All the foregoing concerns were apparently combinations of competing enterprises which embraced a considerable part of the total industry of the United States in their respective branches of busiAll of these combinations were apparently formed either by combining control of competing concerns through the agency of a holding company, or by the merging of the plants and business of the concerns combined under the direct control of one company.

ness.

INDUSTRIAL COMMISSION (1898-1902).-This extraordinary era of consolidation attracted much public attention. A commission, known as the Industrial Commission, was created by Congress in 1898 to investigate various industrial questions, but particularly the growth of large corporations and trusts. Although the commission was assisted by some expert economists, who helped to make the examination of witnesses more effective than it would otherwise have been, the method of conducting the examination prevented the commission from obtaining the best results. Especially there was a lack of sufficient supporting documentary evidence in statements of account, in statistics of prices, and of production, etc., which would have enabled the commission to weigh accurately the testimony given. While the Industrial Commission, therefore, failed to ascertain many important facts regarding these great combinations, nevertheless it served to awaken popular attention to their great size and power and to some of their excesses, especially in relation to stock watering, promotion profits, and unfair competition. The report of the commission recommended as the chief measure of reform greater publicity regarding the operations of corporations and particularly the establishment of some organ of publicity in the Federal Government.

ESTABLISHMENT OF BUREAU OF CORPORATIONS (1903). In consequence partly of the recommendations of the Industrial Commission, partly of certain recommendations made by Attorney General Knox, and in response to a general demand for a more effective oversight of corporations, the Bureau of Corporations was organized in 1903 under the Department of Commerce and Labor. The duties of the Commissioner of Corporations were described substantially as follows: To investigate the organization and conduct of corporations and combinations, etc., engaged in interstate commerce (except common carriers) in order to give information to the President and to

enable him to make recommendations to Congress. The powers conferred on the Commissioner for such investigations were extensive and included the power to issue subpoenas to compel the attendance of witnesses and the production of books and papers. The reports of the Bureau were to be made to the President, and published according to his directions.

The method of work contemplated in the formation of the Bureau of Corporations was scientific economic research, and the taking of testimony as ordinarily practiced by commissions was, conseqently, of secondary importance.

The primary objects of the Bureau of Corporations, therefore, were first, information for the Government for purposes of legislation, and second, the remedial effects of publicity through the publication of the reports of its investigations.

STATE ANTITRUST LEGISLATION.-It should be noted that State antitrust legislation, which antedated Federal legislation on this subject, continued throughout the period thus far considered and also since that time. The majority of the States established antitrust laws, some of which were more stringent than the Federal law. An important feature of the legislation in several States was the prohibition of certain kinds of "unfair competition," particularly local price discrimination. (See Chap. IV.)

Section 8. Northern Securities case (1901-1904) and its political and economic effects.

NORTHERN SECURITIES CASE (1904).-The Northern Securities Co. was a holding company formed in 1901 by dominant stockholders in the Northern Pacific and Great Northern Railways for the purpose of putting in the hands of a single company the voting power of the dominant stockholders in the said railroads. The Government sought to procure a dissolution of the Northern Securities Co. by proceedings in equity as a combination in restraint of interstate commerce.1 While in the final opinion of the Supreme Court, rendered in 1904, several important legal questions were settled, the chief significance of the decision in relation to economic development was that the device of a holding company to procure a combination of competing interests in restraint of trade was unlawful. The holding company was enjoined from voting the stock held by it, and the railroad companies were enjoined from paying any dividends to the holding company on such stock, etc.

This decision, which condemned the device of the holding company for the purpose of procuring a common control of competing interests, was of capital importance in the interpretation of the Sherman Antitrust Act, and of great significance with respect to subsequent economic development.

See pp. 73, 103.

DECLINE OF CONSOLIDATIONS AND DEVELOPMENT OF "GENTLEMEN'S AGREEMENTS" AND "COOPERATION."-Prior to the decision in the Northern Securities case, the tendency seems to have been toward the formation of consolidations either by merger or through the device of the holding company. Subsequent to that decision, in so far as monopolistic combinations of competing interests were made, they did not often take the form of the holding company. It may be noted that the American Tobacco Co., which prior to 1904 was largely a holding company, was reorganized about seven months after the decision in the Northern Securities case in the form of a merger with respect to the properties of the principal concerns combined, which appears to have been prompted in part by the decision in that case.1 It may be noted also that the International Harvester Co., which was formed subsequent to the initiation of the Government suit against the Northern Securities Co. but before the final decision, was a merger of the manufacturing properties of competing interests. The decision in the Northern Securities case, as well as the increased activity of the Government in the investigation and prosecution of suits against consolidations, was apparently of great influence in preventing further efforts to restrict competition by such means. It was not until several years later, however, that the Supreme Court expressly declared that a merger for such purposes was illegal.

Legal difficulties had at an earlier date, as noted above, discouraged the use of written price and pooling agreements as a means of combination, and tended to promote combination through consolidation, but the decision in the Northern Securities case, as just stated, tended to discourage efforts at combination in this form also. Thereafter, apparently, the device most available for evading the Antitrust Law was the looser and unwritten form of agreement generally described as a "gentlemen's agreement." This device became known somewhat later as the system of "cooperation," which is particularly well illustrated in certain combinations at one time practiced by steel manufacturers. The fundamental idea of such cooperation was to procure substantial harmony in policy among competitors regarding volume of output and prices, without specific written or oral agreements, but rather by tacit understandings and the communication of information regarding the production and prices of the various cooperating interests in order to insure good faith in the performance of the tacit understandings. A particular variation of this policy was the apparent tacit understanding to follow the price quotations of the "leading interest," as, for example, the American Tin Plate Co., for tin plate, and the Reading Coal & Iron Co., for anthracite coal. INCREASE OF ACTIVITY IN THE PROSECUTION OF TRUSTS.-The Northern Securities decision, by declaring the holding-company

1 Report of the Commissioner of Corporations on the Tobacco Industry, Part I, p. 11.

device for forming combinations illegal, gave a great impetus to the prosecution of trusts, which at that time were frequently organized in the form of holding companies.

This activity was greatly stimulated, moreover, by the work of the Bureau of Corporations, which in a series of reports on some of the most conspicuous trusts in the country showed more fully and authoritatively than had been done theretofore their real economic basis and character. The Bureau's reports on the petroleum industry and tobacco industry were of special importance, these two industries being dominated by the Standard Oil Co. and the American Tobacco Co., respectively, two of the largest and most obnoxious of the trusts. In this connection may be also noted the fact that the Bureau's report on the Standard Oil Co.'s railroad rebates had a powerful influence in promoting the passage of the Hepburn Act of 1906 for the further regulation of railroads engaged in interstate commerce. In the prosecution of these trusts, moreover, the Department of Justice obtained and made extensive use of information collected by the Bureau of Corporations. While a variety of suits were initiated by the Government the determination of the Standard Oil and Tobacco cases were of paramount importance with regard to the future development of the more powerful and more concentrated forms of combination.

Section 9. Standard Oil and Tobacco decisions and their results.

STANDARD OIL AND TOBACCO DECISIONS (1911).-While the record in the Standard Oil and the American Tobacco Co. cases as well as the reports of the Bureau of Corporations showed clearly the monopolistic character of these great trusts, various circumstances made it seem doubtful at first whether they would be condemned by the courts or not. This was due particularly to the decision in the Knight case, the authority of which it was alleged had never been directly questioned by the Supreme Court.

The decisions in the Standard Oil1 and the American Tobacco Co.2 cases, rendered in 1911, were both victories for the Government. The unlawfulness of the holding-company device to accomplish a combination in restraint of trade, as decided in the Northern Securities case, was affirmed, and in the Tobacco case the actual merger of the properties of competing concerns which accomplished the same ends was likewise declared unlawful. The Knight case thereby lost all practical significance in the determination of the lawfulness of such combinations. While in the earlier trust cases emphasis was generally placed on the first section of the Antitrust Act, prohibiting combination in restraint of trade, in the Oil and Tobacco cases and in other recent cases stress has also been laid on the second section, which denounces those who monopolize or attempt to monopolize

1 See pp. 86, 90, and 104.

* See pp. 88 and 99.

interstate commerce. In the interpretation of this section the court has given a broad meaning to the term "monopolize," and it has attached importance to the existence of unfair practices as evidencing an attempt to monopolize.

CHARACTER AND EFFECT OF DISSOLUTIONS.-The court directed that the Standard Oil Co. should be reorganized in such a manner as to bring it into harmony with the law, but did not prescribe in detail in what way it should be accomplished. The decree of the lower court, which was approved in substance by the Supreme Court, prohibited the Standard Oil Co. from either voting stock which it held in the subsidiary companies or receiving dividends thereon, and enjoined the Standard Oil Co. from exercising any control over the operations of any of its subsidiaries, but it suggested that the stocks of the subsidiary companies might be distributed ratably among the holders of the stock of the Standard Oil Co. of New Jersey.1 The

1 The most essential parts of the decree are contained in secs. 5 and 6 as follows: "SEC. 5. That the stocks of the various corporations which are named in section 2 and described in section 4 of this decree, held by the Standard Company, were acquired and are held by it by virtue of the illegal combination; that the Standard Company, its directors, officers, agents, servants, and employees, are enjoined and prohibited from voting any of the stock in any of the subsidiary companies named in section 2 of this decree and from exercising or attempting to exercise any control, direction, supervision, or nfluence over the acts of these subsidiary companies by virtue of its holding of their stock. And these subsidiary companies, their officers, directors, agents, servants, and employees are, and each of them is, enjoined and prohibited from declaring or paying any dividends to the Standard Company on account of any of the stock of these subsidiary companies held by the Standard Company, and from permitting the latter company to vote any stock in, or to direct the policy of, any of said companies, or to exercise any control whatsoever over the corporate acts of any of said companies by virtue of such stock, or by virtue of the power over such subsidiary corporation acquired by means of the illegal combination. But the defendants are not prohibited by this decree from distributing ratably to the shareholders of the principal company the shares to which they are equitably entitled in the stocks of the defendant corporations that are parties to the combination.

"SEC. 6. That the defendants named in section 2 of this decree, their officers, directors, agents, servants, and employees, are enjoined and prohibited from continuing or carrying into further effect the combination adjudged illegal hereby, and from entering into or performing any like combination or conspiracy, the effect of which is, or will be, to restrain commerce in petroleum or its products among the states, or in the territories, or with foreign nations, or to prolong the unlawful monopoly of such commerce obtained and possessed by defendants as before stated, in violation of the act of July 2, 1890, either (1) by the use of liquidating certificates, or other written evidences of a stock interest in two or more potentially competitive parties to the illegal combination, by causing the conveyance of the physical property and business of any of said parties to a potentially competitive party to this combination, by causing the conveyance of the property and business of two or more of the potentially competitive parties to this combination to any party thereto, by placing the control of any of said corporations in a trustee, or group of trustees, by causing its stock or property to be held by others than its equitable owners, or by any similar device, or (2) by making any express or implied agreement or arrangement together, or one with another, like that adjudged illegal hereby relative to the control or management of any of said corporations, or the price or terms of purchase, or of sale, or the rates of transportation, of petroleum or its products in interstate or international commerce, or relative to the quantities thereof purchased, sold, transported, or manufactured by any of said corporations, which will have a like effect in restraint of commerce among the states, in the territories, and with foreign nations to that of the combinations the operation of which is hereby enjoined." (United States v. Standard Oil Co., 173 Fed., 199–200.)

These provisions of the decree made by the lower court were approved by the Supreme Court, with certain modifications, of which the following are the only ones of present interest:

"But the contention is that, in so far as the relief by way of injunction which was awarded by section 6 against the stockholders of the subsidiary corporations or the subsidiary corporations themselves after the transfer of stock by the New Jersey corporation was completed in conformity to the decree, the relief awarded was too broad: a. Because it was not sufficiently specific and tended to cause those who were within the embrace of the order to cease to be under the protection of the law of the land and required them to thereafter conduct their business under the jeopardy of punishments for contempt for violating a

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