_Government to Discriminate Between Good and Bad Trusts_
As to monopolistic corporations, the proposed act placed them entirely
under the supervision of the executive branch of the government. If
you wished to form a trust, or enter into a restraining contract,
and, at the same time, to escape the prohibition of the Sherman
Act, you would first, under the provision of this bill, submit the
proposed arrangement to the Commissioner of Corporations and answer
such questions as he saw fit to ask. If he gave approval, you could
go ahead and carry out the deal, practically secure against further
interference. If he disapproved, you would be liable to attack under
the Sherman Act. In fact, the administration was to be given arbitrary
power to discriminate between good and bad trusts, to separate the
corporation sheep from the corporation goats. "You are all right," it
could say to one combination; "you are all wrong," it could say to
another. The federal government, in other words, was to rule absolutely
the business activities of nearly 80,000,000 of people; merely by a
word it could authorize a gigantic combination like the United States
Steel Company, and prohibit another like the Standard Oil.
_"Reasonable" and "Unreasonable" Combinations_
The above statement gives the effect and not precisely the form
of the proposed legislation. What its authors really hoped to
accomplish was executive discrimination between those combinations
and those restraints of trade which were reasonable and those which
were unreasonable. They based their measure upon the theory that
certain combinations, even many whose tendency is to restrain trade
and increase prices to the consumer, may still work for the public
interest. The word "reasonable" has played an important part in the
history of the Sherman Act. In several cases the corporations, in
contesting the law, have made the claim that this act did not prohibit
all combinations in restraint of trade, but only those which were
"unreasonable." They set up this defense most strongly in the famous
Trans-Missouri case, already described. Eighteen railroads, it may be
repeated, had formed an association for the purpose of fixing freight
rates. James C. Carter, who argued the case, strongly asserted that
such an agreement was beneficial both to the railroads and to the
public; the history of railroads having conclusively proved that
cut-throat competition inevitably led to bankruptcy and demoralization
in railroad service. He therefore claimed that the proposed restraint
in trade was "reasonable" and consequently not prohibited by the
Sherman Act. The Supreme Court, by a majority of five to four, rejected
this theory. The Sherman Act, it pointed out, in express language
made illegal "_every_ contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade"; and made "_every_
person" who was a party to such contract a criminal. It left absolutely
no leeway--it did not discriminate in the remotest degree between those
which were reasonable and those which were not. Since then all demands
for the modification of the act have hinged upon this one point.
_Andrew Carnegie on Combinations_
This demand, of course, has precipitated a very nice problem in
definition. What is a reasonable combination? What is an unreasonable
one? What is a good trust? What is a bad one? Upon this all-important
question the many weary hearings extending through four months before
the Judiciary Committee last winter shed practically no light. The
Civic Federation bill was based upon this fundamental distinction;
and a large number of distinguished citizens appeared in favor of
it. Congressman Littlefield, as each speaker appeared before the
Committee, asked him to give a concrete illustration of a combination,
forbidden by the Sherman Act, which really promoted the public interest
and was therefore "reasonable." Mr. Seth Low frankly admitted that he
could name no concrete case of the kind. He caused some amusement,
however, when he read a letter from Andrew Carnegie touching upon this
very subject. "One point seems to me essential," wrote Mr. Carnegie,
"without it, little general progress can be made; namely, when new
combinations are proposed, the first question must always be 'what is
the object sought?' _In ninety-nine cases out of a hundred, it will
undoubtedly be to rob the community of its right to the benefits of
free competition, disguise it as one may_; therefore the Commissioner's
duty is to obtain satisfactory proof that the application is to
cover an exceptional case. The conditions must be peculiar, as those
of common carriers and steel-rail agreements are." Mr. Carnegie's
statement that ninety-nine per cent of trade agreements are made for
the purpose of "robbing the community" and his implication that the
exceptional one per cent are the agreements involving the manufacturers
of steel rails, naturally provoked much hilarity.
Only two other illustrations were furnished of benevolent combinations.
Mr. Herbert Knox Smith, commissioner of corporations, instanced a
proposed agreement among lumber men to cut only a certain amount
of timber each year, the ostensible purpose being to prevent the
wanton destruction of the forests. It appeared, however, that the
real purpose of such an agreement was not to preserve the forests,
but to restrict the output, and increase prices, and consequently
the profits of the lumber men. Another illustration offered was the
combination of patent medicine dealers to fix prices and prohibit
price cutting--the object, it was said, being to prevent the unfair
competition of large department stores with retail druggists. But this,
in the last analysis, was generally believed to be a concerted attempt
to destroy competition and enhance the profits of patent medicine
makers. Congressman Littlefield insisted, throughout the entire
proceedings, that the fundamental purpose of forbidden combinations was
to control the product and thereby increase the price to the consumer.
If there were any combinations that did not have that purpose or
result, then the Sherman Act, according to Mr. Littlefield's analysis,
did not prohibit them. Thus in all attempts to define practically
reasonableness and unreasonableness, as applied to trade agreements,
the statement was repeatedly made that the large part of the business
of this country was done in violation of law; that business men lived
constantly in a state of terror from the fear of its enforcement; that
its presence on the statute books largely explained existing business
depression. When it came to defining precisely what they wished to do,
however, none of those who favored the bill became specific. The thing
finally simmered down to a statement by Mr. Low that the law was "a
very important element in the psychological condition of business men
to-day."
_Indulgences to be Granted to Corporations_
This particular power of defining reasonableness and unreasonableness,
however, the proposed law centered in the President, acting through
the Commissioner of Corporations. It provided a limited system of
federal registration for corporations, and, in a modified form, for
federal license and publicity--the two circumstances which probably
led President Roosevelt to support the measure. In effect it granted
indulgences to corporations to combine, provided they would do certain
things. The Sherman Law, as it stands to-day, was not specifically to
be repealed; it was simply to be waived in favor of those combinations
and trusts which paid the price of these indulgences. In order to
obtain absolution, the offending corporation must do two things:
register with the Bureau of Corporations and answer such questions
as might be propounded to it. The bill authorized the President to
determine precisely what information should be exacted, and also to
change from time to time the requirements regarding data. That is, for
registered corporations, it gave the executive branch of the government
absolute inquisitorial power. Registered corporations had the right
to file with the Bureau any agreement or contract or combination to
which it became a party--the precise kind of transactions made illegal
by the Sherman Act. The Commissioner had thirty days in which to
examine such contracts; if, within that period, he declared them in
reasonable restraint of trade, then they became practically legal.[L]
If not, then they could be proceeded against under the Sherman Law.
The chief point of criticism in this arrangement was the stipulation
for a thirty-day period during which the Commissioner must pass upon
these contracts. This, it was asserted, was the loop-hole by which the
corporations were to secure immunity. The Commissioner must declare
these contracts reasonable or unreasonable within thirty days; if
he failed to act upon them in that time, they became reasonable,
precisely as if he had declared them to be so. How, it has been
asked, could the Bureau possibly act intelligently within that period
upon many of the exceedingly intricate questions which would come up
for judgment? Whether a contract is reasonable, of course, largely
depends upon the way it affects prices. An examination would therefore
frequently involve an economic study of the particular trade, as well
as the organization of the particular corporation involved. It would
be necessary to go deeply into capitalization, values behind this
capitalization, cost of production, wages, transportation charges
and so on. There are said to be more than 200,000 corporations in
existence. Supposing half or a quarter should register,--how could
the Bureau possible examine them within thirty days? Would it be
possible to investigate the United States Steel Corporation within
that period? Under the suggested law, however, unless the Commissioner
passed judgment within this time, all these contracts and combinations
would automatically receive a certificate of good character. In their
interest, the Sherman Act would practically be repealed.
In the main, this provision referred to contracts made and combinations
to be formed in the future; another section practically extended
immunity to all contracts and combinations now in existence. Nearly
all trusts organized in the last forty years, and all restraining
agreements, were to become valid. The government was to have a year in
which to institute proceedings against such corporations as declined
to register. If it failed to do so within this time, then these
combinations could never be attacked on any ground whatever, and
became regularly fixed institutions. As there are about five hundred
corporations popularly known as trusts and myriads of trade agreements
now forbidden, the law department, it was suggested, would have its
hands full if it attempted to bring suit against them all within twelve
months. Moreover, after the passage of the proposed act, the government
could not proceed against any combination except on one ground--that
it was an unreasonable restraint of trade. Under the Sherman Act, it
will be remembered, it can prosecute without any reference to the
question as to whether the restraint is reasonable or not. If the act
had passed, in other words, the position of the government would have
been this: within a year it could have assailed the trusts only on
the grounds of unreasonableness; after the expiration of a year it
could assail them on no ground whatever. A saving clause, however,
provided that the government could prosecute all actions already
begun. That is, it could follow up to the end the pending cases against
the Standard Oil, the American Tobacco Company and other corporations
against which it has already started suit. It could not prosecute,
however, the United States Steel Corporation, for it has instituted no
proceeding in that direction. It was the Attorney of the United States
Steel Corporation, Mr. Francis Lynde Stetson, who had a large hand in
framing the bill.
These facts have led many observers to believe that the bill in
question represented an underhanded attempt, by large corporations,
especially the United States Steel, practically to remove the
Sherman Anti-trust Law from the statute book. Mr. E. H. Gary and
Mr. George W. Perkins spent many days in Congress while the bill
was under discussion, though they did not once openly appear before
the committee. No criticism affecting the good faith of Mr. Low and
Professor Jenks, the most active open advocates of the bill, was
put forth. The discussion disclosed the fact, however, that the
Sherman Act, as it stands at present, has many friends. Organizations
interested in curbing the unlawful activities of labor unions insisted
that that law, as interpreted by the Supreme Court, is practically
the only protection American industry has against the boycott. Repeal
or seriously modify it, they declared, and a régime of labor union
terrorism far surpassing any hitherto known in any country, would
at once begin. The plan of Mr. Gompers and his associates to shelve
this law, they insisted, was merely part of their general scheme to
remove all legal restraints from the operations of labor unions.
Opinions did not seem quite so unanimous as to the wisdom of the
Sherman Act in its bearings upon corporations. Though many declared
that this measure is too sweeping and drastic, and should be amended,
no one has yet suggested any practical way of framing a new law. No
one who has studied the problem of trust regulation, it is believed,
has thus far hit upon a plan that, while it gives greater leeway to
the corporations, protects the public from arbitrarily high prices
and other exactions. There is thus a growing conviction that the act
passed by the great constitutional lawyers of 1890 represents the best
attainable result in this direction. It has not stopped the growth of
trusts, it is true; but whether that is because it does not furnish the
means or because it has not been sufficiently enforced, is the disputed
question. "What is needed," recently said ex-Senator Edmunds, the
man who was the real author of the Sherman Act, "is not so much more
legislation as competent and earnest administration of the laws that
exist."
[J] In the Debs case the Circuit Court based its decision almost
entirely upon the Sherman Law. The Supreme Court of the United
States, in affirming this decision, rested mainly on the broader
question of the interference with the United States mails. Justice
Brewer, however, who wrote the decision, specifically said that
this fact did not mean that the Supreme Court dissented from the
grounds on which the lower tribunal had decided the case.
[K] In Justice to Mr. Low and Mr Jenks it should be said that they
disclaimed any intention of indorsing a bill which authorized
the boycott. They afterward amended the clause in question by
authorizing employees "to strike for any cause not unlawful at
common law," which modification leads into many legal fogs which
it is hardly worth while to enter in this place.
[L] The bill provided, it is true, that the contracts might still
be assailed on the ground of unreasonableness. The practical
effect, however, it was generally conceded--virtually admitted by
Herbert Knox Smith--would be to give them immunity for all time.