in Congress shall go out of business, and that the industrial conditions of this country should be run by commissions. They are not so inspired with confidence in commissions as to allow their representatives to relieve themselves of the responsibility of representing them.

(Mr. Daniel was thereupon excused.)

The CHAIRMAN. Mr. Dutton will now be heard.

STATEMENT OF CHAUNCEY N. DUTTON, ENGINEER; 720 WEST ONE HUNDRED AND EIGHTIETH STREET, NEW YORK CITY.

Mr. DUTTON. Mr. Chairman and gentlemen: The object of the Sherman law, like all laws, is undoubtedly the good of the human race. The Supreme Court has ruled that the application and effect of the law must be "reasonable." I would say that here "reasonable" means for the good of the human race. Why should the business men of this country be so frightened at a law which is intended for the good of the human race?

We have heard gentlemen expounding the meaning of that law. The law is practically in the sentence "every contract, combination, or conspiracy in restraint of trade is hereby declared to be illegal." Certain schools of thought propound the proposition that that language is equivalent to saying that any act in restraint of trade is declared to be illegal. The business men of the country think that is too good to be true. They think the law means exactly what it says; that the word "every" is an adjective, and modifies the nouns contract," "combination," and "conspiracy."

Therefore an incubus of doubt and fear lies over business men. They fear that every corporation which owns stock in another corporation is a restraint of trade and in violation of the law; that their contracts-many of them-are null and void; that the organization of their business is illegal and subject to dissolution; and classed criminally with conspiracies.

That I regard, to a very great extent, as an error which has been fostered in the press and elsewhere by fishers in troubled waters who seek their private gain in public misfortune. That error may be cleared from nineteen-twentieths of the business of the United States by an accurate analysis of corporations and classification of them, about as follows:

Simple: Single corporations not holding or controlling or voting stock or securities of or leasing or operating another corporation or property thereof.

Holding or complex: Corporations which own, control, influence, or operate other corporations or property thereof.

Analysis by purpose of nature of business.-Hazardous, venture, and investment or approved.

Hazardous: Those formed to undertake untried operations, such as exploiting new inventions, making discoveries, exploring, opening new mines, laying out new transportation routes.

Venture: Those formed to undertake well-tried out and approved operations in new ways or new fields or for undersloped markets. Investment or approved: Those which deal in staples and carry on thoroughly tried-out and standardized operations in conventional ways and for established markets.

Analysis by mode of operation.-Sequence corporation, and parallel corporation or combined competitives.

Single sequence: Those which own to operate a chain of corporations sequential in their operations, each doing one (or more) function of the series necessary to obtain or produce raw material and convert it into finished product and deliver it to consumers.

(The terms "raw material" and "finished product" are used collectively, to mean, respectively, all kinds of raw material; and finished and "by" products which may be economically and profitably made and sold as related parts of a single industry.)

Parallel corporation or combined competitives: Those which own or operate separate corporations of like functions-that is to say, those which own separate corporations which do like acts, produce like products, operate in the same territory, buy and sell in the same markets, and might be competitors if not in common ownership.

Obviously the last classification applies only to holding investment corporations.

It will be proved that only parallel corporations and, moreover only certain parallel combinations can be in violation of the Sherman law in their organization.

There can be no doubt that a simple corporation, lawfully organized and conducted under State law, is lawful under the Sherman law unless it is an unlawful monopoly; and as practically no such corporation can be a monopoly, except as lawful, it follows that all simple corporations conform to the Sherman law and that holding corporations only can be in violation of it, except overtly.

Hazardous and venture corporations must work good in order to survive; can not be in restraint of trade or unlawful monopolies or in violation of the Sherman law until they outgrow their definitions and become investment corporations.

It will be proved that single sequence corporations, as above defined, can not be in restraint of trade or unlawful monopolies or in violation of the Sherman law; that such corporations are of the highest utility and utmost value to the human race; that they are necessities, and that only parallel corporations, which are also investment corporations, can be in violation of the Sherman law.

If parallel corporations be regulated by statute law, sequence corporations will be regulated by natural law-supply and demand.

Congress, for the general good, should define classes of corporations and especially should define single sequence corporations and specifically exempt them, as to organization, from the application of the Sherman law, no matter how many original corporations may be combined in a single, complete, operative sequence.

Congress should do this to clear the situation, because the sequence combination is the best tool of civilized man; if it be saved, the situation is saved, and all will be saved that is of demonstrated value among the group of so-called "trust" ideas.

To give a clear conception of sequence combinations and their transcendent value to mankind, and of parallel combinations, let us consider how the two classes have evolved and how they operate. Originally each separate stage of production and distribution was generally done by a separate agency; these agencies were combined more or less completely into sequences, and before sequence combinations became general and their beneficence could be fully demonstrated and, together with their mode and the natural laws governing their operation could become generally known and understood and part of the general stock of proved and accepted truth, parallel com

binations came into being, growing out of unorganized "agreements" and "pools," and the situation became befogged, the makers and owners of parallel combinations claiming for them the powers and economies really inherent in sequence combinations owned by them, and also claiming for them such part of the beneficence of the sequences, as circumstances compelled said owners to pass along to the people at large.

The power and economy of sequence combination depend upon the physical fact of sequencing successive stages of operation and are the same whether the sequence be owned by one man, by a partnership, or by a single or by a holding corporation

Their nature, power, and economy are illustrated by three tables, which are based on the suppositions of 10 stages or operations between and including raw material and finished product, delivered to the ultimate consumer, as, for example, a metal industry, the stages of which include ownership of mines of ores, fuels, and fluxes: Mining and assembling same; smelting; rolling into blooms; into billets; into plates and shapes; manufactures into finished product; and sale and delivery of same. That the whole cost or capital charge of the value (material, labor, etc.) introduced at each stage was unity or 1; that each stage was conducted by a separate and independent agency; that there was a sale of in-process, or partly finished material or product between each stage and the succeeding stage; that in each stage its overhead charge or general debit was one-tenth of its flat cost, or one-eleventh of its whole cost or capital charge, of unity, or 1; that in the case illustrated in Table 1 there was no profit whatever, but no loss, so that overhead charges were earned; that in the second case, illustrated in Table 2, each stage earned a profit of 10 per cent on its whole cost; and that in the third case, illustrated in Table 3, each stage earned 25 per cent profit on its whole cost; and suppose a sequence combination to be formed and made as perfect, physically, as possible, so that the whole work is done by 1 agency instead of 10 separate and independent ones and the physical organization be adapted to the new mode.

With unorganized business the final cost or capital charge (and the cost or charge of each and every intermediate stage) is swollen by compounding overhead charges and profits by sales between stages, and fixed capital is swollen by the cost of the agencies for purchase, sale, inspection, storage, handling, and transportation between the plants doing successive stages.

With sequence organization no compounding takes place. The result is a reduction in the costs or capital charges necessary to carry the article through the successive stages (liquid capital) astonishing to and almost unbelievable by persons not accustomed to actuarial and compound interest calculations.

The reduction in the necessary fixed capital is equally striking. All the interstage instrumentalities for sale and purchase, for inspection and testing, for transport from plant to plant, etc., are rendered unnecessary, and, further, the flat costs or introduction values of successive units are reduced by physical process improvements and economies made possible by sequencing.

Moreover the economy in the use of both liquid and fixed capital swells over the bounds of the industry under consideration and beneficially affects all the attendant industries and businesses which serve the stated industry and its workers.

EXPLANATION OF THE TABLES.

1.000

0.091

9

In this table the compounding principle is worked out in the simplest possible way by simple addition, so that those unaccustomed to such work may readily follow and prove the computations.

Successive stage values, in horizontal lines, are indicated in columns at the two sides of the table by the numerals 1, 2, 3, 4, 5, 6, 7, 8, 9, 10. The units successively introduced are termed units A, B, C, D, E, F, G, H, I, and J, and the history of each such unit is shown in the column headed by the same letter.

Two columns on the right-hand side show in-process values for each stage; a "Cost" column, so headed and a column headed "Overhead," which gives the total "overhead" as swollen by compounding, for each in-process stage, in units and in percentages of the sequenced whole cost for such stage; and a final column, at the extreme right, gives the percentage of profit which would be realized by the sequence organization if, instead of completing the work, or completely finishing and delivering the product, it was sold partly finished in the first or any succeeding stage. This column is not shown in the large charts, but is added for the convenience and information of the committee.

Describing the history of unit A, the original unit (say ore, in a metal industry), its flat cost, that is to say, its actual value in the mine, plus the cost of the actual work done in mining it, is ten-elevenths, or 0.909. The general debit or overhead charge (that particular ore-unit's pro rata share of the general debit, or general and miscellaneous expenses of the mining agency-shown in blue in the large table) is one-eleventh, or 0.091-whole cost is the sum of flat cost and overhead charge and equals unity, or 1; and because the business is assumed as conducted with no profit, the selling price of the miner and the flat cost to the first handler of the ore is 1. From this stage to the final delivery of finished product, the successive handlers handle the cost or capital which carried unit A through the first stage as merchants. Each one buys it of his predecessor, adds to, flat cost to himself, his 10 per cent overhead, and sells unit A, thus swollen in cost or capital charge, to his successor. Thus the successive capital charges or whole costs of carrying unit A through the 10 stages are, respectively, (1) 1.000, (2) 1.100, (3) 1.210, (4) 1.331, (5) 1.464, (6) 1.610, (7) 1.772, (8) 1.949, (9) 2.144, (10) 2.358.

It will be seen that here we have our old familiar, the middle-man proposition-a plurality of middle men.

The history of unit B is like that of unit A save that it goes through only nine stages. The handler who buys ore from the miner adds to it a unit of value-say transportation-and sells the unit A now charged with 1.100 units of cost, together with unit B, value (introduction, stage, whole cost) unity, to the second handler (say the smelter) for 2.100, as shown in the column headed "Cost," second stage.

The third handler, say the smelter, adds unit C, which we will suppose to be made up of the cost of coke, limestone, labor, etc., and overhead charges; and handling the values of units A (third-stage value 1.210) and B (second-stage value 1.100) as a merchant, sells his pig for 3.310. Now, these men have made nothing; they have simply got a new dollar for an old one; but if the sequence organization were to sell pig iron for what it cost the unorganized group it would earn, as shown in right-hand column, 10 per cent net, which