who look for the returns upon their investment more in the chances of buying and selling and manipulation, than from permanent and regular dividends. That this kind of ownership is greatly encouraged by the very low quotations of the stocks of overcapitalized companies cannot be doubted.

The spread of the practice of indirect ownership through the mediation of holding or finance companies has also produced a peculiar set of abuses. These are all dependent in the main upon the preservation of secrecy as to the exact status of the operating concern. Dividends or deficits may be shifted at the will of the directors from one to another company of the hierarchy. Only when disclosure is forced by financial stress or judicial proceedings is the real state of affairs revealed. Our reprint of the Receiver's report of the United States Shipbuilding Co. serves to illustrate this evil. Other instances of the creation of large floating debts by constituent companies, which debts are not apparent in the reports of the parent concern, are familiar in the case of the United States Rubber Co. and the New England Cotton Yarn Co.2 The failure to disclose may, however, at times operate in the other direction. Stock-holders are induced to sell because of failure on the part of the management to make clear the accumulated profits of constituent companies. This would seem to be exemplified in the recent history of the companies which constituted the so-called Tobacco Trust. On the formation of the Consolidated Company in 1901,3 the majority of the common stocks of the American and Continental Tobacco companies were taken over in exchange for four per cent collateral bonds. The holders of the non-dividend Continental stock parted with their property without any knowledge whatever of the profits which it had been earning. Only after they had been given in exchange a security with a fixed return, did it appear that very large profits had accrued. In 1 Pp. 403 et seq. Cf. also the unhappy experience of investors in the National Lead Co. in July, 1910 and in the U. S. Finishing Co. in 1913. In the latter case, there was speculation by subsidiary companies both in merchandise and in its own securities, resulting in losses which aggregated $1,250,000.

2 Cf. the N. Y. Times Annalist, July 5 and 19, 1915, on the abominable rubber stock operations, and the views prevalent among directors of other concerns.

3 Pp. 277 et seq.

fact, the dividends of the Continental Co. were soon increased to ten and afterward to sixteen per cent. The profits to those who had assumed control of the Consolidated Company were correspondingly great; inasmuch as they received all the surplus income over the fixed returns given in exchange for the old securities. It is the possibility of such shuffling as this which rendered the bonds of the Consolidated Company so unpopular that the entire plan had to be revised.

Excessive capitalization in proportion to tangible assets and earning power, according to public opinion, is one of the most common and persistent defects in American corporate organization, especially among industrial combinations. Consumers allege that while there is no directly traceable relation between capitalization and prices, an excess of securities craving dividends is in itself an indirect incentive to unreasonable charges. However true this may be of public service or other natural monopolies, so many factors not financial enter into the determination of the market prices of most commodities as largely to invalidate this contention. Was not the Standard Oil Co. until very lately one of the most modestly capitalized "trusts" without any evidence of an effect upon its price policy toward consumers? Yet it is probably true, nevertheless, that the absence of definite correlation between assets and capital liabilities is a source of confusion to all parties concerned. It may conceal unearned profits of promoters or subsequent mismanagement by directors. It is an invitation to speculation both within and without. It is the negation of fair and reasonable publicity. Overcapitalization is, to be sure, more often merely a symptom of disorder than a disease in itself. And it is certainly the nature of the securities outstanding rather than their aggregate amount which is provocative of trouble. Dividend obligations contingent upon earnings do not precipitate trouble as do heavy burdens of fixed charges upon bonds or notes. Yet the constant association of an excessive issue of securities with financial distress renders a conservative policy in this regard almost an index of financial stability. Most of the industrial promotions of 1899-1901 were seriously open to the criticism of overcapitalization. The belated experiment of the International Mercantile Marine Co., included in

these reprints, was the climax of reckless financiering in this regard.1 It is reported that reorganization, now pending under receivership, is to cut the outstanding body of securities in halves. An equally drastic pruning of the capitalization of the American Malting Co., the source of whose troubles was imprudent finance, has just been announced. Quite a number of large companies have voluntarily, or in the process of reorganization, reduced the volume of their outstanding securities. The National Lead Co. in 1891 reduced its capitalization from ninety to thirty million dollars. The Distillers' Securities Corporation now has less than half the amount outstanding against its predecessors. The New England Cotton Yarn Co. by one stroke eliminated the good will item from its accounts, thereby reducing the totals on its balance sheet by about five million dollars. The American Ice Co. represents its condition in the following words of its own president: "It is clear that the capitalization is excessive; that the common stock represents no earning capacity even under normal business conditions." Other recklessly promoted companies now find themselves similarly placed.2 It is clear that the danger of overcapitalization is being impressed upon all parties concerned. Experience has proved indubitably that in the long run the conservatively capitalized companies can far better command bankers' credit, weather periods of financial strain and hold the allegiance of investors. Little more than publicity and standardization of accounts would seem to be essential to safeguard whatever interest the public may have in the larger industrial enterprises of this sort.

The prime interest of the general public in the maintenance of reasonable prices is comprehended in these reprints by a number of separate discussions. Originally and for many years it was believed that an extortionate price policy was the invariable accompaniment of combination. This resulted in all probability from the success with which the petroleum, beef and sugar

1 Experience to 1915 is described in Journal of Political Economy, XXIII, pp. 910-926.

2 Cf. the checkered career of the New England cotton duck combination; Dewing, op. cit., chapters XIII and XIV.

"trusts" augmented prices to consumers while coincidentally, as it appeared, depressing prices to the producers of raw material. There is little doubt that complete control of the market usually leads to such conclusions. Experience with the wire-nail pool of 1895, the bathtub, watch case and other concerns1 confirms this opinion. But, on the other hand, some of the strongest combinations seem to have abstained from pursuing an extortionate price policy at all. The Steel Corporation has an enviable record in this regard, as described in our reprint of the Federal decision in Chapter V. The avoidance of an undue depression of prices as well as of an excessive increase seems to have been the end in view. The International Harvester Co., also, as represented in these reprints, is not open to the charge of unduly enhancing the prices of its products. As for the tobacco combination, while prices seem not to have been affected appreciably either before or after dissolution, it is clear that any reduction following the removal of internal revenue taxes was prevented.2 Another question respecting prices concerns the welfare of competitors. It is unquestionable that arbitrary manipulation of the market both as between persons and places has greatly contributed at times to drive out wholesome rivalry in trade. And the specific prohibition of local price discrimination in the Clayton Act of 19143 is intended to safeguard the public interests in this respect. The latest decisions of the Federal courts interpreting the Sherman Act have at all events concluded that a "free and untrammeled traffic of the marketplace," regardless of the particular course of prices, must be perpetuated at all hazards.

Unfair competition is a term descriptive of practices which have been disclosed in connection with a number of prosecutions of monopolies in recent years. The leading authority upon the subject enumerates eleven different forms, among which are the operation of bogus "independent" concerns; the mainte

W. S. Stevens, Political Science Quarterly, XXIV, 1914, pp. 282-306 and 460-490. These are enumerated also in the La Follette bills, reprinted by Stevens, op. cit., p. 530.

nance of "fighting brands," cheaply contrived in order to put competitors out of business; blacklists and boycotts; espionage and the employment of detectives; manipulation of the market; rebates; preferential contracts and the like. The cases reprinted herein illustrate but a part of these; although so far as they go they clearly betray the jealous regard by the state for the rights of weaker competitors in trade. Noteworthy among our chosen illustrations of unfair practice, are the following: the bathtub and Keystone Watch cases, with intimidation and espionage; the International Harvester Co., with the employment of bogus or secret independent concerns in the early days; and most predatory of all, the National Cash Register Co., with its use of coercion in the most flagrant forms. Not all these unfair practices are specifically defined in the amendments to the Sherman Act, of 1914, soon to be discussed; but a clear appreciation of their tangibility and occasional enormity is essential to an understanding of the pressing need for prohibitive legislation of some sort. The courts, interpreting the AntiTrust law, had so variously and conflictingly defined the rights of competitors, that the business man was left in doubt as to what tactics he was lawfully entitled to adopt in trade; while the public on its side was offended at the likelihood that force might entirely supplant ability and efficiency as a means to commercial success.

The existing legislation by the United States for the regulation of monopoly is reproduced in this volume in the text of the original Sherman Anti-Trust Act, and of the enactments of 1914 known as the Trade Commission Law and the Clayton Act.1 Their history is epitomized in each case by means of the appended editorial notes. So much of the meaning of this legislation, owing to its original brevity, has arisen from subsequent interpretation in the Federal courts that it has seemed best to devote a considerable space to that subject. In Chapter XV the history of the original legislation and its application to common carriers is traced; while the remaining decisions prior to 1901 are given in Chapter XVI.2 The editor's notes