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stock-if such a corporation is admittedly injurious or likely to create monopoly or produce monopoly, Congress can say, "You can not engage in interstate commerce.

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A monopoly in this country to restrain trade is brought about to a very large extent, first, by the holding companies; second, by the consolidation of corporations; and, third, by agreements whereby the directors of various corporations are practically the same people.

There are many ways of arranging corporate organizations so as to produce restraint of trade or monopoly without any agreement between them at all, because it is manifest that if four or five or six corporations engaged in the same line of business have the same directorate, each corporation will be conducted by the same persons on the same line of policy without any corporate agreement between the corporations themselves, that they would be conducted as one corporation, and they can fix prices or do what they please without apparently coming within any prohibition of the law. Of course, where you have independent corporations and those independent corporations undertake to make agreements among themselves, monopolistic in their tendency, or agreements in restraint of trade, they can be reached directly by the provisions of the Sherman law.

Now, as regards the amendment of that law, I agree with Mr. Krauthoff that amendments to that statute, if any, will have to be drawn with very great care and very great discrimination. For instance, we know what the usual methods are whereby restraint of trade is brought about. For instance, corporations get together and agree to fix prices, and at that point I think it is wise to introduce this situation which is set forth in the celebrated case of Steamship Company against McGregor. In other words, I do not believe that it comports with the sound public policy or the economic policy of any country that competition should be carried to the point of destruction, and that therefore an agreement between persons in the same line of business to the effect that prices should not be cut below the actual cost of production ought to be considered a valid agreement, just as the English House of Lords held in that case, that the agreement between these steamship companies not to cut their freight or passenger rates to a point where they were compelled to carry freight and passengers below cost, and therefore to eat up, necessarily, in time the capital involved in those steamship companies, was valid. One of the other methods of combining is to appoint a general selling agent, a common selling agent, between all the corporations, with power in that selling agent to fix prices.

Another form of creating a restraint of trade is to divide territory. One corporation says, "You take this State, and I will take the other State, and I will not sell any goods in your territory, and you won't sell any goods in mine."

Another form is where they combine for the purpose of reducing the price of raw materials that they buy. For instance, you take the cotton mills in this country. If cotton gets pretty high they will all get together and agree openly, in the face of officers of the United States, to shut down for the purpose of reducing the price of the material that they buy. I consider that is a combination in restraint of trade, just as I consider it is a restraint of trade if the cotton planters get together and agree that they will reduce the

acreage by a conspiracy all over the country, to put up the prices. It is just about as bad on the one side as it is on the other.

Possibly if the law was modified or amended by taking the wellknown method of producing restraints of trade, specifying that it would relieve the court of-you might call it the odium or the praise, depending upon what source it comes from-of saying that something was in restraint of trade, and that something was not in restraint of trade.

In the civil law which prevails in my country we have an old maxim which says that the best law is that which leaves the least discretion to the judge, and the best judge is he who leaves the least discretion to himself. Upon that principle I believe that it would be wise to make this law so specific that there can not be any misunderstanding.

Mr. Chairman, I have expressed these views in very great detail in this address of mine, and if the members of the committee have not seen it, I will furnish them with copies of it.

The ACTING CHAIRMAN. I think that the committee would be very glad if it were made a part of your statement here, so that it would appear in the record.

Mr. FARRAR. I have no objection.

The ACTING CHAIRMAN. So that if you will leave a copy of it, it will be so done, with the consent of the committee.

(The address referred to appears at the end of Mr. Farrar's statement.)

The ACTING CHAIRMAN. Mr. Farrar, there are one or two points with regard to legal questions involved that I shall take the liberty of developing, not to draw you into any general legal discussion, but that the matter may be made clear.

Mr. FARRAR. I will answer them if I can, sir.

The ACTING CHAIRMAN. The Constitution of the United States only gives Congress the power to prohibit corporations er individuals from doing business among the States in so far as the power to regulate includes or embraces the power to inhibit; that is true, is it not?

Mr. FARRAR. The Congress of the United States, under the power to regulate commerce between the States and foreign nations, can not go beyond that limitation. In other words, Congress has nothing on earth to do with intrastate commerce.

The ACTING CHAIRMAN. It has no power to do anything with any commerce except the power to regulate?

Mr. FARRAR. Only to regulate.

The ACTING CHAIRMAN. And, therefore, whatever we do must be, in its proper sense, a regulation of commerce?

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. And it is your conclusion, from the decisions of the Supreme Court, that the regulation may proceed to the point of absolute prohibition?

Mr. FARRAR. Yes, sir. And Congress is the judge as to what shall be prohibited and what shall be permitted-the sole judge.

The ACTING CHAIRMAN. You referred to the interpretation put upon the one section of the act of 1906, I believe, ordinarily called the Hepburn Act?

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. You had in your mind the decision in what is known as the commodities case?

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. I have not read that decision for some time, but possibly you have it cited in your statement. As I remember it, the Supreme Court rather assumed the constitutionality than decided it, and the case really went off on another point, did it not?

Mr. FARRAR. I think it did. But, as you say, the court assumed the constitutionality of the case, and it was decided in the lower

court

The ACTING CHAIRMAN. For the purpose of that case it assumed its constitutionality, but held that the interest which the railroad companies involved had in the production of coal-I believe it was coal was not such an interest as was contemplated by the statute. Mr. FARRAR. That was the case where, in the original case, it held that the holding of the stock in a coal mine was not within the prohibition of the statute.

The ACTING CHAIRMAN. That is the point upon which the case was actually decided?

Mr. FARRAR. Yes. But they have modified that decision to some extent. In a case which was before the court they decided that the company that held the stock was practically a sham corporation. In other words, that its business affairs were so mixed up and handled with the affairs of the railroad as to draw no line of demarcation between them; that in such a case they were within the statute.

The ACTING CHAIRMAN. But the point I was trying to reach was this: Probably the Supreme Court did not decide in that case that Congress could absolutely prohibit the carriage of coal produced by the company itself from State to State, but said, assuming that it was constitutional to so do, that this act does not prohibit the particular thing in controversy.

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. You referred to the only right which a corporation created by one State has to do business in another as arising from the comity of the foreign State with the State in which the corporation desires to go from the place of its organization. Do you understand that rule is without limitation or qualification? In other words, suppose a corporation organized in the State of Illinois seeks to carry on interstate commerce, do you understand that the State of Illinois can, on account of the doctrine of comity, exclude it from Iowa?

Mr. FARRAR. No, sir; not at all.

The ACTING CHAIRMAN. It is only that the doctrine of comity, as I gather then from you, applies only when the corporation seeking admission to a State is not engaged in interstate commerce?

Mr. FARRAR. When it undertakes to do an intrastate commerce in that State.

The ACTING CHAIRMAN. But the doctrine of comity does not extend to the length of permitting one State to prevent a corporation from another State coming there for the purpose of doing an interstate business?

Mr. FARRAR. No, sir; not in any respect. That is regulated entirely by the Congress of the United States.

The ACTING CHAIRMAN. And, therefore, in the absence of any regulation by Congress, a corporation created in any State can go into every other State for the purpose of transacting interstate business or carrying on interstate commerce?

Mr. FARRAR. Undoubtedly. The Supreme Court of the United States settled the doctrine many years ago that the absence of regulation by Congress of interstate commerce was a declaration that it should be free..

The ACTING CHAIRMAN. Therefore, so far as interstate commerce is concerned, the whole power over the subject is reposed in Congress?

Mr. FARRAR. As to its regulation, absolutely.

The ACTING CHAIRMAN. And it is your opinion that any interference or supervision which Congress may desire to impose upon it would be held to be a regulation of commerce? In other words, no broader or more comprehensive word than "regulate" could have been employed?

Mr. FARRAR. No, sir. Look what Congress has done in regard to American shipping; shipping on our rivers, the control of our steamboats, the control of our streams under the power to regulate

commerce.

The ACTING CHAIRMAN. You, therefore, I take it, would have no doubt that, if Congress saw fit to regulate interstate commerce by the creation of corporations under its own law, such an act would be valid?

Mr. FARRAR. I doubt the power of Congress to create a private corporation in interstate commerce. I do not believe they have such power. They have power to create quasi-public corporations, like the transportation companies and bridge companies, because the Government itself could perform that function. The doctrine of the United States Bank case does not extend further than to hold that these corporations the United States national banks, the Texas & Pacific Railroad, the Union Pacific Railroad, the Northern Pacific Railroad. the Luxton Bridge Co., and the national banking system-were instrumentalities of the Government. A private corporation is in no sense an instrumentality of the Government. The United States Supreme Court settled that fully in these corporation-tax cases, that they were not the instrumentalities of the Government at all.

The ACTING CHAIRMAN. To make that distinction perfectly clear, you believe that the Government has the power to create corporations to perform what would be properly governmental functions? Mr. FARRAR. Beyond a question.

The ACTING CHAIRMAN. But not to create those?

Mr. FARRAR. But not to create a private corporation.

The ACTING CHAIRMAN. Well, if the power of regulation is as broad as you have suggested, why is it not regulation of commerce to create a corporation to carry on the commerce?

Mr. FARRAR. You might, sir, carry the doctrine that far.

The ACTING CHAIRMAN. I am not speaking of the policy of it; I am speaking only of its legal aspect.

Mr. FARRAR. I mean to say that you might take the celebrated clause in the opinion of Chief Justice Marshall and say that it was

broad enough to include the power to create a private corporation in commerce. His celebrated test rule is this:

The sound construction of the Constitution must allow to the National Legis. lature that discretion, with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consistent with the letter and spirit of the Constitution, are constitutional.

It could

Now, in all of the cases where the court has maintained the evil of a corporation created by the Congress the corporations so created have been quasi-public corporations. For instance, the Bank of the United States, the whole national banking system, the Union Pacific Railroad, the Northern Pacific Railroad, the Luxton Bridge caseall those cases were quasi-public corporations. The Government of the United States could have done all of those things itself. The Government of the United States could have built the Union Pacific Railroad, if it had wanted to, under its military power or under its postal power or under the power to regulate commerce. have conducted the Soldiers' Home under its war power. It could have permitted the construction or have constructed all those bridges, either under its military power or under its power to regulate commerce or under its postal power. But the court, and the reasoning of the court, has never gone to the extent of holding that Congress could create a private corporation. Indeed, I think the language of Chief Justice Marshall in the celebrated case of McCullough . State of Maryland (4 Wheaton, 316), and of Osborn v. United States Bank (9 Wheaton, 738), is clear.

Chief Justice Marshall stated in the latter case:

The bank is not considered as a private corporation whose principal object is individual trade and individual profit, but as a public corporation created for public and national purposes. That the mere business of banking is of its own Lature a private business and may be carried on by individuals and companies, having no political connection with the Government is admitted; but the bank is not such an individual or company. It was not created for its own sake or for private purposes. It has never been supposed that Congress could create such a corporation.

And Prof. Willoughby, of Johns Hopkins University, who has examined the question, agrees with me, that Congress can not create a private corporation for purely private purposes.

The ACTING CHAIRMAN. I know there is a good deal of difference of opinion upon that proposition, but I wanted to get your idea on that proposition and another one. You have said that it has been well settled that the Government can absolutely prohibit any corporation created by a State from engaging in interstate commerce, but, on the other hand, can not create an instrumentality under its own law for carrying on interstate commerce. The thought in my mind is that those two statements are a little bit inconsistent.

Mr. FARRAR. As I have stated, it is not inconsistent. If you can permit a private corporation to engage in trade and commerce as an instrumentality of the Government, you have decided the question.

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