MONDAY, NOVEMBER 20, 1911. UNITED STATES SENATE, COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The committee met at 10.30 o'clock a. m. for the purpose of further considering the bill (S. 2941) entitled "A bill to create an interstate trade commission, to define its powers and duties, and for other purposes," introduced by Mr. Newlands July 5, 1911. Senator CUMMINS. The committee will come to order. Senator Clapp, the chairman, is not here, and I will take the liberty of presiding in his absence. Mr. Bernard N. Baker is present, and the committee will hear him. STATEMENT OF BERNARD NADAL BAKER, OF BALTIMORE, MD. The ACTING CHAIRMAN (Senator Cummins). Mr. Baker, the committee is acting under a resolution of the Senate, from which I quote a part: Resolved, That the Committee on Interstate Commerce is hereby authorized and directed, by subcommittee or otherwise, to inquire into and report to the Senate at the earliest date practicable what changes are necessary or desirable in the laws of the United States relating to the creation or control of corporations engaged in interstate commerce, and what changes are necessary or desirable in the laws of the United States relating to persons or firms engaged in interstate commerce. It has been suggested before the committee that you have recently had some experience with respect to restraint of interstate or international trade or commerce, especially with reference to commerce that may pass eventually through the Panama Canal, and the committee will be very glad to have from you a statement with regard to that subject. Mr. BAKER. Mr. Chairman and gentlemen, I received the very kind invitation from Senator Clapp to appear and express my views on the subject of this resolution. I have had very little time to give it any special thought or study, as I received it on Saturday morning. I notified the Senator that I was at his command at any time that would suit his convenience, and he appointed half past 10 o'clock this morning. In the little time that I have had to give a study to the subject I have taken the resolution as it is outlined here, "What changes in the law are necessary and desirable relating to the creation," first, and then the control of corporations. My own interests are especially in connection with the development of interstate commerce as applied to the use of the Panama Canal from coast to coast. Having been in the water transportation business for many years, my experience was thought possibly of some benefit. My connection with the Panama project began about three years ago. It began when Secretary Wright was Secretary of War. We had in November, 1908, quite a discussion as to how could best be developed, especially, the coastwise commerce in the use of the then Panama Railroad as a transfer point between coast and coast. The statistical information was furnished to me as to the decline in that traffic. A careful study of the subject resulted in my making a tentative suggestion on the 5th of February, 1909, to Secretary Wright as a possible way of remedying, as far as possible, the conditions then existing. That letter has been in a number of committee reports, and doubtless you gentlemen are familiar with it. I will go into it only casually. It was printed by the Committee on Post Offices and Post Roads, and also by the Senate Committee on Interoceanic Canals. In accordance with an understanding reached at an interview on January 27, under date of the 5th of February, 1909, I submitted a written proposition to use my best efforts to form a company for the objects under discussion, which were to develop, as far as possible, pending the completion of the canal, the coast-to-coast commerce. It was considered by Secretary Wright, and the Panama Steamship Co., by Mr. E. A. Drake, was authorized to draw up the tentative contract by which we might proceed, or for discussion. That was drawn up and the discussion began as to how it could be accomplished a contract to be made by a company for which I pledged myself to use my best efforts to raise the necessary capital to build at that time 10 steamships, and later on possibly five more, covering all the requirements of the Army for use of transports and the Navy for auxiliary transports. The change in the administration resulted in Secretary Dickinson being appointed Secretary of War. Secretary Wright told me that in view of this change he did not feel justified in going on with the execution of a contract, and he would refer it to the new Secretary when he had the pleasure of seeing him. Immediately after that I had the pleasure of meeting Secretary Dickinson, who was then appointed, and of going down to Panama and meeting him there and discussing with him fully the question of facilities, particularly of the Panama Railroad Co. as to its ability to handle any large increased volume of traffic. It was all very satisfactory. There was no question as to the facilities existing there, and the opportunity to do business if the steamship facilities from coast to coast were provided that is, from Panama and Balboa (the port was then Toboca)-up to the California and Puget Sound points and also on the east coast. But he thought at the same time, I think-and all that is very fully in the reports of the Interstate Commerce Commission in the investigations printed there he thought it was not the part of the Secretary of War especially to develop the commerce; that he was there to build the canal. That is all a matter of record. Nothing was done, however, with these suggestions until the Gallinger bill was brought up with the idea of developing more particularly the uses of the canal with the South American business. You gentlemen know the result of that. After the failure of the Gallinger bill last March and after discussions last April-I think it was just about the adjournment of Congress-it was suggested that possibly now was the time to make an effort to utilize the act of March 3, 1891, to assist in establishing a service, the idea being that it should be regular service of moderately fair speed-nothing to compare, of course, with the speed they now have on the north Atlantic-and to insure the regular prompt delivery of all classes of freight, particularly what is termed in water parlance "the package freight," from coast to coast within a reasonable time. The suggestion, I think, was made by me that under the terms of that act I thought the Postmaster General would have the authority to advertise that the ports of Colon and Panama, within the meaning of that act, were foreign ports, and such restrictions could be embodied in advertisements or formal proposal as to fully protect the absolute independence of such a service. This was submitted-I have forgotten the exact date, but some time shortly after that to Attorney General Wickersham, and a decision was rendered by him on the 12th of July to the Postmaster General that within the meaning of the act-and he gives very fully his legal opinion-that Colon and Panama would be foreign ports, and as the act specifically stated that it was for the development of commerce, the Postmaster General would be authorized to provide such restrictions in accepting bids as to the character of bidders as would best protect the absolute independence of the service from any control that might be undesirable or for other interests than the fullest development of commerce. That resulted in an advertisement being inserted on the 7th of August. I was in London at the time of the decision, and came over to carry out my moral obligation that I would use my very best efforts to establish, or secure the money to establish, such a service, on lines to comply with the restrictions provided by the Postmaster General, which we fully expected would be required. Previously to this, and while it was under consideration, I took up the subject with interests that I thought might possibly be desirable bidders, especially with Bates & Chesebrough, in San Francisco, who had formed the California & Atlantic Steamship Co. In one of the hearings, I think before the Interoceanic Canal Committee, I promised to use my very best efforts, if such an advertisement were inserted, to get all the bids I could, and at least assure the Government of one bid, if possible, by my own efforts. Bates & Chesebrough, in the California & Atlantic Steamship Co., had done a remarkable work in the development, under adverse conditions, of a very large volume of traffic from San Francisco to Balboa, and then by transfer across by the Panama Railroad. I also took it up with the American-Hawaiian Steamship Co. I visited Mr. Dearborn and told him that possibly the decision. might be that this opportunity would be offered. Mr. Dearborn's line had developed a wonderful business by the Isthmus of Tehuanteper in a short time from almost nothing up to five or six hundred thousand tons. This being the case, it seemed to me that the American-Hawaiian might be the natural company to provide this faster and what you might call the express service in connection with their freight service, and thus insure the regularity of sailings on fast steamers, which would give the opportunity demanded by the fruit shippers, as their business could only be served by fast or moderately fast steamers. He thought possibly it might not be profitable, but would be glad to consider it. I also took it up with the other possible bidder, the International Mercantile Marine, and urged upon them. that they look into this question fully and see whether it would not be profitable, and whether an opportunity would not come to them to be interested in this business-whether it would not be desirable for them to do so. They promised to look into it. This was prior to the insertion of the advertisement. Immediately upon my return from England-I arrived the same day the advertisement appeared, the 7th of August-I employed the best legal advisers I could to draw up a charter that would fully and freely protect the making of a contract with the Government, and particularly to cover the possibility of the cancellation features in case any violation occurred. I suppose you gentlemen are all familiar with that. There is no use of my repeating the instructions to bidders, which give the right of cancellation to the Postmaster General, which, of course, meant an important condition for anyone investing a very large amount of money if this contract should be canceled on account of stock ownership or otherwise, or any discrimination. It took time and much consideration on the part of the lawyers to prepare a charter that would meet the situation. The problem was new and the charter had to follow new lines. However, it was completed early in September and filed at Trenton on the 5th of that month. A great deal of publicity followed and the almost unanimous indorsement of the press, as far as we could see, made me feel very much encouraged. Now, I was bringing a principle into the business which does not belong there, and which is somewhat altruistic—that a company could be formed by public subscription without taking up the question of any commission basis or any bond issue or preferred stock; as I often express it, an old-fashioned company. I determined to repeat the original expression-to use my very best efforts to find out whether that could not be done. I visited the cities on the Atlantic and Pacific coasts especially interested, and found the most hearty and earnest sympathy and desire to assist in this way of forming a company, which would be the only way which would make it, in my opinion, absolutely, or as far as it possibly could be absolutely, independent. There were certain restrictions in the charter as to voting the stock, and everything of that kind, and also a special restriction in case anyone should vote stock representing any competitive interest, that we could probably legally prevent the voting of that stock, as far as the charter was concerned. All the boards of trade in the different cities met and a number of them appointed committees. There was the difficulty of getting a wide interest in the very limited time I had-only 80 days to the filing of the bid. The bids are to be filed next Saturday under this advertisement, and I found the period was too short; that I would not have probably sufficient time to fully educate the public as to what were the objects and purposes of the proposition. A good many subscriptions-not great in number, but still very substantial-came in, which showed an interest. There was no obligation under the subscription unless the contract was awarded. ATLANTIC & PACIFIC TRANSPORT CO.-SUBSCRIPTION TO STOCK. Whereas the Atlantic & Pacific Transport Co. has been organized under the laws of the State of New Jersey with an authorized capital stock of $15,000,000 divided into shares of the par value of $100 each, for the purpose of engaging in the transportation business by water, and intends, among other things, to bid for the mail contracts with the United States Government, for which proposals were invited by advertisement by the Postmaster General under date of July 20, 1911, in pursuance of the act of Congress of March 3, 1891, routes Nos. 77, 78, and 79; and it is desired by the undersigned to become a shareholder in said corporation: Now, therefore, the undersigned do hereby subscribe for shares of the capital stock of said Atlantic & Pacific Transport Co. and do hereby promise and agree to and with said company to pay the sum of $100 for each of said shares of stock so subscribed under the following terms and conditions: 1. No demand shall be made upon the subscriber unless and until subscriptions to the capital stock of the said company shall be obtained in the aggregate amount of not less than $3,000,000. 2. No demand shall be made upon the subscriber unless and until said Atlantic & Pacific Transport Co. shall have bid for and obtained one or more of the contracts for the ocean mail service, routes Nos. 77, 78, and 79, hereinabove mentioned, pending the award of which this subscription will be held in escrow by a responsible trust company to be delivered to the Atlantic & Pacific Transport Co. upon its obtaining one or more of the said contracts for ocean mail service; otherwise to be returned to the subscriber. 3. Payment hereof after subscriptions to the amount of $3,000,000 are obtained and after the award to this company of one or more of said contracts for ocean mail service shall be made 20 per cent on demand from the treasurer of the Atlantic & Pacific Transport Co. and 10 per cent every 60 days thereafter until the whole shall be paid. Said Atlantic & Pacific Transport Co. on its own part, in consideration of the foregoing, promises to use its best endeavors to obtain subscriptions to the aggregate amount of $3,000,000, and when the same shall be secured will bid for the contracts for ocean mail service hereinabove referred to. Witness the signatures of said subscriber and of the said Atlantic & Pacific Transport Co. this day of 19-. Shares subscribed Subscriber. By ATLANTIC & PACIFIC TRANSPORT CO., President. Subscriptions should be mailed or delivered to one of the following: The Baltimore Trust Co., Baltimore, Md.; Mercantile Trust & Deposit Co., Baltimore, Md.; Fidelity Trust Co., Baltimore, Md., which companies have severally agreed to receive subscriptions and deliver or return the same in accordance with the terms of the foregoing agreement. After consultation with some financial interests in New York I had agreed to carry the company up to the point of securing the contract, provided a reasonable amount of subscriptions were made prior to November 25, and then trust later on, by general advertisement and education of the public and getting it clearly before them, to secure a wide public interest in the company, thinking that that was best. At that point I found that it was impossible to get the limit, which I personally arbitrarily had made, of $3,000,000 so as to justify the obligation which must be assumed with the Post Office Department, first as to the bond of $375,000 with the three companies, and in addition to that an oath to be taken before the postmaster in whatever city the firm or individual or corporation making the bid was domiciled, that they had the right to believe that they had the financial ability to carry out the full $15,000,000, because it would require at least that amount to provide all the ships. I then began taking it up with banking interests. In the different banking interests with which I have taken it up I have never found any combination or direct agreement to restrict |