""•■res ^''^ ^^^^'^• ^oV^ x^'^^^ 9^ «:-.. ^.„ ^^'^ .^y^;^-- \^ .^ /^VV^ X/ /,J^', %^^^<^- /. ^- 'V .^^^ ^^^ *' 0^^ "^"^^ ' -^^^^ oV^^^^^^a'- ^_.-^' -'mil^^J^^ ^-^^^ ^ :^ ^ .e .W^^ % o V Aw^/zA". Vc-i^ ;^fev •^.♦'^ ♦- V^i .5^ ^o^. 4 ^V ^, ;* ^ ^ ^^ :^. >. c'i^ **^ • ^ov^ /^^g^'. '^^^-^ o^/.v^'^^ia''* ^>*^v^' -^^dm^^r '^ V*0^ ^oV^ ^^-^^ • ^y .^^". ^^. "w " • • " V ' POLITICAL DECEPTIONS AND DELUSIONS. By Thomas Carl Spelling. Author of "Law of Private Corporations" ; "Extraor- dinary Rehef" ; "Injunctions" ; "New Trial and Appellate practice"; "Trusts and Monopolies"; "Corporate Man- agement and By-Laws"; "Federal Safety Appliance Law" ; "Power of Congress over Interstate Commerce" ; "Bossism and Monopoly," etc.; Formerly Attorney to Interstate Commerce Commission and assistant to U. S. Attorney General. A work which is interesting and instructive and of Permanent Value to every citizen and student of social affairs, as affected by politics and legislation. Contains a clear exposition of Party uses and abuses ; also of Fed- eral laws affecting Citizens in their political and private Relations. Published by Carlton Book Supply New York Copyright, 191 3, by Thomas Carl Spelling. iii A. "P V DEC 29 191§ :i.A358913 PREFACE To write a preface for one's own mental product is like introducing one's self to a strange audience. If it give the work a good send off, it performs the office of an advertisement ; if it speak of the merits of the work with undue modesty, it is of no practical value, and the time taken to write, as well as that taken to read it, is wasted. In our day a vast amount of fraud is practiced in every line of human activity. Clothes are made to sell, with lit- tle regard to their wearing qualities. Great factories are occupied by manufacturers of snide jewelry, which is ad- vertised as so many carats solid gold. Makers of surgi- cal appliances, like jackals pursuing a wounded horse, are on the trails of cripples, anxious to extort from them the last dollar, for contrivances at exhorbitant prices which soon break or fail to answer the purpose as adver- tised. Quacks prey on the sick and invalided by similar methods. People in cities, especially the poorer classes, are drained of their earnings in high prices for stale or non-nutritious foods, and poisoned with adulterated drugs. But the most dangerous and harmful of all the cheats and imposters are self-serving politicians and bogus statesmen. These are also hardest to deal with, because you must find them out before you can punish them, and it is a large task to reach and dispose of a crook or weakling in high life, after he has so capitalized his op- portunities as to make a creditable record, in one or more PREFACE matters of popular concern. The differences of opinion among, and inertia of, voters who are the trial jurors in such a case, must be reckoned with. Again, no one who is the mere writer of a book cares to attack in print the few who have been found out, because there are so many meriting exposure whose misdeeds are unknown. Such exposures would do little if any good, even if publishers could be found for them. Therefore, this book is not an attack upon individuals. Few names are used in it, and these only where neces- sary to complete an intelligent recital of facts and public records. Anyhow, intelligent honest readers can make the proper application of what is said, and other kinds of readers could not be influenced or separated from their idols by any form of discourse, however personal. If the author may properly refer to a particular merit of his effort, attention is called to the absence of vague- ness, and the presence of directness and certainty. The reader is not left in doubt as to the meaning in any part or detail. Impractical schemes for ballot reform and primary elections are unsparingly criticized; the proper uses as well as abuses of party organizations are dis- cussed in a positive direct way, and remedies not only suggested but formulated. Deceptions about railroad rate legislation and the work of the Interstate Commerce Commission are discussed with that freedom which a long deluded people should welcome. And when the Trust and Monopoly question is taken up the shams and subterfuges of political officeholders and lawmakers are unsparingly exposed. In full confirmation of all of which the body of the work itself is respectfully re- ferred to. Thomas Carl Spelling. New York, December, 1913. VI TABLE OF CONTENTS CHAPTER I Party Organizations and Conventions. II Ballot Laws. III Primary Election Laws. IV Laws Affecting Interstate Carriers. — The Hep- burn Act. V Laws Affecting Interstate Carriers. — Amend- ments of 1910 and 1912. VI Banking and Other Peculiar Phases of Railroad Business. — Further Criticism of Valuation Measure. VII Regulation of Restraints and Monopolies. — Gen- eral Principles. VIII Meaning of Standard Oil and Tobacco Company Decisions. IX Scheme for Reaching Monopolies through Amendment of Patent Laws. X Legislative Proposals of Mr. Lenroot. XI Other Objections to Lenroot Measure. XII Proposal of Mr. Smith for Federal Control of State Corporations. XIII Bills Containing Provisions for Creation of Com- mission. XIV What Congress Can Do. XV The Lobby and Its Inside Friends. vii POLITICAL DECEPTIONS AND DELUSIONS CHAPTER I PARTY ORGANIZATIONS AND CONVENTIONS Almost every thoughtful free-spoken man finds fault with existing methods of party rule. Those prompted by a desire for purer and more democratic government are not alone, nor do they alone have cause for com- plaint. Reward for party service is an inseparable in- cident of partisan rule prevailing everywhere in the United States. No matter what the system under which candidates are chosen, whether at wide-open direct pri- maries with plurality nominations, with or without con- ventions, or at the old machine-made primaries and boss- ruled conventions, the successful candidate having the disposal of offices and governmental employments oftener than otherwise closes his mind to considerations of party promotion and treats the patronage at his disposal as a private perquisite. Of course few of them ignore en- tirely the claims of good government, but most of them find it easy to reconcile the claims of public justice to the claims and interests of bosses, personal friends and favorites. And this system is as inimical to honest, courageous administration as it is to just and honorable partisanship. Let those who doubt the existence and maintenance of an exclusive class, not accessible to the ordinary partisan PARTY ORGANIZATIONS AND CONVENTIONS who is not a member of the cUque on the inside, however faithful and influential, note for a time how appointive powers are exercised by those whom their votes, and the votes they have influenced, have elected to patronage offices. Often the choicest and most responsible positions are given to those defeated for posts of honor and profit at the polls; and when these have been taken care of, others of the professional office-holding class who have lost jobs by change of administration, or for any other reason short of embezzlement, are preferred. The au- thor of an infamous cinch bill, with a record so bad that his boss dared not give him a renomination, is provided for, at a large salary. The corporation counsel resigns to become a candidate for a judgeship, failing in which, his successor gives him a position worth $25,000 a year. A judge is promoted to a higher judicial position carry- ing a large salary, and retains his status as an insider so as to place his son in a lucrative public office. A can- didate is beaten for a purely political state office, and is immediatly appointed a supreme court justice. Through influences never made public, corporation law- yers become congressmen, and from these positions are transferred to the federal judiciary, and in time promoted to the supreme bench. The honest, but guileless supporter of a candidate may obtain special recommendations from friends of good repute, and endorsements from hundreds of good citzens, but it all avails him nothing as against the smug insider or handy tool of the boss. The genesis of a thousand appointments would be a repetition of these, with slight variations. And so, gen- erally, a vacancy occurring any where or from any cause, we find that some relative or favorite of some one already holding a lucrative office, or standing near a boss, or who has ''made good" on some political work of questionable 2 PARTY ORGANIZATIONS AND CONVENTIONS character is boosted into place, and expected to pervert his official functions for the benefit of his sponsor, to the verge of, or beyond, legal limits, regardless of the public interest. When another election approaches, nominations are almost invariably made by both leading parties from the ranks of this same politically professional class, and these and some of the outsiders with "hopes deferred" go out to bamboozle the credulous partisan electorate with false pretense and gush. The people at large have but a faint conception of the far-reaching influence of the "corporation" lawyer in matters of legislation, procuring appointments to public office, in the administration of the laws, and in the con- duct of political campaigns. Usually the citizen of ordinary intelligence knows the name and personal ap- pearance of the bosses of both the leading parties. If he is a partisan and takes an interest in political action he usually comes in contact with the boss. But in the in- famous schemes of party politics, made respectable by professions of loyalty to some so-called party principle, there is a power beyond and above the boss, to wit: the public service corporation — usually several forms of it. Its visible representative — and there are usually one or more for each pubhc service corporation in each State or city — is the corporation lawyer. There are various methods by which he obtains admittance behind the screen of corporation vilUany and gets his name added to the payroll. He may happen to be related to, or intimate with, a judge who is a successful politician and an adept in covering his tracks. He may have adroitly managed some piece of boodling legislation as a member of the Legislature, or successfully done some crooked job before 3 PARTY ORGANIZATIONS AND CONVENTIONS a court, the benefits of which accrued to a public service corporation. In that case he has won his spurs, that is, has estabhshed the proper character and won favor, and is entitled to standing as a corporation tool — a corporation lawyer. It is not to be supposed that such real "char- acter" will alone entitle him to high rank or pay or permanent employment. These are reserved for the ras- cal of smooth deportment, oily tongue, respectable con- nections, moral, even religious, pretensions, with brains. Sad to relate, but true it is, that while not all the lawyers of great ability who are appointed to cabinet positions become the advisers and servants of monopolistic corp- orations, it must be conceded that such is often the case. Then look at the Icng list of senators elected by sub- servient and corrupt legislatures at the dictation of rail- roads and trusts, who, pretending to represent the people of the States in that body where sat such men as Clay, Webster, Benton, Thurman, Blaine and Hoar, simply guarded, for bribe money, called fees, the interests of the masters who had them elected. There was a time when some attention was paid to the declarations and promises contained in party platforms, but we have now reached an era when the platform be- comes functus officio at the closing of the polls on the night of election. At that time policy entirely supercedes party principle ; and party policy is simply the fiscal policy or programme prepared before those elected have been in- stalled by those who have financed, acting in concert with those who have successfully managed, the campaign. The measures enacted pursuant to the programme are advo- cated as expedient, patriotic, even benevolent, though per- chance inconsistent with the promises in reliance upon which the necessary votes to elect were obtained. In the next campaign a new set of declarations are platformed, "4 PARTY ORGANIZATIONS AND CONVENTIONS based upon more recent performances, claimed and plausibly reasoned out to be promotive of public interests. In other words, a new set of promises are made, to be again disregarded, and pledges made to others than the electorate — pledges made in secret in consideration of campaign corruption funds, or upon even baser considera- tions — are substituted and fulfilled. Between elections, vast monopolies and aggregations of millionaires, called syndicates, conspire together and extract from toil and from every line of business hun- dreds of millions of dollars, keeping the people so busy barring the wolf of starvation from the door that they have little time to study political and economic questions. They only realize that they are being mercilessly taxed with the cost of living, utter an occasional complaint and go on enduring and guessing what the next turn of the screws will be, until the next election. Then one or both of the leading parties collects millions of dollars, hires the best talent in the land to go forth and orate upon non-esssentials, and an army of secret-service men to ascertain who and how many in each precinct, county, and State can be bribed, and how many can be cajoled, shamed, or browbeaten with a threat of party ostracism and how many recalcitrants can be coerced by threats of discharge from employment, or loss of business, into vot- ing the party ticket. The same corruption in office, the same betrayal of party promises, the same infamous methods of carrying elections are witnessed from year to year and repeated at one election after another. And many voters, who either know the facts or refuse to be enlightened, go on submitting and participating, voting the same old party ticket because their fathers voted it, or for some cheap bribe, or upon some other absurd pretext. 5 PARTY ORGANIZATIONS AND CONVENTIONS But all political action in this country has taken the form of great leading parties against each other. One might no more hope to get rid of one or the other, or all of these parties than to dispense with the tides of the ocean. So long as there are winds and solar and lunar forces there will be rising and receding tides. Likewise so long as there are prejudices local, class, racial and sectional, and clashing passion and interests, leader- ships and followings, the present party system, with partisan alignments of voters, will continue. The duty and interest of each voter is to become identified with one or the other of the leading parties, according to his fancy or belief, and seek to bring about a more honest and truly representative method of party government. The real misfortune that has befallen the people of this country, of which most other things complained of are the direct or indirect results, is a loss through party action of the means of self government. The insincerity noted in political leaders characterizes many influential organs of publicity. There are too many men and newspapers that condemn, in words in- dicating much heat and anger, the evil practices of money lords and corporations, but refuse when a measure of relief is offered to aid in securing its enactment and oppose all candidates who favor any such reforms. Where will one find better expressions of righteous wrath con- cerning wild speculations in Wall Street, encouraged and financed by the banks, or of the piracies of the monop- lies in coal, ice and other necessities, or of rebating and discriminations by the railroads, or of the delinquencies and extortions of public service corporations, than in the editorial columns of certain great newspapers? But when did any measure designed and adequate to afford a remedy, or any candidate, who, if elected could be 6 PARTY ORGANIZATIONS AND CONVENTIONS relied upon to bring about a genuine reform, receive their support? A true advocate of reform cannot be at the same time an apologist, any more than a trustworthy surgeon can be a mere palliator of symptoms. When Patrick Henry made his famous speech before the Vir- ginia convention, he did not attempt to minimize dangers or postpone the disclosure of true conditions. He warned his copatriots that "the enemy are already landed on our shores," and avowed that he was willing "to know the worst and provide for it." The party leader fears to stand for a radical reform which the other leaders of his party do not endorse, lest the latter take advantage of his temerity to outrun him in the race for office, or to unhorse him if he be already in the political saddle. So the owls, the trimmers and time servers of party take the measure of popular credul- ity and patience and enunciate platforms of non-essentials — called party doctrines or principles — and the so-called leaders, who are really mere camp followers, rehearse the song as it is set down to them and declaim speeches to fit and support these deceptive time-serving and vote- getting declarations. There are few republicans but will admit that some tariff reductions ought to be made, nor are there many democrats who will not admit that the total elimination of the protective principle from duties on imports would cause serious derangement to our industrial system. It is impossible to pin the spokesmen of either party down to any definite permanent tariff legislation which they would approve. Between the extremes there is much debatable ground — much room for debate about items and particular rates of duty, not one of which standing alone would materially affect the general interests of the people, whether the one or the other was adopted. 7 PARTY ORGANIZATIONS AND CONVENTIONS The tariff is therefore made the principle theme of polit- ical discussion for two reasons: (.1) because, being an historical issue between parties and one which, from its inherent character, never can be permanently settled, its discussion causes no widespread panic in any quarter, and (2) because the great public service corporations which, in the last analysis control the nominations of the dominant parties — the Republican party in the North and West and the Democratic party in the South — are not alienated from the support of candidates by such discussion. Observing the drift of partisan professions — a thing entirely different from party policies — and noting the utterances of the leaders, it is very difficult to find any proposition embodying a principle of national import distinctly urged on the one side and opposed on the other. Political parties, though not factors in original schemes of representative government, are institutional in all republics and in many limited monarchies ; and the party in ascendency is, or may be, for all practical uses, the government itself. Such being the case, in order that the representative phase and function of the government may be preserved, it is essential that the same phases and functions be preserved to parties. The office of a convention is to permit individual views of party policy, constituting for the time state policy, to be welded into a party platform or creed. Such is the generally approved method for governing voluntary associations, whether political, social or ben- evolent. Even religious organizations find periodical assemblages of delegates representing the laity essen- tial to their well being and permanency. Even these liave found it necessary to occasionally make changes in their declarations of doctrine at such meetings. 8 PARTY ORGANIZATIONS AND CONVENTIONS And though party conventions, as they have been heretofore conducted, are open to just criticisms, their evil practices do not justify their entire abolition. Their objectionable methods can be gotten rid of with- out the substitution of something not only more ob-" jectionable but totally destructive of government by representation. If the convention is to be abolished, then it were just as well that every statute giving status and sanction to political parties be repealed ; because, without the convention, the disruption of par- ties is inevitable. Party organization becomes co- herent and effective because of similar ideals, policies and principles among its membership. Now, it is wholly impracticable to establish direct primaries in any state without allowing plurality nom- inations. There would be only one alternative, and that would be a second primary in case of the failure of the voters at the first primary to register a ma- jority for any candidate for every office. A second primary to decide a single contest would be just as troublesome and expensive as if there had been a failure, at the first primary, to return a majority vote on every office contested for. Inasmuch as the great expense incident to official primaries conducted by the state, without reference to the possibility of a second or third primary for the same year, is strongly ob- jected to, it is clear that the taxpayers would not tolerate the latter, and that a direct primary without the intervention of a state convention involves plural- ity nominations. We are now at a stage of the discussion to inquire as to the meaning and practical workings of selec- tions for party candidates of those who succeed in obtaining few or many more votes than either of their 9 PARTY ORGANIZATIONS AND CONVENTIONS competitors; that is to say, secure nominations by a bare plurality, and of depending on candidates so nominated to meet and construct a platform of prin- ciples. We will first suppose that the voters en masse have chosen wisely and that the nominees are all men of honesty and intelligence. In the first place, each one would know by what arguments and entertained or professed beliefs he secured his nomination. Com- ing from different sections of the State or belonging to different business classes, it might be that no two would agree on any proposition of party policy. And it would rarely happen that the candidate for Gov- ernor, Lieutenant-Governor, and on down, would all agree on all questions. Either they would hopelessly and finally disagree and each make his own fight in his own way, or they would adopt a colorless, am- biguous platform. In either event party organization and discipline would end. Either the party would be torn to tatters by clashes of individual opinions, or, in the absence of a definite statement of principles, would die of inanition. But what of the candidates so nominated? Even if we suppose the voters to act without passion, with- out sectional bias, without personal favoritism or prej- udice, to exercise their best judgments, and to be un- influenced by evil practices or suggestions, still they must proceed without accurate and satisfactory knowl- edge as to the character and fitness of all except — and this only in cases of a minority of them — one or two, or, at any rate, part of those asking their votes at the primary. So proceeding, to expect that a ticket of the best or even of average material available to the party to be nominated, is to expect a miracle. It 10 PARTY ORGANIZATIONS AND CONVENTIONS would be as unreasonable as to expect a rifleman blindfolded to hit the bull's eye at the first fire. Some advocates of the direct primary, pure and un- defiled, strive to impart the impression that the direct primary guarantees regularity, strict official supervis- ion and the provision of safeguards against sinister practices. But the fact must not be overlooked that what is proposed when such a measure is offered, is that the statute shall provide merely the formal parts which relate to calling the primary, giving notice, filing certificates, printing ballots, providing election officers, ascertaining results, etc. As to the vital parts, such as procuring signatures to petitions, reaching and ap- pealing to voters and obtaining votes for particular candidates, these are all left to the voluntary untram- melled, unsupervised, unregulated action of individ- uals and groups of individuals. From the nature of the case, it could not be otherwise. Then we would have a primary which is, to use the language of the street, "wide open." Has the millen- ium arrived, or would every conceivable subterfuge, device and fraud be practiced by rich demagogues and plausible fakers to mislead, deceive and win the con- fidence of voters? As a rule, to which the excep- tions have been rare, the people, having time to re- flect, analyze and judge of men's characters, between nominations and elections, have avoided serious mis- takes in the election of men to fill the most important offices. In this they were immensely aided by two facts or conditions; first, the voting strength of the State was nearly equally divided between leading par- ties, so that the choice was limited to two, or at most three, candidates ; and, secondly, the party convention system has almost invariably evolved as candidates II PARTY ORGANIZATIONS AND CONVENTIONS men of prominence whose records, public and private, were already well known to the public, or might be easily ascertained and divulged during the campaign. The citation of experiments in western and south- ern States is misleading. In the States where conven- tions have been abolished, there are no large cities, nor any considerable friction between avocations and industries. The agricultural class in South Carolina and Nebraska is so predominating and controlling that a statute beneficial to that class must almost neces- sarily inure to the benefit of the merchant, manufac- turer and laborer. But the larger and more populous States contain many commercial and industrial classes so that sharp conflicts of interest on vital issues, the wrong settlement of which may immensely injure par- ticular interests, are constantly arising; and when they do arise a spirit of concession and compromise must be invoked. An outline of the method proposed for their settlement must be indicated by bodies au- thorized to speak for political parties, else the disagree- ments, jealousies and rival ambitions of individuals elected to constitute the State government will cause a fatal counterbalance and breakdown, more surely when the necessity for action is great than at any other time. Is this mere speculation? An historical dissertation would be here out of place; but decay and death overtook the Athenian and other ancient democracies from that sole cause. The New Eng- land provinces had to abandon the town meeting sys- tem for the solution of merely local problems. It could hardly be expected that a greater percentage of voters would participate at primary elections under the direct system than under existing systems; and it is well known that those who at present vote at 12 PARTY ORGANIZATIONS AND CONVENTIONS primaries have little interest in the administration of public office beyond the distribution of patronage. Suppose, having separate ballot boxes for the respect- ive parties, a public party test is required, the business element and the labor element will largely refuse to participate, and the nominations will be made by the same voters who now punctually attend primaries to carry out the orders of the boss in the election of delegates. In some of the southern States such a system is in operation and is found to give general, though not universal, satisfaction. It is tolerated there simply because practically all the voters belong to one over- mastering party, the minority party having but slight interest in the results of elections at any time. But great inconveniences are there observable. The whole stress of the campaign comes prior to the date fixed for nominations to be made, and the election that oc- curs months afterward is simply perfunctory. The cost of conducting the ante-primary, ante-convention, campaign is as great as that of holding the general election, and these expenses are therefore duplicated. The machinery for voting and counting and making returns from the primary are just as complicated, and the labor on the part of election and county officers is just as arduous as at a general election — and even more so, because at the latter there are fewer can- didates. The candidates for office in a given year must enter upon the campaign several months prior to the general election and at a most unseasonable time for both candidates and voters. These incon- veniences and drawbacks would be intensified and multiplied in any State or other political division where 13 PARTY ORGANIZATIONS AND CONVENTIONS elections are contested between parties of nearly equal strength. The difficulty and liability to make mistakes in voting under the direct nomination scheme suggest themselves but need not be farther noticed. All that is said in the next chapter by way of objection to the Australian ballot is applicable here. Nothing has been or can be proposed superior to the plan of electing delegates at primaries held for all parties at the same time and place, the delegates to meet in conventions and make nominations, which, being duly certified, are accepted by the officer whose duty it is to prepare and print the ballot. On the State party convention, composed of dele- gates properly and regularly chosen is cast, and such convention feels a responsibility equal to that imposed upon the law-making body. Under a wise and just primary system the party convention will be com- posed of a very high type of honesty and intelligence. But in a direct primary at which no limitation upon the number and character of candidates would be possible, honesty and intelligence would have no chance to afifect the result in the slightest degree. Without stopping to argue the proposition, the pro- ponents of any suggested direct primary measure may well be challenged to point out any way therein pro- vided, or possible, for the more intelligent and honest men in the State to come together and act in concert in the choice of a candidate for any office. Now, it must be admitted by all reasonable minds that no primary election law found in any State is entirely satisfactory. The form of a bill hereinafter given and explained ought to satisfy all who realize that a crisis has been reached on this subject which 14 PARTY ORGANIZATIONS AND CONVENTIONS can only be passed in a spirit of reason and concession. (See Chapter III.) Some claim that the specific thing desired is pub- licity of party expenditures. Others suggest that all we need and what is most needed is direct voting for candidates at party primaries, which was above dis- cussed. Some of the alleged reforms are of trivial importance, while others are positively objectionable. Some of them are based upon assent to the doctrine that all the powers and special privileges now given by law to party bosses and professional politicians belong to them beyond question or dispute, and others upon the impracticable design of overthrowing politi- cal parties, or defeating party candidates by inde- pendent voting, without taking away the enormous advantages given them by law. Another proposition is to limit expenditures for campaign purposes, the proponents forgetting that excessive expenditures, if an evil in other than a purely moral sense, is one that cannot be reached by laws, any more than other common vices of men can be so reached. The remedy of limiting expenditures and penalizing excesses, would, if enforced, merely aggravate and in- crease the evil aimed at. Conscientious candidates would scrupulously conform to such laws, thus giving every advantage to the old and corrupt practice of those who do not hesitate to make the purpose to win justify the means of winning. There should be no limit to legitimate expenditure for campaign purposes, while as to immoral or illegal expenditures, ways to make them will be found in spite of the most stringent laws, even if it be found necessary to commit perjury for their concealment. 15 CHAPTER II BALLOT LAWS. The registration, ballot boxes, ballots, casting up and making returns, etc., constitute the mechanism for selecting persons to hold and exercise govern- mental powers. Those selected become, for all prac- tical uses, the government itself. Obviously, when the machinery is being run by unscrupulous or indifferent employees, more highly paid for turning out a poor than for a good article, we need not be surprised at evil results. Nor can such employees, who find the use of the old so profitable, be expected to propose or welcome the substitution of new machinery. Bene- ficial changes must be brought about by other than those who make a business of practical politics and officeholding. We read in the newspapers the proceedings of va- rious assemblages of citizens, and either read or hear many speeches, all having for their object to teach the duty of giving more attention to public questions and of exercising an independent judgment upon them. But few of them ever come down to specifications or consent to co-operate with any one proposing a defi- nite plan of procedure. The party orators are fond of speaking of the "sturdy, patriotic, independent voter" as the salvation of the country. Under present condi- tions, they do not speak truly. The country is not saved by them, for they are unorganized, divided, and i6 BALLOT LAWS deprived of their political rights, so that their votes are rendered ineffective by offsetting each other. Under the present regime of party government, the country is only saved from the fate which overtook other re- publics by the fear the party in power has of opposi- tion parties. But these politicians can so speak without fear of being called to account. If they desired to tell the real truth, and the whole truth, they would say that parties go just as far in abusing their privileges as they dare go, in view of the existence of rival par- ties. But they do not venture to thus commit them- selves, because the rule of regularity established by our accursed party system requires each organization man to swear by his party creed, whatever it may be, and to insist that the success of the party means the welfare of the State and nation. Some propose amending the ballot law by changing the form of the ballot so as to encourage independent voting at general elections. They persistently demand the Australian ballot, either in its original or unadul- terated form, or that it be slightly modified. Now, while the Australian ballot possesses advantages, it has serious disadvantages. The distinctive feature of the Australian ballot is the arrangement alphabetically of the names of all the candidates for each office, with- out any party designation whatever. At purely local elections, or those held in small cities of rural com- munities where party organization is not so strong or dominating, and few officers are elective, it is ideal. But take any large State or populous city, where there are several parties, each with a full set of candidates, as well as a lot of independent candidates, at each election. Voting on all the offices there is an almost insuperable task, even for the. most intelligent and 17 BALLOT LAWS painstaking voter. The ballot becomes as inconve- nient to handle in the contracted confines of the booth as would be a large wall-map in a bath-tub, and it is as much a study and as much trouble to pick out and vote for a candidate for each and every office as it would be to award a full list of prizes at a county fair. These are not mere conjectures or speculations. In California the Australian ballot was given its first trial in the United States. Li order not to give by legal provision an advantage to the candidate of one party for an office over that of another party, or over an in- dependent candidate, the alphabetical order was adopted. It may seem strange, but it is nevertheless true, that mere alphabetical position on the Austral- ian ballot proved to be of itself a great advantage to some candidates and corresponding disadvantage to others, especially where the office was some distance below the head of the ticket. In that State, notably in San Francisco, whether the name of a candidate for assessor, or superior judge, or supervisor, or other rela- tively unimportant office, commenced with "A" or "W" would often make a difference of thousands of votes. Ex-Chief Justice W. T. Wallace, who, after his reteirement from the Supreme bench was elected term after term to the office of Judge of the Superior Court, was defeated after the adoption of the Australian bal- lot by a justice of the peace of no pretensions and of scant qualifications through indifference in voting, merely because the successful candidate's name commenced with "B," a result which a large majority regretted. Knowing the difficulty of voting the ticket, public attention centres upon the head of the ticket, and vot- ers are indifferent and apathetic as to the rest of it. i8 BALLOT LAWS While it required 30,000 votes to give a candidate for mayor a majority in San Francisco, the leading par- ties being almost equal, a district attorney, or even a county clerk, might be elected with 20,000, and a su- pervisor with 15,000 votes. Another serious objection was the difficulty of vot- ing the ballot so as not to invalidate it. The difficulty of avoiding mistakes need not be dwelt upon. Many mistakes occurred ; such, for instance, as voting for five candidates for Superior Judges where only four were to be elected, thus losing the entire vote on that office. After various unsuccessful efforts to remedy defects, a new official ballot was adopted, patterned after the present New York ballot, and in all material respects the same. It appears to be entirely fair to parties as well as to independents. If it is a little more difficult to vote for an independent candidate for a par- ticular office, while voting a party ticket, than to vote for the candidate for that office on the voter's party ticket, that is one of those inconveniences that cannot be remedied. The difficulty has been greatly exag- gerated, however.^ Those extremists who would by one fell swoop of legislation divorce everybody from parties underrate the intelligence of voters. 19 CHAPTER III PRIMARY ELECTION LAWS. A spirit of revolt against despotic methods of party government is encountered everywhere. Only those stand for the old order whose special interests, politi- cal or financial, have been or are expected to be pro- moted and benefited through its maintenance. The problem before the citizen is how to get rid of bossism and what is known as machine politics without disintegrating political parties and thus sub- stituting for organized effort toward good government a state of political chaos. What is most desired, and all that can be properly demanded, is that all the ad- herents of each party be given, in some form, equal voice in making nominations and constructing plat- forms. Many politicians are clamoring for that crude form of primary election at which each and every voter votes directly for the party candidate preferred by him for the nomination to each office. With this demand necessarily comes the demand for plurality nomina- tions. The objections to this method were discussed in a preceding chapter. The plan which will be now proposed and explained may be as correctly called a plan for direct nominations, minus the objectionable features of the "pure and unadulterated" brand as by any other name. It will give the voice and influence 20 PRIMARY ELECTION LAWS of each voter a chance, without eUminating conven- tions and destroying the autonomy of parties. The proneness of the people in their segregated and unor- ganized condition to make disastrous mistakes in bringing about nominations, even when operating through party machines by force of popular sentiment, has often been strikingly illustrated. We witness amazing indifference and credulity concerning the real characters of men who have succeeded in acquiring good reputations in political life, who, after attaining an ultimate goal, capitalize, to personal profit, the confidence and respect of friends and supporters, put- ting all the citizens of a great commonwealth to an Open shame. Such men would not be nominated at conventions composed of delegates elected at open and fair primaries, such as are hereinafter described, but would often succeed at direct primaries in the strict sense. Those who stand for reforms of party government cannot be too often reminded of deplorable conditions ilow existing. Unprincipled bosses and rings have been, as a rule, permitted by the f)eople to obtain con- trol of parties and monopolize the work of conducting primaries and caucuses. The place to begin the work of getting rid of the political autocrats who have thus seized our sovereignty at primary elections, and the only method of rendering the primaries effective for the purpose, is by opening these avenues of party con- trol to all who are affected by party action. But this does not argue for direct primaries dispensing with conventions, such as are contended for by demagogues and opportunists and such as would not only disinte- grate parties but destroy representative government. It must long since have occurred to many citizens 21 PRIMARY ELECTION LAWS that the germ of most of our political and economic abuses is the fact that the people have permitted the power of self-government to be wrested out of their hands by laws for party government which, while purporting to have been made by their representa- tives, were in fact made by professional politicians with no sympathy in common with the people, but with the design of perpetuating their own supremacy, and promoting their own financial interests. When the States began to recognize, in legislation, the political parties as legal entities entitled to con- sideration at the hands of the government, and as having distinct rights as such, then they began to de- prive the people of their power and to transfer it to, and vest it in, party bosses and political insiders. In most of the States there are primary election laws of one kind or another. But almost without ex- ception, these leave the machinery and details of the primary in the hands of party committees, upon the assumption that the latter have some legally vested rights which must be recognized and respected. Now we cannot get rid of political parties. If the leading parties of to-day were totally eliminated, others would arise to take their places. But their organization should be made as volatile as possible and legislation should provide that the adherents of a given party can take control at will, and transfer their support from one party to another, or to a new party, without hav- ing to make a public record of it. In the final analysis, the great need is effective legis- lation governing primary elections. In some of the States, the primary election law is as effective to keep the better qualified voters away from the primaries as if the bosses had put their heads and the heads of their 22 PRIMARY ELECTION LAWS lawyers together and framed it with that particular purpose in view, and probably that is the way it was often done. Such laws provide, in brief, that in order to vote at the primaries to be held to elect delegates for the purpose of making nominations to be voted for at any particular election, the voter must, upon registering for the last preceding election, or at any rate some period prior to the primary election, have designated the party whose candidates he intends to support at the election next after that, for the purpose of voting at which he is then registering. Such a re- quirement is an outrage upon citizenship and a dis- franchisement, with respect to the primary, of every conscientious voter. In the first place, a large proportion of voters are reluctant, for business and other good reasons, to have a public record made of their party beliefs and affilia- tions. In the second place, it is impossible for one to know whether his present party preference will con- tinue. He cannot anticipate what his party may do to forfeit or preserve his allegience. There is the still further objection that the enrollment is likely to be neglected on account of the voter's indifference with reference to candidates to be voted for at an election so far away. But the plan is objectionable primarily because it violates the secrecy of the ballot, in fact if not in law. And this is done, not for the benefit or convenience of the voter, but upon the false and vicious theory that political parties are associations entitled to protection by the State against the free exercise by the citizen of the privilege of transferring his preference from one party to another between elections. Also in keeping with this policy of State promotion of party organi- 23 PRIMARY ELECTION LAWS zation, separate ballot boxes are provided for the par- ties. We find plenty of men and organizations of men fighting with commendable zeal all forms of special privilege who see nothing wrong in thus, by State act, not only encouraging a division of voters into contend- ing armies of unreasoning partisanship, but of dis- franchising them at the most important of all elec- tions, unless they lend themselves by an overt act to the operation and enforcement of these statutes. In truth a special privilege of greater value, or which can be used more despotically and corruptly, can scarcely be conceived of than is thus conferred upon the bosses and machine politicians of the respective parties. The important advantage which a public party en- rollment gives the manipulators of the party machine over those organizations of a temporary character, formed to oppose boss rule, or to fight the regular organization, has never been publicly discussed, and probably has re- ceived very little private consideration. Bearing in mind that those who might otherwise be most in- clined to engage in a struggle against the regular or- ganization may have failed to enroll, the names and addresses of the limited number who have enrolled constitute a "mailing list" for the latter. So that any proposed opposition is hopeless at the start, because those in the political game the year round have al- ready arranged to hold at least a majority of those on the enrollment in line for the slate, to be prepared at tne fortuitous moment in secret. In some of the States, the law gives its exclusive sanction to delegates elected to conventions at what are known as caucuses, sometimes excepting certain cities. So that altogether, the vast majority of voters 24 PRIMARY ELECTION LAWS at the general election have no option except to vote for the candidates of one party or another as a whole, or to make a selection from the sets of candidates thus furnished, in the nomination of none of whom they participated, in any true sense. There are everywhere to be found associations of very intelligent and no doubt well-meaning men engaged in framing bills to do away with the party columns, but who give no thought to the real defect in the elec- toral system. They realize that ours is a government by parties, but they forget that party government be- gins, and its most important work ends, with the se- lection of party candidates. The motif of these reformers is to strike a blow at political parties by encouraging the independent voter. At the same time they propose to leave the in- dependent voter without any option unless one or the other of the party machines sees fit to furnish him a candidate worthy to receive his vote. What they should do is to direct their efforts to a reformation of the methods of party government, knowing, as they must, that government begins, not at the ballot box, where the general election is held, but with party ac- tion prior to the nomination of candidates. The writer hereof recently read a lengthy editorial in a leading daily newspaper, published in a State where the party column ballot is in use, deploring the fact that a voter was legally permitted to vote for all the nominees of his party by making a cross instead of being compelled to select from all the nominees of all the parties and the independent candidates and place a cross opposite the name of each candidate for whom he might wish to vote. Now, of course, that is all very fine in theory, and might work out very well if every 25 PRIMARY ELECTION LAWS voter knew something about the candidates, or even, like the editor, was a graduate of a university, or even of a high school. But unfortunately the bosses and newspapers have taken politics and political discus- sion so completely out of the hands of the people that a large percentage of voters become thoroughly dis- gusted with the whole business prior to election day, and would not go to the polls at all were it not a legal holiday and voting a pleasant diversion. Those who volunteer much public testimony about the characters and qualifications of candidates so directly and vio- lently contradict each other that the individual can easily justify himself in voting his straight party ticket on the ground that the proofs and arguments for and against doing so are about evenly balanced. This be- ing the case, why shouldn't the voter give the candidates of his own party the benefit of the doubt? But that particular newspaper, like many others, has persistently refused to support any fair primary elec- tion bill, or any proposed legislation which would give voters a chance to select party tickets. Its conduct amounts simply to the promotion of bossism and ma- chine politics. Its conduct is at par with that of a policeman standing by and witnessing the commission of arson and, instead of arresting the criminal, should allow him to escape, and then, after irreparable injury was done to the building, sound the fire alarm. And here is the point at which the State may well concern iteslf, at which the State ought to interfere. Why shouldn't a primary election be given the same legal sanction and have thrown around it the same safeguards as the general election? Being in reality the more important, why shouldn't the inspectors and judges be selected by the same officers who select the 26 PRIMARY ELECTION LAWS judges and inspectors for the general election? Why shouldn't the State and proper political subdivisions thereof bear the expense of holding the primary elec- tion, including the publication of notices, printing of ballots, etc. And finally, why should not all voters at the primary be required to deposit their ballots at the same polling place, on the same day and in the same box, and allowed to do so as secretly as at the general election? The true line of distinction lies between control and promotion. The State should control and regulate parties, but should never aid or promote them. And yet, in spite of this obvious principle, we find in the election laws of nearly all the States the provision for enrollment, stimulating, encouraging, yes, almost co- ercing, the electorate to form senseless party divisions, even for local and municipal elections. Every true progressive should consider that it is wholly immaterial in what name the best results of or- ganization are accomplished, whether in the name of the Republican, the Democratic or the Progressive party, or in some other name. These party names are in and of themselves powerful organizing forces. Why throw away the benefits resulting from this fact? The party name, standing alone, may be of no special sig- nificance. But there are millions of voters whb attach importance to these names, owing to historical asso- ciation and prejudice. It is ten times easier to convert or force by superiority of voting power, the voters to reformatory views, remaining, or getting inside these parties than to do so by the expedient of a new party or independent movement, which necessitates, at the outset, overcoming party pride and severing party ties. 27 PRIMARY ELECTION LAWS The people should demand of legislatures the enact- ment of laws which will give every voter full, fair and equal voice in the control and management of the party to which he adheres, with an opportunity to change his voting power from one party to another without being subjected to publicity, espionage, criticism, or ostracism for so doing. When the test comes at the polls, it is uniformly found that the most steadfast and unswerving par- tisans are the industrial forces. Indeed, it seems that the only part of our population who deny themselves the luxury of partisanship are the wealthier class. These are Democrats, Republicans, or Progressives, according to circumstances, — according to the politi- cal drift in the particular locality, or the favor or dis- favor shown by the respective parties, or candidates on party tickets, to invested, or investment seeking, capital. The workingman and the farmer, on the con- trary, usually feel that partyism is one of the few lux- uries in which he can well afford to indulge, seldom appreciating that, of all luxuries, its indulgence is the costliest. It is useless, however, to descant upon the folly of men tying themselves up to parties, perma- nently or temporarily. To do so would be a waste of words. The general belief that there exists some such thing as party fealty has been always entertained and always will be. But coming back to the real purpose of this dis- course, there can be no real liberty, nor any effective exercise of the right to vote, so long as present meth- ods of party government and present party practices are tolerated. In what direction, or to what end, therefore, should the political units, such as have been already mentioned, direct their efforts? To this there 28 PRIMARY ELECTION LAWS can be but one answer. They should seek to bring about more democratic methods of party management. Either organized labor, or the farmers of the country alone, if acting unitedly, could exercise sufficient power at primary elections to obtain and retain control of any political party. Instead of acting in unison to that end, they now go about their private af- fairs, refusing to participate in the primaries, or in any preliminary party action, until the tickets are made up, or, at any rate, until the men who are to make up the tickets have been selected by men in control of the party machines. Having thus played into the hands of the unscrupulous men, looking, not to labor, but to the most unfriendly among the employers of labor, not to the farmer, but to those who thrive on his toil, for the rewards of party service, they find, no matter what the pre-election professions of friendship by candidates, only disappointment. But how, after they have thus permitted their enemies to mark and stack the cards, can they expect a square deal? The passiveness of the industrial forces of society in politics is one of the inscrutable mysteries of to-day. Whatever be the destiny of others, the farmers, wage earners and salaried employees are generally destined to remain in this country, and if at death they leave children, these will also remain. They therefore have the greatest interest in the fate of our political insti- tutions. Loyalty to these institutions ought not in the minds of the toilers to be susceptible of a doubt. All the reasons that exist or suggest themselves for uniting their economic forces argue for solidarity for political reforms, and for opposition to reactionary tendencies. For like reasons they should, one and all, oppose corrupt political methods. Indeed, what is 29 PRIMARY ELECTION LAWS most needed in this country is not a revolution in the form of State government, but a change in meth- ods of party government. In every great work, whether it be a political move- ment or an industrial enterprise, there must be a right beginning. However desirable it might be, it would be futile to suggest that all the individuals of the classes just mentioned should move together with either one or the other of the leading parties. Fortunately that is not necessary. If all the Republicans among them would attend the Republican primaries, act together, vote only for true and honest representatives as dele- gates to conventions, and if all the Democrats and Progressives among them would attend the primaries and do likewise, they would be surprised at the progress which would be thus made in a brief space of time. Instead of organizing independent parties, they should organize primary election leagues. It is true, as al- ready stated, that the primary election laws in some of the States are framed for the advantage of profes- sional politicians and for the perpetuation of party ma- chines, and in others there are no primary election laws worthy the name whatever. When these condi- tions exist, such leagues should bend their efforts to securing the enactment of just laws, which will per- mit free and full participation of every voter at pri- mary elections. The trend of public opinion and sen- timent now runs strongly in favor of such legislation, and such effort would be along the lines of slightest resistance. It would not be difficult for the farmers and workingmen in any of the great States, acting in unison, to secure such legislation. Through such primary election laws as have just been described, parties, and through parties, govern- 30 PRIMARY ELECTION LAWS ments can be properly directed and controlled, but not otherwise. Everywhere there are constitutional guarantees of a secret ballot. In order to bring the primary election within such guaranty it is necessary that it be given the status and aspect of a general election, and that the legislation providing for it be given the form as well as the substance of general law affecting all voters alike in their political relations. Such elections should be given legal recogniton and governmental functions, State or local, as the case may be. The importance and far-reaching effect of a comprehensive workable pri- mary election law are appreciated by nearly all intel- ligent citizens. To accomplish the best results, the voting at the primary should be in all particulars by a secret bal- lot. No voter should be required to sign, or have his name entered upon an enrollment list or party roster, at the time of registering or at any other time. To require this is to deprive the voter of his constitutional guaranty of secrecy and to defeat the main purpose of the primary. The whole scheme and purpose of the enrollment is the perpetuation of the very evils that a comprehensive primary election law, such as is here advocated, is intended to terminate. The requirement of the enrollment arises from two false and groundless assumptions. First: That there is some such legal relation as membership in a party. Secondly: That parties themselves are entities in such legal sense as to entitle them to such protection against alien intrusion as the roster or party enrollment af- fords. The whole doctrine that political parties should not be entirely subordinated to the public good in its 3? PRIMARY ELECTION LAWS broadest aspect is based upon the aforesaid baseless assumptions, pursuant to which party managers have sought to exclude, and have usually succeeded in ex- cluding from participation at primaries established by statute persons who do not meet certain requirements' prescribed by the party managers themselves, or who do not submit to certain prescribed tests for membership in the party. The fallacy of such contention clearly appears when those so insisting are asked to define membership in a political party. This is a thing that cannot be done so as to stand intelligent scrutiny. No recognition is given to political parties in the Federal Constitution, And in reality political parties do not exist as tangible entities. If one started out to locate, define and take the measure of the Republican, the Democratic, the Progressive, or any other party, where would he look for it? How could he define it? What are its powers or dimesions? Some lawyers, doing service as party hacks, if questioned on this sub- ject, will say, "Why, the party committee is what is known in law as a voluntary association." Even if that were true, it would not constitute the party which it assumes to represent such an association. Without statutory recognition not even the party committee would ever be entitled to a standing in any court as a legal entity. A voluntary association, in law, means a permanent association of individuals bound together by some form of mutual obligation which can be en- forced. But where can such obligation be found in a party committee? The view that a political party has status as a legal entity has caused some of those entertaining that view to make the most absurd and inconsistent applications of it. Thus a Cincinnati paper not very long ago con- 32 PRIMARY ELECTION LAWS demned the Wisconsin Legislature for the adoption of a stringent primary election law, and said : "This attempt to secure the election of Senators by popular vote is carrying to an extreme the current fad and heresy of legislative interference with private affairs of a political party, which is a purely voluntary organi- zation, not created or constituted by constitutions or statutes." The editor then proceeds to criticise law- makers generally for "tinkering" with the management of parties. It is obvious that this line of reasoning, if carried out, is a repudiation of the whole theory of popular sovereignty, and while upholding government by party, would limit party control to the will of party bosses. The safety of the State and immunity of citizenship from partisan tyranny require that parties stand with- out recognition at law as crystallized or identified or- ganisms. The popular conception of a party is its true status. It is understood to be a leadership and a fol- lowing moved during campaigns and controlled at elections by a common principle and design. Now that political parties are recognized as organized bodies entitled to standing before courts and legislatures, they have become really dangerous to the State. A party in control of the three branches of government constitutes to all practical intents and purposes the State itself, whereas, upon any true theory, though one party has elected its candidates to the legislative, executive and judicial departments, still the govern- ment as an organism remains independent and dis- tinct, and is not overshadowed and in effect super- seded by a party organization. Separate ballot boxes at the primaries should be dis- pensed with, and the voters of all parties should be 33 PRIMARY ELECTION LAWS allowed to deposit their ballots in the same box, on the same day and under the supervision of the same set of election officers. An official ballot should be printed for every registered voter by the proper local officers, with a blank space in which the voter may paste his ticket containing the names of candidates for delegates to any and all conventions of the party with which he chooses then and there to affiliate, he being limited to conventions of one party only. The privilege of voting at such primary should be free, fair and equal to all who are properly registered in the particular precinct. That is the constitutional right of every voter, and he should not be deprived of it by any statute ; nor can he be deprived of it by any statute that will stand strict, honest, and impartial scrutiny in the courts. It is said by the opponents of the change here pro- posed that every voter may now participate in party gov- ernment by complying with the conditions of the law. This is true in a certain sense; and until men can be elected who are willing to give the people decent pri- mary election laws, it is their duty to make the most of the opportunities afforded by existing laws, not- withstanding the great disadvantages under which they labor. In the main, the appended bill (see Appendix A) must speak for itself; but the more important things accomplished by it, and some of the party and other interests with which it does not interfere will be stated. 1. It leaves the law governing registration un- touched, and leaves the proceedings at, and certifica- tion of the results of. State conventions as heretofore. 2. Only registered voters can participate, nor can a voter vote for any candidate for delegate to more 34 iPRIMARY ELECTION LAWS than one party convention. But the same person may be a delegate to any number of conventions of the same party. This will enable a State convention, after nomi- nating candidates for State officers proper, to subdi- vide into congressional, or other district conventions, and will permit municipal and county conventions to similarly subdivide and nominate for subdivisions. 3. No one votes directly for any candidate for a nomination to public office, but the form of the bal- lot and method of voting are such that any group of registered voters in a party may make up a ticket of delegates to be voted for. And, though not specified in the bill, nevertheless its provisions are such that such group may bind the delegates so voted for to vote at the convention for their choice of candidates for any or every office to be nominated at their party conven- tion. 4. The entire ballot is not printed at public ex- pense, but only the formal parts. All voters use "stickers" or "pasters." Any club, organization, or group may print its list of candidates for delegates and cause it to be voted by as many as can be persuaded to vote it, without obtaining or filing any petition whatever. The regular party organization stands on exactly the same footing as any other. It may select its candidates for delegates by caucus or in any other legal way, and carry on its own campaign in their behalf. Independents, so called, being voters, not acting in concert with any organization inside a party, are au- tomatically provided for in the bill, by the simple device of allowing each and every voter to vote either a printed "paster" or "sticker" or to write the names of his choice on the ballot with pen or pencil. 5. The official ballot printed by public authority 35 PRIMARY ELECTION LAWS only contains the general head, "Official Ballot, Pri- mary Election 1914," and has the necessary sub- heads. The bill allows the voter to duplicate the sub- heads on his "sticker." This facilitates the work of se- curing votes for candidates for delegates and prevents voters from voting for delegates to one party conven- tion a list of names which may have been printed by a group or organization formed of voters in another party. For instance, in the form of ballot (see Appendix C) is found in the Democratic column the sub-head, "Democratic Column," etc. Now the voter has an op- tion to either print and use all these sub-heads on his paster, though when he uses it he covers up all that part of the print on the ballot, or he may merely print the names and paste them under the sub-head as he finds them, or he may write them. But while the plan facilitates independent organiza- tion within a party without regard to the interests of any candidate for a nomination at a convention, or in the interest of a particular set of candidates, yet a can- didate without any organization whatever has all the legal opportunities at the primary that he could wish for. All he would have to do would be to select his own candidates for delegates to the particular con- vention before which he expected to seek a nomination and obtain all the votes he could for those delegates. Of course he could have those candidates for delegates selected by an organization formed in his interest, and voted for by the members of that organization and by as many others as he and his supporters could influ- ence. So that this plan would give all those ambi- tious individuals who complain that they are not get- ting a square deal in politics all the representation at conventions to which they are entitled. 36 •PRIMARY ELECTION LAWS 6. Having shown the simplicity, practicability and some of the elements of superior justness of this plan, something may now be said of its superior economy. One of the serious objections to primary election laws is the extreme length of the ballot, which not only en- hances the expense to the public and to individuals, but dulls, and for the most part destroys, interest in the personnel of those whose names are on the ballot. Under this proposed plan, power is conferred upon the governing body of each party to designate the number of delegates who shall compose a convention and to apportion them to the party's voting strength, but un- less otherwise provided by the official body having charge of elections, the territorial unit of representa- tion is the election district as it stood at the last gen- eral election. Such official body is empowered, how- ever, for any reason known, or made to appear to it, to consolidate not more than three election districts. The expense of printing the official ballot furnished by public authority, under the plan here proposed, will be insignificant in comparison with that of printing it under any other proposed plan. As to printing the "stickers," which the voter is not bound to exhibit to any one, but carries into the booth, that is a private expense, but obviously the printing bills will be light. How about the length of the ballot? Among the advantages of this plan, the obvious advantage of the ballot in point of brevity is obvious. The voter here selects his names deliberately and need never see any names proposed by other persons than himself, or by other organizations within the pafty than that with which he is acting. Under any other proposed plan, even under that which compulsorily makes the elec- tion district the unit, the voter must, after a ballot is 37 PRIMARY ELECTION LAWS handed to him in the voting place, canvass the whole roster of names that have been covered by all the pe- titions filed and printed by public authority, whether it be fifty or five hundred, and from the whole list, he makes his selections. It is true that the names might appear in groups, but even that aid is denied the voter under the provisions of some of the laws in force. But why go to the needless expense of printing five or a hundred times as many names as the voter can vote for, when the only effect of doing so is to confuse him, to impose upon him a task of selection, with imminent danger that he will disfranchise himself through mis- take? Under the head of superior economy, it is in order to call attention to vast labor and expense involved in preparing petitions, getting signatures thereto, filing and giving notice, examining, comparing, hearing and disposing of objections, etc., etc., made necessary in all existing laws, but all obviated under the provisions of this bill. And when one comes to reflect about it, why should it not be so ? Why should not the primary election law prescribe a method permitting the voter to make his choice remote from the voting place, if he prefers, and vote that choice in secret? Why, instead, should he be compelled by law to go on record by en- rolling or signing a petition as a condition precedent to expressing his will or to exercising any discretion whatever in the premises? 8. Many other points arguing strongly for this plan could be mentioned ; but speaking generally, every ob- jection that has been urged is met under this plan, and every feature demanded by any faction or interest must be satisfied by it if inclined to be at all rea- sonable. 38 (PRIMARY ELECTION LAWS The bill is the result of painstaking labor and care. Every case and contingency has been thought of and provided for, every detail covered by explicit words. Taking up the bill in order to study its text remote from an occasion calling for its practical observance and application, one might find it difficult to under- stand or to connect and co-ordinate all its parts; but each part and each detail has its separate function, which will be readily seen when it is carefully studied and considered. The bill embodied in Appendix A can, with a few minor changes, be adapted to any State in the UnioHo 39 CHAPTER IV LAWS AFFECTING INTERSTATE CARRIERS— THE HEPBURN ACT There is an old story of a young bear and a child that played together in their babyhood. At first the child could do pretty much as it pleased with the in- fant bear. But the bear grew in strength, cunning and fighting quality much the faster, so that in a little while it overpowered and destroyed the life of the child. So the people's cause and the railroad interests were thrown into the congressional arena. At first much loud talk and considerable talent was on the people's side; but, in the end, the brains, the strength and the cunning on the side of the corporations pre- ponderated, and the latter had their way upon every vital issue. The only material interest which the great body of people — the wealth producers and consumers — have in the question of rates is their effect upon the cost of living and the market price of what they produce, at the place of production. Has there been any reduction of the one or increase in the other? The cost of living has largely increased of late, and if market prices of products have been affected at all, at points of pri- mary production, they have been lowered, not abso- lutely in all instances, but relatively. There is no mis- taking, however, the tendency of railroad securities. Their average trend is unmistakably upward. 40 LAWS AFFECTING INTERSTATE CARRIERS One naturally shrinks from the task of describing the state of the public mind brought about prior to and during the incubacy of the so-called Hepburn rate bill, passed by Congress in 1906. As to any statement cov- ering the true and false, illuminating and misleading, patriotic and demagogic utterances, — that is out of the question. Though the people do not remember very much, nor remember it very long, they have not forgotten the extravagance of the promises concerning results and pretenses of hostility on the part of rail- way managements to any rate legislation whatever. The latter, it is true, evinced a feeling of uneasiness along at first. But that was before they got the legis- lative machinery well in hand. As time wore on, no class in the country, except those who were, or ex- pected to be, on the commission, were so anxious for the Hepburn Bill to pass, nor so fearful that it might fail, as were Hill, Harriman, Cassatt, Ripley, Morgan, Gould and the other railway monopolists. There were prerogatives which corporations had long usurped in derogation of public right which the people had contested in their helplessness; and the railway owners feared a popular uprising which might lead to some sort of reprisal or radical reform. The problem was how to satisfy, without relieving, them with a makeshift of legislation. The measure with which the railroads and politicians fooled them in the matter of railroad abuses, extortions and exactions was that rate bill. Bogus reformers, brazen pretenders in various high public stations, and demagogues of high and low degree, are even yet, in face of the obvious facts, proclaiming the rate bill and its enactment a great victory over the corporations controlling trans- portation. But if there had been any real improve- 41 LAWS AFFECTING INTERSTATE CARRIERS ment, since the act took effect, there would surely have been some subsequent evidences of it. The railroad officials fully understand the benefits conferred by that law, and though they are chary of giving publicity in any form to their knowledge, one of them occasionally gives a clear intimation of what they realize the Hep- burn act to have accomplished for them. The busy toilers in the nation's hives of industry, whether at manual labor or in sedentary occupation, are apt to forget the supreme importance of transpor- tation as a factor in the production and distribution of wealth. It is to business what thermal heat and the seasons are to vegetation, what food and drink are to life. The least ambitious wage earner has a vital in- terest in transportation facilities and in the cost of transportation. Indeed those who give the subject least thought, the primary producers and ultimate con- sumers, have the greatest interest, because upon them is shifted the burden of paying rates and fares. A search through congressional debates during the two sessions of Congress when the Hepburn Bill was under consideration will fail to disclose any extended or intelligent presentation of this phase of the great eco- nomic question. There were almost interminable ar- guments with constant references to the constitutional powers of Congress, designed to show that Congress has very little power in the premises, or none at all, or that it ought to very sparingly exercise such powers as it possesses. There were plenty of arguments to prove that there had been much wicked rebating, af- fecting business interests, and it was viewed as some- thing intolerable that the payment of rebates had wrought injury to, or caused the failure of, business men. But of the people back of those business inter- 42 LAWS AFFECTING INTERSTATE CARRIERS ests, those who ultimately "pay the freight," very little was said. They were not represented, of course, in the lobby, and since the extortions practiced on them by the railroads are concealed in the price paid for food and shelter, few, if any, complaints were presented by consumers, or in their behalf. The most vociferous maledictions were uttered against such well anchored and securely buttressed monopolies as the Standard Oil Company, the "Beef Trust," and the Pennsylvania Railroad, because of rebating, discrimination, questionable methods of doing business, etc. All the politicians posing as statesmen, and having much to say about discriminatory rates, avoided say- ing anything about high rates, and were as far as the East is from the West from doing anything that would directly or seriously injure any monopoly or substan- tially reduce its revenues, or disturb its status as a mo- nopoly. Time and again it was stated by the cun- ningly wise that there was no complaint from any quarter that rates were too high, and the statement passed almost unchallenged. Notwithstanding the limitless gush during cam- paigns about the patriotic heart-throbs of Representa- tives and Senators for the "plain people," the "masses," the "toilers," there were very few in the House or Senate with wit enough to expose the enormity of monopoly's exactions for transportation, or of its ef- fect upon the living expenses of the people ; or, if there were such, they were held down and silenced by the unseen but all-powerful insiders who watched, re- vised, amended and pruned the bill until it was seen to be, not only harmless to the railroads, but highly promotive »of their interests. Corporate agents with free access to the lobby and cloak rooms had ample 43 LAWS AFFECTING INTERSTATE CARRIERS time and opportunity to study its effects in operation and devise means for fooling the people by the inser- tion of amendments ostensibly hostile to the transpor- tation "trust," but so worded as to give no real relief to the shipping interests of the country. True, the people were represented to some extent on the Interstate Commerce Commission ; but the rail- roads were more numerously and ably represented. The railroads had their collars on some Democratic as well as many Republican necks, and their O. K.'s on men who never ceased to battle for the people upon issues which were of no immediate interest to their incorporated employers. When the Hepburn Bill, the product of consultations between Interstate Commerce Commissioners, Republican members. Democratic members and railroad lobbyists, came out of commit- tee, a pact was entered into and lived up to between controlling influences outside and inside, that no amendments should be offered on the floor of the House. As a general — all but universal— rule, the real suf- ferers from the complete ascendancy of the railroads to commercial and industrial supremacy are voiceless and destitute of representation in the councils of the nation. But, under intense pressure, one Congressman at any rate (Hon. W. B. Lamar of Florida) spoke for them, pending an amendment to one of the appropria- tion bills, at the session of 1906-7, designed to increase the salaries of Congressmen. And, since the "Con- gressional Record" has been made a high-priced pub- lication, in order to forestall general information of the misdeeds and deeds of omission of Congressmen, and in order that some of the people, at least, may learn in his own language what this discerning and 44 LAWS AFFECTING INTERSTATE CARRIERS recalcitrant member said, an extract from his speech is inserted as follows : "To-day the lumber men, vegetable men, tobacco men, fruit men and farmers generally in the district I represent are oppressed and injured by extortionate railway rates and charges. And this House of Rep- resentatives, Democrats and Republicans, has not passed an adequate law to protect the interests of the people who sent me here, and I will not cast a vote to raise either my own salary or the salary of members of this House collectively when this House has de- clined to pass a fair, just and adequate statute that will protect the interests of which I speak. Mr. Speaker, some of the railways in my district are capi- talized at two, three and four times their value. Every article shipped out of my county, every article shipped out of my district, every article shipped into my county, every article shipped into my district, is un- justly taxed by the gross, fraudulent device of over- capitalization of the railroads. Whether $7,500 per annum be an adequate compensation for members or not, I place one serious objection to it upon the ground that this House, without regard to party, did not, when it had an opportunity to do so, pass a fair, just and adequate law that will protect the people whom I have the honor here to represent." The House is a body of numerous membership whose responsibility is minutely divided. It is much easier for the members of the House who hold briefs for private interests to conceal their hands and cover up their tracks than is the case in the Senate. The "Congressional Record," which used to be free and to be extensively circulated among the people, is now a high-priced publication — made so apparently for no 45 LAWS AFFECTING INTERSTATE CARRIERS other reason than to keep the people in the dark as to the doings of their representatives. Then there are the rules, such as would answer all the purposes of an autocratic court, and executive (secret) committee meetings, patterned after Star Chamber of infamous memory. There is an occasional outburst by a member of the minority about the tyrannical power of the ma- jority under the rules, but such members soon find themselves ostracised even by the leaders of their own party. Indeed the rules in force suit the convenience of such of the minority members as are subservient to private interests, just as they do the majority mem- bers; for both sides are sometimes bent upon schemes that do not bear investigation, and publicity is pre- vented by the rules and by practically suppressing the printed record, by the high price placed upon it. So the Hepburn rate bill came from the committee an intensely pro-railroad measure, and as such was rushed through the House without amendment, and practically without debate, both sides consenting. That it was a bill of that character can be clearly shown. Now, when the bill had reached the Senate, the unmuzzled few, inside and outside Congress, who were conversant with its provisions and their effect in operation, began to talk to the few senators who dared listen, and to the reporters for such newspapers as were not subsidized, concerning the features of the bill which if enacted into law would create a situa- tion worse for the public, and better for tl\e rail- roads, than if there were no rate legislation what- ever. There were several senators who were not shackled with corporate pledges, but merely blind in their ignorance, even of the fundamentals of the rail- 46 ' LAWS AFFECTING INTERSTATE CARRIERS road question and of the true relation of transporta- tion to the commerce and industry of the country. It became the province of the railroad forces to keep the minds of these senators diverted from the fatal defects of the bill and their attention engaged on non- essentials. Those amendments objected to by the railroad interests were mainly proposed by Senator La Follette, he being about the only intelligent ex- ception among those not controlled by the corporate interests. One or two of the La Follette amend- ments were well calculated to render the bill effect- ive; but they were voted down, sometimes a few Democrats voting with the Republicans to insure a safe majority against the amendments. These Dem- ocrats usually assigned "constitutional doubts," but by way of variation "the infringement of State rights" was once or twice assigned as the excuse. When all the sensible and nonsensical amendments had been adopted or rejected, the rate bill was a very crazy quilt of legislation. No one knew what it meant, and not many ever will know; and, for that reason, and lest the Interstate Commerce Commission might find itself forced by the insistence of some per- sistent litigant to make a ruling distasteful to the railroads, from which it could not gracefully recede, the transportation interests deemed it safer to have inserted a saving clause in the bill, having the effect of a back door of retreat in case of effective action in any case that might be brought before the Com- mission. So an amendment was adopted, historically known as "the provision for a broad judicial review." Then the bill was conveniently hung up in conference and a prolonged controversy entered into between some of the confreres, during which the railroad at- 47 LAWS AFFECTING INTERSTATE CARRIERS torneys had ample time to re-examine the amended bill and discover if any features objectionable to them had not been weeded out. They finally concluded that the "broad judicial review amendment" was a sure safeguard against any prejudicial order the Com- mission could make. So, after the railroads, through their lawyers, had O. K.'d the measure, it was re- ported back from conference, with a few minor changes, and promptly passed in both houses. The President ceremoniously, but promptly, affixed his signature, and the "dear people" were "fooled again." It is mere justice to state that President Roosevelt recommended to Congress, in his first annual message in December, 1905, legislation which would have been a great improvement on existing law. And, while he usually carried his points in legislation, he encountered, in this instance, a combination of special interests which made it necessary for him to accept and ap- prove this compromise. It would have required no phenomenal legislative wisdom, only ordinary talent for constructing laws, for Congress to have done what was sorely needed to be done, and the most important of all that could be done, for the great body of the people, in the way of rate legislation. Of course, rebates must be sup- pressed and rebating managers punished ; but that might just as well have been done under the pro- visions of the original act, or of what was known as the Elkins amendment to the Interstate Commerce Act of 1887, passed at a previous session, if viola- tions had not been, to a great extent, condoned by officers charged with the duty of enforcing the laws. There was just one way to relieve the people of the more grievous evil, that of extortion, inflicted by 48 LAWS AFFECTING INTERSTATE CARRIERS transportation monopolies, and that way was plain, simple and adequate. The measure that would really have been serviceable would have been one directing the Interstate Commerce Commission to take up the whole railroad and transportation question of the United States, ascertain what it would cost to repro- duce the great dominating systems of the country, not each railroad engaged in interstate commerce, as was provided for at a later session, but in their en- tireties, only the great railway systems, and empow- ering the commission to revise and establish entire schedules of rates for them. All else in a rate bill is of infinitesimal value as compared with such an equitable, just and reasonable provision. But by promulgating a voluminous, com- plicated measure, containing a forest of legislative exotics and a tangled wilderness of words, the com- bined meaning of which no one can, or ever will be able to, explain, it was supposed by the sponsors for the bill that its fatal defect would be overlooked — at any rate for as many years as it took to learn what a fraud and makeshift was the original interstate com- merce law. The Act comprised twenty-four long sections. There were various definitions of things the meanings of which were already well known.. Numerous ex- pensive proceedings were directed to be instituted for the accomplishment of useless things, and many other things were directed to be done, any attempt to do which must, in the nature of the case, prove wholly abortive. There were other things directed to be done, which, though feasible, involved limitless and continuous labor on the part of railroad em- ployees, and prodigal expenditures from the national 49 LAWS AFFECTING INTERSTATE CARRIERS treasury, necessitated by the employment of a vast army of clerks, the total results of which, when ac- complished, were not of the slightest value to the public or to a single individiial on the earth. But to round out the monstrous imposition and give an im- pression of magnitude and importance to this stage- play legislation, the membership of the Commission was increased from five to seven, and their salaries increased from $7,500 to $10,000 a year. After illegalizing, in vague terms, several forms of discrimination, and prohibiting, generally, the grant- ing of free transportation, the act contained a long list of exempt classes, and amongst them ^'attorneys at law." The exempted classes were thus granted ex- clusive privileges of considerable value which were denied to the general public. The act allowed the Commission "to determine and prescribe what will be the just and reasonable rate or rates, charge or charges, to be thereafter observed," etc., "as the max- imum to be charged." But this cautious stipulation was so hedged about by conditions, limitations, pro- visos and qualifications in the same and other sec- tions, as to render it of little if any value or protec- tion against exorbitant charges. As no rule or stand- ard was prescribed for ascertaining the reasonable rate, and as the Commission could only act upon com- plaint filed by an injured shipper, and as the filing of such complaint was, under the "broad judicial re- view" provision, merely the commencement of a costly litigation to continue until the relief would not be needed, or would be no help for the wrong done, it is little wonder that very few seriously contested cases have come before the Commission since the act was passed. 50 LAWS AFFECTING INTERSTATE CARRIERS Populations of countries have been impoverished and compelled to resort to revolution to escape star- vation, and republics have been undermined and de- stroyed, by the insidious introduction into a law of a single vicious economic or political principle ; and there is a destructive element in railway law, at first given life and operation by the courts, and now chrys- talized into statute law in this act, without discus- sion or protest. It is the legal recognition of the claim by public service monopolies that they are en- titled to a guarantee from the public which must use them, from necessity, of a regular unfailing profit upon the business they do, whatever fate may befall all other business establishments or ventures. The people endure many wrongs simply because they do not understand them, which, if fully understood in all their true bearings, would no more be submitted to than would the introduction of an epidemic, or an invasion by a hostile foreign force. The established heresy that railroad rates shall in all cases and under all circumstances be sufficiently high to insure an income from investments in railroad property is it- self a discrimination in favor of, and a special favor granted to, that class of capitalists of serious import, and leading inevitably to the absorption by them of a large share of the national wealth. But not until that bill became a law was the proposition authorita- tively sanctioned that monopoly power was itself prop- erty, to be counted, estimated and appraised in ascer- taining the aggregate of a railroad's property, as a basis for fixing rates. In order to commit the govern- ment, the people and the Commission to the theory of enormously evil import, that after considering actual investment the monopoly privilege should be valued 51 LAWS AFFECTING INTERSTATE CARRIERS and added, a word was skilfully incorporated in the twentieth section of the bill, in such connection as to accomplish that dire and sinister purpose. Among the matters which the Commission was directed to require carriers to annually report were, "the cost and value of the carrier's property, franchises and equip- ments." And, notwithstanding subsequent debates and amendments by Congress, these words are still found in the act. Now a franchise has been defined in varied ter- minology, but all agree that it is a privilege enjoyed by one to the exclusion of common right, an exclu- sive privilege such as the privilege to dig up the streets and lay down gas pipes or rails, or, in the case of steam railroads, the privilege of constructing tracks over private lands and public property, and of collecting from the public tolls, rates and fares. In short, a franchise is such a privilege as would with- out a concession or grant by the State, remain a particle of sovereignty, to be exercised by the gov- ernment for the equal benefit of all. These privileges have been granted to railroad corporations by the federal and State governments without charge. They constitute monopolistic power, and have been used in connection with investments in property to the vast enrichment of the investors. Now comes the Con- gress of the United States and gives express legisla- tive recognition to the claim, long made by the rail- road managements, but theretofore resisted, that these monopolistic privileges are themselves to be valued, which, of course, constitutes a legislative recognition of their character as property. This is accomplished by requiring the companies to report and the Com- mission to receive and record, "the value and cost of 52 LAWS AFFECTING INTERSTATE CARRIERS * * * franchises * * *." In view of this statu- tory status of franchises as property, no one need wonder or misunderstand the increase in mileage earn- ings and in market value of the principal railroad stocks since the act was passed. According to the report from the Commission next following the passage of the bill, the gross earnings of the railroads increased from $9,598 per mile in 1905 to $10,543 in 1906, and the net earnings from $3,139 per mile in 1905 to $3,580 in 1906, equal to about 15 per cent. Dividends for 1906 increased $35,750,000 over 1905. It was openly claimed by all railroad au- thorities that the financial condition of the roads had greatly improved and the increase of dividends con- firmed it. Instead of competition and reduction of freight charges resulting from the act, the big sys- tems no longer feared a rate war. Dividends have been, within a comparatively recent period, considerably increased, notwithstanding vast investments in improvements. The terminal im- provements by the Pennsylvania and the New York Central in New York City alone involve the expen- diture of hundreds of millions, and such improve- ments are being made by all the roads, though on a less extensive scale. Within three months after the act took effect, the Lake Shore increased its dividend rate from 8 to 12 per cent., and the Michigan Centraf from 4 to 6 per cent. These properties are controlled by the New York Central. The New York Central rate was increased about the same time from 5 to 6 per cent. The Norfolk and Western, a short while ago, was engaged in a disastrous rate war. In 1900 it paid no dividends. It now pays 5 per cent. The Baltimore and Ohio paid 2 per cent, in 1900. It now S3 LAWS AFFECTING INTERSTATE CARRIERS pays 6 per cent. The Chesapeake and Ohio also suf- fered from the rate war and paid no dividends. Divi- dends are now paid on its stocks. The dividends paid by the Big Four road have been increased from 3 to 4 per cent. Before the rate law went into effect, it was generally supposed that it would take a decade at least for the Southern Pacific to recover from the San Francisco earthquake and fire and pay dividends on its common stock. But it now pays 5 per cent. The Union Pacific, which was in the hands of a receiver not many years ago, recently had its dividend rate boosted over night from 6 to 10 per cent. The railroads not only retain, but have confirmed to them under the Act, the most valuable privilege of monopoly, that of exploiting the public to the full extent that the traffic will bear. That is a legislative creation of vast — practically unlimited — value; an as- set, the right to value at all was previously disputed. The franchises really belong to the people, subject only to use by the railroads upon sufferance. The value of these benefits conferred by the Act upon the transportation monopolies can be seen in the substan- tial and unprecedented rise of railroad securities above referred to, increases in surpluses and dividends re- ported by the Interstate Commerce Commission, and commented upon by the press as "evidence of general prosperity reflected in railway earnings." The writer does not flatter himself that the decep- tions and delusions about rate regulation and control of transportation by act of Congress will be entirely or generally dispelled by this genesis and analysis of the legislative farce put on the national boards in 1906. But it is hoped that it will start an inquiry which may sooner or later lead to important results. 54 LAWS AFFECTING INTERSTATE CARRIERS It is feared, however, that it will require many more years of intensified oppression and extortion, such as the industrial monopolies have practiced since long prior to the passage of the "anti-trust" act in 1890, to fully enlighten the people as to the true origin, paternity and effect of this railroad rate act, wherein under the cloak of reform, such exploitation was made possible as only a country of immense, though di- minishing resources, and a wonderfully industrious and prolific people could endure. An idea has been carefully and industriously spread abroad that the payment of rebates was about the only evil worth considering or needing a legislative antidote. It was but one form of discrimination prac- ticed by carriers, most other forms being legalized, or irremediable. For the prominence given the evil of rebating there were two causes. First, a rebate is a palpable, acute injury, ,easily defined and meas- ured, when the facts are known. Secondly, the cru- sade for its suppression and for the punishment of those guilty of practicing it, was along the lines of least resistance, because none of the railroads were really adverse to the abolition of rebates and the establishment of uniformity as between individuals, if it could be establihsed by law and preserved through a Commission standing impartially between them, its expenses and salary charges paid by the government. It is no secret among those conversant with railroad business that rebating was not only a disagreeable but a costly practice, which each railway, being a law unto itself, supposed to be necessary in order to obtain and retain its due share of traffic tonnage. Therefore no one acquainted with the situation was surprised at the acquiescence in the rate bill of railroad 55 LAWS AFFECTING INTERSTATE CARRIERS officials and attorneys, when it was seen that rebating was about the only abuse for which it provided pun- ishment as a remedy. Its stringent and specific pro- visions relieving traffic managers of the strain of watching rivals and struggling for business, and leav- ing with the railroads the power of equalizing rates, upward rather than downward, through the friendly agency of a government commission, promised vastly greater pecuniary returns than they enjoyed under the pre-existing interstate commerce act. And this prom- ise has been fully realized. There can be no question of a popular demand for relief from the abuse of rebating, nor of the merits of the rate bill, in so far as it sought to end rebating. But that was only one of the reforms desired by the people, and, though that was an evil of some magni- tude, it was by no means the principal grievance. Except for the fact that the rebates were usually paid to great industrial monopolies and served to build them up by the destruction of competition, the people at large had little interest in that subject of legislation. But there are discriminations of ten-fold greater im- portance not relieved by this act. For instance, discrim- inations with reference to priority of shipment and dis- criminations between kinds of freight and localities. A provision of the Hepburn Act reads as follows : "That it shall be unlawful for any common carrier subject to the provisions of this Act to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation or locality or any particular description of traffic in any respect whatsoever, or to subject any particular person, company, firm, corporation or locality, or any particular descrip- 56 LAWS AFFECTING INTERSTATE CARRIERS tion of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever." It will be noted that this purports to embody a general and sweeping prohibition against discriminations. If Congress really had desired to forbid discriminations, it was fully competent to have done so in explicit and un- qualified terms. But what it was aiming at was to leave in the hands of railway managements about the same discriminatory powers that they had previously possessed. For instance, in this general prohibition, instead of say- ing that "it shall be unlawful for any common carrier * * * to make or give any preference or advantage," etc., the words "undue or unreasonable" are interpolated, the effect of which is to leave a very wide field of discretion and a license of indefinable scope to the car- riers. There is nothing in the Act to prevent outrageous and ruinous discriminations between localities and kinds of traffic. And the people have already had an opportunity to learn how this provision is interpreted by the traffic managers of the country. In the early winter, immedi- ately following the taking effect of the Act, the railroads so used this dangerous and comprehensive discretionary power that suffering, disaster and death were visited upon many homes in the northwest by reason of a coal famine, and many farmers were ruined, because no cars were furnished in which to move their grain crops to market. Suffering and inconvenience from lack of coal were reported from half a dozen States, and yet there was no shortage in the season's output. The winter up to that period had not been severe, and there had been no snow blockades worth mentioning. The fault was entirely with the railroad companies, and they had been neglecting the people in their zeal to increase their surpluses, notwith- 57 LAWS AFFECTING INTERSTATE CARRIERS standing pretences of shortages of cars. Coal and grain are low grade, easily handled freight, but do not yield so large revenues as some other kinds. Consequently they were sidetracked to make room for more profitable busi- ness. And this exclusively private view of their business, this notion of absolute irresponsibility to public necessity and convenience, put into practice, caused much loss to the mercantile interests throughout the country and much deprivation and destitution among the poorer classes everywhere, while the railroads were seeking and find- ing shelter under those conveniently inserted words "undue and unreasonable." It is not within the power of the Interstate Commerce Commission to afford any relief against such a deplor- able state of affairs, no matter how often the railroads in their greed, and in the exercise of their mastery of the situation, see fit to bring it about. The rate law provides no means for determining what is an "undue or unreasonable" discrimination against, or advantage to, a locality, or between classes of traffic. Nothing short of complete control of the entire mileage of the country and of all the rolling stock would enable the Commission to prevent such trade catastrophies as that above described. Words are often meaningless. But there are occasions when the welfare of a whole nation may hang upon the context or construction of words used in a written law. As this is a country supposedly governed by laws rather than by men, it is not only a privilege but the duty of citizens who would be even reasonably well informed concerning the acts of the men they have chosen to represent them, to study each for himself the very terms of the statutes enacted, and not be too easily satisfied with the mere platform declarations of parties and public 58 LAWS AFFECTING INTERSTATE CARRIERS utterances of politicians concerning their official perform- ances. These observations have peculiar significance in application to that much-advertised railroad rate law. It will be found upon close scrutiny that neither those who made the law nor the non-office-holding publicists rep- resent its ultimate and final effect truly. The Act provides in Section 15 that, under certain circumstances, the Commission shall have power "to determine and prescribe what will be the just and reason- able rate or rates, to be thereafter observed in such case, as the maximum to be charged." The most import- ant condition precedent to the determination is the filing of a complaint. The Commission has no power to over- haul or readjust, or to reduce, or to change in any respect whatever, the individual rates of any railroad upon its own initiative, but only "upon the filing of a complaint," making specifications of excessiveness of a rate. Now let any citizen, ordinarily circumstanced, put the question to himself whether he is likely ever to file such a complaint. He examines statistics and finds the railroads have formed gigantic combinations which col- lect from the public each year an amount equal to all the money in circulation and twice as much as is collected from all sources by the federal government. He realizes that fortunes amounting of hundreds of millions are being created in scorces of instances, within brief periods, out of fraudulent exactions in the form of freights and fares ; in short that the real taxing power in this country is not the government but the men in control of transpor- tation. He may realize that somehow his struggle for a livelihood or for a profit has intensified; and he may strongly believe that excessive charges for transportation are in part responsible for it. But supposing he feels called upon individually, for the injury to his individual 59 LAWS AFFECTING INTERSTATE CARRIERS interests, to proceed against so mighty an adversary. In the first place, of course, he must have a lawyer to form- ulate his complaint and conduct the proceeding, because the statute does not authorize any public officer to begin or prosecute the proceeding, nor, as has been already stated, does it allow the Commission to initiate it. Well, our citizen hires his lawyer, or offers to do so, and the first thing the lawyer does is to ask him for particulars. Unless he is a merchant, or manufacturer, or an habitual shipper in some other way, it is just as impossible for him, with or without legal assistance, to formulate a com- plaint as if he contemplated suing the city or county in which he lives for damages resulting from excessive taxation. We come to the shipper — the merchant, man- ufacturer or speculator in products — and we find that he has little if any interest in the matter. In the same way that the landlord shifts his taxes to the tenants and the merchant adds the expenses of conducting business to his selling price, these and other shippers pass all excess- ive freight charges to the consuming public, covered up and concealed in, the price. Supposing we find a shipper with the requisite hardi- hood to incur the unrelenting hostility of the railroads, and he hires a lawyer who frames a complaint that on a particular day he sent a shipment of a certain commodity over a given railroad and the freight charge was, for instance, ten dollars in excess of "a just and reasonable rate." In due course of the protracted litigation he has thus entered upon he is called upon to prove his allegation. Here comes in the joker which this act has so conven- iently left in the hands of the carriers. He is entirely destitute of any evidence satisfactory to a court of what in the particular instance would be a just and reasonable rate or constitute an unreasonable charge. In all the 60 LAWS AFFECTING INTERSTATE CARRIERS cases that have arisen, not once has the court undertaken to determine just what matters ought to be considered in determining the question and in the nature of things it cannot be done. Ten thousand elements enter into the making of each rate for a single railroad. To determine the unreasonableness of a rate, the inquiry does not stop with the affairs of the particular company making the charge, but must extend to the interminable affairs of, and relations between, that and every other company in the country with which it competes or holds any con- nection. Not only so, but since every railroad is con- nected with ocean transportation, the constantly varying and fluctuating cost of the latter must be ascertained — an utter impossibility. As a result of all this, the decision of the Commission in any case presented before it wherein it is required to declare what is the reasonable rate is mere guesswork, and its written opinions (reports) purely speculative. The people may wonder and experience disappointment in view of the fact that the Interstate Commerce Commis- sioners are passively resting on their oars, in so far as concerns the reduction of railroad rates; but those who watched the proceedings at Washington, during the incu- bation of the rate bill, and scrutinized its provisions, are not surprised at the outcome. It seems to be conceded that the Commission may make a comparison of rates for the purpose of exercising the power thus narrowly Hmited by the bill. But that this concession by the railroads was in entire harmony with their general design and determination that the Com- mission should sit only as an equahzing or arbitration board, subserving the interests of the carriers, is easily shown. Mr. Jones, we will suppose, files a complaint alleging that the rate charged by a particular carrier on 6i LAWS AFFECTING INTERSTATE CARRIERS wheat from a point in Kansas to Chicago is twenty cents per hundred and that the rate is "unjust and unreason- able," following the language of the Act, and that a just and reasonable rate would be ten cents per hundred, and asking that the maximum rate be fixed by the Commis- sion which shall be just and reasonable. Now, all that the Commission can do, in order to determine whether or not the complaint is well founded, is to compare the existing rate of twenty cents, which the carrier has fixed, with the rates charged by the same company for carrying other commodities. Such comparison, however, is of rates all of which may be fifty, a hundred, or five hundred per cent, above what are reasonable and just rates. But as to the justness or unjustness, and reasonableness or unreasonableness, of the whole schedule of rates the Com- mission has no jurisdiction to investigate. It is powerless to extend its inquiry beyond the allegations of the com- plaint before it, nor can it make any valid finding or order with respect to the reasonableness or unreasonableness of any rate beside that specified in the complaint, and therefore any finding or order reducing that rate would be set aside by the courts as one made arbitrarily and upon insufficient evidence. So, though the Commission should be of the opinion that the carrier had in force a schedule of rates yielding dividends on a hundred mil- lions of stocks that represented but a small investment, or none at all, it could afford no relief. In the first case carried up to the Supreme Court under the Interstate Commerce Act of 1887, involving the exer- cise of the power of the Commission to substitute a rate in lieu of the one found to be unjust and unreasonable, it was held that the Commission held no such power. That left the power to fix rates just where it was before, namely, in the hands of the railroads, subject to no con- ^2. LAWS AFFECTING INTERSTATE CARRIERS trol or restraint, except the roundabout and ineffective power to resort to the courts for an injunction or the wholly abortive remedy of an action for damages. Now the thing principally desired by the people, and originally recommended by the Commission and President Roose- velt, the thing upon which most stress was continually laid, was such an amendment of the Interstate Commerce Act as would confer upon the Commission the power to fix rates. The foundation of the demand upon Congress for legislation was not merely the practice of discriminat- ing, or payment of rebates, but also relief of the public from rates that were too high. The reason it was desired to vest the, fixing of rates in an official body was that the railroads had abused the power and robbed their patrons through excessive charges. Such official body it was thought might be trusted to stand and act impartially between the people and the carriers, nor was there any doubt, in the mind of any fair and reasonable man, that a Commission could be found that could be trusted to that extent. But the railroad interests as represented in Con- gress were unwilling to trust any Commission, and set themselves doggedly against the proposition of doing so. And it was through fear that, in spite of the legal cunning employed in framing the bill, some such power might have been inadvertently conferred upon the Commission, that the "broad judicial review" amendment was adopted, the effect of which was to empower the carrier to wipe out and annul any order of the Commission fixing a max- imum rate and to lift the whole subject matter of a com- plaint into the courts where it has to be re-examined in all its aspects, de novo. So, if the carrier is disposed to take an appeal, no final decision can be reached for years. In the meantime, the conditions demanding the special relief prayed in the complaint will have radically changed, 63 LAWS AFFECTING INTERSTATE CARRIERS and a decision in favor of the complainant will be value- less. Any vitality that might have remained in the act was eliminated, and the rate-fixing feature, which alone justified the bill being called a "rate" bill was obliterated as completely as if the amendment had said, in identical words, ''But the exercise of the maximum rate-making power hereby conferred shall be of no force or effect unless the action of the Commission shall be entirely sat- isfactory to the carrier and in case of the carrier objecting to the action of the Commission, such carrier may resort to the courts as heretofore, and by so resorting nullify any action so taken by the Commission." It is not to be wondered at then that thus far very little has been done by the Commission except what was en- tirely satisfactory to the railroads. The people are coming day by day to better understand the abuses and dangers of arbitrary power over the nation's transportation, when vested in private hands. A leading Republican newspaper, published in New York City, commented, at the time, upon the car famine above referred to as follows : "Under federal ownership of the trunk railroads the administration to blame for such a state of affairs would be driven from power by an overwhelming majority at the polls." Public indignation would be what might ■^ be expected now if for cause that could be provided against the mails should be delayed for six or eight weeks. Perhaps the public would not be so angered in that case as the shippers are now, with their valuable produce perishing on account of the general collapse of transpor- tation facilities. We could wait for our mail. The shippers' losses are irreparable, and the result is increas- ing prices to consumers on account of an artificial re- striction of the supply. When the public understands 64 LAWS AFFECTING INTERSTATE CARRIERS this it will lean more and more toward the Bryan pro- gramme." And the "St. Louis Post-Dispatch," previously an unrelenting foe of government ownership, soon after- wards concluded an editorial as follows: "Again, American experience in regulation and con- trol is not encouraging. It has proven itself a doubtful cure of a disease which might better have been prevented. Combinations have been controlled to the extent of dis- solution. But they combine on another basis and the same wrongs are committed again and again. Moreover, the question presses,*' will the Government regulate and control the good combines or will the good combines regulate and control the Government? The knavish resources of monopoly seem to be unlimited. Trust law- yers are fertile-witted men and it is notorious that some of the worst monopolies are well represented in the Government. Mr. Roosevelt himself had experience of this when he sought to procure the passage of the rate bill and the meat inspection bill. There is no middle ground. Monopoly is an evil thing. There is no good in it, and to permit it in any form is to throw open the doors to every abuse of irresponsible power. It must be crushed, not tolerated or regulated. THE ALTERN- ATIVE IS GOVERNMENT OWNERSHIP, which Mr. Roosevelt professes to hold in special horror. But if his views, as expressed in his message, prevail, he will have done more than any other single influence to drive the country to that very issue." The vesting of absolute control of rates in a Govern- ment Commission would be as bitterly opposed by the railway interests as Government ownership. But that the people will ultimately be driven by necessity to one or the other alternative, those who study the subject without bias, fear or favor must clearly see. 65 CHAPTER V LAWS AFFECTING INTERSTATE CARRIERS- AMENDMENTS OF 1910 AND 1912. We now come to certain amendments to the Interstate Commerce Act made in 1910, and, after briefly noticing them, will give some attention to what may be con- sidered an abortive valuation act, passed in 1912. After which will be stated what Congress could do for the public relief, and what it will do if the freight payers of the nation, the term including every man, woman and child, knowing their rights, dare demand them. The fourth section of the act (known as the long and short haul clause) was amended by leaving out the words "imder substantially similar circumstances and condi- tions," but a proviso was inserted in lieu ^of it which was so construed by the commerce court as to practically perpetuate the law as it stood before. The power to suspend rates filed which increased previous rates until an investigation could be had as to their reasonableness, and placing the burden of proof on the carriers to prove their reasonableness was also added to the fifteenth section. The burden of proof provision is known as the Cummins Amendment, taking its name from its author. Senator A. B. Cummins, of Iowa. If given effect ac- cording to its true meaning and intent, it would be an insuperable obstacle to any general, or percentage, in- crease of rates, and such effect was given it in the 66 LAWS AFFECTING INTERSTATE CARRIERS rate advance cases (1910-1911), as to defeat a ten per cent, increase of rates shown in schedules filed with the Commission covering a vast volume of traffic, and which would have increased the burdens of shippers by many millions of dollars. The importance of this amendment, if given its full effect as intended, it would be difficult to overestimate. After passing the Senate the House accepted that among other amendments and disagreed to several Senate amend- ments. The whole subject then went before a confer- ence committee. The railroad lobby in Washington hap- pened to be asleep' when the amendment passed the Sen- ate. Therefore, it invaded the Conference Committee in full force, and was able to enlist in the railroad as- sault on that amendment the entire Taft administration. The President and his Attorney-General (Wickersham) went the unprecedented length of calling a meeting of the confrees at the White House. There was, even then, however, a powerful Democratic minority in the House, led by the fearless and incorruptible Champ Clark, now the Speaker, having the support also of the progressive Republicans led by Mr. Lenroot of Wisconsin, and a few regular Republicans conspicuous among them being Hon. Martin B. Madden of Illinois. The question arose while the bill and amendments were in conference whether the House would accept the bill without the burden of proof provision. It was then that Leader Clark "read the riot act." He pointed out that that was by far the most, if not indeed the only valuable amendment made to the Act by the bill, and gave notice that there would be no com- promise ; that insistence upon pruning out the burden of proof provision in conference would result in the defeat of the bill. Now the bill also contained provisions to create the 67 LAWS AFFECTING INTERSTATE CARRIERS Commerce Court, an institution very dear to the hearts of President Taft and his Attorney-General. These pro- visions had been accepted by both houses. So the admin- istration, thinking that the passage of the Commerce Court provisions was of the utmost importance, at length con- sented to the retention of the burden of proof provision rather than that there should be an entire failure of legis- lation. The judgment of the Commission, while giving effect to the provision, yet gave encouragement to the carriers to renew their efforts for an all round increase, upon a new and more persuasive showing. So it is with- in the possibilities that the Commission itself may, ere long, and without the aid of the courts, so construe even that saluary and just provision as to render it nugatory. Near the close of the Sixty-seicond Congress, the Senate after a lengthy hearing and investigation passed, and with Presidential approval made law a House bill for the valuation of railroad properties. It is no pleasant task for the writer to express adverse opinions concern- ing it ; but not only does it fail to improve the situation but will cause confusion, embarrassment and disaster. Like many instances of futile and makeshift legislation the act (in form amendatory to the Interstate Commerce Act), has the defect of excessive verbiage, and provides spe- cifically how many things shall be done, the method of doing which should have been left to the discretion and practical sense of the commissioners. But it possesses the serious fault of requiring a vast amount of needless appraisment, and throws into the problem of fixing rates extraneous matters, rendering its solution hopeless. It also leaves the way open for the consideration and treat- ment hereafter, as property, of the franchises of the rail- roads, these being as before explained, merely the muni- 68 LAWS AFFECTING INTERSTATE CARRIERS ments of monopolistic power. And being thus legis- latively recognized as property, no valuation claimed for them, no matter how great, can be successfully contested as being too high. But even these, serious as they are, are not the most serious objection to the Act, as will appear further along, (see pp. 1 18-124, 338-340). A fair and full criticism of the valuation act would not be practicable except as part of a general discussion of the railroad finance and rate question in its present aspects, having reference also to the power and present duty of Congress in the premises. Such discussion follows. In order that we may have before us a definite subject for discussion, not assuming it to be the last word as to the proper form of legilation, a definite legislative propo- sition in the form of a bill is appended hereto, to be frequently referred to as we proceed. (Appendix B.) Ignoring for all present purposes telegraph, water and pipe lines, and express companies, all common carriers subject to the act, there are over a thousand railroad corporations in the country hardly one of which is not in some respect or to some extent engaged in interstate commerce. It would be strange if a single little road any- where could be shown not to connect in some way either with a longer line or a water carrier whose business ex- tended directly or indirectly across a State line. And to the extent at least of the business done by virtue of such connection the corporations owning these short lines, though wholly within particular States, are subject to the Interstate Commerce Act. It is safe to say that not one line of railway wholly within a State is distinct, independent, and free from the control of some more important carrier with respect to rates on traffic going beyond or coming from beyond the State boundary. In fixing the proportion of a joint or 69 LAWS AFFECTING INTERSTATE CARRIERS through rate which it shall receive or retain, the value of the investment in or the entire value of the shorter line, if ever an element at all, is one of the simplest propo- sitions imaginable. But not one time in a hundred that such a rate might come before the Commission would the value of the properties of one of these lesser and sub- ordinate carriers become an essential fact. If it ever did become necessary in any particular case, the valuation could then be made by the Commission for that particular case without difficulty and without any provision for it in the law. In fact, however, a controlling interest in the stocks of the intrastate and of many short interstate lines is held by great railway systems, which are comparatively few in number. We may now advance another proposition. It is neither expedient, just, nor economical to- ascertain the values of all the railroad properties devoted to interstate commerce, and it will best subserve public as well as private interests if the investigation and valuation be by entire organized railway systems and limited to the im- portant and dominating even among these. With all the light obtainable from every source, with a force of en- gineers, experts, and other helpers equal in number to the standing army of the United States at work all the time gathering and tabulating data, even if when assembled any definite mind could grasp it all, the question of what is a reasonable rate or a just and reasonable schedule of rates would still remain a matter of opinion and judg- ment. Compromise and the arbitrary striking of averages are incidental to all rate fixing. It is as impossible now to fix rates which in the future will pay all outlays and leave a definite sum for dividends as it would be to fix next year's prices for eggs or potatoes, and for almost identically the same reasons. All those railway econo- 70 LAWS AFFECTING INTERSTATE CARRIERS mists, whether holding professorships in colleges or seats in Congress or on the Interstate Commerce Commission, who expect to make or to see made of rate fixing an exact science or even susceptible of becoming subject to any- definite rules or standards, are doomed to disappointment. Nevertheless it is possible to fall into habits of thought and accept principles and standards which being con- formed to in practice destroy public justice and deeply wrong the freight-paying public. Railroad monopoly has a basis so deeply imbedded in practices which have become customs, rules that have come to be recognized as municipal law, and terms that have taken their place in the language as truly applicable though meaning something else than that which they are made to represent, that one must be an analyst and a close student of railroad business to detect the impo- sitions. What the railroads collect from the people must be paid whether the contributors are willing or unwilling. Why not then speak of the aggregate of these tributes as of any other sum total of collections ? No ; the honest word "earnings" has been borrowed and is used, the better to forestall scrutiny and investigation on the part of the superficial reader of annual reports and railway statistics. When one such reader sees the word "earn- ings," he gets an impression of something of value given pursuant to an agreement to perform a service in which there has been an amicable mutuality from inception to liquidation. But when the railroads of the country use their power to exact from the nation's traffic over three billions of dollars, as they did during the last fiscal year, fifty per cent, of which was used to pay dividends on stocks, representing a comparatively small investment as capital, interest on bonds, a large percentage of which were issued to represent "trusteed" stocks, outrageously 71 LAWS AFFECTING INTERSTATE CARRIERS inflated, exorbitant salaries, and sums added to private railroad capital in permanent improvements, the use of the term "earnings," becomes a fraudulent perversion. It does not require a very deep study of finance to see that if a stockholder owns one-tenth of the stock of a company, capitalized at $100,000,000 and out of the income of one year, ten million dollars is used in adding permanent value to its property, he has enjoyed the full benefit of a dividend of ten per cent., whether or not he has received any dividend whatever, specified as such. To see the uses made of misleading terms, we only have to examine the annual returns reported by any railroad, or read the comments thereon in Wall Street newspapers. For instance, when in August, 1906, the Southern pacific declared a dividend on its stupendously inflated common stock, a New York paper congratulated Mr. Harriman and the other big stockholders on their being at last rewarded for their persistent faith in the stock "as an investment." Without going analytically into that corporation's financial history, it may be roughly stated that the controlling interest in this stock came to the original holders as pure bonus, and the balance of the stock was put on the market and bought at a ridicu- lously low price. But, in the same article, it was stated, without the slightest intention of being humorous, that since the reorganization $100,000,000 had been appro- priated out of net "earnings" to improve the property; that is to say, these stockholders had profited to that great extent. The $100,000,000 of net "earnings" prob- ably constituted an excess above reasonable rates and charges equal to that great sum. The Interstate Commerce Commission, in making its reports, has fallen into the groove well worn by railway officials in making annual reports. They indulge the same 72 LAWS AFFECTING INTERSTATE CARRIERS misleading assumptions and deceptive terminology em- ployed by the railroads. They have never segregated the net earnings so as to show the entire sum of actual profits, itemizing the vast amounts devoted to improvements under that head. In reporting the financial operations of a railroad for a given year, the Commission should explain, in phraseology with which the general pubHc are famiHar, the meaning of the technical terms used in railroad finance, so that the public would fully under- stand the full import of their reports. But this the Commission has thus far never done. Very few, either in or out of Congress, sufficiently and at all times appreciate the importance of transportation. It is the one thing under human control that is esssential to every human being in the world under modern condi- tions and not living in the most primitive and simple con- dition. Those uncivilized nations not dependent upon some form of transportation are so few in number or so obscure as not to be factors in present-day affairs. It is not only a universal necessity but one of common public interest. That may be one reason why so few outside the comparatively small class profitably engaged in conducting transportation devote special and persistent study to it. Few give more than a transient thought to the atmosphere so essential to life or to the water supply for domestic use until it is vitiated or its supply is reduced to the danger point. So with respect to trans- portation, especially by rail. Not only have we heretofore and do we now leave the management, the character of the service, and the rates to the care and keeping of the private corporations engaged in it, but we have allowed them almost exclusively to educate the people and their official representatives as to the rules and economic prin- ciples to govern herein. 73 LAWS AFFECTING INTERSTATE CARRIERS We are living in a haze or glare of illumination, but without much steady, instructive light. There was at a former period, a proper conception of the true relation of organized society to public-service agencies, but new ideas and strange doctrines — doctrines which are totally destructive of public justice and private right — have been sprung and industriously inculcated during the last two decades. They have found lodgment not only in the minds of the representatives of shippers' association, boards of trade and other commercial bodies, but of judges, Interstate Commerce Commissioners, Senators, and Representatives. The most dangerous and far-reach- ing of these is the economic view that, at any rate and aside from all other considerations, the corporation con- ducting business as a common carrier is entitled as of right to a fair return, usually asserted to be equal to the prevailing rate of interest, upon the value of the property devoted to the public service. Sometimes the expression varies, and it is said that the carrier is entitled to some such measure of return as the prevailing rate of interest on its investment. But the whole question of what is or what should be the proper basis or measure of rates is encumbered and befogged with inconsistencies and con- flicting theories, the result of which is se^ in the enact- ment of such bills as that passed in the closing hours of the Sixty-second Congress. Transportation has been a matter of common as well as of vital interest from the dawn of civilization. Carters, charioteers, draymen, and cabmen for hire were, by ancient law as well as by the common law of England, subject to regulation as distinct classes, and strict rules and principles of law were applied to them for the protection of the public. So when we say that the earlier decisions of our courts in cases involving corporations 74 LAWS AFFECTING INTERSTATE CARRIERS employed as carriers and in other public services, before interests in transportation became so vastly valuable and inextricably interwoven with all commercial and indus- trial activities, and prior to the creation of organizations for the propogation of error and confusion, are entitled to the greatest respect. The heresy that it is the duty of government to safeguard the earnings of any partic- ular class of business men up to the point of realizing a reasonable, or, indeed, any, profit upon their ventures is a most vicious form of paternalism which found no sanction or encouragement in the decisions of the courts or otherwise until within the last few years, during which serious attempts were made to regulate the rates for services by carriers in interstate commerce. It is not necessary to encumber the discussion with citations to the extent of making it resemble a lawyer's brief, but only to call attention to such decisions as are necessary to prove the preceding proposition. In 1896 the case of Covington & Lexington Turnpike Road Co. v. Sandford (164 U. S., 578), involving rates or tolls to be charged over a turnpike, was decided. We see, upon a moment's reflection, that the question there was exactly the same as that raised in any case involving a railroad rate. In that case successive Acts of the Legislature of Kentucky had greatly reduced the tolls until in 1896 the company sought to prevent the linal reduction by suit in court on the ground that the rate fixed by it was confisca- tory, but in the proofs it failed to show that the rate did not yield some small profit or even if it did not that in- solvency would not be attributable to competition and loss of business rather than to the reduction of rates. Here are some of the principles stated by the Supreme Court of the United States, after stating the facts and quoting literally from the complaint: 75 LAWS AFFECTING INTERSTATE CARRIERS It is proper to say that if the answer had not alleged, in sub- stance, that the tolls prescribed by the act of 1890 were wholly inadequate for keeping the road in proper repair and for earning dividends, we could not say that the act was unconstitutional merely because the company (as was alleged and as the demurrer admitted) could not earn more than 4 per cent, on its capital stock. It cannot be said that a corporation is entitled, as of right, and without reference to the interests of the public, to realize a given per cent, upon its capital stock. When the ques- tion arises whether the legislature has exceeded its constitutional power in prescribing rates to be charged by a corporation con- trolling a public highway, stockholders are not the only persons whose rights or interests are to be considered. The rights of the public are not to be ignored. It is alleged here that the rates prescribed are unreasonable and unjust to the company and its stockholders. But that involves an inquiry as to what is rea- sonable and just for the public. If the establishing of new lines of transportation should cause a diminution in the number of those who need to use a turnpike road and, consequently, a dim- inution in the tolls collected, that is not, in itself, a sufficient reason why the corporation operating the road should be allowed to maintain rates that would be unjust to those who must or do use its property. The public cannot properly be subjected to un- reasonable rates in order simply that stockholders may earn divi- dends. The legislature has the authority, in every case, where its power has not been restrained by contract, to proceed upon the ground that the public may not rightfully be required to submit to unreasonable exactions for the use of a public highway es- tablished and maintained under legislative authority. If a cor- poration cannot maintain such a highway and earn dividends for stockholders, it is a misfortune for it and them which the Con- stitution does not require to be remedied by imposing unjust burdens upon the public. The court here plainly said in effect that the matter of first importance was the interest of the public in hav- ing reasonable rates, and that that should outweigh all other considerations so long as any profit whatsoever was in sight for the company and its stockholders. The court refused to hold an act of the legislature fixing rates to be confiscatory until a point of reduction of rates was reached at which business could only be done at a loss The court did not deem it necessary to set forth the rea- soning underlying this rule in that case, but did state them 76 LAWS AFFECTING INTERSTATE CARRIERS in a subsequent case, Cotting v. Kansas City Stock-yards Co. (183 U. S., 79), as follows: If in such a case an individual is willing to undertake the work of the State, may it not be urged that he in a measure subjects himself to the same rules of action, and that if the body which expresses the judgment of the State believes that the par- ticular services should be rendered without profit he is not at liberty to complain? While we have said again and again that one volunteering to do such services cannot be compelled to expose his property to confiscation, that he cannot be compelled to submit its use to such rates as do not pay the expenses of the work, and therefore create a constantly increasing debt which ultimately works its appropriation, still is there not force in the suggestion that as the State may do the work without profit, if he voluntarily undertakes to act for the State he must submit to a like determination as to the paramount interests of the public? * * * The authority of the legislature to interfere by a reg- ulation of rates is not an authority to destroy the principles of these decisions, but simply to enforce them. Its prescription of rates is prima facie evidence of their reasonableness. In other word, its is a legislative declaration that such charges are rea- sonable compensation for the services rendered, but it does not follow therefrom that the legislature has power to reduce any reasonable charges because by reason of the volume of business done by the party he is making more profit than others in the same or other business. The question is not always what does he make as the aggregate of his profits, but what is the value of the services which he renders to the one seeking and receiving such servies. The latter was not a railroad case, but like principles apply to it. The gist of these decisions is that it is for Congress or the Interstate Commerce Commission in its place or stead to fix the rates, which the courts should presume to be just and reasonable until the carriers affect- ed thereby show them to be confiscatory; that it is not sufficient merely to show that the rates are low or even unreasonably low, which being a matter of opinion is not susceptible of exact proof ; that a public-service corpora- tion assumes duties pertaining to government, such duties as the Government might, except for the interposition of the individual or corporation, itself perform for the peo- ple to be served; and finally that so long as the govern- 77 LAWS AFFECTING INTERSTATE CARRIERS mental authority fixing the rate stops short of a depriva- tion of all profit, or of any whatever, the party affected can not complain, since he may at any time abandon the service and allow it to be resumed by the Government. So the proper question in all such cases is, not whether the rate is reasonable in point of profit-yielding power, but reasonable from the standpoint of the man who pays it; and this consideration ought to control the case, not- withstanding that the rate may be low, or even unreason- ably low, until the actual conficatory point is reached. But the Covington Turnpike case was the last of a long line of decisions beginning with Munn v. Illinois. The railroad economists had, by 1897, when Smith v. Ames (169 U. S., 466) was decided, succeeded in creating a hesitating state of judicial mind and a reluctance to carry forward into cases involving railroad rates the principles which they had previously established and adhered to. The decision in the last-mentioned case was, we might say, rather hazy. It was what in chemistry would be called a blend, rather than a compound. The sound views in prior cases were ingenuously mixed with the self-serving views of the railroad lawyers and economists. In one part of the opinion it was said that the sole cri- terion was the value of the property devoted to the pub- lic use, while in another several other matters were men- tioned to be properly considered, and, among them, the market value of stocks and bonds. It was said (p. 546) : We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintain- ing a highway under legislative sanction must be the fair value of the property being used for the convenience of the public. And in order to ascertain that value, the original cost of con- struction, the amount expended in permanent improvements, the amount and and market value of its bonds and stock, the present as compared ith the original cost of construction, the probable earning capacity of the property under particular rates prescribed 78 LAWS AFFECTING INTERSTATE CARRIERS by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regadred in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway that the services rendered by it are reasonably worth. There may be those blessed with sufficient mental skill or subtlety to state how all the matters here mentioned can be brought together, with other matters intimated but not specified, as a basis of fixing a rate. But there are surely not many, even among the railroad experts in the con- gressional lobby, equal to the task. If the value of the property is to receive principal consideration, as the court asserts, then what consideration should or can the market value of stocks and bonds receive ? We need not dwell upon one or two decisions of the Supreme Court and several by the Interstate Commerce Commission and the Federal courts intermediary between those above referred to and that in Wilcox v. Consoli- dated Gas Co. (212 U. S., 19). The latter case evidences progressive strides in false and vicious economic educa- tion. Now, the Consolidated Gas case presented exactly the same issue as that presented in any railroad rate case. The body of gas consumers answer to the whole body of transportation consumers on the lines of a railway system anywhere, and the relation of the gas company to the pub- lic is in all essentials similar to that of the railroad com- pany. While the action of the court was not conclusive of the ultimate rights of the parties, yet the views of the court, expressed in the course of its opinion, are signifi- cant of its changed economic attitude since the decisions in the turnpike and stockyards cases. 79 LAWS AFFECTING INTERSTATE CARRIERS There must — Says the court — be a fair return upon the reasonable value of the property at the time it is being used for the public. The word "must," inserted by the court in lieu of the words "may, on condition that the rates to consumers are just and reasonable," contained in earlier opinions, marks the great chSnge wrought by the schools for the propaga- tion of economic error maintained in this country. Tliey are maintained out of the vast profits realized on exploita- tion of the public through exorbitant rates. But the court declared that the franchises of the company, which it was admitted did not cost it a penny and represented merely the voluntary abdication by the State of New York of a particle of its sovereignty, should also be valued as part of the aggregate upon which the consumers should be compelled to pay rates. The court said : It cannot be disputed that franchises of this nature are prop- erty and cannot be taken or used by others without compensa- tion. We do not fully comprehend the significance of this dec- laration, principle, or dogma of rate fixing unless we re- flect that the Consolidated Gas Co. is an absolute monop- oly, with the usual history of such monopolies cf which flagrant dealings with municipal authorities and scandal- ous stock inflations were prominent incidents, and that the so-called franchises simply stand for monopolistic power acquired through practices which one would not care to properly designate unless willing to consume sufficient space for the proofs. But that gas company, like all such, and like all railroad companies, possesses real taxing powers within and throughout the territory in which it operates. The folly and injustice of placing a valuation upon the monopolistic sovereign power after valuing all 80 LAWS AFFECTING INTERSTATE CARRIERS > tangible assets is readily seen. But that is a right or priv- ilege that municipal monopolies and railroad companies now insist upon, and what the courts and Interstate Com- merce Commission now concede. That the assets of the Consolidated Gas Co. represented little, if any, original investment but what Thomas W. Lawson 'would call "made" dollars, is shown by another part of the opinion, where it said : The evidence shows that from their creation down to the consolidation in 1884, these companies had been free from legis- lative regulation upon the amount of the rates to be charged for gas. They had been most prosperous and had divided very large earnings in the shape of dividends to their stockholders, dividends which are characterized by the Senate committee appointed in 1885 to investigate the facts surrounding the consolidation as enormous. The report of that committee shows that several of the companies had averaged, from their creation, dividends over 16 per cent., and six companies in the year 1884 paid a dividend upon capital which had been increased by earnings, as in the case of the Manhattan and the New York, of 18 per cent., and, had it been upon the money actually paid in, it would have been nearly 25 per cent. And in a subsequent caes, it was decided that 7 per cent, was not an unreasonable profit for railroads. It is these views and similar views of the courts and their echo and repetition by Interstate Commerce Com- missioners which have led to offering the appended bill. The true theory is that the Government shall regulate and control rates. But the views here quoted and to be quoted would make the Government the guarantor and under- writer of profits, and the vice of such views is but slightly alleviated, if at all, by the use of the qualifying word "fair." The Government has no better authority from the people or from the laws of the land to insure fair profits to a particular class of business men than to in- sure to them the receipt of an unfair or exorbitant profit. The one rule makes of public-service corporations the ser- vants of the public, which was the original and is the 8i LAWS AFFECTING INTERSTATE CARRIERS proper conception of them. The other rule makes of them the unbridled masters of the people. The proper view is that the citizens of the Republic are freeholders in their relation to common carriers and that the latter are their agents. The perverted view adopted by judges and commissioners makes every taxpayer a taxpayer to each and all of so many little sovereignties or municipalities within their own domain and hewers of wood and drawers of water under sublords ruling them in the name and right of private corporations clothed with sovereign powers of taxation and exploitation. In the report of the commission for 1908 on the question of what constitutes the reasonable rate we find this lan- guage : When, however, all has been said along these lines that may properly be said, it nevertheless remains as a fundamental prop- osition that the actual investment in any enterprise needed for giving the public adequate transportation facilities is entitled to and should have a reasonable return, and no more than a reason- able return, in the form of a constant profit; and a reason- able schedule of rates is one that will produce such a result. So, here we see the words "constant profit" used ; so, here the Commission declares its policy to be to fix its eyes constantly and exclusively upon railroad interests until they are secure in receipt of a "constant profit." And the same in some form is to be found in each subse- quent annual report. The statement is on its face plaus- ible and well calculated to deceive one who is simple- minded or indiscriminating in thought and expression. The true rule is that if the public be well served at fair and reasonable rates, or rates fixed under really com- petition conditions, then there should be no reduction of rates so long as they produce only a reasonable return on the property. This rule of rate-making compels the rate-fixing authority to begin at the shipper's side of the 82 LAWS AFFECTING INTERSTATE CARRIERS question and to only take up the carrier's side if that becomes necessary; that is to say, when it is alleged that fair and reasonable rates for the shipper are confiscatory of the carrier's property. It is no valid objection to rates which are only fair and reasonable from the ship- per's standpoint that they are unreasonably low from the carrier's standpoint, because even unreasonably low rates may yield some profit, however small, and be therefore nonconfiscatory. What the courts and commissioners have done in recent years was to start the consideration of each question from the carrier's side ; to start with this heresy that at all events, aside from all other considera- tions and regardless of the effect upon the fortunes of shippers, the carrier was entitled not merely to protection against a confiscatory rate, but to a return, usually placed at or a little above the rate of interest on mortgage loans. To give such a rule universal application is to guarantee not only the solvency but the financial success of the most recklessly, dishonestly, and wastefully managed roads in the country, or those which but for the Government sanc- tion thus given to exploitation of the public would have to go into liquidation and reorganize on a sound and hon- est basis. An exemplification of the practical application of this modern theory is seen in the Spokane rate case, where the commissioners decided that rates which satis- fied the financial needs of the Northern Pacific and gave the holders of its enormously inflated stocks the dividends which they demanded were just and reasonable, though the same rates in the case of its competitor, the Great Northern, yielded nearly twice the same dividend rate in addition to enabling it to pile up a large surplus for ex- tensions and outside investments. It was in view of the earlier decisions of the courts that the words "fairly remunerative" in the provision requiring 83 LAWS AFFECTING INTERSTATE CARRIERS the Commission to ascertain and enforce reasonable rates were stricken out of the Hepburn bill in the Senate in 1906, as the record of debates shows. But, contrary to congressional intent, as thus expressed, these words were, by the commission, in the Spokane case and in other cases, interpolated by construction as part of the statute, and the real purpose of the law nullified. Another proposition, well established by former de- cisions, has been completely ignored or overlooked by the Commission, as well as the courts, in recent years; that is, that no loss, whatever its form or extent, is protected by the rule against confiscatory rates unless resulting directly from the action of a legislative or official body, though such loss might be so great as to end in insolvency. If in fixing reason- able rates on one road another in competition with it finds its rates so reduced that it can not do business except at a loss, that should be attributed to the operation of compe- tition and only indirectly, if at all, to the action of the Commission. The decision of the Commission in such a case would be unassailable and invulnerable as against any constitutional objection. The disastrous and far-reaching effects of the non-observance of this principle can scarcely be exaggerated. The counter proposition that the weaker, worse managed, more injudiciously located or construct- ed facility, or the one whose mechanical form has been antiquated and superseded must nevertheless be secured and safeguarded against loss and the possibility of de- struction from competition has found favor in the official minds of the commissioners. Outside the commission there is no help and but little sympathy for one who has been struck down by the wheels of progress ; but with carriers in interstate commerce, under the Interstate 84 LAWS AFFECTING INTERSTATE CARRIERS Commerce Act as paternally administered by the Com- mission, it is very different. The whole situation is best shown and illustrated by a discussion of the history of some of the trunk lines, and a statement of the relations between the carriers between the Atlantic seaboard and Chicago and other cities of the Central West. It is unnecessary, however, to occupy space with the details of that history which must be already well known to many in Congress. But in the case of what are known as the trunk lines, there is presented a striking and important illustration of results flowing from the adoption by the commission of the "constant-profit" theory of rate making. The rates of the Pennsylvania and New York Central, whose lines reach all the impor- tant business centers of the West, have been fixed exclu- sively by the railroad managements themselves, with no limitations whatever except with reference to what the traffic would bear. Their rates have never been exam- ined or investigated by the Commission as to their reason- ableness or unreasonableness. It appears to have been considered entirely proper that the public should pay these companies considerably more for a given passenger service than is paid for the same service to the Baltimore and Ohio, the Erie, and certain other trunk lines. Now, it is undoubtedly true, a fact admitted by the railway managers at the rate-advance hearings in 1910, that a hard and fast agreement exists between all the trunk lines, and that they maintain a central association, or bureau, in New York City. Their combination would, however, be powerless to maintain unreasonable rates without the recognition given by the Commission to the "constant- profit" theory. But with that recognition and adherence to their established practices, the associated trunk lines are able to exactly reverse the natural order and substi- 85 LAWS AFFECTING INTERSTATE CARRIERS tute self-interest for the interest and welfare of the pub- lic. If the economic law of competition were allowed to operate in trunk line territory the lowest rates between the East and West would be those over the most natural and direct and the best equipped routes — that is to say, over the New York Central and Pennsylvania. They have eliminated all difficult grades and curves, duplicated trackage, acquired terminal facilities, and provided them- selves with superior motive power and rolling stock until they can move a given tonnage over a long distance at less than one-half what the same would cost over other and inferior roads. By acting secretly in concert and by constant read- justment and classifications of rates, thus working them up from one level to another, they have escaped entirely the regulative powers of the Commission and become a law unto themselves. The Commission could not now, under existing law, even if so inclined, examine and pass upon the rate question in its application to the whole trunk-line situation and establish in trunk-line territory a system of rates. Indeed, Congress has heretofore withheld from the Commission any such power. With- out it, it is idle to talk about any general rule for ascer- taining the reasonable rate, and the rule of a constant profit for the carriers, in addition to being destructive of all other interests, is a pure invention to serve the selfish purposes of the railroads. The difficulty of fixing reasonable rates for a single line of railroad lies in the great differences between con- ditions affecting railroads which under normal conditions would be in competition. In this same trunk-line territory are lines of varying financial strength and condition with reference to the cost of operation and volume and profit- ableness of traffic. For instance, there is in trunk-line 86 LAWS AFFECTING INTERSTATE CARRIERS territory the Pennsylvania and the Erie. The financial condition of the Pennsylvania is such that it can refund its bonds at 3 and 3^ per cent., and its stocks, though inflated and consisting largely of duplications through ab- sorption of subsidiary lines, is far above par, and the company could continue its 6 per cent, dividend rate with even lower rates than it now charges and still accumu- late large annual surpluses. The Erie, according to tes- timony given by its vice-president in the rate-advance cases, has the most pressing financial needs, paying no dividends on its common stock and being under an im- mediate necessity of raising $13,000,000 for general improvements. He also stated that $35,000,000 was required to put it in effective condition of construction and equipment. Now, the rates which are necessary to keep so weak an enterprise as that in a competitive posi- tion as against the stronger trunk lines must necessarily render the same rates on the business of the latter exor- bitant. To reduce its rates on through traffic without a reduction also of the Erie's rates, or to increase the Erie's rates without also increasing theirs, would do the Erie no good, because the immediate effect would be to divert from it most or all of the Erie's through busi- ness. So, in order to make a practical application of the theory of a constant profit to all carriers and keep water- logged enterprises afloat, the public must pay annual bounties amounting in the aggregate to hundreds of mil- lions of dollars over and above what the shippers con- sider just and reasonable rates. The uniformity and stability of rates required by the business interests of the country can never be secured through the commission so long as its functions and powers are limited as at present by the Interstate Com- merce Act. It must have power to revise and readjust 87 LAWS AFFECTING INTERSTATE CARRIERS entire schedules, and not only entire schedules of par- ticular roads, but of whole systems and by large areas, thereby producing uniformity, justice, and reasonable- ness on all lines ; for instance, on all the lines in trunk- line territory, on all lines in central, western, and south- western territory, simultaneously ,and from time to time, as often as is necessary to maintain justice, reasonable- ness, and equal treatment of shippers. The. Commis- sion must be authorized to harmonize inconsistent rates, to equalize discriminating rates, and to reduce high rates wherever found. These powers it can not exercise with- out the enlarged powers which would be conferred by the adoption of some such as the appended bill. The only uniformity provided for in the Interstate Commerce Act is uniformity in the treatment by each railroad of its own patrons. The second section of the Interstate Com- merce Act prohibits a common carrier from charging one person more than another for the same service, but it does not prohibit a carrier from charging one person more or less than another railroad charges the same per- son for an equal service. The third section of the Interstate Commerce Act for- bids a carrier giving any undue preference or advantage to any person or locality, or kind of traffic, over another. But this only applies to the action of a railroad toward the people or places served by it. It does not protect them from monopolistic and exorbitant rates when no competition is at hand, and so, too, with reference to the long-and-short haul provision in the fourth section. To enable the commission to fully perform its duties, it should have power, as is here provided for, to increase, as well as to reduce, a rate. Without this additional power it can not effectively harmonize and equalize rates or deal with entire schedules. 88 LAWS AFFECTING INTERSTATE CARRIERS Two principal reasons have been heretofore urged against conferring the power upon the Commission to formulate or revise schedules. The first was presented by the railroads. They claimed the right to initiate all rates themselves. They urged that to confer so broad a power upon a governmental agency was to take from them the only power which rendered their properties of any value. The second objection was constitutional, though probably originating in the same fertile brains of counsel for the railroads. It was argued that if the Com- mission could adopt and put in force rates by wholesale for one company, it could do so for all at once, which was not merely applying a statute to facts, but the exer- cise of outright legislative functions. The constitutional objection was not clearly, if at all, distinguishable from that based upon policy. Without turning aside to debate the issue, it is safe to assert that both objections are un- tenable. The Supreme Court in the Southern Pacific Lumber rate case, decided last year, limited the con- struction of the powers of the Commission under the present law as has just been stated. The people are disadvantaged by their environment in the very midst of events constantly transpiring all around them in the world of railroad construction, finance, and operation. Transportation of persons and property are interwoven with every-day aifairs and existence, so that we have failed to see the trend and drift of the matter, or to discern the final solution of the problems presented to us. The figures representing the present financial status of the railroads mystify us by their magnitudes. We can only understand their significance by comparisons. The present capitalization upon which the people pay interest and dividends by way of rates and fares is, ac- cording to the latest report of the Interstate Commerce 89 LAWS AFFECTING INTERSTATE CARRIERS Commission, nineteen billions of dollars. In so far as this vast sum represents actual investment, it is for the most part investment made by the people who use — and who have no choice in the matter — the facilities pro- vided, comparatively few of whom own any of the stocks or bonds. Yet the holders of these are constantly re- ferred to as investors whose investments must be safe- guarded against any diminution of returns which have gone on increasing proportionately as their property has been added to by accretions from collections which their patrons had no option but to pay. The theory upon which the appended bill is based is that existing rates on the strong and dominating lines in each group of railways are kept too high in order that their weaker competitors may enjoy, as of right, this constant profit ; that this ignores the right and interest in the subject of the public; that the commission should be constrained by law to take up the rates on each of these stronger lines as a schedule or body of rates and reduce them to the point of reasonableness and justice to the shippers, ignoring the claims of the stockholders unless in the course of the reduction the confiscatory point is reached. The rates of the weaker lines are now regu- lated by their stronger competitors, the rates of the latter not being regulated at all. If the Commissioners be given power to take up the schedules of the strong roads upon their own initiative and without having to wait for com- plaints, and to regulate them, by which is meant reduce their rates, the rates of the weaker lines will be thus in- directly and automatically regulated, without attention and labor on the part of the Commission. That is what is in mind in confining the physical valuation to selected systems and dealing with all the lines and subsidiaries constituting such systems in their entireties. The purpose 90 LAWS AFFECTING INTERSTATE CARRIERS is to have regulation assume a direct, practical, and effec- tive form, to be more economical, and not to continue as a mere farcical but costly pretense, as it has been thus far. There is nothing, either in the law or in what is popu- larly known as equity, as applied to matters of public concern, to warrant the Commission in giving considera- tion to the alleged financial necessities of any corpora- tion. A railroad corporation is not a public institution, nor public in any other sense which would place its affairs under the care of the Government or make it the duty of the Commission to provide for its safe deliver- ance from the inconvenience of scant revenues, or even from insolvency. The railroads are not of public con- cern in any such sense, and their managers do not so con- sider them, when discussing their legal relation, except when insisting upon being safeguarded by the Govern- ment through high rates against the results of each other's competition. No matter how important any single railroad company may be to a particular city or section, not one of them is of common interest to all the people of the nation. The transportation business of the whole country, which practically resolves itself into what may be designated as "the railroad business," is of general, or rather, of universal interest; and it is that business rather than any particular railroad corporation which Congress has been empowered by the Constitution to regulate. The proposition that the financial welfare or the financial affairs of any particular railroad ought to be considered by the Commission as the subject matter or part of the subject matter of any rate case or question before them, or otherwise than as a limitation to be pleaded in a proper case by the particular carrier in- volved, was never within the purview of any legislation 91 LAWS AFFECTING INTERSTATE CARRIERS thus far enacted, but was a pure invention by commis- sioners. The services and the rates are the only matters per- taining to common carriers with which the pubHc have to deal or with which they come in contact. They have nothing to do with internal management, nor should their interest in just and reasonable rates be confounded or complicated with those of stock and bond holders. The commission would have plenty to do if they looked care- fully after the rates and service. The provision of the act of 1912 injecting the sub- ject of stock and bond issues into the scheme of valuation is one which is fraught with mischief. It imposes upon the Commission a useless, if not in fact an impossible task. But the strongest argument against it is that it carries with it an assumption that the Government is under some sort of obligation to the carriers with respect to their internal finances and private relations to the holders of stocks and bonds. An inquiry, such as is pro- vided for in the act, as to the minute history of every issue of railroad stocks and bonds is one from which a commission composed of many members and provided with unlimited revenues might well wish to be excused. It appears to be as impossible as it is useless ; and if the expenditures by the Commission during recent fiscal years when it was engaged in only its routine duties may be ac- cepted as an indication of the cost of the work directed by the act to be done. Congress would do well to give that phase of the subject serious consideration. The estimates of cost given by the Commissioners are mere guesses and not very shrewd guesses at that. It will take several years to obtain the data, and at the end of that time it will be fit only for the junk heap. So many changes will have occurred that the data would afford no 92 LAWS AFFECTING INTERSTATE CARRIERS satisfactory light on any question properly before the Commission, even if it could ever be placed in manageable form. None of the Commissioners nor any member of any committee which considered die bill was able at the hearings or is able now to suggest any definite use for the outcome of all this labor and expense. No one can suc- cessfully dispute the power of Congress to obtain all the information specified in the bill and to spend all the money necessary to obtain it. But the theory of rate- making underlying, it is peculiarly and stupendously vicious. The appended bill provides for a fair valuation of the properties of not more than ten great dominating railway systems, not with a view to making the values found a basis of rates, but in order that when the Com- mission undertakes to establish a rate or schedule of rates in any particular instance, it may have at hand a minimum standard below which it cannot go. That is not any standard prescribed by Congress, but that already fixed in the Constitution. The rule given by Congress to the commission that all rates shall be just and reasonable is the equivalent to no rule at all and leaves with the Commission unlimited arbitrary power anywhere and everywhere above the confiscatory point. But the power should be justly and wisely executed in the public interest. And inasmuch as the Commis- sion has been controlled in the exercise of power by theories which were subversive of public interests and of great practical and unfair advantage to special interests, it is provided in the appended bill that there shall be a complete reorganization of the Commission. It contains a comprehensive new grant of powers to the Commis- sion, as heretofore explained, and the people are entitled to have these broad and far-reaching powers exercised by men who are untrammeled by their records and unfet- 93 LAWS AFFECTING INTERSTATE CARRIERS tered by their preconceptions of duty under the law. It is provided that the terms of oi¥ice of the present incum- bents shall end upon the appointment of their respective successors, but the present incumbents are not disquali- fied for reappointment. The membership of the Com- mission is increased from seven to fifteen, a provision which is obviously proper and necessary if these impor- tant and comprehensive new powers and duties are conferred. The revision of a vast schedule of rates for one of our great systems, affecting directly the salability and market price of thousands of articles of commerce, consulting and conserving the material interests of all the people of large sections of the country, is of superior importance to a revision of one rate, and if the power conferred upon Congress herein is not to remain a dead letter, or its exercise not to be purely farcical and perfunctory, this great power must be lodged somewhere. The policy of vesting it in a Commission is too firmly established to be reversed ; and the time has come when the work of regu- lation must be begun in earnest. The matter can not longer be trifled with on any shallow pretext or false theory whatever. It is a work having the practical effect of legislation, though the unquestionably constitu- tional form will be administrative. There are those, and their number is not small nor are they without influence, who will object to the giving of such large discretionary powers to a Commission. But to continue the methods pursued thus far is to make a mere pretense of regulating the rates and service of the rail- roads. Congress, after illegalizing all except just and reasonable rates, has left the determination of the ques- tion of what rates are just and reasonable entirely to the Commission with the due process of law clause of the 94 LAWS AFFECTING INTERSTATE CARRIERS Constitution, forbidding confiscation, as an irreducible minimum, with all the traffic will bear as the maximum limit. The policy and practice of the present Commis- sioners has, as a general rule, allowed the railroads to reach, practice and maintain the maximum. As to what constitutes a just and reasonable rate is, and under any plan of regulation through a commission that can be de- vised must ever remain, largely a matter of opinion, and yet it should be understood by the present commission and by any commission that may be appointed hereafter that the freight-paying public will consider any rate too high which gives the carrier too much of the margin of profit between production and sale, a margin which is represented in the selling price and must be divided be- tween producer, carrier, and one or more intermediaries, and that any schedule or system of rates is too high which produces in any one year a large surplus to pay dividends on watered stock, or to be laid out in the same year in additions and permanent improvements. To merely say that rates on a given kind or class of goods, or on a given commodity, are too low, or that they do not yield enough revenue to suitably compensate for the service performed in their transportation proves nothing. Nor would the fact that the service actually cost more than the rate charged necessarily justify an increase of the rate, since many services of carriers are performed at rates which do not equal the cost. Nor would evi- dence that any single rate produced less revenue than the outlay to have the service performed be accepted as satisfactory proof that such rate was confiscatory or even uneconomical. These points have been decided and settled from time to time by the courts and by the Commission itself, and by such decisions have conclusively established the neces- 95 LAWS AFFECTING INTERSTATE CARRIERS sity for the consideration by the Commission of the rela- tion of rates and of the combined effect of entire sched- ules of rates. The commission has in fact, and neces- sarily, exercised the power to consider such relation, to make comparison of particular rates in issue with rates not in issue — in short, to consider correlated rates in order to reach anything like intelligent conclusions, not- withstanding that the courts have, as before shown, de- nied to the Commission the exercise of any such ample and essential powers. The railroad managers and representatives earnestly and even persistently cultivate in the people those hopes and fears which make for corporate enrichment and pop- ular loss. To them and their activities more than to aught else is due that morbid appetite for commercial conquest which has led to a wasteful exploitation of our diminishing natural resources. If a few square miles are found remote from railroad lines, the residents of that area are soon convinced of their complete isolation from the balance of the world and made to believe that the only thing needed to insure them plenteous prosperity and content is the advent of a railroad. And urban populations are in divers ways and through various chan- nels ^nd instrumentalities of false instruction con- vinced that any legislative interference with railroad ex- tension is a dire menace to progress, and that the finan- cial condition of the railroads, reflected in earnings and dividends, is the true barometer of general business, and that a showing therein of a large balance in favor of the railroads constitutes the mainspring of universal as well as individual prosperity. Much that is promulgated on this subject begs the question and ignores not only the presence in the statute books of the Interstate Commerce Act but also the public duties of the carriers. 96 LAWS AFFECTING INTERSTATE CARRIERS With a view to promoting general prosperity the car- riers would compel large contributions from the purses of rate payers to those who in the opinion of the railroad economists are best qualified to bring about and maintain it by the circulation of money that such extensions would require. The railroad corporations dominate all other business, in addition to having absolute dominion over their own, and often rob particular sections of the coun- try of the aavantages which would naturally belong to them by reason of water transportation or otherwise. And the brazen claim is now made that their demand for high rates should be sustained in order that the shortest through route to general prosperity is by way of in- creased employment for labor by them, to be paid from large surpluses, only possible if high rates be charged and collected. There was recently published an article by a leading railway president and publicist containing an eulogistic passage concerning the tendency of present freight ad- justments to give to purchasers the choice of supply from various producing regions, inducing and compelling com- petition to hold down prices and give them uniformity. Thus we see that the railroads, while claiming and re- ceiving exemption from each other's competition and clamoring at the doors of Congress to have legalized their practice of eliminating competition by combination, yet claim and exercise the prerogative of prompting and in- tensifying it among persons engaged in the production and sale of commodities. The Interstate Commerce Commission made a report in 1904 showing that the railroads were then realizing dividends on their dividend-paying stocks of 5j4 per cent. They also showed that at least one-half of the stocks did not represent any original investment. So 97 LAWS AFFECTING INTERSTATE CARRIERS the equitable owners of the railroads were then enjoy- ing at least 1 1 per cent, net profits on investments. Since that report was made there have been vast issues of ^ | stocks, estimated by competent authorities at $5,000,000,- 000. That means upon this new doctrine of "a constant profit" a vast inflation of the mortgages held by the rail- road financiers ostensibly upon the properties, but in real- ity upon the nation's commerce and industries. Never- theless, the average dividend rate has increased until, according to the 1910 report of the Commission, it aver- aged 6.43 per cent., the next year 7 per cent. ; and accord- ing to the latest report is now 7.20 per cent. And the railway overlords and those who officially favor them now claim that a guaranty of this, or at any rate some fixed income, should become a settled policy of the Gov- ernment. As a further illustration of the view taken by rail- road managers the testimony of Vice-President Gardi- ner, of the Chicago and North Western, in his testimony taken at Chicago by the Interstate Commerce Commis- sion, in 1910, is interesting. His opinion coincides with that of the Commissioners thus far expressed, that the railroads should collect rates high enough to safeguard them against embarrassment and enable them to accumu- late surpluses in anticipation of all possible contingencies and periods of general depression, without reference to the nature or cause of its effect upon other interests. Speaking of the size of this surplus, he said : It should be large enough, however, as an insurance against the loss of crops for two or three years, or a calamity, or something of that sort. It would take a wise man to say even how much surplus the North Western should have. The di- rectors would be the only body I know of who could say that finally. 98 LAWS AFFECTING INTERSTATE CARRIERS It would be enlightening to know what Vice-Presi- dent Gardiner and others would say to a proposition com- ing from the merchants, farmers, and shippers generally of the Northwest that the balance of the people of the country should be compelled to pay them for what they have to sell, prices sufficiently above the competitive mar- ket price to enable them to carry their indebtedness, pay wages to their employees, profits equivalent to the divi- dends paid by the railroads, and still enough more for large bank balances to meet all reverses and misfortunes, including those resulting from bad management. And the company for which Mr. Gardiner spoke has carried out his theory in practice. In the past ten years not only has it paid out of its surplus, $56,000,000 as dividends on $85,000,000 of capital stock, but accumulated an un- appropriated surplus of $30,000,000, constituting in the aggregate a net return to its stockholders of more than 10 per cent, per annum. It will be remembered that in 1910 there was a con- certed and preconcerted increase of rates, which was checked by timely action on the part of Congress author- izing the Commission to suspend the increase, and plac- ing on the carriers the burden of proof to show neces- sity for the increases. The figures for that year are a study by themselves and an object lesson of the limitless greed and rapacity of railroad managers when left with- out legal check or control. The total net operating rev- enues — that is, the profits of operation — were $938,121,- 000, or an increase over 1909 of $110,306,000. One sig- nificant fact about the figures is that the gross revenues or collections for 1910 were $335,934,000 more than for the preceding year. For 1909 they were $2,443,312,000, and for 1910, $2,799,246,000. - At the same rate of in- crease they will soon reach and pass, if indeed they have 99 LAWS AFFECTING INTERSTATE CARRIERS not already reached and passed, the three-billion mark, while if the increase in net revenues is maintained, these will soon reach and exceed the billion mark. Another significant fact is that the increase of net, despite all that was then said about increased cost of operation, al- most exactly kept pace with the gross increase, being 13^ per cent. It was a substantial increase not only of aggregates and per unit of service but per mile of rail- road. Here are the figures : Total Operating Operating Net in- average revenue expense come per mileage. per mile, per mile. mile. 1909 233,002 $10,486 $6,933 $3,553 1910 236,690 11,742 7,778 3,964 The ordinary business man may, out of the profits of one year's business, buy an adjoining lot and enlarge his store or otherwise invest money to make it more conven- ient and attractive. He does not thereby acquire any claim, based on right, to increase the price of his goods, even if not prevented by competitive conditions. He en- larges his plant by investing more money. If he has the capital, so much the better. If he has it not, it may be expedient to, borrow it in order to meet the demands of a growing business. In the latter case he must pay in- terest. In either case he must take the risk and deter- mine at his peril whether the enlargement or addition will result in profit or loss. He never attempts to add the cost of enlargement or the interest on the indebtedness so increased to the price of what he has to sell, but looks to an increased volume of sales at the usual and normal profit. But the railroads object to any such view being taken of their business. Not content to await the growth of business and the rise of normal demand for the utili- 100 LAWS AFFECTING INTERSTATE CARRIERS zation of their improved facilities of transportation to restore their cash or meet their obHgations, they are con- stantly insisting upon increases in the price for the ser- vice which they furnish and increased profits. Nor is there anything in the present law to prevent or check this tendency and practice of the railroads, but its inevit- able effect will be to sanction, aid, and perpetuate it. lOI CHAPTER VI BANKING AND OTHER PECULIAR PHASES OF RAILROAD BUSINESS— FURTHER CRIT- ICISM OF THE VALUATION MEASURE There is an important phase of railroad finance which has thus far received very little public attention, but which is important in any thorough consideration of the subject. Notwithstanding that the railroad corporations have worked up their net revenues from operation to the billion-dollar mark, they are in receipt of additional large incomes from investments in what is really a bank- ing or money-lending business. This refers to the large holdings of some of the principal companies in the stocks and bonds of other companies. According to the latest report of the Commission on the subject, the aggre- gate of all issues of stocks and bonds is nineteen billions of dollars, of which about four and a half billions are duplications. Most of these duplications consist of "trusteed" stocks, upon which interest-bearing bonds have been issued, constituting two distinct capitalizations, the one concealed beneath the other, upon both of which profits, to wit, dividends on the stocks and interest on the bonds are received by the holding company. Railroads are chartered for the sole business of con- structing and operating lines of railroad and transport- ing freight and passengers; but their "earnings" from this business have grown so enormously through the operation of the Interstate Commerce Act, and under the 102 PECULIAR PHASES OF RAILROAD BUSINESS fostering care of the Commission, that the returns are far in excess of legitimate requirements in that business. Money has been accumulated in such vast sums that those in control have used the funds for what is in reality a banking business, with speculation as an ad- junct. The railroads now have five times as much of their working capital invested in bonds, stocks and other banking assets as they have invested in equipment, mate- rials and supplies for conducting the business of trans- portation. This condition calls strongly and unmistak- ably for legislation. It is one which cannot be permitted to continue. In 1906, this subject was looked into by the Commis- sion, and a balance sheet was compiled by its statistician from reports called for and received from individual companies. It showed that in cost of equipment and materials and supplies a working capital of $1,016,593,- 864 was employed, but as banking assets, in the forms of stocks, bonds, cash, current assets, sinking funds, sun- dries or miscellaneous, the railroads owned and employed the vast aggregate of $5,022,576,615. Nor did the bal- ance sheet of 1906 include all the corporations in control of assets available to the railroads for banking and in- vestment purposes. There are several large holding com- panies not under the control of the Commission, because they operate no railroads but merely control finances and investments for the railroads. In the report of the Commission on Intercorporate Relationships of Railways it appears that the total par value of railway securities owned by the railroad corporations is $5,555,212,497. These vast community holdings form the basis of com- binations which defy the Commission, impede and ob- struct justice and oppose legislation. Need it be won- dered at that their opposition has been thus far so suc- 103 PECULIAR PHASES OF RAILROAD BUSINESS cessful? The people's representatives will never proper- ly or fully understand the railroad situation without con- sidering the relations between these vast holdings of each other's securities and several other matters, which are, so f^r as is possible, kept under cover by the interested parties. It would require a very large volume to fully exploit this one branch of the railroad question. But when the managers and their paid "educators" plead the necessity for raising rates to enable them to accumulate surpluses with which to construct branch lines, better- ments and terminal facilities, they might very properly be asked why these great accumulations of concrete wealth should not be used. But it should not be the policy of our Government to encourage further extensions by the present great railroad corporations to be controlled or owned by them. If the close alliance between the banks and railroads can be broken, so that there is no longer a money trust, if capital be made free again, there will then be others than the present railroad kings and finan- cial barons to construct, equip and operate independent lines of railroad. Exactly what is not needed is more subsidiaries or branches. As for increases in rates of interest, the combinations between large banking inter- ests, the communities of railroad interests created by the holding companies and the railroad corporations them- selves and interlocking directorates are almost exclusive- ly responsible for them. The prime mover and leader in nearly every effort to bring about an increase of rates in central and trunk- line territories, to make extensions and improvements, is the Baltimore and Ohio Railroad Company. Such being the case it is in order to give special attention to it, as an exemplification of railroad policy and railroad finance. 104 PECULIAR PHASES OF RAILROAD BUSINESS Here are two leading cities, New York and Chicago. When railroad construction first began, a line of railway was constructed over a natural route — along the lake shores by way of Niagara Falls, Buffalo and Albany — between them. Another line was constructed along a route almost or quite as judicious and economical by way of Pittsburg and Philadelphia. Contemporaneously, a third construction was undertaken and finally com- pleted over an indirect route to the Ohio River, and thence across a mountainous region by way of Wash- ington and Baltimore. The fraudulent financing of construction companies and stock bonuses to bondhold- ers may have been a feature of all these enterprises, so we will pass that all by. But the third of these enter- prises was ill-advised and unnecessary, except for local service. That is to say, for the Chicago-New York traf- fic and for the Chicago-Pittsburg and Chicago-Philadel- phia traffic it was not needed. Nevertheless its projec- tors persisted, and finally by stock and bond flotations and by inflations, by enormous expansions of credit, and by leasing other roads which would otherwise have been unprofitable, succeeded in establishing a zigzag line reaching from Chicago to New York. The question im- mediately arises, why should the people pay an exorbi- tant rate on traffic between Chicago and New York on all these lines, on the plea that such rate is necessary to insure a net profit to the stockholders in the roundabout road, but which is so exorbitant on the other two lines that it enables them not only to pay dividends to their stockholders, but to accumulate vast surpluses to be ex- pended in the construction of new lines and palatial terminals ? Along in the eighties the Baltimore and Ohio enterprise was treated to a series of experiments in rotten finance. 105 PECULIAR PHASES OF RAILROAD BUSINESS Every expenditure for buildings, rails, ties, rolling stock and betterments, instead of being charged against rev- enues as cost of maintenance, v^as entered in the surplus account. On that false showing a large issue of bonds was floated in England. Subsequently along about 1894, the English bondholders took it into their heads to in- quire into the surplus account and found that it con- sisted almost entirely of the items above-mentioned, and that none of the property they represented was visible in any useful form, except a few antiquated freight cars and engines. About that time the stock was zero and the bonds were not rated much better than the stock. And yet those bonds constitute to this day a part of the funded indebtedness upon which interest is being paid. Soon after the flush times set in subsequently to the war with Spain, an additional large issue of stocks was made in an attempt to secure terminal facilities in Philadel- phia and New York; and though the purposes were never accomplished, these issues are still outstanding and dividends are being paid on them. It ought to suf- fice to say, as may well be said, that on a question of railroad rates, this Government is under no obligation to make good the losses incurred by adventurers in railroad construction or to make safe and sound that which is in- herently speculative and unsound. As for the much- heard-of but seldom seen "innocent purchaser or inves- tor," he may be answered by referring to the power given to Congress by the Constitution, liable and likely to be fully exercised at any time since its adoption, to meet any conditions or exigencies that might arise. There is a fact to be here stated which should (though it probably will not) be profoundly considered. An evo- lution is taking place in railroad construction and equip- ment to supersede existing methods which will cause 1 06 PECULIAR PHASES OF RAILROAD BUSINESS grass to grow on thousands of miles of existing road- way, and relegate a vast amount of steam power and rolling stock now in use to the junk heap. This state- ment has special reference to the recent invention of the triangular electric monorailroad. After many futile attempts to provide a super-structure of sufficient strength and stability to withstand the oscillation of cars propelled on a single rail, the difficulty is overcome in this invention. Long lines can be constructed and equipped on this plan for five thousand dollars per mile, and operated at great speed, with absolute safety. The trains will go easily over steep grades and sharp curves. The indifference of large shippers with reference to increases of rates by changes of classification is remark- able. This remark is especially applicable to the big eastern shipper. His goods are sold "free on board," and he has no interest in the movement and but little in the rates. He leaves the classification exclusively to the railroads as a matter of no personal concern, and with- out even noting the changes through which the carriers gradually and almost imperceptibly work up the rates until they are actually unjust and unreasonable, without anybody being able to prove it otherwise than by com- paring them with the rates made years ago, the burden being shifted to the West and South. But though we may be unable to trace out and describe the minute steps and processes by which rates have been increased, or the dates and methods, except in particular instances of litigation before the Commission, yet we are able to dem- onstrate from general statistics that there has been a general increase in the cost of transportation. The ag- gregates of increased earnings and profits are no doubt due in part to increased volume of business, but that falls short of accounting for all of it. If all or nearly 107 PECULIAR PHASES OF RAILROAD BUSINESS all of it were assignable to that cause it would involve the assumption that there had been an abnormal increase in railroad traffic during the last decade, an increase out of due proportion to that shown in the preceding decade, and we know that there was no such disproportion. Nor can it be, except in some small part, attributed to the increased capacity and effectiveness of railroad mechanism, because locomotives and cars had almost reached their maximum capacity and road beds had already been placed in good condition ten years ago. Whether attributable, however, to increased rates or not, this increased and constantly increasing profitableness of railroad operation has its origin in the rates paid by shippers, rates which should be reduced, especially in view of the fact that net earnings have reached a glaring disproportion to the average returns to persons engaged in other occupations. The question of transportation finance is scarcely less important nationally than that of government finance. The establishment by legislation of an incor- rect principle or policy for dealing with the railroads may be as fatal to public welfare as would be a vital change in our form of government. It is much to be deplored that we cannot fully understand the effects of a new economic power until it has grown to gigan- tic proportions, and not even then except by long and painful experience. With respect to the railroad sys- tem, policy and practices, we are now far into, but not near the end of, the educational and experimental stage. We are now in that stage of mental unpre- paredness where we are liable to make huge mistakes, to be much regretted afterwards. To allow the Valua- tion Act and other laws to stand in their present forms will be such a mistake. We have already endured iq8 PECULIAR PHASES OF RAILROAD BUSINESS many of the evils of our almost fatal optimism on this subject. We could not believe that the predicted and threatened abuses of power that we recklessly surren- dered to the railroads would occur until after they had occurred in an aggravated form. We feared at first that they would displace labor and in various ways dis- turb our peace, but we could not foresee that they would turn the advantages we gave them to the com- plete domination of all other kind of business. It should not be overlooked that more than half of the $8,000,000,000 going into railroad property as the basis for the huge capitalization consisted in profits on profits. That is to say, large surpluses collected from rate payers were used in betterments, extensions, and other improvements, and then more money was obtained from money lenders on these as additional security. Bonds were issued to them and a further drain on the pockets of rate-payers thus instituted to keep down the interest as fixed charges. So the peo- ple were taxed in the first instance to pay for the im- provements, and the same people are now being taxed to pay interest on investments in what might be equit- ably considered the proceeds from, or profits upon, their own investments. Legally, of course, all these new constructions belong to the railroads, in addition to being a basis for the interest charges, and also ope- rated to earn dividends for the stockholders. If any man could obtain nineteen billion half-dollars, hand them over to the Federal Government, and the Gov- ernment should hand over in return its perpetual obli- gations to pay nineteen billion 100-cent dollars, bear- ing interest at 7 per cent., that would be a fair illustra- tion of what is contemplated in the constant-profit scheme of rate regulation. The man who received and 109 PECULIAR PHASES OF RAILROAD BUSINESS held these obHgations would bankrupt the nation in thirty- years. And that is what the railroads will do if we do not right-about face in our views of duty to the peo- ple in this matter. We must not permit ourselves to be won over or misled as to the meaning of this self-serv- ing doctrine which seems to have found acceptance by the Interstate Commerce Commission. The rate of interest here specified, waiving the point that part of the investment was of surplus and not original, is real- ly more than 14 per cent., or nearly five times the rate at which the Government can refund its bonds. What would be thought of us if we authorized, and the ex- ecutive department sanctioned and carried out, such a funding scheme with some powerful syndicate en- joying a monopoly of favor, just as the railroads enjoy their power in the absence of legal control? The impossibility of dealing with rate increases and inequalities in detail, or with any such purpose as that of reducing or equalizing them or more equitably dis- tributing them among the 8,000 and more commodi- ties, and between the many thousand of shipping points, without conferring additional powers upon the Commission must be so clear as to require no elucida- tion. The equalization, adjustment, and distribution of the increases and changes of rates is being con- stantly referred to as a science by itself, and one of great difficulty. All writers on the railroad question emphasize the delicacy of the existing rate adjustment and strive to show why the change of a single rate be- tween any two important points necessitates thou- sands of changes so as to prevent widespread market disturbances, notwithstanding that the carriers have never hesitated to make many rate changes arbitrarily and by sweeping decrees of councils of traffic mana- IIO PECULIAR PHASES OF RAILROAD BUSINESS gers without reference to any rule or scientific basis or knowledge of or regard for the effect of such changes upon producing, shipping, and trading inter- ests. How can the Commission ever reach the ends of justice in all these matters without the possession of the broadest and most searching powers? The fact had better be given recognition now than later, that any effective Government regulation of rail- roads partakes of the imperialistic, but should never be allowed to become paternalistic. The right to regu- late grows out of the interstate commerce clause of the Constitution and the close connection between in- terstate carriers and interstate commerce itself, and the regulation itself is the exercise of a power which is to some extent arbitrary. But this attitude toward the carriers should never be held to impose upon the Government an obligation to safeguard the interests of that particular class of persons and corporations en- gaged in transportation any more than if they were en- gaged in any other line of business — any more than where the law of the land is enforced against the pri- vate citizen. All business is subject and subjected to legal restrictions, regulations, and penal provisions. And in addition to the many laws which encompass the ordinary business man, he is always in contact with the law of competition, from which the railroads find ways to exempt themselves. Any Government going into the insurance business and guaranteeing constant profits in all lines of business would be proclaimed a failure and disappointment, and by none more prompt- ly than by the prudent and conservative business men, the manufacturers, merchants, miners and farmers of the country. Much has been said about a claim of great and pros- III PECULIAR PHASES OF RAILROAD BUSINESS perous lines to enjoy, in form of greater profits, the rewards of superior engineering foresight and mana- gerial ability. It is said that such a great institution should be conceded an organization value in the es- tablishment of rates. Those who make that claim will regard as presumptuous any attempt to answer it, appealing as it does to our natural inclination to ap- plaud those who have achieved success in any pursuit or line of activity. But that the claim is superficial and utterly destitute of merit is not difficult to demon- strate. In the first place, it entirely ignores the dis- tinction between private and public service. It must be borne in mind that recognition for this claim is pre- sented at the bar of the legislative body of the na- tion and consideration is asked for it on every occasion of legislation being proposed to curb the powers of railroad monopolies. It is therefore to be treated as a claim preferred for recognition at the hands of the general public, and as such it should be examined and treated. It has not been unusual for men to devote su- perior talent and industry to the public on the same terms and subject to the same sovereign powers as they devote talent and industry of mediocre and in- ferior quality, or as one devotes more and another less of capital. In the second place, it is impossible to find any deserving recipient of any reward that it might, upon this new theory, be proper to bestow. No man living, nor the descendants of any that have died, are entitled to compensation in any form for projecting, for instance, the New York Central as it was pro- jected. In addition to the fact that the original pro- moters and builders quickly pocketed great fortunes by manipulating the stocks and bonds, and not by 112 PECULIAR PHASES OF RAILROAD BUSINESS superior public service, is the fact that they enjoyed the favor and aid of State and municipal authorities without v^hich their enterprise and foresight would have availed them nothing. In the third place, speak- ing now with reference to the present active mana- gers, there is no basis for any claim of superior man- agement- But assuming that the management is ex- cellent, it is a safe assumption that all in a super- visorial capacity are in the enjoyment of adequate sal- aries. Then we have the corporation itself, the non- sentient figment of the imagination which need not be considered aside from its stockholders. And as to the latter, the question of why their dividends should be rendered constant and secure by action taken by the Government has not been answered and will re- main unanswered. Finally, as for the claim of the New York Central and other such companies based on superior management, it does not appear that a well constructed, highly improved, and thoroughly equiped railroad is any more difficult to manage, or even as difficult, as one of a different kind. Of all me- chanical appliances that used in the transportation of persons and property from place to place is the simplest, involving a comparatively low degree of me- chanical skill. Of course, a railroad system is complicated in its entirety, as would be a great department store, but the task assigned to each man is simple. Again, trans- portation considered apart from its instrumentalities is too important a function to come under the absolute unsupervised control of any person or persons, either in an individual or privately organized capacity. It is to modern life what chemical forces, gravitation, and motion are to the earth. It is the one thing that makes "3 PECULIAR PHASES OF RAILROAD BUSINESS production worth while and exchange possible, as the recurrence of the seasons causes vegetation to grow and the fruits of the field to multiply. Therefore, these great conquests of the wilderness, these great advances of civilization, for which so much credit is claimed for individuals and corporations, were the mere applications of forces which belong to the whole people. Those in control temporarily of these power- ful instrumentalities are the mere accidents of a day. Their achievements were not attributable so much to their superior business sagacity as to popular toler- ance, credulity, and optimism. The railroads are now claiming that rates should be maintained or increased so as to produce surpluses be- yond a fair return on existing capitalizations in order to sustain the credit of the railroads. In other words, they expect Congress, the President, the Interstate Commerce Commission, and everybody having any- thing to do with regulation to depart from all funda- mental principles governing railroad rates and set up a new rule, a rule which, while leaving the control of stock and bond issues, as well as the financial and ope- rating control, exclusively in private hands, would impose the duty first upon Congress and then upon the Commission, and ultimately upon the people to insure a market price for stocks and bonds such as will fa- cilitate the borrowing of money and steady the mar- ket for stocks and bonds. To all familiar with the sub- ject, to all who have in mind the public inteerst, the proposition is absurd and preposterous on its face. It would impose a task which, even if supportable on any just principle, would be impossible to perform, even though all the constitutional powers of the Gov- ernment were fully exerted. 114 PECULIAR PHASES OF RAILROAD BUSINESS The doctrine of an assured constant profit to un- wisely projected or badly managed roads was touched upon at the hearing in the rate-advance cases in 1910, but the discussion was quickly dropped and did not receive any further serious consideration. One of the vice-presidents of the Chicago and Northwestern answering a query of one of the commissioners, said : I admit that what might be justice to some lesser line would extravagantly increase us, if you please, but I have not the wis- dom to say how that thing shall be disposed of. The people's representatives in Congress and other legislative bodies had been then for a long time insist- ing upon a reduction of rates and had freely expressed themselves to the effect that substantial reductions should be made. And there are ample reasons for saying that few railroad officials entered upon that scheme of wholesale advances with the expectation that the commission would dare establish the advanced rates as just and reasonable. The purpose of the rail- roads in taking the action taken by them was, no doubt, to make a demand such as the people are now making for a decrease of rates — a demand which was then and is still being urged — appear preposterous and unreasonable. It will be strange if the millions of rate payers in the country allow their just demand for a reduction to be thwarted by such tactics. Of course the heads of some of the weaker roads, those which pretend to be having a hard struggle at best, think that any general reduction of rates would be very harsh and unjust to them, notwitstanding that the maintenance of present rates would unduly enrich the stronger companies, and of course the latter are ever ready to grasp whatever may come within their reach. So that the question finally resolves itself into one 115 PECULIAR PHASES OF RAILROAD BUSINESS of sacrificing general interests to temporarily sustain- ing and keeping afloat these weak but ambitious enter- prises which might otherwise have to liquidate and reorganize on a narrower financial basis. The rate issue thus shifts and the contest comes on between the people and the great dominating railroad systems. We are constantly invited to consider, not what is good business policy for the public, but to be profoundly impressed with the promotion of the finan- cial prosperity of private corporations Jiaving ex- tensive control of general business interests. Of course — Said Mr. McCrea, President of the Pennsylvania, at the rate increase investigation on October 12, 1910 — it would be possible to get money by raising the interest on bonds to a substantially higher level. But he did not think such a course would be good finance. His alternative was to increase the price of what his company has to sell. To do that is not a difficult task for monopolies of its class, in the ab- sence of objections by the Commission. But men in other business, contemplating new acquisitions for enlargement of plant or extension of operations, must obtain the needed funds as best they can and at the prevailing rates of interest. Moreover, they must find the security for their financial accommodations. But these transportation monopolies, now that the trick of concealing surpluses expended Under various heads, practiced by them hitherto, is exposed and generally understood, are urging the need for further railroad extensions and facilities, and backing up their demand for high rates with an implied threat that if they be not allowed a free hand in continued and more dras- ii6 PECULIAR PHASES OF RAILROAD BUSINESS tic exploitation of the nation's freight-payers the ex- tensions and facilities will not be provided and that the quality of service v^rhich they give their patrons will depreciate. What they really have in reserve is the acquisition of more and more of the weaker lines, further consolidations, and more impregnable mo- nopolies. Any pretense that they intend to stand still is the baldest assumption, and any fear that they may or can create a commercial or financial collapse is groundless. The statement that there has been any advance in the cost of borrowed money except when borrowed by commercial and industrial interests is incredible in view of the fact that nearly all the bonded indebtedness of the New York Central, funded only a few years ago, bears interest at only 3^ per cent, and that of the Pennsylvania at even a lower rate. What the railroad presidents say on the subject is, to take a charitable view of it, mere speculation. They make no pretense of ever having even an unpleasant ex- perience in testing the money market. In fact, the financial conditions of all the controlling railroads are such that no test of their ability to borrow money at the lowest rates of interest has been necessary. In resisting measures looking to effective regula- tion of their rates and services, the railroads are invit- ing something even more drastic and far-reaching. The high-handed attempt made three years ago to ar- bitrarily and generally increase their rates aroused the country to a high pitch of indignation and moved Congress to place what proved for that occasion an in- superable obstacle in the way in the form of the bur- den-of-proof provision. The action thus taken by Con- gress, the general and widespread discussion which ensued, and the final action adverse to the railroad^ 117 PECULIAR PHASES OF RAILROAD BUSINESS taken by the commission served to focus public atten- tion upon railroad management and finance as never before. The whole period was educational. The people will claim the full measure of justice at the hands of Congress, and in the end will find ways to obtain it. The country is rapidly filling up, population is greater and more homogeneous, and the proportion of articles for use and consumption not produced on the spot but requiring to be transported, is increasing year by year. In other words, and in railroad par- lance, the traffic is becoming denser, and all these are pointing to the necessity for lower rates. That neces- sity will not regard with favor any law not having for its primary object the common interest. Attention will now be called to certain phraseology of the Railroad Valuation Act passed at the Sixty-sec- ond Congress. The investigation which the Commis- sion is to undertake covers so many important subjects and so many conditions which are constantly chang- ing that it can never be concluded. The bill limits the Commission to no standard or definite rule of proced- ure and confers the widest range of authority. Among other matters, it is authorized to "investigate, ascer- tain and report the value of all the property owned or used by every common carrier subject to the provis- ions of this (interstate commerce) Act. To enable the Commission to make such investigation and re- port it is authorized to employ such experts and other assistants as may be necessary. The Commission may appoint examiners who shall have power to administer oaths, examine witnesses, and take testimony. The Commission shall make an inventory which shall list the property of every common carrier subject to the provisions of this Act in detail, and show the value ii8 PECULIAR PHASES OF RAILROAD BUSINESS thereof as hereinafter provided, and shall classify the physical property, as nearly as practicable, in con- formity with the classification of expenditures for road and equipment, as prescribed by the Interstate Com- merce Commission." It will be observed that the Commission is given no express authority to appraise such abstract properties as franchises, good-will, etc.; but by specifying "physical property" and requiring that it be classified and appraised separately, there is a clear implication of other than physical property. There is a provision near the end of the Act read- ing as follows : If, upon the trial of any action involving a final value fixed by the Commission, evidence shall be introduced regarding such value which is found by the court to be different from that offered upon the hearing before the Commission, or additional thereto and substantially affecting said value, the court, before proceeding to render judgment shall transmit a copy of such evidence to the Commission, and shall stay further proceedings in said action for such time as the court shall determine from the date of such transmission. Upon the recipt of such evidence the Commission shall consider the same and may fix a final value different from the one fixed in the first instance, and may alter, modify, amend or rescind any order which it has made involving said final value, and shall report its action thereon to said court within the time fixed by the court. This enables the carrier in any rate case brought for a review of the action of the Commission to raise the question of franchise valuation, and, by the express language of the provision, it would be the duty of the Commission to receive, consider and give effect to the evidence which the carrier might offer. By the part first quoted above, it is made the duty of the Commis- sion to value "all the property owned or used." It must not only value all the property but classify the physical property. 119 PECULIAR PHASES OF RAILROAD BUSINESS The Commissioners do not, however, have the last say on. the question of whether such elements as fran- chises, good-will, etc., shall have a value placed upon them as property, even if they felt at liberty to con- strue the act as excluding them. A way is provided by the last quotation above for the carrier to bring that question before the courts in any litigated action, in case the Commission should prove intractable. We have already seen that the Supreme Court ac- cepts corporate franchises as property to be valued in finding a basis for making rates. The appended bill expressly excludes good-will and franchises as ele- ments of value. But we have only just now reached the joker in the act. The far-reaching effect of particular words or phraseology in an act of legislation governing a subject so broad as interstate commerce has already been commented on. When the railroad representatives cheerfully participate and promptly acquiesce in the work of the Senate Committee, as in this case, and then the resulting bill passes without opposition, the search for a joker should begin at once. A provision coming after all those authorizing the Commission, prescribing its duties and procedure, reads as follows : All final valuations by the Commission and the classification thereof shall be published and shall be prima facie evidence of the value of the property in all proceedings under the Act to regulate commerce as of the date of the fixing thereof, and in all judicial proceedings for the enforcement of the Act approved February fourth, eighteen hundred and eighty-seven, commonly known as "the Act to regulate commerce," and the various acts amendatory thereof, and in all judicial proceedings brought to enjoin, set aside, annul, or suspend, in whole or in part, any order of the Interstate Commerce Commission. That looks very regular. Indeed, it makes a rather pleasant first impression. But hold a moment. The 120 PECULIAR PHASES OF RAILROAD BUSINESS courts have heretofore refused to disturb decisions of the Commission founded on fact. They have refused to examine into any question raised by the carriers upon resort to the courts other than questions of law. So long as the Commission kept within its jurisdiction and conformed to the law of its being, the courts would not disturb any conclusion reached by it. That made its decisions on such questions as that of a prop- erty valuation conclusive ; not merely prima facie. What is the valuation to be made by the Commission for but to be used as a parcel of evidence in the ascer- tainment of a rate or rates? This then opens the way for review by the courts on the valuation phase of every case decided by the Commission which upon any pretext the railroads can carry into the courts. To say that the Commission's valuation shall be prima facie evidence was just as much worse than to have said nothing at all as to have said that no person owning more than ten thousand shares of the stock of any railroad company subject to the Interstate Commerce Act shall be eligible to appointment as an Interstate Commerce Commis- sioner, the law now disqualifying the owner of any such stock. The Act allows any carrier to have a rehearing upon a tentative valuation before the valuation is made final. Why not have stopped there? Why not have let the law remain as the Supreme Court had established it, so that, when the Commission had settled its final val- uation after hearings and rehearings, the review in the courts would have been limited as now to questions of jurisdiction, or, as otherwise expressed, whether the Commission had, in its proceedings, confined itself 121 PECULIAR PHASES OF RAILROAD BUSINESS within the bounds of authority prescribed in the stat- ute? Without going into a detailed discussion of the au- thorities, an extract is here given from the opinion of the Supreme Court in the leading case (Interstate Commerce Commission v. Illinois Central Railroad Co., 215 U. S., 470-471): ''Beyond controversy in determining whether an order of the Commission shall be suspended or set aside, we must consider (a) all relevant questions of constitutional power or right; (b) all pertinent questions as to whether the administrative order is within the scope of the delegated authority under which it purports to have been made; and (c), a proposition which we state independently, although in its essence it may be contained in the previous one, viz., whether, even although the order be in form within the delegated power, nevertheless it must be treated as not embraced therein, because the exertion of authority which is questioned has been manifested in such an unreasona- ble manner as to cause it, in truth, to be within the ele- mentary rule that the substance, and not the shadow, determines the validity of the exercise of the power. :H 5jt * * * Power to make the order and not the mere expediency of having it made, is the question." The insertion of that provision was just as mischiev- ous as the action of the Commerce Court in the Proc- tor and Gamble case, assuming jurisdiction to review negative orders of the Commission, criticized and re- versed by the Supreme Court, (Proctor and Gamble Co. V. United States et al, 224 U. S.), because leading to such confusion and obstruction as to destroy the usefulness of the Commission. To say in this matter that the valuation shall have 122 PECULIAR PHASES OF RAILROAD BUSINESS the force of prima facie evidence of value is merely to say that in every rate case that the carriers can get before the courts, the decision of the Commission may be attacked, and the whole subject retried de novo. To make a thing prima facie evidence before the Com- mission means one thing; to make it prima facie evi- dence before the courts means something very dif- ferent. This provision utterly destroys the value of the bur- den-of-proof provision, the importance and value of which has been already shown and is well understood by shippers and freight-payers generally, and especially by those of the legal profession having cases before the Commission and courts. The burden-of-proof provision established a rule for the Commission in the investi- gation of a fact, or, to be strictly accurate, of mixed fact and law. Under its operation and in the absence of the provision last quoted in the Valuation Act, the Commission could have used its valuation to refute the evidence of valuation produced by the carriers at a hear- ing before them. But the burden of proving the valua- tion rested on the latter throughout. And the decision by the Commission on that question was final, that is to say, it could not be opened and reviewed by the courts. Now, however, and because of this prima facie evi- dence provision, applicable to the courts, the right to reopen that question is expressly conferred upon the carrier when he carries his case to court. The railroads have been scheming for a way to get rid of or to nullify the burden-of-proof provision ever since it was passed. Unawares to the freight-payers of the nation, with the connivance of the Commis- sion, Congress co-operating, they appear to have found it and had it incorporated in the law. Of course, the 123 PECULIAR PHASES OF RAILROAD BUSINESS carriers could always prove that a rate or a schedule of rates as fixed by the Commission was confisca- tory, and, as part of that plea, show the value of their properties devoted to the public use ; but that raised a constitutional question, in the trial of which, by the burden-of-proof provision they had the burden through- out. But under this prima facie evidence provision, they can also reopen the question of valuation in the courts on a question of the reasonableness or unreasonableness of a rate or of rates, notwithstanding that the Commis- sioners may have given effect to the burden-of-proof provision at the hearing of the same case before them- selves. Plainly stated, the carriers may now, in all cases, re- open in the courts the question of valuation with like effect as if the case had never been before the Com- mission. The effect of the enactment of the prima facie provision was to give the railroads an immeas- urable and inestimable advantage which they did not possess before, and to render the whole scheme of regu- lation abortive and ridiculous. What is here quoted is but a fraction of all that the bill authorizes the Commission to do at public ex- pense, much the larger proportion of it being not only entirely futile and worthless if done, but impossible of being done at all. In the midst of many authoriza- tions is the ascertainment of the value of each piece of property to the present owner and in each instance the elements forming the basis of the estimate of value. One of the meanings extracted from all the verbiage used is that a valuation shall be placed upon railroad property as such. To value the right of way of the Pennsylvania through the gaps and nar- row valleys of the Alleghenies and of the New York 124 PECULIAR PHASES OF RAILROAD BUSINESS Central along the Hudson or of their terminal facili- ties in New York City for railroad purposes is to place valuations upon properties which are essentially and unqualifiedly monopolistic. The task would be vain even if possible. It would be like attempting to value the taxing and governing powers of a State or city. The act contains not even an intimation of what the Commission shall do with its valuation and report when completed. The Commission would be, accord- ing to its own oft-repeated declarations, at a loss as to the use to make of it. Without quoting from the hear- ings before the committees of Congress, attention may be properly called to the fact that the Commissioners appearing and making statements were vague and non- committal as to any uses that might be made of their valuation, notwithstanding their willingness to un- dertake the labor, with its incidental expenditure of millions of dollars. It is impracticable to criticise all the provisions of the act in detail, but the objection to making the in- vestment a standard may be briefly noticed. Some railroads were started with very small origi- nal investments of private capital. For instance, the Union Pacific and Central Pacific, now a continuous line from Council Bluffs to San Francisco, were start- ed with enormous land grants and Government guar- anties, out of which the roads were built and equip- ped, leaving to the stockholders the stocks and to the corporations extensive areas of l^nd which cost them nothing. The Union Pacific was subsequently bank- rupted to construct the Oregon Short Line and other unprofitable branches, and the Central Pacific was brought to the verge of insolvency by a diversion of business to the Southern Pacific. After that the reve- 125 PECULIAR PHASES OF RAILROAD BUSINESS nues of the Union Pacific and Central Pacific became very large. Enormous sums were taken from earn- ings and invested in betterments, additions and branch lines, still leaving a great annual surplus for dividends. Now, take the Santa Fe, a competing line: It repre- sents a very large percentage of original investment, but a great deal less money has been used in its con- struction per average mile than in the cases of the Union Pacific and Central Pacific, notwithstanding that it is just as efficient and necessary. Now, suppose you take investment as a standard, without distin- guishing between original investment and investment out of income. First you would authorize the Union Pacific and Central Pacific lines to fix much higher rates from Missouri River points to the Pacific than those fixed by the Santa Fe. To say nothing of its primary injustice, that would at once divert the great bulk of traffic to the Santa Fe and defeat the very purpose of giving the Union Pacific and Central Pacific lines the higher rate. But many roads other than the Union Pacific have been built up almost entirely out of earnings. For in- stance, the original investment in the Erie was much less than in the Pennsylvania, and yet the ultimate cost of the Erie was double per average mile that of either the Pennsylvania or the New York Central, ow- ing to engineering difficulties. The inherent injustice of allowing rates to pay income on reinvestments of earnings is shown by Commissioner Lane's report in the recent rate-increase cases and illustrated by the result, if the theory were applied to the Burlington. (See p. 28 et seq. of Commissioners' report in rate-ad- vance cases.) There are also very serious objections to making a 126 PECULIAR PHASES OF RAILROAD BUSINESS separate valuation of each corporate property a rigid basis of rates. There would result non-permissible in- equalities. But that objection would be to a great ex- tent obviated by making valuations in the aggregate of whole systems, as is provided for in the appended bill. If you value the thousands of miles of the Penn- sylvania system and the thousands of miles of the New York Central system you will not find a material dif- ference per average mile. The deduction for obsoles- cence and depreciation will constitute an enormous subtraction from cost in many instances. The Penn- sylvania will, under this plan, have its New York City and West Philadelphia improvements valued, but much of their total will be subtracted from cost of Jersey City and Broad Street terminals. But in each of the exceptional values it is to be spread over thou- sands of miles. And this plan will directly regulate these dominating lines and thus indirectly regulate the secondary or dependent lines. The whole mass of existing legislation, although much of it was well directed and intended, has proven ineffective to prevent an enormous increase of aggre- gate cost of transportation, dangerous massing and concentration of wealth with attendant general dis- tress and enormous and startling inflation of corporate securities, the dividend and interest charges on which constitute an ever-increasing burden and drain from all business and all industry. The present law amounts to just this : The carriers shall deal fairly by the public, and when a question of fairness or unfairness is raised the Commission shall sit as an arbitration board with full powers in the premises. The reports in the rate-increase cases fully support this view. From these reports it clearly ap- 127 PECULIAR PHASES OF RAILROAD BUSINESS pears that the value of property devoted to the public use, even if any satisfactory proof of it had been made, would have constituted only one of the many import- ant elements in the case. And it is justly inferable from the language of the Commissioners, that if the railroads had made strong showings as to revenue re- quirements, many of the proposed increases would have been allowed. Be that as it may, it is a fact, one which should arouse serious concern, that the rail- roads are now engaged in the preparation of a valua- tion of their properties to be used in making up a case upon which the Commission cannot reasonably prevent further increases in their rates. So the issue before the Commission between the carriers and the public has been within three years converted from one raised by shippers demanding a reduction of rates to one now raised by the railroads for an increase. Transportation rates, both for freight and passengers, are too high in this country, and if the people had their way, they would materially reduce them. Meas- ures of public justice are often harsh. And if rates were properly reduced on the great dominating rail- ways, that would without any further legislative act whatever force several important and many unim- portant railroad companies into receiverships and re- organizations. And yet, sooner or later, Congress must assert its constitutional powers. Why do newspapers, lawmakers and Interstate Commerce Commissioners discuss this as they would a humanitarian question? The corporations are arti- ficial, nonsentient. The officers and agents are pre- sumably interested only to the extent of their salaries, which are not to be affected by any reduction proposed by any one. The stockholders are but a small per- J28 PECULIAR PHASES OF RAILROAD BUSINESS centage of the entire population, having no better right to obstruct measures in the public interest than have the smallest beneficiaries of exorbitant taxation. While the Commission now has unlimited discretion in determining the reasonable rate and in allowing a just and reasonable or in disallowing an increased rate, it has no power to increase a rate. Lacking this, it cannot take up a schedule of rates in which inequali- ties and discriminations exist and adjust and equalize them. If, to illustrate, the Commission could increase the rates on sugar and coal going west, that would permit of a material reduction on many other com- modities without or with only moderate diminution of revenues. This would also diminish the power of the sugar trust and coal trust to injure western interests. The Commission should be given the power to revise and readjust whole schedules. In other words, it should be given real rate-making power. Along with this increase should come a numerical increase in the membership of the Commission and its division into departments. In order to get rid of all the evils of industrial mo- nopoly an amendment of the Federal Constitution would be necessary. That is undoubtedly true, if it is to be done by legislation which it would be practicable to enforce, aimed directly against the corporations holding the monopolies. But to vest a Government Commission with complete control of railroad rates would open the door to an effective simple remedy for trust extortion as well as for exorbitant freights and fares. Suppose, instead of a license law, a meas- ure the inconvenience and expense of the enforcement of which render it hardly worth considering, the In- terstate Commerce Commission with full power over 129 PECULIAR PHASES OF RAILROAD BUSINESS rates, whether under government or private owner- ship, were authorized, in case it were found that any corporation or combination of corporations had ac- quired a monopoly in any article of interstate com- merce, to discriminate against it in rates, and require it to pay a higher rate than those paid by others en- gaged in producing the same article. This may ap- pear upon first impression to be a harsh remedy, but it is no harsher than the license tax which is proposed, nor the fine which may be imposed under the Sher- man Anti-Trust Act for one form of monopoly. That such power to discriminate could be constitutionally conferred and exercised there would seem to be no room to doubt. All forms of license are discrimina- tions; so are import duties on some articles while others are admitted free or at a lower rate. So are all the remedial provisions of the anti-trust act a dis- crimination between monopolies resulting from re- strictive agreements and monopolies which result from mere consolidation of capital. There are many wide discrepancies between the mail facilities furnished by the post-office department to various sections and communities, and yet the power of the Government to thus discriminate has never been questioned. 130 CHAPTER VII REGULATION OF RESTRAINTS AND MO- NOPOLIES.— General Principles. There are enough reports of monopoly abuses and comments thereon in the newspapers every day to make a large volume if collected, but seldom are seen any direct attacks upon the principle of monopoly. There are likewise floods of ridicule for the compara- tively few who point out the evils inflicted by mo- nopoly, but no attempt to refute their allegations or to answer their arguments. There are also scores of politicians playing the role of statesmen who are too selfish or ignorant to take the essential steps to rid the country of these destroyers of financial independ- ence and of the individuality of the citizen, so neces- sary to insure the perpetuity of the republic. In the conduct of the Government during recent years, there have been investigations without end. There have been investigations by special commissions appointed by Congress to acquire information about industrial conditions which every member of Con- gress and Senator ought to have been familiar with before offering himself as a candidate. There have been investigations by bureaus, departments, perma- nent commissions and Congressional committees. Sometimes they were set on foot ostensibly as a basis for legislation, and sometimes to obtain information upon which to base civil suits and criminal prosecu- 131 RESTRAINTS AND MONOPOLIES tions. But, what laws have been passed that reached to the root of any evil complained of? Not one. What actions have the Department of Justice successfully prosecuted that resulted in loss of liberty or special privilege to a trust magnate or rebater, or loss of power to any monopoly that was not regained in an- other form? While billions of tribute have been grasped in the form of exorbitant prices and railroad rates and fares, fines to the amount of about $350,000 have been collected to date, and a half-dozen subordi- nates — mere money-passers — sent to jail. Still hold- ing their monopolistic powers, any one of the great railroads, or trusts, could recoup that amount from the public in a few days by simply increasing rates or prices the smallest fraction of a cent, requiring merely the stroke of a pen. "We will have it investigated." That is the cure- all, the end-all and the subterfuge. It is cheap for the public officer appealed to, but dear to the people de- manding a remedy and paying the investigators' bills. And let it not be forgotten that railroad kings and trust magnates to be investigated do not mind — in fact they rather enjoy — being investigated and having the fact of their supremacy advertised, so long as no laws are passed calculated to disturb their possessions. It requires the exercise of one's power of discrimi- nation and some knowledge of law to distinguish be- tween a permissible monopoly and one that is illegal at common law ; and such discrimination and knowl- edge are necessary in order to accurately measure the powers of Congress to regulate or suppress monopoly and determine clarly what it has already done. The lack of legal knowledge on the part of the public, and the fact that real light on the subject is not divulged 132 RESTRAINTS AND MONOPOLIES by the public press, are much relied on to save sena- tors and representatives from 'popular w^rath. On no other subject has there been quite so much confusion, misconception and deception. A great deal has been represented as having been done by legisla- tion and more was promised from time to time, when in truth very little more was possible in the way of legislation without an amendment of the Federal Con- situation, although a great deal more was possible by means of a strict enforcement of the anti-trust law. It is one purpose of these pages to show the utter hypocrisy of political parties herein, and of those who by partisan favor have been elevated to positions of trust and seats of power. The subject is somewhat complicated with constitutional law, but with that the public must some time grapple, the sooner the better. There is no law of Congress or of any State against, nor are there any positive common-law rules inimical to, mere monopoly. The courts, prior to the enact- ment of the Sherman Act, had for over a century rec- ognized monopolies as economic or industrial evils, but never had any repressive powers, except when mo- nopoly resulted from a restrictive agreement between two or more individuals, and one of them sought its judicial enforcement against others. Against such ar- rangements a rule of public policy — a sort of judicial fiction — was then invoked. But, even now, monopolies may be created which no Federal or State law can reach. Two or more men may buy up or lease every acre of pine timber in the world, and thus make every inhabitant of the earth as dependent upon them for pine lumber as upon change of seasons for crops; and yet, so long as no 133 RESTRAINTS AND MONOPOLIES agreement is made between them the direct effect of which is to curtail the contractual freedom of any indi- vidual, no court anywhere, as far as known, would have power to interfere with them, or to deprive them of any benefit arising from their monopoly. So that the only decisions by our courts, State or Federal, to be found, whether based on common law or statutes, whereby men or corporations have been held liable, either to be enjoined, mulcted in damages, or crimi- nally punished, are based upon agreements, express, or arising by implication from their conduct, in re- straint of trade. So we see that, owing to the peculiarities of our Fed- eral Constitution and to the partition of powers be- tween State and Federal governments, and also owing to the liberality of certain State legislation, there are ways of creating and maintaining monopolies for which no judicial remedy can be found. In 1890 an act was passed by Congress on the sub- ject of contracts or agreements in restraint of interstate commerce, intended to reach certain combinations formed by agreements between men and between cor- porations, called ''trust" agree ments. There have been few such agreements in a form to be dealt with un- der that act, because, as soon as it was passed, those desiring to monopolize or restrict interstate commerce found other methods for doing so than by making such agreements. There are to-day not many institutions or business arrangements within the inhibitions of that act, notwithstanding that trade, transportation and manufacturing monopolies are more numerous and powerful than ever before. A "trust" is only one form of combination denounced by the Sherman Anti-trust Act, though that term has 134 RESTRAINTS AND MONOPOLIES a much wider legal meaning than as used in the statute. In its broader legal sense, it arises from contract, also by operation of law, in all cases where one individual or corporation holds the legal title to property and an- other enjoys, or is to enjoy, in the future, the bene- ficial interest. A "trust" whereby a monopoly was created consisted in "tKe transfer of stocks of several j corporations to individuals, called trustees, or to a corporation, the legal title to be held by such trustees or corporation, while the persons making the transfers in trust received the dividends or otherwise enjoyed the beneficial interests. During the presidential cam- paign of 1900 Senator Hanna stated that there were no trusts, meaning no doubt that there were no mo- nopolies, the subject of popular complaint in the form of a trust. He was taken severely to task for that utterance and it was made the subject of much ridi- cule. And yet the Senator told the truth, having ref- erence to that particular period. The form of combi- nation above described was adopted in the eighties by a few great interests, notably the Standard Oil Com- pany and the North River Sugar Refineries. But such combinations were so obviously restrictive of trade, even under the common-law test, that they could be and were, some previously and others subse- quently, reached and dissolved through State courts. The people were long ago entitled to have explained to them the true intent and meaning of the decisions of the "trust" cases. But instead of clearly stating the situation, the successive heads of the law depart- ment of the Federal Government indulged in vague ex- pressions and mystifications. For instance, when the appeal in the "Beef Trust" injunction case was de- 135 RESTRAINTS AND MONOPOLIES cided by the Supreme Court, Mr. Moody, in an official interview, very truly said : "The opinion sustains in all respects the contentions of the Government. It makes clear that all combina- tions between independent individuals, partnerships, or corporations engaged in interstate commerce, by which competition between them in such commerce is suppressed, fall under the prohibition of the so- called Anti-trust Act." This was translated by the press — whether inten- tionally or not, of course, cannot be stated — to be a menace to all industrial monopolies, such, for in- stance, as the "Sugar Trust," the "Standard Oil Trust," etc. But it will be noted that Mr. Moody was cautious in his statement, only declaring the de- cision to be appHcable to combinations "between in- dependent individuals, partnerships, or corporations engaged in interstate commerce, by which competi- tion between them in such commerce is suppressed." He might well have added something like this : "But whatever the intentions of individuals who come to- gether and form a corporation under the laws of any State, the Anti-trust Law does not reach them, un- less they, expressly or by implication, show an in- tention to monopolize or restrain interstate commerce in their constating agreements ; therefore the decision offers no relief with reference to the other industrial monopolies of which there is a general complaint." Any lawyer who has studied the whole field of cor- poration, interstate commerce, constitutional and anti -trust laws and the history of the so-called "trusts" persistently and thoroughly knows that the legal status of many great industrial corporations is now beyond the reach of such a remedy as is af- 136 RESTRAINTS AND MONOPOLIES forded by any judicial procedure available to the De- partment of Justice. In all the great lines of manufacturing, as well as in production of materials to be used in further manu- facturing, as of finished products, there had been great demoralization, loss of profits and failures, dur- ing the period preceding the organization of such com- binations as the North River Sugar Refining Com- pany of New York and the Standard Oil Company of Ohio, both dissolved by decrees of the courts in these ^tates. Many attempts of manufacturers to limit pro- duction and control prices by pooling arrangements, such as the railroads had resorted to, were attempted, and, as a rule, had failed, leaving matters in a worse state than before. The common-law inhibitions were sufficient to have undone the loosely organized trusts, even. without the statutes directed against them. But in 1889, and subsequently, a majority of the States, both by constitutional amendment and statute, de- clared uncompromisingly against all combinations and contracts in restraint of trade. In 1890 the Sher- man Anti-trust Law was passed by Congress. It was impossible that the trusts as then formed should sur- vive in so hostile an atmosphere. Prior to 1889 no State had ever by general law conferred upon corporations the power to purchase and hold, for purposes of voting and thus securing control, the stocks of other corporations. And the i courts had uniformly denied to them such power as a | common-law right. After the stringent State and Federal anti-trust legislation of the period just spoken of had made it impossible for the trust to ob- tain a legal footing, one State— New Jersey — was found willing to do that which hitherto it had been 137 RESTRAINTS AND MONOPOLIES found impossible to have done in any State. In 1889 [ its incorporation law was so revised as to include among the lawful purposes of incorporation the right to purchase the stock of any company or companies owning, mining, manufacturing, or producing ma- ; terials or other property necessary for their business, and to issue stock in payment therefor. In 1893 the scope of the New Jersey statute was further enlarged to read as follows : "Any corporation may purchase, hold, sell, assign, transfer, mortgage, pledge, or other- wise dispose of the shares of the capital stock of, or any bonds, securities, or other evidences of indebt- edness created by, any other corporation or corpora- tions of this or any other State, and while owner of said stock may exercise all the rights, powers, and privileges of ownership, including the right to vote thereon." Under this statute three or more men might form a corporation, and through it do, anywhere in the world, any and all business that any and all corporations formed in that or any other State could lawfully do, provided that in its organization it violated no New Jersey law and complied with certain easy require- ments of the New Jersey incorporation laws. This statute had important and far-reaching consequences. Many other States had enacted strict "anti-trust" laws, but a corporation organized under this New Jersey statute could, in any State, nullify the restrict- ive laws of such States by merely transferring a con- trolling interest in its stock to a corporation formed in New Jersey. So corporations in different States, engaged in any line of manufacturing — sugar, steel, petroleum, leather goods, tobacco, etc. — could come to an agreement in New York City or elsewhere and then have three or more office clerks incorporate in 138 RESTRAINTS AND MONOPOLIES New Jersey a million or a billion-dollar company. Then all they had to do in order to obtain complete immunity from the Federal, as well as from all State, "anti-trust" laws, was to have transferred to the new corporation a controlling interest of the combining companies. This done, a legal status was given to the combination, however restrictive of State and inter- state trade, however monopolistic in its design and power. It has often been asserted that the policy of New Jersey in thus amending her incorporation laws was vicious and discreditable to a sovereign State. But if it was, the same discredit attached to Delaware, West Virginia, Maine, New York, South Dakota, Nevada and Oklahoma for following her example. The incorporated trusts and other large corpora- tions having their origin in New Jersey cannot be prevented, either by Federal or State authority, from doing business in any part of the country where they find it profitable. No other courts have jurisdiction of proceedings against corporations to forfeit their charters or to restrain them from usurping franchises or powers than those of the States granting the char- ters, and, as we have seen, the laws of New Jersey, and of the other States mentioned here, protect them from such proceedings in their home courts. Now, by reference to a few Supreme Court decis- ions, the narrowness of the power of Congress to leg- islate, and the narrow limits within which the Sher- man Act is operative will be seen. In United States vs. Knight (156 U. S. Rep., 1), also in the later case of Anderson vs. United States (171 U. S. Rep., 604), the Court said that when it is seen that the agreement entered into does not directly 139 RESTRAINTS AND MONOPOLIES relate to, act upon, and embrace interstate commerce, and that it was executed for an entirely different pur- pose, and that it was calculated to attain it, the agree- ment would be upheld if its effect upon interstate com- merce were only indirect and incidental. In the Knight case, a corporation had been formed under the laws of a State. The organizers of it represented various other corporations and firms engaged in the refining of sugar in different States. The properties of all had been, or were immediately, transferred to this newly formed corporation, the American Sugar Refining Company, whose purposes, set forth in its articles, were the manufacture and sale of all kinds of sugar. The Court refused to look beyond the articles to dis- cover a purpose to monopolize interstate commerce in sugar, though, as a matter of fact, the corporation thus formed, or its successor, controlled 98 per cent, of the total output and is to-day as complete a monopo- ly as can be found. The Court also, in support of its decision adversely to the Government, said, in sub- stance, that Congress could not concern itself with the subject of manufacturing, and that it would not consider stock deals nor the proceedings to create cor- porations, nor their powers when organized. This line of delineation between what is and what is not within the provisions of the Sherman Act is also made clear in the Northern Securities case, where the decision was in favor of the Government, the Court saying: "What the Government has particularly complained of — indeed, all that it complains of here — is the existence of a combination among the stockholders of compet- ing railroad companies which, in violation of an Act of Commerce, restrains interstate commerce through the agency of a common corporate trustee designated 140 RESTRAINTS AND MONOPOLIES to act for both the companies in repressing full compe- tition between them." In that case the incorporators were a majority of the stockholders in certain inter- state railroads, the corporation formed by them being merely a holding, or trustee company, and it was suf- ficiently apparent from the constating agreements, in- cluding the articles, that the principal purpose of the Northern Securities Company was the monopolization of interstate commerce in a large section of the United States, and therefore the agreements were con- sidered within, and made the company so formed amenable to, the terms of the Sherman Act. But it seems to be settled by these cases that the mere manufacture and sale of a commodity, upon however extensive a scale, and though the sales are largely for delivery to citizens of other States, and though one manufacturing and selling company have a virtual monopoly, yet that does not render it a vio- lation of the provision directed at those who "mo- nopolize or attempt to monopolize interstate com- merce." It seems that to constitute a violation of the statute there must be an agreement, or the creation of relations amounting to a combination, in restraint of interstate trade, and that no amount of actual mo- nopolization, in the absence of such agreement or com- bination, will constitute persons or corporations vio- lators of the statute. With these two cases before us, we are the better able to understand the decision in Addyston Pipe and Steel Company vs. United States (175 U. S. Rep., 211). In the case just mentioned, it clearly appeared that the six defendant corporations were manufacturers for sale of steel pipe ; that together they produced about two-thirds of the entire produc- tion within well-defined boundaries, covering more 14.1 RESTRAINTS AND MONOPOLIES than one State, and that the agreement, as it was af- terwards carried out, was effective to shut out compe- tition and maintain prices above what they would have been without the agreement and co-operation under it. Had the stockholders of the six companies combined their properties and formed a new corporation, taking its stock for that of their respective companies, with only the usual specified purposes of a manufacturing corporation, they might just as effectively have mo- nopolized the business without violating the Sherman Act. The case would then have been "on all fours" with the Knight case. But the Addystone case dis- closed a combination in the nature of a pooling agree- ment instead of a corporation. The arrangement be- tween various packing companies came under the ban of the law in the "Beef Trust" case for similar rea- sons. We may obtain a clearer view of the theory and workings of the Sherman Anti-trust Act if we watch the progress and evolution of the beef business in this country. We will suppose that many years ago four butchers supplied the town of Chicago with fresh meat. Being injured by each other's competition, they agreed to pay less for live stock, or to sell for a higher price, or to do both. That is a contract in restraint of trade, but to be dealt with by State au- thorities exclusively. The same would have been true if all the butchers in the State of Illinois, or even all in the United States, had been parties to an agreement, so long as the trade of the combination was to be re- stricted to one State. Let us suppose, however, that our four butchers, without any such agreement, have become packers and dealers upon a colossal scale, have each taken in partners, and finally incorporated with 142 RESTRAINTS AND MONOPOLIES large capital stock, each company having branch houses in various cities in other States, each controll- ing one-fourth of all the slaughtering and packing in the United States. We will also suppose that their interests outside Chicago do not clash, one having its branch house in Kansas City, one in Omaha, one in Fort Worth, and the other in St. Paul, so that each has a complete monopoly over a large territory. Thus far there are four monopolies, one in each of the terri- tories adjacent to the respective branch establishments. Thus far neither can be reached by any provision of the Sherman Act under the decisions, nor for that mat- ter under any State statute. We may go still further without running counter to the act. Suppose the ma- jority interests in each and all of the four establish- ments unite in the formation of one great corporation under the laws, we will say, of New Jersey, and trans- fer to it all their properties and business, providing for the principal place of business and location of their central plant at Chicago, as could have been done un- der the New Jersey statutes. If their articles of in- corporation do not indicate a purpose to monopolize the buying, slaughtering, packing, and disposal of the products of live stock — as there would be no advant- age in doing — they are still immune from liability ac- cording to the decision in the Knight case. But sup- pose, instead of taking that course, they, as four dis- tinct corporations, arrive at a "gentleman's agree- ment," as separate corporations, not to bid against each other, to pool profits, to maintain prices, to co- erce rebates and special rates from the railroads (all of which, it was alleged, they did), the Sherman Act, if it were practicable to reach and deal with such secret undertakings, would be effective against them. 143 RESTRAINTS AND MONOPOLIES The defect of power on the part of Congress is inher- ent in limitations placed by the courts upon the defi- nition of the term ^'interstate commerce" as used in the Constitution. In Kidd vs. Pearson (128 U. S. Rep., 1-22), the Court said: "If it be held that the term in- cludes the regulation of all such manufacturers as are intended to be the subject of commercial transactions in the future, it is impossible to deny that it would also include all productive industries that contemplate the same thing. The result would be that Congress would be invested, to the exclusion of the States, with the power to regulate, not only manufactures, but also agriculture, horticulture, stock-raising, domestic fish- eries, mining — in short, every branch of human indus- try. For is there one of them who does not contem- plate, more or less clearly, an interstate or foreign market?" In Gibbons vs. Ogden (9 Wheat., 1, 189, 210), Chief Justice Marshall delivering an opinion said : "Commerce" (referring to interstate commerce) "undoubtedly is trafific, but it is something more — it is intercourse. It describes the commercial intercourse between nations and parts of nations in all its branches, and is regulated by prescribing rules for carrying on that intercourse." And so the court in the Knight case held that that which belongs to commerce within this sense is within the jurisdiction of the United States, but that which does not belong to such com- merce is within the jurisdiction, or police powers, of the States. And further along, Chief Justice Fuller, de- livering the opinion in the latter case, after quoting and discussing Chief Justice Marshall's definition, said : "The fact that an article is manufactured for export to another State does not of itself make it an article of interstate commerce, and the intent of the manu- 144 RESTRAINTS AND MONOPOLIES facturer does not determine the time when the article or product passes from the control of the State and belongs to commerce." Again, in Anderson vs. United States (171 U. S. Rep., 604), it was held that whether the members of a trader's live stock exchange were or were not engaged in the business of interstate commerce was immaterial, as the agreement proved was not in restraint of trade and did not regulate such commerce. Thus we have a thorough judicial settlement of the meaning of interstate commerce as used in the Con- stitution, and no court or legislative body can change, enlarge or limit that definition as thus ad- judicated. Considering all these decisions and limitations upon the meaning of interstate commerce, two important propositions are beyond the pale of controversy^ First, the Sherman act contains the full measure oT the power of Congress under the Constitution to enjoin and punish for entering into and carrying out contracts re- strictive of trade, and, ^cohHly, that there are many great monopolies, the subject of interminable newspaper and political comment, which cannot be reached under the terms of that act, or under any act directed at the mere character of the organizations, which Congress has constitutional power to enact. So it must be constantly borne in mind that there ^ is, having reference now to the Sherman Act, such a thing as a practical monopoly distinct from a monopoly in the illegal or restrictive sense. A monopoly se- cured by buying out, or even by rendering unprofita- ble all competition, and thereby suppressing it, could not, as previously explained, be hindered or interfered with under the common law, nor under any State law \ 145 \ / RESTRAINTS AND MONOPOLIES in force anywhere, nor under the Sherman Act, in the absence of a restrictive agreement between the surviving and defunct establishments. And until the power to create corporations is taken away from every State in the Union it is impossible to conceive of any limitation upon the concentration of capital in a single corporation. One of the main contentions in the Knight case, and one of the main reasons advanced for deciding adversely to the Government was that, notwithstanding the showing that the American Sugar Refining Company, after the combination, controlled 98 per cent, of the production and sale of refined sugar in the United States, yet it did not necessarily follow that it had monopolized that trade, because the field was still open for any one who wished to enter. That part of the decision has been practically overruled, or rather disregarded by the courts. As long as one State remains with corporation laws similar to those of New Jersey, Delaware, West Vir- ginia, South Dakota, Nevada (a score could be men- tioned) this could happen. Ten men, each in a sepa- rate State, having ten million dollars invested in iron and steel production, being all the plants in the country, conclude to incorporate under the laws of (for instance) Delaware, each to take for his plant twenty million dollars of stock, the new company to carry on as one institution the business which had been previously done by the ten men separately. If one can buy another out, why cannot one and five of his neighbors, or five strangers, incorporate a com- pany and buy him out? If they may, why cannot the ten iron manufacturers of fifteen different States form the company and then all sell to the company? 146 RESTRAINTS AND MONOPOLIES And if they might sell to it for cash, why not for stock? And if so, would the Government be per- mitted to deprive them of the privilege of agreeing among themselves upon the stock valuation of their respective plants? Really no one is injured by the issue of an amount of stock less or more than any other amount, since no one is under the slightst com- pulsion to invest a dollar in it. Here we have an il- lustration of an actual monopoly with its stock half water, as the term is generally understood, with no statute or common-law principle in the way of its buying the raw material of iron and steel manufac- tured at the lowest cost of production and exacting from the consuming public the utmost penny the commodity will bear. And yet Congress is flooded with bills directed against stock markets and stock watering. 147 CHAPTER VIII MEANING OF STANDARD OIL AND TOBACCO COMPANY DECISIONS. The trust question or problem, speaking now with reference to immediate legislative action, is one about which language may be very freely used without con- tributing anything of value. And yet it is one of such vital importance that no one having what he hon- estly believes to be valuable views should hesitate to submit them, with becoming modesty, to those charged by the Constitution, under oath, with the duty to take responsible action. Senators, Represen- tatives and Committees have invited free expressions from individuals, but they have especially encouraged outside suggestions by the divergence of their own views on nearly every important phase of the subject. The situation is peculiar in this, that the complaint of injury resulting and to result from non-action and the corresponding demand for legislation does not emanate, except to a very limited extent, from the great body of purchasers and consumers of so-called trust-made articles, though they are the class having a just cause to complain in case of extortion or ex- orbitancy. Leaving out the mere agitators and theor- ists, those having most to say, and who probably be- lieve themselves most directly and vitally affected, belong to the class of what we call business men. And there is ample evidence in the voluminous record of hearings be- 148 MEANING OF S1V.NDARD OllL DECISIONS fore committees upon which to base a finding that most of these charge up their trouble to the wrong cause. Let's suppose now that some statesman and philoso- pher of former times, Moses or Socrates, or Adam Smith, or Thomas Jefferson should come to our shores and find all our people assembled under the Constitution and flag ready to be assigned by him to varying duties. Does any one suppose he would bother vei-y long about who should effect the exchanges of value between indi- viduals? Of course not. He would first assign, guide, direct, and make rules to promote the interests of labor- ers and those who bring forth the products, finished and unfinished, of agriculture, mining, forestry, and fisheries, well knowing that there would be a sufficiency and to spare of volunteers to undertake the trading, money lending, and changing the place and form of what was produced. That would be a salutary and wise plan of projecting a commonwealth with such a governmental structure as ours, and a safe theory upon which to carry it along after such a beginning. Those who produce from the fields, orchards, forests, mines, waters and stock ranges, cannot conveniently organize and make their presence directly felt in the halls of legislation, and for that very reason, and because the business classes can so organize, the former classes must depend upon the free untrammelled will of their representatives for the promotion and protection of their interests. They constitute a very large majority of those who bear, or upon whom are shifted, the burdens of taxation, and are entitled to first consideration. They do not require reg- ulatory, but rather conservatory and protective laws. Regulation and espionage are needed for those who find it convenient and profitable to organize for purposes of exploitation. 149 MEANING OF STANDARD OIL DECISIONS But the legislative department exercised its full power with respect to monopolies and illegal organizations, in so far as they placed restraints upon commerce, more than twenty years ago. Why then have complaints, be- cause of oppression and exorbitancy resulting from re- straints and monopolies, continued and increased? Why does the subject of further legislation by Congress to- day rock society to its foundation? The Senate Committee on Interstate Commerce made a report in February, 1913, through Senator Cummins, and while no attempt was made therein to diagnose the whole situation, it contained a partial answer to the last of the above queries, in these words : In order to look at the subject in the light of illustration, it is suggested that there will presently come before the courts the combination centered in the United States Steel Corporation. In the end nine justices of the Supreme Court will be asked to say whether the restraint of trade brought about through this combination is a due or an undue restraint, and the answer wh^ch each justice makes to that question will depend upon his indi- vidual opinion as an economist or sociologist, the conclusion of the court being in substance an act of legislation passed by the judicial branch of the Government to fit a particular case. Further, it is believed by many thoughtful people that a substan- tial identity in the managing boards of competing corporations constitutes a restraint of trade and is harmful to the public interest. If such a case were brought before the court, what would be the "rule of reason ?" What guide would the court have in determining whether such community of directors or managers was a due or an undue restraint of trade? Again, suppose there were a dozen establishments in a given field of production com- peting with each other and six of them were to consolidate, em- ploying half of all the capital and advancing the consolidated enterprise to a dominating position in the trade, where would the judge go for light in determining whether the restraint of trade was due or undue? These illustrations might be indefi- nitely extended, but it would serve no useful purpose to multiply them. It is scarcely necessary to add that the part here quoted was preceded by an able review and criticism of the de- cisions of the Supreme Court in the Standard Oil and To- 150 ' MEANING OF STANDARD 0:'L DECISIONS bacco Company cases. These decisions will be now fur^ ther noticed. At the start, and as a very important test of the sound- ness of what follows, it may be stated that the common law doctrine of reasonableness was confined to contracts in restraint of trade. If the restrictive stipulation in a contract was reasonable, the contract was valid and en- forceable ; if it was unreasonable, then, in legal sense, it was not a contract at all, but amounted to a combination, condemned by the law and rendering those entering into it liable to indictment. The authorities, English and American, firmly establish this proposition. Any law- yer having any doubts on the subject would be freed from them if he read pages 1814-1816 of the Hearings before the Senate Committee on Interstate Commerce in 1912, pursuant to Senate Resolution 98. It is then a fair test of the soundness of the court's decision in the Stand- ard Oil and Tobacco Company cases to ask and answer the question whether it had before it a contract or a com- bination, bearing in mind that a conspiracy is merely one form of combination. That it was a combination in the form of a conspiracy is conclusively shown by the Court itself in the case of the American Tobacco Company (221 U. S., 182), where it said: Again, not alone because of the dominion and control oyer the tobacco trade which actually exists, but because we think the conclusion of wrongful purpose and illegal combination is overwhelming established by the following considerations, etc. In the committee report above referred to we also find the following significant and emphatic language: The committe has full confidence in the integrity, intelligence and patriotism of the Supreme Court of the United States, but it is unwilling to repose in that court, or any other court, the vast and undefined power which it must exercise in the admin- istration of the statute under the rule which it has promulgated. 151 MEANING OF STANDARD OIL DECISIONS It substitutes the Court in the place of Congress, for whenever the rule is invoked the court does not administer the law, but makes the law. If it continues in force, the Federal courts will, so far as restraint of trade is concerned, make a common law for the United States just as the English courts have made a common law for England. The people of this country will not permit the courts to declare a policy for them with respect to this subject. If we do not promptly exercise our legislative power, the courts will suffer immeasurable injury in the loss of that respect and confidence so essential to their usefulness. It is inconceivable that in a country governed by a written constitution and statute law the courts can be permitted to test each restraint of trade by the economic standard which the individual members of the court may happen to approve. If we do not speedily prescribe in so far as we can, a legislative rule by which to measure the forms of contract and combination in restraint of trade with which we are familiar or which we can anticipate, we cease to be a govern- ment of law and become a government of men, and, moreover, of a very few men and they appointed by the President. It may be that the Supreme Court will be so enlightened and so alert that its opinion respecting what is due and what is undue restraint of trade will be in harmony with an awakened public conscience and a disinterested public judgment, but to fashion our conduct upon that hypothesis is to repudiate the funda- mental principles of representative government. But the part just quoted is preceded by language which, to say the least, cannot be reconciled to, or harmonized with it, in the words : Whatever may be the opinion of the several members of the committee with respect to the soundness of the rule as now established, the committee as a whole accepts it as the present law of the land. It is profoundly convinced that, in view of the rule and its necessary effect upon the businesses of the country, the inherent rights of the people, and upon the execution of the statute it has become imperative to enact additional legislation. Why a roundabout method of getting rid of the de- plorable results of the decisions so forcefully portrayed by Senator Cummins, such as attempting to enact statu- tory definitions, when it would be much easier and safer to do it directly by merely changing the phraseology of two sections of the act in which the court interpolated the objectionable term "undue" or "unreasonable," does not appear, and cannot be made to appear. 152 MEANING OF STANDARD OIL DECISIONS The same report makes it just as clear as language can make it that the statute does not cover indirect, or incidental restraints. That is shown by several decis- ions of the Supreme Court therein cited, from which there is and never has been any dissent. Then why not amend the first and third sections to read thus : "Every contract, combination in the form of trust or otherwise, or conspiracy in any degree, or to any extent in direct restraint of trade or commerce," etc. The same result would be accomplished by the adoption of another form, making the first section read as follows : "Every con- tract, combination in the form of trust or otherwise in restraint of trade or commerce among the several States or with foreign nations, whether the restraint be such as at common law or according to any decision or decis- ions of any United States court w^ould be due or undue, reasonable or unreasonable, is hereby declared to be il- legal." Also making the equivalent change in the' third section. Had the committee been unanimous in its con- clusions, or substantially so, anything advanced here ad- ditional would be superfluous and appear presumptuous. But unfortunately it was far from being so. And the discord in the committee is fairly representative of the diversity of views found in the Senate and House, in official circles generally, and at large. What follows is offered by way of support for the conclusion of the ma- jority of the committee that the decision of the Supreme Court in the Standard Oil and Tobacco Company cases is unsound and vastly prejudicial. Several propositions will be advanced and supported by reasoning and au- thority, any one of which, if admitted, being equivalent to a condemnation of the decision. First, the court basing its conclusion on common law doctrines, it is erroneous, because at the common law the # 153 MEANING OF STANDARD OIL DECISIONS rule of reasonableness was never applied if the act con- demned by the law was indictable. The Anti-trust Act penalizes alike the entering into contracts and combina- tions in restraint of trade. It seems a palpable contradic- tion in terms to speak of that as a contract which in the same sentence is declared to be illegal. According to the common law, though they are called "contracts," they are, when restrictive of trade, really combinations. Now all combinations in restraint of trade were indicta- ble at common law, as they are under the Sherman Act, and the question of reasonableness does not enter at all. The reason is that a thing cannot be punished as a crime if its quality as such or as an innocent act must be de- termined by such a mere matter of opinion as reasona- bleness or unreasonableness. The first sentence of the Anti-Trust Act would mean just the same if it omitted the words "contract," "trust," and "conspiracy." An illegal contract is a combination, and a conspiracy is as much a mere form of combination as is a trust agreement. Only reference to the law dic- tionaries is needed to show this. For instance, Bou- vier's Law Dictionary defines combination as "A union of men to violate the law," and a conspiracy as "A combina- tion of two or more persons, by some concerted action, to accomplish some criminal or unlawful purpose, or to ac- complish some purpose not in itself criminal or unlawful by criminal or unlawful means." No part of the opinion in the Tobacco Company case is clearer than that in which is stated, as already quoted, the illegal character of the restrictive arrangement; that is that it was a combi- nation. So that the Anti-trust Act would have been just as comprehensive if it merely declared "Every combina- tion in restraint," etc. And the Court, in effect, placed the word "undue" or "unreasonable" before the word 154 * MEANING OF STANDARD OIL DECISIONS "combination," in its illegal and criminal sense and held that before there could be either civil redress or punish- ment, the government must prove an "undue" or "un- reasonable" crime. Now let us glance at the form of language and arrange- ment of the words at the beginning of Section 1 of the Sherman Act, bearing in mind what has been said of the identity of meaning of combination and conspiracy. "Every contract, combination in the form of trust or otherwise, or conspiracy in restrait of trade," etc., "is hereby declared to be illegal." Could the legislature, using these words in this relation, have possibly intended that the word "unreasonable" should be interpolated by construction before the word "restraint," with reference to the word "contracts," and not also with reference to the words "combination" and "conspiracy"? Again, if the common law governs, and the adjective "every" ap- plies in the same sense to each of the three nouns, then why should it be required that a contract appear to be unreasonable in order to enjoin or penalize it, unless an unreasonbale element be essential in cases of combina- tions and conspiracies ? But at the common law, as has already been shown, combinations and conspiracies in re- straint of trade were indictable, and, of course, illegal, without any question as to the degree or extent of the restraint. The confusion of thought has no doubt arisen from the fact that if at the common law a restrictive arrangement came before the court in a civil action, it was called a contract. If the same arrangement came before the court in a criminal case, as might and often did occur, it was called a combination or conspiracy. So that where the arrangement was really restrictive, in illegal sense, the 155 MEANING OF STANDARD OIL DECISIONS terms contract and combination might be interchangeably used to describe it. The Supreme Court has not merely substituted what is supposed to be the common law rule, meaning one thing, for what Congress enacted of a different mean- ing, but by applying the doctrine of reasonableness to combinations or conspiracies it establishes a rule found neither in the statute nor in the common law. Second, common law rules and distinctions cannot be properly resorted to by the courts for the purpose of in- terpreting the laws passed by Congress. For more than a hundred years it had been the established view, ex- pressed in many decisions, that the public policy of the United States was in the care and keeping of Congress, and that our courts are not at liberty, as are the courts of England, to invoke and apply that unstable and inde- finable thing, found outside all written laws, and known as public policy. If this new power is retained and exer- cised, the purpose and effect of almost any statute of a general nature are liable to be changed to meet a judicial view of what the public interest, or policy, demanded at the hands of Congress, though not expressed. And even though Congress may by the most explicit terms declare a certain act to be a criminal offense, a court may find outside the terms of the statute a public policy, borrowed from the common law and used as a touchstone or test in determining how far, or if at all, the expressed will of Congress shall prevail. Nothing had been so well set- tled and generally accepted as that the common law was no part of Federal jurisprudence, and that its princi- ples were of merely persuasive or argumentative force. Now, if a rule of public policy peculiar to the common law, and nowhere else to be found, can be set up to change the meaning and settled construction of a statute, 156 MEANING OF STANDARD OIL DECISIONS is there any rule or principle that may not be employed to the same end? And what was the nature of this abstraction which, as a result of the recent decisions, is hereafter to abide with the courts and not be entrusted to Congress? In Davies V. Davies (36 Ch. Div., 359) it was said that "public policy is a variable quantity; that it must vary, and does vary, with the habits, capacities, and opportunities of the pub- lic." In Richardson v. Mellish (2 Bing., 229) that "it is a very unruly horse, and when once you get astride it you never know where it will carry you." And in Woodruff V. Berry (40 Ark., 251) that "we are aware that courts tread upon thin ice when they annul contracts because they contravene, or are supposed to contravene, considerations of public policy." There is much of the same import in Hilton v. Eckersley (6 El. & Bl., 47) and in other cases. What Congress intended to say, and what it meant to say, according to this view of the court, was not that "Every contract, combination," etc., "in restraint," etc., but "Every contract, combination in the form of trust or otherwise, or conspiracy, in unreasonable (or undue) restraint," etc. Can we believe that a Congress of schol- ars, lawyers and statesmen said the one thing and meant the other, so very different in meaning? If Congress had meant merely to rest upon the common law prohi- bition, why didn't it merely prescribe the penalty and the civil remedy and stop there? Third. Persons (corporations being included in the term as used in the Act) obviously occupy no stronger relation to the power of Congress to regulate interstate commerce than the individual States ; and it has been frequently held that a State cannot directly interfere with interstate commerce to any extent whatever. T^57 MEANING OF STANDARD OIL DECISIONS In Robbins v. Shelby District (120 U. S., 489) we have a decision typical of many. It was declared that "inter- state commerce cannot be taxed at all." Long prior to the Anti-trust Act the courts were constantly applying the rule or principle of non-interference with the freedom of commerce to State interferences, a rule such as that ap- plied by Congress to private restraints when it passed the anti-trust act. And by parity of reasoning the rule adopted by Congress, like that drawn from the Constitu- tion and applied by the courts, was one not qualified by any common law doctrine, and which admitted of no modification or exception. The similarity of the rule of exclusiveness where State legislation is involved, and the rule that should apply in cases arising under the anti- trust act, was mentioned by the Court in Hopkins v. United States and in Addystone Pipe Co. v. United States. According to this rule, to admit that a State or city might reasonably or in some small way tax interstate commerce, the extent to be determined by the courts, would, of course be absurd. But is it any less absurd to admit or assert that corporations and individuals might "reasonably" restrain it, and thereby regulate interstate commerce, the meaning of the qualifying term to be fixed by the courts? The power of a State to reasonably tax interstate commerce would be the power to reasonably regulate it and the same would be true of a power to rea- sonably restrain it, if such power could be extracted by construction from the Anti-trust Act. It seems very clear that when Congress came to express its will with ref- erence to these interferences by private parties, it spoke in the same sense and with the same comprehensive scope as had characterized the decisions of the courts in dealing with similar conditions. That each restraint upon interstate commerce is pro 158 MEANING OF STANDARD OIL DECISIONS tanto a regulation and an invasion of the power granted by the Constitution to Congress, exclusively, is shown in the Addystone Pipe case (175 U. S., 226-248), where Justice Peckham concluded upon that branch of the de- fendant's contentions with these words : We conclude that the plain language of the grant to Congress of power to regulate commerce among the several States mcludes power to legislate upon the subject of those contracts m respect to interstate or foreign commerce which directly affect and regu- late that commerce, and we find no reasonable ground for assert- ing that the constitutional provision as, to the liberty of the individual limits to the extent of that power, as claimed by the appellants. Fourth. The common law and its doctrines could have no application to the legislative branch of govern- ment created long after the formative period of the com- mon law had ended ; still less could it apply to a subject matter, here interstate commerce, which came into exist- ence as a part of the new system inaugurated by the adoption of the Constitution. There never was any such thing in England or known to the common law system as interstate commerce, nor was there anything resembling it. Interstate commerce pertains to all the States, not to one or any number other- wise than in their capacity and relation as members of the Union of States. A transaction beginning in New York and ending in Jersey City is not merely a New York-New Jersey matter, but concerns every State and every citizen in every State. It is essentially national. If interstate commerce could be locaHzed, if it could belong or pertain to any number of States or persons less than the whole, then it would not be subject to the regulative power of Congress, each of whose enactments extend throughout the length and breadth of the nation, and to all its people. Now, in England, that is to say, under the regime of 159 MEANING OF STANDARD OIL DECISIONS the common law, as already explained, the doctrine of reasonableness was essentially local, besides being lim- ited to contracts as already defined. Under no circum- stances could one preclude himself or be precluded, gen- erally, from following his avocation or carrying on busi- ness in the whole kingdom. Such an agreement was not only void on its face, but could not be made good. And since the subject of interstate commerce has scope coex- tensive with the whole country and is incapable of being localized, it must follow that any restrictive contract hav- ing that for its subject matter, and without reference to degree of the restraint, is void. As to combinations and conspiracies, if indeed they be distinguishable from con- tracts for present purposes, there are additional reasons, as already shown. Further light upon the decisions in the two cases and other cases following them is now offered. As the first and third sections of the anti-trust act now stand it is made to appear that there are three forms in which restraint upon trade may be applied. But when we carefully examine the matter, we find that, for the pur- poses of the statute, no such classification is permissible. There is no better reason for speaking of a contract be- tween two or more to restrain trade, than of a contract between them to commit arson or burglary. When, prior to the statute, the courts spoke of illegal contracts in restraint of trade, they used the term conventionally and for convenience, following the forms of expression used by the judges in passing upon civil cases presented be- fore them under the common law. The only method by which such question could reach a court was where an action was brought on an agreement and defended on the ground of its illegality in that it placed a restraint upon the defendant with respect to his trade or calling. i6o MEANING OF STANDARD OIL DECISIONS If upon being examined the objection was found to be well taken, that was the end of the matter unless the plaintiff could successfully rejoin that the restraint was, under all the circumstances, reasonable, in other words, that the public detriment would be insignificant or negli- gible, and that the restraint was only such as was neces- sary to secure him in the enjoyment of the benefits of, or consideration for, the agreement. If he was unable to make such showing, the eourt would hold the contract void, equivalent to holding there was none whatever and placing the transaction in the category of combinations, in illegal and indictable sense. The rule, as laid down by Lord Macclesfield and Lord Chief Justice Willes (Master, etc., of Gunmakers, v. Fell, Willes R., 388), was that total restraints of trade, which the law so much favored, were absolutely bad, and that all restraints, though only partial, if nothing more appeared, were presumed to be bad; but if the circum- stances were set forth, that presumption might be exclud- ed, and the court was to judge of those circumstances and determine whether the contract be valid. Same ruling in Mitchell V. Reynolds (1 P. Wms., 196). In Horner v. Graves (7 Bing., 744) the court said (per Chief Justice Tindel) : "Contracts in restraint of trade are, in themselves, if nothing shows them to be reasonable, bad in the eye of the law." If there be simply a stipulation, though in an instru- ment under seal, that a trade or profession shall not be carried on in a particular place, without any recital in the deed, and without any averments showing circum- stances which rendered such a contract reasonable, the instrument is void. (Pragnell v. Close, Aleyn, 67 The Ten Tailors of Exeter v. Clarke, 2 Show., 350; i6i MEANING OF STANDARD OIL DECISIONS Claygall v. Bachelor, Owen, 143 ; Year Book, 2 Hen., 5, fol. 5.) Some confusion is found in legislative and judicial dis- cussions of minor branches of the subject. For instance, the relation of any particular restraint to commerce ob- viously should not be confounded with the degree of re- straint. Whether restraint be direct or indirect is a question determinable upon facts and calls for a finding such as might be returned by a jury. But where the facts are all before the court, supposing the doctrine of rea- sonableness to be established in Federal jurisprudence, if an issue be raised upon the reasonableness or unrea- sonableness of the restraint, that is a question of law for the court. The principle of reasonable construction has a close relation to this question, but plays no part in an issue of whether a restraint be direct or indirect. But in the Standard Oil case the Chief Justice ignored this distinction and reasoned that if indirect or incidental re- straint ought to be taken out of the statute, that would amount to an admission by the court in the prior decis- ions which he was then reviewing that "reasonable" agreements (combinations) should also be taken out. Here is part of what he said on the point (p. 66) : If the criterion by which it is to be determined in all cases whether every contract, combination, etc., is a restraint of trade within the intendment of the law, is the direct or indirect effect of the acts involved, then, of course, the rule of reason becomes the guide, and the construction which we have given the statute, instead of being refuted by the cases relied upon, is by those cases demonstrated to be correct. He then continues to argue that it necessarily follows from the fact that a resort to reason to distinguish be- tween direct and indirect restraint is necessary, the ques- tion of reasonableness is ever present, and his language 162 MEANING OF STANDARD OIL DECISIONS expressly brings combinations and conspiracies under the rule along with restrictive contracts. When the Chief Justice had reached the point in the opinion where the case must be disposed of, he adopted the ultimate view of the lower court, expressly declaring the arrangement presented in the general name of the Standard Oil Co. to be a combination and conspiracy (p. 74). And yet (p. 67), in order to follow and affirm the decision of the lower court, he insisted that it was neces- sary to invoke the doctrine of reasonableness. And in the Tobacco Case (p. 179), he said: The act of Congress must have a reasonable construction, or else there would scarcely be an agreement or contract among business men that could not be said to have, indirectly or re- motely, some bearing on interstate commerce and possibly to restrain it. In determining whether the prohibitions of the statute are infringed in any particular case, courts necessarily exercise judgment and reason. That is why courts were instituted and are maintained. In the judicial adminis- tration of all statutes the reasoning faculties must be brought into play. That is necessary in differentiating direct from indirect restraint. But fixing the boundary line separating restraint which is direct from that which is indirect is quite a different thing from fixing a point at which restraint ceases to be reasonable and becomes un- reasonable. There are no broader and vaguer terms in the language than the latter. They are coextensive with and give rise to as many conflicting views and opinions as "just" and "unjust." There is scarcely a limit to the matters necessary to be considered in the application of a test of reasonableness in dealing with combinations, nor could a permanent settlement of such a question ever be reached. Individuals may form a combination or may 163 MEANING OF STANDARD OIL DECISIONS have formed one years ago which to-day is investigated and adjudicated by the Supreme Court to be unreasona- ble. It is dissolved, and out of its wreck a new entity arises, the reasonableness of which may be immediately challenged. A new litigation is then instituted to try the same issue, and so on ad infinitum. No decision can be of controlling importance or of any permanent value as a precedent. There are to be found no English cases involving com- binations, monopolies, and conspiracies in oil, tobacco, iron and steel, sugar, and food products ; few, in fact, of any kind. So far as known, there is no statute in England similar to our anti-trust act. It appears not to be needed, because these are common-law crimes and are not condoned and excused as they often are in this coun- try, but are prosecuted and punished. No civil remedy is needed in England. And it might have been better if no civil remedy had been provided in the Anti-Trust Act, since the enforcement of civil remedies is so dilatory and unsatisfactory. The conduct of civil business in the courts by the Department of Justice is enormously expensive, and recent results have been fraught with evil rather than good. The country has had a strange and sad experience in its warfare against combinations and conspiracies in re- straint of trade. It took many years of protest and agi- tation to obtain the enactment of any such statute as the Sherman Act. A prompt and vigilant enforcement of it would have forestalled the complications which are now the pretext for appealing to Congress and the courts on the score of vested rights and business readjustments. But there ensued more than ten years of vacillation, apology, and inaction, with instances of palpable incom- petency or collusion. During the past seven or eight 164 MEANING OF STANDARD OIL DECISIONS years, owing to the previous inaction, those charged with the duty of enforcement were confronted with almost insuperable difficulties, which never would have arisen had prior officials done their duty. The tentacles of mo- nopoly were allowed to deeply penetrate the fabric of commerce and manufacturing in all directions. The task of the Government was large, and the outlook discourag- ing at best. But with the recent interpretations and the uses made of them there is cause for general discontent. Some able members of the bar have suggested that a few more well-reasoned decisions would be sufficient to remove the uncertainty created by the two recent decis- ions. But, inasmuch as the court confounds or places in the same category contracts and combinations, no amount of adjudication would clarify the subject: One decision making the distinction and limiting the applica- tion of the doctrine of unreasonableness to contracts alone would so narrow the sphere of uncertainty that no one need be greatly prejudiced by it. But it is too much to expect that the court will reverse itself so com- pletely within a reasonable period. Every phase and each disputed point in the course of many previous decisions had been met and settled by the courts prior to the Standard Oil and Tobacco Com- pany cases. Instead of the meaning of the statute being still uncertain and obscure, no Federal statute could be named as to which there had been such extensive and comprehensive judicial discussion. No case had ever come before the courts to which the prohibitory terms of the act were held applicable in which the moral ob- liquity of the conduct condemned was not at least equally as conspicuous as the legal dereliction. The law had been made so clear by frequent elucidations that it was impossible for men to violate it without experiencing 165 MEANING OF STANDARD OIL DECISIONS a consciousness of guilt. The courts had established a standard as easily discoverable and understandable as any ever established under a statute dealing with so broad a subject — a standard just as clear and certain as the nature of the subject matter of the legislation admits of. The courts had said and reiterated the rule that any contract or combination the direct and necessary effect of which was to restrain commerce was within the statute, and the suppression of competition by agreement or combination was the equivalent of, or might be identical with, such restraint. No one carrying on a business or planning a business enterprise to be conducted by legiti- mate methods could be harassed by any fears or doubts about its legality. In the absence of contract, combination, or conspiracy there is neither restraint of trade nor restraint of com- petition, though there may be elimination or destruction of competition. So that, if it is ever thought necessary to protect interstate commerce from mere monopoly, cre- ated by one individual or corporation, proceeding by normal methods, it cannot be done under existing laws. A mere destruction or elimination of competition in a particular line of business, in the absence of restraint, is not condemned by this statute. Any normal monopoly destroys competition, and merely to acquire and maintain exclusiveness by normal business methods has been held not to be within the rule of the act. To find a remedy for monopolies so created, Senators, Representatives and the Executive Department have been and are seriously concerned. But the anti-trust act as originally enacted and intended by Congress was ample for all forms of restraint and monopolizing other than that just men- tioned. The only trouble was with its enforcement, or rather non-enforcement. i66 MEANING OF STANDARD OIL DECISIONS What is shown by the foregoing discussion to have been an erroneous construction of the statute by the court, affected its final judgment and led to the adoption of a method for executing it which, instead of carrying out in practice the purpose and intent of the legislation, thwarted and defeated it. So that, if the substantive part of the statute requires amendment, the remedial part also requires it. (For discussion of the last mentioned phase of the subject, see Chapter XIV.) 167 CHAPTER IX SCHEME FOR REACHING MONOPOLIES THROUGH AMENDMENT OF PATENT LAWS We cannot shape our legislation in conformity to the theories of paternalistic governments. Therefore argu- ments drawn from experiments which are being tried in Germany are irrelevant. The controlling spirit of our institutions is that of individual freedom. That should be interfered with as little as possible and only where necessary for protection from injustice and op- pression. When imder the free action of those engaged in establishing and building up commercial and indus- trial enterprises, systems and methods have been adopted whereby the whole country has prospered, our law- makers should, before radically changing them, consider the whole subject with the greatest care and make no change except when convinced that the general welfare will be considerably promoted thereby. When so con- vinced there should be no unnecessary delay. All of which is preliminary to a discussion — and crit- icism, if you please — of the bill reported to the National House of Representatives on the 8th day of August, 1912, from the Committee on Patents and known as the Oldfield Bill. While a few of its provisions are meri- torious, most of them are vicious and destructive, or would be if not unconstitutional, and in any event mis- chievous. No one who studies the whole business situa- tion can conscientiously deny that legislation is needed. i68 SCHEME FOR REACHING MONOPOLIES The patent laws should be amended irf some particulars and the sections governing administration require re- vision. The Oldfield Bill contains numerous provisions amend- atory of procedure which had been approved and recom- mended by the Commissioner of Patents and not objected to b}^ any of the numerous patent lawyers and others who appeared before the Committee in the brief period allotted to hearings. The hearing was in fact limited to Sections 17 and 32, amendatory of Sections 4884 and 4899 of the patent laws respectively. None of the objections urged against these provisions prevailed, and with slight modifications they are embodied in the bill which was reported. The reported bill embodies all the features objected to at the hearing and several sections containing new matters not found in the bill before the Committee at the hearings. There was never any dis- cussion of these new provisions except such as might have taken place informally between the members of the Sub-Committee on the eve of making a report to the House. It is very difficult to discuss the bill in entirely inof- fensive terms. It is not necessary, however, to offend the proprieties by impugning the motives of any one responsible for its preparation and promulgation ; never- theless, it is not difficult to find reasons for condemning it as a most absurd, ill-considered and dangerous legis- lative proposal. Speaking generally, it embodies an indirect attempt to nullify the feature of the decisions in the Standard Oil and Tobacco Company cases, making the prohibitions of the Anti-Trust Act applicable only to such restraints as are undue or unreasonable. If the bill did this com- prehensively, directly and completely, it would not be 169 SCHEME FOR REACHING MONOPOLIES objectionable for that reason alone. But its proponents appear to have had reasons for discriminating, and to have desired that as to some particular industrial, com- mercial or financial interests, not clearly disclosed in the bill or otherwise, the modification made by the Court of its prior decisions should remain in force. For instance, in the field left untouched by the specifications, are all agreements between railroads fixing fares and rates and between merchants and manufacturers fixing prices. The first part of Section 5 recognizes, by clear and necessary implication, the rule of reasonableness as an ingredient of the Anti-trust Act in certain cases and by the lettered specifications deprives litigants of its benefits ; but the traffic and price agreements are not mentioned. It scarcely requires a special legal training to see the evil effect of such a change. Heretofore, even at the common law, the rule of reasonableness was held inapplicable where public service agencies were in- volved. The drastic Hmitations upon buying and selling, leas- ing, renting and possession and use, prices and methods of doing business, address themselves peculiarly to man- ufacturers and merchants. If the bill were enacted and put in force, it would shortly cause more distress and bankruptcy than a failure of crops, or a fifty per cent, reduction in the volume of currency. If any one of a half dozen of its provisions were alone enacted, a large number of legitimate and helpful enterprises would have to close shop and go out of business, without any re- sulting benefit to offset the losses. It would disjoint any disintegrate the business of the country more than the most unequal and discriminating tariff or transpor- tation adjustment conceivable. It would prove especially disastrous to merchants and manufacturers of limited 170 SCHEME FOR REACHING MONOPOLIES resources, but those able to command large capital and credit could take and hold the trade. It would deprive inventors of all incentive for obtaining patents upon their inventions by forbidding the fixing of prices by them or by their licensees or assignees. In other words, it would deprive them of the only means of enjoying the exclusive right which is the main purpose of a patent. The large concerns able to bear the expense of reaching the consumers throughout the country would be the only purchasers of patent rights upon their own terms, and these would have to sell at a uniform fixed price regardless of differences in cost of reaching consumers. And this increased cost of doing business would raise prices to consumers. Such would be the inevitable re- sult, though there might be, at first, general demoraliza- tion of prices, wasteful competition and numerous failures. Patent and trust legislation lie in two separate and distinct fields. With respect to the first, the policy of the Government is, and has ever been, the granting and protection of monopolies, while as to the other its policy has been to limit and restrain monopolies. An attempt to amend the statutes on the one subject under guise of amending the law, having the other as its subject matter, is far fetched, and incongruous. Though a case is easily conceivable of a patent right being used as one of the factors or instruments in a trust contract or combination restrictive of interstate commerce, yet that would not necessarily or usually involve any question of patent law at all. True, the court might be called upon to determine whether the monopoly privilege of the patent had been properly exercised, or perverted and abused, but that would not change the character of the case as one arising under the Anti-trust Act. On the other hand it would be 171 SCHEME FOR REACHING MONOPOLIES almost impossible for the Anti-trust Act to become involved in patent litigation. This results from the in- herently differing subject matter. An erroneous view prevails almost universally with respect to the real nature of patents as property. While it is correct to say that the granting of letters patent on an invention confers a monopolistic right, it is no more correct and means no more than the issuance of a patent to a quarter section of land. The only difference between the owner of the land and his property and the owner of the letters patent and the property thereby acquired is in the method of enjoyment and protection in the exclusive possession and use. The land owner may construct a fence or a hedge around his land and exclude all others from its possession and use; and if necessary to protect his possession from trespassers, he may have the same injunctive remedy that is available to the patentee, though he would usually have to seek it in a State court. So we see that the term "monopoly," when used in connection with a patent, conveys no distinctive meaning. Ownership of tangible property is an ancient institu- tion ; ownership of a patent right is an institution origin- ating in the constitution, the right resting upon consti- tutional law and the property itself being intangible. Ownership of a horse or an automobile is acquired as a result of labor, mental or physical, or both; ownership of a patent is acquired in exactly the same way. When we debate the question of whether or not the exclusive right of the patent owner shall be protected, the issue is no more one of monopoly and anti-monopoly than if it were one relating to the protection of any other property right. Whatever is necessary, considering the peculiar nature of the case, to secure to the owner the 172 SCHEME FOR REACHING MONOPOLIES exclusive enjoyment of his patent is as just, proper and legitimate as in the case of any other property, nor are the true merits of the proposition affected by the lax application of the term "monopoly." Especially are these observations pertinent and relevant in view of the decision of the Supreme Court in the Bath Tub Case (November 18, 1912) in effect that, where a combination within the terms of the Anti-trust Act is shown, and patent rights have been used as integers in its formation, the legally monopolistic character of the patent ownership is of no importance. Herein we have further proof of the fallacy of specifically bringing the patent question into the trust question, or vice versa, in legislation. Patent property no more enjoys exemption in dealing with actual restraints and combinations than any other species of property ; and yet all are equally and alike within consti- tutional guarantees. All the questions that are really in litigation in a case presented either civilly or criminally under the Anti- trust Act are questions of personal right and personal freedom, while every patent case involves property rights exclusively. The Anti-trust Act is broader in its scope than the entire body of patent laws. And yet, in no case under the former, would the patent law have to be con- sidered at all, but only the question of how that species of property designated as a patent, admitted or shown to exist had been used — always and invariably a question of fact. It never could be necessary in any bill intelligently drawn to protect commerce from restraint and monopoly to even use the word "patent." It would be difficult, probably impossible, to draw a bill specifying patents alone, which if passed would not be held inapplicable to any other species of property. The bill seemed to embody every conceivable element SCHEME FOR REACHING MONOPOLIES of destruction to, and dissolution of, the business of the country based on patents, amounting annually, it is said, to over $25,000,000,000. If it had been reported and passed with substantially its original provisions, it would have placed the owner of a patent or patented article in a much worse plight with respect to his property therein than the owner of a load of hay, a horse or even a dog. The Committee allowed public hearings on the bill from time to time, running through two months, but the hear- ings were expressly limited to Sections 17 and 32 relating to compulsory licensing and license restrictions. No one who examines the record can doubt that a majority of the Committee were impressed with the objections made and arguments presented to support them, nor is it a vio- lation of any confidence to state that the bill reported had the support of only a small minority of the Committee. Very few of the provisions of the original are found in the substitute bill, and even these are in a greatly modified form. Sections 17 and 32 of the substituted bill are still strenuously opposed by the patent interests affected by them, but their prejudicial effect is slight as compared to what would have resulted from the operation of these sections unchanged. The balance of the bill comprises twelve pages and is the Lenroot Bill itensified with re- spect to its malignity and purpose as applied to patent property and to no other kind of property. 174 CHAPTER X LEGISLATIVE PROPOSALS OF MR. LENROOT. There is a sphere of social duty wherein the law maker can only lay down the most general rules. The making of what we may properly term the minor rules must be left to the courts in the cases coming before them. Within such legislative spheres the distinctions between what had best be prohibited, in view of the public inter- est, are indistinct at first, and it is sometimes many years before enough precedents are established to enable the members of the bar to intelligently advise their clients as to the legal consequences of a given course of con- duct with reference to a given statute. Such is the situa- tion with reference to the Anti-trust Act. If it be true that much inconvenience and painful uncertainty must result from a failure to make the statute more specific and to de- fine more in detail the acts forbidden and conduct con- demned by it, that is unfortunate, but it is the inevitable condition arising from the nature of the case. Many schemes and expedients for amendment have been pro- posed, some of them by excellent legal talent ; but when the proponents have undertaken to formulate legislation embodying their views, their bills have been found im- practicable or unconstitutional. The Lenroot Bill is pe- culiarly and conspicuously amenable to both these objec- tions. After so complicated a measure as the Lenroot Bill has been printed, the practical men of affairs and the de- fenders of constitutional rights take it up and before they 175 LEGISLATIVE PROPOSALS OF MR. LENROOT are through dissecting and criticizing, the draftsman of such a bill is more than willing that his authorship, of which he had at first been very proud, shall be forgotten as quickly as at first acknowledged and boasted of. But denunciation of monopoly is at present the vogue of the times and the fad of psuedo statesmanship, and it would be no use to attempt its defense. Few words in the language have been uttered more frequently during the last twenty years than "monopoly," and nearly always with disapprobation. And yet there is scarcely another word of common use the meaning of which is less under- stood. Ninety-nine persons in a hundred understand the term to have a narrow and restricted meaning. And yet our whole social and economic system is based on monopoly. Not a human being can be found on the earth who is not a monopolist to some extent. Even lunatics and children monopolize all such personal rights as they are permitted to exercise. And the owner of a right granted by government, for instance a patent, can- not be considered more exclusive than that of a babe to its maternal nourishment, or of a lunatic to the clothes on his back or food in possession. Nor is the title of either of these more exclusive than that of any other absolute owner of property. When we enter the domain of personal rights we are still more impressed with their exdusiveness. The right to use one's own name, to move about freely, to make contracts, in fact, all those rights which appertain to the pursuit of happiness are personal and exclusive ; in other words, they are monopolistic. Monopoly is a relative term and cannot be defined with such accuracy or definiteness that the definition would be a valuable guide to legislation. There have been many expositions of monopoly and attempts to draw lines where a business ceases to be legitimate and be- 176 LEGISLATIVE PROPOSALS OF MR. LENROOT comes illegitimate, or ceases to be competitive and becomes monopolistic under such statutes as the Anti- Trust Act; but these have not been successful attempts to define monopoly. If we were back in England under the Elizabethan regime where there were no very noted instances of "big business" resulting from mere development and con- centration we would have no trouble with the definition. But to-day it is otherwise. We have in these days very few, if any, mere monopolies which are completely and securely coextensive with the nation, such as were cre- ated by royal grants in those early days. And yet most people realize that we have in our midst corporate insti- tutions possessing more power in the fields of produc- tion and trade than is consistent with the welfare and safety of the pubHc. Now, why is it that when we begin to talk about monopoHes certain great estabHshments, with hundreds of milHons of capital, but controlling perhaps fifty per cent, or less of the business, immediately come to mind, and others controlling the entire output of particular specialties are not mentioned or even thought of? It is simply because not having any definite legal or other conception of monopoly, we confound it with the power, inclusive and exclusive, possessed by "big business." It is a subject upon which we have vast illumination but as to which we are almost destitute of steady light. We may read the expositions found in court reports, the articles in magazines, and the hearings before House and Senate Committees, yet the question of what is repre- hensible monopoly and what are its evils against which legislation should be directed remains unanswered. But upon analyzing pubHc sentiment and political utterances we are able to see that the specific thing complained of is 177 LEGISLATIVE PROPOSALS OF MR. LENROOT the power exerted by large and overgrown enterprises. And yet, a statement often heard is to the effect that the economies of co-operation and consolidation are not to be lost sight of, and that no fault can be found with mere bigness. Let's take the words of Justice McKenna in National Cotton Oil Company v. Texas (197 U. S., 128-129) : It is commonplace to say that it is the purpose, and indeed duty, of government, to get all it can of good out of the activities of men, and limit or forbid them when they become or tend to evil. Of course, what is evil may not be always clear ; but to be able to dispute the policy of a law is not to establish its invalidity. It is certainly the conception of a large body of public opinion that the control of prices through combinations tends to restraint of trade and to monopoly, and is evil. The foundations of the belief we are not called upon to discuss, nor does our purpose require us to distinguish between the kinds of combinations or the degrees of monopoly. It is enough to say that the idea of monopoly is not now confined to a grant of privileges. It is understood to include a "condition produced by the acts of mere individuals." Its dominant thought now is, to quote another "the notion of exclusiveness or utiny" ; in other words, the suppression of competition by the unification of in- terest or management, or it may be through agreement and con- cert of action. And the purpose is so definitely the control of prices that monopoly has been defined to be "unified tactics with regard to prices." It is the power to control prices which makes the inducement of combinations and their profit. It is such power that makes it the concern of the law to prohibit or limit them. That is as far as the Supreme Court has gone in defin- ing monopoly; and yet instance after instance could be cited of corporations engaged extensively in interstate commerce absolutely controlling the prices of particular articles, but which clearly could not be reached under the Anti-trust Act, or any other statute now in force, and whose interstate commercial activities are nowhere condemned. Would it economically make any difference if the same result were produced by a combination of in- dividuals or corporations rather than by the accumulated power and prestige of a single firm or corporation ? And 178 LEGISLATIVE PROPOSALS OF MR. LENROOT yet, while the former would be exempt, the latter would be within the inhibition of the Anti-trust Act. A certain great New York corporation, formerly a great firm could be named, engaged in the wholesale and jobbing dry goods trade. It has exclusive options from year to year with the manufacturers of particular brands of cottons, woolens and cloths, not produced by any other manufacturers. It controls or monopolizes if you please, that trade, both locally and among the States, fixing its own prices. Concerning it and its operations two questions could be asked, one of which can be read- ily answered; the other unanswered. First, can that corporation with respect to its control and operations be reached and dealt with as a monopoly, under the second section, or for restraining commerce under the first sec- tion of the Anti-trust Act? To this the answer is nega- tive, because there is a complete legal hiatus between the arrangement of the corporation with the manufac- turers and its distribution to its customers through the channels of interstate commerce. Second, ought a limit- ation to be placed upon its powers, and ought its activities to be checked and curtailed by Federal legislation? To this it might seem presumptuous to return an answer. The Lenroot Bill, if vaHd, would by some of the lettered clauses of Section 10 unquestionably put an end to that method of marketing the products of manufacturers, be- cause prohibiting and penalizing all exclusive contracts and managements of every kind and character. It here- in makes no distinction between interstate and intrastate trade, and in that lespect is amenable to constitutional objections ; but if so rewritten and changed as to apply to interstate commerce only, the economic argument pro and con would remain to be made, as well as the decision by Congress upon the politic and economic question. 179 LEGISLATIVE PROPOSALS OF MR. LENROOT By legislation in proper form Congress can accomplish this particular purpose of the Lenroot Bill, because, as was said in the Knight case, "The power to regulate commerce is the power to prescribe the rule by which commerce shall be governed, and is a power independent of the power to suppress monopoly. But it may operate in repression of monopoly when that comes within the rules by which commerce is governed, or whenever the transaction is itself a monopoly of interstate commerce." Now in this connection it may be remarked that we find a distinction made in the law, as construed, where there is no practical or economic difference. The result accomplished by the corporation above referred to is just the same economically as if those manufacturers had formed a combination through a holding company and marketed their products through it, or had made a trade agreement to operate through a committee as was attempted in the Addystone Pipe Company case. But either of the latter methods would be within the prohi- bition of the Anti-Trust Act, while the present method of doing the same business is beyond the scope of the Act. But while the policy for Congress in dealing with such situations as that presented in the cases of such corpora- tions as that now under consideration is for its own determination it cannot be improper to present a few of the hackneyed objections to its being disrupted and hav- ing its unified system of business disintegrated by Federal law. If one of the manufacturers can contract in ad- vance to sell, up to his full capacity, the economies which that will enable him to practice may give him a greater profit at 5 per cent, advance on cost of production than he would realize at 10 per cent, if he must go into the open market for purchasers and take his chances with i8o LEGISLATIVE PROPOSALS OF MR. LENROOT an uncertain and intermittent demand. Again, the pur- chasing corporation, in control of the supply, may realize a greater aggregate profit at one cent profit per unit of merchandise when controlling the entire trade and measuring its transactions in terms of millions, than at two cents per unit, if depending upon the exigencies of the market in competition with other dealers in the same spe- cial brands of goods and measuring its transactions in terms of thousands. How does such an arrangement affect competition? Nothing can be here definitely and unqualifiedly affirmed. We have a mixed or composite result, some of the new forces set in motion nullifying pre-existent activities, while stimulating and renewing others. All bidders for the products of these particular producers are barred out ultimately, but not primarily. Before the exclusive contracts are made any one is free to offer them and each of them better prices for their entire product than those accepted; and in that sense they may be said to have sold in a competitive market. Competition to produce better goods of different brands saleable at the same price or as good and saleable at a lower price, would also be stimulated. But of course the competitors of the big corporation may not have the adequate organization or be able to command the necessary capital to make their competition effective. We next give attention to the transactions between the distributing corporation and its customers. In addition to its local trade, it may deal with a thousand retail mer- chants through interstate commerce channels, as to which, in case of illegal restriction, it would violate the Anti-trust Act. Its exclusive contracts with them, how- ever, as is now well settled are not within the prohibi- tions of that Act. They do not destroy competition, be- i8i LEGISLATIVE PROPOSALS OF MR. LENROOT cause the field is open to other wholesalers, jobbers and their retail patrons, handling other brands of the same general class of goods which may be better at the price, or just as good, or nearly as good. These trade agree- ments are often exclusive and restrictive in a certain sense, and the retail dealer may by their terms have the benefit of a discount on all purchases during a year by purchasing a certain agreed large amount. Each and every one of them creates, in a small way, a monopoly. Then we would have the same character of monopoly with each of the retail dealers patronizing the corpora- tion with respect to the various brands of other lines of dry goods handled or dealt in by it. So that, out of a year's business of this one establishment, we would have many thousands of these little monopolies, or near- monopolies. And the majority of the thousands of job- bers and wholesalers in the country are doing business in that way, and many manufacturers are dealing thus directly with the retail trade. The number of such trade agreements must run into the millions and tens of mil- lions. So that, if the provisions of this bill should be enacted and enforced, it would revolutionize and disin- tegrate the major portion of the business of the country as it is now carried on. We should then indeed have that unfair competition, the elimination of which is the professed purpose of this bill. We would also have dis- tracting fluctuations in price, deterioration of quality, simulation of trade marks, and general demoralization. But those affected by such trade agreements which we have thus far named only constitute a negligible percen- tage of persons to be considered. How does it affect the interests of retail buyers, the consumers? In a small city or town we will find a half dozen stores, each hand- ling exclusively a particular and distinguishable brand, 182 LEGISLATIVE PROPOSALS OF MR. LENROOT we will say, of woolen underwear. They are all in com- petition with each other, each interested in selling as much as is possible in order to get the benefit of the dis- count from the wholesaler or jobber with whom he deals. As a matter of fact, not many purchasers at retail pay any attention to the brand of such goods, but look prin- cipally at the quality and price. So it is evident that as affects those whose interests should concern the law- maker most, there is intense and thorough competition, both as to price and quality. Therefore we see that those wishing to trade and deal at wholesale in such staples, rather than consumers and retailers, are the real complainants against the prevalent system. And the question arises whether it would sub- serve any general interest to legislate for the special ben- efit of a particular class of middlemen, and whether it be not best for the public interest that transfers from pro- ducers to consumers be abridged and simplified. The first step to bringing about ideal conditions would seem to be a process of weeding out superfluous traders and traffickers, or middlemen. They produce nothing, build up nothing, and cast no obligations upon the law- maker. There should be unrestricted competition be- tween consumers and producers, which includes agricul- turists, miners and manufacturers. Importers might very properly be also catalogued as producers. The only commercial co-operation should be in buying rather than in selling. Jobbers or wholesalers and distributors in a large way would be beneficial; and their only cus- tomers should be the representatives of retail purchasers and consumers. Transportation facilities should be available to all persons and to all localities on equal terms, with the least possible discrimination because of quantity, distance and labor involved in handling. And 183 LEGISLATIVE PROPOSALS OF MR. LENROOT if such equality cannot be otherwise produced, then transportation should come under complete Governmen- tal control. It is that so-called business class which we here desig- nate as the trader or middleman who does much to keep up the rate of interest (dividends being the equivalent) and necessitates intermediate shipments and reshipments of articles for consumption, thereby enormously increas- ing the aggregate freight charge. Interest and transpor- tation charges are gradually and by imperceptible de- grees eating up the entire average margin of profit on invested capital in other enterprises than railroading and banking; and at the present rate of progression in that direction, the time is not far distant when those two pre- dominating interests will have absorbed all the solid wealth of the nation. In that direction and not toward such minute matters as uses and abuses of patent owner- ship, and the short cuts of manufacturers to profitable trade, the legislator should turn his attention. This is a diversion in a sense, but the whole question is on the borderland of a very general discussion. Some very talented individuals talk about regulating competition just as they would discuss the placing of lim- itation upon the sale of opium or some social vice. Com- petition is not merely an incident of all business, but an inseparable attendant. There are of course dishonest practices among those striving each for his share of trade which is not infinite. Never while the world stands will there be enough business, or, for that matter, enough re- munerable employment to satisfy all. On the other hand, no trade monopoly is, or ever can be, so perfect or powerful as to be entirely free from competition. And the wrongs of competition can be no more prevented by 184 LEGISLATIVE PROPOSALS OF MR. LENROOT acts of Congress than can infractions of the golden rule. It cannot be doubted that some phases of competition are so closely connected with commerce that Congress might specifically prohibit and penalize them; but only the competition pertaining to interstate commerce. A great difficulty arises, however, when that form of regu- lation is attempted. While it is feasible to separate in- terstate trade from that which is intrastate, it is not so with competition. It is not strictly speaking merely the life of trade but rather its inseparable concomitant. It is trade's universal element, just as the presence of the ocean was the pre-existent condition for navigation. The Government can regulate navigation, but it cannot regulate the tides, currents, waves, and winds of the ocean. It can, to some extent, regulate interstate com- merce, but it cannot regulate the infinitely varied phases of competition. Some of the acts assailed by the Len- root Bill as unfair competition can be prohibited and penalized in the exercise of a police power belonging to the States, and in some instances specific conduct might be punished by the federal government, not necessarily because they belong to or constitute competition, but be- cause they are otherwise, or independently, obstacles to the free flow of interstate commerce. The Elkins Act, now part of the Act to Regulate Commerce, forbade and penalized rebates and concessions by carriers, not be- cause these were what might be termed instances of un- fair competition between carriers, but because they con- stituted wrongs to shippers and the public, so closely con- nected with interstate commerce as to warrant their being treated as part thereof. A vast amount of time has been wasted in speech, and space consumed in print, differentiating, or at- 185 LEGISLATIVE PROPOSALS OF MR. LENROOT tempting to differentiate, between restraint of trade and restraint of competition. The two expressions are not synonymous ; that is to say, they are not equal- ly comprehensive, but lie in different planes. A re- striction of trade may result in restraint of competi- tion, but that is by no means an invariable result. A prohibitory tariff would restrain trade and increase competition within the nation adopting the prohibi- tion, and the creation of a monopoly of interstate com- merce may cause new competition to spring up for supplying local demand in many places. Again, what is called restraint of competition would be more properly described as destruction of competition, which may result from many causes other than restraint. And while the creation of an interstate monopoly may increase local competition, it may, in turn, destroy it without diminishing the ag- gregate trade. In no proper sense can a monopoly of trade be said to restrain competition. The utmost that it ever does is to destroy it. Fire, storms, flood, insolvency, changes in transportation rates and facili- ties; these are a few of many destroyers of competi- tion. Just as the social welfare of the people is of great- est importance in the legislation to regulate immigra- tion, so is the preservation of competition of primary importance in regulations of commerce, but the legis- lation must necessarily be limited to foreign migra- tion in the one case, and to restraints and interferences with commerce in the other. As well might we at- tempt to cover all the social affairs of the people by Congressional enactment, as attempt to so regulate competition. It is a universal force, having as many forms and phases as vegetation or animate life. When 1 86 LEGISLATIVE PROPOSALS OF MR. LENROOT restraint has been prevented and monopoly removed, Congress has done all it can in the form of an anti- trust act. The "acts, conduct, methods," etc., designated in Sections 10 and 11 of the Lenroot Bill, must be reached, if at all, by legislation in some other form. Nearly or quite all the specifications fall short of be- ing any "contract combination in the form of trust or otherwise or conspiracy," these being results often contributed to in part by "acts, conduct," etc. Some of them, for instance, the acquisition of 40 per cent, or any other large proportion of a business, might or might not be a factor in the acquisition of a partial monopoly, involving no restraint, or it might be a re- sult of fair and successful competition. But to enact that the fact of such a degree of control creates even a rebutable presumption of restraint of trade, which is something different from the other two results would be to make a defendant in some cases a suft'erer from mere guesswork. And before any act should be passed forbidding and punishing the acts or conduct specified in the Lenroot Bill, if it can first be shown that Congress has juris- diction to so legislate, inquiry should be directed to the question of whether they or any of them are inher- ently vicious, and whether the public interest will be best served by governmental fiat. But in any event, before a code of business morality is adopted, it should also be considered whether it can be enforced. It must be borne in mind that a self-assertive, self-gov- erning people will often insist upon doing business in ways that cannot be morally justified until other conditions are so changed that they can adopt better and fairer methods. Nor should we lose sight of the 187 LEGISLATIVE PROPOSALS OF MR. LENROOT real function of our form of government, which is to serve the people as they prefer to be served, and not as philosophers and philanthropists think they should be served. Of course this principle or policy of gov- ernment should not stand in the way of any legislation to put an end to an obvious evil, the remedy for which is within congressional power. But this legislation is proposed by way of amendment or supplementation of the Anti-trust Act, a law aimed at contracts and combinations in restraint of trade or tending to mon- opoly. And before its enactment is seriously consid- ered, inquiry should be made as to whether the things forbidden are calculated to directly and substantially restrain, or even to diminish trade, because if they do not, then its proponents are sailing under false colors and attempting to avail themselves of the popular pro- test against restraints and monopolies for the attain- ment of an object not in the minds of the protesting public. That this remark is not impertinent is appar- ent from the fact that the provisions of the bill are not limited to interstate commerce at all. The Anti-trust Act is an abridgment of monopoly, such an abridgment, however, as was found to be neces- sary. Or to otherwise express it, it is a limitation placed upon freedom which prevents abuses of free- dom, and promotes a more general freedom. There is this other pecuHarity about it; the Anti-trust Act pertains primarily and solely to personal rights. Though property rights may be affected very serious- ly in its enforcement, yet the regulation of ownership of property — that being synonymous with the right of property — -was not the moving cause for its passage. It is true that a contract is property, and that the sta- tute begins with the words, "Every contract." But i88 LEGISLATIVE PROPOSALS OF MR. LENROOT the entire sentence, "Every contract, combination in the form of trust or otherwise, or conspiracy, in re- straint of trade or commerce among the several States, or with foreign nations, is hereby declared to be ille- gal," could have been omitted without loss of efficacy. All' that is really important in the Act are the remedial and penal clauses. Of course anything made criminal is prohibited, and illegahzed without the further use of language. That the statute is aimed at personal conduct is shown by its form and words. "Every per- son who shall," etc., do so and so; not "every person found to be the owner," etc. These refinements and distinctions, though seem- ingly very technical, have a direct bearing upon the matter under consideration. In trying to reach the patent law by amendment of the Anti-trust Act, or vice versa, the proponents of the Lenroot Bill display very imperfect knowledge of the whole subject and of the national policy behind both statutes, In the enact- ment of patent laws the government provides for the creation of artificial monopolies, finding direct and ex- press sanction therefor in the Constitution; in the enactment of the Anti-trust statute the Government sought to curb abuses of the constitutional right of contract and of association, in so far as such abuses relate to interstate commerce. But these rights may be abused by the owner of a patent and with respect to such ownership, as effectively as by the owners of other kinds of property, as was recently decided in the Bath Tub case (Standard Sanitary, etc., Co. vs. United States, decided November 18, 1912), showing that no amendment of the Anti-trust Act is needed in order to bring patentees within its provisions. No legislation is needed to establish the line of sep- 189 LEGISLATIVE PROPOSALS OF MR. LENROOT aration between the rights of patentees under patent laws and those of the pubHc under the Anti-trust Act. It has been enunciated time and again by the courts. They have held that such contracts as those in the button- fastener case and the mimeograph case do not constitute invasions of that freedom protected by the Anti-trust Act, but that such a combination based upon patent rights as that presented in the Bath Tub case does constitute such invasion. In reading the Lenroot Bill, one is unavoidably im- pressed with the fact that its draftsman was endeavor- ing to utilize the agitation for amendment of the Anti- trust Act for the accomplishment of several distinct ulterior purposes, having no connection with, or rela- tion to, the sole purpose of that act, as above ex- plained. But this phase of the matter will be referred to more specifically hereinafter. The bill does not expressly add so much as a single word to, or change a word of, the Anti-trust Act. Persistently it has been stated before committees that the proponents do not contemplate any change in the existing law, but only to supplement it and render it more effective. But in fact the bill has the legal effect to recognize, adopt and incorporate before the word restraint wherever it occurs in the Act the word "un- reasonable" and then seeks to partially nullify that in- terpolation by indirection and circumlocution. Prob- ably not a single member of Congress would deem it advisable to pass legislation which, standing alone, would have that general effect. This is probably a safe statement, regardless of individual views of the soundness or unsoundness of the doctrine of the Stand- ard Oil and Tobacco Company cases. But if that statute or any ought ever to be amended 190 LEGISLATIVE PROPOSALS OF MR. LENROOT in any such way, why should not the wonderful inven tion of presumptions, conclusive and rebuttable, cover the whole field of violation? Why enumerate just those acts which the draftsman opines are reprehen- sible, and leave the public and private parties other- wise unprotected by the unique device? The bill cannot be compared to anything in our legislative literature, or history. Two sections which it would add to the Anti-trust Act would be Sections 9 and 10 of the present statute. They would not be supplementary, but radically amendatory and emascu- latory legislation, though really aiming at objects for- eign to those aimed at in the Anti-trust Act. Sections 9 and 10, which the bill proposes to add to the Anti- trust Act, read as follows: Sec. 9 That whenever in any suit or proceeding, civil or criminal, brought under or involving the provisions of this Act it shall appear that any contract, combination in the form of trust or otherwise, or conspiracy was entered into, existed or exists which was or is in any respect or to any extent in restraint of trade or commerce among the several States or with foreign nations, the burden of proof to establish the reasonableness of such restraint shall be upon the party who contends that said restraint of trade is reasonable. Sec. 10. That whenever in any suit or proceeding, civil or criminal, brought under or involving the provisions of this Act it shall appear that any contract, combination in the form of trust or otherwise, or conspiracy was entered into, existed, or exists which was or is in any respect or to any extent in restraint of trade or commerce among the several States or with foreign nations, such restraint shall be conclusively deemed to have been, or to be, unreasonable and in violation of the provisions of this Act as to any party thereto — A. Who, in carrying on any business to which such contract, combination, or conspiracy relates or in connection therewith — ■ (a) As the vendor, lessor, licensor, or bailor of any article, attempts to restrain or prevent in any manner, either directly or indirectly, any vendee, lessee, licensee or bailee from pur- chasing, leasing, licensing or obtaining such article, or any other article from some other person, or using such article or any other article obtained from some other person whether such attempt (first) be made by an agreement or provision, express or implied, against such purchase, lease, license or use; or (second) be mdae 191 LEGISLATIVE PROPOSALS OF MR. LENROOT by a condition in the sale, lease, license or bailment against such purchase, lease, license or use ; or (third) be made by imposing any restriction upon the use of the article sold, leased, licensed or bailed; or (fourth) be made by making in the price, rental or li- cense any discrimination based upon whether the vendee, lessee, licensee or bailee purchases, hires or becomes a licensee of or uses any article made, sold, licensed, leased, or furnished by some other person; or (fifth) be made in any other manner except the ordinary solicitation of trade. (b) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or restrain competition by making in the price, rental, or royalty, or other terms of any such sale, lease, license, or bailment any discrimination based upon whether the vendee, lessee, licensee, or bailee purchases, leases, licenses, or takes on bailment from him articles of a particular quantity of aggregate price. (c) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or restrain competition either by refusing to supply to any other person requesting the same any article sold, leased, licensed, bailed, or otherwise dealt in or furnished by him, or by consenting to supply the same, only upon terms or conditions in some respects less favorable than are accorded to any other person. (d) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or restrain competition by supplying or offering to supply to any person or persons doing business in any particular territory articles sold, leased, licensed, bailed, or other- wise dealt in or furnished by him, upon terms or conditions in any respect more favorable than are accorded by him to his other customers. (e) As the vendor, lessor, licensor, or bailor of any article,, attempts to restrain or prevent competition by making any con- tract or arrangement under which he shall not sell, lease, or license any article in which he deals to certain persons or class of persons, or to those doing business within certain districts or territory. (f) If a natural person, does business directly or indirectly under any name other than his own or that of a partnership of which he is a member ; or if a corporation does business under any name other than its own corporate name ; or if there be any concealment or misrepresentation as to the ownership or control of such business ; or if there be any misrepresentation as to the identity of the manufacturer, producer, vendor, or licensor of any article sold or leased. (g) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or destroy competition by supplying or offer- ing to supply such articles without charge or at prices at or below the cost of production and distribution. (h) As the vendor, lessor, licensor, or bailor of any article, spies upon the business of any competitor or secures information concerning his busines,s either through bribery of an agent or 192 LEGISLATIVE PROPOSALS OF MR. LENROOT employee of such competitor or of any State or Federal official, or by any illegal means whatsoever secures information concern- ing the competitive business. ^ ' (i) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or restrain competition by the use of any unfair or oppressive methods of competition ; or B. Who has been sentenced, or who controls or is controlled by or is a member of or forms a part of any corporation or association which has been sentenced, under the Act to regulate commerce, approved February fourth, eighteen hundred and eighty-seven,or any amendment therof, for any act or thing re- lating to any trade or business affected by such restraint done or occuring after this Act goes into effect. The foregoing enumeration of acts, conduct, methods and de- vices, which it is herein declared shall each conclusively be deemed unreasonable, does not include, and shall not be con- strued to exclude or as intended to exclude, any other acts, conduct, methods or devices which are or may be unreasonable. The provision of clause (a) of this section shall not apply to any case where the vendor, lessor, licensor or bailor of any machine, tool, implement, or appliance protected by lawful patent rights vested in such vendor, lessor, licensor or bailor requires the purchaser, lessee, licensee, or bailee to purchase or hire from him component or constituent parts of such machine, tool, im- plement, or appliance which such vendee, lecensee or bailee may thereafter acquire during the continuance of such patent right, nor shall any of the provisions of this section apply to the mere appointment of sole agents to sell, lease, license, bail or furnish any article. To the first section of the Lenroot Bill, adding Sec- tion 9 to the Anti-trust Act, and to all such bills, it should be remarked that it is a somewhat adroit at- tempt to incorporate into the law the element of reas- onableness, and at the same time offset it by shifting the burden of proof. But if the new doctrine found in the Standard Oil and Tobacco Company cases is to be dealt with at all, it is obvious that the only way for Congress to deal with it is to eliminate the new ele- ment by direct amendment of sections one and three of the Anti-trust Act. It is a strange notion, widely prevalent among the legal profession, and even more so among Senators and Representatives, that a direct and open challenge of the soundness of these decisions 193 LEGISLATIVE PROPOSALS OF MR. LENROOT is to be avoided, and that the situation thereby created must be met in some roundabout way, for instance, by supplementary legislation. This new Section 9 would utterly fail to accomplish its main purpose, which though ostensibly a shifting of the burden of proof, yet goes much further. It goes to an extreme which would eliminate the distinction between direct and indirect restraint, and draw into the Federal courts all the business of the country connected, however remotely, with interstate com- merce. In practical effect it would nullify the whole act by rendering its enforcement impossible. The courts have pointed this out time and again in drawing the line between direct restraint and indirect restraint, and confining the inhibitions of the act to that which is direct. There are not enough courts in the country, State and Federal, to attend to indirect restraints, even if they had nothing else to do. In short, these two seri- ous objections lie against the proposed new Section 9. 1. It admits into the statute, by express provision, the element of reasonableness. 2. It would eliminate the distinction between direct and indirect restraint, that is, if Congress would have the power to do so. But it has no such power, as is shown in Kidd v. Pear- son and other cases. It is a constitutional question. And it should not be overlooked that these provisions are made expressly applicable to criminal, as well as civil actions. If one did not appreciate the laudable and patriotic motives of the authors of, and sponsors for, this bill, he might reasonably suspect that the clever schemes of those who contend that monopoly should not be suppressed, but preserved and regulated, underlay Section 9. But it will be sufficient to point out the 194 LEGISLATIVE PROPOSALS OF MR. LENROOT sinister, serious and far-reaching effect upon the reme- dies and upon the interests of the public, of adding that section to the statute. A careful reading of the opinions in the Standard Oil and Tobacco cases, discloses one or two things al- ready noted, but here having such connection as to re- quire repetition. There are no contracts, properly so designated, now covered by the Anti-trust Act as re- cently construed. Contracts in reasonable restraint of trade at the common law could be enforced. All other so-called contracts in restraint of trade, being illegal, were combinations. These were so far illegal as to be indictable by the common law. Therefore, the court in these cases did not mean to insert the word "unreason- able," equivalent to illegal, into every concerted ar- rangement in restraint of trade. Nevertheless, that is what they did. The court expressed no intention to change the common law status of combinations and conspiracies. Contracts wherein the restraint is only reason- able, having been by the court eliminated from the' Anti-trust Act, the term "contract," as used in Section 9 of this bill, may be treated as surplusage. What then would be the net result of its adoption? It would be to inject the term "unreasonable" into the statute, where it belongs, only by inference from and construc- tion of these decisions. Much more clearly does this effect of the bill appear when, bearing in mind what has just been said, we glance forward to the clause near the end of Section 10, providing that "The foregoing enumeration of acts, conduct, methods and devices, which it is herein de- clared shall each conclusively be deemed unreasonable, does not include and shall not be construed to exclude 195 LEGISLATIVE PROPOSALS OF MR. LENROOT or as intended to exclude, any other acts, conduct, methods or devices, which are or may be unreason- able." This would place it beyond peradventure that the conclusive presumption is not to apply generally, but only in the specified cases, leaving the provision of Section 9 operative as the general rule. True, it throws on trusts and other forms of combination a rebuttable presumption, but that takes the place of a positive statutory condemnation, equivalent to a conclusive presumption of unreasonableness, assuming of course that these decisions are not the last word on the sub- ject. Let's scrutinize the provision above quoted, lest its effect be hereafter made a subject for controversy. It "does not include." That we see; but this prevents any possibility of its being otherwise construed. It "shall not be construed to exclude or as intended to exclude," what? "Any other acts, conduct, methods or devices which are or may be reasonable." That leaves the question of unreasonableness to be considered in the case of any other acts, conduct, etc. It excludes cases arising or sought to be based on acts, conduct, etc., not specified under the operation of the provision of Section 9. And a reference to the hearing on the bill before the Judiciary Committee will disclose an admis- sion that this is the proper construction. Now, what would be the effect of its adoption upon the practice and procedure? In a case brought, we will say, against the Smith-Jones corporation, alleging it to be a combination to restrain interstate commerce in iron and steel, the Government proves the coml)ination and its operations, showing restraint. This proof fixes and colors that restraint as illegal It is illegal because produced by a criminal act, to wit: The activities of 196 LEGISLATIVE PROPOSALS OF MR. LENROOT a combination condemned by the law. There is no room or place for any element of unreasonableness to qualify its illegality, unless found in the oil and to- bacco decisions; but by Section 9, after the Govern- ment has rested its case, the defendant would be ex- pressly authorized to attack it with a mass of argu- mentive and speculative evidence, tending to show that, after all, what the defendants have done was in keeping with the modern trend of business and indus- try, that its methods were merely the normal and usual way of achieving great results, and that the public has been well served because of efficiency and economy of management. In other words, the section introduces debatable matter in the trials of such cases, matter which is at present outside the issues, and would give the defendant an enormous advantage, which it does not now have. It would allow juries and courts to be hopelessly befogged and confused, whereas without it they would be free from doubt and difficulty. It would be as fatal to the Anti-Trust Act as if it were repealed. Instead of placing a real burden upon the defendant, it would make to him a valuable concession, and open to him a way of escape. Of course no great trust or corporation will raise the point of unconstitutionality against Section 9, or against other sections. But we may safely assume that the objection will be raised. And we now recur to tfiat question. Having placed this new element of reasonableness in the statute, it of course becomes an essential ele- ment of the ofifense, whether treated civilly or crimin- ally ; and to place upon the accused party the burden of proof as to that is the equivalent of placing the burden upon him as to the whole case, because there is really 197 LEGISLATIVE PROPOSALS OF MR. LENROOT no illegal restraint until there is made out a case of un- reasonable restraint. The effect would therefore be to convict in criminal cases, or apply civil remedies, against the party in civil cases v^ithout evidence, upon an essential fact in the case. The absurdity of the proposition appears upon a bare statement of it, in view of the constitutional provision that no one shall be deprived of life, liberty or property without due pro- cess of law. It is unnecessary to say that no constitu- tional burden of proof provision applicable to cases under the Anti-trust Act can be drawn. Such a pro- vision, however, would have to be limited to issues of fact. In such cases its function would seldom be seri- ously important. In practically every case the Govern- ment must produce all the essential facts before rest- ing; and then, of course, the question of reasonable- ness or unreasonableness is one of law, purely and sim- ply. We might make this idea even clearer by a com- monplace illustration. By a recent decision, we will say, the taking of a red apple is larceny, but the taking of a yellow apple is harmless. The prosecution must produce the apple before the court. The court on see- ing it must necessarily see its color. But the Lenroot Bill would compel the defendant to prove that the apple was yellow, in order to escape punishment, no matter how it appeared to the court. And if the prose- cution proved the apple was taken without proving its color, failing as to a material fact in the case, the defendant would nevertheless have to prove the lawful color, and in so doing, necessarily admit a taking. The most serious objection, however, to Section 9, already inferentially stated, is that it introduces the element of reasonableness into combinations and con- 198 LEGISLATIVE PROPOSALS OF MR. LENROOT spiracies where there was no such element by the common law. These lengthy and involuted Sections 9 and 10 make upon the mind an impression which, though clear and definite, almost baffles expression. What they accom- plish in one respect, however, can be easily shown by illustration. Under the present Anti-trust Act, with the recent construction interpolating the word "un- reasonable" or "undue," if we bring into court a case like the Trans-Missouri Freight Association, or the Joint Traffic Association case, or any other case of a mere combination and agreement to fix rates or prices, such case would not be touched by the provisions cre- ating presumptions found in -Sections 10 and 11. The Government would no longer be free to invoke the com- mon law doctrine of Baltimore vs. Consolidated Gas Co. (130 U. S., 397), to the effect that any degree or ex- tent of restraint by a public service corporation is ille- gal, because this Section 9 is a legislative recognition of the doctrine of the recent decisions in all cases not therein enumerated and provided for. And if we take the Addystone Pipe case, we find that the gist of the charge was the agreement fixing prices which would remain subject to the doctrine of reasonableness. And there have been and will be other cases in which noth- ing outside the bare restrictive agreement and concert- ed action is shown, to all of which the doctrine of reas- ableness would still apply. That would be sufficient under any decision prior to the Standard Oil and To- bacco decisions; and may be sufficient again if the court should reverse itself, or Congress eliminates the word which the court has interpolated. But if Sections 9, 10 and 11 of the Lenroot Bill be enacted, the court will be no longer free to modify its views, and Con- 199 LEGISLATIVE PROPOSALS OF MR. LENROOT gress will be forestalled in any future effort to restore the act to its original vigor, because of vested interests growing up under said Sections 9, 10 and 11. The law, if so amended, would injure few if any of the larger combinations. Institutions of enormous capital, with strong financial backing, have no need to resort to any of these acts designated in the lettered sub-divisions of Section 10. They have no need to discriminate in any way. Indeed, their profits are best secured by uniform- ity and equality of prices, for the same reason that the railroads have enormously profited by the anti-pass, anti-rebate and anti-discrimination provisions of the Interstate Commerce Act. Such institutions need above all else normal methods of doing business, and their positions and interests would be still further but- tressed by such an enactment and the enforcement thereof against independent companies of such a law as that here proposed. Having shown that in certain respects the provisions of this section are favorable to what is known as "big business," we turn to a feature which overturns the established law and, if it be possible that they be con- stitutional, would inaugurate such confusion and so far extend its operation as to render the Anti-trust Act totally abortive and impracticable. At any rate, that would be the result within the scope of Section 10. In every action to which it could be held applicable, the first question would then be, "Does the transaction re- strain trade or commerce to any extent or in any de- gree whatever?"; and not as at present, "Does the transaction directly and substantially restrain trade or commerce?" If indirect, collateral and slight re- straints could be forbidden by Congress, and were for- bidden even co-extensively with this bill, one result 200 LEGISLATIVE PROPOSALS OF MR. LENROOT would be the complete disorganization of all kinds of business as it is now done ; another result would be the withdrawal of a vast volume of litigation from the State courts into the federal courts. But such transactions are not constitutional sub- jects of congressional regulation or control. In Hop- kins V. United States (171 U. S .Rep., 5, 92) the court said : Many agreements suggest themselves which relate only to facilities furnished commerce, or else touch it only in an indirect way, while possibly enhancing the cost of transacting the busi- ness, and which at the same time we would not think of as agreements in restraint of interstate trade or commerce. They are agreements which in their effect operate in furtherance and in aid of commerce by providing for its facilities, conveniences, privileges or services, but which do not directly relate to charges for its transportation nor to any other form of interstate com- merce. To hold all such agreements void would in our judg- ment improperly extend the act to matters which are not of an interstate commercial nature. We have the further constitutional objection which was successfully urged in Adair v. LTnited States (208 U. S., 161) and in Trade-mark Cases (100 U. S., 82), that it seeks to regulate both interstate and intra- state trade indiscriminately. In the latter case the court said: When, therefore, Congress undertakes to enact a law, which can only be valid as a regulation of commerce, it is reasonable to expect to find on the face of the law, or from its essential nature that it is a regulation of commerce with foreign nations or among the several States, or with the Indian tribes. If not so limited, it is in excess of the power of Congress. If its main purpose be to establish a regulation applicable to all trade, to commerce at all points, especially if it be apparent that it is designed to govern the commerce wholly between citizens of the same State, it is obviously the exercise of power not confided to Congress. Turning now to the lettered sub-divisions of Section 10, we find that at least two constitutional objections 201 LEGISLATIVE PROPOSALS OF MR. LENROOT lie against nearly or quite every one of them. The language of the section is involved and complicated, so that no one can say just what it means, until in the course of time it shall have been fully construed. But we must first find a vendor, or lessor, licensor, or bailor, of any article attempting to restrain or prevent, in any manner, either directly or indirectly, etc. Then what? We must turn back and tack it on to the first clause. There we find that we cannot attach any con- sequence to the attempt unless it has already appeared to the court in some action, civil or criminal, that a contract was made or combination entered into, to which such vendor was a party and that such contract or combination restrained in some manner or in some degree interstate commerce. Then a conclusive pre- sumption arises that such restraint was or is unreas- onable. But we are not yet to the end of the riddle. We must now attend to another integer in the wordy puzzle. Not only is the provision aimed at a vendor who attempts, etc., but he must have been engaged in carrying on some business, "to which the contract, combination, or conspiracy relates, or in connection therewith." You have now got your man in a certain capacity attempting to restrain (or prevent), etc., by any (or all), of certain means, or under certain speci- fied circumstances. There must already have been a restraint established in court and in that case and un- der these circumstances, and as to this particular ven- dor, etc., a conclusive presumption of unreasonable- ness arises, provided he is "carrying on any business to which such contract, combination or conspiracy relates or in connection therewith." But hold on. This very subordinated act is to be a new element in the Anti-trust Act, because the Act now takes no 202 LEGISLATIVE PROPOSALS OF MR. LENROOT notice of mere attempts to restrain trade unless amounting to an attempt at monopolization. And does the conclusive presumption of unreasonableness also apply to the attempt? We have here not only wheels within wheels, but some of the wheels are turn- ing in different directions. It would be difficult or impossible to estimate the number and character of questions which would neces- sarily arise in attempted applications of it to cases brought before the courts. At any rate, one idea stands out conspicuously. The draftsman intends to fasten upon persons who do certain things, and upon others who do the same or other things in certain ways or in certain relations, a conclusive presumption of criminal guilt and civil liability under the Anti-trust Act, although the things done may have no tendency to restrain trade nor any connection with any combin- ation or conspiracy. This the section would accom- plish, if it accomplished anything. Lettered subdiv- ision (a) fastens the presumption upon any person so related who "attempts to restrain or prevent in any manner, either directly or indirectly, any vendee, les- see, licensee, or bailee from purchasing leasing, licensing, or obtaining such article, or any other ar- ticle from some other person, or using such article or any other article obtained from some other person, whether such attempt (first) to be made by an agree- ment or provision, express or implied, against such purchase, lease, license, or bailment against such pur- chase, lease, license or use, or (second) be made by a condition in the sale, lease, license or bailment against such purchase, lease, license or use, or (third) be made by imposing any restriction upon the use of the article so sold, leased, licensed or bailed, or 203 LEGISLATIVE PROPOSALS OF MR. LENROOT (fourth) be made by making in the price, rental or license any discrimination based upon whether the vendee, lessee, licensee, or bailee purchases, hires or becomes a licensee of or uses any article made,, sold, licensed, leased, or furnished by some other person, or (fifth) be made in any other manner except the ordi- nary solicitation of trade." Without reference to the other subdivisions (b) to (i), this alone would place a greater restraint upon the normal and usual business of the country, and would more harshly interfere with its effective transaction as it has always been trans- acted, than could possibly result from all the trusts and monopolies in the country with the Anti-trust Act wiped out and they given free rein. True, it is al- most a hopeless jumble of words, and yet it is possible to so strain one's faculties as to give the language a meaning; and that meaning is all embracing. The proponents of this subdivision have entirely misconceived the true purpose of those who estab- lished a constitutional government, which was the se- curing of freedom, an important part of which is the freedom of citizens to make binding contracts with each other, and of the well established limitations ob- served in the enactment of anti-trust legislation, which was the regulation of the right of contract and power of association only so far as was necessary in order that this liberty of contract between individuals might have free play. They are attempting to carry this underlying policy of the Act into private contractual relations where no public interests are affected or in- volved, not to mention the fact that they are attempting to regulate interstate and intrastate commerce indis- criminately. They here attempt to establish an espionage of and interference with private affairs which, if it were 204 LEGISLATIVE PROPOSALS OF MR. LENROOT possible to do the administrative work required, would make our Government the most viciously paternaHstic to be found under the sun. The owners of patents are not spared or exempted; and one immediate effect of the law, if valid, would be to render patent rights unsaleable and the production of patented articles no more worth while than the production of sheep or vegetables. 205 CHAPTER XI OTHER OBJECTIONS TO LENROOT MEASURE While no one will deny the power and duty of Con- gress to so change a law which the courts have miscon- strued as to make future misconstructions impossible, yet the courts undoubtedly have the last word on con- stitutional questions, and its settled construction of laws which have been in the books from the foundation of the Government will still command great respect by Senators and Representatives. In construing the provision empowering Congress to secure to discoverers of inven- tions and to authors exclusive rights the Supreme Court has said that the owner of a patent could secure that exclusive right by contract, any term of which would be binding and enforceable if not positively illegal. The illegality here spoken of would be a statutory prohibition, since there are no common law principles governing herein, and all questions pertaining to the scope of the patentee's rights being Federal exclusively, where the decision of a State court has been adverse to a right privilege or immunity claimed by the owner of a patent, such decision was to that extent a judicial definition of the word ^'exclusive," used in the Constitution. And it is a reasonable inference from what has been said by the courts that any rights granted, or authorized to be granted, to patentees are, and must be, exclusive. But the above quoted subdivision would take from a patentee every conceivable means for excluding others from equal 206 OTHER OBJECTIONS TO LENROOT MEASURE rights with respect to the production sale and use of his patent that are now enjoyed by him exclusively under the law. It goes much further. It deprives the people of many rights now enjoyed by them in making con- tracts for the production, sale and use of unpatented articles. The subdivision we have just discussed appears to be specially aimed at the owners of patents, but the other lettered subdivisions of this section are aimed indis- criminately at all established business methods and prac- tices. Subdivision (b) would prevent a manufacturer or jobber offering a discount or rebate to a customer who has become profitable to him because of having become a large purchaser. If he sold a customer a half dozen or one hundred of an article at one dollar, he could not stipulate that if the customer, during the course of the year took one thousand the price should be only ninety cents throughout. Under the operation of subdivision (c) if a manufacturer or jobber has adopted a scheme of having all his dealings in a given town with one man or one firm, he must abandon that plan of doing busi- ness, because his terms and prices must be open alike to all. He must either keep his goods on his shelves or in his warehouse or every sale must be on the same terms and at the same price, whether the demand is for a single article or unit of quantity or for a thousand. This is a common feature of subdivisions (b) and (c). And the same principal design is seen in subdivision (d) ; but lest perchance anything be left unprovided for, or any phase of business escape from the ravages of the enraged innovator, discrimination in prices placed upon the same article sold in different localities is here expressly forbidden. The producer of an article which he could sell at five dollars at the place of manufacture 207 OTHER OBJECTIONS TO LENROOT MEASURE and realize a profit he might not be able to sell in another city for less than six dollars, or in a rural section for less than seven dollars with the same profit, because of the addition to organization cost due to remoteness. And yet he would have to either reduce the out-of-town and rural prices to a point at which his profits would be wiped out, or increase his local prices to a point that would give that market to the producer of an inferior article or to a monopoly able to afford the reduction. Subdivision (e) has substantially the same purpose and the same comment is applicable. Subdivision (f) requires special and separate con- sideration. It reads thus: (f) If a natural person, does business directly or indirectly under any name other than his own or that of a partnership of which he is a member ; or if a corporation does business under any name other than its own corporate name ; or if there be any concealment or misrepresentation as to the ownership or control of such business ; or if there be any misrepresentation as to the identity of the manufacturer, producer, vendor, or licensor of any article sold or leased. The purpose of the concealment or withholding from publicity is here treated as immaterial. Under this un- qualified and sweeping language a party could not be a silent partner in a firm, notwithstanding that as such he would be liable in case of its insolvency juts as if his name were part of the firm name, and there were the best of reasons for his name not appearing. Often many persons have interests in a business concern and it would be impossible for all their names to appear in every transaction. Nevertheless, in such a case, the in- tent or purpose with which the name was withheld could not be put in evidence under this provision, because it fixes upon him a conclusive presumption of guilt. Nor — carrying along the essential connection — would it be material under the scope of the bill, whether such con- 208 OTHER OBJECTIONS TO LENROOT MEASURE cealment or withholding pertained to an interstate trans- action or to one beginning and ending within the borders of a single State. Subdivision (g) would place a greater restraint upon liberty than was ever before seriously proposed to a legislative body. It reads thus : (g) As the vendor, lessor, licensor, or bailor of any article, attempts to prevent or detsroy competition by supplying or offer- ing to suuply such article without charge or at prices at or below the cost of production and distribution. Under that provision a dealer could not give or offer to give little toys to children in order to stimulate his trade in staple articles, even if the toys had been left on his hands after a holiday season and had ceased to be saleable. And if he did so, he would be conclusive- ly guilty, of what? According to the bill he would be guilty of restraint of interstate trade, but it would seem that his act would rather tend to the promotion or increase of trade. But this is one of the wheels having an eccentric movement, and turns in the oppo- site direction to what you would naturally expect. This provision was evidently prompted by the fallac- ious notion that whatever reduces, or lessens compe- tition restrains trade. But is it not just as correct to say of such an act that it creates, as that it destroys or prevents competition? Subdivision (h) relates to spying on, and securing information by illegal means concerning a competi- tor's business. The first remark in order about that is that by no arrangement of any set or combination of words to be found in the language could Congress constitutionally make an offense out of spying on a competitor's business. It could by no possibility con- stitute restraint or monopolization of trade, or affect 209 OTHER OBJECTIONS TO LENROOT MEASURE trade directly to any extent whatever. It is equally difficult to see how actual trade could be affected by getting information about another's business whatever the means employed, whether legal or illegal. But perhaps we ought to bear in mind that this is to be a code of business morals, all inclusive. Subdivision (i) makes a direct appeal to prejudice and rests upon the heresy that any rule or practice which limits competition is so objectionable as to re- quire legislation for its removal. By this clause. Con- gress is invited to confer upon the courts discretionary and legislative powers broader than itself possesses. The draftsman evidently cherishes the error that "re- straint of trade" and "restraint of competition" are synonymous terms. The word "unfair" here used is even of broader and more shifting use and signifi- cance than the word "unreasonable." It would re- quire every judge to adopt a moral code of his own, and no two might agree. But still worse, it would re- quire every business man to adopt one, and to make any mistake in any he might adopt would cost him dearly. Now for a few comments on excerpts from these lettered subdivisions taken here and there: "(a) As vendor, lessor, licensor, or bailor of any article, at- tempts to restrain or prevent in any manner, either directly or indirectly, any vendee," etc. This is ob- viously not limited to a tirne anterior to the decision of the court that the case presented was one of re- straint, nor is it limited to the transaction upon which the decision rests. As the provision reads, the pre- sumption follows the party through life, or so long as he remains in the business. And it is immaterial whether the transaction belong to interstate or in- 210 OTHER OBJECTIONS TO LENROOT MEASURE trastate trade. At present, a sale and delivery to a purchaser at a railway station is not held to be an in- terstate transaction, though the purchaser may con- template an immediate interstate shipment, because it only affects interstate commerce indirectly and col- laterally. Not so if this bill should pass. Its purpose is to drag the many millions of such transactions, occur- ring in the nation every day into Federal jurisdiction.- And not only sales, but leases, licenses and bailments, no title passing, notwithstanding that the courts hold them not a part of commerce, even though lessor and lessee, licensor and licensee, bailor and bailee reside in different States. Then we come to this : — "Or (fifth) be made in any other manner except the ordinary solicitation of trade." If the act has the character, in the opinion of the Federal authority and a jury of unusual solicitation of trade it stands in the category of things condemned and the party goes to trial with a conclusive presumption that commerce has been not only restrained, but unreasonably re- strained. But as to what constitutes ordinary solici- tation and what solicitation of different character, the law now furnishes no test, because no one ever before conceived the idea of legislating on such a subject. How any standard or test could ever be fixed is one of the unsolvable riddles of the bill. Passing over several other extraordinary matters, we have (subdivision g). Those who supply or offer to supply such article "at prices at or below the cost of production and distribution" are placed in the criminal class. How tabs are to be kept on some mil- lions of producers so as to keep an accurate record of their expenditures in production, and sale prices, so as 211 OTHER OBJECTIONS TO LENROOT MEASURE to know whether they are obeying or violating this pro- vision, or who is to attend to it, has not been explained. If it is to be enforced at all in keeping with its spirit and purpose, no man engaged in production can be trusted beyond the surveillance of an inspector. The prohibition applies to any one who makes the offer. So the jobbers, wholesalers and retailers would also have to be watched, and all their dealings recorded for comparison with the records made of production costs. Those guilty of using any "unfair or oppressive meth- ods of competition" are also to have this conclusive presumption fastened upon them (subdivision i). What is unfair, what is oppressive under the circum- stances of any particular case, is as much a matter of speculative opinion as anything that could be men- tioned. ' Glancing back to the matter found under "(B)" we see that if there has been a successful prosecution of any corporation or association of which any party ac- cused under the provisions of "this Act" was a member, he is not to have his day in court as to the charge pre- ferred against him, but is to be shut out and deprived of the benefit of any proof which he might otherwise be entitled to offer by this conclusive presumption. Was ever anything so fantastic and monstrous serious- ly offered to a body of lawmakers for serious consid- eration ? This clause, preceded by a capital "B" in brackets, apparently was ornamented with the bracketed letter for no other purpose than to give it emphasis, or to make it conspicuous. It has only the remotest con- nection with anything else in that section, or in the bill. It simply means that if a corporation has been at any time, however, distant in the past, successfully 212 OTHER OBJECTIONS TO LENROOT MEASURE proceeded against under the Anti-trust Act, any one connected with it as a stockholder or otherwise is to become an outlaw when he acquires and while he holds any of its stock. That is to say, he is an outlaw in the respect that he is deprived of the right, no matter what the circumstances, of showing that any restraint, how- ever slight or indirect, that he has put upon trade was other than unreasonable. Then we come to a little clause, perhaps more im- portant and significant than any other of equal length to be found in the bill. It reads thus : "The foregoing enumeration of acts, conduct, methods and devices which it is herein declared shall each conclusively be deemed unreasonable does not include, and shall not be construed to exclude or as intended to exclude, any other acts, conduct, methods or devices which are or may be unreasonable." This tends to confirm the view that the whole proposal will inure to the benefit of the railroads and other forms of what is known as "big business," It would have been easy to have specified rate agreements such as are entered into by traffic managers and price agreements reached informally at Gary dinners, just as the other matters are specified in the section. Or this saving clause might have used the words, "contracts, combinations, or conspiracies," af- ter the word "devices," where it occurs a second time. Neither of the words used includes, or is synonymous with those just suggested. A contract combination or conspiracy is the result of acts, conduct, methods and devices, but is not the same thing. The propon- ents have simply seized upon a considerable number of practices or methods which characterize business in its worst aspects or exceptional cases of what they consider symptoms of unfair competition and seek to 213 OTHER OBJECTIONS TO LENROOT MEASURE suppress them by Federal legislation. The fact that nearly everything specified comes within the police power of the States and that they are outside Federal cognizance under the Constitution does not seem to have embarrassed them in the least. The scheme of prohibiting and penalizing these practices is evidently founded upon a misapprehension of the purport of parts of certain judicial opinions in cases decided under the Anti-trust Act. From the fact that many of these "acts, conduct, devices," etc., characterized and were incidental to the business of some of the great trusts and combinations under review by the courts, and were referred to and discussed in connection with ren- ditions of judgments, it has been here assumed that they constituted restraints of trade, or, at any rate, might properly be given greater force and effect than heretofore as evidence of restraint. Not only do they propose to shift the burden of proof from the prosecu- tion to the defense, but they would attach to the evi- dence a conclusive presumption, both of which are legislative anomalies, the like never having been pre- viously attempted, even in the making of codes of civil practice; and in criminal procedure would obviously constitute a denial of due process of law. The Govern- ment in some of the cases proved numerous transac- tions and methods practiced 'dtQr^iu^^^ organization by the combinations proceeded ap-ains^ ^^ order to de- velop and establish the pupose in t''^^ minds of their promoters and organizers. Such ev'^^^^"^^ ^^ °^ course admissible in all cases wherv such purpose is doubt- ful, or the rule governing all Crigf piracy cases, allow- ing proof of overt acts, applies. But that these specific acts of wrongdoing were elements of the offense charged, or that they could \ t properly dealt with as separate 214 OTHER OBJECTIONS TO LENROOT MEASURE subjects for congressional legislation, was never so much as intimated. Attempts may be made to justify these particular provisions of the bill under the power of Congress to create a judicial department and prescribe for it rules of practice and of evidence. While it is true that Con- gress has that power, it exercises it subject to the ex- press prohibitions of the Constitution, one of which is that no one shall be deprived of life, liberty or property without due process of law. Nor can Congress, in the form of prescribing judicial remedies, go beyond the powers delegated to it any more than by resorting to any other form of legislation. While, as before stated, no identical legislation has ever been heretofore proposed to Congress or embod- ied in a statute by any State, yet some similar measures have been passed in some of the States and passed upon by their courts, one or two such cases having been brought on appeal or writ of error to the Supreme Court of the United States. All such legislative attempts have proven abortive. The last clause of Section 10 should be separated for the purpose of being discussed into two parts; (1) the part down to the word "nor," and reading as follows : The provisions of clause (a) of this section shall not apply- to any case where the vendor, lessor, licensor or bailor of any machine, tool, implement or appliance protected by lawful patent rights vested in such vendor, lessor, licensor, or bailor requires the purchaser, lessee, licensee, or bailee to purchase or hire from him component or constituent parts of such machine, tool, imple- ment, or appliance which such vendee, lessee, licensee, or bailee may thereafter aquire during the continuance of such patent right. and (2) the balance of the clause in these words: 215 OTHER OBJECTIONS TO LENROOT MEASURE Nor shall any of the provisions of this section apply to the mere appointment of sole agents to sell, lease, license, bail, or furnish any article. The only apparent effect of the first part is to em- phasize and confirm all the specifications in subdivis- ion (a). But when we come to consider the second part, in view of all that precedes and follows it in the bill, we see a confirmation of the statement that the bill, if enacted, will militate powerfully against the comparatively small man in business and give addi- tional advantage, prestige and power to the great com- binations of men and capital. The former could of course appoint the retail dealer his sole agent, but he cannot afford to keep separate accounts with thou- sands and tens of thousands throughout the country. He has not the capital nor the facilities for keeping up so extensive a businesss organization as that would necessitate, even if he could find retail dealers willing to act as his sole agents and incur the expense and labor which that arrangement would involve. The re- tail dealers willing to buy of him on his own terms a sufficiency of his articles or commodities to supply their respective markets are abundant. But the great consolidated industries can establish as many sole agencies in different parts of the country as they please. While because of the restrictions and prohibi- tions of such a law the producer with small capital would have to surrender his trade with dealers at a distance, his powerful competitor would be in a po- sition, through his sole agents and their sub-agents to take over the trade so surrendered. The latter would at once realize the advantage given by such a law and would surely and quickly seize it. They would find it to their interest to establish sole agen- 216 OTHER OBJECTIONS TO LENROOT MEASURE cies even for territory in which there was not at first enough profitable business to meet expenses with a view to driving out competition and expanding the de- mand. In this connection it should be noted that, while prices must be uniform, there is nothing in the bill to prevent a powerful business establishment changing the prices from time to time, and that the uniform price principle would imperatively necessi- tate price agreements among large producers. And here is probably one of the main underlying purposes of this bill. If the qualification of reasonableness be fixed and crystalized in the statute, then a price or rate agreement cannot be successfully assailed in the courts unless its unreasonableness can be shown; and with a provision in the law requiring uniformity in the prices of each producer and dealer, what more reasonable than to permit him to come to an under- standing with his competitors, with respect to prices. Naturally the managers of and attorneys for big busi- ness have refrained from opposing or criticising this bill. In mediaeval times and even within the memory of those who framed our constitution, men were accused, tried and sentenced, or their property confiscated with- out even the knowledge that any conduct of theirs had been called in question. We therefore find both in the original Constitution and in the Bill of Rights added to it as an amendment, ample safeguards against arbitrary deprivations of property, secret proceedings and arbitrary judgments. The presumptions pre- scribed in this bill constitute an attempt to revive the abuses and barbarities of those ancient times, in the respect that they would dispense with proofs, allow accused persons to be convicted of crime without the 217 OTHER OBJECTIONS TO LENROOT MEASURE presence of witnesses, and deprive them of their prop- erty and civil rights without due process of law. There are cases where it is entirely consistent with justice to allow a tentative inference of an essential fact from the proof of other facts. For instance, the statutes of many if not all the States allow a re- buttable presumption of malice from the deliberate use of a deadly weapon, and guilty knowledge from the possession soon after a theft of stolen property. But in all such statutes there are two constitutional essen- tials: (1) The inference or presumption must be one which naturally arises from the facts upon which it is predicated, and (2) the party against whom the in- ference is allowed must have ample opportunity to explain it away; that is to say, to rebut it. But the provisions in this bill on the subject of presumption ignore both these essentials. Some of them are as far- fetched as if it were proposed to throw upon all persons who happened to attend at a lawful assemblage, if a crime happened to be committed there, the burden of proving their innocence of that crime under accusa- tion for its commission. A presumption which has no relation or only a remote relation to the fact upon which it is based possesses the peculiarity that it is generally impossible to explain the facts so as to rebut the presumption in the face of the presumption, where- as it is otherwise if the inference of the law be nat- ural and logical. It may be here remarked that there is no such thing in criminal procedure as a conclusive presumption, and any attempt to so amend the Anti-trust Act as to ab- solutely forestall or shut out the proof of facts by such a short cut to dark age practices as are found in this bill is obviously unconstitutional. 218 OTHER OBJECTIONS TO LENROOT MEASURE A corporation and others we will suppose are on trial charged with being in a combination to restrain interstate commerce, and it is shown that in some di- rect or indirect way a degree of restraint, slight or substantial, has occurred. One of those proceeded against has been a vendor, lessor, licensor or bailor of goods or commodities, and as such has done what? Restrained trade? Whether what he did was a re- straint is a collateral or negligible question. The mere fact that he did or even attempted to do one of the objectionable and prescribed acts is to be carried over and back to the principal thing and is to give a color and tenor regardless of its real complexion and character, and its legal effect is to be visited not only upon the offending party but upon his associates in the litigation. This vital and far-reaching result is to flow from any of the trivial acts so specified or any other similar acts which the triers of the issue do not believe belong to the class of acts or kind of conduct morally adapted to the "ordinary solicitation of trade" or constitute fair and non-oppressive methods of competition. Most of these things are now outside the domain of interstate commerce, and none of them are in and of themselves within the prohibitions of any Federal statute. Nevertheless they are to be now and hereafter under the ban as evil and criminal. They are no longer to be cognizable under the police powers of the States, but are to be condemned by Federal stat- utes and tried in Federal courts. All the habits and methods of their careers are to be abandoned by the veterans in business, and if too old to learn to adapt themselves to a new curriculum, they will have to re- tire, while night schools and special training courses 219 OTHER OBJECTIONS TO LENROOT MEASURE must be provided to teach a new dispensation to the young. Few conclusive presumptions are permitted even in cases affecting mere civil rights, and these only when the safety or welfare of society requires that they should prevail, and where no credible evidence could be adduced to contradict the inference or rebut the presumption. For instance, where both man and wife perish in the same shipwreck it is conclusively pre- sumed that the husband survived the wife. And where, in the absence of fraud, parties have put in writing all the terms of their contract clearly and unambiguously the writing is conclusively pre- sumed to fully embody the intention of the parties. But the presumption goes no further. A party cannot be precluded from showing the invalidity of the con- tract because of fraud or illegality or total failure of consideration. It is here in order to inquire as to the true meaning of the term, "interstate commerce," as used in the con- stitution. The term has both a general and a restricted meaning, but it is not within the power of Congress to enlarge it by legislation, whether in the form of new definitions or otherwise; that is, it cannot bring any subject within the true meaning of the term by making it the subject of an enactment on the mere assumption that it belongs to interstate commerce. In the Lottery cases (188 U. S., 367), Justice Brewer said : When Chief Justice Marshall said (Ogden v. Gibbons, 9 Wheat., 1) that commerce embraced intercourse he added com- mercial intercourse, and this was necessarily so since, as Chief Justice Tawney pointed out, if intercourse were a word of larger meaning than the word commerce it could not be substituted for the word of more limited meaning contained in the Constitu- tion. 220 OTHER OBJECTIONS TO LENROOT MEASURE The courts have in some of the cases used expres- sions which were somewhat confusing, or rather they have not taken the trouble to make clear their correct ideas. The federal government cannot regulate any- thing when not being used in interstate commerce, nor any person (or corporation) merely because engaging in interstate commerce. In requiring, for instance, that all trains carrying interstate freight or passen- gers shall be equipped with air brakes and safety coup- lers, Congress is not as a specific object regulating these devices nor even the trains, nor yet the corporate carriers. True the statute provides for the prosecution and punishment as for a midemeanor the carriers who do not comply with the law, but that is the vindicatory part of the Act. The subject matter of the regulation is the transportation — the interstate commerce. No more are they, the corporations, thereby regulated than are liquor dealers when required to take out a license by a State law. Such a law is the regulation of the liquor traffic; and every person who goes into that business thereafter must, as a condition precedent, obtain a license whether such a person be white or black, native or foreign born, engaged in the liquor business or in some other occupation. Safety appli- ances, carriers and corporations are necessarily men- tioned in interstate commerce regulations just as are shippers of all classes and the articles shipped. But the mere fact that railroad companies are constantly carrying merchandise and passengers and are therefore continu- ously under the immediate operation of the laws does not give the federal government any control over them as corporations or their property, nor any over the private affairs of a shipper, except such of his af- fairs as are involved in the transportation of his prop- 221 OTHER OBJECTIONS TO LENROOT MEASURE erty in interstate commerce. Nor does the fact that two parties to a contract reside in different States, even though it relate to a patent, constitute the trans- action one of interstate commerce, notwithstanding that either of these facts may serve to give a federal court jurisdiction of any litigation that may arise from such a contractural or other relation. We can con- ceive of an owner of farming lands within a State selling them and building a line of railroad, long or short, across a State line. The farms were without federal supervision as property, both with respect to the uses made of them and their ownership. Nor does the change of investment make any difference in this respect. He now owns so many miles of railroad in each State taxable in the respective States, and the rolling stock is mere personal property taxable in the State of his residence. The case is not altered if the individual owner now forms a corporation and trans- fers to it the railroad property. He or it merely comes within the sphere of federal control with respect to the interstate movement of freight and passengers and the receptacles of these, the trains and cars, are all the time between consignment and delivery subject to regula- tion because inseparably connected with the interstate traffic. But we have no such case where a contract is made concerning property, whether such a contract be a sale, lease, license or bailment, merely because the parties to it happen to reside in different States. If a contract provide, either expressly or by necessary impli- cation for removal of property from one State to another, then that one phase of it pertains to interstate commerce, and would be subject to congressional regulation. But Congress could not legislate as to its terms or the ob- I 222 OTHER OBJECTIONS TO LENROOT MEASURE ligations thereby created, unless these interfered with the freedom of interstate commerce. The issuing of a policy of insurance is not a transac- tion of commerce within the meaning of the commerce clause of the Constitution, even though the parties be domiciled in different States (Paul v. Virginia, 8 Wall, 168) ; and this rule was applied to the insurance of a ship in transit between the ports of different States (Hooper v. California, 155 U. S., 648). And it was held that contracts for sales of cotton for future deliv- ery which did not obligate interstate shipments, were not subjects of interstate commerce, nor did the fact that delivery might be made by means of interstate carriage make them so. (Ware & Leland v. Mobile County, 209 U. S., 405.) Now suppose that this bill, provided that if an insur- ance company or brokerage firm should be shown to have become a party to a contract or combination violative of the Anti-trust Act, some legal conse- quence, no matter what, should be visited upon them as to each policy of insurance issued, and each brok- erage contract made by each of them, respectively. Such legal consequence would be an attempted regula- tion of the policies of insurance in the one case and of brokerage contracts in the other, according to the de- cisions of the Supreme Court. If the unconstitution- ality of the Lenroot Bill is not made clear by the de- clisions of the Supreme Court, then it would be ex- ceedindy difficult for the courts to make anything clear. The effect of the bill, if passed, would be to prevent the extension, rather than the restraint of trade; to limit rather than increase competition ; and if there be any justification for it, it must be sought outside the 223 OTHER OBJECTIONS TO LENROOT MEASURE Anti-trust Act. This clearly appears from the opin- ions of the courts, and especially in the two cases which will now be cited. Whitewell v. Continental Tobacco Co. (125 Fed. R., 457-462), has been cited with ap- proval by the Supreme Court. As the views of the court are very instructive and exactly in point, an ex- tensive quotation is taken. The court, per Sanborn, judge, said : It has now been settled by repeated decisions of the Supreme Court that this question must be tried, not by the intent with which the combination was made, nor by its effect upon traders, producers, or customers, but by the necessary effect which it has in defeating" the purpose of the law. That purpose was to pre- vent the stifling or substantial restriction of competition, and the test of the legality of a combination under the act which was in- spired by this purpose is its direct and necessary effect upon competition in commerce among the States. If its necessary effect is to stifle or to directly and substantially restrict free competition, it is a contract, combination, or conspiracy in re- straint of trade, and it falls under the ban of the law. (Citing numerous cases.) If, on the other hand, it promotes or but incidentally or indirectly restricts competition, while its main ])urpose and chief effect are to foster the trade and to increase the business of those who make and operate it, then it is not a contract, combination or conspiracy in restraint of trade, within the true interpretation of this act, and it is not subject to its denunciation. The right of each competitor to fix the prices of the commodi- ties which he offers for sale and to dictate the terms upon which he will dispose of them is indispensible to the very existence of competition. Strike down or stipulate away that right and com- petition is not only restricted but destroyed. Hence agreements of competing railroad companies to intrust their power to fix rates of transportation to the same man or body of men (citing- cases), and contracts of competitors in the production or sale of merchantable commodities to deprive each competitor of the right to fix the prices of his own goods, the terms of the sale, or the customers to whom he shall dispose of them, and either to fix these prices, terms and customers by the agreement of the competitors, or to intrust the power to dictate them to the same man or body of men (citing cases), necessarily have the effect either to stifle competition entirely or to directly and substan- tially restrict it, because such contracts deprive the rivals in trade of their best means of instituting and maintain competition be- tween themselves. The Tobacco Company and its employee were not required, 224 OTHER OBJECTIONS TO LENROOT MEASURE like competitors engaged in public or quasi public service to sell to all applicants who sought to buy. «^ Jo sell o all inte^^^^^^^ ing purchasers at the same prices. They had the right to select hfir customers, to sell and refuse to sell to whomsoever they chose and to fix different prices for sales of the same commod- ities to different persons. In the exercise of this right they selected those persons who would refrain from handling the 'oods of their competitors as their customers, by selling their products to them at lower prices than they offered them to others. There was nothing in this selection, or in the means employed to affect it, that was either illegal or immoral It had no necessary effect to directly and substantially ^f t'-ict f^r^f^^^^^^- pctition in any of the products of tobacco, and it did not unlaw- fully restrain interstate commerce, because it in no way re- stricted the exercise of the rights of the ^^^Pf^^ ^^/^^^J^^!^^ tobacco company to fix the prices of their goods and the terms of their sales of similar products according to the dictates of their respective wills. _ , 4.1, 4- ^f +t.^ The purpose of the second section is the same as that ot the first— to prevent the restriction of competition ; and the two sec- tions ought to receive similar interpretations.^ The bupreme Court has declared that the true construction of. the first section is that no contract, combination, or conspiracy is denounced by it unless its necessary effect is to directly and sttbstantially re- strict competition in commerce among the States, by a parity of reasoning, the correct interpretation of the second section must be that no attempt to monopolize a part ot commerce ^mong the States is made illegal or punishable by the provisions oMhft section unless the necessary effect of that attempt is to directly and substantially restrict commerce among the States The acts of the defendants had no such effect. They evidenced nothing but the legitimate efforts of traders to secure for them- selves Is large a part of interstate trade ^^P^^^^^le wh«^ left their competitors free to do the same. It was not—it couia not have been-the purpose or the effect of the second section of this law to prohibit or to punish the customary and universal attempt of manufacturers, merchants,, and tracers engaged in interstate commerce to monopolize a. fair share of ^t^^^he neces- sary conduct and enlargement of their trade, w^^'^VL'de.vorTof to leave their competitors free to make successful endeavors of he same kind. The acts of the defendants were of Aisjiatu^e and they did not violate the second section of the law. An auempt to monopolize a part of interstate commerce the neces- sary effect of which is to stifle or to directly and snbstant.any restrict competition n commerce among the States, violates tne second secdon of this act. But an attempt to monopolize a part ofTntersSte commerce which promotes, or but indirectly or inci- dentally restricts competition therein, whie its main purpose and chief effect are to increase the trade and foster the business or those who make it, was not intended to be rnade and was no made, illegal, by the second section of the act under considera 225 OTHER OBJECTIONS TO LENROOT MEASURE tion, because such attempts are indispensable to the existence of any competition in commerce among the States. And in the case of In re Greene (52 Fed. R., 115) the court was even more direct and emphatic, saying, per Jackson, judge: It is not very clear what Congress meant by the second sec- tion of the act July 2, 1890, in declaring it a misdemeanor to "monopolize" any part of the trade or commerce among the States or with foreign nations. It is very uncertain that Con- gress could not, and did not, by this enactment, attempt to pre- scribe limits to the acquisition, either by the private citizen or State corporation, of property which might become the subject of interstate commerce, or declare that, when the accumulation or control of property by legitimate means and lawful methods reached such magnitude or proportions as enabled the owner or owners to control the traffic therein, or any part thereof, among the States, a criminal offense was committed by such owner or owners. All persons individually or in corporate organizations carrying on business avocations and enterprises involving the purchase, sale, or exchange of articles, or the production and manufacture of commodities which form the subject of com- merce will, in a popular sense, monopolize both State and inter- state traffic in such articles or commodities just in proportion as the owner's business is increased, enlarged, and developed. But the magnitude of a party's business, production, or manu- facture, with the incidental and indirect powers thereby acquired, and with the purpose of regulating prices and controlling inter- state traffic in the articles or commodities forming the subject of such business, production or manufacture, is not the monopoly or attempt to monopolize whic hthe statute condemns. Before Congress accepts the proposal to inject the element of unreasonableness into the Anti-trust Act, as would the aforesaid indirect effect of this bill, it should fully consider the consequence of so doing. It has been suggested by learned counsel that certain language of the Chief Justice in the two recent cases might be hereafter recognized as mere dicta, but there is really no such prospect. And it seems entirely proper here to show the effect of the legislation here proposed. 226 OTHER OBJECTIONS TO LENROOT MEASURE In Cook V. State (29 Ind. App., 278) it appeared that an Indiana statute provided as follows: It shall be unlawful for any person to haul over any turn- pikes or gravel roads at any time when the same is (are) thawing through, or is (are), by reason of wet weather, in con- dition to be cut up and injured by heavy hauling, a load on a nar- row-tired wagon of more than two thousand or on a broad- tired wagon of more than twenty-five hundred pounds, and any person violating the provisions of this act shall be fined not less than $5 nor more than $50 for each load so hauled." Cook was prosecuted on an affidavit which charged that he "did then and there unlawfully haul over a certain gravel road, then and there situate, known as the Thompson gravel road, a load in his wagon, then and there having narrow tires, to wit, two inches in width, a load of more than 2,000 pounds in weight, at a time when said road was then and there thawed through and by reason of wet weather was then and there in a condition to be Qut up by heavy hauling, contrary," etc. The appeal was from an order refusing to quash the affidavit for failure to charge an offense. The court of appeals reversed the order and held that it could not be said as a matter of law that wagon tires of a certain width were wide tires or narrow tires, and that the statute was so indefinite in that respect that a prosecution there- under could not be sustained. be sustained. In the course of its opinion the Court of Appeals said : There must be some certain standard by which to determine whether an act is a crime or not, otherwise cases in all respects similar, tried before different juries, might rightfully be decided differently, and a person might properly be convicted in one county for hauling over a turnpike in that county and acquitted in an adjoining county of a charge of haul- ing the same load on the same wagon over a turnpike in like condition in the latter county, because of the difference in con- clusions of different judges and juries based upon their individ- ual views of what should be the standard of comparison of tires, derived from their varying experience on the opinions of witnesses as to what difference of width of tires would consti- tute one wagon a narrow-tired wagon and another broad-tired wagon. 22y OTHER OBJECTIONS TO LENROOT MEASURE If it should be said that the question as to what is a narrow- tired wagon is one which may be determined, in a particular case, by the jury trying it, under proper instructions from the court, can we hold that the court in its instructions could lay down any principle or rule which would obtain in all such cases through- out the State? If so, can this court indicate what should be the scope and tenor of such instructions? The phrases "narrow- tired wagon" and "broad-tired wagon" are not technical phrases having a peculiar and appropriate meaning in law, and they are to be taken in their plain, ordinary, and usual sense. Thus taken, a narrow-tired wagon means having wheels with tires which are narrow, while a broad-tired wagon means a wagon having wheels with broad tires. If tires of particular widths be compared, it is easy to say which is comparatively narrow and which is com- paratively broad, but without any prescribed standard it is impos- sible to say as matter of law that a tire two inches wide is cer- tainly either a narrow tire or a broad tire. In a portion of the statutory description of the offense there is such indefiniteness that it is impossible for the court to say with requisite certainty that the description in the statute cor- responds with a definite state of facts shown by the affidavit. The court erred in overruling the motion to quash. Now it is obvious that a jury could more easily de- termine of a physical object, such as a wagon-tire, whether it was wide or narrow, than whether a mere abstraction, such as a restraint of trade, was reason- able or unreasonable. But an analogous question has been before the fed- eral courts, including the Supreme Court of the United States. In Louisville and N. R. Co. v. Railroad Com- mission (19 Fed. R. 679, 16 Am. & Eng. R. R. cases, 15), the constitutionality of a statute imposing a pen- alty upon any railroad company fixing rates which should yield more than a "fair and just return" on its investment was involved. The court held it unconsti- tutional, because its terms were so vague that to col- lect penalties under it would constitute a taking with- out due process of law. Judge Baxter, delivering the opinion, said : Penalties cannot be thus inflicted at the discretion of a jury. Before the property of a citizen, natural or corporate, can be thus 228 OTHER OBJECTIONS TO LENROOT MEASURE confiscated the crime for which the penalty is inflicted must be defined by the lawmaking power. The legislature cannot dele- gate this power to a jury. If it can declare it a crimmal act for a railroad corporation to take more than a "fair and just return" on its investments, it must, in order to the validity of the law, define with reasonable certainty what would constitute such "fair and just return." The act under review does not do this, but leaves it to the jury to supply the omission. No railroad- company can possibly anticipate what view a jury may take of the matter, and hence cannot know in advance of a verdict whether its charges are lawful or unlawful. One jury may con- vict for a charge made on a basis of four per cent., while another may acquit an accused who has demanded and received at the rate of six per cent., rendering the statute in its practical working as unequal and unjust in its operation as it is indefinite in its terms. And the Supreme Court of the United States in Rail- road Commission cases (116 U. S., 336) refers to this Tennessee case and substantially approves it by dis- tinguishing the case then before the court from the Tennessee case. In Tozer v. United States (52 Fed. R., 919, 920), Justice Brewer, delivering the opinion, said : In order to constitute a crime, the act must be one which the party is able to know in advance whether it is criminal or not. The criminality of an act cannot depend upon whether a jury may think it reasonable or unreasonable. There must be some definiteness and certainty. * * * Applying that doctrine in this case, and eliminating the idea that the through rate is stand- ard of comparison of the local rate, there is nothing to justify a verdict of guilty against the defendant. (Chicago & N. W. Ry. Co. V. Dey, 35 Fed. R., 866; referred to and approved on same point.) The difference between the effect of indefinite terms in civil and criminal cases was pointed out by the Court of Appeals of Kentucky in Louisville & Nash- ville R. Co. V. Commonwealth (99 Ky., 136-137, 139), as follows : That this statute leaves uncertain what shall be deemed a "iust and reasonable rate of toll or compensation" cannot be denied, and that different juries might reach different conclu- 229 OTHER OBJECTIONS TO LENROOT MEASURE sions on the same testimony as to whether or not an offense has been committed, must also be conceded. The criminaHty of the carrier's act, therefore, depends upon the jury's view of the reasonableness of the rate charged, and this latter depends on many uncertain and complicated elements. That the corporation has fixed a rate which it considers will bring only a fair return for its investment does not alter the nature of the act. Under that this statute it is still a crime, though it cannot be known to be such until after an investiga- tion by a jury, and then only in that particular case, as anotlier jury may take a different view, and holding the rate reasonable, find the same act not to constitute an offense. There is no standard whatever fixed by this statute, or attempted to be fixed, by which the carrier may regulate its conduct, and it seems clear to us to be utterly repugnant to our system of laws to punish a person for an act, the criminality of which pedends, not on any standard erected by the law which may be known in advance, but on one erected by a jury. And especially so, as that standard must be as variable and uncertain as the views of different juries may suggest, and as to which nothing can be known until after the commission of the crime. If the infliction of the penalties prescribed by this statute would not be the taking of property without due process of law and in violation of both State and Federal Constitution, we are not able to comprehend the force of our organic laws. * * * When we look to the other side of the question we find the con- tention of the State supported by neither reason nor authority. No case can be found, we believe, where such indefinite legisla- tion has been upheld by any court where a crime is sought to be imputed to the accused. Manifestly, in actions by shippers against carriers for recovering back the excess of charges over reasonable rates the rule is quite different. In such actions the statute may be invoked as merely declaratory of the common law, and the question of reasonable rates is one to be heard by the court or jury. It is in fact a question of contract. Com- mon carriers are bound to carry when called upon for that pur- pose, and charge only a reasonable compensation for the car- riage. These are incidents of the occupation in which they are authorized to engage (94 U. S., 180). If this charge is more than reasonable, there is a violation of the contract, and the suit of the person aggrieved is because of such violation. On the question of the effect of creating rebuttable presumptions to render the Anti-trust Act unconsti- tutional as a criminal statute, the decisions are clear and conclusive. Both Federal and State authorities are abundant on this question. The case of State v. Beach (147 Ind., 74) was one 230 OTHER OBJECTIONS TO LENROOT MEASURE where a statute made it only prima facie evidence of a banker's intent to defraud in receiving a deposit, if his failure, suspension, or involuntary liquidation oc- curred within thirty days thereof. In construing that statute, the constitutionality of which was questioned in that case, the court said : A law which would, in effect, exclude the evidence of a party, and thereby deny him the right to be heard, would deprive him of due process of law. A law which provides that cer- tain facts are conclusive proof of guilt would be unconstitu- tional, as also would be one which makes an act prima facie evi- dence of crime, which has no relation to a criminal act, and no tendency whatever to establish a criminal act. This was cited and approved in State v. Thomas in 1906 by the Supreme Court of Alabama (reported 40 So. Rep., 271). A case of like import is Bailey v. Alabama (219 U. S., 219), where the court also said that the fact that the government is a party is immaterial. The Government is subjected to the same rules respect- ing the burden of proof, the quantity and character of evidence, the presumptions of law and fact, that attend the prosecutions of a like action by an individual. United States V. Stimpson, 197 U. S., 205. Does any one suppose that any mere rule of evidence could be established by statute to relieve the Govern- ment, in a criminal case, for combination or conspiracy in restraint of trade, of the necessity of overcoming the presumption of innocence, and of proving all the essential elements of the case? In passing upon a statute making certain acts prima facie evidence of a particular fact, the court, in Jack- son & Kansas City R. R. Co. v. Turnipseed (219 U. S., 43) said: That a legislative presumption of one fact from evidence of another may not constitute a denial of due process of law or a 231 OTHER OBJECTIONS TO LENROOT MEASURE denial of the equal protection of the law ; it is only essential that there shall be some rational connection between the facts proved and the ultimate fact presumed, that the inference of one fact from proof of another shall not be so unreasonable as to be a purely arbitrary mandate. So, also, it must not, under guise of regulating the presentation of evidence, operate to preclude the party from the right to present his defense to the main fact this presumed. If a legislative provision not unreasonable in itself, prescribing a rule of evidence, in either criminal or civil cases, does not shut out from the party affected a reasonable opportunity to submit to the jury in his defense all of the facts bearing upon the issue, there is no ground for holding that due process of law has been denied him. In State v. Griffin (154 N. C, 614) in passing upon the constitutionality of a similar statute to that before the court in Bailey v. Alabama (212 U. S., 212) the court said : But there is one element absolutely essential to the validity of a legal presumption in order that it may not be obnoxious to the fourteenth amendment, the "due process" clause of the Federal Constitution. There must be some rational connection between the fact proved and the ultimate fact presumed, and that the inference of one fact from proof of another fact shall not be so unreasonable as to be a purely arbitrary mandate. Without attempting to discuss all the branches and subdivisions of this very complicated and involuted bill, we now give brief attention to the provisions for partitions of property and creation of receiverships. In the insertion of these provisions, the proponents are probably prompted by dicta of the court in the American Tobacco Company case — mere suggestions thrown out, without serious consideration, as the con- text shows. The courts, in U. S. v. American Tobacco Company case, were dealing with a matter strictly and purely of public interest. There would appear no place there- in for dealing with or taking care of private interests. And both the trial and the appellate courts acted be- yond their jurisdictions. After deciding a case before 232 OTHER OBJECTIONS TO LENROOT MEASURE them, they assumed to decide a new case to be brought before the lower court without pleading or trial, and by a method of procedure not having even the color of authority in this or any other statute, or at the com- mon law. Section 11 prescribes rebuttable presumptions to ap- ply in certain cases. It has been already shown that, unless the thing to be presumed has some substan- tial relation to the main issue, it is just as objection- able from a constitutional standpoint as a conclusive presumption. The control of "more than forty per- centum in value of the total quantity sold in the United States" or "in the part or district of the United States to which the business of such person, corpora- tion or association extends, of any article dealt in by such person the trade in which is affected by such re- straint" serves to fasten upon the person, etc., guilty of such control a rebuttable presumption of unreasonable restraint of trade (subd. (a)). By a district may be meant a school, election, congressional or judicial dis- trict, and by any part may be meant any territory, however small. But how are people engaged in pro- duction ever to know whether they are controlling forty-one or only thirty-nine percentum? Then we come to this: (b) If the vendor, lessor, licensor, or bailor of any article with a view to preventing competition, fixes an unreasonably high price upon any article which enters into the manufacture of an article which is used in producing any other article sold, leased, licensed, bailed or otherwise furnished by him the trade in which is affected by such restraint. It is somewhat difficult to understand the exact thing intended ; but we see at a glance that the prin- ciple of governmental price control would be here in- troduced. Therefore a few words on that subject 233 OTHER OBJECTIONS TO LENROOT MEASURE is in order. If the duty of fixing prices can be by any sort of adroit and clever scheme imposed upon the Gov- ernment, monopoly will have gained all it requires. Once begun on the large scale here mapped out, and a stopping place could never be found. It is imma- terial v^hether it be said that prices shall not be un- reasonably high or that they shall be reasonably low. It means the same thing. It then becomes the duty of some public official to fix the standard or scale of prices, and we then have discretionary government introduced where the greatest temptations will exist for infidelity to official duty. Nothing else, nor all else together, equals in importance the price of prod- ucts, and nothing is of half the value to monopoly as the fixedness of prices through official action. For the Government to assume the price-fixing func- tion would mean the guarantee of a reasonable profit to the financially weaker and less enterprising estab- lishments in a given line of production, and exorbitant profits to those of large capital and of a productive capacity sufficient to enable them to promote economy and attain great efficiency; whereas public interest re- quires that incapacity and unpreparedness be weeded out under the competitive system. It is no longer the policy of the great combinations of capital to drive their weak competitors entirely out of business, but to carry them along, making some kind of division of the trade with them looking to the maintenance of prices, retaining in the stronger hands the lion's share. Under a scheme of governmental price-fixing that sys- tem would be perpetuated and legalized. The true policy of government is to protect and preserve com- petition that establishments able to stand alone and fight their way against those now in control will spring 234 OTHER OBJECTIONS TO LENROOT MEASURE up and fairly and openly compete with the latter. This end is accomplished by such statutes as the Anti- trust Act, properly construed and enforced. Sections 12, 13, 14, 15, 16 and 17 all relate to court procedure and cover so much ground that it would be impracticable to discuss them in detail. It is deemed best to set them forth here at length and then discuss some of their leading features. Sec. 12, That whenever in any suit or proceeding, civil or criminal, brought by or on behalf of the Government under the provision of this Act a final judgment or decree shall have been rendered to the effect that a defendant, in violation of the pro- visions of this Act, has entered into a contract, combination in form or trust or otherwise, or conspiracy of restraint of trade or commerce among the several States or with foreign nations, or has monopolized or attempted to monopolize or combine with any person or persons to monopolize any part of the trade or com- merce among the several States or with foreign nations, an existence of such illegal contract, combination or conspiracy in restraint of trade or of such attempt or conspiracy to monopo- lize, shall to the full extent to which the facts and issues of fact or law were litigated and to the full extent to which such fact, judgment, or decree would constitute in any other pro- ceeding an estoppel as between the Government and such per- son, constitute as against such defendant conclusive evidence of the same facts and be conclusive as to the same issues of law in favor of any other party in any other proceeding brought under or involving the provisions of this Act. Sec. 13. That in any civil proceeding begun under this Act by the United States or the Attorney-General or any district attorney thereof, in which a judgment or decree interlocutory or final has been entered that the defendants, or any of them, have been guilty of conduct prohibited by section one, section two, or section three of this Act, if it shall appear to the court by intervening petition of any other person or persons that such person or persons claim to have been injured by such con- duct, such person or persons shall be admitted as a party to the suit to establish such injury, if any, and the damages resulting therefrom, and such person or persons may have judgment and execution therefor or any other relief to the same extent as if an independent suit had been brought under section seven of this Act. In the course of such proceedings the court may grant orders of attachment or may appoint a receiver or may take such others proceeding conformable to the usual practices in equity as to insure the satisfaction of any claim so presented and the pro- tection of the petitioners' rights. Nothing done under this sec- tion shall be permitted to delay the final disposition of said 235 OTHER OBJECTIONS TO LENROOT MEASURE principal proceeding in all other respects, and nothing contained in this section shall be taken to abridge the right of any person or persons to bring a separate and independent suit as provided in section seven of this Act ; but if any person proceeds both by intervening petition and by independent suit the court may order an election. Sec. 14. That such intervening petition or an original suit for the same cause under section seven of this Act shall not be barred by lapse of time, if begun within three years after final decree of judgment entered either in a civil or in a criminal proceeding brought by the United States, or the Attorney-Gen- eral or any district attorney thereof, establishing such violation by the defendant or defendants of section one, section two, or section three: Provided^ That the claim on which such interven- ing petition or original suit is founded was not already so barred at the time of the passage of this Act. Sec. 15. That whenever, after the Institution of proceedings in equity under section four of this Act, it shall appear to the court in any preliminary hearing that there is reason to believe, or upon final hearing the court shall find, that any contract, com- bination in the form of trust or otherwise, or conspiracy was entered into, existed, or exists which was, or is, in any respect or to any extent in restraint of trade or commerce among the several States or with foreign nations, and that as a result there- of the defendants, or any of them, have the control of supply- ing the market with any machine, tool, or other article, whether raw material or manufactured, reasonably required in the man- ufacture or production of any other article or for general con- sumption and use and that no adequate opportunity exists to im- mediately substitute another article therefor of equal utility, the court shall have power to make such order, by injunction or otherwise, as it may deem necessary, as will secure to purchasers or users of such article full opportunity to continue to acquire or use the same upon payment of a reasonable compensation, to be fixed by the court in such order, until some other adequate substitute can be provided: Provided, however. That in so far as at the time of the application for such order such machine, tool, or article is being supplied to any person under any contract the amount of compensation therefor to be paid him under said order shall be that actually payable in accordance with the terms of such contract, unless or until such contract is found or de- clared to be void or expires. Sec, 16. That whenever in any proceeding under section four of this Act any contract, combination, or conspiracy has been adjudged illegal under section one or section two of this Act the court before which such proceedings are pending shall have jurisdiction — (a) To partition any property owned under any contract or by any combination pursuant to any conspiracy (and being the sub- ject thereof) mentioned in section one and section two of this Act in severalty among the owners thereof, or groups of owners 236 OTHER OBJECTIONS TO LENROOT MEASURE thereof, and if the owners include one or more corporations, among the several stockholders thereof, or among groups of the several stockholders thereof, all in proportion to their respective interests. (b) If sales of such property are necessary or proper, either to pay encumbrances thereon or to re-create conditions in har- mony with the law to sell such property as a whole or in parcels ; and the court may forbid the said owners, and if the said owners include one or more corporations, the stockholders there- of, from purchasing at such sales, and may prescribe the condi- tions on which any purchase may be made by any persons or corporations whatsoever (c) To make such restraining orders or prohibitions as may be necessary or proper to re-create conditions in harmony with the law, including prohibitions of any acts, conduct, methods, or de- vices which are enumerated herein as indicating unreasonable restraint. (d) To declare void as against the defendants, or any of them, any contract entered into as a part of the contract, combin- ation, or conspiracy found to be in restraint of trade. The relief granted in this section shall be in addition to, and not exclusive of, other relief permitted by law or by this Act. _ Sec. 17. That whenever a proceeding in equity has been in- stituted under section four of this Act, any person who shall be injured or is threatened with injury in this business or property by any other person or corporation by reason of anything forbid- den or declared to be unlawful by this Act, and any State of the United States, may at any time intervene in said suit to protect his interests, or if the intervenor be a State, the interests of the citizens of such State, and may, after final decree in said case, petition said court for protection or redress in case of any viola- tion of said decree, and the court shall have power to take such action as may be appropriate in the premises. Section 12 simply, means that if the government suc- cessfully prosecutes the A company, under the pro- visions of "this Act," then if B or C or D or anybody else should see fit to sue it under any provision of "this Act," all the facts found to support the judgment in the Government suit are to be conclusively pre- sumed in favor of the plaintiff in the private suit. It would deprive the party defendant of his day in court. It would deprive him of the right to be present at the introduction of evidence against him. In any such suit for damages for over twenty dollars the defendant 237 OTHER OBJECTIONS TO LENROOT MEASURE would be substantially deprived of his constitutional right to trial by jury, though as a formality the jury would be empanelled and sworn. It would, in its final effect, amount to deprivation without due process of law in the plainest meaning of the constitutional prohibition. From what has preceded, we have a faint com- prehension of the number of cases that would arise, and the number of proceedings the Government would be called upon to institute and prosecute to judgment under "this Act." Each such case might uncover, of suggest numerous causes of action for private injury, in each of which the party defendant would be tied hand and foot as to every fact alleged against him, ex- cept perhaps the direct and immediate instrumentality by which the injury was inflicted and the extent of the injury in dollars. The new causes of action created by the bill are innumerable. Just think of those that might arise under the specification of "unfair compe- tition" alone, never heretofore rated or treated as a cause of action per se, but failing within the maxim, de minis lex non curat, or damnum absque injuria. In all such cases, if the Government had succeeded in its suit in making out a case, of "contract, combination in form of trust or otherwise, or conspiracy in re- straint of trade," etc., not only could the presumption of unreasonablenss arise against him, but he would be concluded in the private litigation, arising under any of the lettered subdivisions of Section 10, as to all liti- gable facts except as above noted. No even plausible reason has been or can be given for such a depart- ure, such a flagrant discrimination, in the administra- tion of judicial remedies. Even if the proposition were not palpably unconstitutional on its face, its gross in- 238 OTHER OBJECTIONS TO LENROOT MEASURE justice would at once impress any one who gave it unprejudiced consideration. Section 13 makes provisions for interventions for their injuries, or alleged injuries, by private parties in the Government's suit; allows them to prove their damages and to have judgment and execution therein with like force and effect as if they had brought sepa- rate actions. Having thus projected themselves into such a case, they would merely stand aside and hold hands until the Government had furnished them with the judgment of which they could immediately avail themselves under the provisions of Section 12. The trials of the cases of the intervenors would not really begin until the Government had secured its judgment. Then when the issues between intervenors and de- fendants were tried, a separate judgment would have to be entered for or against each intervener, according to the result. We would then have the anomaly of several judgments in the same case, one principal and one or more offshoots, no two between the same parties or based upon any privity of interest or action. The one suit is before the chancellor invoking an equitable remedy; the other at law requiring a jury trial, or as the law expresses it, the cases require different places of trial. In the one case the plaintiff seeks to stay in- jury to every one of a hundred million or more of per- sons; in the other merely the injury to one of them is alleged for which he seeks damages assessable by a jury. The jurors are to be precluded and forestalled as to all the facts and issues previously passed upon by the chancellor. The whole thing is so grotesque, so absurd, that one may well wonder how it ever came to be seriously 239 OTHER OBJECTIONS TO LENROOT MEASURE proposed or advocated by a member of the American bar. Section 13 also seeks to empower the court to ap- point a receiver "in any civil proceeding begun under this Act by the United States or the Attorney-General or any district attorney thereof in which a judgment or decree, interlocutory or final, has been entered that the defendants, or any of them, have been guilty of conduct prohibited by section one, section two, or section three of this Act," etc. (the same to constitute, if this bill passes the Sections 9, 10 and 11 of the Anti- trust Act already discussed). For convenience, we may discuss together this re- ceivership proposition and that for judicial partitions of property provided for in Section 16. This idea of receiverships over and partitions of property probably springs from certain detached expressions of the Su- preme Court in disposing of the case of United States vs. American Tobacco Company. Where do we find, in this statute, any authority for those suggestions in the Standard Oil and Tobacco cases of possible receiverships and complete stoppage of interstate commerce? The important question here is now as to the power of Congress to prescribe receiv- erships, partitions and other interferences with the possession and use of property provided for in the Len- root Bill. The remedies thus to be enforced are in civil cases. It must be admitted that there is scarcely a limit beyond which the Government could not go in the infliction of penalties and forfeitures by way of punishment for crime. But it has been always simpler and more effective to measure the punishment in dol- lars which may be collected on execution or imprison- ment to coerce payment. 240 OTHER OBJECTIONS TO LENROOT MEASURE What we are now considering is the power of Con- gress to provide for the sequestration and deprivation of private property otherwise than as a punishment for crime. First then as to the execution of a decree rendered against a defendant by the appointment of a receiver. Those who speak so fluently about receiverships have probably never taken the trouble to examine either the nature and true function of a receivership, or the source of jurisdiction to appoint one. A receiver is powerless, and his appointment would be abortive, un- less he could take the defendant's property entirely from his possession, and either convert it into money or hold it until the final disposal of the case and entry of final judgment. Next, as to the jurisdiction to ap- point a receiver. It is purely equitable, but courts of equity have no more a jurisdiction in a civil action to ap- point a receiver as a punishment than have courts of law. A receivership is preservative; never destructive. The jurisdiction is exercised to prevent waste and de- privation pending litigation, on application of a party having an interest in it, as mortgagee, cestui que trust, or creditor who has already a judgment or is entitled to enforce an equitable preference in some other form. It requires no argument to show that this remedy could not be resorted to on behalf of the Government unless provision were made for the compensation of corporations and others so dealt with, because a re- ceivership which necessarily deprives a defendant of the possession and use of his property is undoubtedly a "taking" within the meaning of the term as used in the constitution. Equally would a partition of the defendant's prop- erty constitute a taking. Section 16 provides for the 241 OTHER OBJECTIONS TO LENROOT MEASURE partition, and, if necessary, the sale of the defendant's property in the process of creating conditions in con- formity to law. The objections to receiverships apply here with increased force. Either remedy put in force would constitute an appropriation of private prop- erty. If the use be considered public, then compensa- tion must be provided as in the exercise of the power of eminent domain. But it is difficult to discover any public use, and, if there be none, then the process could not be resorted to even if provision were made for compensation. Section 14 would save rights of action against the bar of statutes of limitation and need not be further noticed. Section 15 makes provision as to disposal of certain property rights against which substantially the same objections lie as against receiverships and partitions. It provides, among other things, for compulsory leas- ing under judicial power and supervision. The ob- vious first question is as to the province of Congress to confer and of the judiciary to exercise the power to compel persons to alter valid contractual relations al- ready formed and enter into new and different con- tractual relations, and the first thought is that it can- not be done. The fact that defendant has been adjudged to have been a party to a contract, combination or conspir- acy in restraint of trade, would not have the effect to in- validate his contracts made in the course and conduct of his business. That is no longer an open question upon the authorities, notwithstanding that this sec- tion appears to have been projected upon the appo- site theory. The first lettered clause of Section 16 has been al- ready noticed. Subdivision ''{h)" prohibits the stock- 242 OTHER OBJECTIONS TO LENROOT MEASURE holders of a partitioned or otherwise dismembered corporation from purchasing its property at sales thereof occurring under the proceedings prescribed by the bill. It seems sufficient to remark that no inter- state commerce, or other substantial reason for the prohibition can be assigned. Section 17 would authorize intervention by private parties alleging injury in suits in equity brought un- der the provisions of Section 4 of the Anti-trust Act. It would also authorize interventions by indi- vidual states of the Union. Part of the preceding dis- cussion is applicable to the proposed interventions by private parties; and with reference to interventions by a State to protect an interest of one or more of its citizens, that would appear to be entirely unnecessary, since the United States would be already in court to protect the interests of all the citizens of all the States. Mr. Louis D. Brandeis, of Boston, filed with the Judiciary Committee of the House, an elaborate brief intended to meet and answer all criticisms upon, and objections to, the bill. His explanation of its pur- poses and provisions may be passed over. Speaking, however, of Section 9, he says that it does not alter the substantive law, as the Sherman Act was construed by the Supreme Court in the Standard Oil Company and American Tobacco Company cases. No one has claimed that it does make any such change ; the ob- jection is that it perpetuates the effect of those de- cisions by a legislative construction and recognition. In answer to the objection that this legislation would invalidate the Anti-trust Act as a criminal statute, his only reply is that the same objection would lie to that act itself as construed by the court in the two cases 243 OTHER OBJECTIONS TO LENROOT MEASURE mentioned. His reason will not be satisfactory to any- one except those who fear the enforcement of the penal clauses. But by way of confession and avoidance, he asserts that as a criminal statute, the courts subsequently upheld the act, and cites two decisions of inferior federal courts on demurrers, and the ruling of the Supreme Court in an application for a writ of habeas corpus. The application was made before the petitioners had been tried, and the Court merely ruled that it was premature. After Mr. Brandeis' brief was filed, Attor- ney-General Wickersham conceded the invalidity of the act as a criminal statute. His changed views were due, in large measure, to acquittals of the defendants by juries under the court's instructions in the two cases referred to by Mr. Brandeis. He then offers an answer to the objection that Con- gress cannot place upon the defendant the burden of proving that his restraint of trade is reasonable. But nothing that he says by way of answering argument, nor any authority cited by him, is to the point. He says: "Generally speaking, in all cases of affirmative defenses, in criminal as well as civil cases, the defendant has the burden of proof. (12 eye. 380, 381) * * *. Similarly, if a statute makes certain acts criminal, but provides exceptions, the defendant ordinarily must establish that he is within the exceptions (State 2 Watson 31, Atl. 1040)." No one ever before suggested that the Supreme Court had inserted an exception in the statute. If we should write the word "unreasonable" before the word "re- straint," and make it read "Every contract combination in the form of trust or otherwise, or conspiracy, in un- reasonable restraint of trade or commerce among the several States, or with foreign nations, i^ hereby de- 244 OTHER OBJECTIONS TO LENROOT MEASURE clared to be illegal," and then write into the penal clauses the qualifying words, "as above defined," we would have before us the result of the new construction by the court, as Mr. Brandeis interprets it. It has merely narrowed the definition by the introduction of a qualify- ing adjective. The Government is as much bound to prove the kind of restraint placed upon commerce, as it is to identify the individual or corporation placing it, or as it would be in a case for smuggling, to prove the dutiable grade or character of the merchandise involved. And it is almost impossible to conceive of a case that would be so presented in court as not to show on the facts presented by the Government, whether the re- straint was reasonable or unreasonable. Therefore, there is no room for any such defense, affirmative or of other kind; there is no such defense. The question would be one of law arising upon the facts. What the defendant would present in every such case would be an argument, not a defense, properly so called. The proposition or theory of affirmative defenses is far-fetched. He says, very truly: "The case of Com- monwealth V. Boyer (7 Allen, Mass. 306) illustrates the principle." That was a prosecution under a statute which provided that "whoever having a former husband or wife living * * * marries another person, shall * * * be deemed guilty of polygamy," and a separate section provided that "the provisions of the preceding section shall not extend * * * to any person legally divorced from the bonds of matrimony." The last quo- tation refers not to defensive but exculpating matter. Resting upon an affirmative independent proposition, and upon a fact peculiarly within the defendant's knowl- edge, the same rule applies as where a defense of autre- fois acquit, or autre-fois convict is relied on. 245 OTHER OBJECTIONS TO LENROOT MEASURE This seems the proper place to notice his reference in oral argument before the House Judiciary Committee on this bill (Trust Legislation, Serial No. 2, page 15) to the Cummins burden of proof Amendment to the Amendments to the Interstate Commerce Act of 1887, adopted in 1910. He there said: "That provision, that mere changing the burden of proof, where you once have shown that combination exists, is an idea which has been borrowed from the acts to regulate commerce. The act of 1910 provided that when a railroad raises a rate, the burden of proof should be on the railroad to show that the increase in rates was reasonable." The statement is slightly incorrect. The provision was not that the carrier should have the burden of showing the reasonableness of the increase, but the rea- sonableness of the increased rate. The discrepancy is important; hence, the illustration is misleading. The courts have held that the question of what is the reasonable rate is one of fact. When a new rate sheet is filed with the Commission, showing the increase of a rate, the question is: "Why have you increased a rate previously fixed by you with knowledge of all the facts ?" The facts justifying any rate are peculiarly within the knoweldge of the carrier, and there is a natural presump- tion that any rate higher than that previously fixed by it is too high. At any rate, the carrier there presents an affirmative proposition with a presumption against him, and it is in accordance with justice and established principle that the burden of proof should rest upon him. But here, not having any standard of fact, the ques- tion is one of law, the question being as to what legal color or aspect the facts proved by the Government shall bear. With reference to attacks upon the constitutionality 246 OTHER OBJECTIONS TO LENROOT MEASURE of the various provisions of Section 10, which the Len- root Bill would add to the Anti-Trust Act, Mr. Brandeis says, in effect, that it is not really what it appears to be, a statute shutting off a party from making his de- fense in certain cases, but the enactment of substantive law, covering certain offenses. That would be true if the section totally eliminated the element of reasonable- ness or unreasonableness from the statute for all cases. But as it does not, we must have regard to the form in which it appears. And in constitutional law, matters of form often must be given consideration. It would not usually affect a defendant's interests in the slightest degree whether he had an opportunity to read or had read to him the indictment or other charge, and yet that ceremony is an essential part in due process of law. But why has the Section been so framed as not to apply to those large restraints as to which the people are most concerned, such as railroad traffic agreements and price agreements, such, for instance, as those shown in the Steel Trust investigation? The form of Section 10 is such that the conclusive- ness might just as well apply to the identity of the accused party as to the element of the offense selected. His arguments in support of the constitutionality of Section 11 are evasive and inconclusive. For instance, in answer to the objection that the fact that a person or corporation does business under a name other than his or its own name, or conceals or misrepresents the ownership or control of the business, etc., has no tendency to prove that the person engaged in that busi- ness restrains trade unreasonably, he says: "It is com- mon knowledge, however, that one of the most effective methods of unfair competition is that of the fake inde- pendent." But a corporation or individual may fake 247 OTHER OBJECTIONS TO LENROOT MEASURE or falsely claim independence for any one of a variety of reasons, either of which, we might be ready to agree with Mr. Brandeis, is reprehensible. But the question would remain whether such faking constituted restraint of trade. And we still cannot see that, merely because in some previous case tried in the courts a defendant resorted to the "independent" dodge, a defendant in all future cases, merely because he did his business in a name other than his own, should or could have cast upon him the burden of exculpating himself from the charge of having restrained interstate commerce, not- withstanding that it might have been incidental to an interstate transaction. His arguments in support of the other clauses of Sections 10 and 11 are no better, and will not be further noticed. It is undoubtedly correct when applied to conduct resulting in actual restraint of trade to say that the intent need not be shown; in other words, the intent is immaterial where the result aimed at has been reached and a restraint has actually been placed upon trade. Every lettered sub-division of Section 10 but one, (f), deals not with consummated restraints, but at- tempts; and the same is true of sub-division (b) of Section 11, though in this instance the expression slightly varies. In a case of actual crime, the party is, as a gen- eral rule, deemed or presumed to intend the natural result of his act. But this rule seldom if ever prevails where an attempt is also penalized and the charge is for an attempt. The rule was stated by Justice Holmes in Swift & Co. V. United States (196 U. S. 397), a case brought under the Anti-trust Act, as follows: "Intent is almost essential to such a combination, and is essential to such an attempt. Where acts are not sufficient in 248 OTHER OBJECTIONS TO LENROOT MEASURE themselves to produce a result which the law seeks to prevent — for instance, monopoly — but require further acts in addition to the mere forces of nature to bring that result to pass, an intent to bring it to pass it neces- sary in order to produce a dangerous probability that it will happen. (Commonwealth v. Peaslee, 177 Mass. 267, 272.)" This quotation is peculiarly applicable, because not one of the acts specified in the bill would necessarily, and of its own natural tendency, restrain trade if con- summated. It is important in this connection to note that the parts of the bill now referred to attempt the creation of a new offense in a totally impracticable way. It is attempted to create the offense of an attempt to do one thing out of things fully done which have resulted in something very different. As well might it be provided that anyone attempting to break into a house by obstruct- ing the public highway shall be conclusively presumed to be guilty of unlawful house-breaking. These pro- visions would practically amend the Anti-trust Act by creating this new offense of an attempt to restrain com- merce. In framing the present Act, Congress under- stood the futility of constituting the attempt at restraint an offense. It was only when acts assumed the per- ceptible form of attempting to monopolize commerce that it was deemed practicable to give a civil remedy against, and attach penal consequences to, acts and courses of conduct. As well attempt making treason out of something short of an overt act. Hence, if the acts and conduct specified in the bill are to be made criminal, it will have to be done otherwise than as here attempted. In further advocacy of the policy and constitutionality 249 OTHER OBJECTIONS TO LENROOT MEASURE of Sections 12 and 13 of the bill, Mr. Brandeis pursues first a very general, and then a very technical line of argument. Indeed the constitutional obstacles seems to impose a hardship upon parties in general by combina- tions, but that cannot be helped. That such obstacle exists is shown in the preceding discussion of the Len- root Bill, which will not be here repeated. As Mr. Brandeis truly says, Congress may enact rules of prac- tice and procedure, including rules for the admission of evidence, but no such rule could invade any constitu- tionally protected right. Congress could, however, re- quire the record in the Government suit to be received in evidence in private suits, the effect of the evidence to rest with the jury, which is a very different proposal from one which involves a deprivation of the right of trial by jury, in actions at law, by making the judgment in the Government suit conclusive against a party. To answer the objections to Section 15, which would compel litigants to enter into new contracts, Mr. Brandeis called attention to partitions of property by equitable decrees in certain cases and to certain powers over public service corporations in certain cases. The partition and sale of property in order to secure equitable division among co-tenants or co-heirs is the exercise of the equity court's ordinary jurisdiction. And the powers exercised by the Government, first, through its legislative department, and finally, through courts and court offi- cers over public service corporations, has no place where dealing with individuals and private corporations, not charged with public duties and responsibilities. But the things here proposed could not be constitutionally au- thorized and done even in the case of a quasi-public cor- poration, unless in the exercise of the power of eminent domain. The Federal Government has no interest in 250 OTHER OBJECTIONS TO LENROOT MEASURE or power over the ownership or disposal of private property, and can only regulate its use where the use interferes with the exercise of a power conferred by the Constitution. Seeing the ineptness of the illustration, Mr. Brandeis shifts his ground and says: "Congress could unques- tionably enact that all persons engaged in interstate com- merce shall be subject to the obligations of public service corporations." This is so palpably a non sequitur that it seems unnecessary to give it further notice. Such being the case, it is needless to discuss his de- fense of the specific methods for the execution of such decrees provided for in Section 16. The defense of the provision authorizing individual States to join in Government cases arising under the Anti-trust Act found in Section 17, involves several false assumptions and descends to absurdities. A State could only be ad- mitted on the Government's side as a matter of policy, on the assumption that the officers of the Federal Gov- ernment would be unable or unwilling to take care of public interests. It could only be admitted to represent aggrieved private parties, having their own counsel for the purpose of relieving them of part of the expense. But for either of these purposes, the Constitution and statutes of any State in the Union that wished to partici- pate in a Federal Court investigation, in which the State as a municipal corporation, wished to participate would have to be changed. It is beyond the power of a State officer anywhere to use the name of his State in a foreign jurisdiction, to participate in litigation to which the State could not by its constitution and laws, properly become a party. The foregoing criticism of the Lenroot Bill has been extended at great length. If any apology for its length 251 OTHER OBJECTIONS TO LENROOT MEASURE be needed, the answer is that it was thought worth while to present the criticism in view of the powerful support it is receiving, and if done at all, it should be done thoroughly. 252 CHAPTER XII PROPOSAL OF MR. SMITH FOR FEDERAL CONTROL OF STATE CORPORATIONS This is a revision of the bill introduced in the Second Session of the 62nd Congress by Senator WiUiams. After its revision it was introduced in the House by Mr. Smith of Texas and referred to the House Com- mittee on Interstate and Foreign Commerce. Mr. Smith, a leading and influential representative, has never publicly advocated the measure and may not have care- fully examined it. Senator Williams and others have given it very earnest support before committees and otherwise. The title, enacting clause and first few lines read as follows: A BILL To PRESCRIBE THE CONDITIONS UNDER WHICH COR- PORATIONS MAY ENGAGE IN INTERSTATE COMMERCE AND TO PROVIDE PENALTIES FOR OTHERWISE ENGAGING IN THE SAME. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. That no corporation shall engage in commerce between the States or in the District of Columbia, by the purchase, sale or consignment of any article of commerce, or otherwise, directly or indirectly — , . ...... . . First. After the passage of this Act, if it is incorporated on or after January 1st, 1913, or after January 1st, 1914, if it is incorporated prior to January 1st, 1913, it is orgamzed under laws or with a charter that 253 CONTROL OF STATE CORPORATIONS (a) State the business in which it is authorized to engage and the location of its executive office ; and provide that it shall have only such powers as are incidental to such business, and shall not have any power to do any act or thing in restraint of trade or to monopolize trade, or to do anything outside of the State of its incorporation which it is not permitted to do therein; The first section contains other lettered clauses (b) to (h). To avoid circumlocution and repetition, what the bill would require to be provided in the articles of incorpora- tion, just as if Congress were creating the corporations and imposing the conditions upon them, will be stated, because that is the legal effect of it. The articles shall provide that "the corporation state the business in which it is authorized to engage and the location of its execu- tive office; and provide that it shall have only such powers as are incidental to such business, and shall not have any power to do any act or thing in restraint of trade or to monopolize trade, or to do anything outside of the State of its incorporation which it is not per- mitted to do therein" ; also that "no person or persons shall be or act as a stockholder or member thereof, or be eligible as an officer or a director thereof : (1) who is not an actual beneficial owner of stock in his own name and right, unless he holds such stock as trustee and the nature and beneficiaries of such trust are fully stated upon the books of the corporation. (2) who is engaged in any substantially competing business, or in any business of substantially the same kind, carried on in the same territory, or is a stock- holder, officer or director of any corporation or asso- ciation engaged in or having an interest through stock ownership or otherwise in any such business, or is the agent or trustee with respect to such stock of any per- 254 CONTROL OF STATE CORPORATIONS son engaged in any such business, or of any stock- holder, officer or director of any such corporation. "(3) who is a corporation, association or partner- ship engaged in any business, including the business of a holding company, but excluding the business of banking, insurance, education of or (administering estates and executing testamentary trusts" ; also that "all dividends declared on any stock shall be forfeited to the corporation unless such stock shall at the time such dividend is declared or within ten days thereafter stand in the name of a person entitled to be and act as a stockholder of such corporation, as aforesaid" ; also that "a transfer of any stock to a person not entitled to be a stockholder of the corporation as aforesaid shall be void, and that any stock standing in the name of any such person for a period of six months, unless the same be occasioned by some excusable inadvertence or dis- ability, shall be forfeited to the corporation"; also that "none of said restrictions shall be taken to affect the security or rights of any secured or judgment creditor, including any corporation, association or trustee, nor to prevent such creditor from acquiring or voting any stock pursuant to the terms of any pledge thereof or to a sale thereof under any lien or judgment, for a period not exceeding one year as may be permitted by a court hav- ing jurisdiction thereof" ; also that "all its stockholders shall have an equal right to vote according to the num- ber of shares held by them, respectively at all meetings and for all directors, subject to any general limitation on the number of votes that may be cast by a single stockholder"; also must "contain a statement of the amount of capital with which such corporation will carry on business, and provide that such amount shall not be less than the total par value of its capital stock 255 CONTROL OF STATE CORPORATIONS issued therefor, including any stock issued without par value at not less than five dollars per share, and per- mitting the issuance of said stock for property only when the value of such property has been determined according to the fact to be not less than the par value of such stock, as aforesaid upon competent and specific proof under oath filed in a designated public ofiice" ; also that "any excess capital over and above the par value of capital stock outstanding at any time, including any stock issued without par value at not more than one hundred dollars per share, shall be deemed a sur- plus of such corporation, and that such surplus shall not be permitted to exceed fifty percentum of the amount of such capital stock, and that its indebtedness shall not be permitted to exceed its outstanding capital and surplus" ; also that "such corporation is formed with a view to engaging in commerce between the States subject to any requirement that may be imposed by Congress as a condition of its right to engage in such commerce, and that its charter or governing laws may be amended at any time to conform to any such require- ment, and that the rights and interests of its stock- holders, officers, directors and other persons, in its assets, offices and management are held subject to any amendment that may be made for such purpose." The first section then contains paragraphs "second" to "seventh" imposing conditions pertaining to incor- porating, organizing and certifying other than and addi- tional to those pertaining to the contents of the articles, all relating back to the introductory clauses and mean- ing that these requirements must also be met in order to complete and consummate the right to engage in inter- state commerce, and that a violation or non-observance 2^6 CONTROL OF STATE CORPORATIONS thereof would involve a forfeiture of the right. These paragraphs of Section 1 read as follows : Second. After January 31, 1914, unless a copy of its certificate or articles of incorporation or association and proof, by affidavit of an executive officer, showing its compliance with the require- ments of this section and of its charter has, preceding any such act or commerce, been filed in the office designated by law of the State by which it is incorporated, and also in the office of the United States Bureau of Corporations. Third. After the passage of this Act, if it purchases or if, after January 1, 1914, it holds the stock of any corporation or association owning, operating or controlling, through stock own- ership or otherwise, any properties in the United States or carrying on its business therein. Fourth. After the passage of this Act, if it issues stock for property or services, unless the value thereof has been determined upon competent and specific proof under oath to be not less than the par value of the stock issued therefor, or if such stock is issued without par value, to be not less than a value of five dollars per share of such stock, which determina- tion and proof shall be filed in a public office designated by law of the State by which it is incorporated, or in the office of the Bureau of Corporations of the United States. Fifth. After the passage of this Act, if any person, who, under the laws or charter required by Paragraph First, would not be entitled to be or act as a stockholder, shall vote by proxy or otherwise, any stock therein or be or nominate or elect a director or officer therein ; Provided, That for any vio- lation of this paragraph prior to January 1, 1914, only a person, corporation, or association voting any such stock, or giving a proxy thereon (except to enable such corporation to amend its charter or to reorganize to conform hereto), or acting as, becoming, nominating, or electing any such director or officer (except to fill vacancies in any such office) shall be punished hereunder or affected hereby : Provided, also. That this paragraph shall not apply to any corporation incorporated prior to Jan- uary 1, 1913, if its outstanding capital stock does not exceed ten million dollars, unless it is controlled or operated by a corporation or association having a larger capital, or unless it is one of several corporations heretofore or hereafter disin- tegrated or incorporated pursuant to any decree in any pro- ceeding under the Anti-trust Act of July 2, 1890. Sixth. After the passage of this Act, if a majority of its stock be held or owned, directly or indirectly, by any one or more persons who under the charter or laws required by para- graph first would not be entitled to be or act as a stockholder : Provided, That for any violation of this paragraph prior to January 1st, 1914, only a person, corporation or association hereafter purchasing any such stock, directly or indirectly, or 257 CONTROL OF STATE CORPORATIONS holding it directly or indirectly, after July 1st, 1913, shall be punished heerunder or affected hereby. SevenA. After the passage of this Act, if it, directly or indirectly, of itself or in connection with others, destroys or seeks unfairly to stifle competition in any part of the United States in the manufacture, production, mining, purchase, sale or transportation of any articles of commerce not the subject of any patent, copyright or trade-mark held by it, either by making or affecting exclusive contracts, rights or privileges relating thereto, by restricting its customers or other persons with regard to price, territory, or otherwise, in freely buying, selling, or transporting any such article, by securing the monop- oly or control of raw material or sources of supply, or of any means of transportation, or of any business connected therewith by temporarily or locally reducing prices with intent to stifle competition, by accepting rebates, or by any other act, device, or course of business that is unfair and tends to secure a monop- oly or an unfair advantage and unreasonably and unfairly to destroy competition. The balance of the bill is vindicatory or remedial, ex- cept that it contains a few other and incidental matters. As it would be difficult to make a synopsis of their pro- visions, Sections 2 to 9 inclusive are here inserted in full: Sec. 2. That every contract made in violation of this Act shall be void, and no corporation or association if engaged in interstate commerce shall, after January 1st, 1914, bring or maintain any suit or proceeding in any court of the United States unless it is organized, conducted and managed as re- quired by Section 1, nor shall this provision prevent the re- moval of any such suit or proceeding to such courts where such defense may be available to the defendant. Sec. 3. That the prohibition of Section 1 and Section 2 shall apply to any association membership in which is represented by shares, and the word "association" used in this Act shall include any joint stock company, business, trust, estate, or any form of association used for business purposes ; but said pro- hibitions shall not apply to any corporation or association not engaged in business for profit or engaged exclusively in any one or more of the following businesses : Education, a railroad or other common or public carrier of property or persons or messages, banking, insurance, the supply of water, light, heat or power ; or engaged exclusively and independently in any busi- ness or businesses, except that of a holding company, the substantial bulk of which is carried on in foreign countries or exclusively in any one State, and which does not involve the tiansmission of goods from one State to another, nor the pur- chase, sale, or consignment of articles commonly the subject 258 CONTROL OF STATE CORPORATIONS of commerce between the States and actually intended for or becoming the subject of such commerce. Sec. 4. That no person or persons shall form, operate, or act as or for a corporation or association for the purpose or with the effect of violating this Act, or conspire thereto and of themselves or by conspirator do any act or thmg to effect such conspiracy. Sec. 5. That every corporation, association, or person vio- lating this Act shall be subject, upon conviction thereof, in case of a corporation or association to a fine not exceeding ten percentum of its capital stock or (except for a violation of paragraph six of Section 1) to a perpetual injunction against engaging in interstate commerce, or both, and in the case of a person to a fine not exceeding ten thousand dollars, for each such violation, and if the violation is willful with intent to defraud or to create a monopoly or unfairly to stifle competi- tion, to such fine and imprisonment not exceeding five years. Sec. 6. That the Act of February eleventh, nineteen hundred and three, relative to the expedition of certain quits of equity, and sections four and five of the Act of July second, eighteen hundred and ninety, known as the Sherman Anti-trust Act, shall apply to all proceedings and suits in equity under this Act. Sec. 7. That any corporation or association organized, con- ducted and managed as required by section one, shall, after the passage of this Act, be entitled to engage in commerce between the States and in the District of Columbia, and to carry on its authorized business relative to such commerce in any part of the United States, subject to the provisions of this Act and to all present laws of the United States and to future Acts of Congress, and to the general laws and taxing powers of any State in which it may do business. Sec. 8. That nothing in this Act shall be taken to prevent any secured or judgment creditor, including a corporation or association and a trustee under any corporate mortgage or deed of trust, from acquiring or voting any stock sold pursuant to the enforcement of any such lien or judgment for a period not exceeding ninety days, or for a longer period not exceeding one year if permitted by a court having jurisdiction thereof. Nor shall anything in this Act be taken to prevent the holding of any pledgee or trustee under any mortgage or deed of trust given prior to January 1, 1913, of any stock deposited as col- lateral thereunder, unless and until the indebtedness secured thereby may be payable or redeemable, or such stock subject to release from such lien, by substitution of collateral or otherwise ; nor to prevent the application of the hole or part of any dividends thereon to the payment of such indebtedness, according to the terms of any such mortgage or deed of trust, or of any agreement or apportionment between different stocks so deposited that may be made to secure such indebtedness ; nor to prevent the voting or use of any such stock for such purpose ; but if and to the extent that any such stock is owned, 259 CONTROL OF STATE CORPORATIONS held, purchased, or acquired, or the right to vote thereon, or to give, demand, or receive a proxy thereon or to act as the holder thereof, or to receive or use any dividends thereon, ex- cept as aforesaid, is retained or acquired by any person, cor- poration or association, other than such pledgee or trustee, such owning, holding, purchase, acquisition, right, or the exercise thereof shall be within the provisions of this Act. Nor shall anything in this Act be taken to prohibit any provision in the charter of any corporation or association in accordance with this section. Sec. 9. That nothing in this Act shall be held or construed to supersede or repeal the Act approved July 2nd, 1890, entitled "An Act to protect trade and commerce against unlawful re- straints and monopolies," or any of the provisions thereof. It would require a large volume, indeed it might re- quire several volumes, to set forth the full legal effect of the enactment of this bill. Such a volume would be very difficult reading, no matter how talented its author. And such a discussion would scarcely touch the economic changes wrought by such an enactment. This should alone be held a fatal objection to the bill, in the absence of a vital present necessity for its passage. It will be sufficient for present purposes to point out some of the important results from its enactment, enforcement, and practical operation. This of course is aside from consti- tutional objections that have been and will be urged against the whole scheme of the bill. Many well intentioned and able men are just at present moved by an irresistible impulse to find and formulate and get enacted reformatory measures ; and they begin by framing bills and having them introduced. This is no reflection on those Representatives and Senators who introduce them and who go upon the theory that when one presumably qualified has a legis- lative proposition he is entitled to a hearing on, and consideration of it. At the very threshold of this question is that of the real nature, origin and meaning of interstate commerce, 260 CONTROL OF STATE CORPORATIONS to which question the draftsmen of this bill appear to have given little attention. But an earnest and careful study of that question should constitute the most impor- tant preparation for such service. The regulation of commerce is the making of rules or laws for commerce, and the term is just as broad as the power to regulate it, but no broader. Therefore any act of Congress which is not a regulation, that is to say, a regulation of that commerce which is interstate, is not a regulation at all, but an interference with private affairs which are either constitutionally protected by express language, or exclusively under State control by implication, and therefore exempt. In view of these obviously sound propositions, it is not difficult to see that the duty prescribed or prohibition imposed by the bill does not constitute such a regulation. It is not within the power of Congress to bring a subject within its sphere of power by new definitions; that is to say, the mere fact that an act is passed on a subject on the assumption that such subject is embraced within the definition does not enlarge the definition. The definition under the Constitution abides with the courts. (Lottery Cases, 188 U. S. 367, per Brewer, J.) There are numerous incomplete, imperfect and frag- mentary definitions of interstate commerce to be found in the decisions, but not one that is comprehensive. A correct statement drawn from many judicial utterances and decisions support, however, the following con- clusions. Interstate commerce has two meanings, the one abstract and general, the other concrete and definite. That within the general meaning is protected by the courts by virtue of the self-enforcing constitutional pro- vision. In the concrete and definite sense, in other words, in its actual movement, it may be regulated by 261 CONTROL OF STATE CORPORATIONS Federal statutes. Any given transaction may be made up of many minor transactions, but each interstate or international commercial transaction, whether of trivial or great magnitude, is of national import and jurisdic- tion, while all others are exclusively within State sov- ereignty, regardless of the gravity or extent of their separate or combined effect. Commerce; in any such sense as to call for Congressional regulation, cannot come into existence without an exercise of the will power of man, nor does any such thing exist in the absence of action and movement of men or of agencies set in motion by them. For purposes of congressional regulation the sphere of interstate commerce without transportation or transmission, either actual or contem- plated, may be compared to a vacuum,. There is no actual or operative interstate commerce until transpor- tation has begun. (Coe v. Errol, 116 U. S. 517; Addy- stone Pipe Co. Case, 175 U. S. 211.) A contract be- tween parties residing and doing business in different States, and though it may contingently involve inter- state shipments, is not a transaction in interstate com- merce. (Ware & Leland v. Mobile County, 209 U. S. 405.) With this knowledge at hand, we turn to the general principles of law governing private corporations which are the same pro hac vice in Federal and State juris- dictions. A corporation is a legal unit. We have here nothing to do with inter se rights. The latter are essen- tially personal and local. The relations between stock- holders and between them and their corporations can never properly raise a question of congressional power. Federal legislation unless it relate merely to equitable procedure must necessarily deal exclusively with the legal entity. The fact that a corporation stands for and 262 CONTROL OF STATE CORPORATIONS represents the equitable interests of stockholders is un- important in this connection. Except in cases of diverse residence, the Federal courts have no ordinary juris- diction of disputes between individuals as members of, or stockholders in a corporation. A federal question may be incidentally involved in such litigation, but that is not here to the point, since the point here is whether the bill if passed would raise any federal question, that is, whether it would be constitutional; and a begging of the question by assuming that internal corporate re- lations are interstate commercial matters is not per- missible. We may turn to the acts, proceedings and compacts whereby a corporation is created under State laws, and search in vain for anything constituting an interstate transaction or subject. Without an act of State sov- ereignty conferring corporate capacity, those acting to- gether in a common name would constitute a mere volun- tary association, a common law copartnership, although they issued stock to represent their respective interests. The only differences between that and a corporation are continuity of existence under the name selected, along with certain other rights of no distinguishing impor- tance. So that in this connection the status of a cor- poration and partnership are indistinguishable. Sup- pose it were now proposed to regulate the inter se rights and relations of copartnerships by a federal statute, would any one contend for the power under the commerce, or any other clause? Validity may be claimed for the proposal because the purpose is the exclusion, conditionally, of corporations from interstate commerce, and that we need not look beyond the corporations affected to observe the effect upon internal corporate rights. But we should not close 263 CONTROL OF STATE CORPORATIONS our eyes to the fact that if the bill should pass the ques- tion of constitutionality is sure to come at once before the courts, and that the courts have invariably refused to limit their consideration to mere forms of statutes. They will, whether it be admitted or not, see that the real purpose of the Act was to regulate the internal affairs of corporations, and that the wrong which Con- gress intended to reach was not anything touching or affecting what they understand to be interstate com- merce, or commerce at all, but those private contractual relations arising between individuals, and between indi- viduals and corporations when a corporation is created, or when there is a new issue of stock. That is here the avowed purpose, and the only object desired. Any re- port of the committee favorable to the bill, or any such bill, is bound to disclose that purpose, and any debate on the floor of either House will not only fail to conceal that purpose but show that such is the purpose and the only purpose. We see a misconception of the nature and meaning of interstate commerce in the designation of the en- tities to be affected. Transportation companies are exempted, and yet it embraces all corporations engag- ing or that may contemplate engaging in interstate com- merce, to any extent, even in one interstate act. The returns under the corporation tax act disclosed the ex- istence of over 264,000 corporations after excepting several large classes, and all whose net incomes were less than $5,000. So there must be about a half mil- lion business corporations in the country, scarcely one of which is not engaged to at least some small extent in commerce between the States. The division of corporations or persons into those engaged and those not engaged in interstate commerce 264 CONTROL OF STATE CORPORATIONS is an impossible classification. Scarcely one would be found in the latter class. Few individuals can be found whose affairs are of any importance, not engaging to some small extent in commerce between States, if it be only one or two transactions a year. And for the purpose of this bill, or any such bill, the right of such a person to so engage must be given the same considera- tion as that of some great wholesale or jobbing house^ making many large shipments from State to State every day. That the true legal line must be drawn subjectively and not with reference to persons, occupations, or de- grees of participation in any character of commerce, and that conduct rather than status or relation is the de- cisive test of amenability under interstate commerce regulations is established by numerous decisions of the Supreme Court. In Hopkins v. United States (171 U. S. 578) and in Anderson v. United States (171 U. S. 605) the parties proceeded against were actively engaged in interstate business. But the Anti-trust Act was held inapplicable because the particular conduct complained of was only incidental to, and was not a part of, inter- state commerce; and though interstate commerce was affected by it, and possibly restricted to some extent, yet the restraint, if any, was indirect. In Leowe v. Lawler (208 U. S. 274) it was strenuously contended by counsel that inasmuch as the conduct forming the basis of the action consisted in carrying out the pur- poses of an association which was not engaged (and none of its members were engaged) in interstate com- merce, therefore they could not be held liable under the Anti-trust Act. But the court took the view herein- before expressed, and denied the existence of any such test or distinction. In Adair v. United States (208 265 CONTROL OF STATE CORPORATIONS U. S. 161), it was held that though Congress has power to prescribe rules by which interstate commerce must be governed, yet the rules prescribed must have a real and substantial relation to or connection with the com- merce to be regulated. There Congress had passed an act penalizing acts of discrimination by carriers in inter- state commerce in the matter of employing labor against members of labor unions, the connection between the employment of labor being considered by the court not sufficiently close to interstate commerce to justify the legislation under the Constitution. Obviously, the con- nection made by employment of those who actually cause movements in interstate commerce is not more remote from the commerce itself than is that of those who merely supply the things upon which the labor causing the movement takes effect. The Supreme Court has in more than one instance dealt with what it designated as attempted perversions of the power delegated in the commerce clause. Some of these cases have a direct bearing upon the attempt made in this as in the Lenroot Bill, and in the Bristow Bill even to a greater extent, to accomplish under the guise and form of regulating interstate commerce, cer- tain ulterior objects, having no legal relation to the com- merce which Congress has power to regulate. In Mc- Culloch V. Maryland (4 Wheat. 423), Chief Justice Marshall announced what may be regarded as a cardinal doctrine governing just such attempts as those before us, saying: Should Congress, under the pretext of executing its powers, pass laws for the accomplishment of objects not entrusted to the Government, it would become the painful duty of this tribunal, should a case requiring such a decision come before it, to say that such an act was not the law of the land. 266 CONTROL OF STATE CORPORATIONS In Veazie Bank v. Fenno (8 Wall 533), Chief Justice Chase, discussing the necessity for keeping distinct Federal and State sovereignty (also directly involved in these legislative proposals), said: There are indeed certain virtual limitations arising from the principles of the Constitution itself. It would undoubtedly be an abuse of the power if so exercised as to impair the separate existence and independent self government of the States or if exercised for ends inconsistent with the limited grants of power in the Constitution. An idea has sprung up in recent years that Federal powers can be so utilized as to coerce men by means of penalties into submitting to legislation which would be otherwise clearly unconstitutional; that is to say, that the Federal Government may, by resorting to mere statutory forms, accomplish by indirection what it could not do directly. The Supreme Court has clearly and unequivocally expressed itself concerning a resort to mere forms to accomplish unconstitutional objects. In Union Bridge Co. V. United States (204 U. S. 364, 397), the court said: If the means employed have no real substantial relation to public objects which the Government may legally accomplish; if they are arbitrary and unreasonable, beyond the necessities of the case, the judiciary will disregard mere forms and interfere for the protection of rights injuriously affected by such illegal action. The authority of the courts to interfere in such cases is beyond all doubt. The Federal Government has no interest in the ques- tion of child labor in the States, and yet legislation has been proposed and vigorously urged to exclude the products of child labor from interstate commerce, and the answer thus far successfully interposed was that no interstate-commerce reason was shown as a consti- tutional warrant for it. In other words, the quality or 267 CONTROL OF STATE CORPORATIONS desirability of the articles so produced for transporta- tion from State to State depends in no respect or degree upon the character or age of those employed in their production. The answer was the same, in substance, as the reasons given by the court in the Adair case for holding the statute there considered invalid. So here, no one has the temerity to insist that Congress could directly regulate the stock and bond issues of private corporations created by the States, but it is urged that, starting with the declaration of a forfeiture of the con- stitutional right to participate in interstate trade, the same end can be reached by indirection. Again, the Supreme Court, in case after case, has emphasized the necessity of preserving the division of authority between the States and the Federal Government; and it is clear that if Congress may so far interfere and control that distinctive sovereign power exercised in creating, limit- ing the powers and prescribing the duties of corpora- tions, it would be difficult to place bounds to its invasive powers, where any question arises as to the line of de- markation between the respective sovereignties. But still treating the proposal as one to regulate cor- porate affairs, another view established by the Supreme Court would seem to create an insuperable obstacle to its being sustained as against objections to its constitu- tionality. In its operation upon the corporate entities (ignoring here its effect upon internal interests and managements), no distinction is made between the inter- state and intrastate commerce carried on by them, the latter of course being beyond the constitutional power. In Employers' Liability Cases (207 U. S. 463), it was held that while the statute embraced subjects within the authority of Congress to regulate commerce, it also in- cluded subjects not within its constitutional power, and 268 CONTROL OF STATE CORPORATIONS that the two were so interblended in the statute that they were incapable of separation and the statute was therefore repugnant to the Constitution and non- enforceable. In the opinion appears language bearing directly upon this objection to the bill under considera- tion, as follows: Now, the rule which the statute establishes for the purpose of determining whether all the subjects to which it relates are to be controlled by its provisions is that anyone who conducts such business be a common carrier engaged in trade or com- merce in the District of Columbia, or in any Territory of the United States, or between the several States, etc. That is, the subjects stated all come within the statute when the individual or corporation is a common carrier who engages in trade or commerce between the States, etc. From this it follows that the statute deals with all the concerns of the individuals or corporations to which it relates if they engage as common carriers in trade or commerce between the States, etc., and does not confine itself to the interstate commerce business which may be done by such persons. Stated in another form, the statute is addressed to the individuals or corporations who are engaged in interstate commerce and is not confined solely to regulating the interstate commerce business which such persons may do — that is, it regulates the persons because they engage in interstate commerce, and does not alone regulate the business of interstate commerce. These principles would also apply to attempts at Fed- eral regulation of the stock and bond issues of rail- roads. The Federal Government is no more concerned with capitalization and stock transfers of railroad cor- porations, per se, than with the deeds and muniments of title to real estate which it has power to condemn for its purposes. These must, indeed, be examined to ascer- tain the extent of interest of the parties against whom condemnation suits are begun, and to ascertain if the title which the Government may acquire is a good title; but it does not by any means follow from the exercise of the power of eminent domain in such cases that Congress can regulate titles and transfers of real estate within the States. 269 CONTROL OF STATE CORPORATIONS At this point, this question arises in many minds: Suppose a railroad company by purchases of stock gets control of a competing road and acquires a monopoly of interstate commerce in a section of the country, does not the foregoing contention deny to the Government a remedy in a case like that? The answer is not difficult when the point has been thoughtfully examined. While Congress cannot directly legislate concerning stock own- ership and stock transfers, it can legislate for the con- trol of interstate commerce and control includes protec- tion. And when, as in the Anti-trust Act, restraint and monopoly are forbidden and a case under that statute arises, the Government has unlimited power within the rules of evidence to prove its case. It can prove the means, agencies and instrumentalities by which a monopoly has been attempted or created or restraint imposed. If an attempt has been made to violate the statute by acquisition of stock in rival companies, that can be shown the same as if it were created by the execution of leases, by restrictive contracts or other- wise. And such transactions may be undone and set aside or enjoined by the court when necessary to give the Government the relief to which it is entitled. But the remedial provisions of the Anti-trust Act belong to the law of evidence and procedure, and have nothing to do with the substantive provisions making rules for interstate commerce. And Congress may establish rules of evidence and porcedure, or may change them. It may do so in a regulating statute or in a separate statute. But, in doing so, it is exercising a power other than that conferred by the interstate commerce laws, and which cannot be so extended as to affect substantive rights. The doctrine of Trade Mark Cases (100 U. S. 82), 270 CONTROL OF STATE CORPORATIONS quoted in criticizing the Lenroot Bill, also raises an insuperable constitutional obstacle to this bill. Now let's notice briefly and generally the forms and processes of legislation. This may be academic and abstract, but it has a direct application to the matters in hand. The declaratory or substantive part of a statute is not always expressed. It is often the sup- pressed or impHed major premise. If, for instance, the declaratory part of the Anti-trust Act had been omitted, the Act would have been just as valid and have had exactly the same effect in operation. The question of the power of Congress to provide and enforce the remedies could have been raised, as the Supreme Court has construed the Act, upon the impUed major premise as advantageously without as with the declaration that "Every contract," etc., "is hereby declared to be illegal." Now this bill is a reversal of the usual form and arrangement of a statute, as if the draftsman were en- deavoring to avoid constitutional objections by mere clerical cunning and skill. The declaratory part does not come first but last, and the remedial part comes first. The substance of the bill is that it lays down new rules for organizing and conducting corporations and as a means of securing compliance imposes the penalty of forfeiture of a valuable right for non-compliance. So that in purpose and effect, it is a complete federal incorporation law, proposing to impose the exclusive will of Congress on most business corporations of the country as to how they shall organize or reorganize and what they shall do, equivalent to and requiring reincor- poration and becoming very different corporations. Not only so, but other such structural changes must be made from time to time as Congress may see fit to direct. That is one of the matters to be taken care of in the 271 CONTROL OF STATE CORPORATIONS new charters with which they must be provided at the outset. The whole thing is impossible, and impossible regard- less of any question of constitutionality. No one would stand for a proposal that Congress might directly pass such laws for one of the States, that is to say, a law operative within a single State. Is the objection to such a proposal removed by Congress doing the same by wholesale There isn't a State in the Union but would have to revise and greatly change its incorporation laws in order that its corporations could comply with the re- quirements of this bill. When we reflect that the creation of a corporation is peculiarly an act of sov- ereignty which Congress can no more control as an attribute of State sovereignty than it can a State's tax laws, or the internal laws of a foreign nation, we see how impossible it would be for State-created corpora- tions to comply with these arbitrary mandates. Then there are involved a large number of vastly valuable contractual relations all of which would re- quire to be changed and new contractual relations would have to be entered into. All charters issued, and all articles of incorporation filed, create many such relations prior to a single step being taken to organize and begin carrying out the purposes of a corporation. Such pre- liminary step creates a contract between the State and the corporation, and between the corporation and the in- corporators, and between each incorporator and each of the other incorporators. Thereafter the same result follows the issuance of each stock certificate, even if it be for only one share. These contracts are as much protected by the constitutional prohibition against im- pairment as are other contracts. Now since the charter constitutes the ligament binding the corporation to th^ 27^ CONTROL OF STATE CORPORATIONS State, the State to the corporation, the corporation to its members, and the members to the corporation and to each other, we see the difficulties met with at the outset in "reorganization" in comphance with the requirements of the bill. The first step, taking for illustration the State of New York, would be to set its executive and legislative departments in motion to bring about radical changes in its laws of incorporation. After that, and supposing the State desired to make the changes, many questions would arise as to how to frame its measures to accomplish the desired end, preserving meantime con- stitutional and vested rights. We will proceed to the violent assumption that at the end of controversy and debate the changes were rnade. All this would be simply impossible within the time limited in the bill, or within any reasonable time, even if by any possibility it ever could be done. But assuming it possible and consum- mated, we have now confronting the corporation a task which would be quite a legal as well as a physical im- possibility. The term reorganization is used in the bill; but the term is frequently misunderstood. The only reorganization that a corporation can accomplish is in- ternal. If the charter or articles are amended a new corporation comes into existence. Unless such change was reserved to a majority by statute in force when the original corporation was formed, the consent of every stockholder must be obtained before it can be legally done. But it is safe to say that no State law now au- thorizes a bare majority or any majority to make the specific changes prescribed by this bill. But suppose every shareholder is found legally capacitated to con- sent, and does consent. What is then dojie is not b, "reorganization" but a new corporate creation, very different from the original in many respects. Out of 273 CONTROL OF STATE CORPORATIONS it all would come, what never can be under our system, both a State and Federal corporation, answerable to two independent sovereignties. This is clearly one of the required provisions of the new articles. We might also note here the requirements as to vot- ing rights and qualifications of stockholders and officers, all of which though heretofore much discussed are now found provided for as here prescribed in the laws in few if any of the States. The bill provides that the new articles shall bind the corporation to change its charter when required to do so by either of these two sovereignties, whose policies, interests and purposes may often widely diverge. And section seven provides that "any corporation or asso- ciation organized, conducted and managed as required by section one, shall, after the passage of this Act, be entitled to engage in commerce between the States and in the District of Columbia, and to carry on its author- ized business relative to such commerce in any part of the United States, subject to the provisions of this Act and to all present laws of the United States and to future acts of Congress, and to general laws and taxing powers of any state in which it may do business." It will be noted that this is not only a federal incorpora- tion bill, but possesses the additional attraction of being a federal license bill. That every corporation complying with the require- ments of the bill in the matter of framing new charters or articles, and in other particulars, becomes to all prac- tical intents and purposes a federal corporation is seen in the penal provisions other and additional to the for- feiture of interstate business. Section two invalidates all contracts made in viola- tion of the Act (whatever that may mean) and seeks 274 CONTROL OF STATE CORPORATIONS to exclude from the federal courts all corporations which do not comply with all the requirements of the Act with respect to organization, conduct and manage- ment. That is to say, they are excluded though com- pliance may be impossible, for any of the reasons before stated. But notwithstanding that the corporation cannot come into a federal court of its own volition any one who had made a contract with it and wishes to defend against it for invalidity because of its non-compliance, may drag it into the federal courts by removal, for the bare purpose of making that defense available. But we discern in the main purpose of the bill an entire misconception of the federal system and of the relation between Federal and State sovereignties. It is totally inconsistent with the dual scheme of govern- ment that a corporation should be with respect to its organization and management, as such, subject to the laws of both Federal and State authority. That all these matters to be regulated by the first section belong ex- clusively to State authority has been often declared by the Supreme Court, and nowhere more emphatically than in the Northern Securities Case (193 U. S. 347- 349), where it was objected that the Federal law, as interpreted and upheld by the court, invaded the proper province of State authority. There the court said: The defendants rely, with some confidence, upon the case of Railroad Company v. Maryland (21 Wall., 456, 473). But nothing we have said is inconsistent with any principle an- nounced in that case. The court there recognized the principle that a State has plenary powers "over its own territory, its highways, its franchises, and its corporations," and observed that "we are bound to sustain the constitutional powers and prerogatives of the States, as well as those of the United States, whenever they are brought before us for adjudication, no matter what may be the consequences." Of course, every State has, in a general sense, plenary power over its cor- porations. 275 CONTROL OF STATE CORPORATIONS It may be the theory of the proponents that these changes in corporate structure could generally be made without amending the statutes of the States. Some of them could no doubt be made, but then constitutional provisions and other State laws would be everywhere found to stand in the way of the exclusions, disqualifi- cations and new obligations contained in the bill. It seems there could be no challenge for the proposition that a provision in the articles or by-laws submitting the internal control of a corporation to any future action of Congress, and binding the corporation to change its constating instruments as often as necessaty, so as to impose obligations to an outside sovereign would be ultra vires and void. Such conduct might subject the franchises of the corporation to forfeiture, or be merely abortive and void. Passing now from the part of the bill, the putting in force of which is the only purpose of its being offered, constituting the substantive or declaratory feature, we come to the question of whether Congress has power to arbitrarily exclude corporations from interstate com- merce. We might assume it to have been herein already shown that becoming qualified for engaging or continu- ing in the commerce after, or, if the bill shall pass, is legally impossible. But we will assume that compliance is possible. The constitutional aspect of the question we now meet is not altered. Probably no lawyer will contend that the imposition of an impossible condition to the exercise of a right or privilege is not the exact equivalent of an outright exclusion. But the general rule, or principle, subject to some modification, is adverse to the power of Congress to exclude persons (including artificial persons) from commerce between the States. Congressional prohibitions and exclusions are not up- 276 CONTROL OF STATE CORPORATIONS held by the courts except when based upon what may be designated as interstate-commerce reasons. Con- gress can exclude lottery tickets because they are not recognized articles of Commerce and because no one has a vested right to engage in traffic which is generally recognized as immoral. (Lottery Cases, 188 U. S. 32 L) Congress can forbid and penalize the transportation of commodities, produced or owned by a carrier not re- quired by it for its own uses, but to be sold in the open market in competition with other owners and producers, because of its tendency to destroy competition, restrict trade, and create monopolies in interstate commerce. (Commodities Cases, 213 U. S. 336.) Here we have the interstate-commerce reason, that is to say, the direct effect of the forbidden act or course of conduct to affect prejudicially that commerce which it is the province and duty of Congress to protect. But the attempt to exclude all corporations and with them nearly all busi- ness, without distinction between the good and bad, the beneficial and the deleterious, either unconditionally, or upon an impossible condition, or even upon the per- formance of conditions requiring merely a surrender of a right or legal interest, the condition having no direct connection with actual movement in interstate com- merce, and the performance of which does not consti- tute the removal of any obstruction to the free flow of commerce, raises a different question. Would not that be a perversion of the power mentioned in some of the cases? By a perversion is meant just what is here attempted to be done ; the accomplishment of an ulterior purpose, using constitutional authority as a mere guise and pretext. Apart and distinct from the point just raised there is another, subject to the exceptions just referred to, based ^77 CONTROL OF STATE CORPORATIONS upon obvious constitutional reasons which do not weaken but rather fortify the rule itself. Is not the right to legitimately participate in interstate commerce, subject to general regulations, a constitutional right? It should be observed that corporations and individuals stand upon an exactly equal footing herein. Any attempt to differentiate between them with respect to interstate trade will be futile. Interstate commerce ex- isted prior to the Constitution and corporations as well as individuals were in the enjoyment of its benefits, though it should be admitted that it partook of the character of international trade, depending for its con- tinuance upon international agreements, that is to say, State comity. Nevertheless, and even if it be conceded that the right was created by the Constitution, yet it was the same right previously existing, then contingent, now absolute. The Constitution has been termed a chart of freedom, and to embody the spirit of the Declaration of Independence. There may be privileges of the freeman of more value than that of engaging in interstate commerce, nevertheless that is of consider- able value to many, and may be of some value to all. The right of free migration from State to State may never be exercised by some, but is one belonging to all. Could Congress, for a reason not directly connected with the movement, forbid interstate travel? The answer must be in the negative ; and for the same reason the existence of the power here claimed must be denied. To this point we have discussed the right as an im- munity or privilege secured by the Constitution, a part of social freedom which persons are entitled to enjoy whether claimed in an individual or corporate capacity. But the right is one of pecuniary value and has been so regarded in cases decided in the Supreme Court. What 278 CONTROL OF STATE CORPORATIONS does the Interstate Commerce Act regulate? Merely that part of interstate commerce included in the term transportation. Why cannot the Commission reduce rates to a point where profits would disappear, or the carriers could only continue in the business at a loss? The courts which deny such power to Congress, act- ing through the Commission, have stated the reason tc be that such rates would work a confiscation of their property; in other words, deprive them of a beneficial use of their property, of rights of pecuniary value with- out compensation and without due process of law. These carriers are mere private corporations whose busi- ness is made up in part only of interstate commerce; that is to say, they are like many a mercantile and many a manufacturing corporation, engaged partly in inter- state and partly in intrastate trade. Perhaps in a greater degree, but in the same legal sense, the property in which both kinds of corporations have invested their capitals is devoted to the same dual use, and in most cases, it would be impossible to segregate the part used in the one from that used in the other. That the con- stitutional inhibition against deprivation without due process of law protects the beneficial use as well as the corpus and possession of property is no longer an open question, and as a principle of constitutional law would render the legislation here proposed invalid. In Law- ton V. Steele (152 U. S. 137), the Supreme Court said: The legislature may not, under the guise of protecting the public interests, arbitrarily interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations. In other words, its determination as to what is proper exercise of its police powers is not final or conclusive, but is subject to the supervision of the courts. Thus an act requiring the master of a vessel arriving from a foreign port to report the name, birthplace and occupation of every pas- senger, and the owner of such vessel to give a bond for 279 CONTROL OF STATE CORPORATIONS evelry t)assenger so reported, conditioned to indemnify the State against any expense for the support of the persons named for four years thereafter, was held by this court to be indefensible as an exercise of the police power, and to be void as interfering with the right of Congress to regulate commerce with foreign nations. Henderson v. New York, 92 U. S., 259. And in Munn v. Illinois (94 U. S. 141), it was said: All that is beneficial in property arises from its use and the fruits of that use, and whatever deprives a person of them deprives him of all that is desirable or valuable in the title or possession. If the constitutional guaranty extends no farther than to prevent a deprivation of title and possession and allows a deprivation of use and the fruits of that use, it does not merit the encomiums it has received. That the right to engage in interstate commerce is itself a constitutional right, aside from the mere ele- ment of beneficial use was expressly held in Vance v. Vandercook (170 U. S. 436), where it was said: "The right of persons in one State to ship liquor into another State to a resident for his own use is derived from the Constitution of the United States, and does not rest on the ground of the State law." The decision in Robbins V. Shelby Taxing District (120 U. S. 489) means the same. It established the right to engage in interstate commerce as a constitutional right. Many lengthy debates and discussions have taken place in the halls of legislation and in the courts upon the true meaning of the Commerce Clause in the Con- stitution as well as about the nature and boundaries of the power. Of course the only utterances which are authoritative on the subject are those of the courts, and especially those of the court of last resort. Among the early and oft repeated utterances was one to the effect that the power to regulate is not the power to destroy. Now if we carry that expression along in the mind while studying the decisions, in an effort to discover what the power is, we arrive at a degree of consistency in the aggregate of decisions which would otherwise be 280 CONTROL OF STATE CORPORATIONS impossible. We find that while it is true that the power to regulate is not the power to destroy, yet true and effective regulation sometimes necessitates a resort to a destructive exercise of the power. To use a some- what homely illustration, we would say that to cultivate a crop of corn is not to destroy it, and yet in its suc- cessful cultivation it may be necessary to destroy part of that which has attached itself to the growing stalks known to the corn-grower as "suckers." All this has been explained from time to time, so that to regulate interstate commerce is not merely to promote it, but to protect it as well. One phase of its protection is seen in the Anti-trust Act forbidding its restraint and monopolization; another is seen in the Act excluding lottery tickets from its current; another is found in the pure food law. Others might be mentioned. But when any deleterious or obnoxious commodity is excluded, we see an effort not to diminish its volume, but to purify it, and ultimately to increase it. That was the purpose of Congress in the enactment of the Commodities Clause as already explained. The exclusion of coal owned or produced by a car- rier to prevent discrimination and destruction of com- petition would not justify the exclusion from commerce of all coal owned or produced by corporations not organized and managed in a certain way; the exclusion of bits of paper on which are printed permission to participate in a lottery drawing, would not warrant the exclusion of the same paper intended to be used by the consignee for a moral and legitimate purpose, merely because the manufacturing consignor has not incor- porated, or is not managing its business in a certain way. And the fact that the power over the subject has been so exercised as to facilitate the enforcement 281 CONTROL OF STATE CORPORATIONS of the laws of particular states against the evils of the liquor traffic is something very different from inter- dicting commerce in intoxicating liquors between two States both of which recognize the traffic as legitimate, and for reasons foreign to evils inherent in the traffic. It has been claimed that support for the exercise of the arbitrary power asserted by this bill is found in cases involving foreign commerce, and certain general expressions asserting the same breadth and absolute- ness of power to reside in Congress with respect to interstate as with respect to foreign commerce. Crutcher V. Kentucky (141 U. S. 5-7), and Brown v. Houston (114 U. S. 622), are two of the cases where are found general statements of such analogy between interstate and foreign commerce. But in these and all such cases the court was dealing with the partition between Fed- eral and State authority, and the relations between the Federal Government and particular States with respect to interstate commerce. Of course the States divested themselves of the one power as completely as of the other when they adopted the Constitution. And as against State authority the constitutional power of the general government is as supreme and absolute over interstate as over foreign commerce. But there is a difference in what we may properly designate as the breadth of the power arising from the difference be- tween the relation of the United States to the citizens of the States and its relation to the citizens of foreign nations. The Constitution contains numerous guaran- tees and prohibitions in favor of and for the protection of the citizens of the States who are likewise citizens of the United States ; but it contains none of which aliens can claim the benefit. Each of these modifies 282 CONTROL OF STATE CORPORATIONS and tempers the power over interstate commerce, which is not the case in the regulation of foreign commerce. It is generally conceded that the national government would have had control of foreign commerce even if not expressly conferred in the Constitution. But the control would not have been exclusive of the States. Without the express delegation of power to the central government each State must have continued to be treated by foreign governments as independent sovereignties, having powers with respect to international commerce coequal with that of the United States. Moreover, in dealing with foreign commerce, Congress does not merely exercise its commercial power, but all the unified powers of the nation, those constituting the attributes of sovereignty outside the Constitution as well as those pertaining to war, taxation, finance, etc., in the way of the exercise of which stand no contractual obligations, or vested or property rights. Such was the view taken by the courts in cases arising under the embargo and non-intercourse acts passed during the War of 1812. The prohibitory form of regulation has been ex- pressly approved in some of the cases. That fact is of no value here as an argument. In fact it is of small value in any case. Any rule for the government of commerce necessarily excludes other rules and prohibits all conduct inconsistent with the rule. But the power to forbid where Congress possesses the power to regu- late cannot of course enlarge the scope of the power to regulate. When Congress prescribes safety appliances for cars hauled in interstate commerce, the statute would, without more, prohibit their being hauled without safety appliances. But there, as in most such statutes, penal- ties are imposed for non-compliance. It is hardly neces- 283 CONTROL OF STATE CORPORATIONS sary to say that anything declared illegal and for which penalties are prescribed is ipso factQ prohibited. It is the purpose now to notice briefly some of the arguments advanced in support of the bill. In making them the proponents assume constitutional warrant for the measure in its entirety and for every detail, without discussion, and yet they assail the scheme of Federal incorporation for unconstitutionality. If Congress cannot create corporations and put them into interstate commerce, thus increasing the number of those engaging in it, it certainly cannot destroy an im- portant part of it by excluding therefrom many now engaged in carrying it on. Thjs is not to be construed as a committal one way or the other on the question whether Federal incorporation would be constitutional. But in combatting the policy of Federal incorporation proponents merely succeed in exposing the insuperable obstacles and fatal objections to their own scheme. One of their objections to Federal incorporation is that it would secure to the Federal executive the effective con- trol of the business of the country, a control which they admit is practically impossible in any government that is free and expects to remain free. But would the executive hand be more of a menace in enforcing the provisions of a Federal charter than in the enforcement of the duties and imposing the forfeitures and penalties here provided for and brought within Federal juris- diction? They object that under Federal incorporation vast business interests would be held on the borderland of monopoly by the elective head of the nation, that all the big brains, all the big money cunning and greed of the country working toward a common end would be pitted against a handful of men big and little, holding down their jobs until some one offers them better ones. 284 CONTROL OF STATE CORt»ORATIONS But who besides the same executive and his cohorts would be entrusted with the tangled web of provisions of the Williams-Sniith Bill or any of the bills? They remark in the same connection that enough men could not be kept in Washington of requisite ability to "co- operate" with licensed combinations to keep them within the law against monopoly. But under the scheme of this bill the vast and intticate work of inspection, detec- tion £Lnd supervision could not be done at Washington at all. The executive swarm would penetrate every nook and corner of corporate activity in the country. They also object to Federal incorporation on the ground that it would be in effect a license law. It would be very difficult to frame a bill in which the licensing featufe was more conspicuous than in the bill we are now considering. Corporations yet to be created could only come into interstate commerce by meeting Federal conditions and those now in could not remain in except upon a similar compliance. Proponents also take up the hue and cry against the Anti-trust Act aiid denounce it as bitterly as to do those who have felt the sting of its enforcement. They say prohibition has failed. Of course the assumption that it has failed is purely gratuitous, but, strangely enough, the othet leaders in defamation of the Anti-trust Act — those who have fallen, or who are in dread of faUing before judicial decrees rendered in is enforcement — make the same objection to it. Then they proceed to condemn all regulation just as if what they propose were not the most sweeping and drastic regulation conceivable, forgetting, or never realising that the whole power of Congress is expressed in the words "to regulate." Then with fatuous incon- sistency the Williams- Siiiith Bill is urged not only as 285 CONTROL OF STATE CORPORATIONS a law necessary in itself to compel the reform of cor- porate charters and to prevent corporate monopoly, but as an alternative to Federal incorporation and regula- tion, and as a much needed supplement and effective aid to the enforcement of the existing law. Then, assuming that monopolies and near monopolies are inevitable, it is asserted that there are obvious evils in our corporate laws which obviously require correc- tion, which obviously affect and confuse the question of monopoly, which they expect to correct by the proposed measure. Here we have an undisguised ad- mission of an ulterior purpose, a purpose beyond the power to regulate, a purpose to correct evils which only affect interstate commerce collaterally and remotely. Of course the real purpose appears just as clearly on the face of the bill, but by calling attention to the ad- mission the lack of preparedness on the part of those essaying to advise legislation on so important a sub- ject is shown. It is urged in favor of the bill that the underlying difficulty in the trust question is the corporation, that is to say, in the corporation laws of the States ; that this difficulty was the cause of twenty years' evasion of the Sherman law; that it is the cause of the present im- possibility of reorganizing the trusts so as to insure com- pliance with that law. Here we have a significant sug- gestion. Since some of the trusts broken up by court decrees were organized, reforms have taken place in the corporation laws of some of the States wherein sub- sidiary corporations were organized. Now if such a bill as this can be passed and put in force, establishing uniformity, and having all the advantages of Federal incorporation, the combined, or monopolistic control of several such corporations by secret concert will be en- 286 CONTROL OF STATE CORPORATIONS tirely feasible. But that the corporate form is, or has ever been, an obstacle to the enforcement of the Anti- trust Act is as absurd as it is untrue. The corporate form has always presented a target easily seen and hit. In fact, the mere form of the thing has never bothered either the prosecution or the courts. Every form of actual restraint, when discovered, has been successfully proceeded against. The only difficulty has been that of discovery, and this bill wonld facilitate concealment. In an argument for this bill which has been printed and distributed, it is made to appear that it satisfies the Attorney-General's demand for Federal incorporation (referring to Mr. Wickersham). In it we find the fol- lowing passage: "This whole proposition of Federal in- corporation and regulation is so repugnant to me, so fatal I believe to the principles of American govern- ment, to our progress and welfare as a people, and so unnecessary that I am afraid it leads me into a more severe criticism of its advocates, particularly Mr. Wickersham, than would otherwise be justified. For it is he who is now, as I see it, using his high office to make Federal regulation of business a permanent insti- tution. In conceding as he did, the efficiency of the principle of the Williams Bill, his suggestion shows that he is unable or unwilling to apply it effectively." Now if Mr. Wickersham has conceded the efficiency of this bill, it must be for the reason that it is a fair substitute for Federal incorporation, for which he unflinchingly and consistently stands. In that connection, it is unre- servedly admitted, or rather pointed out, that the bill "would make State corporations safe instruments of com- merce; that it would write into their charters and gov- erning laws the necessary limitations and safeguards against monopoly; that in doing this Congress would 287 CONTROL OF STATE CORPORATIONS remain free to prohibit and exclude, to amend or in- crease the limitations or safeguards required, and nueet and correct every possible future evasion that may he attempted!' In other words, Congress would first get and then retain complete and absolute control over cor- porations. Such control would be necessarily exclusive, since by the language of the Constitution the law of Congress is "the supreme law of the land." What more, it may be asked, than is here attempted in the way of Federal control could be accomplished by a Federal in- corporation act? Evidently, the feature of this scheme which secures for it Mr, Wickersham's approval is the uniformity secured by it. It may or may not be signifi- cant that nearly all representatives of trust interests, hunger and c'lamor for uniformity, even extending to the fixing of prices, and that is all that monopoly re- quires. So true is this that monopoly has been defined as "unified tactics with regard to prices," When, if ever, the bill shall pass, and persons are excluded from directorships and even disqualified as stockholders because of owning stock in any other cor- poration for profit, the main financial support for enter- prises, great and small, will be withdrawn, and the credit of the corporations with which they have made investments will be destroyed. We need not now speak of the thousands of bankruptcies of corporations which will then have lost their most extensive and profitable trade because of the impossibility of conforming to the requirements of the bill as a condition of continuing in interstate commerce, but will assume that we have passed that Gibraltar. Few large business corporations are actually managed by the principal stockholders. These are capitalists who make investments in the stocks. It is the wise policy of all capitalists never to 288 CONTROL OF STATE CORPORATIONS put all their eggs in one basket, and this bill forbids a corporation to have as its stockholders any director or officer who is a stockholder in any other corporation for profit whether competitive or non-competitive. When this bill shall have passed and become a law, assuming it to be sustained as constitutional, it is then a Federal law throughout, and not a State law in any State. Various corporate acts must be performed and various proceedings had from time to time in order to maintain the legal status and escape the penalties im- posed by its provisions. The proper departments of the Federal Government will have a right to introduce their agents to the minutest of all corporate affairs, and the creation of new supervisory and inquisitorial bureaus and commissions to look after the business of private corporations and keep their officers and stock- holders in a straight and narrow way, will be a virtual necessity. Then there will have to be additional legisla- tion delegating to heads of departments authority to formulate codes of rules and regulations, having the force and effect of law ; so that State laws for corpora- tions will only be required, in fact will only be permis- sible, to fill up the little gaps and omissions. We may even go so far as to say that the passage of such a bill is incompatible with any State legislation, thereafter, at all, on the same subject, this then being the law of the land, supreme in every part. At any rate, bureau- cracy would make rules to take the place of State laws, thus antiquating and nullifying the latter. You will then have your amalgamated Federal incorporation and Federal License Act covering the whole subject of cor- porate control and management, and over it all your industrial commissions, with swarms of inspectors, special agents and detectives, more numerous than the 289 CONTROL OF STATE CORPORATIONS standing army, the State guards, police, and all other constabulary forces in the country. The last section purports to be a saving clause, pre- servative o£ all the provisions of the Anti-trust Act. But it is evident that the "seventh" clause of section one overlaps and duplicates most of its prohibitions and section five provides new or additional penalties for "every corporation, person or association violating this Act." And there are other parts of the bill which also duplicate the Anti-trust Act. Here is evidently a task of construction to determine whether the Anti-trust Act or "this Act" should apply where the same ground is covered by both. There would be just one way to reconcile the two, and that is to attach to "this Act" the meaning clearly intended and unambiguously ex- pressed. The "seventh" clause is absolutely unlimited in its scope and applicability. The distinction between interstate and all other business is ignored and the acts and conduct there specified are condemned and penal- ized as violations of Federal law. We would then have here State charters under which the corporations could also be proceeded against by quo warranto, or other summary remedies for a forfeiture of their right to do business and of their very existence, in the State courts and by State authorities for the least infraction or non-observance of any one of these mani- fold conditions, that is, if any authority at all would be left in the States. Either in the one jurisdiction or the other the corporation would all the time and at every turn be involved in, or menaced by proceedings putting in issue its right of existence, if in the opinion of a State officer, or the head of a Federal bureau, or a grand jury, it had either "directly or indirectly, of itself or in connection with others" destroyed or sought "un- 290 CONTROL OF STATE CORPORATIONS fairly to stifle competition in any part of the United States in the manufacture, production, mining, pur- chase, sale, or transportation of any articles of com- merce * * * by restricting its customers or other persons with regard to price, territory, or otherwise, in freely buying, selling, or transporting any such article, by securing the monopoly or control of raw material or sources of supply, or of any means of transportation, or of any business connected therewith, by temporarily or locally reducing prices with intent to stifle competi- tion, by accepting rebates, or by any other act, device, or course of business that tends to secure a monopoly or an unfair advantage and unreasonably and unfairly to destroy competition" (Seventh clause of Section one). The first task before corporations and their officers would be the ascertainment of the meaning of all this, and especially of the part here in italics. That is something which could not be settled in a hundred years of litigation. The only way to secure safety would be to go out of business. 291 CHAPTER XIII BILLS CONTAINING PROVISIONS FOR CREATION OF COMMISSIONS Such bills are so similar that it will suffice to discuss the most comprehensive, that of which vSenator Bristow is the author. He is conspicuous among the able and conscientious progressives, and has advocated this bill on the floor of the Senate. It has not been reached in committee hearing. This bill has for a principal feature the creation of an industrial commission, with detailed defini- tions and specifications of its powers. Many in- telligent men believe that some of the worst economic or industrial evils of which the people complain can be remedied by a commission better than in any other way. Nor can it be disputed that constitutional regulations of interstate commerce can be greatly aided by such agency. And yet matters beyond the power of Con- gress can no more be regulated by a resort to a commis- sion-scheme than outrightly and directly. Another proposition, equally well supported by au- thority may be thus stated. If such commission should be provided for and appointed, and duties assigned it, some properly within the scope of Congressional au- thority, and others outside, and such duties were in- separably intermingled in the enactment, its work must come to naught entirely, and the offices of the commis- 292 PROVISIONS FOR CREATION OF COMMISSION sioners would be as much sine cures as if all their osten- sible authority were unauthorized by the Constitution. Still another proposition, embodied in the decision of January 20, 1913, by the Supreme Court in the Louis- ville and Nashville Railroad Case and other decisions on comparatively recent dates, materially affect all commis- sion schemes. No decision of such a commission would be valid unless based upon original evidence taken by it. That decision goes far to forestall and render futile all projects to inaugurate discretionary government through commissions. The Government argued in the case just cited on behalf of the Interstate Commerce Commis- sion that the authority of the Commission to make rates was absolute and that there could be no relief unless the rate named by the Commission was confiscatory. The court rejected this reasoning, and, while supporting the Commission on the evidence in that case, held that a finding without evidence was beyond the power of the Commission, that an order based thereon was contrary to law and must be set aside by the courts. In other words, no such comniission as the Interstate Commerce Commission is, and as the proposed industrial commis- sion would be, can make roaming, spontaneous investi- gations, or decisions based on them. There must be a hearing on evidence in order that the courts may re- view the commission's action as a matter of law. Moreover, certain other fundamental principles gov- erning statutory tribunals have been declared by the courts. State and Federal. They cannot exercise legis- lative or judicial powers. The Constitution has made other dispositions of both. Nor can either branch of the Government divest itself of, or delegate, its power or any part thereof. If Congress authorizes a commis- sion to fix and adjust the details of legislation that be- 293 PROVISIONS FOR CREATION OF COMMISSION comes an administrative duty properly belonging to the executive department. But such duties must be as clearly defined as is practicable, in view of the nature of the subject matter. Now with reference to the require- ment that a standard must be fixed by Congress. No standard so convenient and practicable as one embody- ing prices is conceivable; so that we should soon have in the forefront of the legislation the assumption by Congress of the price-fixing function applied to each of over 8,000 articles of merchandise moving in inter- state commerce. To appreciate the overwhelming mag- nitude of such power, we only have to reflect that the Interstate Commerce Commission has more than it can do attending only to the prices to be charged for trans- portation. There is a fixity and steadiness about trans- portation rates not found in the price of any commodity transported. And by the decision just referred to no change or readjustment in the price of any article could be made without notice to all the parties to be affected and a hearing on evidence. Therefore, if we have reached a point where we must regulate the industries of the country through a commission, and this bill con- tains the proper framework for that form of regula- tion, it should provide for a commission of about five hun- dred instead of seven members ; and the appropriation for the first year of its existence should read in terms of millions instead of thousands. The original scheme of our Government was for rule by laws interpreted and enforced according to their true meaning; and that scheme has been thus far kept con- stantly in view. That details of administration have been provided for by rules and regulations adopted and put in force by executive departments under power clearly defined argues nothing inconsistent with per- 294 PROVISIONS FOR CREATION OF COMMISSION sistent adherence to the original scheme. Such minor laws cannot be arbitrary; they must rest upon some standard fixed in the statute conferring the authority. The executive officer or commission may have a con- siderable latitude of discretion in reaching conclusions of fact; but, after all, it can do little more than make a measurement, or mathematical ascertainment, or phys- ical examination, either by personal inspection or upon taking evidence. Nor would a necessity for scientific in- vestigation and finding render the conferring of such power invalid. The case of Field v. Clark (143 U. S., 649), and that of Union Bridge Co. v. United States (204 U. S., 364) are instructive authorities on the whole subject. But it will be seen that these cases go as far as it is possible to go toward sanctioning pure delega- tions of the law-making function. A reading of the opinions will also show how promptly the court would declare to be invalid an enactment which failed to fix some prehensible and unmistakable standard for execu- tive guidance. The author of this bill, seeming to realize the force of public opinion adverse to the fixing of prices through commissions, has withheld that function from the pro- posed commission except in one or two unimportant items of power sought to be conferred upon it. But he has not only omitted to provide that, but has not, with respect to most of its important functions, given it any stand- ards, other than its own will and judgment, to be exer- cised, sometimes judicially, and in other instances, legislatively. The first section provides for the appointment, re- moval, qualifications, compensation, etc., of the mem- bers. Seven members are to constitute the commission. That section also authorizes the commission to pre- 295 PROVISIONS FOR CREATION OF COMMISSION scribe rules and regulations for conducting its business. Section 2 confers broad powers of investigation, in any part of the United States and in foreign countries, either as a body or by individual members. Section 3 would transfer to the commission all the functions, etc., of the Bureau of Corporations. Section 4 places under its jurisdiction "every per- son, firm, copartnership, corporation or joint stock asso- ciation now or hereafter organized within the United States, and doing business therein, whose annual gross receipts within the United States, including the annual gross receipts of its subsidiaries exceed $5,000,000 and which is engaged in interstate or foreign commerce, ex- cepting corporations subject to *An Act to regulate commerce' approved February fourth, eighteen hun- dred and eighty-seven, as amended, but including pipe line companies," and provides that they shall be subject to the jurisdiction of the commission. It may be here noted that other parts of the bill would confer upon the commission very extensive powers over business regardless of the amount of gross income, and regardless of whether the persons, etc., carrying on the business are engaged in interstate com- merce. But that would be immaterial, since the right to engage in interstate and foreign commerce is, as already shown, a common right; hence the classification is of no legal importance. Section 5 requires the filing with the commission by every firm, corporation, etc., subject to its jurisdiction of written statements under oath, "showing such facts as to its organization, conduct, financial condition, man- agement, the scope of its business operations, security holders and officers as may be prescribed by the com- 296 PROVISIONS FOR CREATION OF COMMISSION mission" and like statements are to be filed by sub- sidiaries. Sections 6 and 7 read as follows: Sec 6. That all persons, firms, copartnerships, corporations, or joint stock associations subject to the jurisdiction of the com- mission, including their subsidiaries, shall from time to time furnish to the commission such information as to their or- ganization, conduct, management, security holders, financial con- dition and business transactions as the commission may direct and in such form as the commission may require and the commission is duly authorized to gain access to all records, books, accounts, memoranda and papers, including the records of the executive and other committees. Sec 7 That the commission may require of any person, firm, copartnership, corporation, or joint stock association or- ganized or doing business in the United States, and which is engaged in interstate or foreign commerce, such information as may in the discretion of the commission, be necessary and proper to determine whether said person, firm, copartnership corpora- tion or joint stock association is subject to jurisdiction ot the commission. We may pause here without going to other sections for more extensive, inquisitorial, and visitorial powers, and inquire as to the purpose of all this, and whether the purpose be within any constitutional power of Con- gress. And we find, by glancing ahead, that the com- mission is to exercise the important judicial and legis- lative powers prescribed in sections 22, 23 and 24, which read as follows: Section 22. That whenever, after a full hearing upon a com- plaint made or upon its own initiative, the commission shall be of the opinion that any person, firm, copartnership corporation, or joint stock association has violated the provisions of this Act or of "An Act to protect trade and commerce against un- lawful restraints and monopolies, approved July second, eighteen hundred and ninety, or of any law of the United States respecting the regulation of interstate or foreign commerce, except of "An Act to regulate commerce," approved February fourth, eighteen hundred and eighty-seven, and amendments thereto the commission shall order such person, firm, copart- nership, corporation, or joint stock association to cease and desist from such violation to the extent to which the com- mission finds the same to exist. The commission shall also 297 iPROVISIONS FOR CREATION OF COMMISSION prescribe rules and methods for the conduct of the business of such person, firm, copartnership, corporation, or joint stock association. If, at the expiration of a time fixed by the commission, after full hearing upon a complaint made or upon its own initiative, the commission shall be of the opinion that the said person, firm, copartnership, corporation, or joint stock association has continued to violate the provisions of this Act or of "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety, or of any law of the United States respecting the regulation of interstate or foreign com- merce, except of "An Act to regulate commerce," approved February fourth, eighteen hundred and eighty-seven, and amend- ments thereto, or that it has failed to comply with the rules and methods prescribed by the commission for the conduct of the business, said commission is authorized to forthwith appoint a receiver to take charge of the property of said person, firm, copartnership, corporation, or joint stock association, and require of him such bond and security as it may deem proper. Such receiver, under the direction of the commission, shall take possession of the books, records and assets of every description of such person, firm, copartnership, corporation, or joint stock association and conduct the business in the name of the com- mission and under such rules and regulations as it may prescribe. The appointment of a receiver as provided in this section shall not in any way interfere with the prosecution of any criminal suit against any person, firm, copartnership, corporation or joint stock association brought by the Department of Justice or by the commission under the provisions of this Acty or of "An Act to protect trade and commerce against unlawful restraints and monopolies," approved July second, eighteen hundred and ninety, or of any law of the United States respecting the regulation of interstate or foreign commerce, except of "An Act to regulate commerce," approved February fourth, eighteen hundred and eighty-seven, and amendments thereto, or with any suit herein provided for. Sec. 23. That whenever any corporation or joint stock asso- ciation shall have been or shall be placed in the hands of a receiver as provided in Section 22 of this Act, the receiver shall call a meeting of the shareholders of such corporation or joint stock association by giving notice thereof for thirty days in a newspaper published in the town, city, or village where the business of such corporation or joint stock association was carried on ; and if no newspaper is there publisehd, in the newspaper published nearest thereto. At such meeting the shareholders shall determine whether they will elect ofificers for the corporation or joint stock association, who will conduct its business as required by the commission, or whether the receiver shall be continued and shall wind up the affairs of such cor- poration or joint stock association, and in so determining the said shareholders shall vote by ballot in person or by proxy, 298 PROVISIONS FOR CREATION OF COMMISSION each share of stock entitling the holder to one vote, and the majority of stock in value and number of shares shall be nec- essary to determine whether the said receiver shall be continued or whether officers shall be elected for the purpose of continu- ing the business of such corporation or joint stock association, according to the rules prescribed by the commission. In case the said meeting shall, by the vote of the majority of the stock in value and number of shares, determine that officers shall be elected to continue the business of said corporation or joint stock association, the said meeting shall thereupon proceed to elect officers, voting by ballot, in person, or by proxy, persons who shall receive votes representing at least a majority each share of stock entitling the holder to one vote, and the of stock in value and number of shares, shall be declared the officers for the purposes herein provided ; and whenever such officers shall have executed and filed a bond to the satisfaction of the Industrial Commission conditioned for the payment and discharge in full of each and every claim incurred during the period of such receivership that may thereafter be proved and allowed by and before the commission or its duly qualified representatives, the receiver shall thereupon deliver to such officers all the property of such corporation or joint stock association then remaining in the hands or subject to the order and control of said commission and said receiver ; and thereupon the said receiver shall be discharged from any and all liabilities to such corporation or joint stock association, and to each and all creditors and shareholders thereof, and said receivership shall cease, and the persons elected as such officers shall hold and control the property of such corporation or joint stock association for the benefit of the shareholders of such corpora- tion or joint stock association, and shall conduct the business of the same according to the laws provided in such cases. The election of officers and the resumption of business, as herein provided for, shall not in any wise interfere with any sub- sequent proceedings by the commission for the appointment of a receiver or other proceedings against such corporation or joint stock association. Sec. 24. That whenever the business of any person, firm, or copartnership shall have been placed in the hands of a receiver, as provided in section twenty-two of this Act, or whenever the stockholders of a corporation or joint stock association, at a meeting, as provided for in section twenty-three of this Act, shall have determined that the receiver appointed by the com- mission shall continue and wind up the affairs of such corpora- tion or joint stock association, or whenever such majority fails to appear and vote at such meeting and such receiver, under the direction of the commission, shall have taken possession of the books, records and assets of such person, firm, ^ copartnership, corporation, or joint stock association, said receiver shall give notice to the creditors of such person, firm, copartnership, corporation, or joint stock association by publishing the same for 299 PROVISIONS FOR CREATION OF COMMISSION thirty days in a daily newspaper at the seat of government and in five other cities, to be designated by the commission, of a time and place designated in said notice when he will receive and hear proof on the part of the creditors of such person, firm, copartnership, corporation, or joint stock association; and the receiver shall in the meantime proceed to collect all debts, dues and claims due to the' said person, firm, copartnerhsip, corporation, or joint stock association; and if any part of the property of said person, firm, copartnership, corporation, or joint stock association consists of real estate he shall apply to the United States district court in and for the State in which such real estate or any part thereof is situated for an order for the sale of such real estate, specifying the time and place of said sale and the manner in which the same shall be made, whether upon sealed bids or open auction ; and the said receiver shall at the time and place so provided sell such real estate in the manner provided in said order. All other property of the said person, firm, copartnership, corporation, or joint stock association shall be sold under the direction of the commission, notice thereof to be given as prescribed by said commission. After the sale of the property, real, personal, and mixed, of said person, firm, copartnership, corporation, or joint stock association and the receiving of proof of the creditors of such person, firm, copartnership, corporation, or joint stock association pursuant to the notice hereinbefore provided for, said receiver shall then distribute the proceeds of the assets of any such person, firm, copartnership, corporation, or joint stock association as follows : First — To pay the expenses of the execution of the trust. Second. To pay the debts so proved against such person, firm, copartnership, corporation, or joint stock association. Third. The balance ratably among the owners of or stock- holders or shareholders in such business in proportion to the interest of each. Such distribution shall be made from time to time as the proceeds shall be received and as shall be deemed advisable by the said commission or said receiver. In criticizing the Lenroot Bill, was shown the ab- sence of power in Congress to take over and administer the estate of a going corporation in the manner there proposed, even through a judicial agency. But this scheme goes far beyond that. It embraces not only taking over the property and disposing of it through a non- judicial body but taking over the management of private parties, firms, copartnerships, corporations and joint stock associations, as well as their liquidation 300 PROVISIONS FOR CREATION OF COMMISSION as is done in insolvency or bankruptcy proceedings. All this by a non- judicial body, which need only decide upon summary and exparte investigation that the law or one of its own rules has been violated, such decision being itself no more nor less than a judicial act. Nor does the proposed power of the commission stop here. If its edicts and mandates are not fully obeyed, it is to proceed to what amounts to a dissolution, if the party proceeded against be a corporation or joint-stock asso- ciation, and a distribution of its assets may be made, first, to the creditors, and, second, of any surplus, among the stockholders. Whether a court, constitutionally established by act of Congress could, for any such cause or causes, exer- cise these extraordinary powers in any form of judicial proceedings it is scarcely necessary to discuss. Such a court certainly could not do so in the way here pro- posed, because, even in the exercise of acknowledged jurisdiction, courts must give parties the benefit of due process of law, comprising the presentation of plead- ings, a trial in due course, opportunity to defend, to be confronted with wijnesses, etc. The full extent of Congressional power to establish and empower statutory tribunals has never been fully defined, but the courts have rendered several impor- tant decisions wherein was pointed out the limitations and defects of their power. And decisions upon the meaning of due process of law are very numerous. If this bill created a court, gave it the power to render the decisions which it is here proposed that the commis- sion shall render, and provided that the court should proceed as is here provided, the Act would even in that case be unconstitutional. We will just assume, for the argument, that in lieu 301 PROVISIONS FOR CREATION OF COMMISSION of these provisions the author of the bill had provided that any district court should exercise all these func- tions, in addition to its present powers. (We are now passing by the objection that the bill does not establish any line between the commerce power conferred by the Constitution and that retained within the jurisdiction of the States.) The objections successfully urged in Boyd V. United States (116 U. S., 616) were based on the clause of the Constitution forbidding unreasonable searches and seizures ; and of course they could not have been removed by act of Congress. Since it is claimed that important differences exist herein between the constitutional rights of corporations and those of individual citizens, we should first examine that point. It will be found that at least one consti- tutional prohibition is inapplicable to corporations and therefore cannot, from the nature of the case, afford them any protection. The part of the Fourteenth Amendment relating to abridgment of privileges and immunities of citizenship clearly has no application to a corporation outside the state or its residence. But as to the guaranty against unreasonable searches and seizures in the Fourth Amendment, and against depriva- tion without due process of law and taking without com- pensation in the Fifth, a corporation is accorded pro- tection with respect to strictly private affairs as are individuals, though it has not the constitutional right to refuse to submit its books and papers for an examina- tion at the suit of the State. And while Congress may not have general visitorial power over State corpora- tions, its powers in vindication of its own laws are the same as if the corporations had been created by an act of Congress. Such is the substance of the court's views in Henkel v. Hale (201 U. S., 43), as against the asserted 302 PROVISIONS FOR CREATION OF COMMISSION power of a Federal court. By the doctrine of that case, there is scarcely a limit upon the power of a court when properly authorized by Congress to compel the produc- tion of books and papers. But clearly the power must be exercised with a definite purpose in view, a purpose to accompHsh a result within the court's jurisdiction. There is not a word in the views of the court, or in the decision in Henkel v. Hale to jutsify a behef that the broad unrestricted powers to investigate corpora- tions attempted to be conferred by the Bristow Bill could be conferred by Congress, even upon a court. And it is clear from the opinion and decision and au- thorities cited, and still clearer in the case of Boyd v. United States (116 U. S., 616) that for no purpose, nor under any circumstances, could a court be em- powered to make the investigations, searches and seizures, and use the means and instrumentalities pro- vided for and designated in the bill for an irresponsible commission. In the Boyd case, the constitutionality of a provision in an act of Congress authorizing courts of the United States in revenue cases, on motion of the Government attorney, to require the defendant or claimant to produce in court his private books, invoices and papers, or else the allegations of the attorney should be taken as confessed, was under consideration, and the court held it unconstitutional. There, the forfeiture of goods might be the consequence of failure to comply; here it is intended and provided that the consequence shall be a forfeiture of the right to engage or continue in interstate commerce and the incurring of important penal consequences in addition. But the court declared important principles which should be kept constantly in mind as a guide and warning to Congress when attempts are made to override private rights and invade 303 PROVISIONS FOR CREATION OF COMMISSION private affairs for the purpose of discovering grounds upon which to criminally prosecute individuals. The court declared that it does not require actual entry upon premises and search for and seizure of papers to constitute an unreasonable search and seizure within the meaning of the Fourth Amendment, and that a com- pulsory production of a party's private books and papers to be used against himself or his property in a criminal or penal proceeding, or for a forfeiture, is within the spirit and meaning of the Amendment ; that it is equiva- lent to a production of papers to make the non-produc- tion of them a confession of the allegations which it is pretended they will prove; that a proceeding to for- feit a person's goods for an offense against the laws, though civil in form, and whether in rem or in per sonam, is a "criminal case," within the meaning of that part of the Fifth Amendment which declares that no person "shall be compelled, in any criminal case, to be a witness against himself." As previously stated, no attempt to confer the same or analogous powers upon a commission has been here- tofore made. But in Harriman v. Interstate Commerce Commission (211 U. S., 406) there was a strong inti- mation as to how the court would view such legislation as is here proposed. In the opinion Mr. Justice Holmes said : "How far Congress could legislate on the subject matter of the questions put to the witnesses was one of the subjects of discussion, but we pass it by. Whether Congress itself has the unlimited power claimed by the Commission, we also leave to one side. It was inti- mated that there was a limit in Interstate Commerce Commission v. Brimson, (154 U. S., 447, 478, 479). Whether it could delegate the power, if it possessed it, we also leave untouched, beyond remarking that so un- 304 PROVISIONS FOR CREATION OF COMMISSION qualified a delegation would present the constitutional difficulty in most acute form. It is enough to say that we find no attempt to make such a delegation anywhere in the Act." There is also in the recent case of Interstate Com- merce Commission v. L. and N. Railroad Co. (decided January 20, 1913), much to indicate a disposition on the part of the court to restrict the powers of statutory tribunals, with respect to the means which they may employ to obtain evidence to be used as a basis for their decisions. Section 5 provides that ''every firm, copartnership, corporation or joint-stock association subject to the jurisdiction of the Commission shall * * * file with the Commission written statements under oath, showing such facts as to its organization, conduct, financial con- dition, management, the scope of its business operations, security holders, and officers as may be prescribed by the Commission." In Section 7 we find the same search- ing investigation into strictly private affairs, provided for in order to ascertain if the Commission has juris- diction. Elsewhere in the bill the intended jurisdiction is so distinctly prescribed that no investigation is neces- sary, beyond the ascertainment of the gross receipts, with which the matters named in said Sections 5 and 7 have no proper connection. Every "firm, copartner- ship," etc., is made liable to the "third degree" of in- vestigation, though no charge has been made or accusa- tion preferred. And, in the Boyd case, the power was denied when attempted to be exercised by virtue of judicial process. Here it is proposed to confer the authority upon a non- judicial agency. A commission is merely a collective agent of the Government which can do no act unless within the 305 PROVISIONS FOR CREATION OF COMMISSION power of Congress ; but if it be within the power the method of its procedure must be prescribed, so that it may appear whether the means adopted for the attain- ment of that object be appropriate and necessary. Ignoring for the moment the purpose of determining its jurisdiction, and supposing that the investigation to be for the purpose of ascertaining whether the parties to be investigated have violated some of the numerous inhibitions of "this Act," or the Anti-trust, or some other statute, it is clear that such an inquisition is only within the province of a grand jury. And the attempt to empower such a commission to institute it and con- duct it is not only forbidden by the provisions above referred to, but is objectionable as not being due process of law. There are no decisions directly in point by Federal courts because no such statute has ever been passed. And it might be added that no such legislative proposal has been heretofore seriously urged. But the Supreme Court has, in the cases before referred to, given ex- pression to views which leave no doubt as to what its decision would be on these provisions of this bill. In the light of the constitutional prohibuion and de- cisions we are to intelligently read section 8 of the bill, as follows: Sec. 8. That the commission hereby created shall have au- thority when in its opinion such information will be necessary or useful to the discharge of its duty, to ascertain the cost of producing articles of substantially the same quality and kind in this country and in foreign countries. In making such investigations it shall ascertain, so far as practicable, the wages, hours of service, and the efficiency of labor employed, the stand- ards of living of laborers, cost of materials, the fixed charges, depreciation upon the true value of the capital invested, and all other items necessary to determine the true cost of the finished product. Said commission shall ascertain the market conditions and the prices at which products are sold in various 306 PROVISIONS FOR CREATION OF COMMISSION countries as compared with prices of the products sold in the United States by any person, firm, copartnership, corporation, or joint stock association subject to its jurisdiction. The com- mission shall have the power to call upon any of the existing departments or bureaus of the Government for information on file in such departments or bureaus which it may require in connection with the work it is authorized to do by this Act; and it shall be the duty of every such department or bureau of ihe Government to furnish such information. The commission may, from time to time, hold hearings at such places as it may designate to determine industrial, commercial, and labor condi- tions in relation to the cost of production and transportation. The commission may in any investigation, upon the request of any witness examined, take such evidence at a secret session, and the testimony of any witness in regard to any secret process used in the production of any article shall not be reduced to writing by the commission, but it may require any other testimony to be reduced to writing for its guidance. At any investigation authorized by this Act it may obtain such assistance or informa- tion as it may deem advisable for its convenience, and in case the assistance or information sought is obtained said commission shall not be required to divulge the names of persons furnishing such assistance or secret information: Provided, That no assistance or information so secured under the provisions of this section from any person, firm, copartnership, corporation, or joint stock association shall be made public in such manner as to be used by any business competitor or rival. Passing by the objection that there are not enough men and women now in the Government's service to thoroughly do this work, and that the present number would have to be more than doubled, we come to the question of why it should be done at all? To this the bill contains no answer. Neither the Anti-trust law, nor any statute, nor "this Act" discloses any legitimate use that could be made of the result of such illimitable but the unconstitutionality of those provisions is so well understood that the heads of that bureau have been at all times very careful not to seek the aid of a court, or to press their efforts far enough to compel corporations under investigation to seek the protection of a court. What they have discovered and developed outside of inspection and detective service has been with the con- Z^7 PROVISIONS FOR CREATION OF COMMISSION sent and voluntary co-operation of the corporations investigated. Of course, Congress has power to have a census taken every ten years. Such periodical limitation is, however, an implied prohibition upon continuous cen- sus taking. But no justification for Section 8 can be claimed under that clause, since the bill makes no pro- vision for a classification of the results of the investi- gations; and while it provides (Section 9) for reports to Congress, it does not provide for reports of details ; in fact, leaves entirely to the discretion of the Com- mission what it shall report and the forms of its reports. Section 10 provides that the Commission may by regulation require uniform or comparable methods of accounting by the persons, firms, copartnerships, corporations, and joint stock associations subject to its jurisdiction, and may prescribe the forms of accounting necessary to that end. The only supposable justification for this provision is found in the words "subject to its jurisdiction" and the question of such jurisdiction as we have seen is to be determined arbitrarily by the Commission itself, re- gardless of limitations upon the power of Congress. What has the manner in which books are kept to do with interstate commerce? If this is not merely an attempt to evade the Constitution, why not just have Congress declare this duty as a regulation and impose a penalty for non-compliance. We should then see how long it could stand against an attack in the courts. The fact that the Interstate Commerce Commission exercises an analogous power, expressly conferred, is nothing to the point. Uniform bookkeeping by carriers is essential to the duties of the Commission in formulat- ing the regulations which it has indisputable power to make. But compliance with the requirement here 308 PROVISIONS FOR CREATION OF COMMISSION * would be as impossible as enforcement, for obvious reasons. Not satisfied with the provisions previously quoted for investigation relative to operations, values, finan- cial conditions, etc., provision is made in Section 12 for inquiry into the work of all persons, firms, copartnerships, cor- porations, and joint stock associations included within this Act, and which are engaged or which propose to engage in inter- state or foreign commerce, and into the conduct of business of all persons, firms,- copartnerships, corporations, and joint stock associations engaged in such commerce, and to that end it shall have the power to subpoena and examine undej oath individuals. Under this all-embracing provision, the temporal affairs, without limitation, of nearly everybody would be se- questered into the hands of the Commissioners. No activity which they might construe the term "work" to cover would escape. It is scarcely necessary to say more of that section. By the provisions of Section 13, barring an exception of no importance herein, we find an extreme applica- tion of the fallacious idea, prominent in all these bills; that by the classification of persons (natural and artifi- cial) into two classes, the one engaged and the other not engaged in interstate commerce the former may be excluded from participation therein upon failure to comply with any requirement Congress may prescribe, however remote the act of compliance from any inter- state commerce transaction or movement. Here it is assumed that Congress may concern itself as to the solvency of any corporation or joint-stock association in the enjoyment, or who seeks the benefits, of interstate commerce. Also it is assumed that a disparity of even ten percentum between capital stock and "fair and reasonable value of property on hand" is a matter to 309 PROVISIONS FOR CREATION OF COMMISSION be looked into and provided against by the Commission, and that for any dereUctions or discrepancy therein, the Commission shall take steps to enforce the forfeiture and exclusion from interstate commerce. The draftsman of the bill, perhaps weary of specify- ing in detail, here simply provides how the Commission shall become qualified to perform its duties thus im- posed. He places the burden upon the corporations and associations to be affected. It is provided that For the purpose of enabling the commission to determine whether a corporation or joint stock association has violated the provisions of this section or of section fourteen, such cor- poration or joint stock association shall submit to the Com- mission such proof as the Commission may require. By section 25 a failure to submit to the Commission such proof as it might require would involve a forfeiture which might amount to $5,000. But the hands of the Commissioners would reach the activities of persons attempting to organize a corpora- tion and control their conduct, agreements and acts as individuals and promoters even before the corporate entity has come into existence, so that it could even attempt to engage in commerce. The compensation of promoters is sought to be regulated by Congress through the Commission (Section 14). Any one starting out to form a corporation, if this bill should pass, would there- after have to consult, not the State law, as to what he could legally do herein, but the provisions of "this Act." He would have to consult Section 14, and also keep an eye on the penalties prescribed in Section 25. Sections 15, 16, 17, 18 and 19 embody the provisions of the Lenroot Bill which propose legislation tied to the scheme of shifting the burden of proof from the complaining party to the defense, though the form here 310 PROVISIONS FOR CREATION OF COMMISSION adopted differs considerably from that of the Lenroot Bill. The author of this bill appears to have taken a hint from the objections taken to the other form, and seeks to obviate them by more direct statement and intel- ligible arrangement. But the inherent remoteness from that which Congress has power to regulate remains. Section 15 is substantially the same as the new Section 9 which the Lenroot Bill would add to the Anti-Trust Act, and would affect it as already shown. The only atempt to connect the inhibitions of Sections 16, 17, 18 and 19 with interstate commerce is by the use of mere forms of expression varying slightly in each sec- tion. In Section 16 it reads, "any person, firm, copart- nership, corporation, or joint-stock association that either as owner, agent, or in any other capacity or rela- tion attempts to prevent or restrict competition in inter- state or foreign commerce by restraining or preventing in any manner either directly or indirectly, any one from purchasing, leasing, licensing or obtaining any ar- ticles, or using such articles ^ ^ ^ shall be deemed guilty of unreasonable restraint of interstate or foreign commerce." What was previously said about abortive attempts to bring matters within the regulative power of Congress which are inherently beyond it, by a resort to mere phraseology and forms is equally applicable to the same attempts in this section. The acts, conduct, etc., here condemned are done by monopolies or combinations formed to restrain or monopolize trade and by others as well. But while these may characterize the operations under a contract or combination in restraint of trade, they seldom alone constitute it or tend to restrain interstate trade. If it were the wish of Congress to reach and punish these 311 PROVISIONS FOR CREATION OF COMMISSION isolated acts where found inherent in interstate trans- actions, that could be done. But the language of the Act would have to be less vague than here used. And it would not be necessary or even proper to characterize them as restraints of trade. Many such exclusive contracts, however, as are here aimed at were held to be indirect restraints and there- fore outside the broad and sweeping terms of the Anti- trust Act, prior to the Standard Oil and Tobacco Com- pany decisions. These observations are equally applicable to Sections 17, 18 and 19. Section 17 applies the same liguistic formula to dis- criminations as to prices in selling, leasing, licensing, or bailing with no substantial variation from the terms employed in the Lenroot Bill. Section 18 likewise ap- plies the formula to doing business otherwise than in one's own name, and to supplying or offering to supply articles "at or below the cost of production and dis- tribution." Section 19 would apply it to the fixing of "an unreasonably high price upon any article which enters into the manufacture of an article which is used in the production of any other article." Just what this is aimed at, and how far it would reach, is not clear. Its effect and tendency to favor the railroads and large combinations by omitting to mention price and traffic agreements was also elsewhere shown. Section 20 makes a conspicuous attempt to authorize the Commission to exercise purely discretionary legis- lative powers by suspending the time when "this Act" shall take effect in certain cases. This section also closes as does Section 10 added to the Anti-trust Act by the Lenroot Bill, with this clause : 312 PROVISIONS FOR CREATION OF COMMISSION The foregoing enumeration of acts, conduct, methods and devices in sections sixteen, seventeen, eighteen and nineteen, which it is herein declared shall be deemed unreasonable, does not include and shall not be construed to exclude, any other acts, conduct methods, or devices which are or may be un- reasonable. Section 21 relates to the decisions of the Commission pursuant to its investigations. It avoids language which would give such decisions the form or similitude of judicial decrees which they would really be if effective at all; it provides that "the determination of the Com- mission shall have the same effect as though made by Congress itself." A pertinent question arises as to the effect of a judicial decree rendered by a legislative body, a subject which need not be here discussed. 313 CHAPTER XIV WHAT CONGRESS CAN DO The plenary and searching power of the Federal Gov- ernment in enforcing its laws enacted to protect inter- state commerce, was pointed out and emphasized in the Northern Securities case. And that such laws may nullify all contracts which interfere, or tend to inter- fere with the freedom of that commerce was declared in that, in the Addystone Pipe Co., and in other cases. And though a State may grant a charter of incorpora- tion, its validity may be tested in a Federal court by comparison with the spirit of statutes, such as the Anti- trust Act, as regards any conflict between them. More- over, such test could be judicially made the moment such charter was granted by a State legislature or articles of incorporation were filed under general laws, if Con- gress should give the remedy to the Government or to any officer representing it and prescribe the procedure. It would not be necessary to wait until commerce was actually restrained or interfered with. It is not neces- sary for the Federal Government to descend into the domain of State jurisdiction, or concern itself about wrongs done to minority stockholders, with a view to giving them a remedy by injunction, as has been pro- posed. The Federal Government has the same power over State-created corporations in the exercise of any of its powers and in the enforcement of its remedies through its own courts, that any State has. (Henkel v. 314 WHAT CONGRESS CAN DO Hale, 201 U. S., 43.) It is not necessary, even if it were possible to exclude the corporation from interstate commerce in the absence of what may be termed an interstate-commerce reason. It can be enjoined from the exercise of any self-assumed power or function, the exercise of which would interfere with the free flow of commerce. Congress can impose reasonable conditions to the making of interstate shipments, enforceable by appro- priate action. Section 6 of the Anti-trust Act provides for forfeiture of property in transit of combinations in restraint of trade. But the provision can only be en- forced by a special proceeding instituted by the Gov- ernment, wherein a judgment of forfeiture must be first obtained. It is an action at law, penal in form and effect, and cannot be prosecuted, along with the action for the equitable remedy for injunction, nor would the decision in the equity suit establishing the illegality of the association be availat)le in the legal action. For this reason, and because of the labor and inconvenience, far outweighing, any financial results, no action has been prosecuted to a conclusion to enforce that section. But the right to stop goods in transit, and forfeit and sell them, and appropriate the proceeds, is one which could be very effectively exercised, if a plain speedy method of procedure were given. A more effective remedy than that just mentioned, or any contained in any bill thus far proposed, abides in the present law, unused. This statement has reference to the power of the court to nullify and devitalize all constating instruments of corporations, and all con- tractual forms of arrangement between and among the defendants constituting the basis of conduct culminat- ing in restraint. The statute expressly declares the 315 WHAT CONGRESS CAN DO illegality of contracts, etc., and such declaration char- acterizes and colors every step and all conduct of the parties from inception to consummation. The Court recognized and exercised its power to enjoin the voting of stock, payment and receipt of dividends, in short, the doing of any act by which a benefit could accrue from ownership of stock in the Northern Securities case. Its action was interpreted in Harriman v. Northern Securities Co. to mean what has just been stated. But in the Standard Oil and Tobacco Co., and in one or two subsequent cases, the court appears to have been appalled at the magnitude of interests to be affected by the exertion of its full power, and to have halted and turned aside at the point where its opportunity was greatest to serve public in preference to private interests. In Northern Securities Co. v. U. S. (193 U. S., 197), the decree was very sweeping in its prohibitions, leav- ing the defendants to untangle themselves as best they could, from the perdicament in which the law in its application placed them. Harriman v. Northern Securi- ties Co. (197 U. S., 244) was a case in which one of the parties to the same combination had sought relief in equity from an advantage which he alleged one or more of his co-defendants had taken or was about to take of the situation brought about in the formation of the Northern Securities Company, because of the pos- session of certain stocks transferred to them in con- summation of the arrangement which had been held illegal. The court refused to entertain the complaint for any purpose, holding that the law left parties to illegal transactions where it found them, and that equity followed the law. It is difficult or impossible, to see how the Supreme Court acquired the power to dispose of the Oil and 316 WHAT CONGRESS CAN DO Tobacco cases as it did. In proper equity cases the Supreme Court can formulate such decrees on appeal as it sees fit, if within the scope of the pleadings. But cases arising under the Anti-trust law are not really equity cases at all. They are cases at law for which an equitable remedy is borrowed. In such a case, the power of the Supreme Court is purely statutory, that is to say, in disposing of the appeal it is limited by the remedial part of the statute. The equitable feature is purely technical and formal; the jurisdiction is bounded strictly by the wording of the statute. The judgment which the courts are authorized to pronounce in these cases are judgments of the law, and not decrees of the chancellor. The appellate jurisdiction of the Supreme Court is subject to, "such exceptions and under such regulations as the Congress shall make." Congress has in fact regulated the appellate jurisdiction in this class of cases, by defining and limiting the jurisdiction of the trial courts, because the appellate jurisdiction is referable to, and circumscribed by, the jurisdiction of the trial court. And the Supreme Court cannot authorize the trial court to do anything, or to proceed in any way, beyond the authority of the trial court in the first instance. The Constitution vests the appellate jurisdiction, to be regu- lated of course by Congress. It extends, in equity cases, to both law and fact. But it is mere appellate jurisdic- tion after all, and not even the Supreme Court can con- stitutionally change its character, or vest itself with original jurisdiction. The Supreme Court, can modify the decree of the lower court to the extent that it is an injunctive or prohibitory decree, or it may affirm it, or it may reverse it ; but it cannot wholly change its char- acter, or direct the lower court to give other than in- 317 WHAT CONGRESS CAN DO junctive relief. It cannot direct the creation of re- ceiverships, or reorganizations under the supervision of the court. Such a reorganization, consisting in the creation of new legal entities out of the fragments of others destroyed by the decree, is a legislative act, and an impossible function for a court, under the Anti-trust Act. Now, in the Standard Oil Case (221 U. S., 1) the Court concerned itself about the alleged property rights in bogus stocks issued, transferred and delivered in the process of building up the combination. The lower court had commanded the dissolution of the combina- tion, and directed the transfer by the New Jersey cor- poration, back to the stockholders of the various sub- sidiary corporations "entitled to the same" of the stocks which had been turned over to the New Jersey Com- pany in exchange for its stock. This part of the decree was expressly sanctioned by the Supreme Court. With- out prolonging the discussion, two things were here done which the Court lacked power to do, according to its own decisions. First, it gave legal force and effect to mere nullities for the benefit of those who had made transfers of stocks as part of an illegal scheme. Second, in order to do this, it assumed to exercise the manda- tory form of injunction, whereas its only power, accord- ing to the wording of the statute was to "prevent and restrain . o .. " (Sec. 4 Anti-trust Act.) In United States, v. American Tobacco Co. (221 U. S., 106) the Court fixed its attention still more earnestly and definitely upon the "property" involved, consisting of exactly the same character of transactions denounced and illesfalized in the Northern Securities case. The court, per Chief Justice, said (p. 185) : 318 WHAT CONGRESS CAN DO In considering the subject from both of these aspects, three dominant influences must guide our action ; * * * and, 3, a proper regard for the vast interests of private property which may have become vested in many persons, as a result of the acquisition, either by way of stock ownership or other- wise, of interests in the stock or securities of the combination without any guilty knowledge or intent in any way to become actors or participants in the wrongs which we find to have inspired and dominated the combination from the beginning. The court then closes a lengthy paragraph in these words : "In view of the considerations we have stated, we leave the matter to the Court below to work out a compliance with the law without unnecessary injury to the public or the rights of private property." Dissenting from the disposition made of the case, as well as the reasoning upon which the court reached its conclusions, Justice Harlan said (page 190) : The case is to go back to the Circuit Court, in order that out of the elements of the old combination a new condition may be re-created that will not be in violation of the law. I confess my inability to find, in the history of this combination, anything to justify the wish that a new condition should be "re-created" out of the mischievous elements that compose the present combination, which, together with its component parts, have, without ceasing, pursued the vicious methods pointed out by the Court. If the proof before us — as it undoubtedly does — warrants the characterization which the Court has made of this monster combination, why cannot all necessary directions be now given as to the terms of the decree. In my judgment there is enough in the record to enable this court to formulate specific directions (as was done in the Northern Securities Case) as to what the decree should contain. Such directions would not only end this litigation, but would serve to protect the public against any more conscious wrongdoing by those who have persistently and "ruthlessly," to use this court's language, pursued illegal methods to defeat the Act of Congress." Justice Harlan had delivered the opinion in the North- ern Securities case, and had concurred in the Harri- man case, so there can hardly be a doubt as to what he had in mind in favoring directions which "would not only end this litigation, but would serve to protect the public against any more conscious wrong-doing," etc. 319 WHAT CONGRESS CAN DO The rendition of a judgment granting an injunction and perpetuating it should involve the complete nulli- fication of all the constating instruments of the com- binations, whether in corporate form or in other forms. The statute declares the nullity of the whole structure in these words, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal." Now whatever is prohibited by statute, and declared to be illegal, is utterly void, and is as destitute of validity as if it had never existed. What then becomes of the bonds executed, and stocks issued by the offending entities in the process of creating such prohibited ar- rangements as were condemned in the Oil and Tobacco and other cases? They should fall with the illegal arrangement itself. It is not within the power even of the Supreme Court to inject vitality or legality into them. What has just been said is merely an expression of the true meaning of the statute according to numer- ous decisions of the Supreme Court and the courts inferior to it, and is predicated upon the present law as construed and enforced in Continental Wall Paper Co. V. Voight (212 U. S., 227) and other cases. In Coppell V. Hall (7 Wall., 558), the Court said: Whenever the illegality appears, whether the evidence comes from one side or the other, the disclosure is fatal to the case. No consent of the defendant can neutralize its effect. A stip- ulation in the most solemn form to waive the objection would be tainted with the vice of the original contract, and void for the same reason. Wherever the contamination reaches, it de- stroys. The principle to be extracted from all the cases is that the law will not lend its support to a claim founded upon its violation. And in McMullen v. Hoffman (174 U. S., 664), the Court uses this strong language: 320 WHAT CONGRESS CAN DO The authorities from the earliest time to the present unani- mously hold that no court will lend its assistance in any way toward carrying out the terms of an illegal contract. In view of these decisions it is thouj^ht to be neces- sary to so amend the act that such directions to, and proceedings by, trial courts will hereafter be impossible. Section 4 should be amended anyhow, so as to confer power to issue injunctions in mandatory as well as prohibitive form, and that will render proper such a limitation of the language as will prevent the abuse Of that form exemplified in the recent cases. This would be an amendment of as far-reaching importance as any proposed and discussed herein and have the ad- vantage of constitutionality. Men will refuse to aid with their money the setting up of combinations to re- strain and monopolize trade, when it becomes well known that at the end of a Government suit they may find their investments beyond their reach, their only hope for an accounting and restitution hanging on a mere sense of justice and moral obligation. As to whether the word interpolated by the Court should be eliminated from the Act by amendment, is a question for Congress. If, however. Congress should wish to accomplish that result, it would require but a slight amendment of Sections 1 and 3. One method of accomplishing this result would be to qualify the word "restraint" in the first and third sections of the act by inserting, between the word "conspiracy" where it first occurs, and the word "in," the words "which is in any degree or to any extent." Both sections would then begin : "Every contract, combination in the form of trust or otherwise, or conspiracy, which is, in any degree or to any extent, in restraint of trade or commerce," etc. 321 WHAT CONGRESS CAN DO There may be a question whether or not the word "direct" should be also inserted between the words "in" and "restraint." With that insertion it would read : "Every contract, combination in the form of trust or otherwise, or conspiracy, which is in any degree or to any extent in direct restraint of trade or commerce." As the Act now stands, the word "direct" is part of it. That is not only the meaning but the positive ex- pression of many decisions. So that the question really resolves itself into another question: Is the insertion of the word "direct" necessary in order to limit the effect of inserting the other words, and preserving the limitation upon the operation of the act already estab- lished by the courts? There may be a danger that if it be not inserted ex- pressly the insertion of the other words would be con- strued to set aside the decisions reading or construing the word "direct" into the act. To avoid such pos- sibility, it would be merely the exercise of due caution to include in an amendatory bill not only the one, but also the other, amendment. It is not thought that the insertion of the word "direct" at the place indicated will have any other effect than to preserve the distinc- tion already judicially established, not conceding at all that for that purpose its insertion is essential. It will be noted that the courts, in limiting Federal cognizance to direct restraints, often speak of inci- dental, collateral and remote restraints; but these terms are used in the same sense as "indirect." The importance of the distinction between direct and indi- rect restraint seems to have been often overlooked. Failure to bear it in mind may account for many imprac- tical remedies for trust evils. The first emphatic and clear differentiation between 322 WHAT CONGRESS CAN DO direct and indirect restraint was in Kidd v. Pearson (128 U. S., 1), decided prior to the enactment of the Anti-trust Act. In that case, the question was as to whether the right of a State to enact a statute prohibit- ing within its Hmits the manufacture of intoxicating liquors, except for certain specified purposes, could be overthrown by the fact that the manufacturer intended to export the Uquors when made. It was held that the intent of the manufacturer did not determine the time when the article or product passed from the control of the State and belonged to commerce, and that, there- fore, the statute, in omitting to except from its opera- tion the manufacture of intoxicating liquors within the limits of the State for export, did not constitute an unauthorized interference with the right of Congress to regulate commerce. The reasoning of Mr. Justice Lamar is clear and conclusive. (See 128 U. S., pp. 20-22.) That case was of controlling importance in the Knight case (156 U. S., 1), and the principle which it estab- lished has been applied in several cases arising under the Anti-trust Act. Some of them are: United States V. E. C. Knight Co., 156 U. S., 16; Hopkins v. United States, 171 U. S., 592-594; Anderson v. United States, 171 U. S., 615, 616; Cincinnati, etc.. Packet Co. v. Bay, 200 U. S., 184; Whitwell v. Continental Tobacco Co., 125 U. S., 457-462. As construed in the Knight case (156 U. S., 1) and more recently in other cases, the statute does not reach what are known as "mere" monopolies, whatever their magnitude, and however much they indirectly interfere with the freedom of interstate commerce, and menace or destroy competition. And as the court remarked in the Knight case, the power to regulate commerce is a 323 WHAT CONGRESS CAN DO power independent of the power to suppress monopoly, "but the power may operate in repression of monopoly when that comes within the rules by which commerce is governed, or whenever the transaction is itself a monopoly of interstate commerce." It would be found in many such cases that the only corrective or regu- lative force for such an establishment that Congress could provide, would be the extension of aid or stimu- lating energy to new enterprises, thus checking monopo- listic power with competition. Any monopoly, whether created artificially and abnormally, or by legitimate accumulation, growth and absorption, destroys more or less competition. Those artificially created, when they restrain interstate commerce, can be fully dealt with under the Anti-trust Act; but it would be difficult to draw the line where the Federal Government should prohibit normal growth and acquisition of power by a corporation attaining its legal objects by legitimate methods. Here we have an important phase of the problem of dealing with big business because of its bigness. It might be possible to solve it, but it would be difficult, without a constitutional amendment. Several forms of independent or new legislation have been proposed in Senate and House bills, and one o two plans for relief from trust evils, real and imaginary j have been casually discussed, without reaching the stage of being embodied in bills. Among such plans, the creation of a commission to aid in the administration and enforcement of the laws seems to meet with most favor. Undoubtedly, a commission acting in an auxil- liary relation to the courts and Department of Justice could be made very serviceable. Several legislative proposals have been discussed and criticized herein in order that it may be seen what Congress can- 324 WHAT CONGRESS CAN DO not do. Thus it may the more clearly appear what Congress can do. It is not intended by anything herein to dictate what Congress ought to do. There is quite as much deserving governmental atten- tion in the railroad as in the industrial situation. The following conditions were shown to exist in the recent trunk line arbitration of the question of wage increases : Twenty men hold nine large railway systems and all of their subsidiary companies in uniformity of action and serve as means of communicating policies among them. Here are the twenty men and the number of direc- torates held set opposite their names: Number of Directorates, George F. Baker 15 William C. Brown 13 J. P. Morgan 12 William Rockefeller 11 William H. Newman 11 Samuel Rea 9 James Stillman 9 W. K. Vanderbilt, Jr 9 Oscar Murray 8 Charles S. Mellen 8 L. C. Ledyard 8 William Skinner 7 L. F. Loree 7 John P. Green 7 F. W. Vanderbilt 7 N. B. Ream 6 Joseph Wood 6 325 WHAT CONGRESS CAN DO Number of Directorates. James McCrea (now dead) 6 Chauncey M. Depew 6 W. K. Vanderbilt 6 These serve as 171 directors. Stock ownership among the railroads has the natural result of grouping into systems more than two-thirds of the fifty-seven roads in the eastern territory. As the result of intercorporate ownership of stock we have in the eastern territory six great systems, not including the Reading, which latter is practically subsidiary to two of the other systems. These six are the New York Central, the New Haven, the Pennsylvania, the Baltimore and Ohio, the Erie, and the Chesapeake and Ohio. Of the fifty-seven roads the New York Central con- trols fourteen through majority ownership, joint owner- ship, or lease, not including its own line, the New York Central and Hudson River Railroad. Nor do these four- teen include its control, through the Lake Shore, of 21.7 per cent, of the Reading Company stock, which, with an equal amount owned by the Baltimore and Ohio system, virtually gives joint control of the Reading. The New Haven controls, through majority owner- ship, joint ownership, and lease, six of the fifty-seven roads, not including its own line — the New York, New Haven and Hartford Railroad. The Pennsylvania controls six of the fifty-seven, not including its own line — the Pennsylvania Railroad. The Baltimore and Ohio controls four of the fifty- seven, not including its own lines, nor what is virtually joint control over the Reading system, which the, Balti- more and Ohio exercises with the Lake Shore and 326 WHAT CONGRESS CAN DO Michigan Southern of the New York Central system through the two controlHng together 43.4 per cent, of the stock of the Reading Company. The Reading Com- pany itself controls two very important railroads — the Philadelphia and Reading, and the Central Railroad of New Jersey. Exclusive of its own line, the Erie system controls one of the fifty-seven roads. Three others of the fifty-seven are controlled by the Chesapeake and Ohio, these including the Kanawha and Michigan, over which it exercises joint control with the Lake Shore and Michigan Southern through the owner- ship by each of 44.7 per cent, of its capital stock. Only seventeen of the fifty-seven rd^ds are inde- pendent of stock ownership by or in other roads of the fifty-seven; only fourteen are independent of any in- corporate relationship; and among the remaining com- panies there exists an extensive system of intercorporate ownership of stock. This intercorporate ownership of stock exists not only within each system but between the systems. This is important, because it furnishes the basis of an even more extensive scheme of interlocking directors among these roads. The New York Central system owns directly into the stock of the New Haven system, and indirectly, through the Lake Shore and Michigan Southern, into the stock of the Reading system; the Pennsylvania system owns directly into the stock of the New Haven and Balti- more and Ohio systems (also indirectly into the Balti- more and Ohio system through ownership by the Penn- sylvania Company of Baltimore and Ohio stock) ; and the Baltimore and Ohio owns directly into the Reading system. The New York Central and New Haven sys- 1^7 WHAT CONGRESS CAN DO terns jointly own a majority of the stock of the Rut- land ; the New York Central and Chesapeake and Ohio systems own jointly the Kanawha and Michigan ; the New York Central system controls 45 per cent, of the stock of the Dayton and Union, a majority of whose stock the Baltimore and Ohio system controls ; the New York Central system controls 21.7 per cent, and the Baltimore and Ohio system an equal proportion of the Reading system. This discussion of the intercorporate relations of the railroads is limited to those roads where there is owner- ship by another road of a clear majority of stock, al- though attention is called to instances where two or more roads or systems together own a majority of stock and thus exercise joint control. There are not wanting instances where minority holdings in reality give con- trol. Where this minority ownership is divided among two or more railroads, a practice which has become more or less extensive, mutual interest results in uniform- ity of action. In this way systems have been able to determine the policy of other systems, such as the case of the New York Central and the Pennsylvania in relation to the Reading System, and of the Pennsylvania in connec- tion with the Pennsylvania Company in the relation of the Pennsylvania system to the Baltimore and Ohio sys- tem. In this way an understanding or alliance has been brought about among all the railway systems in the eastern territory. This intercorporate relationship among the railroads in the eastern territory dominates and determines nearly every important question affecting the railroads and the public. Its ramifications are so intricate and bewilder- ing that it is not always possible to secure a clear per- 328 WHAT CONGRESS CAN DO spective of its far-reaching effects. By it railway com- panies having a legal individuality are welded and held together in highly centralized systems. Many railway corporations that legally are independ- ent, economically are dependent and are mere parts of a larger whole. The effects of the systems of intercor- porate stock ownership and interlocking directors are far-reaching. Not the least in importance is that of controlling traffic and in consequence determining the earnings of the roads. How significant this is can be seen by a study of statistical tables showing the amount of the total tonnage of the roads in the eastern territory which originates on other roads. The most important conclusion to be drawn from all of which is that a valuation of railroad properties should be by large systems only, rather than in detail, and that the jurisdiction and powers of the Commission should be correspondingly enlarged. Many measures are being proposed and urged which if passed would be invalidated by the courts on the ground that the conditions which they would change do not directly affect interstate commerce. In this category are congressional interferences with the cor- porate management of industrial corporations; and the same is probably true as to railroad corporations. The subject of interlocking directorates of national banks was purposely left out of the currency bill with a view to regulating it in future legislation amendatory of the Anti-trust law. Now such legislation might very properly have been included in the currency bill as a suitable regulation of banks chartered by the Federal Government, and reasonable requirements as to the per- sonnel of directors might also have been made a con- dition precedent to participation in the benefits of the 329 WHAT CONGRESS CAN DO act by State banks. But when, under the interstate commerce clause an act is passed purporting to control the stockholders of corporations chartered by the States, whether banking, industrial or transportation, in the election of directors, a very serious constitutional ob- jection will be interposed. If the question be asked, what immediate bearing has an identity of directorates in two or more corporations upon interstate commerce, it will be very difficult to answer. Of course, such a provision might be constitutionally enacted to apply to national banks in connection with trust legislation if clearly separable from other provisions, and referable to its own intents and purposes as a distinct subject of legislation. Undoubtedly, the interlocking directorate system is one of the strong props of "invisible government," and un- less means be found for forbidding it, will render well nigh abortive any anti-trust legislation that may be passed. But the condition has existed for many years, and its evil power has been known all the time. And yet no step has been taken to submit and obtain the adoption of a constitutional amendment conferring additional power upon Congress, and thus enabling it to deal with the subject. Congress trifled with the subject of an income tax for nearly twenty years after the de- cision of the Supreme Court in the income tax pro- visions of the Wilson Bill of 1894. If within a year it attempts legislation regulating internal corporate affairs, and intercorporate relations, per se, it may then be twenty more years before we reach the adoption of a con- stitutional amendment, the first step toward which should be taken now. Whatever may be the intentions of individual Senators and Representatives, the practice is that, collectively, 330 WHAT CONGRESS CAN DO they postpone needed action until bad tendencies have gone so far and bad conditions have so crystalized that no remedy that Congress can inaugurate will fully equal the necessities of the case. Truly, the ways of Repub- lican government, under the curse of party rule, are mysterious to a large majority. But they are becoming better understood day by day. 331 CHAPTER XV THE LOBBY AND ITS INSIDE FRIENDS, AND MISCELLANEOUS TOPICS. The money trust, as we have come to know it, like some others, strides along its career triumphantly. The government at Washington is in a desperate struggle with the financial district of New York City, designated as Wall Street, and its adjuncts through- out the country. Those charged with the duty of enacting and enforcing remedies continue saying a great deal, in a fragmentary, individual way, on good government paper and reading well in print; but col- lectively, and as organized governmental forces, they neither pass any effective new measures nor enforce such laws as have been already provided. We select for illustration of the foregoing state- ment with respect to the law's delays, a case under the Anti-trust Law. That legislation forbids such combinations as the records show the Standard Oil Company to have been, and the U. S. Steel Corpora- tion to be, and confers authority, not merely to arrest and terminate their operations, but to have prevented their being organized in the first instance. The mo- ment steps toward the organization of these trusts were taken in the open, as they were in both cases, the Government, in proper hands, could have para- lyzed both attempts with injunctions. Yet they were permitted to proceed publicly and conspicuously, fif- teen and fourteen years ago, respectively. No step 332 THE LOBBY AND ITS INSIDE FRIENDS was taken against the Standard Oil Trust until Oc- tober, 1907, nor against the Steel Trust until four years later. An enforcement of the act against the Standard Oil Company, in the suit tardily commenced against it, according to the letter and spirit of the act, would have dissolved it into its original elements and turned to dust a vast volume of illegal and fabricated stocks and bonds in the hands of the Wall Street and other gamblers who had obtained the securities on such favorable terms that they could afford to take desperate chances. When that case came on for argument in the Supreme Court these persons were paraded as innocent investors entitled to have their "vested" rights protected, as if one who openly and deliberately violates a law could have any kind of right or equity in the fruits of his crime. The Attorney-General of the period (Wickersham) him- self a legal prop of the system and one of its direct beneficiaries, acquiesced in that fatalistic view and lent his official sanction to the new and changed con- struction of the law which the court then gave, al- though it involved a complete reversal and recanta- tion of its solemn judgments in several prior cases. So simple a matter as applying for an injunction against a capitalistic trust is postponed from six to ten years, and then the litigation is nursed and the defendants left unmolested as to their illegal practices for four to five years. But an injunction can be had, or an indictment presented against a farmer's asso- ciation or a labor union, comprising thousands of reputable citizens, over night. The Steel Trust suit was begun October 26, 1911. Nobody knows what the exorbitantly paid special counsel employed by Wickersham are doing in the case. An occasional 333 THE LOBBY AND ITS INSIDE FRIENDS item appears in the newspapers about it. On Octo- ber 1st, 1913, two years after the complaint was filed and an imposing array of corporation lawyers em- ployed to represent the people, it was stated in the New York papers that another year would be con- sumed in the taking of evidence. Ultimately the public treasury will be raided to the extent of hun- dreds of thousands to pay special counsel and others in that case, as in prior cases. Thus the people are penalized and oppressed, every time they ask for redress against flagrant wrongs. If the case turns out no better than other recent cases, the only result will be merely the turning of nearly a billion and a half dollars in corporate issues, largely fictitious, into perfectly good dollars, above par; whereas, if the trust were dealt with according to a long line of earlier decisions, such issues would be no better than so many pieces of blank paper. Nothing here said should be construed as the expression of an opinion upon the merits of the litigation. But these are mere exemplifications of the in- equalities of treatment accorded its citizens by a Government conducted as ours has been for several decades. They are mere excrescences of a hidden world of political chicanery, oppression and crooked- ness. They are visitations from the curse of party rule, extending from the smallest municipality to State and Federal authority. What could be more commonplace and silly than the utterances of William H. Taft while President, that he was committed, as the "titular head" of his party, to this or that scheme of ruinous legislation, for instance legalizing railroad traffic combinations, for no better reason than that it was in accordance with his construction of the Re- 334 THE LOBBY AND ITS INSIDE FRIENDS publican platform. When the Taft administration was wound up it was found to have just two assets, the Payne-Aldrich Tariff Act and the Commerce Court. The former has been superceded by the Underwood- Simmons Act, and the Commerce Court is no more. The fate that overtook the Taft regime is a hope- ful sign. In that political catastrophe we have a promise that those sufficiently courageous to lay bare governmental and partisan abuses, now as heretofore, need not fear that their work will be in vain, or barren of results. The task now confronting the Government is not mere- ly that of revising tariffs and warding off panics. It is one of checking an absorption process which has been in operation for many years. The capitalization of the railroads is now nineteen billions of dollars, and of banking interests four billions of dollars, though, in the latter case, stock capitalization is merely a fraction of capital actually utilized. The seventeen billions of dollars of deposits are largely used by the bankers as their own money, loaned and reloaned. In addition to the high rates of interest which the railroads pay on their bonds, many of which are based on "trusteed" stocks which themselves draw dividends, the public are paying dividends which have constantly increased until they now average 7 1/5 per cent, on railroad stocks, the stocks being more than one-half water. The banks paid, last year, dividends averaging 11.66 per cent., on capitalizations consisting largely of the recapitalization of profits. And during the ten years preceding, the average had been 9 per cent. Now here is a short paragraph, no semblance to which is ever uttered from any governmental source, in these days of the mad chase for disappearing dollars. If in- 335 THE LOBBY AND ITS INSIDE FRIENDS terest and dividends — the latter only another name for the same thing — are not reduced, all else is vain. These forms of exploitation and absorption have been increased until they dwarf all other processes vitally affecting our civilization. If this statement could be impressed upon all intelligent minds, thoroughly understood and appre- ciated, the balance of all herein set forth might perhaps have been omitted without great loss. Some blunt old philosopher has exclaimed, "What fools we mortals be." If a foreign nation threatens to assert by force some real or fancied right in a South American republic, we are ready to hazard fortunes, risk lives, absent ourselves from families, and endure indescribable hardships in defense of the Monroe Doc- trine, whatever that may mean. But when, after years of discussion and agitation, some definite real reform, calculated to remove financial and industrial burdens from ourselves and those for whose present and future welfare we are responsible is proposed, we are deterred by asserted dangers of panic and trade depression. It is strange and unaccountable that any sane man is un- willing to endure a year or two of hardship, annoy- ance and inconvenience with the knowledge that upon the readjustment at the end of that period a far better social, business and living condition would be reached. This phenomena has been remarked by others, with- out an attempt to explain it. The truth of the whole matter is that party leaders stand in the way. A man gets to be the head of a great party, and has learned that the party in power when a trade depression occurs is in danger of losing out at the next election. Being a mere partisan politician he finds reasons satisfactory to himself and his cohorts for believing that the ultimate and real calamity to be feared is a change of ad- 33^ THE LOBBY AND ITS INSIDE FRIENDS ministration from his party to another. So, although convinced that the time has come to change laws which breed distress and oppress the great body of the people for the aggrandizement of a few, yet he and his party associates constituting the govenrment, enact makeshift laws which satisfy special interests and fool the people. The patriots and statesmen of 1776 adopted a declara- tion expressive of proper views of government, and the courts hold that its spirit is to be read into the Constitution. But political parties sprung up soon after the adoption of the Constitution; and so long as these fulfilled the proper conceptions of political parties, and were leaderships and followings, pos- sessing influence merely, and not possessing def- inite power, the promotion of diffusive prosperity and the preservation of the common good was the accepted and applied purpose of government. It was only when, as a re&ult of the Civil War, a class of dealers in public credits was created, that is to say, special interests directly involved in fiscal en- actments of Congress, that a partnership was formed between party managers and the managers of these special interests. Then it was, and not until then, that manipulation of party organizations became a profitable avocation and the promotion of public jus- tice a secondary object of government. Then busi- ness went into politics and politics into business. Statesmen, honestly, in the utmost good faith, and almost unconsciously, adopted a new and strange theory of democratic government. Party platforms then had less to say about those matters which con- cerned the people directly, and contained much pro- fessedly for their benefit indirectly. 337 THE LOBBY AND ITS INSIDE FRIENDS The proposal to create a tariff system to benefit those in particular lines of business, at the expense of others, which obtained final acceptance by and support of a majority would have shocked the minds of the leaders as well as the rank and file of all parties in the earlier decades of the republic. The same may be said of the view which prevailed soon after the Civil War that the administration of the nation's fiscal affairs was not exclusively a governmental function, and that private corporations created under general law might be entrusted with the issuance of substi- tutes for money in such varying volume as they chose, limited only by the amount of governmental obliga- tions held by them, notwithstanding that the priv- ilege carried to such corporate agencies the power to control private credits, and, by forming combina- tions among themselves, to contract and expand all credits, thus enriching the few and impoverishing the many. The test of the constitutionality of decisions by com- missions in rate cases, declared in the Minnesota Rate, and in prior, cases, will lead to most important and far- reaching results, and will sooner or later require action by Congress, the most effective form of which may be the submission for ratification of a constitutional amendment. It is somewhat difficult to criticize the principle enunciated by the court, owing to the fair- ness of the expression in which it is clothed. The court says: In determining whether that right (referring to the con- stitutional right to just compensation for property taken for public use) has been denied, each case must rest upon its special facts. But the general principles which are applicable in a case of this character have been set forth in the decisions. (1) The basis of calculation is the "fair value of the prop- 338 THE LOBBY AND ITS INSIDE FRIENDS erty" used for the convenience of the public. (Smyth v. Ames, 171 U S. 361, 546.) Or as it was put in San Diego Land and Town Co. V. National City (174 U. S., 739, 757), 'what the company is entitled to demand in order that it may have just compensation is a fair return upon the reaosnable value of the property at the time it is being used for the public' (citing cases). (2) The ascertainment of the value is not controlled by ar- tificial rules. It is not a matter of formulas, but there must be a reasonable judgment having its basis in a proper consider- ation of all relevant facts. Now there is just as pointed a contrast between this view and that previously expressed in Covington Tp. etc. Co. v. Sanford and in Cutting v. Stock Yards as between the oil and tobacco decisions and the court's prior decisions under the Anti-trust Act. According to the earlier decisions, so long as the rate fixed by legis- lation or by a commission yields some return, however small, it is not confiscatory, and no constitutional ques- tion arises as an essential basis for judicial review. But, according to this later and changed view, the test is whether the rate yields a "fair return" upon the reasonable value of the property. Not only so, but the court lifts the question of valuation of property out of the domain of fact, and says, "there must be a reason- able judgment, having its basis in a proper consider- ation of all relevant facts," which means, accord- ing to the formula laid down in the Illinois Central case marking the line between judicial review and non-inter- ference, that the court will determine for itself whether the judgment exercised by a commission was "reason- able judgment." After the comission has fixed its valuation of property and determined a rate, it would be difficult to state a rate case wherein the court would not be justfied by this decision in reviewing the order and conclusions reached by the commision. But the court concludes its meagre discussion of the 339 THE LOBBY AND ITS INSIDE FRIENDS principle, or principles, to govern herein by harking back to and quoting an utterly meaningless, conflicting and hopelessly tangled paragraph found in the Smyth- Ames case, as follows : In order to ascertain that value, the original cost of con- struction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity under particular rates prescribed by statute, and the sum required to meet operating expenses, ar call matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services renedred by it are reasonably worth. Now the Sixty-second Congress embodied substanti- ally the view of the court in that case, in the valuation act, but seeing that to look at the whole matter of fixing a rate from the standpoint of public interest according to the direction of the closing sentence of the above quotation would make the bill contradictory in terms and sense, omitted from the law every thing resembling it. As a result, the commission must hereafter explore an unlimited field of investigation, every phase and ele- ment of which will be subject to judicial review. To- gether, the commission and the courts carry out a rule thus judicially established which places the Govern- ment, representing the shipping public, in the surety business, and makes all governments. Federal, State and Municipal, guarantors of fixed incomes, which means fixed dividends. These according to the Con- solidated Gas case, should be six per cent., and accord- ing to the Minnesota Rate cases, even more. The fact should not be overlooked that, even if 34