Mr. Van His3E. I do not care about the criminal penalties. The Ohaieman. There would bS, no value in it if you did not. Mr. Van Hise. I would leave , the penalties until such time as the court did act. The Chaiejian. That has been presented to us by : several geiitle- jnen. The result is that it involves an .ameiidpiep,t most radical ,pf the existing law. I wish you and other intelligent gentlemen like you would try to diffierentiate between a commission and the general laws of the land, and tell us how that commission can help enforce the existing laws or other laws that may be passed. Mr. Hamilton. M-Slj I ask this question before Mr. Van Hise passes on: If you give this commission power to give a special dis- pensation by which the Sherman law ,rnay be in effect to ,tbiat .extent abrogated, then you amend in effect the Sherman law, do you not? Mr. Van Hise. No; you do not amend it, because there remains the power of .the Attorney General to begin action upon any case at once. Mr. Hamilton. Pardon me, but would it not be an almost perfect defense for the defendant to set up that he had received an order from the commission permitting him or them to do this particular thing? Mr. Van Hise. Yes ; and I would make it a defense for that time ; but the moment the court reverses the commission, then the practice must be in accordance with the order of the court. Mr. Hamilton. As to the time that dispensation should continue, might it not be during a time prescribed definitely by the com- mission ? Mr. Van Hise. Precisely. 358 INTEESTATB TEADE CQMMISSION. Mr. Hamilton. That is to say, this cooperation might exist for one year or two years, and then end ? Mr. Van Hise. Yes; the corporation would be allowed under the conditions which the conunission prescribes. I do insist that this power is necessary if an effective commission is created. The powers advocated — granted to the commission — I should be conservative in the granting of additional powers. I am advocating the fundamental principle that the commission start with conservative powers and that additional powers be granted as experience justifies. And therefore I am not standing or falling on any one suggestion, but I make that outlined above for your serious consideration. Mr. Talcott. Whether cooperation is reasonable or whether re- straint of trade is undue in any single case, is a matter that lias to be decided in that case itself? Mr. Van Hise. Yes. ' Mr. Talcott. And this commission gives a decision upon a sup- posed cause of action ? Mr. Van Hise. Yes; precisely. Mr. EscH. In the meantime, it would decide many controversies and very few would ever get to the Attorney General ? Mr. Van Hise. Yes ; that is the situation, because I know it works that way in Wisconsin in regard to the public utilities. The public utilities cases are largely disposed of without ever going into the courts — only a few will get in the courts. There is an occasional appeal from the commission, but for the most part the commission's work is sound and the determination of the commission is sustained. The railroads do not appeal ; it simply increases their expense by the useless appeal, and it is not worth while. Mr. F. C. Stevens. There is one suggestion I wish you would give us your thought upon. This committee has had jurisdiction of the interstate-commerce law, and we have had considerable experience in its operation, and we have done the best we could to satisfy the business interests of the country and to provide a sufficient law to regulate them, and it has been somewhat satisfactory. And yet you realize there is a very great agitation throughout the country for Government ownership of railroads, and that that agitation is in- creasing, and that there are many wise men, conservative men, who believe that the time is not far distant when we shall have Govern- ment ownership of railroads. Mr. Van Hi^e. For my own part, I take just the reverse position. It seems to me that the safest and surest way to prevent Governme nt ownership in the operatioiTof great properties is through"reguIaiSon. We can not stand in this country either the conditions of cutt hroat c ompetition, nor can we stand monopoly. Those two conHTtirais are alike impossible 'a]53nuEKS[BraBIer~"Cufmroat competition ofteh leads to the destruction of the smaller interests and the dominaH^^e of the great interests. If this process results in monopoly, the big win- ning and having the power to destroy, we will tak^ them over. Then there would be Government.ownership. But i£/^e allow legiti - mate business to cooperate along reasonable and fair lines, with pro - tection , to the public through control, public o wne rship will b e uii- necessary. """ 1 may illustrate by the case of the Western Union Telegraph Co. and the American Telegraph & Telephone Co. Under the Sherman INTBESTATB TBADE COMMISSION. 359 law their alliance would be dissolved if taken into the courts. But if we can control the alliance why not allow the cooperation between the two? Why, the telephone lines can be used at the same time. Messages are going by telephone for telegraphing. Four messages can be sent by telegraph on the circuit over which you are talking without any interference whatever. The telephone lines are entirely adequate to handle the telegraph business for much of the country. Why_ should the public pay the interest on stock and bonds to support two independent sets of wires and poles? It is a great additional unnecessary charge upon the people. However, if you permit co- operation with regulation you can make the prices for your tele- phone and telegraph service reasonable, just the same as has been done with the express companies. If the prices are made unreason- able through commissions .what possible necessity is there for public ownership 5 The public is protected, and therefore the surest way to escape public ownership, which I for one should very greatly regret, with regard to any one of these great lines of business, is public control. Mr. Sims. Effective control ? Mr. Van Hise. Yes. Mr. Sims. What I wanted to ask the gentleman was this, so as to see if I get your position. I am more interested in finding out your position than to let you know what mine is, if I have any. If I un- derstand ^oUj^ you want the commission t o have the p ower to issue pe rniissiYe or proEiBitive ofdersl Mr. Van Hise Yes. ~" Mr. Sims. And in case of a permissive order, imtil th at, nrclpr ia a ttacked in the court and s et aside, i;hatJtha,t Rha,]].rema.in i,ii,.e,fl;ect as between the parties and the public until that order is attacked in the court and set aside by the court upon the ground that the commis- sion made an order it did not have authority to make, which was in violation of some law which the commission had no power to sus- pend ? Mr. Van Hise. Yes : with one qualification, that, as has been said, the commission may make an order for a limited time or may at any time set aside its own orders. Mr. Sims. It is an order that is good u ntil the commission s ets it a side or revokes it or th e court sets the o rderliiide upon the ground that the commission w as not clQtiiecLwith, authority^tg^ maSejt}. Mr. Van Hise. Yes ; that is correct. Mr. Sims. That is the effect of the permissive order. On the other hand, s hould the commission find that this was a cooperation that was against public interest, in restrain t of trade, and so on, they would issue an order t haT iT t h^^arties Imdbeen^ exercising such cooperation they shal l cease and'HesTst fromit for £perio3* stated in the order ? Mr. Van Hise. Precisely. Mr. Sims. And, therefore, the period of the vital existence of that order is the period which the commission fixes that it shall not be liable to civil penalties at the suit of anyone until a court has held that that order was invalid ? Mr. Van Hise. Yes ; either the court or the commission. Mr. Sims. Of course, if the commission reverses its own order, that ends it? 360 IKTEESXATE TKADE COMMISSION. Mr. Van Hise. Yes. _ Mr. Sims. That they shall not be held liable at the suit of anyone ±or the period from the time the order was made until either re- voked by the commission or for the period that its life has termi- nated by an order imposed thereon, so that parties, as I understand, getting such permissive orders would feel at least that they were free from prosecution during the life of the order or until it is re- voked or modified? Do I understand you say that is right? Mr. Van Hise. You have it right. Mr. Sims. That is a practical aipplicaition of whai you think? Mr. Van Hise. Yes ; you have it exactly. Mr. Talcott. The ruling of the commission is based on cerfcaikn facts? Mr. Van Hise. Yes. Mr. Talcott. And that ruling when -made should recite those facts, should it not? Mr. Van Hise. Yes ; the records should show the facts. The com- mission would investigate, and, having even a larger power than the court to inquire into the facts, it would enter into all the facts and the law, and on the basis of all the facts and all the law would issue its order; and this order would be good imtil reversed by the com- mission or the court. Mr. TALGonrr. If lOther facts were introduced after Mr. Van Hise. If other ifacts appeared, it would be a sufficient ground for the commission modifying^its ordej;. Mr. E. B. Stephens. Would you give an appeal from the deeisi on of .the commission to the courts? Mr. Van Hise. That is unavoidable imder our comstitutionail sys- tem in this country . I would give an appeal to the courts. I5utlf after a case went into the courts and either side said that her e are facts which must be introduced which were not beforelbhe commis- sion, the n I would make it tlie faiw iliai'tBiat situation' re€|uires" tbat the matter be remanded for reconsideration by the c ommissiflB T, in the light of all the facts, so that the commission cotM make' dj) its findings on a basis of all the facts. Then it would n ot be necessa ry for-the cour t to go h^ ypnd t he , fin d ing of the com misisononllhe facts. The court would need only to consider fihe law. *" MrrR.'^."B™PHiNsr'S'upp6i!6 WW eoiramssinn allows a certain form of cooperation that is reasonable, and issues an order that that is a reasonable form of cooperation, would you allow the Attorney Gen- eral to bring suit in the court to dissolve that form of cooperation in a legal proceeding ? Mr. Van Hise. Yes. Mr. E. B. Stephens. In that proceeding, would you allow the 'find- ings of the commission to go into the record as prima facie proof? Mr. Van Hise. Yes. As a matter of practice, it works out that a commission is of great assistance to the Attorney General. The At- torney General has always more cases and work to do than he can possibly accomplish. Here is a case in which he believes that the com- mission has gone wrong in its application of the law. It then be- comes his duty to carry that case to the court upon the law. He will not care to go into a reinvestigation of the facts. He will not be interested in this aspect of the matter. He will take the case into the court upon the facts that were before the commission. If he goes INTEESTATE TRADE COMMISSION. 361 into court and other facts do appear, or he wishes to present other facts, he presents those facts, and then the case comes back to the commission to reinvestigate and take into account those facts, and see whether in the light of all the facts they wish to modify their order. If they refuse to modify their order, and the Attorney General be- lieves the commission is still wrong, he would push his case in court. Mr. Decker. Professor, as I understand it — and I am asking purely for information to get your views^the Interstate Commerce Commission at the present time has seven members ? Mr. Van Hise. Yes. Mr. Decker. And I believe it is conceded ; at least, it was brought out here that there are a great many things they have the right to enforce they have not the time to enforce, as they are almost over- whelmed with work. If you give this commission the power to make these orders that you suggest relative to the business, would not this commission have an incomparably greater amount of work to do than the present Interstate Conmierce Commission? While the Interstate Commerce Commission has a large business, yet it is of one kind of business, to wit, transportation; but this commission, would it not have a multitudinous variety of businesses to deal with, and do you not think it would be going far enough to have them investigate the facts and assist the Department of Justice without passing on these questions finally, even as to the facts? Mr- Van Hise. The Department of Justice has to do it. Mr. Decker. There are a great many cases to come before it. Mr. Van Hise. I wish to make it clear, if the committee thinks this isgQing too far, that it is better to establish the commission without this power than with this power ; but to adequately meet the situa- tion, it should be done. But you will remember my qualification, al- ready made, that I would have the commission limit its work to those organizations which are so large as to hb vested with a public interest and those that by cooperation control the market, and thus greatly limit the number of organizations with which it would deal. Mr. Decker: That brings me to ask this question, which I wanted to 9^ you : Do you not think this commission, just given the power to make investigations and inquiry into conditions and facts, would have a great tendency just through the means of publicity to prevent a great many of the violations of law that now exist and the viola- tion of laws to be passed at this session of Congress or in the future, that would exist without such a commission? Mr. Van Hise. I think it would be a very great improyement over the existing situation, to create a commission as you indicate, al- though I think it would be better to extend the power of the commis- sion further and lessen the work of the court, because the commis- sion is so much more efficient to handle complex questions relating to industry than the court. Mr. Decker. You speak of limiting the power of this cominission as to the larger corporations. I just want to call your attention to the fact that some witnesses here have suggested an arbitrary figure; thev would say, for instance, that this commission should have j uris- diction over co rporations that did $B,UOO.00O or ^b,000,UOU wortn )f gross businessl How does.tha lE ide a appeal to YQU? Mr. Van Hise""T do not approve^of it^at a ll, for the reason tha t businesses much smaller than those "mentioned can cooperaFe'K 362 . INTERSTATE TRADE COMMISSION. trol the market, and the control of the market is the important thing . A business may be so large of itself as to be vested with a public interest, or a number of small corporations may cooperate to control the market. Mr. Montague. I understand that in lieu of any figure as a factor to determine the class of the corporation you determine it by the con- dition or the operation of the business, namely, its magnitude, first, and, second, the extent of its cooperation? Mr. Van Hise. Yes. - Mr. Montague. Which might result in monopolistic tendencies? Mr. Van Hise. Yes ; control of the market. Mr. Montague. You leave the money factor out as drawing a line of demarcation? Mr. Van Hise. Yes. Take, for instance, the case of the cranberry growers, already mentioned. Suppose you wish to prosecute them. For my part, I think that is one of the beneficent trusts ; and I think it will not be popular to bust the trusts when the farmers understand that their trusts are to be busted. But that business illustrates the situation, that cooperation of small dealers may result in the control of the market; and the cooperation of a number of small businesses, through the control of the market, may be just as great an evil in principle, although not so great an evil in its effects, as a vastly larger business. Mr. Dan V. Stevens. I just wanted to come back to your statement, originally. Doctor, that cooperation is practiced in business now. Mr. Van Hise. Yes. Mr. Dan V. Stevens. And it is apparent to all of us that coopera- tion is essential in many lines ; for instance, in the marketing of farm products, such as fruit and grapes, and other products of that char- acter — cranberries, for instance. It is essential in order that the pro- ducers may sustain themselves. I remember in Michigan a few years ago they were grouping up their vineyards because the producers could not possibly market their crops independently and get any- thing out of it. 'Now they are prosperous. Now, that cooperation is absolutely essential, as I understand it, and yet it is absolutely con- trary to the Sherman law, unless we base it upon a reasonable co- operation. Mr. Van Hise. Yes. Mr. Dan V. Stevens. It is your idea that where this line is not clearly defined that this trade commission can often allow this co- operation in the interest of the producers and the public and not call into question the Sherman law at all ? Mr. Van Hise. That is precisely my idea. However, it is my be- lief — I can not take that up here — ^that there should be a slight amendment or supplemental act to fully meet the situation. This afternoon I am to go before a committee on that other point. Gentlemen, this is the situation: We havt an irresistible wave of cooperation among the farmers in the South, in Nebraska, Wiscon- sin, and other States, and yet the crest is still rapidly rising. This wave of cooperation will sweep over the country within two years, and we shall have everywhere cooperation among the farmers, which is just as clearly in violation of the Sherman law as has been this cooperation among the manufacturers. Therefore in the next po- INTERSTATE TEADE COMMISSION. , 363 . litical campaign it will not be so popular a cry in winning votes to shout " Bust the trusts "_ as it was two years ago. Mr. Hamilton. In brief, I understand you to say that you propose to limit the jurisdiction of the commission to corporations — individ- uals and associations of individuals — whose business is affected with a public interest, to use a common-law phrase ? Mr. Van Hise. Yes. Mr. Hamilton. That would be substantially the language that you would put in the bill ? Mr. Van Hise. Yes ; and with this, " or by cooperation to control the market." Mr. Hamilton. I want to suggest to you that in revising your remarks that after due consideration you make suggestion of the .exact language that you would incorporate there. Mr. Van Hise. I will be very glad to do so. Mr. Willis. Just one other question. You spoke a little while ago about the success that your commission in Wisconsin had had in settling these matters without action in the court. You said it was in a very large percentage of cases. Can you state approximately the percentage or proportion of cases that are settled without suits or criminal proceedings? Mr. Van Hise. No; I can not remember it, because I wish to have the figures accurate. Mr. Willis. Can you give an approximation? Mr. Van Hise. More than three-quarters, I think. But I state this subject to correction when I have the figures before me. Mr. Willis. You can furnish a statement in detail when you revise your testimony. I think it is highly important. Mr. Van Hise. Yes. (As requested, Mr. Van Hise introduced at this point supple- mentary information.) For the year ending June 30, 1913, as I am informed by the sec- retary of the Wisconsin Railroad Commission, " there were tried out before the commission 268 formal railway cases, all of which were contested matters. During the same period there were tried out before the commission 112 formal utility cases. For the same year 502 informal railway cases and 209 informal utility cases were disposed of. Besides these figures showing the activity of the com- mission, 197 applications for the issue of stocks and bonds and 12 applications for certificates of convenience and necessity were also attended to." Of the 380 formal cases only 4 were appealed to the court. It thus appears that the action of the Wisconsin Railroad Commission was accepted by the parties concerned in 99 per cent of the formal cases; and of course none of the informal cases reached the courts. Mr. Montague. I should like to ask you a question on the admin- istrative function of having these parties come together and settle their case out of court, so to speak. Mr. Van Hise. Yes. Mr. Montague. What do you think of the element of secrecy that is involved in that process of administration? Is there or is there not any danger from that? ^°^ INTERSTATE TRADE COMMISSION. ' ., . ■ y^^ HiSE. I do not know any evils that have appeared from It in Wisconsin. When either party wants a public hearing he can Mr. Montague. You provide that? ^^- V^N HiSE. Yes. And even in these other cases which are ^^* u P'^^'^^t^ly *^^ matter is open. Anybody can come into the chamber, although there is no public interest in these cases. Mr. MoNTAGtJE. Nobody is kept out? Mr. Van Hise. Nobody is kept out. Mr. Montague. They can all come in ? Mr. Van Hise. Yes. Mr. Decker. That is just a public-utilities commission, is it not? Mr. Van Hise. Yes. Mr. Decker. That is the same as we provided in Missouri lately? Mr. Van Hise. Yes. All public utilities are included— railroads, trolleys, street cars, telegraph, telephone, waterworks, etc. Mr. Decker. We have the same kind of a commission in Missouri, applying to all industries. Mr. Talcott. Just one question. In determining the magnitude v/hich you say should be restricted, is it a magnitude of capital or a magnitude of business? _ Mr. Van Hise. It seems to me that when you go to put it in mil- lions of dollars or in lines of business you get into danger, but if you stick to the common-law phrases the discrimination will come out perfectly clear, that the businesses shall be vested with a public interest or by cooperation control the market, then you have the safest plan. The Chairman. Doctor, the committee is very greatly indebted to you for your attendance here and the t^imony you have given us. (Thereupon the committee took a recess until 2 o'clock p. m.) ADDENDA. (a) In accordance with the request of the committee, Mr. Van Hise adds specific suggestions regarding the amendments to H. R. 12120. I Cj/ Add to section 9 : "It is the purpose of this section to authorize the com- I mission to investigate all corporations so large as to be vested with a public Interest and those of whatever magnitude that through cooperation control the I msHSfet." (2j/tntroduce as section 10 : "Any person, association, or corporation may pre- seEt to the commission for its approval any proposed practice or plan of coop- eration. If such proposed practice or cooperation is found by the commission to be in accordance with law, the commission shall issue an order authorizing said practice or cooperation, either for a specified time or until further order Is given. If the proposed practice or plan of cooperation is found by the com- mission not to be In accordance with law, the commission shall issue an order forbidding said practice or cooperation either for a specified time or until further order is given. Orders of the commission shall be prima facie evi- dence of their lawfulness to such time as changed by the commission or re- versed by the courts through action of the Attorney General. (Note. — No attempt has been made to put the ideas above expressed in a legal form adapted to the laws of the United States. If desirable a clause may be in- serted requiring, before an order regardinf practices or cooperation is given, that there shall be opportunity for the Attorney General to request a public hearing, and that when such request is made by him said public hearing shall be granted.) .3. Renumber existing sections 10, 11, 12, and 13, making them sections 11, 12, 13, and 14. (6) As further illustrating the probable working of the proposed interstate trade commission, with the powers advocated, there is here Inserted by Mr. INTERSTATE TRADE COMMISSION. 365 Van Hlse letter of Lewis B. Gettle, secretary of the Railroad Commission of. Wisconsin, which describes the practice of that commission. Railroad Commission of Wisconsin. Madison, Wis., February 21, ISlJf. President Charles R. Van Hise, University of Wiscnnsin, Madison, Wis. Deab Sib : We have your favor of February 18, in which you inquire whether we have a pamphlet compilation of laws relating to the Railroad Commission. We are sending you under another cover a copy of such compilation. We are eypecting tp receive from the press a revised edition early next week, which will contain much more completely the laws relating to railroads and their control by the commission. We shall be pleased to send you one or more copies of the new publication when it is ready for distribution. It is noted that you say that while in Washington you mentioned the fact that a large number of cases that come before the commission are settled with- out a formal contest. The term "case" or "cases" is somewhat indefinite and is frequently not used with the significance and meaning attributed to it in court procedure. For convenience sake the commission has designated the mat- ters and controversies coming before it as formal and informal cases. Outside of the reports on these formal and informal cases, the commission does a vast deal of work in disposing of controversies and difficulties which never appear specifically in the reports. For the year ending June 30, 1913, there were tried out before the commission 268 formal railway cases, all of which were con- tested matters. During the same period there were tried out before the com- mission 112 formal utility cases. For the same year 502 informal railway cases and 209 informal utility cases were disposed of. Besides these figures showing the activity of the commission, 197 applications for the issue of stocks and bonds and 12 applications for certificates of convenience and necessity were also attended to. These figures do not nearly correctly represent the informal work of the com- mission. For instance, during the months of September, October, and the early part of November of 1913 there existed to a marked degree a car shortage through the State of Wisconsin, and especially was there a shortage of cars for the shipment of sand and gravel, potatoes, beets, and cabbages. For the com- mission to be of any service in these matters prompt action had to be taken through communications with the railway companies by telephone or telegraph, no time being available for the bringing of formal cases before the commission. Not in a sin^e instance of perhaps more than 80 cases of car shortage was there a formal complaint filed or even a definite record made in the files of the commission of the work done. In every case of car shortage some relief was secured by the commission quite promptly, and in many cases the relief was wholly adequate to the demands. A situation illustrating the foregoing would be the statement over the tele- phone by the Janesville Sand & Gravel Co., at Janesville, Wis., that it was unable to secure more than 3 or 4 cars a day for its fall shipments, but that , the actual needs of the company were at least 30 cars a day^ The commission was able to secure by conference with the railroad officials some 24 cars a day, which enabled the company to take care of its business reasonably well. The statement of the president of the company has frequently since been made to representatives of the commission that had it not been for the commission's intervention its business would have been ruined from its inability to fulfill the insistent demands of builders who desired to finish their contracts before the opening of freezing weather. This same company had another difficulty at about the same time with ref- erence to its operation, which was almost as destructive of its prosperity as vi&& the car shortage. The loading cranes of the company were operated by electricity. The company was dependent for its current upon the Janesville Gas & Electric Co. The current, however, was insufficient, too variable and uncertain for the economic loading of the cars by these cranes. The commis- sion secured installations and repairs in the electrical equipment of the Janes- ville Co. that accomplished a sufficient current to take care of the demands for loading service on the part of the sand and gravel company. We quote this example for the reason that it seems to exhibit quite strongly the necessity for having one board with adequate power to exercise prompt control of both rail- way companies and public utilities. 366 INTERSTATE TEADE COMMISSION. Anpnymous complaints from employees of the railway companies frequently reach the commission. The information 'feo conveyed is usually dependable and becomes the basis for inspections with reference to the proper heating, of cars, proper ventilation, unsafe track conditions, inefficient station administration, the need of safety devices for the protection of the employees and also the traveling public, and very many other phases of defects in railway operation. No adjustments brought about by complaints of this character are classed with either formal or informal cases In our reports. It is frequently true, also, that parties in controversy will visit the offices of the commission and submit their differences orally, and the commission Is able to work out solutions of such difficulties. It may be perhaps of some value to quote some concrete illustrations of the above statement. Some three months ago a man living at Twin Bluffs, Richland County, called at the office and indicated that he desired to develop a certain water power and convey an electric current through high-tension wires down a certain highway to two or more villages en route ; that on this particular high- way over which he must go there existed telephone lines on each side of the highway. One was a grounded-wire line, the other the heavily loaded line of the Wisconsin Telephone Co. He was advised that the telephone companies had some rights, by reason of priority, that would be invaded by the construc- tion of his high-tension line that would destroy telephone service by induction. Both telephone companies objected to interference with their service by the proposed high-tension wires. The suggestion was made by the secretary of the commission that a right of way be secured on private land along the line of the telephone companies for the erection of the high-tension wires. As soon as it was found by the telephone companies that this high-tension line was to be constructed on private land where the induction would affect the telephonic operation, the telephone companies immediately came into the office of the commission and offered to cooperate so as to eliminate the hazard of a high- tension wire near the telephone lines and to clear up the difficulty so that the owner of the dam might properly extend his wire down the road in question. The result was that the three parties contributed to the expense of the neces- sary change. The single-grounded telephone line was placed across the road on the poles of the Wisconsin Telephone Co. on a free rental has, and was made metallic at the expense of Its owner. The electric wire was extended along the opposite side of the highway. All three utilities are now operating in harmony on the said highway. Frequently requests are made to the commission for intervention in matters over which the commission has questionable control. A case in point is as fol- lows : Benton and Cuba City are two small villages located in the southeastern part of Grant County. In each there is operated a local telephone exchange. At one time a telephone wire connected these two villages for intercommunica- tion. This wire was owned in equal shares by the two companies. During the fall of 1913 some disagreement arose between the two villages, and it was mutually determined that the connecting wire should be cut in the middle. This was done. The manager of the telephone exchange at Cuba City was dis- satisfied with the situation, and notwithstanding the provisions of the non- duplication law applying to telephone companies, he extended the wire to a point within the limits of the village of Benton and there gave residence service. The manager of the Benton company promptly severed this service wire. The manager of the Cuba City company thereupon promptly had the manager ar- rested under the statute imposing a heavy penalty for mutilating or interfering with the equipment of a public utility. Attorneys were retained on both sides. A few days before the case was set for trial the president and secretary of the Benton company called at the offices of the commission representing that neither telephone company could afford litigation for the reason that neither was op- eratiug for profit, and that the local manager under arrest was least of all able to pay a fine ; that they were advised by the district attorney that under the admitted state of facts the manager was guilty. These people sought the inter- vention of the commission. With some hesitation (for the reason that it ap- peared that the commission should not interfere with criminal procedure) the commission undertook to straighten out the matter informally. An opinion was written to the defendant's attorneys and the district attorney calling atten- tion to the fact that the nonduplication act, passed by the legislature, created a right in the public utility existing within the limits of a municipality to serve the people of that municipality exclusively, and that the building in of a service wire within the village limits was apparently a violation of such act. IsnteESTAifi: TEABE eO'MMISSIGN. - 367 If it was such violation, then it was a trespass on the rights of the Benton com- pany. If it was a tresspass, then the Benton company had a perfect right to resist It by cutting the wire or otherwise destroying such invasion of its rights.' To the complainant a letter was written to the effect that, provided the facts represented were true, he might be held guilty of violation of the nonduplication act, of which this commission would have to take cognizance. Within a few days after these letters had gone out the criminal action was dismissed, the telephone wires unlawfully built into Benton were removed, and the whole situation was apparently satisfactorily cleared up for all concerned without any expense other than the time of one member of the commission. Another phase of the work of the commission and its clearing uj) of bad- service conditions is instanced by the situation where no one has filed a com- plaint, but where the field inspectors of the commission have ascertained that discriminatory rates and inefficient management were bringing about injustice, loss, and bad service, On such report from the inspectors being received by the commission, it Is frequently necessary to send an engineer to advise with the managers of either a municipally owned or privately owned plant, and to indi- cate improvements that should be made so as to prevent waste, and to inau- gurate system and business methods. By this method of conference and instruc- tion a meter system is frequently installed, where a flat rate and a grossly dis- criminatory system had before existed. Rates are fixed through advice and conference, and the utility is frequently placed in a position to conduct its business profitably for itself and with fairness and good service to the public as a result of this work on the part of the Commission. This method accom- plishes more than any number of complaints that might be formally filed from such municipality by the citizens thereof and later be termed as cases so reported. This method of producing better operating conditions Is used not only with the utilities of the State, but is often exceedingly effective with the railroad companies as well. Tlie inspectors discover dangerous track conditions, ill- ventilated cars, cars in which there is an exceedingly low temperature, insani- tary conditions in cars and about depots, which are frequently voluntarily cor- rected by the railway companies as soon ag their attention is called to the defects. Another type of matters that are in numerous instances adjusted by the commission comprises those that fall without the authority of the commission because they grow out of interstate transactions or involve claims for loss of goods or damage thereto in transit in both interstate and intrastate shipments. One illustration of this kind of work will probably suffice. A young man wrote a letter to the commission saying that about a year prior to writing the letter he had ordered a piano stool, some music, and other thiijgs from a firm in Hartford, Mich. ; that he had never received the goods ; that he had filed his claim, amounting to some $20, with both the initial road, which was the Pere Marquette of Michigan, and also the forwarding road, which was the Chicago, Milwaukee & St. Paul Railway; that for sotoe reason or other his claim had not been vouchered and paid; that he had been called upon at various times to file additional affidavits because certain papers were lost, and had been put to a great deal of trouble trying to get back bis small claim. Apparently in despair he wrote to the Railroad Commission of Wisconsin for assistance. The commission at once sent a letter to the Perre Marquette Co. and asked that company as a matter Of courtesy, because the commission did not assume to have any jurisdiction, to investigate the status' of the claim of this young man and report whether or not the claim could be adjusted within a reasonable time. Within a few days the Pere Marquette Railway Co. wrote the commission to the effect that for the reasons stated in the commission's' letter It recognized that the Wisconsin commission was not acting under any authority; but that it had observed the fairness of the course of the Wisconsin commission in Its dealings as between the people and the railroad companies ; and that it would consider it a rank discourtesy to refuse a request such as had been made of them In connection with this claim. It remains to say that the claim was paid in full within some two weeks after the attention of the commission was called to the same. A very large number, probably at least 100 a year, of cases of a character similar to the foregoing come to the commission, and adjustment is secured In the great majority. We think that it is quite safe and correct to say probably four-fifths of the Incidents, controversies, or demands of the people for relief are adjusted by the commission without formal action, and perhaps without 34082—14 -24 368 INXEBSTATE TEADB COMMISSION. even being designated as so-called informal cases. This does not mean that four-fifths of the time of the commissioners and those on the various staffs of the commission is employed a relatively large proportion of the time in this informal work. Some of the formal cases adjusted by the commission might, for instance, consume a very large amount of time and a very large amount of the efforts of the various commission staffs. In preparing the aflSdavit to resist the injunction brought by the express companies against putting in effect the rates ordered by the commission, five or six men were employed at high- tension work for over three weeks. Therefore, the estimate indicated to you by Prof. Meyer to the effect that three-fourths or more of the cases are han- dled in an extremely informal way and definite results secured thereupon, Is very moderate. Perhaps we have already said more than is necessary in this regard, but we shall be glad, if you desire, to present this matter for your use in greater detail than we could within the compass of a statement of this character. Trusting that the foregoing will measurably answer your inquiries, we are. Very truly, yours, Railboad Commission op Wisconsin, By Lewis E. Gettle, Secretary. (c) There are also transmitted herewith copies of the laws relating to the Wisconsin Railroad Commission and the Wisconsin Industrial Commission. These laws provide specifically for the procedure of the commission. The part's of these laws which relate to the handling of new evidence- if the case Is ap- pealed to the courts are especially called to the attention of the committee. AFTER EECBSS. The committee reassembled at 2 o'clock p. m., at the expiration of the recess. ADDITIONAL STATEMENT OF MR. ROBERT R. REED. The Chairman. The committee will come to order. Mr. Eeed, when you left the stand this morning, several mem- bers of the committee manifested an inquisiti\'e turn of mind. There- fore I requested you to return in order that they might propound questions to you. Mr. Eeed. Thank you very much, Mr. Chairman. I am here for that purpose. I wanted also to ask if I might say a few words in connection with Prof. Van Hise's address? Mr. F. C. Stevens. I think the witness ought to have that priv- ilege. The Chairman. I think so. Mr. Eeed. 1 was unfortunately compelled to leave about the time Prof. Van Hise, I believe, turned himelf over to the tender mercies of the committee. I heard the first half hour of his address, and I think that we all should be very much indebted to him. I never heard him before, nor have I- ever heard any man belonging to Ms school of political thought make such a frank statement of its pur- pose. He told us in effect that the industries of this country, or- ganized in corporate form, must ultimately be subject to the same degree and kind of State control as the railroads. He told us in so many words that this jiresent bill is but the stepping stone; that we must go gradually; and he disclosed to you gentlemen the fact that the men who really desire this bill desire it as a stepping stone to something further; and that otherwise, this bill is purposeless and meaningless. We must, he says, proceed gradually. Having organized the business of the country in corporate form, we must INTEBSTATE TBADB COMMISSION. 369 assert the right which that gives to the State to regulate all busi- ness. Incorporation, from its inception, was extended to business for the purpose of asserting that control on the part of the State. In the early part of the nineteenth century the State of New York prohibited private banking and required the banks to be incorporated, and the courts upheld the law on the principle that the purpose of the law was to subject the banks to State control; all banks are quasi-public institutions and should be subject to that control. So also with the railroads and public-utility companies of all kinds. With respect to commercial and industrial corporations, the pur- pose and the results have been every different. Corporate powers were not forced upon business by the States, but obtained by business from the States in order that business might have the advantages of corporate form. It was never the intention of the Statie when it granted the privilege of incorporation to commercial and industrial business to subject that business in its details to State regulation and State control. It was the purpose of the State in the inception of corporations, as is evidenced by practically every State incorporation law in this country of the early days, to merely give to business those conveniences which incorporation afforded, and to give it to them in a modified and limited form so as prevent its abuse. That is well known to be the fact in respect to all early corporations. Mr. EscH. You think the fact that the State grants a corporate charter and thus gives to the incorporators a limited liability, that incorporation is a warrant for Government control or State control? Mr. Reed. The State can condition the corporation and compel it to subject itself to that control. The corporation lies in the power of the State. Mr. F. C. Stevens. You do not mean to say the United States can overrule the power of the State in that particular ? Mr. Eeed. It has been asserted repeatedly as the policy back of this bill and of Prof. Van Hise's statement, that the United States shall have this power over interstate corporations, the power to admit corporations to interstate commerce; to subject them to a Federal control by reason of the fact that they are corporations. Mr. F. C. Stevens. That may be, but Mr. Reed (interposing). By reason also, Mr. Chairman and gentle- men, of the fact that they are a monopoly. Prof. Van Hise stated that proposition this morning. I concede to the fullest extent that when you have a monopoly, you may regulate it, whatever its busi- ness may be. Mr; F. C. Stevens. You do not mean to say that a monopoly within the State can be regulated by Congress ? Mr. Eeed. Oh, no; but we are not bothering with those kinds of corporations. Mr. F. C. Stevens. You do not mean to say that a contract be- tween citizens of a State, which is exclusively a State matter, can be regulated by Congress? Mr. Eeed. No ; not at all. Mr. Stevens. Now, a corporation is a creatiire and a citizen of a State, is it not ? Mr. Eeed. No, sir. Mr. Stevens. It is a creature, a creation ? 370 INTEESTATE TEAIOT! COMMlSSlOjSf. Mr. Eeed. Yes, sir. Mr. F. C. Stevens. It is a- Mr. Eeed (interposing). It is a creation of the State. Mr. F. C. Stevens. But it has a legal entity so that a citizen of the State can make a contract with that legal entity within the State? Mr. Reed. Yes, sir. Mr. F. C. Stevens. You do not mean to say that the contract can be affected by anything we can do ? Mr. Eeed. No; unless it has an effect upon interstate commerce. That is a different thing. Mr. F. C. Stevens. Now, do you mean that? It may have only indirect or remote effect upon interstate commerce. Does that give us authority to regulate it ? Mr. Eeed. If it has a substantial effect. Mr. F. C. Stevens. Substantial, direct? Mr. Eeed. A provable effect, it may be, whether you call it indi- rect or remote, if it is substantial or provable. Mr. F. C. Sl"EVENs. The Supreme Court does not say that. Mr. Eeed. I do not wish to go too far astray. Mr. F. C. Stevens. The Supreme Court says that the effect must be direct; that the effect must be reasonable upon interstate com- merce in order to give Congress jurisdiction. The Chairman. If a factory sells its entire output at its counter or door, has no agents, and makes no shipments abroad, but those who purchase goods from it sell them in other States, is that factory in interstate commerce? ' Mr. Eeed. No, sir ; not as you stated it. The Supreme Court has used very broad language and decided that the power to regulate interstate commerce is as broad as the commerce itself, and as bfoad as the land. The Congress may reach anywhere to prohibit or pun- ish an act which affects substantially interstate commerce. I should not say affects it so much, but restrains it. If it restrains the free- dom of interstate commerce, I make no question of the' power ol Congress tO' — ' — Mr. F. C. Stevens (interposing). Now, let me get to the question Mr. Esch asked. The State, in its creation of a corporation, provides what shall be the liabilities and the obligations, the liabilities of the corporation and the obligations of its stockholders and incorporators. Now, that is a contract between the citizens of the State and the cor- poration itself. You do not mean to say that that has aiiy effect, any direct effect on commerce? Mr. Reed. No; not at all. Mr. F. C. Stevens. Well, then, how are you going to control it? Yet your bill attempts to ? Mr. Eeed. You can control it when it attempts to come into inter- state commerce. Your definition of a corporation is a partial one, sir. A corporation is recognized by the textbooks and the courts as a legal fiction,, a sum of the contractual relations which it creates, a sum of special privileges and special immunities granted by the State. For all substantial purposes, when that corporation comes into interstate commerce, it comes as a person for the purpose of suing, and so forth, but for all substantial purposes it comes as the association of its- members, enjoying special privileges and immuni- ties. It comes as a special means of carrying on business, and those INTERSTATE TBADE COMMISSION. 371 special means are the corporate charter, and they are as different as the corporate charters. It is the sum of the contractual relations created by it. Mr. F. C. Stevens. You do not mean to say that a corporation of the State of Maryland, selling milk in the city of Washington, hav- ing a charter containing certain privileges, having those restrictions and provisions and grants and rights, you do not mean to say that those provisions in that corporation of the State of Maryland can be affected by us in regulating how milk shall be sold in that commerce between Maryland and the city of Washington, do you ? As to the obligations of the men who own that stock ; as to whether or not they own stock in any other milk company? You do not mean to say that? Mr. Eeed. I might say, for the purpose of not appearing to be extreme on this proposition, that I would gladly concede in any law on this subject a provision that a corporation, incorporated in its own home State, and substantially the large part of its properties and business being within that State, should not be affected by it. Because those are" not the corporations we are dealing with. The corporations we are dealing with are the ones created, not by their own States, but by other States, granting them special powers and immunities which their own State would not grant them. That is the sovereign power which it is asserted we are trespassing upon, not the sovereign power to create a corporation for the benefit of the territory and the citizens of the sovereign, but the sovereign power to sell to aliens corporate powers and inMnunities which their own countries or States will not grant them. The sovereign power to sell it for cash to the highest bidder, to compete with other States in selling the most irresponsible powers and unsafe privileges and enabling those gentlemen not only to go into their own States to ex- ercise those powers, but granting the powers Mr. Hamiltox. Take the illustration Mr. Stevens has given — a company engaged in the milk business in Maryland and selling milk in the District of Columbia. Mr. Reed. I think there is no doubt about the constitutional power of Congress, if that corporation is engaged in interstate commerce, to restrict and regulate it; but that is a very different thing from saying, in a case of that kind, that the Congress should do that. . Mr. F. C. Stevens. Let us see if that is true. I am,'for instance, a milkman in the State of Maryland — an individual ; and Mr. Adam- son is a milkman and Mr. Hamilton is a milkman in the State of Maryland; and we each of us — I happen to wear a blue coat, Mr. Hamilton a white coat Mr. Hamilton (interposing). A green coat. Mr. F. C. Stevens. Would Congress have the right to say that because those gentlemen wore those colored coats they were not en- titled to engage in interstate commerce and sell milk in Washington ? Mr. Reed. I think not, sir; but some others think so. A Senator told me yesterday that he thought Congress had the right to exclude red-headed men "from interstate commerce. I do not concede and do not think it is necessary for this proposition to concede or argue that Congress has the right to exclude any person from interstate commerce. It has the right to prevent persons from using special 872 INTERSTATE TRADE COMMISSIOK. priAdleges and immunities in commerce which are unfair to com- merce. Mr. F. C. Stevens. Providing they bear a direct effect ; a direct and reasonable effect upon commerce. That is clear. Otherwise Congress has no jurisdiction. Mr. E.EED. I do not wish to counter too much, but may I ask you whether you consider the United States Steel Corporation has a direct effect upon commerce? Mr. F. C. Stevens. I do. Mr. Decker. Suppose there were three corporations over in Balti- more and that their stock was interchangeably paid in, each would then be, under the Supreme Court decision, a direct effect on inter- state commerce? Mr. F. C. Stevens. Yes ; it would be a violation of the Sherman law, unquestionably, and the very fact that would be the case would convict them of violating the Sherman law ; but the very fact that one man happened to own stock in the various corporations, that there was interchange of stock ownership or directory, might be, as a probative fact, rather than as a judicial fact. A probative fact may be anything under God's heavens ; a jurisdictional fact is an entirely different proposition. The Cecairman. I should like to ask you if you can tell me the legal difference — I do not mean the school-book difference — ^but the legal difference between the combination in commerce that amounts to a trust, and a corporation that amounts to the same thing ? Mr. Reed. I think, Mr. Chairman, it is a matter of proof, as the gentleman has said a little while ago, and that while the Sherman Act, in terms, is broad enough to destroy every monopoly when you can prove it, that the corporate The Chairman. Mr. van Hise said they were not the same thing as combinations. Mr. Reed. It is, but it is harder to prove. The Chairman. If they amount to the same thing, why are they not just as guilty? Mr. Reed. It is harder to prove. Prof, van Hise said a lot about cooperation that I should like to mention. Mr. D. V. Stephens. I should think a corporation would be the easiest to prove, because we have those open and above board; all those farmers' organizations and fruit dealers' associations are all open and above board ; have their meetings and have their selling agencies. Mr. Reed. Yes; when that kind of corporation exists and resolu- tions are passed by organized bodies ; but when Mr. D. V. Stephens. Where they just employ a selling agent^-500 farmers have a selling agent? Mr. Reed. Yes, sir ; that is very easy to prove. Mr. D. V. Stephens. And yet it is beneficial ? Mr. Reed. Its purpose must be in restraint of trade. I doubt, personally, whether the Supreme Court ever held an organization of that kind to be in actual restraint of trade, unless it is directed to the restriction of competition over substantial territory and the enhance- ment of prices and things of that kind. If it is, it is in restraint of trade. INTERSTATE TKADE COMMISSION. 373 Mr. D. V.^ Stephens. You think a little selling association in the community would hardly be in restraint of trade? Mr. Reed. Not if it was a mere convenience. And that brings up a point I touched upon, but not in this connectioUj the kind of coop- eration that Prof, van Hise spoke of this morning has existed to some extent since the beginning of the world. Men were always seeking to do what they could to promote their own business. It is true that that spirit has become intensified in this country, and I think it has become intensfied very largely through the system of corporate trusts resultng from corporate machinery. The system of open and secret control of competing corporations ; the idea through- out this land to-day is that we are organized into monopolies, and the small men try to get their end of it, as well as the big men. I think, probably, it is true that the ice men in the local villages and the grocery men are trying to cooperate. I do not think they ever can get very far with that kind of cooperation; they do not produce monopoly prices by it. They may steady prices; may raise them a little bit. But that is a thing that has never injured us and never will injure us. Mr. Hamilton. May I suggest — just a moment. If you visit a dozen small towns; says, of 3,000 inhabitants, and go to the various meat markets, butcher shops, and so forth, you find no difference in prices to consumers. If you should go to the various grocers, you would find no difference in prices to consumers. If you should in- vestigate all of the business done in those towns, you would find that they are all on one level as to prices; that there is seldom a dis- cordant note of real competition introduced into any one of those places. Now that is the result, is it not, of cooperation, whether or not such cooperation has been entered into by express agreement or by tacit understanding? Mr. Reed. I doubt if it is quite as extreme as you think. I live in a small town, and I know if I go to a grocer and complain of the prices, and so forth, that — at least I think, I have not tried it, but I have known of others who did — I can get concessions, and that he will not be put out of business because he gives me concessions. He is free to do it. The Chairman. All those items depend on articles of purchase to sell again. I can give you an item I think you can remember, if you have four or five livery stables in your town. Mr. Reed. I have seen that. The Chairman. You go to hire a team or an automobile, and go to all of them, and you will find that every one will charge you ex- actly the same price. Mr. Reed. These agreements in some towns are illegal under the State laws, undoubtedly. The Chairman. Would they be obnoxious to the Sherman law? Mr. Reed. If they were engaged in interstate commerce, and the Sherman law were not administered at Washington, I think they would be ; but the Sherman law is administered at Washington, and, of course, the Attorney General can not take cognizance, unless he happens to be there. ■ Mr. Hamilton. If the town were located near enough to the State line, they would come under interstate commerce? 374 INTERSTATE TEADE COMMISSION. Mr. F. C. Stevens. Here is the rule which the United States Su- preme Court very recently laid down as to what Congress can do in regulating commerce. Mr. Hamilton, Cite the case, please. Mr. F. C. Stevens. 208 United States, 178. In the case of Dare v. United States, Justice Howland said: Manifestly any ruling prescribed for the conduct of interstate commerce, In order to be within the competency of Congress under its power to regulate commerce among the States, must have some real or substantial relation to or •connection with the commerce regulated. That is the rule. Mr. D. V. Stes'hens. Mr. Eeed, did you wish to answer? Mr. Reed. May I reply with an authority on that point ? Mr. F. C. Stevens. Certainly. The Chairman. I know a good many places where the condition exists about those livery stables, where rival towns adjoin on each side of the State line, and all prices are maintained in both towns and at all stables in both towns. Mr. D. V. Stephens. I should like to ask the chairman if, in his opinion, that is a bad thing? The Chairman. I am trying to get the witness to do my swearing. Mr. Reed. I do not think it is a thing which concerns us here today, except for the purpose of an illustration, but I do think any local monopoly is a bad thing ; of course, it takes money from other people by a dishonest practice. Mr. D. V. Stephens. Dr. Van Hise made the point this morning that cutthroat competition is very injurious in the long run to the conununity and cooperation is really essential. I think Mr. Van Hise is very sound in that observation. I should like to know what your views are in regard to that. The Chairman. It may make the business agencies fluctuate a little, but it did not cut the throat of the consumers. Mr. D. V. Stephens. In the end I think it would; if the combina' tion drove competition out of business and then controlled it by one or two concerns, whereas a dozen were engaged in it, undoubtedly it would affect the consumer in the end. I have witnesised the fruit growers of Michigan myself cutting down their vineyards because they were unable absolutely to market their crops at a profit— and so the people could not possibly profit by that sort of cutthroat competi- tion; but some one organized them and they had a selling associa- tion in position to handle their crops economically and distribute them where the people needed them, and the business prospered and the farmers made a living out of it, and the people had fruit at all seasons of the year and at reasonable prices. The Chairman. I have known them to cut down hundreds of acres of trees and vines because the railroads and icing charges amounted to more than they got for the fruit. Mr. D. V. Stephens. That is true too. Until they cooperated and organized it was absolutely impossible for them to protect themselves against the different organizations that they were compelled to deal with. Mr. Reed. I think there is no doubt of the proposition that mo- nopoly is essentially immoral whether it be local or national. It INTEBSTATE TRADE COMMISSION. 375 takes the money from the consumer by depriving him of the natural market ; is dishonest to the extent of the money that is taken by that means; but voluntary cooperation is not monopoly. Mr. Taloott. Do you not think the results of the Interstate Com- merce Commission fully justified its creation? Mr. Reed. Yes ; indeed I do ; and also of the State railroad com- missions. Mr. Talcott. Yet would not the very issue you make against an interstate trade commission have applied - Mr. Reed. Not at all, if I may explain. If we are going to have any individual liberty in this country we have got to take our stand and protect the ordinary business of the individual from that very kind of control which the railroad by virtue of its own nature is sub- ject to. The railroad is necessarily subject to it. It is a natural mo- nopoly. The Chairman. Did you ever read the bill which proposed the interstate-commerce act? Mr. Reed. I do not think so. The Chairman. You ought to read it. I think you would go back to your first opinion. Mr. Reed. I might state that while I think the Interstate Com- merce Commission has done good, that I think we should solve those questions as we come to them, individually, retaining the largest degree of liberty consistent with the equal liberty of all. Mr. D. V. Stephens. Would you advocate that we go back to the archaic system of going into the courts and fighting put every one of thepe little systems of railroads instead of prosecuting them ? Mr, Reed (interposing). Oh, no; I would not; and I would not like to get on the subject of railroads. It is different. My proposi- tion is simply this : The railroad, being a natural monopoly, is neces- sarily subject to that kind of regulation, and that that is a very dif- ferent thing from extending that kind of regulation to industries, and for that purpose, in order to extend it to industries, allowing monopolies to exist in an industry, because when you have a monopoly you must regulate it. My proposition is as to ordinary trades and industries we must retain our natural freedom, and simply prohibit wrong acts. Mr. D. V. Stephens. Take this condition of cooperation, for in- stance. Here are businesses all operating cooperatively, more or less. Would you not think it of immense benefit to these industries to have these organizations regulated, rather than to have prosecutions through the courts continually, where someone wanted to take it to the courts, going on to the detriment of business and perhaps in many instances they would not ever get any relief at all ; but with a trade commission you would have opportunity to prosecute these little dif- ferences that are continually coming up, that could be settled, as Dr. Van Hise stated this morning, by simply conferences around the table, and would that not be an immense benefit ? Mr. Reed. The conferences around the table represent government by man and not by law. It is the plan and purpose of that school^ of philosophy in this country to bring us back to the government which our ancestors fled across the Atlantic Ocean to escape, and Dr. Van Hise said to you all that this was no new proposition, that it existed 17fi INTERSTATE TKADE COMMISSION. m Europe, and he said— except he is not sure about England. It aoes not exist in England. It exists in Germany, and the people of vaermany never created it. The monarchy of Germany created it, and It exists m the southern countries of Europe because it accords with their principles of government. ^- ^- Y- Stephens. And by that same argument you would elimi- nate all these commissions and regulatory devices that we have al- ''«?^dymstituted, then? You would really have to Mr. Reed. I would not, sir. I can not make it too clear that as r^ u depend absolutely for their franchises upon the State, and that that franchise gives them a natural monopoly in a certain terri- tory, that as the State has an absolute right to carry on that business if it wishes and gives the franchise to the railroad to carry it on, as a State agency, that it has the widest power of control over that agency, and that that control can only become effective in certain ways by a commission. When I concede that a commission may work in the control of a business like that I do not concede that we should abandon the liberty of the individual in all other matters, allow monopolies to control the business of the country, then regulate the monopolies by the Government, because when we do that we have got to change our Government. Mr. p. V. Stephens. Here is a big body of men engaged in co- operative business. Now, that business gets to be immense, and yet it is of great benefit to the industry. Now, you have got to have some sort of system of regulating that, have you not? Mr. Reed. Prof. Van Hise said this morning that it. had been demonstrated by the Bureau of (Corporations that in the steel busi- ness a capital of $100,000,000 was a benefit. He said he was sorry they could not have gone further and proved that a combination of $1,000,000,000 was a benefit. They could not have gone further and they could not have proved it. I am not opposed to large organiza- tions. I am opposed to organizations that- cover and control the in- dustries of the country. I can imagine nothing more efficient than an organization as large as natural conditions would allow it to be, and limited only by the laws of trade. Mr. D. V. Stephens. There is only one way to control those organizations ? Mr. Reed. But when the State lends its aid — says to 10 corpora- tions of $100,000,000 each : " Here is a machinery under which the men in control of these can get together and by one device or another throw them into one corporation," the cooperation you have after that is not a voluntary cooperation ; it is a State-created institution. It is a monopoly, the vesting of all the powers of combination in perpetuity in that one corporation. As we have said something on the question of tliese cooperative and voluntary agreements as applied to small corporations and small businesses, I want to read to you from the investigation of the Steel Trust, showing or, rather, stating what happened to those voluntary agreements in the old days of the steel business, and how a substitute was created that was more effective. The report, after discussing all these agreements and stating they had cooperated, proceeds: Mr. Talcott. If I understand you correctly, Mr. Reed, it seems to me that you have not quite stated the position of Dr. Van Hise cor- rectly, if I understood him right, it was to this effect: That the INIEBSTATE TBADE COMMISSION. 377 trade commission should- have the power to permit cooperation only when that cooperation would be exercised reasonably, and would be operated without undue restraint of trade. It would not be granted when a monopoly was to be created, but only when it would be an undue restraint of trade. Mr. Hamilton. And an injury to the people. Mr. Talcott. And an injury to the people. Mr. Decker. And an injury to the laboring man. In other words, this commission was to fix it up right for everybody. Mr. Reed. Yes ; a commission can do that. A commission of trained bureaucrats under the Prussian monarchy, men of equal power, of equal knowledge with the men that they are combating, can control an industry, but the elective officers of a free people never can. To match the exhaustive knowledge and trained wits of the Standard Oil Co. against the clerks, even the heads, of a trade commission is almost an absurdity on its face, and that is what we come to when we attempt under a Republic to vest our executive officeholders, holding positions large and small for a brief period, and looking to their own ^political futures — matching their impressions, their hearsay knowledge, against the expert knowledge and genius of these specialists. Mr. Talcott. That was not my understanding of Dr. Van Hise's position. Mr. Reed. I know, but these commissions have got to deal with them. If they could only deal with affairs within their prior knowl- edge and training, they are all right, but they have got to deal with the Standard Oil CJo. and the Tobacco Trust. Mr. F. C. Stevens. Think of that for a moment and see where you will land. Do you not know that some of the very ablest scientists and expert statisticians and expert accountants in the United States and in the world are in the employ of the United States Govern- ment? Do you not recognize that? Mr. Reed. I do not know enough about it to recognize it, ^ir. I hope it is so. Mr. F. C. Stevens. It is true that the Department of Agriculture has some of the most expert scientists in the world, and the Bureau of Standards has some of the most expert physicists, and the Depart- ment of Justice has some of the most expert lawyers. Mr. Reed. I think he referred this morning to the fact that the lack of information on the part of a clerk of the Bureau of Corpora- tions is said to be the cause of the inefficiency of the decree in the American Tobacco case. Mr. F. C. Stevens. That might happen, because it is a subordinate bureau with insufficient powers and hastily organized. Mr. Talcott. That is another reason for this commission. ' Mr. F. C. Stevens. That is exactly it. Mr. Reed. That would seem so at first blush, sir, if you could ever get and retain a permanent board of specialists ; but it is man govern- ment, and its efficiency, if it has any, is the efficiency of paternalism. There is a great deal to be said on that proposition, but you are say- ing it against the democratic principle of government absolutely and in favor of the monarchial or paternalistic theory. Mr. Decker. I do not believe in man government, but I do not think you have made it clear ; I do not know whether I can express 378 ISTTEBSTATE TRADE COMMISSION. my question the way I want it expressed or not, but I do not think you have proved your statement that to create a trade commission, and the functions and powers of which would be simply to investi- gate, to tabulate, to get statistics in these businesses in order that the Department of Justice and the machinery for the enforcement of law which we already have might be better equipped to ascertain violations of law and to enforce a law when violated. How would that interfere with our present system of government? Mr. Reed. I do not wish to be understood as saying that would interfere with our system of government. My objection to the trade- commission bill is, as I have stated, that it is unnecessary, that it is centralizing, vesting the administration of a law at Washington; that it tends to divide responsibility between the Attorney General and the commission ; and that above Mr. Decker. Wait a moment. Mr. Reed. Let me finish, if I may. And that, above all, its real purpose — and I think that was practically stated by Prof. Van Hise this morning — ^its real purpose was to go gradually, and that the com- mission or the boat that you are now manning is being prepared for a very long cruise, of which you are now ignorant. Mr. Decker. I do not think that is a fair stat«nent. Of course Dr. Van Hise may wish that ; a good many socialists may think it is a step, as a good many of them do, toward the Government owner- ship of all industries, but that does not follow. I should like to have you go over these four or five things that you have stated as your objection, one at a time. For instance, we wUl take centralization. How does a commission to investigate facts cen- tralize, in view of the fact that it does not take away any of ^ the power of any district attorney or any grand jury or any petit jury to investigate facts? Mr. Reed. The district attorney has not got that power to-day. Mr. Deckek. How about the Attorney General ? Mr. Reed. No; it does not. Mr. Decker. How does that centralize it because the Attorney General is already centralized? -, 4.1, aj. Mr Reed. It divides the responsibility between them and the At- torney General, and I simply cited that as a further illustration ot increasing the centralization. _ - . Mr. Decker. Let us take the question of division ot responsibiUty, which I admit is always a bad thing. If this commission simply has the power to investigate and determine facts and assist the court, that does not put any responsibility for the enforcement ot the law upon this commission, or take any responsibility away trom me Department of Justice which it already has. Mr. Reed. I appreciate all those arguments, sir, and it you woum proceed directly to the destruction of a monopoly and ot the cor- porate means on which it rests, I would not bother to say a word about commissions, because I believe that if that is done, there is nothing dangerous that the trade commission can do in. the tuture. But if you create the trade commission without destroying monopoly, then you simply prepare a situation at the next election where you have done nothing except to prepare the way for other gentlemen to step in and do what they are seeking to do. INTERSTATE TRADE COMMISSION. 379 Mr. Decker. In other words, you mean to say this bill by itself would not do any good ? - Mr. Eeed. I would like to see the other done first, because if you get this bill through and do not get the other through, then you are igojaag to be in that position, you have opened the way and started the ball rolling. The Democratic Party has been led, and the Re- publicans, who are also Democrats on this proposition, I think, have been led away from their traditions and faith and principles of government, and have been used by specious arguments to prepare the way for the extension of the powers of this commission to the control of the monopoly which you have not destroyed. If you de- stroy monopoly that danger will not exist. Mr. Talcxitt. Do you not go further than that? Do you not say this bill will really be in aid of nionoijoly ? Mr. Reed. Only in that way. In that way I think it is an aid, and a very substantial aid, and I think all the monopolists in the country really want it. Mr. Hamilton. Permit me to make this suggestion : I do not know that anyone has called your attention to it. Dr. Van Hise, I think, went a little bit further than my friend suggested in his question to you. I think he holds that the commission should have the power to act in an advisory capacity to the corporations and combinations of corporations and individuals and associations, and would have the power to ^ve a special dispensation to such corporations, individuals, and associations, or combinations of corporations to continue their combinations, notwithstanding the antitrust law, if they found that such combinations were in the interest of the people during a specific time named by the commission; subject, however, to the de- cision of a court in case the jurisdiction of a court was invoked in that connection. I believe that is a fair statement of it. Mr. Decker. You do not mean to imply that I was trying to give Dr. Van Hise's idea. I was going according to the terms of the biU; not what Dr. Van Hise thought. The Chairman. Do you not think it would be a most charming idea if we could arrange to dispense altogether with legal counsel, legal advice, and arrange some governmental tribunal that could be a paternal father in the matter, and advise us in advance of our ac- tions, what to do and what not to do, and keep our feet in the flowery paths all the time ? Mr. F. C. Stevens. But you remember, Mr. Chairman, the retail druggists said to us, " We are retail druggists, and these people have put us out of business, and we have got to be supported." Who is going to support thie lawyers ? The Chairman. It ought to be made general, though. Mr. Reed. In that connection I have a very interesting reference. The Senate Committee on Interstate Commerce, after holding hear- ings extending pretty nearly a year and printed in these large vol- umes ' The Chairman. Are you giving us that as a precedent, or what? Mr. Reed. I want to quote from their report, written by Senator Cummins. I do not know whether he would now go as far. But it is right on that proposition. Their report recommended three things — that the Sherman law stand, that Federal incorporation is INTERSTATE TEADB COMMISSION. unnecessary, and that Congress should prescribe further conditions ana regulations as to corporations engaged in interstate trade. This specinc recommendation was that contained in the Democratic plat- T^' n ^^^ ^^^^^ •'■ ^^ contending for here. Ine Chairman. They did not recommend a general guardianship Tu- 4^ everybody, to keep them out of trouble, did they? Mr. Keed. As we all know. Senator Newlands was very powerful on that committee. There was something in that report about a trade commission, but it is not one of their specific numbered recommenda- tions. In respect to the trade commission this is what Senator Cummins ^?!^^i? -^^^^ report. It is very pat on what has just been said. I should like to have permission to read it. Mr. Hamilton. Before you read that I want to make a little ref- erence to your quotation of the Democratic platform and suggest to you that political platforms are not always entirely reliable as decla- rations of law and sometimes not reliable as declarations of party policy. For instance, we have the case of the controversy that has ]ust arisen over the Panama Canal tolls. The Chairman. The gentleman ought to know. He has been in- terested in making a great many Republican platforms. He ought to be a judge. Mr. Hamilton. I have never helped to make one, but I do remem- ber something in the press lately about tolls and the Baltimore plat- form. Mr. Reed. This quotation is of exceeding value on this matter. Senator Cummins, who wrote this report, discussing the general provision of a trade commission, went on to say, referring to 10 out of 20 manufacturing establishments heretofore in competition desiring to consolidate: There ought to be a way in which the men in such a venture could submit their plan to the Government and inquiry made as to the legality of such a transaction, and if the Government was of the opinion that competitive condi- tions would not be substantially Impaired, there should be an approval ; but in so far as the lawfulness of the exact thing is concerned, there should be a decision, and if favorable to the proposal there should be an end of that par-" ticular controversy for all time. The Chairman. That would be ideal. It is a pity that Bacon and' Plato did not think of it and put it in their Ideal Commonwealths. Mr. Reed. A great many men did not think of it. But I call your :attention to the words "end of that particular controversy for all time." A more apt statement of the program for the creation of monopoly under a Federal bureaucracy could not well be made. The Chairman. But you know it is absolutely impossible to reach anything like that under our system of government. Mr. O'Shatjnessy. What are you reading? Mr. Reed. I am reading from an article in the Atlantic Monthly for February, 1914. The Chairman. You have finished Mr. Cummins's idea? Mr. Reed. Xes ; I finished it. I was reading my comment on that, which is in an article in the Atlantic Monthly. Mr. O'Shaunessy. Written by you ? Mr. Reed. Yes. Mr. O'Shaunessy. Mr. Cummins stopped at the words " all time," And then you began ? INTBKSTATE TRADE COMMISSION. 381 Mr. Reed. Yes; he stopped at the words " all time." Mr. Dan V. Stephens. I should like to ask you this : Suppose that if 10 out of 20 corporations, as observed there-psuppose a commission should find that 10 of those corporations could economically combine and produce products at a cheaper rate, this trade commission could supervise and regulate the prices, or see whether or not they were unfairly discriminating against their competitors. Can you see any- thing against the common good in a commission of that kind ? Mr. Reed. If I were speaking under a governmental system such as that of Germany, I might say "No;" but under our system of government it is absolutely impossible.. The Chairman. The only advantage of it would be to eliminate lawyers, and the country that eliminates lawyers has, to use a com- mon expression, " gone to the devil." Mr. Reed. That, I think, is a fundamental proposition that we all agree on. Mr. Dan V. Stephens. For instance, you would be in favor, then, of a condition that would not help the people under a democracy rather than have a system that would not be democratic and that would Mr. Reed. I get your point absolutely, and I would say that opens up a question of philosophy that we hardly want to discuss unless you are considering the adoption of that form of government in this country. Mr. Dan V. Stephens. Your love of the form of the government is greater than your love of the people, then ? The Chairman. Our form of government was made almost of our love for the people. Mr. Reed. Mr. Chairman, that is true, the gentleman tempts me to enter on that proposition. I think it is an established fact, with which the majority of this committee, if not all, will agree, that the prosperity, the progress, and great welfare of the American people is due predominantly to the liberty which has been preserved to our- selves and I hope to our descendants in our institutions. Mr. Dan V. Stephens. Do you think that accounts for the con- centration of wealth in this country in a few hands ? Mr. Reed. I have already said that I think the abuse of powers of government by the States accounts for that concentration of wealth, and that our remedy is to correct that abuse, and restore the liberty that it has trampled upon. The gentleman would create some more government to make our industrial dependence political and permanent. Mr. EsoH. Mr. Reed, I think this morning you said that you thought the evils of the combination of monopoly could best be reached by a power over the issuance of stock, and that you would prohibit the issuance of stock in one corporation to a holder of stock in another corporation of a competitive character. That leads me to ask whether or not you would favor a commission with powers over stock and bond control? Mr. Reed. Not over industrial corporations. I think Congress is competent to prescribe by general law what is necessary for that purpose. Of course, one thought that is at the bottom of all this commission idea is that Congress can not by a general law control 382, INTEESTATE TRADE COMMISSION. the situation, and therefore it is necessary to give some men power to determine it in particular cases. Mr. CtJLLOP. Is it not the purpose of this, and the dominating feature of it, to ascertain facts upon which prosecutions or legisla- tion may be based? The purpose of the commission is to ascertain facts, is it not? Mr. Reed. That purpose has been voiced in many resolutions in the past 20 years, and millions have been spent upon it. I think Congress has the informtion to-day. Mr. CuLLOP. It has never been put in any concrete form whereby it can be exercised properly for the investigation. Mr. Eeed. I think it has, sir. As I said before, that feature of the trade commission, if it could be forever confined to that, would not be, in my opinion, objectionable, nor do I think it would be neces- sary, if adequate steps were taken to prevent corporate monopoly. The Chairman. I would like to say one or two things more, and then stop. Mr. Decker. I want to ask you a question. This is merely igno- rance on my part. You said, perhaps what I ought to know, that dis- trict attorneys should have the right to investigate these things and to enforce them locally in their incipiency. Do you not think that a great many of these industries which require expert business knowledge,, mathematical skill, and the skill of accountants— all those things — that a man appointed United States district attorney would be about ready to go out of office before he could fit himself to understand the business procedure of one big corporation? Mr. Eeed. Do not misunderstand me. I think when you have na- tional monopolies, and it is a question of the prosecution of one of those monopolies, it should be taken care of with all the machinery at the command of the Attorney General. Mr. Decker. Do you not think a commission like this steadily on the job, getting facts and figures, and statistics, could be of great benefit to this district attorney ? Mr. Eeed. I do not think your commission would cooperate with the several district attorneys. It was intended to operate here at "Washington. ^ ,' ^ ^^ ,, Mr Decker. That does not matter whe^e it operates. It could op- erate with the district attorney. It would not be in conflict with your theory that the district attorneys o«ght to do this prosecution. A commission could cooperate with theiftj could it not ? Mr Eeed. My point is that if the law were enforced throughout the country, we might not have national monopolies; they could be stopped before they developed so far. t, ., ■ ^r, . ij Mr Decker. Do you not think a commission like this that would disseminate the facts would have a good deal to do with stopping a good many of the evils ? , , , -r • j: j u „ Mr Eeed. We have felt that m the past, but I am informed by a Member of Congress, who has done probably as much as any one, or more to investigate conditions of this kind, that the Bureau of Cor- porations had stacked up on its shelves for years information of great value to the country, which only became public when the bteel Trust was investigated by a committee of Congress. Mr. Decker. It only gave those facts to the President? INTERSTATE TRADE COMMISSION. 383 Mr. Reed. Yes; and no one else is going after them, and no one else will go after them unless a committee of Congress does. The committee of Congress in the Steel Trust investigation brought out more facts of value than all the executive commissions of the past 20 years. Mr. Talcott. Do you think it brought out more than the Inter- state Commerce Commission did in its inquiry into the affairs of the New Haven road ? Mr. Reed. I think so. Mr. EscH. Or the express company's case ? Mr. Talcott. Yes ; or the express company's case. Mr. Reed. I should think so. Those are smaller subjects in a way. The express companies — I do not know what they have done on that. The New Haven road is a thing that is pretty well known in a gen- eral way, of course. (Thereupon the committee adjourned until to-morrow, Saturday^ Feb. 14, 1914, at 10 o'clock a. m.) Mr. Reed was excused with leave to add copies of the magazine articles referred to. American Demockacy and Cobporate Reform — The Democratic Antitbust Plank. [By Robert R. Eeed.] To the Atlantic for January, 1909, I contributed a paper bearing this same title. "American Democracy " was then used, and is still used, in its broader sense. The trend of events has made the trust remedy then advanced the declared policy of the party now In power, but the principle on which that remedy rests is the common heritage of all who believe in democracy itself. That principle demands the solution of the trust problem without destroying the fabric of our institutions. It demands the prevention of monopoly, not its regulation. This proposal, made in 1909, I shall call the Williams bill pro- posal, because it has become identified with the Senate bill introduced by John S. Williams, of Mississippi, who from its inception has been its most effective advocate. Senator Williams wrote me early in 1909 that this proposal furnished the key to the trust situation, and asked me to draft the bill which he later introduced, Later he wrote, " You have the right sow by the ear ; hold on to her " ; but his has been the grip that held, and the credit, if there be any credit, for its present position and promise of accomplishment is chiefly his. The proposal itself has been so fully established that there are now a number of pending bills based upon it, introduced by leaders of the different parties and factions; it is apparently accepted without question as both constitutional and practicable. It calls in its simplest terms for a Federal law excluding from interstate commerce corporations which fail to comply with such conditions as Congress linds and declares necessary to preserve the freedom of that commerce from corporate monopoly — " an effective prohibitory law stating in detail the conditions of incorporation, management, and governing laws necessary to enable a corporation to engage in interstate commerce." It is based on a fact which is now undisputed, that monopoly is created by government and can not exist without its aid, and that our modern monopolies have been created by the State grants of corporate powers necessary to their existence. This view was strongly stated by ex-Attorney General Wickersham in his notable address of February 22, 1910, in which he said that the resulting condition is strongly analogous to that which arose in the reign of Elizabeth by the express grant of royal monopolies. The most complete and conclusive statement of the genesis and growth of monopoly under the grant of the State corporation laws Is that made at the 1911 convention of the American Bar Association by its president, Hon. Edgar H. Farrar, of New Orleans. Judge Farrar particularly condemned the holding company and the unlimited capitalization allowed to modern corporations, and 34082—14 ^25 3^4 INTESTATE TEADE COMMISSION. ^1^, Monopoly comes to them by virtue of theii' size, organization, and strpngth just as surely as monopoly went to the Bast Indian Co. by roysd grant ' ; adding that " Congress can drive out of interstate and foreign commerce all corporations with fictitious or watered stock, all corporations whose capital stock is so great as to constitute them practical ijionoplies or suspects of being such, all holding companies, and all companies whose stoclis are owned by holding companies or by other corporations." This remedy had been proposed in 1909 and was, at the time Judge Farrar spoke, embodied in the Williams bill introduced in the Senate April 20, 1911, covering the specific items mentioned. In September, 1909, the New York World called this proippsal to the i)ttention of the so-called Saratoga Conference, which was deliberating on the future policies of the Democratic Party, and urged upon it the importance of present- ing a definite policy on the trust question. The platform adopted was negative ou this question, and this omission was criticized by the Outlook iu an editorial in which it said, "As soon as the Democratic Party takes a stand on one si4e or the other of the giant struggle over the whole industrial problem thaf is paramount in this country it will Ijecome vitalized, but until it does that it is negligible." Between 1909 and 1912 the entire aspect of the trust question changed. The banner of national socialism was raised at Os.sawatomie, and the Peniocratie Parfy seemed still to be unable to meet the issue squarely on one side or the other. JBut with the Supreme Court decisions in the Standard Oil and Tobacco Trust cases the situation altered. Monopoly was attacked and defeated. Its origin and its methods became more clearly defined, and in particular the fact of its creation by and dependence upon corporate devices became more clear to the general public. The Williams bill proposal was justified by the events which followed it, and gradually acquired strong individual support and public recogni- tion. The Attorney General of the United States, who in court and forum had contributed so largely to this result, publicly stated on March 30, 1912, that the Williams bill was " the most practicable and indeed I think the only clearly thought out and intelligently conceived legislation in that direction "—in the Erection, that is, of prevention of monopoly by restrictive laws. The Demo- cratic Party in July, 1912, nominated Woodrow Wilson for President, and, on the initiative of Senator Williams, made its appeal to the voters with the following antitrust plank, embodying the proposal v?hich had been ignored by the Saratoga Conference: , , ^ x, .» .» ,.t,„ "A private monopoly is indefensible and intolerable. We therefore favor the rigorous enforcement of the criminal as well as the civil law against trusts and trust officials, and demand the enactment of such additional legislation as may be necessary to make it impossible for a private monopoly to exist in the United States We favor thp declaration by law of the conditions upon which corporations shall be permitted to engage in interstate trade, including, among Others the prevention of holding companies, of interlocking directors, of stock watering of discrimination in price, and the control by any one corporation of so large a proportion of any industry as to make it a menace to competitiye '^'^Thy^Outlook prediction was fulfilled. Democracy was vitalized when for the first time in any party platform the restriction of corporate evils was de- clared to be the specific remedy for destroying private monopoly. The average voter I believe, grasps quite clearly the plain general meaning of this remedy He hks, wS of unwisely, an inherited antipathy to corporate privileges and Whoever discusses the subject with him will find ready 'f °S^>tmn of the fact Uiat monopoly is the outgrowth of corporate privilege and can be destioyed Dy Us liiStation He is surprised not at Uie declaration, but at the failure to apply t to™ ago He knows tbat " a private monopoly is indefensible and intoler- able"" iT he words of a member of the English Long Pariiament, quoted by Judge Farrar he has found tiiem " a nest of wasp^a swarm of vermin which havf overcrept tbe land. Like the frogs of Egypt, tiiey have gotten possession of onr dwSs and we have scarce a room free from them. Tbey sup in oui CUP they dip in our dish; they sit by our flre. We find them in_ the dye va^ wash bowl and powdering tub. They share with the butier in his box Miey wm not bate us ^a pin. We may not buy our clothes without their brokerage^ Thepe are the leeches that haye sucked the commonwealth so hard that it is "^^t^'is ^tKurpose of this article to emphasize the need aud meaning of the platform remedy in connection with the situation now existing and with the effort now being made to dispense with this remedy or to subvert it to the per- INTERSTATE TRADE COMMISSIOIT. 385 petuatlon of monopoly; also to make plain the fact that the platform pledge calls for certain definite things the effect of which will be as complete as the party promise "to make it impossible for a monopoly to exist in the United States." The first platform pledge is for "the rigorous enforcement of the criminal as well as the civil law against trusts and trust officials." It was, perhaps, expected that the enforcement of the law would be more " rigorous " and effective under Mr. McReynolds than under Mr. Wickersham, and the Union Pacific dissolution is cited as evidence that this has been the case. In justice to the subject, It must be s^id that the difference is largely one of form. In the Standard Oil case the common-stock ownership was not disturbed, and so long as it continues the " trust " remains. The Southern Pacific stock certifi- cates allotted to Union Pacific stockholders were not allowed to be physically converted into actual stock by a Union Pacific stockholder, but their exchange for actual stock by such a stockholder, by sale and purchase on the stock exchange, was not restrained by the decree, and was accomplished at a cost of 25 cents a share brokerage. The common control has apparently been re- tained ; if it was worth retaining, it could not be destroyed by such a measure. I cite this simply to emphasize the futility of the " rigorous enforcement " of the present law against corporate monopoly. It has not been and will not b,e destroyed in this way, nor, I believe, by " the trusts eating out of the hands of the Attorney General," to quote the current characterization of a process that originated with the last administration and has some of the features of an " immunity bath " for its fortunate victims. The evil is an underlying one, and requires an underlying remedy ; such was Mr. Wickersham's conclusion after four years of actual experience, and it is not apt to be ignored by his successor. If monopoly is destroyed to-day, it will be reestablished to-morrow, for the means by which it was created remains, and can not well be controlled by judicial decree or by adjustments similar to those of the Standard Oil and Union Pacific cases. The acceptance of such, adjustments as a permanent solution of the problem involves a surrender, not by the trusts but by the Democratic Party — a surrender in the face of an assured victory. The platform recognizes this fact and demands " the enactment of such addi- tional legislation as may be necessary to make it impossible for a private mo- nopoly to exist in the United States." Monopoly is destructible, and will be destroyed. In these bold words the Baltimore convention met the issue raised at Ossawatomie. Monopoly to-day is on the defensive. Its cause and the way to Its removal are known to the electorate and to the active leaders of Con- gress who were members of the convention that adopted this declaration. The platform pledge is strong and it is specific, but it Is susceptible of sub- version, and efforts have been and will be made to subvert it so as to effect the perpetuation of monopoly. It calls for certain definite, substantially unmis- takable provisions of law — for a " declaration by law " of certain " conditions " which must be met. The Williams bill proposal embodying these conditions had been thrashed out in the Senate Committee on Interstate Commerce and was known to all Members of Congress at Baltimore who had followed the subject. It Is embod- ied In the platform. The " trade-commission " proposal and various proposals to amend the Sherman Act so as in effect to permit a " reasonable restraint of trade" by "good trusts" were also well known — if anything, more widely known than the Williams bill. They are not embodied in the platform. The danger of the subversion of this remedy is serious. It is evidenced by the report of the Senate Committee on Interstate Commerce presented on February 26, 1913. Its only specific recommendation for legislation embodied the Williams bill proposal in the following words: "Third, that It is desirable to impose upon corporations now or hereafter organized under State law, and engaged in or proposing to engage in such commerce, further conditions and regulations affecting both their organization and the conduct of their business." The Senator who wrote the report, referring to " 10 out of 20 manufacturing establishments heretofore in competition " desiring to consolidate, said : " There ought to be a way in which the men in such a venture could submit their plan to the Government, and an inquiry made as to the legality of such a trans- action • and if the Government was of the opinion that competitive conditions would not be substantially impaired there should be an approval, and in so far as the lavs^ulness of the exact thing is concerned there should be a decision, and "°" INTEBSTATE TRADE COMMISSION. If favorable to the proposal there should be an end of that particular con- troversy for all time." A more apt statement of the program for the creation of monopoly under a Federal bureaucracy could not well be made. It subverts the whole pro- posal adopted by the committee, and instead of " conditions for the destruc- tion of monopoly " suggests " regulations " under which it may be perpetuated for all time." Woe betide the American Republic if combinations of industry can by Executive approval make "an end of that particular controversy for all time." The proposal, if adopted, would be a new and greater mother of trusts. From its womb would spring, for tlie first time in our history, full- grown national monopolies vested "for all time" with the sovereign grant ' of the United States. There have been, and, will be, many similar efforts to secure an executive discretion in the " regulation of combinations," issuing cards of admission or orders of exclusion directed to particular corporations. They will be presented with great ability as authoritative embodiments of the platform plank in several forms and from many sources. They can have but one certain result. Mr. Wickersham said, in July, 1911, on the subject of Federal regulation, " It has been openly advocated quite recently by repre- sentatives of some of the largest combinations of capital, probably as a means of salvation and to preserve, under Government supervision, great organizations whose continued existence is menaced by the recent interpretation of the Sher- man Antitrust Act.", To " preserve " them — this is the crux of the whole subject — on the border- land of monopoly and as near to its accomplishment and rich rewards as the Executive for the time being may permit. When the mind contemplates, in the light of history and with a knowledge of men, the vast meaning of this picture, it is small wonder that our Executives, no less than our " captains of industry," have at times inclined to favor a power so full of possibilities. Its possibilities are different for different men. It appeals to the beneficent autocrat, with the idea of compelling industrial peace and justice through the land, a dream fit for a Marcus Aurellus. It appeals to political ambition, with its possibilities of a great political autocracy controlling the destinies of the Nation. Last, but not least, it appeals to the man of large affairs, the business autocrat and monopolist, with its promise of salvation to existing combinations and of future growth. It means but one thing certainly, and that is monopoly under the possible restraint of the Gov- ernment. The sanction it will enjoy, but the restraint will not be felt. The thing is practically impossible in any government that is free and expects to remain free.' It is useless to speculate on a matter of such absolute certamty. Ours is a republican form of government. The only problem of regulated monopoly " under it is to outwit, mislead, or corrupt the ever-changmg powers that be, all the big brains and money, cunning and greed of the country work- ing toward a common end, with nothing to check them but a handful of men, bi| and little, each holding a political office at a, small salary until a better office or a better salary is offered him, and hoping fo' .something worth while when- he returns to unofficial life. Where are the presidential secretaries and bureaucrats of yesterday? The question is a fair one, and the answer tells the story of bureaucratic efficiency under a repubhc, of regulated monopoy In a democracy. The head of the Steel Trust is the most pronounced advocate of such a system, a system of the "good trusts," of great industrial combina- tions riveting the chains of commerce with executive permits, growing im- perceptibly, but " for all time," and irresistibly, to the complete dommance of *° Fortunately the party elected to power is pledged t?^ t^^ .dfstractio^ of monopoly, not by regulation, but by the enactment of specific legislation, which, by the terms of the declaration, excludes the idea and possibility of regu- lated combination." Fortunately, also, there is one man m the United btates who has kept his mind open on this question, not perhaps individually, Dui as President, nor has he expressed any other view but that the causes oi monopoly are known, and we must act with that knowledge to destroy ana prevent them. Correcting a popular impression to the contrary, he has very recently said with much emphasis : " I conceive that to be part of the whole process of government, that I shall be spokesman for somebody, ilr is it your idea that the trade commission which is proposed to be created by this bill, or any other bill that may be introduced and reported by the committee, should have au- thority to make final orders with reference to the practices engaged in by diiferent business corporations engaged in interstate commerce, and that those orders should only be appealed to the Supreme Court of the United States directly ? Mr. Joy. Yes, sir. Mr. Baekhey. I would like you to give the committee, if you can, your reasons for that statement. Mr. Joy. Well, I am a layman. I do not know anything about the law of the proposition. I am simply making that statement from the point of view of a business man. For example, take the conditions as they are to-day in litigation of petty questions — you would have to have 10,000,000 lawsuits to decide the different cases as to whether this man is improperly restraining trade or whether that man is improperly restraining trade, and each one of those cases would be different by shades. You have dozens of decisions by the Supreme Court that business men practically all like, where certain principles are established, and yet it takes a different suit in each case to decide the petty hair-splitting differences between those cases, although the principle is general. My effort or my idea is to sug- gest to the committee some plan by which the mass of litigation, the unending, hair-splitting litigation, can be bound up and put into the hands of a commission that will have power to come to^ me and say : " Mr. Joy, the Packard Motor Car Co. is doing wrong in this respect. 414 INTBESTATE TRADE COMMISSION. We want you to cut it out." If I do not like what the commission says, I have a right to appeal to some tribunal, under certain limita- tions and circumstances to be provided. Mr. Baekley. It is your idea, is it, that because of the fact that the commission will be located in Washington and its orders will be made of record in Washington, that it will be more convenient to appeal directly to the Supreme Court than it would to any district courts of the United States scatered all over the country ? Mr. Joy. Decisions will be so important by such a commission involving countless millions — hundreds of millions of dollars — in the business interests of the entire trade of the United States, that it would be wicked to put that matter through the district court, and then through the court of appeals, etc. I am seeking to make this tribunal so high and so respected, and of such commanding in- fluence, that what it should do would be the actual administration of the Sherman Act, and not the hair-splitting technical details, but operating on broad principles of fair competition. Mr. Barkley. Now, there is one other, question that I desire to ask in that connection. You said a while ago something about pub- licity ; laying great stress on the words " proper publicity." You would give the commission unlimited power to investigate the pri- vate affairs of corporations engaged in interstate commerce, if I understood it, with reference to examining its books of account, its methods of business, its cost of production, labor conditions, and all those things, and then you wound up your statement by laying some stress upon proper publicity. Now what are we to construe by " proper publicity " within the meaning of your statement? Mr. Joy. I mean by that that I consider that whatever such a com- mission would publish would be proper. It would not be necessary for them to come into my office and examine as to the fact, that my company had money in the bank, or was hard up with regard to financial matters, but what I am" talking about is fair competition— anything which lays down the rule of generally fair competition as applied by them to the business of the United States ; that is what they should publish, and not to publish anything which would be specially harmful or detrimental to my business, or to the business of newspapers, or anything that did not affect the whole trade. Mr. Baekuey. You have in view then such publicity as would af- fect the public welfare ? Mr. Joy. Absolutely. ,^ ^ , , Mr. Baekley. You called attention a while ago to Mr. Ford, who has set a very excellent example of permitting his employees to share in $10,000,000 of his profits during the ensuing year. Has any other company followed his example, within your knoweldge, of per- mitting employees to share in the profits of the company ? Mr. Joy. Well, before Mr. Ford took any action, of course a great many companies for a great many years had had various ways of giving their employees more or less of an interest in the results ot Mr. Barkley. They do that Very largely by increase of wages, do they not? . , Mr. Joy. Mostly and chiefly by increase of wages, but sometimes on a percentage basis of the results obtained, etc., but there is nothing INTEKSTATB TRADE COMMISSION. 41 £► that provides that employees shall pay back any of their wages in case the companies lose money. Mr. Baeklet. Let me ask you this — and I do not know that this c[uestion would bear upon the question of a trade comnaission except indirectly, and with reference to its workings: How is it that the Ford people are enabled to make such excellent machines as they do for the price at which they sell them, from $500 to $650, and make^ profit out of it which enables them to share $10,000,000 a year with their employees, and still have enough to keep them going, and other companies that manufacture automobiles — the Packard and others that might be mentioned — sell their product at from twice to ten times the price of the Ford people, and have not adopted this method of sharing their products, or contemplated any material reduction of the price of their product to the public ? Mr. Joy. You want the reason for that as it appears to me? Mr. Baeklet. Yes. Mr. Joy. The reason for that really is not at all complicated, be- cause Mr. Ford is a genius in mechanical designing. I have known him for 20 years — I have known him very well— and he hit upon the idea of just this type of a car for everybody to use as a light car, just something above, you might say, a bicycle -or a motorcycle, to run on four wheels, and he just hit upon that idea, to design that thing and market it, I think, at first, at $800 or $900, and he got enough money to expand his factory and increase his product and drop his price, etc., constantly lowering the price and increasing his facilities, and his business grew at such a pace and there was such a profit, on account of the demand for it, that he could spend enormous sums of money in devising ways and means to make it cheaper. He could throw awa;y fifty or a hundred thousand dollars worth of tools, or fifty thousand dollars or a hundred thousand dol- ars worth of buildings. Nothing amounted to anything if he could wipe that out all the way and stick at something that would enable him to produce the thing cheaper. Mr. Baebxby. Is the difference in the cost price, or in the amount of materials or mechanical knowledge necessary to create a Ford machine, and the amount of material and mechanical knowledge nec- essary to produce a $2,000 or a $3,000 Packard, or a Pierce- Arrow, or an Oldsmobile, or any other automobile sufficient to justify the differ- ence in price ? Mr. Joy. Oh, yes. I think you get just about what you pay for in most motor cars. The prices of the motor cars are just about in pro- portion to the value of the material, the character and quality and workmanship and stuff that is in them. The Chaibman. I would like to ask you a question about the inter- state trade commission. You say you would not appeal direct to the Supreme Court. You do not mean to make the trade commission a court, do you ? Mr. Joy. Just as far as possible to comply with the Sherman Act, subject to The Chaieman. I thought you wanted to analogize it to the Inter- state Commerce Commission. Mr. JoY. Well, they would largely administer the interstate com- merce act, as I understand it, would they not? 34082—14 ^27 416 INTERSTATE TBADE COMMISSION. The Chairman. They do not take appeals to the Supreme Court. Every suit — whether they bring it to enforce their action or whether It is brought by somebody else— would arrest their action, and the Supreme Court has no logical jurisdiction except in certain specified eases. So you state an impossibility unless you make the trade com- arission a court from which appeals can be taken to the Supreme Court. Mr. Joy. I would not want to set up my opinion against anybody's. I do not know anything about that. I simply sought to draw a pic- ture of the commission to which I could go with problems of my own manufactures — or a dozen great industries, if you please— and say, "Mr. Commissioner, can we do thus and so? " The Chairman. I understand that you want to discover what the ■wisdom of the ages is and get invariable advice as to what to do ? Mr. Jot. I want to go ahead advisedly and not have to go ahead and do something that four or five years later may be decided to be against the law. The Chairman. And whenever this or any other committee induces Congress to pass some technical law like that you will have 10;000 more litigations than you would have had before. Mr. Sims. There is only one question that I want to ask you. I iust want to see if I get your idea. As to patented trade-marks and copyrighted articles^ as I understand you, through this commission the price to the ultimate consumer ma,y be fixed on those kinds of articles so as to prevent unfair or cutthroat competition in those dealings between manufacturer and the ultimate purchaser; is that ydur idea? Mr. Joy. Yeg, sir. Mr. GuLLOP. As I understand from what you said, you contend that the manufa,cturer sholild fix the retail prie6 auid tpstt the law of supply and demand should have nothing to d.6 with it. Is that what you contend for? Mr. Joy. I contend that the manufacturer should have the right to fix the retail price, but 1 do noit contend that it is possible for any Bi8nufa,cttirer or any laws of Congress to offset the laws of supply and demand. Mr. BARKiiEY. If the price of the article is fixed by the manufac- turer in New York and sent to some point in Missouri, then the price is fixed regardless of supply and demand that may exist in Missouri, IB it not? Mr. Joy. That manufacturer, in fixing the retail price of his article, irould fix it at a point where he thinks it would bring him the full volume of business that he had the ability to produce. Mr. Barkley. Of course, the supply may be fixed by reason of monopoly that the manufacturer has over the product, but can any person say that the demand for a given product would be the same in one State, or in one county of any State, that it would be in another? Mr. Joy. Oh, no ; it is variable everywhere. Mr. Barkley. If he can regulate the supply, can he regulate the demand ? Mr. Joy. If he regulates the demand-^if he retricts the diemand for his article he could not sell it. He wants to sell just as many as he can. He wants to broaden his market. IITTESSTATE TBADE COMMISSION. 41? Mr. Barkley. Then he fixes the price at the beginning, and the amount of his sales would be governed by the demand for the product at the prices he fixes ? Mr. Jot. Absolutely. He has no possible incentive to restrict the sale of his own article. He wants to promote the sale of his own article everywhere and in every market. Mr. Willis. Let me ask you this. I understood you to say that you are in favor of having the members of this interstate trade com- mission appointed for life, and you mentioned that in connection with your previous remark about condign punishment that you would have fall on the heads of newspaper men. Did you mean that seri- ously ? Do you think that the members of this commission should be appointed for a life term ; and if so, why ? Mr. Jox. It would be difficult for me to appreciate that any man who I think would be a decoration of that court would retire from his active career, for example, for five or six or seven or nine years, and then by reason of change of circumstances be shifted back again and stay there, or shift for himself in the trade of the United States ? By the time a man reaches that age he is generally in a very important position. Mr. Willis. You recognize that members of the Interstate Com- merce Commission are not appointed for life. Why should these men be ? Mr. Jot. I am not criticizing the Interstate Commerce Commission. I do not think the Interstate Commerce Commission has worked out to the maximum possible advantage which I think that commission could have produced in the United States. I hope to get a better commission than the Interstate Commerce Commission, because while the railroads are important, and a great deal of money is invested in railroads in the United States, there is a great deal more invested in commerce and industry and mining and agriculture and trade of the United States. I think it is the most important commission of the two. Mr. Willis. You mean that seriously, then ? You think they ought to be appointed for life ? Mr. Jot. I do absolutely mean that seriously. Mr. Covington. You advocate the creation of an interstate trade commission which will have at least as broad powers as the Inter- state Commerce Commission now has over the railroads of the coun- try, do you not ? Mr. Jot. Yes, sir; for the purpose of stopping litigation as far as possible. Mr. Covington. And you think the stopping of litigation will result from the control of the trade activities of the industrial con- cerns ? Mr. Joy. Yes, sir ; and creates certainty. Mr. Covington. You referred to the fact, in your argument that you read, that the era of competition among railroads had passed, and that very wisely there had been established now a regulation of the prix;e of the service that they render, and that that was the one metiiod to be desired in industrial business in this country. You also advocate the maintenance of the retail price by appropriate 418 INTERSTATE TRADE COMMISSION. powers vested in the interstate trade commission, do you not, of patented, trade-marked, and branded articles ? Mr. Joy. With qualifications. You see the shades of trade in dif- ferent lines, according to trade customs, are just as varied and dif- ferent as the shades of the rainbow, for example ; and what I say is that if I wanted to engage in the making of " Joy Farm Sausage," and put a stamp, "Joy Farm Sausage," on it and sell it at a dollar a box, I think I ought to have the right to control the retail price of " Joy Farm Sausage." Mr. Covington. That is precisely what I was getting at. Mr. Jot. That is the point that I am getting at. I say I ought to be permitted to control that price. Mr. Covington. That is it, precisely ; and you think you ought to be permitted to use the interstate trade commission — assuming that you are engaged in interstate commerce — in the sale of the product for the maintenance of that company's price of that branded article to the consumer? Mr. Joy. I do not think you would need that commission. You would use the opinions or decisions on the fact that it was improper to interfere with me. Mr. Covington. Would not the logic of your position be that when a trade commission was established as a piece of legal machinery for maintenance of that retail price, one of the elements of unfair com- petition against which you would have the right to complain to that commission would be the avoidance of that retail price by some per- son who had got control of some of that product? Mr. Joy. Yes, sir. Mr. Covington. And it would naturally follow, in your creation of that commission, that it would have the power to make orders to restrain the continuance of that practice, would it not? Mr. Joy. Yes, sir. Mr. Covington. Now, take this situation. You know that rail- roads on their own initiative make rates, and that they have to file those rates with the Interstate Commerce Commission? Mr. Joy. Yes, sir. Mr. Covington. And then, having regard for the cost of the rail- road itself, the extent of its honestly issued stock and bonds, and its operating expenses, after that rate has been. filed,^ the Interstate Com- merce Commission determines for the American people whether the rate is reasonable, does it not ? Mr. Joy. Yes, sir. . Mr. Covington. Now, you have just pictured to this committee the Ford Automobile Co., which, upon a capitalization of $2,000,000, in addition to declaring $10,000,000 of dividends in one year, dis- tributed $10,000,000 of its surplus as the result of the prices at which it was able to sell its cars to the American people without the main- tenance of retail prices. If there is to be given, through the Con- gress of the United States, the right to the American manufacturer, who has a patented, or copyrighted, or trade-marked, or branded article the power through a trade commission to compel the enforce- ment of his fixed retail price, does it not follow that when he fixes his price and asks for an enforcement of the law on his behalf, as railroads have the right to do, he must come with his capitalization, INTERSTATE TEADE COMMISSION. 41 & his actual and honest investment, his manufacturing cost, his over- head charges, and every other element of cost of production and say : " Here is the amount that it costs ; here is the total expenditure that I have had; here is the amount of my investment; and here is the profit at which I purpose to sell it to the retailer or manufacturer," and if that price is not a reasonable price — ^if the manufacturer is to have the power of the Government to be used to control the price at which he sells to the retailer— that the American people shall have the power, through the trade commission, to say to him that, having invoked this law, having created it, the price will be reduced to a reasonable figure. Mr. Joy. No, sir. Mr. Covington. In other words, you think the manufacturer should be permitted to place any price he wants to upon his article ? Mr. Jot. Absolutely. Mr. Covington. And the Government shall give him the power at the same time to maintain and control prices and the consumer must stand paralyzed between the rapacity of the manufacturer on the one hand Mr. Joy. Yes, sir. Mr. Covington. And the greed of the retailer on the other hand? Mr. Joy. Yes, sir. Mr. Covington. And, while the commission would have greater power than the Interstate Commerce Commision has, that it shall be absolutely impotent to do what that commission has had to do ; that is, to enforce reasonable railroad rates for the people of America Mr. Hamilton. Give the witness a chance to answer. Mr. Joy. You are straying off entirely, as I look at it, to another question, utterly apart from the proposition of the permission of the manufacturer to maintain his price. There are many things, for ex- ample, where it is not necessary for the manufacturer to maintain the price of his .retail article, but there are countless things, for ex- ample Mr. Covington. But does not this follow that if you had the right through the Government- Mr. Joy. I understand that- Mr. Covington. Just a moment. If you had the right through the trade commission to maintain as between yourselves and the retailer a fixed retail price, you know that the retail price would be main- tained, do you not? Mr. Joy. I certainly do, if I am maintaining it. Mr. Covington. And you know, also, as an American business man, that if the American retailer and the American manufacturer had jointly the great power of the Federal Government behind them to maintain the prices at which the ultimate consumer has to buy his product, that there would soon be a community of interest between the manufacturer and retailer by which the manufacturer will be permitted to fix a high price and the retailer defend that price ? Mr. Joy. Pardon me, you are drawing a wrong inference from what I said. At least, in what I said I had no intention of saying anything like that. There is a difference between a public-utility corporation, a quasi-public corporation, and corporations, for ex- ample, which are the ordinary businesses of individuals. That is a 420 INTERSTATE TRADE COMMISSION. totally different proposition. If I go into the business of making inkstands, for example, I have the right to make just as much money out of the inkstands as I can. If I can make a better inkstand than anyone else, and make it for less money and sell it for as much as I can, I have that right. I have the right to fill my bam up with the money I make in selling inkstands, if the people will give it to me. Mr. Covington. You do not mean, when you say that, that you have the right to call on the Government of the United States to give you its tremendous power to maintain the price at which it shall be sold to the consumer ? Mr. Joy. I do not want the tremendous power of the Government behind. Mr. Talcott. Why can you not do it by contract? Mr. Joy. Wait a moment. Listen, if you please, gentlemen. Let me make that clear. Mr. Hamilton. I think we ought to give Mr. Joy that opportunity. Mr. Covington. We want to give him all the opportunity he wante. Mr. Hamilton. He starts to answer, and then some gentleman breaks in on him. Mr. Joy. Let me see if I can make that clear to you gentlemen. It is perfectly clear to me that the conditions which exist to-day, for example, are exactly like this : That if I am a great, Mg, powel-ful corporation, and have lots of money, I can go to work and maintain my retail price within the law and according to right by establishing ray own retail stores or agents, and there can not anybody touch me or bother me. And it is the right thing to do. It is trade in its retail form, and I have a perfect right to do that if I have mdney enQVigh to do it with. Now, up comes the situation, for example, of tbe Sherman law as it has been interpreted, that says, if you have not got enough money to do that, you are only a little fellow, and carrying on a small business, and you have not got the ability to establish retail plants of your own, in your own city, to sell this stuff to, but you have got to rely on established commercial indus- tries, wholesalers and retailers, to sell your product. Then you can not fix the retail price of your goods. You have given the fellow with a barrel of money a chance to run away like a greyhound from the fellow that is so small that he has got to rely on the divided responsibilities of retailers and wholesalers, which are the only ways of reaching the customer. I contend, gentlemen, that that is wrong, that you should permit that man, be he ever so little, to say to that retailer, " Here is my Joy inkstand ;" I think I have a better illustra- tion here. I have here a Waterman fountain pen, we will say. My idea is that the man who makes the Waterman fountain pen— I do not know him— and makes it valuable and establishes it as a quality article ought to have the right to go to the retailer and say, "Would vou like to handle by fountain pen? If you do, this is the price for It, and this is what 1 will sell it to you for at retail. Your comm^- sion or differential, which is the same thing, will be so much. ihe fellow says, " Yes ; I will take them." I say, " If you take them then vou must not sell them at anything inside the stipulated price, be- cause if you do I will take them away from you." I say it is an advantage to me; I say it is an advantage to the public to be able to get we will assume, a Waterman fountain pen of the quality which Waterman makes for the price put on it by the manufacturer. I go INTEESTATE TKADE COMMISSION. 421 into a store and buy a Waterman fountain pen. In the tray along- side of this fountain pen were other kinds of fountain pens, of all different kinds,, prices, and qualities, and everything else on earth. I pick out the Waterman fountain pen because the Waterman is, say, model No. 15, $5, and if you buy it with a silver clip that is 25 cents extra. I know the price I am to pay for that fountain pen, and that is all right. Suppose there was no price on that fountain pen — ^there was no catalogue price list of it to guide me. Suppose the salesman had said $6 or $4 ; I would not have known that he ought not to have said $2, for example. But now when I see that in there I have the guaranty of the manufacturer of that pen that the pen is worth $5. Mr. Covington. Let me take you along that line. Suppose that fountain pen is the best fountain pen on the American market, and it is so much better, by the way, than any other fountain pen manufac- tured that the Amercan consumer really wants that fountain pen. Now, then, your argument leads irresistibly to this conclusion, does it not, that the American people are going to buy that fountain pen in, preference to any other at anything like a reasonable price, or un- til the price gets so high that they can not afford to take it it all ? Mr. Jot. No, sir. Mr. Covington. If they are not going to buy it in preference to another pen of what value is a fixed price in so far as widening the output to the manufacturers ? Mr. Jot. Because it enables the maufacturer, my dear sir, to m3,in- tain the quality of his. article. That is the only thing that the fixed price permits the manufacturer to do, to maintain the quality of his article. If he can not fix the price on his article he can not maintain his quality, because it is clearly evident to me — I do not know whether I can make it clear to you, gentlemen Mr. Covington. Yes ; I think I understand you. Mr. Jot. But it is clearly evident to me that the amount of money that I can put into an article that I am manufacturing depends upon the retail price that I can get you to pay me for it. Now, then, if 1 ani making a given article that costs $5, $50, $500, or $5,000 it is going to cost me a certain amount to sell that article. It is going to cost me a certain amount to advertise it, and it is going to cost me a certain amount ior transportation, and it is going to cost me a certain amount for manufacturing it. If I can not go to work and make a wedge in my product to enable me to make an article of that quality, which they say we will buy — that is the way they start. Mr. Water- man, we will assume, starts in to make a fountain pen such as he would want to use himself ; he bases it on quality. Whether he can carry out the proposition is a question of whether or not he can get the public to say, "We will pay you for that, Mr. Waterman, $5," To say you could look at that and say it is worth $5 is absurd on the face of it. We do not know anything about it. Mr. Covington. I will ask you a practical question. You are the head of the concern that manufactures the Packard motor cars, and they are mighty good cars, by the way. Mr. Jot. I hope so. Mr. Covington. The Packard motor car has a very wide sale in America. You maintain pretty well a fixed price at the present time without any aid of law, do you not ? Mr. Jot, Yes, sir. 422 INTERSTATE TEADB COMMISSION. Mr. Covington. It is not a great deal of trouble for the Packard motor people to maintain, with the sales agents they now have from the Atlantic to the Pacific coast, the standard price at which their motor car shall be sold to the consuming public? Mr. Jot. No, sir. Mr. Covington. You have not had in your experience with the Packard motor car enough trouble with retailers cutting the prices on them to impel you to reduce the quality of the machinery, the quality of the motor itself, the quality of the body construction; in a single car, have you ? Mr. Jot. No, sir. We do not allow them to cut the price. Mr. Covington. That is exactly what I am getting at. Mr. Jot. If we allowed them to cut the price — ^if we allowed those fellows to break the price on that proposition Mr. Covington. I understand. Mr. Jot. And sold you a Packard car for one price and this gentle- man another car at another price, and another gentleman another car at another price, and I meet a friend over here, and he says, " Joy, what can I get a Packard motor car for? " I say, " God only knows. Go and find out." I have not got any control over the price. ]!ifc. Covington. But the trade conditions in this country to-day are such that when you establish an article which is well known, such as a Waterman fountain pen, or a Packard motor car, you are able to both maintain the price fairly well, and maintain the stand- ard of the manufactured article? Mr. Jot. My dear sir, you are wrong. We are maintaining our price to-day absolutely contrary to law, and the Depart- ment of Justice has been in my office, and has had their rep- resentative there, digging into my affairs, and I gave him a day at odd times, and I got all the facts, and all the state- ments, and all the views of the Department of Justice in regard to it out of him, and I know exactly what I am up against. And if you do not change the situation from what it exists to-day and give me lawfully the right to fix the retail price of my product, I have g;ot to do one of several things : I have got to go to work and depre- ciate tie quality, and go into cutthroat competition, and say, " Here, you go and sell them, and get what you can, turn in what you can get, and I will pay you so much — make a cutthroat murderous job of the proposition," or I have got to go to work — and I have the means to do it — and establish my own agencies all over the United States, and damage my business in so doing, because a man in a locality, acting as my dealer, as my retailer, can bring me more business, can sell more cars, and he can conduct the business more more efficiently — and the more cars I can sell the cheaper I can make the price, and the more I can broaden my business, and make more money — than I can through my agency put in that town. I do not want to put that dealer out of business. I want to let him remain in business, because he is a better representative for me than I am myself. Yet if this situation is not stopped I have got to go to work and put that fellow out of business, and make him my hired man. Mr. Covington. You mean, if the law is not changed? Mr. Jot. Yes ; if the law is not changed. IHTEESTATE TEADE COMMISSION. 423 Mr. Covington. You would like to have the trade commission given that power to bring about that condition by law that you have pictured ? Mr. Joy. The trade commission is another proposition. If you will do just one thing, and state that the " sole right to vend " in a patent means to sell to the customer, I am through. Then I am all right. Mr. Hamilton. I want to ask you a question. Mr. Esch had wanted to ask a question, but he was compelled to go. I want to get at this, Mr. Joy : Why can you not protect prices in your retailers y fixing your wholesale prices to your retailers? If you have a regulated wholesale price, for illustration, that you maintain for j^our Packard car throughout the country, why does not that fix within reasonable limits the retail price of the car ? Mr. Joy. Because the retailer in a great many instances is not an acute business man, and he does not figure out that it requires exactly 20 per cent for him to sell those things on a general average, and have a particular profit out of his business or some reasonable profit out of his business. He has got to be a hustling business man to get a fair profit out of the 20 per cent commission. In selling a $5,000 article, if instead of giving that man 20 per cent commission, or $1,000, 1 broadly fixed the price of that article at $4,000 at wholesale, and then said to that retailer, "Now, you go ahead and you get enough to live on out of this business, to make some money." That is the only thing I could do. Therefore he would be fixing his price on that article Mr. Hamilton. Then, you do this that your retailer Mr. Joy. Just a moment, please. That retailer, therefore, having gotten this product from me at $4,000, would be engaged in fixing the price of it. In one town one retailer would sell it at $4,500, and in another town another one at $4,000, and another one giving it away, and here is a man that is a dear good friend of mine, and he will be a good booster for me in the town. I say I will just slip him an automobile, until that fellow's trade would be utterly uprooted, his trade conditions would be so down and out in that town that he could not sell another car in that town to save his life until some- body came into that town and said : " These cars are $5,000. If you do not want it, do not take it, but if you do come up to the captain's office and pay the money." Mr. Hamilton. That is excellent in theory ; but the practice — and I have had considerable experience — is that, we will, say, your retail dealer — your local agent — ^has a 20 per cent commission for doing business — for selling the car. You place the cars with him on certain conditions, and you give him 20 per cent. So far as the public is concerned, in your relations to it, you are selling your car to that dealer at a specified rate, and you are selling it at the same rate throughout the country. Your agent says to his customer — I do not know whether it is so with the Packard; the commission of the agent is pretty well known — " I get 20 per cent, and I will just shave this a little with you. I will divide my commission with you." I do not Imow whether it is so or not with the Packard. It is so, I am quite sure, with some other goods. Mr. Joy. Yes. 424 INTEESTATE lEADE COMMISSION. Mr. Hamilton. Then I come back to the original suggestion that your wholesale price does fix it— you can not guard against this shaving by your agents — your wholesale price does fix a stable price, approximately? Mr. Jot. No : pardon me ; in my case I have fixed that retail price. I have guarded against the cutting of that commission by sending auditors to those fellows' establishments. They say to me, "We can not sell it for 20 per cent; we have got to have 25 per cent," I will say, " My auditor will be around there to see what the matter is with you. Other fellows are selling them at 20 per cent and making money and giving better satisfaction to the customers than yqu are. That is enough for you. I am not going to give you any more, and you shall not divide it or give any of it away." That is a situation which I absolutely control. All I want to do is to be in the line of business where that is desirable — to be permitted to control it. Mr. Hamilton. Suppose your agent does not go to you and gay, " I want 25 per cent." Mr. Jot. There is no further complaint. Mr. Hamilton. Suppose he says, " Instead of making $25Q on this particular deal, I will make $100," as he wants to place a Packard car in that locality. That terminates that transaction, does it not? Mr. Jot. But when he d6es that he is destroying my business in that community, and I can not let him do that. Mr. Hamilton. Nobody knows it. Mr. R. B. Stevens. What is the effect on the reputation and stand- ing of an article to have it sold at varying prices? Mr. Jot. If it is very much shaded, it is absolutely destructive to the business ; and then it shades down all the way to 90 per cent de- struction, 50 per cent, or 30 per cent. Mr. R. B. Stevens. It injures the reputation of the article? Mr. Jot. Yes ; it injures the reputation of the article. Mr. R. B. Stevens. As a standard article? Mr. Jot. Yes. In other words, if I sell a Packard motor car any- where in the United States — and I am conducting the sale of those cars myself — ^if I sell the Packard motor car anywhere in the United States for less than the list price, I can not sell one to you at the list price. Mr. Hamilton. I think that is true. Mr. Talcott. It does not affect your price as a jobber, does it, Mr. Joy? The fact that the retailer cuts the price on his sale does not affect your price to him as a jobber? Mr. Jot. No ; but it destroys my market. In other words, if I have sold a car to that gentleman at 10 per cent less than the list price, through a dealer in Oshkosh, and this gentleman comes in and hears of it, and he wants to get one at the same price, and the dealer says, " Oh, no ; I can not sell one to you at that cut price. This other man is a friend of mine, and he has promised to boost my goods in this town ; and besides that, he did something for ray mother's aunt four years ago, and I want to do something for him. But yon, you have got to pay the list price." I do not sell him. He quits. He runs away. And the factory in Detroit, where I employ 5,000 or 6,000 men in making these cars, suffers, for I have a legitimate right to INTERSTATE TEADE COMMISSION. 425- increase my business, on the square, and the dealer, by his philan- thropy in giving away the car at less than the list price has kept me from employing that number of people in Detroit. Mr. Talcott. But he is hurting his business as well as yours. Mr. Joy. He is hurt ; but he thinks he is improving it, from his nar- row vision ; but I know he is destroying it. Are there any other questions ? Mr. Hamilton. There is only one thing, Mr. Joy. As I under- stand you, you propose that corporations shall be permitted to com- bine, and that they shall be permitted to fix prices to their retailers; and that they then shall be permitted to go to a trade commission and have permission from the trade commission to do exactly that thing. Now, suppose your corporation has been engaged, and wants to continue to be engaged, in charging so large a price for its output that it is making an undue profit? Mr. Jot. It is a private business. The minute I go to work and make an undue profit out of a car that is coming out of the door of my factory the public stops buying it. It comes into competition with something else. Mr. Hamilton. That operates within certain limits. That is, when you charge too much your sales fall off and your profits fall off, and when jottT profits fall off your dividends fall off, within certain limits ? Mr. Jot. Yes. Take Henry Ford. Has he not the right to make just what he likes ? The Chairman. The committee is very glad to have heard you, Mi", joy. What you have said has been very interesting, whether it is true or not. (Thereupon the committee took a recess until 2 o'clock p. m.) AFTER RECESS. The committee met at 2 o'clock p. m. pursuant to recess. The Chairman. The committee will come to order. Mr. Boyle, do you wish to take the stand yourself, or do you desire to introduce another witness? Mr. L. C. BoTLE. I desire to introduce another witness. Prelimi- nary to doing so, I thought it might be proper for me to suggest that the Yellow Pine Association meeting at New Orleans had before it the bill that is now proposed whereby a trade commission is to be cre- ated, and that organization is very strongly in favor of such a com- mission. It was thought proper to come and talk to this body rela- tive to certain practical suggestions which we feel ought to be made. T feel that these business men can better give you this light than could a lawyer, and with this preliminary I desire to introduce Mr. C. S. Keith, president of the Central Coal & Coke Co., of Missouri, which has large holdings both in coal and timber. Mr. Keith has gone over the subject, and he is a student of the industrial problems that are involved. With this introduction, I should like to have Mr. Keith come forward. 426 INTERSTATE TBADE COMMISSION. STATEMENT OF MR. CHARLES S. KEITH, PRESIDENT OF THE CENTRAL COAL & COKE CO., KANSAS CITY, MO. The Chaieman. Mr. Keith, you may proceed to make such a state- ment as you wish in regard to a trade commission, either for or against. Mr. Keith. Mr. Chairman, besides the organization which I rep- resent, I am also president of the Southwestern Interstate Coal Op- erators' Association, of Kansas City, which comprises all the coal operators, or practically all the coal operators, in Missouri, Kansas, Arkansas, and Oklahoma. This association is one which was formed for the purpose of making contracts with the United Mine Workers. This matter has been before our association for some time. It was first discussed, and at a meeting of that association they passed a resolution indorsing a commission of this character. I am also here as a member of a committee of the Yellow Pine Manufacturers' Association, which represents practically 33 per cent of the output of yellow pine, comprising 238 firms and corporations cut of some 17,359 engaged in the business. We are favorable and think that an interstate trade commission is a crying need to business. We believe, in the first place, that the members of this commission should be increased to seven instead of five. Our reason for believing that is this: We believe that the work which will come naturally before this commission will be so great that in course of time, after it is thoroughly organized and gets in operation, its field of investigation and activity will be as great, if not greater, than the Interstate Commerce Commission. Conse- quently we believe that the membership should be increased so as to enable it to cover a wider field. We believe that the commission should be men particularly qualified for this line of investigation, and that at least three of them should be men who have had practical business experience. The Chairman. Did not the Interstate Commerce Commission be- gin with five and afterwards increase to seven ? Mr. Keith. I do not remember. I do not know. But I believe you will find that in the course of time the members of the Interstate Commerce Commission, even, will have to be further increased. We believe that one of these members should be a representative of labor ; that labor is interested in commerce as well as capital. Mr. GoEKE. There is no provision in the bill that capital alone is to be represented on that commission, is there? Mr. Keith. No; but I should suggest that the men be qualified by reason of business experience, men who are able to grasp and understand the fundamental economic conditions of the various in- dustries by reason of their connection with them. Mr. GoEKE. Is it not safe to leave that matter to the President ? Mr. Keith. I do not doubt but what it would, Mr. Goeke. We feel that there should ,be included in section 3 voluntary associations, per- sons, and firms, as well as corporations. By associations, I refer to those voluntary associations composed of individuals, firms, and cor- porations engaged in interstate commerce. There are those who feel, for instance, that the Yellow Pine Manufacturers' Association has something to do with the price at which lumber is marketed. This, of course, is an erroneous impression, and we feel that it would be INTEKSTATE TRADE COMMISSION. 427 an advantage to the manufacturers if this and similar associations were put under the supervision of a commission. By this means erroneous and false impressions would, be eradicated and the activi- ties of these associations could operate along lines most helpful to the public generally. We think that in line 21, the failure to report at a given time, the fine of $1,000 per diem is rather excessive. The Chairman. Which is that ? Mr. Keith. Line 21 of section 3. There may be some good and sufficient reason why a report should not be made at a given time, or information might be requisite that requires a great deal of auditing work in order to get it up. The Chairman. Would not the commission have discretion to pass on that excuse and modify their requirements accordingly ? Mr. Keith. The fine is fixed at $1,000 per day for failure to put the report in. The Chairman. The requirement is in lines 10, 11, and 12, as fol- lows : The commission, at all reasonable times, or its duly autliorized agent or agents, sliall have complete access to all records, acccounts, minutes, boolis, and papers of such corporations, including the records of any of their executive or other committees. The penalty is for failure to comply with that. The question now asked is, Would not the commission have jurisdiction to modify the requirements so as to regard a reasonable excuse ? Mr. KJsiTH. I should think that it would, Mr. Chairman, but $1,000 a day looks like a pretty. expensive fine in any event. The Chairman. If it is contumacious, it ought to be severe, ought it not? Mr. Keith. Well, that is probably true, provided there was intent to violate the law, but otherwise, no. We believe in section 4 that that should be qualified in making public information. I believe the information should be made public, but I do not think it should give the specific company. For instance, I believe a compilation of any information in connection with an industry as a whole is the information which everybody ought to have access to, but taking the particular business of a company, unless the company itself is in violation of the act, I do not think that ought to be made a matter of public information. It is a question of our own relation in our organization, in the handling of our own business — the question, for instance, of what we are securing for our product, and the question of the cost of our product. Throwing that up in a compilation, coupled with that of a number of others, and giving it out without giving the specific company, I think would be very good for all of us to have. The Chairman. General averages ? Mr. Keith. General averages; yes, sir; because it is a guide to us in the conduct of our own business to know whether or not our costs, our realizations — our cost is too high or our realization too low, which would be a guide to us in the handling of our own affairs and would be valuable information to us. You will notice that in section 9 it says that the commission shall have power upon the request of the Attorney General or any corpora- 428 INTERSTATE TRADE COMMISSION. tion affected to investigate any corporation subject to the provisions of this act, and so on, and to set us right if we are wrong. That I think is all right. It ought to be that way. But I notice in line 23 of that section a provision there in which it says, " by agreement with the corporation affected, or by suit, as provided in said act aforesaid." . . . , , . We think if we come in good faith to this commission and submit our affairs to it, and ask it to guide us and tell us if we are doing something that is wrong, to put us right in the matter, that ought to , be an evidence of our good faith, and that should be amended by say- ing that if the recommended readjustment is not complied with within the time fixed by the commission, then a suit may be brought. Mr. Raxbuen. What is the amendment? Mr. Keith. In line 23, after the word " or " and before the word ^'by," that the following words should be added: "If the recom- mended readjustment is not complied with within a time fixed by the commission." The Chairman. Is not that a matter somewhat of discretion and treatment by the' parties at the time as to how long the commission will think a reasonable time for advising that suit shall commence? Mr. Keith. That amendment that I suggest, Mr. Chairman, reads that within a time fixed by the commission, and so forth— that the commission fixes a time in which we shall put ourselves right. The Chairman. That fixes no time, but leaves alive the assumption that both the commission and the Attorney General will act in due discretion. Mr, Kf.t ttt. We believe that the time ought to come some tifljs in our business relations where we can get to a point where we wM understand and know just what we may and just y^hM, we may not do. The Chairman. That is visionary in this world. There has never been a Government, a church, or a Bible, or a law, human ot divine, that undertakes to tell a man exactly before he acts what he should ■do. You act on your own responsibility with the law before you, and you take the consequences after, either good or bad. Mr. Keith. In line with your suggestion that there has never been a law, htunan or divine, that undertakes to tell a man exactly, before lie acts, what he shall do : There is a distinction, however, between the human law and the divine law. Under the human law ignorance of the law is no excuse, yet under the divine law God Atoighty has endowed each human being with a conscience, which acts as his monitor — a commission, if you please — and from the dictates of that conscience he is judged under the law. The great difficulty is and has been that the indefiniteness of the act itself ha§ led to consider- able confusion, and while we have been advised by our counsel, under their interpretation, that we could do certain things and we liave acted upon their advice, we have found out later that they were wrong. The Chairman. I had a man come to me once to ask my advice. I told him what to do in his case, supposing that he would come and employ me after he did it. He went out and employed andther lawyer and, went to jail. I told him, " I did not tell you to employ that lawyer. I told you to come to me." There are lawyers and then there are lawyers. While lawyers are absolutely essential to INTEBSTATB TBADE COMMISSION. 429 civilization, th&re are some lawyers who are not infallible. A man has to exercise good judgment about getting a good lawyer, as he does about anything else. Mr. Keith. That is true, but no human mind is infallible, and we have to judge a lawyer upon his record, and he may make a mistake ; even all courts do not agree. Mr. GoEKE. Do you not think, Mr. Keith, that the relief you seek to provide by that amendment would be afforded my making the entire statute more clear and definite, so that a business man or his lawyer might know with certainty what it meant? Mr. Keith. I do not believe it can, and I am going to give my reasons for thinking so. In the first place, you are confronted in business with a myriad of conditions. Those conditions vary in different lines of industry. Some conditions which exist in one in- dustry do not apply in another. I do not believe you can lay down smy one -rule of action that is going to cover them all. I believe this body here should be a body such as would be able to regulate that situation in connection with this law. It should be clothed with discretionary power. For instance, there are conditions in restraint of trade where a restraint of trade will actually work out to the benefit of the general public, whereas a condition of warfare in a competitive way will be destructive of resources and will bring about a condition in the end which reacts agaihtet public policy, against public interest, and therein is where I believe that this commission should have the power to handle these things. Take, for instance, our lumber business and our coal business. Both are natural re- sources. You take, for instance — since the discovery of America there has never been any practice of reforestration in this country, aind we have been consuming during that entire period our forests. Since 1880 to 1910 our consumption of lumber has increased 172 per cent per annum. That is, our consumption in 1910 was 172 per cent more than it was in 1880. During that entire period we have been cutting our forests, and we have grown no more forests. The restflt is that forest values have increased and with it the cost of produc- tion has increased. During that same period of time we have had a number of depressions arid a number of periods where we have had what we would call and term prosperous times. During these periods of depression there are times when, in otder to keep our mills going at full capacity and sell our products, we are unable to bring in cer- tain portions of the log and small trees and manufacture them into lumber. For instance, a tree that we get five cuts out of, we are forced to leave one cut in the woods from the fact that that fifth cut would not stand transportation to the mill and conversion into lumber. Mr. Ratbuen. You mean because of its quality ? Mr. Keith. By reason of its quality, coupled with the fact that the price has declined so low by reason of the depressing conditions, and that we have had to run our mills to full capacity regardless of whether or not we had a market for our product, with still lowering values. The Chairman. You mean it is cheaper to lose it than it is to save it? Mr. Keith. Yes ; it is cheaper to lose it than to save it under those conditions, yet the people will pay for it later in enhanced values. 430 INTEESTATB TEADB COMMISSION. - The production of lumber in 1910 was approximately 50,000,000,000 feet. To be absolutely correct, it was 44,000,000,000 and some hun- dred million feet. Take it under a condition such as we have had this year, for illustration : We have produced this year 1.25 per cent more lumber than the market could assimilate, brought about by the depressed conditions of last year, and the result has been a falling off of 24 per cent in lumber values. The Ghaikman. I am ready to agree with you that the people pay it. I am glad to find out what it is that we have been paying for. I remember eighteen years ago I bought lumber at $5 a thou- sand for rough boards. Now we have to pay $20. We people who have to buy it think it is very hard to have to pay so high a price. Mr. Keith. I can explain that to you, and this situation that I am referring to to-day has brought about that very condition. The Chairman. I want to ask you when you get through about what I think is a case of misconstruction in this amendment you have suggested. Go ahead with your statement, though. Mr. Keith. That situation, by a reduction of 24 per cent in the value of the product, has brought about a condition where the low- grade log can not be manufactured. In order to produce and keep on running to capacity 50,000,000,000 feet per aiinum and at the same time produce a product which you can sell at a profit, or at least at cost, it has been necessary to leave 25 per cent of the logs in the woods which have been cut down, and the tops left there, to rot and waste. Secondly, in. order to produce the 50,000,000,000 feet pa- annum, in order to attempt to market the 1.25 per cent surplus pro- duction, we have been forced to a situation of harvesting 66,000,- 000,000 feet of logs, or a direct waste of 16,000,000,000 feet. That is not a theory, gentlemen, it is a fact. You take it in a five-year period, if that condition would exist that long, you have wasted 80,000,000,000 feet, or two years' consumption, practically, of logs — two years' consumption of lumber. Nobody has benefited by it. We have suffered now — ^the manufacturer is the one who suffers unmediately, but in the end it is the public that suffers, and because of that very situa,tion you have paid $5 a thousand for your lumber 20 years ago and are paying $10 or $20 a thousand for it to-day. In 1897 we could buy forests in the South at 20 cents a thousand stumpage. In January of last year that same stumpage was sold for $6.50 a thousand. And that condition has brought an- earlier de- pletion of the forests and enhanced the values of them. If we still had the timber which has been wasted, the value of timber would be greatly less. This is a condition which this proposed commission should be able to handle. Mr. Sims. By permitting agreements to conserve ? Mr. Keith. By regulating the production to conform with the demand of lumber. The Chairman. You can not do that without amending the law. Mr. Hamilton. You speak of the fifth log being wasted. Why can not your mill men bring that fifth log in and saw it up, even though it makes inferior lumber, and take an inferior price for it? Mr. Keith. For illustration — it would cost us $3 a thousand, log scale, to bring that log from the tree and put it in the pond; and then we can get only $2 after putting it through the sawmill, cutting INTERSTATE TEADB COMMISSION. 431 it into lumber. "We had much better save the $4 a thousand — $3 for logging and $1 for sawmilling-vand let it waste. Mr. Hamilton. Suppose you sell the lumber made of that log at a much lower price than you sell your higher-grade lumber, and still sell it at such a price that you would have made some profit, so that it would not be a total waste. Mr. Keith. How can we do it? Mr. Hamilton. I had supposed that there would be a demand for that kind of lumber where people are having to pay higher prices, and they could afford to use that poorer lumber. Mr. Keith. Yes; and it is to their advantage. But suppose you reach the condition you have under competitive conditions, and we have, say, four grades of boards — the highest grade is No. 1 board and the lowest is No. 4. Suppose in five months' time the price for No. 1 board gets down to that for No. 3 board, how many No. 4 boards and No. 3 boards -will you sell? A man is going to buy the best grade of material, and if he buys the poorer grade of material' he wants the necessary differential between the grades. If you sell it to him at that price you can not get your cost of sawing the lumber, not to speak of logging. Mr. Hamilton. You are president of a coal association, and I assume there is a lumber association. Could not the members of these associations put that fifth log into lumber, and put it upon the market at some price^ — even though the price fluctuate in the way you describe? In other words, can they not control the quality of the lumber that goes upon the market by mutual understandings ? Mr. Keith. You can control it to this extent: When you cut 25 per cent low-grade logs you are reducing the percentage of high grade, and when you discontinue to manufacture the 25 per cent low-grade logs you increase the percentage of high-grade lumber, but you can not change your market conditions or increase consump- tion of lumber by either method. You can increase your revenue materially by ceasing to produce low-grade material and get a higher average price. Mr. Hamilton. Does it not resolve itself into this, that you gentle- men are not willing to take the low profit on the fifth log? Mr. Keith. We are willing to sell it at cost, but we are not willing to sell it for less than cost. Mr. Hamilton. You are not to be blamed for that. Mr. Keith. We think that would be a greater waste than the other. We can use a portion of it for lath. Lath takes a slab that is fairly clear ; it has to be free from knots ; it has to come out of prac- tically clear. I might suggest further, Mr. Hamilton, in answer to your question touching possible action on the part of the Yellow, Pine Manufac- turers' Association to meet the condition, that under the law as it now stands if the association were to take concerted action looking toward the very matter that you have in mind we would be in grave danger of running squarely in the face of the Sherman Act as it now stands. Your question brings out one of the points that we have in mind, that if the commission that we hope will be created had regu- latory power over the association work, then we might get together and make agreements that would not be inimicable to the public welfare but in furtherance thereof. 34082—14 28 432 INTEKSTATB TEADE OOMMISSIOBT. Mr. Sims. I understand your general argument to be that there has really been an overproduction of lumber? Mr. Keith. In the past year we have had an underconsumption of lumber. I differentiate between the two. Mr. Sims. Whatever you call it, there is a gap between the two? Mr. Keith. Yes. Mr. Sims. That being the case, how do you account for the fact that, as stated in the question proposed by the chairman a moment ago. the price of lumber has increased ? Mr. Keith. That is the most simple thing in the world to answer. In the first place the cost of stumpage has increased 3,450 per cent— the raw material which we put into our lumber. Where we were able to buy logs at 20 cents a thousand in 1897, we are now paying $6.50 a thousand. Where you are operating a plant for a period of years, you have got to put a certain amount of the investment behind it in the way of raw material. On a 5 per cent basis your cost of carriage, or interest charges, are 3,450 per cent higher than it was when the raw material could be purchased at 20 cents per thousand. There is your carriage cost, or your interest charges, and your taxes, which have increased at the same ratio. Your labor costs have increased practically, between 1897 and 1908, 46 per cent. Mr. Willis. Do you mean your labor cost or your wages? Mr. Keith. That is the wage scale, and our efficiency has been re- duced during that period of time. The higher the wage, as a rule, the less efficiency we get. Mr. GoEKE. Your proposition in its last analysis would mean that you might make agreements in restraint of trade, so that the inferior lumber could be marketed by you at a profit? Is not that the propo- sition ? Mr. Keith. Not in its final analysis. My idea is this : That this commission should be given power to permit restraints of trade, pro- vided in their judgment there is a well-defined public necessity for it, and not beyond that point. Mr. Sims. You mean, to restrict the output of lumber? Mr. Keith. For instance, if we are marketing 97 per cent we should only be required to produce 97 per cent. But we must produce just as much as the market requires, and the commission should have the right to tell us we must not produce any more. Mr. GoEKE. Would you give the commission the right to fix the price at which you should sell? Mr. Keith. Under those conditions they should have the right. Mr. GoEKE. To fix the price at which you would sell to the trade? Mr. Keith. Yes; they should have that power. I would not ask for the one proposition unless I gave them the power to regulate it while we were doing it. Mr. WiLLia. I wish you would explain one thing you said a moment ago. I understood you to say that in that period your wage scale had increased 46 per cent, and that your labor cost had increased more, because as you increased wages the efficiency of the labor decreased. I understood you to say that. Did you say it ? Mr. Keith. I say that the efficiency of our labor decreased with the increased wages. Mr. Willis. How do you explain that? That is a remarkable proposition. INTEBSTATE TRADE COMMISSION. 433 Mr. Keith. You give a negro $2 a day and he will not work as consistently as he would at $1.25 a day. Most of our labor is negro labor. The result is that when you get a man who will work every day you have an efficient man, and where he will only work three days a week, because he makes enough in three days so that he does not want to work any more, you do not get the same efficiency out of the man. That is a practicable proposition. Mr. WiLijs. You mean the more money he gets the more holidays he takes? Mr. Keith. Certainly. Mr. Sims. I would say that unless our friend had lived there and actually knew the facts it looks like an absurdity on its face, but it is an absolute fact. Mr. GoEKE. To what other trades would that apply? To what other trades would you apply the proposition of giving the trade com- mission the power to regulate prices? Mr. KJEiTH. It should also apply to any other industry which was handling natural resources. For instance, you take coal. There are times that the competition is so fierce that what we term in the coal- mining industry as deficient coal can not be mined. "What I mean by that is this: Your wage scale is predicated upon coal, as it is in Oklahoma, of 3 feet 4 inches and over. Any coal that comes under the measurement of 3 feet 4 inches is termed deficient coal, which you can mine by the day, or a differential price of mining. If the price of coal gets to a point where you can not pay that differential or can not afford to work it by the day, you must cease mining. We have a situation that exists in Indiana where there are three seams of coal under one cover. We have that same situation in Wyoming. The lower seam in Indiana is a better grade of coal than the upper two seams, at least that is my information. The Chairman. Suppose there was something that you thought would furnish a remedy and it was possible to create a tribunal that could forgive you in advance or give you a valid dispensation before you did it, what is the plan by which you would save this loss ? Mr. Keith. My plan is this: Not to touch the price; leave the price alone. The Chairman. What would you do to save that fifth log? Mr. Keith. My idea is to do this: Take last year as an illus- tration. You consumed only 97 per cent of the total production, and you must not produce more than the 97 per cent. The Chairman. It is to curtail production? Mr. Kjiith. Yes; to curtail production and to keep the produc- tion within the demand. Keep it inside of the demand and not exceed the demand. The Chairman. To do that without an amendment or without dispensation would violate the common law. Mr. Keith. Yes; unless you .gave the commission the power to handle that situation in their judgment. Mr. Sims. In other words, you want the power to limit the manu- facturer to the demand for the manufactured product during any given period of consumption, like last year's coal consumption ran below the normal. Mr. Keith. Yes. 434 INTERSTATE TRADE COMMISSION. The Chairman. The trouble is, no matter how you express it or what circumlocution or device you resort to, it violates the Sher- man law. Mr. Keith. It does not restrain trade, because you are giving trade 100 per cent consumption. But if you do it without some au- thority to do it, the fact that you did do it, regardless of whether it is legal or not, if it is ever brought into evidence in court against you it will' surely convict you. The Chairman. If it is not a combination or agreement in re- straint of trade, it can not convict you. Mr. Keith. I doubt that, as a practical proposition. - The Chairman. Section 9, beginning at line 15, reads as follows; And in case the commission shall find such violation it shall make a finding, fully stating the same and iirescrlbing the acts, transactions, and readjust- ments necessary in order that said corporjition may thereafter comply with the terms of said act and the amendnlents thereof as aforesaid', and shall transmit a copy of the said finding as aforesaid to the Attorney General as advisory to the Attorney General in terminating, by agreement with the cor- poration affected or by suit, as provided in said act aforesaid, the said unlawful conduct or condition. What do you say as to the power of the Attorney General there? Mr. Keith. I would suggest giving the commission the power to settle it themselves. Then if it was not carried out, to proceed and use all the evidence they had as prima facie evidence for conviction. The Chairman. As a lawyer, I would be tempted to agree with you that all the people should come here and ask for a discrimina- tion to apply to their own interests, but as a Member of Congress, I would not be able to agree to plunge us into a saturnalia of litiga- tion. Mr. Keith. Would you not cut out litigation ? The Chairman. No; every time you do a foolish thing you make 25 years of litigation. Mr. Covington. The proposition you just advocated regarding the curtailment of production in the power of that commission would, after all, mean the same thing to the consumer as a fixing of prices, would it not? Mr. Keith. I do not believe it would work out that way; and if 1 may be permitted, I will tell you why : The more you can utilize the forests, the greater percentage of forests that you can utilize in current consumption, the longer the life of your forests will be, and the longer the life of your forests lasts the longer you will get lower average prices. Do I make myself plain on that ? Mr. Covington. Yes ; I understand what you mean. Mr. Keith. Temporarily, it may have that effect; but in the end it will bring a lower general average throughout the entire period. Mr. Covington. That is a conservation proposition differentiated from the immediate production one? Mr. Keith. Yes. Mr. Covington. And it would tend to regulate the present prices to the consumers in this country. You concede that, do vou not? Mr. Keith. Yes. 5 j . Mr. Covington. I believe you said you were not a lawyer? Mr. Keith. No, sir. Mr. Covington. Do you know that a number of years ago Mr. Justice Jackson, afterwards a member of the Supreme Court of the INTERSTATE TBADE COMMISSION. 435 United States, during the time he sat in circuit court in Ohio, decided expressly in a case that has never been overruled, that it was beyond the constitutional power of Congress to pass any law that regulated or prescribed prices at which any property shall be sold by an owner or owners, whether they are either corporate or individual? Mr. Keith. No ; I never knew of that decision at all. Mr. Covington. If it is not within the constitutional power of Congress to pass an act that fixes or regulates the price, then I pre- sume that you would concede that it is not within the constitutional power of Congress to prescribe by any indirect method a regulation of a business that would have a direct control upon the price, such as the curtailment of production of commodities ? Mr. Keith. If what you say is true, we have a situation that seems unfortunate, inasmuch as it can not be handled. The Chairman. That pervades all human affairs. Ail of us suffer from uncertainty, and we would all like to have that regulated. Mr. Covington. You advance an idea that was advanced here a few days ago by President Seth Low, of the National Civic Federa- tion, with regard to conservation in the American coal supply, and I presume among you people it is a big question. Mr. Keith. It is a big question, but it is not so crying a question as conservation of the lumber supply. That is an even more crying proposition, because we know definitely how much timber exists, and we never know how much coal there is, as more may be discovered at any time. Mr. Covington. I think Mr. Low also adverted to the situation regarding the lumber in the United States while he was here. - The Chaieman. I wish you lumbermen and owners of the forests had ingenuity enough to utilize every single particle of the tree. It would certainly be in the interests of the public if you could do that. Mr. Keith. We can only do it under proper economic conditions. The Chairman. And you are coming to get Congress to prescribe that? Mr. KiEiTH. What we would like to have would be to have you fix it so it would be in the authority of this commission, so that they could permit our doing so by agreement. The Chairman. When I see people coming to Congress to fix all these little things that human sense and common judgment ought to do, I wonder what the world did for 6,000 years before the American Congress was in existence. Mr. KJEiTH. Our trust laws say we must not do those things. That is what our attorneys tell us now. Mr. Covington. You think the situation in both the coal and lum- ber trade in this country ought to be one that is akin to what they develop in the nitrate trade in Germany, where they have by gov- ernmental regulation and control of the output of the nitrate mines, and by prescribing exactly what proportion of each of the nitrate mines shall be for foreign consumption directly through a govern- mental agency control that product and the price ? Mr. Keith. I do not think we have quite reached that point, sir; but we are certainly getting to that point in this country where we will have to adopt the rules of other countries, notably Austria and Germany, where they permit what they term commercial concordats or price agreements under certain regulatory powers of the Gov- 436 INTEBSTATE TEADB COMMISSION. eminent, wherein reforestation is practiced and taxes are eliminated for a period of 85 years, in order to give a tree an opportunity to grow to that point before it is harvested. We have got to that point, and the sooner we adopt that the cheaper our lumber is going to be to the American people in the end. Mr. Sims. You stated a moment ago that the overproduction of 1.25 per cent reduced the price. It reduced the price in a much greater ratio of percentage than the reduction in consumption? Mr. Keith. Yes. Mr. Sims. Would there not be a danger of the court's holding that the prime object of this regulation was to increase prices rather than regulate consumption ? Mr. Keith. It would not be so much to regulate the price as to keep it practically stationary. Mr. Sims. Suppose you were allowed under this agreement to re- duce the production to the normal consumption upon the estimates, the price then would be maintained ? Mr. KJEiTH. Yes ; it would remain practically stationary. Mr. Sims. Then, if there is a financial depression in the country, this normal will drop down next year, and may be the next year, in order to maintain prices, and would you not be very largely restricting, by reason of economic conditions, not connected with the lumber trade per se, the production of lumber ? Mr. Keith. Here is the situation in that connection, Mr. Sims. It is iust impossible to control the price of lumber as it is to fly across the Atlantic Ocean. Mr. Sims. On account of the wide and general demand ? Mr. Keith. On account of the fact that we have 17,359 com- petitors. It is just as impossible to get those 17,359 sawmills into an agreement to control the price as anything in the world. I can not conceive anything more impossible than being able to do it. I do not believe that you can absolutely control the output. You may be able to do it on a small group of plants, but you would not be able to do it on 100, or even 50 per cent. Mr. Sims. I believe you are from the South, are you not? Mr. Keith. I am from Missouri. Is it not better, Mr. Chairman, for the interests of the American people to conserve and save the waste that has been created? I can bring this thing to a practical proposition and bring it in actual figures. The figures based on the line of argument that I spoke to you about when we are operating full time and our prices are going down ; we are leaving the small timber and top logs in the woods, and we are bringing enough timber to manufacture 100 per cent, but we are not bringing 100 per cent of the timber we harvest. Since 1907, and barring the first half of 1913 and the last half of 1912, we have practically wasted 80,000,000,000 feet of timber. If that timber is worth at a conversion value of one year ago of $12.50 a thousand stumpage, if that is the value of it, the cost of that waste in that period has been $1,000,000,000. It cost as much as our Civil War; and that is something that is going on all the time, and there ought to be some way to stop it. Mr. Sims. That is not as to the present consumers, but, as you say, it will finally come on the people. INTBBSTATE TEADB COMMISSION. 437 Mr. Keith. As an illustration of that situation, our average price for lumber in 1897, which was the low basis following the panic of 1893, was $7.51. The lowest price that we reached following the panic of 1907 was $12.50 a thousand. Now, after a period of one year de- pression, which we have had this year, our lowest price has come to $14 a thousand. Our cost in 1897 was around $6.50, and in 1907 it was around $9.50, and to-day it is around $12. Our costs have been progressively increasing along with our price. But in every period, right straight through, the total tendency has been upward, and that line of upward tendency will increase, and will increase at a greater ratio as the increase in waste is permitted. Mr. Sims. I say that it is a conservation proposition. Mr. Covington. Is that waste entirely of the partially manufac- tured product? Mr. Keith. No. For instance, we cut down a tree that is 60 feet long. There are twelve 5-foot cuts. The fifth cut comes from the tops. We have to throw that away because we can not afford to bring it m, because it won't yield production costs. There is another waste. The small trees we leave in the woods. In the falling of the larger trees we have the scarring of the smaller trees, and the flies lay their eggs there, which develop into worms, which worms bore into the tim- ber. This causes the tree to deaden. Under conditions where we have normal market conditions we are cutting our trees 8 inches in diame- ter on the stump 8 inches from the ground. That means they will run 4 inches and 6 inches in diameter at the top. We are not taking any such timber as that to-day. Mr. Hamilton. Is there any market for your toppings and small stumps to-day? Mr. Keith. No ; not on our markets. There is a difference in the white-pine country, where you have large communities ; for instance, up around Minneapolis and that country. You can bring that mate- rial in there, but we are located in the woods, and it will not stand the transportation charges. Mr. Hamilton. There is nothing that can he done with it, then ? Mr. Keith. There is nothing that can be done with it now. Mr. Covington. How about slabs ? Mr. Keith. We utilize a portion of them for laths, and where we can not utilize them for laths we bum them up in refuse burners. There is no market for our slabs. Mr. R. B. Stephens. This waste is not going on in all the lumber industry, but it is only in the remote sections ? Mr. Keith. I think it is very general. Mr. E. B. Stephens. Up in my section of New Hampshire they use a lot of lumber, and they use everything. Mr. Keith. I think that is particularly true of the white-pine sec- tion of the country, but you take it in fir and yellow pine — for in- stance, yellow pine represents practically one-half or a third of the tptal production of lumber, and Oregon' fir will represent at least a sixth more. All the other classifications of woods represent the bal- ance. But that is practically true of fir and yellow pine. Mr. R. B. Stephens. If your lumber is near a market, you can sell any kind of lumber, and you can sell the slabs and the sawdust and the kindling wood. You can sell sawdust and shavings. They are doing it up there to-day. 438 IN-TEESTATE TRADE COMMISSIOK. Mr. Keith. My company is figuring right now on building a saw- mill in eastern Texas, where we can do that thing, because we have a large city there to supply. We will haul our logs 50 miles into Houston, where we will manufacture them into lumber, and we will have a market for our offal or slabs and sawdust there. Mr. EscH. Your statement is true, but I believe you can include in it that competitive conditions induce this waste of raw material and the natural products ; that increase in the acuteness of competi- tion will .only result in an increase in the waste in our natural products. Mr. Keith. Yes; that is true. Mr. EscH. So that the time may come that even the third vein of coal can not be mined to meet competition. Mr. Keith. That is true in Indiana to-day. There is a situation in Indiana to-day that I started to recite, where of the three seams, the lower seam is more valuable than the other seams are. This I do not know of iriy own knowledge, but I have been told so by coal operators of Indiana whom I have met in conventions of mine workers. The reason is that they can not agree as to the differential A'alue between the upper and lower seams, and consequently they mine the lower seam. The cost of coal rights are low. The lower seam contains, say, 5 feet of coal, and the other two upper seams contain 9 or 10 feet of coal. This lower seam gives them 6,000 tons per acre, which brings the cost per ton to a very low figure. They take out the lower seam, the surface subsides, and the two upper seams are de- stroyed. Competitive conditions have brought that about. Mr. EscH. Will that render it impossible to work the upper seams? Mr. Keith. Yes ; because they are broken up in the subsidence of the surface, filling up in the lower seam where the coal has been exhausted. Mr. Esch. And all that fuel is eternally lost ? Mt. Keith. Yes. Mr. CuuLOP. That is because of the improvidence of the operator? Mr. Keith. No; I think it is more on account of forced com- petitive conditions. Mr. Willis. Your remedy for that would be to have power vested in this commission to fix the price at which it would be possible to mine this coal ? Mr. Keith. My idea would be to give them discretionary power to take such action as in their judgment, after a full investigation, they deemed advisable. If they thought from that investigation there was a well-defined public necessity for their act, to regulate the situation so that that condition should not continue. Mr. Willis. And the effect of it, in the last analysis, would be a regulation of the price? , Mr. Keith. In that coal situation I referred to, it might come to that, to the question of the differential in the price between the two coals. Mr. Hamilton. Do the States try in any way to regulate mining so as to preserve the coal? Mr. Keith. Not that I am aware of. Mr. Hamilton. There has been no effort to do that ? Mr. KJEiTH. No effort whatever. INTEESTATE TRADE COMMISSIOK. 439 Mr. CtJUiOP. I should like to clear up that mining situation. I think I know something about that. There is not any loss to the operator in dollars and cents ; it is only loss in profit to him. He is not paying such a price for the coal that he owns that causes him a loss, but it is only a loss in profits. It is more a loss to the public than it is to the operator, is it not? Mr. Keith. In that particular case that I mentioned in Indiana, it is a loss more to the public than to the operators. Mr. CuLLOP. Because he buys his coal under the ground at prac- tically a nominal sum? Mr. Keith. No; he pays a fair price. Mr. Cttllop. Thirty dollars an acre, or $35 an acre is no price for that coal, is it? Mr. Keith. We have paid as high as $150 an acre for a 30-inch seam. Mr. CuLLOP. In Indiana ? Mr. Keith. No ; in Kansas. Mr. CuLLOP. You did not in Indiana ? Mr. Keith. No. Mr. CtTLLOP.-There is more coal and better coal there at a cheaper price. Mr. "Wiujs. In the lumber business, as I understand your argu- ment, it is not simply a matter of profit. You say you would be willing, if conditions would permit of it, to handle this fifth log if you could simply make your cost. It is not in that case a matter of profit? Mr. Keith. If we could get our cost out of it, we would be willing to handle it, because it would extend the life of our property. Mr. Sims. You know there is a suggestion that the Government should buy up and hold all these national resources, and place re- strictions upon their utlization so as to lead to permanent conserva- tion. That has nothing to do with this bill, though, and it is not necessary to discuss it. Mr. Ejeith. I did not know it was even thought of. Mr. Sims. There is a demand now to bring about what you are saying should be done by an amendment to the law. Mr, Keith. I believe this, Mr. Chairman, that we have a condition here where we should be able to come in and submit our evidence to this commission and have it tell us what we can do and what we can not do, and thereby remove all cloud of doubt in our minds. Mr. Sims. Our Constitution was made one hundred and odd years ago before lumber and coal had come to be such big questions. Mr. Keith. Is there anything in the Constitution that would pre- vent the Government from advising us through a commission what we could legally do? Mr. Sims. Oh, no. Mr. Keith. There is a situation confronting our own company which is a very serious one in Missouri. Mr. Sims. It has just been stated to you that any law that would fix prices would be unconstitutional, and if you pass any law fixing prices to the consumer, as an indirect fixing, it might be held by the court to be a mere evasion of the constitutional provision, and there you are. 440 INTEESTATE TBADE COMMISSION. Mr. Hamilton. I suppose all the coal products in the United States, outside of Alaska, are privately owned, are they not? Mr. Keith. No; the Governinent owns considerable, I think, in Oklahoma, and also in Wyoming. Mr. Hamilton. That is all in proportion, of course, to the whole? Mr. Keith. Yes. I do not believe that I have any more to say unless you have some questions to ask me. Mr. CuLLOP. I should like to ask you another question: The loss you speak of to the lumbermen, is it analogous to that you mention with reference to the coal men, where there was a depression or sinking of the earth, which broke up the upper seam, which there- fore was improvidently neglected? Mr. Keith. I do not get the drift of your question. Mr. CuLLOP. You spoke of falling trees that injured the smaller trees by either breaking them in the fall or by the insects attacking them. Is that a loss to the timber owner in profits that he otherwise would earn, and a loss to the public in conservation, or is it an actual money loss to the owner? Mr. Keith. It is a money loss to the owner and also a loss to the public. Mr. Ctjllop. In other words, you mean that it decreases his amount of profit by injuring the surrounding forest trees by the falling of the larger trees? Mr. Keith. He pays a given price per acre for the land he is buying, and pays for all the trees that stand on that land. If he does not take all the trees off that land, that which he loses there is a loss to him. Mr. CuLLOP. But you do not mean that it is a loss in this sense, that it makes him get less than he gave for the land, but it is simply a loss in profits on his purchase or investment ? Mr. Keith. Well, it is a loss both ways. Mr. CuLLOP. Do you mean what he cuts off is not worth what he gave for it? Mr. Keith. No ; not necessarily. Mr. Hamilton. You buy the land with a view to this possible waste always, do you not? Mr. Keith. We buy the land and estimate in purchasing it all the timber on the land that is 8 inches in diameter and up. Mr. Hamilton. You take that into consideration? Mr. Keith. We take it into consideration in the purchase price of the land to arrive at what that land is going to cut. We have to cruise very nearly every tree on the land, and in some instances where the price is high per acre every tree on the ground. Briefly summing up our recommendations, we would recommend : First. That the commission should consist of seven members, of qualifications which I have mentioned. Second. That at the request of any individual person, firm, 'cor- poration, or voluntary association the commission shall investigate as to the lawfulness of their acts, organization, or otherwise, and if unlawful direct the methods or changes necessary to cause them to come within the law, and after time to be allowed by the commission for such person, firm, corporation, or voluntary association to com- INTEBSTAa^E TBADE COMJaSSION. 441 ply with their suggestions, the commission shall proceed to investi- gate to see whether they have been complied with. If not, such information shall be filed with the Department of Justice for pro- cedure. Third. Before putting, into effect any proposed plan by any person,, firm, corporation, or voluntary association, said person, firm, corpora- tion, or voluntary association may submit their plans to the com- mission for their determination as to, the lawfulness of said plans or for advice as to what they may do. . Fourth. That the commission should be empowered with discretion to permit restraints of trade whenever in their judgment it would,^ in its final analysis, react to public benefit. STATEMENT OF MR. L. C. BOYLE, KANSAS CITY, MO. Mr. Boyle. Mr. Chairman, before Capt. White makes his state- ment, may I not be permitted to make a suggestion? Mr. Sims. Arrange the order of the testimony, Mr. Boyle, to suit yourself. Mr. BoTLE. It is not my purpose to undertake a technical discus- sion of the matters so ably covered by Mr. Keith. As a lawyer, I appreciate that in order to secure results such as Mr. Keith urges- we would have to amend the Sherman law, and that it would be more logical for us to go before the Judiciary Committee with these- suggestions than to urge them here. However, the province of the Judiciary Committee and the Interstate and Foreign Commerce Committee touching this antitrust legislation is so intimately related that it would seem proper to discuss apiendments to the Sherman law before this committee, in order that we might properly lead up to a logical discussion of the use and value of a trade commission. It is our purpose to go before the Judiciary Committee and to urge the thought that has been so ably advanced by Mr. Keith, and that will be further illuminated and urged by my friend, Capt. White. ' I am now handling some matters for the Yellow Pine Manufactur- ers' Association. I had occasion to appear before the convention of that association at New Orleans just a day or two ago. I called its attention to the trade-commission bill now being considered. The- • association is composed of the most prominent lumber operators in the South and West. A very full discussion was indulged in over this bill. It was the unanimous thought of these business men that a trade commission, endowed with sufficient authority, would be a most useful aid to the business interests of the country. In harmony with this attitude, the convention appointed a committee to come here and talk to you gentlemen. I feel that it is proper for me to say that the business interests of the country appreciate the opportunity that has been extended to come up here to Washington and talk of the needs of business. In the industrial and economic development of the Nation, we have come to a period of readjustment. Evil practices and oppressive methods must cease. The great body' of the people is of one mind touching this. However, when we undertake to eliminate wrong we should be careful not to impair or handicap those who are seek- ing to conduct their affairs along right lines. 442 INTERSTATE TRADE COMMISSION. In the very nature of things it is impossible to formulate a defi- aition covering restraint of trade or monopoly that will be sufficiently clear and comprehensive as to cover the countless complications and variations in modern business development. The rule of conduct ■that would have been suiBicient twenty-odd years ago, when the Sher- man law was placed on the statute books, can not properly measure the conditions as they now exist. As a result of the contrariety of opinion among lawyers touching the Sherman law, and the various interpretations that have been given to it by the courts, business has been in a state of uncertainty. Now, the one thing that is most ■needed at this hour is that business men may go forward with cer- tainty and without the fear of running counter to law.- A trade commission would hold the same relation to the business interests of the country as does the Interstate Commerce Commission to the rail- roads. We know that the Interstate Commerce Commission has been a great help, not only to the public but to the railroads also. It seems to me that it would be the part of wise legislation to so ^mend the Sherman law that a trade commission would have certain supervisory powers over the larger business enterprises of the Na- tion. It is not my purpose to go into any lengthy discussion of the powers of this commission. I am especially anxious that you gen- tlemen hear Capt. White discuss the important question of the con- servation of our national resources. I do want, however, while I am on my feet, to urge that the bill creating a trade commission should be so drafted that business interests could go before it and dis- cuss with such a body plans and purposes, so that before men em- barked in an undertaking they would know just where they stood. I think it is conceded by all who have given the matter thought that a certain amount of cooperation is vital, not only to business success but for public welfare. The old-fashion cutthroat competition is a relic of the dark ages. Men engaged in competitive lines should have opportunity of co- operating to a certain extent. Of course, there is danger in this, and there is ]ust the very need of a commission so that the danger line be not crossed. Take this very question of lumber and coal, two of the great prime necessities. No one is benefited by unrestricted competitive condi- tions; whereas, on the contrary, as a result of unrestricted competi- tion, these necessities are wasted for all time. All we are asking for is that these business men may cooperate, and this under the guid- ance and control of a duly authorized governmental commission. There is nothing in the Constitution that would prohibit such a plan, and I am convinced that the public at large would be benefited and the business of the country would be put upon a more confident basis. There are a number of lawyers on this committee, and you gentle- men know that the most perplexing problem that confronts the large business affairs of the country to-day is the uncertainty as to what the law really means. The Judiciary -Committee may amend the Sherman law, seeking to make it niore definite. However, there will always be opportunity of interpretation and the ancient fight will go forward just as long as there are lawyers to plead and courts to decide. My thought is, let the Judiciary Committee amend the Sherman law along lines that will be helpful and healthful, but at INTEESTATE TEADE COMMISSION. 44S- the same time let Congress create a trade commission whereby there would be left no opportunity for confusion and uncertainty. I think section-9 should be redrafted in such a way that permission would be -given not only to those who might claim that they were- " affected " by combinations or monopolies, but to permit business interests to go before the commission and outline plans that it is ' desired to put in operation, and this along the very line of discussion by Mr. Keith. Take the question of curtailing output. Curtailment could be; accomplished without disturbing prices and at the same time effect the saving of tremendous waste. The matter would be under the control of the commission. The minute the public would be iujuri- ously affected by the curtailment conditions could be controlled. These are practical matters, and simply because they happen to be new and an invasion of ancient practices this should not condemn the idea, for, indeed, the thought of the hour is progress,and we are compelled to leave behind us certain of our old standards and this by reason of a new environment. I feel that I have the right to sug- gest that I would not come before this committee urging anything that would be inimicable to the public welfare. It has ever been niy purpose touching matters of public concern to so order my conduct- that my thought and act would be in harmony with the welfare of the great body of the people. Mr. Keith has clearly pointed out where there is a tremendous waste going on, and I am sure Capt. White will point out in his. inimitable way how labor and capital both suffer under present con- ditions. We are not here to discourage the administration program. We are here to give our support to it. In carrying out this program, however, the comjnittee should have in mind that the business inter- ests of the country can be best served by creating a commission with sufficient power so that business can go to such a body in the first instance, get its approval, and not have to wait until money and time have been expended, and then it may develop that plans of coopera- tion will have to be abandoned or modified. One of two ideas must control the creation' of this commission. First, is the commission to be an aid to commerce or a means of regulating commerce? If it is simply a means of regulating com- merce, then its functions will be little different than have been the functions of the Bureau of Corporations. The Bureau of Corpora- tions has been used to assist the Department of Justice in regulating commerce, and such will be the sole value of a trade commission if it is to be simply an inquisitorial body, whereas if it is to be an aid, to commerce, then indeed business can go to it for advice and direction, and it does seem to me that this latter theory should be the control- ling thought in building a measure of this kind. I realize that such a law might diminish litigation, but, after all, is that not the very thing that we ought to strive for ? I must not take your time further. It has not been my purpose to go into this matter at such length. I want you to hear Capt. White and desire that he has full opportunity to cover this subject, because he has given years of thought to it, and no man in this country has better and higher ideals than he touching the very matter in hand. 444 INTEESTATE TBADB COMMISSIOlir. STATEMENT OF ME. J. B. WHITE, KANSAS CITY, MO. The Chairman. Captain, just state what business concerns you are •connected with. Mr. White. I am in the lumber business in Kansas City, Mo. Mr. Chairman, I feel honored to be asked to appear before this ■committee, but I want to state here that I am not appearing here as a lumber representative. I am known to the Forest Department of the tTnited States, and to all conservationists, because I have been in my weak way and manner working for conservation. I have not been working for dollars primarily. I have thought more of trying to Serve the public than I have of making dollars for myself. 1 am sorry to say that, because I am down on this committee as one of a millionaire committee that have come on to speak to you gentlemen. I think I am sufficiently well known. I do not think there is a for- ester in the United States but will back me up. Mr. Covington. This committee does not think it any discredit to be an honest millionaire. Mr. White. I have spent a great deal of time in ther cause of con- servation, and I have made two trips to Europe to better inform my- self, and feel that I have yet very much to learn. I came here a number of years ago to see the Forester of the United States, Mr. Pinchot — I think some 12 or 13 years ago — after I had corresponded with the Forestry Department and had made ■exhibits at different expositions under direction of Mr. Pinchot's predecessor, Mr. Fernow, and of Dr. Mohr, the Government's forest «xpert at Mobile, Ala. I wanted to do something to save our timber. I began lumbering in Missouri 34 years ago. My publicly ex- pressed wish for conservation is what brought me before the conser- vationists of the United States — ^more prominently than my ability merited. I was urged by the Chief Forester of the United States and by Dr. Schenk, who had started the first forestry school at Bilt- more, at Asheville, N. C, to try to get the lumbermen interested in conservation, to stop the enormous waste that was going on all over the country wherever lumber was made. I went into Missouri and bought some timbered lands. I bought a sawmill, organized a com- pany, and estimated my timber according to grades then marketable. I did not intend to pay for any more than I could sell. I found, as I thought, about 2,000 feet per acre ; that was all I could sell the way they were scaling and selling lumber in St. Louis, Chicago, and other «ities. The grades of yellow pine were clear, common, and culls; that left half of the lumber in the woods. That is all that would sell — " clear," " common," and " culls." The culls we did not get much for. They constituted what is now the three grades known as No. 2, No. 3, and No. 4, common. Wlien I cut the trees down and found I was only getting 2,000 feet per acre and I was leaving 2,000 feet per acre more on the ground, I felt that there was a great waste and that I would like to save that waste. This was over 30 years ago. I called a meeting of the lumbermen, and we discussed this matter of waste at a meeting at Poplar Bluff, Mo. We adjourned to Little Eock, Ark., and organized what we called the Missouri and Arkansas Lumber Association. Then I got a grade called " Star " adopted. I decided that we could not afford to Be robbed by the lumber trade of the cities. INTEEStTATE TBABB COMMISSION. 445 The condition was exactly like this: When I went to Missouri, I ■visited many mills and saw printed on the lumber piles the names of lumber commission men from St. Louis and Chicago who owned that lumber. They had advanced the money to build many of these mills, and the lumber had to be shipped to them at prices they named, and when that lumber was shipped and received they made various deductions, for interest, for inspection, for switching charges, and for freight, and for culls, and for shortage. We had to pay these changes, and if there was anything left we were more or less fortu- nate. This was nearly 34 years ago. I had shipped largely to a St. Louis firm, and I called at their office and met one of 3ie firm and said, " Mr. P., I came up to see if I can settle our account. There is a great difference in the amount of money that is coming to me and the amount of money in the statement you have rendered." He said, ''Just step into the other room and I will talk to you in a few min- utes." I stepped into the other room and I picked up a paper. The door was open. Another gentleman came, and he said, " Mr. P., I wish you would tell me why you did not give me an opportunity to inspect that last cargo of lumber." He said, "Jim, I do not think you did right by me, and I got Jones to inspect that lot of lumber. I like Jones's inspection much better than I do yours." I saw then what I was up against. I settled the best that I could. The office of lumber inspector was a political office in St. Louis and many other cities. The mayor appointed the inspectors, and he ap- pointed those that the lumber board of trade wanted and would reconmiend. He would not have any other means of knowing, of course, and if they did not inspect to suit the lumber dealer, he called some other inspector. That was the beginning of our lumber association. We adopted rules of classification and grading of the various qualities of lumber for different uses so as to try to create a market for the entire tree and prevent waste. We decided we would never sell liimber upon city inspection, but that we would have association inspectors' who were judges of lumber to settle all claims, that they should settle according to established grades. The lumber manufacturers won, and the inspection of lumber has for 25 years been done by compe- tent lumber-association inspectors. The first year I made a No. 3 my stockholders said : " Why, here, you are losing money ; you only get $1.50 a thousand net out of that No. 3, and it has cost $4 or $5 to get it in the mill." We did lose money. I said, "Gentlemen, we will, make that No. 3 find a market later." The lumber finally went up, although for 10 years we never had a dividend. Every dollar we got we paid out for labor; but finally we got No. 3 up to a price where it brought $6 to $7 a thousand at the mill, which just about paid the cost of bringing it into the mill and cost of manufacture. I am telling you briefly how we began. Not- withstanding that we finally got so we could market our No. 3, and now we are trying to save our No. 4 grade. There is still 20 to 25 per cent left in the woods because it will not sell for cost of manu- facture. _ . We want, in the interest of conservation, in the interest of the public welfare, to save this grade, which comes from the top log in the tree. In this I am not speaking as the representative of manu- 446 INTERSTATE TRADE COMMISSION. facturers of lumber; it is for their immediate interest to cut and manufacture only such grades as bring good profit. But I am chair- man of the committee on conservation of the National Lumber Manu- facturers' Association of the United States, and also chairman of the conservation committee of the Yellow Pine Association of the South. I have held these positions for a long time, and I have tried to preach conservation in the interest of all the people and to save for the benefit of both the consumer and manufacturer. I felt I had a mission to do and that it was a duty to urge this economy upon the lumbermen, and try to get them to conserve for this generation and for future generations, and that if we do not get anythmg at first but just the cost of saving it it is our duty to do it. It is a sin to let one-third or 25 per cent of your product lie in the woods and rot. It takes a lifetime to grow a tree, and by saving it all we furnish cheap lumber for the poorer man and cheap lumber for ordinary purposes, and eventually it will pay in the increased price and the increased yield per acre and in the increased life of the plant; and the money saved to labor, to transportation companies, and to the consumer would make curtailment a duty, even if it increased the cost of the better grades to the rich consumer, in order to make it possible to bring in the lower grades for the benefit of the poorer consumer. We are getting no more for lumber to-day than I got in 1880 in Missouri, because in 1880 I sold all I could market, which was the clear and some No. 1 common — only two grades. Now, I have added to that the No. 2 and the No. 3, and we are trying to make a market for No. 4, and with these four grades the average price to the consumer is no greater than it was in 1889. Gentlemen, this may astonish you, but I can demonstrate this fact from my books and .old price lists, and I can show it by the books of my customers. It is true I got for the upper grades a good price, because the upper grades were particularly wanted. If they could buy heavy joist and clear lumber at $15 to $18 a thousand and $10 a thousand at the mill for the lower grade, that was low enough. They did not want anything cheaper. They did not want lumber with knots. I issued a little pamphlet showing that a consumer could use the grades of knotty lumber for hog and calf pens, for cheap fencing and sheathing on houses, and for many other pur- poses and save money, and we finally got them to do it. We sold it to them at a price that was low enough so that it brought the average price down, so that it does not cost a western farmer any more to build a house out of lumber, if he will carefully select the lumber according to. the uses he wants it for, than it did in 1880. He does not pay any more for that house in his lumber bill than he did in 1880. But he uses in many places a poorer, though just as durable, grade of lumber. How can we conserve our forests if we permit these top logs to lie in the woods and rot? On the Pacific coast they are forced to commit a greater waste, for they are leaving 35 to 40 per cent of their fir trees on the ground to rot. The point is, if we can go to a commission and say: Too much lumber is being manufactured, and we can no longer sell our low grades, and we are forced to leave a great part of the tree in the woods to rot. Can you, in the interest of the public welfare, grant us a privilege to agree on curtailment of production until normal INTEESTATE TKADE COMMISSION. 447 market conditions are restored? If we can get this relief at the proper time, then we can be saved and the country saved from this wasteful evil. Is there any way that we can get a law that will help us to conserve this timber? It is being done in Europe. For there no waste is permitted. Manufacturers of lumber there have a plan of cooperation under government control whereby they agree to practice forestry and lumbering under the government rules. In some places they do not pay any taxes until they harvest their timber crops. I notice one of the members of this committee is from New Hampshire. I have looked over some of the forests of New Hamp- shire, Massachusetts, and Vermont, and have manufactured lumber in Pennsylvania, and they are more nearly doing what we in the South and "West want to do, but they are close to a market; they do not even have an edger in a sawmill. They saw the logs up alive, as we term it. They put a log on the saw carriage like they do in Europe and saw the log up without turning it. They do not edge the lumber. It goes to the shop and is trimmed and cut up most economically for different purposes. There is little waste. They are close to the great consuming centers. Out in the West we can not pay the freight on the long haul to market on that cheap lumber. It costs just as much to saw a knotty board as it does to saw one clear of knots. The consumer has always been the chooser; and when lumber is low he naturally chooses the clear upper grades. Fifty years ago he could get what he chose, and timber was close to mill or close to stream, where the logs could be cheaply floated to miU; and so only the clear and second-clear was cut into lumber, and 60 per cent or more of the tree was left- in the woods or logged and burned in the clearing of the land. To-day 25 to 35 per cent is left in the woods to decay and make fuel for forest fires. Forest conservation is an impossibility unless we can get the con- sumer to use lower grades; and he will buy them only because there is a sufficient difference in price between the lower grades and the better grades. In the good old days when stumpage was so cheap in price that it cut practically no figure in the cost of lumber, and it was never thought there would ever be a scarcity, there was no waste, as to dollars, in leaving two-thirds to three-fourths of the tree in the woods; and neither was there waste in material, for they wanted to clear the land anyway. But it is different to-day. The broad prairies of the West want our lumber. In the Southland of yellow pine, stumpage represents one-third or more of the average cost of the lumber at the sawmill. When a tree is cut down it should all be used, the poor as well as the best. And there must be a difference in price sufficient to make it profitable and possible to bring in the top logs to the mills and make it into lumber. A lumberman does not want to waste his resources, he wants to manufacture and sell all that he can find or that he can create a market for. If the President will appoint a commission to decide as to what is best for the public welfare in forestry and lumbering and permit a curtailment when there is an oversupply of low-priced lumber, it will be for the welfare of this and future generations. For it is a fact that an oversupply of low-grade lumber is the cause of all the Bo-called forest waste. If conservation is to be made possible in S40R2— 14 ^29 448 INTEESTATB TRADE OOMMISSIOK. forest products, the lower grades of lumber must be utilized. The consumer is largely responsible. If he rejects small potatoes and wants only large ones, because there is an overproduction of potatoes, it is not so great an evil, for potatoes are an annual crop ; and the farmers get together and plant less potatoes and more of something else. But with lumber the waste is a Nation's loss, for there can be but one crop of timber in a lifetime. The consumer will take lumber only of even lengths — that is, 10, 12, 14, and 16 feet lengths, and in widths of only 4, 6, 8, 10, and 12 inches. Here is an opportunity to save immense Avaste if we can be permitted to get together and agree that vre will insist on odd lengths and odd widths being marketed at same price as the even lengths and widths, same as is the custom in New England, and that we will insist that there be a sufficient difference in price between the good and poor grades to effect a saving of the lower values. As a lumber association we have tried to assist the National Forestry Association, and we have tried to assist the Government. We bought the first machine for testing the strength of timber. We put it up ourselves and gave it to the United States Government, and it was finally put in the forestry department of Washington University in St. Louis. We raised $125,000 to endow the forest de- partment of Yale University, and when the Government appropria- tion was not equal to meet all the requirements of the Forestry De- dartment of the United States, the lumbermen's association furnished that department with one stenographer for three years. We also raised the money in 1907 to buy for Government use in the forest laboratory at Madison, Wis., a still for extracting the by-products of different woods, and this machine is now in use in that laboratory. We have sent many carloads of logs and timer to this and other imiversities for laboratory tests. For about a two-months' term once each year, we have for several years had the graduating class of Yale Forest School and theirprofessors in our forests and mills, in Mis- souri and Louisiana. We have also had classes from Nebraska and from Missouri State Universities, and also forest students from Cornell and other universities. The Lumbermen have been taking an interest in conservation, and we have always responded to op- portunities to help this cause. So I am spealring just simply from a conservation standpoint in behalf of the lumbermen, and as chairman of their committee on con- servation. If a bill can be framed that will give us a conmiission, with power to act as to curtailment when the public welfare demands, this is what we want. I went to the Bureau of Corporations when Herbert Knox Smith was in charge of that bureau, and I said: "I am a conservationist; I have been working a long time on this work. I do not want to appear in it if I am guilty of violating the Sherman law and I wish you would send som& one down to look me over." I urged him to do that. He finally did send two or three ■ men down to my mills in Missouri, who spent two or three weeks looking it over, looking at our books and accounts. I turned every- thing over to them. I had them do the same in our mill in Louisiana. Then they wanted to box up a thousand pounds or so of our books and send to Washington. I told them to select anything they wanted and they did so. We wanted this bureau to examine our records and INTERSTATE TEADB COMMISSION. 449 our profits. It is to the interest of lumbermen to conserve and save everything they can sell and everything they can find a profitable market for. We will some time have to grow trees, and the in- dividual or the Nation will have to pay the cost. If. we sell for less than cost, we commit waste, and neither the individual nor the Nation can afford it. They grow trees profitably in Europe; Aus- tralia is now exporting more lumber than the United States, and they grow it all. They are growing as high as 30,000 feet on an acre, and make a net yearly profit of as high as $6 an acre. We are cut- ting the forests that come up in a natural way in the south, and if we get 10,000 feet per acre on the average we are doing very well. But that same soil ought to produce 20,000 feet per acre, and if new forests are set out and carefully tended, we should under best condi- tions raise from trees of 75 years growth fully 30,000 feet per acre. Here is an economic condition; we are committing waste. In the yellow pine of the South we are wasting fully fifteen hundred million feet per year. We are cutting about fifteen billion feet per year, and if we say only 10 per cent is a dead waste, we are wasting 1,500,000,000 feet a year, and if we could get cost out of that we would get $5 or $6 a thousand out of it, and it would fill a want ; it would help the people; it would save so much lumber to the world, and would be just as good for some purposes at a low price as the higher- priced lumber. We want to do this. Mill men have made their money by increase in the value of stumpage. They bought for $1 per thousand or less, and now they have to pay $6 per thousand. When it was worth $1 per thousand or less and they built their mills, they had to buy a large acreage, so as to have a 15 or 20 years' life, and the stumpage that they bought for $1 is now worth $5, or what they bought for $J.O per acre is now worth $50 per acre, and this is where some large buyers and manufacturers have made their money, and not in the simple process of manufacturing. It is so with the Illinois farmers. Land they bought 25 years ago for $10 per acre is now worth $150 per acre. I do not know that anyone has ever stopped to figure up the high cost of competition as against the cost of cooperation, or to think seriously enough of the loss to the Nation by the cruelty of forcing a portion of the public to wear themselves out in poverty, in sweat yhops, and death shops to enable some Shylock competitor to drive his opponent to the wall. Those who suffer by competition, and there are many thousands of them, are by necessity very poor con- sumers of other products. In the interest of conservation and of the growth and preservation of trees, we need intelligent cooperation and not wasteful compeiti- tion. I do not know that I can say anything more. I do not know that I can add anything further to what Mr. Keith has so ably stated, but I am willing to answer any questions that I can. Mr. Sims. Colonel, as I understand you, you want any laws that may be on the statute hooks now to be so amended that under the supervision of this trade commission agreements may be made curtailing the manufacture of timber to the actual normal demand for the period over which the agreement reaches, so as to make a 450 INTERSTATE TBADE COMMISSION. demand for the lumber that is contained in the trees which you may cut and prevent their waste ? Mr. White. That is the primary object; yes. Mr. Sims. Then, of course, your price would have to be such as to make it at least cover the cost of this low-grade lumber? Mr. White. Yes. Mr. Sims. Eight there it is your theory, as a matter of course, that the farmer or anyone else would give as much for common lumber to make a pig pen out of as it was worth, but that the cheap lumber, the cull lumber, would make a pig pen that would serve the purpose, just as well as if it were made out of mahogany? Mr. White. Yes. Mr. Sims. And it is the purpose to have that lumber now or in the future used, and so limit the output of the other grades as to make a demand for that ? Is that the general idea ? Mr. White. That would be the general effect. I would not say I was doing it to increase the cost. I am not increasing the average cost. Mr. Sims. You want to maintain the price at such a level as will enable you to manufacture your No. 4 you speak of — the top log? Mr. White. Yes. Mr. Sims. Without loss ? Mr. White. That is right. Mr. Sims. And then upon an agreement to so manufacture made with this commission, with the authority of the commission, that commission to see that it is carried out, the manufacturers then would increase their price by having a limitation of the output ? Mr. White. That is right. Mr. Sims. You want this commission to have the authority to per- mit them to enter into such an agreement ? Mr. White. I think the commission could never do a better thing for this generation or for posterity than to do that very thing, if they have the authority, or if authority can be given them. Mr. Sims. You want all laws or provisions to be repealed or modi- fied to that extent ? Mr. White. I think it is absolutely necessary. I think there is no way of conserving our forests unless we can get the cost of conserva- tion, because if we do not get the cost of conservation, we will be permitting greater waste than we would to allow the top logs to rot in the woods. We would be losing money, throwing more money - away. I suppose under the Sherman law it is as great a violation to agree to lower the price of lumber as it is to increase it. I there- fore would not want to say that we want to increase the price. We want to lower the average price to the consumer, but that would make necessary the fact that we would have to get what it would cost us to manufacture and get that lumber to market that is now lying rotting in the woods. It is a good deal like a man being in the hospital and worrying because of an operation he has just had done. He is not getting along well because he is worrying over the cost of the operation. The surgeon says, " Oh, don't worry about that That fellow over there in the corner on that cot, he is paying your bill." And the surgeon sees that the other fellow does pay the bill. It is simply getting enough for your lumber so that it will pay to save it, or, if necessary, the more or less raising of the price of the INa?BKSTATB TEA0B COMMISSION. 451 higher grade to the man who is able to pay for having clear lumber in his house, raising it even ever so slightly perhaps, yet enough so we can afford to bring in the poorer grades that the poor man is glad to get to build a home and which he will thus get at a lower price. Mr. Sims. In order to make a market for the lower grades you necessarily have got to have a relatively higher market for the higher grades or else they would take the higher grades in preference ? Mr. White. Of course, you have got to ask more for the higher grades. Mr. Sims. In order to prevent waste, you have got to have a market ? Mr. White. Yes. Mr. Sims. The higher grade must be" enough higher than the low grades to cause persons to buy the lower grades at a lower price? Mr. White. Yes. Mr. Sims. Although the average of the whole output would not be increased? Mr. White. Yes; and what the poor man would pay would be a great deal lower than the price he would pay if there were not any lower grades made. Mr. EscH. Conservation, of course, is for the benefit of posterity. Mr. White. And this generation, too. Mr. EscH. To that end are the lumber men themselves doing any- thing in the way of reforesting their cut-over lands ? Mr. White. They are doing it just as far as they can do it. I was appointed by the President to visit a reforestation scheme in Cass Lake Indian Reservation. I was made the personal representative of the President to go there and see that the Indians had a square deal. I went up and looked it over. _ There the rule is that at least two seed trees shall be left on every 5 acres, so that these trees will reforest the cut-over areas. This is all that is necessary, unless one wants to practice intensive forestry by close planting. In most cases you can reforest to the extent of probably 10,000 feet per acre by just letting nature take its course and keeping the fires out. But reforestation has got to be encouraged by the States in helpful laws. It has got to be done the same as has been done in Connecticut, Massachusetts, and New Hampshire, and has been done in Pennsyl- vania,- New York State, and Louisiana. I went down two weeks ago with my full board of directors to turn over our forests in Louisiana to the State under a law they had passed that those who shall practice forestry and keep the fires out and do certain other things that are required in order to practice forestry in an intelligent way, shall pay no taxes for 40 years, ex- cepting on the land assessment of $1 per acre. Let the timber stand and grow for 40 years and then pay it altogether at the time that you cut your timber. Of course, taxes are like anything else. It is a cost and it is added to the cost of production. Mr. Sims. Do you mean they would collect 40 years' taxes in 1 ? Mr. White. No; it would be strung along as you cut the trcp«. Mr. Sims. You say they remit the taxes for 40 years. Do you mean they begin to tax at the end of the 40 years, or would they col- lect-the whole 40 years of arrears then? Mr. White. No; they do not collect any arrears. You pay a proportionately higher tax, and such a tax as they would be willing 452 INTERSTATE TRADE COMMISSIOlir. to assess on lumber. We do not know what that would be. In the State of Pennsylvania we would know what that would be, because they say in Pennsylvania, " You must pay at the end of your growing period 10 per cent of what your stumpage is worth-; and the State will carry you for 40 or 50 years, if you will pay when you cut the trees 10 per cent of what the trees are worth when you cut them." Mr. EscH. Would the 40-year limitation be of any value in cyress land ? Mr. White. I am not acquainted with cypress. I am cutting pine altogether. Mr, EscH. I understand that cypress is a very slow-growing tree, and 40 years would not make any great difference in the value of' your forest? Mr. White. I expect not in price. Cypress grows in swamps and brakes. I know how trees grow in the white-pine and yellow-pine country. I know that they grow all the way from, say, 24 inches in 50 years down to only 10 inches in 50 years. It depends altogether on the kind of soil they are on. Mr. EscH. Is the exemption front taxation the only encouragement which.the States give to the owners of cut-over lands ? Mr. White. That is all. They had to assist in keeping out fires. But I went down, as I started to say, to try to put out timber lands under the law of Louisiana. When we got there we were told by some parish representatives, who have to do with taxation, that we do not want you to grow a forest here. We want you to cut the timber off. We want you to sell the cut-over lands to the settlers. We can not afford to encourage forestry. We said that your State law permits it. They said it permits it, but we will have to tax your other property. We will have to tax your mills and your other property high enough to make up what we would otherwise lose. So the fault is that in the law in Louisiana there is no provision for looking after the counties that are timber counties, and giving them some money, or leilding it to them, out of the State Treasury, until they can get it back from the taxation in lumber when the time is up. Pennsylvania law is different. It has a fund by which they make it up to the timber counties. They give the timber counties necessary help from another fund. All that we think we need now from this congressional committee would be that a commission be created with authority that when dire disaster was overtaking an industry, and waste was being committeed and millions of dollars were being thrown away by that industry every year, that we should be per- mitted to practice conservation by curtailing our product. In that way we would give a blessing to this generation and to others yet unborn. Mr. R. B. Stephen^. If the associations of. lumber men had the right to curtail the product, should not the commission or some gov- ernmental body regulate the practice of forestry? For instance, w^ste goes on in two ways. You leave part of the logs you cut in the woods ? Mr. White. Yes. Mr. E. B. Stephens. Up in New England a great deal of waste is going on because of the cutting of immature timber. Mr. White. Yes. INTERSTATE TEADE COMMISSION. 453 Mr. E. B. Stephens. As they have a good market, and can sell anything that is big enough to run a saw through and get a string of sawdust and two slabs, they cut immatui'e timber. I have seen a hundred white-pine trees on one logging sled that did not saw out a thousand feet of boxwood. There is a good deal of waste going on from the cutting of immature trees, due to the high prices and the maintaining of a high price in that part of the country. Mr. White. I have been up in your New England forests, and I have seen that timber cut, and I have inquired what they were getting for it, and have found out they were making it pay. So I said to myself and to them that if they can make it pay well enough to cut trees when they are only 20 years old, nobody can object if they grow timber to replace it. I found in Franklin County, Mass., they have mills making birch tent stakes for the British Government. They cut birch down to 4 inches in diameter, which they grow on the sides of the mountains. On the island of Madeira, so named Madeira — meaning " woods " in Portuguese — because there used to be so much timber there^ there are now only small poles, and it is cut and found to pay the best when it is only 4 inches in diameter. They are harvesting crop after crop, and keep these small trees growing. That may be the case here. Various substitutes are coming on in competition with wood. If it pays us to let our timber stand for 75 or 80 years, if we can get money at 4 or 6 per cent and favorable tax laws, then we are going to let that timber stand and grow. If we have got to cut it at the 50- year period or a shorter period, it will be because cost has about caught up with the value. It depends upon cost and the market whether we can let our trees stand 50 years, 10 years, or 75 years. i want to add something else in regard to cutting and saving this timber. We cut in the United States 45,000,000,000 feet annually. Say we waste only 20 per cent. This is 9,000,000,000 feet annual loss. It is not the timber, alone that we should save, which we are now losing, but there is the loss of the labor of manufacturing it, which at $6 per thousand amounts to a Joss of $54,000,000 annually, and then the railroads are interested in it, because they are losing the freight which will average as much as the labor cost, or $54,000,000 more per annum, and the consumer loses as much more by having to pay the higher price for the higher grades. The public has its forests destroyed in two-thirds the time it otherwise would if the entire tree was utilized and marketed. So the laborers, the railroads, the public, and the consumer lose if we are obliged to leave the top logs in the forest. Mr. Sims. In other words, the laborer would get just as much for manufacturing the low grade as the high grade? Mr. White. Just exactly. Mr. Sims. When they leave the low grade, the output being less, the employment of labor is less to that extent? Mr. WHfTE. Certainly ; or rather the plant would only run 10 or 12 years instead of 15 years if 20 to 30 per cent of low-grade logs is left in the woods ; then labor is only going to get 10 or 12 years' work instead of 15 years' work for his family on that job. And it is a permanent loss to the Nation and to thfe world. Mr. Willis. Do you advocate the passage of a law which will give this commission authority to regulate the output, or the passage of a 454 INTERSTATE TRADE COMMISSION. law that will give the commission authority to permit combinations amongst the manufacturers of lumber, so that they may regulate the output? What is your thought on that? Mr. White. I would be perfectly willing that the commission should directly limit the output. I said that when I was here sev- eral years ago. I, with other lumbermen and foresters, went to see the President, and we urged that there might be some law by which the forestry association of the United States, the Agricultural De- partment, or the Forestry Department of the Agricultural Depart- ment might say just exactly how much we should cut, and thus leave the responsibility of committing waste or of not committing waste to some power that can regulate it. We can not regulate it down there, with over 30,000 mills in the South and the West, unless we can get together and agree upon an effective policy. Mr. Sims. You would be willing for the commission, if it had the power, to prescribe some niles or regulations, general in character, with reference to how old the timber might be before it is permitted to be cut? Mr. White. I would be perfectly willing for them to do that if they would take all facts and conditions into consideration. If they would say, " Let your timber stand until it is 24 inches in diameter," then I would want them to prove to me that it would pay me better than to cut it at 16 inches in^diameter; and perhaps I would have to ask a loan of money so that I could afford to let the timber stand. But I would have no fear. They would be com- petent and well-informed men on such a commission. Mr. EscH. Is what you say equally applicable to the hardwood ? Mr. White. It applies to the hardwood also. It is applicable to the oak and to beach and all other woods. Forestry is practiced in Europe on the beech, the maple, the Scotch pine, the fir, and the oak and other woods according to soil and climate. There are some woods it does not pay to conserve as well as others. We would like to save the chestnut, the elm, the yellow poplar, and other forest - trees which I have mentioned. But the elm and the chestnut trees are dying. We have not found any way yet of being able to stop the ravages of the terrible bliglit. -,•••, ^ ^.i, Mr. EscH. Is the use of softwood for pulp wood mimical to the conservation policy ? _ ^ ,.,.,, „ j. j Mr White. Xo; I do not think it is. I think that the use of wood for pulp and the use of wood for lumber has got to be practically of the same stumpage value, according to age of trees. The only difference is as to the interest on the money and taxes to let that tree grow from G inches in diameter to 24 inches in diameter. If it pays best to cut now at 6 inches in diameter into pulp wood, that will, of course be done, or the owner would be committing waste. I thank you, gentlemen, for your kind attention. Mr Willis Would you favor the extension of such regulations as you have indicated 'to the coal fields, as said by the preceding Mr White. I am not interested in coal. I might be doing an iniustice to my better-informed neighbor, but I would favor such a policy for the coal fields from my present information. I believe the Government has got to take hold of this question of waste, for un- aided we are powerless to stop it. INTERSTATE TRADE COMMISSION". 45^ Mr. Sims. The committee is very much obliged to you. A very dis- tinguished Senator has just died, and we feel we ought not to contiue the session further to-day. (Thereupon the committee adjourned until Monday, Februai-y 16, 1914, at 10 o'clock a. m.) ■ Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C, Monday, February 16, 1914. STATEMENT OF MR. J. F. CALLBREATH, SECRETARY AMERICAN MINING CONGRESS, DENVER, COLO. Mr. CaijLbreath. Mr. Chairman and gentlemen of the committee, I feel a little embarrassment, because the coal operators who expected to be present have been detained in Philadelphia on the joint wage- scale conference with the mine workers. This conference is engaged in adjusting the wage scale for the coming three years, a matter of very great importance, and a matter in which those who intended to appear before your committee feel they can not leave at this time, in view of the fact that the matter involved represents 75 per cent, approximately, of the cost of coal production. You can therefore understand it is a matter of very grave importance to them and to all interested in the coal-mining industry. What I shall say to you gentlemen in substitution will not be of great length and will be along the line of conservation. Some of you may think that conservation has little to do with a trade-commission bill. Our belief is that, except as it affects conservation in its broad sense, there would be little excuse for a trade commission. "We believe that every effort should be made on the part of the people of this country to bring about the most perfect and the highest conservation, first, of the health and the lives of the men engaged in the coal- mining business ; second, the conservation of individual opportunity ; and, third, the conservation of the natural resources of the country, upon which the future industrial prosperity of this country largely depends. The Chairman. Do you expect a trade commission to accomplish all those purposes ? Mr. Callbreath. We anticipate that a trade commission with con- structive powers may permit such cooperation between those en- gaged in the business as will make possible the installation of better safety appliances and better health conditions for the protection of the miners. The Chairman. Suppose the trade commission could do only some of these good things, and could not do everything everybody wants ; would it not be advisable to have it, anyhow ? Mr. Callbreath. If the trade commission can do some of those things, yes, sir ; it would be a good thing. The Chairman. If they can do some good things, and can not do everything everybody wants, do you not think still it ought to be encouraged ? 456 INTERSTATE TRADE COMMISSION. Mr. Callbreath. Yes; I do. We believe that these things can only be accomplished through the most perfect cooperation between those engaged in the business. In the first instance, as you gentle- men know, the loss of life iii the mining operations in this country is greater than in any other of the great countries. It is true that through your assistance and through the general efforts that have been made in that direction there has been a substantial decrease in the loss of life in mining operations during the last few years. If you will pardon me, I should like to give briefly the figures. In 190? Congress made the first appropriation to be used under the direction of the technological branch of the Geological Survey, which afterwards became the Bureau of Mines, for such investiga- tions as would increase safety and efficiency in mining operations. That year 6.93 men were killed for every million tons of coal pro- duced in the United States. The following year 6.05 men were killed for every million tons produced; in 1909, 5.79 men; in 1910, 5.66; in 1911, 5.48 ; in 1912, 4.29 men for every million tons of coal pro- duced, showing a gradual decrease in the number of men killed per million tons of coal produced in the country. You gentlemen who have helped in this work can justly take credit to yourselves. Presenting the figures for the same period in a little different way, in 1907, one man was killed in this country for every 144,000 tons of coal produced ; in 1908, one man was killed for every 165,000 tons of coal produced; in 1909, one man for every 173,000 tons; iii 1910, one man for every 177,000 tons; in 1911, 183,000 tons per man; and in 1912, 233,000 tons per man killed, showing a gradual increase in the number of tons of coal produced per man killed, and a gradual de- crease of the men killed per million tons of coal produced. That has been made possible by cooperation. It could not have been accomplished in any other way, and we believe the first con- sideration of lawmakers should be the protection of the lives of the miners, and we believe that the safety appliances which are neces- sary, the health conditions which are necessary, can not be best installed and paid for so long as the conditions of the mdustry are such as to reduce the profits in that industry to a minimum. The next most important thing, after we have done what we can do to protect the lives and health of the men who are engaged in mining, in my judgment, is that we may bring about the best conservation ot individual opportunity. (I think it goes without saying that the man with $10,000 capital can not successfully compete with the organiza- tion with a million dollars capital. That is particularly true in a business which requires capital on a large scale.) We are facing in- dustrial conditions which change so rapidly that it is almost im- possible for us to keep up with the progress Invention and in- creased business sagacity are creating new conditions, and we have failed to distinguish between the trust and the monopoly which the public and the big business, through its larger cooperative powers, is able to decrease the cost of production. , ^ ,, , , „,, Efficiency of production is necessary to bring about the lowest cost to the consumer. Having secured that highest efficiency it is our next step to see that the consumer gets the benefit of that efficiency. We have in this country to-day a condition m the coal-mming business which is not equaled, I believe, by any other business m the world- a business which is absolutely essential to our mdustnal INTBESTATE TRADE COMMISSION. 457 prosperity, yet a business in which only the most favorably located mines can make a profit, and in which there seems to be no possibility of creating a sinking fund to meet the capital investment when the miiie is eventually exhausted. There are in the United States approximately 15,000 coal mines. According to the report of the United States Geological Survey, there were 5,775 bituminous coal mines in active operation in 1909, operated by 3,503 concerns; 9.3 per cent of these mines produced 42.5 per cent, while 59.8 per cent of these mines produced 11.8 per cent of the bituminous coal supply of the Nation; 3,477 mines pro- duced 11.8 per cent of the coal; 5.2 per cent of the operating compa- nies employed 61.1 per cent of the workmen engaged in the industry. The census report shoM^s that in 1902 there were 4,409 bituminous coal operators, and in 1909, 3,503 operators. During that period the number of mines and the amount of coal produced was very largely increased — 50 per cent increase in production and 20 per cent decrease in the number of operators. The Sherman antitrust law, by forcing the small operators into a ruthless competition, is bringing about the very opposite from what was intended. Coal mining can not be fairly compared with other lines of business. Demand for coal is spasmodic. The closing down of a mine means enormous loss. The mine operator must keep his mine ready for quick production ; he must keep available sufficient men for rapid production when the markets demand the coal. This means that higher wages must be paid for the time actually utilized than would be required if employment v/as regular. This means waste and increased cost of production. The consumer is not oppressed because of the price received by the operator for his coal, averaging $1.11 per ton for a nine-year period ending with 1912. The consumer is much more concerned about the price of distributing and marketing the product, for which he pays nearly double the amount received by the operator. The cost of marketing the small output is relatively so much higher than for the large outjDut as to make it impossible for the smaller operator to compete. If these small operators could, through the consent of a trade commission, be permitted to combine, reduce selling costs, much waste would be prevented and fewer oper- ators would be forced out of business. The average number of days the men are employed annually in the bituminous industry is about 220. Approximately 550,000 men are idle 100 days each year, a waste which can be prevented only through the highest form of cooperation. In 1910, in the State of Illinois, the mine workers were employed 160 days ; almost half of the time these men were idle. During that year coal was sold at an average price of $1.12 per ton. The cost of the labor and the mine supplies involved in the production of that coal was approximately 95 cents per ton. Xow, if you can show me how it is possible, from the difference be- tween 95 cents and $1.12, to pay the value of the coal in the ground, the overhead charges, the interest upon the money invested, and the other incidental expenses, together with the selling cost, you will show something that the coal operators of this country will be very gliad to know. Mr. CuLLOP. Let me see if I understand you. You say that the cost of mining coal, labor and all costs, is 95 cents a ton? 458 INTERSTATE TEADE COMMISSION. Mr. Callbeeath. No ; pardon me. I said the cost oi the labor and the mine supplies, just those items, without any office expenses, over- head charges, or selling costs, was 95 cents. Mr. CuiJiXDP. And the average price was $1.12 a ton? Mr. CAiiBEEATH. Yes, sir. Mr. Ctjllop. Seventeen cents difference? Mr. Callbeeath. Yes, sir. Mr. CuLLOP. Do you contend that a coal operator can not mine coal at that price ? Mr. Callbeeath. I contend he can not make a profit at that price. 1 contend that 17 cents is not sufficient to pay interest on his capital, the depreciation of his machinery, the office charges, overhead 2harges,.and selling costs. Mr. Ctjllop. To what section of the country do you claim that {hat statement of yours applies? _Mr. Callbeeath. That practically covers the whole central bitu- tainous field, which produces the greater part of the bituminous coal of the country. Mr. Ctjllop. Do you not think that any coal operator mining in the Mississippi Valley would be more than glad to contract his out- put at 10 cents difference? Mr. Callbeeath. Indeed, I do; at 5 cents difference if you in- clude all of the production costs. But I contend that the bituminous coal operators of this country for the last 6 or 7 years have, as a whole, lost money on all of the coal they have taken from the ground. There are certain sections which have had better prices, but on the whole there has been a distinct loss when you take into consideration the amount they should set aside for amortization. In other words, a coal mine to-day has a certain value. The man wlio goes into the business miist invest that amount of money in it. By the time the coal is exhausted he must have received the cost of operation, the interest on his money, and enough to pay back his original investment; and to the extent that he fails m that he is losing money. The amount of capital invested in the bituminous mining industry in 1909, according to the recent census, was $960,289,465. The value of the product of that year was $23,440,000. In some sections of the country the apparent profit has been more than actual expenses of operation, leaving an apparent profit of about 2.5 per cent on the capital. This is figured without amortization charge, and when you consider the exhaustion of the mine, which must sometime be paid for, your coal operator is in a position where he is not able, without increasing his deficit, to install those safety appliances which we believe should be put in, or to conserve the coal resources. Mr. Ctjllop. Do not the laws of different States require the coal eperators to install safety appliances? Mr. Callbeeath. Yes, sir. Mr. CuLLOP. Are they not doing it? Mr. Callbeeath. They are doing it, and to that extent, in many instances, they ai-e increasing the deficit. Mr. CuLLOP. They take care of the mortality by accident insur- ance, do they not, as a rule? Mr. Callbeeath. In some instances, yes; and yet this method has not been satisfactory. Many members of our organization have INTEESTATE TEADE COMMISSION. 459 advocated workmen's compensation bills through which, no matter what may be the cause of a man's death, his widow and children may be cared for and the burden put upon the industry as a whole. You have heard of the killing of the proverbial goose that laid the golden egg. Just to the extent that we are forcing coal oper^ ators to waste the rsources in their mines, as we are doing to-day, to that extent we are destroying ourselves because of the vital need we shall have for that fuel in the future. It has been contended at times that we have coal eonugh for 4,000 years. That may be true as applied to the country at large, bui coal in the Rocky Mountains will be of little service to Pittsburgh and Philadelphia, because of the enormous freight charge necessary to bring it to those points, so that the coal which is available for the present industrial centers of the country is the coal which exists a few hundred miles from those centers. We are wasting to-day approximately one-third of the coal, ap- proximately half as much as we are taking out of the ground. That is not true in the anthracite regions, but is true in the bitumi- nous fields. A gentleman in Chicago, a short while ago, in the course of a discussion in which others had complained they were losing money, said to me : " I am making money from my operators My mine is located near the railroad, and near the pomts of con- sumption; I have very large ore bodies, cheaply mined, and I caB make money when all the rest of the fellows go into bankruptcy, but it is a positive crime the way I am treating my mine. I am mining the coal upon which I can make a profit, and wasting that which will not stand production costs." That condition ought not to prevail. We have with the present equipment of the mines of this country the ability to produce 200,000,000 tons more coal a year than we have a market for. Coal operators are precluded from restricting production, and have to meet the large buyers of coal, who come into the market and play off one operator against the other. The average operator is carrying a heavy bonded indebtedness. The banks hold the bonds; the bank insists that the mine shall be kept in operation in order that the security may be kept good. The re^ suit is that the mine operator is often forced to take a contract at less cost of production hoping, perhaps, that he may make a profit from the extra production he may make — ^the big contract being necessary to keep his mine in operation, and for the protection of the bondholders. Mr. EsGH. How would you, in a concrete way, permit or authorize the interstate trade commission to carry out the ideas you have expressed, and to bring about the conservation which you hope, and which we all hope for? Mr. Callbkbath. I would authorize that commission to pass upon trade agreements; to say whether a particular form of agreement was in conformity with the law ; whether it would serve the public purpose, and if the commission was not satisfied that the purposes sought by this combination were proper, it would refuse to give permission. If the course pursued was one which would be of benefit to the community at large, I would authorize that commissioB to grant to that combination, or to those applicants, the right to do business upon a certain plan. 460 INTERSTATE TEADE COMMISSION. Mr. EscH. Of course, the commission could not authorize them to do anything in contravention of the Sherman Act ? Mr. Callbeeath. No; but there are many things — cooperative ef- forts — which seem to be in contravention of the Sherman Act, con- cerning which people are not sure whether they are or not. Let me illustrate : A few years ago, in a certain section of Indiana, a small number of operators were producing coal. No individual concern was producing enough to compete in the Chicago market for the large orders. Their lawyers advised that they might form a combination by which aU of the coal an that particlar section should be marketed through one agency. The plan was carried out, the agency created, and immediately they were prosecuted under the Illinois antitmst law. They had diffi- culty in escaping conviction there and did it only on the ground that this was an interstate affair and that the Illinois law could not con- trol, because the coal produced in Indiana was shipped in interstate commerce into Illinois. The net result of this was to increase compe- tition in the Chicago market. The matter was then taken to the De- partment of Justice in "Washington, and. they were advised that this combination was in restraint of trade and that they must stop ; that if they did stop they would not be prosecuted by the Federal Gov- ernment. They immediately, of course, discontinued, after spending about $25,000 and suffering the embarrasment of indictment. Here was a condition in which they were increasing competition. They were not restraining production, and yet they were thought to be in violation of the antitrust law, because they were a combination. As it is to-day the big coal companies can and do maintain 12, lo, 18, and 20, sometimes as high as 30, agencies in different communi- ties. The small producer can not do that except in combination with others. If you force these small producers to maintain the same sell- ing agency as his neighbor, you increase that much the cost of market- ing. The $1.12 per ton which the miner gets for his coal is so far different from that which the consumer pays for it in the market that economy in the cost of marketing is of the greatest importance. Mr. Sims. You have exceeding your time by five minutes. Mr. Callbeeath. I am ready to stop with just this simple request: That in the framing of a trade-commission bill you will give the commission authority similar to that accorded the Interstate Com- merce Commission, by which certain combinations which appear to be of benefit to the community may be made effective. The Chairman. I will call your attention to the fact, which all good lawyers ought to know, and which I have called to the atten- tion of gentlemen before this committee a gocd many times, that the creation of a commerce commission is one thing, and the laws passed for it to administer are quite a different thing; and we have been passing laws ever since it was created and will perhaps as long as it stands continue to pass laws. The thing we are dealing with here now is, Shall we create an instrumentality ? It is not a question of how many laws we shall pass. Mr. Callbeeath. The only suggestion I have is that that instru- mentality, when created The Chairman (interposing). The trouble is we are asked to ac- company it by the passage of a number of laws to do what yau peo- ple want, and every witness is advocating his own interest or line of INTERSTATE TEADE COMMISSION. 461 business and wants some other law passed. We want to pass all good laws, but, for heaven's sake, do not clog the machinery and try to break us down when we are trying to pass a law to create . a machine. Mr. Callbeeath. It is only that this commission may have the discretion. STATEMENT OF MR. P. B. NOYES, PRESIDENT OF THE ONEIDA COMMUNITY (LTD.), ONEIDA, N. Y. The Chairman. Please give something of your business experience. Mr. NoYES. You mean how much experience I have had ? The Chairman. Yes; give the committee some idea, to show that you are prepared to talk on this subject. Mr. Notes. I have been engaged in business for 23 years. I have been in the selling end of the business all that time. I have been the manager of a portion of the business of the Oneida Community for 20 years, and for 18 years I have been manager of all the busi- nesses. • The Chairman. What is the Oneida Community ? Mr. Notes. It is a corporation which in 1880 took over the busi- nesses — at that time much smaller than they now are^of the Oneida Community, which existed from 1847 to 1880. The Chairman. What did they do? Mr. Notes. They were making steel traps for catching fur-bearing animals. They were making silver'nare. At that time they were making steel chains, which are no longer made ; silk thread ; canning goods — we were one of the earliest canners in the United States of fruits and vegetables. That covers the general divisions. The Chairman. They are engaged very largely in the manufacture of commodities sold in the Umted States and abroad ? Mr. Notes. We are. The Chairman. Are you prepared to give us your ideas on the value of a trade commission, either for or against it ? If so, we shall be glad to hear your views. Mr. Notes. I have looked at it from a little different angle, per- haps, than anybody else has, because my first interest in it had noth- ing to do with a trade commission. I was very much interested in the question of how to handle the unreasonable cutting of prices, and while that is embodied, as I understand it, in a separate bill, it led me straight to that trade commission, and it led me by a different route, perhaps, than anyone else followed, because I came to conclu- sions that were dead against my own interests officially. May I say a word on price maintenance, because it leads me to this bill ? The Chairman. There has been a good deal said on it, and I sup- pose you have as much right to talk on it as anybody. Mr. Notes. I have had 20 years' experience in the very thick of price business, as I have been planning and carrying out commercial campaigns during that entire 20 years — successful ones, I mean to say ; so much so that I believe the conditions are known to me as well as to anyone in this country, I having worked on five different lines of goods. The unreasonable cutting of prices for ulterior purposes is to-day one of the worst abuses, I believe, in the country in the merchan- 462 INTBESTATB TRADE COMMISSION. dising of goods. The difficulty is that, on the face of it, the main- tenance of prices by distributors — arbitrary prices — sounds so much like helping monopoly that the question never has obtained a fair show. In other words, price cutting is one of the greatest weapons of monopoly. You have heard this before, but I should like to em- phasize it, because I come across it so many times. The trade-marked article is the weapon by which the man with much capital drives out his neighbor in the distributing business by cutting the price where the smaller dealer can not stand it. I could give numerous prac- tical illustrations, but I think this subject has been covered. I first believe very intently in something along the line which Mr. Brandeis advocated namely, permitting all manufacturers to fix the retail price to the distributor, to the retailer, and to the consumer. In such a way those prices could be defended by the manufacturer and prevent these price cutters. But as I went on studying the subject — and I may say I am an intense believer in what I consider the mod- ern movement — ^the movement of this administration — — Mr. Ctjuujp. I should like to ask you a question there. You can fix a maximum price ; but would not public policy forbid the fixing of 'a minimum price — ^of any minimum ? Mr. NoYES. The fixing of the minimum price is the only thing which would do any good to prevent these unreasonable price cut- tings. The Chairman. I understand the witness is preparing to come around and announce his conversion on the subject. Mr. Notes. I believe that the administration is the leader in n movement which the business man is following more closely than any other gentleman in this room, I believe, knows of— that is, he is say- ing: " Unless I can find that this principle of my business is founded on something except injustice, unless I can find that it is founded on right and justice, it is not going to be successful enough so that I can afford to put my hand behind it." And I believe that the move- ment has gone beyond anything that people outside of business know. This is a little diversion. I was talking with some of the biggest business men in the world within two weeks— men I considered quite materialistic, if I may say so, and all treading the same pa,ths— and they said that, after all, essential justice must be at the bottom of their profits or else they are too superficial; they can not afford to go ahead with them, because they will not last. I have studied the thing a good deal from my own experience, and I said : " While some remedy must be found for these abuses of prices, to grant each one of us manufacturers the arbitrary power, without regulation, to put our prices on a certain basis and enforce them throughout the country is a back step, with an abuse just as bad." I think it would be worse; and I will explain to you what led me to that I called it " the buying of distributors." Mr. Brandeis has 'said that competition among manufacturers will prevent men from putting restricted prices on any goods that were unreasonable. That would be so if it were not for the fact that the stable office of distribu- tion can be controlled in this way; and I think of the kind of thing that we talk over privately among ourselves, saying, " Can we do this or can we do that? " - INTEESTATB TBADB COMMISSION. 463 If we can do it, we must give the jobbers a bigger profit, and he will stand for it if we do that ; and we must give the retailer a bigger profit, and he will stand for it if we do that." What we are work- ing against, for example, is an article which can not be manufac- tured and then distributed for less than $4, we will say. This is a figure that comes under my notice, and it gives the avenues of dis- tribution their cost and a profit on their investment. A store comes along and cuts that price to $3 and advertises it for the purpose of attracting trade and sets the price of $3 for the whole country, and it can be done by anyone. That is the abuse. Now, the other side of the proposition is: Supposing I concede that through this method I want to get a great deal bigger profit than I am getting. I add on my profit, but I get away with it by going to the jobber, perhaps, who is getting 15 or 20 per cent profit, and I fix his profit at 30 per cent. That jobber becomes my agent. Then I go to the retailer and I find that his average profits in that line are 30 per cent, and I will fix his profit at 50 per cent on our line. Having built up all those profits; having, as I call it, sub- sidized the jobber and subsidized the retailer, I land the whole thing on the consumer at a price of $5. I have landed that price of $5 and built up the strongest bulwark I can build. In other words, I have got 200,000 dealers in the country working night and day for me, because they are making such a large profit on my products, and my competitor starts in and gives just as good goods, comes in the market and oifers them at $4. The dealer may find that he must put in some of those $4 goods, but he is making twice the profit, perhaps, on my goods that he is on the $4 goods, so he says to every- one who comes into his store: "These goods are $4 and these goods are $5; of course, if you want something cheap, you may take this $4 thing." You know how they talk. " But this $5 article is well worth the price; this is the best." Those 200,000 dealers are working for me; are advertising my goods to get the consumer to come and talk about them, because I give them this extra profit. Most of the manufacturers with whom I have been associated and whom I am with in the necessity for some way of regulating these price cutters will not follow me in that, and I never made the idea public, even to my best friends, until I had gone over it for several months. I have talked it over with others who have been my lieutenants in many a campaign, and they all agree with me, when you come right down to what really is so, that that is the fact. The Chairman. The trouble with this price-fixing legislation is that would legalize that, and how would, you enforce it? Mr. Notes. I would have to go into a court and enforce those prices. And, having that right, I have got the right which gives me the ability to bribe, as I call it, the dealer. And we are all doing that lots of times. We are all raising the profit of the dealer to get away with the proposition. That is the reason why I was against it, yet there I was left in a dilemma. I could describe to you some most outrageous work on the other side of the unreasonable price cutting for ulterior effect to drive out small competitors — a partial monopoly created to do damage to competitors — what is called unfair competition. I took up the idea with Mr. Nims, and he proposed an idea which I believe is fairly well established in Germany and France, of not 34082—14 30 464 INTEESTATE lEADE COMMISSION. allowing the manufacturer to fix a final price, but to make the prices the subject of a damage suit when it could be shown that somebody had cut your price— namely, set the price for the country^lower than they could be marketed on the average; when you could make clear that there was a damage to you. But of course in that there are many questions which arise as to the legal practice, as to where you would set the line. It finally came very strongly in my mind, after this trade commission was proposed, that there was the solution of the whole thing. I felt that if manufacturers were allowed to fix resale prices, said resale prices to be registered with the trade com- mission, that, without any further provision, such as the necessity for that commission to go into and actually ferret out the exact rela- tion of cost and sale, you would have the check that would cure the abuses which we now have. My oteervation of the attitude of manufacturers to-day on such subjects is that we can no longer stand alone, but must work with the Government, and that if we have a commission of that sort I feel very sure no one would venture out in the direction of price maintenance without having their entire sanction. There is a line there which no one could draw too fine. There are cases to-day of the kind of which I speak, in regard to which a commission of that sort would instantly say : " That is not right, and you know it is not right." And I thinJs it would check it. I believe a trade commission which associated itself with the operations that are going forward now to standardize the system of marketing goods — I believe the very association and education that they would give and that we would get would be felt, possibly, in laws, but very rightly without special laws, and would result in placing all of this on a reasonable basis. Mr. Sims. You aim to confine this power of the trade commission to patented, copyrighted, and trade-marked articles? Mr. NoYES. It would have to be confined to trade-marked articles, because outside of trade-marked articles there is no reason for. re- stricted prices. The price cutting is done to get the benefit of a valu- able name in a man's private business. I Imow one case that came right under my eyes in Wisconsin where a man pursued this policy for at least three years in succession. He announced that at a certain time of the year he would have a special sale of silverware— plated knives. He used in his advertisement the name of a well-lmown manufacturer of those kniv6s, and advertised a price lower than any jobber could buy them. During this week of his sale it was his real object to sell a lot of knives made for him with his own name on them, and these knives and forks he would keep in his place. Usu- ally, he told me, he got rid of 100 to 150 dozen under his own name. He advertised the standard knives under a very low price, but when a woman came in he would show her his own goods ; demonstrate to her that she did not want the standard goods; put up a very in- genious talk, which I will not repeat, and sold her his own knives at 50 per cent higher price. , ■ , ■ » Mr. Montague. Did she know she was purchasing his knives ( Mr.' Notes. Certainly. He would say: "Who do you look to to guarantee you, the manufacturer or me? These knives are guaran- teed by the manufacturer, but I know nothing about them. I am responsible for these knives, with my name on them; I had them made purposely for me, and I Imow all about them. I stand behind INTEESTATE TEADE COMMISSION". 465 them. If they are not right come right to me. I am here in town. Would you not rather get something right here in town from some- body you know all about, and get your money back if you want to, or have some definite guaranty from somebody away off? " He sold his knives at $4, while he advertised the standard knives at $2.15, and he told me that when he got through with this sale he had only bought one dozen standard knives and had those knives left on hand. He told me that himself. He probably exaggerated, but he said he had the original dozen that he started 'with — that he showed to the first woman ; that he had those left on hand. That is an ex- treme example, but there are all grades of that practice, and its use among storekeepers has been latterly to drive out uncomfortable com- petitors, taking the lines the competitor specially handles and cutting those lines down to no profit, or away down where the competitor can not possibly keep them in. It is a very serious matter, and if it is not settled in this way, before you get through with it somebody will have to settle it in the intereste of restraining monopoly, because it works in that direction in the end. I myself believe the trade commission has many other advantageSi As I say. I t h i n k we are entering upon an entirely different situation than this country has ever known before in the relation of business men not only to government but to the ethical justice of things — ^to each other and to the public. Mr. MoNTAGTJE. To each other? Mr. Notes. I have been associated with more business men, I think, than any other man in the country, because we have four or five businesses. I have made it my business for 20 years to travel. I know all of our customers in all our lines, unless they are customers who have been made within the last year or two, all over the United States and all over the world, and my observation is that the change in sentiment in the last five years is something phenomenal. I go to a man whom I have not seen in five years, to whom I would not talk my somewhat idealistic ideals. I find him to-day talking hon- estly to me in private about his own ambitions, and through it all I can discern that feeling that if you find your business is founded on anything but essential justice at the bottom, that you are wasting your time and your money, because you are going to break down. I think this commission has the power to be a central clearing house more than anything in the country has ever been. The Chairman. Do you think this commission could be made a valuable thing, even if we do not pass all the laws that everybody wants passed? Mr. Notes. I feel very sure that if that commission were already in Washington, read to meet — — - The Chairman (interposing). For instance, I can give you a sample of the arguments the committee has had, and I do not think the parallel is too violent at all, but is a fair sample of the argu- ments which have been advanced. Some few men have advocated a commission for the good it will do. Umbrellas and overshoes are good for people in wet weather. A commission ought to be estab- lished, if a law is passed, to authorize it to distribute umbrellas and overshoes. That is a fair sample of the arguments which have been 466 INTERSTATE TRADE COMMISSION. made. I want to know if it would not be valuable without giving it a law to distribute umbrellas and overshoes ? Mr. Talcott. I think the very instance you speak of would re- quire an amendment of the Sherman law-, would it not? The control of the manufacturer and the prices ? Mr. NoYES. It does not seem to me that it would, and Mr. Nims does not think it would. His practice is unfair trade, and I have talked it all over with him. That is, you will understand, I am not advocating allowing 'myself and any competing manufacturers to get together on the subject. May I explain right there that I be- lieve it is being recognized more and more that the manufacturers of a trade-marked article, when they have sold the goods, have not sold all his title to them? It is said that this man has bought his goods and can do as he pleases with them. It is not so. We have got to make good finally, clear down to the consumer. If the goods do not hold out right, the manufacturer really has to take back the goods. As a matter of fact, I am responsible for my goods until they are sold, and then I am responsible for them until they give good satisfaction, so I keep an interest in them always. .The Chairman. I was absent from the room for a while. Did you advocate that the manufacturer be given the power to fix the price on his goods in the hands of the vendee? Mr. Notes. Subject to the registering of them with this trade commission. Mr. Decker. Of the prices ? Mr. Notes. Yes, sir. The Chairman. I beg pardon. I thought you were on the other side. Otherwise I probably would not have given you that illus- tration. Mr. Notes. I am merely going to tell you that I am not pressing this thing very hard. I was asked by Mr. Davis to come down because I expressed this idea to him, but this is the result, on my part, of careful study. The Chairman. You can register your prices and give publicity without having a law passed giving force and effect to that price, can you not ? IMt. Notes. I think, to a certain extent, you can, but not in a way to protect against these chain stores, a'nd they are butting in all the time. The Chairman. Then if you want to keep control of the prices of the goods which you manufacture, I do not see why you do not do like Mr. Ford does with -the automobiles. He simply holds title and sells through his agencies, and as long as he holds title he controls the prices. Mr. Notes. Only the most wealthy concerns in the country can possibly do that. The Chairman. It would be just as feasible to do that and just as possible to do it as it would be to pass a law making everybody wealthy. Mr. Talcott. The reason you think it makes for monopoly in the end is because only these large companies can do it ? Mr. Notes. The price cutter is, as a rule, the large competition. It has been in our business almost nine-tenths of all, and it is either INTERSTATE TRADE COMMISSION. 467 the department store or the chain store, or some one who has got money enough to stand by until the other fellow quits your line, and their real object is to sell their own special brand of goods, such as I have illustrated in "Wisconsin, and they are pretty open about it ; they are very jealous of manufacturers' brands, and every time they can do so they go in and drive competitors off. They can afford to put brands on which the little fellow can not. Mr. R. B. Stevens. A good many manufacturers have controlled the price to the consumers by their contract of sale, have they not, until recently, when the Supreme Court held that those contracts were not enforceable ? Mr. NoYES. Exactly. We did on our own lines for a good many years; for 12 years. Mr. Eaymond Stevens. I understand that practice has been going on for a good many years, until very recently ? Mr. Notes. Yes, sir. Mr. E. B. Stevens. During that time did the manufacturers take advantage of that contract right to put prices up higher than they ought to and establish a monopoly by giving to their retailers and jabbers this additional profit which you have mentioned? Mr. Notes. It has been used to a certain extent that way, and it has been increasing. People have become very cautious about the whole thing, but there have been several very notable examples re- cently of what I call robbery that are the last stages of that system. Mr. R. B. Stevens. Do you feel that the manufacturers ought to have the right by contract to offer their goods — to control their goods until actually sold to the consumer? Mr. Notes. He is responsible. Mr. R. B. Stevens. You think the manufacturer has the right and should have the right? Mr. Notes. Certainly; that is the reason I think it is not contra- vening the Sherman law. Mr. R. B. Stevens. But subject to something through this com- mission to prevent him getting a monopoly out of that contract right? Mr. Notes. If he has to publish those prices — that is, if this com- mission simply have them on record — it is going to prevent the out- rageous abuses, and what it is going to lead to in the way of educat- ing the manufacturer himself is what I look to more than anj'thing else. He is looking for education. To-day he is working in the dark. My own belief is that this commission should go the limit that has been proposed. I believe they ought to be allowed to go into my business and specify reports which I should return, and I think that without any legislation at all that would have the most powerful effect. To my mind competition is the difference betv>eeji working in the dark and working in the light. You take my leading competi- tor in a small line. I do not know what he is doing, but I susjject it to be 10 times as bad as he is really doing, and, while I try to hold myself back, I get nervous, not knowing whether he is going to cut the ground from under me, and I hit him five times as hard as neces- sary, and we work each other down until I believe it is going to be the survival of the fittest in a lot of these smaller lines. If I .;ould go and find out what that m_an is doing I would be perfectly willing to leave him his share of the business. All I am afraid of is that he 468 INTERSTATE TRADE COMMISSION. is undermining me. It is the same difference as if I were walking across the country where there was a deep canyon. In the daytime I can lay my path along the edge of it, but if it is nighttime I am going to keep miles away for fear 1 shall fall in. That is the way we do. We take crowbars and go at little bits of operations in competition because we do not know the actual conditions of affairs. I say if you will register these things, if you will have a commission which has the right to demand certain reports and bring things out in the open, you will encourage competition — ^the right kind of competition. Mr. EscH. If carried out, what effect would your plan have on the cost of living? Mr. Notes. I believe limited price restriction would have a favor- able effect. The unlimited price restriction would have a very un- favorable effect. The unlimited price restriction, I believe, would add more to the cost of living than anything else that has been brought up, because every line of standard goods would undoubtedly be brought back to a nice profit to everybody and you would land a big cost; but I believe to-day the price cutter who goes down below cost eventually does more harm to the consumer than to anyone else- Mr. Talcott. Under your plan, Mr. Noyes, would you invest a power in the commission to pass upon the reasonableness of prices ? Mr. Notes. To tell you the truth I wished that to be done. I have not believed the Government would undertake such an onerous duty, but to me it would seem perfectly possible for the commission to establish certain general lines, not exact; and for them to say if a thing was beyond their idea of what the profit should be. That would be really what I would prefer. Mr. Talcott. Passing upon a schedule of prices filed by the manufacturer is a different thing from fixing the prices in the be- ginning. Mr. Notes. I firmly believe it could be done, and very soon it would be quite automatic and easy. Mr. Montague. You favor regulating prices, as the gentlemen has just suggested, in the way the Interstate Commerce Commission regulates rates of carriers, do you? Mr. Notes. I do not believe I understand the operation of the Interstate Commerce Commission well enough to say for sure. Mr. Montague. They pass upon the reasonableness of rates. Would you have this commission to pass upon the reasonableness of prices in the industrial world? Mr. Notes. I would have them pass upon the reasonableness of profits. , Mr. Montague. How could you do that unless you also pass upon the reasonableness of prices? Mr. Notes. That is what it comes to. But this registration shows me a profit of 10 per cent; shows a profit of 15 per cent to the jobber, and 35 per cent to the retailer. Those are perfectly definite. And it does make a price in the end. Now, I have got to register at what profit I sell to the jobber, the jobber to the retailer, and the retailer to the consumer. If I register those, the reasonableness then ought to be fairly easily determined, and it would not be indefinite at all. Mr. Montague. You would ask that the manufacturer fix the price all the way down the line ? INTEKSTATE TBADE COMMISSION. 469 Mr. Notes. That is what he has been doing for years. We have been doing it for 12 years. Mr. Montague. Do all the manufacturers do it? Mr. ISToYES. Oh, no; not nearly all. The manufacturers of pat- ented goods, those who came under the patent law, have done so quite extensively, but at least half of them were very much relieved when the Supreme Court decision came. They said, " We have been hold- ing back here for these dealers all the time; now let them get their own profit." They were relieved from the trouble. It was an im- mense amount of trouble to the manufacturers. On the face of it, it was a direct good to him, and in the end it was very good for him. But you have no idea— I have spent myself a week going around to small places in Missoiiri and Iowa, calling on retailers to ascertain what they were doing. It is the only way you can get at it, by personally looking up complaints. Mr. Talcott. Do you not really think that the subject matter of which you speak is a matter of unfair trade ? Mr. Notes. Yes, sir. Mr. Talcott. The department store takes an inferior article and represents ithat it is better than the article which is really superior. Is that not unfair trade ? Is that not a false representation in the first place ? Mr. Notes. It is ; and it would not have done any harm, or would not go down at all, if he did not first take something that was well known, like Community Silver, and advertise that at less than people know it is worth. Having done that, he then comes in, and can make all sorts of misrepresentations, because people will believe it. Mr. Talcott. That would seem to be a case for the courts or some penal law. Mr. Notes. Mr. Nims feels that it is. To make clear the procedure, say, for instance, my goods were sold to a man at a certain price, and I could show, on his own statement, that the cost of doing business made those goods cost him to sell, at the time they were in his store, $3, and he offered them for $2.50. This is the way the Germans do. On the face of it, $2.E0 is not the price made to sell the goods; it is for ulterior purposes; to injure the manufacturer by unfairness on the part of the dealers. That man could only be reached by institut- ing a damage suit. Mr. Covington. Following out that line, do you not think that a trade commission, created primarily to furnish a clearing house of facts to the public at this time, and giving to the American people a very great insight into the so-called unfair prices and unfair com- petition, now developed in the businesses of which you speak, would in itself go a long way toward rectifying those evils ? Mr. Notes. I believe it would be the greatest single advantage strictly commercial business has had in this country without any law. Mr. Covington. The average business man has imquestionably marched pretty fast up the road toward busiiie-s rectitude in the last few years, do you not think? Mr. Notes. He has; very fast. Mr Covington. And that being so, he would not care tor the con- cern with which he is connected to be constantly exposed by the re- ports of a commission as one of the groups of concerns engaged in unfair prices and competition? 470 INTERSTATE TRADE COMMISSION. Mr. NoYES. Absolutely not. I think I speak from the book when I say that the commission could expect the most earnest and honest cooperation from the business men of the country. Anything else would be very exceptional. Mr. Montague. Take the case of a man who has goods he is sell- ing below cost ; say they cost $3 and he is selling them for $2.50. I believe that is the substance of what you said ? Mr. Notes. Yes, sir. Mr. Montague. Suppose this occurs : That man has a large stock of goods on hand which he can not sell and he wants to get rid of them. Would you fix a price? Mr. Notes. I have long ago found out what you have got to do, and we have done it. That is, if you fix a resale price you must either allow a man to sell dead stock, as it is called, or take it back. I do not believe there is any justice, as your question implies, in tying a man up on his price and then leaving dead stock on his hands. Mr. Montague. You would, then, make the nianufacturer control the whole thing? Mr. Notes. I would make the manufacturer either take back those goods when asked to or Mr. Montague (interposing). I mean they would all ultimately come back to the manufacturer? Mr. Notes. Unless he is willing to bear the loss. Mr. Montague.* He would bear the burden of the profit or the loss? Mr. Notes. Yes; he can not get away from it. That is the fact of the matter. The manufacturer has got to stand back of his goods until they are sold and worn out. Every one of you looks right to the manufacturer of the goods until they are worn out; that is, the average, standard goods. Think of goods you know the name of. That is a responsibility he has found he can not shirk. That is the reason the manufacturer ought to have a hand iri that until they are sold. Mr. EscH. Would you permit the retailer to return the goods directly to the manufacturer or to his immediate vendor with whom he has contracted for them? Mr. Notes. I think the latter, and I think the latter would be the regular course of things, and once a year yoii would have a cleaning-up time with your jobbers. We have not had the question come up with the retailers so much, but we have a regular rate at which we take our goods back ; a percentage that is enough to rebox them. All of our goods have to be reboxed. Mr. Talcott. What would you do in case the concern was in a state of insolvencj^? Mr. Notes. The same thing. All I should ask in such a case is that the manufacturer should have the privilege of taking them back or of letting him cut. I do not think the manufacturer can say they can neither cut nor take back. The manufacturer can take them back, or if he refuses to do so, they can cut the price. That is the reasonable solution of that. The Chaieman. Even if we do not pass any additional laws right now to regulate trade, would you be willing" for us to establish the trade commission, leaving it to the future to determine what general laws ought to be passed ? INTERSTATE TEADE COMMISSION. 471 Mr. Notes. Yes, sir. Mr. EsoH. What would you say as to requiring a system of uni- form accounting to this trade commission ? Mr. Notes. If it could be done. There would be some difficulty. Shall you need a uniform accounting ? Mr. Montague. You said a little while ago there ought to be something like a uniform accounting, did you not ? Mr. Notes. If you mean the report should cover certain very broad items, it could be absolutely uniform. It depends on how far you go to determine whether it should be uniform. Businesses dilBfer so greatly that you could not accomplish it if you went into too much detail. But I believe a uniform report could be devised. If you went into uniform accounting, which insisted on all items of expense being handled the same way, you would strike some snags in totally different conditions. Mr. EscH. Would you have uniform accounting in different busi- nesses ? Mr. Notes. You could, and if it turned out that was the only way to get the publicity, I should say you should do it. You see each one of us has a different cost system. The cost system is worked out by years, and all the work of the shop, including the tickets the men get paid from, is all a part of that big cost system, and if you tried to classify statistics in a very detailed way that cost system would interfere — ^it would cost thousands of dollars to shift the system so you would get it. Mr. EscH. Yet one of the greatest advantages to the trade would be to know the unit of cost, would it not ? Mr. Notes. The broad classifications are alike with everybody, as between labor and materials and the different kinds of overhead expenses, and those are the things you would all be interested in. That matter is a perfectly straightforward thing, as is also the price paid for it. The labor could all be classified together by everyone, I think. Then comes the charge of overhead expenses, which con- sists of foremanship, and all the interest on the plant, insurance, and aU those items, and then the selling expenses. A few of those big divisions would give any business man a thorough clue, and give any commissioner a thorough clue as to what a man had figured on as to his costs. If he saw in there 30 per cent for selling, then he would have " road directions " to go on down and find what they have got into costs. Mr. Sims. Taking the law as it now stands, the decision of the Supreme Court as to patents, would there not be business ethics among manufacturers, wholesalers, and retailers that would lead them not to adopt those ruinous cut-throat prices to the consumer that demoralize business and ultimately destroy the very object and purpose for which business exists? What do you think about that? Mr. Notes. Ninety-nine out of one hundred will stand right by rea- sonable prices, and are doing so to-day. Since that decision we have no control over these prices, but we believe the prices represent only a normal, necessary profit, and we hope that the trade will Mr. Sims. So any law looking to price fixing for resale, would apply, of necessity I mean, to only about 10 per cent of such business? Mr. Notes. To less than that, of price cutters; but they spoil the whole thing in a little while. You see, that fellow across the 472 INTERSTATE TRADE COMMISSION. street can not stand it, and it extends up the street and into the next town, and spreads from one man to another and from one town to another. I have known it in Seattle last fall, where just one price cutter, who could not be stopped, contaminated, you might say, the whole town. The other dealers say : " We will stand it another week; if it does not stop then, we will go in." When they go in they go lower. It results that way. I know a case Of cutting an- other line than ours ; a firm was cutting the other line outrageously, and the decent dealers there could not stop them, and they could not get back at them by meeting their price on this other line, so they cut our line in order to get back at these people, and it spread all over town. Mr. Sims. You know that sometimes, when we study and think and get all information from every source we can in legislating, then the practical effect of that legislation develops something which, after an honest effort we did not foresee, consequently we feel a little hesitation about passing a law that may do greater harm than the good we are intending; therefore do you not think that, as a matter of safety, we should give this commission limited powers to begin with, until we know something about the effect it has on business? Mr. XoYES. I think you are very right. It reminds me of what I was talking just before I left home — ^that is, that anyone who tries to take any kind of radical step to-day may have to take it back. It is too uncertain — everything is. I have not got a conviction along this line, that I would not want to cut half out of it first, until I see how it works, because it is a very new field, amongst new condi- tions. There is only one clear point in my mind to-day; if you appoint this commission, and that is that a great deal depends on the personnel of the commission. If you appoint that commission with no new laws or powers whatever, but the privilege accorded every one of us to go to them and to lay our business before them, I think that you will reap a very great harvest from it. if r. Si3is. You think it would be a step in the right direction ? yir. XoYES. I think it would be a step in the right direction. ]Mr. SiJis. But we should not undertake to make the whole journey in one step? ]Mr. XoYES. No, sir. I believe that in a very short time you would have more powers conferred on them. Mr. Sisrs. By reason of the future conditions developing, that would make it wise to legislate in reference to conditions that per- haps now do not make it wise? Mr. Notes. By reason of things which will develop. Mr. Talcott. The commission itself would develop, in its very point of view from surv-eying this territory, as no other person can? Mr. Notes. Yes, sir. And they would get help now they would not have gotten 10 years ago or less. ilr. Covington. You would give to the commission the power, on its own initiative, to investigate trade conditions in interstate com- merce and to make public the results of their investigations in so far as they did not disclose trade secrets and private lists of custom- ers, and that sort of thing? Mr. Notes. I would. Mr. Covin GTOX. To assist in the development of honest competition among the honest business men in this country ? INTERSTATE THADB COMMISSION. 473 Mr. Notes. I presume you gentlemen wish to be more conservative than I, but I should like nothing better than to see such a law passed giving the commission power to go right in and investigate, as you say, and make public— well, practically everything. The fact is there are very few things in trade to-day that it is really honestly necessary to keep secret. That is an anachronism. Mr. R. B. Stevens. Should the costs be made public? Mr. Notes. Yes, sir. Mr. R. B. Stevens. Some one here said the costs of individual con- cerns should not be made public. Mr. Sims. Do you not think it would take a great deal of time to analyze the cost ? It other words, one manufacturer in the same line would have a lower cost than another manufacturer in the same line under other conditions. Would not the publication of numerous lists of costs from which there might be a general average drawn, would it not Mr. Notes (interposing). I ought not to speak outside of what you call " shelf goods." When you get into those raw materials I can see that totally different conditions may arise, but you take a line like silverware, and I say it would be the best tning in the world if you bring out the whole subject and expose it to light. I think it would make the kind of competition which would make for good and not for bad. Mr. Talcott. Would you publish the list of customers? Mr. Notes. No; I do not see why that should come under any investigation by this commission. I think the question of who the customers are is immaterial, unless it is one of tliese cases of joint ownership that has a bearing in these raw-material trades, about which I do not know very much. The list of customers would be immaterial in most businesses, would it not ? Mr. MoNTAGTTE. I Understood you to say that great benefits would accrue, in that any business man could take his lousiness to this com- mission — ^you could go before your commission? Mr. Notes. You could go before the commission with regard to unfair trade. That is really what I would expect this commission to do the most. Mr. Montague. You mean any house can go before the commission and request an examination of somebody else s unfair trade or unfair practices ? Is tliat your idea ? Mr. Notes. When I spoke I had in mind these questions that verge very closely on illegality, and say, " Now, is this legal ? " There is a real debatable ground there, you know. Mr. Montague. Let me see if I understand you now. You would go, then, before the commission — any business house would go before it — and ask for advice as to how it should conduct its business in order to be within or without the law ? Is that your idea ? Mr. Notes. That was my idea when I spoke. Mr. Montague. Then you would have the commission constituted with powers to advise the people how they should conduct their busi- ness in order to be in conformity with the law ? Mr. Notes. I do not mean I would put them in shape to give them immunity, or anything of that sort. That, of course, would be mak- ing a legal tribunal of it. What is the arbitration commission which 474 INTERSTATE TRADE COMMISSION. we have in the States for labor ? They do not have the power to go into and lay down the law, but they do a great deal of good. Mr. Montague. I do not know about the States; but the Canadian law of that kind has been very beneficial. Mr. Notes. I believe in the end it would go further in the line you suggested just now. I believe in the end that if I had a real grievance I should be allowed to take it to the conunission and say, " This is unfair trade." Mr. Montague. That is, a grievance against some competitor ? Mr. Nona. 'A grievance against some competitor. Mr. Montague. What would you do about your own troubles in your own business? Do you believe you would have the right to go before the commission and say, " How shall I do this business ? Do you think it is right or wrong? " Do you think you should do that? Mr. NoTiiS. I think I should have some one to go to. I think it is one of the crying needs at the present time. Mr. EscH. Do you think we should limit the size of the corpora- tions that should be investigated by this trade commission? Mr. Notes. That is a question. I really would not want to say, offhand. You certainly would want to carry it down very much smaller than talked about heretofore before this committee. You would want to carry it away down below the $3,000,000 or $4,000,000 talked about. I think you should get it down to concerns doing busi- ness of $150,000. Mr. Covington. The investigation you are speaking about would have to take place at the instance of someone ? Mr. Notes. Yes, sir. Mr. Covington. I rather think Mr. Esch was referring to auto- matic action requiring all corporations without regard to their size to make annual reports to the interstate trade commission, were you not, Mr. Each? Mr. Esch. Yes. Mr. Notes. We are really talking about two or three functions there, and while I favor all of them, even to the least of them, I think it would be good to have the commission if we can not have all these. The making of reports is an advanced stage of the com- mission, somewhat. Mr. Esch. Mr. Brandeis thought that was fundamental. Mr. Notes. Making those reports ? Mr. Esch. Yes, sir. Mr. Talcott. Do you not think it might be a good thing to leave a great many of those things to the discretion of the commission; give them the power to classify? Mr. Notes. If you had the right kind of men. If you have prac- tical men, I think so. Mr. Covington. The commission will not be a success if we do not have practical men — if we do not have the right kind of men, will it? Mr. Notes. Not at all. Mr. Montague. This body, this committee, does not appoint the men. Mr. Notes. I assume this administration will appoint men that- Mr. Covington. That is a function of the President. INTEESTATB TEADB COMMISSION. 475 Mr. Notes. I will say that I favor the forward movement now enthusiastically, because I have great confidence in Mr. Wilson that he will appoint the right kind of men. Mr. Sims. I am authorized to thank you, on behalf of the com- mittee, for your statement. New York Wholesale Gbocbes' Assoclation, New York, January 29, 191Jf. INTEBSTATB AND FOREIGN COMMERCE COMMITTEE, Souse of Representatives, Washington, D. 0. Dear Sirs: Permit me to direct your attention to Uie inclosed resolution unanimously adopted on January 22, 1914, at tlie annual meeting of tlie New York Wholesale Grocers' Association in Utica. We feel that the subject is one of the first Importance, and that appropriate legislation of the character sug- gested would do much indeed to curb monopoly and to give the small merchant equal opportunity with his powerful neighbors, whether they be trusts or not. Our only purpose is to ask legislation as to interstate trade that will enable a manufacturer or owner who stands alone and is independent of all other manufacturers to establish the resale prices of his own goods and thus maintain the policy of equal opportunity and one price to all. To-day the small buyer is absolutely at the mercy of the large, and In this condition monopolies and combinations find their greatest stronghold. Respectfully, Nelson Gray, Secretary and General Manager. Presented by the resolution committee to the New York Wholesale Grocers' Association, In convention assembled at Utlca, N. Y., January 22, 1914, and unanimously approved: Whereas unrestricted competition in the sale of proprietary products results in such goods being sold at a loss ; and Whereas the losses sustained in the sale of proprietary products must be made good by charging excessive prices on other lines ; and Whereas such practices are in the Interest of large aggregations of capital operating through department stores, chain stores, and mail-order houses, who by offering so-called "leaders" in reality mislead the public, and thus tend to eliminate- the smaller individuals and independent merchants, although the latter are, on the whole, just as efficient, if not more efficient, as dis- tributors: Be it, therefore. Resolved, That we favor legislation giving the independent manufacturer or proprietor of trade-marked goods the right to make the resale price on his own products, believing that this right will not restrict real competition, but will in reality help to prevent monopoly ; and be It further Besolved, That the secretary send a copy of these resolutions to the national Senators and Congressmen from New York State and congressional committees in charge of such legislation; to the National Wholesale Grocers' Association of the United States; to the National Association of Retail Grocers of the United States ; and to the American Specialty Manufacturers' Association. Chamber of Commerce of the State of New York, New York, February 19, 1914. Dear Sir: At a special meeting of the Chamber of Commerce of the State of New York, held February 19, 1914, the following preamble and resolutions presented by Its executive committee were unanimously adopted : Whereas there has been Introduced Into Congress a bill to create a Federal trade commission, and other bills are being considered tentatively m com- mittee for the regulation of trusts: Therefore be it ^ .,. „^ .. .. Besolved, That In the opinion of the Chamber of Commerce of the State of New York the so-called Sherman Act as finally interpreted and elucidated by the courts Is proving more satisfactory and more efEectlve than new legisla- tion, needing new Interpretation by judicial diclslons, would probably prove to D6 for vfiS-Fs to comG Resolved, That the chamber is absolutely opposed to the creation of such a Federal commission as Is proposed In the pending bill. 476 INTEESTATE TRADE OOMMISSIOBT. Resolved, Tliat a Federal trade commission, if created, ouglit to be strictly limited in its powers of inquiry to those corporations wMch, m the oplnioa of the Department of Justice, are offending against the law; and investiga- tions, if made, should be limited strictly to alleged infractions of the law and should not be permitted to cover matters of ordinary and legitimate business, the privacy of which has always heretofore been protected by the law. Resolved, That in the opinion of the chamber of commerce unlimited powers of inquisition would prove intolerable to citizens of a real I>emocracy and might easily degenerate into instruments of oppression and corruption. Resolved, That the chamber of commerce recommends to the careful consid- eration of Congress, as a constructive measure, a study of the Canadian com- bines investigation act which furnishes a prompt, inexpensivej and efficient procedure open at all times to all who believe themselves aggrieved, for their protection as producers or consumers and for the protection of the public at large from those evils which are generally associated in the public mind as connected with the modern development of trusts and monopolies, and which form the basis of what is called the trust problem; this act having proved thoroughly efficient and satisfactory in the Dominion of Canada since its enactment in May, 1910. Resolved, That copies of these resolutions be sent to the President of the United States and to the Members of the Senate and the House of Represen- tatives. Attest : John Claflin, President. Sereno S. Pratt, Secretary. The Fbtjet Axtction COi, New York, February 19, 19XJf. Hon. William C. Adamson, Souse of Representatives, Washington, D. C. Deab Sir: I desire to write to you regarding the new antitrust bills now pending before Congress. Attitude of l)usiness men. — The press has stated that these bills are admin- istration bills. Also the administration has stated (a) that until recently very few buiness men have communicated with the administration regarding the bills, although the administration desires to hear from all business men; (b) that recently a number of business men have communicated with the ad- ministration regarding the bills from which the administration has deduced that business men have discounted the legislation and that the measures in a general way meet their approval. The press also has stated that the admin- istration has declined to wait until the United States Chamber of Commerce would have a referendum in regard to these bills. That body asked the admin- istration to defer action until the chamber of commerce could secure the answer of 300,000 business men regarding these bills, but the administration has stated that it intended to pass the bills without further delay. I desire to respectfully say that if the administration thinks the business men are not keenly interested in this legislation the administration has been greatly misinformed. Only recently have business men been able to secure copies of the bills, and therefore it is only recently that they have been in a position to " wake up " in regard to the matter. Business men have not yet realized that these bills are, in fact, for the suppression of business rather than for the suppression of trusts. In fact, some business men f^el rather stunned at the attitude of the administration and think that possibly it is no use to give the administration any advice in regard to the matter since the adminis- tration is determined to pass the bills regardless of their effect on legitimate business. The excuse for haste seems to be to permit Congress to adjourn June 15. Regarding this matter, I desire to say that the currency and tariff legislation just enacted, as compared with this antitrust legislation, were very simple problems. It must be remembered that the currency and tariff bills enacted have been the result of many years of discussion. In fact, they were discussed long before antitrust legislation was thought of. Currency legislation has been a bone of contention since the beginning of the Government, and any number of tariff bills have been before Congress from time to time, with the resultant public discussions. The currency and tariff legislation recently enacted are the final result of many years of thorough public discussion. In regard to both the INTBKSTATB TEADB COMMISSION. 477 currency and tariff legislation, it must be remembered there bave been commis- sions appointed with large powers that made extended investigations, both here and abroad, covering extended periods of time. So that the attitude of the administration m asking for the business men to express their views, on the one hand, and then declining to wait for the United States Chamber of Commerce to get the views of its members in regard to this important legislation, on the other hand, is simply inexplicable. Surely these antitrust laws at least require the same serious consideration that has been given to the currency and tariff legislations. TraOe-commission Mil.— I think it wiU be admitted that it is an advantage to have as few laws as possible and to bring within the laws as few individuals as possible, providing, of course, the rights of others can be respected. This trade- commission bill takes in every business concern in the country and puts upon the shoulders of a commission of five men the regulation of practically the entire business of the J^^ation. I think it will be conceded that the Interstate Commerce Commission is a sadly overworked body, and the duties it is proposed to confer on this new trade commission are a mere drop in the bucket compared with the duties conferred on the Interstate Commerce Commission. As the bill embraces all the business of the country, I think it will be con- ceded that only ahout 10 per cent of the business concerns can possibly receive any attention from the commission. With respect to the other 90 per cent the commission will have absolutely no interest in them or in any reports or data received from them. Why, therefore, burden the commission with the care of this 90 per cent? This will lead to the evil that the commission will have information in regard to a lot of small concerns that are not of any public interest, and this information will be at the mercy of rivals in business and other interested people, including larger concerns, and great harm will come to a great number of small concerns. The reports and data received will be more or less public documents, because it is absolutely impossible to say that where a commission receives information that it is not public property. Some indi- viduals who are interested will get these facts — I do not care how well you guard them — and use them to the detriment of the company reporting. It seems to me that there is a line that can be drawn, and that line is that no concern should be brought within the act that is not doing a business of public interest; and it could be well said that a concern which has a gross annual income of less than, say, $3,000,000 is not a concern that is of public interest. I believe the use of the words " gross annual income " is better than the use of the words " gross annual business," in that the former are fixed and known as in the Income-tax requirements, whereas the latter will require judicial inter- pretation. Another thing, I feel confidant that the trade-commission bill as it stands is unconstitutional. I do not believe the Constitution permits a commission solely for the purpose of " smelling around." I think that is contrary to the spirit of our Institutions. When this country was first settled and government was first Inaugurated we had a great number of political offenders. That is, people who had done things which were not considered to be immoral in them- selves. In the administration of our laws we do not permit a man to go into another man's home in order to " smell around." It must be shown that the defendant has committed a crime or is about to commit a crime. So, in regard to the trade-commission bill, unless it is in furtherance of a decree of the court or unless it is shown that the defendant has committed a crime or unless the commission's proposed inquisitorial powers come within the police power of the State, I do not believe the court will permit a committee entering into a man's business just for the purpose of " smelling around." Take the administration of our criminal laws. You ordinarily can not interrogate a man about something not connected with the thing for which he is being tried. You ordinarily can not go through the history of his life and bring up things to his prejudice; and so I think the courts will draw a halt on this legislation, being zealous to protect his private affairs from undue publicity. Another -thing, I have very serious doubts whether the part of the act which says that the doctrine of res adjudicata shall not apply to a party where, by the nature of the ease, the other party is not equally bound is unconstitutional. Yours, very truly, ^^^^^^ ^^_ McElheny, Jr. 478 INTEESTATE TEADE COMMISSION. Caldwell, Masslich & Keed, - 100 Broadway, New. York, February 5, 191^. Hon. W. C. Adamson, Chairman Committee on Interstate and, Foreign Commerce, House of Representatives, Washington. D. C. Deae Sie : In accordance with your suggestion of several days ago, I wish to state briefly my views of the proposed trade-commission bill. I have very little time to go into the matter, but believe that I should say to your com- mittee what I can at this time. First. A trade commission such as is proposed is, in my opinion, wholly unnecessary, being a mere reorganization of the Bureau of Corporations, with a transfer of certain responsibilities now resting on the Attorney General. I think this view of the matter is more or less recognized ; the bill is merely a colorable concession to an assumed business demand for a so-called com- mission. Second. The proposed bill tends to divide responsibility and render less effective the enforcement of the present law. The weakness of the Tobacco Trust decree is said to have been due to the expert assistance rendered by the Bureau of Corporations to the Attorney General. Third. The whole proposition is increasingly centralizing, vesting the enforce- ment of the law at Washington instead of making it the duty of every Federal district attorney, court, grand and petit Jury in the land. What is needed in this law is decentralization of the Federal power itself. By that I mean that the law should be enforced throughout the land against every restraint of trade " in any part " of the United States. This bill accepts the idea that only "national monopolies " are within the purview of the act. Every incipient restraint of trade should be taken care of where it arises and begins to be felt. The exclusive power of investigation and prosecution now vested in Washington has been and will continue to be an effectual license of monopoly, to the extent that the central power is unable or unwilling to deal with the Initial steps in the formation of monopolies or with incipient restraints of trade. Fourth. This bill is in my opinion paternalistic and revolutionary in its spirit, purpose, and effect. Meaningless otherwise, it has a practical, intelli- gent purpose only as a departure along tJie line of cooperative regulation' ap- parently desired by publicists such as Mr. Brandeis, Mr. Untermyer, Mr. Per- kins, Judge Gary, and others. This purpose is emphasized by the other pro- posals advanced in connection with this bill, the trend of which is distinctly toward the recognition of Industrial combinations and near monopolies, and the regulation of their activities by act of Congress and by a trade com- mission. Monopoly is essentially an institution. It exists by act of Government and not otherwise. It arises to-day from the corporation laws of the State, a fact which has been repeatedly recognized in recent years by all who have studied the subject. In this connection I refer you to the address made before the Ajnerican Bar Association in August, 1911, by its president, Judge Farrar, of New Orleans, and to the repeated statements on this subject of ex-Attorney General Wickersham and others. I also respectfully refer you to two arti- cles which I have written on this subject, one In the Atlantic Monthly of January, 1909, and one in Pearson's Magazine of January, 1910, both printed In the hearings of the Senate Committee on Interstate Commerce, on this subject, commencing at page 2289. I also refer you to Senator Williams's statement and my own made before this committee and printed In Its hearings. I also refer you to an article In the Atlantic Monthly of February, 1914, a copy of which I have sent to you, dealing specifically with the subject. Fifth. I dispute the alleged fact that the business interests of the country demand a trade commission. I dispute also the fact that the sentiment of the business interests of the country can be tested by expressions obtained from the handpicked members of various associations. I believe the business Inter- ests of the country as well as the people of the country can be represented only through Members of Congress, and moreover that there is a strong presumption that the Democratic platform on this vital matter received their approval at the last election. This platform called for the removal of monopoly as an Insti- tution, not for regulative laws dealing with its methods and effects. There Is a great deal of demonstrable misinformation, I might almost say demonstrable nonsense, circulated in connection with this subject, which the average business man accepts on the weight of high authority. Monopoly never did and never INTERSTATE TRADE COMMISSION. 479 can spring from unfair competition. Ttiere is not a country and has not been a time in the world's history in which this has been done. Unfair competition as well as all kinds of acts and agreements in restraint of trade give a tempo- rary advantage and are, of course, wrong. This temporary advantage is wholly powerless to create monopoly unless through the instrumentalities of govern- ment it may be welded into a permanent institution. This has been effected in our day and generation through the corporatiott and through the corporation alone. The laws of trade that operate between individuals and which are sufficient in therbselves to prevent monopoly without the aid of government are but the pawns of the corporate game which are moved with facility to advance or defend a monopoly position. The acquisi- tion of the Tennessee Coal & Iron Co. by the United States Steel Corporation is, perhaps, an instance of this fact as well as of the danger of regulation by a commission. Here was a dangerous competitor, the control of which was represented by stoclc which certain contingencies threw into the power of its adversary. The situation was a financial not an industrial one, and because of the pressure it exerted the President pi the United States gave his express sanction to the acquisition of the stock on behalf of the Steel Trust, with the result that the temporary advantage thus gained through the corporate accident became welded into a corporate right and possession. I am sorry, that I have not the time to cover this matter fully. I trust that I may have a future opportunity to do so in some way. I am, of course, In no wise opposed to the corporation, but simply affirm that commercial and industrial corporations should be safeguarded against mo- nopoly. The John Sharp Williams bill, which is, I believe, before your com- mittee, is directed to this object, an object which must be attained In some form If regulated monopoly and socialism are to be prevented. Respectfully submitted. Robert R. Reed. The Chandleb & Price Co., Cleveland, Ohio, January 29, 1914. Hon. W. C. Adam SON, Chairmam, Interstate and Foreign Commerce, Washington, D. C. Dear Sib : In response to a letter of protest addressed to our Ohio Congress- men on the interstate trade commission bill Mr. Willis has kindly invited me to communicate with you relative to our objections to the bill. Let me state frankly that I do not feel competent to discuss at length mat- ters of legislation, and look at the acts of Congress largely as how they will affect the opportunities of men for a livelihood and advancement. We all recognize that we have been passing through a period in which all hon- est, industrious men have not been able to make a proper livelihood, and this con- dition has, in the writer's judgment, been in part due to the press reports that come from Washington that alarm those who have capital, so that they fear to let It go into lines that mean business expansion and employment of labor, fearing that the safeguards assured to them under the laws will not be i such as to assure the return of their investment and a satisfactory earning. What effect the tariff legislation will have on the country's in,dustrles can not be fully determined for two years or more, as it takes time for foreign manu- facturers to gain their trade connections and open up avenues of distribution and acquaint the buying public with their product. Manufacturers are, therefore, not assured as to whether they already have more capacity than ttiey can utilize in the future, and naturally are hesitating about any expansions which would be of general help to business. Furthermore, the currency law will require adjustments, and possibly some contractions, and probably later on some inflation, and these changes affect the pulse of business, and without waiting for the country to, in a sense, assimilate legislation, a new measure is presented, which, to the mind of many, will seem radical and therefore ample cause of disturbance. It seems to emphasize that In place of the old order of things, where a man was innocent until he was proven guilty, it brings forward a new order, making the rule that a man is guilty until he is proven innocent. An innocent man or a lawful business has nothing to fear from an intelligent investigation, and so far as this business in concerned the feature of the investigation is not disturbing ; 34082—14 31 480 INTERSTATE TRADE COMMISSION. but to the business man generally, esiDecially in business more or less intricate, the thought of an investigator coming in and making a report on his business, which the manufacturer has himself mastered after a life's devotion, will be disturbing, because the investigator usually goes at a proposition with a pre- conceived notion that something is wrong, and his judgment of facts from his prejudices may lead him to false conclusions. The other and more serious objection would be the danger that certain facts of his business might be secretly or inadvertently ■ passed on to others, who tould take advantage of them in a wrong way. The business for which I am responsible is a family affair, and of small moment, and an investigation would not trouble or disturb us in any way, except possibly the danger of disclosing something to our comjietitors, and yet even as to that I can not think of any information that we have that would I>e of any advantage to our competitors, but, as stated in the fii'St place, my objection to more legislation than is absolutely imperative is that business is, in bad condition, many concerns are, we are told, being supported by the kanks, and have reached their limit of credit, and capital must regain confi- dence so- that men may have work and women and children the comforts of life. I ask your pardon for writing at such length, but I feel that what 1 have said is somewhat in line with the way the ordinary business man is impressed just now with the general business conditions confronting him. Yours, truly, R. J. Frockelton, President. New Yobk, February 17, 19H. Committee on Interstate and Foreign Commerce, Hon. William C. Adamson, Chairman, House of Representatives, Washington, D. C. Dear Sirs : There are some aspects relating to the establishment of a trade commission such as is contemplated in the proposed legislation now pending In your committee which it seems to me are entitled to serious consideration, and which I venture to call to your attention. There are in the country a vast number of corporations whose products go into interstate business, either directly or through the hands of selling agents, whose business has been built up by individual initiatve and energy which are purely individual in character, not a combination of several corporations, whose stock is privately held and not listed on or dealt in publicly on any market. Many of these corporations have been developed to a high state of efficiency, lave secured their position in the markets by ability, industry, and thrift, and in many cases their success has been due not only to these qualities but to the invention of mechanical, chemical, or other processes peculiar to their own methods, and in some cases by secret processes and methods not disclosed in fuH even to the corporation's own employees, separate departments, or even in soine cases separate plants being maintained for doing different portions of the work, in order to preserve these trade secrets. To give a trade commission powers such as it is proposed — of examination into the operating and financial conditions of corporatins falling within the descriptions I have given herein — seems to me fraught with great danger to the business of such corporations and to be an unwarrantable intrusion into what is, really private business. It is private, because the public are not asked to Iway any securities of the corporation or to furnish any money for investment in Ihem, and the corporate form is merely adopted for the convenience of a lim- iteiS number of people wishing to share in the enterprise, to enable them to have s limited liability, but a continuing and permanent interest for themselves, their estate, or their assigns. It Is unfortunately a fact, widely admitted, that information gathered by Government agents, whether intended to be public records or preserved as pri- vate records, is generally accessible to those sufficiently persistent and deter- mined to get it, even though the seeker may be a competitor desiring it for tfoxiosity or for more ulterior motives. i notice by the public press that it has been proposed, as a result of the hearings of your committee, to limit the jurisdiction of such a proposed trade IIsTTEKSTATE TEADE COMMISSION. 481 commission to corporations having a gross income of not less tlian $3 000 000 per annilm. ' ' "-""^ I do not linow by wliat scientific or otlier means tliis unit may liave been arrived at or suggested. It seems to me impracticable to establisli upon aiiy scientific means any such unit; but it does seem to me that if such a trade commission is to be established, that its jurisdiction and functions should be strictly limited to corporations which offer its securities for public sale in the marlsets, whether such offering is by listing on exchanges, on what Is called the " curb " market, or by advertisement to the p;iblic through the press. This, I believe, would be a much more rational, scientific, and sound basis of limitation than any basis such as the volume or percentage of trade or income which any corporation does or has. The other point to which I wish to refer is the right of a manufacturer to control the price at v^hich his own product may be resold by those to whom he sells it. There are many manufacturers of what are known as " specialties " ; that is, one special product peculiar to this one particular manufacturer, although there may be -a large group of kindred or similar products made by other manufacturers. Any manufacturer of a specialty usually advertises freely to the public to inform them of the nature and advantages of his product and to stimulate a demand from the consumer, but it is impossible for a manufacturer of a spe- cialty to himself canvass the trade of small jobbers and retailers throughout the country outside of the large and important cities, because the cost of salaries and traveling expenses for a large number of salesmen to solicit trade would be an altogether excessive cost for the distribution of a specialty. It is, there- fore, necessary for the manufacturei: of such a product to distribute his goods through the medium of wholesale jobbers who handle a great variety of prod- ucts, and who, when they send salesmen into the country towns and districts, have those salesmen carry a large assorted line of goods and secure a total volume of business over which the cost of salaries and traveling expenses is distributed, so that It is not excessive on the whole. If a manufacturer of such a specialty, operating solely his own business, for his own interest, not in combination with any other manufacturer, is not en- titled to restrict the wholesale jobbers, whom he uses as distributing jobbers, to a given price for resale, it is a common practice, where the manufacturer has spent a large amount of money in advertising, has made^hls goods popular, and created a large demand from consumers, for some jobber to use this article as a leader in soliciting trade from retailers and offer to put it in at or below its cost, provided he Is given an order on a lot of the other products which the salesman is carrying, using the popular specialty, therefore, as an Inducement to catch orders for a lal^ger volume.of business in other lines.- This at once cuts out the margin of profit in handling the specialty to aU the other jobbers, and unless all embark on the same cutting of prices those who do not find them- selves losing trade not only on the specialty but on a variety of other goods. The result is that many jobbers who will not do business on this basis, finding the specialty no longer profitable to carry and handle, tell the manufacturer that unless he can control the situation they will have to cut out his line of goods. The manufacturer therefore is faced either with the loss of his trade or the necessity of employing a corps of salesmen, whose salaries and traveling expenses will come to so much more than the commission he has allowed to the jobbers that to maintain a reaonable margin of profit he will be compelled to charge the consumer a much higher price for his goods, which will throw the burden on the consumer and at the same time tend to restrict the volume of business which the manufacturer can do. This is not a hypothetical case but an exact condition with which we our- selves have been faced. Tie policy of the administration as announced by the President has been to free business, to promote individual initiative, and to protect the individual manufacturer or merchant not operating in combination with others or in restraint of trade from injurious limitations through Government agency or from duress through combinations employing unfair methods. The individual manufacturer is entitled to as much protection and interest in his behalf on the part of the Government as is the individual consumer. In the character of cases which I have cited, the Interests of the consumer and the ^ldividual manufacturer are identical, namely, in getting the goods to the consumer in the largest volume at the lowest possible price. 482 INTEKSTATE TEADE COMMISSIOJS". Economic law is the most inevitable as it is the most powerful of all law, and interference with its course can produce only hardship if not disaster. I could enlarge greatly on this principle with many illustrations of nations, corporations, firms, and individuals who have been wrecked by their inability to appreciate the trend of economic law and necessity and- to adjust their affairs to its currents, but I will not trench upon your time to do so. I am very anxious for the success, of the administration and its policies. I believe these can only be successful if they lend an ear to the representations of business men who have had experience and are in dally, contact with the practical business problems of the day. I realize that it is unreasonable to ■expect that the people's representatives in Congress and in the Government, and the agencies through which the Government operate, could be familiar with many of the conditions whicli have operated to produce modern economic meth- ods of doing business. In undertaking to regulate the extremes and excesses which admittedly have ruary 19, 19J4. Hon. William C. Adamson, Chairman Committee on Interstate and Foreign Commeree, • Washington, D. G. Dkar Sir: The Chamber of Commerce of the City of Dallas, Tex., beg leave to present this, its prote,st, against the passage In its present form of House bill No. 12120, of which Mr. Clayton is the author, and which was referred to your committee. Section 3 of the act is particularly objectionable, in that it requires: " That all corporations engaged in commerce among the several States or with Foreign Nations, excepting common carriers, whether required by general rules and regulations for regular information or information specially asked in special instances, shall, from time to time, furnish to the commission such in- formation, statements, and records of their organization, business, financial condition, conduct, management, and relation to other companies at such time, to such degree and extent, and in such form, as may be prescribed by the commission. The commission, at all reasonable times, or its duly authorized agent or agents, shall have complete access to all records, accounts, minutes, books, and papers of such corporations, including the records of any of their executive or other committees," etc. Section 4 adds: " That the information so obtained shall be public records, and the commis- sion shall, from time to time, make public such informatioh in such form and to Such extent as it may deem necessary." It is respectfully submitted that should these two sections in substance and effect become the law every corporation engaged in interstate traffic will be compelled to make such reports to the Government as its officers may direct, of its business relations, business connections, etc. These under section 4 will become public records. These public records will be acces- sible to each of their competitors, whether partnerships or corporations. It is not believed to be necessary for the public good to put corporations engaged in interstate commerce at this disadvantage. In practical operation it may riot be deemed necessary by the public officials to compel all corporations to furnish the information required. No suspicion may be directed to some of such corpo- rations, and hence they may not be called upon to make such reports, but any corporation being suspected of wrong doing or improper connections will be required to furnish information. This will be available to its competitors without any corresponding benefit to it. The injury will be done it, although when the facts are all disclosed, nothing criminal may be found to exist. Yet their business secrets will be exposed and a matter of public record in the Governments's office. This is particularly objectionable, when it is remembered that the bill does not apply to partnerships, but only to corporations. Much of our interstate trade is done in this State by private partnerships. They can get the benefit of all information furnished by the reports of their corporation competitors, but are required to give no information in return. INTEKSTATE TKADE COMMISSION. 485 It is ndt believed that the business relations of any corporation should be made public unless necessary for the Government in a case of court proceed mg to which the Government is a party. Our position is entirely consistent with the Government exercising such vlsitorial powers over corporations doing an interstate business as may be deemed necessary to protect the public in- terest, the objection being that the Information obtained in these inquisitions should not be given to the public until the courts judicially disclose them. Then the courts can discriminate and better determine what should be made public and what should not. We think these contentions are sound and that in its present form the bill is objectionable. It will be noted that on this point the bill makes no distinc- tion between information of criminal conduct of the corporation in question and that that merely discloses its trade relations and business connections, which may be entirely innocent. Section 6 is likewise objectionable in that it would require a little corpora- tion, doing business near the border of a State and largely an interstate busi- ness -or international business, to attend and give testimony, taking with it such books, papers, contracts, agreements, and documents of every kind and character in any court of the United States. It would seem that that would impose a very great hardship on a corporation doing business in a distant State to be compelled to take its books and records to Chicago, New York, or some equally distant point and there submit them to the public authorities for examination. It would be exceedingly expensive and embarrassing to the orderly transaction of its business, although it might ultimately be ascertained that it had been guilty of no wrong. There ought to be some restriction and limitation as to the places where these investigations should be conducted or some safeguards to protect the citizen against unnecessary expense and iucou- venience. Respectfully submitted. [SEAL.] Dallas Chamber or Comsierce, C. W. HoBsoN, President. J. R. Baboock, Seci-etary, By action of board of directors, executive session', February 17, 1014. (Thereupon, at 3.30 o'clock p. m., Monday, February 16, 1914, the committee adjourned to meet at 10 o'clock a. m., Wednesday, February 18, 1914.)