corporations looking either to limitation of products or price or general conduct of business was concerned?

Mr. DWINNELL. Certainly. That would be my idea.

Senator CUMMINS. You believe that reasonable competition ought to be preserved?

Mr. DWINNELL. I think so; I think it is absolutely essential to the perpetuity of a race or a nation, and I am an individualist and not a socialist.

Senator CUMMINS. If we do not preserve it in some form, your idea is that the Government must undertake the protection of its people by fixing prices?

Mr. DWINNELL. Eventually.

Senator CUMMINS. And that is on the threshold of socialism? Mr. DWINNELL. That is my theory.

Senator CUMMINS. That is all.

The CHAIRMAN. Senator Newlands, you may interrogate.

Senator NEWLANDS. Have you any suggestion to make as to the amount it takes and what revenue would be obtained?

Mr.DWINNELL. Of course the revenue would be very considerable; it would be very large. I have thought that a maximum of 1 per cent on the largest corporations would be sufficient to clip their wings sufficiently to enable a smaller individual or corporation to compete with them.

Senator NEWLANDS. Have you ever made an estimate as to what the amount of revenue of such tax would be?

Mr. DWINNELL. No; I have not. It would be large.

Senator NEWLANDS. I will state that when the first antitrust convention was held at Chicago, shortly after I entered Congress, I was asked to make an address, and I sent to that convention an article making substantially the same proposition that you make

now.

Mr. DWINNELL. I did not realize that I was plagarizing.

Senator NEWLANDS. And later on I heard that a lawyer of distinction from St. Louis appeared before the Industrial Commission that was then in existence, and taking this communication of mine as his text, he amplified it and addressed the commission at length, and I think it was quite seriously considered by the commission itself in its report.

Mr. DWINNELL. I have not seen that.

Senator NEWLANDS. Of course that report is among the archives of the Government and has never really been read by many. It is a most useful thing. If we would only read over that report it would be unnecessary for us to be making investigations to-day. I do not know exactly what recommendations were made by the Industrial Commission, and I was glancing over the report the other day and was amazed to find how, at that early day, so many of the things that are being considered now were exhaustively treated in that report.

Senator CUMMINS. I wonder if there are enough of them out to supply each member of the committee with a copy.

Senator NEWLANDS. It was an industrial committee, you will remember, appointed by Congress. It was in session for some years. Senator CUMMINS. We ought to have one.

Senator NEWLANDS. I believe, myself, that a very large revenue could be raised by such a means, and might take the place of the corporation tax and relieve the small corporations from the burdens. they now complain of and handicap the big corporations, and enable the small corporations to live.

Mr. DWINNELL. In our State in 1899 I was in the legislature and secured the enactment of an antitrust law, under which act we were able to prevent the consolidation of the spring wheat flouring mills of the country. They had made considerable progress at the time the Attorney General retained me to proceed against them. We never had to go that far because they were unable to raise the money when they found the State was contemplating this procedure. At that time we gave the matter considerable thought, but I held the matter very largely in abeyance because I always had my doubts in regard to its constitutionality until the decision in the corporation-tax case by the United States Supreme Court. Since that time I have not given the matter any thought or particular investigation.

Senator NEWLANDS. Your tax, you say, would be a graduated tax? Mr. DWINNELL. Yes, sir; a flat tax would not accomplish the purpose at all.

Senator NEWLANDS. The maximum you think should be 1 per cent? Mr. DWINNELL. I think that would probably accomplish the pur

pose.

Senator NEWLANDS. You would commence at a very much lower rate?

Mr. DWINNELL. Yes, sir; commence at a low rate.
Senator NEWLANDS. That is all.

The CHAIRMAN. Senator Brandegee, do you desire to interrogate? Senator BRANDEGEE. I did not follow you in what I understood you to say as to the effect the graduated annual tax, based upon the capitalization of the corporation, would be likely to have upon the price of its products.

Mr. DWINNELL. My theory is that latent competition would always exist where it doesn't now. In other words, smaller aggregations of capital of individuals would dare to embark in that line of business where it does not dare to now, and if the corporation unduly increased its price, then the profit in the industry would be such that people would at once engage in it.

Senator BRANDEGEE. Take a concrete case, and perhaps I can make myself clearer. You understand that the price of steel rails, having been $28 a ton for many years, and being $14 a ton profit, as you thought?

Mr. DWINNELL. Well, I do not know anything about it. It is com

mon rumor.

Senator BRANDEGEE. Well, whatever it may be let us assume that that is correct. Suppose upon the capital stock of this Steel Trust there was imposed a graduated annual tax of 1 per cent or more. How would that encourage anybody to go into the business as a competitor of the Steel Trust?

Mr. DWINNELL. Because they would have an advantage over the Steel Trust to that extent.

Senator BRANDEGEE. If the Steel Trust is now making $14 a ton upon its steel rails and a tax of only 1 per cent were imposed upon

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its capitalization, would that induce anybody to go in and compete with the Steel Trust? The Steel Trust would soon have a large profit per ton upon its rails, would it not?

Mr. DWINNELL. Probably not in that instance.

As I stated, it is

a question of rates. The graduation and the ultimate limit would have to be very carefully investigated. In corporations that are very large and where there is undue profit and a tremendous amount of water in the capitalization, it might have to be higher. I think your illustration is a good one as showing that necessity.

Mr. BRANDEGEE. Well, do you think that in all existing corporations where capital was larger than the amount that an individual might accumulate in a lifetime, if this tax was imposed upon the capitalization of all businesses, that it would bring in competitors with them?

Mr. DWINNELL. It would either bring competitors or it would force them to sell their products at fairly remunerative prices; not at monopolistic prices.

Senator BRANDEGEE. Why would not the tendency of it be to induce them to ask a higher price for their products?

Mr. DWINNELL. Because the moment they did, this latent act of competition would become actual. If they declared that to be their policy and there was a great deal of profit in the business, capital would go into it at once. We are very quick in this country to seize upon opportunities that show good profit, and engage in that particular enterprise.

Senator BRANDEGEE. What, exactly do you mean by "latent" competition? I do not know that I comprehend that term.

Mr. DWINNELL. Well, it is the competition that is produced by idle capital, or capital that is earning a small rate of interest, produced by virtue of an opportunity to engage in enterprises which will pay a larger return.

Mr. BRANDEGEE. I do not quite see how there would be any competition by capital that was not actually invested in some competing

concern.

Mr. DWINNELL. We will use a different word. We will say "fear" of competition instead of "latent."

Senator BRANDEGEE. Fear of competition always exists, and yet here we have a case where the profits on a ton of steel, if your figures are correct, is equal to the cost of producing the ton of steel, and there is no competition, except a few independent companies, and they get the same price for their steel as the Steel Trust, would they not?

Mr. DWINNELL. Yes, sir; in that case I say that probably the tax would have to be somewhat increased.

Senator BRANDEGEE. Now, why, in your opinion, if there is such a profit in that business as you think there is

Mr. DWINNELL. I am not saying that I think there is. I do not know anything about it, except that it is common rumor. I cited that as an illustration based upon rumor.

Senator BRANDEGEE. Well, if it is so-if the figures you have suggested are correct, and I do not know whether they are or not-if they are, or anything like it, what in your opinion is the reason that this latent competition does not come into effect now without any tax on these smaller companies?

Mr. DWINNELL. The fear of the tremendous power exercised by the fourteen hundred millions of capital engaged in that enterprise. Senator BRANDEGEE. Now, if it is the fear of that dead-weight of capital at their command

Mr. DWIN NELL. It is not dead-weight.

Senator BRANDEGEE. Well, live weight--if it is the mere fear of weight of capital, how would such a tax as you indicate diminish the threat of that aggregated capital?

Mr. DWINNELL. It would impose a burden upon a larger aggregation and tend to place them upon equality. That would be the purpose of the tax that as near as possible places these various amounts of capital on equality.

Senator BRANDEGEE. Well, let me ask you this question: In your opinion, would such a tax as you propose have any effect whatever in inducing competitors to enter the business unless the tax was heavy enough to deprive the aggregated capital in the business of any advantage that they would have as an existing concern and put them on an almost level with the proposed competitor?

Mr. DWINNELL. It would have to be sufficient to place them on a level.

Senator BRANDEGEE. That brings up the question, it seems to me, whether it is the duty of the Government to use the taxing power forever to equalize conditions among competing people in the same

business.

Mr. DWINNELL. Well, that is a question of policy. It may not be the duty.

Senator BRANDEGEE. Senator Cummins suggests sotto voce that we sometimes do that in the tariff, where we are dealing with foreign nations.

The CHAIRMAN. Senator Watson, do you care to ask any questions?

Senator WATSON. Let me see if I understand your attitude. Suppose two corporations were organized at a million dollars capital cach, and in the same business. At the end of 25 or 50 years one of them has grown to a $2,000,000 corporation and the other to a $10,000,000 corporation, your tax on the $10,000,000 corporation would be five times as high as on the $2,000,000.

Mr. DWINNELL. Not necessarily five times as high.

Senator WATSON. Well, in that proportion.

Mr. DWINNELL. Oh, no; it would not be in direct ratio with the increase in capital.

Senator WATSON. It would not be.

Mr. DWINNELL. Oh, no; that would not be reasonable, in my judgment. I do not think it would be graduated to that extent. Senator WATSON. That is all.

Senator TOWNSEND. Your proposition is to impose a tax upon capital?

Mr. DWINNELL. Yes, sir.

Senator TOWNSEND. What occasion would there be for a company with $1,000,000 capital laying by a surplus of $10,000,000 in the course of a year?

Mr. DWINNELL. When I say capital, I do not necessarily mean capital stock. The law of course would have to be framed to meet that exigency. It would have to be framed so as to put a tax upc

the capital, or the amount of money engaged in the business where they sought to evade the tax by cutting down the capitalization. Senator TOWNSEND. And you would have this apply simply to corporations.

Mr. DWINNELL. Yes, sir.

Senator TOWNSEND. But you would do that on the ground that because of the fact that they are permitted to combine the Government has the right to tax in that respect?

Mr. DWINNELL. Well, I do not know that I would put it exactly on that ground. It is an exercise of the right of Congress under the Interstate Commerce act. It is a regulation of commerce. Senator TOWNSEND. What would you do in the case of an individual who put $10,000,000 into a business of twenty million?

Mr. DWINNELL. There would be cases there that would not be reached.

Senator TOWNSEND. So that the man with immense capital, who wanted to go into it and control that business, would not be placed under the disadvantages that a large corporation would?

Mr. DWINNELL. Men of large capital operate through large corporations as a rule, almost without exception.

Senator TOWNSEND. Yes; but I can conceive that with immense capital held by individuals throughout the United States, one man might go into the manufacturing business.

Mr. DWINNELL. As a rule he would have to buy out a great many associates before he could carry on the business himself.

Senator TOWNSEND. But if he should do that, if possibly he should do it, your proposition would not reach him?

Mr. DWINNELL. It would not reach him, and it would be only cases that could be covered, or that would not be covered.

Senator TOWNSEND. I think that is all.

Senator POMERENE. Would you apply that to transportation or industrial corporations.

Mr. DWINNELL. It would not apply to railroad corporations because under our trunk system now it is necessary to have very large capitalization, and those trunk systems are in competition with the other trunk systems, so you do not have to protect the small systems against those trunk systems.

Senator CUMMINS. I can not understand why you can not apply it to the individual as well as to the corporation.

Mr. DWINNELL. I suppose you could. It would be a little more difficult. You would have to have a statement instead of being guided very largely by the professed capital stock.

Senator CUMMINS. The Supreme Court has decided that an individual may be taxed in that way.

Mr. DWINNELL. Oh, yes; there is no constitutional objection to it that I know of. It is only a matter of policy.

Senator TOWNSEND. There would be a constitutional objection to it if you placed it on the proposition that you were going to tax those people, as is done to-day, because they had combined; therefore, the Government had the right to reach them.

Mr. DWINNELL. I was discussing policy rather than the constitutional phase of the subject. It is a theory, a justification for the act, in my judgment.