which went on with ever accelerated rapidity during the latter
half of the nineteenth century brings us face to face, at the
beginning of the twentieth, with very serious social problems.
The old laws, and the old customs which had almost the binding
force of law, were once quite sufficient to regulate the
accumulation and distribution of wealth. Since the industrial
changes which have so enormously increased the productive
power of mankind, they are no longer sufficient. The growth of
cities has gone on beyond comparison faster than the growth of
the country, and the up building of the great industrial
centers has meant a startling increase, not merely in the
aggregate of wealth, but in the number of very large
individual, and especially of very large corporate, fortunes.
… The process has aroused much antagonism, a great part of
which is wholly without warrant. It is not true that as the
rich have grown richer the poor have grown poorer. On the
contrary, never before has the average man, the wage-worker,
the farmer, the small trader, been so well off as in this
country and at the present time. There have been abuses
connected with the accumulation of wealth; yet it remains true
that a fortune accumulated in legitimate business can be
accumulated by the person specially benefited only on
condition of conferring immense incidental benefits upon
others. …
{117}
The captains of industry who have driven the railway systems
across this continent, who have built up our commerce, who
have developed our manufactures, have on the whole done great
good to our people. Without them the material development of
which we are so justly proud could never have taken place. …
It cannot too often be pointed out that to strike with
ignorant violence at the interests of one set of men almost
inevitably endangers the interests of all. … Much of the
legislation directed at the trusts would have been exceedingly
mischievous had it not also been entirely ineffective. In
accordance with a well-known sociological law, the ignorant or
reckless agitator has been the really effective friend of the
evils which he has been nominally opposing.
"All this is true; and yet it is also true that there are real
and grave evils, one of the chief being over-capitalization
because of its many baleful consequences; and a resolute and
practical effort must be made to correct these evils. There is
a widespread conviction in the minds of the American people
that the great corporations known as trusts are in certain of
their features and tendencies hurtful to the general welfare.
This springs from no spirit of envy or uncharitableness, nor
lack of pride in the great industrial achievements that have
placed this country at the head of the nations struggling for
commercial supremacy. … It is based upon sincere conviction
that combination and concentration should be, not prohibited,
but supervised and within reasonable limits controlled; and in
my judgment this conviction is right. … The first essential in
determining how to deal with the great industrial combinations
is knowledge of the facts—publicity. In the interests of the
public, the Government should have the right to inspect and
examine the workings of the great corporations engaged in
interstate business. …
"When the Constitution was adopted, at the end of the
eighteenth century, no human wisdom could foretell the
sweeping changes, alike in industrial and political
conditions, which were to take place by the beginning of the
twentieth century. At that time it was accepted as a matter of
course that the several States were the proper authorities to
regulate so far as was then necessary, the comparatively
insignificant and strictly localized corporate bodies of the
day. The conditions are now wholly different and wholly
different action is called for. I believe that a law can be
framed which will enable the National Government to exercise
control along the lines above indicated; profiting by the
experience gained through the passage and administration of
the Interstate-Commerce Act. If, however, the judgment of the
Congress is that it lacks the constitutional power to pass
such an act, then a constitutional amendment should be
submitted to confer the power."
_President’s Message to Congress,
December 3, 1901._
In the following summer, during a tour which he made through
some of the New England States the President gave prominence
to the same subject in his addresses, emphasizing the
necessity of federal legislation to arm the General Government
with more effective authority for regulating the action of
corporations engaged in interstate trade. In speaking at
Providence especially, his remarks caused a great stir of
feeling in the country, and seem to have signalled the
beginning of an open array of hostile corporate interests
against him. On that occasion he spoke partly as follows:
"Those great corporations containing some tendency to
monopoly, which we have grown to speak of rather loosely as
trusts, are the creatures of the State, and the State not only
has the right to control them, but is in duty bound to control
them wherever the need for such control is shown. There is
clearly a need of supervision—need to exercise the power of
regulation on the part of the representatives of the public,
wherever, as in our own country at the present time, business
corporations become so very strong, both for beneficent work
and for work that is not always beneficent. It is idle to say
that there is no need for such supervision. A sufficient
warrant for it is to be found over and over again in any of the
various evils resulting from the present system, or, rather,
lack of system.
"There is in our country a peculiar difficulty in the way of
exercising such supervision and control because of the
peculiar division of governmental power. When the industrial
conditions were simple, very little control was needed, and no
trouble was caused by the doubt as to where power was lodged
under the constitution. Now the conditions are complicated,
and we find it difficult to frame national legislation which
shall be adequate, while as a matter of practical experience
State action has proved entirely insufficient, and in all
human probability cannot or will not be made sufficient, to
meet the needs of the case. Some of our States have excellent
laws—laws which it would be well indeed to have enacted by
the national legislature. But the wide differences in these
laws, even between adjacent States, and the uncertainty of the
power of enforcement result practically in altogether
insufficient control.
"I believe that the nation must assume this power of control
by legislation, and if it becomes evident that the
constitution will not permit needed legislation, then by
constitutional amendment. The immediate need of dealing with
trusts is to place them under the real, not nominal, control
of some sovereign to which, as its creature, the trusts shall
owe allegiance, and in whose courts the sovereign’s orders may
with certainty be enforced. That is not the case with the
ordinary so-called 'trust’ to-day, for the trust is a large
State corporation, generally doing business in other States
also, and often with a tendency to monopoly. Such a trust is
an artificial creature not wholly responsible to or
controllable by any legislature, nor wholly subject to the
jurisdiction of any one court. Some governmental sovereign
must be given full power over these artificial and very
powerful corporate beings. In my judgment this sovereign must
be the national government. When it has been given full power,
then this full power can be used to control any evil
influence, exactly as the government is now using the power
conferred upon it under the Sherman Anti-Trust law.
"Even when the full power has been conferred it would be
highly undesirable to attempt too much or to begin by
stringent legislation. The mechanism of modern business is as
delicate and complicated as it is vast, and nothing would be
more productive of evil to all of us, and especially to those
least well off in this world’s goods, than ignorant meddling
with this mechanism, and, above all, if the meddling was done
in a spirit of class or sectional rancor.
{118}
It is desirable that this power should be possessed by the
nation, but it is quite as desirable that the power should be
exercised with moderation and self-restraint. The first
exercise of that power should be the securing of publicity
among all great corporations doing an interstate business. The
publicity, though non-inquisitorial, should be real and
thorough as to all important facts with which the public has
concern. The full light of day is a great discourager of evil.
Such publicity would by itself tend to cure the evils of which
there is just complaint, and where the alleged evils are
imaginary, it would tend to show that such is the case. When
publicity is attained it would then be possible to see what
further should be done in the way of regulation.
"Above all, it behooves us to remember not only that we ought
to try to do what we can, but that our success in doing it
depends very much upon our neither attempting nor expecting
the impossible. …
"I see no promise of a complete solution for all the problems
we group together when we speak of the trust question. But we
can make a beginning in solving these problems, and a good
beginning if only we approach the subject with a sufficiency
of resolution, of honesty and of that hard common sense which
is one of the most valuable, and, unfortunately, not one of
the most common, assets in the equipment of any people. I
think the national administration has shown its firm intention
to enforce the laws as they now stand on the statute books
without regard to persons, and I think that good has come from
this enforcement. I think, furthermore, that additional
legislation should be had, and can be had, which will enable
us to accomplish much more than has been accomplished along
these same lines."
_Theodore Roosevelt,
Address at Providence, August 23, 1902
(New York Tribune, August 24, 1902)._
In his next Message to Congress, President Roosevelt renewed
his urgency for the needed legislation. "No more important
subject can come before the Congress," he said, "than this of
the regulation of interstate business. This country cannot
afford to sit supine on the plea that under our peculiar
system of government we are helpless in the presence of the
new conditions, and unable to grapple with them or to cut out
whatever of evil has arisen in connection with them. The power
of the Congress to regulate interstate commerce is an absolute
and unqualified grant, and without limitations other than
those prescribed by the Constitution. The Congress has
constitutional authority to make all laws necessary and proper
for executing this power, and I am satisfied that this power
has not been exhausted by any legislation now on the statute
books."
_President’s Message to Congress,
December 2, 1902._
A year later, when the President addressed his Message to the
next Congress, at the opening of its first session, he was
able to say:
"The country is especially to be congratulated on what has
been accomplished in the direction of providing for the
exercise of supervision over the great corporations and
combinations of corporations engaged in interstate commerce.
The Congress has created the Department of Commerce and Labor,
including the Bureau of Corporations, with for the first time
authority to secure proper publicity of such proceedings of
these great corporations as the public has the right to know.
It has provided for the expediting of suits for the
enforcement of the Federal anti-trust law; and by another law
it has secured equal treatment to all producers in the
transportation of their goods, thus taking a long stride
forward in making effective the work of the Interstate
Commerce Commission."
_President’s Message to Congress,
December 1, 1903._
COMBINATIONS: A. D. 1901-1906.
A summary of governmental action against corporate
wrongdoers, by Elihu Root.
Legislation.
Litigation.
Court decisions.
"The act creating the bureau of corporations, the act
expediting the trial of trust cases, the anti-rebate act, the
act for the regulation of railroad rates, have made possible
redress which was impossible before. Under the direction of
two successive Attorney Generals of the first order of
ability, sincerity and devotion, in hundreds of courts,
incessant warfare has been waged and is being waged under the
federal laws against corporate wrongdoers.
"The Northern Securities Company, which sought to combine and
prevent competition between two great continental railroads,
has been forced to dissolve by the judgment of the Supreme
Court of the United States. The methods of the Beef Trust in
combining to suppress competition in the purchase of livestock
and the sale of meat have been tried and condemned, and the
trust has been placed under injunction to abandon these
practices by judgment of the Supreme Court. The combination of
paper manufacturers in the territory from Chicago to the Rocky
Mountains has been dissolved by the judgment of the Supreme
Court, and the combination has been abandoned, and the price
of white paper in that territory has gone down 30 per cent.
The Retail Grocers’ Association in this country has been
dissolved by decree of the court. The elevator combination in
the West has been dissolved in like manner. The salt
combination west of the Rocky Mountains has been dissolved by
decree of the court. The Wholesale Grocers’ Association in the
South, the meat combination and the lumber combination in the
West, the combination of railroads entering the city of St.
Louis to suppress competition between the bridges and ferries
reaching that city; the Drug Trust, which suppresses
competition all over the country, are being vigorously pressed
in suits brought by the federal government for their
dissolution. The salt combination has been indicted and
convicted and fined for failing to obey the judgment of
dissolution. The Beef Trust has been indicted for failing to
obey the injunction against them, and have been saved so far
only by a decision that they had secured temporary immunity by
giving evidence against themselves. One branch of the Tobacco
Trust is facing an indictment of its corporations and their
officers in the federal court in New York, and the other
branches are undergoing investigation. The lumber combination
in Oklahoma is under indictment. The Fertilizer Trust, a
combination of thirty-one corporations and twenty-five
individuals to support and fix prices, has been indicted, the
indictments have been sustained by the courts, and the
combination has been dissolved. The ice combination of the
District of Columbia is facing criminal trial. Special counsel
are investigating the coal combination, and special counsel
are investigating the Standard Oil combination.
{119}
"Three of the causes won in the Supreme Court of the United
States have furnished decisions of the utmost importance. In
the Tobacco Trust case of Hale agt. Henkel, the Supreme Court
denied the claim of the trust corporations to be exempt under
the Constitution from furnishing testimony against themselves
by the production of their books and papers before a federal
grand jury. Thus, the protection of secrecy for corporate
wrongdoing is beaten down. In the Northern Securities case the
Supreme Court held that a wrong accomplished by means of
incorporating in accordance with the express provision of the
New Jersey statute was just as much a violation of federal law
as if there had been no incorporation. Thus, the state rights
defence of protection from favoring state statutes is beaten
down. In the Beef Trust case the Supreme Court held that,
although the business of manufacture was carried on within the
limits of a single state, yet the purchase of the raw material
in different states and the sale of the finished product in
different states brought the business within the interstate
commerce clause of the Constitution and gave the federal
government authority over it. Thus, the defence that the state
alone can deal with manufacturing corporations, however
widespread their business, is beaten down.
"The obstacles to the enforcement of the federal anti-trust
act thus removed are obstacles which stood in the way of all
proceedings, and they had to be cleared away before any
proceedings of the same character against the same classes of
corporations could be successfully maintained. They have been
removed, not by newspaper headlines and denunciation, but by
skill, ability, and energy of the highest order.
"After the Elkins anti-rebate law was passed by Congress in
1903 it was supposed, and the Interstate Commerce Commission
reported, that the railroads had substantially abandoned
giving rebates. Their good resolutions do not seem, however,
to have lasted. The struggle for business enabled the shippers
soon to secure a renewal of rebates, or, by ingenious devices
advantages equivalent to rebates. Thereupon the Department of
Justice began active prosecutions for the enforcement of the
law. Fifty-three indictments have been found against hundreds
of defendants and covering many hundreds of transactions.
There have been fourteen criminal convictions. Fourteen
individuals have been fined, to the gross amount of $66,125.
Nine corporations have been fined to the amount of $253,000.
Thirty-five indictments are ready for trial in their regular
order upon the court calendar. The original statute provided
only for punishment by fine. Last winter it was amended by
providing for punishment by imprisonment, and, if the lines
imposed under the original law shall not prove to have stopped
the practice, we shall see whether fear of the penitentiary
under the amendment will not do so.
"Under this statute also it was necessary to sweep away
defences which stood as barriers to general prosecution, and
in the New York, New Haven & Hartford Railroad case, decided
by the Supreme Court February 19 of this year, and the
Milwaukee Refrigerator Transit case, decided in the Seventh
Circuit on May 31 of this year, the courts have held that the
substance and not the form is to control in the application of
the statute, and that, however the transaction may be
disguised, an unlawful discrimination can be reached and
punished. The way is therefore cleared for all other
prosecutions.
"The Railroad Rates act, which was the subject of such excited
discussion during the last session of Congress, has already
justified itself. Since the passage of the act, less than five
months ago, there have been more voluntary reductions of rates
by our railroads than during the entire nineteen years of the
previous life of the Interstate Commerce Commission. On the
single day of the 29th of August, 1906, two days before the
act went into force, over five thousand notices of voluntary
reduction of rates were filed with the Interstate Commerce
Commission by the railroads of the United States."
_Elihu Root,
Speech at Utica, November 1, 1906
(New York Tribune, November 2, 1906)._
COMBINATIONS: A. D. 1903-1906.
The "Beef Trust" suits and investigations.
The United States v. Swift & Co. et al.
Commissioner Garfield’s investigation.
Indictment of Armour & Co. and others.
Immunity decision of Judge Humphrey.
Fines for receiving rebates from railways.
In the case known as that of the United States v. Swift &
Company et al., the defendants were seven corporations, one
copartnership, and twenty-three other persons (commonly styled
"the Beef Trust"), charged with violations of the anti-trust
law, by combination in restraint of the trade which they
conducted, namely, the buying of live stock, slaughtering the
same in different states and selling the meats thus produced.
It was affirmed by the Government that they, together,
controlled about sixty per cent. of the total Volume of that
trade in the country, and that if the alleged combination
among them did not exist they "would be and remain in
competition with each other"; but that by such "unlawful
combination and conspiracy" they were directing and requiring
their agents
(1) not to bid against one another in the live-stock markets
of the different States;
(2) to bid up prices for a few days so as to induce cattlemen
to send their stock to the stock-yards;
(3) to fix prices at which they would sell, and hence, when
necessary, to restrict shipments of meat;
(4) to establish a uniform rule of credit to dealers and to
keep a blacklist;
(5) to make uniform and improper charges for cartage; and
(6) to obtain less than lawful rates from the railways to the
exclusion of all competitors.
The case, on motion for injunction, was tried first in the
Circuit Court of the Northern District of Illinois, Judge
Peter S. Grosscup. The Opinion of the Court, given April 18,
1903, held that, under the definition of the term by the
Supreme Court in the Trans-Missouri Freight Association Case
(see, in this Volume, Railways: United States: A. D.
1890-1902), "there can be no doubt that the agreement of the
defendants to refrain from bidding against each other in the
purchase of cattle is combination in restraint of trade: so
also their agreement to bid up prices to stimulate shipments,
intending to cease from bidding when the shipments have
arrived.
{120}
The same result," continued the judge, "follows when we turn
to the combination of defendants to fix prices upon and
restrict the quantities of meat shipped to their agents or
their customers. Such agreements can be nothing less than
restriction upon competition, and, therefore, combination in
restraint of trade; and thus viewed, the petition, as an
entirety, makes out a case under the Sherman Act. … The
demurrer is overruled, and the motion for preliminary
injunction granted."
On appeal, the case went to the Supreme Court, where it was
argued in January, 1905, and decided on the 30th of the same
month. The Opinion of the Court, rendered by Justice Holmes,
with no dissent, affirmed, but modified, the decree of
injunction issued by Judge Grosscup; the aim of the
modifications being to give more definiteness to the decree.
"The defendants," said Justice Holmes, for example, "cannot be
ordered to compete, but they properly can be forbidden to give
directions or to make agreements not to compete. The
injunction follows the charge. No objection was made on the
ground that it is not confined to the places specified in the
bill. It seems to us, however, that it ought to set forth more
exactly the transactions in which such directions and
agreements are forbidden. The trade in fresh meat referred to
should be defined somewhat as it is in the bill, and the sales
of stock should be confined to sales of stock at the
stock-yards named, which stock is sent from other States to
the stock-yards for sale or is bought at those yards for
transport to another State."
_Federal Anti-Trust Decisions, 1900-1906,
Volume 2, prepared and edited by James A. Finch,
by direction of the Attorney-General
(Washington: Government Printing Office, 1907)._
COMBINATIONS:
Investigation by the Commissioner of Corporations.
On the 7th of March, 1904, the House of Representatives
adopted a resolution requesting the Secretary of Commerce and
Labor to "investigate the causes of the low prices of beef
cattle in the United States since July 1st, 1903, and the
unusually large margins between the prices of beef cattle and
the selling prices of fresh beef, and whether the said
conditions have resulted in whole or in part from any
contract, combination, in the form of trust or otherwise, or
conspiracy, in restraint of commerce among the several States
and Territories or with foreign countries; also, whether said
prices have been controlled in whole or in part by any
corporation, joint stock company, or corporate combination
engaged in commerce among the several States or with foreign
nations; and, if so, to investigate the organization,
capitalization, profits, conduct and management of the
business of such corporations, companies, and corporate
combinations, and to make early report of his findings
according to law."
In compliance with this resolution, the Commissioner of
Corporations, Mr. James R. Garfield, went to Chicago in April
and began the requested investigation, which was prosecuted
throughout most of the ensuing year. "The inquiries of the
Bureau of Corporations were naturally concerned chiefly with
the six great concerns which, by the injunction of 1902, were
grouped together, and which were popularly considered as the
Beef Trust. The ‘Big Six,’ in the approximate order of their
magnitude as indicated by the number of animals slaughtered,
are: Swift & Company, with seven large plants; Armour &
Company, and the Armour Packing Company, which have the same
stockholders, and which together operate five packing-houses;
the National Packing Company, with eight comparatively large
plants and two or three minor ones; Morris & Company,
operating three plants; the Cudahy Packing Company, with three
plants in the middle West and a minor one at Los Angeles; and
the Schwarzschild & Sulzberger Company, operating three
plants. Nearly all of the important packing-houses of these
six companies are situated in the eight great live-stock
markets,—Chicago, Kansas City, South Omaha, East St. Louis,
South St. Joseph, Fort Worth, South St. Paul, and Sioux City."
As for the National Packing Company, it grew, apparently, out
of an abortive scheme for the consolidation of the other five
concerns which was rumored in 1902. "Shortly prior to the
formation of this company the Armour interests had acquired
control of the G. H. Hammond Company and the Omaha Packing
Company, the Swifts had secured the Anglo-American Provision
Company and the Fowler Packing Association, and the Morris
family had become dominant in the United Dressed Beef Company
of New York. The National Packing Company, organized in 1903,
took over the control of the various corporations thus
previously acquired by the three packing interests named, and
has since absorbed two or three other smaller concerns. The
directorate of the National Company consists almost wholly of
representatives of the Armour, Swift, and Morris companies.
Aside from this community of interest, the bureau finds that
there is no important inter-ownership of securities among the
six leading packing companies."
"The ‘Big Six’ are by no means the only slaughterers of cattle
in the United States. They, with a few minor affiliated
concerns, killed 5,521,697 cattle in 1903, while, from the
best available data, the Bureau of Corporations computes the
total slaughter of the country at about 12,500,000. But the
proportion of 45 per cent. thus indicated by no means measures
the full economic significance of the six great packers. Their
importance lies in the fact that they are the only concerns
which do an extensive business in shipping dressed beef. … The
‘Big-Six’ kill about 98 percent, of the cattle slaughtered at
the eight leading Western markets above named."
_Edward Dana Durand,
The Beef Industry and the Government Investigation
(American Review of Reviews, April, 1905)._
Early in March, 1905, just before the adjournment of Congress,
his report of it, in part, was transmitted by the President to
Congress. The following summary of important facts set forth
in the extended report was published in _The Outlook_ of
the following week:
"The report as sent to Congress deals with the prices of
cattle and dressed beef, the margins between such prices, and
the organization, conduct, and profits of the corporations
engaged in the beef-packing business. In some respects the
conclusions presented are distinctly favorable to the packers;
in others, quite as unfavorable. It appears that the profits
of the six great companies whose operations were covered by
the investigation were very much smaller during the years 1902
and 1903 than the public had been led to suppose,—that, in
fact, for a part of that period the business was conducted at
an actual loss.
{121}
The percentage of profit on the gross Volume of business
during the years 1902-1904 was comparatively low. That realized
by Swift & Company is placed at two per cent. This, however,
we repeat, is the percentage on total sales, which is a very
different thing from profit on the investment. It is a
well-known fact that the actual capitalization of the packing
companies is very much less than the annual Volume of
business. From statements made by the six companies to the
Bureau of Corporations it appears that their gross business is
not less than $700,000,000 per year, while their nominal
capitalization is only $88,000,000, exclusive of $5,000,000
bonds of Swift & Company. On the other hand, it is practically
impossible, as the report shows, to determine accurately just
what proportion of the total investment represents plants and
properties concerned with the beef industry exclusively.
Still, it is obvious that Swift & Company’s net profit of two
per cent. on their sales would amount to very much more than
two per cent, on their investment. The report makes an
approximate estimate of twelve per cent.
"On one other count the report is favorable to the companies.
It declares that they are apparently not overcapitalized. This
conclusion, it is true, is robbed of some of its exculpatory
force when the private-car system is taken into consideration.
It is shown that the companies’ profits on refrigerator cars,
derived from mileage paid by the railroads, has ranged from 14
to 22 per cent. The report gives clear and definite
information as to the trust’s field of operations. It shows
that the six companies slaughtered in 1903 only about 45 per
cent. of all the cattle killed in that year, but that these
companies slaughter nearly 98 per cent. of all the cattle
killed in the leading Western packing centers, and that they
control a large percentage of the trade in beef in many large
cities—75 per cent. in New York, 85 per cent. in Boston, 95
per cent. in Providence, and in a number of other important
cities from 50 to 90 per cent. In all these centers of
population the consumer is now paying more for meats than ever
before, while the cattle-grower on the Western plains is
receiving less for his beeves. These two facts are doubtless
capable of explanation, but the published results of the
investigation ordered by Congress throw little light on the
matter."
COMBINATIONS:
Case of the United States v. Armour & Company et al.
Soon after the publication of the report of the Bureau of
Corporations a special Federal Grand Jury at Chicago began the
investigation of charges brought by the Attorney-General of
the United States against five of the corporations engaged in
the meat-packing business and seventeen of their officials. An
indictment was returned by the Grand Jury on the 1st of July,
1905, charging, in a number of counts, persistent violation of
the injunction laid on these corporations and their officials
by Judge Grosscup with affirmation by the Supreme Court, and
continued combination in restraint of trade,—by requiring
their purchasing agents to refrain from bidding in good faith
against one another; by agreements that fixed the prices of
beef; by restricting sales to maintain prices, etc. On the
trial of the indictment, which was begun on the 29th of
January and concluded on the 21st of March, 1906, the
defendants claimed immunity, under that clause of the Fifth
Amendment to the Constitution of the United States which
reads:
"Nor shall any person be compelled in any criminal case to be
a witness against himself."
Their claim for immunity under this constitutional
prescription was founded on the fact that "upon the lawful
requirement of the Commissioner of Corporations" they "had
furnished evidence, documentary and otherwise, of and
concerning the matters charged in the indictment"; and that a
section of the Act creating the Department of Commerce and
Labor provides that persons testifying or producing evidence
before the Commissioner shall be entitled to the immunities
conferred by the Act in relation to testimony before the
Interstate Commerce Commission of February 11, 1893. Judge
Humphrey, of the United States District Court, before whom the
case was tried, sustained the plea in his charge to the jury,
so far as concerned the individual defendants, saying: "Under
the law of this case, the immunity pleas filed by the
defendants will be sustained as to the individual defendants,
the natural persons, and denied as to the corporations, the
artificial persons, and your verdict will be in favor of the
defendants as to the individuals, and in favor of the
Government as to the corporations."
COMBINATIONS:
Fines for accepting rebates.
The same Federal Grand Jury at Chicago which returned the
indictments dealt within the case mentioned above brought
another indictment against four men in the employ of one of
the meat-packing companies, who were accused of unlawfully
combining and agreeing to solicit rebates for their
corporation from the Michigan Central, the Chicago, Rock
Island and Pacific, the Grand Trunk Western, the Lehigh
Valley, the Boston and Maine, and the Mobile and Ohio
railroads. It was charged that the defendants conspired with
one another in presenting to the railroad companies pretended
claims for damages which were in fact claims for rebates. They
were brought for trial before Judge Humphrey in September,
1905, and pleaded guilty. The Judge then pronounced sentence
on them as follows:
"Punishment for this offense as fixed by Congress has a wide
range, giving the Court unusual latitude, ranging from a
nominal fine without imprisonment to a heavy fine and two
years’ imprisonment, all in the discretion of the Court. I am
disposed to consider this case with reasonable moderation. The
sentence of the Court in the case of the defendant Weil will
be a fine of $10,000 and costs, and commitment to the county
jail until the fine is paid, and in the cases of Todd,
Skipworth, and Cusey a fine of $5,000 and costs, with the same
provision in regard to payment."
COMBINATIONS: A. D. 1904-1909.
The Standard Oil Company.
Federal Government investigation of its methods of business.
Criminal prosecutions for violation of the law against
rebates.
The $29,000,000 fine and its annulment.
Acquittal of the Company.
After a dozen years or more of slight oil production in
Kansas, that state became quite suddenly, in 1904, one of the
important sources of petroleum supply. The Standard Oil
Company had taken care to be prepared for whatever development
might occur, and had organized its operations in this western
field under the name of the Prairie Oil and Gas Company, of
Kansas.
{122}
Its refineries were ready to furnish a market to the Kansas
producers of crude oil, and they had no other. Independent
enterprises in oil refining were made quite impossible, and
the Prairie Oil and Gas Company was complete master of the
situation. The Kansas oil producers were soon writhing under
its dictation of prices and rules of dealing, as the
Pennsylvanians had been years before, and the Kansas
Legislature came promptly to their rescue. In the winter of
1904-1905 it passed five vigorous acts; authorizing the
establishment of a State oil refinery; making pipe lines
common carriers within the State; placing them under the
jurisdiction of the State board of railroad commissioners;
fixing maximum rates for the transportation of oil by freight
or pipe line; and, finally, prohibiting discrimination between
localities in the sale of any commodities. Furthermore, the
anti-trust laws of the State were brought into action against
the Standard Oil Company and the railroads accused of giving
it special rates and privileges.
At the same time, the Kansas situation was brought to the
attention of Congress and the Federal Executive. On motion of
a Kansas representative, the lower House of Congress, in
February, adopted a resolution calling on the President for an
investigation of the methods of business pursued by the
Standard Oil Company. The desired investigation was conducted
in the following year by Commissioner Garfield, the head of
the Bureau of Corporations, and his report was communicated to
Congress on the 5th of May, 1906, with an accompanying special
message, by the President. Nothing of the detail of facts in
the report can be given here; but the conclusions drawn from
them by the Commissioner were summed up by him, as follows:
"Upon the request of its attorney, all the essential facts
discovered by this Bureau were presented to the company at the
close of the investigation, and an exhaustive statement
relating thereto was made by its chief traffic officer. There
was no denial of the facts found, but explanations of
particular situations were offered, and it was urged that the
facts did not show any violation by the Standard of the letter
or spirit of the interstate-commerce law. A most careful
review of the facts and the explanations leads to the
following conclusions:
"The Standard Oil Company has habitually received from the
railroads, and is now receiving, secret rates and other unjust
and illegal discriminations.
"During 1904 the Standard saved about three-quarters of a
million dollars through the secret rates discovered by the
Bureau of Corporations, and of course there may be other
secret rates which the Bureau has not discovered. This amount
represents the difference between the open rates and the rates
actually paid. Many of these discriminations were clearly in
violation of the interstate-commerce law, and others, whether
technically illegal or not, had the same effect upon
competitors. On some State business secret rates were applied
by means of rebates.
"These discriminations have been so long continued, so secret,
so ingeniously applied to new conditions of trade, and so
large in amount as to make it certain that they were due to
concerted action by the Standard and the railroads.
"The Standard Oil Company is receiving unjust discriminations
in open rates.
"The published rates from the leading Standard shipping points
are relatively much lower than rates from the shipping points
of its competitors. The advantage to the Standard over its
competitors from such open discriminations is enormous,
probably as important as that obtained through the secret
rates.
"If an unfair discrimination be obtained by one shipper
through a device which in itself is seemingly not prohibited
by law, that fact shows that the law is defective and should
be strengthened; it does not show that the discrimination is
proper or just.
"The following are a few of the most important discriminations
and the methods by which they were obtained:
"(1) For about ten years the New England territory has been in
control of the Standard Oil Company by reason of the refusal
of the New York, New Haven and Hartford road and of the Boston
and Maine road, on all but a few divisions, to pro-rate—i. e.,
to join in through rates—on oil shipped from west of the
Hudson River, and by means of the adjustment of published
rates. …
"(2) The Standard Oil Company has been able to absolutely
control for many years the sale of oil in the northeastern
part of New York and in a portion of Vermont by means of
secret rates from its refineries at Olean and Rochester. …
"The saving to the Standard during 1904 by the secret rate
from Olean to Rochester alone was $115,000. This and other
less important rates from Olean were unknown to the
independent refiners, and were not published on the ground
that they were wholly State rates; yet in fact they were used
for oil consigned to points beyond the State boundary of New
York. Furthermore, all shipments from Olean on these secret
rates were blind-billed—_i. e._, the rates were not shown
on the waybills.
"(3) The Standard Oil Company has maintained absolute control
of almost the whole section of the country south of the Ohio
River and east of the Mississippi by means of secret rates and
open discriminations in rates from Whiting, Indiana. …
"(4) The Standard Oil Company has for at least ten years
shipped oil from Whiting to East St. Louis, Illinois, at a
rate of 6 or 6¼ cents on three of the five railroads running
between those places, while the only duly published rate on
all roads has been 18 cents during all that period! This
discrimination saved the Standard about $240,000 in 1904. …
"Whiting is located in Indiana, about two miles from the
Illinois line. East St. Louis is in Illinois, just across the
river from St. Louis. The secret low rates were given by the
Chicago, Burlington and Quincy, Chicago and Alton, and Chicago
and Eastern Illinois railroads. They were not published, on
the ground that they were State rates. …
"(5) In the Kansas-Territory field there were some unfair open
rates. …
"(6) In California direct rebates, as well as discriminations
by the use of secret rates, have been given on oil. …
"(7) Open published rates from Whiting into a large part of
the United States have given the Standard Oil Company an
unfair advantage of from 1 to 20 cents per hundred pounds.
{123}
"This discrimination seriously limits independent refiners in
some markets, and shuts them out completely from other
markets. It is accomplished by the use of commodity rates—that
is, rates which apply only to petroleum and its products—and
by refusal to pro-rate."
_Report of the Commissioner of Corporations on the
Transportation of Petroleum,
May 2, 1906, Letter of Submittal, pages xxi-xxv.
(59th Congress, 1st Session House Document. number 812)._
Consequent on the information secured by this investigation,
criminal proceedings against the Standard Oil Company in its
various State organizations were instituted in 1906-1907. The
number and character of the indictments found in these cases
are set forth in tabular form, in an article on "The Oil Trust
and the Government," by Francis Walker, published in the
_Political Science Quarterly_, March, 1908. The following
statement of them is summarized from that table:
In the Northern District of Illinois, August 27, 1906, against
the Standard Oil Co. of Indiana, 1903 and 134 indictments on
shipments over the Chicago and Alton Railway, from Whiting,
Indiana, to East St. Louis, Illinois, and from Chappell,
Illinois, to St. Louis, Missouri.
In same District, same date, against same Company, 2124 and
220 indictments on shipments over the Chicago, Burlington and
Quincy Railway, from Whiting to East St. Louis and St. Louis.
In same District, same date, against same Company, 1318 and
597 indictments on shipments over the Chicago and Eastern
Illinois and the Evansville and Terre Haute railways, from
Whiting to Evansville.
In same District, same date, against same Company, 103
indictments, on shipments over the Chicago and Eastern
Illinois and the Evansville and Terre Haute railways from
Whiting, via Grand Junction, Tennessee, to various points in
the South.
In the Eastern Division of the Western District of Tennessee,
October 16, 1906, against the Standard Oil Company of Indiana,
1524 indictments, on shipments over the Illinois Central and
Southern railways, from Evansville, via Grand Junction, to
various points.
In the Eastern District of Missouri, November 18, 1906,
against the Waters-Pierce Oil Company, 76 indictments, on
shipments over the St. Louis, Iron Mountain and Southern
Railway, to various points.
In the Western District of Louisiana, January 28, 1907,
against the Waters-Pierce Oil Company, 32 indictments, on
shipments over the St. Louis, Iron Mountain. and S. Railway,
to various points.
In the Western District of New York, August 10, 1907, against
the Vacuum Oil Company, 23 indictments, on shipments from
Olean to Vermont.
In the Western District of New York, August 24, 1906, against
the Standard Oil Company of New York, 23 and 123 indictments,
on shipments from Olean to Vermont.
In same District, August 9, 1907, against same Company, 188
and 40 indictments, on shipments from Olean, New York, to
Burlington, Vermont, over New York Central and Rutland and
Vermont Central railways.
In same District, same date, against the Vacuum Oil Company,
188 and 40 indictments on shipments from Olean to Burlington
and to Rutland and Burlington.
In same District, September 6, 1907, against the Standard Oil
Company of New York, 54 indictments, on shipments from Olean
and Rochester to points in Vermont.
The most notable of these criminal prosecutions has been the
one described first in the list above. The opening chapter of
its history is sketched as follows by Mr. Walker, in the
article already referred to:
"The only important case which, up to December, 1907, had come
to trial, was the indictment against the Standard Oil Company
of Indiana for accepting a secret rate on shipments over the
Chicago and Alton Railway, from Whiting, Indiana, to East St.
Louis, Illinois, and from Chappell, Illinois, to St. Louis,
Missouri. The published rate on this traffic was eighteen
cents per hundred pounds (as far as East St. Louis, a bridge
toll of one and a half cents being added on shipments to St.
Louis); while the rate paid by the Standard Oil Company of
Indiana, during the period of about three years covered by the
indictment and for many years before, was only six cents per
hundred pounds. On this rate, the Standard had transported, as
charged in the indictment, 1903 carloads of oil, each carload
being made the subject of a distinct count and separate proof.
The trial of this case began in Chicago, on March 4, 1907.
"The defence not only exhausted every device of technical
objection and obstruction but also attacked the
constitutionality of the ‘Elkins’ law forbidding rate
discrimination, alleging the right of the railroads and
shippers to make private contract rates, an impudent assertion
which the court justly characterized as an ‘abhorrent heresy.’
The question of guilt in the matter of technical proof
depended to a large extent on the requirements of the law that
carriers must file rates, and the argument of the prosecution
was that shippers must be charged with the knowledge as to
whether such rates were lawfully filed or not. The defendant
pretended ignorance of the fact that the six-cent rate had not
been filed by the Alton and alleged that it was an
unreasonable requirement to charge it with such knowledge. On
this point the court said in rendering judgment:
"‘The honest man who tenders a commodity for transportation by
a railway company will not be fraudulently misled by that
company into allowing it to haul his property for less than
the law authorizes it to collect. For the carrier thus to
deceive the shipper would be to deliberately incriminate
itself, to its own pecuniary detriment, which it may safely be
trusted not to do. The only man liable to get into trouble is
he who, being in control of the routing of large Volumes of
traffic, conceives a scheme for the evasion of the law, and
connives with railway officials in its execution.’
"The jury returned a verdict of guilty on 1462 counts, on
April 14, 1907: a considerable number of counts, namely 441,
were thrown out on technical grounds. In the matter of
penalty, the Standard’s counsel argued
(1) that there were only three offences shown, namely, one for
each year in which the rate was in force;
(2) that there were only 36 offences shown, namely, one for
each monthly settlement of freight charges; and
(3) that each train load constituted a separate offence. The
court held, however, that the unlawful rate was made on a
carload basis, and that each carload unlawfully transported
constituted a distinct offence.
{124}
In considering the amount of the fine to be levied, the court
demanded information from the officials of the Standard Oil
Company regarding the net earnings and dividends of the chief
holding company of the trust—the Standard Oil Company of New
Jersey. Their attendance and testimony were obtained only by
writ of subpoena; and it was admitted that the net profits
during the years 1903 to 1905 (when these rebates existed)
amounted to $81,336,994, $61,570,110, and $57,459,356
respectively.
"In view of the fact that the counsel of the defendant openly
maintained the right of the railways and shippers to make
private contracts for rates, the court declared that it was
‘unable to indulge the presumption that in this case the
defendant was convicted of its virgin offence.’ The defendant
also claimed that, as there were no other shippers of oil over
the Chicago and Alton Railway, no one was injured by the
secret rate. On this matter the court said:
"‘It is novel, indeed, for a convicted defendant to urge the
complete triumph of a dishonest course as a reason why such a
course should go unpunished.
"‘Of course, there was no other shipper of oil, nor could
there be, so long as, by secret arrangement, the property of
the Standard Oil Company was hauled by railway common carriers
for one-third of what anybody else would have to pay.’
"Moved by these considerations, the court adjudged, on August
3, 1907, that the defendant should pay the maximum penalty and
fined the Standard Oil Company $20,000 for each offence, that
is, for each of the 1462 counts in the indictment upon which
conviction was obtained. The total fine, therefore, amounted
to $29,240,000."
_Francis Walker,
The Oil Trust and the Government
(Political Science Quarterly, March, 1908)._
On a writ of error the case went now to the United States
Circuit Court of Appeals for the Seventh Circuit, where it was
argued at the April session, 1908, and the opinion, by Judge
Peter S. Grosscup, Circuit Judge, delivered on the 22d of the
following July. In this opinion the District Court was held to
have erred in deciding that each single carload of oil was to
be dealt with as a separate offence, and that it reasoned
erroneously in determining the fine imposed. On this latter
point Judge Grosscup said:
"Did the court, in the fine imposed, abuse its discretion? The
defendant indicted, tried, and convicted, was the Standard Oil
Company, a corporation in Indiana. The capital stock of this
corporation is one million dollars. There is nothing in the
record, in the way of evidence, either before conviction, or
after conviction and before sentence, that shows that the
assets of this corporation were in excess of one million
dollars. There is nothing in the record, either before
conviction, or after conviction and before sentence, that
shows that the defendant, before the court, had ever before
been guilty of an offence of this character. It may,
therefore, be safely assumed, that but for the relation of the
defendant before the court to another corporation, not before
the court—a relation to be presently stated—the court would
have measured out punishment on the basis of the facts just
stated.
"That under such circumstances the punishment would have been
the maximum punishment, does not seem possible; for the
maximum sentence, put into execution against the defendant
before the court, would wipe out, many times, and for its
first offence, all the property of the defendant. …
"Briefly stated, the reason of the trial court for imposing
this sentence was because, after conviction and before
sentence, it was brought out, on an examination of some of the
officers and stockholders of the Standard Oil Company of New
Jersey, that the capital stock of the Standard Oil Company of
Indiana, the defendants before the court, was principally
owned by the New Jersey corporation, a corporation not before
the court—the trial court adding (upon no evidence however to
be found in the record, and upon no information specially
referred to) that in concessions of the character for which
the defendant before the court had been indicted, tried, and
convicted, the New Jersey corporation was not a ‘virgin’
offender.
"Is a sentence such as this, based on reasoning such as that,
sound? Passing over the fact that no word of evidence or other
information supporting the trial court’s comment is to be
found in the record, would the comment, if duly proven,
justify a sentence such as this—one that otherwise would not
have been imposed? Can a court, without abuse of judicial
discretion, wipe out all the property of the defendant before
the court, and all the assets to which its creditors look, in
an effort to reach and punish a party that is not before the
court—a party that has not been convicted, has not been tried,
has not been indicted even? Can an American judge, without
abuse of judicial discretion, condemn any one who has not had
his day in court?
" That, to our mind, is strange doctrine in Anglo-Saxon
jurisprudence. …
"The judgment of the District Court is reversed and the case
remanded with instructions to grant a new trial, and proceed
further in accordance with this opinion."
The Government failed in attempts to secure a rehearing before
the Appellate Court, as well as in an application for the
reviewing of the case by the Supreme Court.
On the new trial to which the case was remanded Judge Landis,
whose judgment had been set aside, declined to sit, and Judge
A. B. Anderson, of Indianapolis, was called to Chicago to
occupy his bench. The trial was opened on the 23d of February,
1909. On the 2d of March Judge Anderson sustained the motion
of the defence that the government must proceed on the theory
that there were thirty-six alleged offences—that is, that each
settlement on which an alleged rebate was paid instead of each
carload, constituted a separate offence. This made it
impossible to claim a penalty beyond $720,000, being at the
rate of $20,000 for each offence. But even that was put out of
the question by the ultimate decision of the Judge, that the
law, as laid down by the United States Court of Appeals,
required him to direct the jury to find the Standard Oil
Company not guilty on the charge of accepting rebates from the
Chicago and Alton Railroad. This instruction he gave on the
10th of March, thus bringing the case to an end.
{125}
The outcome in this case was said to mean that all but two of
the pending indictments against the Standard Oil Company of
Indiana, as recapitulated above, are void and would be
abandoned by the Government. The two cases not affected are
cases involving the shipment of 1915 carloads of oil from
Whiting, Indiana, to Evansville, Indiana, via Dolton Junction,
over the Chicago and Eastern Illinois Railroad.
On the 15th of March, five days after the acquittal of the
Company in Illinois, a fine of $20,000 was imposed upon it by
the United States District Court of the Western District of
New York, on one of the indictments founded on shipments from
Rochester and Olean to points in Vermont. Previously, the New
York Central Railroad had paid a heavy fine for granting
rebates on those shipments.
Numerous State prosecutions, under State laws in Missouri,
Texas, Minnesota, Ohio, and elsewhere, had been assailing the
monopolistic corporation simultaneously with the proceedings
of the General Government against it, and some of them with
greater seriousness of effect than the Federal prosecutors had
accomplished. The more important of these were in Texas,
against the subsidiary Waters-Pierce Oil Company of Missouri,
and in Missouri, against that Company in association with the
Standard of Indiana, and with another of the same Trust
family. The Texas suit, after making its slow way through the
State courts and to the United States Supreme Court, came to
its conclusion early in 1909, with the result of a fine of
$1,623,500, and the exclusion of the Company from business in
the State. The suit in Missouri, as decided at about the same
time by the Supreme Court of the State, resulted in an order
for the dissolution of the Waters-Pierce Company and for the
perpetual exclusion of the other companies, chartered
elsewhere, from operations within the State. The outcome of
this vindication of the law of the State is understood to have
been an arrangement under which the business of the
Waters-Pierce Company is taken over by a new company, the
stock of which is held by trustees approved by the Supreme
Court of the State and acting as officers of the Court.
COMBINATIONS: A. D. 1905-1906.
The Tobacco Trust Case of Hale v. Henkel.
Denial by the Supreme Court of the claim of corporations
to be exempt from the production of books and papers
before a Grand Jury.
A proceeding begun by the Government of the United States, in
the spring of 1905, to ascertain the lawfulness or
unlawfulness of the methods of business pursued by the
so-called Tobacco Trust, was embarrassed by the refusal of a
witness to give evidence for which he was summoned before the
grand jury of the Circuit Court of the United States for the
Southern District of New York. The case pending was between
the United States and the American Tobacco Company and
MacAndrews & Forbes Company. The witness, Hale, was secretary
and treasurer of the MacAndrews & Forbes Company. He refused
to answer any questions that were put to him concerning the
business of that company, or to produce any of the books,
accounts, contracts, correspondence, etc., that were demanded,
being advised by counsel that he was under no legal obligation
to do so, and that the evidence given or produced by him might
tend to incriminate himself. He was held to be in contempt of
Court and was committed to the custody of the United States
Marshal. Being then, on a writ of _habeas corpus_,
brought before another judge of the same Court, after a
hearing, the writ was discharged and he was remanded to
custody (June 18, 1905). An appeal to the Supreme Court
followed, which was argued in the early days of January, 1906,
and decided on the 12th of March following.
The decision of the Court, rendered by Justice Brown, was on
two issues which it found to be presented in the case: The
first involving "the immunity of the witness from oral
examination; the second the legality of his action in refusing
to produce the documents called for by the _subpœna duces
tecum_." The witness justified his refusal to answer questions,
"1st upon the ground that there was no specific ‘charge’
pending before the grand jury against any particular person;
2d that the answers would tend to criminate him." On the first
point the Court found it "entirely clear that under the
practice in this country, at least, the examination of
witnesses need not be preceded by a presentment or indictment
formally drawn up, but that the grand jury may proceed, either
upon their own knowledge or upon the examination of witnesses,
to inquire for themselves whether a crime cognizable by the
Court has been committed." As to the plea of an apprehended
self-incrimination, the Court held that the witness was
protected by the act which provides that no person shall be
prosecuted on account of anything concerning which he may
testify or produce evidence. But it was further insisted that
while the immunity statute may protect individual witnesses it
would not protect the corporation of which the appellant was
the agent and representative. "This is true," says the Court,
"but the answer is that it was not designed to do so. The
right of a person under the Fifth Amendment to refuse to
incriminate himself is purely a personal privilege of the
witness. It was never intended to permit him to plead the fact
that some third person might be incriminated by his testimony,
even though he were the agent of such person."
On the second issue in the case, the substance of the decision
is in the following passages from it:
"Having already held that, by reason of the immunity act of
1903, the witness could not avail himself of the Fifth
Amendment, it follows that he cannot set up that Amendment as
against the production of the books and papers, since in
respect to these he would also be protected by the immunity
act. … We are of the opinion that there is a clear distinction
in this particular between an individual and a corporation,
and that the latter has no right to refuse to submit its books
and papers for an examination at the suit of the State. … The
individual may stand upon his constitutional rights as a
citizen. He is entitled to carry on his private business in
his own way. … Among his rights are a refusal to incriminate
himself, and the immunity of himself and his property from
arrest or seizure except under a warrant of the law. … Upon
the other hand, the corporation is a creature of the State. It
is presumed to be incorporated for the benefit of the public.
… Its rights to act as a corporation are only preserved to it
so long as it obeys the laws of its creation. There is a
reserved right in the Legislature to investigate its contracts
and to find out whether it has exceeded its powers. … The
defense amounts to this: That an officer of a corporation,
which is charged with a criminal violation of the statute, may
plead the criminality of such corporation as a refusal to
produce its books.
{126}
To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises,
may refuse to show its hand when charged with an abuse of such
privileges."
Taking note of the fact that the franchises of the corporation
in this case were derived from one of the States, the Court
proceeds to say:
"Such franchises, so far as they involve questions of
inter-State commerce, must also be exercised in subordination
to the power of Congress to regulate such commerce, and in
respect to this the General Government may also assert a
sovereign authority to ascertain whether such franchises have
been exercised in a lawful manner, with due regard to its own
laws. … The powers of the General Government in this
particular, in vindication of its own laws, are the same as if
the corporation had been created by an act of Congress."
Justices Harlan and McKenna dissented from some of the views
set forth in the opinion of the majority, as declared by
Justice Brown, but concurred in the final judgment, which
affirmed the order of the Circuit Court, remanding the
prisoner to the custody of the Marshal. Justice Brewer and the
Chief Justice dissented from the conclusions relative to
corporations, and from the judgment, holding that "the order
of the Circuit Court should be reversed and the case remanded
with instructions to discharge the petitioner, leaving the
grand jury to initiate new proceedings not subject to the
objections to this."
_Federal Anti-Trust Decisions, 1900-1906,
prepared and edited by
James A. Finch by direction of the Attorney-General,
Volume 2, page 874
(Washington: Government Printing Office, 1907)._
COMBINATIONS: A. D. 1906-1910.
The Standard Oil Company.
Suit of the Government for its dissolution.
Decree for its dissolution by the Circuit Court.
Appeal to the Supreme Court.
Entirely distinct from the criminal prosecutions of the
Standard Oil Company by the United States Government, as
reviewed above was a suit begun in November, 1906, in the
United States Circuit Court for the Eastern Division of
Missouri. The former actions were to penalize the Company for
violations of the Elkins Act, by the procuring of railway
rebates. The later suit was to dissolve the combination in
restraint of trade which the Company was alleged to be, and
therefore illegally existing, in the view of the Sherman
Anti-Trust Law. The complaint was directed against the parent
organization, known as the Standard Oil Company of New Jersey,
with its various subsidiary corporations. It was also directed
against seven individuals namely, John D. Rockefeller, William
Rockefeller, Henry M. Flagler, Henry H. Rogers (now deceased),
John D. Archbold, Oliver H. Payne, and Charles M. Pratt. The
main company, its branches, and these individuals were charged
in the complaint with having entered into an agreement,
combination, and conspiracy to restrain trade and commerce
among the several States, to monopolize the trade in
petroleum, both in its purchase and its shipment and
transportation by pipe-line, steamships and by rail, also in
the manufacture and refining of petroleum.
One of the evidences of its monopoly adduced by the Government
was the enormity of its earnings which were summarized thus:
The Standard Oil Trust and the Standard Oil Company, on an
investment of $69,024,480, had earned up to the end of 1906,
$838,783,783. Adding the estimated profits of 1907 and 1908,
we have substantially, the brief states, a billion dollars
earned by this company in twenty-seven years, with an original
investment of about $69,000,000.
The United States asked for a perpetual injunction, and for
the dissolution of the Standard Oil combination. Hearings were
held in New York, Washington, Chicago, Cleveland, and St.
Louis, about four hundred witnesses being examined. It was not
until the 5th of April, 1909, that the case reached the stage
of argument, before Judges Walter H. Sanborn, Willis Van
Devanter, William C. Hook and Elmer B. Adams, constituting the
United States Circuit Court at St. Louis. The decision of the
Court was announced on the 20th of the following November, the
four judges concurring in the opinion, written by Judge
Sanborn, which held the Standard Oil Company to be an illegal
corporation and decreed its dissolution. The character of the
decision appears from the syllabus of Judge Sanborn’s opinion,
which reads:
"Congress has power under the commercial clause of the
Constitution to regulate and restrict the use in commerce
among the several States, and with foreign nations, of
contracts, of the method of holding title to property and of
every other instrumentality employed in that commerce, so far
as it may be necessary to do so, in order to prevent the
restraint thereof denounced by the Anti-Trust Act of July 2,
1890 (26 Stat. 29).
"Test of the legality of a combination under this act is its
necessary effect upon competition in commerce among the States
or with foreign nations. If its necessary effect is only
incidentally or indirectly to restrict the competition, while
its chief result is to foster the trade and increase the
business of those who make and operate it, it does not violate
that law. But if its necessary effect is to stifle or directly
and substantially to restrict free competition in commerce
among the States, or with foreign nations, it is illegal
within the meaning of that statute.
"The power to restrict competition in commerce among the
several States, or with foreign nations, vested in a person or
an association of persons by a combination, is indicative of
the character of the combination, because it is to the
interest of the parties that such a power should be exercised,
and the presumption is that it will be.
"The combination in a single corporation or person, by an
exchange of stock, of the power of many stockholders holding
the same proportions, respectively, of the majority of the
stock of each of the several corporations engaged in commerce
in the same articles among the States, or with foreign
nations, to restrict competition therein, renders the power
thus vested in the former greater, more easily exercised, more
durable, and more effective than that previously held by the
stockholders, and it is illegal.
{127}
"In 1899 the stockholders of the Standard Oil Company of New
Jersey owned a majority of the stock of nineteen other
corporations in the same proportions that they owned the stock
of the Standard Company, and those twenty corporations
controlled by the owners of the majority of their stock or
otherwise many other corporations. Each of these corporations
was engaged in some part of the business of producing, buying,
refining, transporting, and selling petroleum and its
products, and they were conducting about 30 per cent. of the
production of the crude oil and more than 75 per cent. of the
business of the purchasing, refining, transporting, and
selling petroleum and its products in this country. Many of
them were engaged in commerce in these articles among the
several States and with foreign nations, and were naturally
competitive.
"During the ten years prior to 1879 the seven individual
defendants had acquired control of many corporations,
partnerships, and refiners that had been competing in this
business, had placed the majority of the stock of those
corporations and the interests in property in business thus
obtained in various trustees to be held and operated by them
for the stockholders of the Standard Oil Company, one of the
nineteen companies in which the individual defendants were
principal stockholders, and had thereby suppressed competition
among these corporations and partnerships.
"In 1879, they and their associates caused all the trustees to
convey their interests in the stock, property and business of
these corporations to five trustees, to be held, operated and
distributed by them for the stockholders of the Standard
Company of Ohio. From 1879, until 1892, they prevented these
corporations and others engaged in this business, of which
they secured control, from competing in this commerce by
causing the control of their operations and generally of a
majority of their stocks, to be held in trust for the
stockholders of the Standard Company of Ohio, and, from 1892,
until 1899, they accomplished the same result by a similar
stock-holding device, and by the joint equitable ownership of
the majority of the stocks of the corporations."
Appeal from the decree has been taken to the Supreme Court,
where it was preceded by the appeal of the Tobacco Trust from
a similar decree, involving substantially the same questions,
according to what seems to be the general view of the Bar. On
the 17th of January, 1910, the Supreme Court of the United
States granted the motion of the Government for the
advancement on the docket of the Standard Oil case, and set
the hearing for March 14.
COMBINATIONS: A. D. 1907.
The chief existing combinations.
Their operation through stock ownership.
"Passing the matter of railroad combinations, as to which it
may be said that through stock ownership the control of all
American lines is now concentrated in seven groups of parent
properties, we are chiefly concerned with the practical use
that has been made of the new corporate power by the largest
and strongest of our manufacturing and industrial enterprises.
"The United States Steel Corporation, organized under the laws
of New Jersey, with a capital stock of $1,100,000,000 owns a
majority of the stock of eleven subsidiary companies, and
controls industries scattered over the entire country under
different styles and corporate names. This corporation owns or
manages 213 manufacturing and transportation plants and
forty-one mines located in eighteen different States; it has
more than 1,000 miles of railroad tracks to ore, coke and
manufacturing properties, and a lake fleet of 112 vessels.
This stock ownership gives it control of hundreds of millions
of capital that is not represented by its own billion dollars
of stock.
"The Amalgamated Copper Company, incorporated in New Jersey,
has no asset whatever except the stocks of other corporations.
It owns all the stock of four operating companies and a
controlling interest in seven others, and has taken them over
by an issue of $155,000,000 of its own stock.
"The American Smelting and Refining Company, organized under
the laws of New Jersey, controls the business of thirteen
corporations, in which it either owns the entire stock or a
majority interest. Associated with it are the American Linseed
Company, the National Lead Company and the United Lead
Company, and they together control twenty-eight concerns and
ninety-three affiliated corporations.
"The Standard Oil Company, incorporated in New Jersey, with a
capital stock of $110,000,000, controls, directs and manages
more than seventy corporations through its possession of a
majority of their stock. Some of these companies own stock in
still other corporations, and all together the combine
operates more than 400 separate and distinct properties, thus
monopolizing 90 per cent, of the export oil trade and 84 per
cent. of the domestic trade. The market value of its
capitalization is about $650,000,000, and all this vast
property was brought together under one head without the
payment of a single dollar of cash, the whole consolidation
being effected through the issue of stock in the holding
company in payment of stock in the companies that are held.
"The United Gas Improvement Company, incorporated in
Pennsylvania, own stock in thirty corporations doing the
character of business for which it was organized, and in
addition to this is interested in numerous street railway
properties, including the New York City surface railways. With
it is allied the Public Service Corporation of New Jersey and
the Rhode Island Securities Company, which last named owns all
the stock of the Rhode Island Company, which again has leased
for 999 years several of the most important railroad companies
doing business in that State. The power of this corporation,
through this system of stock ownership, is scarcely
calculable, and the value of properties controlled would equal
hundreds of millions, although its own capital stock is but
$36,000,000.
"The American Tobacco Company, organized under the laws of New
Jersey, with a capital stock of $40,000,000, practically
controls the whole market through its ownership of the stock
of innumerable other corporations.
"The International Harvester Company, incorporated in New
Jersey, with a capital stock of $120,000,000, while probably
not a holding company, maintains most, if not all, the
corporations which it has bought out, and they are operated as
if they were distinct and competing concerns.
"The American Sugar Refining Company, incorporated in New
Jersey, with a common stock of $40,000,000, controls
fifty-three other corporations.
{128}
"The American Telegraph and Telephone Company, incorporated in
New York, with a capital stock of $250,000,000 controls,
through stock ownership, thirty-five subsidiary corporations.
"The Western Union Telegraph Company owns stock in twenty-four
other corporations; the Distillers’ Security Company owns 90
per cent. of the stocks of the Distilling Company of America,
and has acquired ninety-three plants, representing 60 per
cent. of the industry; the Philadelphia Rapid Transit Company
owns the stock of twelve elevated and street railway
companies; the Brooklyn Rapid Transit Company owns the stock
of seven others; the Metropolitan Securities Company of New
York owns the stock of many traction companies, and the
controlling interest in others; the Inter-State Railways of
New Jersey own all the stock of the United Power and
Transportation Company, which latter company controls the
capital and franchises of about forty other projected
companies in New Jersey and Pennsylvania; while the
International Mercantile Marine Company of New Jersey owns a
majority of the shares of many of the most important steamship
companies whose vessels cross the Atlantic Ocean.
"These are but a few instances of the promotion of
combinations through stock ownership."
_Wade H. Ellis,
Attorney-General of Ohio,
Paper read at National Conference on Trusts and
Combinations, Chicago, October 22, 1907._
COMBINATIONS: A. D. 1907.
National Conference on the Trust Question, invited
by the National Civic Federation.
A remarkably representative and impressive assembly at
Chicago, of delegates from all parts of the country, and
voicing all interests, was brought about by the invitation of
the National Civic Federation, in October, 1907, for a
thorough discussion of the questions which troubled the
country and confused its attitude toward Trusts and
Combinations, as subjects of regulation by law. There had been
a similar conference at Chicago in 1899, at the call of the
Civic Federation of that city; but no common ground of
agreement could then be found. The subject, as was afterwards
said, "was too new, too vaguely understood for men to be of
one mind in regard to it." But eight years later, in 1907, "it
appeared to the leaders of the National Civic Federation not
improbable that a new conference might lead to some definite
pronouncement of opinion. … Leaders of opinion in all walks of
life gave the project their hearty endorsement. … The matter
was taken up with great interest by the Governors of the
several States and by the presidents of commercial bodies, who
named delegates in response to the invitation of the National
Civic Federation. A significant evidence of this greater
interest is found in the larger number of delegations
appointed in 1907 than in 1899. The records show the
following:
Delegations. 1899. 1907.
Appointed by Governors 33 39
Appointed by national
and State organizations 22 33
Appointed by
labor organizations 7 14
Appointed by local
commercial bodies 33 58
Total 95 144
"Furthermore, the attendance of 492 delegates in 1907 might be
contrasted with that of 238 delegates at the earlier
conference.
"The conference of 1907, though larger in numbers, was much
more of a unit in sentiment. It developed at an early stage of
the discussion that there was no important element
antagonizing the trust and combination as such. There were few
speakers who failed to dwell upon the advantages which had
accrued to the nation from some combinations, and from the
spirit of association which, after all, cannot be separated
from them. On the other hand, there was no lack of emphasis in
dwelling upon the evils which had been disclosed among trusts
and combinations.
"The resolutions of the conference, adopted by a unanimous
vote, reveal these tendencies. They are a call for further
examination and more light, but a call for such examination
along certain pretty well-defined lines. They should receive
the attention of Congress as an expression of the popular will
on this pressing question."
The Conference held nine sessions, extending over four days,
focusing the thought of the best minds of the country, and the
counsels of the largest practical experience, on all points in
the many-sided problem before it. On all that appear most
important among those points it came to a full and clear
agreement in its conclusions, as embodied in the following
resolutions, which were adopted by unanimous vote, a committee
being appointed to present them to Congress and to the
President:
"After twenty years of Federal legislation as interpreted by
the courts, directed against the evils of trusts and
combinations, and against railroad rebates, beginning with the
interstate commerce act of 1887 and the anti-trust act of
1890, a general and just conviction exists that the experience
gained in enforcing these federal acts and others succeeding
them demonstrates the necessity of legislation which shall
render more secure the benefits already gained and better meet
the changed conditions which have arisen during a long period
of active progress, both in the enforcement of statute law and
in the removal of grave abuses in the management of railroads
and corporations. These changes now demanded are:
"First—Immediate legislation is required, following the
recommendation of President Roosevelt and the Interstate
Commerce Commission, permitting agreements between railroad
corporations on reasonable freight and passenger rates,
subject in all respects to the approval, supervision, and
action of the Interstate Commerce Commission.
"Second—The enforcement of the Sherman act and the proceedings
under it during the administrations of Presidents Harrison,
Cleveland, McKinley, and Roosevelt have accomplished great
national results in awakening the moral sense of the American
people and in asserting the supremacy and majesty of the law,
thus effectually refuting the impression that great wealth and
large corporations were too powerful for the impartial
execution of law. This great advance has rendered more secure
all property rights, resting, as they must, under a popular
government, on universal respect for and obedience to law. But
now that this work is accomplished, it has revealed the
necessity for legislation which shall maintain all that the
Sherman act was intended to secure and safeguard interests it
was never expected to affect.
{129}
"As the next step in executing the determination of the
American people to secure in all industrial and commercial
relations justice and equality of opportunity for all, with
full sympathy and loyal support for every effort to enforce
the laws in the past, we urge upon Congress without delay to
pass legislation providing for a non-partisan commission, in
which the interests of capital, of labor, and of the general
public shall be represented. This commission, like a similar
commission, which proved most successful in Germany in 1870,
shall consider the entire subject of business and industrial
combinations and report such proposals, as to the formation,
capitalization, management and regulation of corporations (so
far as the same may be subject to federal jurisdiction) as
shall preserve individual initiative competition, and the free
exercise of a free contract in all business and industrial
relations. Any proposed legislation should also include
modification of the prohibition now existing upon combinations
on the following subjects:
"1. National and local organizations of labor and their trade
agreements with employers relating to wages, hours of labor,
and conditions of employment.
"2. Associations made up of farmers, intended to secure a
stable and equitable market for the products of the soil free
from fluctuations due to speculation.
"3. Business and industrial agreements of combinations whose
objects are in the public interest as distinguished from
objects determined to be contrary to the public interest.
"4. Such commission should make a thorough inquiry into the
advisability of inaugurating a system of federal license or
incorporation as a condition for the entrance of certain
classes of corporations upon interstate commerce and also into
the relation to the public interest of the purchase by one
corporation of the franchises or corporate stock of another.
"On no one of these subjects must what has been gained be
sacrificed until something better appears for enactment. On
each, this conference recognizes differences between good men.
On all, it asks a national non-partisan commission to be
appointed next winter to consider the question and report at
the second session of the approaching Congress for such action
as the national legislature, in the light of this full
investigation, may enact.
"Third—The examination, inspection and supervision of great
producing and manufacturing corporations, already begun by the
Department of Commerce and Labor and accepted by these
corporations, should be enlarged by legislation requiring,
through the appropriate bureaus of the Department of Commerce
and Labor, complete publicity in the capitalization, accounts,
operations, transportation charges paid, and selling prices of
all such producing and manufacturing corporations whose
operations are large enough to have a monopolistic influence.
This should be determined and decided by some rule and
classification to be devised by the commission already
proposed.
"Fourth—The conflicts between State and Federal authorities
raised in many States over railroad rates being now under
adjudication and under way to a final and ultimate decision by
the Federal Supreme Court, this conference deems the
expression of an opinion on these issues unfitting, and
confidently leaves this great issue to a tribunal which for
118 years has successfully preserved the balance between an
indissoluble union and indestructible State, defining the
supreme and national powers of the one and protecting the
sovereign and individual powers of the other."
_Proceedings of the National Conference
on Trusts and Combinations,
Chicago, October 22-25, 1907
(New York: National Civic Federation, 1908)._
COMBINATIONS: A. D. 1907-1909.
Thievery of the Sugar Trust.
In the fall of 1907 disclosures were made to the Government
which led to an investigation of the methods whereby imports
of raw sugar for the American Sugar Refining Company, known
commonly as the Sugar Trust, were weighed for the payment of
Customs duties, at the Company’s docks in Williamsburgh and
Jersey City. The result of the investigation was to prove that
this enormously wealthy corporation, not satisfied with
extortions of profit from the public by its monopoly of the
vast sugar trade of the country, had stooped to practices of
systematic theft from the Government, by devices that would
almost shame the professional players of a thimble rigging
game. Several ingenious inventions of trickery with the
weighing scales had been employed at the sugar docks prior to
1904, but the crowning one appears to have been brought to use
in that year. "This," said the New York _Evening Post_ of
April 29, 1909, in a full rehearsal of the story of the Sugar
Trust larcenies, "consisted of a thin steel corset spring,
which was inserted through a hole drilled in the uprights or
stanchions supporting the scales. If inserted at a time when
there was a load on the platform, its pressure against the
walking beam of the scale resulted in creating a false
balance, and in making the load appear considerably lighter
than it really was. This little device proved to be so
satisfactory for the purposes for which it was designed that
it was fitted to all the seventeen government scales at the
Havemeyer & Elder refinery. Holes were drilled in the
stanchions of each of the scales—hence the ‘case of the
seventeen holes’ to which Mr. Stimson called attention. So
successful was the operation of this mechanism that it was
used constantly down to the very day, November 20, 1907, when
a United States Treasury agent found it in use.
"The method of use was simple. The scales were placed with the
stanchions in a dark corner, next to the wall, and close
beside this stanchion sat the company’s checker, whose
ostensible duty it was to record in a little book the weight
of each load as it was read off to him by the government
weigher standing at the other end of the scale. The checker’s
really important duty seems to have been, however, to
manipulate the steel spring through the hole in the stanchion,
so that on each truck load, the company which employed him was
saved the payment of duty on some fourteen pounds of sugar.
"Evidence was adduced at the subsequent trial to show that the
company considered this special service on the part of its
checkers worthy of additional compensation. For although there
were seventeen scales, all of which could be used for this
purpose, practically all the weighing was done on six, and the
six reliable checkers who, year in and year out, operated the
little steel springs, all received extra pay in their weekly
pay envelopes for this service."
{130}
Consequent on the discovery of these facts, "several
indictments were found against the Sugar Trust’s employees,
and with that discovery as a basis the government began to
work up its case. … When the government came to work up its
case and to fix approximately the amount out of which it had
been defrauded, it was found possible to present a piece of
evidence which so thoroughly clinched the case that defence,
when it came to be made, was so weak as to be negligible. This
evidence consisted of a tabulation comparing the weights of
sugar on which duty was paid and the weights for which the
company paid the planters between the time the first cargo of
sugar of December, 1901, arrived at the refinery and the
discovery of the fraud in November, 1907.
"It took a score or more of accountants working steadily for
six months to complete the tabulation, but when it was
finished the astonishing corroborative story it told made it
well worth all the time and trouble expended. Never was there
a better example of the deadly parallel. For every entry the
weights on which duties were levied was set alongside of the
weights for which the company paid the planters."
The first result of the proceedings of the Government against
the thievish Trust was a pecuniary settlement with it,
concerning which the following official statement was given
out at Washington, by Attorney-General Wickersham, on the 29th
of April, 1909:
"The Attorney-General, with the concurrence of the Secretary
of the Treasury, has just approved a settlement between the
American Sugar Refining Company and the United States
Government of all the claims which the latter has against it
arising out of the fraudulent weighing on the docks of its
refineries at Brooklyn and Jersey City. In making this
settlement the sugar company pays in full the recent judgment
for the penalty in the amount of $134,411.03, which was
awarded against it by the jury in the case tried in the
federal court last March, with interest, and agrees to take no
appeal from the judgment.
"In addition to this, it pays into the United States treasury
$2,000,000 more, representing the duties which have been
unpaid during the last twelve years, owing to the fraudulent
practices, $1,239,088.97 of this amount has already been paid
in under protest to Collector Loeb on his reliquidation, as a
result of the trial above mentioned, of the duties upon the
cargoes entered at the Havemeyer & Elder refineries between
the years 1901 and 1907, when the frauds were discovered.
"The sugar company abandons its protests on these payments and
gives up its right to appeal from Mr. Loeb’s reliquidation and
in addition to this pays into the United States treasury the
above judgment and over $760,000 more to cover the duties
unpaid at the Havemeyer & Elder docks prior to 1901 and at the
Jersey City refinery between 1896 and 1906.
"This settlement with the sugar company in nowise affects the
criminal prosecution of the individuals who are responsible
for the perpetration of these frauds, and such prosecutions
will be pressed to a finish by the government."
[Soon after this settlement with the Government by the Sugar
Trust for shortage in payment of duties, the firm of Arbuckle
Brothers made a similar settlement, paying $695,573.19.]
A few days after the above announcement of a pecuniary
settlement with the American Sugar Refining Company, the Grand
Jury of the Circuit Court in the New York District presented
indictments against Oliver Spitzer, who was superintendent on
the company’s docks, Thomas Kehoe, Eugene M. Voelker, Edward
A. Boyle, J. R. Coyle, J. M. Halligan, Jr., and Patrick J.
Hennessy.
In November, further indictments were found against these
employees of the company, and James F. Bendernagel, general
superintendent of the Williamsburgh refinery for many years
past, was arrested on an indictment found by the same grand
jury. The trial of the accused, in the United States District
Court, was opened on the 30th of November.
On the 17th of January, 1910, Charles R. Heike, secretary and
treasurer of the American Sugar Refining Company, was
arraigned before Judge Hough in the criminal branch of the
United States Circuit Court, charged with making false entries
and conspiring to defraud the government.
COMBINATIONS: A. D. 1907-1909.
Suit of the Government against the Tobacco Trust.
Decree of Circuit Court restraining the combined
companies from interstate and foreign trade.
On the 10th of July, 1907, the Government began suit at New
York against the so-called Tobacco Trust. The defendants in
the case included 65 corporations and 27 individuals, the
principals, however, being six companies, namely, the American
Tobacco Company, the British-American Tobacco Company, the
Imperial Tobacco Company, the American Snuff Company, the
American Cigar Company, and the United American Cigarette
Company. Of these the parent organization, dominating all the
others, is the American Tobacco Company, which began the
finally gigantic combination in a small way in 1890. The
object sought in the Government’s suit was an injunction to
restrain the combination as such from engaging in interstate
and foreign trade, or for the appointment of receivers to take
the management of the business concerned.
The case was argued before the Second Circuit Court of the
United States in May, 1908, and the decision of the Court was
announced on the 7th of November following, Judges Lacombe,
Noyes, and Coxe agreeing and Judge Ward dissenting. The Court
found that an injunction should issue against some, but not
all, of the principal defendants, to prevent the continuance
of their violation of the Sherman Anti-Trust Law. It acquitted
the Trust, however, of the charge of dishonest and oppressive
practices, and it denied the application for receiverships.
The final decree of the Court was filed on the 15th of
December, 1908.
Appeals to the Supreme Court of the United States were taken,
both by the Government and by the defendants, and the case was
pending in that Court at the close of the year 1909. Mean time
the decree has been in suspense.
{131}
COMBINATIONS: A. D. 1907-1909.
Suit to dissolve the alleged Anthracite Coal Combination.
The following statements were made in an Associated Press
despatch from Philadelphia, March 8, 1909:
"Testimony of the Government in its suit against the
anthracite coal-carrying railroads and several coal companies,
to dissolve a so-called Trust agreement, alleged to be
existing among them, has been filed in the Circuit Court of
the United States for the Eastern District of Pennsylvania.
"Suit was begun here on June 12, 1907, and in the course of
three months all the defendants made answer, denying the
allegations of the Government. Subsequently, the court
appointed an examiner to take testimony, and a great part of
last year was taken up in hearing witnesses, sessions being
held mainly in Philadelphia and New York.
"The Government closed its case in New York several weeks ago,
having taken more than its allotted time, and the next move
will be for the Government to file a motion apportioning a
certain amount of time for the defendant companies to present
their witnesses for examination. Much of the testimony thus
far has been documentary, and it is believed this will be the
case with the defendants. After all the testimony is filed
with the court for review, arguments will be had on the case.
"It is impossible at this time to indicate when the case will
be ended, but it seems probable that a year or more will have
elapsed before it is legally decided whether a hard coal
monopoly, as alleged, exists in Pennsylvania."
See, also, proceedings under the "Commodities Clause" of
the Hepburn Act, and decision of United States Supreme
Court, in this Volume, under RAILWAYS: UNITED STATES: A. D.
1906-1909.
COMBINATIONS: A. D. 1908.
Declarations in Party Platforms on Trusts.
See (in this Volume)
UNITED STATES: A. D. 1908 (APRIL-NOVEMBER).
COMBINATIONS: A. D. 1908-1909.
Amending the Sherman Anti-Trust Law.
Action of the National Civic Federation.
The resolutions adopted at the great National Conference of
1907 on the Trust Question, as recited above, were duly
presented to Congress at its next session, and to the
President, with results which were stated at the annual
meeting of the National Civic Federation in December, 1908, by
its President, the Honorable Seth Low, as follows:
"When these resolutions were presented to the two Houses, the
Conference Committee was asked to submit a definite Bill in
legislative form to carry out its proposals. The Conference
itself had given no such authority to any Committee; but, in
view of the situation as it had developed, the Executive
Committee of the Federation took the matter up. The result of
its action was the preparation of a Bill, which was submitted
in due time to Congress, and which became the subject of
numerous hearings before the Judiciary Committees both of the
House and of the Senate, but especially of the House. The Bill
of last spring was based upon the belief that at that time,
and before the approaching Presidential election, it would be
impossible to change the substantive law as embodied in the
Sherman Anti-Trust Act. This being taken for granted, it
became impossible to do more than propose a method by which,
without changing the law, certain restraints of trade, if not
disapproved in advance by some government authority, might be
assured freedom from prosecution. The hearings before the
Congressional Committees made it evident that no relief from
the embarrassments caused by the Sherman Anti-Trust Law can be
looked for along this line of procedure. Perhaps it ought also
to be said that none ought to be looked for, because the
situation really calls for a change in the substantive
provisions of the law. Let no one imagine, however, that it is
an easy thing to say what such changes in the law ought to be.
Your Committee last spring began its work in the hope that it
would be able to submit a law which would command very large
support, not only from employers but also from organized
labor. After working upon the subject for many weeks, the Bill
which it actually presented commanded no large measure of
support from either. The mercantile classes favor amendments
to the law which, instead of forbidding all restraints of
trade, will forbid only unreasonable restraints of trade; and
which will provide amnesty for the past,
(1) on the theoretical ground that what has been done has
often been done without any realization that it was contrary
to the law; and
(2) on the practical ground that to attempt to rip up what has
already been done will destroy the industry of the country. The
representatives of organized labor, on the other hand, ask to
be omitted altogether from the provisions of the Sherman Act.
It is evident to your Committee that the changes desired by
the mercantile classes are going to meet with very serious
objection, unless they are combined with some positive
legislation which will provide some effective method of
assuring to the country, in the future, the power to protect
itself in advance from new combinations in the industrial
sphere, such as have been made in the past, and which
originally created the sentiment which placed the Sherman
Anti-Trust Law upon the statute books.
"In other words, precisely as a city may desire to limit the
height of buildings, for the future, without taking down those
that are already erected, so many persons believe that the
right to make commercial combinations, in the future, should
be under some sort of governmental control, even though those
already formed be left unmolested; and such persons, also,
believe that there is the same inherent right in the body
politic to do the one as the other. On the other hand, the
demand of organized labor to be exempted altogether from the
operations of this Act has been objected to in the past, and
is likely to be objected to in the future, as class
legislation of a kind that has no place on American soil,
because organized labor is believed to be capable of
exercising restraint of trade no less than commercial
corporations.
"These being the terms of the problem, it is apparent, on the
face of things, that the effort to amend the Sherman
Anti-Trust Law in any effective way is beset by difficulties
at every turn. … The whole subject is made infinitely
difficult by the Constitutional limitations upon the power of
Congress, which have led the United States Supreme Court to
decide, in effect, that Congress can regulate inter-State
commerce, but cannot regulate the corporation that does it;
because the corporation that does inter-State commerce is a
creature of the State and not of the United States. The
separate States, on the other hand, can regulate the
corporations that do inter State commerce, because they create
them; but the States cannot regulate the inter-state commerce
that is done, because under the United States Constitution,
inter-State commerce is under National control. It cannot be
too clearly apprehended that the effect of this situation is,
that neither sovereignty—neither the National sovereignty nor
the State sovereignty—can regulate both the agent that does
inter-State commerce and the inter-State commerce that is
done."
{132}
In the _National Civic Federation Review_ of March, 1909,
it was announced that "the Executive Council of the National
Civic Federation has appointed a committee to draft proposed
amendments to the Sherman Anti-Trust act. By request of the
lawyers upon the committee Seth Low will serve as chairman.
The other members are Frederick P. Fish, of Boston; Frederick
N. Judson, of St. Louis; Reuben D. Silliman, of New York, and
Henry W. Taft, of New York.
"No attempt will be made to submit anything to the present
session of Congress. It is proposed to draft a tentative bill
as soon as a careful study of the problems will permit. This
will then be submitted for examination and suggestion to
various representative bodies in all parts of the country, and
with the aid of the comments thus received the final draft of
the bill to be submitted will be prepared."
COMBINATIONS: A. D. 1909.
Report of the Commissioner of Corporations on the
Tobacco Combination, or so-called Trust.
Parts of an elaborate report on the organization of the
Tobacco Combination were published in February, 1909, by the
Commissioner of Corporations, Herbert Knox Smith. It showed
the combination to be composed of "the American Tobacco
Company and its three great subsidiary combinations, the
American Snuff Company, the American Cigar Company, and the
British-American Company, besides eighty two other subsidiary
concerns doing business in the United States, Porto Rico, and
Cuba. The combination represents a total net capitalization of
over $316,000,000. A very small group of ten stockholders
controls 60 per cent. of the outstanding voting stock of the
American Tobacco Company, through which company the entire
combination is controlled."
A list of the subsidiary companies controlled, "including over
twenty hitherto secretly controlled, so-called ‘bogus
independent concerns,'" is given in the report. It is shown
also that the combination is practically the only important
exporter of tobacco manufactures from this country. In 1891
the combination controlled 89 per cent. of the business of
cigarette manufactures, and this proportion practically is
maintained. In cigars its output increased from 4 per cent. of
the business in 1897 to 14.7 per cent, in 1906; while in
manufactured tobacco (chewing, smoking, fine-cut, and snuff)
"the combination’s output increased from 7 per cent. of the
total in 1891 to 77 per cent. in 1906. Finally, in 1906, the
combination controlled of these separate products,
respectively, plug, 82 per cent.; smoking, 71 per cent.;
fine-cut, 81 per cent., and snuff, 96 per cent." In the year
1906 the combination used in the manufacture of its various
products nearly 300,000,000 pounds of leaf tobacco. The report
adds:
"An idea of the absorption of competing plants and of the
changes through combination within the last decade may be had
from the fact that in 1897 the combination had ten plants,
each producing over 50,000 pounds of manufactured tobacco or
snuff per year, while there were 243 independent plants of the
same class. In 1906, on the other hand, the combination had 45
plants of this class, and independent manufacturers 140.
Especially conspicuous has been the absorption of the large
plants. In 1897 the combination had eight plants, each
producing over 1,000,000 pounds of these products per year,
while its competitors had forty-six such plants. In 1906 the
combination had thirty-four plants of this size, and
independent concerns only seventeen."
COMBINATIONS: A. D. 1909.
Merger of Telephone and Telegraph Corporations.
Announcement of one of the most important financial mergers of
recent years was made November 16, 1909, when the American
Telephone and Telegraph Company disclosed its acquirement of
control of the Western Union Telegraph Company. "The American
Telephone and Telegraph Company has obtained the control of a
substantial minority interest in the shares of the Western
Union Telegraph Company," was the wording of the official
statement, but it became known that sufficient voting rights
of other stock had been obtained to give the telephone
interests control of the telegraph company.
According to a statement issued on May 1, 1909, the total
capital and outstanding interest-bearing obligations of the
American Telephone and Telegraph Company and allied systems
was $592,475,400. This amount included capital stock
aggregating $361,636,800, subdivided as follows: American
Telephone and Telegraph Company, $208,393,500; associated
operating companies in the United States and Canada, about
thirty-five in number, $142,674,400; associated holding and
manufacturing companies, $10,668,900. "The Western Union has a
capitalization of $125,000,000 in stock and $40,000,000 in
bonds.
COMBINATIONS: A. D. 1909.
Threatened combination to control the Water Power of the
country.
Speaking at the National Irrigation Congress, convened at
Spokane, Washington, in August, 1909, the National Forester,
Gifford Pinchot, declared that, notwithstanding the
contradictions issued by the parties in interest, a gigantic
combination was forming to seize the sources of the country’s
water power, and be in a position later to dominate all
industry.
"There could be no better illustration," he said, "of the
eager, rapid, unwearied absorption by capital of the rights
which belong to all the people than the Water Power Trust, not
yet formed, but in rapid progress of formation. This statement
is true, but not unchallenged. We are met at every turn by the
indignant denial of the water power interests. They tell us
that there is no community of interest among them, and yet
they appear year after year at these Congresses by their paid
attorneys, asking for your influence to help them remove the
few remaining obstacles to their perpetual and complete
absorption of the remaining water powers. They tell us it has
no significance that the General Electric interests are
acquiring great groups of water powers in various parts of the
United States, and dominating the power market in the region
of each group. And whoever dominates power, dominates all
industry. … The time for us to agitate this question is now,
before the separate circles of centralized control spread into
the uniform, unbroken, nation-wide covering of a single
gigantic Trust. There will be little chance for mere agitation
after that. No man at all familiar with the situation can
doubt that the time for effective protest is very short."
{133}
The same warning has been given by others who are in a
position to speak with knowledge, and heed has been given to
them by the Government. The annual report of the Secretary of
the Interior, the Honorable Richard A. Ballinger, made public
November 28, 1909, contained the following important
announcement: "In anticipation of new legislation by Congress
to prevent the acquisition of power sites on the public domain
by private persons or corporations with the view of
monopolizing or adversely controlling them against the public
interest, there have been temporarily withdrawn from all forms
of entry approximately 603,355 acres, covering all locations
known to possess power possibilities on unappropriated lands
outside of national forests. Without such withdrawals these
sites would be enterable under existing laws, and their
patenting would leave the general government powerless to
impose any limitations as to their use.
"If the Federal government desires to exercise control or
supervision over water-power development on the public domain,
it can only do so by limitations imposed upon the disposal of
power and reservoir sites upon the public lands, the waters of
the streams being subject to State jurisdiction in their
appropriation and beneficial use. I would, therefore, advise
that the Congress be asked to enact a measure that will
authorize the classification of all lands capable of being
used for water-power development, and to direct their
disposal, through this department. …
"Unreasonable or narrow restrictions beyond the necessity of
public protection against monopoly, or extortion in charges,
will, of course, defeat development and serve no useful
purpose. The statute should, therefore, while giving full
protection against the abuses of the privileges extended, so
far as consistent, encourage investment in these projects; and
it must always be borne in mind that excessive charges for the
franchise will fall upon the consumer. Legislation of this
character proceeds upon the theory that Congress can impose
such contractual terms and conditions as it sees fit in the
sale or use permitted of government lands so long as such
limitations do not conflict with the powers properly exercised
by the State wherein they may be situated."
COMBINATIONS: A. D. 1909.
The Sugar Trust settles a conspiracy charge.
While the American Sugar Refining Company, in the spring of
1909, was being forced to make good to the Government its long
cheating of the Custom House, it was being compelled, at the
same time, to indemnify a competitor in business, whom it had
ruined by means which the Sherman Anti-Trust Law forbade. Its
victim was the Pennsylvania Sugar Refining Company, whose
refinery had been established by Mr. Adolph Segal, of
Philadelphia, in 1903. Segal became financially embarrassed,
and was lured into taking a loan of $1,250,000, from a person
who acted secretly in the transaction for the American Sugar
Refining Company. The loan was made on terms which gave the
lender control of a majority of the stock of the Pennsylvania
Sugar Refining Company, and Mr. Segal found, when too late,
that the real lender was the Sugar Trust. It used its power to
shutdown the plant, which was said to be the most perfect of
its kind, and the Pennsylvania Company was wrecked. It brought
a suit for damages to the amount of $30,000,000, inflicted
upon it in contravention of the Anti-Trust Law. Before the
trial ended, the defendants found so much reason to fear its
outcome that negotiations were opened which resulted (June 8,
1909) in a settlement of the claim outside of court. The
settlement was said to involve a cash payment by the American
Company to the Pennsylvania Company of $750,000, the
cancellation of the $1,250,000 loan made by the trust to
Adolph Segal, of Philadelphia, and the return of the
securities given by Segal as collateral for the loan.
Subsequently the Government procured indictments of certain of
the officials of the American Sugar Refining Company for their
participation in the conspiracy; but the prosecution was
blocked in October by a decision from Judge Holt, of the
United States Circuit Court, that the acts charged were
outlawed by the statute of limitations. Later, in November, it
was reported that the Government was preparing an appeal to
the Supreme Court.
COMBINATIONS: A. D. 1909.
Dissolution of a Paper-making Combination.
By a decree of the United States Circuit Court, Judge Hough,
at New York, in May, 1909, the Fiber and Manila Association, a
combination of 25 paper manufacturers, located in many parts
of the country, East and West, was adjudged to be an illegal
combination in restraint of trade, and perpetually enjoined
from further operations in such combination. The members were
enjoined further from fixing prices or the qualities that
shall be manufactured or to maintain any pool or fund made up
of contributions from its members. Counsel for the Association
announced that no appeal would be made.
COMBINATIONS: A. D. 1909.
Chartering of the United Dry Goods Companies.
"Details of the greatest dry goods combination ever attempted
in this country were available to-day for the first time since
the United Dry Goods Companies took out a Delaware charter
last Friday [April 21, 1909], The concern will control many of
the largest dry goods stores in this city and at important
commercial centres of the South and West, acting first as a
holding company and later possibly as an operating concern,
with headquarters here. John Claflin will be the head of the
combination. The present managers of the various absorbed
stores will be continued. J. P. Morgan & Co. are financing the
deal, and public announcement will be made immediately.
"The United Dry Goods Companies will have a capital of
$51,000,000. Of this only $20,000,000 will be immediately
issued in the form of $10,000,000 7 per cent. cumulative
preferred stock and $10,000,000 common stock. The preferred
stock has preference as to both assets and dividends. The new
combination will purchase $8,650,000 of the outstanding
$17,250,000 capital stock of the Associated Merchants’
Company. …
"John Claflin said this afternoon that the new company would
not buy any mills, as it was not the purpose of the
combination to control the sources of production. All the
stores—there are more than forty, which the United Companies
and its allies will own in whole or in part—will be free to
purchase from whatever interests they wish, without being
restricted to any one market or to the product of any special
mills. The general business will be directed from the city,
but resident directors at different centres will have full
charge of the detail work."
_New York Evening Post,
May, 25-26, 1909._
{134}
COMBINATIONS: A. D. 1909.
The illegality of a Trust invalidates a debt to it.
In a suit brought by the Continental Wall Paper Company to
recover a debt, payment of which was resisted on the ground
that the Company was an illegal combination in restraint of
trade, the Supreme Court of the United States, on the 1st of
February, 1909, affirmed a judgment of the Circuit Court of
Appeals which had dismissed the suit. The case was so decided
by a bare majority of one. The opinion of the majority,
delivered by Justice Harlan, held that a judgment in favor of
the Company would give effect to agreements constituting the
illegal combination. "Upon the whole case," said Justice
Harlan, "and without further citation of authority, we adjudge
upon the admitted facts that the combination represented by
the plaintiff in this case was illegal under the anti-trust
act of 1890; is to be taken as one intended, and which would
have the effect, directly to restrain and monopolize trade
among the several states and with foreign states; and that the
plaintiff cannot have a judgment for the amount of the account
sued on because such a judgment would, in effect, be in aid of
the execution of agreements constituting that illegal
combination. We consequently hold that the circuit court of
appeals properly sustained the third defense in the case and
rightly dismissed the suit."
In the dissenting opinion by Justice Holmes and others it was
set forth that "whenever a party knows that he is buying from
an illegal trust, and still more when he buys at a price that
he thinks unreasonable, but is compelled to pay in order to
get the goods he needs, he knows that he is doing an act in
furtherance of the unlawful purpose of the trust, which always
is to get the most it can for its wares. But that knowledge
makes no difference, because the policy of not furthering the
purposes of the trust is less important than the policy of
preventing people from getting other people’s property for
nothing when they purport to be buying it."
COMBINATIONS: A. D. 1909-1910.
Morgan & Co. Banking Combination.
See (in this Volume)
FINANCE AND TRADE: UNITED STATES.
COMBINATIONS: A. D. 1910.
Special Message of President Taft
on Legislation touching "Trusts."
An important special Message, recommendatory of legislation on
the two subjects of interstate commerce and the combinations
called "Trusts," was addressed to Congress by President Taft
on the 7th of January, 1910. It had been expected that the
Executive would advise amendments to the Sherman Anti-Trust
Law, so-called, but he did not. On the contrary he favored the
policy of leaving that law untouched, on the ground that its
defects have been cured already to a great extent by judicial
decisions, and that it is safer and better for the business
interests of the country to trust the law to the gradual
molding which the courts are giving it, than to undertake
amendments which would start anew series of judicial
interpretations. But the President’s conclusions on this point
were supplemented by the advocacy of an enactment to provide
for the federal chartering of corporations engaged in
interstate commerce, as a means of substituting continuous
regulation of such organizations for the spasmodic and
disturbing investigations which the Government is now
compelled frequently to institute.
In part, the President’s discussion of these questions is as
follows:—
"The statute has been on the statute book now for two decades,
and the Supreme Court in more than a dozen opinions has
construed it in application to various phases of business
combinations and in reference to various subjects-matter. It
has applied it to the union under one control of two competing
interstate railroads, to joint traffic arrangements between
several interstate railroads, to private manufacturers engaged
in a plain attempt to control prices and suppress competition
in a part of the country, including a dozen States, and to
many other combinations affecting interstate trade. The value
of a statute which is rendered more and more certain in its
meaning by a series of decisions of the Supreme Court
furnishes a strong reason for leaving the act as it is, to
accomplish its useful purpose, even though if it were being
newly enacted useful suggestions as to change of phrase might
be made.
"It is the duty and the purpose of the Executive to direct an
investigation by the Department of Justice, through the grand
jury or otherwise, into the history, organization, and
purposes of all the industrial companies with respect to which
there is any reasonable ground for suspicion that they have
been organized for a purpose, and are conducting business on a
plan which is in violation of the Anti-Trust law. The work is
a heavy one, but is not beyond the power of the Department of
Justice, if sufficient funds are furnished, to carry on the
investigations and to pay the counsel engaged in the work. But
such an investigation and possible prosecution of corporations
whose prosperity or destruction affects the comfort not only
of stockholders, but of millions of wage-earners, employees,
and associated tradesmen, must necessarily tend to disturb the
confidence of the business community, to dry up the now
flowing sources of capital from its places of hoarding, and
produce a halt in our present prosperity that will cause
suffering and strained circumstances among the innocent many
for the faults of the guilty few. The question which I wish in
this message to bring clearly to the consideration and
discussion of Congress is whether in order to avoid such a
possible business danger something cannot be done by which
these business combinations may be offered a means, without
great financial disturbance, of changing the character,
organization, and extent of their business into one within the
lines of the law under Federal control and supervision,
securing compliance with the anti-trust statute.
"Generally, in the industrial combinations called ‘Trusts,’
the principal business is the sale of goods in many States and
in foreign markets; in other words, the interstate and foreign
business far exceeds the business done in any one State. This
fact will justify the Federal government in granting a Federal
charter to such a combination to make and sell in interstate
and foreign commerce the products of useful manufacture under
such limitations as will secure a compliance with the
Anti-Trust law. It is possible so to frame a statute that
while it offers protection to a Federal company against
harmful, vexatious, and unnecessary invasion by the States, it
shall subject it to reasonable taxation and control by the
States, with respect to its purely local business.
{135}
"Many people conducting great businesses have cherished a hope
and a belief that in some way or other a line may be drawn
between ‘good Trusts’ and ‘bad Trusts,’ and that it is
possible, by amendment to the Anti-Trust law, to make a
distinction under which good combinations may be permitted to
organize, suppress competition, control prices, and do it all
legally, if only they do not abuse the power by taking too
great profit out of the business. … Now, the public, and
especially the business public, ought to rid themselves of the
idea that such a distinction is practicable or can be
introduced into the statute. Certainly under the present
Anti-Trust law no such distinction exists. It has been
proposed, however, that the word ‘reasonable’ should be made a
part of the statute, and then that it should be left to the
court to say what is a reasonable restraint of trade, what is
a reasonable suppression of competition, what is a reasonable
monopoly. I venture to think that this is to put into the
hands of the court a power impossible to exercise on any
consistent principle which will insure the uniformity of
decision essential to just judgment. It is to thrust upon the
courts a burden that they have no precedents to enable them to
carry, and to give them a power approaching the arbitrary, the
abuse of which might involve our whole judicial system in
disaster.
"In considering violations of the Anti-Trust law, we ought, of
course, not to forget that that law makes unlawful, methods of
carrying on business which before its passage were regarded as
evidence of business sagacity and success, and that they were
denounced in this act, not because of their intrinsic
immorality, but because of the dangerous results toward which
they tended, the concentration of industrial power in the
hands of the few, leading to oppression and injustice. In
dealing, therefore, with many of the men who have used the
methods condemned by the statute for the purpose of
maintaining a profitable business, we may well facilitate a
change by them in the method of doing business. …
"To the suggestion that this proposal of Federal incorporation
for industrial combinations is intended to furnish them a
refuge in which to continue industrial abuses under Federal
protection, it should be said that the measure contemplated
does not repeal the Sherman Anti-Trust law, and is not to be
framed so as to permit the doing of the wrongs which it is the
purpose of that law to prevent, but only to foster a
continuance and advance of the highest industrial efficiency
without permitting industrial abuses. …
"A Federal compulsory license law, urged as a substitute for a
Federal incorporation law, is unnecessary except to reach that
kind of corporation which, by virtue of the considerations
already advanced, will take advantage voluntarily of an
incorporation law, while the other State corporations doing an
interstate business do not need the supervision or the
regulation of a Federal license and would only be
unnecessarily burdened thereby.
"The attorney-general, at my suggestion, has drafted a Federal
incorporation bill embodying the views I have attempted to set
forth, and it will be at the disposition of the appropriate
committees of Congress."
COMBINATIONS: A. D. 1910.
Renewed investigation of the Beef Trust.
A renewed investigation of the business methods of the great
meat-packing concerns at Chicago, by the grand jury of the
United States District Court, Judge K. M. Landis, was begun on
the 24th of January, 1910. It is understood to have special
reference to the causes of the rising prices of meats. The
firms against which the Government is thus preparing to
proceed are: Swift & Co., Armour & Co., and Morris & Co., who,
it is alleged, control the National Packing Company, for their
common benefit.
----------COMBINATIONS: End--------
COMMERCE AND LABOR, The United States Department of.
See (in this Volume)
UNITED STATES: A. D. 1903 (FEBRUARY).
COMMERCIAL UNIVERSITIES, in Germany:
Their recent rise.
See (in this Volume)
EDUCATION: GERMANY: A. D. 1898-1904.
"COMMISSION PLAN," of City Government.
See (in this Volume)
MUNICIPAL GOVERNMENT.
COMMITTEE OF ONE HUNDRED.
See (in this Volume)
PUBLIC HEALTH.
COMMITTEE OF UNION AND PROGRESS.
See (in this Volume)
TURKEY: A. D. 1908 (JULY-DECEMBER), and after.