of the statute, namely, that the two sections had to be construed together.

Senator POMERENE. I think that is all.

Senator BRANDEGEE. I want to ask you one more question that I omitted to ask. In your examination by Senator Newlands he asked you about holding companies, and you said you did not condemn them wholesale and in every case, and you started to say that you had in mind an instance, and then he diverted you to something else. Have you in mind any instance of holding companies that you could give us that you think are good things?

Mr. KRAUTHOFF. I have in mind instances of quite a number of companies. Without mentioning names, I have one that was recently financed. It is a perfectly and highly reputable concern, which can not under any conceivable view of the law be deemed to be tainted with illegality. It is organized under the laws in one State and it openly and publicly does business in several other States. All the stock representing these establishments belongs to the same people. Under the varying statutes, on the subject it can not qualify in all these other States. It would necessarily have to keep out of some of them were it not that it can meet the situation by means of auxiliary companies. I do not call that company an obnoxious holding company. I understand that a holding company such as has been condemned here must have been a company formed for the purpose of acquiring the stocks of competitive concerns and thereby controlling the competitive concerns, being in and of itself the combination or the organization which evidences the control-say the Northern Securities Co. In that sense I can understand the condemnation of a holding company; but Senator Newlands suggested that every holding company, without regard to circumstances, had been condemned by the Attorney General and many others.

Senator BRANDEGEE. Of course, I can not speak for him, but I assume that he meant that every one of these holding companies that was organized for the purpose of holding the securities of other companies and not doing any business itself, but simply holding the securities of other companies. I assume that is what we all mean by holding companies.

Mr. KRAUTHOFF. I think the condemnation is addressed to corporations, more particularly, which are, in another form, a combination previously declared to have been illegal.

Senator BRANDEGEE. Was it necessary, in the instance you have in mind, for the successful transaction of the business of the company to arrange it in that legal form to have a holding company? Mr. KRAUTHOFF. Yes, sir.

Senator BRANDEGEE. My impression was that the States by comity did not recognize the right of a corporation to do business in other States if the State of its creation denied it the right to exercise its functions in its parent State.

Mr. KRAUTHOFF. There is legislation in some States in the way of what are called reciprocity statutes, and particularly, I think, in reference to life-insurance companies. For instance, one State may not admit an insurance company of another State unless the laws of the State under which it is incorporated will admit an insurance

company organized under the laws of the other State on the same terms. But there is nothing to prohibit, for instance, a New York manufacturing corporation from establishing a sales agency in Ohio and to form an Ohio corporation for that purpose.

Senator BRANDEGEE. I had assumed that this was true, that if New York should incorporate a company for the purpose of making steel tools, and should say that it should not exercise those rights within the State of New York, that Illinois would not permit that company to come in there and do the thing that New York had prohibited it from doing in its own State.

Mr. KRAUTHOFF. No; unless the business to be done or powers to be exercised were unlawful in Illinois.

Senator BRANDEGEE. I may be mistaken about that.

Mr. KRAUTHOFF. I know that there has been comment upon the unusual statute of New Jersey, under which parties may form a corporation with power to conduct certain public utilities in States other than New Jersey.

Senator BRANDEGEE. I should not think would be recognized by any State.

Mr. KRAUTHOFF. It is so recognized.

Senator BRANDEGEE. That is all.

The ACTING CHAIRMAN. I have just one or two additional questions, rather to get into the record your opinion, that you are at liberty to give or withhold as you see fit. You seem to assent to the proposition that the constitutionality of a Federal incorporation law was doubtful, at least?

Mr. KRAUTHOFF. I was speaking of private corporations for industrial purposes-not national agencies.

The ACTING CHAIRMAN. I assume that if we have any power to create such corporations it arises out of the power given in the Constitution to Congress to regulate commerce among the States and foreign nations?

Mr. KRAUTHOFF. That must be true.

The ACTING CHAIRMAN. Do you see any very fundamental distinction between creating a corporation as a regulation of commerce and imposing a condition upon a State corporation as a regulation of commerce?

Mr. KRAUTHOFF. Not as a legal proposition. If the constitutional power to do one exists the constitutional power to do the other could not be far distant.

The ACTING CHAIRMAN. Does your doubt with regard to the validity of a Federal incorporation law arise upon the ground that it is not a regulation of commerce to create a corporation to do interstate business, or because as a matter of collision with the powers of the State?

Mr. KRAUTHOFF. You have stated it correctly: Is it within the scope of the power "to regulate commerce" to provide for the compulsory organization of corporations, who alone may engage in such commerce, and particularly if such corporations are to do an intrastate and local business as well as an interstate business?

The ACTING CHAIRMAN. That is, you have less doubt about the power to create a corporation to do purely an interstate business

than you have about the power of Congress to create a corporation to do both interstate and intrastate business?

Mr. KRAUTHOFF. Yes, sir. Such legislation involves the proposition that the statute is coercive and embodies a prohibition against a State corporation engaging in interstate commerce.

The ACTING CHAIRMAN. Then your doubt does not arise because there is another part of the Constitution which forbids the thing being done, but because you doubt whether to create any such corporation is a regulation of commerce?

Mr. KRAUTHOFF. Plus the fact that you may make it an exclusive instrumentality by saying that no State corporation shall engage in interstate commerce. If the act should also exclude individuals, the proposition of an invasion of the rights of persons would naturally arise, and in respect of this other parts of the Federal Constitution would no doubt be invoked.

The ACTING CHAIRMAN. Do you doubt that a condition can be imposed upon a State corporation which must be complied with in order that it may lawfully engage in interstate commerce?

Mr. KRAUTHOFF. That has not been decided by the Supreme Court, and until it has been so decided I shall strongly doubt. Of course I know the Lottery Ticket case, so called, and I am perfectly aware of the broad statements in that case; but the question of excluding lottery tickets from the mails strikes me as being an entirely different proposition from the question which would arise in the case you put.

The ACTING CHAIRMAN. That is the very point I desire to reach. You think there still remains some doubt whether the Federal Government can prohibit a State corporation from engaging in interstate commerce?

Mr. KRAUTHOFF. Precisely. You will find Mr. Morawetz states that in his opinion it can not be constitutionally done.

The ACTING CHAIRMAN. I wondered if you agreed with him in that respect?

Mr. KRAUTHOFF. It is sometimes very hard, with the best of intentions, to draw the line in respect of conflicts between State and national jurisdictions. Can Congress arbitrarily declare that a State corporation has no rights which the Federal Government is bound to respect, and wholly disregard State charters? This is one way of putting the question, because such legislation would impose conditions, perchance impossible conditions, upon a creature of a sovereign State which that State has sent out chartered to do business, and which every other State in the Union has admitted to do business within its limits. If a Federal statute should say that, nevertheless, such a corporation shall not engage in business, you must realize that you have engendered a large question. I simply say I doubt.

The ACTING CHAIRMAN. I believe that is all, and unless some other member of the committee desires to inquire we will close the matter; and the committee desires to express its appreciation for the help you have given it.

(Mr. Krauthoff was thereupon excused.)

The ACTING CHAIRMAN. Mr. Farrar will be heard now.

1

STATEMENT OF EDGAR H. FARRAR, EX-PRESIDENT OF THE AMERICAN BAR ASSOCIATION, OF NEW ORLEANS, LA.

The ACTING CHAIRMAN. Please give your name and occupation to the reporter, so that it may appear in the record.

Mr. FARRAR. Edgar H. Farrar is my name; my occupation is that of a lawyer, and my residence is New Orleans, La. My practice for the last 40 years has been principally corporation practice.

I was invited before this committee by the chairman, I suppose, in consequence largely of an address that I delivered as president of the American Bar Association before the association in August, at Boston. In that address I treated of the control of corporations in this country, and being an old-fashioned State rights Democrat, inasmuch as these creatures are the creatures of the various States, I have evolved a plan for the regulation of these corporations so as to take the injurious ones out of existence by a compact or agreement between the States made with the consent of the Congress. If, however, this result can not be reached by the States making the compact on that subject, agreeing to uniform corporation laws and the elimination from their various corporation laws of all their objectionable features, then it is necessary for Congress to act in that matter and to pass a statute regulating the appearance of these objectionable corporations in interstate commerce.

Now, I have very decided views on that subject, which have been based upon a thorough examination of law, and I have no doubt that under the Constitution of this country Congress has the right to say what corporations can engage in interstate commerce, and can fix rules and regulations whereby objectionable corporations can be excluded from interstate commerce. And the reason of that is this: In the first place, the power of the Federal Government over interstate commerce is absolute; it has no limitation except the general limitations that are maintained in the Constitution. As Mr. Justice Bradley said in a celebrated case:

As regards interstate commerce, there are no States.

And that expression of Mr. Justice Bradley in the Stockton case has been approved by the Supreme Court of the United States. In fact, we have for that doctrine the language of Chief Justice Marshall in Gibbons v. Ogden, who said, speaking of the interstate-commerce power:

It is a power vested in Congress as absolute as it would be in a single government having in its constitution the same restrictions in the exercise of the power as are found in the Constitution of the United Staes.

Now, the Supreme Court of the United States has settled that that absolute power includes the power to prohibit, and Congress has already exercised that power in some respects. For instance, take this clause of the Hepburn Act, where a railroad company is prohibited from carrying in interstate commerce:

Any aricle or commodity, other than timber and the manufactured products thereof, manufactured, mined, or produced by it, or under its authority, or which it may own in whole or in part, or in which it may have any interest, direct or indirect, except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier.

The Supreme Court has settled that that act is constitutional.

Now, we must come back and look at the character of a corporation. A corporation is a fictitious creature created by the sovereign. As was settled by Chief Justice Marshall in the old Georgia Bank case, it can not migrate beyond the sovereign that created it, except by comity. Hence it is a well-settled doctrine in this country that every State in this Union has the power absolutely to prohibit a corporation of any other sovereign from coming into its midst and doing business. It is further settled by the Supreme Court of the United States that a corporation is not a person within the meaning of that article of the amendment to the Constitution which guarantees to every citizen the privileges and immunities of a citizen of the United States. It is a person only within the fourteenth amendment, which prevents any statute from depriving any person of life, liberty, or property without due process of law.

Now, such being the admitted principles of law, it follows, to my mind. necessarily that this great sovereign Government of the United States, with absolute power over interstate commerce, including the power to prohibit, can say that none of these fictitious creatures created by the State, with no power to move out of the State without comity, can say, "You can not come within the domain permitted by the people to the Federal Congress."

Those are my reasons for saying that Congress can absolutely prohibit a State corporation from engaging in interstate commerce. Having the power to prohibit, it has the power to regulate; it has the power to fix the terms and conditions upon which such corporations can enter interstate commerce. And I think the decision of the Supreme Court in Crutcher v. Kentucky and that clause of the Heyburn Act that maintained that proposition to indicate the commerce of this country, both intrastate and interstate, is contradicted to a very large extent by corporations. The corporation laws of the various States have been expanded to such an extent that in a very large majority of the States you can form a corporation with unlimited capital stock for the purpose of engaging in any enterprise or business whatsoever that an individual can engage in.

Now, those creatures of the State can be confined by the other States to the limits of the State which creates them, and every State has a right to put such conditions upon a foreign corporation as it chooses, unless it is a corporation engaged in interstate commerce, or unless it is a Federal corporation created to aid the Government in some one of its functions.

Now, it appears to me that this trust evil, in so far as interstate commerce is concerned, can be regulated by fixing the conditions upon which these corporations can come into interstate commerce, and that is the regulation which Congress ought to adopt if it is going to adopt any at all. If Congress concludes that a holding company or a company controlled by a holding company has an injurious tendency and is apt to create or promote monopoly or restraint of trade, it can say that no holding company and no corporation whose stock is held by a holding company shall engage in interstate commerce. If Congress concludes that a corporation with a capital stock of $300,000,000 or $400,000,000 or $500,000,000 or $1,000,000,000, or even any less figure than that, whether formed by consolidation of other corporations, or whether formed directly under the law of one of these States that permits a corporation with unlimited capital