Mr. KRAUTHOFF. It is assumed, as a proposition of political economy, that the existence of competition will equalize prices or practices in such a way that injurious consequences will not flow from the possession of power in the larger body.

The ACTING CHAIRMAN. Is there any possible harm that can come to the public from these combinations, save the harm that comes from the annihilation of competition? I am not now speaking of the sociological effect of monopolies or combinations, but I am speaking of the commercial effect.

Mr. KRAUTHOFF. May I answer your question by another question? The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. The rates, for instance, of public-utility corporations are subject to regulation by law, subject to the constitutional inhibition that the rates fixed must not be confiscatory. Assume the case that you mention, of a complete annihilation of competition in respect of any lawful organization, and that the organization alone survives. It has overcome all its competitors, and the facts are indisputable that it is earning upon its property a return so low that if that same return were imposed by legislative enactment upon a public-utility corporation it would be declared to be confiscatory; would you think that was an illegal monopoly?

The ACTING CHAIRMAN. I am not going to answer that question. Mr. KRAUTHOFF. I did not intend, Senator, to ask you to answer it. The ACTING CHAIRMAN (continuing). For this reason: I think we all recognize that the public-utility companies, if not actual monopolies, are in the nature of monopolies, and we have adopted the sociological theory with regard to that very largely, and we have eliminated competition in many other respects from the public-utility companies and have substituted for the power of competition the governmental voice in fixing their rate or their charges for the service which they render. And I have not in my mind, therefore, in assuming the kind of rules that would be applicable and pertinent to public-utility corporations, for in all this hearing we have assumed that they constitute a class by themselves, and that, as a matter of fact, we have substituted governmental regulation or the fixing of prices for the natural force of competition.

Mr. KRAUTHOFF. I only put it as an illustration, not expecting, of course, that you would answer it. I only put it as in the way of implying an answer to your question.

The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. Whether or not the absence or presence of the element of competition was the decisive element to determine the question that was involved. I put to you the question whether if rates imposed upon a public-utility corporation which was subject to regulation were declared to be confiscatory, a private corporation which had succeeded in driving all its rivals from the trade, earning no more and realizing no more, exercising its power, if you please, to no greater extent than to realize a return equal to this confiscatory rate in the case of the public-utilities corporation, could nevertheless justly be declared to be an injurious monopoly within the meaning of the antitrust act.

The ACTING CHAIRMAN. That brings me to a very interesting partof this inquiry. Do you think that a law which declared that any

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thority on this branch of the law, delivered very recently, in which I think he takes exactly that position.

The ACTING CHAIRMAN. Then, I take it, that it is also your opinion that, barring vicious practices, such a corporation would not be in restraint of trade.

Mr. KRAUTHOFF. Treating it baldly, as you do, I do not think it would be, and I do not believe it has been so held in respect to a private business.

The ACTING CHAIRMAN. You, then, are plainly of the opinion that the mere power in a corporation or in a system of corporations to fix prices, which means that it has the power to extinguish competition, is not a violation of either section of the antitrust law?

Mr. KRAUTHOFF. I do not concede that the existence of a power to fix the prices on its own products means the elimination of competition. If the concern is able, by reason of its capital, and the brains, ability, and facilities at its command, to manufacture and sell articles at a price which its trade rivals can not meet without bankruptcy, I believe that it is to the public interest that it should have the lower prices.

The ACTING CHAIRMAN. Suppose the corporation was willing to maintain prices, such prices as enabled its competitors to live, and did so, knowing that the competitors would follow the prices adopted by the larger corporation, would that make any difference in your view of the case?

Mr. KRAUTHOFF. Well, if the theory of the statute is that competition should be conserved for the general good of the public and that competitors should be permitted to live, I think in that kind of a case the suggested kind of a monopoly would deserve public gratitude.

The ACTING CHAIRMAN. Do you not recognize that the principal object, if not the only object, of both the common law and the antitrust law has been and is to preserve competition?

Mr. KRAUTHOFF. I do not find the word "competition" in the antitrust act, except in so for as it may be construed to mean that competition shall not be stifled by a resort to methods or means that are in themselves illegal.

The ACTING CHAIRMAN. Do you remember any case, either under the English law or our own law, in which these arrangements, of any form, I care not what their character may be, have been declared unlawful, unless they had the effect of restraining or annihilating competition? I am not now speaking, of course, of monopolies granted by the Crown or granted in our own country by the Government, but I am speaking of arrangements made between individuals, whether corporate or otherwise.

Mr. KRAUTHOFF. The element you mention has usually been urged as one of the facts relied on by complaining competitors.

The ACTING CHAIRMAN. I am not speaking of competitors. I am speaking of competition.

Mr. KRAUTHOFF. I agree with you that the element of stifling competition has been always present, in the sense in which you ask if I know of any case to the contrary.

The ACTING CHAIRMAN. What public welfare, of which you have spoken, in so far as we know, from any decisions that have been rendered, is indissolubly connected with the existence of competition?

Mr. KRAUTHOFF. It is assumed, as a proposition of political economy, that the existence of competition will equalize prices or practices in such a way that injurious consequences will not flow from the possession of power in the larger body.

The ACTING CHAIRMAN. Is there any possible harm that can come to the public from these combinations, save the harm that comes from the annihilation of competition? I am not now speaking of the sociological effect of monopolies or combinations, but I am speaking of the commercial effect.

Mr. KRAUTHOFF. May I answer your question by another question? The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. The rates, for instance, of public-utility corporations are subject to regulation by law, subject to the constitutional inhibition that the rates fixed must not be confiscatory. Assume the case that you mention, of a complete annihilation of competition in respect of any lawful organization, and that the organization alone survives. It has overcome all its competitors, and the facts are indisputable that it is earning upon its property a return so low that if that same return were imposed by legislative enactment upon a public-utility corporation it would be declared to be confiscatory; would you think that was an illegal monopoly?

The ACTING CHAIRMAN. I am not going to answer that question. Mr. KRAUTHOFF. I did not intend, Senator, to ask you to answer it. The ACTING CHAIRMAN (continuing). For this reason: I think we all recognize that the public-utility companies, if not actual monopolies, are in the nature of monopolies, and we have adopted the sociological theory with regard to that very largely, and we have eliminated competition in many other respects from the public-utility companies and have substituted for the power of competition the governmental voice in fixing their rate or their charges for the service which they render. And I have not in my mind, therefore, in assuming the kind of rules that would be applicable and pertinent to public-utility corporations, for in all this hearing we have assumed that they constitute a class by themselves, and that, as a matter of fact, we have substituted governmental regulation or the fixing of prices for the natural force of competition.

Mr. KRAUTHOFF. I only put it as an illustration, not expecting, of course, that you would answer it. I only put it as in the way of implying an answer to your question.

The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. Whether or not the absence or presence of the element of competition was the decisive element to determine the question that was involved. I put to you the question whether if rates imposed upon a public-utility corporation which was subjeet to regulation were declared, to be confiscatory, a private corporation which had succeeded in driving all its rivals from the trade, earning no more and realizing no more, exercising its power, if you please, to no greater extent than to realize a return equal to this confiscatory rate in the case of the public-utilities corporation, could nevertheless justly be declared to be an injurious monopoly within the meaning of the antitrust act.

The ACTING CHAIRMAN. That brings me to a very interesting partof this inquiry. Do you think that a law which declared that any

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arrangement between producers which injuriously affected the publie interest or welfare would be a constitutional law?

Mr. KRAUTHOFF. It would be quite as precise as the Sherman antitrust law.

The ACTING CHAIRMAN. The antitrust law may be a little more precise in this, that the words "in restraint of trade" have received during a long series of years certain interpretations, and the word monopoly " has received certain constructions, and, therefore, may furnish a little more accurate guide to either the courts which administer the law or the commission which enforce the law, than the general direction that nothing shall be done against the public welfare.

Mr. KRAUTHOFF. Well, it is like this: It took us 20 years, pretty nearly, to ascertain authoritatively that the common law on the subject of restraints of trade had very much to do with the construction of the Sherman law, for if we are to look back at some of the earlier utterances on the subject, we shall read that the common-law rules were not taken as the basis for decision.

The ACTING CHAIRMAN. Personally, I have never been able to see much difference between the qualification in the former cases and those referring to the American Tobacco case and the Standard Oil case in the recent decisions, wherein it was declared that the restraint of trade must be "direct" and the declaration in the latter cases that it must be " unreasonable or "undue." I am not able to perceive very much difference between those two things. Mr. KRAUTHOFF. I agree with you.

The ACTING CHAIRMAN. You have said, and I think you are entirely right, according to my recollection, that in the common law the words "in restraint of trade" were always qualified by the injury that any proposed arrangement, or any arrangement that had been made, inflicted upon the public interest, and I take it that according to your view, in interpreting the antitrust law, that the courts should say that no contract or no combination is in restraint of trade unless, according to the view of the court, it does injuriously affect the public interest?

Mr. KRAUTHOFF. Yes; that it does so in point of fact, in contradistinction to a constructive injury.

The ACTING CHAIRMAN. That of course calls upon the court in each individual instance to declare for itself what it believes to be contrary to the public interest, does it not?

Mr. KRAUTHOFF. It is no different problem, in this respect, than those arising under the present statute.

The ACTING CHAIRMAN. And that involves the individual economic as well as the sociological view of the member of the court who is called upon to pass on the question, because what you might think was injurious to the public interest I might think was very advantageous to the public interest.

Mr. KRAUTHOFF. I take it, of course, that the judges will pass upon the matter judicially, and as one of law and legal evidence.

The ACTING CHAIRMAN. Well, where can the court that is called upon to pass on it find any guide in determining what is for the public interest, inasmuch as we are rapidly not only changing in our industrial and commercial conditions, but rapidly changing in

our civilization as well-our views of the welfare of humanity? That is the point that I am trying to get at.

Mr. KRAUTHOFF. You want me to answer that question?
The ACTING CHAIRMAN. Yes.

Mr. KRAUTHOFF. Suppose it were charged against a given organization that it was everything which the act forbids; for instance, that in performing its duty to obey the first section of the act it had absolutely refused to consider the interests or welfare of its competitors; it believed that it was bound by legislative enactment to effectively compete, and that consequently it had no right to have trade relations with its competitors; that it must compete mercilessly and relentlessly and without regard to the rights of or consequences to competitors; that it was under a statutory spur to do so. As a result, in course of time all of its competitors failed. The survivor did not want any more plants; it had sufficient of its own. As a result, the other plants were sold and dismantled, having been bought by somebody else for the real estate or for some other purpose; and the survivor is indicted under the second section for having attempted to monopolize and for now, at last, having succeeded in actually monopolizing the trade and of henceforth conducting his business without an element of tangible competition. I pass the proposition that he would probably defend a proceeding against him under this statute on the ground that everything he had done had been in strict conformity to the first section, and that logically it was impossible that as a result of conforming to the first section he had subjected himself to an absolutely unanswerable violation of the second section. Suppose he were to answer this wise: "I succeeded because my goods were the best, and every man in the United States who uses them and every merchant and every jobber and the general public concurs in saying that they are the best goods in that line, and that is the reason they buy them and insist on having none other. My prices are reasonable. Everybody says so. My actual cash investment is blank dollars. For the years while I had competition, and for the series of years which have elapsed since I have had no competition, my prices have been precisely the same, my quality has not deteriorated, and my profits have not increased and have never been in excess of 5 per cent on the investment." Could you find him guilty? The ACTING CHAIRMAN. That is just what I am asking. In such a case as that ought the judge to inquire whether the public interest has been injuriously affected?

Mr. KRAUTHOFF. I say that if the statute is intended to exclude that inquiry that it ought promptly to be amended. You can not convict the survivor unless you first declare unrestricted competition to be unlawful, and then enact a code of ethics to be observed in carrying on trade rivalries.

The ACTING CHAIRMAN. I can not tell just what you mean by "unrestricted competition." Abstractly speaking, there is no such thing in the world as unrestricted competition; at least I have never seen it. But suppose you confine yourself to the competition which fixes prices. Would you still be of the same opinion with regard to the effect of the gradual growth of the corporation or person that you had in mind if he should take in gradually, by superior sagacity and management, all the trade in which he was engaged?