In this country it is no exaggeration to say that the man of moderate income regards the purchase of corporation stock as being about as hazardous an undertaking as would be the risk of his money at a gambling table. Those who have listed securities may get the dividends which the 10 per cent ownership generously concedes to them, or they may have these dividends swept away by some tremendous issue of bonds or other financial manipulation, with the shadow of a reorganization constantly hanging over them. almost any corporation whose securities are not listed on the stock exchanges it is considered good business by the majority interests to destroy entirely the value of the minority holdings. Hence the prudent man, hoping to find safe investment for his savings, puts his money in real estate. It is almost an established belief among the American people to-day that real estate is the only safe investment open to the man of small means.

Aside from the fact that this portrays business conditions which would be discreditable to any nation, the effect has been to so exaggerate the value of real estate in all cities of the country as to make that value a tremendous factor in the present high cost of living. In the older cities of Europe, where the savings of the people go into honestly conducted and profitable business enterprises, real-estate values are only a small fraction of those quoted in the greater commercial centers of the United States. Another obvious effect of the better system is that the surplus earnings of an entire nation go back every year into the legitimately conducted commerce and industry of that nation, increasing it, strengthening it, and adding constantly to the prosperity of the nation and of the people

of the nation.

In this country the system is exactly reversed. Those who have established centralized control with the kindly aid of ridiculously defective laws seek to take out of business, far in advance of any earning by the business itself, the greatest possible sums of money. They have been able to do this and to leave the public to make up for the great cash withdrawals which they saddle upon the corporations in the way of indebtedness represented by capitalization, by using watered capitalization as the most perfect instrument possible for this particular purpose.

It has been suggested by so eminent an authority as Mr. Louis D. Brandeis, of Boston, that the question of watered capitalization is not an important one and that the relation of capital to value can have little effect either upon the corporation or the public, provided always that the corporation be prevented from controlling the prices of its products. This is, of course, true, and yet it has been found elsewhere that to establish honest business methods for corporations stock watering must be prohibited. It is only necessary to think of the reasons which prompt overcapitalization to see how unjustified is the practice. The first reason for issuing stock which represents no value is obviously that some one may be induced to buy it and, therefore, exchange good money for a mere piece of paper. The second is that by holding this valueless capitalization until the corporation shall have reached a point where it can control prices, the paper may be transformed into dividend-earning stock as valuable as would be the money itself. In either case the object is to create value out of

nothing, and this object, being clearly an evil one, should not be ignored by the law.

In the formation of the great monopolistic combinations there is no room for doubt that had watered capitalization been impossible many of the combinations would not have been formed.

Referring again to the testimony of Mr. Brandeis, his statement that Andrew Carnegie was paid by the United States Steel Corporation an exorbitant price to get out of the business, thereby removing from the business Mr. Carnegie's efficiency, indicates very clearly that had the promoters of the United States Steel Corporation been required to pay Mr. Carnegie in cash for the properties they could not have effected the purchase, because they knew that the price asked by Mr. Carnegie was far in excess of the value of his property. They were willing to pay Mr. Carnegie in bonds of the Steel Corporation because they felt reasonably sure that the value of the bonds would later on be made by the public, and that they would gain profit for themselves, both in the acquirement of Mr. Carnegie's property for more than it was worth and in the settlement of the debt to Mr. Carnegie, which they deftly transferred to the public.

The arguments thus far advanced in behalf of a price-fixing commission, coming as they do from representatives of centralized control, can, in my estimation, have but one meaning. The same interests which are able to control the public's property with an ownership of 10 per cent of the securities figure that this same control can be extended to whatever agencies of government might be established to regulate corporations. Otherwise the proposition is so ridiculous that it could not be entitled to serious consideration by business men. I also doubt the advisability of creating a special court to handle cases arising from the enforcement of the antitrust law and such additions as may be made to that statute. These cases should all be settled in the same kind of courts and the courts should be as open to the individual who knows the law has been violated and wishes to prosecute as to the Government itself. If this were accomplished, the very crowding of the courts, which now makes it almost impossible to obtain a speedy decision of any question raised under antitrust laws, would be checked, because the more certain prosecution for violation of law is made and the greater the ease with which the individual can obtain redress from the courts the fewer violations of law there will be, and the greater will be the number of cases properly settled out of court.

The public must learn for itself that corporations which violate the law offer no safe opportunities for investment. It must learn that there can be no safe investment except in business honestly conducted. In order to learn this it must have ample opportunity to inform itself.

But business honestly conducted must be left free to pursue its way without governmental interference, and free also to protect itself from unlawful interference by competitors, great or small. It, too, must be provided with weapons to defend itself, and these weapons should be statutes clearly defining the avenues of commerce and industry along which development may proceed according to the efficiency and energy of the men engaged in business. These avenues should be as free to honest business as are the avenues of a city to law-abiding citizens. The Government should provide police

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men to protect the law-abiding from the criminal and the lawless marauder. But there should be no attempt to place a strait-jacket of law upon all business, and the interference of government should be confined to restraining the lawbreaker. Honest, law-abiding business should be no more in fear of the law and no more likely to incur its displeasure than is the individual who behaves himself upon a public highway.

I believe that the attempt of the Government to control and regulate banking by a system of inspection and supervision has done more to bring about consolidation of banking interests and the consequent perversion of the whole banking system than any other contributing

cause.

The Government should have provided drastic laws to regulate the business, so that any banker who misused the funds of depositors or engaged in wildcat banking, bringing ruin or even injury upon those who trusted him, should be promptly punished. But beyond this it should not have gone.

By assuming to supervise and inspect banks the Government placed all banks upon the same footing, so far as public opinion was concerned.

No individual depositor has felt that he himself should ascertain the soundness of the bank in which he placed his money. Nor has he been able to safeguard his own interests by personal investigation, for with Government inspection the banks have not felt themselves so responsible to the individual as to afford him opportunities to inform himself respecting the condition of the bank. Instead, the banks have referred him to the reports made to the comptroller's office and the inspection by the Government as guaranties that his money is safe.

I think it no exaggeration to say that not a single bank failure has been prevented by Government inspection.

Nor would it be difficult to prove that without inspection bankers themselves would have been forced to conduct their banking businesses with greater care in order to gain such public confidence as would give them the public's business.

It can not be questioned that had there been no Government inspection of banks there would have grown up in every business center great banking institutions based upon public confidence. This confidence would have been won by long years of conservative, able banking, in which the banks themselves would have found it greatly to their interest to give every depositor the fullest possible information respecting their conditions and their operations.

These banks would have sought the patronage of the local business men. They would have solicited the deposits of local business men, and exerted themselves to accommodate such business men with credits commensurate with the volume of the business itself. They would have become a most important part of every business community, relying upon the community itself for their own prosperity, and therefore vitally interested in the advancement of every legitimate enterprise that would add to the prosperity of the community.

It is not difficult to imagine to what size and importance such banks would have grown in cities like Chicago, New York, Philadelphia, or any other large city, or how highly such banks would have prized the confidence of commercial men in these cities. They would

have become great independent business institutions, which, with reputations for sound and honest conservative banking as the basis of their great success, could no more be induced to engage in hazardous schemes of corporation promotion and stock manipulation than they could be induced to rob their own vaults.

Every such bank would have been dependent upon its reputation for success, and every individual would have patronized the bank which from his own knowledge offered the safest depository for his money, and from which he could obtain the credit to which his business operations entitled him.

These would have been commercial banks in the true sense.

Banks engaged in speculative business, corporation promotion and stock manipulation, would have been known as speculative banks, and their business would have been restricted to that character of banking. Possibly this would not have rendered the banking system adequate to the needs of the country, but it would very certainly have produced a condition so that in times of stress the great commercial banks would have exerted themselves to keep business alive, free from any possibility of danger arising from violent stock-market fluctuations, and equally free from the embarrassment resulting from investment in stock-market securities.

Were such banks as these in existence now, the problem of establishing a more perfect credit system would not be difficult, nor would there be hanging over the country the threat of a consolidated banking system under the control of great stock-market manipulators, to be used chiefly by those manipulators for promotion, rather than for legitimate business purposes.

(Mr. McSween was thereupon excused.)

The CHAIRMAN. Mr. Green, the committee will be glad to hear you now.

STATEMENT OF MR. R. O. GREEN, SECRETARY AND MANAGER OF THE GREEN-WHEELER SHOE CO., OF FORT DODGE, IOWA.

The CHAIRMAN. Just state your name, residence, and occupation, for the purpose of the record.

Mr. GREEN. My name is R. O. Green; I am secretary and manager of the Green-Wheeler Shoe Co., of Fort Dodge, Iowa.

The CHAIRMAN. Mr. Green, under the rule adopted by the committee, gentlemen who appear before it go on and make their statement without interruption, after which they are inquired of. You may proceed under that plan.

Mr. GREEN. Mr. Chairman and gentlemen of the committee, I come to be heard under the particular phase of the trust question as applied to shoe machinery in the manufacture of shoes. Our institution is engaged in the manufacturing of women's shoes, and nearly all our business consists in taking orders from samples that we make up twice a year, and then manufacturing the goods.

I shall not endeavor in any way to touch upon the legal phase of the question, because I am not a lawyer and do not know anything about that part of it; but only as we are affected in the operations of our business through the use of the United Shoe machines.

We organized our company about 18 years ago, and we are what you might term pioneers in the shoe business in our part of the

country, and particularly in that class of business that we do-the special line of women's shoes.

Senator POMERENE. What is your capacity?

Mr. GREEN. We are now making-well, some parts of the year in our busy season we will make-let me explain that in our business, as in the manufacture of all shoes, there is a busy part of the year and then there is another part that is not so busy. I presume you are interested to know about the average production.

Senator POMERENE. Yes; approximately.

Mr. GREEN. I should place that at about 500 pairs a day; approximately 150,000 pairs of shoes a year of 300 working days.

We organized about 17 or 18 years ago, and for the first 6 or 7 years operated under a condition of what we might say competition in our shoe machinery. That is to say, it was before the organization of the United Shoe Machinery Co., which consisted of combining three machinery companies that were furnishing us certain principal machines in our bottoming room. Of course there are many machines used in the manufacture of shoes that are not controlled or owned in any way by the United Shoe Co.

The conditions that we found existed then-of course we did not know it then, when we went into the shoe business, or probably we would not have gone into it-were such that it was very hard for us, with our limited capital, to meet competition in the shoe business.

As I have explained, we made up samples and tried to find the cost of our shoes in order to put a selling price on them, send them out by our salesmen who sell them for us, to make up and deliver in ⚫ the future. It is necessary, in order for us to be sure of the profit at the end of what we call a run of six months, that we should figure this cost, and that there should be no deviation in the cost, because our men go out and sell the goods for delivery in the future. After they have taken their orders we can not change the price.

There are three elements of cost-principal elements-entering into the manufacture of shoes-material, labor, and machinery.

The machinery is a very complex proposition. Some of the most complicated machinery is used in the manufacture of shoes that is used anywhere in any kind of manufacturing,

We were confronted with this condition in regard to the machinery cost, but first let me paraphrase by saying that shoe machinery to its present stage of efficiency is and has been an evolution; that it is a practical impossibility for any individual or any firm or anybody to manufacture an efficient machine, the kind that the United Shoe people have control of up to the present stage of efficiency, within any reasonable length of time. They have not acquired it in any other way.

Their first machines were very crude and very expensive to operate, so far as cost was concerned in making shoes, as compared with what they are to-day.

We would find that after sending our men out and selling a large part of our season's run that a new machine would come on the market, an improved machine for doing a certain part of the operation, and that house or factory selling the machine to us would so present the matter we would be induced to believe that it was an improved machine, and that it would do better work; and they supplemented that with the argument that the large shoe manufacturers of the