which this regulation would not apply would be those solely based upon patent property, but that is only a monopoly granted for 17 years and is directed to specialties and not to necessities. These could be kept within restriction by compelling the corporation to confine its business exclusively to the patented structure or process. No oppression would arise from these limited monoplies. Such corporations would not exist without regulation beyond the term of the patent.

If it is constitutional to tax profits of corporations as is done, it is certainly constitutional to regulate the profits, not only of corporations, but of all businesses trading in commodities and merchandise generally, because the labor and brains of the citizens are thereby not interfered with.

This Federal control of "profits" would, of course, only extend to those doing interstate business, but this would reach all the dominating persons and corporations now at the bottom of the unlawful making of high prices. A law of this kind would benefit the States as sovereign bodies: and would so remove the present distress throughout the country as to warrant every effort to bring the matter before Congress and have a suitable statute enacted to put it into practice. It may be drastic, but it is the only solution in sight. R. M. HUNTER.

Philadelphia.

The CHAIRMAN. The following letter, addressed to Senator Clapp from the president of the United Shoe Machinery Co., will be placed in the record:

Hon. MOSES E. CLAPP,

BOSTON, MASS., January 19, 1912.

Chairman of the Committee on Interstate Commerce,

United States-Senate, Washington, D. C.

DEAR SIR: Louis D. Brandeis, in his statement to your committee. on December 14, 15, 16, 1911. made certain assertions in regard to the United Shoe Machinery Co. and its methods which, as president of the company, I feel should not remain in the records of the committee without refutation, and to which I desire to reply. I ask your permission, therefore, to submit this letter to the committee, together with certain documents which seem to me to be essential to its proper understanding. These documents include:

1. Remarks of Mr. Brandeis, on April 18, 1906, before the joint judiciary committee of the Massachusetts Legislature at the hearing on a bill to regulate the sale and leasing of machinery. Accompanying this are the remarks, made by Mr. James J. Storrow, at the same hearing, to which Mr. Brandeis refers. and to which he gives his indorsement.

2. A brief, prepared by Mr. Brandeis at the same time.

3. Correspondence between Mr. Brandeis and Mr. Erving Winslow, of Boston, in October, 1906, referring to the United Shoe Machinery Co. and its methods. From these documents anyone either hearing or reading what Mr. Brandeis has recently said in regard to our company will see that he contradicted his own assertions as to similar conditions in 1906.

Mr. Brandeis was a director of the United Shoe Machinery Co. from its organization, in February, 1899, until his resignation in December, 1906, nearly 8 of the 12 years of the company's existence. Prior to its formation he had been a director in one of its constituent companies and took an active part in bringing about the consolidation. He made no objection to the creation of the United Shop Machinery Corporation as a bolding company, in 1905, and he became a director of the corporation. Up till the day of his resignation and his acceptance of employment by clients who have interests hostile to ours, he never gave any intimation that in his opinion there was any legal or moral wrong either in the organization of the company or in its methods of doing business. On April 18, 1906, as a director of the company, he appearel before the joint judiciary committee of the Massachusetts Legislature to argue against a bill which was aimed at the United Shop Machinery Co. He made an argument at that time strongly sustaining the company's methods at every point and sup plemented his oral remarks with a written memorandum.

He then declared his belief that the act aimed at prohibiting the company's methods of leasing machinery would be unconstitutional if passed: a belief in which he was sustained by Hon. Richard Olney, once Attorney General of the United States. Mr. Brandeis now says in his address to your committee that in Massachusetts are passed a law making it a criminal offense for a person to 29037-VOL. 2-12-34

make it a condition of a sale that the purchaser must, in order to get a discount, buy exclusively from the seller" and " our people had the effrontery to try to protect themselves by legislation and enacted a law making it illegal to put in such a trying clause." In his present rôle of an expounder of public morals, he seeks to hold this company up to public contumely because it opposed a law which he had himself denounced publicly as unconstitutional. He submitted an excellent opinion to that effect supported by many convincing authorities of the Supreme Court. It was largely by Mr. Brandeis's opinion at that time that the company and its officers were guided in arriving at their conviction of the unconstitutionality of the law.

In his remarks before the committee of the Massachusetts Legislature in 1906, Mr. Brandeis argued that the tying clauses in the leases, which he now attacks, were necessary to enable the company to do a large volume of business at a low price and that the removal of these tying clauses would necessarily result in the ruin of the small manufacturers of shoes. He said:

"If we do not have this clause in certain of the leases where we have it. we could not sell certain things we do sell; we could not lease certain things which we do lease at as low a price as we do. It is only on account of the volume of the business that we are able to underseli other people."

He then called attention to the fact that "no shoe manufacturer has appeared in favor of this bill, no dealer in shoes, no wearer of shoes. The only people here in favor of it are shoe machinery manufacturers or would-be shoe machinery manufacturers and inventors," and he declared that nobody else could be benefited except the competing machinery companies, with one of which "Mr. H. H. Rogers, of the Standard Oil system, is said to be connected." He might with equal truth make a similar statement with regard to the legislation which he now advocates, for he is at present retained by the Western Alliance of Shoe Manufacturers, consisting of large manufacturers who say they wish to manufacture shoe machinery; and in their behalf he is seeking to remove a formidable competitor.

While he now denounces this company on the ground that it is a monopoly, he declared in 1906:

"In part it is a legal monopoly of merit absolutely granted, because of the machinery we sell-I mean all that we lease or sell, because some we lease. some we sell, and with some we do both-all of the important machines are patented machines. The Federal law means that we shall have a monopoly of those, and nothing in this State can take it away or limit it. We have also a very large part of the business outside of the necessarily patented machines. and why we have it is because we are able to give to the people these machines cheaper than other people, and that is a complaint that is made against this company, that we are giving them cheaper: that is the main complaint."

He then argued that it would not be advantageous to shoe manufacturers or the public to have competition in shoe machinery. "What is true in a great many branches of manufacturing," he said, "is in no respect true in regard to this. You can not have that free competition-I mean as a practical matter, because it is only by reason of the royalty which we receive on our main machines that we can sell these other machines cheap." He even went to the length of classing shoe machinery with public utilities as a necessary monopoly. He said:

We have found in Massachusetts that in certain things we have got to have a monopoly. We have to have a monopoly in electric lights; we have to have a monopoly in gas, and we have to have a monopoly in telephones, and this business stands more even than some of the others just on that basis."

He then told the committee “just why" this should be the case. He pointed out that the business of shoe machinery manufacturing is an "extremely extensive, complicated business," and that there are in the manufacture of every pair of shoes a large number of distinct operations, amounting in some instances to "nearly 300 operations in the manufacture of a single shoe," and "for the purpose of these operations there are a large number of independent machines which have to work in harmony."

He emphasized the service of the company in employing men whose sole business it was to get out to see that the machines were kept in order. These roadmen, he said, were one of a shoe machinery company's greatest expenses, "because whether he (i. e., the shoe manufacturer) had few or many machines we had to have these men all accessible when the shoe manufacturer was in trouble;" and "this is a service which is rendered free; it has to be rendered promptly; it has to be rendered quickly and on the spot." That was the reason,

he asserted, why the United Company had this great advantage on their machinery.

He then declared that nobody could possibly say that the company was selling things too dear or leasing things to dear, because "when the cost in every branch of shoe manufacturing has gone up from 33 to 50 per cent over every other department, it has actually gone down in ours," and he declared that the company was able to do this and still make a good profit "because of the extraordinarily able management of this company and because of the fact that we are doing things wholesale."

He then declared that the company was entitled to commendation because "it is the greatest promoter of competition that there is," and there was not a manufacturing business in the United States in which there was the same freedom of competition that there was in the shoe-manufacturing business. He said:

"That happy result is due largely to the methods employed by this shoemachinery company and the predecessor companies combined together to form this company. I deem it to be the fundamental or most important fact existing in business that the smallest man who makes 50 or 100 pairs of shoes a day has just as great advantages as the man who makes 20,000 pairs of shoes a day." He thus declared his belief in the leasing system:

"I say it is the best thing that can happen to the shoe manufacturer, because he is able to get on in business. He is able to engage in it without sinking his capital. The little man gets the new improvements just as the big man gets them and some of the men who are doing a large business thought it was very unfair, because they can buy their leather cheaper, because their credit was better, because they could buy a million dollars' worth at a time, and the only thing in the whole business they can not buy cheaper was their shoe machinery or shoe-machinery material."

I have analyzed the arguments which Mr. Brandeis presented with so much force in 1906, because they apply with equal force to the situation to-day. The policy of the United Shoe Machinery Co. has not changed. Its organization, principles, and methods of doing business are the same as those with which Mr. Brandeis was entirely satisfied during the time he was a director of the company and when he argued in support of them before the committee of the Massachusetts Legislature, at the same time advising his personal friends that they were not only legal and moral but economically necessary and beneficial. Only one thing has happened since 1906 to explain his change of mind. He has been retained by the Western Alliance of Shoe Manufacturers, organized at the instigation of large manufacturers in St. Louis, who, after trying unsuccessfully to force special rates from the United Shoe Machinery Co. to the disadvantage of small manufacturers, are now attacking the company through various channels. In 1910, after Thomas G. Plant had failed in his negotiations with large shoe manufacturers, the United Shoe Machinery Co. bought his shoe-machinery patents. With regard to that transaction, Mr. Brandeis, speaking as the counsel of the Western Manufacturers' Alliance, has made statements to your committee which are grossly inaccurate and willfully untrue. Before commenting on these statements I feel that the committee should be made acquainted with the fact that Mr. Brandeis continued to be a stockholder of the United Shoe Machinery corporation for nearly a year after the purchase of the Plant patents and did not dispose of his holdings until after he had been retained by the Shoe Manufacturers' Alliance and after his clients had taken measures to bring about the prosecution of the company, the announcement of which would be likely to lower the value of his stock.

Mr. Brandeis's reference to the Plant transactions appear on the following pages of the printed testimony before your committee: 1161, 1188, 1189, 1190, and 1258.

First. as to the purchase from Mr. Plant. This transaction should be clearly understood by everyone. Plant's patents were on the market and the United Co. bought them after a thorough examination by its experts. The price which the company paid was based upon a careful valuation of certain of Mr. Plant's inventions, which in their then existing form could not have been utilized to the best advantage by the trade; but which when combined with inventions owned by the United Co. and incorporated in its machines will advance the art of shoemaking so materially as to leave no question in the mind of anyone that all parties, including the shoe manufacturers, operatives on the machines, and the wearers of shoes have been benefited.

It should be clearly understood that neither Mr. Plant nor the United Co. could separately have given to the trade as good machines as it is now possible

for the trade to have. The United Co. has been at work ever since the purchase, in September, 1910, in embodying these inventions in its machines.

It has been necessary to devote a great deal of time and spend a large amount of money in the mechanical perfection of such improvements as he had made, and the trade will have the benefit of these improvements embodied in machines of the United Co., and it has never been the intention of the company to charge any additional royalty, or make any additional charges of any kind, for their use. As a matter fo fact, never to my knowledge did Mr. Plant offer any shoe machinery or patents on shoe machinery to the trade, and he never had any for e. He always kept himself free to sell out as a whole and frequently expressed himself as determined to remain so.

Mr. Brandeis's statements are largely matters of argument and statements of law which will be met at the proper time, but I have been unwilling to leave unanswered certain specific statements made by Mr. Brandeis which not only have no foundation in fact, but are so completely without any such basis that I am surprised that Mr. Brandeis should have made them.

He makes the following statement (p. 1188):

"AS stance of this take the Shoe Machinery Trust, which finally put an end to the open competition by the Plant concern. It did not accomplish that by commercial means. It was accomplished through their control of the money market. Mr. Plant found closed to him those avenues of credit which he had previously enjoyed and which he was entitled to."

Again, on page 1189, Mr. Brandeis says:

"You know how he happened to sell out his business to the Shoe Machinery Trust. Mr. Plant was driven to the position where the next day he had to meet perhaps half a million dollars of obligations and simply could not get any money. He had been driven to the last ditch. He had been trying to raise some money through an arrangement with western manufacturers. They were in Boston for that purpose. They were not quite ready to agree to advance the large sum of money needed. It was necessary to have about a million dollars to meet the situation. He left these western manufacturers about 8 o'clock. Failure to meet his obligations stared Mr. Plant in the face."

Again, on page 1258, Senator Gore is reported as having asked the following question:

"They (referring to United Shoe Machinery Co.) put Mr. Plant out of business?"

Mr. BRANDEIS. Yes."

I wish to say that the United Shoe Machinery Co. not only now but never had had any "control of the money market or any such power as Mr. Brandeis credits it with, and that the United Shoe Machinery Co., or anyone connected with it, never did anything to injure Mr. Plant's credit at the bank or to in any way affect banks in regard to, Mr. Plant.

I have no knowledge as to whether Mr. Plant had. as Mr. Brandeis states. borrowed all the money he could borrow and was about to fail to meet his obligations, but I can say if he was in any such situation on the day that he sold to us we were not made aware of it. All the United Shoe Machinery Co. ever knew in regard to Mr. Plant's financial situation was that from time to time we would hear gossip, or be told by various people who were trying to persuade us to buy out Plant, that Mr. Plant owed a great deal of money. All the gossip we heard was common gossip.

Mr. Brandeis says, page 1189:

"After he had demonstrated the success of it and gotten the certificate of approval from some of the best manufacturers of the country, east and west, his credit was cut off absolutely. Men who were disposed to give him credit after a few days withdrew."

This is the first time we have ever heard this statement. If it is true all I can say is that the United Shoe Machinery Co. had nothing whatever to do with this result.

This and Mr. Brandeis's other statements about the financial position of the United Shoe Machinery Co. are absolutely without foundation. We have attended strictly to our own business and never interfered with the credit of Mr. Plant or anyone else.

But Mr. Brandeis makes one statement which is somewhat specific and as to which if he has any proof to support him we should be very glad to have him submit it.

He says (p. 1189

Nobody can prove conclusively why credit was denied. It is a matter of judgment, and in this particular instance I have very good evidence-abso

lutely reliable in my judgment-that one of the men who refused Mr. Plant credit thought that his credit was perfectly good and was willing to give him the credit, but was not willing to oppose the important financial interests that intimated to him that they did not want him to have credit."

Now, this is a serious statement for Mr. Brandeis to make. If he has any proof of it, in fairness to everyone, including your committee, he certainly should make his statement definite. He says he has the evidence and that it is reliable. We should be very glad to have him submit it, for neither the United Shoe Machinery Co, nor any person or interest connected with it ever intimated to anyone that they did not want Mr. Plant to have credit.

Very respectfully, yours.

S. S. WINSLOW. President.

EXHIBIT 1.-Remarks of James J. Storrow and Louis D. Brandeis before the joint judiciary committee of the Massachusette Legislature at the hearing on a bill to regulate the sale and leasing of machinery, Boston, April 19, 1906. Mr. STORROW. Mr. Chairman. I do not appear here as counsel at all for this odious monopoly, as it has been characterized. I am a director of the company; I am one of the 4,500 stockholders. If the company is threatened with any destructive force by the legislature, it is easy enough for me to sell my stock and get out; I can do it quickly, and I do not apprehend any personal loss from whatever you may do, even if you wreck the company. I do not draw a dollar from the company in the way of salary or from any connection with it, except simply as one of the 4,500 stockholders. But there have been certain allegations made here at this hearing

The CHAIRMAN. How would it wreck your company if we provided for free competition? Are not your patents good enough to allow you to go into the open market?

Mr. STORROW. If you will permit me, I will take up that question later. I propose, Mr. Chairman, to give a little sketch, which I think this committee ought to have, in regard to the history of this company and of the boot and shoe business. Mr. Brandeis is here as counsel representing the company, and he

Mr. BRANDEIS. Not as counsel, but as a director.

Mr. STORROW. Mr. Brandeis will take up the question of the leases more particularly. But the point I want to make is that the business of leasing shoe machinery is a somewhat peculiar business. It has not been applied, for instance, to the business of manufacturing cotton cloth. It began before the war in about 1860 or 1861, and the entire development of the boot and shoe industry of Massachusetts and of this country has grown up under that system. I suppose there practically is not a man in business to-day in the manufacture of boots and shoes who has not grown up under the leasing system, or in spite of the leasing system, if it be a detriment to his business. As a matter of fact, the leasing system has been, on the whole, a very great advantage, has helped enormously the boot and shoe business of Massachusetts and of this country. The first or second largest shoe manufacturer in this State, the first or second largest payer of rentals to this company, and the largest exporter of shoes in this entire country began his business with a few shoes which he put in a basket and carried out on his arm to sell. From that he has grown to a business which two or three years ago consisted of the manufacture of $5.0000,000 worth of shoes and the exportation of $2,000,000 of that $5,000,000 worth, and I know that his business within the last two years has very substantially grown further; I should imagine that to-day he is probably making not less than $6,000,000, and probably $7,000,000, worth of shoes per year. Now, a system under which a manufacturer an start as a poor young man and prosper in that way can not be altogether bad; it can not be altogether a millstone around a manufacturer's neck. It is easy enough to pass a law here which in five minutes would wipe out an industry which in 46 years has been chiefly built up. You can do it, but it is something you ought to think about very carefully and go a great deal deeper into than any investigation that has yet been made or appears from the statements of those in favor of this bill.

This company was really formed in 1899. It was formed under the New Jersey law, because the Massachusetts statutes at that time did not permit a corporation to be formed of this size. It was formed by Massachusetts men who would have preferred to incorporate under the Massachusetts law. It had