of the railway properties should be substituted for it. Do your views regarding the control of the securities of corporations engaged in interstate commerce apply also to the railways?

Mr. FARRAR. Senator, my views are now, and have been ever since the outburst of the antirailway legislation began in the various States, that we never can have any peace in dealing with the transportation problem in this country until the Governn.ent of the United States gets absolute and entire control of the whole transportation problem. Now, that is why I went to work and studied the matter up. I came to the conclusion that the Government under its post-road power had the authority practically to get control of transportation by organizing all its Federal corporations at post roads and by permitting all the State corporations to come in and take advantage of this Federal corporation, just exactly as State banks were permitted under the original national-banking law to give up their State banking charters and come in and make themselves national banks, a provision of the statute which the Supreme Court of the United States decided was unconstitutional.

Now, the post-road power has no limitations. There are no State lines. It extends from any point in the Unted States to every other point. It is a very much broader power than the interstate-commerce power, because if you were to organize corporations strictly under the interstate-commerce power the State could prohibit those corporations from engaging in intrastate business. But if this Congress exercises that absolute and uncontrollable power to establish post roads which the Constitution grants it, and permits those post roads to be built from any point to any point, and makes them Federal instrumentalities of the Federal Government, it can not be touched by State legislation in any shape, manner, or form. Then you have got control of the question of transportation in this Government, and every State corporation would immediately take out such a charter, except those corporations controlled by people who want to manipulate their stocks and bonds, and you will find that the objection to the passage of such a statute comes from the professional manipulators of the stocks and securities of corporations, because under the Federal charter-under the control of the Governmentthese corporations being creatures of the Government, the Government could do what it pleased. It could provide how they should live in every particular; how they should issue their stock, and how they should issue their securities, etc.; provide for the control of their methods and of their business, just as absolutely as you do in the control of a national bank. That is the kind of control that the manipulators of stocks and bonds do not want. They want the loose laws of the various States where they can do what they pleaseissue fictitious stock and fictitious bonds, like this rascally Alton business and others of a similar nature.

Senator NEWLANDS. Judge Farrar, you spoke of selling agents— common selling agents. Would you permit corporations to have a common selling agent?

Mr. FARRAR. No, sir; not where it was established by contract, for instance.

Senator NEWLANDS. The case was presented to us of small coal companies in West Virginia engaged in extracting coal in competition with very large companies whose transactions in the different

States and different cities were very large, and the difficulty of upholding themselves was made very apparent. A lawyer from West Virginia contended that those small companies in competition with a big company that had all these economic devices for making sales cheaply and without any unnecessary machinery, ought to have the power, under regulation, of having common selling agents so as to dispense with an unnecessary expense.

Mr. FARRAR. If you would put in the clause "under regulation and then devise some proper scheme for the regulation, there is no objection to it; but it is not the small corporations

Senator NEWLANDS. But you can realize, can you not, how a number of small competitors are at a great disadvantage in their competition with the very large competitors in all these matters of economy in operating expense that the big combination enjoys?

Mr. FARRAR. I realize that, and I want to draw this distinction. If 4 or 5 or 6 or 20 small companies, not by a contract between themselves, but each one acting independently, selects the same commission merchant or selling agent, and fixes his own price at which that coal is to be sold, there is no objection to it; but when the 10 or 12 or 15 or 20 get together and combine themselves they select a person, not because they want a selling agent, but they select a certain selling agent for the purpose of the combination, and they agree that that selling agent shall have the right absolutely to fix the price of all their products and that the price of their product of coal is to go into the pot-a common pot, for instance--and he sells 500 tons and distributes down the line as a proportionate sale for them all. Those are the kinds of agreement that I refer to that are clearly combinations in restraint of trade.

Senator NEWLANDS. Would you allow such agreements to be entered into subject to regulation by some administrative commission? Mr. FARRAR. I think, yes, Senator, and that possibly the Bureau of Corporations might be given authority to authorize common agreements of that sort, where there is no element of restraint of trade involved.

Senator NEWLANDS. How about the division of markets?

Mr. FARRAR. I think that is clearly in restraint of trade.

Senator NEWLANDS. And you would not allow even that to be done under regulation?

Mr. FARRAR. No, sir. That is the worst kind of discrimination. One corporation takes one piece of territory and another takes another, and they agree not to sell in each other's territory at all. The result of that is the people are absolutely under the control of the corporation that has control of the territory.

Senator NEWLANDS. That is all.

The ACTING CHAIRMAN. Senator Lippitt, you may inquire.

Senator LIPPITT. The time is getting very late, and I will just ask you a brief question or two. You suggested a few moments ago that under conditions in which the law allowed it you thought the steel, the woolen, and the cotton industries would all be combined into single industries.

Mr. FARRAR. No; I said that if you permit the doctrine asserted by my friend Mr. Krauthoff that a corporation should by growth absorb everything, and that such a corporation would not be in violation of law; that if you apply that to one industry you must admit it was

legal if applied to all, and that in every one of these industries in the country a corporation might grow up which would swallow gradually every competitor until the whole business of this country was controlled by a dozen corporations.

Senator LIPPITT. That is a very important statement, and on the truth or the falsity of that a good deal of the necessity for this regulation might depend. I would like to ask you whether you have given much consideration to the possibility of such a thing succeeding financially in such an industry; for instance, as the woolen industry? And I might also say, in asking the question, that I am quite familiar with this textile industry, and that it is the opinion of people engaged in that industry that no such a thing could possibly be successful.

Mr. FARRAR. I doubt very much whether the situation which I have described could take place. I stated it in answer to the theoretical argument which the gentleman on the other side made, that if it were good for one corporation, it was good for any number of them, and if it were good for one line of business, it must be good for all of them taken together.

Senator LIPPITT. I would like to ask you if you would not recognize the fact that in such an industry as the woolen industry, for instance, where there are constant changes in machinery going on, that if all the woolen mills were combined into one organization, at the end of a limited period, say 5 years or 10 years, their machinery would necessarily have an average efficiency instead of the extreme efficiency of a mill built under the best conditions, so that that industry united into one organization in that way would be at a positive disadvantage compared to the new competitor?

Mr. FARRAR. If you assume that an organization of that sortif it has brains and capital enough to organize it in that way-is not going to keep up with the improvement in machinery, yes; but if you assume that the men who organize a great combination of that sort are going to keep their mills for purposes of wise administration up to the highest limit of efficiency, why then the little mill could not get any higher than the big mill.

Senator LIPPITT. I think it is the general opinion, and I think if you will examine it a little you will agree that such changes would be an utter impossibility, because a mill might be built to-day and tomorrow considerable improvement may be made in a portion of the machinery. They can not possibly make such profits in the business as would enable them to throw out all their machinery so rapidly. It would amount to practically rebuilding the properties; so that, practically, would you not recognize the fact that there must be a certain, as I said, average efficiency in the older plants, as compared with the extreme efficiency of the new ones?

Mr. FARRAR. Of course. Some people once had a theory that a trust was the easiest thing in the world to fight. That is true where a trust gets control of a business and puts the prices so high that it attracts independent capital to go in and enter the industry. Then the little company, with the prices maintained by the big company, can just lie there and get fat.

Senator LIPPITT. I think that is quite true.

Mr. FARRAR. That is true. But where there is a trust, what some people call a good trust, where they reduce the cost of manufacturing

to such a low point that capital and industry are not attracted into competition with them, then that kind of a trust is the most difficult thing in the world to fight.

Senator LIPPITT. I was trying to bring out the point that even that trust would be at a disadvantage in efficiency with the newer equipment.

I would also like to ask you another question in connection with that, whether human nature is not such that the small competitor would in many cases-in fact, in most cases-in such an industry as the woolen industry have the preference with purchasers-provided their fabrics were satisfactory.

Mr. FARRAR. The trade devices of controlling sales are so many and so devious that it is impossible to answer the question.

Senator LIPPITT. Would you not think that there was such an element, such a disposition, in human nature as to favor the smaller producer?

Mr. FARRAR. You may lay it down as a fundamental rule that, apart from such persons as are governed by motives of friendship, the average merchant is going to buy from the person that will sell the goods the cheapest.

Senator LIPPITT. Assuming that they are sold at the same price? Mr. FARRAR. Even at the same price, but you take a great combination that manufactures all the lines of goods. Now, no one small manufacturer could ever undertake to manufacture all the lines of goods that this great corporation manufactures. And the outside buyer is afraid to buy from the little fellow that manufactures only one of these lines for fear that the people who manufacture the whole of these lines will say to him, "Well, you have gone on there and bought your goods from that fellow. Now you go and buy from him." or they will put conditions on him or oppress him so that he is afraid to buy from the little fellow.

Senator LIPPITT. Those conditions might exist, but there is no indication of their ever having existed in the textile industry.

Mr. FARRAR. I do not say that they exist in the textile industry, but I know that they exist in other businesses.

Senator LIPPITT. I should like to put on record my belief that any such thing as a combination of the textile industries into one monopoly, using the term in its strict sense, would be an impossibility.

I just want to ask you one other question. You referred in the earlier part of your testimony to agreements on the part of cotton manufacturers to curtail their products for the purpose of reducing the price of the raw material. Do you have in mind any such instance that has ever occurred in this country?

Mr. FARRAR. Yes; there was one made by the cotton manufacturers, called together by the Arkwright Club, of Boston, last year by a circular, where they all agreed to shut down for a short time.

Senator LIPPITT. I am a member of the Arkwright Club, and certainly did not enter into such an agreement.

Mr. FARRAR. They called a conference for that purpose. Whether the agreement was ever consummated or not I do not know.

Senator LIPPITT. Was it for the purpose of reducing the price of raw material?

Mr. FARRAR. That could have been the only object-either to put up the price of goods or to curtail the price of raw material. Otherwise they would not have wanted to stop by an agreement between them all.

Senator LIPPITT. You are familiar, perhaps, with the number of spindles there are in the world?

Mr. FARRAR. No, sir; I have never followed that.

Senator LIPPITT. I will say for your information that there are about 130,000,000. You are perhaps also familiar with the number of spindles there are in this country?

Mr. FARRAR. I never followed it.

Senator LIPPITT. Can I say for your information that there are about 28,000,000? And you are perhaps familiar with the number of spindles represented in the Arkwright Club?

Mr. FARRAR. I don't know, sir.

Senator LIPPITT. May I say for your information that there are in the neighborhood of 10?

Mr. FARRAR. Could not the Arkwright Club draw to it all the other 28,000,000 by combination?

Senator LIPPITT. It never has succeeded in doing it.

Mr. FARRAR. Was not the circular which the Arkwright Club sent out sent not only to persons who were owners of the spindles covered by your club, but to every spindle turner in this country?

Senator LIPPITT. I am not familiar with the operations of the officers of the Arkwright Club. I have never had anything to do with the management of the club in any way, but I think not.

I would like to ask you, further, if you do know how many spindles were actually stopped by any agreement?

Mr. FARRAR. I do not know whether the agreement which they made was consummated. I simply know of the circular which was issued and published in the newspapers right under the nose of the Government.

Senator LIPPITT. May I infer from your statement that you do not know of any occasion on which a large number of spindles were stopped in this country for the purpose of reducing the price of raw material?

Mr. FARRAR. Well, I won't say yes and I won't say no.

Senator LIPPITT. You said in the early part of your testimony that such a thing had been done. I was only trying to get your authority for that statement.

Mr. FARRAR. I only give what the newspapers say that there is an agreement between the manufacturers to shut down for so many weeks or such a length of time or to go on short time for so many days, and so on.

Senator LIPPITT. For the purpose of reducing the price of raw material?

Mr. FARRAR. That necessarily is the object of it-either that or to increase the price of the goods. It can not have any other purpose. They do not do it for fun. They do not do it for their health. They do it for some business reason, and the only two business reasons they can have are, first, to increase the price of goods and, second, to lower the price of the raw material.