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supply the experience, trained force, knowledge, and traditions which the commission must have for its work.

(3) "Shall the test of the applicability of the acts to corporations engaged in interstate trade be the annual gross receipts, or the character of the business in which the corporations are engaged-namely, the production of great staple articles?"

The question here is a debatable one, but experience with corporate business leads me to doubt the feasibility of a classification based on kinds of business or staple commodities. Such lines of demarcation are too vague. For example, certain companies deal wholly in the manufacture of lumber, others in its sale, others in the manufacture of goods primarily made out of other materials but having a certain proportion of lumber. Similarly with the steel industry and many others. It would be almost impossible to draw the line in many cases so as to say whether a corporation was engaged in a given industry or not. Many great wholesale houses sell a large amount of hardware. Would they be included, for example, as engaged in the steel industry?

(4) "Shall the power of the commission be confined to investigation and inquest, requirement of statements and publicity, and recommendation to the President and to Congress?"

"If not, shall the additional requirement of registration be made with the accompanying power of denying or canceling registration for certain prescribed offenses or for violation of the regulations of the commission; and shall the punishment of a recalcitrant corporation be confined simply to a cancellation of registration?"

Investigation, publicity, and recommendation should be in any event parts of the system. Personally, I favor strongly registration of corporations with power of cancellation. This gives a very practical means of control, which at the same time has the great advantage that it does not actually attempt the positive regulation of business. It allows credit for proper business conduct and imposes discredit for the reverse, but assumes no power of direction and simply leaves the public to apply corrective pressure through public opinion and the investment of the public's money.

Answering also the last part of the question, it is probably better for the present to provide cancellation of registration as the only penalty for improper business conduct. I feel entirely satisfied that such United States registration would shortly become a valuable business and financial privilege for any large corporation. The standing of the company with that public opinion that underlies legislative action and the financial status of its securities with the investing public would be affected in a very practical way by the possession or cancellation of such registry. The approval now granted to corporate transactions through existing State public-service commissions has already a very definite market effect on the price of securities and on the attitude of public opinion. (5) The preciseness with which the grounds for denial or cancellation should be stated in the law, and whether the commission shall have the power to make regulations, lack of compliance with which will result either in a denial or cancellation?”

The grounds of cancellation should be broadly stated, leaving the commission to apply in specific cases the general rules prescribed by Congress. If power of making regulations be conferred on the commission, it should be simply for such regulations as will carry out the terms of the act and make effective the rules laid down therein.

(6) "As the power to regulate interstate commerce is a legislative power, it has been held that the law turning over the administration of such power to a commission or board shall prescribe the rules or standards under which the power is to be exercised. Would this apply to a mere registration in which no substantial property right is involved?"

The question of whether the delegation of a power is constitutional depends wholly on the nature of the power. Legislative power, strictly speaking, can not be delegated, but executive power can, of course, be conferred by legislation, and there can also be given quite broad power of executive administration in ascertaining facts and applying to them the rule established by legislation. It seems probable that the powers granted in this bill come under the latter head and are constitutional.

An excellent case on the subject is Union Bridge Co. v United States (204 U. S., 364), where the earlier cases are reviewed in detail. The case itself involved the question of whether an act of Congress granting to the Secretary of War power to order the removal of the bridge over a navigable stream "whenever the Secretary of War shall have reason to believe that any

bridge

over any of the navigable waters

is an unreasonable obstruction to the free navigation of such waters on account of insufficient height, width of span, or otherwise," was a delegation of legislative power.

The court held that this was not an objectionable delegation of power, and quoted, with approval from Lock's appeal (72 Pa. St., 491), as follows:

"The legislature can not delegate its power to make a law, but it can make a law to delegate a power to determine some fact or state of things upon which the law makes, or intends to make, its own action depend."

See also other cases cited in this decision.

An excellent legislative precedent is in the steamboat-inspection law, where, by section 4405, Revised Statutes, a board is given power to “establish all necessary regulations required to carry out in the most effective manner the provisions of this title." These regulations now cover over 100 pages.

In the same law, also, the inspectors are given broad power over the licenses of steamboat officers, as follows: "But such license shall be suspended or revoked upon satisfactory proof of bad conduct *," a power obviously

closely analogous to the power of cancellation provided in your bill. It should be noted also that the only power delegated is the mere revocation of registration. Registration is not a property right. It is simply a privilege granted through the commission and revocable by it.

Thus, as stated in paragraph 5 above, rules of action and grounds for cancellation of registration should be set forth in the bill itself, with sufficient definition to make clear the intention of Congress as to the class of acts to be covered thereby. For example, the word “overcapitalization" is perhaps sufficiently definite in itself, while “unfair or oppressive methods of competition would perhaps be too indefinite.

(7) "In case the power to fix prices should be included," etc.

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I would prefer not to discuss the form of such power, as I personally believe it unwise to confer any such power on the commission, and do not consider myself competent to treat the subject properly.

In considering any such treatment of our commercial problem as is attempted in this bill, it seems to me, at least, that the Government should not, at present. commit itself, by way of general policy, either to the theory of "unlimited competition" or of "unlimited combination." We are not, I feel, sufficiently advanced to justify us in taking a definite position in favor of either one of these opposing ideas. Any system we adopt now should be so framed as to be alike available for either development. To give the power to fix prices would tend to commit us to a policy of industrial combination.

(8) "Shall the provision regarding registration be simply persuasive, or compulsory; and if compulsory as to the large corporations, shall permissive registration be granted to the smaller corporations?"

I believe that the system would be entirely workable, if the publicity, etc., were simply permissive, and that some complications would thus be avoided. But a compulsory system for large corporations should also bring much the same results, especially if coupled with permissive registration for smaller concerns. The permissive feature for smaller companies seems decidedly desirable.

(9) "Shall the commission, in case of revocation of registration, have power to order that the offending corporation shall not engage in interstate commerce?" This power is a peculiarly drastic one, and would require rather elaborate machinery for its enforcement. I doubt both the wisdom and the necessity here.

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I take the liberty of adding some general considerations, which may be relevant to the discussion of such a system as is proposed by your bill. These views are based on an experience of eight years in the Bureau of Corporations. (10) The one imperative change now required in our policy toward the 'corporate problem," is a change from our present system of treating that problem through occasional prosecution, to a system which will treat it with continuous administrative action. We should advance from a negative policy to a positive constructive policy; from mere occasional prohibition to permanent regulation and prevention.

(11) One of the primary objects of the commission is the providing of proper publicity. This should not be combined with the administration of the Sherman law. It is probably true that efficient publicity is inconsistent with prosecution, at least as administered by the same office. The Bureau of Corporations, the present agent of corporate publicity, secures now at least nine-tenths of its information by voluntary cooperation. The interstate trade commission would continue this work, but should the function of prosecution under the Sherman law be combined with publicity, it is obvious that the present vol

untary cooperation of corporations, the main source of information, will very largely be destroyed.

There are of course exceptions to this general principle. At times it would be necessary for the information obtained by the commission and indicating a clear and flagrant violation of law to be turned over to the Department of Justice. The Bureau of Corporations has in this manner given much assistance to the Department of Justice. The numerous prosecutions of the Standard Oil Co. since 1906 for railway rate discriminations were all based on the report of that bureau, and the agents of the bureau furnished much of the evidence and assisted largely in the preparation of the cases.

Similarly, in the recent prosecution of that company under the Sherman law, the case was instituted as a result of the investigations of the bureau, was largely prepared by its agents, and, I venture to say, would not have been successfully presented without their aid. Some of the ablest men in the bureau gave over a year of their time to this case.

But in general such connection with prosecution should be wholly incidental and secondary, and the publicity work of the commission should be directed primarily at furnishing reliable economic and financial information for the general public and not at securing evidence for prosecution.

(12) One of the most important features of such an administrative system of corporate regulation is its provision, as above referred to, for broad corporate publicity. The effects of such publicity have been well shown by the past work of the Bureau of Corporations, as set forth in the annual report of the Commissioner of Corporations for 1910.

The report of the bureau on the transportation of petroleum, published in May, 1906, effected a sweeping decrease in the granting of railway rebates throughout the country. Practically every railroad involved in the railway discriminations described in this report canceled the objectionable rates within six months after the issuance of the report.

The report of the bureau on cotton exchanges resulted within a few months in a marked improvement. in the regulations of the New Orleans Cotton Exchange, and while the New York Cotton Exchange has not yet made any changes in its system, that exchange, on March 23, 1911, voted "that it is the sense of this meeting that since * the Department of Commerce and Labor has made an exhaustive investigation of the business methods of the cotton exchanges and has criticised the methods and by-laws of the New York Cotton Exchange ** it will be good judgment on the part of this

exchange to,

Government."

so far as possible, adopt the suggestions made by the

In the tobacco industry the independent manufacturers have in many instances stated that the work of the bureau has caused the cessation of various objectionable methods of competition.

In the problem of waterways, the reports of the bureau, three in number, have very widely influenced public opinion by showing the real questions to be solved and the real advantages to be attained in waterway transportation.

A Federal administrative system of publicity and registration should develop both strength and elasticity. The administration of such a system should result in a definite and broadening policy, based on exact information, establishing definite standards of business action, of public economics, and of Government regulation, in themselves highly effective, and valuable also as the raw material for further statutory enactment.

We may fairly hope to get from it a gradual rise in the standard of business conduct, closer relationship between large business and public authorities, marked improvement in corporate accounting and in the standing of our industrial securities, and the elimination of unfair practice and business privilege. All of this without any disturbance of properly conducted business.

The time seems ripe for such action. It has been obvious since the Supreme Court decisions on the Standard Oil and Tobacco Co. cases that the public is ready and anxious for an advance to some such administrative system of regulation by the Federal Government. It seems to be true that corporate managers concede more and more the necessity for such regulation and publicity, recognizing both its public necessity and its advantage to fair business.

Very sincerely, yours,

HERBERT KNOX SMITH, Commissioner.

WEDNESDAY, NOVEMBER 15, 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.

Present: Senators Clapp (chairman), Crane, Cummins, Brandegee, Oliver, Townsend, Newlands, Watson, and Pomerene.

Senator Cummins introduced the following resolution, which was seconded by Senator Brandegee, and after discussion agreed to, as follows:

Resolved, That throughout the hearings about to begin any person who appears before the committee to make a statement or argument upon the subject under consideration shall be permitted to submit his statement or argument without interruption; but at the close of any such statement or argument he may be interrogated by any member of the committee; any such interrogation shall take place in the following order: First, the chairman of the committee, second, the ranking Republican member; third, the ranking Democratic member, and thereafter alternately according to rank; and there shall be no interruption of the examination by any other member of the committee: Provided, however, That this order shall not preclude further interrogation after each member of the committee has had his opportunity.

Resolved also, That, unless otherwise ordered by the committee, the right of interrogation shall be confined to members of the committee.

STATEMENT OF HON. FRANCIS G. NEWLANDS, UNITED STATES SENATOR.

The CHAIRMAN. Senator Newlands, you may proceed.

Senator NEWLANDS. Mr. Chairman, during the late extra session I introduced Senate bill 2941, for the creation of an interstate trade commission with powers over corporations engaged in interstate trade similar in many respects to those possessed by the Interstate Commerce Commission over interstate transportation. On the 4th of August, toward the close of the extra session, this committee, of which I am a member, gave me a hearing on the bill and I made a preliminary statement, explaining its terms and the conditions it was intended to meet. That statement, together with quotations from the President, the Attorney General, and the Commissioner of Corporations, has been printed as the first part of the hearings under the resolution introduced by the chairman.

The bill provides that all interstate corporations (except railroads) whose gross annual receipts exceed $5,000,000 shall make regular reports to the commission as to their business transactions, shall be subject at will to the examination of the commission, and shall, upon complying with such requirements, have the exclusive right to use the title "United States registered." The bill also provides that for violation of the Sherman law, improper capitalization, unfair methods of competition, acceptance of railway rebates, or other improper business transactions, the commission may at will cancel such registration. It is recognized that the right of a cor

poration to publish the fact of such registration will shortly become a valuable financial privilege, and that the fear of cancellation of such right will be a strong restraining influence against improper transactions.

The bill provides a permanent administrative body of trained experts, who shall have as their sole specialty the supervision and registration of large corporations and supply accurate information thereon to the public, and shall make recommendations to Congress for any further legislation that may seem necessary.

I may later on have something further to say before this committee regarding this bill; but I wish to state at present that since the bill was introduced there has been a wide discussion throughout the country upon two divergent lines of thought: One insisting on absolutely free and unrestricted competition as the regulator of corporate business, and the other inclining toward allowing large combinations of capital and applying thereto Government supervision and direction as the prime regulator. It is difficult to say now which of these opposing tendencies should or will ultimately prevail. The bill which I have introduced is, in my judgment, adapted to this undeveloped situation. It will help us to determine which of these theories is the correct one; it will furnish to Congress and to the public the accurate and broad information on corporate conditions that is necessary to determine the line of further advance. It does not affect the operation or the enforcement of the Sherman law; its work of publicity and supervision will tend to promote fair competition and keep equally open to all the highways of commerce. On the other hand, it takes the situation as it is, recognizes that there is a large degree of combination already existing, and makes that condition a subject for supervision, study, and report to Congress. Its frankly tentative character and its moderation recommend it as a step upon which all can unite in doing what is imperatively needed for the present, without prejudicing the future.

I trust that the committee will see the wisdom, without waiting for the end of this investigation, of recommending this tentative measure, which will be an aid in the final solution of all the pressing questions relating to trade corporations.

The hearing has been printed and is now on file with the committee.

The CHAIRMAN. Is that all you desire to say?

Senator NEWLANDS. That is all I care to say at this time, Mr. Chairman.

Senator CUMMINS. I understand that you have requested that there shall be no interrogation at this time?

Senator NEWLANDS. Yes; at this time. I prefer, later on, when other views have been presented, to have the opportunity of appearing before the committee and will then, possibly, present some modification of this measure as already drawn.

Senator TOWNSEND. Then you do not seriously insist upon action being taken at the beginning of Congress on your bill?

Senator NEWLANDS. I do not know what course the committee will determine upon with reference to that. My own view is that a bill of this character should be passed as quickly as possible, for the reasons given by me in my statement at the hearing last session.

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