The ACTING CHAIRMAN. I did not say an instrumentality of the Government. An instrumentality of commerce is what I said, or meant to have said.

Mr. FARRAR. They are instrumentalities for the convenience of private individuals who conduct commerce.

The ACTING CHAIRMAN. But if the power given to the States to regulate commerce among the States is a power broad enough to enable Congress to say that no corporation created by a State can engage in such commerce, I have never been able to see how it could successfully be urged that it was not broad enough to say that 'Congress may create a corporation to carry on that interstate commerce, because it must be carried on in some way.

Mr. FARRAR. I said, Senator, that it was possible to take Chief Justice Marshall's language and make it broad enough to justify the creation of private corporations by Congress to engage in interstate commerce, but it appears to me that it would be a broad stretch of the doctrine to carry it that far.

The ACTING CHAIRMAN. Let us apply it in another question

Mr. FARRAR. You can not make that broad stretch of the doctrine. The ACTING CHAIRMAN. Suppose Congress were to attempt to say that no corporation with a capital of more than $100,000,000 should engage in interstate commerce. That, I assume, is within the lines of your conclusion. It could do that?

Mr. FARRAR. It could, in my judgment.

The ACTING CHAIRMAN. And it could impose any other condition that in its judgment was wise upon a corporation created by a State in order to enable it to engage in interstate commerce lawfully?

Mr. FARRAR. I think Congress can impose any condition that it may choose upon any State corporation as a condition precedent of its right to engage in interstate commerce.

The ACTING CHAIRMAN. And it is your suggestion to this committee that that be the course pursued by Congress in order to regulate the subject properly?

Mr. FARRAR. Í do. I believe that that is the true remedy. For instance, I want to state that I agree absolutely with the Attorney General in his statement as to the effect of the holding companies. Nearly all the trusts in this country have adopted that form, and it is a vicious form. As you will find stated in my address, there was a time in the history of this country when such a thing as permitting one corporation to own stock in another was unknown. In nearly every State of the Union there were decisions to the effect that one corporation could not own stock in another; that it was against public policy for any corporation to own stock in another, and that the reason of that public policy was that the owning of stock by one corporation in another tended to produce monopoly and restrain trade.

In thirty or forty States of the Union statutes have been passed, some of them giving the broadest right to one corporation to own stock in another, a few of them imposing the power on certain conditions. That is where the evil has come from. One corporation goes out and buys stock in its competitors and controls them in that way; or the stockholders in the various corporations get together and form a holding company. They transfer the stock in the company to the

holding company, and all those corporations are managed by the holding company, and it is practically one corporation.

The ACTING CHAIRMAN. And you believe that one of the things that we might do to serve the public welfare would be to make it a condition precedent to the right to engage in interstate commerce on the part of any corporation that it does not hold any stock in any other corporation?

Mr. FARRAR. Not only that, but you have got to go further. It is not always the concern that holds the stock that does the business. The ACTING CHAIRMAN. I know. I will come to that in a minute. Mr. FARRAR. But you have to reverse it and state that no corporation whose stock is held by another corporation shall engage in interstate commerce.

The ACTING CHAIRMAN. Would you prevent the holding of any stock, or a controlling interest, the pivotal point?

Mr. FARRAR. I believe it ought to be prohibited absolutely.

The ACTING CHAIRMAN. Inasmuch as competition of a broader kind is one of the objects sought to be accomplished by the antitrust law, do you believe that there ought to be prohibition against common directors in corporations doing the same kind of business?

Mr. FARRAR. I do, sir. That is one of the favorite forms of a combination.

The ACTING CHAIRMAN. And inasmuch as diversity of interests is always a motive for rivalry in business, do you not think it would be well if there was no common stock holding interests among corporations that were engaged in the same kind of business?

Mr. FARRAR. I think that would be carrying restrictions upon the part of ownership a little too far. I think though it might be carried to this extent, that where you found the controlling interest in four or five or two or three competitive corporations owned by one person you could conclude that those corporations were acting together. I mean to say, you take four or five manufacturing companies engaged in the manufacture of the same thing and in the same line of business you may find one person who has the majority of the stock in all those corporations, and you can conclude that those corporations are going to be operated as if they were one, and as if there were practically an agreement between each one of them with regard to prices and everything else.

The ACTING CHAIRMAN. I gather from one of your statements that there were circumstances under which you thought agreements between independent concerns for the purpose of fixing prices might be allowed?

Mr. FARRAR. Only in one instance.

The ACTING CHAIRMAN. What is that instance?

Mr. FARRAR. That is that they should be permitted to agree not to cut prices below the actual cost of production so as to inflict loss. The ACTING CHAIRMAN. Would it not be safer in order to prevent destructive competition of that sort that the law itself should prohibit that kind of business as in restraint of trade?

Mr. FARRAR. Well, the trouble about that is this, that it sometimes occurs in the business affairs of a corporation that it is compelled to sell its product actually below the cost of production, and as soon as some necessity arises it is overstocked, or there has been a decline

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in the price of material, and many conditions might arise which would compel that corporation to sacrifice its product below the cost of production.

The ACTING CHAIRMAN. I think you are quite right about that. Mr. FARRAR. Now, that is a very different thing from that corporation and six or seven other corporations getting together and agreeing that they would not, as a matter of trade competition, cut their prices below the actual cost of production; and if you establish a prohibition that no corporation should engage in interstate commerce that cut its price below the actual cost of production you would come up against the case where the corporation in its own interest would be compelled to sell its product below the actual cost of production. The ACTING CHAIRMAN. I meant to qualify my question, which I did not do, by the addition of this idea that the selling of commodities below cost should be persisted in over a period of time and that the reduction below cost is for the purpose of destroying a rival or

rivals.

Mr. FARRAR. If a statute were drawn that way it would be operative. For instance, in several of the States they now have statutes punishing corporations for selling a product in one locality at a price lower than in other localities for the purpose of injuring or oppressing a competitor.

The ACTING CHAIRMAN. We have a statute in our State, applying only to petroleum and its products, which provides a penalty if the price be not uniform throughout the State; that is, a price fixed at one point must be the price at every other point-cost of transportation taken into account-which, as I think, has worked very well. But now I come back to the question of making agreements. You realize that if such an agreement were made between independent producers it would be made so that the producer who was least advantageously situated would be taken care of. That would have to be so, or they would not enter into the agreement. That is to say, the prices would be fixed so that the poorest producer could make a profit.

Mr. FARRAR. You might put limitations upon such contracts by providing that such contracts could only be made with the consent, say, of the Bureau of Corporations, which would be charged with the duty of finding what the cost of production was, and whether or not the minimum price fixed was the price below the cost of production.

The ACTING CHAIRMAN. Do you not think that such a privilege could be very easily abused so as to enable some of the producers to maintain unreasonably high prices?

Mr. FARRAR. I do not think the cost of production in live concerns in this country is so different in one locality from another that that difference would amount to any considerable profit to a more advantageously situated industry. I simply believe that the true doctrine on that subject is the doctrine in the Steamship Company v. McGregor, that it can not be to the interest of any corporation to have competition carried to the point where the capital involved in the production is destroyed, and that an agreement covering destructive competition of that sort ought to be permitted.

The ACTING CHAIRMAN. That would involve, as you have just said, an examination in each case on the part of the Government

to ascertain at what price each of those producers could profitably sell his output.

Mr. FARRAR. I think they would determine in that case what the general or average cost of production was. That would be the true rule.

The ACTING CHAIRMAN. You suggest that as a means of preventing unfair or ruinous competition?

Mr. FARRAR. Yes, sir.

The ACTING CHAIRMAN. And of course you do not favor the idea, that has been sometimes expressed, that these agreements should be made so as to permit what the parties to it believe to be reasonable profits?

Mr. FARRAR. The question of reasonable profits is such an indefinite one, varying so greatly in localities and under different circumstances, that I do not believe you can pass any statute or make any regulations that would cover it.

The ACTING CHAIRMAN. You do not believe that the Government, either directly or indirectly, ought to enter upon the task of fixing prices for private industry?

Mr. FARRAR. I do not think the Government has any such power. The ACTING CHAIRMAN. Do you believe that the law could be supplemented so that there could be a limitation put upon the amount of capital, or capitalization, which any corporation engaged in interstate commerce could lawfully employ in its business?

Mr. FARRAR. Undoubtedly; and I think that is one of the things that this Congress ought to do, to put a limitation upon the capital stock of a corporation engaged in interstate commerce.

The ACTING CHAIRMAN. You think that there are certain tendencies or consequences from excessively large corporations which are harmful even if they sell their product at a fair price?

Mr. FARRAR. Take the case presented by Mr. Krauthoff; take a corporation which has swallowed, you may say, a whole industry and that sells its product at a minimum price. My personal and economic opinion is that a corporation of that sort would be a disaster to any country. In the first place, such a corporation would largely control the price of the raw materials that is used in its business. In the second place, it would control the price of all the labor that was engaged in that industry, and in the third place, it would shut the door to any independent investment. It would say to the man with brains and capital, "This field is occupied: you can not come in," and I think that if such a corporation would be good in one respect it would be good in everything, and you would have one corporation for each industry that you have in the country. One corporation would swallow the iron trade; another would swallow your cotton-manufacturing business; and another would swallow your woolen-manufacturing business, and so on down the line; and the result would be that you would have a half dozen corporations that would control the industry of the country if any such doctrine as that prevailed.

The ACTING CHAIRMAN. That is all I care to ask. Senator Brandegee, you may inquire.

Senator BRANDEGEE. It is getting so late that I do not care to ask but one or two question. You spoke about the lack of power in the

Government to create a private corporation, and stated that Prof. Willoughby agreed with you in that.

Mr. FARRAR. Yes, sir.

Senator BRANDEGEE. Does he so express it in his book on the Constitution?

Mr. FARRAR. Yes, sir; there is another point there that I would like to call attention to, and that is the narrow field in which such a corporation would operate. Now it is well settled by authorities and decisions of the Supreme Court of the United States, that there is a fundamental line of distinction to be drawn between commerce and production-commerce and manufacture.

Senator BRANDEGEE. The Knight case proved that very effectually. Mr. FARRAR. It was drawn long before that. Now take the broadest definition of commerce that the Supreme Court has ever laid down, and you could not incorporate a company and operate beyond those limits, and those limits are the buying and selling of goods between the States, interstate transportation.

Now, the evils in this country do not come from the mere buying and selling in interstate commerce. They come from the production of those articles and the control of those articles by producing them. There is where the crux lies, not in the mere buying and selling of them from State to State, and your Federal corporation could not be authorized to produce-could not be authorized to manufacture, and you would not reach the evil by a Federal incorporation act.

Senator BRANDEGEE. What do you think about this situation that I am going to try to state. If I understand you, you believe that Congress, under its power to regulate commerce among the States, has the authority to impose any conditions that it pleases as conditions precedent.

Mr. FARRAR. On corporations.

Senator BRANDEGEE. On corporations.

Mr. FARRAR. I draw the line between corporations and individuals. Senator BRANDEGEE. Yes; under conditions as conditions precedent upon the right of a corporation to engage in commerce among the States.

Mr. FARRAR. Yes, sir.

Senator BRANDEGEE. Now, there has been before Congress for some years a proposition to prohibit any railroad company from transporting from one State to another any commodity in the manufacture of which people were employed who worked more than a certain number of hours a day. Some of us thought that that was more an attempt to regulate the hours of labor in the States than it was an attempt to regulate commerce, and that a court might look through the disguise if it were a disguise to the real object of the program, and say that that was really an interference with the powers of the State to manage their own affairs and fix their own times for hours of labor.

Mr. FARRAR. The Supreme Court of the United States has in many decisions drawn the line between what is a regulation of commerce and what affects commerce. Now, that is a line that is extremely difficult to draw, but there is a line there somewhere. They hold that many things affect commerce which do not regulate it, and very many State statutes have been passed and upheld by the court on